Q3 2019 Earnings Call

[noise] welcome to the R. Donnelleys third quarter 2019 call. My name is Lois and I'll be your operator for today's call. At this time all participants are in listen only mode.

After <unk> remarks from the company's representative.

We'll conduct a question and answer.

Q4 question at any time by pressing star and why you may be moving from Q at any time by pricing power.

Please note that this call is being recorded.

Now I'll turn the call over to Brian Feeney, R.R. Donnelley Senior Vice President Investor Relations. Please go ahead.

Thank you Lois and thanks to everyone for joining our <unk> third quarter 2000 in my team results Conference call. Joining me on today's call. Our Dan Knotts are these president and Chief Executive Officer.

Terry Peterson, our Chief Financial Officer.

At the conclusion of today's prepared remarks, Dan Terry and I will take questions.

As a reminder, we prepare supplemental slides for today's call, which can be found on the investor section of our web site at our R&D Dot com.

As we review third quarter results on today's call, we will reference page it off or some of the supplemental slides and those participants who wish to follow along by advancing the flights themselves.

The information that won't be reviewed during this call is addressed in more detail and our third quarter press release, a copy of which is posted on the investor section of our web site at R&D Dotcom. This information was also furnished the yes, we see on the form 8-K, we filed yesterday.

Throughout this call. We'll all also refer to forward looking statements, including comments on our financial out what can strategy, all them, which involve risks and uncertainties.

Therefore, our actual results could differ materially from our current expectations for a complete discussion on the factors that could cause our actual results could differ materially. Please refer to the cautionary statement, including in our earnings release and the risk factors included in our annual report on Form 10-K , our quarterly reports on Form 10-Q and other.

Filings with the FCC.

Further we will discuss non-GAAP financial information, we believe the presentation of non-GAAP results provides investors with useful supplementary information concerning the companys ongoing operations and is an appropriate way to evaluate the company's performance.

These non-GAAP results are provided for informational purposes only.

Any references to non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the Investor section of our website.

As part of our press release and within the non-GAAP presentation under the events and presentations tab I'll now turn the call over to Dan.

Great. Thanks, Brian and good morning, everyone and thank you for joining us on todays call I will recap our third quarter performance review the continued progress we're making in executing our strategic priorities and share a couple of examples that demonstrate how we are leveraging the power of the R&D platform to create value for our clients and win new business.

In a challenging market.

But before I begin I'd like to provide a couple of comments on our announcement earlier. This week regarding the sale of our UK based global document solutions business to paradigm group.

This transaction is strategically important for two reasons first it represents another important step forward to further optimize our portfolio and improve our financial flexibility through debt pay down.

Second it represents a great example of how we're actually enhancing the breadth of our service offering to a strategic alliance versus owning a business in our new Alliance with Paragon Group does just that through this agreement we've expanded our access to a broader portfolio of capabilities to support the evolving needs.

Of our global clients in that region.

I would like to thank our former GDS colleagues for their tremendous support of R&D over the years and wish them future success as part of the Paragon group.

Turning to our third quarter overview on page three.

We delivered strong financial results for the quarter highlighted by continued improvement in our organic sales performance double digit increases in income from operations and earnings per share.

In a 70 basis point improvement in operating margin.

Organic sales improved sequentially from the previous quarter marked by favorable results in our marketing solutions segment, while commercial print in logistics continued to experience market softness we generated organic growth in a number of our higher value product categories, including direct marketing packaging labels and digital.

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Our sales teams are aggressively navigating a challenging market and remain laser focused on converting our opportunity pipeline into wins, adding both new logos in expanding existing client relationships.

Our operational execution and productivity was strong across the majority of our businesses and we significantly reduced asked you in a cost in the quarter.

With our favorable Q3 earnings performance, we have now delivered three consecutive quarters of improved operating earnings and five consecutive quarters of year over year operating margin expansion.

Our teams are very focused on driving performance improvement around the world.

Our positive results for the quarter are directly attributable to our sustained focus and consistent execution of our strategic priorities. We continued to strengthen our core performance by aggressively driving our productivity initiatives rationalizing our global footprint.

And lowering our cost to serve through reductions industry they spend.

We are favorably shifting our business mix by driving growth in our strategic higher value product categories, including direct mail labels packaging and digital print.

We are further expanding our capabilities and enhancing our operational agility through both targeted investments in external partnerships.

And we're continuing to execute our plan to reduce debt through cash repatriation business divestitures and asset sales.

Well, we always have more work to do we are confident in our strategy in the actions we are taking to position R&D for future success.

I'm also pleased to report the during the quarter, we successfully launched the production of the U.S. census, and we're meeting all performance expectations. Additionally, we ramped up operations in our new China printing facility and effectively transitioned the previously farmed out work back in house.

She and her team in China have done a tremendous job managing this critically important initiative for us the new facility looks great and operating performance is consistently exceeding the efficiency metrics achieved in the former China location, great job team China.

Turning to page four.

We have a very clear strategic focus to help our clients better connect with their customers through their marketing programs and business Communications day in and day out we're working with our clients to enhance the impact of their communications by utilizing the right types of content across the right channels to do.

Drive up consumer engagement, while simultaneously driving out cost.

I'd like to share a few examples that demonstrate how we are leveraging our industry leading capabilities to help our clients solve their communication execution challenges.

For a large hotel and travel services company.

We're delivering an end to end marketing solution in support of their new customer loyalty program.

This clients loyalty program merged with two other large hotel companies in required a full relaunch of the entire program under new branding.

Our clients Sana supplier with a footprint that can produce and deliver a large scale multicomponent program across multiple continents with speed to market and the ability to adapt to the revolving communications requirements.

We successfully executed the production or more than 150 million communications encoding membership collateral cards keep owners and guess materials for over 7200 properties worldwide.

Going forward, we will continue to produce and deliver these communications that provide a cohesive brand experience for their hotel guests.

As a second example, we recently expanded our relationship with a large home improvement retailers.

We provide this client with creative services print collateral and in store marketing services, including the design and production of their store signage.

As this client looks to continuously improve the experienced they're providing to their shoppers they are enhancing and expanding their distribution centers across the country.

Given our these strong performance an extensive capabilities they turned to us to develop a unique labeling solution that enables an automated workflow while enhancing the presentation of their in store merchandise through the efforts of the R&D labels team. We successfully met this challenge has signed a new agreement that further expands hours.

Okay and ship with this client.

We also recently teamed up with Gradable, a fast growing four year old company that patent does the greeting card that doubles as a gift box greeneville sought to capitalize on the growing consumer desire for a more meaningful personalized experiences that go beyond the traditional greeting card the company turned to R&D to help reimagine the traditional package to reach today.

It's consumers consumers can craft special necip messages, so each gift it must be handled individually through a fully integrated and automated workflow.

Our solution includes the on demand production kit pack and fulfillment for each greeneville gift. So the clients team can focus on future development and growth of their product offerings.

And as the needs of our clients continue to evolve we are further strengthening our capability through targeted investments in the expansion of our partner network to that end. We recently established a new our partnership with action I Q.

Leading marketing activation platform.

Lets do partnership complements our leading data management capabilities by providing access to an enhanced real time customer data platform and enables personalized customer experiences to be delivered at scale.

With the customer data management and analytics landscape undergoing rapid change partnerships like this one are playing an important role in enhancing our ability to provide clients with best of breed marketing technologies.

We're also establishing partnerships that helps our clients enhance their solution offering by integrating our these capabilities into the services, they're providing to their customers.

We recently partnered with Mastercard to deliver their upcoming Bill pay chain Bill pay exchange solution.

Bill pay exchange will make it easier for consumers to pay their bills with cards real time payments or from their bank account and received confirmation of payment all within their banking app or web site.

R&D as one of the content providers selected by Mastercard to help deliver this solution to consumers and we're excited to incorporate our comprehensive content management capabilities and strong client relationships into a partnership with Mastercard.

Turning to page five.

Before turning the call over to Terry I'd like to highlight a number of awards that we have recently received in recognition of the quality creativity and ingenuity, there were providing to our clients around the world.

Hormel foods recognized R&D over the 2018 Spirit of Excellence Awards Hormel Foods cited our superior quality in the more than 250 million labels that we produced for them last year.

We've worked with Hormel foods for more than two decades, producing labels used in the storing and shipping process for products like Skippy spam and applegate.

Cisco systems selected R&D from among their wide array of global suppliers for the 2019 supplier quality Award.

R&D has delivered marketing and communications support to Cisco for more than a decade.

We're also proud to have received eight of printing and pressure magazines prestigious 2019 Gold Inc. Awards and just last week. We were ranked number 15 on cranes Chicago 2019 list of the most innovative companies.

These awards symbolizes a tremendous work that we're doing to support our clients communications requirements.

But importantly, they also signaled that we continue to earn the right to grow with our clients in the future because of the level of performance, we are delivering for our clients today.

Terry over to you.

Thank you Dan we're pleased to report adjusted diluted earnings per share for the third quarter 31 cents, which was up 24% over the prior year. We also reported as a significant increase in adjusted income from operations, which grew 14.2% in the quarter to $77 million and our adjusted operating.

Margin improved 70 basis points to 4.8%.

This marks our fifth consecutive quarter of year over year margin and permit.

Sales for the third quarter also demonstrated improvement with our best organic performance. Since we began paring back an unprofitable business in the fourth quarter of last year.

Turning now to page six of the supplemental slides reported net sales of $1.62 billion were down $30.1 million in the quarter, which included a reduction of $13.4 million associated with two recent business dispositions and another reduction of $10.5 million associated with a stronger U.S. dollar.

While our.

Net sales were down 0.4% organically.

For the segments business services reported and organic decline of 4.6%, primarily driven by lower volumes and commercial print and logistics.

Sales in commercial print continued to be negatively impacted by ongoing secular declines and the exit of unprofitable business, including plant closures.

We estimate that the secular organic sales decline rate for our commercial print products was approximately 4% in the third quarter.

Sales in our logistics business continued to be negatively impacted by softer market demand compared to the peaks experienced in 2018.

Last year, the logistics industry as a whole experienced higher demand driven by a strong economy and capacity shortages amongst shippers.

Demand and capacity levels are stabilizing and we expect comparisons to the prior year will improve beginning in the fourth quarter.

Importantly labels and packaging two of our strategic growth categories. They both reported favorable organic sales performance in the quarter.

Growth in our label products was driven by strong domestic sales of shipping levels, while packaging benefited from higher sales of our consumer electronics products produced in China.

Marketing solutions reported organic growth of 19.9% due primarily to higher volumes in direct marketing as well as digital print and fulfillment.

Direct marketing benefited from significantly higher volumes, including the 2020 cents this contract and grow with existing clients.

Is that this work has expected to contribute substantially through the second quarter of 2020.

The favorable performance in digital printing.

Prints and fulfillment was largely attributable to expanded relationships with our retail clients.

On page seven our adjusted income from operations of $77 million was $9.6 million higher than a third quarter of 2018.

Combination of our ongoing cost reduction initiatives favorable product mix and prior year losses from recent business dispositions more than offset the impact of pricing pressure and lower pension and other postretirement benefits income.

Adjusted SGN expense of $190.2 million in the third quarter is down $13.6 billion or 6.7% from the prior year, reflecting the ongoing execution of our strategic initiative to lower our cost to serve.

Adjusted earnings per share of 31 cents in the third quarter increased six cents as compared to 25 cents per share reported in the prior year period.

In addition to the favorable impact from higher adjusted income from operations. Our EPS also benefited from a 4.6 million dollar reduction in interest expense.

This reduction was driven by our teams actions to reduce debt outstanding and we also benefited from lower average interest rates.

Partially offsetting these increases was a higher adjusted effective tax rate of 49.5% for the quarter.

Elevate a tax rate was primarily attributable to higher disallowed interest deduction in 2019 and discrete benefits recorded in the 2018 corridor.

We expect our ongoing efforts to reduce interest expense among other initiatives will help improve our effective tax rate in future years.

Our GAAP results for the quarter included a pre tax restructuring credit of $2.3 million due to a pre tax gain of $4.7 million related to the sale of two recently exited facilities, partially offset by other restructuring actions.

The prior year GAAP results included a significant tax benefit associated with an adjustment to the provision all amounts associated with tax reform.

And again on the sale of our print logistics business.

In addition, 2018 results also included $11 million of restructuring charges related to lease termination employee severance and other restructuring costs.

Turning now to the balance sheet and cash flow on page eight as of September Thirtyth 2019, we had total cash on hand of $144.7 million and total debt outstanding up $2.03 billion, including $223 million drawn against the credit facility.

Remaining availability on the credit facility was $438.6 million at the end of the quarter.

Net cash providing operating provided by operating activities of $29.3 million in the quarter was down $34.8 million due to the timing of prior year working capital changes primarily in China.

Capital expenditures of $31 million in the quarter were $6.3 million higher compared to the 2018 period due to the strategic investments we are making throughout the course of 2019 to fund incremental investments related to the new China facility and the 2020 cents. This project.

Our ongoing capital priorities remain unchanged as I've stated in past quarters, we expect to continue to make strategic investments in our business.

Excluding both organic investments and potential acquisitions, and we continuously evaluate opportunities to optimize our portfolio as demonstrated by our recent sale of the global document solutions business.

Page nine shows a summary of the progress we continue to make to reduce our debt outstanding.

In regards to the pending sale of our printing facility in Shenzhen, China during the quarter. We migrated the framework that had been temporarily I'll start into our new facility and we are now consistently achieving improved efficiency metrics.

At this point, we have completed all activities related to this important project and want to extend our congratulations to the China team that made this transaction transition seamless to our clients.

The buyer continues to work with the government to secure the necessary approvals, which they expect to obtain an early to mid 2021.

It's approved the transaction will close and we expect to record a significant gain on the sale.

As a reminder, our contracted the buyer requires them to pay the entire purchase price even if the government's approval is not obtained and the sale does not clause.

Also during the third quarter, we collected an additional 23.7 million dollar deposit for the buyer as planned.

We continue to focus on improving our balance sheet flexibility.

Last quarter, we announced our strategy to accelerate the repatriation of cash from foreign jurisdictions to the U.S.

This quarter, we transferred an additional $134 million of Internet international cash to the U.S., bringing our year to date total to $256 million.

Further during the third quarter. We also so too so two additional facilities for combined gross proceeds of $8.1 million. These funds have been used primarily to reduce debt outstanding.

Looking ahead, we expect to transfer an additional $55 million to the U.S. during the fourth quarter, which includes net proceeds from the recently announced sale of our global document solutions business.

And that our debt outstanding at the end of the quarter is usually near its highest point during the year due to the seasonal nature of our business.

We believe the best comparison to show the progress we have made and reducing our debt is to compare the amount of debt currently outstanding to the same period in 2018.

Since September Thirtyth 2018, we have reduced total debt outstanding by $148 million.

Page 10 of the supplemental slides show the various maturities of our outstanding debt by year as of September Thirtyth.

The 2020 nodes with an outstanding balance of nearly $66 million are scheduled to mature in June and are reflected on our balance sheet and the current category. We plan to repay those notes using availability on our credit facility similar to how he retired the $172 million of 2019 notes that matured last February and it is.

Question during the third quarter, we opportunistically repurchased 2021 notes and debentures with a face value of $44.1 million at an average price of $102. The repurchases were funded with availability on our credit facility.

Our updated expectations for full year 2019 are reflected on page 11 of the supplemental slides, we continue to take actions to strengthen our core profitability, including executing our cost reduction initiatives, improving our portfolio mix and exiting unprofitable business. Despite topline softness in a couple of parts of the.

Business, we are pleased to be increasing the midpoint of our pretax profitability estimates while tightening all ranges as we enter the final quarter of the year.

We have revised our estimated range for net sales to $6.25 billion to $6.35 billion. This adjustment reflects the softer market demand and logistics and to a lesser extent commercial print as well as the October sale of our global document solutions business.

Our new range for adjusted income from operations is $245 million to $260 million, reflecting a higher midpoint based on strong operating performance and cost management offset by the impact of lower net sales.

We also tightened our adjusted EPS range to 67 to 76 cents, reflecting strong operating performance lower interest expense and a slightly higher effective tax rate.

Regarding cash flow, we now expect our operating cash flow to range from $150 million to $165 million and capital expenditures are expected to be approximately $140 million.

Before I wrap up my comments I would like to remind everyone that fourth quarter is our largest most profitable quarter the year due to normal seasonality.

It is also the strongest from a cash flow generation standpoint, with working capital and other investments during the second and third quarter is expected to be monetized for higher volume.

We plan to utilize our increased cash flow to further reduce debt before the end of the year.

Our teams are prepared and we're off to a good start to the fourth quarter as we look to close out another successful year for R&D and now operator lets open up the line for questions.

Ladies and gentlemen, if you wish to ask a question. Please press Star then one on your Touchtone phone.

You may have a movie stuff will be at any time by press the pound <unk>.

Speakerphone, please pick up their hands had before I pass and then number once again at Star One final question.

And our first question is from Jamie Clement from Buckingham. Please go ahead.

Hi, Dan Terry Brian Good morning.

Jamie Hi, Jamie Hey, Hey, a couple couple of questions in no particular order, but I I think Terry was you you said the secular decline rate and commercial print I think you said was about 4% is the implication there that the rest of that decline is is related to business that you are moving away from as you've discussed in prior quarters yeah.

I definitely some of the on profitable stuff that we've moved away from some of the closed a facility is a hit that category and then also Brazil. The shutdown in Brazil at the end of March that also affects a reported sales in that category. Okay.

As any of the census, working in any of the other segments other than direct marketing.

Hi, this quarter. It was just direct marketing okay. Okay, and then how will that kind of evolved over the next couple of quarters by I did mentioned in my remarks that that the the revenue volume from that it will have a significant impact yeah pretty consistently throughout the remaining.

Three Carter's after this one so that will go into the second quarter of next year won't be a complete a fall a second quarter of 2020 benefit but it'll go a good halfway through that quarter carry what I actually I'm, sorry, I didn't quite what I meant was or are we going to see it more in some of the other reportable segments.

It will.

Marketing will ultimately be the largest beneficiary there advised die as we get into later later stages of production and binding we will start to see some of that benefit show up in our commercial print products. Okay. Alright. So do you had already you if I may argue that I'll, let Charlie asked the question. So all the logistics business.

Some of some of your your your your pure play peers have reported their quarters I think it's kind of clear what's been going on there. He is the earnings release you seem to suggest you think you dish conditions have bottomed.

Yes.

Jamie Thanks for the question I think there's a couple of answers I would like to provide to that I think as you look at and we pay very close attention obviously too.

Both the performance of the carriers and in those who look more like us in the Threepl space in I think it's fair to say that that as you are very well aware Q4.

<unk> of 2018 kind of came out of nowhere as a surprise to do a lot of folks and I think it was important to note is that if you look at 2019.

Through the first three quarters into Q4 becomes that that lapping effect. If you will that but I think a couple important points.

The need to be made.

2019 is it has been a tough year relative to expectations.

And if you look however, if you look at coming off of a high 2018, but into 2019 performance, particularly for US is there still growth of 2018 versus 2017.

So 18 was a as we've talked about before was that was a high your expectation of a very high coming into 2019 and the industry just hasn't lived up to those led to those expectations.

More specific to your questions as you look at Q4. This short answer is yes, we are seeing stabilization and we track revenue loads on it on a daily basis, and we are seeing stabilization stabilization of that business, while it's too early in Q4.

Okay all right.

In looking at your revised guidance and adding the looking at the strength through the third quarter.

You know my my personal taken maybe this is a year over year comparison issue, but but it looks to me like.

Your third quarter year over year looks a lot stronger than what you're sort of if not a lot a little bit stronger than what you may be implying kind of at the midpoint.

Fourth quarter, what are some things we should be thinking about for the fourth quarter. There in terms of year over year comparisons. Yeah. You know Jamie This is Terry I'll take that that question.

I think yeah, we've been kind of chipping away as the portfolio optimization and kind of a paring back an unprofitable business.

Fortunately none of that stuff is individually been large enough to garner the discontinued operations reporting so.

We are forced to leave it ends on a comparative basis, we see decreases in things like sales and you know while something like Brazil has has been band kind of a tailwind for us in Q2 in Q3, because they were referring losses in those quarters. At this time last year fourth quarter was when they made all their money and so that next quarter will be will.

Lapping a profitable quarter for Brazil, but yes, it's at some of those factors that are certainly are playing into the situation here election revenue as another on fourth quarter last year benefited from a topline and bottomline the election related support and there's a few other cats and dogs in the cost structure.

To a pattern, but but those are some of the headlines as to why.

And if you look at a you know if you look at our guidance say for the.

For the income from operations with our new range, even at the top end of that range that would imply beyond the top side.

We can we can hit kind of a flat performance over the year, but to have it absolutely you're right. The midpoint is is down a bit for just a whole host of reasons not one dominant factor okay. Great I appreciate it. Thank you yeah. Thanks, Jamie.

Thank you and our next question is tallies thousand Fancy Dan. Please go ahead.

Hi, Good morning, Morningstar, Hi, Charlie.

Just maybe talk a little bit of the GDS sale real quick.

How much of the sale is impacting your.

New guidance here no those like how much is coming out of Q4 here that I wish it.

They are into our model and also is there any textbook implications from the sale as well.

Yeah, I'll take that we reported that data last year sales were about a $270 million you kind of its.

Taking out to two also that you know you're up in the $40 million range for an adjustment for the last two quarters.

It was it with us for most of 'em most of October not quite all that most of it. So a good couple of months there as what will come out.

There from a tax standpoint, a there will be a a little bit of tax leakage not much but a little bit of tax leakage on the repatriation of that money back here Weve able we're able to shelter the gain in local taxes, but there will be when we do a repatriate that will I will have a disappear small a couple million dollar tacitly leakage on that and that numbers.

So really a good efficient transaction from that standpoint.

Great. Thanks, and then just looking at the improvement in adjusted income from operation margins.

Is that trend likely to continue into next year and are we kind of hitting kind of the the meat of the cost cutting so to speak.

Yeah, No you know obviously, we haven't provided guidance for next year, but I'd tell you know we those margins are being a aided by a yes, certainly the cost cutting actions that will not quintette. This year, though those those are you going to be part of our do you know we're gonna have to deliver on those every year just like we have in for the past many years.

That will certainly be a piece of it but also to you know we have really gone pretty aggressively after a evaluating that you know the business that we are conducting and really kind of paring back and saying no to some of the stuff that isn't meeting performance, our profitability expectations and while we do get a nice pop and benefit from that.

You know, we do have sacrificed some sales as we've done some cleaning up with that.

Since that big push really started I will lap that real that that element in fourth quarter, because there's really fourth quarter that we started talking about a big push on that.

Certainly some incremental benefits will still continue to come in because we've continued to do more of that as the quarters have gone on him, but our first big lapping of that initiative will happen in fourth quarter now.

Great and then maybe then you could talk about this but on the direct marketing side. Excluding the census work what do you what are the what kind of good things you've seen there in terms of trends in the business.

Yes, you are the direct marketing side, we continued to trend well there. We are from a program standpoint, particularly the higher end more and more complex highly variable type product. So this being produced there we continue to see significant a request demand from a from clients I think as we've talked.

Before direct marketing is not dead.

And and we still feel good about our position in the market in our path.

Forward, there so no ability to support.

Our clients challenges on the on the on the higher end of the production continue on the product complexity continuum is where we thrive.

And we feel good about where we're running out there and on a going forward basis as well.

Content, just given some of the challenges you see in commercial print I mean, do you feel like the industry needs to consolidate further or capacity come off line more more rapidly.

Let's say two things about that Charlie the first one is we actually have in kind of puts us in brings into perspective, we have the advantage of having an enterprise selling organization and a significant client base that we continue to leverage and.

And and drive commercial print sales into those those larger opportunities what the same time competing on a local depending on the local basis and I would tell you that the as we know it remains a very fragmented.

Part of the.

Industry.

And I would also tell you that in the last I don't know I guess 30, 60, 90 days, we've seen a significant increase in inbound activity from other commercial print suppliers across the industry looking for relief for in exit.

The plan given the performance deteriorating performance of their of their business. So the short answer would be as their consolidation is is it is what would be a good thing for the overall industry to support the secular decline that we're seeing there.

I think the other.

Comment I would make on that is if you look at commercial print within our commercial print business. There's two components of that Theres. The work that we're actually producing in the work that we are sourcing on the on the outside into Terry's point, we're being very selective.

About the type of work that we're expanding resources, particularly but it has to go to the go to the outside with very lowered or minimal margins on that work and thats impacting us on the topline, but overall if you look from the sourcing standpoint is actually helping on the bottom line, because we're being more selective in choosing to too.

Except the more profitable work so theres a number of dynamics that are going on there. We feel we have an advantage because of the enterprise selling efforts that we have in addition to the local effort. So we have the market is the commercial print market is challenged and capacity utilization capacity rationalization would be benefit.

Excellent. Thank you very much.

Thanks, Charlie.

Thank you again, if you do have a question. Please press star one.

Question from down that John .

Baird. Please go ahead.

Okay. Thank you.

Yeah, I'd like to begin with Terry a statement that you made a little bit earlier. So first time I've heard you talk about acquisitions before it's been a matter of strategic partnerships.

So I'm just kind of wondering are the maybe dimension of acquisitions, because you've been successful in the strategic partnerships and maybe those partnerships actually become acquisitions.

Is am I reading that correctly. So that's the first question.

Yeah on that that I have been pretty consistent mentioning that we do look at acquisitions. Obviously, we've we've done very very few since the spin as weve really prioritized improving our capital structure in that same period of time as well.

But are you should not read any additional emphasis into the mentioned of at a again this quarter. The only thing Thats really changes you know if you looked closely in the release, we actually did you play one one small very small acquisition and the current quarter, but but no no a greater or lesser emphasis or.

You know point on on that part of our strategy.

Okay, and then I'd like to him, but my second question really as a follow up on some earlier questions and this has to do with what inning are we in right. Now is in terms of your portfolio optimization and when we get to the cost side, which you indicated that that's going to be part of your DNA.

I'm just wondering what cost categories can you cut further I mean for the last several quarters, you've done a pretty good job and cutting those cost categories I'm just not sure how much is left.

Yeah, there's we're getting a class out at both our I mean, I'll say the cost cuts all to the gross profit level through a greater efficiencies and better buying behaviors and negotiating with our vendors who were also continuing to get progress on the SGN a front at.

And we don't normally talk about it this way, but I certainly look at it this way I also consider.

Good solid efforts to reduce interest expenses another form of cost cutting and we've had some some really good wins on that front as well and then over on top of that we also get benefits too I mean, the type of stuff, where we're exiting or or or selling in case of portfolio optimization. Those generally have say SGN.

[noise] addressing each one of those so from a cost out standpoint. Thank you I do believe we've done a very good job of managing our cost structure. It's in our DNA and a absolutely expect that to continue but one of things I think it's really important for this company and for many companies around the globe is that this cost cutting has two components of it.

The first is as we view it. The first is we look at the within the operating platform. We have we look at the productivity efficiency that we have with each of the walls of every facility. We have and we also look at the number of facilities that we have so even count the walls in as you look at the right opportunities to consolidate and drive scale.

That's very much needed in this industry.

We're focused on doing both of driving productivity within the walls of every facility, we have as well as rationalizing our rationalizing our footprint to drive the scale that we needed that becomes even more important in a in a tight labor market environment in trying to keep up with labor turnover in so many facilities the advantage of having scale and flexibility to surgically.

Science and adjust your labor pool, now becomes a competitive advantage in our mind.

The second thing I think thats really important about about cost and it really pertains to the infrastructure S. unit cost can you hear a lot of companies talking about it and we are right there with them.

Cost reduction activities in terms of driving out cost more related to being able to do more with less has been historical focus of business in what really is happening here as you think about AI and machine learning the next opportunity and it's a very big opportunity to get after the yesterday and the infrastructure costs exist in many companies is to address.

Yes, how we actually worked in the ability to take non value at activities and automate those non value added cities to get those cost out. So you can reinvest none of the full rate, but a lower rate into the growth areas of your business is critically important. So I completely agree is what Terry said early innings relative to cost, but it's more about.

Moving forward with changing how we work utilizing technology versus squeezing more out of our current organization and continuing to do the same things it relative to platform optimization my last comment on that.

Is oh, we're also in the early innings, there as well, but I think is important forbid understand is just from a portfolio optimization activities that needs to come at the right time in the right valuation and we're very very focused on on it you can never be perfect in that scenario, but it needs to fit your path forward and your plan. We all want to go faster I want to.

Faster every single day, but it has to be at the right time engine in the right valuation for us to continue to move let's get you to move forward and we're not looking to reduce our offering to our clients were looking for our more consolidation opportunities, where oh or divestiture opportunities like the GDS one.

Where we continued to be able to provide our services actually enhance the services. We can provide for our clients. We just don't need on that business and you'll continue to see us focus on that as well.

Okay. Then finally Terry this is the first time I've seen you actually repurchase bonds in the open market is there going to be an ongoing program where are you repurchased bonds in the open market and will that be skewed towards the near term maturities would that be a fair assessment I don't know if I would guess off RSU I call. It a program, but I certainly right now my.

This is a entirely on the funny and the 220 21 maturities as we prepare to to everybody knows I mentioned in my prepared remarks at the 2020, which is a little under $66 million, we will take that out with the with the availability on the credit facility and and I and.

I again, we're still trying to work on on not strategies on the 2021, but those are my focus ones right now again I wouldn't call. It a structured dot program of NSR, but as a as those do become available if they become available there very thinly traded I would consider additional purchases they're at the right price.

Okay. Thank you very much gentleman really do appreciate all the detailing the answers. Thank you. Thanks, Phil Thank you.

Thank you and at this time there no further questions. Thank you. Please go ahead then.

Great. Thank you Lois and thank you everyone for joining us on the call today, a recap of the messages are key messages for the quarter are listed on slide 12 of our presentation in closing I'd just like to say, thank you to all of our employees for your dedication to our clients in our company and with the fourth quarter already underway continue to be grateful for.

Your focus your energy and your commitment to finish the year strong. Please know your efforts are greatly appreciated and with that I'll turn the call back over to Brian .

Thanks, Dan as a reminder, information to access a telephonic replay of our R&D third quarter 2019 results call can be found in our third quarter press release, a copy of which is posted on the investor section of our website at our D. dotcom. Thank you for joining US this morning, and that concludes the R&D third quarter 2019.

Earnings call.

Thank you, ladies and gentlemen that does conclude our conference for today. Thank you for your participation <unk> executive teleconference. You may now disconnect.