Chris Moore: Got it. Maybe just the last one for me. The pivot to growth looks really interesting. On the M&A side, is the — just the current pipeline, is there much in there at this point in time? Or it’s really getting renewed at this point?
Dave Huml: Yeah. We’re populating the pipeline as we speak. Given that the first leg of our M&A strategy is to grow the core, we know many of these players from operating in this marketplace. And so, populating the funnel, at least with our known potential targets, is relatively simple. We are taking a very comprehensive look back and within each of the three pillars of our strategy to populate the funnel with potential candidates, and then we’ll put them through a filtering to decide which ones we want to pursue proactively, while we’re monitoring the entire category for action if something becomes available and we have to be more opportunistic. But I would say that the grow the core funnel is probably the most populated just because that’s the closest adjacency, but we’ve begun to populate the rest of the funnel as well, and we’ll be activating reach-outs here. We have started and we’ll continue the reach-outs here as we move into the coming quarters.
Chris Moore: Got it. Really helpful. I will step back and hopefully operator will get things going.
Fay West: Thank you.
Dave Huml: Thanks.
Operator: Your next question comes from the line of Steve Ferazani from Sidoti. Please go ahead.
Steve Ferazani: Good morning, everyone. Appreciate the detail on the call. I guess the surprise to me in the quarter was how strong the gross margin continued, given that obviously, it was going to be reduced backlog conversion. And given your guidance adjustment that you’re still — you moved to the high end of the sales range, is the guidance change primarily related, on the EPS side, to the really healthy gross margins, even though you said you might have a little bit of a step-down in Q4?
Dave Huml: Answering your second question first, yes, the drop-through on the expanded margins are reflected in our increased guidance. And the gross margin expansion has really been a hard-fought battle here as we’ve tried to weather the inflation that’s layered into the business over the prior seven to nine quarters. We have a number of levers we pull to offset inflation. At first blush, we push back on increases in every form possible. We also have built a cost-out muscle so that we have a very comprehensive cross-functional process we use to rack and stack the greatest opportunities to drive cost back out of the business, and we fund and resource those as part of our annual plan. We’re also improving our SIOP capability through our enterprise strategy we just concluded so that we can operate with greater productivity as to sort of having a better outlook and forecast for what we expect to sell allows our manufacturing supply chain to plan better and operate more productively.
As kind of our option of last resort, we move with strategic price increases. And so, the margin expansion that you saw in the quarter is really a result of strong price realization and publishing prices to cover a multi-year inflation. So, this is inflation we already incurred in the business, either in this year or in prior years, and really making ourselves whole.
Steve Ferazani: Did you have the — did you have more than one price increase this year?
Dave Huml: No, we didn’t. This is the realization on the formerly published price increases.
Steve Ferazani: Fair. Okay. You’ve announced and released a lot of new products over the last 12 months. Can you, if not quantify, at least qualitatively talk about success or future potential reaching a wider audience with some of these new products? And also whether you’re starting to see greater sales with your current customer base, given the greater availability of products?
Dave Huml: Yeah. We’re really excited about our new product pipeline. And if you look back at the products we’ve introduced, they’ve fallen into three broad categories. One is in the area of small space. And I’ve talked about small space offerings as being a really attractive segment because there are small space applications in virtually every one of our served vertical markets, and we can sell these products through every one of our channels. And so, it’s a really attractive and component space. Our i-mop product, i-mop XL, i-mop and i-mop Lite have been very significant product launches. We also had our CS5 in our small space category. We’re really pleased with the success of those products, and we’ll continue to iterate and launch more products into the small space category.
These tend to be smaller ticket value per unit, and so you have to sell a lot of them to add up to the revenue of an industrial machine, for example, but they’re an important component of owning the entire space within our customer. We have channel leverage we can obtain. It supports our brand as being the comprehensive supplier. And ultimately, the goal is to convert mop and bucket, and so get out of the mop and bucket cleaning and move into a mechanized solution. So, we’re really pleased with the progress to date. You’ll continue to see more new products in the small space category. We’ve been extending our product lines by taking our acquired platforms from IPC and Gaomei and rebranding them and bring them into new geographies so that we can compete at more mid-tier price points competitively and maintain margins.
It also allows us to maintain premium pricing on our legacy Tennant brand, for example. That has been very, very successful in terms of maintaining margin on the legacy branded side, the premium position, but also serving existing customers and new customers at those more competitive price points and going toe-to-toe with our competitors, where in the past, we would have had to discount our premium product to compete. Now, we have a product that’s been designed for that mid-tier application that we can sell profitably and deliver a fantastic customer experience. And we can wrap all the premium products and the mid-tier products in the Tennant ecosystem of aftermarket service and support. So, it’s really a compelling offer as we approach both new and existing customers with our mid-tier offerings.
And we’re doing that on a global basis because those mid-tier opportunities exist in virtually every market that we currently compete and participate. And last but not least, we talk a lot about AMR. We have introduced multiple products in the AMR space. And so, we believe, today, we have the broadest portfolio. We’re really excited about our T16AMR. We’ve talked about it on former calls. It gives us a robot to sell into industrial applications, in manufacturing and warehousing and logistics. That has been a traditional Tennant strength for the company in those vertical markets. Our customers were asking for a robotic solution in those markets. And we believe we have a differentiated offering. We also believe that over — we believe adoption could be quicker in those environments because you don’t have the added complexity of having to deal with the public walking through those environments.
