Atmus Filtration Technologies Inc. (NYSE:ATMU) Q3 2024 Earnings Call Transcript

Atmus Filtration Technologies Inc. (NYSE:ATMU) Q3 2024 Earnings Call Transcript November 8, 2024

Atmus Filtration Technologies Inc. beats earnings expectations. Reported EPS is $0.524, expectations were $0.49.

Operator: Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Atmus Filtration Technologies Third Quarter 2024 Earnings Call. [Operator Instructions] I would now like to turn the call over to Todd Chirillo, Executive Director of Investor Relations. You may begin.

Todd Chirillo: Thank you, Kayla. Good morning, everyone, and welcome to the Atmus Filtration Technologies third quarter 2024 earnings call. On the call today, we have Steph Disher, Chief Executive Officer; and Jack Kienzler, Chief Financial Officer. Certain information presented today will be forward-looking and involve risks and uncertainties that could materially affect expected results. Please refer to our slides on our website for the disclosure of the risks that could affect our results and for a reconciliation of any non-GAAP measures referred to on our call. For additional information, please see our SEC filings and the Investor Relations pages available on our website at atmus.com. Now I’ll turn the call over to Steph.

Steph Disher: Thank you, Todd, and good morning, everyone. Our team delivered another quarter of solid performance despite continued softness in the aftermarket and weakening first-fit markets. The dedication and hard work of our global employees consistently focused on delivering technology-leading products for our customers allows us to deliver these results even in challenging market conditions. On the call today, I will provide an update about our performance during the quarter, share an updated outlook for the year and highlight progress executing our growth strategy. Jack will then provide additional details regarding our financial performance. Let me begin with some comments on our capital allocation priorities. We are focused on growth in both our core business and expansion into industrial filtration, and we’ll continue to allocate our capital to fuel this growth.

Additionally, share repurchases and quarterly dividends are components of our balanced approach to capital allocation. We continue to assess opportunities for share repurchases with a minimum annualized target of offsetting dilution from long-term incentive compensation. In the third quarter, we repurchased $10 million of shares as part of the $150 million program we announced last quarter. We also paid a cash dividend of $0.05 per share. Now let’s turn to third quarter financial results and our updated outlook for 2024. Sales were $404 million compared to $396 million during the same period last year, an increase of approximately 2%. Adjusted EBITDA in the third quarter was $79 million or 19.6% compared to $73 million or 18.3% in the prior period.

Adjusted EBITDA for the quarter excludes $9 million of onetime stand-alone costs and $7 million for the same period last year. Adjusted earnings per share was $0.61 in the third quarter of 2024, and adjusted free cash flow was $65 million. Adjusted free cash flow excludes $10 million of onetime separation-related items. We have made substantial progress moving from transition service agreements with Cummins to operating as a fully stand-alone company. We estimate to have completed 80% of the transition and expect to be 90% complete by the end of this year. This transition is a significant milestone for our company and will enable us to focus our energy on growth. Now let me provide some insight into our global markets. Beginning with the aftermarket.

We continue to see soft freight activity, a trend we have seen throughout the year. Our continued outperformance in share gains coupled with tailwinds from prior year destocking activity allowed us to more than offset market weakness. Demand in the U.S. heavy-duty first-fit market softened in line with our expectations, while U.S. medium-duty demand remains resilient. The India market softened and China did not show any signs of rebounding. Turning to our outlook. I will start with the aftermarket. As we have progressed through the year, we have become more confident in our opportunities to grow revenue despite challenging market conditions. We are expecting our overall global aftermarket revenue to be up approximately 2% to 4% compared to last year.

As we have seen throughout the year, we are still experiencing year-over-year declines in freight activity and have not yet seen a positive inflection. We expect our global markets for the aftermarket to be down approximately 2% to 3%, reflecting soft freight activity, along with continued weakness in the off-highway, construction, mining and agriculture markets. Offsetting market conditions, our outperformance is expected to continue as we execute our growth strategy and expand our new business wins. We expect our market outperformance to contribute 2% to aftermarket revenue growth. Adding an additional 2% of revenue growth will be the benefit related to destocking year-over-year. You may recall our customers were destocking from 2Q through 4Q in 2023 as supply chains normalized.

This activity is not expected to repeat. Pricing is also expected to provide an additional 1.5% year-over-year increase. Let’s now turn to our first-fit markets. In the U.S., our view of the heavy-duty market remains unchanged, with expectation of down 7% to 12% for the full year. We anticipate further softening in the fourth quarter in line with industry expectations. Our expectation of the medium-duty market remains unchanged at flat to up 5%. Demand for trucks in India is expected to continue softening, and we anticipate weak market conditions to continue in China. Overall, our continuing outperformance gives us the confidence to raise our revenue guidance to now be in a range about 1% to 3% compared to the prior year with global sales in an expected range of $1.65 billion to $1.675 billion.

We have delivered strong operational performance throughout the year, and we are raising our adjusted EBITDA margin to be in an expected range of 19.25% to 19.75%. We are also raising our adjusted EPS outlook and now expect to be in a range of $2.35 to $2.50. Now I would like to discuss our plans for growth. During the third quarter, we brought our global enterprise leaders together to focus on our long-term strategic vision for unlocking both opportunities as a fully independent company. Our team has been executing on our growth strategy. As a reminder, there are 4 pillars to our growth strategy. Our first pillar is to grow share in first-fit. We are realigning our organization and adding resources to our account management teams to focus on first-fit growth.

This has resulted in increased bid rates for new business opportunities and will allow us to further capture market share. We are leaders in fuel filtration and crankcase ventilation and continue to win with the winners as we partner with industry-leading OEMs. The reorientation of our organization for growth, coupled with technology leadership, provides us with the continued opportunity to expand with new and existing OEMs around the world. Our second pillar is focused on accelerating profitable growth in the aftermarket. Our outperformance through challenging market conditions this year demonstrates our ability to grow share in the aftermarket. We are expanding and adding aftermarket partnerships for continued growth, allowing us to deliver Fleetguard products when and where our customers need them.

We have also implemented advanced digital analytic tools for our sales team to identify cross-sell and upsell opportunities and generate new customer leads. This provides a win-win for both Atmus and our dealers to increase sales of Fleetguard products. Our third pillar is focused on transforming our supply chain. We are continuing to transition our supply chain to our own dedicated network. This quarter, we opened a new warehouse facility in the United Kingdom, increasing the volume being distributed through dedicated Atmus facilities to approximately 85%. During the fourth quarter, we anticipate transitioning our remaining European facility to the Atmus network, at which point, substantially all our volume will go through our own distribution network.

Controlling our distribution network allows us to improve on-shelf availability and provide our customers with Fleetguard products when and where our customers need them. Our distribution network transformation is delivering results as we achieved all-time high delivery and availability metrics during the quarter. I am proud of the Atmus team delivering a significant accomplishment, while simultaneously transforming our distribution network. Turning to supply chain efficiency. Our adjusted EBITDA performance continues to demonstrate the results of our supply chain transformation and the cost reduction efforts we are driving through the organization. At the midpoint of our guidance, we expect to expand adjusted EBITDA margin 390 basis points since the end of 2022, another significant achievement by the Atmus team.

Our fourth pillar is to expand into industrial filtration markets. Our strategy remains focused on growth into industrial filtration, primarily through inorganic acquisitions. As a reminder, we are broadly looking at 3 verticals: industrial air, industrial liquids excluding water and industrial water. We continue to take a disciplined approach as we review a robust pipeline of opportunities for inorganic expansion in these 3 verticals. We have also been focusing on opportunities to expand in industrial filtration organically. We recently launched multiple products to grow organically. While we are in the early stages of organic industrial product growth, this demonstrates another opportunity for continued growth for Atmus. Now, Jack will discuss our financial results in more detail.

Jack Kienzler: Thank you, Steph, and good morning, everyone. We delivered another quarter of solid financial performance. Sales were $404 million compared to $396 million during the same period last year, an increase of approximately 2%. The increase in sales was primarily driven by higher volumes of 2% and pricing of approximately 1%, partially offset by foreign exchange of 1%. We continue to outperform in many of our global markets. Gross margin for the third quarter was $111 million, an increase of $8 million compared to the third quarter of 2023. In addition to volumes and pricing, we also benefited from lower commodity costs, partially offset by foreign exchange, onetime separation costs and higher manufacturing costs. Selling, administrative and research expenses for the third quarter were $56 million, an increase of $4 million over the same period in the prior year.

The increase was primarily driven by higher people-related and consulting costs as we continue to stand up our own team and separate our functions from Cummins, partially offset by lower variable compensation costs. Joint venture income was $8 million in the third quarter, flat to our 2023 performance. This resulted in adjusted EBITDA in the third quarter of $79 million or 19.6% compared to $73 million or 18.3% in the prior period. Adjusted EBITDA for the quarter excludes $9 million of onetime stand-alone costs compared to $7 million for the same period last year. Onetime costs are higher than originally anticipated. We incurred additional costs as we completed the separation of our Mexican production facilities, and incurred additional information technology costs due to unanticipated delays as we stand up independent systems.

We now believe these costs will be in the range of $20 million to $25 million in 2024 and be substantially complete by the end of this year. Adjusted earnings per share was $0.61 in the third quarter of 2024 compared to $0.52 last year. Adjusted free cash flow was $65 million this quarter compared to $50 million in the prior year. Free cash flow has been adjusted by $5 million for capital expenditures related to our separation from Cummins compared to $2 million in the previous year. We expect onetime capital expenditures will be in the range of $13 million to $18 million in 2024 and be substantially complete by the end of this year. We are also adjusting free cash flow for the working capital inefficiencies associated with the move from intercompany settlement terms with Cummins to stand-alone practices.

In the third quarter, the adjustment was $5 million. We expect these inefficiencies to be complete this year and total approximately $35 million, unchanged from our previous outlook. The effective tax rate for the third quarter of 2024 was 18.4% compared to 23.1% in 2023. The decrease was driven by a change in the mix of earnings between U.S. and foreign operations and favorable discrete items, which occurred during the quarter. Now let’s turn to our balance sheet and the operational flexibility it provides us to execute our growth and capital allocation strategy. We ended the quarter with $197 million of cash on hand, combined with the full availability of our $400 million revolving credit facility, we have $597 million of available liquidity.

Our cash position and continued strong performance during the third quarter of 2024, and has resulted in a net debt to adjusted EBITDA ratio of 1.2x for the trailing 12 months ended September 30. In closing, I want to thank our global team for continuing to execute on our growth strategy and deliver value to our customers. Now we will take your questions.

Operator: [Operator Instructions] Our first question comes from the line of Jerry Revich with Goldman Sachs.

Q&A Session

Jerry Revich: Steph, Jack, I am wondering if you could just talk about the puts and takes around expectations for the fourth quarter. You had really excellent margin performance in the third quarter. The revision looks like generally by the extent of the beat, and it looks like you folks continued to outperform your operating efficiency targets. So are there any discrete items impacting the outlook for the fourth quarter, or just given the choppy environment, we want to make sure we have room to execute?

Steph Disher: Thanks, Jerry, for the question. I might just start with talking about the market impact and the top line and what’s driving our expectations around fourth quarter, and then I’ll ask Jack to just walk you through the sort of margin — sequential margin bridge on that. I guess from a market perspective, relatively flat revenue sequentially 3Q to 4Q. I would point out just 2 things in particular that we expect to be continued downward pressure sequentially, less working days. Working days drives a significant amount for us given the 80% of our business in aftermarket. And the second element I would point to is we do expect a continued decline in heavy-duty truck impacting us through the fourth quarter and the first-fit side of our business.

So that will obviously drive some volume downside, which will flow into margin. I’ll let Jack just talk to you here about some of the impacts we saw in third quarter and how that bridges through to fourth quarter margins.

Jack Kienzler: Thanks, Steph. And Thanks, Jerry, for the question. So the first piece, I would say, Jerry, as we think about the sequential walk from kind of Q3 levels into our Q4 outlook, it is the impact from the volumes that Steph just talked about with lower volumes, top line, but also lower production hours. We will see a bit of a drag from a profitability standpoint from that. The second piece is from a variable compensation standpoint, based on our outperformance over the first half of the year, we had been accruing at a higher rate. And as the markets have softened here and we haven’t seen that recovery in the aftermarket, our outlook has come down a little bit. And therefore, we had a $4 million benefit in Q3 associated with variable compensation truing that up. And so obviously, we would not expect that to repeat into the fourth quarter, and I think that helps bridge a little bit of sequential margins.

Jerry Revich: It does. I appreciate the color and strong performance even when adjusting for that. And as we think about the puts and takes around 2025 margin profile, can you just help us through where you have visibility so far, touch on, if you can, the expectations for pricing, opportunity for material cost reductions and any other moving pieces. Obviously, the end markets are going to do what they’re going to do and we’ll firm up those views in 3 months. But I’m wondering, based on developments and visibility that you have now, what are some of the puts and takes around margin profile ’25 versus ’24?

Steph Disher: Yes. So thanks for the question, Jerry. Now I want to try to give you some color of how we feel we’re going to end 2024 and our confidence of being able to sustain that, I guess, without sort of straying into forward guidance on 2025, which I’m not in a position to give at this stage. But a couple of things. Let me just talk broadly about the market, about how we see that playing out as that may impact some pieces of our margin profile. And then I’ll talk about how confident I feel in the sustainability of the expansion of margins that we’ve been able to achieve here in this year and also prior to that. And so starting with sort of the outlook of the market and as we head into the fourth quarter and wrap up 2024, we will be in the unusual situation of at the bottom of the cycle for both our first-fit markets and our aftermarket.

It’s not that common that both of them are at the bottom of the cycle at the same time. And as you know, we’ve been in a longer-term period of down in the cycle on the aftermarket side. So as we look to 2025, the industry view, views from our customers, we do expect first-fit to continue to be at the lower levels through the first half with some discussion around possible prebuy at the back of 2025 driving some improvement in first-fit in the second half. Aftermarket, we have been waiting and waiting for a point of inflection. I think we originally thought it might be July, and that seems to be dragging out. And so certainly, we do expect some turn of positive market conditions in the aftermarket, very difficult to call that at this stage. Obviously, greater performance in the end markets of aftermarket really drives better margin upside for us.

So that’s something to be mindful of as we turn to 2025. So those are just some broad comments about the market. I think as I turn to just our margin story, we’ve done a really terrific job as a team of expanding margins throughout 2024 and also 2023. And I feel confident about that being sustainable as we head out into 2025, and we’ll be able to give a further update on our specific guidance of 2025 in a future call.

Operator: And your next question comes from the line of Rob Mason with Baird.

Rob Mason : Maybe I’ll follow up there, Steph, just on ’25. You somewhat framed it, but it sounds like — typically, the first quarter is one of your stronger seasonal quarters — seasonal growth quarters moving from the fourth to the first. But we are looking at this first-fit downturn in real time. I’m just — I’m curious if you have enough visibility at this point to have a feel for how that might look sequentially, or how we should think about just in general, seasonality in this first quarter versus historical?

Steph Disher: Okay. Rob, good to talk to you. Look, I don’t know that I can give a lot more color than what I just said. I think we would expect to see the same seasonal impacts that you’ve seen throughout the quarter this year. We did see some differences obviously, where in this back half, we’ve seen the positive tailwinds from the prior year destocking, no longer taking place. So broadly, I’d expect you to still see the seasonal implications, but this downwards pressure on first-fit market will be something that will impact our first half, no doubt. So I wouldn’t give much more than that color, I would say. The only other thing probably to point out in terms of what drives that sort of seasonal activity heavily for us, I think I just referenced it as it relates to our 4Q expect — 4Q 2024 expectations, is just selling days. It really does drive a lot of the quarterly movement for us given our high exposure to aftermarket.

Rob Mason : Yes, yes. Very good. And just as a follow-up, the — again, the onetime costs that you spoke to, they did come in higher. Do you have a breakdown of where those split between cost of goods sold and SG&A?

Steph Disher: Absolutely. I’ll ask Jack to respond to that one, Rob.

Jack Kienzler: Yes. So as I think about the $9 million for the third quarter, $5 million is up in cost of sales and $4 million is in SAR. And maybe I’ll just expand a little bit. So as a reminder, the onetime costs are primarily related to IT costs related to separation projects from Cummins as well as supply chain costs as we separate facilities from Cummins. The overage relative to our original expectations is primarily driven by 2 things. The first is delays in IT system cutovers. You can imagine it’s quite complex to navigate these system cutovers. And so we are ensuring that we strike the right balance between the desire to move quickly, coupled with risk mitigation. And so we’ve seen a few delays on that front. The second and really the primary driver behind this specific quarter increase is really the separation of our Mexican production facility from a legal perspective from Cummins.

We originally thought that, that would happen inside of Q1, and that flipped into Q3 here. It was completed in August. And so about a 6-month slip there, which related in higher costs from a transition service standpoint from Cummins. And just to clarify, that’s now completed. And so again, you should see a step down here in Q4. And as I noted, we do expect to be substantially complete with those inside of 2024.

Operator: And your next question comes from the line of Bobby Brooks with Northland Capital Markets.

Bobby Brooks: I first was just curious to hear some more discussion just on your international business. I know in the prepared remarks, you mentioned India, the market softened a little, and there’s no signs of rebound in China. But maybe just a little bit curious to maybe break that down even more, maybe talk about Europe and APAC more broadly. And if you could compare and contrast where maybe you’re seeing strength internationally versus what markets might be a little cooler. And any specific markets that’s a big focus for you in 2025?

Steph Disher: Bobby, thanks for the question. So I’ll build on some of my opening remarks. And I would say we’re pretty much seeing downside in all markets now. And so it’s very hard to find a bright spot from a market perspective. Previously, I would have described — in the last quarter, I think I would have described that bright spot as India. And I would still say that India would be the strongest performing of the global markets from the market perspective. We did have also softening here, and the outlook has softened over the last quarter since we spoke to you last. So it would certainly be the bright spot that I see. Jack and I are actually traveling there in the next week or so. And so we’ll get a much better sense on that market.

We have a joint venture operation there, as a reminder, and a very strong leading market position. So I do expect India to still provide us with strong benefits from an international perspective. I expect China to continue to be challenged. We’ve seen that challenge throughout this year. I’m expecting that to be challenged throughout 2025, and we’re really looking at how we continue to outperform the market in China through our partnership and our product innovation. And then if I just come to Europe, we deliberately don’t cover Europe in our opening because it is less material for us relative to other markets. But we’re seeing certainly the same down cycle of the market in Europe. And we did see some moderation in the first-fit decline. I think it came back a bit from an expected 18% down to around 10% down for the full year, but still a decline year-over-year and not really seeing great shoots there.

So it’s a challenging market for sure, internationally and at home here in the U.S. And I think what we are working to do in challenging market conditions is to continue to outperform the market.

Bobby Brooks: Got it. That’s great color. And it’s great to hear that how well you guys are winning despite kind of the tough backdrop. And next question is just on margins. So there continue to be a really strong point for Atmus, that’s for sure benefited by some of the improvement initiatives we’ve taken across our manufacturing footprint. So what I’m most curious on specifically is that green cartridge line in France, that was your first fully automated line. Has that been a large enough success where the team is now contemplating executing a fully automated line elsewhere? Obviously, lower cost labor regions maybe don’t make us much sense. But just trying to get a sense of where and what is the next round of margin expansion initiatives?

Steph Disher: Thanks for that question. Let me talk about broadly our supply chain transformation and just cover the areas where we’ve seen the most benefit delivered. And certainly, you highlighted one of them, which is terrific. It’s the automation of our manufacturing operations. And that is firmly part of our ongoing strategy within our manufacturing operations, and a great example of that is the green cartridge line. Really pleased with how we’re learning fast as an organization as we implement that automated line. We really build capability in this area to be able to continue to do that on a much larger scale across our operations. So I see automation, a continued part of us unlocking value into the future. We have had some wonderful benefits that we’ve been able to achieve through a focus on purchasing, working with our suppliers, to improve our input costs, and I’ve been really pleased with the work of our purchasing team, and how they’re thinking about that.

And certainly, I see further opportunity to be able to do that, but that’s been another big part of the delivery of the benefits in our supply chain expansion.

Operator: And your next question comes from the line of Tami Zakaria with JPMorgan.

Tami Zakaria: I wanted to clarify, so do you expect volumes to remain positive in the fourth quarter? What are you seeing quarter-to-date in terms of volume?

Steph Disher: Yes. So I think our volume forecast for the fourth quarter, let me just get my bearings here. I think we do expect to continue our share gains, Tami, is how I would describe it. But we certainly see the market conditions putting downward pressure on that. So it’s a very similar story to what sort of played out here in the third quarter. I think the only thing, and I sort of point this out in my — in one of my previous remarks was the 2 additional things that we see from a market side that will impact us is the selling days in the fourth quarter, and then we do expect further declines in heavy-duty first-fit.

Tami Zakaria: Got it. Okay. That’s helpful. And my second question is, as you start planning for next year, what magnitude of pricing are you thinking about when you implement in January?

Steph Disher: Yes. So look, we’re still working through what 2025 looks like. In broad strokes, I think you can count on our growth algorithm that we’ve talked about. I’ll leave the market part of that out for the moment because obviously, this year has been downside to our market expectations. Generally, we expect through the middle of the cycle, about 2% market growth for the core markets that we’re exposed to, about 2% on share growth and about 1% to 2% on price.

Operator: And your next question comes from the line of Joe O’Dea with Wells Fargo.

Joe O’Dea : Question is on manufacturing footprint and kind of the prospect of tariffs. And so I would just like to understand reliance on manufacturing outside of the U.S., for revenue in the U.S.? What kind of redundancies might exist? And then also just from the competitive playing field, to what degree Mexico is an important center of manufacturing in the — for U.S. filtration demand in the U.S.?

Steph Disher: Yes. Thanks, Joe. It’s a good question. So let me tell you how we think about our overall global supply chain. We’re obviously a global company, and we do support free trade across the world. And so tariffs — any introduction of tariffs does create challenges to a global company. And that’s the first comment, I guess, I would make. But we have looked at this extensively. We continue to monitor it. Broadly speaking, I would say that our manufacturing facilities are set up as regional for regional, is how I would describe it. So let’s talk about China as an example. The majority of the manufacturing production we have inside China is for the China market. There are some exceptions to that, and I would point to — one exception would be our Mexico facility.

Certainly, it does produce volumes for the U.S. and the other exception I would probably point out is our media production in Korea — in South Korea. And so we continue to monitor if there are any impacts there. But at this stage, we feel good about our overall supply chain strategy, where we’re producing to support the regional local markets in which we operate in the best way.

Joe O’Dea : Got it. And do you find that the filtration sort of competitive landscape is such that Mexico is a common area of supply source?

Steph Disher: Look, we’ve been — Mexico is our largest manufacturing facility around the world, and it’s been very successful for us, and I think it has driven a competitive advantage overall. And so we see that certainly as a significant benefit.

Operator: And your next question comes from the line of Andrew Obin with Bank of America.

David Ridley-Lane: This is David Ridley-Lane, on for Andrew. Could you just expand a little bit more on the organic expansion into industrial filtration?

Steph Disher: Yes. Thanks for that question, David. The first thing I would say, I mentioned it in my opening remarks, not because it’s immediate significant and material revenue. The reason I thought it was really important to mention is because I see this as the spark of our innovation flywheel in our team. And so we’ve now launched products to be able to distribute into the industrial filtration market. We will do that through our existing distribution channels right now that are already established through our core, and we’re starting reasonably small, I would say. I still certainly see our growth in industrial filtration, primarily through acquisitions. But I’m very pleased with the progress the team has made in innovating and developing products to be able to take into the industrial filtration market. You won’t see big revenues from this in the short term, but I do expect it to build our flywheel of innovation.

David Ridley-Lane: Got it. And then just sort of — I heard you that the algorithm remains the same, but just to state this plainly, in 2024, you have 2 points of benefit from lapping to the stocking. If you saw no market improvement in 2025, all else being equal, the revenue would be 2 points lower. Is that correct?

Steph Disher: Yes. I think the big unknown in this is what the market is doing, is what I would say, David. And obviously, we’ve been in very challenged market conditions this year. And – but yes, so we have certainly had 2% of destocking benefits this year. I would also say we’ve had pretty strong headwinds on market downside.

Operator: [Operator Instructions] Our next question comes from the line of Bobby Brooks with Northland Capital Markets.

Bobby Brooks: Just wanted to jump in real quick again. A follow-up on just the M&A. So you guys mentioned how the pipeline remains to be — remains robust, but no deals have crossed the line yet, right? So I was just curious, could you maybe discuss what are kind of the main factors that have been holding up deals from getting across that line? Is it more so sellers having an unreasonable valuation on our company, or is it maybe some legal stuff? Just curious on that.

Steph Disher: Yes. Thanks, Bobby. I was wondering whether I get through this call without an M&A question. So…

Bobby Brooks: Yes, I’m sorry.

Steph Disher: No, no. You’re absolutely fine. The way I would describe it is we’ve developed a clear strategy. I talked about the 3 verticals that we are prioritizing in industrial filtration market; so industrial water, industrial liquids excluding water and industrial air. And so there’s a number of factors that we’re looking at. Obviously, there’s a lot of – there’s a number of strategic considerations that we filter deals based on and then as a set of financial considerations. And as we’ve discussed regularly on this call, we really want to balance growth – profitable growth with returns on our investment. And so it’s not always an easy dance to do. I feel really good about the pipeline and what’s coming in the top of our pipeline.

We do certainly have a disciplined and rigorous filtering process, and we’ve moved a number of those through to due diligence phase. And so we want to make sure – we expect that the first deal we make is kind of – we’ve talked about this programmatic approach, will allow us to be able to further build on that platform. And we know it’s important as a new company that we build confidence in how we’re going to do this for the long term. And so we feel confident about where we are. It does just take time as we work through this as to what the right target is.

Operator: And I would now like to turn the call back over to Todd Chirillo.

Todd Chirillo: Thank you. That concludes our teleconference for the day. Thank you all for participating and for your continued interest. As always, the Investor Relations team will be available for questions after the call. Thank you, and have a great day.

Operator: And this concludes today’s conference call. You may now disconnect.