Commercial Vehicle Group, Inc.

Good morning, ladies and gentlemen, and welcome to the CVG's first quarter 2021 earnings conference call. During today's presentation, all parties will be in our listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Chris Barnard, Chief Financial Officer. Please go ahead, sir.

Thank you, Operator, and welcome to our conference call. Joining me on the call today is Harold Beavis, President and CEO of CVG. We'll provide a brief company update as well as commentary regarding our first quarter results, after which we'll open the call for questions. This conference call is being webcast, and a supplemental earnings presentation is available on our website. Both may contain forward-looking statements, including but not limited to expectations for future periods regarding market trends, cost savings initiatives, and new product initiatives, among others. Actual results may differ from anticipated results because of certain risks and uncertainties. These risks and uncertainties may include, but are not limited to, economic conditions in the markets in which CVG operates, fluctuations in the production volumes of vehicles for which CVG is a supplier, financial covenant compliance and liquidity, risks associated with conducting business in foreign countries and currencies, and other risks as detailed in our SEC filings. I'll now turn the call over to Harold to provide a company update. Harold? Thank you, Chris. Good morning, everyone. On today's call, we'll provide an overview of our first quarter results, followed by an update of our strategic initiatives designed to grow our earnings, while also pushing CEG to deliver more stable results as we strive to reduce the cyclicality of our business and improve our growth outlook. Chris will discuss our financial results in more detail, as well as view our debt refinancing, which will reduce our interest expense beginning in the second quarter, while also freeing us of restricted covenants that precluded us from M&A. We'll then conclude by opening the call and answering your questions. Please turn to page four of our earnings presentation. We delivered record sales for the first quarter of 2021 of $245 million, an increase of 31% as compared to the year ago first quarter. This strong growth was largely driven by warehouse automation, where we delivered 41.9 million in sales, representing 22% sequential growth, and remains on track to meet or exceed our full-year goal of $150 million in warehouse automation sales. Our operating income increased to $15.4 million in the first quarter, which compares favorably to a loss of $26.5 million in the first quarter of a year ago. The improvement largely the result of better volumes combined with our success efforts over the past year reduce our cost structure and drive operational efficiencies across the company. Rationalizing and reallocating our cost profile has been a priority of our management team and will provide a benefit as our sales continue to improve. 2020 first quarter did include an impairment chart that did not reoccur. Adjusted EBITDA was 21.19 in the first quarter, representing really a 100% increase as compared to the 11.9 that we delivered in the first quarter of 2020. The improvement was due to higher revenues with an improved retail combined with expense reductions and profit optimization actions that we executed throughout 2020 in which we were very focused on the year ahead. We delivered $0.26 per share in the first quarter compared to a loss of $0.80 per share in the first quarter a year ago. As we have been speaking about over the last year, the key element of business transformation strategy is achieving new growth. As we reported last quarter, we received $100 million of annual new sales awards in 2020 with approximately 40 new customers, the bulk of which were in warehouse automation, electric vehicles, and last-mile delivery. Our figures when we speak about new business wins is the annual revenue amount when the award is fully ramped up. Warehouse automation, holding business is shorter in awards delivery. So the wins that we secured in 2020 are translating to revenues in 2021. Winning a business is a focus of our organization and central to accelerating our sales growth, expanding our profitability, and diversifying our in-market exposure away from legacy long-haul diesel trucks. In the first quarter of 2021, we achieved another net new business win award amount of $100 million, primarily in our growth and market electric vehicles, where we continue to win positions on platforms with new and existing electric vehicle manufacturers. Given that these new business awards are in the electric vehicle sector, it will take several years to ramp up before delivering $100 million in annual revenue. That said, This is improving visibility for the company's revenue profile over the medium term, and new vehicle platforms tend to last a long time and have an aftermarket after that. Turning to slide five, we have an entrepreneurial spirit across our company focused on delivering better value to our customers while also delivering additional business in our data market. We're becoming more innovative solutions focused will move us up to that chain customers ultimately this will lead to improved profitability and reduced cyclicality as we expand in the new markets and divert fire customer base recently announced partnership with xos is a prime example of the value that we can provide to an electric vehicle manufacturing manufacturer we are providing an electrical design solution We are now helping them ramp from design to prototype to production more quickly. We are an attractive partner because we can provide the design work for our triple systems, and then supply the wiring, seats, and other products for the vehicle moves from design to prototype for the road. This is a step up the value chain as we become an engineering services partner for our triple system infrastructure. Additionally, we are doing this in the last mile market, which is a new space for CDG. We're also having success expanding our intellectual property and manufacturing capabilities into new end markets. We're leveraging our capabilities from commercial business, where we have strong large punch injection capabilities. Given these skill sets and manufacturing capabilities, We are evaluating markets to expand into like equipment, recreational vehicle, complex equipment, given its ability to produce large plastic products for hard-to-create products. We have found one of our differentiators in these markets is our ability to deliver vibrant colors and aesthetics, and it's highly valued in some of these new end markets. As we continue to have success expanding our business in markets on the North American truck market will decline. Turn to Phase 6. As a result, it is important to understand that those markets, which are now driving our business, furthermore, we are shifting our truck mix from first-mile diesel trucks to middle-mile and last-mile and electric vehicle powertrains. North American truck market, as you can see on this graph, was 36% of our sales in the first quarter, generally in the first quarter of 2020 level. First quarter demand for Class A trucks was near replacement levels at approximately 67,000 units. ACT research is forecasting annual truck with an excess of 300,000 units through 2023, which will be some growth as we pivot our business. A year-term headwind that we're watching closely is the production supply chain. Materials, labor, freight, and supply chains in general, especially logistics from China. This will be a headwind to new truck builds as it is dampening production. The OEM construction market is the second-largest in market, comprising of 8% of our first-quarter sales. Business in this end market is relatively balanced across North America, Europe, and Asia. And looking forward, we see a strong order book probably through 2021, which will be supportive of demand, although supply constraints are concerning here as well. Warehouse automation has quickly become our third largest end market and has 17% of our sales in the first quarter. I'll touch on business in just a moment. And lastly, our aftermarket and service business, while not an in-market, is an important component of our business and represented 12% of our first quarter sales. I believe this business is underappreciated as it has grown to nearly $100 million in sales, while providing an annuity-like revenue stream to CDG. Turning to page seven, warehouse automation in-market continues to be a significant growth driver for our company. as we delivered approximately $42 million in sales during the first quarter. The growth in e-commerce is driving the need for additional warehouse automation, handling and sorting, and last-mile rebands, where industry expectations over this entire warehouse industry to grow at about 14% per year through 2026, or really doubling in size over a five-year period. We provide components for these warehouses, including complete work centers. And given this strong market demand, combined with business wins last year, we remain confident in our goal of delivering 159 sales in this year. And additionally, our margins in this business are modestly appreciative and higher than our corporate average. As a result, we expect profits to benefit as warehouse automation continues to become a larger proportion of our total sales. A new and emerging end market for CPG, electric vehicle and last mile mark, as outlined by Jade. Our competitive advantage resides in the fact that we have a natural value-added product basket that makes it convenient for new vehicle companies to do their work. Importantly, we can design, prototype, and build above-the-products for our vehicle makers and we have 40 years of global experience doing it. We're currently involved with three, four vehicle platforms globally, which includes both existing customers that are expanding into the market as well as new EV market entrants. We have essentially created a portfolio of business plans on electric vehicle platforms that will allow us to participate in the coming transition from diesel to electric vehicles and from first mile to the last mile This is unfolding now and will do so for several years. And turning our new business back off on slide nine, as I mentioned, we secured another $100 million of new business loans in the first quarter, 93% of which were outside of our legacy truck business. We secured three wins, a new EV market entrance, as well as new products for recreational specialty vehicle makers for plastic parts. It is important to reiterate that the composition of our new business awards will determine when those revenues will flow through our P&L. Given that a majority of our wins in the first quarter win the electric vehicle sector, we will not see a peak value of these awards for a few years. And turning to page 10, I'm very pleased with the success that we've achieved over the last year as we've made significant progress executing our strategy to transform CDG. This success is a direct function of the concerted efforts we've taken in the global team of 8,000 people. And like many companies, we have dramatically reduced our expenses and transformed our factories for COVID safety last year, which we successfully have navigated. And we also contributed a portion of our own pay going through it. We've also recruited a talent management team and implemented We've tried to design, reaccelerate organic growth, the expansion into new markets that present CVG with more open-ended growth opportunities. Central to the transformation and our long-term success, the new entrepreneurial spirit and winning culture, which we've created and has caused excitement and energy across our company. While we're only in the very early innings of this, our transformation is taking hold and our aspirations are significant. Looking forward, we'll continue to grow our business wins while maintaining our cross-discipline focus on profitability. We'll also continue to move up the value chain as we partner with our customers to provide innovative solutions to solve the most challenging problems. Turning to page 11, our efforts to transform our company are clearly seen as we deliver record sales for the first quarter. very pleased with our team's accomplishments, but even more excited with the many opportunities that are ahead of us. Our growth initiatives are just coming, but we're impacting our financial results already with the rapid expansion that our warehouse automation business is experiencing. We're also implementing a new, important foundation for the future of our vehicle business, significant ones that we've achieved in the electric vehicle sector. and we are now participating with over 30 platforms globally at some level, including brand new customers and brand new products. These wins will begin to translate to revenues over the next few years, where we expect the market to become a more meaningful part of our sales mix. We're also successfully expanding our intellectual property and manufacturing capabilities into adjacent markets like recreational and specialty vehicles, which provides new greenfield markets for CBG. And taken together, we're executing on our plans to accelerate growth, improve our profitability, and reduce cyclicality in our business. Additionally, and as Chris will discuss in more detail, the refinancing of our senior debt not only reduces our annual interest expense immediately, but also frees us up to be more focused with our capital allocation strategy, and we can now consider M&A. We see strategic M&A as an effective way to expand into new experience and have our business transformation. At this take-home, we will discuss that with you in more detail. Now, I would like to turn the call over to Chris for a more detailed review of our financial results. Chris? Thank you, Harold. If you're following along in the presentation, please turn to slide 13. First quarter revenues were $245.1 million, an all-time quarterly sales record, and up 31% compared to $187.1 million in the prior year period. This increase reflects the substantial increase in the warehouse automation business and the North American heavy truck market returning to near comparable levels to the prior year. On a sequential basis, revenue increased 13.5% over fourth quarter of 2020, revenue of $216 million. Foreign currency translation favorably impacted our first quarter revenues by $4.3 million, or about 2.3% compared to the prior year period. I'd like to spend a moment on our gross margins, which expanded approximately 190 basis points to 12.7% as compared to the first quarter of 2020. This expansion continues to reflect our renewed focus on profitability and our improving business mix. The key drivers of the expansion were volume leverage, business mix, to the warehouse automation end market and operational cost improvement as compared to 2020. The company reported consolidated operating income of $15.4 million for the first quarter of 2021 compared to a loss of $26.5 million in the prior year period. And on adjusted basis, operating income was $15.8 million compared to $7.1 million in 2020. The improvement was primarily due to higher sales volume and an improved cost structure as a result of our cost actions and improved sales mix and an impairment that was taken in the prior year ago that did not reoccur in 2021. We achieved adjusted EBITDA of $21.1 million for the first quarter, which was up considerably as compared to $11 million in the prior year first quarter. Adjusted EBITDA margins were 9%, reflecting an improvement of approximately 270 basis points as compared to adjusted EBITDA margin of 6% in the first quarter of 2020. This margin expansion was primarily the flow through from the revenue and cost changes I mentioned earlier. Our first quarter interest expense was $5 million as compared to $4.6 million in the first quarter of 2020. Net income for the quarter was $8.5 million, or $0.26 per diluted share, as compared to a net loss of $24.6 million in the prior year period, or $0.80 per diluted share. Importantly, we were able to refinance our senior debt earlier this week based upon our improved financial performance over the course of 2020, and through the first quarter of 21. This is a significant milestone for CBG, which removes the onerous cost and covenants that existed in our prior debt structure. The details of our refinancing were published on Monday in a press release in 8K. To touch on the highlights on slide 14, our new $275 million senior secured credit facilities includes $150 million term loan aid and $125 million revolving credit facility, both with five-year maturities. We used a portion of the proceeds to repay all of the outstanding principal of our term loan B, which was 151.6 million at April 30, 2021, the date of our closing. The interest rate on our outstanding principal is Eurodollar plus 300 basis points compared to the old debt, which had LIBOR plus 1050 basis points on the term loan B. As a result, I expect our quarterly interest expense to be reduced by 3.19 on a full quarter basis. Additionally, our liquidity expanded as a result of this from $120 million at March 31, 2021 to $154.7 million on a pro forma basis under the new debt facility. Lastly, the new facility includes an accordion feature that provides for an upsizing of the amount available by $75 million with incremental lender commitments subject to financial covenant compliance. As Harold mentioned, this will allow us also to consider M&A opportunities. Our prior debt was onerous, and I could not be more pleased to not only have those covenants and high interest rate removed, but also bring on an outstanding group of bank partners, including B of A, Fifth Third, and PNC Bank. Our bank group is of high quality and will be good partners as we continue to grow CVG. At this point, I'll talk a little bit about our segment results, starting with the electrical systems segment on slide 15. For the first quarter of 2021, the electrical systems revenues were $162.2 million, compared to $112.1 million in the prior year period, an increase of 44.7%. Foreign currency translation favorably impacted first quarter revenues by $1.3 million or 1.2%. The year-over-year sales increase primarily resulted from new business wins and warehouse automation and strength in North American construction and ag markets, as Harold mentioned previously. Our electrical system segment now represents 66% of our total first quarter revenues as we continue to make progress diversifying both our business mix and customers. Turning to operating income in the electrical system segment, they delivered $14.9 million of operating income in the first quarter compared to an operating loss of $17.1 million in the prior year period. The increase was largely due to increased sales and an impairment taken in the prior year period that did not reoccur. Adjusted operating income was $15.1 million in the first quarter, compared to $6.3 million in the prior year. Turning over to our global seeding segment on slide 16, global seeding revenues increased to $91.9 million in the first quarter, compared to $76 million in the prior year period, an increase of 19.9%. Foreign currency favorably impacted our sales in this segment by $3 million, or about 4% for the quarter. The global seeding segment reported an operating income of $5.5 million, during the first quarter compared to an operating loss of $400,000 in the prior year period. The increase was due to higher sales volume and an impairment taken that did not reoccur. The first quarter of 21 adjusted operating income for this segment was $5.5 million, excluding special charges. This concludes our prepared remarks this morning. I'll now turn the call over to the operator to open up the line for Q&A. Thank you.

Thank you. At this time, ladies and gentlemen, if you want to ask a question, please press star 1 on your telephone keypad. a game that is still one to ask a question. We'll pause for just a moment to compile the Q&A roster. And your first question will come from the line of Mike Cholesky with Collier Security. Mike, your line is open. Please proceed with your question.

I'm sorry. Good morning, guys. I was on mute there. I apologize. Good morning. I want to start off with a couple of EV-related questions. First, congrats on all the new business. You had mentioned in the slides that you've got some companies, you don't want to name names until you've got a whole bunch that you're working with. Some of them are launching some models in 2021 and 2022. Presumably it's in somewhat small numbers. But can you give us your sense as to whether those models are on track to launch this year, or is anyone seeing any issues Again, without getting anybody in trouble, I'm curious to see if EVs in general are progressing the way we had hoped.

Yeah, from our experience, we've seen no delays. If anything, you know, the pause that happened over the last year with COVID and the related shutdowns that happened in the global vehicle industries, these new entrants didn't slow down at all. but move forward with their development programs to close it after they have vehicle makers. The pace is on. There's really no doubt in all the charges, really, to get vehicles out faster. And we're seeing people do engineering, prototyping, vehicle builds, vehicles, and production vehicles. You read more than we do, Mike, but from our standpoint, Ascend is doing very well and not slowing down at all.

Fantastic. Great stuff. Another topic I wanted to talk about in the EV space as well, and again, a great set of new contract wins here. Are any of them with some of the legacy diesel providers, or are they all with startups?

No, they are definitely our legacy customers as we've previously reported in previous years in our 10K. They're all global powerhouses and they all have platforms. They're just as important to us as the new people. The thing about the new insurance for us, we've never sold our electrical systems, our electrical solutions into the truck market. We'd always been focused on the construction equipment market and a couple other ancillary markets and With this kind of whole cloth opportunity, we entered into it as not just a build-to-print manufacturer, but a designer of record and a system designer. We developed a few new products to do it, but we did it. And we entered into that market whole cloth for our electric systems business as a one electric system designer. And so far, so good. And... Most of the new entrants, as you would expect, are kind of in the prototype phase. The incumbents, mainly, as you know from your reading, have taken existing platforms and substituted the powertrain from internal combustion engine, normally diesel powertrain, to normally an electric power train. So they have the vehicles, if you will, in the production to make the vehicles, and they're just converting the powertrain, where the new guys have to do both. So we're in with both of them. They're both important to us.

Sure. Got it. Another thing I want to touch on was some of the supply chain issues facing the industry. I guess, you know, first of all, you had mentioned last quarter that there were some resin supply issues given some of the weather in Texas and getting things logistically to where you need it to be, etc., Has that changed at all? And, you know, I've been hearing some companies, again, they might not be a customer, saying they can't get wire harnesses. It's just been tough for them to find people who have them. Are you faced with any kind of, because you're at record levels of sales, maximum capacity in certain places where you can't ship people?

Well, it's a constraint for sure, and there's a lot of public filers in this industry. So we've been watching. Their Q1 results know what they've said about that topic. And certainly material availability, resonant availability, chemical availability, metal availability, chips, and supply chain slowdowns are affecting the global industry. It's already factored into our outlook. We've accepted it as a reality for this year that they're not going to have a porpoise of demand, if you will, to get caught up with the orders. If you track orders in the global industry, the orders are far out seeding production. And so the production in the global industry is going to be muted or capped a little bit for the remainder of the year as this gets caught up with us. As far as connectors and electric harnesses specifically to your question, for sure. And there's public files here. They've said that they have global shortages in connectors. And we've been impacted by that. The alternate for a person like us is the material substitutions. And we've done more material substitutions than we can recall. We're coming on close to 1,000 material substitutions that we've done . It makes keeping a season of plants pretty hard to do. substituting materials. But we really see ourselves going backwards, Mike. We just see it as a, you know, a go-forward constraint. It's not getting worse. It's just bad, and it's staying bad. And the component suppliers get caught up for, you know, several quarters, with the exception of chips. If you read about the chip shortage, which impacts our customers, it's really a constraint to our customers. looks like it's going to be going out by a year and they have substitute chips their designs just we're doing on substituting connections out of our designs our connectors made up to the electric control boxes and then their electric control boxes chips in them and so they they have a job to do to work around this constraint and so do we and we all are so i i see it getting designed around a little bit, Mike, but it's not going to be rapid. This takes a lot of detailed work.

Well, I'd like to kind of follow up there, then, to my last question. Since last quarter, you know, your last slide, the ACQs, I don't think they've changed all that much for 2021. Do you feel like just in the end, the full year will get built? It might be later in the year, but it should be enough to make it work? Or is or is it still waiting for any kind of changes in HCTs in your forecast as you get through the year?

At HCT, you're right that the annual amount for this year hasn't changed since our last reporting out of HCT information. And our experience is consistent with this information. But the quarterly profile did change a little bit. There was hope in the industry for a little bit bigger Q2 of truck builds. than happened, and it's basically just getting smoothed out through Q3, Q4, and into the next year or so. We believe, our belief is that this ACT information is reliable. It backtests very well, so we're embracing this outlook, Mike.

Yeah, I see that in March there were challenges, and there's just still challenges in May, so maybe it was already kind of baked into the March ATT outlook and your own outlook. We haven't seen much difference. Is that a fair statement? Can you say that again, Mike? Yeah. Is it fair to say that the Fusion 3000 outlook that we had in March and the similar outlook today, they both factor in the same issues. Those issues were there in March and they're still there now. So perhaps that's already kind of baked in to your expectations before this call.

I think so. The only thing that I would say, Mike, that I picked up by following it is that people are trying to work around the issues now, just like the question you asked about us and harnesses. There's ways to work around these constraints with material substitutions and design work, and there's activity around that so that people can get more trucks out the door. I don't think it's going to be a major change. So yes, I would say the same issues exist and that there's a lot of effort around them.

Got it. Thank you so much. I'll pass it along. You're welcome. Thank you, Mike.

And your next question comes from the line of Chris Howe with Barden Research.

Good morning. Thanks for taking my questions. You're welcome, Chris. warehouse automation continues to perform well. I'm looking at slide seven now. I assume that you would continue to perform relatively well and ahead of market growth expectations. Electric vehicle platforms are under development and they should ramp moving forward in the development phase. As we look at these two buckets of opportunity in the context of gross margin, internal and external to the company, What opportunities are you seeing now and could you see in the future for gross margin improvement, whether that's through pricing, cost initiatives, or inorganic adjacencies around your current opportunity set? Chris, do you want to take that one? Sure, sure. Yeah, great question, Chris. Appreciate it. I think our margins expanded quite a bit from fourth quarter. We had a few items that we mentioned in the – fourth quarter call that dented us a little bit that did not reoccur related to bonus and so forth. So we've got expansion in a couple areas. One driver is mixed, as I had mentioned. I think in the coming quarters, we're going to see continued smaller potentially increases in the warehouse automation business, you know, on a percentage basis, but still significant growth year on year. So as we've mentioned before, those margins are incrementally slightly better than our overall margins. So I think our focus now is to continue the business mix improvements that we've been making in the last couple of quarters. Now that the debt deal is behind me, Harold and I are going to focus more on improving those margins in the coming quarters. So I've got a little bit more time to spend on that. I wouldn't expect significant increases in our margins because we've got a lot of headwinds coming at us with respect to the supply chain and costs and so forth. But it will be a continued focus for us, Chris, in the coming quarters with a little bit more attention there. That's perfect. And congratulations on getting that debt deal done. And a follow-up to that, if we kind of look longer-term picture here, I just would be interested in your take on these two buckets of opportunity, electric vehicle and warehouse automation. Obviously, we're moving on a sequential quarterly basis and environment remains uncertain now. But internally, do you have a sense of gross margin potential and revenue potential for these two areas of the business moving into a normal environment and perhaps three to five years from now? Yeah, I think, you know, on the revenue side, we're going to continue to experience nice growth. Obviously, moving into adjacent opportunities is a key focus area for us. You know, with respect to margin enhancement, I think, again, you know, these are low capital intensive industries. So we're assembling complex products. And I think, you know, margin expansion is going to come through quickly. looking at opportunities to improve our assembly processes and so forth. So I wouldn't expect, you know, fundamental change in those. I think incremental is definitely on the horizon. You know, and I think the warehouse automation piece is hitting the P&L now, which, you know, we're fortunate to have that. And I think on the EV side, as we note in the presentation, these are longer cycle wins. So more into the 22, 23 phase and the margins there. You know, still kind of early to tell on those, but, again, probably incremental to our overall business. Okay. And then one last question, shifting back to some of Harold's comments just about the importance, but it may often be overlooked, the aftermarket piece, $100 million in sales, Can you talk about the positive dynamics you're seeing in that portion of the pie and how you see that business moving forward, whether from a pricing perspective or even a market share perspective? Thanks. Yeah, it's a good question. If you look at our organic growth pipeline activities, we've had a couple of early victories here in warehouse automation and with electric vehicle platforms. We're just now starting to get a straight going, plastic ejection all the way apart, and that's what we mentioned in today's dialogue. Those are also short cycle, and so those help in the short term, but we have other areas that are working on pipelines, and aftermarket business is one of them. Our traditional business approach has been to service the vehicles that we are on from an OE standpoint in the aftermarket, but there's an all-makes aftermarket opportunity to really dramatically grow that business. And we're looking at, for instance, we make floor mats, and our floor mats go into certain trucks, and then those floor mats wear out. We get an aftermarket order to send a floor mat out, but our equipment doesn't care which floor mat it's making product for. And there's an all-make opportunity to expand our floor mat business, our mirror business, our seating business. One of our top customers in the market for seating doesn't even have many big positions in the OE market at all. So we think that business has a lot of opportunity on a go-forward basis. And then we have businesses we spoke about in these sessions together. I just ticked on a couple of them, floor baths, mirrors, our sensor business, our business in Europe, our business in Australia, our business in Thailand, that we have pipelines that we're working on to grow those organically. And so we hope to have more of a full potpourri of topics here. You mentioned over a five-year period, you know, three to five-year period. We're working on these now. But the results are not material yet, so I'm not really talking about it, but it's work that we're doing, and we expect similar results that we've been getting out of warehouse automation and the electric vehicle push. So aftermarket is a big deal. We've never treated it as a big growth business, but it is, and others do. So it's one that I hope we can talk about in the future for us when the fact suggest that it's material enough to speak in these sessions. Great. Thanks, Harold, and thanks, Chris. Appreciate all of the color. I'll hop back in the queue. Thank you.

And your next question will come from the line of John Franz Repp with Sidoti & Company.

Good morning, Harold and Chris.

Great quarter. Just to follow up on your last thought on the aftermarket, is there a sizable gross margin contribution difference in that business versus your overall product portfolio?

Yep, yep, there is, John. This aftermarket business has several components, and as Harold mentioned, we hope to be able to talk more about this as we develop this segment or this line of business, rather, a little bit more fully in the future. There are components of that, wipers, mirrors, and so forth, that do have above kind of average margins and so forth. So, you know, driving this business further will definitely help us with margin enhancement. John, I'll just add that a lot of our OE business for seating, for instance, we are obligated on the pricing. on a per-unit basis, and then as those contracts go into the aftermarket, we have some freedom to price. And plus, you get them one at a time. We're already a serialized manufacturer, so we make our products one at a time, so that doesn't give us a headache. But we are used to making them one at a time, but spending a full truckload of them one at a time. So there are extra costs with the aftermarket, but we're able to more than recoup that on the pricing side. So it's one of our nicer businesses from a financial statistics standpoint.

Got it. And regarding the EV market, I recognize there'll be some substitution in this business, but what's your sense of the incremental dollar that you may be getting on EV platforms versus diesel platforms in the future?

Yeah, it's a big difference for us, and it's primarily because we've not really been a participant with our electric products business at the market. It's close to double. It close to doubles our content per vehicle when we're able to be an electric harness supplier. It's harnesses junction boxes and disconnects, so it's A lot of passive electrical components that are mating up to boxes and motors and drives and batteries on the vehicle to do both low-voltage electrical distribution as well as the high-voltage. In this world, high-voltage is 48 volts. Spark is around 4 volts. And so that's a high voltage loophole right at 40 and above. So we do both the 12-volt, we both do low voltage, the 12-volt, and the high voltage. We do them both. And we just haven't, we just flat out hadn't looked after the vehicle market. And this was a big opportunity for us to bring it on and to show we could do as an electrical system maker. It's a couple thousand dollars per vehicle if we can become the system person on a truck, John.

Great, great. And regarding the warehouse automation business, you did $42,000 in the quarter, and your commentary is more than $150,000 for the year. I'm just curious. I'm curious about the cadence of rest in that business for the year.

Is there some specific order that you should be aware of that the degrees are different and maybe lower than the current rate, or are you just being conservative maybe in your guidance?

Chris?

Yeah, John, as you know, when we came out, we said it would be a $150 million business in 2021 for us. We're not seeing at this stage, our order books aren't indicating any cyclicality. In fact, we're seeing a little bit stronger performance than maybe what we previously indicated. So not seeing cyclicality. As we mentioned previously, these margins are slightly incremental to our overall margins. And so order books remain full and expect consistent growth year on year.

Great. And one last question if I may. The refinancing of the debt freed up about $200 million, I believe is what you said, in M&A capital. Could you talk a little bit about what your primary acquisition criteria is and if there's any return hurdles that we should be aware of when you start targeting M&A?

Yeah. Thanks, John. You know, obviously we're we're diversified industrial so we have a lot of a lot of different things we can look at um you know it makes sense for us to do things that that we're good at right so obviously we're in in the markets that you know we're going to probably look at those adjacencies first although i think um we're not opposed to looking at opportunities that fit what we do as far as complex assembly and managing large labor forces and so forth so Maybe I'll stop there and see if Harold has something to add on that. No, I agree. Our main goal is to have higher earnings and more stable earnings and to be less dependent on the vehicle markets. So I would say we have a bias towards doing that. We also have a bias towards smaller tuck-in type of acquisitions. We prefer to have this kind of drills versus some big kaboom. we had a pipeline going into several hundred candidates. We were looking at that and it led, and it was successfully, it was a successful game plan. We had, it led us to buy the FSC business, which led us to have this big warehouse automation business. So we have good taste in our mouth with being a careful shopper and buying the right asset where we get the right team. Um, the value add in that business was, um, lower value add, but unique people, unique customer relationships, and an opportunity to one plus one equals three when folded into CVGs, resources, and global footprint. So we're looking for that again. We'd like to expand our value add as well and have a little more thickness, maybe a little more complicated, get us into a couple other markets that would help us diversify and not take any risks, I guess. We like that. We like the profile of the FSE acquisition, I guess. If we could mimic that, we certainly would. And that was publicly reported. You know, it was $50 million. And it's helped us create a really good business in a short amount of time. And it was kind of what we saw, and it happened. So we'll be careful. have anything specific to say, not the internet, but ask Chris and I have something smarter to say than what I just said. We'll share it with you as we go along. Right. Fair enough. Thanks for taking my call, Scott. I'll get back into Q. Thank you, John.

Thank you. Again, ladies and gentlemen, if you have an audio question, please press star 1. And your next question will come from the line management.

Thanks so much. Congrats on a great quarter. I had a question on the RV and specialty vehicle market where you're starting to pursue some things. And it looks like, if I did the math right, you maybe did about 9 million of orders in the quarter. Could you just talk a little bit more about the products you've been supplying in that market? you know, what the competitive set looks like and, you know, how big that might, could possibly be over a couple three-year periods. So any color around that segment would appreciate it. Thanks.

Yeah. There's a lot of injection molders in North America. But there's not a lot of injection molders that can do large pieces. There's not a lot of injection molders that have a lot of 3,500-ton presses like us. Our heritage of making large parts for trucks makes us a specialist at large parts, naturally. And there's other large parts. There's housings for equipment and exterior bodies for ATVs, shelves for snowmobiles, parks for boats, this sort of a thing. So when we talk about recreational vehicles, it's not... you know, the Winnebago kind of deal. It's the smaller vehicles that have large plastic bodies. There's also large plastic bodies on baby seats, the outer shells for x-ray machines, the outer domes for antennas. There's unique needs for large injection molded plastic parts that are monolithic. and high compression like we have for truck parts. So that one is one very where we're trying to, we've characterized what we can do, and we're looking at where is it done. So we're being open-minded to the markets, but the big commercial markets, definitely the off-road vehicle market, and we're having success in those areas. Great. Thanks very much. You're welcome.

Okay, and there are no more audio questions at this time. I will now turn the call back over to management for closing remarks.

Well, Chris and I want to thank you for staying on for an hour with us and appreciate your support. We're happy with the quarter that we turned in, but we're even happier about what we see ahead of us. And we look forward to speaking with you again at the end of this quarter. Thank you very much for your attention today. With that, we'll conclude the call.

Thank you, everyone. This does conclude today's conference call. Thank you for your participation. You may now disconnect.