Wajax Corp

TSX:WJX

Earnings Call Transcript 2019-Q3

[Operator]

Thank you for attending Wajax' 2019 Third Quarter Results Webcast. On today's webcast will be Mark Foote, Wajax' President and Chief Executive Officer; Mr. Stuart Auld, Chief Financial Officer; and Mr. Trevor Carson, VP, Financial Planning and Risk Management. Please be advised that this webcast is being recorded. Please note that this webcast contains forward-looking statements. Actual future results may differ and expected -- from expected results.I will now turn the call over to Trevor Carson.

[Trevor Carson]

Good afternoon, everyone, and thank you for participating in our third quarter results call. This afternoon, we will be following a webcast, which includes a summary presentation of Wajax' Q3 2019 financial results. The presentation can be found on our website under Investor Relations, Events and Presentations. To begin, I would like to draw your attention to our cautionary statement regarding forward-looking information on Slide 2. Additionally, non-GAAP and additional GAAP measures are summarized on Slides 13 through 20 for your reference. Please turn to Slide 3. And at this point, I'll turn the call over to Mark.

[A. Mark Foote, President, CEO & Director]

Thanks, Trevor. I'll provide some highlights on our third quarter before turning it over to Stu for commentary on backlog, inventory and the balance sheet. Looking at Slide 3, revenue declined approximately 1% in the third quarter. The result was below our expectations and was up against a tough comparable from last year's Q3 when consolidated revenue was up 23%. This year's strong sales in Eastern Canada and an improving trend in Ontario did not fully offset a decline in the West. Sales momentum in Western Canada decelerated as the quarter progressed and was particularly weak year-over-year in September. We'll provide additional comments on regional performance in just a moment. EBIT improved 5% in Q3, SG&A was $4.7 million lower year-over-year in the third quarter, resulting in a cost of sales ratio of 13.6%. The gross margin rate of 19% was unchanged compared to last year and includes a $1.2 million cost associated with engineering project losses which is equal to approximately 30 basis points in gross profit or $0.04 a share. These costs closed out 2 projects where overruns are not to believe to be recoverables from subcontractors to manufacturers. And we chose to complete these projects in the third quarter at our cost to ensure we serve the needs of 2 large customers. Adjusted EPS of $0.52 in Q3 was up 8% to last year. We'll have further comments on adjusted earnings in just a moment. And finally, safety performance continued to be very strong in the third quarter, as indicated by a TRIF rate of 1.01 and a year-to-date TRIF of 0.85. Our most important day-to-day responsibility is workplace safety, and we thank the entire Wajax team who continue to do an excellent job. Turning to Slide 4. Central Canada sales of $71 million increased 1% in Q3, which is an improvement in trend from the first half, which was negatively affected by the loss of a road building line. Excluding the road-building issue, sales in Central Canada were up 4% in Q3 and are up 3% year-to-date. The Ontario market remains a very significant focus for Wajax and our efforts to grow the business to volumes more comparable to our Eastern and Western Canada regions continues. Eastern Canada sales of $152 million were up 27% in the third quarter, continuing a very positive trend. Sales momentum was driven by the non-comp revenue from Delom and by ongoing strength in a broad range of categories, including construction, forestry and industrial parts. Our increasing scale in Eastern Canada and the opportunities we have in Ontario continue to provide offsets until Western Canada market conditions improve. Western Canada sales of $142 million were down 20% in the third quarter. And as previously noted, they decelerated in the quarter and were weakest in September. Lowering our equipment sales are the primary issue in the west, resulting from prior year mining sales, which did not repeat this year; and weaker market conditions, most specifically in construction. We believe that wet weather conditions were also a factor for our heavy equipment customers. Our Western Canada market share and construction excavators and forestry equipment improved in the third quarter, which helped to offset the negative effect of some of these market conditions. Turning to Slide 5. Equipment sales of $109 million were down 19% in the third quarter, driven primarily by Western Canada for the previous comments relating to both mining and construction. In mining, we have an excellent equipment backlog that will improve that trend going forward. And in construction, while we expect conditions to remain challenging, we continue to have market share growth opportunities, as evidenced by the share growth we experienced in the third quarter and year-to-date. Industrial parts sales of $90.7 million were up 2.4% in the third quarter. Strength in Eastern Canada continued to offset weakness in the west. Central Canada sales were comparable year-over-year. Product support sales of $117.1 million were essentially flat in the quarter. Strength in Eastern Canada offset weakness in the West and sales declines in Central where construction product support declined due in part to the road building line. Turning to Slide 6, I'll provide some additional commentary on market conditions affecting certain categories in the quarter and year-to-date, but to avoid repetition, I won't go over earlier comments made, but feel free to ask any questions that you have later in the call. Using the construction class excavator unit market as a proxy for overall conditions, Q3's market was down 14%, Western Canada market declined 24% with less significant declines in Central and Eastern Canada. We continue to see reasonable pipeline in construction quoting activity, have ample inventory on the ground, and we're working to continue to build on market share gains we've made this year and to improve our product support service level. Our manufacturing orders on additional inventory began being adjusted in the second quarter, April, specifically, reflecting changing market conditions and a focus on a reduction of existing inventory. New equipment margins in construction improved. In forestry, we saw results in all regions and solid market share across all equipment classes. We continue to work to offset weakness in the BC market with opportunities in Central and Eastern Canada. And finally, we remain bullish on mining-related businesses, including equipment, industrial parts and our ERS sales to mining customers. This perspective relates to our oil sands and conventional mining customers. Mining equipment backlog increased again in the third quarter, providing additional visibility to future sales, and Wajax continues to invest in additional resources and inventory to support demand for our mining customers. Please turn to Slide 7. Adjusted net earnings of $10.3 million or $0.52 a share increased 8% in the third quarter. Improved cost efficiency and a constant gross profit rate offset higher finance costs to deliver earnings growth at slightly lower revenue, focused on working capital improvements to lower finance costs and ongoing cost and margin management in what appears to be a tightening market conditions. And included in our adjusted earnings in the third quarter was a pretax restructuring provision of $3.9 million related to a planned management realignment. The changes are expected to result in annualized pretax SG&A savings of approximately $5 million, of which $500,000 is expected to occur this year. The operations effect of these changes improves local market accountability to our customers, strengthens the regional alignment of our sales and product support teams and integrates Delom and our legacy ERS business into one national platform.Please turn to Slide 8, and I'll turn the call over to Stu.

[Stuart H. Auld, Chief Financial Officer]

Thanks, Mark. Our Q3 backlog decreased $8.6 million or 3% sequentially from the previous quarter, and increased $47.7 million or 20% on a year-over-year basis. The sequential decrease relates to lower forestry, power generation and construction orders, offset partially by higher mining orders. The year-over-year increase relates to higher mining and marine orders, offset by lower material handling and power generation orders. Although we experienced a 19% decline in equipment revenue compared to Q3 2018, our equipment backlog is $47 million or 28% higher than it was at the same time last year. Level of backlog is supportive of achieving our short- and medium-term sales goals and provides better visibility as we navigate market uncertainty through Q4, which Mark will speak to momentarily. Please turn to Slide 9 for an update on our current inventory levels. Inventory, including consignment, decreased $3.1 million compared to Q2 2019, and increased $109.3 million compared to Q3 2018 and is primarily higher across our targeted growth categories. Consignment inventory decreased $22 million from the previous quarter. As previously stated, we expected Q2 2019 to represent the high watermark as it relates to inventory. That said, levels did not recede as much as we anticipated primarily as a result of lower-than-planned sales volume. As stated previously in this call, we began adjusting our inventory orders based on market conditions and are focused on reducing equipment level. We continue to expect that inventory levels will decrease over Q4, which we will anticipate will have a positive impact on working capital, cash flow and leverage. Please turn to Slide 10, where I will provide an update on financial position. Our Q3 leverage ratio increased compared to Q2 from 2.71x to 2.81x primarily as a function of higher debt levels associated with the increase in working capital, partially offset by higher trailing 12-month adjusted EBITDA. We continue to focus on working capital efficiency, which is a key component in managing our overall leverage targets, and we expect the ratio to improve further over the balance of the year. All actions aimed at lowering working capital are expected to increase RONA over time, which will have the additional benefit of lowering our working capital to sales ratio, increasing inventory. Additionally, we continue to evaluate ways to unlock cash from the business. And as such, have completed a market value assessment of our owned real estate holdings. Opportunities to sell redundant real estate as well as sale and leaseback opportunities have been identified. Proceeds from any real estate sales will be used primarily for debt repayment. The earnings impact from the sale and leaseback transactions is not expected to be material as any gains are expected to approximately offset by the incremental lease costs over the term. Finally, the Board has approved our fourth quarter dividend of $0.25 per share payable on January 3, 2020, to shareholders of record on December 16, 2019. We remain confident in the sustainability of our dividend at this level and across the business cycle. Please turn to Slide 11. And at this point, I'll hand the call back to Mark to provide a brief update on our 2019 financial outlook and concluding remarks.

[A. Mark Foote, President, CEO & Director]

Thanks, Stuart. Market conditions -- I'm looking at Slide 11, market conditions declined in the third quarter, most significantly in Western Canada, resulting in a deterioration of revenue momentum as the quarter progressed and us falling below the expectations we had for the quarter. We're recognizing the possible effect of these conditions. Wajax has not changed its operational plans and continues to expect 2019 full year adjusted net earnings to increase over 2018 based on consolidated revenue improvements and the full year effect of the acquisition of Delom. Continue to focus very closely on margin rates, costs and inventory management will pursue -- while we pursue our growth plans. And leverage is expected to remain within acceptable boundaries, and we believe the corporation maintains sufficient financial flexibility to execute its 2019 plan.And with that, we'll open it up for questions.

[Operator]

[Operator Instructions] And your first question comes from the line of Michael Doumet from Scotiabank.

[Michael Doumet, Analyst]

So Mark, you commented on construction in Canada being weakest in September. I'm just wondering, based on what you're seeing in October, would you qualify that impact as being maybe mostly weather-related in September? Or should we expect that trend to continue through Q4?

[A. Mark Foote, President, CEO & Director]

We've had that conversation a lot internally, Michael. I think it's safe to say we think the weather had an impact on sales in both August and September. And we have seen October trends improve from what we were experiencing in September.

[Michael Doumet, Analyst]

And then based on your prior comments, I also think that you were hoping for a bounce back in spend in mining in Q4 with the delivery of, I think, a shovel or 2. Can you remind us what that contribution look like for Q4?

[A. Mark Foote, President, CEO & Director]

Yes, I think we've previously disclosed, we had 1 large shovel delivery in the fourth quarter. And that being the EX8000, so call at between $15 million and $20 million, depending on the final count.

[Michael Doumet, Analyst]

Okay. And then just turning to inventories. Obviously, ended a little bit higher than presumably you would have liked. Which categories -- maybe which categories do you think you had the most inventory versus, I guess, expectations? And maybe can you quantify what you would qualify as excess inventories as at Q3?

[A. Mark Foote, President, CEO & Director]

If you -- so I assume your question is sequentially as compared to Q2?

[Michael Doumet, Analyst]

Yes. And the other question too is like, in terms of how much inventory you're carrying versus what you would like to be carrying now? And maybe quantifying that excess inventory in terms of how much would it take to normalize, basically?

[A. Mark Foote, President, CEO & Director]

The inventory we're carrying, that's in excess of what we had anticipated. And I just want to stress that the quality of inventory is excellent. So excess doesn't mean a problem for inventory. It just means more than we were expecting, we were expecting to carry. Most of that -- well, all of it's in equipment, and the majority of that is in construction. There's a little bit of material handling but the majority is in construction. And I would say that we're probably heavy, call it, roughly between $20 million and $40 million and would have -- that we would have been carrying inventory, so we're expecting to see some degree of correction in the fourth quarter. So -- but the quality in inventory is excellent. And we've been through it very carefully, and we managed the inbound order side of it starting quite a while ago. And with around a fair amount of work, we've managed to lower the margins. So we do think the inventory is going to wind itself down a bit, and we do not see a margin dilution as a [indiscernible]

[Operator]

And your next question comes from the line of Derek Spronck from RBC.

[Derek Spronck, VP of Industrial Products & Analyst]

Just a quick question around some of the weakness in Western Canada. Do you feel that it's stabilizing over there? And was there any difference between private versus publicly-funded construction activity?

[A. Mark Foote, President, CEO & Director]

I don't know, Derek, if we know the answer to your second question. The quarter was a bit difficult to read in Western Canada because it bounced around pretty aggressively. And we wouldn't expect it to see the sales line in September that we saw. BC forestry, from an equipment standpoint, that's got some real challenges associated with just generally a pretty weak market. And construction activity in the Prairies and BC, as we said, was just less than we expected. So we have seen some degree of improvement in trend in October, so that's positive. But I can't really tell you what was public versus private. I'm not sure I know that.

[Derek Spronck, VP of Industrial Products & Analyst]

Okay. No, that's fair enough. Are you finding that the overall competitive factors or pressures, is it increasing in Western Canada due to the softening in demand versus Eastern Canada? Or perhaps the strength in demand might provide a better kind of competitive dynamic there? Or is it still pretty competitive business all around?

[A. Mark Foote, President, CEO & Director]

Yes, I don't -- I think it's pretty competitive regardless of where you are. If margins are a proxy for a change in the level of competition, our margins were actually stronger on construction equipment in the West than they were at the same period last year.

[Derek Spronck, VP of Industrial Products & Analyst]

Okay. And you're reiterating your outlook. Anything behind that, that gives you that confidence that you should be able to reach your stated guidance there? And do you feel that you're coming close to being sufficiently rightsized relative to the end markets? Or as the end markets are kind of softening further, you might need to take even further rightsizing initiatives?

[A. Mark Foote, President, CEO & Director]

Did you mean rightsizing in the sense of costs, Derek?

[Derek Spronck, VP of Industrial Products & Analyst]

Yes, yes.

[A. Mark Foote, President, CEO & Director]

We're pretty efficient today. I think the SG&A to sales ratio is fairly good. You saw that we made some additional management changes, which simplified the organization. That had been planned for a little bit, so we didn't -- we executed it in the third quarter. So that will take a bit of cost out of the business. $5 million, I think, we reported on an annualized basis. The market conditions right now are -- they're a bit difficult to read. So some of our markets like industrial, that continues to plow along at a reasonably decent clip. Our ERS business is strong, Material Handling, et cetera, et cetera. So the things that aren't really affected by Western Canada construction, even our resource businesses are doing reasonably well. So I think we're going into next year with probably a little bit of conservatism with respect to our original plans. We feel -- still feel pretty good about our 2021 guidance that we've previously provided. So we're still very dedicated to hitting that. But we've taken some actions with respect to margin and cost contingency plans, which we feel we may have to employ if market conditions don't improve from where they're at. But right now, we're cautiously optimistic that next year will be reasonably good, and that we'll fulfill our guidance for the fourth quarter.

[Operator]

Your next question comes from the line of Michael Tupholme from TD Securities.

[Michael Tupholme, Research Analyst]

Mark, can you shed a little bit more light on the engineering project losses, the $1.2 million. Did I understand you indicate that those projects are now done? And if that is the case, does that mean there should be no further risk associated with those projects in terms of potential additional losses?

[A. Mark Foote, President, CEO & Director]

Yes, those projects are complete, Michael, and we've accounted for essentially everything that's associated with them. So I mean there's always some degree of risk in engineering projects, but it would be unusual for Wajax to take a loss like that, but we thought it was in the best interest of some pretty big customers. So we did so in the third quarter and they are closed.

[Michael Tupholme, Research Analyst]

Okay. It sounds like it's -- you view it as sort of a one-off, like it's not indicative of -- it's not a function of characteristics associated with these projects in general. And even though these are done, we should be worried about the prospect of these kinds of things happening more frequently. Is that all fair to say?

[A. Mark Foote, President, CEO & Director]

Fair to say.

[Michael Tupholme, Research Analyst]

Okay. Just in terms of the -- you addressed the large mining shovel delivery for the fourth quarter. But can you help us just remind on 2020, the timing of any orders and deliveries for large mining orders in 2020.

[A. Mark Foote, President, CEO & Director]

I would have to get back to you, Michael. I think that's moving around just a little bit, but I believe there are 3 large shovels in next year's plan, and potentially one more than that, but we're still working on a couple of things. But I believe we've got 3 large shovels in backlog right now, the third of which entered in the third quarter. And I -- if you wouldn't mind us getting back to you with the exact dollar value, I suspect the numbers around $50 million to $55 million for all 3. If that's inaccurate, we'll get back to you with the number, but I think you can probably walk around with that as a decent answer.

[Michael Tupholme, Research Analyst]

Sure. And I was also just interested in timing, but if you don't have that, we can take that offline as well.

[A. Mark Foote, President, CEO & Director]

We're still working with a couple of customers on it. It's in the year, but we just want to make sure we've got the timing correct.

[Michael Tupholme, Research Analyst]

Okay. In terms of the Delom acquisition, you're now -- as we look to the fourth quarter of 2019, you're going to be -- you'll have lapped the quarter in which you made the acquisition or you will be in the fourth quarter. So just wondering if you can talk a little bit about how that business has been performing organically? Because I guess that's going to be more important as we look out to 2020. And then I guess related to that, as I recall, 2020 is the year that maybe you expect to see some more synergies coming out of that business. So any further thoughts on the synergy front for Delom as we look to next year.

[A. Mark Foote, President, CEO & Director]

Well, I guess, 2 things. First is we're really pleased with the performance of the business. We based our return on essentially, the same that we worked with when we purchased the company, and that's pretty consistent with where we're at. The combination of the Delom business and our legacy ERS infrastructure is underway right now. So the combination of management teams, et cetera, and really leverage of the sales team. So we feel no different about what the potential of that business is, and it's likely to carry -- ERS and industrial are likely to carry a larger proportion of the growth requirements in how we think about next year, if for no other reason, just to mitigate the risk of the equipment markets aren't as strong as we had hoped. So we're still going to push hard on all the categories we've talked about in Construction, Material Handling, et cetera, but we plan to push the industrial and ERS business is a bit harder than we may have pushed them this year. They're much -- they're pretty balance-sheet-friendly businesses. They're accretive to margin. And they're good day-to-day business. So we're feeling pretty good about where we're at right now and what's coming for next year.

[Michael Tupholme, Research Analyst]

Okay. And then just lastly, when I look at your outlook commentary, you essentially reiterated your expectation to deliver year-over-year earnings growth this year. And I recognized you'd not provided specific rate of growth guidance previously. I'm just trying to understand, is the outlook unchanged or from the perspective of whatever that rate of growth you do expect to deliver? Or in view of the softer market conditions you saw in Western Canada in the third quarter, are you -- would you expect to deliver a lesser rate of growth even though I recognize you've never given us a number, but is that rate of growth somehow tempered a little bit by what you've seen in the third quarter in Western Canada or any other factors?

[A. Mark Foote, President, CEO & Director]

Probably best to say that we don't believe that the sales shortfall we experienced in the third quarter is fully recoverable. So internally, our expectation of growth would be less. But we feel comfortable with the ability to show an improvement year-over-year.

[Michael Tupholme, Research Analyst]

Okay. And you weren't -- that would have flowed through to your earnings expectations, you weren't able to offset that through better cost management. So in fact, the sales shortfall or the sales coming in less than you had expected would potentially weigh on what you will do relative to what you thought you could do previously?

[A. Mark Foote, President, CEO & Director]

Yes.

[Operator]

Your next question comes from the line of Devin Dodge from BMO Capital Markets.

[Devin Dodge, Analyst]

So I just wanted to get started with maybe some of the real estate transaction you kind of spoke about. Do you have a sense or a target for the expected proceeds for many of the real estate sales or sale and leaseback transactions?

[Stuart H. Auld, Chief Financial Officer]

Yes, at this point, it's not going to be an insignificant amount, but we haven't finalized the plans, and we'll be in a position to update probably much later in the year.

[Devin Dodge, Analyst]

Okay. So maybe something like with Q4 results? Or is it '20...

[Stuart H. Auld, Chief Financial Officer]

Yes. Yes.

[Devin Dodge, Analyst]

Okay. Okay. I guess I mean you talked about inventory. I just wanted to make sure that maybe this carried over to some of the consignment inventory you have. Just wondering how you're feeling about that, just given the weaker demand for construction equipment that we saw in Q3? I was trying to get a sense that this inventory is beginning to age out a bit.

[A. Mark Foote, President, CEO & Director]

I wouldn't say there's -- I mean we are beginning to make deposits on consignment inventory. That's been the case for the last number of months. So that's part of our cash planning right now. There's nothing about the inventory. It's very current models. There's nothing about it that poses some risk about our ability to sell it or something like that. So consignment inventory for us is really essentially prioritized based on receipt dates. Obviously, respecting what the customer is looking for. But we try to prioritize the consignment inventory with the earliest receipt goes out the door first to reduce the deposits on the inventory. But we have started to make the deposits. The orders have been constrained because we've got a fair amount of gear on the ground. And we're very confident we'll work through it in a pretty orderly fashion.

[Devin Dodge, Analyst]

Okay. I mean that makes sense. But can you remind us, like, how does that process work? Like what level of deposit do you -- if the machine, as you know, if that consignment period has expired? Like how quickly does that ramp up where you have to pay the full amount?

[A. Mark Foote, President, CEO & Director]

We have till the ninth month. We begin to make deposits on the inventory, and it works on a declining balance. So it never really gets fully paid, but it works on a declining balance over the course of time. It's unusual for us to have inventory on the books for longer than 12. It's happened, but it's unusual. So our focus is on essentially taking inventory and prioritizing it based on where we're going to have to part with cash before it.

[Devin Dodge, Analyst]

Okay. And I apologize if this is in the notes, I might have missed it, but have you disclosed the level of deposits that you put down for the consignment inventory?

[A. Mark Foote, President, CEO & Director]

Yes. They are in the financial statements and deposits on...

[Devin Dodge, Analyst]

Okay.

[A. Mark Foote, President, CEO & Director]

Sorry. It's about $23 million. It's in the financial statement.

[Devin Dodge, Analyst]

Okay. Okay. Maybe one last question. SG&A expenses were a fair bit lower in Q3 than in the prior quarters on a dollar basis. Just how do you see these costs playing out in Q4 and maybe into 2020? Should we expect something closer to the $56 million in the first half? Or maybe the $49 million that we saw in Q3?

[A. Mark Foote, President, CEO & Director]

I would think about it as a percentage of sales basis because it will go up and down in accordance with sales because a lot of our costs on the sales commission side and things like that are variable. So it's probably -- the walking around number we've given people is the range of 14.5% to 15.5%. Around 14% is probably a good [indiscernible]

[Operator]

Your next question comes from the line of Ben Cherniavsky from Raymond James.

[Ben Cherniavsky, Managing Director & Head of Industrial Research]

I -- when I look back at these restructuring charges, Mark, they've been almost $27 million of them going back to 2014, I think in every year, except one which we've been asked to normalize for. There was a question about, are you done with this, but let me ask it a different way. What is taking so long and cost so much to get what you want out of this business?

[A. Mark Foote, President, CEO & Director]

Well, it's a good question, Ben. I think there's been essentially 3 tranches of effort. And I can tell you that further restructuring absent some significant market change that we're not really anticipating. It's not really planned right now. The biggest tranche of change we did was in 2016 when we eliminated the 3 prior segments. And then we had 2 additional changes to make. One was in finance, which we're essentially through right now because we had to consolidate 3 independent finance organizations. And when we reorganized the company in 2016 for a whole bunch of pretty good operational reasons. We kept the sales and product support teams separate under different leadership structures. And what we did with this particular change was we harmonize those, which was part of the plan originally. I just didn't want to do it too early. So we could have probably taken one big restructuring charge in 2016 and tried to run the whole change through the system faster than we did, but I think the risk associated with that to the business and customers, et cetera, would have been too high. So we're -- I think we're generally feeling pretty comfortable with this as -- I'll never say final, but the last plan change that we're making, and we feel the savings are definitely very good to us. But the simplicity of our company effective the end of this change is orders of magnitude better and more efficient than it was 3 years ago.

[Ben Cherniavsky, Managing Director & Head of Industrial Research]

Right. And there was a pretty significant reduction in your G&A. Is that -- this quarter. Is that -- part of this is pulling through, but there's -- I mean because there's multiple moving parts is also IFRS, which moved some of the expenses below the line. I wonder if you can just help sort of -- sort that out a bit for us?

[A. Mark Foote, President, CEO & Director]

I wouldn't say that the restructuring provision we took in the quarter didn't really result in a ton of SG&A improvement of ...

[Ben Cherniavsky, Managing Director & Head of Industrial Research]

No, but sorry, sorry to interrupt, Mark, but I'm thinking about sort of past restructuring that's been incurred.

[A. Mark Foote, President, CEO & Director]

I'm sorry, ask your question again, then I misunderstood.

[Ben Cherniavsky, Managing Director & Head of Industrial Research]

Sorry. No, I'm just thinking like -- because it's been a long process. There's been lots of other -- as you pointed out, lots of other restructuring that's happened over the last few years. So there's -- some of this is pulling through, that must be in the G&A already. Yes?

[A. Mark Foote, President, CEO & Director]

Yes. And all the costs that we said we would say we have. Now we may have reinvested that in more salespeople and more technicians. But the cost, we said the cost reductions we forecasted in 2016 have come through. The finance cost reductions have come through, and I'm certain that these cost reductions will come through also. So it's dropped the business to, call it, a stable run rate of maybe about 14 points. And that is a bit better than it would have been historically.

[Operator]

There are no further questions at this time. I turn the call back over to our presenters for any further closing remarks.

[A. Mark Foote, President, CEO & Director]

Well, thank you very much for your time today, and we look forward to bringing you up-to-date on the business with our fourth quarter call. Have a good day.

[Operator]

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