Q4 2019 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the course export quite or she got going in 18 or anything.

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At this time, all participate kinda listen only mode. After the speakers presentation, there will be a question and answer session.

Yes. Good question drain the fast fashion you want me to press Star one on your telephone. Please be advised that today's conference is being recorded it. If you require any further assistance piece, that's scary fear out there now they see Hana conference over to your speaker today Mr. make me think thank you. Please go ahead.

Thank you.

Morning, everyone and thank you for joining us.

Hi, Mike Mason, Vice President Finance, joining me on the call today, or Matt truly Cola, President and CEO, and Crystex Executive Vice President and CFO.

Our earnings release was issued this morning, and it's available in the Investor section of our website Colfax core dot com.

Well, we're using a slide presentation to walk through today's call, which can also be found on our website.

The audio and slide presentation of this call will be archived on the website later today and will be available until the next spring quarterly earnings call.

During this call will be making some forward looking statements about our beliefs and estimates regarding future events and result.

These forward looking statements are subject to risks and uncertainties, including those set forth in our FCC filings.

Actual results might differ materially from any forward looking statements that we make today.

The forward looking statements speak only as of today.

And we do not assume any obligation or intend to update them, except as required by law.

With respect to any non-GAAP financial measures made during the call today, the accompanying reconciliation Asian information relating to those measures can be found in our earnings press release and today's slide presentation now I'd like to turn into Matt will start on slide three thanks, Mike and good morning.

We're pleased to report another strong quarter as we close out a pivotal year at Colfax.

In 2019, we completed our portfolio transformation, which started with the sale of our fluid handling business and ended with a 2019 divestiture of our Aaron gas handling business.

Between these two events, we acquired de jail and create an enterprise it is less cyclical more profitable and better position for growth growth.

We're already seeing the benefits with 20, Nike inorganic growth of 2.5%.

During the year, we delivered on our financial commitments with attractive earnings growth supported by operating improvements in each of our businesses.

Our medical technology segment accelerated its growth in each quarter the year benefiting from the investments made to improve its operations and improved deliveries to customers.

We're early in the CBS journey and see many opportunities to drive further investments in the business as it adopt lean and developed a continuous improvement culture.

The business increased the number of new product introductions in 2019, and we see many opportunities to improve innovation to sports sustained mid single digit mid single digit growth in the coming years.

Our fabrication technology business made significant strides in 2019, the team executed well and expanded margins hundred 80 basis points.

They also grew 1.5% organically outpacing the market and capturing global share gains.

The business has a strong innovation engine that supports its growth agenda.

And we have a growing at healthy pipeline of acquisition opportunities that can further strengthened and expand our platforms.

Despite dynamic conditions in industrial markets, we grew positive 1.7% arc organically benefiting from our less cyclical portfolio and strong growth in our med Tech platform.

Profit margins significantly improved during the quarter to 15.1%.

Fab Tech margins expanded over 300 basis points, reflecting the significant operating improvements made in the business over the last three years that were masked by higher metals and other input costs.

The structurally higher margins in our Med Tech platform also contributed to our margin achievement in the quarter.

We finished a terrific year performance by delivering 61 cents adjusted earnings in art typically highest quarter of the year.

As shown on slide five we ended the year with strong momentum in our Med Tech segment.

The business grew 7.8% organically against the favorable comp in the prior year and with the benefit of a few extra selling days.

Performance was strong with the reconstructive product lines continuing to grow by double digits in the quarter.

The prevention and rehabilitation product lines grew 6% and even with the benefited the extra sales days. This is the highest growth rate in several years.

17, new products launched in 2019 are the highest in over five years, and we expect to expand that performance overtime as we improve and invest in the innovation engine it make additional targeted investments.

Margins at 19.2% increased 70 basis points sequentially, reflecting volume leverage and operating improvements offset partially by investments to improve customer service levels and fuel future growth.

I'm very pleased with the performance of our fabrication technology business on slide six.

Margins were up 320 basis points versus prior year to 15.6% on lower volumes.

The business continues to develop its operational capabilities and deploy CBS tools and processes to drive sustainable improvements.

We're executing an effective commercial playbook and managing price to address the sustained multi year increase in input costs.

Organic revenue declined 1.5% for the quarter and we continued to outperform the market and gain share.

As you know we have a truly global fabrication technology business, which protects us against strong demand shifts in any one region in the fourth quarter growth outside the U.S. dampened the impact of lower volumes in North America.

The business had a good start to 2020 inline with our guidance for the year customers are well supported with excellent service and innovation and the team as more cost levers to support long term margin improvements.

Before handing over to Chris to walk through our financial results I'll wrap up on slide seven and share our key 2020 priorities.

We entered the year with great momentum at de jail as growth returned to healthy levels in the past few quarters.

The team will use CBS to sustain customer service gains increased the impact from new products and strength in commercial processes.

Through our fab Tech business, we've demonstrated at CBS can help to create an effective innovation engine and growing pipeline of new products and 2020 will be another strong year of new product launches in that business. I also expect med Tech will again increased the number of new product introductions and improve its new.

Product development process in 2020.

Along with solid commercial execution, both businesses our position to capture additional share.

We've shown that we can support innovation and improve margins were driving margin expansion in 2020, well, we invest in operating improvements and growth.

Our improved portfolio has greater cash flow generating capabilities, and we expect to generate over 250 million of free cash flow to support a growing actionable M&A pipeline.

We're excited about the future and confident that we can drive compounding value growth for our investors Chris.

Thanks, Matt Slide eight provides a summary of our fourth quarter performance year over year growth includes in large part the acquisition of DJ show and the significant gains and ease of margins over the past year.

Q4 sales performance included healthy jail organic growth.

The investments made to improve the businesses operations and paid off in the form of accelerated recovery to healthier growth levels.

There's a little more work to do in 2020 to improve the foundation, but we are increasingly focused on the CBS agenda, including more standard work and continuous improvement.

Our businesses performed inline with expectations for the quarter grading, 15.1% adjusted EBITDA margins.

The benefits from our portfolio changes and he subs operating performance really read through this quarter.

Interest cost tracked as expected and income taxes were lower as a result, a onetime items related to the sale of our Aaron gas handling business.

We continue to expect our tax rate in 2020 to be 21% to 22%.

Overall, we generated 61 cents in the quarter from crisp execution and a favorable tax rate.

Inline with expectations. We also achieved nearly $80 million of free cash flow in the quarter before paying for costs related to the air and gas handling divestiture.

This quarter's performance demonstrates the cash flow benefit of our transform portfolio of businesses.

We have a clear line of sight to over 250 million to free cash flow in 2020 with a seasonally low first quarter and then building throughout the year.

We ended 2019 as expected with 3.8 turns of gross leverage or 3.6 turns on a net basis.

Our 2020 cash flow will support the de leveraging path discussed at our Investor Day in December while also supporting our active acquisition program.

It's 2020, we continue to expect the year solid earnings growth in are reaffirming our adjusted EPS guidance of $2.10 to $2.20, including year over year currency pressure.

Investors are familiar with our quarterly EPS phasing profile. The first quarter is typically the lowest in the fourth quarter. The highest inline with revenue sequencing. We expect this phasing will be more pronounced this year with first half volume weakness in each sub followed by market recovery and growth in the second half.

The first quarter 2020 does not have a clean comparison to last year because he chose included in our results beginning only in March of 2019.

We previously shared pro forma information that shows no pro forma contribution from January and February of 2019 de jail performance net of financing costs.

We expect this year's first quarter to include a penny or two of year over year currency pressure.

Corona virus has been very much in the news and we've been monitoring the situation closely our teams are safe.

As you know our portfolio transformation significantly reduced our direct exposure to customers in China to less than 5% of our total sales.

At this point, we see one to two cents of vps pressure in the first quarter from lower sales in China and supply chain impacts both of which we believed to be first quarter timing items only.

This is a dynamic situation will continue to monitor developments.

Wrapping up on slide nine 2019 was a very good year for Colfax through the dedication and hard work of thousands of associates around the world, we transformed the portfolio and delivered strong operating results. We have very good momentum entering 2028.

In addition to earnings growth and strong cash flow, we're well positioned to execute our M&A agenda as part of our objective to create compounding value for investors.

With that we'll now open up the call for questions.

Thank you as you reminded you ask a question you would need to press star one on your telephone Chile.

Good press the pound our hash key please standby Lilly compiled the Q and a roster.

Your first question comes from the line of Jeff Hammond with Keybanc capital markets. Please go ahead. Your line is open.

Good morning, guys.

Hey, Jeff warning.

So can you just talk about what you're thinking on the margin front for de jail, when 2020, and where are you see margin improvement opportunities versus kind of how you're balancing incremental investment spending.

Yeah. So yeah, we have a plan to improve the margins of a de jail here in 2020, a you know we had been driving a really focused initially last year on stabilizing the operations getting the service levels up and then increasingly through the year I've been able to focus more on productive.

But he supply chain productivity sourcing a initiatives.

As as key areas of focus as well as looking at a fixed cost efficiency opportunities end to end. So we definitely see the opportunity to drive improvements in the margins in that business over time in the sort of 50 basis point of of EBITDA year number that we had talked about at the outset and here in 2020, we got a clear path to drive improved.

Men. So those will build through the year based on the way that we put the costs into the business last year, but we've got clear line of sight on on how to drive those improvements.

Okay, Great and then can you just talked about where you're seeing growth still in the welding certainly you know it's been impressively resilient and just what you what do you expect for the North American market for welding into 2020.

Yes of course, we if we look at a at last year [noise].

Everywhere outside the U.S. for the full year was was either.

Flat or up a and most of that being up and it was the U.S. It was the market that was down a late in the year that the European market came down a little as as we talked about I think in our in our last call at as well, but we feel like we've been able to take share in most or all markets around the world.

As we come into this year, we talked about a plan that had a revenue a little bit little bit down in the in the first half of the year, but but then once we once we lap or some of that a declines of this year coming back into positive zone and that zero to 2% that we that we guided for the businesses is still our expectation for this year.

Okay. Thanks, guys.

Your next question comes from.

Panel with Cowen. Please go ahead your line is open.

Hey, guys, good morning, and Joe Hey, Jim.

I'm just curious how did medtech and work you come in versus internal expectations like for US. The overall was fine but it was it was more Sean stronger revenue a little bit lighter margin just curious how that played out relative to what you guys are thinking three months ago.

Yeah, I think a i. I think you said exactly right in that we we felt really good about the growth of the business the revenue acceleration to the business and and came in you know a I'd say a at the upper end of Abu Madi to hope there. There is there was a little bit.

Little bit a tailwind from the year over year, CCOP and there's a couple extra sales days and so that a that almost 8% is you know is elevated beyond a year beyond the right go forward number, but we felt really good about the growth and feel good about the momentum to build there. We also feel good about the operational improvements and the productivity Foundation that we've been building.

But we did through the year, including the fourth quarter puts an extra costs into the business into the supply chain and other areas of the business in order to make sure that we got the right Foundation from a go forward basis, and then you see that reading through at the margin level.

Did you or am I reading this right I think that.

Last I misspoke, maybe in Investor day.

The view was we like a mid single digit normalized growth rate for Geo, but we're coming a little hogs and growth in the end of this year from like some cleaning up some backlog et cetera, so might be a little bit lighter than not and now you're talking mid single did you kind of push that did you upgrade that view, a little bit like nuance a little bit higher.

Yeah, So what I'll say this first we've said from the start that we see this the business that that can grow mid single digits.

Once we get it ramp to that level and can do it can you just consistently we talked about 4% to 5% when we when we announced a the business what we put out there as a as a guide for this year was 3% to 4%.

Gross and at this point, we're not we're not revising that bunch, but certainly we feel good about it. The you know the kind of underlying rate coming out of year is sort of solidly in the mid single digits.

Range, but Oh, Yeah were 10 months then with this with this business and a you know we know that overtime there'll be a there'll be great quarters, and they'll be good quarters and a you know right now we're sticking with our three and half before and half percent as the as video growth in this year with an expectation that is probably closer to the upper end and then the bottom end.

That but we'll keep you updated as we work through the year.

If I could just again.

Can you just help us contextualize the internal spending going on there. So we'll see the margins come through but how much you spending like in 2020 relative on just internal improvement and growth initiatives relative to 19 there.

Yeah. So I mean, I would be we tried hard to get into the details of the spending but but a you know I would say certainly a in a in late last year, we kinda spend all of the margin improvement from improvements.

In spending in the business in terms of whether its supply chain regulatory growth in investments and you know here in 2020, our plan is more to spend part of the margin improvements on on those kinds of investments in the business, which you know overtime that will be the decision, we're making each year is.

We'll make sure we're driving improvements in the underlying margins the business and then deciding how much of that reinvest each year to make sure that we're doing the right thing to fuel future growth in the business.

Sounds good nice job guys.

Thanks.

Next question is from Joe Ritchie with Goldman Sachs. Please go ahead. Your line is open.

Good morning, everyone.

Hi, Joe.

Hey, So just maybe just touching on a fab tech for a second the margins. This quarter. Just continued just in just a an impressive trajectory.

And I guess I'm thinking about this maybe just a little bit longer term right I know your business mix is different than than some of your peers, but you've got a pure out there. That's got margins that are north of 1000 basis points higher than yours on the fab Tech business and I'm just trying to understand how much more margin runway you have in fab tech in how to think about that.

Also for 2020, just given given the results that you you posted in 2019.

Yeah. Thanks for the comment Joe Yeah, we really didnt feel good about a the momentum in performance in the Fab Tech business and I think itself as we as we highlighted in Investor day, It's really a crystal clear example of the kind of impact that fantastic talent and application of of our business system over time and and the right acquisition.

To improve the business and the right innovations and what kind of impact that can have on a relative growth and the margin performance of the business I really appreciate the positive comment there.

In terms of where we can go from there I think we've always said that a you know where we're driving to get to 15% operating profit so little higher than that on ebay.

And that we had clear line of sight to how to do that operationally and then I've always said that strategically we're working on how to make room to go further and the team has been certainly working on that.

Proactively so we still got a little bit little bit more room to go with the same playbook that we we've been running and operationally.

In the next couple of years and then we've also made sure that the acquisitions that we've done the innovations that we're doing how were reshaping our supply chains overtime, how reshaping the organization the business overtime is creating space for us to not be done there, but be able to then continuously improve them. The margins as you said, there's at least one pure out there that would say though.

There's there's plenty of room now they get a little different structure to their business I wouldn't put that out there at the as a benchmark that we'll get to anytime soon but I'd say it certainly gives us a plenty of comfort that we don't have to hit a wall here.

Yeah I know that's that's that's helpful. A in and I think maybe just kind of following up on Joe's question from earlier.

He agreed that that I think the margins were little bit lighter than we expected obviously growth very good on on the DJ Med Tech side, I guess as you're thinking about 2020, we know that you know the first quarter.

Got a tough comparable but how do how do we think about the rest of the year and your ability to expand margins on the med Tech side and is there anything we need to be aware of just from either a mix standpoint, or an investment standpoint that you know of in your internal plans. So that we weren't we're getting at least the cadence right as the year progressive.

Yeah, Yeah sure Yeah. So I mean, obviously first the first quarter has a the weird weird anomaly of just having March last year in and so that that is stored so our company and our de jail.

Margin for that for the course first quarter and needs to be a it needs to be adjusted but once you once you've adjusted to that and you're kind of down in that that low double digits for first quarter. We Ah we see a the margin improvement in the year as something that will build over time as as I said, we put investments into the business.

Through the year and so a you know here in the first quarter I will be will be carrying carrying those investments up against the comp. It doesn't a that doesn't carry those are and so a it'll be a you know really as we move into maybe a little in the second quarter, but particularly third and fourth quarter is where you should see the the mine.

Hi, good expansion coming through in the business and yeah, we're trying to make sure that that we have the right balance and making sure that we're showing the right short term progress, but really very much doing the right things for the long term strength and growth of the business. We think that's that's the right thing to do and so Oh.

We would ask people to be a little patient with the rate at which those margin improvements show up so that we can keep the topline moving.

Got it that makes sense thanks, guys.

Your next question is fine Andrew.

Bank of America. Please go ahead your line is open.

Hi, Good morning can you guys hear me.

Yes, Hey, Andrew Good morning, Hey, So I apologize, maybe I missed that bad with them getting a lot of questions from investors on your China exposure and I think looking at your slide deck from the analyst day, it seems that sort of less than 5%.

Could you sort of figure it out by segment between Medtech and Fabtech more important question I guess.

Supply chain what percent off.

Your products do you have sourced from China, because we hear a lot of concerns about disruptions in the supply chain, particularly in second and third tier suppliers. Thank you yeah. Thanks for the question Andrew So the first when you answered yourself, which is that with the changes we've made to the portfolio China. Our China exposure has has become very small I mean.

Finally under under 5% of of company revenues and.

The vast majority of that China exposure is is.

Yeah, our fab tech business, which has less than 10% of its a <unk> revenue in China.

As far as our supply chain.

We both of our businesses I think I've done a good job setting up a fairly localized supply chains to serve at sort of a demanding customer base from a service level standpoint, and so the vast majority of our of our business in regions is supplied.

From from assets within those regions.

Or adjacent to those to those regions, but of course, a we've taken advantage of glove global sourcing opportunities from a cost standpoint and so.

We do have a a minority of the sourcing of each of the business that comes out of China in other parts of of Asia, and so when Chris talked about some of the yes somebody in impact the current a virus that that's where we'll see a little bit a little bit of revenue impact a little bit of cost impact from the the sourcing that we do out of China, Although we've been staying very.

Close to it the one major plant that we have a in China, which is in our fab Tech business is not and move on.

It's outside of Shanghai, and it's up and running again and it. It is mostly said mostly supplies, China, but but has a role than the rest of the world and so we're making sure that we're monitoring or shipping lanes and all the different things that that could dead could get underway and we have been able to talk to all our team.

Suppliers over there and make sure that we understand clearly the situation. So that we could at least size for you here on this call. A you know our current view of what kind of what kind of a forced first quarter impact a we're gonna be having and we're going to more to stay on top the situation.

As it continues to play out.

Thank you and just a follow up question looking at a very good growth in med Tech.

Could you just give us a little bit more color prevention on rehab versus reconstructive and how should we think about growth for two segments a sub segments into 20 point it. Thank you.

Yeah, So the prevention the.

Excuse me.

Constructive growth was back into the into the double digits and prevention and rehab.

It was 6%, but with a couple a.

Couple of percent from some extra days so.

That's two quarters in a row, where we've been in a in a.

Back into a kind of a more more reasonable range for prevention and rehab, even maybe a little elevated range for for prevention and rehab and that's where the benefits of the work we've done together with DJ team on the supply chain, our our reading through as well as some of the new product innovation that they had initiated in the last few years.

Coming through I spent some time with that are at their national sales meeting a recently and it was terrific to see the swagger back in the bracing Salesforce and channel. A you know this is a business that years ago. You know was was that hands down dominant later in the industry that everybody wanted.

Do business with and they're very proud group and they are feeling very excited about the progress that we made last year and started to get get the kind of swagger back that you put a good service levels and ongoing innovation together with a great sales team that has confidence and Thats a formula.

For taking share I just want to go forward basis, I think we've always said that that that reconstructive growth.

Ah could be in the probably the high single digits on a sustainable basis overtime and the PNR growth would come up into that low to mid single digit growth in that second our formula for for mid single digit growth in the business, but that'll certainly vary from quarter to quarter.

Congratulations on thank you.

Thank you.

Your next question comes from Julian Mitchell with Barclays. Please go ahead. Your line is open.

Maybe just the first question around the cash flows. So I think in the cash flow statement, you had about $6 million for 2019 as a whole what I realize you talked to adjusted free cash flow over to 50 million Twentytwenty what was the adjusted free cash if you'd like.

Right. So 29 team just trying to understand what magnitude of step up if any you have in 20 and on what's behind that.

So for 2020.

We put out guidance not for adjusted cash flow, we put out guidance for just free cash flow and that number is 250 million or or more so just to set the stage for that.

Second point is in the fourth quarter. The performance that we had we appeal that of parts of that investors could see the underlying performance there have not quite 80 million just in the fourth quarter. There were some transaction fees that we had associated with the divestiture of our howden or air in gas handling business that muddied the waters.

Or a bit but we feel that of parts you can see that underlying performance and see that were on the path to deliver the.

250 million or more in a in twentytwenty for the full year in 2019, we did have a significant amount of investments in a in DJ always we brought it up on board and working capital that we talked about in Investor day, and before we also had a lot of transaction fees.

Related to both of the doesn't the major transactions. If you Peel all that apart you can see the cash flow. This was somewhere in the roughly 180 million to 190 million range and so as we step forward. That's one of the pads that we created or or shared with folks back in December what we see is the.

The the improvement in profitability in the business.

We see the lower restructuring spend we see lower pension funding, we see better working capital performance.

We see a and of course, we've got this significant in a well that gives us a very strong cash tax position in the U.S. So you put all that together and it gives us a great foundation in 2019 to build from and then to deliver that 250 million or more in 2020.

That's good to hear so the free cash in 20 will be just gap and straight from the press release.

And my second point, I guess would be around the the seasonality of learning something you'd mentioned once or twice in the prepared remarks and also in the queue in a highlighting some headwinds for the Q1 on the first off so just to try and put a finer point on that.

I think consensus has around sort of 48% also of the full year earnings coming in the first half I'm. Realizing you don't guide quarterly.

I just wondered you know is the impression that that should be more like 40% to 45% of the full year earnings coming in the first off is that the type of.

Waiting we should think about given corona virus, and an FX and some of those investment headwinds you'd mentioned.

Julien I think if you look at the 2019 EPS performance and look at that is sort of a guide for the the approximate a timing that we'd have I think that gets investors reasonably reasonably close to what we would expect for 2020 year over year.

We're going from Q1 to Q1 will pick up a little bit of earnings there, but as you point out there's a little bit of krona virus pressure that we highlighted and then there is little bit of the FX FX pressure.

Okay. So that's sort of 40, 546% of the you had in the first off of 19, that's a good place holder for this year in 20.

Yeah, Yeah, I would say a I'd say that so directionally correct.

That's very helpful. Thank you.

Your next question is from Josh Pokrzywinski with Morgan Stanley. Please go ahead. Your line is open.

Hi, good morning, guys.

Hey, Joe Joe.

Just following up on some of the med tech growth initiatives here I I get that when you kind of winning new practice or new buyers group.

In that space that you need to really anniversary. It before you get back to kind of underlying market. So I guess, maybe just appeal apart you know the growth this quarter or or some of the new business you've won over the last year, how should we think about carry over gross into 20, just you know.

Until you anniversary kind of some of these new customers.

And then you know maybe isn't the denim that how much do you think is new customer growth versus kind of new products or more penetration with existing customers.

Yeah. So it sounds like that's largely a a surgical question or is that a full med Tech question I guess, a full med Tech question, but you know feel free to.

Yeah, Holleran wherever you see fit yeah fair enough. So yeah, because I think that first thing I'd say is that yeah. The teams are generally working on the growth sort of month by month quarter by quarter. You know we have a growth bridge tool that we used with the team is that or is not just about kinda.

Improve the annual growth one time, and then start over but more of an evergreen approach and so so again it would take our surgical business that has a has very high growth or they are bringing on new doctors every quarter and look at the same store growth. The you know the new dock growth.

And ER and then they also have a view of when the new products come in and how thats going to give them a lift and so we've got to.

Pretty pretty robust growth model in that business in terms of Oh, you know of of how we continue to grow a and gain share in that business and so we definitely.

Okay quantify the rollover effect, what I can say is is that we exit 2019.

Already with a head start on how we have another strong year of growth here in 2020, and as I said in my comments Q Q1 is off to a you know good start in the Med Tech business.

It's a you know the prevention rehabilitation part of the business you know he is a little little bit difference in in that the growth is we've got a pretty meaningful channel there as well as all the many all the many clinics and so the growth is a little bit fueled by new additions of new clinics and things like that.

Matt, but I did but it's also more and more broadly.

Just about who's who's choosing our products on which days and how are we penetrated further into the plant clinics and hospitals and and so you know there last year. We had a you know a a healthy lift in our growth from improving the surface level is that the business, we won't get that lift again in fact that might give a little bit.

I have it back because it was up against a up against a you know kind of an easier comp.

But we will have some additional new products coming through that help us to be able to penetrate further.

Into the into the clinics and into the hospitals.

And so that that's how we'll continue to to improve the growth of the business.

Great. That's helpful color and then just a follow up on the on the comment you made in the prepared remarks.

About the acquisition pipeline starting to fill in.

Any anything you can share on I guess.

Proximity to what you currently do in Med tech versus something that would be either kind of more adjacent or further afield, just just to kind of give us some sense for.

Where the portfolio may may pivot or or may grow as you guys.

Start to get the balance sheet repaired.

Yeah. Our focus is really at this point on on things that are within the DJ show, a businesses and and you know strict strengthened accelerate the strategies, there and the business or you know kind of directly adjacent and sort of a you know attractively or expand the business Ah but in a in.

Kind of more connected a way you know we see over the next couple of years, there's there's plenty of opportunities in those areas and while we certainly will be doing work and think about other things in the med tech space that that could or could be attractive expansions for the company that that's really not going to be our pipeline focus for the next year too.

Perfect. Thanks for the color and good quarter.

Thanks.

Your next question is from Walter Liptak with Seaport Global. Please go ahead. Your line is open.

Hi, Thanks, and good morning.

Morning, Walter.

I wanted to ask about a fab tech for back to that and you talked about market share a couple of times I Wonder if we can get some color about.

Regionally.

Where the market shares coming in and on a product basis, where you are with us I'm, having a pole full public portfolio.

Thanks, Walter you know, there's really two things that we look at to understand how are we doing from a market share gains standpoint. One is just looking at you know reported results where they're they're available in terms of reported core growth results Oh, but then there are also certain regions of the world where it's it's.

Pretty specifically reported in terms of what a you know what the shares.

Our and I think based on both those data points Oh, we feel comfortable that that in 2019, we had a global share gains as well as share gains in most of the regions.

Around the World and we really think that came from the combination of the you know the great service levels and the business that we've been able to build over time of the vitality of the product line that we built through innovation overtime and the a you know the strength of of the commercial engine, we've got a great a local commercial.

Engine around the world or that is Ah you is very strong and so we think thats. That's enabled us to build you don't have really gate gained share in the business now in a consistent basis, and we're going to be working hard to continue that.

Yeah and at this point, Yeah, we've got a great strong full portfolio, but but for sure. We we continue to work on a strategic extensions of that a portfolio both through internal innovation and and we've made some some acquisitions over time that is that as a attractively expanded that portfolio as well.

Okay, well Muslim.

How about you know Montanore, Oklahoma.

Year over year Holger Glom.

Commodities person so claims costs.

Well, so I'm wondering about how much or who offer marking <unk> I'm off on the.

Fourth quarter or small ones.

One point.

[music].

Yeah, So our margin improvements over time in that business have been consistent and have been balanced a across a price and the positive impact of innovation and the productivity a efforts from graben CBS in the business and the structural.

Improvements that we've made to the cost of the business and again in Q4. That's you know that those are the sources. You know the Q4 improvement was was very large and I think there where acknowledging that that some of that was a little bit a catch up in terms of maybe a little extra cost in Q4 last year from the inflation.

You know and now being able to see the read through of of the pass through on that as well as the stress the ongoing improvements of the business and so I think the the comment was only just don't take 300 basis points a quarter [laughter] then to forward, but we do intend to continue to extend the the margins of the business.

Yes, okay.

Okay.

One point parts and smoking.

So for instance.

Oh positive claims cost and 21.

And so I think you asked about our ability to break take price up and have positive price Claude.

Our pricing strategy and that business you know has a several parts to it. One one is is just trying to make sure that as we're getting inflationary pricing in the business that that were working hard to pass that a pass that through to the marketplace. But then we also have a you know always working on value based pricing.

To make sure that our new products or are getting price into value based way and and sort of blocking and tackling of the price waterfall on how you make sure that you continue to kind of close holes in that price waterfall and and so that's all muscle that we've built a you know if if there is inflation to be pass through in 2020, we'll be making sure that were passing that through but.

Also 2020 and beyond will will be a continuing to exercise price model muscle nor on the on the value side of equation and try to make sure that that we're getting a little bit of country contribution to margins every year from from price.

Okay farms will puzzles.

Your next question is from the close of life with Deutsche Bank. Please go ahead. Your line is open.

Good morning.

The total.

I just wanted to dig into stop talk a little back and if you guys could kind of run down like you're seeing from we kind of went through the geography is but I guess from an end market perspective anything interesting that happened during the quarter relative to what you saw in Threeq ill.

Yeah, and acquiring I think from from an end market.

Standpoint.

You know in Threeq, you and Fourq you are there was a slowdown in industrial end markets, particularly in North America and to a lesser extent, a in Europe and and.

Obviously, a you know things like automotive, where the heavier ended that we've got a little less less exposure.

There.

But you know sort of the broader industrial markets.

I had a had a little bit of slowing through that through that period I think of it you know over around the world. We've seen some in some of the oil and gas spending pick a pick back up a little infrastructure spending is a you know it's still a positive in many parts of the world that we play.

We play a critical role in and a and certainly a you know we watch a the the more kind of construction build out part of parts of the markets as well, which you know in the U.S. has been then you know kind of little bit of a mixed bag in terms of up and down. So you know we expect here in the first half said.

That industrial market view will stay a little bit in the in the negative or but yes.

Every indication a that that we've been able to look at as a is that we should be able then turn back positive, but we need to see it play out.

Okay got it thanks, not and then just on TJ on margins I know, we've dug into that quite a bit on on the call but.

I just want to confirm I know you guys have a target for 50 Bips of expansion annually is that something that's going to be difficult in 2020 because of the comp issue in the first quarter and then also this quarter. The event performance was actually pretty God, but the they amortization step down quite a bit. So if you could put some color or not.

Yeah, we've talked in it we talked about your EBITDA improvement of about 50 points annual we still very much believed that that's a that's there to be done in the business overtime and here in 2020.

For sure will be a balancing that with the investments that we need to keep making in the business and with some of those first first quarter two comp effect.

And so a you know I think we we've got certainly a plenty of opportunities to drive that 50, but we also may make some choices around how we spend that might leave us a you know a little bit lower than that.

But that'll be a conscious choice that we make as we as we work through the year made Chris can talk about the amortization yeah. The amortization is just you know up through the third quarter. We're recording the expense based on a <unk> based on estimates there and then by yearend, we finish up our purchase a allocation process and come over the final.

Number and so the Justin we see in Q4 is just as getting aligned on.

Yeah, just us getting aligned on the where the amortization is going to have worked with the we're finished up.

Got it thanks I'll pass it on.

Yes.

No further questions at this time, they tend to call back over to presenters for closing remarks.

Thanks, everybody I appreciate you guys during the call the.

Dubai.

This concludes today's conference call you may now disconnect.

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