The Timken Company (TKR)

Investor Day 2019

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Dec 12, 2019

Good morning, everyone, both in the room and to those joining us live via webcast today. I'd like to welcome you all to Timken's twenty nineteen Investor Day. For those that I haven't met, my name is Shelly Chadwick. I'm the Vice President of Finance and Chief Accounting Officer for the company. I'd like to take a moment just to thank you all for being here. I know it's a chilly day in New York City, but we appreciate you coming to hear more about how Timken is advancing as a global industrial leader. This morning, you'll hear from our President and CEO, Rich Kyle, as he gives you an overview of our strategy, performance and future outlook. Our Group President, Chris Coughlin, will then go a bit deeper on our business segments and discuss how the Timken business model is creating value for the company. After Chris speaks, we'll take a short break, and then Andreas Rolgen, Vice President of Europe, Asia and Africa, will join us to talk about our continued leadership in engineered bearings. And then Hans Landen, Group Vice President, will outline how we are growing a global diversified portfolio of power transmission products. Our final presentation today will be from Phil Percassa, Executive Vice President and CFO, as he shares more details on our financial performance, capital allocation strategy, and then he'll outline our early twenty twenty guidance and go into more detail on our longer term targets. After Phil's presentation, we'll welcome Rich, Chris and Phil back to the podium for a Q and A session, followed by a networking reception and buffet lunch, which we hope you'll all join us for. During the meeting, we'll be providing supplemental materials that outline more details on the financial targets and guidance, so look for those to be handed out this morning. We'll also be posting another version of our deck, which includes these materials around the same time, so if you've already downloaded our materials, please be sure to check back. Before we get started, I have a few additional items. First, I'd like to ask that each of you take a look at our safe harbor statement on Slide four of the prepared materials for more information about forward looking statements and the use of non GAAP measures, which you will see and hear more about during today's presentation. Secondly, in the room today with us is Neil Frohnapple. He's our new Director of Investor Relations. Neil, raise your hand. Neil joined us just this week and is looking forward to getting to know those of you that he hasn't already met as he assumes lead responsibility for Investor Relations for Timken. Neil comes to us with thirteen years of experience as a sell side equity research analyst covering industrial companies in the machinery space. So he's already quite familiar with Timken and with many of our investors. Jason Hersheiser, who many of you know and have worked with for a number of years, is also here with us today. Jason is going be assuming another role within finance for Timken, and we wish him well as he transitions to new challenges. And lastly, I want to touch on one additional housekeeping item. You'll see in some of the slides today that we're showing adjusted EBITDA. We've decided to start using EBITDA and adjusted EBITDA as our main operating income metrics in place of EBIT and adjusted EBIT. The main reason is the amount of M and A we've done over the last couple of years has created a significant amount of noncash purchase accounting amortization expense, which in turn has affected the comparability of our results. We think this is a good move to help investors better understand our results, and we'll make this change beginning with the fourth quarter of twenty nineteen. We intend to use EBITDA for both consolidated and segment results. Prior to releasing earnings for the fourth quarter, we plan to post an eight ks that will contain EBITDA information for relevant prior periods. So with that housekeeping out of the way, please join me in welcoming to the podium Richard Kyle, President and CEO of The Tinting Company. Good morning, everyone. Thank you, Shelly, and thank you all for joining us here in New York and on the phone. Our Timken management team is excited to share with you how Timken is advancing as a global industrial leader. Timken has been a strong investment, and our company has never been stronger or better positioned to deliver shareholder value for years to come. Today, you'll hear more about our strategy and how we're winning across product lines, markets and geographies from members of our management team. Each member of this team has been with the company for more than a decade. They have all had key leadership roles in advancing Timken to the company that it is today. And they are very capable of delivering on our new financial targets. Over the last decade, Timken has been evolving into a global industrial leader with a growing portfolio of engineered bearings and power transmission products. We took actions to proactively reposition the company. We built scale, expanded our product offerings, grew geographically and diversified our end markets. The result is a financially stronger company, delivering greater returns and cash flow. Our new financial targets over the next five years will continue to grow the earnings power of the company. As compared to the last five years, they reflect slightly more organic growth and a little less inorganic growth with good margins and returns and strong cash flow and the deployment of that cash. We'll share through the morning why we are well positioned and confident to deliver on these targets. The Tempe company has been around for a long time with a one hundred and twenty year history and ninety seven consecutive years of dividend payments. We'll end this year at about $3,800,000,000 in revenue and adjusted EBITDA margins of 19.5%. And we will deliver our second consecutive year of record earnings per share. Since our founding, Timken has been a world leader in bearing technology. Bearings are critical engineered components in all equipment designs that require rotating motion, and they will remain vital in next generation equipment designs. And while most of our history has been in bearings, our future is in both bearings and power transmission and motion products, which we've been steadily expanding. Today, our power transmission product offering amounts to 30% of sales. We are a global company with many of our competitors and customers based outside The United States. We go to market directly to original equipment manufacturers as their trusted design partners, and we serve our aftermarket and small OEM customers through our global network of distributors. We selectively supply to the automotive market and we are a global broad based supplier to the industrial market. This is where we focus and this is where we have a strong and differentiated value proposition. We operate and segment our business by the markets we serve. Mobile Industries is comprised of applications in vehicles and moving equipment. Off highway equipment, like agriculture, construction, mining, and rail aerospace, planes and rotorcraft and on highway vehicles, cars and trucks. Process industries is comprised of applications and fixed equipment, wind turbines, solar panels, conveyance systems, oil rigs and manufacturing plant machinery and diverse industries like metals, packaging, paper and food and beverage. While there are exceptions to these statements in general, mobile tends to be more concentrated at large OEMs, higher volume, smaller products and less aftermarket than process. These factors are why process margins run 800 to 1,100 basis points higher than mobile margins. We continue to work to mix mobile margins up, but we expect the margin gap to stay in that range for the current planning horizon. We have and expect to continue to grow process industries faster than mobile industries, and we deliberately allocate more of our capital and M and A resources to process. This has mixed the company up and continues to be an opportunity moving forward. In 2019, process and mobile will be about the same size for the first time. Bearings remain our primary product line and focus as a company, representing a little over twothree of our revenue. We have a strong global position in this large and growing space, and you will hear throughout the day about our competitive strengths and how we're winning with our bearing product line. About onethree of our revenue is derived from products other than bearings, which we classify as power transmission and motion products. These fit into five broad product categories: linear motion, automatic lubrication systems, drives, belts and chain, and couplings, clutches and brakes. These engineered components are generally found in the same equipment that also contains bearings. Quite often the same customer channels, both OEMs and distributors and in the same end markets as bearings. Our strategy with acquisitions has been twofold: to add revenue within existing channels, markets and customers and also to accelerate our scale in markets, channels and customers where Timken has historically been underrepresented. This strategy has diversified our revenue streams and provided significant cost and penetration opportunities. This chart represents our estimated 2019 revenue by end market, and I'm going to spend some significant time on this chart as it's very important in regards to thinking about how Timken performed on the top and bottom lines prior to 2014 from 2014 through today and how we will perform in 2020 and going forward. Two of the big drivers in why we are confident that our top line will perform better in the coming five years: first, the mix that you see on this chart today is stronger than it was in 2014 and second, within each of these segments, we are better positioned to perform. We have steadily shifted the end market mix of our company. We still excel in and focus on serving traditional Timken markets like ag, oil and gas and mining, but we have also diversified our portfolio into other markets, and we strengthened our performance within both. The first column, general industrial, includes many markets that individually comprise less than 3% of our total revenue. Machine tool, paper, robotics, aggregate, medical, logistics, food and beverage are all examples of markets contained within that category. It also includes some common aftermarket products that are sold through distributors that could end up in various end markets. This highly fragmented collection of revenue makes up over one fourth of the company's sales. Our leaders today will share how we are winning in these fragmented markets with a broader and better product offering and how we have and continue to build a business that is differentiated in serving fragmented markets. After industrial was automotive, automotive remains an important market to us at 10% of revenue. We've significantly shrunk automotive as a percentage of the company over the last decade. Today, it is a market where we intend to hold our position and our profitability and we have the business pipeline to do so. We're very selective in the niches in which we participate within auto as the global automotive bearing industry on the whole remains a profit challenged space. This portion of our business was a drag on the top line for many years. But today, we look at this 10% of our business as a good niche business that we will sustain moving forward, but also not the growth engine of company. Our next largest end market is aerospace. We participate broadly in the aerospace bearing industry as well as the rotorcraft drive market. We are disproportionately weighted to rotorcraft over fixed wing and defense over commercial, but we have opportunities to expand in all. Our aerospace business was an underperformer up through 2016. We took actions to improve it. And today, aerospace and defense is contributing to our record performance, and we expect that to continue in the years forward. Three other markets I want to highlight: Renewable energy, which is wind and solar at 7% of the portfolio. Five years ago, renewable energy would not have been large enough to call out, and it's now one of our largest end markets. As a bigger part of our portfolio with a broader product offering, we expect this market to be an even bigger contributor to our results going forward. And while like most of our markets, it does not grow linearly, it is a high growth market and it has different cyclical characteristics than many of the traditional industrial markets that are on this page. Another market that was not historically large enough to call out is marine, which is now over three percent of the company. For Timken, this is primarily U. S. Defense. It is not a high growth business, but it is a stable source of revenue with a multiyear backlog that we can count on for many years in the future and again has different cyclicality characteristics than many of our industrial markets. The final market I want to reference specifically is rail. Freight rail has been a traditional strong market for Timken. We also participate in passenger rail, but at much lower global penetration levels. Passenger rail is a significant market for Roll On, and this acquisition broadened our product offering and scaled our global position in this attractive bearing and motion market. As we look at weakening industrial markets to end twenty nineteen, we estimate that onethree of our business is continuing to expand despite the North American industrial slowdown that started in the third quarter, and that would include aerospace, rail, renewables, marine and several of the smaller markets lumped into the industrial other. Across the markets on this slide, our largest OEM customer approaches 3% and the top 10 OEM customers make up less than 20% of the company's sales. And then those top customers purchase across thousands of part numbers and applications. We are typically sole sourced at OEMs. We ship hundreds of thousands of part numbers in a year. And when you lay in that product diversity on top of the customer diversity, geographic diversity across these markets, you can see how diverse the portfolio has come. When we talk about our targets later this morning, you'll see that we are targeting 3% to 4% organic growth rate. We're confident that with this market mix and our position within these markets, we are well positioned to achieve these targets. As we look back to see how Timken has evolved to perform better, I think it's important to note four transformative changes in the company. First, up through mid-twenty fourteen, we had a steel business that comprised about onethree of the company revenues. The spin off of the steel business significantly altered our cyclicality, capital intensity and our financial metrics. We stripped steel out of these 02/2014 pie charts as well as all the numbers that you will see today. We've But when you look back at our historical performance, our stock price, our cyclicality, our capital allocation, it was certainly a factor in all of those metrics. Today, steel we are more focused and we are moving faster. Second transformative event from 2000 up until the Great Recession of two thousand eight, 02/09, we had an automotive business that was low single digit margins. We dramatically shrank that business, which hurt our top line up through 2014. And as I said earlier, today, we like our niche automotive exposure and are well positioned moving forward, we do not expect this to be the top line drag that it was historically. Third, our pension plans consumed a significant amount of our cash from 2,000 up through 2013. That and the automotive steel businesses were masking what was really a very good cash generation in our industrial bearing business, which is largely what the company is today. Phil will talk a little bit about our pension transformation, but our pensions are significantly smaller than they once were, well funded, derisked and in a very different position, and we're confident in the cash generation of the current portfolio. And then finally, as I spoke to you on the prior chart, for over a decade, we have changed and diversified our industrial mix by product, geography and end market to become a better performing company for customers and shareholders. So as you look at this slide, up until 2014, the company was really focused on significant transformation. And since 2014, we've really been focused on execution and advancing our portfolio. And now we're positioned to accelerate that execution. On the segments, we've moved from about two thirds mobile to about half and half today. Also, you go back to 02/2008, the mobile business was marginally profitable. Today's 50 delivers solid margins and has for a decade, very good and very good cash flow. I would expect the mix of the company to continue to steadily move towards Process Industries. On the channel diversity, we expect to continue to keep this mix between sixty-forty in both directions with some ebb and flow as it moves with markets, it moves with mix as well as acquisitions. We obviously like to participate in the aftermarket, but being designed into the OEM remains important to technical and brand relevance as well as to capturing our share of the aftermarket. And one final note, the chart that isn't here that I touched on earlier is our geographic diversification. About half of our revenue is now generated outside The U. S. And our footprint is very well positioned to serve those end markets. Again, all this just further illustrates that Timken today is a stronger, more diversified company positioned to perform better going forward. And while I've been talking about how much better positioned we are today going forward, we've performed very well looking back over the last five years. Our five year revenue CAGR of over 4% has been comprised of over 4% from inorganic growth with positive organic and negative currency of both under 2% offsetting each other. Again, you'll see that we're in position today to roughly double that organic rate over the next five years to 3% to 4%. Just to remind everyone that not only were 2015 and 2016 weak industrial markets, the U. S. Dollar strengthened considerably over that timeframe, which negatively impacted us and all U. S. Multinationals. On flat currency, the five year CAGR would have been 6%. Adjusted EBITDA margins have run between 14.5 at the low in 2016 and this year's high of 19.5%. Our EPS CAGR of 13% with consecutive records last year and this year and our return on invested capital ranging from 9% to 12.8%. We received a lot of questions about our cyclicality and how we'll perform in a down cycle, and I want to make four points on this. First, excluding steel, our adjusted EBITDA margins have held this range of 14.5% to 19.5% for a decade. And during that decade, there have been fixed swings in steel prices, commodity prices, currency, there's been volatility in trade, changes in tax law, changes in technology, and there have been cycles in every one of our end markets. Timken has been a steady and improving performer for more than a decade through all that volatility, and we will continue to do Second point is if you look over a longer period of several decades, outside the Great Recession of two thousand and eight, February, and again without steel, our markets expand and contract over quarters and years. We get a lot of questions about sharp falls. And certainly, when we had a steel business, we experienced sharp falls. But if you extract that and look over thirty, forty year period, that is just really not how our markets have historically moved. In fact, the drop we just experienced from the second quarter to the third quarter of this year was among the sharpest quarterly declines we've experienced in the last two decades, and we are navigating that drop just fine. Third point, in a flat or declining market, we generate very good cash flow, and we can either pay down debt or be on the offensive in buyback or M and A just as we were in 2015 and '16. And then finally, the point I've been making, we are a stronger company entering 2020 than we were any time on this chart or the decade that preceded this chart. So no two cycles are exactly the same and we don't know how or when the next one will play out exactly. But as you will see shortly from Phil, we're planning for a small contraction for next year to start the year off the weak finish to this year. At the last Investor Day in 2017, we laid out some targets. And in total, we've exceeded those targets by successfully executing our strategy. The targets took a balanced approach to driving growth, margins, returns and cash flow. In total, we moved the needle on all of them and equally importantly, positioned the company for better performance moving forward. Most notably, we deployed our capital deliberately. We added acquisitions to our portfolio that mixed the company up, allowed us to strengthen our position in existing and new markets and expanded margins. We invested in CapEx, paid an increasing dividend and reduced our share count. Our TSR has been good with total returns above our selected peer medians for all periods And the only time frame we lagged the two selected S and P peers was for the five years, and that was a tough comp for industrials in general. A couple of important points on this chart. Timken's TSR performance over this time frame essentially came all from performance and little to none from absolute or relative multiple expansion. Our multiples on adjusted EBITDA, EPS and cash flow as compared to our peers have given us very little credit for the performance that we've delivered and the transformative changes to the company that I talked about. And our multiple remains more in line with the company that we were when we had large auto and steel businesses. Even without multiple expansion, delivering on our new targets over the next five years should deliver very solid TSR. And if during that process, we can also get some relative multiple expansion in line with similar industrial companies, the TSR opportunity is even much greater. You can see our vision taking shape in the evolution of our company. It guides our strategy and our execution, and we will continue advancing as an industrial leader with a broadening offering of engineered bearings and power transmission products focused on continually improving performance, reliability and efficiency. Before I dig in go into detail on this slide, I want comment that really both from a market share standpoint and a technology standpoint, our markets move relatively slowly. And when you reflect back to that market chart that I spent some time on and think about all the customers, end markets, products and application that our products are in, most of our product is designed into a piece of OEM equipment that is in production for many years. And there is very little desire from our customer, the OEM equipment manufacturer, to change out incumbent suppliers. Then that product is serviced, sometimes for decades, with service parts. The great thing about that is the stickiness of the business for us. We don't generally get replaced by OEMs and we establish long streams of revenue. The negative is we don't generally win big market share overnight. We win market share with a lot of small to medium wins with OEMs and end users over design cycles and over replacement cycles. That's how Timken wins market share. So while these trends are opportunities for us, they're generally happening over design cycles and over multiple years. Taking electrification as an example, while electrification is a clear trend in the design of future on highway vehicles, Even there, it remains a very small part of the actual production market. It will take a long time before it's a material part of the installed base, and it will take even longer before it moves large scale beyond market. We are participating in electrification and hybrid designs across all of our markets where it is happening. We see more activity around hybrid designs in the off highway equipment market, which means full electrification is still more than another full design cycle away. Design cycles are good for us. Sometimes new designs use more, less or different bearing and PT technology, but they require premium technical suppliers like us to participate in the equipment designs, and that is opportunity for Timken. Sustainability is a major opportunity for us with our products helping to advance the reliability and efficiency of the solar and wind energy industries. The wind industry relies on highly engineered bearings and power transmission products to generate power. There's great opportunity for Timken in this space, and we now provide bearings for the main shaft, very large bearings, and the gear drives as well as lubrication systems, clutches and couplings. And through our recent acquisition of Cone Drive, we now provide drive solutions in addition to bearings and couplings for solar equipment, which is another growing and attractive market for Timken. In addition to renewable energy markets, every equipment maker is actively working to improve the sustainability of their future equipment designs. Again, this requires bearing and PT producers to participate in the designs of those systems to reduce weight, reduce friction, reduce emissions, reduce size, use different sources of energy, and all of the technical challenges that go along with that. This requires strong application engineering expertise, and this is a place where Timken really excels. Asia also remains a sizable opportunity for us. Timken has been successfully investing in and building our brands and capabilities in Asia heavily for two decades. We have a talented team there, good market positions, and we're well positioned to participate in the higher growth that this region offers This is often a key synergy opportunity in our acquisitions. Typically, look at that we can take the acquired company into Asia faster than what they could do on their own, but we sometimes acquire the position in Asia like we recently did with lubrication. And finally, automation, our acquisitions of Cone Drive, Rollon, Groeneveld and BEKA all participate in various parts of the automation market trend. In the case of ConeDrive, we design and supply drive systems for robotic arms. Our Groneveld and BEKA products automate the application of lubrication for industrial equipment and Roll On participates in the factory automation market. We receive a lot of questions about the specifics behind these macros. Do the new designs use bearings? What kind of bearings? Are there more bearings, less bearings? And the same for power transmission. There are generally positives and negatives within these trends, but the net has been market growth, and we expect it to continue to be market growth. So for example, in energy, wind and coal use more bearing and PT products to generate the same amount of power as natural gas and solar. But our technology is relevant in all four energy sources and is relevant as long as there are moving parts in motion. All of the next generation of equipment that is under design today continues to rely on Timken technology. These three pillars of our strategy have been consistent for several years. We will be the technical and service leader wherever we participate. We will be design partners for OEMs and service that equipment with distributors and end users. Our objective is to outgrow the markets in which we participate while shifting to higher growth markets and technologies. Our new application pipeline continues to build, and you will hear examples of that today. We are a manufacturer, and we sell primarily to manufacturers, and we are very good at it. Our safety and quality records are outstanding. We run factories efficiently. We drive performance in our operations by the hour. We operate globally. We get good returns on investments we make in our plants, and we leverage technology to drive cost and efficiency across the entire business and supply chains. It's critical to our top and bottom line that we continue to innovate across all aspects of our business to continually improve our performance, and our pipeline of activities today across the operational excellence space is very robust. And finally, we'll make excellent decisions around where and how we deploy our capital. Phil will talk more about our framework, decision making recent results. This management team has built a very good track record in this area. The Timken business model has also been key to our strategy for several years. I'm very confident that we understand where the profit pools are and the places where our technology and capabilities are relevant. And we are focused on investing and winning in those parts of the market. This is one of the biggest differentiators with our company today from over a decade ago as well as a differentiator with many of our competitors. The Timken business model drives that approach to focus and investing. The bearing industry is large. Most of it is great, but parts of it are financially challenging and the same could be said for power transmission. We filter that big market down with the four criteria applications, aftermarket, fragmentation and high service or cost of failure requirements. Then on the right are our competitive differentiators. This is where we focus on building our internal capabilities to capture and win the opportunities that make it through the filters. In the middle, we look for expanding markets, technologies and products. Bottom line and point of this is that we are selective in what we pursue, both organically and inorganically, and then we bring outstanding capabilities to the execution of the pursuit of those market opportunities. This right side is also an important part of our acquisition strategy. We are primarily acquiring family owned businesses. What we do is keep that small company focus on the technology and the customers they serve, while we relentlessly use our scale and capabilities to drive operating efficiencies in digital, purchasing, logistics, manufacturing, global expansion, sales and other synergy opportunities. Chris will take you through the business model and with some more examples in detail. But first, let me spend some time on where and how we compete in regards to mission critical applications. Our customers rely on Timken to provide assistance in developing and designing their products and then in assuring that our products perform without fail to specification. Quality, reliability and brand promise are very important. A bearing or PT component failing prematurely or not performing properly in the equipment where we participate is generally a very expensive problem for the end user. OEMs, distributors and end users value our technical sales model, which combines field sales and service engineers with application specialists, all supported by product development R and D capabilities. Most of our customers operate globally and their equipment ends up all over the world and we are there to service that OEM or end user. And again, we focus our operational excellence initiatives on quality, safety, service, cost and capital efficiency, ensuring that we are a great business partner that delivers industry leading customer service. The combination of these factors creates significant barriers to entry to new players and allows for ample differentiation with global competitors. We get asked a lot about emerging market competitors and commoditization. Nobody is putting a non premium branded bearing into a helicopter, an offshore wind turbine, a high speed train or the other applications where Timken is focused. Timken has a long history for being an excellent corporate citizen, something we all take a lot of pride in, for making the communities where we live better, for being an excellent employer all around the world and for being good stewards of the world's resources. We recently released our first comprehensive corporate social responsibility report, which establishes our position across multiple ESG metrics, and we will continue to drive the world forward responsibly through our products and through our actions. Capital allocation has been and will continue to be a significant driver of shareholder value creation. As I mentioned, our historical pension liability, auto business and steel business overshadowed what was a good and is now an even better cash generating business. While Phil will talk about our capital allocation framework and priorities in more detail, I want to emphasize again, we're very confident in the cash generation of the business and equally confident in our ability to deploy that cash to CapEx, dividends, buyback and M and A to drive total shareholder returns and a stronger Timken company. We have become a more acquisitive company in the last five years. It's making our bearing business stronger and our company stronger. The bearing industry is a great space, and bearings will remain our core offering. But as I mentioned, we are selective in our approach to growth. There's a significant part of the industry that we're not particularly interested in pursuing, and the industry is relatively consolidated. We have focused our M and A on the engineered components around the bearing in the power transmission and motion space. This space tends to be more fragmented, less consolidated, has good profit pools and provides ample synergies with our bearing business. Acquisitions have strengthened and expanded our portfolio, allowing us to advance our position in bearings and industrial end markets and expand into new adjacent power transmission products. By entering these products, we've been able to serve current customers more fully and expand our global customer base. As we look forward, we plan to continue to pursue bolt on M and A to deepen our position in our current product lines and selectively add other product lines that fit the characteristics of the Timken business model. Timken has become a successful acquirer and we have the talent and the operating capabilities that will allow us to continue to capture significant cost and sales synergies. As we go forward, we'll continue to execute our strategy, deliver industry leading operating performance and deploy our capital to drive value creation. We will continue to pursue a balanced approach to growth, margins, returns and cash flow. We will be deliberate in where we grow, how our mix evolves and how we allocate capital. Our focus is on building shareholder value. We're targeting the result of these actions to yield 3% to 4% organic growth and 2% to 3% inorganic growth, slightly more organic than the last five year window and slightly less inorganic. The higher organic growth is based on today's mix, the growth pipeline in place and the strength of our product portfolio. Inorganic is opportunistic in nature, but we believe we can add $100,000,000 to $150,000,000 of revenue on average annually. We think this is both an amount that we can find both strategic and financially attractive targets as well as have the ability to absorb them internally and assure that we are adding value to the acquired businesses. We're targeting EBITDA margins of 2010% compounded adjusted earnings per share growth. We will end this year at roughly two times net debt to EBITDA. We remain committed to an investment grade balance sheet and we will plan to stay in our range of 1.5 to 2.5 times. We're confident that these targets are achievable and will continue to grow the earnings power of the company from twenty nineteen's new level. And we also believe that delivering another five years of performance in this range should improve our multiple relative to industrial peers to provide further upside to our TSR. In summary, Temkin is a strong investment. We're an essential ingredient brand inside many of the world's leading industries. The core of our business is very strong and positioned for continued success. Our innovation pipeline is expanding and our know how in engineered bearings and power transmission is second to none. Our global distribution network profitably serves fragmented markets and how we operate and invest in our business is a differentiator and value creation opportunity as we look to the future. I'm now going to turn it over to Chris Coughlin and our other leaders who are driving this success. This team is committed to and believes in the targets that I just summarized and is very capable of delivering. Now Chris Coughlin, our Executive Vice President and Group President. So good morning. I'm Chris. I'm responsible for all of the operating commercial activities with regards to the company's engineered bearings, power transmission products and industrial services offering. So here are the key messages you'll hear me highlight today. First, I'm going to provide some more insight into the markets and specific segments we focus on. But I'm going to spend most of my time on the model that we operate the business by. But it starts with creating significant value for our customers by solving the toughest, most complicated challenges within industrial machinery. We achieved industry our revenue outgrowth in several ways. First, we operate with excellence in the core markets. But in addition to that, we focus on winning in attractive growth markets that possess long term aftermarkets, which is a critical aspect to the margin profile that we run as demonstrated in the Process Industry Group. And then our technical organization continually assesses the value drivers in these growth markets to develop innovative solutions, products and services that strengthen our competitive offering. And we then drive our competitive advantage by leveraging our globally integrated digital platform and relentlessly driving operational excellence across the enterprise. So let's start with the markets and segments we focus on. As Rich outlined, we look at markets and how we serve them. So Mobile Industries for Timken is just under US2 billion dollars The off highway sector makes up about 30% of this group with the balance roughly evenly split among aerospace, rail, heavy truck and automotive. In these markets, we're primarily dealing with original equipment manufacturers and their associated service channels. Our approach in Mobile Industries is to go after the most demanding applications, generally those that require higher performance solutions. Because we have been doing this for many decades, we have deep customer relationships with our largest OEMs, particularly inside their technical organizations. We then further differentiate from competitors by applying strong application engineering support, coupled with excellent customer service in terms of delivery, lead time and speed. Today, the mobile industry business is in a significantly better position than it was five years ago. The business is about 15% larger, and margins have improved about 130 basis points. Our opportunity pipeline is strong and growing, and our competitive position has been greatly improved as we have continued to migrate our manufacturing footprint to low cost locations. As we look to the future, we see good growth drivers. Instance, our expanded power transmission product line is very useful inside our core legacy off highway market position. We view things like electrification as a good trend for us. Now you need to realize, Timken is small in passenger car. So for us, electrification is really around light truck and heavy truck applications. And sometimes, in this area, it's actually an advantage for us because the addition of battery weights change the load dynamics on those applications, and thus they require higher performance solutions. We're also positive about the long term prospects for rail. Both freight and passenger rail continue to grow throughout the world as urbanization continues. For example, our recent investment in Russia has allowed us to meaningfully participate in one of the largest freight markets in the world. And lastly, we expect aerospace markets to continue to grow, and we're investing a lot in this area to ensure our participation on these future platforms. And now process. This is the segment we are really focused on growing, and we operate, quite frankly, with impressive margins. 50% of the revenue stream here is global distribution, which is primarily serving end users and small original equipment manufacturers. The balance is original equipment manufacturers in areas like renewable energy, heavy industries with gears and services making up the balance. Our approach in Process Industries is straightforward. We focus on winning at original equipment applications that possess a long term aftermarket. We then utilize distribution channels to maximize the lifetime revenue of the application. It's very simple in concept, but difficult to execute. The major reason for that is the end user fragmentation makes covering the market difficult. But we excel in dealing with fragmented markets, and we prefer them as they are easily defended and there is a significant opportunity to extract profit. But it's also important to know we use the same model for our power transmission products as we do for bearings. The core business models are essentially the same. Like mobile industries, process industries today is in a much stronger position than it was in 02/2014. For process, revenue is actually 35% higher over those last five years, and the margins have expanded near 200 basis points. Again, our opportunity pipeline is large and growing, and our product line expansions over the last five years have created many new opportunities within our global distribution network. With regards to growth, we have a proven track record within the Process Industries group. In, since 02/2009, we've actually grown at a 9% CAGR in this area. In fact, though, if you go back to 02/2001, which is when Timken really began focusing on growing process industries, we actually have a 9% CAGR since that period as well. So as we continue to look forward, we once again see significant opportunity to continue growing this. As we'll continue to highlight during the day, our renewable business in wind and solar is rapidly growing. And there's lots of opportunities to continue to expand our global distribution network and the associated power transmission products that we take through those networks. Now at this point, I will now move on to the Timken business model. Rich previously showed you this, and this is the model by which we operate the business. The left side is how we filter the opportunity. The right side is how we differentiate. So for the balance of this presentation, I'm gonna take you deeper into this model to explain exactly how we use it and where we apply it. At a summary level though, there's several points I'd like to make about this model. First, it's differentiated from most of our competitors. For instance, our major bearing competitors all have significant exposure to passenger car automotive. Timken participation in this space is relatively small. And the reason for that is this model and the way we filter opportunities and how we define attractive markets. But it's also important to recognize the same model applies to all of our products and businesses beyond bearings. The core business models are essentially the same. Thirdly, this model is time tested, it's proven, it's robust, and it's scalable. And it is this model that drives our performance. It drives our market outgrowth, enables our margin profile, and creates long term defendable market positions. So let me now go into the specific aspects, and I'll start with challenging applications. Timken, as Rich pointed out, is a global engineering company, and we are capable of solving the toughest challenges in complex machinery. So envision a 400 ton mine truck operating twenty four hours a day, a wheel end with a tire 30 foot in diameter, operating with heavy loads, hot contaminated environments. This is the type of application that the Timken company excels in. Over the past hundred and twenty years, we have cultivated the technical capabilities and engineering knowledge, and we've combined them with decades of test data to become the industry leader in designing power transmission solutions. We have deep technical and proprietary knowledge in areas like tribology, materials, surface engineering, and load distribution. We utilize over 80 specific engineering analysis models to design the solutions that we provide for our customers. Customers value these capabilities a lot, and they especially value them in new equipment platforms. Our customers know that the Timken solution is going to work. It enables them to control risk. It enables them to optimize performance, and it enables them to optimize the cost of their new platform. The customer knows that the Timken solution will work and that it will arrive on time. As the application matures, we'll continually work with the customer to improve both the performance and cost of the design. And then over time, we use our distribution network to ensure that we capitalize upon the long term aftermarket. So now let let me move on to the specific points about the aftermarket. The Timken team is completely focused on winning throughout the application life cycle, resulting in the revenue split that you see shown on the right. With regards to winning at the OEM, we've already discussed the first two points around how we focus on the difficult applications, and we use our technical capabilities. But we also utilize a global manufacturing footprint and an integrated digital infrastructure to provide our customers cost effective solutions with excellent customer service in terms of delivery, lead time and product quality. Combining our technical capabilities with a cost effective global manufacturing footprint is a powerful combination in a competitive sense. While we generate our strongest margins in the aftermarket, it's important that we win at the OE to drive the installed base. But the installed base alone doesn't give you success in the aftermarket. We also need an extensive global network. We need excellent customer service, and we need a broad product offering. With regards to the network, it's critical that we have it for dealing with the the fragmentation. We have millions and millions and millions of applications operating all over the world. It's impossible to serve those in the aftermarket without an extensive distribution network. But service, especially product availability, is a critical success factor in the aftermarket. A replacement part is generally needed immediately. So Timken uses pretty sophisticated inventory modeling to create regional distribution centers that we then combine with our distributor's local network so that we can ensure product availability. So most of the time, because of that network, the Timken product is available when it is needed immediately. Lastly, product breadth is beneficial as well. Given the fragmentation, a broad product line gives us a greater revenue opportunity at any given distributor or end user. Also, since a normal distributor will have thousands of suppliers, they actually greatly value strategic suppliers that can bring a broader range of capabilities and products. And we've had success, both scaling and diversifying our Global Distribution business. Since 02/2001, Global Distribution has grown at a 5% annual CAGR. It is now a $1,000,000,000 business for us, and it consists of a more diversified revenue stream that operates at excellent margins. More importantly, our current position is significantly stronger than five years ago. Our network of nearly 1,000 Timken authorized distributors now completely cover every region in the world. Our expanded product range has increased share both within our legacy distributors and has provided new growth opportunities with many of the small OEMs. Further, the product expansions via acquisition have significantly increased the size of our global sales force, and this is a major benefit when trying to cover fragmented markets. Moving forward, we see many opportunities to continue doing what we've been doing. We'll continue to expand and scale the global network, diversify our product offering, both through the products we carry today and that we're taking through our channels and those we have yet to develop. So now at this point, I want to move on to how we assess the markets we compete in. What you see on this slide is a one method of how Timken segments markets. Historically, Timken was situated on the right side of this chart mostly because our legacy tapered roller bearing product thrived in areas that required high operating load characteristics. So, however, that product is often not the right technical product for the lighter industries that we show on the left. Over the last fifteen years, we have aggressively expanded our product offering with other bearing types and complementary products to enable us to compete in these lighter duty industries. And many of these lighter duty industries are actually rapidly growing, but they tend to value things like speed and precision over load capability. So but for instance, you know, think about just ecommerce. Ecommerce is driving an explosion in warehousing and logistics. So there's substantial growth opportunities for us in these markets as we improve our competitive offering that brings value to these types of applications. Consequently, we are very focused internally and organized around building scale in these types of markets. Significant organizational resources are dedicated to each of these markets to create the products, the channels, and the value propositions necessary for us to scale our market position in these types of applications. Take food and beverage for instance. Five years ago, our exposure to food and beverage was minimal, essentially zero. Today, we have full time resources focused on this market, and we offer a large range of products in bearings, belts, chain, couplings, gear drives. It's our intention to continue this expansion via both organic and inorganic means as we move into the future. I now wanna transition to the right side and talk about our competitive differentiators. Talent and technology innovation are very important parts of our business model. We have strong, experienced management team, and we have some of the most innovative engineers in the world. But in the interest of time, today, I am only going to focus on the business capabilities and the operational excellence during this presentation. Timken operates one of the best integrated information technology platforms in the industrial market space. That statement is based off of extensive benchmarking with all of our customers. The importance of this cannot be overstated. Timken has a globally connected digital infrastructure that spans suppliers, manufacturing, sales, engineering, pricing, and customers. The result is we're just simply faster than many other companies. Further, this infrastructure enables the use of global processes to optimize and coordinate decision making. Altogether, this is what's driving our industry leading customer service in terms of product delivery, availability, and lead time. And we are focused on continuing to leverage and expand this digital platform, both within our legacy operations and for synergy capture within our acquisitions. The solutions we've shown here have already been implemented to drive customer efficiency and engagement. They're already fully deployed and creating significant value. As we continue to invest and expand our digital platform and are in the middle of a five year program to broaden our capabilities, just this year, we created the digital linkage to our supply base, which effectively has integrated them into our ERP system, our manufacturing systems, our quality systems, and customer qualification systems so that we can improve the speed and reliability by tightening and align aligning our supply chains to our customer demand and our customer qualifications and our customer quality processes. Starting in 2020, we're gonna shift to the other side. We are gonna integrate our customers and our distribution networks into our ERP, engineering, and commercial systems. Timken's digital infrastructure is already being leveraged to create enormous value, but it is our intention to expand it and continue driving it as we move into the future. And finally, I wanna move on to operational excellence, and this is really the core of the Timken company. We are a lot of engineers, so we tend to look at operations in a very technical, type manner. Operating with excellence is centered on everything we do in the organization. It's one of the core drivers recently that you've seen with regards to our margin performance. We utilize the Timken manufacturing operating system, which is actually a subset of the Timken business model, And we use that to implement lean principles and scale our continuous improvement initiatives throughout the manufacturing and supply chain infrastructure. It's what drives quality, service, and cost. But it also drives our long term process to how we determine our manufacturing footprint, where we increase capacity, and how we deploy proprietary new technology. Through our operational excellence framework, we have been systematically adjusting our manufacturing footprint to balance our regional infrastructures, to optimize the cost, and align those infrastructures with growth markets. These changes have positioned us to be a premier global industrial supplier to big global customers and global distribution channels. Over the last decade, we have regionally balanced our bearing manufacturing footprint while also installing world leading manufacturing capability into emerging markets like Asia and Eastern Europe. In just the last five years, we have established new bearing facilities in Russia, Romania, India, as well as completing significant existing plant expansions throughout India and China. State of the art processes in robotics, automation, and vision inspection systems have been deployed throughout our global manufacturing facilities. And we've linked them together with our digital platforms so we can seamlessly serve our global customer base. But our operational excellence approach is not just limited to manufacturing supply chains. We utilize the same methodologies to drive continuous improvement within our SG and A infrastructure. As shown on the right, we have been systematically improving our SG and A efficiency as a percent of sales and recognize we've been able to do that despite bringing in acquisitions that operate with higher SG In summary, our operational excellence framework is a key driver of our overall performance. It's effective, it's proven and scalable for implementing into our acquisitions and our legacy operations. Moving forward, we will continue with these same methodologies to continue to improve our operating performance. So in summary, hopefully, this gives you some confidence in how we manage and how we think about the company and how we operate the company. Over the last five years, our competitive position and operational performance has been structurally improved. Our business model is unique and provides the ability to operate with strong margins, gain share in new markets, all while having best in class customer experience. Moving forward, we're positioned to increase participation in attractive new growth markets with long term profitable growth opportunity. And we intend to continue scaling our revenue while delivering strong margins, creating defendable long term market positions, all while achieving market outgrowth. Thank you very much. Okay. Thanks, Chris. Thanks, Rich. I appreciate what you've shared thus far. We're gonna take a quick break just so everyone can freshen up their drinks. Refreshments and other things are available out in the hall. Restrooms are down the hall just here on the left, and we'll start back up at 11:00. Thanks. All right, everybody. If you could find your seats, we're gonna get started again. Enjoying all the informal Q and A. We will have formal Q and A at the end of the presentations you're going to see now. So please join me in welcoming Andreas Rogan to the podium. Okay. Good morning. My name is Andreas Horgan. I'm originating from Germany, and I'm heading up our Europe, Asia, and Africa regions. It feels like Rich and Chris covered already a whole lot and answered basically all the questions you may have on your mind already. But let me highlight now how we are growing actually our portfolio in the engineered bearings business, sharing with you how we are profiting outgrowing our business around the world. The key points I'd like you to take away today are the following. We are focused on winning in diversified industrial markets. That is what differentiates us in the bearing space, both in terms of our value proposition to original equipment customers, as well as our ability to maximize the lifetime of revenue to drive margin performance. We are constantly expanding our portfolio of highly engineered bearings. And with our advanced sales model, we are growing our pipeline of opportunities in attractive markets we choose to compete in. And we are moving with velocity to capture an increasing number of global growth opportunities, taking advantage of high growth regions and markets, notably in Asia. As I walk you through my presentation, I'm going to share specifically a few case studies with you that show you how we are winning and creating value in the bearings space. Rich has walked you through our corporate strategy. You may recall that engineered bearings represent 70% of the company's sales, and 30% is coming from power transmission products and services. As bearings remain our most important product group, I'd like to convey some key elements of our strategy here again. Our goal is to be the world leader in industrial bearing solutions focused on diversified industrial markets. So what are we doing concretely? First of all, we are really creative, as Chris laid it out already, in engineering optimal bearing solutions for customer applications. Remember our business model. We focus on the most challenging applications in the most attractive markets and then design the most power dense solutions. This competency is hard to replicate, particularly by emerging competitors. We deploy a comprehensive customer centric business model by which we focus not only on the original equipment manufacturers, but through our service engineering team around the world, we accompany the full life cycle of critical equipment at end users, allowing us to pull the Timken brand and certain unique design features through the OEMs and cross sell our expanded product lines. On the operational side, we structure our manufacturing footprint and supply chains close to markets to deliver industry leading service, and then we leverage our distribution network around the world to ensure product availability where and when our customers need it. This is, in essence, the strategy we successfully deploy in bearings, and that enables us to outgrow competition in markets we choose to compete. You remember, Timken invented the tapered roller bearing, and in the first hundred years of the company has built a formidable installed base of products in equipment operating around the world with essentially this one bearing type. This is part of the reason why today about 44% of our revenues are generated from distribution and end users, as Rich pointed out earlier. However, over the past two decades, we have massively expanded our industrial product portfolio through both organic and inorganic investments in product vitality initiatives. When you think about the product categories of the bearing industry, we drive value primarily with roller bearings, with precision bearings, and with housed bearings. That's the focus of our portfolio. In contrast, we are not really engaged in the commodity markets of ball bearings. For example, for two wheelers, light passenger cars, or white goods. So today, we are offering a full range of bearing sizes, rolling elements, and proprietary designs applicable to a wide array of industrial applications, and approximately half of our portfolio is comprised of custom engineered solutions. Our offering drives customer value at OEMs and captures the life cycle of revenue through the aftermarket. Timken's technology and innovation are critical elements in executing our growth strategy. Our expertise is in friction management, power transmission, and metallurgy, and we apply our knowledge to engineer bearing solutions that withstand the harshest conditions and most critical operating conditions requirements. Our globally consistent quality ensures efficient and reliable performance. You've heard Rich and Chris talking about how emerging trends in sustainability, power efficiency, and automation require Timken expertise. Our technical strength is exactly this, providing the best possible highest performance design for a new complex application from scratch. A capability that, again, emerging market competitors find impossible to deliver at this level of excellence as they lack what we call our institutionalized knowledge. This knowledge resides in our proprietary tools, our systems, our algorithms. They make the difference in the application design process. And then it is our material science, our manufacturing technology, and our integrated quality systems that make the difference in the performance of our products in the applications. And finally, it is our sales and service engineers that come with extensive technical expertise to aid customers with custom solutions, with the majority of them being the greed engineers. These elements are embedded in the Timken brand. Our brand is a tremendous asset in the marketplace, representing one hundred twenty years of accumulated strength that we are celebrating this year. With a 30,000,000,000 opportunity in industrial markets, Timken is focused on targeting attractive fragmented end markets to achieve profitable growth. The bearing industry is not homogeneous. Therefore, as Chris described before, we apply a disciplined process to analyze and segment the industry, and then drive strategies of the business where the profit pools are the greatest. This has been and continues to be a significant driver of our financial performance record. Key considerations when selecting market opportunities best suited for Timken include long term operating cycles, custom product requirements, high need for service and support, aftermarket channel exposure, and steady demand leading to less cyclicality among others. This is where we focus offering a full product portfolio and serving a broad application set. We selectively participate on the left side of the chart, Bill two, where we find niche opportunities to drive value. An example of that would be small gear drives. End markets with high growth opportunities for TIM can include heavy and light industrial equipment, wind energy, rail, food and beverage, among others. Our traditional space has served us well, and we will continue to regularly serve our large industrial markets of off highway, heavy industries, heavy trucks to name a few. In addition to those, we continue to identify highly attractive and profitable growth markets from a bearing perspective. This is where we are focusing more organic growth and product development investments. As an example, I'll touch on wind energy in a moment. Other markets with strong attractiveness, given our set of core competencies, are again food and beverage, aerospace, rail, precision bearings. So wind. Wind is one of those markets we started focusing on just over a bit more than ten years ago. In that time, we have become a leader in the wind industry due to our technology and innovation solutions in that market. We continue to see a need for optimized reliability, cost, performance in wind applications for bearings. Consequently, we place strategic capital investments in our core bearings business to strengthen Timken as a local supplier to essentially all leading wind turbine and gear drive manufacturers and select wind park operators in the world. In addition to that, we complement our offering through inorganic investments. We just recently announced the acquisition of Baker Lubrication in Germany, and prior to that acquired PT Tech and Lovejoy for couplings, all of which are providing critical technologies to serve wind and which make us even more valuable as a solution provider to customers. As an example, by applying the Timken business model, our engineering expertise, and our advanced manufacturing process technology, we have partnered with one of the top global turbine builders to produce the world's largest wind turbine that is soon being launched in offshore wind markets. With our efforts, we have grown our wind business from zero two decades ago to about 200,000,000 today, with about an 18% compound annual growth rate since 02/2010. Our investments position us extremely well for continued strong growth in wind going forward in both, again, original equipment applications, as well as in the aftermarket, driven by our installed base of products. On the product side, house units is one of the bearing product categories we have developed from scratch also over the last two decades. In house units, we are dealing with an extremely fragmented market with few industry players offering the full portfolio of products that serve customers, for example, in cement and aggregate, food and beverage, and other process industries with unique application requirements. We have been building that portfolio to become a full service provider, starting with the Torrington acquisition in 02/2003, and then developed a number of new product lines organically. Similar wind, though, we have broadened our portfolio with three strategic acquisitions of QM, Revolvo and EDT and intend continuing to do so with attractive opportunities. As a result, we have grown revenues with this product line from a single digit million in 2002 to over $150,000,000 this year, a compound annual growth rate of more than 20%. This is a perfect example of how the combined organic and inorganic initiatives create a stronger business for Timken. And with a heavy aftermarket in house bearings, we're also mixing up the margin profile of our business. As you can tell from our financial track record, we are clearly successful in entering and driving outgrowth in new regions. This is because of a proven two pronged model. On the one side, we leverage our global competencies, such as the Timken business model, our engineering and technological know how, our product platforms and operational excellence all across the world in a very consistent, trusted, quality way. And then, to maximize capturing local opportunities, we have completely local management, engineering, and sales teams in place to drive customer centricity in each region. This way, we provide truly customized solutions to our original equipment builders and the appropriate service levels to distribution. And finally, we are increasingly sourcing our materials for local supply chains, thus having the ability to operate as efficiently and sustainable as possible while cutting costs in the operations. We're expanding globally from a very strong base of our bearings business in North America. While in the past we generated more than 50% of our bearing business over here in US and Canada, with the outgrowth in focused markets in Europe, Africa, and Asia, we have expanded our global reach to the extent now that more than half of our revenues in engineered bearings are generated outside of North America. We expect that trend to continue, that trend of outgrowth, given the huge bearing markets in Europe and Asia, given the gradual shift of industrial production to emerging markets, and given our superior business model we consistently apply around the world. With our efforts, we have essentially worked ourselves into the top three industrial bearing suppliers in every region outside Japan. Let me come to another example, Asia. As Asia remains a critical growth market for our expansion. The fundamental growth drivers, such as growth in population, standards of living and infrastructure, the ongoing urbanization, and changes in the energy profile remain in play. These are all areas Timken excels in developing solutions for. Again, we're winning in Asia by leveraging our global competencies for strong local management to capture opportunities in fast growing markets such as heavy industries, energy, rail, or highway. It is important to notice that we are succeeding with all three types of customer groups in Asia. The western multinationals with operations in Asia. Secondly, the local private companies. And then thirdly, the state owned enterprises that we find primarily in China. Since bearings are critical components for the performance and reliability of a machine, they all share the same needs, particularly for export markets. Customers want quality in the applications. They want Timken inside. Timken is well positioned in Asia, also with an expanded manufacturing footprint, with increasingly local sourcing, a record number of new product introductions, and a network of distribution partners to capture growth in the aftermarket with Frank Method end users. With about 18% compound annual growth rate from 16 to 20, we have clearly outgrown our markets. While GDP growth in Asia has leveled down a bit from prior years, the region remains the most attractive market in the Bering world relative to growth rates, size of the business and industries we serve. We continue to see significant growth opportunities ahead and with our strong customer relationships in the region, our continued investments in capacity and products and our proven business model, we are confident to continue outgrowing markets in Asia going forward. Here's another one. And another attractive growth market for us is metric bearings. As a US based company, we have historically been strong in inch sized bearings. We have always been engaged also in metric bearings, but just recently, we completed our product range to the extent that customers see us as a full range supplier now, which is key in the fragmented industrial world. With more than half of the global bearings market being metric, we have the opportunity to leverage our position in inch to expand in Europe and Asia with metric bearings of all relevant sizes, forms, features. To capture that opportunity, we have invested in a best cost manufacturing footprint with latest process technology in Central, Eastern Europe, and Asia. Actually, of all parts of the world, you can find our most modern manufacturing processes now in the East with latest automation technology and other industry leading innovative features as recognized by our global customer base. As a result of our efforts, we have recently won a record number of new customers in Europe and Asia. We have gained share in targeted industrial markets and enjoyed about 15% compound annual growth rate in metric bearings since 2016. Our pipeline of growth opportunities, which is part of our sales business model, has grown to record levels as we speak today, promising continued outgrowth in the future. In summary, we are celebrating one hundred twenty years of the Timken Company these days that is continuously and successfully advancing its business model for bearings. Secondly, we see the latest technology trends as Rich laid out earlier, provide ample growth opportunities for advanced designs, enabling us to further differentiate our products and profitably grow in attractive markets. Thirdly, we have actually accelerated feeding our massive installed base of products in equipment operating all around the world, providing a constant stream of profitable aftermarket opportunities. And to conclude, we are confident that in these exciting times of fundamentally changing technology, driven by the global trends of electrification, digitization, urbanization, bearings will remain a vital component to the world's equipment and vehicles. With this, I'd like to close, and thank you very much for your attention. Thanks a lot. Good morning. My name is Hans Landen. I'm responsible for leading Timken's power transmission products. You heard earlier how Timken is advancing as a global industrial leader. I will provide more insight into how we generate shareholder value with our global diversified power transmission portfolio and how we are advancing our business for continued success. Power transmission is an attractive space that provides natural adjacencies to our core bearing business and is delivering strong value creation. Through an expanded product portfolio, we are able to capture more of our customers' value stream, while at the same time serve them more fully. Our power transmission portfolio adds significant value to our enterprise by strengthening and enlarging our distribution channel and expanding us into less cyclical and higher growth end markets. And we intend to continue on this path, expanding our product offering through executing our organic and inorganic power transmission growth strategy. And power transmission will remain a key element of Timken's outgrowth strategy. Through natural extension of our bearing business and strategic M and A, We have built a strong and diversified power transmission portfolio today. Our power transmission portfolio has now grown to an annual sales of over US1 billion dollars and is so broad that it can compete head to head with the leading global players in the market. Through strategic acquisitions, we have entered into many new markets and accelerated our geographic expansion. For example, Brunnenwelt, ConeDrive and Rollon, which I will highlight a little bit later in my presentation this morning, are three companies that we have successfully integrated to expand our presence in lubrication, drives and linear motion, but also to accelerate our growth in Asia and in Europe and increase our presence in attractive growth markets such as solar, automation and logistics. These diverse product lines works together to help Timken deliver our strategy, improving our profitability and delivering outgrowth by expanding into higher growth markets and new geographies. The potential is tremendous within power transmission, and we are very well positioned in this space. We have access to new high growth markets with high entry barriers and with strong profit pools. We have incrementally reduced our cyclicality and we are delivering improved profitability for the enterprise. I see very strong opportunities to accelerate our profitability via continued to package power transmission with bearings and more aggressively create cross selling synergies. But also, we are building scales, expanding geography and specifically in China, as well as strengthening our global distribution channel around the world. Our customers today recognize the value of Timken's broader product portfolio. We are providing customers with one resource to meet their power transmission needs. Expanding into power transmission products is a logical and national fit with bearings. It has similar business model, designed in at OEMs, and often has a frequent replacement cycle to create aftermarket. And many times, we find that the aftermarket demand is supplied via the same channel partners. This schematic highlights the space we are targeting for our power transmission growth. We are targeting critical mechanical components located between a drive element such as a motor and the driven equipment, which can be everything from a pump, compressor, conveyor, a fan, etcetera. We can also package these components for our customers. For example, we have large ag customers who are now benefiting from a combination of Timken products such as bearings, chains, belts, clutches and lubrication systems all in one application. But also by leveraging the Timken business model, we are now more relevant and a stronger partner for our distributors. Our power transmission offering is strengthening Timken's position in the so important global industrial distribution market. Let give you some more color on why I think that is. It really comes down to three strong value propositions. The first one is increased market reach and improved customer accessibility. With the largest sales teams and more distributors, we simply have more reach. For example, with our Air Force in power transmission, we have recently gained a lot of more distributors in HVAC, power sports and lubrication systems. But we also gained more reach in new geographies by scaling in our existing markets. By leveraging Timken's global capabilities and best practices, we are offering world leading products and product availability and services to our customers. The other value proposition is the broader product offering. This creates both cross selling and up selling opportunities, while providing value as a one stop shop. Our increased offering also provides scale and increased relevance and value in a consolidated distribution channel. Lastly, we are leveraging our existing relationships as well as our global capabilities, such as our digital platforms, logistics and global sales teams to better compete and to win in the marketplace. The result has been excellent. We have grown our power transmission distribution sales at an 18% compound annual growth rate over the last three years. So let me now present a little small case study on how we put this playbook in action and how we win in distribution while mixing up our margins and create value. We will use belts to illustrate this example. It is important to understand that belts are typically sold through the same distributors as we sell bearings through. Belts are also replaced more frequently than bearings. And we typically see a ratio between OEM sales to aftermarket, which is greater than two. This is really good news and a great opportunity for us because we see the aftermarket margins significantly higher than the OEMs. We bought our belt business in 2015. The business we bought was a modest margin business with about 75% of its revenue coming from OEM. Our strategy was and is to systematically over time grow the distribution and aftermarket business, and while doing so, mix up the distribution sales and improve margins by several 100 basis points. So what have we done? Well, we created a world class distribution model utilizing the quality belts we design and manufacture. We then utilizing Timken's digital and logistic platforms, which has made our products now much easier to order with improved availability and simply made us much more attractive and easy to do business with. We then combine our sales efforts by joining our sales team together and to grow our aftermarket share as strategic, targeted key leading distributors where we have deep relationships and good knowledge of their operations. So basically, selling and leveraging our deep customer relationships between all our product platforms to create scale and unprecedented coverage. The result has been great. Yes, as our strategy was to year over year systematically increase the Bell's distribution mix, that is exactly what is happening. And with increased distribution mix, we are seeing stronger margins. But not only is it worth to say that this was great for belts, it also helps Timken overall because as more belts we have been selling for distribution, the more relevant we are overall. And it helps us succeed in our product lines as well. Our power transmission strategy is really to scale in our traditional markets and our traditional channels, but also to accelerate our pace of entry into new, fast growing and highly desirable markets. This slide shows some attractive markets where megatrends like automation and renewable energy are creating strong market growth and our power transmission efforts have helped Timken to grow our share in these markets. For example, our acquisition of Rolla, the leader in linear guides, telescopic rails and linear actuators, enable us to now serve new customers in the aerospace, packaging and logistic markets, but also in medical, robotics and automation. Our most recent acquisition, which is BEKA Lubrication, they are expanding our leadership in the highly attractive automatic lubrication system market. With BEKA, we have become the second largest supplier of industrial automated lubrication systems globally. And this is creating new opportunities for us in wind and other industrial end markets. Let's see how we are penetrating one of these key markets, like solar, with another case study. Solar energy is expected to grow from today's 2% of the world's produced electricity to 22% by 02/1950. And we expect Timken to play a major role in moving that growth forward. We have expanded our capabilities and expertise in solar via the acquisition of CoonDrive. CoonDrive has built a strong reputation over the years for innovation in the solar market. Accuracy and precision are two critical elements for maximizing power generation from a solar plant. As such, a great fit with Timken and Timken's technical expertise in our business model. By using precision motion control, Kundrais products position thousands of mirrors in a synchronous way to precisely reflect the sound slide into a target that sometimes is as small as 20 to 30 square feet and could be placed at a distance as far as 2,000 feet away. All this while operating in severe environmental conditions. ConeDrive has become a leading supplier to the global solar industry by offering a differentiated, high accurate drive solution. We are now leveraging ConeDrive's leading position to cross sell and supply the industry not only with drives and controls, but also with bearings, clutches and universal joints. The results also here has been very impressive. We are winning in the marketplace, and we are seeing double digit growth in solar from now supplying the world's largest OEMs in the world. Let's talk a little bit about our power transmission growth strategy. We really have a two pronged power transmission strategy. The first pillar of our strategy is to drive organic growth in existing product lines. We are doing so by using practices and accelerate our product vitality and innovative efforts. We have so many exciting examples. For example, we took Timken's expertise in material science, in heat treat and turbology, And we then combine that with DRIVE's expertise in chain manufacturing. And we did that to develop a brand new leaf chain, which is used in safety critical forklift applications, and the market reception in sales growth has been tremendous. As discussed, we are driving for geographic and market expansions, and we are leveraging Timken's global distribution market and customer network to together with capturing synergy opportunities accelerate our organic growth. Strategic M and A is our second pillar of our Power Transmission growth strategy. Here, we are seeking good businesses with strong market positions in markets with strong profit pools, which often are underserved. And we are targeting companies with products, which is adjacent to our existing products and businesses. And with all acquisitions, we are using our proven M and A playbook, which has enabled Timken to increase its profits, incrementally decrease our cyclicality, while also increasing our global scale and adding top line growth. In a later slide, I will show our M and A strategy put to work through our successful acquisitions like Grunewelt, Rollon and ConeDrive. But before then, let me just give you a little more insight on the different elements in our M and A playbook and as such, how we add value through strategic M and A. It all starts with identifying and acquiring good businesses and simply make them better. So how do we make these companies better? Well, we establish strong executional synergy cases where we drive cost synergies via applying our best practices in areas of operation excellence. In addition, we apply our business model to drive cost synergies via streamlining back office functions, leveraging our current capabilities within areas such as digital platforms, IT, systems, warehouses and logistics. A great example is Diamond, Diamond Chain, where we now are applying Timken's operating model and digital expertise to drive our cost. And we do that while significantly improve Diamond's service levels and as such, add tremendous customer value. Another example is Lavio Couplings, where we within two years after the acquisition had improved Lavio's margins by over 400 basis points through a combination of investments that leverage our scale and operate the business more cost effectively. On the revenue side of Synagis, we are driving growth via systematically accelerating our innovation and product vitality. We are offering a new level of market reach by utilizing our extensive network of distributors around the world, as well as our sales team. We are deploying resources and we are improving customer service and scale. So in summary, we have a well proven playbook which works. And our goal is with our power transmission acquisitions to collect significant synergies that will allow us to strengthen our long term position in the power transmission market. I now want to give you a little bit of an update on three of our largest acquisitions, which we acquired in 2017 and 2018. Let's talk with Grunewald, which we acquired in 2017. We now forecast to end 2019 around $115,000,000 in revenue and with adjusted EBITDA margins above 20%. We are on target with our senior plan. And so far, we have seen especially strong synergies from growth in United States, but also from significant lower operating costs coming from, for example, synergies in such as operation, procurement and logistics. Rollon, which we acquired in 2018, is also delivering very strong financials. We estimate this year to come in at around EUR 135,000,000 in revenue and with our synergy plan also tracking on plan. And we expect EBITDA in excess of 30%. On the senior side, we are especially pleased with how we've been able to grow Roland in the distribution area well as how we've been able to expand Roland's geographic expansion in 2019. Finally, ConeDrive, which we acquired in 2018. We have seen very strong growth and we are projecting EUR 155,000,000 of revenue this year. Also, ConeDrive is tracking on plan to our senior plan, which has helped Cone drive their productivity, and we're now estimating our adjusted EBITDA for the year to come in at greater than 20%. Combined, these three businesses will have delivered 35% of organic revenue growth over the last three years to the Timken Company. And they have expanded their adjusted EBITDA margins by 60 basis points in 2019. This has led to that we have brought down the net acquisition multiple already by over three turns for these businesses. We expect this growth trend to continue as we will further utilize our Timken business model and organically grow these businesses as well as executing our synergy plan. So to close, let me say that the future of power transmission business is very bright. Moving forward, you can expect to see more from Timken's power transmission businesses, more diversified products via product vitality and M and A activities, more sales and profits from identifying and capturing cross selling opportunities, geographic and channel expansions, as well as driving our cost from our operation and back office functions. So in summary, Powertrain's mission is advancing us as a global industrial leader, is a key element of Timken's outgrow strategy, and has proven to deliver very strong value creation. So with that, I thank you for your attention and your deep interest in Timken's power transmission business. And I would like to hand over to Phil. All right. Thanks, Hans. I've got the last presentation of the day, so I will try and get through my slides as quickly as possible or at least get to the slides you're most interested in as quickly as possible. But I do have a few things to cover ahead of time before we go to the Q and A session, so I hope you'll bear with me. Before I start, I'd just like to thank all of you for joining us today, both here in New York City and over the webcast. I hope you found the presentation thus far both informative and insightful. So for my presentation, I want to quickly recap our strong financial performance over the past few years, take you through our capital deployment framework and give you a sense of what to expect going forward, provide some initial high level guidance on 2020, and then finally, review the long term targets that Rich took you through already, but also kind of sprinkle in a view on what that might mean for Timken in terms of performance over the next five years. But most importantly, I want to convey our confidence in the sustainability of our strong financial performance and our confidence in Timken as an equity investment. So let's quickly start with 2019. So we're twothree of the way through the quarter. And while December is always difficult to predict, at this point, we're affirming our full year guidance ranges we issued back on October 31. We still expect sales to be up 5% to 6%, and we expect record adjusted earnings per share in the range of $4.7 to $4.75 for the year. This would imply $0.94 to $0.99 per share for the fourth quarter. We also continue to expect free cash flow of roughly $375,000,000 And frankly, I think we'll beat this number. And I want to highlight the margins because, again, they really stand out. We expect adjusted EBIT margins in the range of 19.5% for the year at the midpoint, which is up 140 basis points from last year, and that's despite flattish organic growth. Our strong margins reflect positive pricing, strong operational execution across the enterprise, and acquisitions have contributed as well. I'd say our final point, I'd say our end markets are generally holding up to our expectations, and we're delivering very strong financial performance against a relatively soft industrial economic backdrop. Rich covered this slide earlier, so I'll be brief and just make a few points. Timken has truly made a step change in financial performance over the past over the past five years, and we did what we said we were going to do. We've grown the top line profitably, enhanced the portfolio through acquisitions and structurally improved our operating performance, margins and bottom line earnings. On this chart, you can see our performance in the twenty fifteen-sixteen period. This is the best the company has ever performed in any downturn as we kept adjusted EBITDA margins in the mid teens, held earnings per share around $2 at the bottom in 2016 and delivered ROIC above our cost of capital in all years. And we're stronger today than we were then and expect to perform even better in the next downturn. You can also see the recent 2017 to 'nineteen period, with 2019 as the peak, if you will, to date. This performance is higher than we've ever delivered before, with adjusted EBITDA margins approaching 20, record adjusted earnings per share of $4.72 at the midpoint, ROIC north of 12% and strong free cash flow of $375,000,000 As Rich said, the strategy is working. So it's probably not too surprising that we plan to do more of the same over the next three to five years. I want to spend a little bit of time on this slide on both cash flow and the balance sheet. From a balance sheet perspective, while we have added around $1,300,000,000 of net debt over the past five years, mainly to fund acquisitions and share buyback, our leverage remains squarely in the middle of our target range of 1.5x to 2.5x net debt to adjusted EBITDA. So we continue to maintain a strong investment grade balance sheet, and we don't expect that to change. What has changed and changed for the better is free cash flow. Along with the improvement in our operating performance has been a commensurate improvement in free cash flow. Our $375,000,000 of estimated free cash flow for 2019 is a good example of what this company can do. We expect free cash flow conversion over 100% of net income through the cycle. Now it will be less in high organic growth years like 2017 and 'eighteen and more in other years, but we're confident in our ability to convert over 100% of our net income to free cash flow through the cycle. This provides fuel for acquisition growth and capital return, and we expect cash flow to grow with earnings and be augmented by continued efforts to improve our working capital performance while staying true to our business model. Later in the deck, I'll cover our early look at 2020, and you'll see that we expect to generate even more free cash flow next year. Here's our capital deployment framework. We talk internally about smart capital deployment, and I believe this has truly become a differentiator for Timken. We're using our balance sheet and free cash flow to drive our strategy, make Timken a better company and deliver top tier returns to our shareholders. Our framework is largely unchanged from what we reviewed with you back in 2017, but I do want to point out a couple of updates. Investing in our core business is still our one priority. You'll note that we're now targeting CapEx in the range of 3.5% to 4% of sales. This reflects the fact that most of the acquisitions we've done operate at lower capital intensity levels than our core bearing portfolio. For the dividend, we're targeting a payout ratio of 20% to 35% of adjusted net income, which stacks up well versus other mid cap industrials. Our commitment to the dividend remains unchanged, and I'll cover this further in a few minutes. Oh, excuse me. And finally see here. Hang on one second. Sorry. And finally, we've changed our leverage target to be EBITDA based, which is more consistent with how we think about it internally as well as how lenders and rating agencies look at it. We're targeting net debt in the range of 1.5 to 2.5x adjusted EBITDA, which is in line with a low to mid BBB investment grade credit rating. This is the foundation of our framework. We intend to deploy our capital, but we also intend to keep our leverage within this range. As I indicated earlier, we presently sit just about right in the middle of the range, and we're comfortable with debt at this level in the current environment. And frankly, we'd expect to stay within this range even in a downturn due to strong cash generation as we usually see cash conversion of well over 100 percent when sales decline. When I talk about capital deployment as a differentiator, this is what I mean. As you can see, we've deployed over $8,000,000,000 of capital over the past fifteen years, and it's had and continues to have a big impact. This chart summarizes our capital deployment over three different five year periods, 02/2009, 02/2014, '2 and 02/2019. Note that these numbers exclude discontinued operations like the steel business we spun off in 02/2014. The first thing I wanna point out is pensions. You can see that pension and OPEB required a lot of capital back in the 02/2014 period, about $1,000,000,000 to be exact. This has dropped significantly in the most recent five year period, down to around a 100,000,000 or so, as we've derisked our exposure and frozen or terminated most of our plans. And we expect only modest cash contributions going forward. This has and will continue to free up more capital to invest in growth or capital return. Apart from pensions, you can see that we've stepped up our capital allocation over time. Looking at the looking at the past five years, we've allocated 3 and a half billion in capital with a balanced approach, over $600,000,000 in CapEx, over $1,000,000,000 in capital return, which includes both dividend and share buyback, and over $1,000,000,000 in acquisitions. As I indicated, we expect strong cash flow going forward, and we intend to deploy that cash in a smart and balanced way. We continue to have a bias toward growth initiatives and acquisitions, and we expect to keep our leverage within that target range. When we talk about investing in the core business, we're talking about driving organic growth and margin expansion. This is R and D, innovation, application engineering and, of course, CapEx. These investments generally produce the highest returns at the lowest risk. As I mentioned, we're targeting 3.5 to 4% of sales for CapEx, which reflects our current mix of business. Think of around 1% as being maintenance CapEx, with the remainder driving growth through new capacity in low cost countries, like our new plant in Romania, as well as driving operational excellence across the enterprise, like investments in automated inspection equipment in The U. S. Note that for 2019 and 'twenty, we expect to be at the higher end of this range for CapEx as we continue to invest for growth in in sectors like wind energy and add capacity in key regions of the world. You guys have heard me talk about the dividend many times. We're committed to our dividend. We just paid our three hundred and ninetieth consecutive quarterly dividend earlier this month. Rich and I are proud that 2019 will be the sixth consecutive year of annual dividend increases. I know I speak for Rich and the board when I say that we want this streak to continue. So we will continue to pay an attractive and competitive dividend that grows over time with earnings, and we'll target a payout ratio of 20 to 35% on adjusted earnings per share as well as an attractive yield as compared to key benchmarks. Share buyback has played a critical role in our capital deployment strategy, and we'll continue to do so. Since the beginning of twenty fourteen, we have repurchased about 23% of our shares gross. After taking stock compensation into account, our shares are down about 19% net over that period. This has driven significant EPS accretion. We continue to view share buyback as an attractive use of capital, and we expect to buy back shares over the next five years. We have about 5,500,000.0 shares remaining on our current buyback authorization, which expires in February. I would expect us to put a new authorization in place before that time. You've heard a lot about acquisitions from Rich and Hans earlier. We've completed 20 deals in the past ten years of all shapes and sizes, with purchase prices ranging from around $10,000,000 at the low end to over $500,000,000 at the high end. We've allocated over $2,000,000,000 of capital to m and a over that time frame. These acquisitions are expected to contribute over $1,100,000,000 to the top line in 2019 with EBITDA margins that are accretive to the company average on a net basis. You guys have heard me say this many times. We believe in the value creation potential of M and A, and we will continue to add attractive businesses to the portfolio where it makes sense. But we'll stay disciplined as we always have. We need a strong strategic fit, and we expect our acquisitions to be accretive to earnings in year one and earn the cost of capital, which we think of as 9%, by year three. If the M and A is not there, we'll look to other options for capital deployment like share buyback or debt reduction. On size, we'll continue to focus on small- to medium sized businesses. We're not opposed to doing a larger deal if one comes along, but again, we'll be disciplined. And the reality is there aren't there aren't that many large acquisitions that would be of interest to us. Just a note on BEKA. We're very excited about BEKA and the leadership position we now have in the attractive automatic lubrication systems space. However, as a reminder from what we said on the third quarter call, VECA will be dilutive to company EBITDA margins out of the gate. There's tremendous opportunity for value creation and margin expansion as we integrate this business with our Gruneveld business. It's just going to take a few quarters to get there. So that's it for capital deployment. In a nutshell, we like our framework. It's a differentiator for Timken. And as we generate strong cash flow and balance sheet capacity in the future, we expect to continue driving a balanced approach to capital deployment targeted at the highest returns for our shareholders. Okay. Now on to the outlook, and there's going to be some handouts coming around. Here's our early look at 2020. So given it's December, we decided to provide you with a high level look at 2020. The next couple of slides will take you through it. But let me preface this by saying that certainly a fair amount of uncertainty continues to cloud the industrial space. So our early look guidance will be today is a little bit wider than we normally give. We'll look to narrow and update this in early February when we release fourth quarter earnings. Right now, we see 2020 as roughly flat on the top line, with sales ranging from down 2% to up 2% versus versus 2019. We're estimating that acquisitions in currency will add about 2% to the to the top line on a net basis, And the currency assumption is based on current exchange rates. So organically, right now, we're estimating that revenue will be flat to down 4%. I'll dive deeper into the specific markets on the next slide. We're estimating adjusted earnings per share will be in the range of 4.4 to $4.8 per share, which is down slightly from 2019 at the midpoint, driven mainly by the impact of lower organic volume and unfavorable acquisition mix margin mix from BEKA, which is more than offsetting positive pricecost. Again, we'll likely narrow and update this guidance in early February. On cash flow, we expect another strong year with free cash flow estimated to exceed $400,000,000 which would be over 120% of GAAP net income at the midpoint. Here's our current estimated look at the organic growth by end market sector for 2020. As I indicated, there's still a lot of uncertainty out there, but we wanted to give you some sense for what we're seeing right now. Our guidance assumes organic growth will be in the range of flat to down 4%. Here, you can see our estimate for the various end markets and sectors at the midpoint. As you can see, we expect off highway and heavy truck and automotive to be down year on year, while renewable energy, aerospace and industrial services are expected to be up. This is the benefit of our business mix as we still see strong fundamentals in markets like renewable energy, aerospace, marine and global rail, which are helping to mitigate the sizable declines that are expected to continue in off highway and heavy truck. Again, for the year, we expect sales to be down 2% organically at the midpoint. The first half and second half will look a little bit different, though. In the first half, we'd expect sales to be down mid single digits organically year on year at the midpoint. And in the second half, we'd expect to be flattish to up slightly as the comps get a lot easier. Rich reviewed this already, so I'll be brief. These targets are over the next five years. Over the next five years, we intend to generate a strong top line growth CAGR driven by both organic and inorganic growth. We're targeting a roughly 6% top line growth CAGR over the period. On margins, we're focused on generating the top line growth and delivering 20% EBITDA margins at the consolidated level. Our focus is on growing our business and delivering a 10% earnings per share CAGR over the period, which would include some share buyback to hold leverage near the middle of our 1.5 to 2.5x range for net debt to EBITDA. And cash flow will continue to be strong as we expect to convert over 100% of our net income to free cash flow over this period. Now we wanted to give you a sense and translate these targets into some hard numbers and give you a give you a little of a sense for what's possible for Timken over the next five years. On this chart, we walk from the 2014 peak to the 2019 peak and then to our new five year target, which would be the next theoretical peak, if you will. If we can deliver sales growth in the range of 6%, which reflects our expectations for higher organic growth than we delivered over the last five years and slightly more modest inorganic growth, we see revenue of around 5,000,000,000 in five years. Note that the organic the inorganic growth will be opportunity driven. It could be more, which would mean less buyback or vice versa. With EBITDA margins of 20% and capital allocation, including share buyback, we'd expect to deliver earnings per share of around $7.5 in 2024. And we expect ROIC north of 13%, which is well above our cost of capital. Now the next five years is not gonna be linear or go straight up. We expect 2020 to be down slightly from 02/2019, as I discussed, but we don't see a prolonged downturn at this point. What you can expect from Timken is strong performance over the period. We have a better mix on the top line, a more variable cost structure driving more resilient bottom line. This will translate to higher peaks and higher troughs with a tighter delta between the two and overall strong performance through cycles. Finally, on cash flow. Over the next five years, we're planning to generate free cash flow of almost $2,000,000,000, which, along with our balance sheet capacity, can be used to fund acquisitions or capital return. This will provide us with tremendous opportunity for value creation within our capital allocation framework. And our five year target for earnings per share assumes that we deploy our free cash flow toward M and A or capital return such that we remain near the middle of our targeted range for leverage. So what are the imperatives to deliver these targets? Essentially, we need to continue to drive our strategy in the Timken business model, We need to be thoughtful and selective in terms of our mix of business. We need to be relentless in our approach to operational excellence and cost management. And most importantly, be smart with our capital deployment, including M and A and share buyback. This management team has shown the ability to do this, and we're confident we can drive even higher performance over the next five years. So that is it for me. And right now, I'd like to turn it back over to Rich for some final remarks before we jump into the Q and A session. Rich? Right. Phil's the only one that didn't get a round of applause. I'm not sure what that implies for the reception of our new targets, Phil. Thank you. I just have a few comments to wrap everything up that you've heard. First, Timken has been a very good investment. Ten year TSR has been ahead of the median for the S and P five hundred as well as all other industrial peer groups that we benchmark. We have a solid management team. This is a small subset of them. Our senior leadership team is experienced in our industry. They bring a great balance of technical, commercial, operational and financial skills with a great amount of passion to the company every day. Barings and PT are here to stay. Technology is changing. The world is changing. But Timken Timken and his management team have successfully navigated those changes over the last decade. We will continue to do so in the coming decade. Heard it a lot. We generate good cash flow, and we have the company positioned for greater levels looking forward. We will deliberately put that cash to work to create value for customers and shareholders. And my final point is that we remain a very compelling investment today. While we've outperformed the S and P 500 median over the last decade, our multiple on earnings, EBITDA, cash flow remains well below the S and P 500 averages. So we have the opportunity to not only create value through our growth in earnings and cash flow, which we will deliver, but also through our relative multiple. So with that, I'm going to invite Chris and Phil to join me up here, and we will field questions. Okay. Oh, be careful. Cord. The cord. Yeah. The cord. Alright. As far as far as we can go. Alright. I'll go in there. We got mics going around. So At the moment. Richie right up here. So as you kind of think about those long term targets, the EBITDA margins of 20%, hearing the presentation today, there's a lot of discussion around growth. There's a lot of discussion around acquisitions. And there was some discussion around improving the aftermarket piece of your business. I guess as you're thinking about how you get to 20% EBITDA margins over the long term, like what is the right way to think about the way that you're going to get there across those pieces? I think you am I? All right. I think you hit on the various elements of it, and it's a little bit of those. Obviously, we do look to mix up through M and A. But on average, I would say day one, the acquisitions have generally not all come in at that level. And we've probably created more value with buying things in the mid teens and mixing them up to towards that 20% than we have paying for the businesses that are already above that number. So there's some mix down short term with that mix up long term. The mix to process to mobile is definitely the biggest factor, I think, in moving the company margins up for us to get to that 20%, above that 20%, have a higher trough number, close the gap, the mix to process industries is by far the biggest piece. And the reason the number, as we sit here today, isn't higher is, one, we are looking at a slight dip next year. And two, we feel there is more value creation opportunity by increasing the organic growth rate at these margin levels than there is in just going forward. So we generate good value growing parts of our portfolio that are 16% EBITDA and 17% EBITDA margin as well. Anything else you'd want to add to that, Phil? No. I think Rich hit it. Mean when you look at our segment margins today, you look at Process Industries at 26% EBITDA margins. I mean that is near the top of companies that serve those sectors. Even our mobile industries margins and EBITDA margins of 15.5% are well above average for companies that serve those sectors. So I think Rich is right. We're not we wouldn't plan on significant margin expansion at the segment level, if you will. But as we mix more into process, that will really be what drives the margins from where they are today to that 20% level. And maybe just following on with Chris and the aftermarket business. I think you guys mentioned that your aftermarket business today is, call it, roughly mid teens portion of your business, at least on the mobile side. And from a distribution standpoint, it sounds like that's a big part of the story. Where are we today? Where can we go from an aftermarket mix perspective for the entire business? And what needs to happen from an investment perspective for you guys to get there? Well, I think we have the platform to continue to grow it, number one. So that's why we kept emphasizing digital. I mean, digital is not necessarily a buzzword. Right? The issue with distribution is dealing with the fragmentation, and and that's the challenge to grow. So, you know, we're gonna continue to expand the infrastructure that we have. For instance, we're moving into Africa and some other regions like that. The broader product portfolio helps a lot because once again, that helps you deal with the fragmentation in terms of revenue growth, Right? When we go into an end user complex now, we have a suite of products to offer versus just a tapered roller bearing where you would have been twenty years ago. So we need to continue to do that because that scale is very important relative to the fragmentation, relative to achieving the growth rate in distribution. So I hope that does that answer it? That does. And then maybe just one more just for Phil. Obviously, we got to talk a little bit about the 2020 guide. So as you think about how you guys constructed the guide and, let's say, maybe potential risk to the guide, what are you most concerned about as we head into 2020? Then how should we also think about what the decremental margins are expected to be, particularly in the mobile business? Yes. So I mean, I think, as I mentioned, it's early. And obviously, just given it was December, we wanted to give you a sense for what we're seeing. I think the biggest risk would be a certainly, a deeper decline across some of the capital good sectors like off highway and then that's sprinkling into some of the more of the industrial sectors. If you look at that market chart, it looks a lot like what we showed you in the third quarter in terms of off highway and heavy truck being the biggest risk areas. A lot of the process industry sectors, I mean, wind and solar are going to is going grow next year. And the other process industry sectors are relatively neutral, plus or minus, just globally as we look at it today. So I think there you know, that would be the biggest risk. I think we're assuming a relatively status quo trade situation, unfortunately. So if if the trade situation resolves itself, that could be that could be some potential upside. And I think from a margin standpoint for the year, if you do the math, you'd see that the EBITDA margin assumption is for margins to be slightly lower at the company level in 2020 than they were in 2019, probably on the order of, call it, 50 bps or so. And that's really the lower organic the impact of lower organic volume. Decrementals are pretty good there, though, I would tell you, probably below well below 30% as we've talked to you guys about before. I think we are we are feeling the effects a little bit of BEKA coming in and mixing us down as we've talked about. We expect that business to improve as we move through the year, but it's gonna take probably take a good couple of years for us to get those margins back above 20%. So expect really good decremental performance. As we said, as we get into 2020, Rich talked about two things on the third quarter call. We still expect that to be the case. Revenue will be up sequentially from the fourth quarter to the first, and then we do expect positive pricing and modestly positive pricing and positive price cost, which is which is going to help those decrementals in 2020. Yes, Joe. First, a question on the organic growth in 2020 and implying down low singles. I think that, that would basically imply something like normal seasonality from where you are in Q4. And so is the cost structure now at a point to align with that kind of revenue and the seasonality that you have going through 2020? Or are there actions that we should anticipate that still need to be done? I think the cost structure is largely in line with where we expect the first quarter to be, which, as Phil said, it will be up modestly from we'll be up from the first quarter. We'll see how much, but it will definitely be from the fourth quarter. So I think the cost structure is in line with that. Our inventory levels are in line with that. So obviously, we took inventory out this year as well as our customers' inventories. And then I think the customer inventory situation really depends on how the markets play out through the course of the year, but we start the year, I think, in really good shape internally. And to the degree the normal seasonality plays out, I think the inventory in the channels is reasonable as well. And then a a question on metric bearings. Can you size what the revenues are today for you there? And and how you think about the opportunity set if that's more than 50% of global revenues in those markets? You know, how big can can you get there? Well, I don't think we wanna provide the But revenue suffice to say that our global market share in metric bearings is lower than our global market share in inch bearings for the reasons that Andreas highlighted. So we see just getting ourselves to our normal market share inside our distribution channels with metric is a tremendous opportunity for us. You saw, I think it was 15% annual growth rate of that. The reality is the bearing market doesn't grow 15% a year. So you can see that our focus on successful. I mean, we are pushing in the distribution channels trying to get our distributors to carry the full product line, both inch and metric, and been pretty successful with it. I I would just add even beyond metric bearings. So when you look at all the new products that Andreas talked about, the other rolling element bearings, I mean, we are we're still in the early innings. Those products are relatively new in terms of development and launching, you know, most of them over the last ten years. So while we have a solid market position in our legacy tapered bearing line inch tapered bearing line, as Chris said, we've got probably low in some cases, low single digit share in some of these newer product lines. And that's the growth opportunity because those products are they're competitive. They're they can compete with the best in the world. We're taking them through our channels, and and we're seeing some really good growth as a result, you know, even beyond the metric stuff. And then just last one on mix with a five year target. What percentage do you think Process is five years from now based on some of the growth initiatives? Yes. I think the only best way to look at that over the target range would say probably a little bit more organic growth in Process than mobile, just given those markets, and probably more of the M and A geared toward Process than mobile. So we wouldn't we're not going to put a specific target out of x percent to y percent. But if you saw from 'fourteen to 'nineteen, we went from 50 five-forty five to fifty fifty. So we moved 500 basis points in that five year period. Did a lot of m and a during that time frame, which really helped. So I would expect it to continue to move in that direction. Whether it's to quite that degree, we'll have to see. But it'll definitely, in five years, will be more process and mobile for sure. Hi, Brad. Hi. Dave Bradsaw here. On the 2020 guide, the price cost that's baked in there, and we had talked about the first half of the year, particularly a very positive price cost. It seemed like for the full year, price cost could be as much as positive 50 bps. So I'm just trying to understand the way the guide is playing out, the down 50 bps and op margins. What price cost is baked into that? Yes. I think all we're really saying at this point is positive price cost, modestly positive pricing. And pricing is being driven by some carryover from what we did in 2019, sort of the full year effect of what we did in 'nineteen. We have we are planning on some distribution pricing in 2020, which will be modest. And then we are seeing some favorable cost tailwinds, if you will, as input costs have come down. So at this point, we would just say positive. We'll provide a little bit more color as we as we refine the guidance in early February. But it it is positive, but really what we're seeing offset that is the impact of the lower organic and the fixed cost absorption that we're that we're that we would feel from that, other inflationary pressures across the enterprise, and then and obviously, the the mix down from BEKA. You know, when you think about BEKA, we haven't really talked. So if Timken's running 20% EBITDA margins or 19 and a half this year, you BEKA will come in, call it, much closer to closer to 10% than 20%. We're going to work to get that up over time. But the the the short term mix down from from BEKA, it will is having a negative impact on that number. Sure. And in fact, before and before you answer your second question, since Phil talked about the negative side of BEKA, let me talk about the positive side for a moment, which is now we've added a month and a half. The product line is fantastic. Again, family owned business. They've invested very heavily in engineering product expansion, and we're gonna leverage that very well. And then when you compare every productivity metric of of revenue per sales head, revenue per factory head, etcetera, Gruneveld versus BEKA. We are way ahead of them, and we see a lot of productivity opportunity just within BEKA and then, obviously, the benefit of bringing the businesses together. So we gotta do that right. We've gotta make sure we grow the revenue at the same time. But a month and a half in looks looks very encouraging. Yeah. And to be clear, though, BEKA's incremental sales in '20 are only about 120,000,000. It's 3% of the company, so they shouldn't be that big a drag on the margins. It's a small That's about a stretch. No. It's about a stretch. But again, margins down, you know, down 50 bps roughly or, you know, thereabouts driven mainly by, as I said, lower the impact of lower organic volume and then impact from the acquisition. And the guide seems to imply, unless the interest expense goes up a lot more than I'm I'm thinking or the tax rate changes a lot, you're not really assuming any share repo in the guide. It seems like you're assuming a share count that isn't terribly different than the year end. But the free cash flow is 400,000,000, and the dividend is gonna be $8,090,000,000. Where's the $300,000,000 going? We we generally you know, we usually, in the beginning of the year guide, modeled the capital allocation going to debt pay down, which does not do a lot to Okay. Their earnings per share. We would certainly look to do other things with it. So it kind of depends. But to go and factor M and A when you don't know whether that's there versus the buyback and the accretion. So I'd yes, there's certainly some upside to that versus delevering. Yeah. Yeah. I I say I say modest, though. I mean, even if you put it toward buyback with the with the averaging that you gotta take into account for accounting purposes, mean, you're talking, you know, less than a nipple. But, I mean, clearly, it would be upside if if we put if we put that to buyback Or M and A. Yeah. I mean, if you if you apply three ten to repo, it takes the share count on average down two to two and a half percent, which is more like $10.15 cents. But just because you get you get a half year you get a half year in the first year, and then you get the rest the next year. Okay. Thank you. Thanks, David. Justin Bergner, g dot research. Hey, Justin. Hello. First question is on the sales growth guide. If you expect to be down 200 basis points at the midpoint this year, are you effectively saying that over the next five years, you expect to do better than that three to 4% because you're absorbing the first year? Yes. Okay. So it's more like midpoint 4% or higher. Right. Second question is, I guess, can you tell us what you're thinking in terms of market growth? It seems like the guide is implying something closer to a 150 to 200 basis points of outgrowth versus the 100 basis points you gave a few years ago. Is that sort of in the right ballpark? And how much is cross selling with power transmission products sort of driving that higher outgrowth outlook in your new guide? I I would say I was predicting everybody can put their build rate on a heavy global heavy truck market and off highway equipment markets and so on and so forth on that. And there's some bandwidth of of that. Certainly, you look backwards to to the fourteen to nineteen period, the 1516 start we had, what we dug ourselves a deeper hole in '15 '16 than what we are anticipating. We're going to dig ourselves in this next five year cycle. That being said, to your point, we are starting as a negative and then coming out. So but we do, I think, have a slightly higher anticipation for the net of the markets. But I would also say, I think that's probably conservative because there's also the market mix part of it that we have. I mean, our wind business is twice the size it was today or is twice the size today than it was five years ago. And that's been the highest growing part of of our business for the last decade. So it's now growing off a bigger base. We were we were zero in the solar market five years ago. So so the mix element is is a factor in there. I would say the outgrowth in whole, we're still targeting the the 100 basis points. So the 100 basis points would be relative to your mix of business, but the mix of business might mean that the market growth Your mix of business will be in the market then assumptions, maybe just one more question. I mean, I guess there's been a lot of frustration over the years that while your stock price has gotten the benefit of of earnings growth, it really hasn't gotten the benefit of multiple expansion from a low level. Has has management and the board thought about doing sort of a meaningful onetime share repurchase, at any point to sort of reflect the company's view, which I think is shared by many investors and analysts that, you know, the multiple is is is too low? Or is that something that you'd rather put off in favor of M and A and other capital priorities? Well, I would say, first, we've obviously bought back a lot of shares. We like share buyback. We review it with the board every every board meeting in conjunction with the M and A opportunities we're looking at. I think we and we have talked about and looked at announcing at one large time. But I think the likelihood is more much higher that we will be consistent buyers of our stock than come out and do something sizable. That being said, never you know, depending on what happened with prices. But I think that is more likely to be a consistent approach. As we indicated here, as we look, we did a lot of buyback. We did a fair amount of M and A. As we look in this guide, we're looking a little heavier weighted to buyback. Alex? Alex Ruppers from Lending Investment. Just have a few panels I want to clarify. First of all, on Page 83, did a very nice job showing the capital deployment in five year increments. And then you've given us a guidance for free cash flow for the next five years of €2,000,000,000 Just wondering if you can if you have the numbers at hand by chance of the free cash flow of those previous five year periods to put in perspective? Because I presume that the rest is debt that you took on to do the acquisitions and all that. So that's my first point. Yes. So I think when you look at the in the last five years, we would have put on about EUR 1,300,000,000.0 of net debt. So the delta between that and 3.5 would be a big chunk of your of the would represent the free cash flow of that program. Are you suggesting that your free cash flow in the next five years is equal to the free cash flow of the last five years? No, it'll be more. No, it'll be more. I mean we'll have to It would be nice to put that in perspective. Also, you're predicting €400,000,000 of free cash flow in 2020, and therefore, the €2,000,000,000 implies that the other years are kind of on balance, the same number, which seems to with 2020 being a bit of a down year, seems to be a conservative assumption. Well, you know, I think when you look at 02/2020, we are it is a down slightly down organic year. So we do have some positive working capital. And as we grow, we've gotta put working capital into the business, but we are guiding to Yeah. The target would be north of a 100% conversion. And I think if you look at 2020, it's well north. It's probably more like 120 conversion. So it's a little bit more in the year than you do over the than you do over the cycle, but we would still expect strong free cash flow performance over 100% over the next five years. And with the guidance for 2020 EPS, you've given the 10% CAGR for the five year plan period or not planned or aspirational five year period. That means that you're looking at 13 to 15% CAGR from to 2020 base because it's down. Mhmm. Obviously, so it's obviously, again, suggest you should earn a higher multiple over time given how you've developed the business. I'd imagine that the board looks at M and A as being as accretive, if not more, than share buybacks. You know, share buybacks is kind of a fallback options. But for hypothetical reasons, one can assume for now that other than dividends, can use all the 2,000,000,000 for share buybacks. Presumably, you'll grow the business and do better than that. But again, those numbers are not accretion from M and A and or share buybacks, and they should be equal or better for M and A, is not in your seven fifty number or in your twenty twenty number for EPS. Is that correct? No. Well, if I understood you correctly, Alex, the seven fifty would include an assumed deployment of the free cash flow toward M and A, obviously, to generate the 2% to three percent inorganic growth rate and then toward buyback to kind of maintain leverage near the middle of our targeted range. So I would say, if you look at if you as I said, we expect to generate free cash flow of that $2,000,000,000 if you will. Taking that and along with the balance sheet capacity we have going to the dividend, going to, obviously, CapEx and then a healthy dose of both M and A and buyback over that period of time. You. Afternoon, guys. Thanks for putting on this event. Very, very informative. I guess, what we've seen in the past five years in Asia, the growth rate has been really, really impressive. Guess when we look at the next five, what kind of organic growth rate are we assuming in Asia specifically? And then maybe just speak to some of the opportunities or challenges given just how fragmented that distribution market is versus you know, Europe and in The US? Yeah. So I I guess we're probably not gonna I'm not gonna quote the organic growth rate. But when we look at Asia, and let's zero in, we're really talking about India, China are the main drivers of the area. Tremendous opportunity. The rail market, for example, you know, we're the number one person in the India rail market, which is getting enormous investment going on and is gonna get tremendous investment here in the next five, ten years. Renewables. Both India, China have substantial pollution issues, and thus both governments are pushing enormous amount of effort and energy into going able to get nature. With regards to the distribution market, yes, I mean, the fragmentation is a challenge. So you won't traditionally see double digit growth growth rates in our global distribution business. Now that's one of the negatives, right? And the reason for that is this fragmentation. I mean, the revenue comes in enormous or in very small bites, if you want to think of that way. Now the power of that, though, is it's not a cost plus business, right? It's the pricing power because of that fragmentation is significant. Thus, this is why you see those margins in the process industry group. So in terms of growing it, we have enormous amount of energy focused on that. We are globally coordinated. Once again, this is where the digital platform comes in because that's how we connect to all this fragmentation via those distributors. So we'll continue to build out those networks and keep running the same playbook we've been running. And once again, as I quoted the numbers, since 02/2001, we got a 5% CAGR on that distribution business. Might not sound like a lot, but to get 5% every year across that fragmentation, there's an enormous machine that's running to be able to do that. The thing I would add on that too is the installed base. So Chris talked about the investment that's gone into India rail the last five years can be bigger than x five, and our installed base is now bigger and will be bigger in the next five years. And you go back twenty years, I mean, our Asia business, particularly China, was an OEM business, and now we've really built this large installed base. The OEM side continues to grow. That installed base is is really where that long life of revenue comes. And our our ability to capture that that installed base is a lot easier in the fragmentation than on the OEM side. Well, just to finish that point, our installed base in China is just now beginning to hit the aftermarket cycle in in a practical sense. And so what we will see take the Chinese steel industry. Tremendous Timken installed base installed over the last fifteen years. That installed base is just maturing now relative to as you would view it in an aftermarket cycle. So that will also provide a tailwind for us in Asia over the next ten years for sure as that installed base matures. Got it. Thanks so much for the color there. Very, very helpful. I guess just one quick follow on. You did highlight passenger rail as kind of an increased opportunity for growth going forward. I guess what's the relative opportunity versus, say, your current freight exposure? How much of that passenger market do you really want to participate in? Well, so we like the passenger market. To be honest with you, the really good money is in freight. Okay? And particularly, if you think of it in an aftermarket context in the the rebuild cycle of railcars. So passenger car, though or excuse me. Passenger rail is very attractive. It's a very sophisticated space, if I could use that for safety critical reasons, obviously. But to your point, we will, you know, grow more rapidly in freight than we would in passenger. Yeah. Thank you. Hi. Courtney Yakubonis from Morgan Stanley. Just a quick question on the 2020 guidance. You had mentioned you expect sales to be down mid single digits in the first half and then flat to up slightly in the second half. Is that primarily driven by an improvement in some of those negative end markets turning to flattish, you know, by the end of the year? Or are you expecting, you know, this this momentum to happen throughout the entire portfolio? It would really it would really be a leveling off of those markets. So it be a in in any of the deceleration. And I think it's one of the questions earlier about it's really normal seasonality. So it still has a step down from the first half to the second half, but it would be a more modest step down than what we have experienced this year, which leads you to, you know, this year down seven, eight. Q2 to Q3, normal would be down one to three. And that's been with the comps gets you back that. So we're really not projecting a second half recovery. Right. That would be upside. If there was a strengthening, that's certainly a possibility as well. Although I do think, to Phil's earlier point, trade certainty would certainly help that situation. We did get the USMCA. It's not a huge direct impact on us as a company, but it is a big deal to our customers. So I think that was a real positive. Yes. As Rich said, this year, we saw a pretty big sequential step down from the second quarter to the third quarter. So I think a lot of it is the comps just getting a lot easier in the second half as well, driving some of that. Okay. Great. And then just on the five year outlook, talked about some of the secular trends, wind and solar, probably a larger part of the portfolio. You mentioned some comments earlier about the content shifts on electric, both for autos and for light duty truck. Is any of that being baked into the guidance at this at this point over the next five years? I would say all of it is. It it to the and, again, the challenge, though, with that is the the level of fragmentation and then estimating the technical change. But, yes, we have assumptions in there that that wind and solar will continue to become a bigger percentage of the world's energy. Coal will continue to become less. We'll still participate in coal, but, you know, we don't see that going back to where it would have been ten or fifteen years ago. So I think the answer to your question is, yes. We've tried to factor in what's gonna happen with the markets, what's gonna happen with with the technology within those markets, and then what's gonna be Timken's participation in that. Yes. The only thing I would add is because we got a I got a question in one of the breaks about the organic growth rate of the three to four, which sort of implies, call it, a two to three market plus the outgrowth. That's more than what you guys did over the last five years. Rich mentioned it. We all mentioned it, and I think it's true. One of the things to keep in mind is you heard a lot about the product vitality initiatives, which we think are going put us in a position to continue to generate growth and improve the growth rate. But also the mix is different, as Rich just said. I mean, when you look at two to three market with a bigger position in wind and solar today than we had five years ago, ten years ago, now that's gonna grow faster. Some of the traditional capital good sectors will grow on the be on the lower end of that range. And so we do feel like the mix of business we have today supports that two to three market assumption. And then from there, targeting the key sectors, trying to generate that extra 100 bps is what we're confident we can deliver. Yes. And there's quite a few of the other factors. One of the reasons I highlighted aerospace is aerospace was more self inflicted for us back in 1515 and '16. We did a restructuring of the business in in late fourteen. That's behind us now, and now we we look that we believe we're going to outperform that market versus we were underperforming that market. So again, it depends. We definitely need some market help to get to a 4% organic CAGR, But it doesn't take a lot of market growth for us, I think, to get there with the level of self help that we have. Time for one more, Joe. Yeah. Follow-up. Just curious about general environment. And you talked about I mean, you maintained the guide for 2019. And so over the last six weeks, nothing appears to have deteriorated. But just, you know, as you're planning and thinking about the next year, the next five years, still obviously a lot of uncertainty. But if you take what's happened over the past couple of quarters, and you talked about that sharp decel from 2Q to 3Q, just your general comfort level with stabilization in this step down now, you're seeing out there, what you're hearing from customers to gain a little bit of comfort in that vis a vis what's still high degree of uncertainty? So for the year, obviously, there's a few weeks left, as Phil said. I mean, we're gonna be at the the guide that we set on the top line. So that and that is, again, a fairly sizable drop from q three to q four, which we would expect some normal seasonal drop, but this is quite a bit deeper. So it's a pretty weak finish to the year off the first half. And as we said on the call, that usually would bode for a really good start to next year and I compared to the fourth quarter. And we're now obviously building in some cases, have full order book for the first quarter. In other cases, we're into January, and that's going to happen. So we're going to get off. We are going to see a step up from the fourth quarter to the first quarter. And from there, we're kind of just projecting stabilization and a leveling off. I think there's an equally good case that you could make that we should see more strength there. And obviously, there's some concern that there could be weakness as well. But one of the other things with our markets, nothing's really been at bubble level for the last few years. So there's nothing that would paint a particularly negative picture for us. So sitting up here right now. I'm pretty pretty bullish on it. This is gonna be our last, sorry, our last one, and then we'll do some more informal q and a over lunch. Thanks for letting me squeeze one last question in. And sorry to end with a cautious question. But I guess a couple years ago, there was more concern among the investment community that the likes of Amazon Business would, I guess, pressure industrial distribution margins. That concern has seemed to go on the back burner over the last year, because people aren't talking about it as much. Are there any concerns, whether it's Amazon Business or other facets that could put at risk the high margins that you see in your process and aftermarket business over the next five years? Let me start that one, and then I'll let Chris talk a little bit about it. So we talk mostly about industrial distribution, but we have a lot of we have a lot of distribution channels. Industrial distribution is the big one, but we've got a separate automotive aftermarket distribution channel. Heavy truck is often a different channel. There's aerospace specialists. We now have lubrication specialists. So we've got quite a few different channels, which certainly mitigates some of that risk. And then the second thing I would say is one of the advantages we we have is is nobody's getting blindsided by this. Our distributors have been appropriately paranoid of that risk for many years and are working hard, investing hard to make it to make their business model so strong that there's no there's there's no reason for anybody to want to buy something from an Amazon versus themselves. So it's a big part of the digital platform stuff that Chris talked about, so I'll let him expand on it a little bit. Well, so to your point upfront, nobody underestimates Amazon in the spaces we operate in. In our spaces today, they are pretty much a nonfactor at this point in time. The one thing or two couple things to highlight. One, you you'll note we keep talking service, service, service, service. This is important because when you go into a steel plant, cement plant, petrochemical plant, wherever it may be, it's totally different than the consumer. As a consumer, you know what you wanna buy from Amazon, and you go on Amazon and order it. Inside these complexes, inside this this machinery, the customer many times doesn't know exactly what they need. These are technical products, technical problems, and things of that nature. So, you know, that is one area where, you know, Amazon really just doesn't have that infrastructure. I mean, our distributors have a field core, which couples with our field engineering groups that are going into these complexes and and helping these end users fix their petrochemical plant or whatever it may be. So, you know, as of now, it's not a relevant problem. But once again, I I would say nobody over over underestimates Amazon. The one thing I would point out, maybe I shouldn't, but I would, there is one trend going on that is important to know. It is the globalization of distribution channels. And this is important because if you go back in history, distribution channels were families fragmented. They were very, very fragmented. There is a global consolidation of distribution channels. So the you know, there are now distributors who are in The US. They're in in Mexico. They're they're in Latina or they're in ASEAN, Australia, things of that nature. That is both an opportunity for us and potentially some issues there. So the opportunity is those who are global, who are strategic of scale, which is where you see us keep talking about that, are going to become, in my opinion, the the preferred partners of these global distribution firms. They're not gonna wanna deal with a bunch of little fragmented people around. So this is one of the strategic reasons we continue to do what we do. So that trend would be the trend that I would say over the next ten to fifteen years, you know, is going to require some maneuvering by the companies that play in these spaces. I'll wrap up. Yep. Again, I wanna wrap up with thanks for coming today. And for those of you on the phone, thanks for listening in. And for those of you that are here, we have some food outside as well as, the management team will be around for a little while, and, happy to continue the conversations out in the hallway. Thank you. Good. Thanks.

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