Circor International Inc (CIR) 2018 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to CIRCOR International's Fourth Quarter Fiscal Year 2018 Financial Results Conference Call. Today's call will be recorded. (Operator Instructions)

I will now turn the call over to Mr. David Mullen, Senior Vice President of Finance for CIRCOR, for opening remarks. Please go ahead.

Thank you, and good morning, everyone. On the call today is Scott Buckhout, CIRCOR's President and CEO; and Chadi Chahine, the company's Chief Financial Officer. The slides we'll be referring to today are available on CIRCOR's website at www.circor.com, on the Webcasts & Presentation section of the Investors link.

Please turn to Slide 2. Today's discussion contains forward-looking statements that identify future expectations. These expectations are subject to known and unknown risks, uncertainties and other factors. For a full discussion of these factors, the company advises you to review CIRCOR's Form 10-K, 10-Qs and other SEC filings. The company's filings are available on its website at circor.com. Actual results could differ materially from those anticipated or implied by today's remarks. Any forward-looking statements only represent the company's view as of today, February 27, 2019. While CIRCOR may choose to update these forward-looking statements at a later date, the company specifically disclaims any duty to do so. On today's call, management will refer to adjusted operating income, adjusted operating margins, adjusted net income, adjusted EPS, free cash flow, organic measures and pro forma amounts. These non-GAAP metrics exclude certain special charges and recoveries. The reconciliation of CIRCOR's non-GAAP measures to the comparable GAAP measures are available in the financial tables of the earnings press release on CIRCOR's website.

I'll now turn the call over to Scott. Please turn to Slide 3.

Thank you, Dave, and good morning, everyone. Before we begin, I'd like to formally welcome our new CFO, Chadi Chahine, who comes to CIRCOR with 22 years of finance, general management and international experience. As many of you know, in January, Chadi joined CIRCOR from global medical device company, Smith & Nephew. He was the CFO of Smith & Nephew's U.S. business, and before that, international markets, where he was instrumental in driving profitable and sustained growth. He brings deep operational and global experience, strong business acumen and proven cash management capabilities. This skill set will be especially valuable at this stage of CIRCOR's evolution.

Let me start today's call by recapping some highlights from 2018. From a financial perspective, we finished 2018 with pro forma organic orders growth of 9% and revenue growth of 6%. Our AOI margin of 8.2% was 80 basis points better than 2017, and we increased adjusted EPS by 23% to $2.11. Operationally, we integrated the largest deal in CIRCOR's history, and in doing so, we significantly enhanced our opportunities for long-term growth and profitability. The integration remains on track. In our first full year of ownership, we exceeded our internal deal model, and our synergy plan is ahead of schedule. We delivered approximately $8 million of savings in 2018, and we expect incremental savings of approximately $7 million in 2019.

We successfully reorganized the company around end markets, Industrial, Energy and Aerospace & Defense. We significantly improved our cash flow performance through the year. We improved working capital as a percentage of sales from 32% at the end of 2017 to 24% at the end of 2018. We generated free cash flow of $39 million in the second half of 2018.

In Distributed Valves, production is ramping up in our Monterrey, Mexico facility. We remain on track to exit our manufacturing plant in Oklahoma City during the first half of 2019, by which point, we expect to see margins improve through the year. We continue to simplify CIRCOR. We recently divested 2 noncore businesses. In October, we divested SES Rosscor for a nominal amount. SES Rosscor was a loss-making noncore business based in the Netherlands.

In January 2019, we sold our Reliability Services business for $85 million in cash, an 11x multiple on 2018 EBITDA. We don't expect tax leakage, and have used all of the net proceeds to pay down debt. These transactions are in line with our strategy to focus on our core severe-service, mission-critical flow control platforms and underscores our commitment to strengthening our balance sheet.

We continue to evaluate the sale of additional noncore assets to simplify the company, strengthen the portfolio and further delever the balance sheet. And finally, we're seeing the results from our focus on innovation and new product development. We launched 24 new products during the year, including 8 in the fourth quarter. These new products span in all 3 of our segments and include the delayed coker isolation valve for refinery applications; a quick-change seat for steam control valves, a critical feature upgrade as we expand into the U.S. market; and a pair of mission-critical pressure relief valves for aircraft fuel tank applications. We expect an accelerated pace of new product introductions in 2019, when we plan to launch more than 35 new products.

Let's turn to Q4 results. We had a strong quarter and finish to the year. Pro forma organic orders grew to $297 million, up 2%. And revenue on a pro forma organic basis grew to $301 million, up 4%.

Pro forma adjusted operating margin improved 320 basis points to 9.1% and adjusted EPS was $0.62, 9% higher than Q4 2017. Operating cash flow came in at $26 million, allowing us to reduce debt by $25 million in the quarter.

Now let me turn the call over to Chadi to discuss the fourth quarter results in more detail before I review the outlook for our end markets.

Thanks, Scott, and good morning, everyone. I'm thrilled to be here at CIRCOR. It's a pleasure to be with you today. At CIRCOR, I saw the opportunity to join a vibrant global company at a transformational point in its growth. CIRCOR has strong brand, a growing international presence, and a management team committed to long-term operational excellence.

My international background, operational experience and focus on cash management dovetail perfectly with CIRCOR's strategic priorities. I like where the company is going and I am looking forward to putting my skills and experience to use in my new role as CFO.

Let's begin by reviewing our segment results starting with Industrial on Slide 6. The Industrial segment reported sales of $121 million, up 2% organically compared with Q4 2017 on a pro forma basis. Excluding the impact of revenue related to a large oil and gas project last year, organic revenue grew 10%. Industrial segment operating margin was 12.2%, up significantly from Q4 2017 and flat sequentially. We are seeing the benefits from volume, pricing, restructuring and integration synergies.

For the first quarter of 2019, we'll see a seasonal dip in revenue from fourth quarter levels, but we expect a similar margin as the ongoing benefits from operational actions offset lower volume. As 2019 progresses, we expect margins to continue to expand as the impact of volume, additional synergies and price increases improve the bottom line. Over the longer term, we continue to expect this business to operate with margins in the mid-teens.

Turn to Slide 7. Energy sales of $117 million increased 8% on a pro forma organic basis. Growth was led by Refinery Valves, which was up over 75%. We also saw organic growth in instrumentation and sampling and engineered valves. Distributed Valves was down year-on-year on lower E&P investment in North America. Energy segment pro forma adjusted operating margin was 8%, down 60 basis points year-on-year but slightly better sequentially.

Looking to Q1, we expect a seasonal dip in revenue with slightly lower operating margin due to lower volume, higher cost as we advance to closure of Oklahoma City, and unfavorable business mix. As the year progresses, we expect to see margins improve due to structural cost reduction and increased price in certain markets. In Distributed Valves specifically, we expect the margin to improve in the back half of 2019 as we fully transition production to Monterrey, and complete delivery of the higher cost inventory out of OKC. Longer-term, we expect the Energy segment to deliver mid-teens margins.

Turning to Slide 8. Aerospace & Defense had sales of $63 million, flat organically compared with pro forma Q4 2017. Recall that Q4 2017 included a retroactive price increase. Excluding the impact of 2017 retroactive price increase, we saw growth in both defense and commercial sales. Aerospace & Defense operating margins were 18%, up 150 basis points from prior year pro forma, and up 290 basis points sequentially. This margin expansion is primarily driven by pricing and restructuring actions as well as favorable sales mix in the quarter.

For Q1, margins will be up versus prior year but will moderate sequentially based on mix and slightly lower volume. We expect continued year-over-year margin improvement throughout 2019 as volume, price, growing production in Morocco and restructuring actions continue to expand the bottom line. Over the longer term, we expect Aerospace & Defense margins to consistently achieve high teens.

Turning to Slide 9 for Q4 selected P&L items. Our adjusted tax rate for the quarter was 14.8%, driven by foreign rate differential and higher R&D tax credits. This reflected a full year rate of 17.5%.

Looking at special items and restructuring charges, we recorded a total pretax charge of $21 million. The largest component of this charge continue to be the noncash acquisition-related amortization expense totaling $14 million. The remainder is made up of $3 million expense related to divestitures, and a $4 million charge related to other restructuring activities, primarily the plant closure of our OKC manufacturing facility. We also wrote off a $10.9 million deferred tax asset related to changes in U.S. tax law.

Net interest expense for the quarter was $13.3 million, up nearly $9 million compared with the prior year. This was largely due to higher debt balances related to the Fluid Handling acquisition. Within other income, we recognized, both realized and unrealized FX losses of $1.3 million or $0.06 per share.

Turn to our debt position on Slide 10. We generated $26 million of operating cash flow in the quarter due in part to improved working capital performance. During the quarter, we spent approximately $6 million on capital expenditures, bringing our full year spend to $23 million. And in Q4, we paid down debt by $25 million.

I will now hand the call to Scott to discuss our outlook.

Thank you, Chadi. Let me give you an overview of the end markets and the drivers that we believe will give us momentum as we move through the balance of 2019.

Please turn to Slide 11. Let's start with Industrial. Orders in Q4 saw a seasonal uptick from Q3, and strong growth versus prior year. We saw a 15% pro forma organic growth in orders. Our European orders grew organically by 14% over prior year, while Americas orders were up over 17%. Demand for both new equipment and aftermarket product remains healthy.

Our general industrial markets, overall, remained solid. We expect our North American pump and valve businesses to continue to benefit from the increasing U.S. Defense spending and ongoing investment in shale oil production. While Europe was strong in Q4, we're starting to see some signs of weakness as we enter 2019.

Commercial Marine. Implementation of the IMO 2020 regulation continues to support growth of our scrubber pumps on large commercial vessels. Offshore supply vessel activity remains very low.

In power, our control valve installed base in Europe is generating stronger than expected orders for aftermarket spare parts.

For Industrial, overall, in the first quarter, we expect slightly lower orders sequentially driven by a seasonal dip in Q1. Versus prior year, orders will be down organically, driven by nonrepeating U.S. Navy and oil and gas project orders in our pump businesses last year. Pricing remains a focus for the business. At mid-year 2018, we raised prices on half the revenue, which will continue to provide lift into 2019. In addition, all product lines will selectively raise prices again in 2019. This pricing action is expected to be completed during Q1 and early Q2. We expect the actions taken in 2019 to have a net impact of 1% to 1.5% across the Industrial portfolio.

Now let's shift to our Energy segment. Overall, Energy orders in Q4 were down 23% on a pro forma organic basis, primarily due to a difficult compare with the robust demand in 2017 in North American up and midstream markets.

In Distributed Valves, U.S. rig count and production remains high, but well completions started to slow in Q4. Orders in Q4 moderated sequentially, especially in the Permian where takeaway capacity have become a constraint. We expect to see similar order levels in the first quarter of 2019. With planned pipeline expansions in the Permian coming online, some capacity constraints will be relieved in the back half of 2019. Effective January 1, we raised prices in this business by 6% on approximately 60% of the revenue.

In Engineered Valves, the story is relatively unchanged from prior quarters. Orders are generally weak, with the Middle East and Europe being our most active markets; competition remains high and pricing remains difficult. We expect this weakness to continue through the first half of this year.

Our Refinery Valve business had another solid orders quarter to finish the full year up 70% compared with prior year. While order timing remains difficult to predict, the overall outlook for this business is positive due to a few key considerations. The IMO 2020 regulatory change and relatively stable oil prices have allowed refiners to commit to capital spending. International market activity is strong with recent awards in the Middle East, and a large number of active projects in Asia and Latin America. This business has a good track record with new products. We recently introduced a coker isolation valve and an FCCU isolation valve. Market activity's building for both products. And finally, we are seeing continued success in building out our installation and aftermarket services business to complement the initial product award.

For Energy overall, after adjusting for the Reliability Services divestiture, we expect orders to be flat sequentially and down from a particularly robust Q1 2018. We expect this level of orders to continue through the first half of the year.

In our Aerospace & Defense segment, we had another solid quarter of orders at $77 million, up 32% year-over-year on a pro forma organic basis. The growth was primarily driven by large Defense orders from the Virginia-class submarine Block V program as well as various missile programs. Our commercial business was also up in the quarter, driven by ongoing narrow-body production rate increases at Boeing and Airbus, aftermarket spares activities and pricing.

Looking forward, strength in our Defense business continues with increasing spend in the U.S. and Europe, driven by the Joint Strike Fighter program, the KC-46 tanker, and the new nuclear-powered ballistic missile submarines in the U.S. and U.K.

In our Defense business, we've developed program partnerships with a number of customers to collaborate from design to production. Most recently, Lockheed Martin selected one of our kinetic switch modules for its high-volume Hellfire missile program. In addition, we recently signed a long-term agreement to supply a variety of high-pressure valve assemblies for the new ballistic missile submarine program in the U.K.

On the commercial side of the business, Boeing and Airbus continue to increase production rates for narrow-body airplanes. We're benefiting from increasing production rates for the A350 and better execution in our aftermarket business. We recently signed a long-term agreement to supply several products for the Airbus A320 family of aircraft. This further increases our content on one of the highest volume production programs in commercial aerospace. Revenues will start in 2019. The products will be produced in our low cost factory in Morocco.

Overall, the market for Aerospace & Defense remains robust. We'll see lumpiness in orders through the year, but we're well positioned in a strong market. For Q1, we expect orders to dip sequentially due to the timing of large Defense orders.

Now I'll give the call over to Chadi to discuss guidance.

Thank you, Scott. Moving to guidance on Slide 12. This guidance range reflect the impact of the sale of both Reliability Services and SES Rosscor as well as an unfavorable FX headwind. Overall, we expect first quarter 2019 revenue in the range of $245 million to $260 million and adjusted EPS in the range of $0.32 to $0.42 per share. The removal of Reliability Services and SES Rosscor account for about $20 million of sales quarterly. We expect an unfavorable FX impact of $8 million to $11 million compared to Q1 2018. Adjusting for divestitures and effects, we expect organic growth in all 3 segments.

In Q1, we expect higher margin year-over-year, driven by the ongoing benefits from pricing, synergy and restructuring actions. In Q1, we expect seasonal negative free cash flow, driven by annual disbursements related to our employee bonus program, insurance premiums and audit fees among other expenses. Starting in Q2, we expect cash flow in line with our run rate in the back half of 2018.

Regarding special and restructuring charges for the first quarter of 2019, we anticipate charges for the following items: acquisition related amortization expense of $0.50 to $0.52 per share; restructuring and special charges are expected to generate a gain of $0.05 to $0.07 per share reflecting an estimated gain on the sale of Reliability Services; we expect the first quarter adjusted tax rate to be approximately 18%.

With that, let me turn back over to Scott.

Thank you, Chadi. To summarize, the majority of our end markets remain healthy and a positive momentum across most of our businesses continues. We are realizing the benefits from new product launches, restructuring programs, integration synergies, manufacturing transitions to low-cost facilities and pricing actions. We are optimistic as we look ahead in 2019. We remain committed to driving long-term growth, expanding margins, generating strong free cash flow and delevering the company.

Now Chadi, Dave and I will be happy to take your questions.

(Operator Instructions) Our first question comes from the line of Jeff Hammond with KeyBanc.

This is Trish Gorman for Jeff Hammond. So on the orders declines within Energy, and the outlook for the first quarter, how much was due to the tough year-over-year comparison? And how much is the function of current and market conditions or oil price volatility? And then just generally, should we expect this business to be down in the first quarter?

So thanks for your question. With respect to the Energy year-over-year, the year-over-year decline is almost exclusively in our Distributed Valves business or the impact on Energy is with Distributed Valves. We had an extraordinary quarter in orders in Q1 -- in Q4 '17 versus Q4 '18. You might remember we had a lot of stocking orders coming in from distributors as they were ramping up to -- ramping up for production in the U.S. So the large stocking orders, of course, didn't repeat here in Q4 '18. So that was the biggest impact. Having said that, we did see orders moderate from Q3 to Q4 as the industry in general is starting to hold back a little bit with constraints -- takeaway constraints in the Permian. And just in general, lower E&P spend as we exit 2018. So the biggest impact was clearly the extraordinary Q4 2017 with all the stocking orders that came in.

Okay, great. And so has your fundamental outlook on the Energy market changed at all? Like do you still see room for recovery from here?

Sure. So what I would say is that as we look forward for Energy -- we'll just start with Distributed Valves. We expect orders more or less in line with what we saw in Q4 as we progressed here through Q1. Same situation with EV, as I mentioned in the prepared remarks, we're seeing orders. While we did see organic growth in Q4, it's off a very small base. We're expecting orders more or less in line with Q4 as we're into Q1. Ongoing strength in Refinery Valves, so orders strength expected to continue. And no real change in trajectory in instrumentation and sampling. So as we look at Q1, more or less in line with what we said in the prepared remarks. As we look forward, I would expect to see orders in line with where we are in Q1 as we go into Q2 with an improvement as we exit the year. So we expect the takeaway capacity in DV to -- some of the constraints will go away this summer in the Permian. And we expect to see more spend and more sales as we get into the back half of the year in DV.

Okay, great. That's helpful. And then just one last quick one. Maybe looking at the full year, kind of, any goal for debt leverage by the end of the year or interest expense?

Sure. So I just got a couple of comments on that. So we -- I'll answer it in 2 pieces. So if you think about the leverage that we have today and you exclude any potential asset sales or divestitures, we expect to reduce our leverage by 1 turn between end of '18 and end of '19. Having said that, as I mentioned in the prepared remarks, we do have revenue that we consider noncore. So it's relatively undifferentiated product. It's not selling into a severe service or mission-critical types of applications. And so we do still have revenue that we're looking at as potential divestitures to further simplify the company, clean up the portfolio, if you will, and accelerate the delevering process. So organically, we expect to reduce by one turn. But that could be accelerated if we end up divesting another noncore asset this year.

Our next question comes from the line of Charley Brady with SunTrust.

I just wanted to talk about -- on the margin progression in Energy with the facility move and Monterrey, sort of, continuing to ramp -- kind of, just to position that with, kind of, where the DV business looks, at least, in the first half. Kind of, give us a sense maybe, how that margin progression and, kind of, what the step up would be, once you're exiting that facility? And then, kind of, just all in at Monterrey?

Sure. A couple of things on this. So I'll start with specifically answering your question. So if you look at Q4 margins, we're estimating roughly $3 million of expense associated with inefficiencies in OKC. We anticipate closing Oklahoma City, stopping all production in April of this year. I don't anticipate these inefficiencies are going to change in Q1. So you should expect about the same run rate of inefficiencies there. As mentioned on the prepared remarks, we will have some high-cost inventory that we need to flush through the system after we close OKC. So that will take a little bit of time. But as you look at the back half, you should expect to see about $4 million of cost savings associated with the closure of OKC that would flow through Q3 and Q4.

Great, okay. That's really helpful. And just on Aerospace Defense, could you just talk about potential -- additional contracts awarded as with Airbus -- particularly in Airbus as you look into, kind of, 2020 maybe, are there potential contracts you can increase your content further on the airframes you're on now or new airframes?

Yes, in fact we just did. In fact, we just won several new products with one of the tier 1 suppliers to Airbus for production out of our Morocco facility. So we're obviously taking a product from a competitor and they're being replaced with us. And so that's essentially how it works. So we just signed a contract with this tier 1. It will be about $4 million annually. Production will start in 2019 out of Morocco. It ends up saving our customer money and ends up being a nice margin for us out of our Morocco facility. And we continue to bid on business like this for narrow-body programs. So yes, there is opportunity on these existing platforms, but we're also winning business on new platforms, particularly, in Defense right now.

It's helpful. Just one more for me then. Can you talk about your expectation for CapEx in 2019?

Sure. We spent about $23 million in 2018, which is more or less in line with our depreciation. You should not expect a material change in 2019. We'll spend roughly in line with depreciation, so in that $25 million range. You'll probably see a shift in the way we spend it. We're continuing to change the way we spend capital away from heavy equipment, machining types of operations and more towards IT infrastructure and those kinds of growth initiatives around with IT. So a bit of a change in the way we spend it, but the absolute value of CapEx will be about the same, roughly in line with depreciation in 2019.

Our next question comes from the line of Alan Fleming with Citi.

Scott, maybe can you dig in a little bit more on the commentary on Europe and China? I know you saw a good growth in Industrial this quarter but you're signaling some early signs of softness, which isn't all that surprising given a lot of other commentary we've heard across the Industrial space. So how much of the weakness do you think in China is related to U.S.-China trade relations and the tension there? And what exactly are you seeing in Europe? And do you worry that both of those markets maybe get worse before they get better in 2019?

So yes, we were -- maybe we'd say it a little bit differently. When I say early signs of weakness, we started the year weaker than we expected. So in Q4, we saw broad-based strength in Europe across most end markets that we call general industrial. We -- so as we start the year, the run rate is a little bit lower than we expected. So we are seeing early signs. I think it's too early for me to say that this was going to be through the whole year or whether this is a dip. But we're certainly seeing a weaker start to the year than what we were seeing in Q4. With respect to China, we are seeing a little weakness in China, but the majority of our revenue in China is driven by commercial marine. And we are seeing some strength there driven by the scrubber pumps commentary that I mentioned in the prepared remarks. So China, I wouldn't expect to have as much of an impact on us in Q1 and early this year. But certainly, Europe will be more of a concern on the Industrial side.

Okay, helpful. Let me switch to the Engineered Valves business. Because we are starting to see some large FIDs on projects in the LNG space, as an example. So how's your team thinking about that? Are those FIDs generally in line or maybe slightly ahead of what the expectations have been? And when would you expect to see a bigger order upturn in that business as more large energy projects get sanctioned?

So we -- right now, when we look out, we have pretty good visibility in the first half. And we mentioned we did see some organic growth in Q4 and we're expecting orders more or less in line with that run rate as we look at Q1. We have decent visibility through Q2 and I wouldn't expect any kind of inflection point before the middle of the year. As we look at the back half, we're more optimistic there. As I mentioned, the activity -- there's still a decent amount of activity in the Middle East and in Europe and the North Sea that we're involved in, but we wouldn't expect any kind of inflection before Q3.

Okay, and maybe one for Chadi. I mean working capital did come down into that 20% to 25% range, which had been the long-term goal for the business. Chadi, when you -- you're starting to dig in here, but do you think this is a new sustainable level of working capital for CIRCOR, given the progress that's been made with the relatively new cash management office? And maybe your confidence level that you can continue to even make more working capital improvements?

Sure, Alan. Thank you for the question. So as I said in my prepared remarks, we reduced working capital from 32% to 24%. This is in line with what we guided as our goal. However, we continue to see opportunities to further reduce our inventory levels and increase its velocity as well as focusing further on receivable collection. So when I look at it from that angle, I for sure see opportunities to continue reducing working capital.

(Operator Instructions) Our next question comes from the line of Brett Kearney with Gabelli & Company.

It's great to see some of the new products you've launched gaining traction. I was just wondering to the extent you can discuss any launches you're excited about for this year? Or particular segments where those new product launches are focused on?

Sure. We have -- I'd say that the areas that are generating the most interest here are in the Aerospace & Defense group and in our Refinery Valves group. So I've mentioned the isolation valves that we recently launched in Refinery Valves. Both of those products are very innovative, very different and solve big problems in the applications where we're selling them. So we're seeing a lot of interest in both products. We have orders for the delayed coker isolation valve of about $2.5 million in the fourth quarter. And so we're expecting that to ramp up as we progress into this year. When I look at Aerospace & Defense, most of the innovation that we're doing there is in combination with our customer. So we'll win a program before the design is complete and design it with the customer. And we've got a number of interesting products that we're working on for Aerospace & Defense. One in particular is -- or actually there's several on these -- on the new nuclear submarine programs that are in development in both the U.K. and in the U.S. that we're pretty excited about.

Our next question is a follow-up question from Charley Brady with SunTrust.

Yes, just a quick one on the tax rate. You [said] 18% for Q1. Is that, kind of, long-term rate we ought to be assuming going forward?

Yes, Charley. Thanks for the question, this is Dave. 18% is what we see for the foreseeable future.

For 2019.

2019, yes.

And I guess another one real quick. On the depreciation, with the sale of Reliability Services, does that impact the D&A number of -- in '19 at all meaningfully?

Slightly. Probably about $1 million.

The next question is a follow-up question from Jeff Hammond (sic) [Patricia Gorman] with KeyBanc.

Just a follow up on the Fluid Handling integration, any updated expectations on incremental savings in 2019 and, kind of, cadence for that?

Sure. So we have finalized the results for 2018, and we came in at $8 million of savings on the integration. The outlook for 2019 is $7 million of incremental savings related to the integration. The nature of the savings has changed a bit. A lot of the savings in the first year came from overhead and SG&A reductions. And now as we look into 2019, we're seeing a bigger share of the savings come from sourcing -- the sourcing savings that were initiated last year, we are seeing the savings come through in 2019.

Okay, great. And then just back on Energy. Given the orders and some of the year-over-year [comparisons], can we expect growth out of that business in general within your first quarter guidance? Or just on the revenue side, what should we expect?

So in the Energy overall, for the [VPY] for Energy in Q1, we do expect to be positive on revenue, but we expect -- I just want to caution, the orders will be more or less in line with what you saw in Q4, but revenue should grow year-over-year in Q1.

Our next question is a follow-up question from Alan Fleming with Citi.

Scott, maybe just help calibrate expectations here. Do you think that you can execute another sale of noncore assets in 2019? I know you kind of mentioned it and what your organic deleveraging target is, but what is the -- what should the expectation be here for continuing to simplify the portfolio in 2019?

So it's harder to get out ahead of this kind of thing. As you know, we can't talk in too much detail about what we might be considering here. But let me frame it for you a little bit and give you some context. When we look at CIRCOR overall, and we think about what might be noncore revenue that could be considered, noncore being undifferentiated technology, not mission-critical, not severe service, limited growth potential. Roughly 20% of our revenue today we would consider as noncore revenue. Not all of that would be salable, meaning that this wouldn't necessarily be a good time to maximize value and to sell the asset to delever, but some of that would be. And for the revenue that we think is -- we could sell at a fair price and make it make sense for shareholders, we would move forward with that this year. So if the question is around capacity, to get -- capacity to get it done this year, we certainly would have the capacity to do another divestiture this year.

We have reached the end of the question-and-answer session. And with that, the conclusion of today's call. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.