Q1 2021 Commercial Vehicle Group Inc Earnings Call
Excuse me, ladies and gentlemen for just the operator today's conference call will begin momentarily. After that time. Your line is the ones that can be placed on music hold thank you for your patience.
[music].
Yeah.
Good morning, ladies and gentlemen, and welcome to the C V. G first quarter 2021 earnings conference call.
Today's presentation, all parties will be in on listen only mode.
The presentation of the conference will be open for questions, but the instructions will follow at that time as a reminder, this conference is being recorded I went on.
At the turn the call over to Mr. Crisp on it Chief Financial Officer. Please go ahead Sir.
Thank you operator, and welcome to our conference call joining me on the call today, as Harold Bevis, President and CEO of CPG.
We will provide a brief company update as well as commentary regarding our first quarter results after which we will open the call for questions.
This conference call is being webcast and the supplemental earnings presentation is available on our website. Both may contain forward looking statements, including but not limited to expectations for future periods regarding market trends cost savings initiatives and new product initiatives among others actual results may differ from anticipated results.
Because of certain risks and uncertainties. These risks and uncertainties may include but are not limited to economic conditions in the markets in which the Vg operates fluctuations in the production volumes of vehicles for which TPG as the supplier financial covenant compliance and liquidity risks associated with conducting business in foreign countries and currency.
These and other risks as detailed in our SEC filings I'll now turn the call over to Harold to provide a company update Harold.
Thank you Chris good morning, everyone.
On today's call will provide an overview of our first quarter results followed by an update of our strategic initiatives designed to our earnings while also staying C. G to deliver more stable results that we strive for the cyclicality of our business and improve the clear growth outlook.
Chris will discuss our financial results in more detail as well as view of our recent debt refinancing, which reduced our interest expense getting them built.
In the second quarter.
While also freeing us of restricted covenants that precluded us from M&A well the.
Then conclude by opening the call on answering your questions.
Please turn to page four of our earnings presentation.
We delivered record sales for the FERC core for US 2021 of $245 million, an increase of 31 per cent as compared to the year ago first quarter.
The strong growth was largely driven by what are sort of making.
Where we delivered 41 quite nicely and the sales representing 22% sequential growth.
And remains on track to meet or exceed our full year goal of $150 million of warehouse automation sales.
Our operating income increased to $15 4 million in the first quarter, which compares favorably to a loss of $26 5 million in the first quarter of a year ago. The <unk>.
<unk> larger the bulk of better volumes combined with her.
So for the best.
Reduce our cost structure and drive operational efficiencies across the company.
Rationalizing and reallocating our cost profile has been a priority of our management team and will provide a benefit of tariffs continue to improve.
2021st quarter did include an impairment charge that did not reoccur.
Adjusted EBITDA was $21 1 million first quote representing nearly a 100 per cent increase as compared to the 11 million net we delivered in the first quarter of 2020 the.
Improvement was due to higher revenues with an improving sales combined with expense reductions and profit optimization actions that we executed throughout 2020.
And which can be very focused on on the pad.
We delivered 26 cents.
Per diluted share in the first quarter compared to a loss 80 cents per diluted share in the first quarter a year ago.
As we have been speaking about over the last year and keep on the business transformation strategy.
The new growth.
As we reported last quarter, we used to be $100 million of annual New sales awards in 2020 with approximately 40, new customers the bulk of it.
We're in the warehouse automation electric vehicles for the last mile delivery.
Our figures when we speak about new business wins.
Is the annual revenue amount when the work is fully ramped up.
Whereas the permission Miller.
Holding business the shorter cycle from awards delivery so.
So the wins that we see in 'twenty honey.
Flow, Inc of revenues in 2020 of them.
Winning new business is a focus of our organization and central to accelerating our sales growth expanding our profitability diversifying our end market exposure away from legacy long haul diesel trucks.
In the first quarter of 2021, we achieved.
The other net new business win the award amount of the $100 million, primarily in our growth and market electric vehicles.
Where we continue to win positions on platforms with new and existing electric vehicle manufacturers.
Given that these new business will share in the electric vehicle sector.
It will take several years to ramp up.
Before delivering 100 million in annual revenue.
Ted This is improving the building from the Companys revenue profile over the medium term and new vehicle platform for us tend to last a long time and have an aftermarket after that.
Turning to slide five.
With the Kevin Monotropy narrow spirit across our company for.
Focus on delivering better value to our customers, while also delivering additional business and against the market.
We're becoming more innovative solutions.
The move us up the value chain customers.
Ultimately this will lead to improved profitability.
The cyclicality as we expand of the new markets and diversify our base.
Recently announced partnership with X O S is a prime example of the value of that can provide to an electric vehicle manufacturing manufacturer we.
We have provided an electrical just the.
The <unk> solution.
We are now helping them ramp from design to prototype to protect the more quickly.
We are an attractive partner because we can provide the design work for systems.
Hence the by the word seats and other products for the vehicle moved from design to prototype of the road.
Yes.
The value chain as we become an engineering services partner.
The system infrastructure.
Additionally, we are doing this in the last mile market, which is of the new base for G.
We're also having success expanding our intellectual property.
And manufacturing capabilities into new end markets.
We're leveraging our capabilities from the commercial pool business, where we have strong March punch injection the abilities.
The skill sets of manufacturing capabilities, we are evaluating markets to expand into like the correctly.
Recreational vehicle complex equipment, given the ability to produce large plastic for heart create products.
We have found one of our Differentiators in the east in these markets is our ability to deliver vibrant colors and aesthetics.
And it's highly valued on the some of these new end markets.
As we continue to have success spanning our business didn't mark.
So on the North American truck market.
Turning to page six.
As a result, it is important to understand the markets.
Which are now driving our business.
Furthermore, we are shifting our truck mix from first my diesel trucks to middle market excuse me the middle mile on last mile and electric vehicle powertrains.
North American truck market as you can see on this graph was 36% of our sales first quarter generally in line.
The quarter of 2020 level.
First quarter demand for class eight trucks was near replacement level at approximately 67000 units.
C. T research is forecasting annual truck the Senate.
As the 300000 units.
Through 2023.
Which will flow.
So the pivot our business.
And Eric from headwind that we're watching closely the production supply chain.
The materials labor freight and supply chains in general, especially logistics from China.
This will be of headwind to new truck builds as it is dampening production.
The OE on construction market is the second large end market comprising of 8% of our first quarter sales.
The business in this end market, it's relatively balance across North America, Europe, and Asia and.
And looking for we see of strong order book probably through 2021.
What will be supportive of demand.
The supply constraints for concern here as well.
Warehouse automation has quickly become our third largest end market and is 17% of our sales in the first quarter.
On the business just a moment.
And lastly for aftermarket and service business, while not on an end market is an important component of our business and represented 12% of our first quarter sales.
I believe this business is underappreciated.
As it has grown to nearly 100 million of sales.
While providing an annuity like revenue streams of CTG.
Turning to page seven.
Warehouse automation end market continues to be of significant growth driver for our company as we delivered approximately $42 million in sales during the.
The first quarter.
The 2% sequential is on.
The growth in E Commerce is driving the need for additional work thought nation.
Well handling of sorting and last mile the pre bands where industry expectations are for the entire warehouse automation industry to grow at about 14% CAGR.
Through the 26 or nearly doubling in size over five year period.
With the supply components for these warehouses.
Clothing complete work centers.
Given the strong market demand.
Combined with the business wins last year, we remain confident on our goal of delivering 150 million on sales in the segment this year.
And Additionally, our margins of this business.
Modestly accretive higher than our average.
As a result.
Profit for the benefit.
As warehouse automation continues to become a larger proportion of our total sales.
In Newark, new and emerging and market for CPG.
Electric vehicle on last mile Mark.
Jade.
Our competitive advantage resides on the fact that we have a natural value added product basket.
Makes it convenient for new vehicle companies to do their work.
Portly, you can design prototype and build a bunch of products for vehicle maker and we have 40 years of global experience doing it for.
We're currently involved with speak for vehicle platforms globally.
Both the existing customer.
Customers that are ending into the market as well as new EV market trends.
We have essentially created portfolios new business wins on electric vehicle.
That will allow us to participate in the coming true.
From diesel the electric vehicles.
And from the first mile to the last mile.
This is on full now and we'll do so for several years.
Turning for new business backlog.
On slide nine as.
As I mentioned, we secured enough for $100 million of.
For the first quarter.
93% of which were outside of our legacy truck business.
As we secure the wins new EV models entrance.
Entrance as well as new products correctly on specialty vehicle Kurtz for plastic parts.
It is important to reiterate the the position of our new business Awards will determine when those revenues will flow through our P&L.
Kevin for the majority of for when first quarter when the electric vehicle sector.
We will not see of peak value of these awards for a few years.
And turning to page 10, I am very pleased with that we've achieved over the last year as we've made significant progress executing our strategy to transform CPG.
The success is a direct function of the concerted efforts you've taken of Gulf quake losses.
And like many companies, we had to dramatically reduce our expenses and.
And transfer from our factories for COVID-19 safety.
Last year, which we successfully have met David.
And we also contributed a portion of it going through it.
We've also recruited the management team and implemented.
Pattern design Reaccelerate organic growth.
On the expansion into new markets the percent CPG Morrow and it's the quote growth opportunities.
Central to the transformation on our long term success the.
New entrepreneurial spirit and the winning culture.
Which we've created and has caused the excitement and energy across our company.
We're only in the very early innings of this transformation is taking hold and our aspirations are significant.
Looking forward, we will continue to grow on this wins, while maintaining our cost discipline is focused on profitability will also get the move up the value chain as we partner with our customers to provide innovative solutions to solve most challenging problems.
Turning to page.
All of them.
Our efforts to transform our company are clearly all the as we delivered record sales for the first quarter.
Very pleased with the comp.
But even marks on what the opportunities that are ahead of us.
Yes.
The buffer impacting our financial results already with the rapid expansion.
Warehouse automation business is experiencing.
So implementing a new port of foundation for the future of our vehicle business.
The efficacy loans.
That would be the <unk>.
And of course, and we are participating with over 30 platforms globally at some level.
Revenue summers and branded products.
When will begin to translate the revenue so the net figures, where we expect the market more meaningful part of our.
We're also successfully expanding our intellectual property and manufacturing capabilities.
Into adjacent markets like recreational specialty vehicles, which provides new greenfield for CVD and.
And taken together, we are executing on our plans to accelerate growth improve our profitability.
And cyclicality of our business.
Additionally, and as Chris will discuss in more detail the.
Refinancing of our senior debt not only reduces our annual interest expense immediately.
But also frees us up to be more focused with our capital allocation strategy and we can now consider M&A.
We see strategic M&A as an effective way took.
To expand into the new <unk>.
He sent variance.
The net half of our business transformation.
This take for them, we will just share with you in more detail.
Now ill turn the call over to the press for detailed review of for our financial results Chris.
Thank you Harold if you're following along on the presentation. Please turn to slide 13.
The first quarter revenues were $245 1 million, an all time quarterly sales record and up 31% compared to $187 1 million in the prior year period the.
This increase reflects the substantial increase in the warehouse automation business and on the North American heavy truck market, returning the near comparable levels to the prior year on a sequential basis revenue increased 13, 5% over fourth quarter of 2020 revenue of $216 million foreign currency translation favorably.
At our first quarter revenues by $4 3 million or about two 3% compared to the prior year period.
Like to spend a moment on our gross margins, which expanded the approximately 190 basis points to 12, 7% as compared to the first quarter of 2020.
This expansion continues to reflect a renewed focus on profitability and our improving business mix. The key drivers of the expansion where volume leverage business mix to the warehouse automation and market and operational cost improvement as compared to 2020 the.
The company reported consolidated operating income of $15 4 million for the first quarter of 2021 compared to a loss of $26 5 million in the prior year period and on adjusted basis operating income was $15 8 million compared to $7 1 million in 2020 the.
The improvement was primarily due to higher sales volume and an improved cost structure as a result of our cost actions and improved sales mix and an impairment that was taken in the prior year ago that did not reoccur in 2021.
We achieved adjusted EBITDA of $21 1 million for the first quarter, which was up considerably as compared to $11 million in the prior year first quarter adjusted EBITDA margins were 9%, reflecting an improvement of approximately 270 basis points as compared to adjusted EBITDA margin of 6% in the first quarter of 2020.
This margin expansion was primarily the flow through from the revenue and cost changes I mentioned earlier.
Our first quarter interest expense was $5 million as compared to $4 6 million in the first quarter of 2020 net income for the quarter was $8 5 million or 26 cents per diluted share as compared to a net loss of $24 6 million in the prior year period or 80 cents per diluted share.
Importantly, we were able to refinance our senior debt earlier. This week based upon our improved financial performance over the course of 2020 and through the first quarter of 'twenty. One. This is a significant milestone for CPG, which removes the onerous cost and covenants that existed in our prior debt structure. The details of our refinancing were published on Monday in our press release.
K to touch on the highlights on slide 14, our new $275 million senior secured credit facility that includes a $150 million term loan a and $125 million revolving credit facility, both with five year maturities. We used a portion of the proceeds to repay all of the outstanding principal of our term loan B, which was 100.
The $51 6 million at April 32021 on the date of our closing the.
The interest rate on our outstanding principal of Euro dollar plus 300 basis points compared to the old debt, which had LIBOR of plus 10, 10, and 50 basis points on the term loan b.
As a result, I expect our quarterly interest expense to be reduced by $3 1 million on a full quarter basis. Additionally.
Our liquidity expanded as a result of this from $120 million at March 31, 2021, $254 7 million on a pro forma basis under the new debt facility Lastly, the new facility includes an accordion feature that provides for an upsizing of the amount available by $75 million with incremental.
Lender commitments subject to financial Covenant compliance.
Harold mentioned this will allow us also to consider M&A opportunities.
The prior debt was the onerous and I could not be more pleased to not only have those covenants in high interest rate removed, but also bring on an outstanding group of bank partners, including Bofa for.
The third and PNC Bank, our bank group is highly crop is of high quality and will be good partners as we continue to grow CPG.
At this point I'll talk a little bit about our segment results starting with the electrical systems segment on slide 15 for the first quarter of 'twenty 'twenty. One on the electrical systems revenues were $162 2 million compared to 112 1 million in the prior year period, an increase of 44, 7%.
Foreign currency translation favorably impacted first quarter revenues by $1 3 million or one 2%.
The year over year sales increase primarily resulted from new business wins and warehouse automation and strength in North American construction and AG markets as Harold mentioned previously our electrical systems segment now represents 66 per cent of our total first quarter revenues as we continue to make progress diversifying both our business mix and.
<unk>.
Turning to the operating income in the electrical systems segment. They delivered $14 9 million of operating income in the first quarter compared to an operating loss of $17 $1 million on the prior year period. The increase was largely due to increased sales and an impairment taken in the prior year period that did not reoccur.
Adjusted operating income was $15 1 million in the first quarter compared to $6 3 million in the prior year.
Turning over to our global seating segment on slide 16, global seating revenues increased to $91 9 million in the first quarter compared to $76 million in the prior year period, an increase of 19, 9%.
Foreign currency favorably impacted our sales in this segment by $3 million or about 4% for the quarter. The global seating segment reported an operating income of $5 5 million.
During the first quarter compared to an operating loss of 400000 in the prior year period. The increase was due to higher sales volume and an impairment taken that did not reoccur. The first quarter of 'twenty. One adjusted operating income for this segment was $5 5 million excluding special charges.
This concludes our prepared remarks. This morning, I'll now turn the call over to the operator to open up the line for Q&A. Thank you.
Thank you at this time, ladies and gentlemen, if you wanted to ask the question. Please press star one of your telephone keypad I can't that is job one to ask a question. The pause for just a moment second part of the Q&A roster.
And your first question will come from the line of much of the ski with Conga Securities.
One of them.
Your line is open. Please proceed with your question.
Hi, I'm sorry, good morning, guys I was on mute there I apologize.
Good morning.
Good morning.
I wanted to follow up with the couple of.
E V with any questions.
First congrats on all of the new business.
You had mentioned in the slides that you've got some companies don't want to name names for you get a whole bunch of Youre working with for some of them are launching some models in 2021 and 'twenty 'twenty two Zumiez, Inc.
On what small numbers, but can you give us a sense as to whether those models.
Are on track to launch this year or is anyone seeing any issues again without the muni.
Anybody in trouble of I'm, sorry, I just wanted to.
Curious to see if he views in general are progressing on the way you had hoped.
And from our experience.
We've seen no delays.
If anything the pause that happened over the last year with COVID-19 and the related shutdowns that happened in the global vehicle industries.
These new instruments, the slowdown at all but move forward with their development programs.
Closed the relevant.
They have the vehicle makers.
The.
Pieces on it there's really no down at all of the.
The <unk> are just really to get vehicle how faster.
And we're seeing people do engineering prototyping legal bills.
Nichols.
Initial production vehicles, though.
You read more than we do Mike but from.
Of our standpoint the centers creates.
Doing very well not slowing at all.
Fantastic.
Great stuff on.
The top of that wanted to talk about.
The need the space as well I mean again, great Great news.
A great set of new contract wins here.
And then with some of the legacy diesel providers or the all with startups.
No. They are definitely our legacy customers as we previously reported in previous years in our 10-K.
They're they're all global powerhouses and they all have platforms that are just as important to us.
As the new people that the thing about the new entrants like for US we'd never sold for electrical.
Systems, our electrical solutions into the truck market, we don't really split and focus the construction equipment market.
On a couple of other ancillary markets.
With this kind of whole cloth opportunity, we entered into it as not just the build to print manufacturer, but of designer of record and the system designer.
The develop a few new products do it but we did it.
And we entered into that market.
Whole cloth of electric for our electric systems business as well.
On the designer.
And of course still good and.
Most of the new entrants as you would've.
<unk> kind of been the prototype phase.
The incumbents, mainly as you know from your reading have taken existing platforms and substitute of the powertrain.
From internal combustion engine normally diesel powertrain.
The normally on electric powered.
Powertrain so they they have the vehicles if you will in the production and make the and Theyre just converting the powertrain where of the new guidance.
The bulk.
And with both of them. They are both important to last month.
Sure got it.
I wanted to touch on was somewhat of some of the supply chain issues facing the industry.
Yes.
The first of all.
You had mentioned last quarter that there were some resin suppliers use given some of the weather in Texas, and getting things logistically to where it needed to be et cetera.
That changed at all and I've been hearing some companies again, there might be of customers, saying they can't get wire harnesses, it's been tough for them to find people who have them are you faced with any kind of because you're at record levels of of of of sales maximum capacity in certain places where you can't ship.
People.
Well, it's the constraint for sure and Theres a lot of public filers in the center strictly so.
And watching their Q1 results and what they said about that topic and certainly the.
The material availability residents mobility the multiple availability.
Medical a billing day all the chips.
And supply chain slowdowns or affecting the global industry.
It's.
<unk> already factored into our outlook.
We've accepted as a reality for this year.
That they're not going to have the corpus of demand. If you will to get caught up with the orders. If you track orders in the global industry of the orders are far out seeding production.
And so the production on the global industry is going to be muted or capped a little bit.
For the remainder of the year as this gets caught up with us as far as.
Connectors in the end.
The electric cornices, specifically to your question.
For sure.
And theres, probably $5 here, except that the global shortages and connectors.
And we've been impacted by that.
The option of ultimate for a person Gus this is the material substitutions.
And we've done more material substitution than we can recall.
We're coming close to 1000 net.
Real substitution that we've done on an index.
For the supporting.
It makes keeping of the season, the plants pretty hard to do.
Substituting materials line, but.
We really see ourselves going backwards, Mike we just see it is that you know of Gulfport constraint on that.
It's not getting worse.
It's just add in this thing and the.
The out sure.
The component suppliers to get caught up or several quarters with the exception of chips. If you read about the chip shortage, which impacts our customers.
So, it's really acts and strength of our customers.
It looks like it's kind of be it going on about a year and they have.
The substitute chips per day.
It's just we're dealing on substituting net.
It's out of our designs, our connectors may up to the to the electric control boxes.
And the nature of electric control of boxes chips in them.
And so they have a job to do the work around this constraint and so do we.
And we all are so I I see it getting designed around a little bit Mike, but it's not going to be rapid that's going on.
This takes a lot of detailed work.
Yes.
Well on that.
The kind of follow up there then my last question.
Since last quarter I, the last slide the ATT Zeller don't appear to have changed all that much for 2020 one.
Do you feel like just in the end the full year will get built might be later in the year, but it should be enough to make it work or it was just still waiting for any kind of changes in ACD is of your forecast as we get through the year.
The ACC youre right that the annual amount for this year.
Hasn't changed since our last reporting out of ICD information.
And our experience is consistent with this information.
But the the quarterly profile did change a little debt there was hope in the industry for a little bit bigger Q2 of truck builds.
And then happened.
And it's based on just getting smoothed out.
The Q3 Q4 and into next year or so.
We believe our belief is that this a C T information is reliable.
In fact has very well so we're embracing this outlook Mike.
It has been said in March there were challenges and there's still challenges in may So maybe it was the only kind of baked into the March.
ATT outlook on your own outlook, we haven't seen much difference is there.
The first statement.
Can you say that again.
Yes.
Is it fair to say that the.
The fusion 3000 unit outlook that we had in March on the sooner of allo today. The both back during the same issues those issues for there in March and they are still there now so perhaps that's already kind of baked in two of expectations before.
This call I think so the.
The one thing that I would say, Mike that I picked up.
Yeah.
Is that people are trying to work around the issues now just like the question you asked about us and harnesses.
There's ways to work around these constraints with material substitution and design work on theirs.
Activity around that so that people can get more trucks out the door, but.
I don't think it's going to be a major change the yes would say the same issues.
Our debt and that there is a lot of effort around them.
Got it. Thank you so much I'll pass it along.
Welcome. Thank you Mike.
And your next question comes from the line of Chris <unk> with body of research.
Good morning, Thanks for taking my questions.
You're welcome Chris.
Warehouse automation continues to perform well I'm looking at slide seven now.
I assume that you would continue to perform relatively well and the head of market growth expectations.
Electric vehicle platforms are under development.
And this should ramp.
Moving forward in the development phase as we look at these two buckets of opportunity in the context of gross margin internal and external to the company on what opportunities are you seeing now and could you see in the future for gross margin improvement whether thats through pricing.
Cost initiatives or inorganic adjacencies around your current opportunity set.
Chris you want to take that one.
Sure sure.
Yeah, Great question, Chris I appreciate it I think.
Our margins expanded quite a bit from fourth quarter, we had a few items that we mentioned in the <unk>.
<unk> fourth quarter call the dentists, a little bit that did not reoccur related to bonus and so forth. So we got expansion on a couple of areas.
One driver is mix as I had mentioned I think of in the coming quarters, we're going to see continued smaller potentially increases in the warehouse automation business.
On a percentage basis, but still significant growth year on year. So as we've mentioned before those margins are for.
Incrementally of slightly better than our overall margin. So I think our focus now is to continue the the business mix improvements that we've been making in the last couple of quarters now that the debt deal is behind me Harold and I are going to focus more on improving those margins in the coming quarters. So I've got a little bit more time to spend on that.
So.
I wouldn't expect.
Significant increases in our margins because we've got a lot of headwinds coming at us with respect to the supply chain and cost and so forth, but it will be a continued focus for us Chris in the coming quarters with a little bit more attention there.
That's perfect and congratulations on getting the debt deal done.
And a follow up to that if we kind of look longer term picture.
Just would be interested in your take on these two buckets of opportunity electric vehicle and warehouse automation.
Obviously, we're moving on a sequential quarterly basis and environment remains uncertain now, but internally do you have a sense of.
Gross margin potential.
Revenue potential for these two areas of the business.
Moving into a normal environment and.
Perhaps three to five years from now.
Yeah.
Yeah, I think on the on the revenue side.
We're going to continue to experience nice growth, obviously moving into adjacent opportunities is a key focus area for us.
With respect of margin enhancement I think again.
These are low capital intensive industries.
So we're assembling complex products and I think margin expansion is going to come through.
Looking at opportunities to improve our assembly processes and so forth so I wouldn't expect.
Fundamental change on those I think incremental is definitely on the horizon.
And I think the warehouse automation pieces hitting the P&L now, which we're fortunate to have that.
And I think on the EV side as we noted in the presentation. These are longer cycle wins, so more into the 'twenty two 'twenty three phase.
And the margins there.
No.
It's still kind of early to tell on those but again, probably incremental to our overall business.
Okay, and then one last question shifting back to some of Harold's comments.
Just about the importance, but its may often be overlooked the aftermarket piece $100 million in sales.
Can you talk about the positive dynamics, you're seeing in that portion of the pie.
On.
And how you see that business moving forward, whether from a pricing perspective, or even the market share perspective. Thanks.
Yeah. It's a good question the if.
If you look at our organic growth pipeline activities first we've had a couple of early victories here.
Warehouse automation and with electric vehicle.
The platforms.
We're just now starting to get a streak going.
Jack all the parts and that's why I mentioned it in today's.
Dialogue.
Those are also short cycle.
And so the those help on the short term, but we have.
Other areas debt.
Working on pipelines in the aftermarket business is one of them.
Our traditional business approach has been the service the vehicles.
Debt, we are on from an OE standpoint in that from market, but there is on all makes.
Aftermarket opportunity and the two really dramatically grow that business.
We're looking at for for instance, we we make floor at simple our flow masco.
Masco into certain trucks and then those formats, we're out we'll get a we get a aftermarket order.
For Mac now but.
But our equipment doesn't care format, it's making product for and there is on all make opportunities to expand on.
On our format this.
The mirror business, our heating business, one of our top customers of the aftermarket for seating.
Doesn't even have the.
Many big positions in the OE market at all so we think that business has a lot of opportunity on a go forward basis.
And then we have for businesses with MIT spoke about at least the sessions together.
That just ticked up on a couple of them for bats mirrors, our sensor business.
Our business in Europe, our business the cinema busy.
In Thailand.
Debt, we have we have pipelines that we're working on for all of those organically.
And and so we have hope to have more of a full popery topics here and you mentioned over five year period, three to five year period, where we're working on these now.
But the result for not material, yet so it's not where the.
Knocking on it budgets.
It for conifer.
It's work that we're doing.
And we expect similar results that we've been getting out of warehouse automation.
In the electric vehicle push so.
Aftermarket the deal.
We've never treated it as a big growth business, but it is and others do so it's it's one that I hope we can talk about in the future for us when the back.
Of that suggests that it's material enough to speak in recessions.
Great. Thanks, Harold Thanks, Chris I appreciate all of the color I'll hop back in the queue.
Thank you.
And your next question will come from the line of John France ramp with Sidoti <unk> Company.
Good morning, how the generous the group great.
Great quarter.
Thank you for follow up on your list Dot on the aftermarket is there a sizable gross margin contribution of difference in that business versus your overall product portfolio.
Yes.
Correct Yeah.
Yes, there is John.
This aftermarket business has several components and as Harold mentioned, we hope to be able to talk more about this as we develop this segment of our this line of business, rather a little bit more fully in the future.
There are there are components of that wipers mirrors, and so for us that do have above kind of average margins and so forth. So.
Driving this business for.
Further we will definitely.
Help us with the margin enhancement.
Got you on I'll, just add debt a lot of our a lot of our OE business for seating for instance, we were.
Or obligated on the pricing on them.
For unit basis, and then as those contracts go into the aftermarket.
We have some freedom to price.
And and then you're getting the plus you get them one at a time, we're already of serialized new factory. So we make our products one of the times, so that doesn't give us the headache.
But we are used to making them on at a time, but spending of full truckload of limit of the time.
So there are extra costs with the aftermarket, but we're able to.
More than recoup that on the pricing side so.
It's a nice it's one of our nicer businesses from a financial statistics standpoint.
Got it.
And regarding the EV market I recognize there'll be some substitution in the business but.
What's your sense the incremental dollar debt you may be getting.
Do we the platforms versus.
Diesel platforms in the future.
Yeah, that's the big difference for us and that's primarily because we've not really been of participant.
With our electric.
The products business in the market.
Simple.
It's it's close to double at both the doubles.
Our content per vehicle, when we were able to do.
The in an electric.
Harnessed supplier.
So that's it's harnesses.
Junction boxes and disconnect. So it's.
A lot of passive electric a lot of passing the passive electrical components.
Debt for mating up two boxes.
In motors and drives on batteries.
Also vehicle to do the bulk of low voltage.
Electrical distribution as well as the high voltage and in this world High voltage is 48 volt.
Spark for us around for votes.
And so that's the high voltage loophole right at 40 and above so.
We do both the 12 volt, we bought the low voltage of the 12 volt.
And the high voltage on both and we just haven't we just flat out has happened after the vehicle market and this was the big opportunity for us to bring it on and to show we can do on some technical system makers.
And.
A couple of thousand dollars.
Per vehicle, if we if we can become the system.
Person on the job.
Great great.
And.
And regarding the the.
Warehouse automation business, you did $42 million in the quarter and year.
Commentary is more than 150 for the year I'm, just curious about the cadence right from that business for the.
Is this seasonality or from specific quarter for net debt you should be aware of debt deliveries of different and may be lower than the current rate for or you just being conservative maybe in your guidance.
Chris.
Yeah, John as you know, we came out and we said it would be of $150 million business.
2021 for US we're not seeing at this stage, our order books aren't indicating any cyclicality.
In fact, we're seeing a little bit stronger performance than maybe what we previously indicated so not seeing cyclicality.
As we mentioned previously these margins are slightly incremental to our overall margins and so order books remain full.
And expect consistent growth year on year.
Okay great.
And one last question in front of me be the financing of the group debt.
Freed up about $200 million.
I believe is what you said.
M&A capital.
Could you talk a little bit of battle with your primary acquisition interior is and if there's any return hurdles that we should be aware of when you start targeting M&A.
Yeah. Thanks, John.
Obviously, we're we're diversified industrials. So we have a lot of a lot of different things we can look at.
It makes sense for us to do things that were good at right. So obviously, we're in the markets that you know we're going to probably look at those adjacencies first although I think.
We're not opposed to.
Looking at opportunities that fit what we do as far as complex assembly and managing large labor forces and so forth. So.
Maybe I'll stop there and see if Harold has something to add on that.
No I agree we're at our main goal of two.
To have higher earnings and more stable earnings and the feet less dependent on the vehicle markets.
So I would say we have a bias.
Towards doing that.
Of our bias towards <unk>.
All of our tuck in type of acquisitions, we prefer to have a string of pearls versus some big kaboom.
We had a pipeline.
Going into kind of a bit of.
For several hundred candidates, who were looking at debt and it and it was successfully it was the successful game family hit it led us to buy the F. S E business, which led us to have this big warehouse automation business. So we.
We have good taste in our mouth with the.
Being a careful shopper.
And buying the right asset, where we get the right team.
The value add in that business.
It was.
Lower value add but unique people.
The unique customer relationships and.
On an opportunity the one plus one equal three when folded into the C V genes for resources and global footprint.
So.
We're looking for that again.
We'd like to expand our value add as well and have a little more stickiness.
Maybe a little more complicated.
Get us into a couple of other markets that that would help us diversify.
And.
Not take many risks I guess for.
We like the profile of the FSC acquisition, I guess I wish we could.
Mimic that we certainly would.
And that was hopefully reported.
The $50 million.
And and has helped us.
Create a really good business in a short amount of time and it was kind of what we saw and it happened so well.
We will be careful.
Perhaps the things specific to say nothing of that but.
As Chris and I.
Has something smarter isn't what I, just said we'll share it with you.
As we go along.
Alright.
Thanks for taking my call, it's guidance I'll get back into the queue.
Thank you Jonathan.
Again, ladies and gentlemen, this does come out of your question. Please press star one.
And your next question will come from the line of campaigns with ethane here on the screen.
Thanks, so much on congrats on the great corner I had a question on the RV and specialty vehicle market, where you're starting to pursue some things and it looks like if I did the math right.
At $9 million of orders in the quarter could you just talk a little bit more about.
On the products the supply and Internet market.
You know what the competitive set looks like.
And you know.
Big debt might could possibly be over a couple of three year period. So any any color on that segment would appreciate it. Thanks.
Yeah.
There's a lot of injection molders and parts of the cart.
But the.
There is other out of injection molders that it can do large pieces theres not a lot of injection molder. So that have a lot of 3500 10 process like us.
Our our heritage of making large parts for trucks.
Makes us of specialists that large parts naturally and theres other large parts of the housings for a minute.
And an exterior bodies for atvs shelves for snowmobiles.
For books.
On the sort of a thing so when we talk about recreational vehicles, it's not it's not.
The Winnebago kind of deal it's the smaller vehicles that have plastic bodies that large plastic bodies. There's also a large plastic bodies on baby seats.
On our shelves for X Ray machines.
The outer domes for antennas.
There's there's there's unique needs for Marge injection molded parts that are monolithic.
On high compression like we have for truck parts. So.
That one is one very wear.
We're trying to we've characterized what we can do and we're looking at where is it done. So we're being open minded to the markets, but the big actual market definitely the off road vehicle market and we're having success equivalent of the business in those areas.
Great. Thanks very much.
Okay.
Okay from the I know my audio questions. At this time I will now turn the call back over to management for closing remarks.
Well of Kristian I want to thank you for staying on for an hour with us and appreciate your support.
We're happy with the quarter that we turned in but were even happier about what we see ahead of us.
And we look forward to speaking with you again at the end of this quarter. Thank you very much for your attention today.
With that we'll conclude the call.
Thank you everyone. This does conclude today's conference call. Thank you for your participation you may now disconnect.
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Okay.
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The year.
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Yeah.
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