Q2 2020 Hyster-Yale Materials Handling Inc Earnings Call
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Thank you.
Morning, everyone and welcome to our 2022nd quarter earnings call I'm, Christina Kmetko and I'm responsible for Investor Relations at High Street.
Thank you for joining us this morning, joining me on today's call Oh, Rankin, Chairman, President and Chief Executive Officer Heights for you all materials handling <unk>.
Oh, Gee, Perseid, President and Chief Executive Officer opposed to your group and Ken showing our senior Vice President and Chief Financial Officer.
Yesterday evening, we issued our second quarter 2020 result, and filed our 10-Q.
Piece of our earnings release and thank you are available on our website for anyone who is not able to listen to date entire call. An archived version of this webcast will be on our website. Later this afternoon and available for approximately 12 point.
Our remarks, Apollo, including answers to your questions contain forward looking statements before looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed <unk> implied by such forward looking statements made here today.
These risks include among other matters that we have described in our earnings release issued last night and in our 10-Q, another filing to make with the FCC.
The disclaims any obligation to update these forward looking statement, which may not be updated until our next quarterly earnings conference call if at all.
Also certain amounts discussed during this call may be considered non-GAAP.
Non-GAAP reconciliations of these amounts are included in our earnings release and available on our website in a moment I'll discuss our second quarter results, but first let me turn the call over to our chairman and CEO.
Ranking for some opening remarks well.
Thanks, Christy and good morning, everyone.
Thank you for joining us today.
Second quarter broad unprecedented challenges to our customers dealers large employer huge.
Yeah.
Well first priority was and continues to be.
To keep our workforce shape and to help producing spread of football bar, which.
Her shaky focus approaches coupled up with responsibility to our customers.
The supply them with the products and services that include.
Operations in many critical industries working closely with our dealers were delivering products and services to enable our customers.
It infrastructure that is essential to support the economy during this trend.
The broad measures taken by government businesses and others around the world warm up the spread of cobot 19 adversely affected our business during the quarter.
Production was significantly reduced or suspended our European into luxury.
Americans facilities during the first trial for the second quarter.
A significant decline in global economic activity, it's all shareholders mantra products from customers and limited availability of components from any sheep waters.
To mitigate the financial impact of these challenges starting late in the first quarter, we faced in a significant shut up cost reduction <unk> liquidity.
Enhancement measures.
These measures were largely implemented by the ended the second quarter.
Benefits from these cost containment actions resulted in a decrease in operating expenses were $21.6 million and the second quarter $27.9 million for the first <unk> for the six months ended June 30 2020.
It did not fully offset unfavorable impact that economic downturn College.
Okay.
As a result, the company's second quarter operating profit in net income were significantly lower.
Both the 2019 second quarter and the 2021st quarter.
Overall niche these very challenging conditions, the company's global workforce is focused on keeping costs down.
[noise] managing inefficiencies.
Continued good [noise].
The customer needs in generated results that exceeded our initial expectations.
Despite these challenges we are continuing to make important investments for the future.
This is the context for Christie's discussion.
Second quarter performance, which comes next.
Energy to provide perspectives on the business, including near term demand challenges and perspective on supply chain activities and the pace of our strategic brokerage.
And will then discuss discussed the actions we've taken to enhance our liquidity and manage our financial results through this challenging environment.
The duration it impacted pandemic on the economy remains uncertain.
Virginia achieve our workforce she's done in pressure.
Our hopes to yield management team global workforce responded to a variety of challenges, including changing customer demand, new working protocols and supply chain disruptions among others.
We believe our employees and our businesses are well positioned to manage through this pandemic.
A disciplined execution difficult environment.
Yeah, It's enabled high street retail to support our dealers and customers and at the same time worked diligently to ensure their health and safety now let me turn call over to Christy to cover our results for the core.
Thank you out [noise].
I will first provide some highlights about the quarter and then discuss the individual segments.
Second quarter consolidated revenues decreased to $654.4 million down 23.6% from last year second quarter, mainly due to the impact of the global covered 19 shut down lower bookings and resulting lower shipments.
Consolidated operating profit also decreased significantly to 8.7 million I'm 22.99.
In the prior year second quarter due to lower results and all of our segments.
Net income decreased to $3.6 million or 21 cents per share from $16.2 million or 97 cents per share in the prior year quarter.
Turning specifically to lift truck business I feel group's second quarter revenues decreased 23.4% to $622.9 million from 812.7 million Connie 19, mainly as a result of lower unit and parts volumes and all our geographic segment, especially EMEA where plants will come.
I was for over a month during the quarter because of the cover 19 pandemic kinda, resulting in significant decline in global economic activity.
Shipments decreased by approximately 6200 units due to fewer shipments and all classes in EMEA and Jay pick and all that class one electric counterbalanced trucks and certain class three warehouse trucks in the American.
He will provide more detail about our bookings and shipments in a moment.
Second quarter 2020 operating profit in a lift truck business decreased 41.6% from the second quarter of 2019 also as a result of reductions in all geographic segment, particularly in EMEA and Jay pick.
The reduced operating profit in the Americas, and Jay, but mainly due to lower unit parts volume as well as the absence of $4.9 million a favorable retroactive tariff exclusion adjustments recognized in the prior year quarter [noise].
The decline in operating profit was partly offset by lower operating expenses, primarily as it was all the implementation of cost containment actions, including reductions in employee related expenses and mitigate the expected impact of the covered 19 pandemic.
[laughter].
EMEA was affected the most by the pandemic induced actions.
EMEA had an operating loss of $2.8 million 2020, compared with operating profit of $4.7 million in the prior year quarter.
The lots is primarily the result of significantly lower gross profit, partly offset by lower operating expenses, mainly as a result of the implementation of cost containment actions.
Emeas gross profit decreased due to lower unit and parts volume as well as manufacturing inefficiencies, resulting from the shutdown of the European plan for half of the second quarter.
Government support incentives only partially my mitigated the impact of the plant shutdown.
The reduced gross profit was also partly offset by the favorable impact of lift truck pricing actions on sales and a shift in sales to higher margin lift truck.
At the Bolzoni segment revenues decreased 29.3% involve any reported an operating loss of $500000 compared with operating profit of $2.3 million for the 2018 second quarter.
The decrease in revenues due to lower sales as a result of extended plant closures in Bolzoni European facilities in the first half of the second quarter in a significant decline in global economic activity.
The decrease in operating profit was mainly because of lower sales volumes and manufacturing inefficiencies, resulting from the cover 19 pandemic, but the decline was partially offset by lower operating expenses due to cost containment actions taken.
Finally, as Nuvera revenues were $700000 in second quarter of 2020 down from $2.2 million in the prior year anywhere as operating loss increased modestly to $8.3 million from $8.2 million in 2019.
Revenue decrease in operating loss increase were primarily the result of a decrease in third party fuel cell development servicer.
Favorable effective cost containment actions, mostly offset the effect of these reduced.
That completes my summary of the second quarter results.
I'll now turn the call over disease, who will discuss our operation on the status of our strategic focus.
Thank you Christine I'd like to provide a brief updates on our operations, including out people bookings and our supply chain.
Across the company, we're focused on maintaining the safety of our global workforce and limiting the exposure oak employees to the spread of Cobot 19.
Including adjusting ships scheduled to promote social distancing enhancing cleaning and sanitization.
And promoting a recommended hygiene practices.
Limiting workspace access and maintaining remote working where possible as al mentioned there were very proud of the way our team has.
But I remain disciplined and maintaining this new protocols.
Moving on to our operations.
Sector Kogut 19 pandemic continues to create much uncertainty the deterioration as well if the severity of the resulting economic downturns impact on different industries.
The global lift truck market.
Excluding China, which was affected mainly during the 2023rd quarter decreased 22%.
The second quarter from the fourth quarter and decreased 25%.
Hi, prior year second quarter as a result up the pandemic related shut down.
And the slow economic recovery from the shutdowns.
Our largest markets.
Americas, EMEA had decreases of 15.3% and 28, 1.1%, respectively compared to the first quarter of Twentytwenty.
As economic as economies.
Gradually we reopened market activity has increased.
Which has trended translated into sequentially improved monthly booking although no region have normalized year.
During the second quarter, our unit shipments bookings and backlog or decrease.
Paired with the 2024th quarter and 2019 second quarter.
Combination of lower shipments due to the reduction or suspension of production in several of our European plant.
On to a lesser extent the Americas facilities in the fourth quarter of.
That's a pop up this quarter due to code in 19 relate to shut downs material shortages from suppliers.
We'll close the manufacturing plant.
Could not deliver component as a result to increase controls that border and border closures.
And the substantially lower market levels contributor to the decrease in bookings and shipments.
Our bookings that shipment levels were at their lowest point in April.
As global demand steadily improve throughout the second quarter deep level trended up in both May and June.
That significantly lower levels done in same period.
The year before period.
Our June bookings were approximately 25% lower than June 2019.
But there's more than 60% decline, we experienced in April and more than 50% decline we experienced in may.
July bookings also showed improvement.
Preliminary July booking.
Or lower than July 29 team by only a moderate amount an increase significantly over June levels.
While the trend line is improving improvements are occurring at the decreased rate, suggesting that the recovery maybe flattening.
We continue to carefully manage our shipments backlog and lead time during this period of uncertainty.
We have adjusted the production level.
Refracturing too long to align more closely with the reduced levels of demand.
So that production rate match market conditions.
As a result monthly backlog levels have trended down over the three month period.
Based on our current backlog and the Jeff that production levels, we expect to have adequate production.
With minimal open production slots for the remainder up this year.
It should provide us with both competitive lead time and the mix skeptical ongoing backlog level.
We are focused on.
Shifting production levels quickly.
Market and bookings change.
And we're also working closely with that supplier to help ensure appropriate component supply levels as our production levels change.
We successfully navigated.
Through supply shutdowns early in the quarter to continue production without any major supplier induced line stoppages in our Americas Division.
This is a testament to the focus that for the thought supply chain team and a strong supply partners.
This time, a global supply chain is in a relatively stable position. The situation remains fluid well continue to monitor to monitor that closely and make supply adjustments where necessary.
Market conditions improve we expect that increased bookings.
<unk> programs, we continue to pursue will position each of our business businesses to recover to sound long term financial returns.
Now let me spend.
A few minutes talking about talking about strategic programs.
Despite the considerable uncertainty regarding near term economic activity continued to be committed to our long term strategies.
The projects required to execute that strategy continued to move forward.
But in light of coded 19 pandemic the peso certain projects.
Being prioritize the garage at projects and some projects have been delayed to reduce operating expenses and capital expenditures.
Well, we're continuing to introduce a number of new products. During this period primary focus is on a lift truck business.
He is on a new set of modular scalable product families covering both internal combustion engine and electric Fork trucks.
We have been.
Focused on maintaining the timing of the introduction of the built the first of these products, which is expected in the second topic twentytwenty with the launch of a new range of counterbalanced trucks.
In addition, the introduction of these new products will lead to significant changes in supply chain sourcing.
In our various manufacturing facilities around the world a certain products a move between plants.
Consolidated component volume source globally from reliable partners is expected to reduce cost and improve quality at these new products are brought to market over time.
Our largest manufacturing facilities in Berea, Craig on Greenville are undergoing significant changes.
An investment continues to be made to to these clubs.
In the current environment, we have accelerated plans to move certain products between plans and we'll provide that will provide permanent structural changes to reduce costs, while creating centers of excellence.
Other products.
Three largest plan.
Modular nature of these new.
Products is expected to enhance our ability to meet customer needs at lower costs and we'd more application specificity.
Both.
The industry level and that the individual customer level.
In this rapidly changing environment, we have accelerated our focus on finalizing and implementing our industry strategies and our investments in industry focus sales capabilities to support that dealers.
While we are working with this.
Why we're working on do we're also focusing on enhancing our remote selling capabilities through technology MIT enhancements.
Bolzoni continues to focus on its Americas.
Strategy.
Including strengthening its ability to serve the North America market through the supply of cylinders and various other components from its probably in Alabama plant.
And introducing a broad range of locally produced attachments for shorter lead times to serve its customer base.
Well go near also implement is implement thing it's one company three brands structural.
Approach, which will.
Help streamline back office operations, and strengthen Miss America, and JP commercial operations.
Finally, nuvera continues to focus on serving heavy duty applications with its 45 kilowatt engine, which was released for sale during the second quarter. It also continues to focus on the forklift truck market.
During the second quarter, Nuvera, which had successfully certified for 45 kilowatt engine for China in 2019 receipts. This books integration certification, which allows the engine to operate in buses.
In June testing up the engine in buckets is currently in process in China and expected to conclude during the current quarter fold one company.
With.
With certification for other bus companies expected late in the second half of this year and into first half of next year.
As a result of these milestones nuvera has accelerated.
The 45 kilowatt engine commercialization operations for the global market and it's focused on ramping up sales.
This product late in 2020 and 2021.
Overall, it is our intention to emerge stronger.
From the pandemic enterprise that would this business conditions improve.
We believe our prioritize strategic programs, so put us in that position.
That concludes my summary of our operations I will now turn the call over to Ken for an update on Outports regarding future quarters and measures being taken to enhance liquidity.
Thanks Rajiv.
While we are encouraged by our recent market in bookings activity received just highlighted the level of future bookings still very out there is still very uncertain as to when demand and marketing conditions will return to pre tax pre pandemic conditions barring a cobot 19 outbreak spike the carwin requiring a dish.
No widespread shutdowns of non essential businesses, we believe bookings are unlikely to get worse than the current rate, but the trajectory cannot yet be forecast with confidence.
Our third quarter is traditionally soft as result of seasonal allocation.
Plant shutdowns and costs associated with customary lower third quarter production schedules at our manufacturing plants. As a result, we expect a modest loss in the third quarter of 2020.
More broadly pandemic related uncertainty continues to limit our ability to forecast bookings over the remainder of 2020 and 2021 and as a result expected shipment levels for the fourth quarter of 2020 and full year 2021.
We continue to operate on the assumption that the economic and market environment.
Although improving remain difficult throughout the remainder of this year and until next year until a total did 19 vaccine is readily available.
You may not be able to control the macroeconomic factors that drive the demand for our products, but we are aggressively executing on actions that are within our control to moderate the near term financial impact of the totaled 19 pandemic.
Beginning in the first quarter, we moved aggressively to put plans in place to mitigate the impact of lower markets in bookings and the consequential impact of reduce manufacturing activities as busy previously discussed.
Michigan cost reduction and liquidity enhancement measures. These actions are not targeted to achieve 50 million to 75 million in operating expense savings compared to 2019 of which $28 million have already been realized.
These reductions would be significantly greater if they were compared against what we expected pre cold it in 2020, rather than compared to 2019.
The combination with these actions. We've also been focused on steps that will enhance cash flow before financing, including reducing working capital and reducing or deferring capital expenditures, which are now expected to be approximately $55 million in 2020.
While 2020.
Second quarter cash flow before financing, but still a use of cash this quarter, but improved substantially on the first quarter from the prior year of second quarter.
Enhancing our liquidity potential also continues to be a priority.
At June Thirtyth 2020, our cash position was 16 million $60.5 million and debt was $337.7 million.
Compared with cash on hand of 50.4 million and debt of 340.1 million at the end of the first quarter.
Encouraged billing encouragingly, despite the significant economic impact to pull the 19th during the second quarter net debt improved by 12, and a half million dollars T 20 to 277.2 million.
289.7 million at March 31st.
In addition, as of June Thirtyth, you get unused borrowing capacity of $218 million under our existing revolving credit facilities compared with 194 million at the end of the first quarter.
Businesses are doing a very good job managing to maximize cash flow. We're also working very closely with our banks and financial partners globally to implement programs that can enhance our liquidity. During this downturn and we are utilizing newly legislated tax and other programs to increase near term liquidity.
I'll now turn the call back to al for some closing comments.
In closing.
[music].
I'd like to know that we believe we are actively realistically and reasonably successful.
And navigating our way through this gracious the global Cobot 19 pandemic continues to present, an ongoing challenges to virtually every aspect of close to deals daily life.
Despite the progress we've made this crisis is very much with them and the questions contemplated several months ago regarding to shoot speed in shape of the recoveries are still very much in question.
We have a substantial backlog, which provides us with production support over the remainder of 2020, and we took aggressive actions early during the pandemics advantage or cost structure and financial position.
Workforce is managed production and supply chain disruptions very effectively and that's kept us on the right path.
Jim Times.
We are committed to remaining agile and to having contingency plans in place to respond appropriately to changing conditions as they unfold.
I struggle is fortunate to have very experienced leaders, who have managed through challenging situations in the past, including severe economic downturns.
We have emerged from these challenges as a stronger company each time.
We expect to do that this time as well.
This creations clearly demonstrated what a strong global team our company couch.
That concludes our prepared remarks.
And we'll now open up the call for any questions that you may have.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad, we'll pause for a moment to compile the <unk> master.
Your first question comes from Joseph Mondillo with Sidoti Enzo.
Please go ahead.
Hi, good morning, everyone.
The one morning, yes, one of the start with actually Nuvera. It seemed like some of the comments that you made in the press release of both are prepared remarks to me founded.
I was sort of positive not sure how significant that is but.
Just wondering what your your overall thoughts on the progression there.
Well I'd ask Rajiv to comment, but I'd just.
Say that the.
[noise] certification or do you 45, and should very critical milestone on both the initial certification last year and certification that we've had this year that permits to run and and buses and the ongoing testing show.
We feel that.
Theres position just to participate in a in a very significant market over the.
2021 period and to some degree toward the 20, Twond Rajiv you want to add to that.
Hey, how are you on mute.
Yes. Thanks.
Thanks Al.
Thanks for the question. So the way, we see where we are in November I would definitely at an inflection point.
The the has historically weve focused on generating product and utilizing those product within the lift truck industry ourselves in our battery booked replacement.
What the second half of 2019, and the first half of 2020 has done for us.
Then commercialized.
And develop these products for a targeted at the heavy duty industries, especially.
The and then later.
On commercial trucks.
35 kilowatt engine is a critical part of that we feel very confident confident about the capability of the engine and the commercial activities to market and sell those are now in full ramp up mode.
And that will be a global that but initial focus has been China, but we are looking at other regions as well for.
I'm talking to potential customers.
So just to dig in a little more specifically regarding this endurance tense tests that it sounds like you're very close to finishing and with the one China bus company.
What is.
How do we think about that going forward.
In regard to the test results you know is there any information that you can give with us.
Provider regarding those test results, thus far in just happy any short term it.
Joe the tests have been good either hit our targets or in some cases exceeded our target.
So to make a bus available for sale in China, you have to go into a catalog that's approved by the government and the government requires you to pop these tests to enter the catalog.
We expect to be and then these tests off for every really there I'd be OEM level. So we're working with one OEM.
Currently, which we will we feel we will be.
To that process.
In the second half of the year in fact in early.
Quarter of the.
And and then we'll.
Also in parallel we're working with other Oems to do the same process.
No.
Achieve it in either late this year and some early next year.
It is a process that requires you to validate the engine and the integration you achieved.
But we think the test we have already pop is a good indicator, which you hold DFM VIP pet and it's around the engine and be engine systems is a good indicator to the Oems in China that we have a.
And in the ready for integration and production.
And so once you get to the end of that you get the results of the test in a month or two what's the next step does.
Okay.
As of the option to start buying from you or.
Yes. The then once the test or pass them be.
Our solution the.
Including the Oems, but billion, but we'll be lifted as I.
Sellable item and then the commercial teams already working with various cities to.
You know kind of go through the sales process for them to acquire the boss.
So the lumpiness in the cap loved and it can be purchased by.
By cities.
Okay and then we're also in a position where we can begin to look at.
Markets outside China as well those buses that are produced in China can be sold outside China, and so we'll be working with the bus companies to some degree there a variety of commercial programs that now take the.
The forward from in terms of the emphasis.
Having established that we have the basic product.
It can be sold for certain applications.
But puts you in a position to really pursue the commercial opportunities aggressively.
So at this point.
Do you have a sense of.
Near term next 12 18 months of what kind of volume given the success, giving your conversations with the customers. The OEM do you have a sense of volume and how how significant improvement could we potentially seeing financials in 2021 regarding although I think the only thing we.
He said is that we're aiming towards the.
Somewhere around the breakeven level by the end.
Next year that implies that there'll be additional volume during the quarter should be year and that it will build up over 2021.
At this time, that's our our plan.
The firm up the relationships with potential customers and I don't think we're prepared to say anything more than.
To outline that general structural scenarios this time.
Okay person.
So I guess transitioning to the core truck business.
As far as the backlog when you look at the year over year trends at the backlog.
Can you talk about what regions are positioned better than others going into the third quarter in EMEA backlog, a little better than Americas, because all the plant shutdowns that you saw in EMEA or.
You give us a sense of backlog trends.
Well I really think the issue is much more the pace of.
Bookings and.
The return them to slow, but bearish industries.
And increasing bookings over the next to the remainder of this year.
In 220 21.
As we noted in our remarks.
The trends are encouraging including through July.
But.
And so we have reasonable visibility because of the backlog slot filling process.
For the third quarter, we'd indicated.
What we think will be the general a result, since the third quarter.
On the other hand as soon as you get into the fourth quarter, you're still talking about bookings.
In and.
August and September.
And perhaps even October, but probably mainly August and September and staffing.
The impact.
On the level of production.
George you've indicated we're managing.
Our production each production line at each plant very very closely show they were balancing.
On a weekly basis.
Incoming orders from the perspective on where coming up orders that we see in our pipeline.
With the production schedules and the backlog maintenance to ensure that were.
Neither shorter backlog in terms of ensuring smoothed supply of component parts, nor too long into backlog.
So that.
Lead times are extended out beyond competitive levels.
That process is very very active that's being done at a senior job senior level.
In the company in order to be interested in the way that Reggie the outline.
And as we see the orders coming in.
We'll be making adjustments.
It's going to depend an awful lot, which industries come back and which ones you remain.
Sure crashed and we're trying to do as much or forecasting now.
On an industry basis as we can.
Historically that wasn't tremendously necessary the mix of industries was relatively consistent from.
Year to year with some growing.
More rapidly than others.
Now, we got a very different pattern and so we're really trying to analyze should the prospect and each industry looking at our position in the industry. How we can enhance through our industry strategies in our industry selling programs our position in those should industries that are.
Returning more quickly than than other than another.
Industry show I.
I think thats really the way to think about the process that we're going through.
The only thing I'll add to out to that is that.
I don't they feel remember our comments in 2019, but throughout 2019, especially for our Americas.
Backlog, we had expected backlog.
That will predominantly due to some supplier.
Not being able to.
Putting us on on kind of shorts component supply.
And so we came into the year with.
Much higher backlog than we would like and it was impacting our some of our lead times.
So we've done to Ting too we've worked through some of that backlog in Palo to that will reduce that production rate. So the important thing for us if the ratio of backlog the shipments.
And that still isn't a very healthy situation.
Okay, and just regarding the bookings trends I mean still down year over year, 25% in June is that all surprising relative to what you're seeing in the overall market I just thought given the fact that.
You have a decent exposure to warehouses logistics food and beverage certain parts of the economy that probably should be exiting doing pretty well.
You know how to your order trends compare to maybe the market.
Relative to those.
Thanks.
Those other markets that I was referring to.
So maybe I'll like to yeah.
I would say if you look at.
We do have.
In a warehouse customers, but outs trend to and kind of balance trucks on.
On big trucks, and especially in the supporting the heavier industry.
And they have been slower to come back we've had success into warehouse side of the business.
But if you look at it.
From a importance to our business.
Those other segments are in Oh.
Most important from units as well as.
Revenue point of view, so those have been slower.
But we're starting to see some early signs the.
If activity in those industry.
And when you look at say the counterbalance truck markets.
Our your orders in those categories.
On a comparable to the market or how do they compare.
But again it goes back to the industry comment should admitted that thats why the tracking industries. So important but if your question is are we industry by industry.
Maintaining.
Our share position.
The answer is generally less yes, but would be I would note that.
There are large customers that we have and at our competitors.
Or that we share business with.
And the cycle of buying those customers can influence the timing of when orders coming out and poor Rosh.
In show from year to year or seasonally within three years.
You can find tremendous variation depending on.
Whether our customers are.
In fact buying.
In this particular cycle show.
We have to take all that into account and that's why our sales efforts with those larger customers are so important our visibility in which we're really focused on and too.
What they're buying intentions are ensuring that we maintain our position with all of the major customers that we've been doing business with.
Well at the same time.
We have a major effort underway to enhance our position.
With.
Customers that we've now identified in considerable detail, particularly in North America and in Europe Middle Eastern Africa.
That are our larger customers where we.
Have not had as much success, we feel that we're well positioned with our industry strategies and art.
Focused sales efforts to.
In short position with those new customers, but it also takes a while to have the full impact of our.
From our new products and our selling activities.
And I would say candidly that.
To some degree that's probably been hampered by.
And with those new customers, probably our efforts have been approved by the pandemic, although we've really focused and strengthening our inside sales activities and all of the things that would lead us.
To be able to do well with the and to some degree it allows us to be very fact oriented.
Work very hard to address particular.
Concerns and issues should customers have and and in both the industries that theory on.
But also rise from the customers positioning in those industries. So that's a real focus for us and we think has enormous long term potential, particularly in the context of the new products that.
Rajiv.
She said we were focusing on.
Dead are.
Able to be highly tailored to meet.
When a customer application.
Needs in considerable detail in more detail that has historically been true in the industry.
Yes, I wanted to actually ask about the new products you answered part part of it but right there.
But.
So are these new products.
Twofold, where they are going to help.
Help your customers and then in the end helped drive market share for yourself and then secondly also.
Work with your.
Hi, Joe work in line with your module <unk> New module production. So it's also going to lowering your cost spot basis at the same time as providing.
Better product for your customers.
I think good I'd also.
Just focus on the one thing you didn't specifically mention which is should we think the quality will be enhanced.
As well and as you could you like to add anything to that overview.
No I think that was correct and that we think we'll be able to ticket other products to better meet customer needs and that typically leads to lower cost of ownership experience for them to better quality and having the right solutions.
For their application and then taking the modular approach and our sourcing strategy, we do tank.
Andy optimization being down the not plant.
I do think that cost is going to be lower than power.
Okay, and as far as your cost changes to the cost structure.
You quantified $50 million to $75 million.
Of what's you're going to see a good portion of that hit in the back half a year is anything permanent any permanent changes that you've made to the cost structure.
Bye.
But gave that go ahead.
Yeah, I think I think a significant amount to a that caused a reduction it.
You know what I would call trends in.
It's more compensation related.
But we out we are working at as I mentioned in my.
Portion that we are reorganizing our plans to plants to be more productive and a wholesale we're looking at.
Our kind of SDMA and what that needs to be longer term and that some strategies on projects in place to improve that using some of the experience and learning.
Kogut period so.
We do think that some of it will will be for the longer term, but I think the vast majority is more trends in.
Okay, and how do we think about those transient costs coming on line specifically.
I'm referencing some of those growth initiative type cost.
That we were.
Affecting the sort of plateau into 2020, but I believe you sort of curtailed some of those costs.
As the pandemic hit.
So how do we think about costs coming online.
Relative to volume increases.
Well you know I, that's a very difficult to answer your question to answer at this time and I think in general will probably.
Declined to answer it.
The reason is this.
We we indicated.
We still consider the bookings.
Trajectory is extremely uncertain.
And I think that John.
We have to be able to manage the business.
With that cost structure that is in line.
With the market that we see.
Show.
As the business returns as business levels move up.
I will begin to add those costs back.
Some time.
Could be used shirley's to second quarter.
Up next year.
And we'll prioritize them.
We'll think about adding back.
Compensation.
Reductions will think about adding back programmatic reductions, especially for the strategic projects.
But as Rajiv just pointed out.
We'll also be looking at.
Further cost reduction programs.
Which could allow us to bring back some of the.
More temporary reductions, particularly in compensation.
And so it's all a balancing process.
I think.
As we get a clearer picture on how bookings are likely to.
Evolve over the remainder of.
2020, and looking into 2021.
We'll be able to address.
Those questions, but at the moment.
We're going to manage this which we shed literally on a weekly basis to make sure that we're responding to the change in the marketplace and we're going to manage our cost structure.
In line with what the market has.
So.
That's the way we have to leave it at this point.
Understood just one last question if you will for me.
Regarding cash flow and I may have missed the can.
As far as in an environment, where you're you're sort of predicting maybe a slight loss in threeq you and then.
Improving in Fourq you in that kind of an environment. What are you looking at in terms of inventory and I guess, just overall cash flow.
Dictation going back half and sorry, if I missed the in your prepared commentary.
Ken No problem until I think a lot of that is reflected in the commentary on on the directional aspect of our our net debt as well as are our working capital programs. We during during the quarter, we saw a spike in days or receivables and poor.
Inventory as we we adjusted our schedule and days in inventory I'm talking about based upon a forward lot of what we expect to produce as we've gone through the quarter. We close we began to see reductions in that spike there not back to normal levels, but we still are working towards that and I think for the most part inventory is.
We've got.
An excellent plan to manage our plants and produce on a on a agreed upon schedule that will allow us to get inventory back back too.
Those levels.
We're not seeing a lot of resistance in getting receivables back on track. Although there are still has some outliers I'm sure other companies have that same challenge.
Of course payable days, we've been a.
Negotiating and working with our vendors to extend base, where we can all in all we would expect to continue to reduce working capital, but as we work through the increase in the forward forecast if a recovery as shown obviously we'll have to.
Restore the levels of inventory necessary to support the forward schedule.
Even if we get back to target a day so.
I hope that we'll see again, let me just emphasize that debt.
That's the reason.
We focused on an as weekly management process. So our approach is to keep the.
Production levels.
We had a very conservative level.
Our plants.
And then on each line and each plant.
As we see strength.
We collectively in the marketplace.
In in bookings and expected bookings.
We selectively line by line.
Permit increasing or if there are decreases we decreased the rates.
All of that is being done not just to avoid inefficiencies and to be conservative as general batter.
But it's just absolutely critical.
We manage the supply base surely we only have the inventory we need so as Kevin pointed out.
We did when the plants closed or were on reduced working time.
Hi, Alex on bubble in inventory, which is.
The worked off or.
Or will be relatively soon.
And what we don't want to do it should have any bubbles or merge and should we look forward to the remainder of the third quarter in the fourth quarter in in that into 2021 and so.
We're managing close in to prevent protect keep exactly the right amount.
Bob supplier.
Component inventory.
We need.
All right got it well. Thank you for taking all my questions I really appreciate it I hope everyone.
And doing well and.
Good luck with everything in the back half of the or.
Thanks line.
Okay. Thank you.
No further questions at this time.
Okay. Thank you very much.
Thank you joining us today, we do appreciate your interest in if you have any additional questions. Please reach out to me my information on our own Charlie.
Thanks, so much and have a good day.
Thank you bye.
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Slide nine to five six and lessons comments I'd number eight mine mine Sixfive sorry. Thank you. This concludes today's conference call you may now disconnect.
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