Q3 2020 GP Strategies Corp Earnings Call

Welcome to the GP strategies third quarter 2020 earnings conference call.

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I would now like to turn the conference over to Canada, Chester Vice President. Please go ahead.

Thank you good afternoon, everyone and welcome to GP strategies third quarter 2020 earnings call on the call today are Adam said, I'm, CEO, and President and Mike Dougan, Chief Financial Officer.

We begin I would like to remind you that today's comments will include forward looking statements.

Any statements about the potential effect of the COVID-19 pandemic and related effect on our business and results of operations. Because these forward looking statements are based upon management's expectations and assumptions and are subject to risks and uncertainties. There are important factors that could cause our actual results to be mature.

Really different from those expressed or implied by these forward looking statements.

For a complete discussion of these risks we encourage you to read our documents on file with the FTC, which are posted on the investors section of our website at GP strategies dotcom.

A replay of this webcast will be available on our website for 90 days following todays call.

I said it being presented today are also available on the quarterly earnings releases page of the investors section of our website.

At this time I'd like to turn the call over to Adam is that.

Thank you Candice and welcome everyone.

For today's call I'll share some high level information about our Q3 performance provide you with some insights into GP is correct guiding principles and describe how we viewed GPS competitive landscape going forward.

Then Mike will share the detailed financials for Q3, followed by Q and a session.

We're pleased with the third quarter 2020 result, as we continue to execute on our initiatives to reduce debt and strengthen the balance sheet. While at the same time effectively managing the company through the macroeconomic disruption caused by the COVID-19 pandemic.

No. The progress we've made it gives us confidence in our ability to move the company forward I'd like to point out a couple of key data points to demonstrate how the company is managing through the current kogan situation.

During Q3 of 2020, our revenue increased to 115.6 million compared to 106.1 million for the second quarter of 20 Twond.

The gross profit for Q3, 2020 increase or 20.7 million or 17.9% of revenue compared to 15.9 million or 15% for the second quarter of 2020.

Our Q3, 2020, deluded EPS improved to three cents for the third quarter compared to a board that loss per share for the second quarter of 2020.

And then finally, the company's long term debt was reduced to 43.8 million as of September Thirtyth Twentytwenty compared to 57.7 million at the end of Q2 this year.

Now I'd like to take a minute to discuss the debt more specifically since.

Since the summer of 2019, we have taken significant steps to de lever. The company as a result, we are well positioned with a strong balance sheet.

This was accomplished by improving cash flow conversion.

Expansion of our margins and strategic divestitures.

At this point I'd like to review, how our operating model is shifting and the principles guiding our strategic direction.

I'd also like to discuss our view of the market environment for GP services and provide a forward looking framework for the company's growth opportunities.

We have a few key principles guiding our strategic direction.

First we're focusing on key markets, where GP benefits from margin and revenue growth opportunities.

Specifically GGP has superior positioning and stronger competitive advantages in specific industry verticals such as automotive.

Technology and financial services to name just a few.

Second.

We believe that we can best serve our clients needs by structuring the organization on a regional basis during the past eight months Weve seen the global response to cope it varies from country to country.

Dave the state even city to city.

Within our organization, we expect our shift to a regional structure enables our team to be nimble and meet the evolving needs of our clients.

And then third we are focused on margin expansion and controlling cost we've taken decisive action this year to protect and manage margins with a focus on cash generation, which included the divestiture that's outside of our key target markets.

We believe that these actions provide GP with maximum flexibility to capitalize on the many opportunities that historically have manifested during economic recoveries.

So in summary, following these guidelines we shifted the company's operating model aggressively managed cost and pursued strategic divestitures that unlocked value.

At the same time, we're in a stronger position to serve our clients needs and deliver superior service.

We expect to continue to manage the business by focusing resources to provide maximum flexibility to take advantage of the opportunities in the marketplace and scale quickly as we move through this unique business cycle.

So now.

Let's look at what we expect the overall environment to be for GP services in a post co bid world.

In our business the single largest competitor for training services.

Is the internal training department.

During an economic downturn companies typically cut back on this function and are slow to add these cost that during an economic recovery.

Based upon our experience organizations turn to external providers to support their needs driving demand for these services during an economic recovery.

Additionally, there was an increased demand due to the training needs associated with changes in people processes and technology implemented to manage through the economic cycle.

The leadership position of GP strategies.

Our regional focus talented team and ability to scale enabled the company to attract clients and deliver superior service.

As we look forward, we laid the foundation for GP to capitalize on opportunities that we expect to arise in the corporate learning and talent management market.

We fully anticipate we will emerge from the current economic cycle financially strong with significant multiyear contracts in place that we can expand and the ability to add new clients.

In addition to the marketplace dynamics, we believe that the shift in our operating model and strategic direction will enable the company to be more opportunistic in the marketplace and drive long term growth.

Now to demonstrate how our business has reacted to past economic cycles.

I'd like to take a quick step back and give you some historical reference if.

If you look back over the past 20 years GP has performed well following two notable business cycles, the dot com bust and the financial crisis.

During the five years following each of these events GP performed well across all business measures.

We believe that our historically strong performance has been due to GPS ability to emerge from financial cycles, better prepared and more stable than many of our competitors as well as shifts in buying behaviors within the markets we serve.

We expect this time around to be very similar.

Now at this point I'll, just I'll turn the call over to Mike and he'll provide you with the details regarding our current quarter.

Thanks, Adam and good afternoon, everyone.

Before I get into the details of the quarter over quarter results I want to briefly go over our year to date financial highlights on slide 11, and compare them to the outlook that was provided on both the Q1 and Q2 earnings calls Q.

Q3 revenue was up $9.5 million or 9% over Q2, which is consistent with our outlook of revenue growing sequentially in Q3, and Q4 from Q2 of 2020 results.

Adjusted EBITDA in Q3 is up $4.1 million or 68% over Q2 and is already outperformed our stated outlook at adjusted EBITDA in each to 2020 would exceed the adjusted EBITDA reported in each one of 2020.

In Q3, the company was able to generate positive cash flow of $12.6 million and as a result, we were able to continue to reduce long term debt net of cash with that balance now at $30.6 million compared to $65.8 million in Q1.

I'll go through some of the details of the drivers of these results later in this presentation, including providing more detail on severance and other onetime items that are included in both cost of sales and gionee.

Now turning to slide 12, and some background on our new operating segments.

As Adam mentioned when discussing the guiding principles of our strategic direction effective July one 2020, we reorganized the company to manage the business on a regional basis with the three main geographic markets being North America.

Europe, Middle East and Africa, or EMEA, and emerging markets, which consists of Latin America and Asia Pacific countries.

For reference we've provided this table on slide 12, restating, our reported revenue and gross profit by our new regional operating segments dating back to total year 2018 and by quarter through Q3 of 2020. This.

This table will also be posted on our web site.

Within each of the regional reporting segments. The company provides workforce transformation services and we categorized into three primary solution sets.

Organizational performance solutions Port Hope, Yes focus is on managed learning services digital learning strategies and content development business consulting and leadership development solutions setting.

Setting the geographic component aside both EPS is primarily the solution set from our previous managed learning services practice, plus business consulting and leadership development from our old organizational development practice.

Technical performance solutions or TPS focuses on engineering and technical services enterprise technology adoption and human capital management implementation services or HCM.

GPS is primarily a solution set from our previous engineering and technical services practice, plus enterprise technology adoption and HCM implementation services from the old organizational development practice auto.

Automotive performance solutions or EPS focuses on sales enablement solutions, including custom product sales training and other customer loyalty and marketing related services.

EPS is primarily a solution set from our previous sales enablement practice, while we will be providing color in our end DNA by these different solution sets, we no longer have a reporting structure based on these global solution sets.

Now turning to revenue and gross profit for the company on slide 13.

We reported Q3 revenue of $115.6 million, which is down $23.4 million or 16.8% from the revenue reported in Q3 last year. The primary drivers of the revenue decline or an 18.4 million decline in revenue due to cancellation and or postponement of certain training events.

And other delays in execution of client projects that can be directly linked to COVID-19 disruptions there.

There was a 4.6 million dollar decline due to the divestiture of the LNG and tuition businesses ending net 1.4 million decrease in revenue that is not directly attributable to COVID-19 divestitures for FX. It.

It is important to give some background on how the company is identifying the revenue impact related to co bid 19, our business can be broken out into three main categories. The first category as long term multi year contracts with clients that get funded each year.

The second category good annual renewal work with existing clients declines due to cancellations and delays in delivery and these two categories can be identified and quantified as directly related to coal. The 19 as we have contract agreements in place, but the work delivered is less than expected contract.

Argues.

The third category of work is shorter term duration project based work with existing and new clients, primarily one to six months in duration. This category of work has seen a decline in Q3 overall all of $1.4 million that is primarily due to the overall macroeconomic disruption caused by co.

David 19, but does not directly identifiable as contracted work that was delayed or canceled.

Finally, partially offsetting the declines in the quarter was a $1 million increase in revenue due to FX exchange rate changes.

In terms of company gross profit and gross margin percent.

The company reported gross profit of $20.7 million, which is down $1 million or 4.6% from the gross profit reported in Q3 of 19, Q3, 2020 and cost of sales and includes severance expense related to cost cutting and cost scaling actions taken in the quarter, partially offset by the impact.

On the change in our paid time off policy or Peto were exempt employees. Instead of accruing Peto are now offered flexible time off as a result, we no longer are carrying a PPL liability for this class of employees.

Excluding these onetime items that net to a $1.9 million of expense for Q3, 2020, and excluding $1 million of severance expense that was reported in Q3 of 19. The adjusted gross profit dollars and gross margin percentage for Q3, 2020 is $22.6 million and 19.6%.

Actively compared to $22.7 million and 16.3% for Q3 of 19.

A portion of the more than 3% increase in gross margin percentage in Q3 2020 compared to the same period last year is due to overhead cost reductions that have taken place over the last six months and other efficiencies that are expected to continue going forward as part of our strategic guiding principle to extend market.

Expand margins and control costs.

Breaking the revenue gross profit drivers out by our regional reporting segments on slide 14.

The North America segment reported Q3 revenue of $77.4 million, which is down $14.9 million or 16.1% from the revenue in Q3 of last year primary drivers of the decline in revenue our $10.3 million decreased due to COVID-19 disruptions, a 4.6 million decrease do the due to the divestiture.

Some of our alternative fuels division on January Onest, 2020, and tuition and program management business on October Onest of 2019, and the point $1 million decrease in revenues due to changes in foreign currency exchange rates.

Within the North America segment, the organizational performance solutions and technical performance solution service offerings are seeing a combined 2.9 million decline in revenue primarily due to the macroeconomic conditions impacting our shorter shorter term project based work cycle why.

While our automotive performance solutions service offerings saw net 3.1 million increase in revenue that was primarily due to the ramp up of the previously announced multi year outsourcing contract award with a major automotive client and a small increase in our pop revenue compared to Q3 of last year due to the timing of pulp shipments.

Publication revenue in Q3 of 2020 was $1.4 million, which was 1.7 million from the publication revenue reported in Q3 of 2019.

For 2020, the publication revenue is now forecasted to be $15.7 million, which is down 8.5 million from the 24.2 million of pump revenue reported in 2019.

As of talent in 2019 as two of the five scheduled publications in 2020 have been canceled as a result Cove in 19 and replaced with digit digital versions details on the 2020 publication revenue by quarter is as follows 20.

2020, actual pump revenue for Q1, two one through three our 5 million 4.1 million and 1.4 million, respectively, and 2020 Q4 forecasted pub revenue is 5.2 million versus $10 million of actual pop revenue in Q4 of 2019.

The EMEA segment reported Q3 revenue of $25.4 million, which is down $4.1 million or 14% from the revenue in Q3 of last year.

Gary drivers of the decline are a 3.7 million decrease due to proven 19 disruptions.

And within the EMEA segment, the technical performance solution service offerings are seeing a point 7 million decline in revenue primarily due to the macroeconomic conditions impact.

Impacting our shorter term project based work cycle, while the automotive performance solution service offering declined $1.4 million overall of which $1 million was primarily due to a large contract completed last year with no replacement contracts, coupled with 8.4 million declined due to macroeconomic conditions impacting our shorter term.

Good work cycle in the automotive performance solutions area.

Offsetting these decreases in the EMEA segment was a 1.4 million increase in revenue due to changes in foreign currency exchange rates and the point 3 million increase in automotive our opn services within the region.

The emerging market segment reported.

Q3 revenue of 2000, $12.7 million, which is down $4.4 million or 25.7% from the revenue of Q3 in last year.

Primary drivers of the decline in revenue are up 4.4 million decrease due to COVID-19 disruptions.

And a net $3.3 million decrease in revenue due to changes in foreign currency exchange rates and partially offsetting these decreases within the emerging market segment was an overall net increase of all service offerings of point $3 million in terms of gross profit dollars and gross margin percent at the segment level after excluding set.

Rents expense for both comparable periods and the onetime impact on the PEO policy change while gross profit dollars are down due to the revenue declines previously noted.

Each of the operating segments are seeing improved gross margin percent in Q3 of 2012 compared to Q3 of 19 as mentioned previously a portion of the increase in gross margin percent across all segments. In Q3, 20 point compared to the same period last year is due to overhead cost reductions that have taken place over the last six months and other efficiencies.

That are expected to continue going forward as part of our strategic guiding principle to EPS to expand margins and control costs.

Moving on to revenue and gross profit for the company year to date on slide 15 outside.

Outside of the impact of Cobot, 19, divestitures and FX. The other revenue changes in our three reporting segments nets to a small decrease of $2.8 million.

While our year to date gross profit dollars are down after excluding for the severance and PCL policy change gross margin percent year to date, 2020, and 16.7% versus 15.8% year to date of Q3 19 more details of the year to date comparison by practice are included on the next slide and in our Mdna sex.

One of the 10-Q, but for this call we will now move on to EPS DNA on slide 17.

General and administrative expenses for Q3 was $17.6 million, which is up 2.4 million or 15.8% from the 15.2 million in Q3 of 19. The primary drivers of the increase are a 2.9 million net increase due to severance expenses, partially offset by a change in the chain.

As in the PGM policy and $8.2 million increase in legal fees, primarily related to the recently announced divestiture of our IP axon business.

Partially offsetting these increases was a net decrease in GA cost of point $7 million, primarily due to reduced labor and other expense reductions other expenses due to cost cutting initiatives implemented in the last six months.

Sales and marketing expense for Q3 of 2020 was $1.7 million.

Which is down point $1 million compared to the 1.8 million of expenses incurred in Q3 of 2019.

Moving on to other PML items on slide 18, and a touch upon just a few.

Interest expense in the quarter was point $4 million, which is down 1.2 million from Q3 last year and is down 2.9 million year to date due to lower borrowings under the credit facility and lower interest rates and.

Income tax expense has the effective tax rate for 2012 year to date at 47.4%. This rate is impacted by the jurisdictional mix of income and the decrease in overall pre tax earnings.

Moving onto the earnings summary on slide 19.

After adjusting for special items, we reported adjusted earnings per share for Q3, 2020 of 24 cents, which is the same adjusted EPS reported in Q3 of last year.

Adjusted EBITDA for Q3 was $10.1 million, which is down 2.7 million from the adjusted EBITDA reported in Q3 last year.

For details on adjusted EPS and adjusted EBITDA, you can refer to dependencies at the end of this presentation.

Moving on to some balance sheet drivers on slide 20.

Operating cash flow for Q3, 2020 is $12.6 million and year to date $45.4 million.

One item to note when considering the cash flow performance year to date is that the company.

Currently has deferred payroll tax and other tax liabilities totaling $10 million related to the cares Act and other Tobin release, which will be paid through 2022.

Rough wind down of this deferred liability is a net increase of 8.8 million in Q4 2020.

And a net 7.2 million decrease as payments come due during 2021, and finally, a net $3.6 million decrease as all remaining payments are due in 2022, our cash flow without the impact of these deferred payments is still $35.4 million year to date.

Net debt was 30.5 million as of 930, which is a reduction of 44.2 million from the $74.7 million.

Net debt reported and as of 12 31 19.

I would note that the proceeds from the IC axon divestiture were not received until 10, one 2020, and then and are therefore, not reflected in our long term debt as of 932020.

The 932020 balance sheet does however, carved out the assets and liabilities held for sale related to the divestiture.

The company's leverage ratio as defined under our credit facility as of the end of Q3 2020 was 1.7 times EBITDA.

Which is down from the two point Threex leverage ratio reported at the end of Q4 up 19 final.

Finally, turning to backlog on page 21.

Backlog as of Q3, 2020 was $286.4 million, which is down $51.7 million or 15.3% compared to the backlog numbers reported in Q3 of 19.

$10 million of this decline is due to the divestiture of the LNG business. The remainder of the decline can be attributed to backlog reductions primarily due to COVID-19 cancellations and economic disruptions. If you looked at our backlog expressed in terms of months of revenue based on the most current quarter revenue burn rate for Q3 2020.

The backlog the backlog equates to 7.4 months of revenue and for Q3 of 2019, the backlog accrete into 7.5 months of revenue. Both figures are within the range of our historical long term goals of this metric.

This concludes the financial update I will now turn the call back to Adam.

Thank you Mike certainly as we've said, we're pleased with our ability to manage through the current situation, we feel as though that the company is in a strong position to continue to thrive in a proposed coded world as well as were managing lateral.

In a tough environment of the co bid world. So at this point I think we will turn it over to questions and answers.

Thank you we will now begin the question and answer session.

Thats. Good question you May Press Star then one on your telephone keypad.

If you are using a speakerphone please pick up your handset before pressing the keys.

Yes, John for your question. Please press Star then.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from Alex Paris with Barrington Research. Please go ahead.

Good morning, everyone. Thank you for taking my question.

This is Chris how sitting in for Alex actually Okay, Chris Hi, Chris.

Hey.

Many questions here.

After listening to your comments.

First off.

You mentioned.

The historical performance of the company typically in a recovery as we see corporations moving to external providers to supplement.

The loss of their internal training departments as we characterize this recovery and what you've seen this past quarter and even into the fourth quarter.

What has been similar to past recoveries in what has been different.

Given that we havent experienced a pandemic in recent history.

Anything different about this recovery than previous recoveries and how are you expecting this to.

How are you expecting this to impact.

Incremental margin opportunity.

As we start to.

Recover on the topline.

So great question from our perspective right now the recovery is still in its infancy. So.

We're definitely not.

The levels that we were at one point, but we're definitely not back to full recovery scenario. So we think we're still managing through the situation and the recovery is either in its infancy are taken.

The one thing that is different in some ways about the situation, it's driving a modality shift so driving towards more virtual learning more E learning.

We are well positioned as a provider in that space as well as face to face delivery. So we feel convinced that.

The world is going to be different post Cove is in pre cove and their significant knowledge transfer requirements associated with companies trying to succeed in a post co bid world someone has to help them successfully navigate that knowledge transfer and regardless of the modality whether it's.

Face to face E learning virtual learning, we're well positioned in all of those areas to help them. So we're optimistic.

About the need that is in the marketplace and we feel that we're well positioned it's too early to really understand.

The specific mix of modalities that will arise, but we are well positioned regardless of that mix.

Great and one follow up question and then I'll jump back in the queue.

As it relates to the new strategic direction.

Under this new set form of segmentation by geography.

Dissecting this to some extent how does backlog fit on a geographic basis and perhaps what changes to backlog are you seeing on a geographic basis.

How would you characterize that as we look ahead.

Yes, so Chris I don't have you know very specific answers on on the backlog by by the geographic basis other than to say I havent seen any signs that that there is one area that is having a.

A significant positive you know trend in the backlog or a significant negative trend I think that theres theres consistency across all of the geographic regions in terms of how the backlog breaks down in what the trends that we're seeing.

And one of the things to keep in mind sprays.

We worked on as we navigate this model and communicate this model and one of the things that will need to provide more clarity and understand better we get global contracts. So for example, we'll get a master contract with X amount of revenue and is a point in time that add to receive.

We don't exactly know nor does the customer the client no over the length of that contract exactly what region of the world all of that revenue will burn in.

So there is a little bit of work to be done to understand how to most effectively and accurately distribute that backlog geographically considering those nuances of global contracts.

That's great very helpful and I'm going to try to squeeze in one more.

It was very helpful to hear in the context of your backlog.

7.4 months.

Versus.

This year of 7.5 months as we look at.

Some of the negatives the cancellations and disruptions have some of these flipped to a positive but some of them started to circle back into your backlog, perhaps you can share some color on how you are maintaining.

Contact with these temporary disruptions.

Yes, I would I would say that the backlog trend is not yet seeing a significant jump up I mean Q3 overall revenue was up 9.9% over Q2.

If you look at our trend from backlog from Q2 to Q3, it's actually down on as we as you know that's a natural cycle normally on.

A lot of our a good portion of our work those long term multiyear contracts. We received the funding at the beginning of the year and the backlog is kind of wound down or.

Throughout the throughout the year as revenue is earned every month on but I'm not seeing any any significant uptick.

In the backlog, but again, we're also seeing it stabilized in terms of that trend in terms of months of revenue.

Okay, great. Thank you for taking my questions I'll hop back in queue.

Thank you.

Our next question comes from Jeff Martin with Roth Capital. Please go ahead.

Thanks, Good morning, guys.

Hey, Gary Jeff.

Good afternoon, I suppose good.

Good to talk to yes, I wanted to get a sense for.

The.

Contract from Q2 that were delayed and had some rescheduling what are you seeing in terms of follow through on that are are in purchasing.

Initiatives being scheduled the virtual and can you ballpark a percentage.

Success rate in transitioning.

No. So so the simple answer is no it would be very difficult for me to ballpark a percentage, but let me. Let me help you understand how this is playing out and how we're seeing so step one is you have classes cancel instead.

Step two is you read scheduled back to your normal schedule and then step three is that you try to make up for things that cancelled and then step for as Mike touched on earlier, what do you budget for the following year, So anecdotally management work.

King with our clients with a multi year long term contracts and we're looking at 2021 budgets versus 2020.

We're not seeing significant changes to the 2021 budget versus the initial anticipated 2020 budget. So in terms of do they think things are going to return to normal that is what we are seeing anecdotally within budget conversations is a return to normal.

We also think were seeing things return back to normal scheduling how much of the catch up for cancellations in the second quarter. The very end of the first quarter. We still don't have a feel for that and in essence time is running out this year too.

Catch that up and so we're really focused on continuing to perform in Q4.

And manage that and then set ourselves up for the budget cycles for 21.

Okay. That's helpful.

No mention in your prepared remarks in regards to the sales pipeline, but how has that changed.

James has from the second quarter environment and.

Okay. So if you have anything.

Candidly on the sales pipeline that'd be helpful.

Yes, so our sales pipeline this is maintaining relatively intact.

And so weekend and I will follow up with that on on specifics for that for you but.

It's maintaining relatively intact.

What we're not seeing is a huge jump in the sales pipeline, we're seeing steady incremental return to normal the one thing that.

If I would characterize our sales pipeline that business. What we're seeing is the steady progressive return to normal weight, we're not experiencing large positive and were negative spikes in any particular area now now it feels like and what we're currently experiencing is just.

Steady increases and returned to normalcy.

Okay, and then one more if I could.

We entered.

2020, with the expectation of some nice organic growth.

How do you feel about 2021, that's performing perhaps how you bought 2020 would perform.

Recall that.

No, we're really not giving guidance from a 2021 perspective, but we do we do feel like that we're doing all the right things to position ourselves to be very successful and we feel like that historically the.

The market has been favorable to our services during an economic recovery. So so we feel very positive about the things we are doing the position were in and the way the hit market has historically reacted.

Demand for our services.

Great. That's very helpful. Thanks, and nice job on.

Looking down the leverage ratio you guys should be rewarded for that.

Okay, great. Thank you. Thank you.

Again, if youd like to ask a question. Please press Star then one our next question comes from back Cummins with B. Riley FBR. Please go ahead.

Yes, good afternoon.

Mike.

So speaking with you again and.

Brad on the solid results here in Q3.

Hey, John.

Yes.

In terms of changes you've made to this new regional operating structure have you do you have a lot of the key components in place now or or how should we be thinking about this progression now that that you've taken this different approach to your customers.

We do we do have a lot of the components in place.

And and we believe that we have we've made some changes to some leaders some stuff that's going to be announced in the future. We feel as though we had a strong leadership team in the region.

And we're focused on key verticals in each of the regions, where we have a lot of value to provide to our clients and our clients have a lot of need for what we do so we actually think.

We're very well positioned in in addition to that what we're seeing in our client is they're pushing decision, making and budgeting and business responsiveness to the regions as well because in.

And they're trying to navigate the regional nuance of a co bid world. So as they're pushing the budget decisions to the regions that were pushing our responsiveness to the regions. We think we're aligned very well.

Understood and then Mike on the gross margin aspects I mean.

Excluding re structuring or severance costs.

Seeing some nice year over year improvements in that gross margin so.

How should we think about that progression moving forward in what is somewhat of a sustainable level as you continue to execute upon your plan.

Yes, I can't give you any specifics on it but we did talk about some of the the cost cutting right. So that in the year, there's been cost scaling to align to the lower revenue, but there's also been.

No real permanent costs costs in terms of our overhead cost structure and.

Targeting within DNA as well.

That will be a reduction in costs and I mentioned that that we expect a portion of that improvement in gross margin that we saw in Q3 that continue on an ongoing basis thats part of our guiding principle of the expansion on margins, but.

But I'm not able to provide any quantify you know what percentage point increase should we expect.

Understood and final question for me I know the past few quarters, you've kind of given a little bit of a forward outlook here in terms of what to expect in either the next quarter or the next task I mean with you already exceeding your target for your for second half adjusted EBITDA, how should we be thinking about it.

Yes, Q4 in terms of revenue and margin perspective.

And so we're really not giving guidance on that.

We feel good about what we're doing we feel we're doing the right things we made the strategic decision when a lot of companies to give guidance cancelled their guidance at the beginning of the co bid and we went the opposite we didnt give guidance, but we gave more guidance than we ever had to give people a sense of comfort.

We had a plan for managing through the Covance situation and hopefully set their mind at ease and so we think that Q2 and Q3 have demonstrated that we do have a plan. We are executing the plan and we have confidence in it and we think that that confidence will continue to manifest.

Well then results that demonstrate our plan, but as we move beyond code that.

We don't anticipate continuing to to give forward looking guidance that we did to help people manage.

Got processes through the cobot environment.

Understood well, thanks for taking my questions and congrats again on the solid results.

Thank you good to talk to you.

This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.

So thank you very much and so we as we said we feel as though we're taking the right steps. We're excited about the future where were eager to move to a postcode bid world just as everyone else is but we feel as though we're sitting here with a strong balance sheet.

Many opportunities in front of us well positioned to respond to the marketplace and if history repeats itself. The marketplace has a need for what we do.

In a post cobot world in a strong way so were excited about our position and we appreciate everybody joining the call today.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.