Q3 2023 Gentex Corp Earnings Call
Good day and thank you for standing by welcome to the Gentex reports third quarter 2023 financial results. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.
You will then hear an automated message advising your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Josh a burst getting director of Investor Relations. Please go ahead.
Thank you.
Good morning, and welcome to the Gentex Corporation third quarter 2023 earnings release Conference call I'm, Joshua Bursty, Gentex director of Investor Relations and I'm joined by Steve Downing, President and CEO, Neil Boehm, CTO, and Kevin Nash, Vice President Finance and CFO.
This call is live on the Internet and can be reached by going to the Gentex website in the IR Gentex Dot com all contents of this conference call are the property of Gentex Corporation and May not be copied published reproduced rebroadcast retransmitted transcribed or otherwise redistributed Gentex Corporation will hold responsible and liable any party for any damages incurred by Gentex Corporation.
With respect to any unauthorized use of the contents of this conference call.
This conference call contains forward looking information within the meaning of the Gentex Safe Harbor statement included in the Gentex reports third quarter 2023 financial results.
Press release from earlier this morning, and as always shown on the Gentex website.
Your participation in this conference call implies consent to these terms now I'll turn the call over to Steve Downing, who will get US started today, Steve Thanks, Josh.
Before we jump into the quarterly summary, I wanted to take a few minutes to discuss the warrant Israel as you may be aware Gentex made an acquisition in early 2021 of Guardian optical technologies based in Tel Aviv and since that time, we have been growing our technology presence in Tel Aviv, which is primarily focused on using AI to create innovative products focused.
On driver and in cabin monitoring.
We have also recently partnered with a company named <unk> Sky, which is also headquartered in Israel.
We remain close contact with our team and partners in Israel and are thankful to report everyone on those teams along with their immediate families are safe as of our latest report. It is important to note. However that while our team is safe for several of our team members and partners have already experienced loss of friends and extended family members.
As a gentex team, we continue to keep our employees and partners and our thoughts and prayers and are constantly looking for ways to show our support for their safety and the safety of their families and friends.
For the third quarter of 2023, the company reported net sales of $575 $8 million compared to net sales of $493 $6 million in the third quarter of 2022% to 17% quarter over quarter increase.
For the third quarter of 2020 theory 2023 Global light vehicle production in North America, Europe, Japan, Korea, and China increased approximately 5% compared to the third quarter of 2022.
While the last few years have been negatively impacted by labor and supply chain issues that limited our ability to meet customer demand. The last several quarters have improved significantly.
The growth in the third quarter is a continuation of the unit and content growth we experienced during the first half of this year and is indicative of the success of our technology platforms, including the launch rates and increased take rates of our full display mirror products.
In terms of performance metrics, our unit growth in the third quarter outperformed the underlying market by 5%, while our revenue beat the market by 12%.
For the third quarter. The gross margin was 33, 2% compared to a gross margin of 29, 8% for the third quarter of last year.
The third quarter gross margin increased by 340 basis points on a quarter over quarter basis. As a result of the higher sales levels improvements in freight and tariff related cost cost recoveries and price increases from customers and improvements in product mix.
However, some of these improvements were partially offset by increased raw material costs labor costs, and scrap and yield loss increases as compared to the third quarter of last year.
When compared to the second quarter of this year the gross margin in the third quarter improved from 33, 1% to 33, 2%.
We continue to make progress on our margin recovery plan that we estimate it will take until the end of 2024 to complete.
In the six months following the close of the first quarter. We are seeing gross margins expand 150 basis points as the gross margin grew from 31, 7% during the first quarter of 2023 to 33, 2% in the third quarter.
Obviously I'm very pleased with the progress made so far in calendar year 2023, but we still have an incredible amount of work to do in the fourth quarter of this year and then 2024 in order to accomplish our goal of achieving a gross margin of 35% to 36% by the end of next year.
Our focus for the next 18 months will be on achieving improvements in our material cost and supply chain expenses, but will also include targeted improvements in our operations by increasing throughput lowering scrap and yield loss and reducing overtime expenses.
Operating expenses during the third quarter increased by 14% to $69 million compared to operating expenses of $64 million in the third quarter of last year.
Operating expenses increased quarter over quarter, primarily due to staffing and engineering related professional fees, which were partially offset by lower outbound freight expenses. Our operating expenses are trending in line with our expectations with increases primarily focused on R&D as we continue to add technical capabilities and bandwidth.
To support the increased level of launch activities, while also continuing to expand our research into new technologies.
The amount of work that our team has accomplished in our advanced research areas is promising and will ultimately lay the groundwork for growth in future years.
R&D expenses are expected are expected to continue at an elevated pace for the rest of this year and throughout calendar year 2024, as we invest in innovative products and technologies, New business Awards, and <unk> initiatives for cost optimization of our bill of materials.
Income from operations for the third quarter was $122 4 million or 41% increase when compared to income from operations of $86 $8 million for the third quarter of last year.
During the third quarter. The company had an effective tax rate of 15, 9%, which was primarily driven by the benefit of the foreign derived intangible income deduction.
Net income for the third quarter was $104 $7 million compared to net income of $72 $7 million for the third quarter of last year, which represents a 44% increase the increase in net income was primarily the result of the quarter over quarter increases in net sales and operating profits earn.
Earnings per diluted share for the third quarter were 45.
<unk>, 45% increase compared to earnings per diluted share of 31 for the third quarter of last year.
I'll now hand, the call over to Kevin for financial details. Thanks, Steve.
Automotive net sales in the third quarter were $564 5, million% to 17% increase compared with $489 million in the third quarter of 2002.
Auto Dimming mirror unit shipments increased by 10% during the third quarter compared to the third quarter of trying to.
Other net sales in the third quarter, which includes dual aircraft windows and fire protection products were $11 3 million compared to other net sales of $12 7 million in the third quarter of 2002.
Fire protection sales decreased by $5 3 million for the third quarter compared to third quarter of 2002, our Dimmable aircraft window sales increased by 4 million for the third quarter of 2003 compared to last year share repurchases. During the third quarter of 23, the company repurchased two 8 million shares of its common stock at an average price of $32 41 per share as is.
September 30th 23, the company has approximately 18 million shares remaining available for repurchase pursuant to its previously announced share repurchase plan.
The company intends to continue to repurchase additional shares of its common stock in the future and support of the previously disclosed capital allocation strategy, but share repurchases will vary from time to time and will take into account macroeconomic issues market trends and other factors the company deems appropriate shifts.
Shifting over to the balance sheet the balance sheet comparisons mentioned today are as of September 32023, as compared to December 31, or 'twenty two.
Cash and cash equivalents were $260 6 million compared to $214 8 million.
Short term and long term investments combined were $290 1 million up from $225 3 million, which includes fixed income investments as well as the company's equity and cost method investments.
Accounts receivable was $351 1 million up from $276 5 million due to the increase in sales levels.
Inventories were $395 $5 million down from $404 4 million and accounts payable increased to $171 4 million up from 100 to $151 7 million.
Taking a look at preliminary cash flow items for the quarter and year to date third quarter. A 23 cash flow from operations was $125 9 million, which was an increase from $47 1 million in the third quarter of 2002. The increase was due to increases in net income and shifts in working capital.
Year to date cash flow from operations was $367 7 million an increase from $241 8 million in 2002 also due to increased net income and changes in working capital.
Capital expenditures for the third quarter were $31 1 million compared with $50 5 million for the third quarter of last year.
There were approximately $15 million worth of expenditures accrued, but not paid as of September 30.
And year to date capital expenditures were $121 4 million compared with $108 5 million for year to date 2002, when including the accrued but unpaid capital expenditures capex for the calendar year is approximately $136 million.
And lastly, depreciation and amortization for the third quarter was $22 2 million compared with $23 2 million for the third quarter of 2002 and year to date, DNA was $71 million compared with $73 $3 million a year to date 22 ill now hand, the call over to Neil for a product update. Thank you Kevin in the third quarter of 2023, we again experienced a high level of product launches.
For the quarter, there were 28 net new nameplate launches of our interior and exterior auto dimming mirrors and electronic features net of previously disclosed product headwinds.
Additionally, during the third quarter over 70% of the net launches contained advanced features led by full display mirror Homelink and advanced featured exterior mirrors.
Now, let's focus on full display mirror.
<unk> continues to gain momentum with our customers through increased launches, which has been driven by consumers and that has led to increased volumes and take rates.
In the third quarter full display mirror volume performance continued to be strong and through the first nine months of 2023, we have shipped approximately 175 million units.
At the end of the second quarter, we increased our 2023 annual estimate of full display mirror unit shipments to be approximately 500000 units higher in calendar 'twenty three compared to calendar year 'twenty two based.
Based on our current forecast we believe our goal for 2023 is very achievable if there aren't any significant impacts due to the ongoing strikes at our OEM customers.
As we covered last quarter over the last two years, we've incurred significant product cost increases due to the state of the electronics market supply chain issues and labor constraints.
But we are now at a point, where returning our focus on optimizing designs looking for similar quality, but lower cost components and leveraging the supply base in an effort to drive cost out of our bill of materials.
As we enter the fourth quarter of 2023 and prepare our plans for 2024, the purchasing development and launch teams have started the process of identifying components and products, where we need to make a change to help in this effort.
In some situations this process will drive us to create new long term partnerships and some of our current suppliers may lose volume or be displaced completely.
Our strategy is very simple.
Work with key suppliers and partners to find win win scenarios and if this means we need to move to or create new partners and that's what we'll be executing.
The first wave of these redesign projects will be kicked off here in the fourth quarter and several more in early 2024.
This activity is important for us to achieve the long term financial goals of the company and we will be applying the appropriate resource focus to these projects to make them happen.
I'll now hand, the call back over to Steve for guidance and closing remarks. Thanks Neal.
The company's current forecast for light vehicle production for the fourth quarter of 2023 and full year 2023, and 2024 are based on the mid October 2023, S&P Global mobility forecast for light vehicle production in North America, Europe, Japan, Korea, and China light vehicle.
Production in these markets is expected to increase 4% for the fourth quarter of 2023 as compared to light vehicle production for the fourth quarter of last year.
For calendar year 2023 light vehicle production in these markets is forecasted to increase 9% compared to calendar year 2022.
Fourth quarter, 2023, and calendar years, 2023, and 2024 forecasted vehicle production volumes from S&P Global mobility are shown in our press release from today.
Based on this light vehicle production forecast the company is providing updated guidance estimates for calendar year 2023.
Revenue for 2023 and is expected to be between two two and $2 3 billion.
Gross margins for the year should be between 32, and a half and 33% operating expenses are still expected to be between 260 and $270 million.
Given year to date performance, we are lowering the high end of our estimated annual tax rate for the year, which is now forecasted to be between 15% and 15, 5%.
Given the long lead times of capital projects capital expenditures are now expected to be between 200 and $215 million for the year.
And depreciation and amortization is expected to be between 95 and $100 million for the year.
Additionally, based on the company's current forecast for light vehicle production for calendar year 2024, which is currently estimated to increase by 1% as compared to 2023. The company expects calendar year 2020 for revenue to be between $2 45, and $2 $5 5 billion.
The company is on pace for a record setting revenue this year, which has been aided by a tailwind from the relief of the supply chain constraints, along with strong demand for outside mirrors and advanced electronic features.
Our outgrowth versus the market demonstrates that our product strategy is succeeding with our customers and consumers at.
At the same time progress on the path toward improved profitability continues as we execute the additional cost improvement initiatives that will enable us to accomplish our plan of reaching a 35% to 36% gross margin range by the end of 2024.
While gross margin improvements have continued throughout 2023, the sequential improvement from the second quarter to the third quarter of this year was subdued by certain product mix issues that will hopefully subside as we move into the fourth quarter and next year.
The fourth quarter will likely be impacted by the UAW strikes from both a revenue and margin perspective, but we remain confident in our ability to continue to grow revenue, while improving our margin profile throughout the end of this year and into 2024.
<unk>, our prepared comments for today and we can now proceed to questions.
Thank you as a reminder to ask a question. Please press star one on your telephone and wait for them to be announce to withdraw your question. Please press star one again.
Viable compile the Q&A roster.
One moment for our first question.
Okay.
And our first question will come from the line of Luke Young from Baird. Your line is open.
Good morning, Luke your line maybe on mute.
Your line is on mute.
We're just come back to him later.
Okay.
One moment for your next question.
Our next question from will come from the line of John Murphy from Bank of America. Your line is open.
Good morning, guys. Just a question on the on the fourth quarter guide or implied EPS. It seems like there's a fairly wide range.
Operator: your day. And thank you for sending by. Welcome to the Gentex reports, third quarter, twenty twenty three financial results. At this time, all participants are listening only mode. After the speaker's presentation, there will be a question and answer session. As a question during session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be aware that today's conference is being recorded.
And I'm just curious.
Why that is as a result of not knowing what's going on with the UAW strike.
At the moment hopefully its getting resolved soon or is there something else that's going on.
No. It's just about the UAW risk I mean, obviously as we're preparing us and working through it even last night some of the news obviously it could be encouraging but at the same time, what we're what we're having to estimate is assuming that the exposure to the Detroit three continues for a while longer and so that's what's in our in our SM.
Operator: I want to hand a conference over to your speaker today, Josh Obersky, Director of Investor Relations. Please go ahead. Thank you.
<unk> is making sure we consider that fact.
Josh Obersky: Good morning and welcome to the Gentex Corporation third quarter, twenty twenty three earnings release conference call. I'm Josh Obersky, Gentex, Director of Investor Relations, and I'm joined by Steve Downing, President and CEO, Neil Boehm, CTO, and Kevin Nash, Vice President and Finance and CFO. This call is live on the Internet and can be reached by going to the Gentex website and at ir.gentex.com. All contents of this conference call are the property of Gentex Corporation and may not be copied, published, reproduced, rebroadcast, retransmitted, transcribed, or otherwise redistributed. Gentex Corporation will hold responsible and liable any party for any damages incurred by Gentex Corporation with respect to any unauthorized use of the contents of this conference call.
Okay, and then just a second question I mean, when Youre seeing mix improve and then volumes rising the opportunity set or the potential to get margins back potentially faster than youre expecting seemed a lot more plausible than it may have six months ago.
As you think about the progression to your ultimate.
Gross margin targets.
What are the key drivers to getting there or the internal or external and external gets much better.
You then you May expect right now the strike gets resolved and volumes continue to surprise to the upside could we get there potentially a little bit faster.
Josh Obersky: This conference call contains forward looking information within the meaning of the Gentex A-Parber statement included in the Gentex report third quarter, twenty twenty three financial results, press release from earlier this morning, and is always shown on the Gentex website.
Yes, I don't think I don't think well get there faster and the reason why I say that is a lot of the you're absolutely right. Jon that growth is the key and the sales volumes and mix has to be right and so even assuming those factors one of the things that we have to remember in one of the things we're working through and the reason for Neil's comments in the prepared comments was really.
Steve Downing: Your participation in this conference call implies consent to these terms. Now I'll turn the call over to Steve Downing. We'll get us started today. Steve, thanks, Josh.
On saying, Hey, a lot of the products if contents coming that's where a lot of the cost increase has happened where an advanced feature products. So, whereas historically, that's always been a great partner product mix. It also means we have some work to do to get that bill of materials back in line with where we expect it to be in order for that to have that read through in our total financial performance that we are.
Steve Downing: Before we jump into the quarterly summary, I wanted to take a few minutes to discuss the Warren Israel. As you may be aware, Gentex made an acquisition in early 2021 of guardian optical technologies based in Tel Aviv. And since that time, we have been growing our technology presence in Tel Aviv, which is primarily focused on using AI to create innovative products focused on driver and in cabin monitoring. We have also recently partnered with a company named Addisky, which is also headquartered in Israel.
Hoping for previously so, whereas we have our plan there is a lot of work and Thats why Neil kind of made those comments. During his prepared comments was about there is some work that needs to be done in other words, just selling isn't going to be enough on its own.
Steve Downing: We remain close contact with our team and partners in Israel, and are thankful to report everyone on those teams along with their immediate families are safe as of our latest report. It is important to know however that while our team is safe, several of our team members and partners have already experienced loss of friends and extended family members. As a Gentex team, we continue to keep our employees and partners and our thoughts and prayers and are constantly looking for ways to show our support for their safety and the safety of their families and friends.
We have engineering work and obviously some bill of materials improvements that have to be made in order for us to achieve those.
Okay, great. Thank you very much guys.
Thanks Shannon.
Thank you one moment for our next question.
Okay.
Okay.
Our next question comes from the line of Josh Nichols from B Riley Your line is open.
Yes, thanks for taking my question.
Steve Downing: For the third quarter of 2023, the company reported net sales of $575.8 million compared to net sales of $493.6 million in the third quarter of 2022, a 17% quarter of a quarter increase. For the third quarter of 2023, Global Light Vehicle Production in North America, Europe, Japan, Korea, and China increased approximately 5% compared to the third quarter of 2022. While the last few years have been negatively impacted by labor and supply chain issues that limited our ability to meet customer demand, the last several quarters have improved significantly.
Since we haven't talked about it in a little bit clearly you're benefiting from increased penetration rates for your interior and exterior auto dimming mirrors.
Any commentary about where that stands today or if not could you at least kind of discuss a little bit about what youre seeing in penetration rates in some of these emerging markets like China and how that compares to where you are with more established markets in the U S and Europe.
Yes, I think if you look at outside mirrors, especially there's been a lot of growth in Asia, including the China market, but really outside in outside mirror take rates have been increasing pretty much globally, and so we've done really well with that product line.
Steve Downing: The growth in the third quarter is a continuation of the unit and content growth we experienced during the first half of this year and is indicative of the success of our technology platforms, including the launch rates and increased take rates of our In terms of performance metrics, our unit growth in the third quarter outperformed the underlying market by 5% while our revenue beat the market by 12%. For the third quarter, the gross margin was 33.2% compared to a gross margin of 29.8% for the third quarter of last year.
And beyond that I think the next biggest when you look at on the take rate side would be full display mirror.
Obviously, the number of launches that we've been talking about over the last couple of years have grown significantly, but even inside of those programs that we've already launched that take rates have changed quite a bit in that same time period, meaning.
Meaning that we're moving from typically moving from base auto dimming mirrors full display mirror. So both of those trends have been very positive for us over the last couple of years and based on what we're seeing we don't see that changing anytime soon.
And then just to follow up on that.
Nearly the full display mirrors very nice ASP contribution relative to your the mirrors.
Steve Downing: This is a tariff related cost, cost recoveries, and price increases from customers and improvements in product mix. However, some of these improvements were partially offset by increased raw material costs, labor costs, and scrap and yield loss increases as compared to the third quarter of last year. When compared to the second quarter of this year, the gross margin in the third quarter improved from 33.1% to 33.2%. We continue to make progress on our margin recovery plan that we estimated would take until the end of 2024 to complete.
How does it stand, though on the margin I know that theres been some cost pressures there is above the corporate average or below or just curious how thats going to impact the business going forward, because thats become an increasingly large percentage of the revenue growth.
Yes, I would say right now we're actually slightly below corporate average and the reason for that is some of the factors. We talked about just a couple of minutes ago with that that was a lot of those products took the brunt of cost increases, especially on the high end electronics side and so that's why we're going to be focused on a lot of those products as we move through this year and through next year, making.
Steve Downing: In the six months following the quotas of the first quarter, we have seen gross margins expand 150 basis points as the gross margin grew from 31.7% during the first quarter of 2023 to 33.2% in the third quarter.
Sure that were getting cost optimized designs in place to help get those back in line. So that they are closer to corporate average margin profile.
Like we said there is an engineering effort that has to take place and then a launch effort and validation.
So they don't have an immediate impact, but we know it sets the stage very well for the next 18 months to two to three years in terms of total financial performance.
Steve Downing: Obviously, I'm very pleased with the progress made so far in calendar year 2023, but we still have an incredible amount of work to do in the fourth quarter of this year and in 2024 in order to accomplish our goal of achieving a gross margin of 35 to 36% by the end of next year. Our focus for the next 18 months will be on achieving improvements in our material costs and supply chain expenses, but will also include targeted improvements in our operations by increasing throughput, lowering scrap and yield loss, and reducing over time expenses.
And then last question for me, then I'll, let someone else.
Take a turn but.
I know, obviously hard to frame rate the UAW impact, it's still going on good potential news right from forward see if that spills over to the other.
Automakers in the U S, but fair to say that.
Well there is a relatively large or wider guidance range for <unk> that you are not anticipating any impact for 24, so still that 10% growth that you are forecasting theres nothing really built in for any headwinds there that's more back to normal operating environment, but true.
Steve Downing: Operating expenses during the third quarter increased by 14% to $69 million compared to operating expenses of $60.4 million in the third quarter of last year. Operating expenses increased quarter over quarter primarily due to staffing and engineering related professional fees, which were partially offset by lower outbound freight expenses. Our operating expenses are trending in line with our expectations with increases primarily focused on R&D as we continue to add technical capabilities and bandwidth to support the increased level of launch activities while also continuing to expand our research into new technologies.
Yes, that's our assumption so if we're if we're looking at this year. It comes in anywhere close to S&P's estimate for fourth quarter auto production and a 1% growth rate above that in 2024, we feel pretty comfortable we can produce the numbers inside of that revenue range.
Great. Thank you.
Thanks, Josh.
One moment for our next question.
And our next question comes from the line of Mark Delaney from Goldman Sachs. Your line is open.
Steve Downing: The amount of work that our team has accomplished in our advanced research areas is promising and will ultimately lay the groundwork for growth in future years. R&D expenses are expected to continue at an elevated pace for the rest of this year and throughout county year 2024 as we invest in innovative products and technologies, new business awards and VAVE initiatives for cost optimization of our bill of materials.
Yes. Good morning, Thanks, very much for taking the questions first I was hoping you could double click a little bit more in depth around both price and cost and you talked about perhaps an opportunity to go after some of the input costs you have been seen in some of the inflation that your company has been dealing with maybe a subsiding.
If you can talk a little bit more broadly as you think about 'twenty four, but but then extend that as well as how you're thinking about pricing.
Steve Downing: Income from operations for the third quarter was $122.4 million, a 41% increase when compared to income from operations of $86.8 million for the third quarter of last year. During the third quarter the company had an effective tax rate of 15.9%, which was primarily driven by the benefit of the foreign derived and tangible income deduction. Now income for the third quarter was $104.7 million compared to net income of $72.7 million for the third quarter of last year, which represents a 44 percent increase. The increase in net income was primarily the result of the quarter over quarter increases in net sales and operating profits.
As you start to negotiate with your OEM customers, you've been able to secure some recoveries just at the pricing dynamic.
Perhaps more difficult in 'twenty four and in particular some of these Oems have higher labor costs now and.
How does that maybe not with the margin.
<unk> targets that you've laid out thanks.
Yeah. Thanks, Mark what I would say is on the recovery side, we've been working really hard on that over the last 18 months and the team has done an amazing job of positioning us well with Oems to negotiate most of those deals. There is still some residuals that will happen in Q4 and beyond.
But we were probably 80% of the way through that with our customers and that's why we now are talking about the focus which we had always known would be wave two of our work and improving margins was going to be focused on internal cost and supplier costs. So.
Our focus there has been like to Neil's point isn't just purely economics. All the time, it's also engineering, our way into more cost efficient solutions and so the team has been already actively working in a space. The next 18 months, though is going to become a lot more effort and focus on redesigns and on making sure that we have the right product partner.
Kevin Nash: I'll now hand the call over to Kevin for financial details. Thanks, Steve. Automotive net sales in the third quarter were $564.5 million, a 17 percent increase compared to $480.9 million in the third quarter of $22. Out of dimming mirror unit shipments increased by 10 percent during the third quarter compared to the third quarter of $22.
Kevin Nash: Other net sales in the third quarter, which includes dimming aircraft windows and fire protection products were $11.3 million compared to other net sales of $12.7 million in the third quarter of $22. Fire protection sales decreased by $5.3 million for the third quarter compared to the third quarter of $22 while dimming aircraft windows sales increased by $4 million for the third quarter of $23 compared to last year. Share repurchases during the third quarter of $23.3 the company repurchased 0.8 million shares of its common stock at an average price of $32.41 per share. As of September 30th of 23, the company has approximately 18 million shares remaining available for repurchase pursuant to its previously announced share repurchased plan.
From a supplier standpoint and cost efficient solutions. So.
It is it is going to become more difficult in the second year of going after it because this isn't just a negotiation piece. This is going to be a lot of engineering work that's required in order to accomplish these improvements.
Okay got it.
Maybe you could also talk a little bit more on what youre seeing by.
A key region in terms of the production schedules and particularly internationally in areas like Europe and China.
Other tier ones, you talked about seeing some potential macroeconomic impact on European and China schedules, and especially as you guys have a 24 target out there quite a bit to understand what.
Kevin Nash: The company intends to continue to repurchase additional shares of its common stock in the future in support of the previously disclosed capital allocation strategy, but share repurchases will vary from time to time and will take into account macroeconomic issues, market trends and other factors the company de-appropriate shifting over to the balance sheet. The balance sheet comparisons mentioned today are as of September 30th of 2023 as compared to December 31 of 22.
What the trajectory in the production schedules may be as you look at those key regions. Thanks.
Yes, I think for sure. If you look at if you look at Europe, I mean, it's historically, it's tended to trend.
Pretty similarly, with North American market in terms of economic macroeconomic issues and so I wouldn't see any real change in Europe versus what we're seeing already in North America, and that's really affected mostly by interest rates. Currently so what's the over underlying economic condition of the country in the region, where you're participating and then what is the lasting impact of Costa.
Kevin Nash: Cash and cash equivalents were 260.6 million compared to 214.8 million. Short term and long term investments combined were 290.1 million up from 225.3 million which includes fixed income investments as well as the company's equity and cost method investments. Accounts receivable was 351.1 million up from 276.5 million due to the increase in sales levels. Inventories were 395.5 million down from 404.4 million and accounts payable increased at 171.4 million up from 151.7 million.
Money and how does that impact our consumers' buying habits and so I think those will be the biggest factors both in North America and Europe, China is a little different has been an extreme amount of volatility in that marketplace. I mean, we've done well through that but we also understand that there is a lot of pressure on the Oems right. Now there are some concerns around profitability with those Oems and so.
One of the things that we look at and pay a lot of attention to is what is the financial stability of the customer base as well and I think our biggest concern there would be in the China market not in the rest of the world.
Kevin Nash: Taking a look at preliminary cash flow items for the quarter and year to date, third quarter of 23 cash flow from operations was 125.9 million, which was an increase from 47.1 million in the third quarter of 22. The increase was due to increases in net income and shifts in working capital. Year to date cash flow from operations was 367.7 million and increased from 241.8 million in 22, also due to increase in income and changes in working capital.
Thank you.
One moment for your next question.
Okay.
Yeah.
Our next question comes from the line of genes Pico radio from BNP Paribas. Your line is open.
Kevin Nash: Capital expenditures for the third quarter were 31.1 million compared to the 50.5 million for the third quarter of last year. There were approximately 15 million dollars worth of expenditures accrued but not paid as of September 30. And year to date capital expenditures were 121.4 million compared with 108.5 million per year to date 22. When including the accrued but untaid capital expenditures, capital expenditures for the calendar year was approximately 136 million. And lastly depreciation and amrization for the third quarter was 22.2 million compared with 23.2 million for the third quarter of 22. And year to date DNA was 71 million compared with 73.3 million per year to date. 22.
Hi, Yes, good morning, guys.
Just wondering if you could speak to the <unk>.
The rising or the increasing still increasing raw material costs.
Yes that was called out as a <unk>.
Headwind for us.
In the quarter, and then particular on chip semi pricing, what's the backdrop. It looks like there is as we think about next year and then my follow up question would be to Neil.
My apologies I had to join the call late and I just caught the tail end of the redesign effort.
Neil Boehm: I now hand the call over to Neil for your product update. Thank you, Kevin. In the third quarter of 2023, we again experience the high level of product launches. For the quarter, there were 28 net and the nameplate launches of our interior and exterior auto-daming mirrors and electronic features, net that previously disclosed product headwinds. Additionally, during the third quarter, over 70% of the net launches contained advanced features led by full display mirror, home link and advanced featured exterior mirrors.
If we could just.
Elaborate a little bit on that I might have a follow up.
To the redesign topic as well.
Sure.
Yes, so on the chip pricing, that's really something that we had some already negotiated stuff that happened in the first towards the end of the first quarter really in the second quarter. So.
We didn't see the full brunt of that headwind really into the third quarter. So it was something that was we had briefly talked about it last quarter, but they kind of offset some of the other positive things that we had going on so I think that was just a little bit of the noise on the bill of materials side, but it's really it's not nearly as much as what we had already brought it but.
Neil Boehm: Now let's focus on full display mirror. Full display mirror continues to gain momentum with our customers through increased launches, which has been driven by consumers and that has led to increased volumes and take rates. In the third quarter, full display mirror volume performance continued to be strong. And through the first nine months of 2023, we have shipped approximately 1.75 million units. At the end of the second quarter, we increased our 2023 annual estimate of full display mirror unit shipments.
Kind of offsetting some of the positive things that we saw.
Really balancing through the third quarter.
And we still are seeing a couple of suppliers that are still asking for some increases. So part of my prepared comments was around looking at products and components and finding ultimate solutions, our design strategies as.
Neil Boehm: To be approximately 500,000 units higher in calendar 23 compared to calendar year 22. Based on our current forecast, we believe our goal for 2023 is very achievable if there aren't any significant impacts due to the ongoing strikes at our OEM customers.
As the next phase so as we get into Q4 here and into 2024 were in the process of identifying the products and the components that we need to focus on in order to help remove cost out of the building, especially Steven.
Neil Boehm: As we covered last quarter, over the last two years, we've been encouraged significant product cost increases due to the state of the electronics market supply chain issues and labor constraints. But we are now at a point where we're turning our focus on optimizing designs, looking for similar quality, but lower cost components, and leveraging the supply base in an effort to drive costs of our bill and materials. As we enter the fourth quarter of 2023 and prepare our plans for 2024, the purchasing development and launch teams has started the process of identifying components and products where we need to make a change to help in this effort. In some situations, this process will drive us to create new long-term partnerships and some of our current suppliers may lose volume or be displaced completely.
You had mentioned a little bit ago, especially on some of the higher content products like full display mirror, where you have a lot more technology. Those are the areas that took a lot more financial burden with the cost increases over the last two years.
Got it that's helpful, but can that Ken the redesign effort could that potentially lead to additional R&D any and just resource investment on behalf of you guys to really take that to the finish line or is that strategy and the investments that are needed.
Well contained.
Yes, absolutely I mean, there is definitely a step up in terms of the R&D requirements in order to achieve those.
It is contained inside of our guidance and really what we're talking about is a redirection and as we move into 2024.
Neil Boehm: Our strategy is very simple. Work with key suppliers and partners to find windwind scenarios. And if this means we need to move to or create new partners, then that's what we'll be executing. The first wave of these redesign projects will be kicked off here in the fourth quarter and several more in early 2024. This activity is important for us to achieve the long-term financial goals of the company, and we'll be applying the appropriate resource focus to these projects to make them happen.
Growth in both the top line, but also in the engineering base of the business.
A good portion of that is going to be focused on redesign efforts.
Got it okay. Thank you.
You bet.
Thank you one moment for our next question.
Okay.
And our next question comes from the line of Ryan Brinkman from Jpmorgan. Your line is open alright.
Steve Downing: I'll now hand the call back over to Steve for guidance and closing remarks. Thanks, Neil. The company's current forecast for light vehicle production for the fourth quarter of 2023 and four years 2023 and 2024 are based on the mid-October 2023 S&P Global Mobility Forecast for light vehicle production in North America, Europe, Japan, Korea, and China. Light vehicle production in these markets is expected to increase 4% for the fourth quarter of 2023 as compared to light vehicle production for the fourth quarter of last year.
Alright, thanks for taking my questions here.
You are essentially reiterating that despite.
Despite that headwind from UAW strike. So are you able to quantify the impact to date from the strikes what is embedded in the updated guide to full year and then guidance remained unchanged versus the time that your earnings something of a truck better right by an equivalent amount to upset the strike headwinds. So what would you say.
Better or did you maybe contemplate some strike impact or how should we think about the factor.
Steve Downing: For calendar year 2023, light vehicle production in these markets is forecasted to increase 9%, compared to calendar year 2022. Fourth quarter 2023 and calendar year 2023 and 2024 forecasted vehicle production volumes from S&P Global Mobility are shown in our press release from today. Based on this light vehicle production forecast, the company is providing updated guidance estimates for calendar year 2023 Revenue for 2023 is expected to be between $2.2 and $2.3 billion gross margins for the year should be between 32 and a half and 33% operating expenses are still expected to be between $260 and $270 million given year-to-date performance we are lowering the high end of our estimated annual tax rate for the year which is now forecasted to be between 15 and 15 and a half percent given the long lead times of capital projects capital expenditures are now expected to be between $200 and $215 million for the year and depreciation and amortization is expected to be between $95 and $100 million for the year additionally based on the company's current forecast for light vehicle production for county year 2024 which is currently estimated to increase by 1% as compared to 2023 the company expects calendar year 2024 revenue to be between 2.45 and 2.55 billion dollars the company is on pace for record-setting revenue this year which has been aided by tailwinds from the relief of the supply chain constraints along with strong demand for outside mirrors and advanced electronic features our outgrowth versus the market demonstrates that our product strategy is succeeding with our customers and consumers at the same time progress on the path toward improved profitability continues as we execute the additional cost improvement initiatives that will enable us to accomplish our plan of reaching a 35 to 36% gross margin range by the end of 2024 while gross margin improvements have continued throughout 2023 the sequential improvement from the second quarter to the third quarter of this year was subdued by certain product mix issues that will hopefully subside as we move into the fourth quarter and next year the fourth quarter will likely be impacted by the UAW strikes from both a revenue and margin perspective but we remain confident our ability to continue to grow revenue while improving our margin profile throughout the end of this year and into 2024 that completes our prepared comments for today and we can now proceed to questions Thank you as a reminder to ask the question please press star one one on your telephone and wait for a name to be announced to withdraw your question please press star one one again please then buy will compile the Q&A roster one moment for a first question and our first question will come to line up Luke Young from Baird your line is open morning Luke your line may be on mute Luke your line is on mute we'll just come back to him later one moment for our next question next question from will come from line of John Murphy from Bank of America your line is open Good morning guys just a question on the on the fourth quarter guide or implied EPS it seems like there's a fairly wide range and I'm just curious you know why that is as a result of not knowing what's going on with the UAW strike you know at the moment hopefully it's getting resolved soon or is there something else that's going on?
Well I'd say, we will start with Q3 it was a very modest impact in Q3. If you look at the plants that were impacted in the portions of Oems very modest impact to us as we move through Q2 Q3 or Q4 started.
Basically we are run and saw about $1 million a week impact obviously with the latest announcements over the last few days, including some of the GM.
Plant shutdowns those are plans that are more impactful to us and so we've gotten to the range, where we can be talking about if things didn't change from where they are at right now two to two $5 million of weekend lost revenue is about what we would be facing and so as we move forward, obviously, depending on the breadth and scope of the of the shut.
Downs will determine how much and how long will ultimately drive what the total impact is to the company and so.
We do believe we're well inside of that range with the guidance that we gave.
Look at our if you look at the normal cyclical nature of Q3 moved to Q4 by the end of the year you'd normally expect a little bit of trail off around the holidays, but normally October is a very strong month and theres been no reason to believe that's not consistent we've actually been doing very well and staying very busy throughout October. Despite some of these challenges the question.
Will become how long does this Ron is it beyond October through November and which Oems are able to set off the disagreement.
Okay, great. Thanks, and then relative to the reference in the release and then in the prepared remarks to about the last several quarters have been improved significantly from a supply chain perspective, I imagine this is benefiting gross margin.
Got mixing.
Mix improvement earlier some of your your shortages will impacting your more advanced higher profit features then you've got the <unk>.
The fixed portion of Cogs from the higher sales, but that allows them and me.
<unk> got some lower premium freight or logistics in there too.
How would you sort of bucket those areas of supply chain.
Related margin tailwind to them how important is any one of these areas continued improvement there.
<unk> progressed toward the targeted 35% to 36% by the end of next year or or other areas more important like I don't know how manufacturing cost efficiencies I heard on the call today about some sort of vendor cost reduction program et cetera.
Way to think about that.
Well, yes, I think the single biggest impact given the.
The improvement in the supply side has been really freight and duties and tariff related, especially expedited freight cost like you mentioned so that was the single largest impact part of it's pricing from the supply base, but really its more so focused on how much expediting freight we had to do in order to keep up with demand from our customer base when things were.
Trains so that has improved significantly so thats, obviously helped provide a tailwind to margin profile as we talk about moving into next fourth quarter and really next year. If you look at the key focus areas is going to be really the higher sales levels and then obviously improved bill of material costs and then lastly, the factors that we mentioned on the operational side.
So you're going to be talking about total throughput scrap and yield loss cost and then limiting the amount of overtime and so if we can handle those areas those will be the key areas beyond obviously, maintaining product mix and the higher sales level beyond that though operationally and once we achieve those targets, that's what's going to equip us to be able to get.
Back to that 35%, 36% range by the end of next year.
Very helpful. Thank you.
One moment our next question.
And our next question comes from the line of Ron <unk> from <unk>.
Your line is open.
Steve Downing: No, it's just about the UAW risk. I mean, obviously as we're preparing this and working through it even last night, some of the news obviously could be encouraging but at the same time what we're having to estimate is assuming that the exposure to the Detroit 3 continues for a while longer. And so that's what's in our in our estimates is making sure we consider that fact.
Good morning.
Morning, Thanks for taking my questions.
I guess, just first where there any retro or out of period pricing benefits. This quarter, just as we think about.
Modeling.
There was a few million probably about $45 million.
Kind of.
Recoveries in the quarter.
Steve Downing: Okay, and then just a second question. I mean, when you're seeing, you know, mix improve and then biomes rising the opportunity set or the potential to get margins back potentially faster than you're expecting seems a lot more plausible than it may have, you know, six months ago. You know, as you think about the progression to your ultimate, you know, gross margin targets. You know, what are the key drivers to getting there?
Related to.
Settlements of negotiations.
Not all of it was onetime in nature button Sir.
Okay.
Okay.
Are you using are you using a strike to help build up some some slack in the system or what kind of buffer in your supply chain and then maybe shifting back to some more favorable modes of freight both inbound and outbound and <unk> reduce overtime.
Steve Downing: Are they internal or external and if external gets much better, you know, then you may expect right now the strike gets resolved and biomes continue to do surprise to the upside. Could we get there potentially a little bit faster? Yeah, I don't think I don't think we'll get there faster. And the reason why I say that is a lot of the you're absolutely right, John, the growth is the key and the sales volumes and mix have to be right.
Yes that was exactly the plan depending on the length and severity of the strike is to use this as an opportunity to replenish finished goods inventory back to more sustainable levels.
Also obviously hopefully find a way to get production scheduling back in line. So that we can limit overtime and some of the reactionary expenses that you face given customer order changes.
Steve Downing: And so even assuming those factors. One of the things that we have to remember and one of the things we're working through in the reason for Niels comments in the prepared comments was really focused on saying, hey, a lot of the products, if contents coming, that's where a lot of the cost increases happen. We're on advanced feature products. So whereas historically, that's always been great part of product mix. It also means we have some work to do to get the bill materials back in line with where we expect it to be in order for that to have the read through and the total financial performance that we're hoping for previously.
Okay. That's helpful.
And then just high level like Europe, and North American production was down something in the range of 10% to 12% sequentially.
But your revenues are kind of adjusting for the pricing commentary you gave are roughly flat quarter over quarter.
I guess just.
Key takeaways as FTM take rates are moving higher or overall product take rates or kind of what would you.
How would you bridge the gap because those are two core markets are two largest markets and you still have roughly flat revenue performance.
Steve Downing: So whereas we have our plan, there is a lot of work and that's why Neil kind of made those comments during his prepared comments was about there's some work that needs to be done. In other words, just selling isn't going to be enough on its own. We have engineering work and obviously some bill materials improvements that have to be made in order for us to achieve those. Okay, great. Thank you very much, guys. Thanks, John. Thank you. One moment for our next question.
Yes, Youre exactly right. If you look at continued growth in FTM, obviously theres been some tail winds on outside mirrors as well overall product content, even though volumes have dropped some in that space like if you look at what the overall dollar content has done very well during that time period, allowing that over outperformance versus the market.
Okay.
Well I'll hop back in.
Back in the queue.
Neil Boehm: Our next question of line of Josh Nichols from B Riley. Your line is open. Yeah, thanks for taking my question. Since we haven't talked about it in a little bit clearly, you're benefiting from increased penetration rates for your interior exterior auto dimming mirrors. Any commentary about where that stands today or if not, could you at least kind of discuss a little bit about what you're seeing in penetration rates and some of these emerging markets like China and how that compares to where you are with more established markets in the US and Europe.
Thanks, Rob.
Thank you and as a reminder to ask a question Thats Star one to one once again Thats Star 111 moment for your next question.
Neil Boehm: Yeah, I think if you look at outside mirrors, especially, there's been a lot of growth in Asia, including the China market, but really outside, outside mirror take rates have been increasing pretty much globally. And so we've done really well with that product line. And beyond that, I think the next biggest one you'd look at on the take rate side would be full display mirror. Obviously, the number of launches that we've been talking about over the last couple of years have grown significantly, but even inside of those programs that we've already launched that take rates have changed quite a bit in that same time period.
And our next question comes from the line of Luke junk from Baird. Your line is open.
Yeah.
Luke Your line is open.
If your phone is on speaker please pick it up.
Alright.
Yeah.
And I see no further questions in the queue I'd like to turn the call back over to Josh <unk> for closing remarks.
Alright, well that concludes our call. Thank you everyone for the time and questions will record churn in the near future and have a great weekend.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Neil Boehm: Meaning that we're moving from typically moving from base auto dimming mirrors to full display mirrors. So both of those trends have been very positive for us over the last couple of years. And we're based on what we're seeing. We don't see that changing anytime soon. And then just to follow up on that, clearly the full display mirrors are very nice ASP contributions relative to the mirrors. How does it stand though on the margin?
Okay.
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Neil Boehm: I know that there's been some cost pressures there is above the corporate average or below or just curious how that's going to impact the business going forward because that's become an increasingly large percentage of the revenue growth. Yeah, I would say right now we're actually slightly below corporate average and the reason for that is some of the factors we talked about just a couple of minutes ago with that that was a lot of those products took the brunt of cost increases, especially on the high end electronic side.
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Neil Boehm: And so that's why we're going to be focused on a lot of those products as we move through this this year and through next year, making sure that we're getting cost optimized designs in place to help get those back in line so that they're closer to corporate average margin profile. Like we said, there's an engineering effort that has to take place and then a launch effort and validation and so they don't have an immediate impact, but we know it sets the stage very well for the next 18 months to two, three years in terms of total financial performance.
Steve Downing: I didn't last question for me that I let someone else take a turn, but I know obviously hard to frame, right? The UAW impact is still going on some good potential news right from forward. We'll see if that spills over to the other automakers in the US, but fair to say that well, there's a relatively large or wider guidance range for 4Q that you're not anticipating the impact for 24. So still that 10% growth that you're forecasting, there's nothing really built in for any headwinds there that's more back to normal operating environments that troop.
Steve Downing: Yeah, that's our assumption. So if we're if we're looking at a you know, if this year comes in anywhere close to S&P's estimate for fourth quarter auto production and a 1% growth rate above that in 2024. We feel pretty comfortable. We can produce the numbers inside of that revenue range. Great. Thank you. One moment for the next question.
Steve Downing: And our next question will come from Lino Mark Delaney from Goldman Sachs. Your line is open. Yes, good morning. Thanks very much for taking the questions. First, I just hope you could double click a little bit more in depth around both price and cost. You talked about perhaps an opportunity to go after some of the info costs that you've been seeing in some of the inflation that your company has been dealing with may be a subsiding.
Steve Downing: If you talk a little bit more broadly as you think about 24, but then you know extend that as well as how you think about pricing and you know as you start to negotiate with your OEM customers, you've been able to secure some recoveries. Thank you, Mark. I would say is on the recovery side, we've been working really hard on that over the last 18 months and the team's done an amazing job of positioning us well with OEMs to negotiate most of those deals.
Steve Downing: There's still some residuals that will happen in Q4 and beyond, but we're probably 80% of the way through that with our customers. And that's why we now we're talking about the focus, which we had always known would be wave two of our work and improving margins was going to be focused on internal costs and supplier costs. So our focus there has been like tenials point isn't just purely economics all the time.
Steve Downing: It's also engineering our way into more cost efficient solutions. And so the team has been already actively working in the space. The next 18 months that was going to become a lot more effort and focus on redesigns and on making sure that we have the right product partners from a supplier standpoint and cost efficient solutions. So it is going to become more difficult in the second year of going after it because this isn't just a negotiation piece. This is going to be a lot of engineering work that's required in order to accomplish these improvements.
Steve Downing: I got it. And maybe you could also talk a little bit more on what you're seeing by the key region in terms of production schedules and particularly internationally in areas like Europe and China. One of the other two to your ones talked about seeing some potential macroeconomic impact on European and China schedules. And so as you guys have a 24 target out there, we would have been understand what the trajectory and the production schedules may be.
Steve Downing: As you look at those key regions, thanks. Yeah, I think for sure, if you look at Europe, I mean, historically it's tended to trend pretty similarly with North American market in terms of macroeconomic issues. And so I wouldn't see any real change in Europe versus what we're seeing already in North America. And that's really affected mostly by interest rates currently. So what's the underlying economic condition of the country in the region where you're participating?
Steve Downing: And then what is the lasting impact of cost of money and how does that impact, you know, consumers buying habits? And so I think those will be the biggest factors both in North America and Europe. China is a little different. It's been an extreme amount of volatility in that marketplace. I mean, we've done well through that. But we also understand that there's a lot of pressure on the OEMs right now. There's some concerns around profitability with those OEMs.
Steve Downing: And so that's one of the things that we look at and pay a lot of attention to is, you know, what is the financial stability of the customer base as well. And I think our biggest concern there would be in the China market, not in the rest of the world.
Operator: Thank you. One moment for the next question.
Kevin Nash: Our next question will come from Lionel James Pica Reo from BMP Parabus. Your line is open. Hi, good morning guys. If you could speak to the rising or the increasing, still increasing raw material costs, you know, that was called out as a as a headwind force in the quarter, you know, in the particular on chip, you know, semis pricing. What the backdrop, you know, it looks like there as we, you know, as we think about next year.
Kevin Nash: And then my follow up question would be to Neil. My apologies. I had to join the call late. And I just cut the tail end of the redesign effort. You know, if we could just elaborate a little bit on that, I might have to follow to the redesign topic as well. Thanks. Sure. Good. Yeah. So on the chip pricing, that's really something that we had some already negotiated stuff that happened in the first towards the end of the first quarter, really in the second quarter.
Kevin Nash: So we didn't see the full brunt of that headwind really into the third quarter. So it was something that was, we had briefly talked about it last quarter, but it kind of offsets some of the other positive things that we had going on. And so I think that was just a little bit of the noise on the bill material side, but it's really it's not nearly as much as what we had already brought it, but you know, kind of offsetting some of the positive things that we saw really balancing through the third quarter.
Kevin Nash: Yeah. And we still are seeing the couple of suppliers that are still asking for some increases. So, you know, part of my prepared comments was around looking at products and components and finding alternate solutions or design strategies as the next day. So as we get into Q4 here and into 2024, we're in the process by identifying that products and the components that we need to focus on in order to help remove cost out of the bill, especially as you did mention a little bit ago, especially on some of the higher content products like full display mirror, or you have a lot more technology. Those are the areas that took a lot more financial burden with the cost increases over less, for two years. Got it. That's total.
Neil Boehm: But can that, can the redesign effort, could that potentially lead to, you know, additional R D and E and just, you know, resource investment on behalf of you guys to really take that to the finish line or is that strategy and the investments that are needed pretty well contained? Yeah, absolutely. I mean, there's definitely a step up in terms of the R and D requirements. In order to achieve those, it is contained inside of our guidance.
Neil Boehm: And really, what we're talking about is a redirection. And as we move into 2024, the growth in both the top line, but also in the engineering base of the business, a good portion that's going to be focused on redesigned efforts. Okay, thank you. Thank you.
Ryan Brinkman: One moment for next question. And our next question comes from Liana, Ryan Brinkman from J.P. Morgan. The line is open. Thanks for taking my questions. I hear essentially reiterating this. Despite that, I had been from UAW strike. So are you able to quantify and impact to date from the strikes? What has been embedded in the updated guide for the whole year? And then the guide to remain unchanged for the time of two fewer names.
Ryan Brinkman: Something had to track better right by an equivalent amount to offset the strike headwind. So what would you say track better or did you maybe contemplate some strike impact or how should we think of this factor?
Steve Downing: Well, I'd say and we'll start with Q3. It was very modest impact in Q3. If you look at the plans that were impacted and the portions of OEMs, very modest impact to us. As we've moved through Q3, our Q4 started. Basically, we were running sub of a million dollar a week and packed obviously with the latest announcements over the last few days, including some of the GM plant shutdowns. Those are plans that are more impactful to us.
Steve Downing: And so, you know, we've gotten to the range where we could be talking about if things didn't change from where they're at right now, two to two and a half million dollars a week and lost revenue is about what we would be facing. And so as we move forward, obviously, depending on the breadth and scope of the shutdowns will determine how much and how long will ultimately drive what the total impact is to the company.
Steve Downing: And so we do believe we're well inside of that range with the guidance that we gave. You know, if you look at our, if you look at the normal cyclical nature of Q3, move to Q4 by the end of the year, you normally expect a little bit of trail off around the holidays. But normally, October is a very strong month and there's been no reason to believe that's not consistent. We've actually been doing very well and staying very busy throughout October despite some of these challenges. The question will become, you know, how long does this run? Is it beyond October through November, and which OEMs are able to settle the disagreement?
Steve Downing: Okay, great. And so then, you know, relative to the reference in the release and then in the third remarks to about, you know, the last several quarters have been improved significantly from a supply chain perspective. And that can be seen benefit in gross margin in a couple of ways. You've got the mixed improvement because I think earlier, some of your shortages were impacting your more advanced higher profit features. Then you've got the, you know, leverage the fixed portion of cards from the higher sales, but that allows and maybe you've got some lower premium freight or logistics in there too.
Steve Downing: How would you sort of bucket those areas of supply chain, you know, related margin tailwind and how important is any one of these areas, you know, continued improvement there to continuing to progress for the targeted 35 to 36% by the end of next year or or are other areas more important, like, I don't know, manufacturing cost efficiencies. I heard on the call today about some sort of vendor cost reduction program, etc.
Steve Downing: What's the right way to think about that? Well, yeah, I think the single biggest impact given the improvement in the supply side has been really free and duties and tear-related, especially expedited for a cost like you mentioned. So that was the single largest impact. Part of its pricing from the supply base, but really it's more so focused on how much expediting free we had to do in order to keep up with demand from our customer base when things were constrained.
Steve Downing: So that's improved significantly. So that's obviously helped provide a tailwind to margin profile. As we talk about moving into next, you know, fourth quarter and really next year, if you look at the key focus areas, it's going to be really, you know, the higher sales levels. And then obviously improved bill of material costs. And then lastly, the factors that we mentioned on the operational side. So you're going to be talking about, you know, total throughput, scrap and yield loss costs, and then limiting the amount of overtime.
Steve Downing: And so if we can handle those areas, you know, those would be the key areas. Beyond, you know, obviously maintaining product mix and the higher sales level beyond that though, operationally, once we achieve this target, that's what's going to equip us to be able to get back to that 35, 36% range by the end of next year.
Steve Downing: Very helpful. Thank you.
Operator: One moment for our next question. And our next question will come to line up wrong.
Rob: You have to call from who can I. The line is open. Yeah, good morning and good morning and thanks for taking my questions. I guess this first, were there any retro's or out of period price benefits this quarter, just as we think about modeling? There was a few million, probably about four or five million in kind of recoveries in the quarter related to. Several months of negotiations. Not all of it was one time in nature, but.
Rob: Okay. Are you using the strike to help build up some slack in the system or kind of buffer in your supply chain and maybe shipping back to some more favorable modes of freight for both inbound and outbound and or reduce overtime? Yes, that was exactly the plan, depending on the length and severity of the strike is to use this as an opportunity to replenish finished goods inventory back to more sustainable levels.
Rob: And also, obviously, hopefully find a way to get production scheduling back in line so that we can limit over time and some of the reactionary expenses that you face given customer order changes. Okay. Yeah, that's helpful on. And there's a high level like you're up in North American production was found something that range of 10 to 12% sequentially. But your revenues that kind of adjusting for the pricing commentary you gave are roughly flat quarter over quarter.
Rob: I guess the key takeaways is FDM take rates they're moving higher or overall product take rates are kind of what would you. How would you bridge the gap is those are you to two core markets or two largest markets and you still have roughly flat revenue performance. Yeah, you're exactly right. If you look at continued growth and FDM obviously there's been some tailwinds on outside mirrors as well. Overall product content even though volumes have dropped some in that space like if you look at what the overall dollar content has done very well during that time period allowing that over out performance versus the market. Okay, that's super helpful. I'll hop back in the queue. Thanks Rob. Thank you. And as a reminder to ask a question that star one one, once again, that star one one one moment for next question.
Luke Junk: And our next question is for a couple of line of Luke Junk from Baird. Your line is open. Luke, your line is open. If your phone is on speaker, please pick it up. All right.
Operator: And I see no further questions in the queue.
Josh Obersky: I'd like to turn the call back over to Josh Obersky for closing marks. All right.
Operator: Well, that concludes our call. Thank you everyone for the time and questions. We'll look forward to chatting in the near future. Have a great weekend.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.