Harvard Bioscience, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2020 Circa International Earnings Conference 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 a session, you will need to press star then 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your speaker today, Mr. David Kaluzian. Thank you. Please go ahead.

Thank you, and good morning, everyone. On the call today are Scott Buckow, Sercor's president and CEO, and Abhi Khandelwal, the company's chief financial officer. The slides we'll be referring to today are available on Sercor's website at www.sercor.com on the webcast and presentation section of the Investor's Link. Please turn to slide two. Today's discussion contains forward-looking statements that identify future expectations. These expectations are subject to known and unknown risks, uncertainties, and other factors. For a full discussion of these factors, the company advises you to review CERCOR's Form 10-K, 10-Qs, and other SEC filings. The company's filings are available on its website at CERCOR.com. As for results could differ materially from those anticipated or implied by today's remarks. Any forward-looking statements only represent the company's views as of today, November 5, 2020. While CERCOR may choose to update these forward-looking statements at a later date, the company specifically disclaims any duty to do so. On today's call, management will refer to adjusted operating income, adjusted operating margins, adjusted net income, adjusted EPS, free cash flow, net debt, and organic measures. These non-gap metrics exclude certain special charges and recoveries. The reconciliation of Sercor's non-gap measures to the comparable gap measures are available in the financial tables of the earnings press release on Sercor's website. I'll now turn the call over to Scott. Please turn to slide three.

Thank you, David, and good morning, everyone. Sercor delivered a strong third quarter despite unprecedented macro challenges. The work we've done to transform our portfolio during the last three years has paid off. we now have a stronger, more resilient portfolio of essential products. Our diversification across geographies and markets and products is mitigating the ongoing weakness from the pandemic. In addition, we've been able to raise prices through the downturn because our product portfolio has strong market positions and differentiated technology. We're executing well through the downturn. Our continued focus on productivity and cost resulted in a company-wide decremental of 19% in the quarter. The $45 million cost plan for 2020 that we communicated in May remains on track. Our pricing initiatives remain on plan in both aerospace and defense and industrial. The SERCOR operating system is delivering improved operating performance across most metrics, and we expanded the margin of our aerospace and defense business by 360 basis points in the quarter, despite lower volume. Finally, we continue to take actions that best position SERCOR to take advantage of a market recovery. With 13 new product launches in Q3, we remain on track to deliver on our commitment of launching 45 new products this year. We continue to invest in front-end resources and strategic growth initiatives. We're closely collaborating with suppliers and customers to ensure alignment as markets change. And finally, we continue to focus on deleveraging the balance sheet. Now, I'd like to provide some highlights from the third quarter. Please turn to page four. We booked orders of $167 million, down 19% organically due to the impact of COVID-19 on our industrial and commercial aerospace businesses. Defense orders were relatively low in the quarter due to timing of large defense programs. The growth outlook for defense remains strong. Sales came in as expected at $187 million flat to prior quarter and down 15% organically. We continue to believe Q3 is the bottom for sales and orders. We expect sequential improvement across both businesses in Q4, which we'll talk about in more detail later in the call. Adjusted operating income was slightly more than $17 million, representing a margin of 9.3%, up 80 basis points from the prior quarter and down 130 basis points from last year, driven by lower sales volume in industrial. The company-wide decrementals were 19% in the quarter, which is significantly lower than our contribution margin, driven by productivity, aggressive cost actions, and price. Now, let me turn the call over to Abhi to discuss our third quarter results in more detail before I review the outlook for our end markets.

Thank you, Scott, and good morning, everyone. Let's begin by reviewing our segment results. All figures are from continuing operations and extrude divestitures. starting with industrial on slide five. In Q3, industrial segment orders were down 23% organically due to the impact of COVID-19 on most end markets. Downstream orders were especially impacted in the quarter due to timing of capital projects and maintenance turnaround delays. Excluding our downstream business, orders in industrial were down 15% organically. The benefit of the industrial portfolio's regional diversity was evident in the quarter. We saw sequential improvement in Germany, India, and China, with orders increasing in the low double-digit range, partially offsetting pressure in North America. While OEM capital projects remained depressed, we experienced sequential improvement in the aftermarket side of the business on a global basis. As expected, the industrial segment had sales of $124 million, flat to prior quarter, and down 18% organically. The AOI margin was 7.9%, down 210 basis points sequentially, and a decline of 450 basis points versus last year. The margin decline versus prior year was primarily driven by lower sales volume and the impact on productivity associated with the need to maintain social distancing, among other safety protocols on the factory floor, which was partially offset by cost actions and price. In addition, One of our facilities in North America experienced the COVID-19 outbreak, which forced us to idle the factory to most of August and impacted our AOI by approximately $1.5 million in the quarter. Adjusted for the $1.5 million of COVID outbreak impact, the industrial margin would have been 9.1% and the decrementals would be approximately 30%. Turning to slide six. In Q3, In our aerospace and defense segment, we delivered orders of $59 million, down 9% organically. Orders were impacted by the timing of large defense programs in the quarter and the continued impact of COVID-19 on commercial aerospace. While the timing of large defense programs resulted in lower orders in the quarter, the business remained strong overall, and we remained confident in the segment's strong growth outlook going forward. Sales for aerospace and defense were $62 million, flat to the prior quarter, and down 9% organically. Strengthened defense platforms partially offset the impact of COVID-19 on commercial aerospace. The aerospace and defense operating margin was 23.7%, up 360 basis points versus prior year, and 260 basis points sequentially. With $6 million lower revenue, the aerospace and defense team delivered $1 million of incremental operating income driven by price, productivity, and other aggressive cost actions. Turning to slide seven. For Q3, the effective tax rate was approximately 13%, lower than the 14.8% in the prior quarter, due to a change in the statutory tax rate where Sercor operates. For Q4, the tax rate is projected to be approximately 15%. The company took a non-cash charge of approximately $42 million, to create a valuation allowance against its remaining U.S. deferred tax assets. This non-cash charge was required under GAAP accounting rules primarily due to recent U.S. tax law changes and losses in the U.S. from our divested businesses. This charge does not impact our non-GAAP tax results for the quarter and is not expected to have an impact on our future non-GAAP tax results. Looking at special items in restructuring charges we recorded a total pre-tax charge of $13 million in the quarter. The acquisition-related amortization and depreciation was a charge of $12 million, with the remaining million dollars being associated with restructuring activities in the quarter. Interest expense for the quarter was $8 million, down $4 million compared to last year. This was a result of lower debt balances and a favorable interest rate of 25 basis points. Other income was a million dollar charge in the quarter, primarily due to foreign exchange losses, partially offset by pension income. Corporate costs in the quarter were $7.2 million in line with previous guidance provided. Turning to slide eight, our free cash flow from operations was flat in the third quarter, right in line with what we guided in our Q1 and Q2 earnings call. At the end of the third quarter, our net debt was at $468 million. This represents a year-over-year debt reduction of $122 million. In Q3, we paid $52 million on the devolver, further reducing our debt balance and interest expense. We expect to generate strong free cash flow during the fourth quarter and intend to use that cash to continue to pay down debt. Now, I will hand it back over to Scott to provide some color on our end markets and outlook.

Thank you, Avi. Now I'll provide an overview of what we're seeing in our end markets. Please turn to page nine. Let's start with industrial. As Avi mentioned, the impact of COVID-19 continued through the third quarter across most major industrial end markets. For Q3, orders were down 7% on a sequential basis with both for-market and aftermarket orders coming in slightly lower than Q2. Large projects remain weak due to ongoing delays of capital spend. Regionally, we saw weakness in North America and most of Europe, offset by strength in Germany, China, and India across most major sectors. As we mentioned in last quarter's earnings call, we believe that Q3 marks the bottom, and we expect industrial segment orders and revenue to improve sequentially in Q4. Both for-market and after-market orders are expected to increase double-digit sequentially. From an end market perspective, we expect slight sequential improvement in many of our larger end markets. Power generation is showing early signs of improvement globally. Downstream oil and gas orders are improving as high priority capital projects and certain maintenance activity moves forward. Our shorter cycles chemical processing end markets, which are more closely linked to consumer demand, are showing slow improvement. For industrial revenue in Q4, we expect a moderate improvement sequentially, with growth ranging from flat to up 10%, while year-over-year revenue is expected to be down between 5% and 15%. Most OEM and aftermarket end markets are expected to improve in Q4 compared to Q3. Downstream oil and gas revenue is expected to be up sequentially due to the timing of project shipments and higher aftermarket activity in the quarter. Regionally, we're seeing pockets of economic improvement in China, India, and Germany, which we expect to continue. Commercial marine and midstream oil and gas are expected to remain at low levels due to depressed activity in shipbuilding, low ship utilization, and ongoing project delays in midstream oil and gas. Please turn to slides 10 and 11. Overall, we expect aerospace and defense orders in Q4 to be in line with Q3 sequentially and down versus prior year, driven by the timing of defense program orders and ongoing COVID-related headwinds in the commercial business. For aerospace and defense revenue in Q4, we expect a significant sequential improvement from Q3. Defense revenue should see sequential growth of 20% to 25% and year-over-year growth of 15% to 20%. Growth in the quarter is driven by strong shipments across our submarine portfolio, our missile portfolio, and for the Joint Strike Fighter. Commercial revenue is expected to grow sequentially between 15% and 25%, but will be down year-over-year between 40% and 45%. The sequential improvement is driven by slightly improving shipments across a variety of business jet, regional jet, and other civil platforms, partially offset by lower shipments to Boeing and Airbus. The outlook for price remains strong, with a net 4% increase for defense and commercial aerospace, driven by improved price management. To summarize, as the pandemic continues to significantly impact the global economy, Serco remains committed to delivering long-term shareholder value. Our portfolio transformation is largely complete. We've completely exited upstream oil and gas, and the new circular is diversified across geographies and markets and product technologies. Our portfolio of products has differentiated technology and strong market positions in the niches where they compete. As a result, we're able to raise prices across the portfolio despite the current market conditions. We remain focused on execution. The $45 million cost plan for 2020 is on track. Our focus on productivity and cost resulted in a company-wide decremental of 19% in the quarter, and the SIRCOR operating system is delivering improved operating performance across most metrics. Finally, we continue to take actions that best position SIRCOR to take advantage of a market recovery. We remain on track to deliver on our commitment of launching a record 45 new products this year. We continue to invest in front-end resources and strategic growth initiatives. We're closely collaborating with suppliers and customers to ensure alignment as markets change, and we continue to focus on deleveraging the balance sheet. In closing, I'd like to thank the entire SIRCOR team for their resilience and dedication during these unprecedented times. They've been doing an excellent job working every day to ensure that we continue our momentum and meet our customers' needs. Now, Abby and I would be happy to take your questions.

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star then one on your touch-tone telephone. To withdraw your question from the queue, please press the pound key. Please stand by while we compile the Q&A roster. First question comes from Andy Kapilowicz of Citigroup. Your line is now open.

Hey, good morning, guys. Good morning, Andy. How are you? Good morning, Andy. Scott, as you speak with customers regarding the overall industrial landscape, what are they thinking or telling you about the potential environment in 2021? Obviously, they've been putting off aftermarket, at least to some extent, and delaying bigger CapEx. You mentioned that you expect refiners to move some projects forward in Q4. Have you seen customers – is there any evidence that they're starting to move those kinds of projects forward in Q4? Is there any sense that a larger project could move forward at some point in 2021?

Thanks, Andy. So I'd say as an overarching statement, there's optimism about 2021. You mentioned some of my prepared remarks around refiners, and that may be a little more bullish about 2021 than what we're hearing in other markets. But Starting in Q4 here, we're expecting that capital project orders that have been delayed through the year are going to start to drop into Q4, and we're already seeing that happening here in October. The aftermarket in downstream oil and gas is they can only delay for so long. Okay. For our products, in general, they can delay up to about 12 months, and then it starts to become pretty risky to go beyond that. So we're already seeing here in Q4 projects that were delayed earlier in the year are starting to cut in. So our aftermarket is showing some significant sequential improvement from Q3 to Q4, and we would expect that to continue into early next year. Other markets are, I'd say just generally speaking, the other end markets that we're in are largely showing modest improvement into Q4, and with the exception of commercial marine, which is still bouncing around the bottom, and we're still seeing very low levels of activity in midstream oil and gas. Those two I'd try to call out as areas that are not showing much improvement. When we talk to customers about 2021, there's general optimism about 2021. Most people are expecting a vaccine. Most people are expecting the economy is going to recover. Everybody's looking at the PMIs are now all moving up. So I'd say there's general optimism about ongoing sequential improvement as we go into Q1 and Q2 of next year. So I think most of our customer base is feeling good about next year.

That's helpful, Scott. And you beat your own decremental margin forecast for Q3 coming in at 19%, as you said. So how are you thinking about Q4? Do you see A&D margin continue to rise here? And then as we go into 21, decrementals in the low 20% range, is that still what you would guide us to? And then assuming we do get a turn in your businesses, what kind of incremental margin do you think you could deliver?

All right. So, Andy, there's a couple different pieces here. So as you think about Our Q3 decrementals, you know, at 19%, you should expect Q4 in the mid-20s, if you will, right? So as you look at where we are and the work we've done around cost out, you should feel pretty comfortable as we go into Q4, our decrementals being in the mid-20s. As you talk about the A&D business and look at where we were in Q3, our margin going into Q4 should be close to what the margins were in Q3 on the A&D side of the world.

And, Avi, any thoughts on incrementals when you do start to recover? Absolutely.

So as you think about our standard margin, it's in the 30% to 35% range across our course. So as we start to see the world turn, the best assumption I would make, Andy, is incrementals in the 30% to 35% range.

Got it. And then one more question from me on free cash flow. Avi, you talked about still expecting stronger free cash flow in Q4. That's good to hear. As you go into 21, do you expect, you know, kind of a relatively clean year in terms of limiting restructuring costs, improving working capital? Any sort of initial thoughts about, you know, or extra thoughts about Q4 or initial thoughts about 21?

Absolutely, Andy. So, look, first of all, you should expect a clean cash flow in Q4 and into 2021. We expect a strong free cash flow operationally in Q4. As you think about 2021, the best way to think about free cash flow is to assume 90% to 95% of adjusted net income is what we can work for the year from a free cash flow standpoint.

Very helpful. Thanks, guys.

Thanks, Jim. Thank you, Andy.

Thank you. Our next question comes from Nathan Jones with Stiefel. Your line is now open. Good morning, everyone.

Good morning, Nathan. How are you?

Good, thank you. Just digging a little bit more on the industrial side of it. I know you guys had said you weren't seeing a lot of recovery in the aftermarket side of the business in 3Q. We're expecting that to start coming through maybe later in 3Q or into 4Q. So if you could just comment on the progression on the aftermarket side, which we'd obviously assume would pick up first, how that progressed through the quarter and how it's progressed so far into the fourth quarter.

Sure. So we agree. In general, we expect to see aftermarket recover sooner than foremarket, with some notable exceptions. But, yeah, so we did see aftermarket slightly improve in Q3. Coming into Q4, we're expecting that trend to continue. So aftermarket, we still expect we'll lead the OEM recovery, but but we're also anticipating we're going to see the OEM business improve as we go into Q4 as well. So maybe a little bit more improvement in aftermarket versus OEM, but both are expected to improve in Q4 for both orders and revenue.

Then maybe just specifically on the downstream business, obviously critical flow can be very lumpy when it comes to orders and pretty lumpy when it comes to revenue as well. I think you talked about a pretty low level of orders in the third quarter, expectation for that to improve in the fourth quarter. Can you give us a little bit more colour on what you're seeing out there in the market, maybe from a little more long-term kind of trend in that business? When those fourth quarter orders start to hit revenue, will we see that early in the new year or will it just take a few more months before that turns into revenue?

Sure. Sure. So that's exactly right. In the downstream business, it can be very lumpy. Our orders can be, you know, 50% of prior year or 100% up from prior year in any given quarter. So you have to kind of be careful about extrapolating too much from one quarter in that business. So orders were significantly down versus – prior year in our downstream business in Q3, but we're expecting a pretty strong snapback in Q4, and we're going to see order intake in Q4 on both capital projects and aftermarket jump significantly from Q3. And as I mentioned in the prepared remarks, the aftermarket, they can only delay for so long. I mean, these are critical processes, and they start taking a lot of risk if they delay any longer than about 12 months. So we're seeing the aftermarket projects start to pick up. We're actually seeing some unplanned maintenance activity as a result of too much delaying earlier in the year. And so, you know, obviously we get to price for that. So we're getting some aftermarket business there as well. When we look at the project business, we've been actively working a big project pipeline all year. And as you know, these projects have not turned into orders yet. We think that Q4, we're going to see a number of these projects start to turn into orders, and we'll start executing them in Q4. Your question around timing of orders to revenue – In general, we start recognizing revenue about three to six months after we receive an order on these capital projects, and we can ship anywhere between six and 12 months, but the revenue recognition would start sooner simply because of the way the accounting works. And then the aftermarket, of course, the revenue recognition happens as we're executing the work.

Got it. One more on defense. Obviously, you know, some good solid growth there. And I think you guys have pretty good visibility to that. Is there any kind of color you can give us on what you're thinking about the defense market for 2021?

Sure. So this is also lumpy, as you know. So you really have to look at about a 12-month rolling order intake for defense. We are, you're right, we have a lot of visibility. We're very confident in strong double-digit growth on the defense side going into next year. We're on platforms that are bipartisan platforms going into next year where we know the production rates and investment and spend from the government is going to happen going into next year. So we've got submarine platforms that are launching or increasing production rates. We've got missile platforms. We've got the Joint Strike Fighters. So we're very confident in strong growth on the defense side going into next year.

Great. Thanks very much. I'll pass it on.

Thank you, Nathan.

Thank you. Our next question comes from John Frensworth with Sedodian Company. Your line is now open.

Good morning, gentlemen. Scott, how are you doing? I want to start with the ability to implement price increases. Can you talk about which businesses are having the most success in that and which ones are finding it the most challenging?

Sure. We'll start with we're getting the most price on the aerospace and defense side, as you know. We are getting about the same net price increase on both the commercial as well as the defense side of the business, which is around 4% of total revenue. The bias on the price increases is aftermarket orders and spot orders for many of the smaller platforms that are no longer on long-term agreements. So if you look at a distribution of the types of revenue that we have, there's quite a bit on long-term agreements. We have some defense business that's subject to TINA. Those are not areas where we're getting short-term price increases. As contracts roll over, we typically can get a price increase where there's a long-term agreement. We do that. But we're obviously leveraging the aftermarket and the spot orders on both the commercial and the defense side in aerospace and defense. And we're doing a very nice job of pricing based on value. When a customer needs an order urgently, we charge for that. And so we have a pretty detailed decision tree on how we do this, and we're getting better at it every quarter. On the industrial side, we're netting about 1% of revenue on price. This, again, is much more biased towards the aftermarket part of industrial. It's the same kind of thinking, if you will, around where we can price based on value. So when we're getting orders for screws for screw pumps and they're urgent, we will price – based on the level of urgency required. And so that's largely where the price is coming from right now is aftermarket on the industrial side. Again, where we can raise prices on the OEM side, we will, but the majority of our price increases are in the aftermarket.

Okay. And I guess just to stick on the defense side a little bit, I think in the commentary you said that the order outlook for fourth quarter is supposed to be largely flat. but you also commented that the revenue profile seems to be looking better in Q4 and looking for improvements versus your prior expectations in your top programs, you know, the Joint Strike Fighter, you know, the Virginia or Dreadnought. Could you just kind of talk a little bit about the improved revenue profile, which program it specifically is coming from, and why has that change occurred versus the previous quarter? Sure.

Sure. So if you look at our backlog, I'm not sure if we disclose our backlog by defense or commercial, but we're right at a record backlog on our defense business right now going into Q4 and into next year. And what we're doing here when we guide the quarter here is we're looking very much at the backlog and the shipments expected in the quarter. And that can move around a little bit based on when our customers ask for delivery. So the improved outlook is based on the expectations our customers have for shipments in Q4 versus what we thought they were gonna ask for last time we talked about this in Q3. So yes, the top programs, we're expecting better shipments in Q4 as well as many of the other OEM platforms that we're on in defense.

Okay, but there's no bias like Virginia, the subs, if you will, versus the JSF?

No, they're all higher than we thought three months. All of them are running higher.

Got it. And then on the new product launches you touched on earlier, No, 32 is it in AMD and 13 industrial. Could you talk about how much incremental revenue they're contributing in Q3 and maybe what your expectations of incremental revenue they'll contribute in 2021?

So we measure, John, we measure vitality for CIRCOR. And because of the amount of time it takes for revenue to ramp up, A product launched in Q2 this year is not going to generate a tremendous amount of revenue in this year. And so the way we measure vitality is we look at revenue in the current year from products launched within the last three years. And that's a number that's been growing consistently for the last, you know, four or five years at CIRCOR, and that's one that we measure. So looking at year over year from new products, the way we look at it is products launched within the last three years. So the direct answer to your question, is anything launched this year, the incremental revenue is going to be relatively small. It's not really moving the needle yet. It takes a year or two for the revenue to ramp up.

Okay, that's helpful. Thanks, Scott. I'll get back to you. Okay. Thank you.

Thank you. And our next question comes from Jeff Hammond with T-Bank Capital Markets. Your line is now open.

Hey, guys. This is Brad on for Jeff. Hey, Brad. Good morning, Brad. Hey, good morning. Just on Arrow, and then sorry I missed it, but I think it was a little bit weaker than you were expecting in the third quarter, and I'm seeing, you know, a pretty big, you know, downshift in the aftermarket business, at least in the fourth quarter. Was that the driver as, you know, maybe a little bit of weakness in 3Q versus your expectation coming out of 2Q? And then when you kind of forecast that aftermarket business within the fence going forward, you know, is it something that might be, you know, more of a near-term dynamic and could snap back pretty quickly, or is this one of those, you know, kind of lower for longer situations there?

Jeff, I think you broke up in the very beginning. You asked about orders in Q3, or was it revenue in Q3 for aerospace and defense?

Revenue and just the impact that the aftermarket business may have surprised you in the third quarter.

Yeah, yeah. Okay, so I'd say for aerospace and defense, revenue in the third quarter was not too far. It was in line more or less, maybe a little light from what we expected in the third quarter. To answer your question about aftermarket, aftermarket came in more or less as expected as well. in the third quarter. You'll notice the growth rate of aftermarket on defense going into the fourth quarter is lower than what we saw in the third quarter. And that's simply timing. It's timing of project orders and shipments for aftermarket on defense programs. So we would expect that to snap back, as you said, quickly. So we'll see that Q1 through Q2 next year. You'll see that snap back to being kind of more of a normalized rate, if you will. I think it was stronger than normal in Q3. with above 20% growth and it's a little weaker than normal now in Q4 with relative single digit growth. The right number is somewhere between the two.

Okay, that makes sense. And then maybe on the cost side, you guys seem pretty confident about the $45 million savings target. Could you just remind us what the temporary versus structural split out of that savings is? And maybe shift here to 2021. How should we think about, you know, the carryover of some of these permanent savings versus, you know, the potential to maybe add back some stuff on the temporary side?

Absolutely, Brad. This will be answered that for you. So first of all, we're in line to, you know, as we talked about earlier in the previous earnings calls, we're in line to deliver the $45 million of cost that we laid out, right? So out of the $45 million, five of that is cost avoidance. So if you take a look at what's left over, you're left with, what, $40 million, right? Out of $40 million, $20 million is structural cost, so that's obviously incurred. That's already happened, and that will carry forward into 2021 because that's cost that we took out from the business. The remaining $20 million was temporary cost, and quite frankly, a very small portion of that is committed back to come back in the business, which is tied to the 401k match, for example. But majority of that cost is going to depend upon when the world turns. and when the volume comes back. So a great example would be a big chunk of that temporary cost out was furloughs. So we're obviously not going to bring people back, if you will, unless the volume comes back. So that's how I would think about it. So the $20 million of structural cost obviously is out. It will stay and it will be a part of our run rate next year. And the remaining $20 million are temporary. A small portion is committed to, but the majority of the cost that we took out is going to depend upon when the world turns and the volume comes back.

Okay, that makes sense. And what did you realize in the third quarter relative to that target, or maybe what is the savings target for the fourth quarter specifically?

Yeah, so the third quarter we realized $13 million, and that is even the same number for Q4. Okay.

And then, you know, maybe just kind of focusing on the fourth quarter, you know, from a higher level, it sounds like, you know, things are going pretty well thus far in October. And have you seen any kind of retrenchment given the escalation in COVID or Or have you baked that into your guidance at all for any kind of step back in the latter two months of the year?

So we have a range for industrials growth of 0% to 10% in the fourth quarter. I think one thing, I don't know if I've mentioned this publicly before, but as we enter a quarter in industrial, roughly 70% of the revenue is in the backlog. So we're really dependent on orders for 30% of the revenue in the quarter. 30% of the revenue, we get the order in the quarter and ship it in the quarter. So that would be the part that might have some uncertainty. October so far is in line with the way we're guiding, obviously. So October, no indication of changes related to COVID in Europe or the U.S. is going to change anything about what we're saying here. So we did use a range for that reason. There's obviously uncertainty as we exit the year here, and we're seeing what's happening in all the major countries in Europe right now, but we are not seeing an impact on the order intake and on our expectation with shipments for Q4 at this point. So still some unknowns and some uncertainty, but so far what we're seeing and what we're hearing from customers is in line with the way we're guiding Q4 on the top line.

Okay, very helpful. Thanks for the time.

Thank you, and I'm showing no further questions in the queue at this time. Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program, and you may now disconnect.