Financial Data and Key Metrics Changes - Second quarter sales were $365 million, down 7% year-over-year primarily due to repositioning actions in Industrial Specialties and adverse weather conditions affecting paving activity [7][8] - Adjusted gross margin improved by 600 basis points, leading to a 9% increase in adjusted gross profit, with adjusted earnings up 39% and adjusted EBITDA up 9% [7][8] - Consolidated EBITDA margin reached 30.1%, an improvement of over 400 basis points, despite increased spending for innovation and operational efficiency [8][9] Business Line Data and Key Metrics Changes - Performance Materials sales declined by approximately $3 million or 2%, with higher revenue in North America offset by declines in Europe and Asia [10] - APT segment experienced a 10% drop in sales due to weaker customer demand and indirect tariff impacts, resulting in an EBITDA of about $1 million for the quarter [12][14] - Performance Chemicals sales were down about 10%, but segment EBITDA was more than three times last year's number, with EBITDA margin approaching 20% [15][17] Market Data and Key Metrics Changes - Auto production forecasts have been revised, with expectations for lower production year-over-year in all major markets except China [11] - The APT segment's performance was significantly impacted by tariff uncertainty, particularly in Europe, affecting customer order patterns [13] - The paving season was negatively impacted by wet weather, but there was strong performance in June and July, leading to cautious optimism for the second half [15][17] Company Strategy and Development Direction - The company is advancing its strategic portfolio assessment, with the sale process for the Industrial Specialties business and CTO Refinery in an advanced stage [5][19] - A focus on core competencies and value creation is guiding the review of the entire portfolio, with an investor update expected later this year or early next year [19][37] - The company aims to maintain strong EBITDA margins and free cash flow while navigating macroeconomic uncertainties [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving a year-end net leverage target of below 2.8 times, supported by strong free cash flow and improved earnings [18][19] - The company has seen three consecutive quarters of year-over-year improvement in EBITDA and free cash flow, indicating a positive trend [19] - Management acknowledged the challenges posed by macroeconomic factors but remains optimistic about the company's strategic direction and execution [19] Other Important Information - A noncash goodwill impairment charge of $184 million was recorded for the APT segment due to shifts in customer order patterns and market conditions [8] - The company is experiencing improved cash flow due to disciplined working capital management and lower CapEx, raising the midpoint of its free cash flow guidance [9][18] Q&A Session Summary Question: Update on inspectors' standalone ex payment and CCO prices - Management indicated they do not break out profitability but suggested looking at seasonal profitability comparisons [21] Question: Investments mentioned in prepared remarks - Management highlighted ongoing investments in partnerships, particularly in the EV segment and process purification applications [23][25] Question: Thoughts on leadership changes in the segment - Management confirmed an active search for new leadership and ongoing internal momentum to reorganize the business [26][27] Question: Performance Chemicals margin insights - Management noted that the second half margins are expected to be similar to the first half, without the drag from high-cost CTO [29][31] Question: Drivers of improved free cash flow - Management attributed improved free cash flow to better earnings and inventory management initiatives [32][33] Question: Strategic review process for the portfolio - Management confirmed that the review is ongoing and will consider core competencies and growth opportunities [35][37] Question: CTO pricing and market conditions - Management stated that current CTO prices are lower than previous high costs, and they are less dependent on market fluctuations [39][41] Question: Performance Materials pricing resilience - Management emphasized the value provided to customers, which has allowed for consistent pricing despite volume declines [43][44] Question: Assessment of Advanced Polymer Technologies segment - Management acknowledged new leadership and ongoing portfolio review, indicating potential for future growth [46][48] Question: Future cash deployment strategies - Management indicated priorities include organic investments, share repurchases, and potential M&A opportunities once leverage targets are met [50][51]

Financial Data and Key Metrics Changes - Total revenue increased by 14% to $761 million, driven by a 14% increase in membership dues and enrollment fees, and a 14.4% increase in in-center revenue [4] - Net income for the quarter was $72.1 million, an increase of 36.5%, including approximately $9 million of tax-effective losses on sale leaseback [5] - Adjusted net income, excluding gains and losses on sale leasebacks, was $84.1 million, up 60.5% year over year [6] - Adjusted EBITDA rose to $211 million, an increase of 21.6%, with an adjusted EBITDA margin improvement of 170 basis points to 27.7% [6] - Free cash flow was $112 million for the second quarter, marking the fifth consecutive quarter of positive free cash flow [6] Business Line Data and Key Metrics Changes - Memberships increased to over 849,000, with total memberships reaching approximately 899,000, including on-hold memberships [5] - Average monthly dues grew by 10.6% year over year to $219, while average revenue per center membership increased by 11.8% to $888 [5] Market Data and Key Metrics Changes - Lifetime Digital accounts reached 2.3 million, up 216% year over year [9] - The nutritional supplement line revenue grew by 31% compared to the prior year quarter [10] Company Strategy and Development Direction - The company is accelerating the development of new club openings, targeting 12 to 14 openings in 2026, with an average size of nearly 100,000 square feet [9] - The focus is on growth, with plans to capitalize on high-margin expansion opportunities and maintain positive free cash flow [10] - The company aims to strengthen its balance sheet and has achieved a BB credit rating, allowing for lower interest costs and increased earnings [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong performance and record retention levels, with visits per membership up 5.7% year over year [7] - The company is cautious about macroeconomic conditions but believes it can thrive in both strong and challenging environments [20] - Management indicated that membership growth is expected to follow normal seasonality, with no signs of weakness observed [32] Other Important Information - The company closed on a sale leaseback of three properties, generating net proceeds of approximately $149 million [7] - The sale leaseback market remains open and attractive, with expectations to close another $100 million in transactions in the second half of the year [8] Q&A Session Summary Question: How did new membership sign-ups track through the quarter? - Management noted that membership sign-ups were slightly slower in the first half of the quarter but finished strong, making up for the initial slowdown [17] Question: Any further commentary on monetizing membership? - Management stated that revenue per membership increased nearly 12%, indicating effective monetization strategies [22] Question: Clarification on unit guidance and timing shifts? - Management explained that the unit guidance was narrowed due to construction timelines and a focus on financial stability, with a target of 12 to 14 openings in the next year [28] Question: Expectations for membership in the back half of the year? - Management expects typical seasonality in Q3, with no signs of weakness, and noted that the first part of the current quarter is following strong trends [32][33] Question: How does the waitlist affect member growth? - Management clarified that waitlists are a tool for managing member experience and should not be considered a KPI [50][51] Question: Insights on average revenue per membership growth? - Management indicated that there are no signs of fatigue among demographics, and they are not seeing weakness in any part of the business [58] Question: Trends in in-center revenue and initiatives? - Management highlighted growth in the nutritional supplement line and the success of new initiatives like Lacey, the AI-powered health companion [66][68]

Financial Data and Key Metrics Changes - The company reported revenues of $193.8 million for Q2 2025, an increase of $23.7 million from the same quarter in 2024 [12] - Adjusted EBITDA for the quarter was $28 million, with an adjusted EBITDA margin of 14.4% [12] - Net income for Q2 2025 was $9.7 million, up from $7.7 million in the prior year [13] - Gross profit increased to $36.6 million, with a gross profit margin of 18.9%, compared to $29.8 million and 17.5% in Q2 2024 [12][13] - The company ended the quarter with $2.9 million in cash and $5 million drawn on its revolving credit facility [14] Business Line Data and Key Metrics Changes - The dredging backlog stood at $1 billion, with 93% from capital and coastal protection projects [6] - Over 88% of Q2 revenue came from capital and coastal protection projects, which typically yield higher margins [12] Market Data and Key Metrics Changes - The U.S. dredging bid market is expected to normalize at approximately $2 billion, focusing on coastal protection projects [18] - The company is seeing early signs of the next phase of deepening projects, with work likely to commence in 2027 [19] Company Strategy and Development Direction - The company initiated a $50 million share repurchase program, believing its share price did not reflect its financial performance [7] - The newbuild program is nearing completion, with the Amelia Island hopper dredge expected to be delivered soon [8] - The Arcadia vessel is being positioned for both domestic and international projects, expanding its target markets to include offshore energy [20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in strong project execution and results for the remainder of 2025, with expectations for the highest revenue and net income in company history [15][21] - The U.S. Army Corps of Engineers is expected to maintain record funding levels, providing revenue visibility extending into 2026 [17] Other Important Information - The company has a trailing twelve-month net leverage ratio of 2.7 times and no debt maturities until 2029 [14] - Total capital expenditures for Q2 were $64.6 million, with guidance for full-year CapEx remaining unchanged at $140 million to $160 million [14] Q&A Session Summary Question: Is the pace of awards running to expectations? - Management noted that they expected a more normalized bid market and acknowledged that they did not bid on over 50% of projects due to availability constraints [25][26] Question: What is the likelihood of the Acadia being in the U.S. in 2027? - Management indicated that most efforts are focused on international markets, particularly in Europe, for the Acadia in 2027 [27][28] Question: Will there be any need for new vessels in the near future? - Management stated that they do not see a need for new dredges in the coming years, as the current fleet is modern and competitive [30][31] Question: What is the confidence level for Acadia's delivery in 2026? - Management expressed high confidence in the Q1 2026 delivery of the Acadia, with revenue expectations exceeding $100 million for the full year [34][37] Question: Are there any changes in customer hesitation in the base dredging business? - Management noted that while the Corps cannot bid new projects under the current resolution, many projects are still being executed, indicating a strong market [41] Question: What is the capital allocation strategy beyond CapEx? - Management emphasized a focus on completing the newbuild program before considering debt paydown or further share repurchases [59][60] Question: What drove the expansion of the credit facility? - The expansion was driven by favorable pricing and the need for letters of credit for LNG and offshore energy projects [61]

Financial Data and Key Metrics Changes - Total revenue for Q2 2025 was $382.7 million, a 3% increase year over year [7] - Adjusted EBITDAre was $73.6 million, up 7% year over year [7] - Normalized FFO increased 172% year over year to $18.6 million, or $0.08 per share [7] Business Line Data and Key Metrics Changes - Same property SHOP NOI increased by 18.5% year over year to $37.4 million [8] - Average monthly rate in the SHOP sector increased by 5.4% year over year, with occupancy rising by 160 basis points to 80.6% [8] - SHOP revenue increased by 6.2% year over year [8] - Medical office and life science portfolio had same property occupancy at 89.9%, down 10 basis points from Q1 [10] Market Data and Key Metrics Changes - The active leasing pipeline in the medical office and life science portfolio includes 691,000 square feet, with 246,000 square feet being new absorption [10] - Weighted average rents for new and renewal leasing activity were 11.5% higher than prior rents [10] Company Strategy and Development Direction - The company is focused on deleveraging its balance sheet through asset sales and refinancing at attractive rates [7] - DHC sold two unencumbered properties for a total of $16.4 million and three additional properties in July for $8.8 million [11] - The company aims to enhance its portfolio with a higher concentration of SHOP assets and stable cash flows from medical office and life science properties [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the continued recovery of the SHOP segment and the overall positive outlook for the business [10] - The company expects to meet its 2026 debt maturity and anticipates a reduction in leverage towards a target of 6.5 to 7.5 times [20] Other Important Information - The company reduced its 2025 CapEx guidance to $140 million to $160 million, a $10 million reduction from prior guidance [17] - As of July, the company had approximately $292 million in liquidity, including $142 million in unrestricted cash [18] Q&A Session Summary Question: Any notable one-time issues in Q2 2025? - Management indicated that the majority of the NOI benefit came in Q1, with a minor benefit in Q2 from PLGL insurance, approximately $1 million [24][38] Question: CapEx guidance change details? - The change was due to dispositions and a comparison of actual year-to-date spend against the budget [27] Question: Disposition pipeline and future sales? - Management confirmed a mix of assets under PSA and LOI, with additional properties expected to close by year-end or into 2026 [28][30] Question: Performance of Five Star assets compared to others? - Five Star properties have shown improvements due to operational enhancements and capital investments, leading to better performance [31][34] Question: Occupancy targets and growth expectations? - Management expects gradual occupancy growth towards the year-end target of over 82%, influenced by seasonal trends and ongoing dispositions [35]

Financial Data and Key Metrics Changes - The company achieved record quarterly total revenue of $195.5 million, an increase of 29.4% year-over-year [3][16] - Earnings before taxes (EBT) for the quarter were $74.3 million, up 28.3% from the same period in 2024 [16][27] - Net income attributable to common shareholders was $59 million, reflecting a 41.5% increase from the prior year [16][28] - Average portfolio utilization increased to 87.2% for the quarter, compared to 83% in the same period last year, ending the quarter at 88.3% [18][32] Business Line Data and Key Metrics Changes - Core lease rent revenue was $72.3 million, up 29.4% from the prior year [17] - Interest revenue increased by 59.8% to $3.6 million, driven by growth in long-term loan-like financings [17] - Maintenance reserve revenues were $50.7 million, down from $62.9 million in the prior year, with short-term maintenance reserve revenues increasing by 9.5% [19][24] - Fair parts and equipment sales surged by 391% to $30.4 million, attributed to the sale of one engine [20] Market Data and Key Metrics Changes - The company noted a positive trend in the aviation marketplace, with airlines increasingly relying on leasing and maintenance solutions to avoid costly engine shop visits [4][9] - The leasing rates have increased by approximately 9% year-over-year, indicating stability in the market [35] Company Strategy and Development Direction - The company aims to leverage its differentiated asset portfolio and integrated maintenance capabilities to drive growth [5][14] - The launch of the SOAR lean business system is intended to improve operational efficiency and service quality [9] - The company is focused on maintaining a strong cash flow while returning capital to shareholders through dividends [4][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the operational excellence and innovation driving future growth [14] - The company anticipates no negative pressure on lease rates in the near term, supported by a significant portion of its portfolio in next-generation equipment [36] - Management highlighted the positive impact of recent agreements between the US and EU regarding zero tariffs on aircraft and parts [13][14] Other Important Information - The company completed its largest engine ABS transaction to date, reflecting strong market confidence [14] - The sale of the consulting business to a joint venture is expected to enhance capital for core leasing growth while maintaining access to consulting capabilities [12][27] - The company received over $6 million in grant proceeds from the UK government for staff initiatives [8][62] Q&A Session Summary Question: Impact of OEM production on lease rates - Management noted lease rates have increased about 9% year-over-year and expect stability in rates despite improvements in OEM production [35][36] Question: Parting out of young aircraft - Management acknowledged the trend of airlines parting out younger aircraft for engines, indicating strong demand for engines in the market [39][40] Question: Average utilization rate for the quarter - The average utilization rate for the quarter was reported at 87.2%, with an end-of-quarter rate of 88.3% [44][46] Question: Employee count and impact of consulting business sale - The employee count was approximately 420, and the sale of the consulting business is expected to positively impact operating income through additional equity [49][50] Question: Maintenance service revenues and costs - Management clarified that the maintenance service revenues were impacted by increased labor costs associated with new contracts, affecting margins [51][53] Question: Timing of grant revenue recognition - Management confirmed that grant proceeds received in the second quarter would be recognized in the P&L, with additional grants expected to be recognized upon receipt [62][63]

Encompass Health (EHC) Q2 2025 Earnings Call August 05, 2025 10:00 AM ET Speaker0Good morning, everyone, and welcome to Encompass Health's Second Quarter twenty twenty five Earnings Conference Call. At this time, I would like to inform all participants that their lines will be in a listen only mode. After the speakers' remarks, there will be a question and answer session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time.I will now turn the call over to M ...

Financial Data and Key Metrics Changes - Adjusted net investment income for the quarter was $0.32 per share, covering the $0.32 per share dividend paid on June 30 [5] - Net asset value per share declined by $0.24 to $12.21 compared to Q1 [5][16] - Total investment income for the quarter was $83 million, a 12% decrease over the prior year [29] Business Line Data and Key Metrics Changes - The portfolio loan-to-value ratio stands at 45%, with nearly 80% exposure to senior-oriented assets [6][25] - The average yield of NMFC's portfolio decreased slightly to 10.6% for Q2 [25] - In Q2, the company originated $122 million of assets, offset by $155 million of repayments and sales [18] Market Data and Key Metrics Changes - The company noted a stabilization in direct lending spreads, with most unitranche loans pricing at SOFR plus $4.75 to $5.25 [21] - Approximately 78% of investments are senior in nature, up from 75% in the prior year [24] - The weighted average EBITDA of portfolio companies increased slightly to $176 million [25] Company Strategy and Development Direction - The company focuses on improving the quality and diversity of its asset base and optimizing liabilities with low-cost floating rate debt [13] - NMFC is committed to its dividend protection program through 2026, which aims to stabilize dividends during tighter market conditions [7][48] - The company is actively working on refinancing its 7.5% convertible notes and 8.25% unsecured notes maturing in Q4 [13] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for deal flow to normalize as market conditions improve [8][20] - The company is focused on optimizing leverage and enhancing income quality, with expectations for increased portfolio activity in Q3 and Q4 [49] - Management acknowledged challenges in certain sectors, particularly in dental and consumer products, but remains positive about overall portfolio performance [15][60] Other Important Information - NMFC has repurchased approximately $16 million of shares year-to-date, with an additional $31 million of Board authorization remaining [9] - The company has maintained a strong credit performance with only $38 million or 1.2% of the portfolio on non-accrual [18] Q&A Session Summary Question: Concerns about healthcare names and industry headwinds - Management noted that while the dental downgrade was idiosyncratic, the sector has good secular tailwinds, but operational execution is critical [42][44] Question: Dividend protection program and future outlook - The dividend protection program is designed to provide visibility and support to shareholders, with management committed to maintaining it through 2026 [48][51] Question: Risks related to tariff exposure in consumer products - Management confirmed that the consumer products business had been flagged for tariff exposure, and while it was already underperforming, tariffs exacerbated the situation [56][60] Question: Trends in the education space and Edmentum's performance - Management indicated that Edmentum remains well-positioned to address learning loss post-COVID, despite some capital structure challenges [70][72]

Financial Data and Key Metrics Changes - Revenue for Q2 was $79.2 million, representing a 10.7% decrease from the same period a year ago [19] - Gross margins were maintained at 18.1%, with adjusted EBITDA margin growing to 12%, up 30 basis points from Q1 [12][20] - Net income for Q2 was $4.1 million, or diluted EPS of $0.47, compared to net income of $6.4 million, or diluted EPS of $0.73 in the comparable year period [22] - Cash flow from operations exceeded $9.6 million for the first half of the year, resulting in free cash flow of $5.2 million after capital expenditures [12][22] Business Line Data and Key Metrics Changes - Towing revenue increased by almost $13 million between Q1 and Q2, with further growth projected from new business wins secured last year [13] - Tooling revenues grew over 3.5 times compared to the prior year due to customer launches primarily from 2024 business development activities [19] Market Data and Key Metrics Changes - Sales declined in the second quarter compared to the prior year period by low double digits, but this represented a sequential improvement from the first quarter [12] - The company expects sales to decline in the second half of the year by 4% to 6% compared to the same period in the prior year [25] Company Strategy and Development Direction - The company is focused on an "invest for growth" strategy, successfully winning $47 million of new business in the first half of the year, with 99% being incremental [6][10] - A $25 million investment is planned for expanding the Matamoros plant and establishing a new facility in Monterrey, Mexico, to support new business and anticipated future business [10][22] - The company aims to return to over $300 million in annual product revenues within the next few years, even at current demand levels [11][30] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth outlook, anticipating a return to $300 million in product revenues despite current market challenges [38] - The company is preparing for eventual revenue rebound and is focused on continuous operational improvements [30][27] - Management noted that tariff uncertainties are causing some delays in the market, but they see signs of stabilization [30] Other Important Information - The company has maintained a strong balance sheet with total liquidity of $93.2 million and a debt to EBITDA ratio of less than one [23] - The company repurchased 151,584 shares at an average price of $14.82, with $2.5 million remaining in the share buyback program [25] Q&A Session Summary Question: Growth outlook and product revenues - Management expects the truck market to start recovering, with a clear line of sight to returning to $300 million in product revenues [38] Question: Incremental wins and pipeline outlook - The company is excited about opportunities in the industrial sector, particularly in EV and municipal buses, and has identified significant leads in the SMC market [41][42] Question: CapEx in Mexico and adjacent opportunities - The $25 million investment will expand the Matamoros facility and relocate DCPD molding to a larger facility in Monterrey, enhancing logistics and growth opportunities with major customers [50][52]

Financial Data and Key Metrics Changes - Net income for Q2 2025 was $120 million, with adjusted EBITDA at $84.2 million, reflecting a strong financial performance despite slower natural gas production growth [10] - Distributable cash flow for the quarter was $74.8 million, representing a coverage ratio of 1.18 times [10] - The company declared a distribution of $0.30 per unit for the quarter, which translates to an annualized distribution of $1.20 [10] Business Line Data and Key Metrics Changes - Mineral royalty production averaged 33,200 BOE per day, while total production volumes were 34,600 BOE per day in Q2 2025 [10] - The company expects production for the full year 2025 to average between 33,035 BOE per day, reflecting a revision due to slower natural gas production growth [11] Market Data and Key Metrics Changes - The company has identified a substantial expansion in the Shelby Trough and is actively marketing an additional 180,000 gross acres to well-capitalized operators [6] - The outlook for natural gas remains robust, supported by growing global demand for LNG, which is expected to drive future production growth [8] Company Strategy and Development Direction - The company is focused on maintaining a clean balance sheet and ample liquidity to support its commercial strategy, including targeted grassroots acquisitions [8] - The partnership anticipates more than doubling its drilling obligations over the next five years, which is expected to provide significant natural gas growth [7] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in production growth in 2026, projecting an incremental increase of 3,000 to 5,000 BOE per day over the revised guidance for 2025 [11] - The management remains optimistic about the outlook for the partnership, citing strong demand and ongoing development agreements as key drivers for future growth [8] Other Important Information - The company has added $172 million in royalty acquisitions since September 2023, indicating a proactive approach to expanding its asset base [7] - The company is monitoring a large project in the Permian Basin, which is expected to add meaningful oil volumes to its production base [12] Q&A Session Summary Question: Insights on activity increase in acreage and production trajectory - Management acknowledged subdued activity but highlighted upcoming development agreements and ongoing operator activity as positive indicators for future production [16][17] Question: Comparison of geology in Shelby Trough and Western Haynesville - Management noted analogous subsurface characteristics and expressed excitement about the potential for increased productivity and EURs in the Shelby Trough [19][20] Question: Understanding production guidance amidst increased rig count - Management explained that a restructuring of agreements and strategic decisions led to a slower production growth, emphasizing the long-term development strategy [28][30] Question: Future development obligations and production cadence - Management confirmed plans to significantly ramp up development obligations, aiming for a cadence of 40 to 50 wells per year [33] Question: Production outlook for 2026 and SKU assumptions - Management indicated that oil volumes are expected to be closer to 25% to 26% as they look towards 2026, influenced by ongoing projects [36]

Financial Data and Key Metrics Changes - For the second quarter of 2025, total revenue was $935 million, exceeding the midpoint of guidance by approximately $35 million, driven by $25 million in higher recurring revenue and $8 million from favorable foreign exchange [9][10] - Adjusted EBITDA margin was 16.7%, outperforming guidance by about 180 basis points, primarily due to a favorable mix of higher recurring revenue and higher margin equipment [10][11] - Adjusted EPS for the second quarter was $1.49, with GAAP EPS at $0.07 [11] Business Line Data and Key Metrics Changes - JBT segment revenue increased by 13% year over year, with adjusted EBITDA of $82 million and an adjusted EBITDA margin of 18%, up 220 basis points from the prior year [11] - Morell segment revenue was $480 million, with adjusted EBITDA of $75 million, representing a margin of 15.5%, attributed to integration synergies and favorable revenue mix [12] Market Data and Key Metrics Changes - Combined orders totaled $938 million, including $22 million from favorable year-over-year foreign exchange translation [5] - EMEA was the strongest region, while North America was relatively soft; Latin America showed strength, and Asia Pacific remained choppy [6] Company Strategy and Development Direction - The company is focused on capitalizing on the expanded portfolio of offerings and cross-selling opportunities resulting from the integration of JBT and Morell [7][20] - The strategy includes optimizing product flow and increasing efficiency through fully integrated systems, which enhances customer value [17][19] - The company aims to achieve mid-teen margins in both fish and meat businesses by 2027 through project selectivity and improved service quality [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand environment, noting healthy orders despite macroeconomic challenges [5] - The company is reestablishing full-year earnings guidance due to expectations for backlog conversion and synergy savings [7][13] - Management highlighted the importance of mitigating tariff impacts through negotiations and sourcing adjustments [10][57] Other Important Information - The company ended the quarter with a backlog of $1.4 billion, providing significant support for revenue conversion in the latter half of the year [6][13] - Free cash flow for the year was $106 million, with $88 million generated in the second quarter, supporting balance sheet deleveraging [12] Q&A Session Summary Question: Insights on poultry investments and customer conversations - Management noted good visibility into the front half of 2026, with poultry companies making significant investments in automation and efficiency [28][29] Question: Margin performance at Morell - Management indicated a 400 basis point improvement in margins, driven by integration synergies, restructuring efforts, and a favorable mix of recurring revenue [41][44] Question: Impact of tariffs on orders - Management acknowledged some episodic delays in orders due to tariffs but emphasized that the impact is not systemic [63][80] Question: Pricing strategies and backlog - Management confirmed ongoing negotiations regarding backlog pricing and the ability to implement price increases on parts and equipment [88][91] Question: Future guidance and margin expectations - Management expects a sequential decline in margins for Q3 due to tariff impacts and a shift in revenue mix, but anticipates a rebound in Q4 [49][54]