GCP Applied Technologies Inc (GCP) 2016 Q2 法說會逐字稿

Good morning and welcome to the GCP Applied Technologies second-quarter 2016 conference call.

(Operator Instructions)

Please note that this event is being recorded. I would now like to turn the conference over to Betsy Cowell Vice President FP&A and Treasurer. Please go ahead, ma'am.

Thank you Dan. Hello, everyone, and thank you for joining us on today's call.

With us on the call are Greg Poling, President and Chief Executive Officer, and Dean Freeman, Vice President, Chief Financial Officer. I would also like to introduce Joe Decristofaro, who joined GCP on August 1 as our new Vice President of Investor Relations.

Joe will be taking over this role for me as I continue to lead Financial Planning and Analysis and Treasury at GCP. We're very pleased to welcome Joe to the company, so at this point I'll turn the call over to Joe.

Thank you Betsy.

It's an honor to join GCP it's an exciting time in the company's evolution and look for to speaking with each of you in the future.

Turning today's call our earnings release and corresponding presentation slides are available on our website. To download copies please go to www. GCPAT.com and click on the investors tab.

Some our comments they will be forward-looking statements under US Federal Securities laws. Actual results may differ materially from those projected or implied due to a variety of factors. We will discuss certain non-GAAP financial measures which are described in more detail in this morning's earnings release and on our website.

Our comments on forward-looking statements and non-GAAP financial measures apply both to the prepared remarks and to the Q&A. Greg will start off today with the business update. Dean's commentary will include highlights of our second-quarter financial results and 2016 guidance.

We're discuss initial excluding the impact of Venezuela for the quarter and provided a reconciliation of the financial information in our press release. All revenue and associated growth rates in this discussion are stated on a comparable constant currency basis, which adjusts for the impact of foreign currency. With that I will turn the call over to Greg.

Thanks Joe and welcome to the company. Good morning everyone.

I'd like to thank you for joining us today on GCP Applied Technologies earnings call. In our second quarter as a public company we successfully built our team and are executing to achieve our goals.

We've invested in technology, launched new products, improved our global market position, and accelerated operational productivity. We are creating shareholder value by growing our business, expanding our margins and generating strong operating cash flows.

As we look at the second quarter we are tracking to our full-year commitments for sales growth, earnings growth, and cash generation. We are reaffirming our full-year 2016 guidance. I'd like to make a number of comments that provide some color on the quarter and then Dean will walk you through the numbers in more detail.

First overall for the quarter hour construction business grew by about 4% on a constant currency basis in 6% year to date. A number of our construction markets such as North America, ASIAN, Australia, Mexico Argentina were strong. As commercial residential and infrastructure construction continues to grow. However as you all know there have been some parts of market challenges namely in Venezuela, Turkey, and there's been some slow to negative growth in Brazil and China.

The most significant impacts for us are Venezuela and Brazil. We will lap the unfavorable market turn down in Brazil during the fourth quarter of this year and the currency devaluation, which we took in Venezuela at the end of the third quarter.

Overall the markets in which we participate remain healthy and we responded effectively to the geographic challenges that we have seen. The geographic diversity of our business allows us to counterbalance challenging market conditions with growth in stronger geographies.

The Specialty Construction Chemicals business on a constant currency basis grew at about 1%. This was slower than the 3% growth we saw in the first quarter and the lower growth compared to 2015 is due to three primary reasons.

First in the quarter we took some proactive steps to rationalize less profitable business in the segment. In other words we're making commercial choices to improve our margins. These choices negatively impacted the segment sales in the quarter by about two points of growth. It will improve the overall quality of our business going forward. We will continue to be disciplined in our assessment of commercial and portfolio opportunities in order to increase the EBIT margins and the Specialty Construction Chemicals business.

Second we have a very strong position in Brazil and as I mentioned the economic challenges in Brazil negatively impacted our segment sales, and this was about 1.5 impact to our growth. Third the second quarter is our most difficult comparison just given the strength of the second quarter we had in 2015. Dean will provide more details on these points in his commentary but I did want to give you color on the growth rates we saw in the SCC business.

Specialty building materials grew at 9% on a constant currency basis and this was another solid quarter of growth and was driven by continued strength in the global nonresidential construction and healthy US residential re-roofing market.

Our Darex packaging business grew 3% on a constant currency basis. This is the first time we've had growth since the third quarter 2014 in Darex. The solid commercial performance came from Asia-Pacific and Latin America.

Now I'd like to move on and give you some comments on our products. We are well-positioned with best in class products across our segments. We have a number of new offerings that are beginning to gain market acceptance.

For example in Specialty Construction Chemicals business the adoption of our additives for precast and sprayable concrete are increasing. We've also accelerated the verified concrete management system installs, which will deliver sales growth in the second half of the year and beyond. And we've announced we also acquired the IP and related assets of SensoCrete and to add to our Verifi platform.

In Specialty Building Materials we have continued strength in our pre-applied waterproofing products, our fire protection product line is in a strong project cycle, and we have made distribution gains and are seeing good reroofing activity in residential roofing and under layment business.

In Darex packaging segment sales volume increased in BPA-NI coatings and we achieved revenue growth, as I said, in Asia-Pacific and Latin America. Overall the fundamentals of our business continue to be healthy. We have responded effectively to market conditions that impact the business in specific geographies.

We continued to improve our margins and cash flows. And the organization is focused on execution.

I know it in the call over to Dean for more specifics.

Thank you Greg. Good morning everybody.

Let me mention again as Greg pointed out that today's discussion will be based on results excluding Venezuela. As you know we devalued the Venezuelan business at the end of the third quarter 2015, and I can say I'm very much looking forward to lapping the effects of that at the end of the third quarter 2016. The third quarter will be the quarter most impacted by Venezuela devaluation on the year-over-year comparison, as a reminder. You'll find a schedule in the appendix of the press release and the earnings slide for comparable results. For your information.

Now looking at the second quarter, consolidated revenues improved 3.7% to $371 million. And 4.8% on a year-to-date basis. Adjusted earnings grew 7.2% in the quarter and 19.2% year to date.

Adjusted EBITDA margins expanded 90 basis points in the quarter and 2060 basis points in the first half of the year. Margin expansion was largely driven by volume, mix, and the continued positive effects of material deflation and productivity offsetting the negative impact of FX and price. Overall business growth and earnings results were in line with our expectations for the quarter and first half.

As Greg mentioned the combined construction revenues grew 4% in the quarter and 6% year to date and from a earnings perspective adjusted earnings grew 18% versus prior-year and 35% in the first half of the year.

Now looking at the segments. A specialty construction chemicals revenues grew 1% at constant currency basis in the second quarter. Again the increase is largely attributable to the growth of the cement additives business and volume improvement principally in Asia-Pacific and Europe. Concrete admixture sales were significantly impacted by Latin America due to the effects of Brazil being down almost 30% in the quarter, and accounting for 1.5 points lower revenue overall. As Greg mentioned we will lap the full effects of the market decline in Brazil in the fourth quarter.

The concrete admixture business grew in North America, Europe, and Asia and averaged mid to single digit growth rate in the constant currency basis. As Greg further described the rationalization actions in specialty construction chemicals business a couple of or approximately two points of lower sales growth.

Our new additives for both spray able concrete and precast products grew in the mid-single digits in the first half of the year. Verifi concrete management system installations had double-digit growth. These installs will drive Verifi revenue growth in the second half of the year and beyond. Gross margins for the segment of 37.1% improved 260 basis points, largely due to raw material deflation and productivity more than offsetting the impact of foreign exchange. Adjusted EBITD increased 14% to $19.9 million and margins expanded 170 basis points to 12.1%.

Looking at Specialty Building Materials, again, a strong quarter with constant currency revenue increasing 9% to $118.4 million. The business benefited from sustained positive market dynamics, principally in North America and Western Europe.

The second quarter our building envelope residential fire protection segments had high single to double-digit growth rates with a strong project pipeline, the SPN business also benefitted from continued strength in the pre-applied liquid waterproofing products and growth in direct to steel fire proofing projects. We also expanded our distribution network for residential roofing products.

Adjusted EBITD grew to 20% in the segment to $35.5 million and margins expanded 310 basis points to 30.3% in the second quarter, largely on higher volume and mix.

Looking at her Darex packaging business we grew 3% on a constant currency basis versus prior-year period. Regionally sales above Latin America and Asia saw solid growth and higher coatings demand, which grew globally and mid-single digit range.

The majority of the sales growth was the continued adoption of new coatings formulation and canned production growth shifting to Latin America where we have a strong market position.

Gross margins expanded 20 basis points to 36.9% during the quarter and Darex benefitted from favorable volume of raw material deflation, again offsetting FX. Adjusted EBITD was down versus the prior-year largely due to decrease G&A.

Looking at other consolidated results for GCP, we had interest expense totaling about $17.7 million for the quarter. Our effective tax rate was approximately 31%. Rounding out the earnings discussion we adjusted EBITD -- adjusted earnings per share of $0.44 in the quarter with diluted share count increasing 500,000 shares to 71.4 million.

Adjusted free cash flow for the six months totaled $51.6 million, on track with our expectations. We've invested $25 million in CapEx so far this year, and we plan to hold that at no more than 4% of sales for the full year.

Let me talk about how we see guidance for the rest of the year. As I mentioned we're tracking tool for your commitment and we reconfirming our outlook for 2016, which is unchanged in our previous update. We continue to expecting sales that growth of 46% constant currency adjusted EBITD in the range of $210 million-$225 million, adjusted EPS range of $1.38 $1.55 per share, effective tax rate of the 32% to 33% for the year and adjusted free cash flow of approximately $100 million. Also for the full-year we continued to expect to grow our construction businesses in the mid-single digits range and about 1% growth for Darex.

As we think about the second half of the year, I would also to provide a little bit of perspective on the seasonality. In the first half year-over-year revenue comparisons were more favorable in the first quarter and less favorable in the second.

Looking ahead we generally the third quarter to be similar to the second quarter. In the comparatively stronger fourth quarter on a year-over-year basis as we lapped the marketing impacts in Brazil and FX hits headwind including Venezuela.

From a earnings perspective we expect earnings profile in the second half of the year to be generally similar to the first half. With the third quarter looking more like the second quarter although slightly weaker due to continued impact of Brazil and seasonality in Europe. And the fourth quarter should be a stronger version of the first.

With that I'll turn it over to Greg for closing comments.

Thank you Dean.

Once again we appreciate your interest in GCP. We thank you for joining our second quarter call.

We will continue to drive our business forward by focusing on revenue growth, and improving margins, and delivering strong cash flow. Our team is working enthusiastically and they are excited to be part of a new company focused on delivering value to our customers and our shareholders.

With that, Dean, I will be happy to take your questions.

Operator you may now begin the Q&A session.

(Operator Instructions)

Ivan Marcuse, KeyBanc Capital Markets.

Hi guys thanks for taking my questions. The first question in the 2% of business that -- I forgot if you walked away from. Should that 2% or that level be -- should we see that negatively affect sales in SCC for the next three quarters as we lap that or will that get bigger or smaller or how to think about that cadence? Then additionally -- you didn't change your sales guidance for the full year. Is that a function of you knew that you were leaving this business or SBM is just that much stronger?

At the great question. Let's give some color this is a handful of customers we actually had them some in Asia and a couple in North America.

We're making decisions that these contracts, to make sure that, frankly, we bring the margins up in the SCC business. You will have this until you lap the business but, we have other offsets in the Specialty Construction Chemicals business.

We do get past the Brazil issues as we come into the back half of the year. We're getting a little growth of some of our new products that we are focused on. You've got some market growth in North America.

It wasn't specific that these accounts but we do know it's important for us on SCC to make good commercial decisions and improved the quality of business here. So we took these actions and those customers will once we have had.

It'll take a little while to lap. But we will make that up.

Is it specific to a certain region where it might be profitability is not great versus other regions?

I can tell you it was across three or four different countries in three regions.

Okay great. And moving over to the free cash flow statement quickly. I saw you had a pretty big benefit from interest expense this quarter, on the cash flow.

What is that? Is that a one-time thing? Or is it just a timing issue and that reverses out in the back half of the year?

Our interest expense guidance has not changed. We generated about a little over $17 million in interest expense in the first half. And that should largely be the same in the second half of the year.

The question was in terms of the cash flow statements. There's a $29 million benefit to cash flow from operations from interest expense. I was curious if that is just money that had not been out the door yet or how to think about that on an annual basis.

On our presentation of cash flows we show the add back of the expense of $29 million and on a separate line we show the $6.8 million of actual cash paid. It's a little unique presentation but that is how we do it on the cash flow [statement].

So that is excluded from your adjusted free cash flow?

It's the actual cash paid, $6.8 million is the actual cash paid on the cash flow statement so that is in our adjusted free cash.

Okay great thanks. I will get back in the queue.

Jim Barrett, CL King Associates.

Good morning everyone. Joe congratulations on the new position. I look forward to working with you.

Thank you Jim.

Greg I had a question on SCC chemicals. Could you give us any thoughts on your internal targets in terms of operating margins for the division?

And to what degree Verifi will help you get there? I assume that is a small but high-margin addition.

Yes good question Jim. I would tell you last year I think the margins in that business were about a little less than 10% overall in that segment.

We targeted, although we don't have a specific date in mind but overall annualized basis we ought to be able to get that up over 15%. As you capture the new products Verifi will be a piece of that. We get good margins out of Verifi.

Some our other new products also -- we target higher than average margins for the new products we are bringing out of the lab. We will get some advantage relative to some of these decisions that we're making where frankly we want to make sure we're getting paid for the value that we are delivering on the customer side.

But all in, businesses ought to be north of 15% EBIT margin business. For at least this that is our first chunk of target versus where we were last year. We're working our way to that pretty quickly.

Is it reasonable to assume that A, that, that will [track] with the industry -- (technical difficulty).

Jim you have to repeat I didn't hear you. The sound went down.

On the underlayment business should I assume that tracks very closely with the industry's asphalt roofing shingle shipments and is it pretty much wholly RNR due to the premium price? I'm thinking of new homebuilding usage.

Yes. We certainly enjoy a little bit of business on new construction, high-end construction with our underlayment business. The bulk of that business is re-roofing and that volume is up and that is helping with the business.

The other thing we're doing is working hard on our distribution share we've picked up points of distribution and that has been a focus for the Company for the past year now. The combination of a good re-roofing market and distribution capture. And frankly have the best in class product in the marketplace, we like the growth here.

Thank you very much.

Chris Shaw, Monness Crespi.

Good morning everyone. First in the construction related business segment I know there was a pretty strong weather impact in the first quarter.

Was there any residual, not benefit but negative to the second quarter -- or do you see it happening in the second half at all? [Does] it already pull forward or we expect a slower growth from that at all?

Yes Chris, we -- look at the weather around the world it will impact us. I would say in North America and I think we've seen that in the first quarter things are quite strong.

The business -- the marketplace, the shipments in the overall construction in North America continues to be good but we did have some weather especially some of our regions that were quite strong in the second quarter. And it balance out on the half but I think I would tell you there was a plus and minus first to second quarter. Especially -- it really was in the SCC business.

A couple of projects in SBM on the commercial side gets delayed if you get some weather but it's a little early to call the second half weather. But things right now things around the country have calmed down a little bit.

And then I'm definitely no expert on reading -- or understanding the construction data that is out there. But it seemed like in 2Q the construction, the starts data was getting worse for commercial construction in the US. Am I reading that right in the interpretation that how the data is trending right now?

We read the same data. There is a bit -- I'm speaking to North America right now, the US business.

Housing starts it was pretty good and non-res data was off some. I think you are seeing the energy impact with frankly is not a big player for us.

We love to see the infrastructure pick up and people are talking about the politically and it would be a help but commercial construction business has been pretty good for us and that drives a nice piece of the SBM business. We really have to get down into that data.

The other thing we looked at is the Architecture Billing Index and that's continuing to be favorable. Those tend to be the types of projects were our materials at the high-end would be using construction. But your right, the non-res a little softer in the second quarter. There was some good indicators other places.

And just the move a little bit we were seeing some good greenshoots in Europe. It's a little early for me to call yet whether Brexit will slow that down in Europe or not. But you're right on North America.

Is ABI the best thing to look at for your exposure to the commercial construction?

It is a good one. We look at construction put in place, we look at starts we look at non-res. Look at ABI.

Cement and concrete volumes and pricing drive -- there's a number of them. But it's a good indicator relative to the type of activity we're seeing at the specification level. So from that standpoint it is good.

Okay thanks. Just on the acquisition front, the SensoCrete deal, it read like a technology purchase. There's nothing meaningful in terms of revenues coming onboard with that is there?

That is right. It was a technology purchase. It gives some patents and give some technology [rather] that really augments Verifi.

I don't want to get too technical, but we measured everything on the drum outside using specific types of sensors and this lets us get inside the drum which gets us another set of measurements. In terms of the drum on the Ready-Mix truck we like their technologies and would like to add to ours. Frankly this was a space we're making a commitment to and it was part of that.

And are there anything else, any other deal that you think you are getting close on? I know we're all anticipating coming out of the gate with a bunch of deals. Are you getting close to anything else?

As you know we have both on acquisitions as part of our strategy we also realize when they happen we can talk about them. I would say our pipeline is active and we are still strongly committed to adding growth to our business through bolt-on acquisitions.

Great thank you for the help.

Erik Karlsson Bodenholm Capital.

Thanks for taking my questions. First on SBM is showing very strong growth. 9% in constant currency.

Looking at your pipeline and they have a bit better visibility. Is there any reason to expect the current growth rate is not sustainable during the second half of the year?

Hi Erik, sure. Our pipeline as you know we look at what is being designed and what we have specified and what's being built. Our pipeline today is as strong or stronger than it was a year ago so overall that is a good indicator for us.

Any given month or quarter we're going to have some project impacts but we're pretty bullish overall on the rest of the year relative to the SBM business on the commercial side. Indications are good. You do get some project bumps here and there but overall what you said about the marketplace I would agree with.

Very good. And SCC margin expansion you talked about which you said over 15% of the time. If these 2015 as a base, do you think a three-year period is a good reason expectation as work today.

We are hoping to do better than that.

Okay. So if we use15% as a base [annualize of 18%] and that takes me to 2017. Should be doable already in 2017, potentially.

We are working, as I said I don't want to target us there because some of it depends on adoption of the new products on speed. We like the new products they are higher-margin. The speed as you adopt those will improve the margins.

We have benefited from some raw material improvement so we have to cover that in our objective going forward if we get some inflation. As I've told people as we get inflation, which we don't see right now we had some built into the back end but things look pretty mundane as everybody knows.

As you do that, we'll have to price to capture it. And then we will make these decisions around the world to make sure we have business. I'm not going to pin myself down to an exact date on that but we're working hard to bring the margins up in the SCC business.

Very good. Which of the new products do you think are the most exciting there, in the SCC.

The ones we talk about on the script. We are working hard on Verifi we think this is a good way to increase the size of the market provide our customers a lot of valuable insights on how to make their productivity stronger and get out quality concrete. So Verifi is one.

We're having some success, we put out some new technology on the sprayable concrete markets which frankly we're under serving that and we were underserving precast. We have some growth in the precast market and we have taken a bit of a page out of Verifi. We have an indicator there, a little product that we're selling that helps manage the quality of the precast concrete as well from an equipment standpoint.

Those are the three areas right now, and then cement additives we're focused on a regional penetration and some of the emerging markets.

Very exciting, one last question if I may. Please. The SG&A costs were little higher this quarter particularly in Darex. Was there anything unusual in the SG&A costs to any of the divisions that you would call out here in the quarter?

No. What is going on -- we're on our plan. We are running the G&A across the Company about as we would expect given the performance of the Company.

Darex is now going to carry its load of the GCP company which is also a public company and so we've seen a little step up. It looks like a big percentage to them on a growth -- took some point out of the earnings but we're on plan with G&A. It is just Darex carries its burden of the weight being a third of the Company.

G&A been running about 20% to 21% and we don't expect a dramatic change from that.

Very good. Thank you very much.

Ivan Marcuse, KeyBanc.

A quick question on Verifi. You are talking about it. The technology you bought what is a bring to the table for Verifi you didn't have previously?

Is there any sales or earnings associated with it? Thirdly on Verifi what revenue expectation that you expect from this business and when does it start moving the needle?

Yes, good, good. On SensoCrete, you've got to get in to the technologies of the Ready-Mix truck and productivity and placing concrete on the differences. Frankly we measured -- we used hydraulic systems and sensors, that we then take that data to cloud and bring in it and manipulate it and feed it back to our customers to improve their productivity.

That is how Verifi work and its a sensor system on what we would describe as the outside of the drum on the truck if you can imagine that. SensoCrete people went at that issue a little differently and they put a probe together that went inside the drum. We think the combination gives us some opportunities relative to improving the data, the accuracy, and some flexibility and how we go to market with what equipment we have.

It had some patentability in terms of that space that we also wanted to own. We didn't pick up sales revenue with the acquisition of the technology but we expected to help us with the growth of Verifi going forward. Frankly it's an area where we wanted that patent protection as well, so from that standpoint that's what we were buying.

And in terms of Verifi, moving the needle, as I've said we are in the introduction stage. We started to ramp up some of our truck installs so we can see when we put equipment on the truck what we're doing and give us a little visibility to the growth rate going out.

I expect to exit 2016 with a relatively good comfort level that would drive a point of growth in 2017 for SCC. That is a magnitude I give you. Is not going to be automatic in the first quarter of next year but we're going to start have enough equipment out there that we can drive in round numbers.

About a point of growth. Take it three quarters to better than a point of growth out of Verifi next year. Then it starts -- these are good margins.

Got you. In your Latin America business is your sales are down 30% or so. How much of that was currency relative to volume and in Brazil I know this is a seasonally light quarter but did you get any or see any sequential declines beyond the general market, [does it] seemed pretty stable in the way you can tell?

If you want more on the currency of late I'll let you ask Dean but let me give you my view.

The numbers I gave you with the 2 points -- 1.5 points of growth coming out of Brazil that is ex-currency. That was volume decline. They currency was much bigger than that.

Our Brazil business with currency is down I know 60% or 70% something that over year-over-year and year to date because the currency is so big. The numbers I talked about, we're really there trying to get a handle on [once] the market bottoming. I can tell you we lapped that at the end -- going into the fourth quarter.

And frankly the volumes and the activity we are seeing in Brazil it's -- I would call it a flat line. I think we're starting to see some stabilization of that market which is good for us. We have very nice position there.

We're looking forward to getting past both currency and the economic downturn and see that marketplace turn. Right now I would call a stabilizing.

Great. The last question, more of a follow-up and sorry for beating a dead horse. I got confused on the answer.

In your cash flow statement (multiple speakers) interest expense benefit of $29 million. And you said then you said you would [adjust it] out of adjusted cash flow. I was curious where that was with a just a timing issue in the $29 million reverses out in the back half as a result of you pay the interest on your debt?

Ivan, so we bridge -- the number you are talking about is a six month number. We bridge net income to the operating cash flow of the business. So we're adding back the effect of the interest expense to the operating cash flow.

So, we also have an offset to that, that is the $29 million -- that's the add back. Then there is a cash offset of $6.8 million, that's the cash that we paid. That bridges about $22 million worth of add back to the operating cash flow number. So to bridge to the free cash is larger -- the pre-positioning expenses some restructuring and some repositioning tax related expenses.

Okay. I'll follow up with you.

Jim Barrett, CL King Associates.

Greg a question for you on the 200 basis points of the SCC business, that you [for went]. Given your market share and some additives, your worldwide market share in concrete admixtures, did that business go to secondary competitors or did it go to your number two competitor?

Was a function of the fact I assume they could simply get lower prices elsewhere? How should we think about that?

It was 2 points of growth is how I'd characterize it. And frankly they all probably end up in different places. This was business that -- I don't know who took it.

Well I know specifically each one but it went too different places. Depending on where it was. One of the pieces of business was in Asia and that probably went to a local producer and there's a piece of it a couple of them that are in central Asia.

I don't know if they went to a large competitor but my bet is it went regional competitor. And then the North American business frankly probably someone that doesn't have a lot of position may have taken business.

Okay. I see. Thanks again.

Ryan Bloom, Hartford.

Yes good morning. I wanted to get a refresh on the cost restructuring initiatives that you had an right sizing the Brazilian and Latin America opps. Is it currently breakeven from operating level, negative? If you can give an update and also from a free cash flow standpoint which is where does Brazil and Latin America stand?

And I then I would have a follow up after that.

Sure I mean we are not going to get into country profitability but Brazil is not a money loser for us. And on terms of the restructuring activities we took some earlier in the year and frankly we're continuing given the commercial organization and size where we would like it to be. We want that organization in place as that market turns around.

And activities we had to do commercially were pretty much done. We're continuing to across the Company to always look for benefits on our overall cost structure in Brazil as part of that view. So does that answer your question?

Dean anything on the cash? He asked about the cash.

What was the question on cash?

Basically also more free cash flow standpoint where it stands. Similarly to give context for profitability not being -- (multiple speakers)

From a working capital perspective we just like the profitability, it's generating positive cash.

Okay. And can I ask, going forward then would you expect free cash flow conversion if you have $100 million this year getting all this headwinds? I assume the benefits from operating profits given the right sizing of the business will enhance the free cash flow prospectively. Do you any orders of magnitude as to benefit you get once you anniversary some of those headwinds?

I think as we've talked about in the past the business generates about $100 million of adjusted free cash and moving forward will continue to expand our cash flow performance both as a function of our EBITDA expansion from a working capital perspective. It's not a significant draw on our cash flow.

We will have debt repayment in the second half of the year and going into next year. I think we talked about -- but again we think that's largely offset as we expand the business and EBITDA. And then as we think about our capital investments we talk about no more than about 4% of CapEx as a percentage of our overall revenue.

Okay great thank you.

(Operator Instructions)

Ladies and gentlemen I'm showing no further questions. This concludes our question-and-answer session. The conference is now concluded.

Thank you for attending today's presentation. You may now disconnect.