Q3 2020 Spirit AeroSystems Holdings Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the Spirit Aerosystems Holdings Inc. third quarter 2020 earnings Conference call. My name is coal and I'll be your coordinator today.
After todays presentation, there will be an opportunity to ask questions.
You ask a question you May press Star then one on your Touchtone phone twist.
Withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the presentation over to write Navy director of Investor Relations and financial planning and analysis. Please proceed.
Thank you Colin good morning, everyone. Welcome to Spirit's third quarter 2020 earnings call I'm, writing Baby Director Investor Relations and financial planning and analysis.
Today are spirit's, President and Chief Executive Officer, Tom continually in Spirit's Senior Vice President and Chief Financial Officer, Mark Sutton Ski.
Your opening comments by Tom and Mark regarding our performance and outlook, we will take your questions.
In order to allow everyone to participate in the question and answer segment, we ask that you limit yourself to one question. Please.
Before we begin I need to remind you that any projections or goals. We may include in our discussion today are likely to involve risks, which.
Which are detailed in our earnings release, and our SEC filings and in the forward looking statement at the end of this web presentation.
In addition, we refer you to our earnings release and presentation for disclosures and reconciliations of non-GAAP measures.
When discussing our results.
And as a reminder, you can on today's broadcast and slide presentation on our website at industry Dr. Aero Dot com.
With that I would like to turn the call over to our Chief Executive Officer, Tom Dooley.
Thank you Ryan and good morning, everyone welcome to Spirit's third quarter 2020 earnings call.
Global Aviation industry continues to struggle with the historic production in air traffic caused by the COVID-19, pandemic, which has created significant challenges for both airlines and aircraft manufacturers as a pandemic unfolded, we quickly took actions to reduce cost and preserve liquidity.
As we mentioned in last quarter's call. We have implemented about a billion dollars of annualized cost reduction actions or a 40% reduction in the non material base.
We've also made the very difficult decision to reduce the headcount of our commercial aviation programs by 44%.
Which is more than 8000 people.
Most recently, we announced the closure of our Mcallister, Oklahoma site, which does three axis machining and assembly for Boeing programs.
Most of the work from Mcallister will now move to our Tulsa and Wichita facilities.
Our biggest program is a 737 Max and we have been encouraged by the news on the continued progress Boeing has been making with the FDA and global regulators to return the aircraft to service.
Completion of the certification flights a joint report from the United States, Canada, Brazil, and the European Union Civil Aviation authorities, which was incorporated in the Phase Draft Flight Standardization Board report are all key milestones for the program.
We are proud partner on the Max and make 70% of the structure. We're looking forward to seeing the airplane safely back in service.
For 2021, we're planning 737 production deliveries to support Boeing's production requirements. Boeing has indicated that they will be at a rate of 31 aircraft per month by early 2022.
Through 2021, we also plan to reduce the current buffer inventory of 128 737 Shipsets.
We will like Boeing's production rates by about five units per month and plan to decrease the inventory of chipsets to a permanent buffer of 20 to 25 units.
The production rates on the other programs for Boeing and Airbus remain as they have reported.
Based on our forecasted production, we estimate our free cash flow for 2021 will be negative, but significantly improved from 2000 Twentys usage.
This estimate of 20 point on cash usage does not include the Bharti assets that we just acquired or cash tax benefits both of which will be positive we expect free cash flow to be positive in 2022.
Over the last few months three actions have helped improve our overall liquidity position first in late September we mutually terminated our agreement to acquire ASKO, eliminating a capital outlay of $420 million.
While we are disappointed that the deal did not close we have tremendous respect for ASCO and we'll continue working with them as a valued supplier.
Second we also took actions to restructure our balance sheet and improve our financial flexibility.
We repaid our term loans of $430 million during the quarter and terminated the 2018 credit facility on October 5th.
We also raised $900 million of new secured debt.
And third we recently closed the acquisition of select from Bharti assets for $865 million.
Which is 20% reduction from the original enterprise value.
The deal consists of a $275 million cash payment to the sellers, a 45% reduction from the original cash consideration of $500 million.
The $865 million deal value includes certain liabilities for pension and government incentives.
These three actions result in an adjusted Q3 liquidity position of $2 billion.
Mark will provide further details a little bit later.
Now that we've closed the BARDA acquisitions, we are thrilled to welcome our newest colleagues in Belfast Casablanca and Dallas.
The addition help accelerate our strategic transformation by providing more Airbus content aftermarket business defense and low cost country operations.
The Airbus content includes the composite wing for the eight to 20, which Leverages a state of the art fabrication process known as resin transfer infusion.
It's a smaller narrow body aircraft the eight to 20 will benefit from the quicker recovery of domestic air travel around the world After COVID-19.
In general Spirit will benefit from this higher domestic demand since 85% of our unit backlog, our narrow body aircraft.
The acquisition also significantly increases, our aftermarket and maintenance repair and overhaul business.
Our focus on Airbus repairs and presence in the European market will complement spirits existing expertise with Boeing repairs and presence in the U.S.
Spirit also secures exclusivity among bharti is business jet programs and is now one of their largest suppliers and we expand our rolls Royce relationship with work on the BR 710, and Trent 700 engine to sell components.
In addition, the acquisition includes a world class manufacturing facility in Morocco, with a highly trained workforce located in an aerospace manufacturing cluster.
The facility has a wide range of experience with flight controls engineers sales and fuselage sections and has an extremely competitive cost structure.
Finally, the BARDA acquisition also establishes a robust path for spirit to participate in the evaluation and development efforts for the UK is next generation Tempus Fighter program.
Spirits, leading aerostructures technology capability, along with a larger footprint in the UK is well suited for us to become a strong team Tempest industrial partner.
This opportunity fits nicely into spirits overall strategy of expanding our defense business, which by the way realized a 20% growth rate in 2020 revenue, we expect more than 15% growth in our defense business in 2021.
In summary, the acquisition of the BARDA Aerostructures assets accelerated the diversification of our customer base in 2021.
Based on preliminary estimates, we expect Boeing commercial revenue to account for 45% of our total revenue.
Than Airbus at 24% defense at 15% business and regional Jets at 8% and aftermarket at 8%.
The revised enterprise value from the BARDA acquisition of $865 million represents a multiple of 8.8 11.8 times expected 2020, EBITDA adjusted to remove onetime items. Our plan is to generate synergies in a number of areas, including the supply chain.
Facility consolidation and overhead reduction over the next three years.
After taking into account the expected synergies of 6% of revenue the adjusted EBITDA multiple will be 7.3 times.
Our preliminary estimate of 2021 revenue for the Bum Bharti assets that we just acquired is between $700 million and $800 million.
One other highlights for the quarter was the work we did to manufacture ventilators in support of the battle against COVID-19.
After building a state of the our production facility logistics system and global supply chain. The spirit team working with our partner by Air successfully delivered 20000 critical care ventilators to us customers and customers in more than 20 different countries.
The contract was on a cost plus basis and was accretive to our results.
Spirit is very proud of our partnership with by air to meet the demand for lifesaving ventilators around the world.
With that I will turn it over to Mark to take.
If you through our detailed third quarter results Mark.
Thank you Tom and good morning, everyone I.
I hope, everyone is doing well and staying healthy.
As Tom mentioned in his opening remarks spirit as well as the overall aviation industry are in the early stages of a multiyear recovery and we expect to continue to face near term challenges.
Throughout this year our teams have responded well to the changes brought about by the cold pandemic.
We have made significant adjustments in order to adapt our cost structure to our customers lower production levels and we will continue to adjust with the goal of emerging as a stronger company.
With our long term growth and diversification strategy and focus we are pleased to have closed on the acquisition of select assets of more party.
This acquisition is key to our strategic transformation efforts and the additional work content with Airbus and aftermarket will position us well going into the future.
Now, let's move to our third quarter results.
Please turn to slide four.
Revenue for the quarter was $806 million down 58% from the same quarter last year. This.
This reduction was primarily due to the lower production rate on the 737, Max resulting from the continued grounding of the program and the significant impacts of COVID-19 pandemic.
Production rates across all of our commercial programs continue to be negatively impacted by COVID-19.
We delivered 15 737 shipsets in the quarter compared to 154 in the same period of 2019, okay.
Overall deliveries decreased to 206, shipsets compared to 437 Shipsets in the same quarter last year.
Let's now to turn to earnings per share on slide five.
In the quarter, we reported earnings per share of negative $1.50 cents per share compared to $1.26 per share in the same quarter last year.
Adjusted EPS was negative $1.34 cents per share compared to positive EPS of $1.38 in the same period of 2019.
Adjusted EPS excludes the impacts of the acquisitions restructuring costs and the noncash voluntary retirement plan charges.
The third quarter operating margins declined compared to the same period last year as a result of costs incurred related to the low rate of Max production, including excess capacity cost of $73 million.
As well as lower production rates across almost all of our commercial programs due to the impacts of COVID-19.
For the quarter, we recognized restructuring expenses of $20 million for cost alignment and head count reductions as well as forward loss charges of $128 million.
Primarily driven by the lower future production rates announced on the 77 and Athree hundred 50 programs.
I'd also like to note that our total segment operating margin normalized to exclude changes in estimates improves significantly over the last quarter this quarter over quarter improvement demonstrates the effectiveness.
Of the many cost reduction actions, we have implemented this year we.
We expect to continue to recognize these benefits as we move into the future.
During the third quarter, we evaluated additional schedule and demand information received from our customers as well as other market and analysts' data.
And as a result, adjusted the results on the 787 and Athree hundred 50 programs to include a lower rate of production for a longer duration compared to our previous forecast.
This resulted in incremental fixed cost absorption on the 77 and Athree hundred 50 programs and as a result, we recorded forward losses of $65 million in the 77 program and 45 million on the Athree hundred 50 programs during the quarter.
Additionally, we recognized $18 million of forward losses on other programs, including the 747 and seven six program.
Which was primarily due to production rate decreases on this triple seven program.
Our year to date tax rate was approximately 38%.
As discussed last quarter as a result of the Cures Act, we can carry back our anticipated 2020 net operating loss two years, where we pay tax.
This has created a favorable year to date tax rate compared to our expected normalized rate.
Now turning to free cash flow on slide six.
Free cash flow for the quarter was a use of $72 million compared to a source of $214 million in the same period of 2019.
This year over year decrease is primarily due to the negative impact of working capital requirements and significantly lower deliveries across all of our commercial programs part.
Partially offset by favorable cash tax.
The third quarter free cash flow was also impacted by 17 million of restructuring costs as well as 11 million of cash used to unwind.
The term loan interest rate swaps.
Additionally, the third quarter of 2019 free cash flow included $123 million cash advance received as part of the April 2019, Emily reach with the Boeing Corporation.
Free cash flow improved by about $175 million from the last quarter. This.
This quarter over quarter improvement was a result of the benefit from the cost reduction actions, we have taken throughout the year a decrease in our working capital requirements as well as some favorability from the timing of certain deliveries in the quarter.
We anticipate cash flow used in the fourth quarter to be slightly higher than what we have recognized in this quarter.
Our merrily due to higher interest on additional debt and some favorable timing of deliveries that are not expected to repeat in the fourth quarter.
Excluding bharti we.
We anticipate full year cash used in operating activities to be around 7% to 800 million with approximately $120 million of capital expenditures.
In other words, we expect free cash flow for 2020 to be around $800 million to $900 million.
Of outflow, which is in line with our expectations.
And our commitments to you in the last quarter.
We are quickly diving into the body integration and analyzing the appropriate structure for the business.
There will be a onetime cash outflow of $35 million in the fourth quarter relating to restructuring activity.
Finally, as Tom mentioned in his remarks, our 2021 free cash flow will continue to be negative, but significantly improved from 2020, excluding cash tax benefits.
We are expecting a cash tax benefit.
Of approximately $300 million as a result of the carry back permitted by the cares Act.
And anticipate receiving a majority of this benefit in 2021.
This will provide cash benefits in 2021 above and beyond our year over year operational cash improvement.
Let's now turn to cash and debt balances on slide seven.
During the quarter, we announced the termination of the ESCO acquisition, along with new financing activity.
We raised $900 million of first lien senior secured debt, including $400 million term loan b and $500 million in notes due in 2025.
In connection with the closing of this new debt, we terminated the existing senior secured credit facility, including the revolver.
Prior to the termination on September Thirtyth, we paid off the term loans that had a remaining balance at the end of the second quarter of approximately $430 million.
This financing activity along with the ESCO acquisition termination and Bharti, a price reduction improved our overall liquidity position by $1.2 billion.
And provides us with additional balance sheet and operational flexibility.
We ended the quarter with $1.4 billion of cash and $3 billion of debt.
These balances reflect the termination of the prior credit facility, including the payoff of the term loans, but.
But the cash and debt balances do not reflect the 900 million of new senior secured debt.
As those funds were not received until just after the end of the quarter.
Including the capital raise and cash used for the party acquisition the adjusted cash balance at the end of the quarter would be 2 billion.
The debt balance adjusted for the 900 debt raise and would result in a total debt balance of $3.9 billion.
We believe our cash balance provides ample liquidity to navigate the uncertainty within our industry.
Now, let's turn to our segment performance on slide eight.
Fuselage segment revenue in the quarter was $421 million down compared to the same period of 2019, primarily due to lower production volumes in the 737787 and Athree hundred 50 programs.
Operating margin for the quarter was negative 23% compared to 11% in the same period of the prior year.
This decrease was primarily a result of forward losses recognized on the 787 and Athree hundred 50 programs and lower profit recognized on the 737 program, including excess capacity cost of $442 million.
The fuselage segment recorded $9 million of favorable cume catch up adjustments and 92 million of net forward losses during the quarter.
On a normalized basis after reversing change in estimate impacts.
Fuselage segment margin improved to negative 3% in the third quarter compared to negative 20% in the second quarter, reflecting the benefits of cost reduction initiatives. We have completed this year.
Propulsion revenue in the third quarter was $171 million.
Down compared to the same period last year, primarily due to lower production volumes on the 737 and triple seven programs.
Operating margin for the quarter was negative 9% compared to 21% in the same quarter of 2019.
The segment recorded $5 million of unfavorable cume catch up adjustments and 15 million of net forward losses.
The decrease in segment profitability and operating margin was primarily a result of lower margins recognizing the 737 program, including excess capacity cost of 18 million and the reduction in production rates on the Triple seven program.
And finally.
When revenue was 168 million down compared to the same period of 2019.
Primarily due to lower production volumes on the 737, Athree hundred 20, and Athree hundred 50 programs.
Operating margin for the quarter was negative 14% compared to positive 14% in the same quarter of 2019.
The segment recorded 22 million of net forward losses.
The decrease in segment profitability and operating margin was due to forward losses recognized in the 787 and Athree hundred 50 programs and lower margin recognized on the 737 program, including excess capacity costs of $13 million.
In closing this has been a very challenging year for spirit.
We have taken difficult, but necessary actions to adapt to the changes brought on for both the Max grounding and COVID-19.
We continue to assess potential future scenarios to identify areas of opportunity and develop action plans to mitigate risk.
The $900 million capital raise.
Along with the termination of the ESCO acquisition, and the mum Bharti, a price reduction strengthens our liquidity position and enhances our ability to address future challenges.
Further we will continue to stay focused on our growth and diversification strategies. The acquisition of the party is a significant event for us and we look forward to making them a big part of the spirit team.
With that I'll turn it back over to Tom for some closing comments.
Thanks, Mark and I will make some closing comments before we take questions.
Given the significant changes to the global aviation industry, resulting from the COVID-19 pandemic spirit has taken substantial cost reduction actions to align to lower levels of production.
These actions include the reduction of 8000 employees on commercial programs closure of several facilities and the reduction of other non labor spend into.
In total the annualized cost reduction actions have exceeded $1 billion or 40% of our non material base. We've also made substantial improvements in our manufacturing processes to improve digitization automation and process flow.
Spirit also took several actions to strengthen and strengthen our liquidity position we.
We mutually terminated the Asquith acquisition repaid our term loans and canceled our 2018 credit facility raised $900 million of first lien secured capital and closed the acquisition of BARDA is aerostructures assets for $275 million, a cash reduction of $225 million from the original amount.
The party acquisition also accelerates our strategic transformation.
With additional work on Airbus programs aftermarket business jet engines and defense.
The acquisition also brings low cost manufacturing operations in Morocco.
We have taken these significant steps during a very challenging time in the industry, which will allow us to emerge as a stronger more diversified company.
With that we'll be happy to take your questions.
And at this time, we will now begin the question and answer session. If you would like to ask a question. Please press Star then one on your telephone keypad.
If you would like to withdraw your question. Please press Star then too.
Please note we've we ask that you please limit yourself to one question.
First question today will come from Myles Walton with GBM. Please go ahead.
Thanks, Good morning, yes.
Good.
We have a lot of issues in the quarter. So.
Not an easy job, where you said.
I was wondering if you could talk about the underlying margins, excluding the forward losses and cumulative changes it looks like your segment margins were about breakeven.
And just curious if that's sort of the underlying business right now at these low levels, you're breaking even and then maybe more detailed just a one off on the Athree hundred 50.
Size of the the forward loss.
There seems to be about double of what was in that the debt offering disclosure and just curious what changed their exit looks like you are assuming five per month back down as well.
I'll start off in terms of the margins.
You're right, we have made some substantial improvements quarter over quarter, I mean, obviously deterioration year over year because of the reduction in production rates, but the cost reduction actions are starting to take hold and so even at very low levels of production.
You start to see the margin improvement. So for example, right now effectively for 737, we're at a seven Emery.
And Triple seven we've dropped now to about two per month on 787, we're still at 10, but thats dropping to six so even with all those headwinds you saw the margins improve on the 737 program on a normalized basis last quarter at negative 20% to this quarter at negative 3% so almost break.
Even so we're pretty happy about that.
Now the forward loss on Athree hundred 50 program was really just due to rates. When we originally made the estimate of what we thought the forward loss was going to be we were working on the assumption that the rate was going to drop from 10 to six but in fact Airbus dropped it to five for at least a six month period beginning in.
The September timeframe. So when we took that into account that drove the higher forward loss than we predicted at the end of last quarter Mark.
Mark anything else that no I think you hit it right Tom Hill, the Athree hundred 50 miles really was due to the fact that between now and the end of the year and mainly through next year, we're really going to be producing at about four and a half per month and when we originally made the assessment. It was in the four losses in the five to six range.
And so we've had to take that into account and also with that lower level of production. It's had a negative impact not only on section 15, but also our fixed leading edge program.
All right. Thank you.
And our next question will come from Carter Copeland with merely as research. Please go ahead.
Hey, good morning, gentlemen.
Hi, there.
Just a question on cash from.
What youve sort of disclosed about next year based on this year's guidance sort of.
50 out you get the cash tax benefits of 300, and the cost out isn't quite there, but I don't know call. It 200, it kind of gets you to low single digit hundreds of millions out are there other pieces that I'm missing and I guess, specifically with that what should we expect from a cash standpoint on the one bharti assets in your view.
Right well.
Well first of all as you know the cash usage for this quarter was 72 million Mark said, it's going to be probably a little bit higher next quarter.
As we go into next year again with our current forecasts 737 production should be higher than this year, but it's very dynamic so we'll see.
Some headwinds on the twin aisle programs, but by and large we don't expect the cash usage per quarter to exceed what weve seen in kind of Q3 and Q4.
So so you're right with that with the cash tax benefit of 300 million that will put us in a kind of single digit to right around 100 million.
Net usage and perhaps better depending on performance.
It Doesnt included somebody a still digging into it but we do expect somebody to be positive. We've got some work to do there as we look at their capital expenditures in R&D and things like that and we align it to our programs and as well as we as we start to drive synergies, particularly in the supply chain. So we expect it to be positive don't know yet how much.
I think your analysis in terms of where we will be free cash flow next year, including the cash tax benefit is about right.
Great. Thank you for the color Tom.
Thanks.
And our next question will come from Robert Spingarn with Credit Suisse. Please go ahead.
Hi, Good morning, my questions can be on BARDA, but before we go there just to clarify based on the moving pieces and where rates are now and what quarter, Tom or Mark do you expect just based on.
Current planned rates no changes, we see trough revenues.
Sounds like some rates are still trending down on the wide bodies.
And of course from BARDA is a little bit obscure so thats the first quite.
Question second question is.
Why did spirit and mum BARDA value the deal somewhat differently, but Marty talked about some favorable adjustments on the Ford business.
Yes so.
First off as it relates to the trough from resin revenue standpoint, I would tell you that.
We expect the trough has is behind us the revenue that we generated in the second quarter of 2020 year. This year, we expect that to be our low point and as you saw here where we've made.
Slight improvement here in the third quarter, and then as we move into into next year.
We have to adjust for some of the twin aisle pressure next year, but.
The expectation is 77 will be a little bit higher next year, which will help offset that so I think we're in a good position as we move forward here to slightly start to see revenues move upward as we move into 21.
Even stronger into the back half of next year based on.
The OEM data that has been that has been provided to us.
And then specifically as it relates to.
Bombarding These press release in holiday characterized all all I can tell you that.
But marty.
Accounting.
Is the is due to IRS spirit uses.
US GAAP and and how they calculated their liabilities or the develop the deal values is really up to them and their accountants I can tell you that.
We we used our accountants and our actuaries to assess the pension obligation liability.
And the repayable launch agreement and then the cash proceeds so.
When we finalize the purchase accounting here and established the balance sheet at the end of October.
We're very comfortable with.
Our accounting assessment as it relates to what the value of the deal is.
I wish I could connect the dots more for you but.
They probably had some different assumptions than than we did but we do know that our deal value in the enterprise and what the liabilities will establish on our books is consistent with USGIF right. It really gets down to how they valued the pension obligations in I. FRS verse.
Versus how we did in U.S. GAAP, that's just difference.
The last part just Tom on the on the exclusivity.
That you have there did that is that part of up some kind of a pricing arrangement in or should we see similar profitability in that business to what we would normally expect from spirit.
Yes, well the exclusivity is that we have sole source life of program agreements on the parts that the Belfast operations currently supplies to bombard eight on their business jet programs.
And the profitability is slightly accretive on those programs to spirits normal profitability margins.
Okay. Thank you very much.
And our next question will come from Kristine Liwag with Morgan Stanley. Please go ahead.
Hi, good morning, guys.
Good morning.
Okay.
You have acquired can you just.
Free cash flow profile.
And then now that you've closed the deal what your priorities are.
Sure.
Yeah, Christine I'll address the cash flow and then I think Tom will talk a bit about the business next year.
But the reality is this.
Their their business has been it's our business now has been impacted by COVID-19. So so obviously, there's going to be lower revenues than we anticipate and initially anticipated when we signed the purchase agreement there.
And we just closed the deal a few days ago. Our teams just hit the ground on Monday and in Tuesday, evidently financial team diving into the details as it relates to.
The next couple of months.
We'll be working with them over the next month or so to establish an annual operating plan for 2021.
They had a plan previously and expectations with their their former parent company and as we as we think about the integration and the synergies in where that business is going on a go forward basis, we expect.
You know decent revenues as it relates to the business jet side of things I think we've got good line of sight to eight to 20.
And we're really pleased with with the aftermarket part of the business. So we're not yet going to really get into details as it relates to.
Where we think they're cash flow is going to do next year and how it's going to contribute just specifically.
We'll factor that into our our guidance when we talked to you guys at the end of January but it's really in the early days of the Bharti acquisition and our teams are are working in earnest as it relates to the to the integration and the synergies but.
But were really pleased about that business and what it could offer from a value proposition for spirit.
Great and Christine in terms of priorities for the business first and foremost as integration to new acquisition. It's a big one so biggest at spirit's ever made and so we have a fairly large integration team working on all the normal things in terms of finance HR information technology driving all of those things.
Second big focus is going to be on capturing synergies and that's part of the integration effort, but specifically looking at supply chain facilities optimization overhead and particularly in supply chain with spirit, we bring a lot more critical mass and scale with suppliers and so we'll start integrating.
Those opportunities and leveraging our existing supply base to get more more competitive opportunities as we go forward.
Operationally the eight to 20 of course as a as a huge program. Its the entire integrated wing using that resin transfer infusion technology for fabrication that I mentioned in my prepared remarks, and we are going to be looking very hard at the production process the flow.
Cereal waste and looking at ways, we can optimize the production and drive further productivity in it and then the other big thing is aftermarket has this acquisition more than doubles, our aftermarket business and it gives us subs.
Pardon me. This is the conference operator speaking just please hold on underlying material.
And then probably managing the operating well just one moment, while we reconnect the speakers.
[music].
And pardon me up with the Speaker line.
Obstacle.
This is Tom again, I am sorry, we must have dropped off.
Ah so moderator could you, let us or perhaps you could let us know where did we stopped did they hear my response to Christine's question.
You were giving your response to Christine's question. However, if you I have reopened christine's line. If you would like to re ask that question again, Christy Let me just start over in next year, we get in fully you.
You dropped off.
Your question about aftermarket, Texas, Okay, right Hi, Joe.
Right. So aftermarket is going to be a big focus for us with this acquisition and.
Somebody's assets more than double our aftermarket revenue.
So we've always historically been very strong on bowling repairs for flight control surfaces, the sales and thrust reversers in the us market.
And the body business was always very strong on Airbus flight control surfaces the cells.
And thrust reversers in the European market. So those two things come together very nicely and complement each other.
And we will more than double our aftermarket business and as I said in my prepared remarks, our aftermarket revenue now becomes 8% of our total and we have substantial growth opportunities in the future. So this becomes a significant opportunity for spirit to start to realize more revenue and income from aftermarket activity.
Thank you.
Thanks Christine.
And our next question will come from Sheila Kahyaoglu with Jefferies. Please go ahead.
Hi, Good morning, guys and thank you just a follow up on Christine's question, maybe sticking with BARDA.
He be on the deal fell 35% or so but the implied EBITDA Dusty. So I guess, how do you think about how you risk adjusted the exposure here given its mainly Athree 22, 20, and Biz jet exposure and how do you think about those program outlooks appreciating Tom the deal just closed and you're going through.
The forecasting for it.
A few ways that we looked at it obviously.
Obviously, we struck the deal last October, but the world changed with the pandemic and somebody had certain expectations in terms of deal valuation and we were looking for some relief given the changes in the market. So it was as you can imagine a.
A rigorous discussion and we arrived at a at a mutual conclusion that yes. It was a 20% reduction in the total deal valuation, but if you look at the cash consideration. It was a 45% reduction so that's probably more in line with the EBITDA reduction that you just mentioned the other element of this is it was always a three way.
Patient with Airbus.
Because the pricing on the eight to 20 and all the deliverables to Airbus had to be taken into account in Airbus was also very supportive in these discussions to make sure we could come to a mutually agreeable outcome. So all those things taken into account, we feel very comfortable with where we ended up in a devaluation. So its a win really for spirit.
Because we get a transformative acquisition, it's a win for somebody to get the acquisition close they can move on with making their business more focused on business jets really a win for Airbus and that they now have.
Clarity in terms of their eight to 20, particularly on the full integrated wing and we would say it's in it's a win for the the the workforce in Belfast Casablanca in Dallas, because they now have certainty as we go forward.
Okay. Thank you for clearing that up apologies for that reversal.
Thank you.
And our next question will come from Doug Harned with Bernstein. Please go ahead.
Hi, Thank you good morning.
Okay last last week.
Airbus talked about.
The basically letters that it had sent out to suppliers on.
On rate increases for the 20 Neo from 40 to 47, a month and they said that this they had been planning for suppliers to be ready for such an increase in Q2 next year. They move that back to Q3 next year.
What I'm interested in is you're the largest structural supplier on the Athree hundred Twentyneo and when you get a message like that that you should be ready for this rate increase how do you think about responding what do you do and what does it mean that they move this back from Q2 to Q3 from a spirit.
Standpoint.
So the letter and we had calls with with their senior leadership on this topic is the way. They characterize it is they asked us to protect rate 47 for the back half of the year. So the current schedule is rate 40, but they asked us to protect for 47, so that means to make sure that we have.
All of our capital and tooling in place that we're prepared to increase the workforce two or three months in advance of that and that we also have line of sight to.
Material, particularly long lead material like forgings, yes.
If the rate does go up and they will give us enough advance notice to put those into a fact, but protecting the rate means you have to be prepared to go there if they decide to make that move now obviously the market is very dynamic right now.
They have talked with all of their individual airlines and created a new skyline based on when airlines can take delivery and when they will take delivery. So so they've been very diligent about the way they have constructed their schedule and what they communicated to their suppliers and they're effectively just giving us advance notice to be prepared if.
The rate does go up are the fact that it shifted three months doesn't really impact us. It just means that we push that that that lead time out. So we have done what they requested we are protecting for rate 47 in the back half of the year Q3 now.
And if they do decide to go up we'll be prepared.
And this.
Does the going.
Going up I mean is this.
What does that exactly mean that you would be within whatever quarter that is.
Well to deliver.
Deliver in that quarter or does it mean that you would be kind of set to go on that im sort of not sure would.
For you what how to tie your rate to their rate I guess, that's that's the thing I'm trying to understand but typically on the Athree 20, if they announce a rate of 47, we would be delivering at that rate during that period of time. So.
As they said on the call I think you said October so if they decide to go on October we'd be prepared to deliver 47.
Shipsets in October.
Okay.
Okay.
Very good thank you.
Yes.
And our next question will come from Ken Herbert with Canaccord. Please go ahead.
Hi, Good morning, Tom and Mark.
[music].
I wanted to see Tom if you can provide any more detail on all the glide path for the 737.
From sounds like you're at seven months now to the call. It 26, a month at the end of 21 or early 22, if you sort of lag by five a month. If you can provide any more detail on sort of rate breaks over the next several quarters on that and when you expect to catch up with Boeing on instead of 37 rate.
Great well Boeing has provided guidance that they think that build production rate will be at 31 per month by early 2022, and as we said we're going to lag them by about five aircraft per month to burn down the inventory that story here at at Wichita.
Right now we're in the process of ramping up to 10.
Aircraft per month for January so we're in the process of getting all of our head count and material orders and supply chain.
A line for that.
Within that that we don't have much other guidance other than what Boeing would provide it's a very dynamic environment and we will be guided by what footballing tells us but thats how were planning right. Now is we'll be at 10 by January there will be a 31 by early 2022, and we're going to lag them by about five per month.
In terms of the catch up based on the current schedule. It looks like we would burn down the 130 or so 128 units that we haven't buffer now to 20 to 25 by mid 2022.
And then we'll keep that buffer 20 or 25 units just to cushion the production system. So that we don't have any disruption that could upset boeing's production line in ever. So that's the that's the plan.
Great. Thank you.
And our next question will come from Seth Seifman with JP Morgan. Please go ahead.
Oh, thanks, very much and good morning.
Wonder if maybe I could sneak two in here, but one.
On the 737 with the current workforce how.
How how high can production go.
With the workforce at the size that it is now.
And then just real quick on the body and the 80 20.
How should we think about where the rate needs to go on that program before it becomes before it starts to contribute at a.
Solid cash margin.
Great well on 737, our current workforce is aligned to our current production rate, which is seven aircraft per month.
And as I said, we're getting ready to go up to 10 by the beginning of the year. So.
I mentioned the ventilator program has that's winding down we're transferring some of those people back to the 737 program. So that we are ready to go to 10 in January. So currently at a rate of seven in going to 10 in terms of embody the eight to 20. The current rate is about four per month.
And we're going to be prepared in the future to go up to 14 per month.
But we'll be guided by again, what what Airbus decides in terms of how fast it will ramp that up.
In terms of probably we will need to dig into it to figure out where exactly the breakeven points are in the in the profitability, but it's going to be a good program overall.
The outlook on it is very good as I mentioned, it's one of the smaller.
Segments of the narrow body market and the narrow body market is recovering for example, China and Russia on.
On their domestic aircraft flights air traffic are already above 2019 levels. So we expect to see the same in Europe and the US is that domestic travel will recover first that will favor narrow bodies and with overall levels of traffic lower than they were in the past a smaller narrow body like the 80 20 should do very well. So so we expect.
That Airbus will hit their long term production rate commitments on it and we will be ready to to meet those commitments and as we get further into I think we'll have a better sense of what the profitability breakeven points are.
Great. Thanks, Tom.
And our next question will come from Jon Raviv with Citi. Please go ahead.
Thanks, and good morning.
Dr. Cash deal can you talk a little more specifically talk about what you need to see in 2021 for cash burn to be significantly better and then same thing what do you need to see for cash breakeven in 22, what's in your control was not under control. It strikes me that narrow bodies clearly very important you talked about Airbus, We're talking about Max a lot, but Boeing is talking about.
Forward deliveries in 21, which would therefore constrain their production, which there would therefore considering your production your deliveries. So so just a little bit more on what's in your control for worse, what's not in your control and what production rate do you have to hit to actually make cash on page 737. Thank you.
Great.
So yes.
As you said I mean, what's in our control versus whats not in our control what's in our control is our cost reduction actions and we need to continue to execute on those weve.
We've got a lot of them are already in place, but we need to maintain that that vigilant. We also need to continue to drive productivity in our factories with what I mentioned things like Digitization and automation robotics factory floor automation. So so those are the things that are in our control to drive and we are definitely going to continue to drive.
Those things not in our control and really the biggest driver for cash flow in 2021 is going to be production rates are.
Particularly the seventh reset.
Obviously, the 77 is our biggest program, we make 70% of the structure last year. It accounted for half of our revenue. This year, we only produce 72 units versus 606 and 2019, so if that recovers and it is supposed to recover.
From this year. According to Boeings current projections that obviously will drive improved.
Improved cash flow for next year, even with the headwinds of some lower rates on the wide bodies like the triple seven and the Athree hundred 50, but.
But this is a very dynamic environment.
And lots of things could change obviously, we're still waiting for the Max to get back into service, it's promising it's encouraging but that needs to happen in the Bay has said there is no timetable on that but they have said a lot of positive things about it so at the Asa by the way which is encouraging.
So we need to see that and then of course the pandemic.
People are starting to fly more domestically in places like China, and Russia, but with the recent surge it creates more uncertainty. So once append a vaccine has in place that will obviously give greater greater focus and also the development of these private.
Private healthcare corridors or travel bubbles that you start to see developing between different countries, which should help stimulate some international traffic. So those I think are the key issues for 2021, and frankly for 2022 as well we've got to continue to drive our cost reduction actions, but we need to see single aisle.
Production rates increase as air traffic recovers around the world.
John you know just to kind of add to what what Tom said.
We're.
With all the reductions in production rates this year, we really do.
When you think about delivering 70 273 sevens.
We're really kind of at the trough right now of production volumes. So even a modest improvement in 77 deliveries next year will be will create some tailwind and accretive benefits for us. So.
As we said before some of the drag of working capital that consume quite a bit of cash here in 2020 will not repeat I expect working capital to be a bit of a tailwind.
A little bit of benefit from 737 next year and as we said before you know from a from an operational standpoint, we expect our cash flow to be significantly better year over year more than half our cash burn here in 2020 is working capital replayed related and that will not repeat next year, we'll get a little bit about.
If it there and you know when you when you think about a quarter kind of did some good math on where we think cash flow is so significant improvement next year, even with the lower production volumes. The cost reduction activities are taking place you see it in our cash usage this quarter.
So we're going to continue to go battle looks the cost reduction side, but we also I think have some real opportunities on the working capital I can think we can do a better job next year on inventory management, which will.
Potentially give us some additional tailwind on the cash flow side and you know.
If the market predictions come true.
We're looking at some modest recoveries back half of next year.
Into.
And into 2022 that that will help on the operational front and then weve.
We said you know the.
It's kind of a.
On a pro and con, but the operating losses this year will generate some some sizeable.
Onetime cash tax benefit in in 2021 and that will that will create some additional liquidity.
Liquidity or cash to help us work through the challenges here, but we feel good about where we're at and where we think cash flow is going to be next year significant improvement and then as Tom indicated you know we get a little some help here on the vaccination and their narrow body starts to recover we can be back in business generating free cash flow.
2022.
Thanks.
And our next question will come from George Shapiro with Shapiro Research. Please go ahead.
Yes. Good morning, I just wanted to go back to last year have been BARDA was going to do about a billion dollars or revenues and 19, what is that number. This year I know you mentioned on the call. It will go up to 700, plus next year. So I'm just trying to get the comparison here as to whats.
Well, you're right last year was up by $1 billion.
This year with the impact of coded.
And again, we're just getting to look at the books from the standpoint of closing the deal looks like it will be 700 to 800 million and then a recovery to the $1 billion in the 2022 time period, but thats, what we see right now yeah, George the beep or specific this year.
We're looking at six to 650, that's that's what we're projecting for the year and then next year to seven to 800, so just a little bit of modest improvement next year before we start to see.
Revenue start to climb back up in 22.
And just on the 737.
What happens if Boeing further delays the increase to the 31 per month.
Right, because certainly they've got a lot of planes to deliver they've got a lot of grounded planes. So I just wanted to see how you react to that.
Well, we will respond to their production rate and will will lag them by at least five per month.
And if the rates are lower than we are expecting this will align our costs accordingly.
Okay. Thank you very much thanks.
Thanks Stuart.
And our next question will come from David Strauss with Barclays. Please go ahead.
Thanks, Tom I was wondering if you could just specify exactly what you're assuming for Max production and 21.
That you've got reflected in your commentary around 21 free cash flow.
And then looking beyond the Max it the other important platforms.
323, 50 77, you are currently delivering well.
You are delivering into the manufacturers are well above their own delivery rates at this point so what.
How much risk is there that you actually have to drop your production rate on those programs actually if the drop.
Below the manufacturer stated production rates going forward. Thanks.
Great well on the other programs our rate tends to lineup to the manufacturers rate, so Airbus and Boeing and.
When they give us the schedule we deliver to it.
And so.
So those are pretty closely aligned and on the Threetwenty Airbus has been very clear there at a rate of 40, right now that which is going to continue into next year, they've asked us to protect for 47 in the October timeframe and beyond the Athree hundred 50 is right now at a rate of five and that will go into early part of next year May June.
And then go back up to six.
77, right now is it 10, and it's supposed to go to the six in about the March timeframe and Triple seven is really down to <unk> to 1.8 and those are all as what the manufacturers have stated and we are aligned to those on the Max falling hasn't been.
Specific yet about what the production rate will be.
In 2021, what they've said is they expect to be between 31 by early 2022.
And we're getting ready to go to 10 in January and so we haven't really said what the specific rate will be for 2021, it will really wait and see what Boeing does we don't want to get out ahead of them. It's obviously, a very dynamic environment, they're working really hard with the airlines.
They have given some guidance to the market and we're we're following that guidance and we're making sure that we align to the schedule that they gave us.
And David I think your point, though is you know Boeing and Airbus falling on the H. Sevens built up some units that they haven't delivered yet Airbus.
Airbus has some as well.
Again, thats really kind of outside of our control.
Fastest produce we're delivering.
And we know that there's a lot of uncertainty as we move into 2021, I think production rates are still dynamic and as as Weve acted very quickly. This year. If there are further rate reductions.
We will be forced to have to take additional workforce reductions and continued to focus our our cost to align with the production rates. You know we have a highly variable cost structure here.
And the.
The best thing that we can do is production rates are out of our control and if they go lower because of the situation that you just addressed we're going to have to take further workforce actions and we will continue to align our cost structure with the marketplace.
As we see it today and as a as you know it continues to be dynamic because of cold in 19.
Thanks, Hey, Mark one one quick follow up I'm working capital in 20, 2800 to 900 million free cash flow burn new you're you're guiding to what do you what are you including in there I mean as you as you look at working capital what you call working capital what are you assuming within that number for kind of negative or free cash.
Capital burning 20, yeah.
Yeah, So David I would focus on receivables.
Inventory.
Accounts payable and accrued liabilities and.
And profit sharing those are the big cash driving working capital items on our balance sheet.
Okay and you think those are are the sum of all of that in 21 is a positive.
Slightly positive yes, okay. Thank you.
Okay.
And our next question will come from Cai von Rumohr with Cowen. Please go ahead.
Yes. Thank you very much so when you first announced the bombarded deal in October of 2019, I think you were talking about.
Six and a half times EBITDA with synergies would you be kind of back it up to the billion dollars was like close to an 11% EBITDA margin.
And now you're talking of six to 650 in terms of revenues for 2020, and if I use to 7.3.
No it backs up to about 12% EBITDA margin, so a higher EBITDA margin after a substantial revenue drop.
And then if we're looking at next year wouldn't the EBITDA margin go up if in fact, the revenues are building as as as you as you hope.
Yeah, I mean, when you when you think of it that way I don't think that an EBITDA margin on any of our business at around 10% is unreasonable.
I think we have a lot of opportunity from a cost standpoint, Tom talked about three or four major drivers.
That we think that we can take advantage of as it relates to the Belfast Belfast site.
That could really help us from a from a profitability standpoint and from a cash flow standpoint, So I don't think it's unrealistic to assume that.
No that business can generate 10, plus 10 to 12 plus percent EBITDA margins.
As we look at.
Getting back to the higher revenues over the next you know.
One to two years here and kind of I would say, we do think we can increase the EBITDA margin next year as we drive the synergies, particularly in supply chain.
But so if I look at this what is driving the revenues up because they to twilio is already at rate.
I assume the 70 to 7500 is gone.
So mark Aerostructures point of view 35 to 40, the aftermarket I guess could be flat to up.
I had a little trouble understanding what's driving the revenue up next year.
Well Chi is because we said I indicated that we're looking at you know rod mid mid six fifty's.
From a revenue standpoint that we're projecting seven 800.
800, if some of the business jet aftermarket business holds and does outperforms kind of where where our heads are.
But I don't think when you think about an increase in revenue from 650 to around 700 that work that we're talking about a substantial drop right I'm a little bit about benefits on the business jet side I would expect that the 7500 will deliver a few more units will produce a few more next year, we got a little bit of lift on the aftermarket side of things right and.
And we you know as it relates to some of the some of the discussions that we've had with with Airbus on price et cetera, you know could could add some value as it relates to the 28 to 20 program.
Thank you very much.
Sure.
And our next question will come from Hunter Keay with Wolfe Research. Please go ahead.
Hi, Thanks for getting me on.
A quick follow up to that last comment Mark when you talked about I was going to ask you what your Shipset content was on 220 prior and pro forma.
So be curious about that and then the second one is is Tom what's your primary metric for how you measure employee productivity. Thank you.
Sure Hunter real quick on the work statement on eight to 20 today.
Today as it relates to the new eight to 20 work that we're going to capture as part of this acquisition is Tom.
Tom talked a lot about the the fully integrated composite wing.
But there's a oh some potential fuselage work some center wing box work to complement our of our propulsion package that we have an on the eight to 20.
The the pylon so.
We're starting to have some sizable work statement.
As we as we add the work content from the Bharti acquisition.
Great Hunter and then to get at employee productivity I'll focus on direct labor productivity in our major metric is hours per unit, which we look at across every program and continue to work on that and we look at SUNS, we caused due what to do but it's a it's a realization metric which is.
Thats our scheduled today for particular unit, how many did we complete so what was our.
Effectiveness at executing the workload for today that we schedule.
Oh hours per unit and what we call do what to do and we look at those metrics across all of our programs on a daily basis.
Thank you.
And our next question will come from Ron Epstein with Bank of America. Please go ahead.
Hey, good morning.
So not discussed all of it.
Are you are restructuring the business and the.
So on and so forth.
Can you restructure how you do contracts that you've got more downside protection. If another downturns like this were to happen again, I mean is there a way to do these things so below a certain point you are cost plus or something because I mean.
The situation we're in it I suppose is there was a once in a lifetime thing, but it might not be right. I mean is there a better way to build downside protection into your contract with the overseas.
Well I mean, certainly you can try there they're good negotiators, but I'd say the one thing I would say is our biggest program is the Max and as we've said before our Max contractors index to rate. So as rates go down our price went out and that's probably the best way to protect yourself in the event of a downturn because you just can't answer.
The pacings, but in that case that contract being our biggest contract that was a good contract. If you will mechanism that that helped with this with this downturn shortly.
Short of that you know, we always work with our customers in terms of what are the best terms and conditions that make sense in the market and that we can live with so there's always a large focus on quality and delivery it's difficult to protect normally against downturns like this I mean this is a once in a millennium type of.
Situation, but for our longer term contracts. We also built in some escalation protection as well so lots of different things that you can do and it's always a negotiation based on what market conditions are and what the the.
The needs and and requirements are of both parties at the time.
And if I may on 77, specifically I think you said at one point you guys would be cash flow breakeven at 22 wins.
When does that happen now is it like 24 25.8.
A positive in terms of cash flow and profitability when we get to line unit Fortino. Five now originally that was in 22 23 time period, obviously now with lower rates of production that gets pushed out to the end of 2024 thereabouts.
And it's still fortino fives that still same line number.
Yes.
Okay, great. Thank you.
And our next question will come from Noah Poponak with Goldman Sachs. Please go ahead.
Hi, good afternoon or good yeah.
Hello.
A clarification and then a longer term question. The 800 to 900 million are projected 2020 free cash burn that you provided does that include or exclude that I think you said $35 million to $40 million from Bharti outflow.
Outflow in the fourth quarter.
It does not include the $35 million the Eightnine hundred is.
What we what we told you guys on our second quarter earnings call.
You know that's the legacy business, excluding the BARDA, Yeah, I think we're going to be on the favorable side of that and that does not include those onetime severance related cash costs that will be incurred.
On the bottom part of your acquisition and we will pay those out in November and December.
Great.
And then longer term.
You've spoken to the mix change in the business.
Revenue percentage of revenue perspective.
Were looking three four or five years out how should we think through the margin differential in.
Defense versus aftermarket versus.
I know, it's different by airplane programming original equipment business, but just in the pieces youre, adding whether you want to frame it by defense versus aftermarket versus Bharti assets.
Hear you talk through the margin in those.
Things that are mixing up.
Right well as.
As we go out.
For the next few years, obviously next year.
Max program is still lower so we would expect the Boeing percent of spirits revenue to to to increase again in the future as as the production rates normalized terms of margin.
Our older more mature programs tend to have higher margins.
As you would normally expect but the defense margins are what you would typically expect in defense contracts. They they don't go as high but they also are more stable even in downturns. So those are in the kind of 12% to 14% range typically so and that's what we would expect as we as we go forward on defense.
As I said this year, our defense business grew 20% next year, we're expecting 15% and we've got line of sight to making it a billion dollar business in a 2022 2023 timeframe, which is a little bit ahead of what we originally thought going back a couple of years ago.
On aftermarket.
Margins in aftermarket typically are higher if you think of typical spirit margins of 16.5% aftermarket would be higher and as we go forward, it's going to be 8% of our business next year as we go forward. It will continue to grow and become a bigger portion of spirits overall revenues in the future.
Thank you.
And our next question will come from Peter Arment with Baird. Please go ahead.
Yes. Thanks, Good afternoon, Tom Mark Thanks for squeezing me in Tom You gave a lot of details on BARDA.
The synergy comment <unk>, 6%.
In terms of expected synergies can you give out like a rough timeline on when you expect to kind of achieve that.
Any kind of color you can give on that.
Well, we're going to we're going to start immediately but the full 6% will take US three years was our original projection and we'll we'll stick with that obviously with the pandemic lots of things have changed but we still see.
Lots of opportunity and we feel good about a 6% number in over a three year time period.
Is the supply chain still the big one of the bigger opportunities that you've got kind of called out.
Yes, we see that and it's because spirit has a lot of critical mass and scale in structures.
More so they then bharti aided in so as we bring our suppliers into the mix, we expect that we will be able to.
Get a lot more competitive outcomes.
Appreciate the details thanks Tom.
Your final question today will come from Mike CR Moly with Truth Securities. Please go ahead.
Hey, good afternoon, gentlemen, thanks for squeezing me on here.
I guess just back to the working capital and cash flow looking specifically at pad inventory I mean, it continues to remain high rates are lower it should we just expect.
You've got all that long lead material you know should we expect significant declines looking at inventory contract assets, we didn't see too much of a change sequentially. But are you are you haven't lux slowing down your incoming raw materials, just trying to get a sense of where that specific line can go under the engineered wood reduced rates.
Yeah, I mean, if you see the balance sheet you look at what our inventory balances are and our businesses one half the size it was a year ago.
You know, we very quickly reduce.
Three seven got shut down we've gone through a series of production rate cuts.
It up from a master scheduling standpoint, it takes a little time for us to slow the schedule down feed it back to our supply chain. So there's no doubt we're carrying extra inventory right now and so from a planning standpoint, as we factor the our factory and the needs from a park consumption standpoint, with what we have on hand are so.
Apply chain team is working very diligently with with our with our suppliers to a line that up accordingly, as we move through the rest of this year and into next year and we saw some modest improvement in our inventory balances come down a bit between here at the end of third quarter compared to the second I expect our inventories to.
Can you to improve as we move through the fourth quarter and then in in 2021, I do think from a working capital spending standpoint, we'll see some benefits because we have a lots of parts. We were prepared for higher rates and therefore, a work on it we have the parts, we need and we'll consider them and will slow down the.
Coming receipt.
Obviously, we'll have to focus and will continue to work with our supply chain or we want to make sure. Our supply chain is healthy and they are in a position to go up in rate late next year and into 2022. So we really kind of got to balance both with that we will definitely take advantage of of I think making our inventory levels more efficient.
Or more in alignment with what our current rates of production are and so that will help out in 2021 ads as compared to where where inventory levels are now.
Got it perfect. Thanks, a lot guys.
Thank you.
This will conclude our question and answer session also concluding today's call.
We'd like to thank you for attending today's presentation. At this time you may now disconnect your lines and have a great day.
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