Q2 2020 Martinrea International Inc Earnings Call
Please standby you are meeting is about to begin.
Good morning, ladies and gentlemen, welcome to the Twentytwenty second quarter conference call instructions for so many questions will be provided to you later in the call I'll now turn the call over to Mr. Rob. The Board. Please go ahead Mr. wellbore.
[music].
Good morning, everyone. Thank you for joining US today, we always look forward to talking with their shareholders somebody helped inform your well one answer questions.
We also note that we have many other stakeholders, including many employees on the call and our remarks are addressed to them as well as we disseminate or second quarter results in commentary so our network.
With me this morning, our <unk> pardon me as CEO and President.
And our CFO Freddie Tosto.
Today, we will be discussing Martin raise results for the quarter ended June 30, 2020, I'm going to start with some brief remarks. After my opening remarks, I will take you through some highlights and give you his perspective, Fred will review the financial results and then we'll open the call for questions and we will endeavor to answer.
Our press release with key financial information discussed sorry fairly detailed basis has been released our mdna in financial had been filed on SEDAR and should be available. These reports provided detailed overview of our company, our operations and strategy and our industry and the risks we face.
Even the detailed in our press release and filed documents our formal remarks on the call today will be generally overview in nature, we're very open to discussing in her remarks, and we opened acuity some highlights of the quarter. The state of the industry today, how we are addressing the challenges anything about coal with 19 and related issues and progress in our operations.
As always we want you to see how we see the world.
As for our usual disclaimer I refer you to the disclaimers in our press release and filed documents are public record, which includes an annual information form and Mdna of operating results is available on SEDAR Dot Com you may look to the full disclosure record of the company there.
So a few general thoughts first a general industry comment.
We're all observers of coal with 19 health issues, the economic hardships, the restart or rebound or economy and so forth.
These are challenging times, just as we saw an experienced with 911 I went to 2008 nine recession.
As I sit on our May call from an auto industry perspective, there's really three phases to dealing with a pandemic first the shutdown phase, which we now seem to be passed second is the restart phase, which we have seen and it's gone pretty well for us as pot and Fred will talk to.
This has been challenging for the industry, but we've worked hard to launch as smoothly as possible by working on and implementing protocols to keep our people safe and actually ramping up successfully.
The third phase is and will be rebuilding demand. This requires a return to work restarting our economy fully and nod locking down again. This has got to happen not just from an economic perspective, but from a social and health perspective, and I think it's happening.
From a macro perspective, our industry is endured the longest shutdown in its history and everyone has been affected our team has responded well not only in improving our company for the long term, but in our dedication to developing and implementing leading safety protocols and contributing to the fight against covert 19 by building.
Ventilator stands in P.E., such as masks for our people and people in our communities.
Just as what the great financial crisis of 2008, nine we will be a stronger and more competitive company going forward coming out of the crisis.
It's in times like these that our focus on culture, and our vision of making lives better by being the best we can be and the products. We make them a services we provide come through for US we want to thank our dedicated employees for their great service swells, our shareholders lender suppliers customers and governments for their hard work and support.
We believe that our industry has had its low point in the second quarter and then for the future we see growth in sales and earnings. The second half of 2020, we expect will be much better than the first half and while the rate of growth is still somewhat unclear. We expect girls and 2021 from this year's levels and further growth in 2022 and beyond and now.
Now here's Pat.
Thanks, Rob Hello, everyone as noted in our press release, our adjusted net loss per share came in at negative 91 cents, primarily due to the kobin related shutdowns during the quarter down year over year from an adjusted EPS of 66 cents in Q2 2019.
14 cents. The Q2 2020 per share loss can be attributed to the acquired operations up itself.
Our adjusted operating loss came in at about negative 68 million or minus 14.9% total sales for the second quarter in the range, we expect it.
Down from 84 million or 8.9% in Q2 of last year.
Q2 production sales were 419 million.
53% year over year drop compared to 898 million in 2019.
This includes the production sales contribution of 58 million firmware Mattel's acquisition.
Excluding the acquired with Telsey group production sales were down about 60% year over year, mainly due to cope.
Total sales for Q2 was 460 million, including tooling compared to 949 million in Q2 2019.
Our net debt to adjusted EBITDA ended the quarter 2.64 times up from 1.62 times at the end of Q1 2020.
And for excuse me and 1.41 times at the end of 2019.
Q2, 2020 net debt to adjusted EBITDA ratio for bank Covenant person purposes was under two times, reflecting the new formula Excluding Q2 2020 EBITDA.
As you recall, our bank syndicate agreed to eliminate Q2, EBITDA covenant purposes, treating Q2, the unique onetime event.
Net debt increased quarter over quarter by just over 60 million from 715 million at the end of Q1 to 776 million at the end of Q2.
Our adjusted EBITDA was down year over year from 138 million or 14.5% of total sales in Q2 last year.
Negative 8 million or minus 1.7% in Q2 of this year.
And your break even level, which is a good result, considering the cobot related headwinds we faced during the quarter.
Q3 production sales are projected to be between 850 $950 million. Our adjusted EPS is projected to be between 40 and 50 cents a wider range. So based on current sales trajectory, we feel pretty good about the third quarter.
Q3 guidance also includes the closed acquisition tells the structural components business.
Acquired business is expected to be negative journey at this juncture, we expect the earnings profile will improve early next year.
Troubled has been very restricted and as inhibited our ability to get key resources on the ground in Germany.
As originally planned the travel started to reopen we're now getting key people in place to continue the integration activity. During the shutdown, we did make progress in a number of areas the needed operational improvements in Germany were slowed during the shutdown.
We are also happy to report new business wins totaling 65 million annualized sales, including 40 million in the aluminum transmission housing is that as group starting in 2023 25 million in various lightweight structures report and Toyota starting in 2020 to 2023.
So there were some slowing of awards and delays in some programs quoting remains high and we expect the normal cadence awards to return over the next year.
The second quarter is certainly been the most challenging the industry is seen in my 34 years in this business.
The impact on Mark right. It was no different it was the most difficult quarter in or 19 year history.
Despite this tough time there'd been a number of positive items worth mentioning first the response to the Martin Marietta leadership and team members was first rate.
We cut cost at warp speed focused on cash management that will have positive lasting effects on the way we do business going forward, we took advantage of downtime and idled facilities by keeping key people in our locations working our lean activity that was sure financial benefits going forward. This includes lineup efficiency resource reduction.
New program activity product quality level ups as well as safety enhancements in our facility.
Based on the volumes and we are seeing it is clear that the most difficult times are behind the industry.
Q3 production volumes are expected to be strong in North America as Oems filled vehicle inventory gets relatively healthy in China and slightly softer in Europe.
We currently see a relatively solid back half the 2020.
Centuris of many vehicles are low number of those vehicles, our customers of Martin Ranch.
Especially see these actually these trucks.
Some plants in North America in China are at or near capacity in the current orders and releases or a pre cobot volumes, which is good news for the industry.
Despite some continued chatter of spikes in Kobin cases in some areas. The idea of another shut down it's nothing short of ludicrous. It is clear the media hype has not been able to change that.
The majority of our people are back on payroll and we get removed the 20% to 50% base salary reductions no executive level deferrals will remain in place until the end of August.
We are back in our plan.
Back in our offices and in our labs.
We're back in the grew and we are moving forward at a fast pace and are very excited about it.
I want to think that Martin Reith team are doing all that was necessary at this time dealing with the shutdown sacrificing pay while moving at light speed to protect the company and its future.
My appreciation is measure list again, many thanks, now I'll turn it over to Fred.
Thanks, Pat and good morning.
I hope everyone is doing well.
As Patrick noted Q2 was very challenging quarter for us in our industry.
Three.
Needless to say I've been really looking forward to getting the second quarter behind us.
Dust settles from events of the past few months.
Has been refresh and get back to business.
Opening among all our facilities and doing we do best and that is producing parts for customers.
Q2 sales are down significantly year over year journey, obviously by the industry wide Kobin 19, really shutdowns in April and May.
Hi noted excluding you acquired operation Macassa production sales were down 60% year over year.
A substantial decline by all accounts.
Volumes in all regions in which we operate were impacted during the quarter of in China manufacturing operations were suspended in January and February resumed in March.
Phase restart of our facilities independent functions outside of China commenced in May and June.
It's continuing into the third quarter as Oems began producing vehicles again replenishing currently low vehicle inventory levels, resulting from the Kobin 19 related production shutdowns.
Although the pandemic is not over we believe we have seen the bottom from volume perspective.
As we now look to the broader industry economic recovery, however them in shape up.
Along with sales second quarter earnings were also negatively impacted by the Kobin 19 related shutdowns.
As Patrick noted adjusted EBITDA for the quarter was negative 8 million near breakeven level and our adjusted operating loss for the quarter was $60.5 million, representing a year over year decremental margin of 31%, 26%. If you exclude the results from the acquired operations from a cost.
Overall decent results considering the rapid dissipation of customer volumes and reflective of the aggressive cost cutting measures. We took at the onset of dependent.
Our response to the cobot crisis has been measured prudent and decide.
The team did a tremendous job in responding to the second quarter headwinds.
Through it in good shape.
Nothing short of remarkable.
Q2, adjusted operating margins in all regions again, except for China were impacted by the corporate 19 shutdowns.
North American year, both turned negative during the quarter on the lower sales volume.
Our operating margin in Europe was also negatively impacted by the addition of the acquired operations from Macassa specific we are in new plant in Germany.
Half of them across the group sales are generated during the quarter.
Has already addressed the plans and I look for the requirement costs operations.
Notwithstanding we continue to feel very good about the acquisition and its prospects for the future.
Q2, adjusted operating margin in the rest of the world inclusive of the two additional plants, we acquired from a Tulsa.
Came in at a healthy 12.9%.
Right the coven 19 related disruption in Brazil during the quarter.
Overall, we continue to be very pleased with their performance in this segment.
Our Q2 adjusted loss per share was 91 cents as Pat noted.
In addition to the carbon 19 disrupted operating results you adjusted net loss for the quarter was impacted by a net unrealized foreign exchange loss of approximately $4 million.
Driven by some really drastic movements in various foreign currencies during the quarter.
No unusual effective tax rate during the last quarter and the addition of the acquired operations from a cost.
I expect the tax rate to normalize to some extent during the back half of 21 being the range of 27% to 20%.
Most of the acquired the cost of group.
We also reported some adjustments earnings during the quarter as outlined in our Q2 financial statements and everything.
The restructuring costs, representing employee related severance relates to a reduction in our workforce globally in response to the Corbin 19 pandemic.
It's Pat as noted in the past we use the time during the cold shutdowns to make the organization lean.
And are currently expect any further such cost during the remainder of 2020, we'll obviously react to the market as required.
The noncash impairment charges, reflecting the recoverability of certain assets are essentially a byproduct of the reduction in volumes and current industry production projections as result of the Kobin 19, and then.
We rely on industry vehicle volume projections, namely I address nonrecourse project and budget or sales and cash flows including for impairment and ask the recoverability purposes.
These industry volume projections are currently showing a reset and overall vehicle volumes from pre core levels volumes gradually recovering to near pre koby levels over the next few years.
We show CEO that brought a recovery actually plays out.
I was standing based on the industry projections the bottom from a volume perspective is clearly behind us.
Free cash flow is the finder and I'm. The name for Q2 2020 was negative $47 million.
Cost of a 42 million in cash additions to property plant and equipment.
Respectable result, considering the Kobin 19 related headwinds we faced during the quarter.
We generated about $17 million in cash from working capital during the quarter aided by a reduction in tooling related working capital.
Spent a lot of time and managing the cash burn from Capex and tooling during the quarter into Q2 results clearly show that.
Again, the team did a great job, making cash management front and center of all our activity during the quarter as we navigate our way through the cobot related headwinds.
Based on current industry projections for the rest of the year, we continue to target a near breakeven free cash flow for 2020, but that's still a bit of a work in progress as we continue to assess the impact that we will have on the market and work our way through our Capex and tooling programs, which continues to be ongoing.
In that regard, we're still targeting 20% reduction in capital spending 2020, which was projected to be relatively flat year over year Prequaled.
Due largely to the free cash flow profile for the quarter net debt excluding the impact of I have for 16 did increase by both 60 million during Q2.
Net debt to adjusted EBITDA increased during the quarter to 2.64 times again, a respectable result, considering the headwinds and well below three times.
We believe we entered the Kobin 19, driven down through the strong balance sheet, which is ultimately allowed us to navigate our way through the crisis with confidence.
As at June 32020, the company had the total liquidity of over $3 million to $500 million, including cash and cash equivalents.
Ability under the company's revolving credit lines.
As noted previously the company's banking facility also includes a 300 million dollar allowance for asset based financing the company can use for additional financing if required.
Of which 230 million was available as of June 3rd.
We believe we have ample liquidity on hand to get us through the Corbin 19 related downturn.
Overall, considering the magnitude of the volume declines in the consequent challenges we faced.
We're pleased with our second quarter results in a response of the Kobin 19 shutdowns.
We believe the worst is behind US as we now look to the future starting with a respectable third quarter as our Q3 sales and earnings guidance indicates.
Thank you for your attention this morning.
With that an attorney back order Rob.
Thanks Fred.
I've said, what I had to say now it's time for questions. We see we have shareholders analysts and competitors on the phone. So we may have to be a little careful their answers, but we will answer what we can.
Thank you.
We'll now take questions from the telephone line. If you have a question and you can speakerphone. Please pick the handset before making is for election.
You have a question. Please press star one on your telephone keypad cancer. The question. Please press the pound fine. Please press star one at this time if you have a question there will be a brief thoughts of participants register. Thank you for your patience.
And the first question is from Kevin Chiang.
Please go ahead.
Hi, Thanks for taking my question and good morning, everybody.
I can just.
Maybe to start off on decremental margins.
Thank you get some good color what you saw the second quarter, just wondering how we should be thinking about the back half of this year and then.
The 2021.
Tickets and restructuring charges with respect to some permanent cost savings from there.
It sounds like in the Telcel start to ramp up in terms of some of the synergy opportunities.
How should we think will the incremental margins as volumes due to start improving on a year over year basis.
21.
Yeah. Thanks, Thanks for the question so.
In terms of decremental margin.
Excluding the cost.
26% here for the second quarter.
I think.
Forward that could be lower I would say in the range of 20% to 25% on a decline in volumes just given the fact in the second quarter a decline in volume was quite rapidly.
Consensus we can react.
Better.
So I would say 26 on the higher side and you can probably model something along with that said.
Our Q3 guidance or sales are actually.
Going to be up year over year in this and the third quarter.
That includes Macaus of course, so if you exclude the Tulsa.
That's a way of looking at it and beyond the third quarter, there's still some uncertainty out there and on the way back up we expect incremental margins to be consistent.
So that's expectation.
We're not prepared to issue guidance beyond Q3 at this point just getting some uncertainty, but as you know to an opening remarks, we believe the back half year will be strong.
See once and inventory levels are replenished what the market. It meant to look like and then at that point, we should be able to rather more color going forward and their margin profile.
But that's all that's helpful and maybe just talk a little one for me.
I appreciate the timing of all this change given what we're going through but if memory serves me.
Diligent all expectations were from the toll so to be breakeven EBITDA.
And then that 30 million EBITDA positive contribution.
Next year.
Just given all that you've gone through it.
Took swift action to reduce your costs.
Looking at the line item.
How the scope of the synergies.
Well the scope of the synergy opportunities within the possible increase relative to maybe original expectations Bakken back in Q1 of this year.
Yeah.
If you want to add something after opening in terms of mccall's.
The original expectations are isn't cobot.
Timing wasn't the best we still feel pretty good about the acquisition the integration activity. That's always during the second quarter and is starting to ramp back up again.
Still dealing with some volume headwinds so we're still working our way through that.
So if the volume eventually those come back and as we work away through integration activity. There's no reason why they came back can get back to those original expectations. It looks like seem to take longer than anticipated just given some going well look at this point.
But we still feel pretty good about it heading into 21, and we're targeting to be.
As I noted, we're going to be that negative for the balance of this year, but we're targeting positive next year, maybe not to the original expectations, but we'll continue to work towards that.
Yeah.
Oh, I can add in the little bit.
Of color.
Related to Germany, which was the area we need to focus on the most operationally.
Said.
And my comments, we weren't able to get resources on the ground most of those resources were coming from North America.
And unfortunately, because all the flights so forth were stopped we basically had a three to four month delay probably closer to three.
Which we're now getting people on the ground.
But the simultaneous to that in Mexico, where we also had some challenges we were able to address those during the shutdown for the most part.
So that that facility I think operationally is has moved down down the line a bit.
A loose a plant which is half empty really was for us.
Your program it kept us from having to build a new plant in Tuscaloosa for EBIT to that we won from Daimler.
I visited that during the during the shutdown I got in the car and drove all over the U.S. and that was one of the stops.
And that plant that I'm very excited about the activity, we have going on there moving things and preparing for the new equipment.
And that two plants in China clipping, along at a pretty high pace and the one in South Africa is pretty much on target. So.
Overall picture is pretty good, but Germany being the biggest challenge was the one we were not able to get too.
As soon as we wanted but but now we're back on track and if you look at three month delay for month delay carry that and from the ended this year into.
Getting a next year.
That's great color that's it for me thank you very much.
Thank you.
The next question from Michael Glynn from Raymond James. Please go ahead.
Hey, good morning.
Just just to look at the Q3 guidance, so you're calling for a 50 50 and production sales and 40 to 50 cents any PS I know you referred to the Tulsa.
Being a slight drag, but what are some of the other lingering items on the margin to think about as we as well as we're thinking about the way Q3 plays out.
Well I mean, there's still some.
In the third quarter, if excluding the cost. So we are slightly down year over year. If you back in the call. So there's that to deal with but when you really break it down.
Oh line with expected tax rate was going to be.
You know a margin profile in school Macaus is getting back to similar levels were last year in Q3.
Somewhere north of 6%, including Macassa.
So if you backed that out so.
So we show again their core is looking pretty good right now.
Obviously being helped by the fact that Oems in North America particular focus on replenishing inventory. So we're seeing some good production levels come through on trucks as he views into these in particular.
So.
Based on that.
We feel pretty good about what the third quarter holes and we'll see a.
Fourth quarter holds but this production increase to replenish inventories, we believe will likely end up extending into the fourth quarter as well.
Okay, and then for Mattel say just.
Just.
I think when we're looking at 2020 watch should that business.
Should should you be able to we should think about something better than breakeven for Mattel said 2021.
That's a retired every now and again the volume outlook is a bit of a question marks will have to see how that plays out but again if the volume.
Materialize as originally expected.
Expectation is that we'd be positive next year and also maybe not quite to the 30 million EBITDA that we were anticipating it's going to take over the longer just given some delays in the second quarter.
But the expectation is subject to the ones that we'd be positive next year.
And one observation.
Return.
A little bit in Europe, and North America as we predicted.
Just coming back quicker because it's been more open.
Longer and you're just ramping up a little more slowly and that's an important point I mean, we are like North America volumes are quite strong right now, but Europe is lagging sort of softer there.
Okay, and then just in terms of some of the impairment charges taken are you able to just give a little bit more information like what type of programs where these charges.
Tied to.
I know, they probably don't want to get into platform specific or anything like that but just perhaps a little bit more information there.
We don't we don't pass at that level, but.
And the covert essentially created a triggering event to assess the asset recoverability. So we did a full end up analysis.
Remarks, we rely in industry projections, and namely Hs. So they are that on into our pre Cohen <unk> expectations, and it's showing a bitter resetting volumes.
Soon.
The byproduct of that was essentially some some asset impairments and a few different spots in the organization.
We'll get it this program specific and so forth fix some of it as generic equipment as well.
But that was simple as that it was essentially model based on industry projections is driven by Hs.
They may be right they may be wrong.
Sorry plays out.
But what those projections Critter show to me is at the bottom is behind us and that were on on a recovery phase at this point.
And what would what would happen at the recovery volumes came in.
Better than than those Hs forecasts on some of those platforms.
The reassessed at that time, but under.
Yes, that's on our old gap, you'd write down assets and be permanent write down under I Afras you have to reassess on ongoing basis, and then there potentially maybe some write ups at that point bought to gauge during that time comes.
Okay. Thanks for taking the questions.
Thank you. Your next question is from Peter Sklar from BMO capital markets. Please go ahead.
Hi, this is tracking filling in for Peter.
First question did you guys capitalize on the government subsidy programs that were available in certain countries and if so what was the impact in Q2.
Yep, we didnt in a couple of sponsor a few spots in the organization and we disclosed financial statements. So.
The total amount was about $28 million, but I want to put some context around that because in my mind quote unquote benefit to the company is not really significant the majority of that related to what I referred to as inactive employs essentially those our employees on layoffs and not working for the company, but still on our payroll.
I suppose amounts are generally pass through in nature, So and related to employees are not actually working for us and being productive.
And in Canada, particularly actually strategically abrupt people back on our apparel after way off the kind of take advantages program. So that our employees would benefit from a higher amount compared to you I or serve.
And as it relates to the amounts received four active employees, which is a smaller amount I still see as much.
Benefit to the company conceptually when a company knows it has a stream of cash it make certain decisions around cost structure. So conceptually if you know this cash coming in you.
You may not a cut as deep.
That was the whole premise around the Canadian program.
To avoid further layoffs, so it's really a frame of reference so the scores in the financial statements, but we don't see.
That is being a huge benefit to the company. There's lot of it was pass through in nature, but we do think that was a benefit to the employees in that sense kernel. The reason and we are actually involved with helping to set up at least the Canadian program. So that our people that were on way off could actually benefit from it and make more than that.
The wise.
And I think in that sense and you saw this all over the world, whether what's in Germany, U.S. or or or Canada governments big checks to try and alleviate the strains of have locked down I think there.
It was certainly welcome by the recipients in that sense.
But our overall view when I think Pat mentioned shows.
Getting back to work, we recognize that all these things are future taxes for us and and let's get a let's get moving and normally Robbie we'd like to programs I mean, the big part of that was also in Germany, and their systemically set up that way, where the benefits flow through the company's what's normal course, some extend out there was some enhancements to those benefits.
Because of cold it but.
Ultimately speaking, it's it's a you know something that allowed us to navigate our way through mix certain decisions, but you know clinical benefit the company in our decremental margin I don't see so huge.
Going forward what is your intention.
Yeah.
So the answer.
Which is normal course issuer bid.
Ends in August I guess in a couple of weeks.
We suspended that basically in a.
In the second half of March one code was hitting.
And said so at the time so.
We are not renewing it this august but we'll revisit that as we go forward, we won't want a little more clarity ultimately in the context of M&A.
And M&A opportunities, which I think do exist and we've taken advantage of of M&A opportunity one of the questions. We ask ourselves as the best acquisition reinvesting in our own company and that's the type of question that we'd ask when we're looking at that and so.
So stay tuned for further notice, but you will not see a press release in August saying that we're renewing our normal course issuer, but certainly certainly something we consider future.
Okay. Thank you.
Thank you.
Thank you. The next question is from jazz Cumberbatch from TD Securities. Please go ahead.
Hi, this is just filling them.
In terms of workforce reduction your ongoing optimization.
Is there any color you guys.
Congressional like in 2021.
Yeah.
To provide some comments and probably just want to provide some come through as well I mean ultimately.
We took this opportunity given the shutdowns to kind of the organization and how does not in the past that.
With with these reductions.
Smaller workforce will still be able to.
Pre covert levels.
So from that perspective, it's it's a good thing I think the activity will serve to help our margin going forward, but some of the stuff was also just pushed forward. So we're able to it to do it earlier I just given the fact that we had some time, so not necessarily incremental but ultimately help us to deal with the next a number of.
Quarters, and depending on the volume plays out and how the margin kind of work its way through there.
Yes.
I think you pretty much nailed it Fred.
I mean these were in a lot of cases plans that we had and our outlook for improvement.
I think key point here as we didn't wait for months to get back at it. We went ahead and move forward.
Some quicker than we would've otherwise certainly.
But overall these numbers are numbers that we had projected out in a lot of case.
Okay. That's helpful.
And then also.
You can provide on your Capex outlook declined 21.
We're just going through that at the current times I'm not ready to do that we started or I know business planning process and as an opening remarks are still working through.
Know tooling and Capex programs for this year and that'll obviously impact next year. So there's been some delays and some programs no major cancellations that positive things or we're trying to understand gauge how that kind of plays out before can provide some commentary for next year.
Okay.
That's all from me thanks, guys.
Thank you.
Thank you once again, please press star one at this time, if you have a question.
The next question if some mark Neville from Scotia Bank. Please go ahead.
Hey, good morning, guys.
Thanks for taking my questions well first off.
Good job managing through the quarter.
The balance sheet the business so good job on that.
Thank you I guess just first this.
And just the first question.
You just sort of a person's last question, but Oh, that's caustic.
Yeah, there were some structural cost take out of the business, but it was stuff that was sort of preplan. It's just moving forward is that the best was sort of think about.
I would say generally speaking, yes, it wasn't all that but Oh I can we just use the time to accelerate some of our opex activities and lean activities just filling out the organization.
So it's probably a good way of looking at it.
Yeah, I'd say it was that combined with the you know as part of the integration, but tell so we had targeted certain numbers reductions and we are able to move on those as well.
Thing that we learned and I think it's going to be interesting and our environment.
Not necessarily just automotive, but just in general.
When everybody's working from home you really start to to weed, what you'd need what you don't need and we didn't find some opportunities that we not huge numbers, but certainly opportunities that thing, we really don't need to do this and so we are able to reduce some resources along those lines as well.
<unk>.
For the.
I think you said the target.
Cash flow roughly breakeven.
Try to do some quick math supplier, but I think I was just working cap is relatively neutral.
But.
The backup where I would've thought there would have been maybe bigger investments just given the ramp up.
This is that.
Sort of how you're thinking about this.
In terms of the work that for now.
Yeah. So based on the math I mean, we're going have to actually be slightly positive in the back half the breakeven for the year I'm working capital is a bit of a moving target again, the tooling pieces always volatile and we're still working our way through that and we continue to spend a lot of time and trying to manage the capex spend as well so that's going to be ongoing and continuing for.
The rest of the year and I'm expecting to a.
Some some positive that comes out of a that activity like we saw in the second quarter.
So we're working our way through it and that's for the company internally that's the target at this point.
Okay.
Maybe that's a 2021 Capex question another way last couple of.
[laughter], Yeah, that's right.
[laughter] so the last.
Presumably next year.
Sales are still below where you were 22 20 Nigerian takes a couple of years they got their.
Capex is.
Maybe there's some deferrals this year.
We need to slip into next year, so again sort of just directionally.
We'd be thinking somewhere between sort of 20 to 22019, capex or a again.
Okay.
I'll provide a little more color. So so you're right I mean, there maybe some some the frozen connecture from this year, so that'll that'll have an impact, but pretty cold and we were on our capex levels are on the decline and part because we had to having investment cycle on our own group and a lot of that is starting to be behind us so that should.
Slow down to some extent and then also the benefits from our flexible line designs that we've been talking them over the last summer years are starting to get into second lifecycles or the next couple of years on some of these programs and well we'll see in all fine is the capex investments for those nexgen replacement programs will end up being.
Lower so I would say we're on the decline, but you may have some deferrals. So I'm I'm generally speaking and also the other thing is it's going to see what sales look like next year cash flow and so forth and obviously make adjustments accordingly.
But I like obviously be down next year, a year over year and we'll continue to.
The kind of work towards that hopefully that helps.
Yeah, that's right what would guess.
That's very helpful.
One last one then.
Just based on the Q3 guide.
Sounds good things are going very well, but the touched and that's what I'm. Just curious just generally how the ramp is gone.
They sort of material issues anything with suppliers.
Anything noteworthy.
That's it.
Yes, I'll take that one yet so overall, it's gone exceptionally well the first few weeks as we've noted before world bumpy for the industry.
But as we got reports.
One of our larger companies. This morning Oems This morning are reporting.
How they're performing which basically they have a 100% other facilities up.
And supply base seems to be pretty strong so.
Is there issues with supply yeah, I mean, it's touch and go into spots, but nothing that's been significant so far certainly some of the tier two suppliers have to be pretty stretched on cash.
There's a little noise out of this system, so far we've not been inhibited.
Bye bye.
By our supply base I think probably the most challenging thing we've run into isn't the U.S., which is true both our customers and other suppliers is.
With the government incentives some some areas in the U.S. workers are making as much sitting at home as they are working and that's inhibiting industry, a little but we're still managing to get by so far.
Otherwise.
It's been.
Lets say, a pleasant surprise, but I'm very happy with where we're sitting and how we got here.
Relative to the startup.
Okay. Good again, thanks for taking my questions and again good job in the quarter.
Thank you.
Yeah.
Thank you there no further questions registered at this time I'd like to turn the meeting back over to Mr. Wellbore.
Well, thanks, very much thanks, everyone for calling I think that you will see.
We also say that we want you to see a we see the world. We think auto is a good story, we think that's a good story never let a good crisis go to waste remember this an industry that shutdown completely.
We knew that we had to restart safely and successfully I think that we've done that I think we've been at the leading edge.
Basically rebound in the economy, our country or our company and and also our sister suppliers and Oems. So if you want to look at how to try and rebuilding economy I think our industries are getting an a plus for how to keep our people safe and move forward.
For all of you that are in locked down and so forth urge you to get back to work.
Have a great day, if any of you have further questions or would like to discuss any issues concerning a company. Please feel free to contact any of us at a 406. So for 9031 for thank you.
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