Q3 2021 Hyster-Yale Materials Handling Inc Earnings Call
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Good day, and thank you for standing by and welcome to the Heister, Yeah third quarter.
Earnings Conference call at this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Right, but that each country is being recorded.
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I would now like to hand, the conference over to your first speaker today, Ms. Christina <unk> Investor Relations Ma'am. Please go ahead.
Thank you good morning, everyone and thanks for joining US today welcome to our 2021 third quarter earnings call I am Christina <unk> and I am responsible for Investor Relations at Hyster Yale joining me on today's call are al Rankin, Chairman and Chief Executive Officer, Rajiv Prasad, President and Ken Schilling, our senior.
Vice President and Chief Financial Officer.
Yesterday evening, we published our third quarter 2021 results and filed our 10-Q, both of which are available on our website. Today's call is being recorded and webcast. The webcast will be on our website. Later this afternoon and available for approximately 12 months, our remarks that follow including answers to your questions contain.
Forward looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward looking statements made here today.
These risks include among others matters that we have described in our earnings release issued last night and in our 10-Q and other filings with the SEC.
We disclaim any obligation to update these forward looking statements, which may not be updated until our next quarterly earnings conference call. If at all in a moment I will discuss our current quarter results, but first let me turn the call overcharge, Chairman and CEO al Rankin for some opening remarks.
Thanks, Christie and good morning, everyone.
Our results for the 2021 third quarter.
Im very mixed and most importantly at a much lower operating profit and net loss level than we had thought we'd be reported.
Suggested last quarter lift.
Truck market demand during the third quarter continued to grow over 2020 levels.
But as expected it decreased from the second quarter of 2021 as markets moderated.
As a result of the year over year market growth share gains.
Bookings were strong in at high levels, which contributed to a new record lift truck backlog level exceeding the historically high level achieved in the second quarter.
Given these factors that lift truck business as robust production plans in place and is fully slotted.
Its plants are fully slot for the remainder of the year and well into 2022.
Last quarter, we indicated we expected significant losses for the third quarter and how did you Yale group as a result of anticipated.
<unk> supply chain constraints significantly rising material and logistics costs, leading to margin contraction for trucks in the backlog as well as our normal plant shutdowns.
The global supply chain and logistics constraints, we saw in the second quarter.
Accelerated beyond what we were expecting and their impact on hyster, Yale became significantly worse similar to the impact on a number of other companies.
This exacerbated our component shortage issues and had a severe impact on our ability to ship units as a result, our third quarter shipments were only modestly higher than the second quarter and substantially lower than we expected with the largest impact felt.
In our Americas division or the ability to receive components needed to build certain trucks on schedule was poor.
These factors had hyster Yale group, coupled with unfavorable inventory and equipment adjustments at newberg due to reduced near term sales prospects led to substantial operating profit losses and net losses for the consolidated company for the third quarter.
As you would expect given the impact of these supply chain and logistics problems and expanded the team is working diligently to obtain the components, we need for production and to increase margins in our backlog and for new orders.
Further given the very high backlog the opportunity for increased production and supply chain bottlenecks are resolved as high.
After Christie reviews, the financial results for the quarter.
Steve will provide more detail on these supply chain challenges as well as provide an update on our business operations and strategic projects.
Ken will then discuss our financial outlook, and it's very difficult and dynamic environment.
Steve.
Thanks Al.
Start with high level comments about the quarter.
And then discuss the individual segments.
Ill mentioned due to market level changes in share gain we had a 63% increase in lift truck bookings over the third quarter of 2020.
Bookings of 37100 units decreased 29% from the extraordinary record level booked in the second quarter. We ended the third quarter with a historically high backlog of 98800 units.
Our third quarter unit shipments increased 12, 6%, primarily driven by our EMEA and Americas segments, and our revenues increased 14, 7% from the prior year third quarter unit shipments and revenues.
Shipments in parts volume in the lift truck business and it bodes Tony.
Being from increased customer demand, along with favorable currency movements and the favorable effect of price increases in the lift truck business were the primary drivers for the increase in our 2021 third quarter consolidated revenues to $748 $2 million.
From 650.
<unk> $52 $4 million in the prior year despite.
Despite the higher revenues, we reported an operating loss of $54 $3 million compared with operating profit of $7 $3 million in the prior year. This was the result of several significant factors, including cost increases of $37 2 million driven by significant material cost and freight inflation higher.
Favorable manufacturing variances of $6 $4 million, resulting from inefficiencies associated with component shortages and higher operating expenses of $13 7 million, primarily due to the elimination of many of the cost containment actions taken in 2020.
In addition, as a result of a reduced near term sales forecast <unk> reduced its inventory value by $14 $8 million to an estimated net realizable value in the near term and recorded a $10 million fixed asset impairment charge to reduce the carrying value of its fixed assets to market value.
As a result of these factors and a $38 $4 million charge to establish a valuation allowance on certain U S deferred tax assets, which Ken will discuss in more detail. We reported a consolidated net loss of $77 $2 million compared with net income of $5 1 million in the prior year quarter.
Turning to the segment results our lift truck business reported an operating loss of $21 3 million down from operating profit of $16 $2 million in the prior year quarter, primarily due to a significant decrease in gross profit and higher operating expenses in the Americas and EMEA segments, both resulting from the.
Pacific factors I noted in the discussion of our consolidated results.
By far our Americas Division felt the greatest impact of production delays and higher costs with EMEA experiencing the same difficulties, but to a lesser extent, however, and Jay pick the lower gross profit was mostly offset by lower operating expenses.
But then these revenues for the 2020, one third quarter increased 42, 2% over the prior year. Despite these higher revenues higher material and freight costs and component shortages.
It involves any reported breakeven operating results, which were comparable to the prior year quarter.
Finally, a new Vera revenue decreased to $200000 in the third quarter from 700000 in the prior year.
As a result of the $24 8 million of unfavorable inventory and fixed asset charges newbury's operating loss was $32 $5 million up from $8 $7 million in 2020.
That completes the update of the results for the quarter now, let me turn to Rajiv who will provide an overview on our operations and our strategic projects. Thanks Christie.
Our sales team continued to improve market share in this strong market environment, the global lift truck market increased approximately 23% over the prior.
Quarter, but compared to the second quarter, the market decrease more than 14% due to a downturn in all markets, except Latin America.
The market improvements over the year prior year quarter, combined with our share gain programs as well as long lead times and the pull forward afforded before price increases went into effect translated into an increase in the company's 2021 third quarter bookings that exceeded market growth.
We expect the global lift truck market to decline in the fourth quarter of 2021 compared with the prior year fourth quarter.
And that market in 2022, we received from the historical highs of 2021.
For both periods are expected to remain significantly higher than pre pandemic levels.
As a result of this market outlook, our lift truck business is anticipating a substantial decrease in bookings into 2021 fourth quarter compared with the third quarter of 2021.
And in the succeeding 2022 quarters compared with the respective 2021 quarters.
Many industries, including our own are experiencing a significant increase in demand as markets recover and this is causing significant stress on the global supply chain.
Significant.
Secondly, intensified over the past quarter, our supply chain group has continued to work diligently to address the challenges related to component shortages caused by supply constraints and logistic challenges.
These challenges are rising due to shipping space availability in China congestion at U S ports and the shortage of truck available to move the goods. Once they have received at a U S. Port as a result of the general lack of truck availability and labor shortages.
All of these factors has limited our ability to receive positive there recently at least.
Central time.
We have put significant effort into securing components through the through other channels, including different shipping methods and other vendors. However, the limited availability of alternative shipping methods and built to order highly configurable configured material component mean that old.
The vendor that can provide the necessary components are very limited and.
And therefore contracting these constrained successfully have proven to be very difficult.
As a result, despite the high despite the high backlog units shipments were only modestly higher than the 2021 second quarter. In fact, these factors led to a large increase in backlog over the 2021 second quarter and to a new historically high backlog levels.
This has extended delivery lead time substantially.
A single most significant issue right now is managing margins in a record backlog for new orders.
At our lift truck business, we have implemented price increases several times over the course of 2021 to address the effect of material cost inflation the.
But many of the orders are not backlog slotted for production in the remainder of 2021 and the first half of 2022 do not reflect the full effect of all these price increases as a result, we expect to continue to.
It's low margins in the fourth quarter of 2021, and our best in the first half of 2022.
Due to the lag between unit price increase.
Went into effect and when they are realized as the unit by ship.
Nevertheless, the lift truck sales team is working to try to improve these backlog margins.
The team is also working diligently to ensure new orders are booked that target gross margins based on the future date, they will be shipped mainly given.
The current backlog in the fourth quarter of 2022.
Now, let me spend a few minutes discussing our strategic initiatives. The lift truck business has three core strategies are expected to have a transformational impact.
Impact on our competitiveness market position and economic performance. The first is to provide.
Lowest cost of ownership, while enhancing customer productivity. The primary focus of this strategic initiative is our new modular and scalable product.
Project, which I would expect it to lay the groundwork for enhanced market position by providing lower cost of ownership and enhance productivity for our customers.
Clothing low intensity applications.
Additional to this.
Our key projects geared towards electrification of trucks for application now dominated by internal combustion engine trucks.
Automation.
Product options in Telemetric, along with operator with this system.
Second core strategies to be the leader in the delivery of industry and customer focused solution.
Our primary focus for this strategic initiative is.
Transforming our sales approach by using an industry focused.
Approach to meet our customers' needs.
Finally, the third core strategies to be the leader in independent distribution.
The focus of this strategic initiative.
It's on a dealer and major account coverage, providing dealer excellence and ensuring outstanding dealer ownership globally.
<unk> continues to focus on implementing its one company three brand organizational approach to help streamline corporate operations and strengthen North America and J P commercial operation.
It is also working to increase at America's business by strengthening its ability to serve key attachment industries and customers in North America.
Market.
Through the introduction of a broader range of locally produce attachments with shorter lead times, while continuing to sell cell into some very other various other components produced intelligent Alabama plant.
Barcelona is also increasing its sales marketing and product support capabilities, both in North America and Europe.
Based on industry specific approach with an immediate focus on paper beverage appliance <unk> and automotive industries.
<unk> continues to focus on serving niche heavy duty vehicle applications with expected strong near term fuel cell adoption potential using its 45 and 60 kilowatt engines.
Which are both released for sale, which were both released late in 2020 as a result of these releases, Nevada accelerated 45 kilowatt engine commercialization operation for the global market in the fourth quarter of 2021 and in 2020 to Nevada will continue to focus on.
Ramping up demonstration quotes and bookings for these products. In addition, Nevada has initiated development of a new 125 kilowatt engine and continues to focus on applications in the fork lift truck market.
Overall, we continue to believe we have the right strategies in place for long term growth. Once we can achieve a resolution of component shortages and relative stabilization of material and freight costs.
I'll now turn the call over to Ken for an update on future quarters and liquidity Ken. Thanks.
Thanks, Rajiv as you've heard from both al and Rajiv during the first nine months of 2021, we've experienced shipment levels, which are far lower than our objectives due to supply chain logistics constraints.
These results stemming from these challenges contributed to our need to book a valuation allowance against our U S deferred tax asset.
Christie mentioned in her remarks.
<unk> allowance was established based upon a review of our current of our recent operations, including cumulative U S pretax losses lack of available tax planning strategies and declining forecast due to supply and logistics constraints due.
Due to these factors the evidenced a longer supported realizations for our U S deferred tax assets and the accounting rules required the need to record a valuation allowance in the third quarter.
We expect to.
Continue to experience supply chain logistic constraints in the 2021 fourth quarter into at least the first half of 2022.
Nonetheless, we are expecting 2021 fourth quarter shipments to increase over the prior year fourth quarter and third quarter of 2021.
Significant material cost inflation and higher freight costs, which have continued to worsen in the 2021 third quarter and the current non renewal of the U S. Tariff exclusions are expected to continue to affect the cost of components and freight negatively over the remainder of the year compared with the prior year.
We continue to work aggressively to manage the supply chain logistics cost component availability and tariff exclusions and will adjust our prices for all new orders accordingly.
Nonetheless, as a result of these factors and the increase in cost associated with the reinstatement of pre pandemic salaries and benefits, we expect significant operating and net losses in the lift truck business.
The 2021 fourth quarter and in the first half of 2022.
As a result of the core strategy as discussed by Rajiv and the increased shipment volume potential of the higher price lift trucks and our current backlog as well as the Q4 2021 and 2022 anticipated bookings, we expect the lift truck business to return to an operating profit in the second half of 2022.
However for this to occur we are assuming the stabilization or reduction of product and transportation costs and the continued expectation of improved component and logistics availability and.
In addition over this period and the longer term. We're also assuming the continued introduction of the currently released an additional modular and scalable product families and the continued implementation of cost saving initiatives.
Yeah, Paul Soni, we expect operating profit and net income to increase in the fourth quarter compared with both the prior year period and the first nine months of 2021.
Over the course of 2022, we expect the <unk> component shortages to moderate and pricing to permit improve returns as the year progresses, despite higher costs.
On a consolidated basis, given the extensive extensive component shortages significant material and freight cost inflation as well as continued losses at new barrel, we expect to have a significant operating and net loss.
In the fourth quarter of 2021, and the first half of 2022 consolidated results are expected to return to an operating profit in the second half of 2022, assuming reasonable resolution of component shortages and relative stabilization of material and freight cost.
We also expect to have moderated reduced losses at the <unk> as a result of enhanced appeal shelf fuel cell shipments.
While we expect to make additional investments in the business during the remainder of the year and in 2022, maintaining liquidity will continue to be a priority.
We have adequate borrowing facilities in place to help us weather. These near term challenges as at September 30, we had cash on hand of $61 4 million and debt of $428 million compared with cash on hand of $87 5 million and debt of $345.
$7 million.
At June 30th.
We were fortunate to be able to refinance our revolving credit facility and expand our term loan facility in the second quarter of 2021 to finance our growth and working capital needs. During this challenging period.
As of September 30, we had unused borrowing capacity of approximately $245 $9 million under our revolving credit facilities compared with $313 9 million at June 30.
I'll now turn the call back over to al.
As we finish 2021, we will be focused on managing effectively in a challenging and dynamic environment.
We continue to execute our near term.
Our midterm and long term strategies and remain focused on the safety of our employees our strategy for the longer term it is clear and transformative.
Key projects as well as the explicit objectives for the lift truck zoning in newberg businesses support this long term strategy.
Near term prospects are uncertain as a result of a number of abnormal largely external influences as we've discussed specifically suppliers' manufacturing levels around the world and logistics issues, which collectively create supply and cost challenges as well as the timing of adoption rates for cheap fuel cell market.
Segments and markets are strong we have record lift truck backlog and strong current booking environment. We are working diligently to manage the supply chain headwinds, we're continuing to invest in innovative products to meet increased customer demand as a result, we believe future increases.
Shipment opportunities are very significant.
However, it is difficult for us to forecast when these increases will occur given the supply and logistics difficulties. Nevertheless, when these challenges are behind US. We believe we will deliver solid sales and earnings performance and that our long term strategies and prospects will have a very significant impact in the future we will.
Now turn to any questions you may have.
Yeah.
Thank you and as a reminder, the ask your question. Please press star and the number one on your telephone keypad again. This spring and then the number one on your telephone keypad and so we do all your question. Please press the pound.
Great.
While we compile the Q&A roster.
Your first question comes from the line of Keith Mori from yes.
Your line is open.
Good morning, Thanks for taking my question.
Hey, good morning, Tim Good morning Chip.
Good morning wondering if you can take it.
Instead of asking a bit more.
The current backlog.
Related to the margin you've talked about layers in the past.
This quarter was I think the lowest margin level or at least the last decade.
As we think about modest sequential improvement over the next couple of quarters, assuming things don't get worse on the supply chain front and then also maybe you could speak to mix a little bit how much of an impact was that this quarter and how to think looking backlog.
Rajiv if you wanted to take that sure.
So I think the first thing to say with our.
As we've talked about our supply chain challenges would generally building trucks that we've booked.
In the fourth quarter of 2020, and first quarter of 2021.
I think mix is not a huge factor.
The primary <unk>.
Driving force in our mind.
Compression is.
In a commodity price increases, which have been not linear but at the end of one would call them exponential at least early on in the process.
<unk> for a lot longer than we were expecting or I think anybody else was expecting.
And then the.
The secondary hit was the challenge with logistics.
And if you've been tracking that but we have global supply chain.
And our freight costs from the east.
To give you a sense for the typical a 40 foot container used to cost us two to $3000 to bring in.
And last quarter, we had.
Spot prices of up to $30000 for the same container. So those were suddenly unpredictable and.
Had a huge impact on our on our margin compression now we do expect.
We will continue to build backlogs that were booked in the first and second quarter.
Through the fourth quarter and then in the first half of the year, We'll book will build things that were booked in the up to the third and into the fourth quarter of this year so margin Ken.
Ken said the margins will improve as we build trucks that have been booked more recently with more of the pricing in it.
The last thing I would say if the trucks, we are booking right now have the full <unk>.
Price to cover all the inflation, we have seen the unfortunate thing is we don't see ourselves building. These truck well into the third quarter of 2022, just because of the backlog.
I don't know if that kind of answer.
Hi, Dan just a couple of things to that.
The.
<unk>.
Price increases started.
Most aggressively at the beginning of this year I think roughly speaking.
And then.
<unk> costs for the future we're itself accelerating.
We put more increases in place.
At various different times between January and February period end.
In fact quite recently.
So.
We've been trying to respond to.
Future forecasts of future prices.
Out in the time that trucks were meant to be.
Shift Unfortunately that process is long and it's been uncertain and so.
As the cost increases have accelerated.
Been very difficult to catch up.
I would say that as far as future cost increases are concerned.
That relate to bookings, we're making now that were being.
Barry.
Careful about assuming any price moderation and in fact, we are assuming certain kinds of cost increases.
They were trying to be very conservative about our.
Cost structure.
For trucks that are now being booked it will be shipped to more or less nine months to a year from now.
Another dynamic that's going on in this whole process, but.
The cost of future costs, just accelerated at a faster rate.
As shipments has been outlined where later and that caused us to have this buildup, but the level of the price increase has accelerated and therefore, we should be catching up on it as we go forward over the quarters.
'twenty two.
Got it.
Thats helpful.
Thanks.
My second question around Capex.
I think.
You talked about $50 million before in the back half of the year and I think that's a little bit lower now.
I would say continue to focus on liquidity.
Precedented environment, but just curious.
If that's delaying any of the strategic initiatives.
Everything's been factor.
So let me just say that we are scrubbing, our capex as you would expect in this environment, but we're working very hard not to do anything that would delay critical strategic programs, especially those that would relate to.
Share gain and the implementation of those kinds of long term programs product and sales and marketing programs.
So.
I feel that on the Capex side.
As a very very disciplined process for both this year and next year.
Yeah.
But I think perhaps even more important thing to understand is it.
The.
We have an enormous inventory bubble that is related to past due trucks that have been hung up.
Because of.
The.
The supply chain shortages that have had an impact on us.
So what we've done what we're focused on now is making sure that we produce those past due trucks.
Bring down that inventory and working capital bubble very dramatically and then.
Our only purchasing new inventory that clearly we can be built can be built given the.
Supply chain constraints that were operating under so I would attach more importance at this point to the working capital management than further reductions in Capex.
Got it okay that makes sense.
Last one for me.
Just curious unfair.
If anything changed material materially quarter right, we're talking about.
Accelerated commercially commercialization efforts developing new larger engine.
Just when we might expect to see some traction on the bookings Brian.
Thanks Darren.
Yeah chip so Nevada.
Again.
Let's just take our what we're doing with our own fuel cell programs as an example of what's happening.
So well.
We got some fuel cell in the market place is what we called battery box replacement for <unk> and we've gained a huge amount of.
Feedback on.
The performance of those in the field.
<unk> improved the robustness of our solutions using that data. So thats. The one thing we've learnt a huge amount.
The second thing is.
Applying we think the future for US is an integrated integrated fuel cell in our trucks.
And we're starting with a bigger trucks.
First quarter well early in 2023 will working on having a complete solution for ports, which will be a fuel.
Fuel cell base that we.
We'll have a terminal.
<unk>, which we had to develop.
Developing jointly which we've announced.
We'll have our reach stacker.
Picks and empty container handlers. So these are the biggest trucks, we make for CT application they'll all have fuel cell systems integrated into them.
So that's where the internal focus isn't basically external developments are taking similar time.
It takes a little bit of time with.
The Nevada customers too.
Demo the product developed prototype test the prototypes and then released the product.
We are focused on a segment that we believe could benefit from.
From fuel cell.
B.
In the early <unk>.
If market development and those are typically the heavier duty applications.
<unk>.
On the trucking side for instance.
So we've talked about refrigerated trucks.
Or refuse trucks.
Products like that where we don't think.
If you electrify them the battery solution will work very well.
So that's that's the focus that Nevada is kind of moving forward with those.
A market that they are discussing with them.
We'll talk more about that.
In the future I would only add to that to amplify that.
The need for electrification.
And these heavy duty segments appears to be quite broadly understood.
What is so well understood by the potential builders and users of those vehicles.
Pure battery solutions are unlikely to work effectively and productively.
And a significant portion of those heavy duty applications Joe.
Rather than the offer.
Chris on sort of broad very very long term solutions, we're trying to focus on ones, where we think that there is very limited.
Our battery electrification solution available.
And where our fuel cells will really be the right way to fill the.
The gap as they move to.
Non carbon solution.
I hope that helps you.
Again, okay.
Dave it's more in the future.
Solidified.
Makes a lot of sense I agree with that thank you. Thank you.
Thank you. Your next question comes from the line of Steve <unk> from Sidoti <unk> Company. Please proceed with your question.
Good morning, everyone.
Just wanted to ask about how im looking at the volatility numbers, which clearly or approval.
<unk> revenue was up even though it's.
Usually the seasonally weaker European quarter, given its larger European exposure and the margins not that bad given the material prices.
Costs.
Is it simply is the answer that is to win better simply because <unk> components last couple of <unk> or is there something else at work.
I think the main thing that should work is that the cycle time is much shorter so rajiv.
The time from order to delivery would be.
Six to eight week, just six or eight weeks, where there could be six or eight months for fork lift truck Joe they have the ability to respond to.
Material cost and freight cost increases much more rapidly.
Then the forklift truck business does.
I think the really good rate.
Situation for bulk zoning is the huge amount of backlog not just we have but competitors have too in the marketplace. We expect.
Significant shipments in 2022.
And the orders for that.
Orders for the attachments.
Come six to eight weeks before the delivery of the truck not when the truck to a book.
Certain extent, our backlog is showing falzone the potential the market potential and we're very excited at both only about what will happen in 2022 and going into 2023.
It's a very positive market for them.
And Brian that sort of broad.
Market perspective with the initiatives.
Rajiv outlined in his strategic.
Strategic.
Some or is the focus on them.
One company activities with a particular emphasis on.
Industry.
<unk> work.
And the.
Enhancement of our delivery capabilities in North America, we think we have a very powerful engine gotten there yet.
Yeah.
I wanted to ask about lead times and how it effects of orders come through.
Getting two different answers on that is I would ask because every company is incredible.
Incredible growing backlog in <unk>.
Extending lead times, some would say the lead times as a deterrent, but others are saying that they're seeing more orders because people know what theyre going to be kiss long wait and theyre already looking that far ahead.
Perhaps is driving order in time.
What are your thoughts.
Yes, I think generally if we take a different step.
<unk>.
I'll talk about the dynamics of the current market in a moment, but ultimately we believe a shorter lead time, it's better for everyone better for us better for the market better for our customers.
But youre right. The current situation is basically getting customers to book ahead.
And we are seeing that you can see last quarter, we had very large backlog and you can see we have even bigger backlogs now because customers.
One to make sure that they have slot in the queue for their needs.
And.
As you say, it's not just us that has the long lead times with all of our competitors and industry in general. So there is a significant amount of booking ahead going on.
Because as you can see we are not getting any cancellations because of the long lead time.
So I think it is.
And a transition situation.
We'd like to get back to build through the backlog and get back to.
More normal lead times.
That's our primary mission.
And as you think about that.
We're hearing about.
Supply chain is intensifying not easing in the durations, perhaps expands.
Does that and you've addressed it a lot, but I'm just trying to think through.
Workarounds and ability.
Deal with something that clearly has grown and intensity of the euro has gone on and certainly no one's talking transitory anymore.
Right.
Just to give a very broad based answer.
To that I know.
Don't think people in general, whether it's government or <unk>.
Companies broadly.
The public have internalized the degree to which consumer demand.
Has increased during the COVID-19 period over and above the level of demand in 2019, not 2020, because that was that was COVID-19 influenced but if you look at today, we've had a huge increase in total demand.
But it's shifted.
Restaurants travel entertainment have all gone way down.
Good ship gone way up and so the mix has changed we have huge pent up demand.
People have had generous benefits that they've saved rather than spent.
So if you have any.
Product demand for consumption by.
U S consumers or consumers around the world.
In goods, then you've got to look at the whole supply chain structure and what ended up finding is that everything is out of capacity.
The suppliers' capacity, it's the commodity producers capacity, we've heard a lot about chemicals youre hearing daily about chips.
All of these are the result of this.
A very substantial increase demand.
And I think people have been.
If you will.
Sort of on.
Not thinking carefully enough about the impact on the margin from a mismatch between supply and demand demand is high and supply is lower the demand.
You can get in many cases, particularly commodities and certainly now in shipping as the kind of cost increase that it's not marginal stopped small to reflect a small imbalance if it.
Comes a bidding contest between those who.
Really really want.
They have the space on ships and those who.
Just can't afford or see that opportunity so.
It's a very broad based.
<unk> Thats coursing through the economy and the world in a way in terms of commodity development.
That's really the backlog and one other question then is will that.
Demand mix shift be suspended.
I think thats, partly the $64 question here, because it's going to take time to break.
All of the supply chain constraints, you've heard about chip.
Manufacturing and it's going to take a couple of years to bring new chip chip fab operations on on stream and so.
No.
What we forecast is a decline in the market compared to the last couple of years and 2022, because we think that that there's going to be some kind of shift back as COVID-19 moderates.
Toward more expenditures on travel and entertainment and so on and so forth. So that's kind of a very broad overview, but I think it captures the dynamics and you missed that when you just focus on what's going on in the lift truck business.
Okay.
Sure.
I appreciate the thoughts go ahead, so thanks, everyone.
Thank you and just a reminder to ask a question with star one on your telephone keypad.
Your next question comes from the line of Brett Kearney from Gabelli. Please.
Please proceed with your question.
Hi, guys. Good morning, Thanks for taking my question.
Good morning, Brian.
Okay.
So it sounds like.
Increasing product demonstrations.
Ara, which is encouraging was curious how much of that is based around the <unk>.
Test facility that you've been able to establish.
In Italy.
And what are their thoughts on semi.
Similar.
Establishment and.
Some of the other geographic markets. It sounds like there's more interest in North America, and I guess tied to that.
It sounds like the China bus market preceding a little bit slower than initially anticipated just strategically how youre thinking about resources and allocating them humira going forward.
Yes.
First thing to say the interest in fuel cell is increasing.
If I just characterize it.
What's happening in China, if there is a transition and its government led from thinking about buses for fuel cell trucks trucks are becoming much more important.
For fuel cell application in China, and Europe thinking up really starting to understand fuel cell as a long term solution for mobility is gaining huge momentum there is a large amount of.
Program government sponsored programs.
And are being put in place.
And then some of the regions in North America, particularly California, and some of the East coast geographies are starting to see that.
Also so overall.
In a much more interest and understanding that fuel cell is a critical part of our electrification journey as we move forward.
The second area is.
If we think about where the.
The applications are people starting to think about applications in phases.
So the initial phases has been.
Trucks and vehicles that are captive to a depot, let's say, it's a forklift trucks.
Fit that category.
Because of fueling hydrogen can be made available in a desktop and that can support vehicles and we think that will go from forklift trucks to delivery trucks too.
Gave example refuse trucks.
We think airports are a good example, so we think the next phase is going to be the captive vehicle and that's why in Nevada, I focus right now.
Tomato attractive.
And the various types of trucks, we've defined.
<unk> three then is going to be trucks that are much more regional so.
Not long haul trucks, but maybe.
Regional haul trucks, that's the next area for them. So we see this evolution in that the engagement, we're getting with customer base.
Both in Europe, and in North America and of course, we've already had our engagement in China.
Forward, what is taking time as developing these trucks because a lot of the customers.
Huge amount of experience in internal combustion engine, but electrifying those trucks, and then adding fuel cell to it.
And create a robust solution is taking time, which it is also for our own internal solution for lift trucks.
Yes, let me add to that a little bit.
The thrust of your question.
The new sort of prospects.
The three big areas of the World.
For fuel cells.
China.
North America, and Europe have really readjusted significantly.
If you think about China.
One of the complexities, it's become very very clear.
In the last few months.
And particularly in the very recent period is that.
In a highly regulated economy.
Subject to the Chinese.
The priorities can change very very fast.
And the priorities are significantly.
A backed up by subsidies.
And incentives and so when we entered into the commercial arrangements that we had in China.
There were two major ones.
Expectation was that the regulatory environment was going to make those very very attractive on a broad basis.
The only region that we invested in the inventory and in.
The equipment.
We have now as you noted reduced the value of both of those but I would point out.
The inventory is perfectly good it just can't be used up in the near term because we are not likely to have the sales.
But it will be sold at that reduce cost it should be.
It is.
Very very little of both the equipment and inventory is not usable from our point of view. So we are certainly concentrating on on building.
On gaining the business for dose, but we're being very careful now to have a.
Our contracts in China that are much more have far more teens then.
And less opportunity to delay as government incentives change, but I think the bottom line is.
The Chinese market for us.
Has declined as a focal point relative to.
Europe, and the Americas and in fact in Europe, we see significant opportunities.
It's a different kind of regulatory environment in Europe.
It turns when it does get put in place not to change their pro.
Addressing climate change in Europe.
See significant opportunities and we're going to be working to focus on that probably far lessons in the fork lift truck business and far more.
In the.
And some of these segments.
Rajiv outlined and we think that in the United States.
The push for electrification is going to force.
The use of steel cells.
The kinds of applications that I described earlier so in total it's.
But rather fundamental rebalance in the likely prospects between the three major areas of the world in terms of near term market development. We're all going to be important we're going to play in all of them, but we see different emphasis right now.
Okay. That's very helpful. Thank you and then maybe just one other quick one.
Probably for Ken you guys.
Proactive able to complete that refinance back in Q2.
Just curious.
Whether I have it right the restriction on.
<unk>.
Dividends from a covenant standpoint could you just maybe remind me of.
Financial Covenant package included in that.
Agreements.
Yes, we have the ability.
Long as we maintain adequate availability as specified in the agreement to continue to pay dividends to continue to move forward and our goal is to maintain within those restrictions on availability.
To manage through the situation with the increase in the term loan b and a larger ABL, we did that to not only help us with the seasonal nature of the.
Increased sales that we expected, but also to help us weather through this.
Expected.
Volatility and material pricing and material availability as well as logistics.
It was sized to consider those issues were continuing to work through that and again, we will manage to availability.
The springing fixed charge isn't something that we're relying upon.
Okay terrific very helpful. Thanks, so much.
Okay.
Thank you there are no further questions. Thank you I will now turn the call back to Christina Ma'am. Please go ahead.
Thank you that will conclude our Q&A session.
Do you have any final closing comments for final comments.
Thank you, we'll close with just a few final reminder, a replay of our call will be available online. Later. This morning, we will also post the transcript on the Investor Relations website. When it becomes available. If you have any questions. Please reach out to me you can reach me at the number on the press release Hope you enjoy the rest of your day I will now turn it back to the operator to conclude the call.
Thank you Christina once again as a reminder, the ankle replay will be available approximately two hours. After the conclusion of this call you can dial 805, 85867 or 401 stake.
146 until.
Until November 10, 2021 at 11 59 P M Eastern time.
I D number is 469 45 thank.
Thank you for your participation you may now disconnect.
Yeah.
Hello.
Okay.
Okay.
Okay.
Thank you.
Okay.
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