Valmont Industries Inc Q2 FY2020 Earnings Call

Hello, and welcome to the Valmont Industries Second Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. Operator instructions were provided. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Renee Campbell, Vice President, Investor Relations and Corporate Communication. Ms. Campbell, please go ahead.

Thank you, Kevin. Good morning, and welcome to Valmont Industries second quarter 2020 earnings call. With me on today's call are Steve Kaniewski, President and Chief Executive Officer; Avner Applbaum, Executive Vice President and Chief Financial Officer; and Tim Francis, Senior Vice President and Corporate Controller. This morning, Steve will provide a brief summary of our second quarter results, a COVID-19 business update, and commentary on our strategy and long-term business outlook. Avner will review our second quarter financial performance, and provide an update on our third quarter outlook with closing remarks from Steve. This will be followed by Q&A. A live webcast of the slide presentation will accompany today's discussion and is available for download from the webcast or on the Investors page at valmont.com. A replay of today's call will be available for the next seven days. Please note that this conference call is subject to our disclosure on forward-looking statements, which applies to today's discussion and is outlined on Slide two of the presentation. It will also be read in full at the end of this call. I would now like to turn the call over to our President and Chief Executive Officer, Steve Kaniewski.

Thank you, Renee. Good morning everyone and thank you for joining us. Before reviewing our strong second quarter results, I'd like to start with a couple of comments. Since the beginning of the COVID-19 pandemic, we have worked very hard to keep our employees safe and have leaned on our core values and resiliency as a company to guide us. I want to start by thanking our 10,000 employees globally for their extraordinary efforts this quarter. They've worked tirelessly during this pandemic to deliver solid operational and financial results. They've demonstrated agility by quickly adapting to new ways of working and communicating, endured disruptions to their normal routines and remained flexible despite closures of some of our international facilities. I'm extremely proud of how our teams have been managing through this crisis, while taking care of our customers, themselves and their families. I'm also grateful to our global customers, suppliers and stakeholders for their ongoing flexibility and understanding during these unprecedented times. When we held our last earnings call three months ago, the challenges of the pandemic were just beginning to emerge. And we were aware of only a few positive cases in our workforce. Since then there have been additional cases. Although the current infection rate of our employees remains less than a half a percent of our total workforce, I'm happy to report that all those who have tested positive are either recovering or have fully recovered. Importantly, to date, we've had no significant disruption to our operations directly attributed to the virus. With that, let me turn to a recap of our second quarter summarized on slide four of the presentation. Net sales of $688.8 million declined $12 million or 1.7% compared to last year; excluding $13.7 million of unfavorable currency impacts, sales were flat. Strong growth in the utility support structure segment was more than offset by expected lower sales in the coatings segment due to COVID-19 impacts and weaker industrial demand. Overall, both revenue and profitability were better-than-expected across all segments, as we successfully managed pricing and operational performance. Turning to the segments and starting with engineered support structures, sales of $253.4 million declined 2.1% compared to last year, and were flat year-over-year excluding unfavorable currency impacts. We delivered a solid quarter of sales growth of lighting and traffic products in North America, benefiting from ongoing investments by state and local governments that strengthen demand in transportation markets. Globally, wireless communication sales grew more than 7% compared to last year. Carrier spending continued to drive demand in North American markets, and our small cell products are beginning to gain traction as 5G buildouts are starting to ramp. Project sales in Europe, mostly driven by a large 5G project in the UK, also contributed to revenue. Sales of Access Systems products were lower compared to last year, primarily driven by our strategic decision to exit certain product lines, as well as impacts from pandemic-led factory shutdowns. Turning to utility support structures, sales of $231.3 million grew 10.2% compared to last year. Sales of global transmission products increased significantly across all structure types, amid ongoing investments to strengthen the grid. Volume growth was also driven by strategic capacity additions in North American operations that we announced last year. Sales in international markets, including solar trackers and offshore wind structures, were flat with last year. I'm pleased to highlight that the global backlog of nearly $650 million remains strong at the end of the quarter, and includes a large lattice structures order of approximately $17 billion for the North American market. This is a result of our partnership with Locweld, a Canadian market leader for steel lattice transmission towers. Our lattice manufacturing facility in India is an exclusive subcontractor for Locweld, and customers will benefit from both companies' combined expertise to provide quality structures, greater supply flexibility and enhanced service levels. Production for this order will commence in the fourth quarter of 2020 with most of the revenue recognized throughout 2021. Moving to coatings, sales of $80 million decreased 18.7% compared to last year as expected. External volumes were lower due to COVID-19 impacts to end customers and temporary facility closures. Moving to irrigation, segment sales of $150.6 million declined 3% compared to last year. Excluding unfavorable currency impacts, sales were flat. In North America, sales were down 3.7%; higher sales of irrigation products and pricing were more than offset by lower industrial tubing sales driven by lower steel costs. International sales grew organically across all regions offset by a negative currency impact. Very strong demand in Brazil led to another quarter of record sales in local currency. While impacts from COVID-19 have caused disruptions in Brazil, the agricultural market remains strong. This past May, we learned that Agrishow, the largest annual farm show in Brazil, which sees about 150,000 growers attend, would be canceled due to the pandemic. As many of you know, this show has historically generated a significant number of orders. Upon learning of the cancellation, our local irrigation team creatively organized their own exclusive virtual show spanning nearly two weeks, including webinars and virtual roundtables. This was a first in the industry, leading to millions of dollars in orders received. We believe this affirms our position as the market leader, demonstrating our commitment to serve customers and grow market share. Turning to slide five, as we have communicated over the past several years, acquisitions have been a strategic focus of ours. I would like to take a few minutes to highlight two recent small but strategic acquisitions that advance our strategies of adjacent market growth and technology leadership. First, we purchased a majority stake in Solbras, a unique provider of solar energy solutions for the Brazilian agricultural market. Our strategy to expand their services globally, through the strength of our Valley dealer network, will provide us a first-to-market solar power offering for growers. Going to market as Valmont Solar Solutions, we can now offer a distributed generation solution for powering pivots and other farm equipment to optimize the efficiency of growers' operations, and provide data monitoring solutions that are unmatched in the industry. Expanding this product into Africa, the Middle East and other developing markets over time allows us to offer innovative options where the electrical grid is lacking and/or generation sources are not viable. These solutions also play an important role in reducing environmental impacts and supporting communities, furthering our commitment to sustainability and ESG principles. We also acquired the assets of PrecisionKing, a subscription-based AgTech company that provides remote sensing and monitoring solutions for the U.S. market. With this acquisition, our number of global connected devices is now approximately 102,000. Year-to-date, technology sales grew to more than $32 million. We remain focused on acquisitions and investments that provide value to our customers through technology and data solutions. With an emphasis on bolt-ons that add to the larger AgTech ecosystem we're building, I would like to welcome both of these teams to Valmont. In prior quarters, I've spoken with you about Valley Insights, our artificial intelligence-based crop monitoring and detection service. Using imagery to detect crop health issues, this advanced service alerts the grower to problem areas for remediation. Together with our partner Prospera Technologies, we recently expanded it to commercial growers in four states, and I'm excited to share that we have already reached our goal to monitor 5 million acres, six months ahead of schedule. More than 300 growers on 4,800 fields are now benefiting from the service and feedback has been extremely positive. Recently, we began conducting field tests using sensors mounted on Valley irrigation machines, located just a few meters from the plants. These sensors collect high-resolution images day and night, capturing significantly greater details than drone, aerial or satellite imagery can provide at a much lower cost profile. Examples are shown on slides 27 to 29 in the appendix of this presentation. These sensors are a key milestone in our strategic roadmap to transform the center pivot to an autonomous crop management machine. We look forward to updating you more in future quarters. Importantly, and as we've said before, we attribute our success here to a very strong collaboration with our world-class dealer network, which is critical to grower education and market adoption of these technology products. I will now turn to slide six for an update on the specific actions we've taken to help mitigate the business impacts of COVID-19. First and foremost, the safety of our employees continues to be our number one priority. We remain vigilant in adhering to safe distancing procedures and processes in all of our facilities and work areas. We have continued our remote work policy across our administration teams where possible to limit the number of individuals at our manufacturing facilities. We believe these measured steps have prevented our factories from becoming a vector point for infections, and are grateful for the health and well-being of our employees who are the backbone of our company, servicing our customers and keeping our factories operational. Turning to slide seven, a reminder that our products and solutions are considered essential, as they support critical infrastructure sectors and food security as defined by many global government agencies. Most of our manufacturing facilities have continued regular operations since the pandemic began, and we are pleased to report that all facilities that were temporarily closed have resumed operations at pre-pandemic levels. From a macro standpoint, we continue to expect stable input costs, improved labor availability and lower employee turnover. We recognize that there are potential longer-term economic headwinds in the markets we serve that could impact our businesses in the future. We continue to work with our global teams to closely monitor market conditions and customer patterns. Turning to slide eight, as we outlined last quarter, the COVID impacts to our business vary across the portfolio, and are the basis for which we continue to assess the balance of the year. The risk profiles of the segments have not changed since last quarter, and Avner will speak to our third quarter indications and assumptions later in the call. Across our footprint, we continue to closely manage discretionary spending and capital expenses until the impact from the pandemic is more clear. As our business portfolio is diversified with different business cycles, our experienced teams can withstand market challenges. We carefully plan for different scenarios and are confident in the actions and adjustments that need to be made and will execute accordingly as conditions dictate. With that, I will now turn the call over to Avner for a second quarter financial review and update to our third quarter outlook.

Thank you, Steve. And good morning, everyone. Before I begin, I want to make a few opening remarks about my first quarter as CFO for Valmont. Over the past 90 days, I've been spending time learning the organization, getting up to speed on the business drivers, meeting with the finance and IT teams, the executive management team and digitally connecting with colleagues. It's clear that Valmont has a very knowledgeable, experienced and talented team, and I'm excited to lead our finance organization to becoming a true strategic partner to our businesses. We have a lot of strength, as well as opportunities, including around optimizing working capital, maximizing free cash and improving return on invested capital. I believe that with a combination of robust shared services, utilizing advanced technology, data and lean practices, we can transform the finance function to business partners and strategic enablers, developing centers of excellence and accelerating initiatives to drive shareholder value. I'm excited for our future and look forward to sharing more details with you in the coming quarters. Moving to second quarter results. My comments will focus on the adjusted results as outlined in the press release and in the Reg G disclosure in the presentation appendix. Please also note that for comparison purposes, references to 2019 operating income and earnings per share exclude the LIFO method of accounting for inventory which was discontinued at the beginning of fiscal 2020. Turning to slide 10, second quarter operating income of $65.7 million, or 9.5% of sales, grew 3% compared to last year on comparable sales, solid performance in our three largest segments offset lower profitability in the coatings segment. Second quarter diluted earnings per share of $2 grew approximately 10% compared to last year. During the quarter, we incurred incremental expenses related to COVID-19 impacts, which on a net basis totaled approximately $2.4 million or $0.09 per share. Second quarter tax rate on an adjusted basis of 25% was comparable to last year. Turning to the segments on slide 11, in engineered support structures, operating income of $22.9 million, or 9% of sales, increased 90 basis points over last year. Overall, we were very pleased with the continued pricing discipline and strong volumes in North American markets. In international markets, the effects of Valmont facility closures, primarily in France and India, impacted margins. This quarter we executed on planned restructuring actions across the companies and the details are noted on slide 38 in the presentation. Specifically in Access Systems, we recorded non-cash goodwill and trade name impairment charges of $16.6 million and incurred other expenses associated with exiting the non-core supply and install product offering, which will reduce operating costs going forward. Excluding these charges, second quarter profitability was comparable to the first quarter and improved compared to the second half of 2019. Moving to slide 12, in the utility support structure segment, operating income of $25.3 million, or 11% of sales, increased 340 basis points over last year. Stronger volumes, improved operational performance, and a better quality of earnings in international businesses drove the profitability improvement. Turning to slide 13, in the coatings segment, operating income of $10.4 million, or 13% of sales, was 240 basis points lower than last year. As expected, lower volumes from economic impacts and temporary facility closures associated with COVID led to operating deleverage. Moving to slide 14, in the irrigation segment, operating income of $22.4 million, or 14.8% of sales, increased 90 basis points compared to last year. Profitability improvement was led by pricing and higher sales volume. Turning to cash flow on slide 15, we delivered solid operating cash flow of $88.2 million this quarter, leading to a 33% improvement in year-to-date operating cash flows compared to last year. Our relentless focus on working capital management is delivering results, especially during these uncertain times, along with a more stable raw material cost environment. As I mentioned in my opening remarks, optimizing free cash flow will be an even greater focus going forward. Turning to capital deployment, the year-to-date summary is shown on slide 16. Capital spending this quarter was $24 million and we remained focused on strategically investing in future growth opportunities while ensuring optimal liquidity. During the quarter, we deployed $7 million for two strategic acquisitions, and returned approximately $10 million of capital to shareholders through dividends, ending this quarter with approximately $353 million of cash. Moving now to slide 17 for balance sheet highlights, we recalibrated our capital spending plans for 2020, which are expected to range between $80 million to $90 million. We continue to aggressively manage spend and prioritize strategic investments internally. Early in the second quarter, we drew down $75 million on our $600 million revolving credit facility to ensure sufficient liquidity amid the uncertainty of the pandemic. As a result of strong cash flow and favorable business performance, we repaid this amount in full during the quarter. Our balance sheet is strong with no significant long-term debt maturities until 2044. Our leverage ratio of total debt to adjusted EBITDA of 2.3 times remains within our desired range of 1.5 to 2.5 times. Let me now turn to slide 18 for an update to our outlook, including key financial metrics and assumptions for this quarter. Net sales are estimated to be between $680 million and $700 million with operating income margins between 8% to 9% of net sales, excluding any restructuring activities. Key assumptions supporting this outlook are summarized on this slide. Turning to slide 19, in engineered support structures, our current backlog is yielding good visibility to third quarter lighting and traffic sales. The long-term market trends for both transportation and wireless communication structures and components in North America remain solid. However, visibility beyond this quarter is less clear given the combination of states' lower tax receipts and recent decisions to reverse reopening in some states, both of which could impact order timing. Further, wireless communication sales within the quarter are harder to predict due to the timing of shipments. Sales in international markets are expected to be down slightly compared to last year due to ongoing economic effects from the pandemic and a strong U.S. dollar. Access Systems revenues are expected to be similar to the first two quarters of this year, but lower than 2019 as we continue to right-size that business for future market conditions. Third quarter profitability for this product line is expected to gradually improve compared to second quarter 2020 adjusted results, and this has been accounted for in our outlook. Moving to the utility support structure segment, our strong backlog and the benefit of capacity additions are providing good visibility to the third quarter. Segment revenue is expected to increase approximately 20% compared to prior year, which includes the large transmission order in Northern Europe received last quarter, and higher solar project sales. In coatings, we expect demand to remain muted due to current global economic activity levels. Coatings sales tend to correlate to industrial production levels, and the operations will leverage and deliver the most with changes to volume. Moving to irrigation, continued weakness in agricultural commodity prices is expected, especially corn and soybeans. Net farm income levels are not expected to improve in the near term, and this metric has historically been the best indicator of demand for this segment. The continued challenging ethanol market, strong U.S. dollar and uncertainty around the timing of international projects can all impact quarterly sales. A reminder that third quarter is a lower sales quarter compared to the rest of the year due to normal business seasonality. Finally, we expect solid third quarter cash flow driven by additional emphasis on working capital management. The deferment of estimated U.S. tax payments into third quarter are included in our operating cash flow estimates. With that, I will now turn the call back over to Steve.

Thank you, Avner. Moving to slide 20. As we stated last quarter, the fundamental market drivers of our business remain intact. In engineered support structures, government investment in infrastructure development across lighting and transportation markets is expected on some level as past recessions and associated stimulus funding initiatives have shown. We are encouraged that 17 states have already implemented or proposed fuel tax increases in 2020, which are generally used to fund road and highway projects. In Europe, recent announcements of infrastructure stimulus packages will drive additional market demand there. Growth in wireless communication structures and components, particularly in 5G, are expected to accelerate into 2021 as carriers' investments are supporting an increasing number of work- and school-at-home environments. The current pandemic has elevated the critical need for wireless connectivity in rural areas. I'm excited to announce that Valmont recently joined the American Connection Project Broadband Coalition. This group brings together nearly 50 diverse stakeholders advocating for public and private sector investment to bring high-speed internet infrastructure to all households, businesses and farms in rural areas. As a provider of both wireless communication products and irrigation technology solutions, this initiative will greatly benefit many communities that need this investment. In utility, our robust backlog demonstrates the ongoing demand and necessity for grid hardening and renewable energy solutions independent of general economic trends. Our coatings business closely follows industrial production trends and general economic activity. The drivers remain solid, as over the long term preservation of critical infrastructure and the increasing number of economies that are actively fighting the cost of corrosion will drive the need to extend the life of steel products globally. In irrigation, our products and technology help meet the demand for increased food production to support growing populations around the world. The sustainable management of water resources and optimization of farm inputs and supporting growers' conservation efforts are just a few of the long-term drivers that support demand for our business. In international markets, governments' increasing needs for food security and agricultural land development, including infrastructure for power generation and supplying water to farms, creates opportunities for large projects. We continue to have a very strong pipeline of project business, but as we always say, timing of shipments can be hard to predict based on local factors. In summary on slide 21, our strong performance through the first half of this year is a testament to the agility of our team and our ability to manage well through uncertainty and change. We anticipated challenges and responded quickly by deploying alternate work arrangements, implementing health and safety protocols to ensure the protection of our employees and communities and reinforcing our supply chains. At Valmont, one of the keys to our success is the diversity of our global workforce. We operate in 22 countries with many different cultures, traditions and languages. Our core value of integrity means we will do the right thing every day, even when no one is watching. We continue to build upon our commitment to environmental and social excellence, including demonstrating the value that we bring to our community, and our commitment to be an inclusive and diverse workforce. While the disruptions from COVID-19 continue to create short-term business challenges, the long-term enduring drivers of our businesses have not changed and are not expected to change once we get through the current crisis. I will now turn the call back over to Renee.

Thank you, Steve. Kevin, at this time, you may open up the call for questions.

Certainly. We'll now be conducting your question-and-answer session. One moment please while we pull for questions. Our first question today is coming from Chris Moore from CJS Securities. Your line is now live.

Hey, good morning, guys. Congratulations.

Chris, good morning.

Good morning. Yes, maybe just start with operating margins. Adjusted operating margin in Q2 is 9.5%. Midpoint for Q3 is 8.5%. Maybe you could just talk a bit about where the margins are likely to be lower in Q3?

Yes, Chris, this is Steve. Just to kind of put some color to that: when we looked at the models, this is historically a low point in the year for irrigation, and as such that is our number one profit driver. So that was one of the factors we took into consideration. The other is the fact that the coatings market, which is our second most profitable segment, also has some traction to gain back steam from the economic slowdown. And then in utility, there is more of our revenue coming from international markets this quarter, and that tends to have a little bit lower margin profile than just the North American market.

Got it. Very helpful. And just maybe switch gears. The $17 billion lattice structure order, I'm just curious with Locweld. Maybe can you talk a little bit more about that partnership moving forward? Does it have any impact on margins when you partner with them or kind of how you see that moving forward?

Yes. Locweld is based in the Quebec Province of Canada, which tends to be one of the largest lattice structure markets in the world. It's a very good combination for us to work with them. We can bring a lower-cost alternative out of India, and that helps them to serve their customer base. They have the relationships there that are not always the easiest otherwise to break into. So from a margin profile, it should provide relatively good lattice-type margins, which are not necessarily as good as monopole margins. But as we look globally to expand the lattice market—95% of all structures around the world are lattice—it provides a real growth avenue for us and high utilization of our plant in India that we purchased a couple years ago.

Got it. Very helpful. I'll jump back in queue. Thanks, guys.

Thank you. Our next question today is coming from Brent Thielman from D.A. Davidson. Your line is now live.

Great. Thank you. Good morning.

Good morning, Brent.

Steve, really kind of a broader question: what are you seeing from competitors around the globe in your operations, around pricing and discipline? Anything that causes you concern there?

It varies segment-to-segment. From our own commitment, we will be the price leader. We have seen at times some competitors back off of that and want to give back steel—let's say—some of the decrease in steel and zinc, even though the markets are relatively robust. We are going to stay disciplined around the fact that we're going to get a market-based price and not a price that's based solely upon raw materials, because there are many other inputs and challenges in delivering our engineered products to the market. We've not seen anything on a large scale of price erosion with the softer steel markets or softer zinc markets. So we've seen pretty good discipline with the exception of a couple players here and there on an order-by-order basis. The larger the order, you tend to maybe get a little bit more discontinuity in the way people price, but generally I think most market players are behaving.

Okay. Thanks for that. And then I guess maybe you could just talk about the outlook or prospects or any visibility you have around the larger international irrigation projects and what that looks like over the next 12 months?

We have a very good pipeline of potential international orders. The strong U.S. dollar can impact timing because they have to raise capital in some of these markets to open letters of credit with us. But the food security issue has really been a strong driver in project activity internationally. As we mentioned, we saw organic growth in all of our international markets despite everything else that's going on—and Brazil was particularly strong. So between the organic nature of some developed markets and the project-based activity in Eastern Europe, the Middle East and Africa, it looks pretty good as we look out over the next year. Again, timing will be uncertain, but the project level is definitely increased.

Okay, great. Thank you.

Thank you. Our next question today is coming from Joe Akin from William Blair. Your line is now live.

Hi. Good morning. This is Joe on for Brian Drab today. Thanks for taking my question.

Good morning, Joe.

First, I was just wondering on the lattice structures order: you touched on the Locweld partnership. I was wondering if you could just talk a little bit more broadly about that business and traction in that business, and what your strategy is there?

The lattice business, being the predominant structure type globally, has been an emphasis for us over the last couple of years. We purchased a facility in India a little over two years ago, and it takes time to build a portfolio in the lattice area. One of the things Locweld does for us is provide a large project—a library of structures—that we can now use in bidding other lattice projects around the world and in North America. We're strategically located in India from a cost perspective, and India tends to be one of the most dominant lattice providers outside of China. We feel very good that the Locweld partnership will help us and help them, and really provide a growth platform for us outside of just the monopole market.

Thanks. That's really helpful. And then switching gears on the large European transmission order: did that order begin to ship at all this quarter? Can you update us on the timing for that? And is there any potential for further work with that customer going forward?

There were no shipments in the second quarter. We will be shipping on the back half of this year and into the first half of next year. It is a large customer. These are big projects for interconnections of alternative energy across Europe, and so there are some follow-on potentials thereafter. We feel with strong execution, good quality and good timing of our shipments, there's definitely the ability for us to have some follow-on work.

Got it. Thanks for taking my questions.

Thank you. Our next question today is coming from John Braatz from Kansas City Capital. Your line is live.

Morning, Steve.

Good morning, John.

Steve, in the face of COVID-19 a lot of companies really slashed their budgets and laid off or furloughed people. That really wasn't the case at Valmont, was it? There weren't a lot of cost reductions because of COVID-19. Is that the case?

That's correct. We quantified it with the approximately $2.4 million impact in the quarter; that was our additional incremental costs. Some of that was retention bonuses for our frontline personnel. We'll probably have about a $0.5 million of drag per quarter as we look forward just for distancing, PPE and some people being quarantined as they come in contact with others. But generally, we worked through the majority of the quarter with the rare exception of a handful of plants internationally that we had to shut down. In those cases, we didn't have the revenue or the operating profit, and we also didn't have the cost, so they kind of self-corrected as everything came back online. But we did not lay off anybody as a result of the pandemic. Our demand profiles were within our budgetary and forecasted expectations. So there's some attrition that hasn't been replaced, but there hasn't been any need to slash costs.

Okay. And then secondly, as we approach the end of the year, state and local budgets are probably going to get tighter. When do you think you might get a sense as to the impact that these tighter budgets might have on infrastructure spending, highway spending and so on? When might we get a better sense of what's going to happen next year in that area?

From a federal level, I would say that after the election would really be the time to think about whether there will be further infrastructure spending and how funds might be allocated to the states as a result of COVID effects. At the state level it's going to be a patchwork based on budget cycles and the local impact of COVID. Texas, for example, is a large market for us; it started to reopen and then reversed course. It's still hard to see clarity there. California and Florida are real big transportation markets. What we've seen on our order intake side is some weeks down then some weeks up. It's hard to tell if that's based on fundamentals or simply that people are now working to approve projects and allocate funds. I think as the third quarter goes on and some things get settled between federal aid and state budgetary actions, hopefully we'll see more clarity. But it will probably be into the first quarter of next year before we really have a good outlook, particularly on transportation spend.

Yep. Okay. All right. Thank you, Steve.

Thank you. Our next question today is coming from Nathan Jones from Stifel. Your line is now live.

Good morning. This is Adam Farley on from Nathan.

Good morning, Adam.

Following up on that half-million drag from social distancing, was there anything in addition to that that impacted productivity in your manufacturing facilities? And on the flip side, are you learning any ways to drive productivity or getting gains from work-from-home or other changes?

Yes. We are seeing some productivity gains coming from having to travel less, less time spent in meetings, and other efficiencies that often result from remote work. The half-million we referenced is really around additional PPE, some facility modifications, and the cost of quarantining employees who must be there. That number may decrease slightly over time, but it's a reasonable benchmark until the pandemic and a vaccine situation change. From a productivity perspective, we had a very productive quarter and have been seeing productivity gains from quarter to quarter driven by blocking and tackling, lean and agile improvements.

Okay. And then switching over to the 5G commentary: you mentioned work-from-home might be accelerating some spend since more people are on cellular networks. Is it pulling forward any investment there or any other color on 5G?

I wouldn't say it's pulling forward investment; these are mostly planned investments. What it has done is caused carriers to allocate coverage differently. With fewer people in downtown areas and more in suburban areas, the work- and school-at-home environment shifts demand in a way that tends to help our business since it often benefits towers and poles outside city centers. The rural broadband initiative is a key way to bring 5G-type speeds to rural areas where fiber-to-the-home is not feasible. In a way, the pandemic will change the demand profile of how 5G rolls out, but we think the overall investment will be around the same, which is reaffirmed by major players in the industry.

Thank you for taking my questions.

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

Thank you for joining us today. As mentioned, today's call will be available for playback on our website or by phone for the next seven days. We look forward to speaking with you again next quarter.

Included in this discussion are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions that management has made in light of experience in the industries in which Valmont operates, as well as management's perceptions of historical trends, current conditions, expected future developments, and other factors believed to be appropriate under the circumstances. As you listen to and consider these comments you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties, some of which are beyond Valmont's control, and assumptions. Although management believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect Valmont's actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. These factors include, among other things, the continuing and developing effects of COVID-19, including the effects of the outbreak on the general economy and the specific economic effects on the company's business and that of its customers and suppliers, risk factors described from time to time in Valmont's reports to the Securities and Exchange Commission, as well as future economic and market circumstances, industry conditions, company performance, and financial results, operating efficiencies, availability and price of raw materials, availability and market acceptance of new products, product pricing, domestic and international competitive environments, and actions and policy changes of domestic and foreign governments. The company cautions that any forward-looking statement included in this discussion is made as of the date of this discussion, and the company does not undertake to update any forward-looking statements. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.