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Edited Transcript of AVNS earnings conference call or presentation 5-Nov-19 2:00pm GMT

Q3 2019 Avanos Medical Inc Earnings Call Atlanta Nov 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Avanos Medical Inc earnings conference call or presentation Tuesday, November 5, 2019 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * David Crawford Avanos Medical, Inc. - VP of FP&A and IR and Treasurer * Joseph F. Woody Avanos Medical, Inc. - CEO & Director ================================================================================ Conference Call Participants ================================================================================ * Christopher Cook Cooley Stephens Inc., Research Division - MD * Frederick Allen Wise Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst * John Hsu Raymond James & Associates, Inc., Research Division - Research Analyst * Kristen Marie Stewart Barclays Bank PLC, Research Division - Research Analyst * Marissa Elizabeth Bych Morgan Stanley, Research Division - Research Associate * Matthew Ian Mishan KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst * Ravi Misra Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, and welcome to the Avanos third quarter earnings conference call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Mr. Dave Crawford, Vice President of Investor Relations. Please go ahead. -------------------------------------------------------------------------------- David Crawford, Avanos Medical, Inc. - VP of FP&A and IR and Treasurer [2] -------------------------------------------------------------------------------- Good morning, everyone, and thanks for joining us. My pleasure to welcome you to the Avanos Third Quarter Earnings Conference Call. With me this morning is Joe Woody, CEO. Joe will begin with a brief review of our business performance, and then give an update on our priorities for Q4 and 2020. Then I will review our business unit results and offer details in our financial performance and earnings outlook for 2019. We'll finish the call with Q&A. A presentation for today's call is available on the Investors section of our website, avanos.com. As a reminder, our comments today contain forward-looking statements related to the company, our expected performance, economic conditions and our industry. No assurance can be given as to the future financial results. Actual results could differ materially from those in forward-looking statement. For more information about forward-looking statements and the risk factors that could influence future results, please see today's press release and the risk factors described in our filings with the SEC. Additionally, we will be referring to adjusted results and outlook. The press release has information on these adjustments and reconciliations to compare GAAP financial measures. Now, I'll turn the call over to Joe. -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Dave. Good morning, everyone, and thank you for your interest in Avanos. In the third quarter, we continued to execute against our priorities, including double-digit growth in COOLIEF and positive results from CMS related to reimbursement for knee procedures. That said, we faced specific challenges that resulted in under-delivering relative to our expectations and which could continue to pressure results in the fourth quarter. While we were disappointed by our third quarter underperformance, we remain confident that we have the right plan in place to address the gaps, accelerate growth and deliver shareholder value. Overall, net sales for the quarter were $171 million, and adjusted diluted earnings per share was $0.30. The majority of revenue shortfall for the quarter was primarily driven by approximately $5 million of backorders across our domestic and international regions associated with the implementation of our new IT system. Last quarter, we flagged that fully implementing this system could create challenges and disruption to the business. Introducing the new IT system was crucial for the long-term benefit of the company and value creation. We have experienced temporary customer and supply issues in the implementation that have required manual workarounds, resulting in decreased efficiency. Our internal team is remediating the challenges, and we are working on returning sales to normal levels, though it is possible some backorders may continue into the first quarter of 2020. That said, we are fully focused on resolving these issues in the most efficient way possible. In addition to the supply chain and customer challenges I mentioned, we were impacted by lower Chronic Care order volumes from distributors in the U.S. As we've discussed in the past, inventory levels at our distributors can produce positive or negative variability in our quarterly results as they independently manage their inventory and customer transitions. Importantly, we are not seeing any changes to the underlying Chronic Care market dynamics. International sales in EMEA and Latin America also missed expectations, but I'm confident our international business is a catalyst for growth. We now expect that the third quarter shortfalls will also impact growth plan for the fourth quarter. As a result, we are lowering full year sales expectations from 8% to 10%, to 5% to 7%, which builds in the potential for continued backorders in the near term. Given our lower net sales outlook, we're also revising our full year 2019 adjusted diluted earnings per share guidance from $1.15 to $1.25 to between $1 and $1.10. We remain confident in our long-term strategy and our ability to quickly address these gaps. We're committed to invest in the growth of our business, prudently manage costs and strategically deploy capital to accelerate growth. Now, I'm going to highlight a few critical drivers of future growth. In Interventional Pain, COOLIEF had a strong quarter with over 20% growth. With regards to CMS coverage for COOLIEF, the 2020 final rule was released on Friday. While we felt the initial proposed rules undervalued reimbursement for knee procedures within the hospital outpatient setting, I'm happy to share that new Medicare value for the knee is the same for the SIJ RF procedure. This update makes COOLIEF for the knee viable in a hospital setting again, enabling patients suffering from osteoarthritis of the knee to continue to benefit from our leading non-opioid therapy. We were also actively developing other avenues of growth for COOLIEF. We believe there's more runway for us in spine procedures in the U.S., and there's also an international component to the business that we're investing in. We're excited about COOLIEF's growth potential, especially as we continue to generate compelling evidence on its clinical and cost-effectiveness. Acute Pain performed in line with our plans discussed last quarter and drug supply is returning to market. The drug supply shortage is not expected to be a 2020 performance headwind, but it will take time for the market to return to a steady state. We are highly focused on returning this business to growth and improving overall profitability. Our Chronic Care business remains a stable pool of growth and cash flow. While the backorder issues caused by our IT implementation, primarily impacted these market-leading franchises, overall, this remains a business which we expect to continue to grow in the mid-single digits. In our International business, we had a challenging quarter due to backorder, shipping and supply chain challenges, which was further complicated by product rebranding and high variability in emerging market. Going forward, we continue to expect growth to accelerate across all regions in which we operate. Now, I'd like to turn to M&A, which continues to be a key lever in strengthening our business and accelerating growth. This quarter, we acquired Endoclear, a strategic addition to our market-leading Respiratory Health portfolio. Endoclear brings enhanced clinical tube clearing to our closed suction catheter customers, bolstering our portfolio and allowing us to leverage our existing sales and marketing infrastructure. Following the acquisition of Summit Medical Products into our Acute Pain portfolio, we are encouraged by the initial sales performance and are confident that the Summit will continue to complement our business. In addition, this acquisition has facilitated improved engagement with customers around ON-Q, our non-narcotic pain relief therapy. Lastly, we are pleased with NeoMed's recent performance, which had sales in line with our expectations. We are moving forward and are on plan with the initial stages of integrating these acquisitions along with Game Ready. Looking ahead, we will continue to assess the landscape for additional growth opportunities that bring strategic value and synergies to the business. Before turning the call over to Dave, I want to reiterate that we are committed to our strategy of accelerating organic growth, pursuing M&A and taking out costs. We have taken significant and necessary steps to fundamentally transform the business as the company became independent at the end of 2014. As a result, we are now able to simplify the business with a handful of growth drivers. I am fully confident in our ability to address these near-term operational issues, while focusing on Q4 and 2020 priorities. These include: completing the IT system and processes stabilization; returning Acute Pain to growth; investing in COOLIEF and CORPAK as catalysts for growth; continuing to strategically deploy capital; integrating acquired assets and delivering synergies; and executing on our cost savings targets and developing additional savings opportunities. I will not turn the call over to Dave to walk you through the financials. -------------------------------------------------------------------------------- David Crawford, Avanos Medical, Inc. - VP of FP&A and IR and Treasurer [4] -------------------------------------------------------------------------------- Thanks, Joe, and good morning, everyone. Before I review our results in more detail, I want to first discuss the status of our IT implementations and the actions we are taking to remediate the new system and processes. Introducing the new IT system was a major milestone in our transformation, and overall, we're pleased with it. Since the August launch, we've been able to effectively take these orders, manufacture products, collect cash from our sales and report earnings. With a project of this magnitude, it's not surprising to encounter challenges that require temporary manual workarounds, resulting in short-term decreased efficiency from the change in processes. Overall, the peak of the number of issues is behind us, and we are not seeing new ones develop. As we move forward, we are working to address 3 main issues: 1, change management on the new technology and business process; 2, order-to-shipment process efficiency; and 3, cash receipts and disbursements efficiency. Rest assured, we're making system stabilization and process improvement a top priority. Already, we are beginning to see the benefits of a single-system in viewing our inventory on a global basis without the need for off-line data reconciliation by our team. We remain confident that over the course of the next several months, we will continue to improve performance and efficiency. Transforming our cost structure is a top priority and our IT and back-office infrastructure is part of the cost savings we continue to expect to generate over the next 2 years. This, combined with savings in manufacturing and other areas in SG&A, equates to the $12 million to $16 million in cost savings, which we are confident we will deliver next year. Now, I'll shift to a review of our third quarter results. Overall, we delivered a $171 million of net sales, a 4% increase compared to the prior year, and adjusted diluted earnings per share of $0.30. Sales from NeoMed and Summit Medical contributed 6% to our growth. Organic volume fell less than 1% and unfavorable product price and mix declined 1%, which offset growth from our acquisitions. COOLIEF, again, grew double digits and had its highest quarterly growth this year, bolstered by our direct-to-patient advertising. While we're pleased with the continued strong demand for the therapy, growth was slightly below our expectations as we have seen several customers move from multi-probed kits to standard kits, which drove an unfavorable sales mix. We continue to build a compendium of clinical evidence and invest in additional studies to enhance private payer coverage. In September, the Pain Physician Journal published a large retrospective study that reinforces the clinical effectiveness of COOLIEF in treating chronic knee pain and providing long-term relief. As highlighted earlier this year, we're also conducting a large, multicentered, prospective clinical trial to evaluate the effectiveness of COOLIEF compared to hyaluronic acid injection. Clinical outcomes data which confirms the long-term effectiveness of COOLIEF for the treatment of OA knee pain, have been accepted for presentation at several industry-leading conferences, 4 of which will take place this month. To help disseminate this data to a broader audience, including pain physicians, orthopedic surgeons and rheumatologists, our team is holding symposium at key conferences. In Acute Pain, we are encouraged that ON-Q and IV Infusion delivered results, in line with our expectations. ON-Q sales were down mid-single digits for the quarter and sales through Leiters, again, increased by double digits sequentially. Turning to Chronic Care, as Joe discussed, performance was primarily affected by the product backorders and supply chain issue. In addition, we saw an expected decline in purchases due to drawdown of inventories at certain distributors. Overall, we continue to view Chronic Care as a mid-single-digit growth business. Our tracing data supports consistent growth, and we have retained all of our key accounts and don't see any changes in the underlying market dynamics. Moving to our International results, sales were impacted by backorder and supply chain issues. Mitigating these challenges was complicated by the Avanos rebranding in some countries. Results did fall short of expectations, partly due to tenders won by our team in Latin America that have yet to be converted to orders. Sales in our EMEA region also trailed our forecast, largely due to delayed uptake in market development growth in our Pain Management businesses. Despite this quarter's performance, the International business remains a key catalyst in our overall growth, and we are confident we will work through this temporary setback. In our Asia-Pacific region, where we've had a team in place since last year, we saw a double-digit growth for the quarter and just below double digits for the year. We're encouraged by these results and believe there is a similar opportunity in our other regions. For the quarter, adjusted gross margin of 57% was unfavorable compared to last year. We anticipated a lower-than-normal gross margin for the quarter as implementing the IT system required taking down and restarting our manufacturing facilities. Additional pressure stem from an increase in distribution cost related to alleviating customer backorders. Adjusted operating profit totaled $21 million for the quarter compared to $25 million a year ago as results were impacted by the decline in gross margin. Adjusted EBITDA for the quarter was $25 million compared to $28 million a year ago. Adjusted net income totaled $14 million compared to $18 million a year ago. Shifting to our balance sheet, we ended the quarter in solid financial position with $214 million of cash on hand. Free cash flow was an outflow of $24 million due to spending on one-time items and an increase in working capital related to the new IT system. As during the quarter, some electronic data invoicing to customers required temporary manual intervention, which delayed our billing process and the collection of receivables. As Joe mentioned, we revised our full year 2019 outlook, which now includes Summit Medical and Endoclear. Due to this quarter's results, the expectation that these factors, at some part, will also impact fourth quarter, we now expect constant currency sales growth of 5% to 7%. Given the adjustment in our sales expectations, we're revising our adjusted diluted earnings per share to $1 to $1.10. In summary, we are confident we're taking the necessary steps to create shareholder value, while focusing on our fourth quarter and 2020 priorities. With that, operator, we're now ready to take questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from Chris Cooley with Stephens. -------------------------------------------------------------------------------- Christopher Cook Cooley, Stephens Inc., Research Division - MD [2] -------------------------------------------------------------------------------- Just 2 for me, and I'll hop in queue. May be Dave, on that last point on gross margin, if you would just maybe help us parse out a little bit more the impact from the IT system integration relative to just the mix that you saw in the business and the volumes. I appreciate the schedule that you guys provided, but that would only imply about $2 million roughly of a hit from the post-divesture IT issues during the quarter. So I just want to make sure I can kind of true-up back to kind of a prior year period. Then I have a follow-up on growth. -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [3] -------------------------------------------------------------------------------- Chris, this is Joe Woody. I will tee it up a little bit and say a few things and then Dave can weigh in. But last year, we did experience a 65% gross margin with high productivity. And what you're seeing in this quarter is with the IT system, we had our plants down in the quarter, and equally, we had high distribution cost as we saw this backlog, things like airfreight. And there's a little bit of a mix piece as well as NeoMed came in with a lower gross margin. We have a plan to quickly get that up to our standard gross margin, and you see a little bit of the Acute Pain sales down where we have a high gross margin. There is an impact there that you see but we still feel like for the full year that we've got gross margin for the -- for about 60% or so. But Dave, you may want to add to some of that? -------------------------------------------------------------------------------- David Crawford, Avanos Medical, Inc. - VP of FP&A and IR and Treasurer [4] -------------------------------------------------------------------------------- Yes, I think, as Joe indicated, those were the main drivers of what moved it. I think, obviously, the biggest impact in our normal margin would have been having our plants down roughly a week and then taking the time to start those plants up. Obviously, you don't get those back up to normal efficiency day 1, especially with the new system that the teams were operating in at those facilities. And -- so that probably was the biggest driver, overall, Chris, relative to having margin being down this quarter. Obviously, we did not expect the increased distribution costs as we put together our plan, but those were necessary as we encountered some of the backorders. And some of the backorders, a little bit more color on that, was more in Chronic Care specifically in our Digestive Health category, which had some favorable margin relative to our normal or average margin. So that was the driver as well. -------------------------------------------------------------------------------- Christopher Cook Cooley, Stephens Inc., Research Division - MD [5] -------------------------------------------------------------------------------- Appreciate the additional color there. And then maybe just lastly for me, and then I'll get back in the queue. Very pleased to see the enhanced reimbursement for COOLIEF. I think it's well deserved there. Can you talk a little bit about your investments going forward as you talk about maybe a little bit more aggressive distribution of that technology, both for other indications here in the United States outside of the OA indication, but also international expansion? Just kind of what we should assume in terms of incremental investments and when those initiatives should start to contribute from the top line perspective? -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [6] -------------------------------------------------------------------------------- Chris, Joe Woody, again and thanks for the question. I think the way to think about it, let me just a couple of things. One thing is that we've got good momentum in that business, again, 20% growth, but we were very happy about. Obviously, the result that we got, it could have been very negative, but the team here and our consultants worked very hard to get that reimbursement final decision lifted and raised. So we now have the same reimbursement as we have today. So I want you to have the understanding that, that reimbursement had been in place on an organic code. Then the other thing is that we now have a dialogue open with CMS. So there's an opportunity for us to work with them on the Ambulatory Surgical Center over time, which we believe, would bring in orthopedic surgeons and not just interventional pain specialists. I think, you can see that we'll sort of probably moderate some of the investment initially because this is what's going to happen. Commercial payers are generally going to react negatively and want us to complete the clinical studies that we have in place, specifically, HA, and we do have one in 2021, that is comparing standard and cooled. And then in the second half, you might see us then raise a little bit of that investment in COOLIEF, but not to the extent that we did this year, where we added the reps, we already got them in place or we went extremely heavy on the DTP. We do feel like we'll have some DTP investment in this business because we saw that it does generate and now I think with the reimbursement in place and more interest from physicians, but not expanding necessarily the field sales force. That's a possibility out in 2021. Dave? -------------------------------------------------------------------------------- David Crawford, Avanos Medical, Inc. - VP of FP&A and IR and Treasurer [7] -------------------------------------------------------------------------------- Yes, and Chris, I'll add to Joe's commentary. If you think the last couple of years following us since the announcement of the S&IP divestiture, we've increased spending substantially related to investment behind COOLIEF in our international regions to get that to a level that it needed to be at. Obviously, we're not going to give guidance right now for 2021, but I don't think, we would expect to see the same level of step-up in investment next year. We've kind of got it to where it needs to be. We can make some tweaks on how we spend that money in different levels, but again, shouldn't see the big step-up that we've done over the last 2 years. Some of the things are in place, whether it be, as Joe mentioned, DTP, we've done that. We've also started spending money in International to get behind this therapy with some additional resources there. So I'll leave it with just -- I think we're at a good level of spending and any spending that we do increase will be kind of on the margin and not the significant ramp-up that we've done in the last couple of years. -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [8] -------------------------------------------------------------------------------- Yes, really the stage has been set. I mean, here's a way we think about it: we got the clinical studies in place, now they're going to come to an end sort of HA in the middle of 2020; and COOLIEF and standard RF into 2021. We expanded the sales force last year. We did a real big push in DTP, and now we have the right reimbursement decision and we can moderate our investment won't be anything like it was last year. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- Our next question comes from Matthew Mishan with KeyBanc. -------------------------------------------------------------------------------- Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [10] -------------------------------------------------------------------------------- Great. First off, Joe, Dave, when we think about some of the headwinds that are impacting 3Q and are moving into 4Q, do you necessarily lose any of those sales? Or is it just push to -- or some of it's just pushed out into 2020? I'm just trying to understand what's transitory delayed versus something you may have lost? -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [11] -------------------------------------------------------------------------------- Yes, I'll say couple of things, I'm sure Dave will weigh in. We do believe that the backlog issue is going to carry into Q4. Inside of that, where we had inventory issues and visibility. And the cycle times really doubled from the product development all the way to sterilizer from the plant. We think that's continuing. Inside of that, there's also some rebranding going on. To give you a specific example, in Europe, where we aren't fully registered with our Avanos branding, and we have hired inventory and that was limited and part of that limited visibility that the supply chain experience. So we're being, I think, accurately cautious in thinking that it could continue into Q4. That said, we're making progress every day against that backlog that we had. We do think that we can lose some customers in this scenario, yes, I think we wouldn't lose them permanently, no. But there are other issues associated with the implementation of the IT system like credit holds and some invoicing and customer service. So that's where we are on it. -------------------------------------------------------------------------------- David Crawford, Avanos Medical, Inc. - VP of FP&A and IR and Treasurer [12] -------------------------------------------------------------------------------- . The only thing that I'd add, Matt, I think as we look at it, we will experience some of this business that if a product was needed and it was not available whether it be direct or because it was getting ordered through a distributor that would be a lost sale in that aspect and that's why we're reflecting it in the change in guidance. As we work through and the backorder situation is improving, hopefully, this is one thing that won't really be an issue with it going to the beginning of next year. Though, we're still working through the backorders today. -------------------------------------------------------------------------------- Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [13] -------------------------------------------------------------------------------- Okay. Fair enough, and then just a follow up on COOLIEF. I guess, what has changed from a reimbursement level like versus before the first proposal? I think the first proposed rule was a negative to hospital then you get it enhanced back up. Like what's change in that versus what you had initially? And then why do you think you can get -- or did you get the level of reimbursement you were expecting from physician offices and ASCs? -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [14] -------------------------------------------------------------------------------- So on that -- the easiest way to think about the code from the hospital outpatient department is that what was proposed was $800 for the facility, and we ended up all the way back up to $1,719, or $1,719, which is really akin to what we see in the spine area. So that's really, really positive. On the physician side, really in all the categories, the physician payment went down, but we don't think that, that went true -- true in the spine, and true from what was -- actually what was proposed stayed the same for us in the knee, but we don't that will inhibit the procedures. The reason that we think that there is an opportunity in the ambulatory surgical center is, there's been a decision by CMS to move this into an office category because they are just -- the part of CMS that makes these decisions is uncertain where most of these invoices happen or procedures happens. And so we are really feeling like we have an ability to work with the consultants or am group that can quickly show that pretty much all of these procedures are in the facilities. So moving to the facility payment, we're at sort of in the $350 range today in ambulatory surgical center. There's a possibility we can move that over time to $800. And there would be a physician fee associated with, for example, an orthopedic surgeon, doing that in the ambulatory surgical centers. So every quarter, this is looked at. We're going to have a chance to comment on it. It's probably more of a mid-term opportunity to long-term for us. And what I would say about that is that, longer term, I think orthos those could be interested in doing this because they're used to bundled payments in the ambulatory surgical center and they're trying to get the catchment of these patients, so that, ultimately, they get the total knee repair. I don't know if Dave wants to make a comment? -------------------------------------------------------------------------------- David Crawford, Avanos Medical, Inc. - VP of FP&A and IR and Treasurer [15] -------------------------------------------------------------------------------- I mean, the only thing I'd add too, Matt, to this is you also think from a reimbursement standpoint, we also are focused on the private payers, and that, that's a little bit longer of a journey, but we continue to make progress with our clinical trials -- our clinical studies, excuse me, are relative to COOLIEF. As Joe talked earlier, we have one that's starting up comparing COOLIEF versus standard RF. We've already had the steroid study complete, and we'll be showing data here in the next couple of weeks with respect to the hyaluronic acid for the first full year part of that study. And so that journey continues with the private payers as well, which is also an important part of getting COOLIEF more fully reimbursed. -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [16] -------------------------------------------------------------------------------- I think it's really important, what Dave said, and I think everyone on the line has seen this with other technologies. You get your code with CMS, and then you really have to have all of your clinical studies complete. And for us, the big one really is around July of 2020 with HA and then further to that standard, which is really what the payers are going to be looking to. Doesn't mean that we're not going to be doing business or we're not going to grow our business, but the real uptick that people are looking for sort of pushes out to the end of '20. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- Our next question comes from David Lewis with Morgan Stanley. -------------------------------------------------------------------------------- Marissa Elizabeth Bych, Morgan Stanley, Research Division - Research Associate [18] -------------------------------------------------------------------------------- This is Marissa Bych on for David Lewis. I have 2 quick questions. The first one would just be, as we think about 2020 margin expansion, to what extent do these third quarter issues bleed into 2020 by your best estimates? And what's the right way to think about next year? I think, consensus has about 4 points of leverage at this point. So can 2020 be 2x or more the expansion that we're going to see in 2019? Or would it be a little bit below that given the issues you have here? -------------------------------------------------------------------------------- David Crawford, Avanos Medical, Inc. - VP of FP&A and IR and Treasurer [19] -------------------------------------------------------------------------------- I'll try to address that question, first, Marissa. As we think about 2020, obviously, we're still putting our plans together with respect to that. You have to think there's definitely margin or leverage that we can get from our cost savings initiatives. One is of the carryovers and the impact of kind of resetting guidance here is we will have to reset compensation in some aspects for our short-term incentives and sales commissions. Those have been, unfortunately, favorable adjustments that we've made the last couple of quarters that we are all hoping to get added back to our P&L next year as we deliver our plan. And that will offset a significant portion of the savings as we go into next year. And then you look at the, there's going to be several moving pieces, obviously. We won't see the uplift in spending, we've kind of commented on that, reflective of some of the investment. And so hopefully, we get a little bit of margin expansion from the top line growth of the business. -------------------------------------------------------------------------------- Marissa Elizabeth Bych, Morgan Stanley, Research Division - Research Associate [20] -------------------------------------------------------------------------------- Okay. Great. That's Helpful. And then just one quick follow-up on ON-Q supply. I think we saw Hospira come back online, this quarter, I want to say early October. Is there any visibility that you have into how that impacts recovery timing? And then, is mid-single digit the right way to think about 2020? I think last time, you had mentioned maybe a cadence of low single-digit to mid-single-digit growth in the Acute Pain business over the course of next year. If there is anything you can share with us on your expectations there, that would be great. -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [21] -------------------------------------------------------------------------------- Yes. Marissa, this is Joe Woody. So ropivacaine looks to be back into the market, bupivacaine is not completely back in the market. And just, again, for everyone's education, it's 70% ropivacaine, 30% bupivacaine. And so what that means for us is the drug is back available -- starting to get back available almost in entirety. But what we really have to do is resell the business to customers that were doing business with Avella and PharMEDium. And they have now moved on to other solutions, as we mentioned on a couple of the other calls. And not unlike Leiters, which continues to be very successful and growing nicely. It can take several months to get folks moved over and get processed, not only with just the discussions with them about doing that, but then their own processes of changing their contracts and their protocols. So we feel a lot like the Leiters process and getting them back. And what we sort of feel like is that, it's more of a flat type of a business in 2020, with a low single-digit growth emerging in the back half of the year. We do think long-term, potentially, we can move that up, as you suggested. So that helps give you maybe a timeline. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- (Operator Instructions) Our next question comes from Kristen Stewart with Barclays. It appears we don't have Kristen. Now, we will move on to Ravi Misra with Berenberg Capital Market. -------------------------------------------------------------------------------- Ravi Misra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [23] -------------------------------------------------------------------------------- So just my first question, I wanted to go back to, if I could, Chris' question around gross margin. With -- just hoping you'd help us quantify some of the level, maybe directionally. Last quarter, it was a similar sales base, and you were looking at kind of 60% gross margin. I think after that call last quarter, you said the third quarter would be a little bit below that. Would it be fair to say that if we kind of adjust for all these margin-related call outs in the third quarter, the gross margin level would've been closer to kind of your original expectations after the 2Q call? -------------------------------------------------------------------------------- David Crawford, Avanos Medical, Inc. - VP of FP&A and IR and Treasurer [24] -------------------------------------------------------------------------------- Yes, Ravi, I'll take that one. I mean, we definitely expected to have a sequential decline in margin given the shutdown of the plant. Hard to exactly predict that as we think about how long they're going to be down and how quickly they get ramped up. From a modeling standpoint, it was a challenge for the teams to effectively estimate that, given we've never done it before, but that's the biggest driver. And then what was not planned was really around kind of the distribution aspect of the business. NeoMed, as Joe mentioned, was a drag on that sequentially as well. We are confident we can get that back up to kind of the average margin of the business as we get to the synergies over the next 2 years for that. But again, I would really, really emphasize that plant downtime and then the startup of the plants and getting them up to a more normal efficiency was the biggest driver, and then some of the distribution cost associated with trying to relieve the backorder situation at the end of the quarter was the second piece to that. -------------------------------------------------------------------------------- Ravi Misra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [25] -------------------------------------------------------------------------------- Okay. Great. And then just on ON-Q, I appreciate the color for 2020 around that flattish growth. Just curious, if you can explain to us a little bit, kind of what's in your control here and then what's out of your control in terms of how the hospitals go about securing that sale? Or whether you can drive contracts with your customer ahead of them securing those bills? Just walk us through the sales process there now that supply looks to be rebounding a little bit? -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [26] -------------------------------------------------------------------------------- Yes, I mean, ultimately, as you get drug back, that's a great thing, and that puts a bit more in control for us. There is still really only one 503B that really can solve the solution for our customers. At Leiters, thankfully, we have the sole source relationship with them. But essentially, many of these customers have likely moved on to their own use of -- sorry, opioids, or their own local shots, or a completely different approach to treating these patients. I think, we can get a greater majority of them back over time, but again, as we experienced with Leiters, that timing can be several months, and in some cases, that could be up to a year for an account. The difference now, though, and the positive for us is what we know was working with us was the cadaver labs, talking to surgeons, getting our education and our clinical studies out, and we now have ways and avenues that are very different than one solution. So over time, I'm very confident about us getting back to the kind of position that you've seen in the past. We just are really making sure that everyone understands. It's just not an automatic that in the fourth quarter, you're going to see that kind of pop. -------------------------------------------------------------------------------- David Crawford, Avanos Medical, Inc. - VP of FP&A and IR and Treasurer [27] -------------------------------------------------------------------------------- I think this is also an area where bringing in Summit as the different solution with the electronic pump clearly helps, it has helped improve the conversations with some accounts. And as we continue to bring that into the portfolio, get our reps trained on that, it can be additive to the portfolio as well in not only retaining customers, but also getting customers back and moving forward with more people adopting the therapy. -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [28] -------------------------------------------------------------------------------- I think that's a good point that Dave makes. I mean, we are experiencing a real positive reception from customers on the Summit acquisition. They understand and we can show them pathway of our innovation on that. They're excited about the relationship with BioQ that we've put in place. So really -- in terms of pumps, and us been the market leader, everything coming back. We've got the best solutions in place, and, frankly, we've got the best breakthrough work going on. So for that segment of the market, that's outside of the longer-acting local, we're going to be in good position over time. So that I'm happy about. -------------------------------------------------------------------------------- Ravi Misra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [29] -------------------------------------------------------------------------------- Great. Thanks. And then maybe just one last question, or maybe 2 last questions. Just one easy one, the FX impact that you're now expecting for the full year. And then second one, the questions that we've been getting on the road a lot for -- regarding the company is, can we get an update on the CFO search? And I don't think you guys provided one in the prepared script. So any info you can give us there? -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [30] -------------------------------------------------------------------------------- Yes. I'll take the CFO and then I guess Dave is waving his hand and wants to talk a little bit about currency. Look, this is a still a very compelling story. It attracted me from a standpoint -- look, there is complexity, we are transforming the business, we've done a lot of things, some have gone well and some have not. And I think that the interview candidates can see that. And then we're actually getting to a point where you start to look out. A new year from now, we get a lot of these things that are headwinds in our rearview mirror. We have been close with a candidate that we just couldn't fully get to agreement on that we thought we were home with. In the meantime, Warren, who -- MacHan who was the CFO of the division is doing an outstanding job. Also Dave is taking on some of those roles and doing a great job for us along with the team. We have a good list now and we are now progressing the next in line and a few new candidates. So I think our new sort of target, you can never predict these things like M&A, is to get something done by the end of the year, it may not have squeezed completely into the fall. But happy with the slate that I'm seeing. And Dave, you want to mention? -------------------------------------------------------------------------------- David Crawford, Avanos Medical, Inc. - VP of FP&A and IR and Treasurer [31] -------------------------------------------------------------------------------- Yes. On your currency question, Ravi, currency has been a slight headwind, less than 1 point, pretty much all year long. It's going to be less than 1 point, we would anticipate, this year of a headwind to the business. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- Our next question comes from Kristen Stewart with Barclays. -------------------------------------------------------------------------------- Kristen Marie Stewart, Barclays Bank PLC, Research Division - Research Analyst [33] -------------------------------------------------------------------------------- Can you hear me now? -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [34] -------------------------------------------------------------------------------- Kristen, we can hear you now. I don't know what happened. -------------------------------------------------------------------------------- Kristen Marie Stewart, Barclays Bank PLC, Research Division - Research Analyst [35] -------------------------------------------------------------------------------- Glad you can hear me now. So I just wanted to go back to COOLIEF. I just wanted to understand the reimbursement because it is kind of confusing. So the $1,700 that the new rate is for hospital outpatient, how does that compare to kind of the average reimbursement that was in place? Because my understanding was that you could book some modifiers and so the average reimbursement that a typical hospital outpatient could get was actually, I guess, generally higher. I guess, what's kind of like where the net reimbursement has moved? I guess, it's higher than generally speaking but just -- I don't know if you have a sense for where it is now -- an average kind of hospital was getting? -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [36] -------------------------------------------------------------------------------- Yes. So very similar to the average that the hospital was getting, we're going to be at $1,719 for the facility and about $153 for the physician. The difference is that we can't do multiple nerves beyond 3. That's the package that you get as a lot of this is going to bundling, as you know sort of one payment for everything on the procedure. We've worked a lot with our existing customers, and obviously, a lot of them were directly involved in the help that we had between the Hill and also our consultants to look and do this. And I think we're in a space now where we feel very comfortable that they are going to utilize this procedure for the knee in the HOPD. And you know we are now out of the situation and I think I saw you right up where it could have been somewhat similar, but it could have been, obviously, bad for us, had this gone the other way and those knees weren't available to us. -------------------------------------------------------------------------------- Kristen Marie Stewart, Barclays Bank PLC, Research Division - Research Analyst [37] -------------------------------------------------------------------------------- Okay, so the way to think about it is that it removes kind of that downside risk and so this is net-net a positive and kind of can keep you growing COOLIEF at that double-digit pace from here on now? -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [38] -------------------------------------------------------------------------------- Yes. And then I think the other thing it does for us, as the studies come through, we now have a leg to stand on when we go into these commercial payers and talk to them, and say, look, CMS has a code for this, and, obviously, if you managed Medicare you sort of have to follow the -- along with the Medicare. And you get out a year from now towards the end of this year and then beyond the 2021 when all these studies are done, then it becomes very powerful. But I think you're thinking about it the right way. -------------------------------------------------------------------------------- Kristen Marie Stewart, Barclays Bank PLC, Research Division - Research Analyst [39] -------------------------------------------------------------------------------- Okay. Great. And then you mentioned there was a shift from the multi-probe kits to standard kits and that was kind of an adverse mix. What exactly was that? And is that something that you would expect to continue? -------------------------------------------------------------------------------- David Crawford, Avanos Medical, Inc. - VP of FP&A and IR and Treasurer [40] -------------------------------------------------------------------------------- So we sell a single probe kit that if you're doing burns on a knee or back, you just use that. You place it once to a burn and then you place it 2 or 3 other times depending upon the number of burns that are necessary for the procedure. An alternative and at a higher price point is our multi-probe kit that allows the physician to place all 3 or 4 probes at one time and do the burns at the same time. The more efficient process for the physician. You can do more patients that way, but we do charge a premium. So we saw, unlike in the years past where we'd actually moving people to that multi-probe kit, we saw more people go back to the standard kit, which is a less expensive option for them. Tough to say whether or not it will continue as we go forward. It wasn't a significant headwind, but it was one that definitely impacted versus our expectation for COOLIEF. -------------------------------------------------------------------------------- Kristen Marie Stewart, Barclays Bank PLC, Research Division - Research Analyst [41] -------------------------------------------------------------------------------- Okay. And then my last question is, what is the organic growth guidance for the full year? I think, you've obviously, revised the range, I think, last time organic was around 2% to 4%. If I'm looking at it correctly, is it now around down 1% to up 1% for organic? -------------------------------------------------------------------------------- David Crawford, Avanos Medical, Inc. - VP of FP&A and IR and Treasurer [42] -------------------------------------------------------------------------------- You got it right, Kristen. -------------------------------------------------------------------------------- Kristen Marie Stewart, Barclays Bank PLC, Research Division - Research Analyst [43] -------------------------------------------------------------------------------- Okay. Great. And then just in terms of last year, it sounds like some of these issues are likely to persist into early in the year, so it sounds like we should expect some continuation to these headwinds? And then as we look into late 2020 some moderation. So just kind of think of next year, kind of an improving trend, I guess, when you guys ultimately give 2020 guidance? -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [44] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Operator [45] -------------------------------------------------------------------------------- Our next question comes from Lawrence Keusch with Raymond James. -------------------------------------------------------------------------------- John Hsu, Raymond James & Associates, Inc., Research Division - Research Analyst [46] -------------------------------------------------------------------------------- This is John Hsu on for Larry. I just had a couple. If we could just stay on Kristen's question for a second. Just -- as far as the change in guidance, I think you took things down by 3% at the midpoint. Can you just walk us through the backorder impact? You said that's about 80 basis points, I believe. But then distributor destocking, international sales shortfall, partially offset by Endoclear. Could you just maybe walk us through those 3 pieces that gets us to the new range from the old one? -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [47] -------------------------------------------------------------------------------- Yes, John. As you look at that, clearly we have the impact that's rolling through this quarter relative to our expectations, which is about half of bringing that down. And then you have the continued piece relative to potential risk and the backorders going into the fourth quarter, that's partly reflected in there as we look at Chronic Care. And the start of the sales in October, we continue to see some of the distributors pulling down what would -- on their sales and look to be adjusting our inventory. So we're reflecting that into the guidance as well. We've talked to those distributors and they communicated they're going to get back to a more normal level or start rebuying at a more normal monthly level. But October was off to a little bit of the slower start, similar to where we saw in the end of last quarter. And then the other piece is International. So we had some tenders won in the first half of the year. We had been counting on those to come through. A lot of those were in Mexico, but with the government change, that we have not seen those orders come through, unfortunately. And then some of the acceleration we had hoped for with respect to the EMEA Pain Management business, both in Acute Pain and the Interventional Pain that is falling short of expectation. We had hoped to cover some of that with a little bit stronger Chronic Care sales, but that's an opportunity that is not now going to present itself. So those pieces are pretty much the bigger drivers of the revision relative to guidance with the hardest part to predict is really how we address the backorders, and to the earlier question, what part of those are sales that we actually missed because we didn't have product available for our customers. -------------------------------------------------------------------------------- John Hsu, Raymond James & Associates, Inc., Research Division - Research Analyst [48] -------------------------------------------------------------------------------- Okay. Great. And then I also got the comments that you still feel very confident with the focus on IT that you can get the savings of $12 million to $16 million in 2020. But can you just speak to the confidence in the long-range margin targets? I think you've thrown out there that you expect EBITDA to move to the mid-20s range, but exiting 2021. So just where we are now? Do you expect that to shift at all? -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [49] -------------------------------------------------------------------------------- I'll say a couple of things, and then I think maybe Dave will make a comment or 2 because that's generally like the plan and the metrics, are they intact. So we're clearly behind with this quarter and what we're saying will continuing into Q4. The main driver, obviously, has been Acute Pain, which started on the supply dislodgment that we've talked about. We definitely need to accelerate organic growth. We're committed to the cost up, but we believe it now, we need to go further and I -- you can expect more cost out coming from us. I don't see the peak metrics being reached on margin in 2021. But I do see that, over time, we can get there. And then there's sort 3 things that change that as a variable. Obviously, to the extent that we can accelerate the organic growth, number 2, the more cost beyond what we already talked about; and number 3, obviously, the things unique about the company of our size is the M&A and the capacity that we still have in the [400 to 450] range. So it's going to be getting there a bit of a different way and the timeline obviously, slightly different as well. -------------------------------------------------------------------------------- Operator [50] -------------------------------------------------------------------------------- (Operator Instructions) our next question comes from Rick Wise from Stifel. -------------------------------------------------------------------------------- Frederick Allen Wise, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [51] -------------------------------------------------------------------------------- I'm joining -- jumping between calls, and I want to go back to the IT question, again. I know you've answered it in part, but I just wanted to make sure I'm clear. What -- the system came on in August, so it was before the end of last quarter. And I'm not quite clear, what happened, did it not happen -- whatever the issues were didn't come up immediately? And how confident are you that the IT issues have peaked? Just help us understand your visibility on that. And how completely you feel like you've derisked it? -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [52] -------------------------------------------------------------------------------- Yes, no problem. This is Joe Woody. One of the things that I think about as we are up and running, working, we're billing customers, we are closing our business, we now understand that loss of visibility that we had in supply chain and, Rick, earlier on the call, we were talking about what essentially caused us a problem was the inventory cycle times doubled from the plant to the sterilizer to the customer. Another piece inside of that is that we're having a rebranding going on, so a level of higher inventory versus Avanos inventory in International, where you're not register became a factor as well and this was all largely Chronic Care related. I have seen tremendous progress since August 1 in the go-live. And these teams were, basically, a big change process kind of where they're learning new terminology, they're learning new systems, there's a training element to it. And I feel like that we're really getting our hands around this, but we're being very cautious about it, and particularly the International side of this, these backlogs in the event that we carry on. And in fact we have a backlog right now into Q4. Internally, we've sort of characterized it, and if you want a football analogy is that we're running the wishbone with an old IT system, and we're now running the run and shoot. And you move -- that caused a lot of issues, but the most major really was that inventory build and the ability to see the inventory. We just recently been visiting with our Board, and we showed them what we're doing in the war room. So I do think that we're going to be out of this thing as we get into Q1, but we, obviously, need to be cautious in Q4. -------------------------------------------------------------------------------- David Crawford, Avanos Medical, Inc. - VP of FP&A and IR and Treasurer [53] -------------------------------------------------------------------------------- Other color I would add, Rick, to Joe's response is, the system itself is working appropriately and to our expectations. It's really the big -- biggest thing is those change in processes and getting used to, obviously, a different system, trusting the system that's in place, you are seeing reports that are slightly new and people are having to learn and adjust to those and making sure that they have confidence in what is being generated out of it. As they do see that and is backed up with information from other teams, that's where we're getting really the benefit of going forward. If I just throw a couple of examples, though. It took us pretty much the entire month of August to close the books. That was, essentially cut in half for the month of September, as we've gotten familiar with this. We are seeing more efficiencies on looking at things from a global basis. So it is working appropriately and we are making significant improvements in efficiency. It's unfortunately, we probably had a little bit more issues than we anticipated relative to some of the cycle times. When we kicked this thing off on August 1, we were shipping orders to an equivalent level almost immediately or just within a few days. It really became an issue relative in September in trying to replace and refresh the inventory at our distribution centers and internationally. -------------------------------------------------------------------------------- Operator [54] -------------------------------------------------------------------------------- Our next question comes from Kristen Stewart with Barclays. -------------------------------------------------------------------------------- Kristen Marie Stewart, Barclays Bank PLC, Research Division - Research Analyst [55] -------------------------------------------------------------------------------- A follow-up. I was wondering if you guys could just give an update on your cash flow expectations for the year. And just going forward, it just seems like -- I'm just curious if there's going to be any added expense just for the IT infrastructure changes or anything like that? And then just how we should just think about cash flow generation profile of this company? -------------------------------------------------------------------------------- David Crawford, Avanos Medical, Inc. - VP of FP&A and IR and Treasurer [56] -------------------------------------------------------------------------------- Yes. I'd say the biggest impact in cash flow in the third quarter, unfortunately, was working capital. One of the processes, things that changed relative to receivables impacted that. We definitely saw an increase in our receivables, we're working to get that back. So that as we go through and get back to a more normal level will be a positive impact to cash flow, whether it all comes back during the fourth quarter, I believe, in the next year. We'll see how that happens but the team is definitely working on it. I think you've seen our big reduction in capital spending. So were getting new more normalized level there that happened in the third quarter. We did have some elevated one-time cost around some of the things we're doing from an acquisition, integration standpoint. We had some higher legal cost, we're beginning to hopefully get to a level where we'll start to wind those down as well. So as we get into next year, we're definitely looking to have favorable cash coming into the doors as opposed to going out as we build our plan. -------------------------------------------------------------------------------- Kristen Marie Stewart, Barclays Bank PLC, Research Division - Research Analyst [57] -------------------------------------------------------------------------------- Okay, and then just to go back, I just want to make sure I heard clearly on the ON-Q site. Joe, I think you had said for ON-Q next year, you were thinking, that could be more of a flattish business, sounded like maybe a little pressure earlier in the year as drug supply makes its way back into the channel, and then kind of exiting the year more a little bit of a low single-digit growth, and then maybe looking out more into 2021 get back more to that kind of mid-single-digit growth profile. Sounds like COOLIEF is still now intact with reimbursement, looking like it's flat or maybe even a little better with what's currently in place. Is -- does that sound about right? And then maybe Chronic Care probably still you're confident in kind of that mid-single-digit growth profile? -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [58] -------------------------------------------------------------------------------- Yes, you got it right. -------------------------------------------------------------------------------- Operator [59] -------------------------------------------------------------------------------- Our next question comes from Matthew Mishan with KeyBanc. -------------------------------------------------------------------------------- Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [60] -------------------------------------------------------------------------------- Just a quick one for me. You guys mentioned that cycle time to sterilization has been extended. Are you guys having issues with contract sterilization and running into some delays there? -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [61] -------------------------------------------------------------------------------- Not to the scale that you see some of the other medical device companies. We've got a couple of smaller product lines, one would be Microcuff, as an example, where we're seeing a little bit of an issue in Q4 but not at magnitude because the team has done a good job of having multiple sterilizer companies that we work with and also geographic locations. So less of an extent for us. I do know that, that is a big trending issue for most medical device companies there right now. -------------------------------------------------------------------------------- Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [62] -------------------------------------------------------------------------------- And then I apologize to the employees of Avanos for asking this. But would you guys have like extra downtime to get these backorders in place around some of the holidays would you have some like extra days available that might not be accounted for manufacturing? -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [63] -------------------------------------------------------------------------------- Look, I mean, the team's -- it's a good question. The employees are doing a great job. On the IT deployment there have been a lot of 24/7, weekend work going on. There is a war room, where folks are here pretty late night and work in the weekend. So that's definitely going on. -------------------------------------------------------------------------------- Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [64] -------------------------------------------------------------------------------- All right. Keep up the good work. -------------------------------------------------------------------------------- Operator [65] -------------------------------------------------------------------------------- This concludes our question-and-answer session. I would like to turn the conference back over to Joe Woody for any closing remarks. -------------------------------------------------------------------------------- Joseph F. Woody, Avanos Medical, Inc. - CEO & Director [66] -------------------------------------------------------------------------------- Thank you. Thank you everybody for their interest in Avanos. I, along with all of our management employees, share our tremendous passion about this business and what we're doing. Sometimes, it isn't easy because of the magnitude of what we're doing. We shared a great deal of information today because we wanted to make sure that all of our investors understand where we're making progress and what we're doing to overcome the hurdles. I and the team remain committed to our strategy of accelerating organic growth, pursuing M&A and taking out cost and following a number of necessary changes to our business. We're focused on key drivers of growth and fully confident in our ability to achieve our Q4 and 2020 priorities. But thank you very much for your support. -------------------------------------------------------------------------------- Operator [67] -------------------------------------------------------------------------------- The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.