Q1 2024 Kadant Inc Earnings Call
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Yeah.
Speaker Change: Good day and thank you for standing by welcome to the cadence first quarter 2024 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated message adverse.
Speaker Change: Is it in your hands right.
Speaker Change: To withdraw your question. Please press star one one please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today, Michael Mckenney Executive Vice President and Chief Financial Officer. Please go ahead Sir.
Michael J. McKenney: Thank you Norma good morning, everyone and welcome to cadence first quarter 2024 earnings call.
Michael J. McKenney: With me on the call today is Jeff Powell, our President and Chief Executive Officer.
Speaker Change: Before we begin let me read our safe Harbor statement.
Speaker Change: Various remarks that we make today about cadence future plans and expectations financial and operating results and prospects are forward looking statements for purposes of the Safe Harbor provisions under private Securities Litigation Reform Act of 1095.
Speaker Change: These forward looking statements are subject to known and unknown risks and uncertainties that may cause our actual results to differ materially from these forward looking statements as.
Speaker Change: As a result of various important factors, including those outlined at the beginning of our slide presentation and those discussed under the heading risk factors in our annual report on Form 10-K for the fiscal year ended December 30, <unk> 2023, and subsequent filings with the Securities and Exchange Commission.
Speaker Change: In addition, any forward looking statements we make during this webcast represent our views and estimates only as of today.
Speaker Change: While we may elect to update forward looking statements at some point in the future. We specifically disclaim any obligation to do so even if our views or estimates change.
Speaker Change: This webcast, we will refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles a reconciliation of the non-GAAP financial measures.
Speaker Change: Cost directly comparable GAAP measures is contained in our first quarter earnings press release, and the slides presented on the webcast and discussed in the conference call, which are available in the investors section of our website at Www Dot KN Dot com.
Speaker Change: Finally, I wanted to note that when we refer to GAAP earnings per share or EPS and adjusted EPS on this call we're referring to each of these measures as calculated on a diluted basis.
Speaker Change: With that I'll turn the call over to Jeff Powell, who will give you an update on cadence business and future prospects. Following Jeff's remarks, I'll give an overview of our financial results for the quarter and we will then have a Q&A session. Jeff. Thanks, Mike Hello, everyone. Thank you for joining US This morning to review, our first quarter results and discuss our.
Jeffrey L. Powell: Business outlook for 2024.
Jeffrey L. Powell: Q1 was a solid start to 2020 for our acquisitions Kenai from AWS.
Jeffrey L. Powell: At the beginning of the year performed very well.
Speaker Change: Peter directly revenue for the first quarter.
Jeffrey L. Powell: Solid execution by our operations teams around the globe contributed to excellent adjusted EBITDA.
Jeffrey L. Powell: As expected demand in the first quarter moderated from the unprecedented record setting first quarter of last year as economic headwinds tempered manufacturing activity, particularly in Europe and Asia.
Jeffrey L. Powell: As you can see on slide six our Q1 revenue increased 8% to a record $249 million.
Jeffrey L. Powell: Our recent acquisitions and strong performance in our industrial process segment, where the drivers of this record revenue.
Jeffrey L. Powell: Our aftermarket parts revenue made up 69% of Q1 revenue and was up 13% to a record $171 million.
Jeffrey L. Powell: Solid operating performance led to an adjusted EPS of $2 38.
Jeffrey L. Powell: Justice EBITDA of $52 million, representing 21% of revenue.
Jeffrey L. Powell: All of our operating segments delivered excellent adjusted EBITDA margin performance despite inflationary pressures.
Jeffrey L. Powell: Cash flow in Q1, which is historically, a weaker quarter decreased 38% to $23 million compared to last year's record cash flow for the first quarter, while free cash flow was $17 million.
Jeffrey L. Powell: As expected bookings softened in the first quarter, primarily due to reduced capital project activity.
Jeffrey L. Powell: I'll provide more details about this when I discuss each of our operating segments, beginning with our flow control segment.
Jeffrey L. Powell: Our flow control segment experienced solid demand in the first quarter for both parts and capital equipment, particularly in North America bookings.
Jeffrey L. Powell: Bookings of $95 million were strong however, they were down 9% compared to the record performance of Q1 last year.
Jeffrey L. Powell: Q1 revenue declined 3% to $87 million.
Jeffrey L. Powell: Partly due to fewer capital shipments in the first quarter compared to the same period in the prior year.
Jeffrey L. Powell: Aftermarket parts revenue made up 74% of Q1 revenue and is expected to remain stable as the year progresses.
Jeffrey L. Powell: Adjusted EBITDA declined 9% of our adjusted EBITDA margin of 27, 8% was down due to lower operating leverage.
Jeffrey L. Powell: As many of you know the first quarter of the year is often our strongest quarter for our flow control segment in terms of bookings.
Jeffrey L. Powell: As our customers prepare for annual spring maintenance shutdowns.
Jeffrey L. Powell: We do expect to deliver strong performance again, this year and our flow control segment.
Jeffrey L. Powell: Yes.
Jeffrey L. Powell: Turning now to our industrial processing segment on slide eight.
Jeffrey L. Powell: We can see the positive effects from our recent acquisition of <unk>, which became a key part.
Jeffrey L. Powell: Beginning in the first quarter.
Jeffrey L. Powell: Q1 revenue was up 27% to a record $106 million in aftermarket parts revenue made up 69% of total revenue in the segment.
Jeffrey L. Powell: Excluding the impact of FX and the acquisition revenue was up 7% compared to the same period last year.
Jeffrey L. Powell: Q1 bookings were down 7% compared to the prior year period, reflecting the recent moderation of capital orders in this segment.
Jeffrey L. Powell: However, there is significant capital project activity developing in this segment and we expect to convert a good portion of those active projects into orders as the year progresses.
Jeffrey L. Powell: Improved operating leverage and contributions from our recent acquisition led to record adjusted EBITDA of $27 million and adjusted EBITDA margin of 25, 5%.
Jeffrey L. Powell: Overall, we had a good start to the year expect to see solid performance from this segment in the months ahead.
Jeffrey L. Powell: And our material handling segment, we experienced solid demand for aftermarket parts and benefited from our acquisition of AWS manufacturing completed at the end of January.
Jeffrey L. Powell: Revenue of 56 million was flat compared to the prior year period and was negatively impacted by some customer delays in shipments as well as softness in capital equipment revenue.
Jeffrey L. Powell: Demand for capital equipment was down from the record performance set in the prior year period, which included an unusually large capital order.
Jeffrey L. Powell: However, we believe the weaker capital order activity in the quarter was largely due to timing as project activities remains relatively strong.
Jeffrey L. Powell: Adjusted EBITDA margin of 23% of revenue was down 170 basis points from the same period last year due largely to reduced operating leverage associated with lower organic revenue.
Jeffrey L. Powell: The outlook for this segment remains positive as the end markets. We serve are fundamentally strong.
Jeffrey L. Powell: As we look to the second quarter of 2024 and the full year.
Jeffrey L. Powell: Our healthy balance sheet and ability to generate robust cash flows have us well positioned to fund growth as the year unfolds.
Jeffrey L. Powell: We expect industrial demand has strengthened in certain regions and remained stable and others as the year progresses.
Jeffrey L. Powell: We remain focused on accelerating profitable growth in our core markets expect to deliver strong financial performance again this year.
Jeffrey L. Powell: Mike will discuss this in more detail and with that I'll turn the call over to Mike.
Mike: Thank you Jeff.
Mike: I'll start with some key financial metrics from our first quarter.
Mike: Gross margin was 44, 6% in the first quarter 'twenty four.
Mike: Up 20 basis points compared to 44, 4% in the first quarter 'twenty three.
Mike: The gross margin in the first quarter 'twenty four was negatively affected by the amortization of acquired profit and inventory related to our recent acquisitions, which lowered gross margin by 90 basis points.
Mike: Excluding the impact of the amortization of acquired profit and inventory gross margin in the first quarter of 'twenty. Four was 45, 5% up 110 basis points compared to the first quarter of 'twenty three.
Mike: This is one of the highest gross margins in our recent history due in part to higher margins achieved in our industrial processing segment, I am parts and consumables as well as the mix of capital projects in the quarter.
Mike: Also contributing to improved gross margin was a higher overall percentage of parts and consumables revenue, which represented 69% of revenue in the first quarter of 24 compared to 66% in the prior year.
Mike: SG&A.
Mike: <unk> expenses as a percentage of revenue increased to 28, 2% in the first quarter 'twenty four compared to 25, 5% in the prior year period.
Mike: Higher percentage in the first quarter 'twenty four is due in part to the nonrecurring acquisition related costs.
Mike: In addition, the first quarter revenue represents the lowest quarterly revenue, we expect for the year.
Mike: SG&A expenses were $70 3 million in the first quarter 24, an increase of $11 7 million compared to $58 6 million in the first quarter 'twenty three.
Mike: This included an increase of $7 3 million from our acquisitions.
Mike: $1 9 million from acquisition related costs, and a <unk> 2 million unfavorable foreign currency translation effect.
Mike: Excluding these items SG&A expenses were up $2 3 million or 4%.
Mike: Compared to the first quarter 'twenty, three primarily due to annual wage and incentive increases.
Mike: Our effective tax rate in the first quarter was 23, 9% and included tax benefits related to divesting of equity awards, which lowered the effective tax rate by one 5%.
Mike: Our GAAP EPS decreased 13% to $2 10 in the first quarter compared to $2 40 in the first quarter 'twenty three due to acquisition related costs in the current period.
Mike: Our adjusted EPS decreased 1% to $2 38.
Mike: Which exceeded the high end of our guidance range by 38 due to several factors.
Mike: Gross margin was stronger than anticipated and we had higher than anticipated revenue, especially for our aftermarket products and our industrial processing segment.
Mike: In addition.
Mike: The operating results for our acquisitions were better than expected.
Mike: We closed our <unk> acquisition at the beginning of the first quarter and our <unk> acquisition in late January and the integrations are going well as Jeff mentioned earlier.
Mike: Adjusted EBITDA increased 8% to $52 2 million compared to $48 6 million in the first quarter 'twenty three driven by strong performance in our industrial processing segment.
Mike: This segment had record adjusted EBITDA due to contributions from its recent acquisition and improved performance at our other wood processing businesses.
Mike: As a percentage of revenue adjusted EBITDA was 21% compared to 21, 1% in the first quarter 'twenty three.
Mike: Operating cash flow at $22 8 million was lower than the prior two quarters due to an increase in working capital requirements and down 38% compared to the first quarter 'twenty three.
Mike: Free cash flow was $16 6 million in the first quarter 'twenty four down 49% compared to the first quarter 'twenty, three which was a record for first quarter cash flows both in operating and free cash flow.
Mike: We expect higher cash flows for the remaining quarters of the year and overall anticipate strong cash flows for 24.
Mike: We paid $232 3 million net of cash required for our acquisitions of Kenai and kw asks in the first quarter.
Mike: We borrowed 234 million, mainly to fund our acquisitions and we also repaid $33 million of our debt in the first quarter of 'twenty four.
Mike: Other non operating uses of cash in the first quarter 'twenty four included $6 3 million for capital expenditures three 4 million for dividends on our common stock and $5 9 million for tax withholding payments related to divesting of stock Awards.
Mike: Sure.
Speaker Change: Let me turn next to our EPS results for the quarter.
Speaker Change: In the first quarter 'twenty four GAAP EPS was $2.10 and after adding back <unk> 28 of acquisition related costs adjusted EPS was $2 38.
Speaker Change: In the first quarter of 'twenty, three GAAP and adjusted EPS were $2 40.
Speaker Change: The decrease of <unk> <unk> and adjusted EPS in the first quarter 'twenty four compared to the first quarter 'twenty. Three includes increases of 21 cents from our acquisitions 18 due to higher gross margins.
Speaker Change: <unk> due to a lower tax rate.
Speaker Change: These increases were offset by 18 due to higher operating expenses 14, due to lower organic revenue 13, due to higher interest expense and <unk> <unk> due to higher weighted average shares outstanding.
Speaker Change: Yes.
Speaker Change: Collectively included in all the categories I just mentioned.
Speaker Change: Was a favorable foreign currency translation effect of <unk> in the first quarter 'twenty four compared to the first quarter last year due to the weakening of the us dollar.
Speaker Change: Looking at our liquidity metrics on slide 15.
Speaker Change: Our cash conversion days, which we calculated by taking days in receivables plus days in inventory and subtracting days in accounts payable decreased to 128 at the end of the first quarter 'twenty four compared to 136 at the end of the first quarter of 'twenty three due to a lower number of days in inventory.
Speaker Change: Working capital as a percentage of revenue was 15, 7% in the first quarter 'twenty four compared to 15, 6% in the first quarter of 'twenty three.
Speaker Change: Our net debt that is debt less cash increased to $223 million sequentially.
Speaker Change: Increased $223 million sequentially to $227 million at the end of the first quarter 'twenty four due to borrowings from the two acquisitions.
Speaker Change: Our leverage ratio calculated in accordance with our credit agreement increased to $1. One two at the end of the first quarter 'twenty four compared to <unk> seven at the end of 'twenty three.
Speaker Change: At the end of the first quarter 'twenty, four we had $102 million of borrowing capacity available under our revolving credit facility and an additional $200 million of uncommitted borrowing capacity.
Speaker Change: Now I'll update our guidance for 'twenty four.
Speaker Change: We are maintaining our full year revenue guidance of $1 billion $40 million to $1 billion $65 million and our adjusted EPS guidance of $9 75 to $10 five.
Speaker Change: Which excludes 36 of acquisition related costs.
Speaker Change: We now expect GAAP EPS of $9 39 to $9 69.
Speaker Change: Revised from our previous guidance of $9 55 to $9 85.
Speaker Change: Which had assumed acquisition related costs of 20.
Speaker Change: 2024 guidance includes an unfavorable foreign currency translation impact of approximately <unk> $9 million in revenue and one on adjusted EPS.
Speaker Change: This represents a reduction of 16 from.
Speaker Change: Our prior forecast due to the strengthening of the U S dollar against other currencies.
Speaker Change: Our revenue guidance for the second quarter 'twenty, four is $258 million to $266 million and our adjusted EPS guidance is $2 40 to $2 50.
Speaker Change: Which excludes <unk> <unk> of amortization expense associated with acquired profit inventory and <unk> related to acquired backlog.
Speaker Change: Our 2024 guidance assumes amortization expense related to acquired profit and inventory will be completed in the second quarter and an additional <unk> <unk> of.
Speaker Change: Of amortization expense associated with acquired backlog in the third quarter.
Speaker Change: Excluding acquired backlog.
Speaker Change: The 2020 for intangible amortization expense associated with the acquisition is 46.
Speaker Change: Both GAAP and adjusted EPS guidance include our initial estimates of purchase accounting adjustments, which are subject to change as we review and finalize the valuation work for these acquisitions.
Speaker Change: While we are maintaining our revenue and adjusted EPS guidance for 'twenty four we remain cautious and continue to monitor risks to our guidance.
Speaker Change: Requests for capital project proposals are high but the timing for finalizing orders is uncertain, especially in certain regions like China, where securing financing can be a challenge.
Speaker Change: As a result, the timing for large capital projects can shift by quarter with some potentially moving to next year.
Speaker Change: In addition, central Bank policy response to inflation and the impact on the U S dollar and other currencies can have a significant impact on our guidance.
Speaker Change: Our 24 guidance currently includes a onetime unfavorable foreign currency translation effect, which represented a 16% decrease from our previous guidance.
Speaker Change: Further strengthening or weakening of U S dollar will impact this estimate.
Speaker Change: We continue to anticipate gross margins for 'twenty four it will be $43 five to 44, 5%.
Speaker Change: As a percent of revenue, we still anticipate SG&A will be approximately $25 five to 26, 2% and R&D expense will be approximately one three to one 4% of revenue.
Speaker Change: We now expect net interest expense of approximately 17% to $17 5 million down from our previous guidance of 18 to $18 5 million as a result of faster debt paydowns than originally forecast.
Speaker Change: We continue to expect our recurring tax rate will be approximately $26 five to 27, 5% from 24.
Speaker Change: And we continue to expect depreciation and amortization will be approximately $46 million to $48 million.
Speaker Change: And we are maintaining our capex guidance spending of $29 million to $31 million.
Speaker Change: That concludes my review of the financials and I will now turn the call back over to the operator for our Q&A session pharma.
Speaker Change: As a reminder to ask a question you will need to press star one on your telephone to withdraw.
Speaker Change: Your question. Please press Star one again, please wait for your name to be announced please standby, while we compile the Q&A roster.
Speaker Change: One moment for your first question. Please.
Speaker Change: Our first question comes from the line of Ross <unk> with William Blair. Your line is now open.
Ross: Hey, good morning, guys.
Ross: Good morning Ross.
Ross: Surprising strength in the aftermarket, particularly given the concerns coming into the year that there is a pull forward late last year.
Ross: Can you just help parse out some of the drivers here during the quarter and how are we thinking about price and volume for aftermarket for 2024, I know there seems to be a continuation of customer mothballing across key markets and just trying to gauging out at what point Theres, a broader capacity reduction begin to outweigh volume growth.
Speaker Change: I think in general Ross as you know our parts consumables to kind of a function of operating rates in the operating rates really vary quite a bit around the world right now.
Ross: North America, Theyre, holding up I think reasonably well.
Ross: I would say the lowest operating rates are in China, right, now, which is still struggling to kind of recover from there.
Ross: Pandemic policies.
Ross: Coming out of that.
Ross: And then Europe.
Ross: Varies but some of the major economies in Europe, Germany, and the UK are certainly very slow and maybe technically in recession. So the rates are very fair amount around the.
Ross: Around the World I do think that for a while a lot of our customers were operating off of existing inventory.
Ross: There was certainly some pull forward in some areas, but I think a lot of people also where we're running running their stores lean and so theyre starting to replenish those.
Ross: And so I think we're benefiting from that and then some of the markets. There are some markets. We have the OSB in particular, but it's still running very strong.
Ross: Surprisingly strong so.
Ross: There's kind of.
Ross: A fair amount of I.
Ross: Say disparity around the globe, but all in all Theyre hanging in there and as you know Thats a big focus of ours. So we're constantly working to pick up market share.
Ross: And the spares and consumable piece.
Speaker Change: Yeah, no that's very helpful.
Speaker Change: Can you maybe just also help frame the sensitivity of your equipment sales of your guidance I know you kind of step that the comments.
Speaker Change: Any updated color on customer conversations as we think about potential second half recovery.
Ross: And then maybe any nuances that we should be thinking about in regards to strength in maintenance and rebuilds versus greenfields.
Ross: So there is there is a couple of things first of all as you know many of our customers were quite busy during the during the pandemic and really ran their equipment very hard and then also a lot of our equipment as we analyze the average age of our equipment and a lot of our markets equipment is getting quite old. So we there is an awful lot of discussions and activity and I would say quotes going on.
Ross: The issue is I think everybody's in the same in the same boat. They are all waiting to get more visibility and clarity on when things are going to start to turnaround and strengthen its very much driven by interest rates.
Ross: Obviously in the U S. In particular, the economy doesn't seem to be responding are acting the way the fed had expected and so rates are holding maybe higher longer than I think a lot of people had thought.
Ross: But I do think that at some point they will start to reduce rates and I think there is a fair amount of pent up demand in many of our markets.
Ross: As well as kind of old tired equipment that will need to be upgraded and so we think that the underlying fundamentals are still quite strong. It's just a question of timing as to when people get confident enough.
Ross: Things have bottomed out and are starting to turn around to start making those investments.
Speaker Change: Yes, I mean, it looks like you have the.
Ross: Backlog for the guidance this year, but when we think about the magnitude of these projects I mean is the expectation that we could see still a sustained growth in 2025 I know, it's still very early but that's where the investor interest is right now.
Ross: Well, it's a function of when the when the orders get booked Ross for sure and that I think we are looking at.
Ross: We are.
Speaker Change: Cautiously optimistic that in the back half of the year here, we're going to start to see.
Speaker Change: Capital bookings really start to firm up.
Speaker Change: Okay.
Speaker Change: Meaningful pipeline here.
Speaker Change: On the project side that Youre speaking there is.
Speaker Change: There is.
Speaker Change: A lot of projects on the board.
Speaker Change: Awesome, that's perfect I'll jump back in queue. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: One moment for our next question please.
Speaker Change: Our next question comes from the line of Kurt Yinger with D. A Davidson your line is now open.
Kurt Willem Yinger: Alright, thanks, and good morning, everyone.
Kurt Willem Yinger: Hi, Kurt sounded like perhaps the commentary around industrial processing and material handling.
Kurt Willem Yinger: Pointing to maybe an expectation for improved booking trends, particularly on capital in the coming quarters, I guess am I interpreting that correctly or.
Kurt Willem Yinger: Is the expectation still that that's more of a back half type phenomenon.
Speaker Change: No youre right on there.
Speaker Change: Kurt.
Speaker Change: Industrial processing has some.
Kurt Willem Yinger: I think we may see things that'll be the earliest and there are also some good projects in material handling, but I think industrial processing is the one that really stands out to me is having some projects coming up earlier.
Kurt: Got it okay makes sense.
Kurt Willem Yinger: In terms of.
Kurt Willem Yinger: The strong gross margins it sounded like industrial processing was kind of a standout there anything really noteworthy to call out there I mean, maybe the strength in OSB you referenced was beneficial from a mix perspective.
Kurt Willem Yinger: Is that something that can kind of prove sustainable do you think.
Kurt Willem Yinger: Okay.
Kurt Willem Yinger: Yeah.
Kurt Willem Yinger: Kurt.
Kurt Willem Yinger: I gave a lot of credit I thought the industrial.
Kurt Willem Yinger: Processing segment performance was just outstanding.
Kurt Willem Yinger: But our gross margins improved across the board for us and all three segments.
Kurt Willem Yinger: So I was very very happy to see that and we.
Kurt Willem Yinger: It was very good in parts and consumables, but we also had broadly amongst the segments.
Kurt Willem Yinger: Favorable mix and capital projects that went through so good gross margins also on our capital projects.
Speaker Change: Got it okay, and I'm not sure if I missed that I apologize if I did.
Speaker Change: Kind of the full year outlook for gross margins I guess maintained on that 43, and a half to 44, 5% range and I guess, if we were to think about coming down from Q1 is that primarily a mix factor just in shifting more back towards capital or anything else.
Speaker Change: <unk>.
Speaker Change: I guess it could.
Speaker Change: Dampen us from the elevated Q1 level that we just saw.
Speaker Change: You are correct, Kurt it's really a function of just having more capital in the mix.
Speaker Change: And I and I also wanted to.
Speaker Change: Point out that that guidance range of 43 five to four.
Speaker Change: <unk> 44 or five.
Speaker Change: Has the inventory write up.
Speaker Change: The impact of that in there which is.
Speaker Change: About probably 25 basis points for the year something like that.
Speaker Change: Got you so that would be I guess, the GAAP gross margin not the adjusted correct. If the gap is the GAAP gross margin I thought that would be the most useful to put out.
Speaker Change: Got it okay that makes sense.
Speaker Change: And then in turn it looked like Kenai and kw U S.
Speaker Change: Order of magnitude.
Speaker Change: Contributed maybe $24 million to $25 million in bookings and sales this quarter.
Speaker Change: Any way to think about kind of the split of that between.
Speaker Change: Aftermarket parts and consumables versus versus capital.
Speaker Change: Well.
Speaker Change: <unk> is essentially all parts and consumables.
Speaker Change: Split.
Speaker Change: <unk> is about 60 40 with 64 at ABN.
Speaker Change: Parts. So however, you are building your model you can use.
Speaker Change: Use that as a way to parse it.
Speaker Change: Okay makes sense.
Speaker Change: And then just lastly.
Speaker Change: There are two.
Speaker Change: Big deals in the containerboard space, the consolidation of some European and U S. Players.
Speaker Change: How do you think about any potential impacts to your business from that and I guess longer term any thoughts around.
Speaker Change: Kind of the implications of just continued consolidation in some of your key forest product customer base.
Speaker Change: Yes.
Speaker Change: You, obviously know Curt Theres been a fair amount of consolidation for actually going on for quite some time.
Speaker Change: The overall global demand continues to grow.
Speaker Change: But I actually think it's a positive thing for US I think it's positive for the industry because they do a better job in balancing supply and demand they do a better job.
Speaker Change: I think in controlling pricing and improving their profitability and from our perspective.
Speaker Change: We always want our customers to be profitable as possible because then they have the.
Speaker Change: The capital.
Speaker Change: To invest in their business.
Speaker Change: So for us.
Speaker Change: I think generally speaking consolidation is good because it increases the profitability of the industry and the increases there there are opportunities to invest to continue to drive efficiencies.
Speaker Change: And they're a big customer of ours, obviously, if you're talking about IP and west rock both of them are quite quite big customers of ours. So I.
Speaker Change: I actually look at it as ultimately as a as a positive thing because it will improve the overall health of the industry.
Speaker Change: Makes sense alright, I appreciate the color guys and good luck here in Q2.
Speaker Change: Okay. Thank you. Thank you one moment for our next question. Please.
Speaker Change: Our next question comes from the line of Gary <unk> with Barrington Research. Your line is now open.
Gary: Good morning, Jeff and Mike how are you.
Gary: Very good.
Gary: Okay couple of questions here first of all Mike.
Gary:
Gary: The DNA for this quarter did not reflect I believe a full quarter run rate from the acquisitions can you give us an idea of what the DNA wood.
Gary: Would be on an annual basis or even a quarterly basis with the full effect of.
Gary: These acquisitions.
Gary: Yes.
Speaker Change: Well the most important part.
Speaker Change: So that to me is on the recurring amortization and right now we have that at about $7 2 million.
Speaker Change: Annually.
Speaker Change: So you can.
Speaker Change: We maintained our guidance range on the DNA, but that will hopefully help you in terms of.
Speaker Change: The valuations are still open, but I think we're closing in on finalizing.
Speaker Change: Okay.
Speaker Change: And then given given the environment, you're operating in right now, especially with the capital projects.
Speaker Change: A.
Speaker Change: Choppy.
Speaker Change: Wood.
Speaker Change: The acquisitions that you've made this year do you think you can keep your parts and consumable revenues as a percentage of revenues in the high <unk> low <unk> throughout the year.
Speaker Change: Yeah.
Speaker Change: Well as we go through the year.
Speaker Change: <unk>.
Speaker Change: We're looking at capital, increasing so I would say.
Speaker Change: We will probably be in the kind of.
Speaker Change: 62% to 65% range as we go through the remainder of the year by quarter.
Speaker Change: Cool.
Speaker Change: Okay.
Speaker Change: And then lastly, just on.
Speaker Change: Adjusted EBITDA, because thats, how I look at your company and then you may have mentioned this or not in the guidance did you give an adjusted EBITDA margin.
Speaker Change: Number for this year in terms of what his.
Speaker Change: Part of your guidance.
Speaker Change: No I haven't.
Speaker Change: I, usually do not do that because well one Gary wood with the with the guidance Ive given out you can you can back into it right you have all the pieces to back into it but I will say very broadly that.
Speaker Change: Yes.
Speaker Change: The guidance range that we've given out wood.
Speaker Change: Youll feel when you calculate that youll find.
Speaker Change: We're about 21% ish.
Speaker Change: Yes, that's what I say, okay. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you as a reminder to ask a question you will need to press star one one telephone and wait for your name to be announced.
Speaker Change: And it looks like I'm currently showing no further questions at this time I'll hand, the conference back over to Mr. Paul for any closing remarks.
Paul: Thank you very much.
Paul: So before wrapping up the call today I just wanted to leave you with a few takeaways. The first quarter was a solid start to 2024.
Mr. Paul: Continued economic uncertainty our employees around the globe continue to focus on meeting our customers' needs and finding new way to deliver long term value to our stakeholders.
Mr. Paul: Our financial health is excellent and our ability to generate strong free cash flow has us well positioned to quickly pay down the debt associated with our recent acquisitions.
Mr. Paul: We look forward to delivering exceptional value for our stakeholders again in 'twenty four.
Speaker Change: Thank you for joining us today, and we look forward to updating you on our progress next quarter.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Okay.
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