Operator: We have our next question coming from the line of Michael Shlisky from D.A. Davidson. Please go ahead.
Michael Shlisky: Good morning, and thanks for taking my question. I wanted to start asking, I want to start off on the scientific, another down quarter year-over-year due to the COVID, or the hangover, if you will. You’ve had organic growth that’s been kind of negative for just about two years now, almost every quarter. Is there a point where that kind of flattens out? I mean, at some point, you’ve now lapped it twice. I’m curious to see when we might start seeing positive organic growth in that business.
David Dunbar: Yes, we think we’ve lapped that surge in from COVID. I mean, the sales growth for that business was, it’s up 40% in ‘21, up 6% in ‘22, and it’s been down the last two years. But the decline, it was down 11% last year. This year, it’ll be down like half of that or less. And most of that is the reduced purchase from pharmacies. We are seeing, we’re seeing growth in our new products. New products are a little more than 10% of sales in that business, or about approaching 10%. That gets us into new segments. In this last year, we’ve talked about a return to kind of normal buying patterns from universities, laboratories, other life science institutions. So we expect growth from here.
Ademir Sarcevic: Yes, and Mike, it’s Ademir, if I can just add to that, these units that are sold, they usually have, call it, I don’t want to say useful life, but they usually utilize for about four to seven years before they are replaced. So if you go back to those units that we sold in 2021, at some point over the next couple of years, there will be a replacement cycle coming in. And we hope to capture that opportunity as well.
Michael Shlisky: Got it. Yes, thank you for that. Then I want to turn to specialty solutions. I did notice in the slides you had put a fire truck in there, and that’s an important hydraulic of the market. I guess I’d be curious, as I talk with some of the fire truck manufacturers, and there’s only a few of them out there, they are booked through something like 2025 or 2026 at this point, and they are trying to maximize their throughput now. I’d be curious as to when that might start turning a little bit more positive, because those folks seem to be dealing with a lot more orders than they can even handle right now. I guess I’m curious, one, are you already seeing improvements? And then maybe two, is that a real, I know it’s just fire trucks, but is that also a high growth market for you now going forward?
David Dunbar: Yes, that’s a great point. We very observant there to see the fire truck. We put that in there because there’s a new application we’re working on in that business. We provide some modest growth opportunity for us. It’s a small piece of our sales now. If we win the application, we still have to work through the supply chain, the current delays in the fire truck market, as you described. So in a year or two, maybe that adds some sales growth. The bigger driver for hydraulics is dump truck, dump trailer markets, garbage and waste vehicles. And there the last few quarters, orders have been dampened due to a basic chassis shortage. And I just talked with the leader of the business yesterday, that orders in January have been really good in that business.
And it looks like the chassis shortage for dump truck, dump trailer, and these broader vehicles is starting to loosen up. That’s translating into sales. So we see a stronger second half for our hydraulics business.
Michael Shlisky: Great. And then as a first-timer on the call here, I just wanted to ask a more basic question. And that is, you reiterated your fiscal ‘28 goals. I’m curious if you could, because you’ve reached your fiscal ‘21 goals in about three years, do you feel like there’s a chance that some of these goals might be attainable in that same three-year time frame, call it ‘26? Or is it very strictly a five-year plan and not a three to five-year plan?
David Dunbar: Yes, that’s a great point. We actually debated last year whether to communicate a three to five-year plan. We just said, let’s just not complicate things, which is say 28, by 28. But we could deliver that earlier. If you think about what, in answer to Chris or Mike, wherever we end up this year, we’ll have four more years to get to the billion dollars. Fast growth markets, we believe in that. There’s another $100 million there. Our new product sales are ramping up. New product leases are getting better and better at that. The markets we serve are relatively attractive. All we need is 3.5% sales growth over four years to get to that billion. If you give us a little more success with some new product sales and maybe a little tailwind from the market, we could get there earlier.
Ademir Sarcevic: And Mike, that’s an organic target, right? Obviously, anything we’re doing organically comes on top of that.
Michael Shlisky: Right, got it. Thanks so much. I’ll pass it along.
Ademir Sarcevic: Thank you, Mike.
Operator: We have our next question coming from the line of Ross Sparenblek from William Blair. Please go ahead.
Ross Sparenblek: Good morning, guys.
David Dunbar: Hey, Ross.
Ross Sparenblek: Hey, sticking to EVs, I mean, just given that the market seems to be pretty centric to China over the next few years, I mean, what does the mix look like as it relates to North America, Europe and in China?
David Dunbar: Yes. So I described earlier how we’re more concentrated in the higher voltage vehicles, which, last year there were 11 million vehicles, 3 million were high voltage. 60% of our sales come from those. The way that’s spread geographically, about 50% of our sales in the EVs are in Europe, 45% in China, and the remainder in North America.
Ross Sparenblek: Thank you. That’s very helpful. And maybe just move into Engraving margins. Can you maybe help us parse out some of that, our performance in the second quarter? I mean, taking out just normal operating leverage and maybe a pull forward of the footprint consolidation, there’s still a couple of basis points. Maybe what is that exactly? Is there any mix? And what benefits should we expect to carry forward in the third quarter, since it is seasonally low?
Ademir Sarcevic: Yes, Ross, it’s Ademir. As we talked before about our Engraving segment and performance, we did put a lot of productivity initiatives in play, including site consolidations, which you just quoted. Some of that is going to start weeding out in Q3 and Q4. So there will be an additional savings, if you will, that we’re going to achieve in those quarters. We always said that the Engraving target margin is over 20%. As you know us very well, it does get lumpy quarter-to-quarter over because based on the volume level. But kind of on an annualized basis, we think that this Engraving segment will start, giving us over 20% margins going forward. So Q3 will be lower just because of the seasonality in China and some of the softness we are seeing a little bit in North America. But as we enter fiscal 25, we expect that Engraving margin will stay over 20%.
