Q3 2021 SPX Corp Earnings Call
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Good day, and thank you for standing by and welcome to the Q3 2021 SPX Corporation earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised.
Today's conference is being recorded if you require an even further assistance. Please press star zero I would now like to hand, the conference over to your host today, Paul Clegg VP of Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone. Thanks for joining US with me on the call today are gene Lowe, our president and Chief Executive Officer, and Jamie Harris, Our Chief Financial Officer.
The press release containing our third quarter results was issued today after market close.
You can find the release and our earnings slide presentation as well as a link to a live webcast of this call in the Investor Relations section of our website at SPX Dot com.
I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with the slide presentation during our prepared remarks.
A replay of the webcast will be available on our website until November 10th.
As a reminder, portions of our presentation and comments are forward looking and subject to safe Harbor provisions. Please also note the risk factors in our most recent SEC filings, including our disclosures related to the COVID-19 pandemic.
Our comments today will largely focus on adjusted financial results you can find detailed reconciliations of historical adjusted figures to their respective GAAP measures in the appendix to today's presentation.
Our segment reporting structure includes the results of our South African operations.
Other category, which is excluded from our adjusted results are.
Our adjusted earnings per share also excludes non service pension items amortization expense investment gains certain discrete tax items acquisition related costs and certain other nonrecurring items.
So SPX closed the sale of our Transformers business prior to quarter end.
The appendix of today's presentation. We have also provided a table showing quarterly P&L results, excluding transformers for 2000 and year to date to 2021.
Finally, we will be conducting virtual meetings with investors over the coming weeks, including at conferences hosted by Baird UBS and Deutsche Bank.
And with that I'll turn the call over to Jim.
Thanks, Paul Good afternoon, everyone and thank you for joining us on the call today, we will provide you with a brief update on our consolidated and segment results for the third quarter.
I will also provide an update for our full year guidance I'll start with some of the highlights from the quarter.
At quarter end, we completed the sale of transformer solutions, helping reposition the company for our next phase of growth and providing us with an exceptionally strong balance sheet to pursue our growth investments.
Very pleased with the value, we received and see attractive opportunities to redeploy the capital into more strategically aligned businesses.
During the quarter. We also saw very strong demand for our products and continue to have commercial success in our end markets, our orders and backlog reached record levels.
Excluding a non repeating project in HVAC cooling.
Organic orders increased 36% year over year, while backlog was up 48%.
Additionally, our free cash flow generation was particularly strong.
Year to date, our free cash flow was up $61 million, including some one time items.
On the NPI front I'm excited about our momentum.
Recently introduced products have been getting strong customer feedback, helping us win share and position positioning us to benefit from favorable long term trends.
Having said that late in the quarter, we did see an acceleration of supply chain challenges that affected our productivity.
We estimate the impact of these challenges for our financial Q3 financial performance to be approximately 10 cents of EPS.
Good example of this is in our HVAC heating platform.
We saw very strong demand during Q3.
Total heating revenue was roughly flat year on year, while orders increased 44%.
Backlog grew 258% from $19 million to $69 million.
Despite the supply chain headwind, our adjusted net income for the quarter was in line with our internal model.
We are acutely focusing on mitigating and overcoming supply chain challenges, but do you anticipate the supply availability as well as project delays will constrain our Q4 results and are adjusting our full year guidance accordingly.
As I look forward I feel good about our positioning there.
Current strong demand backdrop, and our ability to manage through the current environment successfully.
With significant available capital a robust pipeline of strategic acquisition opportunities and momentum on organic growth initiatives I'm very confident in our ability to achieve the SPX 2025 goals that we laid out earlier this year.
A review of our adjusted segment results reflects the current mix of strong demand and tight supply conditions.
Revenues increased six 6% driven primarily by acquisitions.
Operating income and margin declined from the prior year largely due to the supply chain impact.
Partially offset by cost controls and continuous improvement initiatives.
Turning to our value creation framework.
For the last few months, we have continued to make progress on several fronts.
We continued to execute on our continuous improvement and digital initiatives and extended our actions in ESG, including the publication of our latest sustainability report, which contains several new disclosures and details of improvements we have made.
On our digital initiative, our HVAC cooling business introduced customers to our new product specification tool called cool spec a leap forward in ease and optimization of the cooling equipment selection process. We believe that this will give us an advantage in achieving basis of design with engineers.
The rollout has been very well received.
We also continued to gain traction with our new fluid cooler and evaporative condenser offerings, which experienced very strong year on year growth.
In HVAC heating or new Ecotec high efficiency gas boiler was getting favorable customer responses and winning share.
In detection and measurement, we launched our cues Spider three D manhole scanner in Europe and in our <unk> platform, we booked several large strategic government orders.
We also began the integration of ECS into our Comtech platform. Following the acquisition of the company in August.
We continue to see attractive opportunities for cross selling our products and now I'll turn the call to Jamie to review our financial results.
Thanks Gene.
For the third quarter adjusted EPS was <unk> 41 down from the prior year. In addition to the segment drivers, which I will review shortly we benefited from lower interest costs due to lower debt balances you swap agreement, which began in Q2 and carries a lower interest rate.
This was partially offset by modestly higher tax rate compared with the prior year. Both periods included favorable discrete tax items, although with a larger impact on our rate in the prior year.
With very strong backlog and encouraging demand trends in our run rate businesses. We are focused on alleviating production constraints to meet more near term customer demand.
While we cannot accurately predict the duration of ongoing supply chain challenges. We believe we are well positioned to use the levers within our control to continue executing on our SPX 2020 objectives.
With regards to our high level results for Q3.
Revenue was up six 6% primarily driven by acquisitions.
Adjusted segment income decreased approximately $4 million with lower HVAC results being partially offset by modest growth in detection and measurement year to date adjusted EPS is up 19%.
Reviewing our segment results in Q3, the acquisitions within the detection and measurement segment was the primary driver of revenue growth margins were down year over year across both segments.
For our HVAC segment revenues declined one 8% with an organic decline of two 4% and modest favorable currency effects.
Net sales were approximately flat with price increases offsetting lower unit volume associated with supply chain challenges cooling.
Tooling sales were down approximately 3% due to a non repeating data center projects in the EMEA region in the prior year period, our Americas core sales were up despite some labor constraints.
<unk> segment income and margin decreased $5 $5 million and 280 basis points, respectively. The decline was largely due largely due to supply chain issues, including the availability of certain component parts, which impacted shipments productivity and efficiencies as well as cost.
Overall demand levels remain very high for our HVAC products, excluding the effects of one large building project booked in the prior year that did not repeat.
Apacs organic orders and backlog were up 34% and 29% respectively total.
Total ending backlog for HVAC was $204 million the.
The most significant increases year over year and year over year orders and backlog were from our heating platform, particularly for boilers.
Just on our bookings and backlog in both heating and cooling we're positioned to materially exceed their prior year results.
You said, we are seeing the time in some large projects continue to be delayed.
The most significant increases in a year over year orders and backlog, we're from our Comtech Aitan and transportation businesses.
Many of these orders are for highly specialized products for government of quasi government customers. We believe dispositions, that's very well for growth in the next year and beyond.
Turning now to our financial position at the end of the quarter.
We ended the quarter with cash a $560 million net of our term loan, which we do not currently intend to pay off we are in a net cash position of $312 are very strong balance sheet reflects the proceeds from the sale of Transformers solutions and a strong cash collections ear.
In the near term we have used the proceeds from the transformer sale to pay off our revolver that and to reduce other forms of borrowing.
Just the free cash flow for the quarter was also strong at $36 million, including the benefits from certain one time items.
Cash flows associated with South Africa with $16 million in the quarter consistent primarily as a tax refund.
We feel good about our position in the dispute resolution process and continue to see favorable momentum.
Overall, we're very well positioned with a strong balance sheet and cash flow to grow organic and inorganic initiatives and we have a robust pipeline of opportunities, including several accurate prospects.
Regarding guidance, we estimate adjusted earnings per share in the range of 218 to 27 compared with the prior year.
Prior range of 225 to 245 at.
At the midpoint, alright updated EPS Gatos declined 12, and a half cent and reflects growth of 21% over of 2020 adjusted results.
The primary drivers of the gathered Sunday or the impact were seen in queue for around supply chain challenges and the project delays we mentioned earlier.
Overall, we remain excited not thomistic about our business outlook moving forward, we are monitoring an address and supply chain constraints aggressively and believe we are winning in the marketplace and and with our customers and on the shop floor with a continuous improvement programs.
As always you will find more details on our got it in the appendix to today's slides the primary changes to our income statement assumptions relate to lower interest expense and a lower tax rate based on jurisdictional mix and discrete items.
I will now turn the call back to Jane for discussion of our end markets.
Thanks, Jamie.
Overall, our end market, you're seeing very favorable demand trends and.
In fact, we are seeing differences geographically with notable strength in the Americas, particularly in Heatings.
And detection and management, we continue to see a very strong level of demand for run rate products Cross most regions.
As noted are more project oriented businesses are seeing attractive customer activity in bookings and our building significant backlog despite delay.
In summary, or two three performance reflects very strong levels of underlying demand as well as supply chain constraints.
While the current environment is challenging our team continues to work hard and remain flexible to optimize our performance.
Closing of the transformer sale positions as well to continue executing on our growth and value creation initiatives, including inorganic opportunities.
With a strong demand backdrop, an exceptionally strong balance sheet and a highly capable experienced team we have multiple levers under our control to continued driving towards the SPX 2025 targets, we laid out earlier this year.
And now I'll turn the call back over to Paul.
Thanks, Dean operator, we are ready to go to questions.
And thank you.
As a reminder to ask a question you'll need to press star one on your telephone to withdraw your question press. The pound key please stay in viola compile the Q&A roster and our first question comes from Brian Blair from Oppenheimer. Your line is now open.
Actually afternoon, yes.
Good afternoon.
I was hoping you could frame run rate supply chain impact for us a little bit more.
You called out to the.
Headwinds in any heating any further and call outs discretes call out by platform. So we should think about and then looking to the fourth quarter.
And we have the bottom line impact implied in your guidance revision, how should we think of that by platformer by segment.
Nebraska J so for Q3.
We call it out sort of a 10 cent.
Per share impact, we think about a third of that roughly.
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The balance came from this capacity constrained sugar production constrained from being able to ship product and get it out the door.
We would if we believe we would have had a significant upsides to are reported results absent supply chain impacts.
Across the two segments. The <unk>. The majority was was impacting our heating business somewhat are cool and business Covid was probably more of a slight labor issue.
But heating there was an attack on a couple of our businesses a radio business had some statements that couldn't get out.
Our Aitan business also had some <unk>.
Get out primarily a component availability issue.
We saw the impact we've been fighting supply chain like everybody else all year.
We saw late in the quarter.
Really begin to show up more acutely to some of our businesses. He showed up in the form of availability suppliers late minute cancelation or allocation of supply and so having those components to be able to put things together finished production process to get it out.
The door.
It's really weird, we showed up a little bit of cost efficiency, primarily more on just could not get it out the door and you saw a backlog.
As we look towards the fourth quarter.
C a similar type distributions across our business.
And then as you know.
Heating business is.
Very large fourthquarter business, so that will probably across the spectrum, the our largest impact.
Especially in a boar side.
Uhm rebuild an inventory quite a lot during the year shipping a lot of that in the four orders. So is that supply chain has begun to back up build an inventory of it a little bit tougher for us.
But we on a call side, we talked about in August we expected to have a slight headwind on five calls relationship.
I would say that was a lot of a little higher than we had anticipated.
We had some place an AD in the marketplaces I think he said last quarter on the call. It was gonna hit latter part of the third quarter that has taken place. It is in the marketplace. We still feel good about our ability to maintain that price and to cover our cost structure going into the queue for and then the next year based on what we know today.
We still think we will have a net.
Tailwind for the second half of the year and the predominant again in the fourth quarter.
But the supply availability that component.
Rough soon if you will of being able to plan and to get things out and ship the premium predominantly where we're seeing an impact.
But across preparing myself think there'll be a similar distributions.
Okay I appreciate all that detail.
And I guess shifting too.
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Positive topic and understanding that we don't have.
2022 guidance frameworks Yep <unk>.
But maybe you can offer some directional insight or perspective on your outlook my platform, giving backlog position underlying market trends et cetera.
Where you're most confident and seeing strong growth next year, and perhaps where you do you think there are still some watch items out there.
Yeah.
Yeah, Brian This gene take a cut it that.
As you look at it and as we've talked about our our our demand profile has been been very strong cross virtually all of our markets.
If you are really good about our products or if you're really good that we're winning in the markets and so you can see that in the the very elevated bookings.
And then obviously very elevated backlogs. So we actually believe we're gonna go into 2022.
With a very strong backlog position much stronger than normal on the number of our businesses. If you get to the underlying demand of what we are seeing what I would say is if you look on the cooling side, which really serves a wide variety of.
And applications from data centers schools.
Uhm government commercial all across we're actually seeing very positive indicators and if you look at the areas we track the.
Dodge report new start C look at their predictions for 2022, I would say that would land positive. So we're seeing some positive signals on the demand side on the cooling side.
And so right a chunk of that would also pertain to the heating side. As a reminder are most of our hydronic or boiler business is more replacement, but we feel really good with where we are with our products and our our market share strategies, there and pick our contact to probe.
I'm, sorry, I would say on the H back side, we feel good as we look forward to 2022.
As I look across our Dnm uhm.
I would say on location and inspection we feel good we've had some really nice bounce back from radio detection, which is our largest business and we're just seeing really nice momentum in there and we would expect that to continue.
And you look at the other components within there we see some continued growth going in how it also expect aitan to see nice growth.
As we go into next year.
And then as I look to Comtech.
Uhm and transportation, we do expect growth I would say I'd, probably expect more moderate growth there in those platforms. So at a high level, we feel good about the general demand profile and we feel.
Ironically the situation, we find ourselves in is where winning in the market and our new products are doing very well we have more demand. The demand is just outstanding and I guess like a lot of a lot of companies a tremendous amount of of our time is focused on on the supply.
Side.
And that would include supply chain as well as some some labor and so so a little bit of that slipping out should should give us a little bit of benefit and as we as we go into 2022.
[noise] again, that's that's very helpful.
And how is your team thinking about dry powder and the action ability of your your M&A pipeline as we approach the new year.
Obviously, you're hearing great balance sheet position now is spoken very confidently about the funnel in your prospects for.
For awhile and and now has much more capacity than.
Then you ever have just curious he can get us any finer points on any outlet for M&A strategy and your team's confidence in.
Bringing some ordeal crossed the finish line and 22.
Yeah, I would say.
We said last quarter, we feel very good about the front log and this is a function of one I think there's more activity in the market too I think we have more clarity.
Exactly how and where we want to grow so as I look at it I actually feel very good about the amount of activity, we're singing and some very attractive opportunities that that we think can really help us build.
Our platforms further so I'm feeling from the last call, which is very optimistic out even say I'm a little bit more incrementally optimistic as as you know just by looking at the math, there's a very strong balance sheet you know.
You could go up to a billion dollars a balance sheet and we just we our businesses are generating tons of cash.
<unk> growing and I do think the.
The.
The sale of Transformers Wow that that is a good business I think that's gonna be a good business for G E Prozac.
Really strengthens us and allows us to pursue our strategy and that night and that's gonna pay some real dividends, calling for its I feel really good about how we're thinking about investing for growth has begun to 2022.
Understood. Thanks, again I guess.
Extra French fries.
And thank you and our next question comes from Damien cameras from U B S.
The line is that okay.
Hey, good evening.
Hey, David.
So I was a little surprised day hear your comments on the heating side of a track the the flat growth.
And in particular.
As it relates to the boiler market challenges could you elaborate on on that specifically, you know, whether it's components or or labor or what exactly is going on in the boiler market that you know <unk> suppressed sales.
Sure Alright, well why don't I start and I I think Jamie's also been heavily involved in a lot of these activities you know if you start with the demand.
As we've talked about the demand is exceptional and we do believe our new products are.
Are winning in the market and as I said on the call the amount of backlog that we have.
His groan if you just look year over year is is is pretty amazing.
But the fundamental issue I would say is is really components supply and.
What I would say is as we were coming into this quarter Damien He wasn't the first two months or order volumes were so strong we actually thought we were gonna have is very very some interesting upside.
Up until I would say the towards the end of the quarter and what ended up happening is some very reliable suppliers that.
We've worked with for years and years pushed out.
And we had to mitigate some of those so.
You know I I think there's a very simple answer as supply chain and it has been a challenge and I think it's worth noting that when you look at our supply chain supply change something we're very involved with with our businesses and 2018, we formed a supply chain Council. We do a lot of cross business work together for example, we <unk>.
By about $82 million a steel we we coordinate this together so we get scaled prices, we work together to share.
Pricing opportunities, but also supply opportunities.
And this is something that in Covid was was pretty important so we spend a lot of time on supply chain, but I I I would say the acceleration at the end of the quarter was a surprise to us and what I would say is.
We are very focused on the supply chain, we have many initiatives and actions and we're working through it and we will we will work through it successfully and feel good about where we are definitely entering thing is I do think this is ultimately making us.
Yeah, there's a lot of benefit to a lot of these activities that that will pay some dividends and Jamie give any other comments or do you think about you know damien's question.
Definitely agree it was a.
More of a supply chain challenge to get product out there for to get sales and it was a demand to get it out and then we'd have great demand.
Some of the things we're doing to address that.
Standing are sourcing a breath.
<unk>, adding third fourth fifth tier suppliers, where possible we're going to some some types of <unk> component parts. So we can get different or new parts. If we're having trouble getting them with safety stock wherever possible, it's weird weird cutely focused and pulling out all of us.
So if you will.
Uhm to address that but you know again for heating this last quarter and we're gonna build process and the last part of the third quarter moving in fourth quarter and.
And so when we see a disruption of a component part that really inhibits our ability.
To produce and ship instead.
So yeah I think we also get is not a demand driven issue as much as it is in your ability to get it out the door issue.
Got it got it and a boiler I mean is there any particular component are components your complaint to or that kind of a hodgepodge.
[noise] yeah, Okay for us.
One of our strengths and supply chain quite honestly and most times. We do we you know we've had a [noise].
The clothes from a small to medium sized businesses. So we have we don't have the last four one big material that could really cripple assist you will read have good diversity.
That's it we never win at a macroeconomic level, we have broad scale supply chain challenges, we have a lot of different component parts it fall prey to.
Disruption somewhere.
123 steps screen and splashing process.
If you look at specifically component parts that relate to see.
A couple of examples here wire harness installation yep.
Some of the some of the spill seats Ironically, our core heat exchange flowers.
We're we're actually in very good shape and it was more of the extraneous.
What are the other bill of material items predominantly that that affected Q3. It ended up being from aluminum based component that ended up being you know some of the challenges we had and you're hearing of wisdom issues in other industries.
So this happened to be some of the ones that we experience.
<unk> I'm a tournament.
Think that's a big asset that we have with the company that we have diversity in our supply chain and we're able to cool scale together.
But it does give us more more component for us to have to deal with them in a tough environment.
Got it got it okay that makes sense. Thanks for all the detailed there and then I guess just thinking about you know some of those letters that you can pull that you alluded to Jamie.
You know I mean, what's your what's your confidence that you can get those margins back on track how long is it going to take maybe just anymore.
Color on you know, how how youre going about point, those levers and when you see kind of getting back to normal.
Yeah, that's a great question.
I would probably say, we all would be thrilled if we could predict exactly when we're gonna see the supplies and get back to normal. So that's that's the that's the questions that I think everybody down regardless of the industry set that you're in.
Uhm.
It is I think the point G made very important. This is this will make a better company regarding the Ducks and assembly <unk>.
Supplier management.
Inventory management.
Schedule, an in the plant on the plant floor and.
And other things <unk> said it was important.
Number of our continuous improvement projects.
And years around supply chain and so you know.
<unk>.
I think I'm confident in saying.
A lot of the work we've done this year and last year filled this mitigate some of the challenges so far this year and probably less than some of the challenges that we saw it as late in the quarter, but I think it's.
The things that you probably hear it from most of your your company's you're covering sourcing and Porter working with your suppliers, making sure. There's a relationship there that you know if they are going to take care of us relative to the portfolio of customer that helped to look after we've been out.
Working Harlem are working capital management. This is a time or we've got to go a different route and we haven't gone a different route the bill safety stop.
Much more let's less expensive to have places stock and placed in a hell of a supply disruption in the plant and so we are we are <unk>, we can get product in our supply and and get ahead, we're doing that and put it in the mood board. So those are the things you would normally speak about but the contest improvement I can't overemphasize.
Because as you know if you were to walk through some of our plants and see some of the improvements have been made and the flow of goods. What that means is our supply of components to the four more efficiently you know more about what we need it helps us scheduling process and I do believe that's the big Mitigator of some of the challenges this year.
Okay got it thanks, guys I'll pass it along.
Thank you.
And our next question comes from Steve, Arizona from Sidoti. Your line is now open.
G. Jamie Yeah, I guess I'm gonna probably end up following up on a lot of the quest supply chain questions was gonna ask.
Just trying to get a sense she didn't move EPS guidance that dramatically, giving you saw the problems at the end of the quarter and typically you know this is Ben.
Current you later and then a lot of other companies and typically what we've seen is problems that crop up in one corner get much worse in the next quarter and I'm just trying to get a sense of why you don't think at least based on the guidance cause it doesn't get a lot worse.
Yeah. So great question I think a couple of things come to send them on their way.
We saw this hit US really late in the court I mean, if you were at the <unk>.
We've had all the visibility of data that we C. O R. R. I'll look for the quarter.
We can September <unk>.
Where we thought it would be it it's really that last week to 10 days, we look forward into the fourth quarter I mean, we've clearly taken some steps to mitigate where possible first of all we I think we also got.
God is moving Galaxy, we did put in place and is based on what we are seeing based on today's environment with some some risk also provided in there about certain certain components that have the most <unk>.
The most potential volatility P N L.
And so yeah I think.
Every company supply chain is kind of a wildcard right now do you think it is again just since the last quarter. We've tried to step up our game, even more one of our businesses you know they they literally in daily contact with the with the two suppliers.
Components. So it's still on track and still on Friday, and so having that communication is very important but based on what we've seen right now and it certainly again the demand is strong we believe that that we've got numbers in there that reflects what we'll be able to get out the door based on your sales.
The man component shipping plans, our inventory and place.
That is supplied thing right now is very volatile let's say.
Let's take the obvious.
[noise]. So how can health longterm are you planning for these challenges because if we now think that this persist at least through the middle of next year, how long term and I know, it's day to day, but what types of.
Things are you doing to handled for longer term issues and I guess this applies to labor as well, whether we're looking at wage inflation. If if your truck challenge on the Labour Frocks, what sort of a bigger picture long longer term supply chain and Labour question.
Yeah, I think you were talking earlier police if you look at our our.
Businesses across the spectrum.
We don't we don't.
Manufacturer a lotta good we typically were bombed where components has items much more of an assembly type slow process in most cases not all.
And so I think probably the reason you're saying are.
Impact from supply chain. The later than other companies is because ultimately thanks, a lot of supply chain is ultimately a labor issue. It is for them. If you go back 123 steps and supply chain process, hopefully I think it becomes a labor issue, whether it's labor from an import.
Ah labor unload cargo ships whatever's situations I think that's got a significant part of the supply chain kind of roots issue. So I think it hit us a little bit later.
I think for the same reason, we have the ability to manage to the labor challenges better because.
Cause I address labor I think we would all say that Ah labor.
While still challenges we are seeing is modest improvement in certain of our plants, where we've had some real challenges I think that the some of the stimulus dollars went away. We saw some reaction to that and we were able to get people in to be reprieved for rose.
I think from that perspective, we feel like it's manageable.
As it relates to the component parts.
Again, working with the supplier stay on top of where we are all the time.
And delivery date.
And then an alternative needs to.
Let it be a reengineer of the problems or an alternative ah component to be able to you and really throbbing it out or supplier based on a on a much broader feeling we'd probably never thought about two years ago.
The steps were taken.
Yeah, and I I would add that you know I I do think labour, which has been challenging has been getting incrementally better.
And I think that is a function of initiatives, we have both in terms of recruiting engagement tension.
Sarah.
Is has started to to pay some dividends and I do think to supply change, even even with what's in our control take take exogenous factors out when you saw sourced or when you now have five different sources for a particular component you're just structurally in a much stronger position.
And there's been a tremendous amount of engineering work that.
Jamie has alluded to that has really really reduced number of items that we are salt sourced on and the other thing a few other things that are going on is we have built safety stock can we look very closely at our bill material items for you go onto the quarter and we're also procuring for.
Longer portions of time take for example at our radio detection, our core control boards, we already have bought up to 2023.
And so there's a number of initiatives and actions in these actions have structurally taken risks out of our out of our system I feel like you know so I think there's been a lot of progress made some of these engineering changers overs.
Have taken three months I'm gonna take them six months you know so these are not things you can just snap your fingers.
And I think fundamentally that does make us stronger and reduces our risk profile, but you know as Jamie said, there is a lot of choppiness and supply chain and but I I do believe we're managing this and I do feel good about how we've laid out the rest of the year.
Great and just the last one you saw on.
With the longer lead time to you seeing any slowdown in demand in response to.
Those longer lead time since it affecting orders.
Not that I have seen in there, but what I would say, it's as a reminder of the bulk of our products are engineered items. So meaning it is specified for a very particular customer of purpose. For example every cooling tower.
We ship is for that particular customer the size the tonnage the horse power.
Type of fan et cetera, et cetera, et cetera is uniquely we don't build anything to inventory so far engineered product.
Businesses, where you really only start making the product once you get an order you feel very good that there's real demand behind that what I, what I do think we need to keep our eyes on.
Are those portions of the business, where you're building more towards the stock and so an example, I would give their probably our biggest business day. This in the hydronics cause in boilers.
And that is where we do have a really nice variety of solutions, but it is a standard product and so.
You know what the way that I would think about that is if you do grow demand very high.
Is the pull through there and we'd have to keep our eyes to make sure that there's not a build up of stock and then a destocking coming up so I do think it's something that we're aware of what I would say as I do feel good that the demand is there to your specific question do we see demand destruction right now with extended lead times.
And also higher prices, we don't see any demand destruction that I'm aware of cross service is Jamie D. Can you think of.
It's actually demand is quite however is continuing to to come in very nicely.
Okay.
I appreciate the answers change Jamie thanks for the time.
Thank you. Thank you. Thank you.
Thank you.
And if you'd like to ask a question that is star one and our next question comes from Walt the Tech from Seaport researched your line is now open.
Hi, Thanks, guys Uhm.
Wanted to ask that.
It's one more on this the boiler business are the strong orders coming through with from channel partners.
And are they building inventories their self or anything to the end users.
I would say, it's predominantly channel partners. So you know, there's some usage there and and so let's break it down so heating, let's say broadly speaking 300 million about $100 million. That's electric heat that 200 million of that is hydronic 200 to 250 actually with P. K.
Closer to 50 the.
The bulk of the purchases on the <unk> side really occurs in Q4 and Q1, that's where the pull through demand is and the stock up really is going on now and you are starting to get consumption in the field now so so I I I would say you are getting consumption in the field now.
<unk>, but but the build out from the channel is really to make sure. They don't get stock outs right. They they want to be able to service their customers for the year, which is fairly Q4 to Q1, and so they're very aggressively trying to <unk> to be able to service that demand.
Okay, Great and so you you should be able to ship. These some of them will go in in fourth quarter and then if you're you're shipping in January February you you're still.
You know getting your channel partners to get the the demand to the the the residences.
Yeah, I would think that would be our intention and one of the things. We always look at at the end of a heat season. So at the end of Q1.
We look at the balance is you know how much inventory door distributors have we have very good visibility at a lotta distributors.
Someday visibility, it's some we have last but overall, we have a pretty good feel about the balance of inventory and so that would be something that we would always look at at the end of the heat season.
Okay, Great and then the backlog in Dnm, it's nice to see that up so much.
Are you back now to the 20th 19 backlog levels are you above 2019.
So.
I would say if you look across is if the numbers are higher but some of that is acquisition driven you know you look at our Aitan business, which has some very attractive backlogs.
If we're talking about our project business as the ones that we typically talk about let's say Jen Fair T. C. I, certainly kind of Comtech and transportation backlog is definitely higher.
Pretty significantly, but I don't think it the demand is up to the 2019 levels, yet, but we are seeing nice improvement there.
Okay, great. Okay. Thanks very much.
Thanks model.
And thank you and I'm showing no further questions I would now like to turn the call back to Paul Clinton for closing remarks.
Okay. Thank you all for joining the call today, and we look forward to speaking to you over the next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
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