Ted Jackson

Ted Jackson, Managing Director and Senior Equity Research Analyst at Northland Securities, Inc., questioned whether the absence of significant semiconductor contribution was preventing gross margins from reaching historical 50% levels, and if a semi rebound could push margins beyond that. He also asked about the expected cadence of revenue and margin growth throughout 2026, particularly if a stronger semi recovery in the second half would lead to a greater margin step-up. Finally, Mr. Jackson sought an update on Q1 quarter-to-date bookings activity and inquired if the OpEx guidance factored in a reinstatement of variable compensation, and if exceeding guidance would trigger further OpEx adjustments for incentive comp.

Answer

CFO Duncan Gilmour largely agreed with the observations, noting Q4's strong margin despite low semi contribution was due to favorable product mix, especially from Alfamation. He confirmed that a strong return in back-end semi would boost margins, but reaching 50% would require a very high semi contribution. For 2026, Mr. Gilmour projected cautious sequential growth throughout the year, with benefits from a strong semi recovery expected if it materializes, particularly in analog mixed-signal. President and CEO Nick Grant mentioned two strong quarters of bookings, fueled by automotive at Alfamation, and expected Alfamation's order rate to moderate. He noted healthy funnels despite Lunar New Year impact. Mr. Grant confirmed that OpEx guidance does factor in incentive compensation, and exceeding guidance would indeed lead to an additional OpEx impact from incentive comp.

Ted Jackson asked about the impact of Q1 weather on performance, discussions with OEMs regarding tariff policy changes, the drivers behind material handling order activity, specific verticals showing strengthening, and the progress towards the end game for the rent-to-sell business.

Answer

CFO Anthony Colucci expects minimal Q1 weather impact on equipment sales, with parts and service most acutely affected. Chairman and CEO Ryan Greenawalt views the Supreme Court decision on tariffs as positive for creating certainty, not anticipating big rebates or price decreases. Colucci confirmed material handling order activity is driven by actual bookings, not extended fulfillment timelines, and highlighted a 'snapback' in share for rider forklifts. Regarding rent-to-sell, Colucci stated they are not quite at the finish line, aiming to offload another $40 million of fleet over the next 12 months to reach sub-4.5x leverage, estimating they are 70% through the deemed 'excess' fleet.

Ted Jackson asked about the anticipated impact of Q1 weather on performance, discussions with OEMs regarding the Supreme Court decision on tariffs and pricing, whether material handling order activity is driven by bookings or extended fulfillment, specific strengthening verticals in material handling, and the progress and end game for dialing down the rent-to-sell business.

Answer

CFO Anthony Colucci expects Q1 weather to most acutely impact parts and service. Chairman and CEO Ryan Greenawalt views the tariff decision as positive for certainty, not expecting big price decreases. He confirmed material handling order activity is driven by actual bookings, seeing year-over-year increases, and noted a snapback in rider forklift share. For rent-to-sell, Chairman and CEO Ryan Greenawalt stated they are about 70% through the excess fleet, aiming to offload another $40 million over the next 12 months.

Inquired about the sources of strength and weakness by vertical in the material handling business, the potential impact of tariffs on the Master Distribution segment and Volvo equipment, and whether tariffs affect cross-border operations with Canada.

Answer

Executives noted stability in material handling from food & beverage, utilities, and medical sectors, with manufacturing being an area of uncertainty. They confirmed direct tariff impact on the Master Distribution business, which is currently manageable, while the impact on Volvo is less direct and on the lower end of the surcharge range. The US and Canadian businesses operate independently, so cross-border parts movement is not a significant factor.

Ted Jackson asked for details on how the $9 million Boughton's Precast acquisition would impact NWPX Infrastructure's financial model, specifically its funding via the credit line and cash flow statement classification. He also questioned the integration process for the new plant, focusing on ERP systems, sales, and cultural alignment. Finally, he probed management's capital allocation strategy for 2026, given the strong free cash flow guidance and potential for a debt-free position.

Answer

CFO Aaron Wilkins clarified that the acquisition would be funded via the credit line, with the purchase price in the investing section and line financing in the financing section of the cash flow statement. He added that integration would prioritize safety and quickly bring Boughton's onto the existing Geneva Titan system by mid-Q2, focusing on training rather than a full system build-out. President and CEO Scott Montross outlined a capital allocation strategy prioritizing accelerated organic growth in Precast, continued pursuit of single-plant acquisitions, and share repurchases to enhance shareholder value, while maintaining low debt for future transformative M&A. Scott Montross also stated that steel as a percentage of cost of goods was about 25% for Q4 2025.

Ted Jackson inquired about the financial flow of the Boughton's acquisition through the model, including credit line usage and cash flow statement impact. He also asked about the integration tasks for the new plant, such as ERP systems, sales, synergies, and CapEx. Finally, he questioned NWPX's strategy for utilizing cash given strong free cash flow guidance and low debt, specifically regarding organic growth, stock buybacks, and M&A, and asked for the percentage of steel as a cost of goods for Q4.

Answer

CFO Aaron Wilkins clarified that the Boughton's purchase price would be booked via the credit line and then paid down, with financing in the financing section and investment in the investing section of the cash flow statement. For integration, Aaron emphasized prioritizing culture (safety) and then quickly integrating Boughton's into the existing Geneva Titan system by mid-Q2 2026, viewing it as a training exercise rather than a complex build-out. President and CEO Scott Montross outlined a cash allocation strategy prioritizing organic growth (expanding Precast capabilities at WTS plants), followed by single-plant 'beachhead' acquisitions, and then stock buybacks to return shareholder value when M&A or organic growth opportunities are limited. He also stated that steel accounted for about 25% of cost of goods for Q4 2025 and 28% for the full year.

Ted Jackson asked to quantify the Q4 pull-forward of revenue from Q1 and whether it's a fair scenario to expect revenue growth in the second half of 2026 and first half of 2027 by producing to retail demand, even without a cycle turnaround.

Answer

CFO Jim Nickolas estimated that approximately $100 million-$150 million of sales that occurred in Q4 were pulled forward from Q1. He confirmed that it is a very fair scenario to expect revenue growth in the second half of 2026 and the first half of 2027 by producing to retail demand rather than below it.

Ted Jackson asked to quantify the Q4 pull-forward of sales from Q1 2026 and whether CNH can achieve revenue growth in late 2026 and into 2027 by producing to retail demand rather than below it, even without a cycle turnaround.

Answer

Jim Nickolas, CFO, estimated that approximately $100 million to $150 million of sales that occurred in Q4 2025 would have otherwise been expected in Q1 2026. He confirmed that it is a fair scenario to expect CNH to achieve revenue growth in the latter part of 2026 and into the first half of 2027 by producing to retail demand, rather than below it, even without a significant market cycle turnaround.

Ted Jackson of Northland Securities, Inc. focused on the North American market, asking about the price gap between new and used equipment and whether clearing inventories would require more aggressive incentives in the second half of the year.

Answer

CEO Gerrit Marx acknowledged the price differential and confirmed that increased financial support to move used equipment is necessary and has been factored into the company's guidance. He stressed that clearing both new and used inventory is critical to opening the channel for new Model Year 2026 machines, which he noted will have significant value-added updates to differentiate them from older models.

Ted Jackson asked about the long-term impact of administration-driven spending and the onshoring of pharmaceutical manufacturing (e.g., Lilly, AstraZeneca, Amgen) on Transcat's organic growth, including the potential revenue opportunity from new plants. He also inquired about the similar effects of increased defense spending and CapEx by major contractors (e.g., Lockheed, RTX, Northrop). Finally, he questioned if these trends could recalibrate Transcat's organic growth rate to tick up beyond historical averages towards the end of the decade, and sought an update on the CEO search timeline and potential additional one-time expenses in Q4.

Answer

Lee Rudow, President and CEO, confirmed that any onshoring of manufacturing in regulated business spaces, including life sciences and defense, is beneficial for Transcat. He explained that Transcat can participate in multiple phases of capital projects, from plant building to recurring calibration, and that increased defense contracting in a highly regulated space is positive. Tom Barbato, CFO, added that more equipment from increased CapEx is good, with recurring calibration revenue being the ultimate goal. Lee Rudow noted that while high single-digit growth is consistent, double-digit growth has occurred and is not impossible, acknowledging the challenge of growing on a larger base but seeing no reason why high single-digit growth cannot be consistently achieved. Regarding the CEO search, Lee Rudow stated that a conclusion by the Q4 report is a reasonable expectation, with some additional expenses anticipated in Q4.

Ted Jackson asked about the long-term impact of administration-driven spending, specifically onshoring of pharmaceutical manufacturing in life sciences and increased defense spending, on Transcat's business, including the revenue opportunity from new plants. He also questioned if these trends would lead Transcat to recalibrate its organic growth expectations, potentially ticking up beyond 7% towards the end of the decade, and sought an update on the CEO search timeline and associated Q4 expenses.

Answer

Lee Rudow (President and CEO) confirmed that onshoring of manufacturing in regulated spaces like life sciences (e.g., AstraZeneca, Lilly) and increased defense spending are beneficial for Transcat, as the company participates in various phases of capital projects, with calibration being core. Tom Barbato (CFO) added that more equipment and recurring calibration revenue are key benefits. Lee Rudow noted that while double-digit growth quarters are possible, high single-digit growth is more consistent, and management expects to maintain this range despite growing on a larger base. Lee Rudow stated that the CEO search is reasonably expected to conclude by the Q4 report, and Tom Barbato confirmed additional one-time expenses related to the search in Q4.

Ted Jackson from Northland Securities asked about Toro Company's assumptions for incentive compensation in its fiscal 2026 guidance, specifically how they compare to the step-up observed in 2025. He also inquired about the expected impact of tariffs for fiscal 2026, including the drivers behind the projected increase, potential mitigation strategies, and the company's confidence level in this outlook given the fluidity of tariff policies.

Answer

VP and CFO Angie Drake clarified that the higher corporate expenses in Q4 2025 were due to the restoration of employee incentives, which had an easy comparison to fiscal 2024. She stated that fiscal 2026 guidance incorporates normal incentive plans, budgeted at 100% of targets. Chairman and CEO Rick Olson explained that the total tariff impact for 2026 is estimated at $100 million, up from $65 million in 2025 (which included $20-$25 million from 2018). He broke down the 2026 tariffs as primarily 50%+ from Section 232 steel/aluminum, about 15% from China-related tariffs, and the remainder from general/reciprocal tariffs. Olson added that the guidance reflects potential variability in tariffs, without assuming a worst-case or best-case scenario.

Ted Jackson inquired about the assumptions for incentive compensation in the 2026 guidance compared to 2025, seeking a definition of a 'normal rate,' and asked for details on the expected impact of tariffs for fiscal 2026, including mitigation strategies and confidence in the outlook.

Answer

Angie Drake, VP and CFO, explained that 2026 guidance builds in normal incentive plans, budgeted at 100% of targets, which contrasts with the restored incentives in Q4 2025. Rick Olson, Chairman and CEO, stated that the company has a focused team on tariffs, which were offset in 2025 ($65 million total) through productivity, strategic moves, and price increases. For 2026, the estimated impact is $100 million, primarily reflecting a full year of 2025 tariffs plus a small additional factor, with roughly 50% from steel/aluminum tariffs (232) and about 15% from China-related tariffs. Mr. Olson confirmed that variability in tariffs is reflected in the guidance.

Ted Jackson of Northland Securities sought clarification on the $98 million year-to-date inventory reduction, asking how much was attributable to divestitures and what the $150 million full-year target would be organically. He also questioned if the increased inventory reduction target reflected a more pessimistic macro outlook for fiscal 2026. Additionally, he inquired about the progress of CNH's brand consolidation strategy across different regions, specifically asking for metrics similar to Australia's six out of fifteen dual-branded rooftops.

Answer

President and CEO Bryan Knutson confirmed that $15 million of the $98 million inventory reduction was from divestitures. CFO Bo Larsen estimated the organic $150 million target would be around $130-$140 million, noting that the Australia acquisition and Germany divestiture would have offsetting impacts. Bo Larsen clarified that the increased target primarily reflects the team's ability to reduce aged used equipment, not a drastically shifted macro outlook, though a prudent approach to stocking is maintained given potential grower challenges. Bryan Knutson added that footprint optimization allows for leveraging scale and sharing inventory more freely. Regarding CNH's dual-brand strategy, Bryan Knutson stated that approximately one-third of their U.S. footprint is dual-branded, similar to Australia's six of fifteen rooftops, and they are in earlier stages in Europe, actively pursuing this strategy for customer and shareholder value.

Ted Jackson sought clarification on the inventory reduction figures, specifically the impact of divestitures on the $98 million year-to-date reduction and the $150 million full-year target. He also asked if the increased inventory reduction target reflected a more pessimistic macro view for fiscal 2026 and inquired about the progress of CNH's brand consolidation strategy across different regions.

Answer

Bo Larsen, CFO, clarified that without divestitures, the inventory reduction would be in the $130-140 million range, emphasizing the faster pace of reduction compared to previous downturns. He stated that the target increase was due to execution, not a drastically shifted macro view, expecting seasonal inventory builds in spring fiscal 2027. Bryan Knutson, President and CEO, added that prudent inventory stocking is necessary given challenging grower conditions in fiscal 2027. He confirmed alignment with CNH's dual-brand strategy, noting that Australia is just over a third dual-branded, and the US is about a third, with Europe in earlier stages.

Ted Jackson of Northland Securities, Inc. asked for color on the inventory mix between new and used equipment, particularly the age profile of used inventory. He also inquired if Titan ever refuses trade-ins, if there's a market share opportunity when competitors do, and what management is hearing about the pending farm bill.

Answer

CFO Bo Larsen directed attention to the earnings deck for inventory details, noting used inventory decreased while new inventory increased due to shipment timing. CEO Bryan Knutson confirmed they actively manage late-model used equipment, a historical practice in downturns. He emphasized that Titan quotes every deal, viewing it as a 'numbers game,' which can create market share opportunities. Regarding the farm bill, Knutson expressed hope for a permanent bill with better price support and funding for research into new crop uses like ethanol.

Asked about second-half seasonality for the lift truck business in the Americas and EMEA, the company's changing view on tariffs and its impact on pricing and backlog, the product mix and future of the legacy business at Bolzoni, and the warehouse market macro environment's effect on market share goals.

Answer

The company expects Americas demand to stabilize as tariff rules do, while EMEA will follow typical weak Q3 seasonality. The tariff situation is still volatile but accounted for in the outlook, with pricing adjustments being phased in. The Bolzoni legacy business is being phased out and should be near zero by 2027. Despite a tough warehouse market, the company is making progress on gaining market share.

Inquired about inventory levels and free cash flow for Q4 and 2025, the outlook for Nuvera's growth and cost structure, the expense drivers for Bolzoni, and details on 2025 CapEx and the 2024 effective tax rate.

Answer

A significant cash flow increase is expected in Q4 from lower inventory, with improvements continuing in 2025. Nuvera's growth is deferred due to hydrogen availability issues; a minor workforce reduction ($0.2M severance) was made in operations. Bolzoni's Q3 costs were impacted by logistics, but 2025 SG&A should be stable with inflation. Some 2024 CapEx will shift to 2025 due to resource constraints, not funding. The full-year 2024 tax rate is expected to be 32%.

Inquired about the alternative energy business, specifically the timing of backlog shipments, visibility for the second half of the year, the impact of US policy changes, and the effect of international tariffs.

Answer

The company confirmed eight clean energy systems are in the backlog and will ship in the first half of FY26. While there's some caution in the US clean energy market due to policy uncertainty, demand from the EU and Asia remains strong. Tariffs are not currently a major issue outside of China. Full-year visibility should improve by the next earnings report, with potential large orders from the medical and semiconductor sectors expected.

The analyst asked for details on 2025 production capacity in units, the timing of revenue recognition, the dependency of 2025 capacity on new equipment, the production outlook for 2026, and specifics about the research revenue from the Navy contract, including its timing and cost structure.

Answer

The company expects to ship 'several dozen' units in 2025, generating low double-digit millions in revenue, with revenue recognition for all units expected around mid-2025 after commercialization. The 2025 capacity is supported by recently installed equipment, with more printers arriving later in 2025 to support 2026 growth. The Navy contract revenue is part of an ongoing relationship involving R&D services and KARNO unit sales, has associated costs, and is considered a core part of the business going forward.

Ted Jackson of Northland asked for clarification on the 2025 production capacity in units, the timing of revenue recognition for those units, whether 2025 capacity depends on new equipment, the potential production capacity for 2026, and details on the new R&D revenue stream from the Navy contract.

Answer

CEO Thomas Healy stated 2025 production is expected to be 'several dozens of units.' CFO Jon Panzer clarified that revenue for all units sold in late 2024 and 2025 should be recognized around mid-2025 upon official commercialization. Management confirmed that recently installed equipment supports 2025 volume, while new printers arriving later in 2025 are for the 2026 ramp. Regarding the Navy contract, Panzer described it as a continuous R&D service relationship generating revenue from engineering work, material sales, and KARNO unit sales, with associated costs built into forecasts.

Focused on the balance sheet, asking about working capital improvements through inventory reduction and receivables collection, the plan for the convertible note moving to current liabilities, and the potential for future sales of energy credits.

Answer

The company is working to reduce its high inventory levels (currently 8-10 months) towards an industry standard of 4-8 turns/year. A 'significant dent' is expected to be made in the $25M incentive receivables balance in Q4. Discussions are ongoing regarding the convertible note that matures in Q3 2025, and the company anticipates continued support from the investor. The Q3 sale of energy credits was a first but is expected to be a periodic, cash-accretive event in the future.

Inquired about the strategy for bringing PM products to North America, the timeline for manufacturing capacity expansion, the 2024 and 2025 CapEx outlook, the expected tax rate for 2024, and the outlook for backlog stabilization.

Answer

Bringing PM products to North America is dependent on establishing a strong dealer network for local customization. Capacity expansion is an ongoing process, with some completed in 2023 and more planned for 2024/2025 before a larger step-up. 2024 CapEx is targeted at $10 million, mostly for the rental fleet. The 2024 tax rate is estimated at 28%. The backlog is expected to remain healthy, though management would be comfortable with a slightly shorter 6-month backlog (down from 9) to improve customer satisfaction and margin visibility.

Asked about the rental segment's growth potential and expansion plans, the sustainability of the high gross margins, the impact of UAW strikes on chassis supply, and the progress on the long-term strategy to shift some manufacturing from Europe to the U.S.

Answer

Executives indicated the newest rental location in Lubbock is still ramping up with significant growth potential, but they are not ready to announce further expansion plans. The high gross margin is considered a new baseline driven by a multi-year strategy, not a one-off event. They have not seen any significant impact from UAW strikes on their chassis supply but are monitoring it. The plan to move manufacturing from Europe is in the very early stages, starting with supply chain integration, with no specific timeline available.