Alamo Group Inc. Q1 2023 Earnings Call
Greetings and welcome to the Alamo Group, Inc. First quarter 2023 conference call.
This time participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
One should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Edouard rigidity, Vice President General Counsel and Secretary you may begin Sir.
Thank you.
By now you should have all received a copy of the press release. However, if anyone is missing a copy and would like to receive one please contact us at 2128 to 73746, and we will send you a release and make sure you round the company's distribution list.
A replay of the call, which will begin one hour after the call and run for one week. The replay can be accessed by dialing 84451 to two nine to one with the pass code 13738073.
Additionally, the call is being webcast on the company's website at Www Dot Alamo vast group Dot com and a replay will be available for 60 days.
On the line with me today are Jeff Weiner, President and Chief Executive Officer, Richard worthy extra Vice President and Chief Financial Officer, and Treasurer, and Dan Malone Executive Vice President and Chief Sustainability Officer.
Management will make some opening remarks, and then we'll open up the line for your questions.
During the call today management may reference certain non-GAAP numbers in their remarks.
Conciliation of these non-GAAP results to applicable GAAP numbers are included in the attachments to our earnings release.
Before turning the call over to Jeff I'd like to make a few comments about forward looking statements.
We will be making forward looking statements today that are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Forward looking statements involve known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results.
Among those factors, which could cause actual results to differ materially are the following.
Adverse economic conditions, which could lead to a reduction in overall market demand supply chain disruptions labor constraints competition weather seasonality currency related issues geopolitical issues and other risk factors listed from time to time in the company's SEC reports.
The company does not undertake any obligation to update the information contained herein speak only as of the state.
I would now like to introduce Jess Lennar, Jeff. Please go ahead.
You bet, we want to thank all of you for joining US today, Richard will begin our call with a review of our financial results for the first quarter 2023, I will then provide additional comments on the results. Following our formal remarks, we look forward to taking your questions. So Richard Please go ahead.
Thanks, Jeff and good morning, everyone Alamo group's first quarter 2023 holes with another solid performance have produced record net sales and net income.
This was driven by a strong demand for our products and what remaining what remains a dynamic operating climate.
First quarter consolidated net sales for 2023, $411 8 million, an increase of 14% compared to 362, a day in the first quarter of last year.
2023, net sales were negatively impacted just over 2%.
Currency by currency translation compared to the same time last year U S. Dollar continued to strengthen as it did throughout all of 2022.
Gross margin dollars in the quarter improved compared to the first quarter of 2020.
Gross margin dollars in the quarter improved compared to the first quarter of 2022 by $25 9 billion as it did as did gross margin percentage, which was up 340 basis points all.
Both increases were due to price initiatives taken early 2022.
As well as improved manufacturing efficiencies.
We experienced improvement in the supply chain as deliveries of inbound inventory rewards tend to bolster up the quarter.
Tables accompanying manufacturing manufacturers products on a more consistent basis, which in turn allowed for better better absorption of manufacturing costs.
As a percentage of sales operating expenses for the first quarter of 2023 came at just over 15%.
I went to almost 16% during the same time last year.
This along with improved supply chain more favorable pricing and higher manufacturing efficiencies led to an operating income for 2023 or 49.0, just shy of 12% of sales.
Compared to $29 1 million or 8% of sales in the first quarter of 2022.
An increase of 390 basis points.
Holidayed net income for the first quarter of 2023.
$33 4 million or $2 79.
Sure.
<unk>, 8% versus net income of $18 5 billion $1 95 per diluted share for the first quarter of 2022.
Continued efforts to control costs and expenses also supported the increase in profitability.
Education Management Division had an excellent first quarter for 2023 as markets remained strong first quarter 2023, net sales were $256 4 million.
An increase of 16% compared to 221 million in the first quarter of 2022.
Higher sales of fourth street tree care, and agricultural and governmental mowing products in both North America, and Europe led the way for the division.
Despite labor constraints margin improved primarily due to increased net price realization and productivity improvements.
Operating income for the first quarter of 2023, and this division was $36 5 million.
99% versus $18 three bands in the same periods of 2020.
Industrial equipment Division net sales in the first part of 2023 to $155 3 billion up.
Up 10% compared to 141 billion for the first quarter of 2022.
This was due to a solid performance the sweeper and debris collectors and to a lesser extent improved net sales and the division's excavator and facts and truck and snow product lines.
Truck chassis and other component parts deliveries show incremental improvement this quarter, which in turn drove the improved manufacturing efficiencies, although it's still not at our expected levels of operating income in the first quarter of 2023.
One was $12 5 million compared to $10 eight for the first quarter of 2022, an increase of 16%.
The company's backlog at the end of the first quarter of 2023 came in at <unk>.
Came in at 995 million. This was an increase of just over 8%.
Backlog at the end of the first quarter 2022.
Backlog position should continue to support higher sales and profits for the balance of 'twenty three.
Turning to a few additional financial items for the first quarter of 2023.
Our balance sheet continues to remain strong.
<unk> capital increased 90 million to 641 million in the first quarter of 2023.
$551 million in the first quarter of 2022.
Increase in working capital result resulted primarily from higher cash levels and accounts receivable, which were up almost 23% from a year ago.
All in sales volume.
To be very pleased with receivables no major issues a collection that incoming cash remained steady.
Inventory was up seven days compared to the first quarter of 2022.
2020.
Three inventory figures include material and labor cost inflation for 2022.
Without this inflation, we reduce inventory quantities year over year.
This reduction in inventory volume allowed us to reflect a small decrease in debt level, which in turn lowered our leverage ratio to one seven.
Finally, the company's trailing 12 months EBITDA was a record $216 million up 10% compared to the end of 2022.
2020 free cash flow should remain strong as our focus on the balance sheet will continue to be able to reduce both inventory and debt levels.
Yes.
Increasing consolidated profits for 2023 will continue to be extremely important.
You need to be disciplined in controlling costs and expenses.
Also just prices as needed based on changes in material and transportation costs.
To maintain our target margins.
We're also focused on further improving supply chain performance helped produce a mouse.
The Tories and hold and work in process.
Our biggest challenge will be in meeting the demand for our products throughout the company.
Diligently monitor supply chain issues, and labor shortages, which remain dynamic.
Along with inflation and monetary policy actions.
We will react accordingly.
I'm pleased that our board recently approved our regular quarterly dividends of 22 per share for the second quarter of 2023.
With that I will turn the call back over to Jeff. Thank you Richard I'd like to offer my personal thanks to everyone who has joined our conference call. Today. We were certainly pleased with the strong first quarter results, we reported today and I am exceptionally proud of our teams made some possible as we had anticipated healthy markets at a modest but notable improvement in the.
For most of our supply chain drove our quarterly sales above the $400 million Mark for the first time in company history.
Sales were up nicely across both company operating divisions as previously passed do supplier parts began to arrive in quantities that allowed us to increase the pace of our shipments with superb support from our key suppliers manufacturing flow improved and our larger operations, resulting in better efficiencies.
We've commented on previous calls about our confidence in the price quality of our backlog and this was evident in our first quarter results gross margin improved 30% or 340 basis points compared to the first quarter of 2022 as improved pricing and supplier performance allowed more and better quality backlog to convert to sales.
Currently our teams continued to keep tight control over costs and our expenses expressed as a percentage of sales were down slightly.
The combination of higher sales better pricing improved efficiency and strict cost discipline drove operating income to 11, 9% of sales. We were obviously pleased that operating income is approaching the upgraded target of 12% that we established at the start of 2022 and this was achieved in the Companys normally.
Our first quarter.
After tax company first quarter earnings of $33 4 million or slightly more than 80% higher than the first quarter of 2022.
The changes to our manufacturing strategy that we initiated in 2021 also contributed to our first quarter results as we reported earlier, we closed one of our U S. Snow removal facilities in December 2022, after consolidating the work performed there or to a larger sister facility and we began to see the benefits of that this quarter.
We continue to focus on facility consolidations to reduce costs and improve capacity utilization.
We're also working steadily on transferring production of our flagship products as close to the market as possible to reduce shipping time and cost and improve working capital turnover. Our vegetation management debate had another outstanding quarter compared to the first quarter of 2022 sales were up 16% and operating income improve.
By over $18 million, an impressive increase of over 99% sales.
Sales in every region and product category increased nicely, except for Brazil, where sales were a bit lower as several large contracts were completed.
Industrial equipment Division sales were up over 10% compared to the first quarter of 2022 divisions sales of excavators vacuum trucks sweepers and debris collectors benefited from the improvement in supply chain performance, although volume allocations remain in effect first quarter truck chassis receipts were up more than 20% from the first quarter a year.
Our ago and were up nearly 50% from the fourth quarter of 2022. This improvement was achieved through close cooperation with our chassis supply partners and supported by our efforts last year to diversify chassis sourcing.
With the leverage of higher sales better pricing and improved capacity utilization. The division's operating income increased by over 16% compared to the first quarter of 2022.
I would now like to offer a few observations about conditions in our major markets in the first quarter and the outlook for the remainder of 2023 as we reported in the press release first quarter order bookings declined 17% compared to the same period of 2022. This decline was confined to vegetation management as order bookings in the industrial equipment Division.
Were up compared to the first quarter 2022.
Orders for Forest Green tree care products were lower year over year in the first quarter. However, this was largely due to a challenging comparison period as we have reported exceptionally high order intake in this segment during the first quarter of 2022, we experienced a moderate slowing of orders for tractor mounted mowers unrelated tillage equipment in farm and ranch segments in north.
This decline was not unexpected.
The association of equipment manufacturers report for the first quarter showed that shipments of tractors less than 100 horsepower were down nearly 18% compared to the first quarter of 2022 agricultural equipment dealer inventories are returning to pre pandemic levels as unit shipments have increased due to better supply chain performance.
The pace of both shipments and new orders is returning to a more normal cadence as pandemic related distortions dissipate more positively however sales of our vegetation management equipment to governmental agencies are historically strong and order bookings were up compared to the first quarter of last year quoting activity in this sector also remains.
Brisk in both North America and Europe .
Finally, although this divisions in the first quarter backlog of almost $518 million is down about 15% year over year. It remains significantly elevated by historical standards and the first quarter of 'twenty two comparison was exceptional industrial.
Industrial equipment Division orders received were higher in the first quarter compared to the first quarter of 2022. The increase was driven mostly by stronger activity in our street sweeper and debris collector products as I pointed out previously the industrial equipment Division has been more significantly impacted by supply chain shortages over the past year, we expect that <unk>.
Proving chassis delivery volumes and other supply chain performance gains, we'll see sales growth in this division accelerate for the next several quarters and margins should improve further as this division's activities are more heavily weighted toward governmental customers. We expect good market momentum to continue for the remainder of 2023.
This divisions in the first quarter order backlog of almost $477 million was 55% higher than the same point in 2022, clearly illustrating the constraint truck chassis delivery allocations have on its top line growth.
We're also pleased to report that at the recent Con Expo show in Las Vegas, We unveiled our first fully electric and electric hybrid versions of our core products. We were encouraged by the very warm reception of these new more environmentally friendly products receive from fleet operators and equipment dealers in attendance we.
We will release, our fourth annual corporate sustainability report in the next few days in the report you will see the clear progress, we're making towards the achievement of our ESG targets, we hope you'll take the time to download and read the report.
In summary, we were very pleased with the robust results. We have reported to date and anticipate that the company will continue to perform at a high level for the next few quarters and for the full year 2023, our expectations are supported by the sustained strength and quality of our order backlog.
Proving supply chain performance rising efficiencies and our commitment to persistent spending discipline.
Uncertainty in our operating environment as evidenced however, higher and potentially still rising interest rates are concerning and were therefore somewhat more cautious about the longer term outlook for 2024 and beyond I would like to thank our employees, our dealers our suppliers customers and financial stakeholders for their continued support for <unk>.
The company. This concludes our prepared remarks, we're now ready to take your questions. Operator. Please go ahead.
Thank you.
We'll now be conducting a question and answer session. She would like to ask a question. Please press star one on your telephone keypad.
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Our first question comes from Mike Sweeney with D. A Davidson. Please go ahead.
Yes, good morning, and finish for taking my question in in the first quarter here you essentially hit the 12% operating margin you're very very close to it that target is very much in view here I'm just looking back through history. You know Q2, and Q3 are typically higher margin quarters in Q1 or as you've alluded to.
On the seasonality of your business I'm just want to make sure. You know is that still the case here in 2023 and is there a good shot then you can actually make 12% or higher operating margin for the year.
Yes, Mike Thanks for the call and nice to talk to you get I do believe that's the case, Mike Q2, and Q3 are normally better for spare parts in our business.
Business and that tends to blend in a better margin. So I'm not going to say I'm, 100% confident but I'm confident we should be knocking on the door of 12% for the next couple of quarters.
Great.
No.
I guess I wanted to ask if you do get to 12% how sustainable is that or do you do you have a next goal in mind when I look at one of your top peers.
They're already they've already exceeded 12% not too far behind it I don't think actually beat them on margin this past quarter and EBITDA perspective.
I'd be curious if you think you could.
Perhaps reach some of those peer margins whichever you know a few hundred basis points above 12% in the.
Near future barring a you know.
A large economic meltdown or something like that.
I think Mike as I always say when we sustainably hit 12% for a couple of quarters. Then we'll reset our aspirations are little bit higher. This is a continuous improvement company and once we hit the mark consistently definitely set at higher.
When that'll be I can't say for sure as I said in the call I'm, a little worried about where interest rates are going and what that might impact on dealer behaviors.
We head into 2024, having said that our efficiencies are still rising our operations from great shape. Our bigger units are performing exceptionally well. So I think you could look for a further discussion about targets from us in the back half of this year.
Okay. It's up on your comment there you just made Jeff on the point.
<unk> thousand 20 for trends.
Are those comments very much meant towards the private sector customers that drove that youre working with or is everything just kind of curious whether either hey, you've got the backlog in industrial or in both segments. The last was 2024, regardless of the broader environment, maybe secondly, whether you'd think that government has got a bit more staying power if you will.
24.
Yeah, I would say these comments towards 2024 or more combined confined the private customers. The governmental sector remains in great shape, Mike and everything I read about the state of copper metal finances at the state municipal and county levels is very optimistic and buoyant.
And the order book inside the industrial equipment division from governmental customers reflects that so I think the industrial division will have a nice strong running in 2024 I think in vegetation management. The only real significant concern at this point is that and I guess like in cycling down a little bit at least at the low end I was interested in watching the earnings reports out of them.
Big anchor Oems and you know, they're still commenting about the strength in AG and I see that and I think that's more of the larger row crop farms at least that's what C. N. H commented. This morning in their earnings release that I got a chance to look at.
Got it got it.
One last one for me you didn't mention it in your prepared comments, but just some thoughts on the acquisition pipeline and interesting targets out there what you're working on how you might look to pay for something if you've got that can become size et cetera would be appreciated.
Our pipeline is looking robust at the moment Mike.
We're in a position of you know, we're trying to stay close to our strategy to be clear.
A little less opportunistic and really focus on the areas of the business, we want to grow but the pipeline looks encouraging and our balance sheet continues to improve which makes doing a little bit larger deal.
He's here for us and certainly more strategic for us over time, so it's looking good at the moment.
Okay, well, thanks, very much I'll pass it along.
Thank you Mike I appreciate your questions.
Your next question comes from Greg Burns with Dougherty and company. Please go ahead.
Good morning.
Just wanted to get your view on like.
The historic performance of the AG market and I'm thinking more.
In terms of like how how the cycles typically run how many years.
Yeah.
Peak to trough you might see because I know theres a number of years, where it was kind of flattish we've been in kind of this up cycle for the last couple of years and it seems like it's softening now so.
So you know do you just have any a historical perspective on kind of the AG market cycle.
And what I would say Greg is that the normal cycle in the AG business is four to five years for the kinds of products that we produce I think we are at the late stage of that having said that the whole cycle was distorted by the pandemic and the backlog in our AG business is still remains historically high not.
Not as high as they were but historically if you go back even to pre pandemic levels that are significantly higher. So I think we are going to see this kind of a peaking of the tipping of the peaks you know cutting off the peaks and filling in the valley is a little bit. So I'm trying to say is I think the <unk> will remain as it is normally but I think the highs and lows will be more protracted.
I'm a lot more clear.
Hopes to each other.
Yep.
So, but yes, yeah yep, Phil on the dips a little bit alright.
Alright that makes sense and then on the.
Forrest Ranch tree care side of the business what are what are the main demand drivers. We can look to to kind of monitor the health of that segment of your business.
I think the most important one for our business and forestry is the price of wood pellets.
That's a very significant driver for the bigger machines that more bark producers that are used.
And recycling wouldn't produce some college housing starts to some more.
Subtle indicator, but it's there for sure.
Wood pellets have trended down a little bit recently, we've been watching that fairly closely but I think the more important take away from my remarks on this conference call about our forestry business as in the first quarter of 2022, we've looked over $100 million of orders in that one quarter. So the comparison period was just astronomical so I was trying to make clear that.
People shouldn't overreact to that you know, we just had a very exceptional period, a year ago, and we don't ever I don't think ever in history as more come anywhere close to 100 meters a quarter, except for that one time and so our forestry business remains in really good shape and if you go back and you map the bookings history month by month and quarter by quarter for that business. It's very.
Difficult to see a clear cycle, it's a lot of spikes up and down break where we're still learning and to be candid with you.
But the people in the business that have been with us for a long time. So I'd look at it is difficult to spot piece because.
Does the buying behaviors get a little distorted because these machines are so long lived so the distortions come when you introduce new technology or whether it's a breakthrough that might accelerate the obsolescence some of the machines in the field and there was some of that we've introduced some new products in 2021 that really took off nicely for us.
Okay I guess.
That commentary around the the order bookings have you seen any <unk>.
Change since the end of the quarter can you maybe update us on the kind of the first part of this quarter, how the the order bookings have trended.
Yeah, I think they've trended fairly consistently what we reported for the first quarter, Greg We haven't noticed a significant change from what I reported here today in the month of April So things were kind of steady as she goes at the moment I think what we are starting to see though is more dealer caution the.
The inventories in the AG side of the business are back to where they were pre dominic or very close to that having said that they werent exceptionally high pre pandemic. So we're not alarmed about at all but I think with rising interest rates dealers begin to pay a lot more attention to their balance sheets.
So we're watching the payables closely we've seen a few less people taking up the prepayment discounts early payment discounts and so on which are I've been cautionary indicators for us so while I'm not overly concerned we're definitely keeping our eye on the ball and I could just being careful about what we do how much we produce in our inventories altogether.
Okay perfect. Thank you.
Okay.
Our next question comes from Chip Moore with yet.
Please go ahead.
Thanks, and nice job on stringing together two consecutive quarters of strong sales gains and robust gross margin expansion and it's nice to see the orders and backlog are holding up.
Yeah, that's really nice to see the orders backlog holding up for visibility.
The first question I, just want to dive into the supply chain and the under absorption of manufacturing efficiencies has that there's it seems like that improved a lot I guess, maybe since February and do you think it won't be much of a.
Gross margin drag as you look out past June .
Yeah.
I think we're going to see a further.
Further improvements in the margins, particularly in industrial because the supply chain is beginning to clear up there it's improving significantly.
But having moved away from the immediate crisis chassis that is dissipating, we're still struggling with things like oil coolers in hydraulics and other components.
Ken it's better, but it's not where it needs to be by any stretch of imagination, but I do expect the margins in industrial are going to improve in the next couple of quarters and we're pretty optimistic about the way those are going to shape out for the balance of this year.
Oh.
Great. That's helpful color. What actions are you may be taking to deal with the labor shortages to meet the heightened demand.
Is there anything else can maybe do there.
You know that that hasn't been as big an issue for us in Q1, that's beginning to dissipate or hiring rates have been improving our we've been focusing more on things like apprenticeship programs and.
Preparing the workforce, bringing an unskilled people training them to work in our plants.
So I don't think that's really going to be too much of a constraint as we go into Q2 and Q3 are bigger plants in AG still have some shortages, but at the moment with your eye business, where it is that we can stay ahead of that at the peak of the market I'm pretty satisfied with it.
And that we continue to invest very heavily in robotics and automation and then as you go and visit our bigger factories and I Hope you do at some point soon you would see that firsthand.
Great that's helpful color and.
What about you know just how quickly can you maybe add one or two manufacturing plants to earth to Europe to increase the penetration of maybe my words and sweepers, while also saving on the transportation costs from the U S to Europe .
Yeah, that's very very interesting and timely question. We just finished our board meeting and we are discussing these patch from several of our plants in Europe and some of them quite significant so those are in planning.
Planning stages, and we expect to initiate those projects later this year.
Both UK and France.
Yeah.
Great. That's helpful and just related to Con Expo in just electrification in general how soon can maybe some of the prototypes convert to commercial success. You know I believe you were working on electric.
Street Sweeper that could maybe operated four to five hours on a battery instead of diesel is there anything that you expect to launch that could be out by the end of the year early next year.
Our launch time isn't limited by ourselves it's limited by the availability of the electrified chassis. So that a fully electric street sweeper. We showed a con Expo got overwhelmingly positive feedback and lots of people are ready to take those machines, but we literally got the second chassis off the assembly line, so as our suppliers can ramp up.
The manufacturing capacity of the chassis will celebrate the introduction of full commercial introduction of those products in the park, but from our end we're ready we can go at any time.
Great.
My last question you know, maybe it's a two parter.
Maybe for Richard.
You know, obviously things with pricing and cost for transportation of surcharges that you've been doing a bit of a catch up and you know freight might be coming down a little bit or any of those kind of surcharges rolling off on the transportation side and just for rich.
Just around free cash on working capital do you expect any one off drags on working capital. When you look at the June September quarters that might curtail free cash club because it seems without that you know you might be on track for at least 80 million 85 million of free cash flow. This year I was just wondering if there was any anything odd coming up in the next couple of quarters.
Yes for your second question no nothing odd that we're that we're staring at cost issue. So.
But that's not a problem at all.
What about surcharges on the surcharges piece.
We dropped some surcharges, where we you know what I mean.
Invoices to customers, we've got adjusted the price, but when we had somebody price increases last year. So quite we started doing surcharges, we pulled some of those off as cost has diminished related to.
Oh.
Freight and whatnot. So I think overall I think we're in pretty good shape, there were not any real major issues to get major piece of this is our backlog pricing is excellent.
So I think.
We're managing that as we go through it so when we do get.
Request to try to reduce some cost.
The first thing we do is take all of the surcharge.
And I think the other part of your question was specifically regarding the surcharges, we receive an inbound or outbound shipments from shippers and we've not seen substitute relief on those yet to be clear.
I think we've got to see a consistent sustained fall in fuel prices before we're going to see those surcharges start to fade.
Great. Thanks for that color that's it for my questions. Thanks.
Thank you.
Yeah.
Ladies and gentlemen, as a reminder, if you want to ask a question. Please press star one on your telephone keypad. Our next question comes from Chris Moore with CJS Securities. Please go ahead.
Hey, good morning, guys. Thanks for taking a couple of questions.
Yeah. So it sounds like you know backlog pricing was strong after Q4, it's continued.
On a on a kind of a relative strength our.
Perspective is the pricing on vegetation or industrial much different.
No actually it's not the margins are very close across the two divisions.
At the moment and we expect it to stay that way for a bit what will change. It event eventually as the softening in the AG side and I think that we will see that start to come down and some pricing pressure start to emerge in AG I believe as we head into 2024, I don't think we're going to see it much yet in 2023, but at the moment. The two divisions are neck and neck in terms of the <unk>.
Margins are produced.
Got it yeah, that's what I was after on the margin side. It sounds it sounds like the industrial margins, Ken can tick up through 'twenty, three that 14% level, which obviously Q2 Q3 or more parts.
Looks like it could be sustainable for for vegetation for the rest of of 'twenty. Three so industrial then likely to to keep moving into 'twenty four and then we'll just see what happens on the vegetation decided on the margins.
Right I think so Chris because on the industrial side, we still got some efficiencies that are lagging, but they're not where they need to be because as I said the truck chassis situation is much better I think I commented specifically like chassis proceeds were about 20% from a year ago.
We're not out of the woods with regard to that yet at all and that's why the backlog just keeps building is such an extraordinary rate. We didn't anticipate the backlog would go quite as high as it did in industrial so it's a nice problem to have but better pricing should stay stay in place in the industrial division for some time to come because of governmental agencies really don't renegotiate.
Contracts are at all so that's the margin that we have in the backlog and industrial should be quite durable as as it flows out into revenue.
Yeah.
Got it very helpful and just.
On the E V side I know that's an in pit in the future, but from a margin perspective on the hybrid or in the old electric you expect them to be you know kind of at parity in terms of of.
Current equipment or is there is there any premium that that might be a gain there.
I do believe there will be a premium and more interestingly, Chris I think we're going to see cost advantages over time as the cost of these electrical components come down in many ways, an electrified practice easier to assemble than one that's filled up hydraulics and pneumatics and the other thing is the complexity is lower accident.
And so generally that should translate into less assembly hours over time. So we've been studying that a lot to try to see where our costs might go and the initial feedback from those studies was very encouraging about the rate at which we can assemble electrified products compared to their traditional counterparts.
Got it that's helpful I'll leave it there I appreciate it guys.
Thank you Chris.
There are no further questions at this time. So we are closed in a question and answer session now I would like to turn the floor back over to the management for closing comments.
Okay. Thank you I'd like to thank everyone, who has joined US on the call today and thank you for the excellent questions that were presented by the analysts and we look forward to speaking with all of you on our second quarter Conference call in August until then take care and stay safe.
That's concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.
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Okay.
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No.
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