Q4 2019 Earnings Call
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker, Matt Horvath Director of Investor Relations. Please go ahead.
Great. Thank you.
Good morning, everyone and thank you for joining us to discuss our fourth quarter and full year results. The release and accompanying presentation was filed with the FCC as posted on our website at Www Dot Stoneridge dotcom investors section under Webcasts and presentations.
Joining me on todays call, a Jon Degaynor, our president and Chief Executive Officer, and Bob Kodiak, Our Chief Financial Officer.
Before we begin I need to inform you that certain statements today, maybe forward looking statements forward. Looking statements include segments that are not historical in nature and include information concerning our future results our plans.
Although we believe as such statements are based upon reasonable assumption you should understand that these statements are subject to risks and uncertainties and actual results may differ materially additional information about such factors and uncertainties that could cause actual results to differ maybe found in our 10-K, which will be filed with the Securities Exchange Commission under the heading forward looking statements. During today's call. We will also be.
Turning to certain non-GAAP financial measures. Please see the appendix for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. After John involving finished a formal remarks, we will open the call up to questions I would ask that you keep your question to a single follow with that I will turn the call over to John.
Thanks, Matt and good morning, everyone.
Let me begin on page three.
In 2019, we continued our transformation in the positioning of the company for strong future growth.
Our 2019 adjusted sales of $830 million resulted in an adjusted gross margin of 26.5% translating to an adjusted operating margin of 5.8%.
Adjusted EPS for the year was $1.47 cents.
Excluding the impact of divested product lines. Our 2019 sales were 793 million women with an adjusted gross margin of 27.2% and adjusted operating margin of 5.6%.
Divested product lines contributed approximately $37 million.09 to our 2019 adjusted EPS.
We are announcing that we have been awarded two additional Oems near our programs with peak annual revenue of $50 million a relatively modest take rates with these awards the customer platforms on which we have been awarded near our programs represent approximately 75% of the North American OEM class.
Production volumes.
In Europe, we have received approximately half of the business that has been awarded to date, which represents approximately one third of the European OEM production volume with a couple of Oems yet to make sourcing decisions.
These additional awards solidify our position as the global market leader in camera mere systems for the commercial vehicle industry.
As a result of our success with our customers are awarded business backlog, excluding the impact of external factors grew by over 6%.
Driven by another year of strong business Awards.
As tangible signal of our confidence in the transformation of the company. We are announcing an additional $50 million share repurchase and this morning, we are providing guidance for our expected performance in 2020.
Despite reduced volume expectations due to production declines in our end markets and continued investments in advanced technologies, we expect operating margin to remain relatively stable in 2020.
Bob will provide additional detail on our revenue and adjusted EPS guidance and I will discuss some of the operational improvements. We expect later on this call.
Turning to page four I want to take a few minutes to reflect on the breadth and depth of the transformation within the organization in 2019.
During the year, we took actions to rationalize our portfolio and optimize our manufacturing footprint in order to focus our management technical resources to drive future performance. For example, we announced the divestiture of our noncore switches and connectors business in the subsequent closure or can't manufacturing facility.
Additionally, we completed our strategic review of the switchers and controls business within our electronics segment, culminating in the decision to move that product lines China.
We expect this move to drive 50 to 100 basis points of consolidated margin improvement for the company.
These activities will streamline our operations Rightsizing, our cost structure and focus our resources on areas of future growth.
In 2019, we continue to invest and technologies and systems that will improve our total supply chain. We expect these investments will lead to improved efficiencies in our manufacturing facilities.
As stoneridge transformation and performance actions have been take bend the foundation for growth.
Our business awards in 2019 demonstrates the progress we are making.
We will continue to make investments in the necessary resources to take advantage of the opportunities. These awards represent.
Finally, as we will discuss later in the call. We continued to transform our leadership team to drive our long term strategic goals.
The initiatives that we undertook challenge the organization in 2019 and contributed to financial performance that was below our expectations. However, because of the actions. We took in 2018 and the continued investments we will make in 2020, we're strengthening the foundation of the company and transforming our product portfolio.
Capabilities to position the company for strong profitable profitable growth for years to come.
Great.
Page five summarizes our key financial metrics in both the quarter to quarter in year over year periods.
Before we discuss the metrics in detail it should be noted that for comparison purposes, we have removed the estimated financial impact of the businesses. We divested earlier this year from both the current and comparable periods.
Year over year sales declined by approximately 3.5% due impart to the negative impacts of the GM striking foreign currency exchange rate and reduced production volumes, particularly in European commercial vehicle market.
Adjusted operating margin declined by approximately 200 basis points driven by these extra analyses as well as increased tariffs premium electronic component costs and some increased operating costs, particularly in the second half of the year I.
I will provide additional detailing the call regarding our expectations to reduce the impact of tariffs and component costs and drive improvements in our facilities.
Page six provides additional detail on our quarter over quarter results from both the sales and operating income perspective.
Revenue in the fourth quarter was negatively impacted by declines in production and some of our key end markets as well as the impact of the GM strike, which began at the end of the third quarter and continued into the fourth.
In addition, our shift by wire programs continue to ramp down in the fourth quarter, excluding the impact to the GM striking shift by wire program reductions and the negative impact of foreign currency, our core portfolio sales increased by 1.3% quarter over quarter.
Quarter over quarter, adjusted operating margin declined by 330 basis points. The continued ramp down on shift by wire resulted in reduced operating income of approximately 140 basis points or $2.8 million versus the fourth quarter of 2018.
The impacted the GM strike as well as the negative impact of foreign currency movements reduced operating margin by 110 basis points or $2.2 million in the quarter.
Manufacturing costs rail related to the closure of our Tampa facility reduced operating margin by 100 basis points for $2.1 million in the quarter.
In contrast to prior quarters.
We are starting to recognize the impact of our initiatives to reduce tariff costs and electronic component premiums as we reduce those expenses by almost $2 million relative to the comparable quarter last year.
In addition, due to external factors and non recurring costs, our fourth quarter results underperformed expectations due to increased over time and indirect labor cost.
Versus the comparable quarter.
As a management team we are committed to managing the factors that we can control and efficiently and effectively responding to externalities through appropriate cost reduction actions.
Turning to page seven.
We expect reductions and component costs and tariffs to continue as we move into 2020.
In these areas, we are forecasting $2 million to $3 million in $1 million to $2 million of improvement respectively.
We continue to focus on improving our overall supply chain to reduce premium freight expediting cost and quality related costs.
As a result of the actions we have taken in 2019 and the initiatives in place in 2020, we expect significant improvement in these areas driving $3 million to $4 million of reduce costs in 2020.
We expect these specific actions to drive $8 million to $12 million of operating improvement in 2020, resulting in approximately flat gross profit on reduced sales, which translates to gross margin improvement of approximately 130 basis points based on the midpoint of our 20.
We remain committed to driving top quartile financial performance and the first step in achieving that target is improving our facilities to drive gross margin improvement across the company.
As I discussed previously we will continue to invest in the necessary resources to develop the products that will drive our growth and support our the significant number of new programs in our long range plan.
As a result of those incremental dnbi and SNA costs, we're guiding to a midpoint of approximately flat operating margin relative to 2019.
Bob will provide additional detail on our revenue and adjusted EPS guidance later in the call.
Turning to page eight we recently welcome Kevin Heigl to the team as Vice President of operations chemists background aligns well with our strategic plan as he brings experience developing and implementing operations and supply chain strategies for companies of our size.
Kevin is responsible for continuing to improve our operational efficiency and manufacturing processes.
In less than two months at Stoneridge, Kevin has already instituted programs and actions and they are driving the $8 million to $12 million a gross margin improvement I just outlined.
Turning to page nine shifting our focus to one of the several opportunities that will drive future growth. This morning, I want to provide an update update on our Mirroreye program.
I'm pleased to announce our third and fourth OEM Mirroreye awards with a combined estimated $50 million at peak annual revenue based on relatively low penetration rates. Both programs are expected to launch in 2023.
To expand on each of the programs. The first award is the largest near IR probe program to date and the largest single program Award in company history at an estimated $46 million peak annual revenue.
This award for a global OEM has assumed take rates of 10% in North America and 25% in Europe.
The second award is focused in North America and assumes a much smaller take rate with peak annual revenue of $4 million.
With these awards the customer platforms in which we have been awarded Mirroreye programs represent approximately 75% of the North American OEM class eight production volume.
In addition, we have won approximately half of the business that has been awarded in Europe, which represents approximately one third of the European OEM production volume with a couple of Oems yet to make sourcing decisions.
We invested in Mirroreye, because we believe it will be transformational from the industry.
Industry dynamics, including expected government regulations around fuel economy and safety in both North America, and Europe, a leading our customers to suggest take rates may be higher than originally thought in quoted.
Based on the changing market dynamics, one of the Oems that is awarded US from Eri program believes that take rates could approach, 100% by 20.5.
Over the past couple of months I've met with a number of our fleet partners.
Their feedback has been favorable to the technology platform and as provided important recommendations for complementary capabilities.
The fleets with whom we are working our disciplined in their approach to adoption of new technologies, but each is suggesting that longer term plan conclude full penetration of their fleets.
In response to the feedback from the fleets, we continue to work with a major global OEM for pre wire vehicles Premier I systems.
Multiple fleets interested in pre wired vehicles will be done in negotiations with other Oems to give them the ability to offer this feature in bridge the gap between current production and the start of OEM production.
Finally, it was announced yesterday that we were awarded the 2019 truck letters of America Technical Achievement Award premiering line. This is a significant achievements that further validates how important and transformational mirroreye will be for the commercial vehicle industry.
We are I will change the commercial vehicle industry in stoneridges driving that change with our OEM and seek partners.
Turning to page 10.
This morning, we are updating our long term revenue targets to reflect current market conditions and improved long term expectations for mirroreye.
Reduce production forecasts as well as the negative impact of movements in exchange rates reduces our previously provided 2021 revenue revenue target by almost $100 million.
Additionally, the continued momentum in OEM Mirroreye awards. This shifted some of our expectations for retrofit sales to OEM applications, including pre wire options.
As a result, we expect that some of our existing fleet partners will opt for an OEM solution, which may delay some of the year I retrofit revenue previously included in our 2021 target.
Expected shift from retrofit applications to OEM applications does not change our expectations for the total market opportunity for Mirroreye in fact based on the feedback we're getting from our fleet and OEM partners, we've increased our expectations for mirroreye opportunities in the future.
Relative to our midpoint of $760 million or revenue in 2020, or 2021 target would represent approximately 12% revenue growth next year.
Turning to page 11, I want to expand on the overall opportunity that we see from Mirroreye.
Beginning with the launch of our first OEM program in late 2020, we expect a significant increase in OEM here I revenues as we launch subsequent awarded programs at quoted penetration rates are awarded programs represent $76 million or peak annual revenue. However, given recent comments by our customers more.
Hi dynamics could drive penetration of up to 100%.
Our expectation is that penetration rates will exceed quoted rates in the medium to long term.
She penetration rates improved double current quarter rates or just 30%.
Peak annual revenue would be approximately $150 million.
Should camera mere systems become standard equipment similar to backup cameras in the U.S passenger car market peak annual revenue would be approximately half a billion dollars on programs that we have already been awarded retrofit opportunities would be incremental to the OEM business outlined in this slide.
We began ramping up our investment in the capabilities resources and technologies to capture the growth opportunity, we saw in division and safety space starting in 2017.
We continued to invest over the last several years and expect approximately $15 million and investment in advance technologies and related capital deliveries in 2020.
Unlike prior years, where these investments were a bet on the future. We will begin to see the return on our investments in 2020 is mirroreye and other advanced technology programs begin to ramp up.
2020 is an inflection point for Mirroreye invest for stoneridge.
In addition to Mirroreye and awarded programs. We have discussed we are investing our advanced resources in technologies and products that are complementary to the mere I'd platform.
Turning to slide 12.
One of the transformation of the company over the last years has been holistic review of products systems and services from around the company.
We seek to combined capabilities in ways that as never before been considered within stoneridge.
Our connectivity solutions are paving the way for conversations around the two X solutions and when combined with Mirroreye, our video and connectivity capabilities are introducing opportunities for video recording and transmission as a way to help our fleet partners collect and managed critical information.
We expect that our full suite of in cabin commercial vehicle electronics will enable us to develop at the end user interface devices help drivers detect and avoid vulnerable road users and provide driver monitoring capabilities.
To improve driver awareness and enabled smart active safety systems.
Our commercial vehicle products give us the ability to work with our customers to develop and define the solutions that will drive future growth for the company and be transformational within the commercial vehicle industry.
Turning to page 13.
I'm pleased with the transformational initiatives, we took in 2019 to drive the company forward.
As an organization in the leadership team, we made significant progress toward our long term goals and strengthened foundation for profitable growth.
As stoneridge, we will continue to execute on our long term strategy drive continuous improvement and refine our capabilities to deliver shareholder value with that I'll turn it over to Bob to discuss our financial results in more detail.
Thanks, John turning to slide 15 sales in the fourth quarter, excluding divested product lines were one equal to $183.9 million.
A decrease of 8% relative to the fourth quarter of 2018.
Excluding divested product lines.
Adjusted operating income was 5.1 million or 2.8% of sales.
More specifically control devices sales, excluding divested product lines was $93.5 million, which was a decrease of approximately 6% compared to the fourth quarter of 2018.
Resulting in adjusted operating income of 10 million or 10.7% of sales.
Electronic sales of 80.5 million decreased by 11%, resulting in adjusted operating income of $1 million or 1.3% of sales.
As we continue to integrate our global business going forward, we will refer to PST Stoneridge, Brazil.
Stoneridge, Brazil sales of $17 million resulted in adjusted operating income of $400000 or 2.1% of sales.
This morning, we are providing guidance for our 2020 financial performance, we're guiding 2020 revenue to a midpoint of $760 million, implying a decline of approximately $33 million versus our 2019 revenue.
Excluding the impact of divested product lines.
As discussed previously we expect gross margin expansion. This year through continued reductions in component cost and tariffs as well as operational improvements.
Despite improved expectations for gross margin, we are expecting operating margin to be approximately flat due to incremental investments in engineering resources in this DNA.
We are guiding adjusted gross margin to a midpoint of 28.5% and improvement of approximately 130 basis points versus 2019.
We are guiding 2019, adjusted operating income to a midpoint of 5.5% and adjusted EBITDA margin to a midpoint of nine.
0.5%, which are both approximately in line with 2019 adjusted results excluding divested product lines.
Finally, we're guiding to a midpoint effective tax rate of 22.5% relative to our 2019 adjusted effective rate of 8.4%.
Comparing the midpoint of our 2020 tax rate to our 2019 adjusted effective tax rate resulted in a 23 cents headwind to adjusted EPS in 2020.
Through our expectations of a flat operating margin and reduced revenue along with the increase in our effective tax rate, we're guiding to a midpoint adjusted earnings per share of one dollar and five cents for 2020.
I will provide additional color on the drivers of expected sales and adjusted earnings per share performance later in the coffee.
Page 16 summarizes our key financial metrics specific to control devices, excluding the impact of the divested product lines.
Excluding the impact of the GM strike and the continued ramp down of our legacy shift by wire programs controlled devices core portfolio grew by 7.2% due to growth in our ambitions sensing products as well as non shift by wire actuation products.
Adjusted operating income decreased by $7.4 million relative to 2018 due in part to increase tariff expenses and the GM strike, which each reduced operating income by approximately $2.2 million.
As we have discussed previously we expect the continued ramp down of our legacy shift by wire programs. This year to create a revenue headwind of approximately $20 million to $25 million relative to last year.
We expect control devices to offset this decline with continued growth in our emissions and non shift by wire actuation products, leading to approximately flat revenue in 2020.
Excluding the ramp down of our legacy shift by wire programs, we expect revenue growth of 3% to 5% in our core product portfolio versus flat expectations for growth in our weighted average end markets.
We expect that reduce tariff expenses of one or $2 million as well as the actions that John outlined previously to drive operational efficiencies will lead to operating margin expansion of 125 to 175 basis points in 2020 for control devices.
Page 17 summarizes electronics performance over the past year versus 2018.
Excluding the impact of currency sales increased by approximately $1.8 million versus the prior year.
Adjusted operating income decreased by $6.5 million relative to 2018, primarily due to the negative impact of currency of $3 million.
As well as increased costs related to electronic component allocations, which accounted for $2.6 million.
Looking ahead to 2020.
We expect production volumes to decline electronics due to lower commercial vehicle production forecasts in Europe, and North America. However, we expect that a large driver information system program launch at the end of 2020 as well as the launch of our first OEM Mirror near Eye program late in the year will drive substantial revenue growth opportunities in the segment into 2000.
Thank you on and beyond.
In order to support the growth that we expect electronics, we will need to maintain our existing capabilities and invest in additional resources to support future product development and prop program launches.
Despite our expectations for improved gross margin in 2020, as a result, overdues material costs and more specifically reduce electronic component related premiums. We expect our operating margins declined slightly as a result of additional SGN, a and engineering investments.
We are committed to driving long term value for our shareholders by investing in the resources to support the opportunities we outlined from IRI and our core portfolio.
Turning to page 18.
Storage, Brazil had a challenging year, primarily driven by adverse macroeconomic conditions and declines in our aftermarket audio and alarm business.
Revenue revenue declined by $12.7 million, resulting in an adjusted operating margin decline of 280 basis points.
In response to market conditions and to rightsize the cost structure of the business, we reduced SGN, a and DMD expenses by more than $5 million relative to 2018.
We continue to shift our product portfolio to more closely aligned with the electronics segment in support of in region OEM customers.
Looking forward as we launch our first OEM programs in Brazil in 2020, we expect stable topline performance in operating margin improvement of 100 to 150 basis points, primarily driven by improved gross margin as a result of increased labor utilization and efficiency.
Moving to slide 19.
Based on HSN LMC forecasts are primary end markets are expected to decline in 2020.
Generally speaking.
We expect passenger car markets to remain relatively flat while production in our commercial vehicle end markets is expected to mater moderately decline relative to last year.
As we have noted previously our end market exposure on the passenger car side is more weighted towards Lcvs, Cvs and light trucks versus traditional passenger cars.
Overall, we expect our weighted average OEM end markets to declined by approximately 2.2%.
Moving to slide 20.
Given given recent news and concerns surrounding the Kuroda virus in China I'd like to provide a brief update on our overall exposure to potential risks in China and provide clarity on the current expected impact stoneridge as a reminder, early last year, we relocated our existing Chinese operations to a fully owned world class facility in Suzhou.
Okay.
In 2019, China accounted for approximately 6% of Stoneridges sales and approximately 20% of our direct material purchases of those material purchases. The majority of our suppliers are in Shenzhen or Sue show, which are currently less impacted by the virus imposed less risk for supply chain disruptions.
At this point in time, we do not have any significant supply chain disruptions in China as a result of the virus.
Our current guidance includes a minimal impact of the virus continuing in the first half of the year as we are experiencing some reduction in customer orders. We will continue to monitor the situation carefully and provide updates as necessary should our expectations differ materially.
Turning the page 21.
Excluding divested product lines, our adjusted sales for 2019 were approximately $793 million.
As I outlined previously during 2020, we expect our weighted average end markets to decline by approximately 2.2%.
Additionally, we expect contracted price downs inline with prior years, which typically average once 2% year over year.
We expect the continued ramp down of our legacy shift by wire products to impact revenue by 20% $25 million in 2020.
Finally, we expect the prior reductions to partially offset by Mirroreye retrofit sales in the European boss in North American fleet markets as well as the launch of new programs, including a large driver information system program at the end of this year.
We have included a modest amount of Mirroreye retrofit sales in our guidance, we will continue to evaluate this as the year progresses.
As a result of these factors, we're guiding our 2020 revenue to midpoint of $760 million, which represents an approximate 4% decline in revenue, excluding the impact of divested products versus 2019.
From a timing perspective, we expect that approximate 51%, 49% split in revenue for the first half versus the second half driven by reduced production volume expectations in the second half of the year.
We expect to the third quarter will be our lowest revenue quarter of this year prior to the launch of our large driver information system program in the fourth quarter.
Page 22 summarizes our full year adjusted earnings per share guidance for 2020.
Our adjusted EPS, excluding the impact of divested products was approximately $1.38 cents, we expect a return to a more normalized tax rate in 2020 and are expecting a rate of 20% to 25%, which results in a 23 cents headwind relative to the 8.4% rate in 2019.
Adjusting for the midpoint of our 2020 guided tax rate resulted in adjusted 2019 EPS of approximately $1.15 cents for comparison purposes.
As I just discussed the midpoint of our revenue guidance implies a reduction of $33 million of sales excluding the impact of divested products as we have outlined in prior calls, we expect incremental inc. and and decremental contribution margins of approximately two and a half the three times our EBITDA margin.
This translates into adjusted EPS impact of approximately 23 to 27 cents in 2020 versus 2019.
We expect that the operating improvements John outlined earlier will improve performance by 22% to 33 cents offsetting the revenue reductions.
Finally, we expect to make incremental investments in engineering resources, and Mdna to support product development and future program launches, resulting in an additional 10 cents EPS headwind in 2020.
This results in the midpoint adjusted EPS guidance of $1.85 cents for 2020.
From a timing perspective through our expected revenue canes 40 year and expectations for a relatively even spread of SDMA and DMD expenses throughout the year, we expect our adjusted EPS performance to be weighted approximately 60% to the first half of the year at 40% to the second half of the there.
Turning the page 23.
We continue to grow our backlog in 2019 with another year of strong business Award performance, excluding divested product lines, the unfavorable impacts of foreign currency and the estimated impact of changes in production forecast by HSN LMC, our backlog grew by 6.7%.
I want to point out the potential opportunity in our backlog related to mirroreye considering different penetration rates.
As John outlined previously while our currently awarded Mirroreye business represents $76 million of peak annual revenue at quarter penetration rates that number improves to a $150 million should take rates double and approximately $500 million should mirror I become standard equipment.
Not only are very excited about the continued growth in our five year backlog, but we are becoming increasingly optimistic about the potential for significant upside of this backlog as narrow penetration rates could improve over the program lifecycles.
Turning to page 24.
As we have discussed previously we continuously evaluate opportunities to put our capital to use to drive shareholder return, including investment in our existing business inorganic growth opportunities and returning capital to our shareholders.
We continue to pursue and evaluate inorganic targets to accelerate our long term strategy and are focused on complimentary technologies that will enable and accelerate the advanced technology development activities that John outlined previously.
While we continue to pursue M&A candidates, we believe that given the significant potential for revenue growth and margin expansion for the company continued share repurchases should provide strong returns for our shareholders. As a result. This morning, we are announcing an incremental share repurchase program that would allow us to by an additional $50 million of our stock over the next 18 months.
We are committed to maintaining a strong balance sheet and utilizing their balance sheet to maximize shareholder returns.
Moving to slide 25.
In closing I want to reiterate that we're pleased with the transformational initiatives that we took in 2019 and move our company forward and the positive reaction. We have received in the marketplace for our new technologies.
George is committed to driving shareholder value and that focus remains at the forefront of all of our strategic initiatives with that I will open up the call questions.
Thank you, ladies and gentlemen, as a reminder to ask a question you want me to press Star one on your telephone to withdraw your question. Please press the pound key.
Once again that a star one to ask a question and as a reminder, we ask you. Please limit yourself to one question one follow up and our first question comes from Justin Long with Stephens. Your line is open.
Thanks, and good morning.
Good morning doesn't.
So maybe to start with the guidance for 2020. So you gave that full year outlook for operating margin to be 5% to 6%.
Could you give us a rough sense for your expectation for the quarterly cadence of this operating margins throughout the year and as you answer that.
Typically within electronic how long do you think it will take for margins to recover back to levels that you saw prior to the fourth quarter.
Thanks for the question Justin Yes, so in terms of the in terms of the cadence.
So we have we have seen some we've seen some encouraging signs in January in terms of our performance in that that gives us confidence with respect to the guidance with the annual guidance that we've provided.
We we have talked about the about the revenue split 50 140 net revenue split.
The revenue for us and the performance is more first half weighted versus second half a number the initiatives in the things that impacted the our fourth quarter performance. We're we're more onetime in nature around exiting the can't facility the GM strike.
And some of the operational performance issues that we had in in one of our facilities. So we're seeing.
Beginning in two years.
Startup.
Started out really within our expectations.
And gives us comfort in the guidance and in terms of the the rollout of the operating margin out it's more more first half weighted versus second half.
Okay and then.
Next question I had was on that 2021 guidance. So just taking the midpoint of the revenue outlook for this year and kind of looking ahead to 2021.
You are assuming about 90 million dollar revenue increase can you just talk about your level of visibility to that number and how much is kind of build a bridge how much of that business has secured in the backlog and maybe what.
Much of that is mirroreye versus other products.
Yes, Justin Thanks for the question so as you know.
The.
The most of our businesses is OE business and it's a it's a blessing in occurs because we have really great line of sight to what our sales are going to be over the next few years, but generally speaking we win programs two to three years in advance of production. So on the OE side, there's there's really not not a lot. We can do in terms of moving the needle over the next couple of years.
So in terms of line of sight the $850 million.
You look at what we do as we take the HST LMC projections and we take our awarded business.
At those at those levels and and layer into.
The new the new program launches so with respect to the new program launches.
I mentioned earlier on the call. We've got the instrument cluster our largest per cluster award that being launched late this year, we've got mirroreye launching this year as well.
And we have our of our product our apart by wire launch as well so basically what we do as the.
The vast majority of that have that $850 million is or is basically in the backlog and as long as.
[music].
As long as bond materialize per HSN LLC.
For the I just don't see data then that constitutes the as I said really over.
The majority of.
Of our total backlog regenerative cynthiana evident in Justin is.
As you know clearly.
We have of course.
Portions of the business are not backlog level.
So our lack of business, our stoneridge, Brazil business.
And some of our other miscellaneous aftermarket businesses not backlog levels. So.
For.
That doesn't we have confidence in the year over year progress there, but it's not in the backlog. So we're we're very confident with regard to the.
Increase year over year, yes. It does nothing that I would add is just what's in the Hs assumptions right. So if you look at our primary end markets, we don't have really.
If you look at Digest data so the I just data in terms of what was built on the $850 million of revenues that look at North America pass car. The ice US data is up 1.1% this year and down six tenths of a percent next year for commercial vehicle, it's down 24.6% this year up 2.3% next year.
If you look at Europe, Europe commercial vehicle, if we focused on western Europe, So western Western Europe commercial vehicle. If you look at the LMC data down 5%.
This year and up 5% next year, so basically flat over the next two years, but down five this year. So we don't have kind of blockbuster assumptions built into it to that to get to the ticket today 50.
Okay, Great. That's really helpful and then last one.
And then I'll hop back in the queue, but there's a lot of talk about mirroreye in the positive developments. There have have you kind of Scott again about what you view is that addressable market for mirror.
Historically, you've talked about in 250 million on the OE side 100 million on the retrofit side for for 350 million and in total I know you threw out that number of 500 million assuming that it became standard on all equipment.
I see that would be a pretty bullish scenario. So do you just have any thoughts on a realistic addressable market for mirroreye going forward.
Well, it's one of the reasons why we provided that that slide with regard to the range. We actually think at the vessel market is greater.
The more the more work, we do with both the fleets in the Oems, we have higher and higher higher stronger and stronger confidence with regard to the penetration of this product and how people will use it.
I'm also.
Incredibly pleased with the feedback that we've gotten from both the fleets in the Oems with regard to our specific product and thats that manifests itself in the business that business that we've won so I would say to you that we think the addressable market has actually grown from the numbers that you did that you've stated and that's why we showed the slide that we did.
Okay I'll leave it at that thanks for the time.
Thank you Justin.
Thank you and your next question comes from Chris Van Horn with B. Riley Your line is open.
Good morning, Thanks for taking my questions.
Before I address.
So you talked a lot about take rate and the upside opportunity in and obviously that looks that looks attractive could you talk about.
What specifically the decision points were for the different take rates that you cited for your four year.
For your recent awards and then maybe.
Your thoughts on what what could get that take rate higher is it just success of the product is it prices it.
Something on some other factor.
Well, so so Chris.
What we what we tried to do is give you a couple of interim points between as we as we've always said, we give you a backlog number based on what our customers tell us with regard to take rates.
The feedback that we've gotten in the last month's both from the fleets as well as from a couple of always is that are quoted take rates are likely understated. So what we're trying to show to you is what would that look like so the 15 versus the 30% isn't because somebody's changes to 30% or we would have changed the backlog.
But what we're trying to show you as a range and we have had at least one only tell us that they believe it will go to 100%, we havent changed we havent changed our program with them, but that's that's where we see it going and just as a reminder, we know that theres at least one are we in Europe, that's making.
CMS system standard equipment.
So.
What we see is as people get more and more comfortable with the technology and Thats one of the reasons why our fleet trial activities have been so important in our demonstration programs have been so important as our always get see both the fuel economy and the safety benefits, we expect to see one the.
Adoption accelerate in the take rates expand.
Just to add on just CHRISTUS Edward Jones, I think where things that we talked about on the call I think it's an import understands we announced about almost $200 million a peak annual revenue awards, but mirroreye went to standard equipment.
Awards that we've already won that begin our revenue would be somewhere in the $450 million to $500 million. So the impact of this has.
To the company.
The absolute transformational.
The take rate is something that we we have been sold a lot of product that are subject to a take rate and this is a new products. So what we try and do it will be bread sensitivities is we just give you physically as John said earlier, here's what's been quoted.
And because a lot of investors have asked what would happen at this with this became standard equipment will be the impact the overall take rate for the company. So thats thats. The reason that we that we provide the range and.
We will be but we'll give you some additional information based on the feed that there were here from the fleets, but ultimately the stage of the game with the product not being in production.
We provide the range to allow investors to make a termination rate where they think is ultimately going to go and while it wasn't sensitivities.
Okay, great. Thanks for that color and then you talked about eight to 12 million of savings in 20.
That's a really solid number there do you see additional saving opportunities I imagine it's an ongoing.
Initiative to look at the cost savings, but do you see those savings are additional savings and as you head to 2021 or how should we think about that.
Yes of course, so Chris we continue to reiterate our goal to get too.
Top quartile financial performance and operational efficiencies are part of that obviously as we start to see revenue growth I think it's important for everybody understand that we're balancing scaling our organization in a down market with the need to make investments in new technology. So therefore dnbi.
And actually in a investments to support future growth, so maintaining a expanding our gross margin and maintaining our operating margin in a significantly down market is is a demonstration of that and as we see the market come back as we see revenue growth between 2020, and 2021 of 12% you wouldn't see the.
The fixed costs and wouldn't see the structural costs move whether you'd see gross margin mode, but you wouldn't see some of the other costs. So we will continue to work to get to that top quartile financial performance and adjust the business.
For the externalities as well.
Okay got it and then just squeeze one more and if you know Mike.
Your other products I think are interesting as well around driver information systems.
Digital clusters et cetera could you maybe update us on the on the pipeline for those and maybe what you saw I know you have a big launch and.
Q4, I believe you said of 20 and how how's that.
How that Mark has gone.
Yes. So if you look if you look at our overall backlog in our business wins.
Mentioned that we had over $200 million of peak annual revenue business wins in 2019.
And only a small portion of that only roughly a quarter of it was mirroreye, we continue to win and other spaces and.
Our overall goal is deepening those relationships with our customers and continuing to win not just with not just being a one product company, but offering integrated systems and capabilities. So we see good opportunities with regard to regardless information systems, we see good opportunities with regard to our connectivity products. We also received very good opportunities in.
In the control devices business, we didn't spend a lot of them on this call with regard to that but we see good opportunities. There. So while mirroreye becomes a a large portion of our conversations just because of the magnitude of the opportunity. There are the foundational business continues to see growth and additional business wins.
And if that were truly wouldn't have had the $200 million, we talked in business awards that we talked about in 2000.
Okay. Thank you again for the time.
Sure Chris.
Thank you and once again, ladies and gentlemen, just I wanted to ask a question that a star one.
Our next question comes from Scott Stember. Your line is now open.
Good morning, guys and thanks for taking my questions.
Good morning, Scott.
John You had mentioned that I guess, given the rapid acceptance of the OEM side for Premier I bet, you were going to start to see.
Uplifts of decisions.
Shifting from retrofit too.
To OEM I guess beginning of life can you maybe just talk about how that.
The timing of that meaning the contract that you start in the fourth quarter I guess, it's yes in the 10 or $12 million range could that turn into $15 million to $20 million, just because of increased take rates because of the the shift in demand from retrofits OEM.
So so Scott Thanks for your question and yes, absolutely as one of the reasons why we provided the range. The chart range that we did with regard to the possible take rates the.
The the fleet trials that we have done.
And the conversations that we've had in the marketplace in the conversations that we have with the Elise.
Have continued to reinforce the.
The.
The impact of this technology.
As we said in during the presentation that fleets are very measured in how the duty sort of things to make sure that they have robustness.
Chuck chart piece of production equipment commercial vehicles are piece production equipments, and making sure that they have appropriate uptime and that they don't create undo downtime both in the install or in the quality of the system. So.
They are conservative and how fast they retrofit how fast they move but as they learn more and as we as we do more with the leads we're going to see pre wire, which is effectively a retrofit activity and then also.
Are we business ramp up.
Got it.
Moving on to shift by wire I know, we've been talking about this the wind down for a while and does.
We're expecting another 20 to 25 million impact in 2020.
Once we get through this.
For this year.
Are we still looking at an impact of 2021, and I guess a follow up.
Do you expect to maintain permanently any shift by wire business outside of what Youve announced in China.
Yeah. Thanks for the question Scott. So after this year, we're basically how about $15 million a shift by wire business remain as theirs is theres a ramp up with with a couple of awarded programs in China, but that particular, a piece of the shift by wire portfolio will be at about $50 million.
With the current portfolio customers next year and.
That will just that'll just white itself down over the next over the next couple of years after that.
Okay. If I could just sneak one last one and you guys talked about a 500 million opportunity. If it becomes standard equipment again. This is for the mirror, but we talk in North America exclusively.
Well, that's global that wasn't at Europe, and North that was just based upon our awarded the the business that we've been awarded to date all got it Okay got it what you're going to what obviously there would be a lot bigger that more contracts I got it okay correct Thats all I guess.
Thanks Scott.
Thank you and our next question comes from the line of grain Chen with Buckingham Research. Your line is open.
Good morning, gentlemen, thanks for all the information that defines as usual.
Glenn Wortman.
Good morning, just a quick follow up I am wondering prior question I just want to make sure a.
Correct Me I think you may have addressed it in there.
Your prepared remarks.
Yes.
Hi, there.
SG name the expenses those should be spread evenly throughout the year cadence.
Yes, yes, that's correct, okay, great and then on going back in there.
So these north American program win presumably it will incorporate Marius since that is still required by Nitsa is that correct.
The.
We've seen a couple of different mechanizations with regard to the quotes for different always some have chosen to integrate the CMS system into a reduced size mirror.
Others have chosen to quoted separately.
And which gives them the flexibility as to whether they just use as they're able to get the regulations change by 2023 or not so the additional quotes that we are the additional awards that we have in 2023 are for Standalone systems not for a hybrid system one year.
Okay, and then Jining.
In your slide you talk about.
Yeah.
I guess OEM customers, suggesting that changing regulations coming.
You guys send sectors movement on that end.
Well, what what we sense is that.
That two things one.
Both in Europe, and in North America. The Oems are trying to address both market issues and regulatory issues to find ways to buy fuel economy, and find ways to drive safety and what they're learning more and more as the impact of Mirroreye and therefore, why they would want to use that so.
So that is a response to regulations that are already out there and things like the vulnerable load user regulations in Europe.
In it in addition, what Youre seeing is you're seeing the always get more competent and the technology and must go back to net and start the process witness a with regard to the elimination of matters in line with what's happened in Europe, and obviously as they get more data more confidence we would see that excel.
Great.
Okay, Great and then sort of a related question.
Your program number three.
Thank you take rate in Europe.
25% versus North America.
I guess 10 percentage.
Just had a curiosity what is the reason for that discrepancy in concrete is it because it's legal in Europe and R&D assuming.
Hybrid in North America.
Streaming Ryan so.
No. So it's.
You've got you've got the Daimler Aptose, that's been out there for a year you've got you've got just an adoption curve in either in North America, Northern Europe is at a hybrid in both situations a standalone activity and I think just the adoption rate is.
From an OE perspective, one the laws wallet and secondly, you're seeing more market pull for it.
Okay great.
That's it for me thanks, gentlemen.
Okay.
Thank you and we have a follow up question from Justin long with Stephens. Your line is open.
Thanks for taking the follow up just had a quick question on the buyback authorization, Bob I was wondering if you could.
Give us any thoughts about that timing.
The buyback and going forward and I'd also just clarify it is any impact from that buyback factored into the guidance.
Thanks for the thanks for the question Justin So nothing has factored into guidance relative to the to the share repurchase and.
We're evaluating options and just just like we did on the on the prior repurchase in terms of accelerated programs versus versus Tenbfive. One grid based programs is open market repurchases and.
We have that we've basically we're comfortable that we'll be able to complete the program within the 18 month time window that weve that we've announced today.
Okay. That's all I had thanks again.
Thank you.
Thank you and not showing any further questions at this time I'd like to turn the call back to John to gain for any closing remarks.
Well. Thank you offer your participation on today's call in closing I can assure you that our company is committed to continue to drive shareholder value through our strong operating results profitable new business and focus deployment of our billable resources. This management team will respond effectively and efficiently to manage and control the variables that we can impact and can you continue to drive.
Strong financial performance.
Confident that our actions, resulting continued success in 2020 and beyond we look forward to slightly on the next call.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a good day.
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