Q2 2022 Modine Manufacturing Co Earnings Call
Good morning, ladies and gentlemen, and welcome to Modine manufacturing company's second quarter fiscal 'twenty, two 2022 earnings conference call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
If anyone should require assistance during the conference. Please press Star then zero on your Touchtone phone as a reminder, this conference call is being recorded.
I would now like to turn the conference over to your host Ms. Kathy powers, Vice President Treasury Investor Relations and tax.
Good morning, and thank you for joining our conference call to discuss <unk> second quarter fiscal 2022 results.
Approach.
Over the past few months, we've been planning for this possibility and I'm excited because we have a real opportunity to run the business differently by applying 80 20 principles.
Using 80 20 is a key tool and one that we didn't have when we made our initial decision to exit the automotive business.
Our goal is to optimize profit margins and cash flows while focusing resources on the products, where we have sustainable competitive position and where we can provide value to our key customers. While still meeting are returned targets.
We will initiate restructuring actions to reduce SG&A, and we will limit capital expenditures, especially in low margin areas, where we don't have a competitive position.
We will also analyzed and segment our business portfolio to identify those portions that are accretive to our margins and take actions were possible to improve commercial terms.
When we started this process are automotive business was around 500 million of revenue, but with wind downs and the earlier divestiture of the Austrian Eric whole business. We now have an annual run rate of about $300 million to $350 million.
About 80% of this remaining business relates to the liquid cooled products that have a higher margin profile and technology links to EV.
The remaining balances mostly air cooled product that is low margin than non strategic this will be addressed through further wind downs or potential divestitures.
Our leadership team has a very clear objective to improve and optimize the financial profile.
The focus will be on improving the profit margin by applying 80, 20 principles and reducing the cost structure.
Second the objective is to run the business on a free cash flow positive basis, including potential restructuring costs. We believe this can be done through margin improvement reduce capital spending and targeted asset sales.
Through these efforts we can appropriately manage this business in support of the broader moaning transformation, while providing better service and a more value added focus to our customers.
I would also like to point out that we are separating our vehicle business by technology.
As we recently announced we have created a separate <unk> business unit that will focus on accelerating growth of our Eev's systems and have hired a general manager to run this dedicated team.
As we've mentioned in the past we have developed a battery thermal management system that optimizes the temperature of the battery system without drawing power from the battery.
We are in production on the system and and development with many other bus specialty vehicle and commercial vehicle customers.
This is an attractive market for us given its growth profile and the potential to provide significantly higher content per vehicle and higher margins.
Our objective is to provide this business with the resources needed to grow and to continue investing in technologies to support the needs of our customers.
Switching gears, let's move to the state of our market on slide five.
The current business environment has it become increasingly challenging over the past few months, which impacted not only our second quarter results, but also caused us to lower our full year forecast.
In particular raw material costs have increased further and we are dealing with more supply chain disruptions, including the impact of semiconductor shortage on the auto industry.
All of these elements have caused us to reduced our second half outlook and to update our guidance ranges as I mentioned, our leaders are assembling restructuring plans to address these issues and started past two improvement.
Offsetting the headwinds we are seeing strong demand and are BH back Cif in hte markets.
Despite these challenges we've been making many positive changes in our business, including adding several new business leaders in support of our organizational design transformation.
In total we haven't added seven general managers. In addition to two new Vice presidents named last quarter.
The talent, we have brought onboard as well versed in 80 20 organizational.
Organizational development.
Management and transformational change.
First we have named leaders for our newly created Evie business and for our Hte business, who are actively working on the priorities.
Next in our building HVAC segment, we've announced new general managers to lead our heating indoor air quality and Datacentre businesses.
These are all very attractive fast growing markets, where we are actively gaining market share.
Each of these businesses are targeted for growth and with a decentralized structure, our new leaders will be given the tools needed to significantly grow these businesses.
Demand in our heating business remains strong and we are using our superior service model to convert distributors and further gains share.
An indoor air quality, our focus is on further expanding our geographic reach in the school markets, where we tend to have some focus concentrations.
Off season demand for schools up 300% compared to last year coming out strong summer shipments.
And data centers, we're targeting substantial growth leveraging our many strong relationships in Europe and building our capabilities in the U S.
Inflation negatively impacted margins in this segment. This quarter. There is often a long lead time between order and shipment and we had over $20 million backlog orders that will be shipped in the second half.
We are targeting commercial actions in this business, along with our heating and IQ products to offset these negative impacts we expect to see margin improvements and building H back in the second half of the year.
And our Cif segment, we announced new general managers for our calls and our coolers business.
Our coils business is very complex and will benefit from the 820 work we are doing to reduce this complexity and improve the profitability of the business.
We have a strong order book as long lead times and higher demands are causing customers to order early to secure supply.
The coolers business is targeted for growth, particularly related to our offerings using alternative refrigerants such as C O two.
Or is also remained strong, particularly in south and in eastern Europe.
Coatings business is also target for growth, especially as we expand our network of licensees.
This business was already set up as a separate business unit and will continue to be run by the same management team.
The entire leadership team is highly engaged in the strategic planning process, using 80 20 to define strategies to derive profitable growth and reduce complexity or.
Targeted growth businesses are developing strategies to substantially increase revenues, while maintaining or expanding margins.
In addition, we are taking immediate pricing actions were possible and are making good progress.
Finally, we are reviewing our manufacturing footprint in certain businesses to consolidate production of key products and two dedicated plants and to make rapid improvements were required.
We're taking many important steps towards creating a stronger modine, including reorganizing our business to accelerate growth and identifying experienced P&L leaders to run our business units.
80, 20 is driving important strategic decisions is beginning to yield tangible improvements across the business.
The change in our vehicular strategy is just one element of the story.
We're also providing additional resources to grow other key businesses that have strong market drivers, including data centers eating indoor air quality and coatings could.
Collectively these initiatives will help modine become a higher growth higher margin and less capital intensive business.
The process of transforming Modine will take some time and we're just at the beginning of this journey.
During the first phase of that transformation will use 80 20 to help us actively manage our portfolio businesses to reduce complexity discontinue and profitable activities and enhance our pricing model to improve and transition are challenged businesses.
At the same time will shift or human in manufacturing resources that better support the businesses with the greatest growth potential.
The next phase is growth acceleration once we have our organization structure and operating model fully in place we plan to further invest in the products and technologies that will propel this business forward.
We are excited about the prospects for the strategy and its potential to drive sustained long term value for all of our stakeholders.
Now I'd like to turn the call over to Mick who will review our results for the quarter and provide the segment updates.
Thanks, Neil and good morning, everyone. Please turn to slide six.
Second quarter sales were up 4%.
Or 18 million with double digit increases in our building each fat cif's in Hte segment.
Included in the sales increase was $25 million a pricing to help recover rising material and other supply chain costs.
Excluding pricing and foreign exchange sales volume was down 3% as increases in age fax cif's in hte, where more than offset by a significant decline in automotive.
Adjusted EBITDA declined 26 million driven by the significant rise and material costs.
The quarter included a nearly 45 million increase in commodity metals freight packaging and Kara.
In particular prices for aluminum copper and steel were significantly higher than the prior year.
As I mentioned as an element of revenue, we adjusted prices by $25 million to offset the significant cost increases.
Despite the large amount of pricing this quarter headed 20 million net negative material impact.
In addition to materials.
The quarter had a difficult comparison from temporary COVID-19 savings, which peak during Q2 of last year.
Compared to the prior year, the Aston of Covid savings resulted in an 11 million cost increase.
Adjusted earnings per share of 15 was 28 cents below the prior year.
As we look back at the quarter revenue was somewhat lower than we originally expected and materials have increased beyond what we anticipated in particular, the auto segment sales were well below our expectations as customers failed to meet their target.
Before moving on and.
I would like to summarize the five $9 million of adjustments incurred during Q too.
First we recorded three 3 million of impairment charges related to automotive assets held for sale during the quarter.
Next we incurred one $6 million of course, Lated to our 80 20 transformation with.
The majority relating to recruiting and severance.
Finally, we incurred 700000 of restructuring and environmental costs and 300000 of other auto exit costs.
As usual our press release in appendix include additional information Us GAAP results and complete reconciliation.
Now let's review this segment results.
Please turn to slide seven.
The building <unk> segment reported sales growth of 13% from prior year.
This increase was driven by continue momentum and use heating sales, which were up 17%. In addition, commercial ventilation and air conditioning sales grew 12% as demand for school products remains strong.
Data center sales were up 10%.
Sales were temporarily impacted by timing as a large dollar value of orders were completed but certain customers delayed shipment.
As Neil covered the order book is extremely strong and we anticipate very strong year over year growth in the second half.
The macro economic cost drivers that covered in my opening comments impacted all our segments, including age back and resulted in an adjusted EBITDA decline of 3 million.
The lower adjusted EBITDA was primarily driven by two factors.
First net material costs increased by approximately 2 million.
And second the combined impact of higher wages and Covid related items resulted in a negative $2 million comparison.
As I mentioned last quarter were actively raising prices to offset commodity trends, but in some cases, there is a lag between the time of orders and delivery, which has been amplified by the supply chain challenges.
The lag negatively impacted and margins in several large custom orders we.
We fully expect the margin to improve as recent production orders their shift and pricing actions fully take effect.
Please turn to slide eight.
Second quarter sales for Cif's were up 20% or 25 million with more than half of that increase coming from pricing.
Revenue was up in most markets, including 30% of refrigeration, 21% in commercial H fat and 30% and coatings.
Despite the sales improvement in higher pricing adjusted EBITDA was down 1 million.
Or 11%.
Material costs net of any pricing recovery increased over 4 million and unfortunately, offset the volume benefit.
We anticipated a difficult SG&A comparison, given the COVID-19 savings achieved in the prior year.
<unk> increased 1 million, mainly due to wages and prior year Covid action.
We are continuing to push through price increases and taking other actions to improve the profitability of this business.
Given all of these activities, we anticipate finishing the fiscal year with a much improved adjusted EBITDA margin in queue for.
Please turn to slide nine.
Sales and the Hte segment, we're up 18% or $30 million with about a third relating to pricing and foreign exchange.
Adjusted EBITDA declined 8 million driven by a decline in gross profit and higher SG&A.
Gross profit decreased 5 million, which we anticipate to be the low water mark for this fiscal year.
The lower gross profit was the director Zola commodity prices and logistics costs, such as tariffs packaging and freight.
Material costs increased by approximately 12 million net of all pass through pricing.
In addition to the higher materials SG&A was up 2 million driven by the Covid cost savings action taken in the prior year and higher wages.
While we expect continued revenue growth in the second half, we're taking a more cautious approach from a revenue standpoint at some customers have reduced the orders due to supply chain issues.
We have worked aggressively on multiple fronts to share and recover the rising costs, but in most cases, one under long term agreements in this business and must lead to implement material price increases.
In some cases the lag on these price adjustments.
Is six months or longer which can be challenging and periods of rapid cost inflation.
We're working with our customers.
To shorten these legs wherever possible.
The next wave of price adjustments will be in January which should result in a significant Q for margin improvement.
Please turn to slide 10.
As I discussed last quarter, we anticipated that are Q1 would be the high water mark for the automotive sale.
During the call we discuss the global semiconductor chip shortage come.
Combined with higher raw material costs and various COVID-19 impacts.
For the second quarter automotive sales were down 40% with declines across all geographic region.
I would like to highlight that approximately $18 million of the decrease was due to the sale of our air cooled automotive business in Austria, which was completed in Q1.
Adjusted EBITDA was negatively impacted by the lower sales volume.
As well as higher commodity prices and the lack of Covid savings.
Lower volume accounted for approximately 14 million of the EBITDA decline.
Net materials and Covid accounted for another 4 million of negative variance.
As Neil mentions.
We have terminated the sale agreement with Dana and a further reduce their automotive revenue outlook for the balance of the year.
We anticipate is difficult comparisons and our automotive business to continue for the balance of the year. However, we're taking immediate actions to improve this business given the challenging market conditions.
Who will provide more details regarding these actions during our next quarterly report.
Now moving to the balance sheet, please turn to slide 11.
Year to date free cash flow is a negative 39 million, including a negative $18 million in queue too.
As discussed last quarter, we anticipated that cash flow would improve each quarter and finished the year in a positive physician.
The major drivers of year to date cash flow have been higher working capital and capital expenditures in particular inventory levels have increased significantly as material costs have increased.
And supply chain issues and forces to maintain safety stock to ensure adequate supply.
We are working hard to reduce our order backlog, which will help to reduced inventories over the back half of the year.
Overall, we expect our cash flows to improve over the second half of the year as we improve working capital and keep tight controls over capital spending.
Our net data 333 million is slightly higher than last quarter due to the negative cash flow and Q2.
Our leverage ratio is two five times, which lands on the higher end of our targeted range, but well below the maximum covenant level of 325.
Based on our full year outlook, we anticipate the leverage ratio will return back to the two times range by year end.
Now, let's turn to slide 12, and our fiscal 2002 outlook.
Given the various and prolonged headwinds we are lowering our fiscal 22 guidance the reduced the outlook mostly relates to two issues.
With the first being the automotive market and the second relating ongoing cost increases since.
Since last quarter, we've significantly lowered our outlook for the automotive segment, given the continued pressures from the semiconductor shortage like.
Like mostly believe the chip shortage will continue through calendar 2022.
From a cost perspective metals prices have continued decline, which further pushes out our ability to fully offset these increases.
As I have previously mentioned aluminum and steel prices have risen further since our last earnings call. We now expect that material cost for the full fiscal year will increase by more than 130 million.
To offset that we will adjust prices by more than $95 million.
However, due to the additional increases in timing the gap is temporarily widened from what we originally projected.
To be clear, we will recover the majority of cost increases, but as materials have continued to increase the.
The additional price recovery will likely carry over into the new fiscal year.
As a result of these factors were lowering our sales growth range to 10% to 16%.
Given this combined with temporary cause we know anticipate that adjusted EBITDA will be in the range of $145 million to $160 million.
The team is working to reduce the lag on our pricing mechanism and are pushing through price increases in other parts of the business leveraging the 80 20 data.
We expect incremental margin in earnings improvements in Q3.
Above levels produced in the first half however.
However, we project the net large wave of pricing adjustments in queue for with a more significant margin improvement in the final quarter of this fiscal year.
In addition to the incremental pricing, we will not have the negative comparable in the second half related to prior year Covid saving.
As we look at sales by and market the demand and the majority of our end markets remains strong with double digit growth.
The auto market remains the main challenge, but we will begin our restructuring work.
Our order backlog is unusually high which is driven up inventory levels and we expect to work through this in the back half of the year. Our focus is now on pricing recovery and order book growth, particularly in Cif and building H Faq Bay.
Based on the strong order book 80, <unk> and future pricing recovery I am quite encouraged as we look forward to calendar 2022.
With that we'll take your questions.
Thank you.
If you have a question at this time, please press star and one on your Touchtone telephone.
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Our first question is from that Somerville with Gia Davidson your license.
Couple questions, you've had a $20 million sorted gap, if you will between 45, and the 25 and physical Q too.
Okay.
Okay.
Hello.
Q.
Mhm.
Okay.
Okay.
Okay.
Brian.
So operator that we weren't able to hear that question I don't know if it was just on our end.
You got some of our summer rolls, having some audio issues.
You guys hear me.
We got you know Matt.
Sorry, what the deal was.
So a $20 million.
525.
It costs.
What.
Look like in Q3, Q or at least here today and assume.
Input costs.
When will.
Fully closed for the company.
AIG gas should Matt MC here so.
The gap narrows each corner as we go forward assuming.
The material stabilize.
Where they're at the gap gets smaller in Q3 will be.
A little bit negative on a year over year basis, but.
Maybe about half of this quarter.
Little more than 10 million or so gap in Q3, and then in queue for we're anticipating and net.
<unk> <unk>.
Material path through so.
Gain or starting to recoup more in price than in costs down a year over year basis.
So then.
This year.
We would end this year with about $40 million a gaffe it would I anticipate we'd be.
Another quarter of two of positive gains before we fully caught up.
But again I would expect one more negative quarter and the December quarter, but last.
And then having a net positive beginning in queue for which is good news for us.
And obviously.
Ill at 10 days or so it's been a really.
Large change in material aluminum and copper costs.
If that were to continue or to stay there Steven opportunity for us on the positive side, but we haven't factored that in at this point.
Got it.
With respect to building H back as I look at.
The the end market slide towards the end of the presentation might just add up those numbers.
Sort of average them I guess not out the mop average them somewhere in the range of 25% to 35% type growth and the business yet year to date, you're only 18% do you think you are gaining market share in that business. So help me score that up I know you mentioned you had a shipment on the data center side.
Pushed to the right a little bit out the customer's requests for maybe quantify that if possible Ah cuddled score up the growth you've seen in building HVAC versus.
The numbers indicated on that slide.
Yeah I'll go first Matt from from the financials and Neil can add in a little more color commercially and competitively on the market space, but.
But yes in building a fag Q2, the biggest driver there was.
Between five and 10 million of products that we produced.
Completed and customers did in polar take shipment at the end of the month or at the end of the quarter.
That.
In itself would've had a big impact in the quarter from.
Ed data center revenue growth and from a margin and and earning standpoint so.
We're expecting a very strong second half of the year when you do the math.
Heating <unk>.
The ventilation side have been pretty consistent and strong growth for the first half of the year.
We knew Q1 data center growth was a little bit lower and then this corner datacenter growth at 10% is below what we're projecting for the year, but a portion of that is just timing bye bye days.
And then there is a large backlog I'll, let Neil comment too. So the biggest driver in the second half to get to the full year guidance there'll be Dana centers, yeah. Thanks, Mick Hi, Matt Yeah, It's definitely a data center story.
As you can see from the press release last night, we we brought a new data center general manager in term promotions. So we're excited there.
And he is going to help us with this transition but overall.
<unk>, we're seeing heating increase we've got.
Very healthy order book on the heating side Ah Rolling 12 months through September orders are up over 25% from the previous year, an indoor air quality, we continue to get traction and momentum, especially in the areas, where we have high concentration.
That's 300% year over year growth on the indoor air quality side, and then of course with data centers. The key there was timing those large orders that we have with our two key customers.
In terms of their build out of the data centres. So our product was ready to go and ready to ship, but the data center wasn't ready to receive it relative to the supply chain constraints and the the Datacentre buildouts. So.
We've got the orders we have the opportunities and it's just a matter of getting them shipped to the end user.
Just the timing issue there.
Got it and.
And just as a follow up on the night and get back in queue with sort of timeline or rebooking at.
For us to be able to external both externally outside of modine to start to see tangible improvements in both the auto and auto businesses from the 20 process of segmentation approach or do you take him to the business.
Yeah. That's a good question so this quarter.
This current quarter, we're working with a new team members. We've got a new GM that is leading the hte portion of the business and the new GM that we hired to lead the EV portion of the business.
We're working with our consultants as well as the new leadership team to analyze the data combined automotive and and hte and what does that look like so as we filter that information similar to what we did in.
Roughly 10 minutes ago with data center. It takes typically three months to get through the data analytics. So we can start to divide the device the action plan.
And then there's some immediate actions that we can take.
Even as we go through and look at the consolidated data.
There is some restructuring efforts that we can do and there's some other areas that we can address considering the semiconductor shortage that are just actions are must do versus 80 20 strategy.
Got it thank you.
Our next question is from Steve <unk> was Sidoti accompany your line is open.
Good morning, Neil morning.
In terms of your guidance and I guess, it's sort of follows up.
Previous questions certainly as we've gone through this earnings season will spend a lot of indications that.
Supply chain issues, not getting better potentially getting a lot worse and the duration longer so when you're thinking about guidance. Even in terms of your data center product being ready put your customer not being able to take it.
And certainly leno on the auto parts side, the supply chain issues for hte, perhaps performing there I'm just trying to think about how.
How the shift in supply chain issues affecting your thoughts on guidance for the remainder of the year.
Hey, Steve It's Neil good to hear from you I will comment on that first and I will turn it over to Mick.
Fortunately for us when we're thinking about supply chain, we have to isolated areas that we're thinking about this is.
Primarily in the Hte side of the business in North America, and then auto with semiconductor so it isn't as if.
We're managing this.
Throughout the world or globally.
There's two primary areas that we can focus in on and that's essentially where we've we've got the management team focused currently.
Yes from what the New guide and.
And.
The balance of the year, Steve I think so too elements.
One is volume and I think you're getting there from that regard we did an element on the adjustment was in volume. So we're really looking at we've pulled down auto for the balance of the year and so we feel good about that projection now look really <unk>.
Level set income under customers and then secondly, there was an element of hte as well, where we lower that the biggest driver and you can see it right in the first half its materials and short of.
A rapid rise further what I feel good about is these are contractual agreements that can be painful and long, but we know what we're going to get and we know how the mechanism more so I've got good confidence and that element coming through so yeah. We've got some <unk>.
Backlog to work through some operational challenges by far the biggest challenge for us in the first half obviously has been metals and materials and we will.
Began to flip that and get a bigger piece of the recovery in the second half of the year.
Okay.
And then if I could sort of step backing.
Look at the bigger picture.
You're almost off towards year on probably more challenging year, then maybe thought when you step into the role and while you help us additional challenge of automotive.
<unk>.
How you're thinking about big picture. These mixes of these these four segments, whether they make sense.
Going forward and how you're thinking big picture of Modiin over the next year or two.
Yeah, that's a great question, Steve well Big picture for me.
11 months and.
We've progressed considerably with the.
The leadership team. So we have the full leadership team in place, we're taking back control the auto business, we're managing through the supply chain disruption. We continue to advance our 80 20 principles and further segment the company.
Certainly excited about the future and the strategies that we're developing currently and then to back it we've got a really good order book, that's healthy and.
And we've got some commercial wins and this and that focused areas that we wanted to focus and so.
Those are the those are the things that set the stage for us to think big picture now with the new team as we go through our strategic planning cycle, we should come out of that by the end of this calendar year from that we'll be able to look at big picture, how we want to continue to segment the organization. So.
So certainly you are right.
In terms of keeping our focus and having less distraction, we want to make sure that we haven't segmented properly and we have the right leaders in place and they have the right goals and we're treating these businesses differently and that's part of who we are and where we're going to we're we're going to be but I would suspect within the next.
90 days, we will be able to have something.
After our strategic planning cycle.
Our leaders are new leaders have time to digest their business.
I guess it's.
Put them getting act is.
You tried to get rid of automotive you couldn't.
As you look at these for businesses.
All encompassing Mo team does this mix makes sense to you.
At Steve.
Where.
A diverse company right, we have lots of different products and lots of different markets and.
That brings stability at times, so I'm very accustomed and familiar with working and.
Diversified industrials and that's the space. We're in today. So we have a mix of H back an auto in data centers and we manage these differently as we continue to evolve we're always going to assess the market.
And we will make the determination of it where is it that we want to be where where do we want to play we'll put together some financial targets will look at what businesses are accretive and what businesses are dilutive, we'll all regardless of the space. If it's diluted to the overall target we're going to address that and will decide whether or not we want to be in that space.
Alright, thanks for the time Neil Mick.
Sure.
The next question is from that Somerville with da Davidson. Your line is open.
Thanks, So I'll ask a couple of follow up just for for modeling purposes make what is the revenue headwind that we should be expecting in Q3 and Q4 associated with the air cooled divestiture and then you mentioned needle from a free cash standpoint being positive for the year can you frame that up a little bit does pass.
<unk> of Maine, 5 million designated 50 million.
Obviously that can mean a lot of different things. So maybe just put a finer points on your free cash expectations.
Yeah sure thing. So I think first you had a question about auto.
While I think.
Easiest way to look at that.
That would be the auto segment down last year I believe it's like $3 98.
$400 million down 20% to 30%.
<unk> the air cooled portion would that would be down approximately 10%.
And then with regard to fair question on free cash flow.
We're expecting in Q3, obviously to be to flip to be positive free cash and the same with Q4. So right now we see positive cash flow for the year.
Most likely between I'd say, 15, and 25 million or so from out of free cash flow standpoint.
Got it and then you mentioned coming.
Coming in the second half year fiscal year with a materially elevated backlog can you put that in the context talk about.
Absolute backlog levels, how much backlog is may be increased in the last six to 12 months with everything sort of tightness in supply around the world et cetera is there a way that you can frame that up for us.
<unk>, yes, a really depends as we go around business to business.
The shortest windows right and it's in our Cif's and building H back space.
As Neil walk you through so there.
Really good visibility I would say for the second half of the year and building HVAC and CIA as well.
Well north of 20 million and data center backlog.
And Neil talked about heating as well from a Cif standpoint, generally speaking I believe we've got really strong visit.
Visibility and orders fill their book through the first part first couple months of 2022.
Obviously beyond the longer and Neil can talk about the order book and the opportunities in the quotes were doing for data centers and the like well into calendar 2022 and then.
From the Hte auto Eev's side I think.
When we think of about the transition there.
Good order book, an EV and.
Cross the board and Boston specialty vehicle as well so.
There, we typically have we haven't quantified yet I'll take that away from vehicular standpoint.
But we generally have short of this this chip crisis that we've been going through we generally have a really good visibility over a two or three year window and across.
Otto EEV truck Eev's specialty bus.
And truck we've got good visibility here two double digit compound growth rates over the next several years Neil did you on any of that yeah. That's that's good.
I think of it like this map when we're looking at age back we're looking at CIA as the backlog that we continue to build.
Is is.
We're winning in markets that we're focused in and we continue to gain share and that's that's very positive backlog that we've built in hte in an automotive has been.
Because of some issues that that are outside of our control major customers that go on strike or cuss.
Customers that closed plants.
For a short.
Two week periods in order to stabilize their supply chain. So.
Backlog built a couple of different ways, but we're really positive and excited about the backlog in BH back and says.
What is the modem you mentioned that you're initiating a restructuring program an auto is it too early to frame up what we should anticipate the cash cost of that looking like and what the savings.
We should be anticipating them over what time frame and then separately. That's question number one separately. You also are kind of him team to a broader manufacturing realignment essentially born out of 80 20, and I guess some I'm also wondering sort of the same question on that one will we get more detail.
You want to take the first one will take this yeah at will.
Within this quarter or as we approach quarter, and Matt will be able to give you more details on the level of restructuring.
That will that will have went through with regard to the automotive business. As you you know we've got legal social obligations that the following processes to follow their which we will.
But I think cat any cash impacts is that from just from a timing standpoint will likely be into the new fiscal year and we can lay out for you both the immediate savings and the timing of that cash flow. So we'll have will be.
To give you more information within the quarter were in here stay tuned.
Relative to the second question, Matt. It's a good question. We're looking at all of our operations footprints one of the benefits of being a global company is that we have facilities factories capabilities and supply chain capabilities globally, and we want to leverage that and potentially repurpose some of those facilities towards our greatest growth opportunities and data centers.
We focused a lot in terms of.
Our facilities in the UK and how we can optimize the facilities and get plants dedicated to specific products.
Removing the complexity and allowing for growth. So there's there's a series of different maneuvers that were that are taking place in the UK to set these facilities up with dedicated product lines that support data centers, we're doing the same in Virginia.
<unk> side of the business, where we see opportunities with indoor air quality, and we see opportunities for heat or our biggest obstacle to growth there right now is <unk>.
Manufacturing capability. So we're really focused on making sure. We can repurpose some of these plants and get dedicated product lines out and making sure where manufacturing the right things. So we're making make by decisions based on.
The opportunities and the growth potential and then obviously within hte an auto there's some.
Though some areas of consolidation that we can continue to look at it as we split those apart.
With the with the previous Dakota deal now we're looking at how we can bring some of that together, where we have some arbor's obvious synergies, particularly where we want to grow and evie.
Thank you guys.
The next question is from <unk> with Sidoti and company. Your line is okay.
Yeah, I just wanted to follow up on a couple of things just.
As you can imagine all of these conference calls this quarter, so focused on trying to.
Two piece through the supply chain and labor issues and I just.
I want to clarify in terms of.
Backlog and it sounds like you are indicating the issues are purely on the customer side and I just wanted to get a better sense.
You've indicated the material price issues, but what you're seeing in terms of component shortages and are you just not having those issues from the backlog growth is purely on the customer side.
Now we do have some supply chain constraints for sure we have that in the data center side of the business. So there is at both ends right. Steve. So you haven't where customers are unable to take the finished goods because their sites or their facilities are prepared and then we also have it.
On the front end of the business with.
It's roughly five specific suppliers that we are really focused on and they expect side of the business and the hte side in the automotive side, we're seeing some constraints there.
But I would suggest it's more labor and managing the factories and getting the factory's output.
Has been a challenge.
Supply chain, primarily focused and <unk> is where we have a lot of our energy and efforts and then labor on the hte automotive side of the business.
As an executive Askable labor or.
Are you seeing and how are you managing way to inflation to get people through the door and how are you handling retention because I'm going to close open two separate issues for a lot of companies.
Yes, we are staying competitive we have to stay competitive in this market we have increased our wages.
And we've we've gone through some very creative ways in order to attract and retain people in our facilities. So certainly that's a focus and it's primarily been.
North America played for Steve, where we where we have to.
Continue to make sure that we have our facilities up and running and we haven't properly staffed but it's.
It's a lot of overtime shifts.
<unk> three shifts six seven days a week in order to maintain production output.
Certainly would like to have more labor so that we could we could we could dial back the overtime.
Do you think you have enough flavor is particularly on the automotive in hte side, you start seeing some of this pent up demand turn into production certainly on the automotive side.
Far off do you think you are where you need to be on the labor front and I know, particularly with automotive you were kind of hands off for the last four quarters.
As we see some of this come back.
How can I learn to do on the labor side.
Yeah.
Roughly a couple of hundred people behind schedule, where we want to be with.
We've got the team looking at the stopGAAP measures in order to close that we've been running that way for.
Multiple months now we've been able to figure out a way to get to the levels that where we're at we can continue to maintain at these levels, but certainly we would want to we would want to increase our labor pool.
Especially in North America.
All right Oh, you've had a lot of questions. Thanks. Thanks, Thanks, both vehicles.
Thank you.
I am showing no further questions at this time I'd like to turn the conference back to Cassie powers.
Thank you and thanks to everybody for joining us this morning, you'll be able to access the repay play of this call through our website in about two hours. We hope you all have a great day. Thanks.
Ladies and gentlemen. This concludes today's conference call you may now disconnect. Thank you.
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