Q3 2020 Gates Industrial Corporation PLC Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Gate Industrial Corporation Q3, Twentytwenty earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question. During this time you will need to press Star then one on your telephone.
If you require any further assistance. Please press star then zero.
I would now like to hand, the conference over to your per speaker today Mr. Bill O'keefe. Please go ahead.
Thanks Amy.
Thank you everyone for joining us on our third quarter 2020 earnings call.
I'll briefly cover our non-GAAP and forward looking language before passing the call over to evil. He will be followed by Brooks smell or our CFO.
Before the market opened today, we published our third quarter results.
A copy of the release is available on our website at investors Dr. <unk> Dot com.
Today's call is being webcast and is accompanied by a slide presentation.
On this call we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance.
Reconciliations of historical non-GAAP financial measures are included in our earnings release and the slide presentation.
Each of which is available in the Investor Relations section of our website.
Please refer now to slide two of the presentation, which provides a reminder that our remarks will include forward looking statements within the meaning of the private Securities Litigation Reform Act.
These forward looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward looking statements.
These risks include among others.
The matters that we have described in our most recent annual report on form 10-K and in other filings, we make with the SCC, including our first quarter report on form 10-Q filed in May of this year.
We disclaim any obligation to update these forward looking statements, which may not be updated until our next quarterly earnings call if at all.
With that I will hand things over to Eva.
Thank you Bill.
Good morning, and thank you for joining us this morning, when our third quarter earnings call.
As we continue to deal with the Cobi night dinner and Danny I Hope you and your family, so staying safe and healthy and our thoughts are we dose would've been affected.
The safety of our employees and surrounding communities remains our top priority and continues to guide our operating strategy.
We have also taken a pragmatic approach across our operating footprint to continue to support the demand from our global customer base.
And all of our facilities operational today.
But his commitment to keeping each other safe, while continuing to support our customers I would like to take the opportunity and recognize our gates associates and thank each one of our team members for their commitment and dedication during these challenges of the past several months.
Yes, that's been the case in previous downturns, we believe our replacement oriented business is again demonstrating its resilience.
The momentum we carried into the third quarter continued weak.
Performance coming in well above our anticipated levels.
The overall business activity across our diversified end markets continued to trend positively, resulting in demand improving throughout the quarter.
Although we have we have seen a broad based improvement across geographies and end markets.
This has been particularly evident you know automotive replacement channel, which returned to growth on a global basis in Q3.
In addition to the age of the car Park. We believe this business seeing some tailwinds related to increased vehicle ownership in a preference by the general public to be like personal mobility or the public public transport options.
We anticipate this trend will continue over the mid term.
We are seeing the benefits of actions, we took in 2019 to rightsize the business.
And a flexible posture. We have maintained has served us well as we have been highly responsive to improvements in demand.
Through productivity initiatives under the gaze production system.
Plants are operating more efficiently and the investments we've made over the past few years, you know footprint have provided us greater access to lower cost and more flexible labor.
These factors contributed to our gross margin expansion during the quarter, despite the lower revenue base.
Innovation remains a high priority for us at gates.
And if we see an increased contribution to revenues from the products, we have launched over the past 18 months.
Throughout the pandemic.
We have been focused on what we can control in the short term while investing in the long term interest of the of the business.
We are well positioned to continue to manage to it depends I mean.
And to capitalize on a post called it the recovery.
Now moving to slide four and an overview of our third quarter results.
Total Q3 revenue of $712 million declined 4.6% year over year, including a negative currency impact of 100 basis points.
Core revenue in the quarter declined by 3.6% year over year better than the updated range, we provided in September and representing 23% sequential improvement from Q2.
We saw nice improvement across the business with revenues continuing to spread throughout the quarter.
Similar to prior downturns, a replacement channel demonstrated its resiliency.
Most notably our automotive replacement channel performed quite well and delivered solid core growth in Europe, China and North America.
Our sales into industrial end markets, although they improved throughout the quarter.
Recovering at a more measured pace.
Third quarter, adjusted EBITDA was $140 million representing year over year margin expansion of 30 basis points to 19.7%.
The resulting decremental margin of 14% was primarily driven by 190 basis points of gross margin improvement year on year achieved largely through operational productivity.
Our Q3 adjusted net earnings earnings per share were 26 cents, an increase of 18% compared to the prior year period, which slightly lower operating income being offset by an income tax benefit resulting from changes.
In expectations regarding potential realization of certain tax carry forwards.
Now moving on to slide five where you see the geographic breakdown of revenues.
As a reminder, we plan to provide its quarterly breakdown just for the remainder of 2020.
Our global business generates over half of its revenue from international market and in the third quarter, we saw demand for our products.
Improved substantially across all of our regions.
In China, which was our best performing region. The revenue growth. We saw in Q2 accelerated in Q3 led by strong performance in industrial first fit in automotive replacement channels.
We remain optimistic about market conditions, there and our prospects to continued growth.
Our business in Europe showed the greatest sequential acceleration returning to core growth in the quarter.
In Europe.
Growth was driven by the automotive replacement and industrial so first fit channels.
While the automotive first fit business remain in negative core growth territory for the quarter. It did return to growth in the month of September.
Moving on to North America, our revenues there continued to recover nicely displaying significant sequential acceleration in Q3. The improvement was once again led by the growth in the automotive replacement channels.
Our industrial end markets continue to recover throughout the quarter.
And as for the right.
Lastly, let me comment on our business in East Asia, and India well.
Well, we did see a significant sequential improvement in business activity.
It is demonstrating the slowest rate of recovery year over year. This is predominantly driven by slower reopening of the economies. There. Although I would note that we saw a nice progressive acceleration throughout the quarter with September being the best month, we have seen in a while.
Moving on to the segments on slide six.
Our transmission business accelerated over 23% from Q2 and came in roughly flat on year on year basis in Q3.
Overall, our transmission segment is demonstrating a high level of resilience a function of its broad global presence across a wide range of applications.
Our total sales into replacement channels returned to year over year growth led by the automotive replacement channel, where the increased end user demand is underpinned by favorable market dynamics.
Total sales into industrial end markets, we serve new production as well as large installed base of critical equipment.
Also returned to year over year growth.
Led by the agriculture in general industrial end markets.
Spending a little time on the initiative side, we continue to see nice progress in converse converting industrial chain drives to our bell drives as well as upgrading legacy ball drives.
One recent example came at a major southern United States Airport, where we are converting to drive onto baggage conveying systems from chain to belts in order to reduce maintenance cost and those pollution, while improving operation I pray operational uptime.
[noise] once we are in a facility like this one.
It is not unusual for us to find additional opportunities for our products to improve equipment efficiency.
At this same site, we are leveraging the gates energy efficiency calculators in our suite of proprietary design tools to show the expected savings in electricity costs by converting drives in the existing high capacity H.B.A.C. units to our patented carbon.
Fiber reinforced synchronoss about.
Based on the number of air handling units, we estimate this airport will save over $200000 per year in energy costs alone before taking into account the savings from reduced maintenance cost.
We are using these recent win to reinforce the efficiency benefits of our belts at similar H., we see projects at a variety of end user operators, such as airports University universities hospitals, and Alfie Sparks amongst others.
Yes, it's part of a broader change about initiative.
Now moving to slide seven our fluid power core revenue represented a decline of 9.3% year over year and sequential improvement over 21% from Q2.
Our new manufacturing plants, serving us well in the improved end market environment operating more efficiently and allowing us to be more flexible in responding to the increases in demand we have seen.
Similar to power transmission fluid power sales into the automotive replacement channel demonstrated their resilience and posted solid year over year growth in a quarter.
Our sales into all industrial end markets also showed significant sequential improvement.
This was most evident in the first bit channel as OEM customers increased production to meet end market demand.
The sequential acceleration was most pronounced in the construction and general industrial end markets.
Now looking at our fluid power initiatives, we've made additional headway with sales of our new products. Both in the U.S. and internationally with September being our best month today in terms of new product revenue.
A recent design win enabled by these new products was a large injection molding equipment OEM in Asia that was looking for hydraulic hoses that are easier to route to tight spaces in machines. This.
This is a fairly common requirement in stationary applications.
So a pipeline of opportunities for these new products in both segments continues to grow.
We remain optimistic that this momentum will continue.
Particularly in more favorable market environment.
I will now turn the call over to our CFO Brooks Mallard for some additional details on the financials books. Thanks.
Thank you both.
Moving now to slide eight which provides detail on key balance sheet and cash flow items.
Trade working capital decreased by $56 million compared to the third quarter of 2019.
With all three working capital components contributing to the reduction.
On an LTM basis, our third quarter free cash flow of $261 million represented 128% of adjusted net income.
Compared to the LTM period ended Q3 of 2019 free cash flow benefited from lower working capital and cash taxes.
Partially offset by lower operating income.
Our return on invested capital was approximately 14% in the quarter on an LTM basis compared to approximately 20% in the prior year period.
The reduction driven primarily by lower operating income related to the significant downturn in the second quarter of this year.
On slide nine we provide detail on our available liquidity financial covenants and up maturities.
We continue to maintain ample liquidity with over $1.1 billion at the end of the quarter, consisting of $672 million in cash and $432 million in revolver availability.
Our credit facilities remain undrawn we.
We do not have any material debt maturities until 2024, and we continue to expect to generate substantial free cash flow.
Net debt in the quarter remained flat to Q2 at 4.8 times adjusted EBITDA.
As the recovery continues we expect our adjusted EBITDA and cash generation will increase and progress toward our goal of bringing that leverage below three times.
With that I will now turn it back over to Eva Thanks Brooks.
Despite the uncertainty that exists.
We expect our business to continue to improve in the fourth quarter and a updating our high level 2020 framework.
Absent additional more restrictive stay at home orders that would negatively impact manufacturing activity, we expect the fourth quarter, which is seasonally our lightest to show sequential improvement.
We anticipate the year over year change in core revenue will range from down 3% to up 1%.
Second half decremental margins are now expected to be in a range of 10% to 15%, reflecting an improvement from our prior expectation of approximately 30%.
Full year capital spending remains unchanged with our expectations of approximately $70 million to support maintenance and key growth initiatives.
Our business has rebounded quickly from the lows we saw last quarter.
Weaker in fact than we had previously anticipated.
Due to the increases we have seen in volumes, we now expect to fund a higher level of working capital investment in a fourth quarter.
Additionally, the noncash tax items, we had in Q3, well increase full year adjusted net income without a corresponding benefit to cash.
As a result of these factors, we now expect free cash flow this year will be greater than 80% of adjusted net income.
So let me wrap things up on slide 11.
I'm pleased with the way our global teams executed in the third quarter.
Delivering it performance is better and the updated expectations we provided in September.
Despite the uncertain environment overall, we are encouraged by the trajectory of the business and believe we are better positioned today than we have been exiting prior downturns.
We have new capacity in place revitalized products and a focused set of large organic growth initiatives.
We are also squarely focused on our playbook in driving productivity and remaining diligent with respect to our discretionary cost.
We maintain our expectation that these actions.
Along with the operational efficiencies from our new plan.
And savings from our restructuring program will result in solid incremental margins as we return to growth.
Although we know the potential for bumps in a road still exists.
We are confident in a way the business is position sort of sustainable improvements, we have driven in our ongoing investments in revitalizing our product portfolio.
With that I will now turn the call back over to Amy to begin QNX.
At this time, ladies and gentlemen, if youd like to ask a question. Please go ahead and press Star then the number one on your telephone keypad.
Your first question today comes from the line of lot of extra keys with Citigroup. Please.
Please proceed with your question.
Good morning, guys how are you.
Hi, how are you.
Good. Thanks, So I'm very strong margin performance.
Yes, the business and you highlighted 190 bips of gross margin expansion and the bridge Keats production system. So can you talk about just your runway to further drive gross margin expansion as you know recovery takes hold.
Then also what impact if any pricing had on gross margin in the quarter.
Well sure look.
As to the gross margins. We've we've work done significant work done over the last year to rightsize, the business and to drive a global production system initiatives.
And that's frankly, what has driven the gross margin improvement on a on lower revenues, what I would add is that our new plants also are no longer a gross margin headwind and will allow us to respond to incremental volumes much more efficient.
And both both of these facts are basically what we have been outlining over the last three or four quarters.
So as our volume improves in second half.
You know, we expect to continue to deliver gross margin expansion.
And frankly is a little bit of Oh the incremental.
Variable spend comes in taking.
Taking that into account, we still believe that not only are we going to be able to drive gross margins up but also they are going to be able to try and earnings so EBITDA margins up.
Okay. That's that's helpful and great to hear and then I guess just switching over to.
The regions you, obviously gave good color on the regions, China, an obvious bright spot in the quarter can you talk a little bit more about I know you talked about auto there, but any other particular end markets in China that are driving gross and.
How are you thinking about sort of the sustainability of these recent trends in China is this really end market demand that we're seeing are you also seeing some restocking tailwinds that are driving these numbers in China.
No I wouldn't say that we are seeing any restocking I mean, we've been speaking about China is a big priority for gates for a pretty significant amount of time, we believe that we have the best automotive replacement franchise for the products that we manufacture darin and that continues to deliver good leverage and good.
And good growth for us.
During you know all.
All of these challenging conditions, good and and not not great, but I'd say that in Q3, specifically the growth has been driven by our industrial first fit.
Predominantly in addition to the automotive replacement channels, but in the industrial first fit business. The strongest performance. We have seen came from construction heavy duty truck and frankly also a general industrial type applications. So we've seen a pretty broad based growth in China, and we believe that.
We will continue to demonstrate.
Growth as we exit Q4 and we.
We certainly don't like opportunities to continue to grow there.
All right. Thanks, very much you I'll hop back in the queue. Thanks.
Q.
Your next question today comes from the line of Jeff Hammond with Keybanc capital markets. Please proceed with your question.
Hey, good morning, everyone. Good morning, good morning [noise].
So I'm just on auto aftermarket.
Aftermarket can you just speak to what you think you know was kind of underlying demand versus any catch up versus any restocking and you know just kind of trends in October, particularly North America.
[laughter] trending talked over remain positive job. So we have seen you know the momentum that we have seen from from exiting Q3 to continue.
You know I would caution everybody that.
No I mean, we maybe certainly I entering a seasonally weaker quarter number one and number two.
With with all the cases rising during the pandemic.
You know I think that we all know getting little bit sense.
Sensitized to Oh, what can what can happen in Q4, but that being said coming back to a are they all performed really well across our biggest markets North America Europe and in China.
And we have really not seen any fundamental restocking.
In any of these regions Jeff.
We believe that the underlying demand is driving.
The sales recovery.
You see the preference that folks have over public transportation options. In a thing you know that is that is part of that Oh part of that move up.
And I, certainly believe that that's going to remain with us for.
Some in the immediate future as people you know <unk> kind of feel that.
They want to be more self protected by driving in their own vehicle well using using some personal mobility option versus public option.
Okay, Great and then you also called out outperformance and order replacement work.
Where are you seeing that outperformance and and how sustainable do you think it is as we go forward.
Well the outperformance in outer replacement has been again very broad based right as I said, it's a particularly China North America and Europe that those were three markets that I would say no, notably strong for us and again, we remain pretty constructive on now.
Being able to sustain friendly embedded India positive core growth territory as we move forward.
Okay, and then just a quick one on fluid power, we've we're seeing better orders from peers Oh.
Oh, certainly that business is like is lagging from a from a growth perspective to the P.T., but just you know talking about the order trends as you move into Fourq you on on that business.
They don't want to have three bomb, India. The businesses rebounded quite strongly and I think it's been driven predominantly by the industrial OEM applications applications, Jeff We certainly seen some of the reports from some of our key Pearson.
We believe that if we continue to take a little bit of market share away from them and ER and I think that we are well positioned with our new products to continue to outperform but we you know we do see continuation of the improvement as we exited Q4.
Thanks, a lot.
Your next question today comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.
Hi, this is <unk>.
For Jerry Revich this quarter it looks like productivity improvement added about two points to gross margins as we think about volumes recover in coming quarters should we think of margins improving by a sustained two points plus your normal volume leverage on top of it.
Hey, this is brooks.
So I you know I think there's a a couple of things there right. One is you know we're going to have the additional restructuring savings that are going to comment on top as we as we progress through out 20.
2021, and that's going to be a tailwind for US right and then and those will progressively build until we get to the end of 2021, and then we'll get a little bit of.
Then we'll get a little bit heading into the first part of 2021, and then I think from a you know.
From a.
A leverage perspective, and the ongoing business you know what you see is you know kind of some some step function as you have to add cost as volume goes up you know so I think you'll see you know some some pretty good improvement and then and then we'll have to add some cost and then you'll see some good improvement so it'll be as volume picks back up you know, we'll see that incremental.
Incremental.
Favorable leverage ticked back up along with volume I, certainly think you know as we move forward toward our targeted gross margin is north before.
There's no there's no question about that and when you think about the Incrementals, we've talked about in the short term that really supports that gross margin target north of 40, So I think you're thinking kind of in line with what we're thinking.
Thanks, and electric and hydrogen truck product development efforts have really accelerated can you talk about your content opportunities on those vehicles.
Sure. So look I'm a content opportunity set predominantly in the fluid power side, we actually are working on a couple of those opportunities where a couple of the companies that are in process of.
Developing commercialize vehicle for us.
For applications using alternative professional technology. So we you know we believe that those opportunities continue to exist and we are well positioned to capitalize on those assets.
As as these products enter operate operations and and active market.
Thank you.
Okay.
Amy are you still with us by chance.
Apologies for the delay everyone online. It appears we have lost the operator, we are working expeditiously here to get her back.
Yeah.
My apologies for the technical issues.
Okay critically jump back into the queue and I.
Perfect, we can definitely do that.
Your next question comes from Jerry Revich from Goldman Sachs.
Your line is open.
Oh it looks like it was this year. So I was the sourcing going on for Jerry Revich My answers have been addressed thanks.
Again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
And your next question comes from Deanne Dray from RBC capital markets. Your line is open.
Thanks, Good morning, everyone and thank you for moving the call up earlier in the day I really appreciate that.
Good morning Deane.
Okay.
Hey.
I know you in prior answer said that there was no restocking.
Impact for the quarter, but what's your sense of channel inventory as it stands today and would you and are you expecting a benefit from restocking in the next couple of quarters.
Yes look.
I would actually say Deane that we if anything associated with channel inventory as we saw some level of de stocking in Europe.
So.
When it comes to North America.
The channel inventories remain.
Very stable.
I would probably use that word.
So my sense is that.
Then markets will continue to trend up and continue to improve you will start seeing some level of inventory repositioning, but I I would say that it's probably not going to occur until sometime in 2021, and there was my expectation from last quarter and I think that that is what I am.
Snack to up to take place.
Presently as well.
Good and you mentioned that the contribution from new products in the quarter can you specify that and then related this whole belt to term change about conversion that example that you gave us regarding the airport both thought the h. back and the baggage Bell.
Those look pretty impressive and my guess is that would invite and attract other customers to do similar conversions. If you can show that efficiency, especially on the energy side. So what's the the funnel look like for those kind of opportunities. Thanks.
Yes. Thanks, Thank you Dana I mean, I think that it is a.
Other examples of driving these conversions forward.
We will this envisage that.
These opportunities are plentiful and is a vidler outlined in my prepared remarks, we believe that we have a very solid set of opportunities in other airports as.
As well as across a number of these operators that are utilizing particularly the heavy duty.
H., we see in those those funnels of very very robust for us we see finals, increasing every quarter. Despite the fact that we have that obviously.
Not a great opportunity to go and indirectly talk with these customers. We had adapted virtual tools that are serving us reasonably well Alan and we are still able to execute on the on some of these key projects. So the finals are growing both for power transmission and food chain to bell.
Our funnel in personal mobility in particular has been the largest since we started to outline. This this set of initiatives and thin fluid power. We also continue to see a very nice increase in adoption of of ours.
New of our new technologies.
I'm not going to go in and specify a percentage yourself.
Of contribution of revenue, but it is now starting to become quite meaningful and we are very excited about the prospects of converting a very significant amount of our production over the next 24 months and get good EBITDA.
Mid twentys.
And B. I vitality that we have been we have been discussing over the last several calls.
Great and just a public service announcement it seems like the operator had cleared at the Q4 Q on a so I got end by resetting star one so if anyone else's waiting hasn't reset star one that probably should thank you. Thank.
Thank you.
Next question comes from Julian Mitchell with Barclays.
Hey, Good morning. This is Chris on for Julian until maybe just looking at the Q4 guide the low end of the revenue guide kind of implied somebody declined to Q3, I know you mentioned trends have improved sequentially kind of throughout the quarter and as you exited so maybe can you talk a little bit more about kind of whats baked into the low end of guidance is that a more.
More conservatism or are you seeing any signs of slowing or kind of any yellow flags out there.
Three I would I would say that the you know when we exited the quarter and entered into October you know everything looked.
Quite quite okay, and everything does look quite okay. Right now I think we just being a little more cautious associated with two things number one with the additional incremental announcements coming out of Europe, and I think you know, let's remind ourselves that we have a short cycle.
Short visibility business and.
And this is just taking hold right now.
But also Q4 generally speaking is a seasonally weakest quarter. So it's the calendar that also comes to play. So we you know from a demand perspective, we have seen continuation of a positive trends, but the added.
Two items items that we just want to make sure that made on.
Remiss, though pointing out.
Got it that makes sense. Thank you and then maybe just one more kind of on the free cash flow guidance now at over 80% conversion versus the prior over a 100% can you talk more about the moving pieces there with Q3, maybe a little bit weaker than you'd initially expected and then it seems like that probably picks up in the fourth quarter to over 100%.
Conversion to get to that kind of 80% full year number.
Yes. So you know from a working capital perspective, you know I mean, our our revenues were up 135 plus million you know from Q2 to Q3 right and so you know when your revenues go up that much you know your investment in working capital is going to go along with it and so you know that's you know that's really directly tied to the better Perm.
Forms from a topline perspective, and so you that'll that'll equal out overtime.
The other thing is the tax impact you know we are certain valuation allowances related to disallowed interest that that we recognized in Q3.
No and that offset that was favorable tax benefit compared to the actual cash taxes, we paid and so nothing really to do with the the operational it will the operations of the business just more of a tax planning exercise.
Exercise and so you know is in as Eagle said, you know you know to Q4 tends to be you know none of the weakest from a seasonal perspective, and then you know working capital tends to roll through in Q4 as well. So we do tend to generate more cash in Q4, if you go back and look historically so.
So it tends to even out as you get to the end of the year.
Perfect. Thanks.
Once again to ask a question. Please press star one we have a question from Damian Kara Smith you'd be yes.
Hi, good morning, everyone really nice quarter.
Thank you thanks.
Uh huh.
On March.
I know you.
Got it.
The 15%.
For the second half.
But the decremental mass market, a little funky when you're growing in some areas declining elsewhere, maybe kind of have.
Overall revenues.
Just hoping you might be able to.
Further clarify on the fourth quarter here.
Yes.
Expansion in margins for both segments.
Year on year basis, and sequentially and maybe you could just you know.
Why are we talking sort of size the company overall get back above 20%.
EBITDA margin in the quarter.
[noise] Iranians. So would you know I would just remind everybody that if you can recall 2019 in 2019, we did not find any variable compensation programs.
And if there was any impact from it in Q3 of last year, but the bulk of that impact was in Q4, which is obviously now have reasonably good headwind for us. This year. So absent this impact of the variable comp.
We would have expected that our margins would have been.
Incrementally 100, 100 basis points higher so that's really what's driving that that impact in Q4.
Okay. That's helpful.
And.
You had spoken earlier about.
Its consumer a shift more towards personal mobility I was hoping you might go to elaborate on that a little bit you know what are you speaking mostly to the China market or were you talking at the global level and you know any any way you could sort of quantify are we talking a double digit opportunity here next year.
Look I think did you see that pretty broadly around the world.
If you take a look at some.
Some of the indicators the out there will be you know the Apple maps of Google maps assisted you see you know pretty significant rebound versus Oh boy, you see folks I'm going.
Going in using public transportation option I think that you see that.
We had a very large rebound in a used car sales and new vehicle sales and I think that you know the underlying reasons for that are folks that have never owned a vehicle on now.
Going out and and getting a vehicle for themselves and their family. So that they do not need to be force towards the public option.
Public transportation option. So you know AG, what does that represent in terms of Oh, an overall opportunity an opportunity I I don't know I think we are still seeing that play itself out.
But certainly it does represent a positive tailwind when combined with the fact that the overall car fleet or the overall car Park continues to age and is one of the oldest in history. So and then all of that bodes well for our.
Demoted replacement business, which as you know is one of the best franchises out there for the products that we manufacture.
Makes sense I appreciate it thanks for taking my questions. Thank.
Thank you Damon.
Once again to ask a question. Please press Star then the number one on your telephone keypad.
And we do not have any telephone questions. At this time I will turn the call over to the presenters.
Thanks, Amy Thanks, everyone on the call again for your interest in gates, and we look forward to our next update in February.
This concludes today's conference call you may now disconnect.
Okay.