Q3 2020 Helios Technologies Inc Earnings Call
[music].
Greetings and welcome to the heels technology third quarter 2020 earnings call. At this time, all participants are in listen only mode.
Question answer session will follow the formal presentation. If anyone should require operate assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Ms. Tania Almond, Vice President of Investor Relations and corporate communications. Thank you Ms. <unk> you may begin.
Thank you operator, and good morning, everyone welcome to the Healios technologies third quarter and year to date 2020 financial results Conference call. We issued a press release earlier today. If you do not have that release. It is available on our web site at H.L. <unk> Oh dotcom.
You will also find slides there that will accompany our conversation today.
Well the line with me are Joseph most of it our president and Chief Executive Officer, and Tricia Fulton, Our Chief Financial Officer.
We'll spend the next several minutes reviewing our third quarter results, providing a recap of our recently announced acquisition and amended credit facilities. Then we will open the call up to your questions.
Please note we have moved some of the year to date information into the supplemental section of the presentation if.
If you turn to slide two you will find our safe Harbor statement.
You may be aware, we will make some forward looking statements. During this presentation and also during the Q and a session here.
These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from where we are today.
These risks and uncertainties and other factors will be provided in our 10-Q to be filed with the securities and Exchange Commission.
You can find these documents on our web site or at SCC Daqo.
I'll point out that during today's call, we will discuss some non-GAAP financial measures, which we believe are useful in evaluating our performance.
You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP.
We have provided reconciliations of comparable GAAP with non-GAAP measures in the tables that accompany today's slides with.
With that it's now my pleasure to turn the call over to Joseph.
Thank you Tanya good morning, everyone.
Please turn to slide three and I will summarize the highlights for Q3.
We all know to coordinate team continues to impact the global economy and peers feel much uncertainty in the market and low visibility with some customers.
As I stated last quarter, our objective through this didn't then makes it hard to stay very close to our customers focus on disciplined execution.
Continued to generate strong cash flow to navigate into a strategic position for growth as markets recover.
We want to thank all of our affiliates team member sports, it's great walk throughout this pandemic.
They have been managing through quoted.
<unk> customers.
Enhancing operational efficiencies maximizing our supply chain completing due diligence on both bore successfully amended our credit facilities.
All while maintaining a regular duties.
We have a very high performing team and once again. Thank you. This.
This quarter, we have delivered.
Revenue results that exceeded our expectations.
Expanded gross margins and better than expected decremental operating margin.
Our business is a very age out and continue to quickly adjust to rapidly changing demand in all markets. We continue to demonstrate our strength in generating cash this quarter and realized.
37 million of cash from operations.
Year to date, we have reduced our net debt by over $50 million. This.
This financial flexibility is enabling us to make the acquisition of football water group, we announced three weeks ago.
Just a perfect fit for where the chronic segment and Healios overall, the acquisition positions us well for growth.
Aligns completely without vision 2025 strategy.
Please turn to slide 14, I will recap the highlights offtake acquisition.
But boy, it's an innovative market leader in the electronic controls with proprietary and patented technology.
AC power capabilities within the health and wellness industry, but.
Oh boy strengthens healios with lead.
We didn't control solution with a full suite of integrated products.
The utilized on news stayed off the manufacturing facility with a low cost manufacturing supply chain.
And they have solid historical organic growth.
The purchase price for both boys 218.5 million.
Excluding synergies this represents a multiple of 9.3 times Twentytwenty estimated adjusted EBITDA.
Oh boy, it's accretive to adjusted U P. S from day, one and the cash return on invested capital is expected to exceed she lives. This weighted average cost of capital you want.
Oh boy fits within our M&A framework like a glove.
And this is just really I'll feel step in a multiyear journey to build out our electronics segment into a top industry player.
Moving onto slide five with some financial highlights from the quarter.
Oh sales this quarter were 123 million up sequentially supported by a strong increase in our electronics segment.
And continued growth in the AG markets.
Some of this strength was a timing issue as Oems push to meet demand that has been created by call it consumer buying.
Gross margin was up both year over year and sequentially, reflecting our cost containment measures and continued efforts to improve productivity sales.
Gross margins and earnings per share beat our internal expectations as we increased sales faster than forecasted.
We believe all 40, a 2020 forecast is still on track, which will result in Q4 is the trough instead of Q3.
I will now turn the call over to Tricia to review the financial results and outlook in a little bit more detail.
Sure sure.
Thank you Joseph and good morning, everyone, Let's turn to slide six for a review of our third quarter consolidated results.
Well the COVID-19 pandemic continued to impact our consolidated year over year sales during the quarter, we delivered significant sequential growth from the trailing quarter.
Joseph referenced on last quarter's call. We said, we believe the third quarter would be our trough in 2020. So these results definitely exceeded our expectations.
Similar to last quarter, we saw demand in order to build through the quarter with September being a very strong month.
In fact, our Q RC and Enovation businesses had year over year growth in September.
Sales from the APAC region continued to show strength growing 9% in Q3 over last year as we continue to increase our market share in China.
Yeah me sales for the quarter were down only 1% from the prior year as the AG market remains resilient.
However sales in the Americas were more heavily impacted by cobot related softness in the quarter down 27% compared with the prior year and 3% sequentially from the trailing quarter.
This was largely due to a decline in the C. B T. Because that's where the pandemic continued to impact our end markets and our customers operations.
On a positive note our electronics segment in the Americas region grew 60% sequentially from the trailing quarter.
We have seen some recovery of demand in this segment with recreational vehicle and marine Oems increasing their production to catch up with higher consumer demand.
Our strong pipeline of opportunities in the electronics segment, along with about Bo acquisition provides additional runway to drive growth in current and expanded markets in 2021 and beyond.
Our operational profitability was strong again this quarter as previous cost reduction and productivity improvements we implemented are producing results.
Our decremental margin improved in the quarter to 29% on adjusted operating income.
And adjusted EBITDA margin declined just 20 basis points year over year, and increased 80 basis points sequentially to 23.4%.
Please turn to slide seven for a review of our hydraulic segment third quarter operating results.
Sales for the hydraulic segment declined 11%, excluding the impact of foreign currency, which had a 1.9 million favorable impact.
From a geographic perspective, excluding the effects of currency sales grew 8% year over year for the quarter in the Asia Pac region, reflecting strength in China as we take market share.
This was offset by a 36% decline in the Americas the.
The primary driver for the decline was softer end market demand due to the impact of the pandemic.
Yes, <unk> sales decreased 4%, excluding the impact of foreign currency.
Gross profit was influenced by the lower sales volumes for gross margin benefited from the cost management initiatives and was up 60 basis points from last year to 36.1%.
Operating income was higher by 1 million despite the lower top line.
Operating margin expanded 290 basis points to 19.2%.
The higher margins were driven by some onetime expenses in the year ago period related to restructuring and disposal of an intangible asset as well as effective cost management efforts and production efficiencies in the current quarter.
As a result, <unk> expenses were lower by 4.6 million or 22%.
Please turn to slide eight for a review of our electronics segment third quarter operating results.
You will recall this segment has been heavily affected by the impact of Cobot Knight team this year well.
Well third quarter revenue was down 3.6 million from last year. The segment is up 7.2 million or 42% sequentially from the trailing quarter.
Many Oems that had shut down operations for some period earlier. This year are now working at full capacity to catch up with the sharp increase in consumer demand for recreational vehicles and boat.
The increase in sequential demand is somewhat offset by the runoff from our intentional shift in customer base, which involve changes in certain contractual obligations.
As previously referenced we have implemented many cost saving measures and aligned our variable workforce to the lower year over year demand and our profits were none the less impacted by the large and immediate volume decline.
Gross profit declined 1.6 million, but gross margin expanded 40 basis points to 46.8% benefiting from operating improvements within the business.
Operating margin of 19.2% was up significantly over the second quarter level of 5.5%.
As a reminder, this segment utilize a significant engineering effort related to future OEM projects and we continue to invest to support these customer focused solutions.
As we previously mentioned we are encouraged to see significant improvement in electronics segment orders in September coming in higher than last year by double digits.
Please turn to slide nine for a review of our cash flow.
Year to date, we generated 77 million of net cash from operating activities and.
69.9 million of free cash flow comparable with the same period in 2019.
In our third quarter. This year, we generated 36.7 million of net cash from operating activities was.
Faulting in approximately 34.8 million of free cash flow.
Year to date Capex is 7.2 million down significantly from last year. When we were investing in the manufacturing consolidation project.
And the engineering center of excellence.
We are expecting capex to be in the range of 12 to 15 million for the full year as we continue to invest in high priority in critical projects, but for other investments until economic conditions improve.
Regarding our capital structure on slide 10, we reduced our gross debt by 27 million and our net debt by nearly 23 million in the third quarter.
Year to date, we've reduced our net debt by 50 million.
At the end of the third quarter, we lowered our net debt to adjusted EBITDA ratio to our target level of two times.
At the end of the quarter, we had 32 million in cash over 233 million available on our revolving credit facilities, and the 200 million accordion, which was subject to certain pro forma compliance requirements.
As Josef mentioned last month, we announced we would be using cash on hand, and existing and amended credit facility used to finance the Bell Boa acquisition.
On a pro forma basis following the close of the transaction. We expect our 2020 estimated yearend net debt to adjusted EBITDA leverage ratio to be approximately 3.4 times.
We remain committed to a long term that that leverage target of less than two times and expect to continue to benefit from our strong cash flows to support that reduction and our organic growth initiatives.
We expect the acquisition to close in the fourth quarter.
We just announced the closing of our amended credit facilities and wanted to highlight the details for you on slide 11.
We also entered into a 900 million senior secured credit facility.
The five year facility a man's the company's previous credit agreement and consists of a 400 million revolving credit facility, a 200 million term loan and a 300 million accordion feature subject to lender approval.
This increases our debt capacity from 700 million to 900 million.
We're also pleased to note. These amended credit facilities were oversubscribed with a very strong show of confidence from our banking syndicate.
With that let's turn to slide 12 for Joseph and I will discuss our outlook for the remainder of the year and make our final remarks before opening it up for <unk>.
We had a very strong Q3, which we previously thought would be the trough this year.
Frankly, the pandemic has made forecasting more challenging and order timing more lumpy than normal.
We had previously suspended our detailed guidance, but with two months of the year remaining we wanted to provide our outlook on a couple of key line items for full year 2020 based on our view as of today.
We believe we are on track to deliver revenue in the range of 485 to 495 million.
And adjusted EBITDA margin of approximately 22% for the full year 2020.
Excluding any contribution from the Bible acquisition.
So stuff I will now turn it back to you for your closing remarks.
Thank you to show.
Last quarter, we said, we would act on M&A opportunities that we see is critical to meeting all strategic goals.
We're very excited to bring but boy into the few deals family and to electronic segment.
The proprietary technology accelerates our ability to innovate and the addition of both boy expands and Diversifies, our addressable end markets.
We have a much larger strategic view of how we intend to grow to electronic segment into a significant business did would be able to meet customers needs across a full spectrum of products services technologies and end markets.
This evolution would be through a combination of leveraging additional value streams organic and inorganic growth as we execute against our vision 2025 strategy.
We look forward to further articulating our vision it on Investor day, we would like to hold in the first half was next year stay tuned for details its data become available.
Finally.
I have great confidence in the ability of the silliest team to continue to lead successfully through the choppy macro economy with that let's open up the lines for Q and a.
Thank you.
This time, we will conduct a question answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone indicate your line is in the question queue. You May Press Star two if you would like to remove your questions on the queue for participants using speak we quit it may be necessary to pick up your handset before pressing the star keys, one moment. Please while we pull for my first question.
Our first question comes from Jeff Hammond with Keybanc capital. Please proceed with your question.
Hey, good morning, everyone.
Good morning, John one in Georgia.
So my question is on the you know the guide in fourth quarter. It looks like your EBITDA margins year to date are 23, two you're getting to 22 that would imply a pretty significant decrementals in the fourth quarter I just want to understand that better if there's any nuances in that [noise].
Yeah, a lot of it's just related to where we are from a volume perspective, we said that our Q3 was stronger than we had expected on the top line. You also saw that flow down into the margin.
So on the on the little bit lower Q4 numbers, we do expect to see stronger ducker mental there's normal seasonality in there also with holiday.
Okay, and then can you just update us on what the backlog looks like and hydraulics and where you think that is kind of on a year over year basis as you exit 2020.
Yeah, we have returned to normal backlog levels in the businesses, we were able to work through the backlog that we had specifically that we talked about in the CVT business, we were able to work through that in Q3 and now we're at normalized backlog.
Can you give us a number on what backlog is year on year exiting.
Yeah.
I knew you would ask that [laughter], we don't give order and backlog numbers and we're going to see that practice.
Okay, if I could sneak one more in <unk>. It's just the difference in nor the Americas versus Europe, and Asia were quite Stark and I'm. Just wondering you know why do you think that's a weekend and what particular end markets are driving that weakness.
Yeah, Jeff so.
You know I just got back from a couple of weeks of a kind of a mini customer road show and just to really get a good.
Good feel for where are we will be going you know, what's the backlog you know whats the dealer inventory to distribution inventory and it just continues Jeff to be a mixed bag.
You know for an example, our end market.
You know when from resiliency to a very strong uptick here.
Yes, we are.
Finished Q2.
Got into Q3, we anticipated Q3 to be the trough and and you know all of a sudden you start getting phone calls.
And Q3 turned out to be very strong so to give you a firm.
Film did appointed its extremely difficult right now, it's really finger on the pulse every single day.
Do you have to do other example would be under construction side.
You know, we went from down to mix to strength.
It all happened within you know for the six week.
Oh periods on the mining side.
You know mining is very minimal for us that's kind on a flattish side too low.
You know recreational side is very strong dealer so replenishing the inventory.
And we are really excited about that path going forward.
So that's kind of the north American side into.
Internationally Europe remains to be you.
You know strong for us I don't see any concerns that there will deteriorate anytime soon or in Asia is a growing segment for us so.
Are we doing relatively well so that's kinda.
The best data points did feel right to us.
One other thing on the Americas as you'll recall last year at this time, we were seeing extremely strong demand in the CBT business, especially in the Americas.
And clearly you know now with co bid that that demand is down a little bit so no year over year, it's a it's a pretty tough comparison.
For that geography.
Great. Thanks, so much.
Thank you Jeff.
Our next question comes from Mig Dobre with Baird. Please proceed with your question.
Good morning, everyone and thanks for taking my questions.
I guess, HM I'm trying to understand relative to your outlook. When we're looking at the two segments. So in the quarter. What what would you say was was better than than expected I mean, it sounds to me like you atonic better than expected.
But you know that there might be more to the story than just electronics itself.
Yeah, certainly so clearly make the electronics, obviously continues to strengthen with sort of blandishment from a dealer standpoint.
But you know it is also nice pockets.
C B T side on the hydraulic side that are.
You know, adding to the strength of Q3 and continued strength.
Of the 40, a you know a cure to see.
ER business units.
You know did extremely well there was a nice contribution.
Did market continues to grow.
And it's.
You know it just feels good to us.
In Asia.
She is contributing towards that success so.
You know our hesitation ultravolt, adding more more color.
Versus would be half where rate is just you. Just don't know you know, we anticipate again Q3 to be the trough and it turns out to be a very strong quarter for us.
So balancing that demand with the supply is just.
This would be a watching extremely close so that's only to do it.
Well the thing that I think I'm confused about maybe kind of following up on what Jeff was trying to get an earlier is is that if you're if you're sort of fan, but you know in electronics exiting the quarter in September with orders being up double digits.
Yes, you are saying that construction in your hydraulics business has gone from.
No declining to you know flat is now improving mining, it's flattish sounds like you're feeling good about AG. It sounds like you're feeling good about Europe. It sounds like you're feeling good about Asia.
I'm, having a hard time equating your commentary right on the end market with your discussion about the fourth quarter now being the crop relative to the third so can you help kind of Untangled is not here what's going on.
So on the electronic side I think we need to remember that Q4 is always the lowest quarter for that business given that many of the Oems do have seasonal shutdowns related to the holidays and that's what we're seeing this year as well, even though demand is very high and we know that.
Dealer inventories on the recreational vehicle side are very low we do still expect that you will see that normal seasonality on the electronic side.
On the hydraulic side I think it.
You know a little bit related to some of the lumpiness that we talked about and how we're seeing orders coming in certainly in the AG markets, we're seeing some.
Strong demand and we'll get as much of that out the door as we can but there's still a lot of lumpiness in what we're seeing on the hydraulic side outside of AG. So yeah. We're.
We're hopeful that we'll continue to see those those orders come in a little bit more consistent manner, but I think it's a difficult time for us to expect that.
Are you able to frame for us what the orders in hydraulic look like.
For the segment as a whole in the quarter relative to the prior quarter or how the orders have progressed through the quarter.
I recognize there is lumpiness, but I'm trying to understand sort of directionally, where we're heading with this.
Yeah.
I think if we we already stated that the Q RC orders in September were the strongest that we saw and better than what we saw last year. Some of the construction comment, but Joseph made are specifically related to what we're seeing in Q RC construction order.
His which kind of flipped between Q2 and Q3 from down to flat to up where we have more uncertainty I think it's still on the CV Gi side. Your distributors. Some of them are working through inventory that was on the shelf.
And some of them are you know down on inventory and they're placing stronger orders now, but I would say the C. B T side is really where we're seeing the majority of the lumpiness and it's kind of dependent on what distributor is working with what customer base and how the order patterns are going.
Okay well.
Well then my final question pod on the cost structure itself.
And and the implied decrementals.
Our high like it was pointed out earlier.
So I guess the way I'm going to ask this question slightly different if you're expecting revenue to be down sequentially.
Is there any reason why it's G.N.A. would not follow a similar path do you have any elements of cost inflation, excluding again the acquisition that you're you're working through so we leave that to the side are there any elements of cost inflation and that's you need to be aware of thank you.
No, we don't expect us associate costs to be.
Sufficiently different from what they have done over the last couple of quarters, I think where we're seeing the the margin variability is.
Because of the lower top line is the absorption of the fixed costs at the gross margin level.
Okay. Thank you.
Thank you Mike.
Our next question comes from John Kloza Winski with Morgan Stanley. Please proceed with your question.
Hi, good morning folks.
Morning, Josh.
So I'm going to try to scan the the cat, you're a slightly different way from often many jobs.
On the if I look at the margin guidance for the fourth quarter I take a look at inventories, which have had a nice step down would suggest that there's no like manufacturing variance at work here. So maybe nothing behind the scenes on you know the the absorption that.
What did skew would skew margins. If you were to have a month in the fourth quarter or November or December at this point that would be a surprise folks trying to get stopped before youve done before year end et cetera.
Would that what would the incremental margin be on on additional sales you know kinda outside the range the incremental margins kind of step up.
You know as you get above that range or into the higher end or is that kind of proportional across a wider band than revenue.
Well you can see from Q3 that we had strong margins when we had stronger than expected top line. So we definitely have leverage on one we see increased revenue on the top line I think one of the things that's a little bit difficult to predict within the key.
Corridor or to understand within the quarter is that each of the business unit has a different rate of absorption of fixed cost, there's clearly a higher fixed cost base overall in hydraulics than there is in on the electronics side.
And you know.
Looking at where we are with revenues on the hydraulic side in Q4, but even between Q R. C. N C. B T. The absorptions are different in how that occurs so I think that some of what's coming into play in my previous comment about gross margins.
In Q4.
Got it that's helpful.
And then it kind of shifting over to solve bajwa.
I understand some of the commentary around immediate accretion there yeah since that deal will close or presumably close before.
You folks update us next on anything any chance you could give us some kind of ballpark accretion and then the phasing within that if it's fairly linear or how much it might build through the first 12 months, you know thinking about things like seasonality and how that would impact that would be helpful.
Because we're coming up with some pretty punchy numbers on Bell Boa.
So just want to make sure we have that kind of level set.
Yeah, certainly so look you know a few data points young Balboa.
You know I think it's fair to say now that I'm looking at the.
Recent results here over the last two months.
Did you.
Very strong results not just on the top line, but also on the bottom line.
And yeah backlog continues to going into right direction.
You know pretty much went from.
As expected to a little bit better than expected going forward. So, but overall is positioned extremely well for.
2021, and therefore, we will see the accretion.
Day, one as mentioned the audio so.
Jeff we are excited about it.
And from a.
Profitability perspective, what were seeing out of the business, especially coming out of co bid and now through Oh by.
The last few months is that although it should be accretive overall to the electronics segment that at a margin level.
Got it that's helpful.
Appreciate that thanks.
Mhm.
Our next question comes from Nathan Jones with Stifel. Please proceed with your question.
Good morning, everyone.
Joining me Tony.
Maybe I'll start with some cost questions can you remind us what the total cost number for 2020 is planned to be a lot of that is temporary versus structural cost and then how that translates to incremental cost savings or cost returning skyone going into 2021.
The majority of the cost reduction efforts that we've taken throughout coated are temporary we estimated about 90% were temporary and 10% would be permanent.
So I think we will get some benefit when we return to.
The higher revenue levels that we were at pre co bid. So we'll get some some benefit from that but the majority of them have been temporary and our you know related to reduction of discretionary expenses, which includes you know trade shows and travel because we just can't do those right now, but certainly that's something.
Especially going into these new end markets that were talking about that we're going to want to be in front of customers a lot more when were able to win coming out of Covance. So we will see cost like that return to the piano.
How does that inform your view of what incremental margins might be going into next year.
Given the players at some of these temporary costs coming back in you know where everybody's going to have revenue growth next year, given the easy comparisons from 2020, how should we be thinking about incremental margins for the business in 2021.
Ex acquisition.
We're still working through our budget process at this point for 2021 and now you know we need to also consider how fell below plays into that we aren't done with that process. So I'd, rather not give a hard number right now on what those look like it also is going to going to depend a bit on.
How we come out of co bid when there's a vaccine when things can pick up again from a commercial perspective. So I don't I don't really want to give a number quite yet well, we'll definitely provide that information when we give 2021 guidance.
Okay, maybe one on on the internal work that you guys have been doing here over the last 12 18 months there was some footprint consolidation some.
Disruption to the business in order to improve it can you talk about where you are in terms of ramping up the productivity as you've moved assets around how you feel about where the supply chain to use those kinds of things is there still more to be done there or do you feel like you're in a good spot at the moment.
Well.
You know I think we'll never be satisfied or <unk>.
In that area because all my answer this year to continuously improve our operations you know a.
On a quarter by quarter.
And have this continuous improvement mindset.
But to answer your question with some data points here.
You know I think our biggest area so opportunities are clearly and a manufacturing and supply chain area you.
You know traditionally you know how businesses have been you know.
Very loyal to the supply base, which is not there's nothing wrong with that but would you don't get is any leverage.
Broadly or globally. So in some cases, 90% of our supply chain is single source.
And we're going to take more advantage of some low cost country now by adding Balboa, they have a very stable.
Supply base.
So to supply shouldn't area will clearly be a laser focus of ours going forward.
On the middle factoring side, we are really.
Now are in a position where we have the data to a I was requesting too.
In terms of you know we are.
Are we.
In terms of our overall I was what does it mean in terms of our throughput what he so he and so on so forth. We do have this data and we do see.
Areas that we can move the needle very nicely now just in.
In one business, but all of our businesses. So it just a matter of now no like crucial said incorporating those numbers.
Into the budgetary process is.
Get the communicated get us some lines in started executing but overall, yes, we do.
Two entities.
Just a little follow that Nathan I think you saw that we were able to produce some really strong margins in Q4, and Q1 Q4 19 Q1 of 20 as we came out of the project on the CV Teesside and then Kobin hit so we do anticipate that we'll be able to continue to generate.
Those strong margins once we get the top line back up we already have very strong margins on the electronic side at the gross margin.
Oh, they've done an excellent job of maintaining those even on lower volumes and then in the Q RC business, we do focus on the OE that Josef mentioned and.
The revenue levels that we're at right now in the O.E. were producing very strong margins in that business as well.
Great. Thanks, very much I'll pass it along.
Mhm.
Once again, ladies and gentlemen to ask a question. Please press star one on your telephone keypad our.
Our next question comes from Joe Aiken with William Blair. Please proceed with your question.
Hi, This is Joe on for Brian today, Thanks for taking my questions.
I went on I wanted this morning, I wanted to start on kind of looking at the.
Well seasonality of the business you typically see a pretty material step up in the first quarter fourth quarter.
Given that you're now expecting the fourth quarter to be the trough and can.
Can you maybe just talk about what you're seeing so far in the quarter from some of your end markets and do you think there is potential for the first quarter take kind of snap back even harder than historically compared with the fourth quarter.
[laughter].
Boy, Joe if we would know this and said we probably would it.
I've talked about as you know it's.
And Thats a genuine come in here, we have stayed extremely close to the market into the custom most there was one of the reasons why we went on the road.
And just.
Looking at these trends and.
I know it may sound like a broken record here, so I apologize, but that's the fact you know it's just a mixed bag. You know you have some distributors some dealers who are just.
You know doing extremely well and the.
Placing or this left and right and you have others that are struggling.
Do we expect Q4.
Who fall off the cliff absolutely not.
You know looking at the first month here it's you.
It looks you know.
As planned based on would be just outlined.
In Iowa.
Full year guidance here.
So to say there would be an opportunity that something snaps here in a couple of kids dealers.
<unk> throwing a replenishment if that happens we are prepared with all the inventory levels.
And we have material to support that we just don't know Joel.
But we're getting good anecdotal information from specific lead distributors in the Americas that they're they're seeing pockets start to open up I would say that it's been slow to see it in the orders overall, but certainly.
Sales of pointed out that there's certain.
Certain customers, who are you know going.
Going gang busters and in certain areas or end markets and then there are some that are just not.
Not quite there.
And you got it.
Europe, Sorry go ahead.
Yeah, sorry, Joe Europe continues to strengthen and then you know two days later you get a.
You know.
A news letter that the core of it is significantly increased in certain.
Certain area. So if Europe and then you have shutdowns. So we just don't want to put any information out that it's not accurate infection. So thats, what you hearing here from us but.
But Asia continues to do extremely well.
Got it thanks for the color there and on the electronics business. I think you said orders were up double digits in September.
Kind of expecting the typical seasonality here in the fourth quarter has that order strength kind of continued early in the quarter and I know on the previous call you mentioned that.
Some of the new program Rollouts that you're expecting to potentially start in the fourth quarter and how they into the first quarter. If you kind of update us on that.
Yeah question number one.
Joe did answer it is the pattern has continued.
So far into the first part of Q4 here.
In terms of a new new Npis Rollouts. The team is working through this with the customer base.
You know, we originally anticipated we will have some.
Some gains there in Q4 I do believe now that this is going to shift more into the Q1 or Q2 of next year.
But nothing has been cancelled.
So.
Another one of those things the phone call could come and be ready to deliver.
And.
You just need to get beyond this Kobe then and.
And shifting our products you know.
Okay got it thanks very much.
Mm.
Our next question is from Jeff Hammond with Keybanc capital. Please proceed with your question.
Pick just one last one on the on the fourth quarter margin should we think of fourth quarter EBITDA margins as 22% not the full year.
I'm just still struggling with the you know the I mean, the decrementals seem like they should be in that kind of 40% range and that would get you to 22 [noise] versus something much lower to get you to 22 for the full year.
We're looking at 22 for the full year, which would mean that the Q4 EBITDA margins are lower.
Okay. Okay, and then just on Bell Boll can you talk about what the normal seasonality of that business is as we think about.
Modeling it.
[noise] yeah.
I don't know that we can look at this year as normal.
<unk> at all for that business, we're seeing some strong orders coming in they had strong orders starting in Q2 as we came out of colder than we're still seeing that going into 21, or 20, and 20 and into 21 with the backlog that they have that Joseph Barton rough.
[laughter], so I'm not sure we're going to see a normal seasonal pattern next year, either because of the coated impact so until we own the business. They can get a little bit more feel for what that might look like in a normal cycle I don't have a strong answer for you.
Okay, and then just the last one on on Europe.
We've been seeing some countries start to shut down again, any kind of risks or any.
Oh is around some of your plants over there.
Yes, so you.
You know as it stands as of today.
We do not anticipate that we would be impacted I'll.
Product shipping either locally or internationally.
Okay. Thanks, a lot.
Thank you welcome John.
Our next question is a follow up from Mig Dobre with Baird. Please proceed with your question.
Thank you for taking a follow up Bob going back to the electronics <unk> can you guys remind us what a <unk> impact from the.
Run off on on be intentional customer shift was or for the year, especially now that you've kind of put out to the full year revenue outlook.
Yes so.
Certainly we've had some impact on the year over year basis, each quarter this year.
And it's.
Ben.
Relatively significant impact if you compare on a full year 19 to 20.
I I hesitate to give a full number.
Or an actual number to you at this point given that.
We are still participating with that customer and making shipments of other products that are not related to the item that we did the intentional shift with.
But it's a it's significant mid single digit revenue.
As a person.
That's helpful and and you know are we pretty much going to be through that at the end of the year War well the stretch into 21 as well.
Well for the specific product that we're talking about there there will be some minimal impact between 20 and 21 as that continues to wane down, but it will not be as significant as what we saw in 18 to 20, it will probably be it couldn't be labeled does instead.
Second.
Okay and then.
Again going back to new product introductions of new platforms that you're on is there is there a way to help us understand how much hope you would be getting from something like that because.
You know as we look into 21. This segment got so many moving pieces in there is the end markets that are going to look different. There's this run off that is going away and then you've got the the new product intros as well.
So.
Any any framework you can provide on the news and the new product intros.
Yeah, So Mig look.
That is a a significant bright spot for us here and you know we are really super excited.
On older phones, you just mentioned in terms of new Npis. The funnel is for the product is largely developed the great News is nothing has been cancelled from a customer standpoint. It just it just a matter of getting that launched and.
And it starts to contribute towards.
Towards the topline growth you organically.
And and profitably.
The other hand, you have.
Post close of boat bought we have this.
Very neat opportunity.
To leverage.
Both product lines and expand our addressable markets and really laser focused on the diversification hostess product lines, because there is a significant need.
We have spent quite a bit of time make here.
With Threed targeted customers did we are in discussions with.
A few of the policy to it.
Explain to new product offering and explains the differentiations and how can work together to appetite is extremely strong.
You're going to start that testing process, you Noleta I Wanna sales in Q1 2021.
So you have those that you're sitting.
[noise] streams going on but then you also have to sort of plan instrument.
Recreational sector with the dealers.
Getting stronger here and get more to a normal sub normal level into inventories.
So just you know look at just the really exciting journey going on in the electric.
Electronic segment, we are going to invest into a.
Common engineering center of excellence to leverage to both boys and innovation platform.
And.
And continued to strong innovation R&D backbone on developing the next breakthrough technologies that were curious over the next five years. So.
I'm really excited me.
Appreciate that last question for me.
I'm curious, how you're thinking about pricing into 2021.
Krish historically years.
Just on the hydraulics business yeah.
Here is where we where the market had volume growth. So you typically put through a price increase.
So I'm curious if that's your intend at this point for 2021 and I'm also for electronics are you thinking about that as well.
Yeah, so the customer Oh younger customers that we deal with which are you know significant on the electronic side as well as on the faster side. Those are lot longer term contracts. So the pricing is pretty well that on.
And those where we have some options for pricing I think is across all the businesses more at the individual sale or distributor level, we have not had significant price increases in the CBT business.
Since mid year 18.
So there's probably some opportunity there we were honestly not in a position to be able to talk about pricing. When we were behind and shipments. We have now caught up to that so there's probably some opportunity at least to look at certain products, where it makes sense for us to.
Change pricing.
[laughter].
Okay. Thank you.
Thanks. Thank you at this time I would like to turn the call back over to management for closing comments.
Thank you for joining us today.
We have a great company and we are proud of the accomplishments we have made as a team over the last few months and look forward to our future growth.
We appreciate very much your interest in Healios and look forward to updating all of you on our fourth quarter full year results in early March have a great day and stay healthy.
Thank you take care.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.