Q1 2020 Earnings Call
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Good morning, and welcome to northwest pipe Company's first quarter 2020 earnings conference call.
All participants will be unless you see boat.
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During the start you've thought about euro.
After today's presentation, there will be an opportunity to ask question.
To ask a question he met press Star then one of them their touched on top.
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Please note this event is being recorded.
Now I turn the conference call her to Mr., Scott Montross, President and CEO of Northwest Pipe Company Mr. Marcelo Sir the floor is yours.
Good morning, and welcome to northwest pipe Company's first quarter 2020, <unk> earnings Conference call. My name is Scott months' Ross and I am President and CEO The company and I'm joined today by Earing Wilkins, our Chief Financial Officer by now all of you should have access.
The earnings press release, which was issued yesterday may seven 2020 at approximately four PM Eastern time. This call is being webcast and it is available for replay.
As we began I would like to remind everyone that the statements made on this call regarding our expectations for the future are forward looking statements and actual results could differ materially. Please refer to our most recent form 10-K for the year ended December 31st 2019.
A discussion of such risk factors that could cause actual results to differ materially from our expectations. We undertake no obligation to update any forward looking statements.
Thank you for joining our call today to discuss our first quarter 2020 results.
Oh I began I'd like to officially welcome airing Wilkins was recently assumed the role of Chief Financial Officer in April and it's been a valued member of our senior leadership team for several years and we're confident that we will be he will be successful in his new role as CFO.
I would also like to welcome Bill usually who's elected to our board of directors as an independent director on March 26.
Those experience in civil engineering, and industrial markets will provide key skills that will support our future growth plans in the water infrastructure market and we're very pleased to have them on our board.
I'll start today with an operational update in regard to the coded 19 pandemic. We'll then turn to review of our first quarter performance Darin will then walk you through our financials in greater detail.
First and foremost our thoughts are with all of those it has been impacted by the Corona virus, which has had a major impact on society and the economy.
As the health and safety of all of our employees at northwest pipe company as our number one priority we have outlined various measures to help shape Gardner wellbeing. During this unprecedented time, including increasing the frequency of cleaning and sanitizing at our facilities, especially in high you surface areas.
[noise] promoting social distancing of employees both at workstations in in break loose some of which has been accomplished by staggering employee schedules and providing opportunities to work from home.
Right and guidance on appropriate handwashing and other measures as outlined by the CDC and offering additional hours of paid sick leave to encourage employees, who are either sick or caring for those who are sick to stay home.
As of today, we have not experienced any major business ditch disruptions related to the Corona virus at our plants in the U.S. better producing critical water infrastructure products deemed essential under the guidance of the US Department of Homeland Security Cyber security infrastructure Security Agency.
However, we were required by the Mexican government the temporary closed our water infrastructure manufacturing facility in San Luis Rio, Colorado, Mexico, or SLR see for short for the month of April due to covert 19, and as a result, we're forced to send our SLR see employees home into we're able to restart that.
Facility to better put this into perspective, the SLR. She plant represents roughly one six or 18% of our total steel pressure pipe capacity companywide.
We were disappointed in the Mexican government stance on the essential nature of our business. It SLR see plant, which include steel pressure pipe needed for the construction of a major water infrastructure project being administered by the U.S. Government agency.
Currently we are working with multiple government agencies in political offices in order to facilitate restarting our facility. We look forward to reopening in bringing our valued employees back to work as safely and quickly as possible.
Fortunately, we have more than enough capacity at our remaining plants in the us to absorb current and future orders for the SLR see facility in the meantime.
The Mexican government recently extended the stay at home order through the end of May, but we have been allowed to bring several employees into that facility to ship product in receive raw materials.
By the duration and future impact of the Cobot 19 pandemic remained somewhat unclear. We believe our businesses is very well positioned to withstand these challenging circumstances due to the essential nature of our operations to provide critical water transmission systems in the us.
Our backlog, which remains high by historic standards.
The bidding activity for 2020 that is projected to remain strong.
Our strong balance sheet and solid liquidity position and the variable nature of our cost structure, which provides us with financial flexibility.
Importantly, a great deal of the restructuring and cost reduction measures that we took during the very difficult period of 2015 through the first half of 2018 significantly improved our ability to deal with the current uncertain environment.
On that note I'll now turn to overview of our first quarter performance.
We delivered solid first quarter results driven by strong demand conns conditions experienced over the last several quarters in continued strength in our backlog with our seventh consecutive quarter above 200 million.
As of March 30, Onest 2020, our backlog, including confirmed orders for the northwest pipe legacy business was 224 million compared to a year end record of $258 million at the end of the fourth quarter of 2019 in 242 million at the end of the first quarter of 2000.
18.
The current 224 million was the second highest first quarter ending backlog in the last 10 years second only to the first quarter ending backlog of 2019.
Net sales benefited from an 8 million dollar contribution from our acquisition of Geneva pipe and precast assets in late January.
Improved legacy pricing and positive contributions from Geneva helped drive a 45.8% year over year, increasing our gross profit dollars.
Before taking into account the purchase accounting adjustments associated with the Geneva and the impacted the segment our fire first quarter revenue and margins were in line with our projections provided on our previous earnings call.
As anticipated weather related issues in customer job delays negatively impacted our first quarter backlog revenue and gross profit, which were further affected by covert 19 related bidding in job delays in the second half of March.
I'd also like to point out that even though steel pressure pipe backlog declined sequentially as we projected it remains very elevated by historic standards. In addition, our order book for the concrete pipe and precast business is at its highest level in the last several years as we head into the traditionally busy time of the.
Year.
While we will no longer be providing guidance due to high level of economic uncertainty in more in the market due to cope with 19 I'd like to take a moment to remind you all of our growth strategy, which remains unchanged our approaches to two pronged first.
We are focused on maximizing our core steel pressure pipe water transmission business through our continued focus on cost reductions and lean manufacturing as well as pursuing limited, but known growth opportunities. This ultimately led to our acquisition of the answer on water transmission group in July of 2000.
Isn't 18, which was immediately accretive to our financial results.
We currently have approximately 50% of the steel pressure pipe market, which is generally a 450 to 600 million dollar market with fairly limited expansion in acquisition opportunities.
As a result, there is a second part to our growth strategy, which is to grow in an adjacent water segment.
We chose the precast concrete market, which we estimate is a 3.5 to 4 billion dollar market in the us with superior growth opportunities strong margin characteristics and attractive cash flow profile.
This focus let us to our recent acquisition of Geneva pipe and precast on January 30, Onest of 2020.
The acquisition of Geneva significantly expands our addressable market in further diversifies, our offering with the addition of innovative products that we expect will provide future organic growth opportunities.
Further having a core competency in precast concrete opens the door for new opportunities for potential expansion and or acquisitions in the near future. The Geneva business is more transactional with a much shorter cash cycle than our water transmission business, which enhances the overall cash flow profile.
The integration of Geneva through a 100 day plan has been progressing well, we have implemented cost reduction measures as well as lean manufacturing enhanced inventory management practices to help maximize efficiencies as we move forward, while it's too early to speak of any quantifiable synergies.
We're already seeing results from the implementation of northwest pipe cost reduction programs.
I will now turn to a look at current and upcoming water transmission projects.
In the Texas market. The Swift program has funded over $8 billion in projects over the last six years Swift is expected to continue funding major regional programs like the continuation of the surface water supply program in the Houston Metropolitan area to ensure sustainable long term water supplies for.
Texas, the ongoing multiyear multi agency Houston surface water program is expected to bid multiple segments in 2020, representing 32000 tons of pipe for West and North Harris County regional water authorities.
We anticipate both authorities, having additional beds in 2021, representing 33000 tons of pipe.
The next new reservoir to be built in Texas is Lake Ralph Hall for Upper Trinity Regional water District.
This is another major program currently in design that includes a new dam and pipeline to move water into the Dallas Fort Worth region. The project represents 17000 tons of pipe.
Construction procurement is expected to begin in spring 2021.
The Alliance regional water Authority program in Central Texas is another multi agency regional water program. The program includes a large pipeline pump stations and treatment facilities and represents 15000 tons of pipe construction is expected to begin in 2021.
In the western market California's prop one $7.5 billion bond for water infrastructure has created the much needed funding for projects within the state.
According to the California Natural resources agency, 95% of those funds have been appropriated for various projects as of the 2000 2021 fiscal year.
We expect requirements for these projects to stretch out over the next several years.
Water reuse programs have generated new opportunities in the California market on which we expect to see bidding activity continue for the next year.
Bidding activity related to a large water reuse project has slowed awaiting award approval over labor costs. If this is resolved before the end of Q2, we could see three sizable projects bidding representing 10500 tons.
MWD is heading up a regional reuse pilot project in conjunction with lay sanitation district. This reuse program would tree and recycled water from one of the largest reclamation facilities in southern California, and involves 60 plus miles with large diameter pipe.
The current demonstration facility has been operating for six months in construction of the full scale treatment conveyance facilities could begin as early as 2025.
The PCCP rehabilitation program will result in approximately 10000 tons annually over the next two to three years.
Currently some of the owners undertaking rehabilitation programs have slowed their schedules. These are not cancellations of the projects, but simply work shifting to later this year.
The city of Phoenix has begun procurement and construction activities under zone three D and foray improvements program. This program safeguards the city's water supply against curtailments in the Colorado River allocations.
The projects identified represent just over 8000 tons of new pipelines pump stations and treatment facilities.
The sites reservoir is a water storage project that has received funding from prop one.
It will involve over 30 miles of 144 inch pipe.
The project is forecast to begin in 2024 25.
Southern Nevada water authority has begun moving forward in earnest within expansion of the southern part of their water delivery system. This program, which has recently started preliminary or design activity will include approximately 25 miles of 78 inch steel pipe with construction tentatively scheduled for 2020.
Before.
In North Dakota progress has slowed on 140 mile 87000 tonne Red River Valley water supply project two mile demonstration project has been forecasted to bid in the third quarter of 2020.
The bulk of the project is dependent upon a 2021 legislative session to commit to full funding plan.
In Colorado, we are tracking a late 2020 funnel record of decision by the US Army Corps of engineers for the Northern integrated supply project, if favorable construction of up to 150 miles of pipeline is expected to start in 2023. The project is located 60 miles north of Denver.
In the Fort Collins area.
In summary, I'd like to thank our over 900 employees for their ongoing commitment to health and safety northwest pipe company, while covered 19 in its effects on our industry and workforce may have slowed our bidding volume in the near term. It has not been reduced for 2020, we estimate a curve.
Current market size of roughly 209000 tons and a job count of 240 versus 242 in fiscal 2019.
As we move forward, we will be focused on the ongoing successful integration of Geneva pipe and precast and driving continuous improvements in our performance by focusing on margin over volume and cost reductions in cost efficiencies at all levels of the company.
I will now turn the call over the air and who will walk through our first quarter financial results in greater detail.
Thank you Scott.
I'm pleased to be here with everyone. This morning, as many of you know I've been with northwest pipe company for over six years now having previously served as the vice President of finance and corporate controller.
I'm very excited to learn the different facets of the CFO role.
I would also like to thank Robin gap, with whom I've worked very closely for over 12 years of my career.
The company truly appreciate your contributions and her leadership over the years.
Now, let's turn to our results.
Adjusted net income for the first quarter of 2020 was 3.2 million or 33 cents per diluted share compared to net income of 2.2 million or 22 cents per diluted share for the first quarter 2019.
Adjusted net income exclude unique items and has provided for comparability against the results from a year ago period.
The adjustments include 2.5 million in transactions costs, the shift associated with our acquisition of Geneva, 0.6 million and purchase accounting related charges for those recently acquired assets.
Zero point $4 million, an incremental production costs, resulting from the second our fire, partially offset by 0.9 million and the estimated tax impact of the aforementioned items.
There were not any comparable adjustments in the first quarter of 2019.
Our first quarter sales increased 10.0% to 68.9 million compared to 62.6 million in the first quarter 2019, due to an 8 million contribution from our acquisition of Geneva pipe in pre cast assets.
Legacy revenues declined slightly from a year ago quarter due to a 12% decrease in the tons produced partially offset by a 10% increase in selling price per ton.
Gross profit increased 45.8% to 9.6 million.
Or 13.9% of sales compared to 6.6 million or 10.5% of sales in the first quarter of 2019, primarily due to improved legacy pricing and the positive margin contribution from Geneva.
Our first quarter 2020 gross profit included 0.5 million of acquisition related adjustments and 0.4 million an incremental production costs related to the fire at our second our facility in April 2019.
Without the aforementioned cost unique to the first quarter of 2020, our gross margin as a percent of sales would have been 15.1%.
We believe we have now incurred essentially all of the incremental costs on the project effected by the second our fire.
Between a property and business interruption elements of our claim approximately 3 million of costs remain on recovered.
Based on discussions with the insurance adjusters, we expect to achieve final settlement of this claim in the coming months.
Selling general and administrative expenses for 7.9 million in the first quarter point 20, as compared to 4.2 million in the first quarter of 2019.
The increase was primarily due to 22.5 million and transaction costs related to our Geneva acquisition, coupled with higher incentive compensation expenses.
We expect quarterly SGN, a expenses to be between five and 5.5 million for the balance of the year.
Our unusually high income tax rate of 45.6% in the first quarter of 2020 was primarily due to nondeductible expenses associated with the acquisition of Geneva, coupled with proportionately low pre tax income.
This compares to equally unusual income tax rate of 8.1% in the first quarter of 2019, which was impacted by estimated changes in our valuation allowance.
For the full year of 2020, we expect our income tax rate to be approximately 27%.
Now turning to our balance sheet and cash flow.
In the first quarter, we financed the $49.4 million acquisition of Geneva through a combination of cash on hand, and our revolving line of credit.
And concurrently amended and extended our credit agreement with Wells Fargo.
Among other modifications the amendment increased the aggregate loan amount from 60 million to $90 million included a term loan that we have since drawn down and extended the maturity date by one year to October 2024.
Total liquidity available at March 30, Onest was approximately 70 million with nearly $10 million in cash and 60 million available on our line of credit.
Total debt at March 31 was 15.9 million.
Our senior leverage ratio was negligible and we expect to remain in compliance with our covenants for the remainder of the year.
Our vigilant approach to managing our current assets as well suited for this type of economic environment.
Cash collections to this point of the pandemic have exceeded our expectations and our percent current on open accounts receivable remains well above the goal we set for the company back in December.
Given these factors we believe that we are well positioned to face the challenges presented by these uncertain times and currently do not anticipate seeking government sponsored loans under the cares Act we generated cash flows from operations of 15 million during the first quarter of 2020.
Depreciation and amortization were 3.4 million, which included the amortization of newly acquired intangible assets.
In addition to 23 million of goodwill the company's preliminary purchase accounting for the Geneva transaction brought on 11.2 million in intangible assets.
The resulting rate of amortization is expected to be approximately 0.6 million per quarter for the balance of the year.
Up from the prior quarterly rate of about $50000 per quarter.
The increase in the rated depreciation in the fair value step up was not material.
Capital expenditures totaled 2.9 million for the quarter, which were primarily used for ongoing maintenance Capex, we expect to remain conservative in our capital allocation philosophy and the current environment the focus on cash preservation in the near term.
For the full year 2020, we have planned approximately 10 to 12 million of total capital expenditures, which will be utilized for ongoing projects and necessary maintenance capital spending.
While the first quarter has historically been a seasonally slower quarter, the hard work and dedication of our employees helped us deliver solid first quarter financial results.
We're very pleased to have completed the acquisition of Geneva, including all of the talented employees now integrating them into our collective culture.
We are confident our introduction into the precast concrete market will diversify our business and provide longer term growth prospects.
Thank you again to all our employees, we are ongoing commitment to making our plus type company a safe place to work.
Now I'll turn it over to the offered air to begin the question answer session.
Thank you Sir.
We'll now begin the question answer session.
To ask your question you May Press Star then one on their Touchtone phone.
Freezing the speakerphone, please pick up or asset for Precima Hugh.
Okay. Tambor question May have been addressed.
I'd like to address your question. Please press Star then too.
Again at a star then one to ask your question at this time, we were just pause momentarily to assemble roster.
And the first question that will come from then currently.
Da Davidson. Please go ahead.
Hey, good morning gotten Aaron Hope you in years are staying healthy for the time.
Ladies and how you doing the same view.
Thank you. Thank you first off.
So one Q it kind of satellite Corp is down a little with the Geneva acquisition, providing the growth for the quarter.
So through the next couple of quarters, how are you thinking about growth in the legacy business and given in Geneva is about 43 million I think it was 29.
That's all that we should expect to be kind of replicated through 2000.
Well you know.
What I'll say right now is is canes things look okay.
It's.
We got a good solid backlog like we've had for the last several quarters.
This is the.
The second highest first quarter ending backlog that we've had in the last 10 years and the only one is higher was was the previous year.
So so we believe that the business level as it stands right now looks relatively stable.
As we are moving forward with the bidding is.
Is actually quite large.
With that somewhere between 205 in 209000 tons bidding this year in the first quarter was relatively small so so from the perspective of the way the structure of the business looks from backlog from bidding.
In how things are moving fluid things look look look okay problem is is being able to project what things are going to look like with the uncertainty around the the corona virus in the environment that it's created so it's really it's really difficult to to give a absolute picture.
More of it but all the structure is there for the business to continue to carry on quite well. It's just gift jobs don't push off things don't get delayed we saw some delays in the first quarter some of which were weather related delays that hurt the the revenue and gross profit.
And in the first quarter, a little bit, but we also saw some jobs that were delaying related to the corona virus, especially work.
You know maybe being done in and around New York City.
Things like that show shoulders, a myriad of factors share, but almost all of the structure is there for the business to remain really solid all the way through this year. It's just how does the virus and impact the impact the the total environment.
Thank you for that and then.
I guess in the prior quarter, we were kind of talking about environment conducive to that 20% or greater gross margin developing through kind of this year.
However, given the covet slowdown, we just talked about potential right.
Other parts of the year, how should we thinking about the current business pricing environment. Unlike how how are you able to leverage the hot.
Well these margin levels more likely be pushed out.
Well again, there's a lot of things at the end up sick of affecting what the margin levels our.
Especially when you look at what split one on from the the fourth quarter two of 2019 to the first quarter of 2020. So we end up with margin levels that are in the 15% range, which are pretty average margins, but the the weather delays that I talked about creating a bunch.
Problems.
In the first quarter one of the weather, we had in Texas caused us to have to get off of some relatively large running jobs.
Because installation can be done in the field. So we were switching to some smaller jobs in switching into some other things that that would it does it is create.
Less less efficiency and you get a little bit more overhead absorption issues. When you start doing that because you have less direct hours than we had some jobs because of weather push out.
Not starting as early as we saw.
In that also affected the amount of direct labor in the amount of changeovers overs being done. So we had a lot of that impact going on in Devon ended up with the 15% margin.
We think we think margin levels are relatively stable.
As long as production levels continue to pick up in the near term I think the margin levels look reasonable.
With maybe a little bit of upward.
Potential.
The thing again that you can't tell is how much more impact will the corona virus have on this and.
The the hardest stimulus is like I said before things things look pretty okay right now.
But it's just a things in front of us that we can't predict that makes a little bit more difficult to give any kind of clear picture and which is why you know we're reluctant to two to give any kind of forward projections now because none of us of bending this kind of situation before in fact I don't.
Nobody has been a lot nobody's allied model that.
We're very few people were alive that were from the Spanish flu.
Outbreak, but.
Nobody's ever seems before so it's a little bit difficult to predict but again like I said the structure of the business looks solid.
Great appreciate it thank you for that either.
And next web cast director of Northland.
Yes, thanks for taking my question.
In terms of the backlog.
Is there any Geneva.
Backlog in that $224 million number.
No.
I will Geneva, Geneva is a little bit of a different business as far as the way the orders work class hits.
It's got significantly more velocity, it's much more transactional so they just really have an order book and we.
We don't count that in our steel pressure pipe backlog because as you noted steel petrified backlog is is longer term projects a lot of them.
Got it that that makes sense and then in terms of the reclamation project in California.
Is that all pressure pipe or is it some precast concrete work as well.
From from the perspective, the ones that we're looking at pretty much all over this free cash or excuse me steel pressure pipe.
Okay. Okay, it's an opportunity to get some of the precast working in that those reclamation project some more.
It's a difficult to service from.
Utah and I think you have some capability in in California and Tracy.
Yes, we have.
The the us the precast concrete market is a pretty localized market general shipping Radiuses are probably 150 miles on reinforced concrete pipe. So it really does it doesnt ship that bar.
As far as the Tracy RCP product, that's a pretty.
Specialized RC brought p. product, it's a webcast product, it's really for deep Kerry roasted soil applications. So that would really get any of those irrigation district.
Your next it's really the steel pressure by that fits that.
Got it and then.
Last one from me.
Obviously, I think California state budget.
They are projecting a $54 billion short fall.
Got quite a bit of business in California, I'm sure other states and his colleagues are under pressure.
Are you see in talking to your customers are you seeing any.
Concern about the ability to finance, what's on the backlog and and future projects.
No. We're really we're really not seeing any of that at this point related to this.
Cobot 19 virus.
The interesting piece when you look at this and look at the units, calling this a recession and what this looks like this versus the previous recession in 2000, and this will hit much faster.
And when you when the stimulus spending happened at the end of 2008 that was really an infrastructure driven stimulus spend.
Okay and this one so far has really been a stimulus so that the tax payers gaming carry on with their with their daily lives is as much as possible. The thing about the steel pressure pipe business in large capex projects. Like this is that it's a little bit it's a little.
A bit different where lot of these projects like you're talking about rate now.
Have momentum behind it.
Excuse me and they've been planned out for two or three years. So there's probably in some of them even longer there's probably two or three years of momentum behind this market.
First is seeing capex projects and the difference between the Capex in the Opex is normally the opex has to keep functioning simply to keep the the network operating in Capex generally.
Falls off we think in this case that the.
The Capex, which is you know the stuff that's going to fall off will likely be more treatment plant pump stations and things like that will be affected the network in the delivery and transmission network, which is the pipe and pipe systems. We think is going to be less effective and a lot.
Thats due to the failures that we're seeing in the system.
And what's happening is the the.
Pipe network, which is generally capex as almost becoming more like operating capex because of all of the failures. So there's a couple of Theres a couple of years of momentum behind the capex spending in the pipe jobs that are coming through.
And then obviously you know about the the Bill that's the Senate Environmental and public works Committee is bringing to the floor for another stimulus package that is related to infrastructure spending, which I think would cause that momentum to keep carrying through into the future past that two or three moment.
In period that we normally see.
Not at all.
Okay. Thank thank you Thats all for me.
Again as a reminder, feel like the participants Gionee Star then one on the tests.
Again that Star then one to ask your question.
We have David Wright with Henry investments. Please go ahead.
Hey, Scott good morning.
Hey, David the Aaron welcome Congratulations.
Right.
Just.
Couple environment questions the.
The projects that you're currently delivering on that are being installed I presume, they're all considered essential.
Yes, yes, and so it's just.
When you talk about some delays away from weather related delays.
If the.
Project is essential than really the only variable is further enough people are showing up.
To do the work right.
Yes, you can you can have a little bit of that you may have a little bit of slowdown in permitting.
That's required because of maybe theres other people at the those offices that.
Aren't aren't working in the office and they're working from home. So you can see a little bit of slowed down from that we've seen a little bit of delay like from quarter to quarter at this point, but we have seen no cancellations in orders yet.
So.
I know that your customers basically the GC, but when you're talking about these projects that you're bidding on or that you're going to be bidding on but did you have recently bid on.
When you look at them.
On a look through what sort of sense do you have on there.
Other funding sources I am asking the question in relation to this stress on state and local budgets I presume some of these projects are.
Our sold through.
Water district bonds that are authorized by partners may be.
Some of the other projects you mentioned have to be authorized by the legislature, but what kind of visibility do you have on the ultimate funding of the range of things are involved as well.
Well the the the ones that are projects that are we're currently producing or that are orders in backlog for that are scheduled to be bidding really for the next year in our advertised again are all funded projects. So so I'm like I said before that that's got some momentum.
Behind it usually for a couple of years.
At least those projects carry through as far as the future projects that we talked about in the script and a lot of these projects are based on you know.
Housing starts in population growth and interest rates and those kinds of things.
In which you would expect to housing starts to slow down a little bit in you know obviously, we all know what's going on with the interest rates may take the one thing that we're seeing and is a constant.
The failures of the of the debt works the water transmission delivery network across the United States and on the American Society of Citi Civil Engineers as coming out in a couple I think it was a couple bluefield statements, saying that this thing is failing show.
So these projects I believe instead of being straight capex projects versus other opex, which required to do just keep the system moving are starting to become like operating capex, you're going to have to spend those larger dollars to keep the systems operating or systems are going to continue to fail.
We can't have the water systems across the the infrastructure grid failing in the country. So they're gonna have to fund those projects.
And when you were responding to the first caller's question.
When you should the margin levels are stable production levels pick up where you are saying they were stable at 15% or that if production levels picked up 20% so what's more possible.
So when you get we don't we're at were at the point, where we're not going to give forward looking David because there's too many environmental impacts rate now what I would say is is that the better production levels the better the overhead absorption the better the impact on what the margins are I guess the bad.
Backlog is still in good shape from a margin perspective.
And although you know what I would would I would say theres a little bit of panic out there from some of our competitors right now I think based on the environment and what's going on when the environment, but with the amount of work that scheduled the bid we think that that should settle down and be okay. So so ultimately we still.
We believe the Threers those margin upward potential here.
Thanks for the commentary and good luck.
Thank you.
Well so no further questions that are comparable GAAP income per our question that as best I would now like return a conference call back over to Mr. Montrose particles Walmart Sir.
Okay again I'd like to thank you all again for joining the call today.
Despite the unfortunate circumstances prevented are presented by the the covert 19 virus to society and the economy at large our enthusiasm for the business going forward remains strong and we ended the first quarter with the seventh consecutive quarter.
This strong backlog of over 200 million and we see a very very strong getting calendar as we go through 2020.
And we're very excited to be a participant in the precast concrete market re possible through the acquisition of Geneva.
And the significant growth opportunities that this market presents we look forward to speaking with you again on the second quarter call in August in in the meantime be safe and stay healthy. Thank you.
And we thank you Sir into the management team for your Thermoses today again the conference calls now concluded at this time you may disconnect. Your lines. Thank you again, everyone take care and have a great day.
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