Ladies and gentlemen, thank you for standing by. And welcome to the Colfax First Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentations, there will be a question-and-answer session. [Operator Instructions] Please be advised today's call is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker, Mike Macek. Please go ahead.

Thank you. And good morning, everyone. Thank you for joining us. I am Mike Macek, Vice President of Finance. Joining me on the call today are Matt Trerotola, President and CEO, and Chris Hix, Executive Vice President and CFO. Our earnings release was issued this morning and is available on the Investors section of our website, colfaxcorp.com. We will be using a slide presentation to walk through today's call, which can also be found on our website. Both the audio and the slide presentation of this call will be archived on the website later today and will be available until the next quarterly earnings call. During this call, we'll 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 make today. The forward-looking statements speak only as of today, and we do not assume any obligation or intend to update them except as required by law. With respect to any non-GAAP financial measures made during the call today, the accompanying reconciliation information related 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 three.

Thanks, Mike. And good morning, everyone. Thank you, everyone, for joining us today, and I hope you and your families are safe and healthy. We're all experiencing unprecedented challenges related to the COVID-19 global pandemic. Although there is uncertainty over the timing of the recovery, we remain confident in our strategy for compounding value creation. We have two strong global business platforms, a proven business system for driving continuous improvement and a team of talented and resilient associates. As the pandemic abates, we intend to resume the strong momentum that we've built throughout last year and continued through March. In the first quarter, we earned $0.38 per share, $0.01 higher than the prior year, but lower than expected due to COVID impacts on our revenues in March. We also delivered $27 million of free cash flow in the quarter, a good start to 2020. Because of the uncertainty of customer demand related to the pandemic, we are suspending our previously provided financial outlook for the year. Safety is our top priority. And we took quick action to protect our associates around the world. Many of our associates are working from home and adapting with the help of technology and increased communications and engagement. I think I've been on more video calls in the last month that in my entire life combined. We've been working very hard at our manufacturing and distribution sites to protect our associates through social distancing, quarantine protocols and protective equipment. We're incredibly proud of these teams and our field service teams for the work that they continue to do to support our customers and patients with essential products during this crisis. We also quickly and thoughtfully flexed down our costs to protect our financial strength and partly mitigate the COVID effects on revenue. We expect that…

Thanks, Matt. As Matt mentioned earlier, we have a strong balance sheet with significant liquidity. At the end of the quarter, we had $366 million of cash and over $900 million of borrowing capacity for total liquidity of nearly $1.3 billion. A large amount of the cash balance resulted from a proactive draw during the early stages of COVID in March. With the financial systems now firmly supported by central banks, we intend to flow those funds back against our revolver and finish the second quarter with $75 million or less in cash. With the actions taken to control costs and cash flow, we expect free cash flow in Q2 to be neutral or better and total liquidity to remain at current levels. In response to COVID, we recently amended our credit agreements to allow for temporarily elevated leverage levels. We agreed with the banks on very conservative limits, but we don't expect to use them. This change gives us the flexibility to continue to execute our strategy despite the pandemic. Slide 15 is an overview of our first quarter consolidated performance. The amounts on the page are as reported. Consolidated sales and profit were higher than the prior year due to including an entire quarter of DJO performance this year versus only March in last year's first quarter. As a reminder, March is a five-week month and is the most profitable month of the first quarter for DJO. Colfax was tracking to deliver higher sales and profit before the effects of COVID changed the picture. On a pro forma basis, core sales declined about 1% more after adjusting for the 4% to 5% benefit from extra selling days. Pro forma gross margins increased 90 basis points due to ESAB's price cost management and continued productivity improvements. The sharp drop…

[Operator Instructions]. And our first question comes from Jeff Hammond with KeyBanc Capital Markets. Your line is open.

Jeff, we can't hear you.

And our next question comes from the line of Nathan Jones with Stifel. Mr. Jones, if your line is on mute, please unmute it. If your phone is on speaker, please lift your handset.

Sydney, why don't we try the next caller please?

Certainly. Our next question comes from Joe Giordano. Your line is open.

Okay. We may have a technical problem here that we're investigating. Well, let's call an audible here. Why don't we have questions emailed to me, and we'll try to address them as best we can.

I believe Joe Giordano's line is open now.

Can you hear me, guys?

Yes, we can.

Let me start here then. Has this situation with DJO being like shut down effectively, has it like allowed you to have different conversations with opinion leaders in the space? And kind of related to that, can you just touch on your ability to kind of keep critical sales force in place during this?

Yeah. Yeah, absolutely. Thanks for the question. Certainly, DJO has not shut down completely. We've got all of our facilities running and some key parts of the business running at pretty reasonable levels. But it is a fact that elective surgery, I think there's a lot of public data out there that orthopedic elective surgery is down about 90% from the expected levels. Or was at least going back a couple of weeks. And you're absolutely right. So, on the one hand, that creates a lull in procedures and the demand that comes with them, but it has created a unique opportunity for dialogue with surgeons who are usually extremely busy. And our teams have been taking full advantage of that, ranging from working with those surgeons to get input about future products, working with those surgeons and their staff to educate them about products that we've got coming through the pipeline this year, collaborating with them on how we're going to help them to ramp more in the ASC environment as they try to do more of that on the other side of the pandemic. So, it hasn't been – and not just in DJO, but in both of our businesses, we're finding that there's a unique opportunity in time now where users who are usually extremely busy are highly available. And our sales teams and our technical teams and our leaders are taking full advantage of that in this period. And as you said, I think it's very insightful. For the sales team, this is great for them because they're used to being out in the field, and many of them are not easy to get out in the field right now. And instead of just kind of sitting around, they are very, very actively connecting with customers, connecting with end users, making [Technical Difficulty]. But I will say the surgeons are very eager to talk about how we're going to support them because they're getting back to work now and they're planning on ramping as fast as they possibly can.

Thank you. And our next question comes from the line of Joe Ritchie. Your line is open.

Thanks. Good morning, guys. Can you guys hear me okay?

Yeah. We got you, Joe.

All right. Okay, great. Appreciate all the details today. Just maybe starting off, I'd be curious, is there a way to maybe size or frame kind of like the backlog of potential patients that are waiting for reconstructive surgeries? And then, just thinking about this a little bit longer term, do you think that the whole pandemic is going to accelerate the shift to outpatient surgeries? I know you guys are well positioned there. So, any thoughts around those two would be helpful.

Yeah. So, first, a comment on the backlog. There's been a number of surveys done that have tried to look at this. And I think, certainly, one that I looked at recently that's credible and consistent with some of the discussions that we've been having is that two-thirds of the backlog is going to be worked off reasonably quickly. And there might be, say, a third of it that will be delayed a little bit further out. And so, what that means is that the patients that were already scheduled to be done in the coming months, plus maybe two-thirds of the backlog that was deferred in late March and April. And so certainly, what that creates for the surgeons in the hospitals is a challenge to say how can we run above-normal rates to get caught up. And that's what they're trying to do. Now the practicality of that is something that we're trying to be ready for, but, at the same time, not count on because they're going to have to kind of work their way through all the details of how they do that safely, how they do that logistically. And we're trying to make sure we're ready to support that from a supply standpoint and a service standpoint, but we're also cognizant that it may take a number of months for that ramp to get back up to normal or higher rates. As far as the ASC, there's no question that part of how they can get caught up is by trying to do more things in the ambulatory surgery environment, and that's the game plan for some of the hospitals, some of the people that we work with. But there still is the majority of surgeries that are done in a hospital environment. And in those environments, they're looking more at how they can partition off the elective stuff as quickly as possible, get comfortable that they've got ample supply of all that they need to do those things safely and then make sure that they know how they're going to protect everybody in the operating theater and go. We've had kind of a meaningful uptick in our surgical business in the last couple of weeks as we started to see a lot of doctors get back to work.

Okay. That's helpful. And if I can maybe just have maybe one follow-on question. As you're thinking about the rest of the year, you mentioned 25% to 30% decrementals in Q2. Is the expectation that you're going to try to hold to kind of like a 25% to 30% decremental if things get a little bit more prolonged? And then, I guess, also, just from a cash flow standpoint, you guys mentioned being at least cash flow neutral by Q2. Is it an expectation that you're going to try to remain at least cash flow positive throughout the year?

On the decremental margins, we think we found the sweet spot for Q2 by flexing the costs, as Matt had indicated in his commentary there. We've got the flexibility there to continue to manage the temporary cost reductions and really try to pace those with the revenue recovery that we think will be coming here in the May, June and in the Q3 time frame. So, whether or not we hit exactly the 25% to 30%, we think we're going to manage those costs in line with that revenue pacing. The other comment I want to make is that we're making sure at the same time that we preserve the investments that are going to make sure that we maintain the momentum that we had and the market share gains as we come out of this. So, it's important that we both preserve the right growth investments and also the financial health of the company. Which leads to the question on cash flow. We do believe that we've got the capabilities as a company to manage the cash flow and support both the growth investments that need to be made on the capital side and on the R&D side to keep the innovation engines running while, at the same time, toggling the spending and the working capital to remain cash flow positive. Now if we decide that we've got to lean a little bit harder into some of the growth initiatives or some of the safety spending that we need to do to address the pandemic, we think that's a healthy trade that we would need to evaluate as we go through the rest of the year.

Okay. Thank you all.

Thank you. And our next question comes from the line of Nathan Jones with Stifel. Your line is open.

Good morning, everyone.

All right. Good to hear your voice, Nate.

I'm here. Well, thanks very much for taking my questions. Maybe I don't know, Matt, whether or not you have enough information to potentially comment on what you're expecting in the Med Tech business in May. It's obviously down a lot in April. I don't think anybody is surprised to see that. But you did say that you've seen a pickup in that business in the last couple of weeks. Is there any kind of help you can give us with the trajectory of that business as you head into May?

Yeah. I think what I can say is that it appears highly likely that the surgical part of that business will be a good step higher in May than it was in April. Now April was very low for that part of the business. But it seems highly likely. We're already seeing the weekly trend. We can see the scheduled surgeries. We've got the forecast from the doctors. And so, we expect a step up in the surgical business in May from April. That will be pretty meaningful. But it's hard to call the rest of the business at this point. There is some parts that will have a little bit of delayed effect from the surgery. It may take a couple more months to bounce back up. And there's some other parts, as I commented, that are a little more related to all the different activities that have been shut down, whether it's sports or recreation or the activities that cause trauma and things like that. And the pace at which those come back is something that we're going to watch unfold in the coming months.

Okay. A little bit of a longer-term question on the Med Tech business. It would seem to me that you should get most of the implant stuff back at some point. It's not like that permanently shifts to the right. There should be a catch-up there. And there's also going to be, on the prevention and rehab side, related to elective surgery, a catch-up that you should get there. Now, you clearly won't get all of it back because I haven't been able to go skiing and blow out my knee for the last couple of months, but there should be a good chunk of that that the business does catch up and that is just deferred into the future. Do you think this stuff that is deferred into the future rather than is lost is caught up by the end of this year, the end of next year? What's your expectation around that?

So, first, I think your comments are exactly right, that a large portion of the demand in the Med Tech business is being deferred versus going away. The diseases that are leading people to have the pain that makes them need to have the elective surgery or need the different rehabilitation and treatment, those diseases have not stopped. They are continuing. And so, arguably, the demand continues to build. And even a lot of the activities that cause injury, there's a lot of people exercising at home and things like that, so those haven't stopped either. And so, a good portion of the demand has just been pushed to the right with an opportunity to catch up. And then, as you said, there is a portion that has just gone away from these particular months because the injuries aren't happening or things like that. And so, that's really good news in terms of, hey, eventually, you come back to probably the same place or better and then work from there. It's just a question of how far out is that. The second thing is, okay, how much catch up do you get as you're working through that. And as I said before, there's a powerful motivator for the implant surgeons, the recon surgeons to catch up as much of it as possible as fast as possible because it's a huge economic impact on the hospitals and the surgeons from what's been going on for the last month or so. And so, I think it's fair to say that there's going to be a lot of catch-up here in Q3 and Q4 in terms of the things that weren't done in Q2. And it's just a question of how does that balance up against the rate in which all the activities come back in the economy and at what point does the regular demand plus catch-up exceed whatever drag there is from activities that are still shut down and then at what point do you kind of clear all that and get back to a normal place. Most views of the industry are showing a pretty quick recovery through the quarters of this year and a pretty healthy place in Q4. And we're certainly prepared for that, but we're trying to also be cautious that we're ready for other scenarios as well.

I think that's helpful color. Thanks very much.

Thank you. And our next question comes from the line of Julian Mitchell. Your line is open.

Hi. Good morning. Maybe just the first question around the balance sheet. I don't think it's come up yet in the Q&A. Maybe just clarify what was the leverage level at the end of the quarter. And also, I guess, how you see the leverage playing out over the balance of the year and what the updated thoughts are on the pace of de-levering?

So, we ended the quarter with net leverage of less than 3.8 and I think somewhere between 3.7 and 3.8. So, we're very much on the path that we expected to have as we execute the playbook to get the leverage back long term into the 2 to 3 times range. As we project forward, it's difficult to say with certainty, given the uncertainties around revenue and profit and all that. We know that it's a priority for the company to not add to its debt levels operationally as we go through this pandemic, through the trough and then through the recovery as we progress throughout this year. So, our main objective is keep the debt levels at or below where they're at today, keep the company financially healthy. As EBITA levels rebuild, we see ourselves getting back to the current debt or leverage levels. And then as we generate cash from that point forward, we'll, of course, continue to drive it down.

That's helpful. And then, my second question, just a quick one around the free cash flow. Normally, in Q2, you do have seasonally a very good positive free cash flow. Understand that it's maybe flattish or slightly positive in Q2 of this year. I just wanted to clarify that that's including the $100 million of short-term cash tailwinds in the quarter. So, is the balance, the headwind on the other side simply the decline in earnings? Just wanted to check that. And maybe help us understand how you see working capital trending, let's say, in Q2 and how you see it playing out as revenues fall. Should we expect a big working cap cash tailwind or are you keeping working capital kind of on hand in preparation for what could be a sharp recovery in Med Tech?

Yeah. So, the cash flow commentary that we've had was net of the benefit of the $100 million of delayed cash flow outlays in Q2. So, we have the revenue and profit pressure that's coming. And then the tool that we have to offset that is taking the cost actions that we've taken, rephasing some of the capital spending and then, to your point, addressing some of the working capital opportunities. We've really, I think, done an excellent job among our teams of deploying CBS even more assertively, firming up some of our processes here to make sure that we can manage inventory, both to get to the right financial answer, but also to be ready to continue to serve customers as this recovery starts to take shape. So, we think there's an opportunity here for inventory levels to flatten and decline a bit. Receivables, our teams have really done an excellent job working closely with customers to make sure that we keep collections coming in. At the same time, we understand that the DSO levels are likely to come up a little bit. Some of our customers deal with their own financial situation. We're working closely with our suppliers to match up our payables processes with the receivables there, just so that as we see some of the DSO increases occurring that we've got a natural offset, at least partial offset by driving the DPO out. So, net-net, you'll see, I think, working capital will be a bit of a tailwind early in the quarter here, especially as we begin to recover. Of course, we'll see that naturally turn into a little bit of a headwind, but with the benefit of the improved processes that we've built in the last couple of quarters.

Fantastic. Thank you very much.

Thank you. And our next question comes from Nicole DeBlase. Your line is now open.

Yeah. Thanks. Good morning.

Good morning, Nicole.

Good morning.

Hi. So, with respect to the decremental margins that you guys are targeting, the 25% to 30% in the second quarter, is there a material difference between what you would expect to see in DJO relative to Fab Tech?

Well, naturally, given the higher-margin profile of DJO versus ESAB, we'd expect to see the decrementals be a little bit higher for DJO versus ESAB.

Okay. Got it, thanks. And then, just on the Fab Tech pricing, saw some deceleration from 2% last quarter to flattish this quarter. Is the expectation now because cost inflation has become much less of a factor this year that you kind of maintain that flattish pricing level throughout the next few quarters?

Yeah, Nicole. There's been a lot of good work done on price versus cost in that business, and we think we're in a sustainable place there. In different regions around the world, there has been some steel escalation in some areas that's being addressed, but in many places, steel is coming down. And we feel like the current price levels are sustainable.

Okay, thanks. I'll pass it on.

And our next question...

Jeff Hammond, if you're not able to get in, you could send Chris an email. I know you were the first one on the list. And we don't know if you've tried to get in and can't, but you can send Chris an email if you want.

[Operator Instructions]. Our next question comes from Josh Pokrzywinski. Your line is now open.

Hi. Good morning, guys.

Good morning, Josh.

Everybody, hear me. Following up on the incremental margin comment or, I guess, decremental margin comment, how should we think about those on the other side Presumably some of the temporary cost actions come back and eat into some of the leverage. But same incremental coming out as the decremental going in or is there something else to appreciate?

Well, generally, the incrementals/decrementals in these businesses are in the sort of 50s for DJO and the 40s for ESAB. We would expect that these temporary cost measures would come back into the business, but it's not a – we don't have a deferred spending that will create a bubble that needs to be caught up. It's just those costs will naturally flow back into the business. So, I would expect, as the business recovers and we get back into sort of real growth down the road, that the incremental/decrementals are going to be likely to be closer to the sort of mid-50s and low-40s – mid-50s for DJO, low-40s for ESAB. Now, having said that, there are growth investments that we continue to make in these businesses. And so, naturally, there's a little bit of a pull down on that. There always has been, typically at ESAB, 10 points of pull down as we've been supporting the innovation engine. And you could expect in DJO that we'll continue to be making the growth investments, the improvement in the operations that provides a little bit of a natural tug on the sort of mid-50s incremental margins.

Got it. That's helpful. And then, Chris, I apologize if you said it and I missed it. How should we think about any costs that were associated with the covenant reset? It doesn't really look like there was a lot of movement in the interest rate. Any other line item that gets kind of trued up or costs that get amortized through the life of the facility?

Yeah. There was a minor work fee that we paid to the banks of about a quarter of a point, so just a few million dollars to support the amendment there. And to your point, it gets deferred amortized over the life of the agreement through 2024. So, immaterial effect on the P&L.

Yeah. I'm going to jump in. Mike Halloran, who is the first one that got some kind of technical-limitation email, has a question. Or two questions. One around ESAB trends by region and one around whether we can – is there any destocking effects? The ESAB sales per region, we talked about a little bit there. You've got a pretty wide range there. Of course, you've got, at the positive end, China and Asia that were up here in April pretty healthy, which is a little bit of a bounce back from some of the earlier in the quarter drags. And we think that there's a potential for that region to stay in a positive range. You've got the kind of larger North America and European regions in kind of the 35% to 45% down. And then, you've got a few places that are down very large amounts because the whole country was shut for most of the month, like India. So, it's a range and we expect that picture to shape slightly to the positive in the next couple of months. As far as destocking, we don't see large amounts of destocking and stocking in either business. Sure, there might have been a little bit of stocking in North America, say, coming down the stretch in March, but not enough to create some large residual drag. We can move to the next question.

Thank you. And our next question comes from Walter Liptak. Your line is now open.

Good morning, guys.

Hey, good morning.

Hey, Walt.

So, I wanted to ask about the reopenings in China and if you think – just talk a little bit about the trajectories, I guess, with the ramp rates in Med Tech and Fab Tech getting better and if you think that there's something special about China or if we could see the similar kind of ramp rates as Europe and the US start to reopen.

That's kind of the million-dollar question here. And I think I'll say what I can, Walt, but I think that's something that we're going to have to watch unfold. I think we certainly have a data point that says that China has been able to get back to growth pretty quickly on the back side of this and some other places. Our whole Asia business in ESAB is up pretty healthy in April. So, we've got some data points there that would say that there's a potential to get back to growth pretty quickly. Now, it remains to be seen whether those areas are going to sustain growth in the coming months or whether they're going to have any kind of issues. And then as you look at other regions, we really think it's going to be case by case in different countries and even industries within countries in terms of the parts that are able to quickly recover the growth because it's really just been a constriction that was causing the issue in April and in Q2 versus the places that are going to take longer to recover because there's been some real financial and economic impact that it takes more time to restore. So, we're going to be watching that closely, as we said. And we've really taken a scenario-based approach to the Fab Tech business in terms of being kind of prepared for the better end of the spectrum on recovery, which is a real possibility, but also fully prepared for the lower end of the spectrum on recovery, which is also a possibility. We think the band on Med Tech is likely a narrower one, and it's more likely that there will be a swifter recovery there. But in both businesses, we're trying to be ready for multiple scenarios.

Okay, great. Thanks for that insight. The other thing, you mentioned in Fab Tech that you did a little bit better than your competition. I think that some of your competition in welding was down about 40%. You were down about 30% in April. Do you think that's a regional thing that you have more international or do you think there's something else that's going on that's helping you to outperform the competition?

Yes. So, two thoughts on that, Walter. So, the first is we look hard at the quarter-by-quarter performance of the business, both from quarterly results as well as from a lot of other sources. And we feel confident that we again had a good strong quarter in Q1 on a relative basis in terms of relative growth performance, and that's on the back of many strong quarters before that. As far as the April results, I think, sure, we're probably seeing a little bit of that continuing on, but we also have a globally more balanced business and we've been working hard to reduce the cyclicality of the business through some of the investments we've made and some of the strategies that we've driven in the business. And I think you probably see that reading through a little bit as well, global mix and product mix, in the month that is showing a more dampened effect in April for us.

Okay, fair enough. Thank you. Good luck.

Thank you.

Thank you. And our next question comes from Andrew Obin. Your line is now open.

Yes, good morning. Can you hear me?

Yes, we can hear you fine, Andrew.

So, lots of discussion around the reconstruction part of DJO. I wanted to ask about prevention and rehab. DJO has good insight with the software you have for clinics. Are they also expecting some backlog effects in late second quarter and third quarter?

So, prevention and rehab, as I said, has more balanced demand drivers, but there's definitely a meaningful part of that business that is driven off of surgery, some related to implant surgery and a larger amount related to sports medicine surgery. And so, there's no question that there have been surgeries that have been deferred that need to be caught up that ultimately impact prevention and rehab. But that business has a more diverse set of drivers than just surgery and, therefore, has had less of a short-term impact, a more dampened short-term impact. And while we do expect there to be some recovery from the missed surgeries, we also think there'll be a range of other drivers that will be falling off as well into a little bit more balanced recovery than what should be a sharper recovery for surgical.

And a follow-up question for me. How do you guys think about sort of leverage going forward as it relates to your M&A model? Based on your conversation with banks, what's the thinking about the appropriate leverage, structural leverage going up? I'm talking about not you managing the debt right now, which you seem to be doing great, but as things calm down and you start doing more acquisitions, can you run the company at the current leverage rate? Or do you have to take it down? Like, what are the banks telling you? Thank you.

Our objective remains, as we've stated before, and that is long term, to get the leverage back where we had it before, which is down in that sort of 2 to 3 times zone. And we've got flexibility about how we manage around that. But we felt that coming into this year that we had the right sort of profile for cash flow and other actions that we're taking to both deleverage the company and also to support the M&A program. And also, the pandemic will push that out a little bit for us. So, we think that it's still very much in our wheelhouse to get back to the deleveraging path and also support the M&A activity that we have. And right now, our focus is dealing with the pandemic, and that's keeping people safe and serving our customers, staying financially healthy and all that. So, we still will continue to have M&A activity at lower levels, given the focus that we've got on the operational side right now. But over time, I expect the EBITA levels will be restored and you'll see the M&A investments expand.

I guess my question was more about – because I think investors would love to pay for more deals like DJO. So, I'm actually thinking more about down the line, can you go back to high levels of leverage to do the right structural – to do the right strategic deal. That's what I was asking actually.

I got you. I think we have a very supportive bank group. They supported us as we made the portfolio transformation. They've demonstrated their support again recently for the company. So, we believe we've got adequate access to leverage – to continue to drive the strategy, both strategically and operationally. And there's plenty of opportunities there as we build out the Med Tech platform and, of course, continue to make the selective investments on the Fab Tech side.

And the one thing I'd add there is, one of the things we've really liked about the DJO acquisition and the entry into the orthopedics and the broader Med Tech space was that we saw lots of potential for very attractive bolt-ons and adjacencies that would continue to improve the quality of our portfolio and the organic growth capability and the margin profile, but be able to do it in a more step-by-step way than the size of the DJO deal that we did. And so, in the short term, we're definitely focused on kind of very small stuff because of the other things we've got going on. As we move into next year, we feel like we can look at some of these attractive bolt-ons and adjacencies. And in the coming years, we could see attractive things that we can do that strengthen and expand the platform, but are not as anywhere near as sizable as the DJO acquisition that we did.

Right. Thank you so much. Really appreciate the detailed answer.

And our next question comes from Chris Dankert. Your line is open.

Hi. Good morning, guys. Can you hear me all right?

Yeah.

Good morning, Chris.

Just want to circle back a little bit on the Fab Tech margin here in the first quarter. Nice performance there. Obviously, pricing was a bit more flattish. Fuel costs are down, but a good portion of that increase in the margin has to be cost. How much of that is short term in nature and kind of what sort of expense rebound should we expect next year in 1Q for Fab Tech?

That business has been working very hard for years now on sustainable improvements in margins from a combination of value-based pricing, productivity, improving the mix, structural moves that enhance the cost structure of both the supply chain and the fixed cost structure of the business. So, this has been, as you know, a multiyear journey. And the business has been getting better and better and better, and it really is a sustainable path. It's not to say that, any given quarter, we couldn't have a little bit of pressure here and there, but we don't feel like there's anything about the performance in Q1 that is unusually high for that business. And it's something that the business, as we talked about, already had a restructuring program underway for this year and next year to continue to create space for the continued improvement in margins over time.

Got it, got it. Yeah, thank you for that. I guess, speaking to that structural portion, operating 32 plants globally, were there any plans for closures during 2020 before the downturn? Just any comments on those bigger structural initiatives would be great.

We've been working through a program that has generally included one or two sites per year, and this year was no different than we typically – sometimes, in tougher times, we've leaned in and maybe been a little more aggressive on the sites coming out. And in other times, we've backed off a little bit. But this year was continuing on with that program, and now we'll be looking at whether there's any of that that we should pull forward in the back half of the year. But the program was also very much aimed at streamlining the operating expenses of the business in sustainable ways, so not kind of sales costs out of the business but actually rethinking how the fixed cost structure of that business works, things like further kind of outsourcing and automation of some of the back-office processes into our shared service centers and things like that. And so, the business is working through that multiyear program, and we expect it continue to benefit the supply chain, but also to enable the fixed cost structure of that business to scale as it grows.

Got it. Thanks so much for the color. And best of luck.

Thank you.

Thank you. And our next question comes from Nathan Jones. Your line is open.

Hi, Nathan.

Hi, guys. I don't know why I'm back in the queue. I already asked my question, so you can just pass it on to the next.

Okay. Fair enough.

Okay. And I'm not showing any further questions at this time. I'd now like to turn the call back to your speakers for any closing remarks.

Listen, thank you all for joining us. Sorry for the technical difficulties here. We appreciate your continued support and interest in the company. And we look forward to providing you another update here after the second quarter. Thank you all.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may all disconnect. Everyone, have a great day.