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Commercial Vehicle Group Inc (CVGI) Q1 2021 Earnings Call Transcript – fool.com

Picture supply: The Motley Fool.

Enterprise Car Group Inc (NASDAQ:CVGI)Q1 2021 Earnings NameMight 6, 2021, 5:00 p.m. ET

Contents:

Ready Remarks
Questions and Options
Name Individuals

Ready Remark…….

Picture supply: The Motley Fool.

Enterprise Car Group Inc (NASDAQ:CVGI)
Q1 2021 Earnings Name
Might 6, 2021, 5:00 p.m. ET

Contents:

  • Ready Remarks
  • Questions and Options
  • Name Individuals

Ready Remarks:

Operator

Good morning, women and gents, and welcome to the CVG’s First Quarter 2021 Earnings Convention Name. All by way of right now’s currentation, all halfies Shall be in a itemizingen-solely mode. Following the currentation, the conference Shall be open for questions. [Operator Instructions]

I might now Want to level out The choice over to Mr. Chris Bohnert, Chief Monetary Officer. Please go forward, sir.

Chrisprimeher Bohnert — Chief Monetary Officer

Thanks, operator. Welcome to our conference call. Becoming a member of me on The choice right now is Harprevious Bevis, Prefacetnt and CEO of CVG. We’ll current A quick agency replace As properly as to commentary relating to our first quarter end outcomes, after which we will open The choice for questions.

This conference call is being internetcast and a supplemental earnings currentation Is out tright here on our internet website. Each may include forward-wanting assertions, collectively with however not restricted to anticipateations for future intervals relating to market trfinishs, value financial savings initiatives, and new product initiatives amongst fullly differents. Exact end outcomes may differ from anticipated end outcomes As a Outcome of of sure risks and not sureties. These risks and not sureties may embrace however Aren’t restricted to financial circumstances Inside the markets By which CVG’s operates, fluctuations Inside the manufacturing quantitys of automobiles for which CVG’s is a supplier, financial covenant compliance and liquidity, risks Associated to conducting Industry in overseas nations and currencies, and fullly different risks as elemented in our SEC filings.

I am going to now flip The choice over to Harprevious To current An group replace.

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

Thanks, Chris. Good morning, everyone. On right now’s call, we will current An abstract of our first quarter end outcomes adopted by an replace of our strategic initiatives designed to our earnings wright hereas furtherly to — CVG ship extra safe end outcomes that We Try and — Industry and enhance clear progress outlook. Chris will converse about our financial Leads to extra element As properly as to consider our current debt refinancing To Scale again our curiosity expense getting Inside the second quarter wright hereas furtherly liberating us of restricted covenants precluded us from M&A. We’ll then conclude by opening The choice and replying your questions.

Please flip to Website 4 of our earnings currentation. We shiped doc gross sales for The primary quarter of 2021 of $245 million, An enhance of 31% as As in contrast with the yr in the past first quarter. This strong progress was hugely pushed by world-class automating, wright here we shiped $41.9 gross sales recurrenting 22% sequential progress and stays on monitor To fulfill or exceed our full-yr objective of $150 million in warehouse automation gross sales.

Our working income enhanced to $15.4 million Inside The primary quarter, which compares favorably to A scarcity of $26.5 million Inside The primary quarter a yr in the past. The event huger — Results Of greater quantitys mixd with our entry efforts over the — reduce our value construction and drive operational efficiencies throughout The agency. Rationalizing and reallocating our value profile has been a precedence of our administration group And may current a benematch as our gross sales proceed To reinformationrce. The 2020 first quarter did embrace an impairment cost That did not reoccur. Adsimplyed EBITDA was $21.1 million first quarter, recurrenting almost a 100% enhance as As in contrast with the $11 million that we shiped Inside The primary quarter of 2020. The event was due to greater incomes with an enhancing sale mixd with expense reductions and promatch optimization actions that we executed by way ofout 2020, By which we stay very focused on Inside the yr finish. We ship $0.26 per diluted share Inside The primary quarter As in contrast with a loss $0.80 per diluted share Inside The primary quarter a yr in the past.

As We now have been talking about over final yr, The important factor — Industry reworkation method is attaining new progress. As we reported final quarter, we see $100 million of annual new gross sales awards in 2020 with roughly 40 new buyers, The primaryity of which have been in warehouse automation, electrical automobiles Inside the final mile shipy. Our decide, As quickly as we Discuss new Industry wins, is the annual income quantity when the work — briefer cycle from awards shipy; so the wins that we noticed in 2020 — incomes in 2021.

Worthwhile new Industry is A spotlight of our group and central to accelerating our gross sales progress, developing our promatchcapability, and diversifying our finish-market publicity amethod from legacy prolonged haul diesel vans. In The primary quarter of 2021, we achieved anfullly different internet new Industry win award quantity of $100 million, primarily in our progress in market electrical automobiles wright here we proceed to win places on platforms with new and current electrical vehicle producers. Given thOn these new Industry Inside The electricalal vehicle sector, It is going to take a quantity of yrs to ramp up earlier than shiping $100 million in annual income.

That is That is enhancing The power for our agency’s income profile over the medium time period and new vehicle platform tfinish to final Very prolonged time and have an aftime periodarket after that. Turning To slip 5, We now have an entrepreneurial spirit throughout our agency, focused on the — buyer wright hereas furtherly shiping further Industry in adjoining market. We’re turning into extra revolutionary and replys focused — transfer us up The worth chain buyers. Finally, we confacetr To powerened promatchcapability and reduce the cyclicality as we increase Inside The mannequin new markets and diversify our buyer base.

We currently introduced halfnership with Xos is A critical event of The worth that We current to An electricalal vehicle producer. We’re offering electricalal reply and we At the second are serving to them ramp designed prototype to — extra shortly. We’re A lovely halfner, however as We will current the design work system, then current the — seats and fullly different merchandise to the vehicle — designed prototype — The worth chain as We have Discover your self to be an engineer providers halfnering infraconstruction. Furtherextra, we are Inside the final-mile market, which is A mannequin new base for CG. We’re furtherly having success developing our ininformectual property and manufacturing captalents into new finish markets. We’re leveraging our captalents from the commercial vehicle Industry, wright here We now have strong huge [Phointernetic] talents. Given these skillsets and manufacturing captalents, we are evaluating markets to increase into like leisure vehicle, complicated gear given its capability To current huge pfinalic merchandise. We have found Definitely one of our fullly differentiators Inside these markets is our capability to ship vibrant colours and esthetics and it’s extremely worthd in A pair of Of these new finish markets. As we proceed to have success developing our Industry — North American truck market will decline.

Turning to Website 6; In consequence, it’s important To know these markets which At the second are — our Industry. Furtherextra, we are shifting our truck — diesel vans to center market in center mile or final mile and electrical vehicle powertrains. North American truck market, as You will Have The power to see on this graph, was 36% of our gross sales in first quarter versus fourth quarter of 2020 diploma. First quarter demand For sophistication 8 vans was almost at diploma Of roughly 67,000 mannequins and ACT Evaluation as forecasting annual truck — 300,000 mannequins by way of 2023, Which may — as we pivot our Industry headwind that we’re watching intently is the manufacturing current chain, suppliess, labor, freight, And current chains Usually, particularly logistics from China. This Shall be a headwind to new truck constructs As a Outcome of it’s dampening manufacturing The OEM enhancement market second-hugest market comprising of 8% of our first quarter gross sales.

Enterprise On this finish market Is comparatively balanced throughout North America, Europe, and Asia and Looking forward, we see A strong order e-book in all probcapability by way of 2021 — Shall be helpive of demand although current constraints are concern right here as properly. Warehouse automation has shortly turning into our third hugest finish market and is 17% of our gross sales Inside The primary quarter and contact on Industry — finally, our aftime periodarket And restore Is An important factor of our Industry and recurrented 12% of our first quarter gross sales. I confacetr this Industry is beneath-appreciated as granted almost $100 million of gross sales wright hereas offering an annuity-like income stream to CVG.

Turning to Website 7, warehouse automation finish market proceeds to be An monumental progress driver for our agency as we shiped roughly $42 million in gross sales Through The primary quarter — sequentially. The enlargement in e-commerce is driving The want — with dealing with and typeing and final-mile — we’re Industry anticipateations over This complete warehouse automation Industry to develop about 14% CAGAR — 26 or early doubling in measurement over 5-yr interval. Supply factors for these warehouses — collectively with full work facilities and given the strong market demand mixd with Industry wins final yr, we stay assured in our objective of shiping $150 million gross sales On this half this yr. Furtherextra, our margins On this Industry modestly — greater than — common; In consequence — To promatch as warehouse automation proceeds To Wind up to be A a lot hugeger proportion of our complete gross sales.

A new and rising finish Market for CVG — vehicle and final-mile — our aggressive benefit refacets in The fact that We now have a pure worth-added product basket and it’s useful For mannequin spanking new vehicle corporations to do their work. Importantly, We will design prototype and construct a — merchandise for vehicle upkeep — We now have 40 yrs Of worldwide expertise doing it. We’re presently involved with — vehicle platforms worldwidely, Which inagencys both current — into the market As properly as to new EV market trfinishs. We have primarily created portfolio Industry plans on The electricalal vehicle — Which will — of our halficipation Inside The strategying — from diesel to electrical automobiles and from first mile to the final mile. This is unfpreviousing now And may Obtain this for a quantity of yrs.

Turning our new Industry againlog on Slide 9. As I converseed about, we safed $100 million — first quarter, 93% of which have been outfacet of our legacy truck Industry. We safed three wins, new EV extra entrants As properly as to new merchandise leisure — for pfinalic parts. It Is Sort of important reiterate thOn the place of our Industry — will decide when these incomes will circulate by way of our P&L. Given Shut toly all of our wins Inside The primary — Inside The electricalal vehicle sector, We can’t see a peak worth — for a few yrs.

Turning to Website 10, I am Very Proud of that We have achieved Over the previous yr as We have made vital progress executing our Technique to rework CVG. This success is a direct carry out of the conservative — We have taken — and like many corporations, we had dramatically — our funds and — from our problemies for COVID safety — which we successabsolutely have — we furtherly contrihowevered A expertportion of — going by way of it. We’ve furtherly recruited account administration group and carried out — design velocity up pure progress, the enlargement into new markets that currents CVG’s extra — progress alternatives — reworkation in our prolonged-time period success — The mannequin new entrepreneurial spirit — tradition, which We have created and has triggered pleasure and power throughout our agency.

While we’re solely Inside the very early innings of this, our reworkation is taking primarytain and our aspirations are vital. Looking forward, we will proceed to develop our Industry wins, wright hereas sustaining our value self-discipline as we Confacetr promatchcapability. We’ll furtherly going To maneuver up The worth chain as we halfner with our buyers To current revolutionary replys To unravel most difficult factors.

Turning to Website 11, our efforts To rework our agency are clearly — as we shiped doc gross sales for The primary quarter, Very Proud of our group enhances, however Much extra excited — the alternatives tright here are forward of us — impacting our financial end outcomes alstudyy with the velocityy enlargement of warehouse automation Industry is experiencing — we’re furtherly implementing A mannequin new port basis for The biggest method forward for our vehicle Industry — we are collaborating — over 30 platforms worldwidely at some diploma — buyers and mannequin merchandise — start to translate the incomes over The subsequent few yrs, wright here we anticipate finish market have a extra significant An factor of our — we’re furtherly successabsolutely developing our ininformectual property and manufacturing captalents into adjoining markets, like leisure particularty automobiles, which currents new — for CVG — taken collectively, we’re executing on our plans to velocity up progress, enhance our promatchcapability, and reduce cyclicality in our Industry.

Furtherextra, and as Chris will converse about In further element, the refinancing of our senior debt not solely reduces our annual curiosity expense immediately, But in addition frees us As a lot as be extra focused with our capital allocation method and We will now confacetr M&A. We see strategic M&A as An environment nice Method to increase into new — and that half our Industry reworkation — you In further element.

Now, I am going to To level out The choice over to Chris for An in depth consider of our financial end outcomes.

Chrisprimeher Bohnert — Chief Monetary Officer

Thanks, Harprevious. Do You’d like to’re Adjust toing aprolongedside Inside the currentation, please flip To slip 13. First quarter incomes have been $245.1 million, an all-time quarterly gross sales doc and up 31% As in contrast with $187.1 million Inside the prior yr interval. This enhance mirrors the substantial enhance Inside the warehouse automation Industry and the North American heavy truck market refliping To close comparable levels to the prior yr. On a sequential basis, income enhanced 13.5% over fourth quarter of 2020, income of $216 million.

Foreign foreign money translation favorably impacted our first quarter incomes by $4.3 million or about 2.3% As in contrast with the prior yr interval. I might like to spfinish a second on our gross margins, which increaseed roughly 190 basis factors to 12.7% as As in contrast with The primary quarter of 2020. This enlargement proceeds To mirror our renewed Confacetr promatchcapability and our enhancing Industry mix. The key drivers of the enlargement have been quantity leverage, Industry mix to the warehouse automation finish market, and operational value enhancement as As in contrast with 2020. The agency reported consolidated working income of $15.4 million for The primary quarter of 2021 As in contrast with A scarcity of $26.5 million Inside the prior yr interval and on adsimplyed basis, working income was $15.8 million As in contrast with $7.1 million in 2020.

The event was primarily due to greater gross sales quantity and an enhanced value construction As a Outcome of of our value actions and enhanced gross sales mix and an impairment that was taken Inside the prior yr in the past That did not reoccur in 2021.

We achieved adsimplyed EBITDA of $21.1 million for The primary quarter, which was up confacetrably as As in contrast with $11 million Inside the prior yr first quarter. Adsimplyed EBITDA margins have been 9%, mirroring an enhancement Of roughly 270 basis factors as As in contrast with adsimplyed EBITDA margin of 6% Inside The primary quarter of 2020. This margin enlargement was primarily the circulate by way of from the income And worth modifications I converseed about earlier.

Our first quarter curiosity expense was $5 million as As in contrast with $4.6 million Inside The primary quarter of 2020. Net income for the quarter was $8.5 million or $0.26 per diluted share as As in contrast with a internet Lack of $24.6 million Inside the prior-yr interval or $0.80 per diluted share. Importantly, we have been In a place to refinance our senior debt earlier this week, based mostly upon our enhanced financial efficiency over the course of 2020 And by way of The primary quarter of ’21. This Is usually An monumental milestone for CVG, which take aways the onerous value and covenants that existed in our prior debt construction. The small print of our refinancing have been revealed on Monday in a press launch and 8K. To the contact on the extremelights on Slide 14, our new $275 million senior safed credit rating amenities embrace $150 million time period mortgage A and $125 million revolving credit rating facility both with 5-yr maturities.

We used a portion of the proceeds to repay All of the excellent principal of our time period mortgage B, which was $157.6 million at April 30, 2021, the date of our closing. The velocity of curiosity on our excellent principal of Euro/Greenagain plus 300 basis factors As in contrast with the previous debt, which had LIBOR plus 10/50 basis factors on the time period mortgage B. As a Outcome, I anticipate our quarterly curiosity expense to be lowered by $3.1 million on a full-quarter basis. Furtherextra, our liquidity increaseed As a Outcome of of this from $120 million at March 31, 2021 to $154.7 million on A expert forma basis beneath The mannequin new debt facility. Lastly, The mannequin new facility embraces an accordion function That currents for an upsizing of The quantity out tright here by $75 million with incremental lfinisher commitments topic to financial covenant compliance.

As Harprevious converseed about, This will permit us furtherly To imagine about M&A alternatives. Our prior debt was onerous And that i Might not be extra joyful to not solely have these covenants and extreme Price of curiosity take away, But in addition convey on A strong group of financial institution halfners, collectively with BFA, Fifth Third, and PNC Bank. Our financial institution group is Of prime of the differ and Shall be good halfners as we proceed to develop CVG’s.

At this level, I am going to converse Barely bit about our half end outcomes starting with The electricalalal methods half on Slide 15. For The primary quarter of 2021, The electricalalal methods incomes have been $162.2 million As in contrast with $112.1 million Inside the prior-yr interval, An enhance of 447%. Foreign foreign money translation favorably impacted first quarter incomes by $1.3 million or 1.2%. The yr-over-yr gross sales enhance, primarily Outcomeed from new Industry wins, and warehouse automation and power in North American enhancement and ag markets as Harprevious converseed about earlier thanhand.

Our electricalal methods half now recurrents 66% of our complete first quarter incomes as we proceed to make progress diversifying both our Industry mix and buyers. Turning to working income Inside The electricalalal methods half, they shiped $14.9 million of working income Inside The primary quarter As in contrast with an working Lack of $17.1 million Inside the prior yr interval. The rise was hugely due to enhanced gross sales and an impairment taken Inside the prior yr interval That did not reoccur.

Adsimplyed working income was $15.1 million Inside The primary quarter As in contrast with $6.3 million Inside the prior yr. Turning over to our worldwide seating half on Slide 16, worldwide seating income has enhanced to $91.9 million Inside The primary quarter As in contrast with $76 million Inside the prior-yr interval, An enhance of 19.9%. Foreign foreign money favorably impacted our gross sales On this half by $3 million or about 4% for the quarter. The worldwide seating half reported an working income of $5.5 million Through The primary quarter As in contrast with an working Lack of $400,000 Inside the prior yr interval. The rise was due to greater gross sales quantity and an impairment taken That did not reoccur. The first quarter of ’21 adsimplyed working income for this half was $5.5 million, excluding particular costs.

This concludes our prepared remarks this morning. I am going to now flip The choice over to the operator to open up The road for Q&A. Thanks.

Questions and Options:

Operator

Thanks. [Operator Instructions] Your first question will come from The road of Mike Shlisky with Colliers Securities. Your line is open. Please proceed Together with your question.

Michael Shlisky — Colliers Securities — Analyst

I am sorry. Good morning, guys. I used to be on mute tright here, I apologize. I Desired to look into EV related questions. First, congrats on all The mannequin new Industry. You had converseed about Inside the slides That you merely’ve acquired some corporations — A pair of of them are launching some fashions in 2021 and 2022, considerably small quantitys, however Are you able to give us A method as As to if these fashions are on monitor to launch this yr or they have been seeing any factors? As quickly as extra, with out naming anyone, I am curious to see if EVs Usually are progressing the method you had hoped?

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

From our expertise We have seen no delays. If somefactor, the pause that occurred Over the previous yr with COVID and the related shutdpersonals that occurred Inside the worldwide vehicle industries, these new — with their enhancement packages to close — They’ve vehicle makers — Tright here’s actually no dpersonal In any respect — vehicle faster and we are seeing people do engineering and prototyping — automobiles and preliminary manufacturing automobiles — You will Howdygher than we do, Mike, however from our standlevel — doing very properly, not slowing In any respect.

Michael Shlisky — Colliers Securities — Analyst

Unbelievable, good stuff. I wanted To Speak about Inside the EV space as properly. An excellent set Of latest contract wins right here — A pair of of the legacy diesel suppliers or are All of them start-ups?

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

Now They’re undoubtedly our legacy buyers as We have earlier thanhand reported in earlier yrs in our 10-K. They’re all worldwide powerhouses They typically all have platforms. They are simply as important to us As a Outcome of the mannequin new people, the factor Regarding The mannequin new entrants — We have by no means purchased our electricalal methods or electricalal replys into the truck market. We had On A daily basis been focused on The enhancement gear market and a couple fullly different ancillary markets and with This Sort of complete class alternative we entered into it as not simply construct to print producer, however a designer of doc Inside the system designer to develop a few new merchandise — we did it and we entered into that market. Whole supplies as electrical for our electrical methods Industry as they one — designer and So far so good and A lot of The mannequin new entrants, as you would anticipate are Type of Inside the prototype half. The incumbents — from inner combustion engine usually diesel powertrain, so usually and electrical powertrain.

They have the vehicle — They typically’re simply altering the powertrain — The mannequin new guys the both. We’re with both of them, they’re both important to us.

Michael Shlisky — Colliers Securities — Analyst

Constructive. Got it. I Desired to contact on was quickly An identical current chain factors dealing with the Industry. I assume, To start with, you had converseed about final quarter thOn tright here was some resin suppliers transferd logistically to wright here it Desired to be etcetera. Has that modified In any respect And that i even have been listening to some corporations — again it Will not be your buyers saying, They will not get wire harnesses — Individuals who — are you confronted with any Type of — Because you had doc levels of gross sales most performance in sure places [indecipherable].

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

It is a constraint Needless to say and Tright here is a lot of public filers On this Industry. So I even have been watching their Q1 end outcomes — about that primeic And positively, supplies availcapability, resin availcapability, — availcapability, metallic availcapability, chips, And current chain slowdpersonals are affecting the worldwide Industry. It is alstudyy problemed into our outlook, We have accepted as a actuality for this yr That are going to have a objective of demand, if You will, to get caught up with the orders. Do You’d like to monitor orders Inside the worldwide Industry, orders are far out seating manufacturing and so the manufacturing Inside the worldwide Industry Goes to be muted or capped Barely bit for The Reprimaryder of the yr as this will get caught up with us. So far as connectors and electrical harnesses particularally to your question, Needless to say, — I’ve said thOn tright here worldwide briefages of connectors and We have been impacted by that — supplies substitutions and We have carried out extra supplies substitution than We will recall. We’re Approaching Shut to 1000 supplies substitution that — pretty exhausting to do — substituting supplies as properly — We truly see ourselves going againward, Mike.

We simply see it as a go-forward constraint. It is not getting worse. It simply provides — the factor suppliers to get caught up a quantity of quarters on Afacet from chips. Do You’d like to study Regarding the chip briefage which impacts our buyers, it’s actually a constraint to our buyers. It appears Choose it Goes to be out A few yr They typically have substitute chips — substituting our designs our connectors — electrical administration bins — electrical administration bins chips — They’ve a job to do to work round this constraint and so Can we and All of us are. I see it getting designed round Barely bit, Mike, Neverthemuch less it’s not going to be velocityy. It takes A lot of elemented work.

Michael Shlisky — Colliers Securities — Analyst

I might like to Type of Adjust to-up tright here. This is my final question. Since final quarter — your final slide did modified all that a lot for 2021; do You are really feeling like simply In The Long time period, The complete-yr will get constructed? Not the very finish of the yr, however ought to It is enough to make it work? Or we’re simply ready for any Type of modifications in your forecast as we get by way of the yr?

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

The ACC — You are proper thOn the annual quantity for this yr hasn’t modified since our final reporting out Of information and our expertise is According to this information. Neverthemuch less the quarterly profile did change In just bit. Tright here was hope Inside the Industry for Barely bit hugeger Q2 of truck constructs, however then occurred and it’s principally simply getting purchased out by way of Q3, This fall and into subsequent yr. Our notion is that this ACC information is reliable. Back has very properly, so we’re embracing this outlook, Mike.

Michael Shlisky — Colliers Securities — Analyst

And simply on March, Tright here have been challenges And tright here is simply nonethemuch less challenges in Might. So, Mightbe even Type of baked into the March ATT outlook and Your particular personal outlook? You’ve not seen a lot distinction. Is that A great assertion?

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

Can you say that again, Mike?

Michael Shlisky — Colliers Securities — Analyst

Sure. Is it factful to say that 303,000 [Phointernetic] unit outlook that you had in March in The identical outlook right now, they both problem Inside the similar problem? Those factors have been tright here in March They typically’re nonethemuch less tright here now. So, maybe that’s alstudyy Type of baked in to anticipateations earlier than this call?

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

I really feel so.

Michael Shlisky — Colliers Securities — Analyst

Okay.

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

I do not assume that I might say, Mike, that I’ve picked up, however by Adjust toing It is that Individuals Try to work Across The factors now. Similar to the question you requested about us and the harnesses. Tright here are strategies to work Across these constraints with supplies substitutions and design work And tright here is exercise round that, So as that people can get extra. But I do not assume It Goes to be a primary change. So yes, I might say the similar factors are baked in and ThOn Tright here is a lot of effort Across them.

Michael Shlisky — Colliers Securities — Analyst

Got it. Thanks Tons. I am going to move aprolongedside.

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

Welcome.

Chrisprimeher Bohnert — Chief Monetary Officer

Thanks, Mike.

Operator

And your subsequent question comes from The road of Chris Howe with Barrington Evaluation.

Chris Howe — Barrington Evaluation — Analyst

Good morning. Thanks for taking my questions.

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

You’re welcome, Chris.

Chris Howe — Barrington Evaluation — Analyst

Warehouse automation proceeds to carry out properly. Taking A look at Slide 7 now. I assume That you merely’d proceed to carry out comparatively properly and forward of market progress anticipateations. Electric vehicle platforms are beneath enhancement and They Have to ramp shifting forward Inside the enhancement half. As we Take A look On these two buckets of alternative Inside the contextual content material of gross margin inner and exterior for The agency, what alternatives are you seeing now And will you see Finally for gross margin enhancement, whether or not that’s by way of pricing, value initiatives, or inpure adjacencies round your current alternative set?

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

Chris, You should take that one?

Chrisprimeher Bohnert — Chief Monetary Officer

Constructive. Sure, good question, Chris. Respect it. I really feel our margins increaseed pretty a bit from fourth quarter. We had a few gadgets that we converseed about Inside the fourth quarter call that dented us Barely bit That did not reoccur related to bonus and so forth. So, We Have acquiredten enlargement in A pair of spaces. One driver is mix as I had converseed about. I really feel Inside The strategying quarters, We’ll see proceedd smaller probably will enhance Inside the warehouse automation Industry on a proportion basis, however nonethemuch less vital progress yr-on-yr. So, as We have converseed about earlier than, these margins are incrementally slightly greater than our general margins. So, I really feel our focus Now’s to proceed the Industry mix enhancements that We have been making Inside the final couple of quarters. Now thOn the debt deal is behind me, Harprevious And that i are going to focus extra on enhancing these margins Inside The strategying quarters. So I’ve acquired Barely bit extra time to spfinish on that. So, I might not anticipate vital will enhance in our margins because We Have acquiredten A lot of headwinds coming at us with respect to The current chain And worth and so forth, however It Goes to be a proceedd focus for us, Chris, Inside The strategying quarters with Barely bit extra rigidity tright here.

Chris Howe — Barrington Evaluation — Analyst

That is good. And congratulations on getting that debt deal carried out. And a Adjust to-As a lot as that, if we Type of look prolongeder-time period image. I simply Can be Considering about your Deal with these two buckets of alternative: electrical vehicle and warehouse automation. Clearly, we’re shifting on a sequential quarterly basis and environment stays not sure now. But innerly, do you have A Strategy of gross margin potential and income potential for these two spaces of the Industry shifting Right into a conventional environment And maybe three To 5 yrs from now?

Chrisprimeher Bohnert — Chief Monetary Officer

Sure. I really feel on the income facet, We’ll proceed to expertise good progress. Clearly shifting into adjoining alternatives is a key focus space for us. With respect to margin enhancement, I really feel again, these are low capital-intensive industries. So, we’re assembling complicated merchandise And that i really feel margin enlargements are going To reflip by way of, wanting at alternatives To reinformationrce our meeting processes and so forth. So, I might not anticipate factorary change in these. I really feel incremental [Phointernetic] automation piece is hitting the P&L now, which we’re fortunate to have that. And that i really feel on the EV facet as extra into the 2022-2023 half and the margins tright here, nonethemuch less Type of early To inform on these. But again, in all probcapability incremental to our general Industry.

Chris Howe — Barrington Evaluation — Analyst

Okay. After which one final question. Shifting again to A pair of of Harprevious’s feedagain simply Regarding the significance. But It’d typically be ignored the aftime periodarket piece, $100 million in gross sales. Can you converse Regarding the positive dynamics You are seeing in that portion of the pie And the method you see that Industry shifting forward, whether or not from a pricing perspective Or maybe a market share perspective? Thanks.

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

Sure, it’s a good question. Do You’d like to Take A look at our pure progress pipeline actions because We Have acquiredten A pair of early victories right here in warehouse automation and with electrical vehicle platforms, we’re simply now Starting to get [indecipherable], And that is why I converseed about it in right now’s dialog. Those are furtherly brief-cycle. So, these Assist Inside the brief time period, however We now Produce fullly different spaces thOn tright here’s simply Engaged on pipelines and the aftime periodarket Industry is Definitely one of them. Our conventional Industry strategy has been to service the automobiles that we are on from an OE standlevel Inside the aftime periodarket. But Tright here’s an all-makes aftime periodarket alternative To actually dramatically develop that Industry. We’re wanting at — For event, we make flooring mats and our flooring mats go onto sure vans and then these flooring mats put on out, we get a aftime periodarket order simply Inside tright here for us however our gear Does not care in its flooring mat its making merchandise for and Tright here’s an all-make alternative to increase our flooring mat, our mirror Industry, our heating Industry, Definitely one of our prime buyers in aftime periodarket Does not even have many huge places Inside the OE market In any respect.

So, We anticipate that Industry has A lot of alternative on a go-forward basis and then We now have some companies We now Have not spoke about Inside these durations collectively, simply look at on A pair of them — flooring mats, mirrors, our sensor Industry, our Industry in Europe, our Industry in Australia, Industry in Thailand. We have pipelines that we’re Engaged on for all these pureally and so we hope to have extra of a full potpourri of primeics right here. You converseed about over three To 5-yr interval. We’re Engaged on these now, however The outcomes not supplies but, so not a lot of it’s work that we’re doing and we anticipate similar end outcomes that We have been getting out of warehouse automation and The electricalal vehicle push. So, aftime periodarket is a huge deal. We’ve by no means dealt with it as a huge progress this however It is and fullly differents do. So, it’s One which I hope we could Speak about Finally as when [indecipherable] that it’s supplies enough to converse Inside these durations.

Chris Howe — Barrington Evaluation — Analyst

Great. Thanks, Harprevious, and thanks, Chris, appreciate All The colour. I am going to hop again Inside the queue.

Chrisprimeher Bohnert — Chief Monetary Officer

Thanks.

Operator

And your subsequent question will come from The road of John Franzreb with Sidoti & Company.

John Franzreb — Sidoti & Company — Analyst

Good morning, Harprevious and Chris.

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

Howdy, John.

John Franzreb — Sidoti & Company — Analyst

Great quarter.

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

Thanks.

John Franzreb — Sidoti & Company — Analyst

Simply to Adjust to-up In your itemizing althought on the aftime periodarket. Is tright here A huge gross margin contrihoweverion distinction in that Industry versus your general product portfolio?

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

Chris?

Chrisprimeher Bohnert — Chief Monetary Officer

Sure, Tright here’sm John. This aftime periodarket Industry has a quantity of factors and as Harprevious converseed about, we hope To have The power To converse extra about this as we develop this half or this line of Industry pretty Barely bit extra absolutely Finally. Tright here are factors of that, wipers, mirrors and so forth that do have above Type of common margins and so forth. So, driving this Industry further Will undoubtedly help us with the margin enhancement.

John Franzreb — Sidoti & Company — Analyst

Okay.

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

I am going to simply add that A lot of our OE Industry for seating, For event, we are obligated on the pricing on a per unit basis. After which as these contracts go into the aftime periodarket, We now have some freedom To value [Phointernetic] and plus, you get them One after The fullly different. We’re alstudyy a serialized producer, so we make our merchandise One after The fullly different. So, That Doesn’t give us a headache, however we are used To creating One after The fullly different however spfinishing a full truckload Of 1 after The fullly different. So tright here are further prices with the aftime periodarket, however we are In a place to Howdygher than recoup that on the pricing facet. So, it’s Definitely one of our goodr companies from a financial statistics standlevel.

John Franzreb — Sidoti & Company — Analyst

Got it. And relating to the EV market. I acinformation tright here Shall be some substitution On this Industry, however what’s your sense of the incremental dollar That You can be be Attending to EV platforms versus diesel platforms Finally?

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

Sure, it’s a huge distinction for us and it’s primarily because We have Unlikely been a halficipant with our electrical merchandise Industry Inside The electricalalal [Phointernetic] market. So, it’s Shut to double our content material per vehicle, As quickly as we have been In a place to be An electricalal harness supplier on [indecipherable] junction bins and disconnect, so it’s A lot of movees, electricalal factors thOn they’re making up two bins. And motors and drives and batteries on the vehicle to do both low voltage electricalal distrihoweverion As properly as to the extreme voltage and On this world, extreme voltage is 48 volts and a spark goes round 4 volts. So That is the extreme voltage proper at 40 and above. So we do both the 12 volt; the low voltage the 12 volt and the extreme voltage. We do them both and we simply flat out had after the vehicle market and this was a huge alternative for us to convey it on and to current we could Obtain thisme electricalal system maker. And it’s A pair of thousand dollars per vehicle if We will Discover your self to be the system particular person on the truck, John.

John Franzreb — Sidoti & Company — Analyst

Great. And relating to the warehouse automation Industry. You probably did $42 million Inside the quarter and your commentary is Howdygher than $150 million for the yr. I am simply curious Regarding the cadence [Phointernetic]. Is tright here seasonality or A particular order that We ought to alstrategies Confacetr ThOn tright here’s A particular and Might Even be decrease than The current run rate, or are You only being conservative, maybe in your steerage?

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

Chris?

Chrisprimeher Bohnert — Chief Monetary Officer

Sure, John. A You understand, As quickly as we acquired here out and we said It Might be $150 million Industry in 2021 for us, we’re not seeing at this stage. Our order e-books aren’t indicating any cyclicality and, Exactly, we’re seeing Barely bit stronger efficiency than maybe what we earlier thanhand indicated, so not seeing cyclicality. As we converseed about earlier thanhand, these margins are slightly incremental to our general margin. And so, order e-books stay full and anticipate fixed progress yr-on-yr.

John Franzreb — Sidoti & Company — Analyst

Okay, good. And one final question, if I am going to, refinancing of the debt freed up about $200 million, I confacetr is what you said — M&A capital. Might you converse Barely bit about what your primary acquisition standards is and if Tright here’s any reflip hurdles that We ought to alstrategies Confacetr Everytime You start concentrating on M&A?

Chrisprimeher Bohnert — Chief Monetary Officer

Sure. Thanks, John. Clearly we’re diversified industrial, so We now have A lot Of numerous factors We will Take A look at. It Is sensible for us to do factors that we’re good at. So obviously we’re Inside the markets that, as You understand, We’ll in all probcapability Take A look at these adjacencies first, although I really feel we’re not Against wanting at alternatives that match what we do as far as complicated meeting and managing huge labor forces and so forth. So maybe I am going to sprime tright here and see if Harprevious has one factor So as to add on that.

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

No, I agree. Our primary objective is to have greater earnings and extra safe earnings and be much less depfinishent on the vehicle markets. So I might say We now have a bias in the direction of doing that. We Even have a bias in the direction of smaller tuck-in Sort of acquisitions with deferred and a string of pearls versus some huge kaboom. We had a pipeline going into a quantity of hundred candidates we’re wanting at, and it was a profitable recreation plan. We had A lot of two by the FSE Industry, which led us to have this huge warehouse automation Industry. So We now have good type in our mouth with being a cautious shopper, and buying for The biggest asset wright here we get The biggest group.

The worth add in that Industry was decrease worth add, however distinctive people, distinctive buyer relationships, and An alternative To at least one plus one equal three when fprevioused into CVG’s resupplys and worldwide footprint. So we’re Looking for that again, We’d like to increase Our worth add as properly and have Barely extra stickiness, maybe Barely extra difficult get us Right into a pair of fullly different markets Which may help us diversify And by no means take many risks. We Just like the profile of the FSE acquisition, if we could mimic that, we certainly would and that was the reported. It was $50 million and has helped us create A very huge Industry in A short-term Period of time and it was what we noticed and it occurred, so we Shall Watch out. I’ven’t acquired somefactor particular to say in that, however as Chris And that i add one factor smarter than what I simply said, we’ll share it with you as we go aprolongedside.

John Franzreb — Sidoti & Company — Analyst

Okay. All proper, factful enough, thanks for taking my call. I am going to get again into queue.

Operator

[Operator Instructions] And your subsequent question will come from The road of Barry Haimes with Sage Asset Management.

Barry Haimes — Sage Asset Management — Analyst

Thanks Tons. Congrats on a good quarter. I had A question on the RV and particularty vehicle market wright here You are Starting to pursue some factors, and it appears like, if I did The maths proper, you maybe did about 9 million of orders Inside the quarter, could You only converse Barely bit extra Regarding the merchandise you disapleveled in that market? WhOn the aggressive set appears like And the method huge That would probably be over A pair of three-yr interval? So, any colour round that half would appreciate. Thanks.

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

Sure. Tright here is A lot of inject motors — however Tright here’s not A lot of injection motors Which will do huge gadgets, tright here’s not A lot of injection mpreviousing so Which have A lot of 3500 ton press [Phointernetic] like us. Our heritage Of making huge parts for vans makes us a particularisting of That huge parts purely and Tright here’s fullly different huge parts, tright here’s housings for — and exterior our bodies for ATVs, shales for snowmobiles, This Sort of a factor. So As quickly as we Speak about now leisure automobiles, it’s not the Winnebin the past Type of deal, It is the small automobiles Which have pfinalic our bodies, huge pfinalic our bodies. Tright here May even be huge pfinalic our bodies on baby seats. Tright here are cabinets for X-ray machines, the outer domes for antennas, Tright here’s distinctive wants For huge injection mprevioused pfinalic parts That are monolithic and extreme compression like We now have for truck half. So that one varies wright here we’re making an attempt to — We have characterised what We will do, and we’re wanting at wright here is it carried out. So, we’re being open-minded to the markets, however The huge actual market’s undoubtedly off-road vehicle market, and we’re having success working the Industry in these spaces.

Barry Haimes — Sage Asset Management — Analyst

Great, thanks very a lot.

Operator

Okay, and tright here Are not any extra audio questions Presently, I am going to now flip The choice again over to administration for closing remarks.

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

Well, Chris And that i want to thank you for staying on an hour with us and appreciate your help. We’re Proud of the quarter that we fliped in, however we’re even happier about what we see forward of us. And We look forward to talking with you again On The prime of this quarter. Thanks very a lot On your consideration right now. With that, we’ll conclude The choice.

Operator

[Operator Closing Remarks]

Period: 51 minutes

Name halficipants:

Chrisprimeher Bohnert — Chief Monetary Officer

Harprevious Bevis — Prefacetnt, Chief Authorities Officer & Director

Michael Shlisky — Colliers Securities — Analyst

Chris Howe — Barrington Evaluation — Analyst

John Franzreb — Sidoti & Company — Analyst

Barry Haimes — Sage Asset Management — Analyst

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This textual content material recurrents the opinion of The author, who may disagree with the “official” recommfinishation place of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even Definitely one of our personal — helps us all assume critically about investing and make selections that help us Discover your self to be smarter, happier, and richer.

Source: https://www.fool.com/earnings/call-transcripts/2021/05/07/commercial-vehicle-group-inc-cvgi-q1-2021-earnings/

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