Q1 2020 Exela Technologies Inc Earnings Call
[music].
Welcome to the excellent technologies first quarter 2020 financial results conference call and.
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I'd now like to turn the conference over to build <unk> Investor Relations. Please go ahead.
Thank you Sean good afternoon, everyone and welcome to the accelerate technologies first quarter 2020 conference call I.
I'm joined here Barrancas burn Axcelis, Chief Executive Officer in Sri Concert Tour, our Chief Financial Officer.
Following the prepared remarks made by Ron in Sri Todd will take your questions.
Today's conference call is being broadcast live via webcast, what's available on the Investor Relations page of Axcelis website at <unk> Dot com.
A replay of this call will be available until July 720, 20 information access to replace let's sit on today's press release, which is also available on the <unk> Investor Relations page of Axcelis website.
During today's call is how we will make certain statements regarding future events and financial performance then maybe characterize as forward looking statements on the private Securities Litigation Reform Act 1995.
These forward looking statements are subject to known and unknown risks and uncertainties and are based on current expectations and assumptions.
We undertake no obligation to update on these statements to reflect the events that occur after this call and actual results could differ materially from any forward looking statements.
For more information please refer to the risk factors to discuss next all this most recent filed periodic reports on form 10-K.
Along with the associated press release, and the company's other filings with the FCC copies are available from the FCC or the Investor Relations page Axcelis web site.
During today's call we refer to certain non-GAAP financial measures. We believe these non-GAAP financial measures provide additional information on how management and use the operating performance of our business reconciliations between GAAP and non-GAAP results. We discuss it can be found in the Investor Relations page of our website.
Please note the presentation that accompanies this conference call and Investor Factsheet Factsheet are also accessible on the Investor Relations page of our web site or.
I'd now like turn the call or to our CEO Ron Cogburn Ron.
Good afternoon, and thanks, everyone for joining us today.
I'm pleased to announce that we filed our form 10-Q four the three months ended March 31st 2020 last evening we.
We're now current all of our reporting requirements to the FCC sand under our debt agreements and we expect to be a timely filing going forward.
Thank our finance and legal teams for all their hard work and completing this process.
I will begin with an overview of our first quarter 2020 results business highlights and current trench I'll, then turn the call over to strip out sort your for more detailed review of our Q1 performance and to discuss our second quarter and 2020 outlook after shred sounds presentation. Okay.
Back and talk about our priorities for 2020, and some recent business updates, including our response to covert 19 pandemic.
Now, let's turn to slide number six.
Our first quarter 2020 total revenue on a constant currency basis was $367.2 billion down 9% year over year, but above our expectations.
We generated $44.4 billion of adjusted EBITDA on a constant currency basis in Q1.
Adjusted EBITDA margin was 15% when excluding pass through and low margin customer exit revenue.
And we ended Q1 with $97 million, a global liquidity, which has increased to $106 million by the end of the second quarter.
Our first quarter revenue performance, mainly reflects our exit from certain customer contracts and statements of work, which are not strategic to set for Axcelis vision.
You may recall that we discussed the strategy on arginine coal as well, however, I would like to provide you more detail today as it is an important part of our ongoing business transformation that we'll continue to impact our results in the near term and will enable us to achieve our strategy of improved off.
Operating income and free cash flow performance over the long term.
As we discussed on our Q4 call our focus for 2020 M. beyond is to continue to drive growth and our base business by expanding with our existing customers, especially among our top 200 within our PFS eye health care customer portfolios as well as one thing no customer love.
Yes.
At the same time.
We're aligning ourselves away from unpredictable nonrecurring revenue that is unlikely to achieve our long term margin targets.
During 2020, we will continue to exit certain contracts and statements or work with little or no margin contribution and no opportunity to improve.
Their contribution through digital transformation and automation.
We refer to revenues from these contracts as transition revenue.
As of January 1st we had approximately $150 million of annual transition revenue that we will exit over the course of this year and as such we will continue to absorb this transition.
In our topline growth metrics. However, it's important to note that declining transition revenue is also expected to have a positive impact on our gross margin profile. We have a plan in place and we're working diligently to rebalance our resources that cost and optimize our business for.
A reduction in these low margin revenues this year.
We will continue to provide you with updates and supplemental information on the impact on our results by transition revenue in future calls.
Our base business, just where we are focused for growth, which represents what we believe is a very strong foundation for improved future performance. We believe our base business will be the best indicator of our success and our growth potential going forward.
Now moving to some recent business and market trends.
From a volume perspective based on our current visibility we expect the impact to covert 19 on customer volumes to be the most significant in the second quarter up 2020 before showing improvement in the second half of the year as conditions began to normalize or the second quarter. We.
Expect total revenue to be between 300, and $305 million, reflecting negative 35 to 40 million dollar impact from covert 19th.
As part of our operational improvement efforts, we've reduced our headcount by approximately 4% year over year or 900 20-F T. He is in the first quarter and in response to the current slowed down we reduced the active workforce by another 3000 ft ease in the second quarter.
Looking to the second half of 2020, we will continue to carefully balancing our cost base against our expectation for increased volumes as well as the exit of our transition revenue overall anticipate we anticipate the volume improvement combined with our cost initiatives will lead to improved gross.
Margin performance in the second half of 20 Twond.
From a new opportunities perspective, the realities of covert 19, or leading our customers to increasingly explore business process automation initiatives that enable enable them to reduce cost and operate effectively in the new normal.
This trend is having a positive effect on our new business wins, showing strong growth so far this year.
On a year to date bases are close to one deals have increased by 52% in the Americas and 58% year over year in AMEA driven by increased demand for work from home solutions or what we call home office digital mailroom solutions and our payment.
Offerings, we're pleased with the momentum that we're seeing in our sales metrics.
We're optimistic will benefit our growth in the second half of 2020 and into 2000 2021.
I'll turn the call over to shrink call. It at this point to discuss our results in greater detail shrikant.
Thanks, Ron.
I don't know them. Thank you all for joining us in my discussion today I referred to both GAAP and non-GAAP results.
As a reminder, reconciliations to these metrics are available in our earnings material.
Any reference to the corresponding period of fiscal 2019 includes restated results for the interim period of 2019.
Let's start on slide seven but the reveal for fall score a 2020 results.
Revenue for the fourth quarter totaled 365.5 million.
On a constant currency basis, Q1 revenue was 367.2 million, representing a decline of 9.2% year over year.
Moving to our segment revenue for our TPS segment was 284.1 million a decrease of 12.6% year over year from 325.2 million and the fourth quarter up 29 team.
That's wrong mentioned this decline was primarily driven by our transition revenue that's to be extended contracts and statements of work said, but not strategic to our long term ambition or unlikely to achieve our long term target margins.
This was partially offset by growth from existing customers and new wins.
Our health care solutions segment, driving your totaled 64 million up 4.4% year over year from 61.3 million last quarter off trendy 19.
Our results in the healthcare solutions was attributable to increased walliams with existing clients.
Our legal and lost from instrument segment revenue or Lps, what's real let Tony flat at 17.3 million in the fourth quarter compared with 17.8 million in the fourth quarter of 29 peak.
Gross profit margin for the fourth quarter was down 324 basis points year over year to 20%.
The gross margin decline was primarily due to our revenue decline offset by continued transformation and cost savings initiatives.
It's important to note the B pack of transition revenue on our Q1 margins was more significant that's the revenue decline is pretty saving our reduction of stranded costs associated with the transition driving.
Looking at the second half of 2020, we expect our gross margin increased benefiting from higher customer volumes, particularly in health care and beams and from our cost initiatives, including reducing stranded costs associated with our transition driving.
As Ginny expenses for Q1 totaled 50.4 million up 1.4% year over year under president of 13.8% much revenue.
Oh onetime transaction costs related to the sale of our TV business and our new Elsa somebody that's going in declined 5% year over year, driven by lower revenue and cost saving initiatives.
Depreciation and amortization expenses was 23.2 million down from 26.6 million in Q1 of 29 team, but essentially unchanged as a percentage of revenue.
Operating loss for the past quarter up 2020 was 2.2 billion compared with operating income of 16.5 million for Q1 off 2019th.
The year over year decrease in operating income was primarily due to lower revenue and gross profit.
Turning to EBITDA and adjusted EBITDA in Q1, 2020, we generated EBITDA of 54.6 billion up from 38.9 billion in the prior period.
Our largest adjustments to arrive at the adjusted EBITDA included non cash and other income and charges and optimization and restructuring expenses also called us when our expenses.
We just got to add backs to adjusted EBITDA in more detail on slide eight.
All right just one for one our expenses totaled 13.1 million in the first quarter of 20 trending down 1.7 million sequentially and 10.6 million euro or you.
Looking at the rest of 2020, we anticipate well in our expenses to land between 12 and 18 million per quarter.
We recorded 4 million of transaction costs in Q1, Twentytwenty related to the TPG assets sale and our hospitality, we expect to book additional transaction costs in Q2 related to the amendment of our credit agreement or these expenses down to roll off in the second half 20 training.
Finally, we had non cash and other income adjustments if I'm not negative 28.5 million in the first quarter off 20 training. This includes a onetime noncash gain related to a PBG asset sale of 35 million that was offset by 7 million noncash and other charges.
For the remainder of 2020, we expect trends to be inline with Q1 2020 or some of our recent prior quarters adjusted for one time charges or games like GBG asset sale, which was one offs.
I'm just to be able to foster <unk> was 44.4 billion a decreased from 76.4 million in Q1 of 29 pigs I've just an EBITDA margin for the fall score of 2020 was 12.1 per cent compared with 18.9% in the prior year period, a 670 basis point reduction.
Excluding pass through revenue and low margin client, except our Q1 2020, adjusted EBITDA margin was 15%.
The reduction for the comparative period was driven by declining revenue and the pressure that put on the cost model, resulting in the gross profit decline and in turn impacting or just a de <unk>.
The remaining reduction was mainly attributable to the lower compared to when our expenses.
Well, let's move to slide nine to discuss our liquidity.
We covered some of these items on our Q4 earnings call.
I would like to refresh and build up on our prior discussion.
Our liquidity at March 30, plus 2020 was 97 million up from 31 billion at year end 2019, and our total net debt was approximately 1.2 billion.
I asked me discussed on our last call. Our total liquidity improved 206 million absolute may 29, and that's to remain consistent through the end of the second core.
During the first half of 2020, we took several steps to stabilize and improve our liquidity position.
The previously announced we executed on a new 160 million accounts receivable, Switzerland, and also completed our asset sale for approximately 40 million.
In addition, we have applied for U.S. federal stimulus and other regional government Cobot 19 easily MPMP exercised certain care Soc provisions, including debt for all of our payroll tax much for the remainder of 2020.
It will continue to explore and implement additional actions to improve our liquidity this year.
Includes our plan to complete additional asset sales between 110, and hundred 60 million accelerating the alignment of our business to our traditionally working capital light model and executing against our plan cost initiatives, including cuttings Trident expenses associated with our transition revenue.
Before I hand, the call by Ron I would now like to discuss our second quarter and full year 2020 outlook.
The second quarter of 2020, we expect total revenue to be in the range of 300 to 305 million, which includes approximately 35 to 40 million negative impact from lower volumes, primarily from certain health care and be felt like planes. As a result of the cobot lighting pandemic and 5 million of decline attributable to the sale.
I Love TPG business.
As we mentioned on our June 9th call given the uncertainty surrounding cobot 19, and its impact on our visibility delaying providing financial guidance for full year 20 Twond.
I would like to however, reiterate factors that we expect will impact our performance for the balance up this year.
So just as Rob mentioned, we expect the worst affects of Corbett 19 on customer volumes and often actual results to how the most impact into true before improving the second half turn your trends.
Passion, however, the continuation of course with 19 outbreaks could further impact the market and our performance.
Second we continue to see a decline in transition revenue actually exceed these contracts and statement of work through rest of 20 trend.
Our response to corporate banking, there are adjusting our capacity and cost structure, including scaling back our estes and certain discretionary compensation. In addition, we will be reducing the standard operating costs associated with our transition revenue.
The improved volumes in the second half of 2020 combined with our cost initiatives. So should lead to more normalized gross margin performance and the second half of the yet.
And finally, our capital allocation policy is to prioritize improving our liquidity and cash flow. We continue to pursue an incremental hundred mtwo hundred 60 million in noncore asset sales in support of our strategy or the next 18 months.
With that I'll turn the call back well what's wrong Ron.
Thanks <unk>.
Let's now turn to slide number 11, and discuss our key 2020 objectives to driving improved operating income and cash flow generation.
First accella is accelerating the alignment of businesses acquired since 2017 by moving away from the capital intensive model, which is F. T E based contracts funding the payroll cost first and then collecting the revenue later, so its traditional model, where the services or less ft.
He heavy like DMR or home office or the working capital need is minimal and there is no upfront costs that need to be carried before collecting revenue.
Second we are focused on driving growth of our base business. This includes expanding with existing and new customers within our banking financial services in insurance and healthcare industry segments, where we provide mission critical billing and payment solutions. Our recent partnership with Mastercard book.
The league in the UK.
Or request to pay solutions and our extended relationship with the co-operative bank launching confirmation that pay east services are great. Examples.
Our year over year increase of the business signings is a trend we believe that illustrates our focus on this Matt.
Third we're increasing our focus on helping customers accelerate their digital transformation with solutions that address the new normal in the wake up to over 19.
As I mentioned earlier, we have seen an increase from customers seeking our work from home solutions or home office digital Mailroom solutions and Haven offerings.
We have 81000 users already like home office portal with an additional 56000 users being on board.
Sure we're focused on improving our cost base, both react to the short term slowdown caused by covert 19 and to improve our cost structure and drive higher margins over the long term.
We reduced our head count by 4% year over year in the first quarter and we will continue to optimize our head count.
The exit of transition revenue through the remainder of 2025.
Finally, as part of our emphasis on our base business and also improving our liquidity, we will continue to exit certain non strategic businesses via asset sale.
As we discussed our goal is to raise an incremental $110 million to $160 million a proceeds through this process for a total of $150 million to $200 million.
Now ending with slide 12.
I would like to summarize our response to covert 19, and why we believe we are well positioned to whether its current environment and emerge a stronger company as conditions begin to improve.
First our rapid response response enabled us to ensure the safety of our employees and business continuity with nearly uninterrupted services to our customers. Shortly after the onset of the pandemic, we put in place rigorous business continuity and employee safety plans, we obtained essential business.
Certification in most states should the U.S. we.
We've upgraded our facilities with adequate pp E supplies to provide a safe working environment and to comply with health and safety standards. We enabled to work from home solutions globally, and we set up a cold Nike sportswear with real time connectivity to global sites for continuous monitor.
That's all levels.
Well the customer perspective, we enhanced our communications between Excela account managers and our customers with high frequency touch points.
And well to ensure a business continuity.
We pivoted to a new technology enabled solution, which helped our clients minimize interruption to their business functions.
As I mentioned, we've seen strong growth in our sales metrics driven by our demand for home office solutions or home office and finally, we ret [laughter]. We finally, we rapidly diverted volumes to unaffected offshore delivery locations.
Overall, we are pleased with our execution, which has enabled us to maintain 96% of our S delays to our customers.
We believe our strong performance is helping to differentiate us from our competitors and the market.
Second.
We have quickly move to adjust our operating capacity to match lower levels of demand and volumes in order to mitigate the impact on our margins.
We adjusted our after that ease by approximately 14% in response to estimated 10% volume reduction due to covert 19.
Some of this volume reduction is the result of increased delays in our pipeline, which is partly due to changes in our customers priorities in this environment.
As well as they as well as well as what they explore larger transitions to digital transformation, including our DMR payments and billing digital solutions.
Third we've improved our liquidity position in support of our needs and this uncertain environment today have a total liquidity in excess of $100 million and for.
Our ongoing operational turnaround and disciplined as further helped us navigate to cope with 19 situation.
We are fortunate to have a resilient business model that supported by our strong customer base that mission critical nature of our solutions, we provide favorable customer contracts and our unique global delivery model, which combines onsite with near shore and offshore delivery we build.
We are well prepared for it operate from an operational perspective as volumes are expected to normalize in the second half twentytwenty.
That concludes our formal comments operator with that please open up the lines for questions.
Thank you we will now begin be question answer session. If you would like to ask your question. Please press Star then one on your Touchtone phone.
If your question has been addressed and you would like to withdraw your question. Please press Star then too.
At this time, we'll pause momentarily to assemble <unk>.
My first question is they will come from transporter with Newbie. Please go ahead.
Hey, how are your thanks for taking my question.
Before I do my first one a it's a tough when you might not be able to answer because I think Matt asked it.
Last quarter, but.
Now that you've got a judgment today.
Plan on.
Appealing.
By July.
Just a you know if you had to pay the $57 million today, it looks like you'd be getting close to the.
Your $40 million, a minimum liquidity threshold. So I wonder if you could talk and just broad terms maybe.
You know how these things typically play out let's say the appeal goes Oh is unfavorable would you have to pay it immediately or are you typically get time to pay it and our other notwithstanding the potential asset sale proceeds other liquidity.
Considerations that were not thinking of and then I had a one follow up.
Hey, try and ER docs. So the question, yes, I'll try to keep it a high level VR going ahead with the appeal and from a from from your question and one other steps involved we do have 45 years to submit an appeal appeal brief us they call. It and then typically though does.
Rubber Supreme Court has a fairly prescribe process for appeals that last anywhere from six to nine months, but in light of corporate 19, but I'm timeline could be longer Ah. That's the see it also be but I can provide you in terms of Oh.
The the Peter what's going to potentially happen something a that that I'll, probably one dozen in full details here, but I tell you. This the company feels confident that there's no immediate imminent be out expected since the appeal process will probably take Epstein Oh, great well that that's very helpful. It and then.
You talked about.
Forgive me I don't remember covering this on the last call you you've talked about <unk>. The covert 19 related volumes improving in the second half and just just to get better I'm understanding of what you know the assumptions that are baked into that I was wondering if you can talk a little bit or just flush out.
A little bit more.
You know what kinds of accounts, but the oh of yours.
Weren't where you're seeing this this volume decline and maybe your your you know ballpark. If you could quantify the exposure you have to covert <unk> vulnerable or verticals and then after that I'll get back in Q.
Yeah sure I I, probably give a very high level, that's around the drunken I'd add to whatever I missed a you know the broader I'm sort of trend does that.
Okay, and some of our print business would you like to call ups degraded communication services was probably impacted but you have to look at it in the context stuff there our customer concentration us our customer concentration as lumpy, if the financial sector and health care and it's not on the traveler hospitality REIT therefore, the impact overall.
<unk> for us.
Perspective was not a huge us as some of the other companies I'd put it that way.
Okay that yeah yeah.
That makes sense I'm, sorry, I'm, writing as you're talking it just one quick one before I leave it I just wanted to clarify your 300 to 305 million dollar revenue target in.
Hi, good for the second quarter target asked about whatever you want to call it.
The you know if I, if I strip out your the covert impact there's still a $40 million decline I'm, assuming that's coming primarily from the transition accounts that impacted the first quarter.
Try to spread right. It's a combination of both but that's correct. Okay. Thank you so much.
I'll get back and you know Paul Thanks, Ryan.
The next question will come from David Droplets from <unk>. Please go ahead. He thinks the question I just was curious on it's on page on your presentation on page six you talk about the App and the profitability the stranded cost related to that transition revenue a anyway you can.
You know if you said you had 150 million at Trent annualized revenue for this year and say, we take a quarter that how does that have the cost line up with that for this quarter I'm just kind of.
China, just yeah see how the margins are working out here and it looks like your.
On the L.M.C. revenue, you're at 15% EBITDA margins it versus 23.3% last year. So just really wanted to drill a little bit furthering that the stranded cost.
Okay, and you're looking at from a Q1 perspective, right David absolutely, yes, yes.
Okay again, I am I will give you a directional answer here.
There's a timing element involved right at the right trends to drop off the cost gum comes out later and light and one of the reasons be called us trying it costs us not only theirs.
Hundred percent of the variable costs do not go out in line, but the revenue decline number two there's a fixed cost element and walk right right.
That's one thing to keep in mind, if I went to give you a direct I'm sure. We estimate until estimates are anywhere from 2% to 3% of of standard costs that are still in the system. The way I look at it.
Look at Q1 worsens skewing 20, worsens Q1, 19, 23% margins versus 20% margins granted a revenue was down a we should have adjusted cost down I smell.
It's not happened quick enough, so simple terms, 2% to 3% of strider cost in the quarter still in there.
Broader terms or we need to do a lot more to get the margins back up to very close historically.
Okay, great that I have another question on terms of that you know you guys have talked about feather out divestitures and is that is that do you foresee that and I know, it's hard to calibrate when these happen but is that is that at 2020 timeframe. A the way you guys are looking at that.
You know I I'd like to stick to the original timeline of 12 to 18 months right. When they said doesn't know Murphy said 12 to 18, you know from a management perspective, we'd like to get it done as soon as possible to alleviate all of the liquidity concerns or that's probably out there, but we're shooting for us what I'll call them, but.
In line still remains 12 to 18 months, Okay and my final question is that if you're you talked about gross margin improvement a with volumes and.
You know stranded cost coming off in such that when we exit Q4, what would be kind he's normalized margins that you're thinking about gross margins and set kind of to with that do you think you'd be cash flow positive in Q4.
That's our goal right that's our goal and let me citizens, David You're asking me discussion Oh, that's one of the early.
Yeah, I said earlier question, let me kind of give you a thought because we're talking about transition costs were talking about Oh, I'm, sorry transition ground, you were talking about sounded cost and whatnot.
I point out to two or three off our publicly disclosed items from the past.
So a lot last year, one key element does revenue unethical and see if you saw 2.9% growth, even though on a GAAP business.
It's not not not the case right in that you have anywhere from 272 to 300 million offs.
Posters or pass through costs, no don't get me wrong, that's more margin minutes. The integrated solution, we still like to habit, but if it becomes just pass through literally no margins. It doesn't make sense for us number one that's the topline perspective.
From a problem in Q3 in Q2 in Q3, but we had listed our business transformation flights a very could go back and referred to it you will see a 45% to 50% of the company is a 35% margins.
And then you'll see a there's an element of 15% to 18% margins for some of our revenue and send them. There's another one of the 20% late I you know ideal world, we want to get back to the the higher margin side on the business right.
Sure a point as you can look at all factsheet Fyseventeen versus 18 versus 19, one where our gross margins we've seen a declining trend we want to reverse that bumped up a key element of both but are you calling it.
Now looking at the transportation transition revenue fixing our cause and updates about.
Getting better with our gross margins and then the cash flow So Paulo.
Thank you.
Sean.
Sean always July.
[noise] Oh excuse missed the conference operator, I'd thought does it looks like we may have had some technical difficulties I'll just be Finland hair momentarily I'm, sorry to the management team and everyone else. So we proceed to the next question.
Yes, yes, yes, sorry, okay. Thank you everyone. Okay. Next question will come from Bryan Keane of couldn't good. Please go ahead.
Hi, Yeah, I just wondered if you can ride more color on.
Pricing or customers are trying to.
Pushed or pushing harder on pricing in light of Corona <unk> going forward I can you just speak more about I think it'd be helpful.
Oh. This is Ron I know that's a great question. So you have to think about the nature of the relationship. We have with these customers are I'll give an example, the top 20 customers that we have with with a company have been with US an average of 16 17 years now and so we have.
Long term agreements with them three to five years, the more technology. They have the longer term some contracts are under seven year to 10 year range, but because of that relationship as we came into this.
I call it a downdraft from the volumes from the the way the world kind of stopped for that moment in late March and April we were able to navigate through that we have guaranteed minimum pricing anyway, and our long term contracts, but we partnered with where their technology partner and as a result.
To that they look to us to be able to pivot to oh work from home solution or remote or off site that they didn't have before so for us. It. It was never a conversation about can you do it for less money can you give us longer terms, which is another key.
Actually this probably out there we just did not see that kind of traffic it was more.
Cry for help, especially in health care and in the financial services.
Excel is deemed an essential service part.
So as a matter of fact, we are the ones that helped to to move the move the mission critical services that these companies are our clients and customers offers so it was a it really was <unk> 911 type of call can you help solve it and I think I didn't talk about slide 13, but.
Well look at the deck you could see the a major testimonials from the firefight the men and women that worked for Accella were all the frontline and worked 24 seven to ensure that our customers did not see I break in service and like I said, we were able to maintain.
96% of our SL aims to your and this what I'll call storm.
Okay got it makes no.
Thank you.
And the next question.
We will have will come from Alan Kato of Bridgepoint capital.
Hi, Thanks for taking my question.
I guess first could you help us understand a bit more of what the actual surfaces are within transitional revenue and I had a bit of trouble understanding and one of the other callers questions. What is the stranded cost opportunity associated with that or what is the EBITDA contribution from those transitional revenues.
Right.
Sure I love.
To address both your questions right, let's talk about transition loved <unk> I wouldn't want to categorize it by a certain bucket I go back and emphasize what our focus is switches.
As Ron mentioned base expansion continues to be the full goes topped 200 customers on growth there continues to be our focus.
What we kind of want to look at more closely as the unpredictable nonrecurring or.
Our any.
Customer return or margin calls from a margin that's unlikely to achieve our long term margins right. That's why I kind of reverted back to a couple of things that'd be a talked about in the recent best takeout or LMC your revenue posters or lumps your revenue actually be how revenue growth.
Impact of low margin our business. It is continuing to create a margin compression and we need to reverse that right. So that's so when I kind of summarized the transmission revenues nothing but we also looking at customers customer margins or areas, where we need to start you know.
Well I think are more margin and <unk>, if it doesn't make sense for the business. It's about our that'd be exit focus on the margins focused in the margin box. So if you ask me want industry, what bucket what customer.
No I don't I don't think be how the kind of the categorization I said she talked about at least not on this call.
Stranded costs again, it's more of a term, but we are using here to indicate bad when there is a revenue decline the variable cost, it's not 100% releasable to it in the same lumpy quarter. It comes off but slower than the revenue drop number one number two we also.
Hi, I'm, an element of fixed cost that has to come out eventually, but they'll be caught it facility consolidations.
King of the baby work managing capacity.
You know, it's a much bigger exercise so that is better I give a comparison of havent dealer, making 20% to 23% margins in the past stuff happening right. Now you know time and revenues declining we need to adjust our costs be it the leftover variable cost or the fix it does not filtered out desktops.
Regarding the system.
That's what we mean by the stranded cost concept.
Got it.
Okay and then it's what causes the timing disconnect between the lost revenue and then the associated costs is it just planning for head count reductions or what's kind of.
Underlying driver for that I would say the majority is that it's really had done in capacity management.
The better real time more trucker baby can do it the better off we are.
Got it so the 3000 ft ease that have been.
Labeled non active goes R.
Still employed by the from is that right.
That is correct only point are there does.
I don't want so so even if it looked at our presentation right. There's between 900 into ft is that we talk about from the savings perspective versus the 3000, there's a difference the 3000 inactive us more in Q2 and related to the volume declines related to quoted.
So while they're in intuitive there was an interplay between covert related revenue decline and we'll trenches transition revenue, it's going to be hard to pinpoint and say, we just bought but I want to keep that in mind. When you look at the 3000. After you number that's more specific to the Q2 and related to corporate once the while im sorry backup.
We didn't know those employees could could get back to being the workforce.
Got it just a few more quick one when you take that all into consideration do you see what did you see as the path to bring the company back to no high few hundred adjusted EBITDA like most due under the cash EBITDA as was the case in 2018.
Right I think I'll put it in one line profitable revenue growth right, maybe you need revenue you need revenue growth, but at the same time, it's very important that there's margin growth not just in percentage terms, but in dollar terms asphalt.
So I think this does as you'll see a lot of what you're saying the recent bastards focus towards how do being for margins.
Got it so when you talk about the transitional revenue being margin accretive back on a percentage basis, but on a gross margin dollars basis is it you know gonna be pretty much offset by stranded cost you take out.
Right.
Okay got it right. One last question I guess I'm sure more or less likely looking at.
Kind of liquidity I think you guys said, there's 106 million at the end of June which implies some moderate amount of unlevered free cash flow, but when you think about that level of liquidity relative to.
The 140 million of debt service per year, and I think based on adjusted EBITDA recently.
Doing more asset sales at six times won't necessarily do you ever the company. So how do you think about you know the long term support needed for the capital structure and kinda I provide that and it's one thing I'm proud to add on liquidity is when you Peel them. It just.
Is there a bottoms required to be posted [noise].
Yeah, Hi, Alan feel different questions that I realize it's an important gauche now style. So I put a debate.
The company has always met its obligation to towards any of these payments right. That's number one.
We have additional diverse asphalt to further improve liquidity if need be a number true long term obviously it all is going to fall back on operational performance right. I mean, you know we have other live RC have financing options, we have whatnot, but long term goal that we've been focusing here and talking about us.
Execution execution of the operational level to start generating operation cash flows.
In terms of the last question that you asked.
I do not have you know maybe the legal team or I need to gosh. This the legal team and whatnot at least from what I know you just probably a little bit early here as there are potentially options to proceed with the appeal without having to pay the ball, but then again as I said, Oh, caveated by saying I do not know enough on that.
And that thought you know something up our legal folks should probably address at some point in time.
Got it great all right I'll get back in queue. Thank you very much for your time no problem. Thanks.
The next question will come from Gerry Wang with Carla. Please go ahead.
Hey, guys. Thanks for the questions just had a quick one yeah I think on page 12, you have.
Your sell when close.
You know it in the quarter was a pretty much earlier can you just say what dollar amount that is associated with in America than a meal.
Yeah. This is Ron I don't know that we had a disclose that level of detail Jerry but on about I mean, excuse me Shrikant did you I don't think we had that information.
Quantified did we yeah, yeah Jerry.
Well, let's do this weekend, we didn't get the number for you or you know probably at a later point of time I do not have it off and let me let me put it up but we do know.
On person days basis, you know where your growth.
Okay. Thank you.
No problem Jay.
I will conclude today's question and answer session I would like to turn the conference back over.
Two ronald covering for any closing remarks.
Thanks, and and once again, we want to thank everybody for participating today the call and we appreciate your questions and you know there's always you can reach out to us directly through I see our if you will nina or directly to myself or two shrikant. Thanks, again, and we'll see you on the Q2 call.
Everybody stay safe in this environment. Thanks Bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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