Q1 2022 MSC Industrial Direct Co Inc Earnings Call
[music].
Good morning, and welcome to the MSC industrial supply fiscal 2022 first quarter earnings Conference call.
All participants will be in a listen only mode.
Should you need assistance. Please signal conference specialist by pressing the star he followed by zero.
After todays presentation, there will be an opportunity to ask questions.
Asking question you remember I started with one of your Touchtone phone.
So it's all your question. Please press Star then two.
Please note today's event is being recorded.
I would now like to turn the conference over to John Corona, Vice President Investor Relations and Treasurer. Please go ahead Sir.
Thank you Rocco and good morning, everyone.
Erik Gershwin, our Chief Executive Officer, and Kristin <unk> Grande our Chief Financial Officer are both on the call with me.
During today's call, we will refer to various financial and management data in the presentation slides that accompany our comments as well as our operational statistics, both of which can be found on our investor Relations webpage, let.
Let me reference our Safe Harbor statement under the private Securities Litigation Reform Act of 1995.
Summary of which is on slide two of the accompanying presentation.
Our comments on this call as well as the supplemental information we are providing on the website contain forward looking statements within the meaning of the U S securities laws, including statements about the impact of COVID-19 on our business operations results of operations and financial condition.
<unk> future results expected benefits from our investment and strategic plans and other initiatives and expected future growth and profitability.
These forward looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these statements information about these risks is noted in our earnings press release, and the risk factors and the MD&A sections of our latest annual report on Form 10-K filed with the SEC as well as in other S E T.
Filings.
These risk factors include our comments on the potential impact of COVID-19.
These forward looking statements are based on our current expectations and the company assumes no obligation to update these statements except as required by applicable law.
There's are cautioned not to place undue reliance on these forward looking statements. In addition during this call we may refer to certain adjusted financial results, which are non-GAAP measures. Please refer to the GAAP versus non-GAAP reconciliations in our presentation on our website, which contain the reconciliations of the adjusted financial measures to the most did.
Correct comparable GAAP measures I'll now turn the call over to Eric.
Thank you John.
Good morning, everybody I Hope you all continue to remain safe and healthy as we enter this holiday season.
We're now one quarters or fiscal 'twenty two.
And progress on our mission critical journey continues.
I remain encouraged by the improving execution that I see throughout the company.
As we are gaining traction with each passing month.
And while we are improving.
We can still do better.
Regards to our mission critical program.
You'll recall that we outline two multi year goals at the start of our fiscal 'twenty one.
The first was to accelerate market share gains.
Our stated target was to reach at least 400 basis points of growth above the index by the end of our fiscal 'twenty three.
The second goal.
It was to restore returns on invested capital ROIC see into the high teens also by the end of fiscal 'twenty three.
We would achieve the second goal by leveraging our growth.
Executing on gross margin initiatives and by delivering structural cost take out of $90 million to $100 million.
Helping to reduce opex as a percentage of sales by at least 200 basis points over that time.
Our fiscal first quarter demonstrated continued progress against our long term goals.
First we sustained the recent improvement in our market share capture rate.
Our 9.9% growth was once again, nearly 500 basis points above the IP index.
It was fueled by increasing momentum in our <unk>.
In plant initiative.
E Commerce investments.
And our vending program.
I'm equally pleased by what I see as a growing pipeline of customer wins.
From our new business development and government teams.
Second.
We generated strong operating expense leverage.
And reduced adjusted Opex to sales by 70 basis points.
Despite a headwind from COVID-19 cost add backs.
And this was fueled not only by leveraging growth.
But also by continued execution of our mission critical productivity pipeline.
We delivered $10 million in savings for the quarter.
And remain on track for $25 million in expected savings for fiscal 'twenty two.
We're also working aggressively to increase our fiscal 'twenty, three and beyond project pipeline.
And as a result.
We remain on track to reach our recently increased goal of at least $100 million in total cost savings by the end of fiscal 'twenty three.
First first quarter gross margins, however came in below our expectations.
While we saw continued price realization and price cost did remained slightly positive.
It was not enough to overcome our typical mix headwind in the quarter.
We're not pleased with this outcome.
And we're addressing it aggressively with countermeasures.
First one is that we're planning for a sizable price increase early in calendar 'twenty two.
To respond to the increasing pace of inflation that we continue to see from our suppliers.
And second we've launched an initiative to improve price realization across our sales category and marketing teams in the coming months.
To be clear this effort is not just about price.
Winning customers and winning business.
And doing so while capturing the value that we're delivering for our customers each and every day.
We're encouraged by early results.
Which include an improving price realization trend late in our fiscal first quarter.
And that sustained into December.
As a result, we expect to achieve our goal of keeping gross margins roughly flat for the fiscal year beginning.
Beginning with a bounce back in Q2.
Turning to the external landscape.
Things are dynamic and fluid.
On the one hand.
<unk> remained strong.
This is evidenced in IP readings, which while not as high as there were several months ago.
Remain at mid single digit growth levels.
It is also evidenced in strong readings for sentiment surveys such as the M. B I.
These demand conditions are also reflected in customer feedback.
Where activity levels and incoming order flows are solid.
Strength was seen across most segments of the industrial economy.
With automotive being the largest exception.
On the other hand.
Supply chain and labor constraints remain tight Cree.
Creating ongoing challenges with scarcity of supply.
Inflation and continuity of operations.
We're hearing that supply them.
Supply and shipping constraints may ease in the coming quarters.
Although we've not seen much evidence of this ourselves to date.
Labor shortages remain severe.
In fact hiring and staffing even our own operations is a challenge.
And while these extreme conditions do create some challenges for M. S C.
They nonetheless provide a backdrop for significant market share.
Sure from the 70% of the distribution market that's.
It's made up of local and regional distributors.
And then she has broad and deep inventory.
Our good better best brand assortment, and our logistics and transportation capabilities.
I have us well positioned to service customers and key plants running across North America at a time when many cannot.
On the inflation front it is as extreme as I can remember.
Cost increases are coming fast and furious.
Setting up for a robust pricing environment.
Customers remain very receptive to price increases as they understand the current environment.
At the same time, many of our customers who are starving for productivity and other cost savings to offset inflation.
And this also plays well into N S C strengths.
As we're able to bring our technical expertise, our inventory management solutions and other services to find productivity for our customers.
Which are fueling recent wins.
While it's still early days with the presence of the omicron variant and a related rise in Covid case counts.
So far customers and suppliers are working through it.
There was a different tone from the early stages of the pandemic in 2020.
And while we're seeing increases in the number of cases in our own facilities.
Those who are infected are returning to work more quickly.
And between the vaccine more proactive testing and PPE requirements.
We've not experienced challenges.
The degree that we did in 2020 in the earlier stages of the pandemic.
Based upon what we're seeing now.
We expect most portions of the industrial economy.
Power through this surge without massive shutdowns or material disruptions to operations.
I'll now turn things over to Christian who will take you through the details of our performance our financials for the quarter and then our outlook.
Thank you Eric I'll begin on slide four of our presentation, where you can see key metrics for the fiscal first quarter on a reported basis.
Five reflects the adjusted result, which will be my primary focus this morning.
As Eric mentioned, our first quarter sales were up nine 9% versus the same quarter last year and came in at 849 million.
Our non safety and non janitorial product line grew 15%.
Sales of safety and janitorial products declined roughly 12%.
As we mentioned last quarter, we expect the top safety and janitorial comparisons to continue for the first half before beginning to ease in our fiscal third quarter.
Looking at ourselves by customer type government sales declined roughly 28% due to the difficult janitorial and safety comps.
Both national accounts and core customers maintained their mid teens growth rate.
We are seeing strong execution and growth initiatives with vending implant and MSP direct dotcom, each growing more than 100 basis points as a percent of total company sales versus the prior year.
Gross margin for fiscal Q1, with 41, 6% down 40 basis points from our fourth quarter of fiscal 2021, and 30 basis points from last year's fiscal Q1.
Are there Erik mentioned in addition to a significant price increase in early calendar 'twenty. Two we are taking countermeasures to offset the increasing inflation.
For example, we've instilled more rigor around price execution and discount management we.
We are renegotiating contract price in the mid cycle and not waiting for renewals.
We've shortened the duration that quotes remain valid and we are using data driven algorithms to find customers alternative products.
As a result of all this we expect gross margins to bounce back beginning our second quarter and expect to hold the annual gross margin roughly flat with fiscal 2021.
Operating expenses in the first quarter were $256 6 million or <unk> 32 per cent of Bell <unk>.
$238 7 million or 39% of sales in the prior year.
This represents a 70 basis point reduction in Opex to sales.
It's worth noting that our fiscal quarter operating expenses include just over 5 million of expense add back from prior year Covid cost containment measures as well as $2 5 million of vaccine incentive costs in the current year.
We incurred approximately $5 3 million of restructuring and other related charges in the quarter as compared to $4 3 million in the prior year quarter.
This year's charges related to further optimization of head count to align with our strategy.
Our operating margin was 10, 7% compared to 7% in the same period last year.
Excluding the restructuring and other related costs and the impairment charge from the prior year. Our adjusted operating margin was 11, 3% versus an adjusted 11% in the prior year.
Earnings per share were $1 18, as compared to 69 cents in the same prior year period.
Adjusted for the restructuring and other charges as well as the prior year's impairment charge adjusted earnings per share were $1 25, as compared to adjusted earnings per share of a dollar of 11 in the prior year period, an increase of 12, 6%.
Approximately two cents was attributable to the benefit on the provision for income taxes associated with increased stock option exercise activity during the quarter.
As can be seen in our insider transaction filings. This was in large part due to Eric exercising holding options during the quarter, which increased his total shareholding.
Turning to the balance sheet and moving ahead to slide seven our free cash flow was 43 million in the first quarter as compared to 95 million in the prior year.
The largest contributors to the decline were the use of working capital to support ourselves lift.
As of the end of the fiscal first quarter, we were carrying 623 million of inventory just about flat with last quarter.
We're actively managing inventory levels to support our customers as sales continue accelerating and in light of the ongoing supply chain disruptions.
Our capital expenditures were $15 million in the first quarter and our first quarter cash flow conversion or operating cash flow divided by net income was 87% we.
We expect our operating cash flow conversion for fiscal 2022 to come in around 100 per cent.
Our total debt at the end of the fiscal first quarter was 753 million, reflecting a $23 million decrease from our fourth quarter.
As for the composition of our debt 209 million was on a revolving credit facility.
About 203 million was under our uncommitted facilities and approximately $350 million with long term fixed rate borrowing.
Cash and cash equivalents were $63 million, resulting in net debt of 700 million at the end of the quarter down from 746 million at the end of the fourth quarter.
Let me now provide an update on our mission critical productivity goals.
You may recall that last quarter, we increased our cost savings goal through fiscal 2023 to a minimum of $100 million and that is versus fiscal 2019.
As you can see on slide eight our cumulative savings through fiscal 'twenty, one or $60 million and we also invest in roughly 22 million over that same period.
For fiscal 'twenty, two we expect additional gross savings of 25 million and additional investments of $15 million.
We've made excellent progress towards this goal and we have achieved 10 million of gross savings in the first quarter and invested $7 million.
We remain on target to hit at least 100 million of cost savings by fiscal 'twenty 'twenty three.
Before I turn it back to Erik let me share a few comments on our fiscal second quarter and beyond.
We expect our strong sales growth to continue.
For Q2, please keep in mind that our fiscal December has two more selling days than last year due to the timing of the Christmas and new year's holidays.
These two days come with very low cells. So they will likely suppress a D. S grow 300 to 400 basis points.
The total growth, which we expect to remain strong.
As I stated earlier, we expect gross margins to rebound nicely.
Operating expenses will likely increase sequentially as is typical for our fiscal second quarter.
Based on those expectations are incremental margin in Q2 is expected to come in slightly above Q1 levels.
Looking past, our fiscal second quarter and to the full year, we feel confident in hitting our annual incremental margin target of 20%.
In addition, as of now we are trending towards the higher end of our annual operating margin framework.
Given recent momentum it's also possible that a D S growth could reach double digit levels.
If that were the case adjusted operating margins would likely rise above the top end of that range and I'll turn it back over to Eric.
Thank you Christian.
Our fiscal 'twenty two is off to a solid start.
We sustained recent topline momentum and outgrew the IP index by nearly 500 basis points in our first quarter.
Our mission critical productivity efforts yielded solid operating expense leverage.
Gross margin was below our expectation.
What countermeasures are underway.
And we've already seen early returns at the end of our fiscal first quarter and into December.
Looking at the external landscape.
Setup remains positive.
Conditions are primed for continued market share capture.
And sustained profit improvement.
I'd like to thank our entire team of associates for navigating these unprecedented times with hard work.
Focus on the customer.
Well now open up the line for questions.
Thank you. Thank you everybody for.
To ask a question. Please press Star then one on your Touchtone phone.
Speaker phone, we ask you please pick up your handset before pressing the keys.
Draw your question first of all of them too.
The first question comes from Tommy Moll Stephens. Please go ahead.
Good morning, and thanks for taking my questions. Good morning.
Uh huh.
Eric I wanted to start by following up on your comments around the gross margin trends in the quarter you called out mix and price cost is two of the drivers those are familiar to folks on the call. Today. So my question is what was it that you saw that you didn't expect.
In terms of the interplay between those two you kind of outline for us what the go forward measures are but I'm just curious versus expectations.
What was different.
Tommy I think what we would've liked to have seen and said that it was below our expectations was I think two things happened one.
We wanted to see more but we saw positive price we wanted to see more and at the same time, what I would say I mean, we are in a really unprecedented unprecedented set of times here cost came in faster. So you put those two things together, we would have wanted to see and expect to see more positive price cost and we did and that's.
Xactly the adjustments, we're making and I think Christian went through them in some detail Tommy but you know sort of zooming out what I would say is we've entered a new.
Error here, if you will of what we're calling hyperinflation.
And what became clear to us is.
A different playbook instead of actions as needed and so Kristen outlined those actions and we're encouraged because as I referenced we're already beginning in late Q1 into early Q2 here to start seeing that in the form of even stronger price realizations.
Thanks, that's helpful. I wanted to follow up with a question on some end market trends.
So specifically within some of the larger manufacturing end markets auto machinery aerospace come to mind.
What anecdotes can you share or where does it feel like you sit in the cycle I mean, we're looking at a manufacturing a D. S. It's up well into the double digits, but it's off a low base. So any nearer term commentary you could give there on the momentum would be helpful.
So I mean, I would say in general we still feel like there's a ways to go in the industrial recovery. Most end markets are strong obviously automotive is it is it pretty extreme exception right now but.
But even there you think about the pent up demand that as supply constraints, because there's still so much bound up in the system on the supply side, that's constraining demand that as those constraints relief, we still see a ways to go and certainly you know take another end market like aerospace where.
We have some exposure and certainly the growth has been nice but off of such a low base. We still feel like there was an awful long way to go into recovery. So we still feel like it's pretty early.
Thanks, Eric I'll turn it back.
And our next question today comes from David Manthey of Baird.
Please go ahead.
Yeah. Thank you good morning.
Okay.
First off question.
Question on the.
The drivers of sales growth, you mentioned vending implants and M. S C direct dotcom.
Given the importance of these those three initiatives is there a plan for additional quarterly quantitative disclosures around malls, and if not or at least for now.
Just give us some color around the trends youre seeing there.
Hey, damn sure happy to do that.
Generally definitely pleased with the progress in those three particularly I can give you a little bit more color on some metrics are so in plan I think we touched on this in the fourth quarter release in implant reached 8% of sales in Q1. It was up from 7% in the fiscal fourth quarter are on them.
Lending side, we did see signings surpassed pre COVID-19 levels this quarter.
They were up pretty significantly in Q1 greater than 50%.
On the e-commerce metric overall with 64% of sales, but I think as you're familiar MSC director comics about makes up about half of that roughly.
And we're seeing that grow faster than the rest of the business and particularly in the past few quarters, which does coincide nicely with the timing of the new features coming online.
And so generally generally pleased with progress. There. We you know are always of course evaluating what kind of metrics from putting around those and maybe more to come in future quarters on that.
Yeah, we definitely appreciate that and I think some quantitative data around vending machines in implants and in that sort of thing separate given I know you gave some of that data E comm, but it would be nice to be able to track those separately. So thanks for considering that.
Then second on the countermeasures.
Is there a <unk>.
<unk> price to be paid for those meeting do you Miss out on sales when you implement those or do you lose customers because I guess I'm confused to ask the question a different way I'm wondering why now and not three or six months ago. It seemed like pricing and inflation has been front page news for a long time why react to this and why.
It wasn't this in place.
Or two ago.
So Dave what I would say is.
So let me answer the question. Your first question right out of the gate, which is I do not think this is coming at the expense of sales and I think what's changed is what we're hearing from customers. Dave is in these inflationary times there is receptivity receptivity to price understanding the inflation that's happening there ever has been.
And even louder drumbeat around the need for productivity.
And so.
We think that plays really well into our strengths, particularly with our technical metalworking advantage, where we can go in and help customers find cost reductions and operational improvements and so really we think the timing is right and what we're doing is helping our team.
With getting paid for the value so could it have happened six months ago sure. What I would say, though is the environment is quite different and the need from the customers for productivity is at a fever pitch right now.
Alright, Thanks, Erik I'll follow up.
And our next question today comes from Ryan Merkel with William Blair. Please go ahead.
Hey, everyone nice quarter.
Hey, Brian it's Brian.
So first off I wanted to ask on price any more information you can give on the early 'twenty two price increase maybe just relative to history.
And then was this in response to suppliers raising price or are you doing something different are you trying to get ahead of price I pointing out a bigger one early is this a change in strategy.
Ryan So I would say regarding the.
I'll go in reverse order here. So the second question first some of both I mean, I think by and large it's in response to just massive inflation, we're seeing obviously there as well.
We will try to get ahead of certain areas, where we can but for the most part. This is in response to inflation in terms of sizing it's a little early.
To give any sort of specific numbers, but to your question. Yeah. If you look back at our last several increases when you look at the size of those we've been at 2%.
Or minus range, we would expect this to be considerably larger than that.
Got it.
And then a follow up on price again, what's sort of the capture rate you're running a little better than 200 basis points price mix now I think when do you see the impact of this bigger price increase and has that changed now with the contract changes you talked about.
So maybe I'll start and then maybe let Christian talk a little more about some of the changes that we've made but in general look we measure sales capture rate of realization internally 10 ways till Sunday.
That's part of what we're encouraged by.
In terms of.
The trends in November December quite honestly is with some of the changes that we've made in terms of the.
So the next increase happening early calendar year based on again some of these changes we would expect to get significant realizations. Soon thereafter, despite contracts being in place and maybe I'll, let Christian touch, but a little more Colorado, Yeah, Yes, yeah, just just to reiterate the changes, we're making now Ryan should yield faster.
Realization on the January increase that would be you know.
One of the main benefits, we expect to see from the actions, we're taking now as they would affect the January increase.
Eric mentioned on the contract side. So we're trying to move a lot faster to take price where to get price on our contracted business. So doing things like not waiting on renewals have price discussions shortening contract periods, where we're also shortening the time that price quotes remain valid for and all of that work has been happening now very disciplined execution.
In around how our teams are engaging with our customers.
The cadence in which we're engaging how many customers and contracts were touching and that's yielding a benefit already I think we mentioned this we saw it happened towards the end of Q1 C. N N December which gives us the confidence that the countermeasures are working.
Great very encouraging thanks and happy holidays.
Thank you.
And our next question today comes from Chris Dankert with loop capital. Please go ahead.
Hey, good morning, Thanks for taking the question.
To kind of keep pulling that that threat I guess you know the.
The efforts are not waiting on renewals you know shortening time to pass along price increases are these efforts that weren't really available until customers were more condition to these price increases or I guess why did it take until now to kind of move on a couple of these new initiatives for price realization.
Yeah.
No definitely it definitely helps that there's a willingness and kind of more a favorable macro backdrop to having these discussions I mean, the same things that we're seeing on you know the degree of cost the pace of cost increasing.
It's definitely supporting this and the other thing that the macro environment really facilitates here is like our customers, especially on the manufacturing side that they they're really looking for productivity and this is a place where we are very well poised to help our customers.
Our our whole goal is to go in there and add value and the most important components of our customers' operations and it's a chance for us to really articulate and sell that value proposition to the customers I mean, Eric said this a little bit in his remarks, but it's a really favorable macro backdrop for us and doing what it is that we do best to help the customer.
Got it got it that makes complete sense and I guess, just any comment on government, obviously comps start getting a little bit easier here have we seen that shift positive in December has any commentary on exactly when we would expect government to kind of get back into growth mode here yeah.
Yeah, we have we have not seen it shift positive Ah in December and we would expect it to be down double digits still in Q2, but then we'll see improvement sequentially through the second half.
Got it.
The one thing I'll just chime in there and add commentary on is this is strictly a case you know we're sort of.
Okay.
Alright.
In the past, we feel really good about our performance in the government team. So what's going on right. Now this is strictly about comps from a market share standpoint, we feel really good about our position in government.
Got it thanks, so much for that guys and best of luck in the new quarter here.
That'd be all of this.
And our next question today comes from Michael Mcginn of Wells Fargo. Please go ahead.
Hey, good morning, everybody.
Hi, good morning.
I guess I'll switch to the cash flow accounts receivable were pretty decent out well, which is a nice to have but inventory kind of flattish understanding you're not the direct read on China, but any kind of tweaks or sourcing protocols you need to make ahead of Chinese new year to just stay as even as possible one fund.
The back half growth that you're targeting.
Yeah, I'd say, Mike there's definitely some things we do differently around the new year to ensure a kind of a steady flow of products get around any sort of delays or disruption from the new year and then even from the Olympics were keeping an eye on that but.
But probably nothing too different from the playbook, we would normally follow on in general you know our goal here with inventory is to make sure. We havent really adequate supply where we're not this is not the time to be kind of skimping on inventory levels. Our whole goal here is to be able to kind of flex the balance sheet right now to serve the customer.
That's kind of what I comment on the inventory side and I think you mentioned a R to tap it definitely watching they are carefully one of the things that you'll notice in the in the DSO.
We did increase versus prior year, largely due to segment mix as our national accounts business has recovered pretty strong.
But keeping a careful eye on a R and definitely have some mission critical initiatives that are targeting that section of the balance sheet.
Great and then.
On SG&A.
Bye Bye bye model conversion the lowest it's been in almost a decade I'm trying to figure this out because there's some footnotes that say you're absorbing head counting field associates from the recent acquisition of MFC and an <unk>.
You've also mentioned some guardrails on field service pricing. So can you kind of like bucket. These SG&A savings into your facilities skilled service level, then Hum General Corp, Opex facilities.
Alright, Mike.
Mike do you mean on the mission critical like how would you break down like the 10 million is that is that what you're asking.
No I'm talking about the current <unk>.
Current rate of the FQ, one not the forward mission critical.
It's.
I'm, not sure where fall and Mike I'm sorry.
Where the savings is coming from that one.
Yeah the overall.
70 basis point improvement in SG&A conversion looking for the bulk of that of that yeah.
Yeah sure sure so if.
If you take just the overall, it's darn opex dollars overall Opex went up about 18 million on an adjusted basis. It should be roughly eight of that to the volume increase COVID-19 cost add back about 5 million vaccine incentive two and a half the balance with some of the inflation, we see are happening because of things like freight a higher wage.
Inflation that we've talked about before and then getting a net favorable spread on mission critical and then general productivity initiatives kind of sprinkled in I'd say, probably largely in the sales space in Q1 is where we saw the most productivity outside of mission critical.
And that's just died doing some things around rethinking.
Current programs that we offer a kind of what the financials and metrics economics look like on those programs.
A lot of the projects that we run do flow through the mission critical pipeline. It's it's kind of widen to be a very broad productivity capture bucket, but there are some things that happen outside of that mission critical number one still in I would say, it's mostly in the sales area for the first quarter.
Okay I appreciate the time thank you.
Thanks, Mike.
And our next question today comes from Steve Barger.
Capital markets. Please go ahead.
Hey, Thanks, good morning.
Good morning, Eric.
Yeah, you you said customers are more receptive to the price increases can you talk about any other behavior changes in terms of wanting to increase safety stock or buy ahead on common items given supply constraints or just this inflationary mindset.
Yeah, I think I think I'm so Steve.
You hit on one about research everybody understands what's going on right now with inflation.
Think another behavior change, we mentioned was customers really I mean, there's always been a need for productivity. It's amped up because everybody is looking for ways to offset inflation. So I think that would be a second where you're going in terms of buying ahead, we look for that.
I have not seen a ton of it of late because we did you know sort of in in the months leading up to the pandemic.
When reports were coming out of China early 2020, we did see a surge.
At the time, we are not seeing the same kind of evidenced.
Evidence that would yield.
Would lead us to believe there's a ton of buying ahead, I mean, I'm sure there's a little bit like everybody wants to keep safety stock, but not seeing it mess.
Okay.
And sorry, if I missed this but with revenue comps getting tougher as the year progresses. How are you thinking about cadence in terms of being able to post double digit ADR versus prior quarters. When you think about a tougher <unk> versus the five extra days in <unk>.
Yeah.
Steve what I would say on the revenue front look we're encouraged by the.
The last couple of quarters and look for certain.
What's happening in the macro is helpful. I mean, the industrial recovery as I said, we still think it has a ways to go but what what's got a retention certainly as you know two quarters in a row at nearly 500 basis points above IP.
And we were really focused on raising the bar quite honestly and really pushing our performance I'm, saying, hey, let's not be satisfied with 300 basis points or 400 basis points and that's evidenced itself inside of the company. You know Kristian mentioned a few of the growth programs that are working we're putting our foot on the accelerator and.
When it comes to target setting and mindset.
And execution of growth programs. There is a tone inside the company about raising the bar on performance given that we've had a couple of good quarters. So it was part of the confidence comes from the macro part of it comes from proven growth drivers that are working and then part of it is coming from kind of a mindset of us raising of the bar on ourselves.
You know since you brought up the IP if I look at the comps for the next nine months, it's about five 5% you're signaling load.
Are you now potentially low double digit 80, yes. So does that mean, you're getting what if that's 500 basis points ahead. Like you did this quarter are you getting to that target faster or is there. Some anomaly in terms of IP versus mix and channel inventory, that's allowing you to run a little faster right now got it I think Steve what you know what you're hearing from us.
Christian mentioned look we're not calling at this point, we're such a short cycle business, it's hard to call something for the year. So whether we hit double digits and I will see we certainly think it's feasible I think it's a few things one is industrial recovery.
Two is you know momentum on rate of share capture and programs three certainly pricing to.
To the extent that there is a.
Ah is a meaningful increase another meaningful increase coming early in the calendar year that contributes to growth. So you put all that together and yeah. We think it's we think it's feasible.
Great. Thank you.
Steve just keep in mind, the 80 S change in Q2, it makes the spread between the absolute on the Ats growth pretty significant for the second quarter.
Right understood.
Thank you ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to John Croteau for any closing remarks.
Thank you Rocco so before we end the call a quick reminder, that our fiscal 'twenty two second quarter earnings date is now set for March 30th 2022 and.
And I'd like to thank all of you for joining us today, and we hope you enjoy a healthy and safe holiday season take care.
Thank you Sir This concludes today's conference call. Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Yeah.