John Bean Technologies Corporation

Good morning and welcome to JBT Corporation's first quarter 2021 earnings conference call. My name is Megan and I will be your conference operator today. At this time, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, please press star 1 on your keypad. To withdraw your question, please press the pound key. I will now turn the call over to JBT's Vice President of Investor Relations, Megan Rattigan. You may begin.

Thank you, Megan. Good morning, everyone, and welcome to our first quarter 2021 conference call. With me on the call is our Chief Executive Officer, Brian Deck, and Chief Financial Officer, Matt Meister. In today's call, we will use forward-looking statements that are subject to the safe harbor language in yesterday's press release and 8 filing. JVT's periodic SEC filings also contain information regarding risk factors that may have an impact on our results. These documents are available in the investor relations section of our website. Also, our discussion today includes references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measure can be found in the press release issued last night, which is also in the investor relations section of our website. Now, I'd like to turn the call over to Brian.

Thanks, Megan, and good morning, everyone. As you saw from our earnings release, JBT delivered a very good first quarter. Commercially, we are enjoying a strong recovery in demand of food tech, with record orders in the period. Cash flow was outstanding. We also saw some encouraging signs at Aerotech. On the other hand, we are experiencing increasing operational challenges created by supply chain constraints, inflationary pressures, and COVID-related customer access and select geographies, pressures that will likely persist through the remainder of 2021. That said, I am extremely proud of how well our people, from sales and customer care to manufacturing and procurement, have managed this environment, and we continue to expect a meaningful sequential ramp in our performance through the next three quarters. Matt will walk you through our updated guidance for the full year, as well as provide analysis on our first quarter results. Thanks, Brian. We are pleased with our first quarter performance. In the quarter, we saw strong quarter growth in food tech at 22% year-over-year. Revenue met our forecast, and both earnings per share and pre-cash flow exceeded our expectations. On a year-over-year basis, revenue increased 1% at food tech, while declining 28% at aerotech. Food tech margins were in line with guidance with operating margins of 13.3% and adjusted EBITDA margins of 18.7%. Aerotech margins were ahead of expectations with operating margins of 9.3% and adjusted EBITDA margins of 10.7%. The better than forecasted margins were the result of favorable equipment picks, better than expected aftermarket revenue, and good cost control. Earnings in the quarter also benefited from lower interest expense, as continued strong cash flow reduced our debt balance. Additionally, corporate expense, M&A, and restructuring costs were slightly favorable to guidance. As a result, JBT posted adjusted diluted earnings per share from continuing operations of 90 cents, or GAAP EPS of 84 cents. Pre-cash flow for the quarter significantly exceeded our expectations, at $78 million, driven by continued strong collection of accounts receivable and customer deposits. The robust cash flow performance improved our bank leverage ratio to 1.9 times and increased overall liquidity to $496 million. We expect to expand our balance sheet to support an increase in sales in the back half of the year to achieve full-year free cash flow conversion just above 100%. As we look ahead to full year 2021, while we are benefiting from strong commercial activity, challenges in the operating environment are expected to increase further as we work through extended vendor lead times, worldwide constraints on logistics, and inflationary pressure, specifically on metals, as well as COVID travel and access restrictions in Europe and Asia Pacific that increase the cost of doing business. With that in mind, we have refined our full year 2021 guidance. Given the strength of orders and outlook for food tech, we have raised top line growth to 9% to 11%, up from our previous guidance of 5% to 8%. However, while we expect to be able to mostly offset inflationary input costs with sourcing actions and pricing, The operational challenges I mentioned previously are expected to exert downward pressure on margins. Therefore, we have lowered full-year margin guidance by 25 basis points, with operating margins of 14.25% to 14.75%, and adjusted EBITDA margins of 19.25% to 19.75%. Our guidance for Aerotech is unchanged, with projected revenue growth of 0 to 5%, operating margins of 10 and 3 quarters to 11 and a quarter percent, and adjusted EBITDA margins of 12 to 12 and a half percent. Due to existing pricing commitments and current market conditions, in the short term, Aerotech is limited in its ability to adjust prices to offset inflationary conditions. Therefore, although Aerotech exceeded margins In Q1, we have held our full-year margin guidance. We are holding our forecast for corporate costs at 2.7% of sales, while lowering interest expense to about 11 million. Altogether, this increases the full-year adjusted EPS range to $4.40 to $4.60. Our GAAP EPS guidance is now $4.20 to $4.40, with M&A and restructuring costs of $8 to $10 million. Now, in terms of Q2, we expect revenue of $325 to $340 million at FoodTech and $105 to $115 million at Aerotech. Our second quarter guidance for operating margins are 13.75 to 14.25% at FoodTech, with adjusted EBITDA margins of 19 to 19.5%. For Aerotech, operating margins are forecasted at 8.75% to 9.25%, with adjusted EBITDA margins of 10% to 10.5%. For the quarter, we expect corporate costs of $12 million to $13 million, M&A and restructuring costs of $4 million, and interest expense of about $3 million. That brings second quarter adjusted earnings per share guidance to $0.90 to $1 and $0.80 to $0.90 on a gap basis. With that, let me turn the call back to Brian. Thanks, Matt. I'd like to start by talking about order trends and what we hear about the market from our customers' perspective. In the first quarter of 2021, food tech orders hit a record $386 million. The pandemic-driven boost in eat-at-home retail and quick service restaurant demand continued into the quarter. fueling orders from food processors requiring additional capacity and automation to serve these markets. From a geographic perspective, North America and the Asia-Pacific region continue to be strong. South America improved meaningfully, while demand in Europe remained volatile as the region worked through the challenges of the pandemic. Our research and customer engagement confirms our expectations of double digit expansion in capital expenditures among our food tech customers in 2021. This is consistent with our forecast for food tech equipment growth, which is expected to outpace our more stable recurring revenue. Beyond the current strength on the retail side, we believe progress controlling COVID, particularly in the US, will spur new projects on the food service side. Inquiries and conversations with customers serving the food service market have picked up. At the same time, the pandemic has accelerated customer investment and permanent design changes. Production flexibility so producers can respond quickly to shifts in demand is increasingly important. Moreover, the pandemic serves to make automation, which was always a priority and imperative for food processors. Automation not only addresses labor shortages and enhances productivity, but is necessary to reduce worker density. At Aerotech, although orders were down 35% compared to pre-pandemic levels a year ago, it met our expectations, and there are some encouraging signs. We continue to see stability on the infrastructure side with our services and passenger boarding business. but with some construction related push out of bridge deliveries from Q2 to Q3. This is reflected in our guidance. And as we've discussed over the past few quarters, we're excited about the outlook for cargo in 2021 and military demand longer term. Additionally, our engagement with commercial airlines improved in the quarter, resulting in a few equipment orders. something we had not seen since the collapse in passenger air travel in 2020. The recent increases in domestic consumer air travel in North America is a welcome sign. However, we believe improvement in commercial airline CapEx spending will be gradual over the next two years. Let me switch gears and talk about M&A. As we said last quarter, we're looking to deploy capital in 2021 and beyond, as we evaluate strategic acquisitions that advance FoodTech's competitive position as an innovative, comprehensive solution provider. Our M&A pipeline is active and includes opportunities to leverage JBT's capabilities and scale. We continue to look at equipment providers that enhance our ability to provide full-aligned solutions, as well as those that expand our penetration to attractive food categories. Additionally, We look at companies with unique service, digital, and process-enhancing capabilities that enhance JVT's strategy to be a more meaningful solutions partner to our customers. Overall, we are reassured by the robust commercial activity of Foodtech and indications that Aerotech is on the upswing. While we have challenges ahead this year caused by transitory supply chain imbalances, JVT and our people look forward to delivering in 2021. With that, let's take your questions. Operator?

At this time, we'd like to take any questions you may have. To ask a question, please press star 1 on your telephone keypad. Your first question is from Walt Liptack with Seaport Global. Your line is open.

Hey, thanks. Good morning, everybody. Morning. Good quarter. I wanted to dig in a little bit on the food tech orders that look pretty good. I wonder, you provided some details, but I wonder if you could talk a little bit more about sort of the product groups that you're seeing recovery in the past. You've talked about, you know, proteins versus liquid food versus pet foods, if there's any, you know, trends that we can discern there. And I wondered about any customer concentration issues. Are these large orders coming from some of the large food producers, or is it from a lot of the food producer customers? Sure, thanks, Walt. So generally speaking, it was pretty broad-based across the customer base. I think we've seen some strength both on the big customer side as well as some of the normal called mid-sized and regional players. So pretty broad-based in terms of the way we think of it on the demand side as we think of it in terms of end products, in terms of where it's going to the consumer, as well as the product that we actually provide. So if you look at the quarter, poultry was really strong in Q4 and remained strong in Q1. We saw real strength from meat alternatives, so beef and chicken alternatives was very strong. We saw good strength in seafood and non-poultry, so meat and other meat items And then good strength in fresh fruit applications as well. From a product perspective, freezing products were quite strong. Marinating, portioning, tray sealing packaging was strong. Cooking, coating, frying was strong, and canning was strong. So fairly broad across the product line as well. So condition-wise, it's probably the best we've seen in some time. Okay, yeah, that does sound very strong and broad. You know, I wonder, you mentioned new capacity. I wonder if there's any trends that you can discern about, is this new capacity going in or is this new product development and new production lines that are going in? I think it's a combination, but yes, we can see it is, I'll call it a catch-up on some capacity constraints that our customers were seeing, again, to meet, I would say, primarily the retail side, as well as also serving some of the quick service restaurants, which have been pretty strong in the back half of 2020 and into 2021. But predominantly, I would say capacity, but also just to remind you, when our customers consider capacity increases, they look at the offering that also provides a good value in terms of automation and food safety and all the other things that we bring with our value proposition. So it is a combination of factors, but the primary driver would be capacity. Okay, sounds good. And maybe the last one, you kind of touched on this. on these orders is, you know, you've talked in the past about automation and IoT and using more of the technology. Are you starting to see that in some of these orders? And I'll get back into you. Thank you. Yeah, absolutely we are. And I can tell you the conversations we, you know, I've had since being in this role with our CEOs, sorry, with our customer CEOs and COOs, is that they are focused on automation and reducing labor. And we've got a good value proposition across our offering. As I mentioned, we have a great IoT platform. We have great automation solutions, particularly in certain areas that we highlight to our customers. So the conversations have ramped up. But again, as you know, we offer such a good broad value proposition We don't focus solely on automation in the conversations. We focus on everything else that we bring, including the service side, which is really critical. And certainly our IoT platform adds to that value proposition.

Our next question is from Lawrence de Maria with William Blair. Your line is open.

Hey, thanks. Good morning, everybody. Hi, Brian.

Hey, Larry.

So just following up on those comments on the food orders, which are obviously exceptionally strong, I'm just trying to understand how much of, you know, 1Q orders might have been an anomaly with restocking, et cetera, or do we think that maybe we're at some sustainably high levels for a while, given what you're talking about with automation and IoT trends? Obviously, you know, record orders, but also could be some, you know, restocking and getting in line because everybody knows there are extended lead times.

Sure. It's not so much restocking because these are still more configure to order, quote to order type projects that we've been working on for some time. Arguably, there was some pent up demand from deferred investment in 2020. So not so much restocking, but just really filling the gaps from before. And it's hard to say kind of where the trends are going to go from here, Larry. You know, the way I do think of it, if you go back to 2019 and look at kind of a normal order run rate for food tech is, you know, call 340 to 350 in orders in a particular quarter. That's what I see is the baseline. Obviously, the last two quarters, we've been above that. It's too early to know how that's going to progress from here. But certainly, given the last two quarters, we're above that trend line, and we'll see how that develops over the next quarter or two. But it's a good commercial market for sure.

Good point. Understood. Thanks. And secondly, you touched on M&A, you know, the $4 million this quarter. I think it was a million and change last quarter in – expenses obviously the active pipeline just to dial in a little bit you know closer here are we thinking you know one larger deal as implied by this four million spend or you know more smaller deals and still staying within the core secondary further processing or maybe getting more horizontal into packaging etc just any more color to think about so we can set up sure

Yeah, and just as FYI, that $4 million included both M&A and restructuring costs, so it's kind of about half and half as we complete some of the restructuring efforts from the end of last year. But, you know, we do have a really well-developed M&A strategy, and the pipeline is pretty broad in terms of the way I think of it, Larry, is there are some decent-sized equipment opportunities From a proprietary perspective, we continue to cultivate over the last several years and just try to stay close to the owner-operators. We do like going both directions in terms of going to the right into packaging. potentially into more of what we call secondary processing and even dipping a little bit into the primary processing for things that are adjacent to our offering on the secondary side. So that's from the equipment capabilities perspective. We're also interested in going into We're pretty broad-based, as you know, on our product offering, but there are some areas that we wouldn't mind going a little bit deeper into our penetration and the actual end consumer market categories that we talked about, things like nutraceuticals and other areas of higher growth that we continue to look at. Where we spend our money, we do a lot of research on these end markets. and where we think these things are going. So we do spend a lot of time thinking about where we would like to deploy our capital. And as part of that, we develop a pretty broad funnel of opportunities. And then as those start to mature, we know precisely where they fit within that strategy for M&A so that we're well ready to expand execute when they arise.

Okay. Thanks for your help. Well, good luck this year, guys.

Thanks.

Your next question is for Michael McKeon with Wells Fargo. Your line is open.

Hey, good morning, everybody. Hi, Mike. I just want to go back to the change in food tech. I'm doing some quick back of the envelope math here, and it looks like revenue relative to the old guidance coming up $50 million, but really only like a $4 or $5 million profit pull through. And if you were to square that up with your margin rate, what you were projecting before, it looks like a $3 million inflation hit that you're underabsorbing this year. Is that kind of the way you're looking at it? And do you think that's peaked? Or how would you frame your current guidance there? Yeah, Mike, this is Matt. I think your numbers are, you know, pretty close in terms of sort of what we're seeing on the inflation side. You know, I think normally we would expect to see flow through on the incremental sales in the high 20 to low 30%. But just given some of the inflationary pressures we've seen intensify over the last two months, as well as some of the just the inefficiencies that we're experiencing with the supply constraints and logistics constraints, that's actually putting a lot of pressure on our costs on the manufacturing floor. And so I think, you know, I would say the pressure is probably about 25 to 50 basis points higher. that we're seeing off of our normal flow through on the incremental sales. Got it. Appreciate it. And then maybe just on the, you know, good growth and you need to fund that with the balance sheet. Was that more of an inventory point or more of a receivables? Cause you had good collections this quarter. Can you walk me through the puts and takes on your free cash flow and for this year? Sure. In the first quarter, the strong performance on cash flow was really driven by collections on receivables and then actually the timing and collections on the deposits associated with the orders that we received in the quarter. So that's really what the upside was in the first quarter. We didn't really see a significant investment yet in inventory in the first quarter. A little bit on the food tech side, But that was offset slightly with Aerotech's inventory being down. But as we get into the second quarter, we do expect to see an investment in inventory to support sales growth, not only on the food tech side that's coming through in the orders, but also in the back half of the year, we had expectations for the Aerotech business to grow. And we need to invest in some long lead time inventory items in the second quarter. right and then i'd add that obviously with the revenue growth in the back half of the year we would expect receivables to grow in the back half of the year too okay so is this a situation where if you saw the right deal kind of similar to the auto uh coding deal you think you can fund this internally or do you you know foresee yourself dipping back into the debt market and just trying to get a feel for for leverage also the back after this year Well, certainly, I'll let Matt speak to the capital structure, but, you know, we have a billion-dollar credit facility with less than $500 million of usage right now, so lots of capacity there. Yeah, I would say, just to add to that, that, like Brian said, we have plenty of capacity in our current capital structure to support some of the smaller bolt-on deals that you've seen us do in the past. I think if there was a larger deal or there was more urgency with the number of deals lined up, you know, we would evaluate options in the capital markets. And we're currently just, you know, looking at that more closely just as the capital markets are very supportive of new transactions. But right now there's just not an urgent need. And so we're going to continue to evaluate that and wait and see if there's a new need for us to go out into the capital markets. All right. Got it. Good quarter, guys. Thanks for the time. Thank you. Thank you.

Our next question is from Joel Tis with BMO. Your line is open.

Hey, guys. How's it going? Hey, Joel. I just wonder when, can we talk about Arrow a little bit and when prices reset there? Is that a kind of a once a year and any color on what you're hearing from your customers? It seems like it would be more of a 2022 and 23 kind of recovery, but just any color you got there. Thank you. Sure. Yeah, Joel, it depends on the customer. Some of the larger, more sophisticated customers that we have, they tend to have annual pricing agreements. uh and that's for i'll call it the more stable contract type business that we do with them and that applies on the on the jet bridge side uh the passenger boarding bridge side as well those are locked in contracts over the next year or two but what we do on that side is we attempt to uh lock in the metals prices as we enter those contracts so it's more of a pressure on the on the ground support side on the gsc side And, again, that's a mix of customers, larger ones that do annual contracts, but then I would say the business that kind of comes and goes more frequently, less contractual or less under contract basis, we have a little bit more pricing authority, but that's really based upon market conditions and what we see from competition. So it's a little bit more fluid on that side. But certainly as we run into 2022, we'll have a better opportunity to assess where we are. Okay, and then just a quick one on the backlog rising 24% on the 22% order increase. Is that inability to get anything out the door, or it's just sort of the natural seasonal flow of the business? It's generally natural seasonal flow of the business. I would say... So we would have expected that kind of this time of the year. Anyhow, that said, you know, our vendor lead times are extending, you know, between the logistics challenges, et cetera. So we're starting to see our lead times as well as our competitors lead times start to creep up a little bit, especially as we try to make, be pragmatic about, you know, when the parks are coming in and the realities of that. But it's a reflection of the, robust nature of the commercial environment that we're seeing is backlogs will probably continue to creep up a little bit over the rest of the year. All right. That's great. Thank you. Okay. Thank you.

Our next question is from Nick DeBray with Baird. Your line is open.

Good morning, Nick. Thanks. Good morning. Good morning, Brian and Matt. I wanted to maybe follow up here on Joel's question as far as backlog goes. I'm just trying to get a better grasp for how you're thinking about the cadence through the year in food tech here, right? I mean, just based on your comments for Q2, You know, we're running revenue at color 310, 320 million per quarter in the first half. But then, you know, the guidance implies you getting up to, you know, on average about 360 plus in the back half of the year. So I'm sort of trying to understand if that's a factor of kind of how you're seeing customer deliveries and customer preference in terms of the timing of how you're delivering out of the backlog. Or is there an implication here that these supply chain constraints that sort of impact you near term get resolved as the year progresses and you can actually convert on a backlog and start to, you know, realize those revenues? Right. And to be clear, we did increase our revenue guidance from food tech, which was $3. It's 12 in Q1 to 325 to 340. So there is more of a gradual ramp-up. I would say the vast majority, Meg, is based on customer demand and backlog-intended deliveries. We are trying to be pragmatic in understanding a little bit of the pressures, as I just mentioned with Joel, in terms of being able to make sure we deliver on those backlog requirements and customer requirements But the vast majority of the cadence of the revenue is based on customer demand with some consideration for the supply chain environment that we're working under. I see. So it's not as if the supply chain is the only determinant on the revenue cadence. Okay, I get that part. Then, you know, I guess my question is, on a margin structure, right? I mean, you're guiding Q2 margins down year over year, down relative to 2019 as well in food tech, but the back half of the year, we're seeing improvement, right? We're seeing improvement year over year. We're seeing improvement relative to 2019. So I guess I'm sort of curious, again, how you're thinking about these costs for, essentially, what is it that gets better in the back half relative to the second quarter? This is Matt. I think what we're seeing in the second quarter is just the timing of our ability to be able to offset some of the inflation that we're seeing with uh higher prices as well as with some of the sourcing actions that the team is taking and i think our confidence in our ability to to adjust prices in the second half as well as the sourcing team being able to either find additional sources of supply at maybe better prices will help us expand the margins in the second half of the year How much of this would you say is within your control and you have visibility on it today versus things that, you know, are kind of on the come in terms of being able to deliver on your margin guide? I would say on the inflation side, we have pretty good visibility because we are getting, we know what's on order. We've got the strong back obviously. So we've got a pretty sophisticated sourcing group that looks very specifically and they can identify by category, by area where we've got, where we have exposure on the metal side or otherwise. It gives really good visibility to our commercial folks and our operations folks as to how to address those issues. So I would say that is the more visibility on. The supply chain constraints, particularly in the second quarter, those are a little bit harder to predict because when does the shipping lanes open up a little better? I think we're really seeing about three-week delays on logistics generally compared to where we started. otherwise would want to be. So that one is a little bit less visible, Mig, but we think we've got a pretty good handle on it in terms of what it could result in. And we have tried to consider that in the guidance itself. And then just as a reminder, COVID still is frustrating a little bit in Australia and some other in India. and some of the other Asian countries, but also in Europe, too, particularly Spain, Italy, and a couple of other places. So we try to consider that as well, because that actually adds to the logistics costs or travel costs. You have to quarantine, et cetera. So we really have tried to consider all of these things appropriately. pretty good handle on it, and it will create some pressure, which is why there's the lower flow through that Matt talked about for the remainder of the year. But yet, despite all that, Meg, we're delivering pretty good margins and margin growth year over year. And so we're really pleased about that, to be delivering margin growth in a really tough environment, inflationary environment, supply chain challenge environment, and delivering you know, 9% to 11% growth on the food tech side overall. And, by the way, I mean, the growth comes hand-in-hand with the supply chain challenges. Obviously, the industrial world, this real peak in demand is putting pressure on the supply chain. So they're a little bit go hand-in-hand. And if I had a choice of lower volume and better costs or higher volume and higher costs, I would take that all day long. Yeah, I would agree with that comment, Brian. I guess what surprises me a little bit is that in Q1, your margins were better than Q1-19. In Q3 and Q4, your margins are implied to be better than Q4. Q3 and 4-19. It's only Q2 that we seem to have a problem with. And at least in theory, you would have had some level of visibility. We all know that costs were going up, that freight was going up. So something seems to be special about Q2 in terms of being worse than any other period in the year. And I'm just trying to get a sense what that is. Why is it that Q2 is so problematic? And I think to some degree you've explained that. I would tell you that the quick move in the logistics In particular, with the Suez Canal and some of the real recent supply chain constraints, we're trying to reflect that properly, and then we're able to recover as the back half of the year concludes. Okay. Then my final question on Aerotech. You know, you definitely sound more confident than you were in the past as far as the demand trajectory in this business. But if I'm just looking at order intake, order intake is actually worse in Q1 than what you've seen in the back half of 2020. And arguably speaking, COVID has gotten better, not worse during Q1. So I guess I'm wondering, you know, what are you hearing from customers that might have diverged from just a pure order intake to give you this confidence? And as you look at your full year guidance, um do you expect orders to be able to sort of keep up with the revenues right so do you expect sort of booked a bill to approximate one or are we essentially factoring in significant backlog burn as the year progresses in order to deliver your revenue guidance thank you right so in the second the reason why i took uh confident uh on the orders so we're about 100 million dollars in orders what was interesting and uh which are like what happened in the first quarter, was that we saw an improvement in the ground support order activity on the de-icers, on the cargo loaders in particular. And as you know, in a little bit lower orders on the jet bridge business, which tends to be quite lumpy. So we see that the fact that the GSE side is improving is a really great sign to us. And we know we have a really great visibility on the passenger boarding bridge side, and it can be lumpy from one quarter to another quarter. So I certainly expect improvement in the second quarter order structure. And generally speaking, I do expect orders to keep pace for the remainder of the year with revenue. Okay. Thank you. Sure. Sure.

Again, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Our next question is from Andrew Oben with Bank of America. Your line is open.

Hi, good morning. This is Emily Hsu on for Andrew Oben. Just the 25 basis points to 50 basis point headwind to incrementals this year from the inflation and supply chain. Is that net of pricing? And are you expecting pricing to offset or more than offset inflation this year? And also just curious, how will net pricing play out quarter to quarter between the two segments? Thank you.

Hi, Emily. This is Matt. Yeah, I think in terms of your question about is inflation net of pricing, I'd say yes, we are including pricing in that guidance. and then how it plays out through the quarter. On the Aerotech side, I think as Brian earlier mentioned, it's a little harder for the Aerotech business to be able to raise prices in the short term. A lot of their projects have a longer quote and closure cycle, and those prices are somewhat built in. as well as just the competitive landscape on the mobile equipment business just makes price increases in the short term a little bit more difficult for that business. I think on the food tech side, we are able to increase prices with a little bit more flexibility, and we should see prices increase over the next quarter few quarters as we adjust for this inflationary environment that we're seeing.

Okay, great. And then just a quick follow-up. I'm curious, what are you guys seeing on the labor side? We've heard from a lot of companies so far that, you know, in addition to inflation and supply chain bottlenecks, shortage of labor has been a headwind. So I'm just curious what you guys are seeing on the labor side. Thank you.

Labor is tight right now. It depends. It's state by state, honestly. But some of the federal government incentives didn't help that situation. So it's tight. And it does obviously incrementally put a little bit of pressure on costs. We do a pretty good job. But yeah, it's a tight labor market for sure. Both on the direct labor side and as well, again, more in the U.S., less in Europe, but also on the professional side that we see, you know, engineering and the commercial side and management. It's a tight labor market, and we try to account for some of the incentive compensation that we need to address some of those things, and that's also reflected in our guidance.

We have no further questions at this time. I'll turn the call over to Mr. Bryant. Thank you for closing remarks.

Great. Thank you, everybody, for joining us today. And if you have any questions, please feel free to reach out to Megan Radigan. Have a nice day.

This concludes today's conference call. You may now disconnect.