Q3 2021 Schweitzer-Mauduit International Inc Earnings Call
Good day, and thank you for standing by and welcome to the Swm's third quarter 2021 earnings Conference call.
Hosting the call today from SWM is Dr. Jeff Kramer Chief Executive Officer. He is joined by Andrew Wamser, Chief Financial Officer, and Mark Chicken now director of Investor Relations. Today's call is being recorded and will be available for replay later this afternoon.
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It is now my pleasure to turn the floor over to Mr. Checking now Sir you may begin.
Thank you Peter Good morning, I'm, Mark checking out director of Investor Relations at SWM. Thank you for joining us to discuss our third quarter 2021 earnings results before we begin I'd like to remind you that the comments included in today's conference call include forward looking statements actual results may differ materially from the results suggested by these comments for a number of reasons, which are discussed in more detail in.
Our Securities and Exchange Commission filings, including our annual report on Form 10-K, and our quarterly reports on Form 10-Q.
In particular, the extent to which the COVID-19 pandemic continues to impact our business is uncertain and depends on numerous evolving factors, which are difficult to predict including the duration and scope of the pandemic and actions taken in response to it.
Some financial measures discussed during this call are non-GAAP financial measures reconciliations of these measures to the closest GAAP measures are included in the appendix of this presentation and the earnings release, unless stated otherwise financial and operational metric comparisons are to the prior year period and relate to continuing operations. This presentation and the earnings release are available on the <unk>.
After relations section of our website www Dot SWM I N T. L. Dot com I will now turn the call over to Jeff. Thank you Mark and good morning, everyone.
These continue to be interesting times around the World is senior news reports Covid is moderating somewhat but also not retreating as fully as everyone had hoped.
At the same time dramatic demand increases have caused widespread supply disruptions with rapid and sometimes unprecedented price increases on many input costs, coupled with shortages of key raw materials.
In mid 2020, while many companies dealt with weak sales results and lengthy production outages from Covid related stay at home orders Swm's performance was quite strong where several ams markets proving resilient to COVID-19 pressures in our paper business exceeding expectations.
Swm's global teams, who are agile and our portfolio robust with good demand across many end markets, resulting in outstanding 2023rd quarter earnings.
We were expecting a similar story this year by building on an already strong portfolio combined with the additional capabilities offered by our acquisition of Scapa or in April.
We have high conviction that the fundamental story remains positive as demonstrated by the strong topline growth continuing in Ams.
However, 2021 has seen global supply chains in disarray, and rapid inflation and challenges accelerated throughout the third quarter with higher input costs compounded by limited availability of some key raw materials and global ship shipping bottlenecks.
These headwinds are clearly impacting our bottom line results. While we've continued to successfully implement price increases with the latest round, becoming effective October one we have still been lagging in many cases pressuring margins and resulting in us delivering adjusted EPS of <unk> 82 for the third quarter.
But we do see some early signs of moderation. We expect these conditions to continue at least through the fourth quarter before our actions deliver better margin recovery.
Given our results to date and near term view, we expect that a fully a full year 2021, adjusted EPS will be below our original guidance for the full year, but do expect sequential improvements throughout 2022.
As you will see in the following commentary our overall portfolio remains very good remains strong with very good demand and we are confident that the actions. We have and will continue to take will return us to the levels of profitability expected expected from our company.
As demonstrated by our agile teams last year, we are well positioned to continue to execute against our long term strategic plans. Despite the shorter term disruptions.
In Ams overall sales nearly doubled including the benefit of SCAP acquisition with underlying organic sales, increasing a strong 10% in the quarter.
Demand remains positive and several of our most strategic product lines, particularly in transportation and filtration end markets.
Transportation was up approximately 25%.
Fundamentals remain very strong and consumers are driving rapid growth for our high value paint protection films.
As we noted in last quarter's call that despite being the world's largest supplier of these base films are sales could have been even higher if not for raw material scarcity.
Year to date, we have many tens of millions of dollars in sales due to this mid term constraint.
To address this we have expanded our supplier network and qualified additional suppliers resonance with our customers and secured additional supply for 2022.
Though still constrained access to more raw materials should support our ability to deliver even greater than 10% growth next year on top of what will be already rapid growth in 2021.
We further expect our recent acquisitions to allow us to continue to innovate by expanding our offerings in this key product area, thereby executing against our stated strategy of offering our customers greater solutions to their needs.
We also continue to invest in capacity worldwide to capitalize on increasing consumer awareness and adoption of paint protection films and continued middle class growth in many countries.
Filtration also grew approximately 25% in the quarter as the need for cleaner and PURA continues to drive positive trends.
Water and process materials led the way.
Again, echoing comments from the second quarter call, our water customers continue to relay bullish outlooks to our commercial teams as they restock from depleted inventory levels see increased.
Activity of processing sites and convey positive outlooks for additional capacity coming online in emerging markets.
Process filtration also remains strong, albeit somewhat constrained by the semiconductor shortage, but we see continued momentum as chip chipmakers work to fulfill unmet demands.
On the air filtration side sales nearly matched third quarter of last year, when our sales grew more than 60% on widespread COVID-19 driven hvac's system upgrades and we are encouraged that this business is maintaining such a high level of activity.
Notably, though our overall filtration sales have been impacted by labor challenges that constrained our growth we estimate the total impact to be in the range of $4 million to $5 million per quarter in lost sales.
Implying our total filtration business could have been up nearly 40% in the third quarter compared to last year.
Though there is limited visibility on when labor markets will reach equilibrium, we are taking multiple actions at various plants to address the issues in the meantime, and are seeing increased interest in open positions.
These actions are a combination of increasing wages where needed to ensure we are competitive.
Increasing our focus on supporting those currently enrolls and investing in automation to reduce our reliance on labor and improve efficiencies.
<unk> legacy healthcare business faced a tough year on year comparison as last year, we benefited from the unprecedented unprecedented demand and face mask materials out.
Outside of that we saw good gains in both consumer and higher margin specialty wound care categories.
Regarding <unk> performance, we are pleased that it is in line with our sales expectations.
Excluding currency fluctuations in GAAP accounting conversions, the overall business rebounded strongly versus 2020 and is nearing pre COVID-19 levels on the topline.
On the healthcare side, we are seeing good growth in consumer wellness products, whereas products more reliant on hospital foot traffic remained below pre COVID-19 levels.
In industrial we again saw a strong growth versus 2020.
Those sales are performing well Scapa is experiencing similar inflationary and supply chain pressures as the rest of our businesses.
Although we are disappointed that inflationary pressures material sourcing challenges in labor availability negatively impacted the bottom line top line performance for Ams has been strong.
Though we have successfully increased prices multiple times. These actions quite simply were not sufficient to keep pace with rapidly increasing raw material prices.
Customers are generally accepting these increases and we will continue these actions as needed.
On a positive note, we do see early signs of resin pricing easing during the fourth quarter and if that trend continues should put us in an improved price cost position in 2022.
It is also important to note that while we have been addressing the above challenges. We have continued to drive our innovation process and invest in capacity and the efficiency improvements across many of our segments.
These efforts will allow us to continue to position ourselves for continued growth.
Switching to engineered papers quarterly top and bottom line results were softer than last year. So this was to be expected as last year's third quarter was the highest quarterly segment of operating profits we have achieved over the past five years.
While we were very happy with this performance last year as many businesses were suffering from weak demand.
We knew that the inventory builds our customers took to handle the pandemic would reverse in time.
As you may recall, when we outlined our 2021 annual guidance our expectation was to return to a more hysteric historical EP segment profit level, given the large 'twenty to benefit 2020 benefit of several large customers building.
Inventory to derisk their supply chains.
Unfortunately, while the decline in sales of 12% on a 10% volume decrease was generally anticipated.
<unk> was not an exception to the inflationary pressures seen across global manufacturing.
Higher input costs for wood pulp freight and most recently escalating energy and natural gas prices have far exceeded our expectations to date.
But just as with Ams, we've been actively raising prices to recoup higher wood pulp cost.
Due to the more standard contractual obligations. These increases lagged the pace of inflation, although we expect to catch up in the coming quarters.
We have also been able to negotiate additional volumes as a further offset to pricing constraints.
Just as with resin, we do believe we've seen peak pulp prices and expect modest near term relief.
Importantly, we are not slowing our investments in innovation and finding ways to improve our cost structure.
Heat not burn sales demonstrated continued momentum as our customers invest heavily and reduced risk products.
Our hemp products are also going commercial and we are in the process of finalizing our first meaningful commercial contract for hemp filler products to be used in non tobacco non nicotine based alternative smoking products.
This customer alone could become a multimillion dollar customers within two years.
Our investments in hemp processing technologies, and bowtie nickels are beginning to bear fruit and like all new innovations these product lines deliver an attractive margin profile.
I reiterate that despite grappling with the current supply chain headwinds in inflation. It is critical for our long term outlook to continue to drive innovation and partner with current and potential new customers to drive growth in new product categories.
Regarding our cost structure, we have announced that we would be closing our winkler site in Manitoba, Canada at the end of the year.
This site primarily process materials for our recently closed spots with New Jersey site.
There will always a difficult decision to close facilities. We believe it was the prudent decision given the spots would shut down.
With that I'll turn the call over to Andy to review the financials in more detail. Thank you, Jeff starting with Ams third quarter sales increased 87% with organic growth at 10%.
As mentioned sales could have been even higher if not for supply chain disruptions with some of our specialty resins, coupled with understaffing at some of our sites due to a tight labor market.
Directionally it is possible Ams organic sales could have been up 20% without some of the constraints that we are dealing with.
We had excellent sales performance, particularly in transportation and filtration each growing about 25% despite those limitations.
Adjusted operating profit increased 9%, reflecting the high organic sales growth and the incremental profits from Scapa, However, significant inflationary costs, particularly with raw materials, along with supply chain issues pressured margins.
<unk> adjusted operating margin contracted 750 basis points to 10, 5% in large part due to higher input costs.
Higher resin costs, mostly for polypropylene had a negative effect on operating profit of approximately $5 million net of the price increases that were effective in the period.
We recouped about half of the resin cost inflation similar to the second quarter recovery ratio.
We've continued to raise prices and are actively engaged with our customers as we continue to catch up to a market that is seeing rapidly escalating prices that reached record levels during the third quarter.
For context on the recent price escalation during the second quarter polypropylene prices increased to about $1 20 per pound up 150% year over year.
Due to the one quarter lag from when we purchased produce and sell we felt that impact during our third quarter and.
In the third quarter prices continued to rise sharply to an average price of approximately $1 40 per pound, which will flow through the P&L during the fourth quarter.
We are however, very encouraged to see some pullback in the polypropylene market in October.
And industry projections show continued softness of these record high levels during the fourth quarter and throughout next year.
Current projections call for pricing to reach under one dollar or the second half of 2022.
While polypropylene is the single biggest variance driver other factors such as higher costs for other materials and freight also contributed to margin contraction of the base business.
Regarding <unk> profit contribution the acquisition boosted Ams segment adjusted operating profit by over 9 million similar to the second quarter.
However, as noted in our release approximately $2 5 million of <unk> SG&A costs were booked in our unallocated costs not within A&D mass. So please be cognizant of that when assessing our segment financial results.
The transaction was slightly dilutive to adjusted EPS in the quarter with elevated costs and supply chain disruptions, causing the variance to our original expectation.
Outside of these external factors, we are pleased with how the business is performing and are confident in <unk> progress with rebounding to pre COVID-19 sales and profit levels and our ability to deliver cost synergies in the near term and commercial synergies and the longer term.
Simply put we expect to drive significantly improved results in 2022 and beyond as supply chain conditions normalized and our pricing catches up to the elevated raw materials environment.
For engineered papers second quarter sales were down 12% on a 10% volume decline.
As Jeff detailed we knew this would be a very challenging comparison to prior year in large part due to a normalization of volumes.
This carries an inherent negative mixed impact on our profits as well, which was compounded by higher cost for wood pulp and other inputs.
Pulp costs alone were approximately a $3 million negative impact compared to last year net of the price increases effective during the quarter.
While we've executed price increases to some customers. This business is more contract base. So our recovery rate has been less than half.
For context, the MBS K wood pulp index was up 40% to nearly $200 per ton in the second quarter compared to last year, which flowed through the P&L in the third quarter and the third quarter index was up 60% generic to nearly $13 40 per ton, which will impact fourth quarter.
<unk>.
The index appears to have peaked at this elevated level in recent months and industry projections are for some modest relief in the coming quarters.
Regarding adjusted unallocated expenses, we saw an increase of $4 million during the quarter. However, as noted $2 $5 million of the increase with Scapa unallocated costs booked in our unallocated costs.
The remainder of the increase related to higher third party consulting fees as well as higher it expenses to support the growth of the business.
On a consolidated basis sales for the quarter increased 37% to 384 million, but decreased 1% on an organic basis.
Adjusted operating profit decreased 24% to $40 million.
Third quarter 2021, GAAP EPS was <unk> 38 versus <unk> 78.
The most material GAAP EPS items that are excluded from adjusted EPS were higher purchase accounting expenses of <unk> 29 per share compared to <unk> 15 last year due to the <unk> acquisition. In addition integration expenses were <unk> <unk> per share.
Normalizing for those and other items adjusted EPS was <unk> 82 down from last year's $1 16 per share.
To put some of the supply chain and cost headwinds into perspective, we estimate that cost inflation on resins and pulp alone that we did not recoup through price increases had an impact of over <unk> 20 per share on EPS in the quarter and the lost sales on transportation films alone was more than a 10% impact.
When combined with the other inflationary items like freight and energy and other constraints on growth, we could very well see an adjusted EPS growth this quarter. Despite the difficult comparisons we had anticipated.
To reiterate our comments from last quarter.
Our best directional estimates and indications, but they are they clearly convey the magnitude of the financial impacts.
So the cost and challenges are real we see signs of relief on several of them, which should put us up for improving results as we move past the fourth quarter with.
With comparisons getting easier throughout next year.
To recap we have secured additional specialty resins for transportation films business, our price increases will continue to catch up to input costs.
We see fourth quarter cost of resin and pulp easing that are expected to be realized in 2022, and we have visibility on cost and commercial synergies and Scapa for next year.
We are disappointed that this year's earnings will finished below our original expectations. However, we firmly believe many of the challenges are temporary and are currently turning the corner.
With respect to the fourth quarter, we expected adjusted EPS to be down approximately 20% from <unk> 77.
In the prior year quarter, implying full year adjusted EPS could finish about 10% below the low end of our original guided range.
This reflects the high cost raw materials purchased during the third quarter flowing through the P&L continued loss sales due to material scarcity and some understaffing in our sites with other key variables being joint venture results and final year tax rate.
We're still assessing next year's outlook and we will issue guidance in February but at this stage, we see strong operating profit growth in 2000 22022. This could mean potentially exiting 2022 on a run rate approaching $4 of adjusted EPS, assuming the current tax rate, which is generally consistent.
With our original 2021 guidance, we issued before many of these challenges escalated.
With regarding cash flows year to date operating cash flow was approximately $28 million down from 108 in the prior year.
Year to date adjusted operating profits were lower by $6 million, we incurred $14 million of cash cost related fees and expenses in connection with the <unk> acquisition, and we saw a $50 million increase in working capital outflows.
In addition to robust sales growth, which would naturally drive working capital outflows related to higher receivables. The inflationary environment is pushing our cash cost of inventory.
On the balance sheet significantly higher.
This inventory factor alone account for approximately $30 million of higher cash outflows compared to last year.
Although sales growth and higher costs have impacted our typically strong second half cash flows we would expect to resume more historically strong cash flow generation as working capital levels normalize during the fourth quarter and into 2022.
Net debt finished the second quarter, just over $1 2 billion net debt to adjusted EBITDA for the terms of our credit agreement was four eight times at the end of the third quarter. Despite leverage increasing we remain comfortably below our five five covenant level and have approximately $160 million.
In liquidity, consisting of our current cash balance of $73 million and $86 million of availability on our revolving credit facility and.
In addition, we are in the process of closing the sale of assets related to discontinued operations, which is expected to be completed during the fourth quarter.
Now back to Jeff.
Thanks, Andy.
As we close out 2021, we want to keep the ups and downs of the past 18 months in perspective.
Our global teams overcame many challenges and uncertainties last year to deliver strong operational and financial performance in 2020.
And while we are grappling with supply chain headwinds this year, so very different issues. These two will ultimately normalize.
We remain laser focused on addressing those issues within our control with price increases to offset higher costs.
<unk> projects to come back raw material scarcity and initiatives to improve staffing levels at our production sites to meet demand.
We are confident we can return to a run rate of $4 in earnings per share later in 2022 with the stage set for sustained growth in the years to follow.
Despite the all hands on deck approach required to address current challenges, we have not lost sight of the strategic imperatives to position us for long term growth.
These imperatives include innovation of new products offering expanded solutions, realizing the synergies of our recent acquisitions and leveraging manufacturing four <unk> technology to improve operations.
And underscoring all of those initiatives is a cultural foundation based on unwavering commitments to each other and our customers as we navigate these unprecedented times.
We are excited about our portfolio in the future growth at <unk>.
That concludes our remarks, Peter please open the line for questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
And your first question will come from Chris Mcginnis with Sidoti and company. Your line is open.
Yes. Good morning, Thanks for taking my questions.
Thanks for providing so much detail.
I guess, just maybe to start around the.
Obviously, the external environment and the cost inflation.
On each of the segments. When you go into Q4 are you going to be at price or as close to it and would you mind just.
Explaining where you are on price versus the inventory is that still going to lag in that quarter. That's the issue for the kind of the guidance for the quarter is walk me through that a little bit stronger.
Yes, I think on fourth quarter price will still be lagging a little bit as we discussed.
The paper industry, we had contractual raises of times, we had to open up some of those contracts, we got additional volumes to offset that but that put us a little bit behind.
The Ams side, we've just put through our next price increase in October and that will get us a good ways there, but I think we will still be lagging a little bit on that.
Okay.
And then just thinking about the you talked about the lost business.
On a couple of lines of business does that business go away or do you think that's just going to kind of it will still be there. It just a matter of when you can get the product out the door.
I think it was on transportation, you mentioned that especially.
Yeah, Yeah, Chris for both filtration and for our transportation. This has been particularly frustrating for us because we have very strong relations with all our customers and we have we.
We believe those orders are still there.
No I think that'll be the $64000 question as you go forward.
Is the economy going to continue to be strong everything that we're seeing when we talk to our customers implies that it will remain strong throughout the remainder of the year and so for US. This has really been frustrating that we just couldnt get enough supplies or labor.
Some of our filtration sites and I don't think its unique to us the GPU side surprised us to be honest, we didn't expect that to be one of the critical components that we're going to be as tight as they are but as you heard during our comments, we have a number of activities underway and we have secured additional supplies, but our expectation thats still going to be.
A little tight for the next few months at least.
But I would say directionally for next year, though we will we don't expect to lose those sales we expect those sales to.
To flow through and we're working with.
Different TPU suppliers to make sure that we have adequate supply and at the right now.
<unk>.
North.
Double digit plus growth in that segment, yes, just to be clear. This is this is not an SWM issue. This is an industry wide issue right and we're the largest supplier. So you can imagine that we have good supplies.
But the market demand is there it's the long term trends I think we've been talking about how excited we are about transportation business. We just can see we just continue to see greater consumer adoption and so long term.
We're very excited about this and we think we're really well positioned to take advantage of that.
Great I appreciate that color.
I guess, just with that with that offering given all the supply chain issues around cars and automobiles.
What's the driving factor.
Is that it's added afterwards can you just walk me through the transportation.
I thought it was more discretionary.
And I guess just.
One just get a better understanding of how that sales processes, especially in the kind of the current environment around automobiles. Thanks.
Yes, I think it's this is an aftermarket play for the most part right. So you buy a new car or you have a car that you want to protect.
Youll go to your dealership or Youll go to independent suppliers. There are a number in the marketplace.
And the Golar and wrap their car. So it's not directly tied to new car production. It's more of a penetration play the penetration rates are very low.
It's actually been something though that a consumer awareness is dramatically increasing and we're actually seeing increasing awareness also from Oems, which.
Actually from our point as a confidence builder because that means the Oems are seeing theres value, there and we're seeing greater adoption and now with car prices being as high as they are I think thats, a real plus in some respects because now people have even greater incentive to want to protect their investments and make sure that.
They last and our protected long term so I see all of these things is really positives and again, even with the limitations of new car.
Supply. This is a penetration play from a very low number and so we don't think thats going to dramatically impact us in the short term.
Maybe just one other point just to piggyback on what Jeff just said is that.
Also when you kind of look at the used car market in terms of how values have gone up so dramatically you are now.
Are you seeing a dynamic where people are looking to wrap their used cars.
Historically was more of a new car phenomenon, you're seeing on used cars as well. So I think it relates sets itself sets us up for really great growth and greater penetration not just in the new market, but also on the used market as well.
Great I appreciate that very helpful.
Just in relation of Scapa, It sounds like it's on track.
Are they being impacted as much.
Just challenges with raw material inflation.
And if so do you still think if I remember right. It was 50 55, maybe an impossible accretion next year and that's still on the table or is that going to be pushed out a little bit. Thanks.
Yes, so if we kind of think about Scott.
We are trending in line to those pre COVID-19 levels that we.
Thought about a reference for 2019, so when you think about the mix of the business.
A couple of comments one is I would say some of the raw material inflation that we're seeing.
It's mostly probably in the industrial segment.
And thats, probably been impacted by just a couple of million dollars, but it's directionally I would say.
Target when you look at health care there.
There is a different mix effect in terms of profitability so for that business we have.
Tumors is above where we were in 2019, which has a slightly lower mix profile, but in things like medical devices.
Alright, lower just given the dynamics of Covid and the hospital systems in elective surgeries.
But we are encouraged in terms of what we're seeing here over the over the intermediate term.
When we look at it holistically.
Sure.
50 cents accretion that we talked about.
I would say as we exit.
As we get to the second half of 2022.
I think we are on pace for that.
Things have been delayed maybe about six months or so.
Just given that some of the material availability that we've seen on.
Industrial with things like release liners, but in health care with like sterilization, but.
I would say directionally businesses on track, it's maybe just a couple of quarters delay.
I appreciate that.
And then just with engineered papers, just the margin profile in the quarter.
Obviously.
A couple of components, but I guess, how much of it was.
The inflationary environment versus the volume decline and I guess, just do you see that as you get through this very difficult comparison.
<unk>.
That eases going into Q4, and how quickly does that segment start to bounce back.
Is it that way.
Yes.
Inflation, mainly.
Net of price was a little over $3 million in EMEA, probably had about a $1 million in energy.
And then the balance is really from the volume decline when you look at the fourth quarter.
I would say.
There'll be some pressures there, but we are as Jeff mentioned there are some additional volume so we'll see how that offsets when we look to it.
Beginning of the year, we expect to be caught up.
Just given the reset of of a lot of our key contracts.
Okay.
Okay, I was going to ask that I guess, when you look across the portfolio how much of.
Yes.
Does the pricing work.
If you think about that in terms of annual or is it.
That monthly lag that you talked about can you just walk through when you look at the portfolio how much how.
How easy it is to get price in this environment.
Yes, so historically.
It's call it roughly three quarters of the businesses is contractual and.
I will reference the.
The MBS K index and the year before that being said when we see volatility like this we want to avoid that in the future. So we're opening up some of those contract to talk about how that can be modified so that we don't have the same sort of volatility.
Going forward, so again most of those contracts.
<unk> share will be adjusted in.
In Q1, and then in certain situations that may be modified a couple of times, maybe by annually versus just annually. So.
We don't just have to take the brunt of any sort of escalating cost as we price some of the contracts.
At the wrong point.
Of the year.
Okay, No I appreciate that and I guess, just the last thing on the labor and you talked about greater automation automation thoughtfully can you just talked about what youre seeing in that labor market how difficult. It is.
It sounds like it should ease a little bit with your changes. Thanks.
I think I think for everybody labor is going to be a challenge for the next six months and it varies from site to site, where some sites are doing fine and others are having.
Severe labor shortages, everybody is competing for that so we've done a number of things and we've seen it we've had to raise some salaries and some of the smaller ones we've done things around.
Shifts in retention et cetera, and so we're starting to see some easing, but I think labor is just going to be a tough topic for not just our industry I think it's across the board for every industry.
Hoping at some of these government programs roll off that will start to see a little bit more but we've been working on manufacturing for automation and things of that nature for over a year and a half to two years and we're just accelerating some of that so part of the automation is as simple as being able to use more.
Analytics to make it easier to run the machine so when as we bring on new people. They can operate them more efficiently and quickly without training some of the automation will be material handling et cetera et cetera. So it'll be a combination of this and we've been on this journey and we're going to continue that journey for a while.
It also drives efficiency and quality. So it's got a lot of benefits to it and were also not trying to I think it's important to be clear, we're not trying to replace our labor, we're trying to complement that and make it more efficient recognizing that as we continue to grow we're just going to need continued amounts of labor that.
That might not be as available as needed.
Makes sense and you certainly have gone through that Thats for sure.
Well, thanks for taking the question.
Yes.
Thanks for taking the time today and answering my questions and good luck in Q4 I appreciate it.
Thanks, Greg Chris.
Your next question will come from <unk> Mojo with <unk> capital. Your line is open.
Hi, good morning, and thanks for.
Taking my questions. Firstly, just looking at the predict protective auto rack market that you mentioned.
One of the public companies delivering new services has been going gangbusters in 2021, I think more broadly I think the value add has been validated in the market and I'm. Just curious if that's any sign I mean is there any discussion about striking longer term contracts or maybe adding <unk> or is there any any other sort of color you can provide on that.
And market.
Yes.
I think one of the things to keep in mind as we supply a large number of those.
Sure.
Suppliers.
And contractual relationships vary.
Among those we have long term contracts and some we have shorter more spot business for others and it's a very global business I mean, we supply suppliers that are based in China. The U S. Europe.
So it's a market we're very comfortable in and we think we're very aligned with all the key players.
Excuse me speakers I'm showing no further questions at this time I will now hand, it back over to Jeff Kramer for any closing statements.
Thank you I appreciate everybody's time, and it's been a challenging quarter from the bottom line, but again.
It's really important for us to keep in mind, the long term direction of the company I am very comfortable of where we're heading I think the steps that we've done to execute the acquisitions are paying off I think the actions that we have in place to show the agility of our organization are continuing to pay off.
Im excited about the future even though this quarter has been a challenge for all of US I want to thank our global employees.
For all the efforts that they are doing.
And I look forward to continued success. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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