And those types of customers are more adept at making capital investments and delivering a return on those investments because it’s largely operating within — done within the four walls of their facility. And so, we think that adoption can actually be quicker. And over time, we think that could be a larger robotics opportunity from a served market potential than some of the other vertical markets that we entered earlier in our journey. So, excited about AMR and the new product opportunity in that space as well, as we go forward. You should expect to see new products in those three categories as we move forward. We’re investing — we’ve maintained our investment in R&D as we’ve come through the prior years. We’ll see the fruits of those labors as we launch new products here in the future years.
I’m really excited about where we’re heading with our new product pipeline.
Steve Ferazani: Great. If I get one last in, it’s not the most exciting topic, but it was in your deck, modernization of ERP. I know that can go for companies really, really well. And it can also, in the near term, present challenges. Can you talk a little bit about where you are on that? What do you think the opportunities are and how you avoid problems that other companies, obviously, have historically run into wouldn’t have tried to implement new ERP?
Dave Huml: I appreciate the question. Obviously, it’s top of mind, and we felt it was appropriate to signal that we’re doing work to plan for this. ERP migration is never — you said it, it’s not particularly exciting. It’s not particularly fun to contemplate, and it’s not without risk. But I will tell you that I have a high level of conviction that it is necessary and it’s critical to build out our digital infrastructure to enable our growth, to provide scale leverage as we move forward, to enhance our cybersecurity, to improve our compliance and ultimately deliver a better customer experience and make Tennant Company easier to do business with. So, I have a high level of conviction that it’s the right direction for the company.
We’re operating on a 15-year-old system today. And across our global enterprise, we have eight different ERPs or instances of ERPs, which makes it extremely cumbersome to operate. So, it’s kind of nonnegotiable in my mind at this point. You may ask, well, why now? And as we’ve talked about it and in close partnership with our Board of Directors, we’re kind of through — largely through the disruptions of the prior years, including the supply chain disruption. We’ve demonstrated that we’re taking backlog down meaningfully and operating in a more predictable fashion relative to supply chain. And importantly, we’re launching a new three-year strategy. And so, to be able to introduce the ERP consolidation in the context of a growth strategy allows us to resource it appropriately, to make the appropriate trade-offs and to plan for the investment that the ERP consolidation will be, while we continue to grow the core business around it.
I’m really viewing this as an investment for the next 10 to 15 years of this fantastic business that we’ve been entrusted to manage. Where we’re at? We really devoted 2023 to a planning exercise. We’ve pulled forward most of our large scoping decisions. We have selected our final ERP and negotiating our statements of work, as well as our partners that will support our integration. We are working through our resourcing plans to make sure that we have the appropriate amount of internal and external resources supplied to the project. And we’re working on our business case to understand what will be the investment required and what return can we expect for the investment. So, 2023 has been largely devoted to planning. And it’s one of the areas that we were counseled as we went out and benchmarked and studied best practices and talked to others who had gone before us on this journey.
Appropriate planning ahead of time, pulling forward big scope decisions so you can avoid scope creep and delays in decision-making later in the program, picking the best partners and being very crisp on what the expectations are, as well as appropriately resourcing the project are areas that were identified that we could mitigate the inherent risk in a program like this. This will be a significant investment of time and money as we go forward. We’ll solidify our thinking around the business case, as well as the return we expect to get for the investment and share more details as we move forward. But we want to make you aware that we’ve done some work, and we’re heading in that direction.
Steve Ferazani: Great. Thanks, Dave.
Dave Huml: You bet.
Operator: [Operator Instructions] Your next question comes from the line of Tim Moore from EF Hutton. Please go ahead.
Tim Moore: Thanks, and congratulations on the very impressive gross margin expansion and, clearly, the operational efficiencies. It was really nice to see the 9% hike to the adjusted EPS midpoint of the range this year. Fay, you already gave commentary maybe about the fourth quarter possible gross margin. But how should we think maybe about gross margin for next year? Is 41% more realistic of your magnitude, maybe after you lap some of the heavier price realizations this year?
Fay West: Yeah. So, we’re actively working on 2024, and we’ll be able to provide some additional guidance really after — in the first quarter of next year. We are operating in gross margin ranges that we think are achievable and could be sustainable going forward. So, I think just stay tuned on kind of more specifics as to what we anticipate in 2024. But I think where we landed on a full year basis is a good proxy.
Tim Moore: Great. That’s helpful color, and I look forward to the February earnings call. And I just had a question about your backlog. It was an inevitable decrease, more normalized supply chain. All the industrial companies, their backlogs are coming down in the sector. I was just wondering maybe, Dave, how close are you to maybe a more normalized component supply chain and line disruptions? I know that you made a lot of good progress on that. I’m just trying to think in my head, are you like 90% on the way there with avoiding that drag from the supply chain, as I try to parse out really the gross margin expansion from better operational efficiencies and utilization versus kind of the catch-up pricing realization?
Dave Huml: Yeah. I would say, broadly speaking, we’re through the major supply chain challenges that we experienced. It’s hard for me to put a percentage on it because we always manage supply chain challenges. I would say, we spent seven quarters talking about pumps and circuit boards. And while we’re still actively managing those commodities in those parts for our production, it’s not at the heightened crisis level that we were in, as you say, like this time last year where we were spending a lot of time and energy and resources and investments to try to overcome those two specific commodities. So, yes, I think we’re approaching a more normalized kind of supply chain environment. We have enhanced our capabilities around supply chain management.
