Q3 2023 Commercial Vehicle Group Inc Earnings Call
Good morning, ladies and gentlemen, and welcome todays <unk> third quarter 2023 earnings conference call. During today's presentation, all parties will be in a listen only mode.
During the presentation the conference will be opened.
<unk> with the injections to follow at that time.
As a reminder, this conference is being recorded I would now like to turn the conference over to Mr. Andy Chang Chief Financial Officer. Please go ahead.
Thank you operator, and welcome everyone to our conference call.
Joining me on the call today is Bob Griffin Chairman of the board and interim President and CEO of CTG.
Morning, We will provide a brief company update as well as company.
Commentary regarding our third quarter 2023 results.
After which we will open the call for questions.
As a reminder, this conference call is being webcast and a Q3 2023 earnings call presentation.
Which we will refer to during this call 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 set of risks and uncertainties.
These risks and uncertainties may include but are not limited to economic conditions in the markets in which <unk> operates fluctuations in the production volumes of vehicles for which <unk> buyer.
Financial confidence compliance and liquidity.
Risks associated with conducting business in foreign countries and currencies and other risks as detailed in our SEC filings.
I will now turn the call over to Bob to provide a company update.
Thank you Andy and good morning, everyone.
I would like to kick off today's call by thanking and celebrating all of the CPG team members across the company for their ongoing commitment to delivering on our strategic initiatives.
Their efforts are clearly evident in the results we've delivered not only this quarter, but over the last few quarters. These results provide further evidence of the progress we've made growing and diversifying our revenue streams and optimizing our cost structure and increasing our margins with the goal of becoming a larger more profitable.
<unk> company.
We remain excited about <unk> future supported by the strength and depth of our organization and leadership teams. Our team continued to successfully drive strong performance, while delivering on the company's strategic goals, resulting in significantly improved profitability year over year.
The year to date results, along with our ongoing cost discipline.
Gives us confidence that 2023 will show strong year over year margin improvements and we believe we will have a record revenue year subject to the resolution of the UAW strike at one of our customers.
I will cover this in more detail.
Our strong balance sheet, our culture of winning new business and our strong leadership team all position us well to achieve our long term revenue and margin targets.
Before turning to the details of the quarter I want to highlight the election of Melanie Cook to the board of directors in September.
Melanie brings a wealth of operating experience and expertise across a variety of business areas, including serving most recently as chief operating officer of GE appliances from 2017 until her retirement in 2021.
Melanie also served on the board of directors of a leading appliance manufacturer based in Mexico from 2019 to 2021.
She possesses nearly 30 years of global experience, including business unit leadership roles with full P&L responsibility.
Product lifecycle management.
<unk> supply chain sourcing and finance, we're excited to have Melonie joined the board and CVT will definitely benefit from her skill set perspective.
Finally on a brief a brief update on our ongoing CEO search the board continues to work with a leading independent search firm to identify the right leader to continue driving our business strategy and culture.
This is one of the most important jobs of any board and ours is a disciplined process involving all seven of our directors.
We're making progress meeting with qualified candidates and we remain within the standard timelines for these types of searches.
And I will share more with you once the search process concludes and we will continue working with the management team to drive a seamless transition with no disruption to our business and strategy.
Now I would like to turn your attention to the supplemental earnings presentation, starting on slide three.
Once again, our team delivered good results in the third quarter highlighted by net sales of $247 million and.
And adjusted EBITDA of $16 6 million.
Which is up 16% year over year, our adjusted.
EBITDA margin of six 7% continues our solid year over year improvement and we continue to win and integrate new business optimize costs and improve profitability.
Our continued focus on margins.
Helped drive 22 sets of adjusted earnings per share in the quarter, a substantial improvement over the prior year.
We also drove strong free cash flow in the quarter, bringing us to $15 million and free cash flow generated year to date.
<unk> cash flow allowed us to pay down debt in the quarter, which along with the strong EBITDA generation brings our net leverage ratio down to one five times.
Continued our strong pace of winning new business with approximately $140 million of wins year to date on a fully ramped basis. These wins continue to be focused within our electrical systems segment and coincide nicely with the initial startup of our two plants in Mexico, and Morocco, which are focused on meeting the demand.
Rose and electrical systems.
Turning to slide four.
Consistent with prior quarters, our demand and market outlook remains positive for the balance of this year sorry.
Subject to the resolution of the UAW strike.
Mentioned earlier.
ACD continues to project strong built here for class eight truck builds with volumes projected up roughly 7% in 2023.
These forecasts have been echoed recently by the Oems.
Looking beyond 2023.
<unk> is forecasting 2020 for class eight truck builds to decline approximately 18% in 2024 before rebounding 15% in 2025.
Volumes in 2026 are expected to further increase another 19%.
Ahead of the EPA mandate going into effect in 2027.
Across the four year period of 2024 through 2027.
<unk> is projecting class eight truck builds to average 297000 units a level that is consistent with strong performance and profitability for CPG.
Furthermore, as new business wins continue to shift our mix away from the heavy duty truck market. We expect the cyclicality of this market to have less of an impact on our future financial results.
For medium duty trucks forecast call for a 10% increase in 2023, and we continue to see strong growth broadly and connectivity systems, a key driver to our new business wins outlook.
As we look to our remaining end markets the global commercial and automotive vehicle wire harnesses market is growing around 5% annually. Additionally, we see attractive commercial vehicle aftermarket growth up 4% per year through at least 2027, despite a modest slowdown in the back half of 2023.
In global Earthmoving equipment after a slight retracement in 2023, we see strong growth ahead in the 4% to 5% range per year.
Going forward.
Turning to slide five new.
New business wins are core to our culture at <unk>, and we continue to add additional customers and platforms.
As I mentioned year to date, we've added approximately $140 million of new words.
With roughly 75% of these wins within our electrical systems business.
These wins span 50 different customers totaling over 70 awards across multiple different platforms and markets. Our strategy calls for continued diversification of these new business wins, which is a key driver in transforming the revenue mix, reducing the cyclicality of the business has experienced in the <unk>.
And we will help improve the profitability of CPG in the future.
Turning to slide six.
We added this slide to give you a better perspective of our global electrical systems manufacturing footprint.
Last quarter, we gave you an update on our new electrical systems plants in Mexico in Morocco.
Excited to report that our Altamira facility in Mexico started production in the third quarter, and Morocco is up and running in the fourth quarter.
These expansions are key to growing our electrical systems business globally and are positioned to be cost competitive and provide outstanding service to our customers in.
In addition, we're concluding our evaluation of an additional Moroccan location, providing for anticipated growth in supply chain optimization, we have a dedicated staff with expertise in opening new business, new electrical systems facilities as we position ourselves to go forward.
Now turning to slide seven we.
We have three key elements to our strategy to transform our business.
First we are focused on making electrical systems, our largest business by continuing to win new electrical business across multiple end markets and diversifying our product portfolio.
Additionally, we're working to increase the design and engineering content offering in our products.
Secondly, we're focused on diversifying our vehicle platforms toward higher growth markets, while simultaneously, reducing our exposure to the cyclical class eight truck market.
As an example, we were recently certified to supply products into the aircraft and Mark.
Lastly, as we focus on winning new business, we are selectively targeting new customers globally as evidenced by the number of new customers won this year.
Yes.
This fundamental business transformation is expected to make <unk>, a larger stronger and more profitable company in the coming years.
Now turning to slide eight.
I already mentioned in my opening remarks, our team continued to execute our profitable growth strategy during the quarter.
We continue pacing ahead of targets on new business wins, putting us on track to achieve our goal of $150 million of new business wins in 2023.
These wins continue to drive the transformation in our revenue mix towards electrical systems, while simultaneously diversifying our customer base and product portfolio.
As we've stated many times electrical systems is a key growth area for CPG.
On our existing portfolio of businesses, we remain focused on optimizing our footprint and cost structure to improve profitability.
We're also heavily focused on reducing working capital increasing cash flows and paying down debt.
<unk> cash flow generation and lower net leverage increase our optionality to fund growth and pursue bolt on M&A in the future.
The continued momentum in our new business wins, alongside our strong underlying base business keeps us firmly on track to deliver long term improvements in our business.
Turning to slide nine.
We believe we have the right strategy in place to continue driving shareholder value creation.
<unk> remains fully committed to our strategy to optimize our existing businesses drive organic growth and strategically allocate capital.
We are pleased to have won business in the electrification market. We have strong portfolio of businesses and we are focused on optimizing our cost structure of each business to improve profitability.
Our new business wins demonstrate our ability to win in diverse markets globally, which helps diversify our customer roster for roster expand our product lineup and reduce cyclicality.
Our business is positioned to generate strong cash flow over the coming years, and we expect to maintain a balanced capital allocation approach to reinvest in our business to drive growth pay down debt and pursue attractive inorganic growth opportunities all with the goal of creating additional value for our shareholders.
Turning to slide 10, and before I turn the call back over to Andy I'll share a few thoughts on the remainder of 2023.
Industry forecast for the remainder of the year suck show slightly lower North American truck builds.
For the.
Fourth quarter versus last year.
Additionally, we are closely monitoring the UAW labor negotiations had one of our OEM truck customers overall.
We expect 2023 to show solid demand and revenue for the full year and we continue to win new business at a strong pace with a win centered.
On our electrical systems segment.
Importantly, we continue to expect significant year over year margin expansion driven by improved pricing contribution for new business.
And benefits from.
From our cost reduction program.
We also expect to see a continued strengthening of our balance sheet. This year, our focus on working capital optimization is paying off helping drive strong free cash flow and debt paydown.
We expect to pay down debt further in the fourth quarter and the lower debt levels combined with stronger year over year EBITDA generation are expected to drive our leverage lower as we exit 2023 compared to where we started the year.
And with that I'd like to turn the call back to Andy for a more detailed review of our financial results.
Thanks, Bob.
Following along in the presentation, please turn to slide 12.
Third quarter 2023 revenue was $246 7 million as compared to $251 4 million in the prior year period.
The decrease in revenues is due primarily to higher revenues in the prior year as a result of a significant COVID-19 backlog in Asia Pacific in our vehicle solutions business.
Partially offset by growth in the electrical systems business.
Foreign currency translation also favorably impact of third quarter of 2023 revenues by $2 million for Seaworld.
Ascent.
The company reported consolidated operating income of $12 4 million for the third quarter of 2023.
<unk> to income of $9 five median in the prior year period.
The increase was driven by higher gross margins improved pricing, partially offset by higher SG&A.
Third quarter of 2023, adjusted operating income was <unk> $5 million.
Compared to $10 6 million in the prior year.
Adjusted EBITDA was $16 6 million for the third quarter up 16% year over year compared to 14 $3 million in the prior year.
Adjusted EBITDA margins were six 7% and expenses expansion of 100 basis points as compared to adjusted EBITDA margins of five 7% in the third.
Quarter of 2022.
Okay.
Interest expense was $2 $6 million as compared to $2 8 million in the third quarter of 2022.
The decrease in interest expense was primarily related to lower average debt balances during the respective periods, partially offset by higher interest rates on variable rate debt.
Net income for the quarter was $7 $3 million or 22 cents per diluted share as compared to net income of $3 $6 million or <unk> <unk> per diluted share in the prior year period.
Okay.
Moving to the segment results on this slide.
Vehicle solutions segment third quarter revenues decreased 6% to $145 4 million compared to the yellow column.
Due primarily to the <unk> benefiting from the significant post COVID-19 backlog in Asia Pacific.
Operating income for the third quarter increased 13% to $10 $9 million compared to operating income of $9 6 million in the prior year period.
Primarily driven by increased pricing and lower material and freight costs.
Our electrical systems segment achieved revenues of $53 9 million, an increase of 17% as compared to the eagle's third quarter, resulting from increased sales volume.
The impact of new customers.
Increased pricing and favorable foreign exchange.
Operating income and adjusted operating income were $5 9 million, an increase of 14% compared to the adjusted operating income in the third quarter of 2022.
And by increased sales volume and improved pricing.
Our after market and accessories segment revenues decreased 7% to $34 $4 million compared to the year ago quarter.
Primarily resulting from decreased sales volume.
Operating income and adjusted operating income of $4 5 million, a decrease of 17% compared to adjusted operating income of $5 4 million.
In the prior year period.
The decrease is primarily attributable to the reduced volume.
Offset by increased pricing.
Our industrial automation segment produced third quarter revenues of $13 million, a decrease of 8% as compared to $14 $1 million in the third quarter of 2020 to do.
Due to lower demand levels.
Adjusted operating income.
Zero eight median.
An increase compared to the adjusted operating loss of <unk> $7 million in the year ago quarter.
Primarily attributable to the liquidation of certain excess inventory there was PVC, possibly even sooner.
Highlighted on slide 17.
Key financial trends and metrics for our business.
During the quarter, we were able to sustain the strong year over year financial performance.
As evidenced by improved EBITDA and margin versus the prior year.
By a strong focus on price realization and cost reduction.
As highlighted on the bottom right chart.
Continue to pay down debt during the quarter, which combined with our improving profitability serve to significantly reduce our net leverage to one five times.
So expect that.
Leverage will decline further in 2023.
Our strategy continues to be the first strong financial results.
We remain committed to our financial priorities for fiscal 2023, which are to drive additional cost savings to generate higher profitability.
Generate free cash flow and a fast growing business platforms.
These efforts give us comfort in how 2023 near term financial targets as Bob already alluded to.
Specifically, we believe we are well on track to deliver record revenues in 2023.
The significant year over year margin expansion.
That concludes my financial overview, I will now turn the call back over to the operator to open the line up for questions.
Thank you ladies and gentlemen should you have a question. Please press the star followed by one on your Touchtone phone. If you would like to withdraw your question. Please press the star followed by the two if you're using a speaker phone. Please lift the handset before pressing any keys.
Please for your first question.
Your first question comes from Joe Gomes from Noble capital. Please go ahead.
Good morning, Thanks for taking my questions.
Good morning, Joe.
So I wanted to start kind of on the revenue.
Okay.
<unk> got a lot of new contracts.
In the first half of the year the truck builds were pretty good.
It's been down sequentially. The first three quarters of this year and it sounds like Q4 might be pretty challenged in and of itself and just wondering kind of where you guys are looking at revenues and.
When are the all these new contracts really going to start impacting that top line to try and take down some of the cyclicality in the class eight builds.
Yes.
Yes, Thanks, Joe.
Yes.
Mentioned in the earlier part of the year, we expect that our second half of the business is going to slow a little bit so Q3 actually come in.
Quite in line with our anticipation.
Sequentially as you can see we have some decline in our vehicle solution basis.
That's a twofold one is.
The cop eight production.
<unk> production was down by about 3% to 4%.
From Q2 to Q3.
And also in Europe, we see a little bit more extended shutdown without customer this year.
Some of them are planned some of them on plan. So they contributed to the sequential slowdown.
Not too far from our anticipation as we expect it.
To your point about future growth of our platform and new contracts you can see the electrical piece desktop pulling nicely, 17% yields like you and we will continue to see those ramp of the business.
While the timing of the ramp is largely dependent on the customer as well. So as you can see the two new plants is now up and running so we are ready to capture those new platform and to grow with the customers. So we have kind of seen things thats all.
In line with our anticipation early end of the year.
Thank you for that.
On the aftermarket was kind of a little surprising to see that.
Declined both sequentially and year over year.
Maybe you can give us a little bit more.
<unk> got the new website up and running earlier this year.
Yes.
<unk> hopes for that and growth for this year and maybe if you can give us a little more color on what's going on the aftermarket side.
And that's why that's a good question Joe.
The after market. These call I have some decline as well as mostly related to the after market seats here in North America.
We lost a bit of a volume down this year.
To your point about the E Commerce initiative as we mentioned last quarter.
Ram as fast as we wanted to so we are adjusting our different channels that we're working for different strategies is still early days.
Homeless channel.
<unk>.
Still working on different initiatives.
Got some backlog last year would help us that's why this year youll see a little decline year over year as we bought for those backlogs earlier in the year.
<unk> slowed the demand a little bit.
So as you mentioned.
Still working through it.
We'll continue to look at this segment as up an attractive gross that much so.
We keep.
Keep looking at.
Okay, one more if I may.
Pardon me on the the two new plants, maybe get a little more color on how they are.
Ramping up compared to your expectations and you mentioned already looking at potentially another site in Morocco.
What kind of capital expense would that entail in kind of the timing on that.
Okay.
From a capital expenditure Joe This year, we guide had been around the $25 million range plus or minus.
We already have that included in our range for these two facilities.
Going forward Youll continue to see that our capex will be around that two five to $3 five range as well.
So also include it.
This expansion that we are working through right now.
As Bob mentioned.
Ian.
The evaluation stage of another facility in Morocco.
This will help us capture at that new wins and the ramp of the future growth. So this is all part of the plan and pretty consistent with what we.
Communicated before from a capex standpoint.
Okay, Great I was just taking my question.
I would just chime in on this is Bob I would just chime in on it because I think that's an excellent question.
In addition to evaluating the benefits of it.
Second plant in Morocco.
We are also at the same time, completing our business plan for expansion in Europe, which feeds into that and it involves the hiring of a number of professionals to complete the management structure. There. So we're quite committed to.
Growing the electrical systems business and the European.
Markets and.
That will feed into that capital expenditure decision.
Okay, great. Thanks for taking my questions I'll get back in queue.
Thanks, Joe.
Your next question comes from John France, <unk> from Sidoti. Please go ahead.
Hi, good morning, guys and thanks for taking the questions.
I just wanted to go back to the previous question.
I think he was he's right to suggest that the new Moroccan plant when that comes onboard kind of layers on top of some of that new business wins expectations.
So maybe if you could provide some clarity of if you're looking at adding a new Morocco plant now when would you like to have it up and running.
John.
In our past experience it would take a little bit of a year for us to get that up and running and then roughly a few more quarters to get that to 40 Ram revenues.
Okay. Thanks, Andy.
It scales properly I appreciate that.
And going back to your expectations on the class eight truck market in the near term.
December quarter.
Is that different than what it was say three months ago.
No not so much.
If you look back into history sequentially, the Q4 call as always the seasonally at just a smaller quarter.
Don't expect major changes this year.
As Bob mentioned, the only one wildcard right now for US is one of the truck customers is actually working for a UAW strike and Thats a little bit of.
Difficult to predict situation, but other than that overall I think the market is in line with prior year seasonality.
Okay. So year ago fourth quarter was there still benefits from Asian, Covid demand that we should not expect in this year's fourth quarter.
No that was really a.
One called mostly Q3 impact you probably remember China is one of the.
The last country to have to Covid Lockdown will open up that was really.
At the end of Q2, and then when that opened up by bringing some additional backlog opportunities. Yes goal so that will gradually.
Level out.
Don't see that.
Being a significant fat does in the future.
Got it.
And then the third quarter.
The automation business had a bang out quarter compared to the prior two or three.
Was there something pulled forward can you just talk to why was it was so much stronger than the previous three quarters.
Right you are right. So we actually mentioned that.
Earnings release.
The.
Industrial automation business this caller benefit Ted Fob.
Some sales of inventory that we have <unk> cumulated youll probably remember.
Back about like a year ago.
We had a fairly significant warehouse business that is actually going fairly significant decline in that market.
Roll off some inventory at that time.
<unk> really hard trying to find ways to.
Liquidate and get the value our store inventory and we were able to pull that together in Q3.
How is that business.
In the quarter.
Got it just one.
One last question ill get back into queue.
It's November so I assume that you have some visibility into at least how the first quarter of the year is going to kind of play out.
And you referenced Bobby referenced that Acte's talking about 18% dropping the class eight truck.
Market what is your booking profile kind of look like does it does it really kind of drop off in the fourth quarter or is it maybe something that is that the second half of the year kind of thing you should we should be thinking about you versus acte, just any kind of color would be helpful.
Yeah. So.
I will say this.
John.
Well, that's what you see in the ACG quantity lock of next year sort of volume, we are kind of seeing similar demand and therefore right now.
So Q1 is still holding pretty well if you look at ACG Q1 is still a pretty strong view and then gradually over the rest of 2024.
The number is coming down so thats the ACG forecast right now frankly, maybe there is some impact because of the of the strike. We also are not seeing full visibility at this point.
If that's the customer's going to give us more clarity once the strike is over we solved I think we'll be in a better position. Our next earnings calls to talk about 2024.
Okay. Thank you very much I'll get back into queue.
Thank you.
Ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press star one.
Your next question comes from Gary Presto P&L from Barrington Research. Please go ahead.
Hi, good morning, everyone.
Couple of questions here.
Cost reduction programs are you still on track to deliver 30 million this year.
That's what the number was in Q2, so I just wanted to get an idea.
Still on track.
Yes, we're still on track to that cost reduction program targets.
As you can see.
The margin improvement year over year, that's part of that cost reduction program. You can also see that side as we mentioned in the past we were able to use the cost reduction to offset quite a bit of the inflation is still happening, particularly in the emerging markets wage weight. So.
We're still on track and we're happy with what we're doing overall, we are executing.
400 projects across all our facilities.
Most of them have impact in 'twenty, three and some of them will have a benefit in 'twenty fall. So still ongoing still Paolo about culture continue to executing on that.
Okay.
Just going over my notes from last quarter.
So youre going to add $150 million of new business wins, which your problem you should get too since you've done $140 million.
Year to date.
Are you still confident in the target of $100 million in new wins per year next year in 2025.
Well as you can see every year the pieces I was likely to be lumpy.
The team definitely did a great job this year coming out from the beginning of the year and we are on track to that $150 million target, we're pretty happy with the performance next year.
You too early to tell is the customer sourcing schedules and other factors that may affect it I think we talked about that in the past the near term annual target, we expect about $100 million, so that should still be.
Our pretty good estimates fall for the next few years.
Okay.
And then just with this class eight truck build.
It looks like.
There is a delta from the projection from Q2 of anywhere from down 3000, the down 12.
Versus the.
Numbers that are now being projected.
As most of that expected to fall in Q4 or did most of that really fall in Q3.
I think that we will save both we already see Q3 actually came down compared to Q2 and you talk about what the sequential performance to market Q3 was down about 3% and the.
ACG lumbar, suggesting that about 6% sequentially.
In Q4 so.
That's what we are seeing I think thats fair.
The market is.
Suggesting as well.
And then I think.
Just there was a mentioned that does <unk> have anything out there you gave some did you give some thoughts on what you think it will be in 2024.
Yes, so as I mentioned earlier.
The Acg's outlook for 'twenty four is that Q1 is still holding pretty strong and then we'll start to see some drop off from Q2 to Q4.
But overall.
Hey, we're suggesting the market will be down.
Between 15% to 20% so the numbers do change.
Changing every time, they come up with a new outlook, but thats the range that <unk> been publishing.
That's 15% to 20% off a 2003 or 2004 on units correct.
Right.
Okay. Thank you.
Your next question comes from Steven Martin from Slater. Please go ahead.
Yes, guys couple of questions.
The electrical systems margin was down a little.
Is that due to the startup of the new plants.
And when would when would we expect those to not.
Negatively impact margins.
Good morning, Steve, Yes, Youre, absolutely right so with bi.
A little bit here this quarter.
The main reason is additional labor costs and overhead cost because now we have two extra facilities and as you can see when the volume ramp back up we'll gain some leverage there.
Ill call. It may be a couple of quarters, then we will see the full efficiency back.
That's what we are anticipating the timing can be a little bit.
Last predictable it depends on the customer's sketch.
Schedules on when did the launch of new products and things like that but that's what I would expect at this point alright.
Alright, and on the aftermarket I guess.
No.
We visited two years ago.
For your time and there was a lot of emphasis on aftermarket and last year you talked at all this year, you've talked about building inventory and Reorienting your plans for aftermarket.
When should we expect to see aftermarket positive on a year over year basis.
Hi.
Ill.
Right. So we have work to do and after market so well.
When we say that.
Thank the team working really hard trying different channels fangs.
E Commerce is not going as fast.
You've probably also seen that in.
<unk> allows months, we have made some leadership change in that business, we brought in a seasoned leader.
Leader.
So we're going to be ramping the business. So I will tell you that.
We're looking at it really hard and hopefully our new leadership is going to benefit the segments I'll come back.
Next quarter, we have a little bit more details about how we are going to address that and improve that business.
Okay.
Next question is.
On your debt level.
Can you give.
If all things were equal.
And interest rates didn't change.
And your debt level net of cash is where it is today.
What your interest expense would look like if you didnt reduce anymore.
Well, if we don't reduce mall that will roughly flat.
Al.
Interest rate is actually pretty stable at this point.
You probably remember we said that we have on interest rate swaps that we put in last year that help us.
Offset some of the rate increases.
That's where we are right now and as you can see that keep generating free cash flow here.
For the short term I would say, you'll continue to see us paying down debt and interest expense absolute.
Dollar wise or Youll continue to see a decline.
Are you now in the lowest pricing tier on your.
On your credit agreement.
Not yet not yet.
If you were to cross into that lower pricing here, you might even see a little more.
Changing spread.
Yes, it will that <unk> seen.
Filing is not desk certificate.
Five bps per tier so I.
I would say our paying down debt is probably driving more of the benefit in expense.
Alright, Thank you very much.
Thank you Steve.
Your next question comes from John Ferenc <unk> from Sidoti. Please go ahead.
It looks like you eliminated the 2027.
Bridge slide.
Are you backing off that that expectation or what was the reason for not including in this presentation.
No we're not John So I'll, we'll continue to look at China, and Joseph <unk> as our long term goal.
No change to that we just feel like it's a long term targets, we didn't need to do it every quarter in our earnings call.
<unk> and other investor presentation, we'll probably spend more time talking about long term, but we want to spend more time talking about the quarter in the near term so but no change in our long term targets.
Fair enough. Thanks for that clarification. Thank you.
Absolutely.
There are no further questions at this time I will turn the call back over to Mr. Griffin for closing remarks.
Thank you operator, and thank everybody for joining today's call I'm proud of our achievements in the performance for the quarter. However.
However, I'm even more excited for the opportunities that lie ahead for CVD, we remain encouraged by our business outlook and we look forward to continuing to execute our long term growth strategy.
Have a great day.
Ladies and gentlemen, this concludes your conference call for today, we thank you for joining and you may now disconnect your lines. Thank you.
[music].