Q2 2020 Lear Corp Earnings Call
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After today's presentation, there will be an opportunity to ask question.
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He is being recorded no like your turn the conference or would you really should Davis senior Vice President corporate development and Investor Relations. Please go ahead.
Thanks, Paul Good morning, everyone and thanks for joining us on their second quarter 2020 earnings call presenting today are way Scott.
President and CEO, and Jason Party, Senior Vice President and CFO, I remember, the where senior management team, including Frank Orsini precedence over eating division and [laughter] Ito President of our E Systems Division also have joined us on the call.
Following prepared remarks, well open the call for acuity.
A copy of the presentation that accompanies these remarks, IR DAPL year Dot com.
Before we begin I'd like to take this opportunity to remind you that as we conducted calls we won't be making forward looking statements to assist you in understanding there's expectations for the teacher as detailed in our safe Harbor statement apply to our actual results could differ materially from these forward looking statements due to many factors discussed in our latest Kincaid and other periodically.
I also want to remind you that during today's presentation, we will refer to non-GAAP financial metrics. You were directed to look like in the appendix of her presentation, but a reconciliation of non-GAAP items to the most directly comparable GAAP measures.
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Today's call. It on slide three first rate will review highlights from the border everybody. This is empty Jason will then review our second quarter financial adult and described the key factors impacting the second half of 2020 finally wave will offer some concluding remarks following the formal presentation well be happy to take your questions.
Now I'd like to ones like rates it again.
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Thanks, Alicia and good morning, everyone, Hi, before I begin the formal presentation well take a moment you say that we hope everyone is staying safe and healthy our thoughts and prayers go out to those that have been impacted by cold at 19.
Now if you could please turn to slide five which provide some recent business highlights.
Second quarter was among the most challenging in their history.
Our financial results were significantly impacted I called it does 19 pandemic.
Which resulted in an extended production shutdowns and a 46% year over year a decline in global vehicle production for the quarter.
Despite the challenging environment, we successfully executed on the near term priorities, we set forth on our first quarter earnings call.
We demonstrated both our financial strength and the resilience of our business model, we safely and efficiently we started operations maintained ample liquidity.
Effectively manage cost and continue to position the company to take advantage of growth opportunities.
Right.
We had another quarter of strong business wins, including additional conquest business in seating.
Very proud of what the Lear team accomplished.
During the quarter, where we see the pace award for Zebra market, a testament to our innovation and industry leadership.
Also proud of the fact that Lear was named G.M. supplier the year for the 19th time and third consecutive year.
We continued to be recognized by many of our customers for safety and quality.
As we discussed last quarter, you develop the safe work playbook, which provides a standardized approach to safely operate our facilities.
And then quotes health and safety information related to plant operating protocols.
Employee education in facility assessments.
On April six we publish the play book on our website.
It has been downloaded almost 35000 times and the response from our customers as well as manufacturing in non manufacturing firms, but around the world has been overwhelming.
Yeah, I'm, particularly proud that we have played a role in helping keep people safe around the globe.
I want to take a moment now to discuss an important new initiative at Leer.
I've been deeply affected by the on a personal level by the recent events that have highlighted the ongoing ratio on justice in our society.
No not alone.
It has affected the entire Lear family.
[noise] Alere, we have a longstanding commitment to a workplace that is diverse equitable and inclusive the.
The following these troubling events, we knew we had to do more so building on our strong foundation and diversity equity and inclusion we launched the drive educate fun initiative.
Through this initiative Lear will drive change by developing impactful ways to help and ratio on Justice in society educate by accelerating our in house training to be sure that we as an organization continues to foster diversity equity in inclusion with their own community and fun I, providing both financial and non finance.
The resources to nonprofits devoted to achieving Rachael ray showing <unk> equity.
As a team we are committed to helping drive change in this important area.
And that's good please turn to slide six.
During the quarter, our business was impacted by production shutdowns in our two major markets North America in Europe.
All of there's operations outside of China workflows for all of April in a portion to me.
After manufacturing restrictions were used to lead concentrate our efforts on safely and efficiently restarting operations.
Yes production production resumed our plants came back online gradually then we saw weekly improvements in capacity utilization and business performance.
Then in the month of June we reached a turning point, we started the month at similar levels to me, but by the end of the month most of our plans and our major markets were operating at or near pretty cold at levels.
Okay.
Slide seven provides an update on the seating business and seating we achieved solid growth over market a three percentage points.
Our solid growth over market was driven in part by strong performance of the keep a platforms in North America, including James full size truck.
Mercedes important that's you visa.
In addition, we enjoy strong market position in luxury brands in China, and the premium market outperformed the overall market in China during the quarter.
Decremental margins year over year over 20%.
Despite significant incremental costs in the quarter.
Our ability to flex our cost structure and the current volume environment and aggressively man is variable costs and overhead lessen the financial impact to the severe production disruptions we experience.
Which allowed us to continue investing in the business during the downturn.
I now want to provide an update on innovation efforts in seating.
We have made investments in technology that enable us to grow and capture market share.
We've used our unique capabilities and seeding engineering and design and electronics to create a broad portfolio of innovative solutions featuring intelligence each of the future.
Two examples of our danced product technologies include into an intelligent seeking system that provides advanced solutions for wellness comfort zone and safety.
And can figure plus a pace award winning patented stated the our rail system that is configurable electrified an ideal for shared mobility applications.
Even though the into technologies are still in the early stages of development. We have been awarded to advanced technology production contracts and have 10 engineering development programs underway with seven different global Oems.
We're very encouraged by these development programs because such programs often lead to production awards in the future.
To figure plus is also in the early stages, but we have achieved some commercial success.
As the design platform slated to launch in 2021, and 2023 to two global automakers just two years ago. This technology wasn't dub element and now we expect to generate more than $100 million of annual revenue by the year 2023.
We're very excited about the opportunity here because we believe there will be a number of fast followers as other customers adopt the technology as we move towards production.
We believe we will be able to continue to increase our market share in seating not only because of our quality and operational excellence.
But also because of our unique ability to innovate and offer creative value enhancing solution store customers.
In the second in the second quarter, we again achieved significant new business wins, including conquest wins.
On the last earnings call, we announced that we had almost $500 million of Concours conquest awards in the first quarter.
And the second quarter, we secured an additional $200 million in net conquest awards.
I'm very proud of what the team accomplished as we continue to focused on quality execution and driving value for our customers.
Slide eight provides a knee systems business update.
During the second quarter E systems achieved growth over market of 11 percentage points. The strong growth over market was driven by a combination of launching products in our electrification portfolio strong volume on the Ford F series Super duty and our position with luxury brands in China.
We are beginning to see the benefits of our growing electric cut electrification portfolio and the increased diversification of our customer base.
To better align our operations with the production environment, we accelerated restructuring actions during the quarter.
We optimize global capacity and our footprint through plant consolidation and other repositioning actions, particularly in Asia.
Through these actions, we were able to lower our cost structure, driving improved margins and positioning ourselves for future growth.
During the quarter, we continued to focus on electrification and conductivity.
Approximately 40% of our year to date awards coming in these two high growth business areas.
As we've discussed previously increased vertical integration in our wire harness business is a key component of our east systems improvement plan.
And our efforts have been very successful thus far as we've exceeded our internal targets in this area.
Year to date, we are vertically integrated approximately $50 million of previously external purchases with 80% of these products launching by the year 2021.
This success is helping drive margin improvement in these systems segment.
Now please turn to slide nine.
On our second quarter 2019 earnings call, we laid out a detailed plan to improve these systems performance and positioned it for profitable growth.
We intended to provide a comprehensive review of each systems business and strategy at our Investor Day, which are scheduled for June 9th.
Unfortunately had to postpone investor day, because of the Cobot 19. So we thought it was important to provide a brief update on the improvement plan and describe these systems strategic direction on today's earnings call.
Over the past year, we have successfully successfully executed on our improvement plan.
We have built a strong management team stabilized the business restructured operations to better align capacity with production volumes.
Improved visibility into profitability by customer project in region.
We have improved margins on existing businesses through customer negotiations and cost optimization.
We continue to make strategic and highly targeted investments in its fast growing industry segments, where we can earn returns.
That exceed our cost of capital.
And we are aligning our product portfolio to industry Mega trends accelerating expansions of our terminals connecture connections business, increasing vertical integration and expanding our footprint and high growth businesses with a focus on electric vehicles, Fiveg conductivity and software.
We've conducted an extensive study of the markets in which we participate we examine the competitive dynamics growth prospects and the future architecture of the products we supply.
As slide nine demonstrates we have expertise in the complete vehicle architecture.
We are narrowing our electronic product portfolio to those areas, where we can leverage our expertise and electrical distribution systems body electronics and vehicle architecture, that's allowing us to make selective value creating investments.
We are focusing our product segments, where we believe we can be most competitive such as battery and charger charging power management with electrification, where we have demonstrated that we can be successful and in areas like software that enable us to move beyond being a component specialists to having systems and domain expertise.
We believe pursuing these very targeted areas of business will allow us to leverage synergies and drive further margin improvement.
Now I'd like to invite Jason to review, our second quarter financial results.
Thanks Ray.
Slide 11 shows vehicle production and key exchange rates for the second quarter in the quarter Global vehicle production was down 9.9 million units or 46% compared to 2019 as the industry was significantly impacted by extended shutdowns related to the culprit 19 pandemic.
The majority of the production declines occurred in North America in Europe, where production was down 69% and 63% respectively.
Where's plant operations in these regions were closed for all of April and a portion of May and when they have restarted there was a gradual ramp up production over several weeks. These two regions normally account for over 75% of litter sales.
Global production declines on a lear sales weighted basis were approximately 55%.
Industry production in China have recovered in the second quarter growing 7% year over year.
From a currency standpoint, all major currencies weakened against the U.S. dollar compared to last year.
Slide 12 highlights lear's growth over market in the second quarter sales grew above market in both seating and these systems as well as in each of our major markets total company growth over market was 5% with these systems at 11% and sitting at 3% growth over market in North America six.
Percent reflected the strong performance of GE full size trucks before explore and Mercedes atrophies, China's 8% growth over market reflected strong relative demand for luxury vehicles that benefited both seeding Andy systems.
Slide 13 highlights our financial results in the second quarter, which were significantly impacted by the Covance vaccines and amok.
For the quarter sales were $2.4 billion down 2.6 billion EUR, 51% from last year.
The decline was driven primarily by lower production and all our major markets except for China.
Did see a meaningful ramp up in sales in the last few weeks of June and as a result, our financial performance in the quarter was better than expected.
Adjusted operating losses were $240 million compared to core operating earnings of $352 million in 2019.
The decline in core operating earnings from year ago reflects the significant decrease in sales as well as incremental costs associated with the restart production and operating our plants in the current environment.
Provide more detail on both these incremental costs as well as actions that we have taken to offset the impact later in the presentation.
Second quarter free cash flow was negative $611 million compared to 268 million in 2019.
Negative free cash flow reflects lower earnings and higher working capital related to the restart of production.
Actually offset by lower capital expenditures.
We expect the working capital will decline in the second half of the year and be a source of cash flows.
Slide 14 explains the second quarter year over year variance in sales and adjusted earnings in the seating segment.
Sales in the quarter were $1.8 billion down 54% from the second quarter of 2019.
Seating adjusted operating losses were $102 million compared to adjusted earnings of 315 million last year, reflecting lower volumes and that covered related costs.
Slide 15 provides a second quarter year over year sales and adjusted earnings walk for our East systems segment.
Sales in the second quarter were $690 million down 41% from the second quarter 2019.
You systems, adjusted operating losses were $91 million.
Adjusted earnings declined from last year, due to lower industry volumes and that covered related costs.
Please turn to slide 16, where I will describe in more detail. How covered 19 has increased our operating costs as well as the actions we took to mitigate the impact on our financial results.
In the second quarter, we faced significant nonrecurring costs related to setting up our plans for safe production.
The biggest cost headwind, we faced in the quarter with semi fixed labor costs in certain locations. We were obligated to continue to pay some of our employees while they weren't working.
Thats occurred in the first quarter in China as well.
While a portion of these costs were offset by local government incentives. The net impact was significant and efficiencies at our plants as it restarted operations also drove higher cost during the quarter.
There are other costs it impacted us in the second quarter that we expect to continue for the foreseeable future.
These costs include personal protective equipment and other costs associated with lower plant efficiencies due to social distancing protocols, we have put in place.
Consistent with our expectations, we incurred incremental costs related to cope with 19 in the first half of the year approximately $150 million.
Net of customer reimbursement for certain of these costs.
Now, let production is running closer to pre Calvin levels, we expect the net cost going forward to be considerably lower in the second half of the year.
As we noted on our last earnings call. We took aggressive actions to offset these additional costs with programs that were designed to carefully balanced the need to reduce costs also protecting our world class operating performance and the longer term value creation potential of both our business segments.
Our cost reduction plants, which were split into three distinct phases to provide flexibility. We are designed to operate in an environment, where revenue was down 25% to 30% as industry conditions continue to improve we will reverse some of the nonrecurring spending reductions that we've put in place.
Likewise, the industry conditions worsen, we will implement additional cost reduction actions to preserve our liquidity and protect the enterprise.
Slide 17 highlights assumptions that are driving our expectations for the second half of the year.
While our visibility somewhat limited under the current circumstances, we wanted to provide some insight into how we're thinking about the rest of the year the situation, it's still very fluid.
The number of increasing covet infections and the potential for additional shutdowns could have a significant impact on our financial results. Other factors that could impact. The second half include the underlying mix of production changes in foreign exchange rates and ongoing customer demand.
I adjust projected global industry production to declined by 11% in the second half compared to 2019.
Given the uncertainty surrounding the covert 19 pandemic and the possibility for government mandated shutdowns are internal projections are based on a range of 10% 15% for production declines.
Our production estimate also reflects uncertainty with respect to consumer demand given the challenging economic environment.
Despite the significant drop in revenue in the second quarter decremental margins improved somewhat on a sequential basis to 23% from 25% in the first quarter.
Looking ahead to the second half of the year, we expect decrementals to improve further to about 20% with the fourth quarter anticipated to be better than the third quarter.
Factors driving the improvement in Decrementals include onetime production ramp up costs. It will not reoccur higher production volumes and the continued benefit from cost reduction programs.
Decremental margins in the fourth quarter will also benefit from the non recurrence of the gym strike.
For the full year, we expect decremental margins to come in at approximately 23% consistent with our prior public comments.
Looking at our margin performance on a sequential basis, we expect incremental margins to be above 20% for the third quarter.
Restructuring costs for the remainder of the are expected to be relatively consistent with our first half run rate as we continue to realign our manufacturing capacity with industry demand.
Expect free cash flow to turn positive in the third quarter and expect additional sequential improvements in the fourth quarter, reflecting more working capital.
Capital expenditures are expected to increase in the back half of the year to support new programs coming online in the second half in 2020 and throughout 2021.
Please turn to slide 18, where I will discuss our financial position.
They are entered the pandemic with a strong balance sheet and ample liquidity as a result, we didn't need to raise additional funding or seek covenant relief on the auto industry shut down for two months earlier this year.
Today's uncertain economic environment is it's critical to have ample liquidity and case production has impacted again or if industry conditions worsen. The same time equally important to have the wherewithal to continue to invest in the business to further improve our competitive position and create long term value for all stakeholders.
While the second quarter was among the most challenging we have ever faced we ended the quarter with $2.5 billion total liquidity, a low cost flexible debt structure and no significant near term debt maturities.
We have investment grade credit ratings from all three rating agencies fits recently initiated Lear with a triple B rating than July and Moody's affirmed Lear is investment grade rating that Jim.
Our allocation our capital allocation plans remain unchanged, our first priority remains investing in our core businesses through capital expenditures.
We will consider bolt on acquisitions, but believe our businesses are well positioned at an outlook and for any transformational M&A.
And we remain fully committed to maintaining investment grade credit metrics.
We have been consistent in our commitment to returning excess cash to shareholders and look forward to continue in discussions with the board about restarting. These programs once we have greater certainty regarding the sustainability of our cash flows.
Now I'll turn it back to rate for some closing thoughts.
So Jason now turning to slide 20 in summary, the second quarter was among the most challenging in our history, our solid performance in the quarter demonstrated resilience and our financial strength in the face of previously unimaginable scenario and involving a global shutdown leading to 50% decline in revenue in the midst.
So the pandemic would limit with many of our employees working remotely.
And never in the history, the automotive industry have we seen nearly simultaneously relaunch of plants around the world.
Following an extended shutdown with extensive new health and safety protocols in place.
I used to close earnings calls with the thank you to Lear team after the Q in a is done.
I think it's important they take time now while everyone is still on the line to say thank you to the team.
Good not ask for a more talented committed or loyal team.
We have accomplished what we have accomplished as an incredible and I'm extremely proud of how we're performing during this trying time.
When the crisis began we focused on three near term priorities, ensuring the health and safety of our employees.
Preserving liquidity and aligning our operations to in strategic priorities with industry changes.
And over the last few months. The team has worked tirelessly to implement the necessary protocols, the safely and efficiently restart operations.
Effectively manage our costs preserve lear's financial flexibility and position the company to continue to take advantage of growth opportunities.
We have now transition in the second phase of our coal the 19 response, the economic environment remains.
Highly uncertain and we do not know exactly how the pandemic will continue to affect our industry. However, with today's challenge come opportunity.
This crisis has brought clarity about what matters in our business as it relates to our strategy can better competitive positioning product portfolio, our cost structure operations and our team.
We are committed to executing against our strategic goals, while balancing short term challenges with long term priorities.
We will continue to make targeted strategic investments that position Lear for continued market leadership and drive long term value for our shareholders and with that we would be happy to take your questions.
And we will now begin the question and answer session.
You ask your question in your press Star then one on your question Ben.
If you're using a speakerphone please pick up your handset before pressing the key.
To address your question. Please press Star then.
And our first question today will come from just the fact with RBC capital markets. Please go ahead.
Thanks, Thanks very much.
First question is is.
Maybe you could talk a little bit more about.
The 8% margin commentary.
Excavators that that just backing out some of the volume impact you associated with that as well as well as the cost in each of the segments.
Yes, Joe Thats exactly right. It's the net called it cost that we talked about impacting both segments as well as just adjusting for volume and the way we measured as we looked at what we were anticipating in terms of revenue in the in the quarter.
Prior to coal bed. So when we set guidance of the began the year and and relative to where it came out and thats the way we've measured that.
Okay, and then as we think about each of the segments headed to the back half of the year.
I mean in seating is that the right.
Level that 8% level to think about especially since you're lapping the GM striking in the fourth quarter and then E systems, you talked about showing.
Improvement.
Going back to the back half.
From last year and.
You mentioned some of these systems initiatives today.
Should we think about 8% as the new sustainable target here as volume stabilizes.
Second.
I think ultimately that's really a question of where volumes stabilize so we have seen an improvement and production rates heading into the third quarter in July were around 90% now the worst that's still a 10% difference from our historical run rates. So the if you just look at.
The math on that the variable margin.
And seating that 20% any systems at 30% that terms.
About 130, 135 basis points off the seed margins and about 200 250 basis points out these systems margin so at a 10%.
Lower volume overall.
So I think thats, probably sort of the right right starting point as we look the third quarter now, yes, the volume environment improves and its down less than 10%. Then then I would see upside to those numbers. This volumes were flat year over year than I think you've got right idea on where we would end up but I think we're a little ways away from that.
And there's still a great deal of strain.
In the whole supply chain right now and particularly if you look at what's happening in Mexico, where you're not able to have the full complement of employees in the in the plant yet and so there's still a reasonable risk of disruption that could impact volume. So even if the demand is there and the Oems are trying to replenish inventory levels.
Uncertain as to whether they're going to be able to continue running at the rates they want to.
Throughout the quarter, if all that worked out than.
Certainly we would be back on track to in terms of the operating margin for the business, but I think that the volumes will be a little bit lower than than what you're suggesting there Joe.
Thanks, maybe I could just sneak one last one and I know I know that your businesses are pretty just in time, but did you see any.
Of your customers take a little bit of excess inventory.
To gauge against any supply disruptions.
Guard against me disruptions rather.
No.
I think the initial wave was just filling the pipeline and getting.
Inventories back to a level, where we could resume production and so now and that really seeing in the buildup of inventory at all.
Okay. Thank you.
And our next question will come from broad Lash with Wolfe Research. Please go ahead.
Good morning, everybody.
Hi, good morning.
Two two topics one is just.
Electrification, obviously is inflecting in terms of demand and also awards.
Can you just give us a little bit of an updated view on.
What you currently expect growth over market to be free systems, the impact of electrification in that and.
When you say that you're you're.
Focusing on few specific products within that what is the content per vehicle associated with that.
Yes, I want to go ahead.
So in terms of growth over market Rod, we're still expecting six points plus any systems and that really is underpinned by the growth potential and electrification and connectivity or we had 450 million.
New business awards in the those categories last year.
600 million of a of the 900 million backlog that we had.
Announced in January was in electrification and connectivity and even though that the quoting activity slowed down a little bit in the in the first half of the year because the coal bid. We still had 170 million of awards in that space and so we see just a tremendous growth opportunity the two biggest.
Areas of growth within electrification for us are really high voltage wiring and connection systems, and then onboard Chargers and battery management systems those are the.
If you had to split the portfolio is the nearly 50 50 between those those two categories and so thats where were winning business today. That's what we're we're rolling on in the backlog and we see great potential with both those sub segments say of electrification.
Heading out to the next several years, yes, I think just.
Hopefully a little bit that though to just rod.
Why I think we're so optimistic in positive about the future growth prospects within these systems as we talked a lot about being customer centric with maybe one or two major customers in the need to really differentiate our customer base in and do this cold. It obviously one benefit as we talked.
Our customers quite a bit I talked to quite frequently on everything is going on with respect to what they see as far as current volume and long term and even their product portfolio and some of the opportunities for investment and we've built up that customer base. I mean, we talked about the need to invest with those customers in so for example, with Audi and Jag land Rover and.
Really in mobile we're investing in those companies those customers over the last several years and those are really starting to.
We'll have some traction in some growth opportunity. So I'm I'm positive in respect to our growth in our ability to grow within electrification because one im hearing it from our customers and the need that they're looking for our products, but the actual awards that were getting within that area.
So just to clarify I know you've said before that you have about $500 of content or addressable content in internal combustion. When you look at the high voltage systems wiring terminals and connectors and Chargers, what does that come up to.
Yes, I would say on the low voltage side, it's more like $700 would be the kind of averaged vehicle globally with North America, being a little bit higher Asia, being a little bit lower than that and on the high voltage side in the areas of we're participating we've got 1500 to $2000 that's content opportunity for vs.
Paul.
And just lastly can you just clarify.
I believe it slide 16, when you put a $130 million on the right not that includes both nonrecurring and now going what is the.
On going component, how should we be thinking about that is that just more or less to offset the incremental colvin related costs.
Are you actually.
The coming up with additional cost savings that would allow you to get.
To these margin longer term margin targets at lower levels of revenue.
Yes, so I would say 75% of that 130 million is in the nonrecurring category the salary deferrals and pay cuts the lower incentive comp.
Temporary reductions in discretionary spend in the other 25% is re occurring in the biggest driver that is we've increased our restructuring investment by about 50 million. This year and we expect to see about 40 million of savings from that as I look out for next year.
And in particular.
That investment was in two areas one lowering our SGN any cost we've done a lot of work in that area over the years, but we did find an opportunity to lower cost in some of the administrative functions centralizing some functions and lower cost regions, taking some head count out on the program management and sales side on a more permanent basis to realign to the lower volume and.
Firemen.
And then on the manufacturing side really two areas of emphasis one is getting the footprint right in Asia and these systems were closing three facilities over the course of the next six to nine months, there to better align our footprint with.
The business, they're both improve the cost structure and the capacity utilization and then on the seeding side. There's a couple of facilities that were going to close in North America to improve an already strong footprint that we have here. So you take those those pieces together that's about a quarter of that path cost reduction program, we see sort of can.
Continuing in helping offset both the ongoing cost of operating in this post colored environment, and ultimately, helping offset a little bit of the impact of the lower volumes as well.
Great. Thank you.
Thanks, Greg.
Our next question will come from John Murphy with Bank of America.
Ahead.
Good morning, guys.
Yes, it first.
Good morning rate.
The first question on this north American content number was 528.
In the quarter up 20% year over year.
Very good performance, obviously mix is helping there just curious if you could parse out sort of mix as well as new business wins that are supporting that and as we get into the second half of the year as we anniversary the GM strike in the fourth quarter.
Plus the launch of of the Sq visa GM I can't imagine there could be some upside that CPV number as we go through the back half the year. So just curious what you think about that number in the back half of the year and then maybe beyond that how sustainable this number is.
Yeah, well, starting with the second quarter.
Really was driven by the strong mix in the region that was the biggest factor, but also kind of unique to Alere. As you may recall last year for Atlas once our changeover and explore MGM, let's finish enough there change over on.
Hey to achieve one on the pickup side and so.
We benefited from relatively strong volumes on those platforms compared to what the market did and so we have talked a lot about that last year sort of weighing on our growth in seating and that reverse course of that in the first half of this year. If we look out to the second half of this year, we do expect our growth over market just.
Generally speaking to continue.
Not maybe at this sort of 6% sales weight adjusted basis that we enjoyed in the first half with maybe a little bit less than that.
And again underpinned by the same things you described there John in terms of the the mix in North America, being particularly strong and weighted towards trucks. So thats reviews, where we have a lot of content and a good book of business, but also I'll point out that we see the luxury market in China, continuing to do well.
As a third quarter, we saw that in the first corvisart again in the second quarter were luxury sort of outperforming.
The broader market there and in both our business segments were overweight luxury maybe more so in seem that these systems the bulk both segments to benefit from that as well.
Okay. That's incredibly helpful. And then just second question around these conquest wins in seating I think you said they were 500 million in the first quarter and 200 million in the second quarter.
Just curious how fast those roll on or they faster than sort of your typical new business wins, because they're conquest or I mean, just how are those have those work.
Overtime.
Does it those are more traditional in that it's a three four years out.
Okay Gotcha.
And then just just lastly.
You should have talked a lot about M&A opportunity on the system side, but is there anything that you're seeing on on the seeding side.
That would either be sort of tech.
Acquisition or vertical integration or anything that you might view on the CD side on M&A.
These are not right.
I mean, we look at all kinds of different things, but there's there's really nothing of any significance.
On the CD side, there is as maybe some smaller type opportunities that might make sense for us to stabilize some of our business, but they're smaller.
Okay. Okay, great. Thank you very much guys.
Yes.
And our next question will come from David Kelley with Jefferies. Please go ahead.
Hey, Good morning, guys. Appreciate you good morning, taking my questions.
And I appreciate the breakout of segment level.
I would call it did.
Just curious to to how you see the moderation cadence there impacting the second half or are you expecting more steady PB related cost and efficiencies through the fourth quarter or is this more of a wind down with the greater impact expected in the third quarter.
Yes, so the cost were disproportionately in the second quarters is the biggest piece of that was the that semi fixed labor costs due to contractual or statutory requirements. The pay employees that weren't working plus the ramp up production, so sort of like having to go through a new you program, our new plant launch across.
All of our manufacturing plants globally were largely through that unless of course, you know there's another wave of shutdown. So that was the vast majority of the cost say about 80% of the other costs were nonrecurring and in that category. The other 20%, but you're referring to the pp cost and some of the.
The ongoing inefficiencies that we're going to see because.
Social distancing in the plants and having to make some modifications to our processes. We do see those costs continuing into the second half of the year, so sort of that $25 million a quarter rate and just like anything else like commodities or foreign exchange or inflation, that's going to be part.
Of our commercial discussions with our customers, we're working collaboratively with them to try and find offsets and where appropriate include that in the cost miles going forward and I think it's reasonable to assume that we can offset or pass through about half of that but that will be a cost that we see continuing with the business not just in the second half.
For the year, but likely in the next year as well.
Okay, Great. That's that's helpful. And then maybe switching gears you you referenced expected capex uptick in the second half can you just talked about what you're seeing as it relates to plan a customer launches in the back half of the year are you seeing any significant delays or cancellations.
No we're not seeing any there's been some small on delays but.
Really no major cancellations. So some of those tied directly to the downtime that we had in respect to.
Coal that but no significant program delays or cancellations for that matter. Most of that we saw in advance of the first quarter earnings call. When we talked about sort of a shifting of a month or two and there's been nothing new since that point.
Yes.
Okay perfect. Thank you.
Okay.
And the next question will come from James Picariello with Keybanc capital markets.
Ahead.
Hey, good morning, guys.
Good morning.
Just going back to the restructuring savings in what are the permitted actions.
I thought the less breakout you guys provided was maybe $60 million an incremental savings for this year.
With an additional 15 million for next year is that 15 million now 40 for 2021.
Yes, we are so what we talked about the first quarter earnings calls, we sort of Reprioritized, our original hundred million dollar investment and restructuring to try and yield more savings in the current here. So thats part of that and we are expecting a greater level of savings next year than than we were three months ago as a result.
Some of these plant closures that.
Referred to a moment ago.
Right, but with those savings be in in addition to your normalized incremental margin or would this help offset.
In the uptick in engineering spend in.
Spillover from PB costs the light.
Yes, that's difficult to sort of bucket that it's an incremental savings that we will enjoy next year, we havent done our 2021 plan and it's obviously a bit earlier to try and.
Guide for next year, we're still trying to work our way through the balance of this year, but it will be a benefit to next year and.
As I mentioned.
A minute ago, we do expect to see some ongoing cost related to pp that will linger into next year as well some inefficiencies. So you've got some pluses and minuses heading into next year that are sort of unique.
Outside of what we've described in the past in terms of just sort of our goal to have a net performance that's positive where we're funding our customer price in each year and and then the incremental investments that we may have for engineering too.
On the backlog that's rolling on those will be independent of the.
The more recent developments.
Yep understood and just on the E systems vertical integration. So the 50 million that you've brought in was this achieved on legacy programs. Since 80% is already shipping next year and just provide some color maybe on the product mix is it mainly terminals and connectors and you just what's the the runway potential for this initiative.
Yeah.
Over what timeframe.
Yes that.
One like I said, we're really excited done what we've been able to achieve in such a short period of time and to answer your questions. It's a number of different engineered components, including T's and C's and their legacy programs are programs that are in production today and so.
Well, we described our our ability to go after the vertical integration harness itself is probably 60% of the overall cost and 35% to 40% would make up these engineered components and we have a REIT to play and it's an opportunity for us still like I said increase our margin and so.
So when we set out it was more on just programs that are in production and we have a much higher number internally that we're tracking that we can go after but I think the early indication in how successful. We are we were so quickly was surprising and so those are those are current programs now I will say this and I think I said it before we.
Where those type of programs, we have to validate we had to test we have to get approval those type of things and that can range from any time any time period from six months to a year longer but we did they really do a nice job of accelerating those things are getting those parts approved quickly and getting them.
Vertically integrated into our harnesses the longer duration of time takes.
We'll take place where we have a program that were engineering and Weve reached out to a number of customers. Another tell you. The early feedback from our customers have been overwhelmingly positive and there's some programs were discussing right now they're in development that we can replace components that were either directed components from our customer or engineer.
Components outside of leaders engineered.
Our portfolio and so I think two things going on one the ability to quickly get at what is the legacy program or current program surprisingly quick and where are we getting great traction right now and to the amazing feedback we've gotten from our customers. When you have a full service type capability, where you can source yourself.
And the flexibility that we're allowing our customers want to create value, but more importantly, vertically integrate our engineered designs and so those things are going extremely well and we talked about those being a key to continue to improve our margin within our you systems business.
That's great color. Thank you.
Yep.
And the next question will come from Brian Johnson with Barclays. Please go ahead.
Hi team. This is Jason store dragged on for Brian I appreciate it guys like today.
Hi, guys Ivan the at the initiatives in the systems I was hoping to maybe drill in a little bit on on electrification.
Yes, one question as we think about your win rate in 2019, which I think you mentioned was around 40% how does that compare to your win rate in the first half of this year and I guess as we go out to 2020 to 2023 timeframe.
Is that business approach as near near $1 billion gift, giving your win rates I, how would what I'm, what I'm kind of trying to understand if we think about your positioning in traditional wire harnesses, which may be.
Number four players something does do you are the ambitions to be perhaps like a number three year, even and number two player in high voltage electrification because it seems like the win rates. It does continue might imply that.
Yes, well first of all yeah, we do target to be in the top three that's one thing that when we did this extensive.
Study of our product portfolio and we mentioned, it's an 18 month project that we really went into detail on our our ability in our right to play within a product segment what type of market share do we believe we could capture can we obviously outgrow the market, but also get really good returns and so.
Yeah, we have set internal targets, where we want to be in a position to be a one or two.
Top three player in so would that we have looked at where we want to emphasize our investment and.
Really focus on those those areas of growth and we do believe and we've been very successful in that area and I think what's important to it I mentioned it earlier is that we systems.
Was primarily to customers of ours, and we talked about the need to diversify our customer base and that is so important and we have incredibly strong relationships with our customers and now that we've extended you know out to Audi and Volkswagen and Jag land Rover, and Julie and Volvo.
So those platforms are now starting to build momentum with growth and we talked about the need to invest and it was the right thing to do at the time, even though we had to sacrifice margin, we had to build up our reputation and our ability to.
Supply them high quality components in products and so that's really starting to set the seeds for our growth and so we do feel very confident we've spent a tremendous my time focused on areas that we believe we absolutely have the right to play and we can win.
Understood very very helpful. And then maybe just following along.
Similar theme maybe in seating I know, there's been a lot of discussion around around conquest wins in the first half of this year, which as you know which has been.
Been very constructive for sure certainly shareholders of leader as we think about the seating business.
Is there should we think about any incumbent business that you may have have lost as well as the conquest business that you've won or is it and we really thinking about share.
The win rates here exceeding your current market share and maybe there's some upside to 'cause seating growth in three to five year timeframe.
Well, yes, I mean, one we said net new business awards. So there is business that we.
Obviously, we will selectively in some cases.
Choose to.
Not necessarily aggressively go after or for other reasons logistically or just competitively doesn't make sense for us and so yes, we consider everything when we talk about conquest wins and what the way we look at our backlog is net new business Awards and now we have been very successful within the conquest wins, but the other businesses that.
For financial reasons, we don't we don't think necessarily fit with our strategy long term, but are now we are absolutely comfortable with our growth over market in that area and we've done a nice job of market share gains from 18 to 23, 23%. During a time when there is a lot of irrational players out there and position.
In us in a very good place today, and I think about that seat business. One we have an incredibly recognize team we have incredible talent and that's very important stacks, even more important when you go through a crisis like this and too on the operational.
Excellence, we've been investing in that business for 10 plus years and so we have made very specific.
Targeted investments within that business that I do believe creates like a moat around our ability to execute our products and were recognized by our customers for that and the last one is the product portfolio I think what's what is really impressive right now as we talked about embedding technology into our seats systems.
And that's exactly what we're doing we have capabilities with these systems in our capabilities of our manufacturing within seating to embed technologies to create value for our customers and so when why I believe we've been so successful in the landscape has been relatively the same I've been in this business for 32.
Two years, the same forever, there's always an irrational player. So maybe that's a tier two that wants to be a tier one and all kinds of things, but you just focusing on the things that you can control we have put ourselves in a position.
Operational excellence is it is a light switch you have to invest over 10 plus years to put yourself in that position and create processes and operational excellence that differentiates you into.
Equally as important now is technology. We're in these development programs, while we talk about them is we're in the studio with our customers as such an early stage and to build take that configure plus which was.
Unique to itself, where your power or rail system with a 'cause said that's patented by Lear, the move to see with Reconfigurability electronic with a rail that can be powered now with the seat the the air bag I mean, it's just a totally different set up and then into the city. So we're in there in a different way in its.
I think what really creates that reputation of layer to differentiate ourselves and I do believe that thats why weve been successful.
Thanks.
And then next question will come from Dan maybe with credit Suisse go ahead.
Hi, good morning, everyone.
Thank you warning.
First just.
Housekeeping could you.
Do you think need to provide us with framework for when you might expect to pay down the.
Billion dollars revolver draw and what do you need to achieve before you think you can reinstate the dividend.
Yes, so in terms of the revolver.
Repayments, that's something that will likely end up doing at least partially in the third quarter.
And if not then the fourth quarter, we expect to be free cash flow positive in the third quarter and substantially passes in the fourth quarter and so we'd like to have a cash cash balance of about 1 billion Twofifty Nan and so we're we're about 500 million or so.
Above that right now so we're we're approaching half a point in time, where we want to return a portion of that revolver and.
So it provided there are.
Any surprises for the rest of third quarter and into the fourth quarter any new shutdowns, we should be in a position to largely pay that back.
And then in regards to be the longer term discussion around dividends and share repurchases were hit in a constant dialogue with the board on that topic and really what we're looking for as a path to sustained.
Free cash flow generation quarter in the quarter out and we don't want to try and put it in prematurely and then have a setback. We're looking for some proof that the industry has recovered and it doesn't have to go back to 2019 volume levels I think we can be significantly profitable and generate.
Significant free cash flow into volume environment, that's down 10%.
From 2019 levels, but ultimately that's a decision by the board and the dialogue that were.
And with the board constantly.
Great. Thank you that's helpful. Second I just wanted to follow up on now.
On seating and just touch on the $700 million of year to date conquest wins, which which is quite robust can you give us a sense.
What do you what is driving this large uptick in conquest wins wire.
Customers going to you can you give us a sense of what type of margin profile you'd expect on the new businesses Directionally would you say from margin perspective.
Neutral or accretive or dilutive to the existing.
Seating margin profile that you.
Ex activity.
Yes, just generally speaking I would say it's in line with our existing segment margins ultimately what will determine that is the level of vertical integration and so.
Just in time seeding program as a stand alone we can earn a return well in excess of our cost of capital at five or 6% and and so it depends on the level of componentry, we ultimately.
Our awarded in conjunction with that and this case there there is some vertical integration.
With with all three of the the major conquest awards, we've had and and so I would expect that the margins should be in line with the existing segment.
Could you just yet.
Sorry go ahead.
No, but I was there.
Thank you could just talk specifically to what what vertical integration. It is that you have is that on the seat structure side or is it.
More on leathers and material.
It depends on the program. So there are three different awards in each of them has a different composition of vertical integration, but.
Mostly trim or see covers and foam, but there are there is some seed structures on one of the other three programs.
Not the other two.
Thank you.
Yep.
And our next question will come from Emmanuel Rosner with Deutsche Bank. Please go ahead.
Hi, good morning, everybody.
Good morning.
Wanted to just a follow up on the free cash flow outlook for the rest of the year.
Could you give us an early sense of how much of the working capital drag you think you'd be able to recapturing into back half and I guess oval in a very encouraging tricks that you expect positive free cash flow in this third quarter and and substantially in the fourth quarter any early sense on whether on a full year basis.
That would enable you to be.
Free cash flow positive.
Yeah, so and regardless of the third quarter, we we expect to be sort of working capital neutral, maybe slightly positive and and based on our outlook for production.
The earnings generation will lead to the free cash flow generation in the quarter and then in the fourth quarter. We see most if not all of the working capital use from the second quarter reversing itself and benefit in the fourth quarter in terms of whether we can be free cash flow neutral or positive for the full year.
Ultimately that that's going to depend on the.
The level of production in the second half of your and May be equally important the timing to that production to the extent.
When it happens in the quarter just like we saw in the second quarter when that production ramps up.
In the last couple of weeks for the quarter all of that revenue essentially setting and receivables and collected.
Down the road 30, 45 days down the road.
So if that happens again in the fourth quarter that that would weigh on.
That working capital opportunities that I, just described but what we target is to.
20% revenue declined for the for the full year that we should be approaching.
Free cash flow positive or free cash flow neutral so sort of that the better end of that range of downtime to 15% would align with revenue that's down roughly 20% year over year and give us a reasonable chance of getting back to that free cash flow neutral.
Position the other factor, though I just want to highlight yes, we did take a number of temporary measures to preserve liquidity in the second quarter, particularly salary deferrals and those things and if we're in a position worthy of the production environment as that strong for the remainder of the year, we may look to unwind some of those.
As soon as the fourth quarter, particularly for lower level salaried employees, who may want to do that earlier sooner. We can do that the better of course. So that's another factor we have to keep an eye on as well manual.
Okay. That's a that's great color.
I guess secondly, focusing on your the outcome for your second half growth above market.
I understand the elements of.
Positive mix.
In North American trucks in China luxury was hoping to focus maybe on the backlog outlook for the second half.
Obviously, you had three grows above market this quarter decided a negative backlog how should we think about.
What does the backlog looks like in the second half.
Yes, so the the backlog was pretty weak for the first half of the year and negative as you pointed out in the second quarter and Thats really a function of the business that roll off.
And then seeing some delays and programs rolling on and rolling out at lower volumes. So the second half backlog is considerably stronger.
We're expecting somewhere between 500 600 million a full year backlog and so the vast majority of that is going ahead in the second half of the year.
And that will be a significant factor and the growth over market, whereas the first half was more driven by mix than anything else.
I think terribly helpful and any breakdown by.
Segment that you could provide.
Hi, I'm looking at the second half of the year it's.
In terms of the relative.
A breakdown of the it's more weighted to E systems in terms of their site there relative size of the of the company today in terms of the absolute dollars seating is going to be a bigger piece of that but we do see stronger growth from the backlog on a relative basis in the systems in the second half as a lot of those electrification.
Platforms that are rolling on.
Onboard Chargers and other products that are rolling on in the second half of the or that are driving that.
Great. Thanks for all the information.
You're welcome.
Next question will come from Chris Mcnally with Evercore.
Ed.
Hi, Thanks, so much guys for taking my my my call.
If.
We just put together the the couple of different points, you've you've made on on on marginal but over the course of at the conference call and if we look at the underlying that youre, calling out from Paul seating and E systems being eight 8%.
Obviously, there's puts and takes to tend to next year, but is it fair to say that once we are at.
Hi, there pre coded revenue levels or maybe just global production that is pretty close to pre cobot that 80% is it sort of that.
Margin level that you would hope to achieve and so it may take some time, whether that's one or two years, but but the underlying even a cost come back once we hit that that revenue level that that 8% underlying would be would be a good starting point.
Yeah, I think in seating that that's definitely the case any systems. The other factor we have to think about is.
The mix of whether that revenue comes back by production volumes going up or whether its backlog. So typically you've got this decremental margin of variable margin on the lower volumes that 30% and then you're rolling on backlog say at the segment margin lets say, 8% to 12% and so you could see a little bit of debt.
Solution as a result of that so it depends on how the mix of revenue shakes out looking out into future years, but generally speaking is volumes get back to 2019 levels than what we've always said is in seating. We're we're very comfortable with a long term margin range of seven and a half to eight half percent thats, what weve run this.
Business that.
For the most part over the last five years entity systems, we still see a longer term trajectory towards 10% you know, it's sorta troughed in the middle of last year at 7.6% and we've been working our way up absent. This coal that sat back and we still are well on our way towards.
Driving that that incremental margin improvement over the next several years.
Okay. That's really helpful. And then just want a shorter term basis, you gave the incremental margins from Q2 to Q3 and.
I think you've you've mentioned in the 20% plus range.
That's very helpful. Because obviously, maybe we're in this cobot environment with extra cost for longer than than we realized is that sort of low to mid twentys, all things being equal size production gets better can we use that as a sort of a sequential incremental margin or at least.
Rule of thumb or just.
Checkmark to kind of keep the quarterly numbers I actually think about maybe next 46 quarters.
Yes, the extent that revenue increase is driven by volume recovering yes. That's a good good number to use the other factor to think about in the third quarter you had the weakening recently of U.S. dollar and so we may see a revenue tailwind in Q3 in Q4.
But it's going to roll on it you know our our European.
Segment margins overall, so call it 5% or so and today's volume environment, So that will be a little bit alluded to that sequential incremental margin.
Hey on the other factors as well as whether that revenue comes back by volume or again by backlog you know and so there's the sequential incremental margin vary depending on the mix.
Volume versus backlog as well.
Great and if I could sneak in one quick secular one on each system you had great success with some of the big customers in Europe and without even getting any names could you can you talk about have you made any progress with some of these.
Super early stage startups that may or may not even be huge volumes, but.
Predominantly in North America.
A lot of activity in in launches as that business has been awarded on for for their electrical.
Well, we've had some I'll leave it did this we've had some good conversations but nothing of any significance that we would report as far as backlog. So, but we are having good dialogue did good discussions.
So it will you know were.
The remaining somewhat.
Domestic but a lot more work to be done there, but good conversations.
Great. Thanks, so much team for the detail.
Yes. Thanks.
And the next question will come from ISI.
With Citi. Please go ahead.
Great. Thank you good morning, everyone.
Morning.
Just want to go back to a new business wins discussion I was hoping on if you can share on a total company basis, what our leaders net new business wins looked like in the first half of this year relative to the first half of last year, just maybe how you're thinking about.
The growth over market longer term for the company I think back in 2018. It was about five points over market at the Investor day, how you're thinking about that might have some of the conquest wins as well.
Yeah, I think it's a little bit early to provide the full backlog update.
At this point you today, but as Ray described a moment ago. When we're reporting conquest wins are net of any losses. So you can use that as a proxy for backlog and what's just a bit unusual about the last 12 months is the the extent of backlog, we're seeing come through conquest wins, where historically.
It's been more customers, introducing a new program and when in your share of that so I think it points to some market share opportunities in seating maybe beyond what we anticipated. We did have a you know an ambitious target of going from 23% to 28% market share and I think this helps us get there and if we.
We do achieve that that's a that helps us get to the four to five points above market targeted growth opportunity that we've we've talked about in seating any assistance.
More of the new business wins are coming in electrification connectivity. So it's not so much conquests because this is new content to the market and that's the biggest driver of of the business for went in right now any systems, yes. So did to Jason's point, we're very comfortable we're not we haven't changed our numbers and I think as we continued to be successful.
And our growth our trajectory will still be on track to what we committed to and I don't think there's anything in front of US right now that would tell us otherwise.
That's very helpful. One just just lastly, going back to the free cash flow discussion for the year. Jason I was hoping you can share kind of rough roughly what do you think capex might might come in in 2020, and then given the new business progress maybe directionally, how we should think about that in absolute terms or percentage of revenue over the next couple of years.
Yeah I think.
Our original guidance. This year was 600 million, we're targeting around 425 million of Capex for the year at this stage with a heavy weighting to the second half of your with Q2 being so low and I think sort of 3% of sales on a normalized basis is still a pretty good.
Figure to use for the combined business going forward.
Great. That's all very helpful. Thank you.
Well thanks.
And our final question today will come from me to think of it with Morgan Stanley. Please go ahead.
Great. Thank you appreciate you taking the question Mike.
Just trying to think through.
How does Mexico look like.
To begin exposure you mentioned that is something you're watching here.
For the back half, maybe maybe you could provide us with.
Things have gone.
Since reopening in mid May.
Look like today.
That's a good question and I think.
Kind of quickly say, we were pleasantly surprised overall with the performance and how we look at our business within our manufacturing facilities. It's a it's gone extremely well.
Yeah, we do a nice job of being able to contact trace minimize any type of exposure stop a spread and the number of issues that we have had had been external to the two our facilities and so we haven't gone through what I thought we'd see is a lot of start stop start stops.
So it's been relatively smooth from that perspective now on the supply side and we study both obviously our own facilities and we have.
Detailed.
We views of how each plants doing internally lear, but on the supply side, you know, it's gone extremely well better than I would've expected I'd still somewhat fragile because all suppliers are not equal and we are seeing.
Different locations that are having different types of hot spots or incurring significant increases in cases, even outside the manufacturing plants and so even though we monitor our facilities very closely on a daily basis in a weekly basis from an audit standpoint.
We also keep a very close eye on our suppliers and I would say that Mexico, and I think I said at the last call Mexico unfortunate doesn't in some respect even have the infrastructure that the U.S. might have been in some respects.
Our probably six to eight weeks behind us and so we have some concerns.
Around the world and different pockets based on different.
Information and intelligence that we're gathering and so even though we're running well and overall I think though we're somewhat surprised at how well. The overall supply chain is running there's still pockets that we have a lot of concerns around and we keep those very close a month term on making sure we can help out suppliers or infrastructure.
Sure or help aid in any way that we can with PB equipment to make sure that we can minimize any type of the issues within our supply base, but.
Like I said overall somewhat surprised at how well things are going but very cautiously.
Concerned about certain areas in specific countries.
Okay and then the other question I have is around incremental margins.
Once we get through co.
Mentioned some of the detail around.
The volume situation does to your margins, but once we get through that.
Should we be looking at the 20, 30% variable margins for seating and E systems or do the incremental margins sort of a bit slower as you are starting to what cost back in the system as volumes pick up if you could help us think through that I know, it's a little bit earlier I think that far ahead, but just conceptually when when cobot does.
Come under control.
Yeah, I think if you get to a point where are those incremental cost of are behind you. Then you can you can think about the incremental margins being more inline with the the segment variable margins again I'll just caution here on the split of whether that revenues coming back through additional volume on it.
Just in platforms or if that revenues coming on through backlog backlog is going to roll on closer the segment margin and to the extent its volume that is going to roll on at variable margin and then you also have a foreign exchange was just kind of a recent development with the recent weakening of the U.S. dollar which was pretty significant.
For the last couple of weeks and and so that you know incremental revenue will come on at a lower margin as well.
But but no reason to think it'd be any different.
Today.
The volume piece of it now.
Great. Thank you for taking the questions.
Yep. Thanks, Okay. This should be it I think the only ones left on the line at this time or the Lear employees and like I said earlier. Thank you for everything you've done it's been absolutely impressive I. Appreciate all the great work you've done a great job, but we have more work to do we have to continue to focus on what we can control we're doing a really nice job.
But I appreciate everything you're going to do as we move forward and continue to separate ourselves. So thank you for everything you're doing.
[music].
Yeah.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines time.