Q3 2019 Earnings Call

GP strategies third quarter 2019 earnings conference call.

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I would now like to turn the conference over to and White Vice President Investor Relations. Please go ahead.

Thank you good morning, everyone and welcome to keep these strategies third quarter 2019 earnings call.

Call today, our Scott Greenberg, Chief Executive Officer Adams President.

President and Mike do you again, Chief Financial Officer.

Before we begin I would like to remind you that today's comments will include forward looking statements, which are subject to certain risks and uncertainties that could cause our actual results to be materially different from expectations.

For a complete discussion of these risks we encourage you to read our documents on file with the FCC.

You are posted on the Investor section of our web site at GP strategies Dotcom.

A replay of this webcast will be available on our website for 90 days following today's call.

Flights that are being presented today are also available on the quarterly earnings releases page of the Investor section of our website.

It's time I'd like to turn the call where her to our CEO Scott Greenberg.

Thank you and.

Good morning, and welcome to our third quarter 2019 earnings Conference call. Today, we will continue to use our quarterly format, which will include a webex presentation. Hopefully you will find its informative and useful in your analysis of GP strategies.

To initiate the call I'll provide a brief overview of the results for the third quarter, then add them up President will get key updates on our global in nature jobs with a focus on organic revenue growth opportunities.

After Atms presentation, I'll CFO , Mike do good will present, the summary financial analysis, then I will provide summary, concluding with a key when they Sasha.

This morning before the market open GP strategies, an asterisk results for the third quarter of 2019. In addition to realizing both a 12% increase in revenue and a 10% is increasing adjusted EBITDA to 10.8 million in the third quarter 2008 nine.

We have made significant progress in both our business development have pets and strengthening our balance sheet.

The company generated 10.9 million of operating cash flow per quarter, and our net debt position. After subtracting cash was reduced to 10.5 million as of September Thirtyth 2019, compared to 113.5 million.

Of June of 2019.

In addition.

Oh I'm sorry, a one of 5.5 million was our reduction. So in addition to October 2019, the economy sold as to what should program management service businesses, which had trailing 12 months revenue of 6.4 million for approximately 20 million.

In dollars. The coffee has use these net cash proceeds to further reduce its bad debt.

A positive attributes of our company is that over 60% of our revenue is considered a recurring on an annual basis. We currently have approximately 125 of the global 500 companies as clients with that being said, we are making positive interim inroads.

In both increasing wallet share and winning new customers by leveraging our global footprint I will now turn the call over that.

Thank you Scott.

I'd like to start by providing an overview of the business at this point, we're almost halfway through the fourth quarter of 2019, and we have visibility into 2020 last year during our Investor day, we discussed at our overall strategy is to have organic growth of six person that per year as well.

That is driving additional growth by leveraging free cash flow generation to make key accretive acquisitions, we do expect to deliver mid single digit organic growth in 2020.

That was I say this I realize it may raise some questions and I'd like to take a minute to elaborate on our optimism.

Excluding the impact of foreign currency as well as revenue from acquired and divested businesses. In 2018, GP strategies has delivered organic revenue growth of approximately 3% for the first nine months of 29 team.

But our results were impacted what we buy what we believe to be a one time decrease in revenue with the client that was our single largest multiyear outsourcing clients in 2018.

Good agreement with this client was renewed in 2018 and it has ultimately settled into a lower baseline than our prior agreement.

This combined with the impact of currency has resulted in a 14% year to date year over year decrease in revenue with this client.

We do not anticipate a decrease from this level in 2020.

Now wants this client stabilizes at that level, our success in business development in other areas will be more visible. So looking forward. We do believe we're on track for growth and 2020.

Now I'd like to share some more details with you about our sales and business development processes.

The first stages pipeline management, the second stages backlog creation, and then revenue generation is the third stage of the business development process.

Through the first nine months of 2019, we have over 700 million and open sales pipeline opportunity, which represents a greater than 50% increase compared to 2018.

We've closed 265 million of new opportunities from this pipeline during 2019, which is a 16% increase year on year versus 2018. In addition to the pipeline growth. The current backlog of 338 million is the highest backlog in the history of the company.

So now I'd like to ship the conversation a bit to review the results for our segments in the quarter.

Looking first at our workforce exports segment, which includes both the engineering and technical services practice and the manage learning services practice. The segment revenue was up 2.5% in the third quarter compared to the same period last year.

Now the engineering and technical services practice revenue was down 8.7% in Q3 versus 2018, primarily due to project completions in our alternative fuels business and the recovery services work, we're doing in Puerto Rico.

But on our last call, we announced a new large contract for this practice in the aerospace sector. This project is progressing well and ramping up we expect this contract as well as other opportunities to drive our year on year organic growth in the practice gearing 2020.

Our managed learning services practice has shown strong revenue growth in Q3, 2019 versus 18, increasing 8.8%.

The increase reflects the ramp up of the previously announced multiyear outsourcing contract wins. In addition, the UK job skills business delivered year on year growth for the quarter of 15% at a constant currency compared to 2018, and we believe that this business is onto.

Right for continued growth in 2020.

So the main factor to consider when evaluating managed the learning services is that we're seeing greater activity in the training outsourcing marketplace. Our opportunities have grown in 2018 and in 2019 as opposed to previous years I'll discuss this more when I discuss.

Our outlook, but this trend is important to the excess of manage learning services practice.

Now I'd like to shift the conversation to our business transformation segment that includes the sales enablement practice and the organizational development practice.

During the third quarter 2019. This segment delivered revenue growth of 31% driven primarily by the sales enablement practice that was up 70% do the contribution of T T I and organic increases in automotive sales training.

These increases were offset some by a decline in publications revenue due to a shift in timing of magazine publication mailings compared to last year.

Going forward that GTS business continues to exceed our acquisition pro forma revenue expectations, and we expect the business to generate improved gross margins in line with the rest of our automotive services for 2020.

Now turning to the organizational development practice revenue was roughly flat in Q3 2019 versus 2018 and our year to date revenue is down 4% year over year. However, the gross profit has improved by $1.2 million year to date and gross margins had increased from 30.

1% to 15.3% year over year.

This revenue decline and profitability improvement is partially a result of our strategy a discontinuing certain parts of the business and focusing on our higher margin revenue streams.

In addition, as we complete the rollout of our find when gross sales model throughout this practice, we're confident that this strategy will drive growth in revenue and earnings in 2020.

Next I'd like to discuss the overall outlook for GP strategies going forward.

During this year the multiple contracts that were one in the back half or 2018 have ramped up through the first half of 2019, but the bulk of the financial contribution to the company did not begin until Q3.

Looking forward into 2020, we expect those revenues from the multiyear awards to contribute across all four quarters of the year.

As we get closer to year end similar to last year, we're experiencing a significant increase in request for proposal activity for managed services contracts. We're encouraged by this increase in outsourcing opportunities and believe it will translate into revenue for the company.

At this time, we've already been selected for one multi year million dollar contract and are actively pursuing seven other contracts of equal or larger one particularly larger value.

The combined revenue opportunities these contracts alone could be $20 million per year.

In addition to these multiyear opportunities there are several large one time projects that were currently pursuing we believed that this strong in full pipeline will drive long term growth for the company.

Now on previous calls we discussed our goal of expanding share of wallet within our existing customer base.

We continue to execute on this strategy and part of this strategic planning for 2020, we analyze and prioritized account activities for our 50 key clients from 2019.

These key 50 clients account for approximately two thirds of GP strategies annual revenue growth.

Growth within this client group will be a key metric that we will track and report moving forward currently we expect to deliver at least high single digit growth within its high value target group of clients in 2020.

In conjunction with these key 50 clients strategy. The automotive industry continues to be an area of focus for us and we expect to see double digit growth of this business area in 2020 versus 2019.

We expect a multiyear multi billion dollar contract wins that I mentioned earlier to be a driver incremental growth in both the key 50 clients and the automotive industry business.

So overall as we near the end of 29 team. We're confident that this business will grow in 2020 and beyond and driving long term shareholder value. So now I'd like to turn the call over to Mike to review the Companys financials in more detail.

Thanks, Adam and good morning, everyone.

Starting with Q3 revenue and gross profit on slide eight of the presentation.

We reported Q3 revenue of 139 million, which is up 15.4 million or 12.5% from the 123.6 million of revenue reported in Q3 of last year.

It's a break the revenue out by segment. The workforce excellent segment reported Q3 revenue of 82.5 million, which is up to what a half million or 2.5% from the revenue reported in Q3 of 18.

Within this segment the MLS practice contributed a net increase of 5.6 million, primarily due to a 4.8 million net increase for MLS training and content development services due to the recently announced outsourcing contract wins and new content development contracts.

There was also a point 8 million increase in vocational skills training services provided by the UK government.

Partially offsetting these increases the EPS practice experienced a net 2.2 million decline in revenue primarily due to a 1.1 million decrease in revenue from alternative fuels projects and a 1.1 million decrease primarily due to a decline in our disaster recovery services and a decline in.

Our energy product business line.

Within this segment there was a 1.4 million decrease in revenue due to changes in foreign currency exchange rates.

The business transformation services segment reported Q3 revenue of 56.5 million, which is up 13.9 million or 31.3% from the revenue reported in Q3 of 18.

Within the segment the sales enablement practice contributed a net increase in revenue of 13.9 million, primarily due to a 13.3 million increase related to the TG global and TTR Europe acquisitions, which were completed.

In 2018, and a 1.5 million increase in automotive sales training services largely due to an increase in new vehicle launch events and technical training services.

Partially offsetting these increases while the point 9 million decline in publication revenue due the timing of shipments of the 2019 fault publication.

The organizational development practice revenue for third quarter of 2019 was consistent with the third quarter 2018.

And within the segment there was a point fourmillion decrease in revenue due to changes in foreign currency exchange rates.

The publication revenue in the sales enablement practice in Q3 was point 7 million, which was point $9 billion less than that pop revenue recorded in Q3 of last year. This decline was due to the entire 2019, all publication being shipped in Q4 of this year versus in 2018.

A portion of the fall pub ship in Q3.

We are projecting publication revenue in Q4 of 19 to be 9.8 million compared to 8.8 million in Q4 18.

In terms of gross profit we reported Q3 gross profit of 21.7 million, which is up two and a half million or 12.9% from a 19.2 million of gross profit reported in Q3 of 18.

Gross margin, excluding 1 million of severance in the quarter was 16.3% versus 15.5% in Q3 of last year.

The workforce excellent segment reported Q3 gross profit of 14.3 million or 17.3% of revenue.

Which is an increase of point 9 million or 6.6% compared to the gross profit of 13.4 million or 16.6% of revenue for Q3 of 18.

The primary driver of increasing gross profit in the workforce excellent segment or the revenue increases previously noted.

The business transformation services segment reported Q3 gross profit of 7.4 million or 13.1% of revenue, which is an increase of 1.6 million or 27.2% compared to the gross profit of 5.8 million or 13.5% of revenue for Q3 as a team.

Gross profit increase in this segment were primarily due to the gross profit contributed by the TTR acquisition and improved gross margins in our Ob practice.

Moving onto the the slide nine our year to date revenue gross profit to touch upon some year to date highlights for the company.

Year to date revenue was up 45.6 million or 11.9% gross margins, excluding 2019, severance or improving and running at 15.8% year to date versus 15.6% last year looking forward to 2020 with one of the focus areas being to bring TTR gross margins in.

Aligned with the rest of the business, we should see further improvement in our gross margin percent.

Year to date organic growth is at 3.1%.

While the 2019 year to date organic revenue growth is not yet at the targeted rate of 6% that we announced at our Investor day last year. The trend has stepped from a negative organic growth rate for 2018 to a positive year to date 2019 increase of 3.1%.

Each quarter of this year has seen the organic growth rate increase over the prior quarter. So the trend has been positive and improving each quarter.

As we look forward, our strong proposal pipeline and contract backlog would support that trend to continue to move towards achieving our targeted organic growth rate.

Finally, with the recent recently announced divestiture of the tuition business to help calibrate the impact on our Q4 revenue projections. This business was projected to contribute roughly 2.5 million of revenue in Q4 had it not been divested.

Moving on to ask DNA expenses on slide 10.

General and administrative expenses are up 3 million or 24.6% from a 12.2 million in Q3 of 2018. The primary drivers are a 1.2 million increase in Gina, including amortization from the TTR acquisition, a 1 million increase due to internal labor costs that in Q3 of 2008.

Team were capitalized in connection with our financial system implementation, but are included in DNA expense in 2019.

There was also a point fourmillion increase in bad debt expense with the majority related to related to pass the way our on a disaster recovery project in Puerto Rico related to Hurricane Maria recovery efforts. This project is funded through FEMA and GP along with every other supplier of similar FEMA back services.

To Puerto Rico is experiencing a delay in payment due to bureaucratic delays within FEMA to release the committed funds, while we expect full payment under this contract once a bureaucratic log jam has removed under our reserve policy. We've taken a reserve for a portion of this past due a are.

Lastly, there was a point 4 million increase in other gionee expenses.

Sales and marketing expenses in Q3 or up point 5 million quarter over quarter, primarily due to the investment and business development personnel inside sales and the centralization of our account management team someone who were previously recorded in cost of revenue in 2018.

Moving on to other PML items on slide 11.

We've been incurred restructuring charges of 1.4 million year to date, which is associated with the TTR integration compared to 2.9 unity in 18 in connection with prior reorganization and related cost savings initiatives.

Interest expense in the quarter is up point 5 million due to higher borrowings and interest rates under the credit facility.

Other income had a 1 million dollar improvement for the quarter, primarily due to a point 5 million gain related to our royalty on the on the licensing of our product associated with the divested business for which we had a point 3 million loss on disposal in Q3 of 18 as a note due to the accounting rules associated with accounting for the divested business.

The license royalty was reported in other income instead of gross profit.

The effective income tax rate year to date was 31% and we are projecting a year end.

Tax rate of 30%.

Moving on the earnings summary on slide 12.

We reported net income of 2.1 million for the quarter EPS or 13 cents.

Adjusted EPS for Q3 was 24 cents versus 27 cents for Q3 of last year and adjusted EBITDA for Q3 was 10.8 million versus 9.8 million for Q3 of last year.

Moving on to slide 13, and some balance sheet highlights.

Operating cash flow for Q3 was 10.9 million and for the year is 4.6 million.

Debt net of cash at the end of Q3 was 105.5 million, which is an 8.1 billion improvement from Q2 of 19.

Unbilled revenue was down 20.8 million from December of 2018, and 12.4 million from Q2 of 19.

I'm pleased to be able to report that the delay in billings associated with the new financial system are now behind us.

With this recent surgeon billings are is up 8.3 million from December of 18. This is the last area, where the impact of a new financial system is showing up on our balance sheet. During Q4, we will focus will be focused on ensuring that the recent surgeon billings converts to cash.

And for an update with the proceeds from the sale of our tuition business and continued cash generated from operations our debt net of cash as of November 4th stands at 84.8 million, which is down 20.7 million from the September number.

Turning to backlog on page 14 backlog as a Q3 of 2019 was 338.1 million, which is up 73.7 million or 28% compared to the 264.4 million of backlog at Q3 of 18.

Excluding the TTR backlog of 24.2 million, our backlog is up 49.7 million or 18.8% over Q3 of 2018.

I would point out that some of the increase in backlog during this quarter relates to funded contracts with a period of performance beyond 12 months.

With that being said, we do still expect that approximately 90% of our backlog will be recognized as revenue within the next 12 months.

It's also important to note as we've stated on prior calls that long term multi year contracts or projects that are funded each year only include in backlog the definitive funding amount, which typically does not go beyond 12 months.

This concludes financial update I'll now turn the call back to Scott.

Thank you, Mike and Adam.

We ended 2019, the three strategic initiatives, one organic revenue growth.

To strengthening our balance sheet three completing our ERP implementation.

As you've heard today, we've made significant progress on all these key initiatives and look forward to an improved 2020.

In 2020, we hope to return to the clean pristine statements without all the pro forma adjustments.

That has been a trade off of GP strategies in the past.

With that I'll turn it over to the Q1 eight session. Thank Jeff.

We'll now begin the question answer session last quick question. Please press Star then one on your Touchtone phone.

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Somewhere Oscar.

First question comes from Jeff Martin Roth Capital Partners. Please go ahead.

Good morning, everyone.

Morning.

Got it caught this correctly, but just wanted to clarify.

So $1 million, 10% a quarter that was all in the cost of sales item and excluding that gross margin was 16.3% that I guess that right.

Yes, that's correct.

Okay, and if that is is that kind of a normal level going forward or is there some fluctuation yeah that that yeah.

Brought that margin number of for the quarter.

When you say normal level, the severance normal or by gross profit.

A margin levels.

That's something I think or keying in on.

Yeah, I think that we are well within a bandwidth expecting in crude improved gross profit.

Margins. So I don't know if this is the exact level, but we are expecting improved gross margins in 2020.

Okay, and then on P.T.I. margin improvements a big.

Initiative, there as well.

How far are you along and getting those Martin's to where you expect them to be if you could maybe be specific on on what the margin.

Currently where it was when you bought it and where you think you can get it too.

So right now when we first bullet PPI.

We gave some EBITDA guidance on what we thought we could.

And right now the margin gross profit profit margin is approximately 12% our goal is to get a 14% to 15%, which will put us in the range. The one thing I will like to talk or would like to talk about is in addition to that though we are working on.

On a major initiative.

With a large automobile company and it's almost a joint venture type of program, where we're investing approximately $200000 per quarter currently.

Okay.

And then on your key 50 Klein initiative.

Is this something that has.

Yeah come about this years that any strategy and what one is kind of the underlying approach to that strategy.

So so it's a it's an expansion of the historical strategy going into this year, we looked at a subgroup of 35 clients. We've expanded that the 50 and that we've gone through a little bit of a refinement. The the key to this as we had said our goal is to increase.

Share of wallet, what we're looking for is a meaningful measured that allows us to rationalize operating the business.

And articulate our success at increasing share of wallet. So this key 50 number as we're able to report it and were able to report growth on that we'll be able to give.

Investors, an understanding of our track record in our increases of share of wallet plus it helps us to guide our business development strategy.

Okay and then.

Could you provide an update on the job skills market and how that's trending are you expecting to see.

Acceleration of growth, there and maybe give us an offensive.

Of what the outlook for 2020 as that.

We don't expect to see an acceleration of growth, but we expect to see it could continue to grow at the same rate that it's been growing this year. So now that we're past the breakover point.

And quarter versus quarter, where we're at a positive situation, we expect to be quarter versus quarter positive going forward throughout next year.

And at this point beyond that and the one thing to add to that Jeff is when the skills funding change their model and required the co pay we were we were a 100%.

Oil company.

I'll provide more of this type of training service with the changes and the voucher system, where now approximately 50% large company and 50% small company. So we've really pivoted our model to become a provider of these services to companies.

Really the typical type of GP strategies customer.

That's helpful. Thank you.

Our next question comes from Alex Paris Barrington Research. Please go ahead.

Good afternoon. This this is Chris how sitting in for Alex I should say good morning.

Hi.

First just following up on the previous question or your comments on the large automotive customer for TT.

You mentioned the investment that's required per quarter.

Can you comment on just where you are with this customer the timeline and should there be another large automotive customer in the pipeline would it require a similar investment or is this from specific.

So to start off you know.

We're very excited about where we are in the automotive sector.

If you looked at our business today, it's approximately 25% of GP strategies. Overall revenue. We are now currently dealing with a 10 largest manufacturers of automobile companies in the world and the combined entity at PPI and GP strategies.

Gives us the ability to the Liberty services on a global basis, but not just sales training, which historically has been.

With GP strategies has had a lot of inroads, but technical training as well.

I believe this program that we entered into is really unique to this customer and you shouldn't be seeing elsewhere.

At the end of the fourth quarter, we'll give more granularity into what we're actually doing but it is a unique program to this one supply our who is a top cost would be a top 10 customers GP strategies. There there are second largest automotive supplier and we field.

There's an opportunity that significant increase with them. So that's what's driving the strategy.

That's great I appreciate the color and.

Just moving onto this a 6% organic growth rate that were moving towards.

You shared some insights in addition to the large automotive customer the contract that you want in aerospace.

Can you comment just on the different growth drivers are you seeing on a segment level basis, perhaps beyond what you've already mentioned.

They kind of gives you towards that organic growth rate or more specifically what organic projections are you expecting on a segment level basis.

So so to.

Go through the things you mentioned to for example, the aerospace contract that you mentioned this year, we expect that contract will contribute less than a million dollars in revenue primarily in Q3, Q4 and more heavily weighted towards Q4 next year that same contract which should be north.

$6 million in revenue so right there from a year versus year perspective, just on the same contract you have a ramp up on that on top of that if you look at our managed learning services contracts.

That have contributed to the growth in manage learning services in Q3 in Q4 those contracts run at a certain baseline that baseline is going to continue into Q1 and Q2 of next year. So from a year versus year comparison perspective Q1 and.

Q2 of next year versus Q1, Q2, this year that baseline as those contracts will put us at an elevated level, that's independent of whether any of the deals in our sales pipeline materialize into revenue generation we.

A point point to that is we introduced the concept on a previous call of long sales cycles insured sales cycles. The long sales cycles, we win them and it takes a while for the revenue to ramp up so now that the revenue has ramped up it should support the revenue growth in the first half.

Next year.

On top of that as we had success in our sales process. During Q4. This year those new wins would then contribute to the sales growth in the second half of next year versus this year. So that's how we anticipate the organic growth will materialize.

That's very helpful and that.

Let me to another question the backlog increase that you're seeing how should we think about the sales cycle in terms of your backlog short versus long.

So we have seen a little bit of a shift from backlog and Mike mentioned that in that we have a couple of customers that.

Have funded some projects a little more than a year.

It's not material overall I would say in general the way, we view backlog as it although backlog doesn't give you a direct indication of revenue over any given period of time backlog increase is definitely an indicator.

Of improved business outlook and improved jobs that we have to execute against which then generate revenues in the incoming coupon coming quarters.

Great. All those comes were very helpful.

I think thats all I have for now I'll hop back in the queue. Thanks, everyone.

Thanks.

Again, if you have a question. Please press Star then one.

Your next question comes from site Cummins B. Riley FBR. Please go ahead.

Yes, hi, good morning, everyone.

Good morning factor.

And just kind of quick question around the sale in the tuition management business to bright horizons more so interested on the strategic partnership you announced with them is there really and you sort of customer overlap that you have with bright horizons right now I'm just trying to get.

A little more detail on the potential opportunity to sell your services within their customer base.

So actually theres significant potential customer overlap that is one of the things that really drove the spirit of this partnership if you look at bright horizons and if you look at our tuition business and if you look at our training business combined those three together historically our tuition work.

What has been purchased by the benefits department within human resources.

And then we've been trying we cross sold into the training department within human resources, and we've had some success there doing that with that said bright horizons does multiples more tuition business than us multiples more benefits work to us. So if you look at their.

Our penetration inside of the human resources Department of these large customers it significantly deeper and broader than our penetration just because of the size of their firm. So the ability for us to cross sell into their customer base.

I attended their customer forum that they had just recently so we're looking for that cross selling to come in likewise the benefit for them is as we have relationships with all of these training department, they're able to get introduction into the training side at these human resource Department.

All of that said the last piece. In addition to that is there is potential synergy between our UK job skills business and bright horizons business in the UK as well. So we do we are optimistic.

About this strategy of cross selling in partnering to work with each other in a go to market strategy.

Okay understood that that's really helpful detail, Thank you for that and.

Adam you mentioned that there was a 14% year over year decline with one of your larger outsourcing customers. This year can you provide a little more detail around that that decline this year and kind of the expectations that the should moderate or potentially reverse as we go forward.

Sure sure. So if we go back in 2018, a major point of emphasis for GP strategies was to renew outsourcing contracts with our two largest customers. Both of those came up for renewal in the same year they comprised over 25% of our.

Total revenue as a company. So it was a critical to our strategy to win those renewals we did when both of those renewals and twice in 2018, and we locked in a substantial base of revenue going forward to go along with the year versus your renewals that Scott mentioned earlier with that said one of those customers which into.

2018 was was our largest customer the new contract.

Involves a re baseline of some services. So those services went down in the new contract. In addition, a large percentage of the revenues for that financial services customer are generated in pounds. So the devaluation of the pound.

You did to that downturn, and then thirdly that particular customer is experiencing some cost pressures in cost constraints right now that we are partnering with them to deal with all of that has contributed to the year versus your.

Decline in this year now looking at 2020, we've had a successful long term relationship with this customer helping them to enable cost savings through partnering with us and although this year, it's been a negative impact because the speed at which the savings had to occur.

We believe that our strategy of engaging with them to help them meet their cost savings targets by better engaging with us as well as not anticipating the pound downturn in 2020. The same way we haven't 19 all of that combines together to say we're not currently.

Paving a decline in 20 versus 19, the way we experienced in 19 versus 18.

Okay understood. That's helpful context, and then Adam you were discussing kind of the potential opportunities that you have coming up here at the end of the year again can you talk about how you're feeling about your positioning in both those multiyear opportunities as well as these large onetime contracts and when we should be getting to the decision point on a lot of these potential.

Deals.

So so we feel good.

Good for two reasons one is as I mentioned earlier, if you look at at 14 15, 16 17, one of our challenges was just the sheer number of deals that were that were available in Q4 during our selling season in annual budget cycle. The number of deals we were bidding on huh.

Ed had gone down last year, we saw the ramp up of that this year, we see a ramp up of that.

Right now we have.

One opportunity that we're pursuing that would be over $10 million a year, we have a second opportunity we're pursuing that would be over $5 million here, it's not to say that will win knows but we're encouraged by the size of the deals and the number of the deals that we now have the opportunity to bid on previously.

Even if we add a high success rate. If there was a limited number of deals. It makes it very challenging for us so having an increased number of deals as well as we did experience an improvement in our win rate in Q4 of last year, we're hoping that that same improvement will translate to Q4 this year.

And as we did last year, we announced a lot of our successes from Q4 in our earnings call that happened at the beginning of the year.

We would anticipate much of this pipeline, we would add decision on our next earnings call and we would be able to give you updates on our success rates.

Great. That's helpful and then Scott just one final question.

With the sale of your intuition management program to bright horizons that you get that $20 million in cash to further strengthen the balance sheet can you provide any context into sort of the leverage ratio that you're targeting by year end.

Well.

Not yearend, but historically.

We feel much more comfortable with a leverage ratio below two and potentially getting to 1.5. So thats just the historic GP is hard to predict where are we going to be a year and as Mike discussed today, the net cash position at the end of November .

Bruce So we gave you some insight to where we are so thats a big step into right direction from where we are.

In the second quarter.

So we'll continue on by I think really we're starting to feel comfortable and we're on the right track.

Understood. Thank you for taking my questions and best of luck with the remainder of the year.

Thank you.

This concludes our question and answer session.

I'd like to turn the conference back over to Scott Greenberg for any closing remarks.

Thank you moderator.

It's a simple closing today hopefully you saw from our presentations that a significant amount of progress was made in both Q3 and so far in Q4.

And we really thank you for participating on the call and we'll give you the update when we close by year end results. So thank you very much.

Conference has now concluded. Thank you for attending today's presentation you may now disconnect.