Q4 2021 Hyster-Yale Materials Handling Inc Earnings Call
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Yeah.
Good day, and thank you for standing by and welcome to the High School Yale Q4, 2021 earnings conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Christina cannot count. Please go.
Uh huh.
Good morning, everyone and thanks for joining us. This morning, welcome to our 2021 fourth quarter and full year earnings call I'm, Christina <unk> and I'm 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 2021 fourth quarter and full year results.
The other 10-K, 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-K 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 addition, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance reconciliations for these non-GAAP measures can be found in our earnings release on our website in a moment I will discuss our current quarter results, but first let me turn the call over to our chairman and CEO al Rankin for some opening remarks.
Good morning, everyone.
<unk> 2021 calendar year was very challenging.
More so than 2020 in fact.
Our fourth quarter and full year results reflect the impact of those challenges.
As you saw from the release, we issued last night, our fourth quarter results. Excluding some noncash charges were directionally in line with what we provided last quarter, but still due to the noncash charges, which arose as a result of the how this challenging environment has affected our near term.
Cash were lower than we anticipated.
While Christie will discuss the specific charges in our financial results in detail in a moment.
I will provide some high level thoughts on our results.
Lift truck market demand remained strong during the fourth quarter and continued to grow over 2020 levels, but as we expected decrease from the third quarter of 2021 as markets continue to moderate from the peaks achieved in the first half of the year.
This year over year market growth as well as share gains resulted in strong lift truck bookings for the fourth quarter, which contributed to a new record, let's truck backlog level and exceeded the historically high level achieved in the third quarter.
Given these factors.
And as a result of production changes made in the fourth quarter and despite the continuing supply chain challenges exacerbated by several critical component shortages are fourth quarter shipments were the strongest we've seen since the start of the pandemic.
Last quarter, we indicated that we expected significant losses at the lift truck business in the fourth quarter of 2021.
As a result of anticipated continuing supply chain constraints and significantly rising material and logistics costs, leading to margin contraction for trucks in our backlog.
These challenges continued in the fourth quarter with only modest part shortages improvements.
And inflation continued to rise in the quarter, but at a slightly lower rate of change.
These factors along with the noncash charges led to the substantial consolidated operating and net losses, we reported for the consolidated company in the fourth quarter.
Our teams continue to work diligently to obtain the components, we need for production to increase margins in our backlog and particularly for new orders.
Further given the record backlog levels the opportunity for increased production and supply chain bottlenecks are resolved as high as evidenced by the substantial increase in shipments in the fourth quarter of 2021.
After Christy reviews, the financial results for the quarter Rajiv will provide more detail on the supply chain challenges as well as provide an update on our business operations and strategic projects. Ken will then discuss our outlook in this very challenging, but we believe improving environment.
Steve.
Thank you.
I'll start with high level comments about the quarter and then discuss the individual segments.
As al mentioned due to market level changes and share gains we had a 16, 5% increase in lift truck bookings over the fourth quarter of 2020, but our bookings of 33200 units in the fourth quarter decreased 10, 5% from the third quarter.
In the fourth quarter with a historically high backlog of 105300 units.
Our fourth quarter unit shipments increased 24, 2% driven by our Americas, and EMEA segments, and our revenues increased 15, 3% over the prior year fourth quarter.
Higher unit shipments and parts volume in the lift truck business and that both Sony mobile.
From increased customer demand along with the favorable effect of price increases in the lift truck business.
The primary drivers for the increase in our 2021 fourth quarter consolidated revenues to $829 $7 million from $719 $6 million in the prior year.
Despite the higher revenues, we reported an operating loss of $107 million compared with operating profit.
$13 $7 million in the prior year.
We recorded a noncash goodwill impairment charge of $55 $6 million in our <unk> segment, because the continued disruption of supply chain and the resulting increased costs unfavorably affected our near term forecast.
The remaining operating loss was the result of several factors a significant increase in material and freight cost of $68 $6 million net of price increases of $17 $5 million higher unfavorable manufacturing variances of $13 $3 million.
Regarding from inefficiencies associated with component shortages.
Shifting sales mix to lower margin lift trucks, and additional noncash charge of $1 3 million to write down inventory at Nomura and higher operating expenses, primarily due to the reinstatement of pre pandemic compensation and benefits.
Higher unit volumes as well as the absence of $4 $4 million of restructuring charges taken in the fourth quarter of 2020, partly offset the unfavorable factors contributing to the operating loss.
Overall, we reported a consolidated net loss of $103 $3 million compared with net income of $13 1 million in the prior year quarter due to the factors previously noted as well as a $19 $4 million noncash charge to establish additional valuation allowances on certain U S and U K deferred tax as.
Which Ken will discuss in more detail.
Turning to the individual segment results, our lift truck business, excluding the goodwill impairment charge, we reported an adjusted operating loss of $37 6 million compared to an operating profit of $24 $4 million in the prior year quarter, primarily due to a significant decrease in gross profit and higher operating expenses in the Americas segment.
Both resulting from the specific factors I noted in the discussion of our consolidated results.
Our Americas Division felt by far the greatest impact of production delays and higher costs with EMEA experiencing the same difficulties, but to a lesser extent.
However, our <unk> segment reported an adjusted operating loss of $4 million, which was an improvement from the prior year operating loss of $6 9 million.
Improvement in <unk> was due to lower operating expenses, partly offset by lower gross profit, resulting from higher material and freight car material and freight costs and additional manufacturing costs.
<unk> revenues for the fourth quarter increased 36, 9% over the prior year quarter. Despite these higher revenues and a nine 3% improvement in gross profit.
<unk> reported an operating loss of $2 $2 million compared with an operating loss of $1 $3 million last year, the higher losses due to an increase in operating expenses, primarily from the reinstatement of pre pandemic salaries and benefits that were suspended in 2020 and the absence of government subsidies received in 2020.
Finally in Humira revenue decreased to $200000 in the fourth quarter from $1 1 million in the prior year due to fewer sales of fuel cell engines for lift truck battery box replacement.
As a result of a $1 $3 million unfavorable inventory charge <unk> operating loss increased to $11 million compared to $9 $7 million in 2020.
That completes the update of our financial results for the quarter now, let me turn to Rajiv who will provide an overview on our operations and our strategic projects. Thanks, Christy as al indicated the global lift truck market remains strong this quarter, increasing more than 15% over the prior year quarter.
<unk> growth was at a more moderate pace than in the first nine months of the year compared.
Compared with 2021 third quarter the market increased only about 5% as a result of an increase in almost 19% in EMEA.
And modest growth in J pig.
Partly offset by 12.
And half percent decrease in north.
Americas market.
Sales team continued to improve market share in this robust.
Market environment, and the market improvements over the prior year quarter combined with the share gain.
It translates into an increase in the company's 2021.
Fourth quarter bookings exceeded market growth.
In 2022, we expect the global lift truck market to recede from the historical highs of 2021 will still be higher than pre pandemic levels.
As a result of this market outlook the lift truck business is anticipating a substantial decrease in bookings in 2022 compared with 2021.
The rate of decrease expected to moderate in the fourth quarter.
Many industries, including our own are experiencing a significant increase in demand as markets recover and this is causing significant stress on our global supply chain.
Our supply.
<unk> group has.
To work diligently to address the challenges related to component shortages caused by supplier constraint and logistic challenges.
Which only moderate modestly improved in the fourth quarter. These challenges arose due to the lack of shipping container availability from Asia congestion at U S ports and a shortage of truck available to move the goods. Once day were received at U S ports.
All of these factors have limited our receipts of component parts when scheduled.
We have put significant effort into securing component parts by using different shipping method and vendors. However limited availability of alternative shipping methods and the build to order highly configurable nature of fire trucks as meant that alternative vendors.
That can provide the necessary component parts are very limited with the result that countering. These constrained successfully has been very difficult.
Nonetheless, as a result of measures we put in there.
Drag these challenges our fourth quarter unit shipments increased to above pre pandemic levels as we successfully slotted orders that we're able to be fully built and shipped.
The increase in fourth quarter shipments.
Bookings net of shipments in the quarter added to an already historical high backlog levels and delivery lead times continue to increase.
Our most significant issue right now is managing margins in a record backlog and especially on new orders.
And our lift truck business, we have implemented price increases several times over the course of 2021 and again at the beginning of 2022 to address the effects of material and freight cost inflation.
But many of the orders in our backlog slotted for production in the first nine months of 2022 do not reflect the full effect of all the price increases.
As a result.
We expect to continue to experience very low margin in the first quarter of 2022 due to the lack between these.
When unit price increases went into effect and when revenue is realized.
Unit shipped importantly, the lift truck sales team is pricing new bookings at close to target margin based on.
Expected future cost at the time of production as a result margins are expected to increase over the successive 2022 quarters.
Which much stronger margins in the fourth quarter when the higher margin already booked trucks at improved margins and trucks are anticipated to be booked are expected to be produced and shipped.
Now, let me update you on our strategic initiatives, which are laid out in more detail in our earnings release.
At a high level the lift truck business.
Primary focus continues to be on introducing new modular and scalable products and transforming our sales approach by using an industry focused approach to meet our customers' needs.
<unk> continues to work on streamlining and strengthening its operation, while increasing its Americas business and expanding its sales marketing and product support capabilities and numeric continues to focus on ramping up demonstration quotes and bookings are fixed 45, and 60 kilowatt engine.
<unk>.
Overall, we continue to believe that we have the right strategies in place for long term growth. Once we can achieve 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. Okay. Thanks, Rajiv as you've heard from both allo Rajiv during 2021, we have experienced production and shipment levels, which are far lower than our objectives. Due to continued supply chain logistic constraints component shortages and we've also been.
Faced with higher material and freight cost.
The results stemming from these challenges contributed to our need to book in the fourth quarter and an additional $19 $4 million to evaluation allowance against our U S and UK deferred tax assets, which Christie mentioned in her remarks in total for the 2021 year, we increased our valuation allowance by $58 6 million.
Based upon our review of our recent operations, including cumulative U S and UK pretax losses lack of available tax planning strategist strategies and declining near term forecast due to material and freight inflation, along with supply and logistics constraints.
Due to these factors the required accounting evidenced no longer supported realisation for certain of our U S and UK deferred tax assets and the accounting rules required the company to record additional valuation allowance in the fourth quarter.
We expect to continue to experience supply chain logistic constraints into the beginning of the third quarter of 2022, but they are anticipated to begin to moderate during the first half of the year.
Nonetheless, we are expecting the positive shipment momentum from the end of 2021 to continue and for shipments to increase significantly over the course of 2021, given our robust backlog and actions we put in place to mitigate the impact of the supply chain constraints and shortages.
Significant material cost inflation and higher freight costs as well as the non renewal of U S. Tariff exclusions are continued are expected to continue to affect the cost of components and freight negatively in 2022.
More moderate cost increases are expected to continue in 2022, but there are some signs that should suggest material costs have peaked.
We will continue to work aggressively to manage supply chain and logistics cost component availability and tariff exclusions and will continue to adjust our prices for all new orders accordingly.
As a result of these factors the core strategies discussed by Rajiv and the increased shipment volumes potential of the higher price lift trucks, and our current backlog as well as trucks still to be booked in 2020 Q as it progresses, we expect the lift truck business to have significant operating and net losses in the first quarter of 2000.
22 <unk>.
<unk> losses in the second quarter profitability in the third quarter and substantial operating profit and net income in the fourth quarter with the improvements in the second half of the year expected at the lift truck business to more than offset the losses in the first half.
Over this period, we are projecting relative stabilization of product and transportation costs and the continued expectation of improved component and logistics availability.
We are also anticipating the continued introduction of additional modular and scalable product families and the continued implementation of cost saving initiatives over this period and the longer term.
As we bring cost price and production volumes in line over 2022, we expect our lift truck business to generate strong operating profit and net income in 2023.
At <unk>, we expect the moderation of component shortages and the timing of pricing actions to permit improved returns beginning with a moderate operating profit in the first quarter and continuing with improved operating profit and the remaining quarters of 2022.
As a result, Boltonia expect sizeable operating profit and net income in 2022, compared with operating and net losses in 2021.
Excluding the impact of inventory valuation and fixed asset impairment charges taken in 2021, we expect moderately reduced losses at <unk> in 2022, as a result of enhanced fuel cell engine shipments.
On a consolidated basis, given the continued extensive component shortages significant material and freight cost inflation as well as continued losses that new Vera we expect to have a large net loss in the first quarter of substantially reduced but still large net loss in the second quarter approximately breakeven.
In the third quarter and substantial net income in the fourth quarter of 2022, assuming reasonable resolution of component part shortages and relative stabilization of material and freight cost.
I would note however that the consolidated fourth quarter net income is not expected to fully offset the consolidated losses generated in the first nine months.
We are carefully managing our capital expenditures operating expenses and production plans for 2022 in a manner designed to protect liquidity.
We have implemented a program of strict controls over operating expenses to reduce cash outflow.
Including delays in the timing of certain of our strategic program investments while.
While the company expects in time to make these capital expenditures and investments in the business maintaining liquidity will continue to be a priority.
Our ability to ship trucks was significantly constrained by part shortages of certain critical components, while the remaining components need to build trucks were received and added to inventory.
Causing inventory levels to again increase substantially.
We expect based upon our recast of manufacturing production plans to reduce inventory significantly by using current inventory to build trucks for which production has been significantly delayed due to critical parts shortages.
At December 31, 2021, we had cash on hand of $65 5 million and debt of $518 $5 million.
With cash on hand of $61 4 million and debt of 428 million at September 30, and.
And finally cash on hand of $151 4 million and debt of $289 million at the end of 2020.
As I've mentioned before we are fortunate to be able to refinance our revolving credit facility and expand our term loan facility in may to finance, our production growth and related working capital needs. During this challenging period.
As of December 31, we had unused borrowing capacity of approximately $165 million under our revolving credit facilities compared with $245 9 million at September 30, and $266 4 million at December 31, 2020, I'll now turn the call back over to Hal.
As we look to 2022, we are continuing to be focused on managing effectively in this very challenging environment.
We continue to execute our mid term and long term strategies our strategy for the long term. It is clear and it is transformative are key projects as well as the explicit objectives for the lift truck ball zoning and Numero businesses support. This long term strategy further expected improvement in near term.
Prospects quarter by quarter over 2022 with substantial profit in the fourth quarter and in 2023 suggest.
Significantly improving results, despite continuing logistics challenges as well as expected improving adoption rates for key fuel shell market segments.
End markets are strong we have a record lift truck backlog a strong current booking environment and we are working diligently to manage the supply chain headwinds.
We are continuing to invest in innovative products and our key strategic projects to meet increased customer demand.
Since these challenges are behind US, we believe we will deliver solid sales and earnings performance.
We will now turn to any questions you may have.
As a reminder to ask a question he only depressed star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Your first question comes from the line of Steve <unk> from Sidoti <unk> Company. Your line is open.
Okay.
First question has to be a modeling question I'm trying to think about and you provided a pretty good outlook over the next few quarters, but specifically I'm trying to think about lift truck gross margin Q1 Q2, the trends because what we don't know is what's sitting in backlog and how that rolls through in <unk> and how it hits.
In terms of gross margin. So obviously, we saw weaker this quarter sequentially.
With two months into the quarter can you give a sense on on trends with lift truck gross margins.
What I would suggest that you do with given a little more time is to read through the earnings release in great detail, because we describe that process.
Very clearly in the earnings release and in great detail, including the quarter by quarter progression.
Basically.
The near term production.
Has the lowest prices relative to the inflationary impact.
And that occurs in the fourth in the first quarter of the year and then the margins improve because we put some any price increases in place inflation began to moderate we started to not get ahead of it but to begin to catch up and then new bookings were putting in place.
Have a significant impact in the fourth quarter and those are pretty much at our target margin. So it's a very straightforward story driven by just what you focused on which is C.
Margins, but let me divide it into two pieces, what I really focused on in my comments are the adjusted standard margin, what we call internally from an accounting point of view, our adjusted standard margins now.
Now something else happens too at the gross margin level, which is as our production picks up and as the supply chain problems become less.
Have less of an impact on our factories are manufacturing variances go down as well. So when you put those two factors together.
What it means is that.
Our margin progression is as we've outlined it in depth.
The release.
<unk> some details I think it's there.
Okay fair enough. Thank you.
On deliveries of a surprised how much the improved in Q4, given its typically you're going to run into at least some holidays and I know some companies will it sounds like you weren't impacted by the AMA Kantar and trying to think about how much more you can you can up.
Pick up on the deliveries and why it improved so much and in Q4.
I'd like to ask Rajiv to answer that and I would simply noted no it depends enormously.
On the on.
On the efforts that our supply chain people have made to reduce the impact of shortages.
I think the impact continued but to a less but that did moderate in ICU no now omnicom wasn't as severe as the other variants prior to.
Prior to it.
So we did have the issues we faced in the foot in the fourth quarter were around.
Delivery.
Through the port.
The internal logistics in particular, we saw started to see a worsening.
Logistics issues around trucks, and also a little bit around rails, which have somewhat continued into into the current quarter.
The main benefit.
We have a large.
Backlog of trucks.
We also have quite a large as you can see working capital and inventory.
And so the team did an excellent job of putting together trucks that we could build with the inventory we had while focusing on getting the materials.
That we're missing.
We expect that to continue into the in the past.
Quarter to two quarters of 2022.
It will ease as we go through the quarter.
But in our current planning is to try and maintain.
Flat production rate focusing on really.
Getting our efficiencies up so that we can ramp up the production in the second half of the year. When we expect the majority of the supply chain constraints have eased.
<unk>.
Great. Thanks for that just if I could.
Okay.
It's partly as Rajeev suggested to supply chain constraints that we've been.
But we've.
<unk> been working very closely with our suppliers too.
Increased.
Capacity, so that we can produce at their capacity. So that we can produce at the levels that we want to produce at so there are really two parallel processes going on Rajeev I think.
That's too.
Really.
Deal with the shortage problems, which in the main is a small number of suppliers and then to ensure that everybody's geared up for the increase in.
And volumes.
<unk>.
Are in a position because of the backlog to produce into especially in the third and fourth quarters.
Great. Thanks for that if I can squeeze one last one in on and Rajeev you mentioned the higher level of working capital just trying to think about trends and how quickly you think inventories start coming down quickly that can be a positive to cash flow and then the $165 million and the unused revolver, which team.
Based on on your sort of guidance or outlook.
That's more than ample liquidity does that would you agree with that.
I think we're in a Ken can add to this but I think would fit well with liquidity, we feel good about where we are.
In terms of the inventory, we do expect inventory to come down, especially as you measure it in days.
Because we are going through this transition as I said, we'll have flat production rate.
Initially in the year and then we're going to ramp up but what we're really focused on managing the working capital days, which have and are above our normal run rates at the moment because we took.
Inventory and are seeking to produce more trucks to drop.
Bill.
<unk> backlog and improve our lead times.
Lead times as we stated in our releases is a challenge at the moment for our sales team and so we will ramp up as quickly as we can but our planning suggests right now that thats going to be the characteristics.
That front half and a ramped.
Ramped up second half, but one thing to bear in mind is that.
We do have quite a bit of inventory that is on hand that is paid for because that came in.
In advance of our ability to actually assemble.
And build the product so.
The shortages prevented us from using the inventory and the way that we had anticipated.
So.
As we move through the first quarter.
And into the early part of the second quarter.
We'll also get a bump in payables.
To help finance, our working capital that we've depleted for the moment, so it's kind of a double barreled it.
First one is on the inventory levels as Rajiv described and the other is related to the payables financing of some of that.
Thanks, Al and I think what I would add to that is that in my section that we just covered we have strict operating controls in place to enhance cash during the period. We also have reduced capital expenditures and Youll notice that when you review the.
The K and as well as the earnings release in terms of we took our capital expenditures down for the period and the investment in strategic programs, but we've left those critical programs in place and are continuing to fund those.
We have programs in working capital that we have as well and we expect those to supplement that $165 million of availability in the the revolvers that we have today and then finally, Steve I'd point out that we have commented for about a year or so that our production capacity.
<unk> globally is about 140000 units.
We sold 26000 in the fourth quarter. So you can see that there is ability in our plants to ramp once our supply base can fill the the the the parts that we need to be able to build that level of trucks, we do need to produce more we need to get the backlog more in line in.
In concert with the comments that al and Rajiv made about the levels of the backlog and the lead times that we face.
Yes.
Great I appreciate all the color folks thank you.
Your next question comes from the line of Chip Moore from Es Hudson. Your line is open.
Hi, good morning, Thanks for taking my questions.
I wanted to stay they are actually going to ask you.
I appreciate the focus on on liquidity here.
Some of the working capital dynamics.
Maybe if you could expand a bit on.
Where some of the delays in some of the strategic investments.
And it sounds like they're they're not some of the higher profile programs, but maybe you can give us a little more color there.
Well it's.
They're they're frustrated.
Australia, I will say that we would much prefer not to be doing this because the programs are clear wed like to execute them.
But we want to be very very prudent during this period and Rajiv why don't you comment on that.
Particular or do you have that so we've kept.
If I just go through our kind of large investments in nice around product is around our operational and manufacturing capability.
And the other ones are around ramping up the fuel cell capabilities.
Capabilities, and we've kind of taken.
Some reductions in each of those elements and we've kept the most important products to the three areas that we focused in on the product side, it's been the <unk>.
Scalar modular scalable platforms, you'll see those will continue to be launched in 2022 and 2023.
The next one is electrification Niels.
We have launched some new electric large electric trucks will continue to do that through 2022 and 2023.
And then the other one is some of our advanced technologies, such as Telemetric, operator assisted automd.
Automation.
And again, we've kept those going.
But at a reduced rate than we had initially planned for each of those areas.
And our manufacturing footprint, we're looking to optimize the hull complete footprint, we have delayed that program by.
A number of months.
But we've kept that program fully intact, it's just a deferral of about nine months to.
Manage our kind of liquidity requirements.
So I think.
The best way to think about it is not just in terms of.
The deferrals themselves, but when do they come back and from if you think about our.
Forecasts by the time, we reach the fourth quarter.
Our hope and expectation that.
We will be operating at.
Very profitable ready in our forklift truck business that involves the oney and we'd be making progress on bookings and shipments yet new Vera so.
By the time, we get to the fourth quarter, we're in a position to pick up programs that had been moderated kind.
Kind of in the first three quarters, but.
We'll make those decisions as we get into the year and make sure that when we make sure that things are transpiring as we expect them to do because.
It's been an uncertain year and.
Sure.
Last year and.
There is a lot.
Still to be fully resolved.
But.
We see a pretty clear picture as we look forward along those lines I do want to reiterate that you know, although we've reduced the capital expenditure is still at a significant rate. So it's not as if we've eliminated things.
Just prioritize yes, I would say that's a really important point that the programs that have been slowed or the strategic programs.
And Joe you are talking about a big long term impact, but moderating for a few months, yes, we are.
Not really doing anything from a near term operational point of view that is damaging.
Got it that's extremely helpful and makes a lot of sense.
And then you do call to call out an expectation for strong results for the lift truck business anyways.
In 2023.
Maybe you can expand on that a bit in terms of some of your thoughts and some of the key variables.
And helping set up there.
Again, I think we've really outlined that in very great detail we felt.
It was very important for all of our investors to have a clear understanding of the story because.
This is not a story of fundamental difficulties. This is the story of.
Short term near term.
<unk> with.
Material cost.
Now we've got cost moderating we also have taken.
Put in place programs that would.
Ameliorate any unanticipated future cost increases if they are above the levels that we're forecasting so.
We've been through this period and.
We certainly have put in place some additional provisions in our pricing to help protect us spent a long time since this country has finished inflation of the type that we're putting in place now.
So we're going back and measures that have been used in the past during those kinds of periods, but.
I think we describe it pretty pretty carefully you got a backlog shipments ramp up.
Supply chain capabilities to support the ramp up margins improved quarter on quarter, because the lowest margin.
Trucks in the backlog or the earliest ones to be produced because of price increases didn't have their full impact on OS and so progressively as you get to the fourth quarter.
<unk> keep rising.
<unk>.
Put us in the fourth quarter and into 2023, and a very good position and it's important dimension in 2023, we wouldn't normally comment on that but we've got we're still booking at a very strong rate. So.
We think that.
2023 is going to be pretty good year, yeah, we still expect to exit 2022 with pretty high backlogs.
So.
Got it okay, and maybe if I could get one last one in.
I think you've mentioned expectations for enhanced shipments there, maybe just update us on quoting activity potential for bookings and maybe if you could tie that in with some of the newer solutions for the lift truck business focused on electrification.
Sure.
No.
The whole program is being built around the Nomura.
Electrification strategy and that's to essentially launch a set of port equipment trucks with fuel cell.
And then in the in 2023 now as the technology has been developed for both truck. We have felt that there are other segments outside the lift truck industry that those same solutions can help particularly on the commercial trucking side.
And so what the team at Nomura has done working with.
With the highest ICL group has identified segment, where those would be a good fit and also segment where fuel cells really beyond the answer.
Because battery powered trucks Couldnt do it and as you could imagine there the higher load trucks trucks that have.
Ancillary load built into them at good example, could be a refuge truck for instance.
So the team's done a great job of mapping those out both and those segments out and who the key players are in each of those segments.
And then we are reaching out to working with each of those segment initially to put together demonstration vehicles.
And then assuming success then move on to then production Nizing it.
So that's been the main path for for driving it.
Centered around what we're doing on the left truck business, but then building.
Building that capability around the other adjacent segments that we feel could benefit from the same solution.
Got it alright.
Right and if I can sneak one last one in.
Just giving given what's going on overseas in Europe .
I want to be cognizant of any risks there.
How you are managing those thanks.
But we.
Have put a team together to look at the entire situation and make sure that we're managing it in a comprehensive way appropriately frankly.
Frankly, the biggest issue for us is ensuring that we're in compliance with all of the laws and regulations that are coming out at.
Such as speedy fashion.
There's a lot of care that has to go into.
Sourcing and.
Shipments and so on and so forth in the context of the current situation as to the financial.
The situation.
Frankly, we've probably got more down payments and trucks for.
Russia than we do.
Payments that are owed to us for trucks that we've shipped so from a financial point of view, we're not in a burdensome period and of course, we won't be shipping the one thing it does do that as well.
Worth noting is it gives us additional trucks to ship to other people other customers that we might have shipped into Russia and generally speaking in this environment, we would expect to get fuller prices and better margins on those trucks, then one should have been in the backlog.
For a while that would be would have been going into Russia. So.
Well.
Without getting into more detail than that we're managing it very carefully are especially achieved mainly European team, but also includes.
Our operations in China, and our production locations in other areas as well so that's kind of a broad overview of it.
Okay. That's very helpful. I appreciate it thanks.
Just a reminder, please limit to one question and one follow up.
Your next question is from Brett Kearney from Gabelli funds. Your line is open.
Hi, guys. Good morning, Thanks for taking my question.
Good morning.
I was curious.
At this point where.
Within the supply chain or the primary.
Component constraints, you're seeing I know in past quarters, you've called out.
Tires Motors, obviously electronics is it kind of on the microcontroller side. There. If you could just help us think about the <unk>.
Pinch points at this point, and then kind of which way those are trending more recently in your view.
So I think if I look at the most recent issues. We are having this electronics still continues to be.
And our concern and really just moving outside just microprocessors, we've had issues with.
Drivers, we use in our controllers.
We are starting to see some issues with capacitors and resistors.
Adding to affect some of the ancillary components that are required to make these modules I think we have a good handle on it but it's a scenario of a concern.
The biggest immediate impact is coming from the other part of electrical system, which is the wiring systems.
We are starting to see constraints with connectors terminals in fact, even some types of wires.
Again, there's a huge amount of work going on working with us.
Suppliers of wiring harnesses to improve the situation but.
But those are there and then there are some COVID-19 kind of.
The supplier infrastructure disruption related issues.
Around houses and.
And the things that you wouldn't normally expect to be impacted but really thats been a different impact because these are.
Generally manual labor kind of labor as you used to assemble these component these systems and they have been impacted by Covid.
I think that those are the big ones at the moment, where I think I would say that we are handling a handful either 10.
<unk>.
Supply of so so.
Whereas you know mid last year, we're handling 100 then.
And our kind of lay.
Late last year were in the 20 to 30 range. So things have improved but still constraints in the system I would add to that only that.
Our efforts are not just aimed at relieving some of those.
Shortages there are also aimed at.
Engineering.
Design changes that are designed to.
Allow us to use more readily available components or materials.
It takes a little bit of time to do that but we have.
Thank God made some significant Jeff.
Inroads as a result of that some of them are less specialized components.
And.
But our engineering team has been able to.
Rethink how to.
Meet those needs.
With some more readily available components than the ones that.
We were sourcing so that's an ongoing effort. It's all hands looking at these issues and trying to be as creative as possible in addressing them.
Great. That's very helpful. And then maybe just one.
Follow on Newbury, it sounds like product demonstrations.
Progressing nicely.
The team continues to.
Come out with.
The next generation of <unk>.
New products and engines there curious just given how dynamic new that space is how you all think about.
We've seen in some of these.
Specific to hydrogen just generally these new energy applications kind of different and more creative.
Collaborations between organizations curious how you all think about potential partnerships and whether you would involve strategic partner obviously minority.
Partnership into November entity.
In order to kind of accelerate some of the <unk>.
Have a news for growth that you've already identified and are going after.
Well I. Thank you.
<unk>.
Focus on a very important aspect of the <unk>.
Hello, Matt.
Opportunities for sales of our engines into the specialized segments that we've outlined in some detail in our previous.
Our materials.
And.
Sure.
But I think it's also important to say that there are many ways to define partnership.
Some are simply cooperative efforts with.
Individual.
Players who are.
Helping to provide components or assembly or customer applications of vehicles.
And certainly that's at one end of the spectrum.
But to.
To the extent that we see other kinds of partnerships at the right time that might fit in in.
In terms of closer Association, we will be open to that kind of consideration as well all of it with the aim of putting us into a position to maximize our long term value in the business.
And I would emphasize that as we do this the partners that we're working with.
Tend to be very sophisticated very capable group of.
<unk> and they are the kind of people that we've traditionally done business with these are not venture type.
Activities in that sense, and we think there's enormous value to be gained in this overall fuel cell area by having the disciplines of a traditional.
Established business in order to drive applications.
These areas Rajiv described earlier as needing a fee.
Fuel cell in order to do the work that they have to do Rajiv do you want to elaborate on that a little bit sure.
So I think I think the.
In terms of partnerships, we think collaboration is going to be very important.
Moving forward into hydrogen business, because it's not just about the field. So you have to get a powertrain solution in play and you also have to then provide the fuel system.
Whether that's hydrogen that's going to be hydrogen, but there are many ways to produce hydrogen and needs to be the right way for the customer. So that there is significant work going on collaborating with a wider group of companies now.
Some of those fall into association. They may do so and we are certainly open to it.
Great. That's very helpful. Thanks, So much rajeev just one word if you note in the.
In the earnings release.
We continue to emphasize that we think we're focusing on segments.
Our.
A relatively small number of segments.
The duty cycles simply requires fuel cell.
In order to get the job done batteries alone.
Really do not have the capability to provide the customer with the solution that the customer really needs and wants and will demand.
So.
There are many of these industries youre going to have different adoption rates the automobile industry is going to be different.
From.
The garbage truck.
Business or other niche segments, where if theyre going to go green.
A very good example, where we have really tremendous strength is in porch Rajeev you might just talk about the collection of products.
Products and capabilities that would require a fuel cells in order to serve the needs of imports and sure as I said earlier I think we have a plan to launch.
Our latest container handler.
Empty container handlers.
As we have.
<unk>, we have a partnership with a <unk>.
Producer of.
Terminal tractors that will also have a fuel cell solution.
This group of products will be released in 2023 to support <unk>.
Strong input, we're getting from port desires to go Green.
So that's why we have prioritized. This is a focus item for us, but that's a good example.
Collaboration.
Or what you might call partnership and Thats, the sort of thing we expect to do in other.
Segments of the market as well as in the Port area, where I suppose rajeev you'd say, it's most fully developed at this point yes.
Yeah.
Great. Thank you so much for all the insight.
Thank you.
Your next question is from Richard <unk> from one quick partners. Your line is open.
Good morning.
In your in your goal of 140000.
Units produced in 7% operating margin.
What kind of results from <unk> does that go.
Anticipate.
That's our goal.
Our goal for the forklift truck business and the one for <unk> is quite similar to that one that is not a goal for.
The new era.
We.
We think the three businesses need to be thought about and if you will valued in a very different way two of the businesses are mature.
All the businesses the attachment business, both Sony and the lift truck business Hyster Yale group.
And those are the group those are the.
Companies that are aiming at the 7% and the utilization of capacity, which is you are citing a forklift number right in terms of.
That portion of the business and.
We see really very significant progress toward those numbers in the fourth quarter and two.
2023.
So as to new Vera to focus its really.
And building value by developing <unk>.
Bookings in the segments that we've talked about.
Hi.
And getting a track record of quality performance and reliability of our.
Particularly right at the moment of our 45% and 60 kw.
Engine so.
We think that.
That will lead to the value there and it's much less a question of 7% operating profit are thinking about it in that way.
Yes.
I think I think.
That's kind of the best overview I can give you.
Okay.
Okay.
This is a real last question from Jefferies Marquez from Marathon asset management. Your line is open.
Okay.
Hi, Thank you.
First of all I guess on your backlog can you just discuss.
How firm that is there is definitely a concern.
On the street with many equity analysts regarding over ordering.
Just talk a little bit about number one.
When someone places an order are they putting down some type of a nonrefundable deposit.
And then at what point in time do they have is it yes.
Yes, just to start with that.
There is a deposit program.
Focused mainly around our dealer.
Sure.
Business.
And.
We haven't seen any signs.
Hum.
There is a lot of pre buying or if you will.
Ordering.
Because the backlogs are long I am sure there is some of that.
But whatever it is it gives us the opportunity to ride through 2022, and we're in some cases booking into 2023 now so.
We don't see any.
Nearer term issues.
The concern that you have identified now there could be cases.
Particularly with certain kinds of customers where they are.
A.
We sit down and negotiate together.
Because the lead times are long and frankly in some of those cases given the margins.
If they are dissatisfied we've got plenty of customers to serve with.
With better margin so.
It's hard to determine whether that's a problem or an opportunity.
We certainly haven't had any extensive cancellations to date and we've had a pretty strong backlog.
Out last year.
And I will there be any in the future. We don't think it's going to be material, but that's future looking in.
Difficult to say.
As our customers.
Customers do give us a firm.
And a purchase order, so and Thats the way the business and our industry has done.
And that's why I say, yes kind of negotiation because it's firm on our part.
We have to deliver the price at which that in most cases.
Firm on their part to Dubai as a practical matter Youre always trying to work with your customers and you sit down and you talk.
And I think I'd point out that the.
The vast majority of our trucks are ordered for a customer or a specified application and are highly configured to that application. So it's difficult it's not a commodity by as much.
For those customers to simply pick up and go to somebody else and across our industry. There are long backlogs as well. So there isn't someone to go to that can immediately fill that opportunity if they would choose to move on.
They are identified for a specific application in a specific location a lot of our customers, particularly in North America have lease contracts on their trucks. So there is a need to rotate those trucks out as they get close to lease term.
I think that gives us a lot of confidence.
In the quality of the backlog and frankly, our experience over time has been that we haven't seen large changes or large cancellations in the backlog over 10 20 years, Yeah. I mean, the other thing we are noticing is the average age of the fleet in the field is increasing so that goes along with what kind of thing.
Great.
And then on pricing I guess can you just give a sense of.
You've indicated there were a number of times that you've increased prices last year, but in the sense of magnitude.
How much are you increasing pricing and.
And.
It seems like you made mention of the contracts.
Now are based upon an inflationary environment, so just to clarify it.
It seems like you can change can you change pricing.
In those new in that backlog to reflect any changes in your cost going forward.
And if so when was that implemented.
Well.
<unk>.
The most important way to think about it is that all of the evidence at the moment is that costs are moderating at these high levels. We're seeing some start to come down, but we're not going to forecast that so we're looking forward.
Really through the end of this year at what we think the costs are going to be our hope is that theyre going to come in lower but we are booking our trucks to the costs that we see.
Through our forecasting models.
What happened last year of course, as you well know from.
Many companies experience.
Is that.
When.
Demand exceeded supply.
The prices went up a lot.
And we didn't forecast prices going up that much.
So what we don't see as prices coming way back down we think there is enough tightness in the marketplace to sustain needs higher prices for the for the time being or at least that's our assumption for the moment.
So that's kind of the dynamic of the situation both as to the past and as to.
The future.
Now what we have done is to provide some protection for ourselves.
Going forward show that.
If.
Trucks are booked way out in the future.
And inflation indexes exceed.
Certain expected levels, there is some opportunity to make some adjustments.
Get way out of whack so.
That's not a capability that we had before.
As we indicated.
<unk> are an obligation on the part of both buyer and the seller so.
That's a large measure how the how it works for us at the moment, but that's been a recent implementation so and that's very recent implementation and frankly, we will have to see how long we need to keep that in place. It's a critical protective mechanism, it's not a desirable.
Mechanism from our point of view.
And there are certain kinds of.
Bookings that have more flexibility to be repriced in a difficult environment than others. So it depends to a degree on.
Who the customer is and especially whether the end customer has.
Ben.
Really involved in setting the price.
Okay great.
My other questions, but thank you very much.
Okay.
I will now turn the call back over to Al Rankin for closing remarks.
Well I think we've had.
A good set of questions and we went into considerable detail in our earnings release as I indicated.
All of that.
We.
We will get a good thoughtful understanding.
Out in the marketplace.
Two critical.
Evolutionary changes that are incurring one is the progress of margins at both the forklift truck business and zoning over the next.
Over the four quarters of 2022 and enter 2023 and the other is the <unk>.
Bringing our working capital back to more normal levels.
Bye.
Matching.
Sure.
What comes in.
With what we actually need with our revised production schedule, which takes into account the <unk>.
<unk>, which we think suppliers can support our ramp up of production over the course of.
2022.
No.
That should help us to bring our working capital and our.
<unk>.
That more in line with the needs.
Sure.
The kind of levels that we ought to have for the business on an ongoing basis.
So those are my closing thoughts and we thank you all for participating.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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