Commercial Vehicle Group, Inc. (NASDAQ:CVGI) Q4 2022 Earnings Call Transcript

Commercial Vehicle Group, Inc. (NASDAQ:CVGI) Q4 2022 Earnings Call Transcript March 7, 2023

Operator: Good morning, ladies and gentlemen, and welcome to the CVG’s Fourth Quarter and Full Year 2022 Earnings Conference Call. During this presentation, all parties will be in listen-only mode. 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 conference over to Mr. Andy Cheung, Chief Financial Officer. Please go ahead.

Andy Cheung: Thank you, operator, and welcome everyone to our conference call. Joining me on the call today is Harold Bevis, President and CEO of CVG. This morning, we’ll provide a brief company update as well as commentary regarding our fourth quarter and full year 2022 results, after which, we’ll open 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-saving 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 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 Bevis: Thank you, Andy, and good morning, everyone. As is our usual presentation format, we will be referring to an earnings presentation, which is found on our website and if you could locate that, I’d appreciate it when I have my presentation aligned to that document, and while you find that document, I wanted to say a few overview comments in three areas. One area is additional efforts that we’ve implemented to increase short-term performance. Second is additional efforts to improve the economics of our long-term revenue and product mix transformation. And the third is GAAP accounting versus our operating results. Regarding the first point on short-term performance or quarterly performance. You’ll see in our earnings release report here today that our vehicle businesses performed very well and overall they were up 17% in sales and 32% profits.

And it’s the same story for the full year. Our vehicle businesses were up in sales and up in operating income. In fact, although, CVG’s revenues were up about $10 million for the full year, our vehicle businesses offset a $100 million decline in industrial automation. This weakness in industrial automation offset this year-over-year improvement for the quarter in the year. We now expect the weakness in industrial automation to continue and we have taken additional actions to show higher short-term profit improvement at the same time as we go about our business of changing our revenue and business mix away from Class 8 and customer concentration towards a wider spectrum of commercial vehicles, electrification and automation, especially in the electric vehicle industry.

For those of you who have been following CVG the last few years, you know that we’ve been focused on combating spike cost inflation and new business startup costs with logical price increases in a cost out program. While this has worked as evidenced by the performance of our vehicle businesses, it was not enough to advance profits as much as we wanted and it offset the industrial automation demand slowdown. So we’ve added a few new angles to increase our improved €“ to increase and improve our quarterly performance. First, we’ve upsized and implemented a bigger cost out and cost reduction program. We announced that we are targeting $30 million of cost out during 2023 with 350 plus programs. This program is underway already and we began it in Q4 with targeted headcount cuts in both SG&A and COGS.

We expect to show results beginning in this quarter. We have a multifaceted program that includes plant consolidations, headcount cuts, process automation and procurement savings. Secondly, we are curtailing our exposure to high startup costs in the vehicle businesses, especially the seating business. When you peel back the onion a layer, you would see that by far the most startup costs per dollar growth is in the seating business. Seating growth is hard to implement. And furthermore, we have one main new growth customer in the seating business. That’s the focal point of our startup cost overruns. This has been a problematic growth program for CVG and it’s an electric delivery van with a startup vehicle company. Staying true to our word of fixing or exiting business, whether new or old, we have mutually agreed with this customer to exit their seating business.

This is the right and easy decision for us. We are exiting the passenger seat right now as we speak and will exit the driver’s seat by the end of this year. Their production problems have been widely published in the press and I will not elaborate except to say we are exiting this particular customer and this program and we are in the beginning stages of transitioning to other suppliers for them. Conversely, we’re continuing on with growing in other areas where the pain gain ratio makes better sense and this is primarily in electrical systems and electric vehicle growth programs. And we do have some secret sauce here and it’s working and we’re going to cover it in our investor deck. And by the way, we’ve already backfilled the exiting seat program with the newly won electrical systems growth program with a new customer and well-established delivery van OE.

We’ll also cover that win in our investor deck. It’s one of our larger wins and is even bigger than the business we’re exiting. We design a prototype that electrical architecture during 2020. It begins production this year and will run for approximately eight years, and we believe this program will generate around $53 million a year of accretive margins at full ramp up. It’s with a traditional delivery van company, not a startup company. Thirdly, we expect this softness in industrial automation business to persist in it’s well evidenced by comments made by industry bellwether Amazon. The business is just much smaller now and we face this reality and restricted our business. We close a plant, we right-size our team, we right-size our inventory profile.

This work was completed in Q4 and we believe that we have right-size the business now in Q1. We don’t need much out of this business segment in 2023 to hit our enterprise improvement plans and it has moved to our upside category. Now you might be asking yourself, what do I do with this announcement of $30 million of cost out? When will it happen? Where does it go? Where’s it going to be the P&L? Those are logical questions. For now, we’re doing this to underpin steady and improving quarterly profit performance and offset industrial automation. So don’t add this to your models on CVG just yet. We will be accountable for this cost out program. We’ve deepened our team and we intend to report out our progress against our goals. This program is successfully underway right now and we intend to take actions during 2023 for additional long lead time items for the 2024 cost out program.

You might also ask yourself, I wonder how 2023 starting out for CVG? Another good logical question. It’s going quite well. The year started out with truck builds at a high rate, which is additive to the performance of our vehicle businesses above external forecast and above our annual run rate expectations. The North American industry built trucks so far this year at the 350,000 pace as stated before, the industry’s backlogs due to a couple years of underproduction and if the industry can get parts, they need to be clear to build, they’ll build trucks. So right now we have higher vehicle production than expected, corrected prices, a larger cost out program that’s already underway and we believe we expect it to offset the industrial automation weakness and new business wins program focused on lower cost startup programs tied to vehicle electrification and automation.

We are specifically moderating and narrowing our new seating growth programs given the high startup cost exposure, this will blend down over the next few quarters as we finish what we have in house and culminate with CVG exiting the problematic seating customer that I mentioned already. To increase focus on making money in the vehicle solutions business. We’ve also hired an industry veteran named Russell Ketteringham from BOS Automotive and he’s our new leader of this business unit for North America and Europe and he’s on board right now and an announcement will come out this week. We believe that 2023 will be significantly better than 2022 in the Vehicle Solutions segment and for CVG overall, and we’ve added firm actions and industry veterans to lead the way.

We’re not expecting a big come out €“ comeback in the Industrial Automation segment, but instead we expect continued modest contribution at a low level. My last prologue topic is with regards to GAAP accounting versus operating results. For those of you that are a fan of reading Warren Buffett’s annual letter like I’m, Berkshire Hathaway posted a week ago and he took his usual stance that underlying operating results and cash flow are better to follow than GAAP accounting. He would be chucking right now if he saw the same dynamic alive and well in CVG’s year-end results. And of course, CVG follows GAAP precisely and always will, but it led to a few big year-end GAAP accounting provisions and tax pension closure and inventory profile that deserves some explanation and Andy will do that.

But to be clear, none of these GAAP items impacted our business plans, our short-term performance, our long-term performance, nor our free cash flow. Further, we believe that the U.S. tax provision freshly set up at year-end 2022 will likely reverse itself at year-end 2023. And regarding the inventory provision, were an active inventory recovery negotiations with this customer and have certain legal and commercial rights and Andy will elaborate later. So wanted to say those things upfront, and give you a little bit of an overview to the deck and Andy and I, presentations and I want to turn your attention to the investor presentation right now on Page 3. Turning to the quarter, our team delivered good operating performance during the quarter, hitting our target volume levels, driving operating margins in line with expectations and making significant progress in our transformation strategy.

We delivered net sales of $235 million, up 2.6% year-over-year, again driven by target volume levels and increased price utilization during the quarter. We delivered adjusted EBITDA of $13.3 million, adjusted operating income of $8.4 million, a free cash flow of $28 million, all with no contribution from our Industrial Automation segment. Our fourth quarter results included the previously mentioned seating program, startup costs, which were expensed in the quarter in the Vehicle Solutions segment. We had a busy future growth quarter as well and achieved additional multiple new program awards in our selected areas, especially electrical and electrification. Furthermore, we negotiated meaningful additional price corrections during fourth quarter, which have begun already on January 1st, 2023, and we launched an expanded cost out program as mentioned earlier to more than offset continued modest performance in Industrial Automation.

Looking at the full year of 2022, while inflation seems to have peaked and cooling off in certain areas, it temporarily suppressed our quarterly results in our vehicle businesses during the year and we negotiate a price recovery and cut costs to offset these areas. Our teams negotiated cut costs almost continuously during 2022 and achieved meaningful profit recovery in the vehicle businesses throughout the year, all the way up to and including year-end 2022. At the same time, we’re very focused on improving our long-term revenue mix and profit profile and continued executing our long-term growth strategy of obtaining new business, which is primarily focused on long-term agreements to produce electrical systems on electric and autonomous commercial vehicles.

Primarily in the middle mile and last mile markets. A secondary mix change focus is on the aftermarket business. We had a great year accomplishing improvements against these objectives and our team secured an additional set of new growth programs during the full year valued at approximately $150 million of new revenue when vehicle production is in full ramp. Regarding cash flow, we were able to fund all of our activities internally and also pay down debt. For the full year, we pay down $43 million of debt, which exceeded the $25 million to $40 million range that we communicated during 2022. Our net debt was reduced to $121 million by year end 2022, and maintaining a low debt level remains a key focus area for CVG in 2023. Turning to Page 4 for a few more comments on 2022.

While we did face several significant hurdles during the year, including a war induced stoppage at our 1,600 employee Ukraine plant, a temporary COVID-based shutdown at one of our most profitable facilities in China, a high level of inflation and a rapid ramp down in industrial automation, we overcame these issues and we were able to execute, hold our own and make progress on short-term results and business transformation. Along the way, we delivered record annual revenue results of $982 million and with a growing proportion of revenue tied to financially accretive end-market such as electric vehicles. As I’ve already alluded to, we delivered strong new business wins during the year on a multitude of product platforms and we’ve institutionalized this with a five year goal of securing approximately $100 million per year in new wins going forward.

Photo by Joey Banks on Unsplash

We won business €“ we have won business on 300 new programs across 150 new and existing customers in vehicle platforms. And 2023 has started out well also and we have multiple new wins this year already. Additionally, as part of our transformation, we continue to improve our exit underperforming segments of our business. We right size the Industrial Automation business. We were able to offset lower profits in this segment with increases in the vehicle businesses. During the year, we also made significant progress on setting up our new e-commerce aftermarket business, which is nearing launch. We now have a dedicated plant focused on the aftermarket product lines in place and a software platform ready to support the electronic storefront for this new business for us as we gear up for growth and expansion in 2023.

Turning to Page 5. Our demand outlook is very promising and is supported by forecasts across our key end vehicle markets and commentary from our large public customers. For North America Class A truck builds both ACT and FTR are predicting a full year that will be a slight increase year-over-year and ACT Research is also focused €“ forecasting slight year-over-year improvements for North American medium duty trucks, it’s a new focus area for us, especially in electrification. The backlog, the build ratio in this area is sitting at eight months and 3x historical average. The commercial vehicle aftermarket is continuing to grow at a modest 4% growth in 2023 and beyond. And we are growing and investing in our electric wire harness business and the global commercial and automotive wire harness business is growing at around 4.5% CAGR through 2030.

With regards to specific selected segments within that, the global electric truck market is expected to grow at approximately 30% CAGR from 2023 to 2030 and CVG is currently winning new business in this very attractive market segment. The earth moving and agricultural vehicle market is also expected to grow around 4% from 2023 and beyond, and the markets expected to continue growing and we expect our legacy growth rates in this area to be in line with long-term outlook. So collectively across our markets, we expect to see strong growth across electrical systems, earth moving and the aftermarket business with relatively stable truck markets in 2023. Turning to Page 6. Our top publicly traded customers are seeing higher demand across key end markets and many have already issued positive market outlooks for the year and in line with what the third-parties are predicting.

These trends are expected to deliver a third consecutive record revenue year for CVG in 2023 and we’re well positioned to participate in the growing demand with our customers and the industry as well as ramping up a record level of new business wins from new and existing customers. Of our new wins, 50% are concentrated in electrical systems and they’re approaching a healthy balance between ICE and EV powertrains and diversified across multiple end product platforms. Additionally, and most importantly, profitability measured by EBITDA margins on the new wins is accretive at full production rates. Turning to Page 7. We continue to take advantage of secular growth trends in electrification, automation and increased vehicle connectivity. Our success as a new participant in this market has allowed us to self-fund new designs as well as an accretive revenue mix shift towards electrical systems.

Our combination of fast and accurate product engineering coupled with plants that are fast and accurate is our secret sauce. We’re selectively targeting our participation onto low to medium volumes, which is a sweet spot for our targeting and it’s good margin. We have full connectivity solutions for both high voltage and low voltage. And as previously mentioned, we’re adding a new plant in Europe right now and it’s located in Morocco. CVG targets customers with large toll available market or TAM, and it covers both electric vehicles and ICE propulsion systems in a variety of markets focused on commercial vehicles. An example of our strategy in action is on Page 8. This is an example of one of our 300 plus wins, albeit, one of our larger wins and it’s our most recent.

CVG began targeting the electric delivery van market in about 2020. We began designing low and high voltage product lines for these vehicles in 2021. That same year, we equipped our factories to achieve necessary certifications and make these products and we became an approved bidder and supplier at many customers. In this example, we won the electric design and development program, we awarded it, we designed the architecture for the vehicle and the physical connectivity layouts. We then participated in the bidding for the production and won a portion of the program here in early 2023. With this new business, it is targeted to be produced at our new plant in Mexico. We believe this business has a lifetime value of over $300 million and we’ve added a new well-established customer in this very attractive market to drive future growth.

This is a good example of the type of business wins that we are winning along the way. Highlighted on Page 9 and based on our current outlook and the momentum of our new growth programs, we secured from our new business, we believe our sales within the Electrical Systems segment will continue to grow to nearly 40% of our revenues in 2027 and significantly outpace the growth in the overall commercial vehicle market. This would make electric systems the largest business segment within CVG. Electrification and automation not only supports strong growth outlooks for years to come, but they bring accretive margins for CVG, which we expect will positively impact our operating margins and return on invested capital. Furthermore, as we grow electric systems, we expect to see the waiting of classic truck exposure within our revenue mix decline in half from its current 30% to approximately 15% by 2027.

We expect this reduction will be driven apart by new wins in electric systems, modest new wins in other areas, and is part of a focused effort to shift our mix towards less cyclical and more profitable business. Turning to Slide 10. CVG is fully committed to increasing shareholder value short-term and long-term. And we’re committed to improving the profitability of our ongoing business and exiting unprofitable or risky business. Despite a difficult demand backdrop, we believe our Industrial Automation segment performance has bottomed out. As I mentioned earlier, we have renamed Warehouse Automation segment to Industrial Automation as we look to win business in new areas of automation outside of warehousing. Our approach in industrial automation where we’ve right sized our rooftops, our people, our inventory, while broadening our markets to wider industrial markets, shows our commitment to improving or exiting unprofitable or non-strategic business.

We will control our cost structure here tightly and allocate our capital and resources to support focused growth opportunities. We continue to position ourselves to capture the secular trend in electrification and automation and attaching ourself to strong growth curves, diversifying our customer base and reducing the cyclicality of our business. The result in cash flow is expected to fund our growth, drive debt pay down, and allow for strategic acquisitions, especially in the connectivity space for electrification and automation. And before I turn the hall over to Andy, I just want to highlight our roadmap again on Page 11. We exited 22 in a strong position in our vehicle businesses and a revamped and downsize Industrial Automation business.

We believe that we’re set up to win and make money in 2023 and deliver our year of record revenue, higher EBITDA and continued free cash flow and debt paydown. We will continue to target at least $100 million of annual accretive business concentrated with electrical systems, which will diversify our product portfolio, our customer base and improve our growth and profitability exposure. The result in cash flow combined with our discipline approach in working capital will be prioritized for additional debt paydown and potentially fund bolt-on M&A. We believe we’re on track with our growth transformation and in a solid position to deliver $1.5 billion in revenue at a 9% adjusted EBITDA margin in 2027. We are convicted to cut costs in the non-core areas and approve our cost position at the same time.

Now I’d like to turn the call back over to Andy for a more detailed review of our financial results. Andy?

Andy Cheung: Thank you, Harold, and good morning everyone. If you are following along the presentation, please turn to Slide 13. Fourth quarter 2022 revenues was $234.9 million as compared to $228.9 million from the prior year period. The year-over-year growth was primarily attributable to increased pricing to offset material cost increases. Foreign currency translation unfavorably impacted four quarter 2022 revenues by $6.3 million or by 2.7%. The company reported consolidated operating loss of $4 million for the fourth quarter of 2022 compared to income of $6.5 million in the prior year period. This was primarily due to special items, which includes restructuring costs and an inventory write-down due to the increased demand in the Industrial Automation segment.

Additionally, foreign currency translation unfavorably impacted operating loss by $0.9 million. Adjusted EBITDA was $13.3 million for the fourth quarter up year-over-year compared to $12.9 million in the prior year. Adjusted EBITDA margins were 5.7% as compared to adjusted EBITDA margins of 5.6% in the fourth quarter of 2021. Interest expense was $2.9 million as compared to $1.7 million in the fourth quarter of 2021. The increase in interest expense was primarily related to higher base interest rates and a higher average net debt balance during the fourth quarter of 2022 compared to the fourth quarter of 2021. Net loss for the quarter was $32 million or negative $0.98 per diluted share as compared to net income of $2.6 million or $0.08 per diluted shares in the prior period.

Despite solid operating performance during the quarter, our reported financial results were negatively impacted by some headwinds. This included continued inflationary pressures, particularly steel pricing. Although as Harold already mentioned, we have taken pricing actions to offset these high cost and expect some alleviation in the near-term. Turning to business segment results. Our Vehicle Solutions segment fourth quarter revenues increased 13% to $142.8 million compared to the year ago quarter, primarily due to material cost pass-through and higher volume. Operating income for the fourth quarter decreased to $3.7 million compared to operating income of $5 million in the prior year period, primarily due to a lack in price recovery versus cost inflation and higher than planned start up costs.

Fourth quarter 2022, adjusted operating income, which excludes special cost, decreased 24% to $4.2 million. Our Electrical Systems segment achieved revenues of $47.1 million, an increase of 23% as compared to the year ago fourth quarter, resulting from material cost pass-through and contributions from the new business wins. Operating income was $5.4 million, an increase of $3.7 million compared to the fourth quarter of 2021 due to the previously mentioned material cost pass-through and favorable volume in mix. Adjusted operating income was $5.5 million, an increase of 104% from a year ago fourth quarter. Our Aftermarket and Accessories segment revenues increase 28% to $34.1 million compared to the year ago quarter, primarily resulting from increased sales volume and increased pricing to offset material cost.

Operating income was $3.2 million and increase compared to operating income of $1.9 million in the prior year period. The increase is primarily attributable to the increase in pricing. Adjusted operating income was $3.7 million, an increase of 95% compared to $1.9 million in the year ago fourth quarter. As shown on Slide 13, you can see the performance of our three vehicle related segments on the combined basis. The combined revenues increased 17% to $224 million compared to $191 million in the year ago quarter. Combined adjusted operating income was $13.3 million, an increase of 32% compared to $10.1 million in the prior year period. The growth in adjusted operating profit demonstrates the powerful impact the growth in the Electrical Systems and Aftermarket segments has on our bottom line.

Our Industrial Automation segment produced fourth quarter revenues of $11 million, a decrease of over 70% as compared to $37.5 million in the fourth quarter of 2021, due to lower demand levels. Operating loss was $11.9 million a decrease compared to the operating income of $3.1 million in the year ago quarter, primarily attributable to the previously mentioned lower sales volumes and an inventory charge of $10.4 million. Adjusted operating loss was $0.5 million compared to income of $3.6 million in the prior year period. Following along in the presentation, Slide 14 highlights some key financial trends for the quarter. Fourth quarter, revenues came in at $235 million, slightly below the previous quarter on fewer production days. The quarterly adjusted EBITDA margin came in at 5.7% in line with previous quarter, despite the lower revenues in the quarter.

Additionally, the quarterly free cash flow has shown improvements during the last few quarters and was $28 million for the fourth quarter, which aided out debt paydown. Turning to Slide 15. I would like to highlight a few items on the adjusted EPS bridge, which include some special items. First, as a result of evaluating our growth for tax assets took a non-cash charge of $14.7 million or $0.45 per share. Second, we completed the restructuring of the Industrial Automation business and recognized a non-cash inventory write down of $10.4 million or $0.29 per share after tax. Finally, we recorded a charge of $8.1 million or $0.24 per share after tax related to the termination of the company’s U.S. legacy pension plan. In addition, we also incurred higher startup expenses in the quarter to support our new business wins.

Foreign exchange was also a headwind as the U.S. dollar stringent against several currencies. Adjusting for these items as well as restructuring our EPS would’ve been $0.14 per share. Thank you. I will now turn the call back to Harold for our final remarks.

Harold Bevis: Thank you, Andy. And I’d like to conclude my comments by reiterating that we’ve had a resilient year and 2022, we’ve had good recovery efforts, although some of them have lagged on a profit basis, and the pace of the progress we’ve been able to achieve in our strategic plan has been better than we thought, and fueled by a strong focus on our transformation strategy and a clear prioritization of our initiatives and our large and vibrant and growing customer base. We’re a much stronger company in 2023, and we’re ready to capitalize on secular growth and higher profits in the trend towards electrification. And we look forward to sharing these successes with you in future calls. And I’ll now turn the call over to our operator to open up the line for questions. Thank you.

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Q&A Session

Operator: Thank you. First question comes from John Franzreb at Sidoti & Company. Please go ahead.

John Franzreb: Good morning Harold and Andy. Thanks for taking the questions.

Harold Bevis: You bet, John.

John Franzreb: Harold, it sounds like you’re getting modestly, I’ll phrase it more positive about the commercial truck market, be it five to seven or eight, are you starting to see order bookings into the second half that give you maybe some sort of improved confidence that you might not have had say, three months ago?

Harold Bevis: Yes, we are definitely have a improved outlook and we have basically confirmation from our top customers making public remarks and the year has started out stronger than expectations and we can €“ we have good visibility. Our visibility extends into the second half, and yes, we are seeing a stronger outlook for our core business that we have, and we’re seeing attempts for startups on our new business as well. So there’s strong demand for the vehicles that we have and that we’re headed onto.

John Franzreb: Good, that’s good news. And on the new Industrial Automation business, it sounds like you want to extend into new end markets, but what’s the pathway to get access to those markets and generate revenues there?

Harold Bevis: Right. So, we’re mainly leveraging our smaller positions that business had. We are not investing a lot of time or effort or distractions into brand new areas per se. We had legacy businesses that were leveraging. We put a new leader into that business last year, Minja Zahirovic. And he came with a broader industry background than warehouse automation. The whole warehouse automation thing was a spike event in retrospect now; it helped us a little bit while it went through more almost like a crazy brother. But it’s back to the business that it was and we bought it. And so we have a smaller warehouse automation business. We still have it, it’s just small and our outlook is that it’ll stay small for a period of time and just following gap accounting that would suggest the provision that we took. And so it’s really on the small end of system builds and contract manufacturing, John.

John Franzreb: Okay. And just on your aftermarket initiative, can you bring us up to speed on how that’s proceeding? That’d be helpful. Thank you.

Harold Bevis: Yes, we are virtually completed with our inventory profiles now. We’re going to ship from stock aftermarket seats and windshield wipers. And we are €“ we put in place our Shopify software and it’s primarily a profit, it’s a profit grab primarily, John. The business is not a high growth business, it’s 4% or 5%. And we are going to be shipping from stock versus building to order with a eight week lead time. And we have an experienced leader we brought in there that understands on daily pricing and demand based pricing from his experience as an Amazon shipper. And we will be monitoring our €“ we won’t run out of inventory because we’ll raise our prices before that happens. So, we’re going to be running an e-commerce business, it’s called aftermarkettruckparts.com and it’s going to launch here in a couple weeks.

John Franzreb: Okay, thanks. I’m going to back into queue.

Harold Bevis: Thank you, John.

Operator: Thank you. Next question comes from Joe Gomes at NOBLE Capital. Please go ahead.

Joe Gomes: Good morning and thanks for taking my questions.

Harold Bevis: You bet, Joe.

Joe Gomes: Pardon me. So in the last quarter we €“ you had talked about, you were in negotiations for about 20% of the revenue to improve the contracts there. You talked about some price increase beginning of this year. Kind of where do you stand on those and the price increases that you made in January. Are they sufficient to offset all these remaining inflationary pressures? Or do you think there’s going to be more necessary?