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Edited Transcript of AIMC earnings conference call or presentation 28-Apr-17 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Altra Industrial Motion Corp Earnings Call

BRAINTREE May 21, 2017 (Thomson StreetEvents) -- Edited Transcript of Altra Industrial Motion Corp earnings conference call or presentation Friday, April 28, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Carl R. Christenson

Altra Industrial Motion Corp. - Chairman and CEO

* Christian Storch

Altra Industrial Motion Corp. - CFO and VP

* David C. Calusdian

Sharon Merrill Associates, Inc. - President

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Conference Call Participants

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* Bhupender Singh Bohra

Jefferies LLC, Research Division - Equity Analyst

* Charles Matthew Duncan

Stephens Inc., Research Division - MD

* Jeffrey David Hammond

KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst

* Robert Scott Graham

BMO Capital Markets Equity Research - Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Altra Industrial Motion First Quarter 2017 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Mr. David Calusdian. Thank you, you may begin.

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David C. Calusdian, Sharon Merrill Associates, Inc. - President [2]

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Thank you, Matt. Good morning, everyone, and welcome to the call. With me today are Chief Executive Officer, Carl Christenson; and Chief Financial Officer, Christian Storch. To help you follow management's discussion on this call, they will be referencing slides that are posted to the altramotion.com website under Events and Presentations in the Investor Relations section.

Please turn to Slide 1. During the call, management will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain, and investors must recognize that events could differ significantly from management's expectations. Please refer to the risks, uncertainties and other factors described in the company's quarterly reports on Form 10-Q and annual report on Form 10-K, and in the company's other filings with the U.S. Securities and Exchange Commission. Except as required by applicable law, Altra Industrial Motion Corp. does not intend to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.

On today's call, management may refer to non-GAAP diluted earnings per share, non-GAAP income from operations, non-GAAP net income, non-GAAP gross margin, non-GAAP operating working capital, non-GAAP EBITDA and non-GAAP free cash flow. These metrics exclude certain items discussed in our slide presentation and in our press release under the heading Discussion of Non-GAAP Financial Measures and any other items that management believes should be excluded when reviewing continuing operations. The reconciliations of Altra's non-GAAP measures to the comparable GAAP measure are available in the financial tables of the Q1 2017 financial results press release on Altra's website.

I'll now turn the call over to Altra's CEO, Carl Christenson.

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Carl R. Christenson, Altra Industrial Motion Corp. - Chairman and CEO [3]

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Thank you, David, and good morning, everyone. Please turn to Slide 2. We began 2017 with a strong first quarter. We had record sales and record recurring EPS. As I mentioned during our last call, incoming orders in the fourth quarter of 2016 were disappointing. However, incoming orders picked up nicely at the beginning of the year and have remained at a healthy level. Shipments lagged slightly, but we had a strong March as we gained momentum through the quarter. Our sales performance met our expectations as we reported 19% overall growth when you include the Stromag acquisition and a negative effect of foreign currency translation.

Without the impact of Stromag, volume was up 70 basis points and price contributed 90 basis points. These were partially offset by 150 basis point headwind from foreign exchange. On the bottom line, we drove a 6% increase in GAAP EPS and a 39% increase in recurring EPS, which was better than we had expected. Over the past 2 years, while several of our key end markets were particularly soft, we were able to make substantial progress on the strategic initiatives we launched to improve our cost structure. We've been saying for some time that the results of our 3 strategic initiatives: consolidations, supply chain enhancements and pricing, would result in very strong operating leverage once our markets began to rebound, and we started to see that in our Q1 results.

Our markets still have a way to go, but we are highly confident that what we have achieved during the past 2 years, will have a significant positive effect on our profitability moving forward. The consolidation effort we outlined at the end of 2014 is nearing completion. At that time, we said that we planned to close 8 to 10 facilities with a total annual savings of approximately $7 million. We have now consolidated 8 facilities, including 2 in the first quarter. We anticipate closing 1 additional facility this year, and we will have exceeded our annual savings goal of $7 million. We are also in the process of selling 2 properties.

In addition, we will have eliminated approximately 280,000 square feet of space without reducing any manufacturing capabilities or capacity. Our teams have done a tremendous job in getting this all done in a relatively short period of time. Having completed these consolidations during the industrial downturn, we have a much improved infrastructure to capitalize on growth initiatives as our markets rebound. Along with our consolidations, our pricing improvement strategy and supply chain initiative will have a positive effect on our results going forward. As I mentioned during Q1, price had a 90 basis point effect on sales, and we have been able to increase price on a net basis in the range of 70 to 90 basis points each quarter since the beginning of 2016.

We're also making excellent progress towards achieving our goal of developing a world-class supply chain management organization, and we see significant potential to drive profits in this area over the next few years. Our pricing and supply chain initiatives are becoming an integrated part of our operational culture. As such, we will not be providing regular quarterly updates on the progress of these efforts going forward. But know that they will be making a significant difference in our ongoing performance.

Before I move on to our review of the markets, I would like to comment on our Stromag acquisition, which we closed at the beginning of the first quarter. Please turn to Slide 3. Stromag is a Germany-based maker of hydraulic clutches, electromagnetic clutches & brakes, limit switches and flexible couplings. Stromag has a very strong brand and excellent technology base and a highly complementary suite of products. In these early days, the acquisition is everything that we'd thought it would be. The integration is going very well, and our expected accretion from Stromag for the year is on track. As I mentioned on our last call, our cultures are a strong match and the teams are working very well together. Just last week, we held a joint cross-selling training session for the sales force, and this week, we have tremendous interest at the Hanover Messe, which is the largest trade fair for our industry in the world. Individual sales personnel from both organizations are excited to be able to broaden their product offerings. In addition to the cross-selling, Stromag also provides us with the opportunity to expand our geographic presence in Europe and Asia, particularly in India. A significant part of the integration process is the move of portion to Stromag manufacturing, which have been co-located in 4 of its former owner's facilities to our own. Since the close of the acquisition on December 30, we've already completed the move of Stromag manufacturing in China, Brazil and 1 location in the U.S. to our facilities, and we expect to have the final location in the U.S. moved by the end of June. I would like to emphasize that despite the potential for distraction with the 3 facility moves in just over 3 months, Stromag's performance in Q1 was strong. We'd also mention that we saw an excellent opportunity to leverage cost synergies through the application of our operational excellence and procurement programs. The synergies we had expected to secure in year 1 have already been secured. We are obviously very excited about the potential for Stromag and look forward to their contributions in the quarters and years ahead.

With that, let's turn to Slide 4, and review our end markets. We'll begin with distribution, which is predominantly made up of sales of aftermarket parts and original equipment parts for small OEMs. Distribution was up in the low single-digit year-over-year and up in the low double-digit sequentially. We expect distribution to be up slightly for the year, as headwinds are not as severe as last year. Turf and Garden sales were down in the single-digits year-over-year in what we see as a relatively stable market. We continue to expect this market to be similar to 2016, as we come off 2 record years. Farm and Ag sales were very strong in the quarter, both year-over-year and sequentially. That said, the fundamental market dynamics are not robust, and it the continues to be affected by low commodity prices and a relatively young fleet. However, the prevailing sentiment in the market is less negative than it has been in some time. While material handling got off to a slow start for the year with revenues down slightly from a year ago, we expect 2017 overall to be similar to last year.

Now turning to energy. Energy, overall, was down slightly from a year ago. Looking at oil and gas specifically, we're growing more confident that we've reached the bottom and expect this market to continue to improve, especially in the aftermarket as the rig count improves. We are encouraged by what we've seen in the past few quarters, and are cautiously optimistic that orders will strengthen during the year. After a good performance in Q4, conventional power generation was down in Q1. We expect this was a timing issue and believe that the market has stabilized and that 2017 will be flat with 2016. Sales into the renewable energy market were down in the low single-digits, including a negative currency affect. We expect 2017 to be flat to slightly up from the strong market performance in 2016. The metals market appears to be recovering, although, because of long lead times, our actual sales were down in the quarter. We expect to see sales improve for the balance of the year. Mining sales were down sequentially, but up again year-over-year, and we are seeing some increased activity in the market and growth is primarily being driven by replacement parts business. We're hopeful that orders for components for new equipment will also improve later in the year.

With that, I'll turn the call over to Christian to review the numbers before returning for a summary and your questions.

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Christian Storch, Altra Industrial Motion Corp. - CFO and VP [4]

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Thank you, Carl, and good morning, everyone. Please turn to Slide 5. We are off to a good start in 2017 with a strong first quarter performance. Our gross profit margin continued to improve by 40 basis points when compared to the prior year's first quarter. Excluding the inventories step-up related to the Stromag acquisition, our gross profit margin was 31.8%, an improvement of 150 basis points. Non-GAAP operating income was 10.6% of sales for the quarter compared with 9.1% in the prior-year quarter, an improvement of 150 basis points. For the first quarter of 2017 GAAP diluted EPS was $0.36 versus $0.34 a year ago. Non-GAAP diluted EPS increased to $0.53 from $0.38 a year ago. The $0.53 had a $0.03 benefit from lower-than-expected health care cost. We expect that this health care cost trend will not continue for the balance of the year. Q1 2017 non-GAAP EPS excludes restructuring and consolidation cost, loss on extinguishment of debt, inventory step-up and acquisition-related expenses. Geographically, excluding the effect of foreign exchange and Stromag, North American revenues were flat. European revenues were up 6.5% and sales to Asia-Pacific and other geographies were up 3.8%.

Please turn to Slide 6 for a discussion of our segment performance. Please note that segment results are not adjusted for onetime items. For the first quarter of 2017, net sales in our Couplings, Clutches and Brakes segment were $106.2 million, up 40.5% when compared with the prior year. Organic sales growth, excluding the acquisition of Stromag, had a negative impact from foreign currency exchange. Sales were up 3.8%. This segment has Altra's highest exposure to the oil and gas, metals and mining markets. Segment operating income was $8.3 million, up $2.1 million from $6.3 million a year ago. Net sales in the electromagnetic clutches and brake segment was $63.9 million, up 11.5% from the first quarter of 2016. Organic sales growth excluding the acquisition of Stromag and the negative impact from foreign exchange was 3%. This segment is benefiting from Altra's facility consolidations and procurement efforts. As a result, segment operating income as a percentage of sales improved to 11.9%. Finally, the net sales in the Gearing segment were $47 million compared with $48.9 million in the year-ago quarter. Segment operating income decreased 5.2% to $5.5 million and $5.8 million a year ago. Segment operating income is now 11.7% of sales compared with 11.9% a year ago. This segment is not impacted by the acquisition of Stromag.

Please turn to Slide 7. Our balance sheet remains strong. Our cash balance was $52.9 million compared with $69.1 million at the end of the year. The decrease was partially due to the pay down of $8 million of revolving debt and the final pay off of the convertible debt of $1 million. Book equity was $347.4 million compared with $283.3 million at year-end. The increase was due to net income and the conversion of a convertible notes, partially offset by the dividends. Our balance sheet strength provide us with enough dry powder to execute on bolt-on acquisitions. In terms of use of cash for 2017, we would continue to favor debt pay down over share repurchases. We did not repurchase shares in the first quarter. Due to the conversion of the convertible notes, average diluted share count increased to 28.9 million. We expect the average diluted share count to increase to approximately 29.3 million by the end of this year. Capital investments totaled $7.3 million for the quarter, below depreciation and amortization of $8.8 million.

Please turn to Slide 8 and our guidance for 2017. As a result of the company's strong first quarter results, Altra's raising its 2017 full year guidance. The company now expects earnings to be in the range of $1.70 to $1.80 per share, up from prior guidance of $1.64 to $1.74 per share. Altra now expects non-GAAP EPS to be in the range of $1.83 to $1.93 per share. Sales are expected to be in the rate of -- range of $840 million to $855 million for the full year 2017. The company expects an effective tax rate of approximately 29% to 31%, and we continue to expect capital expenditures in the range of $25 million to $30 million. Depreciation and amortization is now expected to be in the range of $35 million to $37 million, down from $38 million to $42 million.

With that, I will turn the discussion back to Carl.

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Carl R. Christenson, Altra Industrial Motion Corp. - Chairman and CEO [5]

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Thank you, Christian, and please turn to Slide 9. The first quarter 2017 represented an important turning point for Altra. Our facility consolidation effort is largely complete, and our supply chain and pricing improvement initiatives are now ingrained in Altra's operational culture. Because of the very hard work that the team accomplished in a relatively short period of time, we now have the opportunity to capitalize on what appears to be the beginnings of an upturn in certain key end markets. We don't expect that sales to these end markets will ramp up dramatically, but it appears that we are finally coming off the bottom. We also expect to have significantly better operational leverage with our improved cost structure. The Stromag acquisition is very exciting and we are encouraged by its performance thus far and the speed and efficiency of the integration process. Going forward, we'll continue to focus on long-term growth both organically and through M&A. We have a strong balance sheet, and we are in a good position to act on potential bolt-on acquisition opportunities.

Thank you for your continued support of Altra, and we'll now open up the call to your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Scott Graham from BMO Capital Markets.

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Robert Scott Graham, BMO Capital Markets Equity Research - Analyst [2]

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So I want to ask a little bit about the guidance and what you're thinking. I heard you go through -- in nice detail you went through about what you expect going forward with the end markets, of course, and really, kind of the only thing that I heard was that first quarter benefited from health care, whereas you don't see that recurring. So I'm wondering, we had a really terrific operating leverage in the first quarter. It doesn't sound like you're expecting the same level of operating leverage in the next 3 quarters. Can you talk about that a little bit?

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Christian Storch, Altra Industrial Motion Corp. - CFO and VP [3]

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Yes. So Graham, typically, the first half of the year is stronger than the second half, and right now we assume that, that pattern will also be true this year. Revenues, typically, in the first half are around 51% of annual sales, and profitability in the first half of the year might be 53%, 54%, typically, in the first half of the year. So if you make that assumption that, that's -- this pattern will continue this year, I think you get insight of the range for top line and EPS guidance. We do think that as we go through the year, we'll continue to see the strong improvement in gross profit margins and operating income margins, but we also feel that, that is reflected in the guidance.

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Robert Scott Graham, BMO Capital Markets Equity Research - Analyst [4]

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Fair enough, Christian. The first quarter, when we x out, let's call them acquisition-related expenses, both, let's say, operationally and purchase accounting wise, was Stromag accretive to earnings?

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Christian Storch, Altra Industrial Motion Corp. - CFO and VP [5]

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Stromag added around $0.05 in the quarter.

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Robert Scott Graham, BMO Capital Markets Equity Research - Analyst [6]

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Excluding those items or including those items?

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Christian Storch, Altra Industrial Motion Corp. - CFO and VP [7]

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Excluding those items.

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Robert Scott Graham, BMO Capital Markets Equity Research - Analyst [8]

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Got you. And last question is, what level of sales growth -- this sort of like dovetails off of the first question but, what level of sales growth do you guys think you need organically to get better operating leverage on the SG&A? It was good, but as sales progress, what's sort of like the magic number there? Is it 3% or 4%, where do see that as really being a driver to lower SG&A on a percent of sales basis?

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Christian Storch, Altra Industrial Motion Corp. - CFO and VP [9]

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Yes. Somewhere between 3% and 5%, Graham. We have very strong performance in Europe, and it depends on where that exhibits. If it's in our oil and gas and our mining business, these are extremely profitable pieces of our business, so if they deliver 3%, 4%, 5% growth, we'll see tremendous leverage for those businesses.

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Operator [10]

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Our next question comes from Matt Duncan from Stephens.

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Charles Matthew Duncan, Stephens Inc., Research Division - MD [11]

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So Carl, first question, you alluded to this in your prepared comments, but the order trend, it sounds like it improved through the quarter in the margin, maybe stay strong. If I look at what you did with your revenue guidance, you didn't take the midpoint of -- by as much beat revenues by in the quarter, which doesn't seem to necessarily marry up with that good order trend. So is this just a little bit of conservatism? Maybe we're still a little gun shy trying to make sure that this recovery is going to stick? Is that sort of how I should read that?

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Carl R. Christenson, Altra Industrial Motion Corp. - Chairman and CEO [12]

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Yes. So it's still choppy out there, and what we saw was, the fourth quarter incoming order rates were awful. I think, we weren't alone in that, but the incoming order rate was not very good in the fourth quarter. And right after the first of the year, it ticked up a little bit. And then, it's been level since then. So we haven't seen a tremendous acceleration through the quarter in incoming orders. We're -- we do think that the inventory in the channels in some of these later cycle end markets have -- are in line. And so we're now starting to see demand kind of reflect what's actually going on out in those markets. But it is still choppy. So we don't see a lot of benefit in saying that the things are going to get a whole lot better through the year. Also, still a few end markets that people are concerned about.

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Charles Matthew Duncan, Stephens Inc., Research Division - MD [13]

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Well, that's kind of where I was going next. I mean, what markets are you're seeing the strong order book from? And where are you seeing softness still?

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Carl R. Christenson, Altra Industrial Motion Corp. - Chairman and CEO [14]

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Yes. So I think, the oil and gas, we're starting to see some really good, particularly, replacement parts business. And the rig count continues to go up. So that looks very optimistic there. Mining, we've seen some -- again, some very good replacement parts business, and we've had some good fresh proposals on some new build equipment. So that's very encouraging, and it's an indication that the inventories out there are starting to get in better shape. I think, the ones on the downside that I would have concern about would be auto, we don't have a big auto business, but certainly the sentiment around autos is not what it was a couple of years ago. And then, I think, in some of the renewable, we know is going to start to taper off a little bit and we won't get the same growth that we've had there. So there's a few markets that we're concerned about, but -- and it is still choppy when you look at the incoming order rate, even in some of the strong markets. It'll be good one week and then soften up another week.

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Charles Matthew Duncan, Stephens Inc., Research Division - MD [15]

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Okay. And then last question, and I'll hop back in the queue here. Difference in the guidance in terms of the reported earnings and in adjusted earnings. There was a $0.17 gap between those 2 numbers this quarter, but the full year guide there's only a $0.13 gap. So I'm trying to figure out what I'm missing there. You're going to -- how is that going to reverse and get lower as the year goes on?

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Christian Storch, Altra Industrial Motion Corp. - CFO and VP [16]

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It's not going to reverse. So we're going to check that and make sure that our numbers are right. We'll get back to you on that. We expect that we had about $0.02 or $0.03 for the rest of the year in terms of restructuring. Acquisition cost, maybe $0.01, and that should be it.

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Charles Matthew Duncan, Stephens Inc., Research Division - MD [17]

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Yes, that's the question because, I mean, if I look at the guide, it's a $1.70 to $1.80 on diluted earnings and $1.83 to $1.93 on adjusted earnings. So that's only $0.13, and you're already at $0.17, so.

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Christian Storch, Altra Industrial Motion Corp. - CFO and VP [18]

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Yes, we'll check that.

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Operator [19]

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Our next question comes from Jeff Hammond from KeyBanc Capital Markets.

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Jeffrey David Hammond, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [20]

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Sorry, if I missed this. But you mentioned the health care dynamic, did you quantify that? And just give -- Can you give a little more color there?

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Christian Storch, Altra Industrial Motion Corp. - CFO and VP [21]

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$0.03 -- $0.02 a share, there was a majority of the $0.03, that I mentioned, was health care. That was stop-loss related, where we got refunds from an insurance of 4 cases where we hit the stop-loss. And that is an event that doesn't occur every quarter and, therefore, we cannot expect that to continue.

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Jeffrey David Hammond, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [22]

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Okay. So the guidance change really seems to reflect that and the lower tax and then, a little bit better sales, at the start of the year?

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Christian Storch, Altra Industrial Motion Corp. - CFO and VP [23]

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Yes.

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Jeffrey David Hammond, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [24]

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Can you give us a sense of like, you're still kind of pointing to this low single-digit growth rate. Can you just give us a sense, if you look at the orders in total for 1Q, what kind of growth rates are you seeing all in, and what's the book-to-bill look like?

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Christian Storch, Altra Industrial Motion Corp. - CFO and VP [25]

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The book-to-bill is pretty solid. Now we don't give numbers, Jeff, on orders, primarily because some of them are not contractual requirements. They're scheduled orders for big OEMs, and I just don't feel comfortable quoting numbers based on something that's not a contractual requirement. But I think that the incoming -- I think the incoming order rate is reflective of what we've put out in the guidance. We're not seeing bookings that wildly exceed what the guidance is, that we've put out there. They're solid and they're good, and it supports the guidance, but it's not wildly in excess of the guidance.

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Jeffrey David Hammond, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [26]

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And then, great color on Stromag. It sounds like you guys are off to an early start. Maybe just qualitatively, any kind of negative surprises early on? Or what, conversely, is really are you feeling better about early days?

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Carl R. Christenson, Altra Industrial Motion Corp. - Chairman and CEO [27]

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I think the cultural fit -- I mean, we think alike, the 2 businesses do. And in an acquisition in my mind, that's one of the biggest risks is that it's just a different culture, and it's a really good fit. The other thing that's really encouraging is the enthusiasm of the sales teams, and they are very excited to be part of the Altra organization and have the additional products and the opportunity to take those in to their customers. That's a great fit. And then, also just digging in on the supply chain issues and where we can work together to save some money, there -- the 2 teams are getting right together and digging in and working really hard on it. So just really encouraging that at the outset people just start to working together.

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Jeffrey David Hammond, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [28]

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And then just finally, is it fair to say, like if we characterize things versus 2, 3 months ago that, oil and gas clearly feels better and maybe you feel a little bit better about distribution and most of the rest is unchanged?

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Carl R. Christenson, Altra Industrial Motion Corp. - Chairman and CEO [29]

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Yes. I think, that's fair. I think, mining, I feel better about too. And I feel much better about the inventory positions in some of those markets. And I think I'm probably a little more optimistic that steel is going to be -- is going to get better through the year.

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Operator [30]

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(Operator Instructions) And our next question comes from Bhupender Bohra from Jefferies.

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Bhupender Singh Bohra, Jefferies LLC, Research Division - Equity Analyst [31]

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So the first question on the -- let's talk about the end markets here. On the oil and gas, I just wanted to understand something. We are seeing the rig count kind of improve here. Could you talk about your exposure? Are you on the completion side or your products actually go on the production side, which kind of lags the rig count number? So if you're on the completion, I think, you should be benefiting right now. And I think, Christian, you talked about like you haven't seen that kind of activity even with the rig count where it is right now.

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Carl R. Christenson, Altra Industrial Motion Corp. - Chairman and CEO [32]

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Yes. So we're kind of -- we're heavily weighted towards the upstream operations, and probably 75% of our revenues are upstream and it's across a wide variety of equipment. So we're on the drilling rigs, we are on mud pumps, we are on fracking equipment, we're on gas, transportation, gas compressors. So it's a huge variety of equipment upstream. And we are seeing the benefit. As the rig count goes up, does translate fairly quickly into orders and business for us. So it's a pretty quick turnaround.

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Bhupender Singh Bohra, Jefferies LLC, Research Division - Equity Analyst [33]

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Okay. Okay, got it. And on the renewables, now that business has been pretty nice for you over the last few years, and you're talking about some choppiness here. Could you talk -- I think China was a big contributor over the last maybe a year or two. Just talk about like how that business or the end markets from a global perspective, where do you see the growth and where do see the headwinds here?

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Carl R. Christenson, Altra Industrial Motion Corp. - Chairman and CEO [34]

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No. I think, we think that primarily wind is where we are. That that's a really solid market. We just don't think it's going to grow like it has over the last few years. And we're -- it's global for us. We're in China, we're in India, we're in Brazil or in Europe and in North America, so it's really a global business for us. And I think, I would characterize it as what we expect is that it's going to be a flat to maybe slightly up for the year. And some of our downturn was impacted by exchange rate from the euro in our European business, but from a unit standpoint, it's still very, very good.

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Bhupender Singh Bohra, Jefferies LLC, Research Division - Equity Analyst [35]

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Okay. And lastly, just last question on price increases. I think, the strategic pricing, I think most of that is done, but you're still seeing the benefits of that pretty nicely over the last several quarters now. Could you talk from a geographical perspective? I don't know if that makes sense, but whether you're seeing more of that price increase come from the European geography or from the North American customers. If you can give us some color on that?

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Carl R. Christenson, Altra Industrial Motion Corp. - Chairman and CEO [36]

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I think, we're seeing it globally. So we've gone through all our businesses with the training and implementing the models that we've created. That hasn't gone through the entire business one-time. So it is across the globe. And it never ends. We continue to work the models that we've created and to do the analytical work, to continue strategic pricing, and what we've seen is it's now become part of the culture where we're just embedded in the businesses, so it's -- but it will continue forever and it constantly [include] a lot of difference end items, a lot of different customers. So they analyze where the pricing is each end item and each customer is something we have to do always.

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Bhupender Singh Bohra, Jefferies LLC, Research Division - Equity Analyst [37]

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Okay. So the 90 bps which you mentioned, I don't know if you look at it on a geographic basis or region-wise or you look at like on a global basis. I think that's what you're saying us?

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Christian Storch, Altra Industrial Motion Corp. - CFO and VP [38]

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Yes.

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Bhupender Singh Bohra, Jefferies LLC, Research Division - Equity Analyst [39]

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Okay. Okay.

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Christian Storch, Altra Industrial Motion Corp. - CFO and VP [40]

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And we do that, global basis, and that's becoming more difficult to separate the strategic pricing initiative from normal price increases. So it's becoming 1 on 1 process. So that's why it'll difficult to split it out as we -- as it becomes more integrated into the businesses.

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Bhupender Singh Bohra, Jefferies LLC, Research Division - Equity Analyst [41]

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Okay. And If I can include one more here on Bauer, and now we haven't talked about that business since 2011 acquisition here. Where the demand level or the rates -- order rates have been over the last few quarters now, maybe in 1Q, you can talk about? And just give us a sense of like where the sales peaked for the business and where they're right now?

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Christian Storch, Altra Industrial Motion Corp. - CFO and VP [42]

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Just Bauer had a sales growth of 3% in the first quarter. Just starting to approach 10% EBIT or a 15% EBITDA for that business. So they're getting very close to our target numbers. We expect by the end of the year that they'd be ahead of target numbers. The big contributor this year to the performance improvement will be the fact that we are starting to insource the manufacturing of KVLs, and that would be a large savings for that business. Once that is up and running in full-scale, they should be at that target.

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Operator [43]

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This does conclude the question-and-answer session, and I'd like to turn the floor back over to Christenson for any closing comments.

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Carl R. Christenson, Altra Industrial Motion Corp. - Chairman and CEO [44]

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Okay, and I would just like to thank everybody for participating, and we look forward to talking to you at the end of the second quarter. Thank you. Goodbye.

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Operator [45]

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Thank you. This does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time.