Q4 2019 Earnings Call
Good afternoon, and welcome to come fast papers, you fight holdings fourth quarter and full year 2018 earnings conference call.
This call is being recorded.
All lines have been placed on you have people watch actually question at the end to be prepared remarks. Please press the star key and the number one on your touched down telephones.
It's possible Lucky turned a conference over to Mike because it's Oh Gee between four introductions and the reading of the Safe Harbor statement. Sir. Please go ahead.
Thank you and welcome to Compass diversified holdings fourth quarter and full year 2019 conference call representing the company today our lives. They both Cody CEO, Ryan Faulkingham, Coty, CFO and thought not thrilled to see El Compas Group management.
Before we begin I'd like to point out that the Q4 and for your 2019 press release, including the financial tables, and non-GAAP financial measure right. Reconciliations are available at the Investor Relations section on the company's website at Www Dot compass equity Dot com.
The company also filed its form 10-K with yes. He's here today after the market close which includes reconciliations of non-GAAP financial measures discussed on this call. Please note that references to EBITDA in the following discussions refer to adjusted EBITDA as reconciled to net income and the Companys financial filings. The company does not provide a reconciliation of.
Payout ratio, which is the ratio of its distribution to its estimated cash flow available for distribution and reinvestment.
Because certain significant information is not available without unreasonable effort, including but not limited to the company's future earnings current taxes capital expenditures and distribution to be paid as a group quarterly by the company's board of directors.
Throughout this call we will refer to compass diversified holdings as Cody or the company no I'm going to read the following safe Harbor statement.
During this conference call, we may make certain forward looking statements, including statements with regard to the future performance of Kodiak subsidiaries words, such as believes expects projects and future or similar expressions are intended to identify forward looking statements. These forward looking statements are subject to the inherent uncertainties in predicting future results and condition third.
Factors could cause actual results to differ on a material bases from those projected and these forward looking statements.
And some of these factors are numerated and the risk factor discussion in the form 10-K, that's filed in the Securities and Exchange Commission for the year ended December 31, 29 team as well as another assay few filings in particular, the domestic and global economic environment has a significant impact in our subsidiary companies, except as required by law CODI undertakes no obligation to.
Publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise throughout this presentation references the revenue and EBITDA for velocity, including Raven from fabricators and sterno, including the imports are pro forma as a few businesses were acquired on January one 2018.
Please note that in 2018 kill you acquired phone Fabricators on February 15 imports on February 26, and Raven on September four and their pre acquisition results described herein are not intended to be indicative of their respective results in the future under our ownership and management or as a measure of our past performance at this time I would like to turn the call over to.
Alive stable.
Good afternoon. Thank.
Thank you all for your time and welcome to our fourth quarter and full year 2019 earnings conference call before.
Before discussing our result, I would like to take a step back and briefly touch on some of the principle that have long been a hallmark of our company.
Since our IPO nearly 14 years ago Cody has maintained an unwavering focus on shareholder alignment investing across niche industrial and branded consumer sectors and using permanent capital is a strategic out though as I look back on our performance over the past year. These key differentiators have never been more.
Irrelevant for produce stronger results.
Our results derived in part from the competitive advantage that we gained through our permanent capital structure with the flexibility to be patient throughout the year, we remain highly disciplined and how we acquired actively manage and opportunistically divested leading middle market businesses in 2019, we completed the death.
That's the jury's of clean Earth in Manitoba harvest, both producing significant gains for shareholders with these divestitures. We are now proud to have produced more than $1 billion in realized gains.
The divestitures of cleaner in Manitoba harvest in 2019 led to a temporary reduction in our size in earnings power.
The same time, we remain disciplined in our capital deployment efforts as we did not find acquisition opportunities that met our strict criteria. Given these dynamics management decided to Weve management fees on excess cash further demonstrating our unwavering commitment to align with our shareholder interest.
Turning to our financial performance.
We are pleased to report fourth quarter revenue and EBITDA growth of 4.3% and 11.1% respectively over the course, but over the fourth quarter of 2018.
Exceeding our expectation.
Full year revenue.
And EBITDA growth of 1.4% and 2.3% respectively over the prior year.
During 2019, we started to realize accelerated value creation and our five unless it's a 511 subsidiary.
Well I think on substantial infrastructure investments, we made in 2017 and 2018 the prospects for 511 are strong and we intend to make it additional investment throughout 2020 to further accelerate five elevens growth.
And while we're pleased to be generating strong returns for shareholders. We're also taking the necessary steps today to best position our subsidiaries for tomorrow. During 2019, we embarked on the restructuring of velocity outdoor acai stuff and driving long term value creation at velocity.
While these restructuring efforts depressed velocities current financial performance, we're confident in both the fundamentals of the business and its leadership team, which was enhanced with the additions of industry veterans, Tom again, as executive Chairman and Kelly Grendel as Chief Executive Officer.
As part of our ongoing focus on alignment with shareholders governance in transparency continued to be a top priority with a board that remains majority independent and has separated the rules of the chairman and CEO Cody strives to adhere to a best in class governance structure in 2019.
I mean, we expanded our board of directors to eight members with the appointment of Larry Enterline, former CEO of Fox factory, Larry is an exceptional leader and we welcome it business insights and guidance.
Over the past your Coty has taken important steps to further develop sustainability initiatives across our subsidiaries. We believe it is our responsibility to promote positive change across our subsidiaries and who have worked closely with our management team to implement these initiatives. For example, this past year Sterno announced that it is going.
Greener with a commitment to reducing its overall carbon footprint by decreasing the amount of steel in chemicals used in an industry leading products, while still delivering the performance required by its customers.
Further ergobaby launched its ever Love program. The first of its kind baby carrier buyback in retail program that ensures product quality, while dramatically reducing its environmental impact.
As we enter 2020, we remain firmly committed to taking a long term perspective in building our businesses and believe the strategic steps taken in 2019 physician CODI to continue creating long term value for our shareholders.
The proceeds of the divestitures of clean Earth, and Manitoba harvest, we're used to repay a substantial portion of our indebtedness.
We currently have more capital availability than at any time in our history and our leverage remains well below our target level at only one it out fine.
Despite the low leverage we covered our distribution with an 83% payout ratio exceeding our expectations. These results are a testament to the earnings strength of our subsidiaries and the power of our business model and differentiated approach to returned substantial capital to our common shareholders in the form of our dollar 44 per share.
Our annual distribution.
Our balance sheet provides us ample room to pursue platform acquisition and support our subsidiaries management teams investing capital for organic growth as well as add on acquisitions, given the strength of our balance sheet and responsible use of leverage we're proud to have been rewarded by moodys in early 2020 with.
Then upgrade of our corporate rating, our senior debt facility and our unsecured bond.
Before I turn the call over to Pat I was I would like to briefly discuss the Corona virus impact on our subsidiary.
In recent years, we have been proactive in moving production out of China to reduce our exposure to Chinese tariffs and to diversify and strengthen our supplier base.
Although our subsidiary still procure some limited supply directly from Chinese factories. Coty currently has minimal direct exposure to China, principally where our ergobaby subsidiary sells product into the greater Asian marketplaces.
As a result, we expect only modest direct impact from the Corona virus. At this time that said, we are actively monitoring the evolving situation and making contingency plans should the corona virus epidemic extend beyond current expectations. We will continue to be transparent about the expected impact.
Providing updates if needed with that I'll now turn the call over to path to add his comments on our subsidiary company.
Thanks light as we've done since Codis founding our focus in 2019 remained on our core business of investing in the middle market across the branded consumer and niche industrial space, having been exclusively dedicated to these industries for over 20 years, our team was able to further position our subsidiaries for long term success.
Beginning with our niche industrial businesses for the fourth quarter of 2019 revenues declined by 5% an EBITDA increased by 2.6% over the comparable quarter in 2018 for the year revenue decreased by 2.3% and EBITDA decreased by 8.9% versus 2018 inline with our expectations.
Advanced circuits and phone fabricators experienced modest declines in year to date, 2019 revenue and EBITDA, reflecting a sluggish industrial economy Arnold Magnetics grew EBITDA at a double digit rate, reflecting operational improvements and the management team effort to reposition Arnold towards the aerospace and defense end markets. We are pleased where the results at Dannemiller and our Arnold.
Management team are driving and feel optimistic about arnold's future under their strategic direction. Sterno is EBITDA was essentially flat 2019 as strengthen the foodservice business was offset by weakness in the outdoor category of the consumer products business. As a reminder, the spring season of 2019 was one of the wettest on records and as a result.
The outdoor category remained weak this impacted not only in the spring season, but also are far our fall selling as retailers are planned for 2020.
Given current inventory levels in the channel, we expect to spring outdoor season for 2020 to be week as well.
Now turning to our branded consumer businesses for the fourth quarter of 2019 revenues and EBITDA increased by 14.9% and 25.8% respectively over the comparable quarter in 2018 for the year revenue and EBITDA increased by 5.3 present, and 7.3% respectively versus 2018 inline with expectation.
Ergobaby was down modestly year to date as its trulia brand weaken significantly offsetting solid growth in the core Ergobaby brand, we expect to headwinds from two to remain at least through the first half 2020. However, we're more optimistic about the core Ergobaby Brent based on early trends in 2020, and new product introduction scheduled for later this year.
However, as Elias mentioned Ergobaby drives a significant amount of revenue from the greater Asia region region and as a result, we expect reduced financial performance in the first half 2020 as a result of the Corona virus in the negative impact on consumer spending in the region Liberty safe year to date 2019 revenue and EBITDA grew at a rapid pace as a result.
Out of distribution gains with a large pharma fleet customer we expect growth to continue in 2020, however at a more moderate pace as we comp against selling into this customer later in the year also as Elias mentioned, we embarked on a restructuring of velocity outdoor and its financial performance weakened significantly throughout 2019 velocities historical.
Distribution channels continue to consolidate and as a result, we are investing in new forms of distribution, including direct to consumer given the investments needed. We expect philosophies financial performance in 2020 to be lower than in 2019 with the majority of the decline experienced in the first half of the year. Finally 511 continues to surpass.
And producing 45% EBITDA growth in 2019 under the leadership of Matt hide in Francisco Morales 511 is executing its omnichannel strategy extremely well, we believe the company has significant white space and a long growth runway and we will look to continue to invest in 511 to create even better consumer experiences across our channels.
We have high conviction that 511 has transformational potential for our shareholders and we can then we will continue to invest to maximize this potential with that I will now turn the call over to Ryan to add his comments on our financial results.
Thank you Pat.
Before I discuss our consolidated financial results for the fourth quarter of 2019, I want to highlight the great strides we have made during 2019 strengthening our balance sheet enhancing our liquidity and positioning the business with strong cash flow generation, which we believe will allow us to cover our distribution on an annual basis moving forward.
As Elias mentioned, we executed two highly successful and opportunistic divestitures during 2019 generating gains in excess of 300 million.
In November 2019, the company issued series C preferred shares for net proceeds of 111 million, which together with the proceeds from the divestitures allowed us to repay all of our senior debt at this including completely repaying our term loan b.
As Elias mentioned this brought our leverage to below one and a half times and with these capital structure changes we received an upgrade from Moody's on a corporate rating as well as our senior debt facility and unsecured bond.
In addition, S&P increased our rating on our unsecured bond.
For the fourth quarter of 2019, we paid a cash distribution of 36 cents per common share in January 2020, representing a current yield of 7.5%. This brings cumulative distributions paid since codis 2006, IPO to nearly $18. A 96 cents per share were 126% of the IPO for.
Yes.
We also paid cash distributions in January 2020 of approximately 45 cents per share on the seven in the quarter percent series, a preferred shares and approximately 49 cents per share on or seven and seven eight series B preferred shares.
Both distributions covered the period from an including October Thirtyth 2019 up too, but excluding January Thirtyth 2020.
Further we paid distributions in January of 2020 of approximately 38 cents per share on or 778 series C preferred shares covering the period from an including November Twentyth 2019. The original issue date of the series C preferred shares up too, but excluding January Thirtyth 2020.
Moving to our consolidated financial results for the quarter ended December 30, Onest 2019, I will limit my comments largely to the overall results for our company since the individual subsidiary results are detailed in our form 10-K that was filed with the FCC earlier today.
On a consolidated basis revenue for the quarter ended December 30, Onest 2019 was 387 million up 4.3% compared to 370.9 billion for the prior year period.
This year over year increase reflects strong revenue growth at a branded consumer subsidiaries, notably 511 in Liberty offset by declines in our niche industrial subsidiaries as previously discussed.
Validated net income for the quarter ended December 30, Onest 2019 was 5.4 million.
Consolidated net loss for the prior year quarter was 6.5 million.
Cash flow available for distribution reinvestment, which we refer to CAD for the quarter ended December 30, Onest 2019 was 30 million up 31% from 22.9 million in the prior year period.
The increase in CAD during the quarter was primarily the result, 511 strong operating performance lower interest expense and management fees.
Offset by higher maintenance capex of our existing businesses and the loss of cash flow from our two divestitures in the first half of 2019.
I'll highlight of our quarterly performance was our ability to generate a substantial increase in consolidated cash flow from our existing businesses as compared to the prior year notwithstanding the loss of cash flow from Manitoba harvest and clean Earth.
Turning now to capital expenditures.
During the fourth quarter of 2019, we incurred 7.2 million of maintenance capital expenditures of our existing businesses compared to 3.3 million in the prior year period.
Increase and maintenance Capex was primarily related to a portion of the cost to build out new facility and Chandler, Arizona.
During the fourth quarter of 2019, we continued to invest growth capital spending 5.7 million in the quarter, primarily related to Asias, new facility and to support 511 long term growth objectives growth capex in the prior year quarter was 3.3 million.
Turning now to our expectations for 2020.
We're 2020, we expect the CAD payout ratio of between 80% and 90%.
As a reminder, we executed the sale of clean Earth in late June of 2019 clean Earth produced a significant amount of CAD in the first half of 2019 as it paid virtually no cash taxes and there was no management fee paid in the second quarter of 2019 as a result, when comparing the first half of 22.
20 to the first half of last year, we expect the loss of the cleaner cash flow to produce negative comparisons in cat.
For 2020, we expect consolidated subsidiary EBITDA of between 238 million and 258 million.
Please note our expectations for 2020 assume or similar economic growth rate as in 2019 as Elias mentioned earlier, although we don't have significant direct exposure to China and the Corona buyers. We do derives secondary supply chain exposure and the continuation of the outbreak could cause our results to weaken material from expectation.
As a reminder, we have revenue and earnings seasonality in certain of our subsidiaries and absent any new acquisitions or divestitures, we anticipate a majority of our earnings and cash flow to come in the second half of the year.
Further our quarterly operating and cash flow results can vary materially based on the timing of shipment of large orders or the timing of certain investments made before or after quarter end.
For maintenance capital expenditures in 2020 for our existing eight subsidiaries, we expect to spend between 20 million and $25 million for the full year 2020.
For growth Capex, we expect to spend between 10 million and 15 million for the full year 2020, primarily at our 511 subsidiary as we support its retail rollout strategy.
For 2020 cash taxes for our existing eight subsidiaries, we expect to spend between 6% and 8% of our total of our subsidiaries total EBITDA.
With that I'll now turn the call back over to us.
Thank you Ryan.
We are proud of our accomplishments in 2019 and believe we are extremely well positioned to continue executing on our strategy in 2020.
As you heard our company key Differentiators are delivering for shareholders and producing real results in today's market I would like to close by briefly discussing M&A activity and our forward growth strategy.
Middle market M&A activity remains at historically high levels that capital remains robust with favorable terms and strategic in private equity acquirers continue to seek opportunities to deploy available capital as a result valuation multiples remain robust while traditional private equity players maybe pressure to may.
Decision driven by a fund life span instead of fundamentals, we continue to have the flexibility to remain disciplined inpatient and how we buy build and sell leading middle market businesses.
Our acquisition efforts will continue to focus on accretive add on opportunities and selective platform acquisitions of niche market leaders at valuations, where we can expect to exceed our weighted average cost of capital.
Going forward, we will maintain an intense focus on executing our proven and disciplined acquisition strategy improving the operating performance of our company Opportunistically divesting distributing sizable distribution distribution and creating long term shareholder value.
With that operator, please open up the lines for Q1 day.
Ladies and gentlemen question at this time. Please press Star then the number one on your touched down telephone.
Your first question is from Larry Solow from CJS Securities.
Good afternoon.
Congrats on another solid year lot of lot of things good things getting done just like I said, a couple of questions or just maybe a on just on 511.
Obviously, a very strong performance strong quarter strong here.
Mentioned.
You can continue to invest in the business, which completely makes sense, how about just on a margin profile because you've been investing a lot in the margins are you know I guess I'm just going up on getting some operating leverage on the on the grid sales growth do you expect to continues I think ended the year.
One of real Q4 seasonally strong, but the margins got up to 13, 14% I'm really well for the year. So do you know could we expect margins to continue to creep up maybe not as much as if you aren't investing but you know what's what's your outlook. There do you have any outlook for a store openings or do you expect to same pace of the back half of 19.
Continuing to 20.
Yes, so in terms of margins, Larry I would say the company had a nice margin pickup in 2019 as we had been forecasting some of that margin pickup was due to a number of onetime items that existed in 2018 falling off but even outside of that we started to get some.
Good leverage on some of the investments that were made and the shift in revenue mix, that's moving much more towards direct to consumer has positive margin implication both at the gross margin in at the EBITDA line. So those trends I would say are positive and remain in.
The business as positive margin drivers.
To be higher going forward I would say in 2020, and we wanted to kind of mentioned this in the script and obviously in Q1 day. We think there are some opportunities to improve some of the consumer experiences with 511 make it easier through the.
Channels with which we operate.
So there will be additional investment that is going in a lot of those are a lot of these are technology investments as you can imagine and so I would say the rate of margin growth for 2020, we expect to be muted. We think that the company has still really strong topline growth you see the topline.
Growth that we're experiencing right now, but I would say 2020 being a more investment year I wouldn't expect a lot of EBITDA margin growth as we invest heavily into some of these omni channel experiences that are required now that being said longer term this company's margin potential as drew.
Radically stronger than where it is today and so I would say, yes, a couple of things one we will get continued operating leverage on the business as we grow too there will continue to be a shift towards and our expectation towards direct to consumer which carries higher margins. So we think there is almost.
Margin tailwind to the company part of it though can be held back based on the speed with which we invest and we expect to make some investments at an accelerated rate.
Because we think this company has so much potential we think thats sort of the right thing to do especially given where we are right now in 2020.
And lastly on return on retail stores.
At the end of the year, we we had 61.
And then as we as we look to 2020 consistent with prior years.
Pace of kind of one to two a month is the goal of course that doesn't come.
Very little linearly, but.
That's that's really our internal expectations for 20 point.
Well, what about just switching gears profess to.
Sterno and.
In a little bit disappointing year, but it's a good not a surprise the quarter was actually fine.
I guess, a little bit you mentioned on the home when the outdoor side.
Sounds like.
Inventory will at least for the near term outlook, but is there anything you guys could you know can do you know to sort of help that business push it up did I get it back up to a little bit of growth or is it just sort of a victim of.
The weather.
Huh.
Yeah, we're working on several different initiatives, Larry This is Pat but I would say the.
The weather hit us this year in the outdoor side now that you've noticed is not necessarily the the highest margins are going to the business. So it's uh huh.
Its impact was slightly muted, but from a revenue side. It did you know it. It was ahead, we're expecting a solid year out of Sterno. This year and we're working on a lot of fronts to to help ensure that.
Fair enough. So that just last July so you know you mentioned the markets a little.
It's been for a while little little overheated here.
Maybe funds at the maybe don't but how about just on the on the strategic tuck in side do you guys still feel like those opportunities that you know what somebody subsidiaries to add things.
Yeah, we're looking across the board Larry I add ons I would say the market for add ons got really competitive as last year.
And so even some of the smaller companies you know started to command some higher valuations just one thing that I would mention is we are always open for business for new platforms and work we are in absolutely an elevated pricing environment, but when we find extraordinary.
Companies you know, we will clearly look to be aggressive on on great quality company I would say last year. We just didn't see lot of companies that we felt warranted kind of the valuation premiums that were being paid out there. So you know I as we come into 2020, we are cautious.
Finally, more optimistic that there's.
Some opportunities both on the platform add on side now I will say you know the there's also the corona virus out there and that tends to grow that will tend to cool everything for a period of time, but assuming that it gets contain and we get back to normalcy.
We remain I think more optimistic right now than we were last year in terms of being able to execute against a strategic acquisition.
Great appreciate the color. Thanks.
Thank you.
The next question is from Kyle Joseph from Jefferies.
Hey, good afternoon, guys. Thanks, very much for taking my question and congratulations on a strong finish to the year.
I had a follow up for you Elias on that note obviously, we've seen.
Public markets correct, given the Corona virus can you give us a sensor typically what the lag is in terms of private middle markets in terms of sort of valuation corrections you've seen historically.
Yeah, I think it depends on the length of correction Kyle to be honest. So I'll go back to 2018 in December when we had a dramatic correction in equity prices and everybody was worried that you know there was the fed was over tightening and about to put us into recession.
And you saw you know I think the Russell was even down something like 20% over the course of a month.
We didn't see any correction in asset prices in the middle market because it was such an abbreviated time, so I think that.
Markets go into extended downturn, where more important than equity market changes is really the credit market and so if we see high yield financing and we see the turned the institutional term market really start to shut down.
Then asset prices cool dramatically because the financing that is supporting some of these valuation starts to dry out.
So I would say it needs to be a much more elongated likely something that is more global economic recession fears.
That caused the markets to tie in and asset prices to cool now I will caution one kind of caveat on the other side of that and that is globally. There is 1.6 trillion dollars of private equity capital that's been committed bought on spot.
So we are in somewhat of unchartered waters in terms of the amount of equity capital that sits on the sidelines and it is totally plausible that private equity buyers would be willing to over equitize of transaction if credit markets were to what would be view.
It is maybe a temporary kind of freeze. So you know look we think that asset prices, obviously have been very high for the last couple of years.
Well borrowing costs are extremely low as we all know right now and capital remains very plentiful. So our view is there's it's unlikely we're going to see unless we go into a global recession, it's unlikely we're going to see a material down were change and private market valuations.
Got it that's very helpful. Thank you for that and then to two quick ones for Ryan in terms of modeling appreciate the color you provided on capex, but any sort of seasonality, we should expect there any quarters, where it would be heavier than than others.
Are you, specifically asking about capex maintenance Capex here yeah. Okay.
I think it's going to be.
Somewhat.
Ratable you know, it's always time, it's always tough to determine if if one of our subsidiaries going to put something into service in March or if it falls on April 1st or April 2nd.
I think theres, some I would say, that's probably going to be weighted Q1 in Q1, a little heavy.
Relative to the full year, maybe even Q2, so I'd say definitely more than half in the first half if that makes sense.
Yes, yes, absolutely and then last one from me kind of just checking my math here, but.
The run rate for the preferred distribution going forward just want to make sure. Those those are paid quarterly as well on the on the on the latest preferred offering.
Correct. All three series will be paid on you know the next would be April 30.
For a record date of April 15th and then it will continue on on quarter increments from there.
Correct.
And then I'm calculating they got like a five nine number is am I in the right ballpark.
60 cents.
Well 6 million four or five yeah, you're talking about the total dollars distribution right.
Yes, a little over 6 million okay perfect. Thanks, very much transient my questions.
Sure. Thank you got.
[laughter].
The next question is from Matt Jayden from Raymond James.
Hi, all afternoon appreciate the color on the impact of Corona virus as it relates to production, but to kind of dig a little deeper on that can you give any input or color as it relates to raw materials in any impact current a virus may have there specifically I guess the two we'd be interested in would be.
511 and sterno.
Yes, so I would say on sterno.
Minor amount of supply that comes directly out of China. It is some of the lower margin business, it's not overly material.
A small drag on their revenue and EBITDA, but it would be pretty immaterial most of Sterne knows revenues.
Come from products that are produced sourced and then produced in the United States and that's both on a on the portable he as well as are the wax cubes that.
Our fragrance side of the business. So sterno I think we feel pretty good there could be little bit of supply impact in terms of the on the material on the raw material.
511, and I would say Ergobaby, both are soft good companies and although the production is housed outside of China. As we are a lot of the actual fabrics are sourced from the large mills in China. So it's sort of that next level.
Of kind of supply risk that winning this with these companies I think being one level remove probably helps to insulate us for a slightly longer period of time from supply disruption. Then if we were producing directly in China with these companies, but if the Corona virus was to shut.
Down some of the fabric mills that would over an extended period of time clearly impact.
Kind of Ergo Baby and 511 now we're working aggressively to get backup product to have backup mills in other areas that would be able to supply at there'd be cost that would end up being incurred and some time.
But I would say there is some secondary supply risk that does exist. There. If this outbreak, which I would also just say feels like it's starting to become more contained in China. We do know that workers are coming back and some of the factories are starting to come back up to speed. So it feels like some of that risk.
Maybe reducing right now.
But if it is to escalate again in China and the production is too.
Move back down again, there would be longer term secondary supply risk.
Alright. Thank you all my questions have been answered thanks, guys.
You bet.
Again as a reminder, if he would like to ask a question simply press Star then the number one on your telephone.
One moment please.
Okay.
Okay.
The next question is from gift John.
From American century.
Hey, good afternoon could you guys spend a couple of minutes talking about some of the weaker segments in the quarter and really through the year may be phone fabricators, and then maybe give us a little bit more color on some of the turnaround efforts that the new team of velocity are making it seems like we've been kind of going through this drag of some larger customer can.
Solid Asian issues for a while now and I'm wondering if theres any light at the end of that tunnel.
Sure just sit on a path to answer your phone fabricators and blossom phone fabricators I'd say there was some minimal.
Customer loss that wasn't really the largest part of impact I'd say, we had eight.
Hi, I'm, a large customer transition to a new.
Platform, which didn't go exactly as planned in has caused some delays and continued to cause some some slowdowns in our shipment to that customer and then I'd just say you know the general industrial.
Slight slowdown I mean, we're selling here you know.
A big part of the businesses is white goods and we're feeling.
Did you want to take 500 would you like meat.
On the velocity side, we're looking more on the these things I mean, we've.
We've done this before and we've been in this these sort of print editions before.
We were there was 511, Manitoba harvest had some tough times and we've been able to.
Make the right decisions and make the hard decisions to kind of pull these businesses out of it I think the velocity side in particular.
There are some operational savings that we we think are available, but I think also we're really trying to ignite the end demand of the consumer and really kind of have more of a pull focus than the company has had historically and we're confident it will it will pay off.
Is there anything competitively in the velocity business, that's causing the issue or is it just lack of demand from those categories.
I would say, it's a changing channel in some of the big box and how much a couple of our bigger box customers are carrying and.
You know and that will obviously have a greater impact kind of quickly.
And then kind of.
Trail off overtime and I'd say, that's the major one I'd say on the flip side do you know the activity rates died.
Participation rates are not you know declining as material at all.
Hi, Thanks.
Thank you Jeff.
I'm showing no further questions at this time I would like to turn it back to Mr. Lsevenb for closing.
I'd like to thank everyone again for joining us on today's call and for your continued interest in Coty, we look forward to sharing our progress with you in the future.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation in half a wonderful day.
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