Mig Dobre: No sequential reduction that the implied revenue for the fourth quarter in electronics is $55 million. And I’m curious if you think of that as being a run rate into 2024? Or do you think that — I mean is there something that’s temporary in terms of stock impacting the fourth quarter specifically? Or is this sort of where the new sort of demand run rate on a go-forward basis?
Sean Bagan: Yes. No, I would not say it’s a new run rate. I think you got two dynamics there. When you think of the Electronics segment speaking to innovation controls there’s been more near-term headwinds particularly the marine space. I think when you look at that business as we head into 2024 it will be a tough start to the year but we would expect that to recover as the year goes on. From a BELBOA perspective as you know last fourth quarter it kind of was the trough had a nice first half and then the third quarter kind of declined a bit. But we clearly see that business on the up. We’re seeing order rates continue to increase. So I would not say that’s the new norm. But you’re correct in terms of kind of the fourth quarter implied guidance in that kind of $55 million to $60 million range relative to the third quarter where it was a little bit higher than that.
Mig Dobre: Okay. My last question is really on how you’re planning on addressing all of this from a cost perspective because obviously the environment has changed for you. Decremental margins were high in the third quarter. The implied decremental margins in the fourth quarter are once again by my math north of 100%. So I’m sort of curious as to where exactly are you tweaking and what the carryover from savings would be into 2024. thank you.
Josef Matosevic : Yes. Mig, look we are very focused on bringing those deals across the finish lane and holding on to our engineering and R&D. So on the people side, we’re going to need those folks that we invested in and trained to rented production as we onboard those new customers we have taken countries discipline here in terms of cost control and controllable expenses travel and looking at many other areas and trade shows and what have you. But we believe as it stands today again, if the world does need tomorrow that those deals will pay back and we shouldn’t have this conversation much longer. So Sean I don’t know maybe you can add your perspective.
Sean Bagan : Yes. I think Josef to hit that right on. If you think about the cost structure of the company certainly up in our cost of goods sold section some of the measures in the near term is where we have the excess capacity. We’re taking the opportunity over the holidays to shut down a couple of extra days save a little bit on overhead expenses. But really as I kind of tried to highlight on the operation our operating expenses sequentially we’ll be down a couple of million dollars from where our run rate has been in the first three quarters. So you’re really going to see the benefit of the actions, we took here in the third quarter as we saw the slowdown come in. Now we’re — when I look at the cost structure and you look at the fixed versus variable costs really looking at a third element to highlight what’s flexible.
So those are the opportunities to defer some things because again we want to be mindful and not cut too deep into our muscle where when this volume comes back as you highlight the decrementals the incrementals are going to flow really nicely and then we can lever back up the OpEx to support the goal.
Mig Dobre: Okay. Thank you.
Operator: Thanks, Mig. [Operator Instructions]. Our next question comes from Nathan Jones with Stifel. Please proceed with your question.
Nathan Jones : Good morning everyone.
Josef Matosevic : Hi, Nathan.
Sean Bagan : Hi, Nathan.
Nathan Jones : A few follow-ups to some of Mirc’s questions here. Starting off with these large contracts and the capacity additions you guys are pretty confident those are going to get signed in the third quarter and that volume was going to I guess start in the first half of 2024. It sounds like that’s pushed out to the second half of 2024. The capacity additions have been added. So there’s increased fixed cost there that’s going unabsorbed at the moment. Maybe some more color around why those contracts didn’t get signed in the third quarter as planned. What kind of guarantees or commitments you had from those customers in order to go and put that capacity in or whether that was calculated risk to demonstrate your ability to deliver on volume without commitments in hand from those customers? Just any current expectations for when we might see these things actually debt side?
Josef Matosevic: Yes. So, Nathan, once again the customers that we have been communicating to our investors including all of you those deals are well, well in the play and we expect to sign those deals based on what we have communicated there hadn’t been no change. We have some ownership in this as well as we have assumed the capacity in many areas to be completed sooner but due to supply chain challenges, due to equipment challenges, due to many other issues as you stand up new processes those are not the same processes that we have those in addition to. So, you’re mixing a hydroelectric operation and you got to stand it up in the right way and having been an operator for 27 years, we got to make sure we stand it up in the right way so we can come out of the gate swing with the cost structure and the margin that we want.
So, not to deviate from your question, but we certainly are on track to lock in those deals. This current macro pullback it didn’t help in terms of the timing but there is really no indication that we are too far down the road with these customers we have been working with. And one of them is literally in the 99 percentile now so that is the best I can I can say right down at without overcommitting and the delivering I guess.
Sean Bagan: Yes. I can add I’m sorry go ahead.
Nathan Jones: No go ahead.
Sean Bagan: I was just going to reference your capacity question too and the headwind you had had from the expense. And I know we had it in our materials but if you look at the major expansions in our Electronics segment that’s certainly in our Tijuana factory for the Balboa business, but also with some of the moves of the innovation control manufacturing there. And it opens us up to significant more opportunities to bring in more business I’d highlight wire harnessing as a key one. That really isn’t going to affect us too much here this year because we’re just bringing that onboard here in the fourth quarter and we will expect to fully have enough volume next year for that to pay back in terms of covering the additional overhead and depreciation.
When you look at the Hydraulics segment, particularly over in Europe, what Fasteners doing, I was just over there with Josef last month. And what we’re doing there from an efficiency perspective is really impressive between the automated warehousing and additional one we’ll be putting in place next year. So that will quickly pay with the volume that we’re going to be able to take on. And then lastly, with the Mishawaka, Sarasota Florida move that Josef referenced as well. When you think about that it was really more of a space expanding 50,000 square feet, but it was moving equipment from both Florida and Ohio into there. And so there isn’t much of a drag and we will completely start earning that back in 2024 as that volume pushes through that.
