Tsakos Energy Navigation Ltd (TEN) 2021 Q1 法說會逐字稿

Good day, and welcome to the Tenneco Inc. First Quarter 2021 Earnings Conference Call and Webcast. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference call over to Ms. Linae Golla, Vice President, Investor Relations. Ms. Golla, the floor is yours, ma'am.

Thank you, and good morning. Earlier today, we released our first quarter 2021 earnings results and related financial information. A presentation corresponding to our prepared remarks is available on the Investors section of our website. Please be aware that our discussion today will include information on non-GAAP financial measures, all of which are reconciled with GAAP measures in our press release attachments and other earnings materials. When we say EBITDA, it means adjusted EBITDA. Unless specifically described otherwise, margin refers to value-add adjusted EBITDA margin. The earnings release and other earnings materials are available on our website. Additionally, some of our comments will include forward-looking statements. Please keep in mind that our actual results could differ materially from those projected in any of our forward-looking statements.

In the near term, we are looking forward to participating in 2 virtual conferences, including the KeyBanc Capital Markets Conference on June 3 and the Deutsche Bank Global Auto Industry Conference on June 17.

Our agenda for today starts with Chief Executive Officer, Brian Kesseler, giving first quarter highlights. Chief Operating Officer, Kevin Baird, will provide more details on our enterprise and segment performance. And our Chief Financial Officer, Matti Masanovich, will discuss our balance sheet and outlook for the second quarter and full year 2021. Then, Brian will conclude with remarks on driving shareholder value creation before we take your questions.

Now I will turn it over to Brian. Brian?

Thank you, Linae. Good morning, everyone, and welcome.

Let's start on Page 4. We had a solid start to the new fiscal year building on positive momentum from the second half of 2020. There are 3 key areas I'd like to highlight today: our strong business execution, how we are strengthening our balance sheet and the ways we are driving value for our shareholders.

First, on our business execution. We saw a strong profit conversion on higher volumes and a challenging supply chain and production environment. In that same vein, our Accelerate+ program continues to produce results, delivering structural profitability improvement, margin expansion and cash generation benefits. We're expecting incremental savings from the program of $110 million in 2021 plus $35 million of realized year-end run rate savings projected to be carried over into 2022.

Second, we remain focused on strengthening our balance sheet with a priority on cash generation and debt pay down. Matti will review in more detail, but here are a few takeaways. We ended the quarter with $2.1 billion in liquidity with no outstanding balance on our $1.5 billion revolver. We extended $800 million of debt maturities to 2029 at similar cost, and this extension clears the path to refinance our senior credit facility, which consists of our revolver, Term Loan A and Term Loan B in the future. These are all clear and tangible indicators of the increasing health of our balance sheet and access to the capital markets, and we expect both to improve in tandem with our operating results going forward.

Lastly, I also want to remark on our priority of driving value for our shareholders. We have the potential to unlock significant near-term value through debt reduction. We are also realigning our product lines and investments to bolster our core growth platforms, which Kevin will discuss in more detail. As part of this, we have renamed our Ride Performance segment to Performance Solutions concurrent with the transfer of a business line previously managed within the Powertrain segment to the Performance Solutions segment.

By focusing on our growth opportunities in Motorparts, Performance Solutions and commercial truck, off-highway and industrial, we are strategically realigning our revenue mix and positioning the enterprise for long-term sustainable growth and higher returns to our shareholders. We are relentlessly focused on delivering results in both the near and long term and are pleased to share our first quarter results with you today as further evidence of that commitment.

Turning to Page 5. I'll walk through an overview of our first quarter 2021 results. Our first quarter total revenue was $4.7 billion, up 23% year-over-year. Value-add revenue was $3.6 billion, up 13% year-over-year, excluding foreign currency effects. Our scale and diversification of product lines, end markets and broad geographic footprint are primary advantages for us.

On this slide, we break down our first quarter's value-add revenue by product application and region. Looking at the value-add revenue split by product application, 60% was independent of OE light vehicle internal combustion engine technology, specifically aftermarket and OES at 28%, commercial truck, off-highway and industrial at 17%, while powertrain agnostic light vehicle OE made up 15%. Our constant dollar value-add revenue performance by market includes 38% growth in CTOHI, 14% in light vehicle and 1% in aftermarket and OES.

Looking at the split by region, North America was our largest contributor in the quarter at 40% followed closely by Europe at 38%, and China generated 13% of our value-add revenue. We delivered improvements in adjusted EBITDA and adjusted EBITDA margin in all segments and reduced our net leverage in the quarter. Adjusted EBITDA was up $149 million year-over-year with value-add adjusted EBITDA margin improving to 10.7%.

We took another big step in reducing our net leverage ratio, which declined by 0.4x since year-end to 3.9, driven by seasonally better first quarter cash flow and higher EBITDA. We are especially pleased with our cash performance in Q1, which was much better than historical levels for our first quarter.

I'll now turn it over to Kevin.

Thanks, Brian. I'll start with our first quarter enterprise performance on Page 7. As Brian mentioned, our value-add revenue was $3.6 billion in the quarter, up 13% year-over-year after excluding the positive impact of currency exchange rates. Our top line benefited from strong commercial truck, off-highway and industrial markets as well as a significant recovery in China light vehicle production. All of our reporting segments showed revenue and margin growth in the quarter.

Adjusted EBITDA grew 62% in the first quarter because of continued solid operating leverage on the higher volumes. Our Accelerate+ restructuring program that we started a year ago is delivering the savings we anticipated and provided a lift to our operating performance this quarter.

Our value-add adjusted EBITDA margin increased to 10.7% in the quarter or up 310 basis points with all segments showing improvement. Adjusted EBITDA includes $47 million in corporate costs.

Let's turn to our Motorparts business performance on Page 8. First quarter after market revenue was $719 million. On a year-over-year basis, sales volumes were slightly favorable, but were affected by adverse weather conditions in North America in the middle of the quarter. We saw strong out-the-door sales and customer orders at the end of the quarter, which created a good setup for our second quarter.

Adjusted EBITDA for the quarter was $105 million, up 44% year-over-year. Margin at 14.6% was up 430 basis points compared to the prior year. Our operating performance of $35 million benefited from restructuring cost savings. We successfully closed 3 U.S. distribution centers in the first quarter as we continue to rationalize our supply chain and distribution network through our VSS initiative, taking out low value-add complexity.

Please turn to Page 9. As Brian mentioned, we have changed the name of our Ride Performance segment to Performance Solutions. This business is now aptly named as it describes the broad offering of the segment's highly engineered products and solutions available to our customers. The business supplies mission-critical products and applications to the automotive, commercial vehicle, 2-wheel and industrial end markets. Also note that we have recast quarterly and full year 2020 results pro forma for the reporting unit transfer from the Powertrain segment into this segment.

First quarter revenue of $787 million was up 14% year-over-year in constant currency, driven by strong growth in commercial truck, off-highway and industrial revenue, which was up 45% year-over-year. Adjusted EBITDA of $47 million was up 24% and adjusted EBITDA margin was 6%, up 30 basis points compared to a pro forma prior year. Margin growth was driven by operating leverage on higher volumes.

Product lines in this segment are agnostic to the powertrain technology in the vehicle. In the first quarter, the business was awarded 5 new programs for battery electric vehicles or hybrids, 3 of which are pure BEV. During 2021, we have 19 launches for BEV, hybrid or e-bike programs with annualized revenue of greater than $150 million. Examples of programs recently announced include the Volkswagen ID.4 electric SUV and the BMW iX3 electric SUV, both of which are available with our continuously variable semi-active suspension technology. In fact, around 1/3 of Performance Solutions' active new business pipeline and 1/3 of the year-to-date awarded business is battery electric vehicle or hybrid.

Turning now to Clean Air's results shown on Page 10. Clean Air value-add revenues were $1.04 billion, an increase 19% year-over-year excluding foreign currency effects. Light vehicle value-add revenue expanded 13% versus the prior year period and OES grew 26%. Clean Air's commercial truck and off-highway revenue growth was impressive with value-add revenues up 44% year-over-year. Our China commercial truck revenues almost tripled compared to the first quarter of 2020 due to China 6 per vehicle content gains and underlying market strength.

Further, the segment's CTOHI revenues benefited from volume recovery in the developed markets compared to the prior year period. CTOHI made up 22% of the segment's value-add revenues in the first quarter compared to 19% for all of 2020.

Adjusted EBITDA was $157 million and increased 51% compared to the first quarter of 2020. Adjusted EBITDA margin was 15.2%, expanding 290 basis points year-over-year. Solid operating leverage and conversion on increased volume and favorable business mix supported the segment's strong profit performance.

Please turn to Page 11 for details on Powertrain, which delivered another strong quarter. At constant currency, revenues increased 16% versus the prior year. Light vehicle revenues grew 16% year-over-year and benefited from steel piston launches for gas applications, new technology advancements in bearings and demand recovery in China and India. Additionally, commercial truck, off-highway and industrial sales gained 31% compared to the prior year period. Powertrain has significant exposure to the commercial vehicle and industrial markets in Europe and North America and is benefiting from the volume rebound occurring in those regions. OE service revenues decreased 3% compared to the first quarter of 2020.

Adjusted EBITDA measured $126 million, an increase of 85% versus last year's first quarter. Adjusted EBITDA margin was 11.4%, representing 400 basis points of expansion year-over-year. Strong operating leverage on higher volume, higher JV income and restructuring savings were the key contributors to the performance.

I'll now turn the call to Matti to discuss our balance sheet and guidance.

Thanks, Kevin. I'll start on Page 13. At the end of the first quarter, the company's liquidity was $2.1 billion with no outstanding balance on its $1.5 billion revolver. The company's net leverage ratio declined to 3.9x, a 0.4 turn improvement from year-end. EBITDA growth benefited our performance. As well, our cash usage was well below normal seasonal levels for our first quarter and also contributed to the net leverage ratio improvement.

As previously communicated, we have lowered the capital intensity of our business with sustainable improvements in our working capital days, led by a heightened focus on reducing inventory days outstanding. Further, we have structurally reduced our capital spending as a percentage of sales by more aggressively reusing existing equipment and physical capacity relative to historical company practices.

Concurrently, we continue to make investments in our Accelerate+ restructuring program to fund plant consolidations and eliminate unused capacity. We are driving Accelerate+ to enhance our earnings and cash flow. Near term, our top priorities remain cash generation and reducing our net debt and net leverage.

During the quarter, we issued $800 million of senior secured notes due in 2029. The proceeds of these notes were used to redeem an equivalent amount of 2024 senior secured notes. The refinancing extended our maturity profile at a similar cost structure and clears the path for us to address our revolver and Term Loan A maturities in 2023 and the Term Loan B maturity in 2025.

Turning to Page 14. We have updated our full year guidance and initiated a Q2 outlook. We are increasing our guidance for 2021 value-added revenue and EBITDA based on our outperformance in the first quarter. We have increased our full year value-added revenue guidance range to $13.5 billion to $14 billion, which is up from our prior range of $13.2 billion to $13.8 billion. At the midpoint, our range implies year-over-year growth of 14%. Our revenue range uses a global light vehicle production assumption of 80 million units, no change relative to our initial view of the year.

Our conservatism versus the mid-April IHS forecast is relatively balanced across the remaining 3 quarters of the year. Additionally, we have raised our 2021 adjusted EBITDA guidance by $50 million to a range of $1.35 billion to $1.45 billion. At the midpoint, our revised EBITDA guidance translates to a 10.2% value-add EBITDA margin for 2021, 150 basis point improvement compared to 2020.

As we have previously discussed, the temporary cost savings that benefited us in the second and third quarter of 2020 was $100 million in the second quarter and $50 million in the third quarter. Those costs will come back this year. Our Accelerate+ restructuring savings will partially offset the reversal of those cost reductions. For the year, we expect to achieve $110 million of year-over-year savings from the Accelerate+ program.

Shifting to the balance sheet. We now forecast our net debt to fall below $4.2 billion by year-end. Our guidance for 2021 cash taxes and CapEx is unchanged. As a reminder, our cash flow is typically seasonal and we anticipate a significant inflow in the second half of 2021.

In the middle of the page, we have initiated a second quarter outlook. Our value-added revenue forecast is $3.3 billion to $3.5 billion. The midpoint of the range implies a year-over-year revenue growth of 69%. We have factored in recent downtime announcements from several of our key customers into the guidance. Our adjusted EBITDA range is $325 million to $355 million. Sequential margin performance is forecasted lower, primarily due to lower light vehicle production expectations and timing of material cost recoveries. As we are lapping the second quarter of 2020, we are targeting a net leverage ratio of approximately 3x on a trailing 4 quarter basis at the end of the second quarter.

I'll now turn the call back to Brian for concluding remarks.

Thanks, Matti. Turning to Page 15. I'll close with a summary of our priorities for driving shareholder value in both the near and long term.

First, we are highly focused on driving disciplined performance. Our cost reduction efforts are yielding sustainable structural benefits and our Accelerate+ program is on track to achieve $265 million run rate savings by the end of 2021 as compared to a 2019 baseline. We continue to lower our capital intensity through a mix of optimized capital spending and working capital management. In addition, we are broadening the use of value stream simplification tools across the company to enhance our long-term growth and margin performance.

Second, we intend to build a strong balance sheet for the long term. Our free cash flow generation continues to improve, and net debt reduction has the potential to create the most value in the near term. Additionally, our debt maturities are being extended. Our most important capital allocation priority is funding projects that enhance profitable above-market growth. In the near term, we will use our free cash flow performance to reduce our net debt to EBITDA ratio to a target range of 1.5 to 2x.

Once those first 2 priorities are met, we will evaluate strategic acquisitions that enhance the positioning of our key growth platforms and balance those opportunities against returning capital to shareholders.

On the right side of the page, you see our priority to generate long-term sustainable growth. Our growth platforms are our linchpins to increasing our growth over market. Motorparts, Performance Solutions and commercial truck, off-highway and industrial are positioned to drive the growth of the company in the intermediate to long term. And the emphasis on these businesses should lessen our exposure to light vehicle internal combustion engine.

Over the mid to long term, we are targeting 80-plus percent of our revenues to be unrelated to light vehicle OE internal combustion engine technologies. Additionally, we are managing the Clean Air and Powertrain segments for high cash conversion to reduce our financial leverage as we invest more in our core growth areas. The strategic relevance of our business lines will evolve over time and we intend to maximize their value for the benefit of our shareholders.

We continue to build on our positive performance momentum, strengthening our balance sheet, improving our margins and reducing our leverage ratio. Above all, we remain committed to managing our business in a way that will generate sustainable growth and returns.

We're encouraged by our strong start to 2021. We would like to thank nearly 75,000 Tenneco team members for their commitment and resilience and for taking care of each other and working to keep our facilities around the world operating safely. We're proud of the high level of service they deliver to our customers as they continue to drive improvements in our business performance.

Thank you for taking the time to join us today. Operator, we will now take any questions.

(Operator Instructions) And the first question we have will come from Ryan Brinkman of JPMorgan.

Of the 1Q beat and the 2Q guide and the increase to full year outlook, I think arguably, the 2Q guide is the most impressive as other companies we cover, when either reaffirming or raising their outlook for the full year, they've for the most part cautioned on 2Q, whereas you're sort of guiding above The Street here.

I just wanted to check in on some of the drivers of that, including relative to the top line and the degree to which you think you might be differentiated relative to other suppliers when it comes to semiconductor impact. So could you maybe talk about your light vehicle OE customers? Are they maybe allocating chips more toward the products you have higher content on versus those which you have lower content? And I guess, primarily, I'm thinking of pickups, but any other color you might have there. And then I imagine your higher aftermarket exposure helps there.

What about your non-light vehicle end markets? On the Meritor call, there was some discussion of -- starting to see some impact now on commercial on-highway from semis. But I'm presuming it's less and I don't know, some of your other end markets like agriculture, et cetera. What impact are you seeing?

Yes. I mean I'll start with the light vehicle side. The -- our North America makeup of our revenue generally is about 85% plus to trucks, SUV, CUVs, which are some of the higher selling vehicles, obviously, these days and in that light truck space, where we see ROEs focusing their allocations into that production. Obviously, we're seeing a big drop off here in the quarter versus what we saw in the first quarter in those production rates. We believe we've got that appropriately forecasted out, still a little conservative as we talked about in our guide. So we think we've got that.

I think the rest of our benefits come from the diversification of the portfolio. CTOHI is still very strong for us. Yes, we are starting to see some production delays, if you will, from some of the players in the commercial truck space, especially in Europe. Off-highway continues to do well. In our China business, while the China production we forecast probably going down over the year versus what we saw in the first quarter, we've got big gains there from the China 6 regulation and the content. And then our aftermarket is, as you've followed us for a while, our second quarter is generally our strongest aftermarket quarter.

So we feel pretty good about the guide from a -- being a little bit still more conservative on light vehicle. Obviously, Matti talked about using $80 million as the build for our assumptions for the balance of the year. That's about $1 million more conservative per quarter than the mid-April IHS. We anticipate the IHS May numbers to come down based on all the recent announcements in the last week or 2. So I think this is just an indication of where our diversification and end markets really is helping us out.

Okay. That's helpful. And then just lastly for me, I'd like to check in on the environment for M&A, including as results -- as it relates to potential dispositions, right? So we've been asking other companies this quarter about the M&A environment, and they've mostly been complaining because for the most part, they're looking at acquisitions, but finding that the transaction or potential transaction multiples are quite elevated, including because of the rally and the broader equity markets and because of the -- just generally a lot of liquidity that's out there.

Given that you've spoken more of the potential for dispositions though, including to accelerate deleverage, et cetera, I would imagine for you, you might be happier about this backdrop. So I know you're often limited in what you can say on this front, but is there anything to maybe report about the number of inquiries or maybe the multiples that are being discussed or anything else that might be encouraging?

Yes. Ryan, as you said, we're limited in what we can talk about it. I do think an active M&A demand is positive overall for us, but we're also going to make sure we're balancing here the right value for the right time. We've got some very good cash engines in the business and our optionality really increases dramatically by getting our debt reduction down into that range. We talked about 1.5 to 2x on the leverage ratio. At that point, we feel pretty good.

Now of course, we'll listen forward to different opportunities, but it will always go through the lens of maximizing shareholder value for both the near term and the long term. Debt reduction, if you just do the math, drives the most near-term shareholder value. And that -- our focus on cash flow. We were really happy with our Q1 cash flow -- free cash flow performance. Traditionally, that's a very large outflow quarter for the OEs in general and us. But this is -- we were pretty good, I think, $74 million in operating cash flow, which is really far below our 10-year average for our first quarter.

And next, we have Joseph Spak of RBC Capital Markets.

The -- in Clean Air, you consistently over the past 3 quarters have been above the sort of 15% EBITDA margin level. Now I understand that next quarter probably takes a hit a little bit. But have we sort of turned the corner here? Is sort of 15% more sustainable level? And where can we go in that segment?

From a Clean Air perspective, a lot of our growth that's highlighted on the call was CTOHI. We continue to move the mix in there. So -- and that generally has higher margins for us. Obviously, Clean Air is a big portion of our North America business where the pickup trucks, light vehicle, SUVs, CUVs are big. So this downtime in the second quarter hurts them a bit.

But we're going to be moving both the Clean Air and Powertrain mix to more -- over the mid- to long term to more of a 50% CTOHI revenue makeup and 50% light vehicle makeup. So that should, maintaining our right disciplines, continue to give us opportunity in our margin rates there over the mid- to long term. That 15% where they've been hovering lately is pretty good. And we just got to manage through some of the challenges here in the remainder of the year.

Okay. In the new Performance Solutions segment, it seems like that reclass is helpful to the margins. Can you just give us maybe some color on, I guess, the underlying legacy Ride Performance performance this quarter?

Yes. So we continue to be very pleased with -- right now, we're running 5 business lines -- business units underneath there. Our advanced suspension technology business continues to grow a lot of what Kevin mentioned in the new business awards. Again, that's above average margins for us. Our NVH performance materials business is in that group. Again, good growth forecasted, lots of opportunity on the battery electric vehicle side, where we're seeing most of our growth in that segment. We moved the Systems Protection group over there. Again, great opportunities there. All 3 of those are really highly engineered solutions that bring a lot of value to our customers and help them address issues that they have as they look to differentiate their vehicles and protect the performance of their vehicles.

Our ride control group is making steady progress. We struggled with the consolidation to -- from 4 plants to 2 in the midst of all the other COVID challenges. But that team is really starting to hit their stride. So we expect that to continue to improve throughout the year. And then our braking business has a couple of challenges inside our North America side that -- again, they're starting to hit their strides. So I like the trends we're on for the Performance Solutions group.

Okay. And then lastly, you mentioned some of the -- specifically in the 2Q guide, some lower margins. It sounded like you were -- relative to the first quarter, which sounded like you were basically just assuming, I guess, less leverage on sort of the lower volume sequentially. But is there anything we should be thinking about from -- either for the second quarter or the balance of the year from a commodity or freight perspective? I mean these are obviously headwinds like even -- I know steel has sort of historically been something that's hit you in certain segments, but we've also seen resins increase quite significantly as well. So I'm wondering whether there's anything baked into the forecast there. And if so, what are some of the offsets?

Yes. So most of the material cost -- we're experiencing the material cost headwinds just like everybody else. Steel is a big impact for us and there's several other commodities. Now if you remember 2, 3 years ago, we went to work hard on getting formal recovery mechanisms in place on steel, and that's benefiting us at this point.

What we're seeing is we still have to do negotiations. We're working very closely with our suppliers and then our key partners there are helping impressively as we go through that. What we're seeing is the timing issue. Normally, there's a 90-day lag. Sometimes there's a little bit longer lag, depending on the customer side.

So the commodity increase -- we still got a little net risk out there that we'll continue to manage, and our goal is always to offset. But most of our challenge in the next couple of quarters is depending on where these -- if these commodities continue to escalate, is going to be the timing of the recovery and when that comes back in.

Okay. And is your current thinking that things stabilize, is that back half of the year or is it a '22 event?

If things stabilize, I think it's the back half of the year. It's usually 90-day, maybe 120-day lags. Again, that depends. There's a lot of variation customer to customer. Aftermarket is usually a 90-day lag. Obviously, we pass that through on price. That goes all the way through the market. So it's just a matter of making sure we get through this. If things continue to escalate, then we continue to have that lag as we go. Now if it comes down, then we get the benefit of that at some point, hopefully.

And on the aftermarket side, have you pushed through price increases or are those at sort of predetermined calendar dates?

No. We generally push them through.

Next, we have Bret Jordan of Jefferies.

On the aftermarket business, I think you've commented about strong POS late in the quarter. Could you talk about what your retail inventories are looking like year-over-year? And obviously, some pretty strong sales in that channel. Are they like going into the second quarter?

Yes. We saw the pickup. As we went through the first quarter, we had a pretty big lull there in February with some of the big weather disturbances in the South and in the Midwest affect us from production wise, but also from demand wise. We saw our customers' POS really start to take off. They had some -- they had a pretty good quarter pretty much across the board. Now some of those are seasonal categories that we don't produce or deliver, but we did see a good POS. Usually, for reorder points after a good strong POS, it's a 30- to 60-day lag as those orders come in. So we saw a good order bank coming into the quarter. We were happy with what we saw in April. So we like -- from their retail inventories, I think it's normal ebb and flow off of their demand and supply, but they are restocking off after a pretty good March and early April.

Okay. And that was -- my second question was as far as specific category that you were seeing strength in, was it, I guess, anything specific? And seasonal mix versus anything that was out of the ordinary?

No. Pretty much across the board. I mean we've got a couple places where we've purposely discontinued product lines as we go through our VSS work. They just weren't adding the value and allows us to do a lot of what we're doing from inventory optimization. And Kevin mentioned, taken out 3 DCs that lowers our structural costs. So nothing out of the ordinary, pretty much across the board, but a little bit of variation as we go.

Okay. And then one final question. I think you mentioned the Performance Solutions, you're getting into some of this semi-active suspension products into BEV and hybrid. Is that higher value or higher margin than the average mix in the segment?

Yes.

Okay. Have you talked about sort of what the spread is on margin mix versus the average?

Well, I think it's a little bit of when you snap the chalk line. I mean we've got some work to do to get our conventional products up to the right margin mixes. I think we've talked generally about any of these OE segments being at about a 7% [EBIT] performance. And so in the midterm, we're looking to drive the business there from where it's at and we're making good -- I think we're making good progress. Obviously, the stronger mix we get into our systems protection business, our NVH business and our advanced suspension technology side, we would start -- we would expect to start to drift above that.

(Operator Instructions) The next question we have will come from James Picariello of KeyBanc Capital Markets.

I just wanted to go back to the -- to get some color on the rationale for the resegment thing. So the Powertrain and Ride Performance businesses, is this just in name and reshuffling a few of the underlying business lines, right, in terms of how they're reported or is there something more strategic that's driving the realignment, right, in terms of cross-selling, efficiencies along those lines?

I think there's a little bit of a combination of it. The makeup and the -- I'll call it, the [sell] of the systems protection business is very, very similar to the sell on our NVH performance materials and AST. It's very much a problem solving, highly engineered product line. And so we still go to market separately, going on some of the same customers, but it does allow for some of those problem areas to be looked at as opportunities faster.

Kevin, I don't know if you want to...

I think also systems protection products, applications are essentially all over the vehicle. And so it came via the Federal Mogul acquisition. So it fit within the rest of the Federal Mogul products, but it really isn't a pure powertrain product. And given where we are with AST and NVH and also the growth in battery electric vehicles, which we also have applications for through systems protection, just seems like a much better match.

Got it. And my apologies if I missed this, but did you quantify or provide any context on your net commodity exposure for the year? And how are you thinking about the back half and what's embedded in the guidance?

We haven't netted that out because it's fluctuating quite a bit, mostly because of what we discussed earlier, which is the timing of the recoveries. We're hard at work with our customers and with our supply base. So it's -- we're -- our intent is always to fully recover it. If there's some parts of that we can't get to, then we got to -- we work to offset it somewhere else. So that's a little bit difficult and moves around quite a bit on us. So -- by the time I said it to you right now, it would probably change in 5 minutes.

Yes. No, I hear that. And then...

Just to put a finer point on that though, we do have escalation agreements with the customers. And so on the vast majority of the commodities, we're able to pass them through. Various customers have different time lags on them when we go and get that pricing, but they are contractually agreed to.

Got it. And can you just remind me the seasonality of price increases within Motorparts within the aftermarket businesses? Is that assessed twice a year? You not always pass, but is that assessed twice a year? Or is it like a July time frame, I kind of forget?

Well, generally it goes through -- I mean, when we're experiencing commodity increases or even freight economic increases that we're seeing across the network today, when we experience them and we lock them in, we will pass them right away. And then there's usually a 90-day lag. So I don't know that there's a specific schedule. In fact, there isn't a specific schedule as to when price increases go. It's when we see a significant movement, then we put it to the market and it usually goes in place 90 days out to the market.

Well, there are no further questions at this time. We'll go ahead and conclude today's Q&A and conference call. I would like to thank the management team for their time today, and thank you all for attending today's presentation.

At this time, you may disconnect your lines. Thank you, everyone. Again, take care and have a wonderful day.