Commercial Vehicle Group Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 3, 2023

There are 7 speakers on the call.

Operator

Morning, ladies and gentlemen, and welcome to CVG's First Quarter 2033 Earnings Conference Call. During today's presentation, all parties will be in listen only mode. Following the presentation, the conference will be opened for questions with instructions to follow at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr.

Operator

Andy Chang, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Speaker 1

Thank you, operator, and welcome, everyone, to our conference call. Joining me on the call today is Harold Beavers, President and CEO of CVG. This morning, we will provide a brief company update as well as commentary regarding our Q1 2023 results, After which, we will open the call for questions. As a reminder, this conference call is being webcast The supplemental earnings presentation is available on our website. Both may contain forward looking statements, including, but are limited to, Actual results may differ from anticipated results because of certain risks and uncertainties.

Speaker 1

These risks and uncertainties may include, but are not limited economic conditions in the market in which CVG operates fluctuations in the production volumes of vehicles for which CVG is a supplier Financial covenant compliance and liquidity. Risk associated with conducting business in foreign countries and currencies And other risks are detailed in our SEC filings. I will now turn the call over to Harold to provide company update.

Speaker 2

Thank you, Andy, and good morning, everyone. I want to apologize in advance as I have a small cold and I might cough a few And I also want you to know I sound worse than I am, but we're very happy to be speaking this morning. And as Our business performance in the Q1 was strong and consistent with the qualitative comments we made in the earnings call The last earnings call, we delivered record quarterly sales, up over 7% year over year through a combination of increased volumes, The contribution of new business ramp ups and price increases flowing through. Profitability was meaningfully improved as well due to Better price cost spread realized in the quarter. In addition to strong financial performance this quarter, We continue to deliver significant business growth for the future, adding approximately $85,000,000 in additional new wins percent of this first quarter wins were in our electric systems business and 90% of the wins are on electric vehicles, Including vans, trucks and other non Class 8 vehicles.

Speaker 2

We continue to win globally with new customers and new products, Diversifying our customer base and further upgrading our revenue mix toward Electrical Systems. During the quarter, we made progress on working capital Through a focus on receivables and inventory. We have almost completely worked down our built up COVID insurance layers, We are back to more historical working capital levels as a percentage of sales. COVID is behind us as far as material supply chains are concerned. And our net debt leverage is back to 2 times ahead into the warrants this year.

Speaker 2

On the customer front, we're all about customer satisfaction, And we had a good quarter on that front. Across all of our products globally And especially in the new area of electrical systems, we're making we're working on many electric vehicle platforms globally. We broke into the China market in Q1 with an electric vehicle for our customer, who will be our anchor partner for new high voltage Our growth profitability and cash flow strategies are working, and we are looking to accelerate our efforts And getting on to new vehicle platforms, both internal combustion engine powertrains and electric vehicle powertrains. We're transforming our cost profile organically as well by automating processes, moving to low cost countries and lowering our cost of quality. We believe that we are delivering best in class quality and service to our customers.

Speaker 2

With the progress we've made in our strategy, we also believe We are on track to deliver against our long term sales goal commitment of $1,500,000,000 in 2027. Our current revenue run rate combined with the ramp up of our cumulative $500,000,000 in new annualized wins since the start of this program 3 years ago Gives us improved line of sight to that target already, and we intend to win another $500,000,000 in new business between now and the end of 'twenty seven. We flow from our new business wins as well, and it will drive us towards our 'twenty seven target of 9%. Our 'twenty three outlook continues to be positive. Our quarterly sales and EBITDA margins through the year Our new business win rate is on track for $150,000,000 a year.

Speaker 2

The year is off to a strong Maybe even an inflection point for us and our best performance is ahead of us. And CVG's future is very bright. We're already reporting out at a $1,000,000,000 revenue run rate, while still ramping up many of our new wins. Our profit rates Are already improved, and we plan to maintain them and grow them with an aggressive cost out program, price maintenance program and a continued mix shift. Q2 is now underway and on track.

Speaker 2

The timing and amount of new wins in the Q1 centered in our electrical systems Gives us further confidence regarding the outlook for 2023. And for what it's worth, we're also at record employment Now I'd like to turn to the investor deck, starting with Page 1, please. Our team delivered strong results in the Q1, highlighted by record levels of revenue and profitability levels that were in line With our long term targets. As is outlined on the slide, we delivered net sales of $263,000,000 which is up 7.5 year over year and adjusted EBITDA of almost $20,000,000 which is up 47% year over year. This results in an adjusted EBITDA margin of 7.5%, putting us on track to hit our long term target of 9%.

Speaker 2

As we continue to win new business, optimize our costs and improve profitability. As I mentioned earlier, We had a very strong quarter for new business wins. And furthermore, we continue to set the continue to see the realization of our pricing efforts, And we are delivering on our $30 plus 1,000,000 cost out plan at the same time. Turning to Page 4. Our team continued to execute our strategy during the quarter.

Speaker 2

And as I already mentioned, we're making We're committed to driving cost out as well to improve profitability as we go. We have good visibility to the remaining of 20 We fully expect to accelerate our efforts, positioning us further along our growth trajectory. Our revenue run rate is already reporting at 1,000,000,000 were evident in our Q1 and our EBITDA margin shows it. We're on track to hit our 9% margin target for 2027. We continue to win new business in Electrical Systems, and it's a key focus for us.

Speaker 2

We set a record for wins in the quarter. And as I mentioned, we're increasing our guidance to $150,000,000 for this year. Combined, We've already won over $500,000,000 in cumulative new revenue across 300 new vehicle platforms and a few other industrial platforms. Finally, We continue to optimize our ongoing business and we will continue to address non profitable business areas. We are delivering on our cost out plans and we expect to reduce our debt leverage further in the coming quarters.

Speaker 2

Turning to Page 5. Similar to the comments from the last quarter, our demand and market outlook is promising for the remainder of the year. Supported by healthy forecast across our key end markets on this slide, we are increasingly confident in our positive twenty Also, our large public customers are reporting strong year to date results, healthy order books and are expecting continued momentum and growth across end markets this year. These trends and results give us confidence that we're well positioned to participate in the growing demand from our customers and the industry and that we will build on the record level of revenues and new business wins we are achieving. And of course, we're doubling down on normal market growth via our New Wins program and business growth on top of this market growth.

Speaker 2

These are additive. Turning to Page 6. Our business wins continue to cumulatively increase And so does the contribution by year. This chart shows an increase in expected contribution from new business in hand versus our last update. During the quarter, 90% of our new business wins were within Electrical Systems Business And more specifically tied to electric vehicle production.

Speaker 2

Notable wins during the quarter included a contract to manufacture electrical system For an electric delivery van in North America and a contract to manufacture electric systems for an electric vehicle in China. These are important for us, especially the China wind will act as an anchor customer for us as we expand our electric systems manufacturing As we have highlighted in previous quarters, CVG stands to benefit and is participating in the secular transition ICE powertrains to electric vehicles. Our secret sauce in this space continues to be proprietary manufacturing software To make and test our products quickly and efficiently. Our speed, nimilus and process engineering sets us apart from our competitors and is a key contributor during new business prospecting. This methodology and successful business prospecting has allowed us to move quickly and accurately Secure accretive new business in Electric Systems.

Speaker 2

We're continuing to target low to medium volumes, Which we believe allows us to achieve a better margin profile. In terms of our targeted customer base, CVG targets customers with large total addressable markets within the commercial vehicle space and companies that service both Vehicle and ICE Propulsion Systems across a variety of geographic markets. We are looking to replicate our North America business model Globally. And as previously mentioned, we are adding a new plant for European production in Morocco, and we will cover these expansion projects in a moment. Please turn the page to Slide 8.

Speaker 2

As we've discussed previously, CVG has a large In multiple markets at the same time. This is made possible due to our record breaking pace of And highlighted here on Page 8 are the 3 expansion projects that are underway right now These new facilities are in low cost country locations that are close to end markets and our customers and also provide a springboard We are being aggressive but measured in our approach to adding capacity. Turning to Page 9. As you can see, our The secular growth trends is paying off. We've reduced our exposure to Class 8 trucks.

Speaker 2

We've grown our revenue share of electric Systems and we've reduced the weight of large customers in our mix. Our strategic focus here As well as our continued strong pace of new wins will shift the mix even further in our favor of 5.27. As a reminder, the mix shift brings a more attractive growth, margin and return on invested capital profile for CVG. Turning to Page 10. CVG is fully committed to driving shareholder value in both the short term and long term, And we are delivering improved profitability in our ongoing business, and we are improving or exiting unprofitable or risky business.

Speaker 2

We'll continue driving our cost and allocating our capital and resources to support strategic growth opportunities. The work we've done to reposition our portfolio is evident in today's results, and we look forward to continued execution of our strategic priorities. We're deepening our exposure to the secular trend in electrification and automation, increasingly winning new business, which improves our growth outlook, Diversifies our customer base and reduces the cyclicality of our business. We expect to generate meaningful cash flow, Which will further fund our growth, drive debt pay down and allow for strategic acquisitions and increase our exposure to this powerful trend. Turning to Page 11.

Speaker 2

We are highlighting where we are relative to our long term commitments we've made On our last call, we told you that we were set up to win and make money in 2023 and deliver a year of record And we're more confident in our ability to achieve our long term targets. These 2027 targets are well within our reach, And we just need to continue doing what we're already doing. In addition to our expected $150,000,000 in new wins this year, We're still targeting at least $100,000,000 in new wins each successive year, concentrated with intellectual systems. We expect these wins to diversify our product portfolio, our customer base and drive growth and profitability. We expect strong cash flow, which combined with our disciplined approach to working capital will be prioritized for additional debt pay down And to potentially fund bolt on M and A, our business transformation remains on track, And we are increasingly confident and delivering against our committed goals of 101,500,000,000 And before I turn the call back over to Andy, I'll just quickly update you on how we are envisioning 2023 Playing out compared to 2022.

Speaker 2

We expect 2023 to be our 3rd record revenue year in a row On the back of steady vehicle demand as forecasted by ACT and FTR, higher pricing and new business revenue. We expect both gross margin and EBITDA improvement with pricing ahead of inflation, new business ramp ups In addition to higher EBITDA levels, we expect to secure $150,000,000 in new business wins this year, and And we entered it with a strong future outlook and a strong balance sheet that provides optionality to drive additional growth. With that, I'd like to turn the call back over to Andy as he gives you a more detailed review of our financial

Speaker 1

If you are following along in the presentation, please turn to slide 14. 1st quarter 2023 revenue was $262,700,000 as compared to $244,400,000 from the prior year period. The increase in revenues Automation segment. Foreign currency translation also unfavorably impacted Q1 of 2023 revenues by 3.6 $1,000,000 or 1.5 percent. The company reported consolidated operating income of $14,600,000 for the Q1 of 2023 compared to income of $8,400,000 In the prior year period, the increase was driven by higher margins, partially offset by higher SG and A.

Speaker 1

The Q1 of 2023 adjusted operating income was $15,400,000 Adjusted EBITDA was $19,800,000 for the Q1, up 47% Year over year compared to $13,500,000 in the prior year. Adjusted EBITDA margins were 7.5%, An expansion of 200 basis points as compared to adjusted EBITDA margins of 5.5% in the Q1 of 2022. Interest expense was $2,900,000 as compared to $2,000,000 in the Q1 of 2022. Net income for the quarter was $8,700,000 or $0.26 per diluted share as compared to net income can see the performance of our 3 vehicle related segments on a combined basis. The combined revenues increased 20% $253,000,000 compared to $210,000,000 in the year ago quarter.

Speaker 1

Combined adjusted operating Income was $25,100,000 an increase of 122 percent compared to $11,300,000 in the prior year. The growth in adjusted operating profit again demonstrates the powerful impact that our 1st quarter revenues increased 15% to $160,600,000 compared to the year ago quarter, Primarily due to increased sales volume and increased pricing to offset material cost increases. Operating income for the Q1 increased 112 percent to $13,400,000 compared to operating income of 6,300,000 Crude special cost increased 106 percent to $13,500,000 primarily driven by increased pricing, Lower freight cost and overhead reduction. Our Electrical Systems segment achieved revenues of $54,700,000 An increase of 37% compared to the year ago Q1, resulting from increased pricing To offset material cost pass through and new business wins, operating income was $6,100,000 an increase of $4,300,000 compared to the Q1 of 2022 due to increased volume, pricing and manufacturing efficiencies. Our Aftermarket and Accessories segment revenues increased 25 percent to $37,600,000 Compared to the year ago quarter, primarily resulting from increased sales volume and increased pricing to offset material costs passed through.

Speaker 1

Operating income was $5,600,000 an increase of 82% compared to operating income of $2,600,000 in the prior year period. The increase is primarily attributable to increased pricing, offsetting moderating cost inflation. Our Industrial Automation segment produced 1st quarter revenues of $9,700,000 a decrease of 71% As compared to $34,100,000 in the Q1 of 2022 due to lower demand levels. Operating loss was $900,000 a decrease compared to the operating income of $3,700,000 in the year ago quarter Due to volume reduction and restructuring expenses, adjusted operating loss was $200,000 compared to income of $4,100,000 in the prior year period. The restructuring efforts Highlighted on slide 15 are key financial trends in our business.

Speaker 1

As I previously mentioned, this quarter EBITDA And margin percentage strongly improved on a sequential basis. The sequential improvements were driven by pricing, our focus profitability. Therefore, we believe our net leverage will decline further in 2023 as

Speaker 2

Results and strategic priorities and the pace of the progress that we've been able to achieve in our strategic plan has been better than we thought And it's fueled by strong focus on our transformation strategy and a clear prioritization of our initiatives and our large and vibrant growing Growth and higher profits and the trends towards vehicle electrification, and we look forward to sharing our successes for you in future calls. I'd now like to turn the call over to our operator and open the line up for questions. Thank you.

Operator

You will hear a 3 tone brand acknowledging your request and your questions will be both in the order that you received. Your first question comes from Joe Gomez with Noble Capital. Please go ahead.

Speaker 3

Thank you for taking the questions and good morning.

Speaker 2

Good morning, Joe. Good morning, Joe.

Speaker 3

So I was wondering on the Vehicle related segments, could you kind of break out for us what was the contribution from volume versus pricing in the quarter.

Speaker 1

Yes, Joe. So for the quarter,

Speaker 3

Great. And I know you had talked in the past, I think you had like one more major contract that you needed to Work on pricing. Have you been able to get that Finalize it, that's something you're still working on.

Speaker 2

Yes. We were able to finalize it and we'll get extra from that contract beginning April 1. So it's already in place.

Speaker 3

Okay. Thank you for that. I noticed corporate and other SG and A expenses rose Fairly big on a percentage basis in the quarter.

Speaker 1

What was behind that?

Speaker 3

Was that just On the cost reduction program expenses, are there other things that would drove that?

Speaker 1

Joe, great question. Couple of things there. One is we invested in some of the SG and A costs to drive our cost reduction program. So we some opportunity to invest and drive higher profitability there. And then the other thing that contributed to it was

Speaker 3

Okay. And one more if I may. Pardon me, on the new plant startups, just wondering how they're going, how they're proceeding, are they all on schedule For all the new plants.

Speaker 2

Yes. So Adama, Which is near Chihuahua, Mexico is significantly ahead of schedule. We may get to open that 1 a quarter early. And Morocco and Agrippiata are on schedule. Agrippiata is scheduled to produce Q4 and Morocco in Q3.

Speaker 2

And we have they have to start up too, Joe. We have new wins for new vehicles that are ramping up both in Europe and in the United States In case some unforeseen action happens, but in the vehicle world, you have to do these things in a high quality manner PPAPM is the term, and past quality regimens, and we're on track and significantly ahead

Speaker 3

Great. Congrats on the quarter and I'll pass it on for other questions. Thank

Speaker 2

you, Joe. Thanks, Joe.

Operator

Thank you. Your next question comes from John Franzreb with Sidoti. Please go ahead.

Speaker 4

Good morning, guys. Congratulations on a great quarter.

Speaker 2

Thank you, John.

Speaker 4

I'd like to start with the margin profile, Either the gross or the operating, whichever way you want to address it, but increased significantly. And it seems to me there's a bunch of buckets That could have drove that. It could have been volume, pricing, cost savings, new business or the exclusion of start up costs.

Speaker 1

Can you

Speaker 4

kind of walk through the puts and takes of how those changes impacted the gross and or operating margin?

Speaker 1

Yes. So I think you're right, John, so all of the above you mentioned. I would say the biggest impact is pricing, At the same time, we also see a strong portfolio of leverage in our vehicle segments, But those are kind of got offset by our industrial automation side. The other thing that really added to our And then lastly, last year, as you remember, the supply chain disruption as well as The Ukraine war generated some inefficiency in the business and we were able to recover and get back on the efficiency level. So those really help us in Driving the strong results.

Speaker 2

Got

Speaker 4

it. Now Andy and Howard, I think You deferred to giving specifics on the cost savings plans. Now that it's starting to really impact the P and L. Can you maybe talk a little bit of what the actions are you are taking and how much you realize of that $30,000,000 so far in the Q1?

Speaker 2

Yes. So we have multiple categories of cost out. We have procurement. We have cost efficiency, we have plant overhead consolidation and we have And in the Q1, we were ahead of plan. We did almost $9,000,000 Cost out of the plan.

Speaker 2

So the plans are delivering. It's our it's the highest amount of cost out we've attempted. And coupled with Joe's question and Andy's answer, we've added some talented people and continuous improvement. And we're opportunity rich. And we're actually contemplating plans to increase our focus on this effort, but it brings CapEx with it.

Speaker 2

Bring some CapEx with it. And we'll report out on that in the future. We're not trying to withhold it. We were hesitant to make many public comments because it was a first time thing for us, John, but Turning out to be much more successful than we thought.

Speaker 4

Okay, great. Actually, I'll get back to queue if someone else has a question.

Speaker 2

Thank you.

Operator

Thank you. Your next question comes from Gary Prestopino with Barrington Research. Please go ahead.

Speaker 5

Good morning, Harold and Andy. Hey, couple of questions here. Just I just want to be clear. You were saying that the margins that you guys attained in this quarter are pretty much sustainable throughout the year. Is that correct?

Speaker 1

Yes.

Speaker 5

Okay. So And then as far as the SG and A expense, somebody asked a question about that. It is somewhat elevated. I think there was a couple of puts and takes there. But As we're looking at this, should it kind of stay at that almost 7.8% of revenue as we go through the year?

Speaker 1

Yes, I would say that's about right. So for the year, again, we are capitalizing on a lot of Opportunities that we see. So there's a lot of good payback projects that we are very happy to invest. I think we'll stay around the level for the moment. Okay.

Speaker 1

And then

Speaker 2

Gary, we'll go ahead. I was just going to say that it's mainly people costs. So we'll be able to flex it if needed.

Speaker 4

Okay.

Speaker 5

When you guys released numbers for Q4, you said about $85,000,000 I'm sorry, dollars 100,000,000 of new business wins. You got $85,000,000 of that in the quarter and raised it by $50,000,000 I mean, what was the surprise there that Occurred that caused it to your almost get that entire new business win in Q1 and then Given the ability to raise it, was there something there that you didn't think you were going to sign and it came over the transom?

Speaker 2

So we have a big pipeline. And in previous decks, we've reported out on the size of the pipeline. And we are running about a 1 out of 6 hit rate. And so Gary, it's around an 18% hit rate. And So at all times, including right now, we have finish line Proposals that we've made to customers to produce their products for them.

Speaker 2

And they have 1 they have a few people they're going to choose And so we were able to win a decent amount of business in the quarter because our pipeline, The timing of our pipeline came in into the quarter. It was not really a higher hit rate per se. It was really a timing of decisioning. And if you look at the rest of this year and the timing of decisioning, it's still at a high rate. There's a lot of awarding being done In our industry and in the case of Electrical Systems, we have one of our main competitors Gary's name, Leone.

Speaker 2

They're a public company in Germany And they filed bankruptcy in the Q1. And so our amount of looks actually is increasing. And so we're organizing to do that and get our capacity lined up to be able to more aggressively bid. So Our pipeline coupled with a big industry participant kind of in trouble It's giving us confidence to increase the outlook for the year. And we're not going to we didn't increase the outlook for The year after we said 100.

Speaker 2

But it looks like this year, we're going to have a more fruitful environment than we expected.

Speaker 5

Does that German competitor, Are they liquidating or they're just going to be restructuring?

Speaker 2

It's a German bankruptcy loss. They have the litigation from the bondholders that have to take a haircut and all that. So it's going to go on for a while. There's a court process, but It's well known that the vehicle industry is pretty tight, and they have constrained capital. So We're getting more looks than we expected and we already had a vibrant pipeline.

Speaker 2

So we feel pretty confident in 150.

Speaker 5

Okay. Thank you very much.

Speaker 2

You're welcome.

Operator

Thank you. Your next question comes from Barry Haim with Sage S. Management. Please go ahead.

Speaker 6

Thanks so much and congrats on the great quarter. My question is on the various EV Programs. Could you give us a little thumbnail sketch on average how the margin progression looks? I presume there's some amount of cost before you start production. And then when you do start production, how many quarters to ramp to normal.

Speaker 6

And then are the normalized margins on these programs anticipated to be Less than equal to or greater than, let's say, your legacy truck OE margins. Thanks so much.

Speaker 2

You're welcome. I'm going to address the program life cycle part of it, and I'm going to hand it to Andy to talk about the margin comments. So the typical EV program is about 2 years. So we get an award And then we go through some prototyping and first article testing, and then the vehicle maker goes through some prototype vehicle testing. And then we solidify and freeze the design.

Speaker 2

And then we have to PPAP the bill of material in the manufacturing process so that they're repetitive and consistent Through every vehicle and set up for metrics for quality and on time and all that. And We've been expensing that cost as we go. And when we started this 3 years ago, we were reporting out what our start up costs were because they were impeding our profits when we were just getting started. SpinFork to today, we're more than covering those start up costs and they're in our number. And they're becoming less and less on a percentage basis because we're growing.

Speaker 2

We also reported that we were not going to aggressively pursue start up seating business Because it had a very high start up cost and we had a well known one that was in the press last year. And We basically have focused in on our bull's eye of electric systems and actually the start up cost profile is minimal. With regards to the plant start ups, The reason why the electric systems business is accretive from an ROIC standpoint is they're CapEx light. Our secret sauce in that business is actually software. It's not capital equipment.

Speaker 2

So we have a special internal software program that we've designed and we're using globally That allow us to take our designs, put them straight onto a plasma screen and have in Testing that's automated and we have really obviated the need for a lot of capital. And so we have a very good setup here. When a plant starts up, of course, there's some overhead inefficiencies. And The way we're playing the game here is that we're pre selling out most of the capacity and then ramping The plans with business we already have. So it's actually about a 1 quarter breakeven kind of a deal when we get started.

Speaker 2

But Now I'll turn it over to Andy to talk further about margins.

Speaker 1

Yes. So in terms of the Electrical Systems margin, so you can see today we are already at a low Double digit OI operating income margin level. Just say that the new business are all coming in

Speaker 6

Great. Thank you so much. That's very helpful.

Speaker 2

You're welcome.

Operator

Thank you. Your next question comes from Stephen Martin with Slider Capital Management. Please go ahead.

Speaker 6

Hi, guys. Hi, Stephen. Hi. So aftermarket parts, finally, I guess, you turned it on in the Q1. How did the new business perform and what should we expect over the balance of the year?

Speaker 2

Yes. So we're out of the gates on that and it's been performing as expected with a Meaningful expansion of our profit margins. So basically, it's a direct customer play versus going through an intermediary. And so the end customer has a price they're willing to pay. And so we have a direct channel to the end user there.

Speaker 2

And so You should expect to see our profit rates gradually increase in that business. The business itself grows Around 4% to 5% unit volume and another amount based on annual price increases. So You'll see modest growth relative to electric vehicles, electric systems where we're having explosive growth for us. So it will be a modest growth outlook, but with margin expansion.

Speaker 6

You at one point said it was a 100,000,000 Opportunity over what timeframe? A, is that still your target and over what timeframe?

Speaker 2

Yes. So the business in the Q1 was $37,000,000 So it's Well above the $100,000,000 rate. And our goal in that business is in the 2027 business plan, Our goal is to double that business and it involves replicating our business strategy in APAC, Asia Pacific, it involves replicating our business strategy in Europe and it involves expanding our product line into other Aftermarket products other than Class 8 truck seats.

Speaker 6

So When you look at 2027 from a margin perspective, what would you expect the operating margin of that to be?

Speaker 2

It will be accretive to our company average that we've articulated. So overall, our long term target is 9% EBITDA margin.

Speaker 1

So now see Well on our way there and clearly growing the Electrical Systems business and the aftermarket business are the one that will drive to that target. So the mix shift is going to be meaningful and help contribute to that target.

Speaker 6

Okay. And turning to unfortunately Expect to arrest or at least breakeven in that over the course

Speaker 2

of the year. Yes. So it's bottomed out now. We think that we're nearing an inflection point up. If you look at the leading indicators from Amazon and other e commerce shippers, They're suggesting that there's going to restart modest rebuilding.

Speaker 2

So we get orders when they build new parcel distribution centers. That's the automation part of it that we're participating in and we have non warehouse automation business as well. So it's not going to get worse. I can say that. And we have hope that in The second half is better than the first half.

Speaker 2

It's too early to say that. No, this is a PO business. If we had POs in hand, I would make more confident comments here. But as of right now, We're expecting a turn in the second half, but we're yet to see it.

Speaker 6

Right. And last year, it fell it Started to fall off in the second quarter, but really fell off in the back half. So the comparisons for that business get easier as

Speaker 2

we get through the year. Exactly right. All right. Thank you. Thank you, Stephen.

Operator

Thank you. There are no further questions at this time. Mr. Bides, back over to you.

Speaker 2

Thank you everyone for calling in today. We appreciate your interest and investment in our company and we're on track with creating value here and having fun while we do it. And we look forward

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Commercial Vehicle Group Q1 2023
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