SPX Technologies, Inc. (SPXC) Q1 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to Q1 2018 SPX Corporation Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Paul Clegg, Vice President, Investor Relations and Communications. You may begin, sir.

Thanks, Nicole and good afternoon everyone. Thanks for joining us. With me on the call today are Gene Lowe, our President and Chief Executive Officer and Scott Sproule, our Chief Financial Officer. A press release containing our first quarter 2018 results was issued just after market close. You can find the release and our earnings slide presentation as well as a link to a live webcast of this call in the Investor Relations section of our website at spx.com. I encourage you to follow along with the slide presentation during our prepared remarks. A replay of the webcast will be available on our website until March 10. As a reminder, portions of our presentation and comments are forward-looking and subject to Safe Harbor provisions. Please also note the risk factors in our most recent SEC filings. Our comments today will largely focus on adjusted financial results. Specifically, we will focus on core operating results, which exclude the results of the South African projects and we will separately provide an update on those projects. There are other adjustments to our GAAP results that we will discuss in more detail during our prepared remarks. You can find detailed reconciliations of adjusted figures to their respective GAAP measures in the appendix to today’s presentation. Finally, we will be presenting at the Oppenheimer Industrial Growth Conference in New York next week and plan to be on the road visiting with investors later in the month. And with that, I would like to turn the call over to Gene.

Thanks, Paul. Good afternoon, everyone. Thanks for joining us. On the call today, we will provide you a brief update on our overall results, segment performances and end market conditions before going into Q&A. I will start by touching on some of the highlights from the first quarter. Overall, we had a solid start to the year and we are on track to achieve our full year guidance for 2018. During the first quarter, we experienced solid overall revenue growth in our HVAC and Detection & Measurement segments and our margin expansion continued. We also made progress delivering on the plan we laid out to investors earlier this year to thoughtfully deploy capital towards value-creating acquisitions. We recently announced two attractive transactions that are highly complementary to our existing product lines and a natural fit with our cable and pipe locators business within our Detection & Measurement segment. The first closed in March and we anticipate the second closing later this quarter. Together, we will see these acquisitions as an opportunity to drive significant incremental shareholder value and an important step towards achieving our 2020 earnings targets. Turning to our results for the quarter, revenues increased approximately 5% from the prior year to $338 million, with adjusted EPS at $0.44. The most significant driver of the revenue increase was improved volumes in our HVAC and Detection & Measurement segments, which was partially offset by expected lower project revenue in our Engineered Solutions segment. In the HVAC segment, we saw a favorable impact during the first quarter from colder winter weather and associated demand for heating products. And in Detection & Measurement, we achieved another strong quarter, particularly within communications technologies related markets, which drove overall favorable margin performance for the company. I would like to give you an update on the progress we made during Q1 on the initiatives and our value creation framework. We continued to strengthen our position in each of the fundamental areas of our roadmap during Q1. In our HVAC segment, we feel very good about our new product offerings and early competitive wins in our high-efficiency products within our heating business. In our HVAC cooling business, we recently introduced an innovative new preassembled cooling tower that expands our Everest line. We are very pleased with initial customer interest and have already received orders. And in our Detection & Measurement segment customer responses to our drone detection solution remain positive and we are seeing growing frontlog activity and our GPS-enabled cable avoidance tools continued to experience strong demand. Within our Engineered Solutions segment, our business shift is progressing well in our process cooling business and we are pleased that component order trends were favorable during the quarter. We continue to reduce our exposure to projects with return profiles that are below the threshold we have set for the company going forward. We will continue to selectively pursue projects with strong value propositions that makes sense but our focus will be on continuing to expand the components and service business, which offers solid growth opportunities, with margins that are higher than segment average. There continues to be some misunderstanding with how these actions are delivering significant incremental shareholder value. Today, we also want to highlight – we also wanted to provide additional clarity on our business shift in process cooling and highlight the impact to the Engineered Solutions segment. We said we would simplify, improve and build SPX and we have been delivering on that commitment. Our deliberate actions to reduce our exposure to lower margin business that does not meet our internal return requirements have driven significant value creation. In our Engineered Solutions segment, as revenues decreased from 2015 to 2017, segment margins increased from around 1% to more than 7% and we added approximately $35 million of operating income. This year, we expect 100 basis points of additional segment margin improvement. This is coming with the decline of $60 million to $80 million of revenue compared to 2017 as we have not replaced the low value project revenues we were executing on last year. We anticipate top line growth to resume at 2% to 3% annually starting in 2019, reflecting a more normalized trajectory. By 2020, we anticipate reaching 9% to 10% core margins in our Engineered Solutions segment, an increase of about 200 to 300 basis points over 2017 levels. As a reminder, core EBITDA margins for the segment are approximately 200 basis points higher than segment income margins, reflecting the favorable cash flow dynamics of the underlying businesses. While the actions we have been taking in our Engineered Solutions have clearly been focused on simplifying and improving the platform, we have also begun to deploy capital in a thoughtful manner to increase our scale and presence in the higher margin and growth portions of our company. We are off to a solid start with our inorganic growth efforts and I am particularly excited about the highly complementary proprietary acquisition announcements we made in our Detection & Measurement segment. First, we completed the acquisition of Schonstedt Instrument Company in March, which is a natural fit with our Radiodetection products. Schonstedt has annual revenues of around $9 million and is the leader in magnetic locators with strong brands and technology. This is a great acquisition for us and helps extend our customer reach in the magnetic – in magnetic locators across our broad geographic sales platform. It gives us the leading position in an important niche market product, where we see great opportunities to continue growing our presence. Also within our Detection & Measurement segment, we recently announced an agreement to purchase CUES, Inc., a company that also fits very nicely with our Radiodetection business. CUES is a leading manufacturer of pipeline inspection equipment with around $86 million of sales in 2017. While we are the market leader in cable and pipe locators, we have a smaller position today in pipe inspection equipment. CUES is a clear leader in inspection and have some of the most recognizable brands and very strong technology in that market. Together, we can leverage SPX’s global sales and marketing footprint with CUES’ product and technology strength to create a stronger, more globally competitive inspection solution for customers while creating attractive revenue and earnings growth opportunities for us. Together, these complementary acquisitions strengthen our strategic position and will help us to continue delivering double-digit earnings growth. We have not updated our guidance for the impact of these acquisitions, but will do so once we have closed CUES. The partial year impact for 2018 is expected to be modestly accretive to our current guidance, but will contribute meaningfully to our results on a full year basis going forward. Before I turn the call over to Scott, I would like to highlight the very strong financial impact of the changes we have been making in our businesses in addition to the contributions we expect from the recently announced acquisition agreements. In our first full year after spin, we had adjusted EBITDA of approximately $126 million. 2 years later, our guidance for 2018 implies an adjusted EBITDA in the mid-$160 million range or more than 30% higher. On a margin basis, this equates to more than 300 basis points of increase, which reflects the success of our portfolio repositioning as well as our margin and organic growth initiatives. When looking at the effect that these acquisitions will have on our results, we anticipate that their combined full year pro forma impact would boost our 2018 adjusted EBITDA guidance by approximately 10% and further expand our operating and EBITDA margins by approximately 40 basis points. And with that, I’ll turn the call over to Scott to review our results for the quarter in more detail.

Thanks, Gene. I’ll start with our net results for the quarter. Our GAAP EPS for the quarter was $0.28 and on an adjusted basis, our earnings per share was $0.44, a 16% increase from the first quarter of 2017. As we typically do, our adjusted earnings per share exclude the results associated with our South African projects and non-service pension expense. In addition, we’ve excluded certain costs associated with the announced acquisitions. Going forward, we plan to adjust out any onetime costs associated with acquisitions. And lastly, based on further revisions to our assessment of the impact of the transition provisions for tax reform, we took a charge in the quarter to revalue certain deferred tax assets and have adjusted that out of our earnings. Overall, we are pleased with our Q1 results which reflect solid overall operational performance. Moving on to core segment results for the quarter. As Gene noted, revenue growth during the quarter was driven by solid performance in our HVAC and Detection & Measurement segments. Core segment income margin for the quarter increased to 12.3% compared with 12% in the prior year, driven by margin expansion in our Detection & Measurement segment. Now, I will walk you through the details of our results by segment, starting with HVAC. Revenue for the quarter increased 16%. This includes a modest currency benefit and an organic revenue increase of almost 15%. The revenue increase was driven by stronger demand for our boiler systems and electrical heating products. As we mentioned on the Q4 call, we saw demand for heating products pickup late in 2017 and continued into Q1 with the cold winter weather, reflecting a more normalized heating season. In addition to more favorable temperatures contributing to our results, we are seeing solid results from the introduction of our new heating products that led to increased competitive wins in the quarter. Segment income was up $2.1 million, driven by the revenue increase. Segment margins of 14.6% represented a modest decline from the prior year driven primarily by our higher input costs. Entering the year, we anticipated some margin impact from higher material costs and have been in the process of implementing price increases to address them. During the first quarter, overall input costs, including for freight, were higher than we expected. Combined, the segment margin impact of higher net input costs was approximately 100 basis points. We anticipate offsetting this effect on a full year basis as we implement additional price increases and productivity and cost measures. In Detection & Measurement, revenue increased approximately 22%, including a positive currency effect of 2.8% and a 1.5% impact from the Schonstedt acquisition. Organically, revenues increased 18.1% for the quarter. Sales of our communication technologies products increased significantly from the prior year, when we experienced low levels of project revenues. Adjusted segment income margins were 24.4% or an increase of 350 basis points. This increase was primarily due to leverage on the incremental sales. As we noted during the February call, segment margin was exceptionally strong in our Detection & Measurement segment in Q2 2017 due to very favorable mix, an effect we would not expect to repeat in Q2 of this year. In our Engineered Solutions segment, excluding the results of the South African projects, revenues were approximately $144 million during the quarter, down about 9%. The decline in revenues was primarily driven by lower project revenues and the timing of transformer deliveries, partially offset by the impact of the adoption of new revenue recognition standard. Under the new standard, we now recognize certain revenues in a similar way to a percentage of completion method instead of on a shipment or delivery basis. Segment income decreased $4 million, and margins decreased 200 basis points to 4.9% due primarily to less favorable mix in our transformer solutions business. For the full year, we continue to expect Engineered Solutions segment results in line with our guidance of revenue decline in the high single digits and margin expansion of 80 to 130 basis points. For quarterly modeling, we expect Engineered Solutions’ profitability to be more second half-weighted this year. Regarding the South African projects, our overall Q1 results were in line with our expectations with a net cash usage of approximately $5.5 million. You can find more details on these results in the appendix of this presentation. Now turning to our financial position, our balance sheet remains solid and we are well positioned to deploy additional capital for growth. The quarter end cash balance of $104 million includes the effect of our acquisition of Schonstedt, which was an all-cash transaction of approximately $16 million. Our net leverage was 1.5x at the end of Q1, which is consistent with where we ended 2017. After we complete the CUES acquisition, we anticipate being – which we anticipate being later this quarter, we expect to remain within our target range of 1.5x to 2.5x leverage. In Q1 2018, we generated core free cash flow of $5 million, which excludes the $5.5 million of net usage used for the South African projects. As we discussed in February, we are targeting at least 110% cash flow conversion of our adjusted net income and expect to have capacity of roughly $600 million of capital available for deployment through 2020 before taking into account the two acquisitions we announced during the quarter. Turning to our 2018 guidance, we are pleased with our Q1 results and are well positioned to achieve our annual targets. For the full year, we continue to expect to achieve adjusted earnings per share in the range of $2.03 to $2.18 or an 18% increase at the midpoint over the 2017 results. We also expect the cadence of earnings to be somewhat more back half weighted compared to last year due to timing of project activity. As Gene mentioned, we will update our guidance for the impact of the strategic actions we have announced when we close on the CUES transaction. With regard to our 2020 expectations, we felt it important to provide more clarity into those numbers given our recent M&A announcements. On our Q4 call, we provided financial targets, including 2020 adjusted EPS of $2.65 to $2.90. This guidance included M&A related amortization expense. As we have stated, when looking at the effectiveness of our capital deployment, we focus on cash returns that provides a better view of the value creation we are delivering. Revising our 2020 adjusted EPS targets to exclude the impact of deal-related amortization would increase them by approximately $0.20 or around $3 per share at the midpoint. And with that, I will turn the call back to Gene.

Thanks, Scott. Turning to an update of our end markets, overall, we are well positioned for 2018 and beyond. In HVAC cooling, our order pipeline is healthy and continues to be supported by strength in commercial and institutional markets. In HVAC heating, average heating degree days remained modestly below historical averages but were 14% higher compared to the first quarter last year. This favorably affected heating product sales and our order book remains strong. In Detection & Measurement, our communications technologies products are benefiting from favorable project demand, and our run-rate product lines continue to perform well. Although our guidance does not reflect incremental infrastructure investment, we will continue to monitor the potential for a larger U.S. plan and the effect on infrastructure spending, which could drive benefits across our company. The market for transformers is beginning to signal more favorable conditions following certain industry actions to tighten capacity and more U.S. government focus on fair competition from imports in large transformers. Lead times in medium transformers, has stretched from 30 to 40 weeks to 40 to 45 weeks and we continue to assess the potential for improved industry pricing. Lastly, I wanted to talk about input cost inflation. We continue to assess macro risks related to trade relations as well as general pressure on steel and freight costs, primarily in our HVAC cooling and transformers businesses. We have been taking actions to mitigate higher commodity and freight costs, including adjustments to our supply chain and pricing actions which we expect to neutralize the effect of higher input costs for the year. In summary, in the first quarter, we delivered overall margin expansion and profit growth and we remain on track to achieve our full year targets. We are actively deploying capital to create shareholder value and further penetrate markets or channels where we can leverage our leading brand portfolio to build stronger positions in areas with attractive profit and growth dynamics. We will continue to prioritize our substantial liquidity for prudent growth investments that align with our strategic goals, capabilities and valuation criteria while maintaining our strong balance sheet. Our capital allocation priorities will remain focused on building our platforms through organic and inorganic growth initiatives. Having said that, we continue to evaluate alternative capital deployment opportunities to maximize shareholder value. All-in-all, we continue to execute on the plans we outlined to drive sustainable double-digit earnings growth and pleased with our start to the year and feel good about our path forward. Now I will turn the call back over to Paul.

Thanks, Gene. Nicole, we are now ready to go to questions.

Thank you. [Operator Instructions] And our first question comes from Damian Karas from UBS. Your line is now open.

Hey, good afternoon everyone.

Hey, Damian.

So HVAC guys knocked it out of the park this quarter, I think it has to be the best quarter for growth since the separation. Just wondering kind of looking forward if you could maybe give us color around orders and backlog both in heating and cooling as a sort of transition piece in here. Just – if I did my math correct, it looks like you basically kind of have flat to modestly up the remainder of the year to fall within that forward guidance. So just any color around how you are feeling for the rest of the year?

Sure, Damian. Let me start. I think when you look at the demand profile we are coming off of what we would characterize as two very low demand winters, where we had very warm winters, where this year is actually slightly below normal. It felt colder to me, but it is much more of a normalized winter and we saw the boiler demand and electric heat demand and we participated in that and also made some nice gains on some of our new products. So in our heating side, we feel good. We like our position. We like our team. We like our products and we have been making progress there. And that was really the big driver of the substantial growth in the quarter. If you look at the cooling side, what we said last quarter was if you look at the Dodge index for commercial and institutional, you are seeing 3% to 4% growth in those markets and that’s pretty consistent with what we are seeing. We have healthy frontlogs. Our customers are moving. There is a little bit of – I don’t know if I’d say disruption, but there is a lot of focus on the impact of steel increases. That’s a big part of a building as we all know. But right now, we see healthy demand and things are good. So yes, we feel very good about our HVAC businesses. And Scott, do you have anything to add?

Just to add a couple of things. And as Gene said, from a heating perspective, which was the biggest driver of the growth in Q1 – if you remember back in year end, we talked about Q4. We kind of saw a late start to the demand profile for the winter season. So we have a slightly more weighted to Q1 volume for the – if you look at the overall heating season. And Gene’s comment around being more of a normal demand profile, that’s looking across both kind of late ‘17 and into the first part of 2018.

Okay, great. And I guess looking at Engineered, could you maybe elaborate a little bit on the mix situation in transformers that was a headwind on margins there in the quarter and what gives you confidence you are still going to be able to do that 8% to 8.5% segment margin for the year?

Yes, I will take that one. So when you look at transformers and we talk about mix, you really have two things impacting that. One, as we have always talked about these are customized transformers. So, when you are looking at a unit-by-unit basis not all – the profitability is not the same on all units. So that was causing some of it. And then the other portion that is not a huge part of our business but can swing margins around a little bit would be on a quarterly and a sequential type basis, would be our service side of that business. And as the positive winter effect on HVAC actually had a negative effect here, and that’s because we – some of our shipments did not occur as we anticipated and so we didn’t get to be able to do the installation services associated with those or other service offerings. So those two impacts, if you normalize them on a year-over-year basis, created about 200 basis point decline in the margins.

Okay. But you would expect to see...

Yes. So when we look at it from the balance of the year perspective, remember, on transformers, from a production perspective and from – we are really filled out for the year. So, we know what the backlog is. We know what the mix of those units are for the balance of the year. And with the new revenue recognition standard, you are really recognizing revenues on an input cost basis, on an activity basis versus a shipment basis. So, we don’t think that we are going to have that kind of sensitivity and we think that the service that we will make up that service level in the balance of the year. We will normalize that for the ongoing margins and so we have very good line of sight on what the revenue profile is going to be there. And then on the process cooling side is where we are seeing the organic decline as we have all talked about because we haven’t reloaded the project book purposely. We are feeling good about the component order trends there and what we see for shipments for the balance of the year. And then we know that we have a good visibility on the frontlog of service work on that business, which is more second half weighted this year than it was last year.

Okay, great. That makes sense. And one last quick one if I could. So in D&M, still seeing strong momentum for the quarter, but you are up against some tougher comps in the back half here. So just give a sense on customer demand across these businesses, how they have held up through April and are you seeing or participating any bidding activity that could maybe help fill the gap from some of those larger projects in the third and fourth quarter of last year? Thanks.

Yes, Damian, this is Gene. I will start on that. I mean, I think when we look at Detection & Measurement, we always kind of think about it in two pieces. There is the run-rate, which is about two-thirds of the business and projects, which is about a third of the business. As we said, we have had sustained healthy run-rate business and then also the frontlog on the project, we see a very healthy frontlog. We ran up quite a bit last year, where I think our growth is in the 15% range. And as we have communicated, we expect to return to much more of our normalized growth rate, which is in the midpoint around 4% for that business, but we feel good about having line of sight to that. It does come a little bit differently this year, because Q2 really had some exceptionally high profit projects fall into Q2. So we would expect Q2 to be down in Detection & Measurement, but we feel very good that Detection & Measurement will be up and we are on target for the year and we are feeling very positive about where we stand there. And any other color, Scott?

I think that really covers it.

Okay, great. I will pass it on. Thanks, guys.

Thanks, Damian.

Thank you. And our next question comes from Brett Linzey from Vertical Research. Your line is now open.

Hi, good evening guys.

Hi, Brett.

Hey, I just want to come back to price cost, specifically in HVAC. I believe you said input cost inflation was 100 basis point drag. Is that a net a number or is that gross? And then how are you thinking about price cost into Q2 and through the balance of the year? Are the price actions in? Do they layer in as we move through the balance of the year? Any color would be good.

Yes, this is Scott. I will take that one. So when we are talking about the impact, that is net, so that would be kind of net of pricing in the quarter. And as I was alluding to in the opening remarks, we knew coming into the year we are going to have some compression here in Q1 offset by pricing actions that were already planned and would take effect later in the year. What happened in Q1 is we did see higher input costs on both material side and freight, with freight probably being the bigger one from what was not anticipated in the year. And so we already have announced incremental pricing actions across the segment that will help get the recovery back for the balance of the year. And also we are also looking at other – some other – secondarily some other costs and productivity improvements to maintain the margins and achieve the full year guidance that we are committed to.

And then somewhat related just in terms of the 301 tariffs in China, what’s the impact you are thinking about for the business and how are you planning for that?

Well, part of what we are seeing from the higher input costs I think is probably related to some of that. And as far as any globally at least looking at uncertainties in the markets, so that I feel like we are already taking action. And if we see something very material, we are looking and already preparing plans to raise prices further.

Okay. And then just – maybe just one more in Engineered Solutions, in terms of project selectivity, I mean, obviously you are going through some pain there as you shift the segment focus. But if you were just to isolate what was the selectivity drag in the quarter on sales, any detail you can give us there?

Yes. I think it was really from an organic perspective, one of the bigger drivers really of the business. So if you net out the change in the accounting impact, it’s going to be – and you ignore kind of transformers, it’s really going to be the driver here for process cooling. So in the neighborhood of call it 10% or so decline is associated with the selectivity and a little bit of timing of projects.

Yes, because we had communicated high-single digit decline anticipated and transformers is expected to modestly grow. And so we would expect really the bulk of that decline being projects selectivity on the top line.

Yes. And so that’s just – that’s for Q1. So when you look at it from a full year perspective, the decline – the organic decline we are talking about really it is all the project selectivity. And it’s just to be clear, it’s execution that was happening – backlog execution that was happening in 2017 and we just didn’t reload that order book.

Okay, got it. Thanks, guys. I will pass it.

Thanks, Brett.

Thank you. And our next question comes from Robert Barry from Susquehanna. Your line is now open.

Hey, guys. Good evening.

Hi, Robert.

Is it possible to say how much the new product introductions contributed to the growth in HVAC?

I don’t think we have showed that. I think what I could say is in the – I will give a little bit of color in the high efficiency and the commercial on the heating side, where our strategy is to grow. We saw some nice above-market growth rate there and that was really driven by a number of the new products and we feel good about that. On the cooling side, I would say we did have nice traction. Our primary innovation platform there is our Everest and our Everest continues to be healthy. We even got more orders this week. We feel like our innovation is driving the growth that we see here for a material portion, but I don’t know the specifics, Paul, in terms of breaking it down to specifics.

We definitely not share that. It’s not available in any public documents. So I think we will pass on that one.

Yes. I mean, I am just trying to get a sense of order of magnitude. I mean, you have been doing a lot with new products. It sounds like there is really good traction. You have given us kind of long-term growth rates. I am just trying to get a sense of order of magnitude of these projects – all of the new products that are successful. Are we talking adding potentially an extra point or two or could it be more than that?

I think when you are looking at the new product introductions and the comments that we gave today we are really focused around the heating side. We are in the earlier stages of kind of rounding up that portfolio targeting the high-efficiency and the commercial market. We are seeing some positive results. I mean, when you look at the quarter, the vast majority of it is going to be demand from the heating season, which is driving the growth. And we will have a better precision portfolio entering the 2018 ‘19 heating season as further instructions come. So you are really going to start seeing more of an impact of this as we get in 2019-2020.

Got it. What’s your sense of your M&A capacity at this point? And how does the pipeline look or are we more in digesting mode now?

Yes. Obviously, we will have to close on the CUES transaction, but if you look at that, we will still be within our guidance and our range at that point in time, so kind of looking at that as where will we be at the end of Q2? And then we will use cash flows throughout the year to further de-lever us. So we will be at or below the midpoint of our range by the end of the year, so giving us ample balance sheet. Even ample balance sheet capacity to do further transactions. And then the other capacity we think about is the internal management capacity to absorb the transactions and manage through the integrations. And with these acquisitions that we have announced on the Detection & Measurement space, strong management teams there focused on that. Obviously, the corporate team is focused on it as well. And then acquisitions in the heating side or cooling side of our business, so anywhere in our HVAC space, we have capacity – management capacity to be able to focus there and that would be a logical area.

And I would say the frontlog, we believe in the strategy and we think that HVAC and detection are very attractive platforms and we think we are in the early innings of building out these platforms. So we have announced two, but yes, there is a pipeline. We obviously announced a leader on the front end, the M&A strategy side. We also have added a leader on the integration side, very experienced gentleman we have worked with over the years, a director from strategy [indiscernible], who is leading our integration efforts who will report to Randy Data, our President of Operations. And we feel very, very positive about our integration plans and we feel like we have the capacity to continue deploying capital here, but we will be careful, cautious, prudent, both in terms of obviously the financial side by ensuring we have very strong execution on the integration.

Got it. Maybe just lastly and I apologize in advance for the accounting question, but could you just help us interpret the Slide 33, this ASC adoption? And are we meant to make adjustments to the model on how we are thinking about the revenue for this segment?

Yes. I wouldn’t be adjusting any of the models. So let me just – when you think about the impact of change in rev rec, which specifically most materially impacted transformers from how they account for revenue recognition. For the quarter, it’s about a $0.03 benefit to us, but from a full year basis, we don’t expect any difference, any material difference between the revenue recognition accounting, whether it was on the old basis or the new. So, that’s really just timing within the year of shipments versus how we are producing – or recognizing revenue now which is more around input costs and activity.

Got it. So was the $0.03 benefit in this quarter and then that will – is it like a negative $0.01 in the next three and it nets out or...

No, what I am saying is on the overall year, we are anticipating some margin improvement within transformers as part of the overall improvement in Engineered Solutions. So that will play out a little bit differently due to the two different basis of accounting, but by the end of the year, it catches up.

Okay. But in the quarter, it helps you by $0.03. Is that what you said?

Around there, yes.

Okay, thank you.

Thank you. And I am showing no further questions at this time. I would now like to turn the call back to Paul Clegg, Vice President, Investor Relations and Communications, for any further remarks.

Thanks very much. I appreciate you all joining the call and look forward to speaking to you again next quarter.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude today’s program. You may all disconnect. Everyone, have a great day.