Q4 2020 Vishay Precision Group Inc Earnings Call
Good day and welcome to the V P G 2024th quarter and fiscal year earnings Conference call.
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I'd now like to turn the conference over to Steve Cantor Senior Director of Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone welcome to the <unk> 'twenty 'twenty fourth quarter earnings Conference call.
Our Q4 press release and accompanying slides have been posted on our website.
An audio recording of today's call will be available on the Internet for a limited time and can also be accessed on our website.
Today's remarks are governed by the safe Harbor provisions of the 1995 right guarantees litigation Reform Act. Our actual results may vary from forward looking statements.
For a discussion of the risks associated with <unk> operations, we encourage you to refer to our SEC filings, especially the form 10-K for the year ended December 31, 2019, and our other recent SEC filings.
On the call today are ziv, shiny CEO, and President and Bill Clancy, CFO and now I'll turn the call to Ziv for some prepared remarks.
Please refer to slide three of the quarterly presentation.
Steve.
Thank you Steve.
I will begin with some commentary on V. P. G. The consolidated financial results.
Sales trends for the year and for the and for Q4.
Bill will provide financial details and our outlook for the first quarter of 'twenty 'twenty one.
On slide three we ended the year on the solid note.
Before discussing the fourth quarter in detail I want to summarize some of the key highlights of 'twenty 'twenty for V. P. G.
Looking back for the beginning of last year.
It is difficult to image the human.
Social and economic impact for me global pandemic that has touched every part of the world.
Despite the despite the challenges I am proud of how V. P. G. The team responded and the resilience we demonstrated and continues to demonstrate through this global crisis.
I want to list a few of our accomplishments first.
We responded quickly and decisively to the challenges of the pandemic.
As we put in place measures to protect our employees and our customers the.
These measures included workplace distancing and enabling employees to work remotely if their job permits it.
For streaking restricting travel as well as cost control such as salary freezes.
Second with the exception of our force sensors operation, we continued to operate through the crisis and we're able to seamlessly.
So of our customers around the world.
Good.
When government imposed lockdown in India.
Significantly impacted our operation, resulting in $10 million of revenue shortfall for the year, we overcame numerous challenges to return to full production by the end of the third quarter.
And fourth we continue to implement our along comes the strategies and investments, which included growing our advanced sensors business by 41 per cent to an annualized run rate of.
More than 35 million and moving forward with adding additional manufacturing capacity to support future advanced sensors growth.
With the with the new facility.
And most importantly, I would like to thank the V. P. G employees around the world for the dedication.
And customer focused doing the turbulent and challenging 'twenty 'twenty.
Moving to slide four.
Looking at the fourth quarter, we have it we achieved fourth quarter of sales of 75, 4 million, which was 11, 7% higher than the third quarter and nine 1% higher than a year ago.
Sales of group.
Of course, our portfolio of businesses and of course, our end markets with double digit sequential growth in the test and measurement transportation and avionic military and space markets.
And continued strength in some of our other markets such as consumer of medical and precision agriculture.
All of those go $9 four per cent from the third quarter of 'twenty 'twenty, although trends of course, our end markets continued to be mixed.
The majority of our markets continue to rebound, reflecting the improving economic outlook.
On the positive side, we had stronger sequential orders in the test and measurement transportation industrial weighing and general industrial.
Although these markets remains below pre pandemic levels demand in consumer of precision agriculture and medical also continued its high sustained levels of.
All of the project driven all of those in the steel market and then avionic military and space market remains soft.
While the demand for the majority of our products is generally driven by economic and industrial activity in our customers' product cycle.
The higher average selling price systems like our cattle DSI in the Pacific instruments.
Well, that's all generally driven by specific customer of capital projects in the steel and avionics military and space markets.
The quarter to quarter of viability of orders for these products is due to the bulge of driven nature, which is what we have experienced in the fourth quarter.
The net result of these trends was the book to Bill of point of 93 for the fourth quarter.
Our adjusted gross margin in the quarter.
Excuse me was $38 one per cent included headwinds due to unfavorable product mix as well as temporary effects of inventory reductions and certain manufacturing inefficiencies as compared to the third quarter of 'twenty 'twenty one.
However in these items we will.
These items were at normal levels adjusted gross margin.
Would have been in the 40 per cent range similar to the level, we reported in the third quarter of 'twenty 'twenty.
We achieved an adjusted operating margin of 10, 7% and adjusted earning per share of 43 cents in the fourth quarter.
Which were in line with our quarterly target the module.
Moving to slide five.
Turning to the results by segment.
We achieved sequential growth in the fourth quarter across all of these all three business segments for foil technology for the fourth quarter of seats of $36 5 million group, 10.9% sequentially and 23 points one per cent.
For me a year ago, driven by the strong performance in the precision foil resistors advanced sensors product line and Pacific instruments for the clients seek.
Quench Lea day increase in precision foil is the stores reflected growth in the test and measurement market.
Particularly for semiconductor test equipment.
Advanced sensors had another great quarter, growing 5% sequentially and 71% year over year, driven by strong demand for consumer related applications.
The Pacific instruments product line grew sequentially and year over year, you know if you're on ex military and space markets.
Adjusted gross margin for FTP was 38, 9% in the fourth quarter of 'twenty 'twenty.
The declining from 41, 6% in the third quarter of 'twenty, 'twenty, but improving from 34, 9% in the fourth quarter of 2019.
The sequential decline in adjusted gross margin primarily related.
[noise] excuse me two unfavorable product mix manufacturing inefficiencies and the inventory reductions, which was partially offset by higher volume.
The book to Bill for FTP was point the eighth full in the fourth quarter, which reflected a sequential decline of 2.5 million in all of those the portion.
Portion of the decline related to lower orders for Pacific instruments data acquisition systems all of those for the systems, all driven by specific defense projects.
Each can have long ago all of the cycle.
In addition, all of those for advanced sensor declined for men exceptionally strong bookings quarter in the third quarter of 'twenty 'twenty, but remained at high level given strong demand in its end markets.
All of those for our precision foil as these stores increased reflecting demand in the test and measurement end markets.
The pipeline of opportunities for advanced sensors continues to be robust.
Which underscores our confidence in the investments we have made in this initiative.
We are continuing to operate at the maximum of manufacturing capacity for advanced sensors, while we move forward with the installation and qualification of the equipment that will give us the needed additional manufacturing capability at all of new facility.
We are on track to complete.
The transition to the new facility in the third quarter of 'twenty one.
For the full sensors segment towards the quarter of continued recovery.
Fourth quarter of sales of $16 3 million improved 17.2% from the third quarter of 'twenty 'twenty.
Driven by orders and backlog, we are operating at the pre pandemic levels at our India facility.
In terms of OEM specific for sensors products.
Which is one of our key growth initiatives sales grew 27% sequentially.
Financially.
For sensors adjusted gross margin of 29, 6% in the fourth quarter declined from 31.2% in the third quarter, but grew from 24, 2% in the fourth quarter of 2019.
The sequential decline in adjusted gross margin was primarily due to a reduction of inventory, partially offset by an increase in volume.
Book to Bill for Force sensors was 1.18 is all of those for both industrial weighing applications and OEM for the for precision agriculture medical and construction of applications, where Ohio.
Sales of weighing and control systems in the fourth quarter of 22.7 million increased nine 4% sequentially, but declined seven 1% for me year ago.
Sequentially.
We had the highest sales of our onboard weighing solutions and process weighing solutions in Europe, while the steel related sales were flat.
Sales of our truck way runway rebounded.
By 46% for from the third quarter, and we see the potential for the EU regulation driven aftermarket opportunities for these products to accelerate in the second half of the C. L.
Adjusted gross margin in the fourth quartile for WCS was 42, 5% adjusted Coke adjusted for Covid impact impacts.
And declined from 44, 9% in the third quarter mainly.
Due to unfavorable product mix and inventory reductions, partially offset by higher volume.
In terms of sequential trends in WCS segment, all of those for onboard weighing and post the swing products with Ohio.
Kalkan DSI or those with soft.
Demand for health products, typically have two quarter lag relative.
To infect to inflections in the steel market.
The result of the WCS all of those trends in the third quarter was the book to Bill of point the 88.
As we think about 'twenty 'twenty one.
We are encouraged by the progress being made around the world regarding vaccinations and bringing the rate of Covid.
Infections down.
While there is much more to do.
In the many risks still remaining before the pandemic is fully under control, we believe that as the world and our market returns to normal we have the foundation and the ongoing test them of opportunities to achieve a year of growth.
And the execution across our businesses.
Many of those opportunities are the result of initiatives, we have put in place and executed over the past several years.
Such as our advanced sensors initiative.
And the move to optimize manufacturing footprint for force sensors.
As part of this long term strategic initiatives, we expect to continue to implement further organic growth and cost savings projects.
We are also continuing to look.
For attractive acquisition.
The attunity to add additional high quality strategic businesses to the V. P. G platform that will further accelerate our growth and profitability.
I will now turn it over to Bill Clancy for additional financial details Bill.
Yeah.
Thanks, Steve referring to page six of the slide deck in the fourth quarter of 'twenty 'twenty, we achieved revenues of $75 4 million.
Gross profit of $28 7 million of $38 one per cent of sales.
Operating income of $5 9 million or seven eight per cent of revenues.
Net earnings per diluted share of one cents.
During the quarter. However, we had the filing of Joseph So our P&L.
Our non cash charge of $2 4 million related to the impairment of goodwill and indefinite lived intangible assets for Pacific instruments.
The half a million of net credit mainly related to our COVID-19 related subsidy from the Canadian government.
And 200000 of restructuring charge.
In addition, because we maintain operations in Israel in certain locations in Asia changes in exchange rates may be of meaningful factor in understanding periods of period comparisons.
Beginning this quarter, we are adjusting our adjusted net earnings and adjusted net earnings per diluted share for the impact of foreign currency exchange rates on a remeasurement of assets and liabilities.
These adjusted are reflected on a comparable basis and the non-GAAP reconciliation tables in our press release.
Consequently, we recorded of foreign exchange loss of $2 1 million in the fourth quarter, mainly reflecting the strengthening of the shekel relative to the dollar in the fourth quarter, which impacted our balance sheet items, including our lease liabilities.
Considering these adjustments our adjusted gross profit was $28 7 million for 38% of sales adjusted operating income was $8 1 million or 10 seven percentage of sales at our adjusted net earnings per diluted share was <unk> 43 cents.
Our fourth quarter 2020 of revenues increased 11, 7% compared to $67 5 million in the third quarter and increased nine 1% for the for.
Fourth quarter of year ago.
Foreign exchange for the fourth quarter of 2020 out of per.
Part of the effect on revenues up by $1 4 million compared to a year ago.
700000, as compared to the third quarter of 2020.
Our gross margin decreased in the fourth quarter of 38, 1% for 45% in the third quarter.
On an adjusted basis, the fourth quarter gross margin of 38 per cent decrease from 45 per cent in the third quarter of 2020.
Our operating margin was seven eight per cent for the fourth quarter of 2020.
Excluding the above mentioned charges in COVID-19 subsidy.
Our fourth quarter adjusted operating margin was 10, 7%, which decreased from the 11, 7% we recorded in the third quarter of 2020.
Selling general and administrative expenses for the fourth quarter of 2020, or $20 2 million or $26 seven per cent of revenues compared to $20. Two of them. They are 29, 2% of revenue for the fourth quarter of 2019.
And compared to $19 1 million for $28 four per cent of revenues in the third quarter of 2020.
Of the 1 million sequential increase in SG&A, approximately 4000 related to the impact of foreign exchange.
The adjusted net earnings for the fourth quarter of 2020 of our $5 8 million or <unk> 43 cents per diluted share compared to $5 3 million of 39 cents per diluted share in the third quarter of 2020.
We generated adjusted free cash flow of $5 9 million for the fourth quarter of 'twenty 'twenty as compared to $1 4 million for the third quarter of 2020.
We define our adjusted free cash flow as cash from operating activities less capital expenditures plus any sale of fixed assets.
Our capital expenditures for the fourth quarter for $7 1 million, which relate primarily to the purchases of equipment and related infrastructure for the new advanced sensor facility for.
For the full year of 'twenty 'twenty, we invested $22 9 million of capital expenditures.
As part of our long term capital allocation strategy in 'twenty and 'twenty, one we expect capex to be in the range of 24 millions of $28 million.
Of which approximately two thirds relates to expansion and cost reduction of projects, primarily in the FTP segment for advance sensors and precision foil resistors.
We recorded a tax expense of $1 7 million in the fourth quarter of 'twenty 'twenty related to the acquisition of DSI to utilize deferred tax liabilities against the.
For our tax assets.
We are assuming an operational tax rate in the range of 27% the 29% for the 'twenty 'twenty one planning purposes.
On slide seven we ended the fourth quarter with $98 4 million of cash and cash equivalents, an increase of $8 6 million from the third quarter.
Our total long term debt was $46 million.
We believe that we have a strong balance sheet and ample liquidity to support our business requirements and to fund the additional M&A opportunities.
The outlook, given the improving business environment, our strong cash flows financial positions.
And so the changing investment gives us confidence that we can achieve growth in 'twenty and 'twenty, one as the global economy, and our markets continue to recover from the pandemic.
For the first fiscal quarter of 2021 at constant fourth fiscal quarter of 2020 of exchange rates.
Expect net revenue to be in the range of $63 million the $70 million.
In summary.
We were pleased with our fourth quarter of top line performance.
Despite the impacts of our gross margin we achieved an adjusted operating margin in line with our targeted model.
Our advanced sensors business continues to perform well and the transition to the new advanced sensors facility is proceeding on track.
And finally, we expect our business trends to improve through the year as the global economy, and our markets continue to recover.
With that let's open the line for questions. Thank you.
Yeah.
We will now begin the question and answer session to ask a question you May Press Star and then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
If at any time of your question has been addressed and you would like to withdraw your question. Please press Star and then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
Yeah.
And the first question comes from John Friends, Rhett with Sidoti and company. Please go ahead.
One is even though.
Good morning, John.
Hey, I guess I want to sort of in the advanced sensors.
Ziv, you said that the order bookings was down in Q4.
<unk> three.
But curious as the strong could you just elaborate a little bit more about that and B. How does the January bookings play out.
Okay.
So regarding advanced sensors as we indicated the there is another there called the quota of in terms of revenue and we did the reported the run rate if we annualize that no. We all of the over the $35 million as.
As we stated already a quarter ago, John we are running at the 100% capacity. The fact that we were running at the you know it at its full capacity. In addition to the fact that we had already.
Very very high order levels.
I have to say that if we look just if we're if we are looking at just reconciling the all of those.
Both of them over the quarter the complete the GAAP ease of semiannual, although that has been placed in Q3.
That has not been placed in Q4 and are expected to.
To continue going forward. So the environment is the for advanced sensors is strong is the one based on the you know our consumer products.
The continues to be strong ex the with the expectation of the heap.
Other end markets to continue in the rebound for the along the year and the fact that we all of the adding more capacity in tons of the transitioning to the new facility only indicates that the way we would continue to see strength for this product line in 'twenty 'twenty one.
And with that facility.
I'm pleased by the second quarter of 'twenty, 'twenty, one or the time line changed in anyway.
As we indicated the the.
The transition will be as of now is expected to be completed the end of Q3.
Q3, okay.
And regarding the the currency sort of walk along the currency impact of a little bit.
Could you talk a little bit of how it's impacted the gross margin line and the.
Operating expenses in the quarter and what we should be thinking about that on a go forward basis and other steps really hurt you a bit of 10 year high at this point.
Okay. So Josh.
Yeah, So Josh the.
If we look at the the currency impact.
You know sequentially the.
Total impact out of the operating margin was 200000 dollar of negative.
And.
And year over year of fourth quarter of fourth quarter down to the operating margin the.
The impact was zero.
On the operating results.
Alright, then all of ours.
I was just actually look at the sequential impact on the cost of goods off the line.
I'm curious what the step up where the.
Alright, so on a sequential basis I mean, the impact you know the exchange rate wise.
Whereas of positive 200000.
Sequentially Okay.
Okay got it.
If you are looking just the week of inside the adjusted gross margin quarter over quarter of as we indicated the biggest impact or the the main effect is not coming from ex rate. The the main effect in and I would like to state. The as you know Q3.
Was it an extremely exceptionally very very high adjusted gross margin, but nevertheless, the the two week inside of that the the impact came from the close to I would say.
Well its $900000.
Temporary the one $900000 came from inventory reduction and the physical then we had an additional unfavorable product mix of 500000.
We had around 200.
The largest 200 thousands of additional logistics costs due to the fact that.
The the fight for those in the capacity constrained of.
Oh for logistics from Asia to the U S into Europe is not back on track while the two why is the U move along we expect those freight in the East Coast will go down and manufacturing inefficiencies of for around 300000.
Mainly coming in the advanced sensors due to the fact that there's we have I didn't get the hundreds the <unk>.
<unk> capacity every small hiccup can generate the larger effect, which is the temporary one so all in all the.
I think the two by far most of the effect of a one and a half of million ease of adult.
Those all temporary effects that should not continue.
Along the year, but that's really the GAAP between the adjusted gross margin.
Q3 in respect of people.
Got it. Thank you that was helpful I'm going to get back into queue and let someone else ask some questions.
Sure.
The next question comes from Sarkies sure Betsy <unk> with B Riley Securities. Please go ahead.
Hi, Good morning, Thanks for taking my question here.
Just wanted to touch on.
On the just wanted to touch on the.
2021, Capex Guide I think you mentioned 20 for millions of $28 million on the year.
Two thirds of that relating to the expansion and cost reduction initiatives out of FCB can you maybe help us understand the case.
The spend is that going to be more loaded towards the first half of the year or is that going to be pretty ratable as the year goes by.
Okay generally speaking if we take it typically of no more normalized year given them. The the capital equipment lead time, we would always see.
The you know, Ohio spending to Q3, and generally speaking Q4 would be the highest this 'twenty 'twenty. One is kind of for a carryover in respect of Covid. Then in respect in respect of Covid. Therefore, we have been placing orders for equipment that with the two to some extent they would.
Say it on the 25% of that we're not our suppliers will not able to ship us.
The in 'twenty 'twenty and the expectation is to get it in 'twenty 'twenty, one so I would say that the.
We may we made the a M.
It still of the second half of the year and slightly higher than the first half of it but not such.
Such a it's not the the GAAP would not be as high as we would expect in the normalized deal and maybe the other thing it's important to state that the the lastly of the focus was more for me on the on the infrastructure with the new facility in this in this year.
The most of the capital investments wouldn't be an equipment around the FTP and and we are going also to invest much more in precision.
Those are for expansion and cost reduction in order to enhance and support organic growth.
Understood and thanks for that can you expand on your decision to invest in precision resistors is this something that you.
In conjunction and helpful for Us your advanced sensor business or is there something that's a little bit more independent and you see some clear.
Clearer trends or if there's a business case to be made so that gives you maybe touch of phones.
Sure absolutely F.
The ft piece consists of two main platform one is the precision resistors and the other one of these so called strain Gage data acquisition platform. So we are speaking about precision resistors, which is the week, which is kind of a completely different business and we have identified opportunities to develop new.
You are I would say.
Newport products.
Products of new platforms in order to reach out to our I would say to higher volume applications. Therefore, the intention is to expand infrastructure of capacity in our Japanese facility mainly.
In order to enhance our longer term plans to support to those of the highest volume of opportunities.
Which would be mainly around the test and measurement applications.
Mhm, Okay. Thanks for the.
Just wanted to switch over to the outlook here for the first quarter of 'twenty. One of you mentioned the range of 60 to 70 of $70 million in sales I think if I take the midpoint of that guidance level. It's at.
Down low single digit year on year I'm, just wanted to get your sense for the guidance then.
As we look towards your expectation for gross for the year would you expect the gross to layer in.
By the midpoint of this year by the end of this year, just trying to get a sense for.
Reconciling your expectation for growth relative to sort of the guidance. So we see today true.
Sure absolutely. So firstly, it's important to state that the orders for the quarter has increased nine 4% in the.
Respect to park water and the backlog is still very strong at the 87 $6 million.
The the fact that we have been the providing this guidance is due to our shipments commitments. The tobacco is the reflection of our shipments commitments to our customers.
Which means we have seen some orders being placed for the second quarter. In addition to that.
We have seen that the the backlog is also composed of.
Two of elastic to a composite of all of backlog reflects also a low a portion of our approach of driven all of those like of killed can like of DSI at this point in time, given the environment that we have indicated in the expectation.
For all of our end markets to rebound, except steel, which at this point in time.
Fairly still soft due to the due to the fact that we all that out the.
As I indicated it's it's two quarters like lagging behind I would say that we should expect to see and improve the business environment.
As of for as of the beginning of the year, which means we will not have to wait to the end of the year of things will start to continuous flow of.
The two two of the U. So so the expectation of and improve the environment.
We will will continue as of few for will our expectation is we'll continue gradually as of May.
As we move along deal.
Starting in great one of them.
Thank you that's all for me I'll get back into queue.
Thank you.
The next question comes from Dick Ryan with Colliers. Please go ahead.
Thank you.
Ziv on the advanced sensors, you know you're you're running at capacity.
The expansion coming on in third quarter are you, losing any opportunities.
With customers potentially saying you know the design phase and are waiting for the expansion is too long or are you losing out on any opportunities and then maybe an additional question I think you were building capacity.
40% above the the run rate.
You know what it wouldn't it wouldn't seem unreasonable to think you're gonna be knocking on that door.
As we get towards the end of the year of the first part of next year.
What sort of one timers are experience or financial resource wise that you build the initial capacity won't you have to go through as you expand that facility further over the next few years.
Okay, Great. So let me start maybe with the first part of your question. So.
As you know in a way of kind of insinuate that if you all I didn't get the 100% with the certain capabilities you potentially may lose the let's say all opportunities and so first I have to state that we are that we understand that the at this critical time, there was a good problem but.
But nevertheless, it's still critical times, we have to manage quite well out of the customer satisfaction, our customers lead time and to be able to deliver that on the I have to say that in addition to that as we have started to put in place new equipment in the new facility, we would be the.
Running in parallel the ramping up.
The the new facility, while the main pit maintaining at the 100%. So we will not have to wait until the complete transition in order to get the full additional capacity on board.
So we would expect to see hopefully a I would say within two quarters much more capacity in place in addition to that the fee.
Fact, it to the the.
I would say the the capabilities the design capabilities of advanced sensors all of the such that in many cases does the the I would say that the the products the spec the size the complexity.
Cannot be.
He placed by another supplier, we have a unique and proprietary platform. So the fact is that we really have to manage well and to service all of customers because the.
Again, it's not the we have planned to be in that position, but we do have a unique value proposition for them.
Net sense.
But we are adding capacity as quickly as we can and we will not the end.
And we would expect to see more of as I said definitely before the the transition is completed.
As I stated before we should be at.
At least 40% higher at one.
40% higher than the current capacity in addition to the if if you will the.
Looking at it and saying what is the transition cost of the one time of course because in addition.
We are looking at the at the start up of cost of around $2 million.
But we are going to incur during the first three quarters in order to.
Install qualify transition of equipment installing new equipment transition current equipment from the current premise to the new appointment premise.
Mostly will happen in the second and third quarter.
But the.
But to the the fault for form of reporting standpoint are those the will be reported in our non-GAAP, we will exclude the in Oh.
Non-GAAP measures.
The format for an overhead standpoint, I think the most of the core well the least cost and other additional cost has been already added two.
And <unk> is already being reflected in the in the in our financials and we are just expecting some additional overhead.
Support the new Oh, I would say the the new facility the capacity of around maybe an additional 200000, but pretty much most of the cost is already reflected in Q4 results.
Okay great.
They were some of the logistic issues you cited are you or your customers.
Making any changes.
Within the supply chain are there.
Issues that you're you're looking at specifically there of that.
You won't have some logistic issues going forward.
Okay. The the logistics issues out of mainly around <unk>.
I would say.
The transportation of products from Asia.
For the U S and in to Europe due to the lack of capacity for our fleet for those are mostly and this mostly imply for force sensors, because all of our largest manufacturing.
And the highest logistics costs come from force sensors, where we use seafood are mostly seafood and to a smaller extent elsewhere. Because those are very large heavy metal products. At this point in time, we all of the you know trying to manage the cost the the best we can given the timing.
And the but we do expect we we don't see any showstoppers there might be some delays and some into a low.
And I would say two of low extend some delays and an additional and as I said, some additional higher cost, but as the as things of the world and the fate for those are getting more capacity in place. We see this we would expect these phenomena.
To.
Two to go down significantly in the coming quarters.
Okay. Thank you.
Okay.
Okay.
The next as a reminder, if you have a question. Please press star and then one to be joined at any of the Q and the next question comes from Bill does L. M with Teton capital. Please go ahead.
Thank you two questions first of all the or.
The inventory reductions that are hurting margins here in this quarter are those now complete or should we anticipate to see more to come and then secondarily you had referenced that you think you will cease in the strengthening in the truck and van way of business in the second half of the year.
Would you talk in more detail about what you're seeing that leads to that optimism.
True absolutely so.
Regarding the first part of the question, Yes, we should expect the the inventory reduction the well it was the significant.
The reduction in addition to book the physical not to continue in the coming quarters.
Regarding your other question Clarke Quay and fun way as we started the as is usual.
It was my much of the businesses, where the well in the in the Lockdown situation. We were running on the when Theyre very very low level I think the Q4 is the reflection that fuel.
Has been opening the businesses and we see much more business activity. So this is getting more to a normalized level I mean getting most of the normalized despite the fact that we are still way below pre pandemic level and the expectation.
The that Europe will continue to recover at least one indication why would why we should expect to see it.
An improved environment in the truck, we and what fun way. In addition to the fact that we have been speaking about the EU regulation the thought.
I expect it to be in place to be in place as of May 21.
The.
While the wild.
We know the to the there is an expectation for the after market demand.
And we are targeting debt. So so given the fact, the two we should expect to see given the regulation, we should expect to see some off the market demand in the second half of the year. So those are really the two.
The vectors that we are looking to this is why we are looking for an improved business environment for truck William <unk>.
In 'twenty 'twenty, one and in particular in the second half of the year.
Great. Thank you for the credit for the perspective.
Thank you.
The next question is again from John Friends Rabbit with Sidoti and co. Please go ahead.
Yeah, just wanted to ask about.
Any kind of additional costs, we should be thinking about that we deferred some might come onboard. The I know you already touched on the van sensors.
Location might be high I assume travel and entertainment will be still weak is there anything else that we should be thinking about back in 'twenty one versus the 20.
Sure John So so as you know we have implemented drastic measures in 'twenty 'twenty given the pandemic one of them for an example was the salary freeze.
We should expect.
To go back to to unfreeze it in 'twenty 'twenty, one sort of salary freeze as of the beginning of the year should be in place regarding travel you. You are absolutely correct. I mean, COVID-19 is not completely off but but the expectation is definitely that we should see much more intensive for traveling in the second half of the year.
Hopefully as things are getting more for a normalized level and then there was some other the I would say a cost related the for example, Malcolm and others due to travel restrictions that the company will not be able to.
To do in 2020, we should which should go back to a more normalized level, but the main effect the ease of salary freeze and travel of course then.
Got it.
One other question just remind me the do you have any exposure to the mining and metal markets.
Besides steel exposure there given what happening commodity costs is there any potential there for turnaround.
Okay.
The form of commodity standpoint, I think that the by far the biggest impact is the is steel.
We are not the well not so much we are not impacted by for example, the precious metals and in those.
Okay.
It's it's it's predominantly steel.
Got it got it that's just wanted to double check. Thank you for taking my questions.
Yeah.
This concludes our question and answer session I would now like to turn the conference back over to Steve Cantor for any closing remarks.
Before we close I just wanted to remind everyone of our let everyone know that we will be presenting at the virtual Sidoti gross conference in March.
And you can see our website for more details on that day.
Thank you again for joining the call and have a good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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