AAON, Inc. (AAON) Q4 2021 Earnings Report, Transcript and Summary

Hello. Welcome to the AAON, Inc. Fourth Quarter 2021 Earnings Conference Call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this event is being recorded. I would now like to turn the event over to our host Mr. Joseph Mondillo, Director of Investor Relations. Mr. Mondillo, please go ahead.

Thank you, Andrea. Good afternoon, everyone. The press release announcing our fourth quarter financial results was issued after the market closed today and will be found on our corporate website aaon.com. On the call with me today are Gary Fields, President and CEO; and Rebecca Thompson CFO and Treasurer. Just kind of begin with our customary forward-looking disclaimer. To that extent -- to the extent any statement presented herein deals with information that is not historical including the outlook for the remainder of the year such statement is necessarily forward-looking and made pursuant to the Safe Harbor provisions of the Securities Litigation Reform Act of 1995, the Securities Act of 1933 and the Securities and Exchange Act of 1934 each as amended. As such, it is subject to the occurrence of many events outside AAON's control that could cause AAON's results to differ materially from those anticipated. Please see the risk factors contained in our most recent SEC filings, including the Annual Report on Form 10-K and the Quarterly Report on Form 10-Q. With that, I'll turn over the call to Rebecca.

Thank you, Joe. I'd like to begin by discussing the comparative results of the three months ended December 31, 2021 versus December 31, 2020. Net sales were up 16.8% to $136.3 million from $116.7 million. Net sales for the quarter were primarily due to price increases, which contributed approximately 10%. The acquisition of BasX Solutions, which closed on December 10 contributed about 3%. Our gross profit decreased 21.7% to $26.5 million from $33.9 million. As a percentage of sales, gross profit was 19.5% in the quarter just ended compared to 29.1% in 2020. The decline in gross profit was mainly related to supply chain issues that resulted in production constraints and operational inefficiencies. Another contributing factor was material costs and wages rising quicker than our price increases to counteract. Selling, general and administrative expenses increased 44.4% to $21.1 million from $14.6 million in 2020 -- excluding $4.4 million of acquisition-related transaction fees, SG&A expenses increased year-over-year 14.4%. As a percent of sales, SG&A excluding the fees decreased to 12.3% of total sales compared to 12.5% in the same period in 2020. SG&A as a percent of sales decreased mainly due to lower profit sharing expenses, which as a result of our lower pre-tax earnings compared to the year ago period. We had an income tax benefit of 0.8 million, due to our lower earnings in the quarter and our excess tax benefit from stock awards of 1.6 million. Adjusted net income, which is a non-GAAP measure, decreased 35.5% to $9.5 million or 7% of sales, compared to $14.8 million or 12.7% of sales in the prior year period. Adjusted diluted earnings per share, which is a non-GAAP measure, decreased 35.7% to $0.18 per share from $0.28 per share. Now for the comparative results, so the year ended December, 31, 2021 versus 31, December 2020. Net sales in 2021 were up 3.9% to $534.5 million from $514.6 point in 2020. Net sales were permanently due – net sales were up primarily due to price increases which contributed approximately 5% for the year. Volumes were down due to our plant shut down in January for planned maintenance, weather related shut down in February and various supply chain issues in the later half of the year. The acquisition of basic solutions contributed about 1%. Our gross Profit decreased to11.6%, $237.8.million from million $155.8 million. As a percentage of sales, gross profit was 25.8% in the year just ended compared to 30.3% in 2020 gross profit was down because of a handful of factors. Production constraints due to supply chain issues, and material inflation being the primary too. Selling, general and administrative expenses increase 13.4% to $68.6 million from $60.5 million in 2020. Excluding $4.4 million of acquisition related transaction fees SG&A expenses increase year-over-year 6.1% as a percentage of sales SG&A excluding these fees increase to 12% of total sales compared to 11.8% in 2020. Our effective tax rate decreased to 15.1% from 22.5%. The decrease result of a lower income tax rate in Oklahoma, along with increased excess tax benefits from stock awards compared to 2020. Adjusted net income in 2021 decreased 17.1% to $62.1 million or 11.6% of sales compared to $74.9 million or 14.6% of sales in 2020. Adjusted diluted earnings per share decreased by 17.7% to $1.16 per share from $1.41 per share. Now looking at the balance sheet, you'll see that we had a working capital balance of $131.3 million versus $161.2 million at December 31, 2020. Unrestricted cash totaled $2.9 million at December $31 2021 and total debt was $40 million. During the quarter we used $103.4 million of cash to finance the acquisition of basic solutions. And we do down $14 million on our revolving line of credit to finance working capital needs. In the first quarter, we will be closing on the real estate related to the basic sale, which will cost us $22 million. Early in the year, working capital will also be a use of cash, before reversing in the second half of the year. I anticipate net debt will come up – will climb a little more at the end of the first quarter, before beginning to come back down. Our current ratio is approximately 2.5:1. Capital expenditures in 2021 were $55.4 million, down 18.3% from a year ago. Capital investments were down and were less than we expected at the beginning of the year due primarily to delayed projects, which were resolved of supply chain issues and other economic factors. We have not slowed our growth-related investments at all. In fact, we continue to be aggressive with our investment planning to help facilitate the robust organic growth we anticipate over the next several years. In 2022, we expect capital expenditures to be $100.4 million. The company had stock repurchases of $22.5 million during the year ended December 31, 2021. The Shareholders' equity per diluted share is $8.68 at December 31, 2021 compared to $6.61 at December 31, 2020. I'd now like to turn the call over to our CEO and President, Gary Fields.

Good afternoon. Well, in the fourth quarter, there were three major positive achievements in the quarter. The backlog continued to grow at a significant rate, reaching a new record level. We closed on the acquisition of BasX Solutions, which was the company's first acquisition of substantial size in 20 years. And in October, we hosted our first sales event in several years with our independent sales channel, where we introduced a package of new products that we think, are going to be game changers. Obviously, the fourth quarter financial results were disappointing. Sales, gross margin, operating margin, earnings were all weaker than we were even taken when we last spoke to you in November. However, I believe we are going to emerge from this a much stronger company, which is going to help facilitate a robust growth trajectory. Speaking of the growth trajectory, we believe our long-term outlook remains intact. For those, who have listened to us recently, we have aspirational goals, which include growing revenue organically in the double-digits per year over the next several years. Nothing has happened over the last nine months leading us to these goals are unachievable. In fact, we're as optimistic on the outlook to see that be. The backlog reflects that and we're beginning to pull out of a lot of the issues that we're constraining our ability to produce. So, let's talk a little deeper dive and look into the quarter and then, we'll talk about the outlook. The environment our industry has been facing over the last 12 months is one of the most challenging ever, if not the most challenging in the last 30 years. Inflation is rapid, supply chain issues made managing operations extremely tough, this is all while trying to manage the challenges of the pandemic. Inflation pressures continued through the fourth quarter. We've been very disciplined with our pricing and are still confident we'll fully recoup gross margins at the 30%-plus level. We need to work faster through the lower margin backlog start producing products priced at our most recent price increases. Unfortunately, supply chain has prevented this from happening in the fourth quarter. The fourth quarter was the most challenging quarter of the year when it came to supply chain. October and November were particularly tough months. The supply chain issues led to less than optimal production rates causing operational inefficiencies unabsorbed fixed costs and an unfavorable mix of products that were priced at lower pricing than our recent price increases. So, the supply chain issues were a huge construct production but also exacerbated the inflationary effects. Now, there were some positives in the quarter, we're looking forward: first, at this point in time we believe October, November were the worst we’ll see regarding supply chain issues. December saw an improvement. January and now February were even better. Margin profile of our backlog is quickly improving. Lastly, I said earlier, we're going to emerge from this a stronger company. The supply chain issues that forced us to significantly increase the number of multi-source components. Also mentioned earlier that this has been one of the most challenging environments our industry has faced in 30-plus years. Facing challenges like this almost always leads to a stronger operation and a more capable management team, if you have the right people. I'm very confident we have the right people managing this company. So we feel we have gone through is -- what we have gone through is going to make us a much stronger company help us execute our growth strategy more effectively. Now let's look back on some of those achievements a little deeper, the backlog. At the end of 2021, total backlog was up 250% from a year ago and up 43% from the end of 3Q. Excluding basics backlog, organic backlog was up 201% year-over-year and 23% quarter-over-quarter. Organic bookings in the quarter were up year-over-year to 67%. The growth rate is consistent to what we saw in the previous two quarters, as strong demand continued through the end of the year. Order trends remained strong through the first two months of 2022, including both legacy AAON and basics. This performance is remarkable, especially when compared to the industry, which is not growing nearly as fast. It tells us we have the right strategy and we’re executing. Strategy includes focusing on customized high-performance energy-efficient HVAC equipment to take advantage of secular trends like decarbonization and indoor air quality. This has been the foundation of AAON for 30 years. While much of our market is just starting to talk about manufacturing more capable equipment to meet these new demands, we've mastered it over decades. Lower cost of ownership, selling a high-quality product at a minimal price premium, it has the longest useful age on the market, most energy efficient, easiest to service and maintain. Continuous improvement of productivity. Our manufacturing operations are highly automated. We've always had a culture of maximizing productivity. We still see new areas of improvement, though, and we'll continue to focus on this. We've been strengthening our sales channel even more. We have the strongest sales channel in the industry and we're assisting our channel partners more now than ever to various ways to help improve their success. We believe that what we're doing to support our channel partners is leading the market share gains. Innovation and new products, I'll touch on that a little more here in a minute. But leading in innovation is core to AAON. We focused on parts and service. Parts sales were a record for us in 2021, growing 26.3%. As a total of revenue, parts made up 8%, which was the highest percent of total sales in company history. So, overall, the growth in backlog reassures this that we have the right strategy in place. Also, we measured the size of our total addressable market being $30 billion, which is about 50 times the size of our company. So we think there's a lot more potential going forward. So in our end markets, our strength is broad-based, but data center, warehouse related to e-commerce, growth facilities, education, manufacturing, health care and retail were all strong points for us. Hotels are weaker. Replacement drove a lot of the demand in 2021, but new construction markets beginning to pick-up. Leading indicators, continue to point to a recovery in construction following the slow-2021 ABI, Dodge index, non-residential construction starts, all of these indicators are pointing positively. So the mid-positive of the quarter was the backlog of the orders. Now let's talk about BasX Solutions acquisition products. That was our second big achievement. First acquisition of substantial size in 20 years, historically AAON has not been acquisitive at all. This was a real special deal for us. We think it will generate accelerated growth for AAON and very attractive returns for our shareholders. The 2.5 months that we've owned BasX have been extremely pleasing. You always through all the negotiations there were many metrics that BasX have projections on, some of which look pretty aspirational, I'm here to tell you they get every one of them right on the bull's eye of the target. I couldn't be more pleased. The collaboration with the BasX Group bringing some opportunities for AAON, expanded opportunities that they always knew were possible if we had that kind of a partner, they're materializing very quickly. Myself, and Dave Benson made a trip recently up into the Upper Midwest to visit with some sale channel partners and some of their end-user clients. And came away from there with some outstanding opportunities that hopefully, when we talk to you next time we'll be able to tell you a little bit about capitalizing on those opportunities. In October, we hosted a sales meeting in Dallas. We had of around 600 sales channel partners there. One of the things we did was we introduced a new state-of-the-art showroom trailers. Now other manufacturers have some showroom trailers, but none of them have anything at all like this. This thing is just outrageously wonderful. It has -- it's a Class 8 Truck which is great big, Kenworths Truck fill on a 53-foot trailer but it expands on both sides to make 1,000 square foot showroom when it's parked. It does this all with hydraulics very easy to do. It has a touch-screen in three segments total length of it I believe was about 26 feet. You can show three different films at the same time or one film across the whole day. I mean it's just wonderful. We've got virtual reality in there where we put the headsets on people and show them how to build a unit, flying through the laboratory, flying through the manufacturing plant in the process and just so many things that are just wonderful for people to see. We've got quite a bit of equipment in there. We've got controls that we build and our partial facility there. And it's booked up very nicely been traveling across the country since October, when we took possession of it, and continues to do that. And the reviews on it from a marketing standpoint are just wonderful. The game changing products that we introduced were we had told you earlier about probably configuration Water-Source Heat Pumps. So, we had a Water-Source Heat Pump the model name of it is EcoFit, because it is very, very efficient. The new model is called ProFit, because it is a professional manner, exactly replacing the majority of units that are out there. But it's very backwardly compatible. Reception from the sales channel partners has been great. Then we've talked a lot about decarbonization, so currently about 64% of all rooftop units manufactured in the world have gas heat. We believe that that trend will begin to reverse itself and that these units will become electric heat most efficient way to do that in a package rooftop units in a common application is air source heat pump. Now we've manufactured these for a very long time. But what we didn't have the capability of until recently was low ambience or cold climate capable units. We were, kind of, limited to around 25 or 30 degrees Fahrenheit being the low end of where the unit was effective. We've moved that down beyond zero, and have very nice efficiencies at zero-degree Fahrenheit. We're working towards lower than that even. So let's talk about our marketing efforts what we're doing. So historically AAON has not been all that focused on the marketing aspects. They've relied on the sales channel partners to have technical expertise to make the sale. And this is not changing in that regard, but we're giving them more support tools. That trailer I talked about is considerable. We're building a new customer experience center that going to be completed by the end of the year that we'll have a lot of dynamic features to show people why our fan system is better than most of our peers and systems, a lot of the energy efficiency things. And this new customer experience center will be conducted to and coupled to the Norman Asbjornson Innovation Center otherwise known as our laboratory. So we're going to invest more in marketing so that we can really get the story of what we're doing out there on a broader base. We're not the niche player we used to be. We are moving more mainstream. The order book supports that and I think it's time for us to get our marketing in accordance with that. So capital investments, we continue to invest in the company. Rebecca stated we've got a bucket of $100.4 million almost double what we spent in 2021. We intended to spend around $70 something million, but there was supply chain constraints, I mean some of the machinery we buy comes from Europe and didn't get here in time. It's coming in now but it just didn't make it on the 2021 side of the calendar measure. So we do have some carryover from last year, but we continue to invest considerably and maintenance CapEx is around $35 million. So the majority of it is growth related. We continue to target organic sales growth in the double digits for the next several years and we'll continue to invest in capacity to help service those bookings. So as you can tell we're very optimistic on the long-term. Unfortunately there's still some uncertainties in the near-term. Supply chain issues will ease some, but we're still not back to normal. This build -- well, this is still quite unclear. This is something we're constantly monitoring on a day-to-day basis. Inflation continues to be a challenge. Starting to see a little softer prices in steel but most everything else is up substantially, including components, raw materials, wages, freight, we initiated four price increases since the beginning of 2021, including the latest on January 1st. We also announced another price increase earlier today that will be effective on March 31. We'll continue to be disciplined with price and expect our margins to fully recover. This is something we're constantly monitoring. As you know, we don't provide earnings guidance, but I want to provide you with some information on how we're thinking about 2022. The following info will pertain to the legacy AAON business. For January 21 to January 22 we initiated four price increases across the board for cumulative 21%. In 2021, we only recognized about 5% of that. The rest of it was backlog, so it wasn't realized in 2021 but it is being realized now. So that will have us at double digits in 2022. The increase -- price increase that we announced today, will be a small benefit to 2022 really to catch us towards the end of the year. Mostly it will be a 2023 factor. Our unit volumes were down 2% in 2021 including a 6% reduction in our core rooftop units. So depending on construction constraints, which is a question mark, we should have a reasonably easy comp as far as volumes and the backlog is up big, we should see recovery in volume particularly in the second half of the year. There's no structural change in our gross margin. We're confident our gross margins will recover to our target of 30% plus. Question is timing. At this point in time, we estimate this will be sometime in the second half of the year. SG&A will be up this year, with earnings expected up our profit sharing expense will be up. Higher headcount wages will be the biggest driver but also things like depreciation and investments in technology will be driving this. Most years we'd expect a little leverage on SG&A but in this environment, we'd expect SG&A will be up similar to revenue growth. So for all info -- potential legacy into business -- legacy AAON business. As far as basics goes, in 2021 the business generated $80.7 million of revenue and $10 million of EBITDA. Basics is on somewhat similar footings as legacy AAON in the backlog and orders are up significantly, with supply chain issues have led to production constraints. Overall though, we're doing a great job of working through the issues. For 2022, we estimate basics will generate $95 million to $100 million of revenue and EBITDA margins will be up year-over-year. Based on the backlog though, we expect profits will be weighted towards the second half of the year. So overall, we have some macro issues we're dealing within the near-term but the long-term outlook is very positive. Before I take any questions, I'd like to thank all of our employees. 2021 was a difficult period with all the challenges we faced, including the issues related to pandemic. I'd also like to thank our channel partners. We value your business tremendously and will continue to support you. Lastly, I just want to mention we'll be attending the JPMorgan Industrial Conference in New York City on March 17 and the Sidoti Virtual Conference on March 23 and 24. I hope to see from the view of those events. But now, I'll open it up to questions.

Thank you. The floor is now open for questions-and-answers [Operator Instructions] Our first question is from Brent Thielman of D.A. Davidson. Brent, go ahead when you’re ready.

Thank you. Good afternoon.

Yes.

Yes. Maybe first it sounds like we've transitioned here into a period sort of December through February that hasn't seen the level of disruption you've seen before. Maybe you could just help us out with what's improved in particular in the supply chain, that's allowed you to pick up production rates? And what confidence you're getting from suppliers they can kind of meet the requirements medium and the short run?

Yes. Good question, Brent. So while we didn't have absolutism of any magnitude on our plant floors in Q4 due to coronavirus. Some of our suppliers did and some of it was in late Q3 when they were manufacturing components and things for us. So we really saw a huge took point in October. It began to improve a little bit in November and we were able to get some additional suppliers in place for some of these items. Those were fully in place and helped December a good bit; January, almost uninterrupted at all; February to this point, well today is the last day of the month uninterrupted. We do see some electronic components coming up but they're – we're managing real well around those. We got some equipment in place that helps down select alternative electronic components to put on those boards. And so they've been very nimble and very responsive. So like to say things have improved a lot. I don't know what this situation of Ukraine is going to do, I was reading earlier today that neon and palladium both of which are used in chip manufacturing, Ukraine is a huge supplier of those. And so – just the way this article talked, the electronic situation could get a little more challenging going forward. But right now I think we've seen a lot of improvements. We're in a much, much better place.

Okay. And would you expect to be able to run – I mean provided all that holds able to run off kind of all the remaining lower-priced backlog here in the first quarter or is there going to be some carryover in the second quarter as well.

So in December, well let's just kind of dissect October, November and December. October was built completely on backlog that was booked prior to the September first price increase of 2021. November was the same way. December, we began to see a little bit of that trickle onto the plant floor. In January, 76% of what we built had the September 1 price increase, which was 5%. So we had a 4% if you do that math, that'd be 4% better margin profile related to the price increase. February, Chris we're just finishing up today but the expectation was it would be built almost 100% on that 5% higher price backlog. So I think starting the year, like I said, we just nearly got all better quality backlog. And then the 8% that went into effect January 1, with the way things are flowing, I don't expect to reach that until probably the end of next quarter. So we will have at least 4% to 5% better margin profile capability related to that price increase from September 1. And most of the pricing we've got in place for this quarter and beginning next quarter was already captured. So I look for good margin improvement related to that higher priced backlog we're using now. But in addition to that we're producing at the rate that's the highest rates that we've ever produced at in both the [Technical Difficulty] factory and the Texas factory. I get a daily report on that and it's the highest numbers on a daily average that we've ever achieved and this is before we factor in the higher price. So it's volume improvement. So we're getting materials out there. We're getting units built. So we're going to perform a good bit better Q1. I think you're going to be very pleased what I'm seeing so far in Q1 unless something drastic happens related to this Ukraine situation next month. I think we're good. Going forward, we're not seeing anything significant, just a little mix here and there, but we're poised to do quite well. Basics is kind of dealing with the same situations. Most of their things are flowing much better now. But there's just not clarity on what else is going to happen to us longer term.

Yeah. Understood. Maybe last one for me and the organic bookings obviously super strong. I know one of the things you've talked about is, you've had more advantageous lead times perhaps versus some of your competition. I don't know if that still stands whether this is a function of just better confidence, Gary maybe among customers and the marketing efforts. Maybe if you could just dissect some of those things that are driving such a substantial gain there?

Sure. While our lead times went out just a little bit, we still have an advantageous position with that. But I think the improvements we've made in the sales channel, the support we've given them, the tools that we've given them are helping them become more effective. When I started here nearly six years ago, now running this place, we had regions that were very strong, but they were only a couple of them. We had multiple regions that were very weak relative to what the market capability was. Now the regions are fairly uniform in what they're doing and meeting our expectations, very significantly the Southeast which should have always been a top-performing region for AAON because it fit our equipment profile so well, it was a horrible performing region prior to me taken over. And some of the sales channel adjustments I made there with different sales channel partners have really some merit. They performed just outstanding in 2021 and beginning in 2022. So we have improved the sales channel. That's brought more business. Our lead times are certainly advantageous. Our -- the utilization of indoor air quality measures that have always been a hallmark for AAON are now more widely recognized throughout the market. So it's not just a specialty vertical that's looking to have that like it was at one point in time. Now it's more commonplace for people to ask for these things.

Very good. I'll get back in line. Thank you for taking the question.

Yes, thank you.

[Operator Instructions] I'll now open up our next question from Julio Romero from Sidoti & Company, LLC. Julio when you're ready, go ahead.

Great. Thanks. Good afternoon Gary and Rebecca. Just staying on the order training fee organic orders still very strong about historical trends, but it's down a bit sequentially at $177 million by my math, so slightly down sequentially from the last two quarters. Can you just talk about how orders are trending? And do you see organic order trends accelerating decelerating or steady going forward?

Well, first off since that price increase was January 1st, we always expect that there was some pull forward. And so we expect somewhere around 40 to 50 days thereafter to be a bit softer. We have been very pleasantly surprised. It is stress outstanding what's going on with bookings just outstanding. So, I would have to say that it's ever been as strong as it's been we really began this strength late first quarter a year ago. And one of the things that I'm looking at is trailing 12 months booking and the trailing 12-month booking continues to grow continues to grow. So, that's why I say it's he can fill that right now. Yes. So, when I look at trailing 12 months, I'm just really pleased with what I'm saying. It continues to go up.

Got it. Makes sense. And on that point about the price increases, you went announced today effective March 31st, can you talk about how much of a price increase that was and is it across the board for your products?

7% across the board.

Got it, that's helpful. Just switching gears to labor. You talked about increased wages, new hiring initiatives. Maybe just touch on how head count at Tulsa, Longview you are compared to last quarter?

Yes. Let me see if I can find -- every Tuesday I get headcount. So, let's see let me go back a few days. I'll get an updated headcount tomorrow. But in general I'd say versus last quarter were up slightly in Longview and up a little bit more than the Tulsa. Here it is right here. Let me list here. All right. So, we are up -- well they gave me a prior 12 months change. So, Oklahoma is up 11% and Texas up 17% over a year ago. Now, let me go back here. That's on 2/22. So, let me look at those headcounts real quick. All right. I got those and let me go back here to December 30th, yes, we were up 7% and 19% at that point in time versus a year before then. But in absolute headcount let's see here, 19.55 [ph] versus we're up about 25 people in Oklahoma over the last quarter. And we are at 30 people in Longview. So both of them on have grown headcount our turnover ratio in Oklahoma has gone down to just a wonderful, wonderful number. And so a lot of the things that our HR department with our new leadership put in place working with some of the individuals in plant management those are proven concepts well that Director of Manufacturing that was in Oklahoma that helped put all that together. January 1st, he became the Executive Vice President in Longview. So he carries some of those things down there where we've been using them a little bit, but not quite sternly, so he's taken those down there. Also some of our HR team from Oklahoma decided they wanted to do that Longview in Texas. And so they've gone down there. So we have a very uniform approach. So that's the result of it, Julio. We're growing both headcounts. And right now headcount is not our constraining factor, it remains materials and that's gotten better as well. So like you say, we're just doing a lot better now.

Got it. Appreciate the color. Good to hear about the retention rate improving. Just a quick clarification on the gross margin commentary. Gary, did you say you expect gross margin challenges in the first half, but should see the recovery to 30% in the second half?

Yes. I'm not going to call them challenges so much, but 30% is dead center bullseye. We give a 28% to 32% range. I think we're going to be within the range of the entire year, so far what I've seen every quarter is going to be in the range, but it's going to be strengthening throughout the year, so that -- on year-end I expect to be 30% plus on the total year. But quarter-by-quarter, I look forward to strengthen each quarter and a lot of this is due to price increase coming on board offsetting more able the pricing pressures, so price cost ratios are going to be better. But in addition to that, we've really got production side of the business streamlined very well, very confident management that's now quite veteran at this. And I just see improving production. Each day that goes by production seems to grow just a bit more. So, I'm very pleased with how we'll be absorbing fixed costs better.

Great. Thanks very much for taking the questions and best of luck in 2022.

Thank you, Julio.

Great. So that appears to be all the questions we have for today. Presenters, if you have any final remarks?

I think we're all set, Andrea. Thank you.

Perfect. Well, thank you so much. This concludes today's event. You may now disconnect. Have a great day.

All right. Thank you. See you all.