Title

Presentation

EnPro Industries, Inc. misses on earnings expectations. Reported EPS is $1.19 EPS, expectations were $1.47. NPO isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings. Welcome to the Enpro Q4 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to James Gentile, Vice President, Investor Relations. Thank you. You may begin.

James Gentile: Thanks, Darrell, and good morning, everyone. Welcome to Enpro’s fourth quarter and full year 2023 earnings conference call. I will remind you that our call is being webcast at enpro.com, where you can find the presentation that accompanies this call. With me today is Eric Vaillancourt, our President and Chief Executive Officer; Milt Childress, Executive Vice President and Chief Financial Officer; and Joe Bruderek, Executive Vice President, Finance. During today’s call, we will reference a number of non-GAAP financial measures. Tables reconciling the historical non-GAAP measures to the comparable GAAP measures are included in the appendix to the presentation materials. Also a friendly reminder that we will be making statements on this call that are not historical facts and that are considered forward-looking in nature.

These statements involve a number of risks and uncertainties, including those described in our filings with the SEC, including our most recent Form 10-K. Also note that during this call, we will be providing full year 2024 guidance which excludes unforeseen impacts from these risks and uncertainties. We do not undertake any obligation to update these forward-looking statements. It is now my pleasure to turn the call over to Eric Vaillancourt, our President and Chief Executive Officer. Eric?

Eric Vaillancourt: Thanks, James, and good morning, everyone. Thank you for joining us today as we review our results for the fourth quarter and full year 2023 and provide a business update that includes our outlook for 2024. Before we get started, I’d like to introduce Joe Bruderek, who recently joined our team as Executive Vice President, Finance. Joe will be succeeding Milt Childress as Chief Financial Officer on April 1. Milt will be staying through the end of May to ensure a smooth transition of finance leadership. We are delighted to have Joe join our team, following his almost 25 years of senior financial and operational experience. This is an exciting time in our company’s history, and I’m glad to have Joe’s partnership as we look to capitalize on the opportunities ahead.

Please join us in welcoming Joe to Enpro. We are pleased with Enpro’s strong performance and execution in 2023. Sealing Technologies delivered strong performance, largely offsetting the negative year-over-year impact from a soft semiconductor market in AST. In Sealing Technologies, we saw record segment profitability with adjusted segment EBITDA margins exceeding 29% for the year, despite a sequential decline in the fourth quarter that we anticipated and communicated on our third quarter call. We are very pleased with the underlying strength of this segment, how our team is positioning the business for future growth while maintaining our disciplined focus on profitability and continuous improvement. AST revenue ended the year down roughly 16%, driven by weakness in the global semiconductor industry.

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Despite the drop in volume, adjusted EBITDA margins for this segment was approximately 24% for the year clearly demonstrating the segment’s value-added capabilities and resilience. Our multiyear strategy to drive growth in this attractive market remains unchanged. We reported 238 million in adjusted EBITDA for 2023, which is inclusive of 7.1 million in share price-driven long-term incentive compensation expense. Given the downturn experienced in the semiconductor market throughout the year, we are pleased with the total Enpro margins at 22.5%. We made meaningful progress on several long-term strategic initiatives this year, including the recently completed acquisition of Advanced Micro Instruments, or AMI, which broadens our Sealing Technologies segment capabilities into compositional analysis.

We expect to leverage AMI’s differentiated gas analyzer technologies across multiple industry segments, the unique insight we will gain into our customers’ processes will expand our competitive advantage in designing seals in a variety of critical solutions. We are excited to welcome our new colleagues, AMI colleagues to Enpro. In AST, during the year, we continue to execute on our multi-faceted strategy of technological differentiation, vertical integration and regional expansion making significant progress on the phased build-out of our Arizona facility and expanding our capabilities in Asia. We are executing this expansion and strategic positioning in collaboration with key market-leading customers. In 2024, we anticipate additional investments in our semiconductor business to support what’s widely expected to be a near doubling of the semiconductor market by around end of this decade.

I’d like to take a moment to comment on our safety accomplishments. We strive to create an injury-free workplace as we deliver critical products and solutions to our customers. Safety, which includes both physical and psychological safety, is our number one core value. And for 2023, we are celebrating a 59% reduction in our total recordable incident rate as well as a 47% reduction in our lost time case rate. These outstanding results built upon our already world-class safety record and are well below the latest industry averages presented by the Bureau of Labor Statistics. I want to recognize our environmental, health and safety leadership team and our colleagues across the company for these terrific results. Before turning the call over to Milt to discuss our fourth quarter results and 2024 guidance, I want to reiterate what I’ve said on many occasions.

There is no better time to be part of Enpro, with our reshape portfolio generating excellent margins and cash flow, with a strong balance sheet, we are well positioned to drive continued growth through focused execution as together we empower technology with purpose. Milt?

Milt Childress: Thanks, Eric, and good morning, everyone. In the fourth quarter, sales of $249.1 million decreased 8.4% and organic sales declined 9% driven primarily by lower results in the AST segment due to ongoing softness in semiconductor. The decrease also reflects lower results in the Sealing Technologies segment, where we saw a sharp decline in the commercial vehicle OEM market and lower demand in general industrial, commercial aerospace and pharma markets. As a reminder, we posted very strong results in Sealing in the fourth quarter of last year. Fourth quarter adjusted EBITDA of $46.9 million decreased roughly 12% compared to the prior year period, and adjusted EBITDA margin of 18.8% decreased 80 basis points year-over-year.

Volume declines just noted were partially offset by strategic pricing, cost mitigation and continuous improvement initiatives. Results for the quarter were also adversely affected by $6.4 million of incremental long-term incentive compensation expense tied to our strong share price performance during the fourth quarter. By comparison, in the fourth quarter of 2022, share price-driven long-term incentive compensation expense was $4.8 million. We do not contemplate compensation expenses related to share price changes when determining guidance. As such, the incremental long-term compensation expense of $6.4 million during the fourth quarter of 2023 was not considered when providing prior 2023 guidance commentary. Modifications made to the long-term incentive compensation program during 2023 will lessen this impact in 2024 and eliminate the impact in years thereafter.

Corporate expenses of $14.4 million in the fourth quarter of 2023 were down from $15.6 million a year ago, primarily due to lower total compensation expense. Adjusted diluted earnings per share of $1.19, decreased 8.5% compared to the prior year period, largely because of the decline in adjusted EBITDA and partially offset by a 35% reduction in net interest expense driven by debt repayment during the year and higher interest income on cash balances. The previously noted $6.4 million share price-driven incentive compensation expense in Q4 equates to around $0.23 per share. Moving to a discussion of segment performance, Sealing Technologies sales of $147 million decreased 6.3%. During the quarter, we saw a sharp decline in commercial vehicle OEM sales, as well as softness in our general industrial, aerospace, pharma and commercial vehicle aftermarket demand.

Softness in these markets was partially offset by strategic pricing actions and continued strength in nuclear energy. Excluding the impact of foreign currency translation and our divested business, sales decreased 7.5% in the quarter. For the fourth quarter, adjusted segment EBITDA decreased 6.3%, in-line with the sales decline, resulting in adjusted segment EBITDA margin being flat with last year. Excluding the impact of foreign exchange and divestitures, adjusted segment EBITDA decreased 7.9%. Sealing’s margin performance through a sales decline reflects the benefits of strategic pricing actions, cost mitigation efforts and on-going 80:20 pruning across the segment. As Eric noted earlier, we are pleased with the progress made over the past few years in rationalizing the Sealing Technologies segment, and we will continue to invest and targeted growth opportunities, while maintaining cost discipline and continuous improvement.

Turning to Advanced Surface Technologies, while we saw a sequential improvement from the third quarter, fourth quarter sales of $102.1 million decreased 11.5% over the prior year, driven by continued weakness in semiconductor capital equipment spending. Our Cleaning Solutions business tied to advanced node chip production was a bright spot in the quarter and throughout the year. We also saw stabilization in the optical filter business with improved profitability during the quarter. For the fourth quarter, adjusted segment EBITDA decreased approximately 21% versus the prior year period. Adjusted EBITDA margin of 22.4% improved sequentially and as Eric mentioned earlier, finished the year close to 24%. The volume decline in addition to mix, material cost increases and increased operating expenses supporting growth investments were the primary drivers of the year-over-year reduction in profitability, offset in part by cost mitigation efforts and pricing actions.

We continue to invest in AST as the long-term growth opportunities in this segment far outweighed the recent market headwinds. The phased up-fit of our facility in Arizona is on-going and as Eric noted, we are expanding our capacity in Asia. We are well positioned to see a bright future ahead for this segment. Turning to the balance sheet and cash flow, our balance sheet remains very strong. Subsequent to quarter end, in late January, we closed the AMI acquisition using $210 million of cash. Our net leverage ratio, inclusive of the acquisition stands at approximately 2x 2023 adjusted EBITDA. With our reshaped portfolio, we continued to generate substantial cash. Free cash flow in 2023 was over $174 million compared to about $77 million in the prior year.

Working capital management across the company and lower cash taxes were key drivers of cash flow during 2023, in addition to the stellar results in Sealing Technologies. We have strong financial flexibility to execute our strategic initiatives, both organically and through strategic acquisitions that broaden our capabilities. Our goal is to build upon our leading edge positions in markets with secular growth drivers that safeguard critical environments and applications that touch our lives every day. During 2023, we paid a $0.29 per share quarterly dividend, totaling $24.3 million for the year. On February 15, our Board approved another increase to the quarterly dividend to $0.30 per share, representing the ninth consecutive annual dividend increase since we initiated a quarterly dividend in 2015.

Moving now to our 2024 guidance, taking into consideration all the factors that we know currently, we expect total Enpro sales growth to be in the low to mid-single digit range in 2024. We expect adjusted EBITDA to be in the range of $260 million to $280 million and adjusted diluted earnings per share to range from $7 to $7.80 per share. The normalized tax rate used to calculate adjusted diluted earnings per share remains at 25% and fully diluted shares outstanding are approximately $21 million. Capital expenditures are expected to be approximately $60 million or around 5% of sales in 2024 as we continue to invest in compelling future growth opportunities across the company. Two-third of this capital spending for 2024 will be in support of growth investments on focused leading-edge platforms in the Advanced Surface Technologies segment.

In AST, we expect continued demand in the first half – excuse me, we expect continued demand weakness in the first half of 2024 after seeing sequential improvement in AST in the fourth quarter of last year, based on current backlog in order patterns, we anticipate results to decline sequentially in the first quarter of this year. We believe the first quarter will represent the bottom of the semiconductor decline for our business, with adjusted EBITDA of about 5% to 10% below Q3 of last year. Capital spending typically lags unit growth after a trough and approximately two-third of our semi sales are driven by equipment builds with the remaining one-third tied to wafer production. We are well positioned when capacity utilization improves and capital spending recovers.

In the Sealing Technologies segment, we anticipate normal seasonality to return this year resulting in incrementally stronger first half of the year compared to the second. The largest portion of segment revenue follows trends in global industrial production and North American commercial vehicle production, although we have growing exposure to faster-growing markets, such as aerospace and space, sustainable power generation and pharma. As Eric noted, the acquisition of AMI will be accretive to Sealing’s results, both in the coming year and longer term. In commercial vehicle, the sharp decline in OEM demand anticipated this year is expected to be partially offset by improved aftermarket mix and new product advancements as the year progresses.

According to industry forecasts Commercial vehicle trailer builds are expected to decline 25% in 2024. As a reminder, approximately one-third of our commercial vehicle market — our commercial vehicle business is tied to OEM trailer builds with the balance serving the aftermarket. Also of note for the Sealing segment, in 2024, we expect a smaller impact from strategic pricing initiatives compared to 2023. We have made progress over the past several years optimizing and repositioning the Sealing Technologies segment, resulting in significant improvements in the composition and profitability of the segment. We’re well positioned currently and we’ll continue to invest in various pockets of growth while focusing on broadening the segment’s capabilities with selecting organic moves overtime.

We believe the timing of the upturn in our semiconductor business and to a lesser degree, the magnitude of the decline in commercial vehicle trailer builds, as well as trends in global industrial production will be the primary swing factors driving our performance in 2024. The mid to high end of our guidance range reflects a robust second half recovery in our semiconductor business, while the lower end reflects the possibility of the uptick happening later. Regardless of the precise timing, we are well positioned for the widely expected upturn, and we are making the appropriate investments to drive future growth and value. Now I’ll turn the call back to Eric for a few closing comments.

Eric Vaillancourt: Thanks, Milt. We continue to demonstrate our best-in-class balance portfolio that generates attractive margins and cash flow returns in a variety of economic environments. Our value-creating strategy remains unchanged, and we continue to invest where we are the strongest, while considering strategic acquisitions that build upon our leading edge capabilities. I would like to recognize the hard work of all of our colleagues across the company as we continue to differentiate ourselves in a disciplined and consistent fashion. Thank you for joining us today. We appreciate your interest in Enpro. We’ll open the line to questions.

Operator: [Operator Instructions]. Our first questions come from the line of Jeff Hammond with KeyBanc Capital Markets. Please proceed with your question.

Jeff Hammond: Hey, good morning, everyone. Congrats welcome aboard Joe, and congrats, Milt It sounds like we might hear from you one more time.

Milt Childress: Yes, I think that will be the case. I’ll be in the room next quarter.

Jeff Hammond: Great. Great. Just want to dig in the organic guide. It looks like AMI is maybe included. So I’m kind of getting down one to up one. I’m just trying to kind of clarify that. And then maybe how to think about the organic growth for each of the segments embedded in the guide.

Milt Childress: Yes. Jeff, I’ll take the AMI question and then we can go back and forth a little bit on the segments. So with AMI, when we announced the deal, we had indicated that we paid approximately 13x EBITDA at $70 [ph] price. That gives you a general idea of what the run rate earnings for the business has been prior — or at the time of the acquisition. And so when you take into account this year, which is a partial year, we’ll have it for most of the year, but it’s not a full year and some onetime integration costs that will work their way through in fairly short order. That will give you a general indication of what we’ve included in the $260 million to $280 million EBITDA guide. So that puts brackets in capital the low- to mid-teens of EBITDA contribution for the year.

James Gentile: And in terms of your organic growth side, with the balance in Sealing and the sharp decline in the commercial vehicle OEM market, you can expect kind of flat plus or minus a little bit, excluding AMI and Advanced Surface Technologies as we said in the prepared remarks, the second half is expecting kind of a more brisk recovery, but we still expect some softness to persist through the first half of 2024.

Jeff Hammond: Okay. So go ahead.

Milt Childress: Weigh in with a little more clarification on what you’d like to hear about the segments in terms of guidance, Jeff.

Jeff Hammond: So okay. So yes, just so the midpoint of the guide says soft 1Q, that’s the bottom for AST. And then I think, James, you said brisk inflection in the second half. And then, I guess, the lower end contemplates maybe a slower recovery. Is that fair to say?

Milt Childress: Yes, you got it. And then to a lesser degree, what we see in commercial vehicle markets for the year and then just the overall economy, obviously. But the big — kind of the big swing factor is going to be the pace of pickup for our business in semiconductor. We’re already starting to see green shoots. You’ve heard it from other companies, it depends on where you play and where you’re positioned in the industry, and it will come — it will happen for us. We’re just working through this cycle for our business.

Eric Vaillancourt: Hi Jeff, Joe and I took a tour of our West Coast facilities a week ago. And we’re seeing some optimism that typically, during the peak, I’d say we’re making 20 parts a week and then through the trough we were making 10 and now it seems like we’re making 12 or 13 as an example. So you’re seeing that momentum and seeing customers haven’t purchased in a long time. So I think we’re starting to see the supply chain come back into balance where they’ve been destocking before. So we’re seeing a little bit of optimism basically in every facility we’re at, but it’s still going to be a while before we see a full recovery.

Jeff Hammond: Okay. Great. That’s helpful. And then just Sealing, pretty kind of start to decline here in 4Q. I don’t know if you saw some destocking or if that’s just the commercial OE piece. But maybe just how should we think about that persisting into the first part of the year, that kind of organic revenue decline?

Eric Vaillancourt: Mostly driven by the commercial OEM trailer builds that we started to see in the fourth quarter. And then we saw a general slowness just in industrial production really starting in December. October and November were actually where we expected. And then December, we started to see some fall off. But nothing significant other than I would say, industrial production and the commercial vehicle decline.

James Gentile: But the clear variance was this commercial vehicle OEM decline quarter-over-quarter.

Jeff Hammond: Okay, I’ll get you back in queue. Thanks.

Operator: Thank you. Our next questions come from the line of Steve Ferazani with Sidoti. Please proceed with your questions.

Steve Ferazani: Morning, everyone. I guess I wanted to follow up a little bit on the previous question. Just for 4Q, the guidance had been 2023 sales would be relatively flat to 2022. So obviously, your 4Q sales had to have disappointed internally. Can you specifically point out was it primarily commercial vehicle, were there other places where you were disappointed.

Milt Childress: Well, it really is commercial vehicle OEM. And then the continued softness in semiconductor and AST. Although at the time of our Q3 call, we did anticipate that we would see some sequential improvement, which we did see in the fourth quarter. And the commentary around guidance that we’ve made in Q3 is that we anticipated being at the low end of our previously stated guidance range. And when you take into account the $6.4 million of…

Steve Ferazani: I’m just referring to sales, Milt, I’m just referring to sales.

Milt Childress: Okay. Yes, I’ll stop then.

Steve Ferazani: And then back to the point of — so if I take out AMI, I guess, to the previous questions, you’re looking at relatively flat ’24 again, where do you see some — the upside purely on an earlier recovery or semi or where else do you see some potential benefits in ’24.

Eric Vaillancourt: We see some upside in space. Of course, the biggest thing will be the semiconductor rebound that will be the biggest thing by far. But we see some optimism in pharma. It seems like some of that’s, I would say, recovering from the bottom as well but it’s going to be slow growth.

Milt Childress: And Steve, what you will remember is if you look at just the cadence of AST last year, notwithstanding some of the weakness we saw in part of the business starting in Q4 of ’22. We did have a relatively strong first quarter, second quarter of the year before things turned down in a more demonstrable way in Q3 so part of what you’re seeing now is working through the trough, which is going to be a year-over-year decline, and that’s the reason that for the year, it’s flattish on sales.

Steve Ferazani: Okay. Any reason why Q1 for AST is worse in Q4?

Milt Childress: It’s just the order patterns and nothing in particular…

Steve Ferazani: Because your Q4 was much better than Q3, as you noted on AST. Did anything specifically hit in AST or it was just that was the order pattern?

Eric Vaillancourt: Just the order pattern. There’s nothing specific.

Steve Ferazani: Okay. The CapEx guidance was a little higher than I would have expected. Could you just point to where specific investment is coming in ’24?

Eric Vaillancourt: Yes. We have several projects. We want to name them, small, well.

Milt Childress: Well, Yes.

Eric Vaillancourt: It’s basically geographic expansion when you look at it. You see our investment in Asia. We also continue to up-fit our Arizona facility. Joe and I were there last week. We expect to start testing in the second half of this year and be ready for revenue as soon as our customers are somewhere in ’25. And so we continue to make investments there, and then you’ll see some geographic expansion and capabilities to Asia.

Milt Childress: And you look at two of the key proms, Steve, of our semiconductor strategy that’s been in place for better part of a decade. It’s technology differentiation and geographic diversification are two of the pillars — two of the three pillars. And so these investments are really supporting both of those both geographic expansion and then just keeping us on leading edge, whether it’s expansion and what we’re doing on the cleaning side of our business or its machining capability that give us capabilities that differentiate ourselves from others in the industry.

Steve Ferazani: Okay. If I could just get one more in.

James Gentile: Probably is we’re still investing in areas to support kind of new product development and efficiency projects, modernization, etcetera.

Steve Ferazani: Given the higher CapEx in ’24 and the overall guidance, any kind of thoughts you can provide on expectations for cash flow in ’24 or cash conversion or anything around that?

Milt Childress: Well, I would say roughly in the $120 million range for the year is what we would expect.

Steve Ferazani: And anything changing on your —

Milt Childress: That’s free cash flow.

Steve Ferazani: Yes. Right. And any changes in your capital allocation plans beyond that of your CapEx?

Milt Childress: No, it’s investing to take advantage of the organic growth that’s before us in AST. And then in sealing, it’s continued to invest in pockets of growth in markets that are growing faster than the overall economy. So strategy remains the same.

Steve Ferazani: Thanks, Eric. Thanks, Milt. Thanks, James.

James Gentile: You’re welcome, Steve.

Operator: Thank you. Our next questions come from the line of Ian Zaffino with Oppenheimer. Please proceed with your questions.

Isaac Sellhausen: This is Isaac Sellhausen on for Ian. Thanks for taking our questions. The first on Sealing’s. I guess outside of the OEM weakness, you’ll see in commercial vehicle. Could you maybe touch on the aftermarket side and how you expect that portion of the business performance for the year? And then maybe what you’ve seen as far as pricing there? And do you expect to remain some pricing — or to maintain some pricing power as we move through the year? Thanks.

Eric Vaillancourt: The aftermarket sales are strong, and they’ll continue to be strong. Usually, when you see the OEM build go down, you end up serving more maintenance. And so the aftermarket is still very good. The mix does change and the mix is helpful to us, but we can — we need a certain amount of volume to also drive outstanding profitability there. But overall, the business is strong and continuing to do well and really don’t have any concerns once the market recovers on the OEM piece. In terms of pricing, the aftermarket pricing will hold, and we’ll give a little bit back when not much in the OEM piece here or there over time.

Milt Childress: I think this won’t surprise you because it’s true for all companies. The environment for pricing is not the same. The backdrop for pricing is not the same as — currently as it was a year ago, 18 months ago just because of moderating inflation. So just to note that, so it’s unlikely we see the same year-over-year impact from pricing, as you saw in 2023.

Isaac Sellhausen: Yes, that makes sense. And then just as a follow-up, could you discuss the AMI acquisition and the growth profile of that business maybe as we look at it for this year and the longer-term growth algorithm compared to maybe some of the other Sealing’s, industrial end markets. Thanks.

Milt Childress: We see AMI at kind of mid-single-digit growth, roughly, maybe a little bit more. But it positions us with new capabilities and compositional analysis that we’re quite excited about. The primary focus of the business currently is on midstream oil and gas, although we — the company does sell into other industry segments, and part of our excitement is to take composition of analysis into other applications.

Isaac Sellhausen: All right. Perfect. That’s all I had. Thanks so much guys.

Operator: Thank you. Our next questions come from the line of Jeff Hammond with KeyBanc Capital Markets. Please proceed with your questions.

Jeff Hammond: Hey guys. Just a couple of follow-ups here. Just on AMI, maybe just talk about — I know the financial metrics make a lot of sense but just talk about fit within the business and how you think of it. I think it’s in the Sealing segment. But — and then just, I think, Milt, you said mid-single-digit growth. I thought the historical growth rate was higher than that. Maybe just clarify what AMI has been growing at the last four, five years. Thanks.

Milt Childress: You’re right, Jeff. I’ll take the last one first and then turn it to Eric to talk a little bit more about AMI. But the — historically, the company has grown considerably faster than that. If you look at the market, the underlying market growth, it’s kind of mid-single-digit growth. And I think maybe we had indicated that, that at one point, we’ll obviously aspire to do better than that. Part of the company’s historical growth rate is a function of the size of the company as it’s ramped up with new product introductions, when the company was relatively small than incremental revenue from new product introductions adds a lot on a percentage basis to sales. And as the company gets a little larger, obviously, it doesn’t have quite the same impact. But we do have some exciting new — we — the AMI team does have some exciting new products that we expect to be introduced in the market in the next year or so.

Eric Vaillancourt: Yes. We put it in Sealing because it can affect both Technetics and Garlock, both when you look at oxygen sensors and moisture sensors and H2S, I think we use a variety of different applications, including food and pharma, general industrial. So there’s lots of applications work spread that throughout the company. So it fits nicely into Sealing.

Jeff Hammond: Okay. And then just on Sealing margins, really a phenomenal year. Maybe just how should we be thinking about kind of long-term margins? And if we see the soft patch that you saw in 4Q kind of extend just speak to the resiliency of the margins in any kind of slowdown?

James Gentile: I mean I think longer term, I think that we have definitely gone through a very successful reshaping of the segment that enabled us to exceed our previous long-term forecast of 25% through a cycle, and I’ll give it to Eric in terms of the drivers moving forward.

Eric Vaillancourt: Well, we’ve commented before I think back in the third quarter that we were looking at somewhere around 28%, plus or minus a little bit. And I think it will still be in that range. It really depends on mix. And so it depends on industry mix, and that’s really the biggest driver of mix and volume. But overall, I expect the margins to hold similar to where they are now.

Jeff Hammond: Okay, thanks.

Operator: Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to James Gentile for any closing remarks.

James Gentile: Thank you for joining us today. Have a good day.

Operator: Thank you. This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.