Q3 2020 Invacare Corp Earnings Call
[music].
Good morning, ladies and gentlemen, and thank you for standing by welcome to the Invacare third quarter 2020 conference call and webcast. After the management overview, we will open the call to questions investors and analysts interested and asking questions will need to dial in as questions cannot be submitted via the web.
Yes, the first part of the call all phone lines will be placed on mute. This conference is being recorded Friday October Thirtyth 2020, I will now turn the conference over to lowest Lee Invacares director of Treasury, and Investor Relations and corporate communications.
Thank you say Oxyrub journey today on today's call from Invacare are now Monaghan, Chairman, President and Chief Executive Officer, Jackie, Let a hand, senior Vice President and Chief Financial Officer.
Today, we will be reviewing our third quarter 2020 financial results, providing investors with an update on our transformation in a response to the cold in 19 pandemic.
No. That's just follow along we've created slides to accompany this webcast.
No doubt when you and you can find the link to our webcast slide presentation, and the care Dotcom Slash Investor Relations.
The information can be found or Sep filing.
[noise] before not again I'd like to note that during today's call. We may make forward looking statements about the company and by the nature address matters that are uncertain.
Actual future results may differ materially from those expenses I see live today due to various uncertainties and I refer you to the cautionary statement included on the second page of our web cast life or third quarter and in Chile.
For example, those items discussed on today's call that are considered non-GAAP financial information such as constant currency net sales constant currency sequential net sales constant currency as today free cash flow adjusted EBITDA and adjusted that law, we get a note in the appendix of our webcast slides and in the related reconciliation.
And then the slides and the earnings release posted on our website.
I'll now turn the call over to Matt money.
Hi, <unk>.
Before we begin I'd like to start off I think you all.
All of our associates, who have done.
Even job over the past, let's be flexible quickly.
To their course, if it's hard work successfully build slower sales by making durable treatment My school.
Innovative ways to engage with our customers and each other.
Transformation playbook.
We also overcame unprecedented global supply chain constraints, which well see children equally tremendous heat wave.
In addition.
New products continues on a big product to deliver innovative clinical solutions that are expected to drive incremental sales growth.
Taken altogether. These actions should result in long term and short visit Super publicly before.
Now, let's turn to slide three.
We are pleased with our performance in the third quarter should be our twelveth consecutive quarter of year over year improvement you've adjusted EBITDA as.
It was a guy that even a bit higher consolidated scorching, that's sales driven by double digit increase in Europe. As a result of the initial public health care restrictions, primarily in France, and Germany, you can still remain fairly close.
We continue to monitor our key markets in the country.
Got her business.
I believe we're prepared and done sporadically recur during winter months.
In North America, we saw continued strength in respiratory products.
Offsetting the lead sales and mobility and seating products due to its longer quick order cycle, which will cover more of the field later slides.
On the balance sheet. We retired the significant majority of the 2021 convertible notes, leaving just over a million dollars mature in February of next year.
Our strong performance in the third quarter, and our visibility into trends fourth quarter give us the confidence to reach our full year guidance for net sales and adjusted <unk>.
Turning to slide four.
Third quarter due to the stronger operating income year over year and sequentially continuing our track record of the beat to profitability.
Additionally, adjusted EBITDA improved year over year increase nearly 50% sequentially.
Higher net sales and lower <unk> expenses I'm pleased with our strong performance in this challenging environment, which demonstrates that our prior transformation initiatives are successfully driving improved results in line with expectations.
Turning to slide five.
Shorten Trump helpful to pick the impact of the pen doesn't occur on our product lines over the past few quarters as expected we continue to see above normal demand for respiratory products, which typically stationary oxygen concentrators, which are you essentially park school teacher.
95% of our sales in the northern Hemisphere, we anticipate continued elevated demand of winter weather, forcing more people in Georgia.
Correct.
And our lifestyle category, we return to more normal.
Having past peak surge demand per bed and related products.
Product mix has shifted towards at home care within one week higher levels of institutional sales would have been lower due to limited access the long term care facilities and lower mission to get new residents.
You know building eating each the general recovery and demand more immediately in Europe, which went from very strict measures to more normal hope your access as a result reported net sales in Europe improved over 38% sequentially, although still lower than third quarter 20 are cheap.
We saw a similar type of recovery in North America in the form of higher coupon third quarter, which we anticipate will lead to increased sales through the year.
We continue to launch an exciting will likely be products in all categories.
It's a great customer interesting intriguing overall.
Well be ready to react to Egypt and related public hope your majors, which we expected sporadically affects sales although not to the same extent you experienced earlier this year.
We're pleased with that sequential improvement.
Consolidated net sales indeed, that's maybe raising the kids market, you're beginning to recover.
Turning to slide six our solid third quarter results reflect the hard work. The team has put into transforming the company delivered year over year and sequential improvement in operating results and we expect this trend to continue its salary.
As we closed 20 Twond, we remain on track with our key business initiatives.
North America or modernization programs expected to launch the first phase of go lives during the fourth quarter.
As the need for an improved system rolls out across the region. These advances and should help us better and keep our customers with tools to increase the efficiency of our associates and optimize working capital.
Customers will be able to use a more typical E commerce to keep all come to expect in our personal lives.
More intuitive platform will start growth I'm excited about the many benefits of program that provides both internally and externally.
In addition, our German plant consolidation remains on track for completion in 2020.
This can tell the pocket operations across Germany, and is expected to generate approximately $5 million annual cost savings beginning in 2021.
Underscoring the strength of our innovation culture, we were honored to have received awards be many categories for product excellence.
North American industry publication.
<unk> power <unk> energy power and <unk>.
Additionally, a recognized expert rehabilitation organization work contributions to the <unk>.
Super Technology will read a book that she's been here either.
These awards speak volumes about our associates, who are developing great solutions to complex health care needs.
In summary, we're working multiple challenges during the quarter to drive sequential improvement in operating results and took actions to reduce total outstanding debt.
At the same time, we made good progress murky transformation initiatives to optimize the business, we launched several new products.
Look forward to it equally successful fourth quarter.
Yes.
I'll now turn the call over to Cathy will provide a more detailed financial summary.
Thanks, Matt turning to slide eight we reported net sales declined 10.1%.
Our nearly due to lower sales of mobility and seating and lifestyle products.
Well chip I grew up in respiratory products.
Gross profit was lower by 40 basis points to 28.3%.
Anyone favorable manufacturing variances as a result of the lower sales volume.
Josh I guess, we were able to drive comps encourage yesterday down 12.5% to $7.8 million through reduced employment costs, lower commercial expenses and favorable foreign exchange.
As a result operating income improved by 21.2% or $500000 and adjusted EBITDA was $9.8 million up 2.5%, including the benefit of reduced <unk> expenses.
Free cash flow usage was $1.8 million on favorable to the fourth quarter 29 to five switching point $1 million due to working capital need at just 40 and activities.
Turning to slide nine sequentially.
40, net sales increased 8% in constant currency net sales increased 4.3% driven by higher sales of mobility and seating products, including a 40, plus I mean of course in Europe.
Gross profit was lower by 60 basis points to 28.3% you'd want favorable manufacturing variances as a result of lower sales volumes.
And the expected mix of lower acuity products as a lots of kill result.
Actually occurred yesterday decreased 6% or $3.4 million.
Driven by lower stock compensation expense, which is typically higher in the second and fourth quarters of the year.
Operating income improved by $5.2 million, and adjusted EBITDA increased 48.7% or $3.2 million driven by higher net sales and lower <unk> expenses.
Free cash flow usage was comparable to the second quarter due to the benefit of higher profitability and lower inventory.
As a result of lower net sales and higher working capital as compared to the third quarter 29 too.
We did not experience the same pattern of seasonality and free cash flow that's reality historically.
Turning to slide 10, we experienced stronger sales of mobility and seating products, particularly in Europe.
Watch sell products continued to be impacted by limited access to long term care facilities, while demand for respiratory products remains high.
I will discuss the product lines in more detail within each segment.
When it gets wider love it.
Results will be initially being a public health care restrictions huh.
Okay close good sequential net sales increased by 8%.
<unk>, 30.4% increase in sales of mobility and seating products, reflecting early rebound in demand, particularly in France.
We are beginning to see positive momentum in sales in our key countries of France and Germany.
Although the UK remains under relatively significant restrictions as Matt mentioned earlier.
Gross profit was 230 basis points lower due to the reducing up sales and on favorable manufacturing variances both impacted by the chip that can damage.
Which affected sales volume and product mix.
Operating income was lower by $3.8 million due to reduced gross profit from lower net sales.
Actually offset by actions, reducing EPS DNA expenses, such as follows and reduced work hours.
Moving to Slide 12, North America remained resilient demonstrated by both year over year and sequential improvement in net sales.
Okay College unit sales increased 1.2% growth in respiratory products, partially offset by lower sales of mobility and seating and lifestyle products.
The result is a longer quote to order cycle for mobility and seating products and the U.S.
Lower sales in the third quarter were a direct result of lower quote activity in the proceeding quarter.
Want access to health care professionals and clinicians was limited.
Sequentially constant currency net sales of mobility and seating products includes 40%.
We believe that demand for mobility and seating products are largely non perishable as evidenced by significant higher quotes in the third quarter, which are expected to convert into stronger sales for the remainder of the year.
Gross profit increased 170 basis points or $2.6 million, driven by higher net sales and lower material and freight costs from prior transformation initiatives.
Partially offset by unfavorable variances and higher warranty it stops.
Operating income was $3 million, an improvement of $4.7 million, driven primarily by actions, which lowered EPS DNA expenses.
Turning to slide searching all other which includes the sales of the Asia Pacific region decreased by 3.1% on a constant currency basis.
Driven by lower sales of mobility and seating products, partially offset by higher sales of lifestyle products.
Operating loss increased by $500000 due to lower operating profit as a result of a dynamic control divestiture in the first quarter 2020.
And improved $1.6 million sequentially.
Nearly driven by lower stock compensation expense.
Moving to slide 14 as of September Thirtyth 2020, the company had total debt of 273 million, excluding operating and finance lease obligation.
As of September Thirtyth 2020, the company at $87 million up cash on its balance sheet, which was sequentially lower primarily as a result of proactively repurchasing $24.5 million of convertible notes in the third quarter.
We are pleased to have retired but significant majority of these notes, which increased our financial flexibility reduce ongoing interest expense and we like Dallas, a whopping $1.3 million maturing in February of 2021.
We remain confident that our balance sheet will support us through the transformation and as always we continue to assess opportunities to further optimize our capital structure.
Turning to slide switching as a result of that sequential improvement and business performance achieved in the third quarter and our visibility into the fourth quarter. We are updating our full year guidance for 2020.
The company anticipates consolidated net sales to improve sequentially in the fourth quarter 2020, but wouldn't be lower than the fourth quarter last year based on continuing access to health care facilities without new public health restrictions and somebody adoption of new products.
Well the markets are expected to continue to remain open Panasonic related closures mayberry in regions over the winter months.
For the full year 2020, the company now expects.
Reported net sales of at least $840 million up from the previous range of 810 to 840 million driven by the expected recovery of sales based on the recent trends we've seen in the early part of the fourth quarter.
Adjusted EBITDA in the range of $28 million to $32 million up from the previous range of 27 to 30 million due to the benefit of prior transformation actions and our continued ability to optimize cost.
And free cash flow usage in the range of $8 million to $12 million changed from the previous range of seven to 10, given the timing of the recognition of sales during the fourth quarter. The way the collection of cash into the first quarter of 2021, I will now turn the call back over to Matt.
Thanks, Ken.
So far 2020 has been a year like no. Other it's impossible to overused word unprecedented endemic has impacted almost every aspect of our daily lives yeah, well, we were still able to achieve year over year improvement.
<unk> results. Despite the continued challenges.
The company's recent history, we faced diversity repos that up to the task our transformation initiatives to drive our return to profitability and create a stronger more agile organization, which will unlock further shareholder value.
We're already seeing results the diligent work no. There's plenty more progress to be made ahead of us challenges complete it's even stronger.
Confidence in our continued progress I want to thank everyone for your continued support of immature book are taking time, because this morning's call will not be watching.
[noise] Oh race, if he would like to ask a question you may signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again that is star one to ask a question.
And we'll pause for just a moment to allow everyone an opportunity to signal.
[noise] Oh right. The first question here is from Bob Labick with C.J.S. Securities.
Good morning, congratulations on a nice quarter.
It's probably more like one involved.
Yeah. So in the room links I'll paraphrase I think you talked about something like assuming markets begin to normalize from 2021, new products could drive sales levels above the 2019 levels, which sounds fantastic. So I was hoping you could elaborate a little bit on you know, which new products, you know or expect.
They expect it to be the biggest drivers and how you're looking at that opportunity not trying to pin you try and track number but just you know a little more color behind that statement. Please.
Sure. It's a good question and it's one of their cars with the greatest pride that high quality products. We have we have new products Bob in every category of our global product lines. So starting in mobility and seating we have Ah.
Probably a bright you any came out at the very end of last year and not yet you fool blew up the growth there.
Let me take a little while for keeps accelerating she agreed interested reaching that continued to 2021.
Your little dog children coming out <unk> in all regions of the country.
Spectral feature works and how we approach here, we have the ending seeding system. It's maybe across all the platforms, we have great things coming out in mobility and seating you continued to point of view manual wheelchair aligned sheeple hard performance very precise driving abilities that continues to spread across.
Countries.
Albert how smooth or maybe wheelchairs that you.
He fixes motion products that help other kinds of wheelchairs be electrified for mobility are continuing to grow and mobility <unk> incredibly strong.
On the respiratory side, we expect to be in.
Stationary oxygen concentration beginning later this quarter to quarter into next year and beyond we're really lucky vitalize necrotic lawn and lifestyles, we couldn't be better let's swing hygiene products, we think what we've been focusing on getting cost reductions why even optimize you've got spending okay.
Sales levels, we haven't slowed down our pipeline of new products in children. So when the markets recover and 2021 and all those products are ready to be out in the marketplace you should be strong sales group.
Okay, Great and then kind of expanding on prior conversations maybe talk a little bit about the new product designs that you've just talked that you just mentioned and how dare you know better suited to grow the sales I think pricing is potentially better along with better margins or just kind of remind us the.
But you know the changes Youve made into these new products. What you think will enable you know better pricing uplift themselves with stronger margins.
Yeah.
It's an important question because.
Yep.
Nobody can develop product.
[laughter] technology sales, it's really got to be focus for a person purpose.
We tried to be very intentional I'm, putting two things together what are we doing to have the best clinical solution that meets reimbursement news, so that people, who want that solution can afford it and all the different markets different reimbursement programs around the world and we have to continue to make it easier for providers to work across.
Summers by those to operate those to refurbish them, a new team in their fleets and meet their expectations of high high reliability.
We've gotten really good at putting consumers at the center of the design features for the clinical features a part of all of our product design.
And we've gotten better understanding of the provider pain points all the way from.
You can minimize packaging when the product rights too easy setup, she furbish Mips itself diagnostics, the more remote connectivity to lower provider cost and of course, we want our products generally to be very durable. So we continue to improve our well design.
Designed to make it even better.
It's going to continue to be really important you have to keep our economics for our providers.
Sure that that's the path forward for us.
Okay, Great last one for me I'm not looking for specific numbers here, but you.
You know a little while ago, you had had out.
You know kind of rubber $85 million to $105 million or EBITDA and obviously the pandemic kits are time horizons change and things like that but just looking forward can you talk about the puts and takes versus that original guidance range are there any permanent changes versus then.
First there is a timing related and how are you still thinking about your the March forward any opportunity for future growth.
Yeah, no change in our expectation that the enterprise can deliver that kind of EBITDA and we're less concerned about the specific revenue number.
Revenue is lower this year than we had planned to be obviously it depends I mean, we've continued to be very economical on our cost the balance costly that could be levels that have changed and then it.
We'll be out after a fourth quarter earnings release with an uptick in the longer term plan, but fundamentally we don't see any change in our ability to hit the <unk> hundred million dollars cubic a run rate number in a reasonable period of time, where people when we step back and look at it at the end of the year, we'll see a certain number of quarters a delay in the meantime, we've continued to take cost out of the enterprise.
Durable ways, we talk about the German plant consolidation.
It was always planned to be done this year, it's absolutely on track and we expect that $5 million savings for all 2021. So all the ingredients are coming together and we'll we'll just have to look to the recovery markets out of the pandemic.
That's pretty strong and coming back already so I don't think we can go away.
Super all right. Thank you very much.
That's right.
All right once again that is star one to ask a question. If you find your question has been answered chimney remove yourself from the queue by pressing star Q.
And the next question is from Mike Matson with Needham.
Good morning, Thanks for taking my questions I guess like just want to start with a with Europe. Good to see that sequential improvement there, but you know, we're seeing investors kind of freaking out or what's happening there with Chicago, you shut downs in France, and Germany and your column.
Terry seemed a little bit more I.
I guess upbeat about the outlook there guidelines, there will be some sort of impact but.
How do we get comfortable that we're not going to see a repeat of kind of what happened in the second quarter in those because areas I guess in Europe that is thanks.
Yeah. That's a that's a really important to met a question Mike I'm glad I'm glad you asked it snowed in second quarter. When this was first being encountered northern hemisphere lets say you know trying to in some other places we're little ahead of us but.
The northern Hemisphere, we didn't have a place we didn't really know what was happening and everyone will deal with it in making up the plates as we went along and it was happening quite simultaneously.
At this point as we look forward, we expect that this kind of temporary shutdown will absolutely occur. We think two things are very different that optimize the future versus the past first of all we've kind of learned to deal with it so back in second quarter hospital shutdown and they did well only couldn't care and.
People were too concerned were unable to get into other help other doors in the health care facility to have access to the kind of products we eat.
I know healthcare facilities have had.
Four or more months to figure out how to continue to be all told that they didnt go away in the meantime, it's just beat it a little bit.
Figured out how to deal with it and still allow citizens and their catchment area to come in other doors to health care facilities to get elective care and other lessors set you up here, we think that knowledge that's been built up to the healthcare community. It's gonna conceive image that school better I think we also expect it's not going to be as.
That's simultaneously occurring in as many places.
So Germany might shut down for two to four weeks to get ready before the winter holidays, which they want to want to have your blessed with fewer restrictions in France might do it for a few weeks, but they're doing those actions to get through that and get back to normal business back in March.
It was March April may and longer than it was many countries simultaneously. So we think that'll help.
Think I think maybe to add a third component health care facilities need to have a full line ups.
Sure. This is being offered to remain healthy institutions, and we will absolutely take care of coated patient get much needed, but especially in the four.
Well profit non governmental enterprises looking to get North America, France, Germany. They.
They need to be doing cardiac and orthopedic procedures and other procedures to remain financially healthy and.
So they're very motivated to make sure that other people can come in and have access to health care.
Finally into care typically serves a lot of non perishable healthcare needs. So those health care and you haven't gone away somebody had a diagnosis that woods will be a permanent reduction of abilities that city in late June you're going to have to have a way to have that health care provided at some point. So you think that accumulation.
He accepts the health care and the non hermetic none.
Parallel actions of all these countries is likely to be more benign than it was in second quarter, even though it happens it will they will come and go for it.
Probably through the winter and I think we're prepared for that.
Okay that makes lot sales.
Good.
Just on the news around competitive bidding in the literature is kind of failure to generate savings I guess it shows that you can't get what's on the stone so to speak but you know how big of a positive is that fair.
The care, specifically that the fact that the rates are going up because of the change in 21 of them.
Foreseeable future I guess.
Yeah, I think it's a good question I think.
No obviously nobody was exactly sure how it's going to.
Forward in the new ground stability is great for the industry to have three years.
Well, we can expect work industry can expect similar results.
Really helpful of course, our providers have taken a real shellacking with reimbursement reductions over the last five years, so while we'd like everyone to have a little bit more to cover increases in coffee and especially recently because of cost more to conduct business case, we would personal protective equipment costs that are because in the past.
At least it's not going down and at least we have three years of stability.
This is people can plan around that I think that's that's really positive for everyone normal course advocate for productivity improvements or whatever we can do to help industry move forward.
Okay. Thank you.
<unk>.
Alright, and your next question is from Chris Cooley with Stephens.
Yeah.
Yeah, that's a dozen questions.
[laughter].
One.
Well look ahead, a little bit to calendar 2001 and without.
Talking specifics I just curious you mentioned that this was unprecedented year, which would totally agree with but how do we think about cash flow.
The town or 21, and they're not really specifically going after a hard number but I'm I'm thinking more so about kind of the sequential slows here historically, we've seen larger uses in the first half.
Duration, obviously in the back half and was the new product cadence that you have coming out.
Probably a little bit higher working capital utilization early on but also some savings programs coming in or just.
It's kind of hoping you could help us think a little bit about.
What's going to be different about 21.
Oh versus lets say a more normalized here when we think about your cash flow patterns and I have one quick follow up like.
Sure Yeah. It's a good it's a good question we've been a policy of Crystal ball here to get a better view of the future.
It's a little early to be too specific about 2021, but I'll tell you in Madison.
What we might all expect to be a little different normally invacare has its strongest quarter for EBITDA in the third quarter fourth quarter is almost as good in cash flows generally better fourth quarter in a normal gets worked cycle because the fourth quarter were collecting some sales in third quarter. So that's it and then first and second quarter or not quite as good.
Its report.
This year that pattern is going to be probably overwhelmed by endemic.
And if you go into 2021 that they occur probably in the first quarter.
We're not sure it will be as low or higher there could be some offsets like we saw in the first half of last year.
The effect of pandemic on certain product lines better or worse.
Shouldn't be bigger amplitude changes than we saw last year and that I think it's like five in the deck that shows the graph on public endemic affected different product lines that make it happens again.
But you see the amplitude smaller and we've shown we can get through that successfully then.
And then I think probably by summer there's the confluence of.
Vaccine people being outdoors people getting yet further acclimated to do a pandemic if it's not fully resolved.
And the strength of our mobility products, which typically does better in warm weather months when people want to be outside emulating.
Should help us I think we're going to have to look past the normal seasonal cash flow and revenue cycle that drive cash flow for next year, and then look at something that's a little more driven by the recovery and we still have inventory that we built up in the second quarter. This year that we haven't fully liquidated its its improved for sure, but it's going to take US a couple of more quarters and that should have some cash.
Full benefits to that offset any other differences.
Formal normal seasonal cash flow I don't know cathie to do you know.
Yeah, I guess the other thing just in general implicit in Htwo.
Anticipated 2021, obviously would be impacted by an improvement in the profitability of the business and then to Matts point really on the working capital side of the house with inventory.
This year, we have built up a significant amount of inventory we cannot anticipate.
I would repeat that next year.
Yeah.
Super pleased with all the colder and then maybe just last one for me.
Again unprecedented year lots of opportunities for devolution into learning here and so when you think about you know how you approach the upcoming year 2021.
Thing new in terms of the way that you would go to market.
More efficient those cost savings basically being more permanent.
And similarly have you seen any changes.
Whether it be from a timing of competitive bids that are out there or I should say of tenders or just the way that to your consumers you're in March. It was just basically pulling product any changes there that would affect either growth or margin that we should be aware of banking.
Yeah, well there.
Well a lot of things you're constellation of our plan for next year that should continue to.
Drive improved profitability and they'll be more of them and then probably slightly less so you smaller magnitude this year than this year and this year. It's huge set of plant was going on in Germany, and the team has done a fantastic job to remain on track even though.
Training workers, leaving products moving inventories a lot harder so.
Social distancing restriction he's done a fantastic.
Jack keeping that going.
There are still waves of improvement to be made that now were probably more inside the existing four walls to improve how we transform raw material and purchased finished goods through our system more economically I think on the sales side, we're going to try to hang onto the best practices that weve football independently.
There should be as you can imagine more productive ways to engage with their customers in ways our customers.
Formally a bench open to your video conferencing and video consultations with their clients and so on I want to make sure we hang on to those as much as possible and we develop new tools to do a better job of that to train remotely to do contact we deliberately products to configure products more precisely.
There's less work that has to be done by our customers when that product when it gets delivered to the end user and use the christenberry perfectly.
Great Wall help and then.
I can't I can't overestimate, what we're expecting Oliver you like to see modernizing interactions we have with customers. We haven't externally put a value on that but you could imagine the difference between walking into a.
The old retail location versus you know what you have in Ah.
Amazon kind of way today as consumers, we all enjoy that we want to get those kinda tools to our customers. So that they can interact with us.
Much less friction than they have today, so we get the benefit of all the great products, there's a lot easier.
Transaction, and we think that's really going to Britain and for our employees.
Get the modern tools to do their jobs more effectively and have better information right at the fingertips is gonna have remarkable James.
The ease with which they can do business and how well they can serve customers and you can.
That's going to really help people can see what our objectives are on the you know because we still expect to get to that 35% gross margin, 25% or less as they are 10% EBIT margin in the art.
He told me that you'd be dried revealing that.
Thank you.
[laughter].
All right and once again, if you would like to ask a question you may signal by pressing star one.
And the next question is from Matthew Mishan with Keybanc.
Good morning, guys like you're taking the question.
Where are you at.
Hey that.
Do you have a sense of how you doing in tea and mobility compared to the market.
[laughter] could question, yeah hard to say, what the market is and.
In this pandemic cycle I feel good about it I have to say with new products and new products that have new features for people features that people want in products that fully fit within reimbursable limits. There is a lot to attract.
Customer interest and user interests are we've got no shortage of demand during the pandemic, it's down over prior year.
But engagement with customers, it's been phenomenal those award that I mentioned in the prepared remarks reflect the crop.
Industries reaction to our products. So that's just a complete thinking all by itself and its own bath, whether the products are great. We're getting independent verification of that.
And the other do you go you can increase the budget to get demonstration units out there and we found ways to train and expose customers the products virtual socially city <unk> and it's really been exciting so.
I can't answer your question with any precision were little frustrated about that ourselves but.
Feels really good with the growth rates in the sustained levels of interest.
It's totally totally understood on that and then just following up on some of the questions around EUR 2021.
Yes, so remember when that asked the question it's itself stays flat year over year, and I'm I'm not expecting them just they just for the purposes of assumptions can you just talk through some of the expected the company specific cost savings that you expect to realize from the restructuring and the RP versus cost.
That could come back.
Yeah, so with that kind.
Let's start from the top of web email and get down so.
We expect to have Oh, we do expect to have sales growth for sure.
Inside the four walls of our factory, there's a tremendous amount of optimization, we can do we have.
Well, Paul Condra of bright people, who are optimizing how we convert raw materials and move purchase finished goods through your hedges and if you don't do it.
Superficially you can waste a lot of cost by touching things too many times and that the core they're going after them and we continue to expect working capital to improve inventory flows more rapidly through our system is a huge focus on that some of it but the addition of like me great people to the organization retention of the degree.
People, New York in the organization already and giving them the tools from our IP uptick so that'll that'll really help us improving our sourcing team in prior times has done a lot to offset here, but you remember came in at the end of 2018, and we've had a lot of good activity, having been able to apply them.
I don't care production could just product.
So we expect a very prudent snow in gross margin that we saw that get a little accelerated with the shift in acuity of products and product mix in second quarter that went backwards a little bit as we expected in three quarters electric pure return, but that's just a temporary shift isn't generally need for better and better gross margins over time, you can see that the truth.
In the past.
You bet.
And then next year, we'll well said that $5 million and who you're seeing some improvement in the German factory network a good thing.
He asked you Nate we should have definitely sales costs appeals improvement because our greenfield too that's fine we can be more productive. So for dollar of sales were getting more out of the team great deal team, we want to keep out into the field team to drive more sales growth, that's really positive and then on cost reductions.
Even a activity as we're having.
Less effort into transactions to help customers do business with us.
And operate our enterprise lots of tools coming out of it you can tap your employees do I think a good jobs will be done where you go all the way down the <unk> see benefits of computing will be coming our way in 2021 and beyond.
I guess it goes to 2021 the right.
Yeah at this point you got.
To to visibly show the real is it I mean, it without giving them access to back that up but it sounds as if it's likely ones or is the yard which you guys can visibly show you that would be you cost improvements and you have a lot of the transformation.
Well I think what are you talking about 12 consecutive quarters of.
EBITDA improvement I think we've been showing it a long time and we've had great dialogue if you over time I think.
People have come to appreciate that you know, we don't just deliver an easy time and especially this year. We've delivered in tough times, we delivered in times with new tariffs that were coming without notice.
And to have it.
First three quarters of this year.
Ill carrying on gold 10, 11, 12 consecutive quarter with a pandemic yeah, we're definitely on it.
We know how to improve business yeah.
And.
Again, that's a 12 quarters people are still looking at evidence about whether we can improve there.
I'm not sure what kind of billboards are going to need to him to let it have to get people to see you know how the students using food, it's really fantastic work.
If we hadn't done for the past then if you could easily extrapolate where we would have done this year and then we can all have our personal opinions on what how dependent it's going to evolve, but we're not using that as an excuse we are still turning EBITDA improvement every quarter, which.
On behalf of the teams really it's been fantastic.
Yeah, Yeah that's.
That's absolutely true you know we've got.
We have had many actions over the years sales, where the profitability obviously in the North America segment, which was significantly impacted by the wishes, but yeah, you just lift year over year. The North America segment operating profit at church on a luck.
<unk> profit improvement and if you look at year to date 20 versus 19 of over $13 million or the European business has always been a healthy business for US obviously this year they've been significantly impacted by the pandemic out we would anticipate that they think is going to come back I just spoke about because it's all a joke.
But the man you know the disease has made tremendous improvements year over year in cost savings actions that are reflected in our financials.
Thank you.
Oh right.
There appear to be no further questions at this time, Matt I'd like to turn the conference back to you for any additional or closing remarks.
Okay. Thank you Sarah and thanks to everybody who joined us.
With their time this morning, Cathy Ross and I are available for any follow up questions from coordinate through Lois or contact information is on our website investor relations with Russia.
Hi, everyone support and pretty good thank you.
This concludes today's call. Thank you for your participation you may now disconnect.
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