Good day ladies and gentlemen and welcome to the National Oilwell Varco Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference Mr. Blake McCarthy, Vice President of Corporate Development and Investor Relations. Sir, you may begin.

Thank you. Welcome everyone to National Oilwell Varco's third quarter 2019 earnings conference call. With me today are Clay Williams, our Chairman, President, and CEO and Jose Bayardo, our Senior Vice President and CFO. Before we begin, I would like to remind you that some of today's comments are forward-looking statements within the meaning of the Federal Securities laws. They involve risks and uncertainty and actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or later in the year. For more detailed discussion of the major risk factors affecting our business, please refer to the latest Forms 10-K and 10-Q filed with the Securities and Exchange Commission. Our comments also include non-GAAP measures, reconciliations to the nearest corresponding GAAP measures are in our earnings release available on our website. On a U.S. GAAP basis for the third quarter of 2019, NOV reported revenues of $2.13 billion and a net loss of $244 million or $0.64 per share. Our use of the term EBITDA throughout this morning's call corresponds to the term, adjusted EBITDA, as defined in our earnings release. Later in the call we will host a question-and-answer session. Please limit yourself to one question and one follow-up to permit more participation. Now, let me turn the call over to Clay.

Thank you, Blake. In the third quarter of 2019, NOV generated EBITDA of $262 million, up $67 sequentially despite a modest revenue decline from our second quarter. Our third quarter benefited from credits related to the close out of the handful of projects in our Completion & Production Solutions and Rig Technologies segments, which contributed nearly $20 million to our improvement. The more important driver behind our improving profitability was our cost savings which added over $20 million in EBITDA sequentially. The balance of the sequential improvement related to favorable product mix shifts for instance rising revenues in our Rig Technologies aftermarket. NOV made excellent progress on restructuring to drive efficiency and in a moment Jose will update you in more detail on our revised cost savings targets. Additionally, we are pleased with the progress on improving cash flow. Cash flow from operations was $352 million in the third quarter, reflecting improving working capital intensity arising from the organization's heightened focus on receivables, inventory, and payables. Despite the challenging market backdrop, NOV's team performed well and I am proud of everybody's hard work. Our third quarter international revenues grew 3% sequentially fully offset by 5% sequential declines in North America. The U.S. land rig count is now down more than 20% from its recent high in late 2018. And while this will eventually result in decelerating U.S. production growth, it is currently pressuring our domestic customer base and consequently our short-cycle U.S. business lines. On the other hand, international and offshore activity continues to grow at a modest pace both the IOCs and NOCs have used the prolonged down-cycle to pull cost out of their planned projects and FID approvals appear to be increasing. International and offshore growth helped NOV post an overall book-to-bill ratio north of one in the…

Thank you, Clay. NOV's consolidated revenues were essentially flat sequentially as the continued momentum in our international and offshore operations was offset by deteriorating conditions in the North American market or revenue decreased 5%. Revenues from offshore markets improved 7% sequentially bringing the percentage of our consolidated revenue from offshore markets to more than 40% for the first time, since the first quarter of 2017. Improving conditions in the offshore and international markets also helped us achieve our third quarter in a row, with a companywide book-to-bill of over 100%. EBITDA increased $67 million, sequentially to $262 million, reflecting great progress on our restructuring efforts a more favorable business mix and some favorable project completion variances. As noted, we made great progress on realizing incremental cost savings, which totaled roughly $80 million on an annual basis. To date, we are realizing greater savings and initially anticipated on certain of our restructuring initiatives and we are continuing to find additional opportunities that will help make the organization more efficient. We now believe we will realize a total of approximately $200 million in annualized cost savings from our restructuring efforts by the end of 2020. For the fourth quarter, we expect to realize an incremental $40 million of annualized cost savings. During the third quarter, we also made great strides in our efforts to reduce the capital intensity of our operations by reducing our working capital and improving our cash flow. We generated $352 million in cash flow from operations and after deducting $69 million in capital expenditures, we netted $283 million of free cash flow. During the third quarter, we also collected a $65 million note receivable related to a divestiture we completed a few years ago. Even though the $65 million was on our balance sheet as a current asset,…

Thank you, sir. [Operator Instructions] Our first question comes from Byron Pope from Tudor, Pickering, Holt. Please go ahead.

Good morning, guys.

Good morning.

Good morning, Byron.

Is it really encouraging to hear that international recovery continues and steady fashion for you guys. And I was particularly struck by the growth in caps. Clay, I want to ask you to speak to specific countries and customers obviously. But could you just frame for us the maybe the regional international drivers for caps as you see it as we step through the next 12 or so months.

Yeah. What's encouraging to us Byron is the pickup in activity in the offshore, in particular and I think that's been driving a lot of orders source in the Completion & Production Solutions group. So generally, the world seeing rising demand for LNG in Asian markets and that's contributing to, I think, some decisions by operators to move forward with development of gas discoveries in places like East Africa and elsewhere. Our customers there, in many of the major basins, have had five years of reengineering and focusing on cost through this downturn and have been high grading their prospects have been taking advantage of deflation in the supply chain to reduce their cost of development. I think there are to a point where they're getting more confident about moving forward. I think you have a lot of operators around the globe that are -- have seen our normal depletion and declines of the base loads around some offshore infrastructure, gathering hubs and pipelines and things like that who recognize the need to replace some of that production. And so, I think that's kind of giving a little impetus to operators to move forward on some of these developments. So it's really -- it's been a slow, but steady recovery and very pleased to see it continue on through the third quarter. But really a global phenomenon. We're seeing, I think Jose in his prepared comments referenced some of the equipment that we expect to go to work in the Gulf of Mexico and the U.S., lot of interest in the Mexican side of the Gulf of Mexico, Brazil offshore, North Sea. So, again very, very steady and slow and encouraging for the outlook and lots of markets around the globe. Onshore, the Middle East has remained fairly active through the downturn and just continues to be a lot of things going on there. And so we've got a number of tenders that we're looking at. With respect to providing equipment into that market, we've opened a number of facilities in the Kingdom of Saudi Arabia that came online specifically, for instance, our Fiber Glass pipe manufacturing plant in Dammam that Jose also referenced. We opened that in April and it's ramping up production, now we're making both real pipe and jointed pipe there, and so just a lot of -- as opposed to North America, we're facing a lot of headwinds, international offshore seems to be much brighter.

That's really helpful. Clay I appreciate it. And then Jose just one quick question, I mean the strong free cash flow generation in Q3, but I think I heard you say that the back half free cash flow target is still intact the where you guys had previously characterized it. Is that fair?

It is fair. So yeah, obviously, we made some really good progress during the course of the third quarter. Made more progress than we had anticipated related to collection of receivables, we're continuing to tighten up and improve our processes. So even as business mix becomes a little bit more challenging as it relates to collections, organization is doing a great job, getting their arms around the process and it's squeezing down the days receivable. So as we look at the fourth quarter, we are holding our prior guidance intact, the $300 million to $500 million in free cash flow for the second half of the year, but obviously we've made great strides in getting there, and so you could be pretty confident that we would look at the upper end of that range.

Great. Thanks guys. I appreciate it.

Thanks Byron.

Thank you. Our next question comes from Bill Herbert from Simmons. Please go ahead.

Good morning. So sticking with the free cash flow theme, so if you could hit the upper end or your guidance for free cash flow for the year that implies yet another significant working capital harvest in Q4 that's not necessarily dissimilar to what was witnessed in our Q3. Is that correct?

It certainly involves some additional contribution from working capital and we're confident in our ability to realize that. But later today once you -- once we are sure of our Q, you'll be able to see a little bit more granularity from the cash flow statement. As I mentioned, we made great progress as it pertains to harvesting cash flow from receivables and other elements of the -- of our working capital. We started to get cash from our inventory. However, the contribution in Q3 was pretty light and so I think you'll see a little bit of shift in terms of where the source of cash is coming from. You'll have continued source just from operational performance, but you’ll see a shift from more contribution from inventory versus receivables as we move into the future.

Yeah, we're really going to focus our attentions I think on getting better at inventory. We did as Jose mentioned was a source of cash but that's where the -- I think remaining opportunity is for us.

Okay. So we have a shift from receivables to inventories in Q4, but nonetheless the working capital harvest in Q4 is still fairly considerable?

Our expectation is to see continued contribution from working capital.

Got it. And with working capital spending, I'm not sure if you touched on this in your commentary Jose, but what should we expect with regard to Q4? And also if you can just take a look into 2020 and what your expectations would be for capital spending intensity. It's been fairly low as Clay pointed out year-to-date. And I'm just curious is as to whether it can stay that low?

Yeah, sure. I think there are a couple of questions mixed in there. One additional question related to working capital. So, yeah, as we move forward into the fourth quarter as we've touched on, we expect to continue -- continued improvement on the working capital intensity of the business. And we're certainly not going to sit still as it pertains to 2020. Still think there are more opportunities for improvement through the course of 2020 to bring down that ratio of working capital to our revenue run rate. Yeah, as it pertains to the capital intensity of our business associated with capital expenditures, yeah I think its most folks are well aware, we have a very capital-light business that's operating in a pretty capital-intensive business which is prone to generation of cash flow and we continue to view our business in that way and manage it that way. As you've highlighted, our capital expenditures for this year is certainly below the plan, which we laid out at the beginning of the yea, at $69 million in CapEx in Q3. Q4 is normally our highest CapEx quarter of the year. But I think we'll probably finish up the year at about $260 million of CapEx full year. One of the several reasons why our CapEx for 2019 is a little bit below or is a bit below our original plan is no surprise that things are going -- we've factored the budget around sort of best case scenario in terms of progress associated with the new rig manufacturing plant in Saudi Arabia. Things take a little bit more time and so we're not surprised that's taking a little bit longer when you're building a facility in completely undeveloped territory within Saudi. So, some of that CapEx will shift into 2020 and so we can see a little bit of an increase for 2020. But then after that expect our capital expenditures to get back in line with history which should be plus or minus 3% of our revenue run rate.

Okay, fine. So it's basically a little bit of an increase for 2020, is that splitting the difference between Q3 and Q4.

We have -- we're in the middle of our planning process right now. But I think -- I think that's a safe assumption.

Okay. Thanks very much.

Thanks you, Bill.

Thank you. Our next question comes from Vebs Vaishnav from Howard Weil. Please go ahead.

Hey good morning and congratulations on the very good quarter.

Thank you, Vebs.

I guess just following up on the last questions, if I think about the CapEx for next year, my sense from what we were talking is, it could be flattish. Is that fair way of thinking?

No Vebs. So when we came into this year, our initial expectation was CapEx plan just a little south of $350 million. So, as we move into 2020, we will see that step-up associated with the increased spend related to that rig manufacturing plant. So as Bill was kind of indicating, I think you'll see somewhere between through the $260 million that we're calling for now this year and that $350 million number for next year, but subject to revision next quarters as I mentioned we're in the middle of our planning process right now.

Yeah. The plant that Jose referenced in Saudi Arabia is the big piece this year. I think, if you recall when we came into 2019, we basically said, we're taking 2018s level of CapEx at about $250 million and another $100 million for that plant in Saudi Arabia. The reason we're a little bit hesitant is, it depends on how constructions progressing there and as Jose mentioned, some minor delays there. But on the whole, we're developing kind of our and fine-tuning I think our outlook for CapEx as we move into 2020.

Yeah. And there is spend that is occurring on that plant. So therefore, we certainly wouldn't expect 2020s CapEx to be in line with what our original plan was for this year which had assumed everything went as quickly as possible.

Yeah, got it and I'm sorry, if I missed it, but did you guys call out how much was severance cost in your free cash flow number in 3Q?

We did not specifically called that out but I think in Q2, you saw the non-cash charges associated with some of our severance expense. The majority of that would have flowed through as a real cash expense in the third quarter.

And that should decline in 4Q.

Yes it should.

Okay. And I guess last question for me, just if I think about those cost savings, can you just help me think about you went from $160 million to $200 million. Like what are the incremental steps that you guys are taking you have been very proactive at that?

Yeah. We spent all time on that on the last couple of calls Vebs. And we've continued to evolve our plans, but as we've mentioned before, we're kind of more fundamentally reorganizing how we execute our businesses. And as you're well aware, we operate through fairly autonomous business units, but as we enter 2019 and market outlook was diminished a little bit, we said you know, now is the time really to go into in particular the administrative support functions and support those business units and see where we can capture more savings. And so a lot of the effort that's going on through the summer and now into the fourth quarter has been around that reorganization along with other cost savings measures that we're undertaking kind of business unit by business unit across all three of our segments. And so the difference between 160 million target that we talked about in the second quarter and now the revised $200 million target that we're talking about in the third quarter is just kind of the -- getting deeper into it and refining of the steps that we can and are taking and so the savings have continued to now.

But also I want to add. Very, very proud of the organization for stepping up for this to this challenge and for our employees and our managers looking for ways to run our business more efficiently. They're doing a great job on this.

That's all for me. Thank you for taking the question. And great job.

Thank you, Vebs.

Thank you. Our next question comes from Scott Gruber from Citigroup. Please go

Yes, good morning.

Hi, Scott.

Just staying on the same line of questioning, the cost-out program now up to $200 million. Is there more to go here? Do you think it could keep moving beyond that $200 million mark in 2020 in the absence of any divestitures. And then as you start to think about that portfolio mix, it sounds like there could be some divestitures on the horizon. Could the cost-out program continue to grow as some businesses come out or should we think about those two separate?

Yeah that's a great question. I'm -- to compete effectively in oilfield services, you always have to be paying attention to cost inefficiencies and I think it's kind of in our DNA to continue to look for cost savings efforts. And so I think that really is -- the part of the reason we have overachieved on cost savings around our plans. But as I mentioned in my prepared remarks, we are reviewing parts of our portfolio, products and services around the globe to see kind of where there may be opportunities to further improve our returns on capital, in fact, I'm going to ask Blake to comment on that process. But one of the things we got to think about is, how -- what -- if you take some product or revenue stream out of a business then how do you adjust the fixed cost to support that business, so you don't run into an absorption.

Right and Scott, I think we're looking at this more from a returns basis than just a pure cost standpoint and we're being pretty methodical about it. It's more than just a math exercise. We're looking at it from a qualitative basis as well, right. Well, we don't want to sell businesses that we feel we have a real competitive advantage on it and we're just looking at a trailing 12 months return, where it's been bouncing along the bottom of the downcycle. So we're looking at both from the numbers standpoint and where we stand in the business and we're looking at it across all of our different product lines and taking our time on this. As we look to either exit through whether it's through divestiture or whether we just have to close the product line, we will obviously take a long hard look at the RemainCo fixed cost structure.

Yeah. And yeah, I think there may be some opportunities come out of that but too early to say.

Got it. And then just a follow-up on the portfolio review, great to hear the returns focused. Are you guys starting to think about the mix of businesses within the portfolio that mix of kind of upstream, downstream, other industrial you've taken on some contracts to access the renewables mark in a bigger way with those vessels. Is that part of the review?

I would say -- I think we're more of a bottoms up sort of analysis than a top-down. We don't sort of think of what's an optimal mix of exposures for NOV and as much as we think about. Hey, here's a really interesting business that has demonstrable competitive advantage. To me, I think and I think I said in my opening remarks, I think the strategic positioning of businesses is critically important to returns and so kind of understanding how businesses can outperform competition in this space and can carve out long-term returns that are very attractive. It's more of a granular sort of thinking through what's -- what sort of competitive advantage or what sort of moat does this particular business have? And that tends to guide our decisions more than hey, I would like to optimal mix to be you know 20% midstream and something like that if that makes sense. So it's less of a view on -- on kind of sector exposure, more of a view of hey, how do you get, sort of, classic competitive advantage and I think over the years that's probably been much more of an important guide in terms of our strategic capital allocation decisions here at NOV.

Got it. Great color. Thank you, Clay.

You bet. Thank you, Scott.

Thank you. Our next question comes from Kurt Hallead from RBC. Please go ahead.

Hey, good morning.

Hey, Kurt.

Hey, congrats. Great job, guys. The question follow-up was given the cost saving dynamics you guys have put in place. Just curious as to whether they give us an update as to the incremental margin profile for the respective segments as we kind of going to move forward from here. In the past I think you've going to give us some indications on what they were maybe on a pre-cost savings dynamic. So just curious as to how these cost savings may change that incrementals on a go-forward basis?

Sure. Kurt. Yeah, so the prior guidance that we have provided related to what we believe normalized incrementals are for each of the segments still stands. But as you've touched on you've got to adjust for the nuances that take place from quarter-to-quarter. And right now as we're undergoing our cost savings initiatives you could expect incrementals to be bigger than that prior guidance. And you can expect decrementals to be smaller right. And then you also have those individual nuances quarter-to-quarter such as pricing dynamics et cetera that come into play. But so if you look at the guidance that we provided for Q4 in our prepared remarks those factor in the impacts of cost savings that we anticipate will materialize during the fourth quarter.

Okay, great. I appreciate that color. And then Clay just kind of curious, you know, as you've had a variety discussions with a number of different customers and things are pretty uncertain as it relates to the North American market going into next year. But what I want to get your sense as to how you might see this thing evolving and given your experience of prior cycles. And kind of what's similar, what's different and what we from the outside looking in potentially drawn to determine what kind of growth rate we could see from this business over the next three to five years potentially.

Yeah, I think, it's a great question, Kurt. I think that the challenge through the first five years in this downturn is that every time we start to see the signs of recovery there is a another big production report coming out of West Texas. And you've had unconventional shale surprise to the upside on production through this five-year period, which I would characterize as a lot of entrepreneurial aggressive smaller E&P companies in kind of a land rush phase still of securing acreage and drilling it up. And as the Permian Basin and other unconventionals across North America evolve into to move to a handful of larger players who I think are going to be steadier in kind of their drilling and production then maybe the possibility of big production surprises to the upside diminishes a bit. It's kind of a steadier more workman like undertaking and developing that acreage. I think that could basically provide maybe a little more confidence in other EMPs around the globe. More confidence to their price decks and lead to the return to normalcy over the next few years in terms of development that's more balanced in international markets and offshore markets. I think we're starting to see the early signs of that perhaps in 2019 and -- but certainly 2020 the near-term looks -- in North America looks pretty challenging in Q4. 2020 is -- remains opaque, but what's been missing through the five years of the downturn really is the offshore and international markets. And so we're pleased to see progress over the last several quarters. Slow and steady in those marketplaces. But kind of a more levelized level of production out of -- out of the Permian and North American unconventionals. I think could help maybe accelerate that just a tad and we could get back to a greater level of prosperity globally, which is really what we've all been -- have been seeking. The other big factor too which is really come to bear here in 2019 is the fact a lot of the North American producers responsible for those production out-performances were finding a much more challenging to get capital. And the level of capital austerity and discipline that's going into their drilling programs and living with cash flows and so forth. I got to think that's going to -- that's going to affect U.S. production growth going forward. And I think be one of the building blocks for a healthier industry.

Great. Thanks, Clay. I appreciate that color.

You bet. Thanks, Kurt.

Thank you. Our next question comes from Cole Sullivan from Wells Fargo. Please go ahead.

Congrats on a good quarter guys. Within Wellbore the North American declines kind of hit in 3Q and obviously fell out a lot more and – over the September time. And you guys held in pretty well on the margin side actually kind of beat guidance. Obviously on cost savings and the fourth quarter guidance it looks like it's holding in as well pretty – pretty strongly. Is that cost savings that's really driving that stronger performance expected in 4Q there in Wellbore?

Yeah. There is certainly an element of cost savings, but I think the – really the contributions we provided from a consolidated standpoint is consistent with what we're seeing across each of the segments, where the contribution from cost savings in the fourth quarter will be a little bit less than what we experienced in Q3. So, we're also seeing mix shifts across all of our businesses, which contribute to the performance and I'm not entirely clear. I got your question precisely right, I think to recall is that Wellbore Technologies is still 46% of its revenues is coming from the international markets.

Yes. That will help, but you know – so in the third quarter coming from the second quarter top line were down 7% and the Group there did a fantastic job managing detrimental leverage to only 2% sequentially. Really basically holding EBITDA flat despite a 7% top line decline, going from the third quarter to fourth quarter we're guiding down I think Jose said you said 5%, 6%, 7% top line decrementals more like 25%. So which is lower than you would otherwise expect normal operating leverage or normal variable margins to be in that space, which are probably 35% something like that. So that's where kind of the cost savings show up, but to be clear we are guiding down again in Q4 around on the topline of Wellbore Technologies.

All right. That's helpful. Thanks. On CMP revenues were guided to kind of flattish for revenues. Can you help us think about the backlog conversion there with the higher orders that have been flowing through this year that are I guess implied in the fourth quarter number? And then how to think about the non-backlog revenue side for the shorter cycle items in 4Q guidance?

Yeah. So, Cole that's a good question. So with the shift in the mix that we're seeing you're right we are guiding to effectively flat quarter in the fourth quarter, but an increasing proportion of that revenue will be from our backlog oriented businesses. So we expect that revenue from backlog to pick up just a little bit from Q3 to Q4.

All right. That's all I had. Thanks.

Great. Thanks, Cole.

Thank you. Our next question comes from Connor Lynagh from Morgan Stanley. Please go ahead.

Yeah. Thanks. I was wondering, if you could just characterize we've spent a fair bit of time on it already I know but just what drove the cost out to surprise to the upside. What specifically were the – the things that move to on faster than you expected?

It’s hard to generalize honestly other than just really, I mean, I've said it before and it's probably worth repeating, it's a pretty volatile business and you got to be able to downsize when called upon. And I think our teams are really good at sort of moving quickly and acting decisively in taking costs out. And so we entered this latest round in the first quarter of 2019 and begin to get traction in the second quarter and then in the third quarter. I think you're seeing a lot of the results of steps that have been taken. And I can't say this enough we have a great team, who really understands we have to constantly size our business to market requirements. And in a down market, you're downsizing, but it up market we're also pretty good at flexing upwards to meet market demand, which can rise pretty sharply in this place – in this space as well. So just really good execution all the way around, and again difficult to generalize other than to say I think it's embedded in our DNA here and the good news is we're continuing to take the steps necessary to position the Company and we're making good progress on that.

Got it. That's helpful. Maybe to pivot a little bit since we are talking about the portfolio. I would assume that you will still be active on the building portfolio as well, where you see opportunities. I'm wondering if you could just characterize how you see the M&A market right now. And just any portions of your portfolio that you find interested to add on to in the current market environment.

I'm going to hand that off to Blake to speak to.

Yeah I mean there's definitely -- as we've mentioned in the past like the buyer universe with running parallel with the limited access to capital in the space is definitely getting smaller, and so we find that we think we're in a pretty opportunistic situation. There are some business lines that we definitely think we can augment through M&A over the next year. But also like -- I think we're in a pretty good spot when I look at the overall portfolio. There is no huge gaps that I think that we need to fill. So we're definitely can be very disciplined and take our time. I think patients is the name of the game right now.

Yeah we're -- I'd add too. In contrast with prior eras, we are more -- we're using M&A in conjunction with organic investments in technology and kind of these are smaller more rifle shot sort of acquisitions were mostly doing. And then investing internally to enhance our technology to take their products through the NOV infrastructure to really -- we think that's the most efficient use of capital now. But it is to Blake's point it's a becoming more of a buyer's market. So we're watching that intently.

Got it. Thanks a lot.

Thank you.

Thank you. Our next question comes from Sean Meakim from JPMorgan. Please go ahead.

Thank you. Hey good morning.

Good morning Sean.

So Clay or Jose, just one point of clarification, I was curious how much did -- or to what extent did the write-down’s of inventory in the second quarter aid the margins in 3Q across any of your segments. Can you maybe give us a sense of magnitude if there is one? And two to extend is that a tailwind for you going forward?

Yeah, there really is not a contribution or any sort of tailwind that comes from us writing down our inventory. So we have been very consistent in terms of our approach related to how we've dealt with items that go through our P&L or come out of our P&L via other items. And well first of all, the vast majority of inventory that we write down is heading for the scrap heap and really over the last three years, we scrapped over $700 million of the inventory. There are times where we are writing things down to a lower cost of market. And occasionally, those do sell and usually they were at zero margin to the extent they were at any sort of material margin. We will actually reverse the write down through or other items. And so, if you go back and you look at some of our prior quarterly press releases and 10-Qs and you study those other items, you can actually see that there are places where we are reversing those charges because there have been a couple of areas. I think Q1 of 2018, Q2 of 2017 specifically you can go back and look and see that there are reversals of some of those charges and that's why, that's happening is because we were pleasantly surprised with the outcome on a couple of those write downs. But we do not take that back to the P&L to inflate our margin.

Yeah that's really rare for us to write something down and then be able to sell it for margin. But when it does happen we're pretty -- it's pretty consistent in taking it to other item.

Thank you for that clarification. That's really helpful. The other point on working capital, you're targeting free cash in the back half of the year obviously a very good shape there. Could you maybe just give us your latest thoughts on working capital to sales maybe -- actually 2020 because again you've made significant progress there? How is that change and maybe just Jose, how you think about DSOs, DSIs, DPOs what's kind of the normalized run rate that you're trying to accomplish from that angle?

Yeah Sean, I think of course we're going through our planning process and trying to determine what all the right metrics are for 2020. It’s probably a little bit premature for us to give you a precise guidance. But pleased with the progress that we have made so far in the back half of -- in 2019 getting extremely close to the targets that we set at the beginning of this year and we look for continued improvement moving into 2020. And so, as I mentioned earlier, it is about focus on all of the blocking and tackling details associated with improving our processes. We have made considerable strides. But there is still meaningful room for improvement. So, with our DSOs, I think at about 77 days. I think we can get a little bit better than that. Our turns, as I mentioned earlier, we've made some progress but not nearly enough progress in terms of inventory turns, so we can do better with that in 2020. And so, we'll be working on setting that guidance. But needless to say, we're going to continue to squeeze it down and get as efficient as we possibly can, as it pertains to working capital intensity in our business.

Got it, fair enough, thanks a lot.

Thanks, Sean.

Thanks, Sean.

Thank you. This concludes our Q&A session. At this time, I'd like to turn the call over to Clay Williams, CEO for closing remarks. Please go ahead, sir.

Thank you, Duanne. And thank you all for joining us this morning. Also thanks to our employees that are listening. We look forward to updating you on our fourth quarter and full year results, in early 2020. Goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect. Good day.