Q4 2021 Meritor Inc Earnings Call
Good day, and thank you for standing by welcome to the Meritor fourth quarter and fiscal year 2020.
One earnings conference call.
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Zero.
I would now like to hand, the conference over to your Speaker, Todd <unk> Senior director of Investor Relations. Please go ahead.
Thank you Shannon good morning, everyone and welcome to Marriott towards fourth quarter and full fiscal year 2021 earnings call.
On the call today, we have Chris Bill of Orion.
<unk>, CEO and President and Carl Anderson, Senior Vice President and Chief Financial Officer.
The slides accompanying today's call are available at Meritor Dot com will refer to the slides in our discussion this morning.
The content of this conference call, which we're recording is the property of Meritor, Inc.
It's protected by U S and international copyright law and May not be rebroadcast without the expressed written consent of meritor.
We consider your continued participation to be your consent to our recording.
Our discussion may contain forward looking statements as defined in the private Securities Litigation reform.
Arm Act of 1995, let.
Let me now refer you to slide two for a more complete disclosure of the risks that could affect our results to.
To the extent, we refer to any non-GAAP measures in our call you'll find the reconciliation to GAAP in the slides on our website now I'll turn the call over to Chris Good morning. Thank.
Turning the call today to discuss <unk> fourth quarter and full year 2021 results.
Once again, we delivered solid financial performance, we achieved our full year outlook for adjusted EBITDA margin and exceeded adjusted diluted EPS guidance by <unk> 23.
While simultaneously.
Dania fleet, expanding our reach into electrification.
We accomplished this during significant supply chain disruption and labor issues in the United States I want to thank the meritor team and supply partners for working closely with our customers to optimize production and delivery.
As shown on slide.
Slide three we had good conversion on higher revenue as global demand snapback.
Extraordinarily high input costs, obviously impacted our margin for the quarter and the year, but all things considered we're extremely pleased with the result.
Let's turn to slide four.
While the circumstances.
We're demanding we remained intently focused on safety quality and delivery. We ended the year with strong metrics that give us a path to achieve our 2022 goals.
With 50% of our facilities, having zero recordable incidents in the year I commend these teams for the work.
We needed to maintain a safe working culture in a challenging environment.
Our excellent quality for the year resulted in customer ppm of 23 four of our facilities and three of our joint venture operations received a Daimler Masters of quality Award, which recognizes outstanding.
Handing suppliers with scores for quality delivery technology and cost performance were proud to say that including this year. We have earned 55 Masters of quality awards from Daimler over the years.
We believe this level of quality differentiates us in the industry as does our.
Delivery rate of 96% this year, while not as high as a typical year, where we consistently run 99%. We view this as an accomplishment considering the prolonged supply and labor disruption the industry is experiencing.
As the commercial vehicle industry advances towards.
Electric vehicles, we view every prototype agreement collaboration and partnership as an important opportunity.
Each one is a validation of our technology solution that could lead to a production contract as customers finalize their market strategies and architecture choices.
Every quarter this year, we announced new agreements to extend or expand our customer base and for electrification. This quarter is no exception. Please turn to slide five.
First ex US is electric mobility company that designs and manufactures.
Medium and heavy duty commercial trucks that travel on last mile back to base routes of less than 200 miles per day.
Under a prototype agreement ex us, we'll evaluate and test <unk> E powertrain with the intention of taking it to production in future platforms.
We also have a new collaboration with electric commercial vehicles.
<unk> will work with electric to bring electrified commercial vehicles to Europe city centers, integrating meritorious electric powertrain into and Iveco based road sweeper application will allow electra to remote replace it.
It will drive conversion solution and test a more efficient and compact electric powertrain.
With <unk> technical architecture electric and maximize the space for batteries, which will allow the vehicles to sweep more road surface in a single shift.
Finally, we're proud to.
As a reminder of the U S Department of energy Supertruck pre program in collaboration with <unk>. The goal of this program is to develop a zero emission medium and heavy duty trucks.
Let's go to slide six for a look at the significant number of diverse electrification agreements we have announced.
To be a fiscal 2021.
From production awards to prototypes medium duty to heavy we're growing through new and existing customer relationships.
In 2020, we announced the <unk> and Volkswagen electrification production program this fiscal year as compared to fiscal 2000.
And <unk> were more than triple the value of new EV wins and further diversified our customer base. We're also growing our opportunities in the medium duty application space here, we historically have not had large share.
We have now booked electrification business.
<unk> thousand 12, almost a half a billion dollars.
On slide seven we wanted to recap the important activity in our core business during the year, we extended contracts with navistar in tobacco and secured new business with industrial and truck customers in India and the United States.
On track to exceed our 2022, new business win target by approximately $100 million.
Keep in mind, we expect the sustained growth of our core business to fund the growth of our electrification business as the customer base and product portfolio continues to grow.
I will now turn it over to Carl for the financial details.
Thanks, Chris and good morning.
<unk> call I will review, our fourth quarter and full year financial results and provide an outlook for fiscal year 2022.
Despite significant headwinds in the supply chain and operating environment, we delivered solid financial performance and our fiscal.
Where we.
We converted an incremental revenue at 18%.
Expanded adjusted EBIT margin by 180 basis points to 10, 7%.
Increased adjusted earnings per share by 176% to $2 68.
And generated $107 million of free cash flow.
Now, let's turn to slide eight.
First I'll review our segment results for the fourth quarter compared to the same period last year.
Sales in commercial truck were $740 million up over 30% year over year. The increase in sales was driven by higher global truck production and all markets.
A year ago at this time, we were just starting to recover from pandemic related shutdowns.
Segment adjusted EBITDA for commercial truck was $54 million up $30 million from last year.
Adjusted EBITDA margin rose to seven 3%, an increase of 300 basis points from a year ago.
The increase in segment.
Adjusted EBITDA and margin was driven primarily by conversion on higher revenue.
This was partially offset by higher freight and steel costs.
Aftermarket and industrial sales were $250 million in the fourth quarter of fiscal year 2021, an increase of 11% compared to the prior year.
The majority.
It was driven by higher order activity in our North America aftermarket business.
Segment, adjusted EBITDA was flat year over year, However margins were impacted by higher freight costs, resulting in 140 basis points decrease.
For the full year sales rose to over $3 8 billion.
Up.
26% from last year due to strong global demand and higher truck production in all of our markets.
Production in India more than doubled South America was up 50% and class eight production in North America increased by 20%.
Net income from continuing operations was $200 million compared to 204.
$444 million in the prior year.
You will recall last year, we recognized more than $200 million of income net of tax associated with the termination of the company's distribution arrangement with wabco.
This was partially offset by the recognition of value added tax credits and our wholly owned Brazilian entity of 15.
Net of tax during the second quarter of fiscal year 2021.
Additionally, we recognized $10 million of net tax benefits from certain tax initiatives that were implemented in the fourth quarter of this year.
Adjusted EBITDA was $411 million in fiscal year 2021, resulting in.
On an adjusted EBITDA margin of 10, 7% an increase of 180 basis points.
The increase in adjusted EBITDA and margin year over year was driven primarily by conversion on higher sales, partially offset by increased freight steel in electrification costs.
In total higher steel and freight costs were <unk> 84.
Million dollar headwind in 2021.
During the year Ocean container costs nearly quadrupled.
Hot rolled steel increase over 250% and scrap cost doubled.
Had we not faced these increased costs in steel and freight our adjusted EBIT margin in 2021 would have been significantly higher demo.
$4 million rating, how well the underlying business is performing.
Additionally, we also incurred $21 million in higher electrification expense as we continued to invest for the future.
Adjusted diluted earnings per share was $2 68.
An increase of $1 71 from the prior year.
<unk> does include exclude the $15 million in tax tax credits from Brazil, and the $10 million of tax initiatives I mentioned earlier.
And finally free cash flow was $107 million compared to $180 million last year.
Keep in mind, our 2020 free cash flow included the $265 million benefit in cash receipts.
<unk> from the termination of the distribution arrangement, we had with Wabco.
In 2021, we also had an approximately $70 million increase in our working capital requirements as we secured supply for our customer needs and prepare for another increase in volumes in 2022.
Now, let's review our global production outlook on slide.
Slide nine.
We continue to see strong demand across our global markets.
However, global supply chain constraints continue to impact production for our customers and the industry, which we expect to continue into next year.
In North America, we expect class eight production to be in the range of 270 to 290000.
An increase of almost 7% at the midpoint from 2021.
While order activity has begun to moderate there have been over 320000 class eight trucks ordered since January.
Additionally, the backlog in September was approximately 280000 units, which is approaching the previous all time high set in October.
Unit 2018 overall.
Overall, we expect production to be limited only by constraints in the supply chain.
In Europe, our production outlook is in the range of 410 to 430000 units as we continue to see stable production levels on the continent.
In Brazil, we expect strong demand to continue.
As 2021 was the highest class eight truck production in this region since 2014.
We expect production next year in a range of 145 to 155000 units.
And in India, We project a slight increase from the prior year as production in the region continues to rebound.
Let's turn.
Slide 10 for an update to our fiscal year 2022 outlook.
We are projecting our full year sales to be in the range of $4, 1% to $4 3 billion.
In addition to revenue growth based on the production forecast I discussed, we expect approximately $100 million in incremental sales related to new business wins as part.
Of 22 plan.
We also continue to recoup steel costs from our pass through recovery mechanisms, which we expect will increase revenue in the range of $100 million to $150 million compared to last year.
Moving to our margin outlook, we expect our adjusted EBIT margin to be in the range of 11 five to 12, 5%.
Our guidance range is wider than normal due to the continued uncertainty in the overall operating environment.
We continue to see significant headwinds from steel and freight and anticipate these costs to be an incremental headwind of $70 million to $110 million as compared to 2021.
We are executing on a recovery in pricing.
To help offset some of the cost pressures we are seeing in.
In total we are currently or planning for $50 million to $80 million of actions, which will be more fully realized starting in our second quarter.
In addition, we expect several tailwind in fiscal year 2022.
First we will continue to drive operational performance.
<unk>.
And we will complete our previously announced footprint consolidation initiative in the first quarter, providing a $12 million to $15 million year over year improvement.
Moving to adjusted diluted earnings per share our outlook for 2022 is approximately $3 25 to $3 75.
In the beep in mind. This outlook is based on a revised reporting of adjusted income from continuing operations and adjusted diluted earnings per share that we changed in the second quarter of 2021, which excludes the benefit of noncash tax adjustments. We had previously included when we announced the 2022 plan back in November 2018.
Finally, we now expect our free cash flow to be in the range of $175 million to $200 million as working capital stabilizes and we convert on incremental sales.
Overall.
The team continues to remain focused on delivering superior financial performance in the final year of our 2022 plan now.
Now I will turn the call back over to Chris for some closing remarks.
As Carl stated our guidance ranges for this fiscal year are wider than usual due to the volatility we have grown accustomed to in the past few quarters. However, we are focused on delivering excellent financial results.
Slide 11 provides.
And 2022 highlights we are particularly excited about the growth, we see two and plan to achieve in our core business and advanced technology.
Meritor recognizes the future is electric our success in 2021, and our legacy in the commercial vehicle and.
Business will.
It will position us well to capitalize on the growing adoption of electric vehicles around the world as we look at the next decade, we expect the rate of adoption to dramatically increase heading towards 2030.
And as the market shifts to electric powertrains, we believe.
<unk> content per vehicle will grow significantly.
Please turn to slide 12.
We hope you will join us for merit towards virtual strategy day on December seven at that time, we will dimension our growth expectations as the industry transforms to electrification and share.
Exciting new business wins with you.
Following that event, we will have a live Q&A. So please mark that on your calendars, we will now take your questions.
Sure.
Thank you.
I just ask a question you will need to press star one on your telephone.
Withdraw your question press.
Marathon key please standby, while we compile the Q&A roster.
Our first question comes from Brian Johnson with Barclays. Your line is open.
Okay.
Hey, Tim This is Jason <unk> on for Bob.
<unk> on for Brian.
Congrats on a finished here I get that Cisco.
<unk> to 'twenty, one I was hoping maybe just maybe just on the outlook first.
The incremental margin that the outlook seems to imply if we kind of exclude the recoveries that you are getting and then the additional steel and freight cost that looks to be in sort of the low 30 ish percent range, which.
It is higher than we've seen in the past and you've kind of mentioned.
Some some one off factors, but hoping you could sort of.
Dimensionalize, what your kind of expected standalone incremental margins would be and then what the benefits of sort of the finishing the footprint.
Consolidation and other factors for next year. Thanks sure. Good morning, it's Karl.
Carl I can address that question, yes, as we look at the incremental.
Going into 2022, a couple of things to keep in mind I would say kind of descent base revenue our expectation now with all of the actions we've executed over the last several years is that we will be north of 20% conversion on that.
That incremental revenue.
In addition to the footprint consolidation.
12% to $15 million tailwind. We also expect to drive significant continued operational performance in the business as well so that would be an additional up to $30 million plus of operational improvement and we are also planning for a less incentive compensation.
<unk> expense in 2022, so that all of the boxes to the higher margin in an absolute sense.
Understood. Okay I appreciate it that's helpful.
And then maybe just on <unk>.
Just on the free cash flow conversion.
The numbers that you are.
Guy.
Compensate are pretty are pretty strong for 2022 kind of.
In that 75% range, maybe maybe even a little higher.
And I guess, we're going to get an update on what sort of cash you guys can generate.
Your next in the next set of planning period, but.
As we think about some of the restructuring cash usage.
This is kind of rolling off and maybe sort of a normalization of working capital as it kind of fair to hope for maybe north of 75% kind of going forward.
Yes, I think obviously, we're driving to achieve the 75% for this year in 2022, and we will obviously provide an update on a couple of weeks at our strategy day in a little bit more detail, but they expect.
<unk> just given the improved overall balance sheet.
And what we expect from working capital I think it would be a fair assumption, we should be driving that number north of 75% as we go forward.
Understood, Okay, and lots to talk about on the electrification front, but I'll save that for next month. So thanks, Tim. Thank you. Thank.
Thank you.
Our next question comes from Sherif <unk> with Bank of America. Your line is open.
Hi, Good morning, everyone. Good morning, good morning.
So I just wanted to ask about the 140 basis point impact on aftermarket and industrial it seems like freights, having an outsized impact on that.
Segment could you provide a bit more color and then when would you expect that impact to maybe roll off.
Yes.
So we're seeing as we look at kind of just global freight index since just in the fourth quarter alone. So this is if I go back to when we last talked to you back in July where we are now.
You have seen.
Seeing freight costs increased 50% since that time period. So.
I think that continues to be near term short term headwinds in the business, but as we kind of go forward. There are actions that we addressed in the call, especially with the aftermarket is around pricing that we expect to go into effect in our second quarter.
So you should start seeing that normalize a little bit further as we get out of this first quarter.
Understood and then with regards to the commercial truck segment has seen a similar level or is there pass throughs or something of that nature, there that would be offsetting a bit more of that isn't present in aftermarket.
No. It is affecting both segments. We are seeing that obviously, we have pass through mechanisms as mechanisms on our steel we do not have that in freight. So that is something that we have to have further discussions with our customers on for pricing.
Thanks, and I'll get back in queue. Thank you.
Our next question comes from Joseph Spak with RBC capital. Your line is open.
Thanks, Good morning, everyone.
Okay.
Carl.
If we look at some of the factors for the margin walk in 'twenty, two and revenue conversion and operating performance.
If I just.
Sort of what you sort of normal historical incremental margins on the on the revenue you're showing it would it would seem like maybe half of that one four to two two is is from volume and the other half would be more operational performance and I know you sort of called out the 12% to $15 million from from actions taken but what are some of the.
Sir.
Areas, there, where you can sort of drive further operational performance in 'twenty two.
Joe I think the a couple of other areas. In addition to footprint as I mentioned earlier would be we are expecting lower incentive compensation. So that was a so called that in around in that $10 million type of range year over year and then additionally.
Our expectation is we will continue to drive significant material performance into the business on a year over year basis. So I think those are kind of the key drivers for us to for that bridge.
Okay.
I guess staying there and you sort of just touched on this a little bit like the recovery in pricing actions. So it sounds to me like.
That's a mix of.
Contractual stuff and sort of negotiation can you just help us sort of.
I understand the split there in terms of sort of what is more just contractual that sort of put to you and how much is rolling up your sleeves.
Table and sort of trying to.
Get some.
Some pricing back.
Back in what the reaction to those conversations has been so far so I'll take that one and just if you break it up steel is mostly contractual so we have that.
On average somewhere between 75% to 80%.
That's pass through there is obviously the lag associated with when we have that recovery.
Most.
The conversations are most are on the freight side as Karl mentioned that is something that is not covered and so in those negotiations as you could imagine are.
Obviously difficult, but our customers understand it, especially when you think about numbers, where freight has gone up 400% to 500%.
Depending on which region and.
The type of freight so we've had those we have started those conversations early we'll continue to have those conversations though difficult.
What I would say Joe is at the end of the day that our customers need us healthy. So we've been able to work with them and as we see going into 'twenty.
Two of those those costs continuing to rise. So we will have to continue to have those conversations.
And historically, it's been easier to take pricing on the aftermarket side right then on that.
Yes, correct.
Slide <unk>.
Usually yes.
Okay.
Last one for me.
On the EV stuff, great to hear a $500 million in wins, which is I think what you were already which is what you're targeting is there a way to.
Let us know the split between let's call them legacy Truckmakers in some of these newer newer names and also like what's the timeframe for that $500 million to be recognized over.
So let me take that one we don't usually provide the granularity by customer Joe what we're doing is essentially taking the full basket or the full revenue that we have from all of our customers' customers and risk adjusting it and that's what you see however in terms of let's call it timing thats.
We will provide when you call in on December 7th.
Okay looking forward to it thanks, Thanks, Joe.
Our next question comes from Bruce Chan with Stifel. Your line is open.
Hey, Good morning. This is Matt on for Bruce. Thank you for taking the questions and congratulations.
From a solid fiscal 'twenty one.
Thank you.
Yeah.
With regards.
For the fiscal 'twenty two outlook could you provide some more color around the key assumption is on labor cost inflation.
Perhaps how good you guys feel about your line of sight into how the salary wages and benefits line.
It's something that might ultimately impact margins next year.
And maybe as a follow up to that if you could comment on the hiring staffing challenges that you're experiencing now in the market.
And your thoughts on what the impact might be on production laborer.
And so forth from the administration of vaccine regulations. Thanks, a lot.
Thanks, Matt I'll take the first question in terms of a Christopher the second as it relates to the.
Inflation.
The workforce that we're seeing it is embedded in our in our guidance right now I think it is definitely obviously, increasing depending on where we're operating and what state we're in but I would say it's fully reflected.
And what what our guidance is from an assumption perspective, so I'll turn it over to Chris and so on the second half Matt. If you think about it I would say Q4 for US was probably one of our most challenging quarters thinking about labor are coming with the obviously the impact of the Delta variant as well as.
The inability to really get a good view.
The the line rates.
The impacts of the semiconductor shortages. So we were seeing quite a bit of sporadic shutdowns through Q4, we do see that normalizing in Q1 so.
Our.
Oes have adjusted line rates based more from the visibility. They have ahead of them and that's provided us the ability to then appropriately staff.
One of the other things we have done and it's a true testament of the meritor.
The employees of Meritor is we were able to respond in many cases by moving some.
Salaried folks to respond into the plants and as we think through some of our strategies at least stabilizing through the next quarter those are some of the.
Let's call it.
The elements that we continue to deploy.
Great helpful and lastly, if I could sneak one more in.
Could you provide any updates on the blue horizon platform.
Perhaps some color around the <unk>.
Product portfolio production timeline, maybe the order book with existing customers or any new customer activity would be great. Yes.
Yes, I'd love to so.
Perfect. So I think blue horizon under Blue Horizon, we capture both.
<unk> R E powertrains as well as let's call. It the full system with the full system, which is where we provide the pea cast the battery system as well as the powertrain, which we're launching with <unk>. We're all aligned to go into production at the end of this year. So we're in.
Shape, there and then with the <unk> X, which is 14 X E, which is the E. Powertrain, we announced obviously the two prototype announcements today. So that that stream continues to build and we look forward to talking more about it on our.
Our strategy day on the salmon.
Excellent look forward to that.
Thank you ma'am.
Our next question comes from Brian <unk> with Jpmorgan. Your line is open.
Hi, Thanks for taking my question, given that you're mostly protected and customer agreements with regards to steel cost recoveries with the biggest consideration there I think would be mostly timing differences.
It says in the optics on margin et cetera, I thought to ask some more questions on this.
Non commodity supply chain costs, a number of light vehicle suppliers. This quarter have called out. These costs are included in ocean shipping freight electricity natural gas diesel even labor, suggesting that they are unusual and that they would seek to.
At least partially recovered then the commercial negotiations with their customers I heard you guys mentioned ocean shipping and freight a number of times you to what extent should we think about these costs as needing to be offset more through productivity and other cost savings is that how you've tended to handle you know.
Lower rates of inflation of these costs in the past versus to what extent do you expect to pass on higher non commodity supply chain costs to customers. If you do intend to pass along those costs, what would that process or timing of that process look like.
Does it make sense to potentially formalize into.
Two.
<unk> agreements I mean, not labor, but.
Certainly maybe maybe ocean shipping for example in the way that.
Commodities began to be formalized in the contracts in the two thousands.
It's a great question, Ryan I think when you think about the size and scale.
It isn't something that we can truly absorbed when we think about the business.
You come to a point, where it becomes a detrimental over time so for us.
The conceptually when you look at the other elements and you've identified them well, whether its power and <unk>.
Portions of labor.
We certainly will be looking to pass some of these onto our customers. We've started with freight because that was the most significant discussion we've had but we certainly have had other baskets.
Started discussing with our customers as we look at the last year.
Just preparing for the next year you know.
A significant portion of that needs to be moved out of the business. We started early coming into the pandemic by reacting by adjusting our head count as well as looking at all non discretionary costs. So we've done quite a bit of let's call. It internal work, but when it comes to a point where you have increases.
That 200% to 500%, we certainly will be looking to have conversations with our customers.
Okay. Thanks, and then my last question is on the Labor front you did get a question there already so I'll try to ask it from a bit of a different angle you know in the past mostly in the industry downturns I think you've highlighted.
The.
The higher percent of your workers that are temporary or were temporary at the time.
With the implication being that maybe there could be more easily or cost effectively let go when not needed which is seemingly the opposite of the situation today right. So I'm just curious what your mix of permanent versus.
Temporary workers looks like today, if youre thinking any differently about.
Permanent versus temporary.
With.
The benefit of temporary maybe being as much of a greater in downturns and upturns and generally what your retention looks like at the moment.
You did get the question on how leaver costs might track going forward, but just how about <unk>.
Relatively you have sufficient.
Sufficient continuity of experienced employees to meet our quality and productivity goals et cetera.
So when it comes to it so I'll break the question into two parts when it comes to our full time employees I would say that retention has been still quite good.
Ensuring that part of it Ryan is the let's call it the legacy of Meritorious.
110 years of Rockwell Heritage and on average when I look through our facilities, we have employees somewhere in that 14% to 17 years.
That are full time, so we've been we've done a great job in retaining those employees.
And it's been those employees based on the brand and the fact that they've worked.
With the same team the same company have have provided that level of loyalty and we've seen very little issues on the retention side there specific to the temp side. The temporary ratio is lower than what we've had previously.
Employee.
And that is.
As you could imagine the same pressures that we're experiencing in.
That the industry is experiencing so we are the way we have been attempting to fix that as by obviously, bringing down our temporary show and that's how we've addressed that overall.
Later time, let's call it retention is running north of 96%.
Okay. Thanks, if I could just speak a couple of R&D capacity.
Where do you stand on capacity with all these new electrification awards.
How intensive they are in terms of number of employees or square footage or whatnot, but it does seem like.
Our full some of these awards might be incremental to existing business.
You have sufficient capacity to meet all of the electrification.
Wins that you've been securing or might you need to add capacity. When was the last time that you've done something like that so we've actually broken out I'll break that into two elements so that full powertrain.
We build the P cast the battery system and the actual there we have that is through our acquisition and transpire. We have two buildings and we're constantly looking at expanding our capacity there.
We see that business growing when it comes to our E powertrain just the axle the integrator.
Great at axle here, what we are doing we have been able to integrate it into our manufacturing sites in North Carolina between Ashville and Forest City. So here, we feel that we have.
Enough capacity to be able to respond to the market as we see it over the next few years.
Okay, and then just finally.
There's so much excitement right now about last mile delivery vans, they're leveraged that e-commerce thinks about bright drop in some of their competitors to what extent are Ford transit or sprinter van <unk>.
Considered to be in the class five through seven.
How well positioned are you on.
Or aren't you to compete in that.
The light commercial vehicle space.
Whats your interest.
And that portion of commercial vehicles.
A great question I'd love to answer that one so when you take so when you think about as we have historically been on the heavy side and so we started off with.
With the <unk> and so if you think about Lyon highly on Autocar Podcar, that's been the <unk> Z, but the best part about our.
Let's call. It soiree intellect vacation is the wins on the medium duty side and so as you guys know historically, we have had about 15% share.
And we've been winning here so as we think about class seven class six this is Walter which is hexagon.
That's where we see significant growth and it's just been a true testament to the products that we've brought to the market right. Now. So we have the <unk> X E that comes to.
To class seven or the bottom end.
Top end of medium duty or the bottom end of heavy and so that's what both Volta and hexagon are using and beyond that we have the <unk> that we plan to bring to the market in 2003 as well as our agreement with C electric which helps us get us into the let's call.
At the top end of class five class six and seven so.
It's not that we decided on let's call. It a sequential strategy, we came up with parallel strategies on the medium side and it's great to see that we're winning.
Okay very helpful. Thanks, a lot thanks Ryan.
As a reminder to ask a question at a time. Please press Star then one our next question comes from.
Kelly with Citi. Your line is open.
Great. Thank you. Good morning, everybody just two follow up financial questions for me first can you just touch upon what youre assuming for R&D in fiscal.
2022, and then second going back to the recovery in pricing actions, particularly for the non contractual freight portion. How do you go about kind of modeling that is there sort of a percent success rate of recovery that youre, assuming just given some of it might be a bit of a.
Certain nature in terms of how those discussions may go.
Sure. Good morning, Yes, I think R&D. We are currently assuming about 2% R&D as a percent of sales is kind of what's in the modeling and the forecast embedded in our guidance.
And then as it relates to just those discussions.
Whether it's freight.
Steel in some cases as well because we don't always recover.
100%.
Think it's just.
We do build certain assumptions in there, but I would say what's happening is.
The pricing continues to change and we're still seeing that kind of run up and so those discussions are just extremely critical for us and so at this point, we will be driving.
<unk> to achieve everything from all customers as it relates to the pricing actions that we need to to deliver on as we go forward and we've had some success to date, but.
This rising inflationary environment, especially on some of these costs.
Continue to run so there is more work and discussions we need to have.
Wait let me as a quick follow up call.
Working capital off year drag with all that's been going on the supply chain.
A full recovery in fiscal 'twenty, two or was it just there'll be some additional recoveries beyond 'twenty two just for all of the recent volatility.
As we look at it as I mentioned, we had about a 70 million dollar headwind in 'twenty, one compared to 2000.
Any expectations I don't know if well Claude all the way back, but I would say, we should definitely see $50 million plus improvement in working capital on a year over year basis.
Terrific Thats very helpful. Thank you. Thank you.
Thank you and I'm currently showing no further questions at this time I'd like to turn the call back over to Tasha rollout.
Ross for closing remarks.
Thank you for joining our call today, if you have any questions. Please feel free to reach out to me directly. Thank you and have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
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