Q3 2019 Earnings Call
Actually reports third quarter 2019 financial results call.
At this time, all participant lines normal listen only mode.
After the speakers presentation there'll be a question answer session.
That's good question during the session you would need to press star one on your telephone.
Please be advised to today's conference maybe recorded.
If you acquire any further systems. Please press star zero to reach an operator.
I'd like to turn the call over to Josh Oh Persky. Please go ahead Sir.
Thank you.
Good morning, and welcome to the Gentex Corporation third quarter 2019 earnings release Conference call I'm, Joshua Bearskin, Gentex director of Investor Relations and I'm joined by Steve Downing, President and CEO , Kevin Nash, Vice President Finance, <unk>, CFO , and Neil Boehm, Vice President of Engineering and CTO.
This call is live on the Internet by way of an icon on the Gentex website at Www Dot Gentex Dot com.
Okay intensive this conference call or the property of Gentex Corporation and May not be copied published reproduced rebroadcast retransmitted transcribed or otherwise redistributed.
Gentex Corporation will hold responsible and liable any party for any damages incurred by Gentex Corporation with respect to any unauthorized use of the contents of this conference call. This conference call contains forward looking information within the meaning of the Gentex Safe Harbor statement included in the Gentex reports third quarter 2019 financial results press release from earlier this morning.
And as always shown on the Gentex website. Your participation in this conference call implies consent to these terms.
Now I'll turn the call over to Steve Downing, who will give the third quarter 2019 financial summary, steep thank you Josh.
For the third quarter of 2019, the company reported net sales of $477.8 million, which was an increase of 4% compared to net sales of $460.3 million and the third quarter of 2018.
The 4% growth was accomplished despite global light vehicle production declining approximately 3% and the third quarter of 2019, when compared to the third quarter of 2018.
The actual global light vehicle production levels also worsen in excess of 3% for the third quarter of 2019, when compared to I just markets mid July forecast.
For much of the year actual light vehicle production levels have fallen well short of estimates and this trend. Unfortunately continued in the third quarter of 2019.
The lower than expected vehicle production, what's despite the fact that the third quarter of 2019 had easier comparisons than last year.
Additionally, the G.M. strike limited sales by 2% in the quarter.
Our total growth rate of 4% means that we effectively outperformed our underlying markets by 7% to 9% during the third quarter of 2019.
For the third quarter of 2019, the gross margin was 37.7%, which improved when compared with the gross margin of 37.6% for the third quarter of 2018.
The gross margin in the third quarter up 2019 was negatively impacted by tariff that in total represented 110 basis points of headwind.
On a quarter over quarter basis, the tariff impact on the gross margin for the third quarter of 2019 was 50 basis points higher than the tariff impact in the third quarter of 2018.
In total the gross margin in the third quarter of 2019 improved 10 basis points versus the same quarter last year. Despite the fact that they impact of tariffs created a 50 basis point headwind on gross margin versus last year.
The gross margin performance was driven by a mid single digit growth rate positive product mix better than expected purchasing cost reductions and the team's success in mitigating some of the escalating costs related to tariffs that have had been impacting the company.
Operating expenses during the third quarter of 2019 were up 15% to $52.2 million when compared to operating expenses, a $45.6 million in the third quarter of 2018.
Operating expenses ran slightly ahead of our expectations for the third quarter of 2019, but we believe the fourth quarter will be more in line with the growth rates from the first half of 2019 and within our annual guidance range.
The increases in operating expense in the quarter were driven by head count and other resources required to fund development and launch of new products travel and other resources associated with mitigation of tariffs.
Increased legal and professional fees associated with a minor acquisition of new technology, and our ongoing focus on tax planning.
Income from operations for the third quarter of 2019 increased 1% to 128 point $128.1 million when compared to in two income from operations up $127.4 million for the third quarter of 2018.
Net income for the third quarter of 2019 increased by 1% to $111.9 million compared with net income of $111.3 million in the third quarter of 2018.
Earnings per diluted share for the third quarter of 2019 increased 5% to 44 cents when compared to 42 cents for the third quarter of 2018.
Merely as a result of a 6% reduction and diluted shares outstanding from share repurchases due to the continued execution of the company as previously disclosed capital allocation strategy.
During the third quarter of 2019, the company repurchased approximately 3.6 million shares of its common stock at an average price of $27 in seven cents per share for a total of $96.6 million of share repurchases.
To date for calendar year 2019, the company has repurchased approximately 11.4 million shares of its common stock at an average price of $23, an 11 cents for a total of $262.7 million of share repurchases.
As of September Thirtyth 2019, the company has approximately 22.5 million shares remaining available for repurchase pursuant to its previously announced share repurchase plan.
The company intends to continue to repurchase additional shares of its common stock in the future in support of the previously disclose capital allocation strategy, but share repurchases may vary from time to time, and we'll continue to take into account macroeconomic issues market trends and other factors that the company deems appropriate I'll now turn the call.
All over to Kevin for the third quarter financial details thank Steve.
Automotive net sales in the third quarter of 2019 were 464.3 million compared with automotive net sales of 449.2 million third quarter of 2018.
3% quarter over quarter growth and automotive sales was driven primarily by strength in full display mirror unit shipments and an 18% quarter over quarter increase in exterior auto dimming mirror unit shipments. This growth in revenue was partially offset by previously announced product headwinds of approximately 350 basis points when compared to the.
The same period last year. Additionally, the third quarter of 2019 was impacted by approximately 200 basis points and lost sales due to the GM strike.
Other net sales in the third quarter of 2019, which includes Dimmable aircraft Windows and fire protection products were 13.5 million, an increase of 22% compared to other net sales of 11.1 million in the third quarter of 2018, primarily as a result of increased dimmable aircraft window shipments.
During the third quarter of 2019, the company's effective tax rate was 15%, which is up slightly from 14.7% for the third quarter of 2018. However, this rate is down from a 16.4% tax rate for the first half between 19.
The effective tax rate was driven below the statutory rate in both quarters due to the foreign derived intangible income deduction tax planning strategies and discrete benefits related to stock based compensation.
Now for a balance sheet update the following balance sheet items represent a comparison versus December 31 of 2018, which are also included in todays press release.
Cash and cash equivalents were 260.2 million compared to 217 million.
The increase is primarily due to cash flows from operations, which was partially offset by share repurchases dividend payments and capital expenditures.
Short term investments were 207.2 million up from 169.4 million and long term investments were 103 million compared to 138 million.
Fluctuations in the two were driven by changes in fixed income investment maturities within the portfolio.
Accounts receivable increased 39.6 million to 253.1 million, primarily due to the higher sales in the quarter and timing of sales within each of the quarters.
Inventories as of September 30 increased by 13.4 million to 238.7 million.
Accounts payable increased by 2.5 million to 95.3 million.
In other current liabilities increased 10.6 million to 86.9 million, primarily as a result of increases and accrued wages.
Now for some castle highlights.
Cash flow from operations for the third quarter of 2019, or 110.5 million compared with 105.8 million during the third quarter of 18.
And year to date cash flow from operations for was 383.9 million for 2019 and compared with 398.2 million in 2018.
The differences in each of the periods were primarily due to changes in working capital.
Capital expenditures for the third quarter of 2019 were 11.2 million compared with 16.9 million in third quarter of 18 and year to date 2019 capital expenditures were 56.7 million compared with 68.8 million in 2018.
Depreciation and amortization for third quarter.
Was 26 million compared with 24.8 million in third quarter of 18 and year to date depreciation and amortization was 79.3 million compared with 80.1 million in 2018, I'll now hand, the call over to Neil for product update Thank you Kevin.
Third quarter 2019, there were 16 net new nameplate launches of our interior and exterior auto dimming mirrors and electronic features.
The total launches approximately 60% had advanced features.
The percentage of new launches with an advanced feature was slightly higher than our current ratio of advanced feature products to base auto dimming products.
Advanced feature launches in the quarter were led by new launches of Homelink, where there were seven net new nameplate launches.
During the third quarter, we launched base interior auto dimming mirrors on five new name plates for domestic China Oems.
These nameplate launches represent further penetration of our cord auto dimming technology into the China market.
During the third quarter, there was one new nameplate launch for full display mirror and we continue to forecast that we'll be launching seven additional name plates in the fourth quarter.
We're also excited to announce that during the third quarter, we were able to secure or 10 OEM customer for full display mirror.
Our final launch update for today's in regards to our aerospace business.
During the third quarter, we meet or first production shipments of electronically dimmable windows to Boeing for the Triple Sevenx program.
This program represents are second to commercial aircraft program and Waller Dimmable window technologies option on the Triple seven we're excited about the successful launch.
The triple seven launches the first aerospace program for Gentex, where we were sourced as a tier one supplier into the aerospace industry.
This launch is a testament to the hard work of our chemistry engineering and manufacturing teams because not only did we achieve full certification is an aerospace supplier, but we also accomplishes while launching our brand new generation three Dimmable technology.
We believe that the launch of the Triple seven and our status as a tier one supplier in aerospace, we'll continue to provide growth opportunities for us.
I'll now hand, the call back over to Steve for guidance and closing remarks. Thanks Neil.
Today, we provided revenue and margin guidance in our press release, specifically for the fourth quarter of 2019 due to the GM strike and the estimated impact this will have versus our previously forecasted fourth quarter revenue and gross margin.
The following information reflects the company's best estimate of the impact of the general Motors strike as well as changes to Hs markets estimate for light vehicle production in the fourth quarter.
We are using order changes over the last several weeks from GM as the basis of our calculation and we estimate the impact to be approximately $7 million to $8 million and lost sales per week of the strike.
Given the lost sales to date for the fourth quarter of 2019, and our estimate of additional lost sales before the strike ends the company now estimates at the revenue will be between 430 and $455 million for the fourth quarter of 2019.
Based on the updated net sales guidance. The company is estimating that the gross margin for the fourth quarter will be between 35 and 36%.
Our full year estimates for calendar year 2019 are based on the mid October Hs market light vehicle production forecasts.
Forecasted product mix expense growth estimates actual performance through the first nine months of 2019 and estimates regarding the impact of the GM strike.
Given these inputs the company updated certain of its previously announced annual guidance ranges, which were published this morning in our press release and are summarized below.
Net sales between 1.84 and 1.87 billion.
Gross margin between 36.6% and 37%.
Operating expenses between 198 and $200 million.
Tax rate between 16% and 16.5%.
Capital expenditures between 90, and $100 million and depreciation and amortization between 104 and $107 million.
Lastly, 2020 light vehicle production forecasts have continued to worsened as the years progressed. However, the company is making no changes to its previously announced net sales estimates for calendar year, 2020, which is estimated to be over and above the four going 2019 net sales estimates in the range of 3% to 8%.
The third quarter of 2019 was a challenging vehicle production environment, but the company delivered growth the outperformed our underlying market by approximately 7% to 9%.
Our third quarter growth rate was very strong given the industry headwinds and the gentex product specific headwinds that serve to limit our growth.
Additionally, our gross margin on a year over year basis was exceptional and increased by 10 basis points year over year. Despite a 50 basis point increase and the margin effect of tariffs.
The entire team at Gentex delivered solid results due to our focus on sales growth cost discipline that led to margin stability tariff offsets and tax efficiencies.
This hard work combined with our disciplined approach to capital allocation led to a 5% increase in EPS for the quarter.
As we move into the fourth quarter, we're expecting to remain in a tough production environment due to ongoing issues in light vehicle production levels globally, and the impact of the strike at GM.
Overall, we remain optimistic that the growth of our core technologies will continue to provide growth rates above global vehicle production levels in 2020.
As we execute the strategies, we have put in place for next year, we believe they will deliver sales and margin performance throughout the year that when combined with the execution of our capital allocation strategy will continue to create value for our shareholders.
In closing, we will be exhibiting a and b dubs away from October 22nd through the 24th.
At Sema from November 5th through the eight and at CES from January seven through the 10th as always please know that you are all welcome to come see us at the shows to experience our products and to see the progress we are making with our technology. If you are interested in visiting us visiting us at any of these events. Please feel free to contact Josh Milberg skied.
To schedule a time. Thank you for your time today and we can now proceed to questions.
As a reminder to ask a question you would need to press star one and your telephone.
So just draw your question press the pound key.
Please standby, we've compiled the Q and a roster.
Our first question comes from Chris Van Horn of B. Riley FBR. Your line is open.
Good morning, guys and congrats on another strong quarter.
Thanks, Good morning.
So it seems like the the lower lower guidance on the gross margins of roughly 50 basis points on the topline.
Could you maybe break that out is it mainly due to the strike is it also some of the production estimate changes and then how do you view, maybe that GM production being made up if at all in the fourth quarter and maybe into 2020.
Yes, I think if you look at the majority of that gap is driven by the lower sales on a year over year basis, so, especially versus what we are forecasting coming into coming looking at Q4 before the strike happened. So the vast majority of that is due to the overall lower sales level and then obviously the mix change.
And what we have at GM and the business that we have there, which is which does bolster gross margins.
Okay, and then the production from GM that there was sort of lost during due to the strike do you see that being made up.
I just was really looking at probably making that up over most of 2020 based on what we've we've seen from Hs they were running pretty full tilt.
Building into that strike. So we don't expect a ton of.
Volume coming back in Q4, but.
Maybe we'll get some get some luck in though there will be able to do that but I think I just as modeling.
Recovery in 2020.
Okay, Great got it.
And then how about volumes for full display mirror you had mentioned in the past five 500000.
Number.
Any sort of commentary around that.
Yes, we still believe even what the strike and GM being kind of our launch in large one of our largest customer for that product that will still be above that number for the year.
Okay got it.
And then last one from me for now.
On the aerospace side searching and a half million really strong number continues to kind of go up here do we think about that is kind of a run rate going forward was there anything during the quarter that was a significant order or how do we think about that business right now.
There was a little extra volume given the triple seven launch so on this kind of a system feel fill for that for that new launch. So that are probably that could be a little higher than the normal normalized run rate.
The one thing that we do see as are pretty there are some natural fluctuations in volumes throughout the year in the aerospace industry or at least on the Boeing business. So.
I wouldn't necessarily try to model it flat, but I would say that there should be a slight step up both in the 77 production volumes as they've as they've grown and they've gone to the longer version of the 77, Thats, obviously more windows on that plane. So thats helped on and then the launch of the Triple seven should help overtime as well.
Got it thanks again for the time guys. Thank you. Thank you.
Our next question comes from John Murphy of Bank of America. Your line is open.
Good morning, guys. This is ailing snap on for John .
First question can you provide any more detail around the company specific products headwinds that you cited in the press you read it doesn't sound as if this is related to arm pmsix give any insight as to what's going on there whether it's isolated to anyone product or geography.
Thanks Alien yes. This is the stuff we've been talking about for a couple of years now really the biggest impact probably two thirds of that input packed is related to the driver assist feature with mobileye rolling off and continuing to cost headwinds.
Another 100 basis points of that is really related to Smartbeam and then last little bit as additional legacy features compass and microphone that we've also talked about is kind of rolling off over the or had a little bit of headwind on the compass side, but it's really the same story that we're talking about all year and then with the with the drop in the.
North American production throughout the year, it's kind of exacerbated itself a little bit.
Great. That's helpful and second question can you walk us through your operational response to the GM Sir.
Typically at what we can to the sorry did you get adjustments purchase orders and when you're able to build inventory at all to discern curve, we're taking production downtime or does your production down nearly one or whatnot.
No so well two things one that strike happen immediately we continued to ship for a few days.
Versus when the strike occurred so the impact our Q3 was a little less but will be a little bit more and that's what we're modeling in Q4 is that it because we know the strike started but then we continue to ship for a few days in Q3, we're expecting that once GM comes back on line there will be another few days, where we won't need to ship because as we had they already have the inventory that we shipped.
In Q3, so thats why were modeling a little larger impact in Q4 than than what was in Q3, plus the total number of days down in Q4 as is obviously higher.
Sorry, tailing, yes, a second part of that question.
No. The second for the question Rich just where are you taking production down nearly like for like Oh, Yes, sorry, yes, yes, we had not we did not have to take our production down if you look at the growth in the third quarter, we still grew 4% on growth with other customers and the other parts of the business. So we didnt have any like temp.
Sorry, layoffs or send in workers home for lack of work because we are quite busy in the quarter. Despite the issues with GM.
Okay, Great and last question can you describe how your teams are manager and what's been a constant erosion intra quarter production schedules were now about a year over year end to the secured term drift a function of being a bit more conservative in your internal production assumptions versus what you're seeing in terms of customer releases.
Yes, I think it's a ongoing battle, we continue to build our schedules on a weekly basis based on our releases.
Fortunately for US we have had growth throughout the year. So it it has stemmed down a little bit of if you look at our Capex has has lightened from if you go back 18 months kind of slowed down some of that need for capacity growth on a longer term basis, but we continue to be tight labor market and so our our teams are fully staffed and working.
Ill.
Over at around 80% to 100% of capacity already so it it's been we just had to shift and be flexible evolve.
What we're building and we've been accustomed to that being in the automotive industry for a long time. So it's just.
Continuing to keep a close eye on order changes and if there are magnitude increases and.
And our teams have done a fantastic job of managed through that I think I Wonder if you look at what one of the biggest concerns you have is obviously not be able to keep up with order changes. So you're spot on I mean, there's a lot of theres a lot of chaos that occurs when these type of changes are happening.
Given given what we build in our approach where we are able to carry a little extra inventory. So we try to model out what we think is going to be needed build ahead, a little bit just to make sure we can support our customers.
Great. That's very helpful. Because my question. Thank you. Thank you.
Our next question comes from James Pickerill flow of Keybanc capital markets. Your line is open.
Hey, good morning, guys.
When it should just going back to the is the GM strike impacts I mean, if we just too.
Really simple math of seven and a half million a week for the year I mean that would annualize GM as a customer close to 20 percentage of your total sales so yes.
I understand that Jim was less than 10% last year. So just wondering if you could help bridge.
Bridge that.
Sure. If you look at if you look at the seven 8 million. So the $75 million mid point, there. We know that's a little higher than a full annualized run rate because of the launch of GM vehicles in the back half, especially the launch of some of the new trucks and issue. These so we know they tend to run a little richer product mix when those new vehicles are launching and for us that that higher ASP is.
Really driven by our full display mirror launches with GM and so when you look at if you look at an overall basis, what GM was last year on a percent of sale versus the model going forward. They are going to have an uptick in their overall percentage of our total business given the number of vehicles were shipping FDM on currently for GM.
If you follow what we've talked about publicly.
Right around half of our nameplates.
The full display mirror, our with general Motors.
So that's why the impact in Q3 before but.
What was pretty sure pretty severe pretty noticeable and we've had a lot of strength and outside mirrors and they are higher level of homelink. So when you put the content per vehicle up against other Oems at stacked up right up there.
Got it and how many weeks for the strike are you baking in for the first quarter.
Basically what we modeled in was of for four weeks in October .
Yes, Scott.
Okay, and then just on on the sustain strengthened in the domestic exterior mirror shipments.
Yes, I mean I just and also you were also seeing a pick up now internationally in the quarters. So just wondering I thought maybe the rough estimate was.
As you lap the last year share gain when domestically that the extreme years would be up maybe mid to high single digits, but clearly there was sustain strengthened the growth rate. So can you just kind of talked about what what drove that and what your expectation is in the fourth quarter.
I think when you yet when you look at it definitely was higher than we expected for the quarter in terms of that percentage growth growth and outside mirrors. When we when we model going forward, though and remember a lot of that was driven by some takeover business and and some OEM issues, where there are struggling with deliveries.
From another supplier so one of the things that we are focused on let's make sure. We supported those customers in those deliveries as you as you move forward, we wouldn't expect those growth rates to continue at those levels.
We think there isn't much more moderated in 2020.
Okay that I could just sneak one one small ones you you mentioned in the release, the some legal and professional fees tied to a new technology that you acquired.
Just speak to that quick yen, whereas it was something that we've been interested in for a while I prefer not to mention what the exact technology as its actually phase to acquisition that will take a period of a couple of years before that that will play out completely.
But it's definitely on materials play and something that the company has been interested in a long time, we think it is longer term five to 10 years out something that's very interesting to us and could help enable a lot of the products that were working on.
Thanks, a lot guys. Thank you James.
Our next question comes from Ryan Brinkman of Jpmorgan. Your line is open.
Hi, great. Thanks for taking my question I think that the mid October I, just forecast update assumed that the GM you ADW workers would return to their jobs on November 1st which is probably put an assumption when they made that forecast.
And you just mentioned that you assume four weeks of stoppage in October although shortly after their forecast was released as when Jim in the Union read reached their tentative agreement. So what is your current as of today thought process as to when those workers do returned to their jobs, maybe mid next week or so and if that's the case then.
Could there be some upside to the softer for Q outlook that you released today.
Yes, so we're so to the two factors there one of them Yeah I would it I would assume that's what we were kind of predicting based on the announcement yesterday and then looking at than looking at our information, we would've guessed that though hopefully be back to work sometime mid or late late next week.
But remember because in Q3 when the strike occur GM continued to release parts from supply base. So we ship for a few days, even though the strike was already underway in September we're expecting that it'll take a couple of days after their back to work before they start accepting shipments again from a supply base.
So that would put us kinda into next week, maybe at the beginning of the following week before we believe will be shifting with GM again.
Okay. That's helpful. Thanks, and then just lastly, I wanted to ask about there's been so many developments potential developments on that China trade and tariff front just in the last couple of months here.
How are you viewing the current was roughly a 110 or so base point headwind relative to tariffs. How do you think that's going to evolve as we move into next year.
That's a great question.
We keep our supply chain teams do a great job of staying on top of that obviously whenever.
Trump trees tweets that Theres, a trade deal on the surface, we follow up and then it looks like.
On the back end there is still modeling potential increases we have list rescheduled to increase in January up to 30% Theres less for a which Argos call. The Christmas list, that's potentially out there has been delayed.
As Steve you talked about on his previous calls we are evaluating all of our options as it relates to international trade as as we also.
Added to our entering our exports to China are starting to become a as big of an impact as our imports of raw materials coming in from China. So.
Reforming our strategy currently.
And I'm glad to be sharing that if things continue to escalate hopefully obviously, we would hope that this would all get settled out and we'd have reduced costs, but we are certainly being impacted as you saw in the quarter that 110 basis points that we'll continue to ramp up.
Further in 2020, if nothing changes, yes, we would expect a slight increase in 2020 versus what we've encountered so far in 2019 based off what's in place right now.
The important part to notice there if you look at the dollar amounts are purchasing and logistics teams have done a great job of offsetting a lot of those.
The tariff annualized hair run rate would be much higher if we if we had made a lot of the changes we've made from the supply side. So.
We continue to look at that and I would say modeling 2020 were model and a slightly over that 110 basis points of headwind for next year.
Okay very helpful. Thank you. Thank you.
Our next question comes from David Kelley of Jefferies. Your line is open.
Hi, Good morning, guys. Thanks for taking my questions. David just wonder if you could provide some more color on the elevated opex in the quarter I think you reference product development and some launches were there any specific call outs and Q3 and do you expect that to normalize going forward.
I think if if you look at the breakdown of half to.
Two thirds of that is wage related because of all the launch activity, we have going on and we talked about full display mirror is we have another eight launching or seven launching in the in Q4 next year's a busy year. So I mean, we are staffed to for that bill, but we're we're focused on new technologies and so there's there's been a focus on building that out but.
Like we called out in the press release to avoid some of these tariffs that is not that does come at a cost. So our business development teams are some of our leadership teams have been traveling to our suppliers in some of those cases, so theres costs elevated there some of those smaller things that we didnt talk about really were were we are having an elevated freight costs if weve.
Add all year, so we didnt call out in press release, but all those things they're kind of additive.
But the biggest piece is supporting the engineering development activities that we have going on now and to support growth in the future.
Okay, great. Thank you and then maybe to switch gears, a bit and baby another market outlook question.
Your 2020 guidance here is unchanged can you talk about what you're seeing in Europe . Currently I mean, clearly there are number moving parts just thinking about regulations coming down the pipe next year that although don't directly impact you guys, but just from.
Customer relationship standpoint, any thoughts on kind of the changing production outlook and as it relates to your European exposure.
Absolutely if you look at we do very well.
With our European customers. So it's something that we watch very closely probably the most concerning part about the forecasts are Hs updates has been that a lot of the German Oems are showing some weakness and their production both in 20 and beyond and so we keep an eye on that when we look at all those I guess updates we still believe will be in that 3% to 8% range.
Next year. So, it's obviously a little concerning hate to see your customer struggle, but it's one of the things that we watch very carefully and keep our eye on but as of right. Now we haven't seen anything that would imply that we need to change our guidance for 2020.
Okay got it. Thank you appreciate you taking my questions. Thank you appreciate that thank you.
Once again, we'd like to ask a question. Please press Star then one.
Our next question comes from David Whiston of Morningstar. Your line is open.
Thanks, Good morning, guys Martin David.
In the press release, you called out some purchasing cost reductions being better than expected are you able to speak a little more specifically.
How you went about getting that.
Yes.
Thanks, David Thats, a great question.
If you remember when we talked about 2019 in the beginning of the year I just was still running pretty strong growth and so there was a lot of constraints on a passive electronics with the slowdown we got a little bit of help from that but we also tasks. The teams to go back to work with the suppliers and and they delivered.
So thats then that's been a positive benefit for us on a lot of the different commodities and then the last piece as we some of our precious metal cost that we talked about we're not as much of a headwind is what we had initially projected so all in all that's really the driver vaulted better purchasing cost reductions.
And you mentioned going upstream to to suppliers is that is that purely a price discussion are there. Other ways you guys can help your costs out without having to try and squeeze them on price.
Yes, so I mean, it's the way that we approached us with all of our suppliers as we work to have a relationship and knowing that we grow we go on a journey with them to say that if you're going to if youre going to come along for this ride we have expectations, but will promise you that will provide you volume and growth and.
Ability to.
Have their growth with us and so.
We've had a different focus over the last 18 months to really engaged with them on a different level. When I think internally one of the things. That's really helped US is when we invest a lot into our process development and industrial engineering applications. What that's allowed us to do is help offset some of those precious metal cost by reducing our usage.
In other words being more efficient with the process of how we do it and there's been a lot of inventions that have taken place at of allow that to occur given given the precious metal increases that we've seen on the team has been working on this for a couple of years now and some of those really hit home this year and and that's that's definitely helped our cost basis significantly.
Okay. Thanks, that's helpful.
Shifting gears over to ease.
It's in terms of things like programs like the bolt.
And then you're going up a lot more.
Coming to market from from a lot of your customers going forward.
Is there any major challenge and integrating your mirror and it would be comparing.
Internal combustion vehicle or eventually even easier.
No that's not theres not any major challenges I think from a to sooner still going to 12 volt area section that we would be utilizing unlike many other components and so foremost standard mirror integration that would be very simple and comp standard combustion engine I think what's interesting about a battery life.
Your vehicle that most people don't think about though is when you talk about a vehicle having a package batteries that does reduce the cabin changes in order to hit.
The efficiencies, they're looking for in the range typically the roof lines come down the the where the seats our move up it does tend to shrink like rear windows in the design of the vehicle, which make some of our newer technology, maybe even more applicable on out on a bad vehicle than what it would be on a traditional ice.
Okay and last question on.
Just an update on how difficult or easier as compared to a few years ago to.
Get software engineering talent to come out the western Michigan versus choosing California East coast.
Yes, I think thats going to forever be a challenge.
I can't say that we have an issue right now the team's been doing a great job in the recruiting process, we've changed how we've gone through and the method and the types of.
People that we're bringing in to do software.
Always will be a challenge from in competition with other companies as well as the west coast, but right now, we're doing really well sustaining and.
Hiring and adding additional hedges are needed.
Okay. Thanks, guys, great. Thanks, David David.
Our next question comes from Peter Cabos of Big Capital. Your line is open.
Hi, guys. Thanks for taking my question.
With respect to the 2020 guidance.
Plus three to plus 8%.
So it looks like in 2019, you at something like nine or so million dollar headwind for the gym strike in the third quarter and you're talking about a $30 million headwind in the fourth quarter.
And it also sounds like that's fine probably comes back in 2020, So if I look at 2019, having a 40 or so million dollar headwinds from the strike in.
2020, having a 49 our tailwind.
That's a nice kind of percentage growth rate change you will have next year. So my question is like.
You're not really changing your 2020 odd.
Guidance, so like if the strike hadn't happened would you have had to lower your 2020 outlook or.
Why Shouldnt your 20 out 20 outlook from a growth rate perspective, the higher now than it was when you kind of give that guidance in the third quarter. Thanks.
Yes, no we wouldn't have had to change our guidance if if it weren't if you look at just the strike issue by itself. What I would say is yet to kind of offsetting trends happening number one is sales pushing from 19 some of the sales push from 19 and 20, our historical experience with issues. Like this is that not 100% of those sales don't come back the following year.
In other words like some of what's been Miss by GM will probably just be fall permanently.
And that's really just based off how consumers consume and the fact that the GM vehicle weren't available they may have purchase something else or or weight or move on.
The other part of it though it's really what's been the offsetting portion for our 2020 as the drop in Hs guidance.
Globally, and if you look at that I mean, you're talking in the last few months, especially I think as somewhere in the neighborhood of three or 4 million vehicles that have come out of the global vehicle production estimates for 2020 in the last three to four months and so that that forecast has been changing pretty drastically and so those would be the kind of the offsets rice seeds.
I would see some push out of 19 into 20 sales, which is a positive and then you'd see a little bit of reduction from the estimates dropping and global light vehicle production.
Thanks very much.
Thank you thanks bid.
There are no further questions like to turn the call back over to Josh risky for any further remarks.
Thank you.
Steve mentioned, we have a handful of analysts coming to visit our booth strain Siemens CES and if anyone is interested in attending please let me know.
Thank you for your timing question. This concludes our call have a great weekend.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
No.