Q4 2022 Commercial Vehicle Group Inc Earnings Call
During this presentation all parties will be in listen only mode. Following the presentation. The conference will be opened for questions with instructions to follow at that time.
Under this conference is being recorded I would now let's turn the conference over to Mr. Andy Chien Chief Financial Officer. Please go ahead.
Thank you operator, and welcome everyone to our conference call joining.
Joining me on the call today, as Harold Bevis, President and CEO of CBS .
This morning, we will provide a brief company update as well as commentary regarding our fourth quarter and full year 2022 results after which we'll open the call for questions.
As a reminder, this conference call is being webcast and the supplementary.
The 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 saving initiatives and new product initiatives among others.
Actual results may differ from anticipated results because of certain risks and uncertainties.
Risks and uncertainties may include but are not limited to economic conditions in the market and richest CPG operates.
<unk> in the production volumes.
Vehicles mortgage CPG 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 <unk> to provide a company update thank you Andy and good morning, everyone.
As is our usual presentation format, we will be referring to an earnings presentation, which is found on our website.
And if you could locate that I'd appreciate it.
Presentation aligned to that document and why you find that document I wanted to say a few overview comments in three areas.
One area is additional efforts that we've implemented to increase short term performance second additional efforts to improve the economics of our long term revenue and product mix transformation and.
And the third yes, GAAP accounting versus our operating results regarding the first point on short term performance of our quarterly performance Youll see in our earnings release report here today that our vehicle businesses performed very well and overall they were up 17% of sales from 32% profit.
And it's the same story for the full year, our vehicle businesses were up in sales and up and operating income in fact, although <unk> revenues were up about $10 million for the full year, our vehicle businesses offset a $100 million decline in industrial automation.
This weakness in industrial automation.
Offsetting this year over year improvement for the quarter and the year, we now expect the weakness in industrial automation that continue and.
We have taken additional actions to show higher short term profit program at the same time as we go about our business of changing our revenue and business mix away from class eight and customer concentration towards a wider spectrum of commercial vehicles electrification and automation, especially in the electric vehicle industry for those.
You have been following CVD in the last few years, you know that we've been focused on combating despite cost inflation at new business startup costs.
Logical price increases and our cost out program.
While this is work as evidenced by the performance of our vehicle businesses. It was not enough to advanced profit as much as we wanted and that offset the industrial automation demand slowdown.
So we've added a few new angles to increase our improved to increase and improve our quarterly performance.
First we've upsized and implemented a bigger cost out cost reduction program.
We announced that we are targeting $30 million of cost out during 2023 with 350 plus programs.
Program is underway already and we began in Q4 with targeted head count cuts in both SG&A and Cogs, We expect to show results beginning in this quarter.
Have a multifaceted program that includes plant consolidations head count cuts process automation and procurement savings.
Secondly, we are curtailing our exposure to high startup costs in the vehicle businesses, especially the seating business.
When you Peel back the onion, a layer you would see that by far the most car startup cost per dollar of growth is in the seating business.
<unk> growth is hard to implement and Furthermore, we have onemain growth customer in the seating business. That's the focal point of our startup cost overruns.
Been a problematic growth program for CVD Chang and it's an electric delivery van with a startup vehicle company.
True to our word of fixing or exiting business, whether new or old we have mutually agreed with this customer to exit their seating business.
This is the right an easy decision for US we are exiting the passenger seat right now as we speak and we will exit the driver's seat by the end of this year.
Their production problems have been widely published in the press and I will not elaborate except to say we are exiting this particular customer in this program and we are in the beginning stages of transitioning to other suppliers for them.
Firstly, we're continuing on with growing in other areas, where the pain gain ratio makes better sense and this is primarily primarily in electrical systems and electric vehicle growth programs and we do have some secret sauce here and it's working and we're going to cover in our investor deck and.
And by the way we've already backfill the exiting seat program with a newly won electrical systems growth program with a new customer and well established delivery van OE will also cover that win in our investor deck. It's one of our larger wins and is even bigger than the business we're exiting.
We design a prototype that electrical architecture during 2020 and began production this year.
We'll run for approximately eight years and we believe this program will generate around $53 million a year of accretive margins at full ramp up.
The traditional delivery van company, not a startup company.
Thirdly, we expect the softness in industrial automation business to persist as well evidenced by comments made by industry Bellwether Amazon.
Is just much smaller now and we face this reality and restricted our business. We closed a plant we right sized our team we right size our inventory profile of this work was completed in Q4, and we believe that we have right sized the business now in Q1, we.
We don't need much out of this business segment in 2023 to hit our enterprise improvement plans and it has moved to our upside category.
Now you might be asking yourself, what do I do with this announcement of $30 million of cost out when will it happen where does it go where it's going to be in the P&L.
Logical questions for now we're doing this to underpin steady and improving quarterly profit performance and offset industrial automation.
So don't add this to your models on CVT, just yet we will be accountable for this cost out program and with deepened our team and we intend to report out our progress against our goals. This program has successfully underway right now and we intend to take actions during 'twenty three for additional long lead time items for the 24 cost out program.
You might also ask yourself I wonder how twenty-three starting out for CVD. Another good logical question, it's going quite well.
<unk> started out with truck builds at a high rate, which is additive to the performance of our vehicle businesses above external forecasts and above our annual run rate expectations.
North American industry dump trucks, so far this year the 350000 pace.
As stated before the industry's backlogs due to a couple of years of underproduction and if the industry can get parts they need to be cleared available sell trucks. So right now we have higher vehicle production than expected corrected prices a larger cost out program that is already underway and.
And we believe it we expect it to offset the industrial automation weakness and it winds.
New business wins program focused on lower cost startup programs tied to vehicle electrification and automation.
We are specifically moderating and narrowing our new seeding growth programs given the high startup cost exposure. This will blend down over the next few quarters as we finish what we have in house and culminate with CVT exiting the problematic exceeding customer that I've mentioned already.
To increase focus on making money and the vehicle solutions business. We've also hired an industry veteran named Russell Kettering Ham from boss automotive in Asia, Our new leader of this business unit for North America, and Europe and he is on board right now and an announcement will come out this week.
We believe that 23 will be significantly better than 'twenty, two and the vehicle solutions segment for CVD overall, and we've added firm actions and industry veterans to lead the way, we're not expecting a big come out come back and the industrial automation segment, but instead, we expect continued modest contribution at a low level.
My last prologue topic is with regards to GAAP accounting versus operating results for those of you that are a fan of reading and Warren Buffett's annual lateral like Gaiam, Berkshire Hathaway posted a week ago.
And he took his usual stance that underlying operating results and cash flow are better to follow the GAAP accounting.
Would be chucked in right now if you saw the same dynamic alive, and well and CVD easier on the results and of course CVD follows GAAP precisely and always will.
A few big year end, GAAP accounting provisions of tax pension closure and inventory profile that deserve some explanation that Andy will do that.
But to be clear none of these GAAP items impacted our business plans, our short term performance, our long term performance, nor our free cash flow.
Further we believe that the U S tax provision freshly set up at year end 'twenty, two will likely reverse itself at year end 'twenty three.
And regarding the inventory provision were in active inventory recovery negotiations with discussed were and have certainly gone commercial rights and Andy will elaborate later.
So I wanted to say those things upfront and give you a little bit of an overview to the deck and Andy and I presentations and I want to turn your attention to the Investor presentation right now page three.
Turning to the quarter.
Our team delivered good operating performance during the quarter hitting our target volume levels driving operating margins in line with expectations and making.
Significant progress on our transformation strategy.
We delivered net sales of $235 million up two 6% year over year again, driven by target volume levels and increased price realization during the quarter.
We delivered adjusted EBITDA of $13 3 million adjusted operating income of $8 4 million of free cash flow of $28 million.
All with no contribution from our industrial automation segment.
Our fourth quarter results included the previously mentioned seeding program startup costs, which were expensed in the quarter and the vehicle solutions segment.
We had a busy future growth quarter as well and achieved additional multiple new program awards in our selected areas, especially electrical and electrification. Furthermore, we negotiated meaningful additional price corrections during fourth quarter, which have begun already on January 20, <unk> January one 2023, and we launched an expanded cost out.
Program as mentioned earlier.
To more than offset continued modest performance in industrial automation looking.
Looking at the full year of 2002, when inflation seems to have peaked and cooling off in certain areas temporarily suppressed our quarterly results in our vehicle businesses during the year and we negotiated a price recovery in <unk>.
To offset these areas our teams negotiated cut costs almost continuously during 2002.
And achieve meaningful profit recovery in the vehicle businesses throughout the year, all the way up to and including year end 'twenty. Two at the same time, we're very focused on improving our long term revenue mix and profit profile.
And continued executing our long term growth strategy of attaining new business.
Which is primarily focused on long term agreements to produce electrical systems on electric and autonomous commercial vehicles, primarily in the middle mile and last mile markets.
A secondary mix change focus is on the aftermarket business.
We had a great year accomplishing improvements against these objectives.
And our team secured an additional set of new growth programs. During the full year valued at approximately $150 million of new revenue when vehicle production is in full ramp.
Regarding cash flow, we were able to fund all of our activities internally and also pay down debt.
For the full year, we paid down $43 million of debt, which exceeded the $25 million to $40 million range that we communicated during 'twenty two.
Our net debt was reduced to $121 million by year end 'twenty, two and maintaining our low debt level remains a key focus area for CVD in 'twenty three.
Turning to page four.
For a few more comments on 'twenty two.
While we did face several significant hurdles during the year, including a war induced stoppage at our 1600 employee Crane plant.
Temporary cobalt based shutdown at one of our most profitable facilities in China are high level of inflation and a rapid ramp down in industrial automation. We overcame these issues and we were able to execute hold our own and make progress on short term results and business transformation.
Along the way, we delivered record annual revenue results of $982 million and with a growing proportion of revenue tied to financially accretive and markets such as electric vehicles as I've already alluded to we delivered strong new business wins during the year on a multitude of product platforms and we've institutionalized this with a five year goal of securing.
Approximately $100 million per year of new lands going forward.
We won business, we have won business on 300, new programs across a 115, new and existing customers and vehicle platforms. In 2023 has started out well also when we have multiple new wins this year already.
Additionally, as part of our transformation, we continue to improve or exit underperforming segments of our business.
Right size, the industrial automation business, we were able to offset lower profits in this segment with increases in the vehicle businesses. During the year. We also made significant progress on setting up our new ecommerce aftermarket business, which is nearing launch we now have a dedicated plant focus on the aftermarket product lines in place and the software platform ready to support.
The electronic storefront for this new business for us as we gear up for growth and expansion of 23.
Turning to page five our demand outlook is very promising and is supported by forecast across our key.
In the vehicle markets commentary from our large public customers.
For North America class eight truck builds.
Both ACG and FTR predicting full year that will be a slight increase year over year and ACG research is also focus forecasting slight year over year improvements for North American medium duty trucks, as our new focus area for us, especially in electrification the backlog to build ratio in this area is sitting at eight months and three times the historic.
Will average.
Marshall vehicle aftermarket is continuing to grow at a modest 4% growth in 'twenty three and beyond.
And we are growing and investing in our electric wire harness business in the global commercial and automotive wire harness business is growing around four 5% CAGR through 2030.
With regards to specific selected segments within that the global electric truck market is expected to grow at approximately 30% CAGR from 2003 to 2030 and CVD is currently winning new business in this very attractive market segment.
The earthmoving and agricultural vehicle market is also expected to grow around 4% from 2023 and beyond and the market is expected to continue growing and we expect our legacy growth rates in this area to be in line with long term outlook.
So collectively across our markets, we expect to see.
Strong growth across electrical sees see electrical systems, earthmoving, and the aftermarket business with relatively stable truck markets in 'twenty three.
Turning to page six.
Our top publicly traded customers are seeing higher demand across key end markets.
And many have already issued positive market outlook for the year.
And in line with what the third parties are predicting.
These trends are expected to deliver a third consecutive record third consecutive record revenue year for CVD in 'twenty, three and we're well positioned to participate in the growing demand with our customers and the industry as well as ramping up a record level of new business wins from new and existing customers.
Of our new win 50%, our concentrate intellectual systems and they are approaching a healthy balance between ice and EV powertrains and diversified across multiple product platforms. Additionally, and most importantly profitability measured by EBITDA margins on the new wins is accretive at full production rates.
Turning to page seven.
We continue to take advantage of secular growth trends in electrification automation and increased vehicle connectivity or.
Our success as a new participant in this market has allowed us to self fund new designs as well as an accretive revenue mix shift towards electrical systems are combination of fast and accurate product engineering, coupled with plants that are fast and accurate is our secret sauce, we're selectively targeting our participation.
Too low to medium volumes, which is a sweet spot for our targeting and has good margin.
Have full connectivity solutions for both high voltage and low voltage and as previously mentioned, we are adding a new plant in Europe right now and is located in Morocco.
CVD targets customers with large total available market or Tam and it covers both electric vehicles and ice propulsion systems and a variety of markets focused on commercial vehicles and.
An example of our strategy in action is on page eight.
This is this is an example of one of our 300 plus wins, albeit one of our larger wins.
And as and as our most recent CVD began targeting the electric delivery van market in about 2020.
We began designing low and high voltage product lines for these vehicles in 2021.
Same here, we equipped our factories to achieve necessary certifications and make these products and we became an approved bidder and supplier. Many customers. In this example, we won the electric design and development program. We were awarded it we design the architecture for the vehicle and the physical connectivity layouts. We then.
<unk> participated in the bidding for the production.
And one a portion of the program here in early 'twenty three.
With this new business. It is targeted to be produced at our new plant in Mexico.
We believe this business has a lifetime value of over $300 million and we've added a new well established customer in this very attractive market to drive future growth.
This is a good example of the type of business wins that we're winning along the way.
Highlighted on page nine and based on our current outlook and the momentum of our new growth programs, we secured from our new business. We believe our sales within the electrical systems segment.
We will continue to grow to nearly 40% of our revenues in 2027 and.
And significantly outpaced the growth in the overall commercial vehicle market. This would make electric systems, the largest business segment within CPG.
<unk> automation not only support strong growth outlooks for years to come but they bring accretive margins for CPG, which we expect will positively impact our operating margins and return on invested capital.
Furthermore, as we grow electric systems, we expect to see the weighting of class eight truck exposure within our revenue mix decline in half from its current 30% to approximately 15% by 2027 and we expect this reduction will be driven in part by new wins in electric systems modest new wins in other areas.
And as part of a focused effort to shift our mix towards less cyclical and more profitable business.
Turning to slide 10, CVD is fully committed to increasing shareholder value short term and long term.
And we're committed to improving the profitability of our ongoing business and exiting unprofitable or risky business.
Despite a difficult demand backdrop, we believe our industrial automation segment performance has bottomed out.
I mentioned earlier, we have renamed warehouse automation segment to industrial automation as we love to win business in new areas of automation outside of warehousing.
Our approach in industrial automation, where we've right sized our rooftops our people our inventory.
Broadening our markets to wider industrial market shows our commitment to improving our exiting unprofitable or non strategic business, we will control our cost structure here tightly and allocate our capital and resources to support focused growth opportunities.
We continue to position ourselves to capture the secular trend of electrification and automation and attaching ourselves to a strong growth curve diversifying our customer base and reducing the cyclicality of our business.
The resulting cash flow is expected to fund our growth drive debt paydown and allow for strategic acquisitions, especially in the connectivity space for electrification and automation.
And before I turn the call over to Andy I, just wanted to highlight our roadmap again on page 11.
We exited 22 in a strong position in our vehicle businesses and a revamped and downsize industrial automation business. We believe that we're set up to win and make money at 23 and deliver a year of record revenue higher EBITDA and continued free cash flow and debt Paydown we.
We will continue to target at Liza $100 million of annual accretive business concentrated with electrical systems.
Which will diversify our product portfolio, our customer base and improve our growth and profitability exposure.
The resulting cash flow combined with our disciplined approach working capital will be prioritized for additional debt Paydown and potentially fund bolt on M&A.
We believe we're on track with our growth transformation and in a solid position to deliver $1 5 billion in revenue and a 9% adjusted EBITDA margin in 2027.
We are convicted to cut costs in non core areas and improve our cost position at the same time.
Now I'd like to turn the call back over to Andy for a more detailed review of our financial results Andy.
Thank you Hello, and good morning, everyone.
If you are following along the presentation. Please turn to slide 13.
Fourth quarter 2022 revenues was $234 9 million.
Compared to $228 9 million from.
From the prior year period.
Year over year growth.
Alrighty attributable to increased pricing to offset material cost increases.
Foreign currency translation unfavorably impacted our two.
2022 revenues by $6 $3 million or by two 7%.
The company reported consolidated operating loss of $4 million for the fourth quarter of 2022 compared to income of $6 5 million in the pioneer period.
This was primarily due to special items, which include restructuring costs and an inventory write down due to the decreased demand in the industrial automation segments.
Additionally, foreign currency translation unfavorably impacted operating loss by <unk> $9 million.
Adjusted EBITDA was $13 $3 million for the fourth quarter up year over year compared to $12 9 million in the pioneer.
Adjusted EBITDA margins were five 7% as compared to adjusted EBITDA margins of five 6% in the fourth quarter of 2021.
Interest expense was $2 $9 million as compared to $1 $7 million in the fourth quarter of 2021.
The increase in interest expense was primarily related to higher base interest rates and a higher average debt balance during the fourth quarter of 2022 compared to the fourth quarter of challenge anymore.
Net loss for the quarter was $32 million negative 96 cents per diluted shares as compared to net income of $2 $6 million.
Hsn's diluted shares into Pi.
Despite solid operating performance during the quarter ill be put our financial results were negatively impacted by some headwinds easing.
These include a continued inflationary pressures, particularly steel pricing, although as <unk> already mentioned, we have taken pricing actions to offset these high cost and expect some deviation in the near term.
Turning to business segment results.
Our vehicle solutions segment fourth quarter revenues increased 13% to $142 8 million.
Compared to the year ago quarter.
Primarily due to material cost pass throughs and higher volume.
Operating income for the fourth quarter decreased to $3 7 million compared.
Compared to operating income of $5 million in the prior year period.
Primarily due to a lag in price recovery, plus cost inflation and higher than planned startup costs.
Fourth quarter 2022, adjusted operating income, which excludes special cost decreased 24% to $4 $2 million.
Our electrical systems segment achieved revenues of $47 1 million, an increase of 23% as compared to the year ago fourth quarter, resulting from material cost pass through and contributions from new business wins.
Operating income was $5 4 million, an increase of $3 $7 million compared to the fourth quarter of 2021 due to the previously mentioned material cost pass through and favorable volume and mix.
Adjusted operating income was $5 5 million an increase of 104% yes.
Yes go for it.
Our after market and accessories segment revenues increased 28% to $74 $1 million.
Compared to the year ago quarter.
Primarily resulting from increased sales volume and increased pricing to offset material cost.
Operating income was $3 $2 million, an increase compared to operating income of $1 9 million in the prior year period.
The increase is primarily attributable to the increase in pricing.
Adjusted operating income was $3 $7 million, an increase of 95% compared to $1 9 million in the year ago fourth quarter.
As shown on slide 13, you can see the performance of our street vehicle segments on a combined basis.
The combined revenues increased 17% to $224 million comp.
<unk> $191 million in the yellow column.
Combined adjusted operating income was $13 3 million, an increase of 32% compared to $10 1 million in the prior year period.
The growth in adjusted operating profits demonstrates the powerful impact that growth in the electrical systems and after market segments has on our bottom line.
Our industrial automation segments produce fourth quarter revenues of $11 million.
A decrease of over 17% as compared to 37 $5 million in the fourth quarter of 2021 due to lower demand levels.
Operating loss was $11 9 million a decrease compared to the operating income Gulfstream from $1 billion in the year ago quarter.
<unk> attributable to.
PCT mentioned lower sales volumes and inventory charge of $10 $1 million.
Adjusted operating loss was <unk> 5 million.
Peer to income of <unk> 6 million.
Period.
Following along in the presentation slide 14 highlights some key financial trends for the quarter.
Fourth quarter revenues came in at $235 million slight.
Slightly below the <unk> quarter on fewer production days.
<unk> adjusted EBITDA margin came in at five 7% in line with pieces quarter. Despite the global revenues in the quarter.
Additionally, the quarterly free cash flow has shown improvements during the last few quarters. It was $28 million for the fourth quarter, which aided our debt pay down.
Turning to slide 15.
I would like to highlight a few items on the adjusted EPS peak.
Which include some special items.
First as a result of evaluating.
For tax assets.
Net non cash charge of about $47 million or <unk> 45 per share.
Second we completed the restructuring of the industrial automation business and recognized a non cash infusion by Donald $10 4 million or 29 cents per share after tax.
Finally, we recorded a charge of $8 1 million or 24.
Sure after tax related to the termination of the company's U S. Mercosur pension plan.
In addition, we also incurred higher start up expenses in the quarter to support our new business wins.
Foreign exchange was also a headwind as the U S dollar strengthened against several currencies adjust.
Adjusting for these items as well as restructuring our EPS would have been 14 machine.
Thank you I will now turn the call back to Harold for final remarks.
Andy and I would like to conclude my comments by reiterating that we've had a resilient year in 2022, we've had a good recovery efforts, although some of them are lagged on a profit basis and.
And the pace of the progress we've been able to achieve in our strategic plan has been better than we thought and fueled by a strong focus on our transformation strategy and a clear prioritization of our initiatives.
In our large and vibrant and growing customer base, where much stronger company in 'twenty, three and we are ready to capitalize on secular growth and higher profits and the trend towards electrification and we look forward to sharing the successes with you in future calls I will now turn the call over to our operator to open up the line for questions. Thank you.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session should you have any questions. Please press star followed by the one on your Touchtone phone. If you are using a speakerphone. Please lift the handset before pressing any keith.
First question comes from John from Sidoti.
Sidoti <unk> company. Please go ahead.
Good morning, Howard and thanks for taking the questions.
You bet John .
It sounds like Youre getting modestly or up for is it more positive about the commercial truck market being five to seven or eight are you starting to see order bookings into the second half that gives you maybe some sort of improved confidence that you might not have had say three months ago.
Yes, we are.
<unk> have improved outlook.
And we have basically confirmation from our top customers, making public remarks.
And the year has started out stronger than expectations and we can we have good visibility our visibility extends into the second half and yes, we are seeing a stronger outlook for our core business that we have and we're seeing attempts for startups on our new business as well so theres strong demand for the vehicles that we have and that we are.
Headed onto.
It's good news and the new industrial automation business.
It sounds like you want to extend into new end markets, but what's the pathway to.
Get access to those markets and generate revenues there.
Right, so were mainly leveraging our smaller positions that that business had.
We are not investing a lot of time or effort of distractions into brand new areas per se.
We had legacy businesses.
That we're leveraging we put a new leader into that business last year, <unk> Zara Zara home <unk>.
And he came with a broader industry background than warehouse automation.
The whole warehouse automation thing was a spike event in retrospect now it helped us a little bit while it went through mark almost like a crazy brother, but it's.
It's back to the business than it was when we bought it and so we have a smaller warehouse automation business. We still have it is small and our outlook is that it will stay small for a period of time and just following GAAP accounting that would suggest the provision that we took.
And so it's really on the small end of system builds and contract manufacturing John .
Okay.
And just on your aftermarket initiative.
Can you bring us up to speed on how that's proceeding.
That'd be helpful. Thank you.
Yes.
Virtually completed with our inventory profiles now we're going to shift from stock aftermarket seats and once you wipers.
And we are we put in place our shopify software.
And it's primarily a profit it's a profit grabbed primarily John .
The business is not a high growth business its four 5%.
And we are going to be shipping from stock versus building to order with eight week lead time, and we have an experienced leader we brought in there that understands Dave.
Daily pricing and demand based pricing for.
His experience as an Amazon shipper.
And we will be monitoring or we won't run out of inventory because we will raise our prices before that happens. So we're going to be running an e-commerce business is.
Called aftermarket truck parts dot com and its going to launch here in a couple of weeks.
Okay. Thanks, I'll get back in queue. Thanks.
Thank you John .
Thank you next question comes from Joe Gomes of Noble capital. Please go ahead.
Good morning, and thanks for taking my questions.
You bet Joe.
Pardon me.
Last quarter, we had.
<unk> talked about.
And negotiations for about 20% of the revenue.
To improve.
The contracts there you talked about some.
Price increase beginning of this year.
Kind of where do you stand on those.
Price increases that you've made in January .
Are they sufficient to offset all of these.
Remaining inflationary pressures or do you think theres going to be more necessary.
We are now ahead on price realizations ahead of our costs.
And we fully recover and the negotiations that I alluded to that we did in the fourth quarter that took effect on January 1st or.
As we had expected and were fully benefiting from from that additional price increase in this quarter.
Okay great.
And you also had talked about.
Eliminating 50% of the Ocean freight in early 2023, how do you stand there.
Yes, we've done that too we've implemented that program and our in region production is fully underway and we have offset half of our ocean freight and we're benefiting from that cost improvement as well in this quarter.
So on the pricing cost side, we've had a big improvement.
Coming into this year, Joe as we had expected and in the vehicle systems business. The industrial automation business is still very low level and we just rip the cost out of it and right sized it as we should but our vehicle businesses are still doing quite well.
And further rebounding from where we were in the fourth quarter.
Excellent.
And.
Last quarter, you talked about a $5 billion.
Dollar pipeline.
You put out the same slide in this presentation, just wondering where what is that pipeline today.
Yes, so last week, both Andy and I, both alluded to we definitely stared at our startup costs that increased $6 million and 22 versus <unk> 21.
And we could see a pattern that they were tied heavily into news bespoke seats.
We stopped doing bespoke bespoke seat programs and we are using a common platform that we have in house call unity.
And that.
That took.
A bunch of the pipeline out.
And we also further focus the industrial automation business and removed the big portion of our pipeline. So the pipeline now is very dominated by electrification automation.
Electric vehicles.
Okay.
Thanks for that clarification, and then one last one and I'll get back in queue.
Todd again.
Looking at the.
Long term road map that you put out today.
You talked about.
Revenue of one 5 billion 2027.
Our adjusted EBITDA margin of about 9%.
Sure that to the same road map.
That you put out last quarter.
That roadmap showed revenue one 9 billion adjusted operating margin of eight 5% just wondering if you could kind of clarify where the changes come into too.
Yes, So Joe let me, let me take that one so the key things between the loss Bush and of the one nine.
One five why not yet clearly refractive our strategy of focused growth.
Hello, Amit.
Bob Shining away from exiting unprofitable business.
Executing that and we're being a lot more selective in terms of winning business. So we believe that that's a better.
Our approach and for the overall value of the enterprise. So we allow creating our new strategy pan aligning to that new target and definitely that will give us an equal confidence in a more executable roadmap to get to the improvement of over 300 basis point in terms of our bottom line. So that's the real thinking it's aligned with <unk>.
We have we'll just mentioned I think this is a lot more focus and more execution of we ended so thats why we put it out there as our new financial targets.
We're hard wiring it too so the areas that non electrical areas.
In our vehicle business.
Where we've curtailed our motto modified our growth plans going forward.
We are we have cut costs in those areas and our job and our portfolio is to deliver additional cash and.
And EBITDA growth. So we've clarified the missions of each person in the portfolio.
Basically remove some of the growth aspirations and industrial automation.
And in non electrical vehicle businesses.
It's a it's a tight plan.
And it will generate good free cash flow and improved operating margin and we're underway with implementing it.
Great. Thanks, guys.
Thank you Joe Thanks, Joe.
Okay.
Thank you next question and follow up from John <unk> at Sidoti <unk> Company. Please go ahead.
Great. Thanks, guys.
I might've missed this in the presentation.
But what are your thoughts about debt repayment in 2023.
Yeah, it's probably not going to be as strong as last year, we had some low hanging fruit coming out of Covid and the all the ocean freight stuff, but.
We do have a free cash flow plan.
You should targeted modestly right now 20% to $25 million is what we're aiming.
We do have upside plans.
Right now the growth that we're incurring.
We do we are contemplating a growth year here and we do use we do consume working capital. So we're going to have a use of cash here back into working capital somewhat.
But net net we will be generating cash that similar to last year the first quarter.
We used cash because of the truck building starts out hot and heavy and it's doing that this year too. So our AAR goes up and if you look at the source of our cash last year.
And the components of it it was a R.
So we got really good about managing.
Accounts receivable going after custom.
Customers that were overdue.
And we had a big customer in industrial automation that had extended terms plus debt pay on time.
Blended out of the profile as well we haven't been explicit improvement plan this year.
Andy I think it's going to be in that range, that's why John that will be.
Looking at a more steady paydown for the next couple of years I think a pull chain.
A that's a level that we started to feel comfortable with so that's where we are right now and as Harold mentioned, so the company going to grow for the next couple of years at <unk>.
Summing all of this growth with all in cash so that's.
What we're thinking at this point.
Got it and the cost takeouts of $30 million this year.
How much cash is going to be required in the cost take out.
If I heard you correctly.
You're calling it a neutral impact.
<unk>.
Operating income why is that the case.
I'm, just suggesting let's not add to the EBITDA outlook for the year.
Trying to underpin our steady growth thats out there.
With expectations of us.
And we want to increase our ability to deliver.
And the plans are underway now and for the first quarter. We're on track we initiated.
Pretty significant head count cuts in Europe , that's underway with regards to the cash use.
Some of the programs of course severance.
Our San Francis salary continuation, so theres no additional use of cash we don't pay a lump sum they are on the payroll today theyre on severance tomorrow and the blend off we do have some capex associated with the cost out programs in our Capex. This year will be similar to last year. So.
No no net incremental use of cash John to accomplish that it's more of a business focus.
Where we're not going to try to grow everything with the same gusto, we're going to be very focused where we grow and then other areas, where we're cutting the costs down and optimizing our ongoing profits Andy would you add to that yeah. So so short answer is while it will be net cash positive for us.
The launch of Capex required to execute the cost reduction is not high.
Back to the cost.
Cost reduction and the EBIT margin comment.
When you look at this year as at year that we will continue to optimize our calls with our existing business Thats, what Matt was talking about at the same time, we are building new factories. So it gets a little bit of a ramp up curve to have productivity from the new businesses. So net net I think right now we're looking at pretty stable.
Slightly positive, but I think as we ramp for those new factories will.
Benefit down the road.
No.
We'll modify our comments John as we get through a couple of quarters of performance.
But for now we just wanted to break dice and let everyone know that we're going after our cost structure with gusto in the areas that we're not going to be growing as much.
Okay got it.
Two quick things I guess on the pension settlement is there any impact.
From that on the P&L and in regarding to the tax.
What is the tax rate look like for the year and I think you said that you expect a reversal again at the end of the year can you just.
Walk me through those.
Yes. So couple of things here. One is we completely finished the settlement of the pension. So now in the U S. We no longer have a pension liability, which is really a good thing for the company. So you can see in our filings with the quota for the settlement charge for the quarter as you can see also a filing and tax implications.
On that and the other topic that you mentioned is the tax rate I think right now we have pushed through a lot of the demand adjustments at the special items. So the biggest one is we evaluate our deferred tax assets on the book.
And based on the evaluation, we made the determination that just life Institute.
By a valuation allowance.
Yes.
Size of about $14 million to $15 million.
We believe that as we.
Going into the future.
The ability that allowance may not be necessary in the near future.
And then you asked about the tax rate I think at this point all.
The effective tax rate will be in the high <unk>, that's where we are looking at so but no desktop as a pure big items here, but these items are all about cash.
I will mention is no impact to operating results I'll talk a long time, so we feel comfortable with those.
Great great. Thank you very much unity.
Thank you I'll get back into queue.
Thank you John .
Thank you next question comes from Steve Emerson Emerson Investment Group. Please go ahead.
Congratulations on a excellent corker and the tough environment.
And then.
Thank you Steve.
What proportion.
In terms of pure goal year 'twenty seven.
And 'twenty two we're EDI related.
What are you, saying what proportion of our new wins for EV related in 'twenty two.
No you are billing in five objective in 'twenty and how much of that is easy related.
Sure.
It's going to be.
Good question. Good question I'm going to say, it's going to be around.
The electric system is going to be 40% electric vehicle portion of that.
Is going to be around half.
20%.
So 20% of the Biz.
And do you have a similar number for 'twenty, two or 'twenty three.
It's very small.
The Big picture on what we started in 2020, we had only ever been on and off road vehicles and electrical systems.
Jump started in on road vehicle program.
And went straight after electric vehicle startups, it has and Andi.
But primarily focused on electric vehicles, and the majority of our new business wins.
Have been on the electric commercial vehicles and secondarily on road and secondarily ice on road vehicles and we.
We are continuing.
In that manner with with no modifications. So we have a program that's working.
<unk> have kind of an evergreen is always setup. So far to continue growing in that area. The example that we put in the deck with the electric vehicle.
Electric Van example is exactly the type of programs that we're pursuing we're pursuing multiple delivery vans and multiple work trucks and when we get in there and we're going to be an approved supplier and we win an electric vehicle program were immediately an approved supplier to bid on the vehicles that are in there as well.
If you look at Fedex Amazon UBS.
And both bakery any of the delivery vans are out there they are ice and they all have ambitions to switch to EV and we're right in there is our <unk> supplier our electric systems on the low voltage side don't care what type of the powertrain and is there is only a high voltage opportunity.
When it's in electric vehicles. So we have a solution for both and were going for both of them, Steve equally equally hard.
Excellent and I assume by your comments that this year is going to be quite back end loaded in terms of EBITDA.
<unk> got the two plants starting up.
And start up let's say on the <unk> program.
Well, Steve I would say this year I think we're looking at a pretty even quarter four items per year.
We see continued Q1 Q2 very strong production as have already mentioned clearly is a little bit of a trough risk on the <unk> of the second half.
We have improvement program in place I'll say is that putting even its not extreme.
Excellent. Thank you.
Thank you Steve.
Thank you there are no further questions in queue you May proceed.
Very good. Thank you everyone for listening in and we look forward to performing this year short term and long term and reporting out on our results in our next conference call with that Joanna we will end the call.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating.
Please disconnect your lines.