Q3 2020 Meritor Inc Earnings Call
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<unk> you may begin.
Thank you for wind and good morning, everyone and welcome to marry towards third quarter 2020 earnings call.
Okay, we obtained Craig CEO and president.
Carl Anderson, Senior Vice President and Chief Financial Officer, and critically Brian Executive Vice President and Chief operating Officer.
And we'll be available for questions following the call.
By the company todays call are available at an airport back.
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Now I'll turn the call already today.
Thanks.
Good morning, everyone I Hope you wonder families are safe and how.
Let's turn to slide three.
As you will see in our results the repercussions of cope at 19 out of significant impact on our financial performance. This quarter, so commercial vehicle industry experienced extended shutdowns for production.
Euro pretty or for the corner revenue declined 50 cents per site.
However, I'm happy to say, we're now up and running and all of our facilities globally and our same truck volumes recover at a healthy pace.
You will know that we exceeded the top end up our guidance. We provided you would last quarter for sales.
<unk> said North America, Europe, and South America were slightly higher than expected that's are weak customers ramped up production during the quarter.
On the bottom how could this chart.
Provide you with a glimpse sometimes trajectory for North America rear axle production.
April to June.
As we stopped production come back online.
As I said last quarter, we took aggressive cost reduction measures early doesn't help mmm minimize operating cash outflow in the near term.
The impact to tell these actions his favorite bleep reflected in our results this quarter.
Operating cash flow is far better than we anticipated even with a 124 billion dollar impact of our factoring program on line.
Our liquidity position I've forgotten just the third quarter was $970 million.
This represents approximately 29% upper trailing 12 month sales.
Cash on the balance sheet was $290 million, providing a strong backstop to weather the uncertainties of today's economic conditions.
On slide four we want to give you an update on specific actions, we're taking to effectively manage the business during this timeframe.
The safety up our employees remains our highest priority we have put in place numerous protocols and our manufacturing plants and office facilities, including employee entrance screening social dispensing face coverings and other cleaning.
Last quarter I talked to about the appointment of our choose safety and compliance officer Centsfive time, he and his team I've traveled to many of our facilities to ensure compliance with our policies and identify any areas I've require improvement.
This represents just one up international investments, we've made it to give our employees confidence in the safety of our work sites.
I want to take some time to thank our employees for their patients in cooperation with the changes required to operate during the continuing pandemic.
Very good amount suffered and tire shift is challenging I passed but it's even more difficult, but the warm weather we are experiencing in most regions.
We appreciate their support of our safety protocols to keep our colleagues and their families site.
With the new safety practices implemented throughout our working environment, it's been encouraging to see that we are now operating on similar levels of efficiency in our manufacturing plants as we were prior to the pandemic.
This gives us confidence a week from respond to rapid changes some volume that's historically occur in our industry.
We continue to track cope at nine change is positive results every property statistics within the company. So that we can react quickly if an issue arises.
Many of our facilities.
In addition to our operations, we have now become to gradually open administrator Bops and.
Including our corporate headquarters, which were managing in a phased approach.
As we told you last quarter, we have initiated various actions to reduce costs, including an 8% reduction in our global salaried workforce that we announced at the beginning of June.
These actions will be substantially complete our the entered the calendar year.
We expect to achieve more than $30 million, a run rate savings through that I'm trying to 22 timeframe.
In addition, we have implemented additional cost restriction programs that should have a benefit to the fiscal year 2021 earnings more than $10 billion.
As you know we've reduced paid for salaried employees early in the crisis to protect the business long term Centsfive time, we have stepped down those reductions, but are maintaining reduce pain from original levels ranging from 10% to 20% says.
Time for our employees in the United States in Canada.
While implementing the measures necessary to manage the business in the near term. We also remain focused on maintaining the long term health of the company, we are investing and all the key areas of our growth strategy, including the electrification portfolio.
Commercial vehicle manufacturers globally remain focused on pursuing electrified traffic trends.
Meritorious investing in a complete portfolio of electric drive trains, we believe will be the preferred solutions for the global medium and heavy duty commercial vehicle markets.
And we are moving full speed it had to have the fourteenx see production ready for customers in 2021.
Currently eight vehicles and Theres. He true innovation played a running with meritor as fourteenx feed powertrain and have accumulated significant test miles since April this year.
We're also investing to expand our corpus.
And I just want to example, it this is our new single pest, an air just spread sample launch for travelers first and trucks within that not sure.
On slide five I'm proud to share a number of business highlights that have occurred over the past several months.
The wins on the left represent new or retain business and our truck trailer and industrial businesses in various regions. In addition to an agreement with a Japanese manufacturer for electric drive trends.
Meritor opened five drive systems untapped fit to work with this manufacturers energy and control systems for electric tubs trucks to be built in 2012.
In our core businesses, we have important new contracts for on highway and trailer axles and the New award was sent back on defense for military applications that will be deployed by the touch department of defense.
Our operations in Australia, we're honored with supplier they hear from our Penske or we are excited that this month, we will celebrate production of the 100 million breakthrough in our Indiana facility a benchmark no other company can match.
There is no this was a challenging quarter, but im pleased with away. If a company responded as the speed and decision, making an execution. We've demonstrated this allowed us to quickly refocus on managing the business towards achievement up up long term objectives as demonstrated by the positive.
Business highlights on that's fine but.
With that I'll turn the call over to Carl.
Thanks, James Good morning on today's call I'll review, our third quarter financial results, our recent liquidity action and our financial outlook for the fourth quarter.
Now, let's walk through a third quarter financial results compared to prior year on five day.
Earlier this week, we filed an 18 regarding the change in our reporting segment.
This aligns with the management and restructuring changes previously there now.
The third quarter fiscal year 20, funny the company new segments are.
Herschel truck, which now includes or trailer business and aftermarket and industrial.
Prior year second financial results have been recast insane.
And our third quarter sales were $540 million.
52% in the same period last year.
Sales in our commercial truck segment decreased by almost $600 million year over year, two to 336 million.
The decrease in revenue was driven by significantly lower market volumes across the segment due to colder than maybe.
As JJ, Scott, we did how undersea production levels in most of our market you Didnt pick up in June.
One of argue that held up reasonably well in China is operations there were near normal production levels during the third quarter.
And our aftermarket in industrial segment sales were $203 million down 79 million from last year.
Well, our aftermarket facilities continue to operate during the quarter sales were lower due to changes in customer demand.
Additionally, we did at 28 million less sales unrelated to the termination of the wesco distribution or.
The industrial business was also hampered by market conditions, but lower sales were partially offset by $37 million in revenue generated from rights with that business.
Net income from continuing operation attributable to the company was negative 36 billion compared to 85 million in the same period last year.
In the quarter, we didnt recognize $12 billion and restructuring costs due to the headcount actions, we began to implement to help rightsizing cost during the call.
Adjusted EBITDA was $7 million in the third quarter fiscal 2020 compared to 146 million in the same period last year.
Adjusted EBITDA margin was 1.4% compared to 12.5% a year ago.
Overall this resulted in 41% downside earnings converging, which we feel good result, given the rapid rather than revenue declines the experience.
The decrease in margin was largely driven by lower revenues as well and 10 million lower joint venture.
We were able to partially offset lower sales was $30 million rusted aggressive cost actions executed in the quarter.
Well some actions are temporary says in salary and benefit reductions it allowed us time to evaluate a broader workforce reduction actions, which we started to execute in June.
Segment adjusted EBITDA more commercial truck was negative $23 billion down 120 million to last year.
Segment adjusted EBITDA margin came in a negative 2.8% down from 10.5 or side in the prior year.
The decrease in segment adjusted EBITDA and EBITDA margin were driven by significantly decreased market from a bottoms.
Most regions across the segment, partially offset by cost action.
Corridor.
Segment adjusted EBITDA for aftermarket industrial was $31 million, a decrease of 19 million compared to the third quarter of last year.
Segment, adjusted EBITDA margin decrease in 17.7% to 15.3%.
The decrease was driven by more volume, partially offset by the cost actions executed in the quarter.
Turning to cash flow on our last earnings call, we provided operating cash flow guidance.
But outflow of 150 $225 million.
Our actual results and negative 102 million exceeded our expectation as a team did an excellent job managing working capital and overall costs, which drove this result in fact, if you adjust for the onetime factoring online of 124 million in the quarter, we were able to generate positive cash flow from operations.
As a reminder, our banking programs, primarily relate to receivables in our European operation, which allow us to receive pass shortly after the receivables are generally.
As production continues to build this will provide a tailwind Newcastle as we go forward.
Next I'll review, the new bond issuance, we executed during the quarter on site that.
As the credit markets significantly improved in June we seized that opportunity to further bolster the company's liquidity position.
We issued a five year 300 million dollar bonds with an interest rate of 6.25%.
It allowed us to completely repay our revolving credit facility, which is now fully available undrawn liquidity.
Why do we will have higher interest expense as a result of this and actually going forward. It is important to note. This is a refinancing of borrowings which were outstanding under our revolving credit facility.
Excluding the cash use related to our Bakken programs with one why this production resumed our net debt level has remained roughly flat this year.
Overall, this transaction significantly bolstered our liquidity position, which now stands at nearly $1 billion. In fact, we now actually have more liquidity as of June than we had when we started the year.
As a result, we have a clear runway at or debt profile and expect to be in compliance with advanced covenant in our revolver drop the on 2022 planes.
Next I'll review, our fourth quarter 2020 outlook on slide eight.
Our market outlook highlights, our expectation or improving market conditions in both North America in Europe.
Overall, we expect production in both in North American class eight and European markets to increased by over 70% on a sequential basis.
Additionally, we expect any answer your car recovered to approximately 40000 unit in the fourth quarter from very low production levels, we experienced last quarter.
Given these assumptions, we anticipate revenue of around $700 million and the final quarter of fiscal 2020.
We expect adjusted EBITDA margin to increase approximately 2%, which implies sequential conversion on incremental revenue of almost 19%.
We're beginning to see the benefit from the headcount actions, we began to last quarter and expected to further increase as we get into next year. In addition, we're planning for a sequential step up in electrification related investment that is providing hadn't drops in the fourth quarter.
Adjusted EPS is expected improves aloft attendance per share on the improved earnings.
Free cash flow is estimated at approximately $25 million is includes 49, new capital expenditures expected in the quarter.
As we have discussed the unwind intervention programs as use of cash in the third quarter. We expect this impact will start reversing in the fourth quarter as production levels continue to improve.
As we enter the last several months of our fiscal year, we have demonstrated our ability to take decisive actions include these jobs is significantly lower body.
Reserving the actions, we have taken to strengthen our balance sheet over the last several years.
I'll now turn the call back over to James who will provide you with some additional comments regarding next year and 2022.
Thanks, Carl last quarter, which ensconced, providing to 2021 outlook on this call, which has a quarter earlier on our normal practice.
Due to the market uncertainty back in the March April timeframe, we thought pulling forward thats timing with being constructed.
Since then we have had an acceleration on production of most of our markets and are seeing built expectations increase through our first quarter of 2021. We think it is now prudent to provide our outlook for next year I'm ever November earnings call. When we have a better.
A few of the sustainability of the increasing production trends. We did however models how the company would perform shouldn't markets remains in a prolonged economic downturn that can be found in the appendix of those presentation.
Model reflects the benefit of the cost reduction actions, we have recently put in place.
Under the economic conditions, we would expect to generate approximately 2.9 billion of revenue as a 9% to trusted EBITDA margin.
We also would expect to generate positive free cash flow and those type of environment.
We believe this would be a floor to our performance should markets improved from these assumptions, we would expect greater than 20% conversion on the incremental revenue we expect to cost actions taken this year will allow us to convert above our historical range of 15.
So 20%.
Now, let's turn to slide nine.
The main take away at this slide is to reiterate our focus on our 2022 financial targets. While the continued unpredictability is a fibrous drives volatility in the market outlook, we are confident.
Conditions hold we can achieve trade is up for financial targets.
I just mentioned previously a large portion of the cost reduction actions taken this corridor as announced will benefit 2022 fiscal year results.
This provides us with confidence in achieving the margin target up 12%.
We continue to use similar market assumptions for manger, and our pets around the world peace assumptions assume a return to replacement demand for our products.
Given the anticipated impact so the pandemic on our bargains in fiscal year 2020, and 21, we anticipate a reduction in cumulative free cash flow generation from our original assumptions.
Reduce cash flow will happen to have an impact on the amount of future share repurchase activity and our ability to achieve our original EPS target. It's however, our end markets were to substantially improve we may have a line of sight to achieving these EPS target as well.
As I had said we took aggressive actions to reduce our cost structure in the short term to preserve liquidity and avoid any transference of enterprise value so to that.
At the same time, we're making the appropriate investments to ensure the company is in a strong product position for the future. These actions have given us confidence to keep our I'm trying to 22 objectives largely intact.
Until that time, when copas 19 as brought under control globally at markets began to rebound to pre pandemic levels, we will maintain our short and long term strategy to manage cash flow effectively for the benefit of shareholders, while continuing to invest in our future.
Now we will take your questions.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press Star then one when your telephone.
That's all I want to ask the question. If your question has been answered all your wish to remove yourself from the Q. Please press the pound cake.
<unk> question.
Our first question comes from the line of Brian Johnson with Barclays. Your line is okay.
The Johnson checked to see the on mute.
Oh, Thank you ma'am.
Hi, your market forecast for important too.
Good good morning America towards the Greek and you're learning poison pardon.
[noise] your market forecast for Q is higher than some third party for care.
What are you hearing from customers, how much are given where almost half way bark say what burden to the quarter how much of those are for orders.
As you kind of look out rate environment, how much of it it's supported by ongoing screens in trucking and so forth.
So this is Chris Nolan Ryan Thanks for the question, Brian I'll take that one I'd. So I think you know when you look at it ATP has.
Not updated forecast for a bit of time here. There is still at 38000. If you look at build looking at June Apple is running at 19000. So if you took that and multiplied by three would see that our forecast for Q4. It is pretty much in line, we do see some customers taking some shot.
Down so through that period as well to your point, we already have we already see where we are in July and August it's pretty much full and we're working with our customers in June so we feel quite comfortable with our forecast for Q4.
Okay second question detrimental margins of 20% far better than I think when you're at the market. We're looking for you know three weeks breakfast in the future downturns or were there big chunk. So.
Semi fixed costs that you were able to take on that if we have more modest fluctuations in bill volumes worker fairly be available.
Brightest Carl good morning.
You think about our decremental margins I think that the history of the company. We've always appointed is 15 20 point.
Kind of range I would say in more normalized downside type scenarios, we actually trending a little bit better than that it from a performance perspective, So I think as Jay as me too on the call. We did take some some tough actions in the quarter as you are they risk as it related to headcount and I think similar to housing.
Operator, historically, you know whether they're up markets in down markets, we do expect to perform.
Quite well and.
Yeah.
Okay and then final question you did mention supervise and when but also.
Pandemic the quarter I think we've noted by notable market caps for some electric and hybrid electric truck company.
They viewed out in the market grew specs.
What's that now.
You know just the trend towards battery electric motor fuel cell electric vehicles, and B, where mirror forged roll tend to be about.
Yeah, I think Brian it's following the trend we it's factored in spoke about now for for Euromar, which as we're getting into limited production awards, which.
Obviously, we appreciate the Paccar word I talked about some of the other customers. How we're working with a prototype phase calls on the call today and we expect to have obviously, a very good chance of receiving those limited production awards with those customers in the future. So we're starting to see those files.
Comes come through and we would expect our electrification revenue so become metro goal here over the next year or two and I think you're starting to see the trend up the different fleets on individual owners and operators throughout the world.
Testing different vehicles and different configurations, and that's those types are successful not trends.
Remained moving forward, particularly on government regulation I know, sometimes I think you can see volumes began to pick up from there.
Okay. Thank you.
Thank you.
Our next question comes from them on its James Pirrello Keybanc capital markets. Your line is open.
Hey, good morning, guys.
What do you want to Jason.
The 130 million in run rate cost savings, what's the timing on on that fully achieved.
But we're certainly see the benefit obviously in the quarter right now, but I think most of the actions we expect will be done by the.
First quarter somebody sitting kind of getting that the full run rate of that weighed I'm getting in.
The calendar year next year.
Okay got it.
And Oh on your I'm 22 targets I mean, it sounds as though your your market volumes assumptions are unchanged at least for North America in Europe.
Relative to the original framework would be the absolute revenue target still be that same number just under.
Under 4 billion as originally outlined.
Yeah, It really too I mean, the one thing most of the market assumptions that we had originally work replacement demand levels that we had back when we had our although we rolled out I'm 2022 strategy that really hasn't changed is how we model I think the one thing that we're watching a little bit more closely James is really related to foreign exchange.
Range, so there could be obviously that's moving.
Has moved and so that's something we'll keep an eye on his me anything about what that could meet as far as absolute revenue dollars in 20. Please.
Okay.
Got it.
So just to confirm.
Hey, good that's why 21.
The the 15% to 20% conversion on next year's revenue.
Maybe that's trending closer to 20% is it would that be before the this 30 million in savings or would that would probably didn't savings related to get that that 20%.
<unk> premises or change this is Jay see as Carl said, the full run rate that those stone begin until January 1st of next year. So we're not getting that entire benefit in this period, but a large portion of it as reflected error, but understand there is some negative and incremental.
All comparatives because these salary reduction amounts are stepping down. So we have kind of have those two levers calling in opposite directions, but you're right. We are converting at close to 20% comes on and these assumptions.
Okay got it.
On on buybacks.
Is there a particular net leverage level you'd like to be at to resume repurchases I mean, how should we just be thinking about what's the potential is for for timing.
It's something that we're watching closely on James as Youd expect they think is we look at obviously our leverage.
This quarter you know the trailing 12 month basis, it is probably closer.
Two eight to nine times, so just in essence EBIT in dollars and trial, we're seeing leverage increase.
So I think it really comes down to I.
I don't think Theres, a leverage target by itself I think it would you be really looking more importance to our conviction and overall assessment of how market are performing and we would we would take a closer look at that we'd be willing to lean out even even about elevated leverage ratio, we we'd have WSFS setback, but overall.
Our objective is to try to find to have strong double b credit metrics for the company was in ballpark terms was your out at 1.5 times laboratories.
Got it.
That's helpful and Jay I think last quarter, you mentioned in electrification pipeline of of roughly 500 million.
He just maybe can you clarify what that number was what it maybe it looks like today and.
Have you communicated what what portion of that or what.
What portion of the awards you have booked as of today, but we have they have cardboard. So far I think the pipeline. We still feel is something that similar range, although with some of these new prototype programs I think there's some potential it could be increasing in the future. So I.
I think what were most pleased with type it is our strategy of focusing on electrified drive trends almost exclusively.
Paying big dividends, we feel like our product it's market, leading we're happy with numerous oh, he's put significant amount of the tough smiles on those products and they're gaining confidence that does this drive train as real it works perfectly.
Arms, while and all environments. So.
We feel very bullish on that future.
Yes. Thanks, guys. Thank you. Thank you James.
Thank you.
As a reminder, ladies and gentlemen, that's star one to ask the question.
Our next question comes from the line up Ryan Brinkman with JP Morgan Your line is open.
Hi, good morning, and thanks for taking your question. This is I reckon that answer I am.
Just wanted to follow up.
And the incremental margin question for Mtwenty, two that seems to imply it will be 20, pushing the incremental.
Could you give us a sense. So you know what the assumptions are out like the aftermarket there.
And then the the incremental decrementals across the two segments.
And also like what kind of investments related to electrification is you know baked into those reductions as well and I will follow.
Sure. So good morning, yes, as we look at endpoint in 22, and what Jay was going on inside what it really being kind of that was just to provide the context as far as where the company is and what we're focused on as related to ensuring that we're driving to achieve a you know three if not a for the financial targets that we've laid out.
Correct.
Entering 2018, so really at this point, we're not kind of getting into updating the rest of the the other markets, but I would you know you to presume really at this point that you know what we're assuming is that most of the most of the assumptions are replacement demand level type of market and as we look at the overall business.
That's how we've kind of been able to kind of set this up as relates to what we've provided today.
I would say also ride on the electrification question. Our assumption is a continued development of launch of the entire yeah axle drivetrain portfolios for the 14 not sees a 12 exceeded the 17 I see.
Great being those markets Truman production is necessary.
It would be what we see in the pipeline for opportunities. So we could see some increased spending as we bring those those products into larger scale production over that time period that we've incorporated that those assumptions and Oh, though.
Got it okay. That's helpful.
And then just as a follow up any any update on axles AG now.
Where the revenues, where you know in the quarter, you know like what kind of.
You know just why wouldn't the profitability level. There is right now and you know just on sort of it could be any update on how the synergies and battlefield.
Yeah, good exit that where they get for the quarter bit about $38 million <unk> revenue in the quarter, So a little bit lower.
You know than what the original expectations were just kind of given the current state I got a condition as it relates to the what it's been in our control what has been our execution on the greatest cost synergies. So I think those come in line and in kind of right on track, how we originally modeled that business, but I.
Right now we are experiencing some revenue headwinds, which says affecting the marriage.
Understood. Thanks, so much and good luck. Thank you. Thank you.
Thank you.
Our next question comes from a lot of Joe for back with RBC capital markets. Your line is open.
Hi, Thanks, good morning, everyone.
<unk>, maybe you can just talk a little bit more about.
Maybe you know what what we sort of seen on the Sacramento margin side versus what sort of implied maybe on the incremental margin side and is that really just sort of some of the.
The the timing in terms, it's you know transitioning temporary cost and sort of more permanent cost yeah. Joe that's exactly right. So if you think about fourth quarter as Jay talked about we have been stepping down some of the you know the Patriots that he's had that we never came out with in last quarter, So you're seeing that step down.
At the same time, we're beginning to ramp up some about the savings over the head count accident. So yet you do at overlap and the timing issue. One I think two we also specific to the fourth quarter, we are seeing an increase.
Well actually interim electrification.
Yes. It is just based off of the number of programs and the number of ball.
Would it be better front Abbas.
And so those are kind of that related to moving pieces are focused specifically on the on the fourth quarter's hardware margins are forecasted to this fall.
Okay, and then I just want to and the quality of that I missed this I joined the call about late but when you sort of referring to the I'm. It's a 20 to 22 targets.
I guess business one is on track EBITDA margin on track record focus was on track.
Slower that.
The market assumption that sort of been driving a lower and I guess, maybe whats sort of the delta between <unk>.
You know now versus versus prior and how should we think about.
That does the linear parity I guess between you know a or for the bridge from 2020 to 2022 is because you're you're talking about 2020, and 23 I do but 21 is sort of option.
Yeah, Hi, Charles <unk>, <unk> again, our market assumptions.
Our basically unchanged from when we launched the plan announced that we assume around the globe at our markets for the most powerful returned to replacement demand. So in North America, roughly 250000 class.
We still think that's a reasonable assumption I know some people have said well with demand being depressed for a year and a half potentially maybe it could be higher than that could be and the important thing for us as to make sure. We've retained a resource I spent the company in our supply base to respond.
It's a market the stronger, which we have but we're not relying on a unusually strong markets differentiate the targets I think what gives us the remaining confidences the success of our cost reduction strategy of seven how many of those we think.
Remain in place throughout this time period.
So circuit sorry, then what is what's driving the lower EPS funded maybe sorry, yes, I did comment on not call John sorry, that's not that's just a mathematical issue of.
In 2020, obviously and potentially in 2021 of our cuts revenge across our cumulative cash flow generation will be significantly less than we have in the original plan and therefore future share repurchases compete fireclass sample.
We originally.
Model now if markets pick up next year, and 21 earlier them than what we anticipated business model, we could close that kept very very quickly.
Building on the other piece of that is we do expect that a little bit higher interest expense as well and 22 than what we originally models is based off of refinancing which is that as well. So that those are the bridges are the share repurchase.
Jay talked too as well as higher interest expense.
Okay Lastly on.
Lastly, on India like I noticed a big sequential.
Increase in your tenure quarterly outlook are weak through the worked stuff the.
The deficit of declines in India, and they did in marketing.
Ah, Yes that Joe This is Chris Nolan Ryan Good morning, I'll take that question. We believe so I think you know if you look at up last quarter in Q2, India made up Grand total of about 8000 trucks and I think you'd have to go back 30 years almost to see something similar and on top of.
If you remember with the change from B S four to be at sick.
Oems who had to liquidate all the inventory. So there was already a low point in inventory on the market. When we think about the transition and co, but just kind of drove it too to another significantly lower level all that that had our belief is that you think about the India.
In government driving through actions to drive you know over the next two years about $70 billion hub infrastructure spend or what one trillion in Indian rupees or you know that their their growth forecast, a being pretty bad and they are driving through their 2025 plan I think our our expectation.
Is that this market, we'll have to continue to grow so as we drive back to let's call. It replacement demand. We do see this picking on the only caveat to that is obviously the cobot 19 situation and just watching how that plays out here.
So it is the fourth quarter or rate like you know, maybe if we annualize that is that a decent proxy for how you see that market playing out as a 21.
No I don't think you can annualize that I think you know we would probably see what we're playing out right. Now is that market is let's call. It a higher market to drive to to fill back the pipeline on the inventory and then we will probably be something that you know transitions back down or and then and then back.
GAAP in the back end of the year. Okay. Thank you very much very helpful 21, yeah. Thanks you.
Thank you.
I'm showing no further questions in the queue I will now turn the call management for closing remarks.
Thank you and thank you for joining there as far as third quarter 2020 earnings call. You have any question. Please feel free to reach out to me directly every day.
Ladies and gentlemen, this concludes todays conference. Thank you for participating you may disconnect everyone have a great day.
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