This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Good day and thank you for standing by. Welcome to the Ultra Industrial Motion Q1 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker for today, David Colusian. Please go ahead.
spk08: Thank you. Good morning, everyone, and welcome to the call. To help you follow management's discussion on this call, they'll be referencing slides that are posted to the ultramotion.com website under Events and Presentations in the Investor Relations section. Please turn to slide three. During the call, management will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain and investors must recognize that events could differ significantly from management's expectations. Please refer to the risks, uncertainties, and other factors described in the company's quarterly reports on Form 10-Q and annual report on Form 10-K in the company's other filings with the U.S. Securities Exchange Commission. Except as required by applicable law, Alter Industrial Motion Corp. does not intend to update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise. On today's call, management will refer to non-GAAP diluted earnings per share, non-GAAP income from operations, non-GAAP net income, non-GAAP adjusted EBITDA, non-GAAP operating income margin, non-GAAP adjusted EBITDA margin, non-GAAP organic sales, non-GAAP operating working capital, non-GAAP net debt, and non-GAAP free cash flow. These metrics exclude certain items discussed in our slide presentation, and in our press release under the heading discussion of non-GAAP financial measures and any other items that management believes should be excluded when reviewing continuing operations. These reconciliations of ALTRA's non-GAAP measures to the comparable GAAP measures are available in the financial tables of the Q1 2021 financial results press release on ALTRA's website. Please turn to slide four. With me today, our Chief Executive Officer, Carl Christensen, and Chief Financial Officer, Christian Storch. I'll now turn the call over to Carl.
spk04: Thank you, David, and thank you for joining us today to review our Q1 2020 results. And please turn to slide five. We delivered strong first quarter results that exceeded our expectations and approached pre-pandemic levels. This is a clear and positive indicator that a broad-based economic recovery is underway. With our highly competitive, diverse portfolio and strong business operations, Altra is in an incredible position to capitalize in the near term on secular tailwinds in markets like electronics assembly equipment, general factory automation, and robotics. As the economy continues to recover, Altra will benefit from mid and later cycle markets, such as mining, metals, ag, and heavy machinery, to name a few. The economic recovery is spreading across more and more segments of our business. Incoming orders and bookings momentum has continued to accelerate across our early cycle markets, and we have begun to receive orders for products that are sold into later cycle markets. This gives us confidence to raise our 2021 guidance today and further validates our belief that Altra, in the industrial world will be in for a very strong run in 2022 and beyond. I'm extremely proud of the Ultra team's ability to continue to deliver exceptional results, provide top-notch customer service, and advance our strategic priorities while continuing to ensure one another's safety, effectively work remotely, and strengthen our culture. Now, please turn to slide six. for an overview of Q1 performance highlights. Q1 revenue of $472.1 million was up 8.7% from the prior year as we capitalized on strong demand across most of our end markets, led by heavy duty trucks, factory automation, and specialty machinery. Our strong top line performance also reflects our ability to manage the supply chain in these very difficult times and leverage our competitive strengths to outperform the competition. We've been able to leverage our proven excellence in supply chain management to minimize production disruptions and maintain reasonable on-time delivery performance. Maintaining strong lead time performance and product availability can be a competitive differentiator and enable share gains, particularly in times like this when demand exceeds supply. We expect this competitive strength will support further share gains for Ultra as supply constraints continue to impact select markets. We also drove excellent operating performance in the first quarter by carefully managing costs and through our focus on applying Ultra's world-class business system to drive performance. We further expect that it will be essential to continue to leverage our pricing power to offset material and wage inflation. As a result, we grew non-GAAP adjusted EBITDA margin by 170 basis points, achieved earnings growth that exceeded our expectations, and delivered another strong quarter of cash flow. More specifically, Q1 2021 net income was $39.2 million, or 60 cents per diluted share. Q1 non-GAAP diluted EPS was 86 cents, up 32% from the first quarter of 2020, and up 7.5% from the first quarter of 2019. We generated nearly $27 million in non-GAAP free cash flow in Q1, which allowed us to pay down $20 million of debt and continue to make excellent progress de-levering our balance sheet. We exited the quarter with net debt to non-GAAP adjusted EBITDA leverage of three times, advancing us towards our goal of reaching historic leverage levels of 2X to 3X this year. Now turning to slide seven for an update on the strategic initiatives that we have prioritized to drive sustainable shareholder value and realize our promise as a premier industrial company. This includes leveraging our world-class business system to create sustainable competitive advantages by developing industry-leading business practices across all aspects of our business. Even during the pandemic, our teams were committed to driving business improvements, eliminating waste, and improving the flow of value to our customers. I am looking forward to when our teams can fully engage again in face-to-face improvement activities. As demonstrated by our results, we have made tremendous progress with our second and third priorities of expediently delevering and managing costs to improve the balance sheet and drive margin enhancement. We also remain committed to directing resources to drive top-line growth via cross-selling, technology sharing to accelerate innovation, and infusing capital to address emerging growth opportunities. As an example, we invested in a new generation of servo motors and drives that were introduced last year and are beginning to gain traction in the market. There were several success stories during the quarter that demonstrate our ability to leverage our market position and innovative technologies to take share, add new customers, and expand geographically. For example, based upon our leading position in engineered brakes for the wind turbine industry, we secured a number of large orders for both onshore and offshore turbines. This included both repeat business and new customer winds where we took share from a competitor. We also closed our first serial production order with a new customer in India for wind turbine breaks. As another example, we won an order for a linear system for medical blood agitation application. And with this win, we gained share because of our custom engineered design and proven product performance. And as we expanded upon At length on the last earnings call, we are also committed to advancing our ESG priorities that have long been ingrained in the ultra-business system and the way we conduct our business. This includes systematically identifying and eliminating waste and reducing emissions across our footprint while providing innovative solutions to help our customers do the same, ensuring we are fostering a safe, diverse, and inclusive work environment, that stimulates and fully develops the capabilities of our people, and ensuring we have best-in-class governance to remain fully aligned with our shareholders' interests. The robust set of tools and processes inherent in the Altra business system continue to serve as our compass as we advance forward on our ESG journey. Now turning to slide eight for a market review. Starting this quarter, we are simplifying our market discussions to focus on the core markets and trends that we believe are most relevant to Altris performance and growth prospects. As a result, we are no longer providing an exhaustive review of all end markets as we have in the past. For additional context, we are providing an approximation of the percentage of Altris sales represented by each end market on a trailing 12-month basis. Transportation. which represents approximately 16% of our business, was up high single digits in the quarter, with Class 8 truck demand in China stronger than anticipated. On balance, we continue to expect the market to be flat to slightly up in 2021 as demand in China returns to more normal levels and demand in North America improves. Longer term, as the number one global supplier, we expect Altra's transportation business to benefit from new technology initiatives supporting future global safety and emission mandates. Factory automation and specialty machinery, which represents about 11% of our business, was up high single digits as we benefited from strong tailwinds in specialty machinery categories like food and beverage and packaging, robotics, AGV, and general factory automation. Overall, we continue to expect an improved performance in 2021 with particular strength in technology markets and sustainable higher growth rates supported by global digitization and industrial IoT, as well as macro trends in collaborative robots. Turf and garden ag and construction, which combined represents approximately 9% of our business, also had a strong quarter, up low double digits. We continue to expect the turf and garden market will slow in 2021 due in part to tough comps and that ag and construction will continue to improve. We remain positive on long-term growth prospects supported by ultra strong market position and secular tailwinds, such as increased infrastructure spending. Medical equipment, which is about 8% of our sales, was up double digits year over year, but down sequentially as the decline in COVID-related sales was only partially offset by a rebound in elective surgeries and hospital capital expenditures. This remains an exciting long-term growth market for us, supported by secular trends like aging population demographics and growth on noninvasive and robotic surgeries. Material handling, which represents about 7% of sales, was up low single digits with AGVs, forklifts, and vertical lifting systems, all realizing nice improvements. Although this is a cyclical market, there are several tailwinds that excite us, including strong growth in warehousing driven by growth in e-commerce, as well as advanced technology to improve warehousing efficiency. In addition, we have had some early traction with IoT installation projects in the large crane industry. Renewable energy, which represents about 6% of sales, was up low single digits year over year due to continued strong investment in renewable energy around the globe. We continue to expect 2021 to be flat barring any new administration policies. Longer term, renewables is an exciting growth play for Altra as global demand for increased usage of renewable energy favors our strong position in both onshore and higher growth offshore wind. And finally, aerospace and defense, which combined is about 6% of our sales, was down single digits due to, in large part, challenging comps and project timing. Despite near-term headwinds, we're excited about this market for a few reasons. Altra's A&D business has a very attractive margin profile with a strong competitive position and high barriers to entry. We also continue to expect this market will rebound at some point in 2022 as the commercial aero business resurges coming out of the pandemic and the geopolitical environment supports continued investment in land-based and defense aero. With that, I will turn the call to Christian to provide a detailed review of the quarter and our 2021 guidance. Thank you, Carl, and good morning, everyone.
spk05: Please turn to slide nine. Our strong first quarter results were once again highlighted by Altra's careful cost management, a strong cash flow generation, and significant progress in delivering the balance sheet. In addition, we once again demonstrated the resilience of our balanced portfolio of OPCOS and a strong market position that has allowed us to capitalize on the economic recovery emerging across many of our businesses. Turning now to a review of our top line performance in the first quarter. Sales were up 8.7 percent compared with the prior year period, driven by a very strong performance in March. Organic sales grew 5.4 percent, with price contributing 70 basis points. foreign exchange rates had a positive effect of 330 basis points. Excluding the effects of foreign exchange, net sales for the PTT segment were down 1.8%. Booking's momentum has been strong across our PTT businesses, which we believe will support further improvements with PTT as we move through the year. Excluding the impact of foreign exchange, net sales for the A&S segment were up 12.4% compared with the same quarter last year, driven by strong top-line performance across several end markets, including medical, transportation, and factory automation and specialty machinery. In addition, this segment saw strong growth in China. In these markets, we benefited from both demand improvement and some likely inventory rebuild in the channel. Taking a closer look at our performance by geography in Asia and the rest of the world, revenues without the impact of foreign exchange were up 34%, primarily driven by strong sales in the Class 8 truck market in China. In Europe, sales were down 2.2% without the impact of foreign exchange as Europe's vaccination efforts lagged behind the U.S. Sales in North America grew less than 1 percent, due in large part to tough comps. As expected, we saw approximately $3.7 million of pandemic-related cost savings return in the quarter. Despite this, we were able to grow non-GAAP operating margin by 190 basis points, reflecting our team's incredible efforts to control cost and manage cash in this environment. Working capital was up approximately 21.4 million sequentially as a result of stronger sales and a modest increase related to strategic purchases that we made in anticipation of supply chain constraints. The provision for income taxes in the first quarter of 2021 on a normalized basis was 19.4% before discrete items, refracting rec changes related to tax reform and other changes that lowered our tax rate. Non-gap adjusted EBITDA exceeded $100 million and came in at 101.6 million for the first quarter, or 21.5% of net sales, up 170 basis points compared with last year. Please turn to slide 10 for a closer look at our balance sheet, our balance sheet improvements, cash flow, and liquidity. Our cash-generative business model and the financial resilience of our business continues to serve us very well. Non-GAAP free cash flow for the quarter was $20.6 million, essentially flat from the prior year, despite the increase in working capital. As a reminder, the first quarter is typically our lowest cash flow-generating quarter. Capital expenditures during the quarter totaled $9.6 million, up from $8.2 million a year ago, as we continued to direct investments to growth opportunities, including automation and technology enhancements. We ended the quarter with $249.4 million of cash and another $295.5 million available under the revolving credit facility. In the quarter, we paid down an additional $20 million on our term loan, bringing our total debt pay down since the ANS acquisition to $330 million. We decreased our net leverage to three times, and we remain on track to achieve net leverage below three times by mid-year. Our top capital allocation priorities continue to be to reduce our debt balance, manage leverage, and preserve optionality for investing in future growth while continuing to support our quality dividend which was raised to $0.08 per share. Once we achieve our leverage target, we expect to further shift our capital allocation toward investing in growth opportunities that align with ultra with attractive secular trends. Please turn to slide 11 for an update on our outlook for 2021. We entered Q2 with strong tailwinds at our back and better visibility into economic recovery spreading across more segments of our business. As a result, today we are increasing our guidance for full year 2021. Our revised guidance assumes that the general economy will continue to recover as we go through the year. We continue to expect approximately $36 million of cost savings realized in 2020 will gradually phase back throughout the remainder of 2021 with the full effect of the cost coming back by the second half of the year, and therefore SG&A expenses increase sequentially throughout the year. We also continue to assume that China's demand in the Class 8 truck and wind markets will normalize in the second half of 2021. With that as a background, our revised guidance for 2021 is as follows. Sales in a range of $1.82 billion to $1.85 billion up from our previous range of $1.79 billion to $1.83 billion. GAAP diluted EPS in the range of $2.08 to $2.21, up from $1.97 to $2.10. Non-GAAP diluted EPS in the range of $3.09 to $3.24, up from $2.95 to $3.15. Non-GAAP adjusted EBITDA in the range of $380 to $390 million, up from $370 million to $385 million. Capital expenditures in the range of $50 to $55 million and depreciation and amortization in the range of $122 to $124 million. A normalized tax rate for the full year of approximately 20 to 22.5% before discrete tax items. And we expect non-GAAP free cash flow in the range of $200 to $225 million. And with that, I will turn the discussion back to Carl.
spk04: All right. Thank you, Christian. We're extremely pleased with our strong start to the year. We are growing increasingly confident that we are at the beginning of a broad-based market recovery and that Altra is in a great position to capitalize on improving secular tailwinds as we move through the year. Our focus remains on executing across our strategic priorities to ensure we are optimizing our opportunities as a premier industrial company. This includes leveraging our efficient cash-generative business model and ultra-business system to maximize cost and sales synergies, de-lever the balance sheet, expand our margins, and accelerate our top-line growth opportunities. We are in an excellent position to deliver on our new 2021 guidance and continue to thrive as the industrial world economic recovery accelerates in 2022 and beyond. I would like to once again thank the Altra team for their hard work and incredible performance. We look forward to keeping our shareholders updated on our progress. And with that, we'll now open up the call for questions.
spk01: As a reminder, to ask a question, you need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. You have a question from the line of Brian Blair with Oppenheimer.
spk03: Thanks. Good morning, guys. Good morning, Brian. If you're willing to provide a directional guide, you know, what is the order book momentum you have suggest for second quarter growth? And similarly, how should we think about margin progression, either annualized or I guess even better on a sequential basis given some of the unique variables at play year on year?
spk05: Yeah, so if we look at the second quarter, We like to compare 2021 to 2019, the last full year, you know, prior to the pandemic. And we think when we compare that to 2019, we think that revenues will be coming in somewhere between 2019 and the first quarter of this year, somewhere in that range, while EPS is probably going to be up, you know, 10, 15% from 2019. SG&A, we see sequentially increasing from the first quarter, $3 to $4 million. We think cross-profit margins will hold despite supply chain challenges and cost pressures from the supply chain. We think that we are able to offset that through price increases that we have taken and will continue to take as we go through the year. And then as we look at the second half of the year, We need to take into consideration that the China class truck market will see a significant decline while North American and European demand will continue to increase. And so we'll go back to some sort of seasonality where the second half will be, I don't know, somewhere around $900 million, $10 million, something like that, in revenues.
spk03: Okay. Helpful detail there. And you mentioned the China Class 8 headwind that you had called out last quarter. That dynamic makes sense. I apologize if I missed the updated outlook on medical shipments. We've been expecting somewhat of an air pocket with the wind down of respirator shipments and the pause in elective procedure demands with the reopening and at least early stage reset of elective procedure related CapEx. Is your outlook for the back half in medical improved from what it was a quarter ago?
spk04: Yeah, it has, Brian. It's improved. The incoming order rate is better than we thought it would be, and I think the investments and the elective surgical part of the business are a little bit better than what we had expected.
spk03: Okay, good to hear. And great to see continued progress on your balance sheet. It looks like you'll be pretty comfortably within target leverage range. over the very near term. We know your team has been focused on portfolio analysis and prioritizing targets for when you are ready to get back to the inorganic lever of your growth strategy. I guess my simple question is, are you ready now? If the right bolt-ons came along, are you comfortable with your cash flow outlook and the ability to to move on a deal or two as we go into the back end.
spk04: Yeah, I don't think you would see us do anything significant, a big acquisition, but a smaller bolt-on. I think we're getting very comfortable that we've got a pretty good runway here in the industrial world, and we've got line of sight on the cash flow to get us well within our range by the end of the year. So we'll be If the right deal came along and it was not too big, I think you would see us do something.
spk03: Okay, excellent. Thanks again.
spk01: You have a question from the line of John Franzrev with Sedoti.
spk07: Good morning, guys. I'm curious about your later cycle order recovery. Is that limited to material handling? Are you seeing a recovery in the mining and oil and gas business?
spk04: So I think oil and gas, not yet. I think when I look at the end markets, the myriad of end markets we look at, the two that are still red, it was a great pleasure to look at the market analysis during the first quarter because almost everything's green now except for aero and oil and gas, really commercial aero and oil and gas. Those two are still declining. In the mining, we've actually seen some improvement, and we're starting to see a few CapEx projects. And I think some of that's related to electrification, right? So lithium and copper demand is going to be way up with this acceleration electrification. I'm optimistic about mining. That's the 10th time I'm calling the bottom in mining now.
spk07: I wasn't going to remind you. The next question, regarding the $40 million of costs expected to come back, I think I missed what you said for the first question. I think that is, and what's the cadence of the balance, how that comes to the balance of the year?
spk05: Yeah, so there's some good news embedded in that. First quarter was $3.7 million. that came back. That leaves, you know, 36 to go. We'll be heavy in Q2 and Q3 and then start to decline into the fourth quarter. But we've been able, and the margins in the first quarter demonstrate that we've been able to, through our cost management, to mitigate the meaningful portion of that. But it will still show up in SG&A as SG&A will increase sequentially as we go through the year. I think the increase will not be as significant as we initially feared when we initiated guidance for the year.
spk07: Okay. And I guess just one question, I could squeeze it in. The sequential improvement in the factory automation, especially Q1 versus Q4, was there anything significant that you can call out that drove that improvement?
spk04: You're breaking up a little bit. In the factory automation space, what was sequential improvement? Was there anything that sticks out? Yeah, there were a few things. I think the AGV business did really well. Robotics did well. Electronic assembly equipment did well. Semicon was off, but that was primarily due to, I think, to comps. So, yeah, we had some really nice growth in some of the segments in the factory automation space. And then in food processing, food and beverage, and packaging equipment were solid too. So it's broad with some really nice trends in that part of the space and that part of the business.
spk07: Okay. Thank you for answering my questions.
spk04: Thanks, John.
spk01: We have a question from the line of Mike Hollerin with Bayard.
spk06: Hey, good morning, guys. So a couple of questions here first, just Carl, where does the confidence come in from your perspective on the 2022 plus optimism and what are you seeing that makes you particularly excited both from a market perspective as well as maybe what you're doing to add to whatever that market growth looks like?
spk04: Well, I believe that we're seeing the early cycle markets doing well right now. And there's activity in the later cycle markets that's starting to accelerate. And those big CapEx projects are not in those big CapEx industries typically run for a few years. So, you know, I feel really good that we're just getting into the mid and late cycle part of the business. So barring any, you know, government action or some ramp up of the pandemic, the momentum's there to carry through for a good period of time. And I think there's pent-up demand. I mean, I look back on the last recovery and how slow and monotonous it was and with a couple fits and starts that it felt like in 2019, prior to the pandemic, we were starting to get into a phase where some of that pent-up demand was going to get realized and satisfied. So I think that got pushed out a year. I think we're back at that phase, in my mind, where there's the pent-up demand and just some really good acceleration there. And when I look at the cycles, you look at mining and ag and some of the longer cycle markets, they're due for a nice recovery.
spk06: So, so when you, when you think about the backdrop from a supply chain price costs, obviously you said at least in the preparatory comments and animated that you're doing very well, all else equal. Um, and you think it's a differentiator versus your competitors, how you're managing through everything, but you know, maybe some thoughts on pricing environment, how the supply chain's managing, how inflation's hitting you and maybe how that rolls through the P and L this year.
spk04: Yeah, the supply chain is really tough right now, right? We've got suppliers that are trying to increase prices, and we've been pretty successful in pushing back. We'll probably see some cost increases in Q2 as we can't push back anymore. And so that's a challenge. And it's like the whack-a-mole game where one region or one commodity you start to have issues with and you just got to work them down as they pop up. You know, right now with the awful situation in India relative to COVID, you know, that's an area of concern. The logistics and freight, you know, the container ships, you know, we've seen lead times push out four or six weeks just as a result of the container backlog and the shipping issues. So we just have to keep working it. I think the second quarter is probably going to be a little bit worse for us. I think our guidance reflects that a little bit for cost price. But we are pushing through the price increases. And the price environment is fairly receptive. I think the whole world is going after price increases. we do have pricing power and the nature of our business, I think we have a little bit better chance to get the price increases pushed through than maybe some other industries and some other spaces. So I'm confident we'll get the price to offset the cost increases, both wages and material costs. Maybe a little lag, as I've said before, but we'll get it. And I do expect that Q2 will probably be the worst Q from a supply chain standpoint, and we're working it really, really hard to make sure that the impact is minimal.
spk05: And, Mike, if I can add, you know, the guide assumes that we can hold gross profit margins. As Carl said, that we can offset price increases on the commodity side, component side, through price increases. And at the high end of the range, it even assumes a modest margin expansion as we go through the year.
spk06: Great. Thanks for the help, gentlemen. Appreciate it.
spk01: Thanks, Mike. Once again, ladies and gentlemen, if you would like to ask a question, please press star followed by the number one on your telephone keypad. You have a question from the line of Jeff Hammond with KeyBank Capital Markets.
spk02: Hey, good morning, guys. I jumped on late, so if I ask something that's already been addressed, we can follow up. Just talk about what you're seeing in terms of restocking on distribution and I've had a couple companies kind of say, you know, people are, you know, buying ahead of, you know, these fall on price increases. And then just maybe more broadly, you know, why you think PT is lagging in terms of recovery versus, you know, what's been more robust and, you know, in the NS side.
spk04: Okay. So I think, you know, with the strong demand and strong bookings we've had, we do know that some of that is because The supply chains have extended lead times and that people are buying ahead to make sure that they have what they need. We don't know the exact impact of that, but there's certainly some of that. Underlying that, though, is really strong demand. I mean, that's not the predominant factor in the demand increase, at least in my opinion. I think we have seen a little bit of restocking in the channel. Those comments were across both the OEM and the distribution part of our business. I think in the distribution side, we've seen some restocking, but most of it's been booked to bill. We get the sell-through data, and so we have not seen, at least on our products, a significant desire to restock and build up inventories. I think our ability to deliver so far has also been pretty good, and they don't have the need to restock. Now, your comment about the price increase, we have seen a few orders that have been trying to get ahead of the price increase, and that always happens when you announce a price increase. Typically, you give 60 to 90 days, and people will ramp up their orders to try to beat that price increase, but we can sort some of that out. So I feel really comfortable, Jeff, that the underlying demand is very solid. And then the PTT business lagging. I think there's a higher dependence on mid and later cycle markets in the PTT businesses than in the A&S businesses. So it's just natural that we would see that lag a little bit. And that's one reason that I feel that we've still got some pretty good runway in this recovery. that the PTD businesses are just starting to see some of those big projects and some of the things come through, and we're actually starting to get some orders now for some of that later cycle work that'll turn into shipments later on. There are also longer lead times in some of the PTT businesses as they're bigger, heavier-duty products.
spk02: What are some of the mid-late cycle markets where you are seeing some of that You know, order activity leak in.
spk04: Yes, I think mining is one. We're seeing some of the order activity. Marine was pretty good. That's the heavy lifting equipment, port cranes and other things. We're starting to see some orders in there. So it's, as I said earlier, it's very broad-based. I think there's a couple markets lagging, you know, oil and gas, maybe power gen, and then the aerospace business. But other than that, we're seeing nice improvements in activity building up in some of those mid and later cycle markets. Even the metals business, you know, with some steel demand and commodity prices going up, we're seeing activity there.
spk02: Do I hear you calling the turn in mining again, Carl?
spk04: Yep, that was my 10th time.
spk02: Okay. Like an economist. Just on these supply chain issues, like you say it's getting worse, or you expect it to get worse in 2Q, but kind of help me understand, like are you seeing any areas where you're starting to see relief and it gets better, and how have you put these kind of you know, growing supply chain issues into the guide, you know, as you look into the second half?
spk05: So I think the biggest concern for us right now is India. We have a number of suppliers in India, and right now they're all up and running, but that is a concern. And so we've, in some cases, are now co-sourcing components here domestically at a higher price. Logistics continues to be a challenge managing through that. And then I would think on the automotive side, the chips shortage on the automotive side and how it's going to impact like Daimler or Cummins, those are probably the pockets of biggest concerns.
spk04: Yeah, resins is another one as a result of the surprising how long the bad weather in Texas has impacted the resins business.
spk05: And so the challenges are not just for us in actually getting the components in, but In a lot of cases, it's at our customer level that can't get other components and therefore are taking production down. And that combination is still creating some uncertainty in regards to the outlook. So far, we've managed through this very well. We had very minimal disruption, whether it's at the customer level or at our level. But we don't see signs that it's going to get much better in the near term. Actually, it's going to get a little worse probably. And then hopefully after that we'll start to see things smooth out a little bit.
spk04: I think the peak in the port of L.A. was 60 container ships, backlog anchored off port, and they're down to 30 now. Their capacity has ramped up significantly. So it looks like some of the logistics issues, and as they unload them, they free up containers. So one issue is trying to get containers to put stuff on too, put stuff in, because they're all on ships somewhere. that's starting to ease a little bit.
spk02: Okay. All good colors. Thanks, guys. Thank you, Jeff.
spk01: There are no additional questions at this time. I will turn it back over to management for closing remarks.
spk04: Okay. Thank you, operator. And I want to thank everyone for joining us on the call today, and we look forward to engaging with you in the months ahead. And thank you for your time.
spk01: Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.
Disclaimer