NN, Inc.
Q2 2018 Earnings Call Transcript

Published: 12 Aug 2018

[Operator:]

Good day and welcome to the NN, Inc. Second Quarter 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Paul Taylor. Please go ahead.

[Paul Taylor:]

Thank you, operator. Good morning, everyone, and thanks for joining us. I'm Paul Taylor, Vice President of Marketing and Investor Relations. I would like to welcome you to NN's Second Quarter 2018 Earnings Conference Call. Our presenters this morning are President and Chief Executive Officer, Rich Holder; and Senior Vice President and Chief Financial Officer, Tom Burwell. If anyone needs a copy of the press release or the supplemental presentation, please contact Abernathy McGregor at 212-371-5999, and we will be happy to send you a copy. Before we begin, I would like to ask you to take note of the cautionary language regarding forward-looking statements contained in today's press release, supplemental presentation and in the Risk Factors section in the Company's 10-K for the year ended December 31, 2017. 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, foreign exchange rates, cash flow, tax rate, acquisitions, synergies, future operating results, performance of our worldwide market 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 the supplemental presentation. First, we will give an update and an overview of the second quarter. Then afterwards, we will open up the line for questions. With that said, Rich, I will turn the call over to you.

[Richard Holder:]

Thanks, Paul. Good morning, everyone, and welcome to our Q2 call. As usual, I will go through the highlights, Tom will then take you through the financials and the specific segment financials and then we will provide guidance and open it up for questions. Just maybe one administrative note if you can take Page 9 on the deck and move to the last page the summary will be the last page on the deck. With that let me jump right into the highlights for Q2 2018; our sales were 196.3 million this was 38.4 million or 24% sales growth; it was largely driven by the acquisition of Paragon and we also continue to display our appropriate organic growth as a part of that growth number. From an adjusted EBITDA perspective we will have 36.3 million I will tell you that our operating performance in the quarter was as expected, the business continues to execute as we expect, but I will also provide some note that our acquired businesses that would be DRT, Bridgemedica and Paragon are still performing at three synergy margins and so we still have work to do and we are very excited and satisfied with the operating performance of the business. Our adjusted diluted earnings per share $0.38 which is $0.06 high than the prior year. Off note, this has impacted to the tune of $0.03 to $0.05 of headwinds between new program startups of a unplanned new program startups and the impact on the foreign earnings tax that continues to accelerate and we will talk about that a little bit when Tom gives his portion of the financials. With the closing of Paragon the redeployment of proceeds from the PBC divestiture is complete, we are excited to say that we have strengthened our technical capabilities and expanded our product offering not only in the Life Sciences space, but also in the aero space and defense space. I think you may have seen a press release from us earlier this month around the enhanced technical ability within that space. The Paragon is proceeding as expected, everything is on track and on time. So we feel pretty good about that. As we move down through the commentary around mobile solutions. We continue to make multi-year investment in the growth of that business right and that has impacted us to the tune of about $0.03 to $0.035 in the quarter. The way you should think about this holistically is on a normal year basis, we launch about five programs within that business. This year, we are launching 13 programs within that business. So said another way what we are doing is essentially refreshing almost one-third of that enterprise through 2022 to 2023, so we look at this as an extremely positive thing for the business going forward. As you turn to Page 3. Again, adjusted earnings per share at $0.38 again, the impact of $0.3 to $0.5 between mid-program startup and foreign earnings tax are better known as I guess the Guilty Tax impact. Net sales of 196.3 again I talk to this earlier 24% growth compared to prior year, so the enterprise continues to function from a top-line perspective as we expect. As we move over to Page 4, gross margin of 24.3 compared to 27.5 in the previous year, the way to think through that is this you eliminate the impact of M&A cost, margins, new program investments on a relative basis our gross margin should be about 28%, so that is kind of what you should look forward to going as you think about the center price performance going forward. Adjusted margin at 12.6, which is up year-on-year. If we move over to Page 5, from an EBITDA perspective again where EBITDA of 18.5 compared to 18.7 in 2017. Again, you see the effects of the headwinds most normally of the investments and to a lesser extent the foreign tax impact. SG&A at 26.6 this just includes the 6 million of integration transition expense as well as 2 million been added from acquisitions. The way to think about this going forward is SG&A will be about between let’s call it 10% and 12% of sales are on a normal run rate basis not that we have settled the enterprise for those of you who are modeling. I think that is the right way to think about it. As we move to Page 6, I will turn it over to Tom to talk about the segments.

[Thomas Burwell:]

Thank you, Rich and good morning. I will take a moment to remind everyone. We implemented a new enterprise reporting and management structure to more closely align our segments with our vertical end markets. There was an 8-K that was filed this morning that has the recap that historical financial information that incorporates in these segment structure. This will provide information on the full-year 2016 and each of quarter of 2017 to get an idea of historically how the segment has operated compared to the current quarter and prospectively moving forward. Now turning specifically to the segments within the Life Sciences segment, we get a first look at the newly constituted Life Sciences segment inclusive of Paragon. Now it is important to note the Q2 does not include an entire quarter of Paragon it only includes from May 7th to-date which we owned it, so roughly 60% of a full quarter. The growth in the quarter was driven primarily by the acquisition of Paragon, and even within the acquisitive numbers Paragon has been growing about 10% - more than 10% of organic sales growth in their comparative periods to the prior year. So they had really good and they have actually grown at a higher rate than originally expected when we put Q2 together. But even beyond the acquisition of Paragon, we continue to see growth with our largest customers within the segment of the expected growth rates of between 8% to 10%, partially offset by the end of the program on a large drug delivery program in that southern market. Turning to the operating margin as the sales growth was experienced primarily with the acquisitions, the cost associated with those sales are fully absorbed costs as opposed to an incremental cost. So, that is why the margins are slightly down year-over-year. It is also important to note that we are comparing a pre-synergy Paragon to a post synergy and fully integrated PDP business, Life Sciences business, because at the time 2017 we had owned the PDP business for almost two years. The operating results as a new - Life Science and as we expect in fact they are better than we expected going into the quarter and that continue to improve over the next several quarters as we realize synergies and improve the operating performance of the work to the mid-20 level post synergies. Turning to Page 7 the mobile solutions segment the mobile solutions group continues to see sales and cap a portion of the automotive markets globally. It is important to note that very little of the large new multi-year sales programs that Rich is included in our sales in Q2. These programs are expecting to really start to exceed sales from those in late Q4 and into the first half of the next year and as Rich mentioned, we really are refreshing approximately a third of the Company's sales and investing in programs that will pay returns for the next five to seven years. Turning to the operating margins. The segment continues to be impacted by the operating expense impact of investments for these new multi-year sales programs. The segment as Rich mentioned is essentially starting out double the amount of new sales wins within a typical year, and these new program start up costs could be lumpy in part because they are dependent on customer timelines and customer actions. And in general the level of spending is not different than what we expected through the continuum of time, it’s just different in the timing in which it happened and in some cases has been go forward from later quarters. Turning to Slide 8, the power solutions division continues to grow as expected. The growth in both the electrical end market and also the aerospace market, as we continue to ramp-up growth and start production programs or sales programs in our aerospace end market. We are nearing completion of our West Coast aerospace plan and are working on developing and our East Coast aerospace plant and that should be ready by the end of the year. The adjusted operating margin shows improvement year-over-year due in part to the flex productivity, on the additional sales volumes within that segments. And also operational improvements that have been made by the leadership team of the newly constituted segment from the beginning of the year. Turning to the guidance for the third quarter. As mentioned in my comments in the Life Sciences in Q2 we are really only seeing about 60% of the sales and operating impacts of the Paragon group fourth quarter. In Q3 we see the first full quarterly guidance of Paragon. So the sales reflect the full quarter of Paragon plus some planned sales increases from start-up production within the quarter. Margins continuing to improve both from the acquisition of Paragon compared to our regular base business. There margins are higher than the average margin within NN and for the flex productivity on the sales growth. Turning to the full-year guidance on Page 11. That is important to note we are holding our guidance for the entire year in sales and operating margin and then on the EPS basis as Rich mentioned we are seeing continual impacts from the foreign earnings or new Guilty Tax as we learn more about the tax and the IRS publishes more regulations on this. And we have re-done the calculations, we believe we will incur some additional cost on this and it's reflected in our effective tax rate for the quarter and going forward. Additionally, we have included an impact from Paragon and therefore in operations. So with that, I will turn it back over to Rich to conclusion.

[Richard Holder:]

Great, thanks Tom. So in summary, sales growth operates sums in the quarter is as expected, program launches synergy, programs the enterprise is running as we expected, and so we feel good about the quarter. The Paragon acquisition is on track and performing as expected, fundamentally their underlying growth rate is actually a bit better than we had planned so we feel pretty good about that. The investment in new multi-year programs continue, I cannot stress this enough. This is a strategic move on our part and we feel that is a wise move to refresh the enterprise at this point in time when you think through our mobile solutions business that business will see very little CapEx on a comparative basis in 2019 and 2020 and it will see very little turnover and attrition on a comparative basis in 2019 through 2022. So we have thought it was the right thing to do and we continue to drive those investments for the longer term good of the business. As Tom mentioned, we have maintained our 2018 guidance in spite of having I will say find another $0.05 or lose the efficiency of another $0.05 on EPS simply because as we get more clarity on foreign earnings tax. So you can take the application and what EPS should have been from there. With that, I will open the lines for questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Rob Brown with Lake Street Capital Markets.

[Robert Brown:]

Just on mobile solutions programs, could you give a little bit more color on kind of what types of programs are ramping geographies and end markets?

[Thomas Burwell:]

Yes. So programs we are actually ramping is all of our geographies. We have new programs in Brazil. We have new programs on North America. We have quite a bit of new programs in Asia and certainly in Europe, our single biggest program is actually in Europe and requiring a substantial footprint increase, so we are actually adding a significant amount of square footage to our plant in France. This is a big program, it’s very strategically connected to one of the larger manufactured OEMs in Europe and it will solidify over their kind go forward fuel system partner and steering partner well into the future and well beyond even these programs.

[Robert Brown:]

And then on the Paragon acquisition, I know that you have kind of got in there and what are you seeing in terms of revenue synergy potential and are you tracking there and getting some of the synergies that you wanted?

[Thomas Burwell:]

Yes. So maybe a couple of things on that. Number one, we typically don't justify an acquisition of the top line, when we look at our synergy number that 33 million of that we gave you, that wasn’t the top line related synergy, so that is number one. Number two, the types of synergies and the ability to provide sort of holistic engineered solutions into the space are definitely there, we have validated our assumptions in a big way, customers have come to us and provided additional validation that these are the solutions that they are looking for the design capability and holistic sort of supply base partnering concept that we put out there. Number three, let me just point out, Paragon is an outstanding acquisition, it comes with great talent and great performance, but the right way to think about this is a holistic acquisition. So when we provide a solution to the marketplace, it is an engineered solution that comes from the Bridgemedica piece of the equation, it is a manufacturing equation that comes from the Paragon, it is a testing and regulatory piece that comes from the OPP. So this is the entire construct that we have been working on coming together to provide holistic solutions unlike any other marketplace.

[Robert Brown:]

Okay. Thank you. I will turn it over.

[Operator:]

Thank you. Our next question comes from Daniel Moore with CJS Securities.

[Daniel Moore:]

The Life Sciences, you just kind of following up on the question of synergies, any sense for what type of range or how much of the 33 million synergies that you expect by 2020, are likely to be realized in 2019?

[Richard Holder:]

So, we would expect by 2020 to be realized to 2019. The lion share of the synergies will be realized by the end of 2019 I think we will have 8 million to 10 million kind of floating over into 2020, so that is probably the right way to think about it if you are modeling it.

[Thomas Burwell:]

There is a timing Dan when its realized and then you will see it reflected in the mix rolling 12 months financials.

[Daniel Moore:]

Indeed and then Rich you mentioned 10% to 12% SG&A the right way think about it is that more - can we get down to 12% that a go forward to 2019 or more of the 2020 and beyond once the full synergies are realized?

[Richard Holder:]

I think you are thinking as we are thinking about that number in 2019.

[Daniel Moore:]

Got it. very helpful. And then touched on mobile solutions of the 13 new programs this year, how many of those would you say are replacing existing programs and how much how many of those are fully incremental to growth going forward?

[Richard Holder:]

Roughly and this is never a one-to-one because you have biometric challenges and programs that are ramping down in life cycles and all those things, but at a high level I think you should think about roughly five to six of those programs are replacements and again this is not the exact one-to-one replacement, but holistically from a revenue perspective, let's say 5% to 6% of replacement is combined from incremental. Secondly the program that I talked about in Europe is an entirely incremental program.

[Daniel Moore:]

Perfect and lastly from me, I think the most critically the free cash flow guidance for the full-year unchanged. H2 is always typically stronger, but it does imply a big uptick in cash generation. So are you anticipating any working capital benefit in those projections just your kind of update on your confidence there and thanks for the color?

[Thomas Burwell:]

Yes, no working capital we don’t anticipate any new working capital improvements and we are always and look to improve working capital as part of our Indian OS operating system, but pretty much what is going on there is a lot of the investments we have made in CapEx for these new programs is beginning to take off certainly we have made the lion’s share of them through Q1 and Q2. We won't see as much CapEx investments in the second half of the year.

[Daniel Moore:]

Got it. Thank you again.

[Operator:]

Thank you. Our next question comes from Charles Brady with SunTrust.

[Charles Brady:]

I'm wondering if you can just give us - I'm sorry if I miss this in the release or going out, but the organic growth rates excluding M&A excluding FX for across the segments and for the organization as a whole?

[Richard Holder:]

Yes It was roughly mid-single digits, it was running about 6% sequentially.

[Charles Brady:]

6% so it grew organically 6% year-on-year or on sequencing from Q1?

[Richard Holder:]

Sequentially in Q1 at the end of the…

[Charles Brady:]

I thought the year-over-year organic growth rate are normally driving that.

[Richard Holder:]

I'm sorry say that again.

[Charles Brady:]

I’m really trying to get the year-over-year organic growth rates for each of the three segments and the entire company excess tax, ex.-M&A.

[Richard Holder:]

I think the way to think about the entire Company is roughly let’s call it 7% year-over-year on a purely organic basis. I can walk through the segments like mobile on a net basis roughly about 5% give or take more. Life Sciences is high single-digit. The way we have planned out right now. And power solution is about 7% or 8%.

[Charles Brady:]

And this figures are for Q2 or is this you are telling me what your play is for the year, I guess I’m not clear on what you are saying?

[Richard Holder:]

I’m sorry I thought you were asking the plan for the year.

[Charles Brady:]

No, no that was coming up, so I mean we kind of did that one first, but yes if you have the actual figures for Q2 that would be helpful as well?

[Richard Holder:]

Why don’t we recalculate it and get that, we don’t have that figure sitting in front of us in our segment right now.

[Charles Brady:]

We will get offline, that’s fine. And just on the mobile business, the spending it sounds like the total number or mix dollars for the year unchanged stuff got pulled into Q2, obviously going to hit in Q3 and Q4, so was that implies that margin from a standpoint second half margins in mobile we ought to see a decent size tick up in that correct?

[Richard Holder:]

I think that is fair to say, Tom indicated the spending itself the investment itself is lumpy if we did the fair amount of spending that we spoke to the left certainly in Q2 and so when you think about certainly from capital perspective, there is significantly less spending going on in the second half of the year.

[Charles Brady:]

Great. Just one more for me. You have had yourself embedded I guess in two locations at a major customer now in terms of really being inside of their own walls. is the second one if you remind us, is the second site is it up in running right now and what sort of benefits you are really seeing on being sort of embedded in that customer?

[Richard Holder:]

So answer to number one is, yes it’s up and running, it’s not as full tilt, we are still putting equipment in and putting headcount in, but it is up and running and candidly the benefit that we are seeing getting from that is really, really early looks on new program, combined with the ability to sell engineering services on some programs that sometimes don’t even make it to fruition.

[Charles Brady:]

Understood. Great. Thank you for the color.

[Operator:]

Thank you. Our next question comes from Michael Hernandez with Stifel.

[Unidentified Analyst:]

Hi, it’s actually [indiscernible] thank you guys for getting me in. A quick question on CapEx spend in terms of what you are talking about on the mobile side, was that being pulled ahead and the programs and the platform being through let’s call it 2021ish does that imply that your CapEx as a percent of sales, we should think about that as going down in the out years meaning free cash flow could and should accelerate from where we are?

[Richard Holder:]

That is correct.

[Unidentified Analyst:]

And what would be a good kind of rule of thumb or ballpark number that we should think about CapEx and the percent of sales would there will be these investment that already haven’t taken place?

[Thomas Burwell:]

And when we talked about between 5% and 6% of sales on average once we expect pass this investment period and as I mentioned in my earlier comments really the lion’s share of the bulk of the CapEx has been made in the first half of the year of the program.

[Unidentified Analyst:]

Perfect. And then on the SG&A comment, the big [indiscernible] kind of 10 to 12 by next year and then 28% margin and that is basically saying 16% to 18% margins, in the next year which would - is that a pretty good acceleration pretty equipped is that the right way to think about it, or am I being too aggressive on these assumptions.

[Richard Holder:]

Yes. I think you probably a little too aggressive in those functions.

[Thomas Burwell:]

And this is some of the depreciation too. But as we said we are going to call out the depreciation cost or so.

[Unidentified Analyst:]

Yes okay, perfect. And then lastly for me, could you talk a little bit about what is happening in the power business that has a nice margins gain here. Is that mix, is it something you are doing on supply chain side or is it new customer wins really anything to help flush it out.

[Richard Holder:]

Yes. I would tell it is probably - I mean we have had some nice customer wins that have come online and so these are the wins and the work that we talked about two calls ago that are now we are shipping products and that margin [Technical Difficulty] that is certainly one of them. The other one is the newly meant management team are getting their operation in line and it’s for the applications of the NN operating system and the discipline around everything related to flex productivity alike our starting to pay dividends and so you see the improvement rising on to the business.

[Unidentified Analyst:]

Great, guys. Thank you.

[Operator:]

Thank you. Our next question comes from Brian Colley with Stephens.

[Brian Colley:]

So Kind of as you have talked to your customers following the Paragon acquisition where do you feel like the customers are most excited, where are the product lines and geographies where the customers are maybe pushing from what capacity and then also just curious it's across the different segments kind of what the new business pipeline or how that is evolved over the past quarter?

[Richard Holder:]

Okay. Let me say I will take that the different pieces. From the customer acceptance perspective and a customer segment perspective, I will tell you we are getting it kind of from all sides our customers whether they would be the large OEMs that we all know in love or the smaller more tactical start ups they are extremely excited to be able to partner with us given the holistic solutions or solutions that we have brought online. And so that is part of it is going actually I feel very safe to say a lot better than we actually though it would go. I think the second piece of it is the request, certainly in the delivery system side of the market, we are getting a lot of discussion around capacity expansion and that is an around the world request, so that is coming as much in our China plant and our Polis plant as it is in our U.S. plants. And so uniformly I think this space seems to be performing really well and we are well positioned to continue to grow in the space maybe faster than we even thought or we even had in the plan. With that said, there is still always a timing increment around how quickly you can spin-up some of these things. What we are doing initially is we have our NN operating system people inline and so we are going through a significant lien efforts across all the facilities in order to immediately free up on capacities through leaning out the factory and then turning to kind of planning through the CapEx model and what we need to do from that perspective. I think the third piece was the industry in general. I think you can see from all the economics and all the data that is published. The industry is doing quite well. Alright this is an industry that in the course of the last 10 years has never contracted, it’s only ever slowed in growth would be the worst thing you could say and so I think right now there is a lot of new products being launched. We are in some way shape or form on board with all of those products with just about all the customers. So we think we have put together a portfolio in this space that is really, really well positioned, we certainly have great people and we have great leadership and so we are feeling really confident about it.

[Brian Colley:]

Got it. That is really helpful. And just thinking about kind of margins and how they progress and to the end of the year there are some lumpiness with the program launches, but I'm just curious how we should think about the margin run rate by segment exiting 2018?

[Richard Holder:]

Yes. I guess I would direct you back to like in the case of Life Sciences, if you look at our post synergy kind of PEP numbers those and it’s kind of what you should expect that and a little bit more in the long-term run basis, so when you look at the numbers going forward. We are simply saying that we think we will have this business operating towards the end of the year around 13% kind of operating margin, the Corporation will pick up another 0.1, 0.5 going in 2019. As far as breaking it down into the segments. I would just refer you back to kind of historical run rates that we published based on the post synergy basis on the [indiscernible] numbers.

[Brian Colley:]

Okay, got you. And then lastly I just want to ask about CAF related revenue and how that trended in the second quarter and then kind of what is your expectation for that business over the remainder of the year?

[Richard Holder:]

So that business continues to trend on a net basis kind of the mid single-digits, kind of space we are not actually seeing any real softness in that market whatsoever. So from a CAFE perspective we think the business is a strong as we thought it was coming into the year and we are launching new programs in that space. So certainly in Asia that it is experiencing even better than normal growth. So, space is solid. We have almost no non-CAFE business I can’t really comment on that one.

[Brian Colley:]

Alright. Well I appreciate the comments there.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from Steve Barger with KeyBanc Capital.

[Steve Barger:]

You alluded to this already, but now that you have a team in the portfolio that you want, where are you in the process of training and incentivizing your customer facing teams, and just has the message of the new value proposition been pushed down in organization so people understand that a level that you want?

[Richard Holder:]

Yes, so I think we have done a really good job of teeing that up to the organization so far, but I would say we are not where we want to be yet relative to the entire frontend of the organization. We have a number of training programs and a number of exercises planned over the course of the next two quarters to get that done. Additionally, we actually have a worldwide training plan for January where literally, we will be bringing in the entire frontend of the other organization and three levels of management to drive all of these things straight through the organization, and given that we are now settled in our portfolio that will capture everybody. And then we are making an alteration to our on-boarding plan that will capture any new people coming into the organization. So it's a work in progress, we will probably get there around first quarter of next year to have everyone done. But certainly we are touching the strategic account managers , they have been trained across the board of the organization, we are touching our sales guys out front, we have a combination of geography and customer facing people, so they have been bombard obviously with the appropriate literature and the appropriate training. I would say we are in the space right now where everyone is wise enough to know who to call even though they can't pitch themselves.

[Steve Barger:]

Right. So that is good and I guess to follow-on to that you talked about having the NN operating team in place that help lien out the factories. Are you personally now able to spend more time out talking to customers. Just trying to get a sense for how fast you and the team can go after a higher growth, higher margin opportunities to really start to shift the mix in a positive way.

[Richard Holder:]

Yes so for sure that is what is going on now. As I have an entire week at the end of this month dedicated to going out and I have been in customer discussions, I actually haven't been able to do that in quite some time. So certainly as the new segment leaders takeover the operation as we become much more stable in our day-to-day operation, my job is changing a little bit right, I’m moving quickly to becoming a sales guy.

[Steve Barger:]

Good. And thinking about pricing, can you talk about the process you have in place to make sure customers understand what you bring. So you are making sure you are capturing your first share of that value?

[Richard Holder:]

Yes. So we have built a fairly robust pricing model that is flexible in nature. So when we are having a services conversation, it's reflective of that conversations, if we are having a purely manufacturing conversation its reflective of that more often than not most of our conversations right now are hybrid conversations where we have design, engineer services and manufacturing as a part of it. I will tell you that the model is robust, the training on the model is ongoing. So we are probably a little inefficient in that because we now have to run it through the handful of people who know how to interpret with it and so we don’t make any mistakes out in the field. But more and more everyday its getting embedded in the organization. Bu the model itself is there and it's slightly different in Life Sciences than it is in the other businesses, because they have the same under base, but they have all been tweaked to the individual business and the solutions that they can bring. We also have a model that goes across businesses, because there are some opportunity to do that as well.

[Steve Barger:]

So fair to say as you look forward into 2019 and 2020 as this pricing model gets I guess perfected that you can drive to upside to whatever organic growth - volume growth that you are expecting because of more efficient pricing program?

[Richard Holder:]

Yes and so I think we feel at this point in time that with the portfolio in the solution set that we have, that maybe for the first time in the organization may be even history that the opportunity to capture price in 2019 exists. I think it’s fair to say we are still working through what that looks like. But certainly we don't think it's zero as it has been for the last five years.

[Steve Barger:]

Got it. Alright thank you.

[Operator:]

Thank you. Our next question comes from Charles Brady.

[Charles Brady:]

Two follow-ups for me real quick on mobile in 2Q, I’m just wondering relative to what your plan was going in before you saw the acceleration of these programs and they are require additional startup, kind of what the expectation for margin would have been, I’m trying to get basically how much of the margin ding did you get because you had accelerated and pull forward some of the cost in the second half into Q2?

[Richard Holder:]

Well quick calculations probably close to 1.5, two points.

[Charlie Brady:]

Okay that is helpful. And then last one from me, on tax rates, I just want to make sure I understand - your expectation I guess is for average rate for the year is somewhere I guess in the low to mid-20s, you are tracking a good bit below that first half, so it’s just a function of second half we should see tick back up. I’m just trying to square up a full-year rate expectation with second half relative to where we already done in the first half?

[Thomas Burwell:]

Yes. Again we model in the forecast and the guide at kind of low 20s rate, some of that includes the new Guilty Tax coming through in the last two quarters of the year. And the current rates modeled in due to first two months or first two quarters right around 18%, 19%, some of it has to mix we are earning money around the globe?

[Charlie Brady:]

So 18%, 19% first half full-year, low 20s to kind of a mid 20 second half rate in the ballpark?

[Thomas Burwell:]

Kind of low 20 second half. Yes.

[Charlie Brady:]

Got you. Thank you.

[Operator:]

Thank you. Our next question comes from [indiscernible] with Gabelli.

[Unidentified Analyst:]

Hey Just wanted to ask with the recent strength in stock or just any evolution in your guide thinking about maybe strategic actions on your part potential accelerate delevering plans for the business?

[Richard Holder:]

Yes, it’s a great question. I don’t think we are in a position to comment on that. I would simply say we are always looking at the marketplace and our situation and looking to do the appropriate thing on the shareholder behalf.

[Unidentified Analyst:]

Okay. Great, thank you.

[Richard Holder:]

Okay. Thank you very much for joining us on the call. You know how to get hold of us. If you want to dig any deeper Paul will be available and thank you. With that we will bring to the call to an end.

[Operator:]

Thank you. Ladies and gentlemen, this conclude today's presentation. You may now disconnect.