IDEX Corporation (IEX) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Baird's conference call with IDEX Corporation. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the conference call over to Mike Halloran, Baird's senior research analyst. Sir, please go ahead.

Thanks, Jamie. Good morning, everyone. My name's Mike Halloran, an industrial analyst here with Baird, and we are pleased to welcome the IDEX team to offer some insights into what is a rapidly changing landscape today. So joining us from IDEX are Andy Silvernail, Chairman and CEO; and Bill Grogan, CFO. Thanks again for your time, gentlemen. So a few items before we turn the call over to Andy for opening remarks. First, both the IDEX team, myself and Baird, we hope everyone's safe and managing through the pandemic well. We're in the midst of obviously very turbulent and unprecedented times, so anything we can do to help, please let us know. Second, from a format perspective, we will hold a conversational Q&A session following Andy's prepared remarks, but there will definitely be time for listeners to ask any questions at the end by pressing star one. For those who prefer not to ask live questions, just e-mail me at M-H-A-L-L-O-R-A-N at rwbaird.com, [email protected], and I'll make sure I incorporate the questions. Then you would have already sent questions, and those will be incorporated in the flow of the questions today. Lastly, obviously, this is a very fluid situation with significant uncertainty ahead. Toward that end, this will be a qualitative not a quantitative conversation. I actually will not be providing any specific numbers or updates on the impact of coronavirus which I think we can all respect. With that, the floor is yours, Andy. Appreciate it.

Thanks, Mike. I appreciate it. Hey, everyone, just before I get started here, to make sure we're keeping the corporate lawyers happy, I just want to say that the call may contain forward-looking statements that are subject to the safe harbor language that we had in the press release last night and our filings with the SEC. So with that, Mike, what I thought I'd do here is open up with some context. And what I mean by that is the context of which we are operating and we are planning to operate here, call it, over the next 6 to 12 months as we go forward. Then what I'm going to do is I'm going to jump into how we are approaching the situation in terms of our priorities and how we're going about running the business. So I'll touch on those things. And then, Mike, I'll turn it back to you for any questions. And as Mike said, Bill Grogan, our CFO, is on the phone, too. And -- but we are in separate locations, obviously. And Bill will be prepared to answer any other questions that come up that I may not have the answer to. So in terms of context, our context that we are working in is that we believe that everything is going to be like Italy. So as we move forward, if you think about the major population centers of the world, and this pandemic is moving from really globally at an expedited pace, we think that things are going to feel and act like Italy. So what that means to us is that we are -- I believe that there will be national shutdowns throughout most of the world over time. There'll be rolling shutdowns of facility for exposure and post quarantines, absenteeism, cleaning. You're just going to -- we're going to be living with this for quite some time. And while I know that we won't be right, you do have to pick an operating envelope with what you're working in. And to give you some sense of how we're thinking about that operating envelope is we think there's 3 to 6 months where we're dealing with these realities that are going to dramatically impact our business. So in terms of demand and supply, access to people, we think there's a 3- to 6-month period where that is looked at a really heightened level. It was 6 to 12 months, I think we're living with COVID-19. So if you look at what's going on in China right now, they're a terrific barometer for where I think things are going to be eventually, although albeit getting there slower because we don't have the same abilities to clamp down on population, et cetera, in most of the western world. So I think we'll be living and working with COVID-19 here once things get under control. And then I think you're -- probably 12 to 18 months, any semblance of normality. And what I mean by that is around people, safety and business starting to return to a more normal state. So that's the context that we're working on and we're planning in. And now let me talk about our approach to this. We have -- I'm sure, like everybody, we very early on put a COVID-19 preparedness and response team in place that's led by Eric Ashleman, who is our COO and President. That team meets twice daily. Actually, I would have normally been on that call here. They're actually meeting right now. We meet in the mornings and then again in the afternoon, and we're really working through learnings, decision-making and dissemination across the company. So that team is a cross-functional team that touches really all aspects of IDEX. And so far, they have worked very, very hard to move quickly in these situations and I think were incredibly helpful in terms of getting our businesses back in China up and running. Our major facility in China in Suzhou is now running with about 90% of our people. And so we have seen our ability to get back and get running pretty quickly. So in terms of our 4 priorities that we are focused on, before I turn it over to Mike. So number one, as Mike opened up the call with, it's all about safety, so physical, emotional, financial safety for our people and our stakeholders across the company. We have had 2 cases of the virus in Europe. Both places were shut down for cleaning and then back up and operational with some people quarantined. And we do have -- we have 1 business in Italy, a relatively small business that is shut down really for absenteeism. Across our businesses, across our sites, we are following the CDC and the expert protocols in terms of best practices, and we're rapidly learning how to work in a world where this is the new reality for some period of time. The second priority is business continuity. And so every one of our sites has a business continuity plan that walks through leadership hierarchy, that walks through the dos and the don'ts and very importantly, we put together -- we've learned very quickly from our experience in China. We have put together a field manual for operating in a COVID-19 world and looking at things like limited operation, ramp up, ramp down. And we believe we'll be in that rolling way in many ways across our sites. And so we're very focused on business continuity in that way. We do believe that north of 30% of our product is absolutely mission-critical in terms of fighting and dealing with the subsequent issues from COVID-19 and probably more than 50% of our product lines are put into the important category. And so as we think about business continuity, obviously, it's for the sake of our shareholders and our people and their livelihoods but also the reality is IDEX is on the front line of this fight in many, many product categories, whether it's directly in health or in the food chain. We are -- we play a pretty critical role here in a number of places. Our third priority is liquidity and to make sure that regardless of what happens here at IDEX, we are in business, and we will thrive and -- I guess, survive and then thrive. And just to give you a little bit of context here. We think that our breakeven point -- in our old run rate, the 2019 run rate, not touching any cost, our breakeven point was basically revenue down kind of 30% to 35%. We have quickly acted. We think that, that new breakeven point is probably closer to 45%. And if things got really dramatic and we got to the point where we had to go further, we can get to a breakeven point where revenue is down up to 50%. And with that, we have over $1 billion of liquidity today. So as we sit today, cash on hand, access to our revolver, et cetera, we have over $1 billion of liquidity. So we've got the firepower here to work through this and to get to the other side and then really prepare ourselves to thrive. And that's our last priority, which is really pivoting to offense. And when I think of that, I mean that very respectfully, but what I mean by that is, number one, we got to make sure that these mission-critical products are front and center. They're getting to people, they're getting the investment, that we can get products out into the population that are going to help with this fight. And so across our businesses, we are making that pivot aggressively today. Second, there probably will be acquisitions at some point. The M&A market is pretty frozen right now. But I think there will be moments in time where some things that are important to the long-term strategy for IDEX, where we can be helpful to somebody who's probably going to face some liquidity issues, there may be some opportunities there, and we'll certainly keep our eyes open. And then finally, buybacks when appropriate. And that appropriateness is going to come down to, first, the question of where do things sit from a liquidity standpoint; second, it's very likely the government is going to have a say here on buybacks. But where it's appropriate, we certainly will be in the game. And I think you saw that we announced our Board approved $500 million of incremental buybacks that we'll have for dry powder into the future. So those are our 4 priorities. So with that Mike, let me pause there. I'll turn it back to you for questions. And we can open it up to the group.

Great. Appreciate it, Andy. A lot of meat there. So why don't we start in on -- almost take them in the order of the priorities you were talking about. So obviously, safety of the company is paramount, and so it's good to hear everyone's in a good spot there. But maybe some thoughts on how you're going to be then managing the supply chain and the network to manage what is going to be kind of a wave of different outages and closures that you're going to have to see on a global basis.

Yes. I think, Mike, that's important, the -- I think when things first started and people were trying to get their heads around it, everybody was focused on their -- what's happening inside my 4 walls. And that's critically important. Don't get me wrong, you've got to get that first. But very quickly, the entire flow of business is being disrupted, whether it is supply chain itself, how things flow into your factories, how they flow through the factories. As an example, U-shaped manufacturing, which is most of the manufacturing world, or your cellular-based manufacturing, it's pretty hard to do that in a world where people need to be 6 feet apart. And so you're having to reconfigure how you manufacture in many places, especially around assembly and tests. And then, of course, working with your customers to plan through. So even when business is going pretty well, that's a complex equation. And we will be wrestling with faulty supply chain coming in, managing our own workforce and workflow and then certainly with our customers. I think on the customer side, it's pretty hard to understand right now exactly how deep this will be. And I won't try to quantify it, except to say that we expect it to be pretty painful here and we're preparing for, over a 3- to 6-month period, a pretty rapid drop. We haven't seen it yet, as a matter of fact. If anything, we've seen these really interesting blips in demand, a thing that we haven't seen in forever. And -- but that being said, it will certainly -- we see the cliff. And so managing all the way through that supply chain is going to be critical. We are pretty fortunate that most of our supply chain is local for local. However, as you know, it only takes one piece that's not. And so if you have something coming out of Manila or the Philippines or -- those are 2 places that, in particular, are challenged right now, it's going to roll across the world. And so we're trying to rapidly move supply chain closer where it's not already and leverage our strength of having a pretty close supply chain generally around the world.

And how much flexibility do you think you have to be able to manage moving products, the -- particularly the mission-critical product, the manufacturing flows from region to region, facility to facility at this point?

That's pretty hard, to be honest with you. As you know, the strength of IDEX has always been our diversity and the fact that it is a distributed network. So in this environment, it's actually -- for the total enterprise, we are set up in a great way for -- to be more secure in this kind of environment, right, because we're not going to have a singular plant go down that sets the whole company down. That's just not the way we are distributed and constructed. So in some ways, that actually is a natural barrier to some of those issues. The flip side of that is it's not easy to pick up product that you manufacture in Gast in Michigan and move it to Richter in Kempen, Germany. The flows and the manufacturing processes are pretty darn different along with the standard work. It can be done, don't get me wrong. It can be done. And there are some places -- there are some businesses of ours that we are going to have to quickly build redundancy because they do sit in the absolute mission-critical elements of what's going on in the world, and I'm thinking about analytical instrumentation, in particular, around DNA sequencing, testing. We play importantly in those things and so we do need to, as fast as we can, figure out a level of redundancy that we don't have in some places.

So how do you manage the inventory levels in that situation? Obviously, weaker environment, lower demand levels, typically, there's a working capital offset. But in an environment where access to supply chain might become a little bit more limited, are you thinking how you would normally have that -- run that playbook?

We are -- and let me talk about that in the context, Mike, of working capital more generally. As you think about AP and AR, the biggest thing, the first priority is don't become the bank, right? And that can happen pretty easily as your suppliers start to stretch you and if you don't stretch the other way. So you're not necessarily going to create a lot of cash flow between AP and AR because everybody's kind of pulling on the same levers. I think the key to it is you don't become the bank in there. And then that gets you to inventory, which is your specific question. So we have demonstrated over time our ability to manage inventory pretty aggressively as volumes change. And we'll do the same. But there will be things that are more mission-critical that do go to our most important customers where we will build some strategic inventory. In total, as revenue comes down, we will throw off meaningful cash via the working capital in total.

Makes sense. And then maybe some thoughts on what your customers are saying right now, what your suppliers are saying, how you're seeing them react. Is the pace at which they're responding similar to what you're doing? Or is there a lot of education you're having to push through your channels at this point?

I would say that the vast majority of the world was behind and is just -- kind of just now -- I mean the world that we're playing in is it went from, "Okay, this whole thing in China is a nuisance," to, "Holy cow, I can't get supply," to, "Wait a second, this is going to shut my factories down." And I think we're in the phase of people starting to face reality and therefore act upon it. And that's what you're starting to see. I think in general, when I opened up my comments and I said, I think most of the world is like Italy because I think most of the world has treated this like Italy did, which was frankly, head in the sand for too long. And so I think we're probably 2 to 4 weeks ahead of where we see most of the customer base and the supply base. But we'll certainly get there. And we will do everything we can to share our learnings and hopefully be productive. We -- the footing that everyone's on is really shaky. So you talk to your customers, what they'll say is actually their business is pretty good right now. And part of that is, I think people are trying to order ahead. People are trying to guess at what some of these mission-critical things are going to be and you've got some stuff popping up relative to some of the specialty products that are going to be used in a lot of mission-critical applications. And -- but I think people are wrestling with putting a finger on how far, how fast. And then also, people -- everyone is thinking about what happens on the backside of this because the last thing I want to do is let go of a whole bunch of people who I'm going to need in 6 months. And everyone has been used to a world where it's been very hard to hire skilled labor and skill in general. And so people are really trying to balance those 2 things. So you're balancing safety, you're balancing business continuity, you're balancing liquidity and the future. And so those 4 buckets, they really do interact with each other very tightly.

Makes a lot of sense. So I've gotten a lot of questions on some of the prepared remarks, and so I'm going to leave some of those in here. The context you gave that breakeven point has shifted to 45% and dramatically, if it gets to that point, up 50%. Now were you thinking about that more on a quarter-to-quarter basis? Or were you thinking about more of that on an annualized basis? Obviously, 2Q is going to be the crux of the headwind here. Might extend to 3Q, we don't know.

Hard to tell.

But how are you thinking that -- it's just hard to tell, right? And so how are you thinking about that more insularly in the short term versus the medium term?

I'll have Bill chime in here in a second. But generally, there isn't a lot of difference just because our -- we don't tend to have a huge swing quarter-to-quarter. In terms of how revenue lands. And there is some swing, as you know, Mike, but it's not huge. And so where you're going to have some differences is where you have payments that you have to make, whether it's in some large -- like a tax payment or something like that or an MICP payment like we did back a month ago. Those kinds of things are what's going to determine what happens in cash. But generally, what you'd see in a year, you generally see quarter-to-quarter. Bill, do you want to add to that?

Yes. No, I think that's exactly right. Obviously, our cost structure doesn't fluctuate significantly through the 4 quarters. I think in the short term, we'll probably be able to do some things on a variable basis, make stops on some things that you might have to add back if it extended for -- in 6 to 12 months in small increments. So we can get pretty deep pretty quickly on the cost outs for a 3-month time period. As you said, Q2 probably looks like it's going to be the worst hit, and we've got actions in place to really reduce that breakeven here over the next couple of months.

So you touched on it briefly in one of your remarks, Andy, but why do you think that we haven't seen the cliff yet? Is it just timing? Is it the pace of reaction? I've got a couple of people who've asked this question. And then dovetailing that into how are you thinking about this from a recessionary perspective? I mean, do you think this is an industrial recession that we're moving into? And how can you band it in terms of history? Any context? Really hard to do, obviously, but...

Yes, I'll do my best. And let me combine -- Mike, that question in my mind brings an intersection of different things. So it's -- one is, let's just look at the math. So what's happened around the world and just what the math tells you. Second would be our experiences that we have had at different times. I was a brand-new general manager when 9/11 happened. I just joined IDEX as the world was falling apart from the financial crisis. And so we've seen difficult moments. There's no doubt about that. I think this is unique. But I think you can actually combine what we've seen around the world, what the math tells you and our experience to draw a picture. And so I'll do my very best with that, knowing that, of course, this is not going to be perfect. If you will, let's start with what we've seen around the world. So we've got major operations in China. The first month that this was ignored, it exploded like crazy, right? So basically, what you've seen in Italy, what you're now seeing in the United States is what China experienced in December, January. And it was moving rapidly and unabated until the Chinese government clamped it down, and it's still taken 60 days, basically 60 days from the clampdown to get to where you don't have a rising population anymore, right? So they've got it under control, they're now working at it. I think the concept of a second phase, historically, that's what people have seen, we should expect that to happen. But you saw that in China. And then literally the exact same thing happened in Italy. So Northern Italy became their Wuhan. They didn't move fast enough. They didn't take it seriously enough. And then literally -- so Monday will be 4 weeks to the day when that announcement came out that, hey, we have a small problem here in Northern Italy. And it's still growing rapidly. So now apply that to the United States, you'd say that the U.S. is at least a month behind that and doesn't -- at least has not shown the tools yet of really pulling down, taking the actions across the country or in other countries that China and South Korea have done. And then I think you then look at what the governor of California said, and his math is right. If you look at the rate of spread, without it being seriously slowed down, you get -- by the end of May, you get more than half the population is -- has been infected. And so when you kind of put all that together, it's hard to see how you don't end up at the earliest in the middle of the summer before this has, I'm going to call it, peaked. And so that's how we're driving our -- and this assumes, by the way, that some control does get put into place here. And we are starting to see that much more rapidly, and I think we will. So that's how I get to a later date than a lot of people are talking about. And I think one of the things that we're all struggling with is we all struggle with exponentials. It's hard to get your head around something that literally is going to grow fivefold in 7 days. It's hard to imagine that impact. And I think that's why you go to bed at night, and you think, wow, I moved fast, I've done a lot. You wake up the next morning and you realize you didn't move fast enough and haven't done enough. And I think that's the world we're going to be in until we get some level of peak.

And so is the thought process that when you guys are using your internal scenario analysis, is it just to take -- and I know China historically hasn't been the most representative business for you because you have such a niche, I think, applications there. But is it take the cadence of the drawdown that you saw in China during those months and, to a lesser extent, what you've seen in Italy and just apply that a little bit more broadly through the organization as a starting point?

Yes, I think that the lessons from China are really important because -- and you got to take out the state impacted stuff because those tools just aren't in place. But our Chinese operation is, by far, our most complex operation around the world because we're building a lot of different product lines in China. And so from that perspective, I think it's a great example of how you can run a high-mix, low-volume facility, ramp it down, ramp it up, work in a limited operation as necessary. I think that's a -- it's a great example, and we're building off that quickly. We took -- we actually built their playbook -- they built a playbook. We've taken that. We've augmented it for our western operations and we got it out, we got it distributed and we're starting to train all of our leaders on those methodologies.

That makes a lot of sense. So from a product perspective, you certainly mentioned 30% truly mission-critical and as much as 50% maybe falls in that bucket. Maybe just can you describe some of the products that fit in there, exposure points and how IDEX is helping push through this?

Yes. So I'll give you the easy ones first, and then we can talk about some ones that are a little more nuanced. So the easy ones fit in health and science. As an example, we are squarely in the mix around sequencing. So DNA sequencing, RNA sequencing. And we play a really critical role in there as a supplier to that industry. So that's one that is -- as you can imagine, there's a ton of work going on there to try to figure out exactly what this virus is and how quickly you can attack it. And then as you look at the IVD industry in terms of testing a lot of that equipment, we're selling fluidic and optical systems into those worlds where testing has been ramping up pretty rapidly. And then -- so those are kind of the easy ones. Then you get into things like our Gast business. So if you look at compression, we got this -- it was an interesting order we got from something we never would have even thought about before, which was mobile cleansing carts that need pneumatics. And so last week, we got a sizable order for that. We haven't seen that in forever. And then you start working into things like the food chain. So you could talk Banjo as an example. You could look at our microfluidics business. Pharmaceuticals, we obviously play a major role in. So if you look across the portfolio, we touch a lot of things that go from being absolutely mission-critical to being pretty important. And even in a world where we're all living with COVID-19 are going to be important for people to have even some semblance of normal life.

No. That makes a lot of sense. So then when you think about then the flip side of that, maybe what some of the exposures that you're most concerned about from a portfolio perspective at this point.

Yes. And in some ways, right, you're going to -- it's going to feel a lot and seem a lot like the oil crunch in 2015, 2016, I think, where you've got some things that are more cyclically exposed, where investment is going to clamp off aggressively. And you're going to get a lot of exposure. So obviously, things at oil and gas related to this, related to the other global geopolitical issues, I suspect those will get -- those will be hammered. Things that have bigger ticket items where people can delay building new plants, so I'm thinking about the chemical industry. And if -- the chemical is going to go 2 ways, so there are parts of chemical that are going to be absolutely mission-critical and then there are going to be things that are less critical. And so I think that's going to bifurcate. Obviously, things going into automotive are going to get hammered and I think those things will be challenged. So things that have -- require big investment or tickets related to the ultimate consumer or the person putting up the capital, I think, are really going to get pounded here for a period of time as people think about liquidity, right? So liquidity is going to become the most valuable thing out there for people, certainly after safety. And so things that pull on liquidity in a negative way are going to get hammered.

That all makes sense. What -- so at a high level, what are you looking for from a government response perspective. Probably a little less on the safety side, maybe a little bit more on the liquidity, the financing packages and any of these incentive programs you're trying to put forward to help out small businesses, restaurants, stuff like that.

Yes, I think you've got to think of this from 2 perspectives. One is what do you do to make sure businesses don't collapse with a dearth of demand, which is just going to be out there because of -- the spending patterns are going to be so dramatically impacted across the globe, that there isn't going to be -- there's just going to be a massive dearth of demand. And so there's some support you've got to give to make sure people aren't going unnecessarily bankrupt. And so I think some of the things that are being talked about in terms of no-interest loans. I thought the Andrew Ross Sorkin thing from the other day was quite good, the idea of effectively no-interest loans for businesses who don't do mass layoffs. I think something like that would be -- would help dramatically on that first footing for people like our suppliers and a number of our customers who don't have our balance sheet. They're going to need something like that just so they don't have to lay everybody off. Otherwise, the numbers that are being talked about in terms of layoffs, those could be pretty conservative. So I think that's one side. And then you've got that demand side, which is going to be, I think, harder to stimulate in this environment. But I do think that you absolutely do want to stimulate it. And putting money in people's pockets where they can spend it, will probably be pretty darn important. But let's just make sure we're not flushing it.

Do you get a sense that business leaders are pretty aggressive at this point, pushing this agenda through Washington because...

I do.

Some of the numbers you're talking about, if it's summer, I mean, that's a pretty staggering amount of jobs that could be lost without a little assistance.

It's -- these are big numbers. And this is outside of my pay grade. But the $1 billion -- $1 trillion or so that's being talked about, seems to me like that's going to be the tip of the iceberg.

Yes. So before we switch to the liquidity side, one more question that I got in my inbox. How did you get at the breakeven point? Could you just run that in your head behind how you guys got to the 45% and as much as the 50%?

Yes, I'll let Bill talk in some more detail. It's actually not that hard, right? So you've got -- you get a whole bunch of fixed costs that are around people. So you're assuming you're not firing anybody or certainly in any significant way. There's a cost basis there. And then there's a whole bunch of things that I'm going to call it semi-fixed within an environment like this, you can take the -- take the -- if it's not semi, it's -- you can move it, it's variable. And so you're looking at kind of all the nonessential spend around there, how much of that can come out really quickly. And then you're looking through the basics of a variable that's going to come out automatically. So Bill, I'll let you talk in some more detail if you want to.

Yes. No, I think you hit the highlights. Obviously, we've got a good view of our P&L, what is truly variable, if things are -- people don't like the term semi variable, but there are costs that half of it is needed, half of it tend to be reduced and what our fixed basis is. And we looked at things we wanted to do relative to employee retention. Out to '20, you want to get on some of the expenses, you have to make some tough calls and work your way through the P&L on things that we felt comfortable or were easily actionable and could be flipped on or off at very high rates to react to these major fluctuations in volume. So obviously, we took into consideration funding our dividend and CapEx too, with CapEx being the one lever, obviously, you can throttle down a lot in the short term as maybe the last piece.

Yes.

If this gets really dire, what are the levers you can pull to maintain as much employment as possible. I mean, is this the type of thing where you can reduce hours, reduce the amount of salary or hourly wages and try to spread the pain a little bit more broadly? What are you guys thinking about internally to help manage through that?

Yes. So I think, Mike, one little piece that you said in there is something that's really critical to us which is we are trying to -- maintaining our quality workforce, we are working very hard to do that. And just to be candid to everybody on the phone, we will do that in the short-term at some expense, meaning we will eat it because, on the backside, you're deeply desperately going to need those people. And so when you go back in time and you look at when people have done mass layoffs, and you actually look at it from a cash breakeven standpoint, and what I mean by that is that the cash and the effort it took you to remove those people versus the actual benefits you got before you started hiring them back, frankly, guys, it's -- the math is terrible. Even '08, '09, you're talking by 2010, you're back to the levels that you were before, and you're hiring back all those people you fired. Now different situation because it really was an existential -- people had no idea what that bottom was. One of the things that feels very different here is it does -- you can see a future. Even if you have to work with COVID, and we've seen the example out of China where that -- we will get back to work. And so it's not like this is a forever thing where there's an endless black hole. And one would assume that there's going to be a vaccine found here in a year or so. So you don't -- it's not like this endless hole, so maintaining high-quality employment is really important to us. And that -- I mentioned it when I talked about safety, financial safety, and that's financial safety for our people. Now that being said, we're not going to go below our breakeven point, right, at least not for a long period of time. And so if the world gets to there, we will obviously have to take secondary actions. And I think my preference would start -- would be things like some kind of furlough where you have people work part time and get part pay. But it's also I think very thoughtful about what that means because if the median person at IDEX makes about $65,000 a year. They can't take much of a haircut before they can't pay their bills. And so now you're kind of wrestling with what's actually the best thing for everybody. And so our goal was maintain employment as long as we are above that breakeven point and be ready to come out of this thing ready to crank.

So switching gears to the liquidity side. First question, have you guys done any draws on the liquidity as you sit here today just from a conservative perspective to make sure you're covered?

Bill, do you want to chat about that?

Nothing material as of now. I think we've got great relationships with our lead banks and feel comfortable with our position and access to funds. Obviously, we're working with them on a daily basis to make sure that the capital that they have committed to provide is there. But we haven't got out and drawn full balance on our revolver just as a safety thing. We want to have some responsibility relative to the market conditions to make sure that we're not contributing to the current problem. On the same side, we're not going to be standing up holding the bag without access to those facilities, too. So active conversations, continually monitoring with great partnership and great credit across those facilities that we're relying on.

And the $1 billion number that you mentioned from a liquidity perspective, Andy or Bill, that's cash on hand plus revolver, does not probably include any incremental levering beyond the revolver? Or is that an incorrect assumption?

No. Yes, that's cash on hand and at full revolver capacity.

Okay. And so then how do you balance the liquidity that we just talked about, and the idea that 2Q, in particular, could be a real crunch? How do you balance that with the investments that you guys historically made on R&D and CapEx with the buyback that is on the table and could be particularly attractive in the short term and the M&A landscape over time, right? How are you thinking about balancing all those things in the shorter term?

Well, I think as you think about all this stuff, again, let's just make the assumption that we're doing everything we can on the safety front. And we're not going to -- there's just no reason that we're going to scamp on that. And then what you're balancing there is between liquidity and playing offense. That's the way I would kind of put it, right? Business continuity is going to come -- a close second to the safety side. And so when I think about liquidity, we are not going to put ourselves in a position where we become illiquid, right? There's absolutely no -- for a company like IDEX that has our balance sheet, our cash flow dynamics, our access to capital, we're not going to put ourselves in a position where, for short-term thinking, we risk the company. That's just not going to happen. That being said, we've got a lot of room between here and there. And so as I think about the investments in our core business, you still -- there are still investments we need to make. We are going to throttle back on some things just so we're sensible in this environment until we get a sense of how deep this is going to be. So we are certainly slowing some things down. But we're going to push investment towards those things that we think are mission-critical and have the ability to continue to grow and contribute to it positively in this environment, so we'll do that. And as you think about buybacks, we're using the exact same methodology, Mike, we've always used, which is what do we believe the intrinsic value is over time. And then we have bought back shares when we're at a meaningful discount. And so what we'll trade off there as time goes on is we'll trade off between what we think the liquidity situation is and how much we actually can act to pay back, also understanding that there is a fair likelihood that something is going to come out that's going to stop that practice. And you can kind of see the little tea leaves here, I don't know if it's connected to taking money or whatever, but it feels like there's going to be some pressure there to avoid that. But we're going to do the right thing for our shareholders within the context of our ability in the law. And so as the opportunity is there and liquidity is there, and we're trading at a meaningful discount to what we think is the long-term value of the company, we will step forward.

That all makes sense. And then on the M&A side, a question I just got was, have you seen processes freeze? Or have you yourselves been down the path on something that you froze on because of the environment from an M&A perspective?

Yes. We had 2 things that we are working on pretty diligently that one was actually in Europe that is in an impacted area. So that's just on hold. We're still working with the seller to get information where appropriate and whatnot. But they're in a world that is super challenged so we're being very respectful of that. And then the second one is one we've been working on. And we're moving down the path on it quite well and the seller and us just said, "Hey, let's put this thing on hold until we can find some firm ground because there's just no way to value the company in that environment, right? You just couldn't put your finger on cash flows." And so that's on hold. I think both will come back. That would be my guess. Both will be there in the future. But generally, the M&A markets have [ sieved ] up.

And then last on the liquidity side before switching gears. The importance of liquidity is something you've always talked about with me at least when changing suppliers and even some of your customer base. Maybe just some thoughts on how you think some of the liquidity crunch could hit your tangential supply chain, et cetera.

Yes. I think there's -- yes. So I think there's certainly risk to our supply chain. Look, there's going to be risk across the board. If a company like IDEX is talking liquidity and it has the balance sheet that we have and the cash flow dynamics that we have, imagine the conversations they're having in high capital-intensive industries with people who've got to pilot that. And so I think that -- how that is going to reverberate. Now my guess is, is that the government -- that's when the government steps in here and realizes that, that is an existential threat to the economy. And so probably that gets backstopped, but it's going to happen with things being very bumpy along the way.

So a few esoteric questions then. The first one, as you guys are thinking about the changes that could systemically happen from an event like this, whether it's greater regionalization, whatever else, what are some things you guys are thinking about? And where do you think it can go from there more systemically?

Yes. So I think the movement of supply chains that was already happening relative to the trade issues around the world, this will absolutely speed that up, no doubt about it. I also think that there'll be a rethinking of what is strategic and what is required in redundancy. And so you'll see more of that where people are trying to move to more redundancy. Certainly, from a relationship with China, I think this makes it much more challenging for -- just broadly in terms of the overall relationship. And frankly, just speeds up what was already moving relatively quickly and is not going to turn back. So I think you'll see more of that. I think supply chain, I think how people think about how risky their balance sheet is and longer-term liquidity, that will wake a lot of people up, especially those who have not been through it, this is the first time they've gone through it, for those of us who've been through it a couple of times. That's probably why we were more conservative. And then I think the readiness in certain industries where you've got to have certain things more stockpiled and more safety than people assumed, I think you'll see some long-term demand pick up there or medium-term demand pick up in areas that people need to think about security more over time.

No, that makes sense. And then the -- obviously tougher times in the short term here, how do you think about the eventual recovery here? What kind of things you're looking at for a sign that we might get a break and things can get better? But then also, maybe just talk a little bit about how your business model will respond and inflect as demand starts inevitably coming back.

Yes, yes. I think, eventually, and we can pick it 12, 18 months out, I think you actually probably have a pretty strong recovery, assuming that governments step in and backstop these issues because if they don't, then all bets are off. But assuming that happens, Mike, as you and I have talked about quite a bit, I already think in the landscape in which we play, there have been underinvestment. And so this is just going to absolutely drive that issue further. And so when I think of being a long-term bull on global manufacturing, I still am very much in that camp, although it's going to have to be driven kind of coming out of this. Now whether it's a V or a U, candidly, I don't know. And we're preparing for it to be a U and, at the same time, as things have responded in the past faster than we have anticipated. One thing I've always said is IDEX, it does really, really, really well playing on that upswing, right, because we can move really quickly. And so our ability to capacitize, our ability to ramp rapidly at very high flow-through of earnings and cash flow, those dynamics will be the exact thing. But the place that's hard to flex is skilled people. And so that's one of the reasons that we're so focused on how do we retain the skilled people, the team as much as possible because that's the one that's hard to ramp. And so that's going to be the tight balance we're playing with here as we go through this.

And the hope is that if there's a silver lining in all of this, it cleans the slate a little bit. So when you get to the flip side, CapEx, decision-making, CEOs deciding where they allocate and how they can allocate capital, maybe it comes forward with a less uncertainty and drive some of the investment needed, right?

Yes. Yes. Exactly. I think one of the things that -- it's hard to keep your head around them that things are moving this quickly, right? As they were deteriorating, people's minds were behind this. They couldn't keep up with the exponential. And then when you get to that depth of crisis, it's the world is over, right? And both of those cases we know are not true. It's the overexaggeration that humans just naturally take. And so one of the things that we try to do as a team is step back and ask ourselves, "Hey, what reality are we really facing here?" And I think the team has done a great job of saying, this is going to be really challenging. It could be challenging for a while but there is actually an end to this. And we got to make sure that we are in a position to survive the -- as we go through the depths of this and be prepared to thrive on that backside. And so you've got to live -- almost think about 2 realities at the same time, I -- Eric Ashleman, there was a terrific metaphor. He said, this is kind of like you look at a hockey match and the first level of hockey is you're looking at the puck in front of you. And then that next level of hockey that we think is exceptional is the Wayne Gretzky go where the puck is. And he said, "Well, what happens if the ice melts? How does everything change when the ice melts? How does that game change?" And that's how we're trying to think about this. We're trying to think about, hey, this isn't about this game being the same. This is about a game being very different. And let's figure out how to play this actually very aggressively, and knowing how it's going to play out because we've seen it in China. We've already played the game in China. So let's take that experience, let's apply it to the western world and let's drive through this.

So I have a few more questions, but we don't have a ton of time, [Operator Instructions] Jamie, are there any questions in queue? Otherwise, I'll keep going.

At this time I'm showing no questions. [Operator Instructions]

So a couple of things. You brought up Eric Ashleman. I had an e-mail on him specifically, obviously, just promoted to the role of President. Did his role change that much? And what is he doing as part of the process? How integral is he to it? And any thoughts on his positioning specifically?

Yes. Eric has been COO of IDEX since 2015, so almost 5 years now. So he and I have been working together for over 11 years side by side. Actually, he's reported to me the entire time. And there's nobody I trust more than Eric. And so part of becoming President, the idea was to give him a little bit more responsibility around our human capital strategy and around M&A. And as this thing started to unfold, we very quickly said, "Eric, you're the right guy to lead the preparedness and rapid response team." So he's leading that team. So he's leading that crisis team, which is the right place for him to be and sharing that. And so if -- there isn't a better person I can think of to be in that role and driving that where we sit today.

That makes a lot of sense. And then back to the question I asked earlier. From a catalyst perspective on how business works, you talked earlier about supply chains were already moving towards a more regional approach moving out of China. Maybe a similar question on the concept of IoT, remote connectivity and all those other things. Do you think this is a further catalyst for trends that were already happening, sometimes more nascent? Anything else like that, that you would point to from a business operational flow perspective, more from [ how you have taken help from ] customers.

I think what we're going to see is how able we are to work in a world where not everyone is together, and that trend is already there. But I can tell you, we closed our professional offices on Monday and moved everyone to remote work and that's happened at corporate office, has happened in our offices and businesses where if you don't need to be in the office, we don't want you in the office. The fewer people close together, the less likelihood of spread. And so what we found in just a very short period of time is actually how quickly people have pivoted to the ability to work remotely very effectively and communication to actually hold up and work. And so if you think about the future of work, I think this is going to prove to us how much of that can happen and how enabled a lot of that technology is that a lot of us weren't using. As it comes to our products, I think it's going to show you just how critical it is that you do have data. Obviously, it's bigger on things that are front and center to this crisis. But I think what we're learning is the more data that you have around anything, the better decision-making. So I think it continues that trend of moving to intelligence. I'm not sure how much it speeds it up because it was moving pretty fast anyway. But certainly, our comfort level with dealing with it in different environments than we've ever had before, I think that's a massive change, and that goes up and down the supply chain.

And then another one. How do you think about pricing in this environment? The question or the e-mail I got said there are certain markets where there's still price increases going through, always been part of your model in the past. How do you balance that against the dynamics in the marketplace today?

Yes. So unfortunately, we've done all of our pricing, that's already gone past. So everything that is going to play out for now is already in place. We tend to have highly durable pricing. So in environments even that are -- 2008, 2009, we got price. It was small, but we've got pricing. We certainly didn't give it up. And one of the things that we've learned in multiple different terms is that in our world, pricing really doesn't change very much. And what I mean by that is, if you go and drop your price 10% or 15%, it just doesn't matter. The switching costs are so high. And so having consistency of your pricing strategy and not gouging is far more important than anything else. And so what we'll do is we'll stay consistent. And we certainly won't gouge in any way. And as pricing pressures do come and they will come as things soften, we'll stand pretty firm.

Well, only a couple of minutes left, Andy, anything you want to leave us with? Obviously, a lot of really good, rich perspective there. So I can't imagine there's a ton else, but any closing remarks on your side?

Yes, Mike, I think, first of all, I want to thank everyone for taking the time. I think if I understood right, there were over 100 people on the call. And so I appreciate the interest in IDEX. When I step back and I look at what we're going to go through, this is going to be hard. It's going to be really hard. And you can take that difficulty and bemoan it or you can take it and think of it as how do I turn difficulty into opportunity, an opportunity for people to be safe and healthy, opportunity to transform the business, opportunity to position yourself for the future. And so as I think about those 4 buckets that I mentioned: safety, business continuity, liquidity and then pivoting to offense, you've got to work those in tandem. And I think one of the things that makes IDEX so unique is this incredible position that we have in products and services that really do improve people's lives, and that's going to come front and center here. And we're going to do our very best to play our role there. At the same time, we're very mindful of the risks out there. And so we're going to make sure that your company, that you guys all own, is strong and healthy. And when we come out the backside of this thing, we're in a great position to thrive. And so the long-term health of IDEX, I'm very optimistic about our ability to thrive post this pandemic, and you've got the right company and the right team to run it.

I agree. Well said, Andy. I appreciate the time. Thank you, everyone, for participating in the call. And most importantly, thank you, Andy and Bill, for taking the time to provide your thoughts today. Obviously, you guys are exceptionally busy, and the insights and perspectives are extraordinarily helpful for us. So stay safe, everyone. Good luck managing the volatility and the crisis, and please reach out if you need anything. Have a good day, everyone. Enjoy the weekend if you can. Thank you. Appreciate it. Call's yours, Jamie.

Ladies and gentlemen, with that, we'll conclude today's conference. We do thank you for attending today's presentation. You may now disconnect your lines.