NN, Inc. (NASDAQ:NNBR) Q2 2023 Earnings Call Transcript August 4, 2023

Operator: Good morning, and welcome to the NN, Inc. Second Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Alex Steinberg, Investor Relations with NN. Please go ahead.

Alex Steinberg: Thank you, operator. Good morning, everyone, and thanks for joining us. I’m Alex Steinberg, Investor Relations contact for NN, Inc., and I’d like to thank you for attending today’s business update. Last evening, we issued a press release announcing our financial results for the second quarter ended June 30, 2023, as well as the supplemental presentation, which have been posted on the Investor Relations section of our website. If anyone needs a copy of the press release or of the supplemental presentation, you may contact Alpha IR group at nnbr@alpha-ir.com Our presenters on the call this morning will be Harold Bevis, President and Chief Executive Officer and Mike Felcher, Senior Vice President and Chief Financial Officer.

We also have a few of our new business leaders available to support our Q&A session including Verlin Bush our new Chief Commercial Officer and the new Head of our Segment, Douglas Campos GM of Mobile Solution, Gunars Vinkels, GM Power Solutions. Please turn to slide 2 where you will find our forward-looking statements and disclosure information. Before we begin, I’d like to ask that you take note of the cautionary language regarding forward-looking statements contained in today’s press release and supplemental presentation and in the Risk Factors section of the company’s annual report on Form 10-K for the fiscal year ended December 31, 2022, and, when filed, the company’s quarterly report on Form 10-Q for the three months ended June 30, 2023.

The same language applies to comments made on today’s conference call, including the Q&A session as well as the live webcast. Our presentation today will contain forward-looking statements regarding sales, margins, inflation, supply chain constraints, foreign exchange rates, cash flow, tax rates, acquisitions, synergies, cash and cost savings, future operating results, performance of our worldwide markets, the impact of the coronavirus or COVID-19 pandemic and the Russian-Ukrainian conflict on the company’s financial condition and other topics. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside of the company’s control. The presentation also includes certain non-GAAP measures as defined by SEC rules.

A reconciliation of such non-GAAP measures is contained in the tables in the final section of the press release and in the supplemental presentation. Please turn to slide 3 and I’ll turn the call over to our new CEO, Harold Bevis.

Harold Bevis: Thank you, Alex. Good morning, everyone. It’s an honor speaking with you all today regarding my first few months as the new CEO of NN. Today, you will see that we are already underway with the transformation strategy. And we are embracing change and taking decisive actions to accelerate our long-term growth and profitability and become a more predictable company. We have a tremendous opportunity to deliver significant value to all of our shareholders. I have personally spent the majority of my career working in industrial technology industries, and my focus has primarily been on driving transformational change. With four successful business transformations completed and two of them being public companies, I was immediately interested in leading NN through a transformation, as I believe there’s a clear opportunity to return this great company to the leadership position at once enjoy.

As an industry veteran with more than 25 years of experience, I’m deeply familiar with NNs markets, competitive position and customers. NN has a well-respected and diverse customer set and although we are expanding, our focus includes new business verticals and in markets. There’s plenty of opportunity within our current markets to expand our share with those who already know the value that we bring. NN has decades of engineering and technical expertise. Now I’ve been very impressed by the acumen and operational capabilities we possess. I’m particularly encouraged by the competitive mode the company has with its vertically integrated manufacturing, which is further supported by a large globally installed base of equipment that’s extremely hard to replicate.

That said, our brand assets and talents can clearly be leveraged in a more powerful way. You’ll hear today what our plans are, and that we’re already taking immediate actions to begin improving our commercial and operational strategies. This includes plans to immediately increase the size and focus of NNs commercial new business program. Additionally, we are refocusing the organization to better optimize our cost structure, prioritize operational efficiencies, and build stronger financial credibility. We will refocus on the things we do best to both drive growth and become a stronger organization. I’ll talk you through the basic elements of our transformation plan in a few minutes. Now let’s review some summary highlights from the second quarter, which are outlined on slide 4 of today’s presentation.

You will see the immediate impact of some of our near term actions in our improved cash flow metrics. In terms of our specific performance, as outlined on page 4, sales for the quarter were $125 million. And we delivered $10.5 million in adjusted EBITDA. We’ve had a solid first half of the year with new business wins, and have roughly won roughly 19 million in new awards. Focused on expanding our new business pursuits in both legacy markets and new markets where it makes sense. On a high note, we’re happy to report that we generated 3 million of positive free cash flow in the quarter, marking an important step in the right direction. We are free cash flow positive for the trailing 12 months period. And our outlook indicate that this trend will continue into the second half as we control costs and maintain explicit cash discipline.

Looking forward, we have aligned and are supplementing our leadership team. And I’ll highlight these important changes in a few minutes. We’ve also implemented and prioritized cost reductions to better support our margin profiles and ultimately utilize improve margins to self-fund our growth. There are immediate opportunities to grow our profits irrespective of sales growth by initiating change in areas where we are underperforming and we are attacking those areas with a new vigour. We are proud of the adjusted EBITDA and free cash flow of our — that our business produced in the quarter, but are far from satisfied, and our enhanced leadership team and strategy remains focused on increased cash flow generation and profitability improvement.

Please turn to page 5 in the deck. I want to briefly walk through what our first 75 days together have looked like. Began my tenure as CEO of NN effective on May 22 of this year, my immediate focus was to familiarize myself and get better acquainted with the company, but also began a deep assessment of our capabilities and team. Within 30 days, I had the opportunity to visit many of our plants globally, as well as our partners in Europe and China. I also was able to meet with a few of our large customers face to face, and meet with our Capital Partners. A key takeaway from my interactions was how important our customized products and solutions are to our customers around the globe. NN has great DNA for delivering top tier quality and on time delivery, and our customers depend on us day in and day out.

Many of our solutions are critical components in our customer’s products and thus we have a deep sense of institutional pride in what we do. We have a significant competitive advantage given our global footprint and vertically integrated facilities. And there are clear new actions that need to be taken to better leverage our core competence to these into higher results. As we’ve previously announced, we are right sizing our board of directors from nine members to seven as part of our collective commitment, the best practices and corporate governance and alignment of our cost structure to our industry in our size. Please turn to page 6 in the presentation. NN is now focused on a new transformation plan. And we are preparing to execute at a higher level.

Now I’d like to walk you through the core components of that plan. Our transformation plan is built around an increased organizational commitment to higher sales, profit and free cash flow. And it includes five components. The first is getting the top team right. And we are focused on aligning our talent and modifying the top team to better position NN for success. This includes flattening the organization to increase agility and speed. I’ve been using my experience and personal network to supplement our highly experienced NN leadership with proven transformation executives that I’ve worked with in the past. This includes a Chief Procurement Officer, a soon to be announced Chief Operating Officer and certain specialists. The second component is a commitment to achieving cost productivity and implementing a steady state program.

We must increase our organizational commitment to cost leadership as a way to improve our margins. I’m happy to see as I’ve gone around that we have abundant opportunities to do this. And we intend to improve our margins and spread, and our incoming COO and incoming Chief Procurement Officer have already done we’ve already done this together twice before. Third, we have a significant opportunity to improve our business by fixing unprofitable customer contracts and underperforming plants. Specifically, we’re completing reviews of several of these plants and several customer contracts and finalizing our Fix it plans in each area. We’ll talk more about the steps that we’ll take next quarter during our earnings call. But we believe already that there’s at least a $10 million annual opportunity to improve our EBITDA profile through these actions.

Component number four here, as we align our profitability, we’re also heavily investing our focus on routinely generating positive free cash flow. This includes better disciplines within our accounts receivable, accounts payable, inventory profiles, and capital spending decisions. NN has not delivered positive free cash flow as a company annually for several years. But as mentioned just a few minutes ago, and as you’ve seen in our announcements, we’ve already checked this box on an LTM basis. And we intend to perform better on free cash flow generation as we go forward as it provides the fuel to self-fund our investments into our team and our plant our growth programs and de-leveraging our balance sheet. Lastly, point five we’re taking steps to dramatically increase our new business wins program and drive larger results.

This includes aggressively leveraging or open capacity and taking a more disciplined approach to pursuing new business wins that will require significant capital spending. As many of you know, in the industries that we compete in a win today is primarily supporting business revenue in 18 months to 24 months in most cases. We’ve already reorganized internally amongst our sales and operations teams to reallocate a greater portion of our organizational talent to achieve a larger sales growth tax plan. Please turn to page 7 in the presentation. On slide 7, I’d like to introduce you to our new leadership team here at NN. And this team is focused on growing on going faster and winning more as we integrate our commercial and operational teams together to grow the business as we organized it, cost have cost productivity and cost leadership and the generate free cash flow.

As you can read from the descriptions here, this team has been developed through promotions internally of strong industry veterans within our company. And as mentioned, we’re supplementing this team with just a few new leaders that bring in strong and proven transformational expertise, and with whom I’ve worked before previously. These four leaders on this stage have over 20 to 30 years each have direct industry experience, most of which has been accomplished right here at NN, Verlin, Douglas, Gunars, and Jeff, are already aggressively underway with implementing our new transformation plan in their respective areas. Please turn to slide number 8. We’ve provided a brief snapshot of our new business wins on this stage. And I’d like to, I’d like to cover them for a minute.

Year-to-date, our business wins are roughly on track with our internal goals. And as you would conclude here, we’re already in the process of sizing these goals so higher level. Our global team is now thinking through a larger plan to win at a larger rate. And we are already underway with expanding our efforts right now. In the first half electric power steering components for electric vehicles has been the largest segment that we’ve won business and we’re very happy about that. We will expand our product concentration in key profitable areas that we currently serve, like electronic power steering for electric vehicles, but also in areas like connector, shielding, and braking system components to name just a couple. We’ll also look to expand into new markets, including the medical market where we see a lot of opportunity.

Our ability to design and manufacture submicron precision machinings, stampings and assemblies is very unique and applicable to many industries. I’d now like to turn the call over to Mike Felcher, Senior Vice President and CFO to discuss our second quarter results in greater detail. And then we’ll take your questions at the end. Mike?

Mike Felcher: Thanks, Harold. And good morning, everyone. I’ll start on slide 9. Net sales for the quarter of $125.2 million remained roughly flat compared to the prior year period as our ability to drive stronger pricing helped to offset lower volumes. Last year second quarter results also included a favorable customer settlement of $2.3 million. From a profitability standpoint, our operating loss of $4 million improved compared to the $4.5 million operating loss in last year second quarter. We captured approximately $2 million of benefit from that price and inflation versus last year. However, this pricing benefit was more than offset by the impact of lower volume, combined with the previously mentioned customer settlement.

Adjusted operating income for the second quarter was $1.3 million compared to adjusted operating income of $0.1 million from the prior year. Adjusted EBITDA results of $10.5 million was slightly below last year’s $10.9 million result. Encouragingly, we are seeing the impacts of the targeted cost reductions flow through to our adjusted EBITDA, totaling approximately $2 million of benefit in the quarter. As we progress further through the year, we expect to continue to benefit from cost discipline and addressing underperforming areas of the business. Turning the slide 10. Sales in our Mobile Solutions Group increased 5.2% versus the prior year period improving by $3.8 million. The increase was primarily driven by improved pricing the impact of new business increased volumes from our existing business lines Mobile solutions adjusted EBITDA results of $7.5 million decrease compared to the $9.1 million in the second quarter of 2022.

This was driven by performance challenges in our Wellington and Juarez facilities and the favorable customer settlement in the prior year. Profitability was supported by solid performance from our China based JV, which helped to partially offset some of the operational one time challenges to our adjusted EBITDA results. Demand for our mobile solutions end market should be steady as we enter the second half, though we do not anticipate demand growth given the macro environment and commentary made by other public industry leaders. Additionally, we expect operating improvement in our Wellington and Juarez facilities where performance improvement plans are being implemented. Turning to slide 11, Power Solutions segment sales decreased 7.7% year-over-year, primarily driven by decreased electrical and general industrial component sales, due in part to slower housing starts and customer inventory adjustments.

Further, the segments top line performance felt the impact on volumes from the closure of two facilities as we rationalize our footprint to drive future profitability. Sales Performance reflected better pricing in the period compared to last year’s quarter, which positively impacted profitability. Pricing benefits combined with operating cost savings associated with our plant closures resulted in adjusted EBITDA of $6.5 million compared to $5.9 million in the prior year. Looking ahead, we expect demand levels in the second half of the year to be consistent relative to our first half. Helping to offset flat demand expectations are the cost and cash flow initiatives that are already underway. Given our market demand expectations and explicit goals to enhance our profits, we will be prudent and diligent with the management of our working capital, while focused intently on improving our cash flows.

Now please turn to slide 12. As Harold highlighted, we are encouraged to report solid, positive free cash flow for the period as well as on a trailing 12-month basis. Working Capital turns improved in the second quarter to 4.8 turns from 4.5 in the previous quarter, marking the third consecutive period that we’ve improved upon this key efficiency metric. Now turning to slide 13, you can see a snapshot of our balance sheet and liquidity metrics. Net debt at the end of the second quarter was $147.9 million versus $147.7 million in the first quarter of 2023. Our net debt to adjusted EBITDA ratio stood at 3.87 times at the end of the second quarter compared to 3.82 times at the end of the first quarter of 2023. We previously communicated that we were evaluating a potential preferred equity raise.

However, given our expectations for continued positive cash generation, and the lack of any immediate need for new capital, we decided not to proceed with the preferred equity raise. Our transformative plan for consistent free cash flow generation is focused in part around our Prudent CapEx strategy. We will strategically shift and reallocate our capital spending to focus deployment more towards business reinvestment to drive growth, while still appropriately funding maintenance capital requirements in the near term. As we modify our CapEx spend allocation, we are executing a concurrent plan to improve our liquidity through working capital optimization, cost reductions and overall operational improvement. There is significant opportunity within our markets in our facilities.

And now that the team is aligned and complemented with the right strategy, we expect to be able to effectively improve our liquidity while maintaining costs and our leverage profile. Please turn to slide 14 for our full year outlook. Consistent with many of our customers and peers, we’re revising our outlook and now expect net sales in the range of $485 million to $505 million roughly flat the prior year. Adjusted EBITDA in the range of $40 million to $46 million roughly flat the prior year, and free cash flow in the range of $7 million to $13 million, a significant improvement over last year. Our guidance implies demand for the back half of the year for both mobile and power solution segments that is consistent with level seen thus far year-to-date, as well as updated industry forecasts.

Our adjusted EBITDA and free cash flow outlook reflects the impact of our lower volume, expectation and disciplined cash management. Our free cash flow guidance does not include the CARES Act tax refund of approximately $11 million due to uncertain timing. In conclusion, while Harold and our reorganized leadership team have only been together for a short time, you can see here we are taking aggressive and swift action to build a stronger company. Our focus and path is clear and we have the right team, platform and capabilities to significantly tolerate our long-term growth and profitability. We’re looking forward to sharing this journey with all of you. I will now turn the call back to the operator for questions.

Q&A Session

Operator: [Operator Instructions] Our first question will come from Rob Brown with Lake Street Capital Market. You may now go ahead.

Robert Brown: Good morning, and congrats on all the progress.

Harold Bevis: Good morning. Thank you.

Robert Brown: You enter a number of things on kind of your plan in terms of operational excellence. I guess I’d like to get just your view on the ability to kind of cut costs and the opportunities you see here. And maybe, kind of how long you think that’ll take to kind of get implemented?

Harold Bevis: Yes. Good question. So on our cost agenda, we have a few elements. One is we do have some underperforming areas of the company that explicitly are dilutive. And so they’re getting special attention. You could call them stop the bleeders or whatever cliche, you want to use, but we do have some highly dilutive situations that are causing us to be held back and cost performance is an element of those — an element of that. So you have that number one, which is fixing some of our problems, which Mike and I both alluded that if you combine the cost problems with our underperforming customer contracts, it’s greater than $10 million of EBITDA. In other words, in our reported results, we’re carrying $10 million of below zero kind of profit rates.

And so we’re attacking those aggressively. Number two, on procured materials and our conversion costs, we have not had a routine cost productivity program, the new Chief Operating Officer that’s joining us and we’ll announce him shortly, is very experienced at having — every plant having a cost agenda where they at least offset their inflation and the goal, obviously, to have net productivity. So that one is kind of starting from scratch. I think it — will you asked about timing, Rob. I think that one in my experience takes a little while to get up to full run rate, I’d say that we’ll get to full run rate in like four quarters on the first one on fixing the problem children. We have a much more immediate kind of game plan there — this — two or three quarters.

So those are the two main elements. In terms of SG&A, which is the overhead costs, we kind of have two things going. We have our Power business is really benefiting from electrification, electric vehicles and grid investment and we’re having to grow that team to invest in it. And the Mobile one, we’re really kind of keeping our cost structure stable. As the industry transitions from internal combustion engine to electric vehicles, there’s a transition there in the kind of the top level, the number of vehicles made is steady. And so we’re really focused on rightsizing our overhead structure to the realities of the market. A lot of public filers this week in our industry, our customers, if you will, and — they’re guiding a little softer in the vehicle world, and they’re guiding a little stronger in the electrification world.

And that nets out as Mike said to us kind of being a flat second half to the first half. So I think our SG&A structure is appropriate right now. But we’ll monitor it if we need to adjust it, we will, Rob.

Robert Brown: Okay. Good. And I think you touched on kind of the demand environment and what you’re seeing there. I guess it’s a bit of a tweak down. But are you seeing any — I guess, would you characterize it as a tweak down? Or what’s sort of the demand environment changes that you’ve seen? And how much sort of indications from customers, I guess what’s the sort of visibility at this stage in terms of the demand environment?

Harold Bevis: Yes. So the public reporters, the OEs, if you will who are the big arbiter of the answer there. And then you have the supply chain of Tier 1s, Tier 2s into those vehicle makers on our vehicle side, they’re all painting a slightly softer second half and we’ve embraced that as part of our guidance here. On the other hand, if you look at the bellwethers into grid investment in electrification, they’re guiding to a stronger second half. And we’re seeing that — so we’re seeing that internally also. So we’re seeing net flat kind of an outlook to our run rate. In terms of contribution to our run rate from new business wins, new business wins really take about 18 to 24 months to manifest themselves. And then in the second half of this year, we don’t have meaningful new business wins that are going to be additive to our run rate.

We hope to change that in the future with a bigger program. But right now, its deminimis in the second half, the amount of contributions from new business win, in essence, 18 to 24 months ago. So we have a put — we have a good guy and a bad guy in net out to a flat outlook, Rob.

Robert Brown: Okay. Great. Thanks for the color there. And then in terms of just the new business activity, you’re showing a lot of activity on underlying things that’s, like you said, 18 months to get to revenue, but sort of how would you characterize the new business kind of pipeline? And is it the momentum you’re seeing in EV and grid, I guess, could you give us some sense on how that’s coming in and where you’re seeing growth and maybe how you’re gaining maybe share there and maybe just some color on the new business environment.

Harold Bevis: Yes. I’m going to answer a piece of that, and then I’m going to pull in Verlin Bush, who’s actually on the call with us, who is our Chief Commercial Officer. On the EV — on the substitution rate of vehicles from combustion engine to electric powertrains or alternate fuel powertrains, tremendous amount of information out there on that and the substitution rates vary by class of vehicle and by geography and government mandates influence the substitution rates, but it’s definitely happening. And that manifests itself to us as more looks as people are modernizing and changing their vehicle platforms, we get a chance to bid on our new platform. So this substitution rate in this transition ends up being an opportunity for us because there’s a quoting opportunity on a new vehicle deployment.

So the macro environment of that is good for us — is good for our company. With regards to how we’re doing, I’d like to invite Verlin to make a comment here, Verlin? You might need to come off mute.

Verlin Bush: Yes. Thank you, Harold. As far as where we’re doing and where we’re going, several of our markets are actually doing pretty well. We’re staying focused on our EV and our grid applications, residential, commercial, electrical applications are down, but we’re seeing a lot of activity right now in some of our regions. So we’re seeing focus there. We recently made some changes in some staffing and hired some guys out there that are focused on growing in those key areas. So we’re seeing much more activity and new business wins in those areas. We’ll continue to see and focus on those markets that were — that we do well in and that we’ve been in for a while. In the short term, there will be definitely some powertrain components that we’ll capitalize on with our current capacities and capabilities as we make the transition more into the EV space.

So I think there’s a lot of good news on both sides. I think the operational effectiveness that we’re seeing with the new structure is going to help us be more competitive in all of our markets in all of our regions. We’ll — we’re laying out a plan now to begin to expand our presence in medical after our restrictions lift in October of this year. So that will be another area that we’ll focus on.

Robert Brown: Thank you, Verlin.

Operator: [Operator Instructions] It appears we have no further questions. Pardon me; our next question will come from Tom Kerr with Zacks Investment Research. You may now go ahead.

Thomas Kerr: Hi, good morning guys. And just following up on the last comment on the medical market. Is that a big enough business opportunity where that would be a third segment going forward down the road?

Harold Bevis: It is a big segment. And if you look at the types of machinery that we have in-house and if you talk to the people that sell the types of machines that we buy, actually the biggest end market for these types of machines is medical. And transportation second, I’m talking now on the machining side. On the stamping side, we’re still in the business today. The divestiture that we did in 2020 largely did not touch that business, and we’re still active in the medical market and have a line-up and a roster of medical customers that we’ve had for a long time. So for both stamping and machining, it’s a great alternate use of our precision know-how on submicron stamping, submicron assemblies and machinings, that you think implants, think meshes and the tools, the cutting blades, all of it is very small and very precise.

And it fits our capabilities perfectly. To be honest, it’s a little easier than the vehicle world. The vehicle world has a lot higher pressures associated with atomizing of fuels and this sort of thing. So it fits us like a hand in a glove. With regards to the non-compete that Verlin touched on, we do have a ballot not compete that’s in place for a few more weeks. So we’re already seeing that coming to an end. And we’re getting ready to re-enter there. We still have plant certifications, operators that know what to do, executives that know what to do. We have an old catalog to dust off. We know where to go. So I hope it becomes a segment. But initially, it’s smaller than that, Tom. So it will just be a product line really for us for a while.

But that would be a goal of ours. And obviously, we could jump start that with a small acquisition, too. But it’s going to be a new leg in Verlin’s tool to grow our company at a higher rate. Our overall goal is to get 15% new wins per year on 500. So that’s kind of what we’re trying to do. So every vintage year, this being 2023, we’d like to get around $65 million of wins and do it year in, year in, year in. So over a few year periods, you’ve won a few hundred million dollars with the business. And for us, that’s going to add up. So we’re getting organized to do that medical, aerospace — parts of aerospace, parts of defense, of course, electric vehicles, the grid, these are all good areas for us. And we have small market shares in a very large market.

And so simple thing to say is we’re putting more feet on the street to go after more opportunities right now with open capacity we have and know-how that we have.

Thomas Kerr: That sounds great. And on the separate note on the China business, is that kind of where — back to where it should be after all the COVID stuff? Or is there still a lot of room for improvement in that area?

Harold Bevis: Yes. So there’s — the China business for us is primarily on the Mobile side, although we do have a small plant in China for Power as well. But the biggest part of it is on the Mobile side, and we’re tied into vehicles in China, for China. The vehicle market there is doing fine. It had a big rebound in the second quarter if you follow that this week with the quarterly results from public filers. So the China vehicle market is doing fine now for us. We’re a supply chain participant into that vehicle manufacturing. And so for us, we still are stabilizing supply chains where our customers kind of beefed up on their inventory profiles of products we make. And we see that now leaning out. And so we see normal supply chain pull through us in more normal operations.

So it’s smoothing out. And again, we also have Douglas Campos on the phone who — that operation has traditionally reported into him. Douglas, if you could come off mute and make a comment there?

Douglas Campos: Sure, Harold. Exactly that. We also see in China, there’s a big incentive from the government on the — what they call the new energy vehicles. To incentivize, we see the transition happening fast there from a 26%, 27% penetration of EVs to 30% versus ICE. So the overall volume we are monitoring very closely what Harold said, we see the improving in Q2 versus Q1, still for the year, maybe a little bit up compared to last year, not a lot. Certainly, we do have a lot of opportunities still there. We have capacity. We’re working with our customers. There is also a big trend from China that they have a lot of open capacity exploring exports, and that might drive the volume in the short term up. So those are the trends that we see in China going on right now.

Thomas Kerr: Okay. Great, thanks. And then one more question on the Power segment. I mean, you guys always talk about the residential and commercial construction markets being tough all year. Any trends on that? And is that more just sort of the macroeconomic type situation? Or was there also internal issues of not taking advantage of the residential and commercial construction market?

Harold Bevis: Yes. So I’ll answer part of that, and then we have Gunars Vinkels on the phone, who is the General Manager of our Power business. Obviously, these are well-reported areas, residential, commercial, construction and obviously, residential in North America has been down. Non-residential has been better. For us, we’re heavily tied into heating and cooling and electrification of the grid and the creation of a smart grid and the creation of a grid that can take on electric vehicles. There’s some information out there that an electric vehicle driving around town is the same electrical use as a house. So you have these houses driving around and then they decide to book up to the network and start charging and it draws the equivalent of a house is worth of electricity during that charge.

And so the grid needs investment, the biggest reporter here that I read this week was Itron. I don’t know if you know that company, but they put a lot of good information on this, and they’re growing their third growing quarter in a row. And they gave a lot of information on this topic. So overall, there’s kind of the construction independent thing here that’s happening is that the network — the electrical network needs to expand, again, because of this electrification trend. With regards to starts on single-family and multifamily, that’s been down, but non-residential construction has been steady. Gunars is on the phone, I’d like to have Gunars come off of mute here and make a couple of comments also. Gunars?

Gunars Vinkels: Sure. Sure. Thanks, Harold. Yes. So yes, you absolutely hit it right. We do see some impact related to the residential being down, but we actually have quite a bit of activity on the quoting front that supports largely the industrial side and the grid opportunities that are out there. There’s a lot of work to be done there, and we’re seeing that quoting activity ramp up. And the good news on those is that some of that can have some short-term impact for us, the types of processes that are related to making those products has a shorter launch time than some of the ones that Harold had mentioned earlier are more classic ones that take somewhere around 14, 16 months. These can be — parts can be produced and launched in a matter of closer to three months, three to five months’ time frame. So we hope to see the impact of that early next year.

Thomas Kerr: Okay. Great, thanks for the color. And one more quick financial question. Have you guys set a leverage ratio target? I think you had at some point in the past, 3.87 now. Is there the goal to get by end of the year or next year or something like that?

Harold Bevis: Yes Mike, you want to take that one?

Michael Felcher: Sure. Yes. We haven’t set — provided an outlook on a specific target. Obviously, we’re focused as we said in the commentary on improving liquidity and reducing the leverage ratio going forward, and we would — our forecast reflects sequential improvement in the leverage ratio as we move forward.

Thomas Kerr: Okay, thanks. That’s all the questions I have for now.

Michael Felcher: Thank you, Tom.

Operator: That’s all the time we have allotted for questions. I’ll turn the call back to Harold for closing remarks.

Harold Bevis: Thank you everyone for calling in and listening to our company report. And we look forward to reporting and speaking with you again at the end of the next quarter on our transformation plan, our on-going results, our new wins as well as the health of our markets. Thank you very much for your time. And operator, we’ll end the call at this point. Thank you.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.