Earnings Call: Q1 2021

Mar 4, 2021

Good day, ladies and gentlemen, and welcome to The Toro Company's First Quarter Earnings Conference Call. My name is Joelle, and I will be your coordinator for today. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Nicholas Rhodes, Managing Director of Investor Relations for The Toro Company. Please proceed, Mr. Rhodes. Thank you, and good morning. Our earnings release was issued this morning, and a copy can be found in the Investor Information section of corporate website, thetorocompany.com. On our call today are Rick Olson, Chairman and Chief Executive Officer Renee Peterson, Vice President, Treasurer and Chief Financial Officer and Julie Karakas, Senior Managing Director, Local Tax and Treasury. We begin with our customary forward looking statement policy. During this call, we will make forward looking statements regarding our business and future financial and operating results. You are all aware of the inherent difficulties, risks and uncertainties in making predictive statements. Our earnings release as well as our SEC filings detail some of the important risk factors, including those related to COVID-nineteen, that may cause our actual results to differ materially from those in our predictions. Please note that we do not have a duty to update our forward looking statement. In addition, during this call, we will reference certain non GAAP financial measures. Reconciliations of historical non GAAP financial measures to reported GAAP financial measures can be found in our earnings release or on our website. We believe these measures may be useful in performing meaningful comparisons of past and present operating results to understand the performance of our ongoing operations and how management views the business. Non GAAP financial measures should not be considered superior to or a substitute for the GAAP financial measures presented in our earnings release and this call. On a personal note, I'd like to take this opportunity to announce that Julie Karakas will be assuming my responsibilities as Senior Managing Director of Investor Relations, working with Olga Gutaniva. It has been a pleasure working with each of you in this capacity over the last year. Julie and Olga are not new to the IR function at the Toro Company and you will find the transition to be seamless in their leadership of the IR efforts. With that, I will now turn the call over to Rick. Thanks, Nick, and good morning. I'd like to begin by extending my personal thanks to Nick and congratulate Julie on her expanded role. During the past year, Nick has helped advance our Investor Relations focus, including adding Olga to the team. I've enjoyed working with Nick, and I look forward to continuing to enhance our external communications under Julie's leadership. We reported very strong results for the Q1 of fiscal 2021 with continued momentum across our professional and residential businesses. Double digit growth in this dynamic environment is a testament to our focus on innovation, operational execution and the perseverance of our team and channel partners. To share highlights of the quarter, net sales were up 14% year over year and up 11% organically. Professional segment net sales were up 9%, a continuation of the growth trend for this segment. Higher shipments of landscape contractor 0 turn riding mowers led the growth along with incremental sales from Venture Products. Residential segment net sales were up 31%, setting another record. We saw broad based demand across our segment with snow equipment driving significant growth due to favorable weather and enhanced mass retail placement. Momentum also continued for our all season Flex Force 60 volt lithium ion products, and demand remains strong for walk power mowers. The introduction of our innovative new products coupled with effective marketing and expanded mass retail channels has further strengthened our brand during this recent period of heightened residential growth. From a segment earnings perspective, professional segment grew 14% and residential increased 49%. We generated strong free cash flow in the quarter, which allowed us to pay down $90,000,000 in debt and resume share repurchases. We also continue to make investments in key technology areas like alternative power, smart connected and autonomous to drive sustained long term growth. Notably, we recently acquired Turf Links and Left Hand Robotics, both of which are technology accelerators. Finally, we believe the critical path forward in emerging from the pandemic involves worldwide vaccinations. We have developed specific plans for each of our sites to take full advantage of vaccination opportunities. In addition, we launched our new So We Can campaign to provide education and encourage employees to get vaccinated against COVID-nineteen as soon as they are able. As we prepare for the broader distribution of vaccines, our team has remained diligent in navigating the continued pandemic environment. They're keeping health and safety in the forefront while meeting surging demand from our retailers and end customers. Thank you to the entire team as well as our channel partners for your perseverance and ongoing commitment. 3 underlying elements stand out this quarter as we delivered favorable results in a dynamic environment. The first is the strength of our residential segment. Coming off a record setting year, the team delivered another record quarter. These results were driven by expanded distribution and new products, complemented by stay at home trends and favorable weather. The second element is the productivity story in our business. We continue to drive productivity synergy benefits enterprise wide. This has helped mitigate factors such as inflation and COVID related manufacturing inefficiencies. The third element is our unwavering commitment to innovation. The success of new products across our businesses in the Q1 highlights the strong return on innovation investments. For example, battery powered products now represent a growing and important part of our business. This commitment to innovation reflects our dedication to constantly provide new solutions for customers' ever evolving needs, regardless of the market environment or macro economy. Our enterprise strategic priorities of accelerating profitable growth, driving productivity and operational excellence and empowering people guided our strong execution in the quarter. I'm optimistic about our momentum as we head further into 2021, given our continued investments in technology and new products, excellent relationships with our channel partners, strong financial position and effective operational and capital deployment capabilities. With that, I will now turn the call over to Renee for a more detailed discussion of our financial results. Thank you, Rick, and good morning, everyone. We reported a very strong Q1 as our professional businesses continue to recover in a meaningful way and we continued to capitalize on robust residential demand. We grew net sales by 13.7 percent to $873,000,000 Reported EPS was $1.02 and adjusted EPS was $0.85 per diluted share. This compares with reported EPS of $0.65 and adjusted EPS of $0.64 for the comparable quarter last year. Now to the segment results. Professional segment net sales for the quarter were up 9.3% to $650,200,000 This increase was primarily due to higher shipments of landscape contractor 0 turn riding mowers and incremental sales from the Venture Products acquisition, partially offset by decreased sales of underground construction equipment to oil and gas markets and the timing of international shipments of golf and grounds equipment. Professional segment earnings for the quarter were up 14% to $116,800,000 When expressed as a percent of net sales, segment earnings increased 80 basis points to 18%. This increase was primarily due to sales volume leverage, productivity, synergy initiatives and net price realization, partially offset by manufacturing cost pressures and product mix. Residential segment net sales for the quarter were up 31.3 percent to $217,700,000 The increase was primarily due to strong retail demand for snow products, driven by favorable weather and expanded mass retail placement, Flex Force battery powered products and shipments of walk power mowers ahead of the key selling season. Residential segment earnings for the quarter were up 48.9% to a record $32,100,000 This reflects a 170 basis point year over year increase to 14.7% when expressed as a percent of net sales. The same drivers had offsets that affected professional segment earnings also affected residential segment earnings. Turning to our operating results. We reported gross margin for the quarter of 36.1%, a decrease of 140 basis points from the prior year. Adjusted gross margin was also 36.1%, down 150 basis points. The decreases in gross margin and adjusted gross margin were primarily due to manufacturing cost pressures and product mix, partially offset by productivity, synergy initiatives and net price realization. SG and A expense as a percent of net sales decreased by 170 basis points to 19.9% for the quarter. This decrease was primarily due to sales volume leverage, a favorable one time legal settlement and lower indirect marketing expenses. Operating earnings as a percent of net sales for the quarter increased 430 basis points to 16.2%. Adjusted operating earnings as a percent of net sales increased 210 basis points to 14.2%. Interest expense of $7,500,000 was down approximately $600,000 compared with a year ago, driven by lower interest rates. The reported effective tax rate was 18.1% for the Q1 and adjusted effective tax rate was 21.5%. Turning to the balance sheet and cash flow. At the end of the quarter, our liquidity was just over $1,000,000,000 This included cash and cash equivalents of $433,000,000 and full availability under our $600,000,000 revolving credit facility. We have no significant debt maturities until April of 2022. Accounts receivable totaled $306,900,000 down 4.5% from a year ago due to channel mix and the timing of red iron receivables. Inventory was down 8.6% from a year ago to $675,300,000 This decrease was due to lower inventory in certain professional segment businesses as well as the result of increased demand for our products. Accounts payable increased 4.7% to $364,400,000 from a year ago. This was due to increased purchases of component inventories as well as incremental payables from the Venture Products acquisition. 1st quarter free cash flow was $84,500,000 with a reported net earnings conversion ratio of 76%. This positive performance was primarily the result of higher earnings, the favorable one time legal settlement and lower working capital, mainly due to reduced inventories as compared with the first quarter of last year. Our disciplined capital allocation strategy includes investing in organic and M and A growth opportunities, maintaining an effective capital structure and returning cash to shareholders. Our capital priorities remain the same and include reinvesting in our businesses to support sustainable long term growth, both organically and through acquisitions, returning cash to shareholders through dividends and share repurchases, and repaying debt to maintain our leverage goals. During the Q1, we paid down $90,000,000 in debt and returned $59,800,000 to shareholders with $28,400,000 in regular dividends and $31,400,000 in share repurchases. We are reaffirming our full year fiscal 2021 guidance. Demand remains high across our businesses and our guidance is based on current visibility and certain potential effects of COVID-nineteen. Additionally, we are actively managing a dynamic supply chain and cost inflation environment. I'll share the guidance highlights and Rick will cover the macro trends and key factors we'll be watching throughout the remainder of the year. For fiscal 2021, we continue to expect net sales growth in the range of to 8%. This includes 4 months of incremental sales from the Venture Products acquisition. We expect continued recovery in Professional segment end markets. The strongest growth in the Professional segment will be in the 2nd and third quarters, as those comparable periods last year were most impacted by the pandemic. We expect full year residential segment net sales growth to be in the low to mid single digits, following an exceptionally strong fiscal 2020 and Q1 2021. We anticipate strong retail demand to continue throughout the year. Given the comparison to record setting performance last year and potential supply chain constraints, We expect year over year residential segment net sales growth to moderate for the remainder of the year. Looking at overall profitability, we expect moderate improvement in fiscal 2021 adjusted operating earnings as a percent of net sales compared with fiscal 2020. This assumes continued productivity and synergy benefits, net price realization and lower COVID related manufacturing inefficiencies, partially offset by potential supply chain constraints and an expected inflationary environment. In the Professional segment, we expect earnings as a percent of net sales to improve versus fiscal 2020 due to better volume leverage. In the Residential segment, we expect earnings as a percent of net sales to be similar to fiscal 2020. We expect full year adjusted EPS in the range of $3.35 to $3.45 per diluted share. This estimate includes the effects of recently announced acquisitions. It excludes the benefit of the excess tax deduction for share based compensation and the favorable one time legal settlement. Based on current visibility, we anticipate adjusted EPS to be higher in the first half of fiscal twenty twenty one versus the prior year period. For the second half of fiscal twenty twenty one, we expect adjusted EPS to be comparable with the same period of fiscal 2020. Looking to the rest of the year, we're excited about the robust near term demand environment as we continue to execute on our long term strategic priorities and invest in innovation to capitalize on future growth opportunities. I will now turn the call back to Rick. Thanks, Renee. Looking ahead, we'll be watching several macro trends to provide us with additional insights into the remainder of the year. These include the ongoing effects of COVID-nineteen, including its impact on manufacturing efficiencies and potential global supply chain disruptions weather patterns, including the timing of spring in northern climates and global economic recovery factors driving general consumer and business confidence as well as the for improved outlook. We're watching a number of key end market drivers. For our residential and certain professional businesses, continuing customer interest in home investments. For landscape contractors, improved business confidence leading to the resumption of capital investments along with catch up purchases of prior deferrals. For golf, a strong start to the season in northern markets, an increase in international course reopenings and the expected return of travel and resort golf, all leading to another great year for rounds played. For grounds equipment, increased spending on outdoor space maintenance and improvement projects by municipal and other tax supported entities. For underground, increased funding for 5 gs and broadband build out and critical need infrastructure rehab and replacement. For rental and specialty construction, continued upgrades and replacements of fleets by independent rental companies and national accounts. And for snow and ice management, channel response to lower end of season inventory levels as a result of recent snow We continue to be excited about our innovative suite of products that are well positioned to capitalize on these market opportunities, and these products directly address customer trends. For the focus on home improvement, a complete line of residential products from walk and Z mowers to irrigation and lighting solutions, including the 0 emission all season Flex Force 60 volt lithium ion suite of products. Additionally, our professional line of maintenance and renovation products. For the growing interest in professional battery electric solutions, the Greensmaster E TriFlex and Hybrid Riding Greensmowers, the Toro eDingo Compact Utility Loader and the expanding line of lithium ion Workman GTX Utility Vehicles. For increased productivity solutions, the Toro Dingo TXL 2000 and Ditch Witch SK3000 stand on skid steers Toro, Exmark and Ventrac high capacity mowers a new line of Ditch Witch horizontal directional drills, the BOSS Drag Pro rear mounted truck plow and BOSS and Ventrac sidewalk snow and ice management equipment. It's because of our deep commitment to innovation, strong customer relationships, exceptional sales and service through our channel partners and stellar product lineup that we are seeing significant with PGA Frisco and Pebble Beach Resorts. We're honored that every 2021 major championship tournament will be played on a course serviced by Toro branded turf equipment, and we are the official Ryder Cup turf equipment and irrigation provider for the remainder of the decade. In closing, we are optimistic as we head into our peak selling season. While the environment remains dynamic as we manage through COVID related manufacturing and supply chain challenges, we have a number of factors working in our favor. A diverse portfolio of businesses and strong customer relationships, productivity initiatives to drive increased profitability innovative products and emerging technologies. And as always, our team is the key to the Toro Company's continued success. Thank you to our employees for your your questions. And your first question comes from Tim Wojs with Baird. Your line is now open. Hey, everybody. Good morning. Thanks for the details and congrats Julie and Nick, we'll miss working with you. Maybe just first question I had was just to kind of focus a little bit on the supply chain. If you can maybe elaborate a little bit on maybe where you're seeing constraints currently and how you're kind of managing through that? And I guess more broadly, what your confidence is that you'll be able to meet spring demand from kind of a production supply chain and capacity standpoint? Supply chain is something that we've been managing very closely over the last year in the COVID environment and that challenge continues. It's in the context now of pretty significant demand. Demand is very strong at this point. So this is an industry wide issue. It's a global challenge, in fact, beyond just our industry really as demand has come back fairly rapidly and many of the suppliers are still in a COVID restricted environment and probably hadn't fully are in constant contact with them, making sure that we can do every possible thing we can to keep our lines running. Another part of that is just, as you mentioned, making sure that we have got the right product in the right location to serve the customers and make sure that we don't short anyone. So we are confident coming into the season that we have we have matched our supply with demand, but that will continue to be an ongoing challenge as we go forward. Just the last thing I would just also just point out, our ops team has done a heroic job of keeping lines running, keeping the communication lines open with our suppliers to make sure that we can do everything we can to produce. Okay. And I guess relative to others in the industry, I mean, do you just given your scale, I mean, do you think you're at a relative advantage versus other players in the industry? It is as I said, it's an industry wide issue, but we do a lot of work to build relationships with our suppliers and to put contracts in place to protect us. So it's going to be a challenge for everyone, but we believe that we're in a good position with our suppliers relative to our competition. Okay, great. And then on the residential business, is there a way to kind of frame what the, I guess, the placement or product lineups at some of your key retailers look like this year versus maybe the last year or 2? And you talked about battery in your prepared remarks. Could you just elaborate on what percentage of sales or trailing 12 months or this quarter battery is for Toro and how that compares to POS? Starting with the Q1, snow has been a big was a big part of the story for residential and that was in addition to a good or better than average snow year, at least in some parts of the country, that was also due to improved placement. So that, in fact, was part of greater line more complete lineup, if you will, with our channel partners. And from I think that's probably the best generalization of the trend. We continue to add placement with our key partners. It's obviously with our dealers. We continue to offer additional products, additional lines with our mass retailers. We continue to add lines. You probably saw the emphasis from the Home Depot specifically on electric. We're pleased to be one of the brands that will be featured as an electric supplier and a focus area. As a percentage of sales, I don't know that we have that in front of us. It's still a relatively small portion of the overall, but it's a very rapidly growing piece of our business. Okay. Okay, that's great. And then I'm going to sneak one last one in. Just, these are small, but you did do 2 robotics acquisitions over the last couple of months. And I know it's early, but robotics does seem to be a game changer if you talk to like golf course superintendents and things where labor is really a big issue. So could you just talk a little bit about how you see that developing and any sort of kind of timeline on commercialization there? We agree it is an important part of the future and for us that really cuts across all of our markets. So you talked about golf, but there's interest in many of our markets for robotic solutions driven by a number of factors. If you look at, for example, the spray business, the chemical application business, the ability to do that more accurately to reduce the environmental impact, to reduce the costs. Labor is another key driver. The timing we showed last year in 2019 a vision of what our autonomous solutions look like for golf. And we're on track to bring solutions to the market. I can't be specific about timing, but we're on track with our plans relative to what we talked about at that time. And the acquisitions specifically are a perfect fit for the strategies that we have described previously. In In fact, they hit all of the technology areas, including alternative power, connected and robotics. And it will be a great boost to our capabilities internally as well. Okay. Okay, great. Well, thanks for the time and good luck on the rest of the year. Thank you. Thank you. Your next question comes from Mike Schulinski with Collier Securities. Your line is now open. Good morning. In your prepared remarks, you mentioned a few times there were some manufacturing cost pressures. Could you maybe comment on what those exactly were? Was it it seems to be different for each company. Some it's the cost of labor. For some it's availability of labor. For others it's things are stuck in the ports, can't get out of the ports or into the ports. Just some kind of color as to what it is Toro is seeing right now on that side. Mike, what we're seeing is, 1st of all, for the quarter, it's important to recall that we're comparing to a pre COVID quarter. I think I'll start with that. What we're seeing is some of that impact of just the social distancing, some capacity constraints driven by that, as well as, as you mentioned, kind of a number of other impacts, just related to, as Rick said, well. Steel in particular, we're seeing the impact of that as well. As always, we focus 1st and foremost on our synergies and productivity efforts to try to offset that. We do tend to get some price realization, typically between 12 points. We always price to market, not to cost. But as these situations are occurring, they are not unique to Toro. So we anticipate that they are happening across the industry and over time pricing kind of balances out with that as well. Got it. Can you also comment on the cold weather and storms we recently saw in Texas and parts of the Southeast U. S. In February? I wasn't not an area that typically sees a ton of snow. I'm curious if you were able to sneak in inventory to that region at the last minute? And or in the aftermath here, are you seeing any unusual utilization or demand either on the underground equipment side or on the rental side as folks try to clean up? There were, Mike, a number of effects both on the supply, mostly on the supply, but on the demand side as well. Maybe the positives for us on the demand side, not so much the Deep South, but through the central portion of the country, the snow events of the last several weeks have been very positive in terms of driving snow product demand. So that's on the positive side. The challenges on the demand or excuse me, the supply side. And as you can imagine, we have a number of key suppliers within the Gulf Coast region, especially in the resin. There's a concentration of resin suppliers in that area. They're coming back online, but they have had some delays. Freight moving products around the country during those weeks with the severe storms has challenged our operations footprint, if you will. And we have operations in areas that were affected by the cold. So our facilities are up and running completely, but they did experience some delays. And it's really the continued recovery bringing power back on to the region, fixing the utilities and so forth. And we will have there will be some positive effect on demand with utilities repair and so forth, but it's not going to be a significant driver specific to the repair process. Got it. If I could ask one more here, and that's on the stimulus plans currently bouncing around Congress. And there's been some changes even as of today as to how much and who is eligible. Can you give us a sense, is your outlook at all based upon consumers out there getting more stimulus checks from government? If things change, would that affect do you think the retail sell through at some of your Mass Now partners? I think the most positive effect would be to continue to bring the economy back faster. So bringing more money into the economy, I think, is going to be generally positive. We don't determine specifically which of our potential customers could be directly advantaged by any of that legislation. For us, the biggest thing would be to focus on getting the COVID situation under control. We believe that that has a lot of benefits internally, externally. You've heard us talk about how important we feel the vaccination process is, and we're directly making sure that we can optimize our own access and vaccination process within our facilities. Yes. And I think that will help not only Toro, but it will help supply chains as well. Exactly. So we absolutely think that's a key focus area of vaccinations. Good point. Got it. Rick Renee, thanks so much. Thank you. Your next question comes from Eric Bouchard with Cleveland Research Company. Your line is now open. Good morning. Good morning. Curious, it sounded like on the pro side, the growth was more focused landscape contractor. Curious for what's going on in terms of end market demand trends in golf and Charles Machine Works? And how you feel about your ability to manage supply relative to where demand is going in those 2 end markets? The trends that we talked about in the Q4 have continued for pro. So a pretty significant recovery in most of the markets that were affected this time last year have come back very nicely, including golf we see coming back just in terms of orders going forward and the resumption of capital purchases. Maybe the one exception talked about, which is a very small portion, but any exposure that we have to oil and gas through Charles Machine Works, They're kind of in a pause mode as energy policy becomes more clear. But that's less than a couple percent somewhere around a couple percent of our total business. And I think that will kind of refocus on things like natural gas pipelines versus crude oil, etcetera. So there's some net coming back. And in terms of the ability to meet that demand, I think that's really the theme that we talked about earlier. It's the same, which is we have we're doing every possible thing that we can. We are working with our suppliers to have the products and we will continue to manage that really as our top priority. Within the Charles Machine Works, just to follow-up, between what's going on in energy, which we now see, the change that's taken place, it appears in residential construction and then what's going on in 5 gs. When you look at all of those, and I think all the cards are on the table now for where those three areas are going, The growth outlook for this business, is it now worse because of what's happened with energy? Or are the others offsetting that? Like when you put all those together, how do you feel about the growth outlook for that business relative to perhaps a year ago when we were looking at this business? We feel outstanding about the drivers. And you mentioned the key drivers of the 5 gs broadband build out. I personally have looked at the time line of previous build outs like 4 gs, and there's still more dollars being spent on 4 gs infrastructure today than 5 gs. So 5 gs is nowhere close to hitting its peak. I think investments in infrastructure were twice what they were 2 times in 2020 what they were in 2019. So the drivers you talked about, alternative energy also has a significant portion of underground element to it. The realization even brought to the surface through the problems recently in the south with broken water mains speaks to our aging infrastructure. All those demands are all those drivers are very positive for the Charles Machine Works business. And just to put it in perspective, the direct oil and gas exposure is less than 10%, so forward and have a lot of momentum. Perfect. Very helpful. Thank you. Thank you. Your next question comes from Ross Gilardi with Bank of America. Your line is now open. Good morning, guys. Good morning, Ross. I was just wondering if you could just talk a little bit more about the outdoor category at Home Depot. I mean, clearly, Toro has got a big position at Home Depot, but there just seems to be a lot happening. I mean, Ego is going to Lowe's. One of your competitors claims to have 19 cordless mowers on the market right now and is making a big push on riders, building new capacity for cordless mowers in the U. S. And I'm just trying to get I know you're investing in it, but what like can you share at all what kind of investment you're making to ensure that you get your appropriate share of shelf space at Home Depot in the core of this category as that evolution continues? And then just any insight on what kind of role Amazon is playing in outdoor? What Toro's position is and the thought is on Amazon as a more important distribution partner? We are always very well aware of what's happening with our competitors. And obviously, when you speak about the Home Depot, this is a long term partner of ours and we've grown our battery line at the Home Depot pretty steadily over the years and will be a key part of their battery solutions that they offer as we go forward. So in reference to some of the competitors, we're well aware of the investments and the branding work that they're doing. I would just say that this is it's been a very competitive market for a very long time. So we compete with very high quality competitors. We always have. And so this is one of them. In terms of battery investments, as we've talked about, that's been a priority for us. And for us, we have the ability to leverage across a lot of different areas. So if you talk about going into the higher power applications, that's a pretty heavy use of batteries and fundamentally of cells as well. So we probably come at the advantages in a little different way, but we also have a strong set of advantages, including the reputation in the outdoors. And as you shift from low power applications to higher power applications, you have to make a decision if you'd like to if you want to stick with a brand that's more of a power tools company or if you'd like to stick with someone a brand that's got 100 years of outdoor experience. Okay, Rick. And then thoughts on Amazon's role in the outdoor space and your relationship with them? We Amazon is obviously a factor in every market. I can't think of too many where it wouldn't be a factor. And we have some relationship with Amazon in various parts of the world in various markets. I don't think that we're any different in this market than others necessarily for Amazon exposure. We have significant online retail e commerce business through both ourselves and also with key channel partners that are very significant players in e commerce and we partner very closely with them. So we have a strong e commerce presence. Amazon is one factor of many. Okay. Great. And then just lastly, I heard you address part of this and I'm sorry if I missed your full answer. On Texas, specific to Ditch Witch and underground construction equipment, with all the water infrastructure issues that we're reading about in Texas, Are the nature of those problems something that is a big opportunity for Ditch Witch? Or are these more in areas that wouldn't involve their type of equipment for remediation? I think remediation is a modest opportunity. A lot of the entities are working to fix those have existing equipment. They may, based on the usage, choose to replace it at this time. So there's a modest effect in the short term. The probably larger effect is just the realization of the general population that we need to address our aging infrastructure. In some cases, decisions need to be made if facilities need to be weatherproofed to a greater extent. And that does just add to the longer term demand trend that will be positive for Charles Machine Works and Ditch Witch. Thank you very much. Thank you. Our next question comes from David MacGregor with Longbow Research. Your line is now open. Yes. Good morning, everyone. Just a first question on the good morning, Rick. Just wanted to ask about the outlook on the Pro business. And you talked about the fact that you thought there was a pretty good catch up opportunity in 2021, that there had been a lot deferred spending by landscape contractors. And then I guess I'm just trying to get a sense of how big that opportunity might be for you as you think about your 2021 guidance? The catch up is part of it, but I think the bigger portion is just the return of business confidence that's going to return to that's an area of growth for us to start out with. So in pro LCE is an important part of that as a growth driver. Our expectations for the makeup really has been included in our guidance for the year, but we do see continued strength really across the pro line. So LCE, the construction businesses are very strong. Rental, now the pickup of business with our national accounts as well as independent rental companies that were strong throughout 2020 and golf continues to pick up. There is a little question mark about the municipal budget driven business and that has a lot to do with relief funding with prioritization of budgets as they come into the next cycle. But we've seen also evidence that cities and municipal tax supported budgets are prioritizing their outdoor spaces, especially based on use for this last year. Do you feel you're sufficiently inventoried in the field in your Pro business for the strong kind of 2021 demand that you're talking about? We our field inventory is in good shape in general. We have a few areas where we would like to have more field inventory, both on the professional and residential side. So the strong demand of the Q4 and the Q1 made that more challenging to build that inventory. But we will take the opportunity to build as we can, and we feel generally good about the field inventory. Okay. Second question, just on the residential business, obviously, extremely strong quarter, up 31%. I'm just wondering, given the magnitude of that increase year over year, is there any chance of getting a little bit of transparency into the drivers behind that growth? And specifically, I guess, just what did the extended good weather in November December contribute? The Flex Force, is there a sense of kind of giving us a sense of what Flex Force may have contributed as well to the segment growth? That would be helpful. Some of the factors that we talked about in 2020 are still there. Certainly, the stay at home trend continued to help us. But I would say that that's one of many factors for us as we talked about through 2020. It's our refresh line. It's the enhanced placement that we have with our current partners. It's the addition of new mass channel partners, like Tractor Supply, the strength of the brand and the marketing message. So those parts are drivers. And so we feel positive about that. Snow was a major a significant factor in the quarter. And I think you mentioned them, it would be the strength of the Flex Force line of lithium ion products. And then walk power mowers and these, although it's a lower quarter, a smaller quarter for res for those products, they had the comps were very positive on small numbers. So it was kind of strength throughout. Snow is the biggest upside driver, both with the weather conditions and with placement. Okay. As you grow that Flex Force business, how do you think about and your entire battery life for that point, you noted earlier, it's small at this point, but it's expected to grow rather rapidly. How do you think about the potential cannibalization on the gas powered product lines? And what net growth could be achieved? It's likely that there will be cannibalization. That's where some of the volume is coming from if you think about walk power mowers. And the net, obviously, we our plans are put in place surrounding maintaining or growing our market share regardless of the power source. And I think as the idea of battery matures, it's not so much about the novelty of the idea that it's a battery powered product, but it comes back to the features, benefits, the quality of cut, the support, and that's where we have some advantages. Okay. Last question for me is just the acquisitions of TurfLinks and Left Hand Robotics, very exciting. It's nice to see you entering the autonomous navigation space maybe a little more definitively. I guess what I'm trying to get a sense of is from a market development standpoint, what are the limiting factors for acceptance of this product and for growth of the product? What do you have to do to get people to get on the purchasing side to get excited about this and make that purchasing decision rather than say, I'm going to wait and see what the next generation looks like? Well, there is significant demand right now for autonomous products based on some of the challenges with labor, productivity and so forth. So I think the limiting factor is having products that meet customer needs. And that's where we have a strong commitment that we're not going to have products in the marketplace. Just to say that we have a robot. We've actually done that a decade or 2 ago. So our timing will be predicated on our confidence that we have absolutely terrific solutions that have resolved the customer issues and they will be delighted with. So that's our driver. We believe the demand is there and it's growing. It's the product solution that we're waiting for. Okay. And can you leverage your existing dealership network with this product? Or I know the dealer network right now is a little limited, but it must be an opportunity for you. We have an incredible dealer network across multiple brands, thousands of dealer points, multiple distribution partners. And that is absolutely an advantage for us as we get to products that are more technical, they require more support and infrastructure to make them work well and we view that as an advantage for us. Congratulations on the progress in this area. Thanks. Thank you. It's very exciting for us too. This concludes the question and answer session. Mr. Rhodes, please proceed to closing remarks. Thank you for your questions and interest in The Toro Company. We look forward to talking again in June to discuss our results for the Q2. Thanks everyone. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.