Q2 2024 Sensata Technologies Holding PLC Earnings Call
Good day and welcome to the Sensata technologies Q2, 'twenty 'twenty four earnings call all participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero after.
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I would now like to turn the conference over to Mr. Andrew Lynch VP of Finance. Please go ahead.
Thank you operator, and good afternoon, everyone I'm, Andrew Lynch, Vice President of Finance person Sada and I would like to welcome you to some solid second quarter 2024 earnings conference call.
Joining me on today's call are Martha Sullivan, <unk> interim President and CEO and Brian Robert <unk>, Chief Financial Officer.
In addition to the financial results press release, we issued earlier today, we will be referencing a slide presentation during today's conference call.
A PDF of this presentation can be downloaded from <unk> Investor Relations website.
This conference call is being recorded and we will post a replay on our Investor Relations website. Shortly after the conclusion of today's call.
As we begin I would like to reference inside a safe Harbor statement on slide two.
During this conference call, we will make forward looking statements.
Regarding future events or the financial performance of the company that involve certain risks and uncertainties.
The company's actual results may differ materially from the projections described in such statements.
Factors that might cause such differences include but are not limited to those discussed in our forms 10-Q, and 10-K as well as other filings with the SEC.
We encourage you to review our GAAP financial statements. In addition to today's presentation.
Most of the information that we will discuss during today's call will relate to non-GAAP financial measures, our GAAP and non-GAAP financials, including reconciliations are included in our earnings release and the appendices of our presentation materials.
Martha will begin today with comments on our overall business.
Brian will cover our detailed financials for the second quarter of 2024.
And our financial guidance for the third quarter of 2024.
Martha will then return for some closing remarks, we will then take your questions now.
Now I would like to turn the call over to <unk> interim President and CEO Martha Sullivan.
Thank you Andrew Good afternoon, everyone. It is a privilege to have the opportunity to speak with you today.
Since rejoining for Sonic as interim President and CEO of 90 days ago I have been focused in three key areas first enhancing our overall performance to expand margins and improve our execution second identifying underperforming products and projects within our portfolio.
That no longer drive value and third finding the next CEO for society let.
Let me take a couple of minutes to discuss each of these in greater detail.
Our long term strategy has not changed we are a best in class provider of sensor rich and electrical protection solutions to our customers are sensing products are essential for our customers to meet increasing mandates for safer cleaner and more efficient application.
Our electrification solutions support the ongoing conversion across the end markets we serve.
Including automobile heavy truck and industrial infrastructure, such as the power grid needed to support a more electrified world.
Well, our sensing technologies are significant within our electrification portfolio at the center of our strategy our high voltage contactor, which are critical electrical protection devices used to switch current.
Earlier this year, we augmented our contactor product family with the buyout of the remaining shares of our joint venture in China, and we are well positioned to grow and gain share with a broad set of offerings, including next generation contractors that provide higher levels of efficiency greater safety and multi cole can.
Figure ability.
It is clear that the world will continue to be more electrified and well I closely track our advancements as a board member my return to the CEO seat has given me a broader and deeper appreciation for the significant progress we have made on several key fronts.
There are near and long term opportunities in key strategic growth vectors for some site, including many electrification and sensor opportunities that will drive success for years to come.
Margaret transformations are rarely linear in nature, and we're experiencing that today and electric vehicles, which we define to include both battery electric vehicles and plug in hybrids.
Well Ive your production is forecasted by S&P global and their June 'twenty 'twenty four report to grow nearly 18% to $17 9 million units in 2020 for this level of production has dropped by 10% as compared to forecast from just five months earlier in January.
Despite this drop in projected E V volume, some SATA remains well positioned to react to short term shifts in consumer preferences are.
Speaker Change: Of course, we are vital sensing products remains of critical importance to our customers.
Joining us to outgrow the market despite changes in volume mix between combustion engine and E B.
For the second quarter of 2020 for our automotive business outgrew the market by more than 700 basis points as we grew 6% year over year compared to an S&P global defined market, which contracted by approximately 1%.
As we know market outgrowth can vary from quarter to quarter due to mix and launch schedules, but we are pleased with our second consecutive quarter of strong outgrowth in our auto business.
Well, we are hedged against changes in powertrain mix, we are not immune to impact from reductions in overall automotive production and we are taking the necessary steps to prepare for an automotive slowdown in the back half of 2024.
S&P July report indicated a drop of over 800000 units as compared to the report of just four weeks prior and a drop of one 6 million units from their April estimate.
In the third quarter, China is now expected to be down nearly 8% year over year, Europe, lower by almost 6% and North America down by two 5%.
We believe there is a possibility that production and total brash and may shut slow show further reductions in OEM adjust inventory levels.
Let me take a moment to discuss the rest of our business portfolio, which represents nearly half of our revenue.
Our heavy vehicle and off road business reported relatively flat year over year top line results for the second quarter against a market drop which was down by approximately seven percentage points.
This outgrowth was the result of strong China production levels of on road truck and new tire pressure monitoring regulation in Europe.
Led by continued production weakness primarily in North America.
Both agriculture, and construction were weak in the quarter consistent with expectations.
Well do stocking and slow housing construction markets continue to impact our industrial business, which has significant exposure to housing through H D. A C and apply and we are encouraged with the continued growth of our new H, two well leak detection sensor.
This product has been well received in the market and we have quickly become the leader in this exciting growth segment.
Finally, aerospace continues to deliver solid results isn't on pace to deliver mid single digit revenue growth in 2024.
Speaker Change: I'm encouraged by our execution to date as we return to a more normalized operating environment and I remain confident in our ability to improve our margins in the second half of 'twenty 'twenty four despite the macro headwinds that exist.
Increasing my confidence in our ability to improve margins is the work we have begun to identify and take action on underperforming products.
Early in my tenure, we began a review of various component families across our business to effectively prune the tree of products, which may be maturing cycle slow growing and as a sub standard margins.
Exercise identified approximately $200 million of annual revenue falling into this low growth low margin category with the majority of these products in our performance sensing segment.
Actions to eliminate these products started in June with the goal of more than half eliminated in Q3, and the remainder by the end of the year.
Finally regarding our CEO search our board search committee and I are committed to finding the right next leader have subsided, we are continuing to source and meet with highly qualified candidates who are attracted to our differentiated business and I encouraged by our progress to date.
Speaker Change: Searches such as these do take time, but I expect that we will have identified the new CEO of course insider in the coming quarters.
With that let me turn the call over to Brian.
Thank you Martin Good afternoon, everyone. Let me start on slide seven.
We delivered another solid quarter with results in line with expectations across all our key metrics.
We reported second quarter revenue of approximately $1.036 billion as compared to revenue of $1.062 billion in the second quarter of 2023.
We eliminated approximately $5 million in revenue in the second quarter related to underperforming products as Martha discussed earlier.
Adjusting for this eliminated revenue we would've delivered a topline result, slightly ahead of the midpoint of our guidance provided in April.
Adjusted operating income was $196 7 million or a margin of 19%.
This represents a 30 basis point improvement from 18, 7% for the first quarter of 2024 and is consistent with our goal of delivering 20 to 30 basis points of improvement each quarter. This year.
On a constant currency basis, adjusted operating margin was 19, 2% compared to 19, 4% in the second quarter of last year.
Adjusted earnings per share of 90 <unk> in the second quarter of 2024 represents an increase of four since sequentially from the first quarter and a decrease of four cents as compared to the second quarter of 2023.
Yeah.
Turning to slide eight on segment performance.
As a reminder, we recast our segment starting in Q1 to better align to how we are managing and operating the business.
We also created an other segment are currently houses our results related to the insights business.
As we previously announced insights is currently under strategic review and we expect to update you on the progress of that review in the coming months.
Prior periods have also been adjusted for purposes of comparability.
Performance sensing revenue in the second quarter of 2024 was approximately $724 million, an increase of approximately 4% year over year with both automotive and heavy vehicle and off road businesses are growing their markets.
Automotive outgrowth of approximately 700 basis points was driven in part by significant share gains on internal combustion engine vehicles in Europe.
This outgrowth was amplified by outgrowth in Korea, and Japan, where we continue to gain traction.
H B O R was approximately flat in the quarter compared to a market estimated to be down 7%.
As Marissa noted this outgrowth was the result of strong China production levels of on road trucks, and new tire pressure monitoring regulations in Europe offset by continued production weakness primarily in North America.
Performance sensing adjusted operating income was approximately $177 million or 24, 5% of performance sensing revenue.
Yeah.
Sensing solutions revenue in the second quarter of 2024 was approximately 268 million a decrease of approximately 19% year over year.
The significant year over year decrease was a result of continued destocking and a slow housing construction market continuing to pressure, our industrial business and due to $26 million of one time pass through revenue in the second quarter of 2023 related to our diner power business <unk>.
Adjusting for the onetime Dana power revenue sensing solutions revenue would have been down 12% in the second quarter of 2024 as compared to the prior year.
Sensing solutions adjusted operating income was approximately $80 million or 29, 8% of sensing solutions revenue.
Moving on to slide nine.
We remain focused on prudently, reducing our leverage on the balance sheet with a goal of net leverage under three times by the end of the calendar year.
We successfully completed a bond offering in June raising $500 million of proceeds.
The proceeds from the new notes, which mature in 2032 at an interest rate of 6.625%, where coupled earlier this month with approximately $200 million of corporate cash to retire 700 million in bonds that would have matured in October of 2025.
In addition, we announced last week, our Q3 quarterly dividend of <unk> 12 per share payable to shareholders of record as of August 14th.
Speaker Change: We remain focused on improving free cash flow conversion in 2024 to approximately 65% to 70% of adjusted net income a level that we achieved in the second quarter of 2024.
Over the back half of 2024, we will continue to focus on reducing inventory levels and maintaining capital expenditure spending at approximately 4% of revenue.
Yeah.
As shown on slide 10, let me take a minute to walk you through our expectations for the third and fourth quarters of 2020 for these.
These guidance ranges reflect two significant adjustments to the revenue line.
First as Martha has described we are actively exiting underperforming products totaling about $50 million per quarter of revenue or 200 million annually.
As I noted earlier, we removed about 5 million of this revenue in Q2.
We expect to eliminate approximately $30 million in Q3 and.
And most of the remainder in Q4.
Second given the lower production forecast from S&P global including an 800000 unit decrease over the last four weeks, we've reduced our second half auto expectations within performance sensing by approximately $10 million per quarter.
With these adjustments, we expect third quarter revenue of $970 million to $1 billion.
At the midpoint of the revenue range, we would expect an adjusted operating margin of 19, 2% consistent with our expectations of 20 to 30 basis points of leverage each quarter and earnings per share of 85 cents.
We do not expect foreign currency to have a significant impact on our third quarter adjusted operating margins on a year over year basis.
Revenue for the fourth quarter is currently anticipated to be in the same range as the third quarter as the further downward adjustment caused by exiting underperforming products is offset by seasonal end of year growth.
We would expect incremental adjusted operating margin improvements in Q4 of approximately 20 to 30 basis points.
Speaker Change: Let me summarize this revenue guidance for the full year 2024.
Before the impact of approximately $85 million of revenue and underperforming products that we have decided to exit our updated guidance for the full year would be revenue of flat to up two percentage points.
Given the downward revisions by S&P global for auto and K G. P for H B O R. We now expect our end markets to be down by 2% to three percentage points. This year.
This would equate to <unk> Sada outgrowth of approximately 300 to 400 basis points in 2024 unchanged with what we had stated back in April.
Now I'd like to turn the call back to Martha.
Thank you Brian.
In summary, let me leave you with a few key messages as we reflect on our second quarter and look forward to the remainder of 2024.
We have a winning strategy focused on high value sensing and electrical protection.
This winning strategy as demonstrated in our second consecutive quarter of strong outgrowth in key.
Auto N H B O arm market.
While much work has to be done to advance our overall performance to expanding margins, reducing leverage and improving execution. We are taking active steps such as exiting $200 million of annual low margin revenue the net reduction of $200 million in long term debt and the ongoing.
<unk> insights strategic review to ensure that we enter 2025 with a solid foundation.
Finally, I want to thank my colleagues at some fodder for welcoming me back we have an exceptional cohesive team that is committed to driving shareholder value executing for our customers and delivering on our purpose and it is a pleasure to be working with them again.
I will now turn the call back to Andrew.
Thank you Martha.
We will now move to Q&A.
To allow all of those who wish to ask a question on the opportunity to do so we will limit each participant to one question.
Operator, please introduce the first question.
Okay.
Our first question comes from Wamsley Mohan with Bank of America. Please go ahead.
Hi, This is Joseph we met on for Onesie <unk> My question.
Can you expand on the new business wins in Japan and Korea.
Yeah, a couple of things worth mentioning there we're really excited about the traction that we're getting particularly with Toyota who is starting to show up now in our content growth and that's in our active safety systems.
That's been that's been a nice growth area for us.
Speaker Change: Okay. Thank you.
Yeah.
Next question comes from Amit <unk> with Evercore. Please go ahead.
Speaker Change: [laughter].
Thanks for taking my question as well are you I guess, you know Brian Martin when you talked about exiting this 200 million of low growth low margin business in the back of this yolked.
Can you just talk about what benefit does that having to your operating margin or cost structure and then just broadly as you sort of look at your entire portfolio with a fresh set of eyes.
Beyond the 200 million of low growth low margin as you kind of called out.
Are there other assets that are potentially noncore that you could look to divest as well that could probably help you delever a lot quicker or is this the extent of volt exits of divestitures you Gotta do.
Speaker Change: Yeah, I mean, the way I would describe it is this is really catching up on normal product life management hygiene, and that's been our practice within SUNS Sada them.
But given all the other challenges in recent years, we have the opportunity to catch up on that so as described it's really low or no growth products that and very substandard margins force insider and it's one of many tools that we're focused on to ensure that we can demonstrate.
Demonstrate our commitment to 20 to 30 basis points of margin improvement each quarter and that really is the focus here at Sun Sada. It's back on operational excellence is looking at our margins in recognizing those are the hallmark of a differentiated business and we have strong underpinnings to live to deliver that.
Insider as you've seen in the past.
Got it.
Just ask you to clarify this what are you expecting from a auto production basis for the backup of D. R. And are you embedding any further cost reduction initiatives beyond what you talked about to ensure that the margin that defended in this you know 2030 basis points expansion Don Thank you.
Yeah second half of the years. It we're looking at auto being down five H Vue are similarly, affordable four to four and a half.
And for that reason, if it becomes that much more important to be looking at cost reduction and accelerating those efforts and we are doing that and as you heard in Brian's comments continuing to commit to delivering the increase in our overall margin performance.
Next question comes from Mark Delaney with Goldman Sachs. Please go ahead.
Oh, yes, good afternoon, and thanks very much for taking the question and Martha good to have you on the call again.
I had a question on how since auto sees itself getting into the 21% to 23% EBIT margin.
Speaker Change: I get it that it it articulated at the last Investor day, and certainly understand the 200 million of product exits is a good step toward achieving that but are there other pricing actions or restructuring activities, you're thinking you may need it and maybe just talk a little bit more on the broader price cost trends in the business. Thanks.
So specific to the margin piece and then I'll, let mark talk about kind of the trends that you're seeing in the business being back here for a quarter.
As I've said I think pretty consistently since our since I started here I really look at a lot of these 26 targets at the moment is directional in nature.
You know, what we're trying to do and make sure that we're instilling back here as Martha noted is this you know certain kind of focus around operational performance and excellence in making sure that we can continue to take steps in the right direction I think part of the way that we achieve credibility back with all of you is by setting in some cases shorter term goals.
And then connect continuing to hit those shorter term goals hopefully each and every quarter.
We absolutely see a path for margins to get back into the Twenty's I think we've been consistent about that as well.
But you know, we'll we'll continue to kind of provide future guidance as we go or exactly what that trend is and how quickly we will hopefully get there.
I think there's no question that this business has the the chops and the potential to deliver margins with a two handle in and we've done that consistently in the past. If you look at some of the challenges that have faced the business over the past few years, we saw a pretty hefty run up as many did during <unk>.
22 and into 2023.
Think we've done a good job of taking pricing actions across the business, we've been able to maintain margins more consistently on the industrial side of our business and we are now really aggressively attacking our input cost to ensure that we restore our margins across the business and there's lots of opportunity.
To do that.
Thanks Mark.
Thank you.
Our next question comes from Matt Sheerin with Stifel. Please go ahead.
Matthew John Sheerin: Yes, Thanks, I just got a couple of.
Clarification questions are regarding this.
Continued our products.
Is that within our performance sensing is that coming out of both the auto and the H B O our segments and then.
In terms of your guidance for Q4, you talked about a seasonal uptick.
Offsetting.
Some of the discontinued products is that uptick you expected both in the performance sensing in the.
The solutions business as well.
Yeah, Let me, let me speak to the how the discontinued products are pruned products cut across the business, but by our nature, we tend to develop product, where we leverage technology into multiple end markets and for that reason the products that we're pruning.
Matthew John Sheerin: In performance sensing do cut across both the auto and and commercial truck side of our business.
In terms of the the fourth quarter piece are you know, we would expect that that offset it.
Is it seasonal piece of that is primarily in the what we call. The performance part of our business right. So I mean, I think we'll see we'll see some uptick in growth in both business units met and in Q4, So that's a little bit more kind of across the board you know typical with what we've seen historically.
Okay. Thanks very much.
Sure.
Yeah.
Next question comes from Christopher Glynn with Oppenheimer. Please go ahead.
Yeah. Thanks. Good afternoon, just wanted to go into a little bit of some of the allocations.
March and it looks like the performance sensing margins were a little light.
Down down sequentially in <unk>.
Adjusted corporate line was a little on the lean side. So just wondering in particular, what's going on.
With that performance sensing margin got going back with a little sequentially and how we should plug a however, you answer to our thoughts about the second half progression sure no. So yeah performance sensing margin did come down a little bit I would say that will probably normalize a little bit in Q2, we had a little bit of pricing benefit in the first quarter was.
Really impacting it in Q2, though is this mix. So as we mentioned Europe Europe is really kind of leading outgrowth at the moment with the push back towards from combustion engine vehicles versus EV.
That said Europe margins still tend to be one of our lower regions within the auto business. So that has a you know it has a good nevada effect for us.
Better margins than what we would see on the EV side.
However, lower margins as compared to combustion engines, maybe in other parts of the world and so that attributed to why the with from a mix perspective, why the margin came down slightly on the sensing solution side. We saw the margin uptick a lot of that is just good strong performance management by the team and making sure that we're being as efficient as we possibly can and hoping to continue to see that trend going forward.
<unk>.
On the corporate line you know as we've talked about we're continuing to manage the corporate SG&A side pretty hard and making sure that before we add costs that we see in the revenue.
And other reasons to be able to add it before we do so so I would call that kind of in the prudent management category as well.
Okay. Thanks, Brian and just to clarify I think so do you expect performance sensing to kind of Directionally true.
Track the margin.
Speaker Change: Margin guidance for the company and.
Matthew John Sheerin: In the second half.
Speaker Change: Yes, that's correct.
Okay. Thank you.
The next question comes from Luke junk with Baird. Please go ahead.
Hi, good afternoon. Thanks for taking the question maybe continuing on that train of thought Brian I'm, just wondering with what's obviously become a chop your auto backdrop looking into the back half maybe if you could discuss some of the specific shockers over is if you will that youll be leaning into to help drive that margin progress in performance sensing and maybe we could also square that just with theme.
Mechanical impact of these product and fixed kind of how much that's where it sequentially in the walk as well. Thank you.
So yeah. Thanks look I appreciate the question Yeah, I mean, I think Martha really starting to hit on this right. I mean this is part of the whole idea of making sure that we're really looking at all of our different products or assets and figuring out where we want to make sure. We're investing our dollars most appropriately so by finding some of these different assets and products that we say maybe these arent the right.
Growth areas for us, they're not really growing their substandard margins and being very active in trying to prune those out that's how we're saying we're freeing up investment dollars.
To be able to put into other portions of the business that we think have more growth.
Expectations and so some of that is balancing against the volume drop and ultimately turning it to the bottom line. Some of that is investing in what we think are higher opportunities going forward. Because theres also an ROIC element of this and that is just using our assets to deliver the highest value that we can for both our customers and our shareholders. So it's a it's pretty.
Speaker Change: Normal process, where were playing a bit of catch up at this at this moment.
Okay.
The next question comes from <unk> Patel with rope Wolfe Research. Please go ahead.
Hey, Thanks for taking my question.
Just first off wondering if you could.
Just help dimension the kind of margins that are these are these assets that you're looking to divest yeah, just to give us some context on the kind of improvement that we could be thinking about and then maybe secondly on that theme.
Just curious how you're thinking about other possible areas of low hanging fruit in an effort to improve margin. For example, we have seen corporate costs increased by 45 million from 2019 to 2023, it looks like the corporate costs could be flat to down this.
This year and you've previously talked about megatrend R&D spending that was also increased by about $45 million over that same period. So do you see opportunities to rationalize in those areas as well.
Yeah short answer, yes, so I think relative to the kind of margin improvement you can expect we've talked about 20 to 30 basis points. All of what you mentioned and then the mix on that and in particular, we went through a strategic review and look very deliberately in a granular way what's the return that we're getting on that R&D.
<unk> investment and we have made some changes.
I want to be really clear about this we are still very much tracking on our strategy within electrification, there's lots of room for optimization across the customer base. If you look at customers that have become less reliable in delivering on new launches and involves regions around the world Intervolve as the portfolio.
Leo Max on the degree of customization that we're willing to do so in many ways is just getting back to the basis of basics of some sada and as I said theres a lot of opportunity to improve that margin.
Oh.
Yeah.
The next question comes from Joe Giordano with Cowen. Please go ahead.
Hi, guys good afternoon.
Maybe I'll follow up on Martha what you just mentioned there with the with the optimization of the customers. So like when you go through your electrification backlogs and your wins that you have or you know in the U S. E vs into the next couple of years, It's obviously, a big number like when you stress test that how is that how has that changed over the last.
Call it six months with changing tastes and in production mix and how.
How comfortable are you with that backlog right now.
Yeah, We're I would say we're comfortable with the backlog there is not a month that goes by that we're not going out to customers that have contracted us on a launch and talking about what is it going to launch if theres a pushout, we're being we're being paid for that effort in getting recovery against that.
But we're recognizing that there have been delays in electrification and what we've been able to do is pivot that two wins on IC engine and we are very uniquely positioned to do that and so I give the team great credit for building the electrification portfolio.
At the same time, we have a highly relevant product offering when it comes to vehicles across the spectrum. So it's making sure that we're agile that we know what's coming that we know what's being pushed out that we slow our engineering investments, where there had been pushed out and we make sure we have a relevant product portfolio.
Across that entire production landscape.
Just to clarify the point on compensation is there like a way to I'm sure the contract very significantly but is there a way to think about like the.
The amount of coverage you have from these customers like if you're really going out and creating new products for specific applications that ultimately don't materialize for the customer or get pushed significantly like how should we think about their liability to you in a scenario like that yeah. No. That's a fair question, but keep in mind that the way we develop our products on the way we.
We go to market with very few exceptions, the technologies that we're bringing to market cut across customers and so there, but we'll be allocating capital for our customer depending on how much volume that theyre going to bring its unusual that we wouldn't be able to find reuse over time and so we.
We're not trying to punish people, but we do make sure that our capital.
It's been on reserve is going to be put to work and we have those discussions very regularly if we find that somebody is underperforming to their volume commitments.
Thanks, guys.
Thanks.
Okay.
Ken If you have a question. Please press Star then one.
The next question comes from William Stein with <unk> Securities. Please go ahead.
Great. Thanks for taking my question.
I, just I'm trying to make.
Make sure I understand.
Two.
What I thought were two different moving parts, but maybe it's part of the same thing.
I think at least for the last quarter, you've talked about 20 to 30 basis points of op margin improvement.
Through the year.
Today, you're announcing that you are.
Exiting certain.
Product.
And it's unclear to me, whether that's a requirement in order to achieve the 20 or 30 bps of improvement per quarter work that is.
Speaker Change: Separate endeavor that adds to that savings can you maybe clarify that for me.
Yeah, I think it's a near term long term question. It's one of the again one of the levers that allow us to continue on a regular basis to deliver that 20 to 30 basis points of margin and so in the same way, we didn't talk about them and auto market being down 5% in the second half of the year.
Now talking about product portfolio pruning that began quite frankly under my watch and you weren't in a position to discuss it at our last earnings call. So we're finding ways, regardless of the market environment to ensure that we deliver on that overall commitment and I'll say it again the product pruning is only one of many things.
That that are in play.
Two is it looks to me assuming.
Because I think one of you said earlier.
Low to no profitability. So if I were to assume about a 10% operating profit it looks like about half of the savings is coming from product pruning is that about the right way to think about this.
We keep in mind I mean, it's not.
This doesn't happen overnight right. So there is still incremental expense, but ultimately as you prune out of $200 million of revenue you still have to rationalize through some expenses right. So it doesn't just happen with kind of the flip of the switch and so it is Martha pointed out. This is kind of a it's a combination short term long term, where we will get a little bit of benefit from that in <unk>.
2024 to help us make sure we hit our targets.
We know that will help balance off if we do see a little bit of volume deterioration is coming from auto or from other end markets.
But it also starts to set up a foundation for us in 2025.
When we all know there's different price pressures on margin that come from statutory cost increase and pricing and other things that happen to make sure that we're able to continue to hopefully drive margins North wind and in 2025. So a lot of this is it.
It doesn't happen overnight, but it sets the foundation for how we continue to improve our operational performance for not just the next two quarters, but for quarters to come beyond that.
Okay that helps thanks guys.
The next question comes from Joe Spak with UBS. Please go ahead.
Thank you and good afternoon, Martha I wanted to go back to your comment about being well positioned on the ice side in the event of a slower EV and I'm. Just curious are you actually seeing new programs New awards or is this more of a case of.
Maybe some programs that were expected to roll off and hence be a.
A headwind to your sort of midterm targets that are now just being extended and if it's the latter and that contract was expected to be.
Over by now do you have an opportunity to go back in and reprice that contract.
It's the answer to your first question is yes, we are winning new awards.
And where we're doing that with a lot of intentionality and so we've really looked very closely and segmented the market and recognized and I think we recognized this early on that it wasn't going to be an all or nothing situation. You know that there were customers well positioned on the ice side, who would be around.
And for a long time, we're also seeing with the move to a more plug in hybrids that there is interest in making the engine on a plug in hybrid more efficient.
Speaker Change: So the answer is yes, we are winning new business are the answer to your second question is yes, there are contracts that rolled off and yes. We are repricing those so I'm. Good instincts do you have a you have a good insight as to what's happening at some data.
Thank you.
Yeah.
The next question comes from Cemig Chatterji with J P. Morgan. Please go ahead.
Dmitry Your line is live.
Cemig, we are unable to hear you.
Okay.
It appears we were having difficulty with Cemig slide.
No problem there are any other questions in the queue operator.
No Sir would you like me to end it.
Oh, Yeah, I think I think we're all set there. Thank you.
Okay.
This will conclude our question.
Okay go ahead please.
This will conclude our question and answer session I would like to turn the conference back over to Brian Roberts for any closing remarks. Thank you we.
We look forward to seeing you at various investor events later this quarter.
<unk> is expecting to participate in the following the Evercore ISI semiconductor it hardware and networking conference in Chicago on August 27th.
And Goldman Sachs Communicable P and technology conference in San Francisco on September 10th sure I'll have the opportunity to chat with many of you over the course of the coming weeks I appreciate everybody, taking the time today and for joining today's presentation and we look forward to speaking with you again in a few months take care. Thank you.
Operator, you may now in the cole.
The conference has now concluded.
You for attending today's presentation you may now disconnect.
Okay.
Okay.
[music].