Q1 2020 Earnings Call
[music].
Good day, everyone and welcome to the first quarter 2020 minerals technologies earnings call. Today's call is being recorded at this kind of like turn the call over to met Garth Chief Financial Officer add mineral minerals technologies. Please go ahead Mr. garden.
Thank you David.
Good morning, everyone and welcome to our first quarter 2020 earnings Conference call.
Today's call will be led by Chief Executive Officer, Doug Dietrich I myself, Chief Financial Officer Mccarthy.
In our prepared remarks, we will open it up the questions.
I'd like to remind you that beginning on page 15 of our 2019 10-K, we list the various risk factors and conditions that may affect our future results.
Also point out the safe Harbor disclaimer on this slide.
Payments related to future performance by members of our team are subject to these limitations cautionary remarks and conditions.
I'll turn the call over to Doug Doug.
Thanks introduction that and good morning, everyone.
I'd like to first express my thanks, and concern to everyone on the call.
I know you're dealing with the recent challenges in your lives and and I appreciate you joining us today.
As you can imagine its call is being conducted a little differently than our regular earnings calls.
Despite the current circumstances, we're doing everything possible to make this a standard call as each of our business unit leaders is on with us and able to answer your questions.
This time, though will be doing the call from our home so bear with US as we go through the remarks and ER and answer your questions at the end.
Well it normally begin by discussing our first quarter results I'm going to start by outlining how could 19 is impacting our company.
And the actions, we're taking across our operations.
Well, then highlight our first quarter results.
That will follow with more detail on our financial results and commentary on our capital structure and liquidity.
I'll wrap up my prepared remarks with insight on the current end market dynamics.
The state of our operations and how we're positioned to manage through this environment.
<unk> as a global company with more than 150 locations and 35 countries.
And we've been navigating through the realities of the Coke at 19 outbreak since it was first reported in China in January.
As we dealt with these issues in China.
We developed plans to protect our employees manage our worldwide operations and support our customers, including heightened virus related safety protocols, such as sanitary procedures and social distancing.
Arrangements for remote working and contingencies for our global supply chains.
The best practices that we developed early on in China helped inform the business continuity plans and safety and operating procedures that we've now implemented across the rest of the company.
First and foremost our focus has been and continues to be on the health and safety of our employees consistent with empty as core values.
We have teams in place at local regional and global levels to ensure the safety of our people and the continuity of our operations, while monitoring the status of each location and recommending specific risk mitigation actions.
I've been daily contact with our business leaders together the most current information on how covert 18 is affecting our people and operations. So that we can take actions to help them manage through any potential issues.
Right now our operations have not been affected by covert 19 related illnesses.
Out of our employee base of approximately 3600, we've had three confirmed cases.
Each of these employees contracted the virus outside of the workplace and are doing well kind of since recovered.
Overall, nearly all of our global production facilities continue to operate because our products have been deemed essential for the markets we serve.
As we run our facilities, we've put in place standardize could 19 related protocols across all of our global operations.
In addition, wherever possible our employees are working remotely.
Shifting to maintain our business process continuity.
Now, let me give you more detail on which of our facilities were impacted during the quarter and what we saw change towards the end of March.
Out of 15 locations in China are seven PCC plants remain fully operational exception of a short outage at one of them.
The majority of the impact from China came in our metal casting business due to closures from foundry, because and total one refractory and to metal casting facilities were down for about four weeks.
In March these facilities started to reopen and currently all of our locations in China are fully operational.
Additionally, while our facilities generally have been exempted from a government related mandates locations in a few countries were impacted by these circumstances.
Specifically, our eight locations in India, and three sites in South Africa.
Were temporarily closed during the last few weeks of March and part of April due to the government directors.
These sites are either now back in operation or will be coming online in the next week.
A few other facilities, primarily paper PCC satellites were temporarily idled in March due to customer driven outages related to the virus in a sense returned to production.
All told the business disruption in China as well as closures in other parts of the World had a limited effect on our first quarter financial performance.
With sales impacted by $7 million and operating income by $2 million.
With everything that we've had to overcome and adapt to in recent weeks and months I'd like to recognize our employees for their efforts.
Thanks to their unwavering focus and agility.
Our operations and business processes have not missed a beat.
I credit our team for their engagement perseverance and their people centered focus all key attributes that define our culture and our company.
Let me now move onto our first quarter results.
Overall, we had a solid quarter and our performance underscores the resiliency of our business.
The diversification of our end markets and operations.
It also reflects the benefit of the pricing and cost saving actions, we implemented last year as well as the ability of our team to execute well despite obstacles presented from the coated 19 outbreak.
From a financial perspective total sales in the quarter were $418 million.
And we generated $58 million of operating income.
Our earnings per share of $1.13 cents was above our guidance range. We also delivered $30 million in operating cash flow.
As we began the quarter, we expected similar market conditions to the fourth quarter with continued growth in many of our product lines offset by slower conditions in others carrying over from 2019.
And that's largely all things played out.
Apart from having to navigate through cobot 19 market issues in China.
To touch on some of the growth highlights.
We experienced continued favorable trends in several of our markets specifically in the consumer oriented ones.
Our pet care business continued its strong sales momentum from last year through our robust private label portfolio in North America in Europe.
In addition, this business saw increased demand related to covert 19 consumer spending dynamics.
As an example, our order books for our European Pet care business doubled in March and we ran at maximum capacity to meet this high level of demand.
A personal care business also experienced similar conditions with growth driven by strong consumer demand.
Other pockets of strength came in our building materials business, which was supported by higher activity in the construction market.
And energy services continued its positive trajectory by capitalizing on increased service demand in the Gulf of Mexico.
We also delivered sequential margin improvement in each of our businesses.
This performance demonstrates our continued focus on expanding margins through aggressive cost control productivity improvements and pricing actions.
All of which we've been implementing over the last year.
I'd also like to provide some context around areas of cobot 19 related weakening demand.
That happened towards the ended the quarter.
He is dynamics didnt have a noticeable impact on our first quarter results.
But I thought it would be helpful to highlight a few of the trends because they will have a more pronounced effect on our results going forward.
Areas, where we saw slower sales late in the quarter.
Came in product line, serving automotive heavy truck and steel markets in North America Europe.
In addition, we started do experienced some delays associated with large projects in our environmental products business.
All in all first quarter was a solid one.
But given the rapidly changing dynamics at the end of the quarter.
Prepared to navigate through more challenging conditions going forward.
I'll get into all of this in more detail when I take you through what we're seeing across all of our product lines and end markets at the end of our prepared remarks.
First let me have Matt give you all the details on our first quarter results Matt.
Thanks, Doug.
I'll now review, our first quarter results the performance of our four segments as well as our liquidity in that highlights.
Before moving to the results I'd like to note that the current economic environment is evolving rapidly and I will provide you with insight on the impact of Coca 19 on first quarter results.
I will then turn the call back over to Doug for some additional perspectives on our current operating conditions and the market visibility we have going forward.
Phenomics review with the first quarter results.
As you can see on this slide we're presenting the year over year comparisons of sales and operating income on the left hand side and the sequential quarter comparisons on the right hand side.
Given the rapidly changing market conditions, we believe the sequential view as an important perspective on our business performance in the first quarter.
First quarter sales were $417.5 million, 5% lower than the prior year.
Bridge on the top left of this slide shows the sales change by major driver.
Unfavorable foreign exchange contributed $6 million of lower sales in the quarter for two percentage points.
Tobin 19 impacted sales by approximately $6.7 million.
Mainly due to weakness in China and later in the quarter in North America and Europe.
The remainder was due to the softer market conditions and metal casting and refractories that persisted from the fourth quarter.
I'll note that while sales in China declined in January and February driven by Cobot 90 related shut downs.
It's worth highlighting that overall sales in China grew 2% in the month of March versus the prior year.
The year over year operating income bridge on the bottom left shows we are able to partially offset the impact of lower sales with favorable cost performance, primarily driven by the actions we have taken over the last year.
In addition.
Our pricing actions continue generating $3.7 million on a year over year basis in the quarter.
We have completed our restructuring program from 29 team and we are realizing the savings and our cost performance.
Moving to the right side of the slide.
Sales were lower by 5% on a sequential basis.
First quarter had four fewer days versus the fourth quarter of 20 repeat.
And you can see in the bridge on the top right at this contributed to nearly $19 million the sequential change.
Again, you can see the impact of Cobot 19 sequentially and this was partially offset by continued growth in HPC as well as strength in specialty PCC processed minerals and energy services.
Operating income increased 10% sequentially.
As we benefited from slightly higher volumes as well as continued pricing actions and a favorable mix.
Our overall cost performance was favorable due to ongoing cost control efforts and favorable input costs.
Adjusting for the number of days in the period.
Operating income was up 15%, including the negative impact we absorbed from Kobin 19 shutdowns.
Operating margin of 14% in the quarter was relatively flat versus the prior year and up 200 basis points sequentially.
Now, let's look at our quarterly EPS trend.
First quarter earnings per share, excluding special items were $1.13 cents, 2% higher than the prior year and 19% higher sequentially.
Despite the cobot 19 impacts our segment segments performed better than expected.
And this performance drove the improved earnings sequentially. In addition, our EPS benefited from favorable foreign exchange gains.
Our effective tax rate was 20% in the first quarter versus 18.9% in the prior year and 17.6% in the fourth quarter of 2019.
Let's now review the segments in more detail starting with performance materials.
Performance materials sales were 7% lower than the prior year, primarily driven by metal casting, including the impact of Cobra 19.
This was partially offset by strength in building materials.
Sequentially.
Sales were 8% lower and only 3% on a same day basis.
This was primarily due to the shutdowns in January and February in China.
In North America metal casting market conditions remain similar to the fourth quarter.
HPC demand remained stable throughout the quarter as we saw strong ordering for consumer oriented products like pet care fabric care personal care and edible oil purification.
Operating income for the segment was $24.1 million and represented 12.9% of sales.
Operating margin increased 140 basis points sequentially, primarily driven by continued pricing and cost control measures.
Cobot 19 impacted sales in this segment by $5.7 million in quarter, four three percentage points.
Primarily metalcasting driven by foundry closures in China.
Well as a slowdown in North America late in the quarter.
The slowdown in North America occurred as automotive manufacturers began announcing downtime in response to weaker demand.
End of this continued into April.
Building materials and environmental products. Both project based businesses started to experience delays in projects related to Kobin 19 later in the quarter in North America and Europe.
However, our consumer oriented products have continued to perform well.
Now, let's move to specialty minerals.
Sales for this segment were 5% lower than the prior year, primarily due to the previously announced customer paper machine shutdowns in North America in 29 Pete.
Paper PCC sales in Asia grew 4%.
Driven by 8% growth in China, as well as continued growth from our Indonesia expansion, which came online last year.
On a sequential basis those were 3% lower.
And increased 1% on a same days basis.
Growth was driven by 14% higher specialty PCC sales and 10% higher processed minerals sales on a same days basis.
Sequentially.
Segment operating income increased 5% to $20.3 million and represented 14.8% of sales.
The increase was due to higher volumes with S. PCC and process minerals.
Continued higher pricing and strong cost control.
Over 19 had a limited financial impact on this segment in the first quarter.
However, we did experience koby 90 related shutdowns and paper mills late in the first quarter in Europe.
Africa and India.
The shutdowns continued through most of April.
As PCC and processed minerals sales were also impacted late in the quarter due to slow down in residential construction and transportation end markets in both North America and Europe.
Meanwhile, the 250000 tons of new PCC capacity, we are bringing online this year in Asia and Europe remained on track.
Now, let's turn to the refractory segment.
Refractory segment sales decreased 7% versus the prior year due to lower demand from steel mills in the United States lower laser equipment sales and the impact of foreign exchange.
This was offset by higher sales of metallurgical products.
Sequentially sales were 6% lower or 2% on a same days basis.
Those are better than we had expected due to the delayed mate maintenance shutdowns at some customer facilities.
Similarly in the United States.
We expected to see for industry lines that did not occur in the quarter in this led to higher demand for refractory products.
Segment operating income increased 8% sequentially to $11.2 million and represented 16.2% of sales.
The impact of Koby 19 with limited for this segment in the first quarter two.
Two laser equipment sales were moved out from the first quarter in China.
But the labor leaders were offset by some steel customers, who pulled forward orders to build inventory in Europe and North America.
Now, let's turn to energy services.
[noise] energy services had another solid quarter.
Segment sales rose, 24% versus the prior year and 7% sequentially.
The increase sales are driven by higher well testing activity in the Gulf of Mexico and increased international sales.
Operating income increased 20% sequentially to $3.2 million and represented 12.7% of sales.
The impact of Koby 19 was not material in the segment in first quarter, Although we did experience some delays in projects in Malaysia, and United Kingdom, and one of our customers chose to demobilize, an offshore platform in the Gulf of Mexico earlier than scheduled.
With that review of the segments, let's now turn to our cash flow and liquidity.
As Doug mentioned, we generated $30 million of cash from operations in the first quarter.
$14 million of free cash flow and this was up slightly from last year.
We repurchased $23 million of shares in the first quarter, bringing the total to $43 million under our current program.
Our net leverage ratio stands at 2.2 times EBITDA.
In times like these we are taking a closer look at our liquidity cash flow and debt obligations.
I can tell you from the multiple scenarios, we have been analyzing that the company is in a strong financial position.
Now I'd like to highlight a few key messages around us.
First.
The company is $418 million of liquidity, including $218 million of cash.
As you know from our discussions around markets and products.
Geographically and industrially diverse set of businesses and this diversity provides balance for consistent cash flow generation.
In addition.
We have many levers to maintain cash flow through an economic downturn.
Second.
We have a broad and diverse accounts receivable profile without significant customer concentration.
We monitor changes in customer credit risk on daily basis, and we will continue to do so as the economic impact of Kopelman team continues to evolve.
Last.
We have manageable near term debt maturities.
Our liquidity position combined with our ability to convene continued to generate cash gives us confidence with respect to meeting our upcoming obligations.
We continue to maintain a balanced approach for the use of our free cash flow at this point in time, we are prioritizing debt reduction and capital for our facilities.
We are looking at our capital spend closely to minimize expenditures this year.
While we do not have immediate need to refinance our debt structure.
We are looking at we take advantage of favorable interest rates, given our strong credit position.
All in all we are well positioned to navigate what lies ahead.
Now, let me turn it back over to Doug discuss our current and market conditions.
Thanks, Matt.
I wanted to take some time before moving to questions to to provide an update on the current state of our operations our end market conditions and what we can see from where we sit today.
As you can imagine what to covert 19 pandemic constantly evolving and the duration and broad based impact hard to predict our forward visibility is limited at best and the information we do have is changing regularly.
For reference customers have told us they would be taking outages for three weeks I wanted to come back online in a week or it's gone and the other direction.
We prepared to adjust to the government directives for plant Reopenings that could alter our current operating conditions implants.
With that overview I felt the best way to organize this discussion would be by taking you through each of our four segments.
I'll start with a performance materials, which is our largest and most diverse segment.
Over the presence in a broad range of end markets, including consumer transportation environmental construction and agriculture.
Our household and personal care product line, which serves consumer oriented markets has continued to run at strong demand levels with similar growth rates to what we've been delivering in recent quarters.
You know this is a business that serves markets with stable long term growth potential and.
And we've invested in building unique capabilities resources and value added products to serve our customers.
Our order books continue to be full in North America Europe for many of our products.
Alluding petcare fabric care personal care and edible oil purification extending the momentum from the first quarter.
While some of the sharp uptick in demand we saw in March has tempered slightly demand levels through April remains very strong.
As I mentioned earlier in my remarks, we're seeing the most pronounced impact from cobot 19 conditions and our metal casting business.
Production curtailments in the automotive and heavy truck sectors in North America, which began at the end of March became more noticeable in April as our foundry customers started to take downtime and reduced shifts to adjust to the lower demand.
For context in April.
Our metal casting facilities in North America operated at about 60% of normal demand levels.
Based on the latest indications from our foundry customers. We expect these rates to improved to 80% to 90% in June.
However, that's still a bit uncertain as to how this trajectory might unfold.
In China metal casting volumes were strong at March and grew 4% over last year, driven by our tailored greensand bond products and we expect this trend to continue through the quarters.
After a strong first quarter and building and are building materials business on the timing of ongoing shipments for our active projects is moving around.
At this point, it's difficult to predict how much of our active order book will be completed in the second quarter moved to the third quarter.
Our pipeline of future projects is robust, but we do see the potential for some delays relating to softening construction market conditions in North America in Europe.
And in environmental products, we continue to advance our high value portfolio of specialized technologies.
Which has enabled us to secure more complex remediation projects.
Some of this momentum has been impacted by more challenging conditions as several large projects were pushed out of April likely into the back half of the year.
Now when you turn to our specialty minerals segment.
This segment's revenue is driven by paper and packaging as well as construction automotive and food and pharmaceutical end markets.
I'll start with paper PCC at our operations in Asia.
As I mentioned earlier all of our facilities in China continue to operate and are running at near normal production levels.
Our six TCC facilities in India that were closed in March due to government mandates are currently back in operation, where they plan to be within the next week.
Our facilities elsewhere in Asia has been operating at normal levels.
In total we expect our volumes in Asia for the second quarter to be similar to the first quarter.
Regarding North America in Europe.
Second quarter is typically when paper producers in these regions take seasonal maintenance maintenance outages.
And we're seeing some facilities extend the valid outages for several additional weeks.
As a result, our second quarter volumes in North America, Europe could be around 10% lower than the first.
Again this outlook may move around as we've already experienced facilities come back online sooner or take further outages.
The construction of our new satellites and expansions totaling 250000 tons of capacity continue to move forward.
One of these satellites in India is now complete and the remainder are on track to come online this year.
From a business development standpoint, our pipeline of new filler in packaging opportunities as well as for our latest technologies is intact and our discussions with customers continue to advance.
And our specialty PCC business sales for our pharmaceutical and food and beverage products have been strong.
But our products that go into automotive sealants have been impacted by lower build rates in North America in Europe.
Sales in our process minerals product lines, which serves primarily construction and automotive markets have seen a mixed impact so far.
There have been areas of strength and weakness in both our ground calcium carbonate and talc product line.
Now, let me move on to the refractory segment.
Following a stronger than expected first quarter, we are now experiencing customer production curtailments.
North America steel capacity utilization rates have declined from 77% in the first quarter two.
To 56% currently with European utilization rates at similar levels.
Our refractory sales typically follow these utilization rates. However in times like these furnaces that are running usually run longer and harder and consume more refractory material.
So these rates are not a direct correlation on ourselves.
While we continue to have a strong full year order book for our fair ton lasers. Some of these are likely to be delayed from the second quarter into the back half of the year.
I'll now finished and segment review with energy services.
Well the energy market has gone through significant volatility recently, our service order book for offshore projects remains largely intact.
We are seeing some impact from covert 19, resulting in early demobilization for virus related issues as well as projects being shifted out of the second quarter.
I'll remind everyone that this business operates solely offshore so the price of oil takes longer to change the demand level for our services there.
Energy services is a small piece of our portfolio and profitability.
And therefore, we expect these dynamics to have a limited impact on our financials.
As I just described for you were dealing with several evolving market dynamics, which I, which have many puts and takes.
All of this contributes to a lack of clear visibility going forward.
I wanted to provide you with as much detail as I can at this point.
The latest information I can give you is that these operating conditions in April of led to a sales trend that is approximately 10% lower than what we experienced during the first quarter.
Looking at the remainder of the quarter or aspects of our outlook, where we see where we expect to see some improvement to this current sales rate, but also other areas, where there is more uncertainty given how fluid the environment has been.
We're working through the evolving challenges of today, while also keeping our focus on our values our longer term goals and strategies, which includes taking measures to strengthen our foundation and the long term health of our company.
The underlying fundamentals of our business are intact.
And we remain committed to our long term growth strategy.
Our business model, along with our cash generation is resilient.
Supported by diversity in geographies customers end markets.
We are confident that our teams experience at agility.
Execution.
Cost management focus and strong balance sheet position us to navigate through this period of uncertainty.
Our team is effectively manage challenging times in the past and we will make the necessary adjustments to align our business to market conditions as they evolve.
With that let's turn the call over to questions.
Thank you the question and answer session will be conducted electronically if you'd like to ask a question. Please do so by pressing the star keep followed by that did you on your Touchstone telephone.
Speakerphone, please be sure your mute function is turned off.
Hi, your signal to reach our equipment.
It's again, please press star one to ask a question well take our first question from Daniel Moore with CJS Securities.
Doug Matt Good morning, Thanks for taking the questions. Hopefully you can hear me hopefully, you're all well and safe at home.
Thanks, Dan we can area.
Just start the PCC I'm I've been down 10% sequentially. Thank you for the color.
Do we see that likely continuing through the majority of Q2 and.
Do you expect do you see at this stage any shifts or changes in taper usage in North America Europe as a result of coal that.
Potentially leading to more capacity closures later in the year.
Yeah, let me start that <unk>, the 10% was for North American Europe, and that's largely where we're seeing a number of to that kind of extended curtailments or extended outages for maintenance reasons and some of those typically I think we see two weeks in Europe.
At this time of year and in North America, and some of those outages have been extended to four.
A couple of been longer a couple of might be shorter.
We expect that 10% to be kind of that rate throughout the quarter in those two regions offsetting that are demanding and Asia has remained largely intact, we're running at pretty much close to normal demand levels throughout our Asian businesses, China and now that India's back up we expect them to run at that level as well.
And regarding that's kinda demand trends, yeah, we've just absolutely seeing some oh, we'll see some demand trends you know did has been really close to kind of the customers and his team. So WONDERLITE, let TJ give you a little bit of color and what we're seeing in both North America in Europe debentures.
Yeah, you there yet.
Doug Thanks, and thanks to the question Dan.
Look and as far as the flavor I can give you regarding what we're seeing in next quarter.
Is the probably the best I can do we'll talk a little bit about what we see going on the next.
But the outages that we're seeing in the what Doug was referring to were taken by some industry leaders with some pretty big machines. So in Europe navigator has been public on taking several of their machines out one of those is is associated with our product in North America. It was down Tar PCIA.
Jackson.
So they took out some pretty big outages, which I think send us the proper signal to the for the rest of the market that they're making the adjustment for them in this quarter also helping north American terms is a long term.
Long term stability of the market is.
We have been.
Affirming international paper's plans to shut down the machine in Selmo, Alabama, the at the Riverdale complex. So those tons had already been plan that come out.
And convert to a total packaging operation so so that.
Doug.
Projection of this quarter is is we think.
I'm going to hold for the quarter, it's hard to say.
How bad third quarter looks.
Until we really start seeing how habits of practices have changed I know that the industry affected by school consumption office consumption and in mail advertising.
Which which all our.
Consumption go down in this quarter. So it's a matter how quick that consumption.
We'll come back hopefully that provide you the color.
It certainly does the only thing ill.
The other thing I'd add is yeah, I think with demand levels. When we looked at as operating rates and so I know I think operating rates in the ninetys. They move down to 85, we'll have to take a look at where they are through the quarter and how they rebound or or not in the third quarter.
I think as they get lower in the eighties, you do have the TV has the potential for closure, but I think we always have that and so we'll continue to watch it right now like I said, we can see kind of.
Our estimate through the through the second.
I will give you more color after that for the Sir.
Perfect one of the certain bright spots continuing bright spots as household and personal saw a nice uptake in March.
Certainly.
Any guesstimate gut feeling as to how much of that is sort of stocking up and onetime in nature versus say, maybe more sustainable uptick.
Yeah, We certainly saw you know real sharp uptick in March or kind of beginning in the March and we think some of that was probably pulling forward largely in our pet care businesses in fabric care as a little bit been little bit steadier.
So some of that pet care was probably pulling forward and we've noticed that those you know I mentioned, our order books in March in Europe.
Okay kind of doubled the pool was tremendous and we ran flat out we still are filling those books have helped filling those orders.
You know some of that has come off a bit so that indicates that that's been buying forward, but I have to tell you through April we continue to run at very strong levels.
You know certainly at the you know kind of rates, we were delivering plus.
From last year so.
We'll see but through April and we see remaining going through the quarter, both North America, and Europe pet care business remaining at very strong levels.
Helpful and just shifting gears environmental products and building materials kind of separately.
Maybe just talk about the conversations with a with customers projects being delayed any talks of cancellations. At this point do you feel pretty pretty confident that it's more likely just being pushed out into the right.
That's it's a little hard to see right now or what I will do is you know John why don't you give a little color on the projects and kind of some of the movement around in this quarter, and then where we see things probably pushing upsell till later in the year.
Okay, Thanks, Doug and Dan appreciate the.
The question both environmental own building has you know are affected because they are a project based business and what we're seeing is that our pipelines to our remaining intact.
The number projects that we have in the pipelines and the number of projects that we intend to complete it in a quarter or or fairly consistent but what we're dealing with is especially as we got into.
Oh latter part of Q1 and now into Q2, we do see some worksite shutdowns. We've got some delays of some projects starch and we're also starting to see some projects being put in your question as far as timing from a funding perspective.
All of that.
Basically for for both segments all of that what that means is that what we're seeing our delays and it's really like Doug said, it's hard to really predict right now because what we see as these projects get delayed but then on some they start up phase or the orders come in and they want them.
Delivered relatively quickly so it's pretty volatile.
We do see.
Going forward in the quarter, most likely some of those delays in shifting into a letter of latter part of this year in the second half of the year.
But again, we're watching this closely and more nimble enough that we can you know we can supply as needed. So so probably some delays that will impact Q2.
But the pipeline stays intact.
Very helpful. Last for me you take some pretty significant cost reduction actions last year, given the outside of coal that any additional restructuring or or cost mitigation initiatives.
That you're considering and an eight any areas. So the business that you.
You know you're sort of monitoring that that could warrants more permanent cost reductions. Thank you for the color and.
Certainly I should have said it but nice job managing through in a Q1 in a tough environment.
Thanks, Dan.
Sure you know us, we will where we'll be prudent with managing discretionary expenses pulling the levers that we need in terms of working capital capital expenditures are being prudent where we spend our money.
Well do all of those things I do want to I do want to say that I want to make sure look we've got a fantastic team in this company a tremendous employee base engaged.
Season, and you know I really want to make sure that you know I look through short term issues to make sure that the long term health and this company safe. So I do think you know there might be some areas Dan that we'll have to make some adjustments based on structural changes that are long term.
We'll be prepared with that but I want it also make sure that this company comes through this with our team are ready to take on challenges for growth that will resume once we're through it. So you know what will make the will make their decisions and we'll make sure we balance short term, but long term here.
Very good that's it for me appreciate the color.
Next we'll go to us so do you have with JP Morgan.
Good morning, How're you.
Hi, so.
Right.
I agree on couple of questions if I may.
If the on it it's a 6.7 million headwind to sell Chung.
From that covered outage as he said it net number does that include the outage events and it sounds like net of the pre buying and stocking that you may have seen on that household care side, maybe some of the pull forward what asking refractories, what they said well I said just defined to the outages that you saw.
Matt you want to go ahead and pointed out we just signed up.
Absolutely. So silica that is the impact of coven 19 on the reduction in sales. It is not net you would've seen higher sales being generated across the other product lines that we spoke about.
In particular, as we talked in Refractories, where we did have some type of cobot impact from lasers being moved out you did see have that have an offset.
And that the.
Some refractories will pull forward, but the net downs would've been in that $6.7 million.
And again I don't know that we dimension to it but let me give you a little more color.
The majority of that impact that 6.7 is coming from the China shutdowns that that occurred impacting the metal casting business rest of it is what we saw from the shutdown that started to take place at the end of the quarter in North America.
Okay.
That's helpful and if you.
If you if you had to gas is like a she looked at.
If you look at your house hold on key kept product <unk> do you think the the results what else do you think the results or whatever then positive excluding <unk> pre buying that like it. It's it's hard for us to tell I didn't know if you can tell that was just wondering if you can quantify the the benefit and I would also wondering.
How long lead time, SaaS like specifically for items. It yourself on that are related taken a pet litter and Tropicana and pressure cash that what we hear from some of the consumer companies is that is that they can't retaliate what would happen in may and the like a sales trends. If you just look at Nielsen.
Got it looks like that March was pretty strong at beginning of April and then things really began to.
Began to slow down for some things like fabric care in the middle of April and.
And then there could you got companies at least survey typically it takes a while to see what what happened on the reorder side and I think we can't quite tell you what what will happen in may. So I was wondering why that you happen to be like your might you might not happen I'm just curious.
Well, a so called me, let me try that when it first I guess I guess, what I'm not going to do as guests. So.
What we.
Let me give you a perspective of past several quarters, our business or is it had been has been the pet care business has been growing at about 3% to 4% I think it is like some quarters have been too, but that's been in that kind of steady 2% to 4% growth rate I think this quarter, we saw six.
So I think you know we did see I think there's that underlying trend of growth, it's still there and that business and that's been over the past several quarters.
So I think you're seeing that continue and that's just to just fundamentals of CAD ownership and people using them moving to clumping cat litter and switching to premium products like we have in Europe. So that's that's a baseline I do think there's been some pre buying and I think that the absolutely in March that helps probably a couple of percent maybe that.
That increase but then I have to say when we look at our order books into April you know there that probably come off of that you know the doubling of order books against the they're saying doubled right now and in Europe, but as we move through that backlog of orders is that could like you said in may shift things a little bit further down may and June right now through April or.
Still running and very strong levels I would suppose that we probably won't maintain that 6% rates a throughout the quarter and some of that might back off to more of our normalized rates a 4%. So we'll see that probably later in the quarter I can't see it right now to be honest with you our lead times are pretty instantaneous, where we're able to.
Except for in March now in Europe, we're able to take in an order and turn it relatively quickly we have stuck on hand of home most of our raw materials that were able to get it out as fast as we can get trucks. So.
Lead times, and and turnaround are pretty quick a little bit longer in March but those are becoming in will have a better feel for.
For May and June as we get through this month. So hopefully that gives you some color I guess I can't I can't tell you what those order books are gonna be but I would expect them to come in a little bit.
Given the preordering that we saw in March and the strong sales and in April but back toward normal trend rate of probably 4%.
Okay. That's very helpful. Thank you for Don <unk>, It and if I can ask.
Last set of questions on them on cash on cash and bad debt expense I would tell you when you talk any additional he got bad debt.
Bad debt reserves and on in the quarter and where do you can quantify etch and I was also wondering where do you have on a revised.
Capex target or free cash flow talkin shrinking yet and thank you.
Sure they sell kind of got up.
Yep.
So cycle that let's address what's taking place on the receivable side I think there in our micro <unk> prepared remarks, you heard me outline the fact that we ever daily program in place that that extends obviously throughout all circumstances, but.
Right now, it's it's very important to monitor what's taking place remembers pizza perspective, and by the way on a payments perspective.
Across the company and so in that process, we're tracking customer conversations and customer payments.
On a daily basis, and we have yet to see really any type of change and our delinquency pattern. We continue to maintain a very good.
Amen.
Yes, and again not yet seen any type of deficiencies are delinquencies in the payments.
The cash flow for the company like we said remains in that that position of generating slightly higher than what we did in the first quarter of last year. We were look to look out through the second quarter. What we would tell you is that its probably good the things that we could repeat the free cash flow.
Performance that we had in the first quarter, maybe even a little bit better as we get some working capital release.
But but going out beyond that obviously, we're going to wait to see what happens with.
Some of the changes in the markets.
Saying that we have taken a look historically over many different circumstances and just to highlight for everyone on the call. So again remind you that that even during the 2008 2009 timeframe. The company delivered very strong free cash level on a relative to what was taking place on the topline.
And so the company can and will continue to generate a good levels of free cash flow from a capex perspective. Thank you heard me say it as well in her prepared remarks, we are printing that back a bit I think we came into the year, telling you that again it would be about that 70 to 80 million dollar level of span split.
Fairly evenly between.
The sustained sustaining projects and growth projects.
Right now, we're looking more and the $55 million to $60 million range pulling down some of the span and prioritizing again investment in the facilities, maintaining the sustaining capex there be necessary DHS spend.
While also continuing to pursue as Doug said the growth capability of the company.
Yeah.
Thanks for that I'll get back into queue.
[laughter].
And next we'll go to arose.
Our belly with GE search.
Okay. Thank you and good morning, everyone.
Right.
Like I was wondering if you all maybe R&D. So oh, good touch about there on the paper side, whereas there.
ER and leases that are meant to its customers that they can't benefits to us that slows down and increasing the number of trials regarding you know a year being fulfilled packaging products Oh.
Oh, Yeah, we news Offsite Cybertinel away systems, and so on a has every body everything kind of shut down in that particular end.
No we haven't seen that shutdown, but let me DJ you want to take out one and give a kind of purview or some color on the activity that you're seeing right now.
Glad to so Rosemarie we had a.
Terrific first quarter in this regard really.
Really happy to see the progress on the pipeline you know I always stick to that pipeline and about.
Well very active activities. We you know it at any one time and maybe 15 to 20 different conversations, but if we look at those activity. This first quarter saw its running pretty significant full scale commercial trials of new yield at two locations. One of those are the packaging manufacturer one of those are pretty much.
I didn't manufacturer.
And they were good trials. So we're trying to figure out when the next time ways. We can demonstrate the value we had a dance significantly conversations in with a major European Papermaker regarding our end buyer, Phil now that they've seen the the success of our of our first embarked on launch a that happen.
And last year in Germany.
And then we also have a quite a bit of.
Interest then pull from our standard PCC products printing and writing grades and those are primarily in a in Asia. So.
Great poll terrific first quarter lots of trial activity I would say that the customer interest is not diminished at all in this process, we're a little bit challenged right now with actually having people are experts travel to a given location to properly run those trials. So.
I would say that this you know we've got a little bit of up I'll call. It a hiccup.
That is slowing down what started off to be a blazing rate in the first quarter regarding progress without pipeline, but up and now we're just trying to reassess when we can you know run these extended trials and close out the you know come some commercial agreements, but that's in the confines of travelers.
Corrections and less about.
The broader commercial activity.
I hope that helps.
Yes. It does so this is not to something that you can do that Charlie.
No, it's certainly not being there it quick managers.
Certainly not the full scale commercial trials, it's a it's a matter of equipment and we've got the some some world class experts that can work with the paper makers to show maximum value on that paper machine.
The other the standard PCC.
Opportunities, we are able to make some progress virtually in so I I'm optimistic that we can still have a couple of new.
PCC contracts signed in the in the coming month, but but so were able on this traditional product we are but on these new highly advanced products. It takes some regional expertise or global exports, rather going into these regions to the demonstrate the value fully.
All right. Thank you.
I'm sorry go ahead Nick.
Oh, sorry, as a result, I was just kind of add I think that kind of our product development. Our new business development. You know as you know most of these products are cost savings opportunities for our customers and there are.
They are displacing something that's currently existing so you saw that in March as China kind of reopened in March we saw a 4% volume growth in our metal casting business and that was largely driven by the greensand bond products that you know that blended engineered product that helps with quality and productivity and cost.
Savings and so.
You know filler for PCC filler that a new yield products. All of these have that same aspect or displacing something that's currently being used and they save money and so we think that the pull for our products, yes, there might be some challenges in terms of travel temporarily but we think a pull for our products.
Both in strong demand times, and and weaker economic conditions.
Solids and intact, so I thought I'd add that.
Thank you and then things need to me until two rental testing.
The gross that Youre seeing is it's mostly substitution.
And there have you had slightly up and it sounds great.
Oh is it a little too actually I mean trades and getting them to us tracks and are those.
Being manufactured in China, that's probably for the domestic like it at the moment as opposed to exports.
[noise], Yeah, I'll start and then maybe John you can give some color right. You know, it's both I would I would tell you that you know and current demand environments, it's probably more substitution so our penetration of our metal casting products in Asia, China, India.
Right now given the growth environment is more substitution and that's that that's the demonstration of that cost savings value proposition and higher quality a foundry operation that we can offer in the past and when do back and I guess normal growth.
Percentages in China, and India, who is both we were expanding or expanding our products through new foundries into deeper into the foundry and then converting from other products I don't know John maybe I, just told up but you want to add anything or anything to that.
No you're absolutely right to again and high Rosener right a couple of things to add to that yes. We could you just see the substitution and that's really what's helping us fairly significantly here in March and April was that a market rebounds.
I will say that's a team has.
Stayed very agile from a production perspectives cost perspective center dirty innovative and its times like these where we're demonstrating our value to to the to the foundries and they're looking to take cost out where they can stay very productive so our our values been recognized and certainly by the custom.
There is that we have in some new customers as we continue to work to expand you did mention.
For China for example, a lot of domestic consumption, we see the rebound primarily in domestic consumption. We're watching the exports because those exports to go to both Europe and North America.
Especially for for auto, but so far what we've seen as a very robust rebound from a very dramatic decline that happened in February timeframe.
But like I said the value proposition the innovation the interaction that we have with the customers even working remotely we've done a really good job that teams done a great job in maintaining those customer relationships and that gives us the opportunities to grow where would you.
Thank you Okay helpful. And then see finally on the M&A front I mean, I do realize that now the name of the game, it's cash conservation, but Oh are you seeing additional property is potentially coming in because the market given that idea.
The current environment and potentially issue I think those you know I properties that you were hoping it looks on that for sale and I did go up right.
No I can't say that Weve.
So our focus has been obviously over the past quarter and managing through this and as you mentioned so you know ensuring.
Continued operations safe operations and focusing on our cash flows.
That said I think you know I think the expectations of buyers and sellers widened out quite a bit right now given where we are until things become a lot clearer.
I'll also say that you know it right now until we see a little bit more certainty out there that Oh, you know, we're not looking to do anything major but but we do have Ah you know we've always said we've had a nice kinda portfolio of things that we think fit very well and the company.
That said there are some there are some small things out there that we've been looking at and continue to to work through there can be you know small things with cash on hand, and in the region or that can be accretive or you know very quickly to both earnings and cash and those things a.
It is for us even in these periods, but oh, well. So there were going to go too far right now until we see a lot greater visibility as to how this economy, how things are playing out so they're opportunity, so rosemary, but and it will probably keep things small very accretive quickly.
If we did anything set up well.
Thank you.
Great.
Our next question next well go to a David silver with CL King.
I was just over your line.
David you might be I'm yourself.
[laughter], Oh, Yeah, Hi, I'm, so I'm just going to let you know my phone connection is very poor. Unfortunately.
And I guess my computer a live webcast is better and switching between one and the other but there might be a delay.
Just as I listen to your answers on the delayed basis.
So thank you but.
I had a few questions. The first thing I was hoping you can comment on.
Or fall to add some color to lives pricing power. So I think in Dallas prepared remarks, you you cited selected areas where.
There is pricing power and I was wondering if you could highlight them in and in particular, if he could baking characterize whether it's the classic and demand outstripping supply or whether it's do it at something.
Maybe a disruption at an alternate supplier or.
You mentioned some pre buying so there's a pockets of pricing power. If you could maybe <unk> point, though please thank you.
Sure I'm, David Oh, I guess, there's two pieces to the pricing mechanisms in the company a little mechanism and part of the company and those are contractual pricing, we have longer term obligations or parts of the business and contractual pricing obligations and paper PCC for exam.
Simple.
You know we price on different input costs based on volumes et cetera, and so as you saw over the past couple of years in an inflationary period as we take on higher costs of raw materials, we pass those through and higher pricing.
To our customers a theirs are usually a delay in that that could be sometimes three to six months, but anyway. The that gets passed through on a delay in the same thing happens on the other side with as as input costs start to decline.
We delay on the way back down, but those are formulaic and those are the way we run those contracts. So significant portion of that but as a company is based on those contractual obligations. Refractories also has a longer term kind of six month type.
A pricing mechanisms that we negotiate the majority of the company's based or pricing is based on value delivered value. So.
We look at the value we provide a we look at the cost savings or enhancements that we provide those products provide and we work to you know obviously be valuable to that customer at that price and I.
I think your question may be do we continue to have pricing power going into this type of environment I think our many cases our products do.
In most cases, we still provide that cost savings opportunity will there be pressure do we expect there to be pressure, yes, I think the as companies are customers continue to navigate through this they're going to be asking for us in price and so we will work without a were used to that we're used to demo.
It's trading the value there are some segments or you know that like in the consumer oriented businesses, where that prices well established and well established by.
Some other larger isn't that in the market and so we're at a price taker, there, but where we're number one positions, we usually set the price and we usually set of based on that value. So I think we do have a lot of pricing power I'm sure. It will be challenged as we get into you know going forward, but I'm, we're well prepared to deal to deal with.
Okay. So that they did you I can't give you I don't want to go product by product, but I wanted to give you a kind of feel in general.
Okay no. Thank you for that.
My next question would be about the broader PCC.
Capacity transition I guess that that's ongoing you know it seems like to date closures in lets say North American Europe or are.
Moving a little quicker than the new capacity is coming up in Asia and I I looked at my list, but I was wondering I think the century plant in India and the large Chinese some.
Project are due for completion at some point and 2020 and then there's I guess the specialty packaging oriented 50000 ton.
Project in Europe, I believe could you just give us an update on your your best thinking about when.
About the timing of those and your expectations for you know a normal ramp up the slower slower ramp up just characterize that but capacity development. Please.
Sure.
Right now that that century paper, a satellite or is scheduled to come up in Q3, I think it's probably a few months to when I think we're thinking into Q2, I think right now given where we were in India trig first quarter and into April and it's probably be a Q3.
Our satellite that large satellite about 165000 tonne satellites in China as our new one.
Is going to be coming up towards the end of this year I think it was Oh, we were looking at that being kind of end of third quarter, it's delayed probably about a month so thatll be.
Coming up in the beginning in the fourth middle of the fourth quarter or hopefully and so those are in a slight delay on that one.
We have a another satellites.
In India, and we also have an expansion kind of opportunity in <unk> and Europe that we've signed a contract in packaging and those are also on track to come up.
This year. So all four of them should be on track are on track for this year, David and I think that's about 250 to 260000 tons of new capacity come right. So not too much of a delay not too much of a dealer.
Okay, Great and then.
Uh huh.
One more question on share buyback. So I think in one of the slides there was a 23 million dollar number for the buyback activity this quarter.
And according to my records I mean, that's the biggest [laughter] dollar amount devoted to buybacks in a very long time for your company and I'd also say anecdotally I have that that's really counter the trend that most of my other companies.
So I was wondering if you could maybe talk about that whether that's those purchases are all within kind of the authorization to repurchase authorizations or maybe there outside the authorization business you know some equity holders.
Sell down to pay taxes or other kind of more specialized situation. So so just some thoughts around the elevated level a buyback activity this quarter would be great. Thank you.
Yes, sure they are not too much of an elevated or let me just refresh or where we are that the we're under a 75 million dollar.
Buyback authorization that began in late October of 2019.
So the one year, a one year program.
We purchased a $20 million in the fourth quarter $23 million in the first quarter, So were $43 million through a 75 million dollar program.
You know given the changes that we saw a coming out of Swiss so both the economy covert related issues. You know, we're taking a pause on that right now UBS and making sure that we have good handle on as Matt mentioned, those cash flows and making sure that we're prioritizing that cash toward.
The maintenance on first facilities and safety of our facilities as well as you know to two debt reduction should we see that so we can manage or you know our maturities out a year plus from now.
That said, we you know we have a time left on that authorization as needed and we think that yeah, we'll see how things go and then can complete that authorization. If if if a the cash flows and and things changed a positive fashion tortoise through the end of year, we have ample ample time to do that so I don't know if it's outside.
Outsized, David I think a pretty much on pace with that 75 million dollar authorization last year, but right now were like we said, we're going to be prioritizing, our capex internally and and making sure our debt maturities are in good or.
Great. Thank you very much.
Thank you did an excellent next we'll go to Edward Marshall with Sidoti and company.
Hey, Doug Matt that's the team hope this Oh I see you and your family's wells and then could help.
Thank you I sound do you think.
Thank you I've sat on various industry recalls this earning season definitely a difference and the pace between say Asia and North America Europe.
In April timeframe and I guess my question is when you kind of start to restart when you restarted your Asia facilities and.
What did you learn how you apply that to the rest of the world as you kind of pass through the for the difficult or the top as part of the curve now and maybe also included in that speaks to the tempo of the orders recovery, you're saying between say maybe China.
Asia versus Kinda Europe, North America right now thanks.
Sure I think we'll take it to your question, we learned quite a bit in Asia in China. In particular are specifically, we you know as we went through this and I think we mentioned on our call in February we saw this beginning in January.
And I have to tell you our team there in China the leadership in the group or employees. There reacted very quickly and they put in you know who worked with them and they put in practices to made should make sure that we're protecting employees as we move people from home offices, we worked with them to put in Uh huh.
Our remote operations remote working capabilities safety protocols that were put in the plants that remain to operating were developed a in China or the reopening of those facilities was very rigorous in terms of what had to be.
He put in place both Chinese regulations, and so we had to pass checklist and tests put in place Oh from the local in the region governments to before we could reopen those facilities.
We put in supply chain monitoring so we had all of our raw materials and inputs inventory levels. What's on the road status of our suppliers all put in place and monitored on a daily basis and those reports were coming at it.
We put in a number of tools of that.
We literally just pointed out and moves through Europe and into North America that really guided how against another patients, but and enhancements actually but we really guided how we or wanted to operate in the protocols. We were going to use the standard protocol that we wanted to use if we were going to remain open in or facilities.
This is how we were going to operate and those are in place today in affirmed on a daily basis also the capabilities were put in place for remote operations in China, we worked through making those are putting those in place.
Around the world and what we're operating under today.
We're probably be using those same protocols are of course anything more specific and government mandated will follow but we'll be using those those pretty strict protocols as we as we and when we.
And that's I'm sure right now when we go back to more normal operations in Europe in North America, I don't see that right now, but we will use those same standards and that we used in in China, there, we're going to be rolling out throughout the world before.
We make sure that our employees are safe and going back. We've you know staying in touch with customers protocols. How we did that we had to do that virtually again, we did that in China stay very close we're able to actually enhance some of our products and ER and demand with those customers because of that closeness throughout the demand.
Throughout the downturn in China, and we're doing the same thing in Europe, and North America. So I'm right now I don't see.
You know are all of our facilities are operational where not moving back from remote working yet Oh, we will have a procedures put in place for when you do so how we want to operate once it becomes clear.
But anyway I hope that gives you some idea of how we've kind of evolved it and moved it but it was really pioneered by our folks in China, we boosted around the world.
It's very thorough thank you the few few quarters now you've been talking about metal casting and the slowdown that you're incorporating I just want to get some contacts.
Around I guess in one of the side you talked about getting back to 90% in June and I just want to get the sensors are you referring to kind of.
Back to pre crisis normal levels or are you referring to prior expectations.
How do I frame that 90%.
Sure.
I would say probably pre crisis levels I you know again, there's this there's an under there was an underlying demand and kind of north American metal casting and trying to metal casting that we came into.
Kind of the year Wesson, we felt that Oh, you know the first half of this year you well how far <unk> January looks from that right now, but as we came into the year. We felt that the first half of this year from a from a demand standpoint was gonna look kind of like the fourth there the second half of last year.
And so I guess, that's the demand profile that we had kind of forecasted being in this year and we ran largely at those levels through the first quarter or metal casting until until obviously in China in January and then late in the quarter in North America and Europe.
But we expected to get it right now again this is it's quite uncertain, but but right now the indications are that.
Given the ramp up or startup of automotive and in Europe, and then in North America and that profile of demand or we're starting to see the pool remains to be seen if it stays stable and what it goes back to.
What the order book that we've been projected and given from customers looks like it somewhere in that 80% to 90% of that pre crisis demand levels again, he got to see how that plays out there's a number of factors. It's really uncertain at this point, but that's wanted to give you what we could see right now.
Fair enough fair enough.
The last one from me I am surprised a little bit by the energy and the order book the statement. They order books intact and I went back to 15, and 16 and looked at the slowdown that might have incurred there, especially in 16 and I'm curious as to kind of maybe what what what might have changed in that business.
As you know what kind of going through a similar period, maybe even little sharper decline now and how the order books remaining intact. Thanks.
Yeah, two well let me let me start it and then I'll pass it to Andy Jones Who's on the call, but I'll tell you that business. There's a lot different now than it was that no doubt to be energy market is going through some some very challenging times right now, but you know Bakken 15, and 16, we had in a very.
A large portion of that business was onshore based it also had a number of different product or service offerings and coil tubing and nitrogen delivery et cetera. Those have all been we've gotten out of all those businesses are back in 2015 and 16, we kind of really put this business on the Oh.
On the offshore and not just off for deepwater offshore basins around the world. So much higher technology higher level of service a little bit more stable from an ups and downs and so we are much different cost base a much different service based and we put ourselves in that really what we cells. That's just sustainable competitive place off.
Sure as far as the order book and it's it's kind of intact, let's slipping how about Andy you want to how's that feeling right now I know, it's a challenging but hasn't feeling right now from your order book Handy.
Yes, it's feeling pretty good at times for the question Ed on mean thing is you have talked at the difference here between offshore production and on production.
It's much much easier for operators in times like this to shutdown onshore production wells off shore are multiples higher in terms of cost to put in place up to 100 times that of align well with the production is so prolific compared to an onshore well, perhaps 10 to 30 times.
And the last thing you want to do is shut down a high producing deepwater high temperature well offshore and the reason you don't want to do that is once you shut it in its very very difficult to bring it back online because youre goes all kinds of damage to the reservoir answer the wellbore itself as you shut that well then so.
So we are predominantly focused in deepwater basins as Doug said, we do hardly any work on land. We have we have some work on land in Saudi Arabia, that's a slightly different story, but otherwise when all of the deepwater basins in the world and we're still seeing a good order book, we're still seeing orders coming in contracts being signed.
So even in April for a new in upcoming work in the Gulf of Mexico. So so far.
With sites that we do see some disruptions because of codec a virus, mainly because operators want to see a a consistent crude going offshore. So we have to get names up front and we have to keep to that crude and so that means that we call mix and match as we won so we have some limitations there that we're dealing with.
As we go alone that's up but yeah, I think about hopefully that gives you better color around it.
Yes, absolutely.
At the one thing I will add that it is that that said you know do caution that we as as oil prices and as production as it continues to go longer term you know they can have that will and 10 has an impact on our auto order book, We we don't see that through the second quarter are down we've got some thing moving into the third.
But I wanted to say you know as we see that and if we see that happen.
Like I said the cost base of this company is not only much different than it was this business is much different than it was it's also very much regionalized. So what we used to others very large centre a fixed costs kind of North America that now that fixed cost base is spread out around the world and so I think we can react to changes in different basins and let's use.
What happens things don't happen exactly in one basin versus the other so well positioned to make sure we can handle it or if that occurs.
Got it.
Guys. Thanks, very much for your Ah comments, good luck navigating the current environments anything but mundane for sure.
Weekend.
So I appreciate joint.
That does conclude todays question and answer session.
Okay. Thank you very much everyone I do appreciate everyone joining today, a little bit long, but I hope everyone them your family's stay safe and well and appreciate again you joining today. Thank you very much.
That does go to today's conference. We thank you for your participation you may now disconnect.
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