Bausch Health Companies Inc. (BHC) Management Presents at Citi Global Healthcare Conference (Transcript)

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About: Bausch Health Companies Inc. (BHC)
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Earning Call Audio

Bausch Health Companies Inc. (NYSE:BHC) Citi Global Healthcare Conference Call December 5, 2018 8:45 AM ET

Executives

Paul Herendeen - Executive Vice President and Chief Financial Officer

Analysts

Unidentified Company Representative

Good morning everyone. Thanks for joining us today, especially when U.S. markets have closed. Thank you very much for being with us. So, Paul Herendeen joined Bausch Health in August 2016 as Executive Vice President and CFO. So, prior to joining Bausch, he was CFO of Zoetis and specialty pharma Warner Chilcott, and healthcare company MedPOINT. So, I am [indiscernible], I cover high-yield healthcare at Citi. So, focusing on hospitals and healthcare facilities, as well as Pharma, including Bausch Health Bond. So, shall we kick off with our fireside chat and please feel free to interrupt with any questions please.

So, Bausch has seen a transformative turnaround in 2016 and 2017 with almost 4 billion of assets being sold and proceeds used to repay debt. So, you ended Q3 with a net leverage of 6.9 times, which is still a high level of debt versus other pharma peers, so do you still target five times leverage target, which is around two turns of deleveraging?

Paul Herendeen

Sure. I mean, we had – first, good morning everyone and thanks to Citi for hosting us. Citi has been a great financial partner for our company and we appreciate that support. So, yes, I mean, we are a levered company. I was just having a chat with a fellow - [indiscernible] lot of good fundamentals within our company and people have a challenged getting past the leverage and as you point out we are just slightly below seven times. We freely admit we are over levered, and we’ve been working on that since the day Joe joined prior my joining and we made terrific progress.

I think we made more progress managing the liability side of it then the quantum, excuse me the leverage statistic, but we are certainly pointing in the right direction. We’ve often talked about targets and people on when, what is it, and what you want to be and where and when? We typically say that we want to be levered less than five times. I mean that’s a target for us sitting here today. And as you point out that’s two turns and so how do you get there. Well, you get there by us generating cash and marshalling that cash flow and prioritizing that cash flow to reduce our debt.

And every time we do that from the equity store perspective, you’re transferring enterprise value from the debt column to the equity column that’s a good thing. The best was for us to reduce that leverage is to grow our operating profit and I think you point the transformation we are in the process of heading towards 2019, 2020, 2021 where we start to show the market the growth power of the various businesses that we currently manage, and I think that over time we will naturally deliver and get down below that five times target for now and of course there are ways that we can accelerate and again the best way for us to accelerate is to grow that operating profit at a rate faster than people think.

Unidentified Company Representative

Thank you. And I also heard of a goal to lower gross debt from 25 billion to 15 million, 20 billion, so I feel like it’s a more aggressive deleveraging target, so could you indicate us a timing or is it a long-term target?

Paul Herendeen

Sure. I think at that point in time where we we said that I want to say that was a sort of the tail end of 2016. If my memory serves our adjusted EBITDA at that time was in the low 4s and it was just a different way I think of expressing desire to get down below that 5x leverage stat. So, it’s just a different way of thinking about it.

Unidentified Company Representative

And you have been mentioning an equity raise at other conferences and earnings calls, but I feel like those comments have been toned down, so what has changed recently that your conversation with investors maybe you should touch phase on that?

Paul Herendeen

Sure. I mean, they had toned down and it toned down because we’ve had, what I will call pretty good success in managing that liability side of our debt that gives us the flexibility, the ability to think about raising equity capital on a more strategic way, not – there is not an urgency to us, say when and if we do it, it will be for all the right reasons. I want to comment on equity saved is, we have toned down. I was at a conference just last week up in Boston and why we end up talking about it is because we always get asked about it.

If you ask me when Joe and I show up in the morning office every morning, we don't come into the office and say, should be issue equity today? That’s not what we’re doing. What we're doing is we're focusing on the fundamentals of our business and as we see opportunity or if we see opportunity, we would certainly think about the use of equity capital to accelerate the process of getting our cash structure right side up, but this is not, I want to be real quick, this is not something we come in with [spring load] and say, oh, let’s do this tomorrow, but it has to be part of the conversation when you levered just under seven times.

Unidentified Company Representative

Thank you.

Paul Herendeen

Thank you for asking that question.

Unidentified Company Representative

And if I may continue on that potentially, if we have an equity raise eventually, could there be a combination of debt paydown acquisitions or any other use of proceeds?

Paul Herendeen

Sure. And again, a question has been asked a number of times and thank you for asking again as well. So, when I think about it, I would much prefer, I would preference much prefer to use equity capital a context of some sort of business development activity, that’s a preference. Not to say that again, it’s not we are targeting, this is not that we are going to do tomorrow, but I would certainly think that either you are focused on potential acquisition or some portion of an equity raise to fund acquisition more flexibility to pursue tuck-ins and things for our core businesses that would be a preference, yes.

Unidentified Company Representative

Thank you. And you’ve been generating consistent free cash flow. So, I was still looking at this free cash flow target of 400 million per quarter. Is that something we can look beyond in 2019 as well?

Paul Herendeen

Sure. Good question. I may be clear though. What I typically talk about is that, we expect to generate somewhere in the low 400’s, call it four or whatever, low 400’s of cash generated from operations and that’s the GAAP measure. So, this is like no fooling around there or it is GAAP measure that we generate. From that number, sort of 400 or 400 and a little bit. We also – that’s how we fund our CapEx. That’s how we fund milestone payments and that’s how we fund the settlement of some of these legacy legal liabilities that we continue to put in the rearview mirror, but if you take all that together like use our current guidance, I believe the amount of those CapEx milestones and other restructuring and other total something like 575 million is our guidance for 2018, and you do the simple math and it is call it [400x 4, 1.6] [indiscernible] we generate free cash flow for debt service. So, a little over billion dollars. Nothing should change that here in the near-term and in fact I think if you look out over the longer-term, yes as we start to generate growth in each one of our businesses, obviously that number improves. So, we are – no reason to believe it will be any less in the near-term.

Unidentified Company Representative

Good. On M&A, I think you favor bolt-on acquisitions over material M&A could you give us a range or an acquisition budget that you have in the near-term?

Paul Herendeen

I'm not going to provide a budget. I mean, I think first let’s characterize what we're looking at as – we view our core business as eye health, GI, and dermatology, and if we see something in those spaces that is of appropriate size for us, yes, we’re going to go out and we're going to do what we can do to make that acquisition. Think of it more as the tuck-ins or bolt-ons or whatever then large-scale M&A, but there are those opportunities out there and as they come available, we would allocate capital to them.

I want to make a point about allocating capital to that sort of activity as it’s the kind of – when you talk about that leverage it’s the kind of a good news or bad news. When you have that level of leverage, I can assure you it forces you to be very judicious in the way that you allocate your capital, including thinking about for acquisitions, but we this year, I think as we start to find our foundation and look ahead to the transformation of our company, yes, we’re looking for those opportunities, but to be clear they’re going to be on the smaller side.

Unidentified Company Representative

So, smaller side meaning like three-digit range or…?

Paul Herendeen

Yes, nice try, but I’m not going to…

Unidentified Company Representative

Opportunistically. So, which subsegment are you seeing the most opportunities at the moment?

Paul Herendeen

I mean it’s really across the board. I think the eye health business is one for us. I mean, we have all four segments of that business, we have a consumer business, a lens business, we have a surgical business, and we have an Optho Rx business and in each one of those segments, there are opportunities. I think in dermatology – I think everyone knows that the things that are going on out there in dermatology medical derm is a business that people are looking at selling assets, we’re going to be a long-term player in medical derm.

If there are opportunities there, we'd like to take advantage of those and of course in GI, recently what we’ve done there is, we have kind of [showed-up] our portfolio by doing some relatively small and creative deals at least my view for – we’ve got planned view for, which is a bowel prep and we lose [indiscernible]. These are things that I think of as healthful to us as we continue to develop a new branch introducing the GI portfolio. So, I don't know that anyone of those segments is any more active than the other, but we focus on all of them.

Unidentified Company Representative

Thank you. Any – on multiples, what kind of multiples are you seeing in the pipeline? Has it changed? Recently?

Paul Herendeen

It hasn’t. I don't think it’s changed. I mean, good M&A is always a challenge. Say multiples, when they are high and it’s easy to do a deal and overpay. We don’t want to do that and we don’t intend to do that. As I said, we have a pretty tight screen. So, multiples can be what they will be, but we will look for ways that we can do value accretive bolt-on’s, not necessarily just transact.

Unidentified Company Representative

And would you consider core asset sales if the right price, the right opportunity comes?

Paul Herendeen

Yes. I was having a conversation just before, absolutely. And I think if you go back to any of the transcripts, we get asked this question. I always think of people will say, oh, it’s core, that’s just a reason to not sell something for Joe, myself as responsible stewards of our stakeholders’ capital. If someone comes to the table and says they want to own one of our assets that we call core today and they are willing to pay a price that exceeds the value of that asset in our hands, they are going to own it. That’s just the way, I mean, at least my view that’s the way you should be. If someone is willing to pay a value greater than what it is in your hands, they can own it. Is that likely, well, we’ll see.

Unidentified Company Representative

Thank you. I think Bausch did a fantastic job on liability management, so extending the debt maturity profile. So, if there are some maturities left in 2021 and 2022, and I know that last week you announced 200 million redemption on 2021 notes, so is your treasure or are you still working actively on that, on the liability management?

Paul Herendeen

Yes. I will say this is something that they had pretty much every day or certainly more than several times a week we looked at. I think my treasury team took my like capital markets team. One would feel as my Treasury, he has done an incredible job, he is got a fellow working with him [indiscernible], I call, you know – they must have been Boy Scouts because they are always prepared to take that next step when an opportunity presents itself to continue to manage the liability side of debt stack. I think we’ve done a really good job over the course of let’s say last 24 months, but obviously that’s – we’re not done. We need to continue thinking about ways to extend the maturity and be ahead of the curve when it comes to managing those liabilities. That’s kind of the part and parcel of being 6.9 times as you are focused on when you’re not just how much, but when and we are focused on that if it’s a continuing priority.

Unidentified Company Representative

Thank you. And may be a debt focused question, would you consider more secured debt and loans over unsecured bonds, should you have capacity?

Paul Herendeen

Yes. I mean, the key there is to have capacity. So, thinking about our secure debt capacity is like one thing that we need to do is, we need to always have a ready access to capital. I suspect you're going to ask me at some point here about legacy, legal liabilities. We need to be, in a place where we have access to capital, if we were fortunate enough to have the opportunity for example settle one or more of those cases. And so, we maintain available senior secured debt capacity in the normal course. We have used it, and in fact we just felt that was a – two weeks ago closed up, actually it was last week, closed up $1.5 billion term loan deal and that was all senior secured and took out 1.45 billion of unsecured bonds, it’s just we had the capacity and that was, it was an attractive source of capital for us. It was a positive interest arbitrage for us and so we went ahead and did that, but we have to maintain some capacity and reserve in order to have ready access to capital if we needed.

Unidentified Company Representative

On litigation risk…

Paul Herendeen

There it is.

Unidentified Company Representative

I wanted to say, the most legacy issues are behind us, but could you please update us on the remaining litigation risk, I know that your general counsel has been very busy at settling various cases.

Paul Herendeen

Yes, our GC, Christina Ackermann has been spectacular not just herself, but in the team that she’s built and the ex-General Council that she is partnered with to help us clear the brush of those legacy legal liabilities. I think, when I joined, I want to say there was a list of five things that I was concerned about and we’re download now to the stock drop cases as the primary thing that I focused on that’s not normal, not what you expect to see within a company. That took a lot of time and effort on Christina's part or team's part, but right now most of that is in the rearview and now we're just left with the stock drop. That’s two cases. Actually, it’s the U.S. and in Canada. This is the same set of facts. It is really the same case, but it is in two different jurisdictions. That one, we will see how that plays out. It will play out over time. Of course, we like our side of the arguments there, but it’s going to be a challenge to settle that up. So, that’s the last one to keep your eye on.

Unidentified Company Representative

Thank you. Is there any – yes, please.

Question-and-Answer Session

Q - Unidentified Analyst

So, you talked about how you and Joe talk about that day-in and day-out regarding the capital structure and capital allocation, what you did talk about is the fundamentals of the business. When you scan across the portfolio and you’re looking for leverage and how you're going to grow businesses, what are the common points that you need to remove on across the portfolio for growth?

Paul Herendeen

Yes, I mean it’s a great question. This is like, how do we transition. So, we actually take each one of our segments and position it to grow. It comes back to the same theme that I talked about a moment ago about allocation of capital. Our company, no secret, our company came together through a series of acquisitions. On those acquisitions, and I think that everyone knows that back in the day allocating capital with R&D under the prior regime that was not something that was routinely done. So, first what Joe, myself and the rest of the team did is we needed to look at each one of our businesses and make some decisions about where to allocate capital to drive long-term growth.

Now, that sounds like basic stuff that you would expect every company to do, but I will tell you that that was not the routine, and so it took a little bit of work for us to build that foundation to be thinking about longer-term. If we’ve got a limited about of capital, where do we deploy it. R&D is the easiest way to think about it. We actually enjoy a very mature and we think attractive pipeline in dermatology and they have been under rotated GI or Ophtho Rx or surgical or lenses or consumer or our international pharma business and so we’ve gone about the process of prioritizing and thinking about each one of those businesses of what’s needed in order to invest behind them, so they can sustain long-term organic growth, organic, not relying on acquisitions. And that was one of the things that I think was the most challenging for us and it continues to be a challenge as we deal with somewhat limited resources.

I want to make a point though about what we think about it. This year we will spend more in R&D that we did last year. I promise you, in 2019 we will spend more 2019 then we did in 2018. People didn't believe that we had the capacity to develop and get approval for and introduce products to feed that longer-term organic growth, we beg to differ. We think we’ve got a terrific R&D team, and I think what you're seeing is, even as recently as this morning we had a press release, new lands, it is not like groundbreaking, you know whizbang is up, but this is the consistent and invest behind it and continually introduce the brands and products that keep your portfolio fresh, keep your growth prospects intact and enable you to sustain competitive advantage in those segments where you chose to play. That’s the thing that I think about the most.

Unidentified Analyst

Can I just have one follow-up, is there anything within that model that you’re now applying that is different that before as to some key features that you might be willing to kind of talk about? What's kind of you're thinking around investors [ph]?

Paul Herendeen

I mean, I think it first came down to having a point of view about where the best opportunities where within our portfolio. If you think about, we are a diversified healthcare company. About 50% of our business is what you might think of as traditional sort of U.S. pharma based and the balance of our business is comprised of, we have a very healthy and large consumer business. We have a surgical business. We have a lens business in on and on, and you say, okay, well those are different businesses, they have different return characteristics, they have different growth prospects. Now, interesting I mean, I think you can take a pole and people might think of it in different ways. I am a huge fan of durable businesses where you have a positional competitive advantage I stated earlier, and you can sustain that over time. You know how we do that? You do that by consistently allocating resources to develop new products through R&D on in the case of lenses by investing in growth CapEx to feel those businesses long-term, but the complete return characteristics they are quite different.

I’ve described them as, we needed to have consistent investment. I think the returns are more predictable. They may not be as whizbang as you might see on the pharma side, okay. So, that’s one piece, and then you need to think about in dermatology where that’s going – as I said, we’re rotating away a little bit from investing there in favor of perhaps our Salix GI business, which we think we have a wonderful position and it can sustain over a period of time. So, I can't share with you our views of – like we turn characteristics or our different hurdle rates for investment in each one of those areas, but we think of them as different businesses with different returns and ensuring that we’re allocating a way that we can keep all of them on a path to organic growth.

Unidentified Analyst

Can I just ask a very simple one?

Paul Herendeen

Yes, hold on so you can get the web. Thank you.

Unidentified Analyst

Given the names changed to Bausch, I assume eye care is pretty important. Where were you longer-term about the organic growth in the division, given that Alcon’s coming out has probably a much better balance sheet arguably going forward?

Paul Herendeen

Sure. I mean, it’s a great question. First of all, I think of our positioning in eye health has being very good. We are the one company that has all four of the individual subsegments of the eye care or the eye health business covered. We are, as we're sitting here right now, we are growing that business, it is growing quite nicely, both in the U.S. and internationally, little factoid for you. We are actually have – our business is larger outside the US, then inside the U.S. Having Alcon come out as a pure play, yes, that will create a more focused competitor who will be probably over time, they will emerge as a stronger competitor.

Certainly, a stronger competitor with respect to thinking about future business development opportunities because they are going to be a pure play focused in that arena. I think, I’d say, as you look at where they are operating margin wise or their thoughts about how rapidly they can grow their top line. The good news for us is it will provide a nice benchmark. Pure play, nice benchmark for people who will look at [our being our business] and say, how are we, as a company performing, how are we the same as, how are we better than, or where are they better than us?

It will be helpful to us in that regard because I think it will help people think better in a – that will give people another data point to think about how we’re doing there. Our margins, if you really fully loaded them in our business, you're looking at our segment. I will say, we're like high-20s. I think we are 30%, but you may allocate a little bit more R&D because some of it’s being corporate and not allocated there. We still compare pretty favorably to where they want to be in terms of operating margin. That’s a good thing. Is it all by itself, is that you are better company? No. But it helps to know that we’re in the arena of generating nice margins and margins in that business.

Unidentified Analyst

Good questions. May I throw in a question on XIFAXAN? Am I right that customer is very marginal threat to Bausch to XIFAXAN franchise? And they also announced that they are looking to study for IBS, so could you comment on that please?

Paul Herendeen

Sure. Yes, they launched for traveler's diarrhea. For those XIFAXAN franchise, we do sell XIFAXAN for traveler's diarrhea it is like 1.5% of our aggregate XIFAXAN sales. So, from the perspective of this – it is just a giant competitive threat, I would submit no. Second is, of course I’m incredibly bias, but I think that the clinical data suggest that XIFAXAN as prior for TS is. Stats up pretty favorably against the Cosmo product. So, set that part aside, I think the more interesting thing is, people have said, well, I was just going to be used off label the TD product for IBSD and does it provide a gate? So, I will make a couple of comments.

So, just like one, in its present formulation my belief is and I’m not the most scientific person within the company, but belief is that rifamycin with the MMX technology is a product that predominantly acts in the colon and if you are going for IBSD, you want to see the action more in the small bowl. And so, yes, they are going to pursue IBSD. You will have to ask them, but I would guess that would be in a different formulation of what you see with their TD product, maybe not, just that I am not the most scientific, but I think would guess that we read in different formulation, I would point out it took us a good long-time to get XIFAXAN approved for IBSD as a challenging – is it a challenging pathway and it is expensive and of course they are going to try. Question upfront here. Hold on, so you get the web. Thank you.

Unidentified Analyst

Could you just talk about management incentives?

Paul Herendeen

Sure. I think we have now focused on a variety of things that no longer, actually no longer, we’re not previously part of the mix. Some we are focused on return on invested capital, I think an appropriate mix of longer-term incentives tied to total equity returns. Across the board, I think that the various incentive schemes and so all three, it’s competitive salary, it is an annual bonus, and its long-term equity in equity incentives. I think we’ve aligned with what we think we need in order to make our company successful. So, all of those elements are part of our work incentive plans to day and that’s different. We focus for example, before Joe and I got here, none of the individual divisions were really focused on the balance sheet and what was being invested in [part].

Unidentified Analyst

Can you be specific about like the annual financial metrics are tied to and then the long-term, similarly what in particular are you focused on?

Paul Herendeen

I mean, the easiest ones are in the near-term, obviously revenue is extremely important and our primary valuation or I should say primary key performance indicator for us is adjusted EBITDA. So, adjusted operating profit and performance against targets are set annually by our board. We separately have longer term incentives tied to the equity, which is tied to – it’s a three-year look back at the ends at how did you perform relative to there the markets are large.

Unidentified Analyst

And you said also versus the balance sheet as well?

Paul Herendeen

Yes. We’re also – a part of the annual bonus is based on asset efficiency and that was a new concept. I have said these many times. We have to put to a lot of these things in place, it took a little bit of time, but I think we’ve no aligned where we have the appropriate incentives to drive the behavior that will lead to value creation for stakeholders.

Unidentified Analyst

On dermatology, could you maybe update us and on – you would read a status of the approval?

Paul Herendeen

Let’s start, yes, I will start with I do agree with. I’m really excited about by the way. We have PDUFA date for delivery in February coming up, and I’ll knock on wood, there’s no wood up here, but I will knock on wood and we will have the opportunity to launch that brand early in early in 2019. I’m excited about it because we are making a play in psoriasis. In the more differentiated bringing value to that category. I think we’re doing a great job. We start with Salix, Salix we have a challenging label there, but we are week to week to week go Bill Humphries and his team at Ortho Dermatologics is doing a great job of retching it up. The thing that from my perspective, Salix was like a great opportunity for us to get in, call in those docs that are going to be the very same docs that are going to be the likely prescribers of BRYHALI, which were launching right now, and then in the future DUOBRII. I think, we can be a real big player overall in psoriasis.

I think, the products that we’re bringing there are as I said differentiated and bring value to the patients and bring value to the broader health care system because they provide opportunity for a more cost-effective management of the disease state. So, really excited about those. Two of those brands actually all three of those brands are part of our significant seven that we expect when we talked about it back over a year ago. So, aggregating levers of less than $100 million where we think over a period of time, we have got that to over $1 billion of revenue. Certainly, those two topicals are a big part of it.

Unidentified Analyst

Sorry. Just another quick one, one of the more interesting parts of value, and [indiscernible] all the adjustments to the income statement and everything else, and you also mentioned that management sentence are based on adjusted operating profits. Can you just give me a quick list of what is no longer being adjusted for that you get in incentivized for because of the income statement was kind of a tortured experiment?

Paul Herendeen

Well, let me address that and say when. First of all, whatever the policies were when under the old regime about how they wanted to define, adjusted net income or adjusted operating profit when Sam Eldessouky was my Chief Accounting Officer and my trusted partner SVP of Finance, when he and I sat down right, where [indiscernible] said, what we wanted to add was a debt center middle of the road, not controversial at all definition of adjusted EBITDA. I call your attention to the slide deck that we publish every quarter. It is relatively straight-forward in getting form our GAAP measure and there is a reconciliation there and what you see it is obviously [indiscernible]. It is revaluation of intangibles. It’s share-based comp. It’s the standard things that you might think of in a – if you are financial analyst and everybody here is, and thinking about, how do I think about this business in a steady state.

Most important there was, that Sam, myself and his team we put in place a process where we don't just decide, oh, that’s an adjustment, there is a rigorous process that is put in place and shared with our audit committee about the nature of expenses that will be appropriately included as part of that adjustment to get to adjusted EBITDA. Again, I call your attention to the slides that we publish and if you lay those down, next they will go back, how many years you want to go back and look at the difference and I’d say, we’re dead center of – in the middle of what I would call a reasonable definition there and again the important part is, we have put in place processes where there is some rigor around it and there is transparency about what we do choose to add back to get to a definition of adjusted EBITDA.

Unidentified Analyst

When you look across the portfolio it seems the diversity of the portfolio may offer limitations on our ability to create inefficiencies you leverage in areas like supply chain or sale/commercialization, can you talk about things that – where the opportunities are, what you’ve done, what might be happening going forward to drive some better [gains there]?

Paul Herendeen

In interesting, there are some opportunities in the supply chain, globalizing that supply chain, one of the smartest things that Joe did initially after joining the company was, he looked and said, oh my gosh, we don’t have a global supply chain here, and therefore you're not getting the kinds of efficiencies you might be able to get with respect to both direct purchasing, in-direct purchasing. And a whole host of things and he took a fellow named Dennis Asharin, who was just a terrific guy and Dennis has globalized that function. You look at our P&L, efficiency in the supply chain, it was an important driver of, kind of how you can get your margins up and I think Dennis already was doing it before I joined, but then when I joined I partnered with Denis and that is a continuous process of looking for ways that we can improve the efficiency of that supply chain that we think there is more to come there.

With respect to the sales footprint and all that you’re right. I mean there is not a lot of crossover. You have to be fully positioned against your market opportunity for your – derm is different, then GI is different, then Ophtho Rx different, then lenses is different, then surgical. So, each one of those, but I think our footprint today is one that as we grow, I would expect that footprint has to grow whole heck of a lot, so we have the opportunity to gain operating leverage. There are synergies in how we house our businesses around the world. We are a global company. Little under, I call it 45% or so of our revenue outside the U.S. and that number might be a little up, but it’s slightly less, but a very meaningful number. We shared a lot of locations, so we get to leverage kind of the G&A infrastructure and footprint.

Unidentified Analyst

Do you have any targets for what you are trying to do in terms of improvement by the supply chain efficiencies?

Paul Herendeen

We did express a target that we felt like we could get another sort of 100 basis points I believe of improvement in our gross profit margin over a period of time. I will tell you that that is over a period of time. The low hanging fruit, we were able to get a lot of that in 2017. We continue to realize it in 2018. I think if you look at our margin and the margin improvement that you saw in our most recent quarter, a good part of that comes from Dennis and his teams doing a much better job of capitalizing on that low hanging fruit. The longer-term objective will rely on us implementing global systems which will help to drive that efficiency over time. So, that is a longer-term project.

Unidentified Analyst

Have you communicated a timeframe to get the leverage down below five times?

Paul Herendeen

I have not, but in a roundabout way you can certainly get there. Earlier this year, we provided longer-range guidance of what we felt our top line would be over a 4, 5-year time horizon, both top line and our operating profit progression not linear, to be clear, not linear. However, we did provide that and if you marry that to your balance sheet model, I think what you’d see is in a 4 to 5-year timeframe. You get there kind of naturally by deploying your cash flow to reduce debt and that plus the growth of the adjusted EBITDA gets you to that place.

Unidentified Analyst

Thank you. So, we're coming to an end, but maybe if you could conclude with your key messages for equity and credit investors today?

Paul Herendeen

I think it is the same for both from my opinion for both debt and equity investors is, when Joe started and when I joined him, I got to tell you that people just didn't think we could do good things with the businesses that we owned. We provide as I reference that deck that we provide every quarter. There is a lot of information in there. There is a lot of transparency in there where you should be able to look and say, is this team that we’re building capable of driving each one of these businesses to grow over the long-term and if you believe that boy, we look like a terrific equity investment and if the equity is doing well the debt is doing well too.

Unidentified Analyst

Thank you very, very much for joining us and accepting the invitation and thank you for asking question and listening.

Paul Herendeen

Good questions for the audience. Thank you.