Good morning, and welcome to JBT Corporation’s First Quarter 2022 Earnings Conference Call. My name is David, and I will be your conference operator today. At this time, all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

As a reminder, today’s conference is being recorded. I will now turn the call over to JBT’s Vice President of Corporate Development and Investor Relations, Kedric 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 and 8-K 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, Kedric, 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, that has directly impacted the price of stainless steel.

For 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.

FoodTech 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 in 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 FoodTech and AeroTech, now collectively at 1.1 billion. Looking ahead to the full year, with JBT’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. JBT’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 and 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, FoodTech revenue was ahead 14% comprised of 13% organic and 4% from acquisitions, offset by a 3% foreign exchange headwind.

Adjusted EBITDA margins at FoodTech 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 $0.10 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 JBT 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 was 14.5 million for the first quarter, representing a conversion rate of 57%.

Excluding CapEx of 14 million related to our digital investment, 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.

For the second quarter, we anticipate year-over-year consolidated revenue growth of 15% to 17% with FoodTech revenue up 13% to 15% comprise of organic growth and 11% to 13%, acquisitions of 4% and a slight offset of approximately 2% in foreign exchange.

At AeroTech, we expect year-over-year growth of 20% to 25% as their end markets continue to recover, especially for mobile graphs for equipment. At FoodTech, operating margins are forecasted to be between 13% and 14% and adjusted EBITDA margins of 17.5% to 18.5%.

At AeroTech, operating margins are projected at 7% to 8% and 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 GAAP earnings per share at $1 to $1.15 and adjusted EPS of $1.05 to $1.20. Now for full year 2022, we continue to expect FoodTech revenue growth of 15% to 18%.

And at AeroTech, we have raised our revenue growth guidance to 18% to 20%. We still expect margins to improve sequentially as we progress through the remainder of 2022 with FoodTech 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 and adjusted EPS of $5 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 with detailed financial targets and plans for continued growth 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 14% plus at AeroTech. We foresee opportunities to deploy 1 billion to 1.5 billion toward M&A through 2025 of growth with incremental FoodTech revenue of 500 million to 750 million.

We unveiled our digital transformation strategy and introduced OmniBlu. OmniBlu evolves our AIOps platform into a suite of digital tools providing fictionalist 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 to 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’re very excited about the value that OmniBlu 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 pure play FoodTech 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. 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 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’re 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 AIOps platforms. Regarding our M&A strategy, we continue to seek opportunities that can complements JBT’s solutions portfolio, expand our end market participation, and enhance our automation offerings.

We encourage you to review the Investor Day playback hat 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 sales. Our thoughts and solidarity are with the people in Ukraine.

Lastly, as always, I’d like to extend my most sincere thanks to 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?.

We’ll take our first question from Mig Dobre with Baird. Your line is now open..

Hey, good morning, guys. .

Good morning. .

Thanks for taking the question. Good morning. I guess I have a few of them but where I’d like to start is in FoodTech. 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 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, is the stainless steel, at least at the highest level.

Obviously there’s continuous pluses and minuses as it relates to 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 exposure for the -- margin consideration for the year.

At the highest level, and 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 reengineering 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 a pricing perspective, we’ve held open our quotes for a very short period of time recognizing -- customers to recognize the environment that we play in. So those are the biggest things, there does still remain risk as we go through the year here, which we have tried to capture in the margin expansion. .

Yeah, all I would add to that is, 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 your -- 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 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 comp?.

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 in a 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, we are notwithstanding that, we don’t have particular rights in the contract.

We’re also suggesting some things like they cover logistics and other things wherever we can.

So it is a daily effort, a daily battle and understanding kind of where our costs are and we’ve tried to capture all that in the work that we’ve done in our forecasting, as long 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 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’s something flowing through on a pricing or surcharge side? And you mentioned mobile equipment demand is 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 is even a little more problematic. So are you starting to see maybe that market was 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 as 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 effect AeroTech just like FoodTech in engines and things of that nature. There is -- 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, we’ve been -- if you look at the inventory, we’ve had significant increases in inventory and 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 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 waiting on certain components from there. But the 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 may be 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 FoodTech, which includes a fair amount of pricing in there as well. In fact, if you look at the FoodTech, on the equipment side, it’s something like 60% of pricing, 40% volume embedded into those numbers. So we haven’t seen anything in terms of pullback or any concerns in that regard.

But generally, certainly, yeah, customers are aware of longer lead times, we haven’t seen pulled back on that at this point, because of the true need in the marketplace, for the consumer demand for food..

And I wouldn’t read anything into the change sequentially in orders for FoodTech, if there’s a little bit of seasonality Q4 tends to be a higher quarter for us from orders perspective. So I guess there’s normal sort of minor seasonality that we see in there. .

Normal lumpiness. If you go back years, it’s pretty common to see plus $10 million, $15 million quarter to quarter just because we do have -- we take orders that are $10 million, $15 million, 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 balance sheet and cash flow. If I’m reading the queries on your interest expense guidance, it doesn’t imply really a debt paid down and maybe you kind of stick to the inorganic growth rate playbook that you’ve been executing within FoodTech. I just want to make sure that’s the right read.

And as you kind of approached the timeline or the deadline for the AeroTech strategic optionality, you think you can continue to execute on deals within FoodTech 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 cash flow perspective, we are continuing to invest organically in our businesses with investment in OmniBlu, and will continue to sort of invest in working capital to support the higher revenue, so 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 OmniBlu, is still north of 80% for the year forecast, 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 EBIT DA will actually drive leverage close to the 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 is open..

Hey good morning and thank you for taking my questions.

So, I guess with the understanding that the FoodTech businesses 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, and 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, I think, as Brian said, for equipment, about 40%, price -- sorry, 40% volume, 60% price 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.

And then so my second question is, are there any particular product segments where we’re seeing greater demand versus others? I mean, I’ve heard you mentioned readymade 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 step back and look at the data, it’s -- we have -- because our orders tend to be larger size, millions of dollars, you’ll see a nice spike in one quarter, and then in moderation, all product line by product line.

Generally speaking, though, if I would say, at the highest level, poultry remains very strong overall. That’s probably been our strongest product, or most consistent supportive product over the last years. 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 is open. .

Hi, good morning. .

Good morning, Steve..

Can you just give us a little bit of color on what carries over into ‘23 whether it’s some of the corporate expense or on the price cost side? If you kind of snap the line today, is there a carryover dynamic on price and cost that moves either way?.

Yeah, from a corporate expense perspective we do have some one-time costs in our corporate expense related to OmniBlu, 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 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 price costs..

And then I would just add on the demand side, as Matt mentioned, about for FoodTech, 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 contract. So we are starting to set ourselves up nicely for next year as well..

Right, that helps. Okay. Thanks a lot..

Next we’ll go to Andrew Obin with Bank of America. Your line is open. .

Good morning. .

Good morning. Good morning. This is Emily Shu on for Andrew..

Oh. Hi, Emily..

It seems like the quarter end really played out potentially 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 ST 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. Now there’s $40 million to $45 million of increased inventory, and half of that is in raw material.

So it seems 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 will continue to manage that but I think that was the biggest improvement we saw was on the labor side. .

Right..

Okay, great.

And then just 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 is about 90%, with Omicron..

OmniBlu. .

OmniBlu. Well, you might have heart that..

Yeah, but 90%, including the investments in OmniBlu, 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-OmniBlu investments, we’re looking at north of 100%..

Okay, great. Thank you. .

Thank you. .

And next, I have a follow up from make Mig Dobre with Baird. Your line is open..

Hi. Thank you so much for taking the follow up here and just looking to clarify a couple of things. If I heard you correctly, you mentioned that in FoodTech 60% of the growth in orders was price related, just making sure that I clarify that that’s the case.

I mean by math that would imply call it 4% pricing, first, is that correct? And then second, I struggled to see how 4% pricing would offset the kind of inflationary pressure that we’ve got here.

So maybe more pointedly when we’re looking at stainless steel as a percentage of your COGS, how important is this raw material for you?.

Right. So, obviously, that’s 4% in a quarter, cumulatively, we’re looking at over the last year, north of 15%, 20%, where we’d 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 pie chart with certain customers on certain products that we are seeing that being absorbed in the marketplace, Mig. In terms of stainless steel, in terms of if you look at our spent 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 on an unchecked, somewhere in that $7 million, $8 million impact from what we see in the marketplace on stainless steel today. So we obviously are going to try to price for that where we can plus we have inventory on hand.

So when buying every dollar of our stainless steel usage, it is 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 I have to ask this question on incremental margin progression. I mean the guidance implies here some pretty robust incrementals in the back half of the year in FoodTech again.

And I’m looking to get some comfort with the fact that you guys have visibility on being able to deliver that.

You clearly have visibility on the top line, you commented on that but what visibility do you think you have on those incremental staying considerably better in the back half?.

Yeah, I think, 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..

Okay, 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 competitor, 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 cost to get from Europe to the US, it’s kind of even wash. I don’t think we’ve seen any material changes in those dynamics.

For FoodTech, we certainly have manufacturing locations in country in Europe, so we’re competing on an even basis with them. We do exporting somewhat from geography to geography but not so much between North America and Europe; that tends to Europe serving Europe and US serving US.

We haven’t seen -- at least I haven’t heard any comments from the businesses about this impacting our 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 with FactSet. Your line is now open. Go ahead. Larry De Maria, go ahead. .

Hey, good morning, everybody. Hey, I’m not sure what’s going on there. But on the software investments, the 14 million you’re going to spend this year, remind us to quarterly cadence.

And I think the question earlier 10 to 12, that goes away over this period to next year, that’s out of that 14, and 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 OmniBlu is we spent the 14 million in Q1, another 14 million or so in Q2, 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 OmniBlu, I think again, we said the 10 million to 12 million will come out of corporate and in the businesses that I think the same profile that we see from an incremental and decremental perspective will exist with OmniBlu going forward.

So I would kind of model it the same way as you would model growth in the FoodTech business. .

Right. And so Matt talks about CapEx investment. On the expense side itself, which is about 15 million for the year, about 12 million of that it’s going to be in the back half of the year..

Okay, so 12 is the back half and I’d like to understand with so much incremental on the revenue prospects, but can you help us understand it, the revenue prospects for that investments this year? Is that a 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. There after starting in 2023, we think it’s going to be that 1% to 2% CAGR on total FoodTech revenue from there.

So it really, this year is largely an investment year and converting our customers from -- in the product lines that were active on OmniBlu, from AIOps programs to OmniBlu 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 FoodTech revenue from there.

And as Matt mentioned, the businesses will, at that point, given the revenue influx, they will also take on whatever marginal cost we have at that point, but the investment cycle, on the P&L side, will largely convert to just ongoing maintenance of the OmniBlu program..

Okay. And then just switching gears for a second here.

Obviously, orders overall have been very strong order cycle, backlogs at record levels, can you help us understand how you’re viewing the orders now, in terms of 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 when do we -- 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 to find different things, fundamental orders and orders because of the long lead time, if you have a view on that?.

Right, I think I don’t think there’s a huge amount of orders be 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, trying to get something quicker, it is more of the secular type investments for automation, for sustainability, for yield improvement, versus purely on the capacity side, right. 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 as more of what’s the secular of investment versus in 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. Kedric and Marley will be available if you have any follow up questions. Have a nice day. .

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