Q4 2020 Park Ohio Holdings Corp Earnings Call
[music].
Good morning, and welcome to the Park, Ohio fourth quarter and full year 2020 results conference call.
At this time all participants are in a listen only mode.
After the presentation of the company will conduct the question and answer session.
Today's conference is also being recorded due out of any objections you may disconnect at this time.
Before we get started I want to remind everyone that certain statements made on today's call may be forward looking statements that the finding of the private Securities Litigation Reform Act of 1995 of these forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected.
The relevant risks and uncertainties, maybe found on the earnings press release as well as the company's 2019 10-K, which was filed on March 12, 2020, but the S E T.
Additionally, the company May discuss adjusted EPS and EBITDA as defined adjusted EPS EPS net EBITDA as defined are not measures of performance under generally accepted accounting principles for a reconciliation of EPS to adjusted EPS and for a reconciliation of net income attributable to park, Ohio common shareholders.
The EBITDA as defined please refer to the company's recent earnings release.
I will now like to turn the conference over to Mr. Matthew Crawford Chairman CEO and President. Please proceed Mr. Crawford.
Thank you very much and good morning, everyone welcome to our yearend and fourth quarter 2020 call.
As I look back on 2020, I can't help but highlight the importance of several parts of our culture here at Park, Ohio.
Over several decades, we have built a strong decentralized management team with the with the 88 with a diverse set of skills, who appreciate our commitment to the entrepreneurial spirit.
As our business has grown it can sometimes be difficult to balance these core beliefs with the desire to optimize short term performance.
But last year proved to us once again, why we believe so profoundly and these qualities.
Our team consistently rows of the challenges quickly and aggressively of 2020.
Many of these challenges began in March when we were forced to reduce expenses virtually overnight at the beginning of the pandemic, while meeting the essential customer demand keeping each other safe.
We ended the year with somewhat the opposite challenge scaling our business quickly to meet accelerating demand across much of our business as the.
Supply chain became strained and the recruit recruiting environment wasn't is as difficult as any of us recall.
I think it's fair to say our results speak to the fact that we passed the test of 2020 and I want to thank all of our team here at park, Ohio, and recognize that our core beliefs of empowering each other has again stood the test of battle.
I also believe we will look back of 2020, as having accelerated our commitment to focusing on increased quality of earnings.
Increased cash conversion, enabling more balanced allocation of capital.
The fourth quarter in particular showed important signs of progress on each of these areas.
First we saw of standing performance from supply technologies and assembly components with regard to quality of earnings.
These businesses continue to improve by focusing on cost.
But more importantly by investing in new customers products and services, which are accretive to our core business model.
Regarding cash conversion the fourth quarter was <unk> was a particular highlight by generating $25 million in free cash flow, which was approximately 100 per cent of EBITDA, despite achieving sequential growth from the third quarter.
While this may be a bit above our expectations going forward, we will continue to manage aggressively working capital targets and capital expenditures as we leave behind a couple of years of above average spending.
Lastly, our commitment to strategic allocation of capital provided our company of the ability to make numerous targeted investments and value drivers, which provide high returns while improving our long term competitiveness.
After doing so we were still able to support vital strategic growth projects and reduce debt.
In short 2020 has helped us for reshape our fund foundation and focus our investment strategy the strategy in such a way that will benefit throughout 2021 and beyond.
Speaking of 2021.
While we anticipate continued recovery in many end markets and improved overall performance. We are cognizant that several end markets, particularly engineered products continue to suffer the.
These businesses have regularly provided leadership to our overall performance and we will continue to invest in the strong franchises to build market share and capitalize on the strong brands on our portfolio.
We have no doubt this segment will make significant progress throughout the year and will benefit from the strategic decisions made during 2020 in 2021.
With that I'll ask Pat to cover.
The quarter performance.
Thank you Matt.
The challenging business climate, we reported improved fourth quarter results compared to our third quarter results of most of our businesses, we saw sequential customer and end market sales increases across each segment of our business. In addition, we continue to execute critical initiatives, which will position the company for increased growth.
And improved profitability as the global economy recovers.
Our initiatives included investments in plant consolidation and expansion across all three of our business segments and margin improvement initiatives, which included investments in equipment product tooling automation and technology, all aimed at reducing operating cost costs and increasing efficiencies as volumes continue.
To improve.
We began to see the positive impacts of these actions during the second half of 2020, and we expect a greater impact in 2021.
In the fourth quarter, we achieved sequential sales growth of 6% compared to the third quarter. The sequential increase occurred in each of our business segments net sales on a consolidated basis represented 95% of prior year levels. Despite continued volatility and weakness in certain key end markets.
Our supply technologies and assembly components segments, both of achieved year over year increases in revenue.
These year over year increases were more than offset by continued low demand levels in the end markets serviced by our engineered products segment compared to a year ago comp.
Compared to the fourth quarter of 2019, adjusted operating margins improved 120 basis points in supply technologies.
60 basis points in the assembly components.
Due primarily to the benefits from implemented cost reductions and the higher sales levels and.
In engineered products adjusted operating margins were down significantly from the fourth quarter of 2019, driven by lower sales onetime restructuring charges of $1 5 million in higher manufacturing costs, primarily in our forged and machine products business.
Consolidated cash flows were strong in the fourth quarter as we aggressively manage working capital on discretionary spending.
<unk> and $37 million of operating cash flows and free cash flow of $25 million in the quarter.
As of December 31, we had total liquidity of $252 million, which included $55 million of cash on hand, and $197 million of unused borrowing availability of.
Our year end liquidity has completely recovered to levels seen at the end of 2019.
In addition, we returned approximately $11 million to our shareholders and share buybacks and dividends during the year.
Turning now to the details of the fourth quarter net sales were $360 million compared with $340 million in the third quarter and $380 million in the fourth quarter of 2019.
We saw sequential improvement across the majority of our businesses, except in our forged and machine products business, which continues to be affected by weak oil and gas aerospace and defense and rail demand are.
Our fourth quarter adjusted gross margin was 14, 5% compared to 14, 6% in the third quarter and 16, 4% of year ago.
The margins continued to improve on a sequential basis from the majority of our businesses as volumes continue to recover and due to the positive impact of our restructuring efforts.
The fourth quarter, SG&A expenses were down 15% compared to a year ago to $38 2 million compared to $44 8 million in the prior year.
Driven by our cost reduction actions and lower discretionary spending throughout each business.
On an adjusted basis operating income in the quarter was $13 6 million compared to $18 $1 million a year ago, both supply technologies in the assembly components reported strong year over year improvement in operating margins, which were more than offset by the margins in our engineered product segment.
In the fourth quarter, our GAAP earnings were <unk> 46 per share and adjusted earnings were <unk> 53 per share.
Now I will make a few full year 2020 comments first of all we ended the year with consolidated revenues totaling $1 3 billion.
Around 20% compared to 2019, which resulted in a GAAP loss of 37 per share and on an adjusted basis earnings of <unk> <unk> per share for the year all of which were negatively impacted by the global industrial was shutdown caused by the pandemic.
A few positive items to note for the full year, starting with SG&A expenses, which were down $24 million a decrease of 14% below 2019 levels of.
Also interest expense decreased by $3 5 million in 2020 compared to 2019. The decrease was the result of lower interest rates and reduced average borrowings during the year.
Our full year tax rate was the benefit of approximately 34% compared to expense of 28% of year ago with the higher benefit rate in 2020 due to various changes in regulations, resulting from the cares Act, which was enacted in March of 2020 as a result, we were able to carry back 2020.
Tax losses to prior years, when the U S statutory tax rate was higher.
Now I'll comment on our segment results.
In supply technologies strong customer demand resulted in sales in the fourth quarter of $143 million, which was up 5% from 2019 sales and up 8% sequentially.
Continued sequential improvement was seen in most end markets, most notably in the heavy duty truck power sports agriculture, and industrial equipment Aerospace and defense in the medical device markets. The demand increases we are seeing throughout every region of supply technologies.
Total average daily sales increased to their highest level since the third quarter of 2019. Despite continued weak demand in the aerospace and defense market, which is significantly below 2019 levels.
Our fastener manufacturing business also showed strong sales in the fourth quarter, increasing 7% compared to a year ago as our auto related customers increase their demand for our proprietary spec products year over year.
Segment operating income improved 150 basis points quarter over quarter to seven 1%.
This increase was driven by cost reduction and margin improvement efforts and by the higher sales levels compared to a year ago.
In our assembly components segment net sales in the fourth quarter were $132 million up 2% compared to the 2019 period and improved 4% sequentially.
Sales in the fourth quarter were also at their highest level since the third quarter of 2019.
Reflecting the strength of the automotive market and our continued launch of new programs.
This segment has taken significant actions to restructure the business beginning in 2019 and accelerated additional restructuring as a result of of the pandemic.
Onetime charges were $4 million in 2020, and $3 million in 2019, which related to plant closure and consolidation activities and employee termination costs, we began to see the margin benefit from our initiatives in the third quarter of this year with continued improvement in our fourth quarter results.
Segment operating income in the fourth quarter of 2020, excluding one time charges was up 130 basis points sequentially and 60 basis points compared to the prior year.
Adjusted operating income in the quarter was $10 1 million.
Compared to operating income of $9 $2 million into 2019 period.
These improvements in operating income and the margin reflect the improved flow through resulting from the increase in sales.
Our products in this segment are well positioned for future growth as the are oriented toward key automotive trends, including fuel efficiency reduced emissions light weighting and vehicle electrification.
And finally in our engineered products segment sales in the fourth quarter increased $86 million up sequentially from $81 million in the third quarter. The sequential increase was primarily driven by new equipment sales and aftermarket sales in our induction and pipe threading equipment products.
Despite the sequential improvement over the third quarter fourth quarter sales in this segment approximated only 75% of prior year levels due to the slow recovery in steel oil and gas aerospace and defense and rail end markets operating.
Operating income in the segment after adjusting for onetime plant consolidation costs totaled $700000 compared to $1 8 million in the third quarter the.
The decline in profitability in the 2020 period compared to a year ago and the decline from the third quarter were driven primarily by lower sales levels and higher manufacturing costs in several of our forged and machine products locations.
Currently we are seeing increasing order activity for new capital equipment over fourth quarter levels, and we expect sales of our forged and machine products to gradually improve throughout 2021.
We believe our ongoing margin improvement initiatives in this segment will improve our margin profile once volumes return.
As we begin 2021, we believe many of our end markets will continue to recover throughout the year. Despite early component shortages and weather related issues affecting the auto sector early in the year.
For the full year, we are targeting our consolidated revenues to increase 8% to 12% and.
And improved EBITDA margins of 150 to 200 basis points over 2020, EBITDA margins of five 6%.
Also we are targeting capital expenditures of 28 million to $32 million and free cash flow conversion to be greater than 75% of net income now.
Now I will turn the call back over to Matt.
Thanks, Pat for the AUM.
A review and we're now ready for questions.
Thank you we will now be conducting a question and answer session. She would like to ask the question. Please press star one on your telephone keypad.
Confirmations on what educate your line is on the question queue.
The press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up of your handset before pressing the star keys.
One moment, please while we poll for your questions.
Our first questions come from the line of Steve Barger with Keybanc capital markets. Please proceed with your question.
Hey, good morning, guys.
Steve how are you for Steve.
Good.
Good to see you back on track for growth and margin expansion.
On the revenue outlook based primarily on assumptions for market recovery against easy comps or do you have some specific initiatives that you expect youre going to drive some outgrowth for Ya.
Both.
Pat Pat can clean this up a bit but no I think we are yes.
We saw a lot of momentum in the fourth quarter. So we have a sense I think for where some of the key markets are going particularly in terms of supply technologies and.
Assembly components.
And I think we're beginning to feel a little more confident about some of the end markets and engineered products, particularly as we head into the latter part of the year. So no and of course separately. We have certainly built in the initiatives that we're continuously working on in terms of new business and so forth.
I was interested to learn that we added 210, new customers last year at supply technologies. So.
As you know we've addressed and focused a lot on the mid market recently, some many of those are not large customers.
But the reality of it is now of theirs.
A very specific growth plans for each business and we're excited to see that build on itself during 2021.
So the the normal sequential patterns for revenue to go up from <unk> to <unk>. So you expect that will hold this year as you as you start the year.
Yes.
Steve This is Pat I think some of the the issues early in the year.
We will have somewhat of an impact on our first quarter revenues.
Especially in the auto sector.
That's <unk>.
The evolving issue relative to the microprocessor chip shortages right, obviously weather related issues. We believe are behind US, we think thats solely of first quarter or first half of 2021 issue.
With cash.
And of of more production level of normalcy in the second half of the year.
So.
But so the sequential improvement quarter over quarter.
It is still somewhat.
Up in the air just because of some of those issues I just mentioned.
David the hard and again, we see the momentum building throughout the year.
It was a remarkably volatile fourth quarter in the sense of that.
There was a lot where a lot of people replenishing their inventories. So we saw significant and unusual spikes in demand in some key customers. So that's why I think it gets a little bit difficult.
To ensure a positive comp quarter over quarter.
I understand and it sounds like you have lower expectations for engineered this year versus the other two segments, which I think makes total sense I guess, when I think about supply technologies and assembly components, having similar comps from 2020, which do you think outgrows as as the year progresses is easy.
To see that the supply tech or or do the comps in the assembly.
Make that more likely to see the outgrowth.
Mhm.
Yes, Steve.
I would I would say that in the assembly components.
We will probably see them a more accelerated growth as the year progresses, just because of new product launches that have been ongoing that were delayed in 2020.
But we have.
Obviously end market improvement happening in supply technologies, where we really haven't seen much improvement is in our aerospace and defense business we.
We expect that.
To start to pick up throughout the year.
But overall the answer your question on Assembly components is where I'd see a greater level of growth is.
As 2021.
Continues.
Understood.
I would only add Steve part of the reason there are two ways supply technologies performed.
Pretty well during 2020.
They of course struggled in the second quarter, but they rebounded more quickly and more effectively at both the top line on the bottom line than either of the other two businesses, which which isn't a surprise so.
They have less ground to make up.
Right.
And Matt difficulty in recruiting workers was an issue we talked about pre pandemic across the industrial space. As you noted it's harder now I know you've made a lot of investments last year, but when you think about capex going forward or are you continuing to invest in robotics or automation, just how of that capacity multiplier as end markets for <unk>.
<unk>.
Absolutely and when you hear me talk about.
More focused on strategic allocation of capital.
One of the things I'm trying to speak to is our desire to.
Our desire to not only improve our long term competitiveness, but make sure that in the areas of our business that are the highest value add that we're not at the mercy of whether or not people show up to work. So certainly on automation and robotics have a increasing increasingly important role in our capital allocation.
It doesn't mean, we don't have hundreds of job openings right now and we will continue to.
Unfortunately, but no. There is no question that the automation is playing a bigger role.
And which segment on which we expect to see the most targeted investment to try and kind of alleviate that labor issue.
Yeah, I think I think to some extent all of them on.
I think.
Because of the.
Significant the large volume.
Manufacturing processes that we see in automotive.
<unk>.
The most obvious choice in answer to that question a lot of repetitive work there having said that our warehouses continue to be obvious examples of where we can invest.
To increase productivity.
And still have opportunities for growth in employment and the same thing goes for parts of our engineered products group as well so I wouldn't say any single place, but automotive jumps off the page as the best opportunity.
Got you I'll ask one more and get back in line as we've gone through earnings season, we're hearing more about input cost increases can you just talk about what youre seeing in terms of inflation for steel or manufactured parts.
Just talk through non labor supply chain constraints that you see.
But you said a couple of different things there.
I'll take them in reverse order.
Supply chain constraints are significant.
Particularly from overseas.
I know you're aware of some of the issues regarding regarding container shortages backups at the ports customers custom and border issues.
This is a massive issue, particularly for products coming in from offshore. So it's unclear how that will play out to me at this point throughout the rest of the year, but supply chains are absolutely strained for.
For those reasons labor and others.
And yes, I mean, there is no question there is inflation creeping into creeping showing up in raw material purchases.
As you know in most cases.
We have.
Non financial hedges, meaning we've got relationships, either contractually or the nature of our relation with our customer allows us to pass through some of that pricing impact, having said that Steve it's a real issue and.
It just can't not show up.
And in the numbers during 2021.
Understood. Thanks.
Thank you. Our next question comes from the line of Marco Rodriguez with Stonegate capital markets. Please proceed with your questions.
Good morning, Thank you for taking my questions.
Good morning, good morning.
I was wondering if maybe you could spend a little bit more time kind of on the process of improving from manufacturing efficiencies that you guys have enacted throughout fiscal 'twenty one.
While I understand that obviously youre always going to be striving for operating efficiencies and it's an ongoing process. Maybe if you can talk about those those.
Just that you did in fiscal 'twenty, and whether or not you've sort of kind of harvesting the low hanging fruit already or if maybe there are some additional efforts that are kind of implied in your EBITDA margin guidance expansion that could further add operating leverage on leveraging our fiscal 'twenty one.
Michael I know, it's an ongoing process to be clear.
I think that the work that's been done, particularly in supply technologies.
And if some of the components has been has been formidable and you see it in the fourth quarter numbers. So.
I think as we adjust and think through.
How.
At the end markets and engineered products will recover.
Pat mentioned some of the critical ones in our rail and oil and gas on defense.
Larger infrastructure items.
There's a lot of play in that both from a sort of geopolitical standpoint, and from an end market standpoint, So I think that.
That's more of an ongoing opportunity for us in that segment and those include across the board during 2021.
Reshaping and resizing of our manufacturing footprint.
So we've touched the number of facilities throughout our business and we'll continue to do through 2021, you've seen of play out in some of the restructuring charges and it will continue to play out so.
Those are significant as we address.
Locations are places, where we have unabsorbed overhead and where we anticipate seeing it in the future. So.
No I think it's an ongoing project.
Got it and then just kind of in regard to the adjusted EBITDA margin guidance of 150 basis points of 200 basis on improvement year over year.
Just kind of based on some of the question you had earlier, maybe engineered products was not going to average as great of the year as of the other two but just kind of wondering if you can talk about the expectations for the margin expansion in fiscal 'twenty, one by through supply technologies on it sounds like components.
So some of our couple for Pat jumps into that I want to take head on this issue about engineered products.
And on my comments this is a business which has traditionally.
Net.
And the real leadership position relative to overall of our overall financial results. So.
While we are cautiously optimistic as the year goes on and we recognize that a number of these businesses are late cycle capacity building businesses.
Yes.
And we're not sitting on our farms.
We're extremely excited about these businesses. These continue to be the areas. We have some of the best opportunities for expansion in the highest margins margin businesses we own.
Our R&D efforts there are rejuvenated our efforts to ensure that we have the right share of wallet for our massive installed base on the equipment side. So.
I just want to make sure before Pat jumps into that and recognize that the engineered products business is of late cycle business. We've been here before it's a little worse. This time candidly because I think of some of the issues in the oil and gas sector.
On the aerospace sector, but to be clear.
There's some really good things happening there so.
With that I'll hand, it off the bat, let him address your question.
The expense.
Yes, Marco I would.
Comment that the.
The incremental margin improvement that we're going to see is going to occur in each of our business segments. So it's not skewed towards supply tech or assembly components.
We expect improved.
The improvement in each of them.
I think of assembly components, as we wind down the completion of the consolidation of our various locations.
To see a greater level of expansion in margin in that business segment.
When volumes return in engineered products, which.
As I mentioned in my comments, we expect to gradually improve throughout the year, we're going to see margin expansion. There are couple.
Coupled with the fact that.
We have a number of initiatives that are in place and underway that should be completed by by the end of the year.
It's going to be across all three business segments.
One of them very very helpful.
And then Matt just kind of coming back.
The comment that you may hear on engineered products very very helpful. And also in terms of your prepared remarks about cash.
On the refining your allocation of capital to more strategic products and services and I know you sort of addressed.
Of that from a manufacturing and footprint on on a prior question, but I was wondering if maybe you can kind of just remind us hearing highlight what exactly are those particular products from sources that you sort of see as the most strategic for your long term growth and then if you can any sort of.
I mean on that reallocation of capital to those of those products and services.
Yes, no that's great I appreciate the question because it's.
I think I've commented on prior calls that we sort of over the last 24 months of vetted our portfolio and are trying to be much more focused on strategic on where we think we of growth opportunities at very accretive margins. So when I think about supply technologies on.
And again this is a bit of a stream of consciousness, I apologize, but I think about expanding.
Some of our product portfolio, we've talked about MRO in the past I had mentioned connectors as the highlight really the.
Electrical connector space has been an exciting new area for us.
In our assembly components of value add machining as.
As you know we're big in the casting space, we do a little machining, but understanding how to bring value add to our customers.
It's really an important component of our growth in that space and comes at better margins.
I also think about we are really good at extruding rubber hose and we're very efficient in our sort of body of work begins in the in the fuel space, but today, we are highly focused on leveraging those assets for.
For fluid hose in the EV space.
Coolant hose washer hose for cameras in the us.
Sunroof seal so the electrification of the car in and of itself whether that means the powertrain is or other aspects of the car provides more need for protection seals Grommets and.
And so forth so fluid management non fuel is a big part of our business and leveraging assets that are the best in the business.
And when I think about our capital equipment business and engineered products I mentioned, just briefly focusing on the high margin aftermarket business and making sure that we're getting.
More than our fair share of our own embedded equipment.
I think of great starting point and while I think traditionally we've done a wonderful job in that space I think are focusing on it and marketing it.
In providing independent leadership is an opportunity for us.
R&D I mean, we've got that business was built on on tremendous R&D and the intellectual property over the years and making sure that we're not losing sight of what built that business will continue to build next generation products all of which again are accretive to our margin. So.
A bit of a stream of consciousness, there I apologize, but candidly, there's there's 50 different opportunities that are sort of transitional opportunities inside of these businesses.
Got it very helpful. Very helpful. Appreciate that last quick question from me.
You can kind of update us on the M&A opportunities you see valuation levels, maybe kind of discuss how those opportunities might be evolving how you kind of expect them to evolve kind of given the vaccines are now starting to be distributed nature.
Nationwide in Hawaii.
Yes.
This is Pat I'll address that.
Park, while I was built on on acquisitions, and we expect that to continue the.
On the marketplace.
And the valuations that we're seeing are extremely high money is cheap and so.
That is a problem for us because of.
<unk> of the way, we buy and the expected returns that that we get on our acquisitions.
But we're going to continue to look for strategic acquisitions, where appropriate.
And until rates start to increase.
We may not see valuations drop.
But I think with companies.
Our strategic to us.
We're able to find values.
And we're seeing deal flow start to pick up.
Mark I would add that we have not we don't predicate any earnings forecast or revenue forecast for any forecast.
Based off of.
On acquisitions, we haven't done.
One of the things I like about what's in our DNA is sure we would love to add meaningful strategic businesses. We also recognized as Pat said the valuations are sky high right now, but guess what we also do really well.
Our leadership team sources modest sized deals too.
So just because we may feel as though some of the larger transactions are out of reach is the valuation.
That doesn't mean, we're not going to be active and we're going to be active in businesses that are accretive again, along the lines. We've mentioned accretive to earnings great business models growing the kinds of things that are strategic not just to our business, but have but have great glide pass on their own basis might be a little smaller.
Understood. Thank.
Thank you guys very much I really do appreciate the time.
Okay.
Thank you.
Thank you. Our next question comes from the line of Sarkies share batching. It of B Riley FBR. Please proceed with your questions.
Good morning, and thank you for taking my question here.
Just wanted to comment on any targets.
Of our asked you Hey, good morning, just wanted to ask you about.
Your comments around managing working capital on Capex.
Just wanted to kind of pick your brain and understand if you have kind of the new philosophy on.
How you are managing working capital relative to your maybe sales line or relative to kind of.
Any shift in philosophy, given the market backdrop, just trying to understand if anything's changed there.
Yes, <unk> this is Pat.
I think nothing has really changed.
Our focus historically has been to manage working capital and keep it as low as possible to generate and maximize our free cash flow.
I think each of our business units.
The focus on that and actually are.
Have incentives to maximize those levels. So nothing has changed I think the pandemic has for us not only us but a lot of companies.
To do whatever was necessary to improve the liquidity during that.
For month period of time.
So maybe a renewed focus is a better way to put it but I would say nothing materially has changed in our philosophy around working capital management.
Okay, Okay I guess.
The other question I have related to the are you keeping kind of higher softness strategic surprise just given the.
Supply chain constraints, we're seeing.
Across the board in the industrial landscape.
I think sorry.
<unk>.
We're being opportunistic in certain cases, where.
Where we feel supply chains change are threatened and.
And probably holding a little more.
That's evolving as the quarter.
Moves on but but yes, so we're protecting our our inventory and our service to our customers and that may take.
Purchasing additional inventory.
Okay, that's great and I think looking.
Looking at your top line guidance from an EBITDA kind of.
Expectations for EBITDA margin improvement certainly appreciate you guys, giving more transparency and color around that for the year.
If we didn't see kind of the chip shortages and what's going on in the auto sector would you have had the opportunity to provide stronger numbers just because if we look back at <unk>. It seemed like the of.
On extremely soft year right. So it seems like you had an opportunity to to provide stronger guidance just wanted to see it.
If the first half, giving you guys kind of hesitancy or some issues.
This is Matt sorry, because I don't know if I would say it quite that way.
Most of our first half forecast is built largely on kind of what we think and know about releases from the customer.
Having said that you've identified.
The risk.
We don't know what we don't know in terms of some of these issues and whether it's a weather at the in Texas and the southern border, preventing product and for Mexico, which slows down some of the OE space.
Or whether it's the chip shortage or whatever it is.
These constraints, you've identified and labor and Covid continue to be <unk>.
Significant risks to two.
Our forecast, having said that I think our process builds in some of that risk.
No.
To the extent things go better than expected, whether it be the vaccine or.
Whatever whatever comes our way I think there is an opportunity there, but no I don't think we've specifically sort of built on it.
Okay got it. Thank you for that and I think if I look back historically the business has been able to do high single digit EBITDA margins at certain sales levels.
On a kind of get a sense for.
As you can see growing the business and all of the cost actions you've taken out of <unk>.
Think you can get to a better EBITDA margin range, certainly as we move past the recovery phase in 'twenty one.
The answer is definitely yes.
We would expect to do.
Superior margins as we approach historic revenue levels.
Having said that again we.
We continue to need to do our work at the end of the engineered products group.
In terms of some of the restructuring items and we need to see some recovery in that segment at the end of the day.
That that is a leadership business for us from a from a margin perspective.
Thanks, so much I'll hop back into queue.
Okay.
Thank you. Our next question comes from the line of John Baum. Please proceed with your questions.
Hi, guys that one of the complementary on the tremendous year 2020 was a year of full of surprises.
Where we finished up is.
It looks from looks tremendous on the equity itself.
Responded accordingly.
I appreciate it Chad I don't think of still a lot of action as you know.
As I mentioned on my opening comments, John you know some of the people here it.
It would be hard to express the.
We didn't.
We didn't work at home I mean, this is a business that people whats the plants every day people at the office is the plants when every day.
And.
The credit goes to the bottom line.
Absolutely.
You have one question kind of open ended regarding capital allocation.
I'll, let you answer it in the.
The Gulf from there I do see the $125 million shelf offering.
Net debt equity.
Just kind of thoughts of that but it's one of the Dol are you looking at additional debt I mean, right now your year lines of credit of pretty strong and yet.
The global maybe towards the equity or are we looking at with this only be contingent upon the acquisition kind of an open ended question I'll just let yet.
Bond accordingly.
Yes, John this is Pat.
That registration was really to refresh prior.
Prior registrations in and in no way was.
There are pending debt offering or a <unk>.
Or an equity offering.
To refresh prior registrations.
Okay very good what final one path to you.
You like it.
What the what what you're looking for on the effective tax rate for 2021 debate.
Between 27% and 29% John.
Excellent. Thank you.
And congratulations on a great year looking for to 2021.
Thanks, John Thank you.
Thank you there are no further questions at this time.
With that I would like to end the call. This does conclude today's teleconference. We appreciate your participation.
You may disconnect your lines at this time and have a great day.
Great. Thank you very much.