Regal Rexnord Corporation (RRX) Q3 2018 Earnings Report, Transcript and Summary

Greetings and welcome to the Altra Industrial Motion Corporation’s Third Quarter 2018 Financial Results. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Ryan Flaim from Sharon Merrill Associates. Thank you. You may begin.

Thank you. Good morning everyone and welcome to the call. To help you follow management’s discussion on this call, they will be referencing slides that are posted to the altramotion.com website under Events and Presentations in the Investor Relations section. Please turn to Slide 3. During the call, management will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain and investors must recognize that events could differ significantly from management’s expectations. Please refer to the risks, uncertainties and other factors described in the company’s Quarterly Reports on Form 10-Q and Annual Report on Form 10-K and in the company’s other filings with the U.S. Securities and Exchange Commission. Except as required by applicable law, Altra Industrial Motion Corp does not intend to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. On today’s call, management will refer to non-GAAP diluted earnings per share, non-GAAP income from operations, non-GAAP net income, non-GAAP operating working capital and non-GAAP free cash flow. These metrics exclude certain items discussed in our slide presentation and in our press release under the heading Discussion of Non-GAAP Financial Measures and any other items that management believes should be excluded when reviewing continuing operations. The reconciliations of Altra’s non-GAAP measures to the comparable GAAP measures are available in the financial tables of the Q3 2018 financial results press release on Altra’s website. Please turn to Slide 4. With me today are Chief Executive Officer, Carl Christenson and Chief Financial Officer, Christian Storch. I will now turn the call over to Carl.

Thank you, Ryan, and good morning, everyone. Please turn to Slide 5. We’re excited to be here today for the first time since we completed our transformative combination with the Fortive Automation & Specialty business, which has positioned Altra as a premier $1.9 billion global industrial. Altra is now truly a very different business with an expanded portfolio of technologies and increased exposure to new and exciting end markets, including medical, factory automation and robotics. We’ve made excellent progress with the early stages of the A&S integration, which I will cover in more detail in a moment. First, I’ll review Q3 performance highlights for the legacy Altra business. We delivered strong third quarter results. Revenue grew 6.5% to $229 million despite a negative impact from foreign exchange in the quarter, as we leveraged robust demand across most of our end markets Our GAAP EPS was down year-over-year at $0.42, primarily due to acquisition-related expenses in this year’s third quarter. By executing on the Altra Business System, capitalizing on improving market conditions and tax reform in the U.S., we delivered a 35.5% increase in non-GAAP net income and a seasonally strong non-GAAP EPS of $0.64, up 33.3% from the same period last year. We continue to have success in leveraging pricing actions and supply chain management improvements to offset input cost increases, primarily related to commodity inflation, freight and logistics and tariffs. Now that we have completed the A&S merger, we expect to drive further improvement through supply chain management. Now please turn to Slide 6 for a review of our end markets. Given the completion of the A&S merger, moving forward, we will present a revised set of end markets that align with our new organization. The new market segmentations are still being finalized, but we expect to focus on markets such as transportation, medical, factory automation and robotics, energy, metals and mining, mobile off-highway and distribution, which will evolve to include high- tech distribution. Given this imminent shift, this quarter, we are focusing our end market review on the key end-market drivers in Q3 consistent with the reviews we have done historically for the legacy Altra business. During the quarter, we experienced very strong double-digit sales growth in oil and gas as demand in that market continues. In addition, metal market sales momentum continued with another quarter of double- digit growth as higher steel prices resulting from tariffs continue to support a robust spending environment. Material handling market sales were also up double digits as the strength in forklifts, cranes and hoists more than offset soft elevator sales. And finally, Turf & Garden market sales were up high single digits, reflecting better-than-expected market strength. Mining market sales are up significantly year-to- date, and some of our customers are making significant investment in anticipation of continued strength. Obviously, commodity demand could change dramatically as a result of the tariffs. These strong market performances were partially offset by softer-than-expected wind sales. The overall wind market continues to rebound, and we expect wind sales to pick up in Q4. The lower-than- expected shipments were primarily due to supply chain constraints that have been addressed. Conventional power gen improved sequentially but was down year- over-year. Overall, we continue to expect demand to be strong across most of our end markets for the foreseeable future. In addition, we expect to benefit from increased exposure to high-growth end markets as a result of the combination with the A&S businesses as we continue to integrate the businesses throughout the year. Obviously, there is a risk that the secondary impact from tariffs and some other exogenous factor has a negative impact on the global economy. The headwinds for fourth quarter will include foreign exchange, the normal extended holidays at the end of the year in Europe and the holidays in North America. In addition, the fourth quarter can be impacted by our customers and distributors managing their balance sheets at the end of the year. As reflected in our guidance, we do expect the A&S businesses to have a very meaningful accretive impact on the results in the fourth quarter. Now turn to Slide 7, please. Before I turn the call over to Christian for a review of financials and our guidance, I’d like to make you – I’d like to provide you with an update on our merger with Fortive’s Automation & Specialty platform businesses. We completed the transformation – the transformative combination with A&S on the first day of Q4 ahead of plan. I would like to personally acknowledge the hard work of both the Altra and Fortive organizations for completing this complicated transaction on a very impressive timeline. With A&S in our portfolio, Altra is positioned to drive enhanced growth and value creation as a global leader in engineered solutions for precision, motion control and power transmission. We have an enhanced financial profile with substantial free cash flow to accelerate growth and enable the combined company to quickly delever. The combination evolves Altra from a component provider to a premier end- market engineered solutions provider able to accelerate innovation and better solve challenging problems for our customers. In addition to our foundational power transmission businesses, we can now provide our customers with a broader suite of products and technology, including sophisticated precision motors, drives and controls, engineered linear motion systems, miniature motors, a leading portfolio of breaking technologies and new capabilities and software. As a result, we have a stronger position at the higher end of the technology spectrum for very attractive higher-growth, higher-margin end markets, including medical, aerospace and defense, factory automation and robotics. From day one, we were prepared to hit the ground running and have already made excellent progress with the integration of the businesses. Notably, since the close, we concluded the transaction financing with very favorable terms. We expect the weighted average interest expense to be approximately 4.5% to 5% based on the current debt balance and market conditions. We successfully completed several key integration action items, including payroll and IT integration activities and excellent progress on the activities related to our supply chain and procurement costs. We also validated our belief that this combination is a good cultural fit. Through a joint executive team, we have collaborated to establish five key core values and core value drivers for our combined organization, a process that reinforce the complementary values and skill sets that our teams bring to the table. Christian and I, along with other members of the Altra management team, have visited approximately 3/4 of the A&S facility so far. These are great businesses. We have been extremely impressed with the talent, capabilities and management teams of the A&S operations across the globe, and we will be visiting the facilities in China and India next week. Through these meetings, we have firmed up our conviction that the A&S businesses leverage excellent business system tools to drive organic growth and cost improvements. The system is complementary to the many operational strengths the Altra Business System brings to the table, such as timely delivery performance and resolving operational problems. We have begun planning to integrate the two systems in order to implement a world-class business system to drive top and bottom line growth. Finally, we are just beginning to work on the joint sales opportunities. Upon closing, Antitrust regulations were no longer a gating factor. The sales teams are now able to collaborate in the SPS IPC Drives trade show that’s this November in Nuremberg, which is one of the premier trade shows for our industry, will be a great opportunity for the combined businesses to start to collaborate. We have several important strategic planning sessions scheduled, and we’ll have a global kaizen event in the first half of 2019, at which leadership from both companies will work together on a major continuous improvement activity. We believe there is significant opportunity to leverage technology sharing to drive innovation, integrate our sales organizations to capture sale synergies and implement a world-class business system to drive top and bottom line growth. The progress we have made with the integration so far has reaffirmed our confidence and our ability to realize the $50 million of synergies by year four. With that, I’d like to turn the call over to Christian for a review of our financial results, and then I will come back to provide you with an update on our strategic priorities looking forward as the new Altra. Christian?

Thank you, Carl, and good morning, everyone. We had a very strong sales quarters as our growth rate accelerated to 6.5%, contributing to 110 basis points expansion in adjusted operating income margin. Price was a strong contributor to our top line growth rate, delivering 170 basis points as we moved to offset cost increases due to the tariffs. FX effect was negative 100 basis points, and excluding the negative impact of foreign exchange, net sales were up 7.5%. Geographically, excluding the effects of foreign exchange, North American revenues were up 13.4%, European revenues were up 3.9% and sales to Asia Pacific were down 4.1% from the same quarter of 2017. Regarding tariffs, similar to what we reported last quarter, we continue to believe we are taking the necessary actions to recover cost increases related to the tariffs that have been enacted to date. We continue to monitor and evaluate the situation and are prepared to take the right actions should we be faced with any additional tariffs. Non-GAAP gross margin was down 70 basis points year-over-year due to mix and increased freight and logistics expenses. Despite the decline in gross margin, we were able to increase our non-GAAP operating margin by 110 basis points year-over-year to 11.4%. Our GAAP tax rate was 32.1% and was negatively impacted by acquisition cost, which are largely non-tax deductible. Our non-GAAP EPS reflects a normalized tax rate of 24%. For the third quarter of 2018, non-GAAP EPS of $0.64 excludes restructuring and consolidation cost and acquisition-related expenses. Please turn to Slide 9. Our free cash flow for the quarter was up for the full year’s – year-to-date was $37.9 million, up 90% compared with the same period last year. Our book equity was $417.2 million. In terms of cash, our top priority will be paying down debt, delevering the balance sheet following the A&S combination. Capital investments totaled $6.2 million for the quarter and depreciation and amortization was $9.3 million. Please turn to Slide 10 for a review of our updated outlook for 2018. We are updating our guidance for the full year 2018 following the A&S combination. For the full year 2018, we now expect sales in the range of $1,155,000,000 to $1,165,000,000. I would like to point out that Q4 will have a sequentially 5% fewer shipping days due to the holiday season. Following the A&S combination, we intend to exclude acquisition-related amortization and depreciation net of tax from non-GAAP net income and non-GAAP EPS. We have included in the slides to this call a reconciliation to this new method for the first three quarters of 2018. Including these changes, we now expect net income in the range of $40.7 million to $42.5 million and non-GAAP net income in the range of $106.1 million and $1.9.3 million. We expect GAAP diluted EPS in the range of $1.39 to $1.41 and non-GAAP diluted EPS in the range of $2.80 to $2.91. We expect our normalized tax rate for the full year to be in the range of 23% to 25% before discrete items, capital expenditures in the range of $34 million to $38 million, and depreciation and amortization to be in the range of $66 million to $69 million. With that, I will turn the discussion back over to Carl.

Thank you, Christian, and please turn to Slide 11, and I’ll summarize our three strategic priorities going forward as the new Altra. The first priority is to flawlessly execute on the integration of the A&S business in order to deliver on our $50 million synergy targets. This includes making sure that the day-to-day business operations are seamlessly integrated, the cultural merger of the two businesses remains a priority, our sales team collaboration continues to advance in order to capture our targeted sales synergies, and we remain laser-focused on delivering improved growth and cost savings by implementing the world-class business system across the organization. Second is a strategic priority to expediently deliver – delever and strengthen the balance sheet. We believe we are well positioned to do so with our enhanced financial scale and excellent free cash flow. And third is our focus on accelerating top line growth. This includes driving core growth by leveraging proven business system tools, strategically infusing capital into the new A&S businesses to pursue organic growth and by capitalizing on technology sharing across the businesses to accelerate the introduction of new innovative solutions for customers. Additionally, we will begin to build the expanded pipeline of M&A opportunities so that we are prepared to support long-term growth once the net debt to EBITDA leverage ratio is within our targeted range of two to three times. In conclusion, we are pleased with the performance of the base Altra business and the early progress we have made with the A&S integration. We’re excited about the new growth markets that we’re entering and remain encouraged by the ongoing recovery in several markets we’ve historically served, including mining, oil and gas, agriculture and steel. We welcome the A&S employees to the Altra team, and we look forward to keeping our shareholders updated as we forge ahead as a premier global industrial leader. With that, I’d like to turn it back to the operator to open the call to your questions.

[Operator Instructions]. Our first question is from Scott Graham with BMO Capital Markets. Please proceed.

Good morning. A question on the guidance with respect to the change to cash. Within the $2.86 to $2.91, what is the increment for amortization of intangibles for acquisitions? What is the EPS number embedded within there?

So for the Altra side, that is $0.24 or $1.06 a quarter as we indicated in the reconciliation table. So if you take it, for instance, that the low end of the range $2.86 is that $0.24 get to $2.62, which would be the old way we used to calculate our guidance.

Right, but there is an A&S piece in the fourth quarter that I’m also asking about here. What is the A&S amortization add back in the fourth quarter?

It is about $22 million.

And will you simply use a 23%, 24% tax rate on that?

Yes. And we would use for the fourth quarter about 64 million – 64.2 million outstanding shares.

Got it. On the – could you also just maybe help us out a little bit also because your fourth quarter guidance seems, let’s just say, interesting and positive in that maybe I’ve just got my interest expense calculation wrong. Could you tell us what you roundabout think interest expense will look like in the fourth quarter?

So on an annual basis, interest expense will be somewhere between $90 million and $95 million all-in, including the amortization of deferred financing cost. So if you divide that number by four, that’s what we would expect to incur in the fourth quarter.

Got it. Last question on tariffs. Obviously, all the lists we’ve added – two more lists to the primary tariff section. I was just wondering, if there is a way that have you guys been able to size the direct impact of tariffs on the combined businesses sort of on an annualized basis at this point, the direct impact?

Yes. It’s in the $6 million to $10 million range for the legacy Altra businesses, and it's in the same order of magnitude for the additional businesses for the A&S businesses.

So – and I just want to be clear with what you're saying there, Carl, that is the direct impact of these tariffs. In other words, that does not include the indirect, let's just call that, natural inflation side from that, yes?

That’s correct. That is just – we went by HTS code, calculated every item we're buying from China, how that flows through the bill materials into the parts, and it's a – that is just a direct impact from the tariffs. And then whatever still goes up or commodity increases there are, whatever secondary impacts are, that's not included in those numbers.

Would you have an idea what that number would be on an annualized basis as we stand today?

No. Because we don’t try to separate. We know we have inflation and we're seeing that in materials increases, but we don't try to separate that out and say exactly what that is. And there's just lots of other input cost changes that are probably related to the tariffs that we don't try – we're just looking at the direct materials that we're purchasing from China, calling net tariffs expense and then the rest of it's just inflation.

Got it, Carl. And Mike, last question, I promise, is, I know you have your priorities here on Slide 11, the integration first, delivering on the synergies and deleveraging second. But obviously, the deleveraging could begin just like the integration could begin right away, the synergies will take longer. So I'm just wondering, is it the company's intention to take essentially every dollar of its free cash flow and reduce leverage?

Yes. I think when we look at financial priorities and what we're going to do with the cash, it's pay down the debt, pay down the debt, pay down the debt.

Got you. Thank you.

Our next question is from Mike Halloran with Robert W. Baird & Company. Please proceed.

Hey, good morning guys. Congrats again on the transaction done.

Hey, Mike. Thank you.

So, let’s start on the kind of pro forma 2018 in general, if you look at the slide decks you guys have put out, you've certainly been anchoring on kind of an all-in EBITDA number for the combined entity. I think on the last slide deck, I think it was like low $390s excluding the $23 million of synergies was about the trailing 12 months of EBITDA in June. Could you update that and what that pro forma EBITDA number looks like for the full year 2018 based on the guidance?

Yes. So, in our Investor Presentation, September Investor Presentation, that we used for the financing activities as well as for placing the equity, that slide exhibit shows a reconciliation of EBITDA of $392 million essentially excluding synergies. Now we look at the outlook for the balance of the year where we think we're going to end up by the end of the year, we feel very comfortable with that number. It's probably reflects the low end of our guidance range, and so there's maybe a little bit of upside to that number as we close out the year. But in general, that number is a good number to use if you want to calculate what our current leverage profile looks like, for instance.

Okay. And so basically, that number is assumed in what the earnings guidance range looks like at least at the low end, so a little bit above that $392 million?

Yes.

A little bit high on that.

Okay. That makes sense. So then, from a contribution perspective, any way you can give some more color on a couple of things related to A&S, one, how did A&S perform in the third quarter? And then two, when you look at the fourth quarter contribution from A&S, any way you can split out what the impact you think is A&S-related versus legacy Altra or in the guidance, you can do that on an annual basis either would work?

Yes. So, I think after we refer you to the earnings call that Fortive has, I believe, there call is today, there might be some comments related to that performance. So I don't want to speak for them, and certainly, there's opportunity for people to ask questions. But in general, what I can tell you is that we don't expect there to be any negative surprises, let me put it that way.

And then composition of Altra legacy versus A&S when you think about the revised guidance range here?

Yes. So, what the revised guidance range implies is two things. Number one, the A&S business on a cash EPS basis will be accretive out of the gate somewhere in the neighborhood of 10% to 15%. It also implies that Altra's – in that the fourth quarter for the A&S business will have some year-over-year growth, both in terms of top line and bottom line performance. As it relates to Altra, sequentially, EPS is going to be down in the fourth quarter, which is not unusual for two main reasons, one is – the biggest reason is, we have significantly fewer shipping days in the fourth quarter when compared to the third quarter. We have about 5% fewer shipping days. Some of our European entities will only have 13 shipping days in December, the way the holidays fall and the way they give people time-off during the holiday season. So when you look sequentially, top line will be lower than Q3. That will flow through to the bottom line. And that's the combination of – if you look at fourth – the fourth quarter piece of this guidance, all things will shake out, but if you add them both together, it will be – we would have raised guidance compared to old guidance, so to speak.

Right. So, that’s the follow-up there, because I’m assuming, something based on my old model but based on your old guidance that a fourth quarter sequential decline was already embedded in the guidance, but it sounds like the cumulative – if you just strip out A&S, it sounds like you feel better about the earnings for this year today than you would have three months ago?

Yes. That’s fair.

And then…

Last comment – Mike, last comments, what is always a work art. It's very difficult to predict. And the main reason is that December is a wild card month. We don't know how our distribution customers and how our OEM customers will behave, how much balance sheet management will go on in the fourth quarter. And that's the other driver why December in one of the quarter can go one way or the other. And we hope there's upside to that, but we just want to be cautious as how we guide you and our investors.

Understand completely. And then last which is, I think, a little bit of follow-up from the previous question. It – so it sounds like you're saying that an ongoing rate's somewhere around $25 million a quarter, is what you're looking at for the backed-out amortization-related acquisition?

So, yes, if we look at, on a full-year basis, depreciation and amortization will be around $150 million, which is higher than we had initially estimated. The good news here is it's higher because what's called the churn – the attrition rate of the A&S customer base is significantly lower than we had initially estimated. The customers are much stickier than on the Altra side, for instance. Now that's the good news. On the flip side of that is the value of your customer has just went up and, therefore, the amortization piece. That's a combination of, call it, historical depreciation and acquisition-related depreciation. The acquisition-related depreciation for the combined business is around $115 million, out of that $150 million.

And so, is it the $115 million that we should be backing out then cumulatively or the $150 million to get to an adjusted EPS?

The $115 million, because we’re only backing out acquisition related, normal.

And that’s exactly what I was looking for, I appreciate the time. Thank you.

Thanks, Mike.

Our next question is from Jeffrey Hammond with KeyBanc Capital Markets. Please proceed.

Hey, good morning, guys.

Good morning.

Good morning, Jeff.

Congrats on the deal and getting it done early and certainly it sounds like you're hitting the ground running. So that's good to hear. Just back on Fortive, can you just walk through the seasonality of the business, typically, versus mine model and the kind of run rate you've put for the Fortive business as of June 30? It seems like 4Q is a little bit lighter. And then can you give us a straight out, like, kind of organic growth number range you think you get for the fourth quarter for Altra – legacy Altra? Thanks.

So, the first part of the question, with Altra, historically, the first half of the year is slightly stronger than the second half, somewhere around 51% of our revenue is plus or minus 50 basis points, and the first half of the year that downs in the second half and then has to with all the holiday season falls in August and then in December and the seasonality in the Turf & Garden business. When we look at the A&S business, the seasonality is similar. It's probably more like 50.5% or something like that in the first half. For the second half, they still have similar seasonality in Europe in August and in December with the holidays. So a little tiny bit less seasonal, I would say, than the Altra side. And then the second part of your question, I – can you repeat that?

No. I think you – just the legacy Altra, how should we think about 4Q organic growth?

Yes. So, organic growth you should think that sequentially, compared to the third quarter, you should adjust our revenues for 5% fewer shipping days and then add back some growth. So I think at the midpoint of the range, we're probably looking at to – flat to last year and sequentially slightly down because of the shipping days. And flat to last year because when you look at last year, it's four quarters. Look at the fourth quarter, it was an exceptionally strong quarter. Revenues in the fourth quarter last year were equal to the second quarter, which was – has never happened before. So it's extremely high pump. So when we look at bookings, when we look at backlog, we still see growth. We're just going to be negatively impacted by the shipping shortfall. And as I mentioned…

Year-on-year...

So, a 63 shipping days last year versus 60 this year. That gives you round of 4.5% delta. It's worse in some of the European jurisdictions. As I said, some of our European entities only have 13 shipping days in December.

Okay, that’s helpful. And then just a couple of housekeeping items. How should we think about the tax rate for – on an ongoing basis or in the 2019, with the combined entity? And on the interest expense, can you give us kind of what – versus that $90 million to $95 million, what is the cash interest expense? And are there anything else you're contemplating that would move that around, i.e., swaps, et cetera? Thanks.

Yes. So, on the interest expense, cash interest expense will be around $10 million lower than that $90 million to $95 million that I quoted. We are intending to enter into interest rate swaps and foreign currency swaps. The combination of those swaps will lower our weighted average cost of borrowing by around 50 basis points. So thing about weighted average borrowing cost and that is cash interest will be around 4% to 4.5%, and all-in including the amortization of deferred financing cost you're looking at 4.5% to 5%.

The number we gave them included this assumption that we're going to do the swaps.

Yes. And then last point is that the $90 million to $95 million includes the effects of the swaps.

Okay, that’s kind of the number to use for 2019 excluding any kind of debt paydown that you'd make?

Correct. And then $10 million lower for cash interest number.

Okay. And then I know you’ve got the shipping day issue in the fourth quarter. But it seems like supply chains are tight and inventory is still pretty lean. As you talk to your customers, is there any reason to think that they would be tightening balance sheets or leaning down inventories that just seems like everything's pretty lean in the channel?

I think inventories are still very lean in the channel. Supply chain, we continue to struggle with some of our suppliers with the high demand we had in the third quarter, for instance. We incurred significant incremental freight cost to expedite freight, so that we can get the products to our customers on time, a lot of them on the inbound side from our more suppliers. That is true in North America. That is true in Europe. So that's all indications that things are still going very well in the industrial space as of now. And – but companies do manage their balance sheets around year-end, and that varies from year-to-year the extent to which they do that, and that's the unknown. Carl?

Yes. I think the only thing that will put a question mark in my mind, Jeff, is if you look at what's in the tariff group, the HTS codes, that are going to go from 10% to 25% after the 1st of the year, there's not a lot of components that we would buy or things that we would sell in those codes, but people are bringing in – in my opinion, are bringing in material to beat the increase in the tariff. So if they say, "I'm going to build up my inventory in this area, I've got to cut it somewhere else." Then that could have an impact on how they – how tightly they manage inventories on our products. I don't know if that make sense to you, but that's the one factor that I think is a wild card is how much stuff that people bringing in into codes. Okay.

And then just – I mean, you expressed confident in the $50 million synergies. Just early thoughts on your confidence in hitting the year-one synergies as you go around at the facilities and talk to people and just a feel for you. Thanks.

Yes. I think the – we’re very confident in the cost side synergies, and as we've said before, we know they aren't going to come and exactly the break out that we've expressed in the past, but there is some very, very good opportunities there. And so we're – we have reconfirmed our convictions that those synergies are there. And I think the one piece that I'm particularly excited about is on the sales side and what we think we can do as a combined business to drive the top line. Now that does take a little longer, so that's not in year one, but that's really exciting what I think we can do as a combined business.

Okay. Thanks, guys.

Thanks, Jeff.

Our next question is from John Franzreb with Sidoti & Company. Please proceed with your question.

Good morning, guys.

Good morning.

On the fourth quarter expectations, it sounded like in your prepared remarks that you expected winds to come back, and I know you faced a tough comp. Of the – the mining, the oil and gas and metals markets, which is I guess the best three so far. Are anyone of those facing a significant tough comp in the fourth quarter or down?

So, I think, if you look at markets, we had a very strong oil and gas and mining quarter last year, but it was – I think wind was actually very weak in the fourth quarter of last year. But every other market, I think, was doing very well.

Yes. I think the two toughest comps, we had some big projects last year in the fourth quarter in oil and gas and mining. And so those will probably be the two that would have – the least likely to repeat that strong quarter.

And does your quotation activity suggested those businesses are slowing or it's just kind of a temporary onetime tough comp?

Yes. It’s just temporary one-time tough comp. I think there's some wild cards out there and what's the demand from Asia regarding commodities and what's that going to do. But some of our mining customers have some – have announced some big CapEx projects, so it's a – so whether that comes to fruition or not, we don't know. So I'd say that's the one that probably has the biggest risk.

Got it, got it. And on A&S, In the past couple of years, you've put a lot of effort into improving your own pricing model. Chris alluded that their customer base is a lot stickier. Could you talk a little bit about their ability to implement price increases in their customer base? Any kind of background there would be helpful.

Well, I think it’s very similar to our ability. These are – once you're in, they are sticky businesses, and so far, what we've been able to determine is they've been able to more than offset the commodity cost increases and the tariffs with price increase. So I think it's very similar to what we've been able to do.

We don’t have customers that – a lot of customers that make consumer products where that might be more challenging, but – and that's I think where Carl is right that most – we expect the most of our customers are doing exactly what we are doing.

Okay. Thank you, guys. That’s all I got.

Thank you.

Okay. Thanks, John.

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to CEO, Carl Christenson, for closing remarks.

Yes. I’d like to thank you all for joining us today, and we look forward to seeing many of you when we present at the Baird Global Industrial Conference on November 7. And have a great day. Thank you.

Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.