Q4 2021 Altra Industrial Motion Corp Earnings Call
Good morning, and welcome to today's Altra Industrial motion fourth quarter 2021 earnings Conference call. My name is Candice and I will be your moderator for today's call all lines will be muted during the presentation portion of to cope with an opportunity.
A question and answer at the end.
If you would like to ask a question. It just thought followed by one on your telephone keypad I would now like to pass the conference call over to our highest David cool, but then well.
Sharon.
Mario.
Thank you good morning, everyone and welcome to the call to help you follow management's discussion on this call they'll be referencing slides that are posted to the altar motion dot com website under events and presentations in the Investor Relations section. Please turn to slide three.
During the call management will be making forward looking statements as defined in the private Securities Litigation Reform Act of 1095.
Looking statements are inherently uncertain and investors must recognize that events could differ significantly from management's expectations. Please refer to the risks uncertainties and other factors described in the company's quarterly reports on Form 10-Q and any.
The report on Form 10-K , and in the company's other filings with the U S Securities and Exchange Commission.
Except as required by applicable law Altra industrial motion Corp, does not intend to update or alter its forward looking statements whether as a result of new information future events or otherwise on today's call management will refer to non-GAAP diluted earnings per share non-GAAP income from operations non-GAAP net income.
non-GAAP adjusted EBITDA non-GAAP operating income margin non-GAAP adjusted EBITDA margin non-GAAP organic sales non-GAAP gross margin non-GAAP operating working capital non-GAAP net debt non-GAAP free cash flow and non-GAAP adjusted free cash flow. These metrics exclude certain items discussed in.
Our slide presentation and in our press release under the heading discussion of non-GAAP financial measures and any other items that management believes should be excluded when reviewing continuing operations.
The reconciliations of ultra as non-GAAP measures to the comparable GAAP measures are available in the financial tables of the Q4 2021 financial results press release on <unk> website, Please turn to slide four.
With me today are Chief Executive Officer, Carl Christenson, and Chief Financial Officer, Todd Patriotic.
I'll now turn the call over to Carl.
Thank you David and thank you for joining us today I'd like to start this morning by recognizing the altra team for an exceptional effort in 2021 and managing through the supply chain.
Inflation in pin debit related challenges and delivering strong financial results for the year.
All while advancing our strategy to optimize ultra's position as a premier industrial company. Thanks.
Thanks to your contribution we were able to continue collaborating with our customers supporting one another and executing strategically during this unprecedented time I extend my sincere appreciation to all of you.
And now please turn to slide five.
As a result of the team's resilience, we were able to leverage positive broad based demand trends and ultras market position to deliver strong results in both the quarter and full year.
I will start with a few highlights from the year and Todd will get into more detail on the quarter later in the call.
Our 2021 results demonstrate the resilience of ultra's diverse portfolio of highly engineered products on a full year basis, we grew sales by 10% to $1 $9 billion, which was the high end of our guidance range.
We ended the year with a very strong book to bill ratio of 1.11 and record level backlog of more than $800 million.
This reflects both the strong underlying demand dynamics and ultra has strong market position as.
As a result, we're beginning 2022 with good topline visibility affirming as in past quarters that the underlying fundamentals of ultra's business remain intact with strong long term growth prospects Todd.
Topline performance may be constrained by supply chain logistics and labor challenges.
We remain diligent in managing the factors within our control to mitigate external risks such as availability of materials logistics challenges and inflation to deliver a solid year on the bottom line.
Throughout 2021, we continued to deploy ultra's World class business system to drive improvements in many aspects of our business including productivity.
<unk> chain and logistics product innovation and organic growth.
Inflation was greater than we had anticipated through the year, resulting in a cost price lag inflation for certain integrated circuits was particularly impactful.
We implemented price increases throughout the year and we will continue to implement price increases in Q1 and Q2 of 2022.
We expect that the pricing actions, we have taken and have announced will get us back towards our typical historical margins in Q2 provided we don't see significant additional inflation.
Full year net income was $27 $7 million or <unk> 42 cents per diluted share compared with a loss of $25 $5 million or <unk> 39 per share in 2020.
non-GAAP diluted EPS for 2021 increased from $2.88 last year to a new company record of $3.22.
We continued to demonstrate the strength of ultra's cash generative business model generating $176 million in non-GAAP free cash flow in 2021.
This cash generation allowed us to make continued progress delevering, our balance sheet by paying down a total of $155 million of debt in 2021.
We exited the year, we exited the year with net debt to non-GAAP adjusted EBITDA leverage ratio under three point O times.
Now that we have reached our target leverage range, we are putting more emphasis on actively managing the portfolio to accelerate topline growth and deliver margin expansion, while maintaining a strong and flexible balance sheet.
On that note please turn to slide six.
I'd like to highlight two recent announcements that demonstrate our progress executing on our strategy to position Altra as a premier industrial company with a focus on highly engineered products in the motion control and power transmission market.
The first is the acquisition of Nook industries, which we closed on December 31.
Nook Altra is positioned to benefit from cross selling opportunities that leverage our expanded and complementary linear motion control product offerings, while also gaining strong customer relationships and strategic end markets, such as medical factory automation and defense.
We also have the opportunity to utilize ultra scale to leverage fixed costs, while capitalizing on <unk> production capacity to better satisfy increasing customer demand customer demand.
We estimate <unk> generated approximately $42 million in revenue in 2021, and the transaction is anticipated to be cash accretive to ultra's earnings in 2022, excluding any one time or acquisition related cost.
He is a great fit with ultra one that brings us not only significant potential for cost and sales synergies, but an outstanding portfolio and great group of employees. We're pleased to welcome the Nook associates to the Altra team.
And as we announced last week, we've entered into an agreement to sell our Jacobs vehicle systems business to Cummins incorporated for $325 million.
Selling JV S aligns with our strategy to focus ultra's portfolio on highly engineered products in the motion control and power transmission markets.
Upon closing the transaction.
Upon closing the transaction will substantially reduce our net debt I would like to take this opportunity to express my appreciation to the jbs team for their dedication and support.
We believe that operating as part of Cummins will give them an opportunity to thrive with more strategically aligned ownership and I wish them all the best.
Now turning to slide seven and a review of the markets in more detail.
Starting with transportation, which represented approximately 14% of our business in 2021, primarily related to J B S.
Q4 sales were down double digits, compared with Q4 last year, reflecting the ongoing slowdown in China for class eight heavy duty trucks as well as the semiconductor chip shortage industry wide.
Moving to factory automation, and specialty machinery, which represents about 12% of our business.
Demand in robotics electronic assembly equipment specialty machinery, and general factory automation machinery remained strong.
Q4 sales were up high double digits compared to the prior year and down low single digits sequentially.
Primarily due to the typical seasonality.
2022 is shaping up to be another strong year in this market given the positive long term macro trends driving growth.
Turf and Garden AG and construction, which combined represents approximately 10% of our business continued to perform well in Q4 growing high double digits year over year.
With all three segments up sequentially.
Fundamental growth drivers in these markets appear to be strong as we begin fiscal 2022, and our outlook remains very positive.
Material handling, which represents about 8% of sales was up double digits in Q4, driven by continuing strength across all key segments, including conveyors forklifts and vertical lifting systems.
Long term, we remain positive about our growth prospects in material handling driven by trends such as e-commerce electrification and warehousing efficiency improvements.
Medical equipment, which is about 7% of our sales was down double digits year over year as we saw in Q3. This was in part due to difficult comp with the prior year quarter prior year quarter's exceptionally strong COVID-19 related respirator and ventilator sales.
In addition, our Q4 results reflected slowdowns and discretionary spending and Capex as <unk> began spreading across the country.
We're positive about the outlook for 2022, given the anticipated easing of Covid restrictions and returned to more normal levels of spending and investment as well as favorable prior year comps.
Longer term medical equipment remains an exciting growth market for us and is supported by several secular tailwind.
Moving into aerospace and defense, which combined is about 5% of sales.
Commercial aerospace was down single digits from Q4 last year, but up slightly on a sequential basis.
Reflecting ongoing project timing headwinds the defense side of the business was down double digits year over year.
Our aerospace and defense business remains an important bottom line contributor with a very attractive margin profile.
Strong competitive position and high barriers to entry.
A&D bookings in Q4 were strong setting the stage for improved results in 2022. In addition, acquiring nook industries expands our motion control and power transmission capabilities in the A&D marketplace.
Renewable energy, which represents about 4% of sales was down double digits versus Q4 last year and sequentially.
Bookings were lower both year over year and sequentially, reflecting supply chain delays and COVID-19 related labor market disruptions.
As we saw last quarter many of our customers are facing logistics challenges as product is being held up at ports due to global shipping delays looking ahead, we're expecting these headwinds to continue affecting bookings into the first half of 2022, followed by a rebound as the year progresses.
Longer term given the growth in demand for zero carbon energy solutions. We continue to believe that renewables represents a very exciting growth play for ultra.
And finally distribution, which represents about 25% of sales was up double digits from Q4 last year and up single digit sequentially.
Our sales in the distribution market continued to track in line with general with the general industrial economy.
Our bookings and book to Bill for the quarter were strong and we are anticipating a solid performance in this part of our business in 2022.
Looking forward, we expect underlying economic strength and growth to continue driving strong based end market demand in 2022.
Now please turn to slide eight.
We begin 2022, not only extra extraordinarily proud of the entire ultra team, but increasingly confident that we can achieve our strategic ambition to position altra as a premier industrial company with sustainable competitive advantages and long term success.
I'd like to conclude with a few key points first the resilience of ultra's diverse portfolio of highly engineered products continues to prove out as evidenced by our 2021 results that were highlighted by a 10% topline growth.
Strong order rates and record year ending backlog.
We have consistently and effectively manage the factors that we can control like strategic pricing initiatives supply chain management efforts and cost controls to deliver strong operating performance in this uncertain environment.
We expect to continue to benefit from these actions as we move through 2022.
Now that we've reached our target targeted leverage ratio, we are positioned with greater capital deployment Optionality. We will continue to actively manage the portfolio to accelerate topline growth and deliver margin expansion, while maintaining a strong and flexible balance sheet.
The nook in Jbs transactions provide us with great momentum as we start the year and transition altra into the next phase of transformative growth.
And finally, we're hosting an investor day on Tuesday March eight to share more on ultra strategic roadmap.
We hope that many of you can join us either virtually or in person in New York City.
And with that I'll now turn the call over to our longtime team member recently named CFO Todd Patriotic.
Thank you Carl and good morning, everyone. It's a pleasure to be here for the first time since transitioning into my new role as ultra CFO .
Please turn to slide nine sales for the fourth quarter were up three 7% year over year to $470 million. Excluding foreign exchange Q4 sales were up more than 4% year over year, reflecting continuing customer demand and a strong contribution from price despite significant challenges with supply chains.
Including labor shortages transportation issues and material shortages.
Gross margin of 33, 6% was lower versus Q4 last year, primarily due to the expected slowdown in class eight truck related business in China, and a difficult comparison with very strong prior year COVID-19 related medical equipment sales.
That said, we had a record year for revenues and non-GAAP earnings per share in 2021, and we're well positioned to continue executing on our strategy.
We're entering 2022 with record backlog and solid underlying market demand. Despite the external challenges we.
We are continuing to make progress in deleveraging the balance sheet and prior to the Nook acquisition, we reduced our debt by $155 million exceeding our 2021 pay down targets.
Taking a closer look at our top line performance price contributed 290 basis points for the quarter and FX had a negative effect of 40 basis points.
Net sales for the PTT segment, excluding FX were up 13%.
The year over year increase demonstrates the continued resilience of our balanced portfolio of op codes as well as the success of our ongoing price cost efforts within this segment.
Net sales for the E&S segment, excluding FX were down three 6% from Q4 last year. The decline was driven by extended semiconductor lead times across many of our end markets, including automotive as well as challenging comps for our heavy duty truck market and medical business due to record sales into the ventilator market in the <unk>.
Prior year <unk>.
Excluding jbs fourth quarter organic sales for the E&S segment increased two 6% year over year.
Taking a closer look at our organic sales performance by geography organic sales were up 10, 6% in Europe and 12, 4% in North America with strength across most end markets.
Organic sales in Asia, and the rest of the world were down 22% year over year, mainly due to the class eight truck and wind energy markets in China as Karl discussed.
Turning to look at our operating performance non-GAAP income from operations decreased by $10 million from Q4 last year or 12, 9%, primarily due to the expected return of costs related to the exceptional cost savings actions taken during 2020 and price cost challenges and higher.
<unk> expenses due to inflation.
Price lagged cost by approximately 100 basis points in the quarter given.
Given the price increases we've implemented to date and future planned price increases and assuming no additional inflation, we expect to be ahead of the price cost curve starting in the second half of the year.
As a result of our combined cost pricing and supply chain actions, we anticipate operating margin improvement as the year progresses and year over year improvement.
non-GAAP adjusted EBITDA was $87 2 million for the fourth quarter or 18, 6% of net sales down 260 basis points compared with Q4 of last year.
This was driven primarily by the lower gross margins as a result of that.
As a result of the slowdown in truck.
Market in China, and wind and Covid related medical sales as well as the price cost dynamic and the expected higher SG&A expenses compared to a year ago.
Interest expense for Q4 was up 151% year over year, driven by $32 1 million of incremental noncash write offs of deferred financing costs that discount and the unrecognized amortization expenses associated with the interest rate swap settled.
All related to the November refinancing.
Please turn to slide 10 for a closer look at our balance sheet improvements cash flow and liquidity.
Free cash flow for the quarter was $31 9 million compared with $91 3 million a year ago. We.
We generated $176 million in free cash flow in 2021, working capital was up 31.4.
<unk> 4 million or 10, 9% from Q4 last year, primarily driven by the increase and increase in inventory, reflecting supply chain delays and inflationary pressures.
Capital expenditures during the quarter totaled $15 million up 60% from the prior year quarter as we continued to invest in growth opportunities.
We ended the quarter with $246 1 million of cash.
Since completing the E&S merger, we have paid down $465 million in term debt.
In November we completed a $1 4 billion refinancing of our term loan b and revolving credit facility in December we borrowed $130 million under the new facility to finance, our acquisition of Nuc and with that our net leverage remains just under three times.
Looking ahead between our planned debt paydowns and the anticipated proceeds assuming we close the sale of the Jbs business, we expect to exit 2022 with leverage of approximately two times on a net debt basis, well within our target range.
As a result of our November 2021, refinancing we have reduced our interest costs by 50 basis points, which saves approximately $4 $5 million annually at current debt levels, while also providing us with the ability to further reduce interest costs as we continue to delever.
Upsizing to a $1 billion revolver, which incorporates acquisition holidays for leverage provides us with greater flexibility to invest in organic growth and execute on our M&A strategy.
Entering 2022, we will continue to manage our leverage positioning us for future investments in growth, both organically and through M&A and supporting our quarterly dividend.
Please turn to slide 11 to review, our full year 2022 financial guidance.
As we begin 2022, we're confident about ultra's prospects for the year, although risks related to Covid supply chain labor markets and inflation remain elevated we expect continued strength across most of our markets and a healthy 2022 from a revenue perspective, we're encouraged that we've been able to leverage our strong customer relationships to pursue.
Opportunities to gain share by outperforming our competitors in meeting our customers' needs.
Although the double digit growth we saw in 2021 may not be sustainable we're entering 2022 with more than $800 million in backlog and a book to bill ratio of 111.
We're also encouraged by the performance of our business and our prospects for continued margin expansion. In addition to the record backlog. We are entering 2022 with pricing initiatives underway that we expect to flow through to the bottom line as the year unfolds, although we expect to see continued challenges in the year ahead, especially during the first half of the year from.
Labor shortages transportation issues and material shortages. The team is proactively manage these challenges thus far and we expect to continue doing so.
I'd like to note that the 2022 guidance. We're providing today includes the contributions of Nick Nook industries, and GBS, which is currently treated as an asset held for sale, we intend to update our 2022 guidance upon closing of the Jbs transaction, which we expect to complete in 2022 with.
With that as background our guidance for 2022 is as follows.
Annual sales in the range of 2.025 to $2 65 billion.
GAAP diluted EPS in the range of $2 84 to $2 92.
And non-GAAP diluted EPS in the range of $3 55 to $3 70.
non-GAAP adjusted EBITDA in the range of $410 million to $425 million.
Depreciation and amortization in the range of $100 million to $110 million lower than prior years due to the asset held for sale accounting treatment.
Capital expenditures expected in the range of $45 million to $50 million, a normalized tax rate for the full year to be in the range of 21% to 23% and adjusted non-GAAP free cash flow in the range of $200 million to $225 million.
I would like to note that we have provided a pro forma historical view of altra, excluding jbs as an appendix to our an appendix to our presentation slides for purposes of our 2022 guidance, we have assumed jbs's contribution to be similar to their 2021 results.
In summary, Altra delivered record revenues and earnings per share in 2021, and we believe we are well positioned to repeat that in 2022. Our team is working hard to mitigate higher costs through pricing and other tactics and we continue to focus on our portfolio and driving profitable growth I'll now turn the call over to Carl before we take.
To your questions.
Thank you Todd we look forward to reporting our progress in 2022.
Our incoming order rate remains very strong we are working on initiatives to close the cost price gap, we continue to develop innovative solutions for our customers driving organic growth. We are executing on the synergies plan for the <unk> acquisition.
And we're leveraging the altra business system to drive improvements across the entire company.
I'm also very excited about the actions, we're taking to improve the balance sheet, which will enable us to advance our strategy to become an even higher value supplier to our customers and position altra as a premier industrial company for the long term.
With that we'll now open up the call for questions.
Candice.
Thank you.
I would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove your question. Please press star followed by Tate.
To ask a question. It is star followed by Bob as a reminder, if you are using a speaker phone. Please prevent that pick up your handset before asking your question.
Our first question comes from Bryan Blair of Hyper Noiman. Your line is now open. Please go ahead.
Thank you good morning, guys.
Good morning, Brian and Brian .
Yes.
Hi, Ted.
Again on your sales outlook, a little bit How's your team is thinking about first versus second half growth rates given the influence of backlog position the order momentum.
Early in the year and the timing of expected price realization and then for the full year, what's contemplated for volume versus price contribution in the 5% to 7% organic outlook.
Yes, Bryan I might have told you this before one of our other conversations but this is.
Period, I've never experienced in my career, where.
And other.
When the economy recovers and other economic recovery has always felt like we had.
More control over our own Destiny, where right now, we're really throttled by the supply chain logistics labor shortages and.
We're working really hard to mitigate those and offset them, but thats really the throttle. So I think youll see Q1, where again, even so far in the quarter. The bookings have been outstanding, but just getting the capacity ramped up to be able to get those bookings out the door.
<unk> is really challenging so I think thats the real throttle on the business now with Covid.
Starts to reduce and you saw it at least yesterday I saw that theyre talking about increasing the number of international flights, which might free up logistics, a little bit if some of these challenges start to mitigate we're starting to see a little bit better labor too. So some of these things start to mitigate we think the back half of the year, we could start to start to work on that.
Log.
Yeah, and then related to your question, Brian about sort of the cadence throughout the year.
The first half will be more challenging than the second half and we expect Q1 to be similar to the Q4.
Run rates from us from a margin perspective, and then Q2 is where we will start to see some of the pricing actions really starting to take hold.
We will start transitioning.
Into those more typical margin ranges and then accelerating more in the second half of the year is that the price increases fully take effect and we've worked through that $800 million backlog.
And then as it relates to volume versus <unk>.
Price.
We've got baked into our guidance between 300, and 325 basis points for price.
And then the remainder of that is the volume.
Okay, that's very helpful.
And for Nook industries, how should we think about.
Growth rates for the foreseeable future, where our run rates margins and.
What kind of margin have you factored into your deal model as synergies are realized.
And then I guess thinking about that progression.
Whereas gross margin right now relative to altra.
The annualized synergies as they as they ramp with a weighted to cogs or SG&A over the coming years.
Yeah, so related to Nook is it rolls up into our Thomson business.
That's very similar margin profiles as Thomson's I would call it sort of fleet average.
For E&S.
From a growth perspective.
They're in that 5% to 7% range like the rest of the business and the synergies I think we said in our release previously.
Previously.
6 million, so 15% of <unk>.
Our topline in synergies and we expect to get I think about a third of those year one.
We expect those to start flowing through to the bottom line sometime before the.
We ended the second quarter.
Okay I appreciate the detail and one more if I may I promise, it's out a multi parter.
But what are the expected net proceeds from the JV sale I'm just not sure what the tax basis is now.
Yes, there's about $25 million worth of tax leakage on the jbs deal.
So.
Were estimating netting about $285 million after deal fees and taxes.
Okay understood. Thanks again guys.
Okay. Thanks, Brian .
Thank you.
Our next question comes from Jeff Hammond.
Of Keybanc capital markets. Your line is now open. Please go ahead.
Hey, good morning, guys.
Good morning, Jeff Good morning, Jeff.
So.
Just really wanted to dig in on the sequential margins. It looks like <unk> revenues were kind of flat and you had a pretty big dip and just wondering how much is kind of mix versus.
Price cost getting worse versus something else.
Yes.
Yeah, So from Q3 to Q4.
It didnt necessarily get worse, it shifted a little bit from a price cost standpoint.
From whack, a mole, which is continuing on.
And then we started seeing more pressure on the.
The electronic side of things in the fourth quarter and about half of the impact was from from those electronics in the fourth quarter. We can continue to believe that that's going to continue into the first quarter.
And we made a number of price.
Increases during the fourth quarter.
But those won't start to really kick in as we're working through that backlog in the first quarter, we expect somewhere around 75% of the backlog will have flushed through by the end of the second quarter.
That's why we are we believe that the second quarters, where we will start seeing the margins.
Expand as the pricing takes hold.
Okay and price cost in <unk>.
Versus that 100 basis point headwind.
I think it's been a constant more to that.
Yes, I think it is going to be comparable.
Okay, and then back on like seasonality.
Normally you have kind of a stronger first half versus second half on the top line.
Is that any different this year just given.
Given all the moving pieces with supply chain et cetera.
Yes, it is going to be different this year, we expect it to continuing to ramp up through the third quarter, and then sort of level out going into the into the fourth quarter.
Again dealing with the supply chain and labor.
Issues.
We're a little bit throttled in the first part of the year.
Okay, Great and then just just last one on the end markets.
Any kind of moving pieces and trends.
Outside of what you saw in <unk> and any big Laggards are leaders within the.
The growth outlook.
I think we're starting to see some projects get released and some of the later cycle markets, which is really encouraging.
We saw some really good mining projects that we booked in Q4 and then.
We're bidding on some.
Really nice projects now.
I think the oil and gas, which.
People hold back on Capex last year, what it is.
And whether that starts to free up a little bit is a question mark.
With what's going on in that market the price of oil and.
And although disruption that's out there there is a we think there's a good chance that some of that they'll release some funding there.
And then the infrastructure bill on the.
The construction side in aggregate and other pieces.
Really encouraged that that's going to have some real legs to it too and starting to see some.
For your markets like Marine which are typically late cycle.
Expensive projects, though.
Those that amped up probably in the back half of last year. So theres, some really encouraging signs in them. So the order book is just rock salt.
Really really good.
Okay, great. Thanks, guys.
Yeah, Thanks, Jeff Jeff.
Thank you.
Our next question comes from Mike.
Hello, Ron from Baird. Your line is now open. Please go ahead.
Hey, good morning, gentlemen.
Good morning, Mike maybe maybe if you could just talk a little bit I'd inventory level from two perspectives. One how do you think channel inventory looks in to our your inventories level looking in.
Kind of how youre looking at expectations for both of those.
Back to the year.
Yeah.
I'll take the distribution and we'll take our inventory I'll say in general I would say.
Inventory levels, if people could get more they would take it.
And we're seeing most of it gets sold through.
And.
So and I don't think Thats just in the distribution channel I think thats, probably our OEM customers too. So hopefully if things free up a little bit we'll start to see a little bit of an inventory build in.
And get some of that inventory put back in place.
Yes, and then from our own internal standpoint, we've increased our inventory balance is quite a bit during the year I think as Carl mentioned, we'd like to continue probably building that a bit more if we could get some.
Some key pieces to that because it is having an impact on our ability to ship to customers.
I think the teams have done a really good job of managing it and trying to get inventory in to help secure some of the pricing that they have in their backlog as well, which is also driven up our inventory balance overall, we're not very concerned about our working capital it's actually.
Weathered quite well through the pandemic, especially on the AR and AP side and the inventory will continue to support this really high demand levels that we're seeing.
Thanks for that and then.
Excluding the DVS business in China, maybe some thoughts on just the trend lines. There, obviously, a really tough comps on the GBS side in China business, how did the rest of the book.
Yes, the other item was that <unk>.
Scott the medical business.
Outsized performance in the back half of 2022.
Alright 2020.
And that had an impact.
Wind was also.
Tough for us this year, especially in China.
And then we saw.
Modest growth across.
The rest of the markets. When you look at the segments PTT grew faster I think that partially is due to starting to see some activity in these later cycle markets.
And.
The <unk> side grew more modestly when you exclude <unk>, which had a big negative impact on it.
3% range.
Thanks for that one last one you get more.
Yes, yes.
I would just say go ahead get more out we could if we didn't have these constraints the revenue on the E&S side would have been significantly higher.
No. It makes sense last one here just on the M&A side.
Obviously, you got some moving pieces in the short term here.
What's the pipeline look like but what's the willingness to go after the pipeline ahead of the GBS close.
Okay.
I think we're going to continue to build the pipeline and pay down debt through this year.
Then.
Once we close the JV transaction.
And really improve the balance sheet discipline, we probably more likely to pull the trigger on something.
We're right around three now and I think we've stated our goal is to be between two and three so I'd prefer to get it down closer to two.
Work on the pipeline as we go through this.
And that work is going really well I think thats it.
If you look at the Nook acquisition, we did.
The Thomson business was really involved in diligence.
Coming up with the integration plan and the peak plan and historically that would have been done by corporate so we're trying to get the businesses more involved in developing the pipeline and then.
Working on the on the deal once we get it going so that's going really well that's a nice really nice change for us.
Thanks, Karl Thanks, Todd.
Thanks Rod.
Mike.
Yes.
Thank you as a reminder, if you would like to register a question. Please press star followed by a lot on your telephone keypad, if you'd like to remove your question for any reason please press star followed by.
Our next question comes from Joel <unk> of BMO capital markets. Your line is now open. Please go ahead.
Hey, guys How's it going.
Could you all hope you all how are you congratulations.
Oh yeah.
Got it.
Yeah.
Well now we won't have to be as as.
Confused with the <unk>.
Christian in Christiansen, and all that kind of stuff.
Yes.
Can you talk a little bit about the pricing in the backlog and given how tight the markets are is the pricing a little bit dilutive that's in the backlog and given the tightness in the markets is there an ability to adjust that or you just want to be true to your customers and just push it through and worry about tomorrow.
Yeah. Some of our backlog is going to be dilutive, which is why we believe Q1 is going to see similar margin levels as Q4, as we worked through that.
Going after anywhere we can put in surcharges to at least cover the cost. We are we are pushing that.
And we have repriced some of the backlog as well.
So, but there is probably about half of it.
Is price exposed.
Okay, and then and then maybe this is an unfair question, but I want to ask it anyway.
Any businesses or product lines that you guys are noticing that are maybe a little more commoditized and you know I mean, you probably have a good insight where.
If pricing through and and maybe instead of calling out the businesses, maybe can you give us a sense would it be.
10% of sales or 5% or you think that you've cleaned most of that out over the years.
And you broke up for part of the question, we've said they're commoditized.
Trying to push price too.
But I think I missed a key part of the question.
Just broke up yes, just trying to figure out like maybe what percent of revenues that you guys have noticed there has been a little more difficult to get pricing through.
Implying that the businesses have become commoditized.
Yes, it's interesting Joel.
So even that even though.
Components that I would say are more commodity like in nature, and where it's more price and availability, we're able to get price on those.
And where we can't get prices, where we have long term contracts with customers and the big Oems, where you have you're kind of locked in with a multiyear contract and we're pushing through surcharges and go into the mat trying to get price, but that's probably where we have a harder where it's more of a challenge than some of the commodity products were actually.
Doing quite well on pricing.
Some of the things that are more commodity like.
Yes.
And that would that kind of leads into my last question can you talk a little bit about your focus on acquisitions.
Or are there kind of more reasonably priced areas or that's less of a concern you're more focused on trying to kind of enhance.
Enhance your competitiveness and find synergies.
<unk> related product lines. Thank you.
Yeah, Thanks, Joe so.
Where we're focused.
Focused on looking as in those end markets that we think are going to have better secular growth trends, so automation medical aerospace and defense.
Robotics automation.
Automation.
And.
And we haven't seen anything that looks like it is a reasonable at least in my history. The March the multiples now or just kind of stratospheric. So just shocking with some of the businesses are going for.
But we do have a really good plan and again I'm going to put a pitch in for our Investor day, because I think we're going to go through.
Lot of what the long term strategy for the businesses in those places, where we want to grow and how we're growing both organically and in our portfolio management, where we want to build out through acquisition I think it'll be much clearer and.
And we'll have more time to spend on it in the investor on the Investor Day.
So hopefully you can make it to the Investor day.
Alright, well thank you so much.
Thanks, Joe Thanks Joel.
Thank you.
There are no.
No questions waiting at this time, so I'll pass the conference over to our management team for closing remarks.
Okay. Thank you and thank you again for joining US today as a reminder, as I just put a pitch in.
Our Investor day, we will be hosting that on March eight in New York City, and we really hope you can join us and that concludes today's call. Thank you. Thank you.
That concludes today's conference call. Thank you for your participation you may now disconnect your line.
Okay.
Yes.
Okay.