Good afternoon, ladies and gentlemen. Welcome to AAON Inc. Fourth Quarter Sales and Earnings Call. There will be a question-and-answer period after management's brief presentation. This call will last approximately 45 minutes to an hour. I would like to turn the meeting over to Mr. Gary Fields. Please go ahead, sir.

Good afternoon. I want to read a disclaimer to begin with a forward-looking disclaimer. To the extent any statement presented herein deals with information that is not historical, including the outlook for the remainder of the year, such statement is necessarily forward-looking and made pursuant to the Safe Harbor provisions of the Securities Litigation Reform Act of 1995. As such, it is subject to the occurrence of many events outside AAON's control that could cause AAON's results to differ materially from those anticipated. Please see the risk factors contained in our most recent SEC filings including the Annual Report on Form 10-K and the Quarterly Report on 10-Q. So I want to thank all of the employees of AAON for their safe behavior and due diligence with regards to Coronavirus. We have done temperature checks and wellness exams as well as when they clock in they certify that they are safe and symptom-free. So again we want to thank those employees because we've had very, very good success with our experience with the Coronavirus. I want to turn the call over to Scott Asbjornson, our Chief Financial Officer.

Thank you, Gary. I'd like to begin by discussing the comparative results of the three months ended December 31st, 2020 versus December 31st, 2019. Net sales were down 4.8% to $116.7 million from $122.6 million. Net sales for the quarter are down primarily due to our plant -- Tulsa's plant shutdown during the last week of December 2020 for plant and machine maintenance as well as for a deserved employee holiday break. Our gross profit decreased 6.8% to $33.9 million from $36.4 million. As a percentage of sales, gross profit was 29.1% in the quarter just ended compared to 29.7% in 2019. Due to the plant shutdown in Tulsa, we saw an increase in repairs and maintenance expenses along with lower overhead absorption. Selling, general and administrative expenses increased 11.5% to $14.6 million from $13.1 million in 2019. Additionally, as a percentage of sales, SG&A increased to 12.5% of total sales compared to 10.7% in the same period in 2019. SG&A is up due to increases in profit sharing and employee incentives due to the increased earnings. Income from operations increased 10.7% to $25.7 million or 22% of sales from $23.2 million or 18.9% of sales in 2019. Income from operations is up due to the $6.4 million pre-tax gain as a result of the insurance proceeds received in November 2020. Our effective tax rate increased to 26.6% from 25.6%. Net income increased to $18.9 million or 16.2% of sales compared to $17.3 million or 14.1% of sales in 2019. Net income included $4.1 million related to insurance proceeds. Diluted earnings per share increased 6.1% to $0.35 per share from $0.33 per share. The insurance proceeds mentioned previously amounted to $0.08 per share. Now for the comparative results of the year ended December 31st, 2020 versus December 31st, 2019. Net sales were up 9.6% to $514.6 million from $469.3 million. Net sales for the year are up due primarily to our increased production of rooftop units and full realization of price increases put in place in prior years. Our gross profit increased 30.5% to $155.8 million from $119.4 million. As a percentage of sales, gross profit was 30.3% in the year just ended compared to 25.4% in 2019. We have experienced decreased material costs and improved overhead absorption. Selling, general and administrative expenses increased 16.2% to $60.5 million from $52.1 million in 2019. Additionally, as a percentage of sales, SG&A increased slightly to 11.8% of total sales in the year just ended from 11.1% in 2019. SG&A expenses are up due to increases in our profit-sharing program, employee incentives, and a one-time donation of $1.25 million to Winifred Public School in honor of our Founder Norman Asbjornson. Income from operations increased 52% to $101.8 million or 19.8% of sales from $67 million or 14.3% of sales in 2019. Our effective tax rate increased to 22.5% from 19.9%. In 2019, our tax rate benefited from additional credits we were able to capture. Net income in 2020 increased 47% to $79 million or 15.4% of sales compared to $53.7 million or 11.4% of sales in 2019. Diluted earnings per share increased by 46.1% to $1.49 per share from $1.02 per share. At this time, I'll turn the call over to Rebecca Thompson, our Chief Accounting Officer and Treasurer.

Thank you, Scott. Looking at the balance sheet, you'll see that we had a working capital balance of $161.2 million versus $131.5 million at December 31, 2019. Unrestricted cash totaled $79 million at December 31st, 2020. Our current ratio is approximately 3.7:1. Our capital expenditures were $67.8 million, up 82% from a year ago. We expect capital expenditures in 2021 to be approximately $70.7 million. The company had stock repurchases of $31 million during the year ended December 31st, 2020. Shareholders' equity per diluted share is $6.61 at December 31st, 2020 compared to $5.51 at December 31st, 2019. I'd now like to turn the call back over to our CEO and President, Gary Fields.

Good afternoon. So I'd like to talk about sales. So AAON products by the primary design are much more conducive to adding improved indoor air quality measures such as MERV 13 filters, UV lights, and bipolar ionization. All three of these technologies have been recognized by the ASHRAE Pandemic Task Force to be contributory to mitigating airborne viruses such as coronavirus. We've had some pressure on raw material pricing. We have materials purchased on contract that are in good lockstep with our recent price increases as far as when that equipment hits the plant floor. So they were both coinciding to merge together. We believe that our price increase that went into effect January 11 for the foreseeable future handles the known price increases that we see coming Q2, Q3. Water source heat pumps we still had pressure on our business, because our original design product, which is a very fine product, is really positioned well for new construction but not positioned as well for replacement. A lot of the units that need to be replaced are configured slightly differently. So we have designed a whole new line of water source heat pumps to supplement what we currently build that are more compatible with the current installation configuration. It's looking like somewhere between late April to early June is when those products will be out in the marketplace ready for installation. So we've been working on updating the design of products. That's a constant endeavor. We've introduced more and more variable frequency drive compressors into units, primarily into rooftop units. And one of the key areas that we're focusing on is the electrification movement that's taking place across North America with regards to heating. So we're very close to having air source heat pumps available in a huge range from two tons to 230 tons, and they'll operate at very attractive COPs at very low ambient temperatures. So the water source heat pump, we're working on the same variable frequency drive compressor technology in those. And we have already introduced some of these sizes and we're introducing more. We believe that air source heat pump and water source heat pump technologies are going to be more widely used by a bigger base of installations than has ever occurred in the past. In Longview, we doubled the production capacity with the addition of a 220,000 square foot building to add to the existing 234,000 square foot building. And when we did this our sheet metal production equipment was about a 125% increase over what was in the original installation. I just received the photo about 15 minutes ago, of the first finished unit, coming off of the new line in the new building. So we're terming this a soft start-up in that we're running duplicate manufacturing processes, the old building and the new building. And this allows us to vet out the new building without compromising our commitments for delivery, which we've been meeting relatively well with the existing building. But what we've found is the demand for the products, therefore, exceeds the capacity of the older existing building. So the timing for the new building is, I would say, none too late or none too early. It's just about right on time. Demand is considerable for that product and we're really proud to have this new manufacturing facility coming on board in alignment with that demand. Looking at various business segments: Commercial and retail, we've seen some pressure on those. We've seen some pressure on office buildings, but we've also seen some improvement in medical and healthcare. And surprisingly, education has been good for us. I see lots of indicators from Dodge and ABI and other places that say that education, particularly K-12, has not got as much going on. I think that our equipment being more desirable than most of our competitors with regards to the coronavirus or virus period mitigation procedures, the way they integrate so nicely into our equipment is bringing more opportunities to us for education. We've already seen considerable orders for those. Our sales representatives tell us their pipeline has a very robust supply of education opportunities. Manufacturing is holding about steady for us. I don't see anything really material as far as up or down. Lodging is materially down and new starts in particular. We are seeing a fair amount of replacement and upgrades. There's a couple of other areas that we're seeing a decent amount. I don't know that you would categorize it as entirely material, but a decent amount of acceleration in the vertical market and that's data centers and grow facilities. Recently, the election this past fall there were additional states that enacted marijuana laws whether they were medical or recreational but there was additional state and there's already been business come in the door for us relevant to grow facilities to serve those states that have that new law. So, at December 31, our backlog was $74.4 million versus $142.7 million a year ago. A lot of that reduction, it was kind of lines going in different directions. Production was coming up considerably. Our production rates and production capabilities were substantially greater than the year before and bookings had slowed down. Although, Q4 bookings were 6% above 2019 Q4 bookings, so we did see it begin to turn around. We had a price increase that went into effect January 11. Any time we have a price increase, we always see a pull forward of orders, a surge, if you will. And it usually takes about 90 days to see that ripple settle out. And so, here we are at 60 days, and so I don't think it's entirely settled out yet, but it's looking pretty good. As of February 1, our backlog was $103.8 million. We've seen consistent decreases in ABI, although what came out yesterday had strengthened a little bit over December and the inquiries had strengthened for a couple of months. So the other thing, I want to mention is that the normal correlation between ABI and our activities has been historically very relevant, but we're not seeing quite the relevance now. And I think a little of this has to do, and I've talked to quite a few people. There were a lot of projects that were designed, but when coronavirus hit, the pandemic hit, they hit the pause button. And recently several of these projects, they've hit the go button. Well that doesn't necessarily generate a billing from an architect because it was already designed. There will be some architectural services that will be billed, but it might not be in accordance with normal practices. So we're seeing those projects come off the shelf and that's been a nice pleasant surprise for us. Now our lead times are about as good as they've ever been, and that's due to the increased capacity. Here in Tulsa, we've added several of our Salvagnini sheet-metal manufacturing machines. As Scott mentioned earlier in his part of the presentation, we had some holiday shutdown for maintenance and we were able to get some heavy-duty maintenance on some other machines. So our fleet at Salvagnini is in the best position it's ever been for production number of sheet metal parts we can make on a daily basis. What we've been doing is managing that production capacity versus what we believe would be the peak demand. The goal was that we could produce in accordance with the peak demand and not extend lead times. While we're currently in that position and things look good through 2021 and with some additional machinery that we're installing here plus bringing the new building online in Longview, we see the ability to stay ahead of that curve for everything that we can foresee for at least the next two years. The remainder of 2021, on a high-level basis, I believe that this quarter again the price increases is probably altering what we would normally see. So it's looking very nice right now, but I expect that to soften just a little bit due to the fact that a lot of these orders were pulled forward. When I talk to the sales channel about their pipeline, there's a lot of optimism out there but it's looking more like the second half of the year is when we might be on a path to something that's worthy of discussion. In the meantime, we're just going to kind of move through here and we've got a nice backlog right now so we can run at a nice clip. SG&A in 2021 is going to be up a little because of insurance premiums. I think that there was a lot of property casualty loss in the entire industry. As Scott mentioned, we had a claim for hail damage on our roof that was considerable. And so our insurance went up considerably. We weren't able to travel much in 2020. So we'll be traveling a bit more and we'll have some pretty robust marketing events going on. So I look for SG&A to be up just a little bit. The weather that we had a week or so ago in Tulsa and in Longview caused us to have some shutdowns. I mean, we had no power and people couldn't get to work. I mean, there was ice on the roads and very dangerous conditions. So in total that looked like about nine days of – with the capacity management, the maintenance event, and the snow about nine days in Tulsa. And I think Longview was similar maybe just a little bit less. So we're probably going to have our sales affected by that a little bit this quarter, although we're at full throat right now. And the – we had a senior leadership team meeting yesterday and we're looking at a little stronger production towards the end of the quarter. It won't make up entirely for what we lost but it's not going to be considerable. So just to kind of wrap that up. I think that should help some of your modeling purposes but I'll open it up to questions now.

[Operator Instructions] And our first question comes from Brent Tillman with D.A. Davidson.

Hey, good afternoon. I guess a few things here, Gary. Yes, some pretty significant escalation in steel, copper, and other inputs. You talked about the price increase. I guess a two-part question. Are you evaluating another price increase, just given what we're seeing here year-to-date? And then what – how should we think about the impact to margins through the first half of the year as you're catching up to that?

So we had enough steel contracted at a stable price much lower than today's spot market price that would carry us all the way through Q2. So it's not going to have any effect on the first half of the year at all. Our anticipation is that once this surge kind of subsides a little, it's a little bit like our price increases. There's a surge of buying for steel because a lot of industries are coming back online. And our anticipation is that before we need to go into the market and contract for more steel, that those prices might have moderated a bit. If they don't, then we'll have to consider something different. But we've got plenty of time to evaluate that because of the amount of steel that we've already got contracted and in-house. So I don't see it as being anything that's a management issue. So we're not considering another price increase at this point because we can't foresee anything to cause that relevant to our purchasing practices.

Okay. Perfect. The new water-source heat pump products that become available kind of spring maybe early summer, will you have all of your available capacity to potentially produce those new products?

I have surplus capacity. When we built that line we built it for a run rate that's about maybe three times what we're running now, 3, 3.5 times what we're running now. So yes, that was one of the key things. I mean the pressure to that is I'm paying depreciation expense on that stuff and I'm not getting the production out of it currently. So I'm very excited about getting these other products put together so I can absorb that depreciation expense more efficiently. But what we have done is we have run this line at the fastest speed we can run it to see what we could do and then we have trimmed the number of days that we run it. Because as you're aware, we manufacture 355 days a year on a normal year seven days a week. So we've proven what that capacity is. It's not a speculative how many units can we build. And all we have to do to ramp up that production at this point is just add days that we turn the switch on.

Okay. Did some of the areas that you've talked about seeing better signs, data centers, warehouses, I guess in particular and I guess in some sense that those areas were pretty good for you through 2020? Maybe I'm wrong but maybe what's causing the pickup there?

Well, they were good for us, but they're picking up and I think it might just be that as the virus comes a little more under control and they can actually get out on these projects and do some work, that's probably what's happening. I think the desire to build those projects was there all along. But I don't know that they could man the projects. And that appears to be what's improving it. One of the large online retailers, they want a very aggressive lead time, but it's interesting that they take weeks and weeks and weeks of speculating when to turn the switch on to do that. And I think that was them getting construction crews put together. But once they get that done and they turn the switch on and say go, it's a very short lead time. And so this capacity that we've built into this business over the last two or three years accommodates that very well. The first three projects we did for them we -- this one particular online retailer we were able to deliver each one of them one week early. And so that made quite an impression on them. And that might be the other reason that that particular customer is giving us more attention now.

Okay. And any – on the indoor air quality opportunity, I've been hearing more and more about that around the industry, and you obviously are well aligned to it. Any particular wins you can point to? I'm just trying to think about how quickly that peak is kind of growing for you.

Yes, I will. So there was a school district in Texas that I had mentioned before that they bought 567 units from us last year. And they were putting some of these mitigation procedures in before we'd even heard of coronavirus, because their orders took place – or their setup for the orders took place in the fall of 2019. And the orders themselves didn't come in until like February of 2020, but they already had the mitigation procedures put in. So they -- I don't know what kind of crystal ball they had, but it was a good one. That same school district awarded us 811 units the other day. And again, that was because of our ability to provide these coronavirus or -- I just call them virus mitigation, because it's all virus, it's not specific to coronavirus, but the virus mitigation procedures that we're able to put in the units for them. So that awarded us 811 units on that one particular project that one school district. They're in North Texas. So we're very proud that they've come back. They've been buying units from us. I know for certain 12 years. And they prefer us and we have delivered for them this past year delivering those 567 units. It was a very critical, very short time frame. And we were able to meet all of their needs and we received a lot of accolades for that as well. So that's one in particular. There's others that are similar. People in Chicago, people in Colorado, and people in Pennsylvania have all told me similar stories.

Okay. Okay. Well, thank you very much and best of luck for the quarter.

Thank you.

And our next question comes from Julio Romero with Sidoti.

Hey, good afternoon, Gary. Good afternoon, Scott.

Good afternoon.

My first question is just on the trend of inquiries. I think you mentioned bookings are up 6% year-over-year, but could you speak to inquiries and how those trended throughout the quarter?

Yes. So, Q4 they were up 6%. Currently, they're up quite a bit more than that, but I can't really analyze that correctly, because of that pull forward from the price increase. We had a sales team meeting yesterday afternoon to get an update on that. And the inquiries are surprisingly stronger than what we had anticipated. If you go back to when we were putting our budgeting process together back in the fall, we didn't anticipate as strong as what they're telling me the pipeline is now. Now that pipeline is not an order in my book. It's either an order in their book or a potential high-value prospect for them, but our sales channel is surprisingly pretty optimistic.

Okay. I wanted to dig a little further into that commentary about, why your product portfolio is translating into good orders for education. I think you talked about maybe your -- some of your products in particular are conducive to mitigation strategies. And maybe speak to that? And does that give you any advantages into other sub-sectors of nonresidential construction?

Well, potentially, Julio. Let's look at the education first. So education has always been a very good audience for AAON equipment. They own and operate those buildings for a long time. So the value proposition that we put forth to them they analyze those very thoroughly. And we've been working on the sales channel for several years now and improving their best practices implementation, sharing best practices. And part of that is, what are these values that these school districts see in the AAON equipment? And how do we get more and more people to hear that story and understand that story? So I think that you start off with the fundamental of AAON was always an appreciated value provider to those kinds of purchasers, then you more capably share those best practices as to how you present that. And we have modeling tools and things that help with that. So the sales channel themselves have become more efficient at telling that story. Then you add on to that. So every manufacturer that we compete against has the same mitigation strategies available in portions of their product portfolio. But in particular in the smaller tonnage units, these two through really 20-ton units is kind of a focus for those. We're the only ones that have a broad line of very capable equipment with no modification to our basic approach in order to put these strategies in. If you were to take the majority of our competitors in their two through 20-ton units, it's fairly onerous for them to put all of this in in an efficient manner. They can put it in there, but it's not in an efficient manner. So, again, when you get to someone that's value-conscious they're looking at their operating costs as well as their earning cost of the units as far as how long they last, so it all factors into the total owning cost experience and it just favors us substantially. And that's just the innate design of the equipment that Norm and the team before me built into this. It was the strategy all along, not necessarily thinking that we would have these mitigation strategies, but this was an approach that gave a much better energy efficiency utilization of the air-moving component of the unit.

Okay. Maybe I'll dig in some of the line item guidance you gave. You mentioned SG&A expect it to be up a little bit because of the insurance premiums. Should I think about that as up on a percentage of sales basis or by some dollar amount? Any additional color there would be helpful.

I'm going to let Scott do that one if you would please.

Well, as we mentioned, we got a large insurance settlement last year and we had to go out and get renewals. And so our renewals were significantly more steep than they had been in prior years. So it is a noticeable amount. We're talking roughly about $2 million of additional premium that we're going to be seeing due to the higher cost for ensuring a property as well as liability, et cetera. And that's not even counting what might ultimately flow through from medical expenses this year.

Okay. And then I guess just on the CapEx guidance of $70.7 million. Just thinking about cash flow I guess in general. I mean, maybe can you talk about how you -- what you're expecting cash flow for the year? And if working capital can be a usage of cash? And if so some kind of idea?

Well we're able to fund all of this from the cash flow. As you saw we had what $79 million in the bank at the end of the year. And I think we've got that treasure chest a bit more since then. That would have been after we paid dividends and had all of our bonus accruals taken out and all of those things. So that was kind of the lowest part the bucket was going to be for a while. So the profits from operations is going to go into that bucket. And looking at the way we've got everything budgeted, I think that we're looking at ending the year very similar cash quantities as I recall.

Right, yes.

With some additional growth. And -- but during the course of the year one of the things which would to your point the working capital will go up because our receivables are at probably the lowest point they've been in many years right now. So we are going to be seeing some uses of cash during the year, but those will eventually flush out.

That’s helpful. Thanks for taking the questions and best of luck in 2021.

Thank you.

And our next question comes from Jon Braatz with Kansas City Capital.

Good afternoon, Gary. How are you?

I am good.

There is a school going up -- a great school going up three blocks from me. I expect to see AAON equipment in there.

Well I'm going to call James Herman when this is over with at VCS and makes sure he got it sold.

All right. Good. Good. Say how much was the price increase effective January 11?

4% across the board.

I'm sorry 4%?

Yes sir, across the board.

Okay. Okay. And when you look at some of the other items maybe component costs, freight and so on, are you seeing -- I assume you're seeing inflationary trends in that area too. And when you look at all your components, all your costs, let's say beyond steel, where do you think you might be most vulnerable to some additional cost increases over the next couple of months?

So our purchasing department, we've got some personnel that -- at a higher level in purchasing that came on board over the last year or two. And they had some ability to provide me visibility to these costs, probably more clearly than what I had in the past. It could be that I just learned how to read what they were giving me. I'm not sure. But there are nine components, materials components, however you want to term it that comprise about 70% of everything we purchase. And they keep a spreadsheet in front of me that they update monthly. And it tells me what the forecast cost of these things are for the next six months out in front of me. And right now that thing is flat. So when I look at those nine materials that comprise 70%, that's like galvanized steel, stainless steel, aluminum, copper, coils that we build, coils that we buy, motors, compressors those are kind of those components. Heat exchanger tubes I think is one of them. I mentioned copper, yes. So anyhow there's nine of them that's 70%. The other 30% are two smaller buckets to really get a trend on them. So what they do is when some of these smaller buckets, when they get any notice of it, of course they make me aware of it. But the way I looked at it was of the price increase, let's say the 4% price increase probably something less than half of that price increase is going for the materials. Another component was going for salaries and wages that we adjusted those in the fall. And then the other part was to help with absorbing some of the overhead. And yes like the insurance. So we believe that the 4% price increase will be largely on the plant floor in Q2. In times past, it's been horribly painful because our lead time was a blasted loss. But now with our lead times so good, we're probably averaging I'd say is a complete tranche maybe eight, nine weeks. And so if it went into effect January 11, let's just even put 10 weeks on it that means that Q2 I ought to see, by and large, the new price on the plant floor in both plants. Well that being the case, some of these material costs don't hit me until late Q2, the changes. So I think that's what I was speaking to earlier that the timing seems to be just about right, as far as when I have any additional pressure on pricing and when I get a price increase. So I think we're poised well. Like I said, we've got a good six months of visibility out in front of us and that's always rolling six months, every month they update it and keep me six months in the -- knowledgeable. Well when I announce a price increase, I normally give about 90 days' notice so that those people aren't caught with bids out there that they haven't secured at a price. So I try and protect that side of the business as well. And so then if I do that and it takes them 90 days and then give them that 90 days and then I've got lead time that sub-90 days see that's why the six months is so important.

Yeah. So am I understanding correctly that in the fourth quarter you weren't really impacted much by the cost increases?

Just slightly by – salaries and wages were – they were adjusted what October weren't they?

Correct.

Yeah. So salaries and wages got it. And that was probably – what would you figure about 1% of sales?

About.

Yeah. So we probably lost – in Q4 we probably lost 1% of gross margin or margin. Then the real problem with Q4 was that we had to slow the production down just a little bit a lot of things to catch up. So we just couldn't amortize those fixed costs out as well.

Okay. Okay. All right.

On likelihood, Jon, at the beginning of April, when we get the month of March closed up and we can see a good period of time with the price increases, our cost structure in place operating smoothly presuming there's no natural disaster in the month of March, we'll be in a much better position to evaluate what we look like versus what the costs are that we see on the horizon and any action that we need to take. But that won't be until we get into the beginning part of April.

Okay. Okay. One last question again surrounding steel, we've heard in some instances that – I don't know, maybe it's true maybe it's not but that some steel consumers maybe put on allocation and or may or already are on allocation. Are you hearing any possibility that steel – there maybe an allocation and you may not be able to get as much as you would like? Any conversations around steel allocation?

No. And when I read that, I believe I read that in the Wall Street Journal a month or two ago, and in a really brisk pace trotted down to purchasing and said, tell me about this. And they said, Gary, you don't have to worry about a thing because we already own enough steel to go through Q2 that these people actually bring the steel in and warehouse it for us. Now, we keep several million pounds of steel on premises at – between our two locations. In each, one of these coils of steel weighs in the range of 45,000 to 48,000 pounds. And there's quite a few coils of steel sitting here. So I know it's in the low millions of pounds on premises. Well then you figure what we've got stocked in all the towers. How many million pounds you think we have Rebecca? Give me a good flag. Got one?

I can't even.

It's multiple millions of pounds okay? This is just in one storage.

The big one is 250,000?

Yeah. So we have a lot of steel on premises and then they have a lot of our steel that we've already contracted for and bought in their premises right. There's an 18-wheeler flatbed pulling up here a couple of times a day at least dropping – because they only carry one coil of steel on each one, because they weigh 45,000, 48,000 pounds. It's kind of funny looking to see a big 53-foot-long trailer with about a – what is it about a 10-foot diameter those coils? 8 to 10-foot diameter coil 5-foot wide that's all that's on it but it weighs 48,000 pounds. So we have a couple of those back up to the dock every morning and set those off. But no we're not finding any problem with that at least on the foreseeable future for the next several months. Now, if we were to get – again, we're thinking that there's a lot of surge because people are starting back up and they're buying more cars and all these kind of things that's using the steel up. And that surge is probably going to normalize before we need to be back in the market and before we need to worry about getting more steel. That's our anticipation.

All right, all right, Gary. Thanks so much.

Thank you, Jon.

Now our next question comes from Chuck Myer with Myers Family Office.

Hi, guys. Thanks so much for taking my question.

Certainly.

I just wanted to clarify on the working capital for this year. What are your expectations on how much free cash flow might be eaten up by getting working capital back to normal this year by the end of the year?

Well, we haven't provided that information and I don't have it handy at the moment.

Okay. Because I was just trying to triangulate, what was said in terms of cash at the end of the year being sort of similar to cash at the beginning of the year. And if I put together the pieces of net income plus D&A this year of I don't know, $28 million $29 million I'm not sure, if that is right or wrong and then the $70 million of CapEx that you laid out and then let's assume that working capital build eats up $10 million this year to throw out a number that sort of gets us to if we keep cash flat from now until the end of the year of earnings of around $50 million to $55 million or about $1 a share am I triangulating that correctly based on everything you've told us today?

Well, I think there are a lot of other factors that will go into our cash position by the end of the year in terms of buyback activity that occurs through our 401(k) plan, the dividends that we pay out and what those might potentially be during the course of the year that are not yet determined that leave us with some level of uncertainty as to exactly what that would be. We expect that, if we perform as well as we anticipate that there would be some growth in our cash position by the end of the year. It is not exactly a flat figure. So we don't try to give forward projections on our earnings expectations.

Got you. Okay. Thank you so much, guys. Appreciate it. I guess, just before I run one more quick question, I was trying to triangulate also the reasonably strong bookings related to the price increase in January with your thoughts on the first half being just weak because of ABI and what's happening in the economy and such. When I think about first half it seems to me like having sort of flat Q1 and Q2 from this quarter we just ended, it seems like the most reasonable outcome and then sort of an acceleration to the second half of the year. Is that sort of what you're implying as well?

Yes.

Okay. Okay. So the $116 million, $117 million of sales is sort of reasonable it sounds like for the next two quarters accelerating into the end of the year. and net of the insurance proceeds we did about $0.27 a share in earnings given the 29% gross margins et cetera. That all sounds like, it's in line with what your view is.

Well, I'm thinking Q2 is going to be a bit stronger than what you just portrayed.

Okay. So might the -- acceleration might happen into Q2 versus Q1. Okay. Great. Thank you, so much guys. Good luck.

Good luck.

And our next question comes from Jerry Levine, a Private Investor. Unidentified analyst: Well thank you Scott, Gary, Rebecca. I hope you guys are all well and safe and healthy and so are your families. After 19 years of listening to questions, I'm now able to ask one. So, I am going to ask one, but I think it's relatively simple. But my best to all of you guys and I don't know, if Norman is on the call or not but send him my regards if you will.

He's sitting here. You know he is.

Okay. Norm, I hope you're well. I hope your family is well.

All good.

The question I've got, Gary, is would you discuss a little bit about the representatives' effort on the retail side? I know, it was off to a good start last year. And then of course, COVID came along. How does it stand now? And what are your thoughts for the rest of this year? It's a very small contributor as everybody knows to the topline, but it's a very profitable business. How does that shape up right now?

Well, some of our national account customers that are involved in retail have remained fairly stable. The retail sector that I see that softened up a little bit is the more sporadic retail purchaser. So again, when we look at these national accounts that we've had, some of which we've had for many, many years, they're relatively stable. I don't see any problem with them whatsoever. The fact is one of them has already got as much orders in here in 2021, as they did for the last half of 2020. So they're accelerating and they told me it was because they could finally get jobs built. There were places that you'd see signs this is coming soon. And they used to tell you spring of 2021 or dates like that. Now there are signs they're coming soon. And they don't know what that means because they couldn't get construction crews on site. Now, they're starting to get them on site and they're starting to accelerate. So at least one or two of our national account retail customers is in that boat. But the more broadly looking at retail is what I'm looking at being a little softer than what it has been historically and a little smaller component of our overall efforts.

Okay Gary. What I also was referring to was the effort on the part of the reps to open up their own retail stores or...

Oh, the parts store. Yes. Yes that's coming up nicely. The -- I don't have a number of how many parts stores were added in 2020, but it was several. And there was commitments to add several more in 2021. Additionally, we put on some more personnel in the sales management and sales support to support that business. In fact is earlier today, I was visiting with the Director of Sales and he's going to reach out and make an offer to a person that is significant with a significant experience in the parts sales business he interviewed in the other day and he's going to reach out for an offer to this young man. And so, we're going to continue to put more and more effort and focus into that because it's materializing nicely for us. And our representatives are very appreciative of the support we give, the guidance we give. And this is another one of those share the best practices and share the stories of those that are winning with that strategy. And it's a very well-adopted strategy.

Thank you. You guys stay safe and healthy. Will you?

We will.

[Operator Instructions] And there are no further questions at this time.

All right. Well, we thank you very much for listening today. We'll speak to you again in May for our first quarter results. Take care.

And that does conclude today's call. Thank you for your participation. You may now disconnect.