Earnings Call: Q1 2021

Apr 27, 2021

Greetings, and welcome to the Stepan Company Q1 2021 Earnings Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, this conference is being recorded, Tuesday, April 27, 2021. I would now like to turn the conference over to Luis Rojo, Vice President and Chief Financial Officer. Please go ahead. Good morning, and thank you for joining Stepan Company's Q1 2021 Financial Review. Before we begin, please note that information in this conference call contains forward looking statements, which are not historical facts. These statements involve risks and uncertainties that could cause actual results to differ materially, including but not limited Prospects for our foreign operations, global and regional economic conditions and factors detailed in our Securities and Exchange Commission filings. Whether you are joining us online or over the phone, we encourage you to review the investor slide presentation, We make these slides available at approximately the same time as when the earnings release is issued, and we hope that you find the information and perspective helpful. Now with that, I would like to turn the call over to Mr. Quin Estepan, our Chairman and Chief Executive Officer. Thank you, Luis. Good morning and thank you all for joining us. As vaccines are rolled out across the country, We hope you and your families have had a chance to be vaccinated and that you will continue to stay safe and healthy. We at Stepan remain committed to doing our part by supporting customers that supply essential cleaning, disinfection and personal wash products to the market. Before we discuss our results, I would like to introduce Scott Behrens, our new President and Chief Operating Officer, who will be joining us today. Scott has been a key leader at Stepan for the past 28 years. We are pleased to recognize Scott's contributions to our success with his promotion and are excited about the talents he brings to this role and the impact he will have on the value of our company for you and for all shareholders. Welcome, Scott. The company had a good start to the year and delivered record quarterly income, The best financial quarter our company has ever had. Adjusted net income was $42,400,000 or $1.82 per diluted share, up 75% from $24,200,000 or $1.04 per diluted share last year when we had the power outage at our Millsdale facility. For the quarter, Surfactant operating income was up 47%, primarily due to improved customer and product mix. Our polymer business was up 140% on the strength of 32% global sales volume growth. Polymer volume growth was driven by the Envista acquisition, organic market growth and a rebound in our PA business. Our Specialty Products business results were down due to lower margins within our MCT product line. Our Board of Directors declared a quarterly cash dividend on Stepan's common stock of $0.305 per share, payable on June 15, 2021. Stepan has increased its dividends for 53 consecutive years. Luis will walk you through a few more details about our Q1 results. Thank you, Quinn. My comments will generally follow the slide presentation. Let's start with Slide 4 to recap the quarter. Adjusted net income for the Q1 of 2021 was a record $42,400,000 or $1.82 per diluted share, a 75% increase versus $24,200,000 or $1.04 per diluted share in the Q1 of 2020. Because adjusted net income is a non GAAP measure, we provide full reconciliations to the comparable GAAP measures, And this can be found in Appendix 2 of the presentation and Table 2 of the press release. Specifically, adjustment to reported net income this quarter consists of adjustment for deferred compensation and some minor restructuring expenses. Adjusted net income for the quarter excludes deferred compensation expense of $1,700,000 or $0.08 per diluted share compared to deferred compensation income of $3,600,000 or $0.15 per diluted share in the same period last year. The deferred compensation numbers represent the net expense related to the company's deferred compensation plan as well as cash Settle the stock appreciation rights for our employees. Because these liabilities change with the movement in the stock price, We exclude this item from our operational discussion. Slide 5 shows the total company earnings bridge for the Q1 Compared to last year Q1 and breaks down the increase in adjusted net income. Because this is net income, the figures noted here are on an after tax basis. We will cover Tx segment in more detail, but to summarize, Surfactors and Polymers were up Significantly, while Specialty Products was slightly down versus the prior year. Corporate expenses and all others were higher during the quarter due to the higher acquisition related expenses and incentives based compensation. The company's 1st quarter effective tax rate was 23.6 compared to 22.5% in the prior year quarter. This year over year increase was primarily attributable to be in the range of 23% to 26%. Slide 6 focus on Surfactant segment results for the quarter. For Facta, net sales were $371,000,000 a 13% increase versus the prior year. Selling prices were up 13%, primarily due to an improved product and customer mix and the pass through of higher raw material cost. Volume was flat versus the prior year. Higher demand for products sold into our functional product end markets, principally Agriculture and Oilfield was offset by lower North America sales volume into our consumer product end market. The reduction in North America consumer product volumes was due to suppliers force majeure following the severe weather in Texas. Consumer Products volume outside North America grew low single digits. Surfactant operating income for the quarter increased $17,000,000 or 47 percent versus the prior year. The increase was primarily due to an improved product and customer mix And lower supply chain expenses with a non recurrence of the Milldale plant power outage in the prior year. North America results increased primarily due to an improved product and customer mix. Brazil results were up, driven by higher volumes and improved customer and product mix. Mexico volume was also up high single digits. Europe results increased slightly due to an improved product and customer mix. Now turning to Polymers on Slide 7. Net sales were $150,000,000 in the quarter, up 41% from the prior year quarter. Total sales volume increased 32% in the quarter, primarily due to 32% growth in Rigid Polyol. Global Rigid Polyol volumes, excluding the Invista acquisition, was up 8% versus the prior year. Volume for PA increased significantly, given the weak base due to the millsdale power outage in the prior year. Selling prices increased 7% and the translation impact of a weaker U. S. Dollar positively impacted net sales by 2%. Polymer operating income increased $10,000,000 or 140%, primarily due to strong Sales volume growth and lower supply chain expenses due to the non recurrence of the Q1 2020 Mill Sail Plant power outage. North America Polyol results increased due to higher volumes and lower supply chain expenses in the current year quarter. Europe results increased due to double digit volume growth in Rigid Polyo, primarily due to the Invista acquisition. Asia and Latin America Polymers results decreased slightly versus prior year due to a one time extra cost in Q1 2021. Volume in Asia grew a strong double digit. Specialty Products net sales were $16,000,000 for the quarter, in line with the prior year. Sales volume was up 4% between quarters and operating income declined $1,400,000 The operating income decrease was primarily attributable to lower margins within our MCT product line, given higher raw material prices. Moving on to Slide 8. Our balance sheet remains strong, and we have ample liquidity to invest in the business. Our leverage and interest coverage ratios continues at very solid levels. The total cash from $350,000,000 to $151,000,000 was driven by the Investa acquisition in the Q1 of 2021. We had a strong cash from operations in the Q1 of 2021, which was used for CapEx investments, Dividends and incentives based compensation payments. The company also experienced higher working Capital requirements, which is typical for the Q1. Beginning on Slide 10, Scott will now update you on our 2021 strategic Thank you, Luis. I am pleased to be joining our earnings call and look forward to continuing to contribute to the success our team has had generating for our shareholders. As we wrap up the Q1 of 2021, We believe our business will remain strong. We continue to prioritize the safety and health of our employees as we deliver products that contribute to the fight against COVID-nineteen. Our EPA approved biocide formulations kill the specific novel virus that causes COVID-nineteen and allow our customers to provide the public with additional tools to protect their families and fight the pandemic. We believe surfactant demand in the consumer product end market should remain strong as a result of changing consumer habits And sustained higher use of disinfection, cleaning and personal wash products. Core cleaning and disinfecting product lines drove volume growth In Europe and Latin America, offset by lower volume in the U. S. Due to raw material disruptions related to the Texas weather incident. We are increasing capacity in certain product lines, including biocides and amphoteric to ensure we can meet anticipated higher requirements from our customers. We are also increasing North American capability and capacity to produce low 14 Doxanesulfates. As previously explained, recent regulations passed in New York will require reduced levels of 14 Doxane In on shelf consumer products by January 1, 2023, 14 Dioxane is a minor byproduct Generated in the manufacture of ether sulfate surfactants, which are key cleaning and foaming ingredients in consumer products. Through a combination of process optimization and additional manufacturing equipment, Stepan will be prepared to supply customers ether sulfates that meet the new regulatory requirements. This project is the primary driver of our increased 2021 capital expenditure forecast of $150,000,000 to $170,000,000 We are working with our customers to ensure these projects deliver our financial return targets. Tier 2 and Tier 3 customers continue to be a focus of our strategy. We grew Tier 2 and Tier 3 volume by 9% in the Q1 and increased customer penetration, adding 3 62 new customers during the quarter. Our diversification strategy into functional markets continues to be a key priority for Stepan. During the Q1, global agricultural volumes increased With strong growth obtained in the post patent pesticide segment and 8 new products launched throughout the world. Oilfield volume was up double digits due to higher oil prices. We remain optimistic about future opportunities in this business as oil prices have recovered to the $60 per barrel level. We remain fully committed to delivering productivity gains across the company. We delayed productivity project implementation at Millsdale to allow the team to focus on COVID-nineteen related market opportunities. Work on the project has now begun and we expect to see the benefits in 2022 and beyond. Polymers had a good quarter as the business is gradually coming back after a challenging year due to COVID restrictions. The long term prospects for our Polyol business remain attractive as energy conservation efforts and more stringent building codes should increase demand. The integration of Envista is going well and we expect to deliver on our internal commitments during 2021. The acquisition is expected to be accretive to both EPS and EBITDA margins in 2021. The company expects the multiple on a post synergy basis to be between 6.5% and 7.5 We expect to deliver full run rate synergies within 2 years. The company also acquired a fermentation plant located in Lake Providence, Louisiana in February 2021. This acquisition is part of Stepan's further development of biosurfactant technology following the acquisition of NatSurfact in 2020. Stepan has strong knowledge of as customers look to achieve sustainability goals, while maintaining key performance attributes. We continue to optimize our fermentation process technology, including downstream processing. The Louisiana plant will require additional investment to manufacture Given the strength of our balance sheet, we will continue to identify and pursue acquisition opportunities to fill gaps in our portfolio and to add new platform chemistries. I will now turn the call back to Quinn for closing comments. Quinn? Thank you, Scott. The company just completed its best quarter ever. Looking forward, we believe our Surfactant volumes in the consumer product end markets Should remain strong as a result of continued heightened demand for disinfection, cleaning and personal wash products. We anticipate that demand for surfactants within the agricultural and oilfield markets will improve versus 2020. Global demand for rigid polyols continues to recover from pandemic related delays and cancellation of reroofing and new construction projects. This gradual recovery, combined with our Q1 2021 acquisition of Invista's aromatic polyester polyol business Should position our Polymer business to deliver strong growth versus prior year. We anticipate our specialty product business results will improve We are cautiously optimistic about the remainder of the year. This concludes our prepared remarks. At this time, we would like to turn the call over for questions. Daisy, please review the instructions for the question portion of today's call. Thank Our first question comes from the line of Vincent Anderson with Stifel. Please proceed with your question. Good morning, gentlemen, and nice job on the quarter. Good morning, Vincent. So normally, we see some seasonality in your Polymer margins. But just between the good start to the year, Supplier outages in Vista being early in the synergy window. How should we think about The margin cadence during the peak construction months this year? If we take a look at our polymer margins With the significant raw material price increases that we've experienced in the market, particularly in North America, I would say that our margins are down so far in 2021 versus prior year. And we're trying to we have announced price increases to recapture some of The increase in raw material prices and we'll be looking to do more of that as the year continues. All right. Thank you. And in Surfactant margins, can you remind us What the year ago impact was from Millsdale, just to help frame a little bit more precisely what the price mix impact was on margins this quarter? And then just following on that with regard to raw materials, have you already been able to put through price initiatives for The products impacted by raw material availability? Or is there going to be a little bit of a lag where once you have that supply back then you start price discussions But let me give you some perspective about the comparisons between Q1 2020 because I know It's a little bit hard with everything that happened last year. If you look at the 75% Growth that we had on net income and on EPS, if you exclude the Mill Hill event from the base, It's more around a 20% growth. So as you know, we produce both surfactants And Polymers in our mill sale facility. So both businesses were impacted in Q1 2020 Higher cost, the first major that we had. So my point is, we mentioned last year that the cost in Q1 was roughly 10 You can call it a little bit more than $10,000,000 after tax and that's why I'm saying the true comparison will be a growth of 20%. Vincent, in terms of Surfactant margins and pricing, I think quarter over quarter, our mix It was better in Q1 versus 2020 because we've had 3 months of a higher demand related to the COVID product portfolio versus 1 month in 2020. In terms of price increases, we started to see raw material inflation mid Q1. So we've already taken actions in our Surfactant business to try and recover the inflation we are seeing and will continue to see in Q2. And from a product mix and customer mix perspective, we continue to make progress on our Tier 2, Tier 3 customer initiative and are benefiting from higher sales in the agricultural and oilfield space. All right. Great. Thanks for all the color there. If I could sneak in a quick one on the fermentation business. First, How is that ramp up going in terms of staffing some of the more specialized roles? And then second, out of curiosity, how many independent So let's start with where we are in the development process. We are in the R and D phase at this point, working on optimization of the fermentation process itself. We do have staff that is, schooled and educated in fermentation. So, that is being done inside from a Technology development perspective with outside help for pilot scale experimental runs. In terms of the manufacturing site in Lake Providence, Louisiana, there are up to 4 independent trains That could be commissioned for individual product production. But we are We're looking at what our future portfolio will entail and that's to be determined. Comes from the line of Mike Harrison with Seaport Global Securities. Please proceed with your question. Hi, good morning. And let me add my congratulations on a strong start to the year. Thank you, Mike. Good morning. Wanted to kind of come back to this question about the better COVID demand that you saw In Q1, you're seeing the benefits from enhanced cleaning and disinfection demand in this quarter. I think what we're trying to figure out is how do we think about the comps as we head into the 2nd quarter when we did see some elevated demand for those products. But maybe talk a little bit about How your capacity has changed in the past 12 months, maybe what the mix looks like today versus 12 months ago, Maybe any way that you can help us understand how much sustainably higher or different The business is today, than it was pre pandemic. So our Face Surfactant business, last year, we saw an 8% growth for the year in our core cleaning products and more quite frankly in our disinfectant products. But as we look at, you asked some questions relative or to our capacities. So For our amphoteric product line, we talk about efficiency gains and in our manufacturing plants. So we've been able to Apply lean and efficiency tools To significantly increase the capacity that we have from existing assets for our amphoteric product lines, which are a big So we think we have sufficient capacity to support the market growth at this point in time. Yes. Mike, the only thing that I will add is we also in our prepared remarks, We talk about the impact of the weather incident in Texas. So we are just coming or the whole industry is just coming Out of that event, we need to see how this evolves in the following weeks and months, but that had also Any impact on raw materials and everything. So And then the other part of your question is, will we see Sustained demand from COVID related market opportunities. And what our customers are saying is that They believe that, individuals cleaning standards have changed and that it is sustainable as the market We believe that there may be some decline in consumer washing habits as we go forward, But those are going to be offset by enhanced cleaning in the industrial and institutional markets, because Maybe Scott, you want to comment on one of our customers who recently been talking about and telling you? Yes. So as Economies reopen around the world. A lot of the hospitality industry is going to, I believe, Try and instore public confidence that themselves and their families can be safe in these public places. So visible cleaning Should be a big part of the economy's reopening around the world. So rather than cleaning crews, doing the cleaning and disinfection at 4 am when nobody is in the lobby, We expect to see more visible cleaning habits in the public forum and that could provide a boost for our business. Yes, Mike, I think we have talked it in the past, all the cleaning protocols in all these industries, right? When you think of schools, when you think about restaurants, hospitals, airplanes, all of that, all those cleaning protocols have changed. And that's the piece that we all I mean, our customers believe there is going to be more demand in the future as the economy reopen. And we'll see how that impact offset or not the consumer piece. Understood. That makes sense. Maybe just to help frame up the The impact of the supply disruptions, I think you mentioned that outside the U. S, your consumer business was up Low single digits and it sounds like in the U. S. Or in North America, your business may have been down a little bit. Is that the way we should think about it? Is that supply disruptions were maybe like a 3% or 4% impact on North American demand, and how does that flow through? Is that does that demand just Mike, let me help you out a little bit. I think the impact for our North American and it's primarily commodity surfactants It's probably $1,000,000 to $2,000,000 in operating income impact for our North American Surfactant business. And you got all your other points totally right, Mike. We saw low single digit growth Outside North America in our consumer business and North America was down because of the weather issue. All right. And then the last question is on the Ag business, which sounded like it was really strong, but it seems like this is New products that you're introducing as well as your positioning, I think particularly in Asia, you called out there Maybe more step in driven as much as a better market than last year when there was some destocking going on in North America, can you maybe give a little bit more color on how you're feeling about the Ag business? Yes, Mike. Starting off, commodity prices, corn and soybeans have almost doubled over the last 12 months. So There's a strong anticipation that the planting on a global basis will be significantly up. So customers are preparing for that increased demand for pesticides. So we have seen good volume growth in all of our regions. And we expect that to continue. We got to get through the planting seasons here in the Northern Hemisphere, but so far so good. And I think it's nice to see ag and even our oilfield business showing good strong Growth and recovery after the impacts of both those businesses in 2020. Our next question comes from the line of Marco Rodriguez with Stonegate Capital Markets. Please proceed with your question. Good morning, everybody. Thank you for taking my questions. Good morning, Marco. Hi. I was wondering if maybe you could talk a little bit more about the integration efforts with Envista. Maybe if you can kind of frame where you sort of sit there, That many people from Stepan have been actively working on the integration. Just to remind everybody, we Purchased the about $100,000,000 aromatic polyester polyol business in 2 locations on a global basis. We ended up Acquiring a relatively small commercial staff and a relatively small R and D facilities So from a people perspective, the integration has been relatively easy, And we're very excited to have those new skills and new capabilities joining our company. And then we've got the 2 plant sites. The plant site in North America is relatively underutilized or significantly underutilized And we think we have sufficient capacity to support market growth for the next decade or so with those assets. What we're working on today at that site is to provide backup capabilities for our Stepan has legacy technologies at that site as well, so we can provide business continuity for our customers. The initial phase of that activity will be done in Q3. And then what we've already seen is that Due to some raw material availability issues, we've seen some switching back and 4th between the two sites already in North America and in Europe, where we have, supplied Some have had some customers move from legacy, Invista products So, no, we're pretty pleased with the progress so far. As we said in the script that the profitability so far is up. We're encouraged that the market for polyester polyol is growing, has rebounded nicely. Including the acquisition, our base business was up 8%. So that's indicative of market growth. So far so good. We'll report more in the next quarter. Understood. Thank you. Very helpful. Then on the Surfactant Sai, the strategy to push more into the Tier 2, Tier 3 has obviously driven some very nice growth for you guys last year and it looks like it was Just kind of based on what you've learned over the past 12 months or so, maybe if you can talk to how perhaps You might be looking at any sort of approaches or changes in approaches to your sales and market opportunities to this group? Marco, I think we've we put together a I think a pretty good sales and marketing strategy to go after the Growth in the Tier 2, Tier 3 space, it's been working very well. And we've got a broad range of Distribution partners around the world that are really committed to our strategy and work very well with us in implementing our marketing plans across the world. So I don't see any real change. Now If your question is related to the COVID environment and customer engagement, we are enhancing our digital customer engagement Strategy bringing more of our tools online around our product technologies and formulation offerings. So We are doing some obvious modifications to bring more digital content to customers, while we're kind of grounded from travel at this point in time. Got it. And then last quick question for me, just kind of following up on a prior question On the passing through of the higher prices from raw materials, I'm not sure if I caught it, but Did you were you able to push through most or the majority of those higher costs? Or is there A confidence level that you have that you might be able to share, in terms of your ability to push that through to the end customer? Thank you. Yes. Hey, Marco, I think we're a little bit behind in the polymer space and that's why you've seen some compression in our polymer margins. And I think we're in pretty good shape on Surfactants. We've announced 1 mid quarter price increase and I think there'll be a little bit more, but I think we're better suited in surfactants and polymers today. And we need to continue monitoring It's Marco on how raw material goes in the next weeks months. At the end, this is a very dynamic Right, pricing, and we will always try to maximize margins and share to deliver the best value And the highest value creation for STEPAN. So we will I think the company has proved that we can manage Margins pretty well in both environments when raw material goes down and when raw materials goes up. Yes. And I guess I would also make the comment is due to the Texas In North America, our inventories and I think many inventories across the supply chain are low Today, so we've got as we think about the hurricane season coming in the Not too distant future, we need to start building inventories to prepare for the U. S. Gulf Coast hurricane season So, we've got some work to do relative to Getting our inventories back up to a level where we're comfortable. Got it. Understood. I really appreciate the time guys. Thank you. Thank you. Our next question comes from the line of David Silver with CL Good morning, David. Hey. Yes, I'm going to apologize in advance. I did unfortunately join the call a So There's a number of kind of striking kind of sequential sorry, year over year improvements. I just wanted to hone in on a couple of them. I guess Quinn, were you or Luis, were you able to call out the accretion or the benefits Of the Polyols acquisition this quarter, in other words, I'm guessing The revenues were kind of a little bit above that $100,000,000 run rate. But Is there any did you call out what the incremental effect was On earnings per share this quarter as a result of having the Coke business as part of the company? No, David. We didn't specifically call out the Vista numbers. As Quinn was mentioning, we're pleased with the 1st 2 months. We are ahead of our internal goals. And as we mentioned, when we did the acquisition, the acquisition is going to be EPS accretive even the 1st year, and it's going to be accretive to our EBITDA margins, and we expect a 6.5% to 7.5% multiple after 2 years of synergies. And you know that we paid $165,000,000 So you can do some math there. The and what we would say is, as I mentioned, That the market is growing and is rebounding nicely and the volume is ahead of our internal target at this point in time. Okay, great. And the next question is more related to just some comments about incremental Margins, so if I look at maybe Page 2 of your earnings release and I just compare For the Surfactants and the Polymers segments, if I compare the delta on the revenue line to the delta On the operating income line, it seems like the incrementals are unusually are very, very Hi, very robust this quarter, year over year. And I'm certain that Millsdale factors into that. But Could you make some comments about, I guess, the incremental margins that you're seeing as your volumes Pickup here, in other words, I guess, comments on how well fixed costs are being absorbed and raw material Price increases are being matched with offsetting price increases. Just some qualitative commentary To kind of wrap around the just a simple math as far as the incremental Incremental profit on the extra dollars sold. Sorry, go right ahead. So David, I'll make some comments, Qualitative comments and I'll let Luis jump in with some of the numbers, if you will. But certainly the quarter benefit, as you pointed out, from the lower expenses at our mill sale facility. So that's the first point I want to make. The second point is mix. We have if you take a look at Q1 versus 2021 versus Q1 2020, we have Significantly more biocide sales in the month and we also have improving oilfield and agricultural And then you see also improved Tier 2, Tier 3 business year over year. So the customer mix and the product mix Have more of an impact to our margin improvement than absolute margin over raw material costs Yes. I think as I mentioned before, David, of course, the comparison with Q1 2020 is not apples to apples. We had a big event last year, as we all know. So the growth that you see, If you exclude that, it's more like a 20% growth. And that type of growth is driven by Product and customer mix in Surfactant and the VINVista acquisition and the growth of volume in our Polymers business. If you think our EBITDA margins for the quarter that we're just reporting, if you look at the Appendix 5 Of the presentation, you will see Surfactants close to 18% EBITDA margin. We feel good about those margins And the driver there, again, is product and customer mix. And you see polymers in the 17% because, of course, Q1 is seasonally low because not all the volume is there. So, and what you've heard from us over the last couple of years There's a consistent focus on our strategy, which is Tier 1 customers, commodities, surfactants providing economies of scale, that business Has improved over the last year and a half, two years. So that's good. That business is growing. But also that gives us strength to leverage those assets against some more specialized customer mix and also that position allows us to sell more specialty chemicals, more specialty products to a broad based customer mix. And so that strategy in our surfactant business continues to To provide an opportunity to pay dividends for 53 consecutive years. But that strategy, there's ups and downs, but We feel pretty good about the mix and the capabilities and the services that we're bringing to the market, bringing to the customers. Okay, great. This next question I think is kind of More or less a supply chain related question. But With demand high and with margins favorable, I mean, I think Internally, there has to be a priority on just maintaining reliable operations and hitting your production and delivery targets. And I mean, I scratch my head and I just think over the last 12 months, I mean, there's been a very severe pandemic that's Affected a number of your production and distribution sites, the Texas freeze that you talked about, there was the Illinois River Locks work that It was uncertain, but it was something a little bit different that kind of posed a threat to your supply chain, I guess, And a few other things, but I guess as you look at as you plan for the whole year and you want to kind of hit your internal targets up and down In terms of production and deliveries and things like that, I mean, what additional steps do you take here? Or how do you kind of view The challenge of kind of building in maybe redundancy or additional capabilities to ensure that You optimize what you're able to accomplish in the current robust environment. Thanks. So The first comment I would make, you made a statement about having some difficulty keeping our plants up and running as a result of COVID. What I would tell you is that we have had virtually no disruption in our supply chain over the last year and a half As a result of COVID, primarily because we take it very, very seriously and have instituted precautions across our Supply chain network on a global basis and our employees are being very diligent in trying to keep themselves safe. So, we have had COVID in our across our population that reflects The communities in which we live and work, but we have not had any supply disruptions. Relative to reliability of assets And capacity utilization of our assets. So we our capacity utilization Has increased, and so there is less flex that we have within our Supply chain network today than we have had over the last couple of years. We continually try to We squeeze more productivity out of our existing assets. And I will tell you, we're using lean tools, as I mentioned earlier, and we always seem to find a little bit more capacity in those assets and our supply chain team is The investments in reliability that we're making continue to increase a little bit. So, we need to spend money on our plant sites and we need to reinvest so we can have the reliability that the market needs us to. So your point is well taken and it is a priority for the company, given the To the extent that the customers depend on us to continue to make those products for them, so they can have material on the store shelves, It's a responsibility we take very seriously and it costs money to maintain our plans to do that. Okay. Thanks for that. I apologize if I implied that the pandemic has caused meaningful disruptions To your specific facilities or operations, I solely meant it in terms of a challenge To be addressed, maybe on a continuing basis, but not that it had Had disrupt major disruptive effects to date. Okay. That's fine. I'm going that's it for me. I appreciate all the color. There are no further phone questions at this time. Well, thank you all very much for joining us on today's call. We appreciate your interest and ownership in Step and Company. Please stay safe and healthy, wash your hands Frequently and use disinfectants to clean surfaces in your homes and at work. Have a great day. Thank you. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.