Colfax Corporation
Q1 2017 Earnings Call Transcript

Published: 5 May 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to Colfax First Quarter Earnings Call. As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Terry Ross, Vice President, Investor Relations. Please go ahead.

[Terry Ross:]

Thank you, Crystal. Good morning, everyone, and thank you for joining us. My name is Terry Ross and I'm Colfax's Vice President of Investor Relations. With me on the call today are Matt Trerotola, President and CEO; and Chris Hix, Senior Vice President and CFO. Our earnings release was issued this morning and is available in the Investors section of our website, colfaxcorp.com. We will also be using a slide presentation to walk you through today's call, which can also be found on our website. Both the audio of this call and the slide presentation will be archived on the website later today and will be available until the next quarterly call. During the call, we'll be making some forward-looking statements about our beliefs and estimates regarding future events and results. These forward-looking statements are subject to risks and uncertainties, including those set forth in our SEC filings. Actual results might differ materially from any forward-looking statements that we might make today. The forward-looking statements speak only as of today and we do not assume any obligation or intend to update them, except as required by law. With respect to any non-GAAP financial measures during the call today, the accompanying reconciliation information relating to those measures can be found in our earnings press release and today's slide presentation. Now, I would like to turn it over to Matt, who will start on slide 3.

[Matthew L. Trerotola:]

Thanks, Terry. Good morning and thank you for joining us today. We are pleased to report first quarter operating results that exceeded the expectations we communicated on our last call. This was a very good quarter. Margins are up. Growth is accelerating. And we're making real, sustainable progress. The macro environment improved for almost all of our end markets and regions, with several turning to growth. The broader general industrial market continued the positive trend from the fourth quarter, helping us to achieve revenue growth in Fabrication Technology and another quarter of strong order growth in Gas and Fluid Handling. Customers are resuming more normal maintenance routines, which benefits our aftermarket business. And while downstream oil and gas remains a generally flat orders environment, we are starting to see the funnel of projects build, which points to higher CapEx spending next year. What is most encouraging is our progress on growth initiatives, as we lean into the improving macro environment. In our Fabrication Technology segment, our long-term efforts to improve customer service, commercial process and the new product pipeline, came together to deliver strong sequential improvement in the first quarter. In Gas and Fluid Handling, our focus on emerging markets was the primary driver of double-digit organic order growth, and I'll share a bit more about that shortly. Our 120 basis point adjusted operating profit margin improvement is a positive marker on our path to mid-teens segment margins and will provide room for additional growth investments as our revenue growth picture improves through the year. Since the beginning of the year, we also made two important moves to structure and deploy capital. I was very pleased to see the European bond investors' reception to our senior notes offering, and it reflects their confidence in our future. This effort was really well executed by Chris and the team. We also made another terrific addition to our Howden business, announcing an agreement to acquire Siemens Turbomachinery. And we continue to actively work on a robust pipeline of bolt-on acquisition opportunities. Turning to slide 4, I want to share with you how the organization changes last year in our Howden business are accelerating our ability to outgrow our markets. The Howden team made some bold changes to their business unit structure to better align global product technology units with the regional teams. They

[Christopher Michael Hix:]

Thanks, Matt. Let's start on slide 8 with an overview of first quarter results. As Matt mentioned, and as we announced in April, in the first quarter of 2017, we recorded our third consecutive quarter of order growth in Gas and Fluid Handling. Because of the long lead times in that business, we expect this order growth to support sales growth in the second half of this year. Total company sales came in ahead of forecast, as some of the improvement we had anticipated in the welding market came earlier than expected. The faster pace of sequential improvement in our Fabrication Technology business resulted in year-over-year growth, partially offsetting the expected volume decline in Gas and Fluid handling. Sales were down 4% organically versus the prior-year period, not including the 1% increase from the AMI acquisition and a small effect from foreign exchange rates on the translation of non-U.S. dollar business results. The work we have been doing on restructuring, plant productivity and supply chain is evident in the significant increase in gross margins during a period of lower sales. Restructuring benefits also read through to the lower SG&A costs, contributing to the 8.7% adjusted operating margins this quarter, 120 basis points higher than last year's first quarter, or 60 basis points excluding one-time costs highlighted last year. Overall, adjusted operating income this quarter was $73 million, an 11% improvement. Below the operating profit line, this quarter's interest expense came in as expected. Future interest expense is expected to increase a bit as a result of our successful eight-year €350 million bond offering that we completed in April. We were pleased by investors' strong support for the offering, which priced at an attractive 3.25%. This offering also represents the opening of a new source of capital to support our strategic growth. Our effective tax rate for adjusted net income per share was 27.4% in the quarter, a little lower than expected due to miscellaneous discrete items, primarily the resolution of historical tax issues. Excluding this, and for the rest of the year, we're expecting a rate of about 29%. To summarize, we generated $0.35 of adjusted earnings per share in the quarter, reflecting the strong improvement in our cost position, growth in Fab Tech sales and about $0.01 from discrete tax benefits. As a reminder, adjusted profit figures exclude restructuring costs incurred in connection with ongoing projects to improve profitability and our competitive position. We continue to execute these projects as expected in 2017, with a line of sight on delivering another $50 million of benefits this year. Other details are in the appendix of this presentation. The business segment discussions start with the Fabrication Technology business on slide 9. Segment sales of $460 million were up 1% organically in the quarter, and the AMI acquisition and FX each contributed about another 1% each. We saw sequential market improvement in most regions, including Europe and North America. Price was roughly flat in the quarter, up low single digits in Europe and North America, offset by some year-over-year distortions from currency and inflation in other markets. Price increases announced in the first quarter were increasingly realized throughout Q1 and are expected to continue to offset rising input costs. Mix was also positive due to higher automation and capital equipment purchases by our customers. Adjusted operating margins improved to over 12% in the quarter. These margins expanded 180 basis points, or 60 basis points when normalized for prior-year one-time costs. The core improvement is attributed to restructuring savings, productivity gains and the expected read-through on the incremental volume. Our Gas and Fluid Handling segment, as shown on slide 10, achieved another quarter of strong orders growth, finishing up 11% organically and sequentially growing our backlog by 5%. Although there was some benefit derived from orders originally expected in Q2 being placed in Q1 and we benefited from a softer prior-year period comparison, we achieved solid order performance by our team in improved market conditions. We continue to see underlying market improvement in mining and general industrial and more customers are returning to their regular preventative maintenance routines. We continue to expect flat orders for the year in oil and gas, but, as Matt mentioned, we're starting to see improving project funnels, which are the precursor to orders growth as these projects develop in 2018. We are also seeing early signs of stabilization in marine, and we see this as a positive sign pointing to possible orders growth in 2018. Looking at slide 11, the Gas and Fluid Handling segment reported net sales of $385 million in the first quarter, as expected, about 9% lower organically than last year's comparable quarter with an additional two points of FX translation headwind. The lower volume is due to the timing of long lead time orders. Despite the lower sales, the adjusted operating margin for the segment was 8.4%, a 60 basis point improvement to the prior-year quarter. Structural cost and supply chain savings, along with manufacturing productivity, contributed to this achievement. Let's turn to slide 12 and discuss our outlook for the balance of the year. Through the month of April, the daily sales rate in our Fabrication Technology segment is consistent with our first quarter experience. We expect markets to continue to strengthen through the year, but we do not yet expect to continue the pace of sequential improvement that we enjoyed in the first quarter. We also expect the Gas and Fluid Handling order environment to be constructive this year and continue to support our expected second half sales growth and to benefit 2018. We are confident in the execution of our productivity and cost reduction initiatives, which should enable us to take another meaningful step toward our mid-teens segment margin goal. Based on favorable first quarter performance, we are raising our 2017 adjusted earnings per share guidance range from $1.55 to $1.70 up to $1.60 to $1.75. We are pleased that Fab Tech sales have improved earlier than expected, but are not yet forecasting a higher rate of growth in the second half of the year than was included in our original forecast. In our Gas and Fluid Handling business, the timing of projects flowing out of backlog has developed differently than originally projected, shifting some revenue from Q2 to Q3. Our improved guidance also includes a penny or two from the AMI acquisition and roughly a penny from the first quarter one-time tax benefit. It also includes $0.03 of higher interest expense from our recent bond issuance. This outlook does not reflect any impact from the expected fourth quarter closing of the STE acquisition or any other acquisitions that may be completed from our M&A pipeline. With that, I'd like to open up the call for questions.

[Operator:]

Thank you. And our first question comes from Jeff Hammond from KeyBanc Capital Markets. Your line is open.

[Jeffrey Hammond:]

Hey. Good morning, guys.

[Matthew L. Trerotola:]

Good morning.

[Christopher Michael Hix:]

Good morning.

[Terry Ross:]

Good morning.

[Jeffrey Hammond:]

So, hey, within the guidance, Chris, I think you guys were saying plus 1% to minus 1% on welding and down 2% to down 4% on Gas and Fluid. How are you thinking about those differently within the context of the guidance change?

[Christopher Michael Hix:]

Yeah, at this point, I think what we're saying is we're taking the benefit that we saw in Q1 in the Fab Tech side and reflecting that in the overall performance there. So that adds a little bit to the expected outlook for Fab Tech, but we're not increasing the expected growth rates for the remainder of the year from our original guidance. In Fab Tech, there's really nothing that we've seen at this point that would cause us to change our sales outlook for the full year.

[Jeffrey Hammond:]

Okay. So just on welding, can you just talk, one, it sounds like price builds as you go through the year. Maybe just talk about what you're seeing on the order front into April, how you feel about kind of sustainability of this organic growth that you saw in 1Q as you look into 2Q.

[Matthew L. Trerotola:]

Yes. In Fab Tech, we're seeing April consistent with 1Q, so we feel like the significant improvements from Q4 to Q1 sequentially are holding as we're rolling into Q2.

[Jeffrey Hammond:]

Okay. And then, just on M&A, a big competitor kind of traded hands here in Europe. Is that something that would have fit? How do you see that changing or not changing the competitive landscape? Thanks.

[Matthew L. Trerotola:]

Yeah, as you can imagine, that's something that we've looked at multiple times. And for us, it was not something that really fits our strategy in terms of where we're going and how we're looking to grow that business. And we don't expect a significant difference in the competitive dynamic in the industry based on it.

[Jeffrey Hammond:]

Thanks, guys.

[Operator:]

Thank you. Our next question comes from John Inch from Deutsche Bank. Your line is open.

[Christopher Michael Hix:]

John, are you there?

[Operator:]

And he's actually disconnected. Our next question will come from Seth Weber from RBC Capital Markets. Your line is open.

[Seth Weber:]

Hey. Good morning, guys.

[Matthew L. Trerotola:]

Good morning, Seth.

[Christopher Michael Hix:]

Good morning, Seth.

[Terry Ross:]

Morning.

[Seth Weber:]

Hey. So I wanted to just go back to the price/mix commentary on Fab Tech. I think this was the first positive comp you guys have put up in about a year. And I guess my question is really how sustainable do you think the pricing outlook is? And then, just on the mix side, when do you think we're going to see some inflection more towards the equipment business versus the consumables? That's the first question.

[Matthew L. Trerotola:]

Yes, so first of all, as we've said before, we've been working proactively to make sure that we're driving price in order to make sure that any cost implications from steel get passed through to the marketplace, and we're finding that that's happening successfully. And so you're certainly seeing that in the progress in our price. And we talked last year about some mix headwinds that are no longer dragging there as well. As far as the timing of when equipment has a significant effect on mix, I think we've said before, the products we've taken into the market so far, like the Rebel, are having significant success, but in small segments of the equipment market. We've got a lot more products coming through this year. Certainly, as those come through, that will increase our equipment position. There is a modest difference between equipment and the other products in terms of the margins, and so we could see some modest effect, but we don't expect a significant effect from equipment on mix.

[Seth Weber:]

Okay. Thanks. I guess on a follow-up question, the $50 million of cost improvement that you see this year, is there any way that you can help us frame the cadence of that, think about how much you got in the first quarter, does that accelerate kind of going forward or is there any weighting that we should think about for that $50 million?

[Christopher Michael Hix:]

Yes, just because the projects are a mix of those that were initiated in 2016 and those that are being initiated in 2017, we'd expect the benefits to be a bit higher in the front half of the year than in the second half of the year. And as we exit 2017, there'll be some additional year-over-year benefit. And we'll get a better line of sight on that as we get later into this year and we can talk more about that.

[Seth Weber:]

Okay. Thank you very much, guys.

[Operator:]

Thank you. And our next question comes from Nathan Jones from Stifel. Your line is open.

[Nathan Jones:]

Morning, everyone.

[Matthew L. Trerotola:]

Morning.

[Christopher Michael Hix:]

Morning.

[Terry Ross:]

Morning, Nathan.

[Nathan Jones:]

I'd just like to talk a little bit about the Gas and Fluid Handling orders. There's finally starting to be some decent-sized project orders coming through here. Can you talk about the margins on those, the margins in backlog and how they compare to what's flowing through the P&L now? Has pricing on those been competitive due to the low demand environment or just any color you can give us there?

[Matthew L. Trerotola:]

Yeah, sure. We've talked on previous calls about the fact that with less projects out there, the small number of projects got quite competitive down the back half of last year. It certainly is still a competitive environment for the large projects. I wouldn't say it's more competitive. I'd say it's a continuation of what we've been seeing. But we've also seen substantial increases in the funnels, and we expect that the much larger funnels will now provide an opportunity to have maybe a little bit less urgency for everybody to win each order.

[Nathan Jones:]

Okay. So maybe some improvement in pricing going forward?

[Matthew L. Trerotola:]

Yes, I think we'd expect that the industry ought to be moving back to a more normal zone as we head through this year in terms of how those large projects play out.

[Nathan Jones:]

Okay. And then, thinking a little bit longer-term about this, you talked about winning what will serve as a reference order on the compressors in China, another one in India. I think it was in 2015, you guys first got a large compressor order in the Middle East. Can you talk about the kinds of the sizes of the markets that you're opening up with these reference orders? What kind of products are in the pipeline that could open up new markets for your guys? Just any kind of color you can give us on how much you've increased your addressable market over the last two or three years with each new product?

[Matthew L. Trerotola:]

Yeah, I'll take a stab at that. These projects are pretty specific, these large downstream projects, and so they don't tend to be consistently-defined addressable markets versus at a time that some large buildouts going on in a given country, that tends to expand the addressable market for a period of time. So it's hard to pin down an exact size, but we've talked before about the dramatic expansion in our compressor addressable market from a combination of the acquisitions that we've made, as well as the application work that we've been doing. Terry, can you comment on the numbers we've released there?

[Terry Ross:]

Yeah, so we did some work on this over the last couple of years and estimated that we've increased that addressable market by about $2 billion. That continues to change over time, but to Matt's point, some of these things are sort of considered served markets but in segments that we weren't really effectively positioned to win before. And some of the changes we've made over the last few years, like the example we discussed today in China, we have put ourselves in position to win business that was part of our previous served market definition, but we weren't as well-positioned to win as we are today.

[Nathan Jones:]

I think that helps. Do you have any kind of target market share for those kinds of markets?

[Terry Ross:]

We'd like to win it all.

[Matthew L. Trerotola:]

Yeah, again, we're taking the initial wins, but then certainly with our strong brand, our strong technology and project management capability, local service capabilities in these markets, we look at these new applications as areas that we certainly have every right to get the kind of share in those that we've had in the applications where we're leaders in those markets, which can be significant share positions. One other thing I'll mention is, as I was in China talking with the team about some of the applications that they've been opening up, there are some of them that the pipeline is $50 million or $100 million of opportunities, but there are also some that the pipeline is $1 billion or more of opportunities over the coming years. So these are significant opportunities. They're going to take time to develop and ramp, but we're certainly excited about the progress that the team is making expanding our addressable market, both geographically and from an application standpoint.

[Nathan Jones:]

Yeah, I think it's an important part of the story, so that helps a lot. Thanks very much.

[Matthew L. Trerotola:]

You're welcome.

[Operator:]

Thank you. Our next question comes from Joe Ritchie from Goldman Sachs. Your line is open.

[Evelyn Chow:]

Good morning, guys. This is Evelyn Chow on for Joe.

[Matthew L. Trerotola:]

Hey, Evelyn.

[Christopher Michael Hix:]

Morning, Evelyn.

[Terry Ross:]

Morning.

[Evelyn Chow:]

Hey, morning. Maybe another one on Fab Tech from me, kind of feels like you're starting to be cooking with gas. I mean, you guys saw most of your regions improve sequentially. Your product launches are coming in well. You have better pricing traction as you go through the quarter. And you said April trends were consistent with 1Q. I guess in that context, maybe why the sort of conservativism or cautiousness around raising the guide for the rest of the year?

[Christopher Michael Hix:]

Yeah, I think what we're trying to communicate here is that we already had, I think, a pretty good view of second half growth in the year. And the fact that the growth is coming in a little sooner doesn't necessarily mean that the growth that we would expect to see for the full year is going to change markedly. It's just a question of maybe the profile changing a little bit. As we step through 2017, and we continue to build on success, as we get a better line of sight, we're certainly going to be sharing that with folks.

[Evelyn Chow:]

Okay, makes sense. And then, maybe a broader one just across your portfolio; you guys mentioned you still expect oil and gas orders to be flattish for the year. Does that embed, implicitly or explicitly, any particular outcome from the OPEC meeting at the end of the month, or, just even more broadly than that, any particular assumption around kind of stabilization in oil prices?

[Matthew L. Trerotola:]

Yeah, so first, Evelyn, let me say I liked your cooking with gas comment about Fab Tech. So since I didn't answer that question, let me thank you for the compliment there. But as far as oil and gas, so, first of all, I'd say if you remember last year in the third quarter, we had a couple of very large oil and gas orders as things started to cut loose there. And so when we talk about flat oil and gas for the year, that's needing to kind of cover those large orders. And so I think it indicates that between the back half of last year through this year, that indicates a significant step forwards in oil and gas. Second, I'll say that what we really believe has been getting the project cut loose in oil and gas has been a reasonable stabilization of the price of oil, not an expectation of improvement in the price of oil. These are generally on the downstream projects that very much make sense, but were paused because of just uncertainty about cash flow to fund and things like that in certain places in the world. And the things that have started cutting loose on the upstream are things that generally make sense in the current pricing range and it's stabilization that is causing them to go forward. And so when we give that commentary on flat oil and gas, it does take into account all the information on the industry right now, but I would say the fact that the price is just stable and there's even been a little downward movement in the price of oil right now, is why we're not more bullish about the things that we've been seeing and not saying that we're expecting some kind of sharp recovery in the oil and gas area at this point in time.

[Evelyn Chow:]

Okay. I appreciate the time.

[Matthew L. Trerotola:]

Thanks.

[Operator:]

Thank you. And our next question comes from Matthew Trusz from Gabelli & Company. Your line is open.

[Matthew Trusz:]

Good morning. Thank you for taking my question.

[Matthew L. Trerotola:]

Good morning, Matt.

[Christopher Michael Hix:]

Hi.

[Matthew Trusz:]

Matt, can you elaborate a bit with some additional color on what you're seeing in China? What's your sense of the strength or weakness of the general industrial economy there? Is there any update you can provide on the coal-fired power outlook over there?

[Matthew L. Trerotola:]

Yeah, sure. So starting with industrial, what I'll say is what I saw in China last week was significantly different from what I've seen on my trips to China over the last handful of years. The first quarter in China was quite positive. And there is a consistent sentiment that there was significant real industrial growth in China in the first quarter. And I think we're seeing that in China and we're probably seeing some knock-on effects of that in other places in the world. I also saw a degree of confidence that the forward look is better, not worse, than where we've been in the past few years, that they've gotten to a little bit better place in the industrial area and that there's a number of areas where they expect to have healthy growth this year. But the third thing that I will say is that there was a degree of concern about whether the very strong first quarter in the industrial area over there could hold through the balance of the year here. And so those, I'd say, on the industrial front, were the things that I found. And the last comment I'll say is that in specific applications areas where the government has got a lot of energy, like some of the environmental things that they're driving, et cetera, there are very significant funnels building. And so I think there's a degree of resolve around these commitments and issues as well as market traction that I think is going to lead to some very exciting growth in specific application areas, a number of which we've targeted and had some initial traction. On the power side, things are consistent with what we've been saying all along. There seems to continue to be a resolve to step back on power investments for a couple of years. It's taking longer to turn into actual order reductions than the initial expectation, just as existing projects continue to come through. But we still have the same outlook that over the next couple years, we'll feel a little bit of downward pressure as they back off on power investments. Our aftermarket efforts, efforts on exports outside of China and our industrial efforts are all being driven to offset that. But there also is an expectation that after a couple of years of step-back, that they'll get back to investing and growing power in China, just not at as robust a level as it was in the past years.

[Matthew Trusz:]

Thank you very much for all the detail. Just one more quick question, what would you all view as typical fourth quarter to first quarter seasonality for Gas and Fluid Handling orders? So basically in that context, it's sequentially flat, like we just saw, or something that's particularly strong?

[Matthew L. Trerotola:]

I'm sorry. Did you say fourth quarter to first quarter seasonality?

[Matthew Trusz:]

Yes.

[Matthew L. Trerotola:]

Yeah, so I would have to say that the past handful of years of data has made seasonality conclusions for Fab Tech quite challenging, just to be quite honest. We've been through a couple years where all the conventional wisdom of previous years has not really held up. But if I set that aside, I would say that the sequential pattern is healthier than normal based on the historical conventional wisdom in the industry. So you would expect to not see that pattern.

[Matthew Trusz:]

Thank you for your time.

[Operator:]

Thank you. Our next question comes from Andrew Kaplowitz from Citi. Your line is open.

[Andrew Kaplowitz:]

Hey. Good morning, guys.

[Christopher Michael Hix:]

Hello, Andrew.

[Matthew L. Trerotola:]

Good morning.

[Terry Ross:]

Hi.

[Andrew Kaplowitz:]

So just on the Gas and Fluid Handling again, your organic backlog moved up to almost flat at this point, but you talked about organic sales still down high single digits. Do you think backlog can inflect from here now? And do you need it to inflect positive after the decline here in the first quarter to reach your 2% to 4%, negative 4% forecast in 2017? You said your sales forecast is about half covered by backlog at the start of the year. What's the coverage at this point? And do you still need to win any large job to meet or beat your forecast for the year?

[Christopher Michael Hix:]

Yes. So, Andrew, there's a number of questions there. What I'll do is I'll answer it in two veins. I guess number one is to say that the expectation at this point is that we would continue to build backlog throughout the year. And then, as is typical for us, we end up having a lot of shipments in the fourth quarter, so we would probably draw down a little bit, but still finish the year with higher backlog at the end of 2017 than at the end of 2016. So I think that's probably the most material point to make on the backlog. With respect to the line of sight that we have, backlog, as we progress through the year, every quarter we've got pretty good visibility for a quarter or two out. And as you could imagine, it gets a little fuzzier there and then it's based more on the funnels that we have and business run rates and intelligence we have of the markets. So right now as we sit, we've got a really strong line of sight on Q2, a very good line of site in Q3. Q4 is still going to be building out as we bring the funnel in and convert that to orders and then ultimately into more revenue for Q4.

[Andrew Kaplowitz:]

Okay. That's helpful, Chris. And then, you guys mentioned strength in Europe, Russia, China, India, when it comes to Fab Tech. Europe was bouncing around flat all year last year. When you look at Europe, was it the biggest source of upside in the quarter for you guys? And what's your expectations for Europe now going forward, maybe versus the U.S.? And just was it off of new products into Europe that helped, too? What's the market versus what you guys are doing?

[Matthew L. Trerotola:]

Yeah, I think we did talk last year about Europe being bouncing around flat, and we would say that we think Europe's turned over. It was healthy first quarter growth in Europe. Our expectation is that those markets have turned over and will stay positive through this year. And we think that our performance there has been a combination of what's going on in the markets, but also some good strong commercial execution. And this year, we'll have the benefit of additional products coming through. It started a little in the first quarter, more coming. The team's had some good initial success with the Rebel over there, has some new filler metal products, has the Renegade coming in. And so we think that the team will be able to build momentum through the year. And as I said in my comments, we'll also have some additional capacity over there in the filler metal front as well.

[Andrew Kaplowitz:]

Thanks for that, Matt.

[Matthew L. Trerotola:]

Yes.

[Operator:]

Thank you. And our next question comes from Joe Giordano from Cowen & Company. Your line is open.

[Tristan Margot:]

Hey, guys. Good morning. This is Tristan in for Joe today. Thanks for taking the question. I was wondering if your engineering team already had the opportunity to meet their counterparts at STE. And if that's the case, I don't know if you can share anything at this time in terms of the prospect there. Thank you.

[Matthew L. Trerotola:]

Yes. We're certainly taking all the opportunities we can to have interactions. Obviously, because the deal hasn't closed, there's some appropriate limitations on the interactions that we can have. But I would say all the interactions we've been able to have, both through the deal process and the ones that we're able to have in this interim period, have been extremely positive in terms of some of the talent that we've got coming with the business, their excitement about joining us, the chemistry between the Howden team and their team. And I think we're both very excited about the opportunities, bringing these businesses together, and we're looking forward to getting the deal completed in the fourth quarter.

[Tristan Margot:]

Thank you. And then, just another quick one, I don't know if you could remind us of your welding applications that have the highest margins in terms of consumable?

[Matthew L. Trerotola:]

I'm not...

[Tristan Margot:]

Or in terms of end markets that have higher margin?

[Matthew L. Trerotola:]

Yeah, welding consumables certainly do have a range of margins. Some of the alloys tend to be in the highest margin range. Some of the electrode products tend to be in the highest margin range.

[Tristan Margot:]

All right. Thank you.

[Christopher Michael Hix:]

They typically...

[Operator:]

Thank you. And I'm showing no further questions from our phones lines. I would now like to turn the conference back over to Mr. Terry Ross for any closing remarks.

[Terry Ross:]

Thank you for joining us today. We look forward to updating you on the next quarterly call.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.