Earnings Call: Q4 2019

Feb 18, 2020

Good morning and welcome to the Gardner Denver 4th Quarter 2019 Earnings Conference Call. All participants will be After today's presentation, there will be an opportunity to ask I would now like to turn the conference over to Vic Kinney, Investor Relations leader. Please go ahead. Thank you, and welcome to the Gardner Denver 2019 4 quarter earnings call. I'm Vic Kinney, Gardner Denver's Investor Relations leader. And with me today are Vicente Reynal, Chief Executive Officer and Emily Weaver, Chief Financial Officer. Our earnings release, which was issued yesterday, and a supplemental presentation, which will be referenced during the call, are both available on the Investor Relations section of our website, gardnerdeborah.com. In addition, a replay of this morning's conference call will be available later today. The replay number as well as access code can be found on Slide 2 of the presentation. Before we get started, I would like to remind everyone that certain of the statements on this call are forward looking in nature and are subject to the risks and uncertainties discussed in our previous SEC filings, which you should read in conjunction with the information provided on this call. For more details on these risks, please refer to Gardner Denver's annual report on Form 10 K filed with the Securities And Exchange Commission, which is available on our website at gardnerdeborah.com. Additional disclosure regarding forward looking statements is included on Slide 3 of the presentation. In addition, in today's remarks, we will refer to certain non GAAP financial measures. You can find a reconciliation of these measures to the most comparable measure calculated and presented in accordance with GAAP in our slide presentation and in our earnings release. Which are both available on the Investor Relations section of our website. Turning to Slide 4. On today's call, we will review our fourth quarter and total year highlights as well as an update on the pending transaction with Ingersoll Rand and introduced 2020 guidance. We will conclude today's call with a Q and A session. As a reminder, we would ask that each caller this time. I will now turn it over to Vicente Reynal, Chief Executive Officer. Thanks, Vic, and good morning to everyone. Turning to Slide 5, let me start with a brief overview of the fourth quarter. Overall, the 4th quarter was a good example of the team's ability to use a Gardner Denver execution excellence process or GDX to remain nimble in the phase of a soft economic environment. As expected, entering the continue to face similar headwinds as we have seen in prior quarters. However, the team utilized the GDX process to drive quick actions, that resulted in solid commercial and operational execution, with strong margin expansion in our non upstream energy businesses, and healthy free cash flow generation. Let me provide a bit of more color on the financial highlights in the fourth quarter. From a total company perspective, FX adjusted revenue and orders declines of 14% 60%, respectively, were heavily impacted by the known softness in the upstream energy business, where both revenue and orders were down approximately 50% due to the known oversupplying the market and limited activity in the later end of the year. Despite these headwinds, the option team executed on several targeted customer wins due to new product introductions, limiting the sequential revenue decline to only 21%, which was better than our expectations coming into the quarter. The remainder of our businesses, including industrials, Mid And Downstream Energy And Medical saw a collective FX adjusted revenue decline of 3% an order decline of 4% given the softer macroeconomic environment as well as meaningful prior year comps. The company delivered adjusted diluted earnings per share of $0.37 and adjusted EBITDA of $135,000,000 with an overall margin of 22.3%. Overall margins were impacted by the expected declines in upstream revenues, as well as increased corporate costs in the quarter, driven by growth investments and incentive compensation payouts related to better than anticipated business performance. We were also very pleased with the performance of the Industrials, Medical And Mid And Downstream Energy Businesses. Which collectively expanded adjusted EBITDA margin by 50 basis points despite the top line headwinds. The margin improvement was driven by initiatives such as I2B and proactive cost measures that the team has implemented including the restructuring actions that we announced in Q3. From a balance sheet perspective, free cash flow in the quarter was $90,000,000, Free cash flow conversion to reported net income was 3 47% as the teams continue to make strong progress on working capital including reducing inventory by $37,000,000 within the quarter, while total company operating working capital as a percentage of revenue finished slightly higher than prior year at 24.6 percent. This increase was due entirely to the upstream energy business which has a meaningful opportunity as we look ahead. The remainder of the businesses finished the year collectively at 19.5%, 170 basis point improvement versus prior year. And this marks the first time we have seen this metric below 20%. The strong cash performance led to net debt leverage of two times at the end of the year, an improvement of 0.1 times as compared to prior year. Moving to Slide 6, as I reflect on the total year, 2019 was a solid year that showed their resilience of the business model the team's ability to drive results in the phase of changing market conditions. The bridge on the page starts with industrials, mid and downstream energy, and medical businesses, which collectively delivered 3% FX adjusted growth and adjusted EBITDA margins of 24.2%. Which was 80 basis points up versus prior year. This is very strong performance in the phase of challenging macroeconomic conditions with flow through to EBITDA in excess of 50% due in large part to the continued execution of GDX that the team is driving. Upstream Energy did face a challenging year, but I am pleased with the steps the team has taken to proactively right size the cost structure and limit the decremental margins in the second half of the year. And while FX and other investments did prove to be headwinds on a year over year basis, they were largely in line with anticipated levels few moments discussing the progress we're making on receive unconditional clearance from the European Commission for the transaction. This was a major milestone as it marked the final regulatory clearance needed for approval of the deal. Since that time, we have continued to make strong progress as we launched the financing for the deal in late January and completed that on February 7th with fully committed term loan B structure. In addition, Ingersoll Rand completed their shareholder vote on February 4th, all proposals being approved and Gardner Denver's shareholder vote is now scheduled for February 21. We do not anticipate any issues with the final legal requirements required closed the deal, and I am very excited to announce that the merger should be completed on February 29th. This marks an exciting time for the new company. And very much looking forward to the bright future ahead for the new Ingersoll run. Moving to Slide 8, I want to spend a moment reflecting on our 4 point strategy. This will serve as the basis for how we operate a new company. I have said it many times that talent is at the center of everything we do and having an outstanding team is core to us coming together as we have strong representation from both organizations that will help as we create a combined culture for a new company. Everything's talking to people. I see this as a great way to infuse best practices from both organizations into our daily routines. Part of our integration planning efforts over the past few months, we are in the final stages of our detailed organizational design across the new company, and I'm looking forward to sharing these with the teams shortly after closing. Another key facet of our strategy has been margin expansion. As we look ahead, a major component of the transaction is delivering our previously announced $250,000,000 of cost synergy target. We continue to have strong confidence in delivering this target, and that confidence is driven by the integration planning efforts we have done over the past 9 months as well as the continued momentum we see at Gardner Denver as shown by the 80 basis points of adjusted EBITDA margin expansion we delivered in our non upstream businesses in 2019. A key catalyst to that margin expansion and one that we are excited to expand in the new company is an innovative value process for I2B. I2B continues to yield very strong results. Across the Gardner Denver businesses, including recent wins in redesigning products within our European blower and vacuum platform. As we think ahead, we will take these very same principles to the $3,000,000,000 plus revenue segment at Ingersoll Rand Industrial. Where we expect to see similar momentum and opportunity in improving the products, while at the same time delivering margin benefits for the businesses. Moving to Slide 9, I will provide more color on the operating performance of our segment. I will start with Industrial segment. Whereas expected, we saw growth slowdown from what we have seen in prior quarters, driven by the softening macroeconomic backdrop. Industrial segment 4th quarter order intake was $308,000,000, down 3% versus prior year, excluding FX. Revenues in the quarter were $333,000,000, flat, excluding FX. From a geographic perspective, Revenue in the Americas declined 2% on an FX adjusted basis. We view this as an excellent performance when you take into account that the U. S. Manufacturing activity in December was the lowest result in a decade according to ISM index. In addition to this, we're overcoming very strong comps from prior year where FX adjusted growth was 12%. From an overall market perspective, we feel good about our relative position in the U. S. As 3rd party industry reports continue to show that we are outpacing the market crews and reciprocating technologies. In Europe, performance was very comparable to what we saw in the Americas with revenue down 2% FX adjusted. Despite the continued tough macroeconomic environment, the majority of the European regions, including mainland Western Europe and India, saw relatively stable performance, including low single digit growth in oil lubricated compressors and continued momentum in niche products like blowers. Middle East And Africa collectively saw double digit revenue decline, due in large part to the non repeat of a large high pressure compressor system, that shipped in 2018. Asia Pacific reported a double digit revenue increase due to growth in niche products like oil free compressor and transport equipment as well As the market continues to see general softness in most major regions, we continue to advance our strategy of differentiated innovation complemented by the efforts of demand generation in order to drive outsized growth in niche verticals. One such case study is highlighted at the bottom of the slide where we have introduced a innovative robotics screw compressor to the marine industry for the application of air lubrication. Air lubrication is the process of infusing air bubbles beneath a ship's hull to reduce friction between the hole and the water. This helps reduce resistance and the amount of energy needed to propel the ship, leading to 5% to 10% fuel saving and reduce CO2 emissions. Products like the robotics compressor have led to outsized growth in the marine industry where we saw strong double digit growth in 2019. Moving to adjusted EBITDA, Industrial delivered $79,000,000 in the quarter, up 2% excluding FX. 4th quarter the points sequentially from Q3. The year over year margin increase was largely attributable to ongoing productivity initiatives like I2B, as well as benefits from the restructuring action that we completed in Q3. The margin profile in Q4 marked highest level we have ever seen in our Industrial segment and continues the momentum towards our mid-20s EBITDA margin target that we have previously stated. Moving next 4th quarter order intake was $172,000,000, down 35% excluding FX, driven largely by the expected declines in upstream energy and to a lesser degree by high single digit FX adjusted decline in the mid and downstream businesses. As we continue to see an elongation down 32%, excluding FX. Book to bill in the 4th quarter was 0.83, which was relatively similar to what we saw in Q44 of 2018. Addressing the components of energy, let me start with upstream. Orders and revenue both finished at $79,000,000. Down 52% 50%, and 50%, respectively, excluding FX. Both of these levels were above our initial expectations entering the quarter. As the team did a very nice job on executing commercially on newly introduced products and solutions that we have been speaking about over the past few quarters. Beeding a little deeper on orders and revenue, the results were in line with what we saw in Q3 as the composition was largely aftermarket centric with minimal orders from our unit equipment frac pumps. Even market capacity utilization and customers stacking and impairing horsepower as well as spending less CapEx, it is not surprising for us to see relatively low levels of original equipment orders and shipments. We continue to be pleased with leading to consumables being down only mid teens on a year over year perspective. In addition, pricing levels continued to remain relatively flat on a quarter over quarter basis. From a margin perspective, despite the 50 percent revenue decline on a year over year basis, the auction business was able to deliver 20 percent EBITDA margins, a healthy concentration of higher margin aftermarket revenue coupled with the proactive restructuring efforts that the team took throughout the year, limited decremental margins in the second half of the year, to 45% as opposed to levels in excess of 50% when the business was ramping up. As we look ahead, one of the exciting initiatives that the auction team has been working on is diversifying the end market base of its products away from upstream oriented applications. You may have seen in the 8 K that we published back in December that we intend to call this business high pressure solutions as part of a new company. The name speaks to the highly differentiated products that we have developed and the ability to apply some of our legacy frac and drilling technology to industrial applications. Specifically, we're entering horizontal directional drilling applications in the fields like mining, wastewater, and utilities where garnered over high pressure pump technology provides a more efficient and reliable solution than legacy technologies. This is just one example where the team is entering new spaces that expand the total addressable market for the business. On the median downstream side, orders were collectively down 9% and revenue was down 13%, both excluding FX. Book to bill came in at 0.73, which was actually a bit higher than what we saw last year in the fourth quarter. As noted earlier, we continue to see a relatively healthy quotation funnel for larger projects, but customers are taking longer to convert those quotes to orders. The good news is that the discussions with the customers continue to be very active, so we're optimistic about seeing many of these orders convert and fill the funnel for 2020. The Energy segment delivered adjusted EBITDA of $53,000,000 in the 4th quarter, which was down 43% to prior year, excluding FX. As a percentage of revenues, 4th quarter adjusted in upstream energy with a slight offset from margin improvement in the mid and downstream business. Moving next to the Medical segment on Slide 11, order intake was $64,000,000, down 2% excluding FX. The orders decline was due to the same dynamic reference in Q3, where a customer is now ordering in smaller quarterly installments, as opposed to the historical pattern of larger frame orders. Revenues in the quarter were $67,000,000, flat excluding FX, on top of very strong prior year comps of 19% growth. Overall book to bill was 0.95, which is comparable to prior year fourth quarter. The business continued to see good momentum across both gas and liquid pump market. With ongoing progress on new innovation. One such product is highlighted at the bottom of the slide. Our compact and lightweight gas pump are integral to the application of negative pressure 1 therapy or bio vacuum is drawn only one to help and heal faster. The solution delivers increased efficiency by minimizing size, sound, vibration and energy consumption. And is an exciting win for the team as it is a growing end market in the medical space. 3rd party reports indicate that negative pressure wound therapy is expected to grow at an 8% CAGR over the next 4 years. This is just another example on how our team continues to pivot to faster growing markets. Medical adjusted EBITDA performance for the quarter was $21,000,000, up 1% excluding FX. Margins were 30.8 percent, up 60 basis points versus prior year, and marked the 6 consecutive quarter of positive margin expansion as the teams continue to drive operational efficiencies. Will now turn over the call to Emily to walk us through the guidance for 2020. Thanks Vicente, and good morning to everyone on the call. I'd like to start by saying that it's been a pleasure to be part of the Gardner Denver team, and I look forward to the bright future we have ahead for the new Ingersoll Rand team. Let's move to Slide 12 and review the guidance for 2020. We'll start with our revenue growth expectations for the year. Low single digits on both an as reported and FX adjusted basis as FX is expected to be relatively flat year over year. A phasing perspective, comps in both upstream energy, as well as industrials, where we delivered mid single digit growth in the first half of twenty nineteen. The second half of the year As is typical for us, we are expecting Q1 to be comparatively lighter than the remaining quarters of 2020. And this year will be a bit more exacerbated by the coronavirus. As such, we expect Q1 to deliver slightly less than 20% We are expecting some shipment deferrals from the first quarter into Q2 and the balance of the year. As of right now, it is important to note that our guidance does not include any total year impact. Are currently customers and suppliers are allowed to get back to work. Now moving to our segments. We expect industrial's revenue growth for the year, to be flat to down low single digits. Given the slowdown we have seen in the general industrial markets in the second half of twenty nineteen We don't expect that to change significantly as we enter 2020. The teams will continue to focus on operational efficiencies such as I2B and cost control, where we are expecting to deliver positive margin expansion in 2020, despite the moderating top line. In Medical, we expect low single digit growth and liquid products within the portfolio. Moving to the energy segment. I'll start with Mid And Downstream Energy. As you know, these businesses play in similar end markets to our Industrial segment and the general macroeconomic softness we're seeing there. Has a similar impact on these businesses. We continue to see a good funnel for projects as previously mentioned We expect to Moving to upstream. We don't expect much change in the market as we move into 2020. Given the dynamics we've been discussing, around oversupply and cannibalization of equipment along with what customers have been communicating on capital spend expectations. We expect revenue to be down approximately 20% on a year over year basis. We expect declines to be higher in the first half of the year, driven mainly by the tough comp and to moderate in the back half of the year. The teams will continue to manage the business as we did in the second half of twenty nineteen with a focus on controlling costs protecting margins and rightsizing working capital, particularly inventory. That said, we are currently taking a prudent view of 2020 demand levels in upstream energy, although we do see some signs of optimism as we look into the future. 1st, customers have impaired approximately $4,000,000 of horsepower in Q4, which expectations of another 1,000,000 to come in Q1. This helps normalize supply and demand, which is needed in this market. 2nd, we continue to see cannibalization in the field of both pumps and fluid ends. This is a trend that can't go on indefinitely. Eventually, this equipment will come back for service and repair or full replacement, and we are prepared to handle that demand. 3rd, our launch of new consumable offerings continues to see strong traction in the market and we are strengthening our partnerships with key accounts. And finally, we are excited about the prospects for new revenue streams by selling legacy frac and drilling technologies into industrial end markets that Vicente highlighted earlier. Based on these revenue assumptions, we are introducing 2020 adjusted EBITDA guidance of $540,000,000 to $570,000,000. This range includes slight increases in corporate costs of approximately $7,000,000 on a year over year basis driven by 2 main items. 1st, growth investments in key areas such as demand generation and IoT which we continue to expense for 2020 as we reset to target levels this time each year. Including these items, we expect corporate costs be approximately $12,000,000 per quarter. Turning to Slide 13. Our expectation for capital expenditures is $45,000,000 to $55,000,000 and we expect to generate $280,000,000 to $300,000,000 in free cash flow. Which is generally consistent of 100%. Finally, we expect the tax rate to be between 22% 23% and share count to be approximately 209,000,000 shares. It's worth noting that all of these estimates are for standalone Gardner Denver. On closure of the transaction, we will take the requisite time to combine the financials for the 2 organizations and in due course provide both pro form a historical financials for the new company, as well as guidance. I'll now turn it back to Vicente for some closing remarks. Thank you, Emily. As we look ahead, 2020, we'll continue to be challenging from a macroeconomic perspective. But I am confident that the teams have the right toolkit with GDX to both navigate the environment and continue to deliver progress on our commercial and operational initiatives. We also are at the landmark moment for the company as we prepare to merge with Inksle Rand Industrial segment and become the new Ingersoll brand. The long term prospects of a combined company and the value creation opportunity both remain very positive and I am very excited to lead the combined organization going forward. With that, I'll turn the call over to the operator and open it for Q And A. We will now begin session. And our first question comes from Mike Halloran of Baird. Please go ahead. Hey, good morning, everyone. Good morning, Mike. Good morning, Mike. So can we just start with the guidance assumptions here? Maybe some thoughts on what's embedded from an underlying perspective by segment? In other words, is there fundamental improvement embedded in the outlook through the year Obviously, you Emily highlighted the 1Q impacts from the coronavirus, but kind of stripping that out, how do you think about what underlying demand looks like sequentially as you work through the year? Any assumptions for improvement And then, anything else that could help us get comfort with how that 1H2H ramp looks? Yes, Mike. I'll say that it is gradually in rooving in the second half, primarily as comps get easier, as, you know, as we said on the, remarks, you know, the first half expected to be down high single digits, while the 2nd half, positive low single to mid single. The majority of this is really, due to more difficult comps than we have here in the first half. So pretty normal percent. Exactly, yes. That's right. Yes. And then when you think a separate question, then when you think about the underlying internal improvement, continue to do a lot of work there, positive work. Maybe help provide some thoughts on what the major priorities on the legacy business are going into 2020 and what kind of impact do you think that can have on the EBITDA line? Yes, Mike. I think, I'll say number 1, as you saw, we if I talk about industrials, as a great example, even on flat to low single digit growth, we still expect the business to generate a positive basis point margin expansion. So that's just one example on how we're having our teams put together a plan that, puts a picture of no growth, but we still need to execute, very thoughtfully the initiatives that we have been doing. So for example, you know, control the areas that are within our control. An example of that is I2B, Innovative value continues to be a great, tool for us to, to deliver that gross margin expansion. You know, we will, continue to do a lot of the activity that we have been doing on pricing, as I continue be a great lever for us to strategically, be more, focused on price. And then, you know, more areas such as working I mean, inventory continues to be a big area for us for improvement to generate and unlock a lower cash that we have in the business. Thank you, Mike. Our next question comes from Jeff Sprague of Vertical Research Partners. Please go ahead. Thank you. Good morning, everyone. First, Emily, you said in due course, but can you give us a little bit of color on what you're timing is like in terms of pro form a financials or kind of your initial new co guide? Yes, Jeff. Thanks for the question. No one's more excited to get this out than I am, but it will take us a little bit time to get through, you know, the data that we're gonna get on day one coming up here in a few weeks or less. And once we get through that initial work, we'll come back to you with some dates on when the pro formas and the guidance will come out so that you guys can plan the calendar. Great. And then, Vicente, I'm wondering just on the cost reductions, which you affirm today, If you could give us a little bit of color on how your visibility on that has evolved from the beginning of the process to here near the conclusion. And if there's anything qualitative, you might say, about your confidence level or potential upside to that number. Yes, Jeff. I, I mean, obviously $250,000,000 of cost synergies, it doesn't include any revenue potential synergies that we may have. But the confidence has been growing because of a lot of the work that we have been doing here over the past 9 months, And as we talked about on the last call, we put an example on how we have now kind of analyzed the direct materials spend from both companies through what we call a clean room environment. And we're even, at this point right now, reassessing one more time that data point so that we're ready with this, RFPs and RFQs for, for day 1. So I'll say the funnel has continued to, to grow internally, clearly for us in order to hit the $250,000,000 synergy We have a funnel that is, larger than that in order to be able to, to execute that level of synergies. But the confidence level continues to grow not only from, what we talked about within the operational side, but also, the organizational structure. Great. Thank you. Thank you, Jay. Our next question comes from Julian Mitchell of Barclays. Please go ahead. Hey, good morning, everyone. This is Jo on for Julian. Hi, good morning. Good morning. Good morning. Yes. So digging deeper into kind of the upstream midstream within energy Can you talk a bit more about kind of this project timing push outs you guys are seeing? Is this a bit more transitory or do you think it has to do with maybe a softer end market as a whole? Yes. So the project push out, it is mainly related to the, to the meat and the downstream and particularly more on the downstream side of the business. It is really transitory. I think there's some, quote process elongation that is going on in this market. But nothing that, gets us wary or concerned, at this, at this stage. Got it. And then maybe with an industrial looking at, it seems like you guys are basically guiding for kind of a sequential softening into the first half. Is there any, I know part of it is a tough comp, but is there any kind of color you can provide on maybe which end markets you see as potentially firming up and which ones you see as kind of only being a second half kind of story? No, I think, I think it's consistent. I think we continue to be pretty excited with the work the teams are doing around niche markets. So, so again, you know, there's also a lot of good, self help initiatives on the commercial side with our demand generation activities, but also new niche markets that we're finding and penetrating. So I'll say, you know, we view the general industrial markets, kind of tough while the niche end markets that, that we're highly selective on are going to continue to do Our next question comes from Andrew Kaplowitz of Citi. Hi, this is Aitan Bookbinder on for Andy. Good morning. Hey, good morning. Hey. Your upstream energy guide for 2020 of down 20% is coming off a comp where there was already muted original equipment sales in 2019 with 85 of upstream energy coming from aftermarket. Can you parse out how much of the continued decline is coming from upstream aftermarket? And what sort of visibility do you have to the cannibalization equipment going on in the fields reaching the potential inflection? Yes. So I think one of the things that you'll see here kind of year over year, in the, we, we were, we saw in the first half of twenty nineteen some OE. So we're original equipment So we're still kind of in the first half of twenty twenty, comping some tough numbers, based on that. So if you were to think about it kind of take it from in the fourth quarter, we saw roughly, call it, $10,000,000 of OE pumps. What we're saying is that coming in the first half, and most likely here in the first quarter, we're not going to see any of that. So it's going to be a highly, book and turn aftermarket business, where, as you saw in the remarks, we continue to do well by penetrating new accounts and increasing the share of wallet in the accounts that, that we know we can take some share. And then the rest of the year, obviously, very opaque. I mean, we don't have a lot of visibility forward. And that's why we kind of put, here a forecast, that in our view, continues to be highly aftermarket centric because we expect that there continue to be, a lot of activity in the field. Like you said, there's a lot of, fleets that are getting, impaired and part. So we think long term, the supply and demand of horsepower, is going to get very well balanced. So the prospects here continue to look positive for us. Thank you. And as a follow-up, the Medical segment was flat organically versus tough comp, about 19%. And looking back at 3Q, there was also a tough comp about 19%. I'm just thinking about the sustainable growth rate for the segment going forward. Is it more low single digits similar to the guidance for 2020 or can it return to high single digits like in 2019? Yes, our expectation is really more kind of mid to high single digits. And the reason for why we're saying low single digits is because if you think about the total general industrial market being down. I mean, there's going to be potentially some effects that kind of take the medical market to be slightly down to, to from mid single to low single. But again, as you pointed out, if you look at the historical numbers for this business, in 'eighteen, they did, low double digit in 2019, high single digits. So we think long term continues to be our expectation that this business over the course will be mid single digits. And here in 2020, similar to what we have done in all the businesses, we told the team you know, expect a slow growth environment and let's focus on our margin expansion. Our next question comes from Josh Pokrzywinski of Morgan Stanley. Please go ahead. Hey, good morning everyone. Good morning, Josh. Hey, Josh. Just starting off with, obviously, a weaker near term environment from a market perspective than maybe what we would have anticipated 6 or 12 months ago at different points in the planning process. For the integration. Is there more of a mind of, I guess, for lack of a better term kind of demand triage as the transaction closes that as much as you want to get to the meat of some of the integration pieces, you want to get arms around the demand curves as well? Or is it really just kind of focusing on the real core integration activities? Yes. So, Josh, I'll say that, even, as we were, I think on our last earnings call, we also talked about, which you run the, budget timing, for, for, for us. We said that we were planning to have, a very low growth to no growth environment and that we were going to be very focused on the activities that we could do into our control. And as we look into the integration that we see that the environment to be even worse than this low to no growth that we could find ways on accelerating, synergy creation. The same time, I mean, we have the team very focused on the market. You can see that we continue to invest in demand generation and new technology platforms like IoT. We continue to those, view those as great ways for us to penetrate the market and take share. But we'll continue to be very focused in area, in area of our control, while we'll continue to find ways to invest in, in those very unique, domain expertise that we have that we think are differentiated get it. Got it. That's helpful. And then just thinking more broadly on kind of the nature of slowdown, maybe leaving upstream off to the side because it's just a different animal these days. But are there is there evidence in the business of kind of a coiled spring impact or effect with customers where they're sitting on capital waiting to deploy or just come across more as kind of like a soft landing. And then once we get through some of these exogenous shocks, whether it's trade or coronavirus, we kind of return back to more normalized growth. Any just any sense as you talk to customers out there? Thanks. Yes, I don't think that there is, as you describe it, that, coil spring that we, we were not expecting that. And I don't think that is what we've out there in the market. I think this, the current situation in coronavirus, is obviously creating some, some, potentially delays in shipments and demand. However, we see also other customers investing as some companies are really looking at, diversifying their supply chain again. So we're not planning for acceleration of growth. We continue to view the market as being kind of slow to low growth. But we continue to see, a pretty healthy funnel in the downstream side for small and medium projects. So I guess, you know, all of Josh, I would say, no dramatic change. And here in the first first quarter, what we see is just a little bit more pronounced downturn just based on the coronavirus. But we expect that to be, transitory and, be able to recover here in the later part of the year. Okay. Thanks for the color and good luck on the approaching close. And our next question will come from Nicole DeBlase of Deutsche Bank. Please go ahead. Yes, thanks. Good morning. Hi, Nicole. Hi, there. So just a quick clarification. When you guys talked about slightly less than 20% contribution in the first quarter. That was on adjusted EBITDA, correct? And, second question, if that's the case, is just what level of revenue is that based on? Yes. So on the first question, yes, you are correct. On the second question is on a base of roughly kind of low double digit growth on a year over year basis. Okay, got it. Thanks, Vicente. That's helpful. And then, totally understand that your guidance isn't baking in the impact of coronavirus, but maybe can you talk a little bit about what you're seeing on the ground in China? I think factories just kind of got back to work last week. So obviously, lots in flux but it will be helpful to hear what you're hearing from your customers as well as the potential supply chain impact. Sure, Nicole. Yes, so we, we always have, have, launched a very rigorous process where we stay in touch with, all of our employees, in China. And lend the hand as much as we can. You know, we, we also continue to do a lot of, kind of donations to local community based on our ability of what we can do. Our, our kind of main factory is the one that we have, in, North China, is, it's open. I'll say maybe, you know, kind of 80 ish percent capacity, as not all employees have been able to come back from, from the holidays. Our medical facility, kind of about the same. I'll say, running 80, 90 percent capacity utilization at this point in time. You know, the medical, you know, it's, is making pumps that, get used and consume for, respiratory systems as So that's obviously, very kind of critically needed in the current environment. From a supply chain perspective, we clearly see, you know, some, disruption in the supply chain. Our team is then working, extensively on how to diversify and find, obviously, other suppliers that could, ramp up to the needs that we need to. I think the good news here is that, when the tariffs were established. Our team was already, resourcing and refining new supply chains. So I think that's actually quite helpful. That we have, we have now second and third sources of, supply base. So all up, I think the team is reacting very quickly, very agile and, trying to protect, the customers that still, need the product and, and for us to be able to recover kind of quickly. Yeah. And as I mentioned in the prepared remarks, we're we are really pleased that our teams are safe and healthy right now. So we're paying close attention to that, of course, as well as the numbers. This concludes our question and answer session. I would like to turn the conference back over to the company for any closing remarks. Yes. I, we're just 1st, I would like to thank our employees for efforts and the work, great work that, everyone continues to do. And especially as we kind of pivot to this great moment in our, history, of being able to combine 2 fantastic premier companies and then create the new Ingersoll Rand moving forward. Look I look, we look forward to, speaking to many of you here shortly, and, we'll talk again soon. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.