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spk02: Good day and thank you for standing by and welcome to the Ultra-Industrial Motion Q2 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to our speaker today, Mr. David Kalustyan. Please go ahead.
spk03: 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 ultramotion.com website under events and presentations in the investor relations section. Please turn to slide three. 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, Ultra-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 adjusted EBITDA, non-GAAP operating income margin, non-GAAP adjusted EBITDA margin, non-GAAP organic sales, non-GAAP operating working capital, non-GAAP net debt, non-GAAP free cash flow, and non-GAAP adjusted 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 Q2 2021 financial results press release on ALTRA's website. Please turn to slide four. With me today are Chief Executive Officer Carl Christensen and Chief Financial Officer Christian Storch. I'll now turn the call over to Carl.
spk04: Thank you, David, and thank you for joining us today to review our Q2 2021 results. And please turn to slide five. Our business is firing on nearly all cylinders as we capitalize on demand strength across the vast majority of our end markets. We delivered Q2 revenue of $488 million and earnings per share of $0.62 on a GAAP basis and $0.89 on a non-GAAP basis, results that not only exceeded the year-ago quarter but also outperformed Q2 2019 pre-COVID levels. I would like to start today's call highlighting five themes that have continued to play out for Altra through 2021. First, the combination of our high-quality portfolio of diverse brands and businesses with our team's ability to remain nimble, manage the supply chain, and reliably deliver products to our customers has continued to be a powerful differentiator for Altra. In addition to supporting our strong top-line results, This combination positions us to benefit from several secular tailwinds in markets like electronics assembly equipment, general factory automation, medical and robotics in the near term, and mid and later cycle markets such as mining, metals, ag, and heavy machinery. Second, our incoming order rate remains extremely strong. In fact, our backlog grew significantly to a new all-time high for Altra, and our book-to-bill ratio in Q2 was 117%. This positions our company very well for the coming quarters, gives us confidence to again raise our 2021 guidance, and further validates our belief that there is a long runway ahead for both ultra and the general industrial market in 2022 and beyond. Third, operationally, the business is performing very well, despite the supply chain and labor constraints impacting our customers and our operations. We attribute this to outstanding execution by our operational teams in conjunction with Altra's world-class business system. Fourth, we have continued to make exceptional progress advancing our strategic priority to pay down debt and de-lever our balance sheet. We are now within our target leverage range and remain committed to reducing our debt by an additional $100 million in 2021. And finally, while we manage the business today, we continue to make tremendous progress advancing our future growth initiatives. We're very excited by the level of business development happening across our businesses to create innovative solutions with customers and attractive verticals. such as medical, factory automation, and robotics. In fact, we are already seeing many of these efforts take hold. For example, we're experiencing significant growth in highly customized components with an existing customer that is developing compressors for hydrogen fueling stations. Over the next several years, we expect to receive orders for this new environmentally friendly application supporting reduced vehicle emissions. Additionally, we are diligently and patiently exploring potential bolt-on M&A opportunities that strengthen our market position and expand our exposure to attractive markets. Now, please turn to slide six for an overview of Q2 performance highlights. Christian will take you through details of our financial performance, but I wanted to touch on a few high-level points. Our top-line performance was really strong. Q2 revenue was up 21.9% from the prior year and nearly 5% compared to Q2 2019. This reflects the strong demand we're seeing across nearly all of our end markets and our team's exceptional management of the supply chain to minimize production disruptions and deliver product to our customers. We are also very pleased with our operating performance, particularly given two notable dynamics that we face this quarter. The first relates to increasing material costs and wage inflation that are impacting manufacturing companies like ours. In response, we have implemented several pricing initiatives and have several more in process. However, given the rapid increase of input costs, the typical notice period we give our customers regarding price increases, and the fact that the existing backlog is at lower price, there was and will be a lag in flow through. Therefore, even though we took substantial pricing action, the realized price increases did not fully offset the cost increases in the quarter. We do expect to benefit from these pricing actions to ramp up through Q3 and fully catch up with costs in Q4. The second point to note is that on year-over-year basis, our operating performance comparables were impacted by the exceptional level of cost management in Q2 2020 related to COVID-19. which did not repeat this year. As a result, while 2021 non-GAAP adjusted EBITDA margins decreased by 120 basis points compared to last year, margins were up 50 basis points when compared to Q2 2019. Now turning to slide seven for a market review. As noted last quarter, we are simplifying our market discussions to focus on the core markets and trends that we believe are most relevant to Altra's performance and growth prospects. Transportation, which represents approximately 16% of our business on a last 12-month basis, was up low-level digits in the quarter, reflecting broad-based strength across heavy-duty trucks, automotive, and marine applications. In line with expectations, Class 8 truck revenues were strong in the first half of the year, but we are starting to see some deceleration in China. This aligns with our expectations for the broader transportation market to be flat to slightly up in 2021. Longer term, as the world's leading engine braking supplier, we expect Altra's transportation business to benefit from new technology initiatives that support future global safety and emission mandates. Factory automation and specialty machinery, which represents about 12% of our business, was up over 20% as we again benefited from strong tailwinds in both the specialty machinery and automation categories, notably food and beverage, packaging, robotics, AGVs, and general factory automation. Our expectations for a strong 2021 remain intact with several favorable trends driving growth, including strength in the electronics markets, driven by global digitization and industrial IoT, as well as macro trends in robotics. Turf and Garden, Ag and Construction, which combined represents approximately 10% of our business, had a very strong quarter, up mid-double digits, in part due to favorable comps in the year-ago quarter, but also reflecting stronger-than-expected tailwinds across the board in all key segments. We now expect to see positive growth in most of these markets for the full year. Longer term, we remain very positive on our growth prospects given ultra strong position and attractive secular tailwinds, including increased infrastructure spending and where we are in the ag cycle. Medical equipment, which is about 8% of our sales, was up low double digits year over year as the decline in COVID related sales was offset by a rebound in elective surgeries and hospital capital expenditures. Although the comps for COVID-related spending this year will remain challenging, this is a very exciting long-term growth market for us, as several secular trends are expected to drive growth, from aging population demographics to growth of noninvasive and robotic surgeries. Material handling, which represents about 7% of sales, was up double digits due to strength across all key segments, including conveyors, forklifts, and vertical lifting systems. Although a cyclical market, this is an attractive growth opportunity supported by several exciting tailwinds, from strong growth in warehousing driven by e-commerce to advanced technology to improving warehouse efficiency. Aerospace and defense, which combined is about 6% of sales, was up low single digits. Notably, while our defense business remained solid, our sales into commercial aerospace showed some signs of improvement in the quarter, an encouraging indicator for our anticipated recovery. Despite near-term headwinds, we remain excited about this market. Namely, our A&D business has very attractive margin profile with a strong competitive position and high barriers to entry. We continue to expect this market will rebound at some point in 2022. And finally, renewable energy, which represents about 5% of sales, was down low double digits in the quarter due to supply chain logistics and labor issues impacting turbine OEMs and resulting in order pushouts. In addition, we're experiencing the hangover from China's policy-induced production surge last year as their version of the PTC expired in December 2020. We expect 2021 to be flat to slightly down, barring any new administration policies or accelerating wind industry supply chain issues. Longer term, renewables remains an exciting growth play for Ultra as global demand for increased usage of renewable energy favors our strong position in both onshore and higher growth offshore wind. And with that, I'll turn the call to Christian to provide a detailed review of the quarter and our 2021 guidance. Thank you, Carl, and good morning, everyone.
spk05: Our second quarter results were highlighted by Altra's resilient and balanced portfolio, strong top line and cash flow performance, and solid progress delivering the balance sheet. Operationally, it was a very challenging quarter, given input cost inflation, strained logistics and supply chain channels, and a very tight labor market. Turning now to a review of our top line performance in the second quarter. Sales were up 21.9% compared with the prior year period. Organic sales grew 17.2%, with price contributing 130 basis points. In addition, several businesses imposed surcharges. Foreign exchange rates had a positive effect of 470 basis points. Excluding the effects of foreign exchange, net sales for the PTT segment were up 16.1%. Booking momentum has remained strong across most end markets, including turf and garden ag, factory automation, and material handling. Excluding the impact of foreign exchange, net sales for the A&S segment were up 18% compared with the same quarter last year. This segment once again saw strong broad-based growth, including transportation, factory automation, medical equipment, construction, and farm and ag markets. Taking a closer look at our performance by geography, in Asia and the rest of the world, revenues without the impact of foreign exchange were down slightly, 2.9%, primarily due to softening sales into the Class H truck and wind markets in China. This was partially offset by strength in miniature motors and factory automation. In Europe, sales were up 17.4%. without the impact of foreign exchange as Europe's vaccination efforts began to catch up and the economy started to recover. Organic sales in North America grew 27.3%. As expected, we saw raw material and labor cost inflation flow through in the quarter, ahead of realizing the benefits from the pricing actions we have taken and those that we have in process. In addition, operations and those of our customers continue to face strained logistic channels and a very tight labor market. There are constraining shipments. We expect these conditions to prevail to the end of the year. Non-GAAP operating income was $84.6 million and was up 18.5% when compared to the prior year. Non-GAAP operating margin was up 40 basis points when compared to the pre-COVID second quarter of 2019. Non-gap adjusted EBITDA was 102.6 million for the second quarter, or up 13.3% from the prior year. At 21% of net sales, non-gap adjusted EBITDA margin was up 50 basis points from the pre-COVID second quarter of 2019. To reiterate what Carl noted earlier, It is important to recognize that the prior year quarter reflects an exceptional level of cost savings actions due to COVID-19. Working capital was up approximately $31 million as our operations increased inventory levels to support very strong sales and bookings. While accounts receivables grew in line with our top line, that increase was almost offset by the increase in accounts payables. The provision for income taxes in the second quarter of 2021 on a normalized basis was 20% before discrete items. Please turn to slide nine for a closer look at our balance sheet, improvements, cash flow, and liquidity. Our cash-generated business model and the financial resilience of our business continues to serve us very well. Non-GAAP-adjusted free cash flow for the quarter was $56 million, down 13% from the prior year quarter, but up 20% compared to the second quarter of 2019. Capital expenditures during the quarter totaled $7.9 million. We expect capital expenditures to increase in the second half of the year as we continue to direct investments to growth opportunities, including automation and technology enhancements. We ended the quarter with $278 million of cash and another $296 million of availability under the revolving credit facility. In the quarter, we paid down an additional $30 million on the term loan, bringing our total debt pay down since the ANS acquisition to $360 million. Net leverage at the end of the quarter was 2.8 times and is now in our target range of less than three times net leverage. Our top capital allocation priorities continue to be to reduce our debt balance by an additional $100 million by year end, manage leverage, and preserve optionality for investing in future growth while continuing to support our quality dividend. Now that we are in the target leverage range, we are increasingly open to evaluating investment in bulldog M&A growth opportunities that align with ultra with attractive secular trends. Of course, the market is highly competitive right now when valuations are high. We are committed to taking a diligent and disciplined approach to potential M&A and remain patient to find opportunities that make both strategic and financial sense for Altra and our shareholders. Please turn to slide 10 for an update on our outlook for 2021. With an excellent first half performance in the books, broad-based tailwinds in our back, and more confidence in the overall economic recovery, we have excellent momentum turning into the second half of the year. As a result, we are increasing our guidance for the full year 2021, which is included in this morning's release. We continue to expect that the temporary cost savings realized in 2020 will gradually face back and the full impact of the cost to return by the end of the third quarter. With that as a background, our revised guidance for 2021 is as follows. Sales in the range of $1.89 billion to $1.92 billion, gap-deluded EPS in the range of $2.28 to $2.41, and non-GAAP diluted earnings per share in the range of $3.30 to $3.46. Non-GAAP adjusted EBITDA in the range of $395 million to $405 million, a normalized tax rate for the full year of approximately 20% to 22% before discrete items. Capital expenditures in the range of $50 million to $55 million and depreciation and amortization in the range of $122 million to $124 million. And last, long-gap free cash flow in the range of $210 to $235 million. Let me provide you with additional color regarding our expectations for the third quarter. The financial performance in the third quarter of 2020 was extraordinary due to the significant temporary cost reductions. While our businesses remain extremely strong given the difficult calms, The seasonality of the business and the timing of the impact of our pricing initiatives, we expect that third quarter earnings could be lower than in the prior year quarter or would be substantially higher than in the third quarter of 2018 or pre-COVID. We expect year-over-year earnings growth to return in the fourth quarter. Despite the third quarter challenge, our four-year guidance implies that four-year earnings will be at record levels and significantly higher than the previous two years.
spk04: And with that, I would turn the discussion back to Paul. Thank you, Christian. And please turn to slide 11. We remain extremely pleased with our performance so far this year. We believe we are at the beginning of a broad-based market recovery, and Altra is in an excellent position to capitalize on several secular tailwinds as we move through the year and into 2022. Our focus remains on executing against our strategic priorities to optimize our opportunities as a premier industrial company. This includes leveraging our efficient cash-generative business model and the ultra-business system to maximize cost and sales synergies, deliver the balance sheet further, and expand our margins. Now that we have reached our target leverage range, we expect to accelerate our focus on driving top-line growth both organically and inorganically. However, we do intend to remain disciplined. Finally, we continue to make great strides advancing our ESG efforts, including making headway with our recently formed Diversity, Equity, and Inclusion Committee and completing an ESG materiality assessment. We're very confident in our ability to deliver on our new 2021 guidance and maximize value for our shareholders as the industrial world economic recovery accelerates in 2022 and beyond. I want to thank the Altra team for their continued commitment and resilience that has enabled us to deliver exceptional results, provide the best possible customer service, and advance our strategic priorities. With that, we'll now open up the call for questions.
spk02: As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw a question, press the pound key. Please stand by while you compile the Q&A roster. Your first question is from Jeff Hammond from KeyBank Capital Markets. Your line is open.
spk01: Hey, good morning, guys. Good morning, Jeff. So just thinking about sequential momentum between the two segments into the second half, if you look at orders backlog and seasonality, it looks like, you know, ANS was kind of flat as 1Q to 2Q and PT had the big step up. But, you know, just how do you think about, you know, the sequential dynamic?
spk05: So I think in the second half, we expect that the PTT on the top line will outperform the NS side modestly. One of the reasons is that the third quarter will be the low point for our Class 8 truck business in the year as China sales will drop significantly sequentially and then recover strongly in the fourth quarter. Turf and Garden, you know, that seasonality typically causes some sequential decline for the PTT side, but we see strength in other markets like oil and gas and mining that we think will help to offset that. When we look at ANS, on the ANS side, I think that strength is broad-based on that side of the business, whether it's factory automation, whether it's the medical side.
spk01: uh really good good momentum going in the fourth quarter right into the third and fourth quarter so into the second half okay um and then just to be clear on the the supply chain dynamics um so it sounds like 2q is kind of the biggest challenge and then 3q is kind of a transitory quarter and 4q you know you you fully catch up is that the right way to think about it and just within that Anything getting particularly better or worse within some of the supply chain innovation challenges?
spk04: Yeah, I think the supply chain challenges have been pretty stable. I mean, it is like the old whack-a-mole game where something pops up. But we've been able to work around the chip shortages that we've had and taken some engineering work to do so, but we've been able to work around that. And that's probably been the worst issue. So I'd say that's fairly stable, and hopefully is going to get better in some areas. I think it's going to be a little bit for the chip supply to really get better, but some of the other items I'm hopeful will start to get better.
spk01: Okay, and then just to sneak one more in, corporate expense I think last year was kind of, you know, zero and maybe, you know, zero to one million a quarter, and it seems like you know, it's stepped up a bit, and I'm just trying to, you know, understand what's going on there and how to think about corporate expense, you know, going forward.
spk05: So there's a big swing in medical costs. We provide, so to speak, a guaranteed cost program to the opcos, and any overruns or underruns we absorb at the corporate level. So last year, with significant health care cost savings, The benefit showed up at the corporate level, not at the up-goal level. This year, you'll therefore have the big swing as medical expenses have returned to more normal levels. You have a huge year-over-year swing here in the second quarter, and that's 90% of what has driven that year-over-year change.
spk03: Okay. Thanks, guys. Thank you, Jeff.
spk02: Your next question is from Brian Blair from Oppenheimer. Your line is open.
spk06: Thanks. Good morning, guys. I'm Brian. PTT margin was very encouraging in the quarter, and in my view, maybe the biggest highlight of the quarter. Given continued top-line growth in the back half, catch-up on price-cost, as you outlined, and I suspect some incremental cost actions or drop-through from cost actions, is Q2-type margin sustainable through the second half of the year?
spk05: So I think when we look at the margin of the second half year at the gross profit level, I think they are sustainable. At the operating income level, we'll probably see a modest decline here in the third quarter and in the fourth quarter, mainly related to some of the costs that are coming back and the seasonality of the business. I think from a mixed standpoint, I think gross profit margins we can hold those here in the second half.
spk06: Okay, that's fair. And going back to price cost, you noted price cost compression in the second quarter. That's perfectly understandable. Narrowing through Q3, projected to be favorable in the fourth quarter. Can you parse out price contribution to the second quarter and expected back half realization on price?
spk05: So the way I can answer that is when we look at how much price are we short, so to speak, we're missing about 120 basis points of price. And so that's what we're trying to recover here starting in late in the second quarter and then into Q3. So you think about 120 basis points over $490 million in revenues. That's the dollar amount of price we're missing. to be made whole.
spk04: What we got in the second quarter was around 130. We got 130 already, but we need another 120. Right. And then there's a surcharge P2 that we don't include in that 130, Brian, for the surcharges. For 150 basis points. Probably for surcharges.
spk05: There's no margin on that, but we got about 50 basis points in addition to the 130 basis points of price in form of surcharges. in the second quarter.
spk06: Robert Harrison Understood. Okay. That's helpful. And then, Carl, you offered kind of the typical walkthrough of core market trends and anticipated second-half dynamics. I'm not asking for anything to be quantified here. I know that, you know, 2022 guidance, we have some time to wait for that. But could you provide, you know, a high-level perspective, similar walkthrough on the puts and takes as we look to 2022?
spk04: Yeah. Thanks for that. Cause it's, uh, I'm really encouraged by 2022 for several reasons. One is the amount of backlog we're building. And, you know, some of that obviously is we've extended lead times. And so, you know, you get more orders because the lead time's longer. Some of it's people are trying to, um, you know, get in the queue because they're afraid of what might happen if they're not in the queue. Um, and I don't have a really good handle on how much of that is related to those two things. But the underlying demand is just really, really strong. I mean, you look at a book-to-bill ratio of 117%. I can't remember many times in my lifetime that we've seen that. And then when you look at the inventory positions, one of our general managers, one of our opco presidents at the staff meeting last week showed a picture of the local Home Depot, and they had one teeny-weeny garden tractor out in front of the store and none inside. So it was kind of unbelievable that, you know, the inventory positions on garden tractors just aren't there. Look at automobiles. They aren't there. And so there's some, I think, some very, very significant pent-up demand to just go get inventories back in place. And it's going to take a while. You look at the supply chain constraints, we could be shipping significantly more if we had labor and we had materials. We could be shipping significantly more. So, you know, I think this is going to – we've got really good prospects for 2022. And then, you know, barring, you know, any outside things that happen to cause things to slow down, I think beyond 2022 looks really good, too, from our projections, our internal projections. And I'm excited, too, Brian, that in, you know, March of next year – We're planning to have an investor day where we can talk about the long-term prospects for the company and, you know, our portfolio management activities that we've been working on. So, you know, I'm really looking forward to the next couple of years. Well, great to hear. Thanks again, guys. Thanks, Brian. Thank you.
spk02: Your next question is from Joel Tis from BMO. Your line is open.
spk03: Hey, guys. How's it going? Good, Joel. How are you? Hanging in there. So the backlog, can you give us the number of what the backlog is today versus what it was in the same quarter in 2019? And also, it sounds like it's a little bit of a combination of demand is strong, but also your inability to get stuff out the door because of the supply chain challenges. So maybe just shed a little light on that.
spk05: Yeah, well, while we don't disclose the backlog number, I can tell you it's up 35% from where we were a year ago. That's a big number for us. And, yeah, our shipments are really constrained at this point. We would love to ship more because we get the backlog, we get the bookings, but supply chain and a tight labor market just are the constraints that we're dealing with right now.
spk04: Yeah, we're not having any significant customer issues. We haven't shut down any customer lines. You know, some of it is the backlog build is also our customer's ability to produce because of the supply chain, et cetera. So we don't have any major customer issues. It's hand-in-mouth, but we're in pretty good shape.
spk03: Okay. And can we dig a little more into acquisitions? You know, are you waiting to get that $100 million paid down by the end of the year? Or you're kind of looking, you're feeling pretty good probably at 2.8 times and visibility to get it down under 2.5? And just, you know, where are we, like, you think, before the end of the year? that you'd feel more comfortable if the right thing came along, and maybe just one or two little highlights of areas that look really attractive to you.
spk04: I think we are definitely out there looking and checking some tires, and I'm really excited about our balance sheet position and the projections on where the balance sheet's going to be at the end of the year. The discouraging thing is that when you look at what even small bolt-ons are going for in the marketplace, it's just some of it doesn't make any sense to me from a return perspective. So we're going to remain disciplined, and if the right thing comes along that's strategically critical for us, I think we'd be willing to participate. But at some of the pricing levels, it's just a little lofty right now, a little crazy. But we'll continue to look, and hopefully we can find something that makes sense, and we can get the right return metrics on it. All right, great. Thank you.
spk03: Thank you.
spk02: Your next question is from Scott Graham from Losing Black. Your line is open.
spk03: Hi, good morning. Nice quarter. I wanted to maybe ask first, Carl, you know, you had some statements around transportation, suggesting the softening, certainly relating to China. I'm just wondering that, you know, the U.S. market's pretty good. Europe looks like it's improving as well. And, you know, has China become like a much larger, I'm sure it's become a larger portion, but I mean, maybe you can kind of what each of those markets look like today off of China's strength so far this year? And then maybe I would understand that statement a little bit more, if you could help us with that.
spk04: I'll start, and then Christian can fill in with some of the numbers. So the North American market is very, very strong, and I think the constraint there is our customers' ability to get everything they need to produce the engines they need. So that one is definitely constrained by supply chain issues. Not with us. I think we've got most of our supply chain issues resolved. And, you know, it is hand-to-mouth a little bit, but with some of our customers, they're constrained. But North America is doing very, very well. And then Europe is also doing very well. We've seen a nice pickup in Europe. I think when you look at the size of the markets... The North American market is probably about a third of what China is now. They make about a million trucks in China a year on average. They made, I think, 1.5 million, somewhere in that range last year, but it was a huge year last year. The size of the North American market is not anywhere near what it is in China. to be able to offset any declines there. Now, the good news for us is that in China, the prevalence of engine braking has been very low until the new standards have been put in place. So we expect over the next years that the percentage of new engines and new trucks will have engine brakes on them for supplemental braking for safety reasons and environmental reasons. I don't know if you want to add anything on the numbers.
spk05: As I said, you know, in terms of for us, China is about 35% of revenues and so is the North American market. So China has become very, very important to us. And the nice thing about it is that cyclicality in both markets is different and they, to some extent, offset each other. We're currently seeing, you know, significant declines in China and as their cash flow conquest program has expired. And we'll see, on the other hand, very strong growth here in North America that's offsetting that decline.
spk03: Okay, thank you for that. I just maybe want to go back to the second quarter and maybe even carrying that into July here. You know, could you maybe talk a little about, you know, by segment, you know, the progressions of sales and orders? You know, I'm assuming that they were, you know, sequentially better. You know, the year-over-year comparison stuff, that's, you know, kind of hard to litmus test that. But I'm just wondering, the incoming rate of orders, you know, maybe in dollars, you sequentially in each segment. How is that faring into July? And are you seeing any restocking benefits? Did you see any, for example, in the second quarter?
spk04: Yeah, so I think what we saw was the second quarter for the PTT segment, you know, the income for the rate picked up significantly and has been, you know, really strong and stable through the second quarter. the A&S business, the incoming order rates have been at a very good level and have been stable and strong through the quarter. I think we'll see, we should probably see a little bit of a decline as people have now gotten their orders in based on the new lead times and the inventory positions that they want to build and so forth. So my expectation is that we'll see it drop off a little bit, but we haven't really seen a noticeable drop yet But my expectation is we will see a drop as their planning gets put in place.
spk03: And on the restocking, did you benefit at all in the second quarter? I don't think we benefited from restocking.
spk04: In your distribution channel in particular. I don't think we did because of the capacity constraints. And the distributors, our distributors have told us that they are not increasing their orders to build inventories on our products. There are some products that they are trying to build a little inventory on, but on our products, they're not trying to build inventory significantly. The OEMs and some of the channel partners, I think the OEMs are trying to get some things back in place, but the distributors are only increasing inventory based on higher business levels. Does that make sense, Scott?
spk03: Yep. Yep, it does. Absolutely. Thank you. Thank you. Thank you.
spk02: Your next question is from Mike Halloran from Baird. Your line is open.
spk03: Hey, guys. Just want to clarify a few things here. So if I'm thinking about puts and takes on the margin profile in the back half of this year, You know, it was 130 basis points of price realization, but you need 120 bits more. That should lessen to 3Q and then flatten out year over year, maybe even be a slight tail, and by the time you hit the fourth quarter. And then, so one, is that the thought process? And then secondarily, on the surcharges, did you just provide what those are specifically attached to? Is it transportation, oil and gas, some sort of other commodity?
spk05: All the surcharges are copper-related, and therefore, they're tied to motors and electromagnetic brakes. So think about in particular. That's probably where it's very heavy, and then some other motor applications, brake applications, some other markets. When I look at price, several of our businesses are going out with second-round price increases here in July and, in some cases, in August. Now, it will take a while until we see that price flow through, right? Your current backlog is at the old price. That needs to turn. And so I don't think we'll see the benefit really pop up until Q4. And therefore, we do expect that, you know, most profit margins in the fourth quarter will be stronger, actually, than here in the third quarter.
spk03: And then the other two kind of layering points, when you answered Jeff's question then on the corporate expense line, certainly understand the variance on the health care costs. I was trying to think about that line item on a full-year basis as we're sitting here, and what does that go forward look like after we get that kind of year-over-year normalization figured out?
spk05: Yeah, on a full-year basis, corporate expenses should be 20, around $10 million to $11 million.
spk03: Okay. And that's the right run rate moving forward, you think, beyond? Yeah. Okay. And then last one, as we think about the second half of the year, same kind of cost question, how much is left from the normalization perspective on what you drew down last year for COVID on the cost line and what you think is coming back? If any Any way you can conceptualize that for us in terms of dollar numbers or percentage, whatever makes sense?
spk05: Yeah, we think that when we look at Q3, Q4 combined, there's about a little over $20 million left that will come back. Second quarter was about $13 million that came back. Third quarter is about the same, and then it starts to drop into the fourth quarter. Great.
spk03: And then off the cost side, more broadly, maybe just an update on how the revenue synergy side of the ANS acquisition is going and any kind of updates on that piece.
spk04: Yeah, it's going pretty well. And we think we're currently working on around 125 opportunities out there, and the value in the funnel is probably about $20 million. So, you know, obviously we won't get all that. That's just, that's opportunities that are out there. But my hope is that we'll see very meaningful numbers in, you know, the next year, in 2022.
spk03: And what are those tied to, Carl? What types of applications are we thinking about?
spk04: We just landed a nice one that was in printing and paper market in Italy. There was another one that there's kind of a humorous one, but it's for dog food, and it's processing and packaging. It's a whole line that starts from raw material, and a big bag of dog food comes out, so it's a big automated line. But that was a nice cross-selling win for us. And it's across a whole variety of markets. Great. Great. Thank you. Appreciate it. Okay, thanks.
spk02: Your next question is from . Your line is open.
spk03: Christian, I thought I heard you say that the transportation business would third quarter be the rebound in the fall. Can you just talk to me as to why? And does that backlog extend into 2022 for transportation?
spk05: So the backlog does extend into 2022. in terms of, you know, usually these are not firm orders. These are more forecasts. But, you know, we have long-term agreements in place that go into 2022 as well. The main driver of that sequential drop in Q3 being the low point in transportation is China. China's cash flow program expired at the end of June, early July. And so there was a lot of pre-buy and inventory as well. And as they went through that, the publicly available forecasted build numbers for China would suggest a very strong rebound in the fourth quarter.
spk04: It's going to drop in the third quarter to kind of chew up some of the inventories and then rebound in the fourth quarter.
spk05: Fourth quarter, we're projecting in China to actually be slightly better than the second quarter. Got it. Sequential drop in Q3 when compared to Q2.
spk03: That actually helps a lot. And I don't know if we've touched on this and I missed it. On some of the lagging markets, what are you hearing around middles and mining, oil and gas markets? Anything very positive or negative about those markets going forward?
spk04: Yeah, so in metals and mining, they're very positive news, and we actually got a really nice order for some ball mill projects that we hadn't seen since probably 2012. I think it's been a long time since there's been any investment in those. We got a really nice order. And so there's some investment just starting to ramp up. Now, some of the project work is longer lead time, so we probably won't see the revenues until 2022, but we're starting to get orders. Oil and gas is still lagging. We've seen a little bit of an uptick there, but I think in general the oil and gas guys are sitting on their wallets until probably fourth quarter, first quarter next year.
spk05: Mining is very strong. We own a business down in Texas. Their orders are up 53% year-over-year, all led by mining. I think that second to that would be general industrial, and then up, but in last place, would be oil and gas. Yeah, and steel's doing it.
spk04: We're seeing some nice activity in the steel mills, too, as you'd expect with what's going on in those markets.
spk03: Sure. Great call. Thanks for taking my question. I speak for them. Thank you, Don.
spk02: There are no further questions at this time. I'll turn the call back to CEO Carl Christensen.
spk04: Okay, thank you. And thank you again for joining us today. We look forward to engaging with many of you in the months ahead. And thank you for your time.
spk02: This concludes today's conference call. Thank you for participating. You may now disconnect.
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