Greetings, and welcome to Enerpac Tool Group First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Bobbi Belstner. Please go ahead.

Thank you, Operator. Good morning, and thank you for joining us for Enerpac Tool Group’s first quarter fiscal '21 earnings conference call. On the call today to present the company's results are Randy Baker, President and Chief Executive Officer; Rick Dillon, Chief Financial Officer; and Jeff Schmaling, Chief Operating Officer. Also with us are Barb Bolens, Chief Strategy Officer; Fab Rasetti, General Counsel; and Bryan Johnson, Chief Accounting Officer. Our earnings release and slide presentation for today's call are available on our website at enerpactoolgroup.com in the Investor section. We are also recording this call and we'll archive it on our website. During today's call, we will reference non-GAAP measures, such as adjusted profit margins and adjusted earnings. You can find a reconciliation of non-GAAP to GAAP measures in the schedules to this morning's release. We also would like to remind you that we will be making statements in today's call and presentation that are not historical facts and are considered forward-looking statements. We are making those statements pursuant to the Safe Harbor provisions of federal securities laws. Please see our SEC filings for the risks and other factors that may cause actual results to differ materially from forecasts, anticipated results or other forward-looking statements. Consistent with how we have conducted prior calls, we ask that you follow our one question one follow-up practice in order to keep today’s call to an hour, and also allow us to address questions from as many participants as possible. Thank you in advance for your co-operation. Now, I will turn the call over to Randy.

Thanks, Bobbi, and good morning, everybody. I hope everybody is safe and healthy and getting ready for a great holiday week here. We're going to start today on Slide 3, but before we review the details on the quarter, I'd like to go over the status of Enerpac and how the state of the world is affecting us. Starting with health and safety, Enerpac continues to operate under essential worker status. We have approximately 40% of our employees working from home offices, while only mandatory personnel are on sites. The increased infection rates has caused concerns in North America and other countries, which facilitated our heightened safety measures. Our objective remains keeping all of our employees’ safe and providing the best possible work environment. During the quarter we experienced two quarantine events requiring partial production stoppage at two locations affecting both, Enerpac and Cortland. Our screening processes coupled with contact tracing were successful in avoiding a full site quarantine, and lowered the impact to both production and sales. Additionally, our sales and marketing teams around the world are continuing our cautious approach to customer visits, while actively promoting Enerpac tools. Moving on to a more positive side, Enerpac Tool Group improved sequentially versus our fourth quarter of fiscal 2020. All aspects, including sales, profits, incremental margins and cash improved and further supports the quality of Enerpac’s earnings potential. Our swift actions to control cost and drive decremental margins beat our expectations. Secondly, our focus on working capital has delivered positive cash flow, which is typically not the case in our first quarter. We remain very focused on executing our strategy and protecting the key elements of our organic growth to ensure our company is healthy post-pandemic. It's critical to our management team that we continue to deliver great new products…

Okay. Thanks, Randy. I'd like to add some color on what we saw in the quarter in our various regions, trends in some of our key verticals, as well as what we're hearing from our distribution. I'll also touch a little bit on order rates, as well as a few notes on our operations. As we go through the region results, you're going to hear varying degrees of recovery by region. I want you to think as, as you think about the speed of the recovery, please keep in mind that a significant portion of our business comes from the heavy industrial laneway, while we are seeing improvement in that sector, it's clear that these markets and end users have been slower to recover than the consumer and commercial markets that many of our tool peers play and much more heavily. Starting on Slide 6, we're happy to see continued stabilization in both product and service sales in Q1, compared to the previous two quarters. Despite still being down year-over-year, we're really pleased to see continued momentum as the quarter progressed, which culminated in a very strong November in both sales and orders. From a regional perspective, Europe was our first region to return to positive growth year-over-year, which was led by strong sales in our heavy lift business and a recovery in orders from our general distribution network. Continued investment in wind energy is helping us drive sales in both our torque and tension business, as well as some of the heavy lift products that should carry some repeat potential as some of our solutions become more widely adopted. Despite some recent announcement about additional COVID actions in Germany, the UK and the Netherlands, and a continued overall cautious approach by most other countries in Europe, our distributors and…

Thanks, Jeff. So you just heard Randy and Jeff discuss most of this, but I'll give a quick update here on Slide 8. Fiscal 2021 first quarter sales increased by 7% when compared to the fourth quarter of fiscal 2020, and were down 19% from the prior year. Core tools product sales were down 14%, an improvement from down 20% in the fourth quarter. Service was down 24% compared to down 45% in the fourth quarter, and Cortland’s sales were down 35% or $4 million versus down 39% in the fourth quarter. We had a $2 million positive impact from our HTL acquisition consistent with the fourth quarter. The adjusted EBITDA margin for the quarter was 12% and that's up 300 basis points from the fourth quarter, and down slightly from that 13% reported in the prior year. The adjusted tax rate for the quarter was 31%, which is up significantly from the prior year of 12%, and it was impacted by a $3 million tax benefit from new regulations during the prior year quarter. As a reminder, we have included in the appendix some baseline fiscal '21 modeling assumptions on the tax rate, cash taxes, depreciation and amortization and interest expense and CapEx based on what we know today. And there you'll see that the adjusted tax rate assumption for the year is still 25%. So let's turn to Slide 9, the sales waterfall illustrates the components of the sales decline. Jeff already covered what we're seeing by region, but I'll just make a few comments here. I remind everyone that the first and second quarter are seasonally our lowest two quarters, with the second quarter being the lowest. As we look at the recovery, sequential improvement from our fourth quarter results in these two quarters are clear indicators…

Thanks a lot, Rick. Let's turn over to Slide 12. Timing of the pandemic recovery is the most critical question we have to contend with today. As you've seen today, Enerpac's sequential order aids have improved, but we are still navigating a highly unpredictable market. The advent of the coming vaccine has helped the sense of optimism throughout the distribution channel, but we are all driven by actual results. Consistent with prior quarters, we are continuing with the suspension of our guidance pending a clear view of the market stability. Our objectives remain focused on, number one, cost management and driving the highest possible margins. Secondly, the commitment to organic initiatives will continue to be a central part of our investment criteria. And finally maintaining the strongest possible balance sheet is critical. Our second quarter is typically the weakest, but given the sequential improvement, we believe this pattern will not occur in fiscal 2021. Now flipping over to the last slide. As we assess and we recalibrate Enerpac Tool Group's long-term objectives post-endemic, we are still very committed to our strategy. We have been very consistent in terms of our capital allocation priorities, and the view of the critical elements of our strategy. We have positioned the Enerpac Tool Group with the ability to grow organically above the market conditions. Our investments in R&D and commercial process continue to deliver results. Our drive towards efficiency and profitability have not changed and we have taken all the necessary structural cost actions to achieve our long-term margin objectives, as the volumes returned to normal. And as you have seen in the quarter, we are very focused on the elements of the balance sheet, which has allowed us to deliver cash flow conversions consistently above 100%. And lastly, we believe Enerpac Tool Group will deliver best-in-class ROIC returns particularly under normal market conditions. On behalf of the entire management team, we'd like to wish our employees and investors a happy and safe holiday season. Operator that concludes today's prepared remarks. Let's open it up for questions.

Thank you. We'll now be conducting your question-and-answer session. [Operator Instructions] Our first question today is coming from Jeff Hammond from KeyBanc Capital Markets. Your line is now live.

Hey, good morning, everyone.

Hi, Jeff.

So I just want to dig in on this, you get the dynamic of distributors kind of starting to order again, and you guys trying to keep inventories lean. If you could just comment on your readiness, as we start to see kind of orders inflect more positive and distributors kind of wanting to restock and certainly some inflation. Just kind of your readiness to kind of handle all that understanding things are still kind of choppy?

Let me start off and then Jeff why not you bring in some comments as well. I think that we've done a good job of looking at our sales and operations planning process, in a way that allows us to predict some influx of new orders. One of the key metrics that we watch very closely, obviously, is our OTD rate and we've been able to maintain a very positive one. Now, as we get more orders flowing in that certainly is going to be a metrics that we keep a very close eye on. Because at this point in time, Jeff, we do not want to miss a single order. Jeff wanted to jump in and maybe you can give some more guidance there.

Yes. Good morning, Jeff. We think about our orders kind of in two buckets. We have our top products, which are the fast movers, that's usually the distributor stocking type product. And as Randy mentioned, our S&OP process where we're really trying to look hard at those and making sure that we're delivering those same day, next day type of thing. And those are really the ones that drive big part of the revenue as well as our OTD performance. So, in terms of our ability to respond, I think we feel pretty good about those and those are really the types of products that we're engaged with our sub suppliers with almost on a daily basis. And some of the longer lead more project type stuff those we plan as best we can, but some of those will be a surprise, but I think the long range supply chain is in pretty good shape right now.

Thank you. Our next question is coming from Deane Dray from RBC Capital Markets. Your line is now live.

Thanks. Good morning, everyone.

Good morning.

Hey, I want to follow up with Rick on the cash flow, because that was one of the bright spots this quarter, and that's not your usual first quarter because you're usually a use of cash. But you called out inventory and the timing of shipments. Do you expect this to reverse in the second quarter, just maybe any other color there would be helpful? Thanks.

No, we're not anticipating a reversal in the second quarter. As you pointed out, our first quarter is typically our highest use of cash, and the delta this year is significant. Also recognizing that last year Q1, we still had ECS, which was a big part of that that you saw. As the year progresses, we usually see our cash flow generation improve sequentially, and we're anticipating that along with sequential improvements, if we stay the course, we should follow that same pattern. And as usual, the majority of our cash flow would be generated in the back half of the year.

Got it.

And you saw from our inventory perspective, that was a negligible increase. You saw the large decreases the last two quarters. I think to the earlier question, I think we're monitoring things closely. And should we need to increase our inventory levels, we will. You saw the response here too, as Jeff mentioned a strong backlog. We anticipate that our inventories will not need to spike, but we'll watch them closely. I think what we're seeing from an air freight perspective, leading that seven to 10 days of lead time, that may result depending on demand and some inventory, but we're not expecting that to be significant.

Got it. Just on and follow-up some additional color on air freight. And first, I appreciate all the detail you've provided here, I mean the range of 2 to 6 times that's really kind of eye popping. And I appreciate the color on the commodity costs. But just how dependent are you on air freight? I mean, if you look at all of your freight total, what percent is air? Because I would think that would be more on an exception basis or maybe I'm thinking about it wrong.

No, it is on an exception basis and we continue to monitor that, I'm just flipping here to the percent of the airfreight, but it's definitely on an exception basis. As Jeff mentioned earlier, occasionally we do find ourselves in a situation where we need to air freight, and we respond accordingly. If we do the S&OP planning work that we've been working on, we minimize that activity. But it isn't the primary source of transportation. As the call progresses, I'll get that number and I'll put it out there.

That would be really helpful. Yes, just you highlighted the exception basis being up so much just want to know, how the ground transportation looks. But I appreciate all the color on the call and also the specifics you provide in the appendix. So, thanks. That's it for me.

Thank you. Your next question is coming from Michael McGinn from Wells Fargo. Your line is now live.

Thanks, everybody. I just wanted to touch on something you mentioned earlier in the call that this quarter sales beat your internal projections. You alluded to some additional employee costs in the back half of this year. Have you changed your accrual comp expectations for the year up or down either way?

When you say bonus.

Yes.

So if I'm understanding the question.

Yes, backlog order SG&A accruals for compensation.

Sure. I guess a couple of things, the last year we took the bonus out and as I mentioned, we reinstated the bonus. So you will see bonus flowing through on a quarterly basis. And so, I mean, that is a change year-over-year. And compensation there is nothing unusual that you'll see there. You'll see the traditional equity or non-cash compensation, long-term compensation, and you'll see much of bonus, much more in line with normal activity, but also aligned to results. So, that's what I talked about the temporary actions you won't see us talking about a benefit from a bonus like we did in Q3 and Q4 of last year.

Got it. That make sense.

And just to add there, I did mention furloughs on the call. If you recall, in Q3 and Q4, we announced Q3, we announced a two week furlough. The last of those came through here in the first quarter. And right now, we don't have any furloughs planned for the remainder of the year.

Okay, I appreciate it. And then moving on to the gross profit we talked a lot about freight. I'm just wondering if you're able to size or if you still had manufacturing inefficiencies at your plant, you mentioned a couple COVID incidents. What would the dollar or percentage offset to freight be from more normalized operations going forward?

When you say percentage offset, what do you mean?

As a percent of gross margin basis points or from a dollars perspective. Just looking for any incremental color on what kind of the manufacturing inefficiencies if any are still weighing on the gross profit line?

So two parts to that answer. The first part is the manufacturing variances from volume. We saw about $3 million of those during the quarter. And those are truly more operating at a lower volume with some inefficiencies given that volume and the protections were taken from a COVID perspective. We saw those whole flat from Q4 and that's just at a steady production level. As volume increases, we anticipate those variances go away. In my prepared comments, I gave you kind of an indicator of the impact on margins that you may see from a pure play these are independent of each other, but just from a pure play impact of steel impact, impact of aluminum and those can vary. But steel anywhere from 100 to 200 if we do our normalized volume, and it translates into a 1% to 2% increase and aluminum 140 to 180. Those are cost numbers on an annual basis and that's assuming a 5% to 8% increase in aluminum, and then a fluctuating -- I'm sorry, 25% to 30% increase in aluminum, 5% to 8% increase in steel. And so that's how you can systematize what those commodity elements might be, and true manufacturing variances will really be a function of volume. Hopefully that answers what you're looking for.

It does, thanks. I'll pass along.

Thanks. Our next question today is coming from Ann Duignan from JPMorgan. Your line is now live.

Hi, good morning, everybody.

Good morning.

First of all, can you just remind us did you tell us what your temporary cost reductions should be in Q2 versus Q1?

We did not. As I said, the vast majority of the $6 million was really travel related. There's a little bit of stimulus, a little bit of furlough, but the vast majority almost two-thirds of it is travel. Now, we're in a different scenario in Q3 when we announced it as a COVID action. We were holding, we cancelled all travel. Now we're not under any type of travel restrictions other than do it safely from our end. So we're no longer counting back as a temporary item, as commercial activity comes up, travel will come back. And it won't -- it's not really driven by us anymore, it's driven by the variable activity from a commercial perspective. So with that, and the bonus plan coming back and no more furloughs, we didn't provide any guidance of any expected travel savings in Q2. And I will point out that all of these were temporary actions that we said as commercial activity return, we will let it expire. Also with the clear acknowledgement that if volume doesn't continue to expand, and I don't continue to see that incremental EBITDA versus the lost costs then we will have to look at temporary actions again, but right now we're not there.

Okay, I appreciate that. And just taking a step back, I'm just curious because it's a question we have for most managements. Can you quantify your annual travel budget pre-COVID-19, and whether you expect that to go back to 100% of its pre-COVID levels? Or do you anticipate any permanent reduction in things like travel? And maybe some other line items that you could address where you think, gee, we've been able to operate this way, so those costs will never go back to where they were, whether it's savings from trade shows, or xyz? I'd just be interested in your color on those.

I'll comment on travel and then I'll let Jeff and Randy jump in on trade shows and other items. Clearly, how you do business and the nature of calls and all the creative things we've done from a commercial perspective, and even just from a business leading perspective, we would anticipate that some of that will stick and you won't do or see as much travel as you historically have, much like the travel and entertainment industry is expecting that. Typically, our T&E travel expense variable, it could be anywhere from $2 million to $4 million in a quarter. And we may see that kick down and stay down going forward. But, again, it's going to be variable driven, and it'll be driven by activity. And as anyone would, there's nothing better than getting in front of a customer. And so we don't anticipate that going away and so that why I said we expect it to increase once commercial activity returns.

Rick, I agree with what you've said, I think that there will be some structural changes in how we operate internally, but I don't believe that long-term, an expectation is that their customers are going to suffer from not seeing us. We can't afford to let someone else sell to our end user. So whether it comes to a distributor or an actual user of the product, we want and intend to be back in front of them.

Okay, that's helpful. And then any other big buckets of spending where you think they might not return to prior COVID-19 levels that would be helpful?

From my expectation, I think the T&E is probably the one that is going to change a lot what we do. But everything else should gradually start coming back to a normalized run rate. We've learned how to work differently over the past almost one year now, and it's certainly changed a lot of companies, but I think travel and entertainment are the one that's going to structurally change.

Okay. That's helpful. I'll leave it there. Thank you.

Thank you. Our next question is coming from Mig Dobre from Robert W. Baird. Your line is now live.

Okay, thank you. Happy Holidays, everyone.

Thanks, Mig.

I do want to stick with this cost discussion. Just clarification, because I seem to have some things mixed up I guess here. If I'm looking year-to-date, I think your COVID initiatives combined have provided something better than $6.5 million, but you're saying that travel and entertainment is only about $2 million to $4 million per quarter. So I'm trying to understand exactly what else is in there? Is there a furlough component that we need to be thinking about? And as we're thinking about the rest of the year leading travel to decide, what sort of potential cost headwinds might we see as some of the other discretionary actions are potentially reversing here?

So a couple of things. In the quarter of the $6 million it was closer to $4 million of that being travel. And so that's when we spoke about the vast majority of it. Our savings for the quarter are just a little bit over $6 million -- just rounded to $6 million, but definitely closer to $6 million then higher. And again about $4 million of that is travel, then you do have a little bit of furlough, a little bit of stimulus, a little bit of 401k suspension. So the 401k, we expect that to come back in January, and the bonus was already in Q1. So the only real and there was $500,000 of government less than government stimulus in the quarter. The biggest, I guess, impact going forward would be this travel getting back to normal, but that'll come back to normal with commercial activity. So from other variable costs, anything without going through a list, anything that's going to increase from an SAE perspective would also come with incremental commercial activity. So, we don't expect this "snap back of costs", only the travel coming back, Q1 is essentially at a normal run rate, less travel. We got a little bit of furlough, but those things are not significant as a whole.

Got it. And I say this because looking, for instance, at your slides from the fourth quarter call. I mean, you had better than $9 million of COVID savings, which I'm presuming a good portion of that actually had to do with furloughs and, I mean, if travel is only $2 million to $4 million a good portion of that has to be something else. And that's kind of what I'm trying to get at here, as we are thinking about the third quarter and the fourth quarter of fiscal '21, if there are some cost components that are programmatic, that's just like 401k match for instance, that you know are going to have to come back and we have to account for?

So, about $9 million of COVID savings in Q4, it is heavily weighted heavily -- it's more weighted toward travel. Just trying to put that in my hand either. And it is of those that are coming back, there are definitely some furlough items in there and we didn't give these breakdowns. But yes, the furloughs will expire and that's the $3 million in large part, the $3 million delta, you see is comprised of furloughs and bonus going away. I think there was a little over a million dollars’ worth of furloughs and maybe a couple of million dollars of bonus in Q4. And that's the real driver of the $3 million delta.

Okay, that's helpful. I mean, I'll follow up more offline on this. My second question is really relates to the topline. And the question is in two parts. First, you talked about the backlog, the backlog being up. Can you help us understand if the backlog is up year-over-year? Or if this is just a sequential comment that you're making and a sense for the magnitude would be helpful as well. And then the second part here is, if we're thinking about the seasonality of the business, my recollection is that revenue is down sequentially in the second quarter relative to the first. Do I have that wrong, and can backlog sort of alter this sequential dynamic at all? Thank you.

Well, that's exactly what I was speaking to on the call. You are correct. And if you just look at 2020, Q1 was down 5% from Q4, and Q2 was down 5% from Q1. And backlog is an indicator of the potential to counter that normal cycle, just like we did in Q1. And so as we talked through the call about optimistic about continued sequential improvement, the backlog is just another indicator of that. And it is up year-over-year. We typically don't quantify the backlog, but it is up year-over-year. So when you look at what we've posted for December, we look at the backlog. Those all help us to have optimism that the sequential improvement towards getting back to normal will continue.

Perhaps asking this question differently. When you -- my understanding is that your business on the tool side at least is not typically a backlog business. What sort of visibility do you feel you have within this backlog today versus a year ago or however, historically for instance?

Let me try to answer that. We track our bookings and billings particularly on the tool side on a daily basis. So we can see exactly what are book to bill ratios are. And what Rick is speaking to is whenever you see a business it starts to get a book to bill ratio that goes into that plus one, it means that we have some optimism of what's the coming quarter and the impact of the seasonality of the business. So as we said in the call, I think I said it and Rick did I'm not sure if Jeff specifically called out the sequential changes, but we don't believe that our second quarter will be sequentially weaker than our first which is typically the case. And it's driven primarily by a positive book to bill and part of that book to bill is being driven by a broad group of tools, both large and small.

Okay, very helpful. Thank you guys.

And we've been showing the chart that shows sales dollars and order dollars and through from Q3 to Q4, and Q1 this plus one book to bill is positive signs. And we also have heavy lift projects that will show up in backlogs, because they are longer lead time. So all of that, looking at the backlog gives us that comfort we're speaking of.

Great, thank you.

Thank you. Our next question today is coming from Justin Bergner from G. Research. Your line is now live.

Good morning, and happy holidays everyone.

Good morning.

First question just relates to, I guess trends among your distributors. Would you say that the first quarter, we're still experiencing destocking headwinds? Or do you think your sales were pretty indicative of end market demand?

Yes, I'll take that one. I noted in my comments that we did see some restocking, and that's from some of our larger distribution primarily the comment was related to North America. I look at -- I don't think there was a particularly broad movement globally on restocking, but it's just something that we noted from some of the larger distributors and kind of tell what a stockholder looks like when it comes across the file. So generally though, I think we're still looking at when we get distribution orders, we consider them broadly speaking, as that those are retail orders that are just being pushed through the system. So, hope that answers your question.

That's very helpful. Secondly, I'm just trying to understand, do you have a sense as to how much in sales are being lost due to customer closures, particularly on the service side of the business? I guess I'm trying to get a sense for what could be the hopefully V-shaped potential for your business demand to rebound when these shutdowns seize to the vaccine implementation.

Jeff, do you want to tackle that one?

Yes, I'm trying to formulate the answer. I mean, there's no question that, especially in the Americas. We talked about a little faster recovery in Europe, clearly that's driven by end users demand and our distributor. So, as we look across the verticals that we normally track, I think industrial MRO is one in the Americas that's really slower to recover. There's certainly pockets of other industries that are suffering from the shutdown. So as those customers come back online, I can't give you a percentage or dollar amount, but it's all part of the general recovery that we're speaking to regularly here. As those customers start to come back online, we do expect sales to pick up. And in our first indication, as we've already talked about its distributor confidence that their customers are starting to come back is that we're going to start to see a little bit more uptick to be not just from the larger distributors but from our day-to-day general distribution, and that is a little bit of what we saw in the quarter in Europe, that general distributors, which had been lagging in terms of sales and retail through those we did see that come back in Europe. So we look at that as a very positive sign and something that we're looking forward to happening in the Americas as well.

Okay.

Given what we're seeing on the pandemic front, you're guess as good as ours, but we're hopeful that the vaccine starts to have some positive effect on that as well.

Okay. Yes, I was trying to probe a little bit more on the service side of this, but I understand it's a hard sort of concept to quantify. Maybe just lastly, have you quantified your renewables exposure? Is it sizable, more than 5% of the business? And then maybe just in closing, why not guide one quarter ahead at this point, given that you're almost two months through the quarter and sort of adopt or readopt that practice first?

Well, let me let me cover that, the second part of your question first. Because I think that there is a sense of optimism and all of us would like to jump on to and say, I think we're on the back side of the impact of the pandemic and we can get back to a normal guiding process and things are being good. And then we remember what happened in March and April of this year, where within a two week period, we saw a dramatic fall. And what we don't want to do is provide a guidance and then feel like we've misled the investor base, that we have thought things are better than that actually are. So we're being very cautious, and I think many companies are being very cautious. We'd like to see some actual results in terms of vaccinations and stabilization of infection rates and getting back to a normal world environment. Relative to that renewables, that is a nice growing segment of our business. We haven't called it out as a specific component of our verticals, but it is a vertical that we view is very positive, and it's one that is contributed nicely, particularly in our European operations. I think as it grows that we may, in fact call it out as a separate piece of the power generation component of our vertical markets. But we haven't done that yet.

Okay. Thank you for taking all my questions.

Thanks, Justin.

Thank you. Your next question is coming from Jeff Hammond from KeyBanc Capital Markets. Your line is now live. Jeff, probably your phone is on mute.

Can you hear me?

Now we can. Please proceed.

Okay, sorry about that. Just like on the guide, it does seem clearly that you're saying kind of flat to maybe better than 1Q. But, I look at the December orders and they're up, you got the backlog up, you're seeing some service come in. But I think your guide implies kind of down low double digits. So maybe just square that up.

No intention to imply anything. And I think you can see from our order chart that that we are seeing improvement here. And the other thing, we're three weeks in, not two months. We’re three weeks into our quarter. We talked a lot about the sequential improvement with Q4 to Q1 up 7%. So I don't think it was our intent to imply up down. I think the only thing we were implying that we expected it to buck the normal trend here. So not a whole lot more color than has already been provided. But still feeling optimistic.

Okay, thanks guys.

And then just let me go back to the freight question, freight is about 20% of our total air freight, that there it's about 20% of our total freight for the organization. We typically don't give the global number, but it is about 20% of our inbound freight.

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Randy for any further closing comments.

Good. Thanks very much everybody for your participation today. And once again, we'd like to wish you a very safe and happy holidays. And we will talk to everybody in the New Year. Thank you very much.

Thank you. That does conclude today's teleconference and webinar. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Thanks very much.