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Colfax Corp (NYSE:CFX)
Q4 2019 Earnings Call
Feb 21, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Colfax Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions].

I would now like to hand the conference over to your speaker today, Mr. Mike Macek. Thank you. Please go ahead.

Mike Macek -- Vice President of Finance

Thank you. Good morning everyone and thank you for joining us. I'm 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 in 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 relating to those measures can be found in our earnings press release and today's slide presentation.

Now, I'd like to turn it over to Matt, who will start on slide 3.

Matthew L. Trerotola -- President and Chief Executive Officer

Thanks Mike and good morning. We are pleased to report another strong quarter, as we close out a pivotal year at Colfax. In 2019, we completed our portfolio transformation, which started with the sale of our Fluid Handling business and ended with the 2019 divestiture of our Air & Gas Handling business. Between these two events, we acquired DJO and created an enterprise that is less cyclical, more profitable and better positioned for growth. We are already seeing the benefits, we had 2019 organic growth of 2.5%. During the year, we delivered on our financial commitments with attractive earnings growth supported by operating improvements in each of our businesses. Our Medical Technology segment accelerated its growth in each quarter of the year, benefiting from the investments made to improve its operations and improve deliveries to customers.

We are early in the CBS journey and see many opportunities to drive further investments in the business as it adopts lean and develops a continuous improvement culture. The business increased a number of new product introductions in 2019 and we see many opportunities to improve innovation to support sustained, mid-single digit growth in the coming years.

Our Fabrication Technology business made significant strides in 2019. The team executed well and expanded margins 180 basis points. They also grew 1.5% organically, outpacing the market and capturing global share gains. The business has a strong innovation engine that supports its growth agenda. And we have a growing and healthy pipeline of acquisition opportunities that can further strengthen and expand our platforms.

Despite dynamic conditions in industrial markets, we grew positive 1.7% organically, benefiting from our less cyclical portfolio and strong growth in our Med Tech platform. Profit margin significantly improved during the quarter to 15.1%, Fab Tech margins expanded over 300 basis points, reflecting the significant operating improvements made in the business over the last three years that were masked by higher metals and other input costs. The structurally higher margins in our Med Tech platform also contributed to our margin achievement in the quarter.

We finished a terrific year performance by delivering $0.61 of adjusted earnings in our typically highest quarter of the year. As shown on slide 5, we ended the year with strong momentum in our Med Tech segment. The business grew 7.8% organically against a favorable comp in the prior year and with the benefit of a few extra selling days. Performance was strong, with the Reconstructive product lines continuing to grow by double-digits in the quarter. The Prevention and Rehabilitation product lines grew 6%, and even with the benefit of the extra sales days, this is the highest growth rate in several years. The 17 new products launched in 2019 are the highest in over five years and we expect to expand that performance over time, as we improve and invest in the innovation engine and make additional targeted investments. Margins of 19.2% increased 70 basis points sequentially, reflecting volume leverage and operating improvements, offset partially by investments to improve customer service levels and fuel future growth.

I'm very pleased with the performance of our Fabrication Technology business on slide 6. Margins were up 320 basis points versus prior year to 15.6% on lower volumes. The business continues to develop its operational capabilities and deploy CBS tools and processes to drive sustainable improvements. We're executing an effective commercial playbook and managing price to address the sustained multiyear increase in input costs.

Organic revenue declined 1.5% for the quarter and we continue to outperform the market and gain share. As you know, we have a truly global Fabrication Technology business, which protects us against strong demand shifts in any one region. In the fourth quarter, growth outside the U.S. dampened the impact of lower volumes in North America. The business had a good start to 2020, in line with our guidance for the year. Customers are well supported, with excellent service and innovation and the team has more cost levers to support long-term margin improvements.

Before handing over to Chris to walk through our financial results. I'll wrap up on slide 7 and share our key 2020 priorities. We entered the year with great momentum at DJO, as growth returned to healthy levels in the past few quarters. The team will use CBS to sustain customer service gains, increasing impact from new products, and the strength in commercial processes.

Through our Fab Tech business, we've demonstrated that CBS can help to create an effective innovation engine and growing pipeline of new products and 2020 will be another strong year of new product launches in that business. I also expect Med Tech will again increase the number of new product introductions and improve its new product development process in 2020. Along with solid commercial execution, both businesses are positioned to capture additional share. We've shown that we can support innovation and improve margins. We're driving margin expansion in 2020, while we invest in operating improvements and growth.

Our improved portfolio has greater cash flow generating capabilities and we expect to generate over $250 million of free cash flow to support a growing, actionable M&A pipeline. We're excited about the future and confident that we can drive compounding value growth for our investors. Chris?

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

Thanks Matt. Slide 8 provides a summary of our fourth quarter performance. Year-over-year growth includes in large part, the acquisition of DJO, and the significant gains in ESAB margins over the past year.

Q4 sales performance included healthy DJO organic growth. The investments made to improve the businesses and operations have paid off in the form of accelerated recovery to healthier growth levels. There is a little more work to do in 2020 to improve the foundation, but we are increasingly focused on the CBS agenda, including more standard work and continuous improvement.

Our business has performed in line with expectations for the quarter, creating 15.1% adjusted EBITA margins. The benefits from our portfolio changes and ESAB's operating performance really read through this quarter. Interest cost track is expected and income taxes were lower, as a result of one-time items related to the sale of our Air & Gas Handling business. We continue to expect our tax rate in 2020 to be 21% to 22%. Overall, we generated $0.61 in the quarter from crisp execution and a favorable tax rate.

In line with expectations, we also achieved nearly $80 million of free cash flow in the quarter, before paying for costs related to the Air and Gas Handling divestiture. This quarter's performance demonstrates the cash flow benefit of our transformed portfolio of businesses. We have a clear line of sight to over $250 million of free cash flow in 2020, with a seasonally low first quarter and then building throughout the year.

We ended 2019 as expected, with 3.8 turns of gross leverage or 3.6 turns on a net basis. Our 2020 cash flow will support the deleveraging path discussed at our Investor Day in December, while also supporting our active acquisition program. In 2020, we continue to expect a year of solid earnings growth and are reaffirming our adjusted EPS guidance of $2.10 to $2.20, including year-over-year currency pressure.

Investors are familiar with our quarterly EPS phasing profile. The first quarter is typically the lowest and the fourth quarter the highest, in line with revenue sequencing. We expect this phasing will be more pronounced this year, with first half volume weakness in ESAB, followed by a market recovery and growth in the second half.

The first quarter of 2020 does not have a clean comparison to last year, because DJO is included in our results beginning only in March of 2019. We previously shared pro forma information that shows no pro forma contribution from January and February of 2019 DJO performance, net of financing costs. We expect this year's first quarter to include a penny or two of year-over-year currency pressure.

Coronavirus has been very much in the news and we've been monitoring the situation closely. Our teams are safe. As you know, our portfolio transformation significantly reduced our direct exposure to customers in China to less than 5% of our total sales. At this point, we see $0.01 to $0.02 of EPS pressure in the first quarter from lower sales in China and supply chain impacts, both of which we believe to be first quarter timing items only. This is a dynamic situation we will continue to monitor developments.

Wrapping up on slide 9, 2019 was a very good year for Colfax, through the dedication and hard work of thousands of associates around the world, we transformed the portfolio and delivered strong operating results. We have very good momentum entering 2020. In addition to earnings growth and strong cash flow, we are well positioned to execute our M&A agenda, as part of our objective to create compounding value for investors.

With that, we'll now open up the call for questions.

Questions and Answers:

Operator

[Operator Instructions]. Your first question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Please go ahead, your line is open.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Good morning, guys.

Matthew L. Trerotola -- President and Chief Executive Officer

Hey Jeff.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

So can you just talk about what you're thinking on the margin front for DJO in 2020, and where you see margin improvement opportunities versus kind of how you're balancing incremental investment spending?

Matthew L. Trerotola -- President and Chief Executive Officer

Yeah. So we have a plan to improve the margins of DJO here in 2020. We have been driving really focused initially last year on stabilizing the operations, getting service levels up and then increasingly through the year, have been able to focus more on productivity, supply chain, productivity sourcing initiatives as key areas of focus, as well as looking at fixed cost efficiency opportunities. And so, we definitely see the opportunity to drive improvements in the margins in that business over time, in the sort of 50 basis point of EBITDA year number that we had talked about at the outset. And here in 2020, we got a clear path to drive improvements, those will build through the year, based on the way that we put the costs into the business last year, but we've got a clear line of sight on how to drive those improvements.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Okay, great. And then can you just talk about where you're seeing growth still in the welding? Certainly it has been impressively resilient, and just what do you expect for the North American market for welding into 2020?

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

Yes, of course, if we look at last year, everywhere outside the U.S. for the full year was either flat or up, and most of that being up and it was the U.S. that was the market that was down. Late in the year, the European market came down a little, as we talked about, I think in our last call as well. But we feel like we've been able to take share in most or all markets around the world.

As we come into this year, we talk about a plan that had revenue a little bit down in the first half of the year. But then once we once we lap some of the declines of this year coming back into a positive zone and that zero to 2% that we guided for the businesses is still our expectation for this year.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Okay. Thanks guys.

Operator

Your next question comes from Joe Giordano with Cowen. Please go ahead, your line is open.

Joseph Giordano -- Cowen -- Analyst

Hey guys, good morning,

Matthew L. Trerotola -- President and Chief Executive Officer

Good morning Joe.

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

Hey Joe.

Joseph Giordano -- Cowen -- Analyst

Just curious, like how did Med Tech in 4Q come in versus internal expectations? Like for us to overall was fine, but it was more stronger revenue, a little bit lighter margin. Just curious how that played out relative to what you guys were thinking several months ago?

Matthew L. Trerotola -- President and Chief Executive Officer

Yeah, I think you said exactly right and that we felt really good about the growth of the business, the revenue acceleration of the business and came in I'd say at the upper end of what we might have hoped there. There is a little bit of tailwind from the year-over-year comp and there is a couple of extra sales days and so that almost 8% is elevated beyond the right go-forward number, but we felt really good about the growth and feel good about the momentum that's built there. We also feel good about the operational improvements and the productivity foundation that we've been building. But we did -- through the year, including the fourth quarter, put some extra costs into the business, into the supply chain, and other areas of the business, in order to make sure that we got the right foundation from a go-forward basis. And you see that reading through at the margin level.

Joseph Giordano -- Cowen -- Analyst

Did you -- am I reading this right, I think that last time we spoke maybe at Investor Day, the view was -- we like a mid single-digit normalized growth rate for DJO, but we're coming in a little hot on growth in the end of this year from cleaning up some backlog etc, so it might be a little bit lighter than that. And now you're talking mid single. Did you kind of push that -- did you upgrade that view a little bit, like nuance a little bit higher?

Matthew L. Trerotola -- President and Chief Executive Officer

Yeah. So what I'll say, first we've said from the start that we see this is a business that can grow mid single digits, once we get it ramped to that level and could do it consistently. We talked about 4% to 5% when we announced the business. What we put out there as a guide for this year was 3% to 4% growth, and at this point we're not -- we're not revising that, but certainly we feel good about it, the kind of underlying rate coming out of the year is sort of solidly in the mid single digits range. But we're 10 months in with this business, and we know that over time, there'll be great quarters, and there'll be good quarters, and right now, we're sticking with our 3.5% to 4.5% as the DJO growth in this year, with an expectation that is probably closer to the upper end than the bottom end of that. But we'll keep you updated as we work through the year.

Joseph Giordano -- Cowen -- Analyst

If I could just sneak in, can you just help us contextualize the internal spending going on there. So we'll see the margins come through, but how much are you spending like in 2020 relative to -- on just internal improvement and growth initiatives relative to '19 there?

Matthew L. Trerotola -- President and Chief Executive Officer

Yeah, so I mean, we would try -- it's hard to get into the details of the spending. But I would say, certainly in -- last year we got to spend all of the margin improvement from improvements in spending in the business, in terms of whether it's supply chain regulatory growth investments and here in 2020, our plan is more to spend part of the margin improvements, on those kinds of investments in the business, which over time, that will be the decision we're making each year, as we'll make sure we're driving improvement to the underlying margins of the business and then deciding, how much of that to reinvest each year, to make sure that we're doing the right thing to fuel future growth in the business.

Joseph Giordano -- Cowen -- Analyst

Sounds good. Nice job guys.

Matthew L. Trerotola -- President and Chief Executive Officer

Thanks.

Operator

Your next question is from Joe Ritchie with Goldman Sachs. Please go ahead, your line is open.

Joe Ritchie -- Goldman Sachs -- Analyst

Good morning, everyone.

Matthew L. Trerotola -- President and Chief Executive Officer

Good morning Joe.

Joe Ritchie -- Goldman Sachs -- Analyst

Hey, so just maybe just touching on Fab Tech for a second, the margins this quarter just continue -- just an impressive trajectory, and I guess I'm thinking about this, maybe just a little bit longer-term, right. I know your business mix is different than some of your peers, but you've got a peer out there that's got margins that are north of a 1,000 basis points higher than yours on the Fab Tech business. And I'm just trying to understand how much more margin runway you have in Fab Tech, and how to think about that also for 2020, just given the results that you posted in 2019?

Matthew L. Trerotola -- President and Chief Executive Officer

Yeah, thanks for the comment, Joe. We really did feel good about the momentum and performance in the Fab Tech business, and I think it's -- as we highlighted at Investor Day, it's really a crystal clear example of the kind of impact, that fantastic talent and application of our Business System over time and the right acquisitions to improve the business and the right innovations, what kind of impact that can have on the relative growth and the margin performance of the business. I really appreciate the positive comment there.

In terms of where we can go from there, I think we've always said that, we are driving to get to 15% operating profits, or a little higher than that on EBITA, and that we have clear line of sight to how to do that operationally. And then also, we said that strategically, we're working on how to make room to go further, and the team has been certainly working on that proactively. So we still got a little bit more room to go with the same playbook that we've been running operationally in the next couple of years, and then we've also made sure that the acquisitions that we've done, the innovations that we're doing, how we're reshaping our supply chains over time, how we're reshaping the organization of the business over time, is creating space for us to not be done there, but be able to then continuously improve the margins. And as you said, there is at least one peer out there that would say there is plenty of room. I think a little different structure to their business, I wouldn't put that out there as a, as a benchmark that we'll get to anytime soon. But I'd say, it certainly gives us plenty of comfort that we don't have to hit a wall here.

Joe Ritchie -- Goldman Sachs -- Analyst

Yeah, that's helpful. And I think maybe just kind of following up on Joe's question from earlier. Agree, that I think the margins were a little bit lighter than we expected. Obviously growth, very good on the DJO Med Tech side. I guess as you're thinking about 2020, we know that the first quarter has got a tough comparable, but how do we think about the rest of the year and your ability to expand margins on the Med Tech side? And is there anything we need to be aware of, just from either a mix standpoint or an investment standpoint, that you know of in your internal plans, so that we're getting at least the cadence right as the year progresses?

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

Yeah. sure. Yeah, so I mean, obviously the first quarter has the weird anomaly of just having March last year, and so that distorts our company and our DJO margin for the first quarter and needs to be adjusted. But once you've adjusted that and you're kind of down in that low double digits for first quarter, we see the margin improvement in the year as something that we will build over time. As I said, we put investments into the business through the year, and so here in the first quarter we will be carrying carrying those investments up against the comp that doesn't carry those, and so it will be -- really as we move into, maybe a little in the second quarter, but particularly third and fourth quarter is where you should see the margin expansion coming through in the business.

We're trying to make sure that that we have the right balance and making sure that we're showing the right short term progress, but really very much doing the right things for the long term strength and growth of the business. We think that's the right thing to do, and so we'd ask people to be a little patient with the rate at which those margin improvements show up, so that we can keep the top line moving.

Joe Ritchie -- Goldman Sachs -- Analyst

Got it. That makes sense. Thanks guys.

Operator

Your next question is from Andrew Obin with Bank of America. Please go ahead, your line is open.

Andrew Obin -- Bank of America -- Analyst

Good morning. Can you guys hear me?

Matthew L. Trerotola -- President and Chief Executive Officer

Yes. Hey, Andrew,

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

Good morning.

Andrew Obin -- Bank of America -- Analyst

Hey, how are you? So, and I apologize, maybe I have missed it, but we've been getting a lot of questions from investors on your China exposure, and I think looking at your slide deck from the Analyst Day, it seems you have sort of less than 5%. Could we sort of figure it out by segment between Med Tech and Fab Tech, and more important question I guess, supply chain, what percent of your products do you source from China, because we hear a lot of concerns about disruptions in the supply chain, particularly in second and third-tier suppliers? Thank you.

Matthew L. Trerotola -- President and Chief Executive Officer

Yeah, thanks for the question, Andrew. So the first one you answered yourself, which is that with the changes we've made to the portfolio, China -- our China exposure has become very small, meaningfully under under 5% of company revenues and the vast majority of that China exposure is ESAB, our Fab Tech business, which has less the 10% of its revenue in China. As far as our supply chains, we -- both of our businesses I think have done a good job, setting up fairly localized supply chains, to serve sort of a demanding customer base from a service level standpoint. And so the vast majority of our business in regions is supplied from assets within those regions or adjacent to those regions. But of course, we've taken advantage of global sourcing opportunities from a cost standpoint, and so we do have a minority of the sourcing of each of the business that comes out of China and other parts of of Asia. And so when Chris talked about some of the impact, the coronavirus, that's where we'll see a little bit of revenue impact, a little bit of cost impact from the the sourcing that we do out of China.

We've been staying very close to it. The one major plant that we have in China, which is in our Fab Tech business, is not in Wuhan, it's outside of Shanghai and it's up and running again and it is -- mostly supplies China, but has a role in the rest of the world and so we're making sure that we're monitoring shipping lanes and all the different things that could get in the way, and we have been able to talk to all our key suppliers over there and make sure that we understand clearly, the situation. So that we could at least size for you here on this call, our current view of what kind of a kind of a first quarter impact we're going to be having, and we're going to stay on top of the situation, as it continues to play out.

Andrew Obin -- Bank of America -- Analyst

Thank you. And just a follow-up question; looking at very good growth at Med Tech, could you just give us a little bit more color prevention and rehab, we have versus reconstructive, and how should we think about growth for two segments, sub-segments into 2020? Thank you.

Matthew L. Trerotola -- President and Chief Executive Officer

Yeah. So the prevention -- excuse me, the reconstructive growth was back into the double digits and prevention and rehab was 6% but with a couple of percent from some extra days. So and that's two quarters in a row, where we've been in a -- back into a kind of a more reasonable range for prevention and rehab, even maybe a little elevated range for for prevention and rehab, and that's where the benefits of the work that we've done together with the DJO team on the supply chain are reading through, as well as some of the new product innovation that they had initiated in the last few years coming through.

I spent some time with -- at their national sales meeting recently and it was terrific to see the swagger back in the bracing sales force and channel. This is a business that years ago, was the hands down, the dominant leader in the industry that everybody wanted to do business with and they're a very proud group and they are feeling very excited about the progress that we made last year, and starting to get the kind of swagger back, that you put good service levels and ongoing innovation, together with a great sales team that has confidence and has the formula for taking share.

So on a go-forward basis, I think we've already said that reconstructive growth could be in the -- probably the high-single digits on a sustainable basis over time and the PNR growth would come up into that low to mid single digits growth, and that's kind of our formula for mid single-digit growth in the business, but that will certainly vary from quarter-to-quarter.

Andrew Obin -- Bank of America -- Analyst

Congratulations and thank you.

Matthew L. Trerotola -- President and Chief Executive Officer

Thank you.

Operator

Your next question is from Julian Mitchell with Barclays. Please go ahead, your line is open.

Julian Mitchell -- Barclays -- Analyst

Maybe just a first question around the cash flow. So I think in the cash flow statement, you had about $6 million for 2019 as a whole. What's -- I realize you talked to adjusted free cash for over $250 million for 2020, what was the adjusted free cash, if you like for 2019? Just trying to understand what magnitude of step-up, if any, you have in '20 and what's behind that?

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

So for 2020, we put out guidance not for adjusted cash flow, we've put out guidance for just free cash flow, and that number is $250 million or more. So just to set the stage for that. Second point is, in the fourth quarter, the performance that we had, we peeled it apart, so that investors could see the underlying performance there of not quite [Phonetic] $80 million just in the fourth quarter. There were some transaction fees that we had associated with the divestiture of our Howden or Air & Gas Handling business that muddied the water a bit. But we've peeled that apart, so you can see that underlying performance and see that we're on the path to deliver the $250 million or more in 2020.

For the full year in 2019, we did have a significant amount of investments in DJO, as we brought it up onboard in working capital that we talked about in Investor Day and before. We also had a lot of transaction fees related to both of major transactions. If you peel all that apart, you can see the cash flow was somewhere in the roughly $180 million to $190 million range. And so as we step forward, that's one of the, the pads that we created or or shared with folks back in December, what we see is the improvement in profitability in the business. We see the lower restructuring spend, we see lower pension funding, we see better working capital performance. We see -- and of course we've got this significant NOL, that gives us a very strong cash tax position in the U.S. So you put all that together, and it gives us a great foundation in 2019 to build from and then to deliver the $250 million or more in 2020.

Julian Mitchell -- Barclays -- Analyst

That's good to hear. So the free cash in '20 will be just GAAP and straight from the press release? On my second point, I guess would be around the seasonality of earnings. I think you had mentioned once or twice in the prepared remarks and also in the Q&A, highlighting some headwinds for Q1 in the first half. So just to try and put a finer point on that, I think consensus has around sort of 48% or so of the full year earnings coming in the first half, realizing you don't guide quarterly. I just wondered, is the impression that it should be more like 40% to 45% of the full year earnings coming in the first half? Is that the type of weighting we should think about given coronavirus and FX and some of those investment headwinds, you'd mentioned?

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

Julian. I think if you look at 2019 EPS performance and look at that as sort of a guide for the approximate timing that we have. I think that gets investors reasonably close to what we would expect for 2020. Year-over-year going from Q1-to-Q1, we will pick up a little bit of earnings there, but as you point out, there is a little bit of coronavirus pressure that we highlighted, and then there is a little bit of the FX pressure.

Julian Mitchell -- Barclays -- Analyst

Okay. So that sort of 45%, 46% of the year you had in the first half of '19, that's a good place holder for this year in '20?

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

Yeah. I'd say that's directionally correct.

Julian Mitchell -- Barclays -- Analyst

That's very helpful. Thank you.

Operator

Your next question is from Josh Pokrzywinski with Morgan Stanley. Please go ahead, your line is open.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Hi, good morning guys.

Matthew L. Trerotola -- President and Chief Executive Officer

Hey Josh.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Just following up on some of the Med Tech growth initiatives here. I get that, when you are kind of wining new practice or new buyers group in that space, you need to really anniversary it, before you get back to kind of underlying market. So I guess maybe just to peel apart the growth this quarter or some of the new business you've won over the last year, how should we think about carryover growth into '20, just until you anniversary kind of some of these new customers? And then maybe as an addendum to that, how much do you think is new customer growth versus kind of new products or more penetration with existing customers?

Matthew L. Trerotola -- President and Chief Executive Officer

Yeah. So it sounds like that's largely a surgical question or is that a full MedTech question?

Josh Pokrzywinski -- Morgan Stanley -- Analyst

I guess a full MedTech question, but feel free to cower in wherever you see fit.

Matthew L. Trerotola -- President and Chief Executive Officer

Yeah, fair enough. So I guess I think the first thing I'd say is that, the teams are generally working on the growth sort of by month, quarter by quarter. We have a growth bridge tool that we use with the team is that -- it is not just about kind of improve the annual growth one time and then start over, but more of an evergreen approach. And so again, if I take our surgical business that has very high growth. They are bringing on new doctors every quarter, and look at the same-store growth, the new doc growth and then they also have a view of, when the new products come in and how that's going to give them a lift. And so we've got a pretty robust growth model in that business, in terms of of how we continue to grow and gain share in that business and so we definitely quantify the rollover effect. What I can say is that we exit 2019, already with a headstart on how we have another strong year of growth here in 2020, and as I said in my comments, Q1 is off to a good start in the Med Tech business.

The prevention and rehabilitation part of the business is a little bit different and that the growth is -- we've got a pretty meaningful channel there, as well as all the many -- of the many clinics and so the growth is a little bit fueled by new additions of new clinics and things like that. But it's also more broadly, just about who's choosing our products on which days and how are we penetrating further into the clinics and the hospitals. And so there last year, we had a healthy lift in our growth from improving the service levels of the business. We won't get that lift again. In fact, we might give a little bit of it back, because it was up against against kind of an easier comp. But we will have some additional new products coming through, that help us to be able to penetrate further into the clinics and into the hospitals. And so, that's how we'll continue to improve the growth of the business.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Great, that's helpful color. And then just a follow-up on the comment you made in the prepared remarks, about the acquisition pipeline, starting to fill in. Anything that you can share on I guess, proximity to what you currently do in Med Tech versus something that would be either kind of more adjacent or further afield? Just to kind of give us some sense for where the portfolio may pivot or may grow, as you guys start to get the balance sheet repaired?

Matthew L. Trerotola -- President and Chief Executive Officer

Yeah. Our focus is really at this point on things that are within the DJO businesses and strengthen and accelerate the strategies there in the business, or kind of directly adjacent and sort of attractively expand the business, but in a kind of more connected way. We see over the next couple of years, there is plenty of opportunities in those areas, and while we certainly will be doing work and think about other things in the Med Tech space that could be attractive expansions for the company, that's really not going to be our pipeline focus for the next year or two.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Perfect, thanks for the color and good quarter.

Matthew L. Trerotola -- President and Chief Executive Officer

Thanks.

Operator

Your next question is from Walter Liptak with Seaport Global. Please go ahead, your line is open.

Walter Liptak -- Seaport Global Holdings -- Analyst

Thanks and good morning.

Matthew L. Trerotola -- President and Chief Executive Officer

Good morning Walter.

Walter Liptak -- Seaport Global Holdings -- Analyst

Wanted to ask about Fab Tech, go back to that, and you talked about market share a couple of times. I wonder if we can get some color about regionally, where the market share is coming in, and on a product basis, where you are with having a full product portfolio?

Matthew L. Trerotola -- President and Chief Executive Officer

Thanks Walter. There is really kind of two things that we look at, to understand how we are doing from a market share gain standpoint. One is just looking at reported results, where they are available in terms of reported core growth results. But then there are also certain regions of the world, where it's pretty specifically reported in terms of what the shares are. And I think on both those data points, we feel comfortable that in 2019, we had global share gains, as well as, share gains in most of the regions around the world. And we really think that came from the combination of the great service levels in the business, that we've been able to build over time, of the vitality of the product line that we've built through innovation over time, and the strength of the commercial engine. We've got a great local commercial engine around the world, that is very strong. And so we think that has enabled us to build have really gain share in the business, now in a consistent basis and we're going to be working hard to continue that.

And at this point, we've got a great strong full portfolio. But for sure we continue to work on strategic extensions of that portfolio, both through internal innovation and and we've made some acquisitions over time that have attractively expanded that portfolio as well.

Walter Liptak -- Seaport Global Holdings -- Analyst

Okay. Great. And when I am thinking about the margin improvement year-over-year, you called out commodities pricing and price cost, so wondering about how much of the margin improvement came from that and the comp for the fourth quarter, as well as 2020 pricing strategies?

Matthew L. Trerotola -- President and Chief Executive Officer

Yeah. So our margin improvements over time in that business have been consistent and have been balanced across price and the positive impact of innovation and the productivity efforts from driving CBS in the business and the structural improvements that we've made to the cost of the business, and again in Q4, that's -- those are the sources. The Q4 improvement was very large, and I think that we're acknowledging that some of that was a little bit of catch up, in terms of maybe little extra cost in Q4 last year from the inflation and and now being able to see the read through of the pass-through on that, as well as the ongoing improvement to the business. And so I think that the comment was only just, don't take 300 basis points a quarter, extend it forward but we do intend to continue to extend the margins of the business.

Walter Liptak -- Seaport Global Holdings -- Analyst

Yeah, Okay. And the 2020 pricing strategy, were you able to take prices up and positive price cost in 2020?

Matthew L. Trerotola -- President and Chief Executive Officer

So I think you asked about our ability to take price up and have positive price costs. Our pricing strategy in that business has several parts to it. One is, just trying to make sure that as we're getting inflationary pricing in the business, that we're working hard to pass that through to the marketplace. But then, we also have -- we are always working on value-based pricing to make sure that our new products are getting price in a value based way, and sort of the blocking and tackling of the price waterfall, and how you make sure you continue to kind of close holes in that price waterfall, and so that's all muscle that we've built. If there is inflation to be pass-through in 2020, we will be making sure that we're passing that through. But also 2020 and beyond, we will be continuing to exercise price model, much more on the value side of the equation, and try to make sure that we're getting a little bit of contribution to margins every year from price.

Walter Liptak -- Seaport Global Holdings -- Analyst

Helpful. Sounds good. Thanks guys.

Operator

Your next question is from Nicole Deblase with Deutsche Bank. Please go ahead, your line is open.

Nicole Deblase -- Deutsche Bank -- Analyst

Good morning.

Matthew L. Trerotola -- President and Chief Executive Officer

Hey Nicole.

Nicole Deblase -- Deutsche Bank -- Analyst

So I just want to dig into Fab Tech a little bit, and if you guys could kind of run down what you're seeing from -- we kind of went through the geographies, but I guess from an end market perspective, anything interesting that happened during the quarter relative to what you saw in 3Q?

Matthew L. Trerotola -- President and Chief Executive Officer

Yeah Nicole. I mean I think from an end market standpoint in 3Q and 4Q, there was a slowdown in industrial end markets, particularly in North America and to a lesser extent in Europe, and obviously things like automotive, we're at the heavier end of that. We've got a little less exposure there, but sort of the broader industrial markets had a little bit of slowing through that period. I think around the world, we've seen some of the oil and gas spending pick back up a little, infrastructure spending is still a positive in many parts of the world that we play a critical role in, and certainly, we watch the more kind of construction build out parts of the markets as well, which in the U.S. has been kind of little bit of a mixed bag in terms of up and down.

So we expect here in the first half, that industrial market view will stay a little bit in the negative, but every indication that we've been able to look at is that, we should be able to then turn back positive, but we need to see it play out.

Nicole Deblase -- Deutsche Bank -- Analyst

Okay, got it. Thanks Matt. And then, just on DJO margins, I know we've dug into this quite a bit on the call, but just want to confirm, I know you guys have a target for 50 bps of expansion annually. Is that something that's going to be difficult in 2020, because of the comp issue in the first quarter, and then also this quarter, the EBIT performance was actually pretty good. But the amortization stepped down quite a bit. So if you could put some color on that?

Matthew L. Trerotola -- President and Chief Executive Officer

Yeah. We talked about your EBITDA improvement of about 50 points annual, and we still very much believe that that's there to be done in the business over time and here in 2020, for sure we'll be balancing that with the investments that we need to keep making in the business, and with some of those first quarter or two, comp effects, and so I think we've got certainly, plenty of opportunities to drive to that 50, but we also may make some choices around how we spend, that might leave us a little bit lower than that, but that'll be a conscious choice that we make, as we work through the year. I mean, Chris, can talk about the amortization.

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

Yeah, the amortization is just up through the third quarter, where we are recording the expense based on estimates there and then by year-end, we finish up our purchase allocation process, and come up with a final number. And so the adjustment we see in Q4, is just us getting aligned just us getting aligned on the -- where the amortization is going to where it went to -- where it finished up.

Nicole Deblase -- Deutsche Bank -- Analyst

Got it, thanks. I'll pass it on.

Operator

There are no further questions at this time. I turn the call back over to the presenters for closing remarks.

Matthew L. Trerotola -- President and Chief Executive Officer

Thanks everybody. Appreciate you guys joining the call today.

Operator

[Operator Closing Remarks].

Duration: 46 minutes

Call participants:

Mike Macek -- Vice President of Finance

Matthew L. Trerotola -- President and Chief Executive Officer

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Joseph Giordano -- Cowen -- Analyst

Joe Ritchie -- Goldman Sachs -- Analyst

Andrew Obin -- Bank of America -- Analyst

Julian Mitchell -- Barclays -- Analyst

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Walter Liptak -- Seaport Global Holdings -- Analyst

Nicole Deblase -- Deutsche Bank -- Analyst

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