Q4 2020 Meritor Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q4 and full year 2000.
[music] Meritor Inc. earnings conference call at this time, all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session. That's.
Ask a question during the session you will need to press star one on your telephone is advised that todays conference is being recorded if.
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I would now like Jim Conference your Speaker today, how Churilla senior director of Investor Relations. Please go ahead Sir.
Well good morning, everyone and welcome to <unk> fourth quarter and full fiscal year 2020 earnings call on the call today.
Today, we have Jay Craig C.E.
I went right Carl Anderson, Senior Vice President and Chief Financial Officer, and Chris deliberate 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 an airport that huh.
We'll refer to the slides in our discussion this morning.
The content of this conference call, which we're recording is the property of airport.
It's protected by U.S. and international copyright law and May not be rebroadcast without the expressed written consent of meritor.
We consider your continued participation to be your.
Got it and then to our reporting.
Our discussion may contain forward looking statements as defined in the private Securities Litigation Reform Act of 99 Bye Bye.
Let me now refer you to slide two for a more complete disclosure of the risk that could affect our result did.
To the extent, we refer 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.
Thanks, Todd and good morning, everyone.
Before we review our results I would like to take a moment to address the leadership transition plan, we announced last week after nearly six years as CEO.
I will transition to the role of executive Chairman of the board on February 20, it at that time, Chris Spillover, Ryan Our Chief operating officer has been selected to succeed me as Meritorious Dark CEO and president and.
Additionally, the old Newman, our current chairman.
Well it becomes a lead director or the four.
Since I assumed the CEO position, we have made great strides through execution of our M. 2016, and 2019 and now are 2022 plants, we have advanced our innovation and product portfolio.
Strengthens our financial foundation, and create a collaborative and diverse organization that fosters growth.
I'm 2022 is well underway and we are seeing signs of recovery in our business and the industry since the onset of cold at night chain, which I'll touch.
For later.
That said, we believe now is the ideal time to set in motion our long term succession plan. Many of you know, Chris Lewis Bemelmans Meritor for more than two decades and is an integral member of our leadership team. He has.
Had a significant impact on our company during his tenure at this transition represents a natural next step.
On a personal note Chris has been a true partner to me, helping to execute our successful plans in the months ahead I will continue to lead meritor at work.
Closely with Chris as we prepare for a smooth transition.
Now, let's turn to our results on slide three.
Obviously, our fourth quarter and full year results were unfavorably impacted by lower volumes due to the pandemic. However, we were able to partly offset.
The impact on our margin for the quarter and for the year with the cost reduction actions, we implemented in the second half.
Carl will give you more detail the results, but the important takeaway here is the extent to which we were able to preserve our financial stability considering.
Right the significance of the headwind created by COVID-19.
As you see in the center of the slide we're able to execute well on an approximate 50% increase in sales sequentially from the third quarter to the fourth with a conversion rate of 22%.
All things considered we recovered from the crisis exceptionally well, we took aggressive actions to protect the company financially, but most importantly, we took immediate steps to protect our employees while at work.
While certain countries and states, where we have operations.
Things are experiencing rising case counts, we remain fully operational globally with no limitations at this time.
Let's turn to slide four while.
While the pandemic required a great deal of management attention in 2020, we still had many achievements.
Let's support all aspects of 20 to 22.
Our safety quality and delivery metrics were excellent with regard to safety. The total recordable case rate was 0.57 per 200000 hours worked with more than 50% of our facility.
Cities reporting zero Recordables for the year.
We believe this makes us one of the safest global manufacturers in the World. This speaks volumes for our team's commitment to each other that is certainly one of the accomplishments I am most proud of during my tenure.
We are honored crew receive daimler's coveted global supplier award this year for providing more than 1 billion axles brakes, and triumph lines with excellent quality and parts per million rates during the peak 2019, North American market.
In addition.
We were able to repurchase 10.4 million shares in fiscal 2020 were added to the S&P 600, small cap index and announced for footprint actions three in the United States and one in Europe. We expect these actions to generate annual run rate savings.
Savings of approximately $10 million and give us added confidence to achieving our 2022 objectives.
In July we celebrated production of our $100 million remanufactured brake shoes.
With nearly 50% of free manufactured.
Richard brake shoe production in North America Meritor is the industry leader.
We continue to win new business with important customers and later in this discussion Karl will review our expected outperformance against the M. 2022, new business target.
And finally, we received approval from our board for an incremental $30 million to industrialize medium and heavy applications for E powertrain portfolio more on that in a moment.
On slide five you will see additional detail.
Related to the long term agreement, we signed with Daimler.
This is an important contract for us that extends our relationship with Daimler through 2027 of low now put meritor in standard position for air disc brakes on the Freightliner Cascadia.
Through 2025.
Let's look at slide six for an update on electrification.
Essentially the takeaway here is that we will be in production with our electric powertrain and 2021.
The picture on the slide was taken recently at our E.
Powertrain Assembly operation. We are very excited that we are only months away from delivering under the contract we secured with paccar for its heavy duty electric trucks.
In advance of production the Fourteenx fee is already receiving industry acclaim.
Earlier. This year. We told you we were recognized as a 2020 pays pilot honorary by automotive news for Blue Horizon electrification solutions.
And recently Meritor received the diesel progress achievement of the year and to electric output.
Allocation of the year Awards.
We believe we will be the first supplier to begin production of electric power trains for class eight electric vehicles, and we anticipate additional production contracts in 2021.
Let's go to the next slide as Youd.
You know customers have numerous electric drivetrain solutions to consider we are often asked about the remote Mount architecture versus the electric powertrain mayor.
Meritorious electric powertrain to scrap illusionary and that we are taking an electric motor and a multi speed transmission.
Second and integrating them into the carrier, we're not just bolting on a motor. This design is fully integrated and designed to maximize efficiency performance weight savings and space utilization.
By partnering with the leading motor Technology company.
Companies in the World, we have to sign three electric motor from the ground up to meet and exceed customer expectations and performance targets.
And since this technology has faced some meritorious traditional fourteenx axle design manufacturing is easier and OEM.
Yes, Ken integrated into existing chest fees, using the same mounting locations and hardware.
Although we are prepared to deliver optimized axles for remote Mount solutions Meritorious class, leading integrated powertrain architecture is beginning to.
The product of choice within the commercial vehicle industry.
We believe weve to develop to most advanced electric powertrain for medium and heavy duty commercial vehicles in the industry and that it will be game changing.
On this slide we have provided the hot tumor.
Victoria Dot Com, where you can get an inside look at the E. Powertrain production at our plants. In addition to a video that shows the differences between the architectures described.
With that I'll turn the call over to Carl Thanks.
Thanks, Jay and good morning on today's call.
Now I will review, our fourth quarter and full year financial results provide fiscal year 2021 outlook.
And provide an update on our end 2022 financial goals.
Now, let's walk through our financial results compared to the prior year on slide eight.
First I will review our segment results for the fourth quarter compared to the same.
Same period last year.
Sales in commercial truck decreased by just over $200 million year over year.
The decrease in revenue was driven primarily by lower volumes in most markets due to COVID-19.
While volumes were down year over year, we did see production increase throughout the quarter as we began to recover.
Covered from the shutdowns earlier in the year.
Segment adjusted EBITDA for commercial truck was $24 million down $48 million from last year.
Segment adjusted EBITDA margin came in at 4.3% down 500 basis points or from a year ago. The.
The decrease in segment adjusted EBITDA.
In segment adjusted EBITDA margin was driven primarily by lower market volumes. In addition, we increased our electrification spend by $6 million compared to last year.
This was partially offset by cost reduction actions, primarily ICSC executed in the second half of the year lower incentive compensation and operational perform.
Yes.
Aftermarket industrial sales were $226 million in the fourth quarter of fiscal year, 2020 down 22% compared to the prior year.
The decrease in sales was primarily driven by lower volumes in our North America aftermarket specialty and defense businesses.
Aftermarket sales were also negatively impacted by $36 million due to the termination of the distribution arrangement with wacko, which occurred in the second quarter of fiscal year 2020.
While revenues were lower segment, adjusted EBITDA margin increased to 15% from 14.2% in.
After a year.
The margin increase was driven by cost reduction actions more incentive compensation and operational performance, which more than offset lower volume.
For the full year revenue came in just north of $3 billion down 31% from the same period last year.
The revenue decrease was driven primarily.
And a lower market volumes across our segments due to COVID-19.
Net income from continuing operations attributable to the company was $244 million compared to $290 million in the prior year.
We did incur $27 million of restructuring expense in 2020 due to the head count reduction programs executed.
Throughout the year.
This was partially offset by $203 million of after tax income associated with the termination of the company's distribution arrangement in fiscal year 2020.
Adjusted EBITDA was $272 million in fiscal year 2020, translating to an adjusted EBITDA margin of 8.9%.
Adjusted diluted earnings per share of $1.12 down from $3.82 in the prior year.
Finally free cash flow was $180 million in 2020 that does include the benefit of $265 million in cash received from the termination of the distribution arrangement.
Excluding this impact pre.
Free cash flow was now.
Negative $85 million for the full year.
Keep in mind. This includes the impact from our factoring programs that were down $77 million. This year due primarily from lower European revenue as markets begin to recover this will be a tailwind for free cash flow as we move forward.
Next I'll review, our key balance sheet metrics and.
By night.
We ended the fiscal year with a strong liquidity position over a $1 billion, which is up almost $200 million from last year.
Our cash on hand at $315 million, which is more than we typically hold given the current environment. We believe it is prudent to run higher cash balances at this time.
Our funded status in our pension plan also significantly improved and we are now in a net global over funding status on our plan.
It is important to note that we achieved this milestone without any cash contributions over the past several years.
Our long term liability driven investment strategy and strong asset.
On returns drove the increase in the funding status.
Moving to our debt maturity profile, we have no significant maturities for the next three years.
We recently called the remaining $23 million of seven inseminate convertible debt, which upon completion will will reduce both our outstanding debt and the share dilution associated with.
The convertible instrument.
Furthermore, our 2024 bonds are currently callable, which provides further flexibility to be opportunistic and managing our debt profile.
Additionally, while our leverage is expected to be above our target range in the near term, we do expect to deploy capital to begin to pay down debt in the second half of 2000.
21.
Next I'll review, our current global market outlook on slide 10.
You will notice we are given market range is wider than our typical guidance.
While most global markets point to recovery in 2021, we are prudently planning for a variety of scenarios.
And the North America class eight market.
We are projecting production levels between 215 to 255000 units.
We have seen an increase in orders over the last several months, which could point to the upper end of the range.
At the same time some of his recent activity could prove to be transitory given the change in conditions associated with the virus.
As we look at our other marks.
Kevin We anticipate Europe will be in the range of 300 to 350000 units.
In addition to the new restrictions currently being both in certain European countries. We're also closely monitoring Brexit as we move throughout 2021.
For India, we are projecting the market will increase at the midpoint by approximately 80%.
Year over year from historically low volumes in 2020.
India with not only severely impacted by the pandemic last year, but also from the transition to the vs. Six emission standard.
In the South American market, we expect production in a range of 90 to 100000 units, reflecting relatively stable levels as.
Our compared to last year.
Let's turn to slide 11 for our fiscal 2021 outlook.
Given the market assumptions. We just reviewed we are forecasting sales to be in a range of $3.1 billion to $3.35 billion.
Our revenue guidance does include approximately $75 million in lower aftermarket revenue from the terminate.
Nation of our distribution arrangement with Wabco Howie.
However, this is expected to be more than offset by over $100 million of new business wins that we will expect to be in the TNL. This year.
Our adjusted EBITDA margin is expected to be in the range of 9.2% to 10.2%.
We anticipate converting a greater.
It's been 20% on increased volumes and new business win due to continued performance and net cost reductions we executed in 2020, which will more than offset higher expected incentive compensation. This year.
We expect to convert at these levels, even while we continued to invest in electrification, which we anticipate at 25.
Under the $30 million, which is higher than what we spent in 2020.
Moving to adjusted diluted earnings per share our outlook for 2021 is in the range of $1.10 to $1.75.
Keep in mind, our expected adjusted earnings per share is negatively impacted by about 15 cents over 2020.
Due to higher expected interest expense as a result of the liquidity actions we executed in June.
And finally, we expect to generate $60 million to $100 million and free cash flow, resulting in a conversion rate of 75% consistent with our end 2022 target.
Next I will provide you an update on our progress.
That was our end 2022 targets, beginning with new business wins on slide 12.
Our current expectation for fiscal year 2022 is we will exceed our target of $300 million of new business wins by more than $150 million.
Several key developments are driving this outperformance.
So our acquisition acquisition of Axletech, which provides diversification from our line haul markets is expected to provide between a $175 million to $200 million of revenue in 2022.
Additionally, we have been able to win new business in both our commercial truck and aftermarket industrial segments, we are winning new business in every market.
Our be serve and across our product portfolio, including an air disc brakes, driveline and specialty axles for off highway and defense.
And as we go into production with our Fourteenx electric powertrain in 2021, we expect revenue will continue to expand in this growing business for us.
Now, let's turn to the remains.
Marketing financial targets on the next page.
We are confident in our path for achieving a 12.5% adjusted EBITDA margin by converting on incremental revenue from global markets and new business wins at greater than 20%.
We expect to deliver strong operational performance from reduced material costs structural.
Any cost savings footwear.
Footprint optimization, and further investments to drive automation and efficiency.
We also are all on track to meet our free cash flow conversion target of 75% driven by disciplined and focus working capital management.
Our cumulative free cash flow generation for the end 2022, three year plan.
It is coming in lower however than our original assumptions due to the pandemic as a result, this is impacting the amount of future share repurchase activity and our ability to deliver the $4 EPS target. However, we still expect to achieve earnings per share of $3 to 40 to $3 to 60 cents, even with these headwinds.
Overall, we are on track to achieve or exceed three out of four of our Mtwenty two financial targets now I will turn the call back over to Jay for some closing remarks.
Thanks, Tom now, let's turn to slide 14, as you heard today, we have maintained a strong balance sheet and to exceptional lunch.
Execution, we earned new business managed cost aggressively and extended relationships with important customers and.
We are now preparing to begin the next step in our transition from prototype to production up the next generation powertrain.
We look forward to our country.
The new journey in fiscal 2020, while now we'll take your questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question cuts. The pound key please standby will be compiled acumen day roster.
Our first question comes from.
In terms of Perkinelmer with Keybanc capital your line is challenging.
Hey, good morning, guys and Jay Congrats on the decision and Chris Corr. So congrats to you as well thanks a lot Jim.
Just.
On the key bridge items to you Thats why 21 EBITDA.
What are the incremental permanent savings you expect to achieve this upcoming year and to what extent does the unwind of this past year's temporary cost actions present, a headwind or or an offsetting them. Yes. Good morning, James It's Carl add the run rate savings, we expect to achieve from the redux.
Auctions, we executed last year, it's about $30 million.
And if you look at the impact that we had in 2020, we had about $20 million to $23 million associated with just kind of the the temporary salary reductions and we also had a benefit from some of the headcount actions that we took in the lab.
Last quarter of the year, So run rate 30 million as we go forward. In addition, this year. We also have some other onboard temporary discretion.
The cost reductions that we are planning for as well, which is about 10 million.
Okay and the last part is that tied to the yeah.
The aftermarket industrial restructuring that you announced this morning or is that something so no that it would be separate so and then if you think about that you know as far as as Jay alluded to we do expect to have run rate savings, which really will begin in 2022, but for this year and 21, it's a little bit of a headwind because we do have Bob some expense that we will.
Kerr as results of those actions.
<unk>.
Got it okay.
That's helpful and on the new business wins.
Encouraging to see the you know the raised the raise target I'd say greater than 450 versus the original 300.
I know Axletech, probably takes care of.
And most of that original 300.
And did I hear correctly, you expect to realize $100 million in new business wins this year, and therefore 21 as the incremental to the Vienna.
That is correct and the last point, yes.
Okay. So the pipeline the pipeline I think.
As a last quarter. The pipeline was maybe 500 million and you had in backlog bookings 200 million.
Are those the right numbers and you have they changed at all.
I think that's still directionally the right numbers as you think about what we have for elect electrification at this point.
Thanks James.
So were estimating.
For 2022, we should have approximately a 100 million of incremental revenue from like fishing.
Right, Okay, so maybe $200 million more like 300 million.
Or no.
Pipeline will be realized in Chicago.
I'm trying to be about 100.
Understood understood got it last one for me the factored receivable.
I think you might have 75 million left to recovery correct me, if I'm wrong and you just from an industry volume standpoint in Europe, what would be needed to fully recover that amount I mean is it a 450.
As one unit number how should we think about that.
Good question I think in order to fully recover to probably closer to the 400000 type of production range.
Okay. Thanks, guys they can James.
Thank you.
Comes from Brian Johnson with Barclays. Your line is now open.
Yep.
Yes.
Good good morning, and congratulations again, Carl I want to first talk about the air.
Sprague's business, what part of the Cardinal truck business is brakes is that relevant going forward for electric.
Electric truck is what.
Puts and takes with region breaks and reactive to read your index and then kind of finally I'd now that web web cobiz integrated into on Z ask does that change the competitive landscape at all Brian. This is Chris well Ryan I'll take that question. So in terms of our portfolio.
Somewhere about a 3rd% to 40% of our businesses aren't great business and it is integral and if you think about it obviously you know even with electrification air disc brakes are needed and so it is an integral portion of our business. So the win is a very.
Significant as we see it.
I think forward you will always need disc brakes, even with.
Reject breaking you do need a SEC.
Henry form.
Protection and that's what happened this brings provide.
Okay and in terms of the competitive.
The landscape has changed at all with Wesco.
As I wrote in the distant past I think you had the road Ranger.
J B together, just maybe update us on how that chain changes anything in terms of your competitive position brakes, no. It doesn't change any of the competitive position and in terms of this specific win its specific.
Go North American market, and so we don't see that as having any impact.
Okay and in terms of the new revenue target, it's been higher than in M. 22, a capsule tech comes in but also I think your original target it seemed to 50 K. class eight market.
So where should we think about starting.
Should we started 4.1 billion and work our way up and down based on end markets are there other kind of revenue puts and takes we should be thinking about yes, Brian. It's a good question I think you know relative.
Relative to what we originally laid out in our analyst day back.
In 2018.
You know, we we had about $3.95 billion of revenue.
Our coming out ahead of the new business wins, as we outline but relative to that day. We are we do have some FX headwinds associated with that about $100 million and we also have.
Some lower market assumptions of using especially in.
India as well as in China. So I think the revenue line item you know all in is still around to what we originally planned for all which is around that 3.9.
Okay, and then you know.
Final question, Great slide on Daimler.
But just in light vehicles were all obsessed with the potential for Oems to in source you derive line activities.
You know can you just recap deem payment is one of the more integrated.
Class.
Class eight players on the Detroit diesel for example.
You know.
Do you expect this to be a very long term contract or do expect to somehow transition. This technology to more of a component supply and have them manufacturer.
So Brian let me take that question again, it's critical Brian I think you know when you think about it we've had a very long relationship with diamond or any do you think.
This strategy that both companies have had over the past 10 years that strategy that existed and we have worked well through that and through the market cycles up and down we've managed to maintain or even with that growth share and so I don't see this dynamic changing if anything I think this agreement brings us both to gather and close.
For and so we do see it as a great. When you know capping on what Jay talked about with respect to how we've done on the quality and delivery standpoint over the past two years and we can build off that through 2027.
Okay. Thank you and congratulations again.
Thank you very much.
Thank you our next.
She comes from Joseph Spak with RBC capital. Your line is now open.
Thank you everyone Jane Chris Alex and my Congrats again as well.
Carl I mean, maybe just you know.
First question and thanks for all the color I'm trying to sort of.
Follow along at home.
Here it seems like with all the different puts and takes you mentioned in terms of incremental restructuring costs coming back and the step up.
In electrification investment that underlying incrementals on just the volume portion is still in that 15% to 20% is that roughly.
Correct.
Joe it's probably closer to the upper end of that range, but that is directionally correct and then obviously from that point if you layer in the the cost savings that are now more permanent as well as the footprint optimization, that's what drives the incremental conversions are north of 20% as we go forward.
Thanks.
On the 20 on the 21 Guy just on the industry outlook.
I think you're you're below some recent third party forecasts that were just revised higher is that just some typical meritor management prudence or is there something you're seeing no I think it's I think show those estimates.
The industry analytic firms have been extremely volatile or what you're seeing people changing them almost on a weekly basis and I was as you would expect that.
Wide range of guidance is how we're running the company internally and we want to be prepared as Carl says if there's a.
Uptick in the pandemic and unfortunately, if required shutdowns, particularly in Europe or North America.
We could see those volumes come down from the higher end and towards the mid point of the lower and we want to make sure the company's prepared.
To operate successfully that why them to that range.
So I told our board last week. This is probably the most uncertain time in terms of market estimates I've ever seen in my tenure with the company. So we're just trying to make sure we.
Keep all the Optionality open for running.
Okay.
Okay. Thank you for that right.
And on the new business target 150 million higher.
Can you tell us how much of that incremental 150 has already been achieved in or how much more is to go how much of that 150 as electrification.
And also does it include the additional Powertrain Awards you indicated you expect on slide six.
Yeah. Joe This is as we signaled on the I just to my prepared remarks. If you think about 21, we are anticipating to have a little bit north of $100 million of new wins come into the piano that wasn't in last year if I.
I kind of look at where we ended up last year. We ended up just I know total net basis, a little bit less than 100 million. So.
So it really kind of implies we have north of 200 million that will come into 'em 22 in order in order for us to achieve those targets that we laid out is all inclusive of.
Even at least to date some of the work on the electrification awards, obviously if were successful.
In the near future with adding some others that will be incremental okay. And then on the way to think about that last part Joe is that the electrification portion as Jay pointed out would be about 100 million in 2020.
22, okay.
Last one from me just on the 22 margin bridge, you know you're still say.
You know a portion of that is from normalized global markets and Jay I. Appreciate your comment that it seems more uncertain than ever but it seems like at least.
North America.
You know even what you are talking to him for 21 is pretty close to 250, which I think is really normalize. So is it fair to say that that that margin bridge across North America goes in excess of normalized is really dependent on international markets.
I think it's Joe Yes, I mean, if you look at what we expect.
You know, where we are looking for increases in Brazil, India.
We also are planning for the additional new business wins as well as what was in Europe as well. So it is really outside of North America that we expect to really generate the incremental revenue in 22, Annette. Thank you very much for all that.
Sure.
Thanks, Jim.
Thank you.
Your next question comes from Ryan Brinkman with JP Morgan. Your line is now open.
Hi, Thanks for taking my question I, just relative to the 6 million headwind to commercial truck even thought in Threeq you from electrification initiatives are you able to quantify the extent to which you know.
Those costs.
What costs are either on an absolute level or a year over year basis or may be factored into the 21 Guide and then just taking a step back from that to you know I recall you in the past, saying that ultimately you expect electrification to be accretive to margin.
Including I imagine because you're providing more value added technology et cetera should we think about the incrementals for.
Electrification associated revenue you know tracking.
Above the sort of more normal ish, 20% conversion and then as you get those higher incrementals and they compare to the investments you know at what point in time and what your or do you think is that a you know 2022 etcetera. After the poetry launch.
Launches et cetera that ultimately the the the electrification business does become accretive to the overall all in margin.
Good morning, Ryan Thanks for the questions.
It relates to design a cost action. If you think about it it's probably best to think about it on a year over year basis.
You know we did have about a $30 million of cost actions that are you know affected and came in at the BNL and physical 20.
I would say two thirds of that was really a long temporary cost action salary reduction with.
With a third of that being a more permanent in the actions we executed.
Back in the you know in the late third quarter for us.
As a result to be kind of slip into 21 on.
On a run rate basis, we do expect about $30 million of cost savings from all those head count reduction actions. We executed. In addition, we're also planning for about $10 million of I would say other cost items.
This is while it for next year and then on your electrification question. You know I think we're still kind of in the ramp up mode. As Jay articulated. We you know we are getting production.
This in 21, a little bit later in a couple of months and then obviously, we were going to be ramping up through 22, and then beyond so app.
Yeah, I think our expectation is this will be accretive at some point, but I would say over the next couple of years, you know, we're still going to be kind of in ramp up mode and will be a little bit of headwind for us.
Okay. That's very helpful. Thanks, and then just relative to capital allocation I think I heard you say a is that right that you'd be starting to repay debt in the back half of next year.
And also just comments on a you know the capital expenditure outlook is it a little bit less than in recent years and how should we think about that trending in light of electrification investments.
Impacting EBITDA too and then how do you weigh ito or the debt pay down versus.
As you know you've been buying back shares and in recent years in terms of priority et cetera.
Yeah as it relates to capital allocation, we are committed to ensure we maintain our strong double b credit metrics and as you think about.
No.
As we think about the current leverage is obviously inflated this year and just.
Due to the absolute drop in EBITDA dollars.
That kind of comes back we anticipate to grow back into the balance sheet and be able to have those type of double b credit metrics. As we go forward. We are planning, though is in the second half of the year to repay some debt in order in order to ensure we accelerate.
Take that path and then as we kind of get into 22 will be looking at again as far as you know allocating capital to share buybacks will be assessing that at that point and then on your Capex capital expenditures questions. You know, it's about $85 million very similar to what we did last year. So that's something that as the year goes on we'll continue to take a look at but.
We tend do as you know have capex as a percent of revenue somewhere between that 2.7% to 3% range and we're very comfortable in that.
Very helpful. Thank you thanks Ryan.
Thank you. Our next question comes from it Terry Mccarthy with Citi. Your line is now open.
Oh, great. Thank you good morning, and Jay Chris Congrats to you both.
Paul just to just to go a following up on a prior question is just to clarify.
With the fiscal 22 free cash conversion outlook today is that still translate just to over the original 200 million plus you Gotta two originally in 2018.
Hi, it's pretty close to that he died when you do the quick math on that I think it plays about EUR 90 million, but yes, its right around that range.
Great. Thank you and then as we think about just the new business progress and an out and kind of how we think about maybe margins beyond mark.
Markets normalizing, what's a good way to think about.
Incremental.
Arjun specifically on new business going forward.
I think its dependency type which segment in comes through certainly as we see new business coming in through the actual tax position or in our specialty and off highway that would be at the higher into the March.
Total file.
Relative to that segment, so that every side, Jim but aftermarket.
As far as the other truck revenue do business, we're always striving to have the incremental new business to be at or above what the current business says and I think you've seen over the last six years.
So that that track record has been pretty strong so.
It really depends on the mix of that business and so we do have quite a few wins.
That are they specialty and off highway or is somebody we could see that that segment kinda disproportionate.
Those are the new business wins.
That's very helpful and maybe just lastly, I'm back to the balance sheet and I apologize if I missed this I'll call.
College as you kind of I think you mentioned earlier when he was just Jay that you want to run a little bit higher cash balances now just given that the crisis any thoughts that we could think about it in terms of how the company wants to run with a minimum liquidity.
Sure, even though a leverage target in the next 12 to 18 months I think I'll start off and ask Carl to fill in I Carlton just mention that on a previous question, but remember our first priority and capital allocation is to maintain our strong double b credit metrics we.
We believe that has served us.
Or investors extremely well over the last six to nine months since we've been through this crisis a tenant as validated our belief that that's a a critical benchmark for us to maintain so that'll be the first and foremost goal in the capital allocation and then as you've seen.
Historically with US we don't do not like cash sit idly on our balance sheet overview, so playing on the excess cash beyond that and shareholder friendly ways.
Terrific that's very helpful. Thank you.
Okay. Thank you.
Thank you I'm not showing.
I said the questions at this time I would now like to turn the call back over to Todd you're not for closing remarks.
Thank you for joining our call today, if you have any questions. Please feel free to reach out to me directly every day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating.
You may now disconnect.
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