ENOV (2019 - Q4)

Ladies and gentlemen, thank you for standing by and welcome to the Colfax Fourth Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advice that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to speaker today Mr. Mike Macek. Thank you. Please go ahead. Mike Mac

Thank you. Good morning everyone and thank you for joining us. I'm Mike Macek, Vice President of Finance. Joining me on the call today are Matt Trerotola, President and CEO; and Chris Hix, Executive Vice President and CFO. Our earnings release was issued this morning and is available on the Investors section of our website at colfaxcorp.com. We will be using a slide presentation to walk you through today's call which also can be found on our website. Both the audio and the slide presentation of this call will be archived on the website later today and will be available until the next quarterly earnings call. During this call we will be making some Forward-Looking Statements about our beliefs and estimates regarding future events and results. These forward-looking statements are subject to risks and uncertainties including those set forth in our SEC 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 intent, and we do not assume any obligation or intent to update them except as required by law. With respect to any non-GAAP financial measures made during the call today the accompanying reconciliation information relating to those measures can be found in our earnings press release and today's slide presentation. Now, I would like to turn it over to Matt who will start on slide three.

Thanks Mike and good morning. We are pleased to report another strong quarter as we close out a pivotal year at Colfax. In 2019, we completed our portfolio of transformation, which started with the sale of our fluid handling business and ended with the 2019 divestiture of our Air & Gas Handling business. Between these two events, we required DJO and create an enterprise that is less cyclical, more profitable, and better positioned for growth. We are already seeing the benefits with 2019 organic growth is 2.5%. During the year, we delivered on our financial commitment with attractive earnings growth supported by operating improvements in each of our businesses. Our Medical Technology segment accelerated its growth in each quarter of the year, benefiting from the investments made to improve its operations and improve deliveries to customers. We are early in the CBS journey and see many opportunities to drive further investments in the business as it adopts lean and develops a continuous improvement culture. The business increased the number of new product introductions in 2019. And we see many opportunities to improve innovation to sport sustained mid-single-digit growth in the coming years. Our Fabrication Technology business made significant strides in 2019. The team executed well and expanded margins 180 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 and healthy pipeline of acquisition opportunities that can further strengthen and expand our platforms. Despite dynamic conditions in industrial markets, we grew positive 1.7% organically benefiting from our less cyclical portfolio and strong growth in our MedTech platform. Profit margin significantly improved during the quarter to 15.1%, FabTech margins expanded over 300 basis points, reflecting the significant operating improvements made in the business over the last three years and were massed by higher metals and other input costs. The structurally higher margins in our MedTech platform also contributed to our margin achievements in the quarter. We finished a traffic year of performance by delivering $0.61 of adjusted earnings in our typically highest quarter of the year. As shown on Slide 5, we ended the year with strong momentum in our MedTech segment. The business grew 7.8% organically against a 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 benefit of the extra sales days, this is the highest growth rate in several years. The 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 and make additional targeted investments. Margins of 19.2% increased 70 basis points unquestionably 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 6. 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 are executing an effective commercial playbook and managing price to address the sustaining multiyear increase in input costs. Organic revenue declined 1.5% for the quarter, and we continue 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 in-line with our guidance for the year, customers are well supported with excellent service and innovation, and the team has more cross levels to support long-term margin improvements. Before handing over Chris to walk through our financial results, I will wrap up on Slide 7 and share our key 2020 priorities. We enter the year with great momentum at DJO as growth returned to healthy levels in the past few quarters. The team will use CBS to sustain customer service gains, increase the impact for new products and to strengthen commercial processes. Through our FabTech business, we have demonstrated that 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 MedTech will again increase the number of new product introductions and improve its new product development process in 2020. Along with solid commercial execution, both businesses are positioned to capture additional share. We have shown that we can support innovation and improve margins, with driving margin expansion in 2020. While 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 are excited about the future and confident that we can drive compounding value growth for our investors. Chris.

Thanks Matt. Slide 8 provides a summary of our fourth quarter performance. Year-over-year growth includes in large part the acquisition of DJO and the significant gains in ESAB margins over the past year. Q4 sales performance included healthy DJO organic growth. The investments made to improve the businesses operations have paid off in the form of accelerated recovery to healthier growth levels. There is 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 in-line with expectations for the quarter, creating 15.1% adjusted EBITDA margins. The benefits from our portfolio changes and ESAB operating performance really read through this quarter. Interest costs track is expected and income taxes were lower as a result of one-time items related to the sale of our Air & Gas Handling business. We continue to expect our tax rate in 2020 to the 21% to 22%. Overall, we generated $0.61 in the quarter from crisp execution and a favorable tax rate. In-line with expectations, we also achieved nearly $80 million of free cash flow in the quarter before paying for costs related to the Air & Gas Handling divestiture. This quarter's performance demonstrates the cash flow benefit of our transform portfolios businesses. We have a clear line of site to over 250 million of 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 terms of gross leverage or 3.6 terms on a net basis. Our 2020 cash flow will support the deleveraging path discussed at our Investor Day in December, while also supporting our Active Acquisition Program. In 2020, we continue to expect a year of solid earnings growth and 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 and the fourth quarter the highest in-line with revenue sequencing. We expect this phasing will be more pronounced this year with first half volume weakness in ESAB, followed by market recovery and growth in the second half. The first quarter of 2020 does not have a clean comparison to last year, because DJO is 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 DJO 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 have been monitoring the situation closely. Our teams are safe. As you know our portfolio of transfer significantly reduced our direct exposure to customers in China to less than 5% of our total sales. At this point we see $0.01 to $0.02 of EPS pressure in the first quarter from lower sales in China and supply chain impacts, both of which we believe to be first quarter timing items only. This is a dynamic situation we will continue to monitor developments. Wrapping up on Slide 9. 2019 was a very good year for Colfax through the dedication and hard work of thousands of associates around the world we transform the portfolio and delivers strong operating results. We have very good momentum entering 2020. In addition to earnings growth and strong cash flow, we are well positioned to execute our M&A agenda as part of our objective to create compounding value for investors. With that we will now open up the call for questions.

Thank you. [Operator Instructions] Your first question comes from the line of Jeff Hammond with KeyBanc Capital Markets.

Good morning guys. So can you just talk about what you are thinking on the margin front for the DJO in 2020? And where you see margin improvement opportunities, versus kind of how you are balancing incremental investment spending?

Yes and so you know we have a plan to improve the margins of DJO here in 2020? We have been driving very focused initially last year on stabilizing the operations, getting the service levels up and then increasingly through the year have been able to focus more on productivity supply chain, productivity sourcing initiatives as key areas focuses as well as looking at fixed cost efficiency opportunities. And so, we definitely see the opportunities to drive improvements in the margins in that business overtime in sort of 50 basis point of EBITDA year number that we had talked about at the outset. And here in 2020 we got a clear path to drive improvements. Those will build through the year based on the way that we put the cost into the business last year, but we have got clear line of sight on how to drive those improvements.

Okay great. And then can you just talk about where you are seeing growth still in the welding certainly you know it is been impressively resilient, and just what are your expect for the North American market for welding into 2020?

Yes, of course, if we look at last year, everywhere outside the U.S. for the full year was either flat or up and most of that being up and it was the U.S. market that was down. Late in the year the European market came down a little as we talked about, I think in our last call, as well. But we feel like we have 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 revenue a little bit down in the first half of the year. But then once we lap some of the declines of this year coming back into a positive zone and that zero to 2% that we guided for the businesses is still our expectation for this year.

Your next question comes from Joe Giordano with Cowen. Please go ahead your line is open.

Hey guys, good morning. I'm just curious like how did MedTech in 4Q come in versus internal expectations. Like for us the overall was fine, but it was more stronger revenue, a little bit lighter margin. Just curious how that played out relative to what you guys were thinking very much you know?

Yes. I think you said exactly right. And as we felt really good about the growth of the business, the revenue acceleration of the business and came in, I would say, at the upper end of who made a hope there. There is a little bit of tailwind and some of the year-over-year comp, and there is a couple extra sales and so that almost [80%] (Ph) is elevated beyond the right go forward number, but we felt really good about the growth and feel good about the momentum that is built there. You also feel good about the operations improvements and the productivity foundation that we have been building. But we do it through the year, including the fourth quarter put some 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 you see that reading through at the margin level.

Am I reading this right. I think that last time you spoke maybe at an Investor Day, the view was we like a mid-single-digit normalized growth rate for DJO, but we are coming in a little hot on growth in the end of this year from like some of cleaning up some backlog, et cetera. So it might be a little bit lighter than that. And now you are talking mid-single, did you kind of push that - dif you upgrade that view a little bit like nuance a little bit higher?

Yes. So what I will say is, first we have said from the start and we see this is business that can grow mid-single-digits, once we get it ramped to that level, and can do it consistently. We talked about 45%, when we announced the business. What we put out there as a guide for this year was 3% to 4% growth. And at this point, we are not revising that, but certainly we feel good about it. The kind of underlying rate coming out of the year is sort of solidly in the mid-single-digits range. But you know we are 10 months in with this business and we know that overtime, there will be great quarters, and they will be good quarters. And right now we are sticking with our 3.5% to 4.5% as the DJO growth in this year with an expectation that is probably closer to the upper end in the bottom end of that. But we will keep you updated as we work through the year.

If I could just sneak in, can you just help us conceptualize the internal spending going on there? So we will see the margins come through. But how much are you spending like in 2020 on just internal improvement and growth initiatives relative to 2019 there?

Yes, pardon me. It is hard to get into the details of the spending. But I would say certainly in last year, we kind of spent all of the margin improvement from improvements in spending in the business in terms of whether it is supply chain regulatory growth and investments and you know here in 2020 our plan is more to spend part of the margin improvements on those kinds of investments in the business, which overtime, that will be the decision we are making each year is we will make sure we are driving improvements in the underlying margin to the business and then deciding how much of that to reinvest each year to make sure that we are doing the right thing to fuel future growth in the business.

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

Good morning everyone. So just maybe just touching on FabTech for a second, the margins this quarter, just continue, just an impressive trajectory. And I'm guess I'm thinking about this maybe just a little bit longer term, right. I know your business mix is different than some of your peers, but you have got a peer out there that is got margins that are north of 1,000 basis points, higher than yours on the FabTech business. And I'm just trying understand how much more margin runway you have in FabTech and how to think about that also for 2020, just given the results that you posted in 2019?

Thanks for the comments, Joe. We really did feel good about the momentum and performance in the FabTech business. And I think it is as we highlighted in Investor Day, it is really a crystal clear example of the kind of impact, fantastic talent and application of our business system overtime and the right acquisitions to improve the business and the right innovations, you know with kind of impact that can have on the 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 have always said that, we are driving to get to 15% operating profit, so a little higher than that on EBITDA, and that we had clear line of sight to how to do that operationally. And then I've also said that strategically, we are 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 more room to go with the same playbook that we have been running operationally in the next couple years. And then we have also made sure that the acquisitions that we have done, the innovations that we are doing, how we are reshaping our supply chains overtime, how we are reshaping the organization and the business overtime, is creating space for us to not be done there, but be able to then continuously improve the margins. And as you said there is this one peer out there that would say there is plenty of room, now they have got a little different structure to their business, so I wouldn't put that out there as a benchmark that we will get to anytime soon, but I would say it certainly gives us plenty of comfort that we don't have to hit a wall here.

That is helpful. And I think maybe just kind of following up on Joe's question from earlier. Agreed that that I think the margins were a little bit lighter than we expected. Obviously growth rate good on the DJO MedTech side. I guess, as you are thinking about 2020, we know that you know first quarter has got a tough comparable, but how do we think about the rest of the year and your ability to expand margins on the MedTech side? And is there anything we need to be aware of just from either a mixed standpoint or an investment standpoint that you know of in your internal plans, so that we are getting at least the cadence right as the year progresses?

Yes, sure. So I mean obviously first, the first quarter has the weird anomaly of just having March last year and so that distorts our Company and our DJO margin for the course of first quarter and needs to be adjusted. But once you have adjusted that, and you are kind of down in that low-double-digits for first quarter. We see the margin improvement in the year as something that will build overtime, as I said, we put investments into the business through the year. And so here in the first quarter we will be carrying those investments up against the comp, it doesn't carry those and so it will be really as we move into maybe a little in the second quarter, but particularly the third and fourth quarter is where you should see the margin expansion coming through in the business. We are trying to make sure that we have the right balance and making sure that we are showing the right short-term progress, but we are very much doing the right things for the long-term strength and growth of the business. We think that is the right thing to do. And so 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 top-line moving.

Your next question is from Andrew Obin with Bank of America. Please go ahead your line is open.

Good morning. Can you guys hear me?

Yes, we can. Good morning.

Hey Andrew.

Hey. And I apologize, maybe I missed it. But we have been 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 it is sort of less than 5%. Could we sort of figure it out by segments between MedTech and FabTech? And more important question, I guess, supply chain, what percent of your products do you source from China, because we hear a lot of concerns about disruptions in the supply chain, particularly in second and third tier suppliers? Thank you.

Yes. Thanks for the question Andrew. So the first one you answered yourself, which is that with the changes we made to the portfolio, China or China exposure has become very small meaningfully under 5% of Company revenues and the vast majority of that China exposure is ESAB, our FabTech business, which has less than 10% of its revenue in China. As far as our supply chains, both of our businesses I think, I have done a good job setting up fairly localized supply chains to serve sort of a demanding customer base from a service level standpoint. And so the vast majority of our business in regions is supplied from assets within those regions or adjacent to those regions. But of course, we have taken advantage of global sourcing opportunities from across standpoint. And so, we do have a minority of the sourcing of each of the business that comes out of China and other parts of Asia. And so when Chris talk about some of the impacts of the Corona Virus, that is where we will see a little bit of revenue impact, a little bit of cost impact from the sourcing that we do out of China. We have been staying very close to it. The one major plant that we have in China, which is in our FabTech business is not in Wuhan, it is outside of Shanghai, and it is up in running again. And it is mostly supplies China, but has a role in the rest of the world. And so we are making sure that we are monitoring shipping lanes and all the different things that could get in the way. And we have been able to talk to all our key suppliers over there and make sure that we understand clearly the situation. So that we could at least say we are here on this call, our current view of what kind of a first quarter impact we are going to be having, and we are going to stay on top of the situation as it continues to play out.

Thank you. And just a follow-up question. Looking at very good growth at MedTech, could you just give us a little bit more color prevention and rehab versus reconstructive. And how should we think about growth for two segments, sub-segments into 2020? Thank you.

Yes. So the reconstructive growth was back into the double digits and prevention and rehab was 6% but with a couple of percent from some extra days. So and that is two quarters in a row, where we have been in a -- back into a kind of a more reasonable range for prevention and rehab, even maybe a little elevated range for prevention and rehab. And that is where the benefits of the work that we have done together with the DJO team on the supply chain are 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 at their national sales meeting recently and it was terrific to see the swagger back in the bracing sales force and channel. This is a business that years ago, was the hands down, the dominant leader in the industry that everybody wanted to do business with and they are a very proud group and they are feeling very excited about the progress that we made last year, and starting to get the kind of swagger back, that you put good service levels and ongoing innovation, together with a great sales team that has confidence and has the formula for taking share. So on a go-forward basis, I think we have already said that reconstructive growth could be in the -- probably the high-single digits on a sustainable basis over time and the PNR growth would come up into that low to mid single digits growth, and that is kind of our formula for mid single-digit growth in the business, but that will certainly vary from quarter-to-quarter.

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

Maybe just a first question around the cash flow. So I think in the cash flow statement, you had about $6 million for 2019 as a whole. I realize you talked to adjusted free cash for over $250 million for 2020, what was the adjusted free cash, if you like for 2019? Just trying to understand what magnitude of step-up, if any, you have in 2020 and what is behind that?

So for 2020, we put out guidance not for adjusted cash flow, we have put out guidance for just free cash flow, and that number is $250 million or more. So just to set the stage for that. Second point is, in the fourth quarter, the performance that we had, we peeled it apart, so that investors could see the underlying performance there of 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 & Gas Handling business that muddied the water a bit. But we have peeled that apart, so you can see that underlying performance and see that we are on the path to deliver the $250 million or more in 2020. For the full year in 2019, we did have a significant amount of investments in DJO, as we brought it up onboard in working capital that we talked about in Investor Day and before. We also had a lot of transaction fees related to both of major transactions. If you peel all that apart, you can see the cash flow was somewhere in the roughly $180 million to $190 million range. And so as we step forward, that is one of the, the pads that we created or shared with folks back in December, what we see is the improvement in profitability in the business. We see the lower restructuring spend, we see lower pension funding, we see better working capital performance. And of course we have got this significant NOL, 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 the $250 million or more in 2020.

That is good to hear. So the free cash in 2020 will be just GAAP and straight from the press release? On my second point, I guess would be around the seasonality of earnings. I think you had mentioned once or twice in the prepared remarks and also in the Q&A, highlighting some headwinds for Q1 in the first half. So just to try and put a finer point on that, I think consensus has around sort of 48% or so of the full year earnings coming in the first half, realizing you don't guide quarterly. I just wondered, is the impression that it should be more like 40% to 45% of the full year earnings coming in the first half? Is that the type of weighting we should think about given Corona Virus and FX and some of those investment headwinds, you would mentioned?

Julian. I think if you look at 2019 EPS performance and look at that as sort of a guide for the approximate timing that we have. I think that gets investors reasonably close to what we would expect for 2020. Year-over-year going from Q1-to-Q1, we will pick up a little bit of earnings there, but as you point out, there is a little bit of Corona Virus pressure that we highlighted, and then there is a little bit of the FX pressure.

Okay. So that sort of 45%, 46% of the year you had in the first half of 2019, that is a good place holder for this year in 2020?

Yes. I would say that is directionally correct.

That is 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. Just following up on some of the Med Tech growth initiatives here. I get that, when you are kind of wining new practice or new buyers group in that space, you need to really anniversary it, before you get back to kind of underlying market. So I guess maybe just to peel apart the growth this quarter or some of the new business you have won over the last year, how should we think about carryover growth into 2020, just until you anniversary kind of some of these new customers? And then maybe as an addendum to that, how much do you think is new customer growth versus kind of new products or more penetration with existing customers?

Yes. So it sounds like that is largely a surgical question or is that a full MedTech question?

I guess a full MedTech question, but feel free to cower in wherever you see fit.

Yes, fair enough. So I guess I think the first thing I would say is that, the teams are generally working on the growth sort of by month, quarter by quarter. We have a growth bridge tool that we use with the team is that it is not just about kind of improve the annual growth one time and then start over, but more of an evergreen approach. And so again, if I take our surgical business that has very high growth. They are bringing on new doctors every quarter, and look at the same-store growth, the new doc growth and then they also have a view of, when the new products come in and how that is going to give them a lift. And so we have got a pretty robust growth model in that business, in terms of how we continue to grow and gain share in that business and so we definitely quantify the rollover effect. What I can say 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, Q1 is off to a good start in the Med Tech business. The prevention and rehabilitation part of the business is a little bit different and that the growth, we have got a pretty meaningful channel there, as well as all of the many clinics and so the growth is a little bit fueled by new additions of new clinics and things like that. But it is also more broadly, just about who is choosing our products on which days and how are we penetrating further into the clinics and the hospitals. And so there last year, we had a healthy lift in our growth from improving the service levels of the business. We won't get that lift again. In fact, we might give a little bit of it back, because it was up against 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 clinics and into the hospitals. And so, that is how we will continue to improve the growth of the business.

Great, that is helpful color. And then just a follow-up on the comment you made in the prepared remarks, about the acquisition pipeline, starting to fill in. Anything that 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 to kind of give us some sense for where the portfolio may pivot or may grow, as you guys start to get the balance sheet repaired?

Yes. Our focus is really at this point on things that are within the DJO businesses and strengthen and accelerate the strategies there in the business, or kind of directly adjacent and sort of attractively expand the business, but in a kind of more connected way. We see over the next couple of years, there is 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 could be attractive expansions for the company, that is really not going to be our pipeline focus for the next year or two.

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.

Thanks and good morning.

Good morning Walter.

Wanted to ask about FabTech, go 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 share is coming in, and on a product basis, where you are with having a full product portfolio?

Thanks Walter. There is really kind of two things that we look at, to understand how we are doing from a market share gain standpoint. One is just looking at reported results, where they are available in terms of reported core growth results. But then there are also certain regions of the world, where it is pretty specifically reported in terms of what the shares are. And I think on both those data points, we feel comfortable that in 2019, we had 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 great service levels in the business, that we have been able to build over time, of the vitality of the product line that we have built through innovation over time, and the strength of the commercial engine. We have got a great local commercial engine around the world, that is very strong. And so we think that has enabled us to build have really gain share in the business, now in a consistent basis and we are going to be working hard to continue that. And at this point, we have got a great strong full portfolio. But for sure we continue to work on strategic extensions of that portfolio, both through internal innovation and we have made some acquisitions over time that have attractively expanded that portfolio as well.

Okay. Great. And when I am thinking about the margin improvement year-over-year, you called out commodities pricing and price cost, so wondering about how much of the margin improvement came from that and the comp for the fourth quarter, as well as 2020 pricing strategies?

Yes. So our margin improvements over time in that business have been consistent and have been balanced across price and the positive impact of innovation and the productivity efforts from driving CBS in the business and the structural improvements that we have made to the cost of the business, and again in Q4, those are the sources. The Q4 improvement was very large, and I think that we are acknowledging that some of that was a little bit of catch up, in terms of maybe little extra cost in Q4 last year from the inflation and now being able to see the read through of the pass-through on that, as well as the ongoing improvement to the business. And so I think that the comment was only just, don't take 300 basis points a quarter, extend it forward but we do intend to continue to extend the margins of the business.

Yes, Okay. And the 2020 pricing strategy, were you able to take prices up and positive price cost in 2020?

So I think you asked about our ability to take price up and have positive price costs. Our pricing strategy in that business has several parts to it. One is, just trying to make sure that as we are getting inflationary pricing in the business, that we are working hard to pass that through to the marketplace. But then, we also have -- we are always working on value-based pricing to make sure that our new products are getting price in a value based way, and sort of the blocking and tackling of the price waterfall, and how you make sure you continue to kind of close holes in that price waterfall, and so that is all muscle that we have built. If there is inflation to be pass-through in 2020, we will be making sure that we are passing that through. But also 2020 and beyond, we will be continuing to exercise price model, much more on the value side of the equation, and try to make sure that we are getting a little bit of contribution to margins every year from price.

Helpful. Sounds good. Thanks guys.

Your next question is from Nicole DeBlase with Deutsche Bank. Please go ahead, your line is open.

Good morning.

Hey Nicole.

So I just want to dig into FabTech a little bit, and if you guys could kind of run down what you are seeing from - we kind of went through the geographies, but I guess from an end market perspective, anything interesting that happened during the quarter relative to what you saw in 3Q?

Yes Nicole. I mean I think from an end market standpoint in 3Q and 4Q, there was a slowdown in industrial end markets, particularly in North America and to a lesser extent in Europe, and obviously things like automotive, we are at the heavier end of that. We have got a little less exposure there, but sort of the broader industrial markets had a little bit of slowing through that period. I think around the world, we have seen some of the oil and gas spending pick back up a little. Infrastructure spending is still a positive in many parts of the world that we play a critical role in, and certainly, we watch the more kind of construction build out parts of the markets as well, which in the U.S. has been kind of little bit of a mixed bag in terms of up and down. So we expect here in the first half, that industrial market view will stay a little bit in the negative, but every indication that we have been able to look at is that, we should be able to then turn back positive, but we need to see it play out.

Okay, got it. Thanks Matt. And then, just on DJO margins, I know we have dug into this quite a bit on the call, but just want to confirm, I know you guys have a target for 50 bps of expansion annually. Is that something that is going to be difficult in 2020, because of the comp issue in the first quarter, and then also this quarter, the EBIT performance was actually pretty good. But the amortization stepped down quite a bit. So if you could put some color on that?

Yes. We talked about your EBITDA improvement of about 50 points annual, and we still very much believe that that is there to be done in the business over time and here in 2020, for sure we will be balancing that with the investments that we need to keep making in the business, and with some of those first quarter or two, comp effects. And so I think we have got certainly, plenty of opportunities to drive to that 50, but we also may make some choices around how we spend, that might leave us a little bit lower than that, but that will be a conscious choice that we make, as we work through the year. I mean, Chris, can talk about the amortization.

Yes, the amortization is just up through the third quarter, where we are recording the expense based on estimates there and then by year-end, we finish up our purchase allocation process, and come up with a final number. And so the adjustment we see in Q4, is just us getting aligned just us getting aligned where the amortization is going to where it finished up.

Got it, thanks. I will pass it on.

There are no further questions at this time. I turn the call back over to the presenters for closing remarks.

Thanks everybody. Appreciate you guys joining the call today. Good-bye.

This concludes today’s conference call. You my now disconnect.