Q3 2019 Earnings Call
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As a reminder, this conference is being recorded it is now my pleasure to introduce your host Michael Yates, Vice President and Chief Accounting Officer. Thank you Mr. Rich you may begin.
Thank you Doug Good morning, everyone. This is Mike Yates, Vice President and Chief Accounting Officer Fridays Corporation.
Start by saying, Thank you for joining us for a discussion of the IDEXX third quarter financial highlights last night, we issued a press release outlining our companys financial and operating performance for three months ending September Thirtyth 2019, and later today, we'll file our 10-Q.
Press release, along with the presentation slides to be used during today's webcast can be accessed our company's website at www Dot I D. E X C O R. P Dot com joining me today as Andy Silvernail, our chairman and CEO and Bill Grogan, our Chief Financial Officer.
The format for a call is as follows we will begin with Andy providing an overview of our operating performance in the quarter. Bill will then discuss our third quarter financial results and walk you through the operating performance within each of our segments and finally, Andy will wrap up with an outlook for the fourth quarter and full year 2019 follow.
In our prepared remarks, well open the call for your questions.
If you should need to exit the call for any reason you may access a complete replay beginning approximately two hours after the call conclude by dialing the toll free number 87766, 06853, and entering conference I'd 136841 sixth floor.
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Before we begin a brief reminder, this call may contain certain forward looking statements that are subject to the safe Harbor language in the last Night's press release and denied access filings with the Securities and Exchange Commission.
With that I'll now turn this call over to our chairman and CEO Andy Silvernail.
Mike Good morning, everybody I appreciate you joining us just got start 2019 third quarter operating result.
In a challenging macro environment I'm extremely proud of my team.
As you know I had concerns about the overall demand volatility and the potential for further erosion.
We have a short cycle business, we got into any given quarter with only about 50% of the quarter booked.
We were prepared we got ahead of the challenges and we're executing in the quarter. Our team delivered outstanding margin expansion getting all time highs for gross margin and operating margin.
The healthy margin expansion helped us deliver another record quarter of adjusted EPS, and we reduced working capital to drive another record quarter, a free cash flow.
Results were achieved a decelerating commercial environment.
Organic sales were flat in the quarter the global demand for industrial products definitely weakened in the third quarter with manufacturing activity contracting for the first time since 2016, and we're certainly feeling it.
Lingering trade tensions and uncertain trade policy have weighed on global girl to customers and business leaders hesitant to spend this has led to a slowdown in most geographies.
With that said, we remain confident our ability to thrive in this environment, we're executing the playbook, we spoken about you all year.
Being prudent about cost more focusing on productivity well continue to invest aggressively and our exceptional long term growth prospects.
We have built I'd extra performed throughout the cycle and we're doing the things that make iducs different we're investing in great teams, who focus on the critical priorities within our see any businesses all of which isn't service to our cost.
This is what separates IMAX from a competition and allows us to deliver for our customers employees and shareholders regardless of the macro environment.
We're fortunate that are durable diversified business model produces exceptional free cash flow and we have an outstanding balance sheet. These facts allow us to have a bunch of capital to bolt invest aggressively organic growth and drive returns to capital deployment.
Let me take a moment to talk about capital deployment before turning over to bill for some color on the financial results.
The integration about core is going extremely well and the teams are delivering on the key value drivers and as we get inside the business I'm, even more excited about the possibilities about core brings to our ceiling platform.
[noise] M&A continues to be a top focus for us but remains a challenge in the current environment did evaluation. Our teams are hard at work and multi cultivation and evaluation of several deals [noise].
With nearly $2 billion on capacity based on existing cash availability under our revolver and a very healthy balance sheet, we have the capacity to support the right opportunities while remaining disciplined within our return framework. We will only move forward on deal went out the target fits the IODEX criteria.
Along with the acquisition of Alcor returned $38 million to shareholders via dividends in the quarter.
With that let me pause here and Bill alternative you for discussion of financial results and the segment details.
Great. Thanks, Andy I'll start with our third quarter financial results on slide four.
Q3 orders, a 586 million were down 5%, both overall and organically driven by softness across all segments and tough comps versus last year.
Three sales of 624 million were flat overall inorganically, we did see growth in FMT and HST, but was offset by decline NFS D that was primarily driven by project timing.
We expanded gross margins in the quarter by 20 basis points to 45.2%.
However, excluding the 3 million dollar fair value inventory step up charge related to the Bellcore acquisition. Adjusted gross margin was an all time high a 45.7% up 70 basis points. This is primarily due to strong price capture and productivity initiatives, partially offset by continued investments in engineering related and new product development.
Q3, operating margin was 22.7%, but adjusting for both the fair value inventory step up and restructuring expenses adjusted <unk> adjusted operating margin was 25.2%, an all time quarterly high fried X and up 120 basis points compared with adjusted prior year period, mainly.
Driven by our gross margin expansion and lower estimated costs, which were driven by decreased variable compensation expenses and tighter cost controls across the business.
Included in their restructuring charges was an approximate 10 million dollar impairment charge related to the wind down of a small business line with NHS too.
Our Q3 adjusted effective tax rate was 19.1%, which was lower than the 20.3% in the prior year period, mainly due to changes in U.S. Treasury regulations as well as the mix of global pre tax income among her jurisdictions.
The adjusted Etiology of 19.1% was also 340 basis points lower than our previously guided TTR due to a higher excess tax benefits from greater than expected stock option exercises as well as a favorable impacts from the 2018 income tax return to provision adjustment this lower HCR provided.
Six cents of Vps favorability in our core results compared to our previous guide back in July .
Q3, adjusted net income was $117 million, resulting in a record adjusted EPS of $1.52 up 11 cents or 8% over prior year adjusted EPS.
Finally free cash flow was very strong at 146 million was up 20% over last year and 125% of adjusted net income. This was our highest free cash flow of all time.
I'll now turn to the segment discussion I'm on slide five starting with fluid <unk> metering.
Q3 orders were down 1% overall and flat organically, mainly driven by softening demand in the industrial market and continued declines in agriculture.
Sales were up 1% overall and up 2% organically.
Attributable to the growth in our pumps valves in energy businesses due to strong performance around our targeted growth initiatives, but partially offset by the slowdown in the industrial short cycle book in turn activity during the quarter.
So you municipal water business remains solid with stable spending projected for the remainder of 19.
In regards to the agricultural market the market dynamics remain unchanged due to continued tariff pressures and depressed commodity prices, which has put pressure on band on the banjo business all year pre season orders are flat compared to prior year period, and we're not forecasting any near term change to the U.S. agricultural market performance.
Finally, operating margin was outstanding at 32.2% up 270 basis points over the adjusted prior quarter, mainly due to a widening price cost spread driven by the team's ability to continually capture value for their products and deliver on their productivity initiatives FMT really executed during the quarter.
[noise], let's move on to health Science, turning to slide six Q3 orders were down 4% overall and 6% organically, mainly driven by continued market pressure in semi caught in automotive as well as the industrial slowdown impacting about a third of sales in HST that are industrial.
Leasing exposed orders were also impacted by timing is a few large life science blankets got pushed into the fourth quarter.
From a sales perspective, Q3 sales were up 3% overall and 1% organically driven by strength in the life science business as they continue to experience growth tied to new product development in collaboration with our key customers.
Yes, we continue to see MPD project wins, but as discussed earlier, we started to see challenging market conditions in the third quarter due to weaken north American industrial distribution demand.
For MPT strong results in Q3 were driven by shipments of some long lead time projects reversing the negative trend we experienced in the first half of the year.
We're seeing positive momentum within key pharma markets and our commercial funnel continues to grow.
Spectators, our does all of our positive growth for the year.
Finally within sealing pressure across the semiconductor industrial an auto markets continue although are beginning to see signals of reaching the bottom of the semi decline their orders and sales are still challenged.
From a margin perspective, excluding the fair value inventory step up charge and restructuring expenses operating margin increased 30 basis points to 23.8%. This was primarily due to the higher volume and price capture partially offset by higher growth investments and amortization related to the bellcore acquisition.
Im now moving to our final segment diversified I'm on slide seven.
Q3 orders were down 10% overall, a 9% organically mainly driven by pressure on the projects out of business as customers remain cautious around making large investments as well as tough comps in dispensing and rescue to large project orders in the prior year period.
Most dispensing and rescue orders were down over 20% organically in the quarter.
Q3 revenues were down 5% overall in 3% organically and I'll provide a little bit more color on that the minute.
Adjusted operating margin of 27.2% decreased 50 basis points in the core this was mainly due to the reduced project volume.
Sequentially segment was up 10 basis points versus the second quarter.
FSD performance was mainly driven by the following on the Fireside core OEM and municipal markets continue to perform well, we're experiencing steady growth across our product offerings as well as continue momentum around our new Sam product launch.
Turning to rescue sales decline, mainly due to project delays associated with political uncertainty coupled with a tough comp from the prior year period.
This performance was slowed due to due to a delay in FEMA spending but expectations are that we'll see a rebound in the fourth quarter.
Vanda is performance remains strong based on wins with our targeted growth initiatives, even as we see general softness in the auto and energy markets in pressure within the industrial space band. It continues to take share and grow in these areas.
Finally, dispensing story remains similar to the first half of the year due to a tough comp again, some large project wins in 2018 with no new projects occurring this year.
As such the business was down double digits compared to prior year, but we do expect to cycle back to growth in 2020 I.
Ill now pass it back to Andy to provide an update on our 2019 guidance.
Thanks, Bill So let me wrap things up and I'll provide some details here regarding 2019 for both the fourth quarter and the full year I'm on the last slide that slide eight.
In Q4 projected EPS to be in the range $1.33 to $1.35 with flat organic revenue operating margin should be about 23.5%.
We're estimating about a one set top line headwind from FX based on the September 30 rate. This translates to about one cents on the bottom line EPS headwind.
Our effective tax rate should be about 22% in corporate costs in the fourth quarter, it will be around $18 million.
If we look at the full year 2019, we're projecting full year EPS of 580 582.
Full year organic revenue is projected to be about 2% with operating margins at approximately 24%. We should have about a 2% headwind from FX based on the September 30 rates.
The effective tax rate for the year GB about 20.5%.
Capex is anticipated to be about $55 million and free cash flow should be about a 105% of net income and finally corporate cost will be about $73 million for the year as always.
These earnings guidance expectations, it excludes anything from acquisitions or restructuring.
With that Doug, Let me turn it over to you and we'll open it up for questions.
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Our first question comes from the line of Mike Halloran with Robert W. Baird. Please proceed with your question.
Hey, good morning, everyone or Mike. So so let's start with the underlying trajectory what you're seeing right now lots of puts and takes in the order numbers you know FMT flattish, which is typically more six cyclically sensitive business. Yes. The other piece has had some project timing related things. So maybe you could just.
Talk about what you're seeing is like the core underlying demand characteristics today, what that trajectory looks like to the fourth quarter and then maybe some puts and takes and how you're looking at growth for 2020 sure. So Mike first of all good question. That's the biggest one that's on our mind. If you do have to kind of separate out the puts and takes and this is the.
The way I do it.
You've got some some project timing issues meeting last year, we had an exceptionally strong third quarter. If you look at rescue in dispensing and and those are some pretty good sized numbers and then in 2000 and.
Last year, we got some larger orders in our life science blanket orders that we typically get that we're going to get in the fourth quarter. If you take those three things and you neutralized those three things you look at the underlying run rate of the business, it's basically flat to down 1% by about a half a percent. If you just kind of look it at the underlying day rate.
This is on and I think thats pretty consistent with what we've seen and so as we get into the into the fourth quarter I think you'll see some other puts and takes around there but that day rate business. What we've seen in early October or in October . So far is basically got a meeting our expectations of where we went into the quarter and so I think work.
On a holding at this this flattish to down one right now.
In the on the core order rate of of the businesses. So.
I don't see a reason for that that trajectory right now to change meaningfully as we go out now that being said, we have an easier comp in the fourth quarter.
Versus what you saw last year, and then you've got to pretty tough comps in the first in the second quarter next year. So if you assume that you don't get a change in trajectory.
I think that that kind of flattish revenue growth in a in the fourth quarter feels about right.
And then you'll face some tougher comps in the second first and second quarter with that getting easier in the third and fourth quarter of next year, that's kind of how we're looking at it.
Yeah look it's early to call 2020, just based on our short cycle nature of our business.
What I would say that the first pass that looks like a tougher first half easier second half balanced out with with somewhere in a range of I want to say plus two to negative two that's what that feels like right now any but again really early on and we were in the process of tightening up our 2020 annual plans.
But thats what the first pass kind of looks like Mike No that makes a lot of fence and then on the margin side very strong execution. The story this quarter.
Walk through any puts and takes you think that that that might might help us on a forward basis to figure out sustainability of this level, where there anything any incentive comp that's different.
Any other kind of one off things that would would move this around one way or another.
No I think overall, obviously with the revised results for the full year Theres a.
Decrease in some of the variable compensation stuff I think fundamentally obviously fmtvs margins were really strong.
That's where we're going to see probably the most decline is if we are in this and industrial softness here recently and now de lever probably more than the other businesses. So that will put more pressure you know I think for the third quarter, we guided around 23.5%.
Which is probably what you'd see going Florida.
Consistent revenue run rate.
Thanks, guys appreciate it.
Mike Thank you.
Our next question comes from the line of Deane Dray with RBC capital markets. Please proceed with your question.
Thanks, Good morning, everyone I'd.
Hey, Andy and I appreciate that you made the comedy you were signaling that there was slowing going on in fact, you were among the first senior guys back at the EPG conference in May to say, a slowing was happening so as so no one should be blindsided by that but as you orders in flat net.
You did flee here, yeah, what Doug and I know, you're short cycle, but you're talking about customers hesitating to.
Spend what's the you know the discussion at the margin right now in terms of committing a willingness to commit capital the order rates as they look in the in the fourth quarter, we're gonna stay negative or as it is it worsening.
Versus the way we started the third quarter, yes, I don't see right now given that its worsening.
But let me kind of backup and talk a little bit about hesitancy in and like you said that we talked about this publicly at EPG.
The as you look at this the issue at hand.
Is that.
Just a real hesitancy based on the uncertainty in the marketplace right. There is no dark kind of big demand bubbles, meaning negative issues that things are kind of imploding outside of what I talked about the past these kind of human made issues that are around the world.
What that's doing is reverberating back if people are just hesitant to spend they're hesitant to higher.
You are seeing more layoffs in the manufacturing sector.
Than we've seen here in quite some time and so I think this this world of uncertainty Unfortunately doesn't isn't likely to or revolved resolve itself anytime soon right. So you've got the constant back and forth regarding trade tensions that are out there.
The folks who seem to anybody knows what's going on the folks who spend a lot of time on this.
Our very doubtful that any meaningful yeah, if positive improvement happens except for maybe a stand off right. So just doesn't get worse. So you've got that and then and then really as you get into the election cycle next year. At these are not areas of our expertise, but in terms of talking to people out in the field people are holding.
As long as they can to commit large chunks of money into either hiring or into capital.
And really uncertain time. So my view is that is that it's going to be bumpy here for quite sometime.
All right. So that macro commentary is really helpful, but lets pivot now into your.
End markets and if we just go back to the second quarter, when we talked about where the softening was we're showing up it was oddo. It was semicon. It was AG for you guys I was like 10% of the portfolio. It really does sound like Thats still the kind of ground zero of where are you.
You're seeing the slowing.
Has that spread to these any other verticals.
I think thats the change in the third quarter net and that Napier. If you remember that was what I said I was concerned about was you've seen those three continue to struggle and then you've seen the industrial start to come down right, So FMT, which is.
You know two thirds of our industrial exposure or half our investor exposure you can see although it's still good relative to I think the rest of world is experiencing you're definitely seeing that and I expect that to continue here for a little while.
You know I think that the.
Let me the puts and takes right. So I think the negatives are general industrial slowing and I think we're going to face those headwinds here at least of the second quarter of next year, it's hard to imagine that thats not the case.
And then you've got the question of whether AG semi our bottling bottoming. If you look at kind of the auto side.
Yeah, we probably bottoming in China Auto and then you probably if you look at the expectations of auto builds those are down for next year, So maybe a little more pressure there.
But but I do think that net net those are still going to start for little while until we see some uptick in semi which by the way we have seen some things that look like a bottom and semi AG. I think is still a question mark here and tell whether the trade tensions.
And then the fall and Saar municipal and health and science those are going to hold in.
Yes, that's exactly what we'd expect and look you cannot control the slowing on the end markets, but you are obviously doing.
Great job on margins and cash flow. So congrats on that thank you. Thanks, Deane I think the important thing there is controlling our own destiny. We bought we've talked to all of you guys have up the playbook, we looked at in a slowing environment, where certainly working that.
We know how to deal in those environments and make sure that we we deliver for our customers are people and certainly our shareholders.
Next question. Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your question.
Come on Andy control, the end markets [laughter], but you've got.
[laughter] question on not working capital I mean, it looks like you guys managed inventory.
Really well in the quarter in the face of probably some slower revenue that you are anticipating.
Maybe you can talk about you know whether you need to reduce your inventory levels here you know in the face of the slow demand environment.
Whether you can generate some cash yeah, you know over and above what your excellent free cash flow conversion normally is here in this environment.
I think Nathan so so first of all this is something from a business model stand sample, we've talked about a lot that even in times, where you're getting pressure on the top line of business and pressure on margins the balance sheet de levers.
Really nicely and so from a cash EPS perspective that will hold up well I expect we'll see more de levering in the fourth quarter.
And and then we'll see where we are in terms of what we're planning for next year, but certainly in the fourth quarter I expect more delevering.
So you're not in any kind of heavy downturn here.
You're talking about flat full cure.
Kind of clustered admonished to 2020 outlook are there any meaningful cost action plans that you take care.
<unk> particular businesses, where you're saying you know wash Demandware, where you think you need to take some cost actions and maybe what those would be.
Yeah, you, absolutely do and to be clear and this kind of environment and really for IDEXX. In total these kinds of things are never broad based right. Whenever we are not a company that does these kind of wacky, 5% reductions across the board the key to any kind of facing environment like this.
This is number one you want to you want to invest in the things that drive long term sustainable competitive advantage and value and for us that really comes down to two big things first our people and we view people as being central.
To the business model, it's what scales in this company and so we're going to continue to invest and the leadership development around the company and making sure that we're very focused on that.
Second it's really kind of innovation in our core markets. If you think about the 80 20 in the segmentation work that we do.
Around where are the profit pools, how you continued to make those growth thats going forward and then what you do as you look kind of around that outside of those core strategic areas.
And you just have to be prudent right. There are places that would that were already.
Making targeted cost reductions, we're going to have to do some more of that if you we see some weakening there.
And that's just the right thing to do for the long term competitiveness of the of the company and so we're executing that playbook, we're looking out into the future as I said.
My expectation in this current environment is what you really haven't 2020 is a pretty tough comp in Q1 Q2 and then.
Easier comp in the back half weighing out to that kind of plus two to minus two.
All right. Thanks for the color I'll pass it on thanks.
Our next question comes from the line of Matt Summerville from D.A. Davidson. Please proceed with your question.
Thanks, a couple of questions first can you maybe give a little bit more geographic granularity in terms of incoming orders in organic performance in the quarter.
Yes.
Yes sure no I think it was Europe is basically maintain its lower level that we've seen over the last couple of quarters.
It was really more declines in North America, we started to see that broader orders Numb order number down we actually did outperform a bit in some of the emerging markets, but again relative to the fundamental macro situations within any in India and China. Our teams early delivered on their targeted growth initiatives in grew in the upper single digits in.
Was there so the incremental softening at it has really been around North America exactly.
Got it and then just back maybe to FMT margins up to 70 sequentially up I think one or 270 year over year up 170 sequentially on a sequential basis. That's on lower revenue. So can you talk about are you pushing more price through that business are your input costs coming down meaningfully maybe just kind of parse out.
How you're getting that margin in what the right way to think about FMT margins are kind of going forward at what you're calling kind of a more subdued in general industrial environment for that business. Yeah, I would say, 30% is probably closer to what its normal run rate issues.
You know those businesses, even on lower volume, we're running light saw with the remaining subsea projects that they had and then the input costs have decreased I think the teams as they look to where they are getting some pressure from terrorists they've been able to come up with some supply chain solutions to reduce the impact of those and the pricing that we put out last year in Q.
Three to offset some of those.
You know just levered better within the quarter.
Got it that's all for me. Thank you guys. Thanks, Matt.
Our next question comes from the line of Brett Linzey with vertical Research partners. Please proceed Sir. Please proceed with your question.
Hi, Good morning, guys. Good morning, Brett Hey, just wanted to come back to price cost sounds like you've got very good price traction in the in the quarter you do start to lap a tough like on like price in Q4 next year.
But given the moderating commodities this price start to flatten out as we get into 2020 or do you still think you can achieve.
Positive price and some of those businesses.
Hi, Brite, what we'll get positive positive pricing in 2020, I feel very confident that the the nature of the business model the nature of our competitive positioning it'll be lighter than certainly in 2019, there's no doubt about it but I don't see any reason why we won't sustain that kind of 30 to 40 bips price costs.
Leverage that we've gotten in the past beliefs and see that yeah, I think the spread as we come into the back half was is higher than that but yes mixtures recalibrate.
Around our 2020 pricing actions it will come down a bit but attendees point I think we'll still be.
Significantly positive on the price cost differential.
Okay, Great and then just shifting to the funding delays and rescue sounds like that gets resolved in Q4, what what informs that I guess and then have you seen any type of funding delays broadened to other agencies as we enter this electrics election cycle, yes. So so with rats rescue in particular, there kind of two things that you saw one is just around the.
World.
We've seen this in the past has happened many many times you get.
The sovereign governments, who are or buying product from us.
Things get tight they can they can pull back and so we're seeing that relieved why because we're very close to our customers and we know what when money is going to be relieved just generally so we feel pretty good about that.
And then you've got the female issue that bill referenced for some reason and we don't quite understand why FEMA money got got tied up here in the third quarter and it feels like has been released already there's no reason to believe that's not going to happen or hasn't happened already.
Okay got it I'll pass along thanks, guys. Thanks.
Our next question comes from the line of Andrew Buscaglia with <unk> capital markets. Please proceed with your question.
You guys.
Can you comment more on he said that extend needs with showing signs of bottoming and that's I can just ran at first on what we know how big of that because that is the percentage of ourselves at this point and then what why do you say that or where do you seeing specifically.
Yes, it's not a big Japanese until the last 3%, 3% in total for the business.
The the biggest impact there is in our sealing business and then we have is a small.
Pump business it faces that also.
When I say bottoming or Inflecting, there's no. There's no reason to believe that this thing is picking up dramatically, but we've gotten a significant signals from a handful of the of the big players that they're projecting stronger demand now that is mixed with a couple other things that they see some softening in there, but we're we're converting a lot of customers.
Overtime and so it's a lot of that has been a share game on top of kind of what's happening to the market.
So in other words, Andrew we're getting direct signals from people on higher demand it to get our supply chains ready.
But to be clear I would not use us as a bellwether for semiconductor market. We are we're not the right people talked to about that.
Got it okay.
And that.
I know people are thinking that this question a bit but.
Yeah, you know, you're you agree or sales only about 2% or you do about 2%. This year Yep and you really jure you drove a really impressive incremental margin off of that.
Yeah, that's on the heels on.
Strong incrementals in the prior year. So the question is how how long can you keep that up yeah, yeah that if you're only it sounds like you.
Correct me, if among your you're implying about 2% plus or minus.
In 2020 for the topline so it just seemed I realize that expansion is likely.
I think so there are couple of things that really matter there. The first one is.
The overall top line.
When you when we are I want to call, 2% has kind of the tipping point right and 2%.
Your covering your inflation.
You can still get incremental margins you get north at 2% three 4% you start to really drive I think around margins in that 30% to 35% range, but 2% is about.
Where you hit parity with just offsetting normal inflation that happens in the business.
So overall, the kind of that volume number matter second.
That price cost.
What you get between price and cost if we can keep that 30 to 40.
That will play into that first part and certainly adds to any kind of expansion.
That that you that should drive for here going out so look at where were sub 2% growth rates, it's going to be harder to get any kind of expansion and we work to really hold the line is what we work to do and if you get north of two will absolutely get expansion just with the normal contribution in the price leverage that we get.
Yep, Okay, I guess, the flip side of your.
Your you sound like it it's unlikely margins will get great much if anything so let's let's take the other scenarios. So let's say were down.
Were down next year, and we've talked about how we thought about that and I'm going up or are you guys for a second but our our overall.
Playbook is looking at what I'll call Bonilla reset recession looks at kind of 5% down that's $125 million a top line coming down that would be about 75 million unabated that would hit the bottom line our goal would be to offset that by about $25 million of upcoming.
Options and so you can you can do the math on how that works out we're in that kind of environment, we're going to be Super thoughtful. Let me give me could you go further could you go deeper have we done that in the past we have but we won't do that and as I've said to you all in the past if a data if that if that scenario plays.
I'm talking about we are going to make sure that we keep reinvesting aggressively in the business and so that 25 million dollar range is about what you can do and not have to make other very very hard tradeoffs and so we would make sure that were super thoughtful again, we're investing in those critical priorities.
And our people and the really attractive businesses, we have in terms of innovating in those profit pools, but that's how we're thinking about a general.
Okay. That's very helpful. Thank you bet.
Our next question comes from the line of Joe Giordano with Cowen. Please proceed with your question.
Hey, guys.
Morning.
Yep.
Hey.
Ladies and events you may have covered this I got disconnected for a little bit the beginning of the Q, an eight year, but.
When I when I look at your your Capex generally it scales up in the second half of the you're clearly you have some markets moving other ways in your and your being cautious, but how should we think about that level for the rest of the year and into next year.
Yes, so what we're going to be at about $55 million, which is which is about $5 million less and that was not our intention.
It's a matter of timing and the ability to actually get some stuff in within the fourth quarter. So yes that 55 $60 million range. That's that's a healthy range with with our business right now and I would expect that to be similar going into next year plus or minus.
Okay.
Then is your fourth quarter and HST and there's some of it it seemed timing related with the order decline there but.
How is that like a direct impact into the revenue number that you anticipate for Fourq for Fourq you there.
I don't think it's a big big impact.
That timing of that order those things are blankets that are going to be in the future. So I'm not I don't think thats, a real impact in the fourth quarter, Yeah, I mean Oems when they place and we've had some volatility between Q3 Q4 in Q1 that have created some noise in the comps are.
Okay, and then if I could just clarify something and it into the you in your downside analysis that you just ran through on a 5% decline did you say 75 million would come off like unabated to the bottom line on a 125 decline than an agenda.
Im just using the contribution if you if you do not being right.
Effectively it flows through at and what we call material margin rights of material contribution of value added.
That's what it would be if you didnt on it right does that.
You should margins of the company.
Okay.
Thank you bet.
As a reminder, ladies and gentlemen, it is star one to ask a question.
There are no other questions in the queue I'd like to end the call back to management for closing remarks, well. Thank you very much Doug I appreciate it and thank you all for it for your time and attention here on our call again in this kind of volatile environment that we've all been living in I could not be more proud of the team.
In terms of how they have executed and delivered for really for our customers first and then for our people and also for you our shareholder. So we're thrilled about that we appreciate the support that we get from the investment community and with that we will say goodbye and talk to here and get a 90 days take care.
Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.