Commercial Vehicle Group Inc (CVGI) 2020 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Commercial Vehicle Group Q1 2020 Earnings Conference Call.

(Operator Instructions) Please be advised today's conference is being recorded.

(Operator Instructions)

I would now like to hand the conference over to your speaker today, Kirk Feiler, Vice President, Corporate Development and Investor Relations.

Please go ahead, sir.

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

Joining me on the call today are Harold Bevis, President and Chief Executive Officer of Commercial Vehicle Group; and Tim Trenary, Executive Vice President and Chief Financial Officer.

They will provide a brief company update as well as commentary regarding our first quarter 2020 financial results.

We will then open the call up 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-saving initiatives and new product initiatives, among other.

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 will now turn the call over to Harold Bevis to provide a company update.

Thank you, Kirk.

And thank you, everyone, for joining the call today to discuss our first quarter results.

Given this is my first earnings call with you, I'd like to briefly introduce myself.

I've been working with the CVG management team for the last 6 years as an Independent Director and for the last 8 weeks as CEO.

My background experience and knowledge of the company, its customers and our strategy was well suited as we progress towards our long-term goals.

That said, the magnitude of the COVID pandemic and its impact on our business was very swift and unexpected.

However, our team immediately sprung into action.

As you saw in early May, we provided an interim update that included our actions in response to the COVID pandemic as well as our preliminary first quarter results.

Furthermore, we announced last week that we have amended our long-term -- excuse me, our term loan and our asset-based revolving credit facility.

This new agreement provides the company with additional flexibility to rightsize certain parts of the company to a post-COVID environment and expands our ability to improve as a company.

As Tim will discuss later, we continue to believe that our ample liquidity is sufficient to meet our operating growth and restructuring needs.

Prior to the onset of COVID, we had already been preparing for a cyclical slowdown in end market demand, which started late in 2019 and continued into the beginning of 2020.

The pandemic first impacted our operations in Shanghai, China, in January and then, as we all know, the COVID virus spread through Europe and North America and significantly affected our operations in those regions, including OEM production suspensions and our own temporary shutdowns to dramatically scale back our supply to those plants.

On a positive note, our China business is now operating at pre-COVID rates as are our material handling and military businesses.

Additionally, the impact to our sizable aftermarket business has been less than it has been on new commercial vehicle production.

While it has only been a short time since I transitioned from Independent Director to CEO, I've been very impressed by how rapidly the team came together and took action to adjust to our new operational realities that this global crisis has brought us.

I'm proud to be working alongside such dedicated and driven individuals.

The health and safety of our employees remains our top priority, and where work is underway, we have implemented heightened cleaning and sanitizing processes, social distancing requirements and provided for personal protective equipment.

In fact, at our plant in Saltillo, Mexico, we are producing masks for all of our employees and their families to help keep them safe during this uncertain time.

In the face of these significant headwinds, the immediate focus of the CVG leadership team is the alignment of the business to the current marketplace realities and preserving our capabilities so that we can restart our operations efficiently.

We are progressively implementing a series of cost-reduction measures to further align our cost structure and business practices to the current environment, preserve liquidity and protect our workforce.

These measures include permanent reduction of the salaried workforce, temporary compensation reductions, furloughs as well as big reductions in most discretionary expenses.

We are implementing lean staffing org charts where we can and are managing our working capital investments tightly while remaining prepared to take further actions as developments occur.

Additionally, we've been working closely with our customers to prioritize key projects and short-term production decisions.

Turning to our end markets.

As I mentioned, the North American medium and heavy-duty truck markets were already in a cyclical decline coming into 2020.

As noted in our year-end commentary, our initial outlook for 2020 was based on industry data, which signaled declines in 2020 Class 8 production of approximately 40% and Class 5 to 7 production decline of approximately 15% to 20%.

We also anticipated a decline of 15% to 20% in the global construction markets we serve.

As a result of the COVID-19 pandemic, the North American truck markets have subsequently come to a halt, and more specifically, our customers temporarily closed their facilities and curtailed production resulting in significant production efficiencies that began in the second half of March and have continued through April and early May.

Substantially, all of our major customers are in the process of restarting production.

And as a result, we are restarting our operations in sync.

Given the nature and timing of the COVID-19 pandemic and its impact on global business operations, we expect to see production inefficiencies throughout the second quarter as we restart the majority of our plants.

However, the time span and pace of the recovery is unknown.

At this point, our expectations for build rates in the short term remain low, and we are staffing accordingly.

However, there is a consensus among commercial vehicle builders that lower production levels will persist in the near term.

As I mentioned earlier, portions of our business have been operating at pre-COVID levels.

Encouragingly, we have seen an uptick in orders for military applications and a surge in demand for material handling as e-commerce grows in importance following the outbreak of the pandemic.

As a result, we expanded the FSE operations from 1 plant to 3 plants, utilizing 2 existing CVG facilities.

We are aligning with key players in this industry and are well positioned to take advantage of the demand surge of material handling equipment.

As we work through the short-term issues presented by COVID-19, we remain focused on our long-term sales diversification strategy.

We are aggressively pursuing opportunities to expand and diversify into the electric vehicle market, the last mile market delivery and noncommercial vehicle markets altogether.

We have had encouraging conversations with customers to grow and expand in material handling, military and other noncyclical end markets.

We remain confident in our market position as well as the immediate and decisive actions we have taken to aggressively align the organization to the new market environment.

While we expect to see the effects of the COVID-19 pandemic in future quarters, we will remain prudent in the execution of our long-term strategy to position the company to emerge from this crisis in a stronger position than when we entered it.

With that, I will turn the call over to Tim, who will discuss the financials in more detail.

Thank you, Harold.

First quarter results were in line with our expectations, with solid sequential improvement over the fourth quarter of last year.

First quarter 2020 consolidated revenues were $187.1 million compared to $243.2 million a year ago when medium and heavy-duty truck production in North America were at high levels and the global medium and heavy-duty construction equipment build was also high.

The decrease in revenues period-over-period reflects the sharp decline in truck production in North America and softening of the global construction equipment markets we serve.

FSE contributed $13 million of revenue in the first quarter.

Foreign currency translation adversely impacted first quarter 2020 revenues by $1.2 million or 0.5%.

The company reported a consolidated operating loss of $26.5 million for the first quarter of 2020 compared to operating income of $17.6 million in the prior year period.

This decline in operating income is largely the result of a $28.9 million impairment charge in the quarter, $27.1 million of which was the impairment of goodwill.

The goodwill impairment was triggered by a decline in the company's market capitalization to a level below that of its equity.

Accordingly, the carrying value of goodwill has been written down to 0. Remainder of the impairment charge or $1.8 million is the impairment of certain long-lived assets, partly as a consequence of the COVID-19 pandemic.

Other special costs in the quarter were $2.3 million associated with the CEO transition and $2.4 million associated with the investigation into the recent financial statement restatement.

As adjusted for these special charges, adjusted operating income was $7.1 million for the quarter.

Various cost recovery initiatives, including pricing adjustments have reduced the impact of rising commodity and other material costs and the difficult labor markets, which have now stabilized.

During 2019, in anticipation of the cyclical decline in the North American truck and global construction equipment build volumes, the company began executing on a collection of cost reduction and manufacturing capacity rationalization initiatives that are expected to reduce operating expenses by $5 million to $7 million annually at a cost of $6 million to $8 million.

Cost savings resulting from these actions contributed to first quarter financial results.

First quarter 2020 adjusted operating income was $8.4 million more than in the fourth quarter of 2019 on 2.4 million fewer sales.

According to ACT, second quarter 2020 North American heavy-duty and medium-duty truck build is expected to decline 65% to 75% as compared to the first quarter of 2020, as the North American truck OEMs respond to COVID-19 and overall market conditions.

Although the company's other end markets are not expected to decline as dramatically, we expect revenues for the 3 months ending June 30, 2020, to be significantly lower than the 3 months ending March 31, 2020.

This expected decline in second quarter revenues is outside the company's normal course ability to flex its cost structure.

Accordingly, the company has taken decisive action to align its cost structure and business practices to the realities of the COVID-19 business environment and associated dramatic decline in sales, including certain step change and other temporary reductions in costs.

Interest and other expense was $5.4 million in the first quarter of 2020 compared to $4.4 million in the first quarter of 2019.

The increase is primarily attributable to foreign currency translation associated with our offshore cash and non-U.

S. dollar-denominated intercompany debt.

Net loss was $24.6 million for the first quarter of 2020 or $0.80 per diluted share compared to net income of $10 million in the prior year period or $0.33 per diluted share.

As of March 31, 2020, cash on hand was $58.1 million, an increase of $18.5 million from December 31, 2019, primarily resulting from the company drawing $15 million under its revolving credit facility during the 3 months ended March 31, 2020.

At March 31, 2020, the company had liquidity of $114.2 million, $58.1 million of cash and $56.1 million of availability from the revolving credit facility.

Turning to our segment results.

For the first quarter 2020, Electrical Systems revenues were $112.1 million compared to $143.6 million in the prior year period.

The decrease primarily resulted from the decline in the North American medium and heavy-duty truck production and the decline in the global construction equipment markets, partially offset by higher sales of military and industrial equipment customers.

As expected, FSE is adding value to the company's long-term strategy.

Revenues were up 30% sequentially from the fourth quarter of 2019.

As e-commerce becomes increasingly important, FSE is positioned to support this increased demand.

Foreign currency translation negatively impacted Electrical Systems revenues by $0.4 million in the first quarter.

Electrical Systems segment reported an operating loss of $17.1 million in the first quarter of 2020 compared to operating income of $15 million in the prior year period.

The operating loss was due in large part to the $23.4 million impairment charge, but also due to lower sales.

Sequentially, first quarter 2020 adjusted operating income was $3 million more in the fourth -- than in the fourth quarter of 2019 on $1.8 million fewer sales in the first quarter.

Moving now to the Global Seating Segment.

Revenues declined to $76 million in the quarter compared to $104.1 million in the prior year period due primarily to heavy and medium-duty truck market in North America and the global construction equipment markets.

Foreign currency translation negatively impacted Global Seating revenue by $0.9 million in the quarter.

Global Seating Segment reported an operating loss of $0.4 million during the first quarter of 2020 compared to operating income of $8.3 million in the prior year period.

The operating loss was due in part to the $4.8 million impairment charge, but also due to the lower sales.

Sequentially, first quarter 2020 adjusted operating income was $4.7 million more than in the fourth quarter of 2019 on $0.5 million fewer sales in the first quarter.

The company last week concluded discussions with its lenders to amend the term loan and revolving credit agreements to provide the company with more flexibility as we navigate the COVID-19 business environment.

More specifically, as regards to the term loan agreement, the amendment provides for the suspension of the leverage ratio covenant beginning in the second quarter of 2020 through the quarter ended December 31, 2020, and the resetting of the leverage ratio covenant for the quarterly periods ending on or after March 31, 2021.

Furthermore, the amendments provide for restrictions on the company's ability to incur additional debt, make investments, grant liens, repurchase the company's stock and to issue dividends as well as provide for increased pricing to the lenders.

We're happy to have concluded these discussions with our lending partners.

As regards to remediation of the material weaknesses and internal controls identified earlier this year, the company is executing on its remediation plan.

It's early, but the remediation plan is proceeding as expected.

Until these material weaknesses are remediated, we plan to continue to perform additional analyses and other procedures to help ensure our financial statements are prepared in accordance with generally accepted accounting principles.

This concludes our prepared remarks.

Chris, I'll now turn it over to you for Q&A.

(Operator Instructions) Your first question comes from Mike Shlisky of Dougherty & Company.

Can I get a little more color on the debt restructuring that you did?

I just want to make sure I get what triggered all of it.

I guess, I'm curious, did you actually trip any covenants during Q2?

Or do you feel like right now, your forecast is to actually trip something during Q2?

Or was it more of a forecast later this year that made you concerned and you asked -- you -- up to go get that that altered?

And also, can you tell us strictly which covenants you were most worried about and what the exact new covenants are as far as the numbers are concerned?

So Mike, we have been and continue to be in full compliance with the company's credit agreements, so there was no event of default.

As we -- 2 months ago, the middle of March, very clear-eyed, this management team looked into the second quarter and it was clear that we were going to experience some earnings compression.

We have in the term loan agreement a leverage ratio covenant that must be maintained.

It was 4.75x trailing 12 months EBITDA.

And it was clear that beginning in the second quarter, it was going to be tight, all right?

So in anticipation of that and looking out into the future and not knowing for sure what was going to transpire over the next few months, we entered into discussions with the lenders and successfully concluded an agreement to the -- amendment to the term loan agreement that provides for the suspension of that leverage ratio covenant for the remainder of this year.

So Q2, Q3, Q4, the company does not have to maintain any certain leverage ratio.

Beginning in the first quarter of 2021 and continuing through the third quarter of 2021, that leverage ratio has been set at a higher level.

Beginning in the first quarter of 2021, it is set at 12x trailing 12 months EBITDA and then steps down to 4.75x in the fourth quarter of 2021.

So the objective here was to provide the company with the flexibility in the near term given the earnings compression to continue to be in compliance with the loan agreements.

In return, we have agreed to a minimum liquidity covenant as well as a number of other restrictions on certain uses of our cash flow and also some increased pricing to the noteholders.

Yes.

As far as the increased pricing goes, I know you don't want to give guidance for the entire company in the quarter and all, but what do you think the approximate interest cost for the quarter will be going forward based on the current debt levels?

All right.

So the -- just by way of background here, so I can get you maybe a level set just to make sure we're not -- we're talking about the same thing.

The interest rate on the loan pre the amendment was LIBOR plus 600 basis points and the LIBOR had a floor of 100, okay?

So 7%.

You might recall that the company 3 years ago, when we placed this paper, swapped out about half of the variable rate debt for fixed.

That was an incremental cost of about 100 basis points.

So the -- pre amendment, the interest rate on the now about $160 million of term loan debt was directionally 7.5% a year.

Now what we've agreed to here, as a consequence of these amendments, is to increase that interest rate during this next 6 quarters that we have the leverage ratio relief by 450 basis points.

That interest can be paid in cash or pay-in-kind, PIK security, okay?

So that adds 4.5% to the $160 million.

So if you wanted to run the numbers, at the pre-amendment level, $160 million of debt and assuming no movement in LIBOR, directionally the company's cash interest expense would be $12 million.

The impact of the 450 basis points of pick, or pay-in-kind, which we will not pay in cash, is $7 million.

So if you're trying to model an all-in interest rate, assuming $160 million of debt, no draws on the ABL and no movement in the variable portion of the debt, a number to sort of pan is $19 million, $7 million of which is pay-in-kind, no cash.

Okay.

All right.

Thanks for that information.

Then I wanted to also ask about your outlook for working capital for the year.

I mean you've got some pretty extreme declines probably happening here in Q2, but is your general idea still that you'll be able to harvest some of your working capital later on this year to generate cash to possibly offset some of that debt, at least from a net debt perspective?

Yes.

So let me answer that question -- the working capital question, Mike, in the context of a larger question, okay?

And that is free cash flow.

As I said a moment ago, a couple of months ago when this management team looked into the future, especially the second quarter, we set out to accomplish 2 overarching objectives: one was to preserve liquidity and the other was to preserve our capital structure.

I just spoke to the capital structure.

With respect to preserving the company's liquidity, fortunately, we were coming off a good quarter in the first quarter.

The conversion vis-à-vis the prior year period was very acceptable and the decline in sales.

And certainly, the sequential performance, fourth quarter, the first quarter was very good.

Having said that and knowing that the second quarter sales were going to be down dramatically, as Harold described and I, to a lesser extent, we -- the company set out to make a number of step changes in its cost structure organizationally and staffing-wise, some of which are permanent, and many temporary changes to adopt a cost structure designed to be free cash flow neutral based on our sales expectations at that point in time.

Now to your question about operating working capital, we have a fair amount of operating working capital invested in the business.

And we have done a good job historically, demonstrating an ability to manage that up and down with the cyclical declines in the business.

So as the sales decline, we expect and are, in fact, harvesting net working capital off the balance sheet, turning it into cash.

And then as sales presumably increase, I hope in the not-too-distant future, we'll be using some of that cash to put the working capital back on the balance sheet.

Now as I think Harold said in his comments, we've adopted a number of activities, primarily around inventory and procurement spend that are designed to minimize the incremental investment in inventory as the sales come back up.

So our cost structure designed to be free cash flow neutral, understanding that it will move up and down a little bit as the sales go up and down because of the investment in working capital but importantly, Mike, a cost structure notwithstanding it's design today that is we are prepared to adjust as necessary.

I made an important point a moment ago on a cost structure aligned or designed based on our sales expectations.

We've adopted a process here whereby every Friday, the business leaders come together, we spend a fair amount of time reevaluating our sales expectations and have a fair amount of dialogue around as necessary the extent to which the cost structure might be further changed.

So we're prepared as maybe necessary to revisit the cost structure depending on the future sales expectations.

Okay.

Maybe one more balance sheet question.

I wanted to ask about the impairment charge in the quarter.

That was not due to a change in the outlook for what you think you can get from the FSE deal, right?

It sounded like there was something different there that wasn't related to M&A.

Am I on the right track there?

Yes.

It's the FSE -- the impairment charge, Mike, is not at all specifically related to FSE -- the FSE acquisition.

It's an exercise by which using 3 different reporting units, without going into too much detail, we evaluated the cash flow streams.

FSE was a piece of one of those 3 cash flow streams, but not a very large piece.

And as a consequence of that evaluation, we were obliged to adjust the carrying value of the goodwill down to 0.

Okay.

Okay.

I did want to ask you also about FSE.

The expansion that you made with 2 other CVG facilities, is that a permanent change?

Or is that just to manage their demand right now, while the other demand in CVG is somewhat low?

I guess I'm kind of trying to figure out, do you have plans to build the new facilities once things are more back to normal?

Or is this going to be a permanent move here?

This is Harold.

Nice to meet you.

The FSE business has been operating out of a single facility in Maryland for quite a long time.

The principals are still here, the executive -- same executive leading it is leading it now.

It was his recommendation, which we followed, to expand the footprint, the customer ship-to locations.

There are several others across the country.

We did have available room in 2 of the plants and we made use of them.

I will say that the industry segment of parcel handling from e-commerce is rapidly expanding its footprint and those that are creating those distribution centers are behind their ambitions.

And so there's a desire for the suppliers to that equipment segment to do more.

And so it's our expectation that we'll need additional footprint going forward.

But they are permanent or not, we haven't had that type of conversation.

It is permanent that we need to have bigger footprint.

Those 2 locations have performed absolutely great from a dead start.

So it's the way we're going to set -- be set up for now.

And I don't know, Tim (sic) [Mike], if we would ever want to retract from those 2 plants, but I would say our expectations for the near term and midterm is that, that's the way we're going to be set up, Mike.

Okay.

I got one more for -- I know I've gone on for a while here, but I just want to get one more out there.

Can you give us a sense as to, at this point, what percent of the OEMs that you work with are actually back up and running?

I know maybe they're not running at full capacity, but just a sense as to how things come off of the absolute buzz of what's running and what's not running as of today.

Yes.

We do track that weekly, as Tim mentioned, and as of yesterday, May 18, most of the truck OEM manufacturers in North America had restarted operations.

The same in the U.K., same in China.

India is our lone country where the government-mandated shutdowns are in effect through the end of May.

It's not a large part of our company's financial performance.

But in North America, which is a large part, we have basically all major facilities restarted.

We track their plant, our supplying plant and then our supply chain into our plants as part of their supply chain.

And they've been very organized as OEMs and kept our teams in place because they can't start up unless we start up.

And that was as of yesterday.

I got no e-mails last night that anyone changed, but I will tell you, there's been a lot of starts and stops in the last 4 to 6 weeks.

There's a desire by the truck makers to make trucks, but there's been government and state mandates declaring them nonessential initially and then relaxing that as we've gone along, and in Mexico too.

So I would say right now, we're at a low build rate, which was -- Tim alluded to.

And then in my comments, I also said we -- that's what the short term looks like for us.

And so we have adjusted our cash management and cost out action accordingly.

(Operator Instructions) Your next question comes from Chris Howe of Barrington Research.

Just following up on some of the previous questions from Mike.

About the additional facilities, can you provide some color on perhaps how much of the demand these additional facilities can support and different positives here that you're seeing within FSE?

What type of growth potential can these facilities support?

Or how much capacity can they hold?

Okay.

Chris, this is Harold.

The FSE solutions that they build actually take a lot of floor space up.

So it's not a type of business that's set up to go 24/7 kind of shifts.

The physical size of what they do becomes an issue.

And so a lot of the sizing, the capacity answer to your question, has to do with physical handling in and out of large systems.

And we looked forward at the request upon us from the major customers of that business and took the necessary capacity actions that we would need to not become a bottleneck to their request to us.

If their requests continue to grow, we'll need to continue to expand.

If they flatten out at this rate and stay at this rate, we're kind of set up to where we need to be.

If they continue to grow at this rate, which is our hope, then we will have subsequent capacity expansion in that business.

And actually, that is our base case assumption right now and we're already thinking about what we would do next to make sure that our footprint is large enough to accommodate the asks.

That is a global business, obviously.

E-commerce is a global business.

As of right now, we're very focused on North America.

It has ramped up during the coronavirus shelter-to-home and containment activities.

And there's a heightened sense of urgency amongst the suppliers to that industry and the main parcel delivery companies.

So we're very focused right now in North America, but long term, it's a global opportunity for us.

That's great.

Very helpful.

And Tim, you mentioned the cost savings that are still ongoing, $5 million to $7 million, that also was previously mentioned.

I assume it's still the expectation that 2/3 of these savings will come to fruition by year-end.

And for perspective's sake, as we look at this quarter ending in June and these additional cost measures, whether or not there's additional levers to pull, you mentioned also the OEMs are restarting, how should we think about May sequentially versus April?

Are you seeing April as sort of the bottom and we're seeing May start to show some improvements as we continue to move towards some sort of shape in a recovery?

Chris, let me tell you what I've learned here over the last few weeks.

What I've learned is that it changes every day, all right?

It is -- this environment is -- it's very uncertain, okay?

And so as a consequence of that, what this management team has learned and done is put itself in a position to react to that uncertainty and that change.

So I can't predict the future, but I can tell you that the management team has put itself in a position, as I think we've already described today, to evaluate the future sales expectations and to address them as best we can going forward.

So that's about the best answer I can give you for that.

We have accepted the ACT Research outlook on the rest of the year.

We still look to them, have for a long period of time and now, as a third-party baseline for the outlook.

And so that's our expectation right now, is that the build rates for the remainder of the year and next year will be in line with those forecasts.

And they have -- they are now in the habit of updating those outlooks frequently as well.

And we have a recent outlook, and we have no reason to dispute it.

And it shows some recovery in second half of the year.

Your next question comes from Mike Shlisky of Dougherty & Company.

One thing that wasn't mentioned so far, you've been dealing with a major supplier that had been bankrupt in the last couple of quarters, was that still an issue in the quarter?

And how about in the second quarter and beyond?

So you're referring, yes, to -- we've called the troubled supplier in the past.

That supplier is -- we are moving our production away from that supplier, Mike.

And we're in the process of doing that.

It's not, to my knowledge -- unless you have other information, I don't believe it's quite done yet.

It's in the process of being executed, that's underway.

It has had some impact on the company in the quarter, but it's nothing dramatic.

So we're moving on.

We're resolving that situation.

I would say even, Mike, that the timing actually worked out okay for us because things were pretty slow, and we were able to move our tools out of there to 3 separate suppliers.

So we've reduced our risk onto a single supplier here with our resourcing of those parts.

And we also moved the raw materials out as well.

And with many, many, many trailer loads, truckloads of equipment and materials to move -- and it's in process.

It's in process.

So the light times here have helped us actually to be organized and do it.

Okay.

Maybe lastly, I know you don't want to -- probably don't want to give direct guidance, but I was kind of trying to find a directional number here.

If you layer in the truck market outlook that the outside folks are giving us, down 55% to 75%, looking at some of the consensus numbers for some of the similar forecasters in the construction world, it sounds like there's a chance that you might not have positive EBITDA in the second quarter.

Am I just broadly on the right track that you might be below 0 just for this 1 quarter?

Could you at least give us that kind of directional push there?

Too uncertain, Mike.

I'm sorry, just too uncertain.

All I can tell you is that we've taken a number of actions to address the cost structure in light of the sales environment and we're positioned to continue to evaluate that and behave accordingly.

Okay.

Well, how about this -- your -- I ask this every quarter, by the way, things like the operating pull-through outlook.

I know it's going to be a tough quarter, but do you still feel like you'll be in that 20% to 25% range even in these extreme times?

Yes.

The pull-through that we generally manage to that you're referring to, the 20% to 25%, that's a metric that assumes that there are not dramatic changes in the top line.

Generally speaking, it's a number that's good within 10% or so change in the top line.

As I think I said in my earlier comments, what we are seeing here with respect to sales expectations in the second quarter are such that -- that decline in sales is beyond our normal course flexing.

So as a consequence of that, we're taking a number of actions to make step changes in fixed costs and other costs.

So there really isn't a sort of percentage flex, if you will, because of those significant step changes in fixed costs.

There are no further questions at this time.

I will now return the call to Mr. Harold Bevis for closing remarks.

Thank you, everyone, for calling in.

Appreciated the questions as well.

Very good, on point.

Proud to be serving this industry.

I can tell you that the team here is very focused and in sync with each other on a weekly basis to cycle down, cycle up as we go through a restart of this industry globally.

Trucks will be rolling.

I mean this is a -- we're tied to commerce activity.

So there's a lot of timing uncertainty with what we're doing here.

We're absolutely a taker being a JIT pull supplier to large commercial vehicle makers for the piece of the business which has cycled down.

And we're also a taker as an OEM equipment supplier to e-commerce and military, and that is counteracting some of the downturn that we've seen in the core business.

The aftermarket business has been impacted also as trucks have been rolling a little less during the coronavirus shelter-at-home stuff, but we also expect the ACT outlooks to come true for that as well.

So we really appreciate the time you took to speak with us this morning, and with that, we'll end the call.

Thank you, Chris.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating.

You may now disconnect.