Methode Electronics Inc (MEI) 2015 Q3 法說會逐字稿

Welcome to the Methode Electronics FY15 third-quarter earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded.

This conference call does contain certain forward-looking statements, which reflect management's expectations regarding future events and operating performance, and speak only as of the date hereof. These forward-looking statements are subject to the Safe Harbor protection provided under the Securities laws. Methode undertakes no duties to update any forward-looking statements to conform the statements to actual results or changes in Methode's expectations on a quarterly basis or otherwise.

Forward-looking statements in this conference call involve a number of risks and uncertainties. The factors that could cause these actual results to differ materially from our expectations are detailed in Methode's filings with the Securities and Exchange Commission, such as our annual and quarterly reports. Such factors may include without limitation the following: dependence on a small number of large customers, including two large automotive customers; dependence on the automotive, appliance, computer, and communications industries; investment in programs prior to the recognition of revenue; ability to withstand price pressure; timing, volume, quality, and cost of new program launches; dependence on our supply chain; currency fluctuations; dependence on the availability and price of raw materials; customary risks related to conducting global operations; income tax rate fluctuations; fluctuations in our gross margins; the recognition of goodwill impairment charges; ability to keep pace with rapid technological changes; location of a significant amount of cash outside of the US; ability to successfully benefit from acquisitions and divestitures; ability to avoid design or manufacturing defects; ability to protect our intellectual property; ability to compete effectively; ability to withstand business interruptions; a breach of our information technology systems; and costs and expenses due to regulations regarding conflict minerals.

It is now my pleasure to introduce your host, Don Duda, President and Chief Executive Officer for Methode Electronics.

Thank you, Adam, and good morning, everyone. Thank you for joining us today for our FY15 third-quarter financial results conference call.

I'm joined today by Doug Koman, Chief Financial Officer, and Ron Tsoumas, Controller. Both Doug and I have comments; and afterwards, we will take your questions.

As we reported this morning, year-over-year third-quarter sales grew 8.5%, and first-nine-month sales grew 19%, driven mainly by higher North American automotive and power products sales, partially offset by decreased sales in Interface. Third-quarter consolidated gross margins increased 700 basis points; and in the first nine months, improved 470 basis points, due mainly in both periods by higher sales and the corresponding manufacturing efficiencies, as well as increased volume at our lower-cost manufacturing facility in Egypt.

In the third quarter, favorable raw material commodity pricing in both the automotive and power products segments also positively impacted margins. In the nine-month period, margins were also positively impacted by the $1.3-million reimbursement for the cancellation of a sensor program, and the non-recurring price increases on legacy products at AMD, which we discussed last quarter. Sequentially, third-quarter consolidated margins improved over the second quarter, as our manufacturing efficiencies, and the favorable commodity pricing I mentioned a moment ago, were able to offset lower overall third-quarter revenue due to the holidays, reduced appliance sales, the first portion of the Ford center-console program going end of life, and the full impact of the truck and SUV contractual price reductions.

Worldwide, we are very pleased with the efficiency which all of our factories are operating. I congratulate our teams on their continuous efforts to improve our manufacturing efficiency. These efforts continue to have a very favorable effect on our margins.

Year over year, third-quarter selling and administrative expenses as a percentage of revenues decreased to 10.4% from 11.6%; and for the first nine months, decreased to 10.6% from 11.1%. Third-quarter selling and administrative expenses came in lower than we expected, due mainly to lower compensation expense related to the long-term incentive plan of $1.8 million. We anticipate SG&A as a percentage of sales to approximate 10% to 11% for the full year.

Our third-quarter operating margin was 16.8% compared to 8.6% last year, as income from operations improved 112% to nearly $35 million. In the first nine months, operating margin increased to 14.9% from 9.7%, as income from operations grew 83% to nearly $98 million.

Earnings per share improved 79% in the third quarter, and 51% in the first nine months, despite the fact that, year over year, our effective tax rate increased from 8.8% to 23% in the third quarter, and from 8% to 24% in the first nine months. Given these results, we have increased our overall profit outlook for FY15 to a range of $130 million to $135 million for income from operations, and $2.50 to $2.60 for earnings per share. We are reaffirming our sales guidance range of $870 million to $885 million, as we anticipate reduced appliance sales will continue in the fourth quarter. Based on this guidance range, our FY15 operating margin target is in the 15% to 15.3% range.

Now, turning to a review of our individual segments, compared to last year, automotive segment net sales grew 9.5% in the third quarter, as a result of higher General Motors center-console sales, and increased sales in our Asian operations. These gains were partially offset by lower volume for the Ford center console, transmission lead frame, hidden switch and steering angle sensor products, as well as lower tooling sales, and currency fluctuations, which impacted European sales.

For the nine-month period, automotive sales grew by 29%, primarily the result of higher General Motor center-console program and transmission lead frame volume, partially offset by lower Ford center-console demand, and again, currency rate fluctuations, which impacted our European operations. As a reminder, we are anticipating that the Ford center-console program will have gone end of life at the end of our FY16, and are estimating that FY16 revenues from this program will be about 25% of what they were in FY15.

Automotive gross margins improved to 26.3% in the third quarter, and to 25.1% in the first nine months. As I mentioned a moment ago, higher sales and the corresponding manufacturing efficiencies were the main driver, but margins were also positively impacted by increased volume at our lower-cost manufacturing facility in Egypt, and in the third quarter, by favorable raw material commodity pricing.

Moving to our interface segment, year-over-year third-quarter revenues decreased 11%, and first nine months fell nearly 7%, driven mainly by lower Asian and European radio remote control sales, and lower North American appliance sales, partially offset by higher data solution sales. We continue to anticipate reduced demand for our appliance products in the fourth quarter, but believe we will see some sequential improvement at Hetronic, as we expect sales to key customers should be back on track in the fourth quarter. Compared to FY14, interface's gross margin declined in both periods due to the lower sales and increased development costs for our 10-gig transceiver product.

In power products, year-over-year sales improved 45% in the third quarter, and nearly 19% in the first nine months, driven mainly by higher North American and Asian sales. The segment continues to have its best year in its 30-year history. I congratulate the team on this very noteworthy accomplishment.

Year over year, power products gross margins improved to over 40% in the third quarter, and nearly 34% in the first nine months, due mainly to improved sales and the corresponding manufacturing efficiencies, as well as favorable commodity pricing in the third quarter. It is interesting to note that, year over year, this segment contributed 200 basis points of the 700 basis points improvement in consolidated gross margins for the third quarter.

Finally, an update on Dabir: Dabir continues to make progress, since its soft launch in September. To date, nearly 200 procedures, ranging from 4 to 20 hours in durations have been completed at our beta site, with no adverse tissue effects reported. We have initiated surgical procedures at a second site, with continued success, and have begun discussions, and that's in a further implementation. Our third site has requested to perform a product evaluation for implementation beyond the surgical suite, and we are investigating adopting the -- or adapting the current surgical solution to fit their needs in this arena.

Channel-to-market development continues, with sales coverage now in five states, and we are embarking upon a national sales expansion plan to be executed in the upcoming fiscal year. It's apparent that we have a product that garners a great deal of interest, not only at the hospital facilities, but the medical community in general.

In summary, Methode's revenue growth, combined with manufacturing efficiencies, favorable commodity pricing, and lower-than-anticipated SG&A, enabled us to post strong margins, as well as improved earnings per share, which resulted in an improved overall profit outlook for the fiscal year. We remain confident that we have the right people, the right technology, the right strategies in place to grow our businesses, and drive sustained profitable growth for our shareholders.

Now, I'll turn the call over to Doug, who will give us further details on the financial results.

Thank you, Don. Good morning, everyone. I have just a few brief comments on the quarter and the nine-month period.

I would like to point out that the year-over-year third-quarter and nine-month sales were negatively impacted by $3.4 million due to the recent strengthening of the US dollar, primarily against the euro. Additionally, other income/expense net improved $600,000 in the third quarter, and $1 million for the nine-month period, due to the net favorable fluctuation of the various functional currencies versus their transactional currencies at our foreign business units.

Looking at taxes, because we no longer have the net operating loss valuation allowance to shelter domestic book income, the nine-month tax rate was 24.2% compared to 8% last year. This is in line with our guidance range of a mid-20% tax rate. As mentioned on the last call, we still have tax net operating losses available, which we expect will keep US federal cash taxes and certain state cash taxes to a minimum throughout FY15.

In the first nine months of FY15, we spent $12.8 million for capital expenditures. For the full-year FY15, we expect capital spending to be between $20 million and $22 million. That is down slightly from our prior estimate.

Depreciation and amortization expense in the first quarter -- in the first nine months of 2015 was $17.5 million. For FY15, we expect the full-year depreciation and amortization to be between $22 million and $25 million. This is also down from our prior-year estimate.

Looking at EBITDA, in the nine-month period it was nearly $116 million, or 18% of sales. Based on our FY15 guidance, we expect EBITDA to remain in the 18% range, and be between $157 million and $160 million for the full year. Lastly, for the nine-month period of 2015, free cash flow was $79.2 million. Based on our guidance, we expect FY15 free cash flow to be between $102 million and $108 million.

Don, that concludes my remarks.

Doug, thank you very much. Adam, we are prepared to take questions.

Thank you.

(Operator Instructions)

Our first question comes from the line of Chris Van Horn with FBR Capital Markets. Please go ahead with your question.

Good morning. Thanks for taking my call and congratulations on the quarter.

Thank you, Chris.

Could you give us an update on some of the new products you're bidding on now or bringing out to the market? Things like smart center stack, the torque sensing, maybe hyper touch. Can you give us some color on what you're seeing out there?

Sure. I have to be a little guarded because it is a competitive situation, but I'll give you as much information as I can. Let me start with torque sensing. We have no business to announce at this point, but we continue to get favorable feedback from our customers who are doing testing. On that product, both in Europe and the United States, we would expect that we'd have some indication during this calendar year. I think the important point there is we've not experienced any testing issues with the customers. So that continues to move forward.

On hyper touch, we continue to offer that to our appliance customers, as well as others. As we announced I think probably two quarters ago, we were successful in getting that technology designed in at Honda. We continue to pursue keyless entry both at Honda and others for that technology. Again, we don't have any further wins to announce on that. That continues to be a very well received and we continued to refine the technology.

We talked about Dabir and that we're embarking on expanding sales there. And as we mentioned at the last conference we attended, we are working on developing product that goes beyond the surgical suite, which we've acknowledged is a much larger market. Again, we are concentrating on our sales efforts right now on the surgical areas.

Smart center console, we continue to evolve that and present that to our customers. It places us I think very well -- we're very well positioned to garner more center console business. And of course, in the news there's all sorts of discussion on what the next center consoles and vehicle are going to be.

We also, on 10 gig, we continue to invest in the chip. We've recently gotten very favorable results from our testing of the first samples and anticipate that contributing to revenues in our FY17. I believe that covers -- I should also talk about our lithium-ion UBS. We're very close to having our UL approval on that and we do have a slight backlog, which is good. That is dependent upon the UL approval which we anticipate here shortly.

Okay, great. And touching on the appliance market, can you tell us what you're seeing out there? You certainly told us you expected some headwinds out of that market, but just a little more color on what's going on there?

Sure. Our customers, particularly our largest customer, is doing well. What we're seeing as our major laundry program. Those revenues are being affected by a less expensive top load product that the customer came out with. And that's really eroding sales of the product that we're on, which is a front load, much more expensive type unit. Whether that turns around or not in the next year, I think that remains to be seen. But that's really the effect. It's not so much the appliance industry as it is that particular situation.

Got it. Just one more, if you don't mind? On the Trace Labs divestiture, was that something that you were looking to sell or did someone approach you and just the thought process around the divestiture if you don't mind? And as a follow-on to that, this is the second one in the past year and can we continue to believe that you're constantly reviewing your portfolio for these types of transactions? Thanks.

Let me answer the last question first.

We continue to review our portfolio, our strategies and so on and determine what is core and what's not. Specific to Trace, Trace Labs was initiated many years ago to perform testing on Methode's products. Really before my time and Doug's time, the founder believed that having a centralized testing lab would be beneficial to Methode and it certainly has been. Years ago, what we asked Trace to do to better utilize the equipment is to take on outside business, which they were very successful in doing both here in Illinois and also in Maryland.

And what also happened over the years, and I would say probably in the last several years, is our divisions had their own testing capabilities and in Auto, at probably the largest, that continued to grow. Not that trace was not doing a good job, it's just the evolution of a product some of the testing needed to be on-site, and particularly in Europe and Asia. At a certain point, we decided that if someone were to approach us, we would entertain the sale. It had been approached through the years, but the timing seemed right and the suitor had very good credentials and we executed the sale.

Okay, great. Thanks again. Congratulations.

Thank you.

Thank you. Our next question comes from the line of Steve Dyer of Craig-Hallum. Please go ahead with your question.

Good morning, Doug. Good morning, Don. Good quarter.

Thank you.

I would like to dig in a little bit to the sustainability of the margins. In a couple different segments you talk about raw material benefit in the quarter. Are you able to quantify that a little more for us? And how sustainable do you feel like that is as a tailwind going forward?

Primarily, the commodity was copper. We all follow COMEX and right now, it's had a favorable effect. Whether that continues, we'll have to see what the worldwide commodity does. In general, and in sustainability of margins, we had very good margin in Power. Probably some of the best we've ever had. Certainly helped by our big data customer and in the factory efficiencies. But as I said on the call, I congratulate the team for taking cost out of the products, cost out of the factory. They'll continue to do that.

And we talk a lot about efficiencies in our automotive plants. We apply the same strategies in our non-auto plants and we're seeing a benefit of that in Power. The big driver there, of course, is sales and Power has a very good prime that when the sales are at a certain point, the factory efficiencies are quite good.

Is that sustainable? That is sustainable to a degree but also is dependent upon our large customers in that area. Not as a predictable business as Auto. I think we said, we've got about one quarter visibility and we anticipate a similar quarter in the fourth quarter for Power.

Elsewhere, we saw at Interface as the margins are affected there because our sales are down. Again, we are anticipating a little better sales in Hetronic in the fourth quarter and we have taken -- undertaken efforts to improve Hetronic's factory and margins as well. There, I would say, that is dependent upon -- largely dependent upon sales.

And Auto, as I've said before, we have contractual price downs that have gone into effect. There's additional ones next year. That's part of being in the automotive business. Our teams, they are ahead of the where we expected them to be in their factory improvements and their cost down models. And then we saw the effect of that in the quarter. In general for Methode's margins to continue to improve, we do need our non-automotive products to ramp. Dabir, and all of them that I talked about from Chris's question.

Okay. Within Auto, how much of a benefit is the Egyptian manufacturing facility? Is that going to be a bigger part of mix going forward such that these should be relatively sustainable margins in that segment?

There's no doubt that Egypt is helping us. It's helping us in the European arena. That doesn't help us in the US.

There, we really need two things. One, we have to have customer approval to move product to Egypt and we've been successful doing that. It has taken a little longer than we wanted. But the plant has been very well received by the customers and the customers have audited, so we'll continue to transfer product there, as appropriate. It has to be more labor intensive. We wouldn't take our highly automated products that we have in Malta. That wouldn't make sense. It depends on the product.

And then, really a combination of the European automotive sales to improve. We tend to be much more conservative of our view of Europe. I think that has served us well. We would need that to improve. Of course, new wins where we can launch in Egypt. A side note on Egypt, we are launching our first center console in Europe in Egypt. That has been well received by the customer.

Okay. One more Auto question. The K2, I think this iteration anyway, this program scheduled to roll off, I think, in the 2018 time period, any comment or color you can share there on the bidding to the successor program there as far as timing?

The best answer I can give you is, we're aggressively pursuing that and it is a competitive situation. I don't think I probably should make any comment on that. I think you'd understand why.

What about from a timing standpoint? I'm obviously not trying to handicap anything.

That's customer-dependent. I shy away from -- I'd made a comment awhile back on the range and it is up to the customer. We're prepared when they initiate their process. Again, it's a competitive situation and I really think we'll leave it at that.

Okay. Fair enough. It's a new quarter, so I had to ask you that question again.

Okay. We appreciate that.

Last question for me and I'll hop back in the queue. Dabir, maybe any commentary? You certainly gave some around success so far. Maybe commentary on building up a sales channel and when you would expect that to be material? Thanks.

We expect to turn revenues from Dabir in 2016. I feel at this point it'll be probably more towards the second half of 2016. There is a, if you would call it, a design in process that goes on at these hospitals that takes, right now we would say about a six month timeframe. We think that'll go down as people become more familiar with the product and there's just more word of mouth and more confidence in it. All of these hospitals rightly have their internal review board. They want to make sure the product is safe for use in the hospital. There's training of the nursing staff and so on.

We've been successful with that approach and we're somewhat throttled by the hospital's timeline. We will continue to add to our sales force as we go into 2016 here. We are probably, on average, we probably add one person or one rep a month. That might be a little light. We continue to do that. There has to be training that goes on. There's a number of samples and so on.

It's a process, but the good news is it's being well received. That'll affect our 2016, but again, the latter half of 2016 because of the designing. At some point, we'll see maybe a national distribution contract, but I just think we're too early to do that now.

Great. Thanks.

Thank you.

Thank you. Our next question comes from the line of Jimmy Baker with B. Riley & Company. Please go ahead with your question.

Hi, good morning. Let me add my congratulations.

Thank you, Jimmy.

First, this wasn't mentioned in the press release, but just from the language in the 10-Q, were you actually comping against a 14-week quarter last year?

Yes.

Okay. What would be apples to apple sales growth had been in the quarter? I assume it would've been quite a bit higher if you were adjusting for having one fewer week this go around.

I'm sorry. 14 weeks last year versus 13 this year.

So, you would. One less week. So you would've had another week of sales. You could calculate it but it would have depended upon releases and so on. Does that answer your question? You can do the calculation, too. I don't want to speculate.

Right. If we assume that sales were equal across the quarter, each week was equal roughly, that makes you post a 16% growth -- sales growth quarter here versus the I think 9% you posted. Does that sound about right?

I don't know. I would have to do the math. But it was also a holiday quarter. Yes, suffice to say if we have an extra week of sales, you would anticipate a higher percentage year-over-year.

Yes, that just seems fairly significant. Anyway, I'll move on. Looking first on, most of my other questions have been answered.

Looking for some help here on the Other segment, in light of the Trace sale, it looks like you'll have virtually no revenues in that segment until Dabir ramps. So can you help us understand what the quarterly expense rate will be for Dabir as you ramp up distribution before you see any material revenue come through and how we should be thinking about that heading into FY16?

I don't know. Jimmy, I think that's why we gave you some color on the trailing 12 months of sales and pretax. So we give you some idea of the impact of removing Trace. I don't know that we can comment about Dabir expenses.

I think we have in times past said what we were spending on Dabir in our FY15. As we next quarter give guidance on 2016, we'll remark on the investment in Dabir. That would all be in the Other category.

Is there anything else that's material that's left in that Other category besides Dabir?

Active energy is in there as well. I don't know that we've given a numbers on their burn, but that's anticipated to ship product here once we have UL approval. That won't be significant, but those revenues would be recorded in that segment.

Okay. Just lastly, you'd talked about an expectation for some improvement in Hetronic sales. Can you elaborate a little bit on what gives you the confidence that you might finally be seeing a bottom there? As a follow-on to that, the weakness that you've endured to date in that business, are you fairly confident that that's just a function of end market softness as opposed to any share loss? As so as your end markets recover do you expect to get to prior levels there?

There are a number of things that have happened with Hetronic. We had one customer who was placing the Hetronic product and control system on oil rigs. That required another certification. The customer requested it and we had to go through that. That took the better part of I would say six to eight months to obtain. That was obtained, so we will start shipping those products in our fourth quarter and a little bit in the first quarter of next year. It wasn't a market issue, it was a certification issue, and again that was at the request of the customer.

We've been successful launching a suite of products that go on service trucks. That was about a year in development. We're starting to see revenues from that now. Those are two very positive developments, both domestic. In Europe, we still see economic pressure in the industrial area.

We'll see some improvement there. So if you ask me have we seen a bottom? I'd like to think so. Internally, we've revamped a product. We've taken an auto approach to how we are approaching development and our manufacturing systems that ultimately should improve the margins and reduce our lead time in Hetronic.

I guess in summary, I remain very enthusiastic about Hetronic moving forward. We've had some pressures there but just as we've seen with Power. We've been working with Power for a number of years now to get their factories where they need to be. We saw very good results this quarter and we would expect that at some point in the future, I'm not necessarily saying when, but that Hetronic will be a major contributor for us.

Perfect. Thanks a lot, Don. I really appreciate the color.

Thank you.

(Operator Instructions)

Our next question comes from the line of David Leiker with Robert W Baird. Please go ahead with your question.

Good morning, this is Joe Vruwink for David.

Hi, Joe.

While we're on the topic of Hetronic, can you give some sort of reference point to maybe where revenues stand relative to where they trended or where they peaked during last cycle?

I don't know that we have that readily available here, but that's something that we can provide. We can provide that. Are you talking, when you say last cycle, are you talking 2014?

The period from when you acquired it to I'm guessing that 2008 timeframe?

We're not yet approaching, I think, their peak revenue. If that's your question, I can definitely say that. That was acquired pre-recession. While we feel it's recovered in the US, the major market was in Europe and that still hasn't anywhere near where it was. At the market factor, not an internal factor. So if you're asking, does it have room to improve and room to grow? Yes.

The reason I ask is, looking at Interface margins today and let's say they finish the year around 25%, this business was closer to 30% at one point. How much of that five point difference can you directly attribute to Hetronic versus some of your other products?

The big hit in Interface is appliance. Appliance carries less margin that Hetronic but the revenue, the increase has really been the biggest factor. Now, higher Hetronic sales at higher margin, depending on the product, could, emphasis could, offset that decline. I don't think we're planning on that happening next year, but that certainly can have that affect.

Hetronic is one of our best margin on products. Also, in Interface, as we embark on 10 gig, that'll also be margin contributor. The one gig is a good margin contributor and the 10 gig is as well. But the hit we take on margin is appliance, for the most part, appliance-related.

Okay. Shifting over to Power Products, you mentioned earlier that you have three months visibility into a lot of that business. Back in December, when you provided updated targets, were you seeing the inflection and demand across all of the regions at that point?

That's a good question. We weren't. We were seeing and to some degree we're seeing that now where our major customer in this segment is indicating that the next three months may be a little less demand. Yes, we say we have three months visibility, but it does vary within that quarter. When we went into last quarter, we weren't seeing as strong of a demand as we ended up.

That can go the other way as well. Most of the products that Power makes is dependent on our customers' build cycle. For the most part, no one wants to carry inventory. You will see an increase in demand that can vary from one month to the next. It's a harder business to predict. We talk to the customers but it can vary. When I say three months, that's about as good as we get and again, it can vary.

Is it all a function of market demand or, because these products are in pretty fragment to markets and there's a lot of competitors. Do you see any share shifts where you really attribute some of the growth to your sales team and going out and getting the wins?

It is a design end. You get print position. Sometimes you're sole sourced which is what we prefer. Sometimes it's dual sourced. In that case, it'll be the supplier that can deliver the product earlier than their competitor.

To some degree what we've seen is, and again, we're applying our auto discipline, power runs, going from memory, about 96%. Maybe sometimes a little higher on time. Across the board, we target 100%. But, because they've improved that dramatically, when that call comes in can you deliver the product in X amount and if the answer is yes, you get the business and the competitor doesn't, assuming they have a longer lead time.

To that degree, we can influence the buying decision and we do see some of that. It's also not uncommon to have a Mill Arrow program get funded and they're upgrading a particular vessel and we get an order at the beginning of the quarter and we ship it by the end. It is design independent on sales and ship comes on the design end side. Once you're designed in, the price is set. It's really delivery and when the customer needs the product.

Okay. The last one for me, you touched on a piece of it. Each of your businesses has a manufacturing target. When you look at Automotive, I would imagine when you open the low cost facilities there was an initial target for just the fact that overhead was going to be less and then probably moving up some sort of efficiency curve whether it's through put or scrappage. When you look at Egypt, or really any of your low cost facilities, where is the efficiency relative to your best in class facility? And are you happening to move the targets higher, which is why really margin improvement isn't so much being tied to revenue improvement at this point?

I do think it's tied to both, revenue and cost reductions. Egypt is our youngest plant. We would expect that it would continue to improve. Our Asian plant is probably and the Maltese plants are probably the most mature but they continue to take cost out.

The whole lean manufacturing process is continued improvement. What was good enough last year is not good enough this year. We continue to raise the bar. Now, realistically, if you have a five-year-old product, how much cost can you take out of it? The law diminishing returns comes into play.

We've had customers come in and there's an auto -- customers will come in and look for, try to help you with cost reduction. We've had customers come in, particularly in Asia where they can't find anything. Law diminishing return comes in of the younger the plant of maybe the more product that you run through with more opportunities that exist.

We set new goals every year not just for cost reductions but for on-time delivery, quality and we review those once a month at our ops review. If they're missing the goal, they have to have a corrective action. That's the start of how Methode operates, not just in Auto but in non-auto.

I'll leave it there. Thanks.

Thanks, Joe.

Thank you. Ladies and gentlemen, there are no further questions at this time. I would like to turn the floor back over to Mr. Duda for closing remarks.

Adam, thank you very much and we'll thank everyone for listening and their questions and wish them a good day. Thank you.

Ladies and gentlemen, this does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.