Good morning. My name is, Christina, and I will be your conference operator today. As a reminder, this call is being recorded. At this time, I would like to welcome everyone to Timken's First Quarter Earnings Release Conference Call. [Operator Instructions] Thank you, Mr. Frohnapple, you may begin your conference.

Thanks, Christina. And welcome, everyone, to our first quarter 2022 earnings conference call. This is Neil Frohnapple, Director of Investor Relations for The Timken Company. We appreciate you joining us today. Before we begin our remarks this morning, I want to point out that we have posted presentation materials, on the company's website, that we will reference as part of today's review of the quarterly results. You can also access this material through the download feature on the earnings call webcast link. With me today are The Timken Company's President and CEO, Rich Kyle; and Phil Fracassa, our Chief Financial Officer. We will have opening comments this morning from both, Rich and Phil, before we open up the call for your questions. During the Q&A, I would ask that you please limit your questions to one question and one follow-up at a time to allow everyone a chance to participate. During today's call, you may hear forward-looking statements related to our future financial results, plans and business operations. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail on today's press release and in our reports filed with the SEC, which are available on the timken.com website. We have included reconciliations between non-GAAP financial information and its GAAP equivalent, in the press release and presentation materials. Today's call is copyrighted by The Timken Company, and without expressed written consent, we prohibit any use, recording or transmission of any portion of the call. Finally, I would like to announce that we are planning to host an Investor Day, on Wednesday, September 28, in New York City. So, please stay tuned for more details. With that, I would like to thank you for your interest in The Timken Company, and I will now turn the call over to Rich.

Thanks, Neil. Good morning and thank you for joining us today. Timken, delivered an excellent first quarter, with record revenue, record earnings per share and 20% EBITDA margins and we delivered the results in the face of continued inflationary pressures, supply chain challenges and lingering COVID issues. Our performance demonstrates the resiliency of the company and build on our track record of delivering strong financial results through industrial cycles and dynamic market conditions. In the quarter, demand continued to be very strong across almost all markets and geographies. Despite persistent supply chain and COVID challenges, we increased revenue by 10% over last year's first quarter and by almost 12% compared to the fourth quarter. Even with the strong revenue, incoming orders continued to outpace shipments and backlog grew, sequentially. We achieved neutral price cost in the quarter, which was the primary driver of the improved EBITDA margins. We re-priced many of the annual contracts at the start of the year and we continued to move spot and aftermarket pricing through the quarter. We are on track to achieve greater than 4% price this year. Earlier in the year, we forecasted that cost would hold at fourth quarter levels and that is largely what happened until late in the quarter and we saw our cost tick higher after the Russia-Ukraine war began. As a result, price realization in the quarter completely offset the significant year-on-year increases of material and logistics costs and manufacturing costs were essentially flat from prior year. Sequentially, performance strengthened each month through the quarter, both operationally and financially. COVID and supply chain issues persisted, but improved as the quarter progressed. However, the Russia-Ukraine war and the China COVID disruptions did not become issues until late in the quarter and we are assuming they will both have a…

Okay. Thanks, Rich, and good morning, everyone. For the financial review. I'm going to start on Slide 14, of the presentation materials. Timken delivered a great start to the year, with strong performance across the board in the first quarter and you can see a summary of our financial results on this slide. Revenue in the quarter was over $1.1 billion, up about 10% from last year and a new record for the company. We delivered an adjusted EBITDA margin of 20% and we achieved all-time record adjusted earnings per share of $1.61. Turning to slide 15. Let's take a closer look at our first quarter sales performance. Organically, sales were up 11% from last year, which reflects broad growth across most markets and sectors as well as higher pricing. On the right-hand side of the slide, you can see organic growth by region excluding both, currency and acquisitions. All regions were up in the quarter versus the year-ago period, led by the Americas. Let me add a little color on each region. We were up 22% in Latin America, as most sectors were up year-on-year with industrial distribution and rail posting the strongest gains. In North America, our largest region, we were up 14%, with most sectors up there as well, led by distribution off-highway and marine. In Europe, we were up 11%, with strong growth in distribution, off-highway and general industrial. This was partially offset by lower renewable energy and Russia rail shipments. And finally in Asia, we were up 3% as sales were down in China from the very strong first quarter of last year, but up solidly across the rest of the region. From a market standpoint, rail was notably up, while automotive was lower. Turning to slide 16. Adjusted EBITDA was $225 million or 20%…

[Operator Instructions] We'll take our first question from Rob Wertheimer with Melius Research.

So, actually, my first question - and my question is really just going to be a strategic one with the Spinea acquisition, which looks pretty interesting. I wonder if you could compare the technology of Spinea to what you do currently. You mentioned highly engineered. I don't know if it's a bit more advanced. I wonder if you could describe. I understand it fits well into kind of automation end markets, which are growing nicely, but does it also represent a branch into more highly engineered products? Does it expand your TAM on acquisitions? And, does it open up new avenues for future growth? Thanks.

Yes. hanks, Rob. So, Cone Drive organically has developed what we call the harmonic drive for robotic applications and Spinea's specialty is cycloidal drive, which it - differences in torque and weight and - very complicated subject, making it simpler, but generally bigger heavier applications would lean towards the Spinea solution and smaller joints or smaller applications, lighter duty would lean towards Cone. So, now we would have a full complement of products. I would say the precision level and the complexity is similar for both. But two things, we want to fill this out. And, two, since we're organic, we're working our way into that market in Cone's case and it's taken us some time. But now, we just acquired a significant position. So, customer access and Spinea has been at it for 20 or 30 years. Cone's has been at it for a few. In terms of your follow-up question there, in terms of other areas. There are actually some other similar adjacent products that we still don't have in this. And then also, moving beyond factory automation into a bigger presence in guided vehicles and other precision drives, look - applications. Then for Spinea specifically, European, history, European focus, huge Asian market in this space and they have a very small presence in Asia. So, we think being a part of Timken family can help them significantly there as well. So, I think it's not huge acquisition, but it's a very exciting one for us. And what's a very exciting growth market and we look forward to get it in the portfolio here in a couple of months.

Okay. Thanks, Rich. And then, if I can just - my last just your general feeling on the acquisition pipeline, backlog, [indiscernible] right now in periods of uncertainty and I will stop there.

I think, our activity level is good. I would say it's fully back to where it was pre-pandemic. And then, also as we talked about either the last call or the one before that, we spend a little bit of time on some larger possibilities, and I would say we're back to 100% focused on cultivating and getting active, the small to mid-size that you've seen us do, say, Spinea size up the 2 to 3 times that size. That's where we're focused. We've got a lot in the pipeline and I would be hopeful that Spinea would not be our only acquisition closed in 2022. But, obviously, a lot of factors there.

Go to our next question from Bryan Blair with Oppenheimer.

I apologize if I missed this detail. But, can you break out the volume and price contribution that's now factored into your 10% organic sales outlook? I think, it's 7% and 4% last quarter or thereabout. And I'm assuming that we now have a few more balance or perhaps some price waiting to the - to revise that one?

Yes, Bryan. Thanks for the question. Welcome to the call. Thanks for picking us up. On the sales outlook, I think you heard Rich in his remarks talk about pricing coming in as we thought. We expect to achieve greater than 4% pricing for the full year, and then the rest of that would be volume, if you will. So, we're not getting more specific on the pricing than that. You heard from Rich, that the Q1 pricing came in as we expected. We continue to move spot pricing through the quarter. We continue to look at aftermarket pricing and feel really good that we'll exceed our 4% target for the year. So, you can think that the rest would be in volume with as we talked about really strong growth across sectors. The only sector that will be flat for the year as we anticipated was renewable energy should be flattish for the year, but the rest of the markets - looking across markets, looking across geographies, very strong across the board as you can see on that one slide in the materials.

And just to be clear, it's 10% organic as we also - we start with a little bit of a headwind from FX.

For example.

Yes. Understood. I appreciate the color. And no surprise that your cost profile steps up, sequentially. I was wondering if you could offer a little more detail on that front, how we should think about the impacts on a segment basis you had mentioned that Mobile is understandably facing a little more pressure there and how that influences segment margin outlook and cadence for the year?

I would say - first I would say through the quarter. As I mentioned, our operational performance supply chain challenges actually reduced as the quarter progressed. And you go back to January, we were dealing with significant Omicron cases, high absenteeism in our plants and still lot of delays in the supply chain. Those persisted, so I wouldn't say anything went completely away, but I would say, we did see for the first time in a while some clear momentum going in a positive direction on that front. But then, when the Russia-Ukraine war broke out, energy cost, mostly in Europe on the energy side, steel, globally, we saw scrap prices go up in the US, almost within a week or two of that happening. Logistics costs, we thought those might start coming down. They instead held. So, whether those are - end up being transitory or they are here for the rest of the year and we've taken what we think is a prudent approach to assuming they are here to stay, because they've been and we're now at six quarters of increasing costs, so we're taking the approach that they are here. But, certainly, it could be more transitory than what we're assuming as well.

Go to our next question from David Raso with Evercore ISI.

Maybe I missed it, but the margin cadence for the year. Can you give us a little help with that. Just given the fourth quarter, you would think - should provide a relatively easy year-over-year comp, but it looks like you're implying the rest of the year, the margins are only flat year-over-year. Can you help us a bit with the cadence, particularly 2Q? Thank you.

Yes. Thanks, David. I would tell you. The guidance would assume that we still would expect some second half improvement in the margins year-over-year. As we said by holding the earnings guidance, which again as Rich said, it's admittedly a prudent approach. We think we're being conservative relative to the guide. We did - we would expect costs to tick up a bit. The planning for costs to tick up a bit in Q2, and then kind of sustain for the rest of the year. So, I think, we still would expect second half margins to be up year-on-year. And then for the full year, the guidance would imply the full-year margins would be roughly flat with 2021.

Just so we level set, on the second quarter, year ago EBITDA margins were 18.8%. Just to give us some framework here a little bit. I mean, is it 150 bps lower year-over-year, or I think we're all just trying to square up the price cost for 1Q. How much does it go negative again in 2Q to drive the that margin down? And then...

Yes. David, I don't think we want to go into second quarter specifics and outlook. But to add a little more color to what Phil said, the last - and maybe I'll switch the margins to earnings per share. But, obviously, you have our revenue outlook. I mean, the last four years our EPS I think has ranged from 51% in the first half to 58% of it in the first half. And so, I mean, we do have a seasonal parts of our business, it's almost always there. And then both in, '19 and '21, it was in the higher '50s. Last year was the rising cost '19 was a little bit of easing volume, but I think the mid-point of the guide would imply a little heavier weighting on that. So, basically similar performance to what we saw last year for the full year off of the first quarter level.

That's very helpful. And when it comes to having the price more from your original thoughts based on the cost outlook, have you already seen the cost increase? So, where you have gone back to the market, since your original increases or you just have that in the ready in case it does go up even further than what you're currently seeing?

But we - have a step up from Q4 to Q1. With some of that - some of our global distribution prices went up mid-quarter. So, not all that was in the run rate. We have some other contracts that are opening up mid-year. So, as I said I think what we would be planning for in this or assuming in this guide is probably a similar progression from this point through the end of the year what we saw last year, which is prices modestly going up quarter-to-quarter for the rest of the year. That being said, as we've gone through the contracts this last year, this year and we are increasingly, I'll say structuring our commercial negotiations to where we will have more flexibility. As you know, we have a lot of pricing mechanisms, a lot of indexes, contract spot pricing, quotes et cetera. But, as we've gone through that generally, I would say where we have shorter deals than we had before and/or we have more coverage whereas we may have had a scrap index now we're trying to get our material indexed or inflationary index and/or in some cases, we had a contract and we don't have a contract anymore and we're just putting pricing through. So, I still think we have some limits as to what you can see this year. Our cost took another step-up, but we are in a better position today if that's the case than we were a year ago. And, if we're still in the situation, if 4% pricing a year or more is the new norm, we will be in a better position for it this year and will be even better positioned for it next year.

And just to summarize that, you have more flexibility for the next 9 months than if we had the same conversation 12 months ago. Just so I'm clear that...

That it's a flexibility more coverage or better - flexibility or better coverage of what the index is covering. Yes.

And we'll take our next question from Stephen Volkmann with Jefferies.

A couple of demand questions if I could. I know you said Russia was somewhere around 1% of your sales. I think it was actually more if I'm not mistaken for some of your large competitors. So, I'm just curious if there's any type of an opportunity there to backfill some of the other shortfalls based on that?

Yes. I think, take the Russia business for us - historical Russia business into two parts. The rail business produced in Russia, sold in Russia, probably gone. The non-rail business produced outside of Russia, sold into Russia and certainly with supply constraints, capacity constraints, et cetera, there's possibility that we can make that up and direct that capacity and revenue into other places. But, the market share itself is gone at this point. That market is getting served by others.

And maybe the other point, Steve, I do - I may be - you might be referencing is, some of our competitors may have larger footprints. So, you heard from Rich, our footprint in Russia is mainly rail, the rest of the business, we serve from outside Russia. So, to the extent folks have larger footprint in the region that are impacted, it does give us some ability to continue to serve - broadly serve the European markets from the remainder of our footprint.

Right. That's what I was...

We're really clear - historically, we were in the rail market and then I'll say metals and commodity markets, mining, not in automotive, not in truck and I think some of our competitors have market positions in those industries as well.

Okay. And then, on the flipside, everybody is watching for signs of demand destruction, because obviously you're not the only one seeing cost increases. So I'm curious if there is any of - it doesn't look like it based on your end market chart, but is there anything that you're worried about relative to demand and kind of demand destruction on price and so forth?

No. We haven't seen anything you could point to. I think war certainly makes people a little more nervous, ourselves included, but there's been nothing that you could point to. The one that you can point to today is, China with the lockdowns. There's a general sentiment there that that's not affecting in demand and when the lockdowns are restricted that things will right - switch turn right back to where they were. And that's largely what happened when they locked down a lot of the country back in early '20. So, I think that's very plausible, but we could certainly - it would certainly be a good for us if that happened sooner rather than later and those restrictions were lifted. But, no, we've seen no negative impact on demand from pricing, no negative impact from demand from the war and the demand situation is very strong.

Yes. Maybe just a couple of anecdotal points on - to follow that up. Steve. When you look at a couple of markets like in Process, heavy industries, which typically moves latest was up significantly year-on-year up significantly, sequentially, that's OEM demand coming out heavier markets like metals, aggregates and then pulp and paper, even oil and gas. So, we're seeing good momentum there, strong momentum across the rest of the Process portfolio with the exception of renewable energy, which we expected would be flat this year. And then, on the Mobile side, we saw a step up in rail, sequentially, despite the Russia impacts or - despite the Russia impact, we were up pretty solidly year-on-year, up sequentially and we're seeing some good momentum outside of Russia for the full year. So, I think those are a couple of markets that give us confidence that we're seeing - that the momentum's there. And again within Mobile, strong momentum continues in off-highway and the other - in the other sectors. So, I think, all signs are still very positive.

Go to next question from Chris Dankert with Loop Capital.

I guess, first off, thinking about the automation portfolio now, is that principally serving machine builders? More end users? Is it kind of a healthy mix of both? And then, just any comments you can give us on growth rates in that business during the first quarter here?

Yes. So, the biggest part of that market for us is automatic lubrication systems, which would serve - would go into the diverse markets, but is really replacing manual lubrication. So, that's the solution itself. Then when you're moving in the end markets, our second biggest market would actually be before Spinea would be automated warehouse systems. So, Rollon has a nice position in that market, along with a couple of other product lines. And then, actually you get into factory automation from there with Rollon, Cone, with Timken housed units and some other products. So, it's a mix. But, again, it's a market that go back five or six years ago would have been sub-1% of the company, because we weren't in automatic lubrication systems in these other markets. I don't want to get into the first quarter run rate, but I think the trend has been positive, high single-digit type overall growth in this. And then, I think what we've seen coming out of the pandemic, if anything is only, putting more confidence and belief and that labor shortages. The need for - the need to reduce labor intensity and the ability to increase output without that. And then also the development of the emerging markets, where you've seen more automation go into countries like China and India than what we're for. So, it's a market solar renewable energy, we're very bullish on over the long-term. It does have a cyclicality to it like most of our markets, because it's tied to capital equipment, But the current outlook for it's quite strong.

Got you. And that's really, really helpful. Thank you. And then, you kind of follow up on another key market drivers here. I mean, we've talked about renewable energy. I think everyone understands, you've got some pretty massive comps to deal within that business and that's why it's flattish this year, but I guess the order rate and kind of the interest in that business, do you feel like - again 2023, we should be able to get back to growth in that market specifically?

Yes. So, first --back up that specific question, I really think when you look at our revenue in the last few years, I mean really starting to see the benefit of the diversity of our markets. Renewable energy carried us in 2020 during the pandemic, China carried us in the pandemic. This year other parts of the end markets and other parts of the geographies, I think, are going to carry us. Now coming specifically to your renewable energy question. We ended the year a little on a lower rate last year. So, we expected to start out down. In the first quarter, we needed orders to come in to really support the second quarter - the second half growth. That happened. And then, again I think, similar to the automation story, what's happened in the world with energy dependence on other countries, et cetera. I think the capital going into those market is going to be there, whether it's regardless of what geography. So, if anything what's transpired in the last three months and last couple of years, I think is only increased our belief that this is going to be a growth market. And I think what's the risk around probably this year is that - we started slow and then the China situation needs to resolve itself pretty quickly, but backlog has grown, orders are building. And I would say, customer sentiment for the end of this year and into next year is growing.

We'll take our next question from Joe Ritchie with Goldman Sachs.

Could you may be just elaborate a little bit more on what's happening? What you're seeing on the ground in China? I know it's about mid-teen percentage of sales for you guys? And the environment has been very fluid, particularly since the end of the quarter. So, any color on like end markets and specifically what you guys are seeing on the ground?

Yes. So our - I think it's very site - it depends on where your factories are, whether your factories or your customers' factories. So, our factories were - have been very minimally impacted. We're not in Shanghai. We're not in Beijing, where the lockdown - we have an office in Shanghai and a lot of our people have not been able to leave their homes, or get to the office for some time, but were able to operate. So, our factories have not been significantly impacted. However, ports have been impacted, trucking's been impacted and some of our customers, depending on where their locations are, are either impacted or they're having trouble getting some material. So, we did see a, I'll say, double-digit decline in China revenue in April from March. We'd expect to be down in May as well. I think, our team generally feels this is going to work its way through the system quite quickly. And the optimistic case is, probably by the end of this month, it's back to normal. But, it's not - certainly not normal as we sit here today. And, I think, there's some uncertainty around it, but we're not looking at a 40%-50% drops and industry is still running over there, but it is - it has been impacted for sure.

Got it. That's helpful. And then, is it impacting your Mobile market more so than your Process market at this point?

No. I would say there's probably no real correlation there. It's --it tends to be more of a Process Industries' market for us, particularly, because of renewable energy. So, I'd say it's probably an even impact between the markets as a percentage wise, but more dollars and - probably in Process.

Okay. Got it. And then, my one other follow-up. I saw that you guys break out on the dollar basis. Yes. The materials on logistics impact year-over-year that seemed to decline in the first quarter versus the fourth quarter. So, just - I was just curious like - are you seeing any easing on both, for either and where are you seeing kind of like - just a little bit less pressure?

I'm not sure the decline from the fourth quarter to the first you're referencing in dollars. I think it was flattish. But I would have said material was flattish to down a little bit as a - on a unit cost basis. But, again, we saw it go up in April after the war and commodity costs, alloy costs have gone up, et cetera. So, that's happened globally. And then logistics, I would say is a little bit off peak. The peak is up dramatically from where it would have been a year ago. So, we're still up a lot year-over-year. There was some forecast that that was going to be easy and I think that's probably between what's happened with China. And in Europe and Russia, I think, we're taking a little more cautious outlook on that, not assuming that's going to ease.

Got it. Yes. No, I was just referring to in the fourth quarter there was like $58 million headwind year-over-year and 45% in the first.

We'll go to our next question from Steve Barger with KeyBanc Capital Markets.

Rich, going back to your comments on how strong demand is in most end markets and better than the guide suggest. We know orders for a lot of your customers have been pretty good in 1Q, backlogs were sizable across the space. What are the real pinch points on production and your ability to supply at higher rates?

Well, I think, the conservatism or I don't know what are the - first step and I'd say it's also customers, right? I mean, I'd say, hey, we need a thousand of those for the next months and then they have the labor problem, they can get another part in et cetera. So, I would say the demand while strong, is still not as - doesn't have a smooth a cadence is what you would normally have and/or like. So, I think there is - it's starts upstream. And then for us, we are definitely - we're up from where we were a year ago and manning in our plants. We have spot issues with where materials are either short or hand to mouth, but for the most part we have enough material. We're still adding - staffing to our plants globally. On the specific supply-side, we're actually having some problems with electrical components, where we have automatic lubrication systems and some other things like that. Rubber has been a tight commodity, but I would say it's more just delays. And then also you through the first quarter, January and February, we still had extremely high absenteeism in the plants. That had really started easing in March, but now we've got the magnified problem in China. So, I'd say it's just the combination of issues, Steve, that's keeping a little bit of a lid on the efficiency and throughput that you're able to get through the supply chains.

Would you say it's more your customers' inability to take that next piece or more internal in terms of your ability to get the electronic component or whatever?

I would say it's both. And, yes, I would just say it's both, and probably leave it there.

Okay. And then on industrial automation, we've seen a lot - or some of the public OEMs and integrators call out growth in some areas, high-teens to 30%-plus across their portfolios. Is there anything you can do to position for the higher-growth verticals in automation or what is your strategy for accelerating market share there?

I think, it's a combination of organic product development and inorganic, I think, the - and answer certainly is, yes. I think the move into lubrication systems certainly feel that is a - I don't know business that we would put on a CAGR like you just threw out there, but certainly one that we would expect to grow significantly faster than the portfolio and significantly faster than industrial GDP et cetera. Just again because it's addressing labor shortages and it's improving equipment uptime and equipment maintenance and deferring capital cycles, et cetera. So, now when we really - we were doing quite well with the business and the BEKA acquisition and then hit the pandemic. So, we really just bounced back in the last year here, but would expect that to have a high growth rate. And then on the factory automation, which is the gist of the Spinea acquisition, certainly again we'd expect that to have a significantly higher growth rate than a lot of our core industrial markets. So, we have a lot happening, both, I would say in product development as well as our M&A pipeline to continue to scale that position and mix into that and I think all of the global cost and demographics and labor shortages are all playing squarely into that market.

Yes. And the pictures you have on slides 8 and 9 are of the bigger industrial robots. Are you also selling into the cobot space?

Yes. The - as I said the, harmonic drive that we already have in the portfolio, would tend to be on the smaller side and the cycloidal, which we just acquired with Spinea would tend to be on the larger side and quite often the robot as both in it depending on which joint and again the weight, torque of the joint, but yes. Our objective is to build a position in both,

And we'll take our next question from Courtney Yakavonis with Morgan Stanley.

Appreciated some of the color on the quarterly EPS distribution. Can you also just comment a little bit on the revenue cadence for the year? I think, usually 2Q is pretty similar to 1Q. But given some of the disruption that you had from COVID in North America in January, February, and then the disruption you kind of called out on the China side in 2Q. Any thoughts about how the revenue cadence should progress through the year?

Yes. I think, typically first quarter or second quarter is our peak revenue and peak earnings per share. And, typically, we'd see a little bit of an uptick from Q1 to Q2, I mean 1% to 3%, right? This year, we're probably a little more cautious on that given the immediate loss of the Russian revenue, the direct Russian revenue as well as the start of April in China. But still and then typically from Q2 to Q3 and Q4, a 2% to 3% per quarter decline is pretty normal for us. And so, I think those numbers all are within a bandwidth of what we're looking at again, this time on the revenue cadence.

Okay. Great. That's helpful. And then just on some of the changes that you had called out on end markets, it sounded - one, can you just remind us what percentage of rail is Russia? I think, that was really the only end market that you took out of that higher growth bucket and lowered assuming that that was all related to Russia. And I think the comment was that the ex-Russia business is actually performing quite well. So, just if you can give us a little bit more color on how that would look ex-Russia. And then, similarly, I think the industrial services got pulled up, so if you can have any comments on what you're seeing in that end market.

Yes. I would say globally, rail, excluding Russia is performing well. It was a market that was lagging last year. I would say, the US was still lagging. But I would say the US rail market is really preparing for a good run into and well into probably through 2023. So, I would say the rail market globally to your comment is doing well, excluding Russia and Russian rail sales, call it 0.5%, of company revenue maybe a little less. So that would come obviously all out of the rail segment. So, it would lower meaningfully, but corporation-wide, not a big deal.

Got it. And then, industrial services?

Yes. I would say, just to comment on industrial services, up in the First quarter, pretty solidly, that business tends to be tied to industrial activity mainly in North America. I mean it is a global business, but it's mainly in North America. So, for the full year, we did see an improvement in the backlog in that business, an improvement in the bookings in that business, so we do expect stronger growth across the services sector for the full year than we had coming in. Because some of the - some of the sectors that our services business is tied to as an example, pretty strong position in oil and gas. So, we saw some improved activity there with what's been happening around the world. And just more broadly industrial activity in the Americas, and even in Europe, to a lesser degree. So just a step up in bookings, step up in activity. We saw in Q1 and expect to expect that the sustain itself for the rest of the year.

Go to our next question from Michael Feniger with Bank of America.

Filling in for Ross here. I appreciate you have more flexibility than you were on pricing than a year ago. If pricing's 4% in Q1 and your costs are going up, why is that 4% number not moving higher on a full year basis? Is it because of annual contracts, how does the pricing mechanism work if you could remind us on the Process side, or competitors not raising pricing as aggressively? Maybe kind of flush that out for us.

Yes. Our pricing metric is a year-over-year comparison for exact mix of parts sold. So, last year at this time, our pricing was probably close to zero. And then, in the second - late in the second quarter, it started ticking up. So, to get 4% in the second half of the year, we have to have more pricing than we have today, because our comp today - so the pricing comp gets harder as the year goes on, not so much in the second quarter, but certainly in the third and the fourth. So, we are expecting more pricing and we said we'd go into the year getting more than 4% and we are getting more than 4% and we're probably not going to go into much more detail of how much more.

Fair enough, Rich. And you made a comment about how inflation - is it transitory, it's indeed permanent? I'm just curious if that permanence kind of even last going forward. Does it change - other than pricing, does it change the way you operate, you run the business outside of just raising prices? Does it have to change maybe your footprint and where you guys invest capacity? Obviously there's been comments about we shoring supply chains in your critical supplier. I'm just curious, you can maybe comment on that portion. And if we do see inflation more permanently, how it kind of changes the business model other than just maybe pricing? Thanks.

Yes. I certainly think on the labor side. As we said, it would play into our CapEx and automation and certainly a sizable percentage of our annual CapEx spend is either for pure automation and/or assets equipment technology that is more efficient and state-of-the-art and improving labor productivity and material conversion efficiency, et-cetera. So, I think, you could certainly see that step up. And then, I do think the footprint's relevant as well, because the labor challenges around the world are different depending on where you're at in the country, in the United States. And even more so, where you're at in the world. So, I think, historically there would have been too many cases, where we would have been reluctant to make an investment in a facility, because we are concerned we couldn't hire the people and I think that is now a real concern in, particularly where we have some things in smaller communities, where you do have to - you have to concern yourself, are you going to be able to attract the labor into those markets. So, I think those would be the two factors. I think, there is an impact on automation within the footprint and an impact on the capital going to the parts of the footprint, where the labor availability to support it is assured.

And as there are no further questions. Please go ahead, Mr. Frohnapple.

Yes. Thanks, Christina, and thank you, everyone, for joining us today. If you have any further questions after today's call, please contact me. Thank you. And this concludes our call.

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