SPX Technologies, Inc.

Thank you for standing by, and welcome to the Q1 2021 SDX Corporation earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star then 1 on your telephone. Please be advised that today's call is being recorded. If you require additional assistance, you may press star then 0 to reach an operator. I would now like to hand the call over to Paul Clegg, VP of Investor Relations and Communications. Please go ahead.

Thank you, and good afternoon, everyone. Thanks for joining us. With me on the call today are Jean Lowe, our President and Chief Executive Officer, and Jamie Harris, our Chief Financial Officer. A press release containing our first quarter results was issued today after market close. You can find the release in our earnings slide presentation, as well as a link to a live webcast of this call in the investor relations section of our website at spx.com. I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with the slide presentation during our prepared remarks. A replay of the webcast will be available on our website until May 12th. As a reminder, portions of our presentation and comments are forward-looking and subject to Safe Harbor provisions. Please also note the risk factors in our most recent SEC filings, including our disclosures related to the ongoing COVID-19 pandemic. Our comments today will largely focus on adjusted financial results. You can find detailed reconciliations of historical figures, adjusted figures to the respective gap measures in the appendix to today's presentation. Our segment reporting structure includes the results of our South African operations in an other category, which is excluded from our adjusted results. Our adjusted earnings per share also exclude non-service pension items, amortization expense, an investment gain, certain favorable discrete tax items, and acquisition-related costs. Finally, we will be conducting virtual meetings with investors over the coming months, including at the UBS Global Industrials and Transportation Conference on June 8th. And with that, I'll turn the call over to Gene.

Thanks, Paul. Good afternoon, everyone, and thank you for joining us. On the call today, we'll provide you with a brief update on our consolidated and segment results for the first quarter. We'll also provide an update to our full year guidance. Now I'll touch on some of the highlights from the quarter. We had a solid start to the year. Our HVAC and detection and measurement segments performed well and drove strong revenue and earnings growth. During the quarter, we continue to execute on our value creation framework with another attractive acquisition that bolsters our aged navigation or ATON platform and our detection and measurement segment. We believe that CLITE is an excellent strategic addition to our existing ATON portfolio. We are updating our 2021 guidance for the acquisition of CLITE, which we completed in mid-April and are on track to achieve double-digit earnings growth for the full year. In Q1, we grew adjusted revenue approximately 9% with significant contributions from both organic and inorganic drivers. Our adjusted operating income grew 8% driven by the performance of our HVAC and detection and measurement segments. Our cash generation was the strongest for our first quarter since the spinoff transaction in 2015. In summary, I am pleased with the quarter and our current positioning for the future. With significant capital availability, an attractive M&A pipeline, and several ongoing organic and continuous improvement initiatives, SPX is poised to drive value for years to come. As always, I'd like to touch on our value creation framework. I am very proud of our team for the way they have managed through the pandemic while continuing to execute on key initiatives that will better position SPX for the future. During the first quarter, we continued to make progress on several fronts, strengthening our ATOM platform through the acquisition of CLITE, progressing on our continuous improvement and digital initiatives, extending our actions on diversity and inclusion, and enhancing our ESG focus and activities. Sealight is our eighth acquisition in the last three years and the second specific to our ATON platform. In total, we have deployed approximately $525 million in capital for these eight companies, representing approximately $260 million in annualized revenue. Sealight is a leader in the design and manufacture of marine and aviation ATON products. It is headquartered in Melbourne, Australia, and has operations globally, including New Hampshire. We anticipate that Sea Light will contribute analyzed revenue in a range of $30 to $40 million. We anticipate margins initially to be a bit lower than segment average until the business is fully integrated over the next 12 to 18 months. The company is an excellent fit with SPX's existing portfolio of terrestrial and marine obstruction solutions expanding our geographic coverage as well as our reach into a broader set of adjacent products and technologies. Our strategy here is similar to the growth story of our location and inspection platform, which has grown from approximately $100 million in annualized revenue to approximately $250 million of annualized revenue in a little over three years. Prior to our acquisitions in this space, our ATON business consisted of flash technology, which was already a market leader in obstruction lighting systems used for cell towers and other tall vertical structures regulated by the FAA. These applications require highly engineered specialty equipment to accommodate extreme environments and real-time monitoring capabilities to alert customers to outages that could endanger passing aircraft. In 2019, we expanded our ATON portfolio into the marine aids to navigation market with the acquisition of SAVIC, a leader in lighting solutions for lighthouses, harbors, ports, canals, and other waterways. These are extreme environments that require high levels of engineering and product reliability. Today, with the addition of SeaLight, we have extended our positioning in marine applications and enhanced our portfolio of air-filled ground lighting solutions such as military airstrips used for remote deployments. In just a few years, this platform has grown from a $40 to $50 million obstruction lighting business into the global leader of a highly engineered ATON solutions with roughly $110 million in EMI sales. We are very pleased with the acquisition and see significant opportunity to drive further value as we continue to develop and offer innovative solutions to our global customers. I wanted to spend a few minutes discussing our commitment to ESG. This is an area we are very passionate about. SPX is committed to a strong sustainability culture and continuous improvement on environmental, social, and governance issues. We view this commitment as a journey and believe that our efforts will create long-term value for all stakeholders and position SPX for continued success in the long term. We believe SPX is well positioned to thrive in a world where long-term targets on carbon emissions are realized. We have a strong ESG record and plan to spend more time and focus communicating it. Many of our businesses, products, and initiatives support a sustainable future. From our cooling towers, which can help reduce energy usage in buildings, to our inspection equipment, that helps remediate leakage of underground water and wastewater pipes with minimal environmental disruption, we offer a wide array of highly efficient and innovative products for the maintenance of critical infrastructure. Every year, we publish a sustainability report, which includes data on our energy and water usage, greenhouse gas emissions, and employee health and safety, as well as additional data and information to help our stakeholders evaluate our ESG positioning, risk, and opportunities. This year, we intend to include more information and details about our diversity and inclusion initiatives where I'm pleased with the work our team has accomplished over the past several years. I'm particularly proud of our board, which has provided us with excellent guidance and leadership and brings a wide variety of backgrounds, experience, and perspectives. And now I'll turn the call over to Jamie to review our financial results.

Thanks, Gene. We are pleased with our results for the quarter as we grew adjusted EPS by 6 cents, or 9.7% to 68 cents. In addition to the segment income drivers, which I will review later, three below-the-line items had a modest impact on our net results. These include reduced interest expense due to lower average debt balances and lower interest rates, Other income included the release of certain funding guarantees that previously had been accrued on the balance sheet and higher corporate costs primarily associated with investments in continuous improvement and other strategic initiatives. EPS was strong for the quarter and we believe gives us a good start for the full year 2021. A review of our adjusted segment results also shows an overall positive quarter. Revenues increased 8.9% driven by 5% organic growth. 3.2% from the ULC and sensors and software acquisitions, and a small favorable currency impact. The organic revenue increase was due to strong performances in our HVAC and detection and measurement segments, offsetting lower results from engineered solutions. Segment income grew $5.1 million, or 9.5%, with a modest increase in margin of 10 basis points. Segment revenue, income, and margins results reflect the blended impact of the strong performances of our HVAC and detection and measurement segments and lower results in engineered solutions. Let's now review the details of our segment performances. In our HVAC segment for the quarter, revenues increased 23.6%, driven mostly by 22.9% organic growth. Cooling sales rose significantly with increases in Asia Pacific and the Americas. Asia Pacific sales were strong, while the prior year quarter was negatively impacted by the COVID-19 pandemic. Heating product sales also grew significantly due to higher, primarily to higher seasonal demand compared with the historically warm heating season last year, the benefits of ongoing growth initiatives and generally higher pricing. Adjusted segment income increased by $9 million and rose 360 basis points due to higher volumes, product mix, and continuous improvement initiatives. While we continue to monitor non-residential end markets for indicators of future demand, we are encouraged by our HVAC segment's strong start to the year, with heating in particular showing solid order rates. In detection and measurement, revenues were up 21.4% year-over-year. 6.7% of this increase was driven organically, resulting from strong shipments in our location and inspection and communication technology platforms. partially offset by the timing of transportation project shipments. 12.9% of this year-over-year increase is from the acquisitions of ULC robotics and sensors and software. We also experienced a 180 basis point tailwind from currency related to the UK pound. Adjusted segment income increased $4 million, while segment margin decreased modestly due to project mix, as well as the addition of ULC which is expected to have a lower margin than the overall DNM segment margin until fully integrated. Overall, we are seeing significant year-over-year strength in short-term cycle products, such as locators, as well as a pickup in communication technology-related project shipments, although project shipments are still below 2019 levels. In engineered solutions, revenues for the quarter decreased 9.8%, reflecting lower process cooling sales, stemming primarily from fewer large projects than prior year. Segment income decreased $8 million compared with a very strong prior year result due to lower process cooling sales and, to a lesser extent, lower margin on transformer sales associated with less favorable mix and a lower plant throughput. Transformers has had a very robust booking thus far in 2021 and remains on track for a solid full-year performance. we would expect process cooling to be similar to 2020 for the remainder of the year. Turning now to our financial position at the end of the quarter. Our balance sheet continued to strengthen as our solid operating performance was converted to free cash flow, which was used to pay down debt and make another strategic acquisition shortly after quarter end. We had adjusted free cash flow of $51 million, which is notably higher than typical first quarters. Historically, SPX has tended to generate most of its cash in the latter portion of the year, with the first quarter being the lowest. This year, in addition to favorable working capital management, we met key milestones in several project businesses that resulted in favorable timing of cash receipts. The strong cash quarter resulted in an increase in cash on hand to approximately $107 million and debt reduction of $20 million. Net leverage was 1.4 at quarter end. Subsequent to quarter end, we purchased Sea Light for $82 million. Pro forma for this acquisition, our leverage was 1.7, which is similar to Q4 of 2020. We anticipate solid cash generation for the full year and excluding any capital deployment, a leverage ratio declining below the low end of our target range of 1.5 to 2.5 by year end. Cash associated with South Africa was positive $10 million in the quarter end, reflecting a cash collection under the performance bond of a former supplier and an arbitration award in our dispute resolution process with Mitsubishi. As a reminder, cash associated with South Africa is excluded from the adjusted free cash flow figure that I just provided. We are pleased with our progress on the South African project and related dispute resolutions, including another recent ruling in our favor. We continue to focus on resolving remaining disputes with counterparties. For the full year, we now anticipate moderate cash uses due primarily to higher legal spending in pursuit of our claims. Overall, our strong balance sheet positions us well to pursue organic and inorganic growth initiatives. Moving to our guidance, we have updated our full year 2021 guidance to reflect the C-Lite acquisition, which we anticipate will add $0.06 per share to EPS based on approximately eight and a half months of ownership. We now estimate adjusted earnings per share in a range of $3.06 to $3.26. This represents an increase of about 13% at the midpoint compared to 2020 adjusted EPS of $2.80. Based on the performance of our existing businesses in the first quarter, we have made a few adjustments to segment revenue and income and other areas of our guidance that have no net effect on total SPX full-year earnings other than the increase due to sea light discussed above. You can find more details in today's slides, including in the appendix. With respect to cadence of results for the year, we anticipate that the weighting of earnings between the first and second halves will be similar to 2019. I will now turn the call back to Gene for review of our end markets and his closing comments.

Thanks, Jamie. Overall, we are encouraged by the positive trends we are seeing in our end markets. and we'll be closely monitoring this progress as we move further into 2021. Certain markets and geographies have rebounded more quickly than others. Overall, markets are trending positively. In HVAC, we previously noted early signs of increased activity on the non-residential portions of our cooling and heating businesses, although this impact has been somewhat even geographically. Overall, we remain encouraged by order rates and heating, and continue to monitor non-residential cooling markets for both risks and opportunities. Demand for more residentially focused boiler products appears solid and, as always, remains subject to weather trends in Q4. In detection and measurement, locator demand continues to rebound across most regions, and the demand for inspection equipment remains steady. In engineered solutions, we continue to see encouraging behavior from transformer customers, solid backlog, and favorable pricing dynamics. And as mentioned, the process cooling market remains steady. With respect to our supply chain, we are successfully managing rising input costs with price increases and taking actions to de-risk the timely supply of certain inputs. Currently, we are seeing labor availability constraints in some businesses, leading to more overtime and adjustments to shifts, but we do not expect this to have a material impact on full-year results. Before our closing comments and Q&A, I'd like to address a topic that we've received multiple questions on over the past several months, which is, how is SPX positioned for potential infrastructure spending? While it is difficult to quantify, we believe many of SPX's SPX's businesses are well positioned to benefit from infrastructure spending, including potential government initiatives across one or multiple areas. Our location equipment tends to experience increased demand related to activities that require digging. For safety reasons, this is mandated in the U.S. and other markets that scanning take place anywhere digging may occur near underground utilities. Clean water is another frequently discussed area that features prominently in legislative proposals. Our Q's business is the North American leader in equipment for inspecting and remediating water and wastewater pipes, with its end market customers being municipal water and sewer utilities. Spending on telecom and broadband access, such as accelerating 5G rollouts in rural areas, may create opportunities for our ATON obstruction lighting business. Any spending on renewables, which are a prominent feature of current proposals, could favorably impact demand for obstruction lighting tied to wind farms, as well as increase the need for step-up and step-down transformers to move power from remote generation locations to population-dense areas. While we cannot accurately predict where the current debate on infrastructure spending will land or where legislatively crude dollars would ultimately be allocated, we are encouraged that there are a number of areas where SPX is well positioned to help lay the groundwork for future growth. In summary, I'm very pleased with our solid Q1 performance and proud of the way our team has embraced and responded to day-to-day uncertainty while continuing to execute on our initiatives for future growth. I'm excited about our recent acquisition of C-Lite, which further extends our ATOM platform and creates additional growth opportunities. I am also very pleased with the progress on our ESG and diversity and inclusion initiatives, which better position SPX for a successful and sustainable future. We are encouraged by our setup for the remainder of the year, as well as by signs of improving market conditions. With a strong balance sheet and highly capable, experienced team, I'm looking forward to the opportunities that lie ahead as we continue to create and deliver value for our shareholders. And now I'll turn the call back over to Paul.

Thanks, Gene. Operator, we are ready to go to questions.

As a reminder, to ask a question, please press star then one. If your question hasn't answered and you'd like to remove yourself from the queue, press the pound key. Our first question comes from Brian Lair with Oppenheimer. Your line is open.

Thanks.

Good afternoon, guys.

Really strong start to the year in HVAC, certainly above expectations. You have revised the 2021 sales guide, obviously evidencing some of that momentum. I apologize if I missed this. Did you break out what you're contemplating for heating and cooling respectively? in the mid to high single-digit organic growth?

No, we did not actually, Brian. We obviously had a strong heating quarter in the first quarter. And as you know, when we forecast the full year, we typically forecast for the fourth quarter to be long-term normal temperatures.

Understood. Okay. Any questions? Commentary you can offer on your commercial boiler business and trends there. The largest player in the space had a very strong first quarter and provided commentary and then revised guidance that was quite a bit more aggressive than what was put out a few months ago. Just curious if you're seeing similar trends.

Yeah, Brian, we're very pleased with the commercial boiler business. We did have a very good quarter. and we like the trajectory that we're seeing there. I would remind you that that is a smaller portion of our boiler business, even though with the acquisition of Patterson Kelly and the addition of a lot of our larger products there, this is still the minority of our boiler business. But that portion is executing very well, and we're very pleased with the path that they're on.

Very good. Just to level set on the revised D&M guidance, has there been any shift to underlying organic assumptions across your platforms or the follow-on contribution from ULC and sensors and software?

Nothing material. We did add in guidance for C-Lite acquisition. But, you know, we've moved around that we raised the revenue guidance slightly for D&M revenue, and we're at sort of a modest decline on the margin level, but nothing material.

Okay, understood. And last one, if I can, Sea Light seems like a great strategic fit. Maybe offer a little more color on the deal and specifically what your expanded geographic presence and more balanced geographic presence is. will mean for competitive position and future growth opportunities.

Sure. Yeah, Brian, we really like that business. We've liked, you know, we see this as being, as we talked about, very similar to building out our platforms, like we built out our location and inspection platform, where we feel like we really have a strong-scale business there. Similarly here, you know, we started with Flash, we added Sabic. These are very competitive. tough businesses, tough environments to make products. You have to have the product. You have to have the communication technologies. You have to have the modems. You have to have real-time monitoring. And so there's a lot of logic there. What SeaLight is, we know SeaLight very well. They're a very strong competitor. Being based out of Australia, they have very good coverage in the Asia-Pac region. And they have some very nice products that we don't have. So not only does it give us more strength in an area that we were a little bit less present in, it gives us a much broader product line than what we had. So it's a very natural and logical addition. They also have one of the really important products. parts of this business is your monitoring capabilities, your communication and monitoring capabilities. And they have a product called Star2M, which is their software and monitoring for how you monitor these devices remotely. And we think it is a really good solution. And we actually think there's some nice synergy opportunities with the rest of our portfolio. And in addition to that, one of the things that we've done is You know, we have engineers in Europe, we have engineers in Australia, we have engineers in the U.S., and the way we've been working together, we've already identified some very interesting opportunities that we're going after. We've also found some areas that we were duplicating some of the same work, in which case you can have one area do that work and then do more uh npi in in other areas so we see it as a very nice logical fit they're a very well respected brand we we know them well and we think they have good technology and we think their technology could be applicable to the rest of our portfolio but but again this goes to our you know if you think about how we are building our platforms and how we're growing You know, this is a $40 million business. It's now $110, $115 million platform that we think really has global scale, and we think there's more opportunities to build that out. So there's a very nice strategic logic among these businesses and a lot of synergy there. So, yeah, so thank you for that. We're very excited about it. It's still early days. It's a lot of work to do, but we think it's a real nice addition to the family.

That's a great color there. Thanks again. Thanks, Brian. Thanks, Brian.

Our next question comes from Damian Karras with UBS. Your line is open.

Hey, good afternoon, guys.

Hey, Damian.

So why don't we start with the, I guess, the one portion of the business that, you know, didn't surprise to the upside in the quarter. So Engineered Solutions said, You highlighted that that's really process cooling that's driving the 10% decline there. But I was wondering if you could maybe give some additional color on transformers. I mean, how were the sales in the quarter? And it sounds like you're maybe expecting a big second quarter for transformers possibly. And then secondly on that, just – with regard to margin, is it really just a throughput issue or anything else going on with respect to the productivity that you called out?

Yeah, Damon, this is Jamie. I'll start off. Yeah, so Transformers, the engineered solutions, it was predominantly over in the process cooling side, as we mentioned. Had one particular project that we had some execution challenges on, which we're getting straightened out, and then good flow, but not as many big projects as we had prior year, but The bigger part of that segment is transformers, as you mentioned. It really was. We did have some rework we had to do early on that we were getting through the system. Therefore, the throughput wasn't quite as high as we'd like for it to be. I think we mentioned mix. You can have the medium voltage product go through. It carries a little bit higher margin. We had a little bit higher amount of high voltage and extra high voltage go through the system this quarter. You know, the thing that I would say, we're still pleased with transformer business. We're still pleased with the progress we've made over the last really five quarters on continuous improvement initiatives there. We have a nice level of bookings for that business so far this year. And we see the rest of the year shaping up to be, you know, on track with what we had planned when we entered 2021.

Okay, that makes sense. And Jamie, you had sounded fairly positive on HVAC and called out the strong order rates to start the year and obviously a very strong performance in the first quarter from the top line perspective. You know, the guidance, though, seems to kind of imply low single-digit type of growth the rest of the year, and I wouldn't say you exactly have tough comps there. Could you just maybe, you know, elaborate a little bit on how you're thinking about the outlook for HVAC the rest of this year?

Yeah, great question. You know, we were very pleased with the quarter, both from the cooling side as well as the heating side. You know, if you look at cooling, we had, you know, to repeat a little bit, we had, you know, strong performance in Asia Pacific, did very well in the Americas. You know, we are seeing good growth initiatives, and we're seeing good continuous improvement there. On the heating side, as we mentioned, you know, orders are strong. We had a colder winter than prior years, so all that was good. You know, as we look to the balance of the year, you know, I'd say you're cautiously still very optimistic about the balance of the year, but if you look at the data in the non-resident market, it still is saying at a macro level, you know, down mid, you know, single digits. We think our end market that we serve is better than that. We think we'll do, I think we've set a flattish to moderately up in that area. And so I'd say that, you know, the guidance comes with some very good cautious optimism. We see a lot of good activity in both heating and cooling. We also see, you know, again, we see opportunities to, continue to drive growth, both top line and bottom line.

And, Damian, just maybe a little more color there in terms of the market, you know, where we feel good with where we are in terms of our bookings and our front log, but we are, you know, you look at some of the third-party data and we're being just a little bit cautious. I'd say the areas that we see a lot of activity are or more activity than normal, it would be light industrial. We see a lot of light industrial activity. Education, government, data centers, semiconductors, these are some areas of strength that we really see in an on-resy business. And then I would say the areas of softness that we see would be in office, retail, and commercial. But net-net, there's more positive there. And our mix is pretty similar in terms of Greenfield and replacement. So we feel good about where we are. And as Jamie had said, we're being a little cautious with some of the, just the third party data. And, you know, we, we actually feel going into 2022 very positive as well, because all indicators are expecting a very, very positive trends there in 2022. Got it. Got it.

And a final question on the seal light deal, if I could. Could you just give us a sense on, I guess, the margin profile there for really obstruction lighting in general relative to the D&M segment? And, Gene, you highlighted you've become the global leader in this market. Just curious, you know, kind of how competitive is that market? I'm wondering as you kind of, you know, really fortify this leading position, how much pricing power you might be able to kind of exert in the market.

Yeah, I mean, I think it's a good point. So I think if you look at Aton overall, their margins are in line, if not slightly ahead of detection and measurement margins Sea light might be a hair below that. You know, we're probably more the high teens as opposed to anything way, way below that. We fully expect this will get to detection and measurement margins and exceed our average margins there. And we actually have an integration plan. We have synergies identified. All of the normal things that you typically have in acquisitions And I think there's always opportunities on cost. There's always opportunities on pricing. There's opportunities on sharing of technology and R&D amongst geographies. So, yeah, there could be some opportunities for pricing. And we're always looking to price to our value. In all of our markets, we're in competitive markets. These are regulated markets for the most part. And, you know, when you have – which we like – So, yeah, I think there could be opportunities for pricing, and we fully intend to take advantage of that. You know, Jamie, I don't know if you have anything else, any other thoughts on sea life. But, you know, we feel good about – I actually feel really good about this, and the fit is tremendous, and we're really excited to get started here.

Yeah, the only thing I would add, too, that I think is a good overview, we do have a very good – I think, thorough integration plan, and I do think we have some opportunities to expand margins for a number of reasons. You mentioned pricing, you mentioned cost synergies, attractiveness of markets when you put them together. I think, collectively, this is going to be a great opportunity for us to bump margins in this business.

Great. Appreciate the caller. Best of luck with it all, guys. Thank you.

Again, to ask a question, please press star, then 1. Our next question comes from Steve Farizani with Sidoti. Your line is open.

Good evening, everyone. Thanks for taking my questions. I just wanted to ask, you know, we've heard a lot of commentary through earnings season about supply chain disruptions and, in some cases, almost horror stories. You didn't talk about it too much. It sounds like you maneuvered pretty well, and I know some of the issues come with depending on the size of the global supply chain and the number of components that might go into equipment. Can you walk through just what you were seeing with the supply chain this quarter and what do you think the risks, just disruptions are diminished as we get into the middle of the year?

Let me take a start there and then I'll let Jamie offer his thoughts. You know, clearly supply chain is important. The cost impacts are very real. I think everyone's seeing them. You look at steel, you look at copper, you look at PVC. I would say that where we sit today, we've been able to manage these costs. One of the things I'll remind everyone is that we really do engineered products. We typically do not make a product until we have a PO in hand. What that typically has meant historically is is that we have very low purchase price variance, positively or negatively, in our business. We're, I'd say, lower beta on that side. So there certainly is a lot of activity going on, and the input costs are unprecedented. But I think we've been able to manage it. The one area that we do see as a challenge is on the labor side. You know, recruiting is something that we're keeping our eye on. That's an area that we have seen a little bit of struggle in areas that we have not traditionally had some struggle there. So, Jamie, you'd like to add more comfort?

Yeah, good start, good overview. I think, you know, it is – we get the question often. We hear it on other calls often. and it is a real issue out there. I think for us, you know, we're taking a lot of proactive steps on the supply chain side of it, the availability side. You know, we have a structure set up where we have a sourcing council that works with each of our business, individual businesses, to both put our purchasing together so we can create scale in the procurement process, as well as work to, you know, today, third and fourth level supply options. You know, the typical things that you see a lot of companies doing while we're really trying to take a big focus on working capital management. Part of that is not just driving down working capitalists to have the right amount of safety stock on hand, which is an area we're looking at as well. You know, back to pricing that Gene mentioned, you know, we're actually very in a good spot to be able to be in a an engineered solution kind of environment for our products. And, you know, therefore, the amount of time between when we quote a piece of business and when we go procure pricing and begin to work is pretty short. And so we're able to then go out and lock in prices, sometimes through a hedging process or a forward buy. Some of our contracts have pass-through abilities based on a commodity index. And so it gives us really good protection. If you look at our company as a whole, you know, Gene mentioned the big materials or commodities that we really watch closely. Probably the other one is circuit boards. And I think as we look at those things, it's also concentrated in three or four of our businesses. And those three or four of our businesses happen to be the ones who are probably the most engineered companies. in terms of, you know, of a specifically designed product. And so, you know, if we look back over the quarter, you know, we were able to cover our cost of inflation in our materials. You know, we had, I'd say, a slight tailwind on pricing, not anything material, but slightly positive. And in this environment, that's a really good outcome, I think. And so, you know, that's our goal. You know, we've said in previous falls that we do believe we can cover costs, and we still believe that to be the case. But as you mentioned, it's sort of a two-headed strategy. One is price, and the other is availability. And so both are top focus for us.

Great. That's useful, Collar. If I might get in one on the modeling side. SG&A, was there anything there this quarter that would be non-repeatable, or is this sort of what we should be thinking about as the run rate for the year?

Yeah, it's a great question. You know, if you look at year-over-year, both in the quarter as well as the annual guidance we put out, it is up. And it's probably two big drivers, or two primary drivers, I should say. On a year-over-year basis, we had some additional incentive comp accruals Last year was a year that was under sort of a par level, so it crills up a little bit there. The thing I'd probably focus on more is we did make some investments that we called out in our continuous improvement initiatives, and that one is one that was up year over year. It was a very intentional spend. It was a very intentional investment. And, you know, as we entered 21, like a lot of companies, there were a number of structural headwinds that we had to deal with. And, you know, our continuous improvement process that we've initiated is helping us, you know, meet those challenges as well as overcome them. And, you know, we've got a number of initiatives going on throughout the company that will pay benefits in 2021, but also for, I think, years to come as we build a culture of of CI, and that's in operations, it's in engineering, it's in back office. And so what you see in SG&A is really what I call an investment running through the P&L on something that I think will pay big dividends for us down the road.

So just to try to make sure I can characterize your commentary. SG&A, you're probably making some more strategic investments this year. SG&A is a little bit elevated compared to prior year and also incentive comp, but that's already in your modeling. That's correct.

That's correct, yes.

Okay, great. That's helpful. Thank you very much, guys.

Absolutely. Thanks, Stephen.

There are no further questions at this time. Please proceed with any closing remarks.

Okay, well, thank you all for joining us on the first quarter call. We look forward to updating you again next quarter and talking to many of you throughout the quarter. Have a good evening.

Ladies and gentlemen, this does conclude the program. You may now disconnect.