Q4 2020 Commercial Vehicle Group Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to <unk> fourth quarter and full year 2020 earnings conference call.
During todays presentation, all parties will be in a listen only mode.
Following the presentation. The conference will be opened for questions with instructions to follow at that time.
As a reminder, this conference call is being recorded.
I would now like to turn the call over to Mr. Christopher <unk> Chief Financial Officer. Please go ahead Sir.
Thank you and welcome to our call joining me today, as Harold Bevis, President and Chief Executive Officer of CPG.
As a reminder, a telephonic replay of this call will be available on the investors section of our website until March 'twenty, four 2020 one.
Additionally, a slide deck to complement today's discussion is also available on our website.
Both may contain forward looking statements, including but not limited to expectations for future periods regarding market trends and cost savings initiatives, new product initiatives among others.
Results may differ from anticipated results because of certain risks and uncertainties.
Risks and uncertainties may include but are not limited to economic conditions, and the markets and which dbg operates fluctuations.
Fluctuations and production volumes of vehicles for which CBD is a supplier financial covenant compliance and liquidity risks associated with conducting business and foreign countries and currencies and other risks detailed in our SEC filings.
I'll now turn the call over to Harold.
Thank you, Chris and good morning, everyone.
On today's call will provide an overview of our fourth quarter and year end results.
Followed by an update of our strategic initiatives designed to increase our earnings and make our earnings more stable and less cyclical and Chris.
Chris will then follow this overview and discuss our financial results in more detail and Louisville and up by opening the call and answering your questions.
If you have the presentation from our website and front of you and please turn to slide four.
We would like to point out that we continue to see recovery and our legacy and market.
And were disrupted by Covid and also continuing to see growth and our focus areas, especially warehouse automation.
For the fourth quarter of 2020, we delivered sales of $216 million up 14% as compared to the year ago fourth quarter.
This growth was primarily driven by warehouse automation, where we delivered $34 4 million and sales representing approximately 16% of the company sales.
Our operating income increased to $5 million and the quarter, which compares favorably to a loss of $4 3 million and the year ago fourth quarter.
The improvement was largely a result of better volumes combined with our successful efforts over the past year to reduce our cost structure and drive operational efficiencies across the company.
Rationalizing expenses has been a priority of our management team through the downturn and we will provide a benefit as our sales continue to improve.
Adjusted EBITDA.
And was $13 million and the fourth quarter, representing a significant increase as we compared that to the $3 $5 million debt, we delivered and the fourth quarter of 2019.
The improvement was due to higher revenues combined with an improving sales mix and the aforementioned expense reductions.
Looking at our new business backlog, we achieved net new business wins and excess of $100 million annualized and 2020, which is primarily and our growth and markets of warehouse automation and electric vehicles and.
And we expect substantially all of this new business to hit this year.
These net new business wins represent approximately 14% of our annual sales.
And our clear validation of our efforts to diversify our revenue mix.
We are also pleased with our progress expanding into other new markets.
Including recreational vehicles and material handling equipment voting and mass transit.
Which further lessens, our customer concentration and our end market concentration.
Looking forward, our expectation is to achieve another $100 million on net new business wins in 2021.
This is a global team effort and we have headwinds and Japan, Korea, China, India, Europe, and the United States.
Turning to slide five and the deck.
2020 was a pivotal year and our company's history, where we've made foundational changes transforming our business with the goal of improving our value acquisitions.
Focusing our commercial efforts on the specific growth areas, especially warehouse automation and electric vehicles.
As we continue to execute upon our strategy, we believe our earnings growth will accelerate.
Due to higher sales volume and that our earnings will become less volatile on the future due to lessen and customer concentration and lessened and market concentration.
We will invest consistent with this approach and we will run a balanced program of growth investment and cost reduction investment and digital backbone investment.
We will expect to use our excess cash flow to pay down debt just like we did in 2020.
Signs of our success and all.
And already be seen and our results, where we have continued to reduce our end market concentration having lowered our sales to north American heavy and medium duty diesel truck market to 35% of our 2020 sales as compared to 49% of 2019 sales.
While our business was greatly impacted by the Covid pandemic, and we still have COVID-19, and via supply and cost risk on the business.
We are aggressively taking advantage of these temporary downturns to accelerate our growth programs.
Reduce our cost structure and <unk>.
Prove our operating footprint.
Central to this is our entrepreneurial spirit that we call find a way.
That ensures our entire workforce is focused on delivering better customer value and securing additional business streams.
We are becoming more innovative and solutions focus where we can.
We are optimistic about our forward pipeline of opportunities and hope to build upon what became a successful year in 2020, albeit and truly challenging environment.
I would like to thank our 8000 employees for their extraordinary commitment to both protecting our company and serving our customers.
Our goals are to make a difference support our creative diverse and inclusive workforce that goes for it as a team has fun and enjoys our business relationships.
Turning to slide six.
And looking at the warehouse automation area and more detail.
The growth of E Commerce is driving the need for additional warehouse automation.
Parcel sorting and delivery vans and.
Industry expectations are for the warehouse automation industry to grow at a 14% CAGR through 2026.
For nearly doubling in size to $30 billion and sales over five years.
We supply components and sub assemblies for these warehouse and installations.
<unk> complete work centers and.
And are clearly benefiting from the market's robust expansion.
And the fourth quarter, our sales into the warehouse automation and market grew to $34 4 million and revenue as I mentioned.
And we ramped up both new products and new capacity to support this business expansion.
And importantly.
Warehouse automation represented 16% of the total company sales and the fourth quarter and looking forward.
Our goal is to deliver to deliver more than $150 million and sales to this market segment and 2021.
As compared to approximately $65 million of warehouse automation sales on 2020 and.
And approximately 1.002 million 19.
We have a good pipeline of afford opportunities as well.
Turning to slide seven.
The electric vehicle and last mile market is another growth market that is important to the future of our company.
Our competitive advantage resides and the fact that we have a natural value added product basket and.
Makes it convenient for new vehicle makers to do their work.
Simply said, we can design prototype and build a bundle of products from and provide that and a one stop shop basis through our partners.
And we have 40 years of global experience, helping others develop vehicles we.
We have won positions on multiple electric vehicle platforms already and are working on quite a few others.
This is a global business opportunity.
Today, we are designing and delivering prototype products for awards, one and 2020 and early 2021 per meal builds testing and field trials.
Some first for us on the global rollout of the New unit T suspension seat.
Which is modular hasnt come grew up backbone is a highly automated production process is globally sourced and as beautiful on top of that.
We also are does on and complete electrical systems for the very first time.
And we have installed a high voltage production system for the manufacturing of electric backbone for electric vehicles.
We expect these programs to remain.
Largely remain and the development phase through 2021, and then turn into revenue after the product baselines have stabilized.
And Theres, a lot of fun and really important work and us.
And we participate and the development of zero emission vehicle and do our part to help the planet.
And example of the success, we are achieving and the type of partnerships that we are embracing and electric vehicle market can be seen and our recently announced partnership.
With Sos.
Which is an electric mobility company that is dedicated to making fleet more efficient primarily and last mile Ralph.
We're seeing strong growth as a result of surging e-commerce demand.
Our partnership with <unk>, both as full service design and manufacturing, including product sampling prototypes nomadic electrical system designs.
Sting and validation to support our cutting edge fleet of medium to heavy duty zero emission electric vehicles.
And we are working with long haul transportation and brighter providers as well and both the U S and Europe.
Turning to slide eight.
The success that we're achieving with growth on the warehouse automation market combined with our early wins and electric vehicle market are having a positive impact on our legacy sales mix.
And the fourth quarter sales to North American medium and heavy duty conventional diesel truck markets.
Represented 35% of the total company sales, which is a good improvement versus the 45% of sales at this segment and represented over the last decade.
Our sales mix is expiring a purposeful shift.
And the higher growth less concentrated more value added and more profitable areas.
Our goal is to continue to expand further into adjacent markets.
And where our technology intellectual property and manufacturing capabilities are valued and also a natural fit.
That said our legacy truck market is set to experienced steady growth also.
If you turn to page nine you can see that over the next three years.
This will benefit our costs this growth will benefit our company as well.
And as you can see the data from third party ACD research forecast improving truck builds.
And both class eight and class five through seven markets.
As a result of both industry growth and the significant contraction debt.
The industry experienced going through Covid last year.
While our legacy business will be a direct beneficiary of improving truck builds.
And our strategic focus will remain steadfast.
We will continue to invest and expand into new fast growing markets.
That will increase our earnings and diversify and stabilize those earnings.
Turning to page 10.
We have been very successful winning new business and our targeted areas.
And $100 million of net new business wins demonstrates the success that we're achieving and our goal and as mentioned is to win another $100 million on no net new business and 2021.
And as previously mentioned the majority of this extra $100 million.
We will hit in 2021, and we are underway to add another similar amount this year.
Turning to page 11 and concluding.
We had a tough year with.
And with significant COVID-19 impacts, but forged ahead with an aggressive transformation and we have made good progress.
We're happy about our team's accomplishments, but we really are just at the beginning.
Our goal is to successfully transform our business.
Mr into a more profitable and stable growth company.
We are growing and the warehouse automation market and to this and we.
We are expanding and sharing our global footprint.
Spanning our product line as well on this market and looking forward, we have 30 global locations, which provide the manufacturing footprint possibilities we need to.
And to continue this expansion and positions us well for the future.
We are focused on using our 40 years of vehicle development experience and our product line breadth to be a one stop shop for electric vehicle makers.
And we will benefit from improved demand for our legacy markets as we go along.
We are well we are having a lot of fun and winning new business, we're optimistic and we look forward to reporting out on our progress as we go along.
Now I will turn the call back to Chris for a more detailed review of our financial results Chris.
Thank you Harold if youre following along on the presentation. Please turn to page 13.
Fourth quarter, 2020 revenues were $216 million up 14% compared to $189 5 million and the prior year period.
This increase reflects the tremendous amount of work our team has accomplished growing our business and addition to the rebounding heavy duty truck market in North America on a.
A sequential basis revenue increased 15% over the third quarter of 2020 revenue of $187 7 million foreign currency translation and favorably impacted our fourth quarter revenues by only $2 1 million or about 1%.
Our gross margins expanded profit of approximately 530 basis points to 11% as compared to the fourth quarter of 2019. This expansion reflects a renewed focus on profitability and improving our business mix and the key drivers of the expansion and with volume leverage and operational cost improvements as compared to 2019 net.
Company reported consolidated operating income of $5 million for the fourth quarter of 2020 compared to a loss of $4 3 million and the prior year period and on adjusted basis.
Operating income of $8 3 million compared to a loss of $1 3.002 million 19. The improvement was primarily due to higher sales volumes and improved cost structure as a result of our cost actions and and improved sales mix.
Adjusted EBITDA was $13 million for the fourth quarter, which was up sharply as compared to $3 5 million and the prior year fourth quarter adjusted EBITDA margins were 6% and improvement of approximately 410 basis points as compared to adjusted EBITDA margin of one 9% and the fourth quarter of 2019.
This margin expansion was primarily the flow through on the revenue and cost changes as I mentioned earlier.
Our fourth quarter interest expense was $5 2 million as compared to $3 6 million and the fourth quarter of 2019 due to the higher Pik interest costs, resulting from the amendment of our credit facilities that occurred and the second quarter of 2020, I will touch on on our balance sheet and liquidity in a moment, but would like to add that we're very focused on reducing our interest expense through 2020.
One is our financial performance continues to improve and our our leverage on a TTM EBITDA basis continues to decline.
Net loss for the quarter was $4 1 million or <unk> 13.
<unk> on an adjusted basis per diluted share to our net losses as compared to a net loss of $7 5 million and the prior year period or 24.
Per diluted share.
Included in EPS was a negative <unk> 10 per share tax adjustment primarily related to valuation allowance.
At this point I'll talk a little bit about our segment results starting with the electrical systems segment on slide 14 for.
For the fourth quarter of 2020, the electrical systems revenues were 108 to $38 6 million compared to $113 9 million and the prior year period and increase of 21, 7% foreign currency translation and did not have a meaningful impact during the quarter.
Year over year sales increase primarily resulted from new business wins and warehouse automation as Harold mentioned previously.
Electrical systems segment now represents 64% of our total fourth quarter revenues as we continue to make progress diversifying both our business mix of business and customers.
Turning to operating income and the electrical systems segment delivered $7 8 million of operating income and the fourth quarter compared to $1 1 billion and the prior year period. The increase was largely due to increased sales and improved cost structure.
During the quarter, we incurred two and 5 million and restructuring costs and contingent consideration related to our acquisition and 2019. Excluding these special charges. Adjusted operating income was $10 2 million and the fourth quarter compared to $3 2 million and the prior year.
Now turning to our global seating segment on slide 15.
Global seating revenues increased to $79 1 million and the fourth quarter of 2020 compared to $76 5 million and the prior year period, and an increase of three 4%.
Foreign currency favorably impacted our sales and this segment by $1 5 million or approximately 2% and the quarter.
The global seating segment reported an operating income of $2 million during the fourth quarter compared to an operating loss of 600000 and the prior year period The Inc.
Increase in operating income was primarily attributable again to slightly higher sales and improved cost structure.
Now turning ahead, a little bit further to slide 21, the company had liquidity of $138 9 million up from $94 6 million and the prior year and up from $126 2 million and the third quarter of 2020, our liquidity is made up of $50 $5 million of cash and 80% and eight four.
Million of availability on our revolving credit facility at December 31, and 2020.
On March one the company amended its revolving loan agreement and extended the facilities on March 21 March 2026.
Also during the fourth quarter the company paid down an additional $5 million and principal on the term loan free.
And free cash flow was $2 6 million and the fourth quarter and $28 million for the full year of 2020.
This concludes our prepared remarks, I will now turn the call over to the operators and opened up.
The line for Q&A.
Thank you.
At this time, ladies and gentlemen, if you would like to ask a question. Please go ahead and press Star then the number one on your telephone keypad.
Again that is star then one to ask a question.
Your first question today comes from the line of Mike Zaremski with call your Securities.
Please proceed with your question.
And good morning, gentlemen, and one of them.
<unk>.
Maybe first a quick housekeeping question I know you signed a $100 million worth of annualized new business and Youll hit.
And again most of it here in 2021 and all of it but how much of that was actually realized also in $2020 per.
Parts of that business.
Try and get a sense as it's kind of a year over year growth and that one section of your of your topline.
Yes, less than a fifth of the last year.
Okay.
Correct.
And then on the second half Mike.
Yeah sure Jonathan just happened throughout the year of course, yes.
And then for the next 100, and I know youre pursuing in 2020 one as it is it roughly the same and markets that you've been looking at in the past or do you have a whole new.
Places to look for some new business.
Our pipelines are bigger now because we're more mature on them with that topic and I would say theyre going to be.
Balance.
Between electric vehicle warehouse automation.
And alternate vehicle types.
Last year was skewed.
Towards warehouse automation and when you put those numbers together because.
We were successful with some new products and got some big new business that was immediately needed. So I think that can.
It would be nice if that cap happening, but we're not going to count on it.
We have a balanced program Mike.
Okay.
And I wanted to ask quickly on the ex those partnerships I was very pleased to see it and.
We had some of the details there.
And you guys a sense are you working with any other EV Oems.
And stuff on social media and other.
Other areas, where you are on but is there anything that you're doing on the <unk>.
Same scale as what Youre doing with X those at the current time.
Yes, we have we have multiple programs.
Some of the same scale less than 10.
More than five.
So we.
We have to be deliberate about that so that we don't overcommit.
Yeah.
And where we're expanding our ability to do that.
Got it.
And new endeavor, we've had to connect all the junction Docker doctors better disconnects prototyping bread boarding.
And we hired and on electrical engineering team last year, that's in place now and have a leader of that.
And so and we've added we're continuing to add electrical engineers and it's.
That's one where we can't get too far ahead of ourselves because it's new.
And it's Super important that we get it right as it is the main backbone of the vehicle.
And we have people, we hired people that know how to do it and.
And we combined it with our internal capability. So it's a step up for us and value add.
It's it's not new to the world or anything like that but it's new to CVT.
And and we're prototyping with multiple vehicle makers mass transit.
Last mile.
Long haul.
The the basic.
The basic part of the e-commerce supply chain from the long haul part of it and getting the goods into the warehouse and the last mile and getting it to the house so on where.
We're very focused on participating and long haul truck.
Our house automation, and the last mile delivery and being mainstream provider there of that connectivity.
Got it.
And maybe one last one from me great looking growth here and class a and <unk>.
Really above normal years.
And so it turned out to be here.
And like the growth and warehouse can you give us any kind of sense.
And your feel for the end market growth and the construction and AG segment.
Yeah.
And the bellwether reporters, there cat and Deere and evolve.
And also gas report their construction segment and Theyre all.
Giving outlooks that are conservative.
And our flat to up a little.
Okay.
Fair enough. Thank you so much I appreciate it thanks, Thank you Mike.
Your next question today comes from the line of John and France with Sidoti. Please proceed with your question.
Good morning, how and Chris.
And how.
First for you.
As you look back in the past year and as best you can.
Covid from the equation.
Is Q2.
The security and <unk>.
And be a little bit challenging and your expense.
You broke up a little bit there could you repeat the heart of your question.
Sure.
Excluding COVID-19, what's surprised you to the upside at the company and what has been more challenged and gene past year.
And the well on the on the what did you say about upside Chris and do you make that aren't yet what are the upsides and the business, yes. The upsides.
Well, we started when we started this pipeline activity kind of when I walked in the door more or less.
And and.
And it had to form and it took a lot of coaching and mentoring and we did it with the exact same team that was here and we.
Just reoriented and and require terms on time and some people have had a lot of opportunities right in front of them to go go after and some other teams it was a little harder and they had.
Go make those opportunities evident to themselves.
We have nine sub sub debt business teams, if you will and.
And they had different levels of readiness for not just me.
Encouraging it is a direction, but also that our opportunity set.
And.
And so the ups.
Pipelines have.
They have increased a lot and site.
As we've gone on and still are through the first at the beginning of this year. So the upside we're on.
Opportunity rich and and.
And we're having to sort through and Chekhov. How good is it down to is it something that should be second tier.
And a focus for us so the upsides are nice and we we also recognizes who went along the way that he would really be nice if we had a person like this on our team and so we added a few people to the current team that brought on some knowledge because we also studied why we lost it.
We had some losses in there and.
Wanted to understand why we lost and how could we.
Bolster those areas.
And and Thats a process for us so we have a database and Chris has on a person assigned to it and.
We've made a little science out of it and we're working on here at rates and all that.
We havent milk at the.
The pipelines keep growing on the challenges side.
And.
And the Covid has been a problem because it's caused steel constrained supply chain constraints.
People tell people being out absenteeism.
Serious problems and then recently, we had the cold weather in Texas.
Zheng to everybody on and it for us it hits us because we use foam and our feeds and and there was a couple of the refineries who were hit are key to the phone industry and the United States you might've read about that so short term and on the chips on a ship shortage too.
So we have some short term <unk>.
Ply side things the demand environment.
Is.
Favorable.
And the forward pipeline and a activities is favorable.
Like any good CEO, CFO and Chris and are worried about the quarter, we're hitting on the quarter thereafter, and there is some supply chain issues that we're dealing with and and I think Covid is we track COVID-19 here and our <unk>.
1000 employees.
We're up to maybe 100 a week.
Issues, and we're down to maybe 20.
So we see it and our own employee base, becoming less of an issue but.
We still have these global supply chain issues on getting material. So labor has become more stable material is still a little bit hard and so I think thats going on there.
It's something that we're paying attention to and Q2 Q3.
Alright, great.
And again.
Go ahead.
Alright.
Correct answer how.
And that works perfectly to my next question when we think about the cost side of the equation Q1 versus Q4.
How much and Inc. Michael wants to have to come back and how much incremental raw material cost.
Are you worried about and Q1 versus Q4.
Q1 of this year, yes, yes.
Yes.
No.
We brought on and if you look at our SG&A through last year and.
And Q3 and Q4 we.
Brought all of our employees back and Q4 to full pay.
And we and we reinstituted incentive compensation, we did not start TNA, though we did not start traveling.
And we and the United States.
<unk> base, we had our four one K plan froze.
So and Q1 of this year incrementally.
The only new quote cost hit on the labor side is on the 401 K benefits.
And I'll say, though that we're hiring right now.
A decent amount of people.
And generally speaking we go through temp agencies as they are probationary employees and we temporarily play a one third markup for the temp agencies, and so the little bit of and hourly.
But we have that planned into our thinking anyway.
And what about your Chris Yes, we are.
Not theirs.
And Theres no material items that are going to hit us and Q1 compared to Q4 side, but nothing major is nothing major at this little thing Yeah, we're hiring for growth.
We're judicious about that on plan.
Planning is we get the new business, but there is nothing material that will hit us and the first quarter that we can think that debt, we can't offset I mean, there's always pressure on it.
Minimum wage went up and Mexico on January one.
On border and border states of which were in them and we have over 2000 employees there, but we took actions to offset it.
So where it.
It's just normal run the business stuff I would say Chris.
And one first and I'll get back in the queue can you talk a little bit about your plastics initiative and.
And what do you think is a reasonable revenue and maybe margin targets for that business.
For plastics, yes.
Yep.
Yes, so we have special purpose asset.
And when you get down to it and if you know a lot about the plastics industry. There are some <unk>.
Main stream.
Equipment and mainstream tax on machinery, and I spent 10 years and that industry.
And we have special purpose large machinery generally.
And so we have to be targeted with our pipeline activities there too.
Areas that are conducive and and where national and competitive.
We have a couple of little machines, we need.
But if you look at <unk>.
And that fits us really well.
Recreational vehicle market.
And mobile Atvs golf carts, those sort of things have.
Big plastic bodies like big plastic truck pieces. So.
We're focused on and on there.
But.
We have to be specific and now and that one is not a generic one where we have and open road with our capabilities and.
And we're not to the point, where we want to aggressively.
Spend money there, it's very expensive type of capacity.
So we're being.
Very focused on high Rois.
And but it's competing against.
The momentum that we have in other areas, so I'm going to say now.
Now, Chris, but I'm going to say and in the plastics area, we want to grow where being focused.
But we have modest expectations.
Yes, obviously, when we want to fill up our equipment. We do have some process technologies that are relatively unique that are more difficult to do and other plastic manufacturers. So we're going to try to capitalize on that.
But its billing the volume selectively with with higher margin business, but again Harold I agree.
We're going to be very selective about that volume, especially in the off road space as well and now and I'll say two more things, there's a lot of plastic parts and an automated warehouse.
And so we are looking at all the plastic and they're large.
And there's all kinds of plastic products I won't say exactly because you would sniff out what we're doing but there's a lot of plastic parts and there.
And so we're focused on strengthening ourselves as a supplier and to their buy.
Expanding our product line.
And then my last point is which is not here and now, but eventually Chris and I do want to reboot.
On the business development team.
And the plastics area is one that would be a good one because we could add capacity that's complementary to what we have and then some good customer positions.
And that's later, we're not we're not underway with that right now.
Okay. Thanks, guys I'll get back in the queue.
Thank you. Thank you.
Your next question comes from the line of Chris Howe with Barrington Research. Please proceed with your question.
Good morning Herald and Chris.
Good morning, Chris.
Good morning.
My first question.
Can you talk about.
You have many areas of growth here as we head into this next fiscal year warehouse automation and last mile delivery.
Patrick vehicles et cetera could you talked about.
Cash.
Current areas of cash opportunity that you see for.
For the business. This next fiscal year, leading free cash priorities and I'm sure as you gain more traction in these high growth areas youre developing some key learnings.
And whether it's from deals that you've won or from observation.
Some of the competitive proposals that are out there. So is there anything from a <unk>.
Tuck in perspective debt.
Change the mix of some of your cash priorities.
Yeah. Thanks, Chris for the question. So obviously our goal overall is still to be cash flow positive.
We continue to pay down debt.
We do have a couple of areas of investments that we're making Harold mentioned on the call and the unity Vito and I'll talk to that.
And we're we're making other smaller investments I think the unity and the big one but.
Yeah, Chris did you say tuck ins like a tuck in acquisition.
That's right yes.
And now we're not looking at that right now.
And.
We are growing pretty briskly relative to our past and so we're dealing with the quote good thing good problems of growing we're hiring a decent amount of people relative to our past.
And we're digesting.
And in our core markets are collecting up.
So the.
And the operating team from my perspective has their hands full and as of this writing right now and we don't have anyone on charter business development. So when I came in last March.
A three person team that ive disbanded.
And.
And we just have and added it back because we started to have.
Quite a bit of group.
Organic growth, which obviously, we reported out as the $100 million net.
And we're reporting net Chris because our amount of gross wins and exceeds that.
But we lost some business and we are being more aggressive on our legacy business that's not profitable.
And pricing it up and if we lose if we lose it but the mindset. We have now here is.
To replace it.
More than one for one.
And with future business. So we're we're transforming the revenue line and I'm really happy we were able to do 15% churn out for the better last year, and we're going to do it where our goal is to do it this year.
Nothing.
Can be guaranteed there, but that's what we're geared up to do we have the pipeline to do it but we need to convert.
And we have competition that every accounts that were at so you know the best best per.
And wins on.
And the investment side as Chris mentioned Unity is a big deal where refill <unk> several feet plants.
And.
And we're investing some capex and so our digital backbone person leading debt.
To get everyone on the same financial system and manufacturing systems supply chain and.
And a unified customer interface.
And data warehouse.
I think our capex.
$20 to 25, Chris.
And like that.
We held back last year going through what we did and.
We got we got.
And that amendment.
Chris got that on those things to do list, but.
We kept we had a minor cash and we did.
Our capex.
We don't have a big need is not a surging need but its going to trend towards the high side, because we got a little bit of catch up for last year.
And we have a little bit of investment and with some of the new business.
And so it's very helpful. Appreciate the color and.
Just another question or your other questions that are related to one another.
You mentioned and the $150 million warehouse automation revenue opportunity and fiscal year 'twenty, one if we take that and consideration.
Of electric vehicle.
And we think about that.
Pipeline that continues to grow.
Respective to these two areas of the business, how should we think about that maturation and conversion of this pipeline and combination.
With what's existing as we think about the cadence of these two markets in fiscal year 'twenty one.
Yeah, so two separate questions there.
Warehouse automation and there are reporters here cognex.
Honeywell and.
And foreign reporters as we're on foreign public companies have hukou.
And others.
And I on group out of Europe.
Which their brand name and the North American market is dramatic.
They report out this information and there's third party data and.
And the industry to supply that.
The supply industry as a constraint and so there is.
Over one year of backlog and that industry and there is a need for people like us.
To increase our output.
And so.
There is upside opportunity there with what we already have but we also are trying to continue to expand our product offering.
And if you look at our growth last year.
We got more volume per part number when we acquired FSC.
But the big enabler really was expanding our products and we partner to couple of debt.
Repurposing portions of existing plants to make new products and.
And so we're going to keep going with that it's working.
Could it be upside this year, if we convert similar to last year, yes, but we're not going to count on into our base thinking.
And our cash flow is good it's not capex intensive knowhow intent.
And delivery intense I should say, it's intense but not financially.
<unk>.
On on.
And the commercial vehicle side electric vehicle side.
And if you're if you're following the talk here.
Electric vehicle wins are primarily.
Future revenue future revenue.
And we're very conservative with our thinking and reporting and comments here.
They.
Those companies are starting out with big market caps.
And no vehicle.
And then you have the big companies that are fielding their electric versions.
And they have big sales plans, but.
We are only putting and our pipelines and conservative.
Revenue figures and O.
Operating income figures for the anchor orders that they have so.
There's upside on that and the future period, but we're going to wait until it turns into.
<unk>.
Before we start talking big numbers on and electric vehicle.
Okay, Great and I guess low.
Squeeze one last one and about the partnership with Axa West trucks, it's hard to ignore and as you said it's groundbreaking.
How should we think about this partnership from a long term perspective, I imagine as we revisit this announcement a few years from now.
Some of the inflection.
And for the electric vehicle business may be attributable to.
Two announcements like this.
Yes.
<unk> is an important customer.
We offer natural advantages that companies like that.
We are a mature experience.
Partner too.
Vehicle makers, and we have a full product basket and we offer a lot of products at the same time.
We can make one delivery of parks and they can give one bill and they can make one payment and so theres a lot of simplicity.
That's natural there and we have a global footprint because.
The global truck market is mature itself on Clark and cost global cost non.
<unk> debt, we have plants and the right places to make it happen so.
We're a natural partner.
We have.
Multiple <unk>.
Programs like that that are different types of vehicles than xo's.
And most of them prefer to keep the partnership private.
And covered under NDA.
<unk>.
We asked them if we can say, if we could announce our partnership and they per se.
They got comfortable with it.
And I would say your first question was what should you take away from that.
And I'd like it if you would take away that we have multiple relationships like that but we can't speak about them that are underway and parallel right now.
And.
We're doing our very best.
To be partnered with.
And with the companies that we believe have differentiated business strategies and are well capitalized and going to make it.
And.
We believe and what they're doing we believe and zero emissions.
And making the world better. So we are also on our own values align.
And to that industry.
And.
We're trying to defeat or legged of customer concentration, which previously we reported out on our 10-K, because it was so significant.
And so we want to get rid of that customer concentration. So I'd like you to take that away that we are aligning with new names to do that and then the third point is.
More sophisticated product offering from us so we've elevated our value add and.
And to design.
Versus just build on something that someone else is designed we are proffering and design.
And then testing it and and.
They're accepting accountability for working.
And we had access to people that know how to do it because we're in and around it all day long.
So it is a big deal for us and we're quite excited about it and we have multiple.
Vehicle for working on globally.
Thanks, Harold and Chris that was very helpful. I'll hop back in queue.
Thanks, Chris Thanks, Chris.
Your next question today comes from the line of Barry Haimes with Sage asset management. Please proceed with your question.
Thanks, so much.
Had a couple of questions.
First one is I'm looking at this year and as volumes come up.
And the legacy businesses, and what sort of incremental margin and variable margin should we be thinking about.
And you know sales dropping down their pretax.
And then as you add.
Volume and warehouse.
Similar question.
What is sort of variable margins.
Yeah. Good question, so and the legacy.
Ramp up we expect to leverage properly there. So we have the fixed structures that we need and we've made although the outlook for 302000 and class eight trucks. This year for instance for North America, we've made more than that and we have the capacity to make more than that and we have surged higher than that so.
We have the teams in place to inflect up at variable contribution margins.
Warehouse automation and electric vehicles and a little different.
You asked about warehouse automation and so when we've had to expand.
And we are now we have a fifth plant right now that we're commissioning.
It brings along a whole cost structure and it brings along rent.
We've had to expand growing so long and new equipment that we didn't have.
Supervision that we didn't have.
Net up crews that we didn't have.
So.
We're getting a little bit on we're leveraging our SG&A obviously.
And there are some leverage at the fixed line and the plants, but that one leverages a little worst per se.
Sorry.
Because it is bringing along our cost structure with it because we didn't have the open capacity are open and leadership bandwidth.
And to onboard that amount and that amount of business and that area. So we're adding slivers of costs as we go.
No that makes sense.
Any.
Any range as you could give us you know numerically for the two businesses and terms contribution margins.
And the past Tim Tim.
Prior CFO gave guidance on that.
Yes.
I know what it is but I don't really low SA I don't want to give too much here, Chris Yeah, I think the way I would characterize it as you can see where we're at and the full year.
We don't and theirs.
As upsides and downsides I think.
The upsides are and we're going to gain more leverage as we put more volume and the plant.
All of it and truck related component.
On the downside is theres, a little bit of supply chain pressure as Harold mentioned.
And steel prices have gone up and so forth. So.
Net net.
I don't anticipate any significant changes and our margins we've publicly disclosed that our.
Warehouse automation margins are accretive overall.
So as that business grows you would see some uplift in gross margin there.
And I think thats kind of where and as a minimum obviously.
And we're going to commit and leverage over our SG&A. So I mean, that's a minimum.
And.
And in warehouse automation, and a little bit and.
And feeding on.
The two two reportable segments.
<unk> will leverage.
According to its historical rate.
Great.
Got it Okay and then my other one other question is.
And you mentioned and Evs.
That.
'twenty, one it's more of a development year.
But as we look to 'twenty two.
What's sort of the <unk>.
Revenues, we could see at and Evs and the first year that you're really starting to deliver product.
And then.
And if you want to go out a year or two beyond that.
Looking at your existing partners you have today, so adding no new partners you know what.
Sort of run rate revenues.
You know three or four years down the road might we be thinking about and any help you can give us. Thanks.
Yes.
<unk>.
Yeah.
Underneath your question is what do I think the substitution rate is going to be between electrical and diesel engines and the truck market.
That's going to be a driver behind my answer.
And if you look at the expected.
Substitution rates they vary by type of vehicle box being the highest at 60%.
Go all electric bus transit.
And the lowest as class eight truck.
Because of the dynamics of the pool and the mid range and and so then and I'm thinking there is that primarily going to be hydrogen fuel cell alternate fuel, but but non electric all the way battery electric.
If you smooth that out we're trying to net grow.
And ratios versus the truck build.
And.
Deconcentrate our customer.
Dependency that we've had so when we get out through this and over the years, you're mentioning instead of <unk>.
<unk> four customer list, we want on top 10 or top 15 list.
So we don't want to be as customer concentrated.
And we still want to be and diesel trucks for those routes that are going to stay like that globally and and if you look at these reports there is a lot of them a lot of need for diesel truck on certain routes going over the Rocky Mountains things like this.
But we are going to be.
Tougher.
On our economics, and our past, we kind of clung to those legacy positions like a life raft.
And on.
There we have some legacy positions that aren't very profitable.
And and where.
We're staring into them.
And.
And so I hope.
The real hope is to increase our profit.
And get net revenue.
That's the win plus plus but we're on.
Not going to Overcommit to it right now because.
You have to get into who's going to win and who's going to lose that kind of thing and I'm not smart enough to do that.
And so many players underway.
But we have already added to our customer roster so for us.
We are already getting new names on our customer list and we didn't have.
One year ago, and they're well capitalized and they have anchor orders from the.
And the Premier companies and I can't say, because then you would know who our partners are but.
And another another thing we're doing very well.
We're flat out trying to penetrate the delivery van market.
And we had never done that before and we are and we've been successful.
And as a key part of e-commerce.
Great. Thanks, so much for the color and good luck this year.
Thank you.
Yeah.
Your next question comes from the line of and Josh The Catskills with credit Suisse.
Yeah.
Please proceed with your question.
Hey, Harold and Chris Congrats on the results.
Thank you I just wanted to talk a bit.
About the profitability and and <unk>. Obviously, you saw some great expansion on the margin line year over year, but just wanted to ask a little bit further about the deterioration in margin sequentially.
And <unk> I think you were kind of and the mid <unk> EBITDA margin last quarter versus 6% this quarter realize theres a bit of seasonality and a perfectly comparable but is it possible to maybe bucket and kind of the big drivers are.
The sequential contraction.
Yeah, Chris Thanks, Jeff Thanks for the question.
We reported 6% adjusted EBITDA, there was a couple of onetime items and <unk>.
As Harold mentioned and we've put salaries back up to full both strength of four one K plan, obviously that was in a year over year comps there were some bonus adjustments that we put into the fourth quarter of this year as well.
And then naturally as our stock price goes up our other incentive comp and <unk>.
Next our P&L as well.
And so the big items and.
And Q4 of 2020.
Yes, it was.
And it wasn't.
We didn't have anything happened on the operating side it was really.
Rebuild of our SG&A model and then.
Funding.
Discretionary incentive comp.
Because we had not we had cut our bonuses out and we announced that and.
Q2, and then we started to take off.
And so we had to do we had to do a full year catch up.
Almost and.
And fund and discretionary pool.
Got it makes sense and.
And then second question for me just on.
On the legacy truck business.
And then you've got the <unk> class eight truck build expected for <unk> I think it's up 14% year over year for for this first quarter not asking for guidance from you for <unk>.
<unk> this year, but are you feeling and your.
We're one.
Customer releases that type of growth.
And the first.
First quarter here.
Yes, so if you read these reports.
I'll.
And I'll speak to you the highlights.
And the backlog and the industry is about nine months and dealer inventories are low.
And.
The miles traveled is good.
There is a demand for it.
Vehicle capacity.
And North America.
And the natural replacement rate is around 260000 trucks that that's how the trucks retire and need to be replaced and not add capacity just to stay even and last year came out below that level. So there was a pent up demand and that's why inventories are low at the dealer level as far as the backlog of new vehicle order from the fleet. So.
We are consistent with that so we see that.
And so we have a consistent outlook that shows that.
And that type of AR and good demand environment, and then we get firm releases 30 days ahead, and and our frozen schedule and since it's a JIT business.
And.
The real deal is the demand is there.
There are some supply constraints.
And that the industry is dealing with chips.
Chemical chips globally, because of Covid, everyone bought a PS five and a new iPhone and all that so.
So the chips are a problem and the truck industry actually is way down the total pool, we don't we're not the first and line.
And.
Theres been steel problems.
There has been supply chain delays from China.
And then recently with the weather in Texas, and chemical outages, which affect phone.
And making a bomb.
And we used volume and both our trim business to make the trim and soft.
And we use it.
And our seating obviously.
And Cushing so okay alright.
Yep.
Okay.
Super helpful. I appreciate it guys congrats again.
Thanks, Josh Thank you.
Your next question today comes from the line of Steven Martin with Slater. Please proceed with your question.
Yes, hi, guys.
And then.
You made the comment that Chris had some work to do on the balance sheet can you get a little more specific about timing and.
Youre sitting with a fair amount of cash.
While youre not paying down debt.
The debt a little more aggressively.
Okay.
Yes, Chris Steve So yeah.
So as you saw we announced that we extended our.
Our ABL recently, obviously.
As I mentioned on the third quarter, we are taking a much more active approach to managing the balance sheet and not only on the kind of on working capital side.
I can share our terms or are all appropriate.
And both on a R and NAV and balancing that out a little bit better.
To stay cash flow positive obviously, we're working on.
As I mentioned and the call taking a look at our current debt structure and making sure. It's got to fit long term with our business growth.
Very very tight on the radar right now.
And I think.
More to come on that obviously our interest.
Really high and the fourth quarter with this pick and so force compared to prior year. So.
And we can.
Lower that obviously it frees up a lot of cash flow for further investment and so forth later in the year and debt pay down and debt pay down debt.
Okay, because the markets are.
As we've discussed offline pretty aggressive rate.
Yes.
Financing markets for companies like yours.
We're seeing that.
On the cost savings side.
Where are you on.
Not divisional, but sort of corporate G&A I know you've done some downsizing there and are there.
As you look at the asset.
And base of the company are there assets that are available to us.
Get rid of.
Well.
You know the main the mainline strategy we have.
As to is to be a good partner to vehicle makers.
And have profitable productive relationships, where our value added as is.
Recognizing the farm.
Pricing.
And to participate and the e-commerce screen from long haul trucking middle market middle mile trucking and warehouse itself and logistics center and the last mile delivery, we're mainstreaming and to that macro trend. We also have complementary good businesses and.
We're in the European passenger car market, where and the military equipment market, where and recreational vehicle where material handling equipment farm equipment.
Construction equipment road paving equipment.
A lot of different types of vehicle platforms, and there are similar and that they have a long life.
And bear JIT produced and and they have global cost structures globally optimized cost structure. So.
And then were and 10 geographies geographic.
Countries. So there is a few if you force ranked them.
You know we know what's at the bottom.
And we don't have any of those operations are losing money. So there's not and in addition by subtraction per se on the dollar bill, but it does improve your ratio. So yes weird personnel are looking hard on the portfolio.
And.
We intend over time to two.
Transform the portfolio also to be supportive.
And when and the areas that we're focused in on.
But those are private things so even if we were selling something and this afternoon and I couldn't say it.
Net.
But it's on our things to do is get our capital structure to be quote market.
And look at the portfolio.
But I mentioned it earlier and earlier remark on business development.
And I have our hands full right now the business is doing well on it and its commanding our attention.
Okay and.
When you look at the new automation business.
Can you give us some idea of the key since we we don't have a history with it can you.
And give us some idea of what the cadence of that business is going to look like over the four quarters.
Well the builds are annual so that the.
The top 50 retailers and shippers right that are and this and so if you look at the industry, we mimic and so look at the industry and you can see that people at the end of the chain our Fedex EPS.
Amazon Walmart all of those type of people and they report what they intend to do and.
And how theyre going to compete against each other and and beat on each other.
And they all need physical infrastructure to pull that off as well as last mile delivery vehicles.
So.
So far there's no cadence, except we want more now.
But they do they.
And they do a annual design freeze and because they are very driven by software.
Like you will be sitting and you probably order something at your kitchen table. This morning on your iPhone and you expect it and 48 hours to be delivered to your doorstep and a delivery van.
And that whole shebang.
It's very integrated software.
Preplanning of inventory and.
Our smart warehouse and a smart connected delivery route.
And.
It's it's secular so that the e-commerce and <unk>.
Desire by us and on the phone and everyone is more quicker.
And so.
It doesn't have a cadence of the.
Delivering the industry's ability to deliver is behind our desire to get it.
And so that's why the industry is sold out for over a year right now.
So it's not.
It eventually have a Pos and we all know it.
And it will probably be and exogenous event, we're not talking about but in terms of the core through the cycle.
Macro theme, it's pretty solid and then it just tied into consumer behavior.
Okay. Thanks, a lot.
Thank you.
Your next question comes from the line of John <unk> with Sidoti. Please proceed with your question.
Thank you my question has been addressed.
Thank you John it's John.
Okay.
Amy do we have more questions and the Q.
Okay.
And there is one further question from the line of Mike Celski with calling your security.
Alright.
Oh I know.
Right and long, but I've got one more for you, perhaps I can follow up later with other stuff.
And maybe I'm being a bit too much into this but I didn't notice. This was the first time I ever saw on your on your slide deck and your press release could you never actually used the words commercial vehicle and group only using CPG and appears to be scrubbed. Most people on your website as well.
I'm curious.
Do you have any kind of.
Major brand change underway or any kind of a long term plan for how you name yourselves and call yourselves given that you are trying to go beyond just commercial vehicles.
You are correct that we've shortened ourselves to C V G.
And you.
Commercial vehicle.
Group adds a lot of credibility to what we're doing.
And there's a lot there's commercial vehicles all along the route here.
Perfect name now, but its good enough.
And and if you look at all of the vehicle.
Work that we're in.
Aligned with they're not all commercial of course, and military and recreational and other types of vehicles.
If you could if you would maybe not have to see and there if you could do it over again.
But it's good enough and we.
We started a social media campaign yesterday.
With our new image for electric vehicle market and it's called CVD EV.
And it's just rolling out right now so we're sticking with C V. G right now and are building upon it and.
It's net helpful. It's net helpful.
Net legacy knowledge and the name recognition.
Okay fair enough I'll leave it there thanks, so much guys.
Thank you thank.
Thank you Amy with that I think that we're through with the Q&A period.
Okay.
Alright, and few of any further closing remarks. Please proceed.
Okay. So thank you everyone for your attention today and we appreciate your support.
Current and future investors and.
And we're very optimistic about our future and we look forward to reporting out our results on a balanced manner as we go through this.
Thank you very much and with that will and the call.
And this concludes today's conference call. Thank you for your participation you may now disconnect.
And.
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