Q4 2019 Earnings Call

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. If you wish to ask a question at that time. Please press star one on your telephone keypad prior to asking a question lift your handset to ensure the best audio quality. Please note that this conference is being recorded.

I will now turn the call over to Ryan cease Locke director of Investor Relations and Treasury Ryan you may begin.

Thank you Mariama and good morning, everyone. This morning, we issued our earnings release and supplemental investor deck detailing our fourth quarter and full year results.

Both of these documents are available in the Investor Relations section of our website at applied Dot com.

A replay of today's broadcast will be available for the next two weeks before we begin just a reminder, that will discuss our business outlook and make statements that are considered forward looking.

Forward looking statements, including those made during the question and answer portion speak only as of the date hereof and are based on our current expectations that are subject to certain risks.

These include trends and sectors and geographies and the success of our business strategies and other risk factors provided in our press release, our most recent periodic reports and other filings made with the FCC. These are available in the Investor Relations section of applied Dot com.

Actual results may differ materially from those expressed in the forward looking statements. The company undertakes no obligation to update publicly or revise any forward looking statement, whether due to new information events or otherwise.

In addition, the conference call will use non-GAAP financial measures explained in our press release and supplemental presentation, which are subject to the qualifications referenced in those documents. This teleconference is being made available to the media and the general public as well as to analysts and investors because the teleconference and its webcast are open to all constituents and prior notification has been widely and Unselectively distributed all content of the call will be considered fully disclosed.

Our speakers today include Neil Scripture, our President and Chief Executive Officer, and day Wells, Our Chief Financial Officer with that I will turn it over to Neil.

Thank you Ryan and good morning, everyone. We appreciate you joining us I'll begin with a brief summary of the quarter and full year, then Dave will follow to review our financial results in more detail and also cover our initial guidance for fiscal 2020.

Overall I'm proud of our team and performance in fiscal 2019, we delivered record sales improved margins and in Korea increased free cash by 30%.

All while positioning the company to unlock further long term value for shareholders through various strategic initiatives and investments.

As we enter the next decade and approach our 100 year anniversary in many respects. We're just getting started here at applied as our leading technical and solutions oriented model is ever more relevant across the industrial supply chain.

Our fourth quarter results provide further evidence of our execution potential as we were able to adjust to a slowing demand environment industry wide.

And deliver solid margins record EBITDA and notable free cash improvement.

This is despite ongoing inflationary headwinds demonstrating our cost discipline flexible business model and benefits from various self help initiatives that remain ongoing.

Consistent with the recent macroeconomic industrial reports, we saw a slowdown in demand across a number of our end markets during the quarter.

This was most notable in heavy machinery mining oil and gas and process related industries.

While the industrial backdrop is proving more challenging near term.

We see sustained momentum from our industry position.

Operational strategy and cash generation potential.

This leaves us well positioned as the cycle evolves.

In addition throughout the organization, our expanding capabilities and enhanced depreciate differentiation are yielding results in the form of new opportunities that positively impact our market position and customer base.

Providing material contributions to the future growth of applied.

We further accelerate our differentiation through targeted acquisitions that build on our capabilities to expand with new and current customers.

Just announced this morning, we have signed a definitive agreement to acquire Olympus controls and automation solutions provider.

With five locations and annual sales of approximately 45 million Olympus offers a full range of value added automation expertise for Oems machine builders integrators and end users from design Assembly and integration.

To the distribution of motion control machine vision and robotic technologies.

The addition is a strong complement to our business further broadening our capabilities customer opportunities and technical presence across varied industrial segments.

Overall this is an exciting transaction for us Olympus is best in class in machine robotic automation and provides a strong platform to further enhance our value proposition and growth profile long term, we welcome them to our company and look forward to their contributions.

Additionally, we see emerging opportunities to expand our innovative solutions for the industrial Internet of things given our technical industry position.

Engineered solutions and supplier relationships delivering expertise that improves efficiency and boost productivity is key and we look forward to enhancing these comprehensive solutions for increased customer and shareholder value.

Now at this time I will turn the call over to Dave for additional detail on our financial results.

Thanks, Neal and good morning, everyone. As a reminder, that a supplemental investor deck recap key financial and performance talking points is available on our investor site.

To summarize fiscal fourth quarter performance sales trend slowed reflecting a broad weakness across our end markets. However, we executed well in this softer environment reinforced our cost discipline and improved margins EBITDA and free cash generation.

To provide more detail consolidated sales decreased 1.7% over the prior year.

Acquisitions contributed 2.2% growth, while foreign currency lowered sales by 1.4% in the difference in selling days was a negative 2.8% impact.

Netting these factors sales decreased 2.7% on an organic daily basis.

As Joe mentioned, we saw a slowdown across a number of key end markets during the quarter, which we believe is indicative of more disciplined customer spending and lower project activity. Although in a strong prior 18 month period as well as increased macro uncertainty.

In addition, as discussed last several quarters.

Weaker technology end market demand and our fluid power operations remains an overhang, albeit in line with our expectations and stable sequentially.

We would also know comparisons remain difficult during the quarter with organic daily sales growth of 8.2% in the prior year fourth quarter versus 6.7% during the prior year third quarter.

Looking at our results by segment as highlighted on slide six and seven sales in our service Center segment increased 1.4% year over year.

Our March acquisition of no REIT distribution and Woodward steel contributed 2.2% growth while segment sales on an organic daily basis were up a modest 0.5%.

Our core US service center operations sustained positive growth.

Sales up low single digits, though this was below our expectations, reflecting the lower.

Slowing end market backdrop during the quarter.

Demand was also weaker in our oil gas and Canadian operations.

We note the fourth quarter represent our most difficult prior year comparison for the year in this segment with the prior year fourth quarter.

5% on an organic daily basis.

On a two year stack basis segment sales were up 9% down slightly from 10.4% in the third quarter.

Moving now to our fluid power and flow control segment sales decreased 8.5% over the prior year.

Excluding the impact of acquisitions and selling days segment sales declined 9.8% on an organic daily basis, primarily reflecting ongoing fluid power technology market headwinds as well as lower demand in our flow control operations.

In addition, as mentioned last quarter year over year trends are being impacted by the wind down of a large prior year FCX flow control project. This overhang will continue into our first half fiscal 2020.

I will note legacy fluid power sales were largely in line with our expectations and we are seeing technology market headwinds stabilize with related backlog improving sequentially the past several months.

Moving on to margin performance as highlighted on page eight of the deck reported gross margins of 29.2% were down 22 basis points year over year, but improved 20 basis points sequentially. This is despite a noncash LIFO charge during the quarter of $3.4 million and approximately 37 basis points year over year headwind.

Excluding LIFO gross margins increased 50 basis points year over year, reflecting ongoing execution of our pricing and other margin expansion initiatives, coupled with the continued mix benefit from expansionary products and value added services.

Turning to our operating cost on a reported basis selling distribution and administrative expenses were down 3.9%.

Over 5% year over year, when adjusting out the impact of acquisitions and foreign currency.

Lower year over year spend partially reflects the benefit of productivity initiatives leverage of systems investments in our ongoing diligence in controlling spend.

EBITDA for the quarter was $80 million are up almost 1% over the prior year. Despite a roughly 400 basis point headwind from incremental landfill expense.

EBITDA margin was 9.9% or roughly 23 basis points higher year over year, including the nearly 40 basis point headwind from life.

Reported EPS for the quarter was $1.02 per share.

Inclusive of approximately 18 cents of discrete tax expense, primarily resulting from the reversal of the discrete tax benefit recognized in our first quarter results as well as the effective tax regulations that were issued during the quarter.

Excluding the incremental tax expense EPS for the quarter would have been at the high end of our guidance.

Cash generated from operating activities was $103.4 million in free cash was $96.2 million, which was above the prior year period and our expectations.

We are encouraged by the rebound in our fourth quarter cash performance highlighting ongoing traction from our shared services and other collections and inventory initiatives.

Our capital allocation strategy continues to focus on reducing outstanding debt and funding accretive tuck in M&A opportunities.

We paid down $24 million of outstanding debt during the quarter and nearly $104 million since financing the acquisition of FCX.

Net leverage improved to 2.6 times EBITDA at quarter end.

Below the prior year period, and 3.3 times and close to our targeted ongoing level of approximately 2.5 times EBITDA.

Transitioning now to our outlook for fiscal 2020 as noted in our press release, we are forecasting the sales range of down 2% to up 2% in earnings per share in the range of $4.20 to $4.50 per share.

Excluding acquisition related sales and adjusting for two extra selling days this year versus fiscal 2019, our guidance assumes organic daily sales down 5% is down 1% year over year.

Other assumptions our outlook includes $37 million to $30 million interest expense and effective tax rate of 25% to 26% and approximately 39 million diluted shares outstanding.

The guidance takes into account increased uncertainty around the industrial cycle entering our fiscal 2020, even weaker sales trajectory in our business over the past several months, including mid single digit sales declines during the month of July .

We believe this outlook is prudent against the current backdrop.

That said, we remain highly focused on internal growth and margin initiatives, which combine the stabilizing technology end market demand in our legacy fluid power operations easing comparisons and potential lower LIFO headwinds provide several levers to support our earnings momentum even in a slower demand environment.

Furthermore, we expect a solid year from a cash generation standpoint, reflecting further traction from our working capital initiatives.

We forecast cash generated from operations in the range of $220 million to $245 million.

Capital expenditures are expected to range from 20 million to $25 million, resulting in free cash outlook.

200 million to $220 million.

This represents an increase in free cash of approximately 30% over fiscal 2019 at the midpoint.

Our cash generation potential during fiscal 2020, we provide flexibility for further debt paydown accretive acquisitions funding of our dividend strategy and opportunistic share buybacks.

With that I will now turn the call back over to you for some final comments.

Thanks, Dave so to recap while the current industrial backdrop leaves us cautious with our near term outlook. We remain focused building upon our strong foundation and position as a well diversified industrial distributor with high quality product offerings and value added technical capabilities, we've made meaningful progress in executing our strategy, creating success for our customers and delivering value to our shareholders going forward, our multifaceted and technical oriented growth strategy together with our ongoing continuous improvement initiatives present, many new and relevant opportunities to win in the marketplace I'm confident in our ability to excel and to be bigger better and stronger.

And to realize our full potential.

With that we'll open up the lines for your questions.

Thank you we will now begin the question and answer session. If you would like to ask a question. Please pick up your handset and press Star and then the number one on your telephone keypad. If you would like to withdraw your question press the pound key we'll pause for just a moment to compile the acuity roster.

Your first question comes from Chris Dankert with Longbow. Your line is open.

Hey, good morning, guys. Thanks for taking my question.

Good morning.

I guess first off you know kind of looking at the midpoint of the guidance figures you provided here seems to be implying you can hold EBIT margin flat or actually improve it by you know 10 20 basis points into fiscal 20, I'm going to be really impressive given the slowing demand and pricing just can you walk us through the moving pieces there the plan to kind of.

To support margin in this environment.

You bet, Yeah, if we do see good traction for our price initiatives that but more importantly, Chris some of the other margin levers that we have at our disposal in terms of the expansionary product sales et cetera, do you continue to drive in a tougher environment. Some modest margin improvement something in the range of yeah.

Flat this 20 basis points and operating or gross margins beyond that you know the SDN. The leverage you saw in the quarter was a positive and we've got a you know additional work around that in terms of you continuing to manage through and recognize the benefit of sums our technology investments and productivity initiatives. So I think you know here again you saw it in Q4.

We know the levers we've got the discipline around being able to size and react in any environment and we will manage through some tougher macroeconomic conditions just fine.

Got you. So it really is more just kind of flexing the applied DNA and really doing which typically due to get cost out rather than some kind of explicit.

<unk> expense reduction program.

I would say Chris exactly.

On the margin side, we continue to use the technology the systems and the investments that's reducing variation.

Around customer groups and product groups, we benefit from mix in products and services as we expand those with our customers.

In the side and then on the customer mix will representing our selling not only do larger accounts, representing the local economy and then from a SDMA standpoint, we will maintain or be cost accountable, but some of the technology investments that we've had a really allowing us to leverage more central services shared services and let our local teams be more forward facing and doing work, that's touching customers and adding value to customers.

I'd add to Chris' that certainly.

We still reflect a fairly significant level of LIFO headwinds in the guidance, we would see it as an opportunity is potentially some of that would ease both with our continued reduction of our inventory position as well as some easing of inflationary pressures with.

Could be an additional tailwind for us there.

But perhaps timing wise on that maybe a little more back half. So then it is first half with what we would see right now good clarification.

Got it yet, but I think that's really really helpful. Guys. Thank you I guess since we kind of brought it up can you just highlight what the LIFO headwind is that you've got built into the guide here.

It would range $7 million to $8 million in terms of the assumed a headwind a modest reduction from what we saw this year.

Gotcha Gotcha. Thanks, I guess, just one last one from me and I'll hand, it off could you guys kind of break out what dictation as as far as by by segment here I mean, I think looking at the growth you guys have baked in organically, maybe distribution down mid singles and fluid power down excuse me fluid power down mid singles and distributions down low single just any any comment on kind of how you're thinking about it by segment would be helpful.

You bet the behind the guidance would assume service centers up low single digits low end would assume then down low single digits.

On the high end of the these fluid power flow control that would show a down low single digits and on the low end of the guidance actually down mid single digits. If we've got some swing items in terms of certainly technology rebound et cetera that to come into play there in that range.

Got it thanks, so much guys.

You bet.

Your next question comes from Jason Rodgers with Great Lakes Review your line is open.

Yes. So wondering if you would give the typical industry breakdown for the quarter.

So sure so ER for the 30 industries. This time, we would had 18 that would have.

Shown increases so that's down sequentially from the prior quarter, I think a weaker comparables and some that we called out earlier in the heavy industrial commercial machinery oil and gas lumber wood products, some durable goods and some continued softness weakness in that computer electronic manufacturing segment.

No metals and food and.

I think pockets of aggregate still contributing positively.

And then.

Just looking at the guidance I Wonder if you could talk a little bit about the assumptions around the project delays and fluid power when you might start seeing those and when do you lap that large FCX project.

That that tough comp on the FCX large project will continue to the first half of 2020 with Q1. This Q1 actually being our toughest comp within that that project horizon. So.

Right now the the guidance assumes really no rebound the technology markets until well into the back half the year potentially even pushing out past our fiscal Q3.

But certainly you know here again that can be a swing item as we think about the the rains and.

Once again as we highlighted in the script.

We continue to see actually a slight backlog build in that piece of the business really just comes down to the release of those projects and the timing around when we see some that recovery.

And the.

I can ask about the Olympus acquisition.

The whole automation area is that is that a an area that you're looking to target more heavily or is this just kind of maybe a one off opportunity that you saw.

We think it's additive and complimentary to our offering and customers are going to have greater expectation as technology presents an opportunity.

To increase their productivity and so in our current offerings today, we're working with our suppliers on sensors and smart products.

We will be teaming with customers in a collaborative way to identify needs.

How we extract and use data together those insights to have improvements and and so this extension allows us to further do that with motion control products vision products robotics cobots into that offering so that work has been going on with customers and I think it's a growing expectation. So we very much like. The addition, we think it gives us some synergies up and down that I five corridor, but also a present, so kind of in the Gulf and Texas to do the same.

Thank you.

Again. It is star then one on your telephone keypad to ask a question. Your next question comes from Adam Allman with Cleveland Research. Your line is open.

Hi, guys good morning.

Hi, I was wondering.

Hi, I was wondering if we could go back to FCX you reiterated the the synergy expectations.

I was wondering if you could help us understand where do we stand today relative to that target kind of what do we have baked into the guidance for this year and then when is the full synergies expected to be realized.

You bet.

Go ahead and as is right on track if you recall, we had socialized a $30 million is there do you benefit over the five year horizon.

Talked about 40% of that beat in the first half of that five year period back half in the the band or the yet period. There that you know we're pleased to report that we're right on track in terms of the synergy realization and that has helped US as you think about continuing to protect profitability and year over year margin improvement. Despite the softer top line conditions with FCX with some of the slowdown weve seen in the process market as well as those project comp issues that.

Caused us to accelerate and exceed the overall projections for the business out of the gate. So pleased with how that's trending and we would see that continuing to trend towards our expectations as we work through fiscal 2020, So as I think about it 18 months in and.

Teams are really integrating working well together I like the progress around margins.

The work Weve had in productivity probably ahead in that area. We know we have the tougher comps in the headwinds around large projects, but I'm very encouraged by the broader MRO work that's going on in those opportunities that we have with common customers and really seeking together new customers with that expanded offering.

Okay Thats, great to hear what the the project headwinds in oil and gas.

I guess switching back to pricing.

I I might have missed that could you tell us what the estimated price realization was for the fourth quarter and what you're expecting for this year. I think you mentioned that you expect it to moderate a bit from this from the recent trend.

Yeah, I would say price in the <unk> in the prior quarter as a boy a 100 basis points contribution and we think in the outlook in going forward would have.

10 to 20.

Basis point the type improvement.

I would add we did okay. The relatively significant inflationary headwinds in Q4, so, but a nice nice offset in terms of our price and inflationary impact realizations.

Gotcha, Okay, and then I was wondering if you could fill us in here on a detail what what were the segment profit dollars this quarter between fluid power on and our service Center.

You will see that obviously as we release the K on Friday, not something we'd be ready to disclose and discuss on this call.

Okay got you and then another clarification on the tax rate moving up next year I guess, what what's happening there you bet I mean basically it's the non repeat benefit Adam of some of the you know the intangible impairment benefit the impact of that drove on the the tax rate in fiscal 2.2 thousand 19. So.

A lot of moving pieces, obviously as we took some discrete tax benefit in Q1 s all that flip back in Q4, but the end today the dust settles. It is just the.

The the Nonrepeat impact what you're seeing is normalized tax rate going forward for us.

Okay. Thank you.

You bet.

Your next question comes from Steve Barger with Keybanc capital markets. Your line is open.

Hey, good morning.

Good morning.

Looking at the industrial demand on slide five you talked about.

Slower activity in April and May and then stabilization in June .

Can you tell us what you've seen in July and into August so far after that stabilization.

Yeah. So from a July standpoint, we were mid single digits down and really from an August it's still early there is variability day today, but it is.

In the range in the guidance range that we're talking about obviously it will firm up more.

As we get to as we get later in the month, but that those were the developments and so we look back would say kind of that April time frame and probably post holiday.

Softness that maybe we didn't fully and anticipate continued in May and then some improvement in June .

But then it pressure as we moved into July which is coming into our thinking around guidance that we feel is appropriate and prudent.

Got it so so basically you're thinking about F. Y 20, it's kind of a mirror image of what we saw in 19, where organic growth started the year strong and then decelerated now you're looking at going the other way as we as we come out into the back half.

That against those comps that we will have you know.

Mid to low single digit pressure as we go through the first half and perhaps the opportunity to improve in a while there's positive elements in this cycle, there's still uncertainty right there with the trader or tariffs I think we are seeing that some delays in project activity and I think customers can be a tightening their spend of what they are going to invest in this portion right now at this time right now, yes I understand.

So just in term yes, sorry go ahead. Yeah. This is Ron just to chime in in terms of what we're thinking about the industrial environment and what's implied in the guidance. The low end I would say sort of assume ongoing softening in the industrial environment.

Through through at least the our first half of our fiscal year and into high end really does not assume any improvement in the industrial to borrow more because of a stabilization as we move here into the coming months a quarter. So no real assumption of improvement in the industrial environment, even to the back half of our fiscal year as it relates to what we're assuming in our guidance at this point.

Understood. That's that's good thanks.

So you talked about customers, maybe being a little.

Tighter on their spend how long can you talk about how you're approaching purchasing in stock levels for faster turning items and what you're seeing in terms of.

Destocking, whether it's through you or or the customer base.

Yeah, I don't know that it's a you know we talk about and some break fix in MRO, there's still going to be demand and we just need a you know activity going on and theres less activity or it would be a little less for us there, but if theres activity that will I think for our customer side of it as they contemplate either a project or investment, perhaps there's a little bit of pause or delay as they go through that review our self play we continue to work with our suppliers of how we link up and have the right investments in inventory one for the environment and our customer base and I think there's a general improvement on flow products, a higher velocity types that resulted in the lower need for us to have safety stock around those items and we really want our investments to be around things that are more impactful to keep uptime and productivity for our customers. So that's our real approach understood.

Nice to see the Olympic steel.

Can you tell us what the growth rate was for that business over the past few years, maybe organically and have they done any acquisitions themselves.

Probably a small acquisition.

Back and really that was their entry point of moving from.

Northwest into the golfer or Texas, but that's got a little bit of data on it I think we've seen good growth rates as they have in it and our view going forward off this base that we have today.

We can continue to build on that and we will see some opportunities that will come across with with current customers and then as we look at executing some projects with with them as well.

Can you talk about margin profile, there are or where you think it can get and also capital intensity I'm, just thinking about free cash flow for it.

Yeah, we don't expect a heavy capital intensity, there is probably a little bit of investment that will make it in time, either around I T and perhaps around some investments around engineered solutions, but not high capital intensity.

In that side and I'd say from an overall margin profile kind of slightly below our company average.

Okay.

Well look opportunity sure was that the only motion or automation property youve been looking at or are there more on the drawing board.

You know we feel this is in our M&A pipeline. So there would be opportunities as we look going forward and are either from a geography standpoint, but probably more importantly, just the technical capability that they can provide and add to do that and so our M&A priorities broadly will continue to be that theres select bearing and power transmission opportunities fluid power extending in process flow control and we think automation is a good business platform for us to further develop as well and.

News alluded earlier talking about some of this is also going on with our current suppliers and current customer segments. Today is also.

Great color. Thanks, and then just one last one eight on a really nice job on SGN control in the quarter and I heard what you said earlier, Dave but with the acquisition coming in with a little weaker topline how should we be thinking about SGN a margin for for the first half is that can can you stay at 19, three or should we be thinking more mid 19.

Yes, there may be some pressure did first round bid Nike as we continue to react we don't want to overreact to it.

The softness that we're seeing here, but but here again, we know the levers is certainly there is a variable element obviously, the s. DNA that.

Yes naturally come.

So it you may see some pressure in that first half, but obviously over the course of the year that will normalize.

Got it thanks.

Your next question comes from Barry Hymes with Sage asset management. Your line is open.

Thanks, a bunch of mine were answered but.

One other just follow up on Olympus are there.

Things that they can do either in terms of expertise or product set that can be.

In effect rolled out.

Were used within the existing branch network. Thanks.

Or is it more just or is it more just acquiring more olympus system build out that business.

I think they're offering and then the opportunity to bring those capabilities to customers I think around product categories around vision I think about robotics into that that offered to entity to reach more customers through our existing channels and their presence will grow and so there's a growth opportunity for companies like Olympics in geographies, but there's also opportunities to grow that with customers that we serve in that geography, and new ones as well.

Thank you appreciate it.

Your next question comes from Michael them again with Wells Fargo. Your line is open.

Thanks for the time gentlemen, I had a quick question on the guidance. It sounds like you guys are being a little more cautious with the core outlook I was seeing what's left for you guys. If things weaken from here in terms of FCX integration branch consolidation corporate expenses come down last couple of quarters, you just give us a little color there.

I think year again as we as we said with FCX you know we are progressing nicely in terms of being the expectations that we had set on the synergies. So the reason I would see as a coming off course, there that's going to contribute to the fiscal 20, you know 40, then protecting those operating margins.

Yes, the new levers, obviously, we know.

We still have opportunity, we think about leveraging the technologies and that you've seen us do a shared services.

We're still early to mid innings in terms of the work around the opportunity there.

So we'll continue to see that play out in our 2020 results and obviously were very cautious in terms of projects been so that discretionary spending is till we see how this environment really shapes out over the course of the year.

Okay, great. Thanks, and then moving on to kind of the gross margins.

Looking at we've heard a lot of noise from competitors about the rebate situation about supplier account consolidation or pushing back on supplier increases.

It's our it's tough to get.

Rebates in this environment, but with your expanded offerings Dom.

You're being at all and acquire how are you looking at a.

Supplier negotiations this year.

Thanks.

I don't know.

We've got any different approach or discussion with suppliers on that I mean for us our margin expansion has really been about our own self help around point of sale and using those are kind of technology and investments that we've made we get benefit from mix both customer mix.

No representing the local economy and also product mix.

In services as those expand and we add more value to those customers that helps on our mix up.

As we.

Develop those and partner with best suppliers that can be part of the the margin side of that but hey, we havent had a different approach to that in the in the past and we'll have continuity with that.

Going forward.

I would add just generically that yes, so not some not all of our supplier rebate programs for the coming year are cognizant of the fact that we did put some excess inventory on the shelf in our fiscal 19, both in advance of tariffs and to protect customers from some supply constraints. So yeah. That's we're partnered with some of those key suppliers too as we work through that 90, then is that we're not overly penalised for that in 2000.

Okay and do you are you guys is there a base case assumption for your what you have in terms of.

Oil and gas GNP spending for 2020, a with the mill rock and Woodward acquisitions, just curious if that's now more more of an emphasis for you guys.

You know for overall for us oil and gas will be less than 8% of the total of business and so with the acquisition in Anadarko sales were up but there was pressure headwind on the organic side of oil and gas and I think that relates back to a project side activity, maybe a little less going on and also with a customer to tied up around acquisitions in that space, which created a little bit of slowing but.

It is a segment.

In the business, but you know it at less than 8%, we'll continue to work and grow just like we do the other segments across the business platform.

Okay, and then last one for me I think you are 2023 strategic plan has $100 million of M&A embedded per year.

You didn't you didn't do any repurchases doesn't look like you do any repurchases this quarter, but last quarter, our things starting to come to market now with the macro slowing are you going to do you see starting to be able to pick up some incremental business here from a bolt on standpoint people now looking to sell.

How is that playing out in terms of the repo versus M&A.

In terms of capital allocation I don't think the economics necessarily impact the M&A pipeline and the activity. We've been busy we'll expect to continue to be busy in that and then from a capital allocation standpoint, we will continue a dividend.

We will continue to a service debt leverage reached 2.6 times in that and we will continue to look.

Opportunistically, what's the right view on.

Perhaps a share repurchase, but we do want to stay active around our priorities in the M&A.

And from a 2023 standpoint, we're we're not shifting or changing those objectives.

Thank you.

[noise].

At this time I'm showing we have no further questions I will now turn the call over to Mr. schrimsher for any closing remarks.

I just want to thank everyone for joining us today, and we look forward to talking with many of you throughout the quarter.

Thank you.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.