Q2 2022 Sensata Technologies Holding PLC Earnings Call
Good day and welcome to this insider technologies second quarter 2022 earnings call all participants will be in a listen only mode.
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I would now like to turn the conference over to Mr. Jacob Sayer, Vice President of Finance Investor Relations. Please go ahead Sir.
Thank you Paul and good morning, everyone I'd like to welcome you to some sort of the second quarter of 2022 earnings Conference call. Joining me on today's call are Jeff coats.
Your own President and Paul housing Vincent <unk>, Chief Financial Officer.
In addition to the financial results press release, we issued earlier today, we will be referencing a slide presentation. During today's conference call. The PDF of this presentation can be downloaded from some thought its investor relations website.
This conference call is being recorded and we will post a replay webcast of our investor at our Investor Relations website. Shortly after the conclusion of today's call.
As we begin I would like to reference since <unk> Safe Harbor statement on slide two.
During this conference call, we will make forward looking statements regarding future events or the financial performance of the company that involve certain risks and uncertainties.
The company's actual results may differ materially from the projections described in such statements.
Factors that might cause such differences include but are not limited to those discussed aren't all forms 10-Q, and 10-K as well as the other subsequent filings with the SEC.
We encourage you to review our GAAP financial statements. In addition to today's presentation. Most of the subsequent information that we will discuss during today's call will relate to non-GAAP financial measures are.
Our GAAP and non-GAAP financials, including reconciliations are included in our earnings release and in the appendices of today's presentation.
The company provides details of its segment operating income on slides seven and eight of the presentation.
The primary measure is the management uses to evaluate the performance of the business.
Jeff will begin today with highlights of our business results during the second quarter.
He will also provide an update on recent product developments.
Paul will cover our detailed financials for the second work, including market outgrowth.
Also provide financial guidance for the third quarter and full year 2022.
We'll then take your questions after our prepared remarks.
Now I'd like to turn the call over to some sort of CEO and President Jeff Kodak.
Thank you very much Jacob and welcome everyone I'd like to start with some summary thoughts on our strong performance during the second quarter as outlined on slide three of the presentation.
Well, our markets declined 90 basis points due to supply chain disruptions shortages and Lockdowns and foreign exchange rates represented a 220 basis point headwind to revenue.
Our strong business model produced 650 basis points of market outgrowth.
And 280 basis points of acquired growth during the second quarter.
As a result, we produced solid financial results for shareholders delivering a record 1.021 billion in revenue.
Our growth of 2.8% from the prior year period.
With revenue and margins in line with the guidance we provided in April .
Quoting activity for New business Awards was extremely active during the quarter.
And we remain on track to exceed the record levels of new business wins, we secured last year.
More than half of these new business wins.
Or in the growth factors.
Including the largest single business win in our history, which I'll discuss more in a moment.
And we expect these wins to translate into future revenue growth.
<unk> current revenue outlook is increasingly driven by our rapidly growing positions in electrification and insights.
And we're investing more in these areas and we believe this increased organic and inorganic investment.
For the full year is expected to impact margin by 220 basis points is the right trade off.
To expand our exposure in these fast growing areas.
After the quarter end as.
We closed the previously announced acquisition of diner power.
They are a leader in mission critical highly engineered and differentiated solutions.
In D C. The D C conversion power inversion and rectifier control.
Most importantly, they are the only power control supplier to focus across renewable energy.
Industrial and defense applications.
Donna power is currently on a run rate to generate more than 100 million in annualized revenue.
Approximately 20% operating margins.
<unk> growing more than 30% per year over the next several years.
After the quarter ended we also sold our connect semiconductors thermal test and control business to avoid corporation for 219 billion.
<unk> contributed nicely to some sort of over the years, but does not align with our growth strategies and we'll be better positioned as part of Boyd.
The impacts of both the diner power into next transactions are reflected in the industrial business and sensing solutions segment and are included in the updated financial guidance, we're providing today.
During the second quarter, we benefited from a resilient flexible and focused organization.
That continues to successfully navigate.
Ever changing supply chain landscape and deliver on our customers' needs.
We continue to monitor the ongoing war in Ukraine, and Covid related Lockdowns in China for further impacts on supply chains or customer production or consumer demand.
Continued inflationary impacts on input costs have led us to become more agile to offset these costs with commercial pricing actions.
We remain confident that the full year net impact will be limited.
And then our strong execution will enable us to deliver on our promise of strong differentiated operating profits.
I'd like to recognize the innovation agility and hard work of our entire team and the support from our customers in achieving these strong results.
Since <unk> is in a very strong financial position today.
We have more than 1.5 billion in cash on our balance sheet.
We generate significant free cash flow each year.
Our net debt to EBITDA ratio is within our target range at three times.
Yeah.
We do recognize that the economic outlook is less certain today.
And we are working closely with our customers across diverse business segments to understand their underlying demand.
To carefully manage our cost structure and preparing the organization for this uncertain market dynamic.
The combination of our strong balance sheet.
An experienced management team, who have executed through a previous market challenges and our ability to tightly manage costs.
It enables us to weather near term pressures, while continuing to drive our growth strategy.
We are executing well in our growth areas and we are confident that since Sato will emerge from any periods of market turmoil stronger and better positioned to continue to grow.
During the quarter, we published our second sustainability report.
Detailing our greenhouse gas emissions.
Progress on diversity equity and inclusion initiatives.
And responsible sourcing efforts.
I encourage you to review the report we are committed to continuing progress in these areas going forward.
So the Sada is continuing to make excellent progress in utilizing in house and acquired capabilities to better serve a broadening base of customers.
And win new business in our growth areas.
On slide four we outline progress in one specific area that has led us to create a new product category.
I voltage junction boxes.
So the thought is high voltage junction boxes or system level solutions that perform critical functionality and enable customers to electrify their applications.
As we expand our capabilities in electrification and our customers' design architectures for the future. We are responding to demand for more system level high voltage solutions.
These solutions take the form of power distribution units D. C charging units and battery disconnect units, depending on the specific application and they represent a significant growth opportunity.
So the Sada designs, Paris and controls all components in the junction boxes, while optimizing the layout to minimize wait and thermal profile well.
While meeting customer power requirements.
We are working with our tier and OEM customers to bring the best solutions.
To the market in this critical area.
We have previously announced meaningful business wins in this area with several global customers and in the second quarter of this year. We were awarded the single largest piece of the business sense in Sardis history.
To provide battery disconnect units to a leading north American customer.
We are pleased to report that since solder was chosen in a competitive process.
Based upon our unique design capabilities.
This program will launch in 2025.
It represents more than 150 million any annual revenue thereafter.
We are so proud of the entire team involved in the successful New business Award.
Another example of new product development in our core industrial business is.
Is the introduction of a line of gas sensors designed to be used with new environmentally friendly refrigerants.
This is another new category person Sada, where we've already won our first piece of business with a leading customer.
Worth more than $10 million in annual revenue.
These gas sensors are specifically designed to detect leaks on a two well eight three and other new refrigerants being introduced in various markets.
Due to the expected increase use of these refrigerants and safety requirements around their use.
This category of gas sensor is expected to represent a more than 100 million incremental addressable market by 2030.
Now I'd like to turn the call over to Paul.
Thanks, Jeff.
For the second quarter.
As shown on slide six include.
Revenue of $1 billion $21 million, our highest quarterly revenue ever.
The increase of two 8% from the second quarter of 2021.
Revenue growth reflected strong outgrowth of 650 basis points and acquisitions.
Partially offset by market declines in foreign currency.
Recall automotive and heavy vehicle was built approximately 34 million of inventory in the second quarter last year.
We are excluding from the outgrowth calculation.
Adjusted operating income was $193 8 million.
A decrease of seven 4% compared to the second quarter of 2021.
Primarily due to continued supply chain challenges.
Impacting volumes and productivity.
And investments in our Mega trends.
Inflationary impact on input costs for components were offset by higher customer pricing.
These results were largely in line with our financial guidance for the quarter suffer unfavorable foreign currency impacts.
Re measuring foreign net monetary assets to the U S dollar.
Coupled with a significant weakening in the Chinese <unk> during the quarter.
And sort of threshold differentiate target adjusted operating margin remains.
1%.
And we're working our way back to this profitability level, while addressing the current challenging markets and investing in growth.
Now I'd like to comment on the performance of our two business segments in the second quarter.
2022, starting with performance sensing on slide seven.
Our performance sensing business reported revenues of $746 9 million.
An increase of <unk>, 7% compared to the same quarter last year.
The decline in automotive revenue despite market growth and higher pricing was driven primarily by the $25 million of inventory builds in the second quarter of last year.
Unfavorable foreign currency.
And the timing of new product shipments and customer mix.
Growth in heavy vehicle off road revenue reflects strong outgrowth, including higher pricing.
And acquisitions.
Offset somewhat by declining markets nine.
$9 million of inventory built in the second quarter last year.
Unfavorable foreign currency.
Performance net income was $185 5 million.
With operating margins of 24, 8%.
Segment operating margins declined due to continued supply chain challenges impacting volume and productivity.
Inflationary impact on input costs for components offset by higher customer pricing.
And dilution from acquisitions.
As shown on slide eight sensing solutions reported revenues of $273 7 million in the second quarter of 2022.
An increase of nine 1% as compared to the same quarter last year.
This increase was driven by strong outgrowth, including higher pricing and the launch of new industrial electrification applications.
Acquisitions.
Somewhat offside offset by unfavorable foreign currency.
Sensing solutions operating income.
With $79 5 million.
With operating margins of 29%.
The decrease in segment operating margin was primarily due to dilution from acquisitions.
The inflationary impact on input costs for components, which were more than offset by higher customer pricing.
With both partially offset by the favorable impact of higher volumes.
On slide nine corporate and other operating expenses not included in segment operating income.
With $76 4 million in the second quarter of 2022.
Adjusted for charges excluded from our non-GAAP results corporate and other costs were $69 4 million.
A small increase from the prior year quarter.
Primarily reflecting higher research and development and business development spend to support our megatrend growth initiatives.
We now expect between 65 and $70 million of megatrend related spend in 2022 to design develop differentiated solutions for the fast growing and transformational megatrends vectors of electrification and insights.
We are confident that this increased investment is the right long term trade off.
And supported by record new business wins.
And the rapid revenue growth, we are already experiencing in these areas.
We continue to expect over 50% growth in our electrification revenue this year.
And over 100% revenue growth and insights.
Moving to slide 10.
We generated 56 million in free cash flow during the second quarter and 273 million of free cash flow over the last 12 months.
Free cash flow in the quarter.
It was impacted by the timing of interest and tax payments.
Our decision to increase inventory to ensure continuity of supply.
And acquisition related compensation payments.
For the full year 2022.
We expect free cash flow conversion to be approximately 75% of adjusted net income.
Capital expenditures to be in the range of 135 $445 million.
Yeah.
And so it is net debt to EBITDA ratio was three times at the end of June .
Within our target range.
Pro forma for the acquisition of diner power and divestiture of connects since Havas net debt EBITDA ratio at that date would have been three four times.
Inside of the primary use of cash on hand to acquire businesses that will extend our position with our within our key growth factors of <unk>.
Vacation and insights.
Our balance sheet is strong with over $1 5 billion of cash no debt maturing before October 2023.
In a recently expanded line of credit was $750 million capacity.
Given this financial strength and expected future free cash flows. We also look to return capital to shareholders concept.
Consequently, we repurchased $77 million of our shares in the second quarter.
And recently announced a quarterly dividend of <unk> 11 per share is expected to be paid on August 24th to shareholders shareholders of record.
On August 10.
We are providing financial guidance for the third quarter of 2022 as shown on slide 11.
Our expectations are based upon the end market graph growth outlook as shown on the right side of the page.
We remain more conservative than IHS automotive production estimates for.
For both the quarter and full year.
Because of the extended macroeconomic risks.
We do not expect supply chain inventory to unwind during the quarter.
But we remind investors that approximately $70 million of inventory was built by automotive customers in the third quarter of 2021.
Increasing revenue in that period, well above production and complicate any year on year comparison.
Our current fill rate is approximately 95% of the revenue guidance midpoint for the third quarter.
Yeah.
At the midpoint.
Adjusted operating income margin.
It is expected to be 19, 3%.
Which includes the inflationary impacts on input costs for components, which were more than offset by higher customer pricing.
Supply chain challenges continue to impact volumes and productivity.
<unk> for growth.
The megatrend related areas, including acquisition as we rapidly scale these growth factors.
We are updating our financial guidance for the full year 2022 as shown on slide 12.
Our end market expectations continued to decline.
While the unfavorable impact from foreign currency exchange rates has grown.
And we are adjusting our financial guidance to reflect this.
As well as the completion of our Dyno power acquisition and the connects divestiture.
Revenue growth between 4% and 6% includes the impact of markets down about 1% to 2%.
Customer inventory build last year.
Outgrowth above our long term target range.
Completed acquisitions, and divestitures and the impact of unfavorable foreign currency.
We do not expect a roughly 110 million of inventory built by automotive customers during 2021 to reoccur in 2022.
At the midpoint adjusted operating income margin is expected to be 19, 2%.
Which is below our target range of 21%.
The supply chain challenges impacting volumes.
And productivity.
Felicia pressures on input cost performance, despite higher customer pricing.
And the impact of investments, including acquisitions in our megatrend growth areas.
On slide 13, we provide an adjusted operating margin walk to show the expected sequential margin improvement.
Supply chain conditions and productivity begin to improve and.
And from higher customer pricing, which more than offset inflationary impacts.
Input costs for components.
We update our investments for OEM production growth in 2022 as compared to 2021.
We currently expect automotive production to increase approximately 2% this year.
Which is more aligned to the IHS pessimistic automotive production case.
With declines in North America, and Europe from our prior expectations.
The heavy vehicle off road market is now expected to contract by 9% this year.
China's shutdowns in electronics and other part shortages curtailed production machinery.
We're also decreasing our growth assumption aerospace from 6% to 1%.
And increasingly industrial market contraction from down 1% to down 3%.
Now, let me turn it back over to Jeff for closing comments.
Thanks, Paul Let me wrap up with a few key messages as we outlined on slide 14 of the presentation.
Since sandoz business organizational model and growth strategy, our strong resilient and reliable.
As we deliver mission critical highly engineered solutions required by our customers.
While we expect end markets to be volatile in the near term due to inflation rising interest rates geopolitical events and.
And further COVID-19 responses, we have a strong management team experienced at navigating choppy markets.
We are confident in our ability to sustain attractive end market outgrowth.
Based on our record levels of New business awards are diversifying customer base.
In our large and expanding pipeline of new opportunities.
We continue to invest in our megatrend urban growth initiatives as we transform the business to focus on these rapid growing opportunities across all of our end markets.
We are making excellent progress in electrification it insights both organically through a strong new business wins, and inorganically through bolt on acquisitions and or joint ventures.
Whatever market volatility we experienced in the coming quarters, we are confident since saada will emerge stronger and better positioned in these fast growing markets because of these investments.
And importantly, we are maintaining our long term target of 21% adjusted operating margins, which we believe these investments will help us attain.
We continue to innovate on behalf of our customers solving their hard to do engineering challenges and providing differentiated solutions to an ever broader array of customers.
Solving mission critical challenges enables insider.
To deliver industry, leading margins for our shareholders, while also increasing investments in our in our growth opportunities and in our people.
And finally, I'm pleased about our progress in delivering on some sort of long standing mission to.
Help create a cleaner safer and more connected world.
Not just for our customers' products, but also through our own operations. We believe we are meaningfully contributing to a better world.
We are making progress to achieve the targets laid out last year and updated in our recently published sustainability report.
Bolstering the long term sustainability and success of the company for all of its stakeholders.
Now I'd like to turn the call back to Jacob Thank you, Jeff well now move on to Q&A and given the large number of analysts in the queue. Please limit yourself to one question. Each Paul go ahead and assemble the Q&A roster.
Thank you and as a reminder, if you would like to ask a question. Please press Star then one on your touch too right.
Youre using a speakerphone please pick up your handset before pressing the keys and if he would like to withdraw your question. Please press Star then two.
Our first question today will come through in Guam D level with bank of America.
Go ahead.
Hi, yes. Thank you I was wondering if you could share some color on where we stand with supply chain bottlenecks and does your weaker end market assumption related to weaker demand or supply constraints and for a clarification can you just help us think through your.
<unk> guide.
Right.
At the midpoint for fiscal fourth quarter EPS, It's about $1 14, which is in line with the street, but it's somewhat large step up from the 85 cent midpoint in the September quarter, but the revenue levels are not materially different than <unk>.
Can you can you help us think through what are the drivers that are accounting for that for that inquiries. I know you mentioned pricing, but just curious if you could bridge that thank you.
So let me hit on the supply chain question that you you mentioned that I'll, let Paul address the guide.
So on the supply chain, it's really it's been a long haul here right that we've been through a lot over the last 18 to 24 months. My sense is the bottlenecks are moving around a little bit of Dare I say that things are abating, a little bit in terms of ability to get raw material from our from our suppliers in terms of the <unk>.
Packed on demand, we clearly are still seeing seeing instances where.
Our demand is being limited by supply chain challenges, but they are the ultimate raw demand from our customers is getting closer to that demand it hadn't stuff, but caution that we're expressing in the guide today, we're starting to see things tighten up in terms of overall ultimate demand from our customers and we want to reflect that.
But certainly from a supply chain standpoint, we have a complex business, our global business and we see that moving around but I feel as though it is getting a little bit better in terms of the overall impact. Obviously this is tied to the material inflation side of things as well and although that's not completely behind us I feel as though it's mitigated.
Considerably versus where we were in the fourth quarter of last year in the first half of 2022, hopefully that provides some some color for you.
Hum.
The <unk> in the fourth quarter, our operating income was about two or $201 million.
That's about $7 million $8 million increase from the Q3 and the EPS you quote a one 2014, but where are we.
We're 90 midpoint would be up 91, so maybe there's.
I'm not sure where the disconnect is there, but but when we go sequentially from Q3 to Q4. So Q3 has informed the revenue based on our current fill where 95% we do expect better pricing from Q2 to Q3 than.
Management from Q2 to Q3, so that despite the lower revenue from Q2 to Q3, we're holding profit basically flat and that from Q3 Q4 rough about about $78 million, that's partly due to higher volume sequentially and higher pricing and a little better again on the productivity side. So.
So that translates into 91 cents of EPS in Q4, so taxes running around nine you know about 95% of operating income so hopefully that triangulates and Hum.
Helps clarify the sequential.
Expectations I guess only other thing I would say on the topline and the improvement in Q4 is largely an automotive from Q3 and Q4 largely come from China production improvements.
Our heavy vehicle business stays pretty flat across the second half in our industrial business comes down and its normal seasonal pattern with the second half is weak in the first half.
Thanks for the question Rumsey.
And our next question will come from Mark Delaney with Goldman Sachs. Please go ahead.
Yes, good morning, and thank you very much for taking the question question is on the inventory that you spoke to this at your customers I understand youre not expecting any further increase in inventory in your guidance relative to the $110 million that was built last year, but can you talk about do you expect customers to be reducing inventory in particular as you're now thinking.
And production might be lower I'm wondering if you are trying to bake in any inventory reduction and if not maybe you can talk about why you don't think customers will take inventory down.
We didn't see in the second quarter, our we run a model Oh, we run a model, which has informed us about.
Our high market share parts today were they in line with production and they work. So we didn't say inventory contraction, we don't believe it.
Any inventory build that you called out in the narrative so.
And as we go forward.
You know again, it's given given we didn't see any inventory contraction. So far this year, we're not baking anything into the second half.
Thanks, Marc for the question.
And our next question will come from Sami Chatterji with JP Morgan. Please go ahead.
Hi M P on for somebody to check with you from JP Morgan. Thanks for taking my question.
I just wanted to ask regarding the margin walk with a full year.
Do you think.
Thanks, Brian Walk you.
You had mentioned buildings from or news reached O.
Okay. So you would normally expect given the new world.
Can they could get up to production.
I see and use something like 18, Oh heck things impact it would be.
Okay.
0.6, bushland Beach with North Dakota liquids right.
Can you please help.
And at this time.
Or do you smoke up 19.
What's the key scale.
Thank you.
Oh, sorry.
Paul I mean in terms of the if you want to talk about the change in the last guide to this guide.
The second half is down because of volume.
That and currency headwinds are the two biggest drivers for the change in both revenue and operating income.
The supply chain is still challenging still short on parts, a there's still demand out there we can't serve.
And so it continues to be an ongoing problem.
Particularly in our heavy vehicle business in China, where COVID-19 continues to impact our customers and their factory production. So we continue to see that as a as a.
Disruption in terms of being able to serve those customers that theyre not producing product. So it continues to be an issue, we're calling it out as it is not something that's.
Dramatically grooming is expected to slightly improve but it's still it's still holding us back.
Thanks for the question.
And our next question will come from Luke junk with Baird.
Good morning, Thanks to Tim question, just maybe a bigger picture question given the economic backdrop, Jeff you had mentioned in your prepared remarks that you're preparing the organization for this uncertain market dynamic and just be curious any specific steps that you're taking to batten down the hatches a little bit on a on a go forward basis. Thank you.
Yeah look I would be glad to address that so let me let me frame the broader picture and then I'll address how we're preparing for that outcome. So I don't think it's any surprise to anybody that the markets are fairly choppy right now.
I believe we're managing very well in that environment and we've been there before so we know how to do this.
Whether it be supply chain impact on inflation fears of recession around the world Lockdowns in China monetary policy, that's impacting interest rates pretty pretty rapidly with that backdrop.
Which is driving an expectation for the full year market down about 1% across all our markets.
Foreign exchange down 2% across all our currencies.
Inventory headwind of 3% because of the inventory that was built last year won't repeat so that's starting 6% down despite that we're forecasting 5% up as a company.
And that's due to the model, it's acquired revenue and its outgrowth to market that's driving that.
And so the.
Our focus is there.
We're going to respond to what the market indicates we started the year expecting 10% to 12% growth.
We were building for that we want to make sure that we're continuing to invest in long term growth of the business that we are a long cycle business. So we have to keep an eye on that to win invest now for revenue that will be generated 235 years from now, but what we mean by by managing its just keeping a very close eye on those indicators doubling down.
On our understanding of current pipeline.
Having more conversations with customers regarding what they were seeing in the market.
And making sure that we keep a close eye on our cost structure to be able to respond to that.
As opposed to jerking around in any dramatic fashion, we want to prepare for.
All ranges of outcomes now with <unk>.
Want to be prepared to respond to a positive surprise in terms of market outlook as well so.
Again as a management team we're capable of doing that we have intended to make sure that we manage that but it's really around making sure we get the pricing understanding the ultimate demand managing our cost structure.
And planning.
Parts and inventory to deliver on whatever customer demand.
Is thrown at us and so it's not new territory, it's probably not a surprise to folks, but where our where we're good at it and we're going to manage through this.
Hope that helps thanks Luke.
And our next question will come from Nick <unk> with Longbow.
Yeah.
Yeah, Thanks, and good morning, everyone.
Jim I wanted to ask a question about the big when you you talked about so can you. Please first sure. If this is on the light vehicle side, sorry on the heavy vehicle off road, which end market. It is and also related to that how should we think about the potential size of future battery disconnect units wins, given the size of this one is.
Meaningful.
So given the magnitude I don't think it's a surprise that it's in the light vehicle market to get to this level of inventory. This is a this is a over $1 billion total contract value opportunity.
So it is in in light vehicle.
But it's not applicable only for it to light vehicle. It. It really is a solution set that we can bring across all of our markets and again not just in transport so think of it.
A bunch of other end markets, where electrification infrastructure and build.
Build out needs to occur so the size of the market is enormous right. This is one opportunity that's over $1 billion contract value for a couple of platforms with one customer.
So the Asps on this is hundreds of dollars not one or five or $10. So with the opportunity to get big very quick and we've outlined on the slide some of the other opportunities that.
We've been we've announced and we've won already that gives you a feel for the magnitude of this and.
And so it's an extension of all the capabilities that we've built up organically as you look at those.
Product category, a very large portion of.
What goes into these devices into these systems are products that some insider has differentiated itself and so we feel really well positioned thanks for the question.
And our next question will come from Chris Snyder with UBS. Please go ahead.
Yeah.
So the best guidance called for more.
So the 19% range for 2000.
19% range for Q.
Yeah, that's correct.
Good benchmark to run into 2023 or sooner or is the opportunity of scope for positive incremental challenge next year, whether it's just.
That's enough.
Sure and any thoughts on that would be appreciated. Thanks.
Youre incredibly broken out so I think we got every other word here, but I think the question is.
The margin profile going forward.
So in the prepared remarks, and we're targeting a 21% as our kind of our where we think we should be performing in the current market environment and our investments.
The investments we need to make to continue to grow into the future. We're obviously not there right now we understand the drivers and so we can we're going to continue to work to that 21%. The improvement sequentially is about 30 basis points from Q2 to Q3's 1919, three and then 50 going from 19019 eight.
That again is a combination of better a better pricing did you better pricing.
And some better cost management we're.
We're not getting the benefit of volume leverage so as volumes move up we would expect significant contribution to the bottom line from that higher volume.
But unfortunately in the current environment, we're operating we're not seeing significant improvement as we move from first half to second half.
Overall for the company.
Thanks, Chris for that question.
And our next question will come from David Kelley with Jefferies. Please go ahead.
Yeah.
Hi, Good morning, guys wanted to dig into the auto end market assumptions, you know the more negative outlook for Europe , and North America. I guess is this simply a function of supply chain disruptions continuing to limit production ramp or are you also seeing signs of kind of a lower customer demand and just curious the incremental weakness.
Relative to your regional assumptions last quarter or is it more pronounced in Europe or in North America at this point. Thank you.
Yeah, So let me let's.
To start with sort of some of the facts. We're looking at the IHS pessimistic view for the third quarter was around 19 six.
Where are around 18 nine that's.
A little bit lower than them.
And then for the full year that 700 tourists were about 1 million units gap.
Largely a north American based but some Europe as well a little bit we're a little more positive on the recovery in China.
So of the 1 billion GAAP for the full year or two I H S civilian fixes and U S and Europe and then some recovery in some of the other markets.
I think that I would say that it's largely <unk>.
Production.
We're constrained at this point right. So there's more demand for vehicles than our customers can produce but there's a lot of uncertainty not only regarding supply chain, but energy issues in Europe risk of potential industrial shutdown in Europe due to energy.
Shortages and so where we're just.
Making sure that we're being very mindful of what the outcomes could be all forecasts have come down a little bit where we're a little bit lower than where IHS is.
But todd.
We're going to as we always have been if demand gets to be higher will respond to it in north American market. It's interesting to note that our cars on watch it's still at a historically low level I think it ended June at 28 days of inventory on lots of low point I think it was 24 26 historically that's 60, so at some point.
And I think we've seen it a lot higher than 60, but on average 60. So there was a month of inventory rebuild at some point.
That will will.
Impact production.
<unk>, where ultimate demand is and again, we'll be there to respond to it so that's a little bit more color on the auto market I don't know if no I just think the other thing would be that we use are.
Our order book and the fill as a way to triangle of what we think the quarters going to be in the next quarter or so so at 95% Phil.
$1 billion revenue midpoint, I mean, that's consistent what we've delivered we've had over the last number of quarters.
It'll come down to the end of the quarter, we've seen our customers drop orders are you know that trend has continued so we're trying to factor that in it but as a variable in all this but.
Just given with the fill is we think $1 billion in Q3 makes sense and then looking forward to Q4, given the end market conditions. The supply chain condition. We think it's it's it's a sensible projection for the fourth quarter and to Jeff's point, if theres more demand will serve it.
Thanks for the question Dan.
And our next question will come from Joe D. G would bother with it.
Okay.
Hey, good.
Good morning, everyone.
Guys have done you guys have done a lot on the M&A side, obviously to build up the electrification portfolio being I'm, just curious how how integrated or some of these businesses know how integrated you see them being in the future like is there a little digestion that need to happen just operationally to get kind of like a singular since sada profile, there or are they still operating.
What as the businesses they were before you bought them.
Yeah, Joe Great Great question, they're there as well.
You know historically, we've integrated acquired businesses to the point, where essentially they become product families within our company.
That's not the level of integration, we're talking about with some of these acquired businesses now they're not standalone entities, either there's obviously certain integration around financial and legal control that we always do.
We would describe it as more a integration based upon what the individual business leader.
Needs to achieve the investment case and the underlying opportunity.
And so they they run they serve different markets.
And I'm, what I'm talking about here is the insights business and the clean energy solutions business not the electrification component businesses, because they integrate as becoming product families.
And so we want to make sure that we optimize the outcome.
<unk> Global work force, our global footprint of suppliers, our infrastructure, but really the go to market and the engineering capability is quite unique to these businesses and so we want them to run.
Early independently, but with a framework of of our approach and control and management that some solder would overlay to that so it's a little bit of a combination. So the point is the integration goes a little faster with that so you don't have to fully integrate these businesses.
There are and so you know.
We can do more of these acquisitions without a fear of we have to go through a major period of digestion hopefully that helps thanks, Joe for the question.
And your next question will come from Matt Sheerin with Stifel.
Yeah.
Yes, thanks, good morning.
Yeah, just in terms of the.
The forward guidance, one thing regarding the divestiture could you could you tell us what the revenue run rate of that company was I think it's key next.
Yeah, that's about.
You would have had about $40 million rather than the second half.
It's a 30% op income business, so very profitable, but it does not align with the strategy. It's benefiting from the semi cycle right now, but it's a very lumpy business, but in our second half 40 $40 million and about 30% data power gives you about 50 million of revenue at 20% so they're almost offsetting.
Thanks, Matt.
And our next question will come from Jim Suva with Citi. Please go ahead.
You're on mute Jim.
Okay.
No response and didn't do well.
The question and answer session.
Like to turn the conference back over to Jacob Sayer.
Yeah.
Thanks, Cool I'd like to thank everyone for joining us. This morning, we will be participating in a few upcoming investor conferences sponsored by Jefferies Goldman Sachs and RBC during the third quarter. We look forward to seeing you at one of those events or on our third quarter earnings call in late October .
You all for joining us this morning and for your interest in some sort of call you may now end the call.
Thank you and the conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
Okay.
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