Q1 2021 Meritor Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2021, Meritor, Inc. Earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone please be advised.

Today's conference is being recorded if.

And if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to one of your speakers today Todd.

Todd <unk> senior director of investors and Sir Please go ahead.

Thank you Michele good morning, everyone and welcome to Meritor, Inc. First quarter fiscal year, 'twenty and 'twenty one earnings call on the call today, we have Jay Craig CEO, and President, Chris and Bill a variety and executive Vice President and Chief operating Officer, and Carl Anderson, Senior Vice President and Chief.

Financial officer, all of whom will be available for questions. Following the call.

Slides accompanying today's call are available at Meritor Dot com will refer to the slides and our discussion this morning.

The contents of this conference call, which we're recording is the property of Meritor, Inc. It is protected by U S and international copyright law and May not be rebroadcast without the express written consent for Meritor. We consider your continued participation to be your consent to our recording.

Our discussion may contain forward looking statements as defined in the private Securities Litigation Reform Act and 1995.

Let me now and refer you to slide two for a more complete disclosure of the risks that could affect our results.

It's that we refer to any non-GAAP measures and our call you'll find the reconciliation to GAAP and the buys and our website now I'll turn the call over to James.

Thanks, Todd and good morning, everyone, let's turn to slide three.

And you can see from our results this quarter, we're off to a tremendous start for the year Alan.

Thanks, Meritor employees for the excellent performance.

So if the environment this team and exceeds our expectations as demonstrated last year and right now and at the gate and fiscal 'twenty and 'twenty one.

Our class eight truck orders and North America.

Our largest market rose to the fourth and fifth highest months and history and no.

Remember in December we executed exceedingly well and as you will hear from Christian Carl and.

In fact with truck volumes materially rising and almost all of our end markets. We are raising our full year outlook significantly.

Since 2021 rebound and provides us with increased confidence and a clear path to 'twenty and 'twenty two objectives, particularly because we believe that some of this year's headwinds will become a tailwind next year as we complete our current and planned.

At the same time, we are investing is a revolutionary technologies, we are bringing to market.

These technologies will give commercial vehicle Oems optimal solutions to meet regional C. O two reduction targets and we will also provide and how.

Most of other benefits.

At this point I will turn the call over to Chris for highlights for the quarter and come back later for closing comments.

Thanks, James We're obviously pleased with our results this quarter unwrap and end up with essentially flat year over year. Our adjusted EBITDA margin was 60 basis points higher than the same period last year and free cash flow was up significantly Carl.

And we'll give you more details on the financials and just a moment, but the primary takeaway and then we are optimistic about the demand for commercial vehicles throughout the remainder of fiscal 'twenty and 'twenty. One we expect significantly higher volume in most markets and most economies and bought fiscal and monetary stimulus that vaccine rollout.

And we gained momentum and the demand for good increases, particularly in North America.

On the right path.

And we highlight business and this quarter you will remember that last November.

And we exceeded our 2022, new business target of 300 million, we're going to talk about and some of those contracts that are driving that outperformance and our truck and industrial businesses as well and production awards for our electric powertrain.

Moving to slide for you will see a few examples of customers with whom we have recently secured new business on a variety of applications.

And India, we have additional actual contracts with Ashok Leyland and Diamondback, India for medium and heavy duty vehicle. We now have standard position with terex for price and where and drive axles and brakes on concrete mixers.

And supply and existing customer with independent front suspension for recreational vehicles and we have entered a new three year LTA with John Deere for 100 per cent of it and applicator axles.

Transitioning to electrification slide five and you look at additional contracts, we have secured for our E. Powertrain as mentioned last quarter. We believe will be the first supplier to manufacture and electric powertrain for class eight and trial.

These new contracts and flat for the application, but stability with designed into our electric powertrain portfolio and the growing demand for meritor.

The E powertrain and get that integrated product engineering for allowed for a variety of sub system, including actual transmission motor Leland and Brian to function as one and patients as well.

And we have entered into a five year agreement to supply and merit towards organic E electric powertrain for auto cars and refuse vehicles.

When lie and electronics, a Canadian manufacturer of zero emission vehicles, we signed a three year agreement to supply our heavy duty tender electric powertrain for lines 80 tractor.

And we also secured a three year contract with Volta trucks, and London narrow towards 14, and he will be on the all star zero and photo landscape and 16 kind of commercial vehicle designed for intercity parcel and freight distribution and we expect revenue from all of these contracts for ramp up in 2023.

And when the industry recognition and we have already been seen for this product.

Growing number of production costs and contract where.

We're highly confident that count towards electric power and represents game changing technology for commercial vehicles, Carl will now provide more detail on our financial results.

Thanks, Chris and good morning, and.

Today's call I will review, our first quarter financial results and.

Discuss the upturn, we are seeing and most of our global markets.

And provide an update to our fiscal year, 'twenty and 'twenty one outlook.

Overall as you heard from credit and we delivered strong financial performance and the quarter.

Adjusted EBIT margin was 11, 5% and we generated $34 million and free cash flow.

Now, let me provide the details of our financial results compared to the prior year and five six.

Beginning with total company results revenue came in at $889 million roughly flat from the same period last year.

Net income from continuing operations was 32 million compared to 39 million and the prior year.

Lower net income was primarily a result of higher interest expense, which included $8 million of debt extinguishment costs incurred and the first quarter and fiscal year 'twenty 'twenty one.

This was partially offset by cost reduction actions executed in the second half of last year.

Additionally, joint venture earnings increased $5 million from a year ago.

This was driven primarily from a $6 million one time gain recognized from a joint venture and Brazil relating to a value added tax credit.

Overall this drove adjusted EBITDA of $102 million and the first fiscal quarter of 'twenty and 'twenty, one which translates to an adjusted EBITDA margin of 11, 5%, a 60 basis point increase from the prior year.

Adjusted diluted earnings per share was <unk> 67 down slightly from 64 cents last year.

And free cash flow improved by $69 million from a year ago as we saw a tailwind from our backroom programs, and we had $32 million and lower incentive compensation payments and the quarter.

Now, let's look at our segment results compared to the same period last year.

Sales and commercial truck increased by 4% to $691 million deal.

The increase in revenue was driven primarily by slightly higher and higher market volumes in Europe and India.

Segment, adjusted EBITDA for commercial truck for $63 million up 6 million from last year.

Segment, adjusted EBITDA margin increased to nine 1% and an increase of 50 basis points over the prior year.

The increase and segment adjusted EBITDA and EBITDA margin was driven primarily by conversion and higher revenue.

Cost reduction actions executed last year, and higher and joint venture earnings.

This was partially offset by higher free premium and a $6 million increase and electrification spend as compared to last year.

Aftermarket and industrial sales for 234 million and the first quarter down $41 million compared to the prior year.

The decrease in sales was primarily driven by the termination of the distribution arrangement with Wabco, which incurred and the second quarter of fiscal year 2020.

As we saw last quarter, even with lower revenue segment, adjusted EBITDA margin increased 80 basis points to 15%.

The increase was driven by cost reduction actions executed last year, which more than offset the impact for more revenue.

I'll review, our current global market outlook on slide seven.

And the North American class eight market, we are now projecting production levels between 278% to 290000 unit and nearly 20% increase at the midpoint from our prior outlook.

We have seen a full quarter of strong order intakes, including two months and orders greater than 50000 units and just last night and January preliminary and orders came in at over 42000 units.

And this aligns with the strong production forecast, we're seeing from our customers.

And all pointing to a significant production recovery and 2021.

Turning to Europe. We are also seeing a steady increase and this market. We now forecast production will be and the range of 360 to 380000 units.

South America is another market, where we are experiencing a strong rebound and.

We're now forecasting production to be and the range of 135 to 145000 units.

Almost a 50% increase at the midpoint from our prior outlook and.

At these levels it would be the strongest classic production years and 2014.

And in India, we are maintaining our previous forecast of 230% to 250000 units.

Keep in mind and still represent an increase of approximately 80% year over year from historically low volumes and 2020.

Let's turn to slide eight for an update to our fiscal year 'twenty and 'twenty one.

Given the market assumptions and we just reviewed we are now forecasting sales to be and a range of $3 six 5% to $3 8 billion.

Adjusted EBITDA margin is expected to be and the range of $10 six to 10, 8% and increase of 100 basis points as compared to the midpoint of our previous guidance.

And with the upturn, we are encountering and several headwinds, which will impact earnings conversion as we move through 'twenty and 'twenty one.

Increasing demand across the global economy, and driving significant increases and deal our largest and material costs.

While we have a cost recovery mechanisms in place with most of our OE customers and generally around a three to six month lag and.

As a result, we are currently seeing 15% to $20 million and higher steel costs in fiscal 'twenty and 'twenty, one due to the timing impact of these cost recovery mechanisms.

Additionally, and these significantly higher market levels, we are anticipating higher incentive compensation costs of approximately $15 million.

With these headwinds we now anticipate earnings conversion of approximately 19% and incremental revenue compared to last year. Overall, if you were to adjust for these two items our conversion on the incremental revenue would be around 22% to 23% more in line with our expectations.

Moving to adjusted diluted earnings per share our outlook for 'twenty and 'twenty, one and now and the range of $2 25, $2.50 and finally, we expect to generate $110 million to $125 million of free cash flow.

And slide nine I want to provide an update to our path for achieving the companies and in 'twenty and 'twenty two margin targets of $12 five per cent.

And as we've seen and prior implant and the steps for achieving our targets may change, but we typically are able to adjust to the current operating environment and deliver on our targets.

And the 12, 5% margin target is no exception.

As we discussed on the previous slide we are seeing increased costs related to both steel and incentive compensation in 2021.

Next year, we do expect these costs and normalized providing day 60 to 80 basis point and Taylor.

We also anticipate converting on incremental volume and new business wins at greater than 20 per cent.

Additionally, as we announced last quarter, we are and the process of executing and footprint optimization plan, which will result, and the consolidation of for locations into existing facilities.

This will provide an additional tailwind of $12 million to $15 million and $5 billion of Cogs to execute the consolidation in 'twenty and 'twenty, one will be behind us and approximately $7 million to $10 million of savings from the smaller footprint will be realized.

The conversion on increased revenue and and footprint optimization and are expected to provide an additional 90 to 130 basis points of incremental margin next year.

Overall, the path to achieving our 12, 5% margin target it means clear.

Before I turn the call back over to James I wanted to take a moment to express my deepest appreciation for his extraordinary leadership. He is showing through as many years and meritor and both a personal and professional level.

James All the best and look forward to working with him and his new role now and I'll turn the call over to James for final remarks.

Thanks, Carl let's turn to slide 10.

But since me and my last call with you I wanted to make a few comments before we go to questions.

My first earnings call with Meritor was for the second quarter of 2008, and except for a few quarters in 2013 and 14, when I was running the business.

And this one so I guess that puts me and somewhere close to 50 calls for.

Jonathan All Ceos, and Cfos and look forward to them I can honestly say I always to our investors and analysts many of whom have been with us for long time all of this drove us to be better and challenged us to look at the business from different perspectives.

And there are inside comments and questions and contributed to the successful transformation of the company over the past several years.

And I'm, sorry transitions for the role of executive Chairman I have full confidence and Christmas ability and that other leadership team to maintain the trajectory of high performance that we have demonstrated for quite a long time now.

Growing our base business, expanding our electrification capabilities and maintaining excellent levels of operating performance will continue to be the highest priority as we remain focused on returning value to shareholders.

We deal with a successful completion of our third and Sam.

We recognize that discipline and execution and it took to become the company we are today and.

And we'll proceed with the same diligence for this amount and thank all of our employees around the globe and.

Helped us achieve enormous stretch targets, we have set for yourselves I will Miss working day to day and with such a diverse talented and driven team.

I also want and thank our board of directors for their support and guidance. We have a strong forward because it's a first set of strengths and has played an important role and the Companys journey and I look forward to continuing to work with them as executive Chairman.

I wish all of you my best and the future and puts that we will take your questions.

Thank you ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key credit for.

And any background noise, we ask that you. Please place your line on mute. Once your question has been stated.

Our first question does come from the line of James Pickerel with Keybanc capital. Your line is open.

Go ahead.

Hey, good morning, guys and J Congratulations again on your retirement, it's a it's been a pleasure.

Within Europe.

And your you know your FY 'twenty one guidance here can you just talk about you know what's the implied incrementals are what the what the additional E D.

Related spend might be and then you know Carl you did mention you did mentioned color on an incremental step for 'twenty, two and I mean can you just talk about those incrementals, how we get to that target of $12 five per cent for for FY 'twenty, two and within that framework.

Good morning, James Yeah, as it relates to fiscal 'twenty, one and that reference you know we do expect all in to have about 90% conversion on incremental revenue and that we're seeing we are faced with a couple of headwinds as a reference both steel and incentive compensation, but was and as it relates to that.

Electrification in the quarter, we did at $6 million of higher electrification spend compared to a year ago.

And also probably tracking closer to the $30 million of electrification expense within fiscal year 'twenty, one as well. So overall as we look forward you know, we're very confident and our ability to continue to deliver and get closer to that 20% kind of incremental margins for fiscal 'twenty, one, but more importantly, it really is and as I laid.

We're definitely on track to deliver on our 'twenty two targets.

Got it.

The 30 million and electrification spend that's that's cumulative right that would be like an incremental $10 million or so is that right yes.

And so about seven to 8 million higher than we did a year ago.

Got it.

And then can you just I mean, maybe I just missed this but can you provide and update on them.

What what the number is in terms of E. V Awards that are booked and then what's the you know as it is the pipeline and potential that 200 million is that has that changed at all and just maybe.

Talk about.

What you know what the.

The latest two you know the last two awards you know what sure at a highly competitive process. Thanks.

Hi, James Dodd and its principal and Brian and I'll take that question and so what we talked about and.

A line of sight for 500 million ounce, which with the announcements we've made today with book business to $400 million, So and we still have other items tightened for the last 100 million to the targets that we had provided earlier and then talking about the three agreements that we announced today with line electric bolt on and off.

<unk> car.

That accounts for a total of $200 million of book.

For all business in total we're not breaking that out by year.

Understood. Thanks, guys you're welcome Thanks James.

Thank you and our next question comes from the line of Ryan Brinkman with Jpmorgan. Your line is open. Please go ahead hi.

But.

Thanks for taking my questions can you hear me yes.

Yeah Okay.

You know given the mentioned on slide four of exposure to the RV market. The other front suspensions and the record wholesale shipment numbers that have been coming out of the recreational vehicle industry Association lately I just wanted to ask about what your revenue exposure is to this area what kind of growth you might be seen or are you primarily benefiting from the increase and industry Volte.

<unk> or are you also and anyway, you know incrementally targeting that market with new products et cetera, and also since you last reported earnings I think we heard the very first announcements relative to the potential for electrification and the RV space, which came from.

Lordstown Motors and camping World and December do you have any thoughts on electrification and and this corner of the market and what role that meritor could potentially play.

Sure Ryan and principal of Brian and I'll start for question and then maybe I'll hand, it over to Carl to provide some of the financials, but very quickly with the acquisition of backfill Tac. Obviously this has been and very important market and so and as part of M. 'twenty and 'twenty. Two we also had a strategy for in this market and so what.

And we're doing this exactly executing on that strategy, the new win and part of our growth strategy and is not associated with <unk> with the current market growth. So we had a plan to grow this business and that's exactly what we're doing specific to launch vacation we are looking at.

Let's call it a independent suspensions with Weil and motors, but that is something that were exploring a little bit and farther with data and when they turn into Carl.

Ryan.

And that business kind of resides and our industrial segment and if I look at and what we're seeing and that you know, especially and entering into 'twenty, one and in total we do now and see our industrial business.

High single digit percentage and a year over year basis at this point.

Okay very good. Thank you and then just last question and.

And our relative to the electrification opportunities that were identified on slide five I'm curious if the potential pipeline has maybe grown and I'd.

I'd be interested too if you have any thoughts on gm's, new REIT dropped plans and whether that automakers relatively greater vertical integration of electrified driveline components and the light vehicle side might or might not translate into similar vertical integration on the commercial vehicle side also just what you're seeing generally in terms of the latest developments with regard to commercial.

Co manufacturers plans to either in source or outsource the types of electrification components that you're able to provide.

Well I'll take that question, Ryan and just out and maybe first for perspective from a broad spectrum. When we look at the three customer awards that we presented today.

To a car.

Our nameplate and that's been around for 125 123 years and then if you look at bolt on and it's a brand new and trend and lines has been and the market for about 10 yard and so it's great to see that from a broad spectrum and customers.

And they seem to value and meritor products.

Now specific to where we see this growth we do see the first thing that we're focused on is obviously completing our pipeline and to that point, we're testing with a multitude of oes right now around the globe. So hopefully we can talk about more wins here and but right now we're targeting targeted.

Closing out on our 500 million book of business that we've talked about specific to the GM and let's call. It the day.

And the skateboard I think when you look at the.

The best part about it is in terms of whether you look at ollie's and integrating that.

That's part of electrification and any sense I think what it does is it drives competition and it will speed up faster towards and sustainable energy and in any sense as we look at the real estate. We have it just means more content for US no matter, what happened then and in that and our perspective.

Is that as long as we're in this space. This will continue to grow for us.

And I would say Brian. This is Jay one last comment there's always been a significant difference between the commercial vehicle and the light vehicle OE and the level of vertical integration of components. So.

We've obviously had a significant share of the drivetrain market across the CBD industry.

And we expect that to continue into the future based on the discussions that we're having so far and moving towards electrification.

Very helpful. Thank you.

Thank you and our next question comes from the line of Joseph Spak with RBC capital markets. Your line is open. Please go ahead.

Thank you very much and.

And I go.

My congratulations to them.

And again and then obviously the rest of the team.

Back on.

And electrification.

A couple of questions here.

You mentioned a bunch of these startups and there's obviously.

And a lot more we've seen you know trying to come to market and then on this page.

Like how can you just talk us talk to us a little bit about how you approach the opportunity because obviously there are sort of all incremental but it does require you guys to commit resources and capital and you know the exact path of some of these ventures as maybe a little bit.

You know unclear. So how do you think you almost have to be a little bit of a V C and not respect right. So how do you think about sort of approaching the opportunity with some of these startups.

John I'll take that question and I think.

The perspective that we use it and we look at the class eight and.

Let's call it the medium and the heavy duty class eight.

And markets and we look at what is the percentage of electrification and we aim for that or a percentage of per share of that.

And and in essence worked with every OE that is approaching that and speed and provide a product but in overall and how we get past. The tides were looking at what we believe will be the model of what growth will be there and electrification as a percentage of the overall market.

Okay. So it's not necessarily like you don't just sort of your does sort of like a bet on any one of these individual companies because the product is somewhat fungible between them.

And I think Joe to that point I think it's for US it's more about the product as far as all the development all of the testing that we have done and kind of how that stands and I do think as we think about how that fits in with weather a couple of other startups with existing customers and I haven't seen and other large customers and we have today that is.

And the focus and we do believe you know our product is a differentiator and that will allow them and there's really kind of the path to market for us across all of these potential opportunities okay.

Okay. So so maybe then just one for a follow up a tick or two quick follow ups on that.

One can you talk about the range of activities almost freakish and like you know from either a whole lot coli axles for components and how that might vary.

And with different different potential customers and I guess also you know.

And we talked touched a little bit on the EV spend.

But it seems like that and I need to continue to sort of move higher especially for the new wins continue to move higher. So we wanted to get some thoughts on that and when you might sort of get to a.

Breakeven or sort of self funding level on the other investments.

Well, let me start off and then.

And just following on Charles comments, if you look at the three announcements today, they're all based off the 14 X E powertrain and so it's a perfect example of using the same product and making you know as you called out and fungible across the three.

So that's one perspective that we're using on top of that.

And when we do.

The announcement, we made with <unk>. The last one was for a full EV kit that includes the PK and the battery and system as well and the electric powertrain or there for Phoenix E tandem with that I'll turn it over to Carl Yeah, Joe.

As we look at it you know we're not chasing all the various startups and we're really just focus on what's fitting our product portfolio. So that's kind of and one of the first ones that we look through.

And as Chris just discussed we are and we both up and kids side as well as the the 14th Z and the axon side, and 17 and Z and the future and you know as we look for our expectation is you know when it kind of flips to profitability and is probably outside and 'twenty two time time horizon, but you know as we see it now.

And you know that that can come and potentially as early as in 2023 and depending on depending on what we're seeing and the market at that time.

Okay, and maybe I can just sneak one more in my car and I thought I heard you mentioned.

Some additional optimization and restructuring I'm just curious if you could provide a little bit more and more details on that because it seems like as.

As you mentioned sort of earlier on and seemed like and markets are moving in your favor and sort of going more up and down and so I just wanted to better understand that yes, Joe and nothing was no. This was just Todd we did talk about this last quarter as well. So we just helped to try to frame what the impact we will see and 22 as a result from these from these <unk>.

Optimization plan and so in total we are expecting as you kind of compare and 'twenty two to 'twenty, one it's probably somewhere about 13 to 15 million dollar of a tailwind and we think about EBITDA as we entered and 22 ones for once we're fully are complete these facility closures. Okay. Thank you very much sure.

Thank you and again, ladies and gentlemen, if you have a question at this time. Please press Star then one.

And our next question does come from the line of Brian Johnson with Barclays. Your line is open. Please go ahead.

Hi, good morning, and want to Echo congratulations to Jay Sherwood.

Curable and there'll be helpful on the strategic direction, and I think I'd say that probably 95 per cent of those calls since then.

So.

In terms of the 14 acts and these interesting wins.

When I saw they know every electric bus and truck company out there and you find that the other one.

But yes.

The question is can you just remind a few things one.

And just remind us of the content opportunity obviously not your price list, but if you think about and electric urban truck like Hulk was talking about with the 14 acts see axle versus you know you did one for one of your traditional Oems for the type of content and myself.

Sure.

Brian I'll take that it's Chris I'll have Ryan and it's about five times in terms of content of our traditional.

Bake off platform.

And then we we're certainly well aware of data and the competitor sort of in that space and then they focus more and medium duty.

And we get though is given.

Given Cummins Eaton Allison and are also very important class five through seven and class eight suppliers, yes.

How do you or what do you see from those powertrains and buyers coming over and to the electric truck and bus market place.

Well I think the one thing is and I look at it and and as I mentioned that competition and obviously, it's something that will make us all better and drive towards electrification and drive the products to be better across the whole spectrum, but specific to our products I think the one great thing is we're going to be first.

Two production here in the summer of this year, we have over 100 vehicles on task and.

And in that sense, if you look at our product I think the best part about it and the fact that it's fully integrated and you'll have a motor integrated with an axe fully integrated with wheel and and and that's the sense of what we're putting together that's only about 100 to 150 pounds heavier than a standard Expo. So you can book.

Got it and Prospected, you're removing and engine and a transmission and shrink back shrinking it into that space.

Right and given the high margins, we've seen and the transmission space and one way to think about it you're basically taking both engine.

And transmission and content and margin and bringing it over to Meritor, Inc.

Fair generalization.

And he said it you know maybe maybe the best way to answer that Brian and I think.

And I would say.

Over the last six years and between that margin move up not only for cost reductions, but from all the new products, we've introduced keeping on the traditional side.

And I would say for our expectations for the electrical products for no different but we'll be introducing products, we pick up more concepts and the higher margin.

Okay, and then a kind of a follow on question.

Which is kind of as you look at the facts and of course and the new entrants most of them are kind of free revenues yeah.

Yeah.

And then sort.

And so this question earlier, how do you get comfortable that it's actually worked for your time and I guess the second one is with some of the larger fleets and larger class eight manufacturers.

You know how and if someone doesn't go with the start up a truck.

Operator, but wants to go with them for your provider.

And your position there.

Well again, I think we're focused on the product and and let's call. It the weight and class. So when we come in and we're looking at and as what is the 14 X E powertrain calmer and and we think about it as you know the class eight line haul space or just down to a medium duty and the top end of a class Evans.

And where we're taking a product and positioning and where it can go across whether it's to a new and trend or to a company, that's been well and try and Stan.

Customer of Meritor for many many years, so you know and and Theres a perfect. Examples of both ends of that spectrum, even and our announcements and the last two quarters, whether it's auto car and <unk> on one side, our alignment and bolt on and the other side.

Okay and final question you Didnt have your trademark analyst day, it'll hotel this year, but we are both coming up behind.

The successor to Meritor, and 22, as well there and it strikes us that.

Kind of kicking the tires, Darren so to speak or the actuals on somebody of products here.

Products is going to be interesting.

And you have any thoughts about and event later in the year that would bring those two important things together.

We knew Brian and I think just as you have experienced with a J.

And that's and always done started preparing for the other release of it a year and advance and so we are and the process of developing our in 2025 strategy and ideally we'd like to have it and with all of you.

And first and probably at the end of the year or worst case.

And you know at.

And the beginning of next year, but that's our goal right now is to drive for the end of this year.

Okay. Thank you, let's look forward to that.

Great. Thank you for Brian.

Thank you and our next question comes from the line of Tim materially with Citi. Your line is open. Please go ahead.

Great. Thanks, Good morning, everyone just to a follow up financial questions first one on the 'twenty and 'twenty two revenue target that you expect to exceed hoping you can just update us or remind us of the latest and market assumptions, particularly relative to the original and market assumptions behind the 4 billion and so revenue target and then.

Lee just on free cash flow conversion I think last quarter, you were still talking about 75% just curious if there's any change.

And next yourself.

Free cash conversion and outlook and good morning, each day as it relates to maybe items and free cash flow per start yeah, no change and our planning assumptions for 'twenty, two we still expect and drive and a cheap and that 75% free cash flow conversion I think and the short term and.

And in 'twenty, one I think and free cash flow is kind of high 60% book, It's about 70% and we are expanding a little bit of our capex spend and shooter and by about $10 million, which is one of the drivers to that as it relates to the end market assumptions, we're not updating them today, but with what we did say back in November we were still planning for.

Sure.

Replacement demand and market levels, and North America, and Europe, primarily in 2022, and it's something that you know just based off the strength of the market that we're seeing here in 'twenty. One we will be taking a closer look at that once again as we kind of get later out and this this year and provide a further update as we kind of get into 'twenty two.

Oh, great. That's very helpful. Thank you. Thank you.

Thank you and our next question comes from the line of Bruce Chan with Stifel. Your line is open. Please go ahead.

John and good morning, and congratulations.

Maybe want to wax a little bit more philosophical here for a second I think a lot of investors have been drawing comparisons this rate cycle with a loss per cycle, which is maybe natural.

Except that the wavelength. This time around is obviously been very compressed and.

And I'm wondering as you talk to your customers on the commercial vehicle side, especially what your perception is in terms of where we are.

And in the cycle getting wise and then maybe just a little bit more broadly with the continued growth and the EV opportunity and how do you think about cyclicality and your business going forward.

Sure.

I'll take that question. So in terms of the market, obviously, you know going back probably fall.

Fall of last year.

Not too many of us could have predicted and this return and however.

And we looked at the last November and December 4th and half price.

And truck order.

Order intake and then you know in January at 42000, and asked and what we're seeing from our customers and all of them are cautiously racing line rates up.

Primarily focused on three things one is COVID-19 the second one and looking at the impact of the <unk>.

Apply chains.

And then the final one and also being mined.

Mindful of finding folks.

And folks to be able to staff up the chefs and so but with that what we're seeing right now and the back end or the mid to back end of that and line rates are starting to come back up with most of our customers.

And so that's one perspective and specific to latch vacation I think it's a very fair question I think when you think about electrification.

And the cyclicality should come out because of you and.

You would think about a growth that is much more muted as the growth goes through I think we will see far less cyclicality.

<unk>.

So I hope that's helpful.

But it was great I appreciate the time.

Thank you.

Thank you and I'm showing no further questions at this time and I would like to turn the conference back over to Mr. Shelter for any further remarks.

Thank you for joining there towards first quarter earnings call. If you have any questions. Please feel free to reach out to me directly. Thank you and have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect everyone have a great day.

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