Somero Enterprises, Inc. (SOM) Earnings Call Transcript & Summary

Welcome to the Somero Enterprises Full Year 2023 Results Webinar. All attendees are in listen-only mode. At the end of the presentation, there will be the opportunity to ask questions. You can submit a question at any time by clicking on the Q&A button. This webinar is being recorded. I now hand over to Jack Cooney, CEO; and Vincenzo LiCausi, CFO. Jack, over to you.

Thank you, everyone, for joining us tonight. And I hope you have a lot of good questions for us to answer. It's been a great week here in London, and we've got to see a number of people. So what we'd like to do is run you through the presentation and then we'll take the questions afterwards. Nonresidential construction last year was very good. It's very consistent. Our customers are reporting high levels of activity in backlogs. Growth in Europe and Australia was driven by new customers in parts and services. We expect to be continued healthy and good, strong profits this year and significant returning to cash. They're going to look at sales by territory. We put out a downgrade in June and at that time, we mentioned that there was not any jobs that were being canceled, but they were all being pushed, and that is the situation that remains today. In that process, a lot of the projects that were pushed were in the boom screen category. That means that they were larger projects. And you can see by the sales in North America that the sales are down equal to the change in our forecast from the beginning of the year to the middle of the year. So this shows the indication of what you'll see is a shortage of sales in boom screed as we go along. Europe had a very nice year, growing slightly. Australia continued to grow very strongly. In each one of these cases, there was a significant amount of new customer contributions to both territories, along with growth in sales of parts and repairs. Rest of the world is just a group of the smaller companies that tend to be very lumpy that we put together every year. There are opportunities for us in the future. They just haven't begun to grow enough to put a single person in place. Going to Page 4 and looking at the sales by product. As I mentioned, the booms screeds are down. One of the things to note when we're looking at categories of products that are down or up, the type of machine that a customer is going to buy is based on the size of the slab that he's going to be doing, he or she is going to be doing. So therefore, when you see a reduction in the boom screed side of things, it tends to say that things are not as we thought they would be in large projects, and those are exactly the ones that are being pushed. You'll notice that the right on screeds are very flat from the previous year. And what that indicates is that our customers had plenty of work on the small side of slabs, it wasn't on the large slabs that they had the kind of volume that they hope to have. And the other categories all looked very good for us last year. And with that, I'll turn over the financial highlights to Enzo.

Thanks, Jack. So as a result of the delays we experienced in North America total revenue declined approximately 10%, which was the primary driver for the reduction in profitability that we see here from year-to-year. That said, our margins remain relatively within range of our historical results, albeit at the low end of the range. We continue to generate excellent cash flow from operations with over $24 million. That enabled us to end the year with over $33 million in cash comparable to the end of last year. That will allow us to fund our ordinary dividend as well as pay out a supplemental dividend here in May of 2024. Digging into the P&L results a bit deeper and picking up with our gross profit. In 2023, our gross margin was approximately 56%. Again, within the range of our historical results, we target mid-50s as we look forward. Our operating expenses ticked up a bit, primarily in sales and customer support as we added personnel primarily outside the U.S. and Europe and Australia, which are the customer-facing personnel. We did divest our China operation at the end of 2023, and that expense is reflected within our other expense line item. And our effective tax rate was 16% compared to 23% or 22% last year. However, that's primarily a result of a reversal of an uncertain tax position where we received a favorable ruling from the IRS, and therefore, we're able to reverse that through our tax provision, but that was entirely noncash and not a recurring item. Moving on to our balance sheet. We pay particular attention to our working capital. Our accounts receivables remain moderate relative to our trading levels. Inventory did tick up year-over-year. However, that was a function of bringing in more trade-in machines at the end of 2023 than we normally do. Excluding trade-in machines inventory would have actually declined $1.4 million as we unwind some of the excess safety stock we have built up there in the pandemic. Moving now to the current liabilities. You'll note a significant decrease from the end of 2022, which is a bit of an anomaly at the end of '22, we had elevated levels of payables as we received then a bolus of inventory as we prepared to stock up our international locations for the beginning of 2023, which was settled in the beginning of 2023 as well. We also had the Houghton facility expansion, final settlement that we paid out in the first quarter of 2023. In addition to that, at the end of 2023, our liabilities were a bit lighter just as a result of lower incentive compensation given that we had not hit our targets in 2023 from a revenue perspective. Moving down to the cash flow. I commented a bit about our working capital. So I'll move down to investing activities. We didn't have any major projects in 2023. Our ongoing run rate is typically around $2 million. However, in 2024, we do anticipate slightly higher CapEx, certain sections of our Houghton facility, which date back to the original building over 20 years ago or needing some updating. So overall, we would expect approximately $3 million in 2024. We continue to pay healthy dividends almost $20 million. That is comprised of our final 2022 ordinary dividend as well as a supplemental dividend as well as an interim dividend for 2023, and we continue our share buyback program. Overall, net cash changed very little compared to the end of 2022, exiting 2023 in a very strong cash position, which will allow us to return capital back to shareholders through our dividend policy, which is on the next slide. We pay out 50% of adjusted net income as an ordinary dividend. After the interim dividend that we paid at the end of 2023, that leaves $7.3 million that will be paid out in May. And we'll also have a supplemental dividend, which would be 50% of $25 million, which is our threshold for cash, and that will translate into $4.1 million, both of which will be paid on May 10 to shareholders of record as of April 12. And with that, I'll hand it back to Jack.

Thank you, Enzo. So it was a very active year with product development, we're able to come out with 3 new products this year. The first one is an electric battery-powered S-240 machine. The S-240 is for medium-sized labs, and it's our largest selling product category that we have in the line. The second machine we came out with is an SRS-6, which is a boom screed, and it fits into a niche in a boom screed line. And once again, just a reminder that our customers buy different size machines because of the types of slabs that they have in terms of size and in some cases, in the equipment they have to transport our new machines. The final new product is one that will be produced in the late third quarter, early fourth quarter, and we will announce at that time exactly what it is. On Slide 11, you can see the S-240, it's been a lot of demand for battery-powered equipment through the years. We've just spent time trying to understand which machine we should put our first battery-powered equipment on. And by choosing the S-940, as I said, our highest selling machine, we think we've bought the right product for the categories that people are looking for. There's a big difference between the desire for battery equipment in Europe than there is in the United States. You're quite a ways ahead of us on the ecology side of things. But with that being said, there is a significant amount of interest in the U.S. for battery-powered equipment because we have a number of projects that need to be done with no fumes in the building while the buildings being built. So far, it's been out for 1 month from our World of Concrete show, we've had excellent results from people that have been looking at it and interested in it. And it has the capability to run for 8 hours, and we also measure timing with the number of square feet you can do a day, which is 35,000 square feet. The second machine is the-- it's the next step up from our SRS-4, which was introduced a number of years ago. And as I said, it's the perfect machine for a number of our customers for the different jobs that they have. Going to Slide 12, talk a little bit about international growth. Revenue from new customers represented 39% of our total. The new customers that we find are people that are moving up from the residential screeding part of the industry. And in residential screeding all of those floors are put down by hand. And it's a very commodity type business, and it's a very difficult business to do manually. And what we find is each year, there's a significant amount of customers, on average, it's somewhere in the 20s that we get each year for new customers that want to move from the residential market to the largest screeds that have specifications for flatness and there's a greater opportunity to make better wages and earnings. Parts and service revenue grew by 19%, and we've had some additions, key additions of salespeople in Italy, Germany and the Czech Republic. We're also adding a new training center in Belgium. This was due to inflammation we received from our customers as we survey them about what can be done to make their life easier and more effective. And so we're in the process of opening that center right now, and we will be hiring people there, and we will do parts repair. We'll be doing service most of the time in our facility, but sometimes in the customer's facility, along with the training for anybody purchasing machine. Turning to Page 13. Australia also had a very, very good year. Their revenue from new customers was 62% of our sales down there. Now it's important to note that our customers do not buy something every year. They buy something based on the new bids that they win and the size of those bids. So in a lot of cases, our customers have the right machines to do the jobs they win for bidding in a year. And then at other points in time, they're bidding is such that they end up with a number in a category where maybe they only have 1 machine and they need 2 or 3. So those are the things that determine their buying habits. And the team in Australia increased to 11 people, and we secured a larger facility there. On Page 14, we're going to take a look at the outlook for the year. We expect the markets to remain very consistent and very strong. As I mentioned, our customers all have very healthy backlogs. We're going to get continuous contributions from Australia and New Zealand, and we're also putting investment into new staff in those locations. And just going down to summarize everything, the Board expects the company to deliver revenue, profits and cash flow in 2024 comparable to 2023, with a modest downside based on the investments in Belgium and a year-to-year cash flow comparable. So with that, we'll be more than happy to take some questions.

Thank you very much, Jack. [Operator Instructions] And the first question here, based on the North American and Australian sales figures, what are management sales expectations for the medium or long term for the European market once this region regains normalized non-resi construction activity?

Well, that's a good question. The problem we have in forecasting the future is we're not sure when things are going to get normalized and what normalized means. Right now, there's a tremendous shortage of labor all over the United States. It's not just in our category of laser screed floors. It's in all parts of construction, and it's also in all parts of the economy. And that's what's slowing things down, as I mentioned, that's why jobs were pushed early in 2023, and they weren't canceled because there's tremendous labor shortages that products aren't getting for the ready-mix companies so they can produce a number enough cement. It's affecting a lot of different industries. So we're not sure when this is going to end in what the speed of it is when it's going to end. What we do know is that our customers have a lot of demand right now and they're very optimistic about the year in the future and actually the future going beyond that because they see their customers being very, very busy.

And is there any update on concrete availability in the U.S.?

The issues with concrete availability have not changed. There are still many days where -- just to give you an example of one contractor who called the ready-mix company, and he said, 4 days from now, I want to get enough to do 40,000 square feet. And they said, we can't give you 40,000 square feet of concrete. We can give you enough for 10,000 square feet. It's not practical to build a 40,000 square foot slab in 10,000-foot edition. So he said, when would it be available that I could get enough for 40,000 square feet? And he said, probably a week from now. So those are the kinds of things that are slowing down our customers so that they are not working at their full capabilities.

And what would lead to an improvement in concrete availability?

There's many things that go into the concrete business being more productive. As we just mentioned, there's a labor shortage in truck drivers, but there's also other things like permitting that has to be done in each town that the building is being built in, and there's a shortage of people who know how to do permitting. So it's not unusual to wait 1 or 2 years to get a permit through. So a lot of it seems to come back to the shortage of people. And the general thought behind why there's a shortage of people is that during the pandemic, a great many people who were over the retirement age all retired at once.

And what's caused the reduction in gross margins?

Our gross margins are going to vary from period to period. They do fluctuate their material price increases, plan efficiencies, volume is going to have an impact on pricing. So there are a variety of things, but there are any one major issue that we see, and we do target 55%, mid-50s from a gross margin standpoint.

Has there been a structural shift towards renting screeds rather than purchasing them as with other plants? And if so, how are you responding?

The answer to the question is no. The rental people do not want to rent equipment that goes in concrete because it's driving in wet concrete in the concrete sets up very quickly. And if it's not cleaned quickly and properly, it basically cures on the machine. And then in order to get it off the machine, you have to take a sledgehammer to break it apart with end of damaging the appearance of the machine, which makes it harder to rent. That's the major problem behind it. Training is another difficult thing because the laser screen requires somebody with experience and knowledge to be able to operate it. So as of now, none of the rental companies rent any screeding equipment.

And the question says, I understand broad market acceptance will be a gradual process, but why is new machines aim to remedy pain points the customers have these products launched since 2019 only provided $2 million of revenue. Surely, it can't just be a matter of sitting around, can we deploy more capital here? And somebody else has asked a question specifically about Sky Screed and the progress there.

Yes, those are all good questions. When we develop a new product, we do it by inviting our customers in certain categories for certain types of machines to be on an innovation council where we sit down and try and understand the problems they have on their jobs every day and try and find out how we could make their life safer, more efficient and more profitable. And that's where we start to understand what are some of the options to build new products for. When we do that, the customers will help us do the prototyping. We will do a certain amount of marketing to try and find out the acceptance from people. But when you're inventing a brand-new machine that nobody has ever seen before, people do not -- they say they're interested in it and they're being very honest with us. But until they get that piece of equipment out on the job site to test it, they're not sure that it fits their actual needs. Now I will say in the condition of the Sky Screed that the Sky Screed when we originally went into it, we thought that, gee, this is the same as slab on grade screeding, and it is because the floor, even though it's put down on high-rise building is screed flat. What we didn't understand fully was that the concrete contractor does not control the entire job site in taller buildings, the plumbers and the electricians work for the main contractor, and they need certain access to the slab to be able to put their plumbing and their wiring in. And they put sleeves that are set up so that after the floor has been put down, they have stubs sticking up. And therefore, there's stub sticking up and we're not able to laser screed it. It's going to be one of those things like a few other things that we've done during our lifetime where we're ahead of the industry a little bit. And we've had very, very popular machine. And I know we did not have.

Could you just repeat that sentence. You cut out after 30 seconds.

Okay. I forgot what it was, the 3 day-- The 3-day profile was one that we invented back in 1997, but it was 10 years before the market finally accepted it. And now we've had very good results year on and year end since then.

So do you have any indication of the potential impact of new products. For example, are there any orders in the book?

Yes. We just introduced a product a month ago. And since then, we've already had 2 orders from Europe for the 940e and we've had one order for the SRS-6 that the customer has purchased. We haven't even demoed that machine yet. It's not due to come out of production until March. So that tells you that there's really quite an interest in these products. Now it's the hard thing to forecast is, are you going to sell 10 of them, 20 of them or 30. We don't know until we get out and show it to the customers because it's something that a brand new.

Sure. And do you have an order book tool for the Sky Screed?

We have a lot of people interested in having the demonstration for the Sky Screed. I will tell you that last year, we did not sell any Sky Screeds. And already this year, we're off to a roaring start because we sold one at the World of Concrete in January. So we've already exceeded last year's sales. And here we are in only the second month of the year.

And how profitable are parts or services on its growing revenues?

The margins are relatively comparable to the total gross margin slightly better, but comparable. So if anything, it should be accretive to the business.

And would you consider share buybacks with the cash?

Yes. Is the quick response. We have been speaking to a number of our existing shareholders as well as nonholders and there clearly seems to be a shift in sentiment from dividends to share buyback, where historically, it was predominantly dividend driven. Therefore, we are going to go back and have conversations with the Board and reconsider our share buyback program.

Could you explain why the staff have generous options rather than being remunerated so that they could buy shares if they wanted to?

I assume what they're talking about are the RSUs that we give to employees. The main reason is it's very difficult for our employees in the United States to buy shares on the aim. The brokers do not like to handle it in very small volumes and since we're not on the market in the U.S., it's very expensive for them to do that. So we want our employees to be engaged as owners of the company and therefore, giving them restricted stock is a way of having them have ownership, given the stock and therefore, be equal to the shareholders in trying to make the company grow and be more profitable.

And that's a nice segue to the next question, which is given the recent spate of U.K. companies moving their listings to the U.S., would management elaborate on why remaining U.K. listed makes commercial sense, given that the summary Board and executives, so U.S. and the significant majority of company's revenues are derived in North America and the financial results reported in U.S. dollars and the headquarters in manufacturing are also there?

When we came on to the aim, we were coming to something that we had never done before, a private equity firm brought us here. And we were very, very pleased with the with the questions that people asked and how they could understand this business. This is a very difficult business to compare to anything else because we are so dominant. We have such extremely high margins, and we have such very little competition, and we dominate the world in doing it. So it's hard to look and compare us to other companies that people own and they're trying to decide whether it's a good investment. And we've been through some tough times. Within 1.5 years after coming on the market, we went into a deep recession and a private equity firm who sold us left us a nice present, which was $20 million in debt. And it was very shortly after that, that the recession started. So we were really handcuffed in the beginning of being a public company. And we got to the point in the bottom part of the recession that we had to do an equity raise. And we were very, very pleased that 100% of our owners stood their corner and supported us with the equity raise. We have also been very impressed by the people that can understand this business clearly because, as I said, we're not similar to anything, and there's an awful lot of people who thoroughly understand the business, they understand it is a business that has ups and downs in it but they have been very loyal. We still have a long list of shareholders from our original IPO in 2007. So we're very pleased with the shareholder group that we have and see absolutely no reason to relocate anywhere.

Can you comment on succession planning. Someone's asked even more directly that they presume at some stage, you will retire Jack? And what is the broader succession plan?

You're absolutely right. I am going to retire. The thing that's in question is how soon. And I'm doing a search for a President and that's been a lot of work, and we're making very good progress on it, and we should have a new President who would become a CEO at some point down the road. So that is definitely going to happen in this year. And there will be a point after I've had time to train this person where I will be retiring.

The outlook and guidance is very conservative when viewed in the context of Dutch starts data, new products, investments in Houghton and now Belgium. I appreciate delays have been a factor historically, but does this issue begin to roll off as time delayed projects start up?

It's a good question. We would hope that it would change as time goes on, but we're not seeing any evidence whatsoever that these delays are going to change. And so we feel very comfortable with having a year equal to the second half of last year being $120 million. And if things change as we go along with all of the opportunities to change, be it the new products that are out there or a change in the market, we would certainly then come back to you and explain what we're changing it to. But right now, we don't have any inflammation from our customers that says that the year is going to be anything different than what they're telling us now.

Somero is doing little or no business in many overseas markets that have huge potential. Australia, which is relatively small in terms of potential has done well in recent years. European business remains well short of overall potential and many developed economies in the rest of the world, register no business at all. What plans does management have to start exporting to these untapped markets?

That's a good question. In those untapped markets, we have probably been to almost all of them in our time at Somero. The driver for needing laser screed equipment is that the architects will specify strong flatness standards for the floors. When you think about a warehouse and you think about racking that's going in, in order to pick up racking very high, in some cases, up to 100 feet, you have to have an extremely flat floor. The areas that we have not sold equipment in is because they do not have flatness standards, and therefore, they still continue to do everything manually by hand because it's cheaper.

Your broker, Cavendish suggests that current trading is close to a cyclical low. Do you agree with this assessment?

I'm not sure I understand what they mean by a cyclical low, to be honest with you. We don't get the sense that we're near or low. We get the sense that we are flat and that there's an awful lot of business out there, and we're waiting and working furiously to produce new products and also to see if these supply chain issues will get better that will allow our customers to do more work that they already have on the books now, but can't get the products to finish it.

And do you know what market share you have in each of the 3 major markets? And is it growing?

The market share is something that nobody knows because these are all private companies. What we do know is, in general, these private companies tend to be very small and they're usually run by entrepreneurs and so we know that we have a significant market share, whether it's 80% market share or 90% market share. We don't have any data that would allow us to accurately forecast what it is, but it certainly is significant.

And are you seeing an increase in competition, which could hit sales and margin?

We've had competition since late 1980s, and they've been here forever, and they will continue to be around forever. So we don't see them being any different than they've always been. Our job is to produce products and satisfy our customers much better and much quicker and much more accurately than the competition.

The Colorado study showed reductions of concrete usage of about 3%. It doesn't sound particularly impressive. Could you touch briefly on the economic significance of environmental benefits for Somero? And do you contractors really care?

Sure. So we did commission the study with Colorado State and they did conclude that there is approximately a 3% savings on wasted concrete. And when you extrapolate that to the amount of concrete that's produced every year, it is substantial. Now the major contributor to the pollution is the manufacturing of concrete and the whole manufacturing of other raw materials and the like. We don't get involved with that. We're in the process component. There's not a whole lot of influence we have on concrete mix or what ingredients are used. Our machines are just there to flatten and level the concrete. But at a minimum, we're a good participant and we are helping as opposed to hurting. The other element other than the reduction in concrete is when you have a finally finished floor, the emissions that gets captured in the concrete remains in the concrete as opposed to them being remitted into the air.  So overall, we're a positive player and do not hurt the environment and our ability to change that is very limited.

Does there exist a capital deployment runway that we could deploy large sums into at the same attractive return on capital employed of the business as a whole?

Sure. So as we look at our capital allocation, we do look internally. That's where we get our greatest return on invested capital. But those investments typically come in the form of people and hires, which we've done over the years. And we do so in a measured way going forward where the opportunity is there in certain markets to add territory sales managers or customer support, that's going to be a gradual process. We also look for M&A opportunities. Being the dominant market player there aren't a lot of opportunities out there that makes sense for us. Our machine is the most expensive product that our customer purchases outside of the concrete, beyond that, they're commodity type products. And we're not interested in acquiring a commodity product that will be dilutive to our margins. Ultimately, we end up with the excess cash that we return back to shareholders, and we'll do so through the dividends, but share buybacks as well.

And what are the margins expected to be on the battery-powered machines compared to the conventional ones?

Actually, very comparable. We're pricing the 940 at the same price that we do are regular machines. So no difference in the margin.

And a summary you have any data on what portion of concrete screed floors currently and in previous years have been used for different market segments. So warehouses, retail centers, assembly plants, et cetera.

No. That information is not available. There isn't anybody that collects that information. And therefore, we're not able to get a sense of it. Our customers are the ones that know what jobs they do with the equipment. The only way we find out what types of jobs they do is if we ask them. They may give us a broad look at it but it's not something that's available throughout the industry.

And do you see increased demand from growing data center construction to meet AI capacity? Do you think that will have an impact on you?

There's a lot of things that we see coming that are going to impact us as we go forward. Certainly, data centers will continue to be significant opportunities going forward. There's also a lot of reshoring that's going on in the United States. And by that, I mean that they're bringing back chip plants. There's new battery plants that are being built. So there's things that are unusual in terms of the future growth because when you bring a chip plant in, it's not driven by the economy of the United States being stronger, those trips are already being made somewhere. And what it is, is these plants are going to replace where those chips have been made. And so we see the reassuring part of it being very, very helpful. The battery plants are such that for the electric vehicles, they're building plants, but they're building them so that they will have the capacity to handle what the capacity will be in 10 years. And right now, the capacity is very low. So there's an awful lot of very, very large, very significant buildings that are in the works. So the chip plants are 10-year programs. And then just recently, just one chip company announced with the help of the U.S. government that they're going to build a chip facility in Syracuse, New York, and the investment is going to be $100 billion spend at a rate of $10 billion a year. So we see significant opportunities down the road for the reshoring and the new companies that are coming in.

Does Somero have or is it considering a presence in Mexico to capitalize on nearshoring one of many examples, several Chinese EV companies are building manufacturing plants in Mexico to attempt to sell their EVs into the U.S. market.

Yes. Currently, we have dealers representing our equipment in Mexico. It has been a small sort of lumpy business there. But to the extent we see greater, more consistent opportunities than we would certainly consider a more permanent presence.

Would you ever consider an acquisition? The question here is asking about Ligchine and asking what is estimate the size is relative to Somero. You may not want to comment on them directly, but would you consider an acquisition of that nature?

We will consider all acquisitions that come to us. We know the people at Ligchine, we know the private equity firm that owns them and then has just recently sold them to another private equity firm. So we're very familiar with them. I would not want to guess at what their revenue is because there's no information to do that. But we're certainly interested in those kinds of acquisitions, if they're willing to come and talk to us.

I know Somero machines contributed to about 6 or 7 of the Golden Trial Awards in January. Why haven't the company made more publicity of this?

We've been involved in the golden trial since it began, and we have representatives there all the time. We do use it in our marketing. It's a very significant thing for our customers, and we think it's a great, great program. I'm not sure what you mean by not using it more. It's something that we talk about extensively.

And do you plan to launch more battery power type machines in the market this year?

We're going to launch more battery-powered machines. We don't have a firm date in mind, but it's certainly something that's going to be done as we continue to go forward with our new product development plans.

Mention was made of a customer buying machine once they know they've won a bid. You also mentioned inventory being larger than it otherwise would have been had you not taken back used machines. Are any of your sales made conditional on customers being able to return them?

No. No, there are no contingencies. Sales are final. We do offer a warranty obviously, well, if there's some manufacturer defect, but there's no right of return.

And why do you put so much emphasis on sales in Australia, which is very small compared to Europe and Asian countries.

Well, we put a lot of emphasis on all of the regions. We talk about Australia because they've grown significantly since we took over from our distributor, and we put our own employees in there. And our employees have done a fantastic job of growing that business. But we talk about our employees in Europe all the time and also in the U.S. We think they're all doing an outstanding job and especially in this past year where we had some very difficult times.

It would seem that the key to Somero's equipment sales is maximum simultaneous demand, not overall demand. For example, if concrete delivery is delayed, then a customer can use one machine for all jobs rather than needing 2 machines for simultaneous jobs. Has the shortage of concrete and labor remove demand rather than delayed demand for Somero's machines?

No, because the demand is based on the equipment they need for the buildings that are being built. So as there's fewer buildings being built, which is the case right now, there's less work available for them to work on and therefore, they don't need to buy an additional machine or more machines. So it's the demand that's driven by the building industry and by the capability of bringing those to market.

And what's meant by completed installation of in-house painting and material preparation systems in the U.S. in the March announcement? Is this a new type of service that you're offering?

No. This relates to our own assembly process. We were previously outsourcing the painting of our -- the frames and other parts of the machine as well as the prepping, the sandblasting. In order to secure and have a little bit more control of our own supply chain, we brought those capabilities in-house. So it's part of our assembly process and not an external service.

And what would you say that you've learned the most from perhaps things that haven't gone well in the past year?

Well, I wouldn't tie things down in the past year. Every year that goes by, we learn something because in general, you learn an awful lot by making mistakes. And we work very hard in our organization to make sure that in a relative sense, nobody gets blamed for making a mistake. Certainly, if it happens frequently, that's a different issue. But we end up doing the best we can with the knowledge that we have because in a lot of cases, there's very limited knowledge to us and we have an incredibly talented team that works very hard and we sit down and we take that information, whether it has to do with pricing or price increases or how we should change a program. And we take the best information we have, and we make a decision that this seems to be the right thing to do for our customers. And if it turns out that there's something wrong with that, we go back and say, okay, we made a mistake, we're going to change it. But if you're not making mistakes, you're not learning anything.

Absolutely. Please, could you explain in more detail the workforce flexibility of Somero, which appears to reduce operational leverage and make the business more resilient in slower years? What percentage of the workforce by cost is flexible.

Sure. So 2/3 of our costs are people related, and therefore, variable with the downgrade in the middle of June, we did reduce our assembly folks. We did not adjust the headcount in our SG&A, given that they're mostly customer-facing and new product development that will drive revenue in the future. Also, some of the issues that we identified being delays that ultimately will be resolved. We do not want to adjust and make a permanent correction to our headcount given those reasons. But we've got tremendous flexibility in the event of a deeper downgrade or a downturn, we certainly can reduce both our assembly folks as well as our SG&A.

And with the battery-powered machines, do you see any warranty risk from the battery longevity? Is it guaranteed by the supplier?

Yes, it is guaranteed by the supplier. We don't see any risks that we're aware of right now, no.

And if the machines bought for a particular job, what happens to that machine once the job is completed?

Well, when our customers bid for jobs, they bid for many of similar types of size jobs. So they don't usually buy it for one job. They buy it for one category of slabs that are being built by category, I mean how many square feet is it? So if they never did any jobs in the 40,000 square foot category, let's just say as an example, and if they want a bid to do one of them, they probably wouldn't run out and buy a screed, they would have to look for a continuous flow from the customer base that their customers were going to build other large facilities like that and that they had a reasonable chance of winning the bid. So there's a lot that goes into the decision making for them to actually go out and get a 5-year lease on a piece of equipment that is very, very expensive. They have to have a significant amount of work lined up for the potential for work lined up to buy another screed, whatever size it is, whether it's large or small.

And overall, can you give us a sense of the order book? Somebody here has said in 2023, we saw a fall in revenues and '24 is expected to have no growth. Why do you describe this as high demand and healthy backlogs? Perhaps just understand you a bit more about the order book and flow would be helpful.

Yes. Our forecast for where the year is going comes from our customers. we interview our customers. They've always been kind enough to tell us not what their company, how much money they make or what their sales are, since they live and work in about a 200-mile radius of their home, they have a good understanding of the people that work in that area, their competitors. And what we ask them is, what are you seeing for demand? What does the bid load like? Is the bid greater than last year, less than last year, the same? What are you seeing for relative pricing on it? And what that tells them is if the price is going up and they can get more than they originally thought, it says that there's not as many people bidding for the job. If the price goes down and there's a lot more people bidding for the job and the prices that they're thinking of doing is higher than what they were doing, you get a sense of what's going on in the marketplace. And that's the most accurate information we've ever had about the direction that the customer's business is going in. And that's why I mentioned to begin with, that our customers are all telling us that they have a very strong backlog for this year. They just can't get the cement they need to get the projects done.

And just expanding on that a bit. You mentioned one Sky Screed sale at World of Concrete. Were there many other sales for other products there? And is there any discounting at these events?

Yes. There's a lot of other contracts written. Everything we sell is discounted. These contractors are very hard workers. They run small businesses, and they're very, very difficult people to negotiate with. And so we very rarely sell a machine that we haven't gone through a long discussion about what their discount should be.

And that's generally not just at the World of Concrete?

That's every day, everywhere.

And final question because we are pretty much at time, and I've tried to get through as many questions as possible, but there was quite a lot of duplication. So if your question wasn't exactly asked then hopefully, you've got a general sense from the question that was answered. Are there any things you think we're missing when looking at Somero, the questions haven't covered?

I think the one thing that stands out to us that when people are looking at the business is I don't think they fully understand how dominant position we have in the worldwide market. And therefore, the reason that we have that dominant position is because we are not in the business of selling machines. We sell and service our customers in over 90 countries in the world. And our job is not to sell machines. Our job is to make our customers successful. Because if they're successful, we will be successful. So our focus is always on what we can do to make them more successful because if we can do that, we will also be more successful.

Wonderful. Thank you very much, Jack, and Enzo and to everyone for joining. You'll now be taken to a web page to give feedback on today's presentation. If you're unable to complete at this time, you'll receive a follow-up e-mail, we'd be really grateful if you could take a few minutes to complete. Many thanks for joining. This is the end of the webinar.