Q3 2019 Earnings Call

Good morning meeting some gentlemen, thank you for standing by welcome to Coppers third quarter 2019 earnings Conference call. At this time, all participants are any listen only mode. If you need assistance. Please alert a conference specialists by pressing the star followed by zero.

Following the presentation instructions will be given for the question and answer session. Please note that this event is being recorded I will now to call over two Quinn Maguire. Please go ahead.

Thank alyssa good morning, I'm quite Mcguire director of industrial relations and corporate Communications welcome to our third quarter 2019 earnings Conference call.

We issued a quarterly earnings press release earlier today.

You may asbestos announcement via our website is W.W.W. dot <unk> dot com.

As indicated earnings release. This morning, we've also posted materials to be Investor Relations page of our website that will be reference in today's call.

Assistant without practice in prior quarterly conference call. This is being broadcast live on our website and a recording of this call will be available on our site for reply to December 8th 2019.

Before we get started I would like to draw attention to our forward looking disclosure statement certain comment made on the top is called maybe characterize as forward looking statements.

Find them to the private Securities litigation was format 1995.

These forward looking statements involve a number of assumption Reds and uncertainty, including was describing the cautionary statement included in the press release, the company's filing split the Securities and Exchange Commission.

In light of the significant uncertainties inherent in the forward looking statements, including the company comment you should not regard the inclusion such information as a representation that its objectives plans and projected results will be achieved.

The company's actual results performance or achievement may differ materially from those preston or implied by such forward looking statements.

The company assumes no obligation to update any forward looking statements made during this call.

References may also be made today to certain Nongaap financial measures. The company has provided with this press release, which is available on our website reconciliation non got financial measures to the most directly comparable got financial measures.

Join me four o'clock today are lieberthal presidents and C.E.O. Poppers, and my do gay Chief Financial Officer, and Treasurer, Oh now turn this discussion over to Leroy. Thank you Quinn welcome everyone to our third quarter to solve the 19 earnings call.

We always do a coppers I'd like to begin with an update on zero harm. So for the third quarter I'm proud to say, we had 34 out of 46 operating locations with zero recordable injuries.

Continuing to deploy record zero harm training throughout all business units would completion expected in 2020.

Currently we're developing additional training and developed modules that will help employees strengthen their safety first mindset by building upon the strong foundations skills that are already in place.

October we welcomed approximately 50 of our safety health and environmental coordinators from across the globe to join US in Norfolk, Virginia for a week of I.D.A. idea sharing learning and development.

Employees spent their time discussing ways to help make safety personal to each and every one throughout our company.

<unk> coordinators are important ambassador as far as your arm culture in their feedback on the progress made today is invaluable. The group also focused on finding ways to reduce coppers environmental impact and improve our standing was responsible members of the communities in which we operate.

Additionally, they participated in sessions geared towards using modern tools and technology to improve capabilities and build stronger connection to cross facilities. It was encouraging to see such great energy around these important topics.

I appreciate the continued the continuing dedication to safety that our employees happened souls as well, we're calling from community members. We remain focused on finding new and innovative ways to advance our journey to zero.

No I'll move on to financial performance.

For the September quarter, Arnett results reflect improvement across all business units in port continue positive them at him for the remainder 2019 and heading into 2020.

For the third quarter, we again achieved record sales at 475 million, making the third consecutive quarter of record sales of copper is driven by continued demand in various end markets for would preservation products and services.

From profitability perspective, we also set a record for third quarter, adjusted <unk> 61 million or 13%.

Moving higher profitability in all business segments as well.

R.U.P.S. and P.C.R. would based businesses continued to demonstrate strong year over year games due to favorable business conditions market share growth.

Deficiencies.

Additionally, R.C.M.C. business posted another strong quarter, even though it's market environment remains challenging.

Third quarter performance highlights the strength to work diversify business model and the success of our would preservation strategy.

Back on our call in February this year I laid out three main take ways to illustrate where our focus would be for 2019.

The first take away was that we will be focused on doing everything possible to make 2019 better than 2018.

Nine months into this year, we put ourselves within reasonable striking distance of achieving that goal from any but those standpoint.

Well, beating are 2018, adjusted EBITDA is still reasonably possible, we tighten our guidance in the high end of our range will fall just shy works it straight year, but <unk> improvement.

The phone adjusted U.P.S. standpoint, we will still have a strong chance of beating or 2018 number three $3.50, which would still be quite an accomplishment.

Further to that because we are nearing the end of our lengthy restructuring of R.C.M.C. business special charges for 2019 will be significantly less than 2018, which means that are reported or gap P.P.S. should finish the year at its highest level since 2012.

Came in a 2019, knowing that we had a major got to fill knowing that we would lose a significant chunk of earnings and are trying to business and I'm proud of how are people taking on the challenge of filling that gap, we've taken market share in performance chemicals improved utilization in our railroad utility products and services business overcome difficult business conditions in our car material in chemical business.

Reduce controllable costs across the board.

Exciting thing is knowing that we still have what seems like a never ending we'll have opportunities that should continue to drive future positive performance.

Second take away from our February call was that we would remain intensely focused on improving our balance sheet by reducing our leverage.

Through nine months I'm happy to say that we that made nice progress and reducing our net debt in fact, a third quarter loan we reduced net debt by close to $50 million in through September I met leverage sits at 4.2 times. Our goal is still to reduce net debt by at least $80 million this year and bring arnett lever down to between three eight and four one depending upon.

Adjusted even for the year.

Further to that is still my goal to take another full turn off our leverage in 2020 and get back to three turns.

Third a final take away from February was to remind everyone that we've done a pretty good job of shuffling our portfolio over the past few years to be more focused on being the global leader and what preservation and we'll look to capitalize on further smart opportunities to do more of the same.

Last quarter, I announced the closure of our falling be west, Virginia distillation plant, the self or Blackstone, Virginia poll treating operation both actions that support a smaller smarter portfolio.

This core we're embarking upon making some interesting changes in Texas, which I'll talk bout in more detail later in the call.

That we remain engaged in multiple scenarios that we continue evaluate and I'll share any further developments as it becomes appropriate and short we're not afraid to add or subtract more business. If we believe that build on our would take not work on our global leading would technology capabilities.

I'll turn over to Mike to discuss key quarterly highlight before returning to share my outlook regarding the business right.

Actually right, let's begin by referring to the slide presentation, that's provided on our website.

As you will see on slide for revenues were 475 million, which was an increase of 32 million or approximately seven per cent from 443 million in the prior year as Lieberman mentioned this was another record sales quarter for our company.

And excluding a negative foreign exchange translation effect of 6 million revenues were actually higher by approximately 38 million or 9%.

The increase was due to continued demand dinner and market for what preservation products and services.

I'm moving on to slide five adjusted the but I was 61 million, a third quarter record or 13% compared with 53 million or 12 per cent in the prior year quarter. The strong performance reflects higher profits in all of our business segments Rubs delivered a significant improvement driven by higher utilization from <unk>.

Customer band as well as realizing synergies related to ongoing integration and restructuring actions.

P.C. generated higher profitability. However, it's margin was lower due to higher raw material costs.

C.M.C. reported favorable results due to continuing operational efficiency and cost savings, which were partially offset by increases in raw material costs.

No I would like to discuss several items that are not reference in our slide presentation.

Adjust the net income was 26 million compared with 16 million in the prior year adjusted earnings per share where $1.24 compared with 73 cents last year.

Both adjusted that didn't come and adjusted earnings per share benefited from higher you're over your sales unprofitability driven by the companies would preservation businesses as well as lower income taxes due to her rude I reduced estimated effective tax rate.

Or income to income tax expense for the third quarter was 15%, one five compared with 56% and the prior year for the three months ending September 30th we had approximately $3 million indiscreet tax benefits, primarily due to favorable adjustments related to our 2000 it in the 18.

Tax year as well as various tax planning initiatives.

The majority of the favorable adjustments were due to our 2000 is estimated.

18 tax provision as compared to our actual falling of our 2018 return.

Gap requires us to adjust the estimated a cruel to the actual filed tax return in the quarter. When the actual return was filed in our 2018 Federal return was filed on September 15th after considering the impact of our tax planning initiatives, we estimate the effective tax rate for the 2000.

19 full year to be approximately 25 per cent.

With a revised of Texas effective tax rate and are adjusted EBITDA guidance, which is between 215 million and 220 million. We are now projecting that adjusted E.P.S. for 2019 will be in the range of $3 in 35 cents per share to $3.55 per share.

You're today through September 30th cast provided by operating activities was 57 million compared to only 8 million in the prior year, then that they increase was attributable to lower working capital usage, primarily due to higher receivable collections in.

In general are cash flows from operation or historically higher in the second half of each year and we expect to be consistent with that trend and we are on track to use these cash flows to <unk> to continue paying down debt.

In the fourth quarter.

Capital expenditures were 27 million compared with 81 million for the prior year and represents spending to maintain the safety and efficiency of all of our global operations.

<unk> insurance proceeds of 3 million or cap X. was 24 million through September 30th and we're on track for the expected 30 million dollar run rate for 2019.

Now if we for refer back to our slide deck on page six.

Barnett leverage ratio at the end of September was 4.2 times, reflecting a significant decrease from 4.6 times at the end of the June quarter.

This quarter and our net debt was nine <unk>. Our net debt was 918 million a decrease the 47 million compared with 965 million at the prior quarter N.

As we were mentioned we continued to projected arnett leverage ratio will be in the range of 3.8 to 4.1 times. This year end and we do reaffirm that we will do start debt by approximately $80 million in this calendar year.

I would like to turn the discussion back over to Lee right. Thank you Mike now it's review the outlook for each of our business segment, starting with railroad utility products and services.

As we mentioned before we're seeing class one railroads continue with instituting various forms of precision railroading, which involves evaluating their networks capital spending and maintenance costs.

That philosophy will continue to put pressure on procurement and those organizations. Ultimately we believe that copper is with our best in class products and services remains well positioned to maintain or even gain share with class one a commercial customers.

According to the American Association railroads class one railroad activities are becoming more highly correlated the commodity prices interest rates and trade relations as opposed to the more traditional influences of oil and gas in coal mine.

Oh the challenges facing the industry include long term structural changes is cold markets decline the domestic in a remote on chemical sectors grow consumer purchasing practices change and trade uncertainty provide even further volatility.

Oh, the data report about A.A.R. shows that real traffic is training down through September 30th the 2019 total U.S. Carlo Tropic decreased 3.8% from last year, Oh intermodal units dropped by 4.1%.

The combined U.S. traffic for carloads in intermodal units fell by 3.9%.

According to the railway tie Association to cross type replacement market is also moved lower in recent years.

The initial forecasts for 2019 were between 22 to 23 million cross ties, which I felt was too aggressive given what we were expecting with our own business.

Due to lower than expected real free volumes to projections had been revised lower and are now estimated to be just 121 million ties for both 2920, which is more in line with our own original forecast.

He factors contributing to these trends include ongoing shifts from coded gas lower agricultural shipments and hesitancy among manufacturers due to a softer economic outlook in ongoing trade tensions.

Are treating falling to tracking relatively flat year over year, while we've seen a substantial upticking on treated cross type experiment.

The market for untreated products has been extremely tight for the past couple of years, which resulted in declines in inventory unless fix cost absorption, which seriously hampered profitability.

The main factors affecting supply weathering competing demand for hardwood have improved as the years going on and we're on track to procure a more normalized level been treated cross ties, which has been the biggest driver to the real segments improvement.

Regarding or utility and industrial products or U.I.P. business, we saw strong performance in or U.S. based business in the third quarter.

<unk> customers continue to drive organic growth, which is exceeding industry averages.

Therefore, we expected the positive demand trends will continue to the remainder of 2019 and year over year volumes will increase driven by Paul replacements that are planned as well as from nodes that are necessitated by various weather events.

Likewise or pull business in Australia, where we are the largest supplier is having another strong year is overall demand remained steady.

For the total RUPS business, we expect to maintain our current more normalized level cross type procurement throughout 2019, which underpins our profit expectations for this year.

Also we expect continue strong performance from our U.I.P. in Australia would businesses for the balance of this year.

The downside are made its way businesses. The struggled this year with the row industries heavy near term focused on cost reduction.

Expecting some improvement for those businesses next year, but they will remain challenged throughout the final quarter of this year.

As reflected on flight eight or tightening and slightly lowering our adjusted EBITDA guide for a rough segment to be in the range of $62 million to $64 million compared with 63 to 66 million previously.

Quite soon adjusted EBITDA margin of approximately nine per cent.

An increase at 21 million to 23 million compare with the prior year.

In our performance chemicals business. The outlook features some headwinds as well it's impossible offsets according to the leading indicator of remodeling activity or lira. The annual national growth rate for home improvement repair has been revised lower and now projected to decline 0.3% through the third quarter of 2020.

Also lira sites indication that the remodelling market, maybe reaching a turning point given the continued weakness an existing and new home sales.

Ending on home improvement repairs and 2020 is expected to be approximately 325 billion, whereas essentially flat.

However, the current low interest rate environment may count or some of these challenges.

The National Association Realtors reports that existing home sales were down in September by 2.2% falling two consecutive months of increases.

Despite the recent decline over all existing home sales are up 3.9% from year ago. Nevertheless, a lot because inventory in higher prices are preventing potentially higher growth existing home sales.

Consumer confidence index decrease in October to 125.9 down from 126.3 in September and 134.2 in August .

Given the continuing escalation and trade tensions consumers are less positive on current condition, reflecting a pattern of uncertainty and volatility that has persisted throughout 2019.

In performance chemicals sales growth has come from market share games as well as some pricing actions that occurred and 2019 and we'll continue into 2020 is the general demand from our legacy customer base has been flat and slightly up.

Realizing more benefits due to higher internal production levels of intermediate raw materials, and a reduction controllable spending, but unfortunately much of that had been wiped out by higher raw materials in customer service costs.

Or expectations for P.C. continue to be for healthy increase in profitability in 2019 due to add normally higher volume growth related to market share games throughout this year.

We're currently tracking above the high end of the five to eight per cent growth rates in North America that we said we needed to achieve the significant profit improvement for this year, which is obviously a good thing.

However in order to ensure that we deliver on our commitment store customer base, we have incurred higher supply chain costs of offset some of the additional benefit.

The good news is that should get alleviated, we move into 2020 stabilize production at our new higher levels.

On page nine of our slide presentation were also tightening it's slightly lowering the estimated adjusted even tougher P.L.P.C. to 71 to 72 million compared with 72 to 75 million previously.

The net result of our expectations for P.C. equate to adjust to the bit that margin of approximately 16% in an increase of 9 million to 10 million compared with prior year.

Looking at our car materials and chemicals business the markets in North America, Europe , and Australia have benefited from favorable demand for carbon pitch.

Aluminum production in the U.S. is increase somewhat do the terrorists imposed on certain imported steel and aluminum products.

Longer term demand trans well hinge on U.S. trade policy in any potential terrorists.

In terms of headwinds, we're seeing a soft needed to Memphis allocating hydride in other n. markets as well as pricing pressures from some competitors on the whole raw material markets are relatively stable in North America, and Europe , but has the potential it'd be volatile in certain regions.

Even in a challenging demand pricing environment seem to see his continue to maintain margins historically high levels, which serves as evidence of the operational efficiencies and permanent cost savings we've achieved through our restructuring efforts.

That said the current environment, a week or steel and aluminum prices will put pressure on our seem to see business and 2020, but we still expect solid overall operating performance.

An update R.K.J.C.C. joint venture remains in dispute with its largest customer in China over the application of contractual pricing terms.

Coffers is not recognize any incremental revenue was associated with higher price in China and currently a weight to contractual resolution of our dispute which is taken longer than expected, but should hopefully occur.

In the meantime, we've continued a supplier customer on a quarterly basis under temporary purchase orders and once again have one in place for the fourth quarter.

However, we don't expect much volume to be shipped during the quarter Dude work customer taking the plan.

Maintenance for most of the period.

During the quarter, we made our final payment on the original debt use the finance to build the plants in 2013 or 14 internal debt free in China.

In 2019 assumptions for C.N.C. include the higher cost of raw materials, and a significant reduction contribution from a Chinese joint venture almost all of which was realize during the first half of this year.

We all set by cost savings primarily from I knew nothing facility.

Shown on fly 10, we anticipate adjusted even tougher seem at T. in the range of 82 to 84 million, reflecting better than expected performance from the first nine months.

That represents an increase compared with 79 to 83 million <unk> previously and equates to adjust the d., but that marginal approximate 13% at the midpoint.

A decrease of 35 to 37 million compared with the unusually high prior year.

Slide 11 shows the various drivers in our guys for consolidated sales and 2019, which we still anticipate being around $1.8 billion.

Forecast assumes improved cross type production, a four year contribution from acquisitions and solid growth in our P.C. business.

Turning the slide 12, our guys for 2019 consolidated either down adjusted basis is now in the range of 252 $220 million.

Regarding our integration of strategic initiatives, we're on track to realize approximately 20 million of benefits in 2019 with an additional 15 million to 30 million pro rated benefits from 2020 to 2023.

That [noise] 10 million and 2019 benefits is coming from savings related to the new now.

And our facility and stick me, Illinois.

Furthermore, as part of our network optimization program, we continue to evaluate opportunities to improve efficiency is in or operational processes people and facilities.

To that end [noise] excuse me, we recently began adding dry count that are Jasper, Texas utility pole plant to alleviate a bottleneck of getting dry material to treat which opens up opportunities to seek additional volume that were unable to serve today. In addition, we also recently trout treating utility poles that are under utilized Somerville, Texas facility, which has historically been dedicated to treat crossed eyes and run.

And that about half capacity.

After much evaluation, we believe they're offering footprint gives us an opportunity to consolidate a certain amount of production at Somerville, which will open up Paul capacity, Jasper and allow us to go after other markets.

Finally, we're exploring the idea of adding grinding capabilities that Somerville, which will essentially make it a super plants is only one in our entire network that would be treating ties poles and potentially handing end of lifetime pull disposal.

Several other plans in the works that are still in various stages of development I'll communicate as they continue to develop.

The opportunities available to US is one integrated copper is continued to excite me as we build upon our presence at the global leader and what protection.

In summary, 2019 is shaping up to be another pretty successful year and 2020 should be strong as well as we continue laying the foundation for future growth in advancing several opportunities. While we also focus on reducing leverage and risk.

I would like to open up for question.

Well you will now be can question and answer session.

Ask a question you may pressed Star then one on your Touchtone phone. If you were using a speaker phone. Please pick up your handset before pressing the keys.

<unk>. Your question. Please press Star then too.

This time, we will pass momentarily to assemble roster.

The first question today comes from Chris how of bearing 10 research. Please go ahead.

Good morning, everyone.

Yes.

Hi.

So.

Congratulations just on the profitability improvements that you're you're seeing for the company.

On that topic with the C.M.C. consolidation behind you.

You again reiterated the savings that di Napoli facility generated yep, how would you characterize where where the businesses position today just to capitalize on these future costs savings more specifically what type of low hanging fruit operationally is out there for the company.

And as we look to dissect that.

Where where are you in the P.C. segments towards achieving your peak historical margins in what types of Tailwinds would have to work in your favor to expand more towards that 22% historical margin. Okay. So.

Start with with C.M. and see so yeah. We we we've talked talked extensively over the last couple of years about the actions that we had undertaken to try and.

Reduce some of the volatility in that business and I I'd say that from a relative standpoint, essentially stabilize that business. So.

We didn't see sort of the drastic troughs in the business in while we would while we were structuring it that way. We also likely we're taking out the drastic peaks.

Last year again, I think was somewhat of an anomaly is.

The the favorable contract that we had in place in China really elevated, earning so for the year, but overall, obviously and even the other regions. We have very strong performance. So no things have been humming along very nicely for the parmigiana chemical business.

It's not to say, there's not further opportunity for improvement and further cost reduction low hanging fruit wise I'd I'd like to think we've actually you know.

Realized a a lot of the low hanging fruit and or now into the phase where you know there there's opportunities to further reduce costumes and probably you know that's going to come with some capital investment you know the the we spend a a bunch of <unk>.

<unk>, maintaining our plan stickney in particular are new borgen may feel plants, or I'd say or overall in better shape, there's probably some monies. This that you know smartly deployed into the stickney business can can reduce ongoing repair and maintenance a cost in improving.

Fish and see so now that we're you know through that heavy lifting of the the Napoli plant. Although we're still you know say we're done with the C. one c. restructuring were in the process of closing following the B. and that you know that they can't be minimized in terms of the manpower it takes.

And so we don't have you know are are are all our eyes, 100% on opportunities that stick and you. Just yet is we have to sort of finish off the the fall into the activities, but there's there's certainly potential four continue cost reduction, which will help offset you know various headwinds that will continue to face.

You know is is you know the markets that we draw raw material from in the markets that we serve you know our volatile markets right. The still in the aluminum industry or have a lot of volatility associated with it. So it's tough to do what we I think we've been able to do and and maintain that you're still going to have some some ups and downs.

You know I think we have enough opportunities to continue to to drive for cost reduction to help offset some of the potential headwinds coming and a and obviously benefit us even further it when the market's happened to be moving in our in our favor. In addition, Chris on the seem to see side. There's some really interesting things were working on.

From a product standpoint that could help us.

That could help move US you know potentially into some moved some product into higher value market streams, and and that certainly would be a nice.

Insulation, an additional installation to that business against some of the the risks that we face in in again the industries that we serve and I'm afraid I can't get any more specific into that at the moment, but you know there's some things that we're working on the within the next you know a year two years hopefully you know <unk>, we'll have to the point where.

We're actually realizing maybe some benefits from it and certainly able to talk about it in more detail. So so that.

<unk> and as for performance chemicals.

And you know our ability to get back to the peak, 22% margin is the you know that that business.

There's no question that changes in copper pricing have a significant impact on on that business. There's no getting around it right. We we hedge copper as a means to have if you will visibility into our near term operating results. So we don't experience extreme volatility in any given quarter. So.

A year for that matter. So it allows us to at least for C. and manage in smoothed out if you will the peaks and valleys of of the copper market and also allows us over time to ensure that we can you know, possibly get some of that back when needed through two pricing action. So you know we.

When we were achieving you know the 22% Peep margins. That's you know when you know we had copper pricing locked in it you know for us not probably the as low as levels as we've seen them in quite a long time, so as copper prices moved up over the past couple of years, we've had to absorb you know.

20, plus $20 million to $30 million of additional cost.

And some of that obviously been reflected in in the pull back on profitability in the business, but you know quite frankly, we've been able to offset a good bit of that through some of the options. We've taken from operation standpoint, and improving our ability to produce a higher level of the intermediate products.

Rather than having to go on the outside market as well as market share gains, which this year's been really an incredible year in terms of the the the volume of business, we've been able to bring in.

While we already hold the or the share that we hold so I think you know any chance of us sort of getting back to those sorts of levels that you talk about will will largely be driven by where copper prices move in the future.

Yeah, that's great. Thank you for all the color well just two more questions here.

In regard to rubs, but more specifically ups.

You mentioned previously and you continue to mention the aging utility pole environment.

How should I think about and characterize that as we look for its potential contribution towards your longer term outlook and my last question is just in regard to your debt reduction goals.

How do you balance different opportunities that present itself to the business versus your priorities for debt reduction okay.

Ooh, you utility products and services. So I I would say certainly we view the the macro environment for Paul replacement is a positive and.

And you know without anything else that that would be something nice to talk about.

Our biggest opportunities in that business or or clearly two things and and it's not it's not the organic growth rate of whole replacement. It's for US. It is it is further integration.

Capitalization of our operating network with our with our Tai and pulled treating plants.

And it's and it's market share penetration further market share penetration. So those are the two areas were focused on they'll they though if we're successful those two areas. It would far dwarf any any you know positive headwind or other tell wins that might be out there as it relates to.

A year over year growth rates and pull replacements. So that's that's where we're focused and and you know that's what you'll hear talk about focus on and upcoming calls.

Moving on to the to the question the debt and that sort of how we how we balance opportunities that come forward versus versus debt reduction.

We we've we've so so the the unfortunate part of of you know the large acquisitions, we made over the past couple of years is obviously the leverage that we've taken on and.

And the perceived risk that comes along with that which I think has been reflected in our stock price in both cases, when we when we bought performance chemicals back in 2014, and then the utility industrial products in recovery resources businesses last year. So you know we we showed back in 2014 that we were pretty adept at buckling down.

And move and leverage back down.

You know where that was the timing of the U.I.P. and K.R.R. purchases perfect for us know, probably probably would've liked that you know if it if it if it could have happened a a year down the road I think we would've been in a better position to absorb it but you know you you can't time, those things and so they were there we we.

We we Opportunistically went after them and and then you know consciously raised our leverage backup two levels that you know, we don't like to operate out, but but the right opportunity we will.

We're focused on trying to move move the numbers back down there's a number of opportunities out there that we're looking at and and you look every nothing comes for free so there's a price tag to everything.

We we certainly I'd say or more weighted towards getting or or debt can to continue to move down.

<unk> and so I I'd say overall for US we have to see continued debt reduction I'm, okay spending some money on on some opportunities that that makes sense for us, but it can't be at the at this stage it cannot be at the at the price of moving.

Our debt levels up so if we can do those things in concert <unk> reduce leverage reduce leverage not necessarily debit reduce leverage while we also take advantage of opportunities I'm all for that but if it's if it's taking advantage of opportunities while also increasing leverage from where we're at today.

That's just that's not in the cards for us.

[noise] appreciate the color. Thank you Leroy and thank you might <unk>.

You're welcome thank you.

The next question comes from Lawrence Alexander Jeffries. Please go ahead.

Oh Good morning, It's 10 was one from Lawrence how are you good Dan Hi, Dan.

Can you just provide Colorado, how pricing works and both P.C. and the rub segments. It looks like he's a nice placing in in N.P.C. Oh, just wondering if that like introducing new products or was that the negotiation how how should we think about it going forward.

Well <unk> in in P.C., you know we have a we have a sizeable customer base. That's you know some of the largest traders in a country and.

Long term relationships you know, we typically put together multi year deals with our largest customers and.

You know pricing is is you know always a negotiated aspect of that so there's there's yeah. We don't have.

We don't have actors and you know our our pricing that account for changes in copper price and things like that we we we we we commit to pricing you know at certain <unk> rates for them.

You know protect them I give you will against movements in in copper and so that's why we go out and in hedge.

Underlying commodity to ensure that you know we don't have the volatility. So we we helped take the risk of of that part of of the product mix out of the equation for our customer base, which I think they appreciate and you know as as prices of of you know our major raw materials move over time.

And and you know deals come up for renegotiating route renegotiation renewal, we we sit back down to tape won't have discussions about that just like we yeah, we do with most of our product so.

It's on a you know it's on a in most cases A.A. If you will wait a deal by deal basis and they come up at various times.

<unk> erupts you know a lot of our business is long term contract oriented because most of what we do is with the class one so you're talking about three to five year contract Sin again, you're you're you're sitting down at the table and you know you're making your your best cases too you know why you need the pricing you need to support acceptable level profitability.

For your business. It's it's you know those are are tough discussions obviously the row row industry over the past couple of years has been heavily focused at taking cost out of their business.

The reduction in volume and therefore utilization for for for companies like ours makes it tough for us to maintain profitability without trying to get some level spice to help offset that or or something else. If you will.

So you know we yeah, we have those discussions as each particular contract happens to come up and on the commercial side. You know we're out there were out there have been on business and competing.

For forbids that are out there and and trying to get a sense of the market where things are out from a supply standpoint, and being able to provide the product that they need when they need it and you know we we use all that market intelligence to inform us with what we think is a is the right price to to take on a particular.

A piece of business and you know, we we win some we lose some and.

And you know it.

The the pricing and margins tends to be driven by where where you know the overall general market is added in a given point in time so.

That's about as specific as I can get on those on those businesses.

No. That's that's very helpful. And then just one on the question I mean forgive me if I Miss you talked a lot about you know the number of productivity f. efforts and restructuring how should we think about the cash spend over the next couple of years on as you kind of go go for just reducing costs and and doing the footprint optimization and the different moves well certainly as we as we move through through the.

If you will the final phases of the C.M.C. restructuring.

We should see our our cash Arizona in cash flow and proof I mean, we spent.

I think we've spent somewhere in the neighborhood of 80 80 $200 million over the last you know five six years. So again, that's that's cash that we would love to add to deploy into other opportunities. We're we're paying down debt. The good news is we're we're again, we're nearing we're we're winding down.

Down to where where did that sort of annual run rate of $15 million to $20 million of cash.

Devoted to to shattering facilities should be a going away and you know the I'd say the you know we'll have some it'll continue after 2020, but at that point you know, we should see a a nice drop and and see that ultimately reflected in a in our cash flow as well.

Thank you very much yep.

Hi next question comes from Mike Harris, then Seaport Global Please go ahead.

Hi, Good morning, Hi, Mike.

In the the P.C. segment, you had a competitor so yesterday that they had lost an application. So so clearly.

I am you mentioned this year game opportunity, but just wondering kind of how how that plays out in terms of their competitive environment. There's really only three players fair enough. One leaves how much additional volume could you see a and did you start to see that already in Q3.

Or is or is that you have to be seen.

You're you're referring to R.R.P.C. living.

Yes, yeah. So we we've seen a nice volume games. This year like say the vast majority that related to market share.

One of the things we you know it's been tough for US is is.

Truthfully I you know.

Somewhat surprising as much as much share as we have been able to gain a typically doesn't happen in this market [laughter].

So you know, we've we've ramped up bar.

Capacity at our facilities.

To handle a level as well as providing some additional buffer you know for all the volumes that came as a result of the moved to ground contact I don't think any of US all that we would we would see this sort of volume gain as a result of of some market share. When so it's it's put stress on our system.

And and.

I think you'll probably increase some of our our supply chain costs and and things like that that that should be somewhat temporary as we sort of get our feet under us in recalibrate sort of what the ongoing.

Runrate will be but no. It's you know <unk> will be happy to take on a additional volume from from either or the other two competitors out there and we'll figure out a way to do it but but we've we've been running to stay try to catch up in stay ahead of the the gains in in the.

That we've seen over the past couple of years and it's.

It's been challenging, but you know I give a lot of credit to our folks out there and plants. They they've done a fantastic job of figuring things out and making sure we're not missing orders and we're help we're taking care of our customers every day so.

There's there's a <unk> that it while I'd say, it's a challenge Mike we'd be we'd be happy to take on any additional new business. That's that's out there.

[noise], Okay, and then in in terms of the contribution from the China joint venture in C.M.C. It sounded like what you were saying is that there's going to be some sort of down time in the fourth quarter, but just trying to get a sense of of how much lower their contribution could be in Q4 versus cue.

<unk>, yeah, it's <unk>, they've not been a tremendous contributor to our results. This year. So you know it it could be anywhere from two I'd say probably anywhere from two yeah, we'll call it 2 million.

You know two two and a half million dollars a contribution is probably what what we'd be missing for the quarter. If if if if they end up being down for the headquarters.

[noise], Alright, and and then in terms of the the tie procurement.

Situation in in Rob, obviously that was a a much bigger issue earlier in the year, but can you just comment I guess or maybe give a little bit more color.

On a whether we're completely back to normal and where are you are in terms of your.

White tie inventories relative to normal.

So the situation has has improved.

And I'd say are you know our our inventory situation has improved.

It's it's it's sort of you know it's different in different in different in different areas different regions different plans. So we find ourselves and a little different situation summer in better shape than others.

Others, you know we works will continue to be in a position where you know if we could get her hands on the material. We we can we can sell it. So it's a mixed bag I'd say over all the the runrate for for untreated tie procurement. This year is at.

What I would probably call a a somewhat normalized level. So I don't think we're ahead of ourselves to where you know we're building to a point, where you know you see a crash or pull back out in another year or two I think this is more of a normalized rate that we're seeing this year.

And it's the same sort of rate that we expect to to see next year is as well so.

You know we had.

He had probably eight a.

You think here, we had a two and a half million probably tie a differential year over year from I think.

17 to 18 or 16 days 16 to 18, maybe over that two year period, which is which is a huge swing in in that side business and yeah. We really don't want to see those sorts of swings we want to operate somewhere consistently in the middle problem is is you get in the market doesn't always cooperate with that but where we're at.

Right now, we're we're sort of right in the middle that that number.

[noise] alright, thanks for that color and and then the last one I had it is just about the RUPS business I I feel like all your commentary around operating efficiency utilization and network optimization. It. It seems like everything is going well, but I was a little bit surprised to see that margin.

<unk> sequentially. So why aren't we seen those operating improvements are are utilization improvements show up at the margin line. Yeah. I I think I think we I think we are I think there's a couple of things that mask that one is.

You know cross ties while they're the majority of of that segment, we have a smaller maintenance away piece.

That has has suffered a this year due to some of the the cutbacks and pullbacks on spending in in the the real industry and so.

The the poorer performance in those businesses has has has contributed to that that margin pull back a quarter of a quarter or quarter to quarter and the other pieces I think there's a there's a mixed element to this that that sometimes gets lost.

Cost and when you move we you know so second quarter. So so different in different parts of the cycle. You know you'll have your commercial piece of the business that will either be you're better margin business or it will be your worst margin business and it'll be dependent upon sort of where the overall.

Man for ties a rat right when when you when you can get your hands on ties pretty pretty freely a competition in the commercial market heats up as people try to <unk> to move that product in so pricing goes down Martin to go down when when cross ties tighten up.

Obviously, there's left to go in that market and and so pricing naturally goes goes up we've been we've been in that environment over the last year or so and so whenever we see more commercial volume is the percentage of our business in a particular quarter, it's going to affect our margins.

And what we saw certainly second quarter third quarter is a higher percentage in a third quarter of class one volume, which is more consistent margin based business because.

Again that that that's you know that's contractual and and so you know you're not really changing of any anything from quarter to quarter. We saw a heavier concentration of class one business in our third quarter numbers.

Than we did our second quarter numbers were commercial was a greater proportion and I think with where we're at the cycle. The commercial margins are stronger margin. So so with that change and mix you saw resulting.

Dropping in March.

Oh it makes some thank you very much thanks.

Thanks like.

Well next question comes from <unk> Burke I've see Riley F.B.R. Please go ahead.

Good morning, Leroy Good morning, my layer I like them.

<unk>.

Where are you talked about potential market share Ghana variability can share on the on the rubber business, where would you see that and you know how would you anticipate understanding where you know you contracts are in a longer term and it's a fairly type market.

Yep.

I I, Liam I'd say that there's there's the class one market, which we we which we have historically you know put most of our focus on.

And so they're getting therefore, it makes up the majority of our of our business and then you have the commercial market, which truthfully. We you know we've kind of use that the backfill and haven't put as much effort into I think there's there's opportunity on a commercial side to to grow market share class. One side as you point out is going to be more difficult right. We we hold.

We hold you know leading shares with basically almost every class one railroad and.

You know they they want multiple suppliers in so you're you're you know your share might move around here, a little bit up a little bit down in any given contractual period.

But but for the most part you're you're not gonna move that needle a whole lot. There there. There's there's some potential opportunity there I think there's some contract mature.

You know most likely it's probably more on the on the commercial into things, where we have some opportunities that we haven't really going after in the past.

Okay.

And also on the on on P.C. view scaled your capacity more in line with demand now to avoid having to go outside for <unk> materials purchase well Ah. So <unk> with the influx of of volume that we have additional volume that we've had.

This year.

We I I'll say without the additional volume that we've taken on this year, we would probably be in that situation with the additional volume and the <unk> in the wind that we've had this year, we're still in a position where we are having to go out and get some that intermediate raw material, which I guess that <unk>. The the driver for that is good writing the fact.

That we we got a lot of business that.

That yeah wasn't necessarily foreseen.

And we'll we'll continue to adjust to that we we have plans in place for.

You know improving and moving around some capacity to to allow us to if you will optimize that situation, but no. We're not we're not 100 per cent producing our own intermediate raw material.

<unk>.

That's cool that's a question and answer session I would like to turn the conference back over to President and C.E. Mail, we really ball thing closing remarks.

Okay I like to thank everyone for listening in today taken the time to participate on today's call and I really appreciate your interest in copper is in your continued support we'll talk to you next quarter. Thank you.

Conferences now concluded. Thank you for attending today's presentation you may not disconnect.