Q4 2022 Garrett Motion Inc Earnings Call
Yes.
Ladies and gentlemen, please standby.
You are clearly once again gentlemen, please stay on the line.
[music].
Ladies and gentlemen, thank you for standing by and walk through the Garrett motion fourth quarter and full year 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session need to press star one on your telephone if you require any further assistance. Please press star zero I would now.
Turn the call over to your host Paul <unk> you may begin.
Thank you, Kevin and good day, everyone and welcome.
Thank you for joining garett motions fourth quarter and full year 2021 financial results Conference call.
Before we begin I'd like to mention that today's presentation and earnings press release are available on the Garrett motion website at Garrett motion Dot Com, where you will also find links to our SEC filings along with other important information about our company.
Turning to slide two we note that this presentation contains forward looking statements within the meaning of the Securities Exchange Act.
Encourage you to read the risk factors contained in our filings with the SEC become aware of the risks and uncertainties in our business and understand that forward looking statements are only estimates of future performance and should be taken as such.
Forward looking statements represent managements expectations only as of today and the company disclaims any obligation to update them today.
Today's presentation also includes non-GAAP measures to describe the way in which we manage and operate our business. We reconcile each of these measures to the most directly comparable GAAP measure and you are encouraged to examine those reconciliations which are found in the appendix to both the press release and the slide presentation.
Also in today's presentation and comments, we may refer to light vehicle diesel and light vehicle gasoline products using the terms diesel and gasoline only.
With us today as Olivier <unk> President.
President and Chief Executive Officer, and Sean Deason, Garrett Senior Vice President and Chief Financial Officer, I will now hand, it over to Olivier.
Thanks, Paul and welcome everyone to Garrett's fourth quarter and full year of 2021 results conference call.
I will begin my remarks on slide three where we start with highlights for the year.
2021 was a remarkably challenging and successful year for Garrett values waves of Covid combined with the semiconductor shortage created numerous difficulties for all employees supply chain partners and customers.
Even in this volatile environment Gareth develop strong results across all key metrics.
I would like to thank our employees for their hard work and dedication in these extreme circumstances as they successfully executed in the face of fluctuating demand component shortages.
Related disruptions.
MLG and cost pressures.
Our employees, our key differentiator and critical for the long term success of Garrett.
This past year was easily one of the most dynamic cures in the automotive industry.
Even with all the headwinds I mentioned earlier, the strength of our leadership position across light vehicles commercial vehicles.
After market combined with robust execution allowed us to deliver net sales of $3 6 billion, an increase of 15% at constant currency.
Facing global auto production by approximately 12 five percentage points.
Global light vehicle production was up only slightly from 2020 with an estimated growth of only two 5% Easter.
Historical low for the past 10 years.
And in this environment guarantee is well positioned for prolonged growth as turbo technology continues to penetrate on internal combustion engines and a brief bullet train and we continue to grow our share of demand with new business wins.
Just the pent up demand from customers for <unk> will drive global industry volumes higher in the coming years, and our increasing share of demand will remain a major growth catalyst for Garrett.
This slow recovery in 2021 of light vehicle production was enhanced by a 25% net sales growth in our commercial <unk> vertical and a 25, 21% growth in our aftermarket business.
These two emerging businesses comprised approximately 70% of wealth net sales in 2021, and an even greater proportion of our earnings.
Growth in aftermarket.
And commercial vehicles, coupled with the improved mix of the light vehicle sales totaled BRL to increase our adjusted EBITDA by 38% and.
The EBITDA margin by 220 basis points to 16, 7%.
Finally, adjusted free cash flow was $367 million in 2021, as we nicely converted our earnings growth into cash.
This 30 cash flow generation allowed us to accelerate our deleveraging activities and repay.
$211 million of the series D preferred stock in Q4 2021.
So mall, we have agreed to a second repayment of the series B preferred stock.
$197 million in the first quarter of 2022.
In addition, we launched a part $100 million stock buyback program and Shang will update you in a few moments on the progress made in Q4.
Lastly, we increased the capacity of our revolving credit facility by $124 million to $424 million in January of 2022.
Taken together these transactions.
Optimize our capital structure, and our ability to create long term shareholder value.
On slide fall.
Outline our growth strategy as we continue to execute in the near and mid term, while investing in delivering differentiated solutions to our customers as the automotive industry continues to evolve.
<unk>.
Our core business continues to strengthen as we capitalize on the new business win rate of greater than 50%, we just position Gareth and the number one the number two position across all of our core business verticals.
This achievement was driven by direct to reach portfolio of differentiated technologies, such as the valuable nozzle turbine technology using gasoline powertrain and the new electric boosting technology is useful hybrid just to name a few.
This is also one of the key factor that allows us to continue to outperform automotive production growth even in a volatile macro environment.
This differentiated technology will continue to drive our success in 2022 in our core light vehicle and commercial vehicle Archie calls and we'd increase our penetration on hybrid electric vehicle programs as we sell our customers' growing needs in these existing and new areas.
I should also highlight again that the <unk> business is in the long term technologically driven industry consolidation with improving competitive dynamics.
We expect as such to continue competing on win and increasing shelf demand as our customers consolidate their global engine platforms, resulting in larger awarded program volumes.
Next we are excited for the upcoming launch of our award winning each oval on the Mrs. At AMG, New hybrid platform. The industry's first technology won the prestigious 2021 automotive news pace Awards for innovation and is a powerful example of in house developed technologies moving.
From its roots in familiar Taiwan to leading edge hybrid development.
<unk> draws upon Garrett advance in I will skip <unk> ice spin motors power electronics and control as well as our software capabilities, which are highly relevant and required for the electrification of the powertrain.
As Oems continue to increase the electrification of the vehicle offerings, we have accelerated the development of our fuel cell compressor technology and continue to offer market leading differentiated products in this space.
In 2022, we have civil second generation fuel cell compressor launch is plan with key customers and we are actively designing our self generation product portfolio to meet our customer shoot your fuel cell needs.
On the software side, we will launch our in house developed <unk>.
Industry first cyber security software this year in Asia, along with the first deployment of predictive control software offering.
Our objective is clear we.
We are continuing to develop and launch new technologies in our core business, while accelerating our <unk> deployment to support our new electrified offerings.
We are pivoting our development capabilities and focus as we increase our new tenant pool for the acceleration of new technologies aimed at sustaining and enhancing our differentiation in the electrification of four trains.
This technology and just focus supported by the strength in our commercial vehicle and aftermarket businesses.
Gareth to not only sustain strong margins, but also improve them during the virus crisis in 2021.
As such we expect to use our strong operational cash flow to continue investing approximately 50% of our.
R&D into new technology in 2022 up from 40% in 2021, which in fact include non traditional internal combustion engine project used in applications for hybrid platforms fuel cell compressor applications and those are projects for IDEXX.
Hi Fi Drivetrains.
Three despite gradual improvement.
In the persistent Edwin in early 2022, we currently don't ship a global light vehicle production to increase by 7%. That's just 2021, and we expect strong adjusted free cash flow generation between $400 million to $500 million for 2022.
In summary, we expect Garrett's proven track records of pioneering new and differentiated technologies will drive our success in the marketplace. While we continue to increase our investment for the future for the benefit of the company and our shareholders.
With that I will now turn it over to Sharon to provide us with more insights on our results.
After a while they will provide some additional closing remarks.
Thanks, Olivier and welcome everyone I will begin my remarks on slide five starting with our Q4 2021 results a challenging production environment hampered by continued semiconductor shortages depressed volumes compared to Q4 2020.
Net sales declined 14% to $862 million at constant currency adjusted EBITDA also declined 13% to $125 million in the fourth quarter. However, the adjusted EBITDA margin increased 20 basis points to 15%, primarily driven by an improved product mix from higher margin commercial vehicle and aftermarket.
<unk>.
We will discuss this in greater detail in a few minutes.
Free cash flow in Q4, 2021 was $151 million an increase sequentially from Q3, driven by improved volumes and working capital releases, but down from last year's Q4 figure of $236 million due to volume reductions lastly, adjusted net income was virtually unchanged from 2020 at $78 million versus 77.
<unk> million dollars as compared to Q4 2020.
Overall Garrett improved our Q4 2021, adjusted EBITDA margin, even in the face of reduced production and sales.
Turning now to slide six you will see our net sales bridge for the quarter by product category. As you May remember Q4 of 2020 had a record volume of 4 million units produced primarily driven by gasoline program launches in China and North America.
14% net sales reduction versus Q4 of 2020 reflects decreases in gasoline and diesel products, primarily due to semiconductor shortages on passenger vehicles, where gasoline sales were down 15% and diesel down 29%.
However for the quarter, the higher margin businesses of commercial vehicles, and aftermarket products were up 3% and 18% respectively at constant currency.
This resulted in a favorable mix for the quarter and contributed to our margin improvement, which we will see on the next slide and is driven in part by commercial vehicle and aftermarket market products, which combined comprised 32% to fourth quarter net sales.
Lastly, the FX impact Q4 to Q4 was a $12 million headwind, primarily driven by a stronger dollar to euro exchange rate.
Yeah.
Turning to slide seven you'll see our Q4 to Q4 adjusted EBITDA Bridge for Q4 2021 volumes of $3 3 million units were up 6% sequentially from Q3 2021.
We're down 18% from Q4 2000, Twenty's record volume of 4 million units. This led to a $52 million volume related reduction, which was further exacerbated by commodity and transportation inflation, partially offset by improvements in product mix price productivity and SG&A.
Overall, adjusted EBITDA decreased $20 million to $129 million in Q4 2021.
Versus $149 million last year. However, the adjusted EBITDA margin increased 20 basis points to 15% for Q4 2021 as mentioned earlier driven by increases in commercial vehicles and aftermarket products, both have higher margins offsetting the decrease in light vehicle products with lower margins and this drove a favorable mix and adjusted EBITDA.
Turning to slide eight youll see our full year comparison.
Garrett reported 2021 net sales just over $3 6 billion representing growth of 20% on a GAAP basis and 15% in constant currency significantly outpacing the 2021 that global auto production by 12, five percentage points adjusted EBITDA for 2021 increased 38% year over year.
Year to $607 million.
Which is just above the midpoint of our revised guidance range and equates to an adjusted EBITDA margin of 16, 7% for 2021, and a 220 basis point margin expansion as we were able to improve our profitability due in part to a favorable product mix from commercial vehicle and aftermarket products.
Adjusted free cash flow increased from $128 million in 2000 $20 million to $367 million in 2021, representing a 111% adjusted free cash flow conversion rate, reflecting our ability to capitalize on a favorable mix and generate solid cash flow even in a volatile macro environment.
Lastly, adjusted net income was $331 million in 2021 up from $215 million in 2020, and excludes FX losses reorganization and repositioning charges and stock based compensation, representing an increase of 54% year over year.
Overall Garrett strong 2021 results delivered across all key financial metrics, and we demonstrated our ability to grow while managing the various headwinds in the supply chain challenge inflationary environment.
Turning to slide nine.
We show our net sales bridge for 2021 versus 2020, and we provide net sales by product category for the full year of 2021, we experienced solid growth across all regions and product lines, reflecting the impact of the COVID-19 pandemic on 2020 results.
Gasoline products grew 15% at constant currency and were 39% of total net sales next deals diesel products grew 9% and 29% of sales.
On a year over year basis, the best performing products for 2021 were from the commercial vehicle and aftermarket businesses growing 25% and 21% respectively. The.
The strong growth in these high value businesses represented 30% of our 2021 sales and demonstrates the benefit of Garrett is well diversified and broad portfolio of products across all verticals.
The overall FX impact in 2021 was a $132 million tailwind and reflective of a stronger euro to dollar exchange rate versus 2020.
Overall Garrett grew net sales at 15% in constant currency with the strongest growth in the high value businesses of commercial vehicle and aftermarket businesses.
Turning now to slide 10, you can see our adjusted EBITDA walk for 2021 as compared to 2020.
In 2021, our production volumes totaled $13 7 million units, an increase of 14% compared to 2020 for.
For 2021, <unk>, adjusted EBITDA increased 38% to $607 million due.
Due to improvements in volume and productivity and SG&A, partially offset by product mix price and price net of inflation pass through as well as well as higher commodity and transportation inflation costs.
As Olivier referenced a few moments ago. We also increased R&D spending by $17 million in 2021, as compared with 2020 with 40% of our total R&D spend dedicated to new technologies. In addition, the FX impact in 2021 was a $28 million tailwind and reflected and reflect.
<unk> of a stronger euro to dollar exchange rate versus 2020.
Overall, our adjusted EBITA margin in 2021 was 16, 7% and represented a year over year improvement of 220 basis points importantly, our year over year incremental margin was 28% driven by productivity gains volume leverage and foreign exchange gains.
Productivity remains a priority in this environment as supply chain and inflation issues persist affecting freight logistics energy and commodity costs in 2021, we work closely with our global customers and suppliers to mitigate much of this impact helped by favorable mix of our product portfolio.
In 2022, we intend to continue to work closely with our customers and suppliers to address the increased complexities of our supply chain dynamics.
Turning to slide 11, Garrett is high working capital turnover has historically provided a source of cash on an annual basis, assuming an increasing volume and sales environment. However, as we discussed on our Q3 call the negative impact of lower volume, which was primarily driven by the global chip shortage resulted in working capital being.
A use of cash in Q2 and Q3 of 2021.
As shown on the right hand side of this slide and as we pointed out on our Q3 call working capital for Q4, once again moved back to become a source of cash contributing $84 million in Q4.
Shifting to the left hand side of the slide you will see the 2021 bridge from adjusted EBITDA to adjusted FCS Deducting the full year change in working capital cash taxes cash interest and capital expenditures, resulting in free cash flow of $367 million for the year in 2021, we were able to optimize our inventories customer production schedules.
<unk> stabilized in the fourth quarter along with demand.
Before we leave this slide I would also like to mention that we would also expect generally positive networking capital contributions in 2022, given our outlook for gradually improving sales and volume cadence throughout the year.
Turning to slide 12, we ended 2021 with available liquidity of $720 million, including $423 million in unrestricted cash and approximately $297 million in undrawn commitments under our $300 million revolving credit facility.
Additionally in January of 2022, we increased our revolver capacity by $124 million to $424 million, which further improves our liquidity for 2022.
We also accelerated the previously announced $211 million series B preferred stock redemption into Q4 of 2021 saving $2 million in additional interest expense and as mentioned, we expect an additional $197 million in series B redemptions prior to the end of the first quarter of 2022, helping to further improve our leverage.
Sure.
Following the Q4 2021 payment the present value of the remaining scheduled redemption payments on the series B shares is $395 million.
As of December 31, 2021, and including the series B preferred stock Garrett gross and net debt to consolidated EBITDA ratios were 264 times and 195 times.
You had also mentioned that in January Moody's recognized our deleveraging progress and upgraded Garrett <unk> for our corporate family rating, which was previously <unk> III.
I am also pleased to report that in Q4, we repurchased 509000 common shares and $1 8 million series a preferred shares for a total equity decrease of $19 million.
Lastly in the market capitalization table, you can see our current market capitalization.
<unk> $2 6 billion.
This figure is comprised of 246 million shares of series, a securities and 65 million common shares which positions Garrett motion is a solid mid cap company.
Overall, we are excited about the progress made to date as we have improved our leverage profile repurchased meaningful equity in the fourth quarter of 2021 under our pro rata stock repurchase program and we increased our CF capacity in January 2022, as we focus our investments on innovative new products and solutions to address.
Future needs of the automotive industry.
Turning now to slide 13, we provide our 2022 outlook as you can see we have delineated ranges for key metrics in 2022 as well as our planning assumptions for greater detail I would also point you to the reconciliation of each of these metrics to the nearest GAAP figure as shown in the.
Appendix.
The key full year 2022 assumptions on the major metrics using the midpoint of the ranges our global light vehicle auto production of 7% in net sales of rounding to $3 9 billion.
Adjusted EBITDA of $620 million.
And net cash provided by operating operating activities of $535 million and last but not least adjusted free cash flow of $450 million.
Given this outlook, we are confident in our ability to continue to generate healthy cash flow, even as we continued to invest in our strategic growth initiatives and we do not expect the near term industry challenges to dampen our long term outlook or our focus on enhancing shareholder value.
Having said that we do expect a gradual rebound throughout the year with stronger second half results than what we expect in the first half of the year as we started 2022 with ongoing impacts from Covid as well as continued inflationary pressures in a nutshell and on a full year basis, we expect to largely offset inflation through productivity and we expect significant cost.
However.
Covered through reduced pricing impacts I should also caution that the timing of the cost pass through we expect on a full year basis is not likely to be linear across quarters as ongoing conversations with Oems and the implementation of these recovery mechanisms take time.
Turning to the right hand side of the page we show graphically the expected bridge from 2021, adjusted EBITDA of $607 million to the midpoint of our 2022 adjusted EBITDA range of $620 million.
As you see on a full year basis, we expect a significant lift from increased volume of $100 million in 2022, partially offset by $40 million product mix impact as production normalizes across our verticals.
Which I can confirm is already happening and beginning to happen is improved chip supply drives growth across our portfolio.
As you can see we also expect $70 million in commodity and transportation inflation costs for the year, which should be offset by $79 million of improvement in productivity and SG&A.
As previously mentioned, we also expect to increase our spending for new technology investments by an incremental $18 million in R&D and we now estimate roughly half of the total R&D spend for 2022 will be in new technology areas.
Lastly, we estimate a $26 million FX headwind on adjusted EBITDA from using a one <unk> dollar to Euro exchange rate for 2022 planning purposes.
In summary, current expects to make 2020 to another year of focused execution and a gradually improving macro environment, while driving greater long term value for our shareholders with that I will now hand, it back to Olivier for his concluding remarks.
Thank you Shannon.
In summary, <unk> delivered strong results across all of our key metrics.
Continuing to launch new differentiated technologies and to develop new capabilities to serve both our deployment in the powertrain electrification.
We increased net sales by 15% at constant currency to $3 6 billion.
Significantly exceeding global auto production by approximately 12, five percentage points and even with numerous disruptions in the global auto supply chain, which significantly impacted 2021 volumes and led to a dynamic macro environment.
This strong growth was primarily led by our commercial vehicle and aftermarket businesses, which combined accounted for over 70% of 2021, net sales and which command higher returns.
So Ken.
Garrett generated $607 million and adjusted EBITDA, even with our significant R&D spending focus on key investments in two initiatives for the future.
So we increased our adjusted EBITDA margin by 220 basis points to 16, 7% even in an inflationary cost environment.
Only to the proven execution and operational excellence that is a key focus for the company.
Fourth.
We reduced our net leverage below two reaching 194 times, including the series B.
Fifth we instituted a $100 million stock buyback program, resulting in $19 million of repurchases in Q4 2020.
Lastly, we ended 2021 with $720 million in total liquidity and we expanded our revolving credit facility in January by $124 million.
No totals $424 million in Undrawn availability.
In conclusion, our Garrett team continues to build upon the strong track record of accomplishing our strategic objectives as we deliver strong results across our portfolio in 2021.
And as we move on to 2022 and beyond we will remain our focus on developing our new technologies around electrification.
Electrification and software collaborating closely with our global customers as we have done for decades.
Operator.
Now ready to begin the Q&A session.
Ladies and gentlemen, if you have a question or comment at this time. Please press. The Star then the one key on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please press the pound key.
Our first question comes from Amit <unk> with Dws financials.
Hey, Good morning first question I had was.
Are you seeing any of the disruptions.
Your order flow as you were in the prior quarter and if not how is it improving or are you seeing increased order flow or is it just a coincidence.
<unk>.
As far as what Youre seeing from customers.
That's a very good question indeed.
What we have what we have seen in Q4 is that the industry was suffering from.
A lot of last minute cuts in the demand we're seeing from customers.
In fact, and we mentioned that in the fast.
Severely undercut the demand forecast.
We were seeing from customers obviously.
This is a this is not something easy to do that in order to protect our Dutch and protect our suppliers as well and I think we've been very successful to do that because when I look at the numbers that <unk> in Q4 that we're very close to our initial forecast which is.
What customers were forecasting so the first sign of recovery for us.
We'd be a stabilization of the demand signals from customers and indeed this is what we see in the beginning of this year.
Which is not uncommon with some of our.
Peers, Ive said stabilization of the demand signal.
Remains a little bit too early to our view to understand if the recovery is happening at the pace at which we are forecasting it.
<unk>.
First on that.
Software already to know.
We would need to probably a few moments to push on that.
Okay and then the other question I had was.
Looking out into.
2022 is it your D&C and each per BOE thats going to.
Drive the unit growth or are you relying more on the <unk>.
Commercial aftermarket.
Well, we are expecting everything to keep on growing in 2020 between Fox.
And by the way not on <unk>.
Wins in gasoline.
Even in the in the Wiz Gate, which is the non valuable geometry technology.
All of that would contribute to the growth we expect in 2022.
All verticals.
And my last question is.
What does this do as far as your average unit price. It went down in Q4, so I'm just looking at what happens in 'twenty two.
Yes, the Asps this is Sean.
Asps would come under some pressure just because of the mix and as we see the industry restarting as.
As you know and as we've talked about.
This past year, there was a prioritization for larger engines and more profitable vehicles and but there is a lot of pent up demand for some of the smaller vehicles that still have turbos.
We still make margin on but I'd say it is at a lower level.
So asps and Thats part of the mix the product mix the headwind of $40 million you see on our bridge will ASC asps could come under a bit of pressure, but again, we need to see how the whole a recovery unfolds.
But even though asps could come under pressure and wanted to increase in production.
Okay.
<unk> absorb a lot more operating expenses and so forth.
Yes, absolutely, but overall, if you or is it.
As you see revenue increasing along with units.
Some of the units we're adding this year are going to be at a lower ASP on average than this past year.
Understood.
Okay, great. Thank you.
Yeah.
Our next question comes from Josh <unk> with credit Suisse.
Hi, Josh.
Hey, guys, sorry about that.
I can hear you now sorry about that.
A quick one for me I may have missed missed this in the prepared remarks, but I just wanted to ask about capex during the quarter because it looked like.
Net inflow.
During the <unk> I guess, what was driving that.
How should we think about capex going forward and into the first quarter and the remainder of 'twenty two.
Yes, we see Capex definitely up next year, you had we were managing.
Our cash flow and our capex, but primarily driven by programs that were delayed because of the pandemic related disruptions and the dynamic in the fourth quarter a lot of some a lot of the development do also does get reimbursed by the customer some of it's lump sum some of it is piece price and.
Just the way the mix of cash flows happened in the fourth quarter ended up being.
Being better the better inflow than expected.
But overall, our free cash flow came in at.
Slightly more positive but in line with guidance.
On the upside so there are some dynamics there, but we expect capex to get back to normal operating levels that you've seen historically going forward and thats factored into our cash flow.
Got it fair enough okay. Thank you very much.
Our next question comes from particularly with Goldman Sachs.
Hi, good morning.
Okay.
Can you hear me all right.
Yes.
Okay great.
Question for me.
Just on that one.
Greg the outlook.
Your outperformance to date.
Two.
Production in FY 'twenty one.
Thank you.
But based upon your guidance.
Good.
Okay.
So can you just talk a bit about what are the puts and takes behind back in terms of.
About your end markets.
You can expect it to perform.
So it was a little bit too.
Difficult to get maybe I rephrase, a little bit on the question. So your question is pretty much about the way develops into 2022.
What's behind the 7% growth that we anticipated for good I'd say can industry.
In fact.
What we see coming up as a no surprise a little bit the same as everyone. We have we have diminished sheets on our side to work with.
Pretty mature to account makers around the world. So that gives us a little bit of a balanced view into the way they are recovering.
Between some groups of customers, that's all extremely optimistic and some others that may be more on the <unk> side.
We also compare ourselves with.
We would be considered and C companies to understand the way the heat as well, but that broad reach gives us usually not so good you as we as we experienced in Q4.
I would say beyond the 7% that you see for us.
It's a gradual recovery primarily in the backend of 2022.
We'd like to be surprised but we are not anticipating and this is getting consumed as we speak by some of our customers.
We are not repeating a huge off fast recovery in the first half of the year.
Yes.
And then that recovery will take different forms differently on the regions.
So we monitor very closely what's happening in China.
There is a point that John was mentioning about the mix in Europe , because in Europe , there is a need to produce.
There is a huge pent up demand for smaller vehicles.
With some of our customers needed to reach the targets imposed by the <unk>.
European Commission.
So we are monitoring all of that but we are not seeing so far we.
We haven't changed our plans for Autodesk.
Couple of months and we are seeing that it doesn't develop faster than what you anticipated.
Sean do you want to add anything.
I think that answers your question, but I also think you had a part you were just asking why our outgrowth was not as is slowing down a bit and again that is part of the industry restart and part of the shift in mix and so but as the industry begins to normalize and if we see higher volumes you could see a stronger outgrowth.
Okay. Okay. Thank you.
Question for me.
From a capital allocation perspective.
Yes.
Sure.
Sure.
So we book.
Okay.
So what should we expect going forward.
Cash because we have strong liquidity.
Our go to market the cash for that.
Bob.
For model.
Well I would say right now we are on track to normalize our capital structure and automatically convert.
The series day next year in April 30th but.
But in the meantime, we are still seeing.
Headwinds from Covid related disruptions and semicon and so until we see some stabilization and we have a clear view of that.
Strong second half of the year, we're going to keep our capital structure as is.
And focus in on execution.
I would say.
Hey tuned until next quarter.
Okay. Thank you.
Again, ladies and gentlemen, if you have a question or comment at this time. Please press. The Star then the one key on your Touchtone telephone.
Our next question comes from Chris Mcintyre with Mcintyre partnerships.
Hey, guys. Just a quick question when can we expect like guide.
Guidance around what level of like gross to net that we're thinking about the capital structure post conversion of the preferred.
Again, there is there are a lot of factors that go into that I think the first and most important thing is we need to see the industry stabilized.
We are planning on doing some investor communications.
Later in the year.
So again, depending upon how quickly see a stabilization.
We could you can expect further communication, but right now we're just really focused on trying to.
Keep our interest expense as low as we can and also move towards execution. So we can convert.
The series, a and normalize our capital structure to one class of common and one class of debt.
The given timeframe currently.
Okay, great. Thanks, I appreciate it.
And I'm not showing any further questions.
Today's presentation and you may all disconnect and have a wonderful day.
Thank you.
Yes.
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