Q3 2020 Altra Industrial Motion Corp Earnings Call
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I would now like to hand, the conference over to your Speaker today, David Calusdian from Sharon Merrill Associates. Thank you. Please go ahead.
Thank you good morning, everyone and welcome to the call.
Okay follow management's discussion on this call they'll be referencing slides that are posted to the ultra motion dot com website under events and presentations in the Investor Relations section. Please turn.
Please turn to slide three during the.
During the call management will be making forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
Forward looking statements are inherently uncertain and investors must recognize that events could differ significantly from management's expectations. Please refer to the risks uncertainties and other factors described in the company's quarterly reports on form 10-Q.
Annual report on form 10-K, and the company's other filings with the U.S. Securities and Exchange Commission, except as required by applicable law Altra industrial motion Corp. does not intend to update or alter its forward looking statements whether as a result of new information future events or otherwise on today's call management will refer to non-GAAP diluted earnings per.
Our share.
Non-GAAP income from operations non.
GAAP net income non-GAAP adjusted EBITDA non-GAAP operating income margin non-GAAP adjusted EBITDA margin non-GAAP organic sales non-GAAP gross margin non-GAAP operating working capital non-GAAP net debt.
Free cash flow and non-GAAP adjusted free cash flow. These metrics exclude certain items discussed in our slide presentation and in the press release under the heading.
Discussion of non-GAAP financial measures and any other items that management believes should be excluded when reviewing continuing operations. The reconciliations of Altrias non-GAAP measures to the comparable GAAP measures are available in the financial tables of the Q3 2020 financial results press release Nautilus website, Please turn to slide four.
Yeah.
With me today are Chief Executive Officer, Carl Christenson, and Chief Financial Officer, Christian Storch, I'll now turn the call over to Carl.
Thank you David and thank you all for joining us today, and please turn to slide five which.
We turned in another excellent quarter exceeding expectations for revenue profitability and cash generation as we capitalized on greater than expected demand strength.
Leveraged our market leadership to outperform in several businesses.
And drove significant improvements to the bottom line.
Since the onset of the pandemic our focus has remained on prioritizing.
Safety of the ultra team.
Managing operations to minimize customer disruption and ensuring continuity of supply taking actions to manage costs maintain a strong balance sheet and manage our leverage and finally, playing offense to position ultra to emerge a stronger company.
I remain amazed by the resilience and dedication of the altra team to remain highly productive.
Consistently deliver innovative solutions to our customers often on expedited schedules and modified environment due to the pandemic.
And achieved excellent results. Despite the world we are all operating in.
Christian will cover the results for the quarter in more detail in a few moments, but I'd like to.
I'd like to note a few highlights.
In Q3, we exceeded our expectations on the top line with sales of $457.8 million just shy of Q3 2019 revenue we reported a year ago. This.
This excellent performance was due to strong outperformance in certain end markets.
Like class eight trucks, and renewable energy and better overall demand in many of our other end markets.
We also continue to execute on aggressive actions to reduce cost and this resulted in excellent bottom line performance.
As a result, we achieved net income of $38.3 million or 59 cents per diluted share and grew non-GAAP earnings per share by 26% to 87 cents.
Non-GAAP adjusted EBITDA margin was up 320 basis points to 23.3%.
And finally, we once again had tremendous cash flow generation, which allowed us to continue to pay down debt and exit the quarter at three and a half times leverage on a total net debt basis.
Turning now to slide six we have continued to deliver strong results through the downturn and feel extremely positive about the long term opportunity for ultra low.
Last quarter, we discussed for reasons for this optimism and these factors once again proved out in Q3.
First or fishing cash generative business model continues to be highly resilient in fact, our cash generation. This year has been phenomenal with $172 million of free cash generated in the first three quarters of the year, a 20% improvement when compared to last year.
Second the combination of our legacy PTT businesses.
For afford is automation and specialty ANS businesses is proving out to be an exceptional strategic move.
As we recently passed the two year anniversary of the merger we're delighted by the success of our integration from both a cultural and a business standpoint.
But expanding our exposure to several less cyclical end markets with attractive secular trends, we have been able to largely mitigate the financial impact of the economic environment. This year.
In recent months, we have also accelerated our focus on leveraging the power of the new Alterra to drive organic growth. Despite pandemic related travel restrictions that we've placed upon our sales force we've had great momentum and have doubled the size of the opportunities in our cross selling funnel. In addition.
We are well positioned with a number of excellent organic growth opportunities as we collaborate closely with customers to develop innovative solution that capitalize on sexual secular growth trends in the markets we serve.
Third.
We're benefiting from stronger than expected demand across several of our diverse end markets.
This includes our exposure to medical markets benefiting from Covidien related demand growth and other short cycle markets like factory automation.
And fourth ultras value proposition continues to resonate deeply with our customer base.
As a result, we are outperforming the competition in several key verticals for us.
For example, we recently secured orders for engineered servo motors from two different defense Oems for munitions related systems valued at over $15 million.
These orders will ship over the course of the next couple of years.
Now turning to slide seven and a review of the markets in more detail starting.
Starting with those that performed well in the quarter.
Renewable energy was up low single digits in Q3, as we continued to see strength in wind. The Q4 growth rate may not be as strong as a result of tough comps and some possible industry supply chain issues unrelated to ultra that began to emerge early in the year that could constrain.
Customer build rates.
Factory automation and specialty machinery was up high single digits year over year and low single digit sequentially. This.
The semiconductor market was particularly active in the quarter and we expect to see continued positive momentum as the co bid 19 situation accelerates the need for automation.
[noise] defense was up low single digits as we continue to see strong performance with many of our OEM customers.
Exacerbated by the struggles facing the airline industry commercial aerospace, which is the smallest piece of our overall, a and D business continues to struggle.
We expect both trends to continue into 2021.
Transportation was up single digits year over year. This reflects excellent demand for class eight trucks in China combined with an improving environment for class eight trucks in North America, and some pent up auto demand.
We expect continued strength in this market in Q4 as the Chinese market benefits from a government sponsored program to reduce pollution by incentivizing heavy duty truck operators to replace their existing high emission trucks with new lower emission vehicles.
Turf and garden was a pleasant surprise with sales up low double digits.
After a difficult beginning to the year. This was driven by customers accelerating purchasing in Q3 after delaying builds earlier in the year.
Medical equipment was up low double digits year over year and was even stronger sequentially. After a weak Q2.
Demand has been very strong for cold and related medical equipment, such as ventilators and respirators.
The remaining markets, we serve faced headwinds in Q3.
Distribution was down mid single digits for the quarter. However, it was up slightly sequentially, we expect the distribution market to track in line with the general industrial economy.
Metals was down double digits, driven primarily by weakness in the oil and gas and construction industries, we're seeing.
We're seeing some improvements in capacity utilization at the mills from the trough in May but there is still a long way to go before demand comes back and customers start buying new equipment.
In mining demand was down high single digits for the quarter as a result of low commodity prices. We expect this will be a tough market for the near term.
Oil and gas was down double digits for the quarter, we don't see any positive near term signs given the significant decline in rig counts from last year.
Keep in mind that oil and gas is now a very small component of our business at less than 5% of overall sales for the last 12 months.
The AG market was down high single digits for the quarter with uneven demand across the businesses.
Farm income this year is on track to surpass 2019 were hopeful this will translate into increased equipment spending in the coming year.
And with that I will turn the call for questions. Thank you.
Thank you Carl and good morning, everyone. The strong.
The strong third quarter results, Devon demonstrate two things.
Ill resilient and balanced portfolio of upwards is but also how difficult it is to forecast during times of that dynamic.
All of course outperformed our expectations for the quarter led by very strong performance.
This segment.
Let's start with a review of our topline performance.
Excluding FX effects since declined 2.4% compared.
With the prior year period.
Foreign exchange rates had a positive effect of 120 basis points, what place had a strong positive impact of 100 basis points.
Excluding the effects of foreign exchange net sales for the PDP segment were down 11.3%, while net sales for the segment were up 6.4% compared with the same quarter last year.
Taking a closer look at our performance by geography.
Asia and the rest of the World was a strong performer with revenue is up 32.9%.
This performance was primarily driven by strong sales into the class eight truck market in China as well as another excellent quarter in the Chinese with margin.
In Europe, we saw a decline in demand with sales down 8.5% 13.
13.3%, excluding the effect of FX and in North America revenue has declined 7.9%.
As a result of the actions we took in the quarter to manage cost we able to gross profit gross profit margins reduce SGN a expenses as a percentage of sales.
As a result increase non-GAAP operating margin by 310 basis points on 1% lower sales.
Non-GAAP income from operations increased by 12.8 million or 18%.
This reflects the incredible job by our teams reducing costs and effectively managing cash in this environment.
We believe that we achieved annualized cost reductions of approximately $60 million of which we believe approximately 28 million a permanent.
We continued to benefit from lower LIBOR rates and lower outstanding debt levels.
As a result interest expense for the third quarter, excluding the impact of the terminated interest rate swap declined $3.6 million year over year.
Recent rec changes related to tax reform and other changes have lowered our tax rate to.
The provision for income taxes in the third quarter of 2020 on a normalized basis was 20.4% before discrete items.
Non-GAAP adjusted EBITDA was $101.8 million for the third quarter were 23.3% of net sales.
Up 300 basis points compared with last year.
Please turn to slide nine for closer look at our balance sheet improvements cash flow and liquidity.
Free cash flow for the quarter was very strong at a record $81.1 million, which compares with $71.5 million a year ago.
We have now generated $172 million in non-GAAP adjusted free cash flow year to date, which is a 20% increase compared with last year.
This is a testament to all cash generating business model, the financial strength of the new ultra and our team's ability to manage cash and what has been a challenging macroeconomic environment.
Capital expenditures during the quarter totaled $7 million down about 45% from the prior year quarter.
We plan to modestly increase all capital expenditure levels in the fourth quarter as we focus our investments on growth opportunities, including automation initiatives and technology enhancements.
We ended the quarter with $238.7 million in cash of this.
Of this and this reflects a payment of $60 million on all terminal.
This brings our total debt pay down year to date to $90 million, which is a clear equivalent to last year and.
Another testament to our ability to effectively manage the balance sheet, even during the most difficult times.
Since completing the Ns merger, we have paid down $240 million in term loan debt.
We decreased our net leverage to three and a half times and we remain committed to deleveraging the balance sheet we.
We expect to be slightly below three and a half times at the end of 2020.
And we remain very comfortable with the substantial room, we have relative to compliance with financial maintenance covenants under our credit facility as a reminder.
The terms of our net debt leverage covenant excludes the $400 million of senior unsecured notes, which.
Whichever outs, which we have outstanding it steps down to 4.75 times at the end of 2020.
And we have no short term debt maturities as these are not due until October 2025 and ill.
In October 2026.
In terms of use of cash our top priority in the current environment continues to be to reduce our debt balance manage leverage and preserve optionality for investing in future growth.
Let's call mentioned the board voted to increase our quarterly dividend from four cents a share to six cents a share.
Please turn to slide 10 full re review of our outlook for 2020.
Today, we are increasing our guidance for the 40 of 2020 reef to reflect our best estimate and practical assessment, but potentially impact of COVID-19 to our business at this time.
We continue to closely monitor the situation and I'm not prepared to implement further cost reduction measures should topline demand decelerate.
Our guidance assumes that we will experience a modest sequentially revenue declined in the fourth quarter as we expect a strong sales we saw in China in the second and third quarter will moderate.
Got it also assumes that we see as China expenses increase sequentially.
With that as a background, we are increasing our annual expectation to the range of $1.690 billion to 1 billion $7 million to $10 million and while raising our EPS guidance on a GAAP and non-GAAP basis.
As previously indicated following the UNESCO acquisition, we began to exclude acquisition related amortization net of tax from non-GAAP net income and non-GAAP EPS.
We now expect GAAP diluted EPS in the range of a loss of 55 cents to 46 cents in non-GAAP diluted EPS in the range of $2.70 to do lot $2.82.
We are also raising our non-GAAP adjusted EBITDA guidance to the range of $355 million to $370 million.
We expect to continue to pay down debt in the fourth quarter.
We continue to expect depreciation and amortization in the range of 125 to 128 million.
Winning in the fourth quarter will we see a decline in acquisition related step up depreciation of approximately $8 million annually.
We are lowering our capital expenditure expectations to a range of $34 million to $40 million and we expect our normalized tax rate for the full year to be in the range of 20% to 21%.
We expect adjusted non-GAAP free cash flow in the range of $210 million to $225 million and with that I would like to turn the call back to Carl.
Thank you Christian please turn to slide 11.
As we close out 2020, we are not extraordinarily proud of the entire ultra team. We are increasingly confident about altrus ability to thrive as a premier industrial company.
Looking forward, our focus remains on advancing our strategic priorities to deliver sustainable value over the long term.
These include leveraging our world class business system to create sustainable competitive advantages.
Driving margin enhancement.
Levering, our balance sheet and positioning ultra to drive topline growth.
On that note, we feel really good about the growth opportunities ahead of us and expect the vast majority of topline growth in the near to mid term will come from organic initiatives that are already underway as.
As always we are grateful for the ongoing support of our customers partners and shareholders and we look forward to keeping you updated on our progress.
And with that we will now open up the call for questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press the pound or hash key please stand by while we compile the Q and a roster.
Yes.
Yes.
Your first question comes from Brian Blair with Oppenheimer. Your line is open.
Good morning, guys really solid quarter.
Thanks, Brian Thank you good morning.
I was hoping you could offer a little more color on distribution trends through Q3, I know July and August can be somewhat idiosyncratic, but.
How did September trend and what are you seeing in the early part of Q4.
Yes, so it's encouraging as you said you know July and August with the vacations and other things going on it's hard to tell.
But things did improve modestly in September and that has continued into October so.
With.
That if you look at the I assume numbers, it's no thats encouraging too.
Are we believe that the industrial production numbers kind of trail the I assume by six to nine months till the I assume numbers above 50 again.
It's it's very encouraging that the distribution channel start to pick up a little bit.
Okay very good and.
EBITDA margins were again strong highlights in Q3, if we.
If we think back to your your roadmap to 24% plus margin is there anything other than volume that isn't tracking.
Guess, along the same lines have you taken or are you taking now any structural cost actions that adobe onto the initial and estill model.
So we're still if I look at the guidance quite a $1.7 billion I will.
So put us under 3100 $40 million below where we were in 2019, so there's a significant.
Loan volume, that's still missing and needs to come back.
And that will help us with very high variable contribution margins, particularly on the ANS side too.
Can you continue to expand our margin profile as it relates to a structural cost initiatives.
We're doing what we said as part of the synergy piece. So we are in the middle of consolidating two facilities will actually closing one small one we are in the middle of.
Consolidating one in the UK so thats on plan, but in addition to that I think we have taken significant amount of cost permanent cost out of some of the business that so for instance, the oil and gas market.
Where we see a long road to recovery and debt.
And debt permanent headcount reduction that we have achieved so far is about $11 million on an annual basis.
Which is part of the $28 million that quoted of permanent cost reductions.
Got it okay.
Okay, and Carl you mentioned that.
Pipeline of cross selling opportunities.
Thats doubled at this point is there any more detail you can offer on that front.
How we should think about the additive growth potential going forward.
Yes. So those of you that are familiar with the.
The business system, we've made it a policy deployment initiative and of the sign somebody.
Probably six months ago, one of our.
High level sales managers to manage that as a policy deployment initiative.
And we've made some significant changes in the incentive compensation for cross selling initiatives for the salespeople.
We're developing training materials and we've got an app now where people if they have an opportunity. They can go to the app and find out who's the the right sales and engineering people to to communicate with.
So there's a lot of lot of work being done in that area and I think thats driving the increase funnel activity.
Excellent and Christian one one last one just kind of housekeeping, what's contemplated for working capital and your revised free cash guidance.
Flat between yearend yearend.
Okay.
Okay all right.
All right. Thanks, Brian.
Your next question comes from Jeff Hammond with Keybanc capital markets. Your line is open.
Hey, good morning, gentlemen.
Good morning, Good morning, Jeff.
Just on the.
The the shift into fourth quarter, I think you mentioned, maybe when would would back off a little bit, but I'm just trying to get a better sense of sequential momentum. It seems like China truck is going to be strong in North America, Europe truck getting better and it seems like you're kind of building momentum across a number of end markets. So just talk about.
Kind of sequential cadence and into Fourq you along those lines.
What we think that.
John truck market will remain strong in the fourth quarter, we think sequentially that market will be down.
A lot of what we see and in China is partially driven by.
What we call it internally cash for Clunkers program.
That will soon run out and so.
And so we think sequentially, we will see a decrease there. We also think sequentially, we're going to see a moderation in the China wind sales.
At the same time, we think all the pieces are coming back in a nice way to affirm guidance for instance.
When we look that bookings in that area. They have very strong so.
So Thats me.
Thats, mainly driving a modest sequential decline in topline and Jeff.
And just from a higher.
Higher level.
We do it as we roll up the business forecasts.
And all the business forecasts have risks risks and opportunities we discuss how.
How likely are those risks and opportunities to materialize.
And so then we get kind of a viewpoint of what the whole business looks like and then.
And then in the fourth quarter, it's all.
It's always highly variable depending on what our customers and distributors do with inventories in order patterns at the end of the year.
So we we try to balance all those things to come up with the.
What do we think is the best take on the fourth quarter.
We've also learned that the penalty for over achieving is significantly less than for under achieving.
Thank you for Okay, and then just.
Yeah, just on the you know that.
The year end buys and kind of restocking.
Is your guidance that people don't restock, because they don't have the they're not going to hit the rebates anyways or so.
So if we get any kind of restock that would be upside.
Yes, I think if we get restocked that will be enough. So we haven't really seen any.
Restocking at this point.
At least the anecdotal data we have different doesn't.
Doesn't indicate and we do get some real data.
It doesn't indicate any restocking so if that did happen that would be upside.
Okay now.
No I understand in the short term, you're still kind of working down the the leverage and internally focused but if we look out to 2021 and you start getting closer to the three times or below and then just looking at two years passed since they Ns deal.
Deal just how do you think how are you thinking about the portfolio. How are you thinking about potential divestitures, how are you thinking about.
Kind of rebuilding the pipeline and where do you see yourself doing deals.
Yes, so I think.
We said it before the size of the company now we can do I think a better job of portfolio management and so we we will.
And when the environment gets better.
Look at are there some businesses that.
That are lower margin lower growth and just don't fit the the portfolio anymore. I think we've said before it might be.
Product range of product lines and in combination maybe $50 million to $100 million you won't see us sell the whole business.
Right away, but but try to trim some things that may not.
Fit the portfolio long term I think the environment does have to improve it does feel like it is starting to that the M&A world is getting a little bit.
More active so.
And then on the other side, we want to pay down the debt as quick as we can so we're in a position that if the right thing does come along that we could.
That we could take advantage of it and participate.
Okay, and then just EBITDA comes up to and that helps the leverage ratio.
Okay, and then just last one as you look into 2021 and it seems like again, you know things are getting better and you've got you know couple.
A couple of years of easy comps.
Hi, just with the structural and the temporary cost kind of coming back like how should we think about it.
Incrementals for each of the segments versus you know say normal.
So I think with some of these cost reductions.
Think of travel think of medical expenses, which are lower than a year ago, they going up.
They're going to come back.
[music].
If I weigh all these these moving pieces I think you should look at income and Glenn from margins just in line with historical equipment margins.
While some of these costs are coming back we achieve permanent cost reductions that almost equal to those that are going to come back and you get the volume increase so.
So as as of now I would.
Look at this as your normal incremental margin profiles that we had another $100 million in revenues.
That would probably create somewhere in the range of $35 million to $40 million of incremental.
Operating income.
Okay. Thanks, so much guys. Okay. Thanks, Jeff.
Your next question comes from Mike Halloran with Baird. Your line is open.
Hey, good morning guidance.
Good morning, Mike do.
So maybe sticking on the 21 question, a little bit, but flipping over to the demand side of the equation you think about the run rate in the fourth quarter slightly lower sequentially doesn't seem all that different from.
With normal seasonality might look like how are you thinking about the underlying set up in the next year in terms of end markets puts and takes anything that you think is unsustainable from what we're seeing here any markets that you think have real inflection potential as we get into next year.
Yes, I think there's two.
Two key markets that.
That we're looking at one is the class eight trucks in China.
And does that cash for Clunkers program.
And when does it end and how big an impact is that now that's going to be offset by improving demand here in North America and Europe.
So that's one market, we're doing a lot of work on trying to figure out what this.
The what.
That will look like.
I think the other one is a medical market, where we took.
It took us a while to.
To ramp up so the second quarter, we didn't get the benefit of the co the equipment, the ventilators and respirators, but we did in the third quarter as we.
We ramp that up and now I think the strategic supplies of ventilators and respirators are are.
In good shape, so we will see a drop off on that.
On that Covance related equipment.
Unless there is another big.
Another big surgeon.
[music].
Really.
Terrible winter, which some people are predicting.
So those are two markets that we're looking at from a potential.
Downside.
On the upside or some other things that are going quite well, so turf and garden.
That's that's gone.
Better in the second half of the year I think the.
There was some concern from.
Our customers about their inventory levels at the beginning and with the stay at home activity and people buying and the housing market has been really really solid so.
So that market is expected to do better.
Then what we had predicted probably six months ago three to six months ago.
And then we're starting to see some activity in vertical lifting machinery.
So that hoists and cranes and some of those things.
Yes.
Does that.
Activity and logistics are being again.
So thats doing quite well, we hope that to the other side of the medical this.
The surgical metal medical equipment in that elective surgery started coming back again, and we can see that.
That part of the market improve.
Farm and AG is kind of a question Mark that we're trying to watch carefully and then the two that seem to have.
Also very solid, which we hope will.
Stay solid our defense and then specialty machinery and automation some segments of the automation business have been really good so hopefully as we people try to deal with the postcode good world.
Automation investments take off.
So if I if I net that all together it sounds like a little concern on the comps for medical obviously, the China piece on the on the class eight truck, but beyond that it seems like it's stable at a minimum with a bias for momentum upward for most of the pieces.
Yes, I think Thats fair oil and gas and commercial aerospace are probably the two exceptions to any bias towards momentum upwards.
Yes, no no that's definitely fair and then how to think about pricing from here, obviously price costs.
Price cost positive quarter. It still seems like you are in a good position from a pricing perspective.
Maybe some thoughts on on kind of twofold one.
You guys are going about in thinking about the pricing side of things across the pieces would would varies there and to how you guys. What are your views on conducive Miss of the market to accept pricing if we.
If we see commodities continue to move higher if you have other inflationary pressures.
So historically, we average somewhere around.
Don't know 75 to 90 basis points.
I think from enterprise.
Hundred basis points. This quarter was very strong last quarter was strong.
So it shows that we have pricing power even and.
In times of.
Economic.
Difficulties.
I think you're looking at next year, you probably should she was at historical average we have.
We have the benefit.
Within distribution price increases happen every year, that's a big part of our business.
That helps on the OEM side is certainly challenging to get price increases, but we tried to do that through upsells through.
No changes.
So I think Thats a fair assumption at this point.
Great I appreciate it thank you.
Thanks, Mike.
Your next question comes from Scott Graham with Rosenblatt Securities. Your line is open.
Hey, good morning outstanding quarter guys.
Thanks Scott.
I've got some questions around the costs so.
Christian you were kind enough to share your answer.
Annualized 60 million of cost out can you.
Push that out maybe a little bit further maybe kind of like up by segment I know. Additionally for example, you were shooting for.
In the 10 million dollar facility from four synergies from.
Yes kind of.
Where do you stand on that and just much more interested and just kind of how the cost reductions are falling by segment.
I would say.
By segment, it's about 60% on the unit side, 40% on the PGT side.
Got it.
And so you are expecting that difference, though the 60 versus the 28 to come back or is there something more to the mass.
Oh, so out of the 60 wishes annualized rate out of the 60, we think we realize this year about 55 million.
Out of the 60, we think 28 are permanent.
Will not come back next year.
It means about $32 million on an annualized basis will come back.
Next year.
What will come back.
Some travel Ics, we assume will return.
Medical expenses will start to normalize the furloughs that we introduced will not reoccur.
Some of the short work weeks that we introduce will not reoccur.
Those would be some examples of.
The cost of that will come back on the permanent side.
I mentioned permanent headcount reductions of about $11 million.
That won't come back.
Procurement savings that won't.
That will be permanent fund.
Facility cost savings.
That will some of those will be permanent some of those will come back next year.
We have made.
Progress in reducing our costs for outside services and professional services.
Some of that is permanent some of that will come back.
And if we add this all up is this.
32 $28 million.
That will.
Right.
Understood last question, you were kind enough Carl.
Carl to talk about sort of the cadence of.
Distribution coming out of the quarter I was hoping you could also do that for a couple of your other markets, namely.
Metals mining and the factory automation piece.
Yes, so metals.
We saw a little bit of an impact.
And.
It sounds like that the utilization of some of the mills is coming back up a little bit slow.
Slow and then.
Some of the activity like pipe for the oil and gas business just desk.
Thats going to come back for a while.
But we did see some increased activity in metals.
And then we've seen some nice projects in some in some of the mines around the world, but mostly.
Replacement parts and.
Some projects, but not wholesale let's go invest in.
Somewhere so that what we.
What was the other one all the automation space.
So semicon was particularly strong in the quarter and then that was.
No. It was just very very strong and.
And then some of the other specialty machinery and automation and some of the specialty machinery was also strong.
That's a good food processing.
Automation projects.
Yes.
C.
We did some and in medical there was a cryogenic.
Medical Transport Transportation project that we worked on there were some defense radar systems that were automated.
Some automation equipment on him.
Ship floaters as I mentioned earlier.
[noise] swing, where there was a whole lot of really good project work.
I guess, what I was wondering around about that was on factory automation in particular was no kind of how you're feeling over the last sort of 30 days you know even.
So while taking the last couple of weeks of September. The first couple of here in October just to understand that markets because.
You think that there is some good news that's been trickling out of that market I want to see if you were seeing the same thing.
Yes, no. It's been it's been good it was good through the whole quarter.
And we do expect it to improve we havent seen any big wholesale.
Oh Jeez, we've got to automate our whole factory because of Covidien, we want to really significantly reduced the number of people I think that will come eventually but.
But we have seen some very good project work in the automation space.
Through the quarter.
Very good thank you. Thanks.
Thanks, Scott, Let me correct I looked at the breakdown again.
The 60 million between ANS and BTT.
It's 10% of the 60 million as at the corporate level, 45% at the PTT and 40.
45% on the.
CNS side.
Thank you Christian.
All right our next.
Your next question comes from Joel Tiss with BMO. Your line is open.
Hi, guys. Thank you Darren.
Good Joel how are you.
All right. So one one practical question and then one little more maybe dream or question.
Are there other temporary cost reductions are those all pretty much reverse back to normal or or are you keeping it flexible because who knows what's going to happen.
So we're going to keep that flexible to the extent we can.
And they're not going to all snap back in one quarter, it's going to be gradual comeback a good example of that is.
Medical in the third quarter in the second quarter, all medical expenses were about $3 million less than in the prior year when we.
When we looked at the third quarter, there were about a $1.5 million less than in the prior year.
We're still on travel.
Still have close to zero travel expenses those will come back gradually over time.
Probably done with furloughs.
We're done unless we see something happen something happens, we're done with furloughs corporate wide.
We still have some places where we have salary reductions in place.
Depending on the local situation those.
Those will eventually come back.
So it's a gradual return.
Okay and then.
Just wondered like whenever you any company goes through kind of like a big kind of.
Have a shocking so.
Scenario, what do you what do you have you guys really learned about the long term margin potential you think that this company 10 years from now could be a 20% to 25% operating margin business or do you think that you'll get whatever you can get out of these businesses and and you are.
Going to still continue on your track of acquisitions to try to get the whole company up so.
Hey into the into the Twentys overtime.
So I think I'll all margin goal is at least for now and Thats. The goal that we set out when we.
We announced the merger two years ago.
That we have operating income margins in the low twentys.
And so so do you see you see the potential maybe for Thirtys then.
I'm just trying to get a sense of like what do you guys have learned through this through this process. Maybe there is a lot more to come out or more pricing or new products or or if it's too disruptive of an environment get back on that conclusion.
Yes.
I don't think that Thirtys with the cone portfolio is in the cards, but.
Low twentys is very well in the cards.
We set the goal to improve the margin by 400 basis points and I think if we get there we'll be we're really happy and then we'll set the goal.
The next goal maybe as we approached at 400 will set the next goal and I think you're right Joel that.
That it's it has to come from portfolio improvement and higher margin businesses that we would acquire.
To to really take it above you know another step function.
Okay perfect. Thank you.
Hi, again as a reminder, it is star one on your telephone keypad to ask a question you are now.
Your next question comes from John Franzreb with Sidoti and company. Your line is open.
Good morning, guys. Most of my questions have been addressed but I do have a question about the.
About the truck market do you guys participate at all in the class five to seven truck market and if not is that an opportunity for you.
It's a very little bit of that.
Of the market.
So we don't really see it has.
That's a big opportunity.
The bottom back on that.
That could be.
Okay.
Okay. That's all this is going to follow up I actually had I was just curious about the rebound in that market its impacting it.
Alright, thank thank you.
There are no further questions at this time I will now turn the call back over to CEO, Carl Christenson for closing remarks.
Okay, and thank you everyone for joining us today, and we will once again be on the virtual road this quarter, including attending Baird Global Industrials Conference on November 12.
We look forward to engaging with many of you in the months ahead and thank you again for your time.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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