Core Molding Technologies, Inc. (AMEX:CMT) Q2 2023 Earnings Call Transcript

Core Molding Technologies, Inc. (AMEX:CMT) Q2 2023 Earnings Call Transcript August 11, 2023

Operator: Good morning, everyone. Welcome to the Core Molding Technologies second-quarter fiscal 2023 financial results conference call. [Operator Instructions]. Now, I will turn the call over to Sandy Martin, Three Part Advisors. Please go ahead.

Sandy Martin: Thank you, and good morning, everyone. We appreciate you joining us for the Core Molding Technologies conference call to review second-quarter results for 2023. Joining me on the call today are Core Molding’s President and CEO, Dave Duvall; and the company’s EVP and CFO, John Zimmer. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the Investor Relations section at coremt.com. Today’s call, including the Q&A session, will be recorded. Please be advised that any time-sensitive information may no longer be accurate as of the date of any replay or transcript reading. I would also like to remind you that the statements made in today’s discussion that are not historical fact, including statements or expectations or future events or future financial performance, are forward-looking statements and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements by their nature are uncertain and outside of the company’s control. Actual results may differ materially from those expressed or implied. Please refer to the earnings press release that was issued today for our disclosures on forward-looking statements. These factors and other risks and uncertainties are described in detail in the company’s filings with the Securities and Exchange Commission. Core Molding Technologies assumes no obligation to publicly update or revise any forward-looking statements. Management will refer to non-GAAP measures, including adjusted EBITDA, free cash flow, and return on capital employed. Reconciliations to the nearest GAAP measures can be found at the end of our earnings release. Finally, the earnings press release we issued earlier today is posted on the Investor Relations section of our website at coremt.com.

A copy of the release has also been included in an 8-K submitted to the SEC. And now, I would like to turn the call over to Dave Duvall. Dave?

Dave Duvall: Thank you, Sandy. Good morning, and welcome to our second-quarter earnings call. We’re excited to share some of our important accomplishments in this quarter. First, I want to share that at the end of June, Core joined the Russell 3000 Index. This major milestone, as well as our record second quarter, are a direct result of a winning culture driven by a dedicated team and a relentless focus on customer support and continuous improvements. I want to thank our hard-working team of talented people for executing Core’s shared vision of growth and driving improvements on our business every day. Before we talk about our results, I want to briefly provide a few other comments. As we discussed last quarter, one, of course, of our strategic growth initiatives for 2023 is our commitment to profitability improvement through our Must Win Battle of achieving higher operational performance across all core locations.

We are focused on operational excellence and continually improving production efficiencies. We understood that a disciplined execution of our operational excellence initiatives in 2023 would result in increased gross margins. Again, this quarter, I’m excited to share that our gross margin for the quarter increased to 21%. This is the highest quarterly gross margin in over a decade. If you remember, during the last few quarterly calls, John Zimmer said he wanted to see it start with the two. So great forecasting, John. Sequentially, this is a 320-basis-point improvement from the first quarter and an increase of 780 basis points from Q2 of last year. I believe these results are direct evidence that the business transformation is progressing well and, more importantly, gaining momentum by consolidating the improvements or compounding.

We know that our successful gross margin expansion this year is a result of a relentless focus on our operational execution, material cost recoveries, and no technical solutions sales, especially as we expand into new or adjacent markets. I’m excited to see that our Must Win Battle for 2023 is fully embedded in our operational excellence processes and supporting our continuous improvement culture. We remain strategically focused on optimizing plant capacity through improvements in operational performance, and we are continually driving near-term opportunities within our sheet molding compound business. For the first half of the year, we increased our productivity by 15% in our focus plants. Recall that we reported an 8% productivity improvement in Q1, so we are proud to report to continue the improvements in our overall plant productivity, which reduces costs, increases our machine capacity, and reduces the demand on our technical resources, which is a significant opportunity cost as we look forward.

I appreciate how focused our operational teams are in driving and supporting our 2023 Must Win Battle. The cross-functional teams are providing on-site support and facilitating system improvements, ties and events, and organizational development processes. A Must Win Battle means it’s a priority for all. Now turning more specifically to the quarter. Second-quarter product sales demonstrated the benefits of diversification, and we continue to see strength in our transportation and power sports industries, with Q2 softening mostly in building products. Compared to first-quarter sales of medium and heavy duty trucks shifted back below 50% of our mix and power sports and industrial utilities, industrial and utilities grew in the second quarter.

As we mentioned last quarter, we continue to win programs in the industrial and utilities categories, specifically related to stormwater solutions, flush cover, and in-ground vault products. Our technical solutions team signed new contracts in the first half of the year that will contribute new and replacement annualized revenue of approximately $12 million that we are expecting to launch in 2023 and in early 2024. These programs relate primarily to new business in the industrial and power sports industries, and we are excited to launch these programs as they further differentiate our business in the growing end markets where we provide high-value engineered solutions. We will continue to focus on margin enhancements by offering a differentiated solution with new and existing customers that seek improved product performance, lower cost of ownership, and reduced manufacturing complexities.

Finally, regarding our sustainability efforts, we are currently in the certification process for Core’s EcoVadis rating, and we expect this to be completed by mid-August. This certification further supports the value proposition of several industrial and utilities customers. We continue to work with customers to increase their usage of recycled material or developing a completely recyclable solution by converting from traditional materials. All of these efforts closely align with our strategy of providing a technical and proprietary solution by utilizing our wide portfolio processes and over 80 presses. This is especially important for our long-term relationships with blue-chip companies, where we provide single-source manufacturing arrangements.

We firmly believe that driving sustainable solutions for our customers will create long-term value for our customers, shareholders, and of course, Core Molding. With that, I’d like to now turn it over to John to cover the financials in more detail.

John Zimmer: Thank you, Dave. Good morning, everyone. We continue to drive our four strategic growth initiatives this year, and our financial results reflect this hard work. Record second-quarter numbers were mostly the result of a combination of selling price improvement and operational efficiencies. As Dave mentioned, our team has stepped up to drive production improvement, and we believe more improvements are attainable. A direct result of our focus to improve operational performance is the company’s ability to generate free cash flow and improve return on capital employed, which we will discuss in a few moments. Our trailing 12-month adjusted EBITDA through the second quarter totaled $40.5 million, our highest ever in the company’s history.

This gives us confidence that our strategic growth initiatives are progressing, and I want to congratulate our team on their hard work. Turning to our financials. Second-quarter 2023 net sales were $97.7 million compared to $98.7 million a year ago. Product sales increased 2.6% versus the prior year period, which were largely driven by flat customer demand, coupled with increased customer pricing primarily to recover changes in raw material cost. Gross profit for the second quarter rose to $20.6 million, or 21% of sales, compared to $13 million, or 13.2% of sales, in the prior year quarter. During the quarter, margin expansion was primarily due to production efficiencies, as well as customer price improvements. We continue to see the US dollar weaken against the Canadian dollar and peso in the second quarter, which has a negative impact of about 100 basis points on gross margin.

We actively hedge a portion of our exposure to the Mexican peso and the Canadian dollar, but still experienced an overall negative impact to earnings by the change in the dollar. Selling, general, and administrative expenses for the quarter were $10.5 million compared to $8.7 million in the prior year period. The increase was primarily due to year-over-year variable compensation-related costs relating to our improving performance this year. In the second quarter, the company reported operating income of $10.1 million, an increase of more than two times the operating income of $4.4 million from the year ago quarter. Our operating income margins for the second quarter were 10.3%, up 590 basis points from the 2022 prior year quarter. Our effective tax rate for the second quarter was 19.3% and included a $535,000 tax benefit related to stock compensation recorded in the period.

Excluding the tax benefit, our effective rate would have been 24.7%, consistent with the first quarter. Net interest expense decline based on our debt refinancing last year and our investment income generate from excess cash balance within this period. Net income of $7.9 million, or $0.91 per diluted share, versus last year’s diluted EPS of $0.26, an increase of over 250%. Adjusted EBITDA for the quarter was $13.7 million, or 14.1% of sales, compared to an adjusted EBITDA margin of 8% in the prior year quarter. We are pleased with our progress on gross margin, EBITDA margin expansion reflected in our second-quarter results, and we believe that more operational improvements are still attainable. Our GAAP to non-GAAP reconciliation tables are included at the end of our press release.

Now turning to the first-half results. Net sales for the first six months totaled $197.2 million, up 4.2% versus a year ago, and product sales increased 5.9% versus the prior year period. Similar to the second quarter, first-half sales increases were largely driven by momentum in transportation and power sports. First-half gross margin was $38.3 million, or 19.4% of sales, compared to $27.6 million or 14.6% of sales in the year ago period. Consistent with the second quarter, our first-half margin percentage was primarily due to production efficiencies and favorable net customer pricing and raw material costs. SG&A expenses for the first half were $20.2 million compared to $17.2 million in the prior year period. Operating income for the first six months was $18.1 million, an increase of 75% from the 2022 first half.

Year-to-date earnings were similarly impacted by foreign currency headwinds, lower net interest expense, and tax benefits discussed before. Net income aggregated $13.8 million, or $1.59 per diluted share, compared to $6.1 million or $0.71 per diluted share in the comparable year period. First-half adjusted EBITDA was $25.9 million, or 13.2% of sales, compared to $17.5 million in the prior year. In 2023, the company is beginning to see a return to normal seasonality after several years of unusual seasonality resulting from COVID and supply chain challenges. Based on normal seasonality, the company anticipates the second half of 2023 sales and gross margin percent will be lower than the first half of 2023. The business seasonality has a direct impact on our product sales, volume, and mix.

We anticipate that a combination of normal seasonality and a slowdown in some of our markets will result in a full-year product sales for the 2023 either flat to slightly lower than the full-year product sales in 2022. We also anticipate the second-half gross margins will be impacted by normal seasonality resulting in mix shifts, coupled with potentially lower fixed cost leverage, which we expect will produce a full-year gross margin in the range of 17% to 19% compared to the full-year 2022 gross margin of 13.9%. Turning now to the company’s financial position. Starting with a discussion of cash flow, the company’s cash provided by operating activities were $18.9 million for the six months ended June 30, 2023, and capital expenditures for the year were $4.5 million, resulting in a positive free cash flow of $14.4 million for the first half of the year.

We expect to generate free cash flows for the remainder of the year as operating cash flows are expected to outpace capital expenditures and working capital continues to be tightly managed. Our full-year capital expenditures are estimated to be between $11 million and $13 million in 2023. At June 30, the company had ample liquidity of $64.2 million to invest in and grow the business, which includes a combination of cash and cash equivalents and availability under the revolver and capital credit lines. The company also had term debt of $23.6 million at the end of June. And our debt to trailing 12-month EBITDA ratio remains less than one times adjusted EBITDA at the end of the second quarter. Our working capital continues to be well-managed and netted to $45 million as of June.

And we ended the quarter with accounts receivable of $50.4 million, with a DSO of 46 days, down from 48 days in Q1. Inventories were well controlled and remain less than one times accounts payable at the end of June. Finally, our return on capital employed, a pre-tax return metric, improved to 23.6% on annualized basis, driven by disciplined use of capital. We plan to continue to manage our capital employment in a prudent and strategic manner and believe that a combination of good liquidity and a strong balance sheet provides flexibility to focus on our strategic growth initiatives. As Dave discussed, we continue to work on operational efficiencies at all our plants and the higher margin technical solution sales to improve margins and reduce the impact of product mix shifts in our business.

Our Must Win Battle for 2023 includes institutionalizing major productivity and quality improvements, as well as scrap reductions, labor productivity, and reduction of overhead spending. We are also focused on operational improvements with our new product launches which usually take up to a year from launch to work out all the operational efficiencies. Our operational performance and efficiency goals are targeting further long-term gross margin enhancements, as well as increased capacity throughput and return on capital. Our full attention and focus as a company is on our four strategic growth initiatives that include revenue growth, technical solution sales, profitability improvements, and free cash flow generation. And all of our goal, objectives, and targets flow down from these.

And we plan to stay on course with consistency and focus by maintaining our operational performance enhancements, as well as working on additional continuous improvement initiatives. The entire management team is dedicated to our strategic growth and profitability goals with programs that drive long-term value creation. With that, I’d like to turn it back to Dave for some final comments.

Dave Duvall: Thank you, John. Reaching and then working to maintain a 15% productivity improvement in the first six months of this year took and will continue to take daily operational discipline and continual improvement. We have upgraded our frontline leader onboarding and training in four locations and will continue to roll this out across the organization. As both John and I have explained, our Must Win Battle for 2023 is about fully embedding the continuous improvement systems into our more challenged operations, which benefits our sheet molding compound plants the most. With the systematic improvements in place and sustained, we can now focus on scaling the continuous improvement structure and company-wide cross-functional technical projects.

We have also expanded our internship program and have incorporated an apprenticeship and educational co-op program in some locations. We are providing technical training by partnering with external agencies for funding and facilitated technical programs. All of this is to support and strengthen our team and, in turn, strengthen our organizational capabilities. We have communicated or goals throughout the organization, which places a high level of focus into driving speed and quality of event on our Must Win Battle initiative. We will continue to increase productivity, reduce costs, and expand our capacity by as much as 20% within the focus locations. This drives better return metrics on our investments and creates a stronger foundation for success as we plan for the next level growth at Core Molding.

We have communicated that we plan to add capacity, and we are currently evaluating the best approach, either by acquisition, facility expansion, or greenfield site. As I mentioned last quarter, we are also adding additional automation to support further production efficiencies, reduce costs, and increase capacity. Our 2023 Must Win Battle was a foundational step in maximizing current machine capacity and freeing up technical expertise before investing in step functioning growth, which will accelerate our long-term value creation and shareholder returns. Our 2023 outlook includes continuing to expand our revenue diversification by industry, with high-value engineered solutions that enhance our margin profiles further. We are monitoring the demand environment and customer forecast in the second half of ’23 and into ’24 and are continuing to calibrate asset in labor utilizations.

We are cautiously optimistic about the rest of 2023 and believe that the first-half performance has set us up well for strong full-year 2023 performance compared to 2022. We’re taking advantage of opportunities in various industries that require new solutions, including opportunities resulting from government-funded infrastructure and sustainability projects. Coming into 2023, we understood that we needed all locations operating in a high level, not just most of them, and making this happen was foundational to successfully executing the long-term growth of the company. We believe our progress in the first half of the year has set us up to return more of our attention to growing the company, both organically and through acquisitions. Our team is ready to drive the company forward towards our long-term goals and to deliver long-term shareholder value.

Finally, we will be at the Midwest IDEAS Conference in Chicago on August 24 if you would like to meet with us in person. And we welcome your questions on today’s call or on a follow-up call. With that, I would like to open up the line for questions. Operator?

Q&A Session

Operator: [Operator Instructions]. The first question comes from Tim Moore with EF Hutton.

Tim Moore: Thanks, and congratulations on a very strong gross margin and operating margin expansion. Like you said, it was the highest margin in over a decade. I just want to start out first with sales guidance. You elaborated on that. And is my understanding correct that a lot of it has to do with the seasonality? Last year might have been some tail end of pandemic demand, catch-up steel production in full swing, and abnormally high for power sports and even maybe for some of the commercial trucks. But you’re expecting more normalized seasonality for this year, and that would explain the sales — tough comparables from last year.

Dave Duvall: Yeah. That’s a really good view on it, Tim. I think what we’ve seen in the past with COVID and the supply chain shortages, there were a lot of changes that customers made to either extend their product lines or fill the dealerships and build the pipeline. So I think we’re seeing that coming back with the supply chain shortages reduced. We’re coming back to the normal seasonality, which we’ve always seen as far as Q1, Q2 being the highest, and then Q3 tailing off, and then Q4 when it’s really into the holiday season. That’s exactly what we’re seeing this year.

Tim Moore: Great. That’s helpful color. My next question revolves around your production efficiencies and your 15% productivity improvement goal this year. So this is a two-part question. Where do you think you are in that 15% improvement for productivity this year? And it’s fair for me to probably assume that for your gross margin guidance of 17% to 19% for the year that you might be at the lower end of the range, despite doing, I think, 19.4% the first half of the year. But just given the way that that seasonality lines up for the second half of the year from sales, do you think maybe you’d be at the lower end of the 17% to 19% gross margin for the year?

Dave Duvall: Yeah. I’ll answer the first question and leave it to John for the second question on the forecast. So as far as the productivity, we’re really looking at the overall productivity, the two plants in question. The SMC plants were 15%. We had said from the beginning that we would probably get about at least 20% overall throughput for those plants for the year. So I think we’re trending in that direction. And what we’re seeing right now is you got to get to some level of sustainability before you start moving onto the next phase. So we’re seeing that sustainability take place and those plants becoming integrated into the overall continuous improvement processes for the entire company.

John Zimmer: Yeah. And Tim, on the 17% to 19%, I think right now, we would say we’re pretty comfortable that we’re in the middle of that. What will happen is that over the next six months, volumes mean a lot to determine our fixed cost leverage, and so we’ll watch the volumes from the seasonality and where we think revenue will always come in. And then the other piece is a little bit of mix. Mix can change throughout the six months. We get forecasts from customers. But to tell you the truth, those forecasts are probably good for about a month, and they constantly change. And so a little bit of mix comes into play also. But we’re probably, right now, thinking that we’re right about in the middle of that. But we’ll watch volumes and mix is what will really drive the difference between 17% and 19%.

Tim Moore: That’s very helpful color, Dave and John. My next question is around SG&A. I noticed it ticked up a bit in the June quarter, and I’m guessing it’s probably because of the way you do bonus accruals. Should we expect SG&A as a percentage of sales to be lower in the second half of the year than it was in the first half of the year?

John Zimmer: Maybe not as a percent of sales. The way I look at it is there’s a fixed piece of our SG&A and then there’s a variable. And really, the variable piece of our SG&A is our bonus compensation. We do try to match our bonus expense with our earnings, do have matching principle from accounting. And so the first half of the year carries most of the bonus expense or a lot of the bonus expense, and then pieces of it go away or it’s a lot less during the second half of the year. The way I look at it as our fixed run rate of SG&A is around $8.5 million is where it is. That’s really just the people to come to work every day, the normal pay, and those types of things. And then any difference between $8.5 million and what you see on the SG&A is usually a bonus accrual type thing.

And so you can see for the first couple of months, first quarter, it was about $1.1 million; this quarter was $1.9 million. I would expect bonus expense accrual to go down in the third and fourth quarter just because, again, we try to match that with earnings, and we think earnings will be a little bit lower in the third and fourth quarter.

Tim Moore: That’s helpful. My next question is more strategic. This is a great attribute of your capacity expansion goals. And as David said before, it’s a combination of organic and just internal expansion brownfield. But can you give us maybe a sense if maybe your near-term goal is 20% capacity expansion, how long does something like the utilities certification take month-wise, maybe? And then when do you — how long is the lead time from when you get the automation machines in and certify it to when you start seeing a ramp-up in sales for some of that maybe $12 million of new launches that you mentioned in your prepared remarks?

Dave Duvall: Yeah. If I look at it in just as a standard law, it will vary, say, anywhere between, say, at the minimum six months. If you’re transferring a program to about 18 months or so, as far as the overall launch. I think the big thing for us, though, it’s a continual process. So we haven’t stopped and there are still programs that are in our pipeline that we’re working on now, looking at what we can do to capacitize that volume, whether that’s acquisition or greenfield site or an expansion of our current facilities, which we have been doing. But we’re at a point now — we’re at a brick-and-mortar situation.

Tim Moore: Great. That’s very helpful, Dave. My last question is around free cash flow. I feel like investors really haven’t caught on to this. You’ve been doing a lot of growth CapEx, but it really shone through in this quarter, with $14 million of free cash flow in the first half of this year already, $12 million just in the June quarter. As you think about the second half of the year, with the natural sales cadence that you talked about and probably some working capital benefit maybe as you collect ARs and receivables, would I be off thinking that maybe you could do $18 million free cash flow this year if you’ve already achieved $14 million?

John Zimmer: Yeah. Tim, no, I don’t think it would be off. Again, we do believe we’ll generate cash flows for the second half of the year also. I think where we are now with our operational improvements we’ve made even with slower sales, we believe we’ll kick off operating cash flows, pretty good operating cash flows. And really, probably from a free cash flow, it will matter how much of that $11 million to $13 million of CapEx we can do. It’s not always about not wanting to spend it, it’s about trying to get the projects done and find resources to do the projects; sometimes, it’s getting equipment in that you’ve ordered and stuff. And so no, I don’t think you would have a problem at the upper end of the team there that free cash flow for the years as an initial projection.

Tim Moore: Thanks, John and Dave. This is very helpful and insightful. And I look forward to continued EBITDA and profitability enhancement over the next couple of years. That’s it for my questions.

Dave Duvall: Appreciate it. Thanks, Tim.

Operator: The first question comes from JP Geygan with Global Value Investment Corporation.

JP Geygan: Thanks, and good morning, gentlemen. My first question’s been answered in parts in a number of different ways, but at the risk of asking you to repeat yourself, I’ll ask it again. You’ve done a great job really optimizing your asset base and improving productivity. And you’ve talked in a lot of ways about this Must Win Battle for 2023 and the productivity you still expect to gain. But looking forward beyond ’23, how should we expect you to grow organically using your existing asset base? Given comments you’ve made about automation or other efficiency improvements, or maybe said another way, how much can you really squeeze out of the existing business before you’re forced to turn to something inorganic? And then maybe the second part of the question, which is connected to this, what form or how will you decide the form that inorganic growth will take in terms of acquisition versus greenfield products, geography, that kind of decision tree?

Dave Duvall: So on the first question, JP, I think it’s a good question. For us, we’ve been evaluating, and a lot of it really has to do with how far we can get our current systems. We have currently filled all the, what I would say, holes in our plants, where you have and you can put a large asset into the pit and the facility. So we really maxed out the facilities relative to being able to put large presses in place. That was a first step. Our step right now is really about maximizing the output of all the facilities with all the assets. So that’s really the Must Win Battle. And what that does is free up the resources and stabilize the operational systems, so that now, we’re ready to look at what acquisitions we can do and make those acquisitions quickly and successfully with the resources and being able to put in the core operational model.

So that’s really the overall plan that we had from the beginning. What I would say that continual continuous improvement as we continue to put in automation and improvements, yeah, you’re not going to see 20%, 25% a year; maybe it’s 4% to 6% a year, somewhere below 10% a year on your existing assets, but there is where we’re really looking at do we need to expand the facility, do a greenfield, or do an acquisition. And I think that really depends on what the strategic benefit is there if we have four or five different areas that we want to get out of an acquisition, whether that’s sales channels, capacity, a new technology, or a new material and process, it depends on how many of those are fixed and where that fits within the does it make more sense to do the acquisition than do the expansion.

JP Geygan: All right. That’s helpful.

Dave Duvall: That’s a long answer to your question.

JP Geygan: It is very comprehensive, though, and I appreciate the additional color. It’s helpful to understand your thought process as you get through this. In terms of capital allocation, I think for investors who have been around for a while, the staying at the HPI acquisition, at least initially, and it turned out to be a good acquisition, it seems, but you might have bitten off a little bit more than you could chew from a financial standpoint. How do you think about funding expansion after this? And then how should we think about your capital allocation priority is given that you’re bumping up against capacity in your existing infrastructure?

John Zimmer: Yeah. I think we will take actually a little bit of the same process we took back in 2018 when we did arise and we went into that deal and were less than two times EBITDA when we did all our models. I don’t know that we really thought we were going to go into the turnaround in the traditional business, but we did, which really caused us the issue. But I don’t think we’ve mentally or changed strategically on how we look at the capital. We are not an aggressive company where we’re going to go out three, four, five times our EBITDA and leverage up the balance sheet. We are going to be pretty responsible. We’re probably going to be between 2 and 2.5 times. We’ll make sure we model out even during downturns and everything else that we can handle, whatever leverage we bring on to the financial statements.

So I think we’ll stay pretty conservative in that standpoint, not over-lever the balance sheet. The benefit we have now that our EBITDA is much higher even until it does allow us. Probably, it’s — and we’re a much divert more diversified company, so it reduces the risk of any certain industry — the downturn in any certain industry hurting our financials. And so I think we’re in a much better position now, but we’re probably in the same thought process and wouldn’t be any more than 2 to 2.5 times. As far as internal growth capital, the nice thing is that we set ourselves up about a year ago when we did the CapEx line. We went into that. The debt structure that we have that as a five-year debt structure that allows us to — if we wanted to do expansion, this CapEx, we have your cash on hand plus we have a CapEx line specifically for that has separate covenant and rules and payments and those types of things.

So I think that $25 million there to really allow us to expand the business organically and grow it organically if we wanted to. So I think we’re really set up with different ways to finance the business, but we’re not going to get overly aggressive. We’ll stay — EBITDA, no more levered than probably 2 to 2.5 on an acquisition, probably even less than that historic organic growth.

JP Geygan: Okay. And finally for me, can you talk a little bit about the labor situation you’re seeing today? Is that’s been the nexus is some cost pressures for a couple of years now.

Dave Duvall: Yeah. What we were seeing a year ago, maybe a year-and-a-half ago, is not nearly what we’re seeing today. In most of our locations, we’ve had to adapt for sure as far as our labor wage rates, as far as being competitive and constantly watching that relative to the areas in seeing of new businesses we’re moving in. So we’re constantly looking at that. We’ve done a lot with our onboarding and our training and our facilities to where it’s trying to make it a better place when people come in and work, so that they don’t go somewhere else or have the want to go somewhere else. So we’ve done a very holistic view of it on what we need to do. For sure, there’s always more to do and improve, and we continue to do that. But I would say the area that still, I think, everyone I talk to has challenges is really more on the skilled trades or hands-on technical like PLC, programming and controls, and things like that.

JP Geygan: Okay. Thanks for taking my questions today. Appreciate it.

Dave Duvall: Thanks, JP.

John Zimmer: Thanks, JP.

Operator: [Operator Instructions]. This concludes our question-and-answer session. I would like to turn the conference back over to Dave Duvall for any closing remarks.

Dave Duvall: Thank you for your continuing interest in our company. We look forward to providing an update of our progress when we report the third-quarter results in a few months. Thank you.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.