Question · Q4 2025
Gunars Vinkels inquired about the potential for further gross margin expansion beyond the current mid-30% range, the implications of the new non-GAAP accounting basis on adjusted operating margins for both segments, and whether this change signals an increased appetite for the rate and pace of M&A.
Answer
CFO Heath Mitts explained that both transportation and industrial segments are largely achieving their 20% adjusted operating margin targets, with further expansion expected as volumes grow. Gross margins, at about 35% in 2025, would be recast to approximately 36% with the new accounting, which adds about 100 basis points of margin improvement, primarily impacting the industrial segment due to higher acquisition-related amortization. Regarding M&A, Mitts stated that the company is excited about bolt-on opportunities of varying sizes and that strong free cash flow provides optionality for a potentially more aggressive, yet smart, investment approach.