Tennant Company

Good morning. My name is Rebecca and I will be your conference operator today. At this time I would like to welcome everyone to Tenant Company's 2021 First Quarter Earnings Conference Call. This call is being recorded. There will be time for Q&A at the end of the call. Please press star 1 if you would like to ask a question. After the Q&A please stay on the line for closing remarks from management. If you have joined our call today via telephone and logged into the conference call presentation on your computer, please mute the audio on your computer to avoid potential quality issues during the call. Thank you for participating in Tenant Company's 2021 First Quarter Earnings Conference Call. Beginning today's meeting is Mr. William Prate, Senior Director of Global Financial Planning and Analysis and Investor Relations for Tenant Company. Mr. Prate, you may begin.

Thank you, Rebecca. Good morning, everyone, and welcome to Tenant Company's first quarter 2021 earnings conference call. I'm William Prate, Senior Director of Global Financial Planning and Analysis in Investor Relations. Joining me today are Dave Hummel, Tenant's President and CEO, and Faye West, our Senior Vice President and CFO. On today's call, we will update you regarding our first quarter performance and guidance for 2021. Dave will brief you on our operations and enterprise strategy, and Faye will cover the financials. After the remarks, we will open the call to questions. Please note the slide presentation accompanies this conference call and is available on our investor relations website at investors.tenantco.com. Before we begin, please be advised that our remarks this morning and our answers to questions may contain forward-looking statements regarding the company's expectations of future performance. Such statements are subject to risk and uncertainties, and our actual results may differ materially from those contained in the statements. These risks and uncertainties are described in today's news release and the documents we file with the Securities and Exchange Commission. We encourage you to review those documents, particularly our safe harbor statement, for a description of the risks and uncertainties that may affect our results. Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude certain items. Our 2021 first quarter earnings release includes the comparable gap measures and a reconciliation of these non-gap measures to our gap results. Our earnings release was issued this morning via BusinessWire and is also posted on our investor relations website at investors.tenantco.com. I'll now turn the call over to Dave.

Thanks, William, and thank you, everyone, for joining us. We hope that you and your loved ones are continuing to stay safe. Today, we are pleased to report a strong first quarter, one that exceeded our expectations due to increased customer demand and highlighted by the organic revenue growth we achieved in all regions. We were able to meet that demand thanks to the operational improvements we made in the past year and the way we have navigated the pandemic to date. Specifically, we've remained committed to resourcing and investing in our enterprise strategy while staying focused on serving our customers. This approach preserved our ability to ramp up quickly as global markets began showing signs of recovery. I am especially proud of the way our team worked to overcome the unprecedented operational challenges of the past year. Also, our prudent expense management and ongoing commitment to our long-term strategy continues to yield solid bottom line results. While the pandemic will continue to pose market uncertainty, the Q1 growth and strong order demand are certainly encouraging and give us optimism that the positive overall sales trends we saw in the second half of last year represented the beginning of a market recovery, which we have taken into account in raising our full-year guidance. Our strong Q1 was not a simple or inevitable result. required significant effort from everyone intended. For example, in the past year, our operations and supply chain teams have faced significant challenges from commodity inflation, transportation related issues, parts shortages and supply based disruption. but they have worked tirelessly to mitigate the impact of these challenges while also driving aggressive cost reduction programs and delivering productivity leverage that allowed us to offset what could have been a much larger financial impact. 2020 was not the year any of us planned for, but it did not stop us from implementing the long-term strategy we unveiled at the end of 2019. Key improvements to our operating model include value engineering, plant optimization, improved discounting, and adjusting our go-to-market approach in specific regions. At the same time, we strive to win where we have competitive advantage, and the recent sale of our coatings business is an example of redirecting resources toward more strategic and profitable activities. All of these actions have combined to yield an expansion in gross margins that is now beginning to read out. In 2020, we also maintained investments and resourcing across a broad number of initiatives, including product development, operations, and simplifying our product offering, all of which were designed to better meet the needs of our customers. As a result, we're now well positioned with a full portfolio of new products, including our autonomous cleaning solutions, to launch into a recovering market. Initial customer feedback regarding the launches of our T16 AMR industrial robotic floor scrubber, new standard product offerings, and new commercial mid-tier offerings have been positive. While we have not yet reached pre-pandemic sales levels across all regions, we remain optimistic for the year ahead. Going forward, we will continue to execute against our enterprise strategy and will serve our customers with an aim of maintaining our industry leadership in quality, service, and innovation. Regarding the future of industrial and commercial cleaning, one of the questions we hear most often is how the pandemic has impacted our customers. Certainly, the importance of cleaning has been elevated with the new desire to turn cleaning from something invisible to a visible and tangible benefit for their customers and employees. At the same time, labor challenges have grown all the more acute, which places greater emphasis on the importance of technology and the products and services we offer. The pandemic has accelerated market trends and taught us new ways of working, which we believe will ultimately be beneficial for tenants and the cleaning industry. We think the long-term benefits are less about COVID and more about how we continue to be a trusted partner for our customers in meeting their needs. Lastly, I'd like to say a word about our leadership transitions. The first quarter saw a number of senior-level changes, including Rusty Zay's promotion to Chief Commercial Officer, Kristen Stokes' promotion to General Counsel, and Barb Walensky's promotion to Senior Vice President of Innovation and Technology. And most recently, we welcomed Faye West as our new CFO. Faye is an accomplished finance executive. She is the former senior vice president and CFO of Suncoke Energy and has held numerous positions, including leadership positions at United Airlines, Pepsi Americas, and GATX Corporation. As CEO, I am thrilled to be working with such a talented group of executives. Collectively, their managerial expertise, industry knowledge, and appreciation of tenants' legacy and corporate culture will ensure a seamless transition as we continue to execute on the enterprise strategy that everyone at the company has worked so hard to put in place. With that, I will turn the call over to Faye for a discussion of our financial. Faye, welcome aboard.

Thank you, Dave. Hello, everyone. I'm excited to be here, particularly at this point in Tenant's journey, and I look forward to the opportunities we have ahead. For the first quarter of 2021, Tenant reported net sales of $263.3 million, up 4.4% year over year, which included a favorable foreign currency effect of 3% and a divestiture impact of negative 1.7%. Organic sales, which exclude the impact of currency and divestitures, increased 3.1%. Tenant grouped sales into three geographies. the Americas, which includes all of North America and Latin America, EMEA, which covers Europe, the Middle East, and Africa, and Asia Pacific, which includes China, Japan, Australia, and other Asian markets. In the first quarter, sales in the Americas declined 3%, reflecting the divestiture of the coding business earlier this year, which impacted results by negative 2.6%. along with a foreign currency effect of negative 0.8%. Organically, the region grew 0.4%, reflecting the limited impact that the pandemic had on the prior year period, as well as solid growth in the direct and distribution channels in North America, along with growth in Brazil. Sales for strategic accounts were down from the prior year period, due to the lapping of some large orders in Q1 of last year. Sales in the EMEA region increased 12.4% or 2.3% organically, driven by performance in France, Italy, and Germany, and also benefited from a foreign currency effect of 10.1%. However, pandemic-related restrictions did continue to have an impact in some markets, particularly in the United Kingdom, Central and Eastern Europe, the Middle East, and Africa. Sales in the Asia Pacific region rose 40.6%, with a foreign currency effect of positive 8.8%. On an organic basis, sales in the region rose 31.8%. Tenant recorded organic growth across all APEC countries, product categories, and channels as the region rebounded strongly from the pandemic-related slowdowns of last year. Turning to margins, growth margin in the first quarter of 2021 was 43%, compared to 40.8% in the prior year period. Adjusted growth margin was 43%, compared to 41.5% in Q1 of last year. This increase was attributed to increased productivity, product mix, and actions related to the company's enterprise strategy, including pricing and cost reduction initiatives. This more than offset commodity and freight cost pressures we experienced in the quarter. As far as expenses, during the first quarter, our adjusted S&A expenses were 30.2% of net sales compared to 31.8% in the year-ago period. In addition to careful expense management, this improvement included some temporary savings related to the suspension of most business travel and in-person trade shows and customer events. Net income increased to $25.7 million, or $1.37 for diluted share, compared to $5.2 million, or $0.28 per diluted share in the year-ago period. Adjusted EPS, which excluded non-operational items and amortization expense, was $1.17 per share compared to $0.57 per share in the year-ago period. Adjusted results in the quarter excluded the gain on sale from the divestiture of the coating's business. Adjusted EBITDA in the first quarter of 2021 increased to $40.7 million or 15.5% of sales compared to $26.1 million or 10.4% of sales in the first quarter of 2020. As for our tax rate in the first quarter, tenant had an adjusted effective tax rate excluding the amortization expense adjustment of 21.4% compared to 20.5% in the year-ago period, which increased primarily due to the mix in full-year taxable earnings by country and a decrease in certain discrete tax benefit items. Turning to cash flow and balance sheet items, tenants generated $18.4 million in cash flow from operations in the first quarter of 2021 mainly due to strong business performance. As of March 31, 2021, the company had $175.2 million in cash and cash equivalents. In April, after the close of the first quarter, the company restructured its credit agreement to optimize its debt structure. This restructure allows for enhanced flexibility with minimal covenants, and no prepayment penalties, while also reducing future interest expense by approximately $1 million per month. Lastly, turning to guidance, as Dave mentioned, our RAISE guidance reflects our optimism regarding the pace of a continued and broad economic recovery and in tenants' ability to implement its long-term growth strategies. As included in today's earnings announcement, our guidance for full year 2021 is as follows. Net sales of $1.09 billion to $1.11 billion, with organic sales rising 9% to 11%. Gas EPS of $3.45 to $3.85 per share. Adjusted EPS of $4.10 to $4.50 per share, which excludes certain non-operational items and amortization expense. Adjusted EBITDA in the range of $140 to $150 million. Capital expenditures of $20 to $25 million. And an adjusted effective tax rate of approximately 20%, which excludes the amortization expense adjustments. With that, we will open the call to questions. Operator, please go ahead.

At this time, if you would like to ask a question, please press star 1 on your telephone keypad. And your first question comes from the line of Mike Swisky with Collier Securities.

Good morning. Can you hear me okay? Yes, we can hear you, Mike.

Good morning.

All right. Great. Good morning. And Faye, welcome aboard. I kind of wanted to touch on the question we've been asking for really a whole year now. You kind of provided an answer to it in your prepared comments, Dave, that, you know, we're seeing a larger focus on being visible about your cleanliness in a commercial space. And I'm just kind of curious, have you given any thought as to whether that makes your organic growth outlook, you know, beyond 2021, which is a pandemic bounce back? But is your longer-term growth outlook more than just like a few percent Does it kind of double it perhaps even over the, you know, maybe three- to five-year range here?

Thanks, Mike. We have given that some thought, and I'll tell you, it's just too early to take the signs and signals we're getting from the marketplace and try to project that into a long-term potential for our business. So we're holding to our long-range plan for now. You know, the comment that you made, that I made, that you focused in on is an important one. I think that our customers are viewing cleaning differently in many of their spaces. where it used to be something they wanted to hide from their employees and hide from their customers and have it be largely invisible. Now there seems to be, and our customers are talking about, the value in their floor cleaning being visible as a sign that their space is safe to operate in, whether that be for their employees or their customers. So long-term impact on both the industry, our applications, our customers, and our business, it's too early to tell. But we do believe that it's neutral to positive for us. Our customers will have a broader range of hours that they can use our equipment and will result in overall cleaner spaces for our customers. So we'll wait and see, but early signs are certainly positive for us.

You know, I kind of want to pop there and perhaps unpack that a bit. I'm starting to see ways that commercial spaces can get a certification for of a certain level of cleanliness, I guess, from an outside entity. In some cases, it's a sponsored entity. For example, in barbershops, people that make the barber cleaning, the scissor cleaning fluids have created a, you know, barbershop cleanliness certification course. And some of the bigger spaces, are you seeing floor care being an important part of some of the water certification efforts out there?

Yeah, Mike, I've seen some of the similar that you're referencing where some companies are offering some sort or agencies are offering some sort of a certification of clean or a cleaning standard. That's something that we think has always been missing in our industry. We call it the proof of clean. And I would just highlight that the role the tenant can play in that with our technology is we can actually provide our customer assurance. that the floor scrubber has been used, when it was used, how long it was used, and in the case of AMR, whether it was used to cover the entire floor space. And so from a proof of clean perspective, we think the role we can play is give the customer proof that the equipment was used to clean their floors, and then they can apply that proof in whatever way they'd like to out to their stakeholders.

All right, great. And then I also wanted to touch on... On the cash balance and the balance sheet, you're at $175 million or so here. I mean, you've had higher in the past in various points in time, but not by much. And you've got a really strong, it appears to be, pre-cash outlook for the rest of this year. I'm kind of curious if you can maybe outline some of your M&A outlook or some other areas of capital utilization that we should be thinking about over the next 12 months.

So you're right. So I think, you know, the cash balance where it sits is about $175 million, and we do have, you know, some nice liquidity profiles for tenants. Certainly we will always evaluate opportunities that are shareholder-accredited and look for ways to provide shareholder return from a capital allocation perspective. you know, we're focused on maintaining the right leverage as well as returning capital to shareholders by way of dividends. Anything you wanted to add?

Yeah, I'll just add, we don't specifically comment on forward-looking M&A activity. I'll just assure you that this team is committed to putting our cash to work to return a positive return for our shareholders.

Okay. I'll leave it there, guys. Thanks so much. Appreciate it. Thanks, Mike.

Thank you. Your next question comes from the line of Chris Moore with CJS Securities.

Good morning. Thanks for taking a few questions. Maybe just a quick follow-up on the cash flow. So obviously, good cash flow in Q1. Given the revenue growth that you're looking for, I would assume there's going to be a little more working capital needs. Can you give us, unless I missed it, some thoughts on what cash flow will look like in Q21?

So I think with kind of where we are with our guidance, and you're right, there'll probably be a little bit of working capital give here just based on the way the working capital flows. And we will have really strong full-year operating cash flow. We've not significantly changed our CapEx, so our free cash flow should be strong. for the year, and we'll be down slightly from 2020, and that's just really driven by changes in working capital, but really strong working cash, free cash flow for 2020.

Got it.

I'll just add, I think what you're seeing is really the result of the structural changes that we're driving in our business in our enterprise strategy. And it's beginning to read out. It read out in 2020. It was a bit more difficult to see because of the muted top line. But I think you're seeing really the benefits of executing against our long-term strategy. And I'm really pleased to have Faye in her role now to help us chart our forward-looking strategies around capital allocation and use of cash.

Got it. Switch to this steel conversation. My understanding is that price increases, you know, at the beginning of this year were perhaps a little less aggressive than usual, you know, to help drive demand. And I'm just trying to understand from where you sit right now that balance between, you know, with the rapid rise in steel, between increasing prices and demand, you know, maybe you could talk to that a little bit.

Yeah, you saw the expansion of gross margins in Q1, so let me comment. In that context, let me comment a bit about what happened in Q1, and then I can comment on our forward-looking projection relative to not only steel but other commodities. And I'll broaden it to make some comments about supply chain in general because I think it's a relevant topic that's top of mind for many of our stakeholders and investors. You know, Tenet was not immune to the global supply chain challenges that the globe experienced in the first quarter of 2021. We did see commodity inflation across our key commodities, and for us that's steel, resin, and lead, which is used in batteries. We also saw challenges in transportation and freight logistics, whether it was container availability or the cost of freight, air freight or ocean freight. And we also manage through a number of general supply-based challenges, including everyone's familiar with the electronics and chip shortage challenges going on globally, some capacity constraints, and also financial solvency of our supply base. And so our team, our operations and supply chain team, has done an absolutely fantastic job monitoring the health of our supply chain and taking definitive action to mitigate both the financial impact to tenants but also insulate our customers from the impact of those challenges we're managing. So I couldn't be more proud of the work the team has done and how the team has positioned us to weather what is a really broad-based and significant portion of supply chain challenges. In Q1, we offset the impact through increased productivity in the plants, leveraging the volume, some favorable product mix, And as I mentioned earlier, continue to execute and benefit from our enterprise strategy, notably strategic pricing and cost reduction activities. So while we expect the supply chain challenges to continue into 2021, we have reflected that in our full year guidance. And again, I'm just so proud of the actions the team has taken to help tenants overcome the challenges here in 2021.

That's really helpful. When I look at that 3.1% organic growth, how does that break down between price and volume?

We haven't really broken that out for a while. Chris, this is William. In terms of price, we did take pricing actions, but just knowing the market that we were coming into is probably not to the historical, which would have been around a 1.5% net. So it's definitely lower than that. But, you know, we haven't really broken it out from that vantage point for a while. Got it. I expect positive growth on the units and the price spell this year.

I appreciate it. All right, we'll leave it there. Thanks, guys.

Thank you.

Thank you. And your next question comes from the line of Steve Ferrazani with Sidoti & Company.

I want to follow up a little bit on the guidance. So with $41 million in adjusted EBITDA in the quarter, it implies more than 25%, even at the high end of your guidance range. Just trying to get a sense, if you're being relatively conservative, if you're concerned about costs, why this wouldn't be the low point of the year.

So our guidance is based on our current visibility into order rates and assumes a continuing trend in kind of the microeconomic environment and improvement there. And we do note that we will start to last the hardest months in the prior year that were hit by the pandemic. I think that our guidance is balanced at this point. and our Q1 results did come in above our initial expectation, and that's reflected in our revised guidance. But we're encouraged by the trends that we're seeing at this point, and I think our range is reflective of that.

Yes.

Steve, the only thing that I just add is maybe take it a step further on that. Today's prior points around the headwinds that we're facing in commodity pricing, great. We've also proven that as we're proving ourselves in terms of revenue and gross margin early in the year, we will invest back into the business to drive other strategic initiatives in the back half of the year. So you'll see that on the S&A line like you would have seen last year and in 2019. So we've embedded those items, both the things that we see positive and the headwinds that we feel on the commodity pricing rate and the investments we'll make into our business, into our guidance. So that's how we're thinking through what we've provided.

And then noting that the call was at the end of February, did you see significant, significant improvement in March, and has that carried on?

And really, we did actually see an uptick in the month of March. And so, you know, post our year-end call, which was in the end of February, I think we saw a really strong performance in March and continuing here into April.

And last one for me is just can you give any kind of updates on marketing and sales effort with the new industrial AMR?

Yeah, I'll comment briefly on that. We're really excited about our T16 AMR, and this is our, as you noted, this is our industrial robotics offering. Customer interest is very, very high in our entire robotics offering. With the introduction of the T16 AMR, we now have a product to enter into industrial vertical markets. And importantly, with our free product portfolio of robotics, we can engage a broad range of customers across a broad range of vertical markets, broadest in the industry. And so we were able to activate our global sales organization and attack the AMR opportunity in earnest across every geography. You know, it's an important point around AMR that our early adopters are reordering and expanding their robotics programs. So we're drawing some confidence from that, some optimism from that. We're really well positioned around AMR with our product offering. Our teams are doing a fantastic job supporting deployment and delivering a fantastic customer experience, which we know is critical to driving an accelerated adoption. And we're bullish on the potential. So we are well prepared to ramp at the pace of customer adoption today.

in amr globally great thanks so much everyone appreciate the time thank you thank you once again if you would like to ask a question please press star 1 on your telephone keypad your next question comes from the line of marco rodriguez with stone gate capital uh good morning everyone thank you for taking my questions

I wanted to follow up a little bit just here on the supply chain. Appreciate the commentary that you provide is very helpful. But in terms of just the rising inflation, can you maybe just talk a little bit about what your expectations are there? I mean, obviously, everyone's seen prices go up. FX markets are continuing to show a lot of rising commodity prices. How are you guys thinking about your ability to continue to pass through these costs and raising prices, perhaps?

It's a great question. It's top of mind for us. I mentioned earlier some of the sensing we're doing in the marketplace and how proud I am of the team rallying around a specific set of actions to help us offset and mitigate the risk. I will tell you that our confidence and our ability to offset the supply chain challenges is reflected in our guidance. And so we do expect to have to manage against these headwinds for the rest of 2021. And we do expect that these will subside over time. We prepared ourselves to manage against it in the remainder of 2021, and that's reflected in our guidance.

And then in terms of the supply chain constraints that you're seeing, is there any way or any sort of color that you can kind of help us understand? I mean, what sort of how long are the lead times or any other information that might kind of give us a little bit better sense as far as the constraints you're seeing?

Yeah, it's a great question. It's so broad-based, it's awfully difficult to quantify a specific data point that would be meaningful to you. I gave you the major buckets. I'll repeat them again. Really, there's a commodity inflation component. There's transportation, freight, and logistics challenges that we're seeing, which is both availability and cost. And then I lump the rest into just general supply-based challenges. You know, as our supply base has come back online post-pandemic, they've had to ramp their capacity to meet their demand. And so you saw, you're familiar with the chip shortage, and there's a halo effect around electronics in general. There is capacity constraints across many of our parts and suppliers as they ramp back up to their capacity and try to project what capacity they'll need to serve 2021. And then I noted also we're tracking the financial solvency of our supply base. Some suppliers uh did not weather the pandemic as well as others and so where we have an early signal that a supplier may be in trouble we reach out and talk to them to understand what their recovery plan is and if we need to augment that that that supplier with someone else then we'll certainly take action to get ahead of any supply chain disruption so it's tough to it's tough to dimensionalize i will just tell you that again the team did a fantastic job responding to it in q1 And we expect challenges to continue for 21, but we've reflected our ability to mitigate and offset it in our guidance.

Understood. And last one for me here. Obviously, you guys saw some really strong growth in Asia. Just wondering how you guys are thinking about that region, just kind of given the rising coronavirus cases that we see out there driven by, you know, the new variants in that part of the world.

Yeah, like everyone, we're watching the various aspects of this pandemic, whether it's vaccination deployment as well as case spread, and then importantly, what government restrictions are being put in place in response to try to manage the pandemic. You know, in Asia Pacific specifically, Really, in China, the pandemic started and that economy was hardest hit early. And so in some regards, they're further ahead on the journey of what recovery looks like. I think what you see in China is that it's a choppy, uneven recovery. It's not a straight line trajectory. And different governments are trying to manage this thing as we dig our way out of it. Generally speaking, we saw in Q1 organic growth rate across the entire APAC region, and that was in every product category, every geography, and every channel. So we really view APAC as on a trajectory of broad-based economic market recovery, which we are prepared to capitalize on. But I do expect a bit of unevenness. as we get back to normal or, say, pre-pandemic levels, because we've seen that in every other geography. It's just not a straight line recovery.

Understood. I absolutely appreciate the time, guys. Thank you. Thank you.

Our next question comes from the line of Mike Fliskey with Collier Security.

Hey, guys. Thanks for taking my follow-up questions here. I want to ask about the margin performance in the quarter. It was one of your best EBITDA margin quarters ever. I mean, I guess the only better quarter was last year's second quarter when you had some of the extreme furloughs and extreme cost cuts during the worst of the pandemic. I'm kind of curious, I think, Faye, you alluded to there were still some tailwinds from pandemic-related reductions, but can you maybe help us quantify how much of the EBITDA in the quarter could come back in future quarters?

So a couple of things. I think the improvement that you saw in the quarter really reflects higher productivity, which we mentioned, the mix of products. and a number of actions that the company has taken, including pricing actions and cost reduction initiatives. And so that was a big impact into kind of the gross margin percentage and performance for this quarter. You know, from an S&A perspective, you know, there was a significant cost management that we saw in the first quarter, and part of that was pandemic-related because you have one-time costs Certain costs that just were not occurring, like travel and trade shows and other costs like that. So, you know, the quarter benefited from very specific actions taken by the company, as well as just kind of actions that were related to the company.

Yeah, I would just add Q1, in my mind, is an important proof point. You'll recall during the entirety of 2020, we discussed our ability to continue to execute against our enterprise strategy and drive the structural improvements in our business so that we can get leverage with volume. And we called it Emerge Strong. We were getting our house in order so that when the markets recovered, we'd not only be in a position to service the demand, but get the leverage with the volume. And I think what you're seeing in Q1 is we're demonstrating we can deliver productivity. and use the volume, drive leverage from the volume to our benefit. So to me, it's a proof point of the actions that the team took in 2020, despite a very challenging operating environment, to drive structural improvements in the business. And now we're beginning to reap the rewards in Q1.

Oh, absolutely. It's been a great job all along here. But there's no number you can give us as to what travel and trade show activities may have impacted the EBITDA buy or was that really just not much of a material number, that full 15.5% was almost entirely due to ongoing initiatives.

Yeah, I think, Mike, the S&A impact of those items is maybe a couple million dollars. But, you know, I also then wouldn't then say if you add a couple million dollars to our S&A Q1 numbers, that wouldn't necessarily be a good baseline for our future quarter S&A either, though. To a prior point that I made, we are continuing to make strategic to implement our strategic plan and get dividends in future years. So, you know, if the question is really getting to can we take Q1 and just extrapolate out, I'd be careful there and really lean on our guidance that we've provided that accounts for the headwinds that Dave and Faye have talked about on the gross margin line and the incremental investments we want to make in the business.

Got it. Perfect. The last one for me, can you comment on the pricing environment from competitors out there? Is anybody being irrational in the current environment?

Yeah, I'll take that. Pricing in our business is difficult to assess. because the only way you find out about it is sort of back-channel through customers, and they're hesitant to share it because it removes their leverage in the negotiation. So our competitors are, in large part, very rational competitors, and pricing is rational in the marketplace. That doesn't mean that we don't see some odd behaviors from time to time. But at the end of the day, we're going to be rational about our pricing and we're going to get paid for the value we're delivering. And one of the tenants, one of the pillars of our enterprise strategy is just that. And to make sure that we price to market and we price strategically to make sure that we're delivering value to our customers and getting paid for the value that we're delivering to our customers. So yeah, you know, Competitive pricing is interesting and something we need to take mind of, and our customers are ultimately the gauge of whether we are a commandable premium or not when we price them. So, you know, we haven't seen anything crazy this year, but we'll continue to keep an eye on it.

Perfect. Thank you so much. Appreciate it.

Thank you.

Since there are no further questions at this time, I would like to turn the call over to management for closing remarks.

Thank you again all for joining us and for your interest in Tenet. I also want to give a special thank you to our global Tenet teams for all they have done and continue to do in meeting the challenges of the ongoing pandemic. This concludes our earnings call. Hope you have a nice day.

Thank you for participating. This concludes today's conference call. You may now disconnect.