Q2 2020 Helios Technologies Inc Earnings Call
Greetings and welcome to huge deals technologies second quarter 2020 financial results Conference call. At this time all participants are in listen only mode of question answer session will follow the phone couldnt patient, depending which require operators just on the call. Please press star zero when your children Keypad. Please note this conference is being.
Good.
I would now let's turn the call over to your host Deborah Pawlowski Investor Relations pretty agnostic tells you that you may begin. Thank you and good morning, everyone. Welcome to the field technologies second quarter and year to date 2020 financial results Conference call on the line with me are Joseph metastatic our president and.
Chief Executive Officer, Tricia Fulton <unk>, our Chief Financial Officer, Joseph and Tricia will be reviewing the results that were published in the press release distributed after yesterday's market close if you do not have that release. It is available on our website at www Dot Healios technologies Dot Com [laughter]. He will also fine so.
Hi, there that will accompany our conversation today.
If you look through the slide deck on slide two you will find our safe Harbor statement as you may be aware, we will make forward looking statements. During this presentation also during the Q any session.
Statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from where we are today [laughter]. These risks and uncertainties and other factors provided in our earnings release as well as in other documents filed by the company with the Securities Exchange Commission.
Even find these documents on our website or it FCC dot Gov.
I'll also point out that during today's call, we will discuss non-GAAP financial measures, which we believe are useful in evaluating our performance you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with gap, we've provided reconciliations to comparable GAAP with non-GAAP.
GAAP measures in the tables that accompany todays earnings release as well as in the slide.
So with that it's now my pleasure to turn the call over to Joseph [laughter].
Thank you Dan good morning, everyone.
Before I begin on slide three let me start by saying how excited I M to have joined feudalistic knowledge.
It is a strong company with a bright future and innovative best in class legacy brands.
I appreciate the board of directors, providing that there's still opportunities to lead and advanced she ideas to its next level. It's me walk to television 2025 strategy.
And let's just two months here I have been impressed with the management team. They have demonstrated their customer focused nimble and surprising and energetic it's we adapt to the unusual circumstances corporate 19.
We continue to serve our customers developing new technologies and I look to expand our addressable markets, all what considering to safety and health football employees.
Throughout the organization, we didn't do as cost improved efficiencies even in the face off strong headwinds in fact, we delivered results that exceeded our expectation, which we will talk about in more detail later in the presentation [laughter].
Our objectives through this pandemic used to stay focused and disciplined to continue to generate strong cash flow and importantly to navigate into a strategic position for growth it's markets recover.
Airports and supported by a very strong balance sheet.
Even doing just challenging times, so we're continuing to invest in select strategic initiatives.
We have several projects underway with OEM in the power sports.
AG and construction markets.
This includes an OEM pilot production of our new a software tool and M. CX hydraulic control us.
We are creating innovative solutions to combine our strong electronics capabilities without a draw leaks controls and these innovations are they the hardball potential to grow organically.
You also addressing potential opportunities to diversify our end markets.
I've been impressed with how control technology and have identified key customer prospects, where we can create value through innovative solution.
While industrial markets continued to be challenged we seem to have beginning oprah recovery in many end markets.
Please turn to slide four and I will summarize our strategic business highlights for the second quarter.
It's everyone is aware recorded 19 related headwinds were quite strong in the second quarter, given the airports to contain the spread installed economies around the world.
All of our factories <unk> operational and despite some positive Colgate 19 cases, we had been able to manage our supply chain and production capacity to meet all customers demands.
So all of this Oh management teams have been able to adjust quickly to the changing market and business dynamics.
We are rapidly implemented cost containment measures to address the economic downturn from liquids 19, pandemic and continued though efforts improved productivity.
Do you have to the agility or all segments of the businesses, we performed better than expected in the hydraulic segment.
With a global AG industry has remained resilient walk down the chronic segment was able to achieve blend in a very challenging market conditions.
Despite lower sales.
For both segments enabled us to achieve a better than expected consolidated decremental adjusted operating margin of 32%.
Additionally, we demonstrated our strong cash generating capabilities and realized 25 million of cash from operations.
23 million in free cash flow, we use that cash generated destroyed the reduce debt. So did our net debt position improved by nearly 17 million furthering our strong liquidity position and maintaining out 2.1 times net debt to adjusted EBIT da ratio.
Moving onto slide five and some financial highlights.
Sales came in at 119 million in the second quarter supported by shipments or past due or do you know hydraulic segment.
Oh, good earnings per share, what's 40 cents.
[laughter] Drolly segment exceeded plan expectation and electronics was able to meet their plan.
Oh sales and GAAP earnings per share be though internal expectations, although both were lower than last year due to impact of course 19.
And its effect on our business customers and end markets.
Operationally, we realized a healthy adjusted EBITDA margin and non gap Kashi P.S. relative to our sales volume.
By executing the plan cost savings and productivity initiatives, we have identified.
With that overview I will now turn the call the Tricia to review the financial results for the second quarter and so six months of 2020 in a bit more details.
Sure.
Thank you Joseph and good morning, everyone, let's begin on slide six but the review of our second quarter consolidated results.
Well, our global sales for the quarter were affected by the Cobot 19 pandemic.
The recovery, we saw from most end markets and customers with faster than we originally thought it would be.
April and May were difficult months from both the production and demand perspective, but we saw strong recovery in June orders and further growth in orders in July.
Apex sales were a bright spot showing growth in Q2 over last year up 3% as we continue to take market share in China.
M. <unk> sales for the quarter declined 14% due to limited production capacity, resulting from coded 19, well it was offset by a resilient AG market coming out of the shutdown, which has also continued into Q3.
The Americans were more heavily impacted down 30% due to the significant fall off in the electronic segment in Q2.
Which wasn't clear trough in that segment.
The remainder of the year for electronics should rebound from Q2 level.
As previously mentioned our pipeline for opportunities in this segment is significant and will drive growth in 2021 and beyond.
Operational profitability was solid as a result of the cost reduction actions. We took that included limited layoffs and our U.S. operations.
Compensation reduction by the board and corporate officers.
And the measures executed across our operations.
<unk> costs in light of the lower demand.
Just a preferred to our docker metal margin of 32% on adjusted operating income.
Our cost containment measures led to better than it did decremental and adjusted EBITDA margin decline, just 150 basis points to 22.6%.
Please turn to slide seven for review of our hydraulic segment second quarter operating result.
Consistent with prior periods I watch point out that cost not directly applicable to the segments such as CEO transition cost and amortization are not included in our operating segment numbers.
They are accumulated in our corporate and other segment reported in the tables in the back of our earnings release and flight.
[laughter].
Sales for the hydraulic segment declined 9%, excluding the impact of foreign currency, which had a 1.6 million unfavorable impact.
From a geographic perspective, excluding the effects of currency.
We saw 6% year over year growth for the quarter in the APAC region, reflecting strength in China as we take market share.
This was offset by a 17% decline in the Americas and a 14% declined in the M&A market, excluding the impact of foreign currency.
The primary driver for the decline in the Americas EMEA regions with softer end market demand due to the impact of the cobot 19 pandemic.
Gross profit was impacted by the lower sales volume, but gross margin benefited from the cost management initiatives.
Down only 60 basis points from last year to 36.7%.
Operating income was also down on the lower top line.
But operating margin expanded 30 basis points to 21.5% as a result of the cost containment efforts that reduced <unk> expenses by 2.8 million.
Please turn to slide eight for review of our electronic segment second quarter operating results.
The segment was heavily affected in the quarter by the coldest 19 impact.
Q2 revenue down 43% from last year.
Many Oems shut down operations for some period during the stay at home condition.
I talk about the oil and gas end market has been severely impacted due to supply imbalance in the dramatic falloff in demand.
We also continue to experience some carryover from our intentional shifting customer base, which involve changes in certain contractual obligation.
As previously referenced although we immediately implemented many cost saving measures and aligned our variable workforce the lower demand.
Margins were nonetheless impacted by the large in immediate volume decline.
Gross margin dropped only a couple percentage points to 42.1%, but operating margin contracted 16.1 0.5, 0.5% of sales.
This segment utilizes significant engineering effort related to future OEM project, and we continue to invest to support these customer focused solution.
Encouragingly, we saw improvement and orders in June and their select markets such as recreational marine that are seeing relatively strong demand throughout cold it.
Please turn to slide nine for review of our first half consolidated results.
Sales were down 13% compared with the same period last year, excluding the unfavorable currency impact.
For the first six months of 2020 sales to the Americas, EMEA and APAC region were 43%, 28% and 29% of the consolidated total respectively.
Due to the uncertainty of covert 19, we booked a goodwill impairment charge related to our faster business unit in Q1.
This resulted in a GAAP loss per share of 99 cents.
Non-GAAP cash earnings per share where $1.11.
Consolidated adjusted EBITDA margin decline, just 80 basis points to 23.1%, reflecting our cost management efforts as well as production efficiencies during the first six months of 2020.
Please turn to slide 10 for first half review of our hydraulic segment operating results.
Sales in the hydraulic segment declined 11% compared with the prior year period.
Margins expanded despite the lower revenue.
Gross margin increased by 60 basis points to 37.5% and.
And operating margin improved 30 basis points to 21.1%.
This was the result of production efficiencies realized from the consolidation of our operations affair soda last year.
And the rapid actions taken to align costs with demand during this unusual coconut 19 pandemic.
These achievements position us well in the economic recovery when we see topline growth in our end markets, which will drive further margin expansion.
Please turn to slide 11 for first half review of our electronic segment operating results.
[laughter].
Sales for the electronic segment decreased 29% compared with the previous year.
The decline was primarily due to cope and related reduction in demand.
Fall off of the oil and gas industry and the intentional shifting customer base.
Gross profit included the 900000 nonrecurring benefit from the release the customer contractual obligations.
Resulting in a gross margin of 45.3%.
Wind up just 50 basis points.
Operating margin contracted to 13.3% for the 2020 year to date period, primarily due to reduced leverage of our engineering fixed cost base.
Please turn to slide 12 for a review of our cash flow in capitalization.
In the first half of 2020, which rated 40 million of net cash from operating activities.
35 million a free cash flow up from 21 million of free cash flow in the first half of 2019.
And our second quarter. This year, we generated 25 million of net cash from operating activities, resulting in approximately 23 million a free cash flow.
Year to date Capex is 5.2 million down significantly from last year. When we were investing in the manufacturing consolidation project and the engineering center of excellence.
We are expecting capex to be in the range of 12 to 15 million for the full year.
We're continuing to invest in high priority in critical projects, but deferring other investments until economic conditions improve.
Regarding capitalization in the second quarter, we reduced our gross debt by 7 million and our net debt by nearly 17 million.
During the first half of 2020, we reduced our gross debt by 13 million and our net debt by approximately 28 million.
At the end of the second quarter, our net debt to adjusted EBITDA ratio remained at 2.1 time.
Let's start with a trailing quarter and year end 2018.
We continue to have ample liquidity.
At the ended the quarter, we had 37 million a cash over 205 million available on our revolving credit facility.
And a 200 million accordion, which is subject to certain pro forma compliance requirements.
Last quarter, we talked about our scenario analyses, which considered annual sales declines ranging from 15% to 25% and demonstrated that we can continue to cover our operating cash needs.
We validated that with our performance this quarter.
These analyses also indicate that we can expect to maintain compliance with the covenants under our credit facility and remain cash flow positive for the year under all scenarios.
With that let me turn the call back over to Joseph to conclude our prepared remarks.
Thank you Trisha.
Let me wrap up our prepared remarks by discussing our outlook on slide 13, before we open up the lines for Q anyway.
Due to the continued uncertainty related to corporate 19, we will not be providing guidance for the.
Our conversations with our customers were more encouraging as we move through joint into July, giving us a better perspective on the expectations. However, our customers are cautious given the increased trend in cases, especially in the U.S.
We do not expect to end the year at the low end dropouts and audio planning to consider drops in revenue ranging from 15% to 25%.
Given that CVT business, just caught up with its best to US we expect third quarter would be the trough for the year into fourth quarter should improve from there.
Carefully monitoring market conditions in communicating with our customers on a daily basis to have been understanding what the remained healthy year.
Earlier comments I mentioned, the importance of driving cash generation and reducing debt.
We see this is critical to meeting our goals as we May act on opportunities with regard to M&A targets.
We are developing additional value streams to augment our vision 2025 strategy.
These actions will leverage the strengths and capabilities Ofili us organization.
Including a well respected brands, our dedicated global employees and our strong balance sheet.
We are in the final stages over finding these value streams with the operating businesses and will shed them in due course.
We believe to enhancement to the strategy will also provide greater clarity on the efforts required to accelerate our growth specifically through expansion into new end markets and new products as well as acquisitive growth.
As we finish out strategic planning activities. This fall, we will provide more details on how we expect to execute our growth strategy.
Close I haven't been able to visit both Sun hydraulics and innovation in person.
And engage with faster videoconferencing during this past quarter I am confident in the ability so follow operating presidents to lead the businesses through the current economic challenges and drive long term organic growth I believed that we can leverage this solid foundation to become an even stronger Healios organization.
Now, let's open up the lines will gionee. Please.
At this time will be conducting a question answer session. If you look Jeffs question. Please press star one on your telephone keypad accomplish until end of Q lobbies and the question Q.
Let me first start you if you will look to remove your question from the Q.
Participants using speaker equipment, and maybe Mr to pick up ahead. So we're pressing the star keys, one moment, because we pull for questions.
Our first question comes a lot of just him with Keybanc capital markets. Please proceed with your question.
Hey, good morning, everyone.
Morning, Jeff Good morning, Jeff.
I'm sorry, if you covered some of this I jumped on a little bit late but can you just you talked about some of the past due backlog.
Getting caught up can you just kind of level set us on where backlog is either sequentially. How much it's down are down year on year, and maybe just walk through the order trends through the quarter and into July.
Yeah, So let's start with the order trends throughout the quarter.
We we saw quite a big drop in orders in April a further drop in May which was the bottom for us and we saw significant pick up in June and a further growth in July. So we're encouraged by what we saw in the June and July timeframe from an order.
Perspective, as we go into Q3.
With respect to the backlog yeah, we still had passed do backlog in our CBT business at the end of the quarter.
We do expect to work through most of that past due oh by mid Q3, so over the next couple of weeks.
And at that point will be shipping out of current demand for that business.
Okay, and then electronics.
No.
Certainly a lot weaker than than what I had been modeling you cited a number reasons, but at the same time it seems like a lot of leisure end markets are.
Being in our pleasant surprise from a a demand perspective and so just.
Give us a sense of kind of how you see the shape of that business ended the second half with some of that you know solid demand in the leisure side and then just you know maybe a as your feather in you know kind of programs you know some of this program changeover and when you start to see that business Act a little better yeah. As you as you complete your Ah your trends.
Sure.
Yeah, So you're right. The recreational end markets were hit really hard in April and May because most of their Oems or shut down during that period. However, the consumer demand has come back really strong in June and July to the point that some of them are unable to keep up with the demand because of some comply.
Come supply chain constraints that they're seeing caused by coated.
Because of the shut down some of their new model Rollouts in 2020 have been pushed to 2021, but we are encouraged by the continued demand that they're they're seeing on the recreational and market.
And most of the your new.
Program wins are are around the I guess the original 2020.
New models that now we'll get pushed.
Well, Yeah, we had some that got pushed on a 2020 into 2021, but we have not seen any change in the roll out dates of the 2021, which are really the more significant rollout.
It's in summary, Jeff really no cancellations.
So if the pipeline pipeline is full.
And there has been numerous discussions just what pre planning purposes, and just staying firm.
2021 would be to roll outs and some may be pushed ahead into Q4, so that's what the monitoring very closely.
Okay. Thanks, I'll get back in Q.
Thanks, Jeff.
Our next question comes a lot of Brian drab with William Blair. Please proceed with your question.
Good morning, just on those programs in electronics can you spend another minute talking about you know in any way quantifying where.
Where we are with those now and the potential impact next year, how many how many programs are we talking about is there potential for in a more normal.
Macro environment for that segment to really snap back hard and 2021.
Yeah. So when you look at.
As mentioned previously a second ago.
Brian here.
The funnel Israel into pipeline is really fall and if you look at or close to spectrum of 25 30 35.
New npis, they're going to go to market into 2021, Onethree a questionable.
The had been a well they're not happened. So the is a good level of confidence he did what was committed to and in some cases funded what prefunded.
We'll happening 2021 with to roll out starting in some cases as early as Q4.
But certainly Q1 into 2021.
Okay, and then you said Twond, there's 20 to 25 Npis and what are what does a typical year look like if you can just remind me and I like how many I guess, there's not too many this year.
Super frame of reference.
Yeah, I mean, there there were definitely lots in 2020, and we knew that going into this and we talked about it on earlier calls and yes. It was a bit of a law when that production cycle certainly what we see for 2021 2022 and even into 2023 are very strong product development years, a in this business.
We're starting to roll out some pretty significant programs beginning in 2021.
Okay, and how how are you thinking about further cost cuts and potential impact on decrementals in the.
The third quarter, what are you expecting decremental can be in the third quarter enough you can comment on that since you're not really guide.
Yeah, I'm not going to comment specifically on Decrementals for Q3, but in looking at the full year, we expect the decrementals to be somewhere around 40%. We saw some challenges with Q3 being the trough in the hydraulic segment.
From a detrimental perspective, and certainly we know from this business that it rebounds very quickly when we come out of it and we believe that we're starting to see the beginning signs of coming out of it. So we don't want to significantly change our cost structure. So we're prepared for that but you know in anticipation of.
A lower Q3, we do have some things planned in the CBT businesses that have been announced to the employees already including a one week shutdown in early September and then moving to rolling for low programs.
In that business once we work through the past due orders and are working off actual demand until we start to see what we expect to be a Q4 pickup in demand.
Okay got it thanks for taking my questions.
Mm.
Our next question comes on line of Mcdougall with Baird. Please proceed with your question.
Hey, good morning, everyone I want to go back.
Yes, I want to go back to where Jeff kind of started that's off here and I've got to be honest with you I I've struggled for few quarters now to try to understand exactly all the moving pieces to the what's been happening with your backlog.
And it seems to me like we're to the point, where this is becoming a.
Really important dynamic through to really kind of have good perspective on because it's not only in form Q3, but Q4 and progression into 21. So I guess my question to you traces your as you're looking at Q2.
Can you tell us where you started the quarter in terms of backlog dollar backlog and where you exited.
I'm trying to understand how much backlog contributed.
Who hydraulic segment revenue backlog burn or reduction or conversion. However, you want to call.
Oh, it yet we don't give backlog numbers, but I'll give you a little bit colour on the backlog so.
At least the past due portion backlog, we always have backlog in this business, but let's focus on the past due portion.
So if we look at where we ended Q1 from a past due perspective in the C. B T business.
We were able to ship about half of that in Q2, and we expect to work through the other half of it in Q3 by.
Mid August.
Well, yeah, but does this past it was $2 million then essentially it really didn't impact the quarter all that much in the past it was $50 million a using an extreme example here then this would have been a really material impact.
So maybe that's his question different yeah. If if you were to look at your reported.
Organic decline of call it 9%.
How do you think you there versus the industry more broadly or maybe even comment on your Americas business, because I know you get data from the fluid Power Association. So that you compare your trends the broader industry.
Can you tell us what the Delta was.
So we've performed better than the NFP eight numbers would indicate in in the Americas.
So we believe that you know this past due is really pent up demand that that we saw.
It would have done in a prior period, if we were able to ship. It we had very few cancellations. If if any in that business. So you know I think that we're going to be catching up now too to where we should be and if you will recall that the book to ship cycle in that business is generally very short so we're not.
Used to having this level of past due backlog that we've seen for many quarters. Some of that was a little self inflicted as we went through the manufacturing consolidation project.
But certainly I think we saw significantly more demand oh during that time period that we built up this backlog than our competitors did and that was reflected in our ability to exceed what the end up P.A. on numbers were showing at least in the North American market.
Yeah, maybe maybe just an additional data points you did may help you.
You know get you to ease in answering some of your question. So if.
You mentioned numbers between 2 million in 50 million into himself as to backlog.
It was clearly in a single digits.
So our strength in the Q2 was clearly not based on.
On 80, or 90% shipping past due backlog so that number was in the single digits, but if you looked at the pattern of the order. This year you know electricians said a few minutes ago.
We.
You know the oldest fell off the cliff in April bottomed out in May.
We saw a significant recovery in June and July was even better than June so and.
That leads us to leave Ted.
We need a couple more data points you know into August.
Into first half of September to have fulfill them understanding and that was the largest driver.
For us not being comfortable enough to give guidance so.
There's no hidden skeletons here, there's no 80% pass to backlog shipping.
It's that's exactly where it is so hope that will into.
So with your questions can get your these.
Yeah.
When you're Joseph when you're saying single digits am I to understand that single digit million ward that single digit contribution to growth.
Yeah, its single digits million Megan.
Single digit million, Okay, and then.
Okay and then when.
A back back to order trends.
So maybe was probably mark the bottom in terms of orders and then you've seen a sequential improvement in June.
Can you give us a sense, whether or not June was still down year over year or was it absolutely up year over year in orders.
So certainly make so year over year number was still Donald.
It's still down.
Okay, you see comparing to previous you correct.
And.
We are to understand that as you're looking at July and August and such into Q3.
The magnitude of of the decline in order intake essentially exceed the reported revenue decline in in Q2.
That is correct Nick.
Okay, I'm sorry for all the questions here I'm, just yeah I for one im a little bit confused as to all the moving pieces here, which is why I'm trying to kind of understand what's going on and then my follow up a cure for uterus, maybe if we're thinking about the seasonality of this business and sort of recognizing that this is a very strange year.
Certainly not normal year, but my recollection is that the fourth quarter.
10 sometime a.
A seasonal downtick in a in revenue just based on production schedules and such into into December and whatnot, I guess I'm wondering how you're thinking about that knowing what you know today do you think there is enough kind of end market momentum and maybe some catching up on production.
<unk> for Q or should we kind of think about normal seasonality here.
Yeah, it's not going to be a normal seasonality I don't think if we look in the first half versus the second half and no we're not giving guidance, but we're trying to help you guys understand at least.
What were seeing right this minute and there's still some uncertainty clearly around that but we look at first half second half were at about 50 50, with the first half being a little bit better than the second half from a total revenue perspective.
So knowing that we have stated that Q3 is our trough that would lend itself to Oh higher Q4.
Which is not as you stated thrust normal seasonality, but given what we're seeing you know in the in the end markets and our expectations for the pickup in demand in the back half the year and then going into 2021.
Gotcha, so fourth quarter, a little bit better okay. Thanks for the color very helpful.
Thanks Mick.
Our next question comes a lot of Joe Mondillo Sidoti. Please state your question.
Hi, good morning, everyone.
Hi, Joe.
So I think Mig.
Doug pretty deep there, but I was just wondering if I could go maybe one step further are there any way you could actually provide the April through July monthly year over year order changes.
Right.
Pretty good indication of.
What degree I mean, we're we're sort of throwing darts are discussing what kind of order decline you're seeing outside of that pass through backlog.
Certainly do I mean look I think you will understand that we can get into specific numbers month by month, but.
No.
I was very genuinely here summarizing and giving you guys are pretty much would you need to have for your models and and.
Once again.
You know the story is the way that data is rolling up now into or does it coming in pretty much across the board.
Is you know April really fell off the cliff.
You know may bottomed out in June came back into vengeance and in July was even stronger.
So the data points clearly pointing to a some sort of recovery.
And when you speak with the OEM customers when you speak with the distributors, you'll get a mixed bag some of them out of preordering.
Some of 'em going really strong.
Many of just cautious.
Just by the Upticking cases here in the U.S.
But as we discussed this internally here you know I was not quite comfortable.
Getting out there with the guidance not having a couple more data points. So I.
Genuinely mean, what to say you know we are well positioned here I have no.
Data points into another depth.
You know just to contrary, but you just want to watch it another four to six weeks and two if a bit understanding and fill up perspective. So.
That's kind of way Viejo, okay understood as far as the gross margin, but you saw at the electronic segment in second quarter.
Is there any way you can help us understand how to think about you know the backup you're going in the 21. The gross margin was weaker than I was looking for should we.
<unk>.
Is there a reason to believe that the gross margins would rebound in the second half or just or you know stabilize or just try to give us any information that you have that.
Point us in the direction of what kind of margins to expect potential we are directionally up at the very leased in the backdrops for electronics.
Yes, certainly Joe I will start than 10 handover due to shuffle some.
Some numbers here.
But the primary.
So the answer to your question is yes, we would protect the profitability and to gross margin you know.
We have made the decision to hold on to certain layoffs in the organization due to the effects due to strong.
Innovation pipeline, we've seen and and did all the Zillow dovetails into.
The four additional value streams to the outlined in my prepared in my prepared remarks wonderful being told again any growth piece that will drive additional business in India.
In the in a diversified market, so diversifying our market position and be needed to hold down to a.
Certain portion of engineering and innovation folks.
To get us ready to launch that so.
But overall the answer to your question is what we protect profitability, yes, we will.
Just add a little bit more color. Joe Q2 was the trough for the electronic segment and we took a pretty hard hit in the first couple months of that quarter. So.
Joseph point, you know, we expect to see our topline increase and you know we will be able to protect that profitability and go back to the higher gross margins now keep in mind that Q1 does have the impact of.
All obligations in it from the one time by so that will not be a repeatable event, but we will definitely expect to see margins go back up in this segment as we roll through and are able to increase the topline revenue off of where we were in Q2.
Okay and Tricia your comments on the Decrementals of 40% was that for the overall company in general going forward.
That was for the overall company for the year.
Okay and last question I'm, just in regard to how you're managing your cost structure through.
All of this and given the moving pieces in the past two backlog, but you know held up your production at least through the second quarter.
Where are you with.
Managing the cost structure or do we see I mean, you mentioned sort of low even a one week. So break in September at CBT are there other things that you're doing or where are we with the cost structure and.
Any cost coming back in the third quarter doesn't sound like there would be but could you just help us understand what you're doing on the cost side.
Yeah, certainly so look you know across all the three business units.
You know.
Very detailed planning cycles in discussions you know one of the strength of Healios truly is debts planning cycle and being resilient on understanding if the volume is not.
Coming our way here the levels, we need to pools. So plants have been under shelves. We have modeled three different scenarios, you know tempus and down 15% down and 25, plus in down and as we see that topline flexing.
The cost will come out of the business a into them. So.
Funerals into them, so for reducing the hours into factories.
Watching our spending very closely.
Travel by nature has is falling off obviously due to the situation.
But in somebody joke to have been a good plans on the shelf.
For the three scenarios that I've outlined so we're prepared to do whatever it takes two.
Decked out profitability and that affected we will protect our profitability.
Okay. Thanks for taking my questions. Good luck.
Thank you.
Yeah.
Once again, if you like next question. Please press star one on your telephone keypad. Once again, if you looked jeffs question. Please press star one on your telephone keypad.
Our next question comes the line of Nathan Jones with Stifel.
Your question.
Hi, Good morning. This is Adam for early on for Nixon.
Hi, Adam Hello, and good morning.
[noise] I wanted to talk about the regional sales dynamics.
No. There just declined the most followed by me and potential showed growth you mentioned shirt.
So first one of that is do you believe theres any pent up demand in the APAC region.
If you believe these levels of revenue sustainable going forward.
I don't think Theres any pent up demand in Asia Pac I think the demand coming out of Copel has been strong and has gone back to prepay cobot levels and in some cases, we expect to exceed our original budgets and those.
Region in parts of that region. So I don't think its pent up I think its actual demand coming out of a pack.
Okay, and then what do you think will take for EMEA and the Americas to fall follow the pattern.
And I know, there's a lot of share gains in China, specifically, but [noise].
As economies rooms to enrollment do you think through you'll see no gradual improvement regionally.
So in the Americas, I mean, Q2 was clearly hard hit on the electronics segment, because about 85% plus that businesses in the Americas. So that was you know overall driving that down a bit I think what we're seeing out of CB ti on that distributor side.
In the Americas, specifically is.
Taking a step back to make sure that they understand where are we with our inventories in the cycle, where are we you know with our OEM demand and we believe that coming out of this will have a stronger Q4 is the result of that but I think we started to see a little bit of that low in Q2.
The Americas on the CBT side, and then you know.
The electronics was just.
Reaction to the shutdown.
Well the then suitable to end markets just highlighted approved pretty resilient.
What's driving that relative strengths and maybe some more color on which end markets are doing better than what you're doing worse on a relative basis. Thanks.
Egg was very strong coming out of 2019, and we expected to have that continued throughout the year, we saw a little bit of Oh low clearly when we had all the shutdowns in Europe, and Ah, but the AG markets, there, but as we come back out of that Weve.
Seen that same pickup that we.
Started to see in Q1, we believe that some of our Oems are actually going to be better than we anticipated for the year. So clearly we're happy to see that that market has continued to grow as we've gotten through a lot of the covis shutdowns.
Okay than any other and market strength or weakness construction I know on gas is yeah.
Yeah, I mean, you know I think we've been happy with the the what we've seen on the recreational side from an end market perspective, even though it was hard hit its coming back pretty nicely clearly demand in China for us since been strong and Thats primarily on these.
Jason side and wind power, but those are really the most to Brazilian we've started to see some pickup also in the Americas on the construction side with some of the customers.
We're seeing mix signed globally on the construction piece.
Okay, that's taking my questions.
Yeah. Thanks, Adam.
Just on no further questions left in the queue I would like to turn the call group, but to dose administered for any closing remarks.
Thank you for your participation this morning, and your interest in he this acknowledges always though I would like to extend the very genuine thing to do all of our hardworking serious employees were driving test results.
We look forward to updating all a few on our third quarter in November.
Great date, and stay healthy and safe please.
This concludes todays teleconference. You may now disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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