Thomas Kerr: Okay. It sounds good. And one of the comments in the presentation was in the industrial side where there’s lower capital market spending due to increasing interest rates. What does that mean? Does that mean they’re financing capital spending through borrowing or are you just saying that interest rates are taken away from free cash flow?
Harold Bevis: Can you repeat that one more time?
Thomas Kerr: Your one of the comments was that I think it quoted general industrial component sales due to lower capital spending in an increasing rate environment. What does that mean exactly?
Harold Bevis: Well, I can just tell you what we’re doing. You touched on a couple of things there. We are going to spend the same amount of capital that we have been. We’re more aggressively using or more aggressively quoting the existing capacity that we have where it sits. But in cases where we’re pursuing growth prospects that require capital, we’re being careful to balance our portfolio between mobile and power, and we’re also being careful to balance our vehicle portfolio across the powertrains of combustion engine, hybrid and electrical. For the specifics there, Mike, I’ll turn it over to you.
Michael Felcher: Yeah. Tom, I think the comment is driven by the same cautious behavior on our customer parts that Harold is talking about on our part in terms of reduced capital investment in new programs, which is translating to some near-term softness for us just given the uncertain interest rate environment and higher interest rate costs that we’re seeing.
Thomas Kerr: Right. Okay. A couple of more quick ones. Refresh my memory on free cash flow uses, are you allowed to use it besides anything besides step paydown, share buybacks or dividends?
Michael Felcher: There are restrictions under our credit agreement that there’s an excess cash flow calculation that could come into play depending on our cash generation that could require a pay down of the term loan and then there’s also restrictions on things we can do from a capital standpoint based on leverage ratios and other considerations. But as long as we satisfy those requirements, we have the flexibility to spend our free cash flow as we see here.
Thomas Kerr: Okay. Two more quick ones. The UAW strike, you said a few million slip into the first quarter from the fourth quarter. That’s sales, not profits, correct?
Michael Felcher: Well, the volume will take margin with it. So I think this is my third strike I’ve gone through. In each case, it was primarily a timing issue because there was still demand for the vehicles. And so then the vehicle makers had to get caught up. So put it like a little kink in the supply chain. So we’re going to be going through that. So there’s nothing formally changed in our supply chain yet in any of our signals, our ADI signals. And the UAW is going through ratification processes, and it varies by OE. But it’s possible that we have some volume move from Q4 to Q1, but it’s not a big number, but it will take margin with it, of course. Just be whatever that might move. And we don’t see that it is yet. We’re just stating it’s a risk.
Thomas Kerr: Okay. Last quick one. Do you guys have any operations or sales or business in the Middle East region or Israel region?
Harold Bevis: We do not. It’s a terrible thing that’s happening there, but we’re not impacted — our company is not impacted by it.
Thomas Kerr: Okay. That’s all I have for today. Thanks.
Michael Felcher: Thanks, Tom.
Harold Bevis: Thank you.
Operator: And the next question will be from Barry Haimes from Sage Asset Management. Please go ahead.
Barry Haimes: Thanks so much for taking the question. Can you hear me?
Harold Bevis: Yes.
Barry Haimes: Okay. Great. I had one quick question on the unprofitable or very low profitable contracts. Could you talk about how many of those there are and what sort of duration there is. I am harkening back Harold to your previous situation where some of those truck contracts lasted for a while before you could get out of them. So I would love to get some color around what kind of duration we’re looking at? Thanks.
Harold Bevis: And you’re correct. The contracts have notification periods. It crosses yes, how many customers does it involve good — I don’t know that, but I’ll estimate it that it’s between 10 and 20. And we also have a situation where my predecessor did notify a few of the big ones before I got here, so the notification period has begun. And as I stated earlier on one of the questions, I think it was to Rob, we’re acting upon all of them. We’re actively engaged on all of these matters right now, and our goal is to make significant improvement during 2024. So I don’t believe there’s a contract that would push us into 2025, but we have to use our judgment because a lot of these situations are with customers that where we make money in one place and lose money in one, and you have to kind of negotiate the whole deal.
So they require a negotiated outcome, but we have a base plan underway right now that’s within our control and will deliver significant improvement to our current run rate. Said differently, the results we reported have a big loss within them. So we’re trying to rectify that. The double win for us, Barry, would be — it will be when not only do we get rid of the problem, but we refill the capacity with profitable business. So it’s good capacity, and we intend to use it in new business pursuits.
Barry Haimes: Great. Thanks so much and congrats on all progress so far.
Harold Bevis: Thank you, Barry.
Operator: And our next question is from Peter Sidoti from Sidoti & Company. Please go ahead.
Peter Sidoti: Hi, Harold. Two quick questions. What’s the economic assumptions you’re making for the next 12 to 18 months, just for the general economy.
Harold Bevis: The vehicle outlook, you probably know them very well. The commercial vehicle outlook is for slightly less heavy-duty trucks, but stable medium-duty kind of work trucks. On the passenger vehicle side, it’s going to be heavily dependent on rates, but we adopt third-party outlooks on vehicles, which is a steady outlook for us. Overall, globally, it varies by market in China. Thankfully, we’re tethered to the electric vehicle government mandates that are underway. And so we’re benefiting from that both in new business and existing business. In Europe, we have a smaller business and it’s steady. And in Brazil, we have a nice business there and several big OEs that we’re partnered with the product, the vehicle platforms we’re on our growth platforms.
