Q3 2019 Earnings Call
Good afternoon, everyone.
Well.
He period group of companies.
2019.
Earnings.
Oh.
Michael Ben.
Yes.
The company's Chief Executive Officer.
Andy.
[noise].
Chief operating officer.
[laughter].
Hello.
Hi, Good financial officer and Treasurer.
<unk>.
After the speakers opening remarks, there will be a Q <unk> session.
This call is being recorded and your participation implies that you agree to that.
If you do not simply drop off the line.
[noise].
I will turn the call over to Hala Elsherbini.
Senior Vice President.
Oh.
Halliburton's Investor Relations.
The Safe Harbor statement.
<unk>.
Go ahead.
Oh.
[noise].
Yes. This conference call may contain forward looking statements about superior group of companies business opportunities.
And its anticipated results of operation.
Please bear in mind that forward looking information is subject to risks and uncertainties and actual results may differ from what you hear today. Many of these risks and uncertainties are described in superior group of companies quarterly report on Form 10-Q .
Good morning news release in the Companys other filings with the FTC.
Forward looking statements in this conference call are based on management's current expectations and beliefs.
Management does not undertake any duty to update the forward looking statements made during this conference call or elsewhere.
Please note that all growth comparisons that management makes today relate to the corresponding period in 2018, unless otherwise noted with that I'll turn the call over to Michael.
Thank you Hello, and good afternoon, everyone. Thank you for joining us to review our Q3 fiscal 2019 results. My remarks will focus on performance highlights progress against our strategic direction and brief remarks in our market a barn, Andy will give an update on our operational improvement initiative.
And our integration progress followed by Mikes financial word yet.
What we're not satisfied with the third quarter net sales decline breaking our streak of 27 consecutive quarters or growth, we made significant progress against our strategic investment initiatives to align our infrastructure support long term enterprise growth and drive sustainable business value creation, where.
Encouraged by are expanding opportunity pipeline and strategic engagements were continuing to develop with both existing and new customers.
We're staying ahead of potential market disruptions you were proactive measures as we aggressively transformer business into our brand building solutions later.
Overall third quarter sales results were mixed with promotional products in the office gurus delivering solid results, while the uniform segments like.
Yep go our promotional products segment delivered another record quarter sales growth up 37.9%.
He also has grows our remote staffing segment maintained solid momentum with a 17.3% uptick in sales our uniform segment was down between comparable periods largely the result were working capital management to reduce merchandise levels, resulting in fewer receipts and lower sales under current revenue.
Recognition roles, we also experienced an isolated disruption to bed caused by the WMS implementation at sea I'd and the impact from Q3 2018 program Rollouts that did not reoccur in the current period ending a Mike will outline these items further during their remarks.
Our teams are very active in executing our strategy to optimize our portfolio costs are complimentary business segments, Let's review segment performance progress as it relates to those integrations.
Our broaden capabilities and or technology investments S&P integrations, and our uniform segment are well underway with expected completion by the end of the first quarter 2020.
Also during the quarter, we announced the final consolidation of superior I'd be and H., we are bringing both businesses greater depth of service under the leadership of seasoned executives, who have proven experience in elevating innovation sales and creating additional operating efficiencies that strengthen our competitive position man.
<unk> is very focused on securing wins in the mid tier segment of the market as we've said on prior calls with some successes already taking place where midway through our two year cell cycle. Following the sale strategy shift and expect to capture market share as we worked your robust pipeline.
More fashion seal healthcare and see I did our leadership changes consolidation and organizational realignment continues to move forward. We believe we made the appropriate changes in the organization to leverage operational improvements, leaving see our these founders focused primarily on product design development and delivery or more.
Fashion oriented and forward healthcare uniforms to the marketplace.
Looking closer at promotional products, we're pleased with their continued momentum and record sales achievement and they drive stronger order flow and build the solid backlog. They expand sales team is highly engaged.
Shifting to the office gross their solid results were underscored by strong customer acquisition and we expect a strong finished the year did you make a facility is a much needed addition to our call center business as El Salvador's reach capacity quicker than anticipated and believes continues to grow did increase rate in this segment, we're working to.
Hey ahead of expected growth.
Macro environment continues to be driven by disruption in the retail space due to minimum wage expansion automation uncertainty around chairs cost pressures geopolitical tensions and the variability consumer and.
Thank you Michael and good afternoon, everyone. My comments today will focus on our key operational and integration highlights for the quarter as Michael mentioned, a large portion of the decline in sales in our uniform segment results from our efforts to reduce inventory levels, yielding lower merchandise receipts. Additionally, the warehouse system implementation that see I'd.
When alive at the beginning of the third quarter resulted in a temporary interruption, which disrupted sales well also affecting operating efficiency several mineral resources and overtime were required to resolve the issue and normalization occurred mid quarter. The lost sales impact of approximately $2 million is not recoverable. However, we still maintain.
Strong relationships with these customers and expect to see improvements moving forward.
Our into uniform line is garnering extremely strong interest surpassing our expectations to reconcile the anticipated demand and ensure seamless delivery. The launch is now expected in mid 2020, we're buying to the offering and our sales strategy to optimize market delivery for this robust opportunity.
We expect Haiti will benefit C.I.D. in multiple ways, including a duty free market gross margin improvement and quicker fulfillment capabilities.
The modernization of our robotic fulfillment center and Eudora, Arkansas continue to progress with an anticipated completion toward the end of next year. Once finalized we should see operational efficiencies that you Dora and in the divisions. This facility will support fulfilling an important facet of our shared services platform initiatives.
The ERP implementation of these P.I. continues on schedule and we are realizing more operational efficiencies as we work through customer migration at a very deliberate.
Our small reduction our domestic workforce continues on a base schedule, we will continue to see savings benefit on annualized basis from these actions.
21.2% or $14.8 million compared to last year 9 million at which was the result of AMC six Essex County.
Reducing merchandise receipts as the result of a conscious efforts to better manage working capital.
See success, it's a county these low receipts result in lower revenues.
This quarter also contains some lumpiness aren't fully I'd business as we did not repeat significant program rollouts that occurred in your prior year their third quarter as noted earlier, we expect to pick this up in the coming quarters Lastly, as Andy mentioned, the warehouse management system implementation to see I'd created the sale disruption of about $2 million.
The office grew its content has reported solid results with a 17.3% increase in sales we continue to see a robust pipeline of opportunities from new and existing customers at the office curious.
Gross margin for the third quarter remain relatively consistent that 35.2% compared to 35.3% a year ago. Despite changes in sales mix from our operating segments gross margin was impacted by customer mix at Balco and highly competitive pricing environment.
During the period, we also recognize pension settlement losses of approximately $300000 no similar cost were incurred during the third quarter 2018.
Income from operations decreased $6.2 million, an operating margins were 6.9% in Q3 2019 compared to 8.7% in Q3 2018 lower revenues in our uniform segment and higher overall operating expenses pressured operating margins in the quarter.
Our effective tax rate for the quarter was 15.3% compared to 15.9% a year ago. This decrease in the effective tax rate is generally attributed to an increase in the benefit of foreign source income, partially offset by an increase in foreign taxes.
Overall, net income declined 36% to $3.9 million compared to $6.1 million a year ago third quarter diluted earnings per share with 26 cents compared to 39 cents a year ago.
Now I'll address if you balance sheet items during the quarter, we amended our credit agreement and increase the comment related to our EBITDA funded debt ratio from four to one to five to one.
As of September 30, our EBITDA funded debt ratio with 3.85 to one.
Capital expenditures through the nine months ended September Thirtyth totaled $6.4 million as we invest in the project Sandy outlined earlier to improve our overall business effectiveness and support our long term growth.
Quarterly dividends through the nine months ended September thirtyth were $4.5 million, representing an increase of 4.6%.
I'll now turn the call back to Michael for his closing remarks, and a general outlook for the remainder of the year.
Thanks, Mike.
Our integration efforts are continuing at an ardent pace and we're making the right investments to service our customers better capture sustainable sales growth and improve our profitability.
We're in a good position to address the myriad of risks is currently in the market through multiple actions taken across our organization. Looking ahead, we feel confident that weren't position of strength as we move into the fourth quarter. In 2020, we're doing the right things for the long term value creation for our ship stakeholders as always we appreciate all the car.
Contributions of our very hard working sgc team members and thank them for their.
Continued dedication.
With that we'd like to open the call for your questions.
Thank you we will now begin the question answer session to ask a question you May Press Star then one on your Touchtone phone.
Are you seeing speakerphone, please pick up your handset before passing the keys to withdraw your question. Please press Star then queue. At this time, we will pause momentarily to assemble roster.
The first question today comes from Kevin. Thank you have Barrington Research. Please go ahead.
Good afternoon, everyone.
Okay. Thank him.
So just wanted to start off by talking about.
The revenue decline in the.
The uniform segment make sure I understand all the moving pieces there.
So you had the 9.1 million.
Hit from U.S.C. six so six.
And do you also talked about your efforts to reduce merchandise levels.
To improve working capital are those essentially the same thing in essence, what I mean is if it.
Worked for a assay six so six would there have been that.
9 million hit or would there have been that large of a hit from the reduction in merchandise levels. If it wasn't for his T. Six so six.
Kevin Hi, This is Mike no absolutely not what happened with what happens with NFC six six with respect to certain of our contracts and those are the contracts we have.
We provide specific product that are there are only sellable to certain customers with them, we have contracts, where if we get to the end of contract the customer pay us for the product should we not sell it and those contracts we have to recognize revenue upon the receipt of goods not when we actually shipped the goods.
So when we reduced the amount of receipts that we're making assay six six would suggest that we have to reduce the amount of revenue that we recognize so we consciously through the course of the passenger and a half consciously I just had been reducing the amount of inventory.
We say merchandise in our release, because it's either inventory or contract assets on the balance sheet should we bringing it under one of those contracts, we reduced the amount of inventory that we're bringing in that reduces the amount of revenue that we recognize associated with those particular contracts. So the $9 million is absolutely related to the production of those inventories and.
And the purpose of that Michael is to is to improve working cap.
Thats.
We've said over and over again.
When we met with investors and even on these calls that we have the ability to turn or balance sheet into cash.
When necessary.
You see what our bank borrowings our and.
Bringing more cash we have made a concerted effort.
To apply some new strategies to our inventories and certainly with.
Particularly with HP.
About 75% of their businesses on.
S&P now they have much better tools to manage their inventory and that's been progressing since beginning of year and that should get even better and better but again as we reduce inventories where there's going to be a negative impact because of six so six yet on what looks like the revenue line, but.
Couple of years ago before six six that was not a revenue bonds.
Okay perfect. That's very helpful. That's I thought that was the case I just wanted to clarify that so so in essence, you're you're taking actions here to improve your business by reducing inventory levels, but you're getting penalize in terms of reported you know revenue just because it would occur.
Accounting change so just wanted to make sure you know everyone understood that I guess.
But but yes, so so so how much do you.
Benefit do you think you you have garnered in terms of cash flow generation from.
The reduction of engine for inventory levels or <unk> or.
Or how much more do you think you can benefit from that.
Well, if you looked at the cash flow statement cabin, you'll see that our contract assets are are down for the human than year by about $11 million.
We and our inventory.
Our inventories are down about $600000. So that's in essence, that's the amount that weve been able to reduce our working capital investment in those two line items over the course of course, a time now of course the reduction in the contract assets as we sell that product and as we bring in less product is.
For the sales associated with those businesses is offset by some growth in receivables that you also see on that on the cashless. They previously on the balance sheet. So it's the balance between those two where we're super we see the the benefit as a specifically relates to the working capital investments and activities we've undertaken.
Okay, that's very helpful and so I calculate that.
The 9 million dollar hit is about 13 percentage points deduction to say uniform segment growth year over year, which leaves you with an 8% decline.
I noticed in the 10-Q that.
Your shipment metric was also down year on that 8% to 9% range. So that remaining 8% is that just mostly related to one the W.R.M.S. disruption you mentioned and then also just.
The timing of shipments or the timing of you know a program rollouts against kind of a difficult top in third quarter last year as you mentioned.
Yes, if you give you take out the $2 million at the C. I'd.
Event, that's about 3% of the decline so that leaves about five 5.3% associated with.
I would say or normal course.
Activities within the business.
It's about 3.7 million is what you're left with after those two items and yes much of that is timing.
And.
Turning to rollout.
People ask us all the time, Kevin you know, what you're well wins your next ROA, we do.
And of course, the quarter, we do sometimes dozens of rollouts. Some of them are quite small a few hundred thousand dollars some of them actually rollout over multiple quarters, a few hundred thousand dollars or millions over multiple quarters. Some straddle three quarters, some straddle year.
So you can imagine every customer has their preference of how we rollout sometimes by region, sometimes it's by franchisees before a company owned store I mean, there's all kinds of.
Matters in which people do this.
And oftentimes you know you re a big rollout in the period that might stretch on couple of quarters like it doesn't impact you as much as it gets spread out over a couple quarters and we don't talk about.
Last year in third quarter, we did have some major Ross we also.
How to customer that that in that 3.7 million and then some.
No has decided.
There there a customer who relies heavily on the number of employees. They have they've gone to a less expensive garment, we're not making necessary less money with that but they've gone well less expensive garment, which means less revenue.
Simple buying their program to some extent across their divisions.
It's a strategy we helped them implement because you gave us leverage of having had the program. So many years and understanding it be able to find ways. We can help them economize everybody's looking to economize wear to work very very strange economy right now.
And for all the reasons that we mentioned.
When we spoke a few minutes ago and.
So we're going to see some of those but again I could say over the next couple of quarters. We have our fair share rollouts that are going to happen again and the anticipation at this point is unless something happens that will more than make up that $3.7 million a business that was lost and this quarter.
In the coming quarters.
In additional rollouts.
Also there is some timing.
We have customers you lose customers very sticky I mean, we talked about.
The 90, plus percentile of our of our stickiness with our contract customers and the fact that matters. We do some and we gained some unfortunate when you lose the new generally within six months, you're done with that customer. When you game then you're not Onboarding then sometimes for a year later, so there isn't gap there.
Little bit in between all that we've been very successful with our strategies.
Particularly HD.
And I believe that no with our leadership, we have at H.B. I now, which are two of the most seasoned executives we haven't company.
One was over 30 years experience of the other one.
It's been with us for more than a decade on the sale side.
That we should start seeing some results very very quickly in that division, maybe even sooner than the normal cells.
Okay, Great. That's helpful. I'll just ask one more question on this topic and then.
Move on to some others. Some other things that just lastly in terms of the.
Year over year decline.
Can you maybe just.
Ed any color at all about the disruption from the.
WMS system at Sea I'd.
It sounded like that was isolated maybe what happened and I'll conference where are you that that's that's behind you.
I'll jump in and might jump in some point to you know we put in now I think this is our debt.
If you Miss system in the last 20 years and I've watched other companies companies that we've looked at the by some companies we have bought.
Who unsuccessfully put in their W. has a system. We had we had six weeks of serious dislocation.
And it wasn't drew lack of effort on our People's part.
It had to do perhaps with not enough testing.
Yes testing it under full mode, which is awfully difficult to do.
Warehouse system, unless you have a second warehouse that you can test it under.
We've been through a lot of these over the years. It's one of the reasons why are you Dora warehouse.
Expansion that we're anticipating is being done actually at an adjacent warehouse that we're building so that all the testing.
We will not impact any of the shipping that we're currently doing we'll be able to turn it on and off as we wish but we didn't have that luxury with see ideas.
WMS implementation.
We've worked hard they worked long days long hours on the ultimate I can say they pull through it and in six to eight weeks.
And.
90.
Whatever percent of the issues behind them and that is the fastest I've ever seen a WMS implementation.
We've done ones ourselves.
Many years ago that that impacted us a lot worse than theirs that they're in good putting now.
They are moving forward.
And Andy I don't know if you have anything to add yes, I think you covered it pretty well I would I would add it to me it really well, it's always painful for customers. When you go through this.
There is.
This one went very well relatively speaking.
On the nature of the business wouldn't see I'd being retail, though again, when we say the 2 million a sale that was lost doesn't mean, we lost the customers. It just means that those retail buying opportunities during that period of time that we were having service issues were filled by other competitors and.
Well, we won't make up.
The bulk of that sales in the future.
We will overtime.
Establishing continue the relationship we have with those customers and we expect to be in a much better position and able to service them better in the future even more efficiently and as Michael mentioned this point.
Really the vast majority of issues associated with it or behind this and we're starting to just realize some of the efficiencies that we expect to get out of having put that warehouse and we'll see improvement in our cost as we go forward into the future.
Okay, Great that's helpful.
So I think you mention that you're encouraged by the pipeline and the uniforms business still responding to a good deal of RFP activity.
Are you starting to see some of the.
Fruits of those efforts of responding to our fees in terms of wins you know whatever your win rate spend like.
Any more color I guess on on all the RFP activity you've been a.
Responding to.
We know we don't normally discuss our win rates or who we won and.
In many cases will restricted from even doing so by contract with our customers but.
Our win rate has been has been fine.
We want nice piece of business in the sweet spot that we spoken about.
In the midpoint of that sweet spot as matter of fact, once some smaller piece of business as well and we're talking about the employee I'd side of our business H.B. Riley.
And now we're encouraged by.
There's.
As a lot of business up for grabs there right now given as I've said in previous discussions there's more season ever that we're responding to I mean clearly that creates.
The risk of loss, a greater risk the loss of existing customers, but the the greater opportunity is much bigger than the risk of loss.
So we believe that while we may lose some business long way, we're going to gain more business than we those.
Maybe timing issues with respect to how will that happens, but we don't think that anybody is in a better positioned than we are.
With our technology and with our ERP and our design staffs and all that we bring to the table from a distribution standpoint.
Got a product development sample that anybody is in a better positioned than we are.
Secure business on I think you know in the last year since we refocused ourselves on.
The mid tier size customers, we've realized how valuable we can be.
To them.
And as opposed to as we spoke about earlier in a much larger customers that really had some very they are very big.
Tremendous companies that were that we're bidding on their business and quite frankly with a safe choice for those customers.
We feel like where the safe choice not just say, what we're probably the most innovative any other smaller competitors than us.
Out there for which there are many.
But we are winning our share.
We expect to win more.
And but we don't necessarily ever quantified what size of our pipeline is who's in our pipeline and obviously for competitive reasons would wish not too.
Okay, No fair enough that's that's helpful.
And I think also you talked about in your comments a market launch mid 2024.
The fashion Scrubs.
Given the synergies you've seen between fashion seal healthcare and see I'd.
I I mean can you give us maybe a little more sense of.
Just to size the pace, you know timing of that roll out how meaningful is in terms of the numbers I'm just trying to get a foot put my arms around what that means for the business.
Yes.
Where we are we have created a a product in a market for which there really wasn't sure as Boyd.
And need and we recognize that if you go back.
Three years ago, or four years ago, Kevin when we were selling into the direct marketplace. One of these would give bumping up against is you're going to sell in the direct marketplace. You have to have a fashion product and if you're going to show on the direct marketplace.
Why don't since you guys.
We superior fashion seal healthcare as it is a company that sells to commercial health care Laundries. Why do you have you not developed a product that would be accepted by health care won't use end, there and their healthcare partners.
As a product of choice and so we try to create some fashion products within fashion seal healthcare and I know this is an explanation but.
I'm going to go that anyway.
But there was no market recognition among the people, making the decisions with respect to those products.
People make decisions often were cheap nurse nursing officers nursing committees within healthcare systems.
Let's face it nurses are very very important part of health care systems today, and our big Influencers in what they're they're nursing groups are going to wear.
And.
So realizing we didn't have a brand that was recognizable as one of the reasons why for many many years.
We looked at many of the companies out there manufacturing designing.
Fashion scrub apparel and the one that we were most at on on buying we did.
The resources with the wonder when brands and.
Now we have a product that we've introduced in the marketplace and we everyone always hopes that their their product when the introduces well accepted in the marketplace, but when the acceptances. So overwhelming that you realize that if you released it at that point in time you'd have a disappointing marketplace because you didnt anticipate.
Demand and with all the surveys we didnt all discussions we have customers and everything else, we could not anticipated demand we're in discussion with.
A number of people on with respect to this product and how we.
We'll properly launch it to the marketplace so that.
It it serves us best buy and.
We expect by mid year to see some results those results are going to be in a couple few million dollars on a very ever increasing basis from there.
So that's really all the until we're giving away at this point about the product.
We think we have a competitive advantage in that were out there assuming that everybody we won't retain that competitive advantage much longer we don't get out this year.
So.
That's currently where we stand.
Got it that's great.
You happened to mention again, a little bit about the pricing pressure in.
In the market and the uniform space.
From the competitive environment.
I think like even commented that it hit the gross margin a little bit, but you know gross margin uniforms was still up year over year. So I mean.
It is should we think about this having a meaningful impact or it it's still something you can manage through and offset.
With all the various ways you manage the supplier base and cost efficiencies et cetera.
Yes, we.
Not only talking on both sides remarkably wanted him. We always tell somebody you know gross margins are great, but you need to look at our operating margin because we we have customers who are at a 20% gross margin more money I'm going to customers, a 40% margin because of the service component we have to do for that customer.
But we're looking purely at grows more sourcing group has done a great job.
As they move product from China to.
Now hasn't always been perfect from an execution standpoint, I have to admit there have been.
A couple of service hiccups, along the way.
As they've done that.
Certainly things that we can be better at in the future, but they did a good job from a.
Negotiating price standpoint.
And but.
Yes.
Theres a lot of pressure out there and we're not for.
The long term relationships, we have with suppliers many of whom.
Quite frankly have left China with us they were in Chinese factories, and those factories and moved to Vietnam.
So that we could still enjoy the relationship with them, but in a factory Vietnam that didnt have tariffs and that's what's going on around the world right now is as Chinese or extending themselves into into other countries. So that they're not.
As impacted by the tariffs themselves.
I see us.
They are being a lot of margin pressure I've never whereas I said it never seen so many are these out there. So sometimes we have an RFP for five years generally we might go in pretty tight on that are in over four or five year period of time or our supplier picks up efficiency, we pick up operating efficiency and actually we're making more money at the end of.
That contract and we're beginning they put that out to RFP.
The person coming in is lowballing prices.
Much of the gain we had in those third fourth and fifth years, we've got that we've got to give some of that back.
In order to maintain the business.
So it is a very competitive environment and I think what's happening with our customers. They are impacted by terrorists. They are impacted by minimum wages. There are impacted by all these things which is forcing them.
To try to push that pressure downhill and unfortunately were down from that so.
There's a lot.
Right right Okay.
And the promotional products business some.
A really nice growth.
Last couple of quarters, I assume being driven.
Part by your organic growth strategy, you expanded your salesforce.
And it sounds like you want to continue to add there in terms of head count.
Is there an opportunity over time do you think to kind of smooth this business out a little bit from quarter to quarter or as you continue to ramp it.
It grows larger.
You know maybe just some of the.
Lumpiness of we've seen in the past from larger.
Jobs is kinda smoothed out just as volume increases.
Yeah, Kevin that's definitely the case I mean, we've said that for a while that as they grow.
In their substantially larger now than they were at the time that we bought them. It takes a much larger individual piece of business Ambac presenting wasn't.
In their growth.
The growth really is coming from the art did she is totally organic growth this point.
Tied to the the sales efforts of the you know the new sales and that we brought in.
Oftentimes coming would some business relationships they already have.
We see the opportunity to scale that and improve our operating margins overtime as we continue to grow with that.
Okay, Yeah, and you do you did talk about improving.
Operating margins and promotional products I think in the past.
You had you've talked about getting yeah permit operating margins and promotional products up too.
What.
Historical corporate average was or.
It's not where it was you know a couple of years ago, given some of the investments, you're making et cetera, but.
How are you is that our you're still thinking about the margin potential of promotional products just trying to get them.
Have a maybe a baseline target of what do you think that business could do profitability wise.
Yes, we I mean that is what we've said in the past I think it's growing up.
Getting there are a little slower than we thought we were initially but we did also change somewhat the approach where we expect we were going to do more acquisitions, we got to switch to the approach of bringing in season sales.
People to help grow that business organically. So we are to state as we grow that we're investing a little bit similar to what we're doing in the the office guerrillas, we're going to investing a little bit added that to the to get the structure in place and to be able to service that volume of business.
As we become more efficient would that we do expect to see those operating margins improve and continue to go up.
Yes, you remake really good points. So we we made that statement two or three years ago that we and we started making it that we expect that business to achieve the operating margins that we had at that point and that is still the case.
Okay, Great got it.
Let's see so I.
You know the office Gurus continues to grow nicely.
Your your kind of on you're investing ahead of growth there.
How much you know revenue capacity do you have now given.
What you what you build out and the various geographies in terms of call center capacity I mean.
Just trying to get a sense of you know if you can maybe slow down the pace of investment a bit and grow into the the footprint you built or you know what what's the outlook there.
The outlook there is what we've done from.
Our the expansion of.
Billy's and the addition to.
Jamaica, which is an expense.
In its full expansion mode. When we when we get to that because it's kind of in pieces that we can grow into what we have.
The capabilities will have will take us out about three years.
And.
So you know that our current guidance is that will grow that business.
$7 million year, or an excess that so it should give us the capacity to do about another $21 million of business.
Okay perfect.
Before I forget is with the Haiti facility roll out are there any meaningful cost associated with that.
Over the next couple of quarters I think there had been some mention of some increased costs related to that on your last call but.
Just wondering how we should think about that.
Yes, so so the cost will be incurring in Haiti. It certainly it's going be some capex as he put an equipment into the facility, but will also have cost with respect to bringing management in there getting training underway within that facility and other startup operational costs that we will incur with respect to these that is going to that that facility and getting ready to go.
We expect it to be ready to go with respect to to actually producing product in the latter part of 2012 to the latter part of this year with getting up to speed with full capacity in the middle part of next year. So we will be will be operated this year, we won't be operating at full capacity. So they will be.
Operating expense and it will be incurring that's.
Not typical in traditional for us.
I mean, it practice, so it'll be a full full speed.
But we will be operating in manufacturing by the end of this year.
If you remember the first Haiti facility.
That we put in much in the same schedule is that.
Okay got it I, just something popped into my add that I want to backtrack on so.
How are you still in the process of trying to reduce inventory levels such that.
You know, we should expect more of a headwind from the S. C. Six so six impact based on that initiative are you pretty much.
Don with Rightsizing inventory, I mean, <unk> or is it I guess should we think about it still is being a year over year headwind. Even if you have leveled off that initiative just you know because.
Because of the year over year comps.
Yes, we're going to continue to try to try to manage our our inventory turns.
We continue to try to manage our contract assets to where we can provide the services that our customers need at the lowest possible.
In stock position. So there will be headwinds continuing now certainly when we started we got off to a big glass on that so I don't know that the headwinds will be as as robust as they've been historically, but we will still continue to try to constantly drive down inventory positions and increase our turns.
You know most of this Michael most most of the impact of that comes from our contract to assets as Mike said in most of our contract assets reside with HP.
And that vision, because the nature of their business, we don't see as much of that in our health care business faster health care and see I'd.
So you would expect that we are we at big push it H.B. I do that they're on Sep, we're getting much better.
Formation and analytics firm that anyway, so naturally more managed the inventory better ice you will see reductions in our inventories in other places in the business as we finish up these integrations, but they won't be contract assets, which will mean, they won't be affecting our revenue until they ship.
Okay got it I guess lastly, I'm just I noticed.
Dividend, you're still paying a healthy dividend I think historically you.
Maybe increase it a bit at this this time of the year in this quarter, but I think it remained.
Consistent year over year, Sony So any thoughts on dividend or dividend policy.
So we.
As you said, we are paying a healthy dividend to our dividend yield as is in the mid 2% range.
We every quarter, we talk with the board about where we're going to be with respect to dividend policy and our dividend.
What we're paying out with respect to dividends. We continue to we'll continue that process you as you know we've been paying dividends since the banking sevens right.
New gotten to block are making sure confirming with Mike like in projects there.
We did answer very important to us and we expect will continue to make dividend payments against continue to assess our our ability to.
Maintained or increased dividend casinos.
Okay, great well Ah thanks for.
Taking all the questions. That's all I had thanks.
Okay.
I guess how many.
Sorry, Oh go ahead.
If you have a question. Please press Star then one.
Yes.
Oh no further questions.
This concludes our question and answer session I would like to turn the conference back over to Michael Benstock for any closing remarks.
So I jumped the gun there okay.
Thank you very much listen we appreciate all of your time today, we look forward to updating you on our fourth quarter 2019 results in February so the rest of year year.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.