Q2 2021 Armstrong Flooring Inc Earnings Call
Greetings and welcome to the Armstrong flooring second quarter 2021 earnings call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
I didn't want you require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It's now my pleasure to introduce the head of Investor Relations, Matt Mccall game. Thank you.
You may begin.
Good morning, Thank you for joining us today for Armstrong flooring second quarter 2021 earnings Conference call I'm joined this morning by our President and Chief Executive Officer, Michel Vermette, and our Chief Financial Officer, Amy George Nasty.
In addition to the earnings press release issued today, a copy of the slide presentation to accompany this call is available on the investors section of our website Www Dot Armstrong flooring dotcom.
During this call we will be making forward looking statements that involve risks and uncertainties actual outcomes may differ materially from those expected or implied for more detailed discussion on the risks and uncertainties that may affect Armstrong flooring. Please review our SEC filings.
Forward looking statements speak only as of the date. They are made and we undertake no obligation to update any forward looking statement beyond what is required by applicable Securities Law. In addition, our discussion of operating performance will include non-GAAP financial measures within the meaning of the SEC regulation G. A reconciling the affiliation of these measures to the most of.
The comparable GAAP measures is included in the press release of.
Now I'll turn it over to the show.
Thank you, Matt and good morning, everyone I will start by providing a second quarter business update and share my perspectives on our progress against our multiyear transformation plan.
Then I will ask Amy to share details on the second quarter financial results.
On last quarter's earning call we discussed the positive momentum and continued progress against our transformation goals.
As we move into the second quarter gradually from COVID-19 related restrictions and recoveries in residential and commercial demand helped drive 15, 5% topline growth year over year.
And nearly 13% growth sequentially from the first quarter of this year.
With the increases noted in both our North America and in international markets.
While the demand remained strong in the quarter for all.
Tell T in global supply chains, and the continued inflationary environment significantly impacted our business in our second quarter of results.
We are diligently working to mitigate these headwinds and I'll provide more details on the initiatives Armstrong flooring has taken.
Overall the.
Resilient flooring market continues to rebound as the greater economy emerges from the COVID-19 pandemic.
This is reflected in the healthy the man, we're seeing in both our commercial and residential business.
We like many companies, we're able to returns of the workplace and eliminate capacity in the second quarter.
In the field for new built out sales force was able to increase the number of face to face me to near historical levels.
In North America, pent up demand drove sales increases across our L. P. T V C T and vinyl sheet products 1 of the continuing recovery from the pandemic drove sales increases in both China, and Australia versus the same quarter of the prior year.
In the commercial business, we saw demand that exceeded projections and we're able to capitalize on the healthy mix of new and innovative products.
The adoption of our men pure PVC free sheet with patented Diamond 10 technology continues to gain traction in the market.
Knits refresh pallet is receiving positive reviews from our partners and our customers.
We also introduced 3 new commercial L. B T called collections bio terror and coalesce luxury for.
These newly released products complement the first quarter of launches of our exchange and theorem collections, adding more options to our 2.5 millimeter ELV T offering.
Each of these products, which we probably manufacturer in the USA.
The testament to our commitment to bring fresh ideas and innovation to the market.
On the residential side.
Business continues to rebound, albeit mix by channel.
Demand for single and multifamily homes remained strong while we haven't seen slowing and big box retailers as other outlets for purchase every all of it.
In May we announced we were in the our relationship with the distributor covering the Midwest United States.
The change which became effective in early July.
And our commitment to winning in the marketplace. This next step allows us to give incremental opportunities for 2 of our long standing distributors as well the forge a direct relationship with the key customers. The makeup this geography.
As I mentioned earlier.
The bulk of supply chain and the inflationary environment.
In the broader macro economy was of percent persistent headwind for our business throughout the quarter and rising costs from these dynamics have outpaced our pricing initiatives year to day.
Georgia disruptions and delays in obtaining building materials posed a major impact for homebuilders and the cost of building materials and residential construction are at their highest levels in decades.
In some pockets material lead times extend up to 24.28 weeks, mainly impacting our source product sales.
Temporary factory and border closures and Asia due to the recent COVID-19 outbreak in these geographies as well as reduced workforce cost shifts to remain anchored in ports, resulting in multiple week delays.
The shrinking global container fleets created challenges throughout the industry as 20.
'twenty 'twenty delays in new containers continue driving significant capacity issues and led the searching shipping costs in 2021.
We expect these delays and higher costs the last for the next several months.
Downstream and our production cycle. These delays along with the raw material producer of disruptions impacted our manufacturing as limitations of materials caused temporary shutdown of certain of our lines.
All of the all the only last thing for a few days the shutdowns inhibited our ability to fulfill orders from the strong demand that we continue to see into the quarter.
Now let me provide some perspective on actions, we're taking to address this volatile environment.
Our supply chain organization, which we significantly built out in 2020 and early 2021 as part of our transformation plan has been working diligently to mitigate these impacts.
We increase our safety stock.
To combat the consumer longer lead times in the industry raising the shorts good safety stock from 16 to 28 weeks in many circumstances.
Furthermore, we've explored alternative shipping needs to offset container shortages and the heavy inflation on transportation costs, which at times have the 9 times, what we're used to see.
Certain of these alternatives for me will come in of course.
But are critical measures to ensure we can continue the procure materials and service our customers.
Finally, as inflation continued to exceed our projections from the prior quarter.
We announced our third price increase of <unk> <unk>.
'twenty 'twenty 1 in late June which will be effective beginning August 15th.
All of these actions are necessary to counteract what we believe are truly unique times for our industry.
Our customers understand and its health, they're seeing cost increases across all aspects of their business.
We're anticipating these macroeconomic headwinds to continue through the remainder of 2021 now.
As we have done thus far we will continue to be responsive and agile in our measures to offset these impacts while remaining committed to executing the initiatives under our business transformation.
At this point I'd like to provide some perspective on the transformation progress.
Can't tell you to be thankful for.
For our employees the collectively we work to execute our long term strategy of expanding our customer reach simplifying our product offering and operation and strengthening our core capabilities.
15 months into this journey, our teams have dealt with multiple headwinds and executing the strategy from COVID-19, pandemic and more recently, the current inflationary environment and supply chain challenges.
Throughout the team has remained steadfast in executing the strategy, while also adapting as necessary to provide solutions for the challenges we have faced along the way.
If you turn to slide 8.
I'll discuss some examples of our progress in more detail.
The beginning with expanding our customer reach.
In the second quarter, we began selling our Armstrong flooring program with positive reviews.
The brand was recently recognized as a top the top brands in builder magazine.
In the second quarter alone.
We have rolled out the program to over 60% of of the builders in our targeted markets.
In addition, we continue to receive positive reactions to our Armstrong Sandra brand and are poised to launch this at various trade shows beginning later this month.
Furthermore, we recorded our first sale in the hospitality market.
The previously untapped market for Armstrong flooring.
While we are still in the very early days of our efforts.
We've seen travel pick up to levels nearly 3 quarters of those pre pandemic levels.
And our newly established kind of the sales team is actively pursuing opportunities with several national hotel brands.
What we believe will be an exciting new vertical for the organization.
Overall, we are continuing to add talent to our sales and marketing and customer service functions across our business for.
The total to over 40, new sales hires since the launch of our transformation plan.
With the bulk of these additions occurring in late 2020 and early 'twenty 1.
Our professionals are poised for further growth business as it returned to in person interaction interaction continues in the later half of 2021.
Moving to slide 9.
We've continued to simplify our organization, particularly in manufacturing.
For made in the USA quick ship program is a unique program the simple and its very core American made L V P.
Fast.
We have seen positive responses to this program since we introduced it to the market in Q3, 2020 wood sales over $5 million.
In the second quarter, marking our highest quarter to date with the quick ship program in the fourth sequential quarter. We saw increases from this initiative.
We expect continued benefit from quick ship sales heading into the latter half of 2021.
In addition, we've closed our South gate, California location in the same quarter.
Following the March 2021 sale and we have fully transition all production operations to 2 of our existing domestic facilities.
Through the second quarter. This has resulted in approximately of 1 million and net savings in addition to simplifying our overall manufacturing footprint.
We continue to evaluate the products, we're producing with the long term returns oriented mindset and are rationalizing skus and manufacturing assets.
Which resulted in the insurance channel charges, we took in the second quarter.
Amy will speak more about these in a few moments.
Finally, turning to slide 10.
A point again for the efforts, we made with regards to our logistics capability, especially in the wake of current dynamic supply chain environment.
We have remained focused on the execution of our plan yet have pivoted and adapted to address the challenging supply chain environment, while still strengthening our core.
The competencies.
Our efforts from our newly bolstered team to look for alternative shipping means kind of strictly for procurement competencies in processes.
We also continue to modernize our ERP and our manufacturing facilities to enhance visibility and access to data information.
Additionally, in the second quarter, we opened our new headquarters in Lancaster, Pennsylvania.
In doing so we're staying true to our roots and long standard longstanding history in the lung cancer area, while at the same time reinvigorating our day to day work practices.
Our new headquarters, coupled with our design center and our technical Center.
With its unique capabilities are all located on the same campus.
Providing our people the ability to work cohesively and of modern and N giant space in a collaborative way.
This move will also produce cost savings of approximately 60% compared to our prior corporate lease expenses.
In summary, these actions have strict of.
Core competencies.
And the way, we work and the way we are able to service our customers.
In summary.
We remain focused on driving this multiyear transformation plan.
And moving towards our goal of creating a more resilient and profitable organization.
We're also managing cost and pricing in this challenging environment.
With that said I'll turn it over to Amy to take you through our second quarter financial results.
Thank you Michelle Inc.
Good morning, everyone.
I'll refer you to slide 13, which provides the summary of our financial results for the quarter.
Second quarter net sales were $168.1 million.
15, 5% increase person for the second quarter of 2020.
And the 12, 9% increase sequentially from the first quarter of 2021.
Our year over year sales performance benefited from relieved COVID-19 business disruptions of Hell.
The air products next and our previously communicated transformation initiatives, along with strong demand in both commercial and residential end markets.
This resulted in sales increases versus the second quarter 2020 in all regions in which we operate.
Throughout the quarter demand remained strong, though as Michel mentioned disruptions in the global supply chain hampered our sales throughout the quarter.
Despite this we entered the third quarter with the healthy order book and significant deliveries of key inventory products coming in July and August.
Yeah.
In North America, our commercial business benefited from recovery in demand and the outlook continues to build momentum as the Abi index registered 1 of the highest.
Point in its history.
Sales grew in both our commercial of PCT and Lv tea products.
Benefiting from a healthy mix and improved pricing from our efforts to mitigate inflation.
We saw considerable traction in our quick quick ship program, particularly in the latter half of the quarter.
Customers began to take advantage of quick lead times for our American made products amidst the ongoing supply chain shortages affecting internationally sourced products.
On the residential side the market continues to rebound from the pandemic and while we saw modest increases in sales year over year, our performance was impeded by supply shortages, particularly with the sourced materials.
Turning to slide 14, adjusted EBITDA for the quarter was the loss of $3.5 million compared to adjusted EBITDA of $6.9 million in the prior year.
The movement year over year is primarily attributable to source and raw material inflation and supply chain disruptions, which resulted in higher input costs and caused delays in certain manufacturing processes driving higher operational costs year on year.
As Michel mentioned, we took a critical look at our S. K used in the second quarter and recorded charges of approximately $4.5 million to write off of underperforming assets and related inventory.
These decisions, which were made with the long term mindset are treated as an add back for adjusted EBITDA. However from a U S. GAAP perspective accounted for 270 basis point impact to our gross profit for the quarter.
Collectively these impacts drove approximately $12.7 million net higher cost versus the second quarter 2020.
Pricing initiatives and improved volume and mix, partially offset these headwinds.
Reflecting increases of $8.3 million and $3.4 million respectively.
However, as Michel mentioned earlier inflation has outpaced our price increases to date and we were unable to fully offset these increased costs.
And SG&A costs were $9.4 million higher than the prior year.
Reflective of our go to market initiatives to increase our sales force, which primarily took place in the latter half of 2020 and early 2020.1.
Along with increased advertising and promotional activities associated with our planned strategy.
No.
Furthermore, SG&A in the second quarter of 2021 is reflective of the normalization of our employee related costs, which were lower in the second quarter of 2020 due to COVID-19 related impacts.
As noted in our first quarter call and consistent with our transformation plan, we expect SG&A cost to be higher in the remaining quarters of 2021 and sequentially. We saw $1.4 million increase from the first quarter of this year.
Finally, turning to slide 15, we generated the net operating cash outflow of $3.9 million in the quarter of negative free cash flow of 7.9 million.
Our change in operating cash was heavily impacted by inflation and the disruptions in the supply chain, which has the Michele mentioned earlier had the outpaced our price increases.
Along with working capital impacts from higher receivable and timing related to trade payables.
Capital expenditures for the quarter for $4.1 million slightly higher than the second quarter of 2020, However, down $2.9 million sequentially from the first quarter.
Capital expenses for the remainder of the year are expected to be measured in the context of our transformation activities and our ongoing maintenance costs.
Net debt was $44.7 million compared to $33.9 million at the same time last year and $66.1 million for yearend 2020.
And we maintained available liquidity with cash and access to revolving credit facilities of $91.6 million.
While we expect the inflationary environment to continue for the remainder of 2021.
Our cash and available credit facilities provide us with ample liquidity to continue to execute our strategy.
I'll now turn it back to Michele for some closing remarks.
Thank you Amy.
I would like to close by thinking of the Armstrong flooring team for their continued diligence in managing our business in the context of our long term goals.
So staying proactive and agile in the current environment.
We will implement our price increases and drive efficiencies to offset inflation, while making our supply chain more resilient.
All the while balancing these neat near term actions with the investment initiatives necessary to transform the organization for the long term.
15 months into our transformation journey, we're continuing to expand our customer reach simplifying our operations and strengthen our processes and infrastructure, putting armstrong flooring on the path to be more resilient and more profitable.
The resilient flooring market continues to be a growing industry.
Our products are in demand and are receiving positive recognition and we continue to see many improvements across our business from our transformation plan.
Overall, we had Armstrong flooring continue to stay committed to putting the customer our employees and our shareholders in the best positioned to deliver value.
Thank you for joining us today operator, please open the lines for questions.
Thank you we will now be conducting a question and answer session. So I would like to ask the question. Please press star 1 on your telephone keypad.
A confirmation tone will indicate your line is in the question queue you.
You May press Star 2 if you would like to remove your question from the queue.
For participants using speaker equipment may be necessary to pick up of your handset before pressing the star keys, 1 moment. Please while we poll for your questions.
Yes.
Our first questions come from the line of Julio Romero with Sidoti and company. Please proceed with your questions.
Yes, Hey, good morning, Michel the Navy.
Good morning, good morning.
My first question is just on the rest of the refuge product line I know of.
You talked about some incremental sales there for the first time in the second quarter at your newest newly established hospitality sales team can you maybe just speak to how much you've put it into that effort from a strategy and maybe the head count perspective, and how that product line has been received by the customer.
Yeah, very well so far we have 5 dedicated the hospitality reps.
Have been on boarded recently.
The product has been presented and then we're presenting our full offering also but rest of the refuge was designed with hospitality in mind first and foremost of it we have received our first few orders.
In the and fulfill them in the second quarter.
We are talking to all of the major brands about being a larger presence for them and.
In the different platform. So we're progressing very well on open up those doors and gang of specified in.
As you know when it comes to the hospitality you have to be.
Selected for critical brands, and we're working through that with each.
The major operators, so we're very optimistic.
This is a good start we opened the door and now.
We expect to gain momentum of little bit similar to our quick ship.
As I mentioned earlier on the call that's been a nice.
Initiative for us and will gain momentum in the coming quarters with hospitality.
Got it and can you maybe speak to any new products in the pipeline for that rest of the refuge line in and more broadly the product launch cycle targeting the hospitality channel in general.
Yes, we have in our pipeline for the next couple of months, we have another SPC.
SBC product targeted for the category and also the other loosely product targeted for the category and that's all tied to the conversation we're getting.
From our customers so there'll be within the next 12 months there'll be 2 additions and also we will add representation in key markets as we open up the doors. So we can.
Have connections directly with the owners of the properties. After we get specified from the brands. So we can complete the execution.
Yeah.
Great and maybe just switching gears a little bit.
On your supply chain.
You touched on some of the actions you're taking to mitigate some of the.
The impact in the near term increasing their safety stock exploring some alternative shipping.
Can you maybe speak to some of the actions you've taken.
For the longer term to make your supply chain a little more resilient.
Beyond the next 12 months.
Yes, what we've done is expand our supplier base for <unk>.
And also country of origin. So if theres an issue in 1 part of the world It doesn't impact our whole supply chain. So we've added.
The supply from Vietnam and Malaysia.
The 2 are Chinese and Korean supply. So there is more of work.
Versatility, there and flexibility we also augmented our U S manufacturing so as I mentioned in our remarks. So we are working to be more resilient there and we've added suppliers all sort of North America to be to make sure we get the right raw materials and the expansion of the it's been a very volatile environment.
And we're working through that diligently.
The constant contact with the freight forwarders for the international sourced goods.
Even added a few providers to that so if we can bring goods there, but we keep adjusting we keep the.
Yeah understand what's happening with the troops and I expect this to get better in the third and fourth quarter. As we have these extra bits of the safety stock is fully put in place.
Yes that dovetails right into my my last 1 here, which was how do you expect you know the the actions you've taken in terms of the safety stock and alternative shipping routes to the maybe.
Maybe even some of the the impacts in the third and fourth quarter, but I guess you mentioned it.
The lesson you you can't range for the second quarter.
Yeah, and I think the big thing the safety Tox is coming in those orders were placed in the first quarter and second quarter, but they were delayed getting in here because of the transportation. So we.
You'll see improved service our customers will see improved service of the third and fourth quarters will have higher availability.
And we'll keep adjusting accordingly, a lot of it is communication with our customers right now they're dealing with this in every commodity in every process. So we're in close connection with them and to make sure we meet their needs.
Understood. Thanks for taking the questions and best of luck in the back half of the year.
Thank you thank you for joining.
Thank you. Our next question is coming from the line of Kathryn Thompson with Thompson Research Group. Please proceed with your questions.
Hi, Thank you for taking my questions today.
Your outlook you noted that Armstrong is better positioned.
From geographic markets and product categories, we wanted to pull the string on that.
Is this relative to Armstrong historical position or relative to other competitors.
Well first and foremost historical to our position as you know Catharine, we everything pretty much of our business in North America went through distribution.
Year, and a half ago and what other than the home centers and what we've done is and.
We were missing opportunities with some largest retailers some largest builders.
And commercial contractors and we have been re engaging with these folks and the particular on the builder side with the launch of the program now.
Now we have direct relationship with.
Little over 60 of the top 300 contractors.
Builders in the country with what our build program that we just put in place in May So those are different conversation when you're closer to the customers.
Have bigger opportunities just the number of customers and the conversations we have has been very.
The encouraging with what we have put in place so.
We're really participating or engage in the opportunities that the company has not been historically engaged with and I think that bodes very well for the future. We just have to get closer to the customers and same thing in the hospitality earlier.
Just didn't call of hospitality until.
This year. So a lot of work is being done to open up more verticals and create a brighter future for for Armstrong.
Some other competitors have some of those relationship we just were not at the table until recently.
Welcome to the unmet those and make sure we're successful with those opportunities.
Okay, and just to summarize really are the sort of flex.
Not even being at the table, but being at the table for certain key key markets end markets and geographic markets. The set of correct way to think about it.
Yes that is the correct way of thinking about definitely there are some verticals that we just did not participate in and within some of the larger opportunities until we had the <unk>.
Correct sales forces of possible too to the.
The successful with some of these larger multi geographic.
Markets.
The state.
And then I understand that.
As the leader in certain products like sheet vinyl how does the supply specifically the L. B T M.
Maybe just remind us just on your <unk> strategy.
Well, it's been the balance between source and manufacturer we have purposely augmented our offering of U S manufactured products such as our quick ship some of the launches I mentioned.
In the prepared remarks, so we believe we have opportunities to use our assets better here and we're doing that and that's been some nice momentum on the demand side, we are having some targeted.
Our relationship with some vendors to bring some new innovation on shore side. So it's kind of combination of the made in America and also of <unk> products that complement our offering.
It will be it's a larger part of our product portfolio than it was a year ago and we will continue to be going forward. So there's definitely significant demand and to be successful in the verticals that we talked earlier.
We need to augment that presence.
<unk> presence in the LDC and we will do that both from the U S manufacturing and a source of debt.
Okay.
And following up on inflation and.
Inflation is not on the subject.
You and the industry have passed on multiple price increases, which will see benefits, but as we look.
Conceptually look for beyond 'twenty, 1 end of.
The 22.
Is it safe to say that they will continue to need to be pricing actions.
We go into 'twenty 2.
Most of the pricing.
I mentioned 21 will be.
The realized in 'twenty, 2 and any of the thoughts just on just the bigger picture on inflation versus just split trading price.
Yeah.
Catherine Thank you for the question.
The inflation is real and it.
You know it continues to to increase I think just for perspective.
You know.
Last quarter, when we when we reported on the first quarter and.
We're preparing.
At that point, we had announced already RMA first price increase.
That was really based on an anticipated annual inflation number.
That was in the 30% to $35 million range across the categories.
Our sourced materials or raw materials or freight inflation and.
All of those things that we were we were saying as we sit here today and look at the remainder of the year, we think for the full year, we could have as much as you know.
60% to $65 million based of of inflation in the current year based on what we see and you know it.
It's a dynamic environment.
Some days, we get some of them some nice surprises and some costs that are slightly lower than our expectation, but but many days it's continuing.
Continuing increases and as Michelle commented earlier, some of the supply chain disruptions and the fires the winter storms and all of those disruptions in the global supply of some of our key raw material.
<unk> had really increase the price and it is.
It's put.
Put us on for we've been unfortunately share of with some of our suppliers and that has the trickle down impact to the cost in our manufacturing facilities because of the plant.
Can't necessarily operate with them with the full supply and and so were slowing down production based on the materials that we have based on what the suppliers can provide so I think it's the it's the whole circle and I think.
The last 6 months have demonstrated.
In some cases, the strength of the supply chains in other cases, the the fragile nature.
All of it and how connected the games globally.
As we look forward.
We do see a significant amount of that inflation impacting us.
In the second half of the year based on some of the inventory turns you know some of our inventories are at low levels.
We're trying to get the supply and I think we'll we'll recognize through sales.
Some of this higher cost inventory as we sell it in the second half.
Our teams as they look forward in a lot of the indices that we follow it doesn't look like there's going to be substantial.
The softness or for recovery for.
For some of these inflationary impacts.
Into well into 2022, so I'm not sure that its kind of go away very quickly.
Certainly not as quickly as it has come on.
I think the velocity of the increases has taken everybody by surprise and has been greater than we've seen in decades.
So I do expect perhaps of further.
Increases as we go through these raw materials of change week to week and month to month.
And as the.
They come to the impacting the different products, we will have to adjusted we will address.
I think thats the reality of that we're faced in and everybody in our industry space for them. So.
I think too.
It's the nature of the environment, we're dealing with right.
Right now okay.
And along the line with inflation of some materials how has it been on the labor front for for EFI, and getting and retaining labor and the current market.
I think our HR team has done a great job recruiting and retaining labor as you know, we're probably a little higher in the geography, we operate in our wages for definitely of our frontline employees.
A little better than maybe some of the local competitors that we operate in so we've been very fortunate to retain a high level of employees. There is some scarcity from certain skills areas, such as the electrons and electricians mechanics.
The comp rate some of the specialized areas, but so far I think we've managed decently.
Our labor component.
Very good.
Lucky of having the loyalty of the engagement of our employees with what we're trying to achieve.
Okay perfect.
The final question for the day and once again this is a little bit more.
Not just in in 'twenty, 1, but looking into the really the next few years.
But with a lens that we're looking at in the near term.
We received 1 of the big pieces of feedback we've received sequentially is that.
A lighter commercial construction, which has lagged for a while is showing signs of strength.
What are you seeing I know you talked about specific end markets, but when you look at.
Is that the lighter type construction. So in other words non distribution center or or data centers. What have you seen sequentially in what is this mean for your business beyond 'twenty 1.
Well as you've seen our quick ship results they've been very strong you know a lot of that would be tapping into exactly that light commercial tenant improvement demand small multiple small jobs that are.
Are happening every day, and we're seeing a lot of debt activity.
That nature to your point longer projects that require design.
The more complexity and more specialized day non.
Labor are definitely being talked about but they are not as prevalent right now.
Theyre coming though you can see in the API and you can see in the conversation, we're having with our customers there, but I think what we've done to augment or quick ship, we will have some additions to it.
Is bodes well to where we are operating right now and I think that will help us gain momentum.
The 20 of the rest of the 'twenty, 1 and 'twenty, 2 and I think as we become more nimble and more reliable net area. I think we will have some very nice success.
Great. Thank you for taking my questions today.
Thank you Catherine.
Thank you our next questions come from the line of Keith Hughes with Truest. Please proceed with your question.
Thank you most of my questions been answered, but just looking at the raw material inflation can discuss in the slides.
Yeah.
The big increase in container cost coming from Asia would that'd be reported as an input raws in the bar graph the Tao.
All of it comes into the numbers.
Yes, the debt.
Okay and are you seeing sequentially any lightening of these huge increases in those in those costs.
No not not right now not yet actually he thought of yet.
The weekly we're seeing records just about every week on some of these.
Just not enough supply of containers.
Right. Okay. Thank you very much.
Thank you.
Thank you there are no further questions at this time I would like to turn the call back over to Michel Vermette for any closing remarks.
I appreciate everyone joining today and we are focused on.
Transforming our business in navigating this challenging environment and I appreciate.
Your body of interest thank you for joining us today.
Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time.
The great day.