John Bean Technologies Corporation

Good morning, and welcome to JBT's Corporation's first quarter 2022 earnings conference call. My name is David, and I'll be your conference operator today. At this time, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number 1 on your telephone keypad. If you'd like to withdraw your question, press star one once again. As a reminder, today's conference is being recorded. I'd now like to turn the call over to JBT's Vice President of Corporate Development and Investor Relations, Kadric Meredith, to begin today's conference.

Thank you, David. Good morning, everyone, and welcome to our first quarter 2022 conference call. With me on the call is our Chief Executive Officer, Brian Deck, and Chief Financial Officer, Matt Meister. In today's call, we will use forward-looking statements that are subject to the Safe Harbor language in yesterday's press release in 8K filing. JBT's periodic SEC filings also contain information regarding risk factors that may have an impact on our results. These documents are available in the investor relations section of our website. Also, our discussion today includes references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measure can be found in the investor relations section of our website. Now, I'll turn the call over to Brian.

Thanks, Kendrick, and good morning, everyone. Overall, JBT's first quarter results outperformed what were admittedly modest expectations for the period. On the labor front, we enjoyed a faster than expected bounce back from the extremely high level of absenteeism associated with Omicron in January. That said, we still have pockets of COVID-related absenteeism, particularly in Europe, and are operating in a very tight labor market overall. As for supply chain and inflationary pressures, there are a few areas of improvement, but as a whole, the situation remains extremely challenging and unpredictable. There's been no improvement in the availability of certain critical materials, particularly electronic components, nor do we anticipate improvement for the year. The tragic invasion of Ukraine has caused additional disruptions for JBT and our customers. For us, it has directly impacted the price of stainless steel. Our customers, it's led to rising prices and shortages of key commodities, such as grains and sunflower oil. Additionally, the recent COVID-related shutdowns in China add stress to supply chain and logistics. We continue to adjust pricing as we are able. And the other actions we are taking, such as reducing the time a customer quote is valid, sourcing alternative parts and suppliers, and buying inventory earlier, have also helped narrow the price-cost gap as well as improved surety of supply. All that said, JBT continued to enjoy a healthy commercial environment. Food tech orders in the first quarter topped 400 million. Aerotech orders were well ahead of 2021 fourth quarter and the year-ago period, reflecting continued strength of the infrastructure and cargo side and ongoing recovery and demand from the commercial airlines. And recently, we've experienced higher defense equipment inquiries from Western Europe. The backlog continued to build for both Futek and Aerotech, now collectively at 1.1 billion. Looking ahead to the full year, with JVT's record backlog, we remain optimistic about generating strong top-line growth with sequential margin improvement as we progress through the year. I'll turn the call over to Matt, who will provide a detailed analysis of the first quarter results and refine our outlook for 2022.

Thanks, Brian. GBT's results for the first quarter were better than expected, as both FoodTech and Aerotech revenue were higher than our projections. In addition, corporate expenses came in lower, while our tax rate for the quarter benefited from two discrete items. At FoodTech, revenue declined 3% sequentially from the fourth quarter of 2021. This was better than expected as labor availability and productivity recovered faster than anticipated in the back half of the quarter. On a year-over-year basis, food tech revenue was ahead 14%, comprised of 13% organic and 4% from acquisitions, offset by a 3% foreign exchange headwind. Adjusted EBITDA margins at food tech were 16.3%, reflecting the unfavorable impacts from supply chain constraints lower manufacturing productivity, and inflationary pressures. For Aerotech, year-over-year revenue grew 6.5%, while from a sequential perspective, revenue declined 12%, reflecting normal seasonality, but slightly better than we had projected. Aerotech's adjusted EBITDA margin of 7.1% improved sequentially, with recent price increases flowing through to the P&L and with a favorable mix of aftermarket revenue. corporate costs came in slightly better by about $1 million. Our tax rate, which was about 10% for the quarter, benefited from two discrete items, which together added approximately $3 million, or 10 cents to earnings per share. These two tax items have both a one-time and ongoing benefit to our operations in the UK and Brazil and reflect the efforts that our tax and local business teams contributed to improve our overall tax profile going forward. We are now estimating an annual effective tax rate of 22% to 23%, excluding discrete items. With that, JVT posted GAAP earnings per share of $0.80 compared with $0.84 from prior year, and adjusted EPS was $0.87 compared with $0.90. Free cash flow is $14.5 million for the first quarter, representing a conversion rate of 57%. Excluding capex of $14 million related to our digital investments, Cash flow conversion was approximately 110%, even as we invested in inventory to support higher sales volume for the remainder of the year. Looking ahead to the second quarter and full year, our results remain subject to continued supply chain uncertainty, persistent inflation, and labor challenges, as we have discussed, as well as the conflict in Europe. The second quarter, we anticipate year-over-year consolidated revenue growth of 15% to 17%. food tech revenue up 13 to 15 percent, comprised of organic growth of 11 to 13 percent, acquisitions of 4 percent, and a slight offset of approximately 2 percent from foreign exchange. At Aerotech, we expect year-over-year growth of 20 to 25 percent as the end markets continue to recover, especially for mobile ground support equipment. At food tech, operating margins are forecasted to be between 13 and 14 percent. adjusted EBITDA margins of 17.5% to 18.5%. At Aerotech, operating margins are projected at 7% to 8%, adjusted EBITDA margins of 8% to 9%. Corporate costs for the quarter should be approximately 2.8% of sales, which includes about $2 million associated with our digital transformation. In addition, we anticipate $2 million to $3 million in M&A-related costs. With interest expense of $2.5 million and a tax rate of 22% to 23%. That would put gap earnings per share at $1 to $1.15 and adjusted EPS at $1.05 to $1.20. Now for full year 2022, we continue to expect food tech revenue growth of 15% to 18%. And at Aerotech, we have raised our revenue growth guidance to 18% to 22%. We still expect margins to improve sequentially as we progress through the remainder of 2022. with food tech tracking to operating margins of 13.75% to 14.75% and adjusted EBITDA margins of 18.5% to 19.5%. Aerotech operating margins are forecasted to be 8.5% to 9.5% with adjusted EBITDA margins of 9.5% to 10.5%. That brings us to GAAP earnings per share of $4.70 to $5.00, adjusted EPS of $5.00 to $5.30 for the year. We will continue to update and refine our expectations as we move through the year and gain better clarity. Now with that, let me turn the call back to Brian. Thanks, Matt.

Let me start with some color on order trends for the first quarter. By end market, we experienced particular strength in ready meals, alternative proteins, pork applications, pharmaceutical, bakery, and pet food. Geographically, we continue to capture outstanding orders in a robust commercial environment in North America. In Asia, commercial efforts in China have been exasperated by the recent COVID spikes and related shutdowns. However, we've seen improvement in Asia outside of China. Europe was solid in Q1, but we are cautious about the risks associated with developing economic pressure and the impact of the war in Ukraine. Looking beyond 2022, at JBT's Investor Day in late March, we introduced Elevate 2.0, including details about our digital transformation, automation, sustainability, and portfolio strategy. We detailed financial targets and plans for continued growth and margin expansion. Through 2025, we expect to generate organic growth at a compound annual rate of 7% to 9%. We've targeted adjusted EBITDA margins of 21% or more at Foodtech and at 14% plus at Aerotech. And we foresee opportunities to deploy $1 to $1.5 billion toward M&A through 2025, augmenting growth with incremental Foodtech revenue of $500 to $750 million. We unveiled our digital transformation strategy and introduced OmniBlue. OmniBlue evolves our IOPS platform into a suite of digital tools providing fixed list, parts and service, machine performance optimization, and maintenance management. Maintenance becomes proactive rather than reactive through real-time connectivity and diagnostics. Easy to follow preventative maintenance, inspection schedules, and training. Food production is optimized with process monitoring and predictive analytics. with reports and dashboards to get the most throughput and maintain the highest quality. We've been working hand-in-hand with our customers over the last year to understand their pain points and develop this holistic, customer-centric, and outcome-driven platform. We are very excited about the value OmniBlue provides our customers, and for JBT, it represents a tremendous opportunity to enhance our competitive position while generating a high return on investment. We also announced JBT is exploring a peer-play food tech strategy and conducting a review of strategic alternatives for Aerotech. We will provide updates once we have clarity from the review process.

We outlined JBT's commitment to sustainability.

And in April, we issued our first environmental, social, and governance report. If you haven't already, I encourage you to read the ESG report, Make It Better, which speaks to JBT's achievement and commitment in the areas of sustainable solutions, operations, people, diversity and inclusion, and governance. Specific to sustainable solutions, JBT is committed to making better use of the world's precious resources. We continue to have a positive environmental impact with solutions that reduce food waste through improved yield and longer shelf life, conserve energy and water, reduce packaging, and ensure food safety. Of note is our ability to help customers reduce greenhouse gas emissions. For example, we are helping our food customers develop and produce products with a lower ecological footprint with state-of-the-art solutions that play an important role in the production of sustainable plant-based and cultured meat and beverages. At Aerotech, we provide zero-emission ground support equipment and promote jet fuel savings with our auto docking and IOPS platforms. Regarding our M&A strategy, we continue to seek opportunities that complement JBT's solutions portfolio, expand our end market participation, and enhance our automation offerings. We encourage you to review the Investor Day Playback for more information on our Elevate 2.0 strategy, which is available on our investor relations website. As you may imagine, the war in Ukraine has been top of mind. Beyond JBT's commercial relationships, a number of our employees are directly impacted with family and friends in country. Individually and as a company, we're supporting humanitarian efforts there. JBT has ceased commercial efforts in Russia and Belarus, which together has historically represented about 1% of the sales. Our thoughts and solidarity are with the people of Ukraine. Lastly, as always, I'd like to extend my most sincere thanks to all JBT employees and partners around the world who have taken extraordinary steps to support and deliver for our customers. With that, let's open the call to questions. Operator?

Thank you. At this time, I'd like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. We'll take our first question from Meg Dobre with Baird. Your line is now open.

Hey, good morning, guys. Thanks for taking the question. Good morning. I guess I have a few of them, but where I'd like to start is in food tech, I'm curious how you're thinking about the cost structure here. There's a lot that changed over the past few months, right? I mean, we've seen a spike in stainless steel prices, aluminum, other input costs are also higher. From what I can tell, if I'm not mistaken here, you moderated your expectations for margin expansion a little bit relative to your prior guidance. But, you know, the change is not material. So I guess two questions here. First, can you talk a little bit about input costs and how that has changed relative to three months ago for you? And then second, what are you doing to address that in real time? Because that's sort of what the margins seem to imply here.

Sure, I can give you some color, and Matt may have more to add. At a high level, so it's been actually two months since our last earnings call, and I would say the only real new news is the stainless steel, at least at the highest level. Obviously, there's continuous pluses and minuses as well as the supply chain, but by and large, there hasn't been any meaningful changes other than the stainless steel situation, which we did Indeed, as you suggest, have slightly moderated our margin considerations for the year. At the highest level, when you think about what we're trying to do, we've been adding inventory, as you can see on our balance sheet. So we've been trying to get ahead of some of those purchases in support of our backlog. That's one of the bigger things. Additionally, we've been expanding our supply base in terms of adding incremental suppliers to provide some flexibility there. We've also been doing some re-engineering on certain parts in order to get some surety of supply on certain items, including some replacement parts as necessary. And then obviously in terms of our pricing perspective, we've held open our quotes for a very short period of time, recognizing, and our customers do recognize the environment that we play in. So those are the biggest things. there does still remain risk as we go through the year, which we have tried to capture in the margin expansion.

Yeah, all I would add to that is, you know, there's a lot of transparency with the commodity increases, and so that gives us the ability to add surcharges and other pricing mechanisms to our products, which It's not an easy conversation with customers, but I think at least it's understandable from their perspective, and it gives our sales teams the opportunity to have those conversations with customers a lot easier.

Right. I mean, you kind of touched on what I was trying to really learn here. When you look at the way you guys sort of structure your contracts here, do you normally have escalators that are kind of built in that kind of protect you, or do have you done something additional over the past couple of months? You mentioned surcharges. Is that a new thing that you're doing? And are you able to impose those surcharges on items that are already in your backlog as well, or is this more of a forward-looking type comment?

It depends on the structure of the contract. Not all contracts have escalator clauses. It's a little bit business by business, and it's a little bit dependent on product lines and the competitive market that we play in in those. However, we do have a lot of contracts with that, and for those, we certainly are already attacking that with the information on commodity markets in hand. Others, it is tougher. We do have some businesses. Notwithstanding that we don't have particular rights in the contract, we are also suggesting some things like they cover logistics and other things wherever we can. It is a daily effort, a daily battle, and understanding kind of where our costs are. And we try to capture all that in the work that we've done on our forecasting, as well as you can see the progression as we go through the year, including our pricing.

Okay. And then maybe one last question on Aerotech for me. You've raised your top-line guidance here, and I'm sorry if I missed this. I'm trying to understand whether that's a volume-driven increase or if there is something flowing through on a pricing or surcharge side. And you mentioned mobile equipment. Is demand getting better? I'm curious what you're seeing in your own supply chain in that regard, because I do know that component availability, things like engines, chassis, they've been a little more problematic. So are you starting to see maybe that market loosen up a little bit? Thanks.

Sure.

Yes, it is driven primarily from the ground support side, the mobile side, and it is volume-driven. It's not price-driven. Obviously, we're getting the pricing as we can as well, but in terms of our backlog progression and inbound progression, it's an 80-20 kind of mix between volume and price. So that is promising. That said, I agree with you. The supply chain challenges equally affect – Aerotech, just like food tech, in engines and things of that nature. In some of the fabrications, we are seeing some lightening of the pressures, although prices remain high. The biggest challenge for Aerotech as a whole is electronic components and anything with an electronic component, which is a lot of stuff. Again, if you look at the inventory, we've had significant increases in inventory, and we're going to try to capture some of this. recognizing we have a very high growth profile for the remainder of the year there's obviously risk generally speaking in in margins and volume but we have tried to capture what we do know what we've been building inventory ahead if you went to our parking lots you would see lots of things kind of being built a little bit earlier than they otherwise would recognizing the environment that we're in so we actually have a fair amount of finished goods inventory either ready to go or or waiting on certain components from there. But generally speaking, it is very exciting, the pace that we are starting to see for the recovery of Aerotech. As we've mentioned, infrastructure has been strong, cargo has been strong, and now we've seen the comments from the commercial airlines over the last week or so with the demand patterns that they're seeing that's very supportive of our ground support and mobile operations. So we're pretty excited about that, and that's what we tried to reflect in the demand activity, and you see it in the orders.

All right. Thank you, guys. Okay. Thank you. Next, we'll go to Michael McGinn with Wells Fargo. Your line is now open.

Hey, good morning, everybody. Nice quarter. Thank you.

Good morning.

I just want to start with backlog, good sequential growth there. Orders slowed a little bit sequentially. Anything to be aware of in terms of seasonality or if there's a point you think backlog reaches a saturation or length that maybe will deter a customer from placing an order?

Sure. So, yeah, backlog and orders were strong again, particularly in North America. Lead times are extending. There's no question about that. I would suggest that based on what we saw in the fourth quarter, a bit of a moderation to our normal growth rates, which we've seen. And that's reflected in that order book for $411 million for food tech, which includes a fair amount of pricing in there as well. In fact, if you look for food tech, on the equipment side, it's something like 60% pricing, 40% volume embedded into those numbers. So we haven't seen anything in terms of a pullback or any concerns in that regard. But generally, certainly, yeah, customers are aware of longer lead times. We haven't seen pullback on that at this point because of the true need in the marketplace for the consumer demand for food.

Yeah, and I wouldn't read anything into the change sequentially in orders for food tech. If there's a little bit of seasonality, Q4 tends to be a higher quarter for us from orders perspective. I think this is normal sort of minor seasonality that we see.

Normal lumpiness, if you go back years, it's pretty common to see, you know, plus 10, 15 million quarter to quarter just because we do have, we take orders that are, you know, 10, 15 million dollars, so that can move the needle if it comes in on the 30th or on the second of the month.

Great. And then switching to kind of the the balance sheet and cash flow. If I'm reading the tea leaves on your interest expense guidance, it doesn't imply really a debt pay down and maybe you kind of stick to the inorganic growth playbook that you've been executing within food tech. I just want to make sure that's the right read and, you know, as you kind of approach the timeline or the deadline for the Aerotech strategic optionality, you know, you think you can continue to execute on deals within food tech and that those don't just drop off or just want to make sure that was the right read there.

Yeah, I mean, I think from a, you know, cash flow perspective, you know, we are continuing to invest organically in our businesses with investment in Omniblue and we'll continue to sort of invest in working capital to support the higher revenue. I think that's a bit of what you're seeing in the balance sheet. From an interest expense perspective, we're actually relatively fixed in our interest rates for our debt. The Treasury team has done a nice job in managing that for us. So that's why we don't see a huge increase in interest expense. We do have slightly higher debt levels than we did last year just with some of the acquisitions we did in the back half of the year, which is causing some of the increase in interest expense. But I think we have good liquidity, good capacity to be able to support all of our strategic initiatives, whether that's organic or inorganic.

Right. And as a reminder, our free cash flow, notwithstanding the investments in OmniBlue, is still north of 80%. for the year forecasted. So we are cash flow positive. Debt is coming down. So you do have a little bit of debt coming down. You do have interest rates going up a little bit on our variable portion. But generally speaking, we're cash flowing. And to Matt's point, in terms of strategic capabilities, we do certainly have capacity to continue on acquisitions. We do expect our leverage to continue to come down over the last half of the year. given the improvement in the EBITDA, right? So the EBITDA will actually drive leverage closer to two times pre any incremental acquisition. So we do have capacity to do what we need to do regardless of what happens with Aerotech.

Great. Appreciate the time. Thank you.

Next, we're going to go to John Joyner with BMO. Your line's open.

Hey, good morning, and thank you for taking my questions. So I guess with the understanding that the food tech business is characteristically lumpy, and I realize that you've talked about this before, but I guess how would you describe your overall visibility with regard to how the backlog is getting shipped as well as the pricing on that backlog within any given quarter?

Yeah, for the backlog, we have really good line of sight to the revenue numbers that we provided in our guidance. We got about over 80% of the backlog is expected to be shippable in 2022. And then when you add the resiliency and sort of the consistency of our recurring revenue, we're 85%, 90% visibility to our total revenue for the year. When you look at pricing, you know, I think, as Brian said, for equipment, it's about, you know, 40% price. Sorry, 40% volume, 60% price. In orders. In orders. And revenue will kind of trail that a little bit just because of how our pricing has to kind of catch up a little bit. But I think the businesses continue to, as Brian said, have short validity on price quotes, and they're pricing their products with inflation in mind and trying to take into consideration forward-looking cost estimates as they quote out products or prices to customers for projects.

Okay, great. Thank you.

So my second question is, are there any particular product segments where you're seeing greater demand versus others? I mean, I heard you mentioned ready-made meals as one, but are you seeing any noticeable trends versus, say, one or two years ago?

Sure. Yeah, one of the great things about JBT is our diversification in our product lines. It's funny, if you sat back and looked at the data, because our orders tend to be larger size, you know, millions of dollars, you'll see a nice spike in one quarter and then a moderation, all product line by product line. Generally speaking, though, if I would say at the highest level, the poultry remains very strong overall. That's probably been our strongest product and most consistent supportive product over the last year or so. And actually, pet food is probably in the top five in terms of categories as well. And after that, it kind of goes up and down quite a bit. Ready Meals has been strong. Juice and Beverage kind of moves up and down a fair amount. So it's pretty broad. It's pretty diversified. But really, poultry and pet food have probably been the strongest two categories.

Okay, great. Thank you so much. Thank you. And next, we're going to go to Steve Tusa with JP Morgan.

Your line's open.

Hi, good morning. Morning, Steve. Can you guys just give us a little bit of color on what carries over into, um, 23, whether it's, um, some of the, uh, you know, corporate expense or, uh, on the price cost side, you know, if you kind of snap the line today, is there a carryover dynamic on price and cost that, that is, uh, you know, moves either way?

Yeah. From a corporate expense perspective, uh, You know, we do have some one-time costs in our corporate expense related to OmniBlue, I think, that we have discussed in the past. A lot of that will kind of come out in 2023, and some of that expense will move into the business as it supports the revenue going forward. So that's probably, you know, $10 million to $12 million in one-time expense in 2022 that won't continue. From a price-cost perspective, it's hard to forecast where inflation is going to go. So I think we're going to continue to manage forward-looking costs and price to those forward-looking costs. And if costs do moderate, I think that there will be some upside on the price-cost side.

And then I would just add on the demand side, as Matt mentioned, for food tech, about 20% of the backlog that's already moving into next year. And Aerotech, it's actually a little higher than that, given on the infrastructure side that those tend to be longer contracts. So we are starting to set ourselves up nicely for next year as well.

Right. That helps. Okay. Thanks a lot.

And as a reminder, ladies and gentlemen, it's star one if you have a question. Next, we'll go to Andrew Obin with Bank of America. Your line's up.

Good morning. Good morning. This is Emily Shulon for Andrew.

Oh, hi, Emily.

It seems like the quarter end really played out better than your expectations. Can you just provide a little bit more color on how March played out in terms of both demand and supply chains? Like, was there any relief in supply chains that allowed you to get products out the door? That would be great.

Yeah, I don't know that there was any change in demand. I think the real improvement or benefit that we saw in the quarter from what we expected was on the availability of labor. When we communicated in February, we were still sort of coming off of high S and T levels related to Omicron, and that actually dissipated really quickly. And the teams in the business units were able to recover really nicely, and I give them a lot of credit for being able to do that It was not always the most efficient with some overtime and other things that they had to work through, but the teams did a really nice job in recovering from that high absenteeism. Supply chain, I don't think we're seeing anything improving right now. I think we're encouraged by the fact that we were able to increase our inventory levels. There's $40 to $45 million of increased inventory, and about half of that is in raw material. The teams did a nice job of working with suppliers to increase the availability of supply, but it is still very, very challenging, especially as I think Brian mentioned for electronic components. We'll continue to manage that, but I think that was the biggest improvement we saw was on the labor side.

Okay, great. And then just a last question for me. What's the free cash flow guidance for the year all in, including the digital investments being made?

Yeah, I think for the full year, free cash flow guidance is about 90% excluding Omicron. With Omicron, it's about 90% with Omicron. Omniblue. Sorry. Omniblue.

Sorry, I get my old words mixed up. Yeah, about 90% including the investments in Omniblue. North of 100% excluding them. And really, and that's with some fair amount of investments in inventory to support the businesses, as well as obviously with the higher sales, we're going to have higher AR as well. So notwithstanding all those things, ex-OmniBlue investments, we're looking at north of 100%. Okay, great.

Thank you.

Thank you. Okay. And next, we have a follow-up from Meg Dobre with Baird.

Your line's open.

Hi. Thank you so much for taking a follow-up here. Just looking to clarify a couple things. If I heard you correctly, you mentioned that in food tech, 60% of the growth in orders was price-related. Just making sure that I clarified that that's the case. I mean, by my math, that would imply, call it 4% pricing. First, is that correct? And then second, I struggle to see how 4% pricing would offset the kind of inflationary pressure that we've got here. So maybe more pointedly, you know, when we're looking at stainless steel as a percentage of your COGS, you know, how important is this raw material for you? Right.

So obviously that's 4% and a quarter cumulatively we're looking at over the last year. north of 15%, 20%. We see products that are being priced at 25%, 30% above where they were a year ago. So there's actually a little bit of a price shock with certain customers on certain products, but we are seeing that being absorbed in the marketplace, Meg. In terms of stainless steel, in terms of if you look at our spend and what we see, right now stainless steel is up about 30% to 40%. versus year end. We spend somewhere in the range of $30 million or so in stainless a year. So you're talking unchecked, somewhere in that $7, $8 million impact from what we see in the marketplace on stainless steel today. So we're obviously going to try to price for that where we can, plus we have inventory on hand So we're not buying every dollar of stainless steel usage. It's not incremental purchases from here. So we do have inventory. So we try to factor all those things. And if you do the math, we did, as you mentioned earlier, check down a little bit on our margin profile for the year to account for this.

Okay. I mean, that's frankly lower than what I was guessing on stainless in terms of your usage. And, you know... I have to ask this question on incremental margin progression. I mean, you know, the guidance implies here some pretty robust incrementals in the back half of the year in food tech again. And I'm looking to get some comfort with the fact that you guys have visibility on being able to deliver that. You know, you clearly have visibility on the top line. You commented on that. But what visibility do you think you have on those incrementals being considerably better in the back half?

Yeah, I think, Meg, to be Frank, that's probably the biggest risk that we have in our forecast. And we tried to take that into account with the wider ranges that we provided in the guidance. And again, the teams are working to try to build prices into their quotes and be able to deliver on that. But where inflation goes from here does probably represent the biggest risk to our forecast going forward.

OK. Final question, FX. The dollar has been moving a lot, and obviously I know that you have some pretty large and pretty tough European competitors that probably have a different cost structure than you do, more Euro-based. How do you think about competitive dynamics as far as FX is concerned? Is this something that puts you at a disadvantage relative to your European competitors? Thank you.

Sure. On the Aerotech side, as you know, most of our business is North American-centric. And when you consider logistics costs to get from Europe to the U.S., it's kind of an uneven wash. I don't think we've seen any material changes in those dynamics. For food tech, we certainly have manufacturing locations in-country in Europe. So we're competing on an even basis with them. We do do exporting somewhat from geography to geography, but not so much between North America and Europe. It tends to be Europe serving Europe and U.S. serving U.S. We haven't seen, at least I haven't heard any comments from the businesses about this impacting competitive positioning. I just haven't heard it at this point.

Very helpful. Appreciate it. Okay, thank you. And we do have a question from Gemma Masaga with FactSet. Your line is now open. Go ahead. Larry DiMaria, go ahead.

Yeah, thanks. Hey, good morning, everybody. Hey, I'm not sure what's going on with the phone there, but on the software investments, the $14 million you're going to spend this year, remind us the quarterly cadence and I assumed the question earlier, 10 to 12, it goes away. Total disappears next year. That's of that 14. And do you have a line of sight in addition to the flip of that expense to capturing revenue associated with those investments this year that presumably is probably high margin revenue associated with the software investment?

So the CapEx cadence for OmniBlue is we spent the $14 million in Q1. another $14 million or so in Q2 with the balance to be spent in the second half. So that's the cadence piece. And then in terms of the flip of cost for Omniblue, I think, again, we said the $10 to $12 million will come out of corporate. And in the businesses, I think the same profile that we see from an incremental and decremental perspective will exist with OmniBlue going forward. So I would kind of model it the same way as you would model growth in the food tech business.

Right. And so Matt talked about CapEx investors on the expense side itself, which is about $15 million for the year.

About $12 million of that is going to be in the back half of the year.

Okay. So $12 is the back half. And I can understand, let's assume it's normally incremental on the revenue prospects, but can you help us understand the revenue prospects for that investment this year? Is that long-term, way down the road, or are we going to go live and start capturing revenue next year or later this year on that?

There will be some modest impact on revenue that's embedded into the guidance that we've provided. Thereafter, starting in 2023, we think it's going to be that 1% to 2% CAGR on total food tech revenue from there. So it really this year is largely an investment year in converting our customers from in the product lines that were active on OmniBlue from IOPs programs to OmniBlue programs. So the incremental is not huge. There is some, but we're trying to be cautious in terms of what we think we're going to get. But starting next year is where we start to see that. 1% to 2% on the total Flutec revenue from there. And as Matt mentioned, the businesses will, at that point, given the revenue influx, they will also take on whatever marginal costs we have at that point. But the investment cycle on the P&L side will largely convert to just ongoing maintenance of the MNABU program.

Okay. And then just to introduce for a second here, Obviously, orders overall have been a very strong order cycle, backlogs, record levels. Can you help us understand how you're viewing the orders now in terms of the difference between the fundamental demand that's out there for, let's say, automation, and then also the demand or the orders that are being placed because the uncertainty on the lead times when you get the delivery and delivery It sounds like we start to moderate a little bit from here, but is there a view on when we get to more normalized orders, which presumably are lower because you don't have to put in that long-term order, and just the difference between fundamental orders and orders because of the long lead time, if you have a view on that?

Right. I don't think there's a huge amount of orders being people kind of accelerating orders because of lead time. They really are ordering because of the demand cycle. So I think the way that I think of it is not so much timing and trying to get something in quicker. It is more of the secular type investments for automation, for sustainability, for yield improvement versus purely on the capacity side. And generally speaking, It's kind of a 50-50 split right now or 40-60 split right now. So the question I think really is economically, are there any changes forthcoming over the next year or so that would adjust the demand from a consumer food production perspective? And we haven't seen that at this point. Obviously, we're more concerned about where Europe is going given everything there, but we really haven't seen any moderation in North America in terms of the needs for food production. So I don't have great visibility into when that may change, Larry. But again, the way I do think of it is more of a, you know, what's a secular investment versus a cyclical investment.

Okay. Fair enough. All right. Thanks very much. Good luck.

Thank you. Thanks, Larry.

There are no further questions at this time. I'll now turn the call back over to Brian Deck for any additional or closing remarks.

Thank you all for joining us this morning. Kendrick and Marlee will be available if you have any follow-up questions. Have a nice day.

This concludes today's conference call. You may now disconnect.