TriMas Corporation

Good day and welcome to the Trimass Second Quarter 2022 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Sherry Launderback. Please go ahead.

Thank you and welcome to Trimass Corporation's Second Quarter 2022 Earnings Call. Participating on the call today are Thomas Amato, Trimass' President and CEO, Scott Mell, our Chief Financial Officer, and Paul Ford, our Chief Accounting Officer. We will provide a prepared remarks on our second quarter results and our outlook, and then we will open up the call for your questions. In order to assist with the review of our results, we've included the press release and PowerPoint presentation on our company website at trimaskcorp.com under the investor section. In addition, a replay of this call will be available later today by calling 888-203-1112 with a replay code of 7250176. Before we get started, I would like to remind everyone that our comments today, which are intended to supplement your understanding of TriMAS, may contain forward-looking statements that are inherently subject to a number of risks and uncertainties. Please refer to our Form 10-K and our Second Quarter 10-Q that will be filed later today for a list of factors that could cause our results to differ from those anticipated in any forward-looking statement. Also, we undertake no obligation to publicly update or revise any forward-looking statements except as required by law. We would also direct your attention to our website where considerably more information may be found. In addition, we would like to refer you to the appendix in our press release issued this morning or included as part of this presentation for the reconciliations between GAAP and non-GAAP financial measures used during this conference call. Today, the discussion on the call regarding our financial results will be on an adjusted basis, excluding the impact of special items. With that, I'll turn the call over to Tom Amato, Trimus' President and CEO. Tom?

Thank you, Sherry. Good morning, and welcome to our second quarter earnings call. Let's turn to slide three. As we reflect on our second quarter performance and take into consideration the challenging economic period we are in, I would like to acknowledge and thank our global team members for their continued commitment and dedication. It will come as no surprise that our businesses are not immune to the lingering effects of the pandemic, inflationary pressures, and other factors impacting production such as labor availability and supply constraints. To add to these dynamics, we are experiencing in certain product lines higher customer demand, as compared to our planning models, while on other product lines we are seeing softer demand, all driven by our customers seeking to bring into balance their inventories in order to be responsive to their customers' needs. These effects translate, in some cases, to operating at less than our pre-pandemic efficiency levels in our production facilities, as our daily and weekly scheduling is often adjusted to accommodate our available labor force or material constraints. As we remain flexible in this economic environment, the relentless commitment of our local teams to support our customers makes a significant performance difference. So again, I thank our global team for their continued strong efforts. With that background, despite this very dynamic operating and demand environment, we are pleased to report adjusted earnings per share of $0.60, which is in line with our planning model for the quarter. Additionally, in light of the many actions we have taken over the past few years to strengthen our balance sheet, and given the recent dislocation in the equity markets, we have repurchased nearly 1 million shares since the beginning of the year, reducing our shares outstanding this year alone by approximately 1.8%. We have approximately 115 million available under our share repurchase authorization, which is adequate to allow us to opportunistically repurchase shares in combination with investing to execute against our long-term strategy. I'd also like to note that we believe companies with a strong balance sheet and exceptional cash flow are the ones that will be best positioned to thrive in uncertain times. With that said, Scott will discuss in his section additional cash generation actions we are taking to ensure we maintain a strong balance sheet and to solidify second half performance. Let's turn to slide four, where I'll cover our financial performance for the quarter. Sales were approximately $238 million, up 8.5% as compared to the prior year quarter, driven by organic sales of 3.5%, and sales from acquisitions, which contributed 7.2%, partially offset by unfavorable foreign currency exchange of 2.2%. Sales increased in all three of our segments, with the most significant increase in our specialty product segment, driven by continued industrial demand for products within our north cylinder and aero engine businesses. Sales were also up within TriMAS packaging, driven by acquisitions, and sales were up within TriMass Aerospace as we continued to see signs of returning demand in the aerospace market generally. Adjusted operating profit for the quarter was $32 million, or 13.5% of sales, which was $2.1 million higher than the prior year quarter, but 20 basis points lower in margin largely due to product mix and higher energy costs in Europe. Adjusted net income was $28.8 million, or $0.60 per share, And this was slightly lower than the prior year quarter due to an approximately $3 million or $0.07 per share tax planning benefit that occurred in the second quarter of 2021. Finally, adjusted EBITDA was $48.3 million in the quarter, or 20.3% of sales, and on an LTM basis was $176.8 million, a $12.7 million increase over June 2021 adjusted LTM EBITDA of $164 million. We accomplished this earnings growth while also keeping net leverage in check and reducing our shares outstanding. We believe, over time, that our momentum in growing cash earnings coupled with maintaining a strong balance sheet will drive long-term shareholder value. At this point, I will turn the call over to Scott, who will take us through our balance sheet and segment performance.

Thanks, Tom. Let's turn to slide five. As Tom mentioned in his opening comments, we continue to maintain a strong balance sheet and liquidity profile, which we believe will position us well to execute against our long-term strategy. As of June 30th, we maintained $348.1 million of unrestricted cash and availability under our credit facilities, had net leverage of two times even after recent acquisitions and share repurchases. I will also highlight that Q2 2022 free cash flow of $15.5 million, which is slightly lower than the same period last year, is a result of proactive procurement actions in response to global supply chain disruptions as we actively manage our inventory balances to ensure continuity of supply for our customers. Finally, and as mentioned earlier, we are actively taking steps to further bolster our balance sheet in support of executing our long-term strategy. For example, in July, we closed out deep in the money cross currency swaps and are in the process of disposing excess land, which together should yield more than $30 million in cash proceeds before taxes. We will continue to assess additional opportunities to strengthen our balance sheet as they become available. Now, let's turn to slide six, and I will begin my review of our segment results, starting with TriMAS Packaging. Our packaging segment results for the second quarter included another record-setting sales performance. Net sales of 148.4 million increased 8.8 million or 6.2% as compared to the year-ago period. Acquisitions contributed 14.4 million of sales during the quarter, while the impact of unfavorable foreign currency translation reduced sales by 4.8 million during the quarter. Organic sales decreased by less than 1% when compared to the prior year period. As we are comparing to the second quarter of 2021, which was the last quarter, which significantly benefited from the positive effects of the pandemic-related demand surge. With respect to our dispensing product lines, while in Q2 we believe that our global CPG customers continued to work through existing inventory, we are starting to see indications that demand volumes are beginning to stabilize at a new, higher post-COVID level. During the second quarter of 2022, and consistent with our results for the previous three quarters, continue to experience double-digit year-over-year organic growth for products used in food and beverage and industrial and agricultural applications as these end markets continue to deliver stable macroeconomic growth. It's also worth noting that our flexible food and beverage product lines which we take to market under our Raypak brand, continue to see strong demand for their bag-in-box product solutions, with sales increasing by more than 30% on a year-over-year basis. While we are pleased with the sales performance for the quarter, given the challenging macroeconomic factors currently impacting many of the regions of the world in which we operate, we will continue to closely monitor our order book and production planning as our customers potentially bring late pandemic period inventories further in the balance over the second half of the year. Operating profit when compared to Q2 2021 was up slightly to 29.2 million as the impacts of higher sales and less volatile resin costs were offset by inflationary pressure on other input costs, including energy costs in Europe, which continue to be meaningfully impacted by the ongoing hostilities in Eastern Europe, as well as currency exchange rates. Operating margin was 19.7% compared to 20.2% a year ago, while adjusted EBITDA was 37 million, a 2.2% increase versus the prior year quarter. As we look forward to the second half of 2022 and beyond, I'd like to highlight a few additional items. For the second half of 2022, we expect accusation-related sales growth to continue to augment organic sales growth in that key input costs, including material costs and energy, will stabilize. Next, we remain committed to expanding our offering of a fully recyclable dispensing product line with additional sales expected to ramp up in late 2023 and into 2024 as we continue to see strong interest in these products from our global CPG customers. Finally, we are pleased with the results of the ongoing integration efforts at our two recently acquired life sciences businesses, Omega Plastics and Intertech, and expect future organic growth for both businesses as well as further bolt-on acquisitions into the TriMAS life sciences platform. Turning to slide seven, I will now provide an update on our TriMAS Aerospace segment. Net sales for the quarter increased 2.8 million, including 1.4 million from acquisitions to 47.4 million, a 6.4% increase when compared to the same period a year ago. As we've mentioned previously, sales and operating profit for TriMAS Aerospace throughout 2021 were positively impacted.

Okay, so this is Paul Swart.

Yes, we're going to continue.

So continuing on, adjusting for the impact of the stocking orders on Q2 2021 sales, Q2 2022 sales were up more than 16%. In addition, order intake and backlog for our aerospace product lines are exceeding our internal plans for 2022, and accordingly, we believe should positively impact 2023, given delivery timing. Operating profit for the quarter was 3.3 million, or 6.9% of sales, as compared to 2.7 million, or 6.1% in the prior year. This 19.3% year-over-year improvement in operating profit is primarily attributable to the increase in sales, which more than offset the higher product margin related to the prior period's special stocking orders. Adjusted EBITDA for the quarter was 8.2 million, or 17.4% of sales, a 90 basis point improvement year over year compared to 7.4 million or 16.5% for the prior year period. While we expect the broader commercial aerospace market recovery to continue over the remainder of 2022, we also expect the challenging production environment related to continued labor shortages, lingering COVID outbreaks, raw material delays, and dynamic customer order patterns to continue as well, at least through the second half of 2022. Finally, I'd like to highlight that our TriMAS Aerospace team will begin initial low-rate production of components for the new Boeing T7A trainer jet during the second half of 2022. As we announced previously, Boeing's T7A Red Hawk is an all-new advanced pilot training system for the U.S. Air Force. Our RSA engineered products business was awarded several components used in the air ducting system, which is part of our efforts to expand our aerospace product offering further into space and defense related applications. Now on slide eight, let's review our specialty product segment. Net sales in the second quarter increased 7.1 million to 41.9 million, a 20.5% increase when compared to the same period a year ago. This is now five consecutive quarters of 20% plus growth for our specialty product segment. Consistent with performance since second quarter of 2021, demand for steel cylinders and engines providing supplemental power, each for the North American region, were significantly higher in the quarter when compared to the same period in 2021. Operating profit in the quarter was 6.8 million, or 16.1% of sales, as compared to 6 million in the previous year period. Operating profit increased by 12.6% as the impact of higher sales was slightly offset by higher material and energy costs when compared to second quarter 2021. Adjusted EBITDA of 7.9 million or 18.8% of sales was also greater than the prior year's quarter of 7.2 million or 20.7% of sales. In addition, at the end of the quarter, both Norris Cylinder and Aero Engines order books remain strong, which we believe is indicative of cautious optimism in the end markets which specialty product serves, including construction, HVAC, general industrial, and upstream oil and gas. However, given the current macroeconomic environment, we will continue to closely monitor order changes and input costs and take appropriate actions as necessary. Finally, for this segment, we remain cautiously optimistic with regard to second half performance given our current backlog positions. And at this point, I'd like to turn the call back over to Tom to discuss our outlook and for some closing remarks. Tom?

Thank you, Paul, and thank you, Scott. Scott's visiting one of our locations. We lost him on the line. And true to our TriMass business model, we always have contingencies ready to go, and we were ready to go. So let's turn now to slide nine. As we discussed on our April 28th earnings call, we continue to see our customer demand environment evolve differently than we planned for some of our product lines. Overall, given our diversified end market model and proactive continuous improvement actions, we are again reaffirming our sales, EPS, and cash flow outlook for the year. Our second half planning does assume that input costs and materials availability stabilize, while steel costs begin to ease. We also expect to see trends in our operations start to improve through the second half and as we reduce labor bottlenecks and bring additional suppliers online, all to work through current production inefficiencies. Our outlook also considers successful execution of the project Scott mentioned previously, which will further strengthen our balance sheet and bolster performance. Lastly, we are assuming no additional geopolitical disruptions. Let's turn to slide 10, which summarizes TriMAS's strategic value drivers. First, we will continue to build out TriMatch packaging as we believe there are attractive long-term characteristics in our diverse set of packaging end markets. We have a robust pipeline of innovative product solutions and are committed to augmenting this growth through acquisitions. At the same time, we are optimizing the higher demand we have been experiencing in our specialty product segment, leveraging the previous factory floor improvements actions we have taken. Next, we are seeing positive trends emerge and reinforcing our thesis to have further long-term performance gains in our TriMass Aerospace Group as air travel and ultimately commercial jet production recovers. And while we continue to reinvest in our businesses for long-term growth, we also anticipate continuing to return capital to our shareholders, both through quarterly dividends and share buybacks. And in addition, to our financial progress, our leadership team also remains committed to operating TriMass in a responsible way to positively contribute to society, particularly in the communities where we live and work. Turning to slide 11. Before wrapping up the call, I would like to highlight that over the past several weeks, a few of us from the TriMass leadership team attended both KeyBank and William Blair investor conferences in Boston and Chicago, respectively, as well as attended several other direct investor meetings. These were the first in-person investor conferences and meetings we attended since the onset of the pandemic. We appreciated the attendance at our meetings, and it was great to reconnect and see so many familiar faces, meet new prospective investors, and address questions as we further shape TriMath in the future. On this slide, I would like to share with you what we believe All of the drivers in the previous slide mean for the future of TriMAS. This highlights some of the performance targets as we continue to grow TriMAS both organically and through acquisitions, further build out our packaging platform, and maintain our strong balance sheet. Of course, it is also our commitment to leverage our TriMAS business model to adjust for market disruptions and drive performance while returning capital to shareholders along the way. Again, we continue to believe TriMass is an exciting company to invest in. And with that, I'll turn the call back to Sherry. Sherry?

Thanks, Tom. At this point, we would like to open up the call for your questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will now take our first question from Ken Newman from KeyBank Capital Market. Please go ahead.

Hey, good morning, guys. How are you?

Great. How are you? Good.

You know, for my first question, just looking at the segment-specific guidance you have on slide 14, you bumped revenue growth for aerospace and specialty products, but you kept the margin assumptions the same. I'm just curious, could you just walk through the puts and takes of what's offsetting what I think should be better absorption on higher volumes, and then maybe just a little bit of color on what's embedded in guidance from a price-cost perspective across all the segments?

Okay. Well, let me take those in reverse order from a price and material cost point of view, we're assuming full coverage. Now, there are some inflationary-related costs where it gets a little bit trickier for us to recover in an intra-period or even intra-year on an intra-year basis, and I think that's to be expected and normal. With respect to the margin assumptions on higher revenue, largely related to some of the production inefficiencies that I referenced during my opening on the call. And these are things that I sort of view as a bit temporal, meaning that we hope to work through them as we exit this year and into next year. We don't have what I would call equipment capacity restraints. We might have constraints. We might have in certain production lines, given some mix of customer demand, pinch points that we're working through related to some modest equipment. But for the most part, it's labor availability that is one of our constraints. And that's the big, probably sort of the bigger story for the year is, and we've seen this back, if you look at the recovery period in 2009 and 2010, it was difficult for manufacturing companies as markets went down. And it was also difficult for manufacturing companies as markets came back up. I mean, the good news is, as you look beyond the year and we look into 2023, I expect some of the trends that we're seeing in the top line we'll start to convert much better on as we get into next year.

Got it. I guess just keeping on this idea of inflation and higher commodity costs, you know, I think we have seen a decent drop or a moderation in commodity costs in recent months. I think that includes resins and polyethylene to a certain extent, maybe not so much as you've seen in the metals like steel and maybe just talk about how the expectations for how those cost fluctuations kind of flow through the P&L in the back half and where are the opportunities or risks from renegotiating pass-throughs here as we enter 2023?

Okay, so from a mix of polypropylene and polyethylene, I would say we're sort of in a stabilized market right now. If there's a little bit of softening, we're talking pretty minor in the overall scheme of things. And remember that one of the key input materials to make polypropylene and polyethylene is either natural gas or crude, so we know what's happening there. So we're assuming for the second half basically stabilized polymer pricing, not a pullback. On the steel front, however, a little bit different story. So we use a number of different metals ranging from special bar quality billet-type alloys to exotic metals and aluminum. So on the non-SPQ side, we're seeing metal pressure, which is not helpful to us, and we'd like to see that stabilize and ideally pull back at some point either in the second half or into 2023. But on the SPQ side, which is a sizable purchase that feeds into predominantly our specialty products business and a little bit in packaging, we're seeing some easing, as I said there. Market pricing roughly is about $1,300 a ton in the U.S. That's still very high historically. And, you know, boy, it would be great if that comes back down to $1,000. into 2023 or lower, that would be quite helpful to us.

Right. Just switching over real quickly, you touched on it a bit in your prepared remarks, but we've obviously seen some higher concerns from the market for potential softness around the consumer-facing end markets. Maybe just give a little bit more color about demand trends from your packaging business as the quarter progressed, and what are you hearing in terms of major changes from customer behavior?

Yeah, that's a great question. And, you know, we're seeing that as well. I know at one of the conferences, I spoke about this in detail. And, you know, one of my concerns, you know, as we talk about recessionary pressures, inflationary pressures, is we start to enter into a world of a self-fulfilling prophecy as we see consumer habits change. So we're definitely seeing some mixed changes. And as we look at those mixed changes or softening in certain segments, sorry, certain end markets, and we talk to customers, the responses we're getting are demand from their customers, their end product demands, as well as some of their inventory levels, which are related, right? So we're staying close to our larger CPG customers, making sure that our production rates are in line with their demands and will flex appropriately. But that being said, as Scott noted, we're seeing higher demand polls in other product lines, industrial, food and beverage, for example, and in some other areas. So it's this mixed shift which is not normal when I look at historically the production rates of our product lines across TriMass. There's a wide range of variability, which is creating some secondary production issues. But we're working through them. We're staying close to our customers, watching our inventory levels, and managing through this, relying on our TriMass business model, which wants to move us from being reactive to proactive.

Right. Maybe just one more from me, and then I'll get back in queue. But, you know, you talked about it was, I think, good to see the new order on the trainer jet. Obviously, I think we've also seen some incremental positives out of Boeing for new airplane orders in recent weeks and months. Could you just talk through the visibility you have in the aerospace segment as it relates to faster inventories and the distribution channel?

I'm glad you asked the question. Newer information since we visited together several weeks ago, and I'm just coming off a visit of all of our aerospace operations. We're definitely seeing an order intake that is stronger than we envisioned. We're booking today as an order comes in, unless it's a particularly unique product. But as we take an order today, we're booking into 2023 already. But our backlog is up. And we're seeing, based on our planning models to start the year, a better trend. than we envisioned and that's good. It means we have to keep up with production and we're taking those steps and putting the right plans in place now and having met with the team, everyone is aligned to seek to get things into the appropriate balance as we exit 2022 and move into 2023 so we can convert well. But almost across the board, we're seeing positive trends, except for a few of the lines that you would expect that still are not being produced at pre-pandemic rates, specifically the 787, which still is in a bit of a holding pattern. And to me, that just means as we look at 2023 and 2024, we could have a tertiary effect, right? The secondary effect is the market that's recovering now. The tertiary effect is a 787 coming back online at regular rates. So I'm excited about what's in front of us on the aerospace end and all that our team is doing to meet customer demand and pull. And they're working really hard. And that's why I would have been remiss if I wouldn't would have opened this call without thanking them for their work.

Just a quick follow up on that. With the order intake being stronger, maybe Could you just give some commentary on how margin accretive the pricing on some of these new orders you're taking are? Is this something that you think could drive, with combination of better volumes, drive EBIT margins back to pre-COVID type of levels?

Well, first of all, many of the products that we're taking in are existing products that are our customers are reordering. So these are the vast majority of the order intake are products that were somehow hampered from the COVID-related period. So we know what the margins are. Now we do have some material challenges. But that being said, I've often said and continue to believe that our TriMet's aerospace business will return, first return to the 2019 exit operating profit levels, better to talk about EBITDA for us, but exit operating profit levels, and through some of the restructuring efforts that we took during the pandemic period, somewhere between 100 and 150 basis point opportunity to gain some additional operating leverage as we grow that business beyond the 2019 levels. Got it.

I'll get back into you. Thanks. Thank you.

As a reminder, to ask a telephone question, please signal by pressing star 1 on your telephone keypad. We'll pause for just a moment to allow everyone an opportunity to signal. We will now take a follow-up question from Ken Newman. from the KeyBank Capital Marketers. Please go ahead.

Hey, thanks. Just one more for me. Obviously, you've been much more active on the share repurchase. You reiterated expectations to be more active on the M&A front as well. Maybe how should we think about the cadence of capital deployment here, just given where we are in this uncertain type of environment? How do you prioritize capital deployment, and where do you see the best opportunities for each incremental dollar of free cash flow?

Again, Ken, great question, right in line with our strategy. Our top priority is to invest in our factory floors innovation. We've always said that, and we're staying the course there. We have a great balance sheet, and we'll continue to do that. We certainly have to, we want to continue to pay our dividend return capital to shareholders through that mechanism that we're very pleased is now in place. Next up, I would put M&A. We strategically want to continue to add to our packaging platform. We have sufficient availability and cash generation And we want to put that capital to work through growing and building out our packaging platform. And also, you know, where we see unique opportunities in aerospace, we'll continue to do that. We think the market, you know, there's dynamics in that market right now where entrepreneurs, for example, you know, would like to get out. I mean, there's folks that are not getting younger along the way. And, you know, those create great opportunities for a company like Trimask. to move an entrepreneurial business into our family of businesses. And then we look at our cash availability after our strategic initiatives. We look at where our stock is trading. It's easy. We don't have to do due diligence. And we'll continue to take in stock if we see it trading at levels where we're comfortable and that and given our cash availability. So we've seen that throughout the year, and we're pleased to have returned, used that mechanism to return capital to shareholders, which nearly is 2% of taken out shares this year. So I sort of put it in that priority and that level, but from a treasury point of view where we look at our stock price frequently, and if we see opportunities, we'll take it out.

On the M&A, I mean, are you seeing the pipeline kind of open up or close a little bit? I would imagine the next deal to come across the desk is probably harder to find. But maybe just give a little bit of color about where you're seeing deals from a multiple perspective and the number of opportunities that are coming across.

Yeah. Look, I mean, it's not going to be any surprise to you that larger deals have, there's been a pause a bit on larger deals. And any deal that was, and that's all driven by availability, not even the cost of debt, but availability of debt, which is the high-yield market, I think, is pretty locked down right now. So on that front, we're seeing a pretty slim offering of larger deals, but that's okay because we're operating with an M&A focus at this point that has been predominantly on the bolt-on size range. And on that front, we're still seeing reasonable deal activity. Look, we have to look at a lot of deals. to find high-quality companies. And that, you know, I think that is something that has been a trend over the past few years. But my expectation, and given, you know, what we're seeing in the market today, that sub-20 million in EBITDA deals are not going to be affected by the current credit market, and we're going to continue to see that pipeline come out there.

Yep. And just last one for me, you know, I know you're not ready to guide to 2023, but I think it's maybe worth kind of revisiting how you view the longer-term operating leverage across the three businesses. You know, obviously, I think packaging has always been one that's been challenging for investors to a certain extent, just given the fact that you are doing more deals that are, you know, typically are fixer-uppers or maybe a bit more margin dilutive to the legacy business. And then on top of that, we've got, you know, the fluctuations in raw material costs. But is there, you know, do you see a pathway to get operating margins back to pre-COVID levels, you know, in that low 20% range for packaging? And then similarly for specialty, just, you know, how do you view the pathway or the right kind of normalized run rate for operating leverage? given what's been a very strong market within those basket of businesses?

So on the packaging front, if we did not have the effects of the high energy costs in Europe in 2022, there'd be a materially different story on our margin. I mean, that is a big... cost effect to us given our presence in Europe. We've got roughly 30% of our production and trading activity is in that region. So that's been the biggest negative driver. We know that impacts material costs. We know we can get in time the right type of recovery, commercial recovery on that. But that has been just an absolute drag to performance. And you're right on some acquisitions. In some cases, they are fixer-uppers or modest turnarounds or integration plays. They're not assimilations because many of the companies we buy are great brands in and among themselves, and they have customers and longstanding relationships that we want to preserve. But we also do see through acquisitions we have in the mix and acquisitions that we would bring in the drive to increase that operating performance. It's certainly my and our team's objective to be north of that 20% bogey and operating profit within our packaging group and you know we're taking efforts to do that over over time and again we were hit with some things this year and that were completely outside of our control when you look at the issues that occurred in Ukraine and Russia. On the specialty product side, we're continuing to invest in automation, which will help us relieve pressure. What I'd like to do for the most part is continue to bring in incremental revenues. The next step in operating leverage pickup for us, believe it or not, will be in the aero engine side, perhaps. And that business is ramping up quarter over quarter, month over month, as natural gas prices go up and the activity and exploration goes up in North America. So that'll be a contributor as well. But I want to make sure that we're taking advantage of all the orders that we can get produce them in a timely fashion, and enjoy that pull through. So, you know, we'll look at continuing to invest in factory floor improving throughput, and that'll give us a slight operating leverage. But, you know, if you look over the past three years, we've had some beautiful gains in operating leverage already there. Right.

I appreciate the time, Tom.

Thank you very much for your questions, Ken.

As another reminder, to ask a telephone question, please signal by pressing star 1. We'll pause for just a moment to allow everyone an opportunity to signal for questions. There appears to be no further questions at this time. I would like to turn the conference back to the host for any additional or closing remarks.

Okay, great. I know it's a very busy earnings day, and I'd like to thank everyone for joining us on our call, and we look forward to updating you again next quarter. Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.