Q2 2023 NN Inc Earnings Call

Good morning, and welcome to the <unk>, Inc. Second quarter 2023 earnings Conference call.

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Now I'd like to turn the comps order over to Alec Steinberg and Investor Relations. Please go ahead.

Thank you operator, good morning, everyone and thanks for joining us I'm, Alex Steinberg Investor Relations contact Brendan Inc. I'd like to thank you for attending todays business update.

Last evening, we issued a press release announcing our financial results for the second quarter ended June 32023, as well as the supplemental presentation, which is posted on the Investor Relations section of our website.

Anyone needs a copy of the press release or the supplemental presentation, you may contact Alpha IR group, I and N B R at Alpha Dash I art Dot com.

Our presenters on the call. This morning will be Harold Bevis, President and Chief Executive Officer, and Mike Sculpture, Senior Vice President and Chief Financial Officer will also have a few of our new business leaders available support our Q&A session, including Berlin Bush, our new Chief commercial officer, and the new heads of our segment Douglas Taphouse G.

But mobile solution and getting ours bank gold G M power solutions.

Please turn to slide two you'll find our forward looking statements and disclosure information before we begin I'd ask that you take note of the cautionary language regarding forward looking statements contained in today's press release.

Metal presentation and in the risk factors section in the company's annual report on Form 10-K for the fiscal year ended December 31, 2022, and when filed the company's quarterly report on Form 10-Q for the three months ended June 30th 2023.

The same language applies to comments made on today's conference call, including the Q&A session as well as the live webcast.

Our presentation today will contain forward looking statements regarding sales margins inflation supply chain constraints foreign exchange rates cash flow tax rate acquisitions synergies passion cost savings future operating results performance of our worldwide markets the impacts of the Corona.

Iris or Covid, 19, pandemic and the Russian Ukrainian conflict on the company's financial condition and other topics.

Statements should be used with caution and are subject to various risks and uncertainties many of which are outside the company's control.

Presentation also includes certain non-GAAP measures as defined by SEC rules, a reconciliation of such non-GAAP measures is contained in the tables in the final section of the press release and the supplemental presentation.

Please turn to slide three and I'll turn the call virtual E C O L b.

Thank you Alex and good morning, everyone.

It's an honor speaking with you all today regarding my first few months as the new CEO of <unk>.

There you will see that we are already underway with the transformation strategy.

And we are embracing change and taking decisive actions to accelerate our long term growth and profitability.

And become a more predictable company.

We have a tremendous opportunity to deliver significant value to all of our shareholders.

I have personally spent the majority of my career working in industrial technology industries, and my focus has primarily been on driving transformational change.

With four successful business transformations completed and two of them being public companies I was immediately interested in leading and then through a transformation as I believe there's a clear opportunity to return this great company to the leadership position that once enjoyed.

As an industry veteran with more than 25 years of experience I'm deeply familiar with N EMS markets competitive position and customers.

And then has a well respected and diverse customer set and although we are expanding our focus to include new business verticals and end markets.

Plenty of opportunity within our current markets to expand our share with those who already know the value that we bring.

And then has decades of the engineering and technical expertise and I've been very impressed by the acumen and operational capabilities we possess.

I'm, particularly encouraged by the competitive moat the company passed with its vertically integrated manufacturing, which is further supported by our large global installed base of equipment, that's extremely hard to replicate.

That said our brand assets and talent can clearly be leveraged in a more powerful way.

And you'll hear today, what our plans are and that we are already taking immediate actions to begin improving our commercial and operational strategies.

This includes plans to immediately increase the size and focus of N N commercial new business program.

Additionally, we are refocusing the organization to better optimize our cost structure prioritize operational efficiencies.

And built stronger financial credibility.

We will refocus on the things, we do best to both drive growth and become a stronger organization.

I'll talk you through the basic elements of our transformation plan in a few minutes.

Let's review some summary highlights from the second quarter.

As you outlined on slide four of today's presentation.

You will see the immediate impact of some of our near term actions and our improved cash flow metrics.

Some of our specific performance.

As outlined on page four.

Sales for the quarter were $125 million and we delivered $10 5 million in adjusted EBITDA.

Yeah.

We've had a solid first half of the year with new business wins and have roughly one roughly $19 million in new awards.

We're focused on expanding our new business pursuits in both legacy markets and new markets, where it makes sense.

On a high note we're happy to report that we generated $3 million of positive free cash flow in the quarter, marking an important step in the right direction.

We are free cash flow positive for the trailing 12 months period and our outlook indicate that this trend will continue into the second half as we control costs and maintain explicit cash discipline.

Looking forward, we've aligned and are supplementing our leadership team.

And I'll highlight these important changes in a few minutes, we've also implemented and prioritize cost reductions to better support our margin profiles and ultimately you'd like improve margins to self fund our growth.

There are immediate opportunities to grow our profits irrespective of sales growth by initiating change in areas, where we are underperforming.

And we are attacking those areas with a new vigor.

We're proud of the adjusted EBITDA and free cash flow of our that our business produced in the quarter.

But are far from satisfied and our enhanced leadership team and strategy remains focused on increased cash flow generation and profitability improvement.

Please turn to page five in the deck.

I want to briefly walk through what our first 75 days together have looked like.

I began my tenure as CEO of NN and effective on May 22nd of this year. My immediate focus was to familiarize myself get better acquainted with the company.

But also began a deep assessment of our capabilities and team.

Within 30 days I had the opportunity to visit many of our plants globally as well as our partners in Europe and China.

I also was able to meet with a few of our large customers face to face.

And meet with our capital partners, a key take away from my interactions with how important our customized products and solutions are to our customers around the globe.

And then has great DNA for delivering top tier quality and on time delivery and our customers depend on us day in and day out.

Many of our solutions are critical components in our customers' products and thus we have a deep sense of institutional pride in what we do.

We have a significant competitive advantage, given our global footprint and vertically integrated facilities.

And there are clear new actions that need to be taken to better leverage our core competent CS into higher results.

As we've previously announced we are right sizing our board of directors from nine members to seven as part of our collective commitment.

Best practices in corporate governance, and alignment of our cost structure to our industry and our size.

Please turn to page six in the presentation.

And then as now focused on a new transformation plan.

And we are preparing to execute at a higher level now.

And I'd like to walk you through the core components of that plan.

Our transformation plan is built around an increased organizational commitment to hire sales profit and free cash flow.

And it includes five components.

The first is getting the top team right and we are focused on aligning our talent and modifying the top team to better position and then for success.

This includes flattening the organization to increase agility and speed.

I've been using my experience and personal network to supplement our highly experienced and in leadership with proven transformation executives that I've worked with in the past.

This includes a chief procurement officer, that's soon to be announced Chief operating officer.

And certain specialist.

The second component.

Is our commitment to achieving cost productivity.

And then and implementing a steady state program.

We must increase our organizational commitment to pass leadership.

As a way to improve our margins.

I'm happy to see as I've gone around that we have abundant opportunities to do this and we intend to improve our margins.

Spread.

And our incoming C O O and incoming chief procurement officer have already done we've already done this together twice before.

Third we have a significant opportunity to improve our business by fixing unprofitable customer contracts and underperforming plants.

Specifically, we're completing reviews of several of these plants in several customer contracts and finalizing our fix it plans in each area.

We will talk more about the steps that we'll take next quarter during our earnings call, but we believe already that there is at least a 10 million dollar.

Annual opportunity to improve our EBITDA profile to these actions.

Component number four here as we align our profitability. We're also heavily investing our focus on routinely generating positive free cash flow.

This includes better disciplines within our accounts receivable accounts payable inventory profiles and capital spending decisions.

N N has not delivered positive free cash flow as a company annually for several years.

As mentioned just a few minutes ago and as you've seen in our announcements we've already checked the box on an LTM basis and.

And we intend to perform better on free cash flow generation has some go forward.

Is it provides the fuel to self fund our investments into our team and our plants.

Our growth programs and deleveraging our balance sheet.

Lastly, 0.5, we're taking steps to dramatically increase our new business wins program and drive larger results.

This includes aggressively leveraging our open capacity and taking a more disciplined approach to pursuing new business wins that will require significant capital spending.

As many of you know in the industries that we compete in.

Our wind today is primarily supporting business revenue in 18 to 24 months in most cases.

We've already reorganized internally amongst our sales and operations teams to reallocate a greater portion of our organizational power.

Talent to achieve a larger sales growth with a tack plant.

Please turn to page seven in the presentation.

On slide seven I'd like to introduce you.

Two our new leadership team here at N N.

And this team is focused on growing ongoing faster and winning more as we integrate.

Our commercial and operational teams together.

To grow the business.

As we organize to cost have cost productivity and cost leadership and to generate free cash flow and.

As you can read from the descriptions here. This team is has been developed through promotions internally of strong industry veterans within our company.

And as mentioned we're supplementing this team with with just a few new leaders that bring and strong and proven transformational expertise and with whom I've worked before previously.

These four leaders on this page have over 20 to 30 years each of direct industry experience.

Most of which has been accomplished right here at N N.

Berlin, Douglas Dinars and Jeff.

Are already aggressively underway with implementing our transformation plan in their respective areas.

Please turn to slide number eight.

We've provided a brief snapshot of our new business wins.

On this page and I'd like to I'd like to cover them for a minute.

Year to date, our business one is a roughly on track with our internal goals.

And as you would conclude here we're already in the process of upsizing these goals to a higher level.

Our global team is now thinking through a larger plan to win at a larger rate.

And we are already underway with expanding our efforts right now.

In the first half of electric power steering components for electric vehicles.

It's been the largest segment that we've won business in.

And we're very happy about that.

We will expand our product concentration in key profitable areas that we currently serve.

Like electronic power steering for electric vehicles, but also in areas like connector shielding and braking system components to name just a couple.

We will also look to expand into new markets, including the medical medical market, where we see a lot of opportunity.

Our ability to design and Madden factor.

Micron precision machining.

Stampings and assemblies is very unique.

And a plaque and applicable to many industries.

I'd now like to turn the call over to Mike filter Senior Vice President and CFO to discuss our second quarter results in greater detail.

And then we'll take your questions at the end Mike.

Thanks, Harold and good morning, everyone I'll start on slide nine.

Net sales for the quarter of $125 2 million remained roughly flat compared to the prior year period as our ability to drive stronger pricing helped offset lower volumes last year's second quarter result, also included a favorable customer settlement of $2 3 million.

From a profitability standpoint, our operating loss of $4 million improved compared to the $4 5 million operating loss in last year's second quarter.

We captured approximately $2 million benefit from net price and inflation versus last year. However, this pricing benefit was more than offset by the impact of lower volume combined with the previously mentioned customer settlement.

Adjusted operating income for the second quarter was $1 3 million compared to adjusted operating income of 0.1 million from the prior year adjusted EBITDA results of $10 5 million were slightly below last year's $10 9 million result, <unk>.

Encourage I think encouragingly, we are seeing the impacts of the targeted cost reductions flow through to our adjusted EBITDA.

Approximately 2 million of benefit in the quarter as.

As we progress further through the year, we expect to continue to benefit from cost discipline in addressing underperforming areas of the business.

Turning to slide 10.

Sales in our mobile solutions group increased five 2% versus the prior year period, improving by $3 8 million the.

The increase was primarily driven by improved pricing the impact of new business increased volumes from our existing business lines.

Mobile solutions adjusted EBITDA results of $7 5 million decreased compared to the $9 1 million in the second quarter of 2022.

This was driven by performance challenges in our Wellington, and whereas facilities and a favorable customer settlement in the prior year profits.

Profitability was supported by solid performance from our China based JV, which helped to partially offset some of the operational one time challenges to our adjusted EBITDA results.

Man for our mobile solutions and market should be steady as we enter the second half, but we do not anticipate demand growth given the macro environment and commentary made by other public industry leaders.

Additionally, we expect operating improvement and our Wellington a war as facilities, where performance improvement plans are being implemented.

Turning to slide 11 power solution segment sales decreased seven 7% year over year, primarily driven by decreased electrical and general industrial component sales due in part to slower housing start and customer inventory adjustments.

Other the segment's top line performance felt the impact on volumes from the closure of two facilities as we rationalize our footprint to drive future profitability.

Sales performance reflected better pricing in the period compared to last year's quarter, which positively impacted profitability.

<unk> benefits combined with operating cost savings associated with our plant closures resulted in adjusted EBITDA of $6 5 million compared to $5 9 million in the prior year.

Looking ahead, we expect demand levels in the second half of the year to be consistent relative to our first half.

Helping to offset flat demand expectations, our cost and cash flow initiatives that are already underway.

Given our market demand expectations and explicit goals to enhance our profits, we will be prudent and diligent with the management of our working capital well focus intently on improving our cash flows.

Now please turn to slide 12, as Harold highlighted we are encouraged to report solid positive free cash flow for the period as well as on a trailing 12 month basis.

Working capital turns improved in the second quarter to four eight turns from four five in the previous quarter, marking the third consecutive period that we've improved upon those key efficiency metrics.

Now turning to slide 13, you can see a snapshot of our balance sheet and liquidity metrics.

Net debt at the end of the second quarter was $147 9 million versus $147 7 million in the first quarter of 2020.

Our net debt to adjusted EBITDA ratio stood at 387 times at the end of the second quarter compared to 382 times at the end of the first quarter of 2023.

We previously communicated that we were evaluating a potential preferred equity raise however, given our expectations for continued positive cash generation and the lack of any immediate need for new capital, we decided not to proceed with the preferred equity raise.

Our transformative plan for consistent free cash flow generation is focused in part around our prudent capex strategy.

We will strategically shift and reallocate our capital spending to focus deployment more towards business reinvestment to drive growth, while still appropriately funding maintenance capital requirements in the near term.

As we modify our capex spend allocation, we are executing a concurrent plan to improve our liquidity through working capital optimization cost reductions and overall operational improvement.

There is significant opportunity within our markets and our facilities and now that the team is aligned and complemented with the right strategy, we expect to be able to effectively improve.

Our liquidity, while maintaining costs and our leverage profile.

Please turn to slide 14 for our full year outlook.

Consistent with many of our customers and peers, we are revising our outlook and now expect <unk>.

Net sales in the range of $485 million to $505 million roughly flat to prior year adjusted.

Adjusted EBITDA in the range of 40 to 46 million roughly flat to prior year.

And free cash flow in the range of $7 million to $13 million a significant improvement over last year.

Our guidance implies demand for the back half of the year for both mobile and power solutions segment that is consistent with levels seen thus far year to date as well as updated industry forecast.

Our adjusted EBITDA and free cash flow outlook reflects the impact of our lower volume expectation and disciplined cash management.

Our free cash flow guidance does not include the cares act tax refund of approximately $11 million due to uncertain timing.

In conclusion, while Harold and our reorganized leadership team have only been together for a short time you can see we are taking aggressive and swift action to build a stronger company. Our focus in path is clear and we have the right team platform and capabilities to significantly accelerate our long term growth and profitability.

We're looking forward to sharing this journey with all of you.

I will now turn the call back to the operator for questions.

We will now begin the question and answer session to.

To ask a question with Star then one on your Touchtone phone.

It's using a speaker phone please pickup your handset before pressing the Keith.

To withdraw your question. Please press Star then two at.

At this time, we will pause momentarily to assemble our roster.

Our first question will come from Rob Brown with Lake Street Capital markets. You May now go ahead.

Hi, good morning.

And congrats on all the morning progress through.

Thank you.

Are you you went through a number of things on kind of your plan in terms of operational excellence.

I guess I'd like to get just your view on the ability to kind of cut costs and the opportunities you see here and.

And maybe you know kind of how long do you think that'll take to kind of get implemented.

Yeah. Good question so.

On our cost agenda.

We have a few elements. One is we do have some underperforming areas of the company that explicitly or.

Our dilutive.

And so they're getting special attention.

You know you could call them stop the bleeding or whatever cliche, you want to use but we do have some.

Some highly dilutive situations that are causing us to be held back in and.

And cost performance as an element of those now.

An element of that so you have that number one which is fixing some of our problems which.

Mike and I, both alluded that if you combine the cost problems with our underperforming customer contracts, it's greater than 10 million of EBIT da in other words were in our reported results were carrying $10 million or so.

Below zero kind of profit rates and so we're attacking those aggressively.

Number two on.

Procured materials.

And our conversion costs, we have not had a routine.

Our cost productivity program, the new Chief operating officer, that's joining us and we'll announce them shortly.

Experienced at having every plant, having a cost agenda, where they at least offset that inflation.

And the goal obviously you have net productivity, so that one's kind of starting from scratch.

I think it'll you asked about timing, Rob I think that one in my experience takes a little while to get up to full run rate I'd say that we will get to full run rate in.

Like four quarters in on the first one on fixing the problem children, we have a much more immediate kind of game plan there.

It's one two or three quarters so.

Those are the two main elements in terms of.

S DNA, which is at the overhead costs.

We kind of have two things going way we have.

We have our our power business is really benefiting from electrification electric vehicles.

And grid investment.

And we're having to grow that team to to invest in it and the mobile one we're really kind of keeping our cost structure stable.

As the as the industry transitions from internal combustion engines to electric vehicles.

There's a transition there.

That kind of the top level the number of vehicles made it is dirty.

And so we're really focused on right sizing our overhead structure to the realities of the market a lot of public filers. This week in our industry. Our customers. If you will and they're guiding a little softer in the vehicle world and they're guiding a little stronger in the electrification world.

And and that nets out as Mike said to us kind of being a flat second half to the first half.

Our SG&A structure is appropriate right now, but we'll we'll monitor it if we need to if we need to adjust it we will Rob.

Yeah, Okay, good and I think you touched on kind of the demand environment and what you saw.

Seeing there are I guess, it's a bit of a tweak down but are you seeing.

Any.

Would you characterize it as a tweak down or what's sort of the demand environment changes that you've seen and and how much sort of indications from customers I guess, what's the sort of visibility at this stage in terms of.

The demand environment.

Yep.

The public reporters and the OEM. If you will who are the you know the big arbiter of the answer there.

And then you have the supply chain of tier ones tier twos into those vehicles and those vehicle makers on our vehicle side.

They're all painting, a slightly softer second half and we've embraced that as part of our our guidance here on the other hand, if you look at the bellwethers into the grid investment in electrification, they're guiding to a stronger second half.

And we're seeing that so where we're seeing that internally also.

So we're seeing net flat kind of an outlook to two of our run rate in.

In terms of contribution to our run rate from new business wins, new business wins.

Really take about 18 to 24 months to manifest themselves and then the second half of this year, we don't have meaningful new business wins that are going to be additive to our run rate.

We hope to change that in the future with a bigger program, but right now it's de Minimis in the second half the amount of contribution from new business won in essence 18 to 24 months ago. So that.

We have a put we have a good guy and a bad guy and they net out to a flat outlook Rob.

Okay, great. Thanks for the color there and then in terms of just the new business activity.

You know you are showing a lot of activity on underlying things Thats like I said 18 months to get to revenue.

But but sort of how would you characterize the new business pipeline and is it.

The momentum you're seeing in EV and grid Ah I guess.

Could you give us some sense on how that's that's coming in and where you're seeing growth and maybe how you're how you're gaining share there and maybe just some color on the new business environment.

Yeah, I'm going to answer a piece of that and then I'm Gonna, Poland Berlin Busch Who's actually on the call with us.

Who's our chief commercial officer.

On the on the EV on the substitution rate of vehicles from combustion engine to electric powertrains or alternate fuel powertrains.

Amendments amount of information out there on that and in the substitution rates vary by class of vehicle and by geography, and government mandates influence the substitution rates, but its definitely happening.

And that manifests itself to us is more looks.

As people are modernizing and changing their vehicle platforms, we get a chance to bid on a new platform. So.

This substitution rate in this transition ends up being an opportunity for us because there's there's a quoting opportunity on a new vehicle deployment, so the macro environment.

<unk> of that is good for us it's good for our company.

With regards to how we're doing I'd like to invite Berlin.

To make a comment here Berlin.

Matt you didn't come off mute.

Yep. Thank.

Thank you Harold.

As far as where we're doing well.

What I was going.

Several of our markets you know are actually.

Doing pretty well and we're staying focused on our R. E V and our grid application residential commercial electrical applications R. R.

Are down, but we're seeing a lot of activity right now and some of our regions. So we're seeing focus there. We recently made some changes.

And staffing and hired some guys are out there that are focused on growing in those key areas. So we're seeing much more activity and new business wins in those areas, we'll continue to see.

And focus on those markets that were.

That we do well in and that we've been in for a while.

In the short term rental that there'll be definitely some powertrain.

Components that will capitalize on that with our current capacities and capabilities as we make the transition more into the <unk> space. So.

I think theres a lot of good news on both sides I think the operational effectiveness that we were seeing with the new structure is going to help us be more competitive and in all of our markets and all of our regions will.

What we're laying out a plan now just.

Again to expand our presence in medical after our restrictions are lifted in October of this year.

That'll be another area that we'll focus.

Thank you Marilyn.

Yeah.

Okay.

Okay and if you have a question. Please press Star then one.

It appears we have no further questions.

Pardon me. Our next question will come from Tom Curran with SaaS investment research.

You May now go ahead guys.

Hey, good morning, guys.

Just following up on the last comment on the medical market is it big enough business opportunity where that would be a third.

Third segment going forward down the road.

It is a big segment and if you look at the types of machinery that we have.

In house, and if you talk to the people that sell the type of machines that we buy actually the biggest end market for these types of machines is medical.

And transportation second I'm talking now on the machining side on the staffing side.

We're still in the business today.

The divestiture that we did.

In 2020, largely did not touch that business and we're still active in the medical market.

And have a lineup and a roster of medical customers that.

That we've had for a long time, so for both staffing and machining. It's a it's a great alternate use of <unk>.

Our precision knowhow on Submicron stamping sub crowded submicron assemblies, and machining think implants.

Thank meshes and the tools the cutting blades all of it is very small and very precise.

And and it fits our capabilities perfectly to be honest, it's a little easier than than the vehicle world.

On the vehicle World World has a lot higher pressures.

Associated with Atomizing those.

Fuels and that sort of thing so.

It fits us like a hand in glove with regards to the noncompete that furlan touched on we do have a valid noncompete that's in place for.

A few more weeks.

So we're already seeing that coming to an end.

And we're getting ready to to reenter there we still have a plant certifications operators that know what to do executives didn't know what to do we have an old catalog. The desktop we know where to go so.

I hope it becomes a segment, but initially it's smaller than that.

So it'll it'll just be a product line really for us for a while but.

That would be a goal of ours and obviously, we could jumpstart that with a small acquisition too.

But it's going to be a new leg in Berlin stool to grow our company at a at a higher rate our overall goal.

It is to get 15%, new new wins per year on 500.

So that's the that's kind of what we're trying to do so every vintage year this being 2023.

We'd like to get around $65 million of lamps, and do it year on year on year and so over a few year period, you've won a few hundred million dollars worth of business and for US that's going to add up.

So we're getting organized to do that medical aerospace parts of aerospace parts of defense.

And of course electric vehicles the grid.

These are all good areas for us and we have we have small market shares in a very large market.

And so simple thing to say is we're putting more feet on the street to go after more opportunities right now.

With open capacity, we have knowhow that we have.

So I'm pretty excited about it.

That sounds great.

And on the separate note on the China business is that kind of we're back to where it should be for all the COVID-19 stuff or is there still a lot of room for improvement.

Area.

Yeah. So there's a there's the the China business for Us is primarily.

On the mobile side, although we do have a small plant in China for Powell.

Power as well.

The biggest part of it is on the mobile side and more tied into vehicles in China for China.

The vehicle market there is doing fine it had a big rebound in the second quarter.

If you've followed that this week with the quarterly results from public filers.

So.

The China vehicle market is doing fine now for us.

There were supply chain participant into that vehicle manufacturing.

So for us.

We still are stabilizing supply chains, where our customers kind of beefed up on their inventory profiles of products we make.

And we see that now leaning out and so we see normal supply chain pulls for us and more normal operation. So it's smoothing out.

And again I'll.

We also have Douglas campus on the phone who that operation is traditionally reported into him Douglas if you could come off mute and make a comment there.

Sure Harold.

And secondly that we also see in China.

Theres big incentives from the government.

On the what they call the new energy vehicles.

To incentivize, we see the transitioning.

Physician happening fast there from a 26, 27% penetration of Evs.

30%.

Ah versus ice.

So the overall volume that we were monitoring very closely what Harold said, we see the improving in Q2 versus Q1.

Steel 40, a year, maybe a little bit up compared to last year not not.

Not a lot.

Certainly we do have a lots of opportunities should air we have capacity, we are working with our customers.

There is also a big trends from China that they have a lot of open capacity to exploring exports and that might drive that.

Volume in the short term up.

So those are the trends that we've seen China going on right now.

Okay, great. Thanks.

One more question on the power segment I mean, you guys are always talking about the residential and commercial construction markets being tough all year.

Any trends on that and is that more just sort of a macroeconomic situation or was there also internal issues, but not taken advantage of the residential and commercial construction market.

Yep.

<unk>.

I'll answer part of that and then we have been our single here on the phone who so the general manager of our power business.

Obviously that these are well reported areas residential commercial construction and obviously residential in North America has been down nonresidential has been better.

For us we're heavily tied into.

Heating and cooling and electrification of the grid and the creation of a smart grid and the creation of a grid that can.

Take on electric vehicles.

Some information out there that had an electric vehicle driving around town is it's the same electrical use as a as a house. So you have these houses driving around it and then they decide to hook up to the network and start charging and it draws an equivalent of our houses working on electricity during that charge and so.

The grid needs investment that they are the biggest reporter here that I read this week was I try and I don't know if you know that company, but they put out a lot of good information on that.

And they're growing their third growing quarter in a row.

And they gave a lot of information on this topic. So overall.

There's kind of.

The construction independent.

Thing here, that's happening is that the network electrical network needs to expand again because of this electrification trend with regards to starts on single family and multifamily.

That's been down but nonresidential construction has been steady.

And ours is on the phone I'd like to have been ours come off of mute here and make a couple comments also in ours sure sure. Thanks, Charles Yeah. So yeah, you're absolutely hit it right, what we do see some impact related to the residential being down, but we actually have quite a bit of activity on the quoting front the supports.

Largely the industrial side.

And the grid opportunities that are out there there's a lot of work to be done there and we're seeing that quoting activity.

Amp up and in.

And the good news on those is that.

Some of that can have some short term impact for us the types of processes that are related to making those products has a shorter launch time then.

Some of the ones that Harold mentioned earlier are more classic ones that take somewhere around 14 to 16 months. These can be.

Parts can be produced and launched in a matter of.

Closer to three months $3 three to five months timeframe. So we hope to see the impact of that early next year.

Okay, great. Thanks for the color on that one more quick financial question have you guys set a leverage ratio target I think you had at some point in the past 3.87 now was there.

The goal to get by end of year next year or something like that.

Yeah, Michael I'll take that one sure yeah, we haven't set of <unk>.

Provided an outlook on a specific target obviously, we're focused as we said in the commentary on improving liquidity and reducing the leverage ratio going forward and we would and test our forecast.

This reflects a sequential improvement in the leverage ratio as we move forward.

Okay. Thanks, that's all the questions I have for now.

Thank you Tom.

Yeah.

That's all the time, we have allotted for questions I'll turn the call back to <unk> for closing remarks.

Thank you everyone for calling in and listening to our company report and we look forward to reporting and speaking with you again at the end of the next quarter and on our transfer.

Transformation plan, our ongoing results are new wins.

As well as the health of our markets. Thank you very much for your time and operator, we will end the call at this point.

Thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.