Q1 2020 Earnings Call
[music].
Good afternoon, ladies and gentlemen.
Welcome to and Inc. first quarter sales and earnings call.
There will be questions and answers here yet after the managements presentation.
This call will last approximately 45 minutes 10 hour.
I would like to turn the meeting over to Mr. Gaby field.
The floor is yours.
Good afternoon, let's start by reading a forward looking disclaimer.
To the extent any statements presented herein deals with information that is not historical including the outlook for the remainder of the year.
Such statement is necessarily forward looking and made pursuant to the safe Harbor provisions of the Securities Litigation Reform Act of 1995.
As such it is subject to the occurrence of many events outside a arms control could cause a ons results to differ materially from those anticipated.
Please see the risk factors contained in our most recent SEC filings, including the annual report on form 10-K, and the quarterly reports on form 10-Q.
Now I'd like to turn it over to Scott is goranson to discuss the first quarter numbers well come George Conference call.
Again by discussing comparative results in three months ended March 31st 2020 versus March 31st Girls and my Dream that sounds right, 20.8% to 130 some points was known from 130 importantly.
Net sales for the quarter or.
Primarily to our increased production for me additional Sheldon Union machines with were placed into operation or gross profit increased 16.9% to 42.9 million. Some 25.4 million. That's a percentage of sales gross profit was 31.2% of mcwhorter.
Extended compared to 22.3% in 2019, we continued to see overall raw material cost decrease.
Definitely has improved its labor and overhead efficiencies through increased production and absorption of fixed costs.
Selling general and administrative.
<unk> increased 11.2% to 15.2 million from 13.7 million in 2019. Additionally, as a percentage of sale that's true.
To 11.1% of total sales in the quarter just ended.
12.0% in 2019 income from operations increased 142.3% to 27.8 million or 20.2% of sales from 11.5 million or 10.1% of sales in 2019.
Our effective tax rate decreased to 21.5 person from 23.5% the company's estimated annual twentytwenty effective tax rate excluding discrete events is expected to be approximately 25 I'm sorry.
Net income increased to 21.9 million were 15.9% of sales compared to 8.8 million or 7.7% themselves in 2019 diluted earnings per share increased by 141.2% to 41 cents per share from 70.
That's for sure.
Earnings for sure were based on 52.871 million shares versus 52.370 million shares the same period a year ago. At this time I'll turn it over to Rebecca Thompson, our Chief accounting officer for her to discuss our balance sheet.
Scott.
Looking at the balance sheet, you'll see that we head of working capital balance of 132.8 million versus a husband 31.5 million at December 31st 2019.
Unrestricted cash totaled 35.7 million at March 31st 2020, our current ratio was approximately 3.1 to one.
Our capital expenditures were 21.9 million, we expect capital expenditures for the year to be approximately 73.2 million.
The company had stock repurchases at 5.1 million during the first quarter.
Shareholders' equity per diluted share.
$5 in 79 cents at March 31st 2020, compared to $5, a 51 cents at December 31st 2019.
I'd now like to turn the call over to Gary fields, our president.
Let's talk about some of the sales activity in some of the general environment that we're working in right now.
So.
Yeah on was a company that was deemed in a central manufacturer. So we've continued to operate through some of the.
Shutdowns that have occurred for others.
Our essential nature was proven when we were tasked with.
Providing over 4000 tons of air conditioning units totaling 80, 50 ton units for two projects in New York.
Stony Brook was one of them and Westbury was the other one.
We received the a request for that equipment on the 29th of March.
And within nine days all of it was onsite.
So that was oh, rather heroic airfit effort by all of our Aon employees and all of the sales channel.
Participants that had to work there.
Portion of the project.
We continued with a total of 124 units that have gone to the specific corona virus.
Emergency temporary facilities.
But beyond that we're seeing some new activity recently for support facilities are going into the future we received an order.
Just this week for project in the state of Maine, It's called Puritan and it's a these people make the swabs that we've heard so much about from a president Trump's grown a virus task force that are used in the Oh quick turnaround testing.
That project also required us to manufacture specific units for the specific application and provide those in about a week or 10 days. So the order came in just a couple of days ago and it'll go out a in the next couple of days.
I want to talk about our water source heat pumps, a little bit.
So our numbers of water source heat pumps in Q1 were less than.
What they had been on a quarterly basis.
We had some growing pains in that heat pump business.
Some of those growing pains were related to components that we selected some material suppliers or some of them. We're just the growing pains that occur when you're developing at a quick rate a new product. So we lost just little bit of momentum.
But we began to regain that Oh the lead time. It is very short so all of this happened rather quickly.
And the April bookings on water source heat pump strengthened considerably so the momentum is going the right way.
So weve reestablished our momentum and we look for that to get back on track to improving.
But at the same time, we evaluated the entire team that we have here on staff at a on.
Realizing that this was up a product it was a bit different than our legacy product and realizing that we didnt have as broad based of.
Experienced and knowledgeable people in Oh, two to flesh out our entire strategic plan for that.
So we've been negotiating with some people that were in the final throws of negotiating with that have extensive experience in a water source heat pumps to join our team.
And we expect Oh in the next week or 10 days to have these people join our team and this will.
Allow us to execute the strategic plan that we put together and.
It's a cheap things that we had talked about for quite awhile with this.
The next thing I want to talk about is our Norman Asbjornson Innovation Center.
Those of you that followed us for a few years know that we built a magnificent.
Oh laboratory.
And we've had a grand opening of it and so on and so forth.
The physical facility itself is unequaled in world the capabilities of that are just not available anywhere else.
And we had a core group of people that had been with the company for many years that had great experience with that but they didn't have enough bandwidth in order to utilize that laboratory to its its full capabilities as far as production capacity.
They for the last two years, they've been building that knowledge base and that team and we finally got to lay spot.
Where we could spread those experienced people out time wise.
Okay and put on more ships. So were we are in the next few days, enabling on a round the clock seven day, a week operation of the Norman Asbjornson Innovation Center.
So this goes hand in hand, with our efforts to accelerate our footprint with water source heat pumps and all of it dovetails very nicely together and I'll have to say from a timing standpoint.
Concerning the innovation center that we're doing it just didnt time, but we didn't wait too long there was really no effective way to do it any quicker than we did due to construction schedule and training and so on and so forth. So we're very excited about the potential of compressing our.
Roadmap product development roadmap the schedule that we have will be accelerated greatly by this new activity.
I've spoken with our director of sales and he's polled all of his regional sales managers.
And they have updated me they maintain very close relationship with the sales channel and I've had a lot of personal phone calls with the sales channel myself, just seeing where are we this corona virus has caused.
A lot of AXT in the world and so where we yeah.
Well.
At the end of.
Q1.
We were at 90% of our plan on booked orders.
So there was a slight impact from it but it wasn't anything substantial.
When they pulled these people to see was where those projects cancelled or where they delayed the overwhelming response is delayed.
Not cancel.
There's been very very few of cancellations in the pipeline, we've had essentially no cancellations that I'm aware of in our backlog. It's just that the forward looking pipeline.
The four log if you will there was one or two projects that I was made aware of that they had anticipated being July August September projects that they've delayed took 2021, but they're very insignificantly overall scope of things.
As I read through the regional sales managers comments, it's unanimous market strength of commercial healthcare industrial is very good.
Oh market strength for hospitality is being hit the most.
We have been fortunate over the years to participate in a lot of hotels and casinos boat.
And.
Some of the casino projects that we knew were out there in the future are on hold.
And though some of the hotels have have hit the pause button as well I think that's very understandable.
We've spoken over the last few quarters about the grow market.
The grow market according to each of the.
Sales managers that participate with their sales channel in that remains neutral.
Oh, K 12 has been neutral to increasing.
[noise] and though.
In the northeast things are a little bit more constrained than they are in in the rest of.
The United States in that the schools or even at a pause right now.
Her I did talk to one of the a major players.
In our sales channel he is easy it.
He's in.
Philadelphia, and Harrisburg, Pennsylvania, and he gave me notice last night that they have quite a few schools that they're about to be able to get released so not exactly as tires is what the Oh initial thoughts might have been.
So overall, we're looking oh bookings for the remainder of the year, maybe not being exactly on plan, but not being substantially lower than planned either [noise].
There will be off just a little bit it looks like.
When I look at the various markets you know I just told you a bit about those the one thing that I want to emphasize that.
I've seen some clarity on is a health care.
And this corona virus situation Oh, it was recognized that while in the urban areas. They had large hospitals and they were able to could construct some of these temporary facilities either using large convention centers. The shift in the case of New York City or the tenants that we participated in but when you got any.
The more distributed areas across North America, the rural areas. The suburban areas. Then there was a substantial weakness over the last several years, there's been a lot of consolidation of health care facilities to these urban areas, leaving people to drive maybe as much as 150 miles to getting the appropriate care.
We're already seeing activity in these areas to reestablish some of those facilities that were mothballed, which gives an opportunity to update there.
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Our military movies somehow okay. So I'm not sure how we were interrupted there are so the the story on health care is that.
We're going to see a lot of facilities that were mothballed that are going to be renovated and put back in operation. Some of these have sat dormant for quite awhile and it'll be a good replacement opportunity. This is an area that I on participates in substantially with our legacy products.
So I want to talk about the backlog next March 31, It was 119.6 million versus 166.6 million in one year ago.
The 166.6 million, while it seems attractive was actually a bit detrimental.
The the real crux of that was that we didnt have our production rate high enough to meet the demand and so we had accumulated and our lead times have lengthened.
With the addition of all the Salvini machines and appropriate Labor Force Oh efficiency gains then we have been able to increase our production rates considerably and.
Thus, we've been able to reduce the backlog, which is a favorable thing so that we can get it in alignment with lead time expectations.
Since.
The beginning of Q4, we began reducing lead times are publish lead times, we've had multiple announcements of lead time reductions and I would say today that we're probably ranging about.
Probably about 60% less a shorter lead times than we were a year ago said look about yeah. Eight weeks is our goal and we're probably we have some products that are six eight weeks right now, but if you took the whole tranche, we're probably closer to 10 weeks right now said about right sounds about right.
Yeah. Okay. So our goal is eight weeks, while our goal is not to bring in less orders it's to produce more.
So we have put a lot of the 70 machines in Indian operation, we have four more yet coming throughout the year. So our production capacity has not yet Pete and now we will be monitoring.
The two things as they come together, the order volume and the production capacity, but it's very manageable [noise].
So I want to talk a little bit about Oh.
The supply chain.
We've had some minor oh I call them Dustups, a with supply chain they've all been manageable what are the primary things. That's occurred is we have various models of compressors available in our units going from a base model.
And then there's at least a three a we'll call them great models a various duties.
Well, we've had a few units that weve graded one or two models of compressors in order to produced the equipment because of the availability of.
Sales channel and when we had any difficulty due to supply chain than we've been able to help them work through the custom selections and select something that still met the project requirements and we were able to meet the needs with with the supply chain.
Speaking to our purchasing department earlier today.
The Oh outlook is fairly stable, but it's not oh without its challenges outside but it but it's all manageable.
Uh huh.
The next thing I'd like to talk about is attendance and disruptions.
So in our Longview facility early on in the.
Kind of though.
The role of this Corona virus, we had one employee in the office in long view, it and coal products that began to show symptoms and that person Oh quarantine themselves right away.
And they.
We ended up being positive.
And Fortunately they came through it just fine, but we contact traced everyone that she had been in contact with and we quarantine those people and there were no further positive cases, so we've only experienced knock on wood one case.
And that was in the Longview facility.
Longview being one of the company's it's a separate entity Oh, hey on coal products and it has less than it has fewer than 500 employees. So the rules that the government made for that were very favorable for the employees to I'll take off and still be paid quite nicely by these these programs.
Oh.
Our attendance went down to a low a 42%.
But as of today, we're back up to 80%.
And it's been trending upward for the last two nearly well about two weeks solid yep, and we're expecting that continue to trend up but there's one other interesting aspect of it.
While we were.
Had the opportunity to be on the television news stations to talk about our participation in these temporary hospitals are newly appointed president of and coal products Gene Stewart.
It was interviewed and they gave him the opportunity to say that we were hiring and that we needed to hire 100 people in order to meet our production requirements.
Within four or five days, we had 400 applicants.
Now the only problem with that is in this situation with a social distancing at all it's very hard to get these people interviewed and Onboarded in the same manner that you would in prior to crown of ours. So we have been working on that diligently so while we're only at 80% of our desired attendance right.
Now in addition to those people that we expect to becoming back will be hiring more people on top of that and that efforts going fairly well as far as I've gotten Scott's verifying that for me, it's going quite well.
In Tulsa, we have zero cases have grown of ours again knock on wood.
As of April 1st we had 95% attendance well, 90% to 95% is kind of our historic range. There's always people that are out for vacation standard illnesses.
Just different reasons that they want to be gone. So you will never be at 100%. So we were at 95% well.
We had people that have extensive pts Scott is the number 480 hours, what we allowed to accrue the limits. Yes. So we allow them to accrue up to 480 hours, a P.T. O time, which as you know that'd be 12 weeks well, we normally manage this in a real oh diligent manner. So that we don't have.
The the substantial people.
Number of people out at one time, but again with doing the right thing with the Crown a virus if people want to take off they have the pizzuto time, then of course were granting that request. So we went to a low of 64%.
So I think that date was April 25th.
It was the low.
But again these people use their peto they left for a little while they're coming back and as of today, we're at 89%.
And my understanding of the prospects of coming back to more like full strength is within the next.
Next we know case.
End of next week that were a fairly confident that they're coming back but again.
We want to higher approximately 100 people here in Tulsa as well correct, Scott, we're making good progress we're down to about 55 life. Okay. When I first opened that opportunity with Scott and the HR Department. It was 100 now we're down to 55 left he just did for me. So we're making good progress on that.
So with all of that said a with the lower attendance in both operations miraculously April was nearly.
At our expectations for total production. So our efficiency has been just improving over and over and over I'm I'm very proud of the efficiency.
Q1 financial numbers tell you that the efficiency has has returned to numbers that you were accustomed to seeing from the aon of deal.
With that.
I finished everything I wanted to say I would like to welcome norm to have a few comments here.
Oh, well combos move you had been speak root for several years go like to refresh.
Give you little bit of field for where we or how would we bought to George <unk> company.
Over.
First the.
No.
Mm Hmm.
Oh, we bought 92 people along with it.
Oh, we were doing about $10 million was a manufacturing in the boat Simone mode.
Contract.
We were in the process of getting a little bit contract business at that time.
We know hubs slightly over 2400 people know what we're doing in the door we've enjoyed.
Let's turn to killer subsurface that other than for the first three months. When we did have a losing time, we've never had another losing quarters since October 1st we're going to 99.
We've had gone sogou highest.
Oh success ratios are good anybody in the history of leading their condition industry.
If you looked at what we just produced for the quarter, we have an all time high profitability.
Due to the dog food.
It was all things change in the past year, we got back into an inflationary environment and what we were going through the change from one managerial group to another we changed older huge number.
<unk>.
Bruce levels with management, well you can teach the new people worked the fundamentals or all the little nuances that or known by the people who have been here for a long time hurt easily transferable and there were those funds click to bleed. Good was considerable problems blew past two years, we have no.
Well go on past two people know that or have been the replacement people no no those lou areas to avoid do causes problems with their productivity.
And so consequently, our productivity has been rising Burke to its historical range and the people we have been those replacements positions I believe well ultimately hub at least as good and skill level those people, who replaced and in some cases, there better skill levels.
So the company has transitioned from one generational group to another.
Dropped the average age by a considerable amount. So we know Hubble fairly young managerial group were three or four years ago, we ought to be old man Andrew group. So copeland's much better position going forward. In addition to do people with the.
We have been bigger that so characteristic of younger people have moved us along a great deal in or.
No the knowledge fusion or documentation wants to be done yen or infrastructure is much stronger than it's ever been around the company has never been in spite of condition reduce with people systems.
Ooh infrastructure of all kinds financials in other words were were both the top of who place we've ever been in the past.
Sure gives me great pleasure enjoy.
But a lot of before the merger will be just more of a consultant person who work with Google because I should great things potentially in the future.
We do recognize should we go to poor billable challenge running against virus and with all of us or somewhat new when this that's not going to go away.
Probably noble.
For almost number then certainly it's not going to be contain doing and put through input you may recall a normal sequence for.
So period of time until the medical community you get some better handles on the Medicaid should control.
So we believe we're on top of the well we recognize that we should usually have flare ups. We can usually have some problems, but I have very little concerned with her being a good odor control. We go too many controls we've got too much work going on we've got to money funds going on to try and keep ourselves Hill.
So I don't expect unit goods going to get real bad undoubtedly we are going to have some flare ups not burdensome for sure.
They're not going to be the two detrimental to the future of the company goes so look the.
Industrial movie economy whole genome that I believe it will we see mode.
Oh boy restored we had the strongest economy in the construction industry that we've ever had and I'm just.
In the month of May.
Punishment shifted issue more ships do if you're in this industry sewage speak with probably the most.
Long term NOL in June this industrial good anybody who's to Lucky.
And I can tell you that it looks very promising to me with one big question Mark I notice how much damage use boilers doing tour economy.
Certainly hope we're.
Not going to destroy too much but I do.
We believe that with the straight through the had prior to going into that that strengthen still out there and I think it's fairly easily replay mobile, but we do have a lot of challenges and work you would we believe explorers. They own is concerned we go to the under control we know how to work with it so to speak.
For one company.
I think we're in great condition going forward.
More than ready to get Burke with continued growth in the industry.
I would look like all of you Hill.
Interest company were.
Born company your deals and look forward to be road and talking to periodically in future.
You bought.
Okay with that we'd like to open it up two questions.
Absolutely. Thank you Sam and at this time I would like to remind everyone I'll get to ask a question. Please press Star then the number one I need telephone keypad.
Dan That's die then the number one on your telephone keypad, if you wish to handle the itself from the Q. Please press the pound pool will possibly just a moment symbolic you any about <unk>.
Your first question will come from the line as Mr. Bank Salmon from D.A. Davidson. Please go ahead.
No Brad. Thank you today, good afternoon, congrats on a quarter and challenging times and congrats on the transitions I guess officially here as well.
Thank you.
Yeah, that's a lot of talked about talk about that they've got to start with.
The orders that were deferred I think you only mentioned that maybe one or two I can imagine that's more than a few million dollars that.
I'm just curious when you guys see that does that that does that stay in backlog did in backlog for something that sits out.
Kind of beyond the year Hasnt mechanics of that work.
The ones that I talked about deferred we're not in the backlog those were in the pipeline for the sales channel. They were talking about them that they were pending orders. We had one small order for a growth facility that they had had yet in the backlog at.
And had put a hold on it long before crowd of ours and I don't know what their actual difficulty was I told them. It was timed either fish or cut bait here about three weeks ago.
And they decided to cancel that order and then that representative immediately replaced it with two more so that's the only cancellation that I'm aware of it was the order for.
I think it was about $500000 offended read is that ring a bell. Okay. My recollection was it was about 500000, but again he replaced it within a couple of days with another one so the only order in our backlog canceled its just that I'm aware of is that one order.
There are some orders, which have been delayed due to shut downs in construction in various states.
Those because the equip them has not left our facility and have often shipped still are reflected within our backlog.
Right.
And can you guys remind me.
Yeah, I guess this is really more specifically to new construction projects kind of the timing of when someone comes to you with an order as it is it preceding when there's a whole on the ground or sometime after that just trying to kind of understand the timeline there.
Well.
So.
It varies just a bit based on the pace of the project. If if it is new construction like you just ask for than the traditional process is the the owner solicits bids from general contractors or construction managers. They solicit bids from subcontractors, who then solicit bids simultaneously.
Our sales channel so pretty much all the bids come together on the same day.
Usually takes in the 30 to 45 day timeframe to analyze those bids then when they are awarded a we go through a submittal process, which is about another 45 days. So about 90 days. After bid is when there's an award and then usually within about 30 to 45 days of that.
He is when we get a release to manufacture so somewhere in Mis award time some of the trade starts and it's usually the excavation and if it's a slab on grade kind of a building a single story a like a plant that we're building in in Longview.
I'll, then we're going to get an order for equipment about the time. The slab is in place if it's a high rise buildings, where a you're putting units on say every floor. The timings, the saying, but if it's a high rise buildings say a a 10 story building that your unit goes.
On the the very top floor that a lot of times you will see three to four floors of steel or a structure that are up before we see the order.
Okay. Okay. That's helpful. Gary and then that it sounds like January and February I mean, just thinking about the last call things were trending along fine sounds like you might have seen a relatively steep drop in march but it. It sounds like April is kind of returned to normal just from an order in order intake perspective is that the right way to characterize.
Okay.
It's not quite normal it's just a little bit short of that but yes, it's not a drastic change.
But it's it's beginning to regain we could feel when people started reopening their state because things became more efficient now all of our sales channel partners. When we talk to him said, we didnt quit working we have been working remotely from home, but it's very inefficient with time, because it's hard to get everyone.
Together in those scenarios to make those decisions. So it just strings out the process for instance, I was talking to one of the sales channel partners.
Yesterday that they had intended on sending us orders for a bunch of K through 12 schools for the replacement of units for the summertime activity.
They had intended on having those into us in early April Yeah. We got the first of them. This week and they said by next week, we'd have all of them. So their paper works running say 20 to 30 days behind schedule.
Okay.
Maybe one more now I'll get back in line that the hospital related.
Orders, what's the revenue contribution to that Gary.
I think our traditional.
Slice of the pie is around 9% of our revenue goes to hospitals.
And.
Wow.
The whole Jonesboro form.
You are kind of a one specific job not boost.
That's for the he's talking hospitals in general the whole market the whole market runs a but you are talking about the whole market not just the specific to jobs. We did well I guess that's helpful to said, 9% for I think hospitals, but the two jobs I'd be interested to if you are you able whether it was to those those two jobs in New York those current a virus.
We delivered in the one week timeframe that was 4 million.
Okay.
Okay, Great I'll get back in line. Thanks, all right. Thank you.
Thank you Santa Claus at this time I would like to remind everyone. I wanted to ask a question. Please press Star then number one I know telephone keypad.
Thank you next question will come from the line of mistake gentlemen, Julia.
Okay and company. Please go ahead.
Hello, Joe Hi, everyone. Good morning, Good afternoon, actually hope you all doing while doing well.
So Gary I just wanted to ask regarding your comments on a 10.
Employee attendance.
You finished with sort of production in April meeting your expectations.
Were those expectations, you know sort of pre co bid. So have you changed the expectations based on <unk>.
Economic you know the markets coming down and the volatility in the stock market economic downturn or was that sort of pre cove in April expectations, and they're meeting your expectations. Despite the employee attendance could you just clarify expectations that you're referring to.
I am talking pretty co bid.
We have not had any re slighting of our expectations at this point.
With our backlog the way the as.
We have not re slated anything yet we're not to the eight week goal yet.
Okay.
So that brings me to sort of a lead times and backlog you mentioned to your ideal or your lead time goals eight weeks what would your.
Like I talked about.
Adding some overhead stuff in order to develop more water source <unk> product for instance, so if I can gain some efficiency by doing away with some over time and trade that for some people that can develop product for the future you know I I can probably keep my goal of 30% pretty pretty solidified.
Gotta Teeter totter here I'm trying to keep balanced I'm trying to add some assets to the company that that will provide for future growth, but I'm also trying to fund them by making this thing more efficient.
So also I I wanted to ask about the revenue they use on the first quarter relative to I guess, maybe near term expectations. Because you know usually we see the had in shoulder shape, where you know that the outquarters are sort of slightly down in the June in September record or a little higher.
It's just an abnormal year you mentioned you stated that orders are sort of stable and.
It's it's a little bit of an abnormal year, where maybe the June quarter is is comparable to the first quarter or do you think you could still see you know that typical seasonality that you generally see historically.
No you you're categorized at first by calling an abnormal so we've been in a abnormal situation for a couple of years now we've had more orders than we can produce so we we went into the first day of 2020 with a backlog was much higher than what was ideal and conducive to good.
Lead times, and and you know best practices. So we were able to keep the throttles foot and and we went into queue for the same way because queue for we typically start turning down Q4, and Q1 or the two that are usually lower and and two two and three are usually the the top ones that you're talking about so because we we.
We're still gaining capacity, we were able to keep the the throttles full forward and Q4 and full forwarding Q1. So I would say that you know if we were if we were so lucky is to duplicate Q1. In Q2, then then I would call that a great achievement.
Normally you would say Q2 would be larger but you know that having you know some labor challenges, just a little bit and and this that and the other you know I don't want to get our hopes that the two two is going to outrun Q1, because I I just don't see that happening, but I also don't see any substantial decline I mean, it it's going to be nipping.
<unk> q. too, possibly looking similar to Q1.
Okay. Yeah, I just wanted to clarify that because wasn't sure <unk>. One more question why have a few more questions, but I'll one more <unk> you go ahead like it [laughter].
The the <unk>. This the first got the cares act benefit that I read in the 10 Q. I guess this this is a tax benefit where you can you know retroactive Ah you know fold appreciation or something related to going back to 2008.
Teen and so I thought your tax rate would benefit but you you you stated sort of a guidance of 25 per cent, which is I think what you've sort of.
Talking about you know in over the past year or so is there chance that is lower than 25%.
[noise], no well, we'd be doing and getting accelerated depreciation on the qualified improvement property and just see it timing difference between our current painful and our differ tax liability doesn't really impact our overall effective tax rate on this is the timing of when you in the.
Taxes.
Oh, Okay. So you're cast that goes okay.
Or got it alright, thanks, a lot <unk> things yeah.
Thank you sit and listen to your next question or something to line up and if they find games. When spring has kept the L.C. line is not like me.
Good good yourself.
Good.
I I just you know he had a nice quarter in terms of pricing of the rooftop units is are we kind of through the cycle of price increases yeah, you kind of catching up to where you had to be to get to the margin or is there still further for the pricing to come.
Oh, we have not announced any further price increases we don't see any need to on the near term horizon. Some raw materials I I just got an analysis from my purchasing department today.
We track nine substantial materials, the that we purchased copper steel aluminum stainless steel heat exchanger tubes.
Coils, and compressors and and anyhow. These nine things they were down eight tenths of a percent as a traunch versus a year ago, but they also make up about 70% all the materials that we purchase so the other 30% of materials, we purchased or are harder to.
To scrutinize to that same level, but are feeling is that they are just a little bit. So I would say or material cost is flat now the one thing I do want to say about price increases is on <unk>. We had two categories of equipment that we had price increase on in December of 19.
One of those categories was the equipment that we build in our Longview facility and since we have a shorter lead time that didn't fully get into to Q1, but part of it did but but long is only about what twit tend to 12% of our revenue so even if they.
Got a little bump it it it's not going to be anything that's going to show up very much then another product group that comprises another 10% to 12%. That's are very very large tonnage units. It got a price increase at the same day, but it's laid times a little longer. So we're probably looking at a very very small tweak of.
Of.
That product entering the the production floor sometime in Q. too.
And so there is just a very small adjustments yet to be had at the bottom line because of that but there's nothing further on the the horizon.
And you feel pretty good competitively I know you've had big price increases, but I imagine industry has as well. So you kind of just kept up.
Yeah, we we've we've done quite well we had a what we call a wrap council meeting we have six regions and we select two or three representative organizations from each region and then we have at least an annual if not semi annual conference with these people.
And that way, we can explore you know <unk> good feedback from the from the field is a a big group you know are we seeing any pricing pressures. We just had that meeting last week virtually by the way normally we have it at a a nice resort, but the resorts closed and we're all social distancing. So we had it virtually.
There was one rep that talked about a little bit of competitive pressure on one particular style of unit.
And the rest of the group kind of chimed in and told him. How you can positioned himself better to overcome that that he really didn't need a discount so I would say the pressure for discounts the pressure on pricing is very quiet.
Our our primary driver has been lead time until we got this lead time down to a desirable number and we're we're nearly they're not quite I I don't think pricings an issue at all.
Okay and is there any way you can kind of give dollar value of orders in March and April what it is kind of your over here.
No that that's a kind of forward looking information that we don't talk about.
Okay. I can you give any kind of expectation for two q. kind of overall, what you're thinking.
<unk> are already did.
When Joe was asking questions may be overlooked that you know it historically before I got here the company had a swing that Q4 and Q1, we're usually somewhere in the range 10 to 20, 20% lower than Q2 and two three.
And so you always you know 10% to 20% swing between between those and so since I've been here, we've got more orders in we've lagged on production. So we've kept the production throttle school forward. So we've not seen that same bell curve. So Joe a minute ago was asking do do we think the bell curves back.
In other words, you did really good Q1, but it's too to going to go up 10, or 20% and I said no. You know if if we were able to duplicate cue to what we did in Q1, I think that would be more than a reasonable expectation.
I I think it's a possibility, but it's not a promise.
Right No no I I heard that I was talking more orders, a unless kind of Lebanon orders orders. Yes. They have also been most affected by lead time as we brought lead times down. Then then orders were beginning to gather some momentum then the current a virus came along and kind of nip that in the Bud.
And so basically it at the end of March we were at 92% of our plan or expectations on a orders booked and <unk>, we remain kind of in that same range right now.
Okay and is it fair to tell you, where you kind of heading into cobot into at the end of February where you at 100% of plan or you well I had a plan.
We were really close to plan.
Okay.
Yep.
Thank you sat and <unk> you have a follow up question some mistakes <unk> some gay Davidson.
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Back again, yeah, <unk>, yeah, the the waters or pumped sounds like.
Category. It sounds like you know, obviously made some changes to fit the comment and what you're trying to do there.
I I don't think you mentioned this <unk> are you expecting that product line to get back to kind of growth mode here in the coming quarters that you're going to take a few more quarters to get there.
I'm going to tell you, it's gonna take a little while for this reason corona viruses, probably affected that product category is much more so than anything because the the largest target market for us with our current product offering has been highrise condominiums and hotels, which both are going to be under substantial pressure.
Going forward, but I do have the the story of why we got into water source heat pumps, and and how we thought we would leverage our legacy product.
Two sales of these.
Our sales representative in Albuquerque, New Mexico also covers El Paso, Texas.
Earlier this week he sent in a very very nice order for water source heat pumps.
And it was half of the the total order volume roughly was our legacy product configured is water source heat pumps, but these were unique operating characteristics. They were 100% outside air called dedicated outside air water source heat pumps that that were roof mounted but it was coupled with.
Good group of the indoor units that are what we call the W.H. and W.V. models, which are the new ones that we've had all these commentary about well all along the strategy was the those rooftop style units. We are unique in that there's very few people that make those if anyone.
There are certain.
Ah operating strategies and certain sizes that were the only ones that make the when we had that that very often they were accompanied by this other water source heat pump well prior to us going to this effort and putting this new product together <unk>.
Other manufacturers underlined sheet, we're getting that business. So now they're beginning to give that business to us and so I I was very very pleased to see this they did a case study on it on there are linked in page that's how I discovered it and then I went and looked up the order and soda a nice deal it was.
Got it.
Maybe one quick follow up I mean, this goal target lead times that you guys want to give it to do you think you'll be there and the second quarter.
Going to be really close.
Really close I I walk the plant floor nearly every day. The the people that are out there are working very hard even though we're a little understaffed and like I said they they met are very close to met our expectations in April.
So so that helps a lot beings the order slowed down to about the 92% level you know that that's going in the wrong direction for that but now those orders are going to start coming in as I said, we've got school orders and things that are beginning to accelerate is the world opens back up but at the same time.
I noticed that we had another new solving any machine that I was quite pleasantly surprised to see that it was here. It was in place. This having any people were here commissioning it and they told me that by the end of this week I would have that well each solving any machine you know ads appreciably to our production capable.
<unk>. So we're gonna have increasing production capability. If we can get these people back in here and get to work.
Which I think we're going to do everything's pointing very nicely to that that by the end of of Q. too I I think our demand and our production capability will come in alignment to get that lead time, right, where we want it.
Okay and by virtue of that I mean, then that the sales line is probably going to mimic the order line a little closer I mean versus what we've seen that would be ideal here.
That would be ideal.
Okay, Alright, Thank you guys <unk>. Thank you breath.
Thank you sound like you can display said this time I would likely might ask me why didn't <unk> piece, plus side and and number one <unk>.
He also has a follow up questions on mistake gentlemen, Gabrielle sensitivity in company here. Please go ahead go.
Go ahead Joe.
Hi, guys think for taking a couple of false so first wanted to ask about.
You know it down a year over year, but the big thing that I noticed when I look up a cue when you add up I guess, it's profiteering salaries and Spock comp.
Right up those three line items and they have.
You know increase pretty you know pretty substantially as a per cent of sales over the last four or five quarters is that just standard sort of.
Compensation inflation and should that.
Sort of stabilize and it gets to you know more broad question, just as you know as a whole.
Should we expect that C.N.N.'s apprentice, usually tend to see I've seen a as a percent sales decline.
You know you can leverage that should we expect them.
Well I'm going to pick one out of the three that you asked about them and let scatter Rebecca handled the other two profit sharing is the one I'm going to pick.
Profit sharing is a fixed formula it's 10% of our profit goes to our pretax profit goes to our employees I'm very proud to say.
<unk> <unk> that on Monday, we will be issuing checks for 1600 and $43 per employee that qualifies for our profit sharing that's where this quarter.
<unk> virtually everyone, except the <unk> I mean, there's there's some qualifications as to how long you have to be here, but it's roughly what six months rapidly come on sitting six to nine months, depending on when you onboard and so virtually anyone that's been here six months plus is is eligible for that profit sharing so that's 1600 and 40.
$3 per employee that are getting that so that that's 10% of our pre tax <unk> profit that goes to that so that that number will always very with the profit.
So as our sales become more profitable then.
<unk> and sale. The the profit is a bigger percentage then that will be as well.
<unk> and then one other thing to keep in mind is we have a 175 per cent match on their four one k. and so if they'll put in 6%, we'll put in 10 and a half. So that also goes for another $172 for all of those employees that are in that 6% category, which I again I walk the plant flow.
For this morning, because we announce profit sharing and I was asking people about it I did not find one employed did not contributed to fool, 6%. So they're all getting $172 all of them I talked to.
What would you like to talk about the other two I don't know will if you'll notice our our start complex. We issued out this first quarter was substantially less than what it was same time last year.
We reduced the volume of options. If we issued out large part of it was driven by our changes and base wages for entry level personnel as we converted more of their total compensation package of the entry level of the organization into a cash basis.
A little bit less of it into the equity platform. So you didn't see edge, where you are grants decline but.
That's the overall <unk> program, if we have an hour.
Base pay you see some upward pressure in terms of a wages up and you know positions and then it was mostly driven by last year. This year, we're already seeing some indications within our database. So that wages are going to back off from the growth rate that they had last year, we're not quite sure how.
I don't play on his ear regresses, but we're already starting to see that inflation read on the data sets a decline.
Okay got it I also wanted to ask about going now.
Central your independent sales reps and selling the product over the last month or month, and given sort of the shutdowns and you know people you know social distant thing has you know you sort of indicated that your orders have stabilized or whatnot, but.
I would've thought they would've been down even and more and I I guess the read through should me that you know as the reach of should be a really good positive thinking just the fact that your orders are stable and not not down so how if they've been able to sell the product without.
You know seeing their customers.
Or I'm gonna well, there's several ways.
Some of them are pretty crafty are are representative in Chicago Windy City reps led by Jim Wilson.
He called me and says Gary I want to share. This story with you and I want you to share this story with some others.
He said, we had sales presentation seminars to our community.
And we did it by Webex, but we gave them a grab the hub voucher, where we bought their lunch, but they had a <unk> voucher. So these people if they logged in then they validated their grub voucher. They got their lunch brought to them now I thought that was pretty clever. He I don't remember the exact participate.
Patient numbers, he had but it was substantial but that keeps the early part of the sales process rolling that that's the design part of the process you'd do with consulting Engineers, then as as I've heard others speak <unk>.
Other than the very largest projects that require an on site enter view of the the contractors. So you're you're midsize to smaller projects, which tend to be more in our wheelhouse anyhow. Those projects are still being awarded absent of a long interview process that you might see on a very very long.
<unk> project so.
It's not as efficient time wise as it is person to person, but you know oh over the years, we've evolved into a a business method, where you know we went with mobile phones and Internet and web <unk> zoom and all these other things we we've been conducting business this way to some day.
<unk>, all along but not as intensely is we're doing now.
So.
Like say, there's there's some places that have slowed up a bit more and there's some that have slowed up a bit less you know when when I look at it Pennsylvania for instance, prior to Corona virus in their region in the northeast. They were one of the top performers as far as percentage of expectation and and they've fallen back.
Just a little bit, but again I talk to them yesterday, and they've got school orders coming into me right away. So they still managed to do the work it's just.
It it it's difficult, but I'm going to fall back to one thing that I've told many of you we have the finest sales channel partners in the industry unequivocally.
There is no other sales channel that's as good as our guys. They are aggressive they are innovative and they are they're just great performers and so I'm very proud of them very proud to be associated with them and our performance on bookings isn't a testament to that.
Alright, well, thanks for taking my questions and good luck with having eyes and stay safe and well thanks on.
Thanks, Joe.
Thank you so much and they sentence staying outside their questions. At this time. Please continue.
Well, we want to thank you for joining US we will talk to some of you again next week when we have our annual meeting of our stock holders on may 12th.
Until then have a nice week stay safe bye-bye.
And again, thank you have the ones that by dissipating bask in good taste confident he may not <unk>.
Stacey.
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