Lydall, Inc.
Q4 2017 Earnings Call Transcript

Published: 23 Feb 2018

[Operator:]

Good day and welcome to the Lydall Fourth Quarter and Year-End Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Brendan Moynihan, Vice President FP&A and Investor Relations. Please go ahead, sir..

[Brendan Moynihan:]

Thank you, Laura. Good morning, everyone, and welcome to Lydall’s Fourth Quarter 2017 Earnings Conference Call. Joining me on today’s call are Dale Barnhart, President and Chief Executive Officer; and Scott Deakin, Executive Vice President and Chief Financial Officer and President, Thermal Acoustical Solutions. Dale will start the call with comments about the continued progress we are making in executing our long-term strategy, as well as provide an overview of current business conditions. Scott will follow with a review of our financial performance and discuss the key drivers by segment. At the end of our remarks, we’ll open the line for questions. Our quarterly earnings press release and Form 10-K were released yesterday. So then you can follow along with today’s call, please reference the Q4 2017 earnings conference call presentation, which can be found at lydall.com in the Investor Relations section. As noted on Slide 2 of this presentation, any comments made on this conference call that may constitute forward-looking statements are made available pursuant to the safe harbor provision as defined in the securities laws. Please also refer to the cautionary note concerning forward-looking statements within Lydall’s Form 10-K for further information. In addition, we will be referring to non-GAAP financial measures during this conference call. A reconciliation to GAAP financials can be found in the appendix of the presentation I just referenced. With that, I’ll turn the call over to Dale.

[Dale Barnhart:]

Thank you, Brendan. Good morning, everyone, and thanks for joining us. I’m pleased to report strong quarterly results, led by above-market sales growth and with adjusted earnings per share of $0.67, an increase of 28% in earnings compared to the fourth quarter of 2016. Compared to last year’s fourth quarter, adjusted operating margins expanded 90 basis points, with higher commodities and price reductions offset by improved productivity and lower expenses. We continue to make progress in executing on our Technical Nonwovens integration activities and are moving forward with the previously announced consolidation of our Automotive segments into Thermal Acoustical Solutions. We also saw marked improvements in productivity in our Thermal Acoustical Metal segment versus the prior year. For the full-year, Lydall delivered 7.2% organic growth and adjusted earnings per share of $2.80, up 7.3% from 2016. Slide 3 outlines our recently published financial results for the full-year of 2017. I will cover key points for 2017, and Scott will take you through the fourth quarter results in detail when he provides a summary of our financial performance. 2017 net sales increased 23.2% from 2016 to $698 million. This increase was driven primarily by incremental first-half sales from Texel and full-year sales contribution from the Gutsche acquisition, which together contributed $87 million, or 15.4% of total growth. Organic growth of 7.2% was led by Technical Nonwovens segment, organic growth of 16%, resulting from end market recovery in industrial filtration and robust demand in advanced materials applications. Our Thermal/Acoustic Metals and Thermal/Acoustic Fibers both grew organically at over 6% on strong market demand and expansion to new platforms. Finally, Performance Materials grew organically up 4.4%, led by increased fluid filtration and specialty insulation sales, partially offset by lower sales in life sciences, given the absence of the termination buys experienced in 2016. On a volume basis, Lydall grew with or in excess of its applicable end markets in all segments. With respect to profitability, 2017 adjusted gross margin declined 120 basis points to 23.6%, negatively impacted by pricing, mix, and higher commodity costs. Operating income of $70.7 million was up $6.7 million, with adjusted operating margin declining 120 basis points to 10.1%, including $2.9 million or 40 basis point headwind for incremental intangibles, amortization from Texel and Gutsche acquisitions. Adjusted EPS was $2.80 per share, up $0.19, or 7.3% over 2016. As a result of the 2017 U.S. tax reform enacted in December 2017, Lydall recorded a one-time net tax benefit of $3.7 million during the fourth quarter, driven by revaluation of deferred tax liabilities. Consistent with prior actions, we plan to redeploy the tax savings to reinvest in the business, enabling us to repay debt more quickly, and have additional cash for portfolio-enhancing acquisitions. Under this legislation, the company’s future U.S. income will generally be taxed at the 21% U.S. corporate tax rate. And while we continue to analyze the full effects of the legislation, we currently expect consolidated effective tax rate in 2018 to be in the range of 19% to 21%. The previously announced formation of the Thermal Acoustics Solutions segment that will combine the existing Thermal/Acoustical Metals and Thermal/Acoustic Fibers business is progressing well. As a reminder, financial results were reported under the new structure starting in the first quarter of 2018. Fourth quarter of 2017 results include approximately $0.5 million of expenses related to these consolidation activities, and we are on track to achieve in excess of $2 million in run rate cost savings from the consolidation. Moreover, while we are facing commodity pressures and tighter pricing in some applications, we have seen improvements in metals productivity in the fourth quarter. Turning to Slide 4. This is an overview of our long-term growth strategy, which includes four key drivers

[Scott Deakin:]

Thank you, Dale. Turning to Slide 6, I’ll briefly cover our consolidated results and then provide an overview of our operating segment results. In the fourth quarter of 2017, the company achieved net sales of $178 million, an increase of 23.5% over the fourth quarter of 2016. This increase was driven by the acquisition of Gutsche, organic growth across all segments, and 3.3 points of growth on favorable foreign exchange. Organic growth for the quarter was 9.3%, driven primarily by the Technical Nonwovens segment, which delivered 21.4% organic growth on improved demand from power generation customers in North America, Europe and China, and increased sales of advanced materials for automotive and geosynthetic applications. Performance Materials organic sales were up 8.8%, led by robust sales growth in fluid power filtration, gains in specialty insulation and life sciences. The Thermal/Acoustical Metals segment delivered organic growth of 10.6%, led by strong growth in China and Europe, with more moderate growth domestically. In addition, tooling sales in the Metals segment were up $1.6 million, indicating continued strength for future parts sales. Organic growth in our Thermal/Acoustical Fibers segment was up 0.8%, with volume growth of 3.6%, offset by lower pricing. Reported gross margin in the fourth quarter was down 10 basis points from prior year to 22.1%. Excluding acquisition-related inventory step-up charges in Q4 2016 and restructuring charges in Q4 2017, adjusted gross margin of 22.2% was down 20 basis points. As noted, gross margin was negatively impacted by pricing, mix and higher commodity costs. The continuing inefficiencies in the Metals segment reduced Lydall’s consolidated gross margin by approximately 70 basis points in the quarter, but improved substantially from the same period in fourth quarter of 2016. Given actions we’re taking in both Europe and metals, we are seeing a marked improvement in equipment effectiveness over time and expedited freight and scrap. Consolidated operating margin for the fourth quarter was 8.7%, including $700.000 of expense related to restructuring activities and $300,000 of expenses related to strategic initiatives. Adjusted for these Q4 2017 items, operating margin was 9.3%, an increase of 90 basis points compared to adjusted Q4 2016 margin. Recall that Q4 2016 reported results included the $3.5 million charge related to the settlement of the German cartel matter, $1.1 million of expenses related to strategic initiatives, and $300,000 of purchase accounting inventory step-up charges. Finally, included in these results are 30 basis points of incremental acquisition-related intangibles amortization from the recent acquisitions within Technical Nonwovens. The company’s results include a one-time benefit of $3.7 million related to new U.S. tax reform legislation, driven primarily by the revaluation of our net deferred tax liabilities. The resulting effective tax rate for fourth quarter 2017 was 5.3% and for the full-year 2017 was 19.5%. As Dale mentioned, going forward, we expect the legislation will favorably impact our U.S. tax rate, with the 2018 consolidated ordinary tax rate projected between 19% and 21%. Fourth quarter 2017 earnings per diluted share were $0.80, compared to $0.26 of earnings in the prior year. When adjusting for the strategic initiative expenses, inventory step-up, restructuring expenses, automotive segment consolidation expenses, and one-time favorable tax benefit, adjusted earnings per share of $0.67 was up $0.15, or 28.8%, compared to adjusted EPS of $0.52, delivered in the fourth quarter of 2016. As it relates to capital expenditures, Lydall spent $27 million in 2017, up $1.5 million from the same period last year. While up year-over-year, our 2017 spend was lower than anticipated, driven primarily by timing of expenditures related to the TNW site consolidation activity, which are rolling over into 2018. We anticipate the 2018 spend to be in the $30 million to $35 million range, with strategic growth and productivity spending in each of the three segments. Cash flows from operations in 2017 were $62.9 million, compared with $69.7 million in 2016. Higher net income was offset by increases in working capital, particularly in tooling inventories, which grew by $9 million at the end of the year ahead of 2018 customer product launches. Finally, our liquidity remains very strong. At the end of the year, cash was $59.9 million after reflecting Q4 debt repayments of $16 million in Q4 for a total pay down of $52 million in 2017. Total outstanding debt from the credit facility at year-end was $76.6 million for a net debt ratio of approximately 0.2 times EBITDA positioning us well for future growth. Moving to Slide 7, I’ll discuss our segment results. I’ll start with our Thermal/Acoustical Metals business. This is our global automotive business, which specializes in providing engineered thermal solutions for vehicle under hood, underbody, powertrain and exhaust applications. Fourth quarter sales in this business were $51.1 million, up 18.5% and 10.6%, organically. Net parts sales of $45 million were up $6.3 million, or 16.4%, compared to last year, while tooling sales of $6.1 million grew by $1.6 million in support of customer product launches. Favorable foreign currency – excuse me, favorable foreign exchange primarily in the stronger euro added 4.6 points to sales growth. Adjusted operating margin improved 80 basis points from fourth quarter 2016 to 5.3%, while the business delivered productivity and efficiency gains, they were offset by pricing and commodity headwinds. Operating inefficiencies were a level considerably lower than that experienced in Q4 of 2016. We continue to remain encouraged by our ability to further stabilize our operations in Europe and North America. Slide 8, refers to our Thermal/Acoustical Fibers business. This business also serves the automotive industry and provides molded polyester acoustical solutions primarily for vehicle underbody and interior applications. Sales in the fourth quarter were $37.3 million, up 0.8% organically. Volume increased by 3.6%, which was offset by pricing reductions. Adjusted operating margin in the fourth quarter decreased to 170 basis points to 26.6% on lower pricing and unfavorable material costs. Moving to Slide 9, I will cover our Performance Materials segment. This business provides specialty, filtration and insulation solutions to a variety of end markets globally. Sales growth organically – excuse me, sales grew organically by 8.8% in the fourth quarter to $29.1 million, led by higher filtration sales, with particularly strong gains in fluid power applications leveraging cyclical strength in underlying markets in the introduction of new market – new products. Specialty insulation sales grew 2.3%, led by gains in low temperature cryogenic insulation products. Life Sciences sales grew by 14.6%, or down 23% for the full-year, given high terminal buy sales in 2016. Foreign currency translation provided a favorable tailwind of 3.2% in the quarter. Fourth quarter operating margin expanded by 350 basis points to 12.1%, with pricing declines more than offset by productivity, lower overheads and reduced trial expenses. Slide 10, covers our Technical Nonwoven segment. This business is a combination of the Andrew’s Industrial Filtration business we acquired in 2014, along with the Texel and Gutsche businesses we acquired in 2016. Together, these businesses provide air and liquid filtration media as well as other engineered products for use in various commercial applications, such as geosynthetics, automotive, industrial and medical among others. Fourth quarter of 2017 sales of $69.8 million were up $25.6 million, of which $14.2 million was due to the Gutsche acquisition. Organically, sales were up 21.4% on higher industrial filtration sales, coupled with strong demand for our advanced materials, particularly within automotive and geotextiles. Foreign currency translation favorably impacted sales by 4.3%. From a profitability perspective, adjusted operating margin for the fourth quarter increased by 220 basis points to 9.3% compared to the same period in 2016, driven by favorable mix, productivity and lower overhead expenses. As a reminder, our adjusted results exclude lower inventory step-up of $1.6 million, or 60 basis points and $200,000, or 10 basis points of expenses related to ongoing restructuring activities in the quarter, but do include 70 basis points, or $0.5 million of incremental acquisition-related intangible amortization versus the same period last year. As Dale noted earlier, with respect to the acquisitions, the performance integration of both businesses continues to be on track, and we remain confident in the strategic supply and demand side leverage to be gained by the now industry-leading market position that we enjoy. That concludes our review of the fourth quarter results. Top line growth exceeded 20%, driven by a healthy demand in the end markets we serve. Strong cash flow generation allowed us to pay down $16 million in debt from our credit facility. Addressing the remaining operational issues in Metals executing flawlessly on our planned integration, related restructuring in Technical Nonwovens and driving organic growth across all business segments continues to be our most significant near-term operational priorities. Leveraging this improvement on continued strength in our end markets positions us to deliver solid performance in 2018. With that, I will turn the call back to Dale for a few quick comments before we begin our question-and-answer session.

[Dale Barnhart:]

Thank you, Scott. On a final note, yesterday we announced our new CFO Randy Gonzalez will be joining Lydall executive leadership team. Randy joins us from Caterpillar’s Progress Rail division, where he was Senior Vice President, Chief Financial Officer and Treasurer. Not only he brings significant financial experience, but also strong operational skills to the position. Scott will continue to serve his dual role as CFO and President of Technical Solutions until Randy is onboard. I can’t thank Scott enough for his efforts and contributions in managing two significant roles for us over the last six months. I’m confident under Scott’s leadership, the Thermal/Acoustical Solutions business will continue to show significant improvement in our out years. With that, we’ll turn it over to question-and-answers.

[Operator:]

Thank you. [Operator Instructions] And our first question today will come from Matt Koranda of ROTH Capital.

[Dale Barnhart:]

Good morning, Matt. How are you?

[Bradley Noss:]

Hey, guys, this is Brad Noss on for Matt. How are you doing?

[Dale Barnhart:]

Good.

[Scott Deakin:]

Yes.

[Bradley Noss:]

First, I just wanted to start by just getting some details around the outlook regarding the Q1 revenues relatively flat year-over-year. And it seems that you had some pretty strong organic growth across most of your segments in Q4, but flat outlook suggests that some of the segments may be slowing in Q1. Can you just help us understand that?

[Dale Barnhart:]

Well, in Technical Nonwovens, again, as we indicated, they had a phenomenal growth last year over 2016 as we saw the energy markets rebound. So now we’re seeing some moderate growth there in the first quarter, which you’re not going to repeat the type of growth they had in 2017 over 2016. Automotive is going to be pretty stable. North America productions may be down slightly. Western Europe is going to be flat, and China will be up and albeit China is very small for us, but is progressing well and the keynote for our China business is that it’s profitable now. Performance Materials, again, counting on some new product development, but overall economies, we’d say pretty relatively same as 2016, and so that’s the way we’re looking at the business right now.

[Bradley Noss:]

Okay. That’s helpful. Thanks for the color. And just in regards to profitability, you guided a relatively similar gross margin consistent with the second-half of 2017. But looking at how that flows into operating margins overall, it looks like you’re able to hold SG&A pretty flat during the second-half of 2017. Do you think you can hold that $23 million per quarter level into 2018 as well, or how should we look at the operating expenses?

[Dale Barnhart:]

They’ll be relatively flat. I mean, we really, as you know from following us, we do everything we can to control our SG&A expense in our businesses, particularly in the corporate office here in Connecticut.

[Bradley Noss:]

Okay, got it. And maybe one more from me. Just in regards to automotive, can you discuss some of the pricing environment? And you mentioned just some pricing headwinds that you’ve been seeing, but can you elaborate on where specifically you’re seeing the pressure by product, as well as region and if it’s any greater than the normal annual price-down activity?

[Dale Barnhart:]

Deakin?

[Scott Deakin:]

So exactly to your point, Brad. So we have the normal contractual price reductions as part of the initial bid activity and the securing of new business, but that definitely is a factor and we typically work to offset that with productivity. From time to time, you have MCR activity or material cost recovery activity where the OEM will find an alternative that offers a lower cost and they come back to us asking us to participate in that and try to offer reductions to lower the price and lower the cost to them. Typically, though we’re able to do that with a new engineered solution. So even though there’s a price reduction associated with it, we’re able to take some cost out of our design as well, so it’s not a one for one impact, but we do tend to get that from time to time.

[Bradley Noss:]

Okay. That’s helpful. Thanks for the color on that, and I’ll go ahead and pass it on.

[Operator:]

Our next question comes from Edward Marshall of Sidoti & Company.

[Edward Marshall:]

Hey, guys. Good morning.

[Dale Barnhart:]

Good morning, Ed.

[Edward Marshall:]

Hey, good morning, how are you?

[Dale Barnhart:]

We’re well. Thank you.

[Edward Marshall:]

Yes, good. So the Metals division, I wanted to start there. There was an overhaul – there was an overhang for some time. You kind of started to touch on this in your prepared remarks in the dual wall conversion, especially in the European businesses. I’m curious if you can kind of give us a further update on kind of how that’s progressing and when you see that overhang kind of dissipating?

[Dale Barnhart:]

When you say overhang, can you just clarify what you’re getting at there?

[Edward Marshall:]

Well, I understand that there was somewhat of an issue with the conversion, the timing of the conversion expedited shipping, et cetera of old products versus the new products?

[Scott Deakin:]

Well, now, I understand. Okay, so you are speaking to the productivity inefficiencies issues, and that’s something we are continuing to work both in the European business and the North American side. There are different questions and different issues. We thought we were making some nice progress in Hamptonville in the third quarter, and we had some issues sort of pop up back up again in the fourth quarter related to some equipment failures, tooling failures, et cetera. We are launching a lot of activity as we’ve talked about across our metals business and as we introduce prototypes, and get through our PPAP process in those assets. There is a little bit of disruption we are working on there. And then on the Meinerzhagen side, the European side, it is really about, just the discipline of the operations, and how we are effectively running those facilities. I will tell you, we are really encouraged by the progress we’re starting to see the Hamptonville issues feel finite. They feel like issues that the team has really plateaued [ph] and started to stamp out the fixes to those issues, and the progress in January on things like expedited freight, overtime scrap, et cetera was really some of the best numbers we have seen over the course of the last year or so. So, we’re starting to see some positive signs and we need to keep at it and make sure it’s ingrained in standard work starting to get there.

[Dale Barnhart:]

I think the other part of your question Ed was, single wall to dual wall migration in Europe, and that – we’re not going to see any significant impact of that until we sort of exit 2018. We are right now in the process of installing a new high-speed line, like we have in Hamptonville to produce dual wall, but those applications don’t come on until the fourth quarter – third to fourth quarter of this year and then ramp up in 2019.

[Edward Marshall:]

So, if I think about the progression on the margin, should I think about kind of the elimination of the inefficiency through progress in 2018, and some of the [indiscernible] margin enhancement of the dual walls moving to 2019?

[Dale Barnhart:]

Correct. As it relates to our European operations. I mean we have favorable mix in North America today, so really what’s going to drive that is what Scott was addressing and really getting standardized work learning how to do these – the good news is, we have a lot of new products we’re launching. The bad news is, they can create a lot of inefficiencies if you don’t do it well. So that’s one of the key areas that Scott and his team are focusing on to make sure we really do that well because when you’re doing a new product launch in PPAP you actually break into your production line to run relatively low volumes and if you don’t do that efficiently, it can have an impact.

[Edward Marshall:]

Got it. So, you didn’t quantify or maybe you did and I missed it. The inefficiency is just related to the two issues that you covered. Specifically, the inefficiencies within the business and I’m trying to parse out what would might have been from higher raw material sources what is operationally able to be fixed?

[Scott Deakin:]

So, the inefficiencies are in the ballpark of $1.2 million and relative to prior year and the ballpark of 2.6 and then the materials will remain derivative.

[Edward Marshall:]

And as for the quarter, do you have the number, is that 2.6 for the full year or…?

[Scott Deakin:]

Full year 2016 it was closer to 5 million. Full year 2017 closer to 3.5.

[Edward Marshall:]

And then you talked about additional tooling expenses in the quarter, on tooling I think for you, especially in the metals division is a lower margin product line, you know it was exceptionally large this year so it is a high-class problem to have, but what do you think the overall impacts of the business was in the fourth quarter as it relates to the tooling sales throughout the division?

[Scott Deakin:]

Well, I think our tooling sales, I don’t have the number off-hand, we can get it to you in certain terms of what the tooling sales where, but I think you are absolutely right and I think some of our prepared remarks actually address it. What the number is, but yet …

[Edward Marshall:]

I think you said 6.1 with 1.6% growth of $6 million growth year-over-year. So – the margin impact on that for the fourth quarter I mean I know it is relatively, is it zero or is it pretty close to 0?

[Scott Deakin:]

Essentially it passed-through, very slight operating margin because that again, that is, we do that, we manage it and have it produced for the OEM who owns it. So, it’s a pass-through item.

[Edward Marshall:]

So, with all the pressures that you are seeing on the margin profile, it’s good to see sequential improvement and do you anticipate that the progress you’ve made to continue into 2018?

[Scott Deakin:]

Absolutely. As I said, I’m really encouraged by some of the actions we’re taking. We’re not out of it yet, but the performance we saw in January is the best we’ve seen across some of those key performance metrics and we’ve just got to continue to push it forward across both sides.

[Edward Marshall:]

Got it. You talked about, I will switch to fibers if I could, you talked about automation and looking at automation as a whole, is that really [indiscernible] to kind of offset some of the pricing pressures that you are seeing and some of the de-contenting pressures that you are seeing to some of the product lines? And the second, I want to know if the internal source of polyester fiber is going to help leverage the cost – the cost inflation that you are seeing in that division?

[Scott Deakin:]

So, we are always looking for productivity opportunities as I talked about before. We have, it is a factor of being in the automotive space as year-over-year price reductions and we are always looking for opportunities to take cost out associated with that. So, whether we do it through our lean activities in Kaizen or we make investments in automation. As we talked about some of the specific items in fiber so took – it allowed us to redeploy 10 headcount in that part of the business, and move them over to other parts of our business. So, those kinds of developments are really important and I would say absolutely yes. Our ability to leverage by on the polyester side across all of our businesses, there is even a little bit of polyester buy on the performance materials side. We have got it on technical nonwovens and we have got it either on a passthrough basis in terms of our internal sourcing or directly for some of the real goods we make in fibers. We are able to strategically leverage our entire by to manage those kinds of issues as much as we can.

[Edward Marshall:]

And then on the consolidation of the two businesses TAS, I know there is an effort to – for sales synergies between the two business lines as you have some pretty good relationships on both sides, I’m curious how that is progressing and then similarly on the cost synergies the $2 million in savings that you discussed, did you see any of that benefit in the fourth quarter, should we anticipate that growing in 1Q 2018?

[Scott Deakin:]

Yes, we definitely saw some of it in the fourth quarter. So, that’s fully implemented. We had a little bit of – I wouldn’t say fully, but it’s primarily and most of it is implemented at this point. So, we had a little bit of cost associated with further implementations of that in the fourth quarter, but we are on track and those costs have been removed. So, that’s progressing really well. Moreover, we’ve started to get all of the various processes and alignment of how we do business across TAS that’s progressing really well as well. So, we are encouraged by that and as far as the commercial synergies and the ability to leverage our respect of customer relationships that’s going really well as well. Our sales team has been out walking with customers to try to make those introductions and I myself as an example have been out with a large European customer to understand what their needs are and they very much are you looking for suppliers to help them in both the metals in the fiber side and we are starting to get end roads in some of those discussions that we did not have before.

[Edward Marshall:]

I’m asking a lot, but are there any notable wins there?

[Scott Deakin:]

Not as yet.

[Edward Marshall:]

All right good guys. I appreciate it. Look forward to meeting Randy as well.

[Scott Deakin:]

Thank you, Ed.

[Operator:]

And our next question will come from Samir Patel of Askeladden Capital.

[Samir Patel:]

Hi guys, I’m happy to hear that I’m not the only person in the world to use this 80/20 as a verb that makes me feel a little bit better.

[Scott Deakin:]

Absolutely.

[Samir Patel:]

So, anyway, more topically let’s start with the fibers business, so can you remind me why that business has historically been North American mostly, and Scott I guess as you look at that, do you see any structural impediment to having a similar global sales mix in 10 years to your metals business?

[Scott Deakin:]

I will say no to the last question. There is not any issue there. The fibers business was really born out of a relationship we had with Ford as we are trying to turn that business around based on some of the struggles they were having 5, 6 years ago. We were able to leverage our voice of the customer and come up with some solutions that allowed us to grow significantly there. Our hands were full as we were driving that growth and accordingly we did not spend as much time trying to pursue growth in some of these other areas. Just in the last year we started to change that. We started to make some investment in European sales for the fibers business et cetera, and as we talked about we are starting to see some interest in that. So, it’s really just a legacy positioning.

[Samir Patel:]

Got you. Okay. So, second on I think you mentioned that you view the technical nonwovens and performance materials businesses as industry-leading it has been awhile since the acquisition calls, sorry if you covered some of this, but could you maybe quantify that a little bit more as it number one or number two market positions or what gives you the confidence that those businesses are industry-leading?

[Dale Barnhart:]

On an industrial filtration, we are number one or number two in any region of the world we are in, which is all of them, Asia, Europe and North America. And that comes from the combination of the Andrew acquisition, which was clearly one or two in most of the markets and then combining that with principally Gutsche’s share in the industrial filtration. So, we are clearly number one there. In the area of the advanced materials, we are probably – it varies because there is so many different segments in there. The largest one is geosynthetics and we’re probably in the top three or four, our focus there has been principally in Canada that because that’s where Texel is located, and from a logistic standpoint it really makes it difficult to compete in the other part unless you are producing those products there.

[Samir Patel:]

Got you. And then finally, I think on your last call you talked about in early 2018, giving an update on your longer-term margin expectations, not sure if you are ready to do that today, but regardless – regardless of whether or not if you could give a number, could you just provide some color broadly on the buckets? Maybe dimensionalize the relative magnitude of the areas you expect to see improvements from? I mean how much is from lean, how much is from purchasing power, how much is from new product, how much is from SG&A leverage, I mean what do we think the important components of that are over the next two or three years?

[Scott Deakin:]

We are not in a position to give that level of granularity, but our overall operating margin target is consistent with what we had for 2018, which is 15%. So, we think long term 15% operating margins is what you should expect out of Lydall with significant top line growth.

[Samir Patel:]

Got you. Okay, thanks, appreciate it.

[Dale Barnhart:]

Thank you.

[Operator:]

[Operator Instructions] I am showing no additional questions. This will conclude the question-and-answer session. I would like to turn the conference back over to Dale Barnhart for any closing remarks.

[Dale Barnhart:]

Thank you for joining the call today. And we look forward to the next call, which will be our first quarter 2018 earnings. Thank you very much.

[Operator:]

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