グラコ（GGG）2026年度第3四半期決算説明会：過去最高売上高と第4四半期ガイダンス

要点

• Graco Inc.（NYSE: GGG）は、2026年度第3四半期の売上高が前年同期比8%増（オーガニック成長率4%を含む）の5億8,600万ドルとなり、過去最高を記録したと発表しました。
• 当四半期のオーガニック受注高は前年同期比7%増、年初来では4%増となりました。買収の影響を除く10月16日時点の受注残高は、年初から5,100万ドル（18%）増加しました。
• 調整後営業利益は1億6,100万ドル、調整後EPSは5%増の0.81ドルとなりました。調整後営業利益率は、主に製品および販売チャネルのミックスの影響により、前年同期比で約180ベーシスポイント低下し27%となりました。
• 全3セグメントで増収となり、建築塗装・施工機器（Contractor）部門の売上高は5%増、産業機器（Industrial）部門は11%増、成長市場（Expansion Markets）部門は8%増となりました。半導体関連はここ数年で最高の四半期売上高を記録しました。
• 経営陣は、現在の受注動向と受注残高に基づき、需要の加速を前提とせずに、第4四半期の売上高を6億1,000万ドル〜6億4,000万ドルと見込んでいます。
• GracoはValco Meltonの買収を完了し、買収完了から3年以内にEBITDAマージンを10%台後半から20%台半ばへ引き上げることを目指しています。

主要財務データ

事業および業績動向

建築塗装・施工機器（Contractor）：買収効果を含めた売上高は5%増加し、オーガニック成長率は2%となり、全地域でプラス成長を記録しました。南北アメリカにおけるプロ向け塗料機器が業績を牽引し、「QuickShot II」や「ProReach」の導入が進んだことも追い風となりました。インフラ支出や商業用建設も寄与しました。受注高は当四半期に7%増、年初来で2%増となりました。ホームセンターチャネルはやや軟調でしたが、経営陣は同チャネルのファンダメンタルズに根本的な変化はないとしています。

産業機器（Industrial）：既存事業と買収の両方の貢献を反映し、売上高は11%増加しました。粉体塗装（Powder Finishing）システムはプロジェクト活動の恩恵を受け、保守・修理支出も堅調を維持しました。また、「QUANTM」ポンプの採用拡大や自動給油システムの継続的な成長も報告されました。一部の大型設備投資プロジェクトで意思決定サイクルの長期化や延期が見られたものの、年初来の受注高は1%増加しました。第3四半期の成長は各地域で広範に見られましたが、米国ではやや緩やかでした。

Valco Meltonおよび関連費用を除く産業機器部門の営業利益は、7,400万ドルと横ばいでした。セグメントマージンは、主に製品および販売チャネルのミックスの影響により約1ポイント低下しました。経営陣は、Valco Meltonを除く産業機器部門の実質的な収益性は約33%であったと述べています。

成長市場（Expansion Markets）：売上高は8%増加しました。顧客が先端製造能力やより複雑な生産プロセスに投資したことで、半導体関連はここ数年で最高の四半期売上高を記録しました。環境関連の売上高は2桁増となりました。セグメントの受注高は第3四半期に62%急増し、年初来では44%増加しました。営業利益は5%増の1,100万ドルとなりました。

Gracoはまた、ABBがデータセンターの冷却塔、排熱システム、および関連する熱管理用途向けにETMの特許取得済み横磁束モーター（Transverse Flux Motor）技術のライセンスを取得する技術協定を発表しました。経営陣は、両社が2029年末までに初のデータセンターへの導入を目指していると述べました。

業績見通し（ガイダンス）

経営陣は、2026年度第4四半期の売上高を6億1,000万ドル〜6億4,000万ドルと見込んでいます。この見通しは現在の受注動向と受注残高に基づいており、当四半期中の需要加速は想定していません。

第3四半期に価格改定が純投入コストの上昇を相殺したことを受け、同社は第4四半期の価格・コスト状況がほぼニュートラルに推移すると予想しています。

経営陣の短期的な優先事項には、受注の出荷への結び付け、新製品の採用支援、コスト圧力の管理、買収シナジーの創出、顧客サービスの維持が含まれます。

Valco Meltonについては、3年以内にEBITDAマージンを10%台後半から20%台半ばへ拡大することを目指しています。想定される成長ドライバーには、調達の見直し、製造の改善、設備投資、およびクロスセル機会が含まれます。

リスクと注目点

• 産業機器分野の顧客は、一部の大型設備投資プロジェクトに対して引き続き慎重な姿勢をとっており、意思決定サイクルの長期化や期を跨いだ売上高のずれが生じています。
• Valco Meltonを除く第3四半期の売上高は、主に産業機器部門におけるプロジェクトのタイミングの影響により、Gracoが事前に行っていた5億8,000万ドル〜6億ドルの予想レンジをわずかに下回りました。
• 粉体塗装システムの貢献度が高まったことなど、製品および販売チャネルのミックスが調整後営業利益率を圧迫しました。
• Valco Meltonは現在、Gracoの主力である産業機器事業よりもEBITDAマージンが低く、統合期間中は報告されるセグメントマージンを希薄化させる見込みです。
• Gracoの短サイクル型ビジネスモデルは視認性を制限する一方、プロジェクトのスケジュール変更によって決算期を跨いで売上高が変動する可能性があります。

アナリスト質疑応答の要点

経営陣は、住宅市場の低迷が続いているものの、建築塗装・施工機器（Contractor）部門の需要は堅調を維持していると述べました。商業活動、インフラプロジェクト、保護コーティング、フォーム施工が業績を支えたほか、プロ向け塗料チャネルで新製品の浸透が進みました。

産業機器部門について、経営陣はGracoの従来型市場は低調であるとしたものの、第3四半期後半に受注が改善し、その傾向が第4四半期まで続いていると指摘しました。ただし、第4四半期の見通しには最近の改善傾向を織り込まず、受注動向が従来と同水準にとどまると仮定しています。

資本配分について、Gracoは買収と自社株買いのバランスの取れたアプローチを維持する計画です。経営陣は、買収パイプラインに100件以上の候補案件が存在し、半導体、排水・水管理など、より成長の早い最終市場への重点を高めていると述べました。

Gracoは当四半期を約1億3,500万ドルの有利子負債と約1億4,000万ドルの現金で終えました。経営陣は、損益計算書において、従来の高い受取利息主導の構造から有利子負債コストの増加方向へシフトすると予想しています。

決算説明会文字起こし全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good morning, and welcome to the third quarter conference call for Graco Inc. If you wish to access the replay for this call, you may do so by visiting the company website at www.graco.com. Graco has additional information available in a PowerPoint slide presentation, which is available as part of the webcast player. At the request of the company, we will open the conference up for questions and answers after opening remarks from management.

I will now hand the conference over to John Bower, Director of Investor Relations. John, please go ahead.

John Bower

Good morning. I'm here with Mark Sheahan, our President and Chief Executive Officer; Sanjiv Gupta, Chief Financial Officer and Treasurer; and Chris Knutson, Vice President, Chief Accounting Officer and Controller. We welcome you to our conference call to report Graco's fiscal 2026 Third Quarter results.

Before we begin, I'd like to remind everyone that certain statements made during this call may be forward-looking and are subject to risks and uncertainties. Please refer to the safe harbor statement included in our earnings release and earnings presentation as well as our SEC filings for additional information regarding these risks and uncertainties.

I will now turn the conference over to Mark Sheahan.

Mark Sheahan

Thank you, John, and good morning, everyone. Before turning to our quarterly results, I wanted to just highlight the technology agreement we announced yesterday with our ETM business and ABB. Under this agreement, ABB will license ETM's patented Transverse Flux Motor technology for use in data center cooling towers, heat rejection systems and related thermal management applications.

The agreement builds on our existing collaboration with ABB in industrial applications, and it creates an opportunity to participate in one of the fastest-growing infrastructure markets in the world. As demand for AI, cloud computing and high-density data centers continues to grow, cooling performance is becoming increasingly important to energy efficiency, reliability and operating costs. We believe ETM's direct drive motor technology is well positioned to address those needs by reducing mechanical complexity and improving the overall system performance.

Just as importantly, ABB's decision to expand its relationship with ETM and Graco is a strong validation of the technology, the team and the commercial opportunity ahead. By combining ABB's global scale, customer relationships and manufacturing capabilities with ETM's differentiated technology, we have a unique opportunity to create value in a large and growing market while further demonstrating the long-term potential of the ETM platform. Based on current development time line, the companies are targeting the first data center installations by the end of 2029.

Now turning to the quarterly results. We delivered another strong quarter with record sales of $586 million, an increase of 8% compared to last year, including organic growth of 4%. The growth was broad-based with all 3 segments and all reportable regions contributing. Importantly, the growth was supported by improving order activity. Organic incoming orders increased 7% in the quarter, and they were up 4% year-to-date. Backlog as of October 16, excluding acquisitions, increased $51 million or 18% from the beginning of the year. That provides us with improved visibility as we enter into the fourth quarter.

During the quarter, we completed the acquisition of Valco Melton, which expands our precision adhesive dispensing and quality assurance capabilities. We're excited about the meaningful revenue and operating synergies available across the combined businesses. Our integration priorities are to enable cross-selling through our complementary customer relationships and channels to leverage procurement and manufacturing capabilities and to preserve customer service and business momentum. We're targeting expansion of Valco Melton's EBITDA margin from the high teens to the mid-20% range within 3 years of closing.

Turning to the segments. Our Contractor segment delivered sales growth of 5%, including acquisitions and organic growth of 2% with growth across all of the regions. Results were led by professional paint in the Americas, where customer adoption of new products like QuickShot II and ProReach contributed to healthy sell-through in key channels. The results reflected strong commercial execution and growing demand for our products. Infrastructure spending and commercial construction activity are also contributing to the segment's momentum. Across the segment, bookings increased 7% in the quarter and 2% year-to-date, supporting demand entering the fourth quarter.

The Industrial segment delivered 11% sales growth in the third quarter, reflecting contributions from the core business and acquisitions. Growth was led by project activity in Powder Finishing systems, while customer spending on maintenance and repair remains strong. We also saw increased adoption of electric technologies, including the QUANTM pump in process manufacturing applications and continued growth in automatic lubrication. Overall demand remained steady with year-to-date bookings up 1%. At the same time, customers continue to take a measured approach to certain larger capital projects resulting in longer decision cycles in some applications.

Expansion Markets segment sales increased 8% during the quarter. Semiconductor delivered the strongest quarterly revenue in several years as customers invested in advanced manufacturing capacity and more complex production processes. These requirements are expanding the range of applications served by our high purity and precision technologies. Environmental also delivered double-digit growth during the quarter. Bookings in this segment increased 62% in the third quarter, and they're up 44% year-to-date.

Turning to the outlook. We expect fourth quarter revenue of $610 million to $640 million based on current order trends and backlog. Order activity supports our outlook, although demand conditions vary across our markets and larger project schedules can shift revenue between periods. Our priorities are to convert orders into shipments, advance new product adoption, manage cost pressures and capture acquisition synergies while maintaining customer service.

With that, I'll turn the call over to Sanjiv to provide more details on our financial results for the quarter.

Sanjiv Gupta

Thank you, Mark, and good morning, everyone. I'll provide some additional detail on our third quarter financial performance, profitability and cash flow. We reported record Q3 revenue of $586 million. As we discussed last quarter, our third quarter revenue guidance was $580 million to $600 million, excluding Valco Melton.

On a comparable basis, third quarter revenue finished slightly below that range, primarily within the Industrial segment, reflecting the timing around larger capital projects, including longer decision cycles and some projects being delayed or pushed out. Importantly, we are not seeing broad-based deterioration in demand as indicated by order trends. Our fourth quarter outlook reflects current business conditions and the timing of converting order activity and backlog into revenue. Our outlook does not assume an acceleration in demand during the fourth quarter.

With that context, let me turn to profitability in the third quarter. Adjusted operating earnings came in at $161 million and adjusted earnings per share grew 5% to $0.81. Realized pricing was able to offset higher net input costs, and we maintained good expense discipline while continuing to invest in our strategic growth initiatives. Adjusted operating margin was 27% of sales, down nearly 180 basis points from the prior year quarter, primarily due to the product and channel mix, including a higher mix of Powder Finishing systems. This was partially offset by disciplined cost management with operating expenses down approximately $3 million, excluding acquired expenses, amortization, acquisition-related costs and the prior year contingent consideration benefit.

Contractor operating earnings at $71 million rose 5% with stable margins versus last year. Excluding Valco Melton and related costs, operating earnings for Industrial were flat at $74 million, with margin down nearly 1% from the same quarter last year due primarily to product and channel mix discussed earlier. Expansion Markets operating earnings at $11 million increased 5% on semiconductor strength despite a tough comparable to the prior year, which included upfront license fee in our electric motor product application that did not repeat.

Turning to cash flow. We generated $463 million of operating cash flow year-to-date, representing 116% of adjusted net earnings. We continue to deploy capital in a balanced manner. For the year-to-date, we repurchased shares for $467 million, paid $145 million in dividends, invested $436 million in acquisition, net of cash acquired, and invested $48 million in capital expenditures. Even after funding these investments, we continue to maintain a slightly positive net cash position.

In summary, our third quarter performance reinforces the strength of our operating model and cash generation. We remain well positioned to invest in strategic growth opportunities while maintaining a disciplined approach to capital allocation and long-term shareholder value creation. That concludes our prepared remarks.

Operator, we are ready for the questions.

Operator

[Operator Instructions] Our first question comes from Mike Halloran with Baird.

質疑応答

Michael Halloran

So could you unpack the contractor piece a little bit for me, maybe by channel within the more traditional resi commercial side, what you're seeing with the foam business and any signs of deceleration in growth rates, necessarily environment, maybe that too, but any signs of deceleration or worsening trends in any of those subareas within that segment?

Mark Sheahan

Yes. I think we are pretty happy with the performance in Q3. And obviously, organic growth now 2 quarters in a row is nice to see in that business. And we got a lot of that growth really through the pro paint channel. And it was also nice to see growth across the regions. But I would say that the level of activity that we're seeing lines up pretty well with how we thought things would play out with commercial activity and the product application that you mentioned, Mike, still doing well for us. And that has to do with, obviously, the infrastructure build-out and things that are happening despite the backdrop of the residential housing market, which has been with us here for a while, we didn't really see a market deterioration when it came to that level of activity. But I'd characterize it as pretty upbeat, pretty positive. The team is working well. They got a couple of new products that hit the mark with the customers that we sell to, and things are in good shape as we enter into Q4.

Michael Halloran

No, I appreciate that. And maybe a similar question for the Industrial segment, some of the subareas within there, how are those tracking? And then acceleration, deceleration with any pieces that you would find noteworthy on that side as we head into 4Q here?

Mark Sheahan

Yes. I would say that the top line, pretty strong performance, up 11% growth, both from underlying businesses and M&A. A lot of the non-M&A growth came out of the powder finishing side of the business as project activity was a really important contributor there. And on the -- I'll say, the legacy Graco side, kind of the maintenance and repair spending remained pretty healthy. We are also seeing some improvement in the adoption of electric technologies like our QUANTM product, and we're also seeing growth in the automatic lubrication side of the business as well.

So year-to-date bookings are still kind of flattish, up about 1%. But overall, we feel like the position -- or the business is positioned pretty well to recover as some of the, I'll call them, the legacy industrial markets start to recover. We did see some bookings improvement as we made our way through the quarter. Without getting too cute, I would say that the back half of the quarter, the bookings growth was a little bit stronger than what we were experiencing earlier in the quarter, and that's kind of continued here into Q4 as well. So very profitable business. We're excited to get it back on a growth trajectory, and there's some green shoots there.

Operator

Our next question comes from Bryan Blair of Oppenheimer.

Bryan Blair

Following up on Mike's questions there. It sounds like underlying demand trends are generally unchanged. Your team is executing pretty well. Trying to get my head around the growth moderation that's implied in Q4. If we take a stab at Valco Melton's top line contribution, it looks like flattish organic growth year-on-year. Expansion Markets states a pretty easy comp and there's tremendous momentum in semiconductor. So Contractor and/or Industrial are implied to slow quarter-on-quarter. Your prepared remarks suggested that there is still a measured approach to capital spending, some uncertainty on the industrial side, less so in terms of the trends with Contractor. But if you could provide a little more color on what you're seeing now and what's baked in directly in terms of the Q4 guide for the big segments, that would be very helpful.

Mark Sheahan

Yes. I appreciate the question. So I would just start off by saying that the headline outlook is a little bit softer than where things were previous to our announcement. But there is underlying demand, and there's really no deterioration in the underlying demand. If anything, it's maybe picked up here a little bit recently. But I think that as we are looking at how we might finish out the year, I think we're being appropriately cautious given the short-cycle nature of the business, and we really haven't done anything significant when it comes to taking backlogs way down or things like that. And we're really kind of basing the outlook based on how we see orders rolling in here in Q4.

I would say that the differences between the 2 is, really, we have seen a bit of an acceleration on the organic side in Contractor in Q2 and now in Q3. And I think that the industrial -- at least the legacy Graco industrial businesses -- remain kind of sluggish. As I said, the bookings are up 1% year-to-date. We kind of continue to see some, I think, sluggishness as we wrap up here in 2026. And hopefully, we see a little bit of an inflection as we get into '27. But that -- all that stuff factored into what we put out there for a guide here in Q4.

Bryan Blair

Okay. Appreciate the color. Your team has obviously been quite a bit more active on M&A over the recent past, and we know that's been a multiyear initiative. If we think about your current pipeline, Slide 5 references over 100 names in the active pipeline. How does the scale composition, focus areas of the pipeline now compared to 12, 24, 36 months ago? How are you thinking about near-term actionability of the pipeline? And given where your stock is trading, I'm sure your team is following the tape today, how are you prioritizing M&A versus repurchase activity currently?

Sanjiv Gupta

So I think on the capital allocation, we're going to be very similar to what we have been doing, pretty balanced between returning cash to the shareholders through buybacks. And I think as you indicated, we are looking at the stock price. So it is an attractive opportunity. We will be buying stock for sure. But at the same time, we do have a very deliberate M&A strategy, and we highlighted it in one of the slides in the deck. So we do have a pipeline. We do have specific areas we have identified. So those are the opportunities we are going to go after. And I think our cash generation, our balance sheet allows us that flexibility to do more, and that's what we'll do. So I think to answer your question, we'll -- given where the stock is, we're going to be buying it as well as we have a healthy pipeline, and we are pretty, I would say, focused on what areas we want to target the high-growth areas to diversify our revenue base, and that's what we're going to do.

Mark Sheahan

Yes. I'd probably just add that if you were to contrast what the pipeline looks like today versus maybe a couple of years ago, I think that we have maybe more names in there now that are in faster-growing end markets where we believe that if we can deploy capital, it improves the overall growth profile for the company. So some of the ones that we have highlighted that we already are in there like semiconductor space and anything in and around wastewater, water management stuff that our QED business does. Those are a couple of the target areas. And I would say we beefed up the pipeline there a little bit, Bryan, compared to what it would have been a couple of years ago.

Operator

Our next question comes from Jeffrey Hammond of KeyBanc Capital Markets.

Mitchell Moore

This is Mitch Moore on for Jeff. I just want to -- you guys talked about price covering commodity inflation. I guess, overall, with commodities and everything else, what was the overall price cost in the quarter? And just any forward view of that?

Mark Sheahan

Yes. Price cost was flat in the quarter for us. And I would think that for the rest of the year, given there's only 13 weeks left, it's kind of the way that I would look at Q4 as well.

Mitchell Moore

All right. That's helpful. And then this -- I think the initial ABB installations, you said targeted by the end of 2029. I guess in the interim, what milestones should we look for? And is this something we might see more of?

Mark Sheahan

Yes. I don't know that there will be a lot. For sure, if there are, we will call them out for you. I think this is a long-term strategic relationship that we have with them. We did have another licensing agreement with them a year ago, and they are going to be launching some of our motors into the marketplace next year. Those are targeted more like conveyor systems and factories, that kind of a thing. But I think that the punchline really is that they're a very large, well-respected global manufacturer of motors and motor technology. And for them to actively embrace what we have, they've seen it in action in a number of Graco products and in some of our other customers' products. I think it's a nice potential revenue stream for the company, and it gets us a little bit more entrenched in a market where there's just all kinds of capital going in there. I don't need to tell you guys that, and that doesn't look like it's going to change much over the next 5 to 7 years.

Operator

Our next question comes from Matt Summerville of D.A. Davidson.

Matt Summerville

I was hoping you could first maybe do a little bit of a different kind of deeper dive on industrial, really focusing on what you're seeing from a geographic and end market standpoint with bookings. I realize you talked across some product lines, but I'm curious what kind of the walk around looks like from an end market perspective? And then I have a couple of follow-ups.

Mark Sheahan

Yes. I don't know that we have a lot. Obviously, we sell through a third-party channel, so it's kind of hard for us to tell. But I would say, generally speaking, across the board, there aren't any significant major differences in the different product categories that we have in the industrial business, and I would say for the geographic as well. I mean I think the overall message here is that it's been kind of flattish and up maybe a little bit in terms of volume here year-to-date. That's kind of what we're expecting for the rest of the year. But I don't know if Chris or Sanjiv, if you have anything you want to add to that.

Sanjiv Gupta

I would say, like, if you just look at the Q3, within the Industrial segment, the growth was across all the geographies. So it was pretty healthy. I think it was more subdued in, I would say, U.S. But overall, globally, it was pretty healthy, especially in Q3. On a go-forward basis, I think our range is really signaling -- or assuming certain continuation of this delay in the capital activity, that's what we are reflecting in our outlook. But base case would be really the order trends really stay at the same level. So I would say, as Mark indicated, we are seeing some healthy uptick, but our baseline -- or our outlook doesn't really reflect that. It's really assuming continuation of the order trends as we have seen before.

Matt Summerville

Okay. Talking about 2 other quick ones. First, does Valco have a structurally different potential margin profile relative to core Graco? I know you gave kind of a 3-year view from high teens to mid-20s. Is there something structural that will prevent it from kind of hitting kind of the Graco average, number one? And then number two, can you talk about the home center piece of Contractor? I don't believe that came up.

Mark Sheahan

Yes. I would say what we wanted to just highlight was the short-term EBITDA margin potential that we're targeting after doing a lot of work and looking at specifics like what can we do to source differently, what can we do with their factory to make things flow better? What kind of capital can we put in there to make them more efficient. So we gave it over a 3-year time period. But the only real difference in terms of the structure compared to like a Graco Industrial business is that they do sell direct, but they have very good direct sales presence. Their teams, I think, are fully staffed. They can handle more revenue across that base of salespeople and sales expenses that they have. So I don't really see anything meaningful that would cause us to think that it has a dramatically different overall margin profile from our general industrial businesses over time. So we gave a 3-year target, but typically, what these things wind up doing, Matt, is over a few years, you get the quick uptick. But then after that, we find other ways and we leverage the volume better as we go forward.

With regard to the home center, it wasn't a great quarter. I think it might have been down a little bit, but maybe the guys have more detail on that, that they can share with you. But the overall numbers were good in Contractor. And sometimes you do have one channel up, one channel down. There's nothing fundamentally different in that channel that's happened. It's just the current environment that we're in there. And we are pretty encouraged with the growth and where the growth is coming from, the paint store stuff and the commercial side of the business, protective coatings, foam, those types of product lines do carry higher margin rates. So I think we're cautiously optimistic that as we close out the year that the overall demand trends remain intact, and we'll see some growth in Contractor in Q4.

Operator

[Operator Instructions] Our next question comes from the line of Andrew Buscaglia of BNP Paribas.

Andrew Buscaglia

I was hoping you can give us some color on just on the dilution in the Industrial segment as it pertains to Valco. It seems a little -- I don't know, heavier. It's hard to parse out based on Q3 because it's kind of a stub quarter. But going forward, would you say like a few hundred basis points of dilution and expect 2027 to be sub-30% for the full year for those margins?

Mark Sheahan

I'm looking at my financial experts here, but...

Sanjiv Gupta

I think we called it out, I think excluding Valco, the industrial margins were 33%. And if you look at period-over-period, it was only down 100 basis points, and that is primarily because of the mix we talked about overall within the segment with our Powder Finishing Systems. I would say on a go-forward basis, like if you adjust out the Valco specific cost, we should be at that run rate as well. Chris, you want to...

Mark Sheahan

Yes. I think one thing I would just point to is that it's a, call it, a high teens EBITDA margin business. You've got the revenue. So that's what I would plug in right now. And I think over a 3-year period, you're going to see that expand to kind of mid-20s. There is noise in the quarter for sure. I mean we had a lot of onetime costs and other things that flow through that probably made the numbers look worse than they actually were. And as Sanjiv said, if you were to strip out Valco, the underlying profitability of our industrial businesses was actually pretty good at 33%.

Andrew Buscaglia

Okay. That's helpful. And then you kind of -- just another modeling question while I got you, the kind of you guys are typically doing unallocated corporate expenses around like $40 million a year. I would imagine that should go up a little bit with Valco. And then similarly, any color on interest expense would be helpful.

Christopher Knutson

I will just say that we haven't given our guide for the unallocated corporate. It might go up a little bit. But for the most part, the unallocated corporate relates to stock compensation expense. So I don't think that, that's going to be a significant headwind for us or a significant cost adder next year.

From an interest expense standpoint, you're going to see that kind of shift around, and we're going to see more interest expense as we do have now debt on the books. We have about $135 million of debt. We do have cash of $140 million. But we will see where we've carried a lot of interest income, we'll start to see that transition into more of that debt cost.

Sanjiv Gupta

And I would say from a modeling purposes, I think as we have indicated based on our capital allocation strategy, we are going to be using our -- using our balance sheet as appropriate. So we can't really give you an exact number.

Operator

If there are no further questions, I will now turn the conference over to Mark Sheahan.

Mark Sheahan

All right. Well, thank you, everyone, for participating in today's call, and I look forward to seeing you here in Q4, and I hope you have a good rest of the day. Thanks a lot.

Operator

This concludes our conference for today. Thank you all for participating, and have a nice day. All parties may now disconnect.