Q1 2024 DMC Global Inc Earnings Call
Uh huh.
[music].
Operator: BF-WATCH TV 2021
Operator: Greetings, and welcome to the Dmc Global First Quarter Earnings Release and Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone 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, Geoff High, Vice President of IR. Thank you, Geoff. You may begin.
Speaker Change: Greetings and welcome to the DMC Global first quarter earnings release and conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded it is now my pleasure to introduce your host Geoff High Vice President of IR. Thank you Sir you may begin.
Geoff High: Hello, and welcome to Dmc's first quarter conference call. Presenting today are Dmc CEO Michael Kuta and Chief Financial Officer Eric Walter. I'd like to remind everyone that matters discussed during this call may include forward-looking statements that are based on our estimates, projections, and assumptions as of today's date and are subject to risks and uncertainties that are disclosed in our filings with the SEC. Our business is subject to certain risks that could cause actual results to differ materially from those anticipated in our forward-looking statements.
Geoff High: Hello, and welcome to Dmc's first quarter conference call presenting today are D. E. T M C CEO, Michael Cuda, and Chief Financial Officer, Eric Walter.
Speaker Change: I'd like to remind everyone that matters discussed during this call may include forward looking statements that are based on our estimates projections and assumptions as of todays date and are subject to risks and uncertainties that are disclosed in our filings with the SEC are.
Speaker Change: Our business is subject to certain risks that could cause actual results to differ materially from those anticipated in our forward looking statements D.
Speaker Change: <unk> assumes no obligation to update forward looking statements that become untrue because of subsequent events.
Speaker Change: <unk> release and related presentation on our first quarter performance are available on the investors page of our website located at D. M C Global Dot com.
Speaker Change: We are a a web cast replay of today's presentation will be available at our website. Shortly after the conclusion of this call.
Geoff High: Dmc assumes no obligation to update forward-looking statements that become untrue because of subsequent events. Today's release and a related presentation on our first quarter performance are available on the investors page of our website, located at dmcglobal.com. A webcast replay of today's presentation will be available on our website shortly after the conclusion of this call. With that, I'll now turn the call over to Michael Kuta.
Speaker Change: With that I'll now turn the call over to Michael Cuda Michael.
Michael L. Kuta: Hello, and thank you for joining us for today's call. DNC's first quarter financial results included consolidated sales of $167 million, down 9% from the first quarter a year ago. This decrease was largely due to soft demand and lower pricing at Arcadia Products, our architectural building products business. Arcadia's sales of $61.9 million were down 23% compared with a year ago's first quarter. We noted during our last earnings call that Arcadia was experiencing a slow start to the year due to weak market conditions in the western and southwestern United States.
Michael L. Kuta: Hello, and thank you for joining us for days call Dmc's first quarter financial results included consolidated sales of $167 million down 9% from the first quarter a year ago. This decrease was largely due to soft demand and lower pricing at Arcadia products, our architectural building products business.
Speaker Change: Okay, you had sales of $61 $9 million were down 23% compared with the year ago first quarter.
Speaker Change: We noted during our last earnings call that Arcadia was experiencing a slow start to the year due to weak market conditions in the western and southwestern United States.
Michael L. Kuta: Demand declined further in March, particularly for short-cycle orders at several of our large regional service centers, as well as for our ultra-high-end residential products. The weakness in our short-cycle commercial business aligns with the Architectural Billings Index, which is a leading indicator for commercial construction activity. March was the 14th consecutive month the ABI declined nationally. In the Western U.S., the index fell sharply during last year's third quarter.
Speaker Change: Man declined further in March, particularly for short cycle orders at several of our large regional service centers as well as for our ultra high end residential products.
Speaker Change: The weakness in our short cycle commercial business aligns with the architectural billings index, which is a leading indicator for commercial construction activity.
Speaker Change: March was the 14th consecutive month, the Abi declined nationally in the Western U S. The index fell sharply during last year's third quarter since the a b I tends to lead nonresidential construction by nine to 12 months. We believe we are now seeing the impact of that decline.
Michael L. Kuta: Since the ABI tends to lead non-residential construction by 9 to 12 months, we believe we are now seeing the impact of that decline. However, we are seeing signs of improving activity at Arcadia's commercial divisions. The backlog for long-cycle projects has increased in the past month, and quoting activity for both large projects and short-cycle orders is picking up. Based on these indicators, we expect to see sequential quarterly improvements in sales and earnings in the coming quarters.
Speaker Change: We are seeing signs of improving activity at Arcadia as commercial divisions.
Speaker Change: Backlog for long cycle projects has increased in the past month and quoting activity for both large projects and short cycle orders is taking up based on these indicators, we expect to see sequential quarterly improvements in sales and earnings in the coming quarters.
Michael L. Kuta: DynEnergetics, our oilfield products business, reported first quarter sales of $78.1 million, up 4% sequentially and down 5% versus last year's first quarter. International demand remained healthy, and in North America, unit sales of our industry-leading Dynastage system were again at record levels. North American sales also benefited from increased demand for a premium oriented perforating system. Dyna continues to execute on a series of operational excellence and cost reduction programs designed to mitigate pricing pressure in North America.
Speaker Change: Dine energetics are all sell products business reported first quarter sales of $78 $1 million up 4% sequentially and down 5% versus last year's first quarter.
Speaker Change: International demand remained healthy and in North America unit sales of our industry, leading diner stage system were again at record levels.
Speaker Change: North American sales also benefited from increased demand for our premium oriented perforating systems.
Speaker Change: China continues to execute on a series of operational excellence and cost reduction programs are designed to mitigate pricing pressure in North America. These initiatives are expected to strengthen margins during the back half of the year include automating certain manufacturing and assembly processes and streamlining product designs.
Michael L. Kuta: These initiatives are expected to strengthen margins during the back half of the year and include automating certain manufacturing and assembly processes and streamlining product design. Nobel Clatter Composite Metals Business reported sales of $26.8 million, up 22% from the same quarter last year. Earlier this week, NobelClad received a $19 million order from an international petrochemical customer. This represents the largest order in NobelClad's history and involves the production of clad plates that will be used to fabricate heat exchangers, reactors, and associated equipment for a petrochemical facility being built in Asia.
Speaker Change: No about flat our composite metals business reported sales of $26 $8 million up 22% from the same quarter last year.
Speaker Change: Earlier this week Nobel Cloud received a $19 million order from an international petrochemical customer. This represents the largest order in Nobel clad history and involves the production of clad plates that will be used to fabricate heat exchangers reactors and associated equipment for a petrochemical facility being built in Asia.
Michael L. Kuta: NobelClad expects to ship the majority of the order during 2025. NobelClad has made significant progress, expanding manufacturing capacity for its Solyndra cryogenic transition joint. Demand for Solyndra from the liquefied natural gas industry remains strong, and Novoclad's commercial team is tracking more than 90 global LNG projects that have either been announced or in the planning phases. While the first quarter sales shortfall of Arcadia Products was disappointing, we remain confident in its differentiated business model, strong brand, and the growth strategy we are executing.
Speaker Change: Nobel client expects to ship the majority of the order during 2025.
Speaker Change: Nobel Quiet has made significant progress expanding.
Speaker Change: Expanding manufacturing capacity for its solyndra cryogenic transition joints demand for Solyndra from the liquefied natural gas industry remained strong and Nobel clouds commercial team is tracking more than 90 global LNG projects that have either been announced or in the planning phases.
Speaker Change: While the first quarter sales shortfall of Arcadia products was disappointing we remain confident its differentiated business model strong brand and the growth strategy. We are executing is as markets recover we believe Arcadia is well positioned to benefit.
Michael L. Kuta: As its markets recover, we believe Arcadia is well positioned to benefit. Dmc's financial strength continues to grow and is benefiting from our improved free cash flow and our aggressive efforts to de-lever the balance sheet. We're also making progress in our review of strategic alternatives for DynEnergetics and Novoclad as we seek to unlock shareholder value. It is too early to discuss the details of our efforts, but we look forward to providing an update in the coming months. I'll now turn the call over to Eric for a closer look at our first quarter financial performance and a review of our guidance.
Speaker Change: Dmc's financial strength continues to grow and is benefiting from our improved free cash flow and our aggressive efforts to delever our balance sheet.
Speaker Change: We're also making progress in our review of strategic alternatives for Dine energetics and know about glad as we seek to unlock shareholder value.
Speaker Change: It is too early to discuss the details of our efforts, but we look forward to providing an update in the coming months.
Speaker Change: I'll now turn the call over to Eric for a closer look at our first quarter financial performance and a review of our guidance Eric.
Eric Walter: Thanks, Michael. Our consolidated first quarter sales were $167 million, down 9% from the first quarter last year. Consolidated gross margin was 25.4%, down from 28.3% in the 2023 first quarter due primarily to industry consolidation at Dyna, which was partially offset by a more favorable project mix at Novoclad. Excluding one-time expenses, our first quarter SG&A expense was $28 million, or 16.9% of net sales, down approximately 120 basis points from the first quarter of last year.
Eric Walter: Thanks, Michael our consolidated first quarter sales were $167 million down 9% from the first quarter last year.
Eric Walter: Consolidated gross margin was 25, 4% down from 28, 3% in the 2023 first quarter due primarily to industry consolidation at Diana, which was partially offset by a more favorable project mix at Nobel clad.
Eric Walter: Excluding one time expenses, our first quarter SG&A expense was $28 million or 16, 9% of net sales down approximately 120 basis points from the first quarter of last year.
Eric Walter: The improvement was driven primarily by lower litigation expenses at Dyna, which were partially offset by a $500,000 bad debt charge also at Dyna. First quarter adjusted EBITDA attributable to DMC was $16.7 million compared with $20 million in the prior year quarter. The decline was driven by lower sales at Arcadia and the previously mentioned gross margin contraction at Diamond, inclusive of the Arcadia non-controlling interest.
Eric Walter: The improvement was driven primarily by lower litigation expenses at Diana, which were partially offset by a 500000 dollar bad debt charge also at Diana.
Eric Walter: First quarter adjusted EBITDA attributable to DMT was $16 $7 million compared with $20 million in the prior year quarter the.
Eric Walter: The decline was driven by lower sales at Arcadia, and the previously mentioned gross margin contraction at Diana.
Eric Walter: Inclusive of the Arcadia Noncontrolling interest.
Eric Walter: Consolidated adjusted EBITDA was $19 million, for 11.4% of sales, compared with 13.2% of sales in the prior year quarter. At the business level, Arcadia reported first quarter adjusted EBITDA of approximately $6 million, for 9.5% of sales, of which $3.5 million, or 60%, was attributable to Dmc. Our kidneys' adjusted EBITDA declined 44% year-over-year, due mostly to lower cells that Michael explained
Eric Walter: Consolidated adjusted EBITDA was $19 million.
Eric Walter: Our 11, 4% of sales compared with 13.2% of sales in the prior year quarter.
Speaker Change: At the business level Arkady reported first quarter, adjusted EBITDA of approximately $6 million or nine 5% of sales.
Speaker Change: Of which $3 $5 million or 60% was attributable to DMC.
Speaker Change: Our <unk> adjusted EBITDA declined 44% year over year, due mostly to lower sales that Michael explained earlier.
Eric Walter: Deiner reported first quarter adjusted EBITDA of $10.5 million, or 13.5% of sales, which was lower than the prior year quarter due to a decline in average selling price. Compared with the fourth quarter, Dinah's adjusted EBITDA improved 13% due to a higher volume of Dinah stage units and lower SG&A. Novoclad reported adjusted EBITDA of almost $6 million, which was 21.9% of sales compared with 15.3% of sales in the first quarter of 2020, even though the margin improved due to a more favorable project mix and better absorption of fixed manufacturing overhead costs.
Speaker Change: China reported first quarter, adjusted EBITDA of $10 5 million or 13, 5% of sales, which was lower than the prior year quarter due to a decline in average selling price.
Speaker Change: Compared with the fourth quarter <unk>, adjusted EBITDA improved 13% due to a higher volume of Guyana stage units and lower SG&A.
Speaker Change: Nevertheless, glad reported adjusted EBITDA of almost $6 million, which was 21, 9% of sales compared with 15, 3% of sales in the first quarter of 2023.
Speaker Change: EBITDA margin improved due to a more favorable project mix and better absorption of fixed manufacturing overhead costs.
Eric Walter: First quarter adjusted net income attributable to DMC was $4.2 million, while adjusted EPS attributable to DMC was $0.21 versus $0.32 in last year's first quarter. During the quarter, DMC generated free cash flow of $10.5 million, which was more than double the prior year's quarter. We use this year's first quarter free cash flow primarily for voluntarily de-levering on our debt and distributions to our Arcadia joint venture partner. In terms of liquidity, we ended the first quarter with cash of approximately $20 million and debt of $90 million.
Speaker Change: First quarter adjusted net income attributable to DMC was $4 2 million, while adjusted EPS attributable to DMC was 21 cents.
Speaker Change: Versus 32 in last year's first quarter.
Speaker Change: During the quarter D&C generated free cash flow of $10 $5 million, which was more than double the prior year quarter.
Speaker Change: We use this year's first quarter free cash flow, primarily for voluntarily de levering on our debt and distributions to our Acadia joint venture partner.
Speaker Change: In terms of liquidity, we ended the first quarter with cash of approximately $20 million and debt of $90 million.
Eric Walter: We ended the first quarter with a debt-to-adjusted EBITDA leverage ratio of 1.0, which was well below our covenant threshold of 3.0 and represents the ninth consecutive quarter in a row that we have delivered. On a pro forma net debt basis, after subtracting cash, our leverage ratio was 0.77 at the end of the first quarter.
Speaker Change: We ended the first quarter with a debt to adjusted EBITDA leverage ratio of one point out which was well below our covenant threshold of three point out and represents the ninth quarter in a row that we have to lever.
Speaker Change: On a pro forma net debt basis after subtracting cash our leverage ratio was 0.77 at the end of the first quarter.
Eric Walter: Now, turning to guidance for the second quarter of 2024, consolidated sales are expected in a range of $161 to $171 million. We expect activity in Arcadia's primary markets to remain soft in the second quarter, while activity in Dyna's North American markets is expected to remain relatively flat versus the first quarter. Second quarter adjusted EBITDA attributable to Dmc is expected to be in a range of $14 to $17 million. Our KD and EBITDA margins are forecasted to improve from the first quarter due to stronger volumes and lower SG&A. At Dinah, we anticipate EBITDA margins will remain relatively flat quarter over quarter, while Noble-Clad's EBITDA margins are expected to moderate due to a less favorable project mix.
Speaker Change: Now turning to guidance for the second quarter of 2024.
Speaker Change: Consolidated sales are expected in a range of $161 million to $171 million, we expect.
Speaker Change: The activity in Arcadia as primary markets to remain soft in the second quarter, while activity in Diana's North American markets is expected to remain relatively flat versus the first quarter.
Speaker Change: Second quarter adjusted EBITDA attributable to the DMC is expected to be in a range of $14 million to $17 million Arcadia EBITDA margins are forecasted to improve from the first quarter due to a stronger volumes and lower SG&A.
Speaker Change: Diana we anticipate EBITDA margins will remain relatively flat quarter over quarter, while Novo class EBIT margins are expected to moderate due to a less favorable project mix.
Operator: With that, we're ready to take any questions from our analysts. Operator. Thank you. We'll now be...
Speaker Change: With that we're ready to take any questions from our analysts operator.
Operator: Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if you'd like to remove your question from the queue.
Speaker Change: Participants using speaker equipment.
Speaker Change: I'm sorry to pick up your handset before pressing the star Q1 moment, please while we poll for questions.
Operator: One moment, please, while we poll for questions. Thank you. Our first question is from Ken Newman with KeyBank Capital Markets. Please proceed with your question.
Speaker Change: Okay.
Speaker Change: Thank you. Our first question is from Ken Newman with Keybanc capital markets. Please proceed with your question.
Michael L. Kuta: Hi guys, thanks for taking the questions. Thank you. Hey there. Maybe just starting with Arcadia. Michael or Eric, could you just size the revenue that went through the short cycle channel versus the project-related sales that you're expecting, just hoping you can help us bridge your comments on this idea of segment sales sequentially improving in coming quarters? Yes.
Ken Newman: Hi, guys. Thanks for taking the question.
Ken Newman: Hi, Ken.
Ken Newman: Hey, there.
Ken Newman: Maybe just starting with Arcadia.
Ken Newman: Yeah.
Speaker Change: Michael or Eric could you just size the revenue that went through the short cycled channel versus the project related sales that youre expecting just.
Speaker Change: Hoping you can help US bridge your comments on this idea of.
Michael L. Kuta: Yeah, so thanks, Ken. So what we've seen is a decline in a couple of our regional branches or service centers for our short cycle work. We call that our storefront business. And so those regional branches, service centers, that's about 50 to 60 percent of our sales that track with general commercial construction activity. And the rest of our business is project-based, whether it's on the commercial side or the residential side. And our project business has exposed us to a broader range of end markets.
Michael L. Kuta: So that's where you're seeing more government, civic, education, and things like that featured in our earnings deck. So they don't necessarily line up as much with the short cycle business, and so what we're seeing is, you know, we saw quite a bit of a dip in the back half of the first quarter, and we're seeing improved, I'd say significantly improved quoting on short cycle currently, and we've got some good project business we see coming through as well, so we think we have a think we're in the valley right now
Michael L. Kuta: So if this is transitory on the short-flagged Arcadia side, on the volume... I know you're bringing in paint capacity later this year.
Michael L. Kuta: You know, just assuming that the volume stays relatively muted. Are there levers that you can pull to mitigate under absorption? Yes.
Michael L. Kuta: Yeah, absolutely, Ken. I'd say a couple things on that.
Michael L. Kuta: I think we've got a couple quarters as we march through this current environment. You know, we can certainly push past the investments till we see a sustained increase in demand, so we can pull back on CapEx. And I think there's a lot of operational initiatives we're in the middle of where we can save from a cost standpoint and drive EBITDA north from here off of Q1. So we've got some projects in the works there. And then, in any event, from a capacity standpoint, there are outside sources that we can leverage as our volume picks up.
Michael L. Kuta: Maybe just switching to the other segments, I mean. What's the confidence level in the 2Q Revenue Guide beyond Arcadia, maybe for Dyna specifically, and what are you kind of assuming or expecting at the lower end of the range as it relates to levels of conservatism?
Michael L. Kuta: I mean, what we're seeing in Dinah's market is fairly stable, steady activity. And so I think we will see Q2 is maybe modestly soft or flattish. You know, I'll say that we had a, you know, pretty decent April. We also had a pretty good May. Decent, April, and Arcadia as well, but in Dinah, you know, we're just seeing pretty steady activity levels right now, and that's what we see in the front view mirror. Got it.
Michael L. Kuta: Got it. Maybe I'll ask one more question, and I'll jump back in line. Do you have a view on gross margins across all the segments as we move through the back half of the year?
Michael L. Kuta: I think you're going to see consistency in Arcadia, as well as Nobel, CLAD, you know, and DynEnergetics. We expect some improvements there with some of the automation projects, things we're doing, not only in our plant but also The, you know, new products that we're putting in the marketplace, and it's not as much a new products as new product design, I would say.
Michael L. Kuta: Thanks; I'll jump back in line.
Operator: Thank you. Our next question is from Stephen Gengaro with CFO. Please proceed with your question.
Stephen David Gengaro: Thanks. Good afternoon, everybody. Can you talk about the cost out initiatives and just kind of how we should think about margin progression as we move through the next couple quarters?
Michael L. Kuta: Yeah, I think, Eric, and you can speak to the margin progression, which I think is relatively flat in our guidance. Most of the initiatives that we have that I'll speak to are in progress right now, for the most part, on track, and we'll have those in place at the end of the year. I think the biggest item on our list, or a couple of large items on our list, is one, automating our assembly in our Blum facility. So that's going to improve our cost base, that's going to improve our quality, and so I think we're going to see benefits from that.
Michael L. Kuta: We've also got some projects on where we think we can purchase better from a supply chain management standpoint, how we can pull together purchases of metal, so we think there's quite a bit of savings in there, and then a lot of them are just, I'd call it smaller projects as we execute on a more operational excellence program in Dyna Energetics, and then maybe another, big one, I want to make sure I don't forget this is on the product product design. So we're doing a lot to take metal out of our products and taking metal out takes out quite a bit of cost. So and that's enabled by our our design and how we package our perforating systems together. So maybe Eric, you talk a little bit about the margin regression. Yeah.
Eric Walter: Yeah, so Stephen, these initiatives, as Michael mentioned, are being implemented right now. We're probably not going to get a full year benefit this year, but what we would expect is when you get into the second half of the year, there's probably 100 to 150 basis points, even a margin level, so should take us up to the mid-teens from an impact standpoint.
Stephen David Gengaro: Gotcha. Okay, good. Thank you.
Michael L. Kuta: And then the other one I've done is, given what's going on in the market. Kind of assuming that maybe the rig count seems to be flattish from these levels for the next, let's say through year end. What's the driver of that? I mean, should we just kind of think about it as following the rate count and completion activity, or are there longer laterals or some technology that maybe can bump the top line as well?
Michael L. Kuta: I'd probably think about it as more steady and stable now. One of the key ways we win is with our customers, and so the customers that we're aligned with, you know, our key is delivering technology at the well site, quality service delivery, and then partnering with the right customers and how they're performing with the E&P, so I think we're aligned with the right customers there. So I think it's probably stable to steady, and, you know, we tend to outperform the market there. So we, you know, we feel pretty good about, you know, even in a flat rig count environment, we're doing what we can to control our destiny here.
Stephen David Gengaro: Got it. Great. And just one final quick one.
Stephen David Gengaro: Any guests on? Well, not guests, but I guess one is any guests on kind of where your share stands and, and just not a guest? What's the current pricing environment like for the PERF business?
Michael L. Kuta: So Cher, we've been in that, I think 25%-ish, maybe a bit north of 25%. You know, we kind of bounced between 25 and 30%. And the pricing environment, you know, kind of remains as is. It's been, you know, a fairly challenging environment over the last couple of, I'd say, a couple of years, quite frankly. But, you know, I think it's, I think it's relatively stable pricing right now. Okay, great.
Stephen David Gengaro: Okay, great. Thanks for the details.
Operator: Thank you. Our next question is from Jerry Sweeney with Roth Capital Partners. Please proceed with your question.
Gerard J. Sweeney: Dave, good afternoon, Mike, Eric, and Geoff. Thanks for taking my call.
Operator: Thank you, Jerry. Jerry
Michael L. Kuta: Just sticking with Arcadia. Obviously, I think that was a little bit of a surprise, at least for me, in the quarter, but it sounds like there are some weakness at the sort of front level. But, I'm curious if anyone is, the competitors, are maybe adjusting some of their strategies or anything's happening on that front, or even pricing. Are they coming after you, or is this just strictly, you know, a lower investment market?
Michael L. Kuta: Jerry, great question. I don't think it's competitive pressure as much as it is really the backdrop in the commercial business, which we see improving. So we don't see competitors doing anything different.
Michael L. Kuta: But I think there's a second item, which is, you know, we also saw a slowdown in our ultra-high-end resi division. And so, you know, we've done a lot of work in that business, which was, I'd say, you know, not a mature business. It was a small piece of the overall Arcadia.
Michael L. Kuta: And we've done a lot of work to really improve the back end in terms of our operations, reducing lead times. But we see that business, you know, I think hit a valley in the first quarter, particularly at the end of the first quarter. So with all of these improvements in place, we're driving the front end of the business now, and there's a lot we're doing to add rigor to our sales processes and what we do on the front end in terms of close rates, pipeline, and dealer performance. So we think that business is going to be OK.
Operator: David Aldous, Geoff High, Katie Fleischer, Eric Walter, Ken Newman, Jack Rienberg, Dmc
Michael L. Kuta: Do you know how much of that storefront business is new build versus like replacement type business, or is that just hard to gauge because, you know, it's, you have trucks lining up there just taking, you know, quote unquote sticks every day. You may not necessarily see where they're going.
Michael L. Kuta: I'm just curious if you have one. Is it a new build or replacement, or too hard to tell?
Michael L. Kuta: It's too hard to tell right now. We're actually getting a lot of good visibility now out of our ERP system. We're not there on that yet. Jerry, hopefully, in the coming months and quarters, we can start talking a little bit more about that. But it's certainly a mix of new build and repair and remodel.
Gerard J. Sweeney: Thank you. I did a quick check, and aluminum prices actually look like they kind of spiked a little bit through April.
Michael L. Kuta: Yep. You know, there's been a little bit of a mismatch between sort of inventory coming out, and product going out with the ERP. Any concern there, or do we sort of move beyond that? I'm not sure we think they're actually...
Michael L. Kuta: I don't see any concern there, there's a tick up there in aluminum, you know, hopefully, you know, we might even be able to capture some margin there. So I don't think there's anything to be concerned about maybe even a little bit outside there as we kind of move through the year. Yeah. And Gary, what I'd say just to add...
Eric Walter: And Jerry, what I'd say, just to add to that, I think we've got more visibility into how those aluminum costs move through our production system versus where we were this time last year. So I think we're going to have a much better handle on how we can handle those cost increases and pass those on to customers in a timely manner.
Gerard J. Sweeney: And then one last question, I'll jump back in line. You know, you mentioned you could pull back on CapEx. There was the paint line, but there was anodizing as well. Margin, a creative or positive to margins, however you want to say it, Are you sticking with that, or has that changed? on the CapEx on that front.
Michael L. Kuta: Yeah, I mean, that was going to be back-end loaded in 2024 anyway, so we're evaluating that, different opportunities and sources we're looking at there. So I don't think right now, with where the market's at, we're leaving a lot of money on the table here. So we're continuing to evaluate that, Jerry.
Speaker Change: Different opportunities and sources, we're looking at there so.
Speaker Change: I don't think right now with where the market's at we're leaving a lot of money on the table here. So we're.
Speaker Change: We're continuing to evaluate that Jerry.
Eric Walter: Yeah, and I think what we would do as we evaluate it is look for how we can get the highest ROI. So is it spending the CapEx and bringing those capabilities in-house, or is it actually looking at outsourcing some of this capacity to a third party where there may be some overcapacity in the industry? We might be able to get a better return that way. So that's going to be part of the analysis, and at the end of the day, we'll determine what we do based on the return we get from the different approaches.
Speaker Change: What we would do is we evaluated is to look for how we can get the highest ROI. So.
Speaker Change: Is it spending the capex and bringing those capabilities in house or is it actually looking at.
Speaker Change: Outsourcing some of this capacity to a third party, where there may be some overcapacity in the industry, we might be able to get a better return that way. So that's going to be part of the analysis and at the end of the day, we will determine what we do based on the return we get from the different approaches.
Gerard J. Sweeney: Gotcha. And on that front, I mean... on that front.
Speaker Change: Got you and on that front I mean.
Speaker Change: Yes.
Speaker Change: Well on that front.
Michael L. Kuta: There's not a, what's the lead time on adding anodizing, right? So theoretically, to get a better return, outsourcing at least for a year. Is that fair? Yeah, we could. I mean,
Speaker Change: Theres not whats the lead time on adding adding advertising rate so theoretically.
Speaker Change: You get a better return on outsourcing at least for a year or two you could always go back to advertising later, if things pick up or.
Speaker Change: Changes that is that fair.
Michael L. Kuta: Yeah, we could I mean, you could put something like that in in a couple quarters if we if we needed to, so not not something that is, you know, it's not a multi-year project, right?
Speaker Change: Yes, we could I mean, you could put it we could put something like that and in a couple of quarters. If we if we needed to so.
Speaker Change: Not.
Speaker Change: Not.
Speaker Change: Yes, not something that is.
Speaker Change: It's not a multi year project right.
Speaker Change: Okay.
Gerard J. Sweeney: Thanks, Farah. I'll jump back.
Speaker Change: I'll jump back in.
Speaker Change: Thank you Jerry.
Michael L. Kuta: Thank you. There are no further questions at this time. I would like to turn the floor back over to Michael Kuta for closing comments.
Jerry: Thank you there are no further questions at this time I would like to turn the floor back over to Michael <unk> for closing comments.
Michael L. Kuta: Thanks for joining our call today. I look forward to discussing Q2 results and progress on strategic initiatives in early August.
Michael L. Kuta: Thanks for joining our call today I look forward to discussing Q2 results and progress on strategic initiatives in early August. Thank.
Michael L. Kuta: Thank you.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: This concludes today's conference.
Speaker Change: Connect your lines at this time, thank you for your participation.