Enovis Corporation (ENOV) Q4 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Colfax Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to Terry Ross, Vice President of Investor Relations. Sir, you may begin.

Thank you, Andrew. Good morning, everyone, and thank you for joining us. My name is Terry Ross and I’m Colfax’s Vice President of Investor Relations. With me on the call today are Matt Trerotola, President and CEO; and Chris Hix, Senior Vice President and CFO. Our earnings release was issued this morning and is available in the Investors section of our website, colfaxcorp.com. We will also be using a slide presentation to walk you through today’s call, which can also be found on our website. Both the audio of this call and the slide presentation will be archived on the website later today and will be available until the next quarterly call. During this call, we will be making some forward-looking statements about our beliefs and estimates regarding future events and results. These forward-looking statements are subject to risks and uncertainties, including those set forth in our SEC filings. Actual results might differ materially from any forward-looking statements that we might make today. The forward-looking statements speak only as of today, and we do not assume any obligation or intent to update them except as required by law. With respect to any non-GAAP financial measures during the call today, the accompanying reconciliation information relating to those measures can be found in our earnings press release and today’s slide presentation. Now, I’d like to turn it over to Matt, who will start on Slide 3.

Thanks, Terry. Good morning and thank you for joining us today. We are pleased to report fourth quarter and full-year operating results that exceeded the expectations we communicated on our last call and that we established as we began 2016. We successfully implemented our restructuring and productivity initiatives and demonstrated our ability to improve adjusted operating margin in a declining revenue environment. In the fourth quarter, we also demonstrated our improving capability to find growth in generally stable market conditions. Our gas and fluid handling orders grew 7% organically, driven largely by our focus on aftermarket and the application of CBS to improve commercial processes. For those of you that made it to the FABTECH Show, you saw our launch of a broad range of equipment, automation and Internet of Things solutions. This step up in our pace of technology introduction in ESAB is the fruit of efforts we started years ago to invest more in R&D, build a voice to the customer-driven development process, and improve our marketing. In December, we complemented this technology focus with the acquisition of Arc Machines, or AMI, which I will discuss in a few minutes. Turning to Slide 4, you’ve heard me talk many times about our past to drive segment operating margins to mid-teens over the next three to five years. The improvements will come primarily from CBS productivity efforts and additional structural cost out opportunities that we’ve identified in the businesses. We delivered an important step towards this goal in 2016, achieving over $50 million of structural cost reduction in the year. The savings are most easily seen by our reduction in SG&A expense as we move through the year. Combined with structural savings in manufacturing overhead and productivity, we’re able to improve operating margin for the quarter and the year, despite a mid single-digit organic revenue decline for 2016. Entering 2017, we’re well on our way to delivering an incremental $50 million of restructuring savings. I’m proud of our team’s creativity and Chris implementation as we do the hard work to make our company stronger and more flexible for the future. Please turn to Slide 5. In addition to driving our segments to mid-teen operating margins, we’re improving our ability to drive growth. An important part of building that muscle is leveraging the power of the Colfax Business System to improve commercial processes, such as new product development, customer service, segmentation, and channel management. For our Fluid Handling business, a key area of focus has been the pursuit of large complex project. Large projects require a considerable amount of cross-functional work often interacting with a number of influencers and decision-makers across multiple countries and regions. Our Colfax Fluid Handling team saw a breakthrough opportunity to significantly change our approach and chose to make this a policy deployment focus for them in the year. They created a step change in cross-functional communication and pre-sale engagement that has strengthened the sales funnel, and in the fourth quarter we saw project wins in part due to the process improvements made. The largest example was the award of a $17 million multiphase pumping system project for the Kuwait Oil Company. As we see our end markets stabilized and flattened, we’re pivoting more focus to our growth initiatives. In the quarter, we saw tangible results. The focus on capturing aftermarket and expanding exposure to general industrial applications led to solid orders growth in both areas. Combined with one project wins and continued success on mining projects, our Gas and Fluid Handling segment grew orders by almost 9% for the second-half of 2016. Throughout the year, we’re able to maintain our investment in key growth initiatives. In our Fabrication Technology segment, we strengthened our field marketing teams, as we sharpen our segmentation and channel support efforts. At the FABTECH Show, we launched a wide range of new technologies. In addition, the new models to build out the Rebel family, we launched Renegade, another new platform offering the best power to weight ratio in its class for professional welders. We added important new technology to our Victor gas regulators and the Thermal Dynamics CUTMASTER. We also introduced new automation power supply functionality and the next generation of our WeldCloud solution. At our Investor Day, we also discussed the importance of inorganic growth to our value creation model. We continued to see our pipeline for complementary businesses strengthened and we closed the AMI acquisition in December. On Slide 7, we described the Arc Machines business, a leader in high precision, welding and mission – for mission-critical applications. AMI fits with ESAB solution focus, helping customers and integrators to the best available process technology for their automation needs. Although a relatively small acquisition, AMI is indicative of the type of dynamics we want more of, diversified market exposure, innovative technology, and strong secular tailwinds in this case automation and high-purity processes. And now I’ll turn it over Chris to discuss the financial results.

Thanks, Matt. Slide 8, provides an overview of the fourth quarter results. As Matt mentioned, in Q4, we recorded our second consecutive quarter of order growth in gas and fluid handling. Because of the long lead times in that business, it takes a while for order growth to flow into sales growth. Q4 sales came in as expected, down 9% organically versus the prior year period and with nearly 3 points of foreign exchange translation pressure. Included in the 9 point organic change was a 1.5% impact from fewer selling days in our welding business due to differences in the fiscal calendar that we highlighted for you throughout 2016. Restructuring and other cost actions throughout the year offset much of the effect on gross margin from lower sales, and actually we achieved higher adjusted operating margins of 9.7% with adjusted operating income of $90.8 million. We delivered these results despite the strengthening of the U.S. dollar in November that caused the FX headwind. Restructuring projects address both manufacturing fixed cost and SG&A expense. And we are pleased that our global teams delivered against our objective of $50 million in structural cost savings in 2016. On the nonoperational front, corporate costs in the fourth quarter were slightly higher than previous quarters due to seasonality and timing of expenses. This quarter’s interest expense included $2 million to $3 million of favorable FX benefits that are not forecasted to repeat. Our effective tax rate for adjusted net income per share came in at 27.5% for the quarter and 28.6% for the full-year, slightly better than expectation, but above the prior year, which benefited from U.S. tax extenders and non-U.S. controversy settlement. We generated $0.46 of adjusted earnings per share in the quarter, reflecting expected operating performance and lower than expected interest expense and tax rate. Not included on the slide, but mentioned earlier by Matt was the 2016 full-year adjusted EPS of $1.56, a $0.01 higher than the upper end of the range originally communicated in December of 2015. Reconciliations of adjusted profit figures to GAAP figures are in the appendix of this presentation. The business segment discussion start with the Fabrication Technology business on Slide 9. Sales of $437 million were down 8.7% organically in the quarter, or 10.6% all in. However, the fourth quarter was impacted by two fewer selling days. Adjusting for this impact of approximately 3 points, the difference in the year-over-year daily sales rate is 5.7% organic decline. This is the mirror of the selling days, in fact, we had in the first quarter and there’s no effect on the full-year results, and we don’t plan to have this comparison and complication in 2017. We saw the market is essentially – sequentially flat from the third quarter recognizing a more stable market in North America. Although, the quarter results do not reflect any uptick, customer sentiment in the U.S. points to improve market conditions later in 2017 when we also expect easier comparisons. In Europe and our other major markets, the trends were generally unchanged in the fourth quarter. Price was flat compared to the prior year period, but we continue to see some headwind on mix. Adjusted operating margin was up 160 basis points from the prior year despite lower sales. Restructuring savings and other productivity gains drove most of the improvement. The business continues to execute cost actions and we expect additional savings as we move throughout 2017. Our Gas and Fluid Handling segment, as shown on Slide 10, achieved $497 million of net sales in the fourth quarter, about 10% lower organically than last year’s comparable quarter with an additional 3.4 points of FX translation headwind. The lower volume is due to the timing of long lead time orders and we saw the shorter cycle book and ship activity come in as expected. Despite lower sales, adjusted operating margin for the segment was a 11.8% equal to the prior year quarter. Structural cost savings an important improvement throughout the year in supply chain, value engineering, and manufacturing productivity contributed to this achievement. And as with our FABTECH business, we expect to see financial benefits from restructuring continue through 2017. Orders in this segment grew 7% organically as depicted on Slide 11. Coupled with the strong third quarter, this resulted in second-half organic order growth of 9%. Our fourth quarter results were broad-based with orders growth in aftermarket and general industrial markets and continuing project wins in mining. These orders solidified the gas and fluid handling backlog at over $1 billion, down mid single digits organically from the prior year, but materially better on a year-over-year basis than just a few quarters ago. Looking at the underlying end markets, we see upticks in mining and general industrial and improving, but still down in oil and gas environment and ongoing decline in marine and continued pressures in power. Overall, the picture is improving as noted in the orders growth and improving customer sentiment, and we expect to see year-over-year sales improvement sometime in the second-half of 2017. Matt?

Thanks, Chris. On Slide 12, I’d like to take a few moments to reflect on our progress in 2016 overall. At our Investor Day and again on our December outlook call, I’ve described our key priorities that will enable us to reach our mid-term goals of mid-teens segment margins, above market growth, and the compounding of shareholder returns by thoughtfully deploying capital to acquisitions that strengthened our portfolio. Our first priority and where we’ve focused most of our energy since I’ve come to Colfax is strengthening our foundation. We made meaningful progress on this front in 2016. ESAB margins are moving forward again. We delivered our cost reduction commitments and laid the groundwork to deliver another $50 million this year. We strengthened the leadership team by successfully bringing on Board terrific leaders like Shyam and Chris, along with others across the company. As we made progress on the foundation, we’re able to begin pivoting the organization towards growth. As our markets continue to turn, you’ll see us lean into our growth initiatives, but we had several important early indicators of success in the year. Gas and fluid handling orders grew in the second-half clearly outperforming the underlying markets. The ESAB team delivered good performance in context by leveraging its global presence and driving growth in key emerging markets like Russia and India. ESAB also positioned itself for future performance by stepping up the pace of new product launches that enabled new levels of productivity for our customers. As we got through important leadership transitions and we’re executing well on the cost side, we renewed our M&A focus and built a much stronger M&A pipeline. We finished the year with a nice technology-based acquisition and the funnel is active with a number of opportunities across our businesses, including some mid-sized deals. I’ll wrap up with an outlook for the full-year on Slide 13. I entered 2017 encouraged by our team’s execution in productivity and structural cost reduction action, and we expect to deliver another meaningful step toward our mid-teen segment margin goal. We continue to view our end markets as near the bottom of the cycle with more evidence that growth may not be too far away. We’re pivoting even more energy towards growth initiatives and attractive M&A opportunities. Finally, considering our solid finish to 2016, we’re firming our 2017 adjusted EPS guidance range of $1.55 to $1.70. With that, I’d like to open up the session for questions.

Thank you. [Operator Instructions] Our first question comes from Jeffrey Hammond with KeyBanc. Your line is now open.

Can you hear me, guys?

Now, yes. Hi, Jeff.

Okay, good. So can you just talk about kind of what you’re seeing in terms of quoting activity moving into the first-half of 2017, and how that lines up with these better order – orders that you saw in the second-half and maybe specifically talk about the two big end markets power gen and oil and gas?

Yes. So first, as we work through last year, we started to see some of the larger projects that had really been in stock in areas like mining and oil and gas actually cut lose and we talked about some good positive successes there at some of those projects cut lose and went to completion. And we’ve considered – continued to see specific projects that might have been paused for a while, get back on the rails and start moving towards closure. Second, we have seen more broader funnel activity, in mining more significantly than other areas. But we have also seen more funnel activity in industrial and oil and gas that are indicators that some positive momentum is building. So I see those are two other things that we saw down in the back-half of last year. Our execution against those opportunities led to the strong orders performance in the back-half of last year, and we’re continuing to see that kind of a trend as we move into this year. As to your specific questions, I commented on oil and gas already and how the power industry I think remains consistent with what we’ve talked about. Previously, we have seen some of the pullback in China, start to materialize and affect our orders. And we see more activity in areas – other high-growth markets of the world as we had expected, and so power is about as we had expected.

Okay. And then just a quick one on the welding business, clearly price mix and I guess this quarter, the mix has been kind of a headwind. What are you doing one on price with respect to some of the steel inflation and how is that kind of flowing through? And then what do you need to see for mix to really turn? Thanks.

Yes. So first, this has been a business historically where changes in the cost of filler metals typically ultimately get passed through to the end user. And so we’ll be working hard in different parts of the world to – as we feel upward steel pressure, we’ll be working hard to make sure that we’re passing those on through to the end user and we have every expectation that will be able to do that over time. And as to that the mix effect, it’s a very global business with a wide range of product lines in any given quarter, some of those mix effects can be in different areas. But generally, the mix effect have been from the drop in equipment products being larger than the drop in filler metals products. We’ve also had some regional mix impact as well. So certainly, as equipment gets growing better in that business, that ought to start to dampen those mix effects and eventually recover some of them.

Okay, great. Thanks a lot.

Our next question comes from Seth Weber with RBC Capital Markets. Your line is now open.

Hi, guys. This is Brendan on for Seth. You had mentioned, aftermarket growth being something that you’re pursuing with a little bit more gusto now. I was wondering if you could give more color on that sort of which categories you may be emphasizing over others and how that’s progressing?

Yes, sure. We have – for the last few years put a significant increase on our strategic and executional focus on the aftermarket of our business really with the intention to capture as much share of wallet from customers on the aftermarket that surround the product that we sold in the past. And in instances, where there is an opportunity to also be replacing products that were sold by others with aftermarket, such as the heaters opportunity that we’ve been pursuing in North America. And so we’ve had a range of initiatives on that front in different parts of the world. And we feel like as we work through last year, we gained some good momentum and it showed up in our orders down the scratch. And so we’ve seen those markets stabilized after some headwinds in some aftermarket areas and between the stabilization and our execution we see the opportunity that we talked about when we gave our guidance to drive that aftermarket more in a mid single digit range on a go-forward basis.

Okay, thanks. And then if I could get one more really good free cash flow this quarter. I was wondering, as we look into the year, what are your thoughts, I guess, around any free cash flow conversion outlook for the upcoming year?

Yes, we did end up with a very good free cash flow performance in the fourth quarter, I think that’s typical seasonality for us, where it tends to be a bit stronger in the second-half with particular emphasis on the fourth quarter. Going forward, our objective is to try to levelize that a little bit. I think we’ll always have a preponderance of cash flow in the second-half of the year. I think we talked about in December the expectation that we would have higher cash flow even higher free cash flow conversion overall for the year in 2017 and 2016, where we expect working capital to be a bit of a contributor for us in addition to growing the profit as we suggested in the – with our guidance range. I’d say those are probably some of the primary drivers there.

All right. Thank you.

Thank you. Our next question comes from Matthew Trusz from Gabelli and Company. Please go ahead.

Sorry. Thank you for taking the question. Hi, so first I was wondering, can you talk about your thoughts on Colfax exposure to a Trump ministration, and specifically, I guess focus on, A) how much exposure you might have tolower tax rate benefit, whether you have any negative exposure to a border adjustment provision, and how much leverage you have to domestic infrastructure spend?

Sure, I’ll comment first and then Chris can make some comments on the tax question. We’ve certainly been looking very proactively at the things that President Trump has said and some of the things that he has started to do, and there’s some areas that I’ll comment on. The first is, he’s clearly been talking about strengthening the U.S. steel industry. We’ve already seen some upward pressure in the price of steel, not just in the U.S., but in other countries based on that and then the short-term that create a need for us to make sure we get that price through. In the longer-term though, the most competitive part of filler metals has actually been areas, where there’s imports coming into the market. And so that could be a positive on the filler metal business. Second, he’s talked a lot about strengthening U.S. manufacturing competiveness. And I think, if there’s strengthening in the industrial manufacturing base in the U.S. maybe more automation investments, those would be good things as it relates to our welding business, and so we see that as a potential positive. In terms of the cross-border flows, the vast majority of what we sell into areas like Mexico and Asia is actually produced in those areas. And so we feel like, our production base is well-balanced and positions us quite well should there be some sharper protectionism in some of the areas that he’s talked about. Chris, you want to talk about the tax question?

Sure. Yes, it’s – we tend to think about that in a – on a couple of dimensions. But first off, if there’s going to be some sort of broad-based reduction of the tax rate, that probably does have a – in a macro effect for all U.S.-based companies. So there’s a positive impact that we would expect, that’s kind of at a macro level. And it really depends at that point, which one of the proposals moves forward is they’re going to be moving to territorial versus worldwide – saying with worldwide taxation. There’s going to be a toll tax on repatriation of cash. I think most folks know that most of our cash is located overseas. So there could be a small impact if we desire to bring the cash home, for example. And so it’s really a bit of wait-and-see to – which provision or which proposal is getting the broader support of Congress and moves forward. But net-net, we expected it to be a positive impact for the company.

Great, thank you. And then just one more. In the deck, you speak to more favorable detrimental, of course, as you sort of get the structural cost out. So given the improvements, as we look towards getting a recovery in revenue maybe as soon as in the second-half of next year, what incrementals do you see the business generating as far as how quickly we get towards mid-teens profitability?

I think we’ve tried to communicate it pretty consistently that we’ve got about a 30% incremental and that’s really net of investments that we expect to make in the business to drive growth. Throughout the presentation today, you’ve heard us refer a lot to the pivot in growth, the investments in growth. And so even though the gross incrementals maybe higher than 30%, I think we try to steer people pretty consistently to the 30% number to reflect those growth investments.

Great. Thank you.

Our next question comes from Joe Giordano with Cowen & Company. Your line is now open.

Hey, guys. I want to start on capital allocation, you do a small bolt-on here, but how do you see that? Are there more in that pipeline, more automation type stuff on welding that you’re looking at near-term? And how should we start thinking about maybe a larger-scale platform type acquisition and timeframe for that?

Thanks for the question. Yes, so we’ve been consistent and talked quite a bit at our Investor Day about the acquisition has been a key part of our growth model as a company and really talking about three types of acquisitions, one being some of the smaller bolt-ons, sometimes more technology-based things like Simsmart and AMI and sometimes many more of a product line that we can pull in and make within existing facility that the first category of acquisitions. The second is larger acquisitions within our existing businesses and these could be things that are – that significantly expand the business into new addressable markets and significantly improve our position. Victor was a big example of one of those, I think, which was a healthy example of one of those as well. And then the third type of acquisition that we intend to do over time is new platforms, where we move into a – an attractive area of industry that has healthy secular growth tailwinds, good cyclicality profile, strong brands opportunity for innovation, and an area where we can see ourselves with an ability to step in and add value on our first acquisition and others beyond that. So those are the three prongs of our acquisition strategy. We have an active pipeline of opportunities on the first and second. And on the third, as we talked about late last year, we’ve significantly dialed up our strategic work, as well as our kind of initial thinking about pipeline, because we feel like as a company, we’re in good shape again to be thinking about not just the bolt-ons and adjacencies, but also the next platform-based acquisition when the right opportunity comes along.

Great. And if I look at your gas and fluid orders and I know this is lumpy and it’s tough to take any one quarter. But I look at general industrial uptick, is that more of a – would you categorize that as easy comps or our performance in the tough market, where there is not much to do in your revenue availablebusiness. How do you kind of look at the number internally?

Yes. So first, our industrial includes some broader general industrial, but also includes the Marriott of industrial that you have a little bit of lumpiness to it. We’ve consistently said down the stretch last year and we’d say again here today that the broader industrial markets are little on the positive side and they’ve been getting better, not worse. And so as we look at our industrial performance in the fourth quarter, part of it is those markets being in a positive range, part of it is some good strong performance on our part in terms of winning and part of it is some larger projects flowing through.

Okay. And then lastly, I guess, even one for Chris. when I look at your balance sheet here, rates going higher floating rate debt on your balance sheet, what’s the – what’s your thought process there, and what kind of rate hike environment do you have baked into guidance already?

The capital structure that the company has, I think, is flexible at certainly very low cost. We understand that over time, this capital structure will change. It will show more matured complexion. Today, we – I think, when we gave our guidance, we anticipated that there could be some rate expansion in that rate. And so I think, we’re pretty well-positioned in our guidance to accommodate the rate profile that certainly that we see in front of us here. As we mature that capital structure, it’s likely to be done in a very thoughtful way, whether it’s done sort of standalone or whether it’s done in conjunction with other activities of the company. But you’ll see us make some moves in that regard likely in 2017.

Great. Thanks, guys.

Thank you. Our next question comes from Nathan Jones with Stifel. Your line is now open.

Good morning, Matt, Chris, and Terry.

Hey, Nat, good morning.

You guys have talked about the improvement in the mining market, could you maybe give us a little bit more color there on how broad-based that is? How – project specific you talked about a few projects shaking loose? How much of that is market-related versus you gaining share and how Simsmart is impacting your outlook in that market?

Sure. Yes, so first the improvement in the market, at least, in terms of the funnel improvement, it’s broad-based in terms of across a broad range of geographies and different types of mining. So the funnel activity is broad-based. We said on previous calls, that that’s an industry that some parts of the funnel take a while to gestate. And so the rate at which that flows through and becomes orders will certainly vary by type of opportunity part of the world, et cetera. But certainly, we’re already seeing the benefits of that in our orders. And it is our traditional mining business that we had before. Simsmart as well as the Simsmart funnel, as we shared in Investor Day has had dramatic growth since we acquired the company. And so we see good strong opportunities and really wherever possible are selling the full solution to our customer that includes our fans, as well as the Simsmart solution in order to bring the customer that that full solution.

Okay, that’s good news. And then if I could go over to China power, I know the outlook for 2017 is pretty soft there with the way China is approaching that market. We’ve been hearing some folks talk about improving expectations there. Have you seen any improvement in your outlook for 2017, 2018 into that market?

I think, we’ve consistently said that we’re going to see some headwinds in 2017, as they pull back a little bit. We’ve been working proactively for a while now on driving more industrial applications. And the team has been really driving hard to offset those headwinds with penetration of new industrial applications. And at the same time, I think, we’ve been consistently talking about the fact that those headwinds are expected to pass. China has talked about continuing to invest in power and it’s really just a temporary step back to get the supply closer to in-balance. And there has been certainly plenty of noise on either sides of that coin in any given month, but our overall view is that the outlook is consistent with what we’ve talked about previously.

All right. Thanks, guys.

Thank you. And our next question comes from the line of Joe Ritchie with Goldman Sachs. Sir, your line is now open.

Thank you. Good morning, guys.

Hey, Joe.

Hey. So it’s nice to see the stabilization in your orders. I mean, if I look back the last couple of years, orders have still – have declined. And as I look into 2017 and to hear your comments, it sounds like there’s some optimism that orders could potentially be higher in 2017 versus 2016, so I’d love for you to address that? And then secondly, as it relates to the guidance on down 2 to down 4 in gas and fluid handling, just wondering how much of that is already in backlog versus how much do you need to book in order to hit those numbers for next year – for this year that is?

Yes, I make a general comment and let Terry talk about some of the specifics there. But for sure, we – between the environment and our ability to execute, we got orders into a healthy positive growth zone in the back-half of last year, and with that certainly signals a change versus what we’ve been going through before that. At the same time a number of the markets are kind of bottom versus sharply recovering, and in any given quarter, we can have larger projects this year, larger project that year. And so, our guidance for this year kind of reflects that that kind of an environment.

Yes, I’ll add. When you think about our Gas and Fluid Handling business, roughly half of the year as we come into it is timing of projects that are already in backlog. And then the other half is our shorter cycle projects, aftermarket, and to a smaller degree some fluid business that booked and shipped in the year. So I think that that’s how you see us come to the minus 2 to minus 4 forecast as we think about the backlog position which has strengthened here over the last calls or solidified over the last couple of quarters. And our optimism on aftermarket and a good part of general industrial also tends to be shorter cycle.

Okay, got it. That’s helpful. Chris, maybe following up on that aftermarket comment, is your expectation that aftermarket is then up, kind of low single digits or so next year? What’s embedded into the expectations?

I think for us overall what we’ve baked in is obviously a slight revenue decline year-over-year in that. We do see – so we’re going to speak – we can speak to relative outperformance aftermarket versus some other end market exposures like oil and gas, for example. But I don’t think, we’ve got a – we’re not giving precision on that – on the guidance on that.

Okay.

What we have said is that, our orders will be – we expect our orders to be up next year. And I think we’ve also said strategically that, in that three to five-year outlook, we have – we think we can drive our aftermarket business at a mid single digits kind of clip.

Okay, got it. And maybe just asking one last question, the – on the order comp versus last year noticed that there was a change to your order number from last year, was that due to a change in a way that you’re accounting for orders, or was there some type of cancellation, just curious what happened there?

Yes, we aligned a couple of definitions on how we do that orders definition. We had a little different in backlog roll forward than we did in another place. So you’ll see that come out in the – when we issued the 10-K, but it’s just a – this is a more full view of how orders are calculated taking into account past year cancellation.

Yes, Joe, just to be more clear about that. In the – any order cancellation that happens now is reflected in the orders. In the past if it was an order that had been booked this year and it was canceled this year, it was reflected in the current year. If it was a prior year cancellation, or cancellation from a prior year than that was reflected as an adjustment to backlog. So we’re just trying to add a little bit more clarity that caused a little bit of confusion in the past and we’re just trying to put some more clarity into that.

Okay, got it. Thanks, guys.

Thank you. [Operator Instructions] Our next question comes from Walter Liptak with Seaport Global. Your line is now open.

Thanks. Good morning, guys.

Hi.

I wanted to ask about the welding comments. You sounded fairly positive that you’re expecting a recovery. And so wondered if you could talk maybe a little bit about the timing, what you saw during the quarter, monthly? And what do you think the growth initiatives on new products et cetera will result in positive volumes?

Yes, I think what we’ve said is that welding has stabilized sequentially and that as you kind of roll that forward at some point, you’ll get to a point where the comps catch up and that leads to a recovery. And I think that’s still where we are in terms of how that business goes forward. We’re certainly looking hard for the top opportunity when the market might actually turn up, but we haven’t seen any consistent signals of the market turning up versus that sequential stabilization. As I said before, we had a number of new products come out at FABTECH, a number -- they’re making their way into the market as we move into this year. And we certainly see opportunities for that to be a tailwind of our growth in different places in the year as those markets hit the market.

Okay. Are you seeing any differences in, say North America versus Europe when you’re talking about stability and recovery, which one do you think will turn up first?

Well, Europe has been kind of right around flat for a number of quarters now and so it certainly has looked like Europe would be the first one to turn up although down the back-half of the year, it just kind of stay there kind of bumping on either side of flat, whereas U.S. is still in a pretty significant down year-over-year range. So it certainly seems that the most likely one to turn up in terms of the developed markets, then most likely one to turn up first is Europe.

Okay, great. All right. Thank you.

I would now like to turn the call back to Mr. Terry Ross for any further remarks.

Thank you, and thank you again for joining us today. We look forward to updating you on our next call.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day.