L.B. Foster Company (FSTR) Q1 2021 Earnings Report, Transcript and Summary

Good day and thank you for standing by, and welcome to the Q1 2021 L.B. Foster Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to turn the call over to your host Stephanie Listwak. You may begin.

Thank you, operator. Good morning everyone and welcome to the L.B. Foster’s first quarter 2021 earnings call. My name is Stephanie Listwak, the company’s Investor Relations Manager. Our President and CEO, Bob Bauer; and our Chief Financial Officer, Bill Thalman will be presenting our first quarter operating results, market outlook, and business developments this morning. Also joining us on the call are John Kasel, our Chief Operating Officer; and Jim Kempton, our company’s Corporate Controller and Principal Accounting Officer Bob will be making some opening comments, and then Bill will review the company's first quarter financial results. Afterward, Bob will provide his perspective on the company's first quarter performance, and we'll update you on significant business matters and market development. We will then open the session up for questions. Today's slide presentation along with our earnings release and financial disclosures were posted on our website yesterday evening, and can be accessed on our Investor Relations page at lbfoster.com. In a change from past practice, our comments this morning will follow the slides in the earnings presentation. Some statements we are making are forward-looking and represent our current view of our markets and business today, including comments related to COVID-19. These forward looking statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise or publicly release the results of any revisions to these statements in-light of new information, except as required by securities laws. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and presentation. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables provided within today's earnings release and within our company earnings presentation carefully as you consider these metrics. For the purpose of helping you understand the underlying performance of the company, we will be referring to adjusted EBITDA, adjusted net income, adjusted diluted EPS, net debt, net leverage ratio, and free cash flow yield during the presentation today. While we did not have any adjustments to EBITDA, net income or diluted EPS during the first quarter of 2021, [historic periods] referred to in the presentation today have been adjusted, as reflected in the reconciliation tables included in the appendix to the earnings presentation. Additionally, in September of 2020, we announced the equity sale of our IOS Test and Inspection Services Division. As a result of this divestiture, we have presented the Test and Inspection Services business as a discontinued operation in the first quarter financial statements, including within the earnings release and presentation and have recast prior periods to reflect this change. The comments today will be focused on our results who continuing operation. So, with that, let me turn the call over to Bob for some opening remarks.

Thank you, Stephanie. I'm going to take a few minutes to walk through some highlights before turning it over to Bill to cover their financial summary. If you're following along with our presentation, I'll be starting on Page 4 with the quarterly results. The first quarter was generally in line with our expectations with revenue of $116 million. There are three messages you'll hear the most about that had the greatest impact on our Q1 results. First, the quarter experienced typical seasonality with very low volume in January and February, and then finished strong with a considerable rise in sales in March. 47% of the Q1 sales came in March, which is also a confidence builder for the anticipated rise in sales expected in the second quarter, which I'll speak to later. Second, we had some deliveries that were interrupted by weather and ongoing pandemic related disruption that kept more backlog from converting to sales. These are some of the same pandemic related struggles we've had for the last few quarters, most notably in Europe, and across our service related businesses. We believe this environment is about to get a lot better, especially in North America and the United Kingdom. And third, the continuing weakness in our coatings and measurement business is primarily what led to the year-over-year decline in sales in gross profit and in earnings. Sales in these divisions declined $13 million from last year, which drove all of the year-over-year consolidated sales decline, as the rest of the company was up 7.4% year-over-year in sales, which speaks to the resiliency and strength in the majority of our other businesses. The pressure on margins from the coatings and measurement weakness is what drove the year-over-year decline in consolidated gross margins, while the rest of the businesses performed reasonably well, with gross margins that were only 20 basis points below prior year. A similar story applies to our consolidated orders, which increased 3.7% over prior year, driven by the fact that non-energy market orders increased by 6% over last year, and this led to our third straight quarter of sequentially increasing backlog, which rose 24 million sequentially in the quarter. And that's a 15% increase over prior year. So, we have a solid 272 million backlog to start the second quarter, and an equally good outlook will describe throughout the call. We also had a really good quarter for cash flow, we managed to generate cash from working capital performance, and we kept inventory levels just about flat from the start of the year. Debt also declined in the quarter, our balance sheet continues to look strong, and Bill will comment more on cash flow and our balance sheet and liquidity in his remarks. So, we're looking forward to the second quarter, which will start with a strong backlog and a more optimistic outlook based on changing market conditions. Let me comment on these market conditions. In rail, there are encouraging signs of passenger traffic increasing in many world markets and freight traffic is also strengthening in both commodities and intermodal sectors, excluding some of the weather-related delays that were experienced in the U.S. in the first quarter. Our friction management consumables sales increased in Q1, which is a traffic sensitive product and a good indicator that customers are experiencing or anticipating volume increases. In addition, there's a lot of support for infrastructure projects in the U.S. from recently funded bills that include rail projects, as well as general infrastructure projects. And we expect much less pandemic-related disruption on construction projects. The recent report card on America's infrastructure by the Association of civil engineers highlighted the need to spend significant money in general infrastructure in areas where L.B. Foster can benefit. So, overall, our served markets look pretty good, other than the midstream energy pipeline market, which is expected to defer capital projects for the foreseeable future, given the current capacity outlook. However, I expect we may begin to see some improvement in the energy pipeline area as the year unfolds, given the very low volume levels for the last few quarters. So, when we combine this outlook with our strong backlog, it has led us to describe a second quarter where we expect a significant increase in volume over the first quarter, which I'll expand on more after bill makes his remarks. So at this point, we'll turn the call over to Bill.

Thanks, Bob and good morning everyone. My opening comments will cover our key financial results in the quarter reflected on Page 7 of the presentation. As Bob mentioned, the first quarter has historically been our softest quarter due to seasonality effects in several of our divisions. However, we are encouraged by some of the improvements that developed in the quarter. First quarter sales were 116.1 million, compared to 121.9 million in the first quarter last year, a $5.8 million decrease or 4.8%. Consolidated gross profit decreased $4.3 million from the prior year quarter and the 16.2% gross profit margin was down 280 basis points year-over-year. I'll provide some additional color on segment sales and gross profit in a minute. Our selling and administrative expenses in the first quarter were $18 million, a decrease of 2.3 million or 11.4%. The decrease was primarily driven by a $1.8 million reduction in personnel related costs, including travel expenses. Selling and administrative expenses as a percentage of net sales decreased to 15.5%, an improvement of 120 basis points versus the prior year quarter. First quarter net loss from continuing operations was 1.3 million, representing a $0.12 per diluted share, compared to a negligible net loss from continuing operations last year, resulting in no earnings per diluted share in the prior year quarter. Adjusted net loss from continuing operations for the quarter was also 1.3 million or $0.12 per diluted share. This was a reduction of $1.8 million versus last year's comparable result of $500,000 or $0.05 per diluted share. Adjusted EBITDA totaled $2.7 million in the first quarter, a $2.1 million decrease versus last year, with a decline driven by lower gross profit in the infrastructure solutions segment, partially offset by lower selling and administrative expenses. Operating cash flow performance was very strong during the quarter at 7.6 million, a $12.5 million increase year-over-year. Order activity also increased year-over-year producing 135.6 million in new orders in the first quarter, helping to drive a backlog of 271.9 million at quarter-end. I'll provide additional details on cash flow, orders, and backlog in a few minutes, but first I'll cover segment revenue and gross profit reflected on Slide number 8. While revenue was down in both segments year-over-year, the decline in gross profit was driven entirely by the infrastructure solutions segment. Rail segment revenue was down $4 million year-over-year, with a decline attributable to the rail products unit, which was impacted by timing of deliveries and customer delays, including certain orders that didn't ship due to poor weather. Despite the revenue decline year-over-year, rail segment gross profit increased by $300,000, resulting in a 150 basis point improvement in gross profit margin. The improved gross profit margin was due primarily to increases in friction management consumable sales within the rail technologies business. As Bob touched on earlier, the underlying business line performance within infrastructure solutions varied significantly. So, I'll unpack these results in a bit more detail. Slide 9 provides a breakdown of the infrastructure sales and gross profit with the year-over-year impact of each business unit highlighted. Infrastructure Solutions revenue was down 1.9 million with a decline wholly attributable to the coatings and measurement business unit, which continues to face a challenging environment in the midstream energy market due to excess capacity. Partially offsetting this decline was a substantial increase in revenue in both fabricated steel and precast concrete business lines. Revenues have increased in these units as demand has improved with greater activity in general infrastructure projects. It should be noted that the Boise facility was fully operational in the first quarter of 2021. Recall last year that the facility was in startup mode after its relocation from Spokane. While precast concrete gross profit more than doubled year-over-year on increased volume coupled with the stabilization of our Boise facility, Infrastructure Solutions overall gross profit declined 4.6 million, with the decline driven primarily by lower revenues in the coatings and measurement business line. In addition, despite the increased revenue year-over-year, fabricated steel products gross profit was down due to unfavorable sales mix and temporary cost headwinds. Infrastructure solutions gross profit margin was down 850 basis points year-over-year. I'll now cover segment orders on Slide number 10. Consolidated orders in Q1 were 135.6 million, compared to 130.8 million last year, with the increase driven by our infrastructure solutions segment. Order activity was also up sequentially, with new orders in Q1 increasing 1.2 million over Q4 of 2020. The growth in the infrastructure solutions order activity was favorably impacted by robust demand in the precast concrete business line, both on a year-over-year and sequential basis. Our book-to-bill ratios continue to trend favorably with a consolidated ratio of 1.09 for the trailing 12-month period, driven primarily by Infrastructure Solutions at 1.11. Turning to Slide number 11, as noted on my opening slide, we had a strong cash flow generation in the quarter with 7.6 million of operating cash flow and an improvement of 12.5 million versus last year's 4.9 million operating use of cash. The primary driver of the year-over-year improvement was a decrease in working capital investment in this year's first quarter. Our trade working capital decreased 11.9 million in this year's first quarter, due primarily to increases in accounts payable of 11.4 million and deferred revenue of 8.2 million, partially offset by increased accounts receivable of 7.2 million. The significant increase in deferred revenues, which more than doubled in the quarter was primarily driven by the receipt of several significant advanced project payments collected in both segments. Our strong operating cash flow performance in the quarter resulted in operating cash flow from continuing operations of 33.1 million for the trailing 12-month period. Capital spending during this period totaled 7.7 million, resulting in free cash flow of 25.4 million. Based on our closing stock price of $17.90 per share at quarter-end, our implied free cash flow yield was 13.4% for the trailing 12-month period, up substantially from both 2020 and 2019. During the first quarter, our capital expenditures were 1.3 million, with the spending primarily related to the expansion of our precast concrete business in line in Texas. We also had modest spending for our ongoing SAP implementation as we continue to progress toward retiring two of our legacy ERP systems. We estimate the total capital expenditures in 2021 will be in the range of $6 million to $8 million in line with our capital light business model. We believe our free cash flow generation over the last two years highlights our ability to proactively manage our business during challenging times. Referring to our liquidity on Page number 12, total available funding capacity defined as available capacity under our revolving credit facility, plus our cash was 82.6 million at quarter-end. Our net debt was 31.8 million on March 31, 2021, down $26 million versus the end of Q1 last year, resulting in an adjusted net leverage ratio of 1.1 for the trailing 12-month period. We’re very pleased with continuing to [delever] during the quarter, reducing our net debt by $5.7 million. This was achieved in a quarter when we typically see our debt levels increase due to working capital needs. Page 13 reflects our adjusted net leverage ratio over the last four years. Over this time, we've strengthened our balance sheet and overall financial flexibility by systematically paying down debt, including during the height of the pandemic last year. Our strong financial condition coupled with our demonstrated ability to generate significant free cash flow positions us well to take advantage of improving market conditions and business opportunities. We're anticipating further debt reduction during 2021, based on our assumption that we will see a reasonable recovery throughout this year. With no new restrictions related to the pandemic and improving end market conditions. We're still anticipating approximately $9 million of income tax refunds this year, with 500,000 already received in the first quarter. These refunds coupled with the free cash flow that we typically generate should allow us to continue to drive down debt this year. Having said that, we do expect to increase working capital investment in our second quarter as we anticipate an improved commercial outlook exiting Q1. We'll continue to assess our opportunities for selected bolt-on acquisitions and the Rail Technology’s and precast concrete markets, however, it's unlikely we'll complete any significant M&A transactions this year. My final comments are on the backlog reflected on Page 14. Consolidated backlog stood at 271.9 million at the end of the first quarter, an increase of $34.7 million, or 14.6%, compared to March 31, 2020. This also represents a sequential increase of 23.7 million or 9.6% from December 31, 2020. With the increase in activity we saw in March, we believe we're beginning to see projects move forward and anticipate an improvement in the pace of backlog conversion in the second quarter. Thank you for your attention. And I'll now turn it back to Bob for some additional perspective on our outlook.

Alright, thanks, Bill. So, I'm going to focus on our outlook for the coming quarter and beyond. And the best way to start is to build up on what Bill just said about our backlog position. On Page 16 of our exhibit package, you'll see how the 15% increase in backlog is spread across both reporting segments, each one increasing double-digits over last year, a solid 12% increase for rail and a 17% increase for infrastructure solutions, which is driven by a 40% rise from the fabricated steel and precast concrete divisions, both of which increased approximately $20 million. This really highlights the strengths outside of the energy markets. The strength is coming from orders related to heavy civil projects, transportation related projects, including bridge decking, reconstruction, residential construction, and rail projects that deliver supply chain efficiency, and improved mobility. Looking forward, we believe the company is well-positioned to benefit from post pandemic trends and the need for further infrastructure investment that addresses systems that are in need of repair or modernization. Among the key trends supporting a positive outlook for the rail industry are the need to modernize mass transit systems, the need for more efficient supply chains, including heavy freight and intermodal that supports an online sales economy, the benefit that rail brings from lower fuel consumption per ton of freight moved with less impact from emissions compared to alternative forms of transport, and the reduced emissions from transit rail systems, which are recognized as an environmentally cleaner way to move people through congested cities. In the U.S., ridership levels on rail are back to about 35% of pre-pandemic levels, and they're rising. In the UK, they haven't rebounded as much as restrictions remain in place, but that's expected to begin changing in the second quarter. In addition, transit rail was among the sectors receiving funding from recently passed legislation in the U.S. More than $80 billion was passed recently, including the CARES Act, the Consolidated Appropriations Act, and the American Rescue Act to support transit rail. Similar actions are being taken by certain European countries to provide some form of backstop funding for their rail transit agencies, especially in the UK, which is important to us. Class one freight railroads in the U.S. have been reporting improving traffic since last year, and they are forecasting an increase in CapEx in 2021 by at least 4% with a focus on intermodal growth and technology to improve efficiency and on time delivery. And this all bodes well for us. If you haven't seen the report card from the American Society of Civil Engineers on U.S. infrastructure, it's worth taking a look at. It had several recommendations on the need for increased spending needed to improve a number of infrastructure categories that we could benefit from. For example, the report card suggested that a 58% increase in annual spending on the nation's bridges is needed to catch up to the $125 billion backlog of mainly structurally deficient or obsolete bridges. And this is good for our fabricated steel businesses. The report can be found at infrastructurereportcard.org. It gives a C- Grade to America's infrastructure that goes well beyond roads and bridges. There's 18 categories in the report covering areas such as waterways, ports, stormwater, and wastewater, levees, freight and transit rails, public parks and more, many of these applications where our solutions are sold. So, looking at some of the new legislation that has gone through, it's outlined on Page 18 of our charts, the Great American Outdoors Act was already passed in the U.S. providing 1.9 billion annually in spending for U.S. national parks to address deferred maintenance and other infrastructure needs. These parks are key destinations for our precast concrete buildings. The last two U.S. bills passed around COVID relief provided much needed support for transit rail agencies. Together, the bills provided transit rail support in the neighborhood of $50 billion, including dedicated Amtrak funds. There's an additional 87 billion headed to the Department of Transportation for other non-rail transportation programs. And should the American Jobs Act be passed later this year, we would expect momentum to build further around transportation in general infrastructure projects. Keep in mind that we're not likely to see that much impact in 2021 as many of these programs will take some time to get through the design phase. However, I would expect a portion to be directed towards some immediate needs, as well as current projects that may not be adequately funded. We're not in a position to size the impact from this proposal yet, but it should provide a tailwind and boost our growth rate depending on where the specific spending is targeted if it's approved. We're not forecasting a return to pre-pandemic levels from our coatings and measurement business anytime soon, although orders for the divisions in the business group did rise over the fourth quarter. Last quarter, I mentioned that orders for the group fell to a low point $6 million. This quarter, they were 10 million. That's obviously a little better, but it's a long way from the $20 million to $30 million per quarter order pace we were once on. This could be a sign that we may have reached the trough, and we are seeing new projects being planned again by midstream pipeline operators. There's clearly still an atmosphere of proceeding with caution. But as travel resumes, and demand improves further for oil, the energy pipeline sector should improve from current levels. So, let me finish up with market outlook on Page 19, and talk a little bit about how all of this activity combined to generate a positive outlook and more specifically, how do we see the second quarter unfolding. Customer schedules for the second quarter coupled with the rate of vaccinations and expected easing of COVID-related restrictions in our major served markets gives us confidence that we are going to convert more of our backlog to sales. We’re expecting an improved environment for onsite services work and much less disruption on construction projects. The combination of an improving market outlook less disruption from COVID and a strong backlog has led us to forecast a sequential increase in second quarter sales of 20% or more. This takes into account the continued deferral of energy pipeline projects. If coatings and measurement divisions remain weak, this is expected to keep some pressure on profit margins, although we still expect gross profit to improve sequentially in Q2 with solid leverage from the added volume over the first quarter. We have had a sharp focus on expenses for a year now and that carried into Q1 results. We will likely see some increase in spending as travel resumes and other customer facing expenses rise on a return to normalcy, but this isn't expected to have an unfavorable impact on operating margins. Finally, the outlook for our cash flow this year continues to look good. We're expecting a significant tax refund, as Bill mentioned. Working capital performance is off to a good start. And capital spending still looks favorable to last year. So, with that, I'm going to wrap up my comments. We very much appreciate everybody joining us on the call today. And we're going to return the call back to the operator and we'll be happy to take any questions you might have.

Sorry about that. Good morning, guys.

Hey, good morning Alex.

Couple quick questions. As revenues rebound, can you discuss the variables that will impact SG&A over the next few quarters?

Yeah. I would say the first thing that we'll point to, is, you know what I mentioned as a bit of a return to normalcy for our business, as our sales people move about a little bit more than they have over the last year, as some business travel resumes. We don't have too much that will be connected to revenue, you know, I think as you've followed us over the years, you know, when our sales start to increase we can leverage SG&A fairly well. I mean, some of it will move with volume, but it is likely to move a little bit more just as business activity rises. And we have pretty reasonable control over that. So, as conditions improve in the marketplace, you know, we expect to start to loosen up some of what we have in the expense area, but it's largely in the effort to get out there and interface more with customers.

And then, secondly, very solid backlog at the end of the quarter. So, I totally appreciate and understand the improved confidence and visibility into revenue in the second quarter. Does that improve confidence also carry over into the order activity in second quarter, in third quarter that you see developing out there in the marketplace?

Yeah, generally, I would say the same thing. Being, you know, this backlog has been strong now for a few quarters, right. So, third straight quarter of sequential increase, and that's driven, you know, a lot by orders staying at a pretty good level. But everything that we see in terms of spending on the part of freight rail companies looks like it's going up. Transit rail projects continue to stay on the drawing board. They've been funded, in some cases for a couple of years with some of the support that they've received. That's largely a U.S. environment, but we see the same thing in key European markets. And you know, when you take a look at what's driven, the backlog of Infrastructure Solutions, you know, ex- energy, so our fabricated steel business and precast concrete business, I mean, that's really strong orders that have been behind that, that has driven that backlog up, you know, some 40% in those categories. So, everything looks looked pretty good for those. So, I would anticipate, you know, a second and third quarter kind of orders when we normally see pretty good order activity, to generally be, you know, in-line with the outlook that we talked about. And then as we get toward the end of the year, we'll always, you know, look at whether or not there's going to be typical seasonality in the fourth quarter. That wouldn't be unusual, but I'm not sure this year is going to unfold in a typical manner. We're anxious to see how strong this market in the economy is. And I think it’s a little hard to gauge still right now as to how the second half might unfold, you know, from an order standpoint.

Very helpful. Thank you.

Yeah.

Our next question comes from John Bair with Ascend Wealth Advisors.

Hello, good morning.

Hello, John.

Hi, how are you all doing?

Doing good. Thanks.

Good. A number of my questions, I think you addressed somewhat, just what – one of them which was about the tax refund, you said you got 500,000 in the first quarter, is there any, what is the sequence of what triggers that refund coming back? In other words, is it going to be, kind of a [indiscernible] type situation or might you get a big lump sum? And how does that work?

Yeah. John, this is Bill. Maybe I'll take that. So, as I indicated in my comments, we're expecting about $9 million to be recovered in the fiscal year. It's a combination of procedures, some is carrying back on amended tax returns, and then there's other adjustments, and other filings that we have to make that will result in it being a [indiscernible] recovery. We got a half a million dollars in Q1. We're anticipating about half of the remaining amount in Q2, towards the end of Q2, and then the balance would be expected either at the end of Q3, or early Q4. And a lot of it, frankly, has to do with the processing capacity that they have in the IRS to get through the paper, it actually has to be a paper filing. So, they have to get through that filing and then, you know, we expect to get the refunds once they're processed. So, you know, we're still expecting about half of that back remaining balance at the end of Q2, and then the residual towards the end of Q3 early Q4, but certainly all within fiscal year 2021.

Okay. And is that part of the – I was reading in the Q from previous quarter, there was something about net operating loss cap lifted, is that in combination with this to get you to the 9 million roughly?

Yeah. This has to do with the IOS divestiture and our ability to go back and recoup payments that were made in the past by carrying back operating losses that allow us to recover that tax. And then, you know, going forward, obviously, we still have additional NOLs available to us, which will also help to temper cash taxes on a go forward basis. So, there's some that's real cash that we can get immediately, as well as reduction of future tax burden because of the NOLs that are available.

Okay. Very good. So, 9 million is, kind of your cap, right? I mean, that's not above and beyond that. It’s not two separate situations there, right?

No. 9 million is the amount that we're recovering. And Jim Kempton here, our controller raises a good point. The CARES Act is one of the things that allows us to go back and secure a greater refund this year.

Okay. And that must be what I was reading in the filing, past filing. Okay. And would those funds then be used to further reduce debt? Do you think or a combination of debt and working capital or what's your game plan on that?

Yeah. So, from a timing point of view, you know, we expect to get a portion of that refund this quarter. And that will be used to pay down debt. I did say in my prepared remarks that the second quarter, we anticipate that being a working capital needs to increase given the improvement in the commercial outlook that we're seeing for the second quarter and going in beyond the second quarter. So, there'll be a working capital investment in Q2 that will net via use of cash within the quarter, but ultimately, for the full fiscal year, we fully anticipate to be able to generate cash through our normal free cash flow generation, coupled with the $9 million in refund that we expect we should be able to pay down debt within the fiscal year with a combination of those factors.

All right. Okay. Very good. I've got a number of other questions. I'll ask one more, and then I'll jump back into queue, in case somebody else is coming in. Can you speak to what you're seeing in the raw material cost side of things, I know cement price is going up, and certainly a lot of demand for commodities in general, so could you speak to that?

Yeah. I'll take that John. You know, there are certainly some prices rising in the marketplace in our particular category. You know, there are rising steel prices that we see out in the market. You know, that's both an input cost for us on certain manufactured products that we have, but also in our distribution businesses. We manage movements and steel prices all the time, and in our distribution businesses, the key is to always maintain the spread for our gross margins in that area. And so that's what we do, whether the prices are moving up in the market or whether they're moving downward. So, there's not really in our opinion, going to be any significant material impact to talk about in our distribution businesses, because of rising steel prices. And then where they are input costs, on some of our fabricated – other fabricated steel businesses, you know, we wind up managing those with our suppliers, we put index pricing from time-to-time in certain projects that we bid in the marketplace. So, we take out in our purchase orders, there's from time-to-time indexes that will allow us to change the pricing going forward. That's the most significant one that that we manage. And I would say that the summary on that is that, you know, at the moment, this is not something that is creating margin compression for us, but it is something that we're going to be watching very carefully. When you look across at the rest of our materials, you know, in the area of things such as precast concrete, other materials that go into some of our rail products. And even in the area of electronics for certain condition monitoring products that we might have or other rail technologies and our friction management product line too is a significant product line, there isn't significant inflation in those areas right now. We're not sourcing much from other parts of the world in some of those things. I mean, there are a few components that are an exception to that, but by and large, we're not seeing significant inflation. There are some lead times that are going out, but you know, not something that we’d point to that at the moment concerns us from an inflationary standpoint.

Okay, that's great. I'll get back in the queue and get back in. That's great. Otherwise, maybe I'll catch up you all offline then. Okay. Thanks.

[Operator Instructions] And I'm not showing any further questions at this time. I like to turn the call back over to Bob for any closing remarks.

No worries. Well, I thought maybe John to jump back in there. But if not, John, you can always reach out to us. We'll be happy to take any questions you might have, you know, in a follow up conversation. So, thanks for everyone for…

[Indiscernible]

Yeah. Thank you. I just thought maybe somebody else was going to kick in there. So, one of the questions – another question I had was, you indicated pretty – in your press release real strong improvement in March of, I believe it was new orders coming in. I was wondering how much if you had much of an impact on, you know, the freeze and the weather related stuff in the, you know, that was going on that differed perhaps at the time, and that's kicked in and actually whether or not the impact of those storms on rail systems and so forth, may have been ended up being a benefit with repair type or upgrades or whatever, are you seeing any sense that that might have helped out?

Yeah, so I'll take those in two parts. So, what we said in the press release was actually about sales, not orders. Our comment in there was that 47% of the sales in the first quarter came in March and we normally look to turn the corner somewhere around that timeframe with our seasonality and begin to ramp up in the – for the second quarter. But sales, the 116 million of sales we had in Q1 in our opinion would have been higher had we not had a few deliveries impacted by weather. That was, you know, it impacted us on delivery of some of our new rail products, some of our precast concrete products. We do have some significant operations in Texas, both in the kind of the Dallas and the Houston area, and those operations were significantly affected by weather during the ice storm that was there. So, we lost a number of production days in those operations, and that would have helped us, I think, move a little bit more of the backlog out in Q1. So, some of that is, you know, moving into the second quarter. With regard to the second part of your question on upgrades, I don't think that we can probably point to anything significant there. You know, the weather impact – for us, when it comes to weather and you look at the rails they really know how to take care of things in bad weather, we don't typically get orders on on-site services. We do need to make sure that our friction management equipment is working out there, and we have service contracts to do those sorts of things. But it doesn't resolve in really extra work from a services standpoint. And then in the construction, you know kind of project areas for us, that’s not really much of a service business model. You know, weather tends to stop those things from moving forward, as opposed to give us any, you know, kind of added service activity. So, there's really nothing to speak of there in the way of upgrades.

Okay, very good. With regards to the coding and measurement area, roughly what would you say the breakout of your percentage of sales that goes to the oil and gas pipeline midstream versus other areas, for example, in a water infrastructure? And do you see a way going forward where perhaps you have more opportunity in the latter, those given the, you know, difficulties that the energy markets have been experiencing, and obviously the administration and others objection to expanding pipelines throughout the United States, but certainly got to be some repair and upgrades there as well. So, I don't know how much that might affect you positively.

Yeah. So, when you look at what we report under coatings and measurement, and you know, as you look through our Q’s and K’s, you'll see coatings and measurement in there, where we report sales. Far and away, the majority of that is going into the energy industry, the large majority being midstream pipeline applications. So, we're either putting corrosive coatings on pipes that are going into the ground, or we're building measurement systems. And there are some other business work and [now] coatings and measurement, you know, business group as well, but far and away the majority is in the oil and gas or energy segment. And you know, when I say far and away, the majority, I mean you're typically going to look at, say more than 80%. I'm going to ballpark that, but when I say, you know more than 80% of the sales are typically going to be going into energy related infrastructure.

Well, do you see opportunity or are you looking at ways to expand that operation into other markets? I.e. like, you know, water related or is that even applicable? I mean…

No, it is. We are looking at those, but I would tell you that, you know that we're early in those stages, particularly you know, it's suitable for a small portion of our protective coatings business, as well as our measurement systems. You know, we also have a portion of some of those sales and those product lines that actually go into the agricultural market as well. But I think, you know, we're in the real early innings of trying to establish a more significant position in markets, you know, [like water] or even other applications in gas. There are some petrochemical applications that, you know, we haven't served in the past. And that's still energy, you know, both of those energy related, but they are applications that are beyond what we have traditionally served in the form of the liquids market, you know, in oil and gas. You know, we think there's going to be continued investment we think and natural gas liquids. We're actually seeing some activity right now increased activity, you know, with regard to the need to support more capacity for NGLs and getting those NGLs from out of the ground and to the petrochemical facilities, you know, and we're exporting NGLs these days. So, the more there is of an export market, the more we continue to push gas, you know, these are applications that we still have an opportunity to expand into, but what you know, water will be another one of those markets, but I would say it's kind of early right now. You know, and that's not going to have a meaning – that meaningful have an impact, you know, in 2021.

Right. I'm thinking longer-term there. And certainly the water infrastructure has a great need for upgrades, whether it's removing lead pipe type stuff or whatever. So, anyways, very good. I will cut it off there and reach out to you offline. Thank you very much for taking my questions and your time.

Thank you, John.

Thank you.

And I'm not showing any further questions. I'll turn it back over to Bob.

Alright, Kevin, thank you. Appreciate you handling the call for us today. Thanks to everyone for joining in. We appreciate your time and we look forward to catching up with you next quarter.

Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.