Q1 2022 Enerpac Tool Group Corp Earnings Call
Ladies and.
Gentlemen, thank you for standing by.
Welcome to <unk> two groups first quarter earnings conference call.
During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session.
At the time, if you have a question please press.
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As a reminder, this conference is being recorded December 21 2021.
It is now my pleasure to turn the conference over to Bobby Belser Director of Investor Relations and strategy. Please.
Please go ahead Mr <unk>.
Thank you operator, good morning, and thank you for joining us for Air Pactual group's first quarter fiscal 'twenty two earnings conference call.
On the call today to present, the company's results are Paul certainly President and Chief Executive Officer, and Rick Dillon, Chief Financial Officer.
Also with US is Bard Boland Chief strategy Officer.
Our earnings release and slide presentation for today's call are available on our website at <unk> tool group Dot com in the investors section.
Also recording this call and will archive it on our website.
During today's call, we will reference non-GAAP measures such as adjusted profit margins and adjusted earnings you can find a reconciliation of non-GAAP to GAAP measures in the schedules to this morning's release.
We also would like to remind you that we will be making statements in today's call and presentation that are not historical facts and are considered forward looking statements. We are making those statements pursuant to the safe Harbor provisions of Federal Securities Law.
Please see our SEC filings for the risks and other factors that may cause actual results to differ materially from forecasts anticipated results or other forward looking statements.
Consistent with how we've conducted prior calls we ask that you follow our one question one follow up practice in order to keep todays call to an hour and also allow us to address questions from as many participants as possible. Thank you in advance for your cooperation now I will turn the call over to Paul.
Thanks, Bobby and good morning, everyone. Thank.
Thank you for taking the time to join our Q1 earnings call.
I want to start by saying that I am truly honored to be leading <unk> tool group into the next phase of our journey focused on growth and margin expansion.
And I'd like to thank the board for this amazing opportunity.
And Randy Baker, our former CEO for his support and helping to ensure a smooth leadership transition.
Well I've met or spoken with many of you I am looking forward to meeting more of our shareholders in the coming weeks and months.
I'd like to share some of my perspective on what makes <unk>, such a great company with so many wonderful opportunities and what attracted me here.
What I observed in my research on the company. When I was initially contacted with a strong foundation with an unparalleled brand known for safety precision durability and reliability.
The company with exceptionally strong market positions.
A very experienced team.
Global brass, coupled with a very sizeable distribution network.
A strong balance sheet.
And a company where the heavy lifting of portfolio work is now done where we have successfully navigated through the pandemic.
And where we are well positioned for growth.
In my short time with the company I have been pleased to have confirmed all of that and more.
What excited me about the company before joining is still very much what excites me today.
In my initial days at <unk> I have spent much of my time visiting our facilities meeting our team and visiting with distributors and customers.
<unk> has been very positive.
It's clear that we have many strong capabilities and our customers and distributors value the products and services we offer.
And while we've done a lot of work since the <unk> divestiture on structure growth drivers and productivity I also see many more opportunities to become an even greater company with stronger execution and more consistent delivery of results.
To better understand the opportunities in front of US we are performing a deep dive holistic review of the business looking at both growth opportunities and further operational improvement and productivity opportunities were.
We're also looking for ways to simplify the business through the lens of 80, 20, standardize our processes and drive accelerated growth.
With that let me address some of the additional observations and key objectives that I've shared with our team.
First we intend to maintain a high degree of focus and discipline and what we do and how we operate.
That means continuing and accelerating our pure play industrial tool strategy.
And updating that strategy along with the underlying initiatives that will enable us to consistently deliver best in class returns through growth of our core businesses.
Our organic growth will come through commercial execution initiatives.
Innovation, and new product developments and while in their early stages of development I expect our digital and Iot initiatives will offer us unique opportunities to be more closely connected to our customers.
We're also doing more work on driving growth in key vertical markets, where we have outsized opportunities for further penetration.
Additionally, we will maintain a balanced capital allocation framework.
All of these through the lens of the shareholder and recognizing that we have many exciting opportunities for investment within our base business well.
We will also look selectively at inorganic opportunities focused squarely on our pure play tool strategy and maintaining appropriate discipline, such that any acquisitions must meet our strategic financial and operational criteria.
And we will also continue to be focused on innovation that creates value based on meaningful voice of the customer and where we solve their biggest pain points and unmet needs.
Finally, we will continue to evaluate our cost structure in an effort to simplify and flatten our organization.
And we will pursue additional cost savings opportunities, including overhead cost reductions and further operational efficiencies to drive value for our shareholders.
Toward the objective of simplifying our structure we.
We recently made some organizational changes with the departure of two EVP, including the COO role.
Additionally, as we announced earlier this morning, we hired a new EVP of marketing and President Americas, a newly combined role filling two other open leadership positions with one these changes will enable us to create a more nimble and agile company and establish a strong foundation for growth.
Now, let me turn briefly to an update on our markets and market conditions.
Demand continued to be solid in most regions.
As we anticipated supply chain challenges persisted throughout the quarter, and we announced additional pricing actions, which Rick will cover in more detail.
We returned to our normal Q1 seasonal trends, which we expect to continue throughout the fiscal year and typically we see Q3 is strongest followed by Q4 Q1, and then Q2.
With that said Covid variance are causing some continued restricted access to distributors and customers with challenges remaining around travel to certain regions or countries.
And in some cases continued quarantine requirements that are impacting our ability to serve our customers and therefore, our overall service utilization rates.
I'll now provide some commentary on our regions, including key verticals and notable channel trends.
In the Americas core sales improved solidly with approximately 20% year over year growth and we continued to see recovery in several of our key verticals, including infrastructure power Gen and rail.
The growth was driven by both product and service.
And within products, we saw a broad based recovery throughout our channel with national accounts, outpacing others and broadly across our product set.
The service increase was primarily related to specialty machining.
Additionally, the heavy lift portion of our business continues to be positive with a high level of quoting and activity in the first quarter.
In Latin America mining continues to be strong driven by continued elevated copper prices driving demand we.
We're pleased to see the activity given the continued COVID-19 related challenges in that region.
Moving on to Europe. This region was the first to return to growth in the first quarter of fiscal 'twenty, one with strong sales in our heavy lift and wind related projects.
Along with service work in the North Sea and Germany.
The lumpiness of our <unk> business created a tough comparable and as a result of the region was down mid single digits.
We have seen some nice opportunities arise, particularly related to bridge and construction work along with nuclear and wind projects.
We anticipate that these trends will persist into the coming quarters, given continued government spending and the focus on renewable energy.
Now moving to Asia Pacific the region delivered approximately 10% year over year core sales growth.
While COVID-19 is still present the region is starting to see less daily disruption and continues to trend to a toward a more positive outlook with the majority of the verticals that we serve starting to stabilize.
We saw a recovery in oil and gas driven by higher oil prices and the expectation that energy demand will continue in addition mining and power generation were also positive in the quarter for the region.
Moving to slide seven and the <unk> or Middle East region.
<unk> experienced modest core growth, but continues to face challenging COVID-19 related travel restrictions that change on short notice and project delays that pushed out into the second quarter.
From a vertical perspective, the stability in oil and gas pricing is providing confidence to some of our customers.
As a result, we're starting to see an increase in spending and budgets being released for maintenance related projects, along with new large capex spend being awarded.
This provides some level of optimism, but overall the vertical has not returned to pre pandemic levels.
Activity in power generation, particularly wind and construction were also positive in the quarter and supports our efforts to diversify the region's vertical penetration beyond oil and gas.
Now moving onto Cortland, the business experienced core growth of 32% year over year in the first quarter, continuing our trend from fourth quarter's growth of 28%.
On the medical side of the business the strong demand for our products continued resulting in a significant improvement on a year over year basis in.
In the quarter, we completed the development phase and start of production of components used in sports medicine, and cardiovascular applications and we expect revenues from these products to ramp up through the current fiscal year.
As for the industrial side of the business order rates have improved but have not fully returned to pre pandemic levels.
Marine and industrial showed year over year growth, while mining and oil and gas remain soft with limited project work in the Gulf of Mexico.
Lead times have continued to improve throughout the quarter and are now at competitive levels.
The business continues to work through supply chain and logistics challenges on a daily basis.
With that I'll hand over to Rex to take us through the financials as well as an update on operations and supply chain right.
Thanks, Paul and good morning, everyone.
Now, let's recap our adjusted results from the quarter on slide eight.
Sales were $131 million with core sales up 9% when compared to the first quarter of fiscal 'twenty. One tool product core sales were up 12% Cortland sales were up 32% year over year and service sales were down low single digits. Adjusted EBITDA margin was at 13, 4% a 120 basis.
Points improvement over prior years first quarter, our tax rate for the quarter was 15% down from 31% in the prior year and adjusted EPS of <unk> 16 was up from nine in the prior year.
Turning to slide nine for more details on our topline performance product.
Product sales volume increased roughly 10, 5% with 75% of the increase attributable to our tools product and the remainder to Cortland service sales are down slightly with increases in the Americas, and APAC offset by decreases in ESSA and <unk>.
Pricing actions contributed almost $3 million to the topline offsetting material and freight cost increases and we'll come back to pricing later.
Our order rates continue to be solid in the quarter and in some regions ahead of 2019, our pre COVID-19 levels for the first quarter. Our shipments. However are still impacted by supply chain issues that I will speak to shortly.
Turning quickly to slide 10, you can see the pressure wave as expected we returned to our normal seasonal sales pattern this quarter with our first quarter down sequentially from our fourth quarter. We expect our second quarter to also be sequentially down followed by sequential growth in the back half of the year as always.
<unk> service in heavy lift products projects, rather can cause some lumpiness in our trends.
So let's move on to adjusted EBITDA on Slide 11.
Prior year first quarter results reflected temporary cost saving actions in response to COVID-19 that yielded approximately $6 million in savings all of which are no longer in place. We did recognize an additional $1 million of international stimulus funds in the current year related to costs associated with prior year COVID-19 conditions that were subject to audit.
It.
120 basis point margin expansion noted earlier reflects the year over year improvement in product volume.
Manufacturing variances reflect the net favorable impact of volume on manufacturing absorption and service utilization.
G&A improvement reflects spending levels and cost reductions, including a cost benefit from our CEO transition in the quarter.
So for the quarter volume growth and operating efficiencies year over year more than offset the impact of temporary actions in the prior year.
Lower margins on the mix of product and service sales this quarter, coupled with pricing actions that only offset cost increases, resulting in an incremental margin of 26% below our targeted levels contribution margin on the incremental product volume was roughly 60% in the quarter down from 67% in the fourth quarter of fiscal.
'twenty one.
Moving on to operations on slide 12.
As expected the significant supply chain challenges material cost increases and logistics constraints that we saw through the back half of fiscal 'twenty. One have not improved we are working with existing suppliers to provide better forecasts, placing additional advance orders and bringing second and third suppliers online too.
Managed regional variation and supplier performance.
Except for a few puts and takes are on time delivery performance has remained steady since the fourth quarter of fiscal 'twenty one.
We did increase our inventories in the quarter as we continued to make forward buys that reflect long lead in transit times bees are carefully planned inventory buys to manage our backlog and position ourselves as best we can ahead of Chinese new year.
We are focused on our top selling products and closely managing inventories associated with long lead lead time product that sits in our backlog.
As we expected our constrained backlog due to supply chain and logistics bottlenecks remains between five and $6 million. We continue to expect that this level of past due backlog will remain with us as we head into the back half of our fiscal year.
We will continue our focus on sales and operations planning and working with many of our larger national accounts and Oems to gain an extended view of their demand in order to ensure complete and timely delivery and the current environment leap.
Labor availability has remained stable for us we have not experienced any meaningful constraints across all regions, including our service business.
Let's come back to pricing.
We entered the fiscal year, assuming $10 million to $13 million of supply chain and logistics headwinds for fiscal 2022 based on what we knew at the time, we announced pricing actions late in our fourth quarter, which were to cover these known headwinds and.
Noted on our last call the pressure on our EBITDA margins at least in the front half of the year.
As we expected in our fiscal 2022.
First quarter. These pricing actions, we're able to offset inflationary pressures and increased logistics costs, while putting the pressure anticipated on our incremental EBITDA margins.
As we walked through on our last earnings call. Our guidance assumes that we will see some moderation in supply chain headwinds in the back half of the year and coupled with an incremental pricing actions in line with our normal historic timing, we expected to see 1% to 2% pricing realization for the year substantially all.
All of which would be recognized in the back half of our fiscal 2022.
Accordingly in December we announced additional global pricing actions across all product categories in the mid to high single digits effective January one again, we are targeting 1% to 2% price realization, assuming some cost moderation in the back half we will continue to monitor.
Our incoming costs and if necessary, we will implement further targeted pricing <unk> surcharges to deliver the targeted price yield for the year.
So I will wrap up with liquidity on slide 13.
We used $8 million in free cash flow during the quarter working capital increased by $18 million on increased accounts receivables and inventories accounts receivables increased by $11 million on timing of sales in the quarter, including final building on several large projects as discussed earlier increased inventories reflect planning.
And given increasing demand and extended lead times capital expenditures were $3 million in the quarter in the prior year, we generated $7 million in free cash flow in the quarter on lower capital expenditures and a lower working capital build as we were emerging from the trough of our academic demand.
Our leverage is at <unk> seven times down from one nine times in the prior year, reflecting $80 million in debt reduction over the course of last year combined with a higher trailing 12, EBITDA month 12 month EBITDA, rather we expected our leverage will continue to improve in fiscal 2022.
With continued year over year EBITDA growth as our Covid impacted quarter's drop off from our trailing 12 months EBITDA.
We are well positioned from a liquidity perspective, as we continue our strategy execution and disciplined capital allocation with that I will turn the call back to you Paul.
Okay. Thanks, Rick.
So we are reaffirming our full year guidance in terms of annual sales range and incremental EBITDA margin.
But we'll continue to monitor that based on evolving market conditions.
We have some potential tailwind that could help support growth, including the infrastructure bill as well as the potential for a faster recovery in supply chain and inflationary pressures than anticipated with regards to infrastructure. We do participate meaningfully in several aspects of this broad end market, including roads and bridges.
<unk> rail commercial construction electrical distribution water airports and port facilities.
And our premium product offering is known for precision durability and safety.
With a strong brand reputation we enjoy we believe we are well positioned to take advantage of increased government infrastructure spend.
Although we believe that most of that opportunity will be in our fiscal 2023.
That said, we also faced some potential headwinds for the remainder of our fiscal year, including foreign currency further degradation in end market demand or customer access due to COVID-19 or if we see further supply chain or logistics challenges or inflationary pressures.
Before we open the line for questions as I mentioned I am incredibly excited to be onboard and enthusiastic about the future opportunities ahead of US. This is an exciting time to be part of <unk> tool group and I am very much looking forward to the next steps in our journey I would like to conclude by thanking all.
All of our <unk> tool group employees around the world for their hard work and dedication to serving our customers. Despite the challenges they faced during the quarter.
Operator that concludes today's prepared remarks, please open the line for questions.
Thank you and at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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Our first question comes from Jeff Hammond with Keybanc capital markets. Please state your question.
Hey, good morning, everyone welcome aboard Paul Thank.
Thank you Jeff good morning.
So just on price cost so it looks like it was it was neutral this quarter and I'm just wondering.
What you think is plays out for the rest of the year and term as your target to kind of hold the line on price versus cost or forget to approach cost positive.
And just.
And that mid teens product growth.
How much prices in there based on what you've announced and some of the carryover.
So.
As I stated earlier the price.
Cost impact for the first quarter was neutral and we believe it will likely stay about neutral for the second quarter. The pricing, we announced effective January one will give us that realization, we're targeting a one to one 5% price realization for the full fiscal year.
So youll see some price realization in the back half.
Price cost neutral in the front half and Youll continue to see pressure on our EBITDA and incremental margins.
As a result of that.
Okay.
And then.
Just maybe Paul if you could just expand.
Some changes on simplification flattening the organization, just where else do you see opportunities for that and then just maybe where are the early opportunities from an 80 20 perspective. Thanks.
Sure.
So yes, I mean, obviously, we're early days here in kind of a broader assessment of the company and the opportunity set.
And as I referenced in my prepared remarks.
I missed a kind of a holistic deep dive review.
So we've already made as we announce some organization changes.
And I expect we'll continue to look for opportunities, how we can simplify and flatten the organization and as we do we'll certainly announce any changes that come in terms of sort of some of the broader value creation levers that we're exploring I do think there are a number of areas that we're looking at more closely on.
The growth side.
There is certainly opportunities in terms of commercial execution and effectiveness within kind of our current customer and channel set as we look at how we can implement stronger tools processes and productivity.
From an innovation perspective that certainly a hallmark of <unk> and <unk>.
One that will continue to invest behind.
We're going to focus broadly speaking on fewer probably more impactful initiatives and advanced technology R&D development.
And from a vertical markets and end user focused.
We're looking where we can identify more near term markets, where we're either under or untenable rated and have the right to play so that we can build a stronger what I call how to win game plan.
From a profitability standpoint.
We have a number of opportunities I believe in terms of operational improvements and we've already talked previously about some of the manufacturing capacity review and footprint.
Work that we have underway.
We will continue to look at pricing and discounting processes and.
And we will continue to look at our cost structure as I talked about.
In my prepared remarks, so 80, 20 will certainly be a lens that we employ looking at our products are channel and the processes that we use to run our business.
And we do believe as the supply chain stabilizes over the coming quarters there'll be more ample opportunities for global sourcing.
Which is a function, we really only stood up in the past couple of years.
So those are a number of things that we're focused on kind of in our early days deep dive review, where we see opportunities in the business.
And then just.
If you go back to your pricing question I don't know if I answered.
All of it so if I if I didn't let me note here.
Yes, I mean, the only follow up I would say is.
It seems like you're putting a bigger price increase the normal and assuming.
Kind of normal price realization.
Just want to understand that better.
The guidance for sure assumed $10 million to $13 million of price in there and then what we said is we price for realization in the back half.
And didn't give that total number because it's contingent upon what we're seeing going on in the market by way of cost.
So in Q1.
You saw about $3 million of price and about $3 million of costs.
The math, if we do nothing and the cost stay where we said it would it be in that $10 million to $13 million.
We are assuming a little bit of moderation, but we're also saying we're going to take price to ensure we get to normalize what I would call normalized realizations for the year, but it's going to all come to us in the back half. So we'll get some benefit from that in our.
EBITDA margins and incremental margins in the back half of the year along with incremental volume.
Okay. Thanks, so much guys.
Thank you.
Thank you. Our next question comes from Brendan Thompson with CGS Securities. Please state your question.
Brendan Pops and your line is open please limit yourself state your question.
We'll move on to the next question and that comes from Deane Dray with RBC capital markets. Please go ahead.
Good morning, everyone. Good.
Good morning morning, Hey, Paul just a follow up on Jeff's line of questions on the business review of the only thing I would ask is what's the timeline.
I get you're doing both the ramp up for yourself meeting folks distributors customers everyone for the first time, but also the business reviews.
That takes time.
Looking at a multi quarter process and you.
Will there be potential portfolio moves that could come out of this I know, it's kind of hard to say because you are still in the early stages, but.
Number of initiatives have been taken before you.
So I'm just trying to get a sense of the timeline, how disruptive and what kind of outcomes.
You would expect.
Right. So thanks for the question Deane, So I think on timeline it'll be rolling right I do expect every quarter, we will be able to share some more specific update.
We are looking at.
The possibility of holding some sort of investor day in calendar 2022 that data has not been scheduled yet but.
But when we have more details certainly that will be forthcoming and obviously at that sort of event, we'd be able to share quite a lot more detail on our overall strategy, our thinking and our plans for the business.
Our goal is to obviously keep any disruption.
To a minimum we do have a business to run, but we also want to take the opportunity to step back and evaluate where our broader opportunities are in and look at the overall strategy of the company.
From a portfolio perspective.
As I referenced in my comments earlier on the call really the broader portfolio work is behind us now.
And as we sit here today, we look at ourselves as a pure play industrial tools and services business.
We like the business that we have we're going to look to grow organically and we will look selectively inorganically. So M&A will be a part of our strategy.
But we will stay kind of pretty close to our knitting in terms of.
Businesses that offer products services or technology that would be highly complementary to what we do in the industrial tools and services space. So that's how we're thinking about it but broadly speaking.
Any significant portfolio work is really done at this point.
Alright, that's really good to hear and I appreciate the timeline.
Then.
Lot of good color and specifics on pricing and just some follow up there any sense since you've announced the January increases that theres been any pull forward of orders into the current quarter.
And related is there are you, reaching a point of price elasticity of demand destruction.
Or is it still so far limit less and I say that everyone across the sector has been able to increase pricing and say if there's been no impact on demand, but just maybe if we can get a fresh look of that from you guys. It would be helpful. Sure.
Sure, we've not seen any notable or meaningful pull forward into the quarter from our pricing it was announced kind of just.
Giving timeframe so.
We haven't seen anything.
And then in terms of pricing and we obviously do a fair amount of work in terms of trying to understand the lift elasticity, but also just broader market conditions from our competitive and peer set with whatever publicly information publicly available information is out there and we've not seen anything that would indicate.
Get that it's impacted our market share for our position in the market. Today. Obviously these are unprecedented times from a supply chain inflationary perspective.
<unk>.
We see a lot of our competitors, taking similar actions I will point out that we tend to be kind of a first mover from a pricing standpoint in the marketplace and generally speaking we do see competitors follow suit.
From a dealer perspective.
Certainly we're cautious as we think about it but so far we have not heard of any significant concerns or pushed back and I think broadly speaking they understand the market conditions and they're seeing similar moves from their other partners and suppliers at this point.
Great and then just last question on end markets.
Seems like everyone is still waiting for America's oil and gas to start to pivot we've seen oil pricing certainly improve but we've not seen it read through and project releases or MRO spending uptick in any meaningful way would love to get some color there.
Quickly if you could.
Sure so.
We have seen some improvement in oil prices you referenced I think that is going to present some opportunities to us.
Certainly on the service side.
They have the opportunity to supply.
Supply crews for service work at more short notice, we're staying close to our customers.
Where we can take advantage of kind of emergent work as it comes up we are seeing some of our customers in the oil and gas space.
Thinking about restarting projects that had previously been postponed.
And I do think the sentiment is more positive in that vertical.
We will need to see them start taking action on those projects over time.
From a <unk>.
More global perspective outside Americas, we do have more oil and gas exposure in our Mena region. That's been hampered in terms of our ability to get kind of service crews on site just given some of the COVID-19 restrictions that I referenced in my comments earlier.
I appreciate it thank you.
Thank you.
Our next question comes from Michael Mcginn with Wells Fargo. Please state your question.
Okay.
Hey, good morning, everybody and welcome aboard Paul.
Michael Thank you.
I just wanted to get a assessment of slide 10, so kind of running middle of the road of pre COVID-19 levels, but I think the assumption by at this point in the cycle, where you guys had.
Shortly.
Then there is sort of been some sort of I guess restocking that would have pushed us above the normal seasonality of the business can you just comment on where we are and where we are in the cycle. You think from a restocking standpoint, and then what maybe hindrances have there been from the lead times that you previously discussed.
So when you when you look at slide 10, I think what what we've been saying is.
And this echoes path comment we are seeing nice flow through of demand, we're not quite back to 2019 levels and so we are continuing to grow in 2019 being the kind of the last pre COVID-19 first quarter.
And so when you look at that pressure wave some of the peaks on that pressure wave or 2019 level demand. So first we are growing when.
When you come off of Q4, where we started to approach.
2019 levels in Q3, and Q4, certainly from an order and a.
Sales perspective, what we said last call as you were going to see us now trend.
More to our normal seasonality and I think thats, what youre seeing there. It is not an indicator of any slowdown if you will it's more of an indicator of us falling back into.
<unk>.
The normal seasonality plan.
We.
We have approach distributors and we've talked about this last quarter.
Them willing to take on additional inventory we're starting.
To see that but it's building.
And Youll see it.
Seasonally.
Coming out of Q4 into Q1, we saw that year over year build it's going to continue to expand as we go through fiscal 2022, So we don't.
Not a slowdown there is nothing hindering the demand.
Falling back into a normal cycle pattern for us.
And Michael It's Paul I would add having met recently with.
A number of our distributors and particularly in the Americas region I'd say the sentiment is pretty positive based on kind of general industrial demand.
There's been some more momentum in the U S bigger projects opening up.
I think the only kind of flip side to that would be any caution from the COVID-19 variance and obviously ongoing supply chain pressures, but broadly speaking I think the sentiment. We're hearing is generally positive and favorable and then just quickly on that slide 10, that's a consolidated view so it does.
<unk> include the impact of a service and as we noted.
Service is down.
Significantly down from 2019 levels.
We are starting to see the the sentiment around oil and gas prices, but we do still have some COVID-19 hindrances in being April.
Two to get some of these jobs started we're optimistic I think Paul talked about.
The optimism.
Out there.
And.
So jess.
Calling that out and.
Service pressure wave is actually in the appendix.
<unk> product line is 10 the service one is India the appendix.
<unk> 17, it so when you look at our top line performance in total that's what we are.
Referring to when we talk about demand and normal cyclicality.
Got it.
And to follow up on some of your model inputs.
Slide 14, if I'm looking at this correctly.
<unk> went from low to mid teens to mid teens service went to low single digit to mid and then yet another upward kind of tweak to the Cortland other segment.
But the full year.
The range is unchanged.
These are these tweaks.
Related to two pricing or some pushed into the second half from the first quarter.
Just trying to get a finer point on why those.
And market targets or product line target to raise but not the full year guide.
I think really that is more just a function of how the quarters are shaking out.
We moved within the range, but nothing significant to drive.
A change in that guide so as we talked we had some service shifting you had mix.
Of product, what's moving what's not.
And our regional mix, so nothing it's not indicative of.
Changes in any way you do have the final quote unquote final impact of our pricing. So we do know what we've now put out there to drive realization so far but.
But again holding the range just reflecting the mix shift that happens as a result.
How we're seeing that.
Your shakeout.
Got it understood.
Look thanks for the time thank.
Thank you.
Thank you and just a reminder to ask a question press star one on your telephone keypad to remove yourself from the queue Press star two.
Our next question comes from Brendan Thompson with CJS Securities. Please state your question.
Good morning cannot can you guys hear me.
Sure, Yes, we can good morning, Brandon Okay, sorry, Yeah, we will power surge I think I missed my my first my first slide.
Just wanted to.
Give a warm welcome to Paul <unk>.
First off and then wanted to ask on <unk>.
Just with your.
The full year guidance for revenue, we are reiterating that it seemed like sales this quarter were a little below.
As expected and then youre, calling for more normal seasonality.
Going into Q2.
No.
I guess could you just could you help us walk through the cadence on how you get to the revenue guidance. It feels like you might you would need.
A bit more upside than normal in the back half or like a bit more seasonality if that makes sense to to recover to get to that range. So could you could you walk through the cadence on.
You guys get there.
I don't.
Okay.
I guess to answer your question.
No it wouldn't be an outsized growth in the back half.
Have a strong Q3 and a moderate.
Drop in Q4.
But nothing.
That I would say is.
Out of the ordinary.
The.
The.
The thing we keep pointing out is when you get to the back half you will start to see us work through the $5 million to $6 million of backlog in.
In the back half.
That was assumed in the guidance by the time you got to the end of the year.
That we start to see that.
<unk>, but other than that and even with that it won't change the.
The mix of.
Of activity.
In terms of mix I mean, the spread Q3 Q4.
We do have pricing Amir.
Which is as we talk back half of the year, one 2% one 5% realization that is in there, but again, even with all of those things it still is a normal.
Q3, Q1 down Q2 down Q3.
Up Q4 demand is solid.
Services are expected to rebound in the back half of the year and I'm only just giving the color we gave.
We walked through the guidance so.
Nothing unusual there.
Brandon it's more of.
Just getting back to that normal pattern. Unfortunately.
Fortunate or unfortunate it is back half loaded.
Okay and it sounds like some of that is obviously services because the.
Yes, the product sales are kind of.
Where you would.
Expect them, but.
Some of that coming back in.
As a part of it too okay.
Yes.
Great and then.
I was looking at your adjusted EBITDA waterfall.
You recovered initiative costs for that I think there were like 9 million last quarter and this quarter. The five which obviously is gone and the going in the right direction I just wanted to reiterate you might have.
And so that's on our previous calls most of that is most of that cost just absenteeism like positive test.
And then.
My other question is.
Do you have any.
Thoughts on how we could think about that.
That cost.
In the next couple of quarters.
And I apologize if we weren't clear.
The COVID-19 costs that you see there are temporary actions, we took last year first quarter.
So it was a positive $6 million last year and in the work. We're just showing that those actions went away. So it's a negative $5 million. The favorability has been all of the other things we talked about.
The messaging is last year do all of those actions, we had about $6 million worth of cost that we cut out.
Despite.
All of that temporary stuff coming back at US full full blow we were able to overcome that through volume growth and other cost actions.
The favorable impact on our facility so.
None of that is indicative of.
Any labor or Covid related problems. This year I think as Paul mentioned in his script the place where we.
Showing up in the P&L, where we might still.
Be seeing that as service utilization that is more self from our ability to mobilize service work in certain regions and certain jobs being a little bit delayed.
But other than that that's the largest.
Covid spin.
Specific other than obviously COVID-19 impact on volume altogether, right and I would just add as Rick mentioned in his comments earlier in the call. We've really not had any notable labor availability issues in our business. So thats not been a negative COVID-19 impact for us.
The COVID-19 impacts or what he referred to which is services utilization and mobilization.
And the non repeats of the benefits last year, and obviously the supply chain inflationary and logistics pressures that we're seeing.
Okay.
Much of those costs are repeating because it sounds like year over year, it's al.
But working against you, but obviously that's a positive thing.
Correct absolutely.
Okay, and I think that's it for me. Thank you.
Thank you.
Thank you there are no further questions at this time I'll turn the floor back to management for closing remarks.
Okay, well. Thank you for joining our Q1 earnings call today have a good day and best wishes to everybody for a wonderful holiday season, and a happy new year take care.
Thank you. This concludes today's conference all parties may disconnect have a good day.