Q1 2021 Altra Industrial Motion Corp Earnings Call
Good day, and thank you for standing by.
I'll come to the Altra industrial motion Q1, 2021 earnings call at this time all participants are in a.
On the moat.
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There will be a question and answer session to ask a question.
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If you require any further assistance. Please press star zero I would now like to hand to come from so just speaker for today, David Louisiana. Please go ahead.
Thank you good morning, everyone and welcome to the call to help you follow management's discussion on this call they'll be referencing slides that are posted to the altra motion dot com website under events and presentations in the Investor Relations section. Please turn to slide three during.
During the call management will be making forward looking statements as defined in the private Securities Litigation Reform Act of 1095.
Forward looking statements are highly.
Apparently uncertain and investors must recognize that events could differ significantly from management's expectations. Please refer to the risks uncertainties and other factors described in the company's quarterly reports on form 10-Q, and annual report on form 10-K, and the company's other filings with the U S Securities Exchange Commission.
Except as required by applicable law Altra industrial motion Corp, does not intend to update or alter its forward looking statements whether as a result of new information future events or otherwise on today's call management will refer to non-GAAP diluted earnings per share non-GAAP income from operations non-GAAP net income non-GAAP.
<unk> adjusted EBITDA non-GAAP operating income margin non-GAAP adjusted EBITDA margin non-GAAP organic sales non-GAAP operating working capital non-GAAP net debt and non-GAAP free cash flow. These metrics exclude certain items discussed in our slide presentation and in our press release under the heading disk.
<unk> of non-GAAP financial measures and any other items that management believes should be excluded when reviewing continuing operations.
These reconciliations of altra as non-GAAP measures to comparable GAAP measures are available on the financial tables on the Q1 2021 financial results press release on <unk> website, Please turn to slide four.
With me today are Chief Executive Officer, Carl Christenson, and Chief Financial Officer Christian Storch on now I'll turn the call over to Carl.
Thank you David.
Thank you for joining us today to review, our Q1 2020 results and please turn to slide five.
We delivered strong first quarter results that exceeded our expectation expectations and approached pre pandemic levels. This is a clear and positive indicator that a broad based economic recovery is underway.
With our highly competitive diverse portfolio and strong business operations Altra is in in an incredible position to capitalize on the near term on secular tailwind in markets like Electronics Assembly equipment General factory automation and robotics.
The economy continues to recover altra will benefit from mid and later cycle markets, such as mining metals AG and heavy machinery to name a few.
The economic recovery is spreading across more and more segments of our business incoming orders and bookings momentum has continued to accelerate across our early cycle markets and we have begun to receive orders for products that are sold into later cycle markets.
This gives us confidence to raise our 2021 guidance today and further validates our belief that altra in the industrial world will be in for a very strong run in 2022 and beyond.
I'm extremely proud of the altra team's ability to continue to deliver exceptional results.
<unk> top notch customer service and advance our strategic priorities, while continuing to ensure one another's safety effectively work remotely and strengthen our culture.
Now please turn to slide six for an overview of Q1 performance highlights.
Q1 revenue of $472 1 million was up eight 7% from the prior year as we capitalized on strong demand across most of our end markets led by heavy duty trucks factory automation and specialty machinery.
Our strong top line performance also reflects our ability to manage the supply chain in these very difficult times and leverage our competitive strengths to outperform the competition.
We've been able to leverage our proven excellence in supply chain manner management to minimize production disruptions and maintain reasonable on time delivery performance.
<unk> strong lead time performance and product availability can be a competitive differentiator and enables share gains, particularly in times like this when demand exceeds supply.
We expect this competitive strength will support further share gains for altra as supply to supply constraints continue to impact select markets.
We also drove excellent operating performance in the first quarter by carefully managing costs and through our focus on applying altra is world class business system to drive performance.
We further expect debt it will be essential to continue to leverage our pricing power to offset material and wage inflation.
As a result, we grew non-GAAP adjusted EBITDA margin by 170 basis points achieved earnings growth that exceeded our expectations and delivered another strong quarter of cash flow.
More specifically Q1 2021 net income was $39 $2 million for <unk> 60 per diluted share.
Q1, non-GAAP diluted EPS was <unk> 86 up 32% from the first quarter of 2020 and up seven 5% from the first quarter of 2019.
We generated nearly $27 million on non-GAAP free cash flow in Q1, which allowed us to pay down $20 million of debt and continue to make excellent progress delevering our balance sheet.
We exited the quarter with net debt to non-GAAP adjusted EBITDA leverage of three times advancing us towards our goal of reaching historic leverage levels of two <unk> to three X. This year.
Now turning to slide seven for an update on our strategic initiatives that we have prioritized to drive sustainable shareholder value and realize our promise as a premier industrial company.
This includes leveraging our world class business system to create sustainable competitive advantages by developing industry, leading business practices across all aspects of our business.
Even during the pandemic our teams we're committed to driving business improvements.
Eliminating waste and improving the flow of value to our customers.
I'm looking forward to what our teams can fully engage again in face to face improvement activities.
As demonstrated by our results we have made tremendous progress with our second and third priorities of Expediently, delevering and managing costs to improve the balance sheet and drive margin enhancement.
We also remain committed to directing resources to drive top line growth via cross selling technology sharing to accelerate innovation and infusing capital to address emerging growth opportunities.
As an example, we invested in a new generation of servo Motors and drives that were introduced last year and are beginning to gain traction in the market.
There were several success stories during the quarter that demonstrate our ability to leverage our market position and innovative technologies to take share add new customers and expand geographically.
For example, based upon our leading position in engineered breaks for the wind turbine industry, we should we secured.
A number of large orders for both onshore and offshore turbines.
This included both repeat business and new customer wins, where we took share from a competitor.
We also closed our first serial production order with a new customer in India for wind turbine brakes.
As another example, we won an order for a linear system for medical blood agitation for medical blood agitation application.
And with this win we gained share because of our custom engineered design and proven product performance.
And as we expanded upon at length on the last earnings call. We are also committed to advancing our ESG priorities that have long been ingrained in the altra business system and the way we conduct our business. This includes systematically identifying and eliminating waste and reducing emissions across our footprint.
While providing innovative solutions to help our customers do the same.
Ensuring we are fostering a safe diverse and inclusive work environment that stimulates and fully develops the capabilities of our people.
And ensuring we have best in class governance to remain fully aligned with our shareholders' interest.
The robust set of tools and processes inherent in the Altra business system continued to serve as our compass as we advance toward forward on our ESG journey.
Now turning to slide eight for a market review.
Starting this quarter, we are simplifying our market discussions to focus on the core markets and trends that we believe are most relevant to altra performance and growth prospects.
As a result, we are no longer providing an exhaustive review of all end markets as we have in the past for additional context, we are providing an approximation of the percentage of altra sales represented by each end market on a trailing 12 month basis.
Transportation, which represents approximately 16% of our business was up high single digits in the quarter with class eight truck demand in China stronger than anticipated.
On balance we continue to expect the market to be flat to slightly up in 2021 as demand in China returns to more normal levels and demand in North America improves.
Longer term as the number one global supplier, we expect altra transportation business to benefit from new technology initiatives supporting future global safety and emission mandates.
Factory automation and specialty machinery, which represents about 11% of our business was up high single digits as we benefited from strong tail winds and specialty machinery categories, like food and beverage and packaging robotics HGV.
General factory automation.
Overall, we continue to expect an improved performance in 2021 with particular strength in technology markets and sustainable higher growth rates supported by global Digitization and industrial Iot as well as macro trends and collaborative robots.
Turf and Garden AG and construction, which combined represents approximately 9% of our business also had a strong quarter up low double digits. We continue.
You do expect the turf and garden market will slow in 2021 due in part to tough comps and net AG and construction will continue to improve.
We remain positive on long term growth prospects supported by ultra strong market position in secular tailwind such as increased infrastructure spending.
Medical equipment, which is about 8% of our sales was up double digits year over year, but down sequentially as the decline in COVID-19 related sales was only partially offset by a rebound in elective surgeries and hospital capital expenditures.
This remains an exciting long term growth market for us supported by secular trends like aging population demographics and growth on non invasive and robotic surgeries.
Material handling, which represents about seven percentage of sales was up low single digits with AG vs forklifts and vertical listing lifting systems, all realizing nice improvements.
Although this is a cyclical market theres there are several tailwind that excite us including strong growth in warehousing driven driven by growth in e-commerce as well as advanced technology to improve warehousing efficiency.
In addition, we've had some early traction with Iot installation projects and the large crane industry.
Renewable energy, which represents about six percentage of sales was up low single digits year over year due to continued strong investment in renewable energy around the globe.
We continue to expect 2021 to be flat barring any new administration policies.
Longer term renewables is an exciting growth play for altra as global demand for interim usage of renewable energy favors our strong position in both onshore and higher growth offshore wind.
And finally, aerospace and defense, which combined is about 6% of our sales was down single digits due to in large part challenging comps and project timing.
Despite near term headwinds we are excited about this market for a few reasons.
Altra as A&D business has a very attractive margin profile with a strong competitive position and high barriers to entry.
We also continue to expect this market will rebound at some point in 2022 as the commercial Aero business Resurges coming out of the pandemic and the geopolitical environment supports continued investment in land based and defense Aero.
With that I will turn the call to Christian could provide a detailed review of the quarter and our 2021 guidance.
Thank you Carl and good morning, everyone.
Please turn to slide nine.
Our strong first quarter results were once again highlighted by ultras careful cost management.
Our strong cash flow generation and significant progress in de levering the balance sheet.
In addition, we once again demonstrated the resilience of all balance portfolio of articles and a strong market position that has allowed us to capitalize on the economic recovery.
Emerging across many of our businesses.
Turning now to a review of our top line performance in the first quarter.
Sales were up eight 7% compared with the prior year period.
Driven by a very strong performance in March <unk>.
Organic sales grew five 4% with price contributing 70 basis points foreign exchange rates had a positive effect of 330 basis points.
Excluding the effects of foreign exchange net sales for the PTT segment were down one 8%.
Bookings momentum has been strong across all PTT businesses, which we believe will support further improvements with PTT as we move through the year.
Excluding the impact of foreign exchange net sales for the E&S segment were up 12, 4% compared with the same quarter last year.
Driven by strong top line performance across several end markets, including medical transportation and factory automation and specialty machinery.
In addition, this segment saw strong growth in China.
In these markets, we benefited from both demand improvement.
Some likely inventory rebuild in the channel.
Taking a closer look at our performance by geography in Asia, and the rest of the world revenues without the impact of foreign exchange were up 34%.
Primarily driven by strong sales in the class eight truck market in China.
In Europe sales were down two 2% without the impact of foreign exchange as Europes vaccination efforts lag behind the U S sales.
Sales in North America grew less than 1% due in large part to tough comps.
As expected we saw approximately $3 7 million of pandemic related cost savings return in the quarter.
Despite this we were able to grow non-GAAP operating margin by 190 basis points.
Reflecting our team's incredible efforts to control costs and manage cash in this environment.
Working capital was up approximately $21 4 million sequentially as a result of stronger sales and a modest increase related to strategic purchases that we made in anticipation of supply chain constraints.
The provision for income taxes on the first quarter of 2021 on a normalized basis was 19, 4% before discrete items.
Reflecting reg changes related to tax reform and other changes that lower lowered our tax rate.
Non-GAAP adjusted EBITDA exceeded $100 million and came in at $101 6 million for the first quarter or 21, 5% of net sales.
170 basis points compared with last year.
Please turn to slide 10 for a closer look at our balance sheet.
Balance sheet improvements cash flow and liquidity.
Our cash generative business model and the financial resilience of our business continues to serve us very well non.
GAAP free cash flow for the quarter was $20 6 million essentially flat from the prior year. Despite the increase in working capital.
As a reminder, the first quarter is typically our lowest cash flow generating quarter.
Capital expenditures during the quarter totaled $9 6 million up from $8 2 million a year ago, as we continued to direct investments to growth opportunities, including automation and technology enhancements.
We ended the quarter with $249 4 million of cash and another $295 5 million available under the revolving credit facility.
In the quarter, we paid down an additional $20 million on our term loans, bringing our total debt paydown since the net E&S acquisition to $330 million.
We decreased our net leverage to three times and we remain on track to achieve net leverage below three times by midyear.
Our top capital allocation priorities continue to be to reduce our debt balance manage leverage and preserve optionality for investing in future growth, while continuing to support our Walgreens dividend, which was raised to <unk> <unk> per share.
Once we achieve our leverage target, we expect to further shift on capital allocation towards investing in growth opportunities that align with altra.
Your line altra with attractive secular trends.
Please turn to slide 11 for an update on our outlook for 2021.
We ended Q2 with strong tailwind it all back and better visibility into economic recoveries spreading across more segments of our business.
As a result today, we are increasing our guidance for full year 2021.
Our revised guidance assumes that the general economy will continue to recover as we go through the year.
We continue to expect approximately $36 million of cost savings realized in 2020 will gradually phase back throughout the remainder of that of 2021 with the full effect of the cost coming back by the second half of the year and therefore SG&A expenses to increase sequentially throughout the year.
We also continue to assume that chinas demand in the class eight truck and wind markets will normalize in the second half of 2021.
With that as a background our revised guidance for 2021 is as follows sales on a range of $1 82 billion to $1 85 billion up from our previous range of $1 79 billion to $1 83 billion GAAP.
GAAP diluted EPS from a range of $2 <unk> to $2 and 21.
Up from $1 97 to $2 10.
Non-GAAP diluted EPS on a range of $3 <unk>.
For $3 and 24.
Up from $2 95 to $3 15.
Non-GAAP adjusted EBITDA in the range of $380 million to $390 million up from 370 million to $385 million.
Capital expenditures on the range of $50 million to $55 million on depreciation and amortization in the range of 122 to 124 million a.
Our normalized tax rate for the full year of approximately 20 to 22, 5% before discrete tax items, and we expect non-GAAP free cash flow in the range of $200 million to $225 million.
And with that I will turn the discussion back to Carl Alright. Thank you Christian.
We're extremely pleased with our strong start to the year, we're growing increasingly confident that we are at the beginning of a broad based market recovery and net altra is on a great position to capitalize on improving secular tailwind as we move through the year.
Our focus remains on executing across our strategic priorities to ensure we are optimizing our opportunities as a premier industrial company.
This includes leveraging our efficient cash generative business model.
Altra business system to maximize cost and sales synergies delever the balance sheet.
Expand our margins and accelerate our top line growth opportunities.
We are in an excellent position to deliver on our new 2021 guidance and continue to thrive as the industrial world economic recovery accelerates in 2022 and beyond.
I would like to once again, thank the altra team for their hard work and incredible performance, we look forward to keeping our shareholders updated on our progress.
And with that we'll now open up the call for questions.
As a reminder to ask a question you will need to press star one on your telephone.
Draw your question price, depending on key please standby, while we compile the Q&A roster.
Yeah.
You have a question from the line of Bryan Blair with Oppenheimer.
Thanks, Good morning, guys.
Morning, Brian.
If youre willing to provide a directional guide.
What is the order book momentum you have suggest for a second quarter growth and similarly, how should we think about margin progression either annualized or I guess, even better on a sequential basis given.
Some of the unique variables at play year on year.
Yes so.
If we look at the second quarter.
We like to compare.
2021 to 2019, the last for you.
<unk> two <unk>.
And we think when we compare that to 2019, we think that revenues will be coming in somewhere between 2019 in the first quarter of this year somewhere in that range, while EPS is probably going to be up 10% or 15% from 2019.
SG&A, we see sequentially, increasing from the first quarter $3 million to $4 million. We think gross profit margins will hold despite supply chain challenges and cost pressures from the supply chain.
We think that we are able to offset that through price increases that we have taken and will continue to take as we go through the year.
And then as we look at the second half of the year, we need to take into consideration that the China truck class truck market will we'll see a significant decline, while north American and European demand will continue to increase.
And so we'll go back to some sort of seasonality where the second half.
<unk>.
We'll be I don't know somewhere around.
$900 million 900.
$10 million something like that in revenues.
Okay. It's helpful detail on there.
And you mentioned the.
The China class eight headwind that you had called out last quarter.
You know that that dynamic makes sense I apologize if I missed the any updated outlook on medical shipments.
We've been expecting somewhat of an air pocket with the wind down of respirator shipments ends.
Pause on elective procedure demands with the reopening.
You know at least early stage reset of electors.
Procedure related Capex.
Your outlook for the back half in medical.
Improved from what it was for the quarter again.
Yeah.
Yes, it has Brian its improved somewhat the incoming order rate is better than we thought it would be and I think.
The investments.
And the electric surgical.
Part of the business R. R.
A little bit better than what we had expected.
Okay, good to hear and great to see continued progress on your balance sheet looks like you'll be pretty comfortably within our target leverage range.
On over the very near term we know your team has been focused on portfolio analysis and prioritizing targets for.
For when you are ready to get back to.
On the inorganic lever of your growth strategy.
I guess my simple question is are you ready now if the right bolt ons came along are you comfortable with your cash flow outlook and the ability to.
To move on a deal or two as we go into the back half.
Yes, I don't think you would see us do anything significant big.
Big acquisition, but.
Moller bolt on.
We're getting very comfortable that we've got pretty good runway here from the industrial world.
We've got line of sight on the cash flow to get us well within our range by the end of the year. So we'll be.
So.
If the right deal came along and it was.
Not too Big I think you would see us do something.
Okay excellent. Thanks again.
You have a question from the line of John <unk> with Sidoti.
Good morning, guys.
I'm curious about your cash.
Latest cycle.
Order recovery.
Is that limited to material handling for Houston.
In the mining and oil and gas.
Yes.
So I think oil and gas not yet I think when I look at the end markets.
The myriad of end markets, we look at the two that are still Red line. It was.
It was a great pleasure to look at the market analysis at the day.
During the first quarter, because almost everything is green now except for arrow in oil and gas really commercial aero on oil and gas so.
Those two are still declining in the mining we've actually seen some improvement and we're starting to see a few.
Capex projects and I think some of that is related to electrification right. So lithium on copper demand is going to be way up with this acceleration electrification. So.
Okay.
Im optimistic about mining that's the 10th time up call on the bottom in mining now.
I wasn't going to remind you.
Okay.
The next question regarding the for 40.
$40 million of course.
Okay.
I missed.
The first question that day.
And what's the cadence for the business how that comes in from the balance of the year.
Yes, so some good news embedded in that first quarter was $3 $7 million that came back.
That leaves.
<unk>.
<unk> 36 to go will be heavy in Q2 and Q3.
On start to decline into the fourth quarter, but we have been able in the margins in the first quarter demonstrate that we've been able to through our cost management to mitigate a meaningful portion of that.
Okay.
But it will still show up in SG&A as SG&A will increase sequentially as we go through the year I think the increase will not be as significant as we initially you see it when we initiated guidance for the year.
Okay, and I guess, just one question on squeezing then.
Question on improvement in the tax.
Gary.
Q1 versus Q4 or was there any significant debt call out that drove that improvement.
You're breaking up a little bit in the factory automation space with sequential sequential improvement is there anything that sticks out the other a few things I think the HEV business did really well robotics did well electronic assembly equipment goodwill.
Semicon was off but that was primarily due to.
I think to comps.
So yes, we had some really nice growth in some of the segments in the factory automation space, and then win and food processing food and beverage on the packaging equipment were were solid too so it's broad.
With some really nice trends in that part of the space on that part of the business.
Okay. Thank you for answering my questions.
Thanks, John.
You have a question from the line of Mike Halloran with Baird.
Hey, good morning, guys.
Good morning.
So a couple of quick questions here first just Carl you know where does the confidence come in from your perspective on on the 2022 plus.
Optimism in.
What are you seeing that makes you, particularly excited.
Both from a market perspective, as well as maybe what youre doing to add to whatever that market growth looks like.
Well I believe that for seeing the early cycle markets.
Doing well right now.
And there is activity in the later cycle markets is starting to accelerate.
And those big Capex projects.
Are not in those big Capex industries.
Typically run for a few years so.
Really good that we're just getting into the mid and late cycle part of our business so barring any.
Government action or.
Some ramp up of the pandemic.
The momentum is there to carry through for for a good period of time and I think there's pent up demand I mean, I look back on the last recovery and how slow and monotonous. It was with a couple of fits and starts that it felt like at 2019 prior to the pandemic, we were starting to get into a phase.
These were some of that pent up demand was going to get.
Realized and satisfied so I think that got pushed out a year on I think we're back at that phase in.
On my mind, where there is the pent up demand and some really good acceleration there.
And when I look at the cycles.
You look at mining and AG and some of the.
Some of the longer cycle markets, it's been.
They're due for a for a nice recovery.
So so when you think about the backdrop from a supply chain price cost, obviously, you said it.
At least from the prepared with comments from intimated that.
Youre doing very well all else equal.
I think it's a differentiator versus competitors how are you managing to everything, but maybe some thoughts on pricing environment, how the supply chain managing how inflations hitting you and maybe how that rolls through the P&L this year.
Yes, the supply chain is really tough right now.
Buyers are trying to increase prices and we've been pretty successful on pushing back we'll probably see some cost increases in Q2 is.
We can't push back anymore.
<unk>.
And so.
So that's that's a challenge and it's like the whack a mole game.
One region or one commodity.
You start to have issues with them and you just got to work them down as they pop up.
Right now with the awful situation in India relative to COVID-19.
That's an area of concern.
The logistics and freight container ships, we've seen lead times push out for six weeks.
As a result of the of the container backlog in.
And on.
Shipping issues.
So we just have to keep working at I think the second quarter's probably going to be a little bit worse for us.
I think our guidance reflects that a little bit debt.
For cost price and then but we are pushing through the price increases.
And the price environment is fairly receptive I think.
The whole world is going after price increases in.
Because we do have pricing power and the nature of our business I think we have a little bit better chance to get the price increases pushed through than maybe some other industries on some other spaces. So I am confident we will get the price to offset the cost increases both wages and material cost maybe a little lag as I've said.
Before but we will get it.
And I do expect debt.
Q2 will probably be the the worst Q from a supply chain standpoint, and we're working on it really really hard to make sure that at minimum debt. It's.
The impact is minimal.
And Mike if I can add.
The guide assumes that we can hold gross profit margins as Carl has said that we can offset for.
Price increases on the commodity side components side through price increases and at the high end of the range.
And even assumes a modest margin expansion as we go through the year.
Great. Thanks for the help gentlemen appreciate it.
Thanks, Mike and ladies and gentlemen, if you would like to ask a question. Please press star followed by the number one telephone keypad.
From the line of Jeff Hammond with Keybanc capital markets.
Hey, good morning, guys.
I jumped on late so if I ask something that's already been addressed we can we can follow up.
Just talk about what youre seeing in terms of restocking on distribution.
I've had a couple of companies kind of say people are.
Buying ahead of these follow on price increases.
And then just maybe more broadly why do you think PT is lagging in terms of recovery versus whats been more robust.
On the NSE side.
Okay. So I think.
With a strong demand and strong bookings we've had we do know that some of that is because.
The supply chain have extended lead times.
And that people are buying ahead to make sure that day that day.
You have what they need.
We don't know the exact impact of that but there's certainly some of that.
Underlying net though is really strong demand I mean, it's not.
That's not the predominant factor in the demand increase.
At least in my opinion.
<unk>.
I think we have seen a little bit of restocking in the channel.
That those comments were across both the OEM and the distribution part of our business.
In the distribution side, we've seen some restocking.
Most of it's been book to Bill, we get the sell through data and debt.
So we have not seen at least on our products a significant desire to restock and build up inventories.
I think our ability to deliver so far has also been.
Pretty good and they don't have the need to restock.
Your comment about the price increase we have seen a few.
Orders that have been trying to get ahead of the price increase and that happens that always happens when you. When you announce a price increase typically you give 60 to 90 days and people will ramp up their orders to to try to beat that price increase, but what we can sort some of that out.
So I feel really comfortable Jeff that the underlying demand is very solid.
And then the PTT business lagging I think.
There is a higher dependence on later mid and later cycle markets in the PTT businesses than in the E&S businesses. So it's just natural that we would see that lag a little bit and Thats. One reason that I feel that we've still got some pretty good runway in this recovery.
On the PTT businesses are just starting to see some.
Some of those big projects.
Some other things come through.
And we're actually starting to get some orders now for some of that later cycle work that will turn into shipments later on they are also longer lead time.
Longer lead times in some of the PTT businesses is there.
Bigger heavier duty products.
What are some of the mid late cycle markets, where you are seeing some of that order activity leaking.
Yeah. So I think mining is one we're seeing some of the.
Order activity Marine was pretty good debt.
Yes.
The heavy lifting equipment port cranes and other things we were starting to see some some orders in there. So it's as I said earlier, it's very broad based.
I think theres, a couple markets lagging oil and gas.
Maybe power Gen.
And then the aerospace business, but other than that we are seeing nice.
Price improvements in activity.
On building up and some of those mid and later cycle markets, even the metals business, some steel demand and commodity prices going up.
We're seeing activity there.
Are you do I hear your call on the churn and mining again Carl.
That was my 10th time.
Okay, just back on support will be right.
Like an economist.
Just on.
These supply chain issues like.
You say, it's getting worse than.
Do you expect it to get worse from <unk>, but kind of help me understand like are you seeing any areas, where you're starting to see relief and it gets better and how have you put these kind of.
Growing supply chain issues into the guide.
As you look into the second half.
Yes, so I think the.
The biggest concern for US right now is India, we have.
A number of suppliers in India, right now Theyre, all up and running book that as a concern.
So in some cases on our core sourcing.
Components here domestically at a higher price.
Logistics continues to be a challenge of managing through that.
Then I would think on the automotive side the chips shortage on the automotive side and how it's going to impact.
Mike.
Diamond on Cummins.
Those are probably the pockets of biggest concerns resins is another one as a result of the.
On the surprising how long the bad weather in Texas has impacted the residents and so as the challenges on not just for us and actually getting the components, but in lot of cases is at our customer level that can't get other components and therefore, taking production down and that combination is.
It's still creating somewhat certainty in regards to the outlook. So far we've managed through this very well we had very minimal disruption, whether it's for the customer level and our level.
But.
We don't see signs that it's going to get much better in the near to I'm actually going to get a little worse.
Yes, Q2, and then hopefully after that will start.
These things with ultimately I think the peak in the Port of L. A was <unk> 60 <unk>.
Painter ships backlog anchored off port and Youre down to 30 now.
Capacity has ramped up significantly so it looks like some other logistics issues on <unk>.
Our modem they free up containers. So one issue is trying to get containers to put stuff on to put stuff in because they are all on ship somewhere so.
That's starting to ease a little bit.
But.
Okay. All good color thanks, guys.
Thank you Jeff.
Yes.
There are no additional questions at this time I will turn it back over to management for closing remarks.
Okay. Thank you operator, and I want to thank everyone for joining us on the call today, and we look forward to engaging with you.
In the next in the months ahead and thank you for your time.
Ladies and gentlemen, this does conclude today's conference call you may now disconnect.