Enovis Corp (ENOV) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Colfax fourth quarter 2010 earnings conference call. At this time, all participant lines are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions)

As a reminder, this conference is being recordedI would now like to turn the conference over to Mr. Scott Brannan. Please go ahead.

Thanks, Ternisha, and good morning, everybody, thanks for joining us. My name is Scott Brannan, and I'm Colfax's Chief Financial Officer. With me on the call is Clay Kiefaber, our President and CEO. Our earnings release is available on our website, colfaxcorp.com.

We are using a slide presentation to supplement our discussion which can be found on the website as well. Both the audio and the slides will be archived on the website later today and will be available until the next quarterly call.

During this call, we will be making some forward-looking statements about our beliefs and estimates. These forward-looking statements are subject to risks and uncertainties as set forth in our SEC filings. Actual results might differ materially from any forward-looking statements we might make today. The forward-looking statements speak only as of today, and we do not assume any obligation or intend to update them except as required by law.

With respect to non-GAAP financial measures, the accompanying information required by SEC Reg G relating to those measures, can be found in our earnings release under the investor section in the Colfax website. Clay?

Good morning, everyone. This morning we are going to cover three topics. Our fourth quarter and 2010 results, a strategic priorities update and finally, our earnings guidance for 2011. I will handle the first two and then I will turn it over to Scott for the more detailed financials and the 2011 guidance and then we will open it up for questions.

We are pleased to announce stronger than expected results for both the fourth quarter and the full year 2010. Adjusted EPS for 2010 was $0.92, driven by stronger than expected shipments and a continued improvement in productivity, slightly tempered by lower margin marine shipments. Net sales for the year were $542 million, an organic increase of 3%, while bookings were $533 million, an organic increase of 15%. Adjusted net income for the fourth quarter was $17 million, or $0.39 per share, an increase of 47%, while net sales for the quarter were $167 million, an organic increase of 27%. Orders for the quarter were $134 million, an organic increase of 34%.

Sales growth was driven mainly by broad based strength in all five of our end markets in the fourth quarter. Orders strengthened progressively throughout the year, led by oil and gas, general industrial and commercial marine, and we believe the momentum will continue into 2011 given the current market conditions.

Now for a brief update on our five end markets. Please refer to the slides for the specific growth rates for each market. We won't address sequential quarterly information as the comparisons are uniformly higher due to the seasonality of the businesses. Currency impacts on both the quarter and the full-year results were not significant, approximately negative $0.01 per share for both.

In oil and gas, sales and orders were up significantly for the quarter. This market continues to strengthen, fueled by higher crude oil prices and deferred capital projects, most notably heavy crude transfer storage and refinery lubrication systems applications. The Middle East, Latin America and Asia were particularly robust. Our acquisition of Baric Systems in August enhances our ability to serve this end market by providing improved solutions capability as well.

Based on current activity levels, we expect to see robust improvement in sales and orders in 2011. We've experienced a pickup in quote activity in orders in Venezuela, Brazil and Canada in our transport and pipeline pumps.

Now for a look at our general industrial end market. Both sales and orders were up for the quarter and the year as we've seen continued strength in the chemical and diesel engine sub markets. The growth we've seen in general industrials has been broad based globally. We expect both sales and orders to be up in 2011 over 2010.

Turning now to power generation. Sales were up for both the quarter and the year as new infrastructure projects are being built in Asia and the Middle East. Orders declined for the quarter and the year as expected due to our decision to exit certain business in the Middle East discussed previously. There continues to be a fundamental under supply of electricity worldwide, and we are optimistic about the long-term growth projects for power generation.

We expect to grow off a reduced base level of orders moving forward. Our OEM partners continue to predict robust business in this segment, and we continue to be successful in providing more complete packaged systems to our non-North American power gen business.

In defense, shipments increased for both the quarter and the year while orders decreased for both periods. The order patterns continue to follow the timing of specific ship programs and as a result, we expect sales to increase and orders to decrease in 2011.

In commercial marine, sales were up for the quarter, primarily due to a reduction in our backlog. Orders were up significantly as market conditions were much stronger than in 2009. For the year, sales were up slightly while orders were up significantly.

Cancellations were $6 million in the fourth quarter compared to $3 million in the fourth quarter of 2009 and $4 million in the third quarter of 2010. Over half of the cancellations related to the removal of uncertain projects from our backlog. Overall, cancellations have slowed. On the year to date basis, cancellations have declined from $22 million for 2009 to $16 million for 2010.

As discussed in earlier calls, there were some lower margin sales in the fourth quarter related to orders we took in 2009 and early 2010. We continue to work through that backlog and currently expect to deliver -- to continue delivering those lower margin projects this year. They will progressively improve as we work on pricing and cost reduction and see an improvement in the supply demand dynamics for global ship building. As I shared in my earlier remarks, we are taking the necessary actions to improve margins and grow the higher value added portions of our business. We are expecting sales for this end market to be at similar levels to 2010.

Our financial position strengthened in 2010 due to improved working capital management. Working capital as a percent of sales declined from 23% to 19%. Our operations in Germany reduced inventory days by 30%, and the total Company reduction was 21%. We believe our intensified application of the CBS tools will continue to produce improvements in working capital and cash flow. While we are pleased with this performance ,we are even more excited about the long-term outlook for Colfax.

Now for a brief update on our strategic priorities. We are continuing to make progress. First, we are working to realign the fluid handling platform as a global organization. Last year, we created a market facing global organization structured around our five primary end markets. Our sales organization is now able to leverage all of our brands to deliver solutions to customers that best address their specific application needs.

Our new product development team continues to rationalize our product offering as we continue to simplify our product structure. We are filling in the product voids, and this will enable us to better penetrate growth markets like the Middle East, Latin America and China. The product rationalization progress is enabling us to rationalize our operations and leverage global sourcing as well.

Next, we are placing a renewed emphasis on creating breakthrough performance levels for customer service. This will start with a more intense application of the VOC tools on the front end and includes significant improvements in on time complete performance, as well as lead time reduction. We believe critical fluid handling applications require even more responsive solutions as we move forward.

Our third priority is a focus on accelerating the growth of our lubrication services and systems business.With the addition of Baric, we believe that we can leverage this throughout the high growth markets like the Middle East and Latin America.

In closing, we continue to promulgate and live the Colfax values. It all starts with the best team wins. We have a completely new leadership team that continues to position us for the future while delivering solid short-term results.

Dan Pryor, our new Senior Vice President of Strategy and Business Development, Lynne Puckett our new General Counsel and Scott Brannan, our new CFO are the latest in a series of leadership changes. We will continue to build our bench strength as it's a critical element in our expectation for the long-term value creation.

Customers talk, we listen. We have been focusing on the fundamentals like on time complete improvements in [rod excel], as well as refining our VOC process and putting it to work. Continuous improvement is our way of life. We now have a unified policy deployment process for the fluid handling platform, and this will systematically ensure a better focus and execution moving forward.

We have been turning up the intensity with the Kaizen events as well. Leading edge innovation defines our future. We had to rationalize our products first across the various brands, so that's been our focus, and we made tremendous progress this year as evidenced by some of the data that I shared with you in the last call.

We compete for shareholders based on performance. Our improved margins and working capital performance are evidence that our plans are working, and we are looking to accelerate our efforts. And now, I will turn it over to Scott to provide more details on the financials, as well as to share our 2011 earnings guidance. Scott?

Thanks, Clay. For the fourth quarter, sales were $167 million, up 27% on an organic basis. As Clay described, the increases were across all the markets. Orders for the quarter were $134 million, up over 30% on an organic basis. The gross profit margin of 36% was relatively flat between years as productivity improvements were offset by the unfavorably priced shipments which Clay discussed earlier.

SG&A expenses for the quarter were up approximately $5 million, primarily as a result of higher commissions and our Baric acquisition. As a percentage of sales, these costs decreased from the 22% to 20% due to the substantially higher sales volume in 2010. As such, adjusted net income was $17 million, or $0.39 a share, up significantly from the fourth quarter of 2009. For the year, gross margin of approximately 35% is flat.

As Clay discussed, lower pricing and unfavorable product mix were offset by cost savings from our restructuring program and higher productivity. SG&A for the year increased approximately $7 million, again, primarily due to higher commissions, higher incentive compensation and the inclusion of the results of our Baric acquisition.

Our financial condition remains strong. At the end of the year, we had debt of $83 million, cash of $61 million, and we had $130 million available under our revolving credit facility. Net cash flow from operations was $62 million for the year, and that includes $11 million of asbestos related net cash outflows. At the end of the year, the asbestos insurance receivable related to one of the subsidiary claims was $52 million.

Based on the current status of the litigation as of the fourth quarter, we decreased the amount currently due from insurers by about $500,000, decreased the asset for future periods by approximately $1.6 million and recorded a pretax charge of $2.1 million in the fourth quarter. We anticipate that the current trial phase will be complete in 2011. Our other subsidiaries also engaged in litigation with its insurance carriers, and it has requested an expedited hearing, and it expects to conclude that trial as well by the end of 2011.

With that overview of the markets and our performance, our guidance for 2011, which does not include the Rosscor acquisition which was announced this morning, and Clay will speak about that in a moment, again, this guidance does not include any guidance related to that announcement today of the Rosscor acquisition. We expect sales to increase organically in the range of 2% to 4%, which equates to $570 million to $580 million for the year. We expected adjusted earnings per share for the year to be in the range of $1.00 to $1.10. Adjusted earnings per share excludes the impact of asbestos related items and restructuring.

For 2011, we have budgeted $6 million for asbestos coverage litigation, and we have budgeted $5 million for asbestos liability and defense costs. We expect the incremental margins on our expected increase in sales to be in the same range that we had historically experienced over time. Some of this incremental volume is adversely priced marine sales.

As is our practice, we do not give quarterly guidance. All these amounts are based on recent exchange rates with the euro at 135. As a reminder, about half of our business is euro based. Foreign exchange rates work out essentially neutral to the 2010 actuals.

I would also like to point out that we generally manufacture and sell in the same currency, so our currency exposure is primarily translation, not transaction driven. Changes in the value of the dollar typically have not impacted our global competitiveness to any large degree. And now, I will turn it back to Clay.

Thanks, Scott. Before opening up the lines to Q&A, I would like to comment on our most recent acquisition. As you may have seen, today we announced the acquisition of Rosscor Holding. Rosscor is a leading provider of multiphased pumping systems to oil and gas producers. 2010 annual revenues were approximately 23 million euros.

These systems enable producers to transport a variable mixture of gas, oil and water through a single pipeline. The alternative is separating the mixture at the well head and either flaring the gas or transporting it through a separate pipeline, which is more expensive and less environmentally friendly.

We are very excited about this acquisition for three reasons, fundamentally. First, it's a logical expansion of our oil and gas product line into an exciting growth segment. Many of our existing customers also purchase multiphase, and we are delighted now to be able to offer them a broader portfolio of products. Second, we believe combining the companies offers substantial channel leverage since our geographic strengths are complimentary. And finally, the acquisition is consistent with our strategic goal of delivering solutions rather than just hardware to our customers.

We believe this enables us to increase margins and strengthen our competitive position by delivering our customers superior value. Financially, we expect the transaction to deliver attractive returns to Colfax and to be accretive this year. With that, I will open the floor up for question and answers.

(Operator Instructions)Jeff Hammond with KeyBanc Capital Market. Your question, please.

Hi, good morning, guys.

Hello, Jeff.

Just trying to understand the guidance a little bit better. Seemed like the forward commentary in really all the segments except for commercial marine were quite positive. And I'm trying to understand versus the relatively tepid growth rate you are calling for in the guidance.

Yes, let's walk through that. First of all, we need to start with a reset in power generation. As you know, we've talked about the certain business in the Middle East that we discontinued. So, that was about $18 million worth of business that we are not going to have this year. If you take that and then project in some kind of growth for power gen off of that lower base.And then also for commercial marine, our expectation is going to be relatively flat to last year. Add in more robust growth rates for oil and gas, and general industrial, and then really more of a solid performance in terms of growth from the defense out from the defense end-market, and that's really what led us to that guidance in terms of growth.

Okay, so we are comping against $18 million of revs in power gen that go away?

Correct.

Okay, that seems to be the missing piece, then. And then when -- does Rosscor close today? When would we expect to add that in? What's an expectation for revenue contribution in 2011?

Yes, it closed yesterday. It was a very hectic day yesterday. And what we will do, Jeff, is we will provide additional guidance moving forward as we get more into the details on that. We just want to be prudent in our guidance, so you can look forward to more information moving forward.

And then just final question on incremental margins. I think you said that commercial marine would be a drag, given the lower margin backlog. But it seems like you are calling for that business to be flat. And then just on a go-forward basis, can you talk about -- I think you said business conditions are improving. What are you really seeing there? Can you talk about this environmental regulation driver, and where you are gaining traction on after-market?

Is it related specifically to commercial marine?

Yes.

Okay. The environmental regulations, those are fairly fluid right now in terms of what the actual impact will be, and that's just something we try to stay on top of. For example, our OptiLine product helps greatly; it actually is a seal-less product, so that there isn't much leakage and those kind of things. We thought that would really help with the low-sulfur diesel, the need to convert the low-sulfur diesel, but that's been slowed a little bit. But we expect it to continue from a regulation standpoint. It's just a matter of how abrupt they are in terms of actually implementing it and enforcing it. But we do expect that to continue.

In terms of the margins, Jeff, we are working both on -- from a pricing perspective and a value-creation perspective, as well as cost reduction. For example, we will be moving more of that business to the Far East where basically is where the customers are, so we expect that will help as we move through year. And in addition, I've been doing a lot of work on exactly what the value model is because we still think there is some opportunity there as well.

Okay. Thanks, guys.

Thank you. John Inch with Merrill Lynch. Your question, please.

Thank you. Good morning, everyone.

Good morning.

So, if we add the 3% for the Middle East revenues that go away, your 5% to 7% organic growth guidance still seems kind of light given your order trends and global industrial expansion. Have any of your segment outlooks changed since you provided the 2011 framework in November?

No, they haven't. We have been talking flat for commercial marine. As you mentioned, we do have the reset in the power generation end-market. And the other strong expectations in general industrial, and relatively more modest expectations in the others. So, when you do the math on all that, you do end up with something in the 5% to 7% range.

Scott, was any of the -- if you look at the fourth quarter, was anything pulled forward that might account for a percent or two of shift in terms of your shipments in the fourth quarter? I know fourth quarter is a big shipment quarter, but was it unusually large versus a traditional (inaudible) impact in the organic growth?

No, I don't think so. I mean, I know it wasn't. But I think the thing is, as you know, John, we are going to be prudent in our guidance moving forward. The one that, again, is less predictable is commercial marine.

I'm sure you are looking at the number going -- geez, it's up, when are you going to make the call that it's stabilized or whatever. We're still working through that because the order book has been reduced, I'm talking about overall for ships. But what is going on in that industry is -- we think the supply and demand dynamics are starting to stabilize a little bit. In other words, getting back to orders for exactly what the right demand is for ships. That's what is predicted over the next three or four years when you look at the data and analyze it. So, in terms of, could there be more strength in commercial marine? I'm sure that's the way information looks right now.We just want to be prudent, and make sure we make that call at the right time.

Other than that, general industrial remains robust, the way we thought it was in the fourth quarter. Certainly, oil and gas has gained strength. That's probably, of the end markets, the one that has turned up the most, which I think you're probably finding with some of the other companies that you deal with, so.

By the way, what kind of accretion are you expecting for Rosscor?

Modest accretion. When we have more precise information, we will be happy to provide it then.

Okay, but we're not talking -- you are not talking -- you're talking like a couple of pennies or something like that, right?

Yes, modest.

Okay. Clay, you talked a lot about your initiatives, right? You've been talking about them; I wanted to understand your thoughts toward at some point providing perhaps a financial target framework. Maybe in terms of the quarter or your outlook, do you have any sense of what the financial benefit has been from, say, product rationalization or some of the other things that you've been talking about? And how much of a contribution do you think that kicks in, in terms of your guidance for 2011?

When you take a look at something like product rationalization, it's interesting. I was just over in Germany a couple of weeks ago, and I participated in a couple of different kaizen events, and that was also one of the reviews that we did. And just so people can understand the dynamic of product rationalization, and the impact that it has on the supply chain, once you make the changes, once you rationalize it and take the parts out of the product, it's at two different levels. Then in terms of making its way through the planning process and down to the shop floor where it impacts, obviously a reduction or elimination of a set-up, and then an improvement in productivity as you flow higher-volume parts through the shop. Some of that can happen in, let's say within a quarter, and other parts of it will take an extended period of time to work through.

So, the good news is we are starting to see that hit the floor, and so we can only expect that to improve as we move forward, and we expect it to have a fairly significant impact. The part number reduction just for three screw alone is 50%. I think the last time I shared with you in terms of two screw, we were actually going to reduce the products by about 65%, and the pitches on those screws by about 90%. So, you can imagine the kind of impact that that will have as it finally makes its way through manufacturing. But that's a phased in kind of approach for the actual benefits to happen there.

Couple of other areas like global sourcing, we are seeing some of the impact of that now. But we have some pretty significant projects that we are working on right now that we think are going to bode well for the future.

Clay, the timing of this, does this all get completed by the end of 2012, or does it linger?

It's ongoing, but when we take a look at something like product rationalization, I would say most of that would be through by 2012, most definitely. John, as you know, with continuous improvement, you never stop. But global sourcing, I would imagine we would have some pretty good benefits through that timeframe as well.

Just lastly, Scott, if the litigation trends that you called out actually get settled, these cases get settled in 2011, what kind of cash flow impact does that provide for Colfax?

Well, once these cases are settled, the coverage litigation number, which is $6 million in the guidance, that would end. So, that would be the positive effect of bringing these cases to conclusion.

Right, but isn't there some sort of a -- do you get some sort of a one-time benefit or a cash in the door recognition or something like that?

Well, as you know, litigation is subject to ups and downs. We do have potential favorable things that could come our way at the resolution of this litigation that we have not recorded assets for. It's also possible that it could go in the other direction. So, while we are certainly hopeful that we might be awarded something positive, it's not reflected in the financial statements, and I certainly don't want to make any public estimation of that.

Understood. Okay, thank you.

You're welcome.

Thank you. Kevin Maczka with BB&T Capital Markets. Your question, please.

That was close, Kevin Maczka, BB&T.

(laughter) Good morning, Kevin.

Hello, good morning, guys. Just another question on this idea of working through lower-priced and lower-margin backlogging commercial marine. Can you give a little more color on how pricing of current orders compared to what you are working through in that segment, and maybe across the business as a whole? Have you seen a notable improvement there at all?

In commercial marine, what we did, Kevin, was we put some parameters in place once we understood what was going on. So, that certainly has helped in terms of providing more pricing discipline. That is a very competitive environment right now just because of the supply/demand dynamic that's going on. So, we recognise we have to get more competitive, frankly, and we're going to do that in two ways. One is we are going to put together a value proposition that really makes sense to our customers if they are willing to pay for. And the other thing is we're working on cost reduction. As I alluded to earlier, we're actually going to be shifting more of that production to the Far East, which is where the customers are, in addition to the fact that it will give us a more competitive cost position in that particular local environment.

And then just generally for the business, can you give a little more color on your pricing trends that you've seen maybe in some of the other markets that are showing more strength now?

Yes, we have been able to get pricing in certain end markets, certainly over time, even things like surcharge and that sort of thing, keeping up with materials. But what we are trying to do right now, just to explain, because I just participated in a pricing kaizen a couple of weeks ago. And we are developing a new process, as well as a new -- in order to get to some sensible strategies by end market with regard to pricing. And what has come to the surface is we think we have an awful lot of value, frankly, that we can get paid for, that addresses specific needs of customers within those end markets.

And so those are the kind of practices and processes that we are putting in place that we think will help us in the intermediate as well as the long-term from a pricing perspective. A good example is, we have a product in progressive cavity, and the stator lasts three times as long with some specific waste-water applications. Well, that changes the pricing dynamic, really of that whole market, and we need to take advantage of that. It provides value, and you need to go in and sell that, and ensure that the customer understands it, and then get paid for it.

Okay, and then finally on sourcing. Clay, you mentioned it today, we've talked about it before, some of the bigger initiatives for 2011, do you think that starts to show up in the margin in 2011, or is it more of a situation where now we are just trying to combat some of this commodity cost inflation with those initiatives?

We do have some pressure in terms of steel. We have been able to offset some of that inflation, most of it with surcharges and that sort of thing. But I would say, I mean, that's our -- I wouldn't say, that is our plan in terms of driving global sourcing. It's now getting the traction that we tried to really build through last year. To get an organization to act completely differently, remember, there really wasn't a lot of that going on when you looked at how the organization was structured before. So, we now have a PD, or a policy deployment plan that addresses that specifically, and we feel good about what we have in there for this year and next.

Okay, great. Thank you.

Thank you.

Thank you. (Operator Instructions)Mike Halloran with Robert W Baird. Your question, please.

Morning.

Hello, Mike.

So, another question on the pricing side. When you think about how the pricing in your backlog has trended, you're startling to work through some of the commercial marine stuff still. But with the new orders coming in, could you talk about how that pricing specifically in the backlog has trended this quarter versus the last couple of quarters, and how the current orders look relative to the last few quarters?

The best adjective I could use is it's stabilized, and in certain applications we're able to take it up, more so as a result of the value that we are providing, and so that's really the trend that we are seeing right now.

So then, when you think about the more project-oriented pricing in the environment, has that troughed and started to trend upward yet, or is it just more stable?

I think elements have, certainly oil and gas, certain elements within general industrial.

That's fair. And then on the commercial marine side, with the order strength that you are seeing now, how far out are those delivery dates? A couple of years, or when are you going to start seeing that strength in place?

It's a combination, but Mike, you bring up a good point because what's happened in commercial marine and the shipbuilding industry is those leads times have come down. I think that's reflected in the order book for that industry. So, that's something to keep in mind when you are looking at backlog. So those -- while it will vary, some will always be out there. But what we've seen is that the lead-time expectation has come down.

Good.I appreciate the time.

Thanks.

Thank you. Jim Lucas with Janney Montgomery Scott. Your question, please.

Good morning, guys, this is Mike Wherley filling in for Jim.

Hi, Mike.

I was just wondering, on the material inflation, is there any lag with your price pass-throughs, or do they go into effect pretty much as soon as you see the cost increases?

We try to keep those as current as we can, with regard to the surcharges specifically.

They are generally contractual, so there is not a significant lag factor here.

Is there any other materials that you are exposed to besides steel? Is copper another one?

Iron and steel are the two majors. We do have a smaller exposure to copper and nickel, but the vast majority is iron and steel.

Okay. And then just switching gears to the M&A pipeline and strategy. You made one today, and you hired a new Head for Business Development, and I'm wondering if you can give us any more color on the strategy and what end markets you are targeting.

Well, it's a critical part of our growth, as we've said consistently. One of the significant differences now is, we put in place a team that has the experience to really go out and help us grow from an acquisition standpoint. So, Dan certainly comes to us with a lot of experience, as well as Scott and Lynne. And that's our intent, was to put together the best team so that we can go out and be more acquisitive and help us grow in the future.

In terms of where we are going to focus, I think the assumption you make right now is we are in all those end markets. We are going to continue to look for opportunities there. Again, some of the discipline that Dan is bringing is really being a heck of a lot more strategic in terms of our approach, and that process is already in place, and he is doing a great job right now. So, we look forward to some significant growth through acquisition.

Thanks a lot. And then, the last one I have is just on the commercial marine cancellations. They were up just a bit in the fourth quarter. And I'm just wondering, is there any sense that -- will they continue to go down in 2011, or how do you foresee the cancellations there.

Yes, the feedback we're getting as we deal with the organization that puts together that data is that they've slowed.The cancellations for us, about $3.2 million of those in the fourth quarter were basically clean-up.Where we looked at what we felt were uncertain projects, we want to be very clean in our approach there. And we took them out, and if they want us to quote again, then we will be happy to do that. But those were more what we deem uncertain projects.

Okay. But there is no seasonality to those cancellations or anything like that? It's just random?

Not with regard to the cancellations that we -- in the fourth quarter, no.

Okay. And then on general industrial, you said it's pretty broad based geographically. Can you tell us a little bit about what you are seeing in the US specifically?

Yes, it's diesel engines, for example, has been pretty strong. Chemical has picked up across the world. So, that's been pretty robust as well.

Okay, thanks a lot, guys.

Thank you.

Thank you. Darren Yip with Barclays Capital. Your question, please.

Good morning, guys.

Good morning, Darren.

Just a quick follow up on the Rosscor acquisition. Maybe you can talk a little about the profitability in that business, and to what the after-market mix is like, if there is any? And then, if you can talk about the multiple you paid.

Well, as to the overall profitability, as we tried to indicate earlier, when we have information, we will share that in more detail at a future point. Currently, we are comfortable saying that we expect to it be modestly accretive.

Okay. And then as far as the after-market mix in that business?

The after-market mix is probably less than our traditional business.

Okay, thank you very much.

Thank you. I'm showing no further questions in queue. I would now like to turn the conference back over Scott Brannan for any further remarks.

Okay, well, thank everyone for joining us today, and we look forward to speaking with you again next quarter. Thank you.

Ladies and gentlemen, thank you for your participation. That concludes the conference. You may disconnect, and have a wonderful day.