Q2 2020 Stoneridge Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Stones read second quarter 2020 conference call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session. That's good question. During this session you need to press star one on your telephone.
If you require any further assistance. Please press star zero I would now like the hand the conference over to your speaker today Mr., Matt <unk> director of Investor Relations. Thank you. Please go ahead Sir.
Thank you good morning, everyone and thanks for joining up to discuss our second quarter results released accompanying presentation was filed with the FCC yesterday evening is posted on our website at <unk> Dot com any investors section under Webcasts and presentations.
Joining me on today's call or Jon Degaynor, our President and Chief Executive Officer, Bob <unk>, Our Chief Financial Officer.
Before we begin I need to inform you that certain statements today, maybe forward looking statements forward. Looking statements include statements that are not historical in nature and include information concerning our future results or plans.
Although we believe that such statements are based upon reasonable assumptions you should understand that these statements are subject to risks and uncertainties and actual results may differ materially I.
Additional information about such factors and uncertainties that could cause actual results to differ maybe found in our 10-Q, which has been filed with the Securities Exchange Commission under the heading forward looking statements.
During today's call. We will also be referring to certain non-GAAP financial measures. Please see the appendix for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures.
After John and Bob to finish the formal remarks, we we'll then open up the called questions I'd ask that you keep your question to a single follow up with that I will turn the call over to John.
Thanks, Matt Good morning, everyone. This morning, we're going to discuss our performance during the quarter as well as some exciting news for the company. However, before we get started.
I want to take a minute to recognize the fact that the global health crisis. We are experiencing this more than impact the bottom line for the company. It also directly impacts our employees and their families.
Sought to protect our employees to the greatest extent possible. For example, we've partnered with local authorities to construct field hospital women else, Brazil and have instituted rapid covered testing capabilities in our Juarez Mexico facility.
Our employees around the world have allowed us to continue to make progress as a company and the support our customers.
On a personally thank them for their dedication to stoneridge during this challenging period.
I mean I'll begin on page three.
On our first quarter call. We outlined several actions we were taking to respond to current market conditions and position the company for future growth.
During the second quarter, we executed on those actions, resulting in strong operating performance despite significant revenue headwinds.
We continue to focus on controlling the things that we can and responding efficiently and effectively to external factors.
In the second quarter, despite a 45% reduction in revenue relative to the first quarter. Our decremental adjusted operating margins remained in line with our expectations of approximately 30%.
As Bob will discuss later in the call we expect that the incremental contribution margins. We will see as production continues to ramp up in the second half of the year will exceed the decremental margins, we experienced in the second quarter.
We were able to limit cash burn in the second quarter, two approximately $11 million, which was better than the $15 million to $20 million, we outlined on our first quarter call.
Our liquidity remained strong with total available capital of over $300 million.
Based on current production forecasts, a continued focus on inventory reduction and efficient cash management, we expect third quarter cash generation to at least offset the second quarter increase in net debt.
Despite challenges associated with Cobot 19, we continued to transform the organization and position the company for long term profitable growth.
During the second quarter, we announced the exit of our set sensor product line as we continue to focus on aligning our resources with the highest growth opportunities for the company.
Just the expectations for reduced end market demand for diesel power trains and relatively core financial performance for the product line, we chose to redeploy resources to higher value platforms and technologies.
One example is our Mirroreye platform.
We've been able to can't continue to advance our mirroreye progress with both our fleet and OEM customers.
During the third quarter, we will expand our retrophin installation programs with three of our fleet partners two of which have already been completed as of this call. Those three fleets represent approximately 6000 trucks on the road today.
In addition to the continued ramp up of our retrofit programs. We have partnered with Daimler trucks, North America to offer pre wire options Premier ROI retrofit systems.
Pre wire option reduces retrofit time and is a critical stuff in the adoption of this technology orders will begin for pre wired trucks in the third quarter.
Due to the continued uncertainty regarding the expected impact of covered 19. This morning, we will not be providing updated 2020 guidance. However, we will continue to provide additional details regarding our expectations for the remainder of the year, which Bob will discuss later in the call.
Page four summarizes our key financial metrics quarter to quarter.
Due to prolong shutdowns or significant reductions in production revenue declined by 45% from the first to second quarter falling to just under $100 million.
The impact was greatest that control devices, where sell sales fell by approximately $50 million into the abrupt shutdown of most north American production facilities.
Commercial vehicle production in Europe started to ramp up earlier than passenger car production in North America. However, sales in electronics still declined by approximately 40% or $30 million.
Sales of Stoneridge, Brazil declined by approximately 50% as a virus continues to have a significant impact in Brazil.
As we expected operating income was below breakeven in the quarter. However, we were able to manage decremental conversion to approximately 30% as we focused on efficient response to to the rapidly evolving global crisis.
We will continue to flex our cost structure, which we expect to drive strong incremental margins as global production returns to a normalized state.
During the quarter, we remained focused on managing our cash position and were able to limit cash burn to approximately $11 million versus our expectation of $15 million to $20 million outlined on the first quarter call are available credit remained strong while our net debt to trailing adjusted EBITDA ratio is 2.3 times.
Turning to page five.
While covered 19 had a significant impact on a quarter, we started to see a return to semi normalized production by June.
We expect to the sales run rate at the end of the second quarter will remain consistent in the third quarter.
As production continues to ramp up we're starting to recognize the benefits of the cost reduction actions. We executed in early may and remain on track to recognize the savings we outlined on our first quarter call.
Relative to the first quarter, we reduced SNA expenses in the second quarter by approximately $7 million, which includes a reduction in our annual incentive programs.
We have taken the appropriate actions to rightsize the company for current market conditions and expect to continue to see those benefits for the remainder of 2020 and beyond.
In contrast to reductions in SDMA, we've maintained our investment in engineering and advance development. We will continue to invest in the platforms and technologies that will drive future growth and fund that investment through appropriate structural cost reductions and continued focus on improved operational performance.
Moving to slide six.
In addition to maintaining our investments in engineering activities, we continue to evaluate our portfolio to ensure that our investments are directed to the opportunities that will drive profitable growth for the company.
As a result during the quarter, we announced our intention to exit the soot sensor product line and focus those resources and other areas of the company.
This decision was made in part due to the reduced market expectations for diesel power trains and passenger vehicles as well as a relatively poor financial performance of the product line.
While this strategic activity was started prior to covert 19, we took advantage of available capacity in our production facilities during the crisis to accelerate the exit of the product line.
This is a good example of our leadership team's ability to quickly adapt to changing market conditions to drive our overall strategy and look for opportunities to take advantage of an otherwise difficult situation.
We expect production to end for the product line by the first half of 2021.
Once we conclude the exit of the product line, we expect annual revenue to be reduced by approximately $30 million relative to our prior expectations. However, due to the poor financial performance of the product line, we expect exiting the product line to be margin accretive going forward.
Although we don't anticipate any other significant portfolio rotations at this time, we continuously evaluate our portfolio a return on resources and our opportunities to ensure that we are focused on the products and systems that will drive financial performance for the company.
Slide seven outlines the most recent Hs and LMC information for our OEM end markets.
As a result of the ramp up in production from most of our global customers. During the second quarter. The current Hs and LNC forecasts improved slightly relative to the forecast provided during the first quarter earnings call.
Full year 2020 production improved by 1.3% relative to prior expectations.
Our weighted average end markets are forecasted to increase by 4.4% in the third quarter, followed by a slight decline of approximately 1.7% in the fourth quarter.
Looking beyond 2020, we are starting to see signs of recovery in our end markets as I Hs and LMC are forecasting that our weighted average end markets will grow by approximately 16% in 2021 compared to 2020.
And growth has led by North American and European commercial vehicle markets, where growth is expected to be 25% to 30% followed by the North American passenger car market, where growth is expected to be approximately 15%.
Turning to page eight.
This morning, we have several exciting updates related to our mirroreye programs.
As we discussed on our last call Cobot 19 limited our ability to rollout larger retrofit installations in the first half of the year.
As we have moved into the third quarter, our customers have been able to expand their installations.
We have completed two installations of approximately 50 units per fleet and have another planted by the ended the quarter as part of a larger retrofit rollout program.
In total the three fleets, we are expanding our installations with represent approximately 6000 trucks on the road today.
One of the three fleets has indicated their plan to equip their entire fleet Wouldnt near eye overtime. This is the first such indication we have received from our fleet partners.
In addition to expanding on our Retrophin installations. This morning, we announced that 900 Bucks North America is the first OEM that we will offer a factory installed pre wire option Premier Mirroreye retrofit systems, we continue to look for ways to reduce installation times and ultimately make the system more broadly available to our end customers the fleets.
We understand the DNA has already received orders for the pre why our option from one of our existing fleet partners and expect those trucks to go into production in the third quarter.
As we move toward the launch of our first OEM programs, our customers will have several ways to make sure that therapy that the vehicles that they order or the vehicles that are currently on the road are able to take advantage of the Mirroreye technology come back to dramatically improve safety and fuel efficiency of their fleet.
Turning to page nine.
As we've outlined previously over the last three years, we have been awarded record new business and are in the process of launching a number of large programs that will drive revenue growth.
These programs will drive organic growth. In addition to the growth in forecasted production in 2021, and the ramp up of our Mirroreye retrofit programs.
Over the next several years, we will launch a number of new programs in our powertrain actuation product lines in North America in Asia.
Our existing part by wire programs, which began late last year will continue to ramp up this year before expanding with additional platforms in 2022.
These programs account for approximately $40 million of peak annual revenue, which is incremental to our existing based business.
In addition, the launch of our shift by wire programs in China over the next two years are expected to generate an additional $25 million at peak annual revenue.
In addition to our park by wire and shift by wire launches, we continue to see significant growth opportunities for our emissions products as we expect to take advantage of powertrain transformation in North America, and increasingly stringent emissions regulations in China.
Shifting our focus to electronics and Stoneridge, Brazil.
We are launching two large driver information systems programs next year.
The first is an extension of an existing global program with peak annual revenue of over $55 million. The second was a con Quest award that will provide $38 million or peak annual revenue with the launch timeline early next year.
These programs will be followed by two smaller programs, including one in Brazil worth approximately $18 million at peak annual revenue.
Over the next three years, we expect to launch driver information system programs, resulting in revenue of over $110 million annually of which approximately half is incremental to our existing programs.
Our first to mirror OEM Mirroreye programs will launch in early 2021 with peak annual revenue of approximately $22 million a relatively conservative take rates.
Our largest global Mirroreye program as well as a smaller north American program, representing $50 million of additional revenue at modest take rates will launch in 2023.
These mirroreye programs do not include the potential for additional retrofit and pre wire revenue as I just discussed.
In total the aforementioned programs represent almost $250 million or peak annual revenue that will launch over the next three years, including $190 million of incremental business Awards.
These awards comprised just a piece of our total backlog over the next five years.
We will continue to focus our resources on executing these program launches and accelerating progress in these technology areas.
Turning to page 10 in summary, during the second quarter, we executed on our plan to limit the impact.
Have significantly reduced revenue and maintain a strong balance sheet without impacting our future growth opportunities, we expanded our mirroreye retrofit in pre wire activities and continued to focus our resources to drive profitable growth for the company.
We will continue to execute on the things that we can control and respond effectively and efficiently to the changing macroeconomic environment.
Our long term strategy remains robust and we remain well positioned to outperform our underlying markets, where that I'll turn it over to Bob to discuss our financial results in more detail.
Thanks, John turning to slide 12.
Sales in the second quarter were $99.5 million, a reduction of 45.6% versus the first quarter.
Adjusted operating loss was $19.1 million or negative 19.2% of sales.
Which resulted in second quarter decremental adjusted operating margin of 30.1%.
With was inline with our expectations.
Due to the continued uncertainty regarding expected impact of the pandemic, we will not be providing updated 2020 guidance. This morning. However.
We will continue to provide detail regarding our expectations for the remainder of the year.
Based upon the latest Hs and LMC projections, our weighted average end markets in the second half are expected to improve slightly versus the forecast we provided during our first quarter earnings call.
As John outlined previously we expect our third quarter revenue to be in line with the production rates that we saw at the end of the second quarter, where sales in June or approximately 51 of the have $9.
Well documented margins in the second quarter were roughly 30%.
We expect second half incremental contribution margins to improve to approximately 35% relative to the second quarter.
As we leverage our cost reduction actions and the anticipated ramp up production for the remainder of the year.
Due to the amendment of the credit facility in the second quarter, we expect interest expense to increase by approximately half a million dollars quarterly over the next year based on our current deposition.
Given the unusual cadence of expected earnings this year, we expect our third quarter tax rate to be significantly different than our previously guided rate of 20% to 25%.
Based on current view of expected earnings.
Just a little mix and specific tax provisions around the world. We are expecting total tax expense in the third quarter to be approximately half a million to a million dollars.
Finally, net debt increased by $11 million in the second quarter, which was better than our previously outlined expectations of of 15 $20 million.
We expect that cash generation in the third quarter, we'll at least offset the increase in net debt in the second quarter, driven by ramped up production and prove inventory management.
Page 13 summarizes our key financial metrics specific to control devices.
Control devices second quarter sales were $48.6 million or reduction of 50.5% versus the first quarter.
The reduction in sales was primarily driven by production shutdowns a customer facilities in North America.
Despite significantly reduced sales direct material costs as a percentage of sales remained consistent with the first quarter.
Our performance was inline with our expectations with decremental adjusted operating margin of 31.2% relative to the fourth quarter.
This resulted in adjusted operating income of negative $5.6 million for the quarter.
As we move into the second half 2020, we expect to production ramp up in June will drive significantly improved revenue in the third and fourth quarters.
We are expecting continued operational improvement, including leverage on reduced labor and overhead to the improving gross margin for the remainder of the year.
Finally, we expect to maintain and leverage SC and any reductions for the rest of year to improve operating margin in the third and fourth quarter.
Yes.
Page 14 summarizes our key financial metrics specific to electronics.
Electronics to second quarter sales were $47.6 million.
A reduction of 40.4% versus the first quarter, which was primarily driven by production shutdowns or significant reductions at customer facilities in both North America in Europe.
Despite significantly reduced sales, we were able to reduce direct material cost by 140 basis points versus the first quarter, which helped drive decremental adjusted operating margin of 34.1%.
Adjusted operating income decreased by $11 million relative to the first quarter.
Decremental margins were slightly higher for electronics as we maintained our engineering spend to support future program launches and technology development.
As John outlined previously with the strength of our balance sheet and our ability to manage through the crisis, we did not need to sacrifice any of our future growth initiatives by reducing development resources or support.
We will continue to focus on reducing material costs to drive improved gross margin as production returns.
We also expect to leverage reduced SDN expenses as we continue to invest in the resources necessary to support future program launches and technology development.
Page 15 summarizes our key financial metrics specific to Stoneridge, Brazil.
Storage, Brazil's second quarter sales of $7 million declined by approximately 52% relative to the first quarter.
Gross margin improved by 430 basis points as second quarter sales were concentrated on service sales rather than product sales driving a significant reduction in material cost during the quarter.
Despite the significant revenue reduction operating profit declined by less than $1 million relative to the first quarter, which resulted in a decremental operating margin of less than 12%.
We anticipate a ramp up in product sales in the third quarter that will result in a return to a more normalized growth margin profile for the remainder of the year.
As customer demand and production ramps up in the second half of the year, we expect operating margins to improve gradually on fixed cost leverage for the remainder of 2020.
Turning to page 16.
At the end of the first quarter, we had net debt of approximately 82, and a half million dollars or approximately 1.1 times, our trailing 12 month adjusted EBITDA.
Net debt increased by approximately $11.1 million in Q2, resulting in net debt of approximately $93.6 million or 2.3 times trailing 12 month adjusted EBITDA.
At the end of the quarter, we had cash balance of approximately $72.4 million and approximately $237 million of undrawn commitments, resulting in over $300 million of liquidity.
Due to expected financial impact of coal the 19, resulting from significantly reduced production during the second quarter, we amended our existing credit facility to waive several financial covenants, including our net debt leverage compliance ratio until the second quarter of 2021.
As a result in the amendment, our interest rate will increase resulting in an additional half million dollars of interest expense on a quarterly basis over the next year based on our current debt position.
Our 2020 cash flow outlook remains strong as we expect to generate cash in the third quarter two at least offset the increase in net debt we incurred during the second quarter.
We will continue to take the appropriate actions to ensure that our cost structure is right sized for our current outlook and to ensure we effectively manage our cash position, including reducing in managing inventory efficiently given the changing production environment.
Stoneridge remains well positioned with relatively low leverage and significant available capital to withstand pandemic.
Moving to slide 17 in closing I want to reiterate that we are pleased with the operational improvements we drove during the second quarter that reduced the impact to covert 19 from an earnings and cash flow perspective.
Our outlook remains robust for the remainder of the year, including a return of cash generation in the third quarter that said, we expect continued headwinds related to the global impact of the pandemic and we'll continue to respond decisively as the macroeconomic environment evolves.
Storage is committed to driving shareholder value and that focus will remain at the forefront of all of our strategic initiatives with that I will open up the call to your questions.
As a reminder to ask a question you need to press star one on your telephone to withdraw your question. Please press the pound Keith Please stand by Wiley composite cans.
Yeah.
And your first question comes from the line of Jefferies along with Stephen.
Thanks, and good morning.
Good morning doesn't.
Thanks for all that color on that on the third quarter. It looks like based on that the revenue.
Commentary something in that 155 million dollar range and maybe around breakeven from an operating income at perspective. It is what you're expecting that looking into the fourth quarter. I was wondering if you could give any color there it seems like based on the industry forecast.
Laid out it's something that.
Sequentially flat from a revenue perspective threeq to Fourq you, it's what we should be expecting but would love to get any directional color you can provide on on that and maybe any fourth quarter cash flow thoughts if you could provide that as well.
Yes adjusted.
If you think about the comments that we made last quarter on the call.
So last quarter, we had said that the our end markets were down about 23% relative to the $760 million guidance that we originally provided.
So we have what we've said today is that our end markets have improved slightly by about 1.3% relative to.
Relative to our first quarter guidance, so no I think with those numbers it with the with the the run rate that we talked about the $155 million based upon current I, just an LLC for Q3 and with that with that additional bit of guidance you should be able to really kind of back in our expectations for the fourth quarter, but not in line with not aligned with what.
You're saying.
Okay that helps in any bad anything on the cash add front that you could provide.
For fourth on the cash so I think as we're doing that I want to make a couple a couple of comments generally in on on cash we've been talking about it at a number of investor event that Weve attended.
We're really pleased with the progress that we're making with respect to for pre packed free cash flow generation. If you look at the investments the technology investments at the company's may.
With the ERP systems, it is providing much more granularity to our opt to our operations team.
And which is allowing us to get into another level of detail in terms of managing our working capital.
And we're.
Obviously, we were able to exceed our goal from a capital generation point of view I said 15 $20 million burning Q2 that was 11 in housing we're going to at least offset that in the third quarter, which is quite a bit better than.
What we had mentioned before a lot of adjustments is being driven by the fact that are we've we've taken the this downturn in the slowdown in our business as an opportunity to really do a lot of great work with this new system that we haven't really getting a lot of detail and really manage and another level and we'll start to see it on the working capital side as the CFO Thats.
Thats really exciting the needs so I'm not going given specific guidance around around for earn fourth quarter cash flow, but if you think about those incremental contribution margins and our cash conversion rate our historical cash conversion rate that you should you should be aligned I think probably a little bit better than that based upon the additional work that we're doing on inventories.
Okay, Great. That's helpful and then and that this slide on the awarded program launches with with something that was pretty helpful. Just laying all of that out and then John you gave some color. There I was wondering if you could just remind that add that your thoughts on how long it takes to turn.
Ramp to peak revenue for these contracts and just generally done length of these contracts and then maybe on the incremental margin frying you increased your your expectation in the back half as we look towards these program launches is.
A higher incremental margin framework, the right way to think about things. The next several years and a recovery.
There's a lot in that question duston, but but thanks for the question the yes.
Every program and every customer are different and obviously the the commercial vehicle versus the passenger car side is also different but from a typical program award. It's a couple of years before you get started production and then once.
You get to the started production, it's usually 12 to depending on the car program or the truck program incentives nine that 15 months worth of ramp up time. So we what we see them with links of program is particularly with powertrain side and drive train side on a passenger car is five years and on trucks as longer.
Sure.
So when we talk about having $190 million of incremental of incremental business from a peak annual revenue basis, you can think about that as an increase over.
A three to five to seven year period.
With with the sort of technologies in the customer base that that we have so it's.
We recognize and we talk about awards and I think anybody that's been following our story understood that.
Outside endemic we knew that 2020 was a challenging year, because we had things rolling off and we're just in the process of launching what we're trying to lay out for everybody is we get the benefit of the economy coming back and we get the organic impact of all of these launches that will be happening in 2021 and in the subject.
Great years at really as what we've been talking about for the last couple of years and we're now we're starting see all those things come to fruition fruition launch and ramp up exactly. So just wanted to add to that that really if you know slide nine for me is just it's really a culmination of the efforts of that the team that the team has been.
Focused on over the last.
Over the last three four years.
These are all none of these items that are on the other on slide nine our surprise we've been talking about these but we just thought it made a lot of sense to put everything on a page. So we have not only if you look at the weighted average end market growth next year of 16% is going up is going to provide a significant amount tailing off of.
This year's revenue base.
But then you combine it.
With these awarded program launches and you look at the number of Checkmarks on slide nine best those are all incremental program awards.
With the with the timeline that John a reference earlier, so not only do you feel like we've got a great story next year just around around the economy coming back in.
In our weighted average end markets growing we have the secular growth story with three years of consecutive record New business Awards that.
Generally speaking when those we wouldn't have programs to have two years and Vince production. So those are going to be those are going to begin ramping up. So we're very we're very we're very excited about that and.
If you thought it made a lot of sense just put it on one page put in front of everybody has got to talk about a piece Neal we've we've been consistently winning awards over the last three years, we'll put it all on page for everybody to see as well.
We're proud of the of the progress that we've made in.
No. It's got next year.
Just one one more addition to that Justin obviously, we've been talking about this together for as long as I've been at the company.
What this slide should.
Reinforced to everybody is that stoneridges metal one product.
Story.
It's it's multiple its multiple products slush platforms, both in the commercial vehicle in the passenger car space and while we don't give them equal time in every earnings call or in every investor event.
We're really proud of the work that the teams are doing across the world too to launch all of these different platforms and continue to win business.
Makes sense I appreciate all the color thanks for the time.
A push out thanks, Jess thanks for the question.
Your next question comes from the line of Scott Stember with.
Okay.
Good morning, guys and thanks for taking my questions.
Good morning, Scott.
John maybe talk about the pre wire opportunity here. It seems obviously this is a way for fleets not to have to wait a couple of years.
Four of the Mirroreye product on their on their newer trucks.
Just talking about how this.
Does this change the overall OEM opportunity that you've talked about in that $250 million range.
And maybe talk about the margin profile of pre wiring a truck.
And having it installed at beginning of a light versus having it done on the.
Totally on the OEM floor.
Down the road.
So so Scott. Thanks for your question couple of things to think about is because it because of trucks a piece of production equipment.
Anything that can be done to make.
That truck more robust and more predictable.
As a benefit and the fleets are going to want that the ability to do the wiring in place in the factory before before it leaves the factory is a way to reduce risk for the fleets.
So thats piece number one secondly, it's it's a demonstration that our fleets are asking the OE use to prepare their trucks this way because.
The OE would not do it if there were not a market pull.
So that piece this piece too.
Three is it's it's another example of we go from what we do to retrofit trucks that are on the road today.
To making it easier to retrofit.
Future trucks, Intel such time as the Nitsa regulations are changed where pay truck could leave the factory without mirrors remember that our fmcs a exemption is only for post factory vehicles.
So currently trucks must be shipped with mirrors, but this.
This pretty wire option.
Really becomes part of how to facilitate that transition more rapidly and set the groundwork for.
What happens when nears can be removed from the trucks. So we view this as a very important step it's a signal of what the fleets want and as a signal that the always see the benefit of doing it.
Got it and.
You talked about the successors.
$30 million, leaving the equation here on annualized basis to maybe just talk about how we should be looking I know you gave the quarterly number for Q3 for revenues book.
The cadence of the wind down heading into next year.
So so youd. So this isn't decision that we we've made we notified our customers. We worked on a transition plan, but in these situations we out of respect for our customers. This isn't a we don't call them and tell them Hey, we're stopping production tomorrow, it's it's an orderly transition so.
We won't see a revenue change in this in the very near term.
When we give you the $30 million, it's really for modeling future future state revenues post exit.
So when you start thinking about in the quarters beyond middle of next year, what does it mean for the run rate of stoneridge, you'd take $30 million out of that run rate, but I think importantly.
It's another example, where.
We we take our investors resources really seriously both our cap both investors' capital and all also how we put those resources to work with engineering and what we looked at here is this is a product line that doesn't have the growth that we expected and that we had other places where we could put the put.
Resources to work to generate better returns and with this departure, even though it's going to be revenue negative it's going to be margin accretive.
Got it yeah, I guess that is that I, just I would add one thing to that I think one of the things that it's important John talked about a little bit on the call.
During his comments was that this is this is something that the team responded too quickly and we were really we were afforded an opportunity in terms of.
Exiting this product line as a result of the pandemic helped us to accelerate the exit of this of this product line because the.
Given the profitability in the in the line rates that we are experiencing prior to the pandemic would have been rather than a lot more challenging the exit this product portfolio pre pandemic that after the pandemic because volumes came down so thats, allowing us to build the banks and do things that when you do in order to in order to get out of the.
To exit the product line. So I think we made we made a really made a fast decision and we had we had a pretty narrow window to execute this and I think it's a testament to the operations team in.
And the.
This project organization in terms of responding this and get this gives us lined up which is ultimately going though some of the two to better to better company from profitability perspective.
Got it and last one if I could just sneak it in on the shift by wire just give us an update on the wind down there and.
How much is still left to be wound down by the other this year.
Yes, we've gotten to introduce if I were still lining down as as expected.
Yes, it's kind of.
That was a little bit of.
Hi, Stephen that in the ramp downs that have been relatively consistent because of what we said in the past so no no change.
Got it thanks guys.
Thank you.
As a reminder to ask a question you need to press star one on your telephone to withdraw your question. Please press the pound key.
And your final question comes from the line of Gary Chris.
You know with Baird Barrington research.
Hi, good morning, everyone.
Good morning behavior.
A couple of questions here.
Just on these awarded program launches.
At the state of the World is where it is right now with the pandemic and it looks like its re accelerating.
Some locales is there anything in with these scheduled launch dates that could get pushed back if we stay.
Where we are right now which is looking like things are getting.
Worse than better.
So so Gary I mean, we monitor those situations with our customers on a regular basis.
As we said in the flat in the last call.
We have not seen any material change in launch schedules from either our commercial vehicle or our passenger car customers, but could it happen of course it could happen.
Who we havent seen any platforms that have been canceled or any programs that had been materially delayed.
Okay.
And just write this down anyway.
And then my last question would would revolve around.
Within your three lines of business are you happy with all of the.
Segments products or whatever that you have there I guess, what I'm getting at is our do you anticipate exiting any more.
Kind of lower margin or low return.
Businesses within each three of the three business segments.
Gary as we as we say, we evaluate our product lines.
On a continual basis, where we're happy with where we're at we we don't see any other material portfolio adjustments at this point, but I.
I think we've demonstrated over the last couple of years that we will prone and adjust our portfolio as appropriate and we we look at a highest and best use of our resources to to drive to drive growth and drive shareholder return and.
At this point, we don't see any additional changes, but that doesn't mean it won't happen in the future.
Okay. Thank you.
Of course Thanksgiving is good.
And there no further audio question I would now like to turn the conference back over to Mr., Jon Degaynor for closing statement.
Either thanks, very much and thank everybody for your participation in today's call I.
I just wanted to just in closing assure you that our company is committed to driving shareholder value through our strong operating results the profitable new business that we talked about and really focus appointment of our available resources.
This management team will respond efficiently and effectively to manage and control the variables, we can impact and continued to drive strong financial performance.
We're confident that our actions will result in continued success for the balance of 2020 and beyond and again I. Appreciate your attention thanks very much.
Ladies and gentlemen, this does conclude today's conference call. Thank you for participating you may now disconnect.
[music].
[music].
[music].
[music].