Park Ohio Holdings Corp (PKOH) 2016 Q1 法說會逐字稿

Good morning and welcome to the ParkOhio first-quarter 2016 results conference call. At this time, all participants are in a listen-only mode. After the presentation, the Company will conduct a question-and-answer session. Today's conference is also being recorded. If you have any objections, you may disconnect at this time.

Before we get started, I want to remind everybody that certain statements made on today's call may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A list of relevant risks and uncertainties may be found in the earnings press release, as well as the Company's 2015 10-K, which was filed on March 14, 2016 with the SEC.

Additionally, the Company may discuss as-adjusted earnings and EBITDA as defined. As-adjusted earnings and EBITDA as defined are not measures of performance under generally accepted accounting principles. For a reconciliation of net income to as-adjusted earnings and for a reconciliation of net income attributable to ParkOhio common shareholders to EBITDA as defined, please refer to the Company's recent earnings release.

I will now turn the conference over to Mr. Edward Crawford, Chairman and CEO. Please proceed, Mr. Crawford.

Good morning, ladies and gentlemen. Welcome to the first-quarter 2016 ParkOhio conference call. Matt Crawford, the President of the Company and Pat Fogarty, the Chief Financial Officer, will be covering in great detail the operating activities of the Company in the first quarter of this year.

Before we begin, I would like to answer a question that has been asked of me earlier this morning. And the question is about the most recent release of information. The quarterly reporting process here at the Company begins with a meeting of the audit committee. Historically, that's been on a Thursday, information released on Friday and conference call on Monday.

At the most recent meeting, a decision was made to take a charge for an effect of earnings due to a decision made by one of our customers. Being material, we released the information to ensure that trading on Friday would be done with full disclosure of all the current facts.

Now I'd like to turn over the conference call and we will begin with Matt and Pat and at the end here, we will be glad to answer any questions. Matt.

Great, thank you very much and good morning. Before I start my formal remarks, given the poor performance in Q1 and the pronounced reaction in the stock price late last week, I'd like to begin by making the following points. Number one, the Company has had five years of consecutive growth in sales and EPS. Compound annual growth rate in sales has been 11%. EPS has been 10%.

Secondly, while sales and earnings were behind expectations, operating cash flow for the quarter exceeded $10 million during what is typically our most challenged quarter and is expected to be $50 million to $55 million for the year. Even with the revised forecast, we expect current year sales, earnings and EBITDA to be strong on a historical basis.

Thirdly, while sales were surprisingly soft during the beginning of the year, they improved each month of the quarter and we expect continued expansion through the second quarter and the rest of the year.

Number four, Chrysler's decision to discontinue the 200 and the Dart have created a significant impact on 2016. Approximately two-thirds of the reduction in guidance is related to this decision.

And lastly, to address these issues, some of which are temporary and the Chrysler issue, which is long-term, at least on this part, we have instituted additional operational cost savings totaling in excess of $15 million, which will have a positive impact on future earnings.

Having made those five comments, I will now move to my formal remarks. Despite some strong performances in our portfolio, our first quarter was challenged by the softening of many end markets, including heavy-duty truck, rail, power sports and electronics. In addition, the unexpected reduction in volume on two Fiat Chrysler small car platforms, the Dodge Dart and the Chrysler 200, and the likely end of production of these vehicles significantly impacted the first-quarter results and will impact our aluminum business for the rest of 2016.

Lastly, the oil and gas and steel demand for our induction and pipe threading products were at their lowest quarterly levels in several years. We have reacted to these challenges by reducing headcount by more than 11% in the affected businesses and are cutting all discretionary spending and streamlining manufacturing processes in many situations.

On a positive note, as mentioned previously, demand did strengthen throughout the quarter and continues into the second quarter. Also on a positive note, our fastener manufacturing, fuel and rubber and plastics businesses enjoyed strong performances, which continue to meet our sales and income expectations as we position each for growth in the near term. We expect the combination of improved demand and restructuring actions to provide improved earnings performance through the balance of 2016.

Specifically, our first-quarter US GAAP earnings decreased to $0.22 per share compared to $0.87 per share in the first quarter of 2015. Our first-quarter as-adjusted earnings were $0.46 per share compared to $0.93 per share in the prior year. The most notable adjustment to our earnings was the $0.20 add-back related to the non-cash write-down of the previously discussed Chrysler assets.

Net sales during the quarter decreased 12% to $328 million compared to $375 million in the first quarter of the prior year. Gross profit decreased $10.6 million to $47.8 million in the first quarter. The gross profit was 14.6% compared to 15.6% in the first quarter of last year and the fourth quarter of 2015. The decline in gross margin is largely due to the reduced absorption in certain locations affected by low customer demand.

Consolidated SG&A expenses decreased $1.6 million to $32.5 million compared to $34.1 million in the prior year, but increased as a percentage of net sales to 9.9% in 2016 from 9.1% in the prior year. As I mentioned, we've initiated cost reductions, including headcount reductions and reduced professional fees and marketing fees, which will benefit the remaining quarters throughout the year. Interest expense of $7.1 million as compared to $6.8 million in 2015. Our effective tax rate for the first quarter of 2016 was 35.7% compared to last year's of 36.6%. Our full-year effective tax rate is estimated to be approximately 35%.

I will now cover segment results. First, let's review the supply technology segment performance. Supply technology segment revenues represented 40% of consolidated revenues during the first quarter of 2016. Revenues decreased $21.5 million or 14% from the prior year to approximately $130 million. The majority of the decline in revenue in the first quarter was related to the reduced demand in heavy truck, power sports equipment, semiconductor and agricultural end markets. Of particular note was Volvo Mack delivering 33% less trucks during Q1.

Bright spots included our fastener manufacturing business and the ongoing implementation of nine new customer accounts in our supply chain business. Within the segment, we expect end-market demand to improve throughout the year. Indications of improvement began in late February and March as our average daily sales in every major end market increased. Segment operating income decreased $4 million to $10.2 million. Segment operating income margin was 7.9% in the first quarter of 2016 compared to last year's operating income margin of 9.4%.

Despite some sequential improvements in volume, supply technology has identified and implemented cost-containment strategies focused on headcount and wage reductions, travel and entertainment and other significant areas of discretionary expense while maintaining focus and investment in resources to support future growth.

The full benefit of these cost-reduction efforts started to be realized in late Q1, which were apparent as margin trends improved between January and March. We expect the decreases to further benefit our financial results in Q2 and beyond in addition to our ability to leverage this lower cost base as industry sectors trend upwards and recover.

Next, let's discuss the assembly component segment. Assembly components revenue represents 40% of consolidated revenues. Net sales decreased $8.8 million or 6% to approximately $132 million in the first quarter of 2016 compared to 2015. Sales in our aluminum products business were down $11 million year-over-year primarily due to Fiat Chrysler's decision to significantly reduce and likely end production of the Dodge Dart and Chrysler 200 and convert their production lines to small to medium-sized SUVs.

The full-year impact of lost revenues resulting from this decision is approximately $40 million to $50 million over the next few years when the platform would have been retired regardless. As a result, we recorded an asset impairment of $4 million during the first quarter of 2016 to write down certain assets relating to these two platforms. We are currently in discussions with Fiat Chrysler to determine how they will support General Aluminum during this transition.

As expected, we've implemented several actions at General Aluminum in response to Fiat Chrysler's decision, including eliminating over 275 jobs, reductions in discretionary spending, including mandatory reduction of overtime, implemented a total employee wage freeze and accelerated implementation of production savings initiatives. Unfortunately, these issues with Fiat Chrysler have masked what continues to be strong performance in global growth in our fuel and rubber and plastics business.

We are particularly excited regarding our growth in new business awards in Mexico and China. These are relatively new investments, which we anticipate will contribute $100 million in annual revenue in the near future. We also continue to see strong growth in our direct injection technology, which grew 18% quarter-over-quarter. We are also excited to have started shipping aluminum castings related to our previously discussed 10-speed transmission order, which we estimate will exceed $30 million in annual sales beginning in 2018 and up to $50 million shortly thereafter. Additionally, we are actively quoting numerous other new parts.

In the first quarter of 2016, segment operating income declined to $10.2 million, although segment operating income margin improved to 7.7% due to lack of absorption in the aluminum plants affected by Fiat Chrysler's decision. We estimate the earnings-per-share effect of the volume reductions at our aluminum products business to be approximately $0.20 per share in Q1 related to the reduction of the Fiat Chrysler volume. This is separate from the asset writedowns.

Not surprisingly and as already discussed, our most aggressive cost-cutting has been in this segment. The significant headcount reduction, as well as other operational material improvements, will begin to benefit meaningfully in the second quarter.

Moving on to the engineered product segment, engineered products revenue represented 20% of consolidated revenue. Net sales decreased $16.4 million to approximately $66 million in the first quarter compared to the prior year. The year-over-year decline in sales was primarily in our induction and pipe threading business, which serves the oil and gas and steel end markets.

New equipment and aftermarket sales were down 24% and 17% respectively year-over-year. Sequentially, in the first quarter of 2016, new equipment and aftermarket sales were down 15%. While these markets continue to be weak, we have seen some improvement in aftermarket activity recently and some subtle but encouraging signs in new equipment inquiries.

Our forging revenues were approximately the same year-over-year, but down significantly to our internal plan as build rates for railcars declined over 30%. We expect this market to be challenged throughout the rest of 2016.

Our cost-reduction and restructuring efforts in this segment have included reducing headcount by 13% domestically, elimination of non-core operations and department consolidations. The cost reductions have largely been completed in this segment and total in excess of $8 million on an annual basis. Segment operating income decreased $4.8 million to $1.4 million. Segment operating income contribution for the forging business was down $1 million and $3.8 million of the decrease was related to industrial equipment.

In conclusion, we were subject to a bit of a perfect storm in the first quarter. The Chrysler decision explained much of the performance miss, but not all. Although we do expect improvement through the year as end markets normalize, some of which have already begun, we have also taken this opportunity to address the cost side of the business aggressively.

Also, each of our segments has aspects which continue to perform at a high level and each continue to have opportunities for growth. Nothing has changed fundamentally and we still expect current year sales, earnings and EBITDA to be strong on a historical basis. Despite this optimism, the loss of volume in the aluminum business and the slow start to the first quarter will impact our profit plan for the year. As a result, our previously issued guidance is being revised to $3.10 to $3.30 as adjusted. Thank you very much.

Thank you, Matthew. Okay, we are now ready to proceed with questions from the queue.

(Operator Instructions). Marco Rodriguez, Stonegate Capital Markets.

Good morning, guys. Thank you for (multiple speakers). I was wondering if you could walk us through perhaps the reductions in expenses that you are planning to take, if you can help us understand how you expect that to flow into the specific line items on your P&L through the remainder of this year would be helpful.

Let me address the expense reductions that have taken place. Relative to employees, there's really two aspects of the jobs that were eliminated. First of all, you have the direct labor side of the business, which has been reduced based on reductions in production and the production lines that we operate in several of our plants. Those generally are variable, but you also have the people that are in supervisory roles that are more salaried, more fixed in nature type costs.

The second aspect of the labor reductions occurred in management expenses, which typically would flow through our SG&A. So when you ask which areas of the P&L, or which areas would be affected, cost of goods sold would be affected, as well as the SG&A lines on our income statement.

In addition to that, Matt mentioned several operational-related type reductions, which will flow through our general overheads in our various manufacturing plants, which will have a significant impact on our future earnings.

I would add that most of the operational changes we've made at this point, while both the SG&A line and the cost of goods will be affected, the reality of it is, as I said multiple times on the call, every one of our businesses is still seeing growth opportunities, is soliciting new business, is landing new business and is growing.

I think that I've listened to a number of other industrial calls this year, so I think many of them echoed the concerns of the end of the fourth quarter and the beginning of the first quarter this year, so we have been very careful not to dismantle an organization that is built to grow.

So I threw out a lot of numbers. There are a lot of big numbers relative to cost cuts. They will disproportionately hit the cost of goods line because it's not just about headcount. It's about material savings, operational savings, so there's a slew of different items at each business that has been impacted, but I want to remind everyone, even the businesses that struggled are still positioned to grow and are soliciting new business.

So let's take Supply Technologies as an example. Supply Technologies was really crushed by the significant impact of Class 8, particularly Volvo in January and February. Well, we are not just going to close up shop and not solicit new business. We are positioned in that business for growth. We've significantly increased our footprint and we are still soliciting and implementing new accounts. So while we are being aggressive on the cost side, I ask you and others to remember that some of this volume volatility were aberrations. It doesn't change what we are trying to accomplish. So we are not going to gut the SG&A line because of short-term volatility.

This reminds me a little bit of 2008 and 2009. In 2008, 2009, the first quarter of 2009, we were down 42% in revenues year-over-year and we had implemented a considerable restructuring, but we are looking for the future. We don't think this is a permanent damage and whatever reductions we have made, they are done very carefully. They were done throughout the whole quarter. They are pretty much in place at this particular time, but we are not compromising our ability to grow here because of one quarter. We didn't panic in 2008 over 2009 and believe me, it was good because as soon as 2009 started to roll, we were there. We had the people. We didn't lose key personnel. So it's easy to overdo some of these things, but we've been through this before and this to me is another 2008, 2009. I was shocked about that first quarter. Well, I'm shocked about this quarter. But that doesn't mean that we can't or are not building a long-term business.

Got it. That's very helpful, guys. And I apologize if I missed this. There were a lot of numbers being thrown out here, but what is the total savings you guys are expecting to obtain from these reductions?

Pat can confirm this for me, but I think in my opening comments I consolidated them to operational cost savings totaling in excess of $15 million, which were put in place during the first quarter. So an annual impact of $15 million -- those were just the ones that were implemented in the first quarter.

Got you. Okay. And so we will see that immediately coming here in Q2 then, if I am understanding you correctly?

Correct.

That's right.

Got you. Okay. In terms of Supply Technologies performance in the quarter, I know you mentioned the Volvo, the heavy-duty truck impact there. It kind of sounds like that perhaps took you guys by surprise. Can you give us some more insight into what you see there and how it's tracking thus far since quarter-end?

I think I've said as much as I want to, which is I think in my comments I said that every market improved average daily sales -- which is a key metric in the Supply Technologies business -- improved throughout the quarter. So February was better than January; March was better than February. So I think that we have seen those improvements, but you are right. Unquestionably, we were surprised and candidly I think some of our key customers were surprised at some of the shutdowns and the demand softness that occurred early in the first quarter. But, no, we've seen a recovery in most end markets on an average daily sales basis throughout the quarter.

Got it. And last quick question and I will jump back into queue, coming to the Chrysler Fiat issue there, can you give me perhaps a little bit more color? When did the client come to you and basically express the fact that they are going to be stopping those two lines and it kind of sounds like again you guys were taken by surprise there. Any kind of color you could provide?

I will start and I'm sure others will have a comment on this as well. Once again, I think it's public knowledge that Chrysler reviewed these productlines somewhat surprisingly I think towards the very end of last year, beginning of this year. So I don't know that their review of these productlines was the most recent shock. I think that while that was a surprise to us relative to our overall business plan, I think what surprised us more recently is how abruptly it appears that they've decided to not produce this car.

So I know originally there were rumblings that this car would stay in production through next year and then it was early next year and then maybe one longer than the other. These cars are still actively being marketed and sold. In fact, you can see a commercial still on TV. So I think we were under the impression, as were a lot of suppliers, that the production rates would continue at similar volumes. We have chosen at this point to believe that that is not likely and as recently as last week, we chose to take the position, the conservative position, that we just can't expect anything from them at this point.

It appears clear that strategically they have chosen, at whatever cost to those two car platforms and current sales, to move that production to SUV production. It's probably a good decision long term. It's probably a good decision for their interest in selling the company to sell more Jeeps than Darts, but the reality of it is it has been a disappointing tail that's accelerated since their strategic decision, which was a few months ago.

Marco, in the auto industry, there's always surprises and if anybody wants to get a real discount on a Dodge Dart, I will be glad to arrange it for you. I was following a Dodge Dart last night. I thought it was a pretty attractive car. This was I think kind of a universal -- my view of the big picture here is this is not only Chrysler, this is Ford and General Motors. With the gas coming down quickly, all of a sudden, all the SUVs became a very, very important thing. No one wanted the sedans anymore. No one wanted those four doors. They wanted the SUVs and they could afford it.

So I think they are just spinning around quickly. They can't make enough Jeep Cherokees and they want this production lines and capabilities for the Dart. Now this is not special equipment that cannot be used. We are in the marketplace right now and we've advised them that we are going to replace this business, that production, to whoever wants to buy it, including them. The biggest platform at Chrysler right now is the front end of the truck, of the RAM truck, that's going to go to aluminum. We should be in that. Maybe we can get part of that.

So it's not as though this equipment went away. We had to shut it down and we had to let the hourly employees go, but the equipment is still there. It's not special equipment. It'll do any of -- many families of aluminum parts. So we will get it, but it hurts when they decide to knock out one of your -- two of your platforms -- especially when the business is a very substantial part of what we are currently doing.

Yes, we've lost the revenue of it, but we haven't lost our interest in the fact that the auto industry on the big picture, particularly with everything that's happening in China, has been very positive. So we were in the wrong place at the wrong time. The Dart goes; this goes. The equipment is still there; the equipment is ready to go. We are going to replace that business.

And keep in mind, we've been talking about two or three quarters here a fact that we didn't make any acquisitions in 2015, and we were going to have to grow organically. And I've been saying for the last two or three conference calls that it takes a while for that organic investment to come onstream, like the 10-speed transmission. It's coming up now. It's just starting to ship. In 2017, it gets into full speed. But we've made investments, CapEx investments, internal things for our organic growth, and the cycle is 18 months. It's not make an acquisition, you get it the next day. So yes, we are disappointed in this, but I'm not heartbroken over it and we will redeploy the capacity.

Got it. I appreciate your guys' comments. Thanks so much.

(Operator Instructions). Steve Barger, KeyBanc Capital Markets.

As you look across your other aluminum customers, do you expect any other platforms or programs are at risk?

I'm not aware of any programs that we are currently on that would be, using your term, at risk. It is clearly the ones that we are on are doing very well, particularly the Jeep Cherokee and others. So, no, I don't think there's anything there that -- I hope, unless they discontinue the Jeep Cherokee, which I doubt, that we will be hit with this in the near future. Hopefully not.

Okay. And you talked about taking that capacity to market. Can you just talk about the industry in general in terms of is capacity tight? And realistically, do you think that you stay with Chrysler for that on a new program, or are there other customers that could move more quickly potentially?

We have been active in the marketplace for a considerable time, as soon as the rumors started to fly about this. Just like we started reducing our overhead in the Company in the first quarter because of what we saw coming, although it creeps in, but we've been out marketing this thing for some time already to all the companies. So it is standard equipment; it's not specialized for Chrysler. We can do work for anyone of the big three, and quite frankly there is still a tight market for this and we feel that we are going to be able to deploy it.

We are going to be able to deploy it the sooner the better, but I would hope that we would be on the way to deployment of this sometime this year. I don't know if we will be up in production, but we have production lines ready to go and we are bidding on business, but let's say the big job comes with RAM front end. You get that, we have the equipment. We don't have any of the CapEx we had, but we do have the timeline between now and when it goes into production in 2018. So it's great. It's about $60 million in business, but that's a long time between here and Tipperary.

So we've got to do something else, but we are not sitting idly by. We haven't been sitting idly by. But the facts are they are going to stop making those cars and they are going to stop advertising. We know now because we can sense the amount of pieces they are buying. I think they are just building a bank because they have the responsibility to supply spare parts for the next 20 years or 10 years. It's a terrible place, but that's it. On the other side, we are growing with their other platforms with the same type of people, so it's not as though we lost a customer. We didn't lose a customer, we lost two cars.

Right. And so I think the volume on those had been a little lighter than expectation, so is it reasonable to think that you can sell that capacity at a better price or margin even if it's just from absorption coming from higher volume?

Well, I think we definitely will get margin enhancement for redeploying the equipment. Keep in mind, as we have discussed, Steve, these programs were taken in the crisis period where our competitor, who subsequently went bankrupt, was out there cutting prices. So we will look ahead and we'll -- it's a good point. We should be able to get better margins.

Okay. And you talked about $15 million of cost savings. How much of that was actually realized in 1Q, or how much of a benefit was in the numbers and how much is yet to come?

The restructuring that was taking place in the first quarter, much of that was not realized in Q1 because of the nature of the changes that were being made. So most of those savings will start to be realized in Q2 and forward. We did see some of the improvements in Supply Technologies, but in general most of that is more forward-looking that will start to kick in in Q2.

Got it. When you factor in the lost business in assembly and what's going on in other end markets, can you help us with our models? What do you think full-year revenue looks like for the assembly segment and the full Company?

Steve, we typically don't give the segment information guidance out, but relative to the full-year sales guidance, we haven't given that guidance out as well.

Okay. I guess I will try one other way. When you look at the revenue run rate of $131 million in that segment assembly in the quarter, is that a reasonable way to think about the rest of the year, or the full impact of the lost program is not reflected in that $130 million run rate?

Pat, let me ask you a question. We have new guidance out there. What's roughly the number on sales that connects to that number?

Roughly, Steve, in total, the total business sales will be about $1.4 billion in revenue this year. That number could increase based on quick replacement of that work or quicker implementation on some new orders in Supply Tech, but that's our total business estimate of where revenues will end up.

Got it. I will ask one more and I'll get back in line. You talked about operating cash flow, if I heard right, of $50 million to $55 million this year. What do you expect from working cap this year? Does that become a source due to the revenue reduction that you are seeing in assembly?

Right now, the operating cash flow estimate of $50 million to $55 million does include some investment in working capital to support future programs and future growth in our other businesses.

Got it.

Thank you, ladies and gentlemen. We have no further questions in queue at this time. I would now like to turn the floor back over to management for closing remarks.

Well, someone suggested they would be back in the queue. Do you want to run that by the two previous individuals asking questions to make sure?

(Operator Instructions). Steve Barger, KeyBanc Capital Markets.

Thanks. I wanted to switch gears to the Supply Tech. Did I hear you right that you signed nine new customers in the quarter?

We are implementing nine new customers, meaning that we are bringing them onstream.

Understood. New industries or regions; how did that evolve? Where are you finding the customers? And really how long did the sales process take from the initial conversation to converting them to a customer?

Oh gosh. As you know, this is a very sticky business with a very comprehensive service package extending from upfront engineering through supply chain. So the sales cycle, depending on the customer, can be years. In some cases, it can be much quicker depending on the size of the product suite and the service package. So it would be very hard, I think, to comment on sales cycle, other than to say that good, long-term relationships aren't born overnight.

So, no, it's impressive for us to have that many new customers in implementation, some of them bigger than others. As we've discussed in the past, a lot of great big customers, top-10 customers for us start as smaller customers. We also see penetration often in industries where we've had some success with one particular participant and then move to the others. We have seen some of that recently in the RV industry and caravan industry, particularly outside the US in the UK and so forth, as well as inside the US.

So I would say that the implementations are global in nature, but I would tell you that I think we've continued to see and leveraged some of the strength out of the growth we've seen in the UK and in the international business specifically.

Are there a lot more new prospects in the pipeline on a global basis, or have you accelerated the process of getting in front of people to sell the value proposition of Supply Tech?

I don't know that I would say accelerated. I think that new business has been an emphasis of that organization for a couple years. So, no, I would not necessarily -- by mentioning the nine implementations, it wasn't intended to say that's new or different, but just to give you a sense of what's going on in the business. New business in Supply Technologies is a priority. I think that we have, on a relative business, underachieved in that area and it's nice to see that we are getting some traction.

It's an impressive number. I think you said the railcar build was down 30% in the quarter. Do you have content on all types of railcars, or just more on one or two types?

No, we could talk a little bit more broadly about that; it wouldn't hurt. We talked about railcars -- our rail forging business has content on locomotives, which has been weak the last year. It has content on railcars, which is really what hurt us recently both on tank and freight, so we see all types of cars there is the answer to your question. And then we also have track products, making products that help lay down track. So that business candidly is the steadiest of the group, as you might imagine. But the locomotive part of the business and the railcar part of it has been particularly weak as of late.

Right.

Let me back up and say, Steve, just to get to the theme of -- I feel like a lot of our end markets -- we've prized our diversification over the years, and I feel in this particular case, a disproportionate amount of our markets were weak. I want to -- this is a classic example -- we have dominant marketshare of these products we are supplying into the railcar market. So in no case is this discussion about losing customers or our products becoming less competitive or less important. This is just about end-market volatility particularly in the first quarter and that's maybe one of the best examples I can think of.

Yes, understood. I think it's a good point. Steel prices have firmed up to some degree. Does that typically translate into increased capital spending from your steel-producing customers?

Yes, I can't think of a line in my whole darn report that we thought about as much as trying to suggest that anecdotally -- we are seeing a little -- that resurgence we believe is why we've seen small but important increases in our aftermarket business. So nothing to write home about, but an important rebound however small it may be. And candidly also the comment I made about increased inquiries.

So the answer to your question is yes, I think. It could also be -- at some point, it's just been too long. People have to fix equipment even if it's running at half the volume. So whether it's the rebound in prices, whether it's the age of the equipment, whatever it may be, I do think we are seeing -- if we can't say with confidence an uptick, I think we can say that we've at least called the bottom.

Got it. That's a great comment. And last one for me, your CapEx budget for the year. I can't remember if you gave us a number on the last call, or just what are you thinking that's going to be for 2016?

We did give you one on the last call and we didn't give you one on this because I would say that much like our efforts, which are very granular and business by business on the cost-reduction side, we are equally reviewing our CapEx budget and expect it to be less than what we said on the last call. We are just not prepared to give a number. And once again, one of the issues here, and I want to reinforce this is we have parts of our business that are doing really well, and we have a number of parts that aren't just doing well -- some that aren't that we still want to invest in. So our cash flow metrics continue to be strong. Our results on a historical basis continue to be solid and we are in a position to take advantage of some of these regardless of the volatility in the first quarter, in my opinion. But having said that, we are also reviewing it and expect to spend less money in CapEx than previously announced.

Understood. Well, I appreciate the time. I know it's a tough environment out there and hopefully will see some more rays of light as we progress through the year.

Steve, one last comment that, as you touch on cash flow, I would not expect -- I'd expect a little bit of an increase in our debt leverage, but not significant relative to what we are expecting throughout the course of the year.

A little increase to your debt leverage, you said?

Yes. So our net debt to EBITDA leverage we expect to be about 3.2 for the year, which is consistent with where --.

Oh, understood. I got you. Okay. Thanks.

Thank you. Ladies and gentlemen, we have no further questions in queue at this time. I would now like to turn it back over to management for closing remarks.

Well, we want to thank everyone hopefully for your patience and we are acting as we should and have been through the first quarter, getting things tightened up a little bit, but again there's a lot of great things happening in the Company and we had a few issues that we have addressed in the first quarter and hopefully things will be positive and grow as we continue through the year and take advantage of the opportunities as they present themselves. Thank you once again and have a nice day.

Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.