Q3 2019 Earnings Call

Reading 10, welcome to the Allied motion technologies shrank third quarter 2019 financial results at this time, all participants Harlem listen only about a question and answer session will follow the formal presentation.

If anyone should require operator assistant started conference. Please press stars you're on your telephone keypad.

<unk> This conference is being recorded.

They just out of our pleasure to introduce your host crank Mahalik Investor Relations for Allied motion technologies.

Thank you Mister Mahalik he may begin.

Yeah. Thank you a good morning, everyone. Certainly appreciate your time today as well as your interest in L.A. motion.

Joining me on the card deck, whereas Ella our chairman, President and C.E.L. and Mike Leech, our Chief Financial Officer.

<unk>, Mike are going to review, our third quarter 2019 results and provide an update on the company strategic progress an outlet after which was open it up or <unk> you.

You should have a copy the financial results at released yesterday. After the market closed if not you can find it on her website Allied motion Dot com.

On the website you also find the flights that accompany today's discussion. If you are reviewing those slides please turn to fly to for the Safe Harbor.

You are where we may make some forward looking statements on this call during the formal discussion as well during the QNX. These statements apply to future events that are subject arrested uncertainties as well as other factors that could cause actual results to defer materially from what is stated on today's call. These recent uncertainties and other factors are provided in the earnings really as well as with other documents.

Oh by the company with the Securities and Exchange Commission you can find these dog documents on our website or to S.C.C. Dot Gov.

To point out as well that during today's call, we'll discuss some non get measures, which we believe will be useful in evaluating our performance you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with gap.

We have provided reconciliations of non gap to comparable GAAP measures in the tables accompanying the earnings release and flights that please turn to fly three and I'll turn it over to deck to begin deck.

Thank you <unk> welcome everyone.

The effect of execution of our one allied strategy with evidence that are strong third quarter operating results.

We are also benefiting from the significant investments being made in engineering and developing market based solutions not only secure existing business, but to also address you emerging needs are served market's ripe.

Revenue was up 21% to a record 96.9 million.

Driven by strong demand market share again.

And our medical and aerospace and defense markets.

We achieve all organic growth of nearly 10 per spent 10%. Despite the continued softness in Europe as our sales solution centres technology unit and production setters.

Have continued to leverage our full capabilities.

Other highlights were around her margin enhancement, which reflect the impact of higher volume and the effectiveness of our allies systematic tool.

Performance in all areas of our business.

Gross margin expanded 140 basis points to 31.1%.

Operating income group, 22% to 8.8 million.

Margin of 9.1%.

We about expanding our lead initiative by adding additional resources to help drive the process both in Europe in North America.

By focusing on several areas of the business.

Continuous and sustainable improvements.

And although our bottom line was impacted by 8% for deluded share from foreign tax assessments that Mike will pop job.

Are operating resolve to validate that our business is capable of generating drinking, earning as we continue to grow.

From a marketing perspective, we continue to enhance our competitive position and improve our market diversification.

While you're saying increase spending an d., which street dry higher demand for programs that we are already on.

Also taking some market share and we are winning new programs.

As far as medical it's more about winning do programs and our continued investment in engineering as we work on longer term solutions.

Given along design cycle time, so we are benefiting from our engineer to engineer approach to get in early on the product design process.

These are exciting times for Allied as we continue to gain traction that'd be commit a global leader or application focus solutions and the control motion industry.

<unk> that let me turn it over to Mike for a more Indepth review of the financial.

<unk>.

We provided overview or top line like poor.

As a reminder, our results include tea, Yeah, we acquired in December 2018.

<expletive> noted revenue increase 21% or 16.5 million to a record of 96.6 million.

The effect headwinds at 1.6 million rubber you would've been up 23%.

<unk> from the border was centered in medical and indeed.

Vehicle market was up viewpoints, primarily reflecting legacy convert automotive programs in Europe .

While winding down or before we better than expected.

Our industrial distribution channels were up.

Primarily due to the contributions yeah.

We saw continued domestic grow borrow okay.

I feel softness in Europe .

Reflected in the increase that sail to U.S. customers or 59% global sales.

<unk> five shows change <unk> and the glow at the beach Mark the true <unk>.

September 30th.

T.C.I. acquisition can be found in industrial distribution and accounts for the hundred 71% grossly distribution.

Over the last 12 month, R.A.B. and medical Mark <unk> considerable growth as we continue to gain market share with our <unk> solution.

As we've talked about at the pet.

Showing these markets are important element of our strategy to broaden the scope of diversification.

Are emerging expansion was certainly another island quarter.

As the picked it up like six or gross margin improve 140 basis point, 31.1%.

This significant increase over the prior year period, Larkey reflex higher bothered.

As well disabled mix across number certain markets, including the contributions from T.I.

Previously disclosed suppliers you remains.

Expected to impact us to the end of 2019, given the elite times on certain component.

Yeah. The made the third quarter impact on gross Barking it'd be approximately 60 basis point.

You are on track with certification of the news flier.

Or even one fully rent first quarter 40 40.

The only expected clawback around half of the negative barges tag given right <unk>.

Moving on Slideseven operating costs and expenses to the quarter increased the her 40 basis point, 22% the sales largely due to higher selling costs related to the additional personnel and incremental and glamour <unk> related to the T.C.I. acquisition.

Yeah. They expenses were up 10 base points to 10.3% of sales.

Well you'd be remain unchanged at 5.9% sales.

I mean, the line specifically, we've been able to hold that rate. Despite significant addition to the engineering group to support the company's growth in our ongoing investments in electronics software.

You said, you see using less consultants 'cause subcontractors, given our hands internal resources.

[laughter].

Solid gross marketing costs man's that led to the 22% increase in operating income to 8.8.

Operating margin expanding 10 basis 0.9, 0.1%.

The bulk of her operating structures in place or we do plan to continue investments are <unk> at a level that would provide property.

Interest expense increase the 1.4 million a higher get down on the P.C.I. acquisition.

<unk>.

Bottom line result.

<unk> nice to atypical charges in the quarter related to tax assessments in a foreign jurisdiction for previous acquisition.

These assessments resulted from the outcomes of attacks on it disallowed certain deductions.

<unk>.

Withholding tax related to the didn't what's the 308 4000.

<unk> other expense.

Exploring option is essentially been covered that specific charge.

<unk> doesn't resulted in a higher tax evasion or 433000, which elevated the tax wait for the quarter.

As a result net income was 4.6 months for 49 cents produces a chair.

We do not expect is that is to repeat it provided adjusted that in comedy Yeah. So that you didn't get a feel for the corporate korman and better compare our results.

Adjusted that income was up 12% 5.4 million or 57 cents per diluted here.

This is a non get better. So please used by some if you are a reconciliation and the related disclosures you're not releasing at the end of our slide.

Given the additional taxes vision, we've adjusted our fiscal 2019 tax great expectations.

Range between 20, 932% from a previous range of 20, 830%.

Adjusted to you, but if the quarter was 13.6 million.

26%.

Per cent of sales increased 50 basis points for 2.1%.

He was adjusted EBITDA, an internal letter.

Believe it is useful determining our progress in opera before but it's too, but then I've got measure so pleased with you or reconciliation other related disclosures.

Slides and I didn't pen provide an overview of our balance sheet and cash flow.

<unk> 116.5 million down 6 million from your in 2018.

That that have cast was approximately 8 million for 48.7% <unk> capitalization.

Regenerated strong cash from operations at 8.2 million and the third quarter.

Building in the year to date about 17 million.

That's up 51% than last year was comparable period.

Here to date capital expenditures were 9.3 million, then we're primarily investment for productivity improvement initiatives.

Due to the timing of certain project, we adjusted our fiscal Catholics projection for 19 ranged between 30 million in 15 bring it down from 15 to 18 million.

Third quarter in Missouri terms were 4.6 times improvement from last year as we've got a better job bills, you know strong sales pipeline along with type <unk>.

Energy, it's always at 53 days.

Sequential second quarter back down from 2000 agent.

Or capital allocation strategy is straightforward and has not changed.

<unk> focuses is dancing turtle in organic growth and they should just as well paying down debt to reload for future acquisitions.

Now turn the call back over to <expletive> .

Thank you Mike.

That'd be pick that up slide 11 third quarter orders grew 7% year over year to 91 billion.

<unk> unfavorable F.X. orders would've been over 92 million a solid level given the softness in Europe .

Backlog at quarter end with nearly 126 million up 9% year over year.

How about 80% of our backlog is expected to convert and the next six months at approximately 92% over the next 12 months.

As a reminder, just a nominal amount of the 225 million in the several vehicle market Awards. We previously on now are included in our reported backlog numbers.

We are currently going through the appropriate approval processes for the first of three program awards and expect to begin shipments at very low levels at the end of this year.

We are still on track to begin ramping shipments in 2020 to full rate production by the end of 2021.

Which would then continue for the following six to seven years.

As we look out we're cognizant of the potential basketball challenges. We believe we are well position incompetent and we continue to advance our strategy over the long term.

Specifically looking to the fourth quarter of this year as history has demonstrated we do expect to see some seasonal weakness, especially given the actions that many our customers in previous years.

We have a strong 18, and we have enhanced those capabilities over the past year, which all the long term should continue to yield results as we focus on operational efficiencies and improving our margin profile.

It is important to know that we have and will continue to invest in our strategic areas of excellence, especially around electronics and software as we further build out are integrated solution offerings.

As you know strategic acquisitions are an equally important element of our overall strategy.

We continue to develop acquisition opportunities and we remain consistent that are disciplined approach to ensure they are a good strategic bit with solid economics.

Oh, <unk> recently diversified revenue should continue enhance our competitive position and create a more robust foundation, a business, which we believe will help foster continuous state of organic growth well into the future.

Without operator, let's open a life request.

Thank you we went out we can talk to your question and answer session. If you'd like to ask a question you may pressed star one on your telephone keypad, a confirmation tone when he can't airliners into question cue.

<unk> too.

Like to remove your question from the queue for participant choosing speaker equipment. It may be necessary to pick up your handset for pressing the Starkey. Our first question comes on the line of Greg Palm with Craig How please proceed with your question.

[noise], Florida Wow record a results in this environment nice job pretty impressive stuff here.

<unk>.

<unk>.

You know it would be helpful to get some additional commentary just on the on markets given the the really positive commentary obviously it looks like we had growth across all segments. You know medical really stood out to US you know I mean, the most control market itself I don't think is growing 10 per cent at this point so.

Little bit more commentary on what you're doing right would be really helpful.

Sure Greg I think a couple of comments there number one is we did.

You're talking about medical standing out Jan Yes, we grew no trailing 12 months over 25 per cent in the medical market.

And.

We also and I think what's even more encouraging about it is you would that grows we continued to be to work.

New and future designs for programs that are will be coming in the next several years and we continue to have success in those areas. So it's a combination of our focus in the market. The technology, we bring in the product stuff that we bring and also are strong performance with.

Certain customers in those market segments that you know we've had over the last several years. So I think you are correct. The motion bargain did not grow by the percentage. We show we believe that overall they some numbers we've seen as into two 2.5% range and yet we're able to do again Oh perform.

We're all paste that market girls.

And he was also.

Enforce it actually grew at a higher percentage then the medical slightly my medical so again certain programs, that's how bad accelerated there and I will tell you that we it it's another market area that we've been working on some long term projects and we are excited about the potential for continued future girlfriend that area.

Industrial.

It might get mentioned you know, we've we've got a strong lift from the T.C.I. acquisition and industrial so again it showed some significant growth. So overall were quite pleased you know even vehicle grew for us over the trailing 12 months.

Huh.

And I think with all the publicity out there, but what's happening in the markets and especially you know our.

Significant level of business that we have in Europe , I think it's it's quite encouraging.

Yeah, no all echostar pretty impressive all performance.

To see that we're still expecting initial shipments of the previously announced vehicle awards to commend shortly.

You mentioned full runrate by the end of 21, so just trying to think between now and then how should we be thinking about the ramp I mean, as you're going to be kind of a steady build out is it going to be you know, it's going to be more back half weighted towards 21, rather than 20, maybe you can just kind of help us from a modeling standpoint.

Yeah. This year, we're really starting up a low low rate continued oh production.

Lines have been installed we're running a life partner off the lines, okay, but that's typically the process. It's a stop functions. So as each program begins to wrap.

Additional product will be shipped off the line validated tested ensuring that everything that had been submitted before continues in the same matter. So you'll see a stop function as each program begins to wrap up I will tell you that.

Well.

Thousand 20 mid 2020 like you'll see the first step P.L.C. the next step.

Early 2021, then mid 2021, you'll see another step and then and as we said by the end of 2021 those programs.

We'll be in full production and we'll start realizing the levels that we had no currently on an annual eyes basis in the backlog.

As well as our home and we're gonna have more.

Oh.

Well that's.

That's good before we get to that I have you been incur I'm, assuming you have been encouraged some level of costs. You know this past quarter, maybe this and this entire year in Q4 without obviously recognizing any revenue associated without I mean has that been sizeable I mean, how much of a sort of add one how's that.

Then.

Well.

You'll see it in the cap X., primarily yeah and also there are some direct expenses, but some of its capitalized intimately.

The lines start ups and so forth, but yes, we've had to go out and make some significant investments and and the equipment into line that were being installed and again.

<unk>, we don't start to see what's payback until later, but maybe you want to add something to that.

Yeah, I think we've talked his past quarter to about certain you you know either tooling revenues around recurring engineering revenues that were read zero margin. So you've seen some of that in the back and then certainly it'd be a portion of our engineering population are manufactured population is dedicated to these efforts and there's costs associated with that I think the thought is.

That costs will continue to be there as we continue to grow with new programs in the future as well though.

Yep Okay.

So <expletive> just following up on that last comment you made you know maybe alluded to.

Potential for additional words I don't know if that's incremental platforms here. If that's additional customers, but are you expecting more activity in this space over the coming years.

Yeah I think.

We've talked in the past is up to those who may not know the history of.

Oh, we became a part of this business are allowed business became a part of us I should say.

Is that.

We were we had some.

Programs that way, we acquire glow back in 2013 during the acquisition, we knew that we were going to be going to end the whole life.

In Michigan, the near future and what we also saw during the process is that's a really wasn't <unk> in the pipeline.

Of future opportunities that would <unk> for those that we're going to be going into life. So we saw decrease in the level of shipments in this area.

But what has been encouraging and the reason why we <unk> is that we had talked about it a significant efforts being made.

Developed a business and that since it's such a long term process before you realize shipments we felt it was necessary to let our shareholders, though that you know there are some encouraging.

Results out there that we wanted to report, although they would not be realized at the bottom line until the future. So that's part of that process.

Clearly made a decision that this is not going to be.

When one and then sit quiet for a while it was a continuous a never ending and that's.

An effort that we work on to just stop by winning wanted focusing on just that we're going to continue looking at additional do opportunities and reach out into the into the market too.

Let's call it the first by ourselves even more so.

Well, it's you know when you look at it as a percentage of our overall business, it's not particularly large we see it as an important part of our business because it does give us.

Critical mass gives us core unit by.

He had were able to leverage off that critical mass in court unit by him into some of the other markets that we're serving and we feel gives us a better competitive position. So it's it's certainly a part of our business on for one that we continue to focus on and we absolutely have you know other programs that we're working on and that'd be.

You're in.

The near future in in an ongoing basis.

Understood last one for me the <unk> related directly to the you know <unk>, what's called and then release off road vehicle steering capabilities I know you've talked about this a little bit in the past to some extent, but.

Expand on what this exactly means and what you're working on here.

Sure.

So let's let's.

Mike maybe expand a little bit more after I'll I'll, just start and let him jump in at some point.

<unk>.

Well, we talk about you know the cap X. and all the total cap experts in our numbers here that we're we're advising are spend rates.

We do two things they're program related.

Yeah, which we get some contributions from our customers for both pooling <unk> is some some cost for the capital equipment, but also we are making it a investments in our core technology as we move through to the next generations of our products. We worked very closely with our customers who.

Identify.

Opportunities would prove pricing performance.

In the future of course getting their inputs in their cooperation to ensure that as we developed he's new capabilities that they are part of the process and because they have to prove it they have to go through significant testing to make you know to.

To confirm that they are receiving what we say, we're going to be giving them and that there was obviously a positive benefits is it to them as well. So we're constantly looking at our core technology, and we're making investments to keep that I had to the game and leading a leading that show we're looking to to three years out as we make the investment.

Yeah, we start out by establishing a design testing it and we look at what we are projected volumes are gonna be and what other opportunities. There are and then we'll we'll put the line in place.

And then leverage that for the years to come before we start working on the next one so it's a continuous process. So I will tell you that.

The capital investments that we were making are.

Internal or core products that we see that.

Give us a competitive edge in the future as well as project based like maybe you want to add to that a little bit or yeah. I don't know that there's that much to add to that I think it.

It's a good indication that p. customers that we worked with in those markets continued to have faith enough. If we're not that thing.

For the next generation your products, which is what those represents and the generation beyond that then obviously then.

It would be more of a cost concern for us.

Understood all right Oh I'll leave it there was some grotz again on the results.

<unk>.

Our next question comes from the line of <unk> Company. Please proceed with your question.

Thank you.

Can you talk a little bit on T.C. I know a good portion of their businesses oil and gas related then what are you seeing there and has that impacted or.

T.C. ice results from once you initially I'd projector when you made the acquisition.

Sure sure <expletive> Ah Yeah, good morning to yeah, So you're you're you're absolutely correct that oil and gas.

Has that we've had an impact with oil and gas this.

This past year and I will tell you that no.

<unk> T.C.I. is performing on the bottom line basis as we expect it okay. As we built into our forecast what they're doing <unk>, there's absolutely no change their.

There has been.

The top line there has been an impact, but I would say to you as a credit to that management team they've been able to manage the business.

In a way that has protected the bottom line of the business and they are working actively on diversifying the market stuff, they're serving and with some new products and technologies that they've introduced here in the last year, they're making very significant progress so oil and gas is an important part of that business.

Sometimes hard to predict but you you look at oil prices, if they're down to you could expect our business to be down as they go up it seems to go up as well and I will tell you that.

No. We're we're not discouraged it the the drop although it's.

I'll I'll say t., it's in the.

The 15% range of that market for oil and gas we have.

Offset that in some other markets with some new technology is that the T.C. has brought to the to the marketplace.

That's 50 here in the medical side, you talked about a driven mostly by new projects is that is that within existing.

Group of customer base or is that customer base for expanding.

Maybe the same comments in the in the aerospace and defense fine.

Yeah. It out on the same answer at both sides. Okay. Just in customer base in you know, obviously, you're excited about getting new customers and new applications and absolutely part of our strategy to do that but you know more importantly, I will tell you that and we've developed long term relationships with many customers and.

We remain focused on retaining those customers and be insuring that we're going to get it under next platforms as well. So strong performance you know we're partners to them and we want to be seen as a partner form. So we were winning future projects wind existing customers and we're winning new projects with Duke.

<unk> both in both parents.

Okay.

And on the supplier issue getting through the certification process.

It'd be a sole source or what what it should be several suppliers that you'll be working with going forward.

You had to ask that question.

No.

It really what it is is that the contract manufacturing business. Okay. So.

The typically when you look at the items associated with certain applications that that's a contract manufacturer.

I will tell you we did a much better job this time around.

When selecting a contract manufacture that's <unk>, it's it's their business that is their business.

Previous supplier had some technical expertise.

In the area than that we needed support on and they had a small subcontracted.

Unfortunately, yeah, they had been a long term supplier.

Contract manufacturing business, you know there, where we were significant customer I'm not so sure that it was capable of supporting D. and tire company that they had.

Which also utilize has an engineering capabilities that we had utilized as well.

As well after allied acquired goal.

L. I brought to bear I.

Significant amount of new resources that could be you know utilized a future projects and we did do that.

So I think yeah strategic decision by.

Supplier before that that contract business, maybe that'd be core for them in the future we understand it but there are many many good contract manufacturers out there and the key for US was select one that's been into business for a long time is absolutely solid financially and you know.

And we'll be sustainable for years to cost typically you don't split.

Your production board assemblies different lines, because you love you lose the leverage volume, but I'd say t.. It's a much more careful decision that was made selecting a right supplier in that business.

Okay. So I'm, not saying just sort of way to say that's bad that we have a sole source contract manufacture we do that sole source contract manufacture we have multiple <unk> contract manufacturers.

Selection of this one was a solid supplier that's been into business, a long time as as financially sound.

Okay. Good. Thank you then congratulations on a good quarter guys.

Thank you very much there.

Oh next question comes from the line <unk> Carney with her belly and company.

Question.

Hi, guys come morning, Thanks for taking my question.

Thank you.

Graduations.

Continues to the results from work you've been doing for years.

I've first question, Hi, Aerospace and defense perfect to see the progress there executing on your diverse diversification strategy spring even at a high level the solutions, you're bringing to that market could you provide any more color I guess this.

<unk>.

Hey detail on do unique offering you're able to bring to customers there.

Sure.

I.

Again.

The ability.

We have today I mean is you could go back in time, you look at the history of the and he business within Allied in the companies that we acquired most of it was component sales and I say most of it more than 50 per cent, what's component sales and there was another amount that would've been from solution.

A waiter offerings, what we're seeing today.

Is that.

More other requested solutions are for actual waiter type solutions.

You need that they're leveraging technologies that we have in several areas to come up with a solution. So we see that is what's generated you know some new business for us and any opportunities we have in the future to continue to grow older I well I don't doubt play when I say a component business for example.

Hey high performance motor Motor only sail in certain systems. Because you know we will continue certainly to do that but it is the actuation systems that we have seen some you know fairly good growth in and opportunities for additional growth in the future. We did exhibit at the.

Army show in in Washington, D.C., and we feel very confident that that some based on a context that we're we we made at the show.

Huh.

There's additional opportunities for us.

So again.

More and more in the solution set off rate, which is what allied has been able to bring.

By creating solutions letters and having the ability to tie the components together into a more solution based so for applications for our customers.

Terrific and then if I could ask one more on the new vehicle market Awards.

I knew they you know sort to diversify you a customer base wise to provide anything broadly you know.

Application and market there Ah commercial truck all Pi way and I know, there's some flexibility in terms of you know actual on program launches into ramps seem pretty.

Competent and your production schedule by what are you hearing in terms of I guess, the customers Oh sticking to production schedules at this point.

Well I think they vary.

Yeah. It's.

Just what would be clear about somebody applications were in you know just because we certainly here an awful lot about automated guided vehicles autonomous vehicles electric vehicles and so forth.

And the types of applications, where in the majority it doesn't matter.

Whether you know the type of vehicle it is and I think because.

Electrification actually helps us so we have seen.

Programs spelled get yeah wished out a bit yeah, decreasing by but we've seen in other areas, where we've seen some some increase is a rare to see accelerations because the long approval process along design cycle time approval process should go through but so I'd say, it's a combination.

As Mike mention even in Europe , where we saw <unk> automotive type business actually do perform a little better than we expected.

It it's it's worse, such a small part of that market.

And you know we are really application specific I would caution every one that when you see the automotive market is going up are going down.

No because of the niches that we play and it may not necessarily impact us in a positive or negative manner.

And so again very well focused.

We see.

Electrification, they as a positive for us not as a negative.

Used in all types of vehicles.

And programs have you know.

Ben delayed in some cases.

Quantities have gone dabbled, we've also seen some where have you seen increase by up to man.

Terrific. Thanks much.

Thank you <unk>.

As a reminder, it is star one to ask a question. Our next question comes in a line of Scott Blumenthal with Emerald advisers. Please proceed with your question.

Good morning, congratulations from the quarter.

<unk>.

[noise].

Mike you talked about a little bit of oil and gas that comes with T.C.I. and when you do your break down by market and market revenue would we find that in industrial.

Yes, yes, yes, you may also find it in in distribution, it's it's a little bit of the mixed bag.

Sitting on how it goes to market whether direct to a.

The m. or or is it there's a number pad so.

A little tough to say, it's in one bucket, but.

Either distribution or industry.

Okay. Thank you that's helpful.

Can you you didn't mention the engineering and software resources and how you've been growing those over the past.

You're 18 months or so can you kind of compare for us or give us an idea as to the magnitude of how your staff right now compared to where are you were last year and I guess that.

And it gives us an idea as to your ability to continue to work on some of them.

Up front.

Up front project work that needs to go into some of these new programs that you're working on for your customers.

Sure a very good question I will tell you that the beginning of this year, we added a resource too.

Manage our global electronics team, which we internally call gets a global electronics team.

And.

Hired to that.

You would have seen it let's say a year ago today.

You know you'd have seen.

Several.

Smaller teams operating.

Yeah, I'll say loosely in a coordinated banner.

But also we had a more heavy use outside consultants to supplement.

What we felt were certain current demands in order to.

Meet the requirements of the project time factor.

Oh, Yeah, we made a conscious decision that what we would do is that.

So while I was when we were looking at the projects 345 years ago.

Estimating what the demands would be a requirements on on resources and that once we completed the projects those demands would go away. What we realized is that we're never going away.

We're just that'd be redeployed, a new projects, a new opportunities and as we were accelerating.

You know the utilization all the electronics and software into our solution offerings that it was necessary to start staffing inappropriate matter internally and to retain that you know capability and know how so that's essentially what we did we.

Began adding critical resources and we're a de centralized group and.

That little bit more difficult to manage but on the other hand, it gives us access to resources in many areas around the world.

Rather than being just stuck in one location.

And as we know engineering resources, you know there, but it's a tight supply.

Chain out there right now for for availability and so I think we've got a very good job.

Of getting organization around the teams getting a coordinated effort getting there really working closely together and managing to the project schedules that we've committed to and now.

<unk>.

Cost that we have we have more resources available to us today than we had a year ago.

Yeah, a similar costs, because we've been able to bring the resources internally then again, we'll retain for the long term. So it's been very encouraging.

We don't C.N.N. to it we see.

That you know this will continue to be indeed into the future and we're certainly looking at you know how we can best utilize the are no global presence to enhance that in his we go down down the road here in the future.

Okay. That's really helpful would you say that you have no 25% more resources 30, 550% or <unk> I'd I'd say.

15% to 20% the Max.

Again, we we still do when necessary pull upon.

The outside consultants, if they bring a specific area of knowledge that again, where to use it out a one off basis and it gets there faster, but the reality is.

You know the cost savings.

Oh for bringing them in turtle e. versus I have any external consultants and it's really the loss of knowledge.

We'll have once they leave so I I'd say T. a fair number is let's just say it's 15%.

Okay. Thank you that's helpful.

I guess my last one since I I, I think I'm going to see a very soon.

Mike can you.

Can you give us an idea as to how you see this very large what I'd call shadow backlog.

Kinda moving into backlog over the course of time.

Yeah, well I think <expletive> did a good job describing how it was going to come into production from a full rate standpoint I think.

The backlog will follow is similar away with perhaps.

Jeff reach a maybe a six month advance window to that ramp up production I think I think it'll very much batch match that with again.

I think.

Talking to pass most of our backlog will be shipped in in that time three to six about time range. So depending on how we work with these customers in identifying from releases.

It will flow in that way.

Yeah, and I think the little maybe a little add to that a little bit.

Because.

The way we actually.

<unk>.

Orders into our backlog and given that we will have.

A steady run right.

Six or seven year period, if you look at the magnitude of it and say, Okay. It's 225 million unless just use for an example, I'm going to do it over seven years take 30 million a year.

That will move in and out of back.

Okay, and possibly as we release it.

The backlog based upon a firm production ship date, you might see and this is not going to increase our backlogged Eddie great extent, because we're going to be moving this product through on a regular basis, which is good because our inventory turns are gonna be high and so forth.

So you might see our backlog increase.

Call. It in 2021 like 10 to 15 million.

And but that'd be set steady state they won't continue to increase will just be moving it in it out.

Understood. Okay. That's helpful. Thank you.

Hey.

Oh. The next question comes from the line of John crew luck with <unk>. Please proceed with your question.

Guys. Congrats on on agree quarter and things are <unk>. Thank you <unk>.

Just just get in light of the strong results. This corner do you just talk a little bit more about what you're seeing in Europe , and you'd mentioned that you were winding down I guess projects, they're just a little bit more color there with respect to the near term I guess, making up for proud.

Mix that are winding down.

Oh God I would I I don't know you know, where we said we are winding projects down in Europe , I mean <unk>.

End of life on automotive.

Contracts that we had we had doubts about you prior years and those being.

Replaced by these new contracts that we had that's basically you know the wind down into ramp up all these new contracts. Okay. So that's okay, and and that that a specific area with regard to.

Everything else in the market I wouldn't say a winding down of any better in any of our project. So I would say to you that you know there's always there's always some you know ebbs and flows a within certain markets and.

You know project, so one generation coming to N. and a new generation occurring. So then you always have some.

Isn't that you're making on your product transitions and so forth. So that that's a normal part of the business, but I would say to.

Just like in North America.

Europe is very active on new programs that New project said no. We're confident is going to generate continued growth in the future.

Right next slide I'll catch up with you guys soon.

Right. Thank John .

Oh, no further questions in Q. and like Dan Nicole back to management for closing remarks.

Okay. Thank you where every one for joining us on today's call and for your interest and Allied motion for those of you interested we will be attending to bear Global Industrial conference in Chicago on November 5th as always.

Feel free to reach out to us at any time, and we look forward to talking with all of you again after our fourth quarter results.

You put your participation and have a great good.

Ladies and gentlemen, distancing food today's teleconference. Thank you for your participation you may disconnect Caroline at this time and have a wonderful day.

Yeah.