Q1 2020 Earnings Call
[music], ladies and gentlemen, thank you for standing by welcome to the commercial vehicle group.
Q1, 2020 earnings conference call.
Time, all participants are in listen only mode. After the speakers presentations are will be a question and answer sorry.
To ask a question during the session you will need to press star one on your telephone.
Please be advised today's conference is being recorded.
If you require any further assistance please press star zero I.
I would now like to have the conference over to your speaker today for Fiveg, Vice President corporate developments in Investor Relations. Please go ahead Sir.
Thank you, Chris and welcome to our conference call joining.
Joining me on the call today are Harold <unk>, President and Chief Executive Officer, a commercial vehicle group.
And Tim Trenary, Executive Vice President and Chief Financial Officer.
They will provide a brief company update as well as commentary regarding our first quarter 2020 financial results well then open the call up for questions.
This conference call is being webcast any supplemental earnings presentation is available on our website.
Both may contain forward looking statements, including but not limited to expectations for future periods regarding market trends cost saving initiatives and new product initiatives among others.
Actual results may differ from anticipated results because of certain risks and uncertainties. These risks and uncertainties may include but are not limited to economic conditions in the markets in which CBD operates.
Fluctuations in the production volumes of vehicles for which CBD as a supplier.
Financial Covenant compliance and liquidity.
Risks associated with conducting business in foreign countries and currencies and other risks as detailed in our FCC filings I will now turn the call over to Herald, the best to provide a company update. Thank you Kirk and thank you everyone for joining the call today to discuss our first quarter result.
Given this is my first earnings call with you I'd like to briefly introduce myself I've been working with the CVG management team for the last six years.
An independent director and for the last eight weeks as CEO.
Hi, Greg background experience and knowledge of the company its customers and our strategy as well suited as we progress towards our long term goal.
That said.
The magnitude of the co bit pandemic and its impact on our business was very swift an unexpected.
However, our team immediately sprung into action.
As you saw in early May we provided in the interim update that included our actions in response to the cobot pandemic as well as our preliminary first quarter results.
Furthermore, we announced last week that we've amended our long term excuse me our term loan and our asset base revolving credit facility.
This new agreement provides the company with additional flexibility to rightsize certain parts of the company to a post cobot environment and expands our ability to improve as a company.
As Tim will discuss later, we continue to believe that our ample liquidity is sufficient to meet our operating growth and restructuring needs.
Prior to the onset of coal that we had already been preparing for cyclical slowdown in end market demand, which started late in 2019 and continued into the beginning of 2020.
The pandemic first impacted our operations in Shanghai, China in January and then as we all know the cobot var spread through Europe, and North America and significantly affected our operations in those regions, including OEM production suspensions and our own temporary shutdowns to dramatically scaled back our supply.
Those plans.
On a positive note our China business is now operating a pre cobot rates as our material handling and mail military businesses.
Additionally, the impact to our sizable aftermarket business has been less than it has been on new commercial vehicle production.
Well it has only been a short time since I transition from independent director to CEO I've been very impressed by how rapidly the team came together.
And took action to adjust to our new operational realities that this global crisis has brought us.
I'm proud to be working alongside such dedicated and driven individual health and safety of our employees remains our top priority.
And where work is underway, we have implemented heightened cleaning and sanitizing processes.
Social distancing requirements and provided for personal protective equipment.
In fact at our plant and Saltillo, Mexico, we are producing masks for all of our employees and their families to help keep them safe during this uncertain time.
In the face of be significant headwinds.
Immediate focus of the CVG leadership team is the alignment of the business to the current market place realities and preserving our capabilities. So that we can restart our operations efficiently.
We are progressively implementing a series of cost reduction measures to further align our cost structure and.
And business practices to the current environment preserve liquidity and protect our workforce.
These measures include permanent reduction of the salaried workforce.
Temporary compensation reductions.
Carlos as well as big reductions in most discretionary expenses.
We are implementing lean staffing or charts, where we can.
And our managing our working capital investments tightly while remaining prepared to take further actions as developments occur.
Additionally, we've been working closely with our customers to prioritize key projects and short term production decisions.
Turning to our end markets as I mentioned, the North American medium and heavy duty truck markets were already in a cyclical decline coming into 2020.
As noted in our year end commentary our initial outlook for 2020 was based on industry data, which signal declined in 2020 class eight production of approximately 40%.
Class five to seven production decline of approximately 15% to 20%.
We also anticipated decline of 15% to 20% in the global construction we sir.
As a result of the cobot 19 pandemic, the North American truck markets have subsequently.
Come to a hall and more specifically our customers temporarily closed their facilities and curtailed production, resulting in significant production efficiencies that began in the second half of March and have continued through April in early may.
Substantially all of our major customers are in the process of restarting production.
And as a result, we are restarting our operations Insync.
Given the nature and timing of the covert 19 pandemic and its impact on global business operations.
We expect to see production inefficiencies throughout the second quarter as we restart the majority of our plans.
However, the time span and pace of the recovery is unknown.
At this point our expectations for build rates in the short term remain low and we're staffing accordingly.
However, there is a consensus among commercial vehicle builders that lower production levels were persisted in the near term.
As I mentioned earlier.
Portions of our business have been operating at pre cobot level.
Currently we have seen an uptick for military applications and a surge in demand for material handling as E. Commerce grows and important swung the outbreak of the pandemic.
As a result, we expanded the FSC operations from one plant to three plants.
Utilizing two existing CVG facilities.
We are aligning with key players in this industry and are well positioned to take advantage of the demand surge of material handling equipment.
As we work through the short term issues presented by Cobot 19, we remain focused on our long term sales diversification strategy.
We are aggressively pursuing opportunities to expand and diversify into the electric vehicle market last mile market delivery and non commercial vehicle markets altogether.
We have had encouraging conversations with customers to grow and expand in material handling military and other non cyclical end markets.
We remain confident in our market position as well as immediate and decisive actions, we've taken to aggressively aligning the organization to the new market environment.
While we expect to see the effects of the cobot 19 pandemic in future quarters, we will remain prudent and the execution of our long term strategy to position the company to emerge from this crisis and a stronger position them when we entered it.
With that I will turn the call over to Tim who will discuss the financials in more detail.
Thank you Harold first quarter results were in line with our expectations were solid sequential improvement over the fourth quarter of last year.
First quarter 220, consolidated revenues were 187.1 million compared to 243.2 million a year ago, when medium and heavy duty truck production in North America, we're at high levels and the global medium and heavy duty construction equipment build was also higher.
The decrease in revenues.
It over a period reflects the sharp decline in truck production in North America.
Softening of the global construction equipment markets, we serve.
FSC contributed $13 million of revenue in the first quarter.
Foreign currency translation adversely impacted first quarter 2020 revenues by 1.2 million or 0.5%.
The company reported consolidated operating loss of 26.5 million for the first quarter of 2020.
Compared to operating income of 17.6 million in the prior year period.
This decline in operating income is largely the result of a 28.9 million impairment charge in the quarter $27.1 million, which was the impairment of goodwill.
The goodwill impairment, which triggered by a decline in the company's market capitalization to a level below that of its equity.
Accordingly, the carrying value of goodwill has been written down to zero.
The remainder of the impairment charge or 1.8 million is the impairment of certain long lived assets, partly as a consequence of the covert 1910 Donna.
Other special costs in the quarter were 2.3 million associated with the CEO transition and 2.4 million associated with the investigation into the recent financial statement restatement.
As adjusted for these special charges.
Adjusted operating income was 7.1 million for the quarter.
Various cost recovery initiatives, including pricing adjustments reduced the impact of rising commodity and other material cost on the difficult labor markets, which have now stabilized.
During 2019 in anticipation of the cyclical decline in the North American truck and global construction equipment build volumes. The company began executing on a collection of cost reduction and manufacturing capacity rationalization initiatives that are expected to reduce operating expenses.
Five to 7 million annually at a cost of six to 8 million.
Cost savings, resulting from these actions contributed to first quarter financial results.
First quarter 2020, adjusted operating income was 8.4 million more than in the fourth quarter of 2019.
On 2.4 million fewer sales.
According to see second quarter, 2020, North American heavy duty and medium duty truck Bill.
Expected to decline 65% to 75%.
As compared to the first quarter of 2020 as the North American truck Oems respond the cold at 19 and overall market conditions.
Although the company is other end markets are not expected to decline is dramatically.
We expect revenues for the three months ending June Thirtyth 2020 to be significantly lower than the three months ending March 31, 22 on it.
As expected decline in second quarter revenues is outside the company is normal course ability to flex its cost structure.
Accordingly, the company has taken decisive action to align its cost structure and business practices to the realities of the cobot 19 business environment.
And associated dramatic decline in sales.
Including certain step change in other temporary reductions in costs.
Interest and other expense was 5.4 million in the first quarter of 2020 compared to 4.4 million in the first quarter of 2019.
The increase is primarily attributable to foreign currency translation associated with our offshore cash and non us dollar denominated intercompany debt.
Net loss was 24.6 million for the first quarter of 224 80 cents per diluted share compared to net income of 10 million in the prior year period or 33 cents per diluted share.
As of March 31, 2020.
Cash on hand was 58.1 million an increase of 18.5 million from December 31, 2019, primarily resulting from the company drying 15 million under its revolving credit facility. During the three months ended March 31 2020.
At March 31, 2020, the company had liquidity of 114.2 million.
58.1 million of cash and 56.1 million of availability from the revolving credit facility.
Turning to our segment results for the first quarter 2020, electrical systems revenues were 112.1 million compared to 143.6 million in the prior year period.
Decrease primarily resulted from the decline in North American medium and heavy duty truck production.
And that the decline in the global construction equipment markets, partially offset by higher sales the military and industrial equipment customers.
As expected FSC is adding value to the company's long term strategy revenues were up 30% sequentially from the fourth quarter of 2019.
As ecommerce becomes increasingly important.
For us is positioned to support this increased demand.
Foreign currency translation negatively impacted our electrical systems revenues by 2.4 million in the first quarter.
Electrical systems segment reported an operating loss of 17.1 million in the first quarter of 22008 compared to operating income of $15 million in the prior year period.
The operating loss was due in large part to the $23.4 million impairment charge, but also due to lower sales.
Sequentially first quarter 2020, adjusted operating income was 3 million more in the fourth than in the fourth quarter of 2019.
On 1.8 million fewer sales in the first quarter.
Moving now to the goal seating segment revenues declined to 76 million in the quarter compared to 104.1 million in the prior year period, due primarily to heavy and medium duty truck market in North America, and the global construction equipment markets foreign currency translation negatively impacted global seeding revenue by 0.9.
During the quarter.
Global seating segment reported an operating loss of point 4 million during the first quarter 220, compared to operating income of $8.3 million in the prior year period.
The operating loss was due in part to the 4.8 million impairment charge, but also due to lower sales.
Sequentially first quarter 2020, adjusted operating income was 4.7 million more than in the fourth quarter 2019.
Half a million fewer sales in the first quarter.
The company last week concluded discussions with its lenders to amend the term loan and revolving credit agreements to provide the company with more flexibility.
As we navigate the cobot 19 business environment.
More specifically as regards the term loan agreement. The amendment provides for the suspension of the leverage ratio covenant beginning in the second quarter of 2020 through the quarter ended December 31 2020.
And the reciting the leverage ratio covenant for the quarterly periods ended on or after March 31 2021.
Furthermore, the amendments provide for restrictions on the companys ability to incur additional debt.
Make investments Landlines repurchase the company stock end to issue dividends.
As well as provide for increased pricing did a lenders.
Happy to have concluded these discussions with our lending partners.
As regards the remediation of the material weaknesses in internal controls identified earlier this year. The company is executing on this remediation plan.
It's early but the remediation plans proceeded as expected until these material weaknesses our remediation.
We plan to continue to perform additional analyses and other procedures to help ensure our financial statements are prepared in accordance with generally accepted accounting principles.
This concludes our prepared remarks, Chris I'll now turn it over to you for Kiana.
Thank you, but at this time I would like to remind everyone in order to ask a question Press Star then the number one when your telephone keypad.
Your first question comes from Mike Shlisky of Dougherty and company. Your line is open.
Good morning, guys.
Hi, Mark.
Hi, can they get a little or color on the debt restructuring that you do that so make sure I guess.
What triggered all that.
Hi, guys I'm curious did you actually tripping covenants during Q2 or do you feel look right now your forecast is to actually trip something during during Q2 or was it more of forecast from later this year.
Made you concerned and you were.
Two.
To go get that if that.
Altered and also can you tell certainly which covenants you were most worried about and what the exact new covenants are as far as numbers are concerned.
So Mike we.
Have been and continued to be in full compliance with the Companys credit agreements. So there was no.
No event of default.
As we two months ago, the middle of March.
Very clear tried this management team look into the second quarter and it was clear that we were going to experience.
Some earnings compression.
We have in the term loan agreement a.
Leverage ratio covenant that must be maintained.
For it was 4.75 times trailing 12 months EBITDA and it was clear that beginning in the second quarter. It was going to be tight alright. So.
In anticipation of that and looking out into the future or not knowing for sure what was going to transpire over the next.
Few months, we entered into discussions.
With the lenders and successfully concluded.
An agreement to the amendment to the term loan agreement.
That provides for the suspension of that leverage ratio covenant for the remainder of this year. So Q2 Q3 Q4.
The company does not have to maintain any certain leverage ratio.
Beginning in the first quarter of 2021 and continuing.
Through the third quarter of 2021.
That leverage ratio has been set at a higher level.
Beginning in the first quarter of 2021. It is set at 12 times trailing 12 months EBITDA and then steps down.
To 4.75 in the fourth quarter of 2021.
So.
The objective here was to provide the company with the flexibility in the near term given the earnings compression to continue to be in compliance with the loan agreements.
In return, we have agreed to a minimum liquidity covenant.
As well as a number of other restrictions on.
Certain uses of our cash flow and also some increased pricing.
To the the noteholders.
Yes.
Far as increased pricing goes I know you don't want to give guidance for the entire company in the quarter in all but.
What do you think the approximate interest costs quarter, we'll be going forward.
Based on the current debt levels.
All right so.
The.
Just by way of background here. So I can get you maybe level set is to make sure. We're not talking we're talking about the same thing.
Yeah.
Interest rate armed alone.
Pre the amendment.
Was liable for plus 600 basis points in the LIBOR floor of 100, okay.
So 7% you might recall that the company three years ago will replace this paper.
Swapped out about half of the variable rate debt for fixed and that was an incremental cost of about 100 basis points. So.
These pre amendment the interest rate on the now about $160 million of term loan debt.
Directionally southern half percent a year.
Now what we've agreed to here and as a consequence of these amendments.
The increase that interest rate.
Increase that interest rate during this next six quarters.
That we have the leverage ratio relief.
450 basis points.
Net interest can be paid in cash or pay in kind picked security okay.
So.
Banner ads.
[music].
Four and a half pursuant to the 160 million. So if you wanted to run the numbers.
At the.
Pre amendment level $160 million, a debt and assuming no movement in LIBOR.
Directionally the Companys cash interest expense.
We'd be $12 million.
The impact of the 450 basis points of pick or pay unkind, which will not paid in cash.
Is $7 million.
So if you're trying to model and all and interest rate assuming $160 million of debt no draws on the BRL.
And no movement in the variable portion of the Dot a number to sort of 10 is 19 million seven of which is paying time no cash.
Okay.
All right.
[music].
Thanks for that.
Mission.
And they want to also us.
About your outlook for working capital for the year and they've got some pretty extreme declines probably happening here in Q2, what is your general idea still that you'll be able to harvest somebody working capital.
And then around this year.
To generate cash to possibly offset some of that debt at least a net debt perspective.
Yes, So let me let me.
The answer that question the working capital question, Mike in the context of a larger question, Okay and that is free cash flow.
As I said, a moment ago, a couple of months ago. When this management team looked into the future, especially the second quarter.
We set out.
To accomplish two overarching objectives, one was to preserve liquidity from the other was to preserve our capital structure I just spoke to the capital structure.
With respect to preserving the company's liquidity, Fortunately, we were coming off.
A good quarter in the first quarter the conversion vis-a-vis the prior year period was very acceptable on the decline in sales certainly the sequential performance.
Fourth quarter. The first quarter was was was very good.
Having said that and knowing that the second quarter sales were going to be down dramatically.
Daryl described denied to a lesser extent, we the company set out to make a number of step changes and its cost structure.
Organizationally and staffing wise, some of which are permanent and many temporary changes to adopt it cost structure.
Designed to be free cash flow neutral.
Based on our sales expectations at that point in time.
Now to your question about operating working capital.
We have a fair amount of operating working capital invested in the business.
And we have done a good job historically demonstrated an ability to manage that up and down with the cyclical declines in the business.
So as the sales decline.
Expect an hour in fact harvesting that working capital off the balance sheet turned into cash.
And then as sales.
Presumably increase.
I hope not too distant future.
We'll be using some of that cash to put the working capital back on the balance sheet.
It was I think here Daryl said in his comments.
We've adopted a number of activities primarily around inventory of procurement span that are designed to minimize the incremental investment in inventory as the sales come back up so.
Our cost structure.
Designed to be free cash flow neutral understanding that it will move up and down a little bit as the sales go up and down because of the investment in working capital.
But importantly minds the cost structure.
Notwithstanding its designed today that is.
We are prepared to adjust as necessary amid an important point a moment ago.
Cost structure aligned our design based on our sales expectations.
We've adopted a process here whereby every Friday the business leaders come together and we spend a fair amount of time reevaluating, our sales expectations and have a fair amount of dialogue around as necessary to the extent of which the cost structure might be further changed so.
We are prepared.
As maybe necessary to revisit the cost structure, depending on the future sales expectations.
Okay.
Our balance your question.
I wanted to ask about the impairment charge in the quarter.
That was due to a change in the outlook for what you think you can get from the FSC deal right. There is some it sounded like it was something different there that wasn't related to M&A mine right track there.
Yes, the FSC.
The impairment charge.
Mike is not at all specifically related to FX c., the EPA see acquisition.
It's like it's an exercise by which.
Three different reporting units without going into too much detail.
We evaluated the cash flow streams FSC was a piece of one of those three cash flow streams, but not a very large piece and as a consequence of that evaluation.
Two.
Adjust the carrying value of the goodwill down to zero.
Okay.
Okay.
I just want to ask ultimate Missy the expansion that you could you maybe the two other CPG facilities.
Is that a permanent change or is that chose to manage their demand right now while the other demand in CBD.
Somewhat low I guess I guess, it kind of trying to figure out do you have plans to build the new facilities when things are more back to normal or is this going to be.
Ill permanent.
Hi, This is Harold nice to meet chip.
Hey, the FSC business has been operating out of.
Single facility in Maryland.
For quite a long time the principles are still here the executive same executive leading it is leading it now.
It was his recommendation, which we followed to expand the footprint.
The customer ship to locations.
There are several other across the country, we did have available room.
And to the plants and we made use of them.
I will say that the the industry segment of parcel handling.
From E Commerce is.
Rapidly expanding its footprint and those that are creating those distribution centers are behind their ambitions.
And so there's a desire for the suppliers to.
That equipment segment too.
Do more and so.
Its our expectation that will need additional footprint going forward, but.
Permit or not we havent had that type of conversation. It's it is.
Permanent that we need to a bigger footprint.
Those two locations have performed absolutely great from a debt start.
So you know it's up it's the way we're going to set to be set up for now.
And I don't know, Tim if we would ever want to retract from the because from the those two plants, but I would say our expectations for the for the near term and mid term is that that's that's where we're going to be set up Mike.
Okay.
That's one more front I know going on for a while you I do want to get one more out there.
Can you give us a sense does to at this point what percent of of the OEM that you work with our actually back up and running.
I know they've been running at full capacity, but just a sense as to how things come off of the absolute Bob what's running and what's not running as it as of today.
Yes, we do track that weekly as Tim mentioned and.
As of yesterday may 18th.
Most of the truck OEM manufacturers in North America and restarted operations.
The same in the UK same in China.
India is our loan country, where the government mandated shutdowns are in effect through the end of May.
It's not a large part of our company financial performance, but in North America, which is a large part.
We have basically all major facilities restarted we track their plant are supplying plant and then our supply chain and our plants as part of their supply chain.
And.
They've been very organized as Oems and kept our teams in place because they can't startup unless we start up and.
Now that was as of yesterday I I got no emails last night anyone changed but I will tell you. There has been a lot of starts and stops.
In the last four to six week Theres a desire.
By the truck makers to to make trucks, but theres been government and state.
Mandates.
Declaring than non essential initially and then relaxing that message about along and in Mexico too. So.
I would say right now we're at a low low bilbray.
Which was Tim alluded to and then in my comments I also said, we that's what the short term looks like for us.
And so we have adjusted our cash management and cost out actions accordingly.
Okay, I got more but I'll have to I'll, just passing along thanks much guys.
Thank you.
Hi.
Again, if you look to US question Press Star then the number one on your telephone keypad.
Your next question comes from Chris How of Barrington Research. Your line is open.
Good morning, everyone.
Chris Chris Hi.
Just following up on some of the previous questions from Mike.
About the additional facilities.
You provide some color on.
Perhaps how much of the demand these additional facilities can support.
And different positives here that you're seeing.
Within FSC what type of.
Growth potential can you facility support or how much capacity can they hold.
Okay.
Dresses Harold high.
The.
C.
Solutions that they build actually take a lot of floor space up.
So it's not a it's not a type of business that setup to go 24, seven kind of shifts.
The physical size of what they do.
Becomes an issue and so a lot of the sizing that the capacity answer to your question has to do with physical handling and then out of large systems.
And we look forward at the request upon us.
From the major customers at that business and took the necessary capacity actions.
That we would need to not become a bottleneck to their request to us if their request continue to grow will need to continue to expand.
If they flattened out of this rate and stay at this rate.
We're kind of set up the way we need to be if they continue to grow at this rate, which is our hope than we will have subsequent.
Expat capacity expansion.
And that business and actually that is our base case assumption right now and we're already thinking about what we would do next.
To make sure that our footprint is large enough to accommodate the asks that is a global business, obviously ecommerce as a global business.
As of right now.
Very focused on North America.
It has ramped up during the front of ours.
Sheltered home and containment activities.
And there's a heightened sense of urgency unlocks the suppliers to that industry and the main.
A parcel delivery.
Companies. So we're very focused right now in North America, but long term.
It's a it's a global opportunity for us.
That's great very helpful and.
Tim you mentioned the cost savings that are still ongoing $5 million to $7 million that'll through as previously mentioned.
I assume it's still the expectation that two thirds of these savings.
We'll come to fruition by year end and.
For perspective sake, as we look at this quarter ending in June.
And these additional cost measures, whether or not there is additional levers to pull.
You mentioned also the OEM are restarting how should we think about.
Made sequentially versus April are you seeing.
Are you seeing April as sort of the bottom and Oh, we're seeing may start to show some improvements as we continue to move towards.
Some sort of say in a recovery.
Chris.
Let me tell you what I've learned here over the last few weeks what I've learned is it's it changes every day all right is this environment is.
It's very uncertain okay.
And so as a consequence of that what this management team has.
Learned and Don is put itself in a position.
To react to that uncertainty and that change.
So I can't predict the future, but I can tell you that.
The management team has put itself from the position as I think we've already described today to evaluate.
The future sales expectations.
And to.
Address them as best we can now going forward. So that's.
That's about the best answer I can give you for that we have accepted.
Research outlook on the rest of the year.
We.
Still look to them half for a long period of time and now as the third party baseline for the outlook and so thats our expectation right now is that the build rates for the remainder of the year and next year, we'll be in line for those forecasts and they have.
They are now in the habit of updating those outlooks frequently as well and we have a recent outlook.
And we have no reason to dispute it.
And it shows up.
Recovery.
Second half of the year.
Okay. Thank you that's all I have for right now and I'll hop back in queue. Thanks, everyone.
Thank you Chris.
Your next question comes from Mike Shlisky of Dougherty and company. Your line is.
Hey, guys. Thanks to these fellow questions here.
I'm wondering that wasn't mentioned so far have you been dealing with the image supplier that had been bankrupt.
Last couple of quarters without still an issue in the quarter and have a in the second quarter and beyond.
So you're referring.
Just to.
We've called the troubled supplier in the past that supplier.
Is.
We're moving our production away from that supplier, Mike and we're in the in the process of doing that.
It's not to my knowledge held unless you have other information I don't believe it's quite Danya. It's in the process under being executed is underway.
And as had some impact on the company.
In the quarter, but it's it's it's nothing dramatic so we're we're moving on resolving that situation.
Okay, I would say, even as Mike said, the timing actually worked out okay for us because things were pretty slow.
And we were able to move our tools out of there.
To three separate supplier, so weve reduced our risk onto a single supplier here.
With our Resourcing of those parks.
And we also moved the raw materials out as well and.
It was many many many many trailer loads truckloads of equipment and materials to move.
And.
It's in process that's in process so.
The like times here have helped us actually be organized and do it.
Okay.
Maybe lastly, I know you don't want to probably want to give direct guidance midpoint getting trying to find directional number here. If you layer in the truck market outlook that the outside folks are giving us down 55% to 35% that's on the consensus numbers for some of the.
So similar forecasters in the construction world.
It sounds like there's a chance that you might not have positive EBITDA in the second quarter am I just broadly on the right strategy might be below zero just for this one quarter.
Could you please give us that kind of directional close there.
True too uncertain Mike.
I'm, sorry, just too uncertain all I can tell you is that we if we.
We've taken a number of actions to address the cost structure in light of the sales environment.
And we're positioned to continue to evaluate that and.
And I can behave accordingly.
Okay.
Well how about that.
Hi, good assets assets every quarter by the way it seems like the operating pull through outlook I know, it's going to be a tough quarter, but do you still feel like there will be in that 20% range even in these extreme.
Times.
Yes, the the pull through that we generally managed to that you're referring to the 20% to 25%.
Thats a metric that.
Assumes that there are.
Not dramatic changes in the topline generally speaking, it's a number that's good within 10% or so.
Change in the I'm in the topline as as I think I said in my earlier comments, what we are seeing here with respect to sales expectations in the.
In the second in the second quarter are such that.
That that decline in sales is beyond our normal course flux flexing. So as a consequence of that we're taking a number of actions to make step changes in fixed costs and other costs. So there really isn't a sort of percentage flex if you will because of those signals.
Again step changes and fixed costs.
Okay.
Got it okay. The answers guys appreciate.
Thank you thanks, Mike.
There are no further questions at this time I will now return the call the Mr. Harold Davis for closing remarks.
Thank you everyone for calling in appreciated the questions as well very good on point.
I'm proud to be serving this industry.
And tell you that the team here is very.
Focused and in sync with each other on a weekly basis to.
Cycle down cycle up.
As we go through a restart of this industry globally trucks will be rolling I mean, this is a were tied to the commerce activity. So theres theres a lot of timing uncertainty with what we're doing here, we're absolutely a taker being Ajay I T pull supplier to a large commercial vehicle makers for the piece of the.
Business, which is cycle down.
And were also a take or as an OEM equipment supplier to E Commerce and military.
And that is counteracting some of the downturn that we've seen in the core business.
The aftermarket business has been impacted also as trucks have been wrong little less during the current of our shelter at home stuff.
But we also.
We expect HCT outlooks to her come true for that as well so.
We really appreciate the time you took to speak with US This morning, and with that we'll end the call. Thank you Chris.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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Oh.
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