Q4 2020 Standard Motor Products Inc Earnings Call
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Good day, everyone and welcome to today's standard motor products fourth quarter earnings call. At this time all participants are in a listen only mode. Later, you will have an opportunity to ask questions. During the question and answer session. You May Register to ask a question at any time by pressing the star and one on <unk>.
You touched on phone. Please note this call may be recorded I will.
I'll be standing by should you need any assistance and it's now my pleasure to turn today's program over to Larry Sills. Please go ahead.
Good morning, everybody and thank you for attending our fourth quarter call.
My name is Larry sills.
Chairman of the board.
With me today, we have Eric sills, President and CEO.
Jim Burke.
<unk> operating officer.
And Nathan Iles, Chief Financial Officer.
Our agenda for today.
We'll start with Eric will review the highlights of the fourth quarter and on a year.
Jim will then review some operations.
And Nathan will then give a more detailed review of the numbers.
And when that's complete we will switch over to we will start our Q&A session.
So a lot to cover.
That's sorry.
Well Nathan you'll begin with the forward looking statements and then we'll go from there.
Okay. Thank you Larry and good morning, everybody before we begin this morning, I'd like to remind you and some of the material. We will be discussing today may include forward looking statements regarding our business and expected financial results.
When we use words like anticipate believe estimate or expect these are generally forward looking statements. Although we believe that the expectations reflected in these forward looking statements are reasonable. They are based on information currently available to us and certain assumptions made by us and we cannot assure you that they will prove correct. You should also read our filings with the securities mix.
<unk> Commission for a discussion of the risks and uncertainties that could cause our actual results to differ from our forward looking statements and I'll turn the call over to Eric.
Well, thank you Nathan and good morning, everyone and welcome to our fourth quarter earnings call.
I'd like to open today by thanking all of our employees for going above and beyond and a year. Unlike any other.
And I truly believe we would not have been nearly as successful and navigating these uncharted waters without their dedication and skills I truly could not be more proud of how they guided us through it.
Okay onto business, we were extremely pleased with our fourth quarter results as we set records for both sales and profits our sales were up $41 million for 17% with both divisions contributing record numbers.
Engine management was up 15% and was far and away our largest fourth quarter on record.
This was due to entering the period with and order backlog as you recall the third quarter was also quite strong and due to some manpower shortages and our distribution centers, we did not fully catch up until early in the fourth quarter.
But beyond that incoming volume from our customers continued to be robust throughout the period as well.
I would note that our customer sell through and the fourth quarter was and the mid single digits and we are pleased to see that the positive trend has continued into 'twenty and 'twenty one.
Temperature controls also has also had a record up 30% below the fourth quarter is the lowest sales period of this highly seasonal category.
We enjoyed a very warm summer and similar to and your management, we entered the quarter with a bit of a backlog.
In addition to this backlog the warmth continued into the fourth quarter prolonging the selling season.
Customer P. O S was robust throughout but again this is a light period for the air conditioning business.
Yeah.
Reflecting back this was a this year was a tale of two halves at mid year, we were down nearly 15% due to the sales drop off from the pandemic and with the third and fourth quarters strengthening sequentially on a full year basis. We are nearly flat with 2019 with engine management slightly behind and temperature control slightly ahead.
From a profitability standpoint, the trend was similar after the first half our earnings from continuing operations were down almost 37% and with record third and fourth quarters. We ended the year up 16%.
Nathan will provide much more detail later in the call, but overall, we are quite pleased with our year and proud of our performance.
Okay.
Although we enter 2021 with many positives as previously announced we were recently informed of a loss of a major accounts within our engine management segment.
At the time of the announcement, we knew that the annualized impact was an approximate losses of $140 million that we had yet to finalize any details including time, Inc.
We now know that this business is phasing out over the course of the first quarter of this year during which we expect price approximately $20 million and revenue.
And it will then be totally absent the beginning in the second quarter and thereafter.
This account has chosen to pursue a private label strategy as they have with other product categories before.
And it is our understanding that they have split the business between several suppliers, both domestic and overseas.
We now turn our attention to right sizing our cost structure. Accordingly. Meanwhile, we seek to replace the volume.
First off we have many exciting opportunities with various customers that are actively in discussion.
And secondly, installers all have many sources for their parts needs many of whom we believe to be loyal to our brands and we plan to work aggressively and the field, helping them find our products.
And while this account decided to pursue a different approach we strongly believe that our full line full service strategy continues to resonate with our other customers as well as with the installers and end consumers and.
Evidence of this and have the strength of our partnerships. We are honored to have recently received O'reilly auto parts top honors as Theyre 'twenty and 'twenty supplier of the year.
Okay.
And that's why I'd next like to speak for a moment about some of our other areas of business that complement our north American aftermarket focus.
First as original equipment.
While we do enjoy some OE business for the passenger car market are larger emphasis has been more towards the heavy duty industrial and agricultural arenas.
We believe these are a better fit for us the product lifecycle tends to be a bit longer and frankly tend to be a bit more profitable and OE for passenger cars.
In general the OE market was slower to recover from the pandemic and the aftermarket as new vehicle production and sales were more adversely impacted but I'm pleased to report that it has now rebounded quite nicely and we are seeing good run rates entering 2021.
Included in this is our recent pollak acquisition of which 75% is OE and largely commercial vehicle.
Not only are we seeing a rebound of the acquired product lines. This acquisition has opened new doors for us, which we're actively pursuing.
Another original equipment area that has been a real highlight for US has been our compressed natural gas injectors, which are utilized and heavy duty commercial vehicles largely in Asia.
As that region focuses on alternative energy vehicles, we have seen strong growth as they build out systems that operate cleaner than conventional powertrains.
We sold over a million and natural gas and gas injectors last year and the order book remains very strong.
Next regarding the heavy duty aftermarket portion of the acquired Pollak business. We saw the same rapid recovery that we saw on our legacy aftermarket.
And as you'll recall our intent with this is to focus on reinvigorating what has been a somewhat neglected business from its former owner.
We have added hundreds of Skus are refreshing all marketing materials and are building out and organization to aggressively pursue the heavy duty aftermarket for both engine management and temperature control.
We see this as a very complementary channel for US there are many similar products to what we offer elsewhere and we have acquired a well known and highly regarded brand on which to build.
Lastly, I'd like to address our Chinese operations.
To remind you we have three joint ventures, all within temperature control, while they provide us with access to high quality low cost products for our North American aftermarket business. There are other purposes to pursue Chinese original equipment business, which is the largest new vehicle market and the world.
As of now about 30% of what we sell out of these jv's is for in country OE.
And while these businesses are still quite small and the growth potential is substantial.
One that we are really excited about is called C Y J, which manufacturers electric compressors for electric vehicles, both passenger car and heavy duty truck and bus.
Similar to the natural gas injector discussion a few moments ago, we see real potential and being a basic manufacturer of products for alternative energy vehicles, and and they're excited to be and at the ground floor.
So in summary, 'twenty and 'twenty was a rollercoaster of a year.
After a difficult first half the second half showed the resilience of our industry and we were able to make up essentially all of the lost ground.
And while the ongoing pandemic will continue to cause uncertainty looking forward to 'twenty 'twenty, one and we see many positives.
Industry trends or are all favorable among them average age of vehicles and set a record 12 years gas prices remained relatively low and as mile driven recover we expect D. I F M, which is our core business will strengthen as well.
Our strong customer sell through from the second half 'twenty and 'twenty has continued into the first quarter of 'twenty, one and while we will feel the near term impact of the lost business and our relationships in the marketplace have never been stronger and.
With that I will hand, it over to Jim to talk about our operations.
Okay.
Thank you Eric This is Jim Burke and I'd like to touch on two topics from operations today first is our supply chain.
<unk> thousand 20 was like no other year and I'm very proud of all our team members enduring everything that was thrown at us.
We are deemed an essential business for the transportation industry and we remained open to meet our customer demands and this entailed retrofitting all of our facilities for safety precautions and social distancing.
We endured while demand swings dropping 30% to 40% followed by positive swings up 10% to 20%.
At the same time, we were faced with a labor shortage we.
We are very thankful for all our employees, who work continuous overtime and seven days a week. Many customers were very complimentary recognized on our employee efforts.
Our more recent topic around supply chain has been the disruption and the auto sector from Lachlan and availability of semiconductor chips and Fortunately, we believe we have inadequate inventory supply and deemed this to be a minor risk.
Another supply chain challenge has been the logistics of moving products, primarily from the far east to the U S.
Fortunately, we have a very large manufacturing footprint in North America, and Poland and are less exposed and others, who source for 100% from Asia.
The logistics challenges challenge reflects a combination of container shortages availability of shipping vessels and ultimately congestion at local domestic ports.
We have been managing through this process by forward booking containers and vessels to meet our needs well definitely a challenge we were able to alleviate more of this risk than others with our north American and Poland manufacturing locations.
Okay.
Closer to home I would be remiss without a dress under recent storms across the U S and in particular, Texas, the polar blast with snow and ice and still significant hardship and devastation across the mid section of the U S effect and many of our plants.
However, Texas was hit hardest, where we have our temperature control headquarters and distribution center.
We are assessing employee needs to recover and our facility reopened after being shut for four days.
Fortunately this time of the year, we are focused on pre season orders and we will be able to make up the lost days with overtime and weekend.
Our global teams have met all these supply chain challenges head on with Pride and are driven to meet our customer needs and we thank all of our worldwide employees for their dedication throughout these very difficult Covid times.
Turning to my final topic, I would like to highlight our SMP inaugural social responsibility and sustainability report for.
For over 100 years S&P has nurtured our culture focused on all our stakeholders, including our employees customers and our communities.
With solely internal resources. Our team members produced this outstanding E S and G report, which can be found on our website.
With a focus on environmental and social responsibility report highlights the products, we produce that reduce auto emissions.
Efforts to reduce our carbon footprint and our operations.
Increasing diversification and inclusion throughout our organization.
Addressing the health and safety of our employees and being engaged and the communities where we are located.
Many of these efforts have been captured under our SMP cares banner, focusing on all stakeholders and striving for continuous improvement.
Thank you for your attention and I will pass the call over to Nathan for our financial wrap up.
Okay. Thank you Jim now turning to the numbers I'll walk through the operating results for the fourth quarter and the full year cover some key balance sheet and cash flow metrics and then also talk a little about our expectations for the year of 2021.
Looking first at the P&L consolidated net sales in Q4 2020 for $282 7 million up 41, 5 million or 17, 2% versus Q4 last year.
Our consolidated net sales for the full year for 1.13 billion, finishing down just 8% after recovering and the last half of the year as Eric noted earlier.
Looking at it by segment engine management net sales in Q4, excluding wire and cable sales for $193 5 million up $26 2 million versus the same quarter last year.
And 15, 7% increase was driven mainly by catching up on the large order backlog, we carried into the fourth quarter. This stemmed from the sharp rebound and business activity. After Covid lockdowns were lifted for.
For the full year engine management net sales were down 2% to $691 7 million and.
<unk> second half volume helped offset the pandemic induced declines you saw earlier and the year and brought the segment's full year sales to a level just slightly below 2019.
Wire and cable net sales in Q4 for $38 3 million up $3 7 million or 10, 6%, but for the full year were relatively flat, finishing up <unk>, 6% at 144 million sales.
Sales during the quarter and for all of 2020 were positively impacted by an increase and DIY sales as consumers stay at home during the pandemic.
While the wire and cable business performed very well and 2020, the business remains and secular decline and we believe sales will be lower by 6% to 8% on an annual basis.
Our temperature control net sales in Q4, 2020 were $47 7 million up 30% versus the fourth quarter last year, driven by and extended selling season is whether it's trade war and well into the fourth quarter across most of the U S.
And like engine management and controls full year sales were more in line with last year, ending the year up one 3% and $282 million.
Long seasonal sales, helping segment finished slightly ahead of 2019.
Looking now at gross margins our consolidated gross margin in Q4, 2020 was 33, 3% versus 32% last year up three one points and for the full year. It was 29, 8% versus 29, 2% last year up <unk> six points.
Looking at the segments fourth quarter gross margin for engine management was 33% up two four points from Q4 last year and for temperature control was 30% and increase of seven three points from 22, 7% last year.
The very strong margins in both segments reflect the higher sales volumes, we experienced as well as the positive impact and high fixed cost absorption, resulting from increased production.
For the full year gross margins in both segments more closely aligned with long term trends engine management gross margin was up <unk> five points to 31%, while temp control was up one five points to 26, 7% is.
These full year margins reflect strong second half sales and fixed cost absorption and also incremental improvements achieved from our continuous savings programs.
Moving now to SG&A expenses, our consolidated SG&A expenses in Q4 were 61 million ending at 21 six per cent of sales versus 22, 5% last year for.
For the full year SG&A spending was $224 7 million down $10 million at 19, 9% of net sales versus 26% last year the.
The improvement as a percentage of sales and the quarter, mainly reflected improved expense leverage the sales volumes increased.
Lower overall SG&A expenses for the year were helped by cost reduction plans put in place earlier and the year and lower interest rates on accounts receivable factoring programs and to a lesser extent COVID-19 COVID-19 related government incentives.
Consolidated operating income before restructuring and integration expenses and other income net and Q4 2020 was $33 2 million or 11, 7% of net sales up four points from Q4 2019 and for the full year was nine 9% of sales up one four points from last year.
As we noted on our GAAP to non-GAAP reconciliation of operating income our performance resulted in fourth quarter 2020 diluted earnings per share of $1 eight versus 59 since last year.
And for the full year diluted earnings per share and $3 61 versus $3.10 last year.
The increase and our operating profit for the quarter was mainly due to higher sales volumes, while the increase for the year, mainly reflects higher gross margins and lower SG&A expenses across the company, which overcame the impact on slightly lower sales volumes.
Turning now to the balance sheet accounts receivable at the end of the quarter for $198 million up $62 5 million from December 2019, with the increase over last year due both to higher sales and the fourth quarter and management of our supply chain factoring arrangements.
Inventory levels and finished the quarter at $345 5 million down $22 7 million from December 2019, with the decrease from last year, mainly reflecting the sharp recovery in sales, we experienced and the second half of the year after having lower production levels earlier in the year.
Our cash flow statement reflects cash generated from operations for the year of $97 9 million as compared to a generation of $76 9 million last year and <unk>.
And $1 million improvement was driven by an increase and our operating income as noted earlier, but also by changes in working capital.
The changes in working capital in 'twenty and 'twenty, we're mainly a result, and strong second half sales and related timing.
Inventory balance is finished lower but accounts payable were higher as we tried to replenish our shelves.
Further accrued customer returns and rebates were also higher due to timing of sales and the back half of the year.
These favorable movements for partly offset by an increase in accounts receivable as highlighted before.
As we said last quarter, we expect this timing around cash flows normalized net sales and production levels stabilize.
During the year, we continued to invest and our business and used $17 8 million of cash for capital expenditures, which was more than $16 2 million used in 2019.
Financing activities included $11 2 million of dividends paid and $13 5 million paid for repurchases of our common stock.
Financing activities also included $46 7 million of payments on our revolving credit facilities.
We finished the year with total outstanding borrowings of $10 million and available capacity under our revolving credit facility of $237 million.
Finally as noted in our release. This morning, we continue to look to return value to our shareholders to that and our board of directors has approved a quarterly dividend of <unk> 25 per share on common stock outstanding which is payable on March 1st.
Further our board has also authorized an additional $20 million common stock repurchase plan.
This new authorization is on top of the $6 5 million remaining under our existing plan and when added together will allow us to repurchase up to $26 5 million of additional shares.
Lastly, let me talk about our expectations for 2021.
As I said earlier sales and the last half of 2020, and the fourth quarter and particular were very strong leading to very favorable gross margin performance, but as you've heard we as we head into the first quarter of 2021 based on the loss of a customer we will be working through cost reductions for the balance of the year, while we seek to replace the volume.
While gross margins will vary across the quarters, we expect full year 2021 gross margins for engine to be 29% plus.
For attempt control segment, we continue to target gross margin of 26% plus for the full year and 2021.
Looking at our SG&A costs from 2021, we expect expenses to be and the range of $52 million to $56 million each quarter.
Finally, with regard to working capital, we expect balances to normalize as noted earlier as a result, we expect cash flows to be driven by using cash to build our inventory back to appropriate levels and to pay customer rebates earned during 2020 and offset by cash generated from the collection of accounts receivable.
Thank you for your attention I will now turn the call back to the operator to open it up for questions.
Britney are you there.
And I apologize at this time, if you would like to ask a question. Please press star and one on your Touchtone phone.
And you remove yourself from the queue at any time by question of hockey. Once again that has stopped you from if you would like to ask a question and.
Our first question from Scott Denver with C. L. King Your line is now open.
Good morning, guys and congrats on a great quarter, good way to finish out the year.
Scott Thanks, Scott.
Maybe talk about the loss of business.
You talked about it was a change in strategy and this one customer.
Correct me, if I'm wrong, but it seems that they just I guess want to break it out amongst different folks and theyre.
And they are not as interested and the one stop shop portfolio of services.
Standard offers and I'm, just trying to dig into a little bit more.
And what their reasoning is and.
Thanks.
Understood got it and.
And that's.
I don't want to overly speculate on and on their strategy better to speak with them. What I would say is that we continue to emphasize our go to market strategy, which we still think is very sticky and.
Very relevant out there today and and to remind you and so on.
Well, certainly, but others, perhaps on the call that and our approach has always been to be a full line full service Guy and full line being a very important part of it which is we're now within engine management North of 40000, part numbers and adding more each year and is the line gets more complicated and the technology gets more complicated and car manufacturer.
And is find new systems and methods.
And to improve.
There are other vehicles.
And to have a man.
On a category manager like a standard motor products to really drive the whole thing for you. We think is very well.
Received by the balance of our customer base. So we're going to continue to emphasize our strategy as mentioned players like O'reilly awarding us there theyre top honors and relationships we have with the other.
Players out there both large and small suggest that going forward. Our strategy is still the stronger and so so while this other accounts chose to go on another direction better to talk to them about why but we still believe our strategy is the right one.
Yeah.
Fair enough and.
The business, that's going away what does the mix is it.
Pretty much the same mix of business that you have across your entire engine management business, just trying to get a sense of whether this is a higher margin business going away.
Or if it's just emblematic or just representative of your and your entire mix of business that you have there.
They were a they.
And they were a customer of the entire lines for their mix was was roughly reflective of the overall division.
Alright, and last question before I get back in the queue you talked about some opportunities that youre working on currently to replace this lost business.
Can you just give us a sense of.
What kind of stuff, we're looking at here and the.
The how long it could possibly take two to replace all of US for this is obvious.
And a big chunk and sales that are coming out.
And and really don't have any details to report Scott, but what I would say is that we have many prospects and the works.
Uh huh.
Across engine management and other product categories.
With with many customers out there they're all in different stages. So its not like theres going to be potentially a big step wise replacement of the business, but I would actually say that we probably possibly have more opportunities now than ever. We're excited about it we think that on our customers are excited about working on some of these things with us, but we don't have.
Any specifics to report.
Great. Thanks, guys. Thank.
Thank you Scott.
And we will take our next question from Andrew Ryan with Stephens, Inc. Your line is now open.
Hey, good morning, guys congrats on the quarter.
Thank you Marni.
Yeah. So I guess the first question I have here, we've heard from some of your like public retail customers inventories on the lower side, where they'd like to be where do you think.
They are you guys are positioned heading into like pre season sales for 2021.
Sure. It's a good question, so and it's best answered by looking at the divisions separately, because they have somewhat different dynamics, especially this time of year.
And engine management, you actually really entered the fourth quarter, where they were a bit light.
But and that was partly because of our order backlog.
But by the end of the quarter. They were really a back up to a reasonable and healthy levels that being said, what we see is perhaps more of an appetite than we've seen and a long time for some of these distributors to really strengthen their forward deployed inventory as they're looking to aggressively go after after the market.
Out there. So so we see the potential for even though they're not under inventory today that there's more of an appetite to really strengthen there there.
And what they have on the shelf.
On the temperature control side.
Here too.
And they ended the year.
Roughly where where they have in the past.
So even though it was a very strong selling season as you saw by.
Their purchases from us over the course of the quarter then they were up 30%. So there their shelves or are in reasonable shape as we enter 2021 for for temperature control.
The first half of the year is almost entirely about pre season for.
Preparing for the summer.
If you look at 'twenty and 'twenty 'twenty and 'twenty was very light pre season.
The first quarter was just light and the second quarter was the pandemic. So the comps are relatively easy, but that's why we always caution to look at the full year. The first half of the year is really just about preparing the shelves and it's really what happens in the summer so perhaps I'm, giving you more than you asked for but that's.
And how we see things going forward.
And that was very helpful. Thank you I guess and then moving over to.
And that control SG&A really impressive leverage there and you kind of parse out how much it would cost removal various production and sales leverage.
Yeah, well just to reiterate what we said before and you look at SG&A costs tend to be roughly 75% fixed and 25% variable and.
And they tend to flex that way.
So with strong volumes like I said, it and my remarks, most of the improvement with just the better leverage on the top line going.
Perfect. Thanks, guys. Just one quick little housekeeping follow up I guess can we get any color on expectations for the cadence of repurchases now that you share does that are.
Going into 'twenty and 'twenty one.
We have no specific cadence around repurchases just noting that we do have the board authorization and we will use it as it makes sense.
Perfect Alright, thanks, guys. Thank.
Thank you.
And once again, if he would like to ask a question and that is star and one on your Touchtone phone.
We'll take our next question from Bret Jordan with Jefferies. Your line is now open.
Hey, good morning, guys.
And Brett Okay.
On the <unk>.
Existing inventory and advance is that going to be bought out or is there any inventory that would be returned to you and this transition.
Oh well.
Get into the those level of details but.
I would say it would be.
As you look and model it for this year it would be negligible.
Okay, and then obviously a lot of talk about how are we in the prepared remarks is that something we should read on sort of.
A shift and the strategy and maybe if you think about how you see OE as a percentage of sales mix and maybe a longer term basis like looking out a few years is that going to grow obviously loss small numbers, probably helped that grow but is that going to be a meaningful growth driver and the total top line.
And it's a great question and and there is nothing.
While perhaps got a little bit more attention and the and the prepared remarks, there's nothing new about this diversification strategy, we've been working on and for the last several years and and some of our M&A over the last few years have really been geared towards finding categories that are complementary to our core business.
Makes sense for us, where we think that we can do well, but not chasing every little opportunity.
That's why we emphasize that we think the commercial vehicle heavy duty industrial space is a little bit better suited for us and and.
And we've seen some nice inroads there some of it came with the acquisition of policy, but this is an area we've been working on especially out of out of Poland.
Which is in some ways uniquely positioned to go after OE business because it is a very good cost structure, and it's very technical and their capabilities.
So if you add up all this complementary business and and we report this and RK, it's about somewhere north of 14% of our business. It's been growing slowly over the last few years, we're judicious and what we look for but we see it as a nice complementary business.
We still believe the North American aftermarket that's our core business. That's what we've emphasized for the last hundred years, we think this fits nicely on top and there are some synergies between the two.
Okay, great. Thank you.
And once again that is star and one if you would like to ask a question.
And we will take our next question from Robert Smith with Center for performance investing and your line is now open.
And good morning, Thanks for taking my question so.
And as you're in your second 100 years.
Uh huh.
And some thoughts too.
The so called and of the ice age and.
And the transformation of the industry to electric vehicles and.
How are you you might see this and euro.
Hi, Good morning, Robert and and it's a great question and it's certainly one that we spend a great deal of time thinking about and and preparing for internally.
We're certainly seeing more news recently, whether it's for general Motors announcement of what they're planning to do with their fleet by 2035, and just so many other car manufacturers.
Preparing for that.
We recognize that it's not.
And if it's a when we do think that that when there's still many years out.
And General Motors is looking at 2035, and that's really for new car sales and if as largely and aftermarket men.
Manufacturer we have.
A pretty good lead time, even after that before it has any significant impact on the addressable market on the on debt.
Car Park.
But look we definitely see that it's coming so as we look at our product portfolio and make sure that we're evolving along with automotive technology.
And perhaps itself for the to break it into its components. If you look at our temperature control Division.
Essentially immune and there are some slight technology changes on.
AC systems for electric vehicles, but for the most part it's still out there.
And on engine management.
We really see more and more of that division.
Really having little to do with.
With the engine. So we're seeing much more as it relates to safety related devices, whether it's on.
Older technologies like ABS sensors are getting into the new technologies with all of the advanced driver assist systems, we're seeing on vehicles, where we are already offer and hundreds and hundreds of skus to support.
Cameras and drones.
Lane departure systems, and so on and so for us So we see.
And as the potential for ice related components.
Contract.
We hope that there are replacement debt.
There are product categories that are there to replace that business and that potentially also includes parts to service that electric vehicle.
Vehicle powertrain.
It's also important to note and I think you're aware of this that much of the electrification going on certainly for the near term as hybrid vehicles, where there is a combustion engine on board along with the electric motor.
But yes, we continue to look to evolve and and with these new systems comes new technologies and new parts opportunity and so for example, there's going to be much more related to battery cooling, which we think is and our wheelhouse to power management.
<unk> sensing technology, and so on which we think is and our wheelhouse and again more and more emphasis on different types of sensors and actuators throughout the vehicle. So we've been evolving with automotive technology for 100 years, we plan to continue to do it we think we have a <unk>.
Several year lead time before there is significant impact and the addressable market, but we're by no means ignoring it we're addressing it and.
And on <unk>.
Preparing for it.
Yeah. Thanks for the color and all I can say is the pace of technological change.
Increasing.
And as it always has been.
Luke.
Thanks again.
And we will take our next question from Andrew Ryan with Stephens, Inc. Your line is now open.
Hey, guys. Thanks for taking my follow up Andrew on for Daniel again, I have one quick question and I was wondering you mentioned rising breakup.
And the quarter and I'm kind of wondering if youre seeing inflation anywhere else and how you guys feel about the industry's ability to pass those costs for the consumer.
Thanks.
Well and let me just answer I guess with <unk>.
Specific to S&P, but we have a number of inputs into our manufacturing processes from a materials perspective.
And of course, you see the inflation out there.
And that we do.
We don't have any one commodity that is a big input into our processes.
So.
Not a huge driver there, but yes to your point anything that we see and try to pass through.
Yes.
Okay and would that be a similar process like with debt.
And where are you guys there.
Gross profit dollars.
Alright.
Yes, okay, so youre, saying its similar to tariffs yet.
And did a couple years ago.
Excellent alright, thanks, guys.
Yes.
And once again, if you would like to ask a question that is start and one on your touchtone phone well pause for just a moment to allow any questioners to queue.
We will take on.
A question from Robert Smith with the.
The center for performance investing your line is now open.
So.
As 2020 unfold and with the.
And then make you.
Kind of where.
Thank you.
And I.
Defense and.
Due to the uncertainties and you pass is imminent.
I voiced my concerned about.
And.
What happened subsequently.
And the fact that.
The dividend payout was reduced in 'twenty and 'twenty.
So again I might.
Ask of you then.
The year and and so to speak.
And really high and chain.
And that you might consider declaring an extra dividend.
And 2021 to make up for.
The.
Reduce.
Dividend payout and 2020.
Alright.
We will discuss these things with our board as we always do and take it under advisement.
I think it would hold you and good stead.
On a long term basis.
Thank God.
Thank you.
And once again that is star and one on if he would like to ask the question.
Well pause for just a moment for that questions. Thank you.
And it appears we have no further questions at this time I will turn the program back over to our presenters.
Okay.
Okay.
Thank you all and thank you all for attending.
Wish you all good luck okay.
Thank you. Thank you.
Yes.
This does conclude today's program you may disconnect at any time.
Thanks for that.
And.
[music].
Okay.
Okay.