Q1 2020 Earnings Call
Please stand by our presentation will now begin.
I would like to turn the floor over to Joe Burke Senior VP Treasury and Investor Relations.
Thank you operator earlier this afternoon Avnet released financial results for the first fiscal quarter of 2020.
Releases are available on the Investor Relations section of <unk> Companys website a.
A copy of the slide presentation that will accompany todays remarks can be found via the link in the earnings release as well it's on the IR section that that's website.
Lastly, as some of the information contained in the news release and on this conference call contain forward looking statements that involve risks uncertainties and assumptions that are difficult to predict.
Such forward looking statements are not the guarantee of performance and the company's actual results could differ materially from those contained in such statements.
Several factors that could cause or contribute to such differences are described in detail and I've. That's most recent Form 10-Q , and 10-K and subsequent filings with the FCC. These forward looking statements speak only as of the data. This presentation and the company undertakes no obligation to publicly update any forward looking stay.
Eight minutes, where supply new information regarding the circumstances. After the date of this presentation.
Today's call would be like by Bill Emilio Avnets, CEO and Tom Laurie Avnets CFO .
Also Phil Gallagher Global President electronic components joins us to participate in the queue in a session.
With that let me turn the call over to Bill Emilio Bill.
Thank you Joe Thanks, everyone for joining us for our first quarter fiscal year 2020 earnings call.
This quarter, we delivered sales of 4.6 billion doors.
And adjusted he P.S. 60 cents, which were in line with our guidance.
Well macroeconomic headwinds continued uncertainty around Paris impact settlements.
Buying patterns across key geographies and verticals.
As a result, we saw market trends decline in the first quarter fiscal 20, which was a continuation some of the patterns that began about nine months ago.
No one knows exactly when the market will return to more favorable dynamics.
We do know.
Is that macro data, including United States purchasing managers index were P. M. I get a 10 year low in September as you know I P. M. I have greater than 50 indicates industrial expansion and changes in P.M. I, often indicative of year over year organic sales growth trends pretty distributors in turn.
The sales to semiconductor companies.
Well, Yeah, my data across United States for Europe , and China. All currently below 50, we're continuing to monitor conditions closely.
I think that Brexit and pair concerns played key roles in the low P. M I did across Europe and China.
Tom will run through the specifics about performance by geography during his remarks, but in general macroeconomic data are consistent with what we saw in the first core and what we're seeing and our geography as we look into our December quarter.
Americans as the latest to see slowing Conversely, leveling out of cells in Asia that we saw makes us optimistic that we may have turned the corner and that geography. Meanwhile, AMEA remains under pressure.
The first quarter.
By vertical we saw mid to long term opportunities at retail and healthcare with positive trends in defense and aerospace.
We still see some softness in industrial and automotive markets.
These last two verticals.
Further impacted by the more recent slowing in a manner.
As for how the macroeconomics will play out we now believe that the current correction will continue into 2020.
The market environment is challenging, but we are well positioned to take on these challenges.
Our teams are well prepared and ready to capitalize on opportunities and use our competitive advantage across geographies and verticals. So we remain bullish on avnets long term growth prospects.
Before we get into more specifics on the core I want a drastic changes to our relationship with Texas instruments.
In 2016 T. I began a strategic shift to sell more directly to customers phasing out the man creation.
Earlier, this month, we announced or distribution agreement with them would be ending.
We're working collaboratively with T.I. to arrive at a mutually agreeable terms related to this transition their decision was not a result of any performance issues that they have been a avnet supplier for more than 40 years and we are proud of the strong results we've delivered for them.
This transition with Ti is an example of our ever changing industry competitive landscape as an idea your company Avnets supplier line cards continually evolving our line card today look much different than it did 10 2030 years ago.
We've been through some major changes like this in a path and we have always recovered from that and this is no different.
As we transform into what technology solutions company, we are expanding into new areas. There are less vulnerable to these types of changes.
For example, through our strategic efforts and the Internet of things and that integrated and for now we're diversifying our business to maximize higher margin opportunities.
Our work to replace the Ti revenue is already underway as we emphasize.
Driving increased sales from existing suppliers, who are highly differentiated value proposition.
We will also seek out new suppliers, who will find our comprehensive ecosystem very compelling.
Now moving into the five areas of focus on our core strategy first we remain focused on amplifying our electronics components distribution business worldwide second we are creating the ability to scale our margin segments.
Third we are aggressively expanding or digital capabilities.
And fourth we're continually finding new ways to leverage our ecosystem for growth and finally step we're driving continuous improvement throughout the business, which is fundamental to our success.
He gives you an update on specific achievements in each of these five areas during the September quarter.
Turning to the electronic component business.
Electronic components delivered sales of 4.3 billion, which was down approximately 1% quarter over quarter and operating margins for this came in at 2.6% compared to 3.4% a year ago.
We were encouraged by our performance this quarter in Asia.
Where sales were up sequentially by more than 9% the $1.9 billion.
This is now more in line with what we see in terms of seasonality.
Also bookings are showing signs of stabilizing in Asia during the December quarter.
In addition, the Americas region noteworthy wins included a leading America based wearables manufacturer component business and I'm local solution and services provider Fiveg business.
We also had a number of wins and ITD, which is a higher margin segment.
Now I'd like to talk about our scaling higher margin segments digital transformation and operational excellence specifically for Cornell.
As we entered our first quarter Brunel experienced continued pricing sales and margin pressure as lead time shorten an average selling prices declined historically consistent with this stage of the cycle.
Well the first fiscal quarter for an all reported revenues of 336 million and operating margins at 6.5%.
As the quarter progressed pricing starting to stabilize.
We remain very bullish and confident in foreign Els model and we are doubling down on our investment there.
We now a better headlights.
On the business and since our last earning call. We've made progress on our five krom plan due to our foreign else long term success.
The five areas of focus that will improve for now is considered this in the high service more.
Skew count and new product introductions.
Racing and quoting more.
Marketing a keen focus on operational excellence and a web user experience speed instability improvements.
This approach is enabling us to complete all integration actions could have been in a long term plan.
It will also help us capture additional market share as the market trends.
Turn positive again.
Drilling down into the details for several of these areas, we already are making progress on improving our pricing and quoting capabilities.
Teams are wrapping up efforts the minister uniform discounting control you sure competitive pricing and increase the breadth of our inventory with a focus on top suppliers.
And in keeping with our overall avnet strategy of driving operational excellence through the organization. We're further integrating back office functions across the electronic components for an l. business units and we're working closely together on lead sharing.
During the quarter, we had at 26000 SK used to foreign <unk> web site.
Also added two new supply line ecommerce global order penetration continues its upward trend as well.
For no new distribution center will come online in December the benefits include reduce costs the ability to more dramatically increased our SKU count.
And improve our customer service and this will position us well when the market turns up again.
Overall, we are confident that the dedicated focus on each of these areas onshore forno captures the benefit a fully leveraging and its vast resources and will lead to sales growth with best in class profitability.
Turning to digital transformation.
Expanding the point, our digital capabilities goes we aren't Cornell and is key to achieving better penetration in the demand creation categories versus fulfillment category.
Our work, okay implementing multiple robotic process automation projects continued during the quarter and will be an ongoing effort through the full fiscal 2020.
This rule out across the.
Yeah that ecosystem of our artificial intelligence pricing tool is complete and implementation across front now is on track to be completed in June .
Our marketing automation tool is a cornerstone of our lead sharing integration between Cornell electronic component business.
In the first quarter Salesforce software was implemented in parts of Europe . After we completed its implementation in the United States in Asia.
As I previously discussed about Farndale implementation of our competitive pricing tool is critical to driving growth customer satisfaction and efficiency.
Now I'll turn the how we're leveraging our ecosystem to expand customer opportunities you can see a depiction of our ecosystem on slide 10.
This quarter, we strengthened our ecosystem, where the pending acquisition of with Ticky up would take you as a global company with expertise in software embedded systems that help developers overcome the technical challenges and complexity of developing I OTI solutions that will take your team has experience in embedded software that's come through.
Routing and secure specifically from hardware to the call.
Taking all has business transformation consultants user experience designers and system and software experts, who have worked with many fortune 500 companies their experience spans vertical markets, including medical and healthcare automotive and navigation and health and mobility industrial and energy and smart.
Connected objects.
Well take your acquisition complements our overall solutions offering and several of our strategies, including scaling into our higher margin businesses.
And extending our digital capabilities and leveraging our ecosystem is part of our larger strategy of building vertical and skill platform that can speed time to market.
And reduce financial investment, while still offering high level of customization. All players we want to tackle I don't see opportunities. The addition of a tick ill also complements our acquisition of software solutions, which was announced approximately 10 months ago, particularly as it develops software for every layer from device.
So the clock most off what the Delta cloud based software to connect manage and analyze data.
Ticky goes user centric technology includes connected hardware device architectures and applications.
An important part of leveraging our ecosystem is the creation of opportunities with existing and new types of customers, which we call nontraditional customers. These customers aren't technology companies their coffee retailers fitness equipment manufacturers beauty companies that are seizing the opportunity to use I O T to transform the busy.
As models.
The work we're doing with these non traditional customers is illustrated by water management company World water and sore technology.
Also includes somewhat of a ticky those customers, including L'oreal and coffee technology innovator you oak.
All these highlight how we position and that does add value as an end to end solutions provider.
We've included the case study award water Insourced technologies and today's presentation.
Turning to our goal of driving performance on operational excellence.
We have been relentless in our commitment to decreasing operating expenses and gaining efficiencies. We're on track the pool for 50 million of operating expense reduction that are part of our existing three year 245 million to our cost reduction plan.
During the first quarter, we continue to make progress on our strategy to move certain back office functions to lower cost jurisdictions, including growing our offices in Serbia, Guadalajara and Bangalore.
We are well positioned to whether the current market downturn and the remaining very aggressive in our approach to exit executing on the plans that will keep us agile and improve our execution, we're committed to our strategy to deliver a great customer experience and long term growth with that I'll, let Tom report on the financials for the quarter in more detail Tom.
Thank you Bill.
Good afternoon, everyone.
Let me start with the highlights in our key metrics on slide 15.
First quarter's revenue operating margins and earnings were affected by product and customer demand trends that were to a large degree driven by an industry wise slowdown.
We delivered revenue of 4.6 billion.
Slightly above our guidance midpoint, and down 1% sequentially and down 9% from the year ago period.
Gross margin declined 76 basis points year over year to 11.8%.
This was mainly due to lower sales and margins that are now.
Which global pricing pressures and a higher mix of Asia revenue also contributing.
We continue to focus on managing costs and Saar SGN, a expenses declined 19 million year over year.
Progress is on track with our additional cost reductions of 50 million that we called out last quarter.
These reductions will be fully implemented by the end of the March quarter.
Working capital days improved from 88 days to 84.
Attributing to the 196 million of cash flow generated in the quarter.
We continue to repurchase shares ending the first quarter with diluted shares of 104 million down from 116 million a year ago.
Adjusted earnings per share total 60 cents, the low end of our guidance range with lower spending helping to partially offset the gross profit decline.
Turning to business performance on slide 16.
Electronic components results reflect the shifting demand environment.
Electronic components revenue was down sequentially at 4.3 billion.
And operating margins came in at 2.6%.
Compared with 3.3% in the prior quarter.
Sales for Radnet by region were as follows Americas with revenue of 1.2 billion was down approximately 4% both year over year and sequentially.
Similar to others in the industry, our Americas business slowed during the quarter.
The trend, which is expected to continue into the second quarter.
EMEA revenue of 1.5 billion was down 14% year over year and 10% sequentially.
Constant currency performance was a bit better down, 11% and 8% respectively.
As discussed last quarter EMEA revenue trends are similar to the market trends in the region.
Asia, we saw the macro slowdown early in the March quarter showed signs of stabilizing as revenues rose sequentially by 9% to 1.9 billion, there's still 7.6% lower than the prior year period.
Turning to our catalog distributor for now revenue of 336 million was a decline of 11% year over year.
For now pricing and demand slowed further in July .
Both appeared to be stabilizing in August and September .
First quarter revenue in constant currency was flat sequentially.
The lower volumes and pricing drove operating margins to 6.5%.
So both pricing and operating margins appear to be stabilizing.
We ended the quarter with a book to Bill as 0.89.
Hi region Americas was at 0.95.
EMEA was 0.89.
In Asia finished the quarter as 0.85.
Turning to the balance sheet and cash flow statement on slide 17.
Our solid capital structure positions us well to continue our capital allocation strategy of buybacks dividends M&A and other strategic investments.
During the quarter, we returned $133 million to stockholders in the form of 112 million in stock buybacks and 21 million and dividends.
This followed a board approved 500 million increase and Avnets share repurchase authorization.
And an increase of 5% in our quarterly cash dividend to 21 cents per share.
At the end of the first quarter, we had $593 million remaining in the share repurchase authorization.
We ended the quarter with 1.2 billion of net debt.
And a net debt leverage ratio of 1.6.
Next cash flows.
We continued our focus on working capital and cash flow.
Generating 196 million of cash flow from operations in the first quarter.
We continued our buyback program in our diluted share count is now 104 million shares.
We have a path to get below 100 million shares in the coming quarters.
Let me now take a few minutes to discuss our management focus for the next 12 months in light of the macro slowdown.
We continue believed that our focus on growing higher margin businesses like for an l. in I O T.
Managing cost and generating cash for buybacks will reap significant benefits, what's the macro environment recovers.
However, as we work through the macro slowdown that for now improvements and the T.I. transition.
We want to reset expectations for the next nine to 12 months.
First front out.
Operating margin sequentially declined this quarter.
And we anticipate it will remain below 10% until the catalog industry turns more favorable.
Bill already outlined the five areas to improve fund out results.
On Slide 19, you can see the timing of the operating margin benefits from these initiatives.
We expect that by the summer of 2020 .
The initiatives for cost marketing SKU expansion.
Well grow front Els operating margins to the 8% range, assuming no change in macro demand and pricing.
Historically fidelity experience, a 6% or higher improvement in demand.
Three quarters post a cyclical downturn.
Assuming a similar recovery timeframe.
We anticipate operating margins crossing the 10% threshold by next summer.
Completing for an L. SKU expansion and ecommerce upgrade will take more time.
The benefits of the new distribution center are expected to be realized in the second half of calendar 2020.
All in we estimate that we will see operating margins in the 15% range by the end of fiscal year 2022.
For the T.I. transition our sales in the first quarter were slightly under 500 million.
Well, we do not disclose the gross margin by supplier.
The T.I. sales were generally lower fulfillment type gross margins.
As of today, we do not have an agreed upon transition plan with T.I.
We anticipate completing the transition by December 31st 2020.
Our goal is to replace the gross profit dollars by driving higher revenues from existing as well as new suppliers.
Understanding that there will be a time lag between winning new business and the revenue reaching RPM now.
Cost reductions will also be implemented.
As we look at our business based on these new factors by the summer of 2020, we expect you see operating margins of approximately 2.2%.
Which assumes the following.
A substantial portion of the revenues will have been transition to T. I by this time.
We will have made some level of progress, replacing this revenue with new avenues.
In variable cost reductions a 35 million annually will have been implemented.
If we further assume modest improvement in the macro environment for both AMEA and Americas.
Following the same nine to 12 months' stabilization timeframe that we are seeing in Asia.
We anticipate E C operating margins of 2.5% by the summer of 2020.
We think it is realistic to replace the CCI revenues with higher margin revenue by the end of our fiscal year 2022.
By this time, we also expect to see the benefits of America's margin expansion initiatives as well as I O T growth well should bring you see operating margins to the 4% to 4.5% range.
Based on what Weve outlined here, we anticipate that by the summer of 2020, Avnets total operating margins will be in the range of 2.1% to 2.6% depending on the timing of the macro recovery.
Longer term operating margins, a four and a half person to 5% are achievable.
Turning to our second quarter, we are guiding revenue in the range of 4.2 billion to 4.6 billion.
And adjusted EPS in the range of 35 to 45 cents.
These estimates reflect your expectation of continued industry headwinds, including continued slowness in EMEA and.
And the potential for further softness in the Americas.
As well as the gradual reduction in CCI revenue.
And it assumes an orderly Brexit process.
Today, we've laid out our path for fund else recovery to double digit operating margins.
As well as our strategy for driving other higher margin sales.
We continue to manage the factors that are within our control cost working capital cash flow and buybacks.
We believe the actions we are taking today will make us financially stronger when the demand environment improves.
With that let's open the line for queuing.
Operator.
Thank you, ladies and gentlemen will now be conducting a question and answer session.
I would like to ask a question. Please press star one on your telephone keypad confirmation Tony will indicate your line is in the question Q. You May proceed start to see that you have your question from the Q for participants using speaker equipment, maybe necessary to pick up your hands that before passing the starkey of one moment. Please pull for your questions.
Also please limit your questions to one question and one follow up.
Our first question comes from the line of Ruplu Bhattacharya with Bank of America. Please proceed with your question Hi, Thank you for taking my questions.
Just wanted to talk about the T.I. transition can you help us understand the cadence of how that revenue will go out is that we should be model that 500 million a quarter going out or Tom I think you said something about by the summer of 2020, most of that would be out. So just trying to understand the pace of how that 2 billion in revenue.
New.
And and is it more on the east side or and how much of that is easy versus far now that you're going to give any guidance. Thank you.
Yeah, you can imagine it this is pretty fresh so what we said was by the December next year, we all and I would at this juncture model what more linear over the course of the year, but most likely not he's going to happen from first quarter.
Okay, Okay, and just as a follow up I mean I'm looking at the two charts the margin bridges that you gave.
It looks like from the charts, the T.I. impact too far now is in the second half for next year, whereas the 75, it's come out of the C upfront and from from the first quarter and more in the first half a year and May meeting that correct.
That.
[noise], yes, absolutely hi, this is Tom so.
As Bill said, we're not.
Great Youre sure the exact timing so what we're trying to do with these charts you know there's a number of things up in the mix right. The macro slowdown that for now and the T.I. transition. So we're trying to give you some.
Feeling of where we expect to be in the middle of the summer you know the exact timing in the.
Sequence of these events are subject to change, but that was the spirit of these charts.
Okay. Thank you for taking my I appreciate it.
Thank you. Our next question comes on line.
Our next question comes from the line of Adam Tindle with Raymond James. Please proceed with your question.
Okay. Thanks, Good afternoon, I just want to also start on T. Bill I'm understand they've had a strategy to continue to move more direct but what explanation as you get for why this strategy is now being accelerated it didn't sound like there was anything operationally avnet did to lose this business and.
And then also it looks like your major competitor hasn't filed a similar notification and may even be a beneficiary of some of this so why is avnet seemingly on the wrong into this one.
Well as I said in my remarks, there was nothing to do it relationships with performance that's been really good. So no no issue associated with that and you know on this when you really have taught yeah why they accelerated the reason why you decided to make a shift and as you know it wasn't just avnet they essentially.
The franchise all the Asia.
Distributors as well so there is a massive move and importing to tie they will be taking a lot of that direct so while there would be one distributor that will benefit. The fact is everyone will be losing probably about 30% to 40% of what was out there previously and that's supposed to go direct.
Okay.
Maybe just one on the operating margins than last quarter. The explanation was that a far now was impacted from demand moving back to broad line in the court you see margin was actually stable at 3.3% as a result.
This quarter for an L. margins were still lighting, a little softer than expected, but you see margins also fell significantly. So maybe just help us understand the explanation because it looks like revenue was actually better little better than you're expecting so the volume was there I know, there's a geographic mix component, but I have a hard time getting the math to blame all of it on that so.
Maybe just some help with a that the dynamic on operating margin in the court you see business.
Okay, a couple of points.
As we noted Asia stabilized this quarter or or stabilizing this quarter and and we saw it pretty big uptick quarter over quarter at 9%. So you got a shift towards Asia, which is more margin and then we started to see more the slowdown in AMEA and now we started to.
The early days in the Americas, both of which demonstrated what pricing pressure this quarter than last quarter.
Okay. Thanks.
Thank you. Our next question comes from the line of Matt Sheerin with Stifel. Please proceed with your question.
Yes. Thanks, I just had one I get back to the the plan to fill the void left by T. I in terms of the gross profit dollars, even even if it's a sort of a higher you're more demand creation value add business, you're still probably looking at a billion dollars or more of a rare.
Revenue that you're gonna have to make up is that coming it is is that a share issue or do you see the potential for some direct business to move through through distribution exactly what is the plan to increase that because that's a it's a decent amount of market share it would seem.
I, let me a couple of data points Mac letting us a couple of question.
First of all as you recall few years ago, we lost a billion dollars the suppliers with four different suppliers and they were much higher margin. So the whole is much bigger and we were able to fill that gap up in months not years. Additionally.
More recently easy we had a shift all of our T.I. business away from BBB and a rapidly we're able to fill that hole back up.
On the way we've been able to do that is kind of 3.1 is of course, we will on new designs design and other suppliers.
But that as you know, it's a six month to a couple of year journey.
Additionally, there are roughly 30% of the components that are commodity components that you could easily switch off faster.
And then finally.
Customers tend to have dual source with distributors and they want to keep that balance. So you will see a share shift of other suppliers components back the avnet.
And by those three things you'll see that started to fill this gap up over the course of next year at 18 months.
And Bill, but let me go bad Hey, Matt how are you doing if you feel that.
Yes, and as we fill that gap, okay, which we up obviously plans to do that with bank of the wildcard that gap will be fill with frankly higher margin supplier. So are you kind of <unk>.
Billionish is roughly the number right with adults in the margins can be different suppliers. So.
That's how we shouldn't will together.
And local together.
Okay, Okay, and then and that number that that operating margin target. You gave for next summer time, a is that exact contingent primarily on a lower opex versus SGN, a I'm sorry versus gross margin continuing to be depressed here because of mix and pricing issue.
Shoes are you expecting gross margin to to shift as well.
Yes, so Matt in both of the for now and T.I. charts. There is a bar that says modest market recovery. So any change in pricing will be reflected in that and most of that is volume.
Anything to the left of that is.
Let's put it predominantly you correct capex.
Got it okay. Thank you.
You bet.
Thank you. Our next question comes from the line of true of Joe Cuattro. She with Wells Fargo. Please proceed with your question.
Yeah. Thanks for taking the question a couple if I could the 35 million of incremental cost reduction related to <unk> is that on top of the 245 million that you have already outlined.
Yes, Joe that would be on top and that's the variable costs associated with the revenues.
Okay, perfect and then.
Sorry, if I missed it but I was curious any update on what your three year for pipeline for I O T was a this quarter.
We did not give the revenue for that I remember I O T is 50% plus op margin. So it's very consistent with what we've been saying.
Okay. It's because it's good it's continued to grow and as a strategy to the game plan. Now is the took a convert that the revenues. We can start talking about growth pipeline of revenue in future quarters.
Okay. So it's up from the I think 630 last quarter.
Yep.
Thanks.
Thanks, Joe.
Thank you. Our next question comes from the line of Shawn Harrison with Longbow Research. Please proceed with your question Hi afternoon, everyone.
Tom I was wondering maybe you could talk about the the a working capital associated with you know the approximately 2 billion of revenues a T.I. what kind of.
Cash flow will you see in terms of a benefit is this business exits.
No I appreciate that question so.
You know 2 billion is right 500 million of roughly a quarter most of the inventories to sign. So you you're looking at about 60 days worth of receivables 300 million plus or so million of cash flow associated with it.
And you would see that yes, it shouldn't winds down by let's say middle of next summer you would see that type of cash flow come out over the next nine months give or take.
Correct.
Those receivables are good their current customers and yeah that'll come in as the sales wind down Gotcha, and then as a as a follow up the December quarter guidance does it assume any further margin erosion at far now or is it more just the regional mix.
Dynamics since it is associated with the the broadline business.
Yes.
Try now, which we said in his script Sean is she's has stabilized. So we're not assuming further margin or pricing erosion. You know most of the decline you see from September to December . So she was a bill was talking about right that we just started a teen the Americas slowdown we continue to see.
You know summit in EMEA, and we are assuming some level of pricing pressure during that time [laughter].
Okay. Thank you.
In Asia, continuing agent working age is looking very stable first I'll.
Just good.
Thank you. Our next question comes from the line of Tim Yang with Citi. Please proceed with your question.
Hi, Thanks for taking the question in your Slide Slide 20, you have one bar chart, showing 60 basis points, causing margin contribution from recapturing a loss cells.
You elaborate why the timeline is after summer 2020, no sooner and I have follow up.
Sure because theres a right there's a lag time between when you when the business and when it actually transition and you start showing revenue in the P. now so.
Can we tried to be conservative here in and assuming we gained some business in the first half of the year, we'll probably see it in the PNM out towards the second half deal.
Got it.
And I think as you mentioned the market improvement a improvement could help margins by 30 basis points can you elaborate that the market improvement. There you are referred to the them being the same yourselves to return to growth or just flattish, it's kinda like stabilize stabilizing compared to the current development. Thank you. So so.
So market improvement.
Varies by slide, but it's basically reflecting that you know.
Some upturn in revenue, which would be accompanied by a very small perhaps improvement in pricing that's what market improvement is.
So for instance, where we're trying to say in for now is you know you noticed stork me that a few quarters. After the downturn, they typically get a 6% or higher I have any growth. So margin improvement and then typically we're showing at 6% premium increased from today through that period any he <unk>.
Remodeling based on what we're seeing in Asia, which is now three to three quarters. Later now they have a 9% sequential growth. So I think if you do the math on those listen I pretty close to these numbers.
Got it thank you.
Thank you once again as a reminder, if he would like to ask a question. Please press star one on your telephone keypad confirmation telling one indicate your line is in the question Q. You May proceed starts to if you'd like to move your question from the Q for participants using speaker equipment, maybe necessary to pick up your hands at the four pressing the star keys are in.
Next question comes from the line of Mark Delaney with Goldman Sachs. Please proceed with your question.
Hi, This is Brad Anderson on for Mark.
Thanks for taking the question.
Question was what are some key metrics and that is watching for when the current downturn could bottom.
There are several factors that we're looking at for example, we measure.
Stated lead times from suppliers versus actual so.
We watch that delta and as that starts to shrink we know that things are starting to tighten up back up who also look at gross profit percentage is through time and we also look at he asked piece you tie and we look at cancellation rates an extra diaries, all those together give us a basket up what we think is a predictor or will we think the economies are going.
Okay. Thanks, and then just as a follow up I'm anticipating any impact from impact to margins from the CEB business due to a reverse leverage effect given that there's potentially more.
It's been tendulkar more fixed costs of evidence be spread over less revenue.
So yeah.
Yeah, we were as though for already taken out of the variable costs and the game plan overtime of course is placed that revenue as we have in previous situations. Like this so we wouldn't have a temporary a couple of quarter by issue, but we will work our way through that.
Now, let me add huge since it's been a couple of questions on market recovery, we're not we're not trying to predict in market recovery here, what we're trying to give all of you use your margins without a market recovery and if one were to occur based on historical.
You know what our margin would be and you know we'll leave it up to you to predict the timing of the market.
Thanks.
Thank you there no further questions.
Mr. Emilio would you like to make any of your closing remarks [noise].
Sure.
Thank you operator I appreciate that today, we reiterated a clear plan that allows us to improve upon the aspects of our business that our course within our control as result of these plans I haven't will be even better positioned accelerated its growth and the demand environment improves as always we thank you for your interest in Atlanta, We look forward to reporting you are probably.
Yes in coming weeks and months. Thank you have a great day.
Thank you ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.