Q1 2021 Tenneco Inc Earnings Call
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Good day.
Welcome to the Tenneco, Inc, first quarter, 2020 one on them.
Conference call and webcast.
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<unk> Golla, Vice President Investor Relations.
The floor is yours ma'am.
Thank you and good morning.
Earlier today, we released our first quarter 2021 and earnings results and related financial information.
Presentation corresponding to our prepared remarks is available on the investors section of our website.
Please be aware that our discussion today will include information on non-GAAP financial measures on.
All of which are reconciled with GAAP measures and our press release attachments and other earnings materials.
When we say EBITDA it means adjusted EBITDA.
Unless specifically described otherwise margin refers to value add adjusted EBITDA margin.
The earnings release and other earnings materials are available on our website. Additionally, some of our comments will include forward looking statements.
Please keep in mind that our actual results could differ materially from those projected and any of our forward looking statements.
And and near term, we're looking forward to participating and two virtual conferences.
Including the Keybanc capital markets Conference on June 3rd and the Deutsche Bank Global Auto industry Conference on June 17.
Our agenda for today starts with the Chief Executive Officer, Brian Kesseler, giving first quarter highlights.
Operating officer, Kevin Barrett will provide more details on our enterprise and segment performance.
And our Chief Financial Officer, Mehdi Masada, Vince will discuss our balance sheet and outlook for the second quarter and full year, 2020 one and.
And Brian will conclude with remarks on driving shareholder value creation before we take your questions.
Now I will turn it over to Brian.
Brian Thank.
Thank you Renee and good.
And everyone and welcome.
Let's start on page four.
I mean, I'll start and new fiscal year building on our positive momentum from the second half of 2020.
There are three key areas I'd like to highlight today.
<unk> business execution.
How we are strengthening our balance sheet and.
And the ways, we are driving value for our shareholders.
First on our business execution.
We saw strong profit conversion on higher volumes, and a challenging supply chain and production environment.
And that same thing our accelerate program continues to produce results delivering structural profitability improvement and.
Margin expansion and cash generation and benefits.
We're expecting incremental savings from the program of $110 million and 2021 plus $35 million.
Realized year and run rate savings projected to be carrying over into 2022.
Second we remain focused on strengthening our balance sheet with a priority and on cash generation and debt Paydown.
And I will review in more detail on here a few takeaways.
We ended the quarter with $2 $1 billion and liquidity with no outstanding balance on our $1 5 billion revolver.
We extended $800 million of debt maturities through 2029 at similar cost and this extension clears the path to refinance our senior credit facility, which consists of our revolver.
On a and term loan b and the future.
These are all clear and tangible indicators of the increasing health of our balance sheet and access to the capital markets and.
And we expect both to improve in tandem with our operating results going forward.
Lastly, I also want to remark on our priority of dry.
And value for our shareholders we.
We have the potential and unlock significant near term volume through debt reduction.
We are also realigning our product lines and investments to bolster our core growth platforms, which Kevin will discuss in more detail.
As part of this we have renamed our ride performance segment to performance solutions.
Concurrent with the transfer of our business lines previously managed within the powertrain segment to the performance solutions segment.
By focusing on our growth opportunities and motor parts performance solutions and commercial truck off highway and industrial we are strategically realigning our revenue mix and positioning in the enterprise for long term sustainable growth and higher returns to our shareholders.
We are relentlessly focused on delivering results both the near and long term and are pleased to share on our first quarter results with you today.
As further evidence of that commitment.
Turning to page five I'll walk through and a review of our first quarter 2021 results.
Our first quarter total revenue was $4 7 billion.
Up 23% year over year.
<unk> AD revenue was $3 6 billion.
Up 13% year over year, excluding foreign currency effects.
Our scale and diversification and product lines and markets and broad geographic footprint our per.
Primary advantages for us.
On this slide we break down our first quarter's value add revenue byproduct application and region.
Looking at the value add revenue split by product application, 60%.
It was independent of OE light vehicle internal combustion engine technology, specifically aftermarket and Oems.
At 28% commercial truck off highway and industrial at 17%, while powertrain agnostic light vehicle OE made up 15%.
Our constant dollar value add revenue performance by market includes 38% growth and CTO and China.
14% and light vehicle and.
And 1% and aftermarket and Oems.
Looking at the split by region, North America was our largest contributor and a quarter at 40%.
Followed closely by Europe, and 38% and China generated 13% of our value add revenue.
We delivered improvements in adjusted EBITDA, and adjusted EBITDA margin and all segments.
And reduced our net leverage on the quarter.
Adjusted EBITDA was up $149 million year over year with value add adjusted EBITDA margin improving to 10, 7%.
We took another big step and reducing our net leverage ratio, which declined by 0.4 times since year end to three nine driven by seasonally better first quarter cash flow and higher EBITDA.
We are especially pleased with our cash performance in Q1, which was much better than historical lows for our first quarter.
I'll now turn it over to GAAP.
Thanks, Brian I'll start with our first quarter enterprise performance on page seven.
As Brian mentioned, our value add revenue was $3 6 billion and the quarter.
Up 13% year over year after excluding the positive impact of currency exchange rates. Our top line benefited from strong commercial truck off highway and industrial markets as well as a significant recovery in China light vehicle production.
All of our reporting segments showed revenue and margin growth in the quarter.
Adjusted EBITDA grew 62% and the first quarter because of continued solid operating leverage on the higher volumes or accelerate plus restructuring program that we started a year ago is delivering the savings we anticipated and provided a lift to our operating performance this quarter our value add adjusted EBITDA margin increased to 10, 7% and the quarter.
Up 310 basis points with all segments showing improvement adjusted EBITDA includes $47 million and corporate costs.
Let's turn to our motor parts business performance on page eight.
First quarter aftermarket revenue was $719 million on a year over year basis sales volumes were slightly favorable but were affected by adverse weather conditions in North America and the middle of the quarter, we saw strong out the door sales and customer orders at the end of the quarter, which created a good setup for our second quarter.
Adjusted EBITDA for the quarter was $105 million up 44% year over year margin at 14, 6% was up 430 basis points compared to the prior year on.
Our operating performance of $35 million benefited from restructuring and cost savings. We successfully closed three U S distribution centers and the first quarter as we continue to rationalize our supply chain and distribution network through our VSS initiative, taking out low value add complexity.
Please turn to page nine as Brian mentioned, we have changed the name of our ride performance segment to performance solutions. This business is now aptly named as it describes the broad offering of the segment's highly engineered products and solutions available to our customers the business supplies and mission critical products and applications to.
The automotive commercial vehicle two wheel and industrial end markets also note that we have recast quarterly and full year 2020 results pro forma for the reporting unit transfer from the powertrain segment into this segment.
First quarter revenue of $787 million was up 14% year over year on constant currency, driven by strong growth and commercial truck off highway and industrial revenue, which was up 45% year over year.
Adjusted EBITDA of $47 million was up 24% and adjusted EBITDA margin was 6% up 30 basis points compared to a pro forma prior year.
Margin growth was driven by operating leverage on higher volumes.
Product lines and this segment are agnostic to the powertrain technology and a vehicle in the first quarter. The business was awarded five new programs for battery electric vehicles or hybrids and three of which are pure EV. During 2021, we have 19 launches from EV hybrid or E bike programs with annualized revenue of greater than one.
Hundred $50 million examples of programs recently announced include the Volkswagen I'd for electric SUV and the BMW <unk> electric SUV, both of which are available with our continuously variable and semi active suspension technology and factor on a third performance solutions active new business.
Wine and a third of the year to date of awarded business is battery electric vehicle or hybrid.
Turning now to clean Air is results shown on page 10 and <unk>.
Clean air value add revenues were $1 4 billion.
And increased 19% year over year, excluding foreign currency effects.
Light vehicle value add revenue expanded 13% versus the prior year period, and OAS grew 26%.
Clean Air commercial truck and off highway revenue growth was impressive with value add revenues up 44% year over year, our China commercial truck revenues almost tripled compared to the first quarter of 2020 due to China six per vehicle content gains and underlying market strength further the segment's CTO HII.
Revenues benefited from volume recovery in the developed markets compared to the prior year period.
<unk> made up 22% of the segment's value add revenues and the first quarter compared to 19% for all of 2020.
Adjusted EBITDA was $157 million and increased 51% compared to the first quarter of 2020, adjusted EBITDA margin was 15, 2% expanding 290 basis points year over year.
Solid operating leverage and conversion on increased volume and favorable business mix supported this segment's strong profit performance.
Please turn to page 11 for details on powertrain, which delivered another strong quarter at constant currency revenues increased 16% versus the prior year light vehicle revenues grew 16% year over year and benefited from steel pissed and launches for gas applications, new technology, advancements and bearings and demand recovery in China.
Ana and India. Additionally, commercial truck off highway and industrial sales gained 31% compared to the prior year period powertrain has significant exposure to the commercial vehicle and industrial markets in Europe, and North America and is benefiting from the volume rebound occurring in those regions OE service revenues decreased 3% compared to the <unk>.
First quarter of 2020.
Adjusted EBITDA measured $126 million and increase of 85% versus last year's first quarter. Adjusted EBITDA margin was 11, 4% representing 400 basis points of expansion year over year strong operating leverage on higher volume higher JV income and restructuring savings were the key <unk>.
<unk> to the performance.
I'll now turn the call to Matti <unk> to discuss our balance sheet and guidance.
Thanks, Kevin I'll start on page 13, and get into the first quarter. The company's liquidity was $2 $1 billion with no outstanding balance on its $1 5 billion revolver.
The company's net leverage ratio declined to three nine times, a four turn improvement from year end.
EBITDA growth benefited our performance as well our cash usage was well below normal seasonal levels for our first quarter and also contributed to the net leverage ratio improvement.
As previously communicated we have lowered the capital intensity of our business with sustainable improvements and our working capital days led by a heightened focus on reducing inventory days outstanding.
Further we have structurally reduced our capital spending as a percentage of sales by more aggressively reusing existing equipment and physical capacity relative to historical company practices.
Concurrently, we continue to make investments and our accelerated plus restructuring program to fund plant consolidations and eliminate unused capacity, we are driving accelerate plus to enhance our earnings and cash flow near term, our top priorities remain cash generation and producing.
Reducing our net debt and net leverage.
During the quarter, we issued $800 million of senior secured notes due in 2029. The proceeds of these notes were used to redeem and an equivalent amount of 2024 senior secured notes.
Refinancing extended our maturity profile and a similar cost structure and clears the path for us to address a revolver and term loan and maturities in 2023, and the term loan b and maturity in 2025.
Turning to page 14, we have updated our full year guidance and initiated a Q2 outlook.
We are increasing our guidance for 2021 and value added revenue and EBITDA based on our outperformance and the first quarter. We have increased our full year value added revenue guidance range to 13, 5% to $14 billion.
Which is up from our prior range of $13 2 million to $13 8 billion.
At the midpoint, our range implies year over year growth of 14%.
Our revenue range uses of global light vehicle production assumption of 80 million units no change relative to our initial view of the year.
Our conservatism versus in mid April IHS forecast is relatively balanced across the remaining three quarters of the year.
Additionally, we have raised our 2021 adjusted EBITDA guidance by $50 million to a range of $1 35 to $1 $45 billion.
At the midpoint, our revised EBITDA guidance translates to a 10, 2% value add EBITDA margin for 2021 of 150 basis point improvement compared to 2020.
As we have previously discussed the temporary cost savings that benefited us and the second and third quarter of 2020 was $100 million and the second quarter and $50 million and the third quarter those costs will come back this year.
Our accelerated plus restructuring savings will partially offset the reversal of those cost reductions.
For the year, we expect to achieve a $110 million of year over year savings from the accelerate program.
Shifting to the balance sheet, we now forecast our net debt to fall below $4 2 billion.
By year, and our guidance for 2021 cash taxes and Capex is unchanged.
As a reminder, our cash flow is typically seasonal and we anticipate a significant inflow and the second half of 2021 and.
And the middle of the page, we have initiated a second quarter outlook. Our value added revenue forecast is three three to $3 5 billion.
The midpoint of the range implies year over year revenue growth of 69%.
We have factored and recent downtime announcements from several of our key customers into the guidance.
Our adjusted EBITDA range is $325 million to $355 million.
Sequential margin performance is forecasted lower primarily due to lower light vehicle production expectations and timing of material cost recoveries.
As we are lapping in the second quarter of 2020, we're targeting and net leverage ratio of approximately three times on a trailing four quarter basis at the end of the second quarter.
I'll now turn the call back to Brian for concluding remarks.
Thanks, Mike turning.
Turning to page 15, I'll close with a summary of our priorities for driving shareholder value and both the near and long term.
We are highly focused on driving disciplined performance on.
And our cost reduction efforts are yielding sustainable structural benefits and our accelerated cost program is on track to achieve $265 million run rate savings by the end of 2021 as compared to 2019 baseline.
We continue to lower our capital intensity through a mix of optimize capital spending and working capital management and.
In addition, we are broadening the use of value stream simplification tools across the company to enhance our long term growth and margin performance.
Second we intend to build a strong balance sheet for the long term.
Our free cash flow generation continues to improve and net debt reduction has the potential to create the most value and the near term.
Additionally, our debt maturities are being extended.
Most important capital allocation priority is funding projects that enhance profitable above market growth and.
And the near term, we will use our free cash flow performance to reduce our net debt to EBITDA ratio towards our target range of one five to two times.
Once those first two priorities are met we will evaluate strategic acquisitions that enhance the positioning of our key growth platforms.
And balance those opportunities against returning capital to shareholders on.
On the right side of the page you see our priority to generate long term sustainable growth.
And our growth platforms are our linchpins to increase and our growth over market.
Other parks performance solutions and commercial truck off highway and industrial are positioned to drive the growth of the company and the intermediate to long term and the emphasis on these businesses should lessen our exposure to light vehicle internal combustion engine.
Over the mid and long term, we are targeting 80 plus percent of our revenues to be unrelated to light vehicle OE internal combustion engine technologies.
Additionally, we are managing the clean air and powertrain segments for high cash conversion to reduce our financial leverage as we invest more and our core growth areas. The.
The strategic relevance of our business lines will evolve over time, and we intend to maximize their value for the benefit of our shareholders.
We continue to build on our positive performance momentum and strengthening our balance sheet and improving our margins and reducing our leverage ratio.
Above all we remain committed to managing our business and the way that will generate sustainable growth and returns.
We are encouraged by our strong start to 2021, we would like to thank nearly 75000 tenneco team members for their commitment and resilience and for taking care of each other and working to keep our facilities around the world operating safely.
We're proud of the high level of service they delivered on our customers as they continue to drive improvements and our business performance.
Thank you for taking the time and joining us today.
We will now take any questions.
Yes, Sir.
We will now begin the question and answer session.
So ask your question and you may have.
And then one on Samsung.
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Again Thats Star then one to ask a question at this time.
And we'll just pause momentarily to assemble our roster.
And the first question will come from Ryan Brinkman JP Morgan. Please go ahead, hi, and thanks for taking my questions.
The <unk> and the <unk> guide and increased full year outlook I think arguably the <unk> guide is the most impressive as other companies we cover when either reaffirming our raising their outlook for the full year they've for the most part cautioned on <unk>, whereas youre sort of guiding above the street here I just wanted to check in on some other drivers of that including relative to the top line.
And the degree to which you think you might be differentiated relative to other suppliers. When it comes to semiconductor impact. So can you maybe talk about Europe.
Light vehicle OE customers are they maybe allocating ships more towards the products you have higher content on versus those which have lower content.
Primarily I am thinking of pickups, but any other color you might have there and then I imagine your aftermarket exposure helps narrow what about Europe.
Non light vehicle end markets on the Meritor recall, there was some discussion now and you're starting to see some impact now on commercial on highway from semi but I'm presuming, it's less and I don't know some of your other end markets like agriculture et cetera, what impact are you seeing.
Yes.
I'll start with the light vehicle side.
The.
Our North America makeup of our revenue generally is about 85% plus to trucks, Suvs and <unk>, which are some of the higher selling vehicles, obviously, these days and and that light truck space, where we see Roe.
Focusing their allocations and so that production, obviously, we're seeing a big drop off here and a quarter versus what we saw on the first quarter and those production rates. We believe we've got that appropriately.
Forecast it out.
Still a little conservative as as we've talked about and our guide. So we think we've got that I think the and the rest of our burner.
Benefits come from the diversification of the portfolio <unk> is still very strong for US yes, we are starting to see some production.
Delays, if you will from some other players and the commercial truck space, especially in Europe.
Off highway continues to do well and our China business, while the China production.
We forecast probably going down over the year versus what we saw on the first quarter, we've got big gains there from the China six regulation on the content and and our aftermarket as you've followed us for a while our second quarter's truck generally are strongest aftermarket quarter. So we feel pretty good about the guidance.
And being a little bit still more conservative on light vehicle, obviously, Matt talked about using $80 million to build.
For our assumptions from the balance of the year, that's about 1 million more conservative per quarter than the mid mid April IHS, we anticipate the IHS.
May numbers to come down based on all the recent announcements from last week or two so I think this is just an indication on where our diversification and end markets really is helping us out.
Okay. That's helpful. Thanks, and then just lastly from me I'd like to check in on the environment for M&A, including those results as it relates to potential dispositions right. So we've been asking other companies this quarter about the M&A environment, and they've mostly been complaining because for the most part and they're looking at acquisitions, but finding that the transaction or potential transaction multiple.
And are quite elevated including because of the rally and the broader equity markets and because of that just generally a lot of liquidity that's out there.
And that you've spoken more of the potential for dispositions, though and including to accelerate deleverage et cetera, I would imagine for you you might be happier about this backdrop. So I know you are often limited on what you can say on this front, but is there anything to maybe report about the number of inquiries or and maybe the multiples that are being discussed or anything else that might be encouraging.
Yes.
Brian as you said, we're moving.
And what we can talk about it I do think and act.
Active M&A demand is positive overall for us, but we're also going to make sure we're.
Balancing here the right value from the right time, we've got some very very good cash engines, and the business and our optionality really increases dramatically by getting our debt reduction down into that range. We've talked about one five to two times on the leverage ratio.
And at that point.
We feel pretty good now of course.
For two different opportunities, but it will always go through the lens of maximizing shareholder value from both the near term and a long term net reduction if you just do the math.
Drives and most near term shareholder value and that our focus on cash flow. We're really we're really happy with our Q1 cash flow free cash flow performance traditionally and Thats, a very large outflow quarter for the Oes and general and us.
And us.
But this is.
We're pretty pretty good $74 million and operating cash flow, which is really far below on our 10 year average for first quarter.
Very helpful. Thank you.
And next we have Joseph Spak of RBC capital markets.
Thank you.
Good morning, Brian.
And and clean air.
And.
You've consistently.
Over the past three quarters have been.
Above the sort of 15% and EBITA margin level now.
I understand that next quarter.
Probably takes a hit.
A little bit, but have we sort of turned the corner here is sort of 15 and more sustainable level and where can we go on that segment.
And from a clean air perspective, a lot of our growth foods highlighted on the on the call with CTO HIV, we continue to move.
Move the mix and there so and that generally has higher margins for us obviously.
Clean Air is a big portion of our North America business, where commercial where the pickup trucks light vehicle SUV SUV user base of this downtime and the second quarter hurts hurts them a bit.
But we're going to be moving both the clean air and powertrain mix too.
Two more over the mid to long term to more of a 50% CTO Hei revenue makeup and a 50% light vehicle makeup so that should.
Maintaining our disciplines.
Continue to give us opportunity.
And our and our margin rates are over the mid to long term at 15%, where they've been hovering and lately is pretty good.
And we just got to manage through some of the challenges here and the remainder of the year.
Okay.
And the new performance solutions segments segment.
It seems like that re classes is helpful to the margins Ken.
Can you just give us maybe some color on I guess, the underlying legacy ride performance performance. This quarter, yes, so continue to be very pleased with.
Right now we're running on <unk>.
And five business lines business units underneath there our advanced suspension technology business continues to grow a lot of what Kevin mentioned on the new Biz.
Business Awards.
And thats above average margins for us are nva's performance materials businesses is in that group again, good growth forecast and lots of opportunity on the battery electric vehicle side, where we're seeing most of our growth from that segment. We've moved the systems protection group over there again, great opportunities. There all three of those are really highly ns.
Neared solutions solutions.
And thats, bringing a lot of value to our customers.
And help them address issues that they have as they look to differentiate their vehicles and protect the performance of their vehicles are ride control group is making steady progress.
Struggled with the consolidation to from four plants to two in the midst of all the other COVID-19 challenges, but that team is really starting to hit their stride. So we expect that to continue to improve throughout the year and then our braking business has a couple of challenges and.
Inside our North America side that Theyre, starting to hit their strides so on.
I'd like to trends were on for the performance solutions group.
Okay and.
And lastly, you mentioned some of the interest.
And <unk> got some some lower margins it sounded like you were easy relative to first quarter, which it sounded like Youre basically just.
And assuming I guess slowdown.
Less leverage on on sort of the lower volume sequentially.
But is there anything we should be thinking about from either from the second quarter the balance of year from a commodity air freight perspective, and these are these are obviously headwinds and even Susquehanna and I know steel has historically been something.
And certain segments, but we've also seen.
And our residents increased quite significantly as well so I'm wondering whether there's anything baked into the forecast there and and.
And if so what are what are some of the offsets.
Most of the material cost we're experiencing on the material cost headwinds just like everybody else deals are big and impact for us and there's several other commodities now if you remember two or three years ago, we went to work hard on getting formal.
Recovery mechanisms in place on steel and that's benefiting us at this point what we're seeing is we still have to do negotiation and we're working very closely with our suppliers and and and our key partners there are helping.
And impressively as we go through that what we're seeing is the timing issue normally there's a 90 day lag, sometimes there's a little bit longer lag depending on the on the customer side. So the commodity increase we still got a little net risk out there that will continue to manage and our goal is always to offset.
Most of our challenging on the next couple of quarters and.
Depending on where these if these commodities continue to escalate is going to be the timing of the recovery and when that comes back in.
Okay, and and as your current thinking that.
And if things stabilize on Thats no.
Back half of the year or is it.
And if things stabilize and I think it was the back half of the year.
Usually 90 day, maybe 120 day lags and again that depends there's a lot of variation customer to customer.
Aftermarket is usually a 90 day lag obviously, we pass that through on on price and that goes all the way through the market. So it's just a matter and making sure we get so get through this and continue to escalate.
And we continue to have that lag and as we go now if it comes down and we get the benefit of that at some point hopefully.
And on the aftermarket side have you push through price increases or are those sort of predetermined.
Calendar dates.
General and pushing through.
Thank you.
Thank you.
And next we have Bret Jordan from Jefferies.
Hey, good morning, guys.
Good morning.
On the aftermarket business I think you've commented about strong Pos late in the quarter could you talk about what your retail inventories are looking like year over year, and obviously, some pretty strong sales net channel or they light going into the second quarter.
And we saw we saw that pick up as we are.
And went through the first quarter, we had a pretty big lull there in February and with some of the big weather disturbances and the south and in the Midwest.
The fact is from a production wise, but also from demand what we saw our customers Pos.
POS really starts to take off they have some per day had a pretty good quarter pretty much across the board and on some of those are seasonal categories that we don't produce or deliver but we did see a good Pos usually for reorder points. After a good strong Pos it's a 30 to 60 day lag as those orders come in and so we saw a good order book.
And coming into the quarter, we were happy with what we saw on April.
So we're we like from a bare retail inventories I think its normal ebb and flow off of their demand and supply.
Supply, but there are restocking off after a pretty good March and early April.
And I would like and second question was as far as specific categories that you were seeing strength and was it.
Anything specific and seasonal mix versus anything that was out of the ordinary.
Now pretty much across the board I mean, we've got we've got a couple of places where we've purposely discontinued product lines as we go through our BSS work and I just wanted to add and the value.
And allows us to do a lot of what we're doing from inventory optimization and Kevin mentioned taken out three Dcs and lowers our structural costs. So.
And on in the ordinary pretty much across the board.
Little bit of variation as we go.
Okay and then one final question I think you had mentioned that it is the performance solutions youre getting into some of the semi active suspension products into the EV and hybrid is that higher value or higher margin and the average mix and the segment yes.
Okay.
Talked about sort of what the what the spread is on margin mix versus the average.
Well I think it's a little bit of when you snap the chalk line I mean, we've got some work to do to get our conventional <unk>.
Product up to the right margin mix as I think we've talked generally about any of these OE segments being at about a 7% bit per.
Performance and so and the mid term we were looking to drive the business there.
From where it's at and we're making good I think we're making good progress obviously on for stronger mix, we get into our systems protection business on Nva's business and our advanced suspension technology side, we will start to we would expect to start to drift above that.
Great. Thank you. Thank you.
Thank you and as a reminder, if you'd like to participate and today's Q&A. Please press Star then one on touch Samsung again on Star then one to ask a question.
And next question will come from James.
Flow.
Keybanc capital markets.
Hey, Good morning, guys. Good morning, James I, just wanted to go back to the to get some color on the rationale for the re segmenting the powertrain and ride performance businesses.
Is this just.
And Dane and reshuffling of few of the underlying business lines right in terms of other reported or.
Is there something more strategic thats driving the realignment and right in terms of cross selling.
Efficiencies along those lines.
And then there's a little bit of a combination of it.
The makeup and the I'll call it the cell.
The systems protection business is very very similar to the seller and VH performance materials and Asps, it's very much a problem solving highly engineered.
Product line and.
So we still go to market.
And separately, calling on some of the same customers, but it does allow for some of those problem areas to be.
Look at as opportunities faster.
Kevin I don't know if you want.
I think also systems protection products applications are essentially all of the vehicle and.
And so it came via the federal mogul acquisition, so it fit within the rest of the federal mogul products, but it really isn't a pure powertrain product and given where we are the ASD and NPH.
And so the growth and battery electric vehicles, which we also have applications for through systems protection, just seems like a much better match.
Got it and my apologies if I missed this but did you quantify or provide any context on on your net commodity exposure for the year. How are you thinking about the back half.
And what's embedded in the guidance and we haven't and we haven't had a netted that out.
And fluctuating quite a bit mostly because of what we discussed earlier, which is the timing on the recoveries were.
And we're hard at work with our customers and with our supply base. So it's.
Our intent is always to fully recover.
There is some some parts of that we can't get to them. We got we worked to offset or somewhere else. So.
It's a little bit difficult and moves around quite a bit on our site.
By the time I said, it too right now and probably changed five minutes.
Yes, no I hear that.
Moving to five point on that though we do have escalation agreements with the customers and so on the vast majority of the commodities, we're able to pass them through various customers have different time lags on them and when we go and get that that pricing, but but there are contractually agreed to.
Got it and can you just remind me.
The seasonality of price increases within motor parts within the aftermarket businesses as debt.
Twice, a year and that.
Always passed.
This is twice a year or so.
And just like July timeframe, I think kind of forget.
Generally it goes through I mean, we're experiencing commodity increases or even afraid economic increases that we're seeing across the network today.
And we experienced some and we lock them in and we will pass on right away and then there is usually a 90 day lag. So I don't know that Theres a specific schedule and.
In fact, there isn't a specific schedule as to when price increases go. It's when we see significant movement. Then we put it to the market and that usually goes it goes and placed 90 days out to the market.
Thanks.
Thank you.
So no further questions at this time, we'll go ahead and conclude today's Q&A and conference call.
I would like to thank the management team for their time today.
And thank you all for attending today's presentation. At this time you may disconnect. Your lines. Thank you, everyone again and take care and have a wonderful day.
[music].
And.
Yes.
And then.
And.
[music].