Q2 2020 Earnings Call
For this quarterly conference call. The company has prepared a powerpoint presentation entitled fiscal 2022nd quarter earnings, which can be found at meso dot com in the Investor Relations section as a reminder, this conference is being recorded.
This conference call does contain forward looking statements, which reflects managements expectations regarding future events and operating performance and speak only as of the date here Uh huh.
These forward looking statements are subject to a safe Harbor protection provided under the securities laws.
Meso to undertake no duty to update any forward looking statements to conform the statements to actual results or changes in methods expectations on a quarterly basis or otherwise.
Forward looking statements in this conference call involve a number of risks and uncertainties.
The factors that caused these actual results to differ materially from our expectations are detailed in methods filings with the securities and Exchange Commission, such as our annual and quarterly reports.
Such factors may include without limitation the following.
Dependence on a small number of large customers, including two large automotive customers.
Dependence on the automotive appliance commercial vehicle computer and communications industries.
International trade disputes, resulting in tariffs and our ability to mitigate tariffs.
I mean quality and cost of new program launches.
Ability to withstand price pressure, including pricing reductions.
Ability to successfully market and sell the beer surfaces products.
Currency fluctuations.
Customary risks related to conducting global operations.
Ability to withstand business interruptions.
Recognition of goodwill impairment charges.
Abilities to successfully benefit from acquisitions and divestitures divestitures.
Investment in programs prior to the recognition of revenue.
Dependence on the availability and price of materials.
Fluctuations in our gross margins.
Dependence on our supply chain income tax rate fluctuations.
Ability to keep pace with rapid technological changes.
Each of our information technology systems ability to avoid design or manufacturing defects.
Our ability to come Pete effectively ability to protect our intellectual property.
Success of Gray con and or our ability to implement and profit from new applications of the acquired technology.
Significant adjustments to expense based on the probability of meeting certain performance levels in our long term incentive plan.
In cost and expenses due to regulations regarding conflict minerals.
All lines have been placed on a listen only mode and the floor will be open for your questions and comments. Following the presentation. If he should require assistance throughout the conference. Please press star zero at this time. It is my pleasure to turn the floor over to Mr., Don Duda, President and CEO , Sir the floor is yours.
Thank you Cynthia and good morning, everyone. Thank you for joining us today for fiscal 2022nd quarter financial results Conference call.
I'm joined today by rounds are less our chief financial officer, both rather than I have comments and afterwards, we will take your questions.
To start please turn to slide four.
Although our second quarter in six months fiscal year to date results were adversely impacted by the 40 days UI they'll be labor strike at general Motors incremental sales from Greg.
Revenue from new product launches.
Benefits from our initiatives to improve profitability in our continuous improvement actions to reduce costs improve methods year over year results on a GAAP basis.
When those revenue increased 8.8, 0.2%.
Our net income increased 36% and our net income per share increased 35.3 present for the six months ended October 26, but this fiscal year.
Again, please refer to slide four for adjusted income.
And adjusted income per share results would exclude expenses for initiatives to reduce overall costs and improve operational profitability.
Position related costs, including purchase accounting adjustments and long term incentive plan accrual adjustments in the applicable periods.
As you can see in slide five our year to date performance, excluding the adverse effect of the UAE W. labor strike at GM still saw headwinds tempering our growth.
We grew our water sales lower industrial equipment purchases and lower appliance sales as well as the impact a weaker foreign currencies affected growth.
However, when the strike behind us the opportunity we have going forward and our teams focused on our strategy operational discipline in managing the business allows us to reaffirm our pretax income and MBS guidance for the fiscal year as shown on slide six.
Please note that we have reduced fiscal year 2020 revenue guidance largely due to the effect of the way W. Labor strike.
During the second quarter, new business wins and business development efforts in both the automotive and industrial segments continue to capitalize on important vehicle trends.
Including what predication led lighting and safety.
Method has been awarded a custom complex insert molded product for a European vehicle manufacturers 48 volt powertrain system launching mid fiscal year 2023, with an annual average revenue of 10 million.
We've also been awarded an injection molded busbar and contact assembly for another European Oems Agb 48 volt auxiliary battery pack for approximately 3 million per year again, starting in fiscal year 2023.
For the first time method was awarded the digital cost cluster display and central was light touch screen with haptics feedback by a European premium luxury OEM for the next generation vehicle.
This key strategic where the launch our fiscal year 2023.
Back into this Asia my solution, while small in initial revenue will overtime be carried across the customers other vehicle platforms, increasing revenue potential.
Further we believe the know how in technology can be brought to other customers.
Great and Pacific inside continuing to win several Ltd interior and exterior lighting programs for applications in automotive commercial trucks electric vehicle buses and railcars, increasing their content per vehicle and for OEM customer with some of these launches starting in our fiscal 2022.
As noted on slide seven some of these wins are result of cross selling our technology.
Specifically gray kind as leveraging Pacific insights RGB led light engine technology with commercial truck and electric vehicle Oems.
This technology was originally developed for the automotive market and provides Greg on customers with proven technology as opposed to further advance or features and customer offerings.
I want to extend to the great team my appreciation for the integration efforts and their focus on growing the business with booking awards of over 83 million since being acquired by many of which includes replacement and new business.
Our Magneto elastic sensor business continues to grow doubling the revenue on E bikes this quarter versus last year.
Also our 80 current sensor technology has been chosen for European transmission physician sensor starting the second quarter fiscal year 2021 at approximately 2 million an average annual revenue.
Moving to slide eight our sensor group continues its development of told sensor system based on methods Magneto elastic technology.
Method offers a sensor that provides real time to load and to force data to the user and vehicle systems, which should also improve drive stability.
We are targeting light truck and commercial Oems sample of the benefits that can be derived from the sensor on driving with trailers.
In the second quarter as to beer, we added four new customers and completed nine hospital evaluations.
Five evaluations and process.
With several schedule in the coming months.
The beer development team is also a human subject phase of testing of a new surface with two hospitals that are targeting to bear for use with pediatric patients.
Successful testing intimidation will give to be or another revenue path in the acute space.
Turning to slide nine and in summary, I am very pleased that method were diligently to minimize the financial impact for the strike and the effect on our workforce I would like to thank our worldwide team for their efforts and their focus on operational performance. Despite the many business challenges they faced.
And at this point I'll turn the call overdraft, who will provide more detail on our financial results.
Thank you Don and good morning, everybody. Please turn to slide 10.
Second quarter sales declined 2.6% or 6.8 million to 257.2 million in fiscal 2008 from 264 million in fiscal 19.
Sales in the second quarter were negatively impacted from the newly W. labor strike at GM, which reduced net sales by $32 million.
Foreign currency exchange continue to be a headwind as the euro and remember the exchange rates were weaker than the prior year, reducing net sales in the quarter by 3.9 million.
This was partially offset by higher sales from great kind of 32.3 million.
Great kind was acquired into Q of fiscal 19 and was included from 1.5 months versus the entire quarter this fiscal year.
On a GAAP basis second quarter net income increased 9.2 million to 23.8 million or 63 cents per share from 14.6 million or 39 cents per share for the same period last year.
Second quarter GAAP net income benefited from the results of great can lower acquisition related costs lower stock award amortization expense and the net benefit we received from initiatives to reduce cost and improve profitability, which included lower expense for those actions in the current fiscal year versus.
As last fiscal year.
On a non-GAAP basis second quarter, adjusted net income decreased 7.7 million to 24.2 million or 64 cents per share from $31.9 million or 85.
As per share for the same period last year.
Negatively impacting second quarter, GAAP and non-GAAP net income where the adverse impact of the way W. Labor strike at GM of 9.6 million higher expenses for net interest intangible asset amortization income taxes in that tariffs as well as the impact of foreign.
Currency translation.
China tariffs continued to be a headwind, although we're aggressively working to mitigate the impact on our results and the second quarter. Our net tariff expense was 600000 and year to date and that tariff expense was 900000.
This includes tariff revenue reimbursements related to fiscal 19, which were agreed to during the first quarter by some of our customers.
Therefore, the amount recognize year to date does not represent a runway for the remainder of the year.
We expect the net impact of tariffs to be higher for the remaining two quarters of fiscal 20, but lower than the 4.5 million to 5.5 million range. We estimated during our first quarter fiscal 2000 <unk> earnings call in August .
Currently we believe tariffs for the fiscal year, we'll be in the range of 2.5 to 3.5 million at the current tariff rate.
Moving to margins on slide 11.
Second quarter GAAP gross margins were basically flat, but the non-GAAP adjusted gross margins declined 150 basis points year over year in fiscal 2008.
Current year gross margins were impacted by the UAE W. labor strike at GM, the negative impact of foreign currency translation and lower radio remote control bus bar and appliance sales.
This was partially offset by the benefit of grey card sales.
non-GAAP adjusted gross margins exclude expenses for initiatives to reduce cost and improve profitability and purchase accounting adjustments in the applicable periods.
Second quarter, GAAP, selling and administrative expenses as a percentage of sales decreased 530 basis points year over year.
Favourably impacted by lower expense for operational improvements the benefits of those operational improvements lower acquisition costs and lower stock based compensation expense.
However, non-GAAP selling it had been a bit excrete administrative expenses as a percentage of sale, which exclude acquisition related costs expense for operational improvements and stock based compensation accrual adjustments in the applicable periods increased 100 basis points year over year in the second quarter fiscal 2000.
The increase was mainly attributable to lower sales as a result, so the way W. labor strike at GM.
Moving to year to date margins on slide 12.
Year to date GAAP gross margins improved 50 basis points, but the non-GAAP adjusted gross margins declined 30 basis points in the year over year in fiscal 20.
Gross margins were impacted by the EU ADW labor strike at GM, the negative impact of foreign currency translation and lower radio remote control bus bar and appliance product sales.
This was partially offset by the benefit of increase grey card sales.
non-GAAP adjusted gross margins exclude expenses for initiatives to reduce cost and improve profitability and purchase accounting adjustments and the applicable periods.
Year to date gap, selling and administrative expenses as a percentage of sales decreased 350 basis points year over year.
Positively impacted by lower expense for operational improvements the benefit of output of those operational improvements lower acquisition costs lower stock based compensation expense and by selling and administrative expense attributable to Greg can which has lower as a percentage of sales trend method as a whole.
However, non-GAAP selling and administrative expenses as a percentage of sales which include acquisition related costs expense for operational improvements and stock based compensation accrual adjustments in the applicable periods slightly increased on a year to date basis. The increase was mainly attributable to.
The lower sales as a result of the you ADW strike at GM.
Shifting to EBITDA on slide 13, the company generated.
43.6 million in the fiscal 22nd quarter versus 29.2 million in the same period last year.
However.
Adjusting for expenses for initiatives to reduce overall costs and improve operational profitability acquisition related costs and stock based compensation accrual adjustments in the applicable periods second quarter fiscal 19, adjusted EBITDA was 50 million compared to 44.1 in the current period.
Greetings decrease is primarily attributable to the adverse effect from the way W. strike at GM, partially offset by higher EBITDA from Grey card.
Moving to year to date EBITDA on slide 14, the company generated $93.9 billion in fiscal 2008.
Versus 66 million in the same period last year.
However, adjusting for expenses per initiative to reduce overall costs and improve operational profitability acquisition related costs and stock based compensation accrual adjustments in the applicable periods.
Fiscal 19, adjusted EBITDA was 88.2 million compared to 94.4 million in the current period.
The improvement is primarily attributed to higher EBITDA from great.
Partially offset by the adverse impact from the UAE W. labor strike at GM.
A few other financial items to review.
Year over year intangible asset amortization expense in fiscal 2000 increased 3.9 million or 69.6%.
To 9.5 million, primarily due to amortization expense related to the grade kind acquisition.
In fiscal 20, we invested approximately 27 million in Capex, mainly to support programs and launches of North American Europe , and our facility expansion in India.
Year to date depreciation expense for fiscal 20 was 14.2 million.
Our year to date tax rate of 92.3% was impacted by discrete items recorded during the period.
Excluding the impact of the discrete items, our year to date tax rate would have been approximately 18%, which is higher than the prior year due to the level of mixed in the of earnings among taxing jurisdictions are expected rate for the remainder of this fiscal year is expected to be lower than we experienced year to date. Therefore.
In spite of a higher anticipated effective tax rate, we estimate our tax rate will be in the range of 18% to 21% in fiscal 2000.
Let's move to slide 15.
Free cash flow for fiscal 2000 was 49 million.
As shown on slide 16, we have used some of our free cash flow to pay down debt.
We de Levered, nearly 18 million in debt since the beginning of the fiscal year and since purchasing grayken, we've reduced our debt by 83 million.
We ended the quarter with 96 million in cash.
Our debt to EBITDA ratio, which is used for a bank covenants is approximately 1.5, which lowers our incremental borrowing costs by 25 basis points and 10 basis points on the commitment fee.
Please move to slide 17 to look at the key drivers to our anticipated EBITDA performance for fiscal 2000.
Looking at the EBITDA based on a 155 million of EBITDA in fiscal 19.
And adding incremental EBITDA for a full year of great Con, which is about 24 million.
Adding EBITDA from new automotive in laundry program launches of about 17 million.
Adding back the onetime costs, we incurred in fiscal 19 for initiatives to reduce cost and improve profitability of about $11 million, adding back the onetime costs, we incurred in fiscal 19 for acquisitions and restructuring of about 29 million.
Increasing our anticipated intercom international government grants and come by 4 million and subtracting the net impact from the EU ADW labor strike of GM of 5 million.
And subtracting the impact of the loss EBITDA from reduce passenger car production, which we estimate to be about $14 million.
In conclusion, I will finish up my remarks for guidance.
Please turn back to slide six.
As a reminder, the guidance ranges for fiscal 2008 are based upon managements expectations regarding a variety of factors and involve a number of risks and uncertainties, which had been detailed in this mornings release Form 10-Q , and our fiscal 19 Form 10-K .
As we announced this morning, we reaffirmed fiscal 20 pre tax income and the range of 150.3 million to $164.3 million and earnings per share in the range of $3.25 to $3.55, but we believe there are more headwinds and tailwinds and the second half.
Fiscal 2000.
However, primarily as a result of the UAE W. labor strike at GM, we are revising our sales guidance to 1.1 billion to 1.13 billion from the prior sales guidance in the range of 1.13 billion to 1.17 billion.
For fiscal 2000.
Estimated capital investment to be in the $40 million to $54 million range, and depreciation and amortization to be in the 51 to 54 million range.
We expect fiscal 2000 free cash flow as defined as net income plus depreciation and amortization less capex to be between 122 and $136 million.
Finally met those third quarter performance tend to not be as strong as fourth quarter largely due to the holiday seasons and other factors. We anticipate the same holding true this fiscal year with the fourth quarter expected to be stronger than the third quarter.
Don that concludes my comments.
Ron Thank you very much.
Cynthia we are ready to take questions.
Thank you Sir the floor is now open for your questions. If you do have a question. Please press star one on your telephone keypad at this time questions will be taken in the order. They were received if you are using the speaker phone, we ask that well posing your question you pick up your handset provides favorable sound quality if at any time your question have been answered.
When you remove yourself from the Q by pressing one.
Ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time, please hold while we poll for questions.
Our first question comes from Chris Van Horn of B. Riley FBR. Please state your question.
Good morning, everyone and thanks for taking my call congrats on solid execution in a challenging environment.
Thanks.
I just wanted to touch on guidance really quickly I mean, obviously.
The labor strike had an effect here, but when you look at kind of the underlying this specifically for auto we look at kind of the underlying production estimates are you are you changing anything from either I HSR LMC whoever you use in terms of.
The your production expectations.
No I mean, we look at both of those.
But were more in the any certainly in the United States.
We have more truck and as you view, so we tend to analyze those much closer.
Those have.
Remained strong if you take interesting the strike out of it when we are anticipating some recovery.
From the way W. strike in orders from from our customer.
Not a lot, but that isn't in our thinking.
And in Europe , we monitor that really on.
Weekly basis, because that still tends to be.
Very spotty.
Got it got it and then as you look at kind of your.
Your your awards that we'll be launching over the next call. It 12 to 18 months do you see a dramatic shift in your geographic mix as those as those launches happen.
No no I mean that some the us.
Number of launches in Europe , smaller, but but the larger and number and a few and in Asia with a great wall benign I don't really see geographic.
I'll change.
Okay got it and margins are holding up really well and I think correct me if I'm wrong Gray Con is a big part of that.
And your certainly making a lot initiatives on the cost side.
Through operational.
Operational efficiency and spending there where are we in that in that cost cutting or that it did those initiatives to reduce costs is that is a bulk of it Don I know theres always stuff to be had but it seems like you've really ramped it up over the past 12 month and I'm. Just curious if you if you see more low hanging fruit as we look out next.
Here and what that looks like.
First of all I would say that were ahead of where we thought we would be.
The Grayken factory improvements.
And kudos to the team and in Asia.
Another team and the grey kind of team that certainly helped us.
In the quarter will help us.
For the balance of the year, but I would say, we're probably about half way.
He gets harder.
Initially are picking up dollar bills, who eventually you get down to pennies, but.
We anticipate that we've got another year of I think solid.
Improvement there.
Okay, and then of course.
That's what we do for living.
Okay.
No thats continuous improvement, but Greg.
We knew going into the there were certainly improvements we could mick.
Okay.
Thanks for that makes sense.
Your last for me.
Graduations on your digital digital cluster win.
Not sure how much detail you can get into I imagine you displaced the incumbent.
And I'm, just curious about any more detail it seems like a new product line for you. There are there are many other players in the space that we can think of that are in the digital cluster arena. So any detail about what the award was.
Or how it came about and maybe your competitive advantage in that win.
I have to be very careful here, because I can't really say too much about the product I'm certainly not the other customer I can say that as a customer that knows as well.
And that we follow the technology.
Probably two three years ago.
And.
We're deploying for the first time upside as we deployed center councils on premium vehicles years ago.
Before we.
Landed some of the larger.
Obviously, the business, but I really incurs I'd like to say more we're excited about.
Camp.
Okay, well, hopefully maybe the coming months or quarters, we can we can get some more detail around it.
Okay. Thank you so much for the time guys.
Thank you.
Our next question comes from Steve Dyer of Craig Hallum.
Please state your question.
Hey, guys. Congrats on the quarter. This is Ryan on for Steve.
Well just thinking into guidance I guess, a little more see reduce revenue guidance by 35 million at the midpoint primarily for GM.
But you maintained the profitability expectations, where are those cost cuts through efficiencies coming from I guess that you weren't expecting a couple of months ago. When you ask I did.
Paul.
I was talking with.
Chris a little bit ago, I'm, certainly from our Greg can cost improvement that up.
There is ahead of schedule on that definitely helped.
Great comp sales were up.
And we we model break on sales.
Looking at.
What our customers are telling us plus what we're seeing from from.
You see.
Oh, you forget that.
And.
We were modeling.
Slight decline and in fact, it was it was better than we expected, we're still anticipating and we've modeled into our guidance.
A decline, but that doesn't happen as those passes we thought and.
And again photos of the team they have done an excellent job on tariffs.
We ended the year thinking about around 8 million a behalf.
And we will considerably below that so all of that.
Looking through contributed to it.
Great.
And then.
Switching over to.
Beer. So in early October you'd also master product agreement with Trinity Health, but then subsequently there was I noticed that this regard I guess, just any way to clarify I guess, what was going on with those press releases and then as well as just if you could talk with the opportunity with that health system.
Then what that could potentially mean for any other hospitals too.
Okay.
Very simply we shouldn't have use their name and there were obviously going to be a good customer and we wanted to grip quickly.
Correct that which we did.
But.
That is really our first system when most of our wins have been like all of them have been discrete hospitals, maybe they're part of the system.
They have been out one off wins that the.
Exciting part of that is that that is the system when and to be will be deployed.
Throughout their hospitals and up to that we found very exciting and.
As we also wanted to.
And then also to the street.
And I think that probably all.
I can't I can't say that I can't tell you the revenue amount, but it.
Very quickly would become debeers largest customer.
And then maybe as one follow up question are you said it will be deployed throughout the hospitals will that be a hospital by hospital decision or is this basically like a hunting license essentially or is this will it be automatically essentially deployed across all their their hospitals.
I am probably off a little bit of a mixed bag.
We'll have to go and training hospital.
But.
The the system is adopting the beer so I don't want to say that hospital has to use it.
But it is it isn't there system and.
We will.
As a little bit more than a hunting license model that we have to go.
And turning to staff.
And then.
Will be used routinely.
Great one more for me then I'll turn it over so it looks like the auto one laundry launches a couple of million worse than what you were expecting last quarter has there been another delay in that big product launch there or what's going on.
I would say that our auto launches are.
On time and on track.
Laundry is still behind.
And if I look at.
Going forward what risk is there.
Those are going be further decline in the European auto market, but we really look at laundry program as the big goods risk to that so that category.
And leasing launches.
More back end loaded to to the net to the third and fourth quarter as well as they ramp up more towards full launch so.
Okay. Thanks, guys. Good luck.
Thank you.
Our next question comes from David Leiker of Baird. Please state your question.
Good morning, everyone.
Good morning, David.
I wanted to follow up on that question a bit earlier on the digital cluster I don't know if I missed it or if you didn't say at the do put a dollar number on that.
No we didnt.
But I can tell you it's in the $1 million range and then we expected to be carried over to the other platforms.
Okay great.
And.
The GM strike.
I guess first of all our you where are you in terms of ramping up to full production on that post strike.
Let me answer this way we are shipping everything the customer assets to ship Montana.
Okay.
And then.
Can you talk a little bit about the actions you took mitigate the impact of the strike Whoa Whoa kind of mix of what was tactic call for the moment versus structural changes that are going to stay around for a while.
There were a number of tactical things.
Okay.
Which we took with with our Labor force and.
In Mexico.
We were very.
Quick too we were taking action within 12 hours.
Of the of the strike.
Right so.
Some other things in terms of longer term structural we did reduce some of the workforce and we incurred some cost and doing that that will.
There will be right sized going forward and as Don mentioned got creative with the workforce too.
To to mitigate as much as possible and.
Which included building building some products so that will avoid.
Any overtime future overtime and the event of a ramp up and things of that nature. So we took all those things into account and mitigated.
Very delicate situation pretty well all things considered.
To do continue any production at all.
I know you weren't shipping but.
We have we done yes, yes, yes, I mean, we it was it's a fine line.
You certainly don't want to.
Lay off your workforce.
Since you're the only one being affected by it and the.
And that business park that youre going to drive everybody to your.
Next door neighbor, so we did a blend of of of vacation.
Running production.
We have a very clean plant lot of things got painted.
[laughter].
Dan and I did say this we.
We would have take going into another week of the strike. We are plan what are called up for us to take much more dramatic action and thank goodness. We did we didnt have to Keith and take away is how keen to competition is for good employees in that area. So that was part of our long range thinking too was too.
I was to make sure that we keep our are well trained employee base for the future. So all of those things were.
In general considerations to how we manage dips and they would we did have the advantage that.
Since the major product that we produce there goes on trucks and as you vs.
Building some additional inventory didn't cause as much of a concern and that we know we will ship though.
The product if it was.
Mainly passenger car, you're not quite sure what platform.
Yes, we could we didnt object out and so.
Do some I would call him strategic.
Bill, but again, we couldn't have gone much further.
And then on slide 17, you call out.
Reported revenue replenishment I'm, assuming that revenue that.
From volume that GM makes that they lost during the strike is that the way to read that.
As basically David has about 20% of the revenue that we lost in the strike so.
So we'll get some of that we anticipate getting a modest amount of of that back in the.
The EBITDA thrown from that we're estimating to be about $2 million, so where where it's not.
A very aggressive replenishment model, but we are expecting maybe a little bit of.
Recapture of the of the lost lost sales for that.
Demonstrate.
And then on the contribution of the revenue from Gray con how much of that.
Could you call is still kind of the revenue back from the acquisition just wasn't in last years numbers versus growth you've had in great time since the purchase their way to characterize that.
That would be.
Enough to can be very tough yeah right.
In terms of.
I would be pretty tough, David right now or us to do.
I think we can answer that we'd have to do it will react it's right now.
Okay I can tell your higher than we know for sure at acquisition.
Yeah, well and you've done a great job very with the revenue performance versus the profit performance there are certain certainly driving that profitability higher.
We were starting to see the commercial vehicle off highway markets will roll over a little but it seems like you're somewhat insulated from that or is that just being masked by the growth in other areas.
No it hits its.
Since then our plan I don't know, we're definitely not masked by it.
No one in round numbers were about 80%.
Class eight.
Those of.
Well, let's say flatten them than I am not as.
Dominoes as maybe the lower classes.
But we have we have modeled.
Pretty much in keeping up.
With.
Lazy.
And again, we are overlay that with customer releases in our knowledge of the although.
The customer's needs and their inventory.
Okay, Great and then.
A couple last items here.
We look at the.
The the appliance launches it sounds like Thats started but it's just been slow so far is that the right way to characterize that.
Correct way, we're shipping but.
Yeah.
Got a very small rate at this point.
And that would David Thats, certainly a risk to.
Are.
The delayed or and or reduced volumes as a is as we've noted the there's a risk to the to the two our targets in EBIT, the data and I'd say probably.
When we know they're going to launch or they're going to continue with the other product would run those.
Well Bob.
I think that will.
These slower in the third quarter and ramp up.
The fourth quarter exactly how much.
At this point.
We can say.
Which I think we don't we really don't.
Thank you don't have a lot of visibility from them in terms of what that ramp with its going to look like at all still even thought started.
Thats correct that's correct.
Appliance tends to be a little bit like auto, but not so they will follow the auto launch rules.
Yes.
And then on working capital pretty significant contribution year over year in the quarter.
Anything in particular behind that.
No I think.
Great kinds agreed.
Cash generating business and has really.
High margins, great cash generating business, so having having having having all that with US now has certainly made a may or may have made a big difference in.
A lot of already and that's exacerbated I think by what kind of mentioned earlier about all of the operational excellence all that has turned to cash though.
We are doing a great job in terms of ours acclimating that business into our.
And realizing the cash flows from that perspective.
Okay great.
I got to I don't usually congratulate people publicly on the phone.
Fantastic job both on the cost side in the quarter, so well done.
Thank you very much David that's very much appreciated.
That's all I doubt thanks.
Alright, thank you.
And there appear to be no further questions at this time Mr. Good I'll turn the conference back over to you Sir.
Some of the thank you very much on well thank everybody for listening and wish you a very.
Safe holiday.
Good new year.
Thank you. This does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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