Q4 2020 Astec Industries Inc Earnings Call
Hello, and welcome to the Asbury Industries, Inc. Fourth quarter 2020 earnings call. As a reminder, this conference call is being recorded and is now my pleasure to introduce your host Steve Anderson Senior Vice President of administration and Investor Relations.
Mr. Anderson you may begin.
Thank you and welcome to the Aztec and industries fourth quarter 2020 earnings Conference call.
My name is Steve Anderson and joining me on today's call are very rough below our chief Executive Officer.
And Becky Weyenberg, our Chief Financial Officer, and just a moment I will turn the call over to Barry for comments, and then Becky will summarize our financial results.
Before we begin I'll remind you that our discussion. This morning may contain forward looking statements that relate to the future performance of the company and.
These statements are intended to qualify for the safe Harbor liability established by the private Securities Litigation Reform Act.
Any such statements are not guarantees of future performance and are subject to certain risks uncertainties and assumptions.
Factors that can influence our results are highlighted in today's financial news release and others are contained in our filings with the SEC.
And as usual, we ask that you familiarize yourself with those factors.
And in an effort to provide investors with additional information regarding the company's results the company refers to various GAAP.
What's your U S generally accepted accounting principles and non-GAAP financial measures, which management believes provide useful information to investors.
These non-GAAP financial measures have no standardized meaning prescribed by U S. GAAP and are therefore unlikely to be comparable to the calculation of similar measures for other companies.
Management of the company does not intend these items to be considered and isolation or as a substitute for the related GAAP measures.
Management of the company uses both GAAP and non-GAAP financial measures to establish internal budgets and targets to evaluate the company's financial performance.
Against such budgets and targets.
You should also on the comments made during today's call, we'll refer to non-GAAP results and and.
A reconciliation of GAAP to non-GAAP results are included on our news release and in the appendix of our presentation.
All related earnings materials are posted on our website at www Dot Aztec and industries Dot Com and now I'll turn the call over to Barry.
Thank you Steve Good morning, everyone and thank you for joining us to discuss our fourth quarter 2020 results I would like.
And thank the entire AD tech team for their hard work and continued focus on our core values to serve our customers' journey and extraordinary and unprecedented year.
And as I've mentioned before the health and safety of our employees suppliers and customers continued to be our number one priority as we continue to navigate through the pandemic.
Our fourth quarter results demonstrate our ability to execute and perform well with a focus on continuous improvement and driving operational excellence through our one of our tech business model.
I'll begin with key highlights from the quarter and then provide an update on our operations.
I'll also discuss what we're seeing in terms of demand and our supply chain before turning the call over to Becky for details on our financial results.
We'll also highlight further progress made on our strategic transformation and then open the call for Q&A.
Yeah.
Beginning on slide four fewer today's key messages first we had a strong finish to the year as we drove another quarter of robust performance with adjusted EBIT margin expanded by 490 basis points compared to the prior year. Despite a decrease in net sales.
The margin improvement is a direct result of our ongoing strategic transformation and our ability to gain further traction on our operational excellence initiatives.
Second customer demand for Aztec solutions remains resilient as backlog at the end of year increased by approximately 37% compared to the prior year.
As you know, we typically comment that our backlog represents at least one full quarter of work, but now and some product lines. Our backlog covers a good two quarters of capacity.
We continue to provide our customers with industry, leading technology solutions that deliver value and support our walk the road and initiatives.
As we continue to stay engaged with our customers. We can share with you that many know 2021 is already full of projects and they are starting to schedule work into 2022.
Third we have significantly strengthened our positioning this year and we remain poised for future growth with our streamlined organizational structure strong balance sheet and ample liquidity our cash.
And you'd focus on operational and commercial excellence will enable us to further strengthen our organization and 2021.
Fourth during the quarter, we continued to execute against our strategic initiatives and simplify focus and grow the business.
We continue to leverage and build upon our one asset business model, which gives us a great foundation to grow organically by having the most comprehensive brock roadside of customer solution and through acquisition by having disciplined processes and companywide tools.
We also completed the acquisition of Rockwell automation during the quarter.
Which included bringing and an experienced vice president of product management and for our controls and automation platforms.
For 2021, we will continue to transform our company with greater emphasis on the focus and growth strategic pillars.
Lastly on this slide 2020 was a transformational year for Aztec and our strong performance was a testament to our dedication and ability to execute throughout cycles.
And 2021, and we will build upon the positive momentum from 2020 and further transform the business with a focus on commercial and operational excellence profitable growth and long term stakeholder value creation.
We will continue to build upon and strong foundation, we have created here at NASDAQ.
Okay.
Moving on to slide five for those who are new to the company. This is our business segment breakdown our revenue mix during the quarter was approximately 30% materials solutions and 70% infrastructure solutions under the simplified two segment structure, we were able to serve a strategic value chain and supports our walk run strategy.
Okay.
Turning to slide six as a reminder, we unveiled our <unk> business model and Investor day back in December.
Our focus on operational excellence across the organization has enabled us to operate with minimal disruption throughout the pandemic.
We continue to have many of our employees work from home with approximately 30% of our office employees working remotely.
Regarding our manufacturing sites all aspect facilities around the globe continue to be fully operational with no material interruption during the fourth quarter and we maintain the ability to flex operations as needed and quickly adapt to the changing environment.
On slide seven and I will touch on some business dynamics, we are seeing and hearing about from our customers.
Yeah.
Although we are still in unprecedented times relative to the pandemic, we could be and the early gains of an up cycle and North America. As we continued to see strong residential real estate demand followed by improvements and nonresidential construction.
Demand continues to show signs of improvement and our ongoing conversations with customers suggest a positive demand outlook for 2021.
Under the New administration, we are optimistic about increased U S infrastructure spending as it is a key component on president buy and build back better plan.
Furthermore, the coronavirus response and relief supplemental Appropriations Act was recently signed into law. This bill will appropriate 10 billion to highway infrastructure projects.
Importantly during January alone 25 states introduce new transportation funding measures, which should further support infrastructure spending.
With respect to our supply chain to date, we have not experienced any significant disruptions and we are constantly maintained and discussions with our suppliers to identify and mitigate risks.
We have also expanded the depth of our supply chain support our risk mitigation efforts.
In terms of market risk the industry has started to see commodity inflation for many raw materials, such as steel and we expect this will continue as we move deeper into 2021.
Additionally, we are beginning to notice tightened and labor availability for some physicians as well as container shortages and general to support the increase in backlog.
As always we proactively monitor the environment to take action to manage our business accordingly.
Okay.
Turning to slide eight we highlight some of our important ESG initiatives.
Although we are not new to innovating and sustainable products, such as warm mix asphalt systems and coal planers that reclaim asphalt from existing roads for reuse and new payments. We are still early days of our ESG journey as a whole.
Our efforts continue to create more products such as the double barrel green system, and our shuttle buggies, which focused on reducing fuel consumption preliminary and trucking of materials to the central site and.
And reducing the need for Virgin oil products.
Enhancing our ESG profile as a company is one of our top priorities.
One of our recent accomplishments was under the governance pillar during.
During the fourth quarter, we remediated, all prior period and material weaknesses and did.
And so approximately one year ahead of schedule and this was an impressive feat and I am proud of Becky and her finance team and all of the Alphatec employees involved for the hard work they put in over the past year to achieve this accomplishment.
Okay.
We continue to gain traction on our ESG initiatives throughout the organization and our team is engaged and excited about our increased focus and early progress in this area.
Here at <unk>, we know that these initiatives will help us be better healthier and more sustainable solutions providers.
And I invite you to visit the about US page on our website to learn more about our ESG commitment. We look forward to garage and you continued updates on our progress.
Overall during the quarter, we continued to make significant progress on our transformation strategy to simplify focus and grow the business.
The fourth quarter marked another period of strong execution and performance with a 69% increase and adjusted EBITDA and a 490 basis point expansion and adjusted EBITDA margin.
Despite a decrease in sales.
2020 was a remarkable year for our organization and I note that we will continue to build upon the strong foundation as we continue to execute our strategy and drive commercial and operational excellence and growth across the organization.
With that I will now turn the call over to <unk> to discuss our detailed financial results.
Thank you Barry and good morning, everyone I am pleased to join you on today's call.
Starting on slide 10 fourth quarter, adjusted revenues decreased 15, 6% to $238 $9 million compared to the prior year quarter.
Equipment sales decreased 14, 7%, while part sales increased 10, 3%.
Our backlog increased 36, 7% to $365 million at quarter, and driven by higher materials solutions and infrastructure solutions orders, which increased 92% and 15, 1% respectively.
Materials solutions and infrastructure solutions orders were driven by improved customer demand.
Fourth quarter, adjusted EBITDA increased 68, 8% to $23.3 million compared to $13 $8 million and the prior year period, and adjusted EBITDA margin improved 490 basis points to nine 8% compared to the prior year period.
The margin improvement was driven by favorable mix and our ongoing transformation initiatives.
Adjusted SG&A expenses decreased 21, 5% driven by reductions and consulting fees travel and employee expenses.
Adjusted earnings per share Rose 55, 6% in the quarter to <unk> 56, compared to 36 cents from the fourth quarter of 2019, driven by our business transformation savings.
And with quarter 2020, GAAP earnings per share of <unk> 67 cents included and then 11 cent benefit from transformation related savings.
Overall, we reported strong fourth quarter results. Despite the challenging economic environment as we continued to execute against our transformation strategy.
Turning to slide 11.
Highlight the key drivers of our year over year adjusted EBITDA margin expansion.
Adjusted EBITDA margin expansion and 490 basis points was primarily driven by a reduction in head count and related savings. In addition to savings from supply chain management and other transformation savings.
Moving on to slide 12.
Our infrastructure solutions business revenue decreased by 12, 6% to $167.2 million and the quarter, driven primarily by a slowdown and connected to our industrial products.
Adjusted gross profit decreased three 7% to 39 $5 million and gross margin expanded 220 basis points to 23, 6% driven by strong parts margins, particularly in asphalt plant equipment.
We continue to show improved quality of earnings during the fourth quarter, driven by right sizing and pricing initiatives plant efficiencies and controlled spending.
We remain focused on commercial and operational excellence to drive efficiencies across the business and we will continue to limit discretionary spending going forward.
Positively the BMA systems' mechanical acquisitions have been fully integrated and are performing above our initial expectations.
We remain well positioned to support our customers as they continue to see solid demand for highway and road bans on construction products across the country.
As Barry mentioned, we are seeing strong government support for infrastructure spending, which would provide a strong catalyst for the industry.
On slide 13.
Our material solutions business revenues decreased 22, 1% to $71 $7 million compared to the same period a year ago.
Adjusted gross profit increased two 3% to $17 $7 million, while gross margin expanded by 590 basis points to 24, 7% driven by right sizing initiatives taken in 2019, and 2020 to maximize utilization of our.
From footprint capacity improving margin despite declining revenue.
During the quarter. We also saw additional earnings improvement from controlled spending.
We continue to make progress on our material solutions transformation plan and have efforts underway to further leverage our global footprint for deliveries to end customers as I mentioned last quarter, we completed the closure of our Mac, one, Wisconsin facility and the operations have been moved to other <unk> sites.
As a reminder, this is in line with our ongoing strategy to optimize our overall manufacturing footprint and manufacture closer to our global customers.
Overall improved earnings performance and the fourth quarter demonstrates the traction of our initiatives to right size operations to market demand.
Exiting the fourth quarter, we continued to see strong domestic and international order intake from materials solutions products.
On slides 14, and 15, we summarize the drivers of our full year 'twenty and 'twenty results versus 2019.
Overall, we achieved 220 basis points of year over year gross margin improvement despite a decline on net sales.
Turning to slide 16.
We continue to maintain a strong balance sheet with minimal debt and a net cash position of over $158 million.
We remain focused on strong liquidity and cash preservation to withstand sustained periods of market uncertainty.
Note operating activities were approximately a $142 million source of cash and 2020, driven primarily by cash provided by net income after noncash items of $93 $6 million and inventory reduction of $44 $7 million.
We continue to invest and organic growth and strategic M&A, while paying dividends.
Overall, we have available liquidity in excess of $312 million with only $2 million and total debt as of December 31 2020.
Now on Slide 17, just a reminder, on our capital deployment framework, which is consistent with what we have previously shared.
We continue to have a disciplined approach to deploying our capital on them.
We consider the various avenues of capital deployment, we do so and the context of our long term strategic objectives and related revenue earnings and cash flows and order to maximize shareholder value.
Our capital allocation priorities remain unchanged and the current environment.
And on internal investments and property plant and equipment, we will continue to target greater than 14% return on invested capital for new investments.
Regarding acquisitions, we are only considering strategic acquisitions that align with our growth strategy and meet our internal financial criteria.
Our strategy for M&A is to seek opportunities, where we can build upon our strong positions in the rock to road value chain.
We intend to use strategic acquisitions to maintain and strengthen our market leading positions as we add on products talent and capabilities we.
We believe that M&A is a mechanism that will potentially allow us to accelerate our investments and technology and innovation.
Yeah.
As a reminder, on slide 18, we summarize our strategic and disciplined approach to M&A, which helps to support our growth pillar.
Finally, as Barry mentioned in his discussion on governance during the fourth quarter, we fully remediated all prior period material weaknesses, a full year ahead of schedule.
During the past 12 months, our team has worked diligently to develop and execute our remediation plan and I'm extremely proud of what we have accomplished and we now have a stronger organization with the appropriate controls and measures in place.
With that I will now turn it back over to Barry for his closing comments.
Thanks, Becky on slide 19, and I'll provide a quick overview of our three pillars of our strategy for profitable growth simplify focus and growth.
First simplify the fourth quarter marked another period of successful execution on our strategy to leverage our scale reduce organizational complexity and rationalize our footprint and product portfolio.
And I am proud of the progress our team has made it simple buyer business and drive efficiencies across the portfolio.
Second focus we continue to strengthen our customer centric approach driving commercial excellence and streamlining processes and instilling and performance based culture.
Finally grow we are reinvigorating innovation, leveraging technology to unlock internal synergies, while also enhancing the customer experience exploring global growth opportunities and carefully allocating capital to maximize shareholder value.
And 2021, our organization is well positioned to capitalize on global growth opportunities.
We made great progress from 2020 within these three pillars, especially given the challenging pandemic environment and <unk>.
And at that our team will continue to build upon our suggest and 2021.
Slide 20 outlines some of our major milestones we are executing against on our transformational journey and the progress we have made to date.
During 2020, we have made significant progress under our simplified pillar as we work to consolidate our footprint and streamline our portfolio. The fourth quarter marked a pivot point for our strategic transformation as we will now ship more energy and effort on the focus on growth pillars and 2021.
Under focus during our December Investor Day, we introduced the one asset business model for continuous improvement and continued to gain strong traction on our commercial and operational excellence initiatives across the organization.
Yeah.
We also made significant progress on our product rationalization initiatives as we streamline the portfolio to align with our rock through our value chain.
Under grow weed.
Brought on Rockwell automation during the fourth quarter, a strategic acquisition and supports our technology leadership vision and provide value added solutions.
We remain focused on providing our customers industry, leading technology solutions and we are confident that our efforts related to innovation and technology, particularly telematics will support future organic growth across the business.
Okay.
The actions that we've taken under our transformation strategy have and will continue to result in significant cost savings for our organization.
And with the expected savings, we plan to reinvest in our business to drive profitable growth and maximize shareholder value.
Okay.
I'll conclude on slide 21, with our key investment highlights which remained consistent.
Yeah.
And the midst of the economic challenges faced in 2020, our team continued to execute and make great progress with respect to our efforts to simplify focus and grow the business.
This year was a testament to our dedication and ability to perform well throughout cycles as we increased margins. Despite the decline in revenue.
We have significantly strengthened our position and this year and are well positioned for future growth with the streamlined organization and a strong balance sheet and ample liquidity.
And 2021, we remain well positioned to capture industry growth opportunities for their superior customer service leadership positions with an attractive niche markets and our culture of continuous improvement.
We have a strong leadership team leading our organization through this next phase of growth and I am confident that we will see continued positive momentum.
I am extremely excited for the future our organization as we enter into the next chapter of our journey.
Operator, we're now ready to open up the call for any questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
And confirmation tone will indicate your line is and the question Q.
You May press star two if you'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Mig <unk> with Robert W. Baird. Please proceed with your question.
Thank you.
And Barry Becky and Steve.
I guess the first question from me.
And maybe we can talk a little bit about your slide 15 debt.
2020, adjusted EBITDA margin bridge.
I'm sort of curious.
If you can help us understand.
Which one of these buckets has.
Any element of cost savings that you think might be temporary in nature or or.
Reaction basically and to the pandemic that could potentially reverse in.
2021, maybe we can start there.
Sure Hi, good morning.
The first piece of it is on the head count related savings, we showed 110 basis points improvement and a lot of that was tied to incentives, which we hope not to repeat but it's a factor of our sales being down almost 11% on a full year basis. So obviously that impacted incentives and said there was an adjustment and the.
<unk>.
And do expect at least 20 based on roundabout 20 basis points just sick.
And that.
Savings and supply chain.
And my chain savings should stick, but we are seeing some pressure from steel.
That's definitely up year over year, we're seeing and Q1 roughly 77% increase on.
Neal.
So we're managing our way through that so but there might be from.
Some deterioration there just just due to that.
But the other transformation savings offices should stick and then we will see similar expenses from corporate going forward as we rollout our systems and our focus on innovation versus product rationalization.
I see so just to clarify here you are saying that.
On a comp could be a 90 basis point headwind in 2021.
Yes, and you got cut off there for a second can you repeat that question. Please.
Sorry about that.
And I want to make sure that I understand this.
And that is incentive comp could be a 90 basis point headwind in 2021 normalizing incentive combat it.
Not on a full year now on a full year, we expect it to be fairly flat overall.
But I'm, sorry, and I was talking to the quarter not the full year. So apologize for that it was that just an adjustment and the quarter.
Okay, but again I'm talking about the full year, So slide 15, and if we're looking at these buckets.
You know it sounds like incentive comp is going to be flat for the full year, then the only headwind youre going to have is related to material cost.
Is there a way for us to understand the magnitude of the headwind based on what you know today right current pricing and the way you schedule your purchasing.
Yes, so I'll take a shot at that makes this is Barry and good morning, So maybe another way to look at it is.
We've seen steel actually go up 77% on a year over year basis at this point and time of 2021, we have taking price.
Pricing and initiatives.
You know to the tune of about 5%.
Across the board and we see steel today being roughly about.
And just under 20% of our total costs.
With everything all in and so that's probably the amount of detail that we give you I think that.
We continue to meet Reg.
Regularly to talk about how do we pull the levers relative to our steel buys.
And to try and understand you know what that means from a from a from a material margin perspective, and certainly we'd like to think that we're buying better than what the spot prices actually realizing but we certainly do we take price initiatives based on spot price more than we do on what we buy so with all that being said.
And we think that steel could have an impact on non material margins because as you know Mig when it goes up as quickly as it has it's tough to keep up with it and we're not afraid of steel going up and gradually and slowly but when it spikes like this there is some pressure so we're gonna have to.
To manage through that as we move through 2021 as effectively as possible.
Understood.
And.
Maybe moving away from raw materials, and just asking a pure SG&A question.
And in 2020, your SG&A declined on an adjusted basis, I think a little north of $20 million.
Is there you've invested a lot.
Said you remedy some of these material weaknesses, which I know it was not a inexpensive cash.
I'm curious as to how you think about SG&A going forward.
Do you think the current run rates are sustainable and 'twenty, one or go back to your point earlier should we factor in some level of inflation.
And I could take a stab at that certainly.
There are several puts and takes on SG&A. How long are we do expect the dollars to be up slightly year over year. So you are right.
Certainly the remediation costs were significant but that will go away and and we are deploying our oracle, which pretty much offset.
And basically we think will be flat to slightly up.
Yes, and some other things and I will actually drive it a little bit higher than what we had in 2020 is spend on engineering and innovation.
And that's an area, where we've under invested for a while and we want to continue to drive that and in order to really be a market leader on the products and solutions that we provide and we do expect to have some level of travel and come back in 2021.
Which would be a greater spend and in 2020, but not as high as it was in 2019.
Understood final question from me I'm on.
I'm curious where you are right now in terms of capacity utilization.
I guess, maybe asking the question from us from a hypothetical standpoint here and let's just say that demand expand 20% from current levels.
Do you have the capacity currently to convert on that opportunity or would that required either additional capex or or.
Additions to.
Footprint.
And general capacity.
Yes, so big and make this is Barry I'll just tell you that.
Our constraint right now relative to capacity is really manpower, we do not believe that we'd have to increase anything around brick and mortar. Obviously as you know we've taken action to try and reduce our ARPA per capacity, but we're confident that with the improvements that we started to already see and our operational excellence.
And that we should be able to achieve.
Steve any type of.
And then any additional spike in demand with the with the brick and mortar and we have today.
Obviously.
And 2020, we only spent I think around $15 million and Capex, which is which is low which is lower than what we wanted to be and so as we start to beef up our operational excellence initiatives, obviously, we want to invest and creativity of our capital first but we know that there's things that we can do more on relative to automation and efficiency.
These through more capital expenditure and so we've we've worked very closely and continue to work closely with our manufacturing engineering and operational people in order to really identify those areas of opportunity that.
And that will help us with the demand, we see today, but with additional demand and we see and the future.
I don't know if this is how you look at the business, Barry, but I'm sort of curious if you can help us understand.
With the current footprint and.
What you have in place what sort of revenue base do you think.
The business can support.
And you something.
25% high and 50% I mean, how should we think about that and that's my final question. Thank you.
Yeah. Thanks Mig.
We are going to give that type of detail, but we can certainly we feel comfortable with the reduction to be made and the footprint that obviously, we could sustain our.
Our recent historical highs.
Just some more and you know obviously with the operational excellence initiatives, we have going on and we believe there's opportunity to flow more material and more products through our facilities and we have ever and.
So we're going to continue to invest and that so without giving you exact answer Mig we feel comfortable that we've got quite a bit of room of expansion and capacity than what we've experienced in recent history.
Even with less facilities and theirs.
Understood. Thank you for the color.
Yeah. Thanks, Mike.
Thank you. Our next question comes from the line of Stanley Elliott with Stifel. Please proceed with your question.
Hey, good morning, everyone. Thank you all for taking the question.
Very nice work on the backlog can you talk anything about maybe anything product specific and then with the big jump we saw on the material solutions.
Curious if there was something happening within the channel in terms of some of the rent to own sort of customers are actually.
Meeting to re fleet or a restock or however, you would think about that but just curious about the dynamics within that backlog.
Hey, Good morning Daily This is Barry thanks for the question.
I would I would tell you this debt.
And look at 2019 and most of 2020, our customers had record years really you know even with the pandemic most of our customers had a record year in 2020 on top of a record year in 2019. When you look at the the demand that's flowed through our business and it hasn't really matched their performance.
And so therefore, when you take that and consideration when you also take into consideration debt at the end of 19 and into 2020 early days, we put a big effort into trying to right size. Our dealer inventories are we right sized our finished good inventories and.
And through that timeframe, we saw the the rental duration increase and so.
So people werent from converting them into retail sales as we got through 2020 and really until the last the beginning of the last quarter. We do a annual order writing period or a program at that point and time and we saw a record number of our record revenue level will actually come through now.
Program and I think that just shows that there's a little bit of catch up in regards to the demand relative to what the dealers are seeing what we see from a customer perspective, and so therefore, you know as we've talked about some of the early drivers as we move into 2021.
And so there's some positive aspects there and I'll certainly I'd preface everything with were still in a pandemic and you never know what's going to happen there, but when you look at what the states have done and early January around gas tax the miles are starting to come back on driven miles.
Which helps that as well.
Renewal of the fast act, which has already happened.
You know theres been some other smaller supplemental bills passed as we stay close to our colleagues and D. C. There's been a lot of positive conversations around our longer term infrastructure bill. So so we feel good that you.
Obviously, we are close to the market relative to where inventories are dealers are starting to restock, we're seeing that flip over moving now quicker to retails from a conversion perspective from rentals. So.
I think that's what's really driven the materials solutions pieces, a lot of those different elements put together.
That's great and maybe if you could also kind of talk a little bit about some of the technology uptake that youre talking to or maybe even some things beyond <unk>.
Telematics and then curious if that has it.
It makes you think that maybe parts and services could ultimately be a higher percentage of the revenue mix.
Whatever this cycle is going to end up looking like.
Yes, so a couple of pieces to that and you're absolutely right you know and so not just on top of telematics, but as we look at the rock the road value chain as we talked about and the Investor day in December.
And we're in the works and starting to build a platform and which our customers are really you know in many cases, 30% of our customers have a.
Our value chain, where they have coreys they have plants and they have road construction crews.
And so and given them a chance to actually use one platform to see all of their equipment and and understand how to manage that internal supply chain more effectively and we see a benefit there and yes.
And absolutely we will give us a tighter connection into service and parts related types of opportunities.
You know we've been typically running between 25 and 30% of our sales being from parts and.
And we think theres, a huge opportunity to make that a bigger portion of our revenue.
On top of the technology, we have also changed the structure of our leadership team and so now we actually have someone who reports to me that is directly accountable for our strategy around part sales as the overall company versus having someone individually for group store sites and so we think that with that type of focus that will also help.
And improve our parts sales.
Perfect guys. That's it from me. Thank you best of luck.
Thank you.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of Steve <unk> with Sidoti. Please proceed with your question.
Hey, good morning, everyone.
To ask about you noted the acquisitions, perhaps outperforming your expectations. So far and then the bigger contribution from from aftermarket. This quarter can you give any kind of sense of how much the bigger aftermarket piece and the acquisitions contributed to your gross margin.
Yes, I would we haven't given the detail on the acquisitions, Steve and by the way, it's nice to meet you and nice to talk to you look forward to meet you in person and two days absolutely.
And when we when we completed the.
The two concrete plant acquisitions, where you alluded to the fact that on a full year basis. They would typically realize about $55 million and sales and they would be immediately accretive to our overall company's performance and I can tell you that on an annualized basis. We were not we were already youre seeing that if we projected forward that they're going to be a greater contributor to our revenue.
And then what they've already.
Quoted and the when.
When we actually close the two acquisitions and we've found a lot of synergies relative to procurement.
And so.
So we expect on the margin side, they'll they'll continue to be accretive as well so without giving you. The details since we haven't and we're not going to buy.
Just wanted to let you know the relative to those statements that we made at the closing.
And they are in good shape.
Okay.
And then.
As we've gotten through earning season certainly.
A few weeks ago. It was all about steel prices, but as we've gotten further along.
Some companies have certainly.
<unk>.
It sounded I don't want to say sounded the alarm, but increasing concerns on supply chain, whether it be shipping containers access and components have you seen a shift over the last month and at this point would you say, there's rising concern or no.
Yes, I would say that today, we haven't seen it hasn't affected us too negatively Steve I would tell you that if we do see it as a risk and therefore, we stay on top of it and we have many conversations and we've done several things as far as far as you know deepening our supply chain and have any redundancies and.
And making sure we're looking at on inventories. So we're doing I feel comfortable we're doing the right things to protect us.
And to getting too exposed to those risks, but as you and I both know whether it's the cost of a container of the availability of a container and those are all things that could have an impact on us is moving forward. So we'll stay we'll stay very close to that we have seen you know and maybe one of our sites and South Africa, we've seen a little bit of and impact, but I'd say on an overall basis to the company, it's not really.
Material at this point and time and we're continuing to work away through that so we feel good that we've done a great job on managing our supply chain and our procurement through the pandemic and I think it's ultimately it's going to continue to make US sharper you know as you move forward to ensure that.
We're not exposed to any risk.
And then last one from me is during the Investor Day, you sort of ran through some of the new international products and you figured better aligned with.
Demand from international markets can you talk a little bit about traction in terms of introducing some of those new products.
The loans stay lower priced mobile plans et cetera.
Yes, so we.
Made great traction there I would say that on some of those product lines, where we're just getting into the launch phase with a prototypes we've seen great.
Great acceptance and excitement around us launching them.
So you know some of our first units are already sold and.
And the international markets, which is great. Obviously as you and I both know a lot of times. When you introduce something do you think is just for international you also find that it could be abuse and head and application and the domestic market, but when you look at if I were to show you today, our roadmap relative to new product development Theres, a fair share of those products that are really.
Focus on the international market, which in some cases, we don't really participate at all and so we're doing that by obviously understanding and specifications understanding and our competitive position.
Understanding and the footprint and so what I think has really been great. As you look at some of our spike and the backlog is and it's also supported our maybe accelerated our movement to use the footprint that we have today, whether that's northern Ireland and whether that's Brazil.
So and Johannesburg, and we're trying to find ways to look at all the capacity all the landed cost and.
Improve our position relative to supply and margins through the whole situation also continue to look at.
Outsourcing initiatives in the past.
And I've been very vertically integrated and and if you walk through one of our facilities and maybe versus our competition that may be more assembly, we've been very vertically integrated so we're looking at what does it make how do we use our capacity and our square footage more effectively and the future.
To ensure that we're doing the things that really add value from our perspective versus things that we could get from someone else through our global supply chain.
Okay.
Okay.
Okay.
Thank you once again, ladies and gentlemen, if you'd like to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Larry de Maria with William Blair. Please proceed with your question.
Okay. Thanks, good morning, everybody.
Hey, Larry Hey, guys I just wanted to clarify.
From the comments earlier around two O clock from doing the math right, a 5% increase and.
Price doesn't really offset a 77% increase and steel. So can we just cut down to like how much of a headwind do we expect on an annual basis and how protected hedged on material costs are we now and when did the price increase going.
Yes, so the price and price increases have already been put in place Larry and that's on an average so I would say that and areas, where we have a bigger content and steel we probably have done more.
We'll go into all those details here.
But I would tell you that we've done a good job of protecting our material.
Steel buys you know certainly through first quarter and the second quarter and I feel confident that we have a team of people, including myself to look at this on a regular basis since it is and <unk>.
And part of our cost structure to ensure that we're on top of it.
Not saying there was not an exposure we were not going on.
I think <unk>.
Identify what that dollar value of exposure is today on this call, but I just wanted to give you a rest assured that we're on top of it we're looking at it and we're doing and where we tend to minimize that and in some cases, maybe even take advantage of it as we've done a goodbye and we can pass some of that spot price increases to the customers.
Okay. So were fairly protected on that on the near term and.
Obviously, you can be flexible with.
Price et cetera, as the year goes on and so far and price increases have held obviously.
It sounds like Larry Let me, let me just give you a loose a little bit more color, maybe so you know and the past we've talked about our backlog lasting a quarter or so.
The backlog and the increase that we've seen here over Q4 were a little bit further out on a quarter. So I just want to give you some perspective debt.
You know, we do have some exposure past quarter on some of those material price increases, but we're doing it and we tend to manage it.
Okay. Thank you and then the second question was around backlog and what kind of backlog and do the customers have now that fast and it's been renewed and where post election et cetera, and I'm curious, how they've changed and how your backlog has changed in 2021. So far obviously you finished 2020 on a strong note.
Yes, so as I spent a lot of time talking to customers and stay close to the market Larry I can tell you that.
Most of the customers I talked to you have a full book of work for 2021 and are already starting to book projects into 2022. So their backlog is very strong I would tell you that from a quality.
Quoted projects and one projects through the back half of 2020 to some of the margins that they would see in and that backlog starts to get a little bit compressed as you go through the year of 2021, if that helps you a little bit.
But generally I think there and pretty good they are pretty good shape as I would say that as we've moved from 2020, where we did see a spike in backlog and we've been pleased with some of the order activity and certainly quoting and order activity that we've seen and early days of 2021.
Okay. Thank you very much and good luck on it.
Thank you.
Thank you ladies and gentlemen, this concludes our question and answer session and I'll turn the floor back to Mr. Anderson for any final comments.
Alright, Thank you Melissa and we appreciate your participation on this conference call.
Thank you for Houston Asdic as today's news release indicates today's call has been reported a replay of the conference call will be available through March 15, 2021, the transcript will be available under the Investor relations sections of the <unk> industries website within the next five business days all of that information is contained in the news release that was sent out.
This morning.
And this concludes our call and thank you all for your time and attention and be glad to connect with you.
Week goes on thank you very much.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.