Q1 2020 Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to unique solutions first quarter Threetwenty earnings Conference call. My name typical I will be yahoos book retail on this call.
Currently all participants.
After the presentation, we conduct the question Im submission instructions will be provided a good bye.
If at any time during the conference call you need to reach a look a little please press star followed by zero I will now turn the meeting over to your host for today's call Historicals, Vice President of Investor Relations at Universal Vision.
Please go ahead.
Thank you and good morning, welcome Universalization first quarter 2020 earnings call and webcast, joining our call today or David you, President and Chief Executive Officer, and neglect Executive Vice President and Chief Financial Officer.
This morning, we released our financial results for the first quarter ended March 31st 2020, and posted to our corporate website, a supplemental slide presentation to go with today's call is.
Slide presentation should be viewed along with the earnings release, both of which have been posted on our website at universal solutions Dot com.
During this call as summarized on slide you, we will refer to certain non-GAAP financial measures for which you can find a reconciliation to the comparable GAAP financial measures in our earnings release and the supplemental slide presentation.
As referenced on slide two we will make statements about our estimates projections outlook forecast and or expectations for the future updates are forward looking and while they reflect our current estimates they involve risks and uncertainties and are not guarantees of future performance. Please see our SEC filings for a more complete listing of the risks and uncertainties.
Inherent in our business and our expectation for the future.
On slide three you will see the agenda for the call David will start with how we're dealing with Coca 19, and an update on our next few integration Nick will walk through our financial update and then David will close with progress on our business strategy.
Following that we will take your questions with that I'll now turn the call over to David for his opening remarks.
Thank you had a and good morning, good afternoon, and good evening to everyone. I Hope you and your families are all well.
No I know you're going to want to hear about a first quarter performance our liquidity position how integration salesforce execution is progressing and how we see the market right now and we will get to that.
We saw that I'd like to spend a few minutes updating you on how the current Cobiz 19 situation is affecting us in our organizations responded to it.
Just over a year ago, when we launched Uniboss solutions is a new company, we intentionally established a purpose driven value based organization.
There is serious about safety is a place where people Massa well, we do what we say with valuable to others. So together we win.
As a public 19 pandemic has unfolded. This purpose in these values have been brought to the fall and served as well.
In early March we activated a focused global cross functional response team tossed with closely monitoring the situation and swiftly implementing the measures needed to keep our people say connected to our customers and secure continuity of supply.
Thanks to a quick and decisive actions as well as a fantastic Corporation about teams, we have all our distribution centers right across the world operational.
We adjusted our work practices to conform with guidance provided by both whr when the CDC.
This is including everything from different clean routines to different site configurations different ship rotations.
Lastly, as if this week, we had just 17 about 10000 plus colleagues worldwide with confirmed cases at Cobiz 19, which 15 now recovered.
Roughly two thirds about total workforce is successfully working remotely and our sales teams have been able to pivot from external internal sales smoothly with new processes and rhythms developed to ensure we maintained momentum.
Valued infield teams are executing on our warehouses and making deliveries.
On a daily basis, we monitor customer and supply closures, including partial closures in each region, which in may could represent approximately 10% to 14% about delivered gross profit.
Our strong relationships with suppliers, such as doubt Eastman Exxon Mobil Anyones and show the served as well and we truly value and thank them for their partnership.
Thanks to debt to that partnership we've been able to keep supplies the central products like I said profile alcohol, an ethanol flowing in a time of high demand and tight supply supporting customers old and new.
And we work with our partners to facilitate that humanitarian happens within the US for instance, provide hand sanitizer for the UK National Health service or here in the U.S. with Exxon Mobil to supply the T I say would surface industrial cleaners.
Our strong supply apology remained the bedrock for our business on a source of competitive advantage, especially in times like these.
Now is to stay at home or is it being realized globally, we're shifting our attention to return to office planning of the work to accommodates a new normal.
As with our initial response to this crisis. This phase will be well orchestrated and thoughtfully executed whilst leverage the opportunity to become a leader stronger company.
For a variety of reasons short term customer demand has become trickier to predict as I said early week of approximately 10% to 40% about delivered gross profits impacted by customer and supply closures or partial closures.
To help give you and our investors some sense of the near term over 19 impacts on our business. We combined the 14 end markets referenced in our 2019 10-K to five macro categories and show the potential magnitude impact on each.
Our end markets are showing a complex and diverse range of demand patterns.
Not only does this categorization help give you a sense of what we're seeing and how it might impact our business. It helps us plan, our resource allocation investments and cost cutting strategies.
In particular I want to highlight the upper two categories consumer solutions, and general industrial which represents more than 50% of ourselves.
We're seeing areas, a strong demand and what that deemed as products to essential end markets.
In some sectors in food ingredients water treatment agriculture healthcare insights ization.
Both consumer solutions as well as the industrial specialties markets continue to benefit from opportunity developed by our solution centers around the world which to remain operational.
More challenged markets include personal care, we see the drop in cosmetics energy and certain general industrial commodity sectors, but our diverse portfolio strategic efforts are abating some of the recessionary impacts.
Moving onto our integration process.
Despite the Cobiz 19 obstacles, we successfully delivered on several silicon integration milestones realizing $17 million of net synergies during the quarter.
I'd like to highlight a few of those milestones now.
We successfully completed the second wave of our ERP implementation and we'll continue to successfully service our customers while optimizing our processes.
Our site consolidation plan continued posing a branch in the quarter, bringing total closures to 13.
We finalized the setup to further sites with cash proceeds of approximately $6 million.
Oh U.S. Salesforce is now on one CRM system, making the selling a management process much more efficient.
However.
To extend the travel restrictions on an abundance of caution our planning assumptions on the timeline for the remainder of the S&P Rollouts have changed.
Rather than completing in three large ways, we'll now shift to six smaller more agile waves adopting an approach that will include much more remote training and support.
This will extend the USA timeline for completion from Q4 2022 Q2 Twentytwenty won.
Canada, and Mexico, Rollouts will move to the second half Twentytwenty one.
We expect the overall integration cost remain within the current estimates as travel savings will offset any additional costs due to the extended timeline.
And it had trouble becomes widely available in the fall we plan to increase the scope of the waves to speed up the timeline.
This S&P rebalancing as required us to rework our Twentytwenty site closure plans, yeah. We now expect up to 15 closes in the year at the upper end of our target.
We're in the early stages of realizing the full benefits of optimizing jasko remain true to our strategy of having a strong local presence for our customers.
Now, let me turn the call over to our CFO, Nick It will walk you through the first quarter results and provide some twentytwenty converted color then I'll close the comments on our business strategies.
Thank you, David Hello, and good morning to all on the call.
Our solutions delivered solid performance in the quarter slightly ahead of our original Q1 EBITDA guidance.
Nexeo acquisition. It was an important contributor to the results along with realized net synergies improving sales force execution and good product in end market performance benefiting from our diversity.
Reported constant currency net sales were up 3.6% and gross profit exclusive of depreciation grew 7.3% to 532 point sixmillion or 8.6% on a constant currency basis.
Our gross margin expanded by 110 basis points to 24.1% driven by the favorable product and end market mix.
When adding legacy next year results to last year's financials, and excluding results of environmental Sciences. We estimate gross profit exclusive of depreciation was down 1.6% on a constant currency basis with the offsets being lower global demand conditions energy and price deflation.
Affecting certain product margins.
First quarter adjusted EBITDA of 161.6, feeling good 0.9% and was 2.6% on a constant currency basis.
Adjusted EBITDA was favorably impacted by the contribution from Axio realization of net synergies and product mix.
This was partially offset by declines in energy and price deflation affecting certain products generally in line with a guidance we provided last quarter.
On an estimated basis, adding legacy next year to last year's results and excluding the results of the environmental Sciences business. Adjusted EBITDA was approximately 4% lower on a constant currency basis.
During the first quarter as David mentioned, we captured net cost synergies related to the Nexeo integration of 17 million and we're on track to achieve $120 million annual run rate in early 2022.
We did see higher warehouse selling and administrative costs in the quarter and hence a lower conversion ratio, which I will cover in more detail by segment.
Q1, net income is 55.9 million or 33 cents per share compared to a net loss of 63.9 million or a 43 cents per share loss in the prior year quarter.
The increase in EPS was primarily due to lower acquisition and integration related expenses. The absence of the saccharin legal settlement lower employee severance costs and a gain on the fair value adjustment on the warrants in connection with the Nexeo acquisition.
These were partially offset by lower tax benefits.
Adjusted earnings per share for the quarter was 31 cents compared to 33 cents in the prior year.
This decline in adjusted EPS is attributed to higher depreciation and amortization expense and full year share count both due to the Nexeo acquisition and offset partially by lower interest expense.
Tax rate changes, we're not meaningful to adjusted EPS in the quarter.
Our primary use of cash in the quarter was working capital driven by the sequential growth in quarterly sales.
Our net cash used by operating activities was better than last year, driven by the higher net income partially offset by changes in the timing of prepaid expenses.
Capital expenditures for the quarter were 24.1 million and integration related expenses were 17 million.
Our ROI see was 9.8% for the quarter flat with last year. We expect this figure to improve as we continue to capture the synergies from integration.
As we noted last quarter management plans to change the adjusted ROI see to include goodwill and intangibles of acquired businesses. This will be finalized in Q2.
We ended the quarter at a 3.7 times leverage ratio down from 3.9 times the previous year.
On slide nine we have aggregated the key metrics across our four segments and provided detail in the appendix.
The USA reported results benefiting from an incremental two months of Nexeo strong demand for products and essential end markets and gross margin management.
Although we continue to see volume and price declines in basic industrial markets and energy consistent with our guidance.
Overall, the segments delivered gross margin improved 50 basis points driven by product mix.
During the quarter, we had additional increases in environmental remediation charges certain expenses in our services businesses and inflation adjustments to salaries made last year in Q2.
Well they mail reported a constant currency sales decline the quarterly trend line has been improving versus Q4 29 team benefiting from good demand for products and essential end markets.
Delivered gross margins improved by 100 basis points based on mix, while EBITDA was negatively impacted by the anticipated declines in pharmaceutical finished goods and an increase in bad debt reserves.
Canada, and Latin markets continued to perform very well across all metrics with both benefiting from better agricultural markets and end market demand and many sectors.
Canada sales gross did benefit from Mexico, but was partially offset by weakness in some end markets.
We ended the quarter with cash on hand of 379.7 million in availability, a 455.1 million under our asset base credit facilities for a total liquidity of 834.8 million in excess of our guidance.
This is net of our long term debt pay down of approximately 170 million of proceeds from the environmental Sciences divestiture and Q1 working capital.
We have provided details of our net working capital in the appendix overall, we're quite pleased with the quality of our networking capital and its improvement as a percentage of quarterly net sales annualized as compared to the same period last year.
We believe our capital structure and liquidity are in good shape and our debt structure remains advantageous was 77% fixed and 23% floating rates, which inclusive of interest rate swaps has an average cost of funds of 3.7%.
Our credit ratings remain stable and we have no significant maturities until 2024 and no concerns with regards to any covenants.
We've spent a considerable time modeling various scenarios by quarter looking at trends by country end markets and customers as well as views from a variety of external sources.
Based on this modeling and given the near term uncertainties. We have immediately implemented over 40 million of cost reductions were partially offset expected profit declines and we've identified further cost reductions should demand conditions deteriorate further.
These are incremental to the 35 million of net synergies, we expect to realize from Mexico integration this year.
Some of these incremental cost reductions are elimination of merit increases for salary based employees salary position eliminations temporary furloughs and reduction in travel and entertainment expenses.
Although we can't control the demand environment, we are closely tracking our costs with a focus on margin and expect to evidenced a resilient comparable to prior economic downturns.
We've been diligently managing our net working capital and expected to be within 13% to 14% of annualized net sales by quarter.
As I mentioned earlier in the appendix of the presentation, you will find a reconciliation of networking capital and each quarter end in 2019, and Q1 of 2020 as a percentage of the quarterly net sales annualized.
We consider this to be a more helpful measure rather than on a last 12 month basis.
Or changes in working capital speaks to the counter cyclical nature of our cash flow.
We have reduced our capex to a range of 95 to 115 million from our guidance of 120 to 130 million was still increasing our investment in digital projects and I T.
Nexeo integration costs are projected to now be 70 million versus the 85 million in our original guidance.
Our estimate of integration costs still remains at approximately 225 million, thus, leaving US 55 million in 2021.
Although our ERP migration has been pushed out slightly the travel entertainment savings in 2020, roughly offset the costs associated with the extended timeline.
For the year. We also expect to have approximately 60 to 90 million of use of cash in the other operating expenses changes in our accruals and prepaid expenses of which 30 million have already occurred in Q1.
These amounts are exclusive of the timing of our agricultural prepayments.
As we previously highlighted we expect these types of castle impacts to be reduced materially beyond 2020, and we continue to target free cash flow expectations in a normalized operating environment of 325 to 375 million.
We target liquidity to be in the range of 750 to 800 million in the second quarter, which is net of a normal seasonal build and agricultural receivables and expect liquidity to increase somewhat by yearend.
We also expect to end the year with approximately flat to better net debt as compared to 29 team yearend.
We continue to look for opportunities to execute on our strategic initiatives and divest non core businesses. In addition to accelerating our property sales from Nexeo.
Neither of these are reflected in the figures I just mentioned.
Overall I've been very impressed by our company has operated in all respects during this challenging period, while still keeping track with our integration and strategic plans.
The next few acquisition and integration have been a clear success, which is furthering our ability to grow market share as we focus on creating long term value for all our stakeholders with that I turn it back to you David.
Thank you Nick.
I know, there's always interested in how our salesforce effectiveness is improving after the changes in investment we've made in both people and process.
I'm pleased to say that thoughts about investments are sellers pivoted from external to internal sales seamlessly and a now operating with a new processes and rhythms that shift requires.
Our U.S. Salesforce now on a single CRM has improved discipline, our average customer contracts were up 69% from coal to fall with this trend continuing in April.
And although we're still early in the process. This disciplined approach coupled with our ability to serve a digital infrastructure and strong supply relationships as allowed us to welcome hundreds of new on returning customers in the quarter you funded customers with no activity in the past 12 months.
Key growth leaders have been established for every region and hard and trends metrics applied and communicated to ensure a consistent and single adoption throughout the business.
The metrics focus on pipeline growth transactional activity customer retention margin management and effective activity levels at a local business level.
Even with the obstacles and public 90, we've maintained momentum continued to see progress.
Our investments in our digital footprint continues to deliver results sensing another source of competitive advantage for us.
Customers continued to adopt and use our digital solutions.
Search select source and self serving growing numbers.
He dominated easier them to such a full product portfolio with new language in region options now running additional new product content to our website.
I'll needs and request for quotes on universe solutions Dot Com continues to grow.
During the first quarter, we expanded our marketing automation to 17 countries, including the U.S., Canada and countries in a manner in Latin America.
Our ability to quickly deploying meaningful content to our customers to use generating results.
From new products availability to cobot nine feet and re engaging with customers, who haven't purchase recently, our marketing automation capabilities create value.
As customer behavior changes through these koby 19 times, we're expanding our existing successful 10 point dot com model to cover more end markets, particularly in consumer solutions and industrial Spatiality.
10 points has long been recognized as a leader in generating business through digital demand lead execution data capture and account management the differentiated in specialty chemicals ingredients.
We're also launching a new no frills retail channel parked it specifically the solvents market in the U.S. and reviving an old Navy the industry.
Ken Central Dotcom will be a public site utilizing search engine marketing for those transactional customers you don't require the high touch service available through more regular uniboss solutions channels.
It will have discrete simple business rules will enable an easy to do business channel with standardized packaging delivery time credit terms and pricing.
Altogether, our digital foundation and committed sales for strategy is aimed to continue to maximize the effectiveness and scale of our operations as well as make it easier for customers and supplies to do business with as.
We're confident that we're investing in the right tools on process automation to stream on the supply chain for chemicals and ingredients through these cobot 19 times as markets recover accelerates our growth.
Before we come to your questions, let's summarize.
We have organizationally responded quickly and decisively to cope with 90.
We have all office images operating all around the world.
We delivered at the upper end of our EBITDA commitments quarter Wong.
We had $834.8 million of liquidity March quarter end.
We've reduced capex for the year by 20%.
Maintaining from controllable working capital despite the seasonal build look in agriculture, and expect to have $750 million to $800 million of liquidity at the end of quarter too.
We maintained momentum and on Nexeo integration program and expect to deliver $35 million in net synergies this year.
We've executed an AFFO the 40 million of anticipated in the cost savings, reflecting current unexpected softness in demand in certain end markets.
Scope and are committed to executing on further cost reductions as Meg required to protect our operating margin.
And we're investing in furthering our digital advantage.
We've operated in these types of constrained type markets before but we believe the diversity of the end markets. We service as referenced in slide five our asset light model and digital advantage helps us back back to the many others.
We will remain commercially and operationally our job so adapt to changing demand patterns as the impacts of Cobiz 19 continue to develop and we start returning to the workplace.
Thank you my attention please stay healthy insight and with that we'll open up the questions.
So I'll ask a question given its Chris well one on your phone.
We can all your question. Please press the pound Ohas King please standby, while compared to Q on Erosnow.
Your first question comes on the line of broke ground of Goldman Sachs. Your line is open.
Thank you good morning.
Thanks for all the additional data in your slide deck, it's quite helpful.
I had a couple quick questions of my my.
Turning to reconcile the transportation logistics costs in light of fuel.
You'll rates again about 20% year today, it looks like slot rate rates or maybe down 10% year to date, but you're.
Delivery in outbound freight was up quite a bit can you give us some help on figuring that out.
Yeah, I don't want to get into too much detail, Bob It's Nick speaking care, but as we look at it a year over year outbound freight clearly reflected the impact of Nexeo in the results as we've analyzed it the net impact actually on a ton basis is actually slightly better.
And it just really have a question of mix.
So we don't really view the outbound freight as immaterial variance I can certainly follow up with you with some more detail, but that's not a big variance for us year over year.
The working capital data you provided was helpful.
To what extent was 2019, a typical year in terms of the cadence of that seasonality builds in draws.
And Bob again, obviously, a lot of detailed to all that and we're glad to have provided you guys information on working capital. Unfortunately, 2019 can't be called typical because it reflected the timing of the Nexeo acquisition in the middle of Q1 of 29 team and then the environmental Sciences divestiture.
In Q4, I believe our guidance to all of you have a 13% to 14% metric of annualized quarterly sales is the right metric to use going forward and we certainly intend to continue to manage working capital are well, which we feel we did as well in Q1, but.
Last year had those pieces that created some variability, but the 13% to 14% garb rails I will work quite well for this year.
And then my last one David.
Now, let me give you a hard time that some granularity on your Salesforce efforts I appreciate the touch points comments seems pretty remarkable.
70% increase is that just because all your sales guys and customers we stuck at home in front of their computers give us some sense of the.
Type of touch points will might be different amendment that should ultimately how you measure what the outcome of the increased touch point might be.
[laughter].
Thank you Bobby disappointing if you Didnt give me a outside on the sale. So I appreciate that.
Look I think we saw.
Let's put some programs in place, which we spoke to in Q4 to get some structure and some discipline into the sales organization a single sales organization, where do you launched in Twentytwenty.
Sequentially, we saw that sales organization performed better run Bachelor Massa with more and more customer tough comp touch points and that call. We measure the quality of those touch points, we measure the quality of the calls by the pipeline the closes and I've seen those increases as well.
We've seen the number of returning customers increase.
Also now clearly as we get into late March in into April.
The body's captive beyond the computer screens, but I'm really proud of the by the teams have been able to maintain momentum and increase the touch points. The creation of the podcast. The webinars on the video conference is all the things that we've done to stay engaged with our customers. So that's continued through through April.
Great. Thanks very much.
Your next question comes from the line all Steve Byrne of Bank of America the lines open.
Yes. Thank you I'd like to continue drilling into the sales force here for a minute.
How large is the salesforce now versus what was it prior to the Nexeo application.
And that sales worse is undergoing quite a few changes a lot of new blood in their new regions, new products, new specialties et cetera.
How would you David.
Characterize the.
Overall level of productivity or that sales force now versus where you would like it to be.
I'm sure. Thanks, the question Steve Good morning.
I mean, if you're talking about the U.S. outsole too because the salesforce size really in EMEA has only increased as we expanded our geographical footprint into more markets like Germany and wider into central Eastern Europe.
In Canada hasn't changed dramatically in the U.S. as you know we made the acquisition of Mexia about a year ago. When we didn't take any of the sales people out. That's all we built in about 20, 25% spare capacity in the sales organization, which is one of the things it's driven that increased number of touch points that we've seen in the fall.
First quarter of this year.
The new blogs and that came in you know most of that came in on couple of years ago. It has been throughout sales training programs at mines and take our sales training programs now online as well. So we can maintain momentum with that with those I'm. So I think our salesforce today is performing.
Pretty well I mean, I would give it up.
The seven out of 10, it's gonna struggles ever get 10 for me.
But there's always room can improve but I think it's a it's probably a seven out of 10.
I think that really 29 team was a year.
For us to stabilize we talk about that Twentytwenty now as well, we optimize and rebuild and grow from that so I'm encouraged really encouraged by the commitments the quality of our sales organization of ourselves management and our agility to quickly switched to a.
Mostly tally selling all video conferencing.
Our webinars approach them through like margin into April spirit, and the very very impressive group.
And then just a question on the competitive landscape right now as things have slowed would you say.
You know the.
Any any aggressive pricing that you've seen out there from the competition in search for more volume and how would you characterize here.
Your your overall volumes is are they down because of lower demand or are you still losing out two competitors. When major suppliers are customers are you beyond that now.
Well as I think I referenced in my prepared remarks.
We welcome back several hundred new and returning customers.
So we are winning customers I think particularly in terms of of market tightness.
There has been market tightness in certain products.
An equal tons to people like us because of the diversity of our supply lines. The diversity of our asset base means that we have province, where many others don't so I think we've been able to service customers incredibly well over the last few months I'm very proud of our frontline scenes for that or are they being given keeping going keeping.
Delivering making sure our facilities are operational.
And.
As far as their suppliers that concerns you know I don't think we've seen anything different in bad behavior, you know some great collaboration with our suppliers over over the recent months on some new really first class a collaboration I am so I I mean.
I think the moments you.
You have a demand.
Side.
Recession.
And there's no point drop in prices to customers that were closed on so I think we're seeing some some normal kind of competitive behavior in the marketplace. I don't believe that we're losing out so anybody I believe we're gaining again.
Thank you.
So.
Your next question comes from the line Oh Laurence Alexander of Jefferies. Please go ahead. Your line is open.
Good morning could you give us some extra clarity around or detail around where you think we are on the bad that cycle on how you manage just how it compares to.
What data you have on terms of now univar performed in prior downturns.
Sure. So we're very early in the cycle I mean, we manage cash like a hawk.
I think we did make comments of a have a an extra provision in Europe at some bad debts. So actually we recovered those in April so we believe Bobby.
We're hiring on the side of Prudence that I mean, it's clear that when customers are closed temporarily they've got a good excuse not to pay in so so we do manage that incredibly cash flow we manage our.
Credit risk very very carefully and we go very experienced teams I mean, assuming that and so caches. The lifeblood of any business for a distributor in certain areas for us and we're seeing nothing out of the ordinary from what we would expect to see.
In in times by needs.
Thank you.
[noise] again, so ask a question you will need superstar one on your telephone.
Your next question comes on the line of James Sheehan of Suntrust. Please go ahead. Your line is open.
Good morning, Thanks for taking my question or can you comment on what's happening with price over raw material spread.
In the second quarter, how big of headwind will price deflation be for you.
HM.
Look I mean, we serve a very diverse range of market. So is it. So it's a very diverse anza, we're seeing some prices in the bulk commodities declining was saying some product isn't the bulk commodities, increasing we manage that spread very carefully and we manage our prudent management teams.
Very good these days ago, great tools to manage price matching management's become one of our core strengths and so.
The watsco be a deflationary affecting some end markets because of.
Reducing oil prices or whatever.
Really its margin management that we focus on making sure that we have no the appropriate stock in the appropriate.
Location of the appropriate price I think we do that very well in a demonstrated during the quarter.
[noise] and could you also comment on working capital in the first quarter, you know it seems like with lower product prices and volumes.
I might have expected a.
Vigorous source of cash there from working capital did you do anything like loading up on safety stock and then also if you could comment on you know what you expect how much cash you'd expect to generate from working capital in 2020.
Yeah, Hey, Jim It's Nick I'll take that you know there was nothing extraordinary about working capital in Q1, as we said earlier on the call. We highlighted on page 21 in the earnings presentation. Some metrics and we ended up at the low end of those metrics of 13.3%.
In Q1.
And that will vary depending on sales to the next few quarters.
The extent, we have a difficult recessionary environment, you, we'll certainly see the counter cyclical benefit of that or Conversely, if you grow you'll see some huge but I would say there was nothing extraordinary from either accounts receivable nor inventory in Q1 and as David said, we're managing that very tightly.
Terrific and can you talk about how your businesses performed in the last recession and any differences do you see in that business today versus the previous recession.
[noise] look I think it's difficult to combat recessions and I relevant they are.
I think the last big recession was a very different looking recession to this won't however, we said we have managed in these kind of environments before we know how to manage these days and we'd expect to keep our.
Our operating margins you know in the same sort of levels as we did we did through the last recession.
Alright, thank you.
[noise]. Your next question comes on the line of Kevin Mccarthy O. Smith terrorists research your line is open.
Good morning.
Slide five no provide any new and and helpful. Characterization of your end use market exposures. So wondering if you could speak to the level of declines that you witnessed then in April.
Well, the general industrial category and the industrial specialties categories, I mean, any quantification. So there would be helpful. As we recast our financial models.
Hey, Kevin look it's difficult for me to comment on [laughter] excuse me a different made the comments on.
On call to deliver and I think the overall our April performance.
Since our own modeling came up with the upper end of our expectations and we're encouraged to see some of the markets reopen in Europe and seasonal performance asset that we do have a very diverse.
Customer base, a very diverse set of end markets.
We were able to reposition oh I can business into more.
Yeah.
So in some more added value products.
Less kind of.
Chrome seasonal based products that's helped.
The general industrial business and in the first quarter I mean Q2 on industrial specialties. You know there was some bits and which is still going to be challenged we'll see what happens on the automotive market comes back, but we really got great strength in consumer solutions to see being positive.
Food ingredients that into household cleaning ranges and in the summertime station ranges, which it would chip providing some some real areas of strength.
Okay, and then secondly, I wanted to ask about the that's a key timeline. There can you talk about what prompted the move to six smaller waves and the attenuation of the timeline.
I guess would be the first part and then the second part is that the reason for lower expected.
Cash costs for your synergies in 2020 or are there other.
Factors that would explain that.
So from hourly yes. It is the reason for the lower cash costs. The reason we've moved from six big will add sorry, three big ways to six smaller ways is simply the.
Not being able to travel not being able to social distancing that you need.
People sat next to people to do the training for a large go live we've had some re think about how we launch a transfer systems of business system migration. So that's what we've done we've reprioritize some of our efforts on to optimizing the processes in the area the West coast, which is already on S&P, which is proving.
To be very advantageous frozen will be as we go forward.
Really now we're looking at how we can.
To smaller ways, where people, but we're not sell reliance on large numbers of people flying across to various regions to support you have much more remote support we have people who can drive onto to various locations to support its really it's really driven by by that's driven by the restrictions of.
Travel.
Because of Cove. It as we said earlier on if those was for travel restrictions lift.
In the old. Some then we may be able to accelerate some that's on a little more between the all driven by the ability to get people trained properly and supported probably though at the last thing I want season is a bunch of go lives.
Thank you so much.
Your next question comes on the line those busy they claim Oh that CIMB Bank. Please go ahead. Your line is open. Thank you good morning.
David keep talking about decremental margins in U.S.A. business, how we should think about those for Q2 in the back half of the here.
Yeah, David It's Nick I'll follow up on that much like a lot of other points, there's many ups and downs to that number I mean generally we're very pleased with our overall margin performance certainly at the gross margin level. We see continued stability in those numbers and we're also.
Managing our costs as David said in order to maintain a high level of margin resiliency. So you know the the the pricing has an impact volume has an impact but we've got a lot of variable elements to our cost structure to mitigate a significant EBITDA margin impact.
Understood at least for April keep quiet, a a range what sales declined for the company and in the first.
In April.
[laughter] knots [laughter]. This is Nick speaking, David I would say not specifically, but I would say at this point, we're pleased to the performance. There we're seeing in Q2, recognizing the unpredictability week to week I think that that's the key message I think it's what we have very.
The visibility going forward is very very sure I'm. So as I said few moments ago. No April was in the upper end of our expectations.
For our internal modeling and we're very encouraged by what we saw through April particularly.
Through through Europe, which is a few weeks added to the U.S. on visibility in the U.S. right now is it's very difficult.
And as I also mentioned that prepared remarks, you know we have anything between 10% to 14% of.
Customers closed at the moment, so partially closed so we need to see what happens when they reopen.
And what happens when that customers reopened and demand starts to pick up.
Thank you.
[noise], taking so ask a question you will need so Chris Paul one on your telephone.
Your next question comes on the line, especially seashells Lucky.
Please go ahead your lines.
Yeah good morning.
The only to be a good margin, but I mean this call has been somewhat on helpful. In that you haven't asked and answered the question that everybody needs to know, which are 45% of the quarters in what a volumes done in that 45% as a quarter. I mean are we talking down five to 10 are down 25 to 30.
We don't need exact number but almost every other company has given.
Volume numbers quarter to date.
Is that a competitive dynamic issuer or why won't you offer I believe some range of what we've seen quarter to date so far.
Well Duffy firstly, we rarely get volume numbers you know volume is is not the most important number for us its gross margin and what we have said is April is at the upper end of our expectations on so I think you're giving you. Some some points is how we seem to quarter. So far. We also said the visibility going forward is very.
Murky, we don't know what the visit what the older. Both can be like at the end of May we don't even know maybe what it can be like next week. The order book is very very shortened very limited, but I think we have given a qualitative information Oh, yes, causative information there about how we say anything currently.
Yeah. The only thing Duffy I would add is we've also I think given some fairly clear guidelines around liquidity <unk> end of your expectations and margin resiliency comparable with prior recessionary encouraged so I think we're managing within some pretty tight guardrails.
Okay. Thank you guys.
Sure.
Your next question comes on the line of Snow wrong Oh exactly. Please go ahead. Your line is open.
Yes. Good morning, all got a couple of questions on free cash flow and net debts.
It gets into just alluded to the fact that you've gotta to flat to slightly better net debts, which I guess 10, that's a good adoption internal modeling.
So I was wondering anything we should be a warehouse impact net debt and the slowing Spencer around is huge and monetization of access written staying well you'd be a clean yeah, let's say 29 keen sense, where you cash to get to that number that you just did a key that's defense question.
And then the second one.
I'm liking capsule or is there any reason why youre not liking capital guidance. He is that essentially.
Of the end of 2019 level when we look at the end of 2020 easy it's an assumption that's where the recovery into 2021, though again is there another item that's could push the working capital two cents ratio that thank you.
Yes, laurentide. Thank you good questions on the net debt that excludes any proceeds from asset divestitures, which we are working to obviously get some proceeds from so that would be more helpful to the guidance that we provided so once again, the the guidance excludes any impact from asset or just.
Bozos in terms of net working capital. We did provides a detailed on page 21 to adds footnoted. The 2019 number has the revenue of the environmental Science This business, which as you know was roughly little over $400 million in 2019. So you can pro rata that to keep it.
Simple up but it did not include the working capital from the Environmental Sciences business. If you would adjust for that year and working capital number would be closer to 13%.
Typically your read where at our best number.
And you see a slight increase in the metrics.
But overall, we are well within the guidelines and really no concerns in working capital and expect the pattern to be within that 13% to 14% for the year.
Thank you.
Thank you again.
Your next question comes from the line of Michael My game of Wells Fargo. Please go ahead. Your line is open.
Thank you good morning, everybody.
I was wondering if I was going to try to attack. This volume question in a different manner. David I think you mentioned the 10% to 15% of your customers are closed is that correct.
We set anywhere between 10 to 14 hour close up all should close right now yeah.
Okay and they are are there can we discuss the variation I guess news in your industrial type of business. The mini bulk or can you help us explain it is there what the order point of products were before co bid and what they are now for those customers still running.
Yeah.
I'm not sure I understand you question.
The the refresh rate of the mini both product <unk>, how how delayed is that how how long.
What's the time variance between when you're refilling that product in fact, a product that customers facilities.
Well I mean, many books pretty small market pretty pretty small overall.
Mike I'm. So you know at the moment, so I guess, what I'm trying to understand it what is the level of demand decline for the remaining 80 or 90% of the business that is still up and running customers that are closed.
With any tangible Dan a data point I can get my we can get our hands on.
Yeah, and that's in the look.
We said in the in the prepared remarks, we have.
No complex set of diverse markets are all behaving differently. So if you want to look into water industrial water.
<unk> is down because in dust industry as oppose recreational water is down because people onto opening central's right. Now if you look at I'm Sanitization, that's up because people are cleaning washing you know.
Preparing size preparing for villain facilities for a for a growth. If you look at food ingredients no anything into domestic coal bakery, all or a.
Pre prepared food is doing very well right now anything into restaurants or into a.
Hospitality is doing pretty Bobby why now so so you know I'm I'm not sure I can give you one simple thing, it's a bingo board of ups and downs across the whole.
Portfolio. That's why we are looking at that bingo bold in deciding how we reallocate our resources appropriately to make show that we have the right resources. The right people on the right level of supporting the areas, which are growing and strong and we move away, albeit temporarily for some of the markets which arms.
Got it okay.
The next one I guess, the 40 million clause in Opex savings you're targeting you know how close are you or were you two phase two and what kind of guide posts are you looking to when you would take that Max level cost out if you could just give a little color there would be great.
Sure so.
Let's just look at the costs out that we set for this year is 35 million through the next integration, which is structural cost out.
We are at where we're executing on 40 million just north of 40 million right now, which is partly structural poverty deferred policy flex cost.
And then we have further cost measures, which we will.
Hey, Mike as as demand dictates that we don't various models and various scenarios.
And we know what what triggers we would pull if we get to Verizon I was in the marketplace, but really is about scenario planning because no one really knows what's going to happen in the rest of Q2. All Q3, so we map out various scenarios map our responses to almost at the appropriate actions in the appropriate time, we're tracking now.
On a day by day week by week basis.
Okay, what would you see to say that phase two is geared more towards your.
Consumer markets that are you holding and relatively well or is this could even be there can be a second leg down in the more industrial centric markets I'll pass along after that.
I hope when we are.
We were trying to look at each individual market on the bingo board and address our cost appropriately so something is.
As obvious is energy, which is impacted by lower.
Lower transportation will be clearly taking more cost out to that than we would ounces sanitization all food ingredients for instance.
[noise] there are no further questions at this time I turn the call book well that's the present.
Yeah, Heather [noise].
Why did before other Johnson one thing we also wanted to add nobody asked the question was just to confirm are you on share count for the year is out 171 down from the 175 communicated last.
Got somebody might ask that question, but I'll I'll answer is asking it answered as well, but have a to you. Thanks everybody.
Thank you, ladies and gentlemen for your interest in universities and you have any follow up questions. Please reach out to the Investor Relations team. This does conclude today comp.
Thank you ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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