Commercial Vehicle Group Inc (CVGI) 2021 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the CVG's First Quarter 2021 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

I will now have to turn the call over to Mr. Chris Bohnert, Chief Financial Officer.

Please go ahead, sir.

Thank you, operator, and welcome to our conference call.

Joining me on the call today is Harold Bevis, 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 positioning CVG to deliver more stable results that [will] strive to [reduce] the cyclicality of our business and improve the [secular] growth outlook.

Chris will discuss our financial results in more detail as well as review our recent debt refinancing which will reduce our interest expense beginning in (inaudible) 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 4 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 of sales, representing 22% sequential growth and remain 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 was largely the result of better volumes, combined with our successful efforts over the past year to 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 [systems] continue to improve.

The 2020 first quarter did include an impairment charge that did not reoccur.

Adjusted EBITDA was $21.1 million for the first quarter, representing nearly a 100% increase as compared to the [$11 million] that we delivered in the first quarter of 2020.

The improvement was due to higher revenues with an improving sales mix, combined with expense reductions and profit optimization actions that we executed throughout 2020, in which remain focused on the [year ahead].

We delivered $0.26 [EPS] per diluted share in the third quarter compared to a loss of $0.80 per diluted share in the first quarter a year ago.

As we have been speaking about over the last year, the key component of our 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, a [new holding] business, is shorter cycle [than] awards delivery.

So the wins that we secured in 2020 are translating to revenues in 2021.

Winning new business is a focus of our organization and central to accelerating our sales growth, expanding our profitability and diversifying our end 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 [growing end] 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 the ability 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 5. We [encourage] an entrepreneurial spirit across our company, focused on delivering better value to our customers while also delivering additional business in [adjacent] markets.

We're becoming more innovative and solutions focused will move us up the value chain with customers.

Ultimately, this will lead to improved profitability and reduced cyclicality as we expand into new markets and diversify our customer base.

Our recently announced partnership with Xos is a prime example of the value that we can provide to an electric vehicle manufacturer.

We're providing an electrical system design solution, and 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 electrical systems and then supply the wiring, seats and other products as the vehicle moves from design to prototype to (inaudible) up the value chain as we become an engineering services partner (inaudible) integral system infrastructure.

Additionally, we're doing this in the last-mile market, which is a new space for CVG.

We're also having success expanding our intellectual property and manufacturing capabilities into new end markets.

We're leveraging our capabilities from the commercial vehicle business, where we have strong [large punch] injection capabilities.

Given these skill sets and manufacturing capabilities, we're evaluating markets to expand into like [electrical] equipment, recreational vehicle, complex equipment, given its capabilities to produce large plastic parts 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 its highly valued to some of these new end markets.

As we continue to have success expanding our business in (inaudible) on the North American truck market will decline.

Turn to Page 6. As a result, and it's 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-market -- excuse me, middle-mile and last-mile and electric vehicle powertrains.

North American truck market, as you can see on this graph, was 36% percent of our sales first quarter, generally in line with the first quarter of 2020 level.

First quarter demand for Class 8 trucks was nearly at replacement levels at approximately 67,000 units and ACT Research is forecasting annual truck (inaudible) in excess of 300,000 units through 2023, which will be supportive as we pivot our business.

A near-term headwind that we'll be 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 market, comprising of 18% of our first quarter sales.

Business in this market is relatively balanced across North America, Europe and Asia.

And looking forward, we see a strong order book through 2021 that will be supportive of demand, although supply constraints are concerning here as well.

Warehouse automation has quickly become our third largest end market and is 17% of our sales in the first quarter, and I'll touch on that business in just a moment.

And lastly, aftermarket and services, while not an end market, is an important component of our business and represented 12% of our first quarter sales.

I believe this business is under appreciated as it has grown to nearly $100 million in sales [approximately] while providing an annuity-like revenue stream to CVG.

Turning to Page 7. Warehouse automation end market continues to be a significant growth driver for our company as we delivered approximately $42 million in sales during the first quarter, [22%] sequentially.

The growth in e-commerce is driving the need for additional warehouse automation [material] handling and sorting last-mile delivery vans where industry expectations are for the entire warehouse automation industry to grow at about 14% CAGR through 2026, [or nearly] doubling in size over a 5-year period.

We [supply] components for these warehouses (inaudible), including complete work centers.

And given the strong market demand combined with new business wins last year, we remain confident in our goal of delivering $150 million in sales in this segment this year.

And additionally, our margins in this business are modestly accretive and higher than our [corporate] average.

As a result, we expect [profit] to benefit as warehouse automation continues to become a larger proportion of our total sales.

And new and emerging end market for CVG is the electric vehicle and last-mile market, as outlined on Page 8. 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 a bulk of products for a vehicle maker, and we have 40 years of global experience doing it.

We're currently involved with 34 vehicle platforms globally, which includes both existing customers that are expanding into the EV market as well as new EV market entrants.

We have essentially created a portfolio of new business wins on electric vehicles (inaudible) 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 to the new business backlog on Slide 9. As I mentioned, we secured another $100 million of new business wins in the first quarter, 93% of which were outside of our legacy truck business.

And we secured [3] wins with new EV market entrants as well as new products for recreation and specialty vehicle [makers] for plastic parts.

It is important to reiterate that the [position] of our new business awards will determine when those revenues will flow through our P&L.

Given the majority of our wins in the first quarter were in the electric vehicle sector, we will not see the 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 CVG.

This success is a direct function of the concerted efforts we've taken as a global team (inaudible).

And like many companies, we had to dramatically reduce our expenses and transform our factories for COVID safety last year, which we successfully have navigated.

And we also contributed a proportion of (inaudible) going through it.

We've also recruited a [top] management team and have implemented a strategy designed to reaccelerate organic growth [through] the expansion into new markets that presents CVG with more (inaudible) and its core growth opportunities.

Essential to this transformation and our long-term success is 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.

And looking forward, we'll continue to grow our new business wins while maintaining our cost discipline as we 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 their most challenging problems.

Turning to Page 11.

Our efforts to transform our company are clearly bearing fruit as we delivered record sales for the first quarter.

We're very pleased with our team accomplishments, but even more excited about the many opportunities that are ahead of us.

Our [growth engines just starting] but are impacting our financial results already with the rapid expansion warehouse that our automation business is experiencing.

We're also implementing a new, important foundation for the future of our vehicle business with the significant wins 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 CVG.

And taken together, we're executing on our plan to accelerate growth, improve our profitability and reduce the cyclicality of 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 it 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 [adjacent areas] that will help our business transformation.

[If this takes form], we will discuss it 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 revenues of $216 million.

Foreign currency translations 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 cents 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 CVG, which removes the onerous costs and covenants that existed in our prior debt structure.

The details of our refinancing were published on Monday in a press release and 8-K.

To touch on the highlights on Slide 14.

Our new $275 million senior secured credit facilities includes a $150 million term loan A and $125 million revolving credit facility, both with 5-year maturities.

We use a portion of the proceeds to repay all of the upstanding principle 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 euro-dollar plus 300 basis points compared to the old debt, which had LIBOR plus [10 50] basis points on the term loan B. As a result, I expect our quarterly interest expense to be reduced by $3.1 million 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 to also bring on an outstanding group of bank partners, including BofA, 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 strengthened North American construction and ag markets, as Harold mentioned previously.

Our Electrical Systems 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 Systems 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 Seating segment on slide 16.

Global Seating 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 Seating 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 is 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.

(Operator Instructions) And your first question will come from the line of Mike Shlisky with Colliers Securities.

I want to start off with a couple of easy 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 here, you had a whole bunch that you're working with, but some of them are launching some models in 2021 and 2022.

Presumably, it's in somewhat small numbers.

But can you give us a sense as to whether those models are on track to launch this year or is anyone seeing any issues?

Again, without naming any names.

I don't want anybody in trouble.

I'm kind of curious to see if EVs in general progressing the way you had hoped.

Yes.

From our experience, Mike, we've seen no delays.

If anything, 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 and moved forward with their development programs to close [it] (inaudible) vehicle makers.

The race is on.

There's really no slowdown at all.

The challenge is really to get vehicles out faster, and we're seeing people do engineering, prototyping, [builds], vehicles and [mesh production] production vehicles.

So you read more than we do, Mike.

But from our standpoint, this industry 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 start-ups?

No, they are definitely with our legacy customers as we've previously reported in previous years in our 10-K.

They're all global powerhouses and they all have platforms.

They're just as important to us as the new people.

But the thing about the new entrants, Mike, for us, we'd never sold our Electrical Systems, our electrical solutions into the truck market.

We've 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.

New developer (inaudible) product can do it, but we did it.

And we entered into that market whole cloth in electric -- for our Electric Systems business as one Electric Systems 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 in substitute of the powertrain from internal combustion engines, normally diesel powertrain, to normally an electric [every] powertrain.

So they have the vehicles, if you will, and the production to make the vehicles and they're just converting the powertrain, whereas the new guys have to do both.

So we're in with both of them.

They're both important to us, Mike.

Sure.

Got it.

Another topic I wanted to touch on was some of the supply chain issues facing the industry.

I guess, 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 it needed to be, et cetera.

Has that changed at all?

And 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 to people?

Well, it's a constraint for sure.

And there's a lot of public filers in this industry, so I've been watching their Q1 results and what they said about that topic.

And certainly, material availability, resin availability, chemical availability, metal availability, chips and supply chain slowdowns are affecting the global industry.

It's pretty factored into our outlook.

We've accepted it as a reality for this year that they're not going to have a [focus] of demand, if you will, to get caught up with the orders.

If you track orders in the global industry, the orders are far [outreaching] production.

And so the production in the global industry is going to be muted or [packed] 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 probably filers here.

They've said that there are global shortages in connectors, and we've been impacted by that.

The alternate for a personal [test] 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 did on a (inaudible) [40].

It makes keeping efficiencies in the plants pretty hard to do, substituting materials (inaudible).

We don't really see ourselves going backwards, Mike.

We just see it as a go-forward constraint.

It's not getting worse.

It's just bad and it's staying bad.

And the outlook for the component suppliers to get caught up are several quarters long, with the exception of chips.

If you read about the chip shortage, which impacts our customers, it's really a constraint to our customers.

It looks like it's going to be going on about a year.

And they have substitute chips [our designs], just we're dealing on substituting the next set of our designs.

Our connectors [may up] electric control boxes and then their electric control boxes have chips in them.

And so they have a job to do to work around this constraint and so do we, and we all are.

So I see it getting designed around a little bit, Mike, but it's not going to be rapid.

It takes a lot of detailed work.

Well, I'd like to kind of follow up there then.

This is my last question.

Since last quarter, your last slide, your ACT balance, I don't know if they've changed all that much for 2021.

Do you feel like just in the end, the full year will get built, not until later in the year, but it should be enough to make it work?

Or are we just still waiting for any kind of changes in ACT to your forecast as you get through the year?

The ACT, you're right that the annual amount for this year hasn't changed since our last reporting out of the ACT 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 next year.

So believe -- our belief is that this ACT information is reliable and [backed] us very well.

So we're embracing this outlook, Mike.

Is it fair to say 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 ACT outlook and your own outlook?

You haven't seen much difference?

Is that a fair statement?

Can you say that again, Mike?

Yes.

Is it fair to say that the [303,000] unit outlook that we had in March and the similar outlook, they both factor in the same issue?

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 started.

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 their issues now.

Just like the question you asked about us and the 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 of the door.

But I don't think it's going to be a major change.

So yes, I would say the same issues exist and that there is a lot of effort around them.

And your next question comes from the line of Chris Howe with Barden (sic) [Barrington] Research.

Warehouse automation continues to perform well.

I'm looking at Slide 7 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 2 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, you want to take that one?

Sure.

Sure.

Yes.

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 of areas.

One driver is mix, as I've mentioned.

I think in the coming quarters, we're going to see continued smaller, potentially, increases in the warehouse automation business 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.

So 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, I just would be interested in your take on these 2 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 2 areas of the business moving into a normal environment in perhaps 3 to 5 years from now?

Yes.

I think 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.

With respect to margin enhancement, again, these are low capital-intensive industries.

So we're assembling complex products, and I think margin expansion is going to come through looking at opportunities to improve our assembly processes and so forth.

So I wouldn't expect fundamental change in those.

I think incremental is definitely on the horizon.

And I think the warehouse automation piece is hitting the P&L now, which 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 margin there, 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?

Yes.

It's a good question.

If you look at our organic growth pipeline activities, Chris, 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 (inaudible) going in [plastic injection molded parts] and that's why I mentioned it in today's dialogue.

Those are also short cycle, and so those help in the short term.

But we have other areas that we're still working in the pipelines, and the 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 make aftermarket opportunity and to really dramatically grow that business.

And we're looking at -- for instance, we make floor mats and our floor mats go under certain trucks.

And then those floor mats wear out, we would get an aftermarket order to send a floor mat out, but our equipment [team] doesn't care whose 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 aftermarket 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 several businesses we haven't spoken about in these sessions together, I'll just pick on a couple of them: floor mats, 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 have hope to have more of a full potpourri of topics here.

And you mentioned over 5-year period -- 3- to 5-year period.

We're working on these now, but the results are not material yet.

So we're 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's 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 as when the facts suggest that it's material enough to speak in these sessions.

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

Great quarter.

Just a follow-up on your last thought on the aftermarket, is there a sizeable gross margin contribution difference in that business versus your overall product portfolio?

Chris?

Yes.

Yes, 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 driving this business further will definitely help us with margin enhancement.

And 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 then -- 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 one at a time, but [sending] a full truckload of 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 on the incremental dollar that you may be getting from EV platforms versus diesel platforms in the future?

Yes.

It's a big difference for us, and it's primarily because we've not really been a participant with our electrical products business in the [truck] market.

So it close to doubles our content per vehicle when we're able to be an electric harness supplier on the vehicles.

It's harnesses, plus junction boxes and disconnect.

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.

And in this world, high voltage is 48 volts and in a spark plug, there's around [40] volts.

And so that's high voltage level, right at 40 and above.

So we do both the 12 volt -- we both do low voltage, the 12 volts and the high voltage, we do them both.

And we just haven't -- we just flat out hadn't gone after the vehicle market.

And this was a big opportunity for us to bring it on and to show what we could do as a electrical system maker.

And it's a couple thousand dollars per vehicle if we can become the system person on it, John.

Great.

Great.

And regarding the warehouse automation business, you did $42 million in the quarter and your commentary is more than $150 million for the year.

I'm just curious about the cadence of (inaudible) in that business for the year.

Is there some seasonality for some specific quarter that we should be aware of that [deliveries] are different and maybe lower than the current rate?

Or are you just being conservative maybe in your guidance?

Chris?

Yes.

John, as you know, when we came out and we said it would be $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.

Okay.

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 hurdles that we should be aware of when you start targeting M&A?

Yes.

Thanks, John.

Obviously, we're diversified industrial, so we have a lot of different things we can look at.

It makes sense for us to do things that we're good at, right?

So obviously we're in the markets that you know.

We're going to probably look at those adjacencies first.

Although I think 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 (inaudible) versus some big kaboom.

We had a pipeline going into (inaudible) with several hundred candidates we were looking and it led -- and it was a successful game plan.

It led us to buy the FSE 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.

The value add in that business was lower value add, but unique people, unique customer relationships and an opportunity to do a 1+1=3 when folded into CVG's 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 pickiness, maybe a little more complicated, get us into a couple other markets that would help us diversify and not take too many risks, I guess.

We like that.

We liked the profile of the FSE acquisition.

I guess if we could mimic that, we certainly would.

And that was publicly reported and it was sub $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 [sought] and it happened.

So we'll be careful.

Don't have anything specific to say, nothing yet.

But as Chris and I have something smarter to say than what I just said, we'll share it with you as we go along.

(Operator Instructions) And your next question will come from the line of Barry Haimes with Sage Asset Management.

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'd be supplying in that market, what the competitive set looks like and how big that might -- could possibly be over a couple, 3 year periods?

So any color around that segment, would appreciate.

Yes.

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 process like us.

Our heritage of making large parts for trucks makes us a specialist in large parts, naturally.

And there's other larger parts, there's housings for (inaudible) and exterior bodies for ATVs, shells for snowmobiles, parts for boats, those sort of a thing.

So when we talk about recreational vehicles, it's not the Winnebago kind of deal, it's the smaller vehicles that have plastic bodies that -- large plastic bodies.

There's also large plastic bodies on baby seats.

The outer shelves for X-ray machines.

The outer domes for antennas.

There's unique needs for large injection molded plastic parts that are monolithic [in] high compression like we have for truck parts.

So that one is one, Barry, where we've characterized what we can do and we're looking at where has it [gone].

So we're being open-minded to the markets, but the big market [potentially] is definitely off-road vehicle market, and we're having successful running business in those areas.

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 concludes today's conference call.

Thank you for your participation.

You may now disconnect.