Donaldson Company, Inc.
Q1 2021 Earnings Call Transcript

Published: 3 Dec 2020

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Donaldson's First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to turn the call over to Charley Brady, Director of Investor Relations. Thank you. Please go ahead.

[Charley Brady:]

Good morning everyone. Thanks for joining Donaldson's first quarter 2021 earnings conference call. With me today are Tod Carpenter, Chairman, CEO and President of Donaldson; and Scott Robinson, Chief Financial Officer; and Brad Pogalz, who u all know. This morning, Tod and Scott will provide a summary of our first quarter performance, along with an update on key considerations for fiscal 2021.

[Tod Carpenter:]

Good morning everyone. I want to start by welcoming Charley to the team. He joined Donaldson last week after two decades on the sell-side, which included 15 years of covering our company. He already knows us well, so our Investor Relations program is in good hands. Welcome Charley. Turning to the quarter, we feel good about our results. First quarter sales were up 3% sequentially, which is not typical seasonality, signaling that the worst of the impact from the pandemic on our business may be behind us. Sales of replacement parts outperform first-fit by a wide margin, providing valuable stability. And we saw continued evidence of shared gains in strategically important markets and geographies, helped in part by our robust portfolio of innovative products. First quarter profit performance was another highlight. Gross margin was up 60 basis points from the prior year, resulting in the highest first quarter gross margin in four years, and the best sequential improvement in at least a decade. We reduced operating expenses by 5%, while maintaining investments in our strategic growth priorities, particularly as they relate to the industrial segment. And altogether, we had a detrimental operating margin of only 4%, which we view as very positive given the on the uneven economic environment. Finally, our company remains in a strong financial position. We had excellent cash conversion during the quarter and our balance sheet is solid. We're on track to deliver our strategic and financial objectives in fiscal 2021 and we'll talk about those plans later in the call. But first, let me provide some additional color on recent sales trends. Total sales were down 5.4% from prior year, or 6.4% in local currency. In the engine segment, more than a third of this decline came from aerospace and defense, due largely to the significant impact from the pandemic on commercial aerospace. We have a great team and strong customer relationships. So, we expect our aerospace business will recover. In the meantime, we are pursuing optimization initiatives to put our cost structure on a firmer footing during this rough patch.

[Scott Robinson:]

Good morning, everyone. I also want to welcome Charley. He's got great perspective and he's a strong addition to our team. We're excited to have him join us and I hope you all will have a chance to connect or reconnect with him soon. Now, turning to the quarter, like Tod said, we are pleased with our results. Economic conditions were better than what we had in the fourth quarter and we made progress in our strategic initiatives. First quarter margin was a highlight for us in terms of year-over-year and quarter-over-quarter performance. Versus the prior year, operating margin was up 50 basis points, driven entirely by gross margin. That translates to a detrimental margin of 4%. But that's probably not the level to expect over time. For a better comparison, I pointed to our sequential trends. First quarter sales were up 3% in the fourth quarter and our operating profit was up almost 6%. That yields an incremental margin of 24.5%, which is in line with our longer term targets from Investor Day and several points are one of our historic average. As I've said many times, we are committed to increasing levels of profitability on increasing sales and we have solid plans to keep driving margins higher. We saw evidence of those actions last quarter. So, let me share some details. First quarter gross margin increased 60 basis points to 35%, despite the impact from loss leverage and higher depreciation. On the other hand gross margin benefited from lower raw material cost, our procurement team has done an excellent job capturing cost improvements by working with existing suppliers and identifying new ones, which added to the benefits from lower market prices.

[Tod Carpenter:]

Thanks Scott. This year, we have a straightforward plan. We play offence where we can and defense where we must. Our defensive efforts are all about managing costs and one way we are doing that is through optimization. The most significant example relates to productivity improvements in our plants, which are being enabled by the capital investments we made over the last two years. But it's not just about large projects for us. Our employees have a continuous improvement mindset and our culture has a shared commitment to operating efficiently. Our teams are consistently finding ways to leverage tools and technology and their work allows us to deploy more resources to support our strategic growth priorities. As we look forward, we're excited about those opportunities. For example, food and beverage is the first step on our journey into life sciences. We expanded production capabilities of our life tech filters and our new R&D facility in Minnesota; we believe we are in an excellent position to press forward. At the same time, we're pressing forward in our more mature markets. Driven by our spirit of innovation, we continue to bring new technology to applications that have been using old technology for a long time. A great example is a recently enough product for baghouse dust collection. Baghouses have used the same low tech solutions for decades and they represent about half of the $3 billion to $4 billion industrial air filtration market. Our game-changing product, the Rugged Pleat Collector delivers improved performance and lower cost of operation for customers, heavy duty applications like mining, woodworking, and grain processing. So, we will deploy new technology to gain share in this significant market. In the engine segment, we continue to lead with technology, which is critical given the size of the opportunity. We are currently competing for projects with an aggregate tenure value of more than $3.5 billion, telling us the market for innovation is healthy, and we have a significant opportunity to win new business. Our OE customers are working to improve fuel economy and reduce emissions from the diesel engine and they're also increasingly interested in growing their parts business. Our products meet both of those needs. We have a multi-decade track record of providing industry leading performance and we can also show that our technical and design characteristics help our customers retain their parts business. Based on the opportunities in front of us, we believe the diesel engine will remain a valuable part of our growth story for a long time. But we also know the market is changing. So, our focus on growing the industrial segment, while expanding our global share of the engine market, including new technologies related to air filtration for hydrogen fuel cells, puts us in a strong position for long-term growth. I also want to touch on the role of acquisitions and our growth formula. With capital markets recovering from the pandemic, we've been getting more questions lately about our philosophy, so I thought I'd take a minute to realign everyone. Our focus is very consistent with what we laid out 18 months ago at our Investor Day. At a high level, we remain a disciplined buyer. We're most interested in new capabilities and technologies, especially those that accelerate our entrance into strategically important markets. And we are targeting companies that will be accreted to our EBITDA margin. As always, we will pursuit companies that align with our long-term plans versus simply buying share. The filtration market is split between a small number of large companies, us included, and a significant number of smaller companies. The timing for executing an acquisition is always uncertain, so we will continue to work our process. Additionally, we recognize and appreciate that filtration is a high value market. So, our goal is finding the best opportunity at a reasonable price. With a robust acquisition strategy and significant organic growth options, we feel confident that we can continue to drive strong returns on invested capital for a long time to come. Before closing, I want to thank our employees for their continued commitment to our company. The level of global coordination and collaboration continues to impress me and I believe we have done very well during the pandemic, as a business and as a culture. To the Donaldson employees around the world, thank you for your commitment to advancing filtration for a cleaner world. Now, I'll turn the call back to Denise to open the line for questions. Denise?

[Operator:]

Thank you. Your first question comes from Bryan Blair with Oppenheimer. Your line is open.

[Bryan Blair:]

Thanks. Good morning guys.

[Tod Carpenter:]

Good morning, Bryan.

[Scott Robinson:]

Bryan.

[Bryan Blair:]

In terms of your second quarter sales expectations, can you offer a little more color on what you're thinking about buy segments?

[Tod Carpenter:]

Sure. So Bryan, as we look outward, we would suggest that the on-road story is led by U.S. recovery and an emerging portion of the -- story is China for us. And so we would look for a pickup in those markets. Second, we would look for agriculture -- an agricultural end market pickup worldwide. So that's really broad-based. Construction still feels a bit more muted and mining is still bouncing around at low level.

[Bryan Blair:]

Helpful detail. I'm sorry, if I missed this detail in the prepared remarks, but how did innovative products perform in engine aftermarket for the quarter?

[Brad Pogalz:]

Hey, Bryan, this is Brad. The performance overall was really good. Tod touched on PowerCore, we hit another record and that was a little bit in the quarter. And then if we look at the total IT products, so that was maybe 25% of aftermarket, they were not in the mid-single-digits in the quarter.

[Bryan Blair:]

Got it. Thanks Brad. And then any more color you can offer and process filtration trends. I know that on the new equipment side, there has been pressure for a while. Are you seeing stabilizing orders early in the second quarter? Or is that still pressured on that side?

[Tod Carpenter:]

Yes. So, on the new equipment side, we would say we still see some pressure, some headwinds across that CapEx faced in investments, just like we do on our dust collection business and process filtration. But on the replacement part cycles, we'd say we're we still continue to gain share evidence by the fact that it was up in low single-digits in the quarter.

[Bryan Blair:]

Got it. Okay, thanks again.

[Tod Carpenter:]

Thanks Bryan.

[Operator:]

Your next question comes from Rick Eastman with Baird. Your line is open.

[Rick Eastman:]

Yes, and thanks for the questions. A couple things and -- by the way, welcome to Charley and Brad, we'll miss you.

[Brad Pogalz:]

Thanks.

[Rick Eastman:]

Hey, just a quick question. Tod, could you maybe throw just a little bit more color, I'm still maybe a little bit surprised that the U.S. aftermarket business didn't perform better, just -- in engine, just given the easy comp that we saw. So, maybe you can -- and was there any -- did any of the China growth in aftermarket come out of the U.S. meaning, did we previously serve that through exports?

[Tod Carpenter:]

Yes, its question Rick. So, the China growth is just true share gain growth. It's not a realignment of exports or anything like that. So, China is truly fair game. Within the U.S., you're seeing many parts of the end markets pick up clearly within utilization. The headwinds that we still have is oil and gas and the oil and gas comps where fracking really stepped down and still remains a headwind to us on the comp side. So, that's really the story in the U.S. all of the parts are that. Now, there's one other nuance. So to you, you talked about the potential for China. That didn't happen in China, but it did happen a bit in the U.S. So, we did have some movement out of the United States to Latin America, where we now service customers in Latin America and so that that's a bit of a headwind as well. So, it's oil and gas, and that line transfer as well.

[Rick Eastman:]

Okay, and is the expectation around the aftermarket business -- engine aftermarket business. Is the expectation that that business is finally lapsed the negative comparison; we can have a positive compare in the second quarter here -- the fiscal second -- just around engine aftermarket.

[Tod Carpenter:]

Yes, that's our view.

[Rick Eastman:]

Okay. Okay. And then, Tod, you had flagged this in your comments, but when I look at the on-road business, and off-road business sales in the in the fiscal first quarter, relative to the fourth, and I just look at it in dollars what do we kind of to make it -- I mean, how comfortable do you feel here with the on-road and the off-road engine business ticking up fairly meaningful -- meaningfully in dollars, on-road is -- you had a $32 million quarter, off-road $60 million -- almost a $65 million quarter, pretty substantial step up. So, in your mind, when you think about those two businesses -- OE businesses, are you seeing the order flow support that acceleration or is the first quarter maybe more a testament to the third and fourth quarter speaking--?

[Tod Carpenter:]

Yes. So, Rick it goes back to kind of how I opened with the first answer, right. So, on-road U.S. is clearly, U.S.-based story and all the statistics with ATT and all of the -- all of what you see out there on the new truck orders, filling in is clearly what we're experiencing. And so we would see that we have some tailwinds within that market, still unsettled as to as to how long that will last or how big that step up would be. But we are seeing more positive momentum in the on-road particularly a U.S. story, but also an emerging part of that story is our share gains across China. And then on the off-road side, it's really an ag story. It's a broad based story, you hear that out of dears report, and many of the others and, and so we do see some momentum in in that area, as well.

[Rick Eastman:]

Okay. Okay. And just my last question, promise, Tod time when you mentioned aftermarket sales verse first-fit or equipment sales in the quarter, from the total Donaldson perspective, what are those growth rates or declines look like, across engine and across industrial? Is that a number you have?

[Tod Carpenter:]

For the sequential performance?

[Rick Eastman:]

No, just year-over-year, so against your revenue decline of what 5% was aftermarket in total, flat or was it up a little bit -- the equipment or first-fit?

[Tod Carpenter:]

So, I think we're consider that we're on the table that we put within the release, of course, we show that after-market was essentially down 1% over last year, Q-to-Q and off-road was down about --

[Rick Eastman:]

Yes, I'm just--?

[Tod Carpenter:]

I just touched -- didn’t I?

[Rick Eastman:]

Just total sales for Donaldson, I mean, we have -- we obviously have aftermarket sales and replacement sales on the industrial side as well and dust collection, I think you kind of reference those -- parts of those are better. But I just, I'm just curious if you have a number like that?

[Scott Robinson:]

I misunderstood Rick. Apologizes. Yeah. So, both segments were -- after-market was down low single-digits versus low doubles for -- in both segments.

[Rick Eastman:]

Down low double-digit. Okay.

[Scott Robinson:]

Yes. So, pretty consistent where, Tod's opening remark about how aftermarket significantly outperformed. That was pretty much true at all segments.

[Rick Eastman:]

Got you. Okay, perfect. Thank you again and good luck to you and your family Brad.

[Brad Pogalz:]

Thank you.

[Operator:]

Your next question comes from Nathan Jones with Stifel. The line is open.

[Nathan Jones:]

Good morning everyone.

[Tod Carpenter:]

Hi Nathan.

[Nathan Jones:]

Maybe just talk a little bit about gross margins, those get back to 35% here. Just looking back at the Analyst Day presentation a couple years ago, I think the targets were probably 35.5%, 36%. Clearly, we've had a little demand disruption in the interim here. Do you guys still think you're on target to get kind of to those kind of 35.5%, 36% gross margin level? If we get volume back to say 2019 levels and then what's the path forward from there?

[Scott Robinson:]

Good morning Nathan, this is Scott. So we still feel good about our Investor Day targets. As we've said, the timeline certainly got pushed out during the pandemic, and the revenue declines we've experienced, but we still feel good about those targets, we will continue to work to drive up that margin, we were pleased with the performance in the last quarter, and in the fourth quarter of last year. So, good growth and gross margins. We still see that Investor Day target of op margin between 15% and 15.8% that we gave out in the Investor Day as a reasonable target for us. And as revenues grow, we're going to be working to continue to improve our operating margin. So, I think we still have those targets inside, and we're still driving that direction.

[Nathan Jones:]

Okay, the next question on inventory. I think, Tod, in your comments, you mentioned that the OEMs, were still tweaking inventory levels, do you feel like they felt a little destocking in the OEM channel, I think for the last quarter or two, you've said the aftermarket is pretty much flat. And with the prospect here that we're going to see sequential growth, in your end market demand, should we also start to see some restocking, both at the distributed and the OEMs?

[Tod Carpenter:]

Nathan, actually visited the customers in the quarter here on the independent channel, and I will tell you that feel comfortable that it's at pull-through levels, I'll be with more customers tomorrow. So, I would say the independent channel is pretty stable. On the OE side, we did a little bit of fits and starts with that and so that that's why the word tweaking, if you will the end of the year, it's here now in December, they typically do some balance sheet management, pull it out, we see the comeback, and then the balance in January, et cetera. So, net-net, it's, it's just small movements, but it feels like -- so its small movements but I feel like pull-through is the one place that , the one place where we are starting to feel a little bit of pickup and you can see some restocking in China. But that's really driven by our personal share gains.

[Nathan Jones:]

Do you think that calendar year 2021 should see meaningful restocking in these channels just given your demand outlook over the next few quarters here?

[Tod Carpenter:]

Tough to say Nathan, I -- how will this thing unfold relative to the pandemic, will it walk up or will it step-up? I'm not really sure. But as economies open up worldwide, clearly, they might add back carefully, because cash is still very important to many businesses, especially the independent channels. And so we're really not sure what the behavior will be like this time out of this recession, it may be different on the restacking behavior than previous.

[Nathan Jones:]

If maybe different on the restocking behavior than previous. Okay, just one more on the dust collected business; you did say that dust collector orders were down in the quarter you just recorded. I we still in the phase where we're going down at a faster rate or going down at a slower rate?

[Tod Carpenter:]

Slower rate still elongate and at least double order cycles, but must do projects are being done, other projects are just being put off as long as they can. So, it -- we've clearly worked through much of that. But there's a carefulness cloud that that hangs over that type of investments still.

[Nathan Jones:]

Not surprising in this environment. Thanks for taking my questions. I'll pass it on.

[Operator:]

Your next question comes from Brian Drab with William Blair. Your line is open.

[Brian Drab:]

Hey, good morning. Thanks for taking my questions and hi, Charley. Looking forward to working with you and Brad I've already said to probably 80 mails wishing you good luck, but good luck again.

[Brad Pogalz:]

Thanks Brian.

[Brian Drab:]

Could you say or can you say what percentage of revenue for engine and what percentage of total revenue is generated in China in the quarter -- in the first quarter?

[Brad Pogalz:]

Sure Brian, this is Brad, I'll take that one. Engine was -- about 6% of engine sales came from China in the quarter and industrial was higher at about 12%. But I'd remind everybody that our disk drive business, about half of that comes out of China. So, that's inflated a bit. And the nice thing with engine is with these growth rates, we've seen that share grow pretty meaningfully over the last five or so years. So, engine as a percent of China -- the percent of China for engine coming out of that is much higher than it's been.

[Brian Drab:]

Okay, appreciate that. And then Tod, you talked about the advanced and accelerate portion of the portfolio and specifically processed filtration, just wondering, can you comment on some of these other areas you mentioned at the Investor Day, like venting, semiconductor, hydraulics, I think he might have touched on some of that, but what are the -- how are those businesses growing outside of process filtration? And also is this advanced and accelerate categories still growing at the time of the Investor Day is like five to seven points beyond what the corporate average was?

[Tod Carpenter:]

Yes, so first-off touch with our venting business, we're very pleased with the share gains we've had inventing, it's still coming off of a low base of the company. But we're looking to get that to be a 4% level of the overall corporation, it's still between it's gone from less than one to between one and two. So, we've had some nice growth, and we also have some significant program wins ahead of us. So, very pleased with the team and the progress and the growth and the venting side. Relative to other portions of the portfolio, hydraulic, we also continue to grow more of a mid-single-digit in this type of an environment situation than then venting, which is clearly within the double digit. So we, you know, are, we're very pleased with the investments we've made across the advance and accelerate portfolio is delivering quite nicely. As far as performance outside or above the overall company averages, yes, we would say that mid-single-digits above company averages is clearly our expectation, and the reason why we continue to invest within that particular segment of our portfolio.

[Brian Drab:]

Okay, and then just last, I'd be interested if he had any update on the market reception of the remote monitoring technology they introduced recently?

[Tod Carpenter:]

As you can imagine, within our IAF with our dust collection based businesses, where the overall market is still very careful on quote order cycles, are also very careful on any types of investments. And so we're still in that push type of a mode out to the marketplace. We do have hundreds of installations. But we still continue to push it out to the marketplace and the market has not switched to a poll yet. We would look for that sometime in the future and we would have to get more market normalcy certainly before we would expect that to happen.

[Brian Drab:]

Yes, right. That makes sense. Okay, thanks for taking my question.

[Operator:]

Your next question comes from Laurence Alexander from Jefferies, your line is open.

[Daniel Rizzo:]

Hey, guys, this is Dan Rizzo on for Laurence, how are you?

[Tod Carpenter:]

Hi Dan.

[Daniel Rizzo:]

You mentioned savings in A&D, some optimization or you mentioned an optimization program, I was wondering if there's a target for the savings you expect over the next couple of years?

[Tod Carpenter:]

We're still working on the plan on that. We clearly will come out with some additional guidance once we form those type of activities up. But those kinds of adjustments really still lie ahead of us.

[Scott Robinson:]

And this is Scott, just want to say as we mentioned, we're working hard to explore cost optimization initiatives across the company. And we work hard to manage that OpEx effect, especially as we move into the next few quarters here.

[Daniel Rizzo:]

Okay. And then you mentioned being disciplined and sticking to a plan in terms of looking for inorganic growth. I was wondering if the pandemic has altered the landscape of potential targets, whereas there might be more or less or have entities changed in the last nine months, whatever --?

[Tod Carpenter:]

It has changed things a little bit. So, for example, if you're in the mask business, it's pretty interesting. You can you can buy mask making companies these days, which you couldn't in the past, so maybe people are trying to cash in within that filtration piece that that's really believe it or not, it's a low technology space. So, that's been one of the one of the changes that's happened -- but the balance of the areas where we are interested in there has not been really any change in behaviors. It's still a very highly valued segment and we continue to knock on doors and work our list.

[Daniel Rizzo:]

Okay. Thank you very much.

[Operator:]

And your last question comes from Dillon Cumming with Morgan Stanley. Your line is open.

[Dillon Cumming:]

Great. Good morning, guys. Thanks for the questions. Just first Tod, you mentioned that you're kind of doubling the salesforce round process filtration in beverage; I guess, first, what does that imply that level of growth that you see for that business, both, I guess, this year and next? And related to that, Scott, I think you mentioned that you front loaded some costing associated with those salesforce as an industrial, do you feel like you front loaded enough of those where you can get back to kind of year-over-year EBIT margin improvement industrial next quarter or is that something kind of play out in the next quarter or two.

[Tod Carpenter:]

So, maybe I'll start and then I'll let Scott pick-up. So, relative to the growth rate that we would expect that affected an investment, particularly in this type of an environment, we have to be able to be let into the plants to be able to make those sales. So, we would expect mid-single-digits to high single-digit type of growth rates across our process filtration business, and I'll let Scott pick up from there.

[Scott Robinson:]

Yes, I think you've heard Tod say, we're essentially doubling the salesforce, so we're making a big investment there. And certainly new sales folks, when they come on take time. You could say things are a little bit challenging right now with the damage, but we still feel that's a strong investment for our future. We noted industrial margins were down 10 basis points this quarter and that's because we're making investments in the industrial. So, I can see the need for your question. And I would submit that as people come up to speed and hopefully things get a little bit better here with a pandemic, that those investments will begin to return at a higher rate and that industrial margin will start to increase. So, we need to leverage those investments. Certainly there's front loaded costs, which are impacting us now, as revenues are a little softer on the industrial side. But we expect that situation to do improve over time. And we're going to continue to invest in in high margin opportunities, in our advance and accelerate portfolio, but over time, we expect the margins of the company to increase and our advance and accelerated portfolio carries a higher than average corporate gross margin and that will be a positive tailwind for the company.

[Dillon Cumming:]

Yes. Okay, got it. That's helpful. And then maybe you kind of switching back some of your longer cycle businesses and IFS and dust collection. I know you guys have been calling out CapEx as an initiative kind of longer growth cycles for several quarters now, it's certainly understandable. And you're talking about that earlier. But I guess, what do you think these customers are kind of looking for at this point, because it seems like PMI is probably more or more stable than a couple of quarters ago. And we're bumping up against about a year project deferrals at this point. So, I guess, how sustainable is it for customers to kind of be maintaining this current level of CapEx spending in that business?

[Tod Carpenter:]

Well, dust collectors' lifespan is between 15, 20 years, typically, until consequently, they can go a little bit longer and continue to run and just have the replacement parts changed out if you will, and that's on the upgrade side. The other part of it is new equipment or plant expansion. So, you haven't seen a whole lot of plant expansions going on. So that cycle is still pretty dormant out there, which would normally give us a good lift. So, overall, we do need more confidence across the economic recovery, both in the U.S. and Western Europe in order to really be able to be comfortable that we're looking at an uptick within that business deal.

[Dillon Cumming:]

Okay.

[Brad Pogalz:]

Dillon this is Brad, I'll add one point, if you think about PMI, and this activity, that's, that's good for the aftermarket side of our business. We would watch capacity utilization as probably more a trigger for new equipment. So, keep your eye on that metric. We are too.

[Dillon Cumming:]

Okay, got it. Thanks Brad. It's helpful and thanks to the color, Tod. Maybe just my last question here, the cash balance -- couple a bit. I know Tod; you went through and kind of reiterate some of your capital allocation priorities. But you guys have the 1% repurchase framework laid out, is there kind of a level of cash that you're kind of targeting for the end of the year early, or placeholder number that we can benchmark towards? And I guess, if you want to assume that you cannot kind of execute any M&A by the end of the year, is there still kind of a placeholder we can kind of reference for buybacks versus that benchmark in terms of kind of a level of cash and new capital holding at your end?

[Scott Robinson:]

So, we kind of run the company on a net debt to EBITDA target of 1.0. So, that's our target, we're slightly below that now. We want to be conservative in light of the situation we have. Our capital deployment strategy is invest either organically or inorganically in the company, pay that dividend, which has been going on for 65 years and then buy back shares. We knew this is kind of an awkward year, which is why we came out with a share buyback target initially at 1%. We bought 0.3% of the outstanding shares for the first quarter and I made a statement that if things continue to improve, you could very well reasonably expect us to increase that 1% up to -- up a fair amount. So, that's kind of where we sit right now as things crystallize here, we'll be a bit firmer with our guidance, but we're committed to 1% and we said if things continue to improve, we'll likely increase that because we are generating very strong cash conversion in the first quarter, that will come down a bit as revenue trajectory changes and our CapEx is down, so we feel that our free cash flow is a very strong kind of print right now. So, we're happy about that and we'll manage as we go forward and we'll keep you appraised of our of our estimates.

[Dillon Cumming:]

Okay, great. Thanks for the time, guys.

[Scott Robinson:]

Thanks Dillon.

[Tod Carpenter:]

Thanks Dillon.

[Operator:]

And now I would like to call back over to Tod Carpenter, CEO for closing remarks.

[Tod Carpenter:]

Thanks Denise. That concludes today's call. I want to thank everyone listening for your time and interest in Donaldson Company and I hope that you, your families, and friends are safe. And I wish you all a happy holiday season. Good bye.

[Operator:]

This concludes today's conference call. You may now disconnect.