Q2 2022 Kadant Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Yeah.
Good day, and thank you for standing by and welcome to the <unk>.
2022, Cadent, Inc. Earnings Conference call at this time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one one on your telephone. Please be advised that today's conference is being recorded I would now like to hand the conference over.
To your speaker today, Mike Mckenney, Executive Vice President and Chief Financial Officer. Please go ahead.
Thank you Catherine good morning, everyone and welcome to cadence second quarter.
2022 earnings call with me on the call today is Jeff Powell, our President and Chief Executive Officer.
Before we begin let me read our safe Harbor statement.
Remarks that we may make today about cadence future plans and expectations financial and operating results and prospects are forward looking statements for purposes of the safe.
If harbor provisions under the private Securities Litigation Reform Act of 1095.
These forward looking statements are subject to known and unknown risks and uncertainties that may cause our actual results to differ materially from these forward looking statements as a result of various important factors, including those outlined at the beginning of our slide presentation and those discussed under the heading risk factors in our annual report on Form 10-K.
For the fiscal year ended January one 2022, and subsequent filings with the Securities and Exchange Commission.
In addition, any forward looking statements we make during this webcast represent our views and statements estimates only as of today.
We may elect to update forward looking statements at some point in the future. We specifically disclaim any obligation to do so even if our views or estimates change during.
During this webcast, we will refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles.
A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is contained in our second quarter earnings press release, and the slides presented on the webcast and discussed in the conference call, which are available in the investors section of our website at www decade Dot com.
Finally, I wanted to note that when we refer to GAAP earnings per share or EPS and adjusted EPS on this call. We are referring to each of these measures as calculated on a diluted basis.
With that I will turn the call over to Jeff Powell, who will give you an update on cadence business and future prospects.
Following Jeff's remarks, I'll give an overview of our financial results for the quarter and we will then have a Q&A session. Jeff. Thanks, Mike Hello, everyone. Thank you for joining US. This morning to review, our second quarter results and discuss our business outlook for the second half of 2022.
I'll begin by reviewing our operational highlights for the second quarter.
I am pleased to report, we had a solid quarter with strong demand and excellent execution across all our operating segments lets performance led to record adjusted EBITDA and strong earnings in the second quarter.
While our aftermarket demand was very healthy capital project activity was exceptionally strong leading the bookings that would have been a new record if not for the negative impact from foreign currency translation associated with the strengthening dollar.
I will discuss the impact of FX in more detail in his comments.
Once again I'd like to thank our operational teams around the globe continuing to do a fantastic job in managing our businesses and ensuring that our products get to our customers when needed despite supply chain disruptions.
They've done a great job of meeting our customers' needs in a very challenging environment.
Turning now to slide six I'd like to review, our Q2 financial performance. Our top line performance was supported by excellent aftermarket demand and capital order shipments leading to revenue increase of 13% compared to the same period last year.
Aftermarket parts revenue was up 17% and represented 66% of our Q2 revenue.
Solid execution contributed to our adjusted EBITDA margin of 27%.
And adjusted EPS of $2 24 up 11% compared to Q2 of last year.
We continued to benefit from strong demand in Q2, especially in North America, and Europe bookings were up 25% to $266 million with a solid contribution from our material handling segment, which benefited from our recent acquisition and robust demand for our bulk material handling products.
As you know, we typically manufacture and sell in the same currency. This quarter, our bookings were significantly affected by currency translation and reduced our reported bookings by $10 million excluding.
Excluding acquisitions and the impact of FX bookings were up 17% compared to the same period last year and reflect the ongoing demand from our customers.
Next I'd like to discuss our three operating segments, beginning with our flow control.
Our flow control segment had excellent bookings and revenue in the second quarter up 36% and 20% respectively compared to the same period last year, our aftermarket parts revenue was a record and made up 73% total revenue in the second quarter.
Improved operating leverage led to a record adjusted EBITDA and an adjusted EBITDA margin of 29, 3%.
Our flow control segments record setting bookings performance in the first half of the year is expected to moderate some in the second half however, with a record backlog, we expect a strong second half of the year.
Yes.
Moving to our industrial processes segment, we continued to experience healthy demand with bookings in this segment of 8% to $110 million excluding the.
The negative impact of FX bookings were up 12%.
New orders for our wood processing and recycled fiber systems in North America that the increase in bookings in the second quarter.
Revenue in this segment increased 2% to $84 million was affected by an unfavorable foreign currency translation, excluding the impact of FX revenue growth was 6% compared to the same period last year.
Our adjusted EBITDA margin declined 320 basis points to 21, 8% due largely to lower gross margins on capital sales in the second quarter as anticipated and the prior period, including government assistance programs for Covid relief.
Incremental price programs have offset inflationary cost allowed us to maintain gross margin parity in our aftermarket parts business.
We ended the quarter with another record backlog and this positions us well for the remainder of the year like.
Like our flow control segment, we are expecting a slowdown in bookings in the back half of the year.
Sure.
In our material handling segment, we had record demand for aftermarket parts and solid top and bottom line contribution from our recent acquisition.
Revenue in the second quarter was up 23% to $52 million in aftermarket parts revenue made up 56% of total revenue.
Capital bookings are materially handling segment were up 93% compared to the same period last year due largely to contributions from our recent acquisition, excluding acquisitions and the negative impact from FX bookings were up 24%.
Solid execution by our business in this segment helped boost adjusted EBITDA by 42% and adjusted EBITA margin by 300 basis points.
Capital project activity remains at a good level, yes, we expect a moderation in demand, particularly in our European Biller business as the second half of the year unfolds.
As we look ahead to the second half of 2022, we continue to see good levels of project activity. Despite the ongoing macroeconomic challenges, though as I mentioned, we do expect industrial demand to moderate to a more balanced level compared to the record levels we reached.
Experienced in recent quarters as consumer demand slows in response to actions taken by central banks to control inflation.
Our record backlog and ability to generate robust cash flow continue to have us well positioned to capitalize on opportunities that may emerge as the year unfolds and we expect to deliver record financial performance again this year.
With that I will turn the call over to Mike for a review of our financial performance in Q2, and our guidance outlook for the remainder of the year.
Thank you Jeff.
I'll start with some key financial metrics from our second quarter.
<unk> gross margins were 43, 3% in the second quarter of 2022 compared to 43, 6% in the second quarter 2021.
Which included Covid government assistance benefits of 30 basis points.
Parts and consumables revenue represented 66% of revenue in the second quarter 'twenty, two compared to 64% in the prior year.
SG&A expenses were $55 3 million in the second quarter of 'twenty, two an increase of $6 million compared to $49 3 million in the second quarter of 'twenty one.
Our second quarter 2022, SG&A includes $5 million in SG&A from our acquisitions and a $2 1 million favorable effect from foreign currency translation.
SG&A in the second quarter 'twenty one.
It was lowered by $1 million from government assistance programs.
As a percentage of revenue SG&A expenses decreased to 25% in the second quarter 'twenty, two compared to 25, 2% in the prior year period.
Our diluted EPS was $2 24 in the second quarter compared to a $1 96 in the second quarter 'twenty one.
Our diluted EPS in the second quarter 'twenty, one included five of acquisition costs.
Second quarter 'twenty, two diluted EPS exceeded the high end of our guidance range by 28.
Due to higher revenues, better gross margins and lower SG&A than forecasted.
Adjusted EBITDA increased 11% to a record $46 million compared to $41 3 million in the second quarter of 'twenty, one due to strong performance in our flow control and material handling segment.
As a percentage of revenue adjusted EBITDA was 27% compared to 21, 1% in the second quarter 'twenty one.
Operating cash flow was $18 8 million in the second quarter 22, compared to $44 4 million in the second quarter 'twenty one.
And free cash flow was $11 9 million in the second quarter 'twenty, two compared to $42 3 million in the second quarter 'twenty one.
Decreases in operating cash flow and free cash flow were driven by working capital increasing $17 7 million in the second quarter 'twenty two compared to a decrease of $11 8 million in the second quarter last year.
Change of $29 5 million.
The increase in working capital was primarily driven by an increase in inventory to support sales in the second half of 'twenty two and.
And an increase in accounts receivable.
We had several notable non operating uses of cash in the second quarter 2002.
We paid down debt by $15 3 million.
Page $6 9 million for capital expenditures.
Paid $3 million dividend on our common stock.
I would also note that $3 $1 million of the $6 9 million capital expenditures.
Related to the facility project in China that we announced at the beginning of the year and discussed on our last call.
As Ed mentioned, when we announced this project the.
Proceeds from Sony old facility to the local government will pay for this new facility.
Yes.
Let me next turn to our EPS results for the quarter.
In the second quarter 'twenty to both our GAAP and adjusted diluted earnings per share were $2 24.
Second quarter 'twenty, one GAAP diluted earnings per share was $1 96, and after adding back <unk> of acquisition costs adjusted diluted EPS was $2 one.
As shown in the chart the increase of 23 and adjusted diluted EPS in the second quarter of 'twenty, two compared to the second quarter 'twenty. One consists of the following.
<unk> from acquisitions net of interest expense on acquisition borrowings.
16.
Due to higher revenue and <unk> <unk> due to lower interest expense.
These increases were partially offset by <unk> 10.
Due to government assistance programs in the prior period <unk> do.
Due to higher operating costs and <unk> due to a lower gross margin percentage.
Collectively included in all the categories I, just mentioned was an unfavorable foreign currency translation effect of 11.
In the second quarter 'twenty, two compared to the second quarter last year due to the strengthening of the U S. Dollar.
Looking at our liquidity metrics on slide 15, our cash conversion days, which we calculate by taking days in receivables plus days in inventory and subtracting days in accounts payable was 123 at the end of the second quarter 'twenty two compared to 109 at the end of the second quarter 'twenty one.
Working capital as a percentage of revenue was 12, 4% in the second quarter 'twenty, two compared to 12, 7% in the second quarter 'twenty one.
Our net debt that is debt less cash decreased $9 million or 5% sequentially to $150 million.
Our leverage ratio calculated in accordance with our credit agreement was one five at the end of the second quarter 'twenty two compared to 116 at the end of the first quarter of 'twenty two.
Now turning to our guidance for 2002.
We are raising the low end of our full year revenue guidance to $890 to $905 million revised from $885 million to $905 million and we are maintaining our adjusted diluted EPS guidance for the full year of $8 80 to $9.
I would like to note that we would've been able to raise our guidance for the year had it not been for the significant strengthening of the U S dollar, especially against the euro during the second quarter.
The adjusted diluted EPS guidance excludes the $1 30 gain on the sale of the facility in China and the associated one impairment charge as well as <unk> <unk> of acquisition related costs.
Our revenue guidance for the third quarter of 'twenty, two is $211 million to $218 million and our EPS guidance is $1 99 to 209.
I will caution here there could be variability in our quarterly results due to several factors, including the variability of order flow and the timing of capital shipments.
In addition, other risks that could impact our guidance include supply chain challenges strengthening of the U S dollar.
Political tensions inflation and China's zero Covid policy.
The continued strengthening U S dollar.
During the second quarter had a significant impact on our forecast.
The 'twenty two guidance includes a negative foreign currency translation impact of approximately $45 million in revenue compared to 2021.
Which represents an incremental decrease of $31 million compared to our April forecast.
Our adjusted diluted EPS guidance includes a negative foreign currency translation effect of 49 compared to 2021.
Which represents an incremental decrease of 35 compared to our April forecast.
With mix moving more towards capital in the back half of the year. We now anticipate gross margins for full year 'twenty, two will be 42, 5% to 43%.
That implies gross margins in the third quarter and fourth quarter will be approximately 100 to 200 basis points lower than the first half of the year.
As a result.
As a percentage of revenue, we now anticipate SG&A will be approximately 24, 5% to 25% down from our previous guidance of 25 to 25, 5%.
And we continue to anticipate R&D expense will be approximately one 5% of revenue.
We expect our tax rate for the remaining quarters will be approximately 28%.
And we now anticipate depreciation and amortization will be approximately 34% to $35 million in 2002.
That concludes my review of the financials and I will now turn the call back over to the operator for our Q&A session.
Okay.
Operator, Catherine do you have questions.
As a reminder to ask a question you will need to press star one one please standby, while we compile the Q&A roster.
Our first question comes from Chris Howe with Barrington Research. Your line is open.
Good morning, Jeff Good morning, Mike.
Yes, good morning, Chris.
Morning, Thanks for taking my questions.
First of all in here for Mike.
As we look at the revenue guidance, taking up the lower end of guidance.
And the 211 to $2 18 for the third quarter.
The midpoint that would imply about 235.
In the fourth quarter for revenue can you just talk about the revenue dynamics here in the second half I think.
I think we were all expecting.
A little bit more revenue in the third quarter.
And then the 211 to 2018.
So more heads pushed.
For the fourth quarter.
Well, Chris one one of the things I had mentioned to you is what I.
You said at the very end of my.
Discussion here on the call.
From the April iteration to the July iteration, we lost $31 million in revenue due to translation and a significant part of that is in the third and fourth quarter. So we're taking a haircut just on translation and I think thats, probably the piece you're missing.
Okay that makes sense.
And then if we look at parts and consumables I think it was mentioned on the last call.
It's been known but greater ability to pass through price here.
Just given the shorter cycle nature.
Nature.
Can you refresh us on.
The difference between parts and consumables margin.
Versus capital equipment as it stands today.
And how you.
Each portion parts and consumables and capital equipment.
Versus the inflation headwinds I know you said.
Actually caught up on the parts and consumables side.
Our capital equipment.
Bearing today.
Okay.
Well, Chris So as you know, we don't give out directly.
The two parts and consumables and capital, but what I often will tell folks is if you look at our gross margin profile associate of $43 three in the first half of the year.
Q drew a bell curve around that 15 points to both sides that would capture essentially most of our transactions and capital will tend to fall to the lower side of.
That bell curve.
So that's that's the kind of the picture I paint for focus on gross margin.
And then regards to the discussion on where we are our parts and consumables and capital, Yes, Youre right, Yes, as we mentioned we've been able to adjust on parts and consumables.
We can react more quickly to that capital we do have the risk of it sitting in our backlog for three months six months nine months or even a year what.
But the units are doing.
Is.
So I would say overall capital is our biggest exposure.
And on the gross margin.
And what our folks are doing they're trying to where they can negotiate surcharges for materials.
Shortly in the amount of time that quotes are valid.
Third of course, looking at projections and commodities and building that into their pricing when they're quoting things so.
I think our really our units have actually I think on capital have done an excellent job at trying to maintain our margin.
<unk> profile, so I think so far so good.
Okay and then.
Actually led me to another question as far as the mix of backlog.
On capital equipment.
Having some success in peeling away.
The portion of capital that's been.
Sitting in backlog for a longer period or kind of.
How do you stand on getting more towards <unk>.
In your pricing.
Well the components that are.
Orders that are in backlog currently of course, that's other than the ones that have surcharges. Those are the pricing is fixed so.
It's really more of the people looking forward at what commodities are going to cost in building that out.
Okay. Thanks for taking my questions.
Yes.
Thank you. Our next question comes from Kurt Yinger with D. A Davidson.
Yeah.
Okay.
Your line is open.
Good morning, Good morning, Kurt can you hear me okay.
Yes, we can hear you perfect. So based on your commentary I mean, it sounds like you expect some software.
After booking activities in the second half, but I guess relative to the conversations you're having with your customers.
Is your sense that.
You're just kind of seeing some moderation from our very strong two years or.
Has there been kind of a noticeable pullback and plans around caf.
Capital out I guess capital activity based on the evolving macro we've seen over the last couple of months.
Yeah, So Kurt I think.
As you pointed out we've had the last two quarters of course, but really for <unk>.
Four quarters, we've had exceptionally strong bookings and so what we typically see with our with our customers is when you are on a really strong buying cycle like that they have to install that equipment and get it up and optimized and so there tends to be a little cyclicality to these buying cycles associated with that and we've just been on such an amazing run for the last for the.
Last few quarters.
All said our activity level discussions things are still quite strong, but I think we are factoring in.
Not lose sight of the fact that the fed is on record, saying theyre going to slow things down and so we tend to always try to be pretty conservative and we believe them when they say theyre going to try to to slow down economic activity. So we've kind of factor that into our into our planning and our forecasting but generally speaking if we talk to our divisions. You know things are still there is still quite active and quite busy but.
Experience tells us that when you are running at $2 66 level and of course, it was effectively $2 76 quarter if not for that.
The currency issue, that's a very very strong kind of demand and so history would tell us that there will be a little bit of moderation as a.
Starts to take delivery of that and install it.
Alright, okay.
And I mean that comment kind of gets to my next question then.
As you discussed I mean since the financial crisis, there has been kind of rinse and repeat pattern.
Two years of elevated organic growth and then kind of a digestion phase, but I guess as you look at the markets you serve and you've done several acquisitions and some of the different drivers there between e-commerce and packaging and just the under belt nature of the housing market.
Is there anything different looking forward.
<unk> helps smooth some of that cyclicality, notwithstanding the macro environment.
Well we've worked over the last if you look at kind of the.
The growth and diversification over say the last 10 years or so we've worked pretty hard to diversify geographically as well as markets, we serve and it certainly and it definitely has helped us some.
From where we were say 10 years ago. So for instance, right now our bulk material handling business, we mentioned <unk> had record bookings.
This infrastructure build that hasnt, they really aren't spending it yet, but our customers are getting geared up and prepared for that activity. So as so that helps clearly if there's a slowdown and possibly some slowdown in one sector that you've got another sector that is.
See an increased demand as they prepare to to meet the new new customer demands associated with that so yes, I think we have and also geographically.
It's a funny thing right now our bookings in China actually and our activity level in China is quite strong.
And so.
We do have I think good diversification geographically, which.
And as we go into a kind of a global.
Slowdown serves us well as well as some distinct markets we have.
And the general underlying fundamentals.
Migration to kind of sustainable materials I think.
As.
We're quite pleased that we are in the markets. We're in from a packaging standpoint from our wood processing standpoint.
There's just an underlying trend globally, that's going to serve us doesn't mean, there aren't going to be some some some cyclicality to it associated with economic activity, but the longer term trends are quite supportive.
Got it Okay. That's helpful. And then just my last question I mean at a high level and when you put it all together it sounds like things are still pretty good from a demand perspective, but are there any specific customer sets or geographies that you've grown kind of increasingly cautious on over the last couple of months.
Yes, I think.
You can see it in the bookings of the different segments. They were all up so I mean, we're experiencing good demand everywhere.
The issues of concern you would have is if you would have some particular event the most.
Obvious would be yes, if you had a big COVID-19 outbreak in China, and they decided to shut down our region in China for a period of time that could impact us that's probably.
We one of the bigger risks that we.
We could envision is that you get in the towns, where and you get a big outbreak of Covid and the government here.
Adhering to the zero Copay policy locks down the town for two weeks or four weeks something like that that would that would be.
Significant event to us, but we're really all of our businesses are experiencing good demand really.
Around the world right now.
Got it okay, well I appreciate all the color and I'll turn it over thank you.
Our next question comes from Walter Liptak with Seaport Global Your line is open.
Hi, Thanks, Good morning, guys.
Morning, Walt.
Hey, I wanted to maybe do a follow on to that last one maybe think more specifically about the industrial process and maybe that's where there's the most risk to monetary policy changes.
So when youre talking about orders flowing in the back half.
There are reference to.
Some of those.
Products related companies that build.
Yes.
The produce lumber and other things or OSB for the housing market.
Sure So I think the.
Certainly the housing market, which was running.
Eight starts or so for the first several months of this year. It's moderated now it's kind of the last two months has been like a $95 $5 million six which is still a good healthy level, our customers will be quite busy I think quite happy at a $1 six start level, but we're really cooking at a $1 eight and they've they've made a lot of investments to <unk>.
Upgrade their facilities and to bring new facilities online.
And at some point the organization's resources and focus starts to be okay. We've got to get these facilities up and running and running optimally and so.
Because of that we think that there could be a little bit of a slowdown in the buying cycle also of course.
As interest rates go up mortgage rates go up and the fed works to slow the economy down housing typically sales that but overall the underlying demand for housing is still very strong the demand gap the demand versus starts is still still growing still broadening.
And so again, we like the underlying fundamentals, but we do think for the next.
Next couple of quarters that we might see some some moderation there, but because of all of those.
Variables.
Okay great.
And.
I was thinking about the pricing and what you guys were talking about earlier the industrial.
Industrial metals prices some of them have started coming down.
And I don't I don't know if.
That flows through to you guys.
Second half benefit or there could be a benefit from lower material costs in 2023.
Well certainly metals in particular stainless is one of our single biggest cost and we track that weekly and Youre right. It has come down the last few months I would point out though that it is exactly twice the price. It was this time in 2020% to 24 months ago in August .
Stainless steel 316 was about a buck 50 and now it's like.
Three and change it still twice the price that it was 24 months ago. So I think it is quite a ways to continue coming down.
But but it's definitely all the commodities are definitely starting to.
The decline in price and that is helpful for us and will help us going forward for sure Okay that sounds great.
Bob.
And then you.
Talking about China, It sounded to me like China is reopening after the Covid lockdown.
Is that correct.
Theres also a mixed thing and the newness to the Covid.
Spike again different some other shutdowns whats been your experience.
Yes, so China is continuing to adhere to the <unk> policy and the experts believe that the.
Stay with that at least until November when they have their their governmental conference in presidency.
It is expected to be.
Appointed for a third term.
I think they are not going to take the chance of having any serious outbreak before before that.
We're hoping that possibly they will change things a little bit after the conference at the end of the year, but right now when they get an outbreak in a region. They locked that region down we've been on.
Our sub contractors are suppliers of raw materials have been impacted by that but our plants to date haven't been severely impacted by that.
But anytime there is an outbreak in a region they tend to come in and locked out reaching down for.
Two to four weeks, depending on the severity of the outbreak.
And that's always a worry of ours.
<unk>, which is where one of our facilities of wuxi or another of our facilities or if there was to be an outbreak they can come in and lock it down for a few weeks.
We feel that for sure.
Okay.
Alright, great and maybe along those lines, Mike when you were doing your end.
Your prepared remarks, you talked <unk>.
Put some.
Disclaimers in there.
Timing of capital shipments can move around because of zero COVID-19 supply chain or things like that or was that always in your guidance remarks are you telling us that there could be some timing issues with some of the bigger shipments in the back half of the year.
Yes.
Both.
That's always been there so thats the rate that you talked about.
Yes.
Yes, I did caution.
So it's not in here.
I call that the Mckinney Safe Harbor that you always have.
Alright sounds great. It's always good to be safe. Thanks.
Okay.
Operator, Catherine do you have additional questions.
Yes, one moment.
Our next question comes from Bobby Eubank with Chevy Chase Trust.
Yes, one moment.
Our next question comes from Bobby Eubank with Chevy Chase Trust.
Good morning, guys.
Hi, Bobby Good morning, Bob.
Following up on <unk> question, particularly around U S housing.
Industrial processing segment.
Not going to give longer term guidance, but maybe if you just think about the market and existing OSB equipment, that's out there the barking.
Do you feel like you are in kind of maybe total addressable market.
Age of the fleet things like that.
<unk> from the prior housing cycle is that coming up on replacement. How do you just think about longer term kind of structural demand in that segment and I have a follow up thank you.
So there's several variables really that affect that market. Bobby one is of course is as you pointed out the age of the equipment and our guys recently did some analysis work and said hey, the largest equipments getting quite old. So we think kind of theres clearly going to be a good replacement.
Man for the equipment. In addition to that Youre seeing the wood used in more and more construction.
I've talked about this before that in particularly in Europe as they try to meet their climate.
Their climate initiatives.
They traditionally built homes out of block out out of concrete block and that's one of the biggest greenhouse gas emitters of all industrial processes, and so youre seeing more and more construction start to transition over to two more wood based materials in North America of course, we built up the predominant.
Building material as lumber wood, but in Europe thats not traditionally has not been the case, so we're seeing that change.
Take place and then you have just the general demand.
We are being driven in part by in America by the millennials that are all entering the 30.
<unk>, daughter, who just closed on our house.
Friday, and a 33 old daughter adult one a year ago. So I know Mike's got three kids doing the same so many people.
Seeing there are children, who most of them or many of them are in this millennial.
Generation are entering their prime house by them and so Thats really also driving.
Demand up to and then of course, you've got the fact that more and more people are working from home and they find that their home their current home doesn't exactly meet their needs now that they are working from home and so there is a percentage of people that are are changing there.
Their housing requirements to address their work from home work from home process that we are seeing takeover really not only in the U S, but really around the around the world. So there are several things that are driving it.
If you look at the <unk>.
Housing industry of course is great metrics and Theres a lot of consultants out there that follow it.
They talk about for the next 10 years. The demand is going to continue and we've been under building really since the <unk> nine <unk> hundred nine crash and so that demand gap just continues to grow.
Exasperated by the by the.
By the millennials, who are entering the Brighthouse bond. So there is a lot of variables out there age of equipment kind of transition to <unk>.
The material use and has just increased demand based on demographics at all we think are favorable to the industry.
Thanks, and hopefully you are any thought or was able to get a rate lock or something like that you put in the presentation.
My father.
Yes.
Yes.
You put it in the presentation high energy prices in CRT reduction targets in Europe are driving capital project activity in the region I thought that was kind of an interesting comment a little bit.
Qualitative more qualitative than sometimes you put in the presentation can you kind of double click on that and expand on exactly what youre seeing and maybe durability there.
Sure So as you know.
The World has seen a significant.
Increase in the cost of energy and in Europe . In particular, that's very acute because of course. There are many countries are very dependent on Russia and whats the current Russia, Ukraine conflict that those supplies R. R.
Our at risk and so between the cost and availability.
What we're seeing in Europe is there is there is a much much better payback to install more efficient processing equipment and so we're benefiting from that.
Countries that are paying twice as much for energy and are actually concerned that they may not have as much energy as they need going forward are working hard to reduce their dependence on it and that benefits us because most of our technology one of the big kind of value propositions of our technology is more output with less input so.
We reduced their extra.
Extra steel consumption or their steam consumption or natural gas consumption for.
The same output and so thats projects are just easier to justify theres, a better payback for them.
Because of the higher energy prices.
Thanks, Good luck in the second half.
Thank you thank you Bobby.
There are no other questions in the queue I would like to turn the call back to management.
<unk> for any closing remarks.
Thank you Catherine.
Before wrapping up our call today I just wanted to leave you with a few takeaways second quarter was in many ways a continuation of our first quarter, where we saw strong demand for our products and technologies and robust capital project activity.
While consumers industry and governments are dealing with high inflation.
Our end markets remain well positioned to weather, an economic slowdown in our business fundamentals remained strong.
We will continue to focus on solutions that drive sustainable industrial processing.
And we look forward to delivering exceptional value to our stakeholders again in 2022.
That I want to thank you for joining US today, we look forward to updating you again next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect now disconnect.
The conference will begin shortly to raise Johan during Q&A you can dial one one.
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Yes.
Yes.
Yes.
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[music].