Q2 2022 Enerpac Tool Group Corp Earnings Call

Ladies and gentlemen, thank you for standing by.

Welcome to <unk> two groups second quarter earnings conference call during.

During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press star followed by the number one on your telephone.

At any time during the conference you need to reach an operator, Please press star zero.

As a reminder, this conference is being recorded March 23rd 2022.

It is now my pleasure to turn the conference over to Bob <unk> Senior director of Investor Relations and strategy. Please go ahead Ms Bell Sir.

Thank you operator, good morning, and thank you for joining us for Aercap Zillow group's second quarter fiscal 'twenty two earnings conference call.

On the call today to present, the company's result, our pastoral Lee President and Chief Executive Officer, and Rick Dillon, Chief Financial Officer.

Also with us and Mark <unk> Chief strategy Officer.

Our earnings release and slide presentation for today's call are available on our website at <unk> Dot com in the investors section.

We are 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 and are scheduled to this morning's release.

We would also 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're 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 have 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 you for joining our Q2 earnings call.

I'm pleased to provide you an update not only on our second quarter results, but most importantly to share what we confirmed from our work over the past several months as a result of a review of the business and our intended path forward.

As I mentioned in our Q1 earnings call, we had begun a deep dive holistic review of the business in our markets. We spent several months evaluating commercial opportunities operations and footprint support functions and organizational structure. This was an extensive effort in which we looked across the entire business and market.

With deep involvement from dozens of <unk> team members, yielding unique insights on both commercial and operational areas.

Through that evaluation, we have identified meaningful growth and efficiency opportunities that we believe will enable us to not only achieve but exceed our previously communicated 25% adjusted EBITDA margin target.

As we announced this morning, we have launched our ascend transformation program to enhance shareholder value. This is a strategic program focused on driving accelerated earnings growth and efficiency across the business.

The program is built on three main pillars, including accelerating organic growth through focused market penetration and updated go to market strategies.

Improving operational excellence and production efficiency by utilizing a lean approach and.

Driving greater efficiency and productivity in SG&A by better leveraging resources to create a more efficient and agile organization.

This will be underpinned with an 80 20 approach to help simplify what we do both commercially and operationally.

With elements of the program intended to drive both organic growth and margin improvement. The initial phase of ascend will focus more on driving greater efficiencies and reducing operating costs.

We expect our ascend program to drive between $40 million to $50 million of incremental annualized adjusted EBITDA, which would be in our run rate as we exit fiscal 'twenty four with the full impact in our fiscal 2025 projections and.

And we anticipate investing between 60% to $65 million over the program period.

To support the ascend initiatives, which could include any potential restructuring costs.

As we will continue our work on other excuse me and we will continue our work on other key growth initiatives, such as innovative NPD digital and Iot enablement, and our products and services and stronger regional strategies and developing markets.

We also expect to pursue a disciplined M&A strategy, while continuing our focus on the pure play industrial tools and services market.

The board and management team are very excited about this program and the potential to drive significant value creation by improving how we go to market innovate by materials manufacturer product and serve our customers well.

We'll provide further updates as we progress on the planning and implementation of the specific initiatives.

In addition, we expect to hold an Investor day later this calendar year, where we can share more details on our strategy. The ascend transformation program and our view on a multi year financial framework for the company.

In addition to investing in ourselves another important aspect of our capital allocation strategy, including includes returning capital to shareholders through opportunistic share repurchases.

As we announced this morning, the board of Directors has approved a new share repurchase program of up to 10 million shares of the company's common stock.

This share reauthorization and our intent to purchase shares reflects the confidence we have in our strategy and in our ability to create shareholder value and generate cash to invest in both internal opportunities such as ascend as well as M&A.

And we expect that our available cash and existing credit facilities and access to capital markets will support a disciplined M&A strategy as we continue to identify complementary additions to the <unk> tool group portfolio.

Moving to slide six I'll provide an update on what we're seeing within the markets that we serve.

I was pleased that we broke our typical Q2 seasonal trend in which Q2 net sales are generally lower than Q1 due to broad based improvement in demand.

As expected supply chain and logistics challenges persisted throughout the quarter, which Rick will speak to in more detail, but I do want to thank our supply chain and operations teams across the globe for their incredibly hard work managing through these challenging times.

In January we took the pricing actions that we discussed on our Q1 earnings call to offset the ongoing inflationary pressures and we will continue to evaluate the need for additional pricing actions, which Rick will also cover.

While COVID-19 related challenges continue to impact the business in Q2 to varying degrees by region. We have seen some improvement in recent weeks in certain regions, which we expect to continue through the back half of our fiscal year should COVID-19 continue on its current path.

As it relates to the ongoing conflict in Russia, and Ukraine, our thoughts are with all those impacted by this tragic situation.

The <unk> tool group does not have a material top line exposure in Russia, or Ukraine, we are managing the ancillary impact of the crisis on our business, which is primarily related to supply chain increased commodity costs, FX and dealer confidence, particularly in parts of Europe .

And in March we suspended sales into Russia to comply with sanctions imposed by NATO nations.

I'll now provide some detail from a regional perspective, including key verticals and distribution.

So in the Americas core sales were strong with approximately 20% year over year core growth and general industrial markets showed solid signs of activity. This was primarily driven by product with growth in the mid 20% range. While service was up mid single digits as a result of being impacted by the delayed start.

Projects and the overall outage season, partially driven by Covid related labor shortages.

Our heavy lift business continued to see favorable trends in Q2 with an uptick of inquiries in the past month related to bridge and infrastructure power generation and mining activity.

Earlier in the quarter distributors and customers continued to limit in person visits however in an encouraging sign these restrictions started to ease towards the end of February distributor sentiment in the U S remains cautiously optimistic, though inflation and supply chain issues continued to be a concern.

Latin America is seeing solid results from copper mining and oil and gas activity. Despite several companies continuing to have restrictions regarding supplier visits.

Moving on to Europe . This region experienced low single digit year over year core growth in the second quarter with more challenges in our service business as Covid restrictions were put in place in response to the omicron Spike for several key customers, thereby limiting access for our personnel.

Overall product improvement was broad based with end customer demand increasing in most geographies and infrastructure was strong in the quarter due to continued government spending on aging infrastructure distributor sentiment in much of Europe is generally favorable with some variation by region with central and Eastern Europe more recently more cost.

Due to the crisis in Ukraine.

Moving to Asia Pacific The region delivered high single digit year over year core sales growth Covid appeared to have stabilized within the region. During Q2, although we have seen an uptick over the past several weeks and the majority of verticals continue to be steady or improving with broad based improvement in the quarter.

Both oil and gas and power generation were strong for the region in the quarter driven by the high demand for energy.

In addition mining was also a positive in the quarter driven by higher high iron ore prices and coal demand.

Moving to slide eight and the <unk>, our middle East region, <unk> experienced solid year over year core growth of approximately 25%.

From a vertical market perspective, the region has seen a strong pickup in oil and gas activity due to underinvestment in the past few years, while there are large new projects and major shutdowns occurring some maintenance work has continued to be pushed out due to the high oil prices and customers postponing shutdowns to continue producing.

While protocols remain in place Covid related travel restrictions have started to ease in some countries as the region returns to a more normalized state with increasing end customer demand.

And then in addition to oil and gas power generation and infrastructure were particularly strong in the quarter.

Now moving onto Cortland, the business experienced core growth of 35% year over year in the second quarter.

On the medical side of the business demand and order rates continue to rise throughout Q2 to pre COVID-19 levels in the quarter. There were several sports medicine in orthopedic products that moved from the development phase and into production and our team's collaboration with customers on new product development opportunities remains high.

Moving to the industrial side of the Cortland business overall order rates have normalized and lead times and on time delivery continues to improve despite ongoing supply chain and logistics challenges.

From a vertical market perspective utilities and recreational remains strong.

And gas is expected to improve due to crude pricing.

And seismic is showing positive signs for the first time in over two years.

While COVID-19 challenges continued in the quarter, we have seen improvement in recent weeks, we excuse me, which we expect will continue.

With that I'll hand, it over to Rick to take us through the financials as well as an update on supply chain and operations Rick.

Thanks, Paul and good morning, everyone. So let's start with our adjusted second quarter results on slide nine sales.

Sales were $137 million with core sales up 16% when compared to the second quarter of fiscal 'twenty one.

<unk> product sales were up 15% service sales were up 13% year over year and Cortland sales were up 35% adjusted EBITDA margin was at 12% a 200 basis 250 basis point improvement over prior year second quarter, our tax rate for the quarter was 18% from 16% in the prior year.

This resulted in adjusted EPS a 14th.

<unk>.

Sure.

If we turn to slide 10, and we'll take a look at the sales waterfall.

Product sales increased roughly 16% with over 80% of the increase attributable to our tools product and the remainder to Cortland and.

As Paul discussed we saw solid tools product growth across all of our regions with Cortland product growth driven by the medical business service broke and Mena the Americas and APAC were partially offset by a decline in asset pricing actions contributed over $3 million to our top line.

Turning quickly to slide 11, our second quarter results reflect sequential improvement with strong demand throughout.

What was historically what has historically been our lowest second.

Seasonal and second quarter.

Almost all regions are seeing order rates ahead of 2019 levels.

Let's move on to the details of the 250 basis points of margin expansion on slide 12.

We saw year over year and sequential improvement in product volume this quarter incremental margin on the increased volume was roughly 60% consistent with last quarter. Our service utilization was down driven mostly by delays in service work and our ESSA region due to the spike in Covid cases in the quarter.

We were also impacted by a negative mix of service projects year over year with more of our activity in countries with a lower margin profile.

The SG&A improvement reflects spending levels and cost reductions from restructuring actions taken in the quarter. We expect these actions to you $1 million of incremental savings in the back half of the year.

We recorded a $3 million reserve against our receivables in the quarter. The charge was primarily against receivables from an agent in our Mena region for which we have previously disclosed a concentration of credit risk and due to age receivables being beyond historical levels for the region.

At the end of the quarter and as we negotiated Q4 as we negotiate future commercial terms, our remaining net exposure with the agent was $8 million.

We also recorded a reserve against Russian receivables due to the uncertainty of collection given the sanctions imposed.

So for the quarter volume growth and operating efficiencies were partially offset by service under utilization and the receivable reserves, our incremental margin for the quarter as reported was 28% that's consistent with last quarter and it's reflecting the negative impact of both pricing actions to offset inflation and the impact of the <unk>.

Mineral reserves.

Including the receivable reserves, our incremental margin would've been approximately 45% on the high end of our expected range.

So moving on to operations and supply chain the supply chain challenges inflationary costs and logistics constraints continued during our second quarter as expected.

However, the escalating Russia, Ukraine crisis over the last four weeks creates incremental supply chain and macro economic headwinds that significantly alter our expectations for the back half of the year.

During the quarter in Ukraine conflict, we were seeing some signs of the expected improvement we talked about last quarter. The supply chain opened up a bit in the U S. With long lead time components, arriving at allowing us to ship more from our past due backlog prices and availability and <unk> were steady for the last two months of the quarter.

China remained steady if not stronger as we had some suppliers producing at near capacity levels in our supplier on time delivery improved as we moved through the quarter.

While we were able to ship more backlog product during the quarter strong demand did result in a net increase as component lead times remained high past due backlog was approximately $6 million to $8 million at the end of the quarter and that's up from the $5 million to $6 million in the first quarter.

We still expect shipments from several key suppliers of material components, including entrance and items in April that will allow us to continue to churn our backlog in the near term.

In anticipation of the U S West Coast Port.

Union strike this.

This summer we also pulled forward orders to ensure availability freight costs remained high as expected and electrical components shortages continue and are expected to remain a large factor in our past due backlog.

As a result, we did see inventories increased in the quarter and expect that we will see additional increases in the back half of the year with current conditions and the potential port strike.

The Russia, Ukraine crisis accelerated essentially at the start of our third quarter, we saw significant panic and commodity price increases within the first 10 days of the conflict.

Although the pace of the rising cost appears to have slowed costs remains significantly elevated and are expected to continuing to increase over the coming months.

Our suppliers have limited direct Russia, or Ukraine sources, but the downstream effects on other sources rising prices and availability will keep cost high.

Energy costs transportation and broad logistics challenges caused by no fly zones and port congestion in Europe due to Russia Workarounds will continue to drive up freight costs and likely increased transit times.

The longer the conflict continues there is increased uncertainty of the short and long term macro economic impact.

We are seeing cost increases on almost all of the categories. We purchase we have seen many suppliers that have moved to daily pricing and we are working with limited expectations of availability.

With current headwinds and the estimated lead times, we do not expect to see improvement in the back half of our fiscal year.

So generally takes about two to three months for us to see all the.

The full impact of the current costs in our results.

Now, let's turn back to pricing.

As we noted earlier pricing actions taken to date have covered inflationary costs in the first half of the year as discussed in our last call. We implemented the January one price increase across all regions and categories aimed at delivering 1% to 2% price cost realization based on known cost increases at the time and assuming cost moderation.

In the back half of the year given.

Given the current situation, we now see supply chain challenges remaining in a worsening inflationary environment remaining with us through the end of our fiscal year. Accordingly, we are preparing for a new round of price increases in the coming months. We are also in the process of implementing surcharges in the coming days to accelerate these actions.

Our objective remains to protect price realization, while responding to a hyperinflationary environment. However, we do expect there to be pressure on our EBITDA margins backlog and demand in the back half of the year Paul will cover this in a moment.

So I'll wrap up with liquidity on slide 14.

We generated $8 million in cash flow during the quarter. We are pleased with the result, given we have historically used cash in the second quarter on sequentially down revenues working capital increased by $4 million on increased inventory primarily attributable to the in transit inventory capital expenditures were $2 million in the quarter and the prior year we generated.

$1 million of free cash flow in the second quarter with higher Capex and working capital attributable to timing of billings on certain project receivables.

Our leverage is at <unk> six times down from the $2 one in the prior year, reflecting $35 million in debt reduction over the course of last year combined with the higher trailing 12 month EBITDA.

We expect our leverage will continue to improve in fiscal 2022 with continued year over year EBIT growth and cash generation, we are well positioned from a liquidity perspective, as we launch our <unk> transformation.

Continue supporting our overall strategy with disciplined capital allocation with that I will turn the call back to Paul.

Thanks, Rick.

Despite the strong quarter, the turmoil of global events in the last month, and the resulting macroeconomic challenges have created second half headwinds and uncertainty in our markets and as such we are adjusting our full year guidance for fiscal 2022.

Factors, such as the strong dollar which accounted for roughly half of the impact to our new top line guidance continued inflationary pressures continued supply chain disruptions as well as greater supply chain difficulties, resulting from the Russia, Ukraine conflict and to a lesser extent products.

Directly into Russia, which has been suspended to comply with sanctions have caused us to revise our full year sales guidance to a new range of $560 million to $580 million.

While we have some potential tailwind that could help support growth we remain cautious.

We continue to expect incremental EBITDA profitability of 35% to 45%, excluding the impact of foreign currency our.

Our guidance is based on current conditions, such as foreign exchange and the macroeconomic environment.

So before we open the line for questions I want to reiterate that this is an important and exciting time to be part of <unk> tool group.

As I've outlined on the call. We are now taking decisive actions to position the business for its next phase of growth and shareholder value creation.

I am very much looking forward to the next steps in our journey and particularly the execution of our ascend transformation program.

I would like to conclude by thanking all our <unk> tool group employees around the world for their hard work and dedication to serving our customers. Despite the ongoing COVID-19 and supply chain related challenges they faced during the quarter.

Hi, Brian .

Operator that concludes today's prepared remarks, please open it up for questions.

Thank you and at this time, we will conduct a question and answer session.

I would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the question queue.

You May press Star followed by the number two if you would like to remove your question from the queue.

<unk> been using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Our first question comes from Michael Mcginn with Wells Fargo. Please state your question.

Hey, good morning, everybody.

Good morning, Michael.

Good morning.

Touching on the supply chain headwinds is this a situation where you are on allocation with certain suppliers and you can't you can get product, but just not enough or is this more of a situation where there is no supply and you need to look towards those third and fourth tier suppliers, you've added as of late and maybe more long term how do we transition out of this is this a situate.

Where supply comes back online and there's relief on gross margin or a scenario, where you need to keep all suppliers on blanket Pos for maybe a longer extended time period.

So a lot there and.

And a little bit of yes to the first two elements of that that question. We do have some suppliers that hiring an allocation mode.

But we're also leveraging our second and third suppliers as we have been.

Throughout this scenario.

We're getting good response of balancing and working with our suppliers on demand and having the long term relationships that we've had it's allowed us to kind of get out there early understand whats available and get them orders.

Which we've been talking about.

We.

Look from our dealers and distributors.

Indications of demand so so far that's really been working.

Well for US we do like the second and third tier suppliers admittedly, we're using them more than we have historically.

And I think what this process is done for us it's allowed us to identify and get multiple sources up and running versus just having them qualify so thats, even a step further to tech.

Tapping that incremental source. If we have continued increased demand. So we view the scenario, we view having learned a lot from the scenario, we view ourselves as being in better position on a go forward basis and being able to leverage that.

More relationships that we have in deeper relationships, we develop with all of our suppliers.

We.

We view this as well, we keep all suppliers up and running well based on demand will respond with the supply chain.

And based on cost negotiations, which is kind of get back to a typical environment with our supply chain. So hopefully I've answered all of them.

And Michael It's Paul I would also just add on top of risk comments couple of things I mean, one we do benefit from the fact, we have a very global supply chain organization. So we have colleagues sitting in all major regions.

Which has been a strength for us to enable us to identify and work directly with current and new suppliers.

Admittedly in somewhat of a more tactical fashion than typical strategic sourcing sourcing given the challenges we face, but thats been helpful. I do think we also saw some improvement in Q2 from China based suppliers, which was encouraging meeting more of their commitments in OTT.

Some caution there in the quarter given their uptick in COVID-19 activity in that in that country, but but we did see better improvement in China, particularly towards the end of Q2.

And just a reminder, our supply chain.

Almost split equally across all regions, so purchase equally spread set of suppliers in volume based on the regional demand.

Great I appreciate the color.

Second I understand this might be more of a conversation for the upcoming Investor day, but can you provide any guardrails on the timing of the investments and maybe the buckets as the strategy progresses.

Is there something where it's front end loaded for corporate you begin moving towards facilities and then reengineering reengineering the products that you've curated from your 450 page catalog any commentary there would be great.

Sure, It's Paul I can address that Michael so.

It is it's a broad based program as we shared its really meant to cover the next 30 months or so.

<unk> activity for us.

As I referenced in my remarks in the near term we are focused on.

Some cost related actions and operational efficiency still to be completely planned and defined we don't expect I would say a material or significant impact in this fiscal.

But we will see some certainly cost.

From the program throughout fiscal 'twenty, three and 'twenty four and we expect we will see benefit flow in both of those fiscal years some of the things could be nearer term.

That are more cost related and can be action more quickly and then things that take more time, particularly around potentially footprint or some of the things that are more sort of engineering and innovation dependent for some of the end market work that we're doing.

Those might flow sort of later in the timeframe closer to the two.

The fiscal 'twenty four.

Period, but that's how we think about it today and we will certainly provide more updates and color and quarterly earnings calls and of course in our Investor day, when it's scheduled.

Great I'll pass it along.

Thank you.

Our next question comes from Jeffrey Hammond with Keybanc capital markets. Please state your question.

Hey, Good morning. This is David Tarantino on for Jeff Hi.

Hi, David Good morning.

So you mentioned some strategic pricing strategies around this and strategy and it seems like you are modestly price cost positive in the quarter. So just given that how do you see price cost playing out through the balance of the year given the incremental increases and how are you thinking about pricing longer term within a sense.

Strategy.

So from a balance of the year.

We talked about as I mentioned with the January pricing increase pre conflict, we were targeting one 1% to 2% utilization.

All of which for the year all of which would have been in the back half.

And as I noted we are.

Sure.

Preparing for price increases and surcharges right now.

With our goal to protect that realizations.

So that's still kind of our expectation, although we are certainly in a hyperinflationary environment.

A lot of challenges and uncertainty. So we're trying to stay ahead of that.

Progress and I'll, let Paul comment.

Sure and I think on the second question, David just sort of the more mid term on some of the strategic pricing actions. So based on the analysis that we've done as we dug into it and we look through various different lenses, including using kind of an 80 20 framework.

It became clear to us we have a number of opportunities there some of those will be how we revisit our pricing with respect to whats in the 80 versus the 'twenty.

And also as we think about relationship of pricing across different skus that might be similar but may not be set with the right pricing structure. Today are optimized I should say and then the final pieces as we talked about sort of further channel optimization. There is also an opportunity there to rethink our.

Overall kind of distribution programs and discount structures. So they are more aligned with the.

The key partners as we go forward and that will also of course have strategic pricing implications I think there are a number of different areas that we're evaluating there and those are those are really very different from the kind of day to day or.

On a quarter to quarter, if you will tactical pricing that we're doing from an inflationary coverage perspective.

Great. Thank you and then just to follow up on supply chain and the rising past due backlog could you give some color on what youre seeing from.

Channel standpoint, inventories and kind of how that could be an opportunity moving forward.

Yes, I mean, we.

We've seen our distributors.

Recover too.

<unk> inventory levels, but we've not seen any concern that there is higher than expected or higher than sort of typical or normal inventory levels.

And our distributors.

I think thats, what we see in the marketplace today.

It varies by region, obviously by distributor by distributor, but as a general rule of thumb, that's what I'd say, but as we alluded to we saw a strong order rates throughout the quarter.

And we still have some backlog issues, we've got to work through given the supply chain challenges.

Great. Thank you.

Thank you.

Thank you and just a reminder to ask a question press star one.

Our next question comes from Deane Dray with RBC capital markets. Please state your question.

Thank you and good morning, everyone.

Good morning Deane.

Hey, I might've missed this but we've been asking companies.

Through this period, if there was any lost sales.

Yes, you were ready to ship.

The customer wasn't ready.

That <unk>.

And the inventory that would have been implied growth, but you just couldnt ship can you size any of that for us. Please.

Yes.

From a.

Product perspective, I would say.

Sales of course, as we've talked about have.

Incremental backlog, but we haven't seen any cancellations product orders as a result.

Everything we're seeing.

We talked about certainly on the service side, we've seen delays, some but not significant cancellations, but more and more delays right now on service.

And as we've talked about before.

We are seeing some pricing challenges on service primarily related to what I'll refer to as the lower specialty.

The level of service.

Got it.

And I'm not sure if you size this on the rush in.

Receivable write down was it written down in its entirety.

And did you size that.

We didn't size.

Sure.

It was reserved its entirety.

It's not significant for us, but we reserved out of caution.

Got it.

Alright, and then just last question is it would strike me on the time period for the ESN.

Sure.

When I say 30 months does that maybe just got to argue against that there's a unsettling period that the company will be in.

That there is restructuring maybe some more divestitures and it just you are in this period of limbo.

Maybe just respond to that because it's yet another.

Restructuring initiatives at <unk> and <unk>.

How is it different this time and how do you get through this period smoothly.

Sure, Yes, I can address that I think well first of all it's.

Certainly <unk>.

Broader there may be restructuring elements as we go through the program, but it's significantly broader as an overall transformation of the company as I.

<unk> two in my comments, there is organic growth elements to that there are operational excellence elements and yes, there are cost structure, and SGA SG&A productivity productivity and efficiency elements to it but we view it as a very broad program. We actually think this is sort of the opposite of being in limbo.

Does.

It certainly is meant to provide.

Substantial clarity not only to our employees, but ultimately to the market and investors going forward as we share more in the coming months and quarters on the program.

But we're excited about it we believe it's.

That it will have obviously significant impact and shareholder value creation potential.

As we've laid out.

Our targets here as we think about exiting fiscal 'twenty four.

So.

Again, we will share more in the coming quarters, and certainly more detail on Investor Day later this year.

But that's how we think about it and certainly broader than restructuring and then with respect to portfolio I think as we've talked about before.

For all intents and purposes.

The major portfolio work is really behind US right with the divestiture of <unk>. The rebranding of the company at <unk> tool group, we really view ourselves now as a pure play industrial tools and services business.

And in fact, as we referenced in the remarks M&A will be a core part of our strategy going forward as we look to identify complementary additions to the portfolio, but stay.

So our knitting on that core strategy of pure play industrial tools. So we.

We don't don't expect at this point any significant moves from a portfolio standpoint, given given where we sit today, we always evaluate through a shareholder lens and shareholder perspective, but the heavy lifting as we called it around the portfolio work has really been done at this point.

That's real helpful. Thank you.

Thank you.

Thank you ladies and gentlemen, there are no further questions at this time I'll turn the floor back to management for closing remarks.

Okay.

Well again, thank you all for joining our Q2 earnings call today.

Have a good day and we look forward to speaking with you next quarter take care.

Thank you. This concludes today's call all parties may disconnect have a good day.