Gary Prestopino: Good morning, all.
James Zizelman: Hey, good morning, Gary.
Gary Prestopino: I kind of jumped on the call a little bit late and just kind of assimilating what you were saying on the tachograph, Jim. Was there – there were some issues with the fact that there wasn’t as much on the adoption side in the quarter as you expected? Or – and could you just very simply just go through that again, please?
James Zizelman: Yes. So first off, Gary, we’ll break it into two sections as well. On the OEM side, it’s being adopted as expected. It’s required for new vehicles being sold. If they’re going to be registered for international transport, they have to have the next-generation tachograph. So the OEs are selecting this and they’re 100% in line with the volume of vehicles that they’re building. The variability, probably what you picked up was variability, and that’s really coming from the aftermarket. As you know, trucks at 3.5 tons are higher have to be retrofit if they have the former analog or 1B digital tachographs in place. And just like anybody, if you have a deadline to get something finished or completed, oftentimes, people will push the compliance with that deadline to the deadline itself.
And so it was a little slower here at the beginning as people were first required to make the change, but they do have to the end of 2024 to get it done. And so like Matt says, that regulation hasn’t changed. The timing and the compliance date hasn’t changed. The addressable market is already out there. These are existing vehicles. So we’re expecting to see an uptick really in the sales into the aftermarket because it was a bit lighter in the first quarter.
Matthew Horvath: Yes. And I would add to that, as Jim mentioned in the prepared remarks here, the European Commission, which governs this regulation has reiterated those deadlines and requirements.
James Zizelman: Yes.
Matthew Horvath: So not only do we understand the addressable market and expect the second half to pick up. It’s very clear from the regulatory agencies that that’s the expectation of folks as well. So we feel pretty comfortable that we understand the addressable market. And because the first quarter was a little bit lighter, that just suggests there’s more to come here in the second half or second quarter forward.
James Zizelman: Yes.
Gary Prestopino: Okay. And…
James Zizelman: Make sense, Gary…
Gary Prestopino: Yes, yes. No, that’s fine. I just wanted to clarify that. And in terms of the peak revenue, I mean, what year do you actually hit that? Is that somewhere in the 2026? Or does this keep going on? And I guess, I’m trying to get an idea of what is the actual size of the market and units? I know I realize it’s all for international transport only, but when is that peak number hit?
Matthew Horvath: Yes. So Gary, because the adoption started late last year, you obviously see a ramp-up this year. We really would expect to kind of hit those peak numbers in 2025, 2026. And then naturally, of course, you’ll see a more stabilized number, there forward as the retrofits are completed and the OEM market remains strong. So we talked about market share a little bit on the slide there that at our peak annual revenue, we estimate we would have about 30% market share. Obviously, because that’s an aftermarket product and not an OEM award, there is opportunity to improve that as we go forward, and we’re working on that. But that gives you some idea of kind of the total addressable market for our product as these regulations roll through.
Gary Prestopino: So by July 2026, all vehicles above 2.5 tons we’ll have to have this, whether they’re retrofitted or OEM. And then once that happens, you start going – after you hit peak revenue, then it just basically becomes an OEM driven product. Is that the way to look at…
Matthew Horvath: An OEM product with some service requirements as well going forward. Yes.
Gary Prestopino: Okay. All right. So next question revolves around the quarter. First of all, is your guidance for this year pegged off using a $6.6 million EBITDA number or an adjusted number of $10.9 million?
Matthew Horvath: Gary, to be clear, the guidance includes those issues in the first quarter. So it’s the $6.6 million number is what our guidance is based off of.
Gary Prestopino: Okay.
Matthew Horvath: But because those things, one, are obviously non-operating on the FX side. And two, not expected to recur on the warranty side, we wanted to provide a kind of an estimate of what you should expect from a run rate forward in the true performance of the business. So the guidance includes the $6.6 million, but the performance of the business, obviously, was much, much better than that. We wanted to outline that in the remarks.
Gary Prestopino: So you can say with some certainty that there’s not going to be any more warranty expense going forward?
Matthew Horvath: So Gary, here’s what I would say. There’s never certainty – yes, there’s never certainty that you can say that there won’t be any more warranty expense going forward. As you would imagine, we have a typical warranty accrual on every product, right? These were two specific items in the quarter that we would not expect to recur going forward.
Gary Prestopino: Okay. And then just lastly, as I read back on my notes, I think you had said that you had expected Q1 adjusted EBITDA to be less than that of Q4, which was $15.6 million. As far as the quarter goes, the sales were better than we expected, but obviously, the adjusted EBITDA wasn’t. But you didn’t really give specific guidance for Q1. I mean, when you factor out these nonrecurring items, did the quarter come in about where you thought it was going to be on an adjusted EBITDA basis?
Matthew Horvath: Yes. Generally, Gary. We did talk a little bit about the mix of tachograph in the aftermarket business. Like we said, that aftermarket business does have an accretive benefit to margin. So I would say that was the only thing outside of the normal – or I’m sorry, the things we called out between the warranty and the non-operating impacts. But generally speaking, the quarter would have been in line with our expectations, had it had not been for those unusual items or non-recurring non-operating items.
Gary Prestopino: Okay. And then just in general, when you start these new programs that are going to roll out well, the growth in the tachograph and then obviously, MirrorEye going from, what, $155 million to $100 million and $60 million of tachograph…
Matthew Horvath: Yes.
Gary Prestopino: Those margins, especially on MirrorEye, as you go into 2025, those programs that you’re rolling out, should those margins really start seeing really good improvement as you start scaling that business?
