Q3 2019 Earnings Call
Welcome to show resolutions third quarter 2019 earnings conference call.
That's true all participants are in English no.
After today's presentation, we will conduct a question and answer session.
And instructions will be given at that time, if he would like to ask a question.
I would now like to turn call over to Mr., Tony Semak head of Investor Relations for shower solutions. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining US today. We appreciate your participation in our third quarter 2019 financial results conference call and look forward to sharing with you our prepared remarks in answering your questions.
We hope you had a chance to review the press release, we issued yesterday after the market close but not you can find the press release as well the supplemental investor presentation on the Investor section of our website at Www Dot sure, a doctor or buyer or dot sharp dotcom.
Joining me today in our core Scott Smith, President and Chief Executive Officer, and Roger Shannon, Chief Financial Officer and Treasurer.
During their prepared remarks, we will conduct the customary question answer session and continuing dialogue.
Before we begin I'd like to remind you that our remarks regarding sharper solutions include statements that we believed to be forward looking statements within the meaning of the private Securities Litigation Reform Act.
These forward looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those disclosed in our earnings releases and conference calls.
Those risks include among others matters that we have described in our earnings release as well as in our filings with the Securities Exchange Commission.
Putting our quarterly reports on Form 10-Q .
We disclaim any obligation to update these forward looking statements.
During this conference call will refer to non-GAAP financial measures, we provide reconciliations cities applicable GAAP measures in our earnings release supplemental presentation and on our website again, we want to thank you for joining us today and now I'd like to turn the call over to Scott Sproule, our president and CEO Scott.
Thanks, Tony Good morning, everyone and thank you for choosing to participate in our call today.
Delighted to report on the operational improvements we've made since we last spoke following the second quarter of this year.
Also share how we've demonstrated success in executing our growth strategy and reducing our debt as anticipated.
Our entire leadership team as it's been a considerable time and effort to reach our corporate objectives and the accomplishments I will describe for you. Shortly will help illustrate the results of that work and how we become better position to achieve our performance targets in 2020 and beyond.
This morning, I'll briefly review, our financial results and provide an update on current business developments.
Including a review of our significant accomplishments.
An update on our pipeline of opportunities our technology initiatives and recent regulatory and legislative actions.
I'll then transition the call to Roger for a deeper dive into our financial performance during the quarter any discussion around our financing activities and our 2019 guidance in 2020 outlook.
Revenue decreased 35% as compared to the third quarter 2018, primarily driven by project completions within the remediation a compliance services component.
Of our environmental solutions segment.
Including the completion of the breakeven project, resulting from the deemed termination coupled with a decrease in revenue value of projects, one and awarded in 2018.
This decline was partially offset by an overall net increase in revenue from our byproduct sales offerings.
Revenue also declined within our maintenance and technical services segment.
To a lesser extent due to reduced scope of nuclear outage services in fewer outages, partially offset by an overall net increase in revenue in our fossil service offerings.
Gross profit declined as well driven by the decrease in revenue in our environmental solutions segment due to the early termination of the breakeven project and the roll off and other remediation compliance services contracts.
All along with losses related to one project specific issue continuing from the first quarter 2019.
Partially offset by a net overall, increasing gross profit from byproduct sales.
However, gross profit increased.
Our made some technical service segment due to primarily higher gross profit from our fossil service offerings, partially offset by reduced scope of nuclear outages and fewer outages in the period.
On August Thirtyth 2019, we announced that we reached an agreement related to the early termination of the contract for Sars Brcaone location.
In connection with the settlement, our customer agreed to pay sure $80 million consistent with our previously communicated expectations.
We received the payment and applied at $50 million and proceeds to the reduction of our term loan consistent with our prior guidance.
Balance applied to our to our revolving credit agreement.
Next I'll review several vital accomplishments during the quarter that demonstrate the success of our growth strategy most notably.
We are on a strong pace in business development activities, having now one approximately $385 million a new awards here today.
Additionally, we have more than $300 million and verbal awards currently under negotiation.
Our year to date success rate in winning awards under contract based on total project revenue is approximately four times higher.
Then year ago period.
These awards include multiple new contracts.
As well as contract extensions that have expanded our customer base.
We continue to make progress and receive keen interest on our MP 618 asked Beneficiation technology from utility customers, both domestically and internationally and we hope to convert this interest into awards soon.
We reduced our total debt significantly because it's consistent with our prior guidance.
And we continued to receive awards and recognitions for excellent safety performance, which further demonstrates our commitment to our employees and our customers.
We have faced a few challenging quarters as our business transition stores competing for contracts with increased complexity and scope.
However, we believe that we are positioning ourselves to take advantage of current developments.
Skus elements of these developments in a bit more detail.
We believe Saar solutions will be a key environmental solutions player over the coming decade. We believe we are very well positioned to benefit from the market and regulatory momentum.
Possibly recycling and Remediating coal ash.
More than 1000, as fondant landfill still require EPA mandated closure or remediation.
Creating an estimated $75 billion in coalesce remediation opportunities in the U.S.
And we believe.
We are well positioned to be a leading provider for those services.
We also continue to see regulatory and public policy trends as increasingly driving customer needs for creative remediation solutions.
Including were Beneficiation.
Recycling Abash plays a significant role.
We continue to believe that are empty 618, ash beneficiation technology positions us well to capitalize on this opportunity.
No there had been delays in announcing new business awards over the past couple of years.
We expect the size of utility RFP is to increase over the coming periods.
Our total bid submitted year to date are well above a year ago period, and we expect to be around four times above a year ago period end dollar value under signed contracts one by the end of the year.
Further increasing complexity in scope of pending project opportunities are also increasing our future growth potential.
These upcoming opportunities continue to be weighted more heavily toward our environmental solutions segment.
We have secured approximately $385 million, a new awards year to date.
Additionally, we have more than $300 million in verbal award is currently under negotiation.
We continue to expect the conversion of these verbal words into contractual awards during the remainder of 2019.
We expect the combination of new awards generated year to date.
And verbal awards under negotiation to result in our most active business development you're on record.
With our ability to write custom solutions that combine our market, leading ash management capabilities and our proprietary beneficiation technologies, along with a regulatory environment increasingly conducive to our business.
We believe we are ideally position to expand our revenue generating potential while our highest priority will always be our commitment to safety. We are intensely focused on capturing a significant share of profitable growth opportunities.
Next we'll provide an update on developments in our technology initiatives.
Our thermal Beneficiation technology known as MPSX 18 is continuing to gain.
A strong positive reception from utility customers.
Excites me most about this proprietary technology is that enabled us to transform coalesce waste into beneficial use products in an economical and environmentally friendly manner that is compelling to our utility customers while meeting the high demand from the ready mix concrete market for purposes of making stronger more durable.
More concrete.
For the construction of buildings roads and bridges.
We are holding discussions which utility customers to begin deploying this technology in their businesses.
We're also in discussions with interested international customers to to deploy this technology.
While our technology Rollouts had been slower than previously anticipated.
We continue to expect the MPC Xsixteen technology initiative to be a key growth driver for our byproduct sales business.
We continue to see a trend in coalesce regulation toward more prescriptive approaches at the state level dictate the means and methods for.
As upon closures than a required at the federal level.
States like Kentucky, South Carolina, North Carolina, Virginia, Oklahoma, Missouri, Indiana in Illinois.
Have already developed their own rules for coal Ash management, and some utility customers in other states.
Our proceeding with coal Escos your plans more proactively.
Which we expect will contribute to the anticipated growth in new work awards in the coming quarters.
As we've discussed in prior quarters, we continue to see much discussion and reporting of potential groundwater contamination at or near coal plants and ash disposal sites.
Widespread reporting on this issue is another example of.
Growing environmental concerns about this issue.
Could result in remediation plans that create opportunities for short to provide of environmentally friendly solutions at the federal level due to the prompting of the DC Circuit Court of Appeals in 2018.
The EPA has released proposed amendments to its 2015.
Coal combustion residuals were CCR regulations.
The change of criteria for clean closure from a size based approach to a location based approach.
This means closure determinations will be based on the risk to waterways and groundwater contamination rather than the tonnage.
The talent period is underway and the final ruling could be established by year end.
Earlier this month the EPA.
Also proposed additional revisions to the 2015 CCR rule that include a change in the classification of clay liners in soil line surface impediments to online.
Which requires closure and brings forward the deadline for unlined or failing CCR against to stop receiving cash and initiate closure.
To August 31, 2020 from October 31, 2020.
These and other recent examples reinforce our expectation for regulatory and public policy trends to increasingly drive customer needs for creative remediation solutions, including we're beneficiation plays a significant role.
We believe our ability to bundle our proprietary technologies.
With more traditional remediation approaches puts us in a strong competitive position to develop these creative and cost effective solutions.
Growing concerns about potential groundwater contamination could prompt.
Actions in other states to require clean closure.
Also approaching regulatory deadlines are likely to increase utilities focus on developing their compliance plans.
These developments have been key drivers in our expanding pipeline of opportunities and further support our confidence in the future of our business.
With that I'll turn it over to Roger to provide a review of our financial results.
Thanks, Scott now continue with a review of our financial results and provide an update on our balance sheet and liquidity and review our 2019 guidance in 2020 outlook before turning it back to Scott for closing remarks.
Revenue for the third quarter decreased $64.9 million were 35% from year ago period to $121.1 million driven by project completions within our remediation and compliance services component, including the completion of the breakeven project during the first quarter, excluding 19 results.
From the previously discussed Dean termination and a decrease in the value or projects one in 2018.
To a lesser extent by fewer nuclear refueling outages at a reduced scope of nuclear outages.
Gross profit decreased $12.8 million to $13.9 million during the quarter.
Gross margin declined to 11.4% from 14.4% in the same period last year.
These declines were driven primarily by project completions in our environmental solutions segment.
And to a lesser extent increased cost associated with the project specific issue that continued from second quarter.
As we previously discussed the circumstances, giving rise to these costs are isolated and had no relation with any other current or anticipated projects.
We reported a GAAP net loss for the quarter of $2.3 million is compared to a net loss of $16.5 million in the year ago period.
The decline in the net loss was primarily attributable to at $18.5 million decrease in June a expenses.
$18.2 million decrease in interest expense.
So we offset by lower gross profit.
Our Gina expenses were $14.1 million into last quarter compared to 32.6 million in the year ago period.
The reduction was due primarily to nonrecurring charges during the year ago period associated legal costs.
Interest expense was also lower as compared to the year ago period, primarily as a result of term loan interest declining following the refinancing of the term loan debt in September 2080.
We recognized a $1.1 million income tax benefit in the current quarter as compared to a 5.7 million dollar income tax benefit a year ago.
Q3, adjusted EBITDA of $5.6 million was down $26.9 million from year ago period, due primarily to lower gross profit offset slightly by decrease in recurring DNA expenses.
Capex in the quarter was approximately $2 million down from the 6.5 million during the year ago period, primarily as a result slower than anticipated rollouts of our technology initiatives and an increase in lease financing activity.
Now I'll discuss results and our reporting segment level.
In our environmental solutions segment revenue decreased $57.8 million or 56% to $46 million.
Remediation and compliance services revenue declined $60.6 million due to the net impact.
Remediation contracts rolling off and a decrease in the value of projects one in 2018.
Byproduct sales accounted for $2.8 million increase in segment revenues.
Gross profit for the segment decreased $13.1 billion to $6.8 million in gross margin declined to 14.8% from 19.1%.
Most of the decline in gross profit in gross margin in this segment was attributable to the previously mentioned projects rolling off and the project specific issue one remediation site.
In our maintenance and technical services segment.
Revenue decreased $7.1 million or 9% to $75.1 million.
In our nuclear services business, we had refueling outage is underway, but non completed as compared to one refueling outage completion in the third quarter of 2080.
Year to date through September Thirtyth, we have completed six outages compared to eight outages during the year ago period.
The 2019 outages were also reduced in scope relative to 28 team as we anticipated.
As expected these factors led to lower nuclear services revenue for the quarter as compared to last year.
The decrease in nuclear services revenue was partially offset by increased fossil services revenue.
Maintenance and technical services gross profit increased approximately $200000 for 3% to $7 million as a result of higher gross profit in the fossil services business, partially offset by lower gross profit from nuclear services segment.
Maintenance and technical services gross margins increased to 9.4% from 8.3%.
Now turning to our balance sheet and liquidity.
At September Thirtyth 2019, we had gross consolidated debt the hundred $99.3 million, which is a decrease of approximately $72 million from the prior quarter and a decrease of $54.8 million from year end 2080 levels.
Proceeds from their brick haven deemed termination payments were used to reduce our term loan balance by $50 million.
With the remainder applied toward our line of credit.
Our liquidity was approximately $40.4 million as of September Thirtyth 2090.
Down from $50 million at the ended the fourth quarter of 2018.
Next I will address our 2019 guidance.
As detailed on slide 15 of our presentation, we're tightening or tuning 19 guidance ranges for revenue net income attributable to shore solutions, the adjusted EBITDA to reflect better visibility in the full year outcome.
The 2019 revenue guidance range has narrowed in the previous range of $510 million to $560 million.
To a new range of $520 million to $540 million.
The net income attributable to Shara solutions guidance range has narrowed.
From a loss of $27 million to a loss of $20 million now to be a loss of $26 million to a loss of $24 million.
The adjusted EBITDA guidance range has narrowed from $25 million to $30 million now to be $25 million to $27 million.
Regarding our 2020 outlook.
We are affirming our previous outlook of our revenue range of $560 million to $610 million.
Our adjusted EBITDA range of $45 billion to $50 million.
Our net income range of $9 million to $14 million as described on slide 16 of our earnings presentation.
With respect to technology Capex, the rollout of slag rounding technologies is at our discretion and driven by our assessment of market conditions, while DMP 618 technology rollout is customer driven.
As Scott noted, we're seeing strong interest about potential utility customers and are optimistic that we will soon be able to announce contracts.
With that I'll now turn the call back over to Scott.
Thanks Roger.
As I conclude I want to emphasize again that we believe.
Sure solutions is strongly positioned and its ability to deliver a full suite of coal ash management in recycling byproduct sales environmental remediation and outage maintenance services to the power generation industry.
So we believe were an ideal position to capitalize on the growing list of opportunities as we partner with customers to bring customized solutions to their complex environmental challenges.
The current market opportunity as the largest in our company's history.
Market and regulatory dynamics remain favorable we're currently winning new awards at a record pace and there's significant interest in our MP 618 fly Ash Beneficiation technology.
Which should facilitate larger bundled projects.
And as we pursue.
Our expanding pipeline of opportunities, we're committed to making further adjustments to improve our operating efficiency reduce our debt levels and increase our operating margin potential.
We remain convinced of the opportunities for our business and our ability to grow our company and capture additional market share.
Our industry, leading track record for quality safety and compliance continues.
And there is an extraordinary amount of available work to be done.
So I'm very enthusiastic about our future.
I'm also optimistic about Saar solutions ability to deliver attractive value to our shareholders.
Particularly given our compelling peer group valuation comparisons.
And significant investor awareness growth potential.
I believe the strategic and corporate action plans, we already have underway to strengthen our business should put us in a strong position to capitalize on the substantial opportunities we have before us and confirm the confidence our shareholders have placed in us.
With that operator, let's open up the questions.
At this time, if he would like to asking on your question. Please press star one on your Touchtone phone. Once again that is so I wanted to ask and audio question one moment for your first question.
Your first question comes from the line of Toni Kaplan with Morgan Stanley .
Thank you.
Your win rate is higher.
Then last year just talk about.
Might be that are driving.
Are there any changes in strategy that youd call out.
Yes.
Sure. Good morning, Tony This is Scott.
Good question and I think we are really.
Rounding to turn I know, we've talked about delay in timing of awards and everything else here for the last several quarters.
And we're very excited to be really.
Communicating some some big awards and really what we see is.
Potentially the largest here on on record for solar solutions in a in backlog generation and that that win rates really really driven by a more disciplined bid approach from our perspective.
Kind of coupled with.
Just the release of of awards and work from our customers right now so.
Really all good things happening on our side here right now so we're really excited to be talking about that.
And then.
You mentioned some cost savings initiatives.
Next year.
320 basis points.
The guidance.
How much of the expansion.
The cost savings initiatives first how much from this project.
Versus how much from other factors just trying to get a breakdown.
Sure, Tony Anna and I'll, let Roger expand on anything here that I Miss.
No really if you think about it kind of in kind of those big.
Buckets not sure if we can go into exact percentages in where we see that that margin increase coming from on the call but.
Really the major movements are.
Our shift in.
In business, we see a.
Predominantly large shift to the bar mill solution side of our business, which is again as at that higher margin business, especially as we talked about.
A lot of the regulatory tailwinds as well as the just the.
The bid pipeline that we're seeing everything else really exciting us about DNS out of the house.
So seeing.
Growth in that area is going to help.
Increased margins into next year as well as a lot of the initiatives that we've taken place they have taken place.
Starting in 2019 from a cost savings perspective, whether it be at U.S. DNA level or at the project level.
And those.
Those results really.
Come through in 2020, Roger not ships anything you want to expand on that.
Sure just just to add to that a little the.
As we've discussed last quarter.
We had some gross margin impact from.
An adjustment to the amount we receive from.
Breakeven termination so we see margin expansion going into 2020 as Scott said from.
An increasing shift too.
Due to environmental solutions business, we did start taking very.
Concrete and rapid steps to rightsize our DNA.
Middle of the year going into the end of this year those initiatives continue we still have a number of initiatives on the forefront.
Well.
Continue through the end of this year, beginning next year getting too.
Run rate, we're targeting going toward the end of next year.
Call it a 7% to 8%.
Gionee is a percentage of revenue.
On a cash please.
Perfect.
From.
Number of articles.
Yeah.
Oh.
Utility operators.
Okay.
Regulations.
Hi.
Thank you.
To the business.
Right.
First of all market.
From.
Right.
Thank you.
Sure Tony Good question and one that we've gotten here over the last couple of weeks from from several folks.
And really if you hit the way, we think about it as we know necessarily think about it as a roll back at the existing rules, but rather further clarification.
Of the existing rules that also kind of pulls in.
The addition of the more CCR payments that are intended for closure so really.
We see it kind of kind of the opposite of the way that you presented it we see it as an opportunity.
To pull in.
More of those impoundments into our addressable market that we're not there previously.
So if you think about it the rules now require clay line impairments to be considered online impoundments.
Just kind of further clarification of some of the the rule changes we saw back in.
2018, so really it's just clarifying a lot of things of the EPA had signaled previously.
We see as a good balance kind of with.
Of equal weighting for environmental and economic objectives.
There so we really see it as a positive for US and then also.
As we talked to our customers and.
They are well educated and they understand where they believe the federal regulations are going a lot of the stuff they've already sort of kind of baking into their their plans, especially when we talk about these large projects out there they are coming down the the pipeline that we're starting to convert right now a lot of those already took into consideration some of these.
Clarifications that are during the current rules so we.
We don't see it as a.
As a risk to the business with more of a positive.
Thank you.
Welcome.
Your next question comes from the line of Michael Feniger.
With bank of America.
Good morning, Michael.
Morning, guys. Thanks for taking my question, just just piggybacking off that.
The update from the EPA on November I guess as fifth Im just a little confused.
I get that it's a it's more stringent.
What does it also allow utilities more time to make a decision.
Is that.
Also part of the update from the EPA I haven't just curious you could help me help us understand.
Yes, there is a little bit of an extension allowed in there for the utilities in decision making process. However, we don't we don't see that impacting the.
Be award rate.
As we move forward just based on the the projects that we currently have in the pipeline or anything else like that so.
And again that the kind of.
The time differences are very very minor so nothing that we see moving the needle in that perspective.
What more and more importantly, I think kind of Moreover, more importantly from from our point of view was the.
You know the the time difference.
His outweighed significantly in our from our perspective by the inclusion of all the online ponds up there and really increasing the addressable market.
Understood and I think you mentioned that there were you through your mediation projects that had some issues and I believe it will be completed by by 2020, what were the exact issues again.
And if you could remind us on your contract structure there how much of its like cost Reimbursable verse first fixed.
Yes, so for overall for the business.
I think we've been pretty clear on this.
Roughly 90% of our business, including mains technical services was.
Environmental solutions as either a unit rate or.
Reimbursable in some fashion. So if you think about or whole suite of services. That's that's the way we view the business on these three discrete projects and.
Which were actually in the DNS side of the house I.
Thank you think back to Q1 Q2 this year.
The Q1, when we're talking about these events.
They had to do a lot with.
Project management, and some mistakes we made on on our side.
Our later discreet in that period of time and and two of those three projects have completed and they completed in that quarter.
The third.
We will.
Will end in 2020, however, there's any of the impacts from.
2020 or from the Q.
The earlier the previous quarter.
We're not going to roll through into the future from a working to fuel perspective.
Okay, and then just I guess I'm, just trying to understand but.
With projects, becoming larger and more complex.
How do we view cement fees.
These issues that you face this year with these projects in the context at these projects are now becoming larger and and more complex.
Yes.
I think the way we view it, especially when we think about the complexity the projects.
It's really.
I guess when we're using the term complex bundling services that we provide that were already the leader in the industry on.
So I think they are complex in nature, because we are.
Coupling or bundling.
Multiple services together, however, I think the benefit that we have in these situations that are project management teams are already very.
Well first and how to handle these types of projects.
And we'll continue to see that as we.
As we move forward I think also from a.
Contracting structure standpoint.
Be very diligent to de risk the contracts as much as possible as we move forward.
Makes sense and then can you help me with the I mean, we can see the implied fourth quarter on EBITDA side.
How should we thinking about on the on the capital side.
Cash from ops and free cash flow in the fourth quarter and any update on the timeline.
Yep payment or schedule I think I think there's something in March 2020, if you just help give US a reminder, there.
Sure Michael It's Roger So we are scheduled to make an additional.
Debt repayment of $40 million by the end of Q1 back 331 2020 .
And we remain on track to do that.
From a from a cash flow perspective.
Obviously, you can see them.
The cash flow for the quarter. So what we're projecting over Q4 is to essentially be flat on a cash flow basis. We're in right now we're in.
At the beginning of the quarter this quarter, we had gone into outage with.
From that nuclear outage maintenance side.
That require some cash flow and first part of the quarters working capital build those cycles unwind very quickly and will unwind really by the end of it.
End of November .
So taking all those into consideration, we expect cash flow to be to be flat for the quarter.
Okay.
That's helpful. And then just like on on I think you said 385 million in New Awards. Your date thesis that that's a record just help us how much that convert actually to.
2020.
And the other question is.
As you start doing these new projects in 2020 does that and then just help us understand cost I think their multi year as it is it a cash use in the beginning of the project and then.
Flips positive towards the and I guess, just help us understand the timeline of that.
Sure.
I think Roger I'll Tag team. This one again like the previous couple of here, but if you think about the new awards.
385, and really helped to convert a considerable amount more of the other 300 between now and the end of the year.
It's going to be significant on 2020 and beyond.
And if the way we look at those projects on the way we framed it I believe on previous calls as low as.
Well those projects are.
I will say two to eight years in nature and probably more of a.
If you want to split it in the middle more of a five year.
Average, but.
Sub segment of those those projects and contributed heavily to 2020 and the others are going to help build the foundation for predictable revenue streams into future years as well. So it's a really good mix I'm not sure how to exactly frame. The exact contribution to 2020 on this call right now, but I will say when you think about it.
There are some significant projects in there that ever.
A two year horizon that will contribute significantly in 2020, and then others that.
We will lay the foundation for long predictable.
Revenue streams for US yes. So is just to add to that as we think about 2020, it's really a combination of three things its.
The ongoing projects that.
Have remaining lives of several years that well.
Contributing this year than we've spoken.
At least that the issues that we're facing this year.
Our directly a result.
Projects in 2017 in 2018 getting pushed out so.
Lower in terms of project awards in those years.
We're seeing a very significant pickup this year.
I guess, a couple of which.
We'll even begin to add.
Revenue at the end of this year not in material way, but be starting in the fourth quarter or have started in the fourth quarter.
Contribute to the course of 2020 then there's a projects that have been one this year does start to contribute 2020, and then on top of that there is.
The pickup in new business.
Ed invariably happens.
Each year as we go throughout the year, just do you to address your questions on cash flow.
When you look at a project can be certainly there is.
A little bit of timing mismatch between.
Paying for.
Different types of cost on the project versus.
When cash starts to come in from a billing perspective, you were certainly COGNA does that and we've got some initiatives under way too.
From a financing perspective too to work to bring that back in line to be more neutral from a cash flow perspective.
On on different projects there are.
You know often.
Mobilization type economics.
That hopefully the deployment and then.
There is a part it's incumbent on us too.
To manage our capex in our our own deployment.
Two.
Minimize disruption to cash flow. So all those things go into the equation for us.
As we look to build out these projects, but it's.
Priority for us as these new projects come online you have to make sure that we managed to working capital in a way.
To balance the inflows and outflows balanced risk with those.
And to manage our working cap, our or sorry, excuse me our capital expenditures.
Currently using existing equipment, and then how we finance new equipment.
Hi, just piggyback on that with one brief comment that I think you'll see us.
We've made a strategic shift the will not see we've spoken a lot in the last 18 months now projects that had.
Bill Big upfront capital spends.
I think we've taken a strategic shift away from that as we move forward see will not see.
Some of these large cost in excess builds like we had on our balance sheet previously definitely a shift we're making here.
Once again, if you would like to ask an audio question. Please press star one on you will touchtone phone.
Our next question comes from the line of Brian Butler with Stifel.
Hi, good morning, Thanks for taking my question.
Morning, Brian .
Just to put a finer point I think on 2020 guidance and understanding kind of where where the gross coming from so midpoint to midpoint is about 55 million.
Can you just I guess, you talked about it but just put a making a little clearer on how much of that is from contracts already awarded how much is from the verbal contracts and how much is from I guess contracts to be one.
Just trying to understand what.
What kind of.
Just to those expectations are out there.
Yes, so we've seen.
We had answered best answer that is say it will just.
Just to repeat what we've said that last quarters. We've talked about this is as these projects continue to to get booked the.
We said the wording the substantial piece of our 2020 Guidances is underpinned by.
Existing business awards under contract in business that we have a very high degree of confidence in so weve.
We talked last quarter started about how we think.
Think about this.
Scott its methodology.
So really nothing out there from a from a blue Sky perspective.
And minimizing the.
I would call to go get.
But substantially underpinned you did very high percentage by existing business and very high confidence business.
Okay, I mean substantial like 80%.
Ballpark.
We don't.
So I can't really go there in terms of given that number out. It is it is a it is a high percentage.
Yes, I understand you look at for that number but it's.
Not something Weve historically given out.
Okay. I mean, you guys important outlook there and people are just trying to understand how much is.
That confidence level I get an a. now substantially.
As a metric but.
Now.
That's what I'm struggling with I guess on the outlook for EBITDA for 2020, Yeah. That's another 2020 $1 million and you talked about the margin on the cost savings on January so that sounds like out to about $9 million to $10 million. So the other call. It 10 to 11 is coming from the shift and growth.
Yes business, so that is that correct.
That's correct.
Okay.
Did mark did you give.
Go ahead.
Margin expansion and growth in the yes business like you said.
Right and that split though is about right. It's about 50 50.
I mean can you said it was seven ARRY, 7% to 8% on DNA is where you're going to be so that's about a 10 million dollar savings from where it looks like you're going to be in 2019, and again I'm just trying to understand what buckets to put that that 21 that 21 million dollar improvement into.
It's slightly more weighted to the to the gross margin side.
As Weve got like we've talked about earlier on the call in last quarter. We've got these weaker projects that are rolling off we are new projects.
Moving on.
Projects, we've talked about that had been a drag on margins. So.
And your model odd weighted.
Were slightly heavily toward.
Gross margin improvement.
But also with obviously with the contribution you mentioned do these things.
Okay, and then just lastly, I apologize if I missed the did you give a win rate on the 385 million of New awards.
We did not give a win rate.
I think always said specific to that is at its both the win rates as well as the.
Value exceed previous levels.
Okay. Thank you for taking my question.
Thanks, Brian .
We have no further questions I now turn the call back to Scott for closing remarks.
Great again, thank you.
Just want to thank everybody for joining us today I hope you've done the call.
Very helpful and we look forward to updating you on our progress in the future.
And see many of you underwrote again, so have a great day. Thank you very much.
This concludes today's conference call you may now disconnect.