Good morning, ladies and gentlemen and welcome to CVG’s First Quarter 2022 Earnings Conference Call. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Chris Bohnert, Chief Financial Officer. Please go ahead, sir.

Thank you, operator and welcome to our conference call. Joining me on the call today is Harold Bevis, President and CEO of CVG. This morning, we will provide a brief company update as well as commentary regarding our first quarter 2022 results, after which we will open up the call for questions. As a reminder, this conference call is being webcast and a supplemental earnings presentation is available on our website. Both may contain forward-looking statements, including, but not limited to, expectations for future periods regarding market trends, cost savings initiatives and new product initiatives, among others. Actual results may differ from anticipated results because of certain risks and uncertainties. These risks and uncertainties may include, but are not limited to, economic conditions in the markets in which CVG operates, fluctuations in the production volumes of vehicles for which CVG is a supplier, financial covenant compliance and liquidity, risks associated with conducting business in foreign countries and currencies and other risks as detailed in our SEC filings. I will now turn the call over to Harold to provide a company update. Harold?

Thank you, Chris, and Good morning, everyone on the phone. On today’s call, we’ll provide an overview of our first quarter 2022 results, followed by an update on our progress to improve our company. Our intent is to position CVG to deliver higher and more stable results, and we’ll give you an update on the key components of that. And following my remarks, Chris will discuss our financial results in a little bit more detail, and we will conclude by opening the call and answering your questions. During the first quarter, we made significant progress, and at the same time, our operations were impacted by a challenging environment with global supply chain constraints, cost inflation, COVID lockdown in China and the Russian-Ukraine conflict. We’re going to touch on these points this morning. And these headwinds tempered our first quarter results and are continuing in the current quarter. That said, we made meaningful progress repricing our legacy Class 8 OEM business, while continuing to experience strong new business win activity, which is positioning CVG for improved results in the second half of the year, especially in electrification and electric vehicles. Please turn to Slide 3 in our earnings presentation. You’ll see that we delivered first quarter sales of $244 million, which is close to flat with the year ago first quarter, given the headwinds that we suffered this year from the COVID lockdown in China and the Russia-Ukraine conflict, which directly impacted our quarter. Our operating income was $8.4 million in the first quarter compared to $15.4 million last year. This decline was due to lower unit volumes and significant increases in inflation, given the global supply chain challenges that had persisted during the quarter. We also experienced high start-up costs associated with our new business wins. Excluding the impact of restructuring costs, our adjusted operating income for the quarter was $9.5 million, which was a decline from the prior year. Our operating income remains compressed due to the lag in price cost actions and higher-than-expected new business wins, which is resulting in higher-than-expected start-up costs. Importantly, we made significant strides repricing our legacy supply contracts and we secured improved pricing with our top two customers. And I will discuss that in more detail in a minute. Additionally, we continue to invest for the future. We did not take our foot off the gas. And we remain confident that our investments are driving long-term value. Adjusted EBITDA was $13.5 million in the first quarter, which was a decline from last year as well for the same reasons that income was down. We delivered $0.16 of adjusted earnings per diluted share in the quarter compared to $0.27 last year. During the first quarter, our new business development continued to gain momentum as we secured another $89 million of annualized new business awards, driven primarily by electric vehicle platform wins in our Electrical Systems segment. We’re off to a strong start this year with winning, and we’re set to exceed last year’s record of more than $200 million of new business wins. We are committed to a transformative organic growth program, as you know, and our intent is to become a leader in the electric vehicle market, diversify our customer roster, add new market entrants, improve our profitability and lessen our cyclicality as a corporate entity. The underlying momentum represented by our new business awards points to strong growth and provides confidence in our goal of doubling our revenue by 2025 and significantly improving our profitability. Turning to Page 4, our first quarter results were impacted by strong inflation, which everyone on the phone is aware of with inflation at a 40-year record high driven – and for us, the key components of inflation are increases in steel, ocean freight and labor. While these challenges are set to persist through the second quarter, we are taking meaningful steps to improve our profitability and operations despite these headwinds and it will position CVG for improved results in the second half of this year. First and foremost, we reached a mutual agreement with our 2 largest Class 8 OEM customers, and it improves our pricing and margins in light of the cost inflations we’re experiencing. These two customers represent approximately 30% of our total annual revenues, and together, combined lost greater than $5 million of operating income in 2021. The bulk of our new pricing takes effect on July 1 of this year, and on a pro forma basis, improves our operating income to greater than $20 million – greater than $15 million on similar volume or a $20 million swing. And I am sure we will get a few questions on that later, and we’ll be happy to discuss them, but it is a key pillar of our improvement strategy to transform our legacy business contracts and unlock the trapped profit in our company. These two agreements are a significant step in achieving our goals, and we will continue to be vigilant to ensure our contracts provide adequate margins and represent the value that we provide to our customers as cost inflation persists. While we are working hard to adapt our pricing to the current inflationary environment, we have also continued to invest to position CVG for long-term growth. And along these lines, we incurred and expensed $3.1 million of new business start-up costs in the quarter, primarily related to the success that we are achieving, winning new business in electric vehicle market, while also improving our – and increasing our investments in R&D to ensure our long-term competitive positioning and success. We also made investments to further optimize our plant footprint in the first quarter and expand our capacity to make certain products as we continue to focus on mix shift, efficiency and profitability. As part of this, we move production lines to create dedicated capacity for our Aftermarket and our Warehouse Automation segments. Having dedicated production capacity for these business units is a critical and key component to consistently meeting customer demand and improving customer satisfaction. With our dedicated production now largely in place, we can now grow these business areas across our core products, which include seats, wipers and mirrors. Additionally, we recruited a talented operating executive with more than 30 years of experience to help with our global manufacturing footprint evolution, and he began in the first quarter. Turning to Slide 5, I wanted to give you an update on the market. We discussed that in our – in each of our calls, and our largest end market remains the North American Class 8 truck market. Production remains constrained due to the continued supply chain challenges globally and the result in product shortages. As a result, the first quarter builds were relatively flat with the fourth quarter and look to be constrained through the second quarter. ACT is a third-party forecaster, who we quote. And they are forecasting improved volumes through the second half of this year, though we expect supply chain challenges to limit production and for actual builds to be in a range of around 275,000 to 295,000 trucks. We directly speak with these customers and are integrated into their EDI systems, and we have pretty specific outlooks for each of these customers. Given that we have materially improved our pricing with the two largest customers of our company, we expect our margins to expand significantly in the second half at current volumes, while also benefiting from improvement in production levels if they happen. That said, we do expect inflation to be a headwind in the second quarter and in the second half for the company and for many companies like us. Importantly, the North American fleets continue to age, which sets the industry up for several years of strong growth, given the large backlog that has been built and has remained in this industry the industry is running with a 1-year backlog and has for some time. We believe this dynamic will create several years of production for the industry as the industry needs to catch up and will be a strong tailwind also for our Aftermarket business and for our results. As a reminder, for CVG, every 10,000 trucks equates to approximately $13 million of sales, while our contribution margin should trend above historical levels given the recently improved pricing. Turning to Page 6, we have discussed these areas on prior calls. We believe we are becoming an emerging leader in the electric vehicle industry for what we do. We provide low-voltage and high-voltage connectivity systems for the electricity in these electric vehicles, and it positions CVG well for the coming conversion to EV and fuel cell trucks and passenger vehicles. That said, we’re not standing still and we continue to invest in technology to expand our position, expand our product offering, and we’re excited to open a new engineering center in Phoenix, Arizona for electrical R&D. The center will be focused on our continuing development of high-voltage distribution boxes for the electric vehicle market, as well as fast prototyping and testing for new vehicles. Importantly, we have a robust investment roadmap as we invest in technology and products to ensure we not only maintain our competitive position, but also develop new products to expand our addressable market. Our intent is to position CVG for share gain. One area that we have invested in over the last 2 years is our Unity seat platform. And if you turn the page, you will see that we have a modular lineup, and it’s highlighted on Page 7. We recently launched this Unity seat line in the U.S., Mexico and China and modified our production facilities. It was a bit harder to do than we thought, but we’re getting to the finish line. And our Unity seat allows for a high level of customization based upon customer needs and is a true source of competitive advantage for CVG versus our competition. We believe this seat will allow us to take market share across a broad range of focused areas, including last-mile delivery vans, construction equipment and trucks, but also position CVG to take back some share we lost in the Aftermarket segment over the last few years. To that end, I’m pleased with the pending launch of our aftermarket e-commerce site, which is set to launch in the second half of 2022 and will make it much easier and contemporary for fleet owners and end customers to do business with us. Turning to Page 8, the second pillar of our transformation strategy is to drive new profitable business in growth targeted areas to grow and to implement higher value-added products. And in the first quarter, we secured $89 million of new awards, which was largely in the electric vehicle industry. We have now secured over $500 million of annualized new business in just 2 years, which points to the momentum we are achieving as we strive to enter new high-growth markets, while improving our profitability. And importantly, as our new business wins begin to ramp, we have visibility to improve revenue looking out over the next several years as we expect our new business to ramp from $208 million this year to $368 million in 2025 on the chart here. And it’s driven by wins in electric vehicle market, which I have said and we will continue to point out, it’s a focus area for us. It’s also important to reiterate that we’re incurring significant start-up costs as we go through this as we ramp up our new business, complete our prototyping and go through engineering changes to perfect the end product. It is a drag on – on the current results, if you will, and we expense these as we incur them in the quarter versus let them build up. And in 2022, first quarter, we had $3.1 million of startup costs compared to $1.7 million last year and $1.8 million in the year ago quarter. Excuse me, sequentially, it was $1.7 million difference and year-over-year, it was $1.8 million. While we secured more than $500 million of annualized new business over the last 2 plus years, it’s important to note that it does take time for these new wins to ramp to full production and therefore, full revenue and profit contribution. As a result, we believe looking at the lifetime value of our new business wins better demonstrates the long-term value of these wins and what we are creating. If you can turn to Page 9, we’re giving you a little look at how this is building. And thus far, we secured almost $2.2 billion of lifetime revenue from our new business awards, which provides significant visibility to our goal of achieving sustainable growth, improved profitability and improved stability. And more importantly, we’re not standing still and we continue to add new business wins aggressively to grow our new business pipeline and to continue winning new business in new areas. Turning to Page 10, and as we have discussed previously, we have a broad set of initiatives that are designed to expand the business into new areas that carry improved profitability and reducing our cyclicality. As we expand our business, we are working aggressively to reduce our dependence on complex global supply chains while driving improved pricing terms with our legacy customers as we strive to unlock the trapped profits that are in our business, which we expect to yield results beginning in the second half of this year, given the recent successes that I outlined. As we do this, our cash flows will continue to improve, providing capacity to pay down debt, while further investing in the business for growth and new product development. And lastly, at the bottom of this page, I want you to know that and remind you that we are working on our first Corporate Sustainability Report and we will be issuing that soon as we increase our focus on ESG. And you can see at the bottom of the page what our three primary focuses are: increase the diversity and equity inclusion of our work team, increase our community involvements where we are, and reduce our carbon footprint. To conclude my remarks on Page 11, I’m proud of the team and the progress that we are making to achieve our results, as well as transforming our business. While our first quarter results were impacted by some global factors that were out of our control, we are set to see improvement in the second half of the year, significant improvement, giving the pricing that we have made and the significant progress we’re making on our key initiatives. And importantly, we renegotiated the pricing for the top two customers as we mentioned, and that will largely take effect beginning in – beginning of Q3. We also delivered accelerating momentum in our new business development program and achieved $89 million of new awards in just the first quarter. And as I mentioned before, this now puts us over $500 million per year of annualized new business at full ramp. Taken together, we are on track to achieve our goal of $1.9 billion in sales and improve our profit rate to 8.5% adjusted operating incomes by 2025. We’re very focused on achieving these outcomes. And as we continue to track to our goal, we will see our cash flow improve and we use that free cash flow to continue to invest in the business, while also strengthening our balance sheet and paying down our debt. So with that, I’d like to turn the call back to Chris, who will give a more detailed review of our financial results. Chris?

Thank you, Harold. If you are following along in the presentation, please turn to Slide 13. First quarter 2022 revenues were $244.4 million, primarily unchanged as compared to prior year’s $245.1 million, really due to the supply chain constraints Harold talked about, the COVID lockdowns in China, the Russian invasion of Ukraine, which is affecting our Lviv operations and the on-pace demand in Warehouse Automation due to a normalizing economy. While we experienced an impact to revenue and expenses due to factors that are largely out of our control, we’re aggressively managing this environment and have successfully implemented price increases on our legacy Class 8 OEM business, as Harold mentioned, to offset the severe inflation impacting our business since the second half of 2021. Foreign currency translations favorably impacted our first quarter revenues by $1.1 million or about 0.5% when compared to the prior year. Gross margins decreased slightly to 10.4% as compared to last year, but were up slightly compared to Q4 as we moderated our expenses and continue to increase prices. We did experience substantial inflation costs as well as, as Harold mentioned, $3.1 million in business startup costs in the quarter. The company reported consolidated operating income of $8.4 million for the first quarter of 2022 compared to $15.4 million in the prior year period, a decrease of 45.5%, primarily due to the significant inflation of raw product costs, new business start-up costs and operational transformation expenses. On an adjusted basis, operating income was $9.5 million, a decrease of 39.5% compared to the first quarter of 2021. Adjusted EBITDA was $13.5 million for the first quarter as compared to $21.1 million in the prior year. Adjusted EBITDA margins were 5.5%, reflecting a decrease of approximately 310 basis points as compared to adjusted EBITDA of 8.6% in the first quarter of 2021. The margin contraction was impacted by the previously discussed factors of inflation, new business start-up costs – new business start-up costs associated with our wins and our operational transformation costs. Interest expense was $2 million as compared to $5 million in the quarter last year. The significant decrease in interest expense was due to our refinancing of our debt last year in April of 2021. Free cash flow was negative during the quarter, as we mentioned, the factors of new business start-up costs and other items as we continue to build inventory, and – and as I mentioned, increased start-up costs related to new business launches. However, we expect these impacts to trend down in the coming quarters. Net income for the quarter was $4 million or $0.12 per diluted share as compared to net income of $8.5 million in the prior year period or $0.26 per diluted share. Turning to our segments at the bottom of the slide. Our Vehicle Solutions segment delivered first quarter revenues of $140.2 million, an increase of 13% as compared to the prior year ago first quarter, primarily due to material cost pass-throughs and new business wins, offset by shipment disruptions from China. Operating income for the first quarter was $6.5 million, a decrease of 16% as compared to the year ago first quarter. The first quarter of 2022 adjusted operating income decreased to $6.5 million, a decline of 13%, primarily due to a lag between price and cost offset and increases in new business start-up costs. Our Warehouse Automation segment delivered first quarter revenues of $34.1 million, a decrease of 14% compared to the first quarter of 2021 due to reduced demand and volume. Operating income was $3.7 million, a slight decrease from $3.9 million as compared to the year ago quarter. The decrease in operating income was primarily attributable to the reduced demand in volume. Adjusted operating income was $4.1 million, a decrease of 2%. Our Electrical Systems segment achieved results or revenues of $39.9 million, a decrease of 14% as compared to the year ago first quarter due to lower shipment volumes caused by persistent supply chain constraints and semiconductor chip shortages, as well as the geopolitical tensions impacting Ukraine. Operating income was $1.8 million, a decrease of $3.1 million as compared to the prior year first quarter due to start-up costs, lower volumes and a lag in price increases and higher costs. On the Aftermarket and Accessories segment, it delivered revenues of $30.2 million, an increase of 1% from the year ago quarter as increased pricing was able to offset inflation and supply chain constraints. Adjusted operating income was $3.1 million, representing a decline of $1.1 million. To conclude, we continue to make significant progress in our transformation strategy designed to diversify our revenue, improve our operations, reduce expenses and effectively implement pricing actions to offset the severe cost inflation that has impacted our business. Beginning in the third quarter of 2021, we implemented a restructuring program to continue to transform and right-size our legacy costs. We’re seeing the initial positive results from our actions and expect these activities to continue through the third quarter of 2022, with our program costs around $4 million to $6 million with roughly equivalent savings on an annualized basis. We’re also pleased with our recently announced contract renegotiations and expect the results to positively impact our top and bottom line performance beginning in the second half of 2022. This concludes our prepared remarks. I’ll now turn the call over to the operator to open up the line for Q&A. Thank you.

Your first question is from John Franzreb with Sidoti & Company. Your line is open.

Good morning, Harold and Chris. Thanks for taking the questions.

Good morning.

A lot to unpack here. So let’s, I guess, start with an update on the Ukraine. Can you talk a little bit about the impact on the P&L and what we should expect on a go-forward basis there?

Yes. We were impacted in the first quarter by what happened in the Ukraine. I – for those of you on the phone are not aware of that, we have a $50 million business there that’s very profitable. And it was directly impacted by the Russian invasion of the Ukraine. It is on the West side of the country. But we have – there have been bombings in our area, and, of course, the whole country has been impacted. And it hurt us in the first quarter. We actually are having recovery in this quarter on what happened. And we’re working with our top customers there. Our top customer is Volkswagen, and they have put their name connected to us in the public news. And we – our goal is to get back to full operating income recovery, and we’re on the path to do that, John.

And how much of revenue was lost for one award?

It was not as much revenue lost as profit. So we had to do a lot of work around a lot of expedites, a lot of extra costs. We moved some production to the Czech Republic. We built two new plants in the Czech Republic. So we have some extra rent that we didn’t have before extra overhead. And then we were able to go back to Volkswagen and asked to adjust our prices. And that’s a transparent conversation to prove what your costs are and we were able to do so. So it’s at that traditional lag that we get in our industry, maybe a lot of industries. And so we intend to have full recovery, John, of the profit compression.

By when?

I hope to get most of it in this quarter.

Meaning second quarter, John.

Okay. Got it. Got it. Okay. And then if you could talk a little bit about the renegotiated contracts. Is it fair to assume you still have a $1.5 million or so op income headwind from those two businesses? And is there still another contract that remains to be renegotiated or not?

Yes. So those two customers represent quite a few global contracts for different products. They both buy almost everything we make.

Okay.

And so the recovery, one of them – one of the recovery starts now and one of the biggest one starts on July 1. We have many other contracts. We’ve previously said that we still have one big top contract that doesn’t expire. All the rest of the smaller contracts we’re renegotiating right now in this quarter. And we’ve initiated a lot of unplanned price increases based on inflation that we incurred in Q1 and those actions are underway. So I’d say 90%, John, of our business contracts were going after price increases right now. One big one is going to lag until second quarter of ‘23. And then the other point, John, I just wanted to add on to your Ukraine comment. The China Shanghai lockdown had an equivalent OI impact on us as the Ukraine. That’s a very profitable business for us. It was completely shut down. And we get a lot of parts from Shanghai as well for North America. And we incurred in Q1, almost $1 million of air shipping. So we’ve incurred excess costs due to the – this Shanghai lockdown and we had to stop our own production in the region. So the China lockdown which is now easing and started on Monday of this week, we were added to the white list, if they call it there as a key supplier to Volvo, and we were able to initiate some production. So that event, like you said, there is a lot to unpack that one was equivalent income impact to our quarter as Ukraine.

Alright. And I’ll ask one last question and then get back into queue. Regarding the start-up costs, it’s kind of a good, bad thing, but it did jump up sizably both sequentially and year-over-year as you pointed out, Harold. How should we think of that on a go-forward basis? Does it stay at this level? Does it reset back to one something number? How do we – how should we look at that?

Yes. We’re at a peak. Those are peaking right now, John. And the hardest one was our new seat program, which we were just bragging about. It was tremendously hard. And when we started the program, it was just prior to COVID. And we had used our 20-year suppliers that are in China, and everything was fine with global sourcing when we started this program, we ended up putting over 40 dies into five suppliers in Shanghai area, some of which are shut down right now. And it led us to a lot of air shipping in Q1 for our – some of our startup customers, two electric truck companies, our launch customers, two new truck companies. And we’re making the seating for them, and we had to air ship parts in because the containers of our parts were stuck in the ports and stuck in the finished good warehouses of our suppliers. So it’s already easing. And at the same time, our Board of Directors supported us with putting duplicate dies into Mexico. So, one of the biggest components of our inflation year-over-year was ocean freight, which inflated to a high number. We have over $10 million of it and airfreight has lifted off with this – the shutdown. So our goal is to get rid of in-transit freight costs by regionally producing the parts we need. And we are actually targeting a dramatic take-down in those costs by implementing regional production in Mexico for North American production. So given how high the start-up costs were with the seating program, we also put a self-imposed moratorium on ourselves until we got steady state part flow before we reboot on a very, very vibrant pipeline of opportunities we have. So I think they are at a peak right now, John.

Okay, as promised, I will get back to queue and thank you for taking the questions.

Thank you, John.

Thank you.

Your next question, sir, is from Chris Howe with Barrington Research. Your line is open.

Good morning, Harold. Good morning, Chris. Thanks for taking the questions. I wanted to follow-up on one of John’s questions about the mutual agreements with the two large customers, understanding you still have some work to do with some other contracts as well. But specific to these two contracts, I know they improve the profitability outlook for these contracts based on Harold’s numbers that were provided. But can you talk about the different avenues or options you have within these contracts for price adjustments as it relates to continuing inflation? Do you have the ability to perhaps pass through price more frequently than before? Can you talk about the adjustment mechanism underneath these contracts?

Yes. We made a dramatic improvement in our price maintenance algorithms. And we have an ability to pass through. One of the contracts did not even have the ability to pass through material inflation, zero. And so we have put in for all of our main inflated materials, freight and the bill of material items. And in the largest one, we also have the ability to pass through labor inflation. Regarding the frequency of the corrections, they are similar. So we didn’t win that one. But I will also say, Chris, that we were able to get significantly better payment terms. And so we will have a free cash flow benefit of that in the second half as well.

Okay. Okay. Okay. And given these are two of your larger contracts at 30% of revenue, as you move downstream to, let’s say, small to medium-sized contracts, this also sets a level of precedence for perhaps even greater operating profit improvements with some of the remaining contracts. Is that fair?

Well, relative to these – I would say that these two got our best deals that we have given anybody.

Yes.

And they deserve it, I guess. And everyone knows one of them is Volvo, because we previously have said that publicly. We are not saying the name of the other one, but it is a big truck company, a winner, a global winner. And we have cordial relationships and everything was done professionally, and we have growth programs with both of them. So, we are not even trying to slow down with them. They are winners in the electric truck market as well. But in the other areas, a big significant area is our aftermarket business. And you can do – probably have done some of the math on the increases here that we have set. And by the way, the numbers I gave you are conservative relative to what happened, and we are being conservative with setting expectations because we still have inflation headwinds and adversity in the Ukraine and China. But the numbers are bigger than that, that we were able to achieve. But in the other markets, generally speaking, we are increasing our pricing 35%, Chris. That’s kind of the way the math works out for us to. When we look at inflation, we have an inflation outlook and then how do we stay in front of this on a profit margin. So, that’s generally what we get, and we have had very little fallout. In other words, bulking from customers to just change suppliers. There is still a lot of pricing power in this market because it’s really hard to change suppliers, us included. And so generally, both parties are trying to arrive at a mutually satisfactory deal. But with those smaller customers, we are going for bigger numbers.

Okay. And then I wanted to shift to Slide 8. I thought that was very helpful how that was broken out the chart in the bottom right how it shows electric vehicles ramping towards 2025. If we exclude start-up costs and one-time costs, how should we look at, let’s say, the margin for that $28 million of sales in 2022? And how do you expect electric vehicle-related margin to trend over time?

Yes. The start-up costs, they are really differentially high for seating. And so for us, the start-up costs are mainly tagged to our product versus the end market. So, the electric harness part of it, I don’t want to say it’s easy, but it’s less costly to ramp up an electric harness win. A seating win is hard no matter what industry it’s in, it’s turned out, but we are almost through it. Chris, do you want to comment on the margins?

Yes. Thanks, Chris. So, generally, the margins are accretive across the spectrum of the new business we are getting in EV, Chris. And I think as we have pointed out, some of the technology that we are getting involved in, this is – I don’t know, custom might be a strong word, but this is definitely designed for certain customers. And so that allows us to have margins which are a little bit more accretive than generally in our electrical systems business. And so we expect to see that improvement as this business gets feathered into electrical systems, as well as seating.

Generally, I will say, Chris, that we are targeting double our profit rate, and then it’s well, the market bear it, because in none of the instances, are we a solo guy. So, we usually have three or four competitors. In the electrical market, it’s – in North America, it’s Stoneridge, in the seating market, it’s Isri and Grammer. So, we have competitors on every single one of them. But we are trying to double our profits every time. And if the profits are at our company average or less, we walk away from it.

Okay. And just one quick one, and I know I have kind of asked too many here probably, but I will hop back in the queue. Chris brought up another thought, given that these contracts are custom work or custom specification, do you also, by that nature, have an ability to pass through price much easier given their unique SKU, however you would like to term it?

You are talking the new business, Chris?

Yes.

No. We still have the same arguing. So, as we have been developing these programs, inflation has been happening. And so we go in and modify our price ask. And the way that the contracts work is you have production – excuse me, prototype pricing. Generally, we get paid for some of the upfront prototyping. It’d be nice if we got paid for all of it, like a Meritor or someone like that, we don’t have that kind of power. But we try to get paid first. Second, we do get revenue for prototype shipments. And then you get into the production agreement. And virtually all cases in the last 2 years when it comes to that point, generally, we are increasing the price because of inflation, and it’s a show-me deal, and it’s a new argument. So, the good thing is, though, that you are down – way down a path and you have custom tooling and you have passed crash tests and other things. And so the switching time and effort is exponentially harder for the customer. And so we just need to hang in – we hang in there and we just negotiate. We have concentrated our negotiating under our Chief Commercial Officer, so that we have one way of doing this because many of these start-ups buy a lot of our new products. For instance, in the electric vehicle world, this year, year-to-date, we have had elect eight windshield wiper wins. And it’s – so we call it sell them a house, and so we go in and try to sell everything that we make money on. And pricing is still on the table until you have that final production agreement. And then you need algorithms for what you are going to do about inflation.

Perfect. Thank you for taking my question.

Thank you, Chris.

Thank you.

And we have a follow-up from John Franzreb with Sidoti & Company. Your line is open.

Hi guys. A little bit about the segments. Can you talk a little bit about what drove the year-over-year growth in vehicle solutions on the revenue side?

Yes. Primarily, John, it was – it is material cost pass-through. As Harold mentioned, the truck build was fairly flat. It was about 70,000 units. So, it was not really driven by demand. So, a lot of material cost pass-through, John.

If China – if the China shutdown, the China, Shanghai COVID lockdown hadn’t happened, John, would that – that segment would have benefited from that year-over-year.

Got it. And warehouse automation down year-over-year. Can you talk a little bit about what’s going on there, what do the cadence of revenue would you expect in that segment for the balance of the year?

Yes. Last year, we had some temporary extra orders as the industry was doing a COVID catch-up program that we don’t have this year. So, we have the base business, base warehouse build-outs now. So, our revenues this year are going to be kind of consistent to where we are right now. We don’t have that extra surge that we had last year on the catch-up side. That being said, it’s very project dependent. So, if people build more or less warehouses, then we will directly benefit from it. Our visibility is only a couple of quarters. So, right now, we are looking into the third quarter and doing that kind of staffing. But it’s going to be similar kind of revenue, John, until we land new business, and we do have a good pipeline in this business.

John, we are shipping out of the Czech now, that’s new this year. And then we do have some new business starting to feather in, but it’s small. So, as Harold mentioned, we are beholden to the market to some degree as well, so.

Are you able to get pricing in that market?

Yes. Yes, that’s – all markets are – have price arguing in them. So…

Okay.

And generally, suppliers like us have some pricing power in the short-term. So, it’s one of those short-term, long-term things of reaching for what you can’t adopt, provoke a bid-out process. And so far, with business we want to keep, we have been able to do that. We are pushing the limit though.

Fair enough. Regarding working capital, it was a sizable outflow in the quarter. I think you mentioned some of it had to do with start-up costs, but you did end up borrowing, I guess, to fill the gap. Can you just talk a little bit about your cash expectations versus your debt pay-down expectations and a little bit about the outflow?

Yes. The – we will tag team here, Chris, on this one. The year-over-year variance was primarily due to the Shanghai lockdown. So, we typically repatriate from China. We have about $10 million held up there, Chris.

Yes.

So, we had a temporary hold up in China due to the lockdown, and then we had expected to invest in the quarter. And then we have a profile for the year and that is – suggests also that this is peaking now because we are obviously advocating free cash flow and debt pay-down in the second half. I will turn it over to you, Chris.

Yes. John, with the new pricing, I think that the inventory builds that we needed for a lot of this new business starting this year and early next, as well as Harold mentioned that we are peaking on the business start-up costs, with all that easing over the course of the next quarter, I think yes, as well as we did a lot of vertical integration as well, trying to source now both domestically and make more products in-house. All those factors kind of put a lot of pressure on working capital, but we expect that to ease in the coming quarters, which will then facilitate debt pay-down.

Yes. The big – we did what a lot of people did, John, of kind of building up our inventories against the COVID shocks that happened. And the biggest impact we had was in our vehicle solutions business, because 70% of our company’s revenue is in North America, and that business had been sourcing parts from China forever. And so we ordered robotic welding, powder coating, metal fabrication equipment. We are installing it into our plants as it comes in. And we are going to eliminate this in-transit that we have. So, the supply chains from China are 22 weeks, and they have been running at six weeks, eight weeks for years. And so that really put a kink into what we were doing. And so we just had to build up our inventories to protect. And this is going to collapse all the way back down to raw material inventory versus having finished goods in-transit on the water and in our reported results. So, it’s not really a hope it gives better plan, and so we are working our way out of this plan. And additionally, Chris is putting a banking facility in China so that we can automatically get our cash out of there and not get stuck like this again. So, we are very cash generative in Asia-Pacific, and we need to have our money out of there. The other one I already mentioned, which is with our largest customer, our largest two customers, we have a significant improvement in payment terms.

Alright. And I might just sneak this last one in. Harold, you mentioned labor cost is one of the inflationary issues. Are you fully staffed? How does it look like on the labor front for you?

Yes. The Ukraine has its own thing. So, I will leave that one out for now. But we had to rehire a workforce of 100%, almost 100% women because the men are called into military service, 60 and under – 18 to 60. And we have already had employee deaths fighting the Russians. So, we had to go through dramatic rehiring in Q1 of the workforce in the Ukraine, 1,200 people. It’s only a $50 million business, but there is a lot of people in it. It’s an assembly business. Except for that, we are still hiring around 300 to 350 a month due to turnover of hourly. So, our hourly workforce turns over. There are more jobs and people around several of our big plants. And we are still down people and working excessive overtime. So, we have mandatory overtime, which is fatiguing, but we are – we are still down. We have around 8,000 employees and 7,000 hourly, and we are probably down 200 people, John, and filling it with overtime.

Got it. Thanks for the color. I appreciate it.

Thank you.

Thanks John.

There are no further questions at this time. I would like to turn the conference back to our CEO, Harold Bevis, for closing.

Thank you, and thank you for all the questions and the interest. And I want you to know that we are very convicted to offsetting some of these headwinds that we have and they are action based. And our goal is to improve our profits a lot, and we are on track for that. And we are thankful to our top customers if they are listening for being our partner through this. It was very professional, and we are very thankful for the outcomes here, and it’s going to help us be able to reinvest for the year at the right time. And we look forward to speaking to you about the quarter that we are in. We have had a lot of exciting things happening in this quarter that we look forward to reporting out on. And with that, we would like to end the call, Katrina.

Thank you, presenters. Ladies and gentlemen, this concludes today’s conference. Thank you again for your participation, and have a wonderful day. You may all disconnect.