Q2 2020 Earnings Call
Again.
Thank you Josh good morning, everyone and welcome to Meritor second quarter 2020 earnings call.
On the call today, we have Jay Craig CEO, and President Carl Anderson, Senior Vice President and Chief Financial Officer.
And Chris Spillover, Ryan Executive Vice President and Chief.
Operating officer, all of whom will be available for questions. Following the call.
The slides accompanying today's call are available at Mary.
For toward outcome will refer to the slides in our discussion this morning.
The contents of this conference call, which were recording is the property of Meritor Inc.
It is protected by us and international copyright law and May not be rebroadcast without the express written consent of meritor.
We consider your can.
Continued participation and to be or consent.
To our recording.
Our discussion may contain forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
Let me now refer you to slide two for a more complete disclosure of the risk.
Is that could affect our results.
To the extent, we referred to any non-GAAP measures in our call you'll find a reconciliation to GAAP in the slides on our website now I'll turn the call over to Jay.
Okay. Thanks.
Morning.
To begin by expressing my thanks to our meritor employees for their dedication and hard work as we take on the challenges.
As we face today.
As part of an essential business Meritor employees remain committed to supporting the took delivery of medical food and other critical products for our communities around the world.
I also want to.
So express my thanks to the frontline workers that meritorious had the privilege to support and the fight against Covance nine.
The team.
I will now spend just a couple of minutes talking about the second quarter fulfilled before providing an update on the status of the business today in light of Copas 19.
Let's turn to slide three.
The company was performing extremely well before the pandemic began to impact production first in China. We again beginning in mid January then throughout the rest of the world beginning late in the second quarter and continuing into the third.
Carl.
We'll share more detail, but here you can see the highlights from the quarter.
Sales were down 285.
For tax income associated with the termination of the distribution arrangement with Wabco.
Our liquidity position at the end of the second quarter was $829 million.
This represents approximately 20% of our trailing 12 month sales.
Cash on the balance sheet was $508 million. Thanks.
We have access to the remaining 321.
$10 million of availability under our revolving credit facility and expect to be in compliance with our covenants under this facility for the remainder of the year.
Although it is still early to accurately forecast the extent of that Pandemics impact on the industry. The strong foundation, we built over.
For the past several years will provide advantages as we work through this crisis.
Let's go to <unk>.
Slide four.
As we bring operations up around the world the safety of our employees is our highest priority.
Over time, we've improved our safety record to be comparable with the best companies in the world.
And it is my intent to maintain that level of excellence as we face the challenge of protecting our employees during this global health crisis.
Okay.
We have developed a comprehensive centered procedure.
And common locations.
Keep mapping to identify areas that requires special attention.
Personal protective.
Well this chuck's more frequent an in depth cleanings visual indicators and the addition of social Justin's coaches.
And to ensure that we are following and sharing best practices across the company.
Ask meritorious general Auditor to assume the additional goal of achieves safety.
Hey compliance officer.
He will consult with outside experts as needed to ensure that best practices are being implemented and followed.
We provide a.
All right.
On critical electric vehicle integration projects.
Our customers.
The majority of our operations in North America, Europe have resumed limited production.
Over the coming weeks, we also expect to restart operations in South America and India.
China resumed full operations last month.
We acted swiftly Tim span a series of actions that took effect in early April.
This allowed us time to look at the business longer term and evaluate next steps.
These actions included a reduction in paying for salaried employees. In addition to reduce discretionary spending and capital expenditures.
Since that time, we have lessened the salary reduction for most employees.
Beginning may 1st the current reduction and pay a 40% to 50% of base salaries will be reduced to 20% to 25%.
Salary reductions for the Executive committee, including May well remain at a previously set levels of 50% to 60%.
Other actions announced in March are in fact indefinitely.
Now I'll turn the call over to Carl.
Thanks, Jane and good morning on today's call I'll review, our second quarter financial results liquidity position debt maturity profile and retirement related liabilities.
Before I begin I wanted to take an opportunity to express how proud I am of our team's ability to quickly mobilize and rise to the challenges which have been placed before us.
Now, let's walk through our second quarter financial results compared to the prior year on slide six.
Overall sales were $871 million down 25% from the same period last year.
Sales in our commercial truck segment decreased by 33% year over year to $588 million.
The decrease in revenue was in line with global truck market conditions as all regions saw lower production levels.
The suspension of production due to colder 19 first in China in mid January and then late March in Europe also contributed to lower sales.
And our aftermarket industrial and trailer segment sales were $319 million down 10 million or 3% from last year.
Lower sales were primarily driven by decreased volumes across the segments, including the beginning impacts of covered 19 on overall market demand, partially offset by $43 million in revenue generated from our Axletech business.
Net income from continuing operations attributable to the company was $240 million compared to 73 million in the same period last year.
As Jay mentioned higher net income year over year was driven by $203 million of after tax income associated with determination of the aftermarket distribution arrangement with wacko.
Adjusted EBITDA was $107 million in the second quarter of fiscal 2020.
Compared to $139 million in the same period last year.
Adjusted EBITDA margin was 12.3%.
Compared to 12% a year ago.
The improvement in margin was largely driven by a $10 million adjustment of lower incentive compensation expense to align with the revised performance expectations due to colder 19.
We also recognized a $4 million benefit, resulting from a tax law change in India.
Segment adjusted EBITDA.
For commercial truck was $55 million down 33 million from last year.
Segment, adjusted EBITDA margin for commercial.
Segment, adjusted EBITDA margin decreased 40 basis points to 15.4%.
Free cash flow for the quarter was $292 million compared to 19 million in the same period last year.
The increase in free cash flow was driven primarily by the $265 million of cash received from land goal.
Next I'll review, the debt covenant, which governs.
Since our revolving credit facility on slide seven.
The credit facility as a sole financial covenant based on priority debt, which is a subset of our total outstanding debt.
The calculations dates priority deck cannot exceed trailing 12 month compliance EBITDA by more than 2.25 times.
It is important to note the 265 million pre tax income we recorded associated with the web web called termination is included in trailing 12 month compliance EBITDA.
Now, let me walk you through the calculate.
Leasing in detail first priority dad is comprised of any outstanding borrowings under the revolver inclusive of any term loan funding.
Any outstanding US factoring end use securitization balances.
Plus any secured liens for US consists of our capital leases.
In total priority debt as of the second quarter was $633 million.
Secondly, priority debt as compare to trailing 12 months compliance.
EBITDA, which starts with consolidated net income and then added back our depreciation amortization interest and taxes.
Including other minor adjustments the total 12 months trailing compliant.
As EBITDA at the end of the second quarter was $701 million.
The resulting ratio is 0.9 times priority debt compared to compliance EBITDA significantly under the limit of 2.25 times.
Furthermore, the covenant is only measured on the last day of each quarter. If a compliance is achieved the covenant is deemed that for the entire following quarter.
As Inc.
Some from the lab determination will be included in our priority debt calculation for for fiscal quarters going forward. At this time, we expect to be in compliance with our covenant throughout the year and maintain access to the full credit facility.
34 are you a securitization facility, we typically extend this facility annually for an additional year, which we would expect to do again later this year.
The bottom line is that we have a clear runway with their debt maturities with no significant calls on cash through 2024.
At the end of 2019, our net pension liability was $122 million, which translated to a 93% overall funded status based on this we expect a very manageable required contributions over the next several.
Years.
And while we've obviously seen challenging financial markets as we ended the second quarter. Our estimated funding status has actually improved from the end of 2019.
This has been driven by a combination of strong use asset returns in the plan, which are up over 10% through March and hot.
Higher discount rates is corporate spreads have widened.
While our plans will continue to be susceptible to changes in asset returns and.
Discount rates as we move through the remainder of the year.
Our asset allocation is skewed more towards fixed income given our liability hedging strategy. Overall, we are pleased with the performance to date.
Turning to our OPEB liability as we have previously discussed we've taken steps in recent years to significantly reduce this obligation at the end of 2019. This liability was only $67 million.
Overall within extended debt maturity profile and well funded pension plan, we don't have any significant calls on cash from these liabilities in the near term.
In summary, the balance sheet actions, we have executed over the last several years along with our current liquidity position makes us well positioned to navigate the current environment now I'll turn the call back over to Jay.
Thanks, Carl Please turn to slide nine for third quarter outlook.
Let me highlight our assumptions.
Hi Center earlier segments of our operations have continued to run.
We expect these businesses to contribute between 50% to 60% of our revenue during.
Raisins is expected to be in the range of $150 million to $225 million. This includes the onetime impact of the unwind of our factoring.
Programs.
These programs allow us to monetize our receivables quickly.
After they are generated.
Removing the impact of factoring we expect negative cash flow from operations of $25 million to $50 million during the third quarter.
Turning to margins.
We expect to wholesale sequential decrementals in the third quarter and the range of 20% to 30%.
This includes additional investment required to implement new safety protocols.
We are able to achieve this due to the quick and aggressive cost containment measures we have already taken.
I want to emphasize that we are running the business to focus on operational cash flow in the near term.
Let's move to slide 10.
As we enter the SEC.
Second half of the fiscal year and restart production, we are making sure that every safety protocol is in place.
Including providing business sorry PDP.
With a existing challenges in obtaining large quantities of masks.
Yes, cleaning supplies and disinfectants, we will first make sure that each of our plants distribution centers and testing labs at the necessary quantities on hand, before we start allocating the supplies to global administrative offices.
Im pleased with the adjustment that our salaried employees have made to working remotely with added mind, our salaried employees will work from home until further notice.
We have begun to see the favorable impact of our aggressive cost reduction initiatives.
As I mentioned, we believe these initiatives will provide stability necessary to minimize negative operating cash outflow in the near term.
We are working closely with our customers to run production as needed to meet their schedules. Our assumptions include a significant decrease level of production for the remainder of 20, trying and we will evaluate and im.
Implement additional cost actions with a focus on minimizing operating cash flow in the near term.
As we now turn our attention to the longer term outlook for the company. We are evaluating the appropriate strategies for global environment, where demand for our products may be we for many quarters.
[music].
We plan to provide you with a longer term outlook for fiscal trunks 21, and our Mtwenty 22.
The plan performance on our third quarter earnings call. If there is a set of market forecasts that we are comfortable with model going forward for modeling purposes.
This outlook will include a summation of the benefits, we expect to see from the longer term actions, where in the planning phase of executing.
While the pandemic created the situation. Unlike any we have faced in the past with a full repercussions as you add on known were taking the actions. We believe we'll put the company in the best position for the long term.
I want to thank meritor employees for their focus during this unprecedented crisis.
Employees dedication and responsiveness to customers and to each other has been overwhelming.
Now we'll take your questions.
Okay.
Thank you, ladies and gentlemen, and give a question at this time. Please press. The Star then the number one key on you touched on telephone. If your question has been answered or you wish to remove yourself early Q. Please press the balance sheet.
Our first question comes from Joseph Spak with RBC capital markets.
You May proceed with your question.
Thanks, Good morning, everyone and good good here all your voices overruns okay.
I guess first question is even if we sort of look like at the Decrementals in this quarter ex some of the incentive benefit.
It still seems like there is a step down on the decrementals into the next quarter is that just all sort of.
Volume driven as furniture to feeling the bigger declines or is there anything else I can sort of help bridge that gap between the performance and good morning, Joe Good to talk to you as well.
As I think we look at the the next quarter. One this well we provided was a sequential look.
Relative to the second quarter I think when you cut through the math on a year over year basis, it's kind of running.
A little bit in a low 20% range.
And as far as we look specifically for the second quarter. We as you pointed out we did benefit from lower incentive comps in our inner actuals as well as being in the one time kind of on tax impact that ran through EBITDA.
Okay.
And just you know.
Well I guess actually.
Somewhat related.
Yeah, obviously sort of taken out a bunch of what's your cost in the short term and I guess some of that can be viewed as temporary but but as you you mentioned that sort of maybe new world New era is there an opportunity to sort of maybe as you reevaluate make some of those temporary savings.
More permanent in the in the mid to long term as you reevaluate the cost structure.
No.
Jay Thanks, very good question.
Obviously that was what I was referring to my comments, we we think the aggressive actions, we took including 40 to 50% to 60% salary reductions in a very short order allowed us to time to sit back and say what does that longer term.
Impact of this crisis look like to meritor.
And what additional actions should we take that can allow us to be successful throughout.
What potentially could be a longer term downturn. So we are are looking at strategies as I mentioned in my comments and beginning to execute them.
We think.
Well set our cost structure on the right basis for a while we would expect to save for fiscal year 2021 and beyond.
Okay.
That's helpful on.
Sort of I guess plan for the worst over the best mentality, but as a veteran of the industry I wanted to I guess pick your brain on what you thought.
Could it be the potential snap back ability of the market and maybe what you're sort of hearing maybe from some of the even your customers because even be even.
If you look at sort of typical peak to trough timing probably would have normally.
Hum.
To the end of the sort of cycle sometime around the end of the calendar year, maybe a little later.
And cobot, obviously made it much steeper, but even if you sort of don't returns replacement levels next year. It seems like there could be some pretty healthy growth versus obviously, a very depressed in 2020. So what are the of any high level thoughts on the well I think.
If it's difficult for us to say in the near term and do.
Hurt the comments from our customers who have had their calls so far there they've been very radisson to project with the outlook looks like in future.
And I think that goes for us as well.
I believe and what our team is working on as is as you mentioned is setting out to plan for the worst and hope for the best and make sure we retain the capabilities in the company to respond to the aggressive snap back that ultimately will occur most likely among quarters time.
As it always does.
We're going to make certain we've retained that expertise to be as successful as we have bad and capturing the value on that snap back in those volumes.
Thank you very much thanks, Joe.
Thank you. Our next question comes from Alex Potter with Piper Sandlin proceed with your question.
Okay.
Yes, thanks, very much hope everybody is doing well.
You mentioned.
Cutting back on Capex on discretionary spending.
Can you just give maybe a few examples of things that you are and are not.
Reducing spending on just trying to get a better idea of.
The sort of initiatives that you think are sufficiently important to continue investing in even in this macro.
Sure. Good morning, Alex I think this is Chris Villa Brian.
If you look at it for example last last quarter, we talked about launching our or building a new facility in Brazil, where we were looking at making a significant investment.
As we see the current market we might look at for example, slowing down on that investment and just really modeling out where we see the market snap back and then making decisions like that.
We are very definitely proceeding with the long term prospects from for Brazil, but in the short term we might look at slowing down our investment also when you think about sustaining investments to our facilities.
Imagine for foreign markets that were running.
Almost.
60% to 70% from where we forecast.
You could look and make decisions in the short term on what we do however, I think one thing that Jay is driving that as we think of the long term strategy in terms of investment in electrification.
We are not slowing down on that process and as he also mentioned in in how we have running the facilities in delivering.
The propulsion, our the systems, where we're continuing our investments enter transbay tower as well as electrification through the next sport.
Okay very good that's that's helpful.
I was wondering if you could comment also on the supply chain risk.
Not all companies.
End up having this sort of balance sheet that you guys have I'm thinking, particularly of risks that you see upstream potentially for smaller suppliers.
How is this going to be an issue do you have solvency Rick concerns for any of the suppliers that you rely on.
Good question, Alex and.
We're using the same playbook that we put in place during the show eight or nine recession, where we immediately put up multi disciplined team together, including finance purchasing supply chain manufacturing expertise.
To do much more active monitoring of suppliers, particularly those who we think to not have the balance sheets that.
May provide them enough liquidity through this time period, so far we have not seen any disruptions bump our monitoring it extremely closely.
Playbook that we did execute and though nine was very successful for us.
Included in that is engagement of outside experts that we can sign Dan to these suppliers to assist them with operational and financial challenges simply authority.
Lock those same experts into agreements after necessary.
Interesting.
Okay. That's that's good to hear I, one thing obviously that this web co infusion was well timed.
Can you update.
Me on the ongoing relationship with Wabco is there is any idea what is the relationship between the two company going forward have you essentially severed at all.
Historical relationships now going forward or or not.
We have a much smaller relationship here through our aftermarket business as a distributor for certain products, but I.
I don't want to Miss Representatives, a fraction of what the business was previously.
And those expected revenues are embedded in our outlook for the third quarter.
Okay very good.
Last question.
I know that you had historically looked at some of these smaller sort of mom and pop.
Machine to machine shop.
Type operation to support aftermarket gearing and off highway and that always struck me as sort of an interesting business.
I don't know I guess, maybe two questions first do you.
Want to continue building that part of the business through acquisition of these little little companies and question number. Two is do you think cobot 19 will potentially present, you with opportunities to do that.
That's a very good question, Alex I think it gets a wrong broader questionnaires.
Obviously, there there will be M&A opportunities that present themselves through this this crisis.
For people, who may be deemed operators, while or half the financial wherewithal to withstand the downturn.
At this point in time, we our focus to make certain.
At our company operated successfully as it's currently configured and we'd like growth prospects of the company in areas like electrification like our recent.
Hi way acquisition of actual tech. So we don't see of burning need to add bolt on acquisitions at this time.
As we come out and crisis. If there is just some incredible opportunity on the landscape and.
Please see our.
Revenues growing during that time period.
We may revisit that at that time.
Okay very good thanks, Jay Thank you.
Thank you. Our next question comes from Brian Johnson with Barclays. You May proceed with your question.
Hi, Ken Good morning. This is Jason stored layer on for Brian I. Just first question on margins maybe first in in their commercial it's not space in the past, we've talked about sort of layer capacity.
Giving you the ability to sort of flex that that the footprint the direct labor for footprint.
Given.
With the variations in in commercial truck just curious I mean in the in the margins that we saw this quarter, which I frankly, if I were pretty good did any of those benefits from you know off offloading that layered capacity or it airlaid capacity pretty much already hit bottom by last quarter and then.
Clearly on aftermarket industrial and trailer.
I believe and also impressed by the margin this quarter was thinking the actual tech acquisition will be it a little bit dilutive.
Is that not a case sort of yes.
Good good questions Us as Carl Anderson, just on your first question on as it relates to care commercial truck eyes, we look at those layer capacity cost for the most part of those are pretty much been eliminated.
In the second quarter, we did have some the carry the little bit in the first quarter and is as we go forward as we're kind of back and ramp up mode.
Depending on the supply chain, you could see a little bit maybe some incremental cost kind of coming in over.
Over the next couple of quarters, but nowhere near where we were running last year with a high truck markets kind of at that point and then as it relates to your aftermarket.
A question I think the actual tech business I think we're very pleased with the amount of synergies we've been able to.
To achieve as it relates to that one thing that.
Running a little bit softer than initial plan is overall revenue for that business and so I think.
The margins aren't exactly where we want them to be currently but as overtime as revenue begins hopefully at some point pickup.
I think what we're going to be in good position with the acquisition in that business and just adding to Carl's comments I think one of the benefits we got.
With also the the layered capacity costs coming down is also a benefit from non theme that premium freight costs associated with all of that said, we have seen some benefit both.
From the layered capacity as well as the premium freight.
And I think in terms of the overall cost of.
Purchase components versus our own internal cost. There's there's also the benefit that where we're seeing from that as well.
I got it okay very very helpful color and then just and then just I guess more broadly as we think about electrification opportunity A.J. I think you'd mentioned the team has mentioned how how pivotal how pivotal of a year 2020 was shaping out to be in terms of the.
The award activity pipeline Ella's that was going to be coming here in the next few quarters. Just curious there is is that pipeline is still solar that is as is the industry's basically push that out you know eight to 12 months as we deal with the current situation.
Some very good question Jason.
Obviously I.
I think it's a question on on the industry's mind will this be viewed us as something that can be deferred to preserve capital.
So far.
All of programs were associated with particularly the largest program the Paccar program.
It remains on schedule.
Technical updates with APAC our team recently.
Our products are performing extremely well.
And so we see no sign.
That our customers.
Not not too dissimilar from us are not continuing to prioritize that span.
And as Chris mentioned them one of his comments.
This is one area with all the cost reductions we've made both on the Capex and expense side.
We are retaining our investments and electrification.
And we continually continue to respond to active quota opportunities and still look at this year to be a very big care for us.
Understood. Okay. Thank you.
Thank you. Our next question comes from Ryan Brinkman with JP Morgan You May proceed with your question Hi, Good morning, Thanks for taking my question.
Is there anything that you can relate about customer order books in the back half of the calendar year after lockdowns or presumably lifted I'm sure. There visibility is also low but when you look across your various customers and your various end markets.
Commercial on highway off highway specialty trailer et cetera are there notable differences in how you expect these end markets to bounce back or hold up.
And maybe.
Ill take this one Ryan just out.
As you can see that we're not giving much guidance beyond the next quarter acre again, it's from that perspective that we are seeing from our customers as well.
A very high level, let's just break it down into maybe the three three areas and if you think about aftermarket and we look through.
Last quarter as well as you know what we're seeing at least in the short term window aftermarkets, obviously, holding well you know when you think about 75% of.
The products that we we use travel by truck the aftermarket seems to be holding strong we see slight weakening, but nothing nothing thats on dramatic and live in the near future.
Moving to the specialty defense off highway space.
I think Carl pointed out we have noticed we didn't noted that the backend of that that order board was getting weaker we can say, maybe about 20, 30%, but nothing.
Nothing of significance, obviously consistent demand on that side and we got to see how that plays out that truck market is obviously the big line as we see the customers coming up in April or late April in early May that's where we're going to probably see.
What what the real order boards come in so we think we'll all the customers will be up as though.
As we see most will be up up as of May four so that would be probably a good times via perspective, but then breaking it up by region, maybe I'll just address it that way China.
As the all of you know I think we've seen a quick the end markets are back now whether that will hold up.
It's all based on stainless and in India, and South America are still under pretty hard shutdown in so time will tell how those two markets will come up.
But in those two markets inventories were low as you know with be ethics and the other two markets have addressed previously I think we just have to see where our customers come back down.
Okay. Thanks.
Those are helpful run down just lastly from me to why are you. It looks like unwinding. Some of your factoring facility is can you remind us what was that something that was previously planned prior to your mentioned it in that on March 25 release and it does it relate to the various volatile.
Facility as mentioned in the K or or the U.S., one with PNC. The I think as a covenant attached you just asking because it would seem maintaining the facilities might help bolster liquidity in the current environment or am I missing something thanks. Good morning, Ryan its Carl Good question I think that the factoring on wind is really is a function of having a lot lower sales.
But really in Europe, where we are utilizers of the supply chain financing program. So it's the unwind is more it's more natural because we're not able to sell receivables in normal course, because the sales as our a lot lower.
The real impact is just because you have a timing mismatch.
As far as obviously, the payables need to Canada kind of run off from a working capital perspective, and you are unable to sell new receivable. So yes. It is consistent with.
Well, we cannot provide to back in March 25 March 25th.
Okay that we put out as well, okay got it great to hear it still there available for you. Thanks. So much. Thank you Ryan.
Thank you our next.
Question comes from James Pickerill with Keybanc you May proceed with your question.
Hey, good morning, guys part of James.
Just regarding your covenants.
Third party debt over over trailing EBITDA I mean it seems.
Very encouraging how the EBITDA is calculated you just to clarify this includes the gain on the web co aftermarket sales now is that is that right and then has there been any change on that point and then just based on your third quarter outlook that will clearly be the most challenged environment is it safe to assume that you merits or can it.
Now avoid any any covenant breach over the next 12 months.
Yes, Thanks, James Yeah, I mean, I think what you're seeing from the Wabco income. Yes. It is included in the trailing 12 months calculation and so as I was highlighting.
That will kind of carry through for the next really.
Four quarters as well as we look to calculate the overall compliance EBITDA. So as we look at what's in front of us nearly a third quarter for the rest of this year. Our expectation is we will not have any issues with our debt covenant and we feel that coupled with overall liquidity of the the company. So some of them on a cash on hand I think.
In a pretty good spot to be able to manage the current environment.
Okay. That's great to hear and then just on on that factor receivable of previous question.
And that reverse partially by as early as the fourth quarter, Yes, that's exactly right and so that's why we're characterizing it.
There is it we'll call it a onetime impact as sales levels has dropped significantly.
Based on the lower production volume, but as the fourth quarter. If there is some pickup in production kind of comes back you will see the cash benefits.
At that point in time.
Got it and then it sounds as though you guys are not stepping off the accelerator in terms of.
Future easy investment.
So you know for this year, but just in terms of Capex is is a good starting point.
In assumption of maybe a similar level of Capex as a percentage of sales for this year I think earlier deed. It's a good way to think about I think the last.
The last quarter than we had again about $115 million of Capex. So it's probably closer in the 80 85 million range at this point as we think for the room for the remaining for the full year, so that kind of around 3% is.
It is probably the right way to think about.
Got it and then my apologies if I missed this.
Did you mentioned that the Axletech contribution in the quarter. So just wondering on that point and then how the synergies are trending does the current environment accelerate or maybe delayed the synergy pull through.
No I would say the synergy side in Axletech, we're coming in right on plan and actually were looking we feel very good with all the actions that we will have been able to take.
Since we acquired the company last.
Last year.
As I referenced obviously, we're seeing some softness in overall just revenue levels specifically.
In the off highway market as well as an aftermarket. So overall the margin performance is still probably not where we wanted to be.
But the lot of that now is driven more on the revenue side as opposed to any to cost actions that we've taken today.
And.
What about the just the revenue contribution in the quarter. Yes. It was about 40. It was up $43 million are very consistent with what we saw in the first quarter as well.
Alright, great quarter guys. Thanks, Thanks, James Thanks, James.
Thank you. Our next question comes from volume so deal with Longbow Research.
You May proceed with your question.
Hi, Good morning, Thanks for taking my question I appreciate the guidance here, you're able to provide for for EPS by three Q any additional color regarding the revenue breakdown, but can you provide a little more color around aftermarket industrial trailer mean that implies a sizeable and I know first talked about aftermarket coming down a little just wondering if most of that's been trailer.
Or equally across all three parts of that business.
Good morning theme I think with one of the things it in there is the impact from the Wabco.
Agreement beans, our distribution agreement being terminated.
And so prior to the graces unit that was a private book of business about $150 million.
So you are seeing a headwind now in that in this quarter that were in.
As well and that will continue on as we kind of go forward. So.
Significant piece of that really relates to that particular business.
Okay and how much are you baking in from the actual tech acquisition in Threeq.
Well again, I would say, we're not counting given a line by line guidance on the revenue, but I would you say you know the first two quarters that we've seen this year and Axletech has been running a little bit north of $40 million of revenue.
And I would I would expect.
Don't expect probably some little bit further softness or period of time for that business.
Okay.
Then.
You commented a little on the visibility in the back half of the year, but as far as the re queue. I mean, you guys provided a pretty wide band that I'm just curious if thats based solely on orders received thus far as truck production restarts or there could be some upside later in the quarter.
I think it's really almost entirely and based on the lack of visibility on the L., we manufacturing side. So if you take the business fab.
Your questions. Karl you were just discussing the aftermarket business and industrial that represents roughly 50% of our expected revenue in that guidance. So if you took the remaining revenue we have almost a 50%.
Range of estimate on the truck OE business and I think thats.
Very consistent with what we're hearing from our customers both in.
Our private discussions and what you heard them discuss publicly as they if release fair earnings. It's just it's a very opaque visibility window right now on that for this quarter.
So thats why we we've put as wider range on revenue as we did but understand that.
This revenue estimate was important for us internally as well because it gave us the markers on which we have to manage the business to JV to achieve our objectives of having the operating cash outflow, the very limited or mile.
Okay.
And as far as the 20% to 30% sequential downside earnings convergent.
I mean is that going to be balanced between commercial truck and aftermarket industrial trailer one of those segments and with the look a little weaker.
I I don't think we're providing that level of guidance just given the volatility I mentioned on the revenue outlook, but what I would.
Make note of is included in that downside sequential guidance is the incremental cost of providing the safety materials that we need to ramp up our production such as masks face shield sanitary products additional cleaning. So there is some incremental.
Cost that's being incurred right now thats outside our norms and running that business.
Okay. Thanks.
Thank you and im not showing any further questions. At this time I would now like to turn the call back over potential for any further remarks.
The second quarter 2020 conference call. Please reach out to me directly with any questions. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program you may all disconnect everyone have a great day.
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