Steve Ferazani

Steve Ferazani asked about the surprising strength in the EMC segment in Q4, Titan's ability to meet demand surges, the reasons for softer consumer segment margins (specifically if the rubber mixing business was a one-time impact), the CapEx guidance for 2026, the potential for cash flow break-even, the breakdown of maintenance vs. growth CapEx, and key indicators for a stronger recovery in the ag sector.

Answer

Paul Reitz, President and CEO, attributed EMC's strength to Titan's ability to handle complex demand surges and service customers effectively. Tony Eheli, SVP and CFO, confirmed that the softer consumer margins in Q4 were due to lower volumes in the lumpy rubber mixing business, which was a one-off. Tony Eheli provided CapEx guidance of $55 million for 2026, with maintenance CapEx around $30-$35 million and additional investments for growth and plant efficiencies, while noting cash flow break-even might be a stretch. Paul Reitz identified moderating input costs, crop storage levels, equipment aging, and government support as drivers for ag recovery.

Steve Ferazani questioned the significant strength in the EMC segment during Q4, asking how quickly Titan was able to meet demand and for more color on the European undercarriage business. He also asked about the softer Consumer segment margins in Q4, specifically if the impact from the rubber mixing business was a one-time event or a loss of business. Additionally, he inquired about CapEx guidance for 2026, the possibility of achieving cash flow break-even, the breakdown between maintenance and growth CapEx, and what indicators to look for regarding a stronger recovery in the Ag sector.

Answer

Paul Reitz, President and CEO, explained that Titan excels when demand surges, as seen in EMC in Europe and aftermarket mining, and that the team is prepared to handle such increases, viewing EMC as a strong growth opportunity for 2026. Tony Eheli, SVP and CFO, confirmed that the rubber mixing business impacted Q4 Consumer margins due to lower volumes, calling it a one-off event, and expects other parts of the business to be accretive. Paul Reitz added that the rubber mixing business is unpredictable but not a permanent loss. Tony Eheli stated that while they strive for cash flow improvement, break-even might be a stretch for 2026 due to moderate top-line growth and working capital needs for future growth, with CapEx guided at $55 million, including $30M-$35M for maintenance and the rest for growth initiatives. Paul Reitz noted that a stronger Ag recovery depends on moderating input costs, crop prices, inventory trends, equipment aging, and clearer government support policies, believing the trough is behind them.

Steve Ferazani of Sidoti & Company, LLC questioned the drivers behind the Consumer segment's performance, specifically the strong gross margins despite tariff headwinds and the cause of the revenue decline. He also asked about the balance sheet, inquiring about the rationale for a new investment with elevated leverage and whether this represents peak leverage.

Answer

SVP & CFO David Martin explained that the Consumer segment's margin strength was due to favorable product mix, not pricing actions. He and CEO & President Paul Reitz clarified that the revenue decline was a temporary "pause" by customers due to tariff uncertainty, with a rebound starting in Q3. Martin confirmed this is likely peak leverage and expressed confidence in improving free cash flow and staying well within debt covenant requirements.

Steve Ferazani inquired about lessons learned from previous trade wars, the company's aftermarket positioning, and the significance of the expanded Goodyear licensing agreement for former Carlstar products and acquisition synergies.

Answer

CEO Paul Reitz explained that Titan's key lesson is to leverage its production flexibility and strong U.S. manufacturing base, noting that market dislocation can be an advantage as customers seek risk mitigation. Regarding the Goodyear license, he described it as a significant development that was in progress since the Carlstar acquisition. He stated the brand's strength will accelerate market penetration for new products in light construction, ATV, and lawn and garden, making it easier for the sales team to open doors and drive synergies.

Steve Ferazani of Sidoti & Company questioned the disconnect between Titan's optimistic ag outlook and the more cautious tone from its OEM customers. He also asked about the company's operational readiness for a rapid demand pivot and sought clarification on D&A guidance and consumer segment seasonality.

Answer

CEO Paul Reitz explained that Titan's inventory cycle leads OEMs because its products are highly customized, causing Titan to feel the downturn earlier and likely recover sooner. CFO David Martin added that Titan's ag sales fell 40% from H1 to H2 2024, indicating significant destocking has already occurred. Reitz affirmed the company is prepared for a ramp-up, having retained experienced labor. Martin provided D&A guidance of around $60 million for the year and confirmed that Q4 is the seasonal low for the consumer segment, a pattern that should continue.

Steve Ferazani asked about the significant performance variability between Titan's business segments, particularly the consumer segment's improved margins despite lower sequential sales. He also inquired about catalysts for an agricultural market recovery beyond crop prices and sought details on a potential U.S. Army contract and the strategy to enter smaller, seemingly more competitive, tire markets.

Answer

CFO David Martin attributed the consumer segment's strong margins to a healthy mix of aftermarket business. CEO Paul Reitz explained that while crop prices are a key driver, Titan is proactively pursuing growth through product innovation (LSW, VPO), strategic partnerships, and reclaiming military sales, which he noted is entirely accretive. Reitz clarified that expansion into smaller tire markets leverages the Carlstar model to target niche areas with similar or less competition due to strong brand and distribution, not the broad consumer market.

Steve Ferazani expressed surprise at Archrock's SG&A guidance, noting it appears tighter despite fleet and cash flow growth, and asked about the actions driving cost containment and margin improvement in a growth market. He also inquired about growth opportunities in the Aftermarket Services (AMS) segment, potential labor constraints, and the ability to meet third-party service demand.

Answer

Brad Childers, President and Chief Executive Officer, attributed SG&A efficiency to the scalability of Archrock's platform, benefiting from the NGCS acquisition and organic horsepower expansion. He cited strategic shifts to large horsepower and electric motor drive, along with technology investments (digitization, automation, telemetry), as key drivers for flat OpEx per horsepower despite inflation, improving service quality and managing costs. Doug Aron, Chief Financial Officer, added that 2025 SG&A was elevated due to incentive compensation. For AMS, Mr. Childers praised its profitability (24% gross margin) but noted that growth is constrained by selective job taking and labor challenges, expecting sharper growth in contract operations.

Steve Ferazani expressed surprise at Archrock's tight SG&A guidance despite fleet and cash flow growth, asking about the actions taken to contain costs and offset inflationary pressures, particularly in contract operations margins. He also inquired about growth opportunities in the aftermarket services (AMS) segment, considering labor constraints and the increasing demand for third-party services.

Answer

Brad Childers, President and Chief Executive Officer, explained that SG&A is highly scalable, allowing for operational growth without proportionate SG&A expansion, benefiting from full-year acquisition synergies and organic horsepower growth. He attributed OpEx management to a strategic shift towards large horsepower and electric motor drive equipment, and significant investments in digitization, automation, and telemetry. Doug Aron, Chief Financial Officer, added that 2025 SG&A levels were slightly elevated due to performance-based incentives. For AMS, Mr. Childers stated that growth is constrained by a selective approach to jobs and customers to improve profitability, and by labor availability. He expects prudent growth, prioritizing profitability and value-add over rapid expansion.

Steve Ferazani asked about potential future M&A opportunities following the successful integration of NGCSI and TOPS, and whether the criteria for acquisitions might evolve. He also inquired if Archrock would consider expanding into complementary services or equipment beyond its core compression business.

Answer

President and CEO Brad Childers stated that future M&A opportunities are driven by strategic fit (large horsepower, customer base, geography) and fleet quality (age, configuration), along with a willing seller and sensible pricing. He believes other attractive compression companies exist, suggesting future opportunities. Mr. Childers affirmed that Archrock has ample investment and growth opportunities within its core compression space and intends to keep its capital and strategic focus there.

Steve Ferazani asked if, after successfully integrating NGCSI and TOS, Archrock sees other M&A opportunities, and if the integration process gets easier or if it always comes down to the quality of the compression fleet. He also inquired if Archrock would consider complementary services or equipment, or if it will remain focused solely on compression.

Answer

Brad Childers (President and CEO) affirmed that M&A is driven by the strategic fit of the acquired fleet (large horsepower, customer base, geography) and its quality (age, configuration), along with a willing seller and sensible pricing. He believes other compression companies with excellent fleets exist, and the attractive market could yield future opportunities similar to TOS or NGCSI. Childers stated that Archrock has ample investment and growth opportunities within its core compression space and plans to keep its strategic focus there.

Steve Ferazani inquired about the drivers of the strong performance in the Aftermarket Services (AMS) segment and its sustainability. He also asked about the current mix of electric versus gas-drive units in the order book.

Answer

President & CEO D. Bradley Childers explained that strong market demand and excellent execution are driving sustainable underlying strength in AMS, though Q2 revenue was boosted by a large, non-recurring engine sale. Regarding the order mix, he noted a shift toward more gas-drive units, with electric-drive CapEx expected to be 20-25%, down from over 30% previously. He attributed this shift not to cost, but to the lack of power availability from a strained grid.

Steve Ferazani of Sidoti & Company, LLC inquired about the drivers behind the strong performance in the Aftermarket Services (AMS) segment and its sustainability. He also asked if the order book mix was shifting away from electric-drive units.

Answer

President & CEO D. Bradley Childers explained that while underlying AMS demand is sustainably strong due to market needs, the Q2 revenue was boosted by a large, non-recurring engine sale. Regarding the order mix, he confirmed a shift toward more gas-drive units, with electric-drive expected to be 20-25% of future CapEx, down from over 30%. He clarified this shift is driven by a lack of power availability on the grid, not customer cost concerns.

Steve Ferazani of Sidoti & Company, LLC asked about the drivers behind the strong performance in the Aftermarket Services (AMS) segment and its sustainability. He also inquired about the mix of electric versus gas-drive units in the order book and whether there was a shift away from electric due to cost concerns.

Answer

President & CEO D. Bradley Childers explained that the underlying strength in AMS is sustainable due to strong market demand for equipment maintenance. However, he noted the record Q2 revenue was boosted by a large, non-recurring engine sale. Regarding the order book mix, Childers confirmed a shift toward more gas-drive units, with electric drive CapEx expected to be 20-25%, down from over 30%. He clarified this shift is driven by a lack of power availability from the grid, not customer cost concerns.

Steve Ferazani asked how Archrock is positioned differently for a potential downturn compared to past cycles and how customers might react regarding contract delays or outsourcing decisions.

Answer

President and CEO D. Childers asserted the business is fundamentally different today, with a balanced customer mix, a higher-quality fleet, record utilization, and industry-wide capital discipline creating a more stable environment. He noted contracts are firm take-or-pay but the company works with customers where possible, and he does not anticipate a major shift toward outsourcing in a typical downturn.

Steve Ferazani from Sidoti questioned the record 26% gross margin in the Aftermarket Services (AMS) segment, asking if it was sustainable or influenced by onetime items. He also asked how the younger TOPS fleet impacts future maintenance CapEx and cash flow.

Answer

President and CEO D. Childers confirmed the strong AMS margin was sustainable and not due to onetime items, attributing it to a higher mix of service work and the market value of skilled labor. Regarding maintenance CapEx, he agreed the younger TOPS fleet is accretive to savings on a per-horsepower basis but cautioned that this benefit is balanced by broad inflationary pressures on parts and services.

Steve Ferazani with Sidoti inquired about the significant turnaround in the Material Solutions segment's performance, particularly the organic growth drivers, and the unexpected strength in Infrastructure Solutions backlog despite the impending highway funding bill expiration. He also sought clarification on the components of the 2026 EBITDA guidance, distinguishing between top-line growth and margin improvements, and the specific contributions and strategic implications of recent acquisitions like CWMF.

Answer

CEO Jaco van der Merwe attributed the Material Solutions turnaround to strong order intake in both legacy and TerraSource businesses, healthy dealer backlogs, strong rental utilization, and significant demand from data center construction projects. He noted continued strong bookings in Infrastructure Solutions and expressed optimism about highway funding, citing ongoing congressional discussions and approved 2026 funding. Regarding guidance, Mr. van der Merwe highlighted the full-year contributions of TerraSource and CWMF, associated synergies, and organic growth, suggesting a new highway bill could push results to the higher end of the range. He confirmed CWMF's accretive nature and aligned margin profile, emphasizing Astec's strong M&A momentum and liquidity for future strategic acquisitions.

Steve Ferazani inquired about the strong fourth-quarter revenue and backlog, specifically asking what factors contributed to the turnaround in the Material Solutions segment, including the impact of data centers and organic growth. He also asked about the Infrastructure Solutions backlog despite the impending highway funding bill expiration, updates on future highway funding, and the drivers of the 2026 EBITDA guidance, distinguishing between top-line growth and margin expansion. Additionally, Ferazani sought details on CWMF's contribution to the 2026 range and Astec's broader M&A strategy.

Answer

Jaco van der Merwe, CEO, explained that strong order intake in both legacy Material Solutions and TerraSource businesses, healthy dealer backlogs and inventory, strong rental utilization, and significant data center projects contributed to the Material Solutions turnaround. Regarding Infrastructure Solutions, he noted strong bookings continued into the new year. For highway funding, Mr. van der Merwe mentioned positive conversations and approved 2026 funding, indicating customer focus on long-term infrastructure needs. On guidance, he attributed growth to a full year of TerraSource and CWMF contributions, synergies, and organic growth, with potential for the higher end of the range if a new highway bill passes. He stated CWMF is accretive from day one and fits well with Astec's margin profile, affirming a continued disciplined M&A strategy leveraging strong liquidity.

Steve Ferazani asked for details on the year-over-year margin improvement, the market differences between asphalt plants and mobile paving equipment, and the drivers behind the strong free cash flow.

Answer

CEO Jaco van der Merwe attributed margin expansion to the 'One Aztec' procurement team's success against inflation and tariffs, alongside operational excellence initiatives. He explained that mobile paving equipment faces dealer inventory and interest rate pressures, unlike the direct-to-customer asphalt plant business. CFO Brian Harris added that strong free cash flow was driven by disciplined working capital management, particularly in receivables, with further opportunities in inventory.

Steve Ferazani asked why Astec Industries did not raise its full-year guidance following two strong quarters, questioning if any results were pulled forward. He also inquired about the potential for margin lag due to tariffs and the historical performance of the newly acquired TerraSource compared to Astec's legacy Materials Solutions segment.

Answer

CEO Jaco van der Merwe explained that guidance was not raised due to uncertainty surrounding tariffs, which could impact costs and cause customer hesitation. He assured that the company is proactively managing this risk and that no results were pulled forward from Q2. Regarding the TerraSource acquisition, he noted its portfolio is less exposed to the volatile mobile equipment market and has a significantly higher mix of recurring aftermarket parts revenue (over 60%), making its performance profile different and more stable than the legacy Materials Solutions business.

Steve Ferazani of Sidoti & Company asked about efforts to resolve manufacturing inefficiencies, the full-year free cash flow outlook, future capital expenditure levels, and the pace of orders for the Infrastructure Solutions segment heading into 2025.

Answer

President and CEO Jaco van der Merwe stated that manufacturing inefficiencies are concentrated at a few sites and are being addressed by balancing production across facilities. He confirmed positive cash flow is expected in Q4 and that 2025 CapEx would be similar to 2024 levels to support automation and international expansion. Vice President of Finance Heinrich Jonker added that a legal settlement payment will be an outflow in Q4. Regarding orders, Jaco van der Merwe expressed cautious optimism for 2025 based on strong customer backlogs and quoting activity.

Steve Ferazani questioned the timing of Tennant's disclosure regarding the material ERP implementation issues, the potential for permanent customer loss impacting the 2026 revenue growth guidance, the company's strategy for share repurchases given the current stock price and low leverage, and recent changes to the board structure.

Answer

President and CEO Dave Huml stated that while challenges were known, the magnitude and recoverability could not be quantified until the books closed, including the January physical inventory, leading to disclosure as soon as the full impact was understood. He acknowledged customer frustration but noted that most large customers are working with Tennant, with lost sales reflected in the 2-year guidance, and a focus on rebuilding trust through performance. Regarding capital allocation, Dave Huml affirmed an aggressive share repurchase stance for 2026, similar to 2025's 6% reduction in outstanding shares, especially if the stock price presents a buying opportunity within the 1x-2x net leverage target. He also detailed constructive conversations with VisionOne, resulting in two new board directors and a commitment to propose moving away from a staggered board in 2027.

Steve Ferazani questioned Tennant Company's decision not to disclose the material ERP implementation issues earlier, given their impact on Q4 2025 results. He also expressed concern about potential permanent customer loss, particularly among large direct customers, and its effect on the 2026 revenue growth guidance. Additionally, he inquired about the company's strategy for share repurchases given the low net leverage and current stock valuation, and asked for comments on recent board structure changes following engagement with Vision One.

Answer

President and CEO Dave Huml explained that early disclosure was difficult due to being in triage mode, the inability to quantify the full impact until after the year-end close and physical inventory in January, and the complex process of reconciling orders and allocating limited production. He acknowledged customer frustration but noted that most customers are still engaged, working with Tennant to resolve issues, and that lost sales in Q4 2025 were known. He reiterated commitment to aggressive share repurchases when the stock price is attractive and M&A opportunities are not imminent, potentially flexing the 1x-2x leverage target. He also confirmed constructive conversations with Vision One led to the addition of two new directors, James Glerum and Patrick Allen, and a commitment to propose moving away from a staggered board in 2027.

Steve Ferazani of Sidoti & Company, LLC questioned management's confidence in achieving a stronger second half given global economic uncertainty, the specific drivers for the guided margin lift, the remaining backlog to be lapped, and the strategic rationale for entering the outdoor sweeper market.

Answer

CEO David Huml expressed confidence in the second-half outlook, citing strong order growth in North America, strategic initiatives improving performance in EMEA, and a robust opportunity pipeline. CFO Fay West detailed that the margin lift is expected from gross margin expansion via pricing, increased volume absorption, and cost-out initiatives, alongside disciplined S&A spending. Management also clarified that approximately $50 million in backlog conversion remains to be lapped in the second half. Mr. Huml explained the new Z50 outdoor sweeper launch is a strategic entry into the ~$200 million industrial outdoor sweeping market, leveraging existing sales channels and service capabilities.

Steve Ferazani questioned Tennant's ability to achieve its full-year EBITDA margin guidance, noting three consecutive quarters of sequential declines and asking for the specific drivers of the expected improvement.

Answer

President and CEO Dave Huml explained that Q1 margins were impacted by lapping a prior-year $50 million backlog reduction of high-margin industrial products and a current-quarter concentration of sales to large strategic customers. He detailed a plan to mitigate a $40 million tariff impact through sourcing actions and significant price increases of 7-10% in North America, noting that competitors have made similar moves. Huml expressed confidence that these actions, combined with strong underlying order rates, would enable the company to meet its full-year guidance.

Steve Ferazani questioned Tennant's ability to maintain or grow margins in 2025 amid declining revenue, the source of restructuring savings, Q4 order rates, and the strategy behind the new share repurchase authorization.

Answer

CFO Fay West stated that gross margin expansion is expected from cost-out initiatives and pricing, with restructuring savings primarily from S&A. CEO David Huml highlighted near double-digit order growth from Q2-Q4 2024, providing confidence for 2025. Fay West added that the new share buyback offers opportunistic flexibility beyond just offsetting dilution, within their balanced capital allocation framework.

Steve Ferazani asked for clarification on the performance of the Autonomous Mobile Robot (AMR) business, the dynamics of the 2024 backlog reduction, and the timeline and expected financial benefits of the ERP modernization project.

Answer

CEO David Huml explained that AMR's 5% contribution to year-to-date sales includes all AMR products, with the new X4 ROVR's impact still ramping up. He confirmed the 2024 backlog reduction is now expected to be $130 million, up from the initial $80-$100 million estimate, due to specific softness in industrial orders for the rental channel. CFO Fay West detailed the ERP project's costs, with an expected full-year spend of around $37 million, while Huml noted the project is on track for a 2025 rollout and targets $10-$15 million in efficiency savings.

Steve Ferazani inquired about the factors contributing to Forum Energy Technologies' Q4 2025 performance exceeding guidance, the reasons for the strong Q1 2026 guidance despite projected rig count declines, and the components of the 2026 Free Cash Flow guidance, particularly working capital management in a growth market.

Answer

President and CEO Neal Lux attributed Q4 strength to solid execution and no end-of-year slowdown. CFO Lyle Williams added that strong Subsea revenue growth (25%) from backlog execution and favorable product mix in Artificial Lift and Downhole contributed. For Q1 2026, Lux cited the 'Beat the Market' strategy, share gains, backlog conversion, and structural cost savings (two-thirds realized). Williams detailed 2026 Free Cash Flow components: $35 million for cash taxes and interest, $10 million for CapEx, and a $10 million working capital release, primarily from inventory. Ferazani also asked about the timing of share buybacks, with Williams noting over 400,000 shares repurchased in Q4 2025 and a likely back-end weighted approach for 2026, given improved net leverage.

Steve Ferazani asked about the specific factors that led Forum Energy Technologies to exceed its Q4 guidance, the drivers behind the strong Q1 2026 guidance despite projected rig count declines, and the strategy for achieving robust free cash flow guidance for 2026, particularly concerning working capital management in a growth environment. He also inquired about the timing and volume of share repurchases in Q4 2025 and the expected timing for 2026.

Answer

President and CEO Neal Lux attributed Q4 outperformance to solid team execution and the absence of an anticipated year-end slowdown. CFO Lyle Williams added that strong subsea revenue growth (25%) from backlog execution and favorable product mix in Artificial Lift and Downhole contributed. For Q1 2026, Lux cited the 'beat-the-market' strategy, share gains, backlog conversion, and structural cost savings (two-thirds realized, full realization by H2 2026). Williams detailed the 2026 free cash flow guidance, including $35 million for cash taxes/interest, $10 million for CapEx, and a $10 million working capital release, emphasizing continued inventory focus. Regarding buybacks, Williams noted over 400,000 shares repurchased in Q4 2025 and suggested a more back-end weighted approach for 2026, similar to 2025, due to the 1.5x net leverage ratio constraint being less restrictive now.

Steve Ferazani from Sidoti & Company, LLC asked how Forum Energy Technologies managed to grow revenue amid declining rig counts, questioned the basis for the full-year EBITDA guidance, sought clarity on the impact of the struggling valve business, and asked about the levers for increased free cash flow guidance.

Answer

President & CEO Neal Lux attributed the outperformance to a broad portfolio with strength in offshore and international markets, diligent cost-cutting, and market share gains from the "Beat the Market" strategy. EVP & CFO D. Lyle Williams confirmed the full-year guidance is supported by cost savings, a record backlog, and an expectation of continued market share gains. He noted the guidance assumes the valve business remains at depressed levels. Williams explained the higher cash flow guidance is driven by significant working capital reductions and lower CapEx, levers independent of EBITDA.

Steve Ferazani of Sidoti & Company, LLC asked how Forum Energy Technologies achieved sequential revenue growth amid declining rig counts, what underpins the confidence in the full-year EBITDA guide, how the struggling valve business is factored into guidance, and what levers enabled the company to raise its free cash flow forecast without raising the EBITDA outlook.

Answer

President and CEO Neal Lux attributed the strong performance to a diversified portfolio where international and offshore strength offset US land weakness, diligent cost-cutting, and market share gains from the 'beat the market' strategy. CFO D. Lyle Williams added that a high backlog and progress on a $10 million cost savings plan support the full-year guidance, which assumes the valve business remains at depressed levels. Regarding cash flow, Williams identified working capital reduction and lower CapEx as the key levers. Lux added that the company's cash-flow-focused incentive structure has driven strong execution from the teams.

Steve Ferazani from Sidoti & Company asked how FET can leverage its geographic footprint to offset U.S. weakness, the quantifiable impact of tariffs in Q2 guidance, and the company's capital allocation plan if share buybacks are restricted for an extended period.

Answer

President and CEO Neal Lux and CFO Lyle Williams highlighted how the company's geographic diversification helps. Lux pointed to strength in the international Subsea business, while Williams explained how their global manufacturing footprint in Canada and Saudi Arabia helps mitigate tariffs. Lux noted the largest tariff impact is the 'buyer strike' on valves, which is factored into guidance. Regarding capital allocation, Lux stated that if buybacks are paused, the company would continue using 50% of free cash flow to pay down debt on its revolver, which would reduce leverage and eventually reopen the buyback window.

Steve Ferazani asked about the potential impact of tariffs on the Canadian business, the company's exposure to Mexico, and its appetite for another large acquisition given its strong balance sheet.

Answer

President and CEO Neal Lux stated that while Canada had a strong start to the year, a potential oil tariff could cause a slowdown. He noted that exposure to Mexico is minimal. CFO Lyle Williams added that while no tariff impact is included in guidance, FET has historically been able to pass on such costs. Regarding M&A, Lux confirmed they would consider another transformational acquisition like Variperm if the relative value was more compelling than buying back FET shares.

Steve Ferazani with Sidoti inquired about the surprisingly low organic sales growth in the Americas, questioning if it was a temporary blip or a trend, and whether future growth would be macro-dependent. He also asked about the contribution of price versus volume to Americas growth and the drivers behind the healthy gross margins.

Answer

Ann Thornton, CFO, clarified that Americas organic growth was 1.4%, acknowledging a step back in momentum. Russell Shaller, President and CEO, attributed the weakness to struggling U.S. manufacturing, noting improvement exiting the quarter and a strong correlation to manufacturing capacity utilization. He stated that Americas growth had virtually no price component and that healthy margins were due to a favorable product mix, with engineered products (mid-50s+ gross margin) outperforming commoditized products (40% gross margin).

Steve Ferazani asked about the surprisingly low organic sales growth in the Americas, questioning if it was a one-quarter anomaly or a trend, especially given the significant R&D investment. He also inquired about the breakdown of price versus volume in Americas' growth and the drivers behind the healthy margins.

Answer

CFO Ann Thornton clarified that the Americas and Asia region grew 3.1% organically, with the Americas alone up 1.4%. President and CEO Russell Shaller noted November weakness but improvement exiting the quarter, attributing the slower growth to struggles in U.S. manufacturing and its correlation to capacity utilization. He stated that Americas' growth had virtually no price component and that healthy margins were due to a favorable mix shift towards higher-margin engineered products, compensating for a decline in more commoditized offerings.

Steve Ferazani inquired about the strong gross margin performance in Q1 2026, specifically whether it was driven by effective pricing to offset tariff impacts or a particularly strong product mix, comparing it to the adjusted year-ago quarter and recent halves.

Answer

President and CEO Russell Shaller attributed the strong gross margin primarily to effective pricing strategies and ongoing supply chain optimization efforts, including strategic sourcing and production location adjustments. He noted that these efforts helped mitigate tariff impacts, projecting the full-year impact to be at the low end of the previously guided range, which contributed to the increased EPS guidance. Regarding R&D, Mr. Shaller confirmed the current 5.7% run rate is influenced by recent acquisitions, anticipating it to normalize around 5.5% for the next few quarters with some streamlining, emphasizing R&D as the best organic investment. For cost-out actions, he stated that over 80% of the benefits were realized in Q1, with more to come, and no further restructuring charges are expected. CFO Ann Thornton addressed cash conversion, confirming that achieving closer to 100% for the year is a reasonable target, noting Q1 is typically lower due to incentive payments. On inventory, Ms. Thornton explained it's due to acquisitions, strategic stocking of high-demand products, and the planned relocation of printer production to Asia. Mr. Shaller added that newer products like lasers and readers inherently require higher inventory levels compared to traditional Brady products, contributing a few percentage points to the overall inventory.

Steve Ferazani, a Senior Equity Analyst at Sidoti, inquired about the drivers behind Brady Corporation's strong gross margin performance, specifically asking if it was due to effective pricing strategies or a favorable product mix. He also questioned the sustainability of the higher R&D run rate, the extent of benefits realized from last year's cost-out actions, the outlook for cash conversion, and the reasons for elevated inventory levels.

Answer

President and CEO Russell Shaller attributed the strong gross margin primarily to pricing and strategic supply chain adjustments, noting efforts to mitigate tariff impacts. He clarified that the current R&D rate is influenced by recent acquisitions, with an expected run rate of around 5.5% for the near future, emphasizing R&D as a key organic investment. Shaller also stated that approximately 80% of the cost-out benefits have been realized, with more efficiencies expected. CFO Ann Thornton confirmed that achieving 100% cash conversion is a reasonable target for the year, citing improvements in Q1. She explained that higher inventory levels are a result of acquisitions, strategic stocking of high-demand products, and supply chain adjustments, with Shaller adding that new product lines like lasers and readers inherently require higher finished goods inventory.

Steve Ferazani of Sidoti & Company, LLC questioned the diverging Q4 guidance for the Americas/Asia and Europe/Australia regions, the specific impact of the WPS business on Europe, and the current business environment in China. He also requested a breakdown of restructuring costs and the expected revenue from the Funai acquisition.

Answer

President and CEO Russell Shaller explained the guidance reflects anticipated tariff headwinds in the Americas and a potential recovery in Europe from a Q3 low, driven by a broader industrial slowdown in Germany rather than the WPS business. He noted China is a small, challenging market where Brady is rightsizing operations. Executive Ann Thornton added that the $3.9 million in restructuring costs were split evenly between the two regions and the Funai acquisition is expected to contribute $15-$20 million in first-year sales.

Steve Ferazani of Sidoti & Company asked why Brady raised the low end of its guidance despite significant foreign exchange headwinds. He also inquired about the deteriorating conditions in Australia, performance in Europe amid geopolitical concerns, traction with the Gravotech acquisition, and the success of track and trace products.

Answer

Executive Ann Thornton explained that stronger-than-expected performance in the Americas and Asia region, with 4.3% organic growth, offset the negative FX impact. President and CEO Russell Shaller attributed Australia's weakness to its export-driven economy's reliance on a slowing China and Europe. He expressed caution on Europe due to Germany's energy price challenges. Shaller noted that the Gravotech integration is still in its early stages and that track and trace products are performing as expected within a weak industrial automation investment climate.

Steve Ferazani of Sidoti & Company, LLC inquired about the key drivers behind the strong 5.1% organic growth in the Americas and Asia, the integration progress of the recent Gravotech acquisition, the strategic rationale for the smaller AB&R acquisition, and the target market for the new i5300 printer and scanner bundle.

Answer

President and CEO Russell Shaller explained that regional growth was driven by focusing on niche markets like data centers and aerospace, alongside increased demand and penetration in Southeast Asia, particularly India. He stated that the Gravotech acquisition adds crucial direct part marking capabilities and is integrating well. Shaller described the AB&R deal as a strategic addition of a specialized sales force for customized solutions. The i5300 bundle targets mid-sized manufacturers, providing an integrated solution for printing and scanning labels, leveraging technology from the Code Corp. acquisition.

Steve Ferazani asked about the progress and long-term opportunity in Southeast Asia and India, including product customization needs for those markets. He also sought clarification on Europe's performance variance between Q3 and Q4 and questioned the plan for capital deployment given the lower CapEx guidance and potential for rapid cash accumulation.

Answer

President and CEO Russell Shaller highlighted strong growth in India (approx. 20% YoY) and Southeast Asia, driven by production shifts from China. He clarified that product strategy involves emphasizing different parts of the global portfolio rather than creating unique products for each country. Regarding Europe, he characterized Q3 as slightly better and Q4 as slightly worse than expected, with the full-year result reflecting the macro environment. On capital, Shaller affirmed the company's strong cash generation but stressed a disciplined approach, stating he is comfortable holding cash rather than overpaying for acquisitions, while remaining ready for a significant opportunity.

Steve Ferazani asked for a comparison of Enpro's Q4 2025 performance against its November guidance, noting that revenue, particularly organic growth in Sealing, appeared slightly ahead, while margins might have been softer. He inquired about the drivers behind these variances, specifically regarding AST costs and corporate expenses. He also questioned Enpro's 2026 guidance regarding cash conversion, specifically if it would remain around 100% of Adjusted EPS despite higher expected CapEx, and asked about the planned use of cash and any shifts in M&A focus.

Answer

EVP and CFO Joe Bruderek confirmed that sales were at the higher end of the range and margins were in line with expectations. He attributed slightly higher corporate expenses to increased medical costs and higher short-term incentive costs due to outperformance in ESFRI metrics. Regarding cash conversion, Joe Bruderek affirmed expectations for strong free cash flow conversion, noting a slight increase in interest expense due to revolver draws for recent acquisitions. He stated that the balance sheet remains strong at 2x net leverage, allowing for continued allocation of $250 million-$300 million or more for strategic M&A, with a robust pipeline focused on growth nodes. President and CEO Eric Vaillancourt emphasized a disciplined approach to M&A, focusing on strategic fit and appropriate value.

Steve Ferazani asked for a breakdown of how Enpro's Q4 2025 performance, specifically revenue and margins, compared to the November guidance, noting that revenue ran ahead while margins appeared softer. He also inquired about the drivers behind the margin performance, including AST costs and corporate expenses. Additionally, he questioned the expected cash conversion for 2026, given higher CapEx, and how the company plans to utilize its strong balance sheet and cash flow, particularly regarding M&A focus.

Answer

Joe Bruderek, EVP and CFO, stated that Q4 sales were at the higher end of the range, and EBITDA margin was in line with expectations. Higher corporate expenses were attributed to increased medical costs and higher short-term incentive costs due to outperformance in ECFRI and free cash flow. For 2026, Joe Bruderek confirmed expectations for strong free cash flow conversion, noting a slight increase in interest expense due to revolver draw for recent acquisitions. He emphasized the strong balance sheet (2x net leverage) provides flexibility for $250 million-$300 million or more in strategic M&A, with a robust pipeline. Eric Vaillancourt, President and CEO, added that M&A remains aggressive but disciplined, with a focus on strategic fit and value. Joe Bruderek further specified M&A targets in growth nodes like compositional analysis and food and biopharma.

Steve Ferazani of Sidoti & Company, LLC asked about the drivers for the raised Advanced Surface Technologies (AST) growth expectations, the revenue ramp status of the Arizona facility, the performance of the compositional analysis business acquired via AMI, and the potential for M&A given the company's expanded credit facility.

Answer

President & CEO Eric Vaillancourt stated that AST's stronger outlook is driven by investments in Arizona, California, and Taiwan coming online, alongside some market recovery. He confirmed the Arizona facility is still in the testing and certification phase and not yet generating material revenue. Both Vaillancourt and EVP & CFO Joe Bruderek described the AMI acquisition (compositional analysis) as an 'outstanding' home run exceeding growth expectations. Regarding M&A, Bruderek confirmed EnPro is actively working its pipeline, focusing on key growth areas while adhering to strict financial and strategic criteria.

Steve Ferazani inquired about any signs of distributor destocking, the progress of the new Arizona facility, the tangible benefits from continuous improvement efforts in the AST segment, and the current M&A environment's impact on capital allocation strategy.

Answer

President and CEO Eric Vaillancourt confirmed no signs of distributor destocking, as there was no significant inventory build-up. On the Arizona facility, he and EVP and CFO Joe Bruderek stated it is on track, undergoing qualification, and expected to contribute more significantly to revenue by year-end. Regarding continuous improvement in AST, Eric Vaillancourt described the benefits as gradual and consistent rather than a single step-change. Joe Bruderek addressed capital allocation, noting that while M&A has slowed slightly due to market uncertainty, Enpro remains patient and has enhanced flexibility with its new credit facility.

Steve Ferazani from Sidoti & Company asked about the drivers of the Q4 sequential margin improvement in the AST segment, its 2025 margin outlook, potential demand slowdowns in the Sealing segment, and the reasons for the increased 2025 CapEx guidance.

Answer

President and CEO Eric Vaillancourt attributed the Q4 AST margin strength to a favorable mix from leading-edge solutions, which more than offset costs from the Arizona facility qualification. He noted that while the mix will remain favorable in 2025, ongoing growth investments will likely keep margins in the 'above 20%' range. Vaillancourt confirmed no demand slowdown in the Sealing segment and explained that the higher 2025 CapEx reflects projects pushed from 2024 that are now in execution.

Steve Ferazani of Sidoti & Company, LLC asked for details on the AST segment's margin compression from growth spending, the expected revenue ramp from the Arizona facility, any changes to the Alexa acquisition's marketing strategy, and the rationale for lowering the CapEx forecast.

Answer

CFO Joe Bruderek explained that accelerated qualification work for the new Arizona facility pulled costs into 2024, impacting AST margins. CEO Eric Vaillancourt added that operational excellence investments are being made ahead of realizing benefits. Vaillancourt projected a full revenue ramp from the Arizona facility is not expected until 2026. He also confirmed the strategy for the Alexa acquisition remains unchanged and its pipeline is improving. Executive James Gentile stated the CapEx forecast was lowered due to a more phased spending approach on advanced projects, which will yield a better long-term solution, and that capital allocation priorities remain organic growth and M&A.

Steve Ferazani inquired about the drivers of the year-over-year margin squeeze, specifically the impact of tariffs versus product mix, and the remaining levers to achieve tariff margin neutrality by fiscal 2027. He also asked about the confidence level and timing for realizing the 20% of $70 million synergies in year one.

Answer

David Wilson, President and CEO, stated that product mix was the biggest impact on margins, followed by tariffs. He explained that higher unit sales in lifting equipment versus parts, and lower revenue from precision conveyance due to timing, unfavorably impacted margins. He reiterated confidence in achieving cost neutrality by the end of the current fiscal year and margin neutrality in fiscal 2027 through planned initiatives. Regarding synergies, he expressed commitment to achieving 20% of the $70 million in year one, noting that the Integration Management Office has been actively preparing, and anticipated these savings would be naturally back-end loaded.

Steve Ferazani asked about the drivers of the year-over-year margin squeeze, specifically the impact of tariffs versus product mix, and the remaining levers to achieve tariff margin neutrality by fiscal 2027. He also inquired about the confidence level in achieving the 20% of $70 million synergies in year one, and if they might exceed it or if it would be back-half weighted.

Answer

CEO David Wilson stated that the biggest impact on margin was mix, followed by tariffs. He explained that the mix issue stemmed from more unit sales in lifting equipment versus parts, and lower revenue from Precision Conveyance due to timing. He reiterated confidence in achieving cost neutrality for tariffs by the end of the current fiscal year and margin neutrality in fiscal 2027 through planned initiatives. Regarding synergies, he confirmed the commitment to 20% in year one, with efforts to over-deliver, and anticipated the savings would be naturally back-end loaded.

Steve Ferazani of Sidoti & Company, LLC asked about the timing of backlog conversion, seeking to understand how much of the current project backlog will translate to revenue in fiscal 2026 versus later years. He also asked for updated CapEx guidance and the outlook for free cash flow.

Answer

President and CEO David Wilson stated that approximately 70-80% of the current $360 million backlog is expected to be recognized as revenue in the current fiscal year, with the remainder falling mostly in fiscal 2027. CFO Gregory Rustowicz provided CapEx guidance of $20 million to $25 million for the year. He noted that a precise free cash flow forecast is difficult due to the variable timing of acquisition-related costs for the Keto Crosby deal, which were $4.1 million in Q1.

Steve Ferazani of Sidoti & Company, LLC questioned why product mix was a negative contributor to margins given the strong precision conveyance orders. He also asked for clarity on the ability to reprice the existing backlog to mitigate tariff impacts in the second half of the year.

Answer

David Wilson, President, CEO & Director, clarified that while precision conveyance orders were strong, sales in the segment were down, leading to lower absorption and a negative margin impact. He also cited volume declines in the high-margin North American linear motion business due to a facility consolidation. Regarding tariffs, Wilson stated the company can implement surcharges on existing backlog orders to offset input costs. Gregory Rustowicz, SVP Finance, CFO & Treasurer, added that while they expect a ~$10 million headwind in the first half, the goal is to achieve gross profit dollar neutrality on tariffs by the second half, acknowledging competitive dynamics could affect volume.

Steve Ferazani asked about the rationale for taking on significant leverage (nearly 5x) for the Kito Crosby acquisition amidst global economic uncertainty and inquired about the geographic location of Kito's facilities in relation to potential tariff risks.

Answer

President and CEO David Wilson expressed confidence in the combined entity's ability to generate over $200 million in annual free cash flow, enabling rapid deleveraging of approximately one turn per year. He also noted that Kito Crosby's manufacturing footprint is largely 'in-region, for-region,' with the primary import stream into the U.S. coming from Japan, which is viewed as a relatively low tariff risk.

Steve Ferazani questioned the Q3 guidance, noting it seemed conservative given revenue pushed from Q2, and asked about the gross margin outlook. He later followed up on capital allocation, asking if the company might pursue more aggressive share repurchases.

Answer

President and CEO David Wilson and CFO Greg Rustowicz explained the Q3 guidance reflects a backlog mix now more heavily weighted to longer-term projects phasing into Q4 and FY26, plus the ongoing ramp-up at the Monterrey facility. Wilson stated they expect margin improvement from Q2 levels toward their long-term goals. On capital allocation, Wilson confirmed share buybacks are an attractive tool but reiterated the company's commitment to its $60 million debt repayment target for the fiscal year.

Steve Ferazani asked about DTI's ability to maintain margins in Q2 despite rig count declines, the timing and permanence of cost-cutting benefits, the factors determining the high and low ends of guidance, and the drivers behind the strong sequential growth in international revenue.

Answer

CFO David Johnson explained that anticipated pricing pressures were deferred but are expected in Q3 and Q4, and the full impact of the company's cost-cutting program will also be more visible in the second half of the year. President, CEO & Director Wayne Prajon added that international growth was driven by strong momentum from recent acquisitions and the successful relaunch of Drill N Ream assets in the Middle East, which is helping to offset softness in other areas.

Steve Ferazani of Sidoti & Company inquired about DTI's ability to maintain strong free cash flow despite reduced guidance, the growth outlook for the Eastern Hemisphere, the expected timing of North American market impacts, and the rationale behind the wide range for interest expense guidance.

Answer

CFO David Johnson explained that free cash flow will be preserved through a combination of cost reductions and deferring growth CapEx to align with market activity. CEO Wayne Prejean noted that while Saudi Arabia is soft, growth in other Middle Eastern markets and new technologies like MechLOK swivels are offsetting declines. Regarding North America, management sees a 'slow leak' rather than a sharp drop. Johnson confirmed the interest expense range reflects flexibility in capital allocation between debt reduction and potential share buybacks.

Steve Ferazani of Sidoti & Company asked about the drivers of Q4's sequential growth in tool rentals despite U.S. land softness and the reasons for the decline in product sales. He also questioned if the higher 2025 CapEx guidance represents a 'catch-up' and inquired about the international outlook for 2025, considering market weaknesses and integration progress.

Answer

CEO R. Prejean attributed the product sales decline to softness in Saudi Arabia and PEMEX, while tool rental strength came from a general activity surge and the deployment of new, higher-priced technologies. CFO David Johnson explained the 2025 CapEx increase is for growth in the Eastern Hemisphere to support newly acquired technologies, not a catch-up. Prejean added that integration synergies are being realized and new technologies are gaining traction globally, which should help offset regional market softness.

Steve Ferazani of Sidoti & Company asked about the strategic fit of the Titan Tools acquisition, whether the anticipated Q4 slowdown from budget exhaustion has begun, and the message conveyed by the company's strong free cash flow generation amidst market headwinds.

Answer

Executive R. Prejean explained that Titan Tools is a strategic tuck-in for the directional rentals platform, adding key geographic presence in Europe and West Africa. He described the current market as flattish, driven by customer capital discipline. Prejean emphasized that DTI's ability to generate strong free cash flow reflects its own capital discipline and a risk-based investment approach that aligns with market conditions.

Steve Ferazani of Sidoti & Company, LLC inquired about whether SPX experienced any market caution seen by other companies, the outlook for second-half free cash flow, and if the company's larger size necessitates a shift toward larger M&A targets.

Answer

President & CEO Gene Lowe and CFO Mark Carano indicated no significant market hiccups, attributing this to their business model and supply chain management. Carano expressed confidence in meeting full-year free cash flow targets, explaining the H1 working capital build was due to project timing and inventory strategy. Lowe affirmed that the M&A strategy remains unchanged, focusing on strategic fit rather than deal size.

Steve Ferazani from Sidoti requested more detail on the quarterly timing of the financial impact from tariffs and asked how the company is factoring potential slower U.S. economic growth into its guidance, particularly for its more cyclical businesses.

Answer

Chief Financial Officer Mark Carano explained that there is a lag in fully offsetting tariff costs with price increases due to existing backlog, but the company expects to be fully offset over time. Executive Paul Clegg specified the cadence of the impact would be roughly 40% in Q2, followed by 30% in Q3 and 30% in Q4. President and CEO Eugene Lowe addressed economic concerns by noting that their leading indicator business, Radiodetection, is performing well. He reiterated the company's resilience due to high replacement revenue and project backlogs, giving them confidence for 2025, while acknowledging a future recession would have an impact.

Steve Ferazani asked about the drivers behind the Q4 segment performance, where D&M beat expectations while HVAC was at the low end of its range. He also inquired about boiler order dynamics based on weather timing, potential risks to government-funded projects from the new administration, and whether the M&A strategy is evolving post-KTS acquisition.

Answer

CFO Mark Carano attributed D&M's Q4 outperformance to strong execution, operating leverage, and continuous improvement initiatives. Executive Paul Clegg noted HVAC's result was due to a warm Q4 suppressing boiler sales. CEO Eugene Lowe explained that the timing of cold weather is critical for boiler orders. Mark Carano stated they see no current impact on government-funded projects, as KTS technology is critical to military modernization. Eugene Lowe affirmed the M&A strategy is consistent, focusing on engineered products, and noted the current pipeline is the busiest in a decade.

Steve Ferazani of Sidoti & Company, LLC asked for an update on capacity expansions at Ingenia and Marley, the current state of industrial reshoring demand, and the company's near-term plans for its strong cash flow.

Answer

CEO Eugene Lowe reported positive progress on Ingenia's capacity expansion, which is driving growth into 2025, and confirmed the Marley expansion has gone 'exceptionally well,' improving lead times and margins. He noted that while some EV-related reshoring projects have slowed, the overall trend continues to expand the company's total addressable market. An unnamed executive confirmed the near-term intention is to use cash flow to pay down debt until a transaction occurs.

Steve Ferazani of Sidoti & Company, LLC questioned the sustainability of the Gas Cylinders segment's Q2 recovery, the rationale for not raising the high end of full-year guidance after a strong quarter, future production capacity following the Pomona facility consolidation, the expected impact of tariffs, and the company's capital allocation strategy after the Graphic Arts divestiture.

Answer

CEO Andy Butcher confirmed the Gas Cylinders momentum is sustainable, driven by record demand in space exploration, and stated that the consolidated Riverside facility has ample capacity for future growth in both space and clean energy. He attributed the conservative guidance update to uncertainties around tariffs and a softening auto market. CFO Steve Webster added that any tariff impact is indirect via macro factors and is already modeled in the outlook. Butcher concluded that post-divestiture, capital allocation will focus on growth, debt reduction, and share buybacks.

Steve Ferazani inquired about the drivers behind the strong Q1 performance, the sustainability of defense sector strength, growth in specialty industrial gas cylinders, and the company's capital allocation strategy, including buybacks and M&A.

Answer

CEO Andy Butcher attributed the strong quarter to robust defense demand, particularly in MREs and flares, which he expects to remain elevated due to military restocking. He also highlighted long-term growth trends in specialty industrial gases for electronics and calibration. CFO Steve Webster detailed the capital allocation plan, noting a $10M opportunistic buyback authorization and an expected ramp-up in CapEx, while confirming M&A remains a possibility.

Steve Ferazani of Sidoti & Company, LLC asked about the financial impact of Q4 order pull-forwards on 2025 guidance, the development outlook for the CNG truck market, the status of the Graphic Arts business sale, potential impacts from trade tariffs, and details on the planned increase in 2025 capital expenditures.

Answer

CEO Andy Butcher quantified a $3.4 million defense order pull-forward and described the CNG market as having a 'measured' start to 2025 but exciting long-term potential. He also noted the 30-40% increase in 2025 CapEx is for a variety of smaller growth and efficiency projects. CFO Steve Webster confirmed the Graphic Arts sale is progressing with an exclusive buyer for a H1 2025 close and stated that potential tariff impacts are manageable and reflected in guidance.

Steve Ferazani of Sidoti & Company, LLC asked about the sustainability of Elektron's margins, the drivers of strong European sales, the status of the new U.K. facility and CNG engine adoption, and the revised timeline for the Graphic Arts divestiture.

Answer

CEO Andy Butcher and CFO Steve Webster addressed the questions. Webster explained that Elektron's 18.2% margin was boosted by a ~$2 million revenue pull-forward but that the company still aspires to a 20% margin with further volume recovery. Butcher noted that strong European industrial cylinder sales drove regional performance. He also confirmed the first bulk gas module from the new U.K. facility will ship by year-end, while the CNG engine ramp is expected to be gradual, with a notable impact not likely until mid-2025. Webster clarified the Graphic Arts sale was delayed because the initial buyer did not meet valuation expectations, but they are now engaged with multiple parties and target a close in the first half of 2025.

Steve Ferazani from Sidoti & Company, LLC asked about the key drivers for the anticipated stronger second-half financial performance, customer sentiment in Australia amid volatile met coal prices, and the expected trend for free cash flow for the remainder of the year.

Answer

CEO Bradley Dodson explained that the second-half improvement is expected from a full quarter's contribution from the new Australian villages and growth in the integrated services business. He noted that while a major contract renewal shows customer confidence, market uncertainty could impact spending above contracted minimums. Dodson also confirmed that free cash flow will be stronger in the second half due to seasonality and tax payment timing, and the company will remain active with its share buyback program.

A representative for Steve Ferazani of Sidoti & Co. inquired about potential new large infrastructure projects in Canada following the recent election and asked for details on the scope of the consulting firm hired to review North American costs.

Answer

CEO Bradley Dodson identified potential future pipeline projects and the Pathways carbon sequestration initiative as significant opportunities for Civeo's Canadian business. Regarding the cost review, Dodson stated that while it will cover all of North America, its primary focus is on rightsizing the Canadian cost structure to align with the significant shift in that market's outlook.

Steve Ferazani of Sidoti & Company questioned whether the significant restructuring in Canada reflects a long-term negative outlook rather than a reaction to short-term issues. He also inquired about potential weakness in Australia due to commodity price pressure and sought clarity on the modeling and closing risk of the new Australian acquisition.

Answer

President and CEO Bradley Dodson confirmed the Canadian restructuring is a response to a perceived long-term shift in customer behavior toward lower headcount. For Australia, he stated that despite softer commodity prices, customer demand for rooms and expansion plans remain strong, supported by a backlog of take-or-pay contracts. Dodson also noted the acquisition's exclusion from guidance is due to timing uncertainty, not a change in its expected value, and sees no current risk to closing.

Steve Ferazani from Sidoti & Company asked for a quantification of the Q3 wildfire impact, what factors offset this impact in the guidance, the primary drivers of Australian growth, an update on room expansions, and the timing of demobilization costs.

Answer

President and CEO Bradley Dodson explained the wildfires negatively impacted results by approximately 30,000 room nights. This was offset by stronger-than-expected performance in the Australian integrated services business, which is growing primarily by winning new work. He noted that plans for a 100-room expansion in Australia are still being pursued but are contingent on customer commitments. Dodson also clarified that $0.4 million in demobilization costs were incurred in Q3, with a final $1 million expected in Q4.

Steve Ferazani asked for details on the financial savings from faster well drilling, the transferability of learnings from the recent 4-well pad, the timing for second-half drilling, and the production schedule for the Lovina and Forguson wells.

Answer

Wolf E. Regener, an executive, confirmed significant time and money savings from drilling efficiencies but deferred providing specific figures until all costs are finalized. He affirmed that these learnings are 'absolutely' transferable to future drilling due to a combination of improved techniques, geological steering, and better equipment. Regener stated that second-half drilling plans remain scheduled for the second half without further detail. He clarified that the Lovina wells will be brought to production first, with the frac crew moving immediately to the Forguson wells, which will follow shortly after.

Steve Ferazani of F.A.N. Financial inquired about the company's hedging strategy amid oil price concerns, the factors driving 2024 proved reserve growth, and the focus and timing of the 2025 drilling program.

Answer

Executive Wolf E. Regener and CFO Gary W. Johnson explained that their hedging strategy utilizes costless collars (currently $60-$94) to satisfy bank requirements, which mandate hedging 50% of the next 12 months' production. Regener added that the 2025 drilling program is focused on proved acreage to validate the performance of longer lateral wells. He also provided timing for second-half wells, projecting a spud date around August to early September.

Steve Ferazani of F.A. Gerstein inquired about the company's hedging strategy amid oil price concerns, the factors behind the 24% increase in 2024 proved reserves, and the focus of the 2025 drilling program, including the timing for upcoming wells.

Answer

Executive Wolf E. Regener and CFO Gary W. Johnson explained the hedging strategy involves costless collars to meet bank requirements, covering 50% of production for the next 12 months with a wide band of $60 to $94. Regener noted the 2025 drilling program focuses on proved acreage to validate the performance of longer laterals. He also detailed the timing for the next wells, which are planned to be spudded around August or early September.

Steve Ferazani inquired about the financial savings from faster well drilling, the transferability of those operational learnings, the timing for second-half drilling plans, and the production schedule for the Lovina and Forguson wells.

Answer

Executive Wolf E. Regener confirmed significant but unquantified cost savings from drilling efficiencies, noting the learnings are transferable to future wells. He deferred on specific timing for H2 drilling but clarified the Lovina wells would come online first, with the Forguson wells following immediately after completion activities are transferred.

Steve Ferazani of Sidoti & Company inquired about the financial savings from faster drilling, the transferability of learnings from multi-well pads, the timing of second-half drilling, and the production schedule for the Lovina and Forguson wells.

Answer

CEO Wolf E. Regener confirmed significant but unspecified financial savings from drilling efficiencies, stating firm numbers will be released later. He affirmed that these operational improvements, stemming from better technology and geological steering, are transferable to all future projects. Regener deferred providing specific timing for second-half drilling but clarified that the Lovina wells would come online just ahead of the Forguson wells in the upcoming quarter.

Steve Ferazani inquired about the financial savings from faster well drilling, the transferability of learnings from pad drilling, updates on second-half drilling plans, and the production timeline for the Lovina and Forguson wells.

Answer

Executive Wolf E. Regener confirmed significant time and money savings from the 25% reduction in drilling times but deferred providing specific figures until all costs are finalized. He affirmed that these operational improvements are highly transferable to future wells, attributing the success to a combination of better technology, geological steering, and contractor performance. Regener did not offer a specific timeline for second-half drilling but clarified the production sequence, stating the Lovina wells would come online first, followed closely by the Forguson wells.

Steve Ferazani of Sidoti & Company inquired about the financial savings from recent drilling efficiencies, the transferability of these learnings to future wells, and the specific timing for bringing the Lovina and Forguson wells into production.

Answer

Executive Wolf E. Regener confirmed significant time and money savings from the new drilling methods but deferred providing exact figures until all costs are finalized. He affirmed that the operational improvements, resulting from a combination of better techniques, geological steering, and contractor equipment, are transferable to all future drilling. Regener also detailed that the Lovina wells will come online first, with the frac crew moving directly to the Forguson wells afterward, meaning they will follow shortly behind.

Steve Ferazani asked about the drivers of the high Q4 ESSA margin, what factors are offsetting margin tailwinds in the 2025 guidance, and the integration progress of the Coretrax and DeltaTek acquisitions.

Answer

CFO Quinn Fanning attributed the strong Q4 ESSA margin primarily to significant project deliveries in the high-margin Subsea well access business, not just the Congo project resolution. For 2025, he noted that while cost cuts and mix provide tailwinds, the guidance remains cautious and does not assume incremental net pricing gains. CEO Mike Jardon added that the company is making good progress internationalizing Coretrax and expanding its cementing technologies but will remain patient to ensure proper value capture.

Steve Ferazani inquired about the margins embedded in recent contract awards and the backlog, the feasibility of double-digit growth to meet 2026 targets, and the progress on realizing synergies from the Coretrax acquisition.

Answer

CFO Quinn Fanning described pricing in the backlog as 'somewhat better,' with 10-15% gains in deepwater well construction and subsea. CEO Michael Jardon expressed strong optimism for Coretrax, emphasizing revenue synergies from leveraging Expro's global footprint and customer access, noting the current focus is on prioritizing new market entries.

Steve Ferazani inquired about the sustainability of the surprising strength in the Northeast/Mid-Con segment, the reasons for the product mix shift in the Rockies, the outlook for year-end cash flow, and how KLX is approaching 2025 capital planning amidst uncertain recovery timing.

Answer

Executive Christopher Baker attributed the Northeast/Mid-Con strength to normalized activity and rightsizing, not a one-off event. He explained the Rockies mix shifted to lower-margin services like coiled tubing, impacting profitability despite steady revenue. Regarding cash flow, Baker noted Q4 seasonality but suggested margin guidance might be conservative. Executive Keefer Lehner added that Q4 CapEx will normalize to $5-$10 million. For 2025, Baker expressed optimism, projecting 5-10% revenue growth and maintenance CapEx of $40-$50 million, citing a strong run-rate and constructive customer conversations.

Speaking for Kyle May, Steve Ferazani questioned the rationale for the upsized $200 million share buyback program, asking if it reflected valuation, strong cash flow, or a lack of M&A opportunities. He also inquired about the margin enhancement potential from new AI applications in mining and the implementation timeline for the FLUORO-SORB PFAS remediation solution.

Answer

CEO Douglas Dietrich explained the buyback aligns with their balanced capital allocation policy of returning 50% of free cash flow to shareholders, enabled by the company's strong balance sheet and cash generation, and does not preclude M&A. He noted that AI in mining enhances safety and improves asset utilization, leading to long-term cost savings. Dietrich also stated that FLUORO-SORB is already in the implementation phase at several utilities, and the EPA collaboration is expected to accelerate broader adoption.

Speaking on behalf of Kyle May, Steve Ferazani of Sidoti & Company questioned the rationale behind the upsized share buyback program, its term, and its implications for M&A strategy. He also asked about the potential margin impact from deploying AI in mining operations and sought clarity on the implementation timeline and regulatory drivers for the FLUORO-SORB PFAS remediation solution.

Answer

CEO Douglas Dietrich stated the $200 million share repurchase program aligns with their balanced capital allocation policy, reflecting confidence in future cash flow, and does not preclude M&A. Regarding AI in mining, he highlighted that the primary benefits are improved asset utilization and enhanced safety, which will drive long-term cost savings and efficiency. He clarified that FLUORO-SORB is already in the implementation phase at several utilities, and the EPA pilot programs are expected to accelerate market adoption rather than initiate it.

Inquired about the reasons for flat year-over-year volume, the impact of an unplanned outage, the purpose of Q1 upgrades, the potential for gross margin improvement, and the strategy for generating cash to pay down the revolver.

Answer

The company attributed flat volume to Q4 processing issues but expressed confidence in future volume growth. The outage primarily impacted margins, not volume. Q1 upgrades are focused on debottlenecking to improve reliability and flow. They expect incremental improvement in gross margins (ex-raw materials) and plan to generate cash through higher earnings and by shipping their significant existing inventory.

Steve Ferazani of Sidoti & Company inquired about the timing of an interest rate swap settlement, the company's near-term strategy for its distribution and cash usage, operating costs and long-term plans for the Stroud and Casper terminals, and the potential impact of the Trans Mountain pipeline expansion on future customer contract lengths.

Answer

CFO Adam Altsuler clarified that there were two separate interest rate swap settlements, one in Q3 for $7.7 million and another in Q4 for $9 million, with proceeds used to pay down debt. He also explained that the distribution is a quarterly board decision based on market conditions and commercial progress. CEO Dan Borgen and CFO Adam Altsuler noted that costs at the Stroud and Casper terminals have been rationalized to minimal levels for maintenance. Regarding contract terms, CEO Dan Borgen addressed the uncertainties surrounding the Trans Mountain pipeline's completion and cost, positioning the company's DRUbit solution as a more sustainable, long-term alternative that supports longer contract durations irrespective of pipeline developments.

Steve Ferazani of Sidoti & Company inquired about the anticipated Q3 financial impact from recent contract non-renewals, the current run-rate contribution from the Hardisty South acquisition, and the rationale for maintaining a flat distribution despite high coverage.

Answer

CFO Adam Altsuler explained that while he couldn't provide a specific EBITDA figure due to commercial sensitivity, using the disclosed percentage of expired capacity (26% at Hardisty) is a reasonable way to estimate the impact. He affirmed confidence in the 2023 outlook for the Hardisty South assets but deferred providing a 2022 run-rate, noting Q3 results will include a $7.7 million gain from an interest rate swap settlement. Regarding the distribution, Altsuler stated the board is taking a quarter-by-quarter approach, with future increases dependent on commercial progress in renewing contracts.