Q4 2021 Commercial Vehicle Group Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to see Bee Gees fourth quarter and full year 2021 earnings conference call. During today's presentation. All parties will be in a listen only mode. Following the presentation. The conference will be opened for questions with instructions to follow at that time as a reminder, this call.
<unk> is being recorded I would now like to turn the call over to Mr. Crisp honored Chief Financial Officer. Please go ahead Sir.
Thank you operator, and welcome to our conference call.
Joining me on the call today, as Harold Bevis, President and CEO of C. V. G will provide a brief company update as well as commentary regarding our fourth quarter and full year 2021 results after which we'll open the call for questions.
Conference call is being webcast and a supplemental earnings presentation is available on our website. Both may contain forward looking statements, including but not limited to expectations for future periods regarding market trends cost savings initiatives and new product initiatives. Among others. Actual results may differ from anticipated results because of certain risks and uncertainty.
These risks and uncertainties may include but are not limited to.
Economic conditions in the markets in which CPG operates fluctuations in the production volumes of vehicles for which C. V. G is a supplier financial covenant compliance and liquidity risks associated with conducting business in foreign countries and currencies and other risks as detailed in our SEC filings I'll now turn the call over to Harold Bevis to provide a company update Harold.
Thank you, Chris and good morning, everyone on today's call I'll be referring to a presentation in the investors section of our website. It's the March one earnings call presentation.
I'll be providing an overview of our fourth quarter and full year 2021 results followed by an update on our three point strategy designed to achieve higher growth and higher profits by leveraging our strengths and entrepreneurial pursuing new areas.
As we execute on our strategy.
We are positioning C V G to deliver more stable results as we strive to expand our breadth and competitiveness.
During the fourth quarter, our operations were impacted by our past mainly by several legacy class eight supply contracts, where our profitability has been impacted by cost inflation combined with a shortfall in truck production due to the challenges impacting their global supply chains.
While our results have been impacted by these transitory factors, we believe they will improve in the first half of 2022, and we will be successful expanding into new end markets, which will open CPG to improve growth and profitability in the second half of this year and in the coming years and following my remarks, Chris will then discuss.
Our financial results in more detail and we will conclude by opening the call and answering your questions.
Turning to our financial results on slide four.
Our of our earnings presentation, we delivered fourth quarter sales of $228 9 million, an increase of 6% as compared to the year ago fourth quarter. This increase was driven primarily by increased pricing to offset material cost inflation pass through.
Our operating income increased 30% to $6 5 million in the fourth quarter as compared to $5 million in the year ago fourth quarter improvement.
The improvement was largely a result of lower SG&A related to a reduction in special costs. Excluding these special costs adjusted operating income for the 2021 fourth quarter Rose two 4% to eight 5 million compared to last year. Our operating income remains compressed due to a lag in price cost.
Offset in these legacy contracts and higher than expected new business wins with a resulting startup costs.
Adjusted EBITDA was $12 9 million in the fourth quarter as compared to $13 million in the fourth quarter of 2020, and 13 cents of adjusted earnings per diluted share in the fourth quarter as compared to a loss of five cents per diluted share in the year ago fourth quarter.
We had over $200 million of new business awards secured in 2021, adding to the more than 200 million, one and 2020 and another 75 plus million dollars of new business in the first two months of this year.
We also terminated over $90 million of business due to inability to achieve mutually satisfactory terms with some of our customers. We are committed to a transformative organic growth platform.
To diversify our customer roster at new market entrants and improve our profitability and lessen our cyclicality and customer dependence.
Turning to page five we delivered record revenues for the full year of 2021 with revenues growing 35% to 972 million.
As compared to seven $919 million in 2020.
And up seven 9% compared to the $901 million of 2029.
Our revenue growth as compared to 2020 was driven by strong growth in warehouse automation and new business wins and modest recovery in the global vehicle markets and material cost pass throughs.
Likewise, our operating income margin expanded to five 5% in 2021 as compared to three 3% in 2020 and four 9% in 2019.
Over the last two years, we have made strong progress diversity diversifying our end market participation.
Signs of our progress can be seen on the right side of the slide.
As we grew the warehouse automation business to be $188 million and delivered $24 5 million and adjusted operating income as I will touch on in a moment, we've made strong progress winning new business and end markets with new growth factors, such as warehouse automation in electric vehicles.
Turning to slide six.
While we have been successfully diversifying our business, which points to accelerating growth and profitability.
Our fourth quarter and full year results were impacted.
Somewhat by our past by a challenging global supply chain and cost inflation price lag offsets that were persistent over the near term.
Product shortages, most notably chips impacted class eight truck production during the quarter and full year, while the cost of raw materials freight and labor continued to climb in the second half of 2021, we.
We expect inflation and supply chain challenges to persist in the first half of 2022.
A key pillar of our strategy to transform CVT is focused on optimizing our legacy business as we work to undergo renegotiate our contracts and unlock unlock the trapped profit that resides within that portion of our business. Our legacy agreements were not designed to accommodate the rapid.
<unk> that we've been experience, which has pressured our results to solve this and unlock the profit potential of this business. We have been renegotiating our legacy contracts that are dilutive to the company's operating income and EBITDA.
So far we have reworked many of these customer contracts and expect the majority of the remaining contracts to be resolved during 2022.
Turning to slide seven.
We believe we are becoming an emerging leader in the electric vehicle industry for both low voltage and high voltage electrical systems, which positions <unk> well for the coming conversion to electric vehicles and fuel cell vehicles.
We are seeing an increase in truck miles given the continued growth in e-commerce , and which looks set to continue and on a go forward basis, we expect electric vehicles will be our biggest and fastest growing business.
Our largest end market remains North America class eight truck market and due to the continued supply chain challenges, we've taken a conservative stance towards production outlooks for 2022.
We're estimating the industry will be able to make approximately 270000 trucks, which is roughly flat year over year.
The industry continues to be experiencing a backlog due to global supply chain shortages and the projections show a continued increase in classic truck builds in the coming years.
And as a reminder for C. V. G. Every 10000 trucks built equates to approximately $13 million of sales for us.
While production has been impacted the North American fleet continues to age which sets the sets the industry up for several years of strong growth given the large backlog that has been built this.
This will likely create selling several years of steady production is the industry attempts to catch up and we will be in a strong tailwind situation for our results.
Turning to page eight and as Chris will discuss in more detail, we resubmitted, our financial reporting into four segments.
Which our vehicle solutions electrical systems warehouse automation and aftermarket and accessories.
Year end, our four segments were more balanced as compared to our previous segments and highlights the areas, where we intend to strengthen our revenue and profit profiles with accretive new business.
As we expand into new growth markets and reinvigorate our aftermarket business, we will experience improved profitability and accelerating earnings growth.
Likewise, a key mandate is to improve our legacy business renegotiate our contracts enable inflation pass through and improve our profitability as I've mentioned previously.
Turning to slide nine.
Second pillar of our transformation is driving new profitable business in growth markets with higher value added products.
We have now secured over $500 million of new business in the last 26 months with over 100, new products and this includes an additional 75 million of New awards. So far in this early part of 2022.
As previously mentioned, we offset $90 million of business, we terminated due to inability to achieve mutually acceptable economic terms and we expect to continue this mindset as we negotiate terms on the remaining portions of our legacy contracts.
In 2021, we're really happy to say that roughly 79% of our new business wins.
In the electric vehicle industry.
Overall, we are pleased with the success our team has achieved as our new business momentum continues to build and points to a strong growth over time as we gain new business awards and electric vehicles last mile vehicles power sports equipment and other areas.
Given that a majority of our new business awards are in the electric and fuel cell vehicle markets. They will take a few years to ramp up fully before delivering the full impact of that business on our P&L.
Electric vehicles represent a seven trillion market opportunity by 2030% and 46 trillion by 2050.
Government regulations combined with global environmental initiatives are driving this significant transition.
We're well positioned to partner with new market entrants, who are looking for technical expertise to launch their electric vehicles. Likewise, we are an ideal partner with existing market entrants and are growing with that segment of the industry also our competitive advantage resides in the fact that we are a natural value added product offerings.
That makes it convenient.
To design and produce new vehicles and partner and deliver on time, we can design prototype and built a bundle of products for partners and we have over 40 years of global experience doing it we've made strong progress expanding into electric vehicle markets as evidenced by the new business wins over the last two.
Six months, which includes both existing manufacturers that are expanding into the EV market as well as new EV market entrants.
On slide 10, another area that we are excited about is our aftermarket business, where we have formed a business unit and hired an experienced leader to reinvigorate. This profitable business segment, our new business leader, who has put a plan in place to create dedicated manufacturing capacity launching e-commerce site to penetrate.
Independent trucking channel as well as develop new products to add to our portfolio, while expanding our addressable market.
We're very happy with the progress, we're making and expect this business to grow 10% CAGR annually.
Over the next five years, while delivering margins that are accretive to our business.
Turning to page 11, we have a broad set of initiatives.
That are focused and designed to expand our business into fast growing end markets that carry improved profitability as we expand our business, we're working aggressively to reduce our dependence on complex supply chain, while driving improved pricing terms on leg with legacy business.
As we strive to unlock unlock the trapped profits and be able to pass through inflation more readily.
As we do this our cash flows will continue to improve providing capacity to pay down debt, while further investing in the business for growth and new product development.
And lastly, we're working on our first corporate sustainability report as we increase our focus on ESG.
Moving to page 12.
The <unk> leadership team is successfully transforming the business with the three point strategy.
First we want to strengthen the company's revenue profile with accretive new business.
That increases our company's value proposition and decreases our legacy customer dependencies as.
As I mentioned, we secured over $500 million of new annualized business in the last 26 months.
<unk>, 80% of this is in the electric vehicle industry.
Secondly, we're improving the company's legacy business by renegotiating contracts to improve their profitability and finally, we want to improve the company's balance sheet increase our cash flow and pay down debt.
As we execute these initiatives, we see a path to $1 9 billion in sales by 2025.
And we see a path to eight 5% operating income margins by 2025. These are our long term goals and we believe they are achievable as we execute against the opportunities in front of us.
Now I would like to turn the call over to Chris for a more detailed review of our financial results.
Thank you Harold if you're following along on the presentation. Please turn to slide 14.
Fourth quarter 2021 revenues were $228 9 million about 6% higher as compared to $216 million in the prior year period, primarily due to material cost inflation pass through foreign currency translation favorably impacted our fourth quarter revenues by about $800000 or 0.4% compared to the prior year.
Gross margins decreased slightly to 10, 2% as compared to the fourth quarter of 2020, driven primarily by cost inflation and $1 $7 million in new business start up costs in the quarter, which primarily impacted gross margins as compared to prior year. The company reported consolidated operating income of $6 5 million for the fourth quarter of 2021.
Compared to $5 million in the prior year period, an increase of 30% on an adjusted basis operating income was $8 5 million an increase of two 4% compared to the fourth quarter of 2020, adjusted EBITDA was $12 9 million for the fourth quarter as compared to $13 million in the prior year adjusted EBITDA margins were five six.
Percent, reflecting a decrease of approximately 40 basis points as compared to the adjusted EBITDA margin of 6% in the fourth quarter of 2020. This margin contraction was caused by legacy contracts, which impeded margin expansion and higher than new new wins, which drove higher new business start up costs.
<unk> expense was $1 7 million as compared to $5 2 million in the fourth quarter of 2020. The significant decrease in interest expense was primarily due to refinancing the company's debt on.
On April 32021, net income for the quarter was $2 6 million or eight cents per diluted share as compared to a loss of $4 1 million last year or <unk> 13 per diluted share.
As Harold mentioned, we aligned our business into four segments, which are vehicle solutions electrical systems warehouse automation in aftermarket and accessories.
Turning to slide 15 for our vehicle solutions segment, which sell seats and seating systems plastic components and assemblies cap structures and interior parts predominantly to the class eight truck market.
Well as to bus construction AG and military and Rick and the recreational vehicle markets for the fourth quarter of 'twenty. One the vehicle solutions segment revenues were $126 4 million, an increase of 13, 9% as compared to the year ago fourth quarter, primarily due to material cost pass throughs and a modest increase in truck builds.
Operating income for the fourth quarter was $5 million, an increase of 122% as compared to the fourth quarter a year ago, excluding special costs fourth quarter of 'twenty. One adjusted operating income in this segment was $5 5 million an increase of 42, 7%.
Turning to slide 16, our warehouse automation segment sells a wide wide range of material handling equipment electrical distribution systems and related assemblies, primarily for the ecommerce warehouse integration transportation and the military defense markets for the fourth quarter of 'twenty, one or warehouse automation segment revenues.
With $37 6 million, an increase of <unk>, 7%.
As compared to the fourth quarter of 2020 due to slightly higher sales volumes operating income was $3 1 million up $2 3 million or 262% as compared to the quarter a year ago. The increase in operating income was primarily attributable to product mix and operational improvements adjusted operating income increased to.
<unk> $3 6 million, an increase of 94, 4%.
Turning to slide 17, our.
Our electrical systems segment sells wire harness in cable harness assemblies into several end markets, including construction agriculture ecommerce traditional automotive and most recently the electric vehicle industry for the fourth quarter of 'twenty, one our electrical systems segment revenues were $38 5 million a decrease of six 7% as.
Third to the fourth quarter due to lower shipment volumes caused by supply chain constraints and semiconductor chip shortages operating income was $1 7 million a decrease of $2 2 million as compared to the 2024th quarter due to restructuring costs lower volumes and inflation impacts.
<unk> adjusted operating income was $2 7 million, excluding these special costs.
Now turning to slide 18, our aftermarket.
Accessories segment, primarily sell seats mirrors wipers, and wiper systems into the class eight truck market, especially recreational vehicles and home and office markets for the fourth quarter of 'twenty. One our aftermarket segment revenues were $26 3 million essentially flat with a year ago quarter caused by supply chain constraints and labor short.
Adjusted operating income was $1 9 million representing about a $900000 decrease.
Finally, turning to slide 19.
Reducing our leverage as Harold mentioned is a key priority for 2022 and were targeting to pay down between 25 and $40 million of our debt, which would reduce our leverage to below two times on a TTM basis. Despite the headwinds that we have experienced the business with cash generative, having invested over $100 million in the past year.
$86 million invested in working capital loan to support the more than $250 million of sales growth. We experienced in 2021 inventory for the new program launches and Covid based supply disruptions. We have also made significant strides in improving our operations to align with our transformation agenda, reducing expenses and working to offset the severe.
Cost inflation that has impacted our business, we expect the cost inflation the impact of certain legacy contracts and supply chain challenges to be headwinds to our results. During the first half of 2022, four showing improvement in the second half of the year as.
As we mentioned in the third quarter, we implemented a restructuring program to continue to transform and rightsize our legacy costs. We expect these activities to occur over the next several quarters with program cost in the range of $4 million to $6 million with roughly equivalent savings on an annualized basis. We believe these actions, we're taking to proactively manage the current environment will.
Help us in the short term and long term as well as better positioned CPG for margin expansion as the environment normalizes.
This concludes our prepared remarks, I'll now turn the call over the operator to open up the line for Q&A. Thank you.
Did you ask a question you will need to press 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 John <unk> with Sidoti <unk> Company.
Good morning, Howard and Chris how are you doing today.
Good morning, John Good morning, John .
I guess I'm going to start with your expectations of the class eight truck market.
What gives you this measure of conservatism have you seen January February .
Or does not materialize as you expected or is this something that's behind that.
We're seeing we're not seeing an improvement.
We're not seeing relative improvement due to the.
The run rate that we had in the fourth quarter. So similar similar problems John .
Chip shortages being the being the biggest one and.
And so we're we're assuming that that's going to continue it's not what our customers are saying.
And their public remarks, but we're seeing that they're having difficulty with part shortages. So.
We're being conservative about it what does it mean to us it means what level of inventories, we buy and hold and how we staff our plants. So.
Right now, we see activities sort of flat to the fourth quarter of last year on a per day basis, it's going to be more on a quarterly basis cause or less production days in Q4.
John If you recall the third quarter of last year the.
Projections were about 25% below what they thought.
Fourth quarter, they're not quite finalized and we're estimating they may be a little lower as well and where we're monitoring our our Adi feeds our sales feed as well we're seeing still continued variation there hoping that this alleviates soon.
As soon as possible, but we're still seeing some variation there.
Got it now if I look at your 20 twenty-five roadmap.
Back of the envelope, if I got it right it looks like Youre looking at a.
Legacy or organic growth rate of just under 10% and augmented by the <unk>.
$500 million of new business wins.
You you talked about the aftermarket business.
St CAGR, what other business.
These are three segments do you think would be the primary driver behind getting to that kind of a number.
Yeah. So the one 4 million is the current outlook with business that we have in hand, so we've already won around little over $500 million of annualized new business in.
Little over two years and so we're assuming over the next four years.
Will equal that so that's kind of.
Conservative outlook of new business like vintage year 'twenty, two vintage year 'twenty three vintage year 24, if you look at winning $500 million in two years, what should you expect to wind over four years. So we're actually being conservative on that and we started off pretty strong this year knock on wood.
And it does have a conservative truck build.
Built into it.
And that's how we got to the one nine John .
Okay that makes that makes a lot more sense.
And in regards to the 90 million of business that you walked away from when did you do that what's the timing of that is it already been realized that this is going to be some spillage into 2022.
It's out so it drained out during 2021.
Okay, and I guess, one last question on the higher input costs.
For you how much is it material versus labor that you're not recapturing.
Yeah, so the the.
The big two for us are steel and freight.
So if you just break it down and then labor behind us So we have.
All materials freight and labor and.
The legacy contracts that stung us.
All year long.
And now <unk>.
Don't allow us to pass through the majority of our cost inflation. In fact, we have some contracts that don't allow us to pass through any inflation.
So we're down to less than 30% of our revenue under these ugly contracts and we're renegotiating all of them now and that's why Chris kind of gave the guidance that this is going to last through the first half of this year.
And discontinue and we did publicly announce our biggest contract and it's in our 10-K you can see it's volatile.
We announced we wanted to renegotiate that contract at the end of last year, you could guess that we are but all of these conversations are private but we had a big chunk of our income trapped it not making any money for us while the rest of the business kind of healthy.
And <unk>.
Spending money to onboard the new business that we've won so we have to ramp up the additional $500 million.
And we're going through the ramp up.
Trials tests prototyping and initial production on these projects now.
Got it alright, thanks for taking my questions I'll get back into queue. Thank.
Thanks, John Thank you.
Your next question comes from the line of Chris Howe with Barrington Research.
Good morning, Good morning, Chris Hey, Chris Good morning.
Oh.
Well I guess I'll start with a broader question first and then get into a more specific follow up question.
As we look at the electric vehicle opportunity you mentioned it will be the largest fastest growing.
<unk> of the business as we move forward.
A lot of development here with new wins and continuing to.
Wind business here.
Could you. Please the timeline around this electric vehicle opportunity you mentioned it in the past.
As development had to occur before revenue realization what are you seeing around the timeline.
Realizing these wins and having them hit the <unk>.
Okay.
Yes, the first few big wins are going to ramp up this year.
Heavily in the second half I was just in Mexico last week approving the final designs and the production readiness at our big plant in Agua Prieta, which is on the border of Arizona works is going to be the predominant place we make the electrical backbones for North American market.
We're ready.
Do you have vehicles on the road gone through our testing so the first big ones will be in the second half of this year for us.
Okay.
And following up on some of John's questions about 2025.
Initial.
Outlook.
Can you placed some more granular detail on this specifically what I'm getting at the eight 5% operating margin.
Based on what Youre seeing in electric vehicles.
Warehouse automation.
And also.
The initial stages.
Putting your plan in place for the aftermarket business can you talk about how operating margin shakes out to get you to that eight 5% I would think.
There are some.
Double digit margin segments.
Bryce this target.
That's a good point so we've been conservative with the Oi guidance here, Chris and I did that on purpose. So we have internal goals that are higher than this.
The new business wins.
All very accretive for us.
The conservative outlook is due to the fact that we still have big legacy contracts, even though we're allowed now to pass through.
We're negotiating the pass through our inflation. So that we don't have this compressed situation, it's really hard to get profit expansion on that business without innovation or new platforms. So taking a conservative look on the legacy business. The accretive business is quite different if we had two buckets here.
It's more than 50% better.
And so.
It's a conservative outlook on the Oi margin on the revenue side.
The build is gradual I guess I'll say.
It's a gradual build the extra 500 that we have.
As we've won it in time, there's like a two year offset to when the revenue happens. So we started winning in.
In 2020, and so those wins are coming into production now the wins, we just had last week, we had two big ones last week.
For North America electric delivery vans.
They now start.
Their development process.
That last a while and as part of the whole vehicle development. So it's gradual build we already have the $1 4 billion.
We have that and that goes on top of our legacy agreements and then.
We're assuming we'll have similar wins with similar offsets during the time period.
In graduate to the the $1 9 billion number.
Aftermarket you touched on that a big aftermarket thing.
As we've never set aside dedicated inventory of production and we put that in in the second half of last year.
Dedicated production capacity to the aftermarket and so we've never before stock the a items. So we have a big competitor named seats Inc.
In the aftermarket and they stock all the a items. So you can look on your phone and you can say I want a black sea and ships with us with custom make it because it's been in our custom plants now we're going to be like the rest of the crowd and we have an e-commerce platform, we're putting out there.
As well so we're going to we're going to go head to head.
The aftermarket with <unk>.
Chip from inventory program.
One last one I'll just hop back in the queue on the aftermarket business, what's your sort of internal timeline.
On some of these initiatives.
Hey.
One to three years to kind of get things running.
I would assume that this business spins off good cash.
How do you.
Level set expectations here.
The accurate market is this year, we intend to get our inventory profile an order this year and we're underway with it the aftermarket plant by the ways and Piedmont, Alabama.
And it used to be a seed production plant.
All right.
A retired powder coating line.
We upgraded it.
We put in robotics.
Seat frame welding.
So we automated it lowered our cost and we have a big facility there.
Several hundred thousand square feet. So we can inventory there and that build is underway. We've moved four of the six lines. There already so what are we this year yes.
Chris We started this work just late last year, we hired the leader. So all this is underway right now.
And so 2022 will be a big year as we implement this this aftermarket strategy.
Great and we have no question, we have a decent sized backlog too Chris. So that's the first thing we're going to clear out and then.
Go compete head to head for the daily business.
Sounds good thanks. Thank.
Thank you. Thank you.
Your next question comes from the line of <expletive> Ryan with Colliers.
Thank you.
When you look at the 25 road map.
If you consider vehicles were vehicle solutions were 51%.
In 'twenty, one how will that segment.
Presentation look in 'twenty five.
Don't want to give specifics, but just kind of a flavor on how that pie is going to be split then.
Yeah. So.
The vast majority of our wins are in electrical systems. So.
The way we will report.
Is that revenue will be in the electrical systems segment. So.
The reporting that's in the seating excuse me in the vehicle solutions segment is seeding.
Interior trim.
And cap structures, so electrical because it's kind of pro forma already is our biggest business, but because it's going to be the big grower, we wanted to disaggregate it.
Reported separately, so some of those electrical systems.
Our on class eight trucks.
But theyre, mainly not there mainly on delivery vans in medium duty vehicles.
Did I answer your question <expletive> Yep Yep, Yeah, that's great. So on the $90 million that you walked away from or approved in 'twenty. One was any of that with Volvo, where your second largest customer or is that are those decisions yet to come.
The $90 million was mainly low and no profit seating.
And it was mainly.
In Asia Pacific.
And none of it was with fall Vo.
We were hopeful to have a mutually agreement mutually satisfactory agreement with them sooner rather than later.
We'd love to.
To be partners with them, because they're a global leader.
And they understand that we have bad contracts right now that are unprofitable is very transparent discussions.
And Dave Desirous as a partner because we have very good quality and on time delivery.
So I'm hopeful that we'll put out an announcement.
Soon.
A new agreement has been reached its mutually satisfactory.
Okay great.
One last one for me I know you don't give specific guidance, but can you give us just a sense of what we should be thinking about from a gross margin perspective, moving through 'twenty, two and even maybe on the SG&A side.
Yeah, Yeah, so as I mentioned in the call.
We've got some headwinds on supply chains and these legacy contracts that we're working through so I think.
Things.
Noted in the slide deck things got worse in the second half.
I don't I don't foresee that trend changing yet.
But I think.
As the supply chain and other things open up.
We're going to improve throughout the year and you know as I mentioned in the discussion earlier I think the second half will be much more favorable, but I think we've got a little bit of headwind here going into the next quarter or so.
Okay, great. Thank you and.
Thanks for giving us the segmentation here I think that's very helpful.
Thank you welcome <expletive> .
Again, ladies and gentlemen, if you would like to ask a question at this time simply press Star then the number one on your telephone keypad.
Next question comes from the line of Barry Haimes with Sage.
Each month.
Thanks, very much had a couple of questions one is.
The new fees that are ramping up.
I'm thinking more in the second half of this year.
Just to give us a feel can you give us any sort of a.
A bracket of revenues this year from from that new business.
And then my second question was.
The aftermarket operating income being down in the fourth quarter.
Could you talk about that a little bit more because you know I tend to think of the aftermarket as it's going through distribution, where your ability to raise price.
Often happened more quickly than with the OE contracts as you've noted so what was going on there that I'm really depressed the operating income in the fourth quarter.
Yes so.
I'll answer the second one first.
Operating margins for aftermarket. So if you look at the segments of our aftermarket business at seating in wipers.
It's our big too.
The aftermarket seat business shared a plant.
In North America.
With our OE business.
And that plant was unprofitable primarily due to these legacy contracts that I'm, referring to that were there were trying to make part of our history. So we spread variances.
In the plant and so they were.
They were stung by the sharing of plant.
And.
Just like in the rest of our business, we are increasing our prices in that segment and we do have flexibility to increase our prices so with a dedicated plant.
I don't expect that to happen again.
We do have a big backlog.
And we separated out.
Medicated production so.
The wipers business was pretty steady was mainly the seating business sharing the plant with the OFC business.
On the amount of electrical systems business this year.
Basically that you want guidance for one of our segments.
Uh huh.
And.
How just we're not ready for that we're not trying to be cute.
We had to we had the request here to give some sort of guidance. So we gave our our five year guidance. If you will.
We're not yet comfortable it's new for us too so we're going to ramp ups and we don't want we don't want to overstate.
This within three or four quarters, but.
This significant you can see the wins I mean, 80% of 500.
It's a large amount of wins, we have in this business.
It's a steady build.
The number is.
This material.
Significant.
Got it okay, great. Thanks, very much I appreciate it.
Welcome. Thank you. Thank you.
At this time I would like to turn the call back over to management for any closing remarks.
Thank you I appreciate it thank you for calling in.
As you can digest and see that we're primarily we're being impacted a little bit by our past still on things like legacy contracts.
The vast majority of that business is being renegotiated right now I believe this is going to get behind us here pretty quick.
We have one little contract that goes into 'twenty three but this is mainly going to be.
Beginning of this year issue and.
We will not suffer from those type of contracts going forward.
Much bigger than that we have won a lot of new business that's accretive.
And we are a fast emerging as a leader.
And electrical architecture electrical system development, we have a big electrical engineering electrical engineering team, we've put together and have become a desired partner.
Our customers really don't let us say their names. So we don't get to say their names much you can see that the only two names we've been allowed to say in the past.
That which we've shown up with Nikola and X O S.
We're going to have a big announcement a couple of weeks.
North American work truck show in Indianapolis on March 9th.
So we'll be able to say another customer name.
I wish I could say them, but it's it's.
A lot of wins.
The wins are around $15 million to $20 million each.
So it's a lot of different names.
And we still have a very large pipeline, we're working on of over $1 billion of additional with us and so.
What's happened with US is we've had a higher than expected hit rate conversion rate and <unk>.
So our startup costs have been a little more than we expected, but it's all good news and we're beginning a ramp this year with some of our new business.
Look forward to reporting to you what these new segments, which are clearly aligned with what we're trying to do.
And look forward to speaking with you next time.
With that operator, we will close the call for today.
This does conclude today's conference call. Thank you for participating you may now disconnect.
Okay.
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