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Gardner Denver Holdings, Inc.  (NYSE:GDI)
Q1 2019 Earnings Call
April 30, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Gardner Denver First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Vik Kini, Investor Relations Leader. Please go ahead.

Vikram Kini -- Head of Investor Relations

Thank you, and welcome to the Gardner Denver 2019 first quarter earnings call. I am Vik Kini, Gardner Denver's Investor Relations Leader, and with me today are Vicente Reynal, Chief Executive Officer; and Neil Snyder, Chief Financial Officer. Our earnings release, which was issued this morning, and a supplemental presentation, which will be referenced during the call, are both available on the Investor Relations section of our website gardnerdenver.com.

In addition, a replay of this morning's conference call will be available later today. The replay number as well as access code can be found on Slide 2 of the presentation.

Before we get started, I would like to remind everyone that certain of the statements on this call are forward-looking in nature and are subject to the risks and uncertainties discussed in our previous SEC filings, which you should read in conjunction with the information provided on this call.

Our full disclosure regarding forward-looking statements is included on Slide 3 of the presentation.

Turning to Slide 4, on today's call, we'll review our first quarter highlights as well as our segment results and 2019 guidance. We will conclude today's call with a Q&A session. As a reminder, we would ask that each caller keep to one question and one follow-up to allow for enough time for other participants.

At this time, I will now turn it over to Vicente Reynal, Chief Executive Officer.

Vicente Reynal -- Chief Executive Officer

Thank you, Vik, and good morning to everyone. Starting with Slide 5, I would like to start with a brief overview of the first quarter. Overall, first quarter was a balanced quarter with strong execution across our commercial and operational initiatives. We delivered revenue and adjusted EBITDA that were in line with our expectations and continued to show solid momentum on cash generation. Due to our performance in the first quarter, we are reaffirming guidance for the total year.

Let me provide a little bit more color on the financial highlights in the first quarter. Starting first with orders. We saw an order decline of 9% excluding FX which was heavily impacted by the known dynamics in Upstream Energy of minimal new pump orders for new frac fleets. These drove nearly $60 million of expected orders decline, and when excluding Upstream Energy, the rest of the portfolio grew 3% excluding FX, as the broader markets continue to remain quite resilient.

Revenue grew 4% excluding FX with solid mid single-digit growth in the Industrials segment and double-digit growth in our Midstream, Downstream, and Medical businesses. This comes on top of very strong growth of 22% in the prior year as the teams continue to deliver above-market growth through the utilization and execution of our Gardner Denver execution excellence tool or GDX. While we did see the expected pressure on Upstream Energy revenues that we indicated during our last call, I am particularly pleased with the resilient performance across the balance of the portfolio, as our GDP exposed businesses of Industrials, Medical and Mid and Downstream grew 12% excluding FX.

Adjusted EBITDA declined 5% to $140 million or down 2% excluding FX, and margins declined 130 basis points to 22.6%. The results were in line with our expectations. And the declines in both adjusted EBITDA and margin were largely attributable to the decrease in Upstream Energy revenues as well as higher corporate costs due to prior year legal expense recoveries that did not repeat in the current year. Despite these factors and other known headwinds like FX and tariffs, the team executed extremely well including triple-digit basis point margin expansion in the Industrials and Medical segments, as targeted cost initiatives like Innovate-to-Value or i2V are showing positive impacts.

I'm very pleased with the continued momentum we see on cash generation, which speaks to our disciplined cash and working capital management. Free cash flow in the quarter was $55 million, up 9% over prior year. In addition, net operating working capital as a percentage of sales continued the positive trend we have seen over the past few quarters at 24.9%, which is a 430 basis points improvement versus last year. The solid cash and adjusted EBITDA performance led to net leverage of 2.0 times. In addition, we made a $27 million debt repayment within the quarter as we continue to focus on prudent debt reduction and managing our gross leverage levels. As we have stated previously, we will continue to remain disciplined on capital allocation and balance debt pay-down as well as opportunistic share repurchases within M&A opportunities.

Turning to Slide 6, our commitment to our four pillars of strategy remains unchanged, and driven by the tools and processes of GDX. I hope everyone had a chance to attend or watch our recent Investor Day that we hosted in mid-March, as it really speaks to the passion that the entire team has around deploying our strategy across every aspect of the business and driving ongoing profitable growth.

Moving to Slide 7, I will provide more color on the operating performance of our segments. I will start with Industrials segment where we continue to see good momentum on both commercial and operational initiatives. The Industrials segment's first quarter order intake was up 4% excluding FX, at $335 million. Revenues in the quarter were $318 million, up 6% excluding FX. This resulted in a book-to-bill of 1.05, which is a good sign as we enter the year that core markets remain relatively healthy.

In terms of the product lines, we continue to see relatively stable performance in core oil lubricated compressors, which were up low-single digits. And we have noted in the past the unique composition of our portfolio around a well balanced portfolio with niche applications, and these allow us to show continued resiliency even in more difficult market conditions. One such product is highlighted on the bottom of the slide which is our LeROI Compressor. The LeROI business was purchased into the portfolio in mid-2017 and introduced in line of gas compressors to complement our portfolio of air compression technology. When coupled with our existing Gardner Denver distribution channel in the Americas, we're now seeing strong growth in niche industry of bio gas where we have seen solid double-digit growth. In addition, we continue to see solid demand for our niche products in Europe and Asia in end markets like food, pharma, transportation and marine.

From a regional perspective, the Americas continue to be the strongest region with high-single digit growth on both revenue and orders in the quarter. Europe continues to be relatively stable with low-single digit revenue and orders growth excluding FX. Despite some of the macro concerns surrounding Europe that have persisted through the quarter, we saw a good balance of high-single digit to double-digit growth in many niche products with generally flattish growth in oil lubricated compressors, as solid demand in Germany offset some of the slowdown from areas like Italy and France.

In Asia-Pacific, we saw slight growth in China, largely driven by niche products like blowers, vacuums and high pressure compressors. The growth is very encouraging and we continue to monitor the market closely given ongoing noise around trade tensions and tariffs.

Moving to adjusted EBITDA. Industrials delivered $71 million in the quarter, up 12% excluding FX. First quarter adjusted EBITDA margin was 22.3%, up 120 basis points versus prior year. The year-over-year margin increase was achieved despite ongoing headwinds from FX and tariffs and this speaks to the benefits we're seeing from initiatives like pricing, aftermarket growth and i2V.

Moving now next to the Energy segment on Slide 8. Overall, the Energy segment performed in line with expectations, given the non-declining Upstream revenues, partially offset by solid execution in the Mid and Downstream businesses. The Energy segment's first quarter order intake was $208 million, down 26% excluding FX, driven largely by the previously mentioned $60 million in pumps from the Upstream business that did not repeat again this year. Orders in the Mid and Downstream business were much more stable and up low-single digits, excluding FX, which is in line with our expectations. Revenues in the quarter were $233 million, down 1% excluding FX, with Upstream revenues down 16% excluding FX, offset by growth in both the Mid and Downstream businesses, which both showed strong double-digit increases.

So driving now into the components of Energy, let me start first with the Upstream. Orders were down 41% and revenue was down 16% both excluding FX with expected original equipment declines, as the primary driver. As you recall from our last earnings call and our recent Investor Day, we indicated that Q1 was going to be a low point in the year, with sequential increases progressing through the year. We still see that as the progression for the year with an air pocket in the first half of the year. As many of you know, over the past few years, we have built a resilient business where more than 75% of our revenue is reoccurring aftermarket and specifically consumables continue to trend very well. Consumables are the closest point to activity and we're up 17% in terms of revenue in the quarter. In particular, our two new consumable offerings of packing and plungers continue to see solid market penetration with strong double-digit growth.

In terms of the market in general, we continue to believe that 2019 will be a transitional year as the market waits for the commissioning of new pipelines and gradual sequential improvement, particularly in the second half of the year. The DUCs, which is drilled but uncompleted well count, continues to remain healthy at approximately 8,500 wells as of the end of March, which bodes well for future activity levels. And when the market is in a bit of a transitional period, I am very encouraged by the steps in innovation I am partnering with our customer base that our team continues to make. The picture at the bottom of the page shows an Electric-Powered Frac Truck with two Gardner Denver Thunder pumps packaged together. Electric frac is a concept that has gotten a lot of attention and discussion as of late as an alternative to conventional diesel-powered frac fleets, and I am very pleased that Gardner Denver has been on the forefront here partnering with several leading pressure pumpers and equipment providers who are utilizing electric-powered frac fleets. This truck packages two of our leading Thunder pumps, which allows for up to 6,000 of hydraulic horsepower with increased levels of efficiency. Innovations like these and strong partnership with leading providers of frac services will continue to drive profitable growth as we look ahead.

On the Mid and Downstream side, revenue was collectively up 31%, and orders were up low-single digits, both excluding FX. We did have two larger project shipments in the Midstream business with collective revenue of approximately $10 million which drove book-to-bill for the combined Mid and Downstream businesses to approximately 1. However, the Downstream business, on its own, had a book-to-bill of 1.16, as it is typical for the beginning of the year as we build backlog for the second half of the year.

Overall, the market continues to trend well as the project funnel remains quite healthy and we continue to see increasing demand for both industrial like process equipment as well as projects tailored toward environmental applications and regulatory emissions.

The Energy segment delivered adjusted EBITDA of $60 million in the first quarter, which was down 10% to prior year excluding FX. As a percentage of revenue, first quarter adjusted EBITDA was 25.7%, down 240 basis points from prior year due to the previously mentioned decline in Upstream revenue as well as revenue mix due to lower margins on the two large Midstream projects. These declines were partially offset by volume growth from the Downstream business, as well as targeted cost actions and operational efficiency initiatives, but Energy margins were down overall. I continue to be pleased with the measures the Upstream Energy team is taking as adjusted EBITDA margin remained well above total Energy margin profile and in excess of 30%.

Moving next to the Medical segment on Slide 9. Order intake was solid at $71 million, which was down 1% excluding FX. And it's worth noting that this is on top of 11% growth that we saw in the prior year. As we have mentioned previously, many quarters throughout 2018 benefited from the large design wins, which we do not expect to repeat to the same degree each and every quarter. However, first quarter orders did remain very healthy and in excess of $70 million, which was up 8% from the fourth quarter of 2018. Revenues in the quarter were $69 million, up 19% excluding FX. This marked the fourth consecutive quarter of double-digit organic growth as the business continues to execute well on innovation and prior design wins. In addition, this put book-to-bill at 1.03 with Q1 ending backlog of nearly 9% higher than prior year. One such win on the gas pump side of the business is a high pressure gas pump that was recently specified on a leading clinical molecular diagnostic solution. The Gardner Denver solution provided more efficient flow rates in different altitude environments which was a critical differentiator for the end customer. Wins like these in high-growth end markets like lab and life sciences continue to show the growth opportunity across our gas, liquid and liquid handling product lines. Medical adjusted EBITDA performance for the quarter was $20 million, up 32% excluding FX. Margins were 28.9%, up 260 basis points versus prior year, and can be attributed to strong flow-through from the volume increases, continued operational efficiencies in the plan and prudent cost control across the business.

Moving to Slide 10 now, as I indicated earlier in the call, due to the strong and in-line performance in the first quarter, we are reaffirming guidance for the year. As a reminder, this implies mid single-digit revenue growth before the impact of FX in our Industrials, Mid and Downstream Energy, and Medical businesses, as well as high-single digit to low double-digit declines in our Upstream business with more pronounced softness in the first half of the year. For total company and inclusive of FX impact, we're expecting low single-digit growth on the total year basis, and an adjusted EBITDA range of $680 million to $710 million.

Now turning to Slide 11. The rest of the key metrics for guidance remain unchanged, including CapEx, tax rate and year-end debt leverage. In addition, we continue to expect to generate in excess of $400 million of free cash flow for the year and approximately 100% free cash flow to adjusted net income conversion.

Overall, we're pleased with the start of the year. And despite many of the macro headwinds that persist, we continue to execute well, both commercially and operationally. We remain confident in our ability to execute on our strategic initiatives and deliver our financial commitments across each of our segments.

With that, we'll turn the call back over to the operator on opening for Q&A.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session (Operator Instructions) And we do ask that you please try to limit your questions to one question and one follow-up. Our first question comes from Mike Halloran of Baird. Please go ahead.

Michael Halloran -- Robert W. Baird -- Analyst

Good morning again everyone and busy time for you. Congrats on the transaction again.

Vicente Reynal -- Chief Executive Officer

Thank you. Thank you, Mike. Good morning.

Neil Snyder -- Chief Financial Officer

Thanks, Mike.

Michael Halloran -- Robert W. Baird -- Analyst

So first just on the -- on the trends through the quarter and the thought process from here from two perspectives. First on the Upstream side, maybe you could give some thoughts on the cadence as you saw demand materialize through the quarter, obviously orders were soft against really tough comp that was highlighted coming in.

Do you see any different trajectory than you articulated a couple of months back, as you look to 2Q, 3Q based on the order book today, the demand outlook, what clients are saying, customers are saying anything like that?

Vicente Reynal -- Chief Executive Officer

Hey, Mike. No, I think we still see consistency to what we said, even at the Investor's Day that the second half will be up sequentially to the first half, but then we will see that as kind of that at least at this point in time, we still wanted to be more prudent and call that out as low to mid single digits sequential improvement, second half versus the first half.

Michael Halloran -- Robert W. Baird -- Analyst

And no real change on the cadence to the first half of the year either Vicente?

Vicente Reynal -- Chief Executive Officer

No, no real cadence to the first -- no, that's right, yeah. So we still believe that as we said also before, Q1 will be the most pronounced bottom and then slight improvement and as we go into the second half, better than the first half.

Michael Halloran -- Robert W. Baird -- Analyst

And can you give the same sort of thought process and commentary on the Industrials side of the business, particularly with a focus on what you're seeing in your European businesses and in China?

Vicente Reynal -- Chief Executive Officer

Yeah, the second quarter should be comparable to the first quarter, Mike, and I think it's just going to follow the same trends that we typically see in terms of seasonality within Industrials, I mean, I think maybe the only one point to call out is that we think Q1 in the quarter, China, we saw really strong exit of the quarter in terms of orders, so maybe kind of things are getting unlocked in China. So we're watching that carefully to make sure that that level of consistency continues to happen in the second quarter.

Michael Halloran -- Robert W. Baird -- Analyst

And when you say stable 1Q to 2Q, are you talking dollar numbers? Or are we talking percentage change?

Vicente Reynal -- Chief Executive Officer

Dollar numbers -- no sorry, no percentage change.

Michael Halloran -- Robert W. Baird -- Analyst

Great. Thank you, everyone. Appreciate it.

Vicente Reynal -- Chief Executive Officer

Thank you, Mike.

Operator

Our next question comes from Joe Ritchie of Goldman Sachs. Please go ahead.

Joe Ritchie -- Goldman Sachs -- Analyst

Hey, good morning, again, guys and congrats again as well.

Vicente Reynal -- Chief Executive Officer

Thank you, Joe.

Joe Ritchie -- Goldman Sachs -- Analyst

So, Vicente, can we just maybe just elaborate a little bit more on just the Upstream business for a second. So clearly you had a really tough order comp in 1Q, just what are you hearing from customers right now in terms of like frac fleet stacking and the demand for OE versus aftermarket?

Vicente Reynal -- Chief Executive Officer

Yes, Joe, so overall, what we're hearing in the market continues to be similar to what we said a few months ago at the Investor Day which is that everyone expects a much stronger second half, and particularly the fourth quarter as the constraints on the pipeline capacity seem to be kind of freeing up in the second half with more pronounced in the fourth quarter. So that's kind of from a customer perspective what we're seeing -- what we're hearing and it seems to be more consistent as we move every day and every week through the quarter. Obviously, we're going to be at the OTC in a week or so. So we'll hear more commentary from others there as well, but at least, it's been consistent so far.

In terms of OE and aftermarket, OE still muted from a new fleet expansion. So we still don't see that there's going to be any OE pumps that will come for new fleet expansions. We're definitely seeing kind of I call it momentum on the OE replacement pumps and there's been quite a couple of articles talking about that due to the level of intensity and the hours that the pumps are working that there should be a good cycle coming through on the OE replacement pump.

Joe Ritchie -- Goldman Sachs -- Analyst

Okay, it's helpful. And then I guess my follow-on question is just maybe just talking about Industrial margins, another really solid expansion quarter on a year-over-year basis. Maybe just talk a little bit about key drivers, what did pricing look like? How much of this was i2V? Just trying to understand what really drove the strength just given we've seen more mixed performance I guess from some of the other Industrial peers out there?

Vicente Reynal -- Chief Executive Officer

Yes. So we saw good momentum on pricing. I'll say pricing anywhere between 1 points to 2 points. The blend of aftermarket continues to improve. So aftermarket deliver even better growth than the overall total number. So that obviously creates a better mix change. i2V continues to be a good start, but keep in mind that this is really more offsetting some of the tariffs, if you want to put it from that perspective that we get about $1 million to $2 million in the quarter. So again, I think the work of i2V and sourcing activities offsets the tariffs while price and aftermarket mix help the margin profile.

Joe Ritchie -- Goldman Sachs -- Analyst

Okay, great, guys. I'll get back in queue.

Vicente Reynal -- Chief Executive Officer

Thank you, Joe.

Operator

Our next question comes from Julian Mitchell of Barclays. Please go ahead.

Julian Mitchell -- Barclays -- Analyst

Hi, good morning, and congratulations again.

Vicente Reynal -- Chief Executive Officer

Thank you. Thank you, Julian.

Julian Mitchell -- Barclays -- Analyst

No need I guess for a capital deployment question. So maybe just on the Energy segment, the decremental margins I guess pretty severe in Q1, you called out a couple of factors around project shipments in Midstream and so forth, but just wondered when you had, looking at that decremental drop through in Q1, do we see a much better performance into Q2? Or do you think Q2 is down heavily again, and then we get the big incrementals on the way back up in the second half?

Vicente Reynal -- Chief Executive Officer

Yeah, Julian, yeah, no, we see the decremental in the Energy again driven because of Upstream revenues coming down while the -- we saw the large couple of projects on the midstream side of the business, they are typically coming I mean well below the margin profile of the Energy segment. I think the good point to note here, Julian, as well is that Upstream even though we saw this decrease in revenue, as expected, our margin profile for Upstream is still, it was above 30% EBITDA margin. So pretty strong ability to even in a decline quarter, we still deliver above 30% EBITDA margin, which I think is fantastic for what the team has been able to achieve there and I think for going, as you said, moving forward, obviously we don't expect these two large Midstream orders to come through in the first quarter. So that -- that should help as we move forward.

Julian Mitchell -- Barclays -- Analyst

Thanks. And then my second question, really I guess, across the business, you know, some shorter cycle companies have complained about destocking in recent months in various regions and vertical markets. Just wondered if you had seen any of that take place across any of your OEM or channel partners in different segments and how satisfied or relaxed you are today about the status of inventories when you look out across different markets?

Vicente Reynal -- Chief Executive Officer

Yeah, Julian, we didn't see that as being a concern to us, at least we didn't see that going in the quarter. I mean, I can tell you that from an Industrial perspective we have most of the dealer channel is in the US and we have actually access to see what their inventory levels. And we always maintain and ensure that it doesn't spike up or becomes unhealthy higher amount.

So what we saw no destocking because we just don't allow. It's one of our rules. We just don't want dealers to stock. And then in the other regions whether Asia Pacific and Europe for Industrial perspective, the amount of dealers, percentage of revenue is much smaller. And I don't think that any of this destocking was definitely an issue for us.

Julian Mitchell -- Barclays -- Analyst

Great, thank you very much.

Vicente Reynal -- Chief Executive Officer

Thank you, Julian.

Operator

Our next question comes from Nathan Jones of Stifel. Please go ahead.

Nathan Jones -- Stifel -- Analyst

Good morning, everyone.

Vicente Reynal -- Chief Executive Officer

Good morning, Nathan.

Neil Snyder -- Chief Financial Officer

Good morning, Nathan.

Nathan Jones -- Stifel -- Analyst

Just a follow-up question on Industrial Europe. One of the comments you made Vicente was that you saw a very strong environment in Germany, which I thought was a little surprising given some of the macro data that Industrial data that's coming out of -- out of Germany. Maybe you can put a finer point on that, is it Germany is good for you, because you're gaining market share or you're actually seeing underlying market strength and how you see that particular market progressing for the rest of the year?

Vicente Reynal -- Chief Executive Officer

Yeah, Nathan, we kind of alluded to, if you remember, our kind of niche products momentum with the blowers, vacuums for our specific end markets, could be transportation, wastewater, food, pharma where we are seeing some good momentum with the solutions that we're driving, and I will say that, that is the main driver of the growth that we're seeing in Europe as well as the growth that -- that we saw in Germany. You know and when we look at the kind of more related to the Industrial, general industrial applications, maybe the core compressor that we saw, as I kind of stated, maybe kind of flattish or maybe some more softness on that offset by the more niche products.

Nathan Jones -- Stifel -- Analyst

Okay, that helps. And then one on Upstream Energy that's not frac pumps. For the last, I don't know, 6 months to 12 months, maybe we've been talking about the potential for a drill pump cycle here at some point. Any update you could -- could give us on the conversations you're having with customers on that front?

Vicente Reynal -- Chief Executive Officer

Yeah, I think, you know what conversations continue, I will say, I don't think that we haven't -- I wouldn't call it as, it is -- we have not seen the purchase orders yet obviously, but conversations continue and the other good data point that we look is that super-spec rigs continue to be at very highly utilization. So one of our customers have seen 95%, kind of close to 97% utilization of super-spec. So that trend that we see is that more super-spec rigs are needed and as you know that requires three or four pumps and there is just not many more pumps to get cannibalized from older generation rigs to the super-spec rigs. So the trend and the kind of the secular trend that we see, we still see it, and we still have kind of high hopes that it will continue to, and then at some point in time unlock this request for drill pumps. But having said that, we -- it is not in our guidance. So just to emphasize, we never guided that we will see this drill thump power cycle, and obviously, if it comes, we're going to be ready and it should be upside for us.

Nathan Jones -- Stifel -- Analyst

Great, thanks very much.

Vicente Reynal -- Chief Executive Officer

Thank you, Nathan.

Operator

(Operator Instructions) Our next question comes from Josh Pokrzywinski of Morgan Stanley. Please go ahead.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Hi, good morning, guys.

Vicente Reynal -- Chief Executive Officer

Hey, good morning, Josh.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

So I guess just given there's some macro volatility out there that and maybe in the Industrials segment, you didn't see too much of, can you just give us a sense for kind of entry rates for the business as you got into the quarter versus exit rates. Did things get better or worse? Just some kind of indication on where the trend line should be drawn from here?

Vicente Reynal -- Chief Executive Officer

Yeah, Josh, we saw -- maybe I will say with kind of maybe the smaller of all of our regions but you know the Asia-Pacific in particular in China, we saw good momentum as we exited the quarter and at least after obviously quite a few quarters of pretty constrained demand in China, we think that things are kind of unlocking there and it is not just compressors. I mean it's basically blowers for wastewater treatment applications, and other kind of large-scale projects. So hopefully that -- that continue and that wasn't just kind of a one data point in the month of March.

I would say for respectively to the -- to the other businesses, most of them kind of I think consistent to what maybe others saw, things were very slow in January, but merely due to seasonality. I don't think I'll call it for anything negatively general in the market conditions, and then obviously that you could argue that because of the slow start in January, we saw progression. But I would call that more seasonality. That will be for Americas and Europe. And I think the good thing is that Europe continues to be fairly stable for us. I mean the team in Europe is doing a fantastic job overcountering the effect of the entire macro slowdown.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Got it. That's helpful. And then just one requisite question on Upstream Energy. Just thinking about kind of the absolute dollar number of orders, I think kind of in the low 200s here, how should we think about that absolute number trending through the year? Does -- do we start to grow here sequentially? And how do you think about price, the cadence on price as we move through the year? I know there's less sensitivity in you guys maybe versus some others out there, but anything you're seeing or any kind of directional moves you expect?

Vicente Reynal -- Chief Executive Officer

And, Josh, you're referring particularly to the upstream side of the business, right?

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Yeah, I guess the 200 comment, it would be orders entirely in Energy, is this upstream orders, I don't know specifically.

Vicente Reynal -- Chief Executive Officer

Exactly, yeah.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Yeah, whatever way you want to put it, that would be helpful context for us.

Vicente Reynal -- Chief Executive Officer

Yeah, so I think, you know, I mean I can kind of break it down into the pieces. I mean, I think from an -- or let me just begin with the Energy side, I mean I think what we see in the Energy side is that the second half will see much better momentum sequentially, particularly the Upstream side as we called out, we expect that that's going to be up low to mid single digits. And then you know, the interesting fact on the Mid and Down, Josh, is that typically we get most of the orders in the first half, Q1 and Q2. That's what we called out that order momentum in mid and down was actually particularly fairly good. So we expect that order in absolute dollars in the second half for mid and down should be expected to be lower than the first half, but then maybe offset by the better momentum in orders on the upstream side.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Okay. So the absolute dollar run rate maybe, you know, and I know it's over generalizing it, but probably similar from 1Q levels, rest of the year?

Vicente Reynal -- Chief Executive Officer

Yeah, I mean scaling that up obviously sequentially growing.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Okay, got it. Thanks, Vicente.

Vicente Reynal -- Chief Executive Officer

Thank you. Thank you, Josh.

Operator

Our next question comes from John Walsh of Credit Suisse. Please go ahead.

John Walsh -- Credit Suisse -- Analyst

Hi, good morning

Vicente Reynal -- Chief Executive Officer

Hi, good morning, John.

John Walsh -- Credit Suisse -- Analyst

So apologize, if somebody already asked this. I just hopped on, but Medical had a very strong performance this quarter. Just wondering if you can kind of comment on both what's driving the top line and the better margins than we were looking for, and then really the sustainability of that going forward?

Vicente Reynal -- Chief Executive Officer

Yeah, John, thanks for the question. I mean I think the Medical segment continues to be one that -- that we're making a lot of organic investments. It continues to be one that we talked about also our funnel for M&A continues to be fairly, fairly sizable -- fairly healthy. In terms of the performance, yeah, I mean you can see that the teams continue to execute, really well. It has to do, in part, if you recall in 2018, our order momentum was really strong. We're seeing some tough comps, because of that. Order momentum in 2018 was really strong because of a lot of the new design wins that we achieved in 2018. We're seeing shipment of that here in 2019 in the first quarter, but again, the order momentum continues to do well, even though orders were you could call like flattish. That was on top of 11% growth from last year and also the absolute dollar amount was fairly, fairly healthy at $70 million, which allowed us to increase our backlog. So I'll say it is -- it is really great good execution from our team on the initiatives of the liquid pumps, liquid Handling as we're entering new markets with that and I'm seeing some pretty nice design wins on that.

John Walsh -- Credit Suisse -- Analyst

Great. And then maybe just a follow-up around working capital, looks like you kind of continue to improve this metric here, I mean how should we think about the cadence? Is there any noise from channel or tariffs? Or is this still just kind of clean execution on driving that down as a percent of sales?

Neil Snyder -- Chief Financial Officer

I think for us, it remains a strategic focus, and we'll be able to continue to drive improvement, in particular on the inventory as we move through the year, as we had mentioned I think at the Investor Day, it's still an area of focus for us, we've been pleased with what we've done with receivables and payables, but we still see upside opportunity as we move through the year on our inventory.

John Walsh -- Credit Suisse -- Analyst

Okay, thank you.

Vicente Reynal -- Chief Executive Officer

Thank you, John.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Vicente Reynal for any closing remarks.

Vicente Reynal -- Chief Executive Officer

Thank you. And once again, thanks -- thank you all of you for your level of interest in Gardner Denver. As we discussed, we have some pretty exciting momentum going on in the company. I want to obviously emphasize our big thank you to all of our employees for delivering another great quarter year performance and the continued momentum that we have in our company of creating a very unique performance-driven culture. So with that, we'll just call it a close, and then we'll talk to all of you soon at some point in time. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Duration: 41 minutes

Call participants:

Vikram Kini -- Head of Investor Relations

Vicente Reynal -- Chief Executive Officer

Michael Halloran -- Robert W. Baird -- Analyst

Neil Snyder -- Chief Financial Officer

Joe Ritchie -- Goldman Sachs -- Analyst

Julian Mitchell -- Barclays -- Analyst

Nathan Jones -- Stifel -- Analyst

Josh Pokrzywinski -- Morgan Stanley -- Analyst

John Walsh -- Credit Suisse -- Analyst

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