Commercial Vehicle Group Inc (CVGI) 2011 Q2 法說會逐字稿

Thank you very much for your patience, ladies and gentlemen.

Good day, and welcome to the second quarter 2011 Commercial Vehicle Group, Inc.

earnings conference call.

My name is Bill, and I will be your conference facilitator for today's conference.

(Operator instructions.) As a reminder, today's conference is being recorded for replay purposes.

At this time, I would like to turn the call over to our host for today's conference, Mr.

Chad Utrup.

Please proceed, sir.

Thanks, Bill, and welcome, everybody, to the conference call.

As usual, before we begin today's call, allow me to read through some Safe Harbor language.

Merv will then give a brief Company update, and then I'll take you through our results for the second quarter of 2011.

And, as Bill stated, then we'll take time to answer your questions.

With that, I'd like to remind you that this conference call contains forward-looking statements.

Actual results may differ from anticipated results because of certain risks and uncertainties.

These may include, but are not limited to, expectations for future periods with respect to cost- savings initiatives, financial covenant compliance and liquidity, new product initiatives, the economic conditions in the markets in which CVG operates, fluctuations in the production volumes of vehicles for which CVG is a supplier, risks associated with conducting business in foreign countries and currencies, and other risks detailed in our SEC filings.

And with that, I'll turn the call over to Merv.

Thanks, Chad, and thanks to everyone that's joined our call today.

First, I would like to lead off with news we announced very early this morning.

CVG has acquired certain assets of Stratos Seating located in Sydney, Australia.

Stratos is the seat supplier to the Australian military, specialty vehicle markets, and trucks.

We feel that Stratos is another positive step in our global expansion and diversification strategy.

In addition to expanding our presence in the Australian military and truck markets, this acquisition will also enhance our overall product offerings with the addition of Stratos' unique suspension system, which is a vertical versus a horizontal suspension system.

Total cash consideration for the transaction was approximately $2.3 million.

For the full year 2011, we expect Stratos revenues to be approximately $5 million and operating income to be approximately $800,000.

Stratos depreciation and amortization should be around $100,000 for the year.

Looking at the past quarters, our revenues reached a level that we have not seen since the second quarter of 2008 and we're very pleased with this trend.

While we are pleased with the upper trend on our top line and our sequential improvements in our operating income, our recent efforts to ramp up our business and to increase our global footprint have added certain labor inefficiencies and other short-term costs.

As we indicated before, during a cyclical uptick, suppliers, sub-suppliers, and OEMs can see such inefficiencies.

We consider them short-term costs that will benefit overall long-term market improvements.

We are already working on removing these inefficiencies from our cost structures going forward.

We are also pleased to report that Class 8 production in North America is continuing to show year-over-year improvements.

We may see some fluctuations related to the OEM supply through the balance of the year, but it currently appears that our major North American OEM customers have orders that will take production into next year.

Global construction remains a key revenue generator for CVG and continues to show little or no sign of weakening, as it has remained relatively flat for us compared to the first quarter.

Our military is following the same path that we predicted earlier in the year and also remains relatively flat compared to the first quarter this year.

To provide a quick recap of our expansion efforts, I'm pleased to report that integration of Bostrom Seating continues as planned, and we remain very pleased with that acquisition.

The construction of our new production facilities in Saltillo, Mexico, remains on track, and we don't see any delays in our implementation plans or timelines for the construction of that facility.

Our China operations are also continuing as planned.

The construction of our new facility in Beijing to support our recently announced new business with Photon is moving forward without delay.

We have received inquiries about a possible slowdown in the Chinese economy and potential impact to CVG.

We are continuing to experience growth opportunities for our Company in the expanding Chinese market.

We have seen annual heavy truck build rate estimates of 1 million units in China.

Even if that market were to suffer a 20% decline, it would still translate into the production of around 800,000 heavy trucks a year.

As we are just establishing CVG's presence in the domestic Chinese market, we anticipate meaningful growth opportunities even if they were to experience a significantly reduced build.

At a build rate of 800,000 units in China, it is still three to four times what we have in North America, and we plan to be part of that market, as well as the Chinese construction market, which also is a large opportunity for growth for us.

Part of what makes us optimistic about our prospects in China's truck market and construction equipment markets is based upon the evolving vehicle changes taking place there.

If you were to look at Chinese trucks five to 10 years ago, they would be instantly identifiable as Chinese.

As the Chinese truck market expands and becomes more global, many trucks being built there now look more and more like the designs currently found in Europe.

It is not just the appearance of the Chinese trucks that is changing.

The market is also increasingly demanding higher quality, better engineered components that will make it more competitive in the global marketplace.

That is where we see the opportunity for CVG.

As the Chinese market continues to grow in more modern and global direction, they are seeking the kind of expertise and engineering capability we can bring to the evolving and improving products.

That is especially true as many of the current domestic suppliers there are small and fragmented and thus, unable to provide the kind of quality, quantity, and engineering capabilities CVG can offer.

Finally, some of you are asking if we are experiencing any supply shortages or difficulty in obtaining materials we need to continue production.

The answer is yes.

We continue to have suppliers that are not ramping up as fast as needed.

When that happens, we receive the materials late.

We experience inefficiencies.

We also are receiving quite a bit of commodity price increases, and in addition, we have the ability that we're recovering these pass-through mechanisms, but we do have some delay with them.

In summary, we are encouraged by continuing production levels in the North American heavy truck market, which accounts for around 35% to 40% of our total revenues and we are pleased with the continued stability in the global construction market, which accounts to about 23% of our revenues.

In addition, we continue to make progress as we reposition CVG for global growth, especially with our new facilities in Mexico and China.

And finally, we feel we have a solid balance sheet and liquidity necessary to meet our opportunities for the recovering global economy.

At this point, I'd like to turn the call back over to Chad for a financial review.

Thanks, Merv.

Our revenues this past quarter were $206.8 million, which is an increase of $64.4 million or 45% from the second quarter of 2010.

This increase is primarily the result of our global OEM truck market revenues, which increased nearly $45 million or more than 80% from the second quarter of 2010.

Our global OEM construction revenues also saw a sharp increase of approximately $17 million from the same period last year.

In contrast to these market increases, our military revenues decreased by approximately $7 million from the second quarter of last year, while our other end markets collectively made up the difference.

Operating income was $11.3 million or 5.5% of revenues, which is an improvement of approximately $8.7 million over the prior year period.

With that said, there are a number of changes since the second quarter of last year which make the year-over-year comparison fairly complex, including the Bostrom acquisition, currency fluctuations, restructuring expenses, changes in our military end markets, costs related to expansion in Mexico and Beijing, certain product development expenses, and other various actions we've taken over the past year to put ourselves in the positive position we're in today.

Sequentially, revenues were up approximately $24.3 million from the first quarter of 2011, with an operating income increase of $3.2 million or a 13% contribution margin.

This is below our expected 20% to 25% range, primarily as a result of the Bostrom acquisition, which is now included for a full quarter versus the first quarter was just two months of the quarter and in addition to certain costs related to growth initiatives and volume ramp-up during the quarter that Merv just alluded to.

We are already implementing actions to facilitate the improvement of our operating efficiencies through the balance of the year.

Depreciation and amortization was $3.2 million, and capital spending was $7.6 million for the quarter.

We recorded an expense of $7.4 million during the quarter related to our new comprehensive debt refinancing.

As mentioned during our last earnings call, this expense relates primarily to certain write-offs and prior deferred financing fees, as well as expenses and premiums related to the extinguishment of our prior debt.

Excluding this one-time charge, our diluted EPS would have been approximately $0.19 for the quarter.

As of the end of this past quarter, we had a cash balance of approximately $84.2 million, which is up from our cash balance of approximately $18.5 million at the end of the first quarter.

This increase is primarily the result of the receipt of approximately $70 million in net proceeds from our $250 million bond offering during the quarter offset by various changes in working capital and capital expenditures from the quarter.

This cash balance combined with our ABL revolver means we have approximately $121 million of liquidity immediately available as we continue to look at strategic opportunities such as the Stratos acquisition we announced early today.

Although small in scope, acquisitions like Stratos will continue to help build and diversify our global platforms for the future.

As Merv mentioned, and as mentioned in the press release, this quarter marks our highest revenue level since the second quarter of 2008 and our highest operating income level excluding impairments and asset gains since the fourth quarter of 2006.

This is also our ninth consecutive quarter of operating income improvements excluding impairment and restructuring charges.

This is something we are extremely proud of and we look forward to continuing our focus on operating and financial improvements, as well as our long-term growth strategy as we move forward.

And with that, Bill, we'd like to open up the call for questions.

Thank you very much, sir.

(Operator instructions.) First question comes from the line of David Leiker of R.W.

Baird.

Please proceed, sir.

Good morning, everyone.

Good morning, Dave.

Good morning, David.

Chad, on Bostrom, how much did that incrementally add in the quarter versus Q1?

Sales was $3.7 million, close to $4 million in sales and about $100,000 operating income.

Profit?

Operating income, roughly $100,000.

So that gets you to, if I did my math correctly, about a 16% contribution margin?

Does that sound right?

Without Bostrom, yes, that's pretty close.

Okay.

And when does Bostrom's profit start to ramp up here that we don't have that drag anymore?

I would say going forward, Dave, now that we have them in a full quarter, the contribution margin expectations for them will be similar to what we would have for the Company as a whole.

Okay.

And then --

Year-over-year the comparison will still be there, but sequentially, it should fall in line.

The growth initiatives and the ramping of the volume, I mean, those issues are probably not going to go away in the real near term.

Is that fair?

Well, our plan is to remove -- we got impacted this quarter obviously more than we expected and our objective is to make those efficiencies come back in line by the end of this year, so the remaining six months of 2011 to get those back in line.

But, to the extent we continue to see some of the things that Merv talked about with supplier shortages and really timing on deliveries and requiring overtime and weekend work at some of our facilities, to the extent those don't get remedied, they won't go away, but we're trying to address what we can control.

So it sounds like we should probably use a 15% contribution margin going forward instead of 20% to 25%?

I would say we're typically in the 20% to 25%.

I'd say it's definitely closer to the 20%, so I'd back that down to maybe 15%, 20% is probably a comfortable zone for sequentially Q2 to 3, Dave.

Okay.

And then hopefully we get back to a higher level come the end of the year, say, the end of the Q4 range.

And while we're on that topic, one other thing I just want to remind everybody of as we look at the balance of the year is two specific things.

One is the annual -- or seasonal European slowdown that we see every year in the third quarter, so just from a timing perspective, I want to mention that as we look at the balance of the year.

And the other thing is now that our Mexico facility is almost complete and ready for transfer and opening, we've talked about last year roughly -- I believe the number was $1 million to $2 million of expense for startup.

We're going to start seeing some of that in the balance of this year.

So incrementally, we could see maybe $0.5 million increase in expense in Q3 and then probably something similar in Q4.

So those are two things I definitely wanted to point out.

Okay.

And then lastly on the military side, you said that your revenue sequentially was comparable to Q1, Q2?

It was fairly flat, yes.

So that means -- that would imply that the FMTV volumes haven't really started to ramp up at all yet?

You know what?

They're not -- we've seen a little bit, Dave, but we've had some fall-off in some other orders and the FMTV by itself hasn't been real meaningful for us that we've seen yet.

Remember as [FMATV] went up, but with your BAE, they're basically in the aftermarket mode right now on their trucks, bringing them in for refurbishment, things like that.

So really Monona Wire's year-over-year down about $9.8 million.

Okay.

Great.

Thank you.

Yes, so sequentially it hasn't been a real big uptick for us, and we're still projecting it to be relatively flat for the balance of the year for us, Dave.

And is that just you being cautious on what Oshkosh build plans are or is that what you're seeing from them?

No.

I mean, the order patterns we've seen haven't been -- I guess maybe we're spoiled and we're used to the several thousand units of orders, but between the market shift from BAE to Oshkosh, which can impact us, and the fact that the size of the orders haven't been real meaningful, we don't see it being a big needle-mover for us.

Okay.

Great.

Thank you much.

Yes.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from the line of Robert Kosowsky of Sidoti & Company.

Please proceed.

Hi.

Good morning, guys.

How are you doing?

Good morning, Robert.

How are you, Robert?

I was wondering if you could maybe segment into buckets the negative impact versus, say, first quarter relative to higher labor, currencies, commodities, [and say] a little more granularity as to what were some of the bigger impacts.

Sequentially Q1 to Q2?

Yes, sequentially or year-over-year.

(multiple speakers) Yes, or year-over-year, whichever is easier for you.

Sequentially is probably a [bigger] one.

There's just been so many changes from this time last year.

It's easier to look at it Q1 to Q2.

So, if we look at it that way, Bostrom was about a $4 million -- $3.7 million actually -- $4 million revenue increase, which you won't get a contribution margin on and about $100,000 incremental operating income level.

You remove that, Robert, and you get close to that 16% contribution margin and the balance -- there's some currency of about $1.5 million on revenues, which you won't get any bottom line impact on.

That's mostly Czech crown and British pound to U.S.

dollar translation.

So you remove those and you're left with about a -- call it $800,000 to $1 million difference to, say, a low 20% contribution margin.

And that combined is with some moderate commodity and price increases just a lag in getting reimbursement, and then what we would say is our quote, unquote, "inefficiencies" related to not only the supplier side of things, but just overtime and weekend and that kind of thing before we add shifts.

So --

Okay.

-- round numbers, that's probably pretty close for you.

Okay, that's helpful.

And then where have you seen -- or which product lines have you seen more of kind of the supply chain constraints?

Would you repeat that?

Oh, just which of your product lines have been more impacted than others regarding some supply chain constraints?

Probably seats and interior trim.

Seats with steel that's going into it with -- because it's usually smaller stampers and those guys, when they come in with a price increase, you either pay them or you don't get product.

And if you slow it down a little bit, they're having trouble just staying up regardless and so it puts -- they show up three hours late, well, then you're running three hours overtime to make up for it.

So you've lost basically three hours of productivity plus time and a half on overtime.

Okay.

That's helpful.

And then could you give a quick rundown as to what percent of revenue came from truck construction, military, and aftermarket (inaudible)?

One thing, too, I wanted to mention on the order spiking, OEM truck orders, especially with one of our largest customers, has really shot up significantly over a very short period of time.

And then we've been able to make sure that we have not caused our customer any shortages, and that's real important to us to make sure that we don't cause that.

We did have one OEM that spiked up in one of the markets like 60-some percent because they were putting in a new MRP system, and then within four months, it dropped back down.

So it caused us to bring on 500 workers working for that period of time and then train them and then release them until it starts back up again.

So those kind of inefficiencies are what we were dealing with in Q1 and Q2.

Okay.

And then do you have any idea of like the revenue mix between some of those bigger channels (multiple speakers) (inaudible)?

Yes, for the -- just for the quarter, construction's still around that 23% of total sales.

OEM -- now this is global OEM truck -- has spiked up, obviously, with -- mostly related to North American Class 8 -- is about 48%.

So we're still in that roughly -- probably 35% to 40% range of that is Class 8 truck.

Yes.

UD probably spiked up a little bit in the second quarter from the first quarter because of the tsunami in the first quarter.

Okay.

And then like the military and aftermarket?

Military is relatively flat.

We were about $10 million in sales in Q1.

It's roughly the same in Q2, so it's about 5% or so.

Okay.

Well, thank you very much and good luck with the cost issues.

Okay.

Thank you.

Thank you, Robert.

Thank you very much.

(Operator instructions.) Our next question comes from the line of Ann Duignan of JPMorgan.

Please proceed.

Duignan.

Hi, Ann.

Hey, guys.

It's Mike [Schliffke] filling in for Ann this morning.

How are you?

Good, thanks.

We thought Ann may have had a cold there for a moment.

So we saw a couple of -- or at least one -- truck OEM lower than North American Class 8 quotations, but we're seeing some other OEMs at least maintaining and some industry [reservers] also maintaining their OEM build expectations for 2011.

Could you maybe update for us perhaps where you are as far as your feelings on the overall 2011 North American truck build?

We think it's going to remain where we were with it before.

Where we see some dropping off or one dropping off -- that has mentioned their drop-off, we're not hearing any drop-offs from the others.

We're actually seeing -- hearing some pickups from them.

So we're still in that 250 to 260 range.

Got it.

Got it.

Great.

Thank you for that.

And then also some of the OEMs are also -- have been saying that there have been some component shortages for certain parts of their trucks.

And I know you just mentioned briefly something about that, but can you just tell us maybe whether any OEMs have told you that you are the current leader of their bottleneck or [you] pretty much know?

We have definitely been told we are not their bottleneck.

We have not missed any shipments.

Now, we have had to work one of our plants in particular very hard, seven-day weeks, some of it because of their increases that have gone up a little faster than expected, some of it because of their shortages at the OEMs where they have to re-align their truck builds going from one truck to a different one.

So we have to break into our lines to be able to get their product to them because of shortages that they may have on a particular truck.

And then, obviously, due to commodity pricing and trying to negotiate that between ourselves and our customers, we're spending more time doing that in one of them's case than what we are taking cost reductions out.

So, it's just a -- it's things that will work out and they will smooth out, but no, we are not the shortage problem.

Great.

Great.

Thank you for that.

Also, balance sheet-wise, we did notice some pretty good improvements on your days sales outstanding and your inventory turns in the second quarter.

I was wondering if you have any goals for improving those further and maybe how far along you are or how much further you can kind of take those.

We meet every month on improving inventory balances.

That's one of our five major measurables that the Company works on in total.

So, yes, it's definitely a very significant item for us and Chad can talk about the payables and stuff.

Yes, inventory is -- we've worked pretty hard to keep that down and the folks at our plants and -- deserve the kudos on that.

They've done a really good job of keeping inventory down, especially in spite of all the -- some of the shortages and things that we've talked about.

So, receivables and payables, a lot of that's timing when you look at fluctuations from quarter to quarter, but we literally meet on that daily.

We have a team that's dedicated to improving that and working with the customers and suppliers on terms improvements on a regular basis.

So, I think you've probably seen that change over the last -- relatively constant over the last several years, so it's something that we continue to focus on and the biggest thing that we may see fluctuate for us is if we get into cultural norms where terms are just different in different regions of the world, and that's something that we're able to address.

So, without getting into specific goals, it's -- just know that it's a goal that we constantly look to improve and I think our working capital changes are right in line with what we've always talked about in terms of needs for volume ramp-up.

So, we're very happy with how we've managed working capital and setting up the balance sheet and liquidity.

Sounds good.

Thanks, and I just got two more questions for you that are more model related.

First of all, what would your diluted share count have been had you posted a profit for the quarter?

It'd have probably been another 0.5 million shares, something like that.

Okay.

I just wanted to make sure we have some precision there.

Yes, you get that anti-dilution when you have -- the $7.4 million expenses pushed it down, but it'd been about 0.5 million.

Great.

Great.

And then, finally, I guess, other than the Mexico sort of ramp-up costs or rollout costs in the back half of the year, do you have any other major one-time or major SG&A items that we might have to look out for in the back half of the year?

I know you've gotten SG&A below 8% of the sales recently, so I just want to see if you'll keep it at that level going forward.

The Mexico thing's the biggest thing to note right now.

Some of the expansion efforts that we've got going on in -- Beijing's another example of that -- we'll certainly have some expenses for that, but not to the extent or the value that we see for getting Mexico going.

So there may be a couple hundred thousand or 300,000 or 400,000 for Beijing in the back half of the year.

And other than that, it's really relatively unpredictable in terms of what we see for the supplier items and labor items we talked about.

So those are probably the two big things.

Great.

Sounds great.

Thanks, guys.

Thank you.

Thank you very much.

Ladies and gentlemen, your next question comes from the line of Gregory Macosko of Lord Abbett.

Please proceed.

Yes, thank you.

Could -- I think you said sort of in your comments upfront -- did you say that without the one-time issues and all the things that happened in the quarter that you had -- you earned $0.19?

Did you say that?

I wasn't clear.

The $0.19 I mentioned, Greg, was without the $7.4 million expense -- the extinguishment of debt expenses.

Okay.

So without the $7.6 million, basically, of one time?

Correct.

Okay.

And with regard to the, shall we say, short-term problems, you're saying basically six -- kind of six months is when you expect them or so to be resolved?

Well, that's what we're looking at.

It may be quicker.

A lot of it depends upon the OEMs, how much they're getting impacted by some other suppliers that have maybe major components such as power train.

I mean, that's -- when they're impacted, it impacts us.

When our sub-suppliers or commodity people impact us with price increases or shortages, it impacts us and then impacts them, too.

Okay.

And you did mention supply shortages and suppliers that are late.

If they're three hours late, you got overtime, etc., and from the way you spoke of it, is there -- it doesn't sound like there's much way you can really improve that.

Well, they're working -- and we've got people in a lot of these sub-suppliers' plants working with them to get their production flow a little bit better to try to give heads-up on shortages so that we can move tools to another place.

I mean, there's constantly this going on in manufacturing even in the best of times or the worst of times.

So this is kind of a normal type of thing, but it's just expanded -- expounded right now with the production ramp-up and with the commodity price increases that are coming through.

So there's -- I mean, there's really not much you can do about it and, I mean, you obviously work with it, but I mean, that is a factor relative to the problems of the quarter that you're kind of saying is always there and you kind of have to live with and do your best to offset?

These are problems that you certainly hate to have and you don't like them impacting you, but it's a hell of a lot better than running 100,000 trucks a year and the problems that you have when you don't have volume.

So, these are problems that we'll live with, we'll work through.

Our OEMs, most all are working with us very well, and we intend to keep working through the problems and keep supplying on time and these will eventually -- they'll decrease in magnitude like they have in the previous years when we've had major ramp-ups.

But the thing I'm most proud of with our Company, unlike some of the suppliers that the OEMs have talked about, we have not caused any shutdowns.

We've worked through it and we've had to eat some of the cost, but we've made it through it and that's well respected in the OEM base.

Okay.

And with regard to the problems that you've been caused, I assume that there's no penalties for the suppliers or the issues that they've had with you?

I mean, you just have to basically work with them?

We'd like to penalize them.

Probably having a couple of our people there is all the penalty they want because we're kind of living with them around the clock and they're working through it.

It's -- penalizing them wouldn't do anything but make them deeper in the hole, and they'd tell you to take the business and take a hike because with business ticking up, they're not in the same spot they were when it was only 100,000 trucks being built where everybody was scrambling for business.

Now a lot of the sub-suppliers are saying, hey, if you don't want to pay the commodity price increase, then we're not going to ship you product.

With regard to Mexico and Beijing facility, those -- are those as you expected at this point?

Actually, they're both coming along better than I expected, I would have to say.

The Beijing -- any time you're adding that much business in one fell swoop, that's -- the excitement level there is just amazing.

And if you look at the plants that we've got going up in Mexico and the new people that we've brought on board, they're very excited.

The product is moving.

We're putting -- we had a temporary facility.

We're now putting a production line in to the main facility.

It's going very, very well.

And remind me with regard to Mexico, do you expect any consolidation in other North American locations to -- any small plant closings or anything like that relative to Mexico?

We -- our first thing that we're doing is working very hard with OEMs to increase the amount of production that we have in the U.S.

facilities through other products, but there will most likely be some consolidation and that's what you've got to be very careful of when you're hiring people.

The plants that are running current production for what the Mexico facility will run will see a decrease in production volume.

And so that's one of the reasons that we're being careful about adding shifts because if that takes off, then there will be some movement.

And when do you expect Mexico to be sort of at an expected volume or ramp-up?

Probably the first quarter of next year maybe.

Okay.

End of the first quarter of next year.

Okay.

All right.

Thanks very much.

You're welcome, Greg.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from the line of Robert Kosowsky of Sidoti & Company.

Please proceed.

Yes, hi, Chad.

Just one other follow-on question.

Is this interest expense number, is that pretty much good to go forward with?

Probably be a little bit higher because the new bond structure, Robert, didn't kick in until later April.

So it's probably closer to $5 million.

Okay.

Thanks a lot.

I mean, the round math is the 250 at 7.875 and with some moderate other numbers coming in and out.

Okay.

Thanks a lot, Chad.

Yes.

Thank you very much, sir.

Our next question comes as another follow-up from David Leiker of R.W.

Baird.

Please proceed.

Hi, Dave.

Chad, just a quick number question first, because I don't think you talked about the tax rate.

I know that number moves around and is a bit challenging to predict.

Do you have a sense of what the second half might be?

I'd say probably close to the first half, Dave.

The $7.5 million of the one-time cost that we had in Q2, it's not tax effective because of the valuation allowances.

So, if you look at Q1 and Q2, they were close to $1 million with fairly comparable pretax numbers.

I'd probably look to be -- that to be pretty close on an absolute dollar basis --

Okay.

Great, and then --

-- per quarter.

And then, Merv, on the -- some of these growth initiatives, I mean, you're focused primarily on Mexico and China, a little -- I know India was coming up.

Can you just give us a perspective of where those dollars are being spent right now and where your priorities are?

Well, our priorities continue to be finishing up Mexico, obviously, and getting all the production lines in.

That's number one.

Right along with it, because it's following right on the heels of, it is China with the Photon production.

That'll be producing here in the next couple months.

So the dollars that'll be spent will be in those two facilities.

We are working very closely.

We just announced the Australian acquisition.

We're still working very closely in India and --

Headed to Brazil in a couple months.

-- headed to Brazil in a couple months with several long meetings down there that'll last probably a week and a half.

So if you want to prioritize from us, it'd be Mexico and China followed by India real quickly, followed by Brazil very quickly.

And then out there will be -- we're being pulled very hard to Russia.

We'll have to see how that goes.

It's probably the -- farther down on our list, but it certainly is important.

So how long do you think it is before you would have something on the ground in India and in Brazil?

Is that a six-month window or is it 12 to 18 months out?

I think we'll have something in India this year.

That's our goal, certainly.

Brazil, I would hope in the next six to 12 months we should be there.

Okay.

Great.

Thank you much.

You're welcome.

Thank you again, sir.

And ladies and gentlemen, your next question comes from the line of Fritz von Carp of Sage Asset Management.

Please proceed.

Yes, good morning.

Going back to the question of the inefficiencies and this whole topic of this -- your sub-suppliers having more pricing power because of the strong environment, what's the other side of that?

How about your pricing power?

Are you able to tell your customers the same thing you're hearing?

Able to tell them pay up because it's a strong market?

Are you able to pass -- why aren't you or are you able to pass these things through?

We're passing through.

There's six to -- there's usually a three to 12-month lag, in some cases 12, but very, very little of that.

It's mostly a three to six month lag.

And it's just a major distraction, to be frank.

There's some of it that's going through immediately and then there's some of it that we're having some trouble with.

And unlike a lot of our sub-suppliers that are very small, it's a very fragmented and fractured market for the tier two and tier three.

If you're dealing with a very small company with maybe $25 million in sales, not getting it through immediately will sink them.

And so that's what -- many of our supply bases of companies the size of mine are very small companies.

In the case of the opposite, if we have a very large tier one that we might be buying a connector off of, they can tell you you're going to ship it to us -- or you're going to pay us or we're not going to ship it to you.

And they've got so much time and effort and money that we pay up and then we collect, but our OEMs are very good to work with us and we -- have taken very good care of us and we know that they will make sure that we're brought whole.

Okay.

Thank you very much.

You're welcome.

Thank you very much, sir.

And ladies and gentlemen, that concludes our Q&A for today.

I'd like to hand the call back over to our speakers for any closing remarks.

We'd like to thank all of you for taking the time to call in today or to listen.

We appreciate your support.

We are very proud of the accomplishments of our Company.

We're very proud that -- of the status of our balance sheet and we're very pleased with the way the market is expanding and we're proud to be part of it.

Chad?

Thanks, everybody.

Appreciate your time.

Look forward to speaking with you.

Thanks.

Thank you very much, sir, and thank you, ladies and gentlemen, for your participation in today's conference call.

This concludes your presentation for today.

You may now disconnect.

Have a good day.