Q1 2022 Zurn Water Solutions Corp Earnings Call
Good morning, and welcome to you those are water pollution Corporation first quarter 'twenty trade show, earning results conference call with Todd Adams, Chairman and Chief Executive Officer, Mark Peterson, Senior Vice President and Chief Financial Officer, and he's Poly Vice President of Investor Relations for groundwater.
This call is being recorded and will be available for replay for a period of two weeks.
The phone numbers for the replay can be found in the earnings release the company filed in the 8-K.
D C yesterday at.
At this time for opening remarks, and introduction I'll turn the call over to David Polly.
Okay.
Good morning, everyone and thanks for joining the call today before we begin I'd like to remind everyone that this call contains certain forward looking statements that are subject to the safe Harbor language contained in the press release that we issued yesterday afternoon as well as in our SEC filings. In addition, some comparisons will refer to non-GAAP measures.
Our earnings release, and SEC filings contain additional information about these non-GAAP measures why we use them and why we believe they're helpful to investors.
And contain reconciliations to the corresponding GAAP information assist.
Consistent with prior quarters, we will speak to non-GAAP metrics as we feel they provide a better understanding of our operating results. These measures are not a substitute for GAAP and we encourage you to review the GAAP information in our earnings release and in our SEC filings with that ill turn the call over to Todd Adams, Chairman and CEO of <unk> water solutions.
Thanks, Dave and good morning, everyone, hopefully everyone had a chance to read through our earnings release last night and we certainly appreciate everyone taking the time to join the call. This morning.
It's only been about 70 days since we last updated everyone about the LTA LTA transaction.
Terrific progress towards the close and bringing the two businesses together.
All of the regulatory things are behind us really without a hitch. The S. Four became effective this week and we'll have the shareholder vote towards the end of May I.
I think we're going to target a clean closing right at the end of the second quarter. So as we announce our Q2 earnings in July we'll be in a position to talk about what our combined second half will look like for the news earn LK water solutions business.
I'll talk more later about some of the joint preparation we've been doing but it's been really rewarding to see the teams engage with one another.
And begin to build action plans to execute the opportunities in front of us as we get to the closing.
Moving on to the first quarter results.
Shell it feels like a pretty decent start to 2022.
Obviously theres been a lot of moving parts and award World. The last 10 to 12 weeks, but the benefit of being a focused pure play water solutions business and the combination of a clear strategic plan around driving share gains in our core business, coupled with the <unk> business system that underpins, our strategic and operational execution provides us great balance to some of the math.
ROE uncertainty out there.
As we talked about last quarter, we're not immune from the supply chain transportation material challenges most everyone is facing but taken as a whole this quarter again feels better than the last there were are and we will of course be spot challenges, but our teams continue to navigate retire risk while also having.
Look forward to continue to support what is really good growth for US there are a few things in the quarter didn't go our way, but we had a good plan and executed well and that's simply what it takes to perform at a high level in the type of environment. We're in.
As far as the quarter sales were up 17% year over year.
15% organically.
And again this is against the first quarter last year, we grew 12% and 4% organically.
Our segment margins in the quarter was 24, 5% very much in line to slightly ahead of our expectations and our pro forma leverage was two one times.
Exactly what it was at the end of December .
Mark will cover some additional details on the financials, but a couple of points that I think are incrementally positive to the quarter, where we saw really strong order growth across all categories considerably above our sales growth rate and secondly, we're seeing great traction too too bright shield offering and seeing the market take to it.
This integrated solution. We've developed ahead of what will be a busy new construction season in North America over the next six to seven months as well as what will be the first traditional school MRO cycle in over two years.
I'll move on to slide four.
As we've discussed in the past there are a lot of inherent barriers to entry in our business. It is a complex path to win consistently at a scale said another way building a sustainable competitive advantage is something thats very difficult to and in our case across the broadest portfolio in the industry, which is only further enhanced with our trans.
<unk> with LK.
Many of you already know this but as a refresher building codes regulatory approvals reliability quality service level and innovation really really matter and only with great innovation can you drive high levels of specification share and then there are the countless relationships at the owner engineer architect general mechanical contractor level that need to be cultivated.
<unk>, both nationally and in our local trade areas.
The final mile is having the best strongest local representation as well as strong strategically aligned relationships with leading wholesale wholesalers.
So you've got that you are in the game in our case there is no one that comes close to delivering the content per square foot, we can deliver to an opportunity which makes us the default lowest total cost of ownership.
Some of the newer realities in our business, our sustainability labor shortages value engineered solutions pond construction connected products and things like the well two point or building standard providing safe public and private spaces to students patients and patrons will only be a bigger differentiator moving forward and these have been the thrust.
Our strategic plan in the last several years essentially leveraging our competitive advantage today, while skating to where the puck is going.
Here's just a simple example of leveraging innovation into a competitive advantage to date and one that will absolutely be lasting going forward.
<unk> pressure relief valves. This is a market that we've size around $120 million. These valves are integral to regulating water pressure inside a building for both potable and fire protection systems, depending on the size and the location of the building you can have dozens of these.
Our new product in the category really across all six typical sizes as a new patented solution. That's built with a venturi valve design that handles high pressure rates, while providing industry best flow performance.
It allows for both horizontal and vertical installation options, making it quicker and easier the shortest lay link in the industry means to every opening in the market. We can we can provide a valve some competitors' products simply arent ergonomic.
And the combination of our stainless steel interior and composite cartridges extend the life of the valve and it uses 60% less material than competitive <unk> and finally, it seamlessly integrates and designs remote pressure monitoring system to easily monitor building water pressure.
I share. This example, not because I'm trying to sell you one although we'd be happy to but highlight how we segment target and go after opportunities embedded in our strategic plan and this replica replicates itself dozens even hundreds of times across categories and compounds over years in.
In this case, our new innovation gives us a chance to top grade specs change codes, while opening up in a new category that will turn into meaningful organic growth for us and this is against a competitor with an inferior design with a bunch of attributes not suited to how future buildings are going to be built.
Next on page five.
When we shared the news of the <unk> transaction, we expect the people in our industry to be excited.
The feedback from the marketplace and our customers has exceeded all of our expectations and the unique nature of the transaction and true partnership has created a great dynamic and foundation for all of the integration planning.
While we continue to operate and make decisions as independent companies, we found plenty of opportunity to introduce our teams whole joint meetings and do some planning sessions. Just this week, we're doing all of the diagnostic work for our 2020 implementation with a broad team of both <unk> and <unk> associates, while also holding our initial zurn business system leadership training session.
<unk>.
10 weeks post the announcement in about 10 weeks until we close the resounding view is that the strategic logic is probably even more sound than we thought when we announced the sociology between the two organizations has been really really good and finally, our confidence in delivering the financial synergies is exactly where we'd hoped it to be.
Just one more thing for me on page six before I turn it over to Mark.
With having published our sustainability report a few weeks ago hopefully many of you have had a chance to check it out.
We've made ESG leadership of priority and Thats only enhanced with LK, the clear leader in drinking water for public and private spaces in North America.
It's also gratifying as all of the progress around ESG is manifesting itself in some recognition.
And while we're not big on talking about it or advertising and it's great to see and we're actually seeing some strategic advantage from our ESG leadership, attracting and retaining talent being sought after as a thought leader on sustainable buildings are all things that help reinforce that by integrating ESG into our strategic priorities, it's helping us grow and building onto the competitive advantage we have.
Already built so with that I'll turn it over to Mark to walk you through some additional details on our performance and provide some color on our Q2 outlook great. Thanks, Todd Please turn to slide number seven.
So on a year over year basis, our first quarter sales increased 17% to $240 million.
In November 2021 way drains acquisition account for 2% of a year over year growth in our core business drove 15% growth with solid core sales across our water safety and control hygienic and environmental and flow control product categories.
With respect to profitability, our adjusted EBITDA, excluding corporate costs totaled $59 million in the quarter and our adjusted EBITDA margin was at the high end of our expectations at 24, 5% and improved 50 basis points sequentially from our fourth quarter 2021.
Incremental margin on a sequential sales versus just over 40%.
On a year over year basis, the benefits of our sales growth inclusive of price realization and productivity actions was partially offset by the increase in material and transportation costs as well as our investments in our growth and supply chain initiatives.
With respect to our corporate costs, we communicated over the past several quarters that with our transition to a standalone business, we anticipating annual corporate expenses to be approximately $20 million in terms of adjusted EBITDA on an annual run rate and $22 million in calendar year 2022.
With the February announcement of the merger with <unk>, which we expect to close in early part of the third quarter of 2022 as Todd mentioned earlier, we now anticipate our corporate related expenses to be approximately $27 million in calendar year 2022.
Please turn to slide eight and I'll touch on some balance sheet and leverage highlights.
With respect to our net debt leverage we ended the quarter in line with our expectations at two one times pro forma for the adjusted annual corporate expense run rate I just discussed or.
Over the balance of the year, our net debt leverage will decline as our free cash flow generation accelerates in our adjusted trailing 12 month EBITDA continues to increase.
Please turn to slide nine and I'll make a few comments on our outlook for the second quarter of 2022.
So the second quarter of 2022, we are projecting total sales to increase year over year by a low to mid teens percentage.
We expect our adjusted EBITDA margin, excluding corporate costs to be between 24, 5% and 25% in the quarter and we anticipate corporate costs in terms of adjusted EBITDA to be approximately $7 million in the quarter.
Looking at fiscal year, 2022, and as we mentioned earlier than anticipated the transaction with <unk> closing in the early part of the third quarter.
We will be reporting combined results in the second half of 2022 will provide an outlook for the balance of the year in early August .
We remain confident in delivering solid double digit reported and core growth in 2022 with sequential improvement in the adjusted EBITDA margin in the second half of the year versus the first half of the year and strong free cash flow over the balance of this fiscal year.
Before we open the call up for questions. A few comments on our interest expense stock comp expense depreciation and amortization tax rate and diluted shares outstanding for the June quarter.
We anticipate interest expense to be approximately $5 million of.
Our noncash stock comp expense to be about $4 million in the quarter depreciation and amortization will come in around $5 million our tax rate on adjusted pretax earnings, losing 26, 5% and 27, 5% in the quarter and diluted shares outstanding will be approximately $129 million.
In the quarter with that we'll open the call up for questions.
And as a reminder, that is star one to ask question.
For a moment to compile the <unk>.
Tony.
And our first question will come from Jeff Hammond with Keybanc capital.
Please go ahead.
Hey, good morning, guys, Hey, gentlemen, Jeff I'll take two of those <unk> we can.
Order offline.
Good question.
Okay.
Just I guess one on just supply.
Chain I think you said, maybe a little bit better, but whats getting better whats getting worse, what kind of informs the.
The margin change <unk> <unk> and <unk>.
And the confidence that margins tick up in the back half.
Yes, I'll take the supply chain piece and Mark.
Take you through the margin progression, but.
I would say in general.
We felt like September October last year was sort of the peak of the.
The logistics, not and it's gotten a little bit better each quarter every month from from there on the materials side, we have been.
I think pretty forward leaning on what our expected demand was so obviously by getting.
Getting our supply chain ramped up to deliver at higher volumes towards the end of last year that certainly helped us.
Deliver and avoid maybe some of those more more recent spot challenges.
Look as I said in my comments.
There are a million and one things that are happening and certainly one of those or two of those going wrong. Each and every day. It's really how do you. How do you think ahead, how do you plan accordingly, and try to stay in front of it.
Well I wouldn't really point to anything specific other than.
It certainly.
An interesting dynamic that we're all living through both <unk> and.
In our case.
A lot of forward planning diversifying our supply base.
<unk> has really been a good move that our teams really looked at towards the end of last year and we made some calls it's sort of it's sort of helped us here as we enter the busy part of our year.
Yes on the margin question, Jeff I think it's.
Various known what we talked about last quarter.
It kind of falls into three main buckets ammonia as the years progressing clearly in Q2 versus Q1, we have incremental sales volume as we hit the construction season, So just getting the leverage you'd expect on that.
Incremental sales growth, but when you look at the second half of the year versus the first half of the year sequentially <unk> to <unk>, we're going to see a larger step up.
<unk> dollars in the back half versus the first half than what we would have seen say last year. For example is given the demand backdrop that Todd highlighted and the other piece of the puzzle is just price realization. So we've been we've been putting price in place I would just add another recent increase thats been announced so as that feathers in over the course of the year and we get more realization in the back half versus.
The first half that sort of price and inflation cost equation improves and benefits the margin as the year progresses I'd say the last thing that is just overall, our cost out and productivity initiatives and Todd mentioned earlier the issue around forward planning and getting more inventory in place sooner rather than later now let me repeat.
For a while is as demand was ramping up.
For example, you may a customer may need.
A certain valves and we only have it in a warehouse in the east coast with customers on the West Coast Youre not efficient you're shipping so as we've improved our SIOP process and just got a little more aggressive on the demand environment that we're seeing and bring in more inventory in that's improving our availability regionally, which is allowing us to be more efficient and reduce our overall.
<unk> costs were moving product around around the around North America. So it really falls into at all I'd say those three big buckets are the things that are benefiting margin this quarter and then more so in the back half.
Okay, great color there guys.
You mentioned, Todd the education market kind of not seen MRO cycle for a couple of years can you just talk about.
One that opportunity and to if any of those COVID-19 .
The dollars that went to the schools would be flowing around around safety hygienics.
Yes.
<unk>.
Onset of the pandemic you lost 20.
There wasn't a lot happening in 'twenty, one as schools started to ramp up this year and so there's a lot of routine maintenance and upgrades that goes on over the summer when kids aren't there.
So we're sort of two years behind some of that maintenance. There is obviously a continued retrofit opportunity towards the more hygienic solution in the restroom and other parts of the school and certainly the <unk> funding.
Now flowing to the states and ultimately school districts.
Have a wide swath of what they can do with it and certainly hygienic and environmental as part of that.
So it's really a school district by School District, and really targeting those top 4000 school districts.
Driving.
Awareness being there and helping them.
A safer environment for their students so everyone wants to talk about how much it is and where it is it really is a school by school.
Decision and some schools have greater needs in the areas of technology or.
Things like that but we're getting our fair share.
But I think it's certainly a positive market backdrop as it relates to schools.
Okay I appreciate it guys.
Our next question will come from Bryan Blair with Oppenheimer.
Please go ahead.
Okay.
Thank you good morning, guys Hey.
Hey, Brian Good morning, Brian .
Tim.
Quite confident in the double digit core growth outlook for the year I guess incrementally so and.
U S posted one solid quarter on that front, so there's clear momentum.
Todd last quarter, you had framed kind of low to mid single digit underlying market growth.
Two points or so of outgrowth and then the low to mid single seemingly leaning toward mid single digit price contribution how should we think of those buckets at this point.
I think as Mark highlighted I think with the pricing actions that we've taken and there's probably incremental price from where we were a quarter ago.
So call it seven plus or minus I think the market.
Maybe incrementally better by a point or so and so you've taken as a whole I think.
I think even more confident in the double digit growth that we'll see.
I think as I highlighted we had terrific orders.
When you think about.
The next six to seven months, that's the peak of the.
The construction season in North America, and so we saw.
Very strong orders across all categories above our growth rates and so we think we're pretty well positioned heading into Q2 and Q3 to drive really strong growth our supply chain is sort of set to deliver against that.
I think we will we will.
I think as Mark said, if we deliver our guidance, which we fully expect to do we'll have six months in the jar. It meaningfully above 10% and then it's just a function of what can it be as we as we look at the second half.
That's great to hear and.
On the margin front, we have your Q2 guide incrementals are implied to step down a bit versus the Q1 level I guess on a sequential basis. The math is a little cleaner in that in that regard. If we will look strictly at Q2 versus Q1.
Terms of the step up.
But nonetheless looking to the back half.
Given the moving parts that you've walked through should we expect third quarter margin core margin that is.
You have to be flat to up year on year.
Or has the progression just given the headwinds that everyone is facing been pushed back a bit more in that sense.
The margin year over year, I mean, our models all along I've always had the margins still stepping down a bit in the third quarter, but that gap compressing quite a bit. So as you can appreciate through the first call. It two to three quarters sort of that price inflation cost equation is the toughest for us it gets better as the year progresses, but then as you can.
It ended up in the latter part of the third quarter it clearly under the fourth quarter.
The comps just get just get easier and the other thing too is we've talked about we've had some investment that we had started call. It midway through the third quarter clearly into the fourth quarter around some of the growth initiatives, we've been driving as.
As well as some of them are doing around the supply chain and working more aggressively on near shoring supply chain.
We have in the past.
And we.
We lap against that so you get an easier comp from that standpoint, too. So it's really a function of those two things just as the year progresses. The comps are just are just getting a bit easier Brian at the end of the day. So it's one of those years, where just given how things have changed that sequential look is really important because some of the year over year stuff just gets a little bit noisy with what's decided.
World's transpired over the past six to nine months.
Okay completely understood and a higher level, one <unk> has navigated a lot of market turbulence over the last 10 to 15 years and you've had pretty consistent performance.
We see no fears of 2023 recession come to pass how should we think about the puts and takes of combined as Aaron LK resilience relative to your core operations.
Well.
Youre correct in your I guess.
Three of our ability to navigate through and look I don't want to.
Answer a hypothetical question around 23 other than with.
With the combination with LK over half of our business or nearly half of our business will be MRO retrofit replace.
If you look at the model that we have around <unk>.
Design procure assemble test supply chain, we've got a very flexible model. There. So we won't absorb fixed costs should things slow the vast majority of our selling effort as third party reps, which is also all variables. So I think our our business model and the resilience of that has only improved really over the last several years with <unk>.
More MRO, if youre worried about new construction.
Variable model on the supply chain and the variable model of selling I think really position us well and the reality is we're going to be in great shape, because right now the pro forma balance sheet, we'll have essentially no debt and so we feel like we've navigated.
And iterate our business model to be ready for an environment that is maybe not robust that being said when you look at.
Where things are and in terms of their progression through a business cycle non risk construction is sort of like at the starting line right now.
So I think we've got.
What we've talked about is a very good 22, we think 'twenty three can still be very good with the amount of activity that's happening around the country.
But should we find ourselves in.
Maybe a less favorable environment I think we're fully fully ready and willing to go through that and will perform extraordinarily well.
Okay I appreciate that and then for what it's worth we agree on on the U S non risk outlook.
Great color. Thank you.
Yes.
And as a reminder, that is star one if you would like to ask your question and our next question will come from Joe Ritchie with Goldman Sachs.
Please go ahead. Thank you good morning, everybody.
Morning, Joe.
Hey, just a comment on the margin so yes.
Yes, I think we're modeling it the same way down year over year through three Q I'm. Just curious are you guys still looking to hold margins ex corporate flattish year over year or has some of the kind of the inflationary pressures that is that going to have some type of impact at least at a margin rate led.
For the year.
Yes, So look I think we've said going into this year that our goal was to try to hold margins generally in line with the prior year does that mean exactly what do we do last year $25 eight could be could it be 25 could be <unk>.
Generally in that in that category, we're not looking at a scenario, where we think margins are going to fall off to 'twenty four 'twenty four and a half right.
All of the things that we have line of sight to the actions that we're taking.
It keeps us in that ballpark, what we're going to be generally close to where we were last year from an overall segment margin standpoint within zurn, obviously, when you bring the <unk> business and we know that that's around the larger lower margin profile. So that will muddy the waters by talking just about zurn, that's what we've been working towards all year.
I mean, Joe the bias obviously through.
Through let's just say through April is the double digit growth.
Well past 10, yes.
Is that is that.
As that migrates up we've got a I think a better chance of getting to where those margins are and I think mark talked to the.
The comparable issue relative to the prior year and once we lap that by Q3 I don't think Theres any question that the momentum in Q4 and into 'twenty three with a combined <unk> <unk> and then on top of that the synergy realization in year, one puts us in a great place so I mean.
Growing at the rates, we're going at the margins, we're growing them that despite some of the comparable headwinds I think by the time, we get to September October .
With what's in front of us with LK I think it's going to be.
Great dynamic and a powerful powerful earnings story.
Yes that makes sense.
Thanks for talking about Al K I appreciate you guys.
Mapping the line at the end of the quarter, it makes things easier for us as well.
I am curious as you kind of think about the synergies I think you guys called out $50 million.
Can you start to realize some of those synergies or do you expect to realize some of the synergies.
In this calendar year. If in fact, you do close by the end of QQ.
Yes look I think that there may be some but probably offset with some investment so consistent with what we said.
10 weeks ago the.
The synergies that we're going to sort of.
Sign up for really begin in 'twenty three will there'll be some of course.
But I wouldn't I wouldn't pencil than it is anything meaningful I mean look we're going to.
We're going to close we're going to go through a strategic plan, we're going to get the org rolling and aligned around our long term strategic plan, we're going to make some investment in certain areas.
Will we get after some of the low hanging fruit early you bet, but.
I think very much consistent with what we said 23 23 is the year to start thinking about accruing those to the to the bottom line.
Okay.
Got it that makes sense and one last one for you guys just.
Clearly like that China situations evolving shutdowns are continuing can you just give us an update on any.
Any any supply chain issues, particularly out of China.
We're seeing with any of your suppliers.
Well, Joe how much time do you have any.
The reality I'll take I'll take as much color you gave me.
We have a global supply chain with.
Yes.
Hundreds of critical suppliers I think we've prioritized the ones that are in zones, where youre seeing things like shutdowns and things alike.
And we've got plans in place to move supply where necessary we've got some.
In transit, we have got some consigned here and so it really is.
Sure.
A pretty complex view that in any given day. There is something that is new news and different than maybe what we thought so <unk> got a plan around a variety of contingencies I think our teams have done a terrific job with that.
I don't know that its going to go away anytime soon so we've just got to keep.
Thinking ahead, managing forward and are there things that.
It didn't go our way in the quarter you bet.
Small components.
Had they arrive.
Shipments could have been greater they did but we still delivered a really strong quarter, we've got a great.
Backlog heading into what is a very busy season for us we've got to stay in front of us.
I think that's just the reality of the world right now.
But there is nothing that I.
I can point to that as sort of below the water line issue.
From what we can see.
Yes, it makes a lot of sense. Thank you both.
You bet. Thanks, Joe.
Okay.
And our final question will come from Brett Linzey with Mizuho. Please go ahead.
Hi, good morning, guys good.
Morning, Brett good morning.
Okay. So it sounds like a very solid demand pulse across most of your markets. I was hoping you could maybe put a finer point on the magnitude of the order increase our book to bill or some measure to help frame the momentum here.
Yes, we try to generally stay away from backlog, but if you think about a 15% core number.
It was 456 points of that from an order rate perspective.
Year over year with.
With a book to bill above one.
Clearly.
Okay.
Great and then maybe just a finer point on the individual verticals be it health care K through 12 universities.
Where youre seeing that strength or is it broad based any color would be great.
It's broad based.
Obviously health care and education of our single largest verticals, we're seeing really good activity. There I think hospitality is improving things like <unk>.
Municipal buildings stadiums are all positive, but I think the encouraging part for US was that it was really broad based across a lot of categories.
And vertical so.
Nothing.
Upsized.
Isn't like a unique onetime thing it's really just.
The water levels, just fundamentally higher across a lot of different things and I think we're winning more.
I think the integrated solution around Breakfield has gotten great traction we saw a significant growth there this quarter and hygienic and environmental.
And so.
The gestation period of that really coming to market.
Getting out and working with.
Building owners engineers architects to introduce the solution we're winning.
And we are winning and upgrades and retrofit opportunities, which is which is great news too. So it's broad based and I sort of gave you the magnitude.
Relative to the sales growth.
And I appreciate you framing that and then maybe just sticking with bright shield, obviously, the virus is episodic and we're going to be living with it but.
The Covid cases, really a gating factor that drives customer urgency on the hygienic retrofit opportunities or do you think the customer conversations.
Pointing to sustainability here and really the focus on safer cleaner washrooms is here to stay.
I think it depends on the person I don't think.
Covid cases in a discrete way is driving a decision, making I think it's around sustainability I think.
Sure.
We have I think come to acknowledge that hand, washing and keeping yourself clean is a great way to avoid spreading the virus and so I think those two are sort of universally.
Drew and I don't think that case count is really driving any of the decision making at least from my vantage point.
This is more general awareness brought hygiene, yes in general.
Yeah makes sense and then maybe just one follow up because I'm the last one.
On the Q2 supply chain situation, obviously very complex.
I know you've taken various mitigating actions.
Some near shoring and so on.
But is there more to do there as you try to win some of the over reliance on.
Particularly regions.
Your supply is coming from.
And then I'm just curious in terms of Q2 revenue visibility.
How many containers have landed that give you comfort that the.
The framework you put in places is achievable here, even even given the supply chain issues.
Well I would.
Maybe suggest that the overreliance piece is sort of behind US I think we've got a <unk>.
Geographically.
Dispersed supply chain I think we're going to continue to work to <unk>.
Minimize risk, where we where we believe we still may have some so thats going to be an ongoing.
Process for US I think we've got good plans.
And I think there'll be a lot of activity really in the second half of our year in the first half of next year to continue to do that and maybe a more scaled way, but I wouldn't say, we're over reliant upon a particular region or supplier at this point.
And then in terms of.
The other question you had.
Although our revolver over reliance and then how many visibility on Q2 revenue.
It goes all over the last months, yes.
We import.
Hundreds of containers and so at this point.
Everything that we see it looks like it's going to arrive on time.
<unk>.
Based on our side.
When we wanted it when we ordered it when it's picked up we're tracking all this.
Sort of in a supplier by.
By supplier containers by container level so.
A month, then we don't have any issues.
And I'm not I'm not kind of project issues.
Our guidance Embeds, the fact that there will be issues for sure.
And so if we if we outperform that well thats, great. If we miss a container or two I wouldn't suspect us coming back to you and I'm talking about right.
So it's just a rolling.
Series of.
<unk>.
A dance that has to happen and so far it's gone I would say extraordinarily well given the complexity of it.
And some of the challenges in the world.
It's a testament to I think our team and digging in and doing the work in and really getting ahead of it.
Several years ago, but more in a more acute way really towards the middle part and the part of last year looking ahead into 'twenty, two and 'twenty, three and making some decisions and communicating in procuring the right material the sub components and getting into Q early analysis of function of <unk>.
Delivering against that demand.
No that's great and then just last one any any expected change in the adjusted tax rate once LK closes.
But <unk>.
Generally as you can appreciate a north American company. So I don't think it changes materially from where we sit today from an overall north American tax for that for your adjusted basis. If you use what we have kind of guided to for the full year to model out the inclusion of Alka I think youll be fine.
Okay, Great I appreciate all the color thanks a lot.
Yes.
Okay.
And that will conclude today's question and answer session I would now like to turn the call back over to Dave Kelly for any additional closing remarks.
Thanks, everyone for joining us on the call today. We appreciate your interest in <unk> water solutions, and we look forward to providing our next update when we announce our June quarter results in August have a good day everyone.
And that will conclude today's conference. Thank you for your participation and you may now disconnect.
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