Heritage-Crystal Clean Inc Q1 2023 Earnings Call
Ladies and gentlemen, thank you for standing by today's conference call will begin momentarily until that time your lines will again be placed on music hold thank you for your patience.
[music].
Good morning, ladies and gentlemen, and welcome to Heritage Crystal Clean incorporated first quarter 'twenty pretty three earnings conference call. Today's call is being recorded at this time all colors microphones are muted and you will have an opportunity at the end of the presentation to ask questions instructions will be provided at that time for you to queue up for your questions.
We ask that all callers limit themselves to one or two questions.
Today from the company.
Are the president and Chief Executive.
Executive Officer, Mr. Brian Ricardo and the executive Vice President and Chief Financial Officer, Mr. Mark Devita.
At this time I would like to turn the call over to Mark Devita. Please go ahead Sir.
Thank you Jill and good morning, everyone. Some of the comments, we will make today are forward looking these forward looking statements speak as of today and you should not rely on them as representing our views in the future.
We undertake no obligation to update these statements after this call.
Please refer to our SEC filings, including our annual report on Form 10-K.
As well as our earnings release posted on our website for a more detailed description of the risk factors that may affect our results.
Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our website.
Also please note that certain financial measures. We may use on this call are non-GAAP measures.
See our website for reconciliations of these non-GAAP financial measures to GAAP.
We want to remind everyone that we have begun reporting our results in three segments beginning in the first quarter of 2023.
All business segment will continue to reflect the same activities reflected in the oil business segment in the past.
However, we have begun to report the results from the former Patriot environmental business.
See legacy field services business.
The operations of our non hazardous waste processing facilities, and our new industrial and.
Services segment.
The remainder of the activity historically reported in the environmental services segment will continue to be reported in the new environmental services segment.
In addition to the reporting segment change I just discussed beginning with our 2023 fiscal year, we are reporting our results on a calendar quarter and calendar year basis.
For more information about our company please visit our website.
I would like to turn the call over to Brian Ocado It to start.
Thank you Mark good morning, everyone and thank you for joining us today.
On behalf of the entire Crystal clean team, we're very pleased to report our first quarter already yesterday.
Along with her financial reporting changes Mark mentioned earlier.
On a total company basis, we performed well during the quarter study records for revenue net income earnings per share and EBITDA when compared to the prior year quarter.
Total first quarter revenues of three month quarter record at $193 5 billion, which helped produce EBITDA of $36 2 billion.
Which was up 54% compared to the first quarter of 2022.
Now I would like to discuss the results of our reporting segments.
Let's start with the environmental services segment first.
In the environmental services segment revenue for the first quarter of 2023 was 94.8 million compared to $73 5 million for the same quarter of 2022.
Yeah.
This represents a record high for a three month quarter, and an increase of $21 2 million or 28, 9% from the year ago quarter.
The increase in revenue was mainly due to increased demand and higher prices for our services compared to the prior year quarter.
We experienced revenue increases across all service lines in this segment when compared to the first quarter of 2022.
Environmental services profit before corporate selling general and administrative expenses was 22.7 million or.
Our 24% of revenue compared to $13 1 million or 17.7% of revenue in the year ago quarter.
The increase in operating margin percentage was mainly driven by the price increase we initiated in December of 2022.
Now, let's discuss the industrial and field services segment.
Industrial and field services revenue was $45 8 million for the first quarter of 2023 compared to $11 1 billion for the first quarter of fiscal 2022.
The $34 7 million increase in revenue was mainly driven by revenue from our acquisition of Patriot Environmental services during the second half of 2022.
A lesser extent the.
The higher demand that increased prices in our legacy field services business.
Industrial and field services profit before corporate SG&A expense increased $6.4 million or 583, 6% in the first quarter of 2023 compared to the first quarter of fiscal 2022.
Operating margin for the first quarter of 2023 was 16, 3%.
Compared to the recast margin of nine 8% in the first quarter of 2022.
The.
Greece and operating margin was mainly driven by increased revenues a better contribution margin from the Patriot Environmental acquisition made during the second half of 2022.
From an integration standpoint, the Patriot acquisition has performed better than expected cost reduction synergies are on plan.
Let's now move on to the oil business segment.
Before we discuss the financial performance I want to highlight our re refinery has worked.
1.2 million man hours in almost seven years without a recordable injury.
I want to thank our team members for this tremendous accomplishment.
During the first quarter of fiscal 2023 oil business revenue was $53 million.
Decrease of $1.8 million or three 2%.
Compared to $54 7 million in the first quarter of fiscal 2022.
The decrease in revenue was mainly due to a decrease in base oil sales volume.
Compared to the prior year quarter, partially offset by an increase in base oil sales price.
Oil business segment operating margin decreased to 26, 5% compared to 33, 8% in the first quarter of fiscal 2022.
Our lower operating margin compared to the first quarter of 2022 was mainly due to a decrease in revenue.
From lower base oil sales volume, along with increased labor and transportation expenses.
Increased labor costs as a percentage of revenue was due to our decision to intentionally slow the run rate at the re refinery as.
As a result of softer than expected base oil demand.
Despite the slower run rate our re refinery team continued to execute well during the first quarter.
We produced $12 1 million gallons of base oil base oil during the first quarter, which was one 8% higher than the year ago quarter.
Yeah.
I would like to look forward and discuss our near term future outlook.
In our environmental services segment, we expect revenue growth in the mid teens during the second quarter.
Macroeconomic indicators continue to show signs of a softening economy.
From an operating margin standpoint, while certain operating costs have moderated we have been facing and I expect to continue to face inflationary pressure in some areas of our business such as third party hazardous waste disposal.
We will continue to monitor these cost pressures and if necessary consider additional pricing actions.
We expect second quarter operating margin in the environmental services segment to be relatively flat.
So the first quarter of 2023.
From an industrial and field services segment perspective, we continue to see strong demand and growth on.
On a year over year basis, we expect our revenue increase will be significant.
On a sequential basis, we expect at least single digit and possibly higher revenue growth compared to the first quarter of 2023.
From an operating margin percentage standpoint, we expect to be in the mid teens range.
Longer term, we are adding significant drum processing capabilities to our industrial and field services segment, which will begin to lower our reliance on third party suppliers, while increasing margin contribution.
For the oil business segment, our base oil pricing has been down sequentially for the past two quarters and we expect it to continue to move lower during the second quarter.
This price decline has been driven by unseasonably soft demand as there has been no sign of the increase in demand we typically experience at the beginning of the second quarter due.
Due to the soft base oil market and the fact that we built base oil inventory during the first quarter, we plan to take our once per year extended shutdown at our re refinery during the second quarter.
Moving the timing of our extended shutdown in the second quarter results in more downtime during the quarter.
That should put downward pressure on our operating margin.
When we use Motorola stand point, we will work to offset the impact of decline in base oil pricing by lowering the price we pay for our collected oil.
As a result, we expect our operating margin percentage for our oil business segment to be in the mid to high teens for the second quarter, and then moving above 20% for the balance of the year.
With that Mark will take us through our first quarter financial results.
Thanks, Brian as Brian mentioned earlier during the first quarter of 2023, we set a revenue record for a three month quarter.
Increase in revenue was mainly driven by revenue from the Patriot Environmental acquisition made during the second half of 2022.
As well as higher demand and increased prices for our products and services in our environmental services and industrial and field services segments.
Net income was $16 6 million or <unk> 70 per diluted share for the first quarter of 2023.
This compares to net income of $12 9 million or <unk> 55 per diluted share in the year earlier quarter.
Which represents the basics are basic.
<unk> earnings per share increased 27, 3% compared to the first quarter of 2022.
You adjust out the four additional working days, we estimate basic earnings per share would have increased by 19, 8%.
Let's move on to the details of our environmental services segment results.
The revenue increase Brian spoke of during the first quarter was mainly due to the continued increase in both the demand for our services and higher pricing for <unk> services compared to the prior year quarter.
And the parts cleaning wastewater vacuum and antifreeze businesses, our revenue growth was roughly split evenly between price and volume.
In the containerized waste business, while we did deliver higher prices.
<unk> volume was the main driver of our revenue growth during the first quarter compared to the first quarter of 2022.
Fundamental services profit before corporate selling general and administrative expenses was $22 7 million or 24% of revenue compared to $13 1 million or 17, 7% of revenue in the year ago quarter.
The increase in operating margin was mainly driven by increased leverage on our labor and benefits costs as a result of rising revenue.
Disposal cost as a percentage of revenue was also lower than year ago quarter, when disposal costs were increasing rapidly.
Now, let's discuss industrial and field services.
Brian already discussed the significant increase in segment revenues during the quarter. So lets discuss our operating margin in this segment.
Industrial and field services profit before corporate SG&A expense as a percentage of revenue increased to 16, 3% compared to the recast percentage of nine 8% in the year ago quarter.
Our first quarter operating margin is reflective of a permanent change we made during the quarter to reclassify certain labor and benefit costs for field based employees of the former Patriot environmental business from corporate SG&A expense.
Operating expense.
For the first quarter these expenses amounted to approximately $1 $5 million.
If we had not made this change our operating margin percentage for the first quarter. In this segment would have been 19, 5%.
The increase in operating margin was mainly driven by increased revenues in comparison with the increase in operating costs as a result of the Patriot Environmental acquisition made during the second half of 2022.
Yeah.
Before I move on to the oil business segment I want to point out that the operating margin percentage of the combined environmental services and industrial and field services segments would have been 22, 5% or 130 basis points higher than the operating margin percentage in the two segments were still combined in Q4 2022.
We would not have moved the labor and benefit costs described earlier corporate SG&A expense to operating expense.
Let's now discuss the oil business segment.
Since Brian already discussed our overall revenue and operating margin performance and the drivers for it and I will jump into the detail.
During the first quarter, we increased the volume of used oil we collected by 12% compared to the year ago quarter. After adjusting for four additional working days during the first quarter of 2023 compared to the first quarter of fiscal 2022.
Our net pay for oil during the first quarter of 2023 increased 13 per gallon compared to the first quarter of 2022.
However sequentially our pay for oil decreased by four cents per gallon from the fourth quarter of fiscal 2022 to the first quarter of 2023.
This marks the first time in the last 10 quarters and our net pay for oil decreased.
The cost of third party used oil feedstock increased by five cents per gallon from the fourth quarter of 2022 to the first quarter of 2020 straight on the positive side, we decreased our volume of third party feedstock purchases by 52% compared to the first quarter of fiscal 2022 after adjusting for the four extra working.
Days in the first quarter of 2023 compared to the first quarter of fiscal 2022.
From an operations perspective, we ran our re refinery at 97, 1% of nameplate base oil capacity during the first quarter.
The below 100% run rate was driven by our decision to run the facility at a slower rate due to the SaaS based on demand Brian mentioned earlier.
For the quarter, we produced $12 1 million gallons of base oil compared to $11 9 million gallons during the first quarter of 2022.
After adjusting for the longer first quarter during 2023 base oil production was approximately 5% lower than the first quarter of 2022.
From a sales perspective, we sold $10 2 million gallons of base oil during the first quarter of 2023.
This represents a decrease of 19% compared to the year ago quarter. After adjusting for the longer first quarter of 2023 compared to the first quarter of fiscal 2022.
Our total company operating costs as a percentage of revenue decreased to 72, 4% during the first quarter of 2023 compared to 73% in the first quarter of 2022.
The decrease is mainly due to lower oil inventory cost of goods sold and lower transportation expenses.
Overall corporate SG&A expense of $20 7 million represents an increase of $5 4 million at 35, 5% compared to the year ago quarter, driven by an increase in compensation and benefits expense interest expense.
Legal fees and higher permit and intangible amortization expense.
We estimate at.
That the four additional working days in 2023 increased corporate SG&A expense by eight 5% compared to the first quarter of 2022.
Approximately 26% of this increase was driven by the acquisition of Patriot environmental.
As a percentage of revenue corporate SG&A expense during the first quarter decreased to 10, 7% compared to 11% during the first quarter of last year.
The decrease in corporate SG&A expense as a percentage of revenue is mainly due to lower share based compensation expense and lower professional fees.
EBITDA of $36 2 million was a first quarter record and up 54% compared to $24 1 million in the year ago quarter.
Let's start the four additional working days, we estimate EBITDA would've increased by 41%.
The company's effective income tax rate for the first quarter of fiscal 2023 was 25, 3% compared to 25, 7% in the first quarter of fiscal 2022.
The rate decrease is principally attributable to the decreased impact of certain adjustments to financial reporting income due to increased levels of profitability as compared to the first quarter of fiscal 2022.
Looking at the balance sheet, we had an increase of $13 3 million in cash during the first quarter compared to year end, which resulted in a balance of $35 3 million of cash on hand at the end of the quarter.
Near the beginning of the second quarter, we made a $500 million payment on our revolving loan.
Our primary sources of liquidity for the corner, where cash flows from operations.
Funds available to borrow under our revolving bank credit facility.
We generated $25 7 million in cash flow from operations during the quarter. We also generated free cash flow of $15 7 million during the first quarter of 2023 compared to $15 4 million during the first quarter of 2022.
We continue to pursue various tuck in acquisitions and we are prepared to go after more transformational opportunities as they arise.
Now I'll turn the call back over to Brian for some closing remarks.
Thank you Mark to recap were excited with the strong organic top line growth, we're experiencing in our environmental services segment.
And we're pleased with the sequential improvement in our operating margin during the quarter.
We're also very happy with the progress, we're making in our industrial and field services segment.
And we're also excited about the opportunities we continue to see rolling into our integrated <unk> solution.
Finally, we continue to be pleased with the execution of the oil business segment, despite the volume and price declines we've seen in the base oil market.
This concludes our prepared remarks, I will now turn control of the call over to the operator to take your questions.
We will now begin the question and answer session. If you have a question. Please press star one on your telephone keypad, one moment for your first question.
Your first question comes from the line of Tobey Sommer of <unk> Securities. Please go ahead.
Thanks, Toby and.
Good morning, Tobey. Thank you for picking up good morning, Yeah. We wanted to we wanted to make sure you've got your question.
I appreciate that.
Could you discuss your the relative increases in the company's costs of course.
<unk> III the company kind of what you're seeing there.
And.
The increases that you're able to pass on to your customers sort of how hard is it to stay ahead and avoid a margin squeeze.
Yeah, I'll talk at a macro level and Mark can chime in you didn't follow our story. The last you know post the pandemic.
Obviously, we battle just a lot of supply chain issues in 2022 less so today.
The issues that we're dealing with now relative to a backed up on disposal complex. If you listened to our competitors' conference call.
Lots of demand for hazardous waste services, so our expectation for the balance of this year's we'll fight that issue. The rest of the supply chain has improved we're not seeing.
Meaningful price increases for from other vendors.
Transportation supply is normalize you know just general supplies to support our client base are much better today than they were.
A year ago, so we're going to be dealing with hazardous waste disposal issues price increases relative to that we're confident as we have over the past two years, we can pass the price on.
And as you've seen looking back at our history over the last 18 months or 24 months, we've really just been kind of treading water on the price increases matching what people have been hitting us would we caught up in Q1, we're going to have to react to get into what we expect will be price increase is probably as Q2 from some of our.
Hazardous waste disposal lenders, where we can get into some of the details offline Tobey but.
You know Brent Brian's mentioned that forget year over year just sequentially here.
Yes, the margin ticked up in environmental services, we expected seasonally it's usually from Q4 and Q1 use.
Usually binion assigned some of that craziness with the pandemic tougher and while we have seen areas like trends.
Sequentially getting a little better even even though we haven't capitalized on it other.
Commodity impacted costs, let's say natural gas or whatnot generally that's coming down and we haven't been able to capitalize on it really fully at our re refinery where it so it's a bigger part of the consumable because of our hedge that's coming off.
Thank god, but.
So that's a little bit of a tailwind, but generally it is disposal that we think we're going to have to react to as Brian said here probably again.
Maybe as soon as this quarter.
Understood.
I'm curious we've heard about employee retention improving.
Markedly it across different pockets of our coverage year to date.
Maybe the.
Average employee is watching macro headlines a little bit more one to hunker down.
The company has experienced and is there a change.
That's noticeable this year versus last.
Yeah, I'll talk at a high level to embark probably is some data that we can point to but certainly butter adobe.
It was challenging last year because of the demand mainly around <unk>.
CDL drivers is certainly a shortage of drivers in 2022.
Our route trucks require.
<unk> license.
That has improved meaningfully this year.
Because of the slowing economy.
The layoffs that we've seen in some of the big box warehouses.
We're seeing more robust applicant pools that at our branch location. So it's a bit easier to hire we still have to work hard with our short service employees and make sure we train them properly to get them comfortable with our complicated business. That's something that we're working on internally we've developed.
Moreover, trading program did not just.
And the guys the keys and tell them to go start picking up waste, it's a complicated business with lots of different service lines. As you know a lot of different EPA waste goes a lot to learn on the environmental front, but all in all it is definitely better. So so what's your reading is true.
Yes, we've seen.
It can be sometimes.
A little dangerous to annualize, maybe one quarter, but if we would do that we're probably on track test. If we do that with Q1 2023 told me, we're probably on track to be a couple of percent lower in total turnover than 2022.
Which had ticked up from 2021, so 2023, starting out as if it will be lower than the last couple of years.
Not not materially lower but given what Brian said, just the fact that especially on the <unk> side, we have I think a bigger challenge if you're starting to compare us to other industry players because a lot of our people are both combined sales and service.
Responsibilities and that's always just.
Off the top I think our foundational a lot higher harder excuse me to hire and retain because it is something that most people get into it haven't done it before.
Thank you.
Again, if you'd like to ask a question press star one on your telephone keypad. Your next question comes from the line of Quinn Fredrickson of Baird. Please go ahead.
Hey, how are you good morning, Glenn.
Good morning, guys.
So I just wanted to clarify go over the outlook comments that you mentioned Bryan just make sure I got it right. So I think the industrial and field you said mid single digit growth and that was quarter over quarter and then yes mid teens is that accurate.
Yeah. That's right you know mid to high in industrial and field services in mid teens in our legacy U S business, we're still seeing robust demand at the field level.
You know what.
Obviously, we read the same thing you guys read about macro macroeconomic conditions, we are a.
A bit more worried about the long term, but tremendous demand out in the field right now.
Okay, Alright, and that so that was the legacy Es comment is.
The industrial and field services revenue I mean is it kind of similar to what it was in the first quarter I'm just trying to make sure we're building up a minute.
We are mid to high single digit growth sequentially.
Sequentially.
Okay perfect. So we expect that to ramp up in.
And kind of in the back end of the year, we Didnt go much further but.
As much as we're excited with the <unk> opportunity hadn't really it didn't contribute much in as far as pure revenue in Q1, so hopefully as we get more equipment in obviously, that's dependent on our partners but.
We see upside in that and that'll be part of the bigger part of the revenue growth story as we proceed.
We always signaled that.
To produce more growth towards the back end of the year, just because of what Mark mentioned relative to equipment, but we are fully operational in Grand Rapids now contributing.
Foss leachate waste at a commercial level I mean, we're running about 100000 gallons a day of.
Processing currently we expect to go into near term, which is another piece of equipment.
So going well so far.
Okay. Thank you.
Maybe shifting gears to the oil business.
Can you just update us maybe on.
Production targets for the year and utilization and then secondly, one of your competitors had mentioned that they are now.
A modest charge for oil position here to start the second quarter could you maybe give us an update on where you stand today.
Yeah, I'll talk a bit through a macro standpoint, we're still expecting our overall base oil production to be in the 47 48 billion gallon range second quarter is going to be.
Lighter, obviously, because we moved the charter realm and into the second quarter, which was the right thing to do for us.
Base oil demand being a little bit soft so will produce roughly 11 million gallons in Q2.
And then in terms of what.
What was the other question.
One more.
Glenn.
Where was the other question you asked about base oil which are covered.
Oh used motor oil certainly we're not at a charge for oil.
Used motor oil front, because we don't have a significant presence in the western half of the U S where the market's a bit different but we are going to aggressively move are.
Our pay for oil down substantially and we hope to get to.
Low low single digit pay for oil by the end of this quarter. So we're going to move it quite a bit over the quarter.
We're still relatively long for oil we've got quite a bit of inventory. So we're in good shape, which will allow us to drive the price we pay for oil down meaningfully over the quarter.
Alright, Thank you very much guys.
Thank you.
Your next question comes from the line of Michael Hoffman of Stifel. Go ahead. Please. Thank you very much good morning, Marc.
Good morning.
Can I just.
Zoned in on the oil.
Where do you think capacity utilization I'm just doing the quick math I think it gets to me somewhere in the in the eighteens for the for the second quarter versus high nineties.
Yes.
Okay.
So that's right.
With the expectation that base oil demand Michael is going to pick up.
So I have a curious question a follow on on that so the gasoline supply as is.
Tight and there's been good demand.
And then Greg gasoline resupply numbers suggests we're driving.
So what do you think is happening.
That's a good question, we ask ourselves every day.
I don't know the recessions impacting people's desire to change oil I know that the export markets are not very good Michael as you are well aware of it.
China's economic slowdown Hasnt helped that Andy is demand is down a bit or at least.
Had plenty of supply so they are out of order and a lot of base oil. So we're not seeing a.
Robust export market conditions and I think.
Some of our blenders and talking to our wholesale customers are a bit reluctant to fill their tanks are up with the expectation that pricing may go down a little bit over Q2.
So I think.
Hedging their bets on where they think pricing is going to go we do like demand is going to begin to pick up in Q2. It has to how many people are driving and they are going to change the oil. So it is going to get better.
My history with this when it was back and it was independent safety Kleen for instance that the consumer will lengthen their oil chain cycle by a month 1000 miles.
Are you seeing that in the parts washer business that service intervals are lengthening.
We haven't seen any meaningful changes in parts washer intervals now now it's been it's actually been pretty good that's where we also look at another indicator Michael we're uncertain services, we can offer.
The customer really doesn't need a full service it depends on within the parts cleaning menu specifically, what it is but a slimmed down service and those are usually kind of a canary in the coal mine for us anyway for our business in the parts cleaning side, and that's actually going I mean not much.
Incrementally lower.
Last month or two so it.
Like Brian said it all points to you can stretch it out a little bit, but it's got to be commented that the way it's gotta be here soon.
As far as oil change I mean.
Thank you. Your next question comes from the line of Kevin Stinky Bank.
Barrington Research. Please go ahead.
Hi, Kevin how are you going to Kevin.
Hey, good morning, how are you.
Good.
Good good.
Can you hear me.
Yes, we can hear you.
Yeah, Thanks, alright, well in the past.
No.
You talked about.
In the environmental services segment.
You're getting more inbound calls from.
Central customers due to service shortfalls at competitors and the fact that you retained more staff during the pandemic driven downturn was benefiting you as that.
Still.
A factor that you are seeing in the market. That's aiding your organic revenue growth. There is other competitors kind of caught up with their staffing what and just wondering.
If you are seeing kind of elevated.
Volume of inbound calls.
Yeah, we're not seeing the elevated volume of inbound calls Theres still Kevin some service issues out in the marketplace, mainly around hazardous waste.
Not so much the other industrial waste streams within the hazardous waste category, specifically incineration because theres just.
A shortage of supply overall in that marketplace.
But we're still seeing tremendous demand and I think we are.
Because of the way we pay people I think we do.
Out hustle them because of our commission structure.
That is leading to outsized growth certainly, but not the level of calls that we were experiencing.
But I still think we're going to have outsized drove relative to our peer group.
Okay, Yeah that makes sense.
Just thinking about.
New industrial and field services segment.
Yes.
How lumpy, which you expect that to be from quarter to quarter.
If you get some larger field services projects in or is it a.
Gail we're there wouldn't be meaningful.
Ups and downs quarter to quarter.
Yes, we've got a pretty kind of at a pretty good base business. So.
And we didn't do a lot of extra ordinary projects in Q1, none that I can remember where in the.
Bird flu business and we didn't have any bird flu cases throughout Q1, so no no large.
That project, so thats kind of our recurring base business, obviously there lots.
Lots of projects for our smaller customers, where we think theres an opportunity to continue to grow that.
As we expand.
Even out West I mean, we're really starting to integrate our operations our guys. We're talking to each other the Patriot people are beginning to do some work for our branch locations.
So it'll be lumpy, if we land a big project or two but I think the first quarter was mostly base business and we're going to try.
And when we land those jobs and I should say not one.
When we land those jobs, because it's just a matter of time when those come in and stuff that you can't control, but we'll try and call that out.
And let everyone know what.
The adjusted version.
Or what the base is what we would call base business is on industrial and field services. So hopefully that all that will help going forward, but our.
Sure.
Our average project is still pretty small.
A lot of it it's changing and that's a good thing, but as it evolves even on the legacy and our sands Patriot on the legacy side of the business, it's still less than $10000 projects per project sell in.
Compared to prior service and that what is now in the Es segment, Yes, that's really high but for industrial and field services in general if you ask around.
Thank you.
You have another question from the line of Michael Hoffman of Stifel. Please go ahead.
Wanted to follow up on the demand side, and we all read and listen the same financial news, they're all trying to talk us into the world's falling apart, but what are we seeing cross either the breath of the end markets.
For the types of things Youre getting asked for that give you comfort that they are stable demand.
Okay.
I'll repeat that we are at Ada we had an audio problem yeah no problem. So.
Brian you were comfortable about talking about Theres still good strong demand and we're all reading and hearing the same financial news is trying to talk us into a recession, but what are you seeing between the breath of either the customer base being widened helped by Patriot as well as your own efforts and yes or.
Specific activities that like is there a re shoring him influencing this or is there infrastructure II JA spending happening that's trickling through the model, what's giving you comfort.
About theres, a theres a decent demand environment from your perspective.
Yes, I don't think.
The legislation is created any additional demand model at least through the first quarter were expected in the second quarter.
By information just for routine phone calls with our branch personnel in there Doug.
Experiencing any slowdown at the manufacturing level with our individual customers nobody's reducing.
Production out in the field, which would impact our business.
We talk about at least at our prepared remarks that we worry we worried for the same reasons you do because we're trying to talk ourselves into a recession, but we're certainly not.
But not a lot of infrastructure grows or opportunities relative to that that we're seeing so far.
I haven't seen any reinsurance or any additional manufacturing.
Opportunities near term there are lots of talk about projects being developed but theyre not producing voice yet.
Okay.
And then we're done.
So we're very bullish.
For sure, Yes, and California had terrible weather and you now have a bunch of new assets in California was that disruptive.
No it really didn't hurt us at launch.
We actually produced a little bit of.
Flood related emergency response work as a result of the bad weather there so not really a negative for us.
Yeah, especially in January it did help the Patriot business.
Usually that's a pretty slow slow time for that but that flood workout.
Thanks <unk>.
Okay. Thank you.
There are no further questions at this time.
This concludes today's conference call you may now disconnect.
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