Garrett Motion [GTX] Conference call transcript for 2022 q2
2022-07-28 13:08:10
Fiscal: 2022 q2
Operator: Hello, my name is Michelle Fleischer and Iâll be your operator this morning. I would like to welcome everyone to the Garrett Motion Conference Call. This call is being recorded and the replay will be available later today. After the companyâs presentation, there will be a Q&A session. I would now like to hand over the call to Paul Blalock, Garrettâs Vice President of Investor Relations.
Paul Blalock: Thank you, Michelle. Good day, everyone, and welcome. Thank you for joining the Garrett Motionâs Second Quarter 2022 Financial Results Conference Call. Before we begin, Iâd like to mention that todayâs presentation and earnings release are available on the Garrett Motion website at garrettmotion.com, where you will also find links to our SEC filings along with other important information about our company. Turning to Slide 2. We note that this presentation contains forward-looking statements within the meaning of the Securities and Exchange Act. We encourage you to read the risk factors contained in our filings with the SEC, become aware of the risks and uncertainties in our business and understand that forward-looking statements are only estimates of future performance and should be taken as such. The forward-looking statements represent managementâs expectations only as of today, and the company disclaims any obligation to update them. Todayâs presentation also includes non-GAAP measures to describe the way in which we manage and operate our business. We reconcile each of these measures to the most directly comparable GAAP measure and youâre encouraged to examine those reconciliations, which are found in the appendix to both the press release and the slide presentation. Also in todayâs presentation and comments, we may refer to light vehicle diesel and light vehicle gasoline products by using the terms diesel and gasoline only. With us today is Olivier Rabiller, Garrettâs President and Chief Executive Officer; and Sean Deason, Garrettâs Senior Vice President and Chief Financial Officer. I will now hand it over to Olivier.
Olivier Rabiller: Thanks, Paul, and welcome everyone to Garrettâs second quarter 2022 conference call. I will begin my remarks on Slide 3, where we start with highlights for the quarter. During Q2, we continued to experience the impact of the China COVID lockdown that ultimately began to ease mid-quarter. I want to thank again our employees in China and specifically in Shanghai, where we were able to maintain productions through great personal sacrifice during the lockdown period. As the supply chain began to restart in China, we successfully navigated through a series of supply bottleneck experience by our customers and suppliers by flexing our valuable cost structure, while continuing to successfully implement inflation management strategies. The semicon shortage also continued to impact our customers in Q2, but we are beginning to see gradual improvements as we enter Q3. Second quarter of 2022 net sales of $859 million were down 8% on a GAAP basis, mainly due to the weaker euro and were unchanged on a constant currency basis as compared with Q2 last year. This level of constant currency sales growth out basis estimated Q2 global auto production by approximately 600 basis points, demonstrating stronger dollar in demand for our portfolio of products, as well as the ability of garage to pass through inflationary pressures. Q2 adjusted EBITDA was $138 million and the EBITDA margin was 16.1% virtually flat sequentially with Q1, which is notable considering Q2 unit volumes were sequentially lowered by 6%, driven by the factors mentioned above. Compared to Q2 2021, adjusted EBITDA was down $30 million from $168 million half of which was due to foreign exchange driven by a weakening euro and the remainder due to lower volume, while margins still remained above 16%. This is a testimony to the operational strength of the company. More recently, we exited Q2 with stabilizing demand and increasing production currents. As such, we are updating our full year 2022 outlook to reflect higher production and foreign exchange rate changes driven by a weaker euro and maintaining our adjusted EBITDA midpoint and range. While we are keeping our overall outlook unchanged, this means on the constant currency basis that we are increasing our sales outlook because of improving demand and supply chain constraint. The benefit of which unfortunately is offset when adjusted for weakening euro. I should question that why we currently expect some of the ongoing macro issues to improve more challenges may materialize so that additional lockdowns and additional supply chain constraint. All seen considered we remain cautiously optimistic for improvement to production volume in the second half of 2022, while we remain ready to flex our cost structure if needed. Most importantly, Garrettâs ability to consistently generate cash even in difficult times allowed us to significantly reduce leverage for the third constitutive quarter with the Series B prepayment in Q2 resulting in a full redemption of all outstanding shares while maintaining a strong liquidity position for the company. Our net debt to EBITDA coverage ratio now stands at 1.87 down from 2.33 in the second quarter of 2021. This is reflecting substantial deleveraging progress over the last year and represents a key milestone for the company as we work towards normalizing our capital structure. And improving 2022 coupled with expected strong cash flow generation with further improve our financial flexibility and gross prospects, as we continue to accelerate strategic initiatives to bring advanced differentiated new technologies to the transformation of the power train. In summary, Garrett delivered solid Q2 results in a volatile environment that positions us to capitalize on any source upside to the anticipated recovery we expect in the second half. Turning now to Slide 4. The 9% growth at constant currency in gasoline turbo consumed impact of our strong reported win rate and our growing shell of demand. Combine with the fact that 50% of our gasoline wells are related to hybrid platforms, it consumes that our turbo core business is well-positioned to benefit from the growth of hybrids as part of the transition to more electrified power train. In the second quarter, the breadth of garage aftermarket portfolio, the strengths of the brand and our wide distribution network help those to generate 11% growth at constant currency in this high margin business. In parallel, we are also starting to see increased commitment on H2 ICE meaning a hydrogen internal combustion engine, low emission technology and obviously this uses hydrogen as if â combustion engine. And the good thing for us, it requires advanced boosting solution. We will awarded our first H2 ICE program with a major European off-highway OEM. And we are currently supporting over 10 pre-development programs spread across Europe, China, and the U.S. demonstrating a growing number of OEMs as a selected Garrett as their boosting partner for this emerging H2 ICE application. In addition to strengthening our core business, we are investing for sustainable future where we are now devoting more and 50% of our R&D investment into new technology beyond traditional turbocharging. In that regard, Garrett is now also developing a food portfolio of air compressor for H2 or hydrogen fuel cell systems ranging 40 to 250 kilowatt. And you can see the picture on the page, which is the Gen 2 100 kilowatt fuel cell application schedule for startup production in 2023. In Q2, we were awarded as a heavy-duty truck fuel cell compressor application with a major player in China, adding to the progress we have already made in fuel cell applications so far. As we work to strand on the sustainability of the company, not only in our product portfolio, but also in the way we operate. I am pleased to report that Garrett earned the top rating global â globally of A minus from the carbon disclosure of project of CDP for supply chain sustainability engagement. This is a positive recognition for our progress in driving a sustainable future. With that, I will now turn it over to Sean to provide more insights into the results.
Sean Deason: Thanks, Olivier, and welcome, everyone. I will begin my remarks on Slide 5. Looking at the upper left hand graph, youâll see reported net sales for the last six quarters with Q2 2022 at $859 million on a volume of $3.2 million units. As mentioned, volume was driven lower in Q2 due to China lockdowns and the ongoing industry impacts from the semiconductor shortage. Year-over-year, units were lower by 6%. The impact of the partial lockdown in China is also evidenced by the lower proportion of sales this quarter from Asia, falling to 27% from 32% last year. As Olivier mentioned, although Q2 volume was slightly lower, sales were flat at constant currency as the lower volume impact was offset by inflation passthroughs and growth and gasoline turbos. On the right hand side of the page, adjusted EBITDA remained strong at $138 million and the adjusted EBITDA margin of 16.1% was in line with or better than the last two quarters and a solid result in a volatile production environment affected by supply chain disruptions, China lockdowns, and FX headwinds driven by a weaker euro. Lastly, on the bottom left graph, Garrett generated positive adjusted free cash flow of $23 million, despite an increase in working capital due to lower volume, as well as the cash interest associated with the early redemption of the Series B preferred stock. In summary, Q2 results showed Garrettâs ability to manage through the supply chain challenges and deliver robust solid operational performance even under adverse conditions. Turning now to Slide 6. You see our year-over-year net sales bridge for Q2 by product category. In Q2, the continued impact of the ongoing semiconductor shortage and China lockdowns weighed on auto production both inhibiting gasoline growth and enhancing the diesel drop while the China lockdown cycle had a greater impact on commercial vehicles and drove Q2 sales lower than last year by 7% and 13% respectively. Despite those macro challenges, sales of gasoline and aftermarket products showed growth of 9% and 11% respectively. Growth in gasoline products is driven by new program launches and our growing share of demand. We expect strong growth in gasoline products with increasing technology and significant share of demand gains in the future as we continue to sustain a new business win rate of more than 50% on gasoline products. Next, the 11% increase in aftermarket sales was primarily driven by off highway demand in North America and Europe. However, we did experience some headwinds due to the impacts from China lockdown measures. And lastly, the overall FX impact driven mainly by a weaker Euro lowered Q2 2022 sales by $73 million. Without the FX impact, sales were flat with Q2 of last year. Overall, aftermarket in gasoline sales offset the semiconductor and lockdown impacts and demonstrate the benefit of Garrettâs well diversified and broad portfolio of products. Turning now to Slide 7, you see our adjusted EBITDA bridge compared to Q2 last year, when both volume and margins were higher due to the recovery and demand in production following the end of COVID-19 lockdowns and before the biggest impact of the semiconductor shortage in Q3 of 2021. Q2 2022 volumes of 3.2 million units declined 6% versus last year, lowering adjusted EBITDA by $18 million. Inflation pass through net of pricing was $28 million and when combined with improved productivity of $13 million, more than offset commodity, transportation & energy inflation of $32 million as well as increased spending on R&D. Once again, Garrett successfully navigated macro headwinds by adapting to volatile production schedules, delivering improved productivity and passing through inflationary pressures even while increasing investment into new technology, such as R&D spending increasing $5 million from last year as previously mentioned. Lastly, the FX impact on adjusted EBITDA was $15 million, which negatively impacted the margin by 30 basis points. So when you sum up the quarter, the decline in adjusted EBITDA year-over-year is driven by macro headwinds resulting in lower volumes and a weaker Euro. Moving now to Slide 8. You can see our adjusted EBITDA to adjusted free cash flow walk for Q2. Looking at the right hand side of the slide, you will see that Garrettâs high working capital turnover has historically provided a source of cash on an annual basis, assuming a stable or increasing volume in sales environment as it was in Q1 and Q4 of 2020 and then again, in Q1 and Q4 of 2021, following periods of growing volume with a quarterly lag. In Q2 of 2022, working capital was a use of cash of $64 million due to declining volume. As the production environment stabilizes and improves in the second half of 2022, we expect to see improving working capital trends in line with historical patterns. Shifting to the left hand side of the slide, you will see the bridge from adjusted EBITDA to adjusted free cash flow for the quarter, reflecting a positive $23 million of adjusted free cash flow with the largest impact coming from working capital driven by declining volumes, as just mentioned. Cash taxes, capital expenditures, and normal course cash interest all came in as expected, in addition to absorbing the cash interest paid for the Series B early redemption of $17 million. We expect Garrettâs first half use of working capital will be recovered in the second half, assuming an easing of supply chain bottlenecks result in the stabilization and increase in production volumes. Turning now to Slide 9. We ended Q2 2022 with $621 million of total liquidity, even after the final redemption of the Series B preferred balance of $212 million in June. This was the third consecutive quarter of debt reduction and a major simplification of our capital structure with the complete removal of the Series B preferred stock. Net debt to LTM consolidated EBITDA fell to 1.87 times coverage from 2.33 times coverage in Q2 of 2021, driven by the Series B early redemptions over the last three quarters. During the second quarter, we repurchased 157,000 preferred Series A shares leaving $78 million in available capacity under our previously announced equity repurchase program. Lastly, the accumulated Series A preferred dividend is $174 million as of June 30, 2022. And Garrett continues to have the optionality to consider additional capital allocation steps to continue returning capital to shareholders, including the continuation of Series A repurchases or the payment of the Series A dividend in cash once positive industry recovery trends are confirmed. In summary, the accelerated Series B redemption reinforces our commitment to reduce leverage, demonstrating a solid track record of simultaneously generating cash and returning capital to shareholders and is an important milestone along the path to normalizing our capital structure. Moving to Slide 10. On the left hand side of the page, we show how two plus years of supply related bottlenecks have both depleted inventory and built considerable pent up demand for light vehicles. And the industry is poised for sustained growth once macro supply â the macro supply environment normalizes. The most recent S&P forecast of auto production shows a catch up to their pre-COVID forecast by late 2023 and the potential to return to volumes above their pre-COVID forecast by the end of 2024. On the right hand side of the page, you will see the S&P forecast for increasing turbo penetration on gasoline engines, creating a strong long-term secular tailwind for growth in the turbo industry. This growth will be supported by gasoline turbo penetration and will be further enhanced by our expected share of demand gains resulting from Garrettâs strong customer program win rates. As these macro industry trends materialize, when you combine them with Garrettâs book of business that is already greater than 94% contracted through 2024. It clearly positions Garrett for an extended period of sustained growth in the coming years. In summary, first half performance coupled with recently improving trends positions Garrett to reach the upper half of our full year 2022 outlook of supply chain bottlenecks ease faster in the second half of 2022, and also positions the company to realize substantial growth in the coming years as the industry recovers. Moving now to Slide 11. For the full year of 2022, we are updating our outlook to reflect an improving production environment and a weaker Euro, but maintaining the previous adjusted EBITDA range in midpoint. For global auto production, our planning assumption is for 78 million vehicles up from 77 million in our April outlook. Our current estimate is mildly more conservative than the latest S&P estimate as it embeds additional supply related risks and increases in our net sales growth at constant currency from our previous range of plus 1% to 6% growth to now reflect todayâs updated range of plus 5% to 10% growth. Additionally, net income increases slightly due to the new assumption and the range increases to $290 million to $335 million from the previous range of $250 million to $295 million. For FX, we are updating the Euro dollar exchange rate to account for a weaker Euro, moving from â¬1.04 from our previous guidance of $1.08 or from â¬1.06 to $0.98 in the second half of 2022. On R&D, we continue to expect the same 4.8% of sales cadence aligned with our prior outlook. For greater detail, Iâd point you to the reconciliations of each of these metrics to the nearest GAAP figure as shown in the appendix to this presentation. In summary, we are revising our macro assumptions for higher production in a weaker Euro, but maintaining our adjusted EBITDA range in midpoint. Turning now to Slide 12. We show the adjusted EBITDA walk for the prior outlook versus our revised outlook. Importantly, you will see the two comparisons both assume a 2022 adjusted EBITDA midpoint of the range of $560 million with the following changes from our revised outlook, an additional $10 million from volume, an additional $14 million from product mix, price net of inflation passthrough of an additional $7 million offset by $7 million in greater energy inflation and $24 million from a weaker Euro. As Olivier mentioned in the beginning of this presentation, while we are keeping our overall guidance unchanged, it is important to note that on a constant currency basis, we are actually increasing our overall outlook because of improving demand and supply chain constraints. The benefit of which is unfortunately offset when adjusted for weakening Euro. As we noted earlier, we also see significant pent up demand for light vehicles, which we believe will result in sustained growth for Garrett, once supply chain constraints are resolved. In todayâs outlook, we see higher production offsetting the weaker Euro as we continue to successfully pass through inflation. And with that, I will now hand it back to Olivier for his concluding remarks.
Olivier Rabiller: Thank you, Sean. Turning to Slide 13. Garrett delivered solid results in Q2 of 2022 with net sales of $859 million unchanged at constant currency from Q2 last year and outpacing estimated global light vehicle production estimate. We generated $138 million in adjusted EBITDA successfully offsetting inflation FX. We maintain a solid adjusted EBITDA margin of 16.1%, essentially flat with Q1 on lower volume and in an inflationary environment. We continue to target investing 4.8% of sales into R&D with more than 50% dedicated to new technology. As mentioned, we reduce debt for the third consecutive quarter prepaying the final $212 million in the Series B and completing the full repayment while maintaining a strong total liquidity of $621 million, even after the Series B redemption Overall, Iâm very pleased with the solid performance that Garrett had in Q2. This demonstrates the effectiveness of the measures we have put in place to address inflation, while continuing very robust operational execution, adapting to dynamic production environment by flexing our valuable cost structure. Obviously, if supply chain bottlenecks continue to ease faster in the second half, we should see a strong volume recovery leading to improving working capital trends and therefore strong cash generation is second half of 2022. In fact, as Sean discussed on a constant currency basis, we have actually raised guidance, the benefits of which are being unfortunately offset by weaker Euro. I would like to once again, thank our employees for their dedication and residency in a very volatile environment, their contribution and flexibility drove another successful quarter of strong performance for Garrett. Operator, I think that now we are ready to start the Q&A session.
Operator: Our first question comes from Your line is now open.
Unidentified Analyst: Hi, can you hear us? Hello?
Olivier Rabiller: We can hear you.
Brian Sponheimer:. :Sean Deason: So weâre in the market trying to repurchase the Series A, but obviously within parameters dictated by the liquidity and the availability of the shares on the market. But in terms of individual activity I canât really comment on that. We are â obviously, we have a repurchase program in place. And we can do block sales if we so choose, but I think we really need to focus on the industry stabilization and recovery in the second half. Weâre very, very pleased with the redemption of the Series B. We thought that was the right decision. Itâs in a very important milestone to normalize our capital structure. But as we look forward, as I said, itâs really about seeing how things materialize in the second half in particular through September. And weâre hopeful that as we see stabilization and increasing volumes, the working capital recovery and additional EBITDA generation will flow down to our cash flow. And then itâll give us some more optionality.
Brian Sponheimer: I appreciate that. Apart from China, what do you see as the â are there maybe two or three speed bumps that could lie ahead as far as getting back to production levels that are a little bit more normalized in your specific markets? Is it chips? Is it Ukraine? Is it anything else that maybe the market isnât understanding?
Olivier Rabiller: So â this is Olivier speaking. I would say that so far, if you remember in Q1, I was worried a little bit by the potential consequences of the shutdown in China on some elements of the supply chain for the automotive industry. This has so far not materialized to the extent I was fearing, because we are seeing that stabilization in programs from customers. I guess, even if semicon is recovering as the volumes are increasing, there should be obviously still a little bit of uncertainty on that. Iâm less worried about the China lockdown than I was as well lockdowns. Because situation has shown that China was able to manage much better, the latest ones that have happened for the last few months. The only thing that everybody thinks about, especially in Europe is consequences of shortage of energy by the end of the year, beginning of next. But itâs far too early to understand it will be an impact. So overall, quite frankly, today, I mean the stabilization of demand and the fact that there is still a strong pent up demand, thatâs turning the automotive market in something that weâve never seen before, before it was driven by production, now itâs driven by demand and thatâs a unique situation.
Brian Sponheimer: I appreciate the color. Thanks and best of luck for an excellent second half.
Olivier Rabiller: Yes, sure.
Operator: One moment please for our next question. Our next question comes from Chris McIntyre with McIntyre Partnerships. Please go ahead.
Chris McIntyre: Hey guys, is the sound working?
Olivier Rabiller: Yes.
Chris McIntyre: Yes. Good, good. Just on commercial, can you talk a little bit about where you see it trending in the back half? And I donât know if I missed it in the slides, but where was the overall mix on commercial in the first half or how much was it downâ¦
Sean Deason: Yeah, itâs down. Weâre down from a mid-standpoint on commercial vehicle. And then the second half, we see â we didnât actually guide to what we see if weâre commercial in particular, but we do see the volume recovery in the second half, but thatâs going to be driven by smaller gasoline and diesel engines primarily with hopefully commercial staying flattish.
Chris McIntyre: Okay. Got it. All right. And then your customer win rates, like, youâve been talking about how youâre over 50 and remind me like three years ago you were talking about over 40%, is that right?
Olivier Rabiller: We are talking about 50% over 60%.
Chris McIntyre: Yes. But you have been previously talking about over 40, I was just trying to get a sense for like how you guys are thinking, youâve historically guided to 400 to 800bps, letâs say, above market performance, right, and done quite well. And so I was kind of thinking, like, where are you thinking about your current win rates projected out a couple years? Is it thinking that range should be moved up over time orâ¦
Olivier Rabiller: I think we are very pleased with the win rate we have, we said over 50%. I think we said that also in Q1. Because we know, there is no â itâs difficult to have a direct formulas that would give you exactly the cell demand from there, because there are some programs that are smaller, some program bigger as they materialize some considerations, some programs that are adding a longer life. But all in all, what we know is that when we win at this level, weâre increasing our cell demand. And by consistently winning at this level, weâve shown the direct impact on our cell demand increasing. And you see that in the other industry growth rate that we have. So itâs a little bit of â comparison, but the above 50% enables us to increase our cell demand and thatâs why we are monitoring that very closely. And we are very pleased with seeing that what we think about it, itâs translating into numbers, which is the primary point for us, and we are not seeing that trendto change in the future. Q - Chris McIntyre Okay, great. And then one final question. On R&D, should we expect that number to sort of stay flat as you ramp or you expecting to, I say, itâs got better, try to keep it closer to 5% going forward.
Olivier Rabiller: Well, I think with where we are today, we are quite happy currently. We have enough to do what we want to do, because we are benefiting, as we said before, from and as of trend, itâs not only that the revenue of the company is growing. And therefore, if you have a certain percentage, itâs more driven at the end of the day, you can spend on RD&E, is that the intensity of our RD&E effort on our core business is going down not so much that we trim that down is just that the engine programs are getting bigger and bigger. And since the RD&E you spend is a function of the number of programs you get, if for a certain volume, you develop less programs, you need less RD&E on the car business. Thatâs specific to the turbo industry, which is very good for us because this is what has enabled us to channel significant amount of money to add new growth vectors, new things that we do outside of the car business. And quite frankly, this is really the result, partly of the slight increase we add in RD&E spend as a percentage, the revenue increase of the company, but even more importantly of the decrease weâve seen in RD&E intensity for the car business. Without by the way, sacrificing any advance or any push we do on the car business, which is important to keep in mind. We are planning I mean, this is a great industry, the turbo industry, and we are not planning to decrease ours efforts down.
Unidentified Analyst: Okay, great. Thanks. Can we â do we have the operator?
Operator: I apologize. There was an issue there. I do apologize. And now our next question comes from Hamed with BWS Financial. Your line is open.
Hamed Khorsand: Hi, good morning. So the â just wanted to start off with the return of business or production in China. Were you able to meet that demand with inventory that was already built or did you have to start ramping up production and how much ramp up cost was there in doing so?
Olivier Rabiller: Thatâs a great question, Hamed. What we have done in fact has been â weâve been able to maintain a significant portion of our employees into the factory in Shanghai for the entire lockdown. So weâve been producing at quite of a high rate compared to the capacity of the site during the entire lockdown. So we did not start from a cold position there. We kept on producing during the lockdown easy can trade. At the same time, the lockdown was only as a team Shanghai if you look at the volume we have in China Yuan represents more than 50% of what we do there in term of volume. So when the lockdown as is at the end, we were already running. So we did not have â we were not relying on inventory that wouldâve been very dangerous to rely on inventory for two months lockdown. And we did not explain, I mean we had a friction cost, as you can imagine, organizing a few emergency shipments as part of the lockdown, but itâs not like we had the super big start up cost to restart all operations again.
Hamed Khorsand: Okay. And then as far as sales are concerned, the â your slides, youâre talking about contracted revenue for 2022, 2023 and 2024, is that on a capacity basis or is that predetermined pricing per unit?
Sean Deason: No, that, that is booked business. The prices are set because we quoted, we won the business and really, and that business comes online. And the point is, itâs all about the volume. If this volume of the industry comes back, weâre 94% certain the â of the revenues associated with that volume.
Olivier Rabiller: So there is something important to keep in mind for Garrett is that when you look at our revenue forecast four years, five years out, we tend to be very consistent with something we explained that five years out. We have two-third of the oil business, and then you can add the aftermarket business on top.
,: The only unknown we have in this industry is the impact of the macros and potentially sometime the model success of our customers. On the volume that weâre part of those contracts, but all the rest is preset, I mean, which puts us in a position where we have a very high visibility on the long run, long range volume forecast of the company, and thatâs the only uncertainty being driven by macros and thatâs the reason why weâre spending so many efforts at keeping the fixed cost as valuable as possible, so thatâs the company is set in a way that you can absorb as best as you can the macroeconomic valuation.
Hamed Khorsand: And could you just talk about the macro given that the â what weâve seen with supply chain, but if you look forward, itâs now the macros turning into more of a demand question, uncertainty and how well prepared do you think the industry as the OEMs are for consumer demand, not showing up as much as reports and estimate suggest, and how prepared are you to for the any kind of variability that could create.
Olivier Rabiller: First of all, letâs start with macros. What we see is that usually in this automotive industry, it has been supply driven â demand driven, sorry. In the sense that customers who are pushing sales, our customer were pushing sales and people buying cars where eyes are buying or not buying. This market is changing because today we are constrained on the production side. So customers are buying whatever the car makers are able to produce. And in the deck, the small graph we add on the Slide number 10 is showing that we have accumulated of over the last two years, an enormous amount of pent-up demand because on a regular basis the light vechicle production around the world is between 90 million to 95 million units. But weâve been as low as 74 million units in 2020, 77 million last year and our forecast says 78 million this year. So if you compare to 95 million, we have accumulated massive gap between the needs of the customers and what the industry was able to supply. And to our point about pent-up demand, since we know that semicon constraint will not ease before mid-2024, it means that the automotive industry will stay supply constraint at least up to 2024, which is a very specific situation that this industry has never been into â to getting into that supply constraint for a long amount of time. So today, we are thinking that and we are not the only one. I mean we are into a very specific position that in the past, we wouldâve looked at customer demand as being the real way to look at the future of the volume of this industry. And right now, we are more looking at supply constraints. So even if you reduce supply or demand by 5%, thatâs what it could use otherwise thatâs not enough to impact the backlog that has been accumulated for the last two, three years. So if obviously everythingâs crashing, but quite frankly, thatâs not the scenario we are looking at, and we are looking at the automotive industry is change stronger, even if there is a potentially a crisis thatâs impacting the rest of the economy.
Hamed Khorsand: Okay. Thank you.
Operator: At this time, there are no more questions. This concludes todayâs conference call. Thank you for participating. You may now disconnect.
