Earnings Call: Q3 2022

Nov 8, 2022

Quarterly report

Good morning, everyone, and welcome to the Core Molding Technologies Third Quarter Fiscal 2022 Financial Results Conference Call. Please note that this event is being recorded today. Now, I will turn the call over to Steven Hooser, 3 Part Advisors. Please go ahead, sir. Thank you, and good morning, everyone. We appreciate you joining us for the Core Moulding Technologies conference call to review Q3 results for 2022. Joining me on the call today are Core Moulding's President and CEO, Dave Duvall and the company's Executive Vice President and Chief Financial Officer, Before we begin, I would like to remind you that this call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the Investor Relations section at coremt.com. Today's call, including the Q and A session, will be recorded. Please be advised that any time sensitive information may no longer be accurate as of the date of any replay or transcript reading. I would also like to remind you that the statements made during Today's discussion that are not historical facts, including statements or expectations of future events or future financial performance, are forward looking statements and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements, by their nature, are uncertain and outside the company's control. Actual results may differ materially from those expressed or implied. Please refer to the earnings press release that was issued today for our disclosures on forward looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. Core Molding Technology assumes no obligation to publicly update or revise any forward looking statements. Management will refer to non GAAP measures, including adjusted EBITDA, Free cash flow, return on capital employed and adjusted net income and earnings per share. Reconciliations to the nearest GAAP measures can be found at the end of our earnings release. Finally, the earnings press release we issued earlier today is posted on the Investor Relations section of the website atcoremt.com as well. A copy of the release has also been included in the 8 ks submitted with the SEC. And with that, I'd now like to turn the call over to Dave DuVall. Dave? Thank you, Stephen, and good morning, everyone. I want to start today with a summary of some recent good news. A few weeks ago, we executed a new agreement with United Forest Products to extend our relationship for another 5 years. We supply decorative lattice products that UFP provides to commercial and residential customers throughout major big box home improvement retailers throughout the U. S. With this long term relationship and others like it, we look forward to continuing to be a valuable partner for building products, industrial, utilities, packaging, transport, powersports as well as critical infrastructure businesses throughout North America. Although we remain cautious in our outlook, like most companies in this environment, demand remains solid and at certain end markets demand is strong. Fortunately, We are a key and trusted supplier in a number of growing companies and industries. And as business is planned for their 2023 production, They are locking in agreements with us. We have done a significant amount of work to develop supply agreements that are mutually beneficial with our partners and our new agreements will allow for price escalations when input costs increase. We remain an essential manufacturer in vital end markets and as macroeconomic headwinds hit, U. S. Businesses want security and confidence in their supply chain, especially after navigating the recent supply chain disruptions and sea freight challenges we've experienced. Turning to our performance for the 1st 9 months of the year, net new wins this year grew to 24,000,000 The opportunity pipeline remains robust at 110,000,000. As a reminder, our aggregate pipeline represents all active new business opportunities. This year, we are pleased with the wins we are capturing, which I believe further demonstrate our ability to select and manage projects that best utilize our assets and our ability to capture higher margins. Results for the Q3 were strong, but product mix was the primary influence on margins in the quarter. We are pleased to report record high sales this quarter, growing net sales by over 25% to nearly 100 $2,000,000 Despite the strong revenue performance, normal seasonality revenue diversification tipped back towards medium or heavy duty truck, which moved from 39% in the 2nd quarter to 49% in the Q3 of this year. John will cover this in more detail in a few moments, But from a high level, this is the primary reason our sequential gross profit margin was essentially flat between Q2 and Q3 of this year. I also want to point out some meaningful progress in product launches during the Q3. Product launches and product sales net new wins communicated in 20212022 that are in production and currently being launched. We reported Strong third quarter increases in product sales, up 36.5%. A few example of product launches include the Last Mile truck project, which is now in full production and in addition, we launched a number of new powersport projects. Finally, in the industrial and utilities categories, We had a major launch that is now in full production as well as a number of projects related to stormwater solutions, flush cover products and other industrial utility projects that are expected to be in production by Q1 of 2023. We're excited about each of these customer launches because they are in large end markets where we have provided engineering solutions with the help of our technical solution team. Each of these projects are important because they align to our strategy of continued diversification and providing an engineered solution, which directly drives our margin enhancement initiatives. With that, I would now like to turn it over to John to cover the financials in more detail. Thank you, Dave, and good morning, everyone. Q3 2022 net sales totaled $101,600,000 up 25 Revenue increases were largely driven by higher customer demand in our transportation and powersports industry, new program launches, as well as raw material recoveries. Gross profit for the Q3 was $13,300,000 or 13.1 percent of sales compared to $6,400,000 or 7.9 Recall last fall in 2021 that we experienced a period of rapid inflation in the U. S. So our margins reflected that impact to our business. We quickly reacted last year and started to work with our customers to recover raw material price increases. As expected, efforts to pass through raw material inflation have been challenging with significant ongoing negotiations. The results of our Gross margin of 7.90 basis points in the Q3 of 2022 compared to the same period in 2021. The gross margin in the 3rd quarter was primarily impacted by product mix shifts, coupled with production inefficiencies. As Dave previously discussed, Grand Turtle gross margin for the quarter 2 to the quarter 3 of 2022 was basically flat, which was due primarily to product mix. The medium and heavy duty truck market was approximately 49% of product sales in the Q3 of 2022 compared to approximately 39 This shift in revenue mix was driven by normal seasonality along with a heavy push by our truck customers for increased demand. Raw material inflation has somewhat leveled out in the Q3 and we have seen some decreases in revenue and prices. We will continue to work with customers to pass through changes in raw material costs going forward. As Dave mentioned, we are carefully watching for Customer demand changes, which we could see in the last quarter of 2022 or early 2023 if recessionary pressures increase, but nothing meaningful yet. Selling, general and administrative expenses for the quarter were $8,700,000 compared to $8,800,000 in the prior year period. Prior year SG and A include $1,800,000 of Closing costs from shuttering the Cincinnati plant. Excluding last year's plant closing costs, SG and A costs as a percent of net sales remained approximately flat compared to 2021. In the Q3, the company reported operating income of $4,600,000 Q3 net income aggregated $1,300,000 or $0.16 per share, which included a one time $1,600,000 or approximately $0.19 per share loss on extinguishment of debt resulting from our debt refinancing that was completed in July. The loss resulted from non cash write off of previous debt issuance costs of approximately $1,200,000 and early extinguishment fee of approximately $350,000 to repay approximately $12,000,000 of 8.25 percent fixed interest debt. The 2021 Q3 net loss was $3,300,000 or $0.41 loss per share. Adjusted EBITDA for the Q3 of 2022 was $8,400,000 or 8.3 percent of sales. You can find the GAAP to non GAAP reconciliation tables at the end of our press release for both Q3 and year to date numbers discussed today. Now turning to results for the 1st 9 months of 2022. Net sales totaled $290,900,000 up 24% versus a year ago and product sales increased 28% versus the prior year period. Sales increases were largely driven by strong customer demand and new program sales, demonstrating success of our strategic revenue diversity Gross margins were impacted by favorable net selling prices in excess of raw material cost increases, offset by unfavorable product mix Production inefficiencies. The company has experienced operational inefficiencies and program launch startup costs in 2 of our plants, which we are working on reducing. SG and A costs for the 1st 9 months were $25,900,000 compared to $23,700,000 or $21,700,000 excluding plant closure costs in the prior year period. Year to date operating income was $15,000,000 and below the operating income line, we recorded the write off of debt issuance costs of $1,600,000 Net income for the 1st 9 months aggregated $7,400,000 or $0.87 per share compared to net income of $4,200,000 or $0.50 per share in the prior year. Year to date adjusted EBITDA was $25,900,000 or 8.9 percent compared to $18,700,000 for the prior year. Turning now to the company's financial position, cash flow and balance sheet. The company's cash provided by operating activities totaled $8,500,000 for the 1st 9 months ended September 30, 2022 and capital expenditures for the same period were $12,300,000 The increase in working capital, specifically accounts receivable, is related to increased sales this year. Approximately 7,500,000 Dollars of the year to date capital expenditures relate to capacity increases and or the launch of new programs. We estimate that our capital spending in 2022 will now be approximately $18,000,000 and 2 of our new presses in robotics came online and are operational. Adding presses in automation this year allows us to maximize our current footprint, Add capacity and drive higher throughputs and efficiencies, which have incrementally increased our revenue and reduced our reliance on labor. At September 30, 2022, the company had available liquidity of $46,500,000 consisting primarily of $20,900,000 under our revolving credit And $25,000,000 of available liquidity under our cap line of credit. The company has Term debt of $24,500,000 at the end of September and our term debt to trailing 12 months EBITDA ratio was less than 1 times adjusted EBITDA at The company's working capital remains strong and we ended the September quarter with accounts receivable at 50 $4,000,000 in days sales outstanding or DSO at 48 days. Our return on capital employed, which is a pre tax return metric was 14.6% on an annualized basis. We continue to believe that our strong balance sheet coupled with sufficient liquidity provides We call that in July, the company successfully refinanced this Debt facility entered into a new aggregate $75,000,000 credit agreement for its revolving loan, term loan and CapEx loan commitment. We also swapped daily floating sulfur for a fixed 2.95 percent interest rate on the term loan as part of a swap agreement. With the accredit agreement margin of 180 basis points, our term loan debt increased interest rate at September 30, 2022 was 4.75%. Concurrent with the new credit agreement, we Although our strategic business transformation continues, we see changes quarter to quarter related to product mix shifts that impact revenue diversification targets as well as production efficiencies that impact gross margin. We remain laser focused on all of our controllables related to input costs and productivity and our technical sales teams are continuing to make progress on designing engineered solution and conversions that enhance gross margins. Improving operational efficiencies on the production floor of our plants with the addition of more presses in certain facilities allows us to immediately ramp through throughput and sales. Of our 6 manufacturing facilities, we are working to improve one plant more than the others for two reasons. 1, from a product mix standpoint, this facility handles more volume in the heavy duty truck and 2, the plan is less efficient based on facility That we can improve, which we are working on. We remain firmly dedicated to core strategic growth and profitability goals with programs to drive long term value creation in 2022 and beyond. Although we are encouraged by Strength in customer demand currently, we are closely monitoring volumes and forecasts and we remain conservative with regard to cash and our capital allocation decisions for investments in capital expenditures, acquisitions, people and all other costs and expense. With that, I would like to turn it back to Dave for some final comments. Dave? Thank you, John. We continue to see strong orders for truck and power sports with growing demand for industrials, utilities, packaging and Infrastructure Solutions. As we think about capacity, not all work is created equal. We are focused and disciplined in our commitment to be purposeful in while watching for signs of changing order forecasts. For core, we will continue to diversify revenue by end markets to reduce the risk of in the single customer or end market. This reduces the risk of 1 industry from significantly affecting our business and helps us stabilize our gross margin performance when the market does change. Our team continues evaluating internal factors to improve the efficiencies of our manufacturing processes so that we maintain a culture and discipline of continuous improvement within our organization. We are investing more in automation and the speed at which we can process materials. We are also making steady progress on our sustainability efforts. We will publish our 1st sustainability report in Q1 of 2023, which will highlight some of the areas we are advancing. Every day we make choices in our lives that affect the environment, the climate and other species. If we can make decisions each day that help make a better future, we believe that these incremental changes will create a powerful flywheel effect for our families and our communities. Last quarter, I shared that in our packaging category, we were partnered with the design and manufacturer of containers for a customer to grow millions of crickets that can serve as protein rich food for countries that are underserved or as a base for animal food. I'm happy to report We're also focused on energy savings projects, utilizing state funded energy and thermal audits to scope projects that improve the power factor in our plants, which will reduce the electricity consumption in our larger locations. I do want to reiterate what John said about cash and our capital allocation strategy. As we prepare budgets and look at our 3 year strategic plan, We are carefully evaluating how best to use cash for long term value creation. And although we are pleased with our record sales and optimistic about the growth potential for some of our newer end markets, we plan to remain cautious and disciplined with our capital allocation strategy. This means that we will continue to monitor cash, value creation and our return profile, especially as the macro environment change. Before we open for questions, I want to thank our entire Core Molding team for their hard work and dedication through another challenging and successful year. Simply stated, I'm a proud member of a great team. I believe most businesses would say the last couple of years have been As we navigated through COVID, rapid inflation and more recently the weaknesses in the overall global supply chain. It has been challenging to produce strong results and I want to commend our team for staying focused and alert while continuing to execute and move the business forward. John and I want to continue to also thank analysts and investors for their support and we welcome your questions either on the earnings call today or in a follow-up call to answer all your questions. With that, I'd like to open up the line for questions. Operator? We will now begin the question and answer And our first question here will come from Chip Moore with E. F. Hutton. Please go ahead. Hey, good morning, Dave and John. Thanks for taking the question. Hey, John, Jeff. Good morning. Good morning. Good. I wanted to ask about gross margins. You talked about mix shift and some of the production inefficiencies. Can you maybe help us understand that impact a little better? And then It sounds like in addition to seasonality, there was maybe a little bit more demand on the trucking side. So just remind us how that Seasonality should work. And then also just any raw material cost recovery impacts to take into account on margins as well? Yes, we have a normal seasonality to where we would see the Q3, Q4, where we have a majority of our sales into maybe Margins that aren't as high on some of our products, so really mainly mix driven. You'll see that in our history as well. Q1, Q2 will always be our higher margin relative to the business. I think when we look at Q3 in particular was about 2 70 basis points for Q3, the majority of that being product mix as you saw in percent of sales. Some of that we do have some operational inefficiencies. We have some large launches in one of our plants and in the other When John talked about some of the infrastructure, it's really looking at some of the large facilities in our plants like the electrical systems, the steam Systems and the press systems. Yeah. And Chip, I'll address your on raw materials. You'll notice that what's happening in raw materials, we're kind of actually at that point year over year where we're starting to get some comps, some comparability from quarter to quarter. I know last year, 3rd quarter, we just started getting some of the comps. You know, we're still getting significant recovery. We actually have recovery mechanisms in place for the most part, all of our business, You know, either formally or informally, and we're recovering. What we're starting to see now though is that, you know, I've got ups and downs. Certain raw materials are starting to go down in price and so as part of the raw material recovery, we actually have some revenue decreases to certain customers As that happens and at the same time we have revenue increases for other raw materials. The other thing that we're seeing at least Right now as the raw materials are starting to stabilize as of right now, we saw some pretty big increases early in the year, but Most of our raw materials have now come to a little bit more of a stable and hopefully maybe even start to decrease a little bit some of the steel prices and Stuff like that that we pay on hardware should hopefully reset early next year as steel prices kind of zoomed up earlier this year and now come back to earth. We'll start maybe seeing some of that. And so I really think, you know, where our revenues are going to be in gross margins, we're going to see less effect of raw material recoveries being a factor in the gross margin numbers, because I think they're just stabilizing a little bit at this point. And I think the challenge, I think as we talked before is that the acceleration of the increase and the decrease was really a challenge, especially on the upside of that. Got it. That's helpful, guys. And then I want to ask, you added some more Net new business in the quarter, can you talk about sort of where that lies? Is that continuing to diversify Into new areas. And then also on CapEx, I think, right, you had maybe one more press coming in this year. So just remind us On where that stands and some of the automation and what we should expect? On the net new wins, a little over 50% of that, we would say that's in industrial and utilities. The rest of part of that would be in heavy truck. So heavy truck marine has a little bit also for the year. So if you say for the $24,000,000 for the year, you know, about 4,000,000 of it is Patient truck, so what 15% the rest is mix between last mile delivery, little con ag, Bill Powersports, utilities, those types of things. And so we continue to see diversification with the net new wins being a little bit less truck. And again, I think one of the things that we are key on is that there's still good truck business out there. So we're going to win some good new truck business that makes sense that And so we'll always go for the stuff that makes sense there. It's just some of the other stuff we're probably higher focused on because just the margins are a little bit better on those. Got it. Perfect. Makes sense. And maybe just one more for me. Just bigger picture, you Talked about the macro and being a little cautious, appropriately cautious and monitoring Thanks. I guess, at this point, where would you typically get more visibility from customers at this point in the year And just given where you're bumping up against capacity constraints, when would you potentially consider adding capacity or just given the Macro slowdown, that's where you're going to be more cautious near term. Thanks guys. Yes, I think When we look at next year, we obviously, same as everyone else, we anticipate some type of a decline in the revenue. Right now, We are not really seeing that. We see still continued increase in strong demand in the truck. We would expect to see it first in probably personal watercraft, ATV, more the Discretionary spends, we would expect to start seeing that maybe by the end of the year, beginning of Q1. But we're going to be cautious about moving forward relative to investing in new capacity. I think with the 4 machines that we have installed this year, We have enough capacity at least until we grow till we see more growth going into the end of next year. Got it. Great. All right. Thanks very much. Yes. I think the big thing too is we're being a lot more selective on the growth, where we decide to grow and where What we're deciding to grow in. A year before, we had 75,000,000 net new wins and we probably could have had 75,000,000 net new wins again this year, but Being able to install the capacity, launch it and have it all at the same level of value is probably We're focused more on the value of the new business. Yes, yes, and risk profile. Sounds like you feel very good. All right, thanks. Our next question will come from Mike Hughes with SGF Capital. Please go ahead. Yes, thanks for taking my questions. Just on the program inefficiencies and launch costs, can you put a finer point on that if possible and Quantify the hit to gross margins in the quarter from those issues? Yeah. It's Really tough because what will happen is, you know, during a launch, you've got kind of, you know, inefficiencies that happen throughout the plant. So we've always tried to grab it and say, hey, we know, you know, you can measure some Scrap and those things, but it causes a significant launch We'll usually create inefficiencies throughout all types of jobs. All of a sudden everybody's focused on a bonder that's not bonding, right? And so you're Not working as much on just your normal day to day stuff. And so it really has a way to disrupt the whole facility. The nice thing about those, those usually can kind of Cleaned up in about a 6 month period. What we say is with a major launch, you got that 6 month period where you're really working through bonder issues or Scrap issues or where do you place the charge pattern, all those things that you get worked out eventually and you get your normalization back into And so we would hope to see that the impact from that launch would be really kind of in Q1 next year would start to disappear, the impact of it. On the other facility that we talk about, again, we don't really break out the individual piece. We do believe that The inefficiencies out there, I think you'll see in the 10 q we had inefficiencies and mix of versus last year of another 270 basis points. I think we really believe if we can get that plant, once we get that plant kind of reworked and working well, but Not going to give a number out there, but it definitely will show up on the margin. It won't be something so small that it would be a point or something or you know 10 basis points, you know it's going to be something that will show up on the margins as we keep working through that. And so we would expect as we fix that that we would see our you know margins start to head Back up towards the mid teens to high teens as we get through that and we launch other products. Yes, I think one of the challenges you get into, as you know, on any launch, it's Customer has challenges. They'll stop production, start production back up. Some of the supply base that maybe the customer put in place has challenges. So It's working through all that. It's not just say a plant operational necessarily. Okay. So John, just to follow-up on your comments. So once this it sounds like it's concentrated in this one plant. Once that plant's running more efficiently, You can recover 200 to 300 basis points of gross margin just from that alone. Is that correct? Yeah. So I mean, what we would be saying is I think, you know, we're at 13% today. I mean, our goal is that we get back to that 15% to 20%. I think, you know, with the one that we get the stabilization on the from the launch and then the Other one where we get through work through the issues we're having there. Again, that would be our goal to be back in that 15 to 18 range. And so You got mix that will come in every quarter and those types of things, but that would be the range that we would definitely be trying to head back towards. Okay. And that launch, is it with a Class 8 existing customer? Yes, it's a Class 8 customer, yes. Okay. And then you had a really strong tooling number in the quarter. In some respects, I guess that could be a forward looking indicator unless you're transferring business to an existing customer. So How much of the tooling numbers related to new business? Yes. So during the quarter, I know we had a couple of big ones. For a business that actually is launched during this quarter also, so it was definitely brand new. So a good piece of that was for that piece that was launched during the quarter. And actually, when I say that both of them, both the 2 biggest ones were for a business that was launched. 1 was that class 8 truck that we were talking about, which is new program, and the other one was Stuff that is non class 8, but it was a new program also. So both of those do recognize or were both of the majority of the stuff was Definitely for future revenues or new revenues. Okay. And then I think year to date $24,000,000 in Net new business wins in last year was $75,000,000 So that's just shy of $100,000,000 in net new business wins. How much of that has Launched already. So in Q3, it's about $10,000,000 of that Just in Q3 alone. Yeah. That's actually the revenues in Q3 from the launches. So what will happen During these launches is so when I go down my sheet here, you know, majority of those programs have launched in some form, but you know, What will happen is they will take multiple quarters to get up to speed, ramp up to speed in those. And so what we can tell is what we're tracking In Q3, we had about $10,000,000 from new revenues just for that quarter from programs that were out of that 75 and the 24. Okay. So if I annualize the $10,000,000 it's $40,000,000 that would leave an additional $59,000,000 to launch, correct? And what's the timeframe on that? So it will be to be launch or ramp. Like I said, some of these are launched but not ramped. And so again, what we would expect is that they would start ramping through the periods next year Additionally, now again, these were 75,000,000 of and 24 of net new wins when they were won. I'll be cautious on that number like I am on the rest of my business. I don't know what's going on with the Fed and what they're trying to do to slow down business, But I think it will impact all our business eventually from what they said. So I think you would definitely have the ramp and then there are several programs like I'm just going across my sheet here 4, 5, 6, 7 of them that haven't even launched So they'll launch later this year. Actually, some will launch throughout next year as we have. I think my latest one is actually One launches in Q1 of 2025. I mean that's how far some of these programs can get out there just because major OEMs will award those programs That far ahead. Okay. But I'm just thinking about your core business, if it were to decline 10% next year on the current run rate, that's about $40,000,000 There's a potential that the launches of ramps could offset that, right? Yes. Okay. And what's the margin look like on these launches and ramps that are ahead of you? Putting aside, you discussed the issue with the one big program that's having a little some issues. Yes. I mean that's always our goal is to Improving our margins as we move forward, whether that's with a engineered solution or in a different industry or being able to do a conversion from some traditional material. So absolutely, the main goal is to move further into the customer's design cycle and Further integrated in a higher value solution. Okay. Just two more quick questions for you. You were at a conference over And I think you mentioned one large customer you hadn't received the price recovery yet. So have you received the price recovery on the raw materials from all your major customers at this point? Yes, we have. Okay. And then last question just on the raws. Polypropylene, The October pricing looks down about 20% from the average from the 3rd quarter and polyethylene down about 6% from the 3rd quarter average. As raws fall, isn't there a little bit of lag where you'll benefit, just like you're hurt as they go up? Yes. Unfortunately, all material adjusted costs aren't created equal. And we are living through Where we have some that move as fast as monthly, some move quarterly, some move every 6 months. So yeah, we would expect little bit of a lag, but I mean, I will tell you some do move as fast as monthly, that we will change prices monthly, but overall that's what we would expect you get some lag benefit as those prices do fall. Okay. And then just one follow-up on that. Fiberglass, I had read that there's going to be another price increase early next year. Does that impact you or you have that locked in at this point? We are locked on our major fiberglass other than they have a actual Kind of adjuster clause that would move every 6 months and that one's driven more by energy, couple of raw materials that go into it. I can't remember exactly. So for the majority of it is really locked, but you can see probably moves of $0.03, $0.04 per pound just based on that adjuster clause. So that's locked. I will tell you that we're not fully locked and we're seeing that there might be some opportunities in glass otherwise It's actually maybe a little bit lower priced that we might be able to get take advantage of that, some of the stuff coming out of China, Thanks to shipping rates coming down. Those types of things have actually gotten a little bit more beneficial, but I will tell you that We still have majority of our glass comes from North America. We just think that's the better supply chain right now, the more stable Our next question here will come from JP Geygan with Global Value Investment Corporation. Please go ahead. Good morning, gentlemen, and congratulations on a nice quarter. It's obvious to us that your efforts to transform the business are bearing fruit. Thanks, JP. Thanks, JP. I have a couple more strategic questions this morning. Number 1, you've been clear that you're adding new verticals to the business, which Should help dampen some of the cyclicality we've historically seen with the Class 8 truck market. How should we be thinking about End customer demand in these verticals as we're starting to see signs of an economic slowdown? Yeah. I think when we start looking at infrastructure and utilities We're continuing to see an increased demand and there's a lot of excitement around the infrastructure bill and how that's being divvied up. Things like fiber optics and communications have actually been translated just into the state's budget so that the state can then Perform what they need to start launching projects. Some of the other ones on maybe some of the stormwater drains relative to buildings. We might see some, I guess leveling off of that, but right now what we see anything to do with fiber optics And communications, data transmission, and then general infrastructure, we're seeing an increase. Great. All right. You've alluded to discussions that you've had with customers about raw material price escalations and more Maybe more generally about negotiating more fair and balanced terms and conditions. Can you provide some more color on how these talks have progressed And how we should really think about T's and C's in the new contracts that you're announcing such as the contract with UFP? Yes. And again, I'll use the statement again, not all customers are created equal either. And So we do go through the Ts and Cs with different customers. We really understand our different customers. There's just different levels of customer partnership and so some of the What we are looking at is that we will Have a raw material adjuster clause, some type of adjuster clause in every contract going forward. Some will be pretty easy negotiations, some will still be Tough negotiations. You know a person like UFP, again in the thermoplastics area with an index, it's a pretty straightforward conversation and it happened very quickly. And so I think that we'll continue to see that primarily in the thermosplastic areas. The thermostat guys We'll continue to have an RMA clause, but maybe a little bit probably more negotiation. And so as we hit each of those negotiations, I think we've talked, We got several couple more negotiations coming up where we are getting raw materials, but we got new contracts coming up that we're going to Work through those with the customer and then try to make sure that we get probably a little bit more balanced contracts on some of those that maybe historically we were able to get. I think it's a business model and a culture change for some customers. They base their entire business model on set pricing and then Being able to increase their pricing on to the end customer. All right. Thanks for the additional color. Finally, as you begin to offer more solutions oriented or highly engineered products or solutions, How should we expect project level economics to develop over the life of a project and particularly as it relates to project ramp up costs or timing? Yeah. I mean it definitely extends the timing. If you're early in the design phase, it doesn't necessarily extend when we look at the Quote the cash when we look at the net new wins because once they've decided to launch it, it's already you're looking at the tooling at that point, But we definitely have more time and more resources involved being earlier in the design and development cycle. We're doing a lot more validation Federal requirements for loading and relative to the material and the product in itself. And I would assume, but maybe you can confirm that that sort of early engagement really makes these contracts a bit more sticky? Absolutely. I mean, if you're the only one that can provide that solution, I think some of our programs are very, Very clear on that. I mean, we're able to use 2 different processes to optimize the solution when we're the only supplier in the world that has those two Processes to offer that solution. Great. Thanks for taking my questions. Thanks, JP. Thanks, JP. This concludes our question and answer session. I'd like to turn the conference back over to Dave Duvall for any closing remarks. All right. Thank you for your continued interest in our company and we look forward providing an update of our progress when we report 4th quarter results in a few months. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.