John Franzreb

John Franzreb of Sidoti & Company inquired about the differing trends in CTS's medical market, specifically the 60% growth in therapeutics versus softness in diagnostics. He also asked about the financial impact of tariffs, the outlook for the transportation market, the integration progress of the SciQuest acquisition, other cost-saving initiatives, and the current M&A landscape.

Answer

CEO Kieran O’Sullivan explained that strong therapeutic sales were driven by a large order, while diagnostic softness stemmed from capital spending in Asia and potential tariff effects, though he expects overall medical growth for the year. CFO Ashish Agrawal noted that the tariff impact was minimal in Q2. Regarding transportation, Mr. O'Sullivan described a mixed regional outlook with potential bottoming in China but ongoing caution due to tariffs. He confirmed the SciQuest integration is proceeding well, with a focus on growth rather than cost savings. For M&A, Mr. O'Sullivan stated CTS is actively exploring opportunities in diversified markets and aims to complete a deal within 12 months to support its inorganic growth targets.

John Franzreb of Sidoti & Company, LLC inquired about the drivers behind strong Q1 bookings, particularly whether pre-buying ahead of tariffs was a factor. He also asked about any changes to transportation market assumptions, the expected cadence of profitability for the remainder of 2025 to meet guidance, the reasons for the Q1 SG&A increase, and the outlook for seasonality, CapEx, and the tax rate.

Answer

CEO Kieran O'Sullivan clarified that strong Q1 bookings were driven by medical therapeutics and defense, not pre-buying, and that the company hasn't factored a demand drop from tariffs into its guidance. He explained that profitability is expected to ramp through the year, aided by the SyQwest acquisition's seasonality and favorable product mix. CFO Ashish Agrawal attributed the SG&A increase primarily to the SyQwest acquisition, including amortization, and confirmed the company is managing discretionary spending. Agrawal also noted that normal seasonality will be affected by SyQwest's second-half strength, and confirmed the CapEx budget is around 4% of sales and the tax rate guidance is 19-21%.

John Franzreb of Alliance Global Partners inquired about the potential impact of tariffs on CTS's operations, the expected revenue contribution from the SyQwest acquisition in the 2025 guidance, and the company's outlook for the Class 8 truck market.

Answer

CEO Kieran O'Sullivan stated that CTS is proactively mitigating potential tariff impacts by working with customers and suppliers, leveraging its global footprint and past experience. For the 2025 guidance, he noted that SyQwest is expected to show solid growth, contributing to an overall forecast of 1% to 7% company growth, with transportation declining slightly and diversified markets growing in the high single digits. O'Sullivan also indicated that the commercial vehicle market is expected to experience softness throughout 2025.

John Franzreb of Sidoti & Co. asked about the drivers for the strong Q3 gross margin, the sequential decline in R&D spending, the financial contribution of the SyQwest acquisition, the market outlook for 2025, and the company's strategy for future M&A and debt repayment.

Answer

CEO Kieran O'Sullivan and executive Ashish Agrawal explained that the gross margin improvement was driven by a strategic shift in sales mix towards diversified markets, favorable foreign exchange rates, and factory efficiencies. Ashish Agrawal clarified that the R&D drop was due to the timing of customer reimbursements. Regarding SyQwest, it contributed $3.6 million in Q3 sales and is accretive at the EBITDA level but slightly dilutive to EPS in the short term. Kieran O'Sullivan noted that while a detailed 2025 outlook will come later, they see positive trends in industrial and defense but near-term softness in medical and transportation. He also confirmed the company remains active in its M&A pipeline to support diversification, with Ashish Agrawal adding that M&A and buybacks are higher priorities than aggressive debt repayment.

John Franzreb asked about the drivers behind Precoat Metals' improved performance in September, the revenue contribution from the Washington facility in full-year guidance, and the impact of rebounding zinc prices.

Answer

SVP and CFO Jason Crawford attributed Precoat's September strength to month-to-month fluctuations, inventory buying patterns, and a healthy construction season. He did not provide specific Washington facility revenue guidance due to variations and shared volume. President and CEO Tom Ferguson noted that rising zinc prices create opportunities but have minor impact on current year margins due to 6-8 months of inventory, influencing next year's plans.

John Franzreb asked about the specific drivers behind the observed recovery in Precoat Metals during September. He also sought an update on the revenue contribution from the Washington facility embedded in the full-year guidance and commentary on the recent sharp rebound in zinc prices.

Answer

Jason Crawford, SVP and CFO, attributed Precoat's September strength to month-to-month fluctuations, inventory buying patterns, and customers looking for a healthy end to the construction season. He did not provide specific revenue numbers for the Washington facility, noting its ramp-up is progressing well and is built into overall guidance, with flexibility to use volume from its St. Louis sister facility. Tom Ferguson, President and CEO, acknowledged the zinc price rebound, stating it creates opportunities for value pricing but has minor impact on current year margins due to 6-8 months of inventory. He expects it to be a talking point for next fiscal year's guidance.

John Franzreb from Sidoti & Company asked about the current momentum of the order book given the macroeconomic environment and questioned how to think about zinc supply in the current tariff environment.

Answer

Executive Tom Ferguson described field reports as optimistic, with projects moving forward and customers confirming capacity for Q1 and Q2. Executive Jason Crawford noted that sentiment at recent industry forums has been upbeat. Regarding zinc, Executive David Nark clarified that zinc is on the tariff-exempt list, the vast majority of AZZ's supply is from North America, and suppliers have expressed no concerns about availability.

John Franzreb asked about the sustainability of the Metal Coatings segment's high margins, the seasonality and outlook for the AVAIL JV income, and the progress on securing customers for the new Washington, Missouri plant beyond the anchor tenant.

Answer

CEO Thomas Ferguson stated that the Metal Coatings segment's strong margin performance is sustainable due to fundamental operational discipline and zinc productivity, and the company is considering resetting its target margin range upwards. He confirmed the AVAIL JV has seasonality but possesses a very strong backlog on its electrical side. Regarding the new plant, Ferguson noted that filling the remaining capacity looks 'really good,' with opportunities to optimize production between the new facility and the existing St. Louis plant.

John Franzreb from Sidoti & Company asked about AZZ's capacity to handle hurricane reconstruction work in the Southeast, the timing of such a ramp-up, the impact of zinc price volatility on the current pricing environment, and the reason for the sequential dip in JV income.

Answer

Executive Thomas Ferguson confirmed that AZZ's facilities in Virginia, South Carolina, Alabama, Tennessee, and Mississippi are well-positioned to support rebuilding efforts, with a typical 3-to-6-month lag before reconstruction demand ramps up. Regarding zinc, he explained that while volatility exists, AZZ's pricing is largely disconnected from the underlying commodity cost, though rising zinc prices can make it easier to increase overall service prices. He clarified that the lower JV income was a timing issue and expressed confidence it would rebound, maintaining the full-year guidance.

John Franzreb inquired about any changes in Methode Electronics' tariff expectations since the last quarter, the progress of restructuring actions and what to expect in fiscal 2026, and the outlook for Class A truck and construction end markets based on customer feedback.

Answer

President and CEO John DeGaynor stated there has been no change in tariff expectations, with a minimal $1 million impact in the quarter, mostly timing-related. He noted that the current tariff regime is creating new RFQ opportunities for their USMCA-compliant facilities. On restructuring, Mr. DeGaynor indicated that leadership team transformation and headquarters consolidation are on track for completion by mid-fiscal year, with ongoing efforts to reduce structural costs globally and a headcount reduction of approximately 500 people contributing to EBITDA growth. For end markets, he noted continued softness in commercial vehicle and ag/construction, but expects a rebound in commercial vehicles in 2026, with increased RFQs for lighting and interest in power solutions due to improved execution.

John Franzreb inquired about any changes in Methode's tariff expectations since the last quarter. He also asked for an update on the progress of restructuring actions, specifically whether the company has addressed the 'low-hanging fruit' and what to expect in fiscal 2026. Finally, he sought management's thoughts on the outlook for Class A truck and construction end markets based on customer feedback.

Answer

President and CEO John DeGaynor stated there has been no change in tariff expectations, with minimal impact in the quarter, and that the current tariff regime is creating new RFQ opportunities due to USMCA compliance. Regarding restructuring, Mr. DeGaynor confirmed that the headquarters consolidation is on track for completion by mid-fiscal year, and ongoing structural cost reductions, including headcount reductions in Mexico and Egypt, continue. He noted no new material actions beyond these. For end markets, Mr. DeGaynor indicated continued softness in commercial vehicle and ag/construction sectors, with ACT forecasting a 5% decline for commercial vehicles but a rebound in 2026. He added that improved execution is leading to increased RFQs and interest in power solutions for these segments.

John Franzreb inquired about any changes to Methode Electronics' tariff expectations since the last quarter and the progress of restructuring actions, including expectations for fiscal 2026. He also asked about the outlook for Class A truck and construction end markets.

Answer

CEO Jonathan DeGaynor confirmed no significant change in tariff expectations, noting a minor timing impact of $1 million in the quarter. He highlighted that the current tariff regime is creating new RFQ opportunities for USMCA-compliant facilities in North America. Regarding restructuring, he stated headquarters consolidation is on track for mid-fiscal year completion, with ongoing global structural cost reductions and approximately 500 headcount reductions. For end markets, he indicated continued softness in commercial vehicle, ag, and construction, but noted gaining new business due to improved execution and increased RFQs.

John Franzreb from Sidoti & Company inquired about the composition of the '$48 million net other launches' figure in the sales bridge, asking if it included pricing benefits. He also asked if fiscal 2026 guidance assumes growth in the industrial business, how the Nordic Lights acquisition was performing, and for a timeline on future transformation initiatives like plant consolidation and portfolio reviews.

Answer

CEO Jonathan DeGaynor clarified that the reduction in the 'net other launches' figure was due to other EV program delays and cancellations, not a failure to secure pricing. He confirmed that the company expects growth in the industrial segment, particularly from data centers and lighting, aiming for a 50/50 split between automotive and other businesses. He expressed pride in the Nordic Lights team's performance in a challenging market. Regarding transformation, he stated that rightsizing is ongoing, while headquarters relocation and portfolio reviews are expected to occur within fiscal 2026.

John Franzreb from Sidoti & Company asked for a breakdown of the $48 million 'net other launches' figure in the sales bridge, questioning the impact of pricing. He also inquired about growth assumptions for the industrial business, the performance of the Nordic Lights acquisition, and the expected timing for future transformation initiatives planned for fiscal 2026.

Answer

CEO Jonathan DeGaynor clarified that the reduction in the 'net other launches' figure stemmed from program delays and cancellations, primarily in North American EV, not from pricing issues. He confirmed that growth is assumed in the industrial business, particularly data centers and lighting, to rebalance the portfolio. DeGaynor expressed satisfaction with Nordic Lights' performance and affirmed that initiatives like plant rightsizing, portfolio review, and the headquarters relocation are all actively being worked on for execution in fiscal 2026.

John Franzreb of Sidoti & Company, LLC inquired about the primary drivers of the Q3 revenue decline, the updated outlook for new program rollouts, the status of pricing actions, the revenue contribution from data centers, the Class 8 truck market outlook, and the performance of the Nordic Lights acquisition.

Answer

President and CEO Jonathan DeGaynor explained that the revenue drop was mainly due to slower-than-expected ramp-ups of new customer programs, not cancellations. He noted that while expectations for some programs like Stellantis are now lower, a new takeover program with GM signals customer confidence. DeGaynor confirmed pricing actions are an ongoing, global activity. He highlighted data centers as a bright spot, contributing 7% of revenue in the quarter and expected to be 9% for the year. Regarding the Class 8 market, he stated their guidance incorporates a market decline but that Methode is seeing higher RFQ activity. He also expressed satisfaction with the Nordic Lights team's performance despite end-market challenges, seeing growth opportunities in fiscal 2026.

In a follow-up question, John Franzreb of Sidoti & Company requested an update on the performance of the Nordic Lights acquisition relative to the expectations set at the time of the deal.

Answer

President and CEO Jonathan DeGaynor expressed satisfaction with the Nordic Lights team's performance, noting they managed well despite challenging industrial end markets in calendar 2024. He mentioned seeing positive signs or 'green shoots' for calendar 2025 and sees further opportunities for growth in the industrial lighting sector, which is a strategic focus area.

John Franzreb inquired about cost control measures beyond freight, the EV-related portion of new orders, and the growth in the data center market. He later asked about commercial vehicle assumptions, the status of the Monterrey operations, the reasons for reduced CapEx guidance, and the potential for cash flow recovery.

Answer

CEO Jonathan DeGaynor confirmed that improved overhead absorption and reduced scrap contributed to cost savings. He stated the majority of new awards were for EV and power programs and that the data center business, roughly 3-5% of sales, grew 50% year-over-year. DeGaynor also noted that while the commercial vehicle market outlook is soft, operational improvements in Mexico are progressing from a 'fix' to an 'improve' phase, evidenced by a $7 million quarterly reduction in premium freight. He explained the CapEx reduction is due to both efficiency gains and program timing shifts. CFO Laura Kowalchik added that the company expects to reverse some of the cash outflow and approach a neutral position by year-end.

John Franzreb of Sidoti & Company asked why full-year guidance was maintained despite a better-than-expected quarter, sought details on the impact of recent price increases, questioned the potential for supply chain cost savings, and later asked for clarification on the tax guidance and the expected contribution margin of new EV programs.

Answer

Interim CFO David Rawden and CEO Jonathan DeGaynor explained they are maintaining guidance to be cautious and build credibility, citing market headwinds and the newness of the leadership team. DeGaynor noted that pricing discussions are ongoing and rigorous, especially when customer delays impact Methode's capital and inventory. He described supply chain efforts as a holistic approach to reduce total costs, not just procurement prices. Rawden confirmed the tax guidance is a GAAP estimate, and DeGaynor stated that new EV programs are expected to be at least on par with, or accretive to, current gross margins.

John Franzreb asked for a breakdown of the 'net other launches and pricing' component in the sales bridge, questioning if it contained pricing benefits. He also inquired about growth assumptions for the industrial business, the performance of the Nordic Lights acquisition, and the expected timing for future transformation initiatives like plant consolidation and portfolio reviews.

Answer

CEO Jonathan DeGaynor clarified that the decline in the 'net other' category was driven by other EV program delays and cancellations, not a failure to secure pricing. He confirmed that the fiscal 2026 guidance assumes growth in the industrial business, particularly from data centers and lighting, with a goal of achieving a 50/50 revenue split between automotive and other segments. DeGaynor expressed satisfaction with Nordic Lights' performance and stated that transformation initiatives, including plant rightsizing and portfolio reviews, are actively underway and expected to have an impact within fiscal 2026.

John Franzreb of Sidoti & Company, LLC inquired about the continued impact of economic uncertainty on project timing, the likelihood of achieving a 1.0 book-to-bill ratio in fiscal 2026, confidence in returning to profitability, and the composition of the company's growing cash position.

Answer

President and CEO John Hewitt acknowledged an industry-wide overhang but noted minimal direct impact on domestic projects, expressing confidence in achieving a 1.0 book-to-bill ratio in fiscal 2026 through smaller projects, and high confidence in returning to profitability due to strong backlog. VP and CFO Kevin Cavanah clarified that while some cash comes from upfront payments on long-term projects, the balance sheet is strong, with a significant portion available for normal operations and growth.

John Franzreb of Sidoti & Company inquired about the persistence of project delays due to economic uncertainty, a trend previously noted, and the company's outlook for the book-to-bill ratio in fiscal 2026. He also questioned the confidence level and timeline for returning to profitability, and the composition of the growing cash position, specifically the split between advance payments from customers and Matrix's own operational cash.

Answer

CEO John Hewitt acknowledged an industry-wide overhang, attributing most direct impacts to global events and tariffs, while domestic projects like LNG heat shaving show strong momentum. He expressed confidence in achieving a 1.0 book-to-bill ratio in fiscal 2026, citing a pipeline of 'bread-and-butter' projects ($50-$150 million range). Hewitt also stated high confidence in returning to profitability, citing the quality and in-flight status of the backlog. CFO Kevin Cavanah explained that while some long-term projects involve upfront money, the strong balance sheet includes a significant portion of cash available for normal operations and growth, estimating $50-$70 million for operating the business.

John Franzreb of Sidoti & Company, LLC inquired about the ongoing impact of economic uncertainty on project timing, the company's book-to-bill expectations for fiscal 2026, confidence in returning to profitability, and the composition of the growing cash position.

Answer

President and CEO John Hewitt acknowledged a general industry overhang from global events and tariffs, impacting some larger export-related projects, but noted strong domestic demand for LNG heat shaving and backup fuel supply. He expressed high confidence in achieving a near 1.0 book-to-bill ratio for fiscal 2026, driven by smaller to mid-sized projects, and high confidence in returning to profitability due to the quality and in-flight nature of the backlog. VP and CFO Kevin Cavanah clarified that while some upfront money from long-term projects contributed to the cash build, a significant portion represents operational cash, with the balance sheet strong enough to support growth.

John Franzreb of Sidoti & Company inquired about the revised fiscal 2025 revenue guidance, seeking details on the decision to exit the Northeast transmission and distribution business, associated cost savings, and the nature of project deferrals. He also asked about the company's strategic shift to focus on smaller projects.

Answer

President and CEO John Hewitt explained that the exit from the transmission and distribution business was due to competitive disadvantages, as the company was 'too big to be small and too small to be big,' leading to an inability to win work at acceptable margins. He noted the business will be wound down. Regarding project deferrals, Hewitt cited a delayed contract signing for a major storage project and a client's pause on another project due to trade uncertainties. He also highlighted a renewed focus on smaller, 'foundational' projects to deepen customer relationships and improve overhead absorption. CFO Kevin Cavanah added that the primary financial benefit of exiting the T&D business is the elimination of its operating losses.

John Franzreb inquired about the revised revenue guidance, specifically the decision to exit the Northeast transmission and distribution business, potential cost savings, and the nature of project deferrals. He also asked about the opportunity profile for smaller, foundational projects.

Answer

President and CEO John Hewitt explained that the transmission and distribution business was wound down due to competitive disadvantages and a lack of new project wins, making a sale unfeasible. CFO Kevin Cavanah noted the primary savings would be the elimination of that unit's operating losses. Regarding deferrals, Hewitt cited the delayed start of a major storage project and a client's offtake agreement delay due to trade uncertainties. He also highlighted the strategic shift to refocus on winning smaller, foundational projects to strengthen client relationships and improve overhead absorption.

John Franzreb of Sidoti & Company inquired about the revised revenue guidance, the rationale for exiting the Northeast transmission and distribution business, associated cost savings, the nature of project deferrals, and the opportunity profile for smaller projects.

Answer

CEO John Hewitt explained that the transmission business was exited due to competitive disadvantages and high capital needs after failing to secure key projects. He noted project deferrals were due to contract timing and client hesitancy around trade policy, but emphasized strong client intent for future spending. CFO Kevin Cavanah added that exiting the business primarily saves on its operating losses. Hewitt also stressed the strategic shift to refocus on foundational smaller projects to strengthen client relationships and build the business base.

John Franzreb of Sidoti & Company, LLC inquired about the revised fiscal 2025 revenue guidance, seeking details on the decision to exit the Northeast transmission and distribution business, associated cost savings, and the nature of project deferrals. He also asked for the opportunity profile and timeline for the company's renewed focus on smaller foundational projects.

Answer

CEO John Hewitt explained that the transmission and distribution business was exited due to competitive disadvantages and a lack of new awards, making a wind-down the most logical step. He noted project deferrals were due to contract finalization delays and client caution amid trade uncertainty, but emphasized strong underlying demand. Regarding smaller projects, Hewitt stated that a new business development structure aims to recapture this foundational work, which is vital for client relationships, team development, and overhead absorption. CFO Kevin Cavanah added that exiting the T&D business primarily saves the company from its operating losses.

John Franzreb of Sidoti & Company inquired about the specifics of a deferred revenue project, the expected timing of the return to profitability, the margin profile of new jobs, the drivers of the increased opportunity pipeline, and the company's inorganic growth strategy.

Answer

CEO John Hewitt and CFO Kevin Cavanah addressed the questions. Hewitt confirmed a singular, significant project delay caused the revenue shift, with that revenue now expected in the first half of fiscal 2026. Cavanah noted that profitability is more likely in Q4 than Q3 due to the revenue ramp. Hewitt stated that strong market demand should support favorable margin profiles on new work. He attributed the pipeline's growth from $5.7 billion to $7 billion primarily to new LNG peak shaving opportunities. On inorganic growth, Hewitt reiterated that the main focus is organic profitability, but future M&A would target strengthening regional capabilities and specialized E&C services.

John Franzreb inquired about a deferred revenue project, the timing of the expected return to profitability, the margin profile of new jobs, the drivers behind the significant increase in the opportunity pipeline, and the company's strategy and timeline for inorganic growth.

Answer

President and CEO John Hewitt clarified that the deferred revenue was from a singular, significant job that is delayed, not lost, with revenue likely realized in Q1 and Q2 of fiscal 2026. CFO Kevin Cavanah added that profitability is more likely in Q4 than Q3 due to the expected revenue ramp. Hewitt stated that strong market demand and project scale should allow for a strong margin profile on new work. He attributed the opportunity pipeline's growth from $5.7 billion to $7 billion primarily to new LNG peak shaving projects. On inorganic growth, Hewitt said the principal focus remains on returning to profitability, but future M&A would aim to strengthen regional capabilities and their position as a specialized E&C provider.

John Franzreb of Sidoti & Company, LLC inquired about several aspects of the quarter, including the lower-than-expected revenue in the Utility segment, the sequential increase in SG&A expenses, the demand environment for smaller projects, and the potential business impact of a change in the U.S. presidential administration. He later followed up with questions regarding the company's exposure to renewable energy markets like wind and solar, and its current staffing levels in anticipation of a revenue ramp-up.

Answer

CFO Kevin Cavanah addressed the financial questions, explaining that the Utility segment's revenue dip was due to project timing and is expected to reverse, while the SG&A increase was primarily driven by non-cash, stock-based compensation. CEO John Hewitt commented on the market dynamics, stating that small project demand is stable with improved visibility from a key refinery client. He opined that a new administration would be a net positive, likely lifting the LNG export permit pause. Hewitt also clarified that Matrix has minimal direct exposure to wind and solar but sees opportunities in renewable fuels, and confirmed that the company is successfully managing a tight labor market to secure the talent needed for growth.

John Franzreb of Sidoti & Company, LLC inquired about the lower-than-expected Q1 revenue in the utility business, the sequential increase in SG&A expenses, the demand for smaller projects, the potential business impact of a change in the U.S. presidential administration, the company's exposure to renewable energy markets like wind and solar, and future staffing levels required to support the projected revenue ramp.

Answer

CFO Kevin Cavanah explained that the utility revenue dip was due to project timing and expects it to increase quarterly. He attributed the SG&A rise to non-cash stock compensation (LTI) and projected it to remain around $18 million per quarter. CEO John Hewitt clarified that small project demand is stable, not necessarily increasing, but visibility has improved with a key refinery maintenance contract renewal. Hewitt also stated that a change in administration would likely be a net positive, potentially lifting the LNG export permit pause and unlocking projects. He noted the company has minimal direct exposure to wind and solar but sees opportunities in renewable fuels. Regarding staffing, Hewitt confirmed the company has been adding talent and is confident in its ability to find the necessary resources to execute on its growing backlog despite a tight labor market.

John Franzreb of Sidoti & Company inquired about several key areas, including the drivers for the high Process segment gross margin, the margin profile of the current backlog, and the expected revenue cadence for FY2025. He also asked about the mix of service vs. project revenue, the change in pipeline reporting, the competitive landscape, and the outlook for the hydrogen market.

Answer

CFO Kevin Cavanah attributed the strong Process margin to exceptional project execution and a favorable work mix, guiding long-term for that segment to 9-11%. He and CEO John Hewitt confirmed new backlog projects are bid at healthier, historical margins. They detailed that FY2025 revenue will see significant growth in the Storage segment, while the Process segment will be weaker in the first half before recovering. Hewitt clarified the current revenue mix is roughly 30% service/70% project work. On competition, he noted that while smaller jobs are competitive, larger, complex projects have a more rational landscape. Regarding hydrogen, Hewitt sees it as a long-term opportunity but noted a recent slowdown and expressed caution towards developer-led projects.

John Franzreb asked about the progress and timeline of StratTech's business transformation, inquiring if it could involve divesting product lines. He also sought clarification on plans to expand to a larger customer set, the sustainable gross margin range for fiscal 2026, expected incremental/decremental margins, the need to increase inventory levels, future personnel additions, and the status of the Milwaukee facility sale.

Answer

President and CEO Jennifer Slater described the transformation as being in the 'early innings,' with the focus shifting to longer-term initiatives. She clarified that portfolio reshaping involves refocusing on growth areas like power access, not divesting existing lines, and that customer expansion is prioritized within automotive first. CFO Matthew Pauli stated that while FY26 will see pricing tailwinds, they will be offset by lower volumes and labor inflation, and noted incremental margins are in the 25-30% range. He also confirmed inventory would likely increase by about $5 million. Slater added that she is comfortable with current personnel investment levels and that there is no new update on the Milwaukee facility sale.

John Franzreb of Sidoti & Company inquired about the magnitude of new customer activity driven by tariffs, the resolution timeline for aerospace and defense supply chain issues, and the factors hindering the 80% melt utilization target.

Answer

Mike Williams, CEO & Director, clarified that recent market share gains were primarily from domestic competitors, though tariff-related inquiries are increasing. He noted that aerospace and defense supply chain issues are improving, with more orders expected in Q4. Regarding melt utilization, Williams cited electrical supply interruptions and equipment reliability as challenges and detailed a new initiative with a third-party expert to optimize shop floor execution, targeting $10 million in annual savings.

John Franzreb from Sidoti & Company asked for clarification on the drivers for the second-half revenue guidance, the rationale behind the significant step-up in CapEx, the profitability status of the 'Group of Five' facilities, and the target end-market for the new electrical wiring systems venture.

Answer

CEO Harold Bevis stated that second-half guidance relies on the ramp-up of new program launches rather than a market rebound. SVP & COO Tim French confirmed the increased CapEx is primarily for growth and that the 'Group of Five' facilities are on track for profitability. Bevis added that the electrical wiring venture is still being evaluated but will leverage the company's existing ITAR, ATF, and FDA certifications.

John Franzreb sought confirmation on whether the free cash flow guidance includes the CARES Act refund and its value, and also asked about business trends in April and early May compared to prior expectations.

Answer

SVP and CFO Chris Bohnert confirmed that the $14 million to $16 million free cash flow guidance includes the CARES Act refund, which amounts to approximately $12.3 million to $12.4 million. He also noted the guidance is net of the targeted $10 million in cash CapEx for the year. President and CEO Harold Bevis and SVP and COO Tim French both reiterated that business in April started stronger than forecasted, providing optimism for their full-year guidance.

John Franzreb from Sidoti & Company questioned if new business wins are being written at the 20% gross margin target, asked for the timeline and ownership status of the plants being closed, and requested an update on the term loan refinancing and plans for the preferred equity.

Answer

Executive Harold Bevis confirmed new business is written above the 20% target, with a floor of 25% margin and ROI, noting they walked away from $340 million in quotes due to poor economics. COO Tim French detailed that the Juarez plant is leased and has ceased production, while the owned Dowagiac facility is for sale and will close in Q2. Regarding the balance sheet, executive Christopher Bohnert stated the term loan refinancing is expected to conclude in the first half of the year, with the preferred equity being a 'third step' after the loan and China financing are addressed.

John Franzreb of Sidoti & Company inquired about the opportunity pipeline for large projects following a quarter of stellar bookings, the current visibility into the revenue profile, the specific contribution of project closeouts to gross margin improvement, and the reason for the noticeable increase in SG&A expenses.

Answer

CEO Brett Cope noted that the project pipeline remains strong, particularly in the gas, utility, and commercial sectors. CFO Mike Metcalf explained that the backlog provides revenue visibility into late fiscal 2027, with about 65% converting in the next year. Metcalf quantified that project closeouts and unusual items contributed approximately 150 basis points to the year-to-date gross margin. He also attributed the SG&A increase to higher variable compensation and expenses related to the REMSAK acquisition.

John Franzreb of Sidoti & Company inquired about the strength of the project pipeline following recent large bookings, the extent of revenue visibility, the specific contribution of project closeouts to gross margin improvement, and the drivers behind the quarterly increase in SG&A expenses.

Answer

CEO Brett Cope confirmed a robust project pipeline, particularly in the gas, utility, and commercial markets. CFO Mike Metcalf added that the backlog provides revenue visibility into late fiscal 2027, with about 65% converting in the next year. Metcalf clarified that on a year-to-date basis, project closeouts and unusual items contributed approximately 150 basis points to gross margin. He also attributed the higher SG&A to increased variable compensation and expenses related to the REMSAK acquisition.

John Franzreb inquired about gross margins, asking why pricing wasn't more aggressive and what a normal project closeout contribution would be. He also asked about the revenue impact of capacity expansion, plans for the large cash balance, a potential stock split, and the current run-rate of the data center business.

Answer

CEO Brett Cope explained that market conditions have stabilized but don't yet support more aggressive pricing. CFO Michael Metcalf projected a normalized gross margin rate of 26-27% excluding recent elevated project closeouts. Cope projected the expansion would add $20-$40 million in revenue next year and stated that cash is being prioritized for organic growth and M&A over buybacks or a stock split. Metcalf clarified data center revenue is still in the single-digits of total company revenue.

John Franzreb asked for an update on capacity expansion initiatives and whether there were plans to increase overall production capacity. He also questioned the current pricing environment and the strategy for deploying the company's substantial cash balance, probing for details on M&A.

Answer

Executive Brett Cope detailed that capacity expansions are on track, with the Houston product factory set for completion by mid-fiscal 2025 and newly acquired acreage providing further options. He noted pricing on large capital projects is holding steady, with value-add focus shifting to services and automation. Regarding the cash balance, Cope confirmed an active M&A focus on the product and automation spaces, targeting acquisitions in the $50-$75 million range. CFO Michael Metcalf added that a portion of the cash, around $175 million, is earmarked for working capital to execute the existing backlog.

John Franzreb of Sidoti & Company inquired about the key drivers of Q4 gross margins, the nature of recent project cancellations, and whether new orders are being booked at higher profit margins. He also asked for quantification of the revenue potential from capacity expansions, the contribution from data centers in Q4, the changing composition of the backlog, and the company's plans for its growing cash balance, including potential M&A.

Answer

CFO Michael Metcalf explained that Q4 gross margins were lifted by 150-200 basis points from project closeouts and 60 basis points from three non-systemic project cancellations. CEO Brett Cope stated that pricing on new jobs has not significantly changed and detailed the capacity expansions, noting the Hansen facility could add $20-$40 million in revenue over two years. Cope also confirmed data center sales were in the low double-digits (around 10%) for the quarter and highlighted that the utility sector is causing the most significant change in the backlog's composition. Regarding cash, Cope affirmed that the company is very active in evaluating M&A opportunities, with a clearer strategic focus emerging for the midterm.

John Franzreb of Sidoti & Company asked for clarification on the performance variability within the transportation market across different segments. He also inquired about the weakness in steel market bookings, the completion timeline for the $5 million cost savings program, business trends in July, and VPG's capacity readiness for a potential production ramp in robotics.

Answer

Ziv Shoshani, CEO, President & Director, explained that the transportation market's variability was due to very large onboard weighing orders in Q1 that did not repeat in Q2. He attributed steel market softness to a weak global auto market and tariffs, noting recent orders were for R&D rather than inline equipment. Shoshani stated the $5 million cost savings program should conclude by Q4 2025, with $2.8 million realized so far. He described July trends as having 'no surprises' and affirmed that VPG is collaborating closely with robotics customers to ensure capacity will meet their future production demands without becoming a bottleneck.

John Franzreb of Sidoti & Company, LLC inquired about the expected turnaround in the Sensors segment, the historical impact of steel tariffs on the KELK business, the timing and nature of the $5 million cost savings plan, the profitability of the Nokra acquisition, and the timeline and margin profile for the $100 million new product development opportunity.

Answer

CEO Ziv Shoshani explained that the Sensors segment is showing positive signs with a book-to-bill over 1 and expects an acceleration in the second half of the year. He noted that steel tariffs have a limited direct impact due to VPG's India-based manufacturing but could create a tailwind for US sales. The $5 million in cost savings are permanent reductions from operational efficiencies and moving functions to lower-cost regions. Shoshani also stated that Nokra had a neutral Q4 impact but is projected to contribute $6 million in revenue in 2025 with positive margins, and the $100 million new business opportunity is an aggregate target over the next 3-4 years with margins expected to be at or above the company average.

Inquired about the outlook for the Sensors segment, the impact of steel tariffs, details on cost savings initiatives, the profitability of the Nokra acquisition, and the timeline and margin profile of the new product development pipeline.

Answer

The company sees positive signs in the Sensors segment with a book-to-bill over 1 and expects an H2 acceleration. Steel tariffs are expected to be a net positive due to the company's non-Chinese manufacturing footprint. The $5 million in cost savings are structural efficiency improvements. The Nokra acquisition is expected to be accretive in 2025, and the $100 million new business pipeline is a 3-4 year opportunity with attractive margins.

John Franzreb of Sidoti & Company asked about the recovery timeline for the Sensors segment, the potential impact of steel tariffs, the composition of the $5 million in cost savings, the profitability of the Nokra acquisition, and the timeline for the $100 million new product development opportunity.

Answer

CEO Ziv Shoshani explained that the Sensors segment is showing positive signs with a book-to-bill over 1.0 and an expected acceleration in H2 2025. He noted that steel tariffs have limited direct impact due to VPG's India-centric manufacturing but could create a competitive tailwind. The $5 million in cost savings are permanent reductions from operational efficiencies and automation. Shoshani also stated that the Nokra acquisition was neutral in Q4 but is targeted for $6 million in profitable sales in 2025, and the $100 million new business opportunity is an aggregate revenue target over the next 3-4 years with a margin profile similar to or better than the company average.

Inquired about changes in the end-market mix outlook compared to three months prior, potential levers for operating cost reduction, and details surrounding the Nokra acquisition and future M&A strategy.

Answer

The end-market outlook is mixed, with some inventory replenishment but no broad demand recovery yet, though long-term optimism is growing. The company is actively reducing costs by relocating production to its India facility, which is expected to yield multi-million dollar savings. The M&A strategy includes both small technology acquisitions like Nokra and potentially larger targets that offer operational synergies.

John Franzreb asked for an updated view on the end-market mix compared to three months prior, inquired about potential levers for further operating cost reductions, and sought details on the Nokra acquisition and the broader M&A strategy.

Answer

CEO Ziv Shoshani described a mixed end-market environment, noting a Q3 order drop in Measurement Systems due to project timing but expecting a Q4 rebound. He highlighted stock replenishment in some markets, softness in Europe, and optimism in precision agriculture. Regarding costs, he mentioned ongoing streamlining, including product line relocations to India, which are expected to yield multi-million dollar savings. He explained that Nokra was acquired to broaden the KELK product portfolio to meet customer demand and that the M&A pipeline includes both small technology tuck-ins and larger, synergistic targets.

John Franzreb from Sidoti & Company asked about the nature of the company's projected $15-20 million in cost savings, the progress of tariff renegotiations with customers, and business trends in July compared to the second quarter. He also followed up on the cyclical nature of the updated ACT Research forecast for the Class 8 truck market.

Answer

James Ray, President and CEO, explained that the cost savings are considered permanent, stemming from material, indirect, and manufacturing improvements that will scale with volume. He described tariff negotiations as a dynamic, ongoing process expected to conclude by year-end. Ray also noted increased OEM downtime from June through August. Andy Cheung, EVP and CFO, added that current market activity is tracking with ACT's projections. Regarding the forecast, Ray clarified that ACT has removed the 2027 emissions pre-buy dynamic, now projecting flat builds into 2026 followed by a low double-digit increase in 2027.

John Franzreb of Sidoti & Company inquired about the revenue trend in April compared to March, visibility into scheduled customer downtime, the current decremental margin profile, remaining cost-saving initiatives for 2025, and the quantifiable impact of freight costs.

Answer

President and CEO James Ray stated that April's revenue profile was in line with expectations and that the company has about 2-3 months of visibility into customer production schedules and downtime. Executive Andy Cheung noted the decremental margin is around 20% and explained how the new segments correlate to different end markets. Ray detailed that remaining cost savings will come from operational excellence, supply chain optimization, and synergies under the new COO. Cheung clarified that freight cost improvements, stemming from operational stabilization and reduced expedited shipping, accounted for about one-third of the 240 basis point sequential gross margin improvement in Q1.

John Franzreb from Sidoti & Company inquired about CVG's current performance relative to market forecasts for Class 8 and construction/ag. He also asked for quantification of 2025 new business wins, the markets they are in, and clarification on whether they are replacement or incremental. Finally, he requested the D&A and CapEx assumptions in the 2025 guidance.

Answer

President and CEO James Ray stated that Q1 performance was tracking in line with market forecasts, with an expected H2 2025 uplift from a Class 8 pre-buy cycle. He confirmed a $100 million annual target for new business wins, highlighting recent success in the EV and autonomous vehicle space. Executive Andy Cheung added that D&A for 2025 is expected to be consistent with 2024, and CapEx will be at the low end of the typical 2-3% of revenue range to prioritize positive free cash flow.

John Franzreb inquired about the use of proceeds from a recent payment for debt reduction, the current interest rate, the basis for the flat year-over-year outlook in ag and construction markets, competitive pressures, and the status and financial impact of recent production inefficiencies.

Answer

Executive Andy Cheung stated that the majority of the recent $20 million payment was used for debt paydown and the average interest rate is 7-8%. He also clarified the flat outlook for ag and construction is a full-year 2025 vs. 2024 comparison. CEO James Ray added that competitive pressures are stable and that the company is at the tail end of production inefficiencies, which had an annualized impact in the upper-single to low-double-digit millions for continuing operations.

John Franzreb of Sidoti & Company inquired about changes in the operating environment, project delays, the performance of the data analytics business, and the effectiveness of current pricing initiatives. He also asked for color on April's business trends and clarification on the expected recovery of $6.5 million in oil and gas turnaround revenue.

Answer

CEO Natalia Shuman acknowledged a challenging operating environment due to "unprecedented uncertainty" from tariffs causing project delays. However, she highlighted that the PCMS data analytics segment grew 6% and that the company's commercial discipline continues. Shuman confirmed a slight improvement in demand in April and stated that the $6.5 million in delayed turnaround revenue is expected to be recovered and exceeded in the second half of the year. CFO Ed Prajzner added that Q2 offers an easier year-over-year comparison than Q1.

John Franzreb of Sidoti & Company inquired about customer feedback following the CEO transition, the resolution of past accounts receivable issues, the outlook for the 2025 turnaround season, and the growth prospects for the data analytics business after recent project delays.

Answer

President and CEO Natalia Shuman shared that customer feedback has been very positive, with excitement around MISTRAS's full suite of integrity solutions. SVP and CFO Edward Prajzner confirmed that receivable issues are behind them and that the 2025 turnaround season is expected to be normalized, with a weaker spring and a more robust fall, contrasting with 2024. Natalia Shuman added that while data analytics revenue was down in 2024 due to project timing, the company is investing for growth in 2025, driven by strong demand for its PCMS software.

John Franzreb of Sidoti & Company questioned the reasons for the reduced free cash flow guidance, asked about systematic changes to prevent future accounts receivable issues, inquired about the impact of pricing versus volume on revenue, and sought to quantify the impact of healthcare costs on gross margins.

Answer

Executive Edward Prajzner explained that the cash flow guidance was lowered due to an elevated accounts receivable balance that cannot be fully recovered by year-end. He detailed process improvements, including increased management focus and a future ERP upgrade, to address this. Prajzner also confirmed that modest price increases contributed to revenue while volume was flatter. Regarding healthcare, he noted the impact was in the 'millions plus' range due to claims experience rather than a structural issue. Executive Manuel Stamatakis added that the company focuses on improving the profitability of existing accounts rather than exiting business lines.

John Franzreb asked for management's opinion on the impact of 'vaccine fatigue' on business, requested details on current cost-saving measures and their completion timeline, and inquired about Carriage's historical performance during recessions and the strategic levers it might use in a future downturn.

Answer

CEO Carlos Quezada stated that he does not see 'vaccine fatigue' as a factor, attributing strong performance to the successful execution of their strategic plan, pricing structure, and operating model. CFO John Enwright detailed ongoing supply chain initiatives targeting insurance assignments, urns, caskets, and fleet management, with savings expected to be realized progressively through the year. Quezada added that the industry is historically resilient during recessions and that while preneed sales might require more effort, the company can accelerate lead generation to meet its growth targets.

John Franzreb of Sidoti & Company asked about the sustainability of the elevated preneed cemetery sales, questioning if the recent performance is an anomaly or a new sustainable run rate. He also inquired about the muted Q4 outlook compared to historical seasonality, whether COVID-related volume impacts have been fully anniversaried, and sought clarification on the 13-14% overhead cost guidance.

Answer

CEO Carlos Quezada stated that the preneed cemetery growth is sustainable, driven by a more mature strategy, better lead generation, and strong leadership, projecting low double-digit growth for the next 4-5 years. He expects normal seasonality to return in 2025, with Q3 2024 being an exception due to large sales. He also explained that volume adjustments are ongoing as the company balances pricing and market share. CAO Kathryn Shanley clarified the 13-14% overhead target is on an adjusted basis, excluding items like Project Trinity costs, and is the normalized expectation for 2025.

John Franzreb of Sidoti & Company sought clarification on the cremation strategy, asking about the mix between service acceptance and price increases. He also inquired about the expected financial impact of the supply chain review and the outlook for death rates in the second half.

Answer

CEO Carlos Quezada explained that while data on cremation service upgrades is still new, the trend is very positive. Regarding the supply chain, he detailed a phased approach, expecting $450,000 to $700,000 in savings by year-end 2024 and around $2 million in 2025 from Phase 1 alone. He acknowledged the unexpected drop in death rates in September of the past two years but does not anticipate a repeat in 2024 based on positive July trends.

John Franzreb asked for details on the four levers intended to offset tariffs, questioning which would have the most immediate impact and how targeted the planned surcharges would be. He also sought clarity on whether the $15 million tariff impact estimate already includes mitigation efforts and requested a walkthrough of the TerraSource divestiture's timing and cash proceeds.

Answer

CFO Bob VanHimbergen identified dual sourcing as the strategy with the most immediate near-term impact. He noted that surcharge pricing will be targeted, with greater effectiveness in the APS segment compared to the more price-sensitive MTS segment. He confirmed the $15 million tariff cost in the outlook is a high-end estimate that includes some initial mitigation, but expects further offsets over time. He then detailed the TerraSource deal, explaining that Hillenbrand expects to receive approximately $100 million in net proceeds, which will be used for debt paydown upon closing in late Q3 or early Q4.

John Franzreb inquired about geographic demand shifts, focusing on India and China, and asked for an update on test lab activity as a leading indicator for future business.

Answer

CEO Kim Ryan described India as a continued growth opportunity with strong performance, while China's demand has stabilized at lower levels after a significant downturn. She emphasized the company's 'local for local' strategy. Ryan confirmed that test lab activity remains a robust and positive leading indicator, with labs for key end markets like recycling, food, and polyols remaining full, signaling serious customer investment and future capital projects.

John Franzreb of Sidoti & Company inquired about the Test business's growth assumptions for China, the potential impact of a U.S. administration change on the utility and renewables business, and the specific financial line items affected by the debt refinancing and restructuring adjustments.

Answer

CEO Bryan Sayler explained that the guidance does not assume a significant recovery in China for the Test business. Regarding policy changes, he noted that underlying electricity demand remains strong, and while renewable incentives could face threats, the need to optimize existing assets benefits the Utility Solutions Group. CFO Christopher Tucker clarified that the debt refinancing costs hit the interest expense line, while restructuring charges were recorded at the EBIT line.