Kadant Inc. (NYSE:KAI) Q3 2024 Earnings Call Transcript

Kadant Inc. (NYSE:KAI) Q3 2024 Earnings Call Transcript October 30, 2024

Operator: Good day, and thank you for standing by. Welcome to Kadant’s Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note that today’s conference is being recorded. I will now hand the conference over to your speaker host, Michael McKenney, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Michael McKenney: Thank you, Olivia. Good morning, everyone, and welcome to Kadant’s third quarter 2024 earnings call. With me on the call today is Jeff Powell, our President and Chief Executive Officer. Before we begin, let me read our safe harbor statement. Various remarks that we may make today about Kadant’s future plans and expectations, financial and operating results and prospects are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause our actual results to differ materially from these forward-looking statements as a result of various important factors, including those outlined at the beginning of our slide presentation and those discussed under the heading Risk Factors in our annual report on Form 10-K for the fiscal year ended December 30, 2023, and subsequent filings with the Securities and Exchange Commission.

In addition, any forward-looking statements we make during this webcast represent our views and estimates only as of today. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views or estimates change. During this webcast, we’ll refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is contained in our third quarter earnings press release and the slides presented on the webcast and discussed in the conference call, which are available in the Investors section of our website at www.kadant.com.

Finally, I wanted to note that when we refer to GAAP earnings per share or EPS and adjusted EPS on this call, we’ll be referring to each of these measures as calculated on a diluted basis. With that, I’ll turn the call over to Jeff Powell, who will give you an update on Kadant’s business and future prospects. Following Jeff’s remarks, I’ll give an overview of our financial results for the quarter, and we will then have a Q&A session. Jeff?

Jeffrey Powell: Thanks, Mike. Hello, everyone. Thank you for joining us this morning to review our third quarter results and discuss our outlook for the remainder of the year. Before beginning our Q3 review, I want to share with you that we are hosting an Investor Day to take place on December 12 in New York City. At this event, we will present our new 5-year financial targets and outline our growth initiatives in each of our 3 operating segments. Mike will provide more details on this during his remarks. Now let’s turn to our third quarter highlights. Third quarter was another record-setting performance benefiting from excellent execution across our operating segments and record aftermarket parts revenue. This led to record adjusted EBITDA, record adjusted EBITDA margin and record adjusted EPS in the third quarter.

As you know, our aftermarket parts business is one of our core strategic development areas, and it is encouraging to see this part of our business continues to thrive. Overall, market demand was stronger in the Americas, while demand in Europe and Asia reflected the sluggish economies in those regions. As has been the case throughout 2024, our operations teams around the world delivered exceptional value to our customers. I want to thank them for their outstanding work and the results they generated, not only in the third quarter but throughout the year. Turning next to Slide 6, I’d like to review our Q3 financial performance. Our Q3 performance was excellent with a number of financial records achieved. Revenue was up 11% compared to the third quarter of 2023 to $272 million and benefited from record aftermarket parts business and contributions from our acquisitions.

Solid execution contributed to our record adjusted EBITDA of $63 million and a record adjusted EBITDA margin of 23.3%. Cash flow from operations and free cash flow were outstanding in the third quarter at $52 million and $48 million, respectively, demonstrating the strength of our business model. Bookings increased 15% compared to the same period last year, due to our acquisitions and strong activity in North America. I’ll review the performance of our operating segments next, beginning with our Flow Control segment. Robust market demand for our aftermarket parts led to strong revenue performance in our Flow Control segment in the third quarter, up 7% compared to the same period last year. Bookings were $89 million, up 7%, led by strong demand for aftermarket parts, which made up 78% of new order activity.

Excellent execution in both commercial and operational areas of the business led to record adjusted EBITDA and an adjusted EBITDA margin of 29.4%. Many end-markets in our Flow Control segment remain strong, and we continue to see good levels of project activity, particularly in the Americas. Project activity in Europe and Asia has moderated and reflects the strong and persistent economic headwinds in those regions. In our Industrial Processing segment, revenue increased 17% to $111 million, led by record aftermarket parts business, which made up 67% of our total revenue in Q3. Bookings also benefited from strong parts demand in this segment and were up 27% compared to the same period last year. Adjusted EBITDA was up 41%, and our adjusted EBITDA margin was a record 28.7%.

Capital project activity is strengthening, and we believe the long-term growth drivers of our end-markets remain strong. In our Material Handling segment, our revenue and bookings benefited from our latest acquisitions. We experienced high demand for aftermarket parts and capital project bookings, and our high-performance biller product line was strong in the third quarter. Revenue was up 7% to $63 million, led by solid demand for our bulk material handling products, while bookings were up 10% compared to the same period last year. Adjusted EBITDA margin declined by 210 basis points compared to Q3 of last year, largely due to product mix and lower revenue volume in some of our businesses in this segment. While we expect demand to stabilize in the near term, we continue to see a high level activity in the aggregate material handling sector, particularly in North America.

As we look ahead to the remainder of 2024 and the full year, we expect to deliver record financial results again. We are seeing a lot of activity around capital projects, and this is expected to be a meaningful contributor to our Q4 new order activity, though the timing of these projects can be uncertain and could shift due to macroeconomic uncertainty or other factors. I will now pass the call over to Mike for his review of the Q3 financial performance. Mike?

Michael McKenney: Thank you, Jeff. I’ll start with our third quarter performance. Revenue was $271.6 million, up 11% compared to the third quarter ’23, including a 12% increase from acquisitions. Gross margin was 44.7% in the third quarter ’24, up 140 basis points compared to 43.3% in the third quarter of ’23. This increase was principally due to higher margins achieved on capital projects. Another contributing factor was a higher percentage of parts and consumable revenue, which increased to 65% of revenue in the third quarter of ’24 compared to 61% in the prior year. Third quarter gross margins of 44.7% included a 50 basis point negative impact from the amortization of acquired profit and inventory. Excluding this impact, gross margins were up 190 basis points over the third quarter of ’23.

This continues our strong gross margin performance over the quarterly results achieved in ’23. SG&A expenses as a percentage of revenue increased to 25.4% in the third quarter of ’24, compared to 23.7% in the prior year period, primarily due to our acquisitions, which included nonrecurring acquisition-related costs. SG&A expenses were $69 million in the third quarter of ’24, increasing $11.1 million compared to $57.9 million in the third quarter of ’23. This included an increase of $9.7 million from our acquisitions and $1.2 million in acquisition-related costs. Our GAAP EPS increased 2% to $2.68 in the third quarter, compared to $2.63 in the third quarter of ’23, principally due to higher revenue and gross margins. Our adjusted EPS was a record $2.84 in the third quarter of ’24, up 6% compared to $2.69 in the third quarter ’23.

Third quarter of ’24 adjusted EPS exceeded the high end of our guidance range by $0.36 due to higher revenue than forecasted, especially at our Industrial Processing segment. We also had higher-than-expected gross margins. We had another quarter with record adjusted EBITDA results. Third quarter adjusted EBITDA was a record $63.3 million, increasing 20% compared to the third quarter ’23 due to record performance in our Industrial Processing and Flow Control segments. As a percentage of revenue, adjusted EBITDA was a record 23.3%, compared to 21.6% in the third quarter ’23. This included a record adjusted EBITDA margin of 28.7% in our Industrial Processing segment. Our adjusted EBITDA has increased each quarter in ’24 with strong contributions from our Industrial Processing and Flow Control segments.

Our adjusted EBITDA margin of 23.3% in the third quarter ’24 represents the first quarter we have exceeded 23%. Turning to our cash flows. We had strong cash flows in the third quarter ’24, increasing 87% sequentially. Compared to the third quarter ’23, operating cash flow increased 12% to $52.5 million. Free cash flow was up 27% to $48.3 million in the third quarter of ’24, compared to $38.1 million in the third quarter ’23. We paid $10.4 million for acquisitions funded by borrowings and paid down debt by $32 million in the quarter. Our other nonoperating uses of cash in the third quarter of ’24 included $4.2 million for capital expenditures and $3.8 million for dividend on our common stock. Let me turn next to our EPS results for the quarter.

In the third quarter of ’24, GAAP EPS was $2.68, and after adding back $0.15 of acquisition-related costs, adjusted EPS was $2.84. In the third quarter of ’23, GAAP EPS was $2.63, and after adding back $0.03 of relocation costs and $0.03 of restructuring and impairment costs, our adjusted EPS was $2.69. As shown in the chart, the increase of $0.15 in adjusted EPS in the third quarter compared to the third quarter ’23 included increases of $0.32 due to a higher gross margin percentage and $0.21 from the operating results of our acquisitions excluding the associated borrowing costs. These increases were partially offset by $0.22 due to higher interest expense, $0.08 due to lower revenue, $0.04 due to a higher tax rate, $0.03 due to higher operating expenses, and $0.01 due to higher weighted average shares outstanding.

The operating results, excluding acquisition-related costs from our acquisitions, contributed $0.21 to our third quarter results. Recent acquisitions are included in each operating segment and the integration process is going well. Collectively, included in all the categories I just mentioned, was an unfavorable foreign currency translation effect of $0.03 in the third quarter ’24 compared to the third quarter of last year due to the strengthening of the U.S. dollar against certain currencies. Looking at our liquidity metrics on Slide 15. Our cash conversion days, which we calculate by taking days in receivables plus days in inventory and subtracting days in accounts payable, decreased to 129 at the end of the third quarter ’24, compared to 138 in the prior year quarter.

Working capital as a percentage of revenue increased to 17.2% in the third quarter of ’24, compared to 15.4% in the third quarter ’23 due to the lack of a full year of revenue in the calculation for our recent acquisitions. Our net debt, that is debt less cash, decreased $33.4 million or 12% sequentially to $236.7 million. Our leverage ratio calculated in accordance with our credit agreement decreased to 1.13, compared to 1.22 at the end of the second quarter of ’24. At the end of the third quarter we had $85 million of committed borrowing capacity and an additional $200 million of uncommitted borrowing capacity under our revolving credit facility. In addition, our strong balance sheet and low leverage ratio would allow us to access additional sources of capital if needed.

Now turning to our guidance for the fourth quarter and full year ’24. We’ve had a strong financial performance to date in ’24. In the fourth quarter, we expect a sequential increase in industrial demand for our capital equipment. However, the majority of these projects will not ship until ’25. Lower gross margins due to the mix of projects in the period will contribute to comparatively lower earnings for the fourth quarter. I should note here that the timing of capital shipments can shift by quarter, creating both upside opportunity and downside risk with our fourth quarter expectations. We are narrowing our full year revenue guidance range to $1.047 billion to $1.055 billion from $1.045 billion to $1.065 billion. We are raising our adjusted EPS guidance and now expect $9.93 to $10.13, up from $9.80 to $10.05 for ’24, which excludes $0.68 of acquisition-related costs.

We expect GAAP EPS of $9.25 to $9.45, revised from our previous guidance of $9.20 to $9.45, which included acquisition-related costs of $0.60. Our 2024 guidance includes a $0.17 negative effect from foreign currency translation compared to the guidance given at the beginning of the year. Future actions by the central banks may impact the U.S. dollar and other currencies, which could have an impact on our guidance. Both GAAP and adjusted EPS guidance are calculated using our initial estimates of purchase accounting adjustments, which are subject to change as we review and finalize the valuation work for our ’24 acquisitions. Our revenue guidance for the fourth quarter of ’24 is $252 million to $260 million and our adjusted EPS guidance is $1.90 to $2.10, which excludes $0.05 of amortization expense associated with acquired profit and inventory and $0.04 related to acquired backlog.

We currently anticipate gross margins for ’24 will be 44% to 44.5%. This includes a 40 basis point negative impact from $4.8 million of amortization expense associated with acquired profit and inventory. We anticipate fourth quarter gross margin will be in the low to mid 43% range, primarily due to the mix of projects. We expect SG&A for ’24 will be approximately 26.7% of revenue. This includes a 50 basis point negative impact from onetime acquisition-related costs of $5.4 million. We now expect net interest expense of approximately $18.5 million for ’24, and we expect our tax rate for the fourth quarter will be approximately 27.5% to 28%. I hope these guidance comments are helpful. And finally, as Jeff mentioned, we’ll be hosting an Investor Day on December 12 at the Lotte New York Palace Hotel in New York City.

This event is a great opportunity for attendees to hear from leaders in each of our major product lines, and they will discuss market trends and growth opportunities, and you will be able to view product demonstrations. We’ll provide an update on our strategic growth initiatives, including acquisitions and our 80/20 program. We will also update you on Kadant’s performance against the financial goals we set at our last Investor Day in 2019 and outline our new 5-year financial goals. We look forward to seeing you there. I’ll now turn the call back over to the operator for our questions. Liv?

Q&A Session

Operator: [Operator Instructions] And our first question coming from the line of Gary Prestopino with Barrington.

Gary Prestopino: A couple of questions. First of all, for the various divisions, Flow Control, Industrial and Material Handling, can you give us the percentage of aftermarket parts that were in the prior year’s Q3? Just want to get an idea of how they’ve grown.

Michael McKenney: Yes. Let’s see. So of course, this is all in. So for Flow Control, this year, — now you’re talking revenue, Gary?

Gary Prestopino: Yes.

Michael McKenney: Revenue, the parts were 70% versus 68% in the comparing quarter last year. In Industrial Processing, it was 67% compared to 60% last year. And in Material Handling, it was 55% compared to 53% last year.

Gary Prestopino: Okay. And then can you just — as you’re looking at the fourth quarter, can you just maybe very quickly go over some of the puts and takes that you’re seeing out there as it regards to the 3 segments?

Michael McKenney: Well, I’ll just address that very broadly. I’d say, for the fourth quarter, I’d say we’re being conservative in case some capital shipments are delayed into ’25. In talking to the people in the field, there was a little bit of a concern that some customers may ask for a project to get shipped in the first quarter ’25 versus fourth quarter. So we wanted — I wanted to be conservative in that regard. And I’d also say, on the parts and consumables front, we’ve had a very good year-to-date performance. And the fourth quarter can be a little bit of a wildcard. It can be a bit challenging to peg. This is nothing unusual. This is kind of a standard fourth quarter stuff for us. So there’s a little bit of uncertainty as to whether customers will continue buying as they have through the year, or even sometimes buying extra.

So if they’ve used their maintenance budgets, maybe a little softer in the fourth quarter. And if they have extra in their maintenance budgets, we may get a little uplift. So a little bit of a kind of a mixed bag on that one.

Gary Prestopino: Okay. But just going through my notes, it seems like just what I jotted down for each segment, that the capital project activity is going to be pretty good in the U.S. and North America, but still kind of sluggish in Europe and Asia. Is that kind of a correct assumption?

Michael McKenney: Yes, that’s correct.

Gary Prestopino: Okay. And just lastly, how does the pipeline look for any future acquisitions at this point?

Jeffrey Powell: So I think we’ve mentioned through most of the year that our corporate development group has been quite busy. I would say there’s been very strong activity, certainly relative to the last few years. And that hasn’t really slowed down. And I think what the bankers are telling us is that next year is going to be even stronger. So it’s a pretty active market out there right now. The challenge for us is always the same. First, finding something that’s a good strategic fit that meets our – the attributes we’re looking for, and then being able to get it at what we think is a reasonable price. And that ultimately is the big challenge, is that beginning at what we think is a fair price. But it’s a very – I would say it’s a pretty robust market out there right now, a lot of activity.

Operator: Our next question coming from the line Kurt Yinger with D.A. Davidson.

Kurt Yinger: It sounds like you do expect a pickup in capital equipment bookings in Q4. Wondering if you could maybe just directionally talk about kind of the magnitude that you’re anticipating, as well as whether there’s any kind of seasonal factors in there or if you think that might represent, I don’t want to be too dramatic, but an inflection and something that could sustain going into next year?

Jeffrey Powell: Yes. I don’t think we expect to see a step change. We think things are strengthening. As we talk to our customers, they’re saying that they think things are going to really start to improve in the second half of next year, and so they’re — and then into ’26, they expect ’26 to be pretty strong. But it’s going to be a slow climb here, I think, for the next few quarters. So we’re talking about we expect an increase, but it’s not going to be a significant increase. It’s going to be an incremental increase and it should continue to build as people start to get comfortable. I think a little bit of it would depend on what the Fed does in the next couple of meetings they have. And frankly, I think everybody is right now sitting on their hands a little bit waiting to see the outcome of the election in the U.S. China is putting together another stimulus package to try to get things growing there.

And then Europe, it depends on, of course, which country you’re looking at. But they’re hopefully bottoming out, are going to start to make some investments. We’ve seen this before when investments kind of get quiet, and it can’t last forever because the equipment just continues to wear out. That’s why our parts and consumables business has been so strong, record rates, is because they’re running equipment longer than they traditionally would. So at some point, they’re going to have to start making investments. And what we’re hearing from the marketplace is going to start strengthening and they’re really expecting the back half of next year to really start to see a marked improvement.

Kurt Yinger: Got it. Okay, I appreciate that. And I think it’s pretty clear, geographically, kind of where the pockets of strength and weakness are. I guess from an end market perspective, what areas of the portfolio stand out in terms of where you see particularly compelling kind of capital opportunities going into next year?

Jeffrey Powell: The market that has continued to surprise us with its strength has been — it’s been the OSB market the oriented strandboard market. In fact, we just booked another new mill order today this morning about an hour before the call started. So it’s one of these situations where it just continues to push through around the world, and we’re pretty strong globally. Of course, we have — our installed base in China continues to increase, as does in North America and Europe. So that’s probably the strongest. I would say packaging, certainly in the parts and consumables side, it’s held up quite well. So we’ve been quite pleased with that. Capital has been slower for sure. And then we have other smaller markets that are doing well. The metals market, defense, frankly, we’ve got increasing exposure to the defense market, and that’s growing. So there’s a lot of kind of what we’ll call industrial markets that are starting to show some renewed strength.

Kurt Yinger: Okay. Got it. And Mike, I know we talked about a little bit last quarter, but capital equipment sales kind of continue to outpace bookings by a pretty wide margin. Is that just the work-down of kind of the backlog? And is that something that you would still expect will normalize as we move into next year? Or how long could that dynamic kind of persist for in your mind?

Michael McKenney: Yes. No, you’re — it’s just as we discussed, Kurt, yes, we — that certainly happened here in the third. We may get a little bit of that again in the fourth. And then I’d say, as we go into ’25, it should be relatively normalized, while it’s kind of worked through the excess we had.

Kurt Yinger: Okay. Perfect. And then just lastly on the gross margin front. Obviously, a very strong performance again this quarter. Mix is one element, but the margins on the capital side seems like it’s been kind of the biggest upside surprise. How sustainable is that? And what would you kind of attribute that to in terms of what’s driven the upside there?

Michael McKenney: Well, it’s a great question. I would say there’s a component of that, Kurt, to be quite frank on it, is can be mix, the mix of the capital projects. So when you take – when we take very large capital projects, that will oftentimes create a little pressure on gross margin performance, but you get better operating leverage. So you get to pay off at the end. So I think what’s – the projects that are shipping now, I’d say, are not the large capital projects. And I would say we’ve picked up a little bit from commodity prices coming down. And I think, frankly, the 80/20 exercise has been helpful in terms of what we’re achieving on the margin front. So I think there’s been – as is almost always the case, it’s never one particular factor.

It’s several things. But I’m very happy with the gross margin performance this year. We’ve outperformed ‘23 every quarter this year. And frankly, we’ve outperformed our own forecasting expectations every quarter.

Operator: Our next question coming from the line of Ross Sparenblek with William Blair.

Ross Sparenblek: Can you help us out with the backlog in the quarter? I know there’s been some M&A impact here in the first half of the year. Just want to make sure we’re on the same page.

Michael McKenney: Yes. As we stand right now, Ross, it’s at $285 million.

Ross Sparenblek: Okay. And then I mean, give a sense here to that kind of $250 million threshold for the fourth quarter on orders might come in a little lower than that just depending on timing? And then maybe second half of next year kind of stabilize and book-to-bill stabilizes?

Michael McKenney: Yes. I mean it’s — I’m always careful not to go too far on forecasting on the bookings front. But those aren’t bad markers. Certainly, we’re anticipating sequential increase. But to your point, let’s say, using the $250 million number, we would — depending on with the guidance range at $252 million to $260 million, that would imply, as I mentioned to Kurt a moment, a little more consumption in the backlog.

Ross Sparenblek: Okay. I mean you guys, give yourself more credit, you’re better forecasters than you let on. Looking at the capital equipment orders of $67 million in the third quarter, give us a sense of price and volume and if there’s any impact from steel pass-through?

Michael McKenney: I don’t think there was anything special in terms of what transpired in the third quarter, frankly.

Ross Sparenblek: It kind of sounded like maybe demand is picking up because, still to come in, so maybe there’s a little bit of price, but volume was still pretty consistent. Nothing to read into there?

Jeffrey Powell: Yes. I think so. I think prices — as you know with capital equipment, you got to collect your — the current input cost when you bid these projects. And so they tend not to get too far out of whack the actual commodity prices that we’re experiencing.

Ross Sparenblek: All right. And then maybe just the mix of kind of greenfield activity that you’re seeing in the order book versus kind of the maintenance cycle and where we’re at today?

Jeffrey Powell: Yes. I think as you would expect, an awful lot of the capital is replacements and repairs with fewer greenfields. Of course, the majority of the greenfields are happening in the developing world with Asia being the largest market there. And it’s been quieter. And we certainly are still booking greenfield projects there, but it’s certainly not as strong as it had been. The one exception is we are seeing some kind of greenfield opportunities on the wood side. So that’s — I mentioned earlier, the OSB market tends to be probably the market that has endured the best during this time. I would say the industrial markets globally have been pretty slow. I mean this has been — the North American economy has continued to grow, but it’s been an awful lot on the service side.

And when you look at capital equipment and durable goods, it’s been — take strip cards out, it’s been sluggish. And so we are actually quite pleased that we’ve held up as well as we have. And as I said, the wood side, probably OSB, in particular, has probably endured the best of all those markets.

Ross Sparenblek: Yes. I mean I was kind of curious you say that the P&C has been strong around packaging, but I seriously gotten the sense that the OCC capital equipment was also doing fairly well and signs of inflection.

Jeffrey Powell: Yes. I don’t know — we’re not ready to declare victory yet that we’ve got back to kind of robust demand. It’s held up okay. And the parts consumables have been very good. I think I mentioned in the last call, one of the things we benefited from is that the percent of paper and packaging being made from recycled fiber is at 44% this year. To give you a sense of that, in 2000, it was 25%. So it has grown. The percentage of paper and packaging being made from recycled fiber continues to grow and is at a record level. And of course, as you know, that’s our focus, is on the recycled side. So we clearly have benefited, and that’s why you see the parts and consumables being high, continuing to grow, is because more and more of the paper packaging being produced is coming from recycled fiber.

And so — and that — I suspect that will probably continue. There’s a pretty decent price difference between recycled fiber and virgin pulp. And most of the new capacity that’s come online, in fact, almost all of it has been recycled fiber. So they’ve taken some old pulp production offline and bringing on recycled fiber capacity. And so we’ll continue to benefit from that.

Ross Sparenblek: Very helpful. Maybe just one more. Think about P&C, any updates on the kind of utilization rates by region? It seems like maybe Europe was characterized as decelerating. It looks like APAC was searching for a bottom previously and again…

Jeffrey Powell: North America has held up reasonably well. I would say Asia is still slow. China is still in the kind of mid-60s, maybe higher 60s now depending on which region you’re looking at. It varies a little bit in Europe, but Europe is kind of in the 70s and 80s, again depending on which area you’re looking at. So North America has clearly held up the best. And it’s not a big surprise. If you just look at GDP growth, paper is pretty closely correlated, and packaging, closely correlated to GDP growth. So America has done well and it’s held up the best. They’ve done a better job, I think, in rationalizing production with mergers and acquisitions. And so they’ve been able to keep their operating rates up higher than Europe and certainly higher than in Asia.

Ross Sparenblek: All right. So presumably it sounds like no news for next year on P&C.

Jeffrey Powell: I think our customers, our packaging customers and paper customers are telling us they expect to see things strengthen next year. And they’re really hoping the back half, second half of the year is going to be much stronger. And then they’re all getting ready for ‘26, which they seem to think is going to be a pretty robust year. So they’ll start to make investments next year to get ready for that.

Operator: And we have a follow-up question from Kurt Yinger with D.A. Davidson.

Kurt Yinger: Just two quick ones. First, it looked like FX was maybe a $1 million headwind or so in Q3. Is that right, Mike? And how are you thinking about — or I guess, assuming an impact in terms of Q4?

Michael McKenney: Yes, you’re right, Kurt. Rounded, it’s $1 million. So it was unfavorable $1 million. And right now, with the rates we’re using, we’re actually anticipating Q4 to be favorable.

Kurt Yinger: Got it. Okay. Perfect. And then you’ve grown that, call it, industrial bucket in terms of the sales mix the last several years. Can you maybe just update us on kind of the biggest components within there at this stage? And how that piece is maybe trending relative to some of the traditional forest products end-markets?

Jeffrey Powell: Yes. I mean I think the Flow Control is where we have the most opportunities and we serve the broadest range of markets there. And after packaging, I think food, metals and defense are the next 3 big ones. There’s a lot of them, there’s others. There’s alternative energy, things like that, that have grown. But I think those are the big markets there. On the Material Handling side, I would say that our baler business has continued to do quite well as more and more of the world is separating and trying to recapture and recycle materials. So that continues to grow globally. And then on the bulk material handling side, of course, you’ve got the — in America, in particular, which is where we’re strong, you’ve got the Infrastructure Bill, you’ve got the CHIPS Act. So those are big drivers for those markets.

Kurt Yinger: Got it. And just to sneak one more in, and maybe I should know the answer to this. But do you guys have any specific exposure within box plants? Obviously, a lot at the middle level, but just curious what kind of you’re selling in there?

Jeffrey Powell: Yes, balers. I mean in any box plant, they’ve got a lot of packaging that they got to handle and waste package to dispose of. And so that’s a big market for us, is selling balers into them.

Operator: [Operator Instructions] I’m showing no further questions in the Q&A queue at this time. I will now turn the call back over to Mr. Jeff Powell for any closing remarks.

Jeffrey Powell: Thanks, Olivia. So before wrapping up today, I just want to leave you with a few takeaways. 2024, as we just said, shaping up to be an excellent year across a wide range of metrics. And we made good progress this year in our efforts to accelerate revenue growth and boost our profitability despite the challenging macroeconomic environment in various regions of the world. And as always, we expect to deliver excellent cash flow and optimize the allocation of capital to maximize the value for our shareholders. With that, I want to thank you for joining the call today. And I hope we see you all in New York at Investor Day. Thank you.

Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation, and you may now disconnect.