Q1 2021 Transcat Inc Earnings Call
[music].
Greetings and welcome to todays traits catch first quarter fiscal year 2021 financial results Conference call.
At this time.
Our name listen only mode. A question answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Hi, Andrew This conference is being recorded.
Now I'd like to turn the conference over to your host what's your Christmas holiday.
Just a relation they do you may begin.
Yes. Thank you good morning, everyone. We certainly appreciate your time today and your interest and Transcat with me on the call today, we have a president and Chief Executive Officer, We Rudolph and our Chief Financial Officer, My Chair after formal remarks, well open the call for questions.
You don't have the news release that crossed the wire after markets closed yesterday. It can be found on our website Transcat dotcom slides that accompany today's discussion are also on our website.
Do you what please refer to slide two.
You are aware, we may make forward looking statements during the formal presentation AMCU when a portion of this teleconference.
All statements apply to future events, which are subject to risks and uncertainties as long as other factors that could cause the actual results could differ materially from where we are today. These factors are outlined in the news release as wells with documents filed by the company with the Securities Exchange Commission you can find those on our website, where we regularly post information about the company as well as on the Fccs.
Upsided FCC dot Gov.
We undertake no obligation to publicly update or correct any of the forward looking statements contained in this call whether result of new information future events or otherwise except as required by law. Please review our forward looking statements in conjunction with these precautionary factors.
I'd like to point out as well that during today's call. We will discuss certain non-GAAP measures, which we believe will be useful in evaluating our performance you should not consider the presentation to this additional information in isolation or as a substitute for results prepared in accordance with gap. We have provided reconciliations of non gap comparable GAAP measures and the team.
Both the company in the earnings release with that I'll turn the call over to lead to begin the discussion leap.
Thank you Craig.
Good morning, everyone. Thank you for joining us on the call today I Hope you and your families are navigating this challenging environment well and are in good health.
I'll start todays call by acknowledging our dedicated team to 750 people that work at our 42 Transcat laboratories across North America without their tireless efforts and adaptability, we could not have produced a solid results that we did in the first quarter.
Meeting our commitments to our customers both on the distribution and service side of the business was no easy task.
Well, we got it done.
And as I mentioned in the past many of our customers include those who are working to develop a kobe 19 vaccine treatments and the medical devices required to save lives.
Our team has made an incredible difference and in my opinion, they define the word essential and I'm very grateful for their efforts.
On this call I'll provide an overview of our first quarter results, which as many of you know exceeded our expectations.
The results validate our strategy, which entails providing calibration services to the life science and other regulated industries and leveraging technology to improve our processes and enhance our gross and operating margins.
The conclusion of my overview, I'll turn things over to Mike to provide a closer look at the first quarter financials before I return and speak to our outlook for fiscal 2021 and beyond.
Turning to our service segment.
Despite the headwinds created by the covert 19 pandemic, we achieved our 45th consecutive quarter of year over year service growth.
Perhaps even more important we made significant improvements in our service gross margins, even with a modest service revenue growth of 2.5% in this challenging environment.
Service gross margins expanded 240 basis points to 26.4%.
The main driver behind the gains with the continued increase in productivity.
Productivity, which is something we've been talking about over the last couple of years benefited in the quarter by the effective execution of our operational excellence initiatives.
The initiatives included a combination of improved processes technical training and lab management, all of which we believe our sustainable.
The improvements resulted in the generation of $1 million in first quarter operating income this exceeded our expectation of operating income being in the break even range for the quarter that we forecasted in May 2020, when we released our year end results.
In addition, our first quarter operating margin expanded 160 basis points as we generated $4 million of cash from operations.
So while our service segment was not immune to the headwinds created by covert 19. It did it did hold up pretty well.
And as we generate higher revenue growth at some point when we moved beyond and through this present, a pandemic that we're experiencing we would anticipate additional traction and continued margin enhancement.
Moving on to distribution as expected the segments felt the brunt of the impact from covert 19 reduced demand from oil and gas related businesses and most of the industrial sector drove the softness.
We have experienced an uptick in distribution sales related to the thermal and infrared measurement of body temperature.
That makes perfect sense during these times and we're in the process of introducing a new program to sell install and calibrate permanently installed elevated body temperature measurements systems that market is a very natural fit for transcat.
As you heard me say many times in the past.
The distribution segment continues to be a differentiator as we leverage the segment touches to grow our service business.
With that I'll turn things over to Mike [noise].
Thanks, Lee and good morning, everyone today, I will be starting on slide four which provide some detail regarding our revenue on a consolidated basis and by business segment.
As a reminder, we have two reportable business segments service and distribution.
Also included in our results is the previously reported acquisition of T. T E laboratories, which was effective February 21st 2020.
Going forward, we will be referring to T. T S pipe that's dot com.
Right. That's dot Com U.R.L. was one of the assets, we acquired and that acquisition.
As expected our first quarter performance was impacted by the economic downturn from the cold at 19, pandemic, which reduced customer demand, especially for the distribution segment and resulted in consolidated revenue declining 8% to $39 million.
Compared to Q1 of the prior fiscal year fiscal 2021, Q1 service revenue was up 2.5% and distribution was down 20.3%.
That's dot com provided approximately $1.6 million of incremental revenue on a consolidated basis, we're pleased with the performance and integration progress to date.
The increase in service revenue the $23 million reflects the essential nature of our work to largely regulated industries, especially with our life sciences sector focus.
We saw increased demand and secure new business from that sector, such that the life Sciences sector now represents almost 50% of our service revenue.
Included in the service revenue results was $1.1 million of incremental revenue from Pipettes Dot com.
The 20% decline and distribution sales was not a surprise and as we mentioned was the result of coal that 19 impact on customer confidence in demand is distribution is a barometer of changes in economic conditions.
May recall that our distribution sales had historically been focused on oil and gas and general industrial manufacturing sectors.
Although in life science, we have seen more opportunities with pipe, that's dot com and the sale of handheld thermometers and elevated body temperature equipment that we referenced.
Redistribution pipe that Statcom contributed approximately $500000 of revenue to that segment in the quarter.
We're very pleased with the gross margin performance, we achieved our consolidated gross margin expanded 50 basis points to 24.2% largely due to strong margin improvement in service.
Service gross margin was the highlight for the quarter, where multiyear productivity initiatives showed results in are still gaining traction.
Service gross margin expanded 240 basis points to 26.4% modest top line growth.
The distribution gross margin reflects a mix changes as we saw less demand from core product sales, which tend to have a slightly lower margin profile.
Also impacting that segment, where actions taken by our vendors to lower their own costs. During these challenging times, they reduced their cooperative advertising and rebate programs.
We anticipate that headwind continuing into the second fiscal quarter.
Rental revenues were $1 million in the quarter.
Slide five shows our operating income performance, we were able to deliver operating income of $1 million in the quarter, which exceeded our expectation of operating income being in that break even range that we had forecast.
And we continue to invest in our technology capabilities to support our planned growth and to advance our operational excellence initiatives.
In the quarter, we did have incremental amortization expense related to pipe that statcom purchase accounting as well as some associated nonrecurring startup costs.
We also recognize $400000 of severance expense in the quarter.
Some of our technology enhancements have reduced and are expected to further reduce certain operating costs going forward, but we did pay some severance in the first quarter as a part of that evolution.
The severance costs are noted in our adjusted EBITDA reconciliation as an add back under restructuring expense as we view them as nonrecurring.
Please see the supplemental slides for more information regarding this non-GAAP measure.
On slide six we show our bottom line results.
We recognize a tax benefit in both the first quarter fiscal 2021 and fiscal 2020 due to the tax accounting impact of share based payments and stock option activity.
As a result, we have lowered our full fiscal year 2021 tax rate expectations to range between 20, and 21%, which includes federal state and Canadian income taxes.
On slide seven we show adjusted EBITDA and adjusted EBITDA margin.
One other measures we use adjusted EBITDA, which is a non-GAAP measure to gauge the performance of our segments.
I encourage you to look at the provided a reconciliation of adjusted EBITDA to the closest GAAP measures, which for us our operating income and net income.
We continue to generate cash in this challenging environment and as shown on the slide you can see the strength and overall importance. The service segment has on our business in the quarter service EBITDA increased more than 33% to $2.9 million and service EBITDA margin expanded 290 basis points.
Slide eight and nine provide some detail regarding our balance sheet and our cash flow.
We ended the quarter was sufficient flexibility and liquidity and we generated cash from operations, which was used in part to fund, our capex and to reduce our debt.
At quarter end, we had total debt of $28.5 million, which was down $1.8 million from fiscal 2020 year end.
Our leverage ratio was 1.50 to one and is calculated as the total debt on the balance sheet at period end divided by the trailing 12 months adjusted EBITDA, including giving credit for any acquired EBITDA.
Other companies may calculate such a metric differently.
In the fiscal quarter as previously announced we amended our credit facility, increasing our borrowing capacity in additional $10 million and included some favorable covenant modifications.
We had $23.6 million available under our revolving credit facility to ended the quarter and more than $27 million and networking capital.
Net cash provided by operations was $4 million compared with less than $900000 in the prior fiscal year first quarter, primarily from changes in accounts receivable and inventory levels at the Matt It's a measurement dates.
All.
Spend matures were $1.4 million for the quarter, our capital plan for fiscal 2021 is unchanged and expected to be between five and $5.5 million.
The focus is expected to largely centered around technology and service infrastructure and growth oriented opportunities and for rental pool asset purchases.
This amount is inclusive of our maintenance capex, which is expected to be consistent fiscal 2020 at approximately $1 million to $1.5 million.
Lastly, we expect a timely filing our form 10-Q on or about August this with that ill turn it back to Uli. Okay. Thank you Mike.
As we move for we continue to focus on the safety and well being of our employees and customers. We believe we're in a strong position and have the REIT strategies and leadership to succeed in our markets, especially this time.
We believe we have sufficient flexibility and liquidity to maintain our investments in technology and growth technology remains one of the four pillars of our strategic plan, which also includes strong organic growth acquired service growth that capabilities expertise and geographic footprint and leverage.
And as a differentiator to drive our service business.
As mentioned earnings release for the quarter demand for our services strengthened through June and into July and we expect modest service growth in the second quarter and with similar improved margins like we generated in the first quarter.
There are disturbed those distribution pulse picked up just a bit over the last week or so we remain cautious and expect distribution sales to remain relatively unchanged sequentially in the second quarter, that's especially true given the recent trends and the new virus cases around the country.
As we look at the consolidated business, we believe that we can deliver second quarter consolidated operating income around $2 million approximately a million dollars growth sequentially over the first quarter. When the acquisition front Transcat remains an acquisitive company and we expect we expect there to be opportunity.
Turning this move through and beyond the current pandemic.
Overall, we believe we're managing and navigating this pandemic well.
And we're going to continue to advance our growth and profitability strategies.
With that operator, we can open the line for questions.
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The first question comes from the line of Dick Ryan with Colliers You May proceed with your question.
Thank you and congratulations on the strong profitability showing guys.
Say Lee is there a way to parse the margin performance in service kind of between the better productivity issues in your cost reductions I'm just trying to gauge the kind of sustainability you might have with with margins.
Right, we did we haven't broken that out.
You know in disclosed it, but but I think I understand the nature of your question and and the way I'd characterize the way we look at it is the margin improvement that you saw in service for the first quarter as I mentioned is sustainable the only.
The only elements of of sort of the cost structure went into service that aren't going to go forward are things like some modest severance payments.
That some effect.
The above and below the lines in service, but I think.
Almost all of the improvements you saw were driven by induce an uptick an increase in productivity.
Let's say less text, but techs doing more.
And spending more time on the bench being better at what they're doing and overall management of our labs. This this increase in operational excellence oriented activities I would expect.
You will see most of this improvement if not all continue and I still think there's upside here. We're still in the early days of this journey on margin improvement. So you know, we're pleased and that's how I would characterize it.
Okay. Great. Thanks, how are you sitting with technicians as good a yet a level that.
Looking beyond the next quarter. So as it is that a good level for you guys.
We're at a good level and.
Right now still were at overcapacity, so its as additional revenue comes in.
We'll be able to handle it and we've achieved that's what's interesting we've achieved the margins. We did in the fourth we did and we could have handled more and so that's an indication that more would drop to the bottom line, if and when that revenue comes in and it's going to come in you know, we're just trying to get through pandemic environment, but where do good situation because were not overcapacity or holding strong.
Sure how is the life science exposure you said, it's 50% of service, but when you look at your roster of labs out there that concentrated in a few or is it broad based where.
You know a lot in most of that labs participate in life science.
I would say most of the labs participate it's broad based not every single lab. So there are couple labs in certain regions. There may be more process oriented for example, our Houston lab, but generally speaking, whether you're talking about southern California, or the new England area mid Atlantic most of them do a fair amount of life science work.
It's broadly distributed.
Okay. Good. Thank you are on again congratulations on the performance.
Thank you care to.
Our next question comes from the line of Greg with Craig Hallum. You May proceed with your question.
Yeah, great. Thanks, Good morning, Nice nice job on the quarter here I was hoping maybe.
Yes, you qualitative commentary a little bit more detail.
Oh.
Demand in the quarter sounds like you saw some strengthening in June and July service and then what do you referenced expectation for modest growth.
Coming quarter are you talking organic or overall.
Greg when we say modest growth.
In the quarter, where it's always a combination of organic and.
Even acquired growth because we did acquire TT pipettes dot com in February so as we go through the year, a certain element of our growth will be.
Certainly attached to that in a byproduct of that acquisition. However, as we would expect organic growth along the way as well and some we see an uptick when we use those words uptick.
In June and ended July we're talking organic.
Okay.
That's helpful.
Back to back really impressive corridors margin wise on the service segment, if I think about your bridge to 30% service segment margins, which I think you reference.
Times in the past how much improved.
In productivity.
In China.
Versus maybe some of the volume are leveraged.
Hi, Rob I don't know Theres, a way to sort of talked about those items, but can you sort of curious to get sort of how you're looking at the bridge as we sit today.
Right well you bring us some good points the when you look at the.
The impact of increase revenue and the fact that we have the capacity for your right volume alone will will will be an asset will help margins as we go forward. We're doing the work we're doing producing the results without the kind of volume you know we normally look for mid to high single digit organic growth in so without that we were able to.
Get the the margin increase so I would expect volume would be.
Helpful of course, it would be because there is inherent leverage in the business, but in addition to that we're still Greg very very much in our infancy on automation and and I know, we've been talking about that for a year and a half I'm sensitive to the fact that we're probably a little bit behind our expectations for the impact we anticipated but.
It's still very tangible initiative that we're working on a lot of folks are concentrating on and we would expect automation that to impact this business impact our margins and it has not yet in any kind of material way. So when you're looking at the margin gain that we've gotten it's through improved processes and crew training with our technicians better lab management.
We're doing it without the volume and we're doing without the automation and so we talk about that bridge you wrap you use the board bridge.
To bridge the gap between where we are where we could be up those are some of the elements that are going to contribute to getting that profit gain overtime.
Okay. So it's still early days.
Thank you.
Leverage at some point, maybe 30% could end up being conservative.
Those are your words not.
It's not unrealistic to make a statement like that those very now we'll stick uptick in that range of 30 as our as our goal.
Okay great.
Last.
Brought up opportunity thermal camera bodies.
How big of a market that we right now for the company I guess more importantly, how big for that opportunity be you put some resources behind that.
Right. So the short answer is I'm not sure and we don't know.
We definitely have gotten a significant amount of inquiries from our existing customer base in from new customers asking if we can do this work we've sold hundreds if not thousands of individual.
Infrared thermometers that have a relatively low to mid price point, but what we're talking about the notice system installation in this sort of ongoing permanent need. It's just too early for us to tell it was it's very easy for us because that natural fit that I spoke to to convert and to to offer this to our customer so it.
Wasn't an investment it took a lot of analysis. We just took a couple of our components packaged jumped together with our ability to get onsite with a customer and do this work. So the risk is almost zero or very low.
And so our analysis to figure out the upside in the market just isn't there yet too early I like the market I like to fit and.
Really easy thing for us to do so depending on where it's going to continue to dig deeper figure out what the opportunity is but we are jumping in because it just easy to do it and a good fit.
So more to color on on it we caught ABT elevated body temperature more to come on ABT.
Good.
Thanks for the color best of luck on board.
Great. Thanks.
Our next question comes from the line of Gerry Sweeney with Roth Capital You May proceed with your question.
Hi, This is Mike on for Jerry Thanks for taking my questions.
Hi, Mike.
Hi.
So first just looking at the cadence of fiscal 2021 is it reasonable to expect a little improvement in service activity in margins each quarter.
Barring any new economic developments.
Well I think as I mentioned before there's still a lot of unknowns in normal circumstances. If you just right you know.
Rewind the clock to last year at this time, we were doing very very well in the marketplace. We're well positioned for growth. So we would have expected high single digit organic growth in a cove it environment.
We're half our businesses life science and half of it is general generally other regulated industries that rent from aerospace and defense and and runs the gamut there is going to be some.
Muted expectation on revenue growth probably for the next quarter or so we can't really define it any more detailed in that we did see uptick we have seen uptick in service flow of new work in the last several weeks. So will it continue we hope so we know it's going to continue you know we would express.
Over time, but we're really talking about what's going to happen in the next quarter, which is the nature of your question and I know nobody knows so I would expect we're fairly confident we'll have modest growth the margin as I said before you know we've gone up we've come a long way.
From what we would call our lowest point couple of years ago to where we're headed in the 30% range. You know, we're we're halfway there and I would say overtime you are going to see this company, we would expect to generate improved margins not every single quarter.
But but overtime up into the right with margins based upon volume improvement in our productivity improvement in our processes, including automation. These things will will get the job done we would expect over time. So that's that's as much as is that's the best I can do to define it yes, and Mike I, just kind of say related to these protocols.
Tivity things that have impacted our margins, they're not over either evolutionary and continuing.
So it's not like we finished a project and now we're going to see the fruits of it will see the fruits of the ones that have been completed but there's other ones that are still in various phases of implementation. So the lease point, we'd expect to kind of see it going up into the right each quarter may not be as linear is some might like but there's no reason to think it won't.
Continue even without volume, which you will just be an added.
Impetus.
Okay. Thanks, that's helpful and last one for me.
The 2 million of operating income you're expecting the second quarter does that assume any meaningful changes to the cost structure or bringing back I mean expenses that were previously scaled back.
Generally I think you're going to look at a stable cost structure and any without any material changes from Q1. The Q2, when when we when we make that.
You know estimate Yeah agreed you know that's one of the reasons. We we tried to break out some of this the severance because we do think thats a one time, so that won't be recurring and lot of the costs are variable in nature, so you'd expect those to be in.
Increased but only when the when the revenue increases Mike.
Okay, great. Thank you.
Our next question comes from the line.
You May proceed with your question.
Hi, Good morning, guys I'm curious on the distribution segment add more depressed revenue levels.
Do you think this is lost revenue or are we looking at potential.
Backlog or build up in demand for are you know you to the back part of this year early next year.
Yeah. That's an interesting question I think it's going to be a little bit of both there are some.
[noise], there's some lost revenue associated with just the the softening of oil and gas for example that you're just not going to see that come back, but there is probably equal to or even greater amount at some point of across the spectrum of of distribution revenue that is will be driven by some pent up demand I mean people who Manny.
Factor products, you know they need test equipment to be able to do that and they're holding off and at some point, we'll see some of that back but I wouldn't want to.
Set up expectations, and it's all going to come back.
That's right down the middle in terms of loss versus pent up demand.
That's great. That's very helpful second when I'm curious on the services side, whether you're seeing a change in mix.
In in how your customer base wants the services provided for example are you seeing less mobile work because customers don't want.
New individuals coming into their facilities or.
Are you seeing a pickup in kind of mail in calibration work just curious what what's going on there.
Yes, so that so it would be the latter we're definitely seeing a pickup in people, sending a products to our lab versus us going out to do the work in fact.
We've had a lot of cancellations.
From customers, who don't want us to do the work on site. So in that case, you either going to have pent up demand or we've been able to convert them to setting us up to our labs.
So it's really going to be I think there's an element of pent up demand there that we should see it later point now when people do send come into our labs that is also a more profitable profile for us. So we like that and that is also a small but contributing factor to the fact that our margins improve that we're not going out to do those onsites it would be our goal that anybody.
We've converted from an onsite to up Depo, where they send us the work we why don't we want to offer at really spectacular service. So we can continue doing that future. It's our preferred way to do business, but we're very flexible.
In terms of what it takes to meet our customers' needs, but there is a combination of pent up demand there based upon some cancellations anda and people converting.
Great. That's very helpful last one for me on M&A curious if you guys are seeing a pickup in the number of acquisition candidates being presented to you given the the broader environment and how you're thinking about that going forward.
Right I wouldn't characterize it at this point.
That we've seen an uptick, but but I would characterize is saying we would expect at some point there would be an uptick we've been through cycles like this before and it takes a little bit longer than 90 days, but but at some point.
This this environment will have a negative effect on some companies and I think will provide a somewhat of an increased level of activity around acquisitions, we're fairly confident that but I wouldn't want to point to it as something that exists today as we speak instead of expectations.
In the next quarter, so, but we're pretty confident that we'll see.
The significant level increase at some point, yeah, and I think that's kind of reinforced by the fact that you have not seen acquisitions being made by others, who might be acquirer. So it's not like we're losing out still kind of in that wait and see period, but we do think it'll be good opportunity for us a little bit further out.
All right appreciate all helped guys. Thanks.
Thanks Scott.
Our next question comes from the line of nature, Gopal, but you don't.
You May proceed with your question.
Yes, hi, good morning, Thanks for taking the questions.
Just a couple first.
I just wanted to get a sense in terms of I know you'd mentioned some of the impact from co bid will result in some of revenue not coming back, but just wondering on the customer side of things a how they are failing.
In terms of maybe some of them.
Engineered closing up shop et cetera, if you're seeing any of that.
We made sure we haven't seen much of that so when I mention about revenue coming back versus not coming back, let's let's let's.
Be careful to look at each segment differently. So when you talk about service.
That's a situation where in the case, where there has been pent up demand and in some cases, there had been if we would expect that to come back.
At 100% or somewhere in that range I retention rates are very very high remember this is a regulated business space. This work has to be done if a line has slowed down or shut down then you can delay that work, but at some point, it's logical to to anticipate that it would that it would return so no work no major concerns there or destroy.
Fusion.
Going to I think with Scott's question the.
That's a little bit different people, who.
Our buying test equipment to go into manufacturing process, because their processes shutdown, where they go out of business, that's not going to return.
In some cases, where they're holding off its delaying expense that they need to.
It affects that they need to spend that's different and we'll get that back. So it's really a blend but I would I would think about the losses on I want to permanent base is more of the distribution side of business and pent up demand, where there is pent up demand on the service side, that's how I would characterize the difference.
Okay.
That's great.
And obviously and pipettes, that's coming along and I was just curious.
If it's still too early given the environment for you to be more aggressive on that front as it relates to maybe cross selling opportunities et cetera.
Yes, well, we are being aggressive on that front and we really like that acquisition right acquisition right management team right time, one of the things that we like about it just as a reminder is that as powerful as there you are al Pipettes Dot com is and as well as they ran that company. It was really just a.
A localized new England based.
I bet company, because of our national footprint and because of our exposure to life Sciences business, probably more than any other acquisition. We've made since I've been here. This just offers more upside here more national exposure more of the.
As a very strong in marketing and outreach and our our domain authority and all of our link equities and all the things that from a digital world are important that's our strength and so when we buy a company with that's how far you RL Theres a lot of marketing upside under our ownership versus theirs, and we'll call that a sales synergy right. So all that is to come.
I don't want to build it up too much, but but but we are excited about.
Growing and promoting that company I think it's going to be at asset for years to come.
Okay. No that's great and then finally I think you touched on earlier, but just wanted to be clear I know you had mentioned obviously in some of the project delays youre expecting it to be maybe a quarter to quarter on a half out.
In light of what we're seeing with the environment is expected to get probably worse before it gets better.
Has that timeframe change for you in terms of your conversations with customers.
It really has it generally speaking still really hard to define that's why Mike and I've used the words modest growth we want there to be growth, we expected, but we don't want to set of expectations. In the next 90 days because we're just not sure we're having a lot of great conversations with our customers. There is a lot of interest.
And Transcat services throughout our business development team, but at the same time, we are hearing from customers. We really like you guys, but we're not making any major changes in the next 30 days or we're going to start setting you. Some work, but where we know we'll give you will give you an opportunity to start to get to know us we'll get there each other but we're we're probably not going to me.
A move in this quarter, we hear things like that which is both good and bad news good news in that they're very interested and we've done we've done the heavy lifting and we've got a customer interest in our services.
You know kind of bad news and that we wish we turned that sort of there would be more turnkey and it starts tomorrow I'm not overly concerned with that I think.
We're taking a balanced approach and then along Rambo will be just fine but over the next quarter. It's really it's really hard to tell you I can't offer any more clarity than a house and what we have.
Okay. That's great. Thanks, again for taking the questions.
No exposure.
As you.
I'd like.
Please press star one on your telephone keypad one moment.
Question.
Our next question comes from the line of Chris Hi, with singular Research you May proceed with your question.
Hi, everyone I've just got a quick question on.
I guess a distribution segment.
Wanted to know if there is there a.
A metric or something if there's some way we can tell or hub.
You could.
We could see.
As far as when there may be a bottom to the distribution segment or when it may be growing again.
There's some way we can sort of.
Is there something we can see too.
Sort of help us understand when that May come.
Chris I would probably in an effort to answer that question I would guide you back to 2016. So in 2016, if you if you recall.
That was the top that's the last time, the oil and gas market. It's really deflated. The dollar was strong exports were down we don't export but it has a derivative effect on the business and it's just a so it was a softness in our distribution business and our goal coming out of that was the stabilized the business at that time with it.
Reception of starting a rental business.
It's a pretty good indicator.
Of how long and what type of recovery. We had so go back to 16 look at 17, and 18 and I think you'll get a pretty good indication of what a reasonable person would assume is going to happen and what the recovery will look like we did recover we even got better.
Both from a margin and revenue growth perspective, and I. There's no reason to believe that a similar pattern.
Didnt follow I can't guarantee it, but but thats certainly, but what we would expect from the business over time, yeah. It's it's really hard one Chris only because it is so dependent on the economic uncertainty.
You could predict.
That the cold it impact on the economy, and unemployment and and U.S. industrial output would stay the same next quarters. It did last quarter, while you'd probably be expect around the same results in distribution, which is kind of what we're assuming we're not assuming many changes now the downside to that could be if something you know very drastic happened.
With the pandemic it could be that it could go down even further we're not anticipating that based on what we're seeing now but it really is.
Barometer of that economic uncertainty and confidence level of customers to spend dollars right now on equipment.
And I just follow up by saying, we're fortunate position. We've spent the last decade pivoting to our service business.
Not in anticipation of a.
Pandemic, I cobot, 19, but anticipation that.
At some point, we were going to be a service oriented company and that was our goal and that was our strategy and we've been laser focused on it and here a pandemic hits that does affect our distribution business and affects everyone everywhere and yet we are able to be a very liquid profitable company still generate cash is still grow our business. So that's that's a testament to our.
Strategy, working and I think it'd be nice when distribution recovers, but we're going to be successful whether that takes a quarter to quarter. As you know, we would anticipate being able to execute our strategy well, regardless and so we're in a good spot we hope it continues.
Okay, great well, thanks, thanks for that.
Appreciate the question Thanks, Chris.
Ladies and gentlemen, we have reached the end of the question answer session I would like to turn the call back over to management for closing remarks.
Okay appreciate everybody joining us on the call today. Thank you.
Your interest is always valued feel free check on not just checking with as it anytime Mike and I are available.
To talk with each one of you if you have questions and if not then we'll look forward to speaking with everybody at the end of second quarter when we.
So that our results again, thanks for thanks for participating.
Yes.
This concludes today's conference you may disconnect. Your lines at this time, thank you for participation and have a great.
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