PKOH - NASDAQ

Good morning and welcome to the Park-Ohio Fourth Quarter and Full Year 2023 Results Conference Call. At this time all participants are in a listen-only mode. After the presentation the company will conduct a question-and-answer session. Today's conference is also being recorded. [Operator Instructions] Before we get started, I want to remind everyone that certain statements made on today's call may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A list of relevant risks and uncertainties may be found in the earnings press release as well as in the company's 2022 10-K, which was filed on March 16, 2023, with the SEC. Additionally, the company may discuss adjusted EPS, adjusted operating income and EBITDA as defined on a continuing operations or consolidated basis. These metrics are not measures of performance or generally accepted accounting principles. For a reconciliation of EPS to adjusted EPS, operating income to adjusted operating income and net income attributable to Park-Ohio common shareholders to EBITDA as defined please refer to the company's recent earnings release. I will now turn the conference over to your host, Mr. Matthew Crawford, Chairman, President and CEO. Please proceed Mr. Crawford.

Good morning. Thank you, Ralph. I appreciate the intro. Welcome to our 2023 fourth quarter and annual conference call to fully appreciate the recent collective effort of our Park-Ohio team. It's worth appreciating the more than 30%, or almost $400 million of revenue growth in the last two years, which has set all-time records across our diverse portfolio and in the aggregate. This was done with little impact from acquisitions. The hard work was complemented by the strong brands and customer relationships which have been built up over years and even decades due to innovation, solid operating performance and customer satisfaction. 2023 was committed to metabolizing this rapid growth as we also completed our restructuring and enhanced our focus on improved operating execution and on our key financial metrics. Thank you to our customers and to our entire team. In line with our areas of focus, critical achievements also included a 230 basis point increase in our gross profit and operating cash flows of more than $50 million, which was used to pay down debt and grow our business. 2024 is off to a fast start with what we believe to be a simpler and less capital intensive business model. While we believe that we're entering a slower revenue growth environment, we anticipate ongoing pockets of relative strength in our diverse set of end markets, in particular, aerospace, defense, and those industries which are beneficiaries of government investments like semiconductor, infrastructure and green energy. In addition, we have strong backlogs heading into 2024, particularly in our IEG [ph] Group. Perhaps more importantly, we're laser focused on continuous improvement. Given the amount of restructuring and growth over the last two years, we need to continue to work aggressively to optimize our execution and reduce costs. Our allocation of capital will focus heavily on these initiatives, as well as on organic growth opportunities in our best businesses. Creating operating leverage in our best assets, continuing to grow gross margins and generating additional cash flow to deleverage our company are all of the greatest strategic importance during 2024. Thank you. I'll turn it over to Pat to cover the details of the results.

Thanks, Matt. We are pleased with our 2023 full year results which met our expectations and believe we have built momentum to deliver improved results in 2024. We were able to deliver strong year-over-year results despite the impact of the United Auto Workers strike which affected our fourth quarter results and reduced sales by approximately $25 million and earnings per share by approximately $0.20 per share. The major highlights during the year were as follows. First, we achieved record consolidated net sales from continuing operations of $1.7 billion. We also achieved record sales in each business segment. Our GAAP earnings per share from continuing operations increased significantly compared to 2022 and adjusted EPS increased 74%. Our full year gross margins were up 230 basis points and EBITDA, as defined, improved 33%. We also delivered strong operating cash flows of $53 million during the year and free cash flow of $25 million. As a result, we paid down debt by $24 million and reduced our net debt leverage to 4.4 times, an improvement of 27% compared to a year ago. As we closed out the year, we completed the sale of our aluminum products business for approximately $50 million, which included $35 million of cash and $15 million of promissory notes, $10 million of which is contingent on certain new customer orders to be received by the end of 2024. Before I comment on our current year guidance and the acquisition of Ema Indutec Gmbh, I'll review our full year and fourth quarter results in detail. Consolidated net sales from continuing operations in 2023 were record $1.7 billion, up 11% compared to $1.5 billion a year ago. Each of our business units experienced strong year-over-year sales growth, which was driven by most end markets and a broad range of customers. In our Supply Technologies segment strong demand across most of our diverse end markets, new customer sales and increased demand relating to new platforms utilizing our proprietary fastener products contributed to the segment's growth. In our Assembly Components segment sales from each of our product categories, which include fluid related systems, direct injection rail products, and molded and extruded rubber and plastic products, increased year-over-year from strong demand from key automotive and light truck OEM platforms such as the GMC Yukon and the GM Silverado. Also contributing to the sales growth in this segment were newly developed products, including air conditioning hose products, which are now in production, and from customer price increases realized at each of our manufacturing plants. The sales growth in our Engineered Products segment was in line with our expectations considering the record equipment backlogs that existed at the end of 2022 and supplemented by new equipment bookings throughout the year. The booking trends continued to be robust throughout the year in both North America and in Europe and in all major induction heating and melting brands. GAAP EPS for the year was $2.72 per diluted share and adjusted earnings per share, which excludes primarily one-time expenses related to plant closure and consolidation activities, improved to $3.07 compared to adjusted EPS of $1.76 per share in 2022, a significant increase of 74% year-over-year. Gross margins improved 230 basis points year-over-year to 16.4% of net sales. The significant consolidation activities in recent years helped drive higher levels of absorption in many of our operating plants, which will continue to have a positive impact on our gross margins. Margin improvement continues to be the focus of our operating teams heading into 2024. SG&A expenses were higher in 2023 due primarily to the higher sales levels, higher employee related costs and general inflation. But as a percentage of net sales, SG&A was comparable year-over-year at 10.9%. Our adjusted operating income was $90 million compared to $48 million a year ago, an increase of 86% year-over-year as we realized profit improvement in each business segment, with the largest gains in our Supply Technologies and Assembly Components segments resulting from higher sales levels and improved customer pricing. Interest expense was $45 million compared to $34 million in 2022. The increase was primarily due to higher interest rates. Our full year 2023 income tax provision was $8.5 million and pretax income of $41.5 million for an effective income tax of 21%, which is in line with the U.S. Federal statutory tax rate. This year, we estimate that our effective tax rate will be in the range of 23% to 25%. Our EBITDA as defined was $134 million in 2023, an increase of 33% compared to $101 million in 2022. Operating cash flow generated during the year was $53 million, driven by strong operating cash flow of $29 million in the fourth quarter. Free cash flow was $25 million in 2023 compared to a negative free cash flow of $54 million last year. Moving now to our fourth quarter results, net sales from continuing operations of $389 million increased 2% year-over-year compared to $382 million in the prior year, driven primarily by higher demand in our Engineered Products segment which was up 8%. As mentioned earlier, the UAW strike impacted our fourth quarter sales by approximately $25 million. GAAP EPS and adjusted EPS for the quarter was $0.54, which was affected by the impact of UAW strike by approximately $0.20 per share. Our adjusted EPS of $0.54 in the current quarter compared to a loss of $0.09 in the 2022 fourth quarter. In the quarter operating income margins improved 70% compared to 2022 and we generated significant operating cash flows of $29 million and free cash flow of $22 million. EBITDA as defined was $29 million in the quarter, an increase of 12% year-over-year. Turning now to our segment results in Supply Technologies, net sales for the full year were a record $763 million, up 7% compared to $712 million in 2022. The increase was driven by higher customer demand across most end markets in our supply chain business, with the biggest increases in power sports, heavy-duty truck and commercial aerospace. In 2023, we saw a meaningful rebound in demand from commercial aerospace customers, which was up 26% over the prior year. Sales in this segment were also favorably impacted by increased demand for our proprietary fastener products as sales in that part of the segment were up 16% year-over-year. Operating income in this segment totaled $59 million in 2023, up 29% compared to $46 million in the prior year, and operating margins were 130 basis points higher year-over-year at 7.7%. These increases were driven by the higher sales levels and the impact of profit improvement initiatives, which included increased product pricing which helped offset higher product and operating costs. In the fourth quarter, net sales were down 2% to $178 million compared to $181 million in the fourth quarter of 2022. The decrease was a result of the UAW strike at one truck assembly plant and slightly lower demand from certain end markets. Despite the lower sales year-over-year operating income was up 36% year-over-year to $14 million. In our Assembly Components segment, sales were $428 million for the year, up 10% compared to $389 million in 2022, resulting from increased net price realization and increased volumes on new programs previously launched. Excluding charges related to plant consolidation activities, adjusted operating income was $35 million in 2023, up significantly compared to $7 million a year ago, with the improvement driven by the higher sales levels, customer price increases, and benefits from plant consolidations completed in prior years. These positive factors more than offset ongoing product inflation and other increased costs. Year-over-year margins in this segment were up 750 basis points. In the fourth quarter net sales of $97 million were up 3% compared to $95 million in the fourth quarter of last year, and adjusted operating income improved $5 million year-over-year to $7 million compared to $2 million a year ago. In our Engineered Products segment, full year sales were $469 million, up 19% compared to $393 million in 2022, driven by strong customer demand in both our capital equipment and forged and forged and machined products businesses. Bookings of new equipment for the full year were $175 million and equipment backlog as of the end of December of 2023 was $162 million compared to similar levels a year ago. The strong backlogs drove a 21% increase in our capital equipment business during the year. In addition, revenues from our higher margin aftermarket parts and service business grew 18% year-over-year. In our forged and machined products business, full year sales increased almost 16% and at the highest levels since 2019, driven by strength in several key end markets, including aerospace and defense. We continued to quote new projects in support of the defense industry, which has increased the production of certain munitions utilizing our forging press technology. Excluding charges related primarily to plant consolidation activities, our adjusted operating income in this segment for the year was $24 million compared to $23 million a year ago. The improvement was driven by the higher sales levels, implemented operational improvements, and the benefits from plant consolidation actions, all of which more than offset lower margins in our forged and machined products business. In the fourth quarter, net sales of $115 million were up 8% compared to $106 million in the fourth quarter of last year, and adjusted operating income was $4 million in the quarter compared to $6 million a year ago. And finally, corporate related expenses were $28 million in 2023 compared to $31 million a year ago, with the decrease driven by lower professional fees. Now, I'll make a few comments related to our guidance for 2024. As indicated in our press release, we expect revenue growth to be in the mid-single digit range year-over-year, driven by stable demand expected in most end markets. We also expect year-over-year improvement in EPS and EBITDA as defined. In our Supply Technologies segment, we expect demand from most end markets to be stable from a unit demand standpoint and expect increased year over demand in the aerospace and semiconductor end markets, which should more than offset slightly lower demand in other end markets, primarily in heavy-duty truck. We also expect continued normalization of global supply chains and commodity prices this year. We will continue to focus on margin improvement initiatives, which will include footprint optimization, reducing product costs and working capital reductions. In Assembly Components, customer demand is also expected to be stable across all products. Our team is focused on operational improvement initiatives, including increasing our rubber mixing capacity, increasing throughput on all of our production lines and other value drivers, all aimed at increasing gross margins. In Engineered Products, we expect year-over-year growth in both capital equipment and forged and machined products. We begin the year with strong backlogs in each region. Key operating initiatives in 2024 will include increasing our marketing efforts in our global aftermarket business, impacting each of our equipment brands, capitalizing on market trends around electrification, defense and infrastructure spending, and the implementation of operational improvements in our forged and machined products business. On February 29, we completed the acquisition of EMA Indutec Gmbh, headquartered in Meckesheim, Germany for approximately $14 million net of cash acquired. EMA is a leading manufacturer of induction heating equipment and high efficiency power converters and operates through its two locations in Germany and China. We expect EMA to generate revenues of approximately $30 million over the next twelve months and will be accretive to our current segment margins and earnings per share. We also expect meaningful cost synergies and longer term market synergies as we integrate EMA into our business. EMA strengthens our global induction heating expertise in Germany and throughout Europe and adds a global and well respected brand to our product portfolio. Now I'll turn the call back over to Matt.

Great. Thank you very much, Pat. We'll now open the line for questions.

Good morning, everyone. This is actually Christian

Great. Good morning, Christian.

First question, with your mid-single digit guidance, how much of that is price versus volume and what would need to happen to move the needle to grow above that mid-single digit range?

Well, as I mentioned during my comments, I think we benefit from a hugely diverse business, both in terms of products and markets and also global reach. Candidly, the majority of our business is in North America, which seems to be kind of the best place to be right now. So we're benefiting from that and we'll continue to. As I think I even mentioned on the third quarter call, unit volumes have leveled off. There's no question, as we look through that diversity markets from a unit perspective will be up and down. We were able to execute, I think, at a high level commercially last year. We will benefit from that pricing in 2024, which is great, which means that, yes a lot of the growth, even if it's mid-single digit, will be determined by how effective we were during passing along price increases last year. So end markets are mixed, with the exception, I think, of where we are seeing some strong business in aerospace, defense, and some of the end markets I discussed that are affected by government investment. So I think we'll do better than the average industrial business. Having said that, the unit growth is sideways and in some cases down, depending on what market we're in. So, some of our international segments, I think are sort of flattish. So most of the increases we're seeing currently are really benefiting from the pricing of last year. Everything else is a bit of a mixed bag, with the exception of the areas I mentioned, which are material to our business, to the upside. In terms of how we would anticipate doing better than that, I think you hear about us talking about it a lot. I think we've got tremendous opportunities on the innovation side. We've talked a lot about our proprietary fastener line and the importance of some of our products to the journey, which increasingly people tend to agree with, which we've been saying all along, which is the journey on the electrification and transportation runs through hybrids. We're an important -- many of our more innovative products run through that journey. So we're excited about that. I think the strong backlogs performing against the -- we're quoting in our Engineered Products group more than a year on many of our products. I think our ability to continue to scale our business and deal with and grow and deal with some of the labor challenges of 2022 and 2023 will allow us to execute at a higher level and maybe deliver improved performance against those backlogs. So I think we've got a number of different ways I think we can succeed, as I've outlined.

That's awesome. That's great color. Thank you. On Supply Tech, just on the semiconductor guidance for that business, a few of the equipment manufacturers talked about 1Q being the trough and then maybe a reacceleration in the back half of 2024. Should we expect a similar cadence for you guys in that business? And then I guess, what's the overall cadence in Supply Tech given the exposure to aero and some of those truck headwinds?

Yes, I'll let Pat think about that for a second, but I would just comment semiconductor has been a little difficult to predict. Quite candidly, some of our key customers have been affected by some of the geopolitics and trade issues that are going on globally. Our customers are as likely to do business in the U.S. and Texas and California as they are in Singapore. So I think that predicting, and again, these are very sophisticated manufacturers with very complex equipment, so trying to isolate and determine what deliveries will look like month-to-month or quarter-to-quarter has been problematic for us. What we do know is that the investment trend is staggering, as you know. So I would be reluctant, maybe Pat will, to talk about quarter-to-quarter, but we do know the backlogs and demand for our customers is staggering.

I would add that within the aerospace business, we touch aerospace not only in Supply Technologies, but also in our forged and machined products business and in some cases in our capital equipment business. And we are seeing strong backlogs, stronger year-over-year, in certain cases all around aerospace and defense. So we feel pretty good about that end market as we head into 2024. As Matt mentioned, semiconductor is a little tougher to gauge month-by-month, but we service some of the large equipment manufacturers all around the world. When we make comments around where we see growth, we're talking about year-over-year growth, not quarter-to-quarter. So hopefully that answers your question.

Christian, I would just add more broadly about your question. We have a lot better visibility this year than we had the last few years and I'm sure we're not the only one in the industrial space. So I would say that our level of confidence, given the economy that we and others see and the GDP forecasts that are out there broadly for the industrial space and in some cases for the other important global markets, we're positioned to hit or exceed our goals. We have better comfort, better visibility than we had over the last couple of years.

Got it. That's all great. Thanks. Just on Engineered Products, then, I guess what happened in Engineered Products at pressured margins and I think forged and machined products were up 12% year-over-year in 4Q what was the year-over-year for capital equipment? And then as we think about 2024, is one going to outpace the other as we think about the full year in terms of growth? Thanks.

Yes, I'll start and give sort of a big picture on this. I have said, and continue to say, so goes Engineered Products and so goes Park-Ohio. This is traditionally our business with the highest margins, and this is also traditionally our business that has a really solid position in aftermarket, sort of the razor, razorblade model. So we are optimistic that, for lack of a better word, that business will lead the next leg up in our performance, because clearly, by historical standards, they're not there. They're also buoyed by tremendous backlogs in the business. So the business is there for us to execute against. I would be remiss if I didn't say that that business continues, I think, to be affected and we get better every day by some of the challenges that occurred to everywhere during COVID and I'm reluctant to continue talking about COVID but the loss of knowledge and engineering in the day-to-day workforce and hourly workforce around assembling complex equipment around forging products on large hammer cells, these are not positions you replace overnight and do so efficiently. So that is a journey we're getting better every day. But again, we anticipate that that journey will lead us back to where it was, which is a leadership position in our business from every key financial metric.

Yes, Christian, I would add that in our capital equipment business, we saw growth not only on the new equipment side of things, which I mentioned in my comments, but also in the higher margin aftermarket parts and service business. So our margins were affected not from that side of the business. Our margins were affected by startup costs, primarily in one of our forging facilities, where we consolidated out of Chicago into our Canton Forge facility and relocated several large pieces of equipment and it's taken time to get the equipment to operate efficiently with new labor, with a new workforce and those startup costs have affected our margins. Secondarily we had some downtime in some of our equipment in our Arkansas forging plant, so both of those situations affected our margins in that part of our business. Clearly, there's improvement being made every day and expect margins to get back to historical levels over the course of 2024 and 2025. So they're somewhat isolated in terms of the margin impacts, but we feel we have a handle on it and things are improving every day.

I'd add one point on the pricing side. We spent a lot of time, I think, talking about supply, tech and assembly components at the Morado [ph] based business. In many ways, contractual or non-contractual, those renegotiations, while challenging, were effective relatively quickly. The Engineered Products group is different. In many cases, they are quoting business they will not deliver on for more than a year. So to the extent pricing was rotated forward meaningfully during 2023, we may not see that as we honor agreements that were made in 2022 until into this year. So this isn't just an operational issue, this is also a pricing issue and we've addressed that. We've increased standards. We've rotated things forward many, many, many months ago. But again, when you're quoting things out 12, 13, 14 months, you don't always see the benefit of those commercial negotiations the way you would in our Supply Tech and our automotive business.

Great. And last one from me. I appreciate all the color. Just EMA seems to another really good value deal, $14 million purchase price for about $30 million in sales. What are the margins on this business and which segment is going in? I'm sorry if I missed that. And then just what's the secret sauce for you guys? Southern Fasteners was also a really good value deal. How are you able to find these deals out there? Thank you so much.

Yes, thanks, Christian. I'm glad you brought it. I don't want to miss the opportunity to say here we like highly strategic, highly accretive acquisitions, but we are more selective than ever. Our priorities right now as an organization exist around funding the significant growth we've had, funding our value drivers, which make us more competitive and have more operating leverage and sustainable earnings and then if we can find a great acquisition. Our management team is tasked to find great opportunities. They come from all four corners. They typically come bubble up from inside our organization, and when we can find something that is absolutely strategic for us and at the same time meets our financial metrics, which means getting a value, being highly synergistic on the cost and the go-to-market standpoint, because it adds an adjacency or adds a geography or adds key customers, that's what success looks like. So our standard is very high right now to do the right kind of acquisitions because we do like them, but it's a pretty rigorous process, and right now, that's not where our entire focus is.

Yes Christian, I comment on the margins. I'll only say that the EMA acquisition will be accretive to our segment margins. We are and have been over many years of doing deals, very disciplined in our approach. We have IRR models. We have return on cash flow. We have many, many metrics that we use to value a business. And in a lot of cases, the owners of these companies, and in this case, was a much larger private company out of Austria, wanted to find a home for this business which wasn't core to their business, in an area where their employees would be taken care of and would be able to grow with our business and it fit perfectly within the Engineered Products segment. And their expertise lies in induction heating and various applications, not only in Germany, but throughout Europe, covering a wide range of diverse end markets, including wind energy, including auto, including forging and foundry. Companies like ThyssenKrupp are just one example of the strong OEM relationships that EMA brings to our induction business.

Christian, I would only add to Pat's point, many people are watching, as we are very carefully, some of the challenges in Europe, and particularly Germany, as it relates to the economy. Adding a brand like this and a team like this, these are, Germany is still a hub for global manufacturing. While they may be and the technical talent may be in Germany, they service German and global customers. Pat mentioned one. I mean, these are major companies that invest through the business cycle and invest globally. So it's not just being driven by the German economy, if you will.

Great. I really appreciate all the color, thanks.

Our next question is from Dave Storms with Stonegate. Please proceed with your question.

Good morning.

Good morning, Dave.

I just want to start. It looks like free cash flow kind of hit the high end of what you were guiding to last quarter, any lessons here that we can expect going forward other than just a really strong focus on working capital?

We've been working on the reduction of working capital for the entire year. I think the fourth quarter benefited from slightly lower sales, which allowed us to harvest some of the receivables in the fourth quarter, but I would love to see our free cash flows be smoother, and we expect that in 2024, but there was a lot of hard work and heavy lifting done by all of our businesses around reduction in working capital. Just to give you an example, we grew our business year-over-year by almost $170 million and used only 8% working capital. That's a huge accomplishment. We feel there is more room there and each of our businesses are focused on it.

Dave, let me add to that, because I can't help myself. I mentioned in my comments that we feel as though we entered the year as a less capital intensive business. Pat, I think, addressed 2023 well. I can't resist the opportunity to say to you, we don't need to spend much time on General Aluminum on this call, other than to say it consistently represented between 10% and 15% of our revenue and 30% to 40% of our capital, CapEx. So that is an opportunity, I think, to permanently change the profile of this business and to bolster the cash flows of the business.

That's very helpful. Thank you. And then I just wanted to touch back on EMA for a second. What is the integration timeline for this? Are there still logistical hurdles or is it pretty much a plug and play acquisition?

Yes, I don't think we'd want to comment explicitly on that. It's pretty recent. I would point out the induction heating business is a complex equipment business and we are really happy to get the EMA team. We also do business in the German marketplace, in the induction heating business, and we've got great teams making innovative products. So this is about, I think, growing our team, growing our talent, growing our customer list, and growing the products we can serve our global customers with. So it's a business that has a wonderful backlog. It's well positioned to succeed this year. Don't fix what's not broken. Having said that, we're going to look, I think, to create a broader presence in the marketplace where again we can sell more global customers with more innovative products. So to some extent, it's plug and play, but our goal is to make them more successful because they are world class in what they do.

Thanks for that. One additional comment there. I mentioned in my remarks that EMA is a provider of converters, high efficient power converters. They can retrofit their converters with other brands around the world. This is a huge opportunity if you have operations in places like Spain and Italy where you can market the ability to make those converters and install them locally. We feel that's just one of the opportunities that we have in this business. But there are others, and most of them are driven around, as Matt mentioned, expanding our ability to sell our various brands through the various local sales teams. And that will take some time, but we're very optimistic that we'll be able to take advantage of that.

That's great. Thank you very much. And then just one more, thinking about 2023, and it seemed like it was really a year of improvement, operations getting restructuring and sorted. How do you feel about that going into 2024? It sounds like you're on pretty good footing, but is there any other levers that you're thinking of pulling to continue that?

Yes. I'll echo a few comments I think I made in the last call. The broad strokes have been done, right? I mean, I can't and I've got to pause and thank the people in our forge group or in our automotive group explicitly for the work they've done over the last couple of years of closing and relocating facilities. That work is done in the trenches. It's hard. It's difficult. It isn't on time. It's rarely on budget. The broad strokes have been completed. Having said that, we are only at the front end I think of really optimizing the consolidations and the restructurings we've done. So no, we absolutely anticipate. And again, Pat will probably kick me under the table for saying this. I am not upset that we're seeing a slower growth year. I'm not upset of seeing that we are not, that we may see unit volumes flatten out because we need to do a lot of work. I think I said this in the third quarter call, I'll say it again. It's nice on paper to do a nice white paper and move thousands of jobs. For example, with a couple of businesses in the automotive segment to south of the border, there's certainly a lot more labor there, but there's still turnover, there's still training. At the end of the day, while there may be some labor cost arbitrage, we've walked away from some tenured employees who are really good at what they do. So our journey on decreasing cost, increasing productivity in these locations that have been affected in particular, but across the business are going to be in the details and they're going to be in the value drivers. We like to think mind over wallet here, but we're going to be focused on funding the $75,000 investments that yield value drivers in the hundreds and hundreds of thousands of dollars. That's where we need to be. We highlighted recently on a call our investment in a rubber mixer that I think has given us not just a great return, but a competitive balancing in our rubber and plastic business. That's where we're going to be focused this year, and there's a tremendous amount of opportunity there across the business in optimizing the restructuring dollars we have spent and just getting better at what we do as the system stabilizes, particularly on the labor side.

Hey, good morning, everybody. Hey, Matt.

Hey Brian, how are you?

Good morning, Brian.

I am great. So it seems like you guys excel at finding these niche businesses in various parts of the world. This is a European business. I'm wondering if your scope, just by virtue of your size, is now potentially expanding your addressable net for where you can look to find businesses that you want to potentially add to your array?

Yes, Brian, it's a good question. You know that in general we operate very strong, credible brands in reasonably to midsized marketplaces. We're not competing in $50 billion or $100 billion marketplaces. Most of our business address markets that call it our $2 billion to $4 billion in size where we are a significant player or less, where we have significant player known and understood appreciated brands or unique equipment. So I would just tell you, we don't think about scale may be the way that you said. We think about scale and our teams think about scale in terms of what is really strategic to us. No deal is too small if it brings to us an adjacent new product, we can take over our network. It brings us a new geography where we can infiltrate new products. So we don't really think of scale maybe. I know you're thinking about it financially, what moves the needle? But the first question we ask here is, how does this make our broader business more successful in three to five years? What does success look like? If we can answer that question with a resounding yes, then we talk about if it moves the needle. Then we talk about if we like the financials. Sure, we'd love to buy a bigger business that checks all those boxes at the right multiple that would move the needle, but that's not how our process starts. Again Brian, I particularly again in this environment, Brian acquisitions are, people will get sick of me saying this, are not the first horse at the trough.

Yes, I think it was whether the size of your business is allowing you to find more opportunities now that are adjacencies that fit. And I guess along those lines you have delevered a little bit, but still more I would assume you'd want to work on there, but what does the pipeline look like as far as other EMA type sized businesses that are out there for you?

You know, the pipeline continues to be strong and I think over the last five to 10 years, our growth and our size has definitely broadened the net of at least those deals that come to us from M&A investment banks. But we've got great brands and they're global and so as a result of that, people often come to us when they're looking to sell their business and so that hasn't changed and that goes back years and years of success relative to buying and integrating businesses.

Excellent. Well, good luck for 2024.

Thanks, Brian. I appreciate your support.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Matthew Crawford for closing comments.

Great. Thank you all for your time and support. Great questions today. So any closing comments I might have had, I think I made as I responded to those very good questions. We appreciate a knowledgeable and hardworking and supportive investor base. Thank you and we look forward to again refining our message and our goals as we move towards and through 2024. Thanks.