Q3 2020 MTS Systems Corp Earnings Call
Excuse me, ladies and gentlemen, thank you for your patience and holding the conference will begin in a few moments again. Thank you for your patience and holding the conference will begin in a few moments.
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Good day and walk into the into <unk> third quarter 2020, <unk> earnings Conference call Today's conference is being recorded.
This time I would like to turn the conference over to Mr., Brian Ross.
<unk>, Vice President and Chief Financial Officer. Please go ahead Sir.
Thank you Shelby good morning, and welcome to MTS systems fiscal 2023rd quarter Investor teleconference.
Joining me on the call today, it's Randy Martin knows our interim President and Chief Executive Officer.
I went to remind you that we will make forward looking statements today as defined by the private Securities Litigation Reform Act of 1995.
Future results may differ materially from these statements dependent upon risks some of which are beyond management's control.
List of such risks can be found in our latest FCC or forms 10-Q, one time Kerry.
We disclaim any obligation to revise the forward looking statements made today based on future events.
This presentation will also include references to non-GAAP financial measures.
These measures are used by management to evaluate the operating performance or the company overtime.
Should not be considered in isolation or as a substitute for GAAP measures.
A reconciliation of our non-GAAP measures to the nearest GAAP measures can be found in our earnings release.
Well now turn the call over to Randy.
Thank you, Brian and good morning, everyone.
It's great to have the opportunity to speak with you on todays call and we appreciate you taking the time to join us.
Before I get started on behalf of all of my MTS colleagues, we would like to strike a health care professionals first responders. Another frontline workers, who are dedicated to keeping a safe and healthy.
Since I became MTS is interim president and Chief Executive Officer in late May My top priorities have been simple and well defined.
First focusing on the health and wellbeing of our employees along with the business challenges tied to covert 19.
Secondly building relationships and trust with my direct reports on the management team.
Thirdly, determining our top priorities in the near term and ensuring laser like focus on them.
Born emphasizing the basic blocking and tackling the business fundamentals.
And lastly, continuing the efforts to the de leveraged balance sheet and them through our gross margins.
I have also set a good deal of time engaging with our employees and meeting as many employees as possible with the restrictions cobot has presented.
The leadership team has also helped me gain and close perspective on many areas of our business, including our product offerings.
Market structures competitive dynamics.
Why aren't buying behavior and engagement levels and collaboration amongst our teams.
I look forward to continuing to gather feedback and exchange ideas with our employees and other stakeholders to more thoroughly understand MPS is current operating realities and future opportunities.
Well continue todays call by covering our Q3 market environment and performance.
Then quickly review the critical actions, we have taken to protect our business in response to cope with 19.
Conclude by outlining the leadership teams near term priorities for MTS.
In terms of simulation, which came off a record orders performance in the second quarter headlined by the largest order and MTS history with the seismic table win in China.
We experienced lower orders of 81 million in the third quarter. This is what they 22% decrease year over year.
That's customers continue to restrict access to their facilities and defer capital expenditures and discretionary spending we saw an increase in order to roll rates within our opportunity pipeline a metric we monitor closely.
Order placement delays increased on a consecutive quarter basis, demonstrating the dramatic in turn in short term sentiment caused by the virus during the quarter.
The initial impacts we began to feel from cobot 19 at the end of Q2 accelerated in the third quarter as a parent gimmick spread from China through Europe and the Americas.
As a result of the ensuing macro economic conditions and movement restrictions.
Summers delayed large capital expenditures aggressively and preferentially.
Likewise limitations on travel and access to customer facilities entered service installation and maintenance sales.
You do and has been heavily affected by the cobot 19 year impact on the aviation and entertainment industries.
It's over all order profile within the quarter reflects the continuation of smaller investment spending with larger spending continuing to be delayed.
Well most of our markets experienced a decline in orders year over year.
R&D entity, and Denmark continues to exceed expectations. Despite market conditions. As a reminder, we completed the acquisition of R&D effective December 31st 2019.
R&D is benefiting from continued strong investment in renewable energy and more specifically when power.
R&D brought with them a strong backlog of projects, which now exceeds 39 million and continues to grow the contract duration stretching into 2022.
We remain very bullish about the industry trends driving R&D success and believe they have the right expertise and customer relationships to further capitalize on the growth of renewable energy investments.
As we move into the final quarter, or that's why 20 customer order intentions and timing or affirming as I'm macro economic outlook is becoming somewhat less foggy.
We expect stronger orders growth in Q4 as delayed customer orders began to be released particularly in Asia and Europe.
We also believe that test services, which was heavily impacted in our third quarter by customer facility closures will begin I slow, but consistent recovery as customers increasingly returns or work and allow access to their laboratories for equipment service and installation.
Importantly, our test and simulation pipeline remains a strong levels. Likewise, our backlog of 373 million what continues to support our operating stability as we navigate the affects of Cowen.
Now, let's turn to the performance of our sensors business.
As a reminder, the three largest sectors forgets business architects sector, which includes laboratories that test new products as well as our department of defense contracts.
Our industrial sector, which is primarily targeted toward machine automation and our position factor, which comprises both industrial automation and heavy equipment applications, such as Earthmovers construction and finding equipment.
After posting record orders in the second quarter sensors orders were muted in the third quarter at 70 million down 8% from the prior year, reflecting the impact of Cobot 19.
Our sensors test sector saw another increase in orders for the quarter with additional funding under our department of Defense program of approximately 5 million and significant contributions in orders from the newly acquired in depth co operations.
However, the rest of our sector saw a decline in the quarter.
Orders within our industrial sector were weaker in the third quarter due impart to a record performance last year.
This decline was led by slower energy market demand and the predictive maintenance business.
Geographically Europe saw the most significant declines.
Orders within the position sector remain remained weak in the quarter.
While we continue to see application expansion in this market with new design wins, a worldwide manufacturing contraction that started well before cobot 19 was only worsened by Kobe and we continue to see reduced ordering bar largest only one in the process of working down existing inventory as they have.
After their own reductions in demand.
I'd like to give some additional context on the market environment, we're seeing for the full company.
The uncertainty of timing for the reopening of the global economies, let us to withdraw our specific guidance for the fiscal year, but we remain excited about our growth prospects as the world moves towards normalization in the months and quarters ahead.
Importantly, despite widespread customer impact from car, but we have seen no order cancellation of significance.
This reflects the financial strength of our customers and the importance they place on their long term research and development investments.
What we have seen however, if they slow down a product deliveries due to the temporary closure of some customer facility and more difficult logistics, along with slower placement of orders from the pipeline.
Recognizing the near term impact cope with what's happening on our business our team active acted decisively to enhance our financial flexibility.
As we announced in mid April we executed restructuring and numerous cost reduction initiatives temporarily curtailed cash compensation for our board of directors and senior executives.
The spend that dividend payments.
Further we disclose yesterday that we were successfully we successfully amended our credit agreement and maximize our total liquidity position under our current capital structure.
Combined these actions will help ensure that we emerged from the pandemics prepare to resume our growth trajectory.
Looking ahead I recognize a lot of uncertainty remains in the market.
Cobot are certainly weighed on our business in fiscal 2020, and we continue to see us effects, which were for announced in the third quarter.
As we look to the fourth quarter, we expect to sustain our performance sequentially, while recognizing improvements in our order profile.
Further with a strong total company backlog of 451 million and an improved cost structure and liquidity position, we are well positioned to navigate the current economic cycle.
We will continue to refine our business model as needed to weather the storm and emerge a stronger on the other side, which includes looking deeper into certain areas of our operating model and identifying areas, where we can take action.
While these may not be visible on the upset they will improve our operating metrics either by reduction in cost or rationalization of product lines, and we'll certainly redirect our focus some more profitable areas.
As I mentioned at the start of the call I've had extensive conversations with the executive team and my Fellow Board members, everyone. I spoke with its very proud of how we have advanced MTS systems through our acquisition activity over the last few years.
Even best must have greatly diversified our products and technology offering our markets and customer base and made each business much stronger in a normal environment.
Now our focus is on execution and ensuring we get the return expected from these investments.
We are committed to delivering consistent financial performance that aligns with the expectation of our shareholders.
Working together the leadership team has identified four key areas of focus to guide us strategically to the pandemic and beyond as mentioned at the beginning of my remarks.
Got to be clear, we're not changing our overall strategy that has made MTS a global leader in the test and measurement space the balance between the two business divisions has generally provided more stability as well as size and scale to our operations.
The four key areas of focus are critical to the execution of our strategic growth plans and they are.
First the health and wellbeing of our employees and their families remain our top priority.
Because we serve a wide array of customers critical to many industries, we are considered and essential business.
Customers have continued to meet our products and services and we have been here for them open for business throughout the pandemic.
That said, we will continue to do everything possible to ensure safe working environment and all of our facilities.
Second.
We are committed to executing on our financial priorities, which include our debt leverage and liquidity gross margin improvements and cost containment.
These priorities will help us to stabilize the top line and grow our margin metrics.
We are also establishing a sustainable cost structure that allows us to be cost competitive while enabling us to make investments that provide value for our customers.
Our investments are focused on operational improvements research and development technology upgrades and automation.
Third.
We are focused on optimizing our strategic investments. This means we are committed to ensuring the acquisitions. We have made over the last few years deliver the anticipated return.
Boards this and we will look to advance integration efforts realize additional cost efficiencies and capitalize on the natural synergies that we foresee by leveraging our diversified globally focused organization.
Fourth.
We are committed to preparing and building for the future.
Our markets are changing.
Customer demand is evolving the competition is increasing and technology is advancing at an unprecedented pace.
Remain agile in this environment will allow us to capitalize on the market well into the future.
Foundational to each of these focus areas is a healthy company culture.
Knowledge in that people are at the heart of everything we have workstreams dedicated to strengthening our culture, which emphasize rigorous data driven talent management.
Especially in planning and leadership development.
I am pleased to say, we have a highly experienced deeply knowledgeable very dedicated and accountable team that serves our customers well and shares my commitment to achieving better day to day execution.
Ultimately, that's what we need to do drive value in these key areas through solid and basic blocking and tackling.
I am often amazed.
At the impact MTS products and services have on customers past and present.
After the transition announcement numerous friends contacted me what stories of working with M.T.S. over many decades.
I'm more involved in University studies, Sun and research institutes and others in product development laboratories.
Okay, that's where universally positive and many spoke to MTS is innovative spirit.
Just kind of I'm solicited feedback provides further conviction as to the incredible reputation MTS MTS has in the marketplace.
The MTS team has taken decades to earn this reputation and it is up to each of us to do our part and building upon it as we go forward.
I will conclude by saying that MTS. His leadership is extremely grateful to all of our dedicated employees for adjusting to the new working environments designed to protect them, while meeting our customers' expectations to the best of our abilities.
So to our entire employee base. Thank you for your hard work and steadfastness during these unprecedented times.
And to our customers.
We are forever grateful for your confidence and trust in our product and service offerings and thank you for the relationships, we have been able to build with you over the years and even decades in many cases.
You are why we exist.
And supporting your efforts and making products that change the world is a part of our DNA.
Now I'll turn the call over to Brian to discuss our third quarter results in more depth and provide additional detail on our cost reduction actions as well as our balance sheet and liquidity position Brian.
Thank you Randy.
Our third quarter consolidated revenue was $196.2 million decline from the prior year a 15.5%.
This brings our year to date revenue to $613.5 million a decline from the prior year of 8.2%.
The year over year decline in our tests and simulation business, a 14.7% year to date has been offset by year over year growth in our sensors business a 3% for the same period.
Revenue was adversely impacted during the quarter by cobot 19 related issues.
With year to date revenue growth of 3% compared to last year, our sensors business saw a decline of 4.8% in revenue in the third quarter, which is the first decline after 11 consecutive quarters of growth.
Pest and simulation revenue declined 21.5% in the third quarter, bringing the year to date revenue to $362.6 million a year over year decline of 14.7%.
Quarterly and year to date decline is attributable to the previously mentioned slower orders profile in the last half of fiscal year 2019 in first quarter fiscal 2020.
These declines were offset by the R&D acquisition contribution of $14.1 million in the quarter and $28.8 million year to date.
Gross margin made rate was 33.4% for the quarter a decline from 36.6% in the prior year, mainly attributable to onetime restructuring charges of $2.2 million.
Excluding these one time charges, our gross margin rate would've been approximately 34.5%.
Year to date gross margin rate.
34.8% a decline from the prior year, mainly due to onetime charges in the second and third quarters fiscal year 2020.
In addition to volume declines in the business.
Excluding onetime charges in both fiscal years beer to date rate would have approximated 35.9% compared to 37.7% in the prior year same period.
The decline was due to a shift in product mix within both businesses and the startup of industrial production recently transferred into our sensors production facilities.
With cost reduction efforts, we have been able to mitigate the impact of this is having on the gross margins. However, certain fixed costs of the business are currently being under absorbed.
Operating expenses, a $52.9 million were down 14.9% were $9.3 million from the prior year quarter inclusive of operating expenses from the acquisitions have been devco and R&D, which were not in the comparative quarter.
Operating expenses included approximately $600000 of restructuring charges and $2.1 million of acquisition related charges, mostly due to the earn out fair value adjustment.
We have implemented cost containment programs that effectively reduced operating expenses within the third quarter by over $5 million inclusive of operating costs for the newly acquired businesses.
Net interest expense of $8.8 million increased by $2.2 million compared to the prior year quarter, primarily due to increased that related to the issuance of our senior unsecured notes in the fourth quarter fiscal year 2019, and accretion on the earn out for R&D.
We anticipate interest expense to be within the previously announced range of approximately $8.7 million to $9.3 million for the fourth fiscal quarter.
2020.
Within the third quarter, we again took advantage of certain tax savings and recorded a net discrete tax benefit of $1.5 million effectively making our year to date tax expense breakeven.
We also continue to explore additional tax savings opportunities for our company, including the cares Act and additional discreet items that will help to lower our corporate tax rate.
Excluding these discrete tax items are effective rate would've been approximately 15.2% slightly higher than expected.
Due to discrete tax items, we expect minimal to no tax expense for the full fiscal year 2020.
Third quarter, adjusted EBITDA of $28.8 million was down 19% from the prior year quarter, mainly due to the decline in revenue for the quarter.
This includes adjustments for $2 million of acquisition related and acquisition earn out fair value adjustment expenses.
$2.9 million of restructuring expenses and stock based compensation expense.
Stock based compensation expense in the quarter was negligible due to the large forfeiture of Unvested equity awards recognized upon the departure of our former CEO.
For the nine month to date, adjusted EBITDA was $90 million or 14.7% of revenue compared to $103 million or 15.4% of revenue in the prior year comparable period.
This includes adjustments of $9.1 million of restructuring expenses.
$5.2 million for stock based compensation expense.
$5.2 million of acquisition related and acquisition earn out fair value adjustment expenses and $1.1 million of acquisition inventory fair value adjustments.
We ended the quarter the $65.1 million in cash commensurate with the second quarter and up $7 million from the end of fiscal 2019.
Notably we generated positive third quarter free cash flow of $11.1 million were 6% of revenue a significant increase from the first half of the year.
Year to date, we have generated $13.4 million of operating cash flow.
Capital investments totaled 21.1 million year to date to meet the growing demand in our sensors business and to address the long term needs of our facilities.
We have significantly slowed our capital spending in the second half of the fiscal year as we work to preserve cash and liquidity measures for the company.
We ended the quarter with total gross debt from $606 million, making $7 million a debt payments within the third quarter.
Our current debt profile includes $170 million a term loan b that due in July of 2023.
$86 million on a revolving line of credit with the maturity date of July 2023, and our senior unsecured notes of $350 million due in August 2027.
We ended the third quarter with a gross leverage ratio of 4.8 times and a net debt leverage ratio a 4.3 times in full compliance with our credit agreement.
When computing leverage we also utilize pro forma adjusted EBITDA from our acquisitions to drive a trailing 12 months pro forma.
On July Thirtyth 2020, we entered into a system I meant to the credit agreement, which governs the term facility and revolving credit facility to increase the maximum leverage ratio to six times through March 30, Onest 2021 step downs thereafter.
In addition, we amended the interest coverage ratio to maintain three times through March 30, Onest 2021, with subsequent step ups thereafter.
This amendment was completed to maximize flexibility and available liquidity under our current capital structure in the event.
We would need to access additional funds.
The amendment also.
Almost doubles, our liquidity position to approximately $180 million, including our cash and Undrawn credit available through our revolving credit facility exclusive of amounts reserve for letters of credit.
As announced in the second quarter, we significantly reduced our cost structure in both permanent restructuring measures as well as temporary measures to address shorter term condition and position the company for longer term operational efficiency.
We expect to realize in excess of $10 million and savings in the second half of this fiscal year the.
The permanent restructuring savings in addition to temporary cost reduction actions yielded the savings of over $5 million during the third quarter exceeding our cost savings expectations with a mix of savings between operating expenses and cost of goods sold.
We recognize $2.7 million of restructuring charges in the third quarter fiscal year 2020, with $2 million for restructuring actions that took effect immediately and an additional $700000 for the ongoing reorganization of our test and simulation European operations.
While we expect these actions will be sufficient to provide the needed flexibility to whether the current economic environment. We continue to evaluate the ongoing impact of cobot 19, and may take further cost reduction actions or other actions in future as needed.
While we have suspended our guidance I feel is important to note a few items as we look to complete our fiscal year.
We are expecting an uptick in orders in the fourth quarter on a consecutive basis as we believe the third quarter was a low point for us and orders.
We are expecting a very similar financial performance in the fourth quarter as to what we delivered in the third quarter.
Our adjusted earnings per share adjust for restructuring charges acquisition related expenses acquisition inventory fair value adjustments and the impact of the earn out fair value adjustment related to the R&D acquisition.
We expect additional restructuring charges in the fourth quarter due to our previously announced restructurings.
We also expect additional adjustments to the fair value of the earn out 'cause R&D continues to perform to expectation and meeting their overall earn out payment.
Adjusted earnings per share does not adjust out amortization expense for acquired intangible assets related to our multiple M&A transactions.
The amortization of purchased intangible assets decreased our earnings by 26 cents per share for the third quarter and 71 cents per share year to date.
Amortization expense is expected to impact earnings per share in the range of 90 cents to one dollar per share for the full fiscal year.
Quarterly amortization expense has increased in the last six months as a result of the acquisition of R&D at the beginning of our second fiscal quarter.
In addition, adjusted earnings per share does not adjust out stock based compensation expense, which approximates 12 cents per share on a quarterly basis.
In closing we remain laser focused on the operational efficiency of the company and mitigating the economic impact of Coven 19.
While we have taken aggressive actions to address immediate disruptions the pandemic impact has the potential to be longer term in nature.
We will continue to take the appropriate steps to ensure MTS is strategic and financial flexibility for the future.
With that Randy and I are happy to take questions.
Thank you if he would like to ask the question. Please signaled by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure your mute function is turned off.
Now you're signaling to reach our equipment again press star one to ask a question well pause for just a few moments to allow everyone an opportunity to signal for questions.
Well take our first question from deep.
Huh with Wells Fargo.
Hi, Good morning, Randy Brian how are you.
Good morning to you that morning deeper.
A few questions from me first I always thought well Randy Randy can you talk about how the quarter played out or did you say June better than April may and it was July sequentially better June any comments, there and if you can we win New York Todd.
Some verticals actually improved better than you expected and perhaps they're also somebody calls that doesn't have been decent awaiting oh sequential.
[noise] a deeper thank you very much for your question and and yes. The quarter did end up improving as we went through it June being better than May and as we look at July we aren't we are seeing some upsides in July, especially on the orders front, so there's a little bit of optimism there.
And so you know we're excited about that.
In terms of some of the verticals or you know, we've seen strength and infrastructure spending than we expect that to continue.
Obviously, the renewable energy infrastructure spend has been good as we talked about in our R&D strong performance.
Industrial automation is picking up so the trends or at least positive there and we hope that continues.
On the defense side, the department of defense as it has been a great benefit for us.
And especially for the products that we offer so we're encouraged by their spending and see that continuing.
If we had to identify a couple of the lagging industries. The I. Obviously aviation you know is being impacted around the globe and we have a couple of businesses that have a bit of up a bit of exposure there, but not a lot.
And then of course services down a little bit so that's the kind of a an overall view.
[noise], that's very helpful color, so automotive to I'm, assuming it's kinda talk a little surprised there do you see any sequential uptick there.
It's a little bit suppressed, but but I will see if it starts to come back a little bit as we go forward.
Yes, deepa in automotive obviously, it's been a appointed discussion for the last couple of years for us and we can we continue to see pressure in the automotive.
A world and we've talked about many reasons why that's happening.
So we don't see a lot of return in the automotive space here in the short term. However, we just continue to monitor the market going forward.
And again ask the question. Please press star one.
Well take our next question.
John Franzreb with Sidoti <unk> company.
Hi, guys, just a little bit on the service side of the market.
Realized it was tough to get into facilities.
During the peak of Colvin, we can talk a little bit about what's easing and what's not easing in as far as a service businesses both in tests and sensors. Thanks.
Hi, Good morning, John and Ah things for the question you know what I would say as a service certainly has been difficult for us for the last couple of quarters, what we did see as a little bit of uptick here in the latter part of the third quarter, we are starting to see access to customers, although it's a little bit muted.
Well at this point, because we're seeing some progress in that area I would say largely in the China region, we've seen that starting to emerge a little bit faster than what we've seen in the Americas in Europe and with the majority of our service revenues sitting in test and simulation I would state that you know there's not much to stayed around the sense.
Her side of it so we have been depressed in the service world almost solely due to access to our customers as that's been pretty heavy focus for us over the last few years to grow our service business. So we're starting to see some progress there I would say cautiously optimistic that we'll continue to progress here into the fourth.
Quarter.
Okay, and when you look at historically the opportunity pipeline.
Can you talk a little bit about what markets tend to come back faster tend to try to redesign of refreshed products.
Versus others.
Yeah, well overall for the entire company and looking at you know I would state that sensors is probably the market that we see rebound a little bit faster test is shown us in the past, where it's taken a little bit longer to rebound automotive being at the point, where it's been for the last couple of years.
And where they're focused spending in automotive is that the current timeframe, we see a slower recovery for automotive.
Of course, our infrastructure focused.
Products that we're providing continued to be a really good point for us and the renewable energy wind space has continued to be resilient through this especially with our R&D assets.
He.
As far as.
The industry automation heavily into our sensors business. It was in a really good spot for us leading into cold and we anticipate a return to growth in that area as the world becomes more automated as factories become more automated as machines and other things become more automated.
Preventative maintenance isn't huge item for that oppositional sensing the automated factories, we think that even in a timeframe like this where human focused items become restricted because of access or abilities to come into work that there could potentially be the need for even faster automation, which plays nicely for us.
The industrial side of the World.
And we'll take our next question from people around Huh with Wells Fargo.
Hey, sorry, guys nothing I got cut off before I could ask my follow up yeah [laughter] holiday.
On a this is for you how would you believe it do you think you have been taking additional cost action without actually structurally impacting vendor recovery in margin I mean, it doesn't look like you announced additional actions to that is not something that impacts Q4 at this time up is that correct, whereas.
And I'm curious, how how do we think about decrementals going forward, where says the temporary in nature of some of the cost cuts like traveling except that it's probably going to come back maybe some salary cuts kind of come back and the next few quarters, but also offset with some potentially additional from actions that you could.
Take I'm, assuming without structurally impairing.
Hello.
Can you talk to that thing.
Yes, certainly in Mds confirms we haven't announced additional actions here in the quarter, it's kind of ongoing restructuring charges that we saw in Q3 as well as we'll see in Q4 for our European reorganization and overall, that's the important piece for us is not to structurally impair the business in the long term and.
So we continue to focus on areas within the business, where we can get more efficient sometimes that's just getting more efficient sometimes it does include you know the cost reduction side of the world, but it's a continuing piece for us that we will continue to search through the organization make sure that we're making not only investments but also so.
Flowing areas that are not good for the business long term or as we see a re emergence for this.
So with Randy coming on board.
We will continue to look into the business to make sure that we are actually working is optimally as possible the cost structure as optimal as possible.
Decrementals overall, what I would say it is and very similar to Q3 as we still have the ability if things were to go in the long direction from a market standpoint.
To reduce our cost structure, but we feel the actions we took at the end of Q2, leading into Q3 set the stage for us as an operating structure that we have.
Certainly we haven't heard a lot of traveling expenses and that really depends on by the ability to access our customers, one and our ability and willingness to travel to see our customers and our employees globally.
For the time be that's pretty much shut off and that would start to come back on when time allowed as well as safety of our employees was there.
A deep I would just to add to Brian's comments that you know I have come in with a bit of a different lens to look through where MTS has been and.
And I believe that we have reduced the cost structure to the relevant point needed to ensure our liquidity needs are met in the short term.
But if conditions, you know where to worsen or if we determine changes need to be made it in specific areas of our business. We will continue to do what we need to do then sure business performance and I focus a lot on the cost structure. The team would tell you there.
No that that's helpful. Randy just again to your lens you brought that out can you give us your thoughts.
On capital deployment I think my question is twofold, one how do you think of M&A continuity given the backdrops, you've announced few this year are pretty accretive.
Good deals.
But how do you think about continuity next in the near term and worse, just the need to conserve capital and to your thoughts on dividend Green statement timeline if at all thank you.
Well I guess I would start by first saying that you know I think our M&A activity that we've had over the past few years has been very productive to the foundation. We now have here as I talked about in my remarks. So we're very pleased with.
You know the ability to have diversified our product offerings, our markets and our customers through these acquisitions frankly, my focus now from a capital standpoint, as our leverage and trying to get our leverage you know reduced as quickly as we can I think that's really crucial for our shareholders and just for the stability of our balance sheet. So.
That's a big focus for me.
So that's kind of how I'm looking at this.
Yeah, we did suspend our dividend and that's you know for the time being and that's the way that we look at it we feel that deleveraging is certainly a power full point for us and something that were out of a concerted and focused effort on I would state that you know the renegotiation of our.
Debt agreement are on the revolver. The important thing there is it provides some flexibility and maximum allowance to liquidity if need be.
But at the at the current time with generating positive free cash flow in the third quarter that is really just around our ability to access if needed. So for right now our capital deployment is really.
That's focused as well as maintaining some internal investments in the business that we've been working on that will help improve margins.
Got it thank you very much I'll pass it on.
We have no more questions in the queue at this time.
Okay, well. Thank you so much for participating in our call today and for your interest in our company and we look forward to updating you on our progress again next quarter. So thanks, so much for being with us and have a nice day.
This concludes today's teleconference. Thank you for your participation you may now disconnect.
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