Q1 2020 Earnings Call
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Hello, and welcome to the Astec industries first quarter 2020 financial results Conference call at this time, because that's what it was told me bode well question answer session will follow the formal presentation. If anyone should require operator [laughter]. During the conference. Please press star zero under telephone keypad as a reminder, this conference is being.
Accordingly.
Pleasure extra look all over to Steve Anderson. Please go ahead Sir.
Thank you Kevin.
And what do the Astec industries first quarter 2020 earnings call.
Ken mentioned my name, Steve Anderson and also joining me on todays call, we're very rough below our chief Executive Officer.
<unk> Chief Financial Officer, and just a moment I'll turn the call over to Barry to provide some comments and then back you will summarize our financial results <unk>.
I wanted to get all the bonds. Our discussion. This morning may contain forward looking statements that relate to the future performance for the Calpine and these statements are intended qualified safe Harbor liability established by the private Securities Litigation Reform Act.
Such statements are not guarantees of future performance and are subject to certain risks uncertainties assumptions factors that could influence their results are highlighted in today's financial news release and others that are contained in our filings with the U.S. So you see.
As usual, we ask that you may rise yourself when those factors you should also know the comments made during today's call will refer to non-GAAP results. A reconciliation of GAAP to non-GAAP results are included in our news release and an appendix door slide deck.
This point I'll turn the call over to Barry.
Thanks, Dave.
Good morning, everyone. Thanks for joining us on todays call the skills or 40.1 results.
Well, that's still but they don't bugs to watch list.
It was 19, especially the political.
[laughter].
Oh, my God, they need to make time.
I don't think their employees.
As opposed to perform better top though.
What about Yep Yep team uptake in the work safely productively during these.
[noise] I'll start off today's call well they came up the just from the core and then it's got a real organization structure.
We're excited to show when you think based on a spot focused approach.
Well then quite an updated actions were taken to respond to probably late team and get back then.
Operations.
That's what good enough data and what we've seen in terms of meant that our supply chain.
Oh, that's really all about these are detailed in our financial results.
When she's done calling their remarks with an updated data from transformation progress.
Oh sure.
[noise] begin on slide four years came up the says we want to share core.
That's a result of the actual that you took in 2019 Q1 or 2020.
Actual excellence and all the best practices across the company.
We were able to me I realized solid performance in the first quarter improve Barney <unk>.
Despite more challenging macro environment during the quarter. The covers my team has done it [laughter].
We're also certain successfully support organization bracelets, you offer insight infrastructure solutions that material solutions.
I will speak to this again that's one.
Oh, sorry balance sheet and liquidity cash position.
Remains well positioned that's you know mark positions.
As you already know.
[laughter] used to make goods to market facilitate the transportation needs a kelly.
Importantly, we're currently drilling well scenarios during the coming back.
The wants to ensure you don't have collectively prepared for changes in the market demand conditions.
Including maintaining the ability for Oh.
The med once told me they actually had been water bucket.
What I'm simplified focus your growth pillars.
[laughter] critical at the start up cost savings initiatives.
As we navigate the current environment will continue to take cost if necessary option.
The body delivery to our customers and shareholders.
As mentioned earlier.
Yeah, it's a team for their adaptability and resiliency through the ongoing crisis.
Now, let's turn to slide sorry, where you will see overview of [laughter].
Well knows for sure story part of our continued transformation will reduce the organizations that you operating savings from freight previously.
These two segments structure has started operation and organizational structure to better along yeah. Martin said, we serve.
Early feedback from our customers employees have been extremely positive.
As you can see our current Lumpiness based on last years last year was 65% infrastructure solution.
35% material solutions.
[noise] now turning to slide.
Let's take a mini correct adoption done I saw the company's 19 data.
Again in early March.
19 Task force was generally monitors information from our site that limit agencies from sources.
The ongoing crisis, there continues to make sure self insure which of course will increase the caution.
Selling that includes.
Equally social does something.
In Washington.
Sure check onsite additional employees and visitors.
Most of our office employees and our manufacturing facilities as well as our corporate headquarters were also working remotely and where possible.
Turning to slide seven.
[laughter] fluctuations.
Under our new more simplified and more focused you said that organizational structure.
With responded to come in 19 Pendleton.
It officially than what it off one of these parts structure.
And the I wasn't quite as anybody else in discussions with our customers.
Some other concerns that was up 47, that's decision has been delayed shipments because your quarters.
Majority are continuing to work and acquired clinical solutions.
The majority of that Thats factories around the globe cheaper currently operating.
For the ability to flex operations if needed.
Got it two cultures and material solutions during a preemptive government mandates in northern Ireland.
Okay.
It sounds like just real quick on May four.
With the told him is essentially open in middle of night.
So first quarter, we sold 100 and possibly make.
However, when you're in some order reductions in a range of 2022 customers delaying worst uniforms [laughter].
With that said save our customers are set for 2020, yet so.
For stronger than 2019, the money, having a backorder work that will take some of your data this year.
Yeah, certainly that follows the speed to market recovery and that's the petrol funded infrastructure build are all thing they will be they they will use the bases from China, they're buying decisions.
As you know situation remains fluid and the remainder of 2020 in the middle market environments are just as strong as they've ever been.
[noise] with respect to our supply chain today without incurring anything and disruption.
I loved your cost of living space, outgoing assumption, but let suppliers identified to mitigate yes.
We're also extends the depth of our supply chain support efforts.
Before turning the polymer Becky I'd like to say I wasn't quite common transformation plan.
During the quarter, we made significant progress against our initiatives simplifying the organization.
First quarter financial results also demonstrated attraction strategic transformation with 60 basis point expansion and adjusted EBITDA margin despite increased sales.
It's something to walk Pendleton initiatives, taking the 2019 in Q1 of 2020.
We remain cautious given a global together.
Well position to navigate the economic challenges ahead of us for the more efficient organization structure, a strong balance sheet and ample liquidity.
As I said in the past you will continue to strive to make a company topic and a great companies that markets.
And then for commodities on something then Tom stronger demand.
Now I'll turn the call what about her discussion on detailed financials.
I see Perry and good morning, everyone I'm pleased to join me on today's call.
Starting on slide nine.
First quarter revenue decreased 11.3% to 289 million I guess a challenging comp.
Good evening impact of foreign currency revenue decreased 10.5 per cent compared to prior year.
Net sales decreased 18% turned the corner ballpark self fell 4%.
8.8 million up revenue was related to covert might change at library restrictions and we expect the only real life. That's right now in the second quarter.
Our backlog increased nearly 4% to 245 million I corner at.
The backlog increase was driven by infrastructure solutions orders, which were up 19% compared to the same period a year ago.
Offset by 16% decline immaterial solar shuts backlog due to a concerted effort to work with arc and my heart ferrous to more effectively manage their inventory, but only the leaders that have firm orders.
Relative to like orders.
Segment saw growth upwards of 24% first as Q1, 2019th.
Despite the growth in Q1 orders and not surprisingly.
We began to see order intake slow down in the month of April.
First quarter, adjusted EBITDA decreased 4.7% to 24.3 million compared to 25.9 of the prior year period.
Adjusted EBITDA margin improved 60 basis points to 8.4% compared to the prior year period.
Barry Nowadays and margin improvement was driven by actions associated with our ongoing transformation and additional kind of at 19 cost actions.
Adjusted <unk> expenses declined nearly 4% on a dollar basis, driven by reductions and consulting fees travel winning <unk> expenses.
These actions more than offset the incremental spending for cognex, Oh, a $4 million.
In relation to the company its efforts to simplify the organization during Q1, we incurred along quite well 1.1 million dollar pretax restructuring charge and a pretax goodwill impairment charge of 1.6 million for a total of $2.7 million or nine cents per share.
I guess items were excluded from adjusted earnings per share and the restructuring charges are related to the closing of our Albuquerque facility.
Severance payments and other costs, while the goodwill impairment charges related to our infrastructure solutions Carl.
We also benefited from a 9.5 million dollar tax reduction for 42 cents per share benefit.
Earnings per share, which was due to the enactment of the cares that and allowed us to immediately utilizing existing tax asset.
Excluding the benefit our effective tax rate would have been 28%.
Quoting a tax benefit adjusted earnings per share Rose 50, 53.8% turned the corner to one dollar compared to 65 cents in the prior period.
Overall, we reported solid first quarter results.
Moving on to slide.
Our infrastructure solutions business saw revenue decreased 7.6% just under $203 million corner, driven primarily by a delay in customer shipments.
Gross profit increased 3.1% to 52.9 million driven by improvements in both plant equipment and parts margins.
We continue to execute on cost savings initiatives and further rightsize our businesses during the quarter.
Well continue to focus on operational excellence to further gaining efficiencies as well as continued focus on reducing El chanate as we reduced our reliance on external service providers and leverage resources across the organization per our transformation plan.
Adjusted EBITDA increased 5.1% of 24.9 million.
Primarily due to cost actions.
Adjusted EBITDA margin increased 150 basis points to 12.3%.
On slide 11.
Our material solutions business revenues decreased 19.1% to 86.2 million compared to the same carried a year ago.
I'd like to take a moment to help with your understanding that the cops 2019th.
Q1, 29 total revenue benefited from strong order rainy period as a follow up 28 team along with the shipment of two large projects.
29 to fall order, writing program on soft into Rightsizing of dealer inventories and slow rental to retail conversions.
Sequentially, we saw orders pick up at the first quarter 2020, what's your wife, but they applied order growth rate.
Well gross profit declined 7.6% to $21 million corridor, we did see modest margin improvement and significant improvement versus Q4 20 nice team.
Adjusted EBITDA decreased 25% to 8.4 million, primarily due to the decline in volume.
Adjusted EBITDA margin decreased 80 basis points to 9.7%.
Overall initiatives taken in 2019 to rightsize operations to current market demand are paying off with improved performance versus the prior cost structure.
Now turning to slide 12.
[noise], but continue to maintain a strong balance sheet with minimal that not cash cash position of just under $43 million.
Given the current environment, we remain focused on strong liquidity and cash preservation twist stay on a sustained periods of market uncertainty.
We have available liquidity of $196 million.
Nearly 44 million of cash on hand, with only 1 million in total debt as of March 31st 2020.
I also want to highlight that are not inventory decreased $72 million in the quarter versus prior year.
We also expect received $26 million from a tax refund related to the cares that and we argue for in the payment of the employees portion of the social security taxes, providing an additional $5 million to $8 million of cash in 2020 also related to the care sat.
Moving onto our capital deployment framework on slide 13.
We will continue to have a disciplined approach to deploying our capital when we consider the various avenues of capital deployment, we do so in the context of our long term strategic objectives are we laid out revenue earnings and cash flows in order to maximize shareholder value.
Our capital allocation priorities remain consistent in the current environment.
On reinvestment business, we will continue to target greater than 14% return on invested capital.
Lastly, we have not repurchased any shares since 2018, and you're not expecting itself in the near term out of an abundance of caution to preserve our financial flexibility.
Turning to slide 14 team [laughter] earnings presentation.
I want to provide some insight in terms of actions we have already taken an additional levers we can pull if necessary as part of our downturn playbook.
In light of the kind of in 19 situation, we have already implemented several cost reduction initiatives across the business. These actions include but are not limited to reduction of discretionary expenses re prioritization of investments and reduction of headcount.
In addition to actions already taken it provides some examples here of additional cost levers that we can pull estimated.
Next on slide 15.
I would like to provide an update on our material weakness remediation plan.
As a reminder, we identified certain material weaknesses in our internal controls have already implemented measures to remediate the control deficiencies.
We have continued to ask measures to this plan accordingly.
Under this plan, we have hired a new executive leadership team invested an additional financing 90 resources engaged with the big for accounting firm to assist in remediation efforts and risk assessment and we have developed comprehensive monitoring and accountability standards for all sites.
We anticipate the long time investment of approximately $2 million to improve our control environment and will reduce external audit fees in the out years.
We firmly believe that these collective actions will effectively remediate the material weaknesses creatively see identified.
With that I will now turn it back over to Barry for his closing comments.
Thank you happy.
On slide 16.
Provided a quick overview of the three pillars of our strategy for profitable growth.
Our focus in growth.
First simplifies.
I'm proud of the team's execution and the progress we've made in our collective efforts to incorporate we leverage our scale reduce organizational complexity consolidator footprints in rationalize our product portfolio.
Second focus.
I mean, our customer centric approach growing commercial excellence.
Volume processing and is doing the performance based culture.
And finally grow well reinvigorating innovation initiatives leveraging technology to unlock internal synergies, while also enhancing the customer experience.
We continue to explore global growth opportunities and allocate capital to maximize shareholder value.
Within these three pillars, we made great progress in very short time, especially given the current environment.
Turning to slide 17.
Slide 17 outline some of the major milestones we are executing against its escalation in Germany, and the progress with bank today.
I Wonder simplifying the majority of work has been done thus far as best you. Just noted no change the executive leadership team flattening reporting structure restructuring organization from a subsidiary instruction in products and functional or.
And that's it.
Thanks, Richard just instrumentation validate our supply chain.
Good afternoon.
You won a new segment structure lines more properly reader products in our portfolio and end markets that we serve.
For finding great efficiencies in Harlem Dom work together as well as organic growth initiatives for more productive cross selling across product lines.
Within the infrastructure solutions segment.
Assuming a very far service teams into your Vod service infrastructure organization.
Our utilizing one call center for customer support.
Okay, more effectively or end users.
Our customers are asking for this consumable make about.
We'll go lives or management incentive programs senior Vice president of operational excellence, and driving lean and problem solving tools throughout the organization.
Actions that we started cost savings will sub the organization up to reinvesting cash, it's driving profitable growth, thus maximizing shareholder value.
We're currently focused on improving working capital turns indicate when team are certainly ensuring replied financial rigor in terms of our operational and financial strategic decisions.
On slide 18.
I'll conclude with our key investment highlights which have not changed.
I'm very pleased with the organizational changes that we have implemented and action taken thus far.
That's a great group of leaders with very strong back relevant experiences. Our team is showing great passion and sense of urgency to take option where needed and capitalize on our strengths and share best practices across both segments.
Well uncertainty remains relative to the impact of Coke and maintain our long term up for drivers remain strong customer sentiment continues to be optimistic for a rebound once the economy, but something back.
When you clearly defined pillars of our strategy simplifying focus and grow and the roadmap constructed.
That's a mention plan I'm excited about the future asset.
I look forward to sharing continued progress of our strategic transformation and upcoming on upcoming conference calls.
With that operator, we're now ready to open up call for questions.
Thank you will not be firmed up your question answer session with regards to be please request from Q. Please press star one all your telephone keypad confirmation Tony will indicate your line is in the question Q. You May proceed for two or three like Trueblue question for MCU for participants using speaker quit maybe maybe this is three to pick up your handset.
Before pressing star one one moment please.
Two questions.
First question to me is coming from Big Gilbert from Baird. Your line is alive.
Thank you good morning, everyone.
Thank you Gary you're.
Well I'm glad to hear you are doing well.
So how should we have quite a few questions, but I want to start maybe would a clarification because I don't think I got this this straight back.
Becky can you can you give us those backlog numbers by segment again, so I'm curious backlog year over year and also orders.
Order growth year over year.
I guess I missed that in your prepared remarks. Thank you.
Sure. Thank.
Sure Mark Nick the backlog increase was driven by the infrastructure solutions first they were up 19% compared to the same period, a year ago and they were partially offset by a 16% decline in material solutions growth.
And I'm, sorry, I guess given that we've had some moving pieces for the segments here what does that imply for order is on an apples to apples base.
That is on an apples to apples restated basis.
Okay, and do you sort of have the map, where do you implied orders.
Year over year.
Yes order intake.
Yes, we do so relative to be applied orders, both segments saw growth upwards of 24% in Q1 versus Q1 19.
Again restate it on your segments.
Okay.
Alright, and then I guess my.
My follow up here, Barry maybe getting a little more color in terms of.
Paul how things are trending into Q2.
Obviously, we all understand that Kobe to has really grown quite a curve ball everyone, but.
I'm kind of listening to what some of your opening scenery peers have reported and others and capital goods and essentially.
It seems like there's the general view that demand by might pick up 30, plus percent step back on a year over year basis and in the second quarter based on what you know and what do you have in your backlog. How do you think about your two segments of your business isn't a near term.
Yeah, I think I think we enter into Q2 was pretty decent backlog me.
Certainly as we commented in the spring that the BDC orders start to soften in April.
We as we've said before we typically burn through our backlog in one to two quarters.
And so therefore, we're seeing very close to the to our customers as I mentioned as well.
Almost everyone I've talked to have the backlog that takes us through 2020 from a project basis perspective, maybe even in 2041.
But with that being said without knowing what how do you did relative to the economy opening backup.
You will tell us revenue that typically would be.
Realized which isn't today because of whats Crawford and with the uncertainty around the federal infrastructure, Bill, which with the fact that didn't September I think there's probably a little bit of apprehension and uncertainty, which we've seen I think about April time frame and certainly would expect that we would see.
Throughout the course of year until there's a little bit more confidence in regards to what kind of bump on this incident on that.
Sure, but can you sorry, the press you on this.
Can you give us maybe some quantification as to what all of this means because.
You are not only talking about hesitancy on a part of customers, which is understandable, but you're also talking about some elements from your own backlog potentially getting getting pushed out as folks are reassessing, whether or not they are able to operate and at what pace.
So.
In April where where would you say you are from a production standpoint, either sequentially or year over year. However, you want to describe it.
And how have orders trended versus say a year ago or or your own internal forecasts.
Yes, good questions I'll tell you that.
Relative to drop one I would you referred to some orders being pushed out but typically those orders that I referred to were really from Q1 Q2.
We haven't seen really a significant or material amount of cancellations.
So I think our backlog is still a pretty healthy backlog.
Im not going to comment in regards to while I see the market doing over the rest of the year.
I'd like to hopefully give you and our shareholders confidence that we looked at many different scenarios in a build action plans around what we wouldn't need to do in order to address whether positive or negative and so therefore, I believe we're prepared and we should be able to say.
How did they were proactive actions depending on how the orders start to flow for the rest in 2000 importantly, I know that's not exactly answer or maybe it wasn't so basically you one based on that probably what im comfortable sharing.
Okay then.
I guess my my last question is on Slide 14, where are you talking about the downturn playbook and the levers that you have available Paul.
Can you give us some spend some quantification of what do you have done thus far and tried to maybe separate.
The transformation.
That said Youre tried to enact on a company from the more Colgate related.
Cost savings or actions that you have undertaken thus far.
So that's part one of the question and then the second part is.
Just looking at it the way the slide that has assembled.
And again, comparing it to what I've seen from some of your peers.
It really doesn't strike me as if you're at the point now where you're you're taking.
For lack of a bit of term drastic measure on cost.
You know, we're not hearing about significant salary costs or anything anything up the sort like we have from other calls and I'm just wondering if you're.
Since we just in a different position there maybe some of the other folks are given where your backlog is or how you're seeing demand trending.
Or is it just sort of a timing issue in terms of how you're planning to deploy these measures. Thank you.
Yes, great questions.
Are you that today most of the actions we've taken our just purely from the transformational activity that we've identified starting sometime late last year.
So any Beverly answers your first question.
I would tell you that.
I'm sorry.
Let me restate questions again make sorry.
Yeah, I mean, the second part of my question would look I as I look at your Playbooks here.
For all of these things are all fine and well, but what I'm comparing them what I'm seeing elsewhere from from other cap with companies that are talking about meaningful or load you're talking about meaningful cost to salaries for a variety of personnel you're not we're not seeing any of this on the slide and I'm wondering if that's still to come.
Or if you're just comfortable enough for your operations to where you don't feel like you need to enact these kinds of measures.
No I think because of the transformational activity at the behavior, we had a really great. What do you had started into this type of a scenario in regards to the market that we're looking forward.
You bet, we do feel good about our backlog maybe another difference that we might have versus our competition. As you know maybe 80% of our revenue roughly comes from us market with 20% coming from outside I believe some of our competition probably have a broader portfolio of business outside the U.S., which could be.
Significantly impacted than what we are that'd be a difference as well I think that we were not even up to think that we may not get to that level of.
Vision, but we're not there yet and we believe that.
All of that as part of our personnel in place that we've done we know a trigger data, which based on orders and demand we'd have to make those decisions and compared to if necessary, but that's how do you didn't wait for us at this point in time.
Okay I appreciate it I'll go back into queue and maybe come back with some question later in the call. Thank you.
Okay.
Hurt your next question please coming from Stanley Elliott from Stifel. Your line is now live.
Lets daily.
Good morning, everybody a nice to hear your voices. Thank you for taking the call.
Quick question you mix is positive responses from the new customer.
From the customers in terms the new structure could you elaborate a little bit more about that is that I'm, assuming it is either doing business, but would love to kind of get your your your thoughts on on those comments. Please.
Yes, no I think you hit that's the key wasn't there I think it'd just be does make it easier to do business, where there was a past we may have had a representative from assets representing different products or brand you're probably in the same customer so to your customers theoretically you may have had.
Breeder three dozen visits in one day format, that's been fully which doesn't necessarily goodbye.
Our them a real.
Simple feature of who we are and how to do business with us.
Today, you know we're working on action some of those already in place to make that easier to weather visited by one person that represented more products and brands.
So that's a piece of it I think just the.
The complexity, yet as I mentioned.
First calls on travel around the world and visited with customers and employees.
Sydney and not being one stage to our company was with something that I picked up the real primary elements of feedback and so I think no I think that the picture we're paying in Howard communicating and how are you doing business with customers and white bread quite honestly, we're in a very early stages about so we believe it as they move through Todd It continues.
Drawing more leverage across organizations and and the resources in the knowledge experience.
We need to be better, but so far there's been very positive I think from an employee perspective northeast as being part of a bigger organization rather than a subsidiary company offer them a lot more in regards to professional development a better communication.
Hold your touch point to the corporate staff and so we can get visibility to talent.
This challenge to elevate talents in more effectively and so I think some of those changes have been positive for employee base as well.
Perfect and then you the comment on markets being slow to convert rentals to retail sales, we've heard that from some others.
It was it really just the uncertainty out there that that's going to be a kind of the trigger to get that part of the market back and then I guess the other part with with the two new segments.
Do we think of the material solutions more as kind of.
What we would think capex driven from some of the larger aggregate companies some of the mining companies and that the infrastructure business might actually have a little bit more resiliency from a from a project standpoint, just trying to.
Getting these sort of.
Hi level, there, but as well.
Yeah, I think the comments around the rental to retail is primarily around what we bring into your went through 2019 and through that timeframe, what I'm really pleased with the organization's ability to work with our dealer distribution partners, they're really right size or inventory.
So I think that little bit of a pickup in orders that were commenting on in Q1 of 2020, it's really results to right size the new inventory, both what we have to what they have and so a big but that being said, we're able to react more quickly and more efficiently to changes in the market demand, which I think will serve as very well now and as we look forward to two belt.
20 and beyond.
No as far as the infrastructure side, you're certainly when you think about the infrastructure side of our business, which is an example would include asphalt plant, which could be a multimillion dollar capital investment.
That's a that's an area I think I'd point out certainly on the the material solutions on the business. We always do a lot of a product sales that are probably to lower value but.
To be Frank we do a lot of projects with individual solution side, where we could do a 50 million dollar plant or system for a customer at Florida as well so.
They are both large capex expenditures.
Just how they get there would be one plant versus the whole system in the Corey are treated the way the customers to look at it.
Perfect and then lastly can you talk about how raw materials are tracking for you all kind of what sort of tailwinds.
You saw in the quarter and maybe your outlook for a for the rest of the year.
Yeah, I would say that part of our Q1 basis point improvement in gross margins really being driven from or.
Future procurement initiative, which is.
Really to take our purchasing power and leverage it across the whole company versus site by site or subsidiaries the subsidiary company as we haven't done.
So thats generally helping us with the.
The improvement in gross margin you know steel is a big part of what we do and then certainly over the last six months, we've seen some pretty healthy drops there.
Roughly on plate, maybe 15% quell maybe 20% and that's a into position where we stayed very focused I think.
Several months, we've got a great job will.
Keeping our organization really.
Very focused on yields to make sure we understand what's going to onboard the spot prices.
Have you made history that effectively to ensure that we projected material margins adequately.
Perfect and then if I could sneak one more did you.
Expectation for price cost, yeah, with the uncertainty in the marketplace.
But what sort of pressures that putting in on the ability to price and do we think the price cost will be positive for the year.
Yes, I would tell you that first and foremost week yourself is going to price leader in every market that we're in today.
Relative to pricing that the discipline that we've seen today I think just referring maybe Q1 of 2020 generally it's been pretty disciplined which is good.
I have seen some aggressive nature more on the road building equipment.
Specifically, but generally how does not as it's been pretty pretty disappointed on the road building side is something we probably have competition. It could be sitting on inventory that maybe reporting worked our way through the discipline and rigor actions in 2019 that maybe they didnt and so that could be potentially why we're seeing that I'd.
Speculate any further that's just my perspective.
Great. Thank you so much for the time take care.
Thanks next question to me is coming from Joe Mondillo from Sidoti and company. Your line is now live.
Hi, good morning, everyone.
Hi, yes.
Doing well thanks, So I just wanted but very up or thoughts on your comment property customer and then sort of the backlog.
20 and 21.
Relative to that I comment what are your thoughts on oil and gas tax revenue.
Oil and given the fact that no one is driving and do you think that plays or do think that affects anything later in the year I don't know, if you're seeing or hearing about customers at all even though they have the projects in the backlog, maybe holding back a little bit given.
Okay revenue and then and it did you not related to how do you think all sort of affects customer hurt. This is your equipment versus your par.
Yes. Good question. So Joe I can tell you that some of the data that we see is that there's nine nine states a that have one project delayed or canceled.
Theres 13 to have concerning over declines turns over decline in revenue from those types of taxes and one that you know they really had a funding initiative propose that they're now delayed so that's a little bit of color around what we're seeing them in different states across the U.S.
Our customers do have a strong backlog I think that as you look at how even silver publicly traded company, finishing 2018, and then look at their Q1 2020, they moved from one year today very strong position.
So certainly you know we expect that they're in good shape as I mentioned earlier I think the uncertainty around what's behind that is what's really going to give them. The competency to move forward with Catherine type decisions or not.
We have seen the percentage of our parts revenue.
Up to 30%, which is higher than what we reported in the past and certainly with some of their work where you are there on margin improvement has also been a part of the 200 basis points and move on the gross margins.
Great Thanks for that.
One of drugs as well you stated that both segments. So.
20.
The comp I think was.
Very favorable or easy comp relative to the first quarter of 2019 could you frame what the absolute orders were not necessarily quantify but just give us a sense where the orders in Q1 have trended are in comparison to sort of a trend over the last four or five quarters.
Given that the first quarter last year, I think was fairly an easy comp and then.
As of April.
And.
Hi, little more than that of.
You can buy slow down in orders that they.
And just give us some maybe.
Anymore color on.
How that translated in April.
Hey, Joe you're you're breaking up and so could you just repeat that last question again please.
Oh, sorry.
I was just wondering if you could define anymore definitively what the broader where are you you mentioned that may slow down, but Tom from the 24% growth rate in the first quarter does that mean, it slowed down to positive single digits or did it actually does go into negative. So I'm. Just wondering if you give us any more color regarding that.
Hey, Joe This is Steve Yeah, looking at the trend on our implied orders.
As best you mentioned earlier those were up about 24% and each group.
From a seasonality standpoint, and just the trend throughout.
2019, we saw those applied orders up a build up some through the second quarter and fourth quarter and then then back now for the first quarter, but which that was a year over year increase so we do see fluctuations through that but the overall trend positive along with our seasonality.
As far as April orders.
Not really going to quantify that other than just seeing some.
Push outs from delays that would be primarily maybe some conservatism one of the Calvin environment.
Okay.
And then last question for me.
Just given the transformation so I.
A couple of things first thought there weren't any restructuring costs in the first quarter, which I was a little surprised not only given the slowdown in the economy, just but just the fact that you guys are in the middle of this sort of transformation company sounds a little surprised to see that there was.
More structural expenses.
So that.
The second part I guess that I wanted to address with yes.
Senior was only down about 3% or so year over year, despite the revenue being down 11% I would've thought that.
Especially given.
And then structural changes.
So I'm just wondering if you could update us that was this just a a quarter that after you know a bunch of heavy lifting and the fourth quarter.
There's a slight pause and then in additional all that are there any expenses coming on related transformation. Because I know you are focusing on an ERP system and I was just wondering if there's anything sort of a heads up that.
You know, we may not see a lot of improvement because of maybe some investments in ERP I don't know, how that's sort of playing out with this economic downturn that we're dealing with so a lot of questions. There sorry, if you could maybe just give us a little more color addressing.
Well I guess, Becky definitely I'm sorry, Joe.
I can definitely talk to the restructuring piece, we did have 2.7 million of restructuring and impairment charges in Q1.
1.1 was restructuring so that was people stop brands write offs. There and then we had 1.6 tied to goodwill impairment in the corner.
We do expect to see ongoing restructuring charges and they all corners.
In regards to ask GSK and the transformation.
I was kind of couple of different things, we're working on there we've had a heavy reliance on X. turn all professional consulting type growth.
We've had very lean accounting and finance high T.H.R.
James and so we're actually I need some opportunities some pretty significant wants on that space, just yana sourcing on hiring the right people to manage on our behalf. So we're going to see some positive improvement fair continuing and then also as Barry mentioned with ours.
The only inside the house, whether its parks have service toy sales.
With the two newsgroups Ah that we had they're able to leverage their resources and have better copper and so are also have rightsized and Matt.
Space, We will continue to do so as we see how effective the teams are so couple couple of big areas for us for opportunity.
Okay. Thanks, Thanks for taking my questions.
Thanks next question today is a follow up from big debris from Baird. Your line is go lives.
Yeah, Thanks for taking a follow up.
So I I also questions about as too and I.
Wanted to maybe ask what Joe is asking about a little different.
If we're if what kind of looking at Q1, so excluding the $4 million from from Conexpo U.S. DNA was call it.
$50 million to $53 million.
In this sort of the right run rate to think about going forward.
Or are there is there a good way to quantify the incremental investment that you're making beyond the $2 million, which you talked about already about about control remediation issues.
Yeah, maybe I'd tell you that you pointed out the $2 billion I don't think we quite finished US just thinking on Joe's question is whether investments you know we mentioned in the last call that we believe you'd probably under invested in I'd cheap historically, so we do see more investment on a year over year basis over roughly 3 million dollar.
As a 90 odd not to include the ERP system relative to the ERP system. We're we really havent made a lot of progress probably since our last call. We're still trying to collect the right strategy and resources to work on that so so more to come so we don't really have.
I have anything like that bill did to really are costs that we had over but I can report on.
Guys today, you know relative to how we look that's today.
Page in our run rate today is still high versus where we believe it needs to be.
We still have our long term goals that we reported on that we're continuing to work towards them.
We refer you know how do we actually achieved the the long term goals I mean are really going to be around both the cost efficiency play. It also does today and so I think as we continue down this transformation path again, I would say we've done a lot of very short period of time, well, we're still in early days.
And so there's more opportunity and and I'm quite pleased with the work that each of the.
Two groups in the leadership within them are doing today were to continue supplying those things. So some of what we're looking for moving forward again.
Certainly we'll continue to keep an eye on covertly team, but we already have plans in place to continue with our transformation activities to continue to try and bring value. We can deliver to our shareholders I'm not going to size that today I'll does it look back that those long term goals we've established.
Really the we broke out I think when we were at the Baird Conference are being there we continue to drive towards.
Understood and.
There's just so many moving pieces here I mean, what I'm talking here about 29 team you had outside consultants that that we're working on sourcing and that was a big expense and I think that's gone up on a non mistaken.
There were some trade shows that you had last year to like Bauma. This year you have contacts. So you have investment and control remediation you have I additional Ikea investment I mean, I guess I'm just wondering if if we're thinking about the euro holistically is it fair to say that this.
C N a line item, especially in a more challenging environment can actually be held flat or close to flat year over year and I'm talking about a year as a whole lot any particular core.
Yeah, I would tell you that you're you're right I mean, its is a tough winter we were going into 2009 2014, having this call is not having to covert 19 situation I think we'd have a lot more confidence and been able to answer your question because it would bear with me strategy and transformation plan in a cleaner away.
As we look for the rest of year with what we know now I would suspect that we're going to see I mean I'd be disappointed because the dollar states industry may come down as we went through the rest of the year and.
Well maybe.
Yes, the Kobin 18, probably study they need to accelerate some of our transformation activity.
You know along with things that we'd probably do or will do and have capability to doing.
Half of them just to make sure that were rightsizing and being proactive regards to responding to the market in the current conditions.
Helpful color. Thank you and good luck.
Thanks, Dave.
Thank you. My next question is a follow up from Joe Mondillo from Sidoti and company. Your line is not a lot.
Hey, everyone. Just one quick follow up question you you mentioned it at least once I think in your prepared remarks, Barry the facts Fast Act federal infrastructure. Both I would just wondering if you have any other thoughts you didn't really provide.
You know, what you're thinking with that but.
[noise] jury there.
Joe you Joe your cut off for your line cut out.
I'm, sorry, I was just that.
Yeah, I think you were asking for for further color from us in regards to federal funding.
Yes, so Joe as I mentioned it does the fact that and September Thirtyth, a you know I've been in touch with various organizations in DC.
And as you I know it was probably but did you do based on what your.
Yep.
Certainly could tell you that there is some conversations around infrastructure.
Stimulus packages relative to the Cokemaking situation, certainly believed that the government person instituted because the market opening and if the markets not operating in a more normalized fashion and infrastructure stimulus might not make sense. So I think there's a little bit of weight to the markets open. So hopefully you just don't.
Become due there the great news, we believed that there is really.
Some agreement between Democrats and Republicans in regards to the me certainly the market drivers continued its strong into a bottom line.
What we do from an infrastructure build perspective isn't a matter of this is going to happen when it's going to happen so without maybe through the stimulus packages and certainly some of it could be dealing with that or after the election, but.
But we certainly need that type of a have a support from our federal government that I expect it will call money. Most people you probably talk to return to the same thing.
One other comment I'll make I spent some time, you've given some color around they could have projects delayed or canceled concern over declined to revenue with that being said, there's there's a number of state to continue to operate a and actually push more funding for infrastructure. So I think the point I'm Lucky to leave would from this conversation is if there is a.
Lot of moving pieces, you made comments around what's going on in a marketplace. Some positive in some not the positive I think the key is our organization. It very much in June both personally and through our organization in some for our customers to see what's coming in so we can have a better perspective, how we plan for it and optimize our business.
Supported so we're ready for anything and we'll continue to push ourselves and do the planning to make that happen successfully.
Thank you we reach of our question answer session, but from a pullback over pretty well for closing comments.
Hi, Thank you Kevin we appreciate your participation on this call. Thank you for your interested as tech as today's news release into Jake's. Today's conference call has been recorded a replay of the conference call will be available through make 20th 2020 in an archived webcast will be available for 90 days the transcript will be available under the.
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