What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-04 · 187 added, 75 removed, 114 unchanged (70% of the section changed)

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and analysis below describe material changes in financial condition and results of operations as reflected in our condensed consolidated financial statements for the three months ended March 31, 2022 and 2021.

The discussion and analysis below describes material changes in financial condition and results of operations as reflected in our condensed consolidated financial statements for the three and six months ended June 30, 2022 and 2021.

This discussion and analysis should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2021 Form 10-K.

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Key Developments

On May 12, 2022 the Company entered into an amendment to increase its existing senior secured credit facilities to $325 million from $275 million consisting of a $175 million Term Loan A (the “Term Loan A”) and a $150 million Revolving Credit Facility (the “Revolver” and together with the Term Loan A the “Senior Secured Credit Facilities”).

The amendment provides the Company with additional capital flexibility to execute upon its transformation and growth initiatives.

As part of the amended terms of the agreement, the maturity date of the Senior Secured Credit Facilities has been extended by twelve months

to May 12, 2027, the interest rate decreased by 50 bps at various leverage ratios based on SOFR, and pro-forma leverage increased from 3.25x to 3.75x until December 31, 2022 with a quarterly step down of 25 bps to 3.00x leverage by September 30, 2023 and remain at this level thereafter.

Further, separate from the Company’s annual $35 million capital spending cap, a one-time $45 million capital project basket was included in the amendment.

All other key provisions, including the $75 million accordion, acquisition holiday, and other baskets remain unchanged.

In the first quarter of 2022, Russian military forces invaded Ukraine.

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While the facility was temporarily shut-down, we have resumed operations in L'viv and also set up additional capacity in the Czech Republic.

During both the three months ended March 31, 2022 and the twelve months ended December 31, 2021, our Ukraine facility represented approximately 1% of the Company's long-lived assets.

During both the six months ended June 30, 2022 and the twelve months ended December 31, 2021, our Ukraine facility represented approximately 1% of the Company's long-lived assets.

The invasion of Ukraine by Russia and the retaliatory measures taken by the U.S., NATO and other countries have created global security concerns and economic uncertainty that could have a lasting impact on regional and global economies.

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If that border crossing were to be closed or restricted for any reason, or if our customers decide to stop ordering from us or shift orders to our competitors, we would experience a loss of the use of our Ukrainian facility, which could have an adverse effect on our results of operations and financial condition.

During the first quarter of 2022, we experienced shutdowns at our plant in Shanghai, China due to the COVID-19 pandemic.

During the six months ended June 30, 2022, we experienced shutdowns at our plant in Shanghai, China due to the COVID-19 pandemic.

The COVID-19 pandemic has caused and continues to cause, significant volatility, uncertainty and economic disruptions to our business.

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Overall, we continued to experience global supply chain disruptions and significant inflation, including longer lead-times to procure parts from China and due to port backups, labor inflation, chip shortages, steel and other raw material inflation, and freight cost increases.

The impact of the pandemic and related economic recovery continue to be uneven from period to period and across our global footprint based on local and regional outbreaks.

The impact of the pandemic, the related economic recovery and global inflationary pressures continue to be uneven from period to period and across our global footprint based on local and regional outbreaks.

We continue to proactively monitor, assess and minimize to the extent reasonably possible disruptions and delays in production due to labor shortages or customer schedules, focus on cost control and recovery through pricing adjustments, and take reasonable measures to protect our workforce.

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The program includes workforce reductions and footprint optimization across segments.

We incurred expenses totaling $1.0 million during the three months ended March 31, 2022 related to this program and expect the cost to be between $4.0 million to $6.0 million for the entire program.

We incurred expenses totaling $1.8 million and $2.7 million during the three and six months ended June 30, 2022 and none in 2021, related to this program and expect the cost to be between $4.6 million to $6.0 million for the entire program.

On October 25, 2021, the Company provided notice to the Volvo Group (“Volvo”) of the Company’s intention to terminate its agreement with Volvo, with such termination to become effective twelve months from the date of notice, absent the parties reaching mutually agreeable terms upon which to continue their relationship.

During the first quarter, we continued negotiations with Volvo.

The Company is focused on implementing customer price increases where margin on product is not meeting profitability targets.

We completed the renegotiation of our agreement with Volvo during the second quarter ended June 30, 2022 and will continue the relationship based on the mutually agreed upon terms.

Consolidated Results of Operations

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

The table below sets forth certain consolidated operating data for the three months ended March 31 (dollars are in thousands):

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

The table below sets forth certain consolidated operating data for the three months ended June 30 (dollars are in thousands):

2022 2021 $ Change % Change

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Selling, general and administrative expenses 15,652 18,039 (2,387) (13.2)%

Other (income) expense 1,041 (656) 1,697 NM 1

Interest expense 2,118 2,818 (700) (24.8)%

Loss on extinguishment of debt 921 7,155 (6,234) (87.1)%

Provision for income taxes 870 1,546 (676) (43.7)%

Net income 2,485 5,095 (2,610) (51.2)%

Not meaningful

The decrease in consolidated revenues resulted from:

• a $8.3 million, or 4.7%, increase in sales to OEM;

• a $10.2 million, or 24.4%, decrease in warehouse automation sales;

• a $2.2 million, or 8.3%, decrease in aftermarket and OES sales;

• a $3.4 million, or 1776.2%, increase in other revenues.

First quarter 2022 revenues were favorably impacted by foreign currency exchange translation of $1.1 million, which is reflected in the change in revenues above.

The decrease in revenues is due to lower shipments caused by the COVID lockdowns in China, the Ukraine conflict and lower demand in the warehouse automation business.

These impacts were nearly offset by price increases in all of the business segments.

• a $6.1 million, or 3.5%, increase in OEM;

• a $25.8 million, or 47.5%, decrease in warehouse automation revenues;

• a $14.7 million, or 57.6%, increase in aftermarket and OES revenues;

• a $2.1 million, or 92.2% decrease in other revenues.

Second quarter 2022 revenues were unfavorably impacted by foreign currency exchange translation of $4.8 million, which is reflected in the change in revenues above.

The decrease in revenues is primarily driven by volume decrease in Warehouse Automation, offset by increased pricing to offset material cost increases across all other segments.

Gross Profit .

The $5.7 million decrease in gross profit is primarily attributable to the decrease in sales volume, partially offset by increased pricing to offset inflation.

Included in gross profit is cost of revenues, which increased $5.0 million, or 2.3%, as a result of an increase in raw material and purchased component costs of $0.5 million, or 0.3%, and an increase in labor and overhead expenses of $4.5 million, or 6.5%.

As a percentage of revenues, gross profit margin was 10.4% for the three months ended March 31, 2022 compared to 12.7% for the three months ended March 31, 2021.

The $12.5 million decrease in gross profit is primarily attributable to cost of revenues, which increased $5.4 million, or 2.4%, as a result of an increase in raw material and purchased component costs of $1.3 million, or 0.9%, and an increase in labor and overhead expenses of $4.1 million, or 5.5%.

As a percentage of revenues, gross profit margin was 8.7% for the three months ended June 30, 2022 compared to 13.3% for the three months ended June 30, 2021.

The decrease in gross profit margin is primarily due to global supply chain and market disruptions which have resulted in increased labor costs, raw material inflation, and freight cost increases.

The three months ended June 30, 2021 results include charges of $1.5 million associated with the restructuring program.

Selling, General and Administrative Expenses .

Selling, general and administrative expenses ("SG&A”) consist primarily of wages and benefits and other expenses such as marketing, travel, legal, audit, rent and utility costs which are not directly associated with the manufacturing of our products.

SG&A expenses increased $1.3 million compared to the three months ended March 31, 2021, primarily as a result of wages, benefits and travel returning to or increasing beyond pre-pandemic levels and legal cost increases.

As a percentage of revenues, SG&A expense was 7.0% for the three months ended March 31, 2022 compared to 6.4% for the three months ended March 31, 2021.

Other Expense.

Other expenses increased $1.7 million in the quarter ended March 31, 2022 as compared to the quarter ended March 31, 2021 due primarily to an unfavorable change in the fair value of foreign currency forward exchange contracts in 2022 versus a favorable change in the fair value of foreign currency forward exchange contracts in 2021.

Selling, general and administrative expenses ("SG&A”) consist primarily of wages and benefits and other expenses such as Contingent Consideration, marketing, travel, legal, audit, rent and utility costs which are not directly associated with the manufacturing of our products.

SG&A expenses decreased $2.4 million compared to the three months ended June 30, 2021, primarily due to lower incentive compensation and health care expense.

As a percentage of revenues, SG&A expense was 6.2% for the three months ended June 30, 2022 compared to 7.0% for the three months ended June 30, 2021.

Interest Expense .

Interest associated with our debt, and other expense was $2.0 million and $5.0 million for the three months ended March 31, 2022 and 2021, respectively.

The decrease in interest expense primarily related to refinancing of the Company's long term debt in April 2021, including elimination of PIK interest.

Interest associated with our debt was $2.1 million and $2.8 million for the three months ended June 30, 2022 and 2021, respectively.

The decrease in interest expense primarily related to lower rates resulting from the April 2021 and May 2022 debt refinancing and amendment, partially offset by a higher average debt balance during the respective comparative periods.

Loss on extinguishment of debt.

On May 12, 2022, the Company refinanced its long-term debt, which resulted in a loss of $0.9 million, including a $0.6 million non-cash write off relating to deferred financing costs of the Term loan facility due 2026 and $0.3 million of other fees associated with the new debt.

During the three months ended June 30, 2021 the Company refinanced its long-term debt, which resulted in a loss of $7.2 million, including a $3.7 million non-cash write off relating to deferred financing costs and unamortized discount of the 2023 Term Loan Facility, a voluntary repayment premium of $3.0 million and $0.5 million of other fees associated with the new debt.

Provision (Benefit) for Income Taxes.

An income tax provision of $1.4 million and $2.5 million were recorded for the three months ended March 31, 2022 and 2021, respectively.

An income tax provision of $0.9 million and $1.5 million were recorded for the three months ended June 30, 2022 and 2021, respectively.

The period over period change in income tax was primarily attributable to a $3.3 million decrease in pre-tax income versus the prior year period.

Net Income (loss).

Net income was $4.0 million for the three months ended March 31, 2022 compared to $8.5 million for the three months ended March 31, 2021.

Net income was $2.5 million for the three months ended June 30, 2022 compared to $5.1 million for the three months ended June 30, 2021.

The decrease in net income is attributable to the factors noted above.

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Vehicle Solutions Segment Results

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

The table below sets forth certain Vehicle Solutions Segment operating data for the three months ended March 31 (dollars are in thousands):

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

The table below sets forth certain Vehicle Solutions Segment operating data for the three months ended June 30 (dollars are in thousands):

2022 2021 $ Change % Change

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Operating income 1,509 8,242 (6,733) (81.7)%

The increase in Vehicle Solutions Segment revenues primarily resulted from increased pricing to offset material cost pass-through and new business wins offset by lower shipments caused by the COVID shutdown in China.

The increase in Vehicle Solutions Segment revenues primarily resulted from increased pricing to offset material cost pass-through offset by lower shipments caused by the COVID shutdown in China.

Gross Profit.

The decrease in gross profit was primarily attributable to cost of revenues, which increased $18.6 million, or 16.1%, as a result of an increase in raw material and purchased component costs of $15.2 million, or 20.1%, and an increase in labor and overhead expenses of $3.4 million, or 8.6%.

As a percentage of revenues, gross profit margin was 9.2% for the three months ended March 31, 2022 compared to 11.1% for the three months ended March 31, 2021.

As a percentage of revenues, gross profit margin was 6.2% for the three months ended June 30, 2022 compared to 11.5% for the three months ended June 30, 2021.

The decrease in gross profit margin is primarily due to global supply chain and market disruptions which have resulted in increased labor costs, raw material inflation, and freight cost increases.

Selling, General and Administrative Expenses .

SG&A expenses increased $0.3 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, consistent with the prior year amount on a percent of sales basis.

SG&A expenses increased $0.7 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, consistent with the prior year amount on a percent of sales basis.

Warehouse Automation Segment Results

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

The table below sets forth certain Warehouse Automation Segment operating data for the three months ended March 31 (dollars are in thousands):

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

The table below sets forth certain Warehouse Automation Segment operating data for the three months ended June 30 (dollars are in thousands):

2022 2021 $ Change % Change

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Operating income 1,308 8,480 (7,172) (84.6)%

The decrease in Warehouse Automation Segment revenues primarily resulted from lower sales volume.

The decrease in Warehouse Automation Segment revenues primarily resulted from lower sales volume due to decreased customer demand.

Gross Profit.

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Included in gross profit is cost of revenues, which decreased $18.9 million, or 42.4%, as a result of a decrease in raw material and purchased component costs of $15.5 million, or 43.1%, and a decrease in labor and overhead expenses of $3.4 million, or 39.6%.

As a percentage of revenues, gross profit margin was 14.6% for the three months ended March 31, 2022 compared to 12.3% for the three months ended March 31, 2021.

As a percentage of revenues, gross profit margin was 10.0% for the three months ended June 30, 2022 compared to 17.8% for the three months ended June 30, 2021.

The three months ended June 30, 2021 results include charges of $0.3 million associated with the restructuring program.

Selling, General and Administrative Expenses .

SG&A expenses decreased $0.2 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, consistent with the prior year amount on a percent of sales basis.

SG&A expenses increased $0.3 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

Electrical Systems Segment Results

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

The table below sets forth certain Electric Systems Segment operating data for the three months ended March 31 (dollars are in thousands):

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

The table below sets forth certain Electric Systems Segment operating data for the three months ended June 30 (dollars are in thousands):

2022 2021 $ Change % Change

3 unchanged sentences

Operating income 5,942 3,129 2,813 89.9

The decrease in Electric Systems Segment revenues primarily resulted from lower sales volumes due to supply chain and semi-conductor chip shortages at our customer plants, and the disruption caused by the war in the Ukraine.

The increase in Electric Systems Segment revenues primarily resulted from increased pricing to offset material cost pass-through and operational improvements.

Gross Profit.

The increase in gross profit is primarily attributable to cost of revenues, which increased $0.5 million, or 1.2%, as a result of a decrease in raw material and purchased component costs of $1.1 million, or 4.9%, and an increase in labor and overhead expenses of $1.6 million, or 9.2%.

As a percentage of revenues, gross profit margin was 15.3% for the three months ended June 30, 2022 compared to 10.4% for the three months ended June 30, 2021.

The increase in gross profit margin is primarily due to improved pricing.

The three months ended June 30, 2021 results include charges of $0.6 million associated with the restructuring program.

Selling, General and Administrative Expenses .

SG&A expenses decreased $0.2 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

Aftermarket & Accessories Segment Results

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

The table below sets forth certain Aftermarket & Accessories Segment operating data for the three months ended June 30 (dollars are in thousands):

2022 2021 $ Change % Change

Revenues $ 32,172 $ 29,192 $ 2,980 10.2%

Gross profit 2,867 5,135 (2,268) (44.2)

Selling, general & administrative expenses 1,735 1,449 286 19.7

Operating income 1,132 3,686 (2,554) (69.3)

The increase in Aftermarket & Accessories Segment revenues primarily resulted from increased pricing to offset material cost pass-through.

Gross Profit.

The decrease in gross profit is primarily attributable to cost of revenues, which increased $5.2 million, or 21.8%, as a result of an increase in raw material and purchased component costs of $2.7 million, or 17.6%, and an increase in labor and overhead expenses of $2.5 million, or 29.4%.

As a percentage of revenues, gross profit margin was 8.9% for the three months ended June 30, 2022 compared to 17.6% for the three months ended June 30, 2021.

The decrease in gross profit margin is primarily due to global supply chain and market disruptions which have resulted in increased labor costs, raw material inflation, and freight cost increases.

The three months ended June 30, 2021 results include charges of $0.6 million associated with the restructuring program.

Selling, General and Administrative Expenses .

SG&A expenses increased $0.3 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

Consolidated Results of Operations

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

The table below sets forth certain consolidated operating data for the six months ended June 30, (dollars are in thousands):

2022 2021 $ Change % Change

Revenues $ 495,223 $ 503,063 $ (7,840) (1.6)%

Gross profit 47,262 65,489 (18,227) (27.8)%

Selling, general and administrative expenses 32,651 33,757 (1,106) (3.3)%

Other (income) expense 874 (941) 1,815 NM 1

Interest expense 4,079 7,859 (3,780) (48.1)%

Loss on extinguishment of debt 921 7,155 (6,234) (87.1)%

Provision for income taxes 2,270 4,074 (1,804) (44.3)%

Net income 6,467 13,585 (7,118) (52.4)%

Not meaningful

The decrease in consolidated revenues resulted from:

• a $14.3 million, or 4.1%, increase in OEM;

• a $36.0 million, or 36.5%, decrease in warehouse automation revenues;

• a $12.5 million, or 24.0%, increase in aftermarket and OES revenues;

• a $1.3 million, or 61.8% increase in other revenues.

Six months ended 2022 revenues were unfavorably impacted by foreign currency exchange translation of $5.9 million, which is reflected in the change in revenues above.

The decrease in revenues is primarily driven by volume decrease in Warehouse Automation, offset by increased pricing to offset material cost increases.

Gross Profit .

The $18.2 million decrease in gross profit is primarily attributable to cost of revenues, which increased $10.4 million, or 2.4%, as a result of an increase in raw material and purchased component costs of $1.9 million, or 0.6%, and an increase in labor and overhead expenses of $8.5 million, or 5.9%.

As a percentage of revenues, gross profit margin was 9.5% for the six months ended June 30, 2022 compared to 13.0% for the six months ended June 30, 2021.

The six months ended June 30, 2022 results include charges of $2.3 million associated with the restructuring program.

Selling, General and Administrative Expenses .

SG&A expenses decreased $1.1 million compared to the six months ended June 30, 2021, primarily due to lower incentive compensation and health care expense.

As a percentage of revenues, SG&A expense was 6.6% for the six months ended June 30, 2022 compared to 6.7% for the six months ended June 30, 2021.

Other (Income) Expense.

Other expenses increased $1.8 million in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 due primarily to an unfavorable change in foreign currency of $0.9 million.

Interest Expense .

Interest associated with our debt was $4.1 million and $7.9 million for the six months ended June 30, 2022 and 2021, respectively.

Loss on extinguishment of debt.

During the six months ended June 30, 2021 the Company refinanced its long-term debt, which resulted in a loss of $7.2 million, including a $3.7 million non-cash write off relating to deferred financing costs and unamortized discount of the 2023 Term Loan Facility, a voluntary repayment premium of $3.0 million and $0.5 million of other fees associated with the new debt.

Provision (Benefit) for Income Taxes.

An income tax provision of $2.3 million and $4.1 million were recorded for the six months ended June 30, 2022 and 2021, respectively.

The period over period change in income tax was primarily attributable to the $8.9 million decrease in pre-tax income versus the prior year period.

Net Income (loss).

Net income was $6.5 million for the six months ended June 30, 2022 compared to $13.6 million for the six months ended June 30, 2021.

The decrease in net income is attributable to the factors noted above.

Segment Results

Vehicle Solutions Segment Results

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

The table below sets forth certain Vehicle Solutions Segment operating data for the six months ended June 30, (dollars are in thousands):

2022 2021 $ Change % Change

Revenues $ 282,941 $ 254,572 $ 28,369 11.1%

Gross profit 21,817 28,771 (6,954) (24.2)%

Selling, general & administrative expenses 13,990 13,046 944 7.2%

Operating income (loss) 7,827 15,725 (7,898) (50.2)%

Gross Profit.

The decrease in gross profit was primarily attributable cost of revenues, which increased $35.3 million, or 15.6%, as a result of an increase in raw material and purchased component costs of $26.7 million, or 17.8%, and an increase in labor and overhead expenses of $8.6 million, or 11.3%.

As a percentage of revenues, gross profit margin was 7.7% for the six months ended June 30, 2022 compared to 11.3% for the six months ended June 30, 2021.

The decrease in gross profit margin is primarily due to global supply chain and market disruptions which have resulted in increased labor costs, raw material inflation, and freight cost increases.

The six months ended June 30, 2022 results include charges of $0.1 million associated with the restructuring program.

Selling, General and Administrative Expenses .

SG&A expenses increased $0.9 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, consistent with the prior year amount on a percent of sales basis.

The increase was primarily due to legal expenses related to a customer dispute.

Warehouse Automation Segment Results

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

The table below sets forth certain Warehouse Automation Segment operating data for the six months ended June 30, (dollars are in thousands):

2022 2021 $ Change % Change

Revenues $ 62,673 $ 98,696 $ (36,023) (36.5)%

Gross profit 7,846 15,126 (7,280) (48.1)%

Selling, general & administrative expenses 2,871 2,738 133 4.9%

Operating income 4,975 12,388 (7,413) (59.8)%

The decrease in Warehouse Automation Segment revenues resulted from lower sales volume due to decreased customer demand.

Gross Profit.

The decrease in gross profit is primarily attributable to the decrease in sales volume.

Included in gross profit is cost of revenues, which decreased $28.7 million, or 34.4%, as a result of a decrease in raw material and purchased component costs of $24.0 million, or 35.8%, and a decrease in labor and overhead expenses of $4.8 million, or 28.8%.

As a percentage of revenues, gross profit margin was 8.5% for the three months ended March 31, 2022 compared to 13.6% for the three months ended March 31, 2021.

As a percentage of revenues, gross profit margin was 12.5% for the six months ended June 30, 2022 compared to 15.3% for the six months ended June 30, 2021.

The six months ended June 30, 2022 results include charges of $0.7 million associated with the restructuring program.

Selling, General and Administrative Expenses .

SG&A expenses increased $0.2 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

SG&A expenses increased $0.1 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

Electrical Systems Segment Results

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

The table below sets forth certain Electric Systems Segment operating data for the six months ended June 30, (dollars are in thousands):

2022 2021 $ Change % Change

Revenues $ 87,222 $ 90,657 $ (3,435) (3.8)%

Gross profit 10,647 10,912 (265) (2.4)%

Selling, general & administrative expenses 2,942 2,927 15 0.5%

Operating income 7,705 7,985 (280) (3.5)%

The decrease in Electrical Systems Segment revenues resulted from lower sales volumes due to supply chain and semi-conductor chip shortages at our customer plants, and the disruption caused by the war in the Ukraine.

The decreases were offset by increased pricing to offset material cost pass-through and operational improvements.

Gross Profit.

The decrease in gross profit is primarily attributable to the decrease in sales volume.

Included in gross profit is cost of revenues, which decreased $3.2 million, or 4.0%, as a result of a decrease in raw material and purchased component costs of $4.4 million, or 9.6%, and an increase in labor and overhead expenses of $1.2 million, or 3.7%.

As a percentage of revenues, gross profit margin was 12.2% for the six months ended June 30, 2022 compared to 12.0% for the six months ended June 30, 2021.

The six months ended June 30, 2022 results include charges of $0.6 million associated with the restructuring program.

Selling, General and Administrative Expenses .

SG&A expenses were flat year over year and consistent with the prior year amount on a percent of sales basis.

Aftermarket & Accessories Segment Results

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

The table below sets forth certain Aftermarket & Accessories Segment operating data for the three months ended March 31 (dollars are in thousands):

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

The table below sets forth certain Aftermarket & Accessories Segment operating data for the six months ended June 30, (dollars are in thousands):

2022 2021 $ Change % Change

3 unchanged sentences

Operating income 3,753 7,849 (4,096) (52.2)%

The modest increase in Aftermarket & Accessories Segment revenues primarily resulted from sales volume and pricing to offset material cost pass-through.

The increase in Aftermarket & Accessories Segment revenues resulted from sales volume and pricing to offset material cost pass-through.

Gross Profit.

The decrease in gross profit is primarily attributable to cost of revenues, which increased $7.0 million, or 14.5%, as a result of an increase in raw material and purchased component costs of $3.6 million, or 11.4%, and an increase in labor and overhead expenses of $3.4 million, or 20.1%.

As a percentage of revenues, gross profit margin was 13.5% for the three months ended March 31, 2022 compared to 18.7% for the three months ended March 31, 2021 due to lagging price-cost offsets.

As a percentage of revenues, gross profit margin was 11.1% for the six months ended June 30, 2022 compared to 18.1% for the six months ended June 30, 2021.

The decrease in gross profit margin is primarily due to global supply chain and market disruptions which have resulted in increased labor costs, raw material inflation, and freight cost increases.

The six months ended June 30, 2022 results include charges of $1.0 million associated with the restructuring program.

Selling, General and Administrative Expenses .

SG&A expenses were flat year over year and consistent with the prior year amount on a percent of sales basis.

SG&A expenses increased $0.3 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, consistent with the prior year amount on a percent of sales basis.

Liquidity and Capital Resources

As of March 31, 2022, the Company had $80.2 million of outstanding borrowings on its revolving credit facility, $38.2 million of cash and $43.6 million of availability from the revolving credit facility, resulting in total liquidity of $81.8 million.

Our primary sources of liquidity as of March 31, 2022 were cash reserves and availability under our revolving credit facility.

As of June 30, 2022, the Company had $31.0 million of outstanding borrowings under its revolving credit facility, $28.5 million of cash and $117.8 million of availability under the revolving credit facility, resulting in total liquidity of $146.3 million.

Our primary sources of liquidity as of June 30, 2022 were cash reserves and availability under our revolving credit facility.

We believe that these sources of liquidity will provide adequate funds for our working capital needs, capital expenditures and debt service throughout the next twelve months.

However, no assurance can be given that this will be the case.

As of March 31, 2022, cash o f $38.1 million was held by foreign subsidiaries.

The Company had a $0.3 million deferred tax liability as of March 31, 2022 for the expected future income tax implications of repatriating cash from the foreign subsidiaries for which no indefinite reinvestment assertion has been made.

As of June 30, 2022, cash of $28.4 million was held by foreign subsidiaries.

The Company had a $0.4 million deferred tax liability as of June 30, 2022 for the expected future income tax implications of repatriating cash from the foreign subsidiaries for which no indefinite reinvestment assertion has been made.

Covenants and Liquidity

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If we do not comply with the financial and other covenants in the Credit Agreement, the lenders could declare an event of default under the Credit Agreement and our indebtedness thereunder could be declared immediately due and payable.

The Credit Agreement contain cross default provisions.

If we are unable to borrow under the Credit Agreement, we will need to meet our capital requirements using alternative sources of liquidity which may not be available on acceptable terms.

Any of these events would have a material adverse effect on our business, financial condition and liquidity.

The amendment provides the Company with additional capital flexibility to execute upon its transformation and growth initiatives.

As part of the amended terms of the agreement, the maturity date of the Senior Secured Credit Facilities has been extended by twelve months to May 12, 2027, the interest rate decreased by 50 bps at various leverage ratios based on SOFR, and pro-forma leverage increased from 3.25x to 3.75x until December 31, 2022 with a quarterly step down of 25 bps to 3.00x leverage by September 30, 2023 and remain at this level thereafter.

Further, separate from the Company’s annual $35 million capital spending cap, a one-time $45 million capital project basket was included in the amendment.

All other key provisions, including the $75 million accordion, acquisition holiday, and other baskets remain unchanged.

Sources and Uses of Cash

March 31, 2022 March 31, 2021

June 30, 2022 June 30, 2021

(In thousands)

Net cash provided by (used in) operating activities $ (21,398) $ (15,371)

Net cash used in operating activities $ (4,507) $ (24,812)

Net cash used in investing activities (8,616) (6,909)

1 unchanged sentence

Effect of currency exchange rate changes on cash (1,994) (52)

Net increase (decrease) in cash $ 3,250 $ (12,367)

Net decrease in cash $ (6,458) $ (9,532)

Operating activities.

For the three months ended March 31, 2022, net cash used in operating activities was $21.4 million compared to $15.4 million for the three months ended March 31, 2021.

Net cash used in operating activities is primarily attributable to the increase in working capital for the three months ended March 31, 2022.

For the six months ended June 30, 2022, net cash used in operating activities was $4.5 million compared to $24.8 million for the six months ended June 30, 2021.

Net cash used in operating activities is primarily attributable to a smaller increase in working capital for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Investing activities.

For the three months ended March 31, 2022, net cash used in investing activities was mainly due to capital expenditures and was $3.6 million compared to $1.7 million for the three months ended March 31, 2021.

For the six months ended June 30, 2022, net cash used in investing activities was $8.6 million compared to $6.9 million for the six months ended June 30, 2021.

In 2022, we expect capital expenditures to be in the range of $22 million to $25 million.

Financing activities.

For the three months ended March 31, 2022, net cash provided by financing activities was $28.4 million compared to $5.5 million for the three months ended March 31, 2021.

Net cash provided by financing activities for the three months ended March 31, 2022 is attributable to borrowings under the revolving credit facility to fund the working capital increase.

For the six months ended June 30, 2022, net cash provided by financing activities was $8.7 million compared to $22.2 million for the six months ended June 30, 2021.

Net cash provided by financing activities for the six months ended June 30, 2022 is attributable to $30.6 million of net borrowings under the amended credit facility offset by $18.4 million net repayments of the revolving credit facility and $1.9 million repayments of the credit facility.

Net cash provided by financing activities for the six months ended June 30, 2021 is attributable to $35.5 million of borrowings under the revolving credit facility offset by $8.0 million of costs attributed to debt amendment and extinguishment completed during the six months ended June 30, 2021 and a $5.0 million Contingent Consideration payment.

Debt and Credit Facilities

9 unchanged sentences

Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 Form 10-K.

At March 31, 2022, there have been no material changes to our critical accounting estimates from those disclosed in our 2021 Form 10-K.

Forward-Looking Statements

This Quarter Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended.

For this purpose, any statements contained herein that are not statements of historical fact, including without limitation, certain statements under “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” and located elsewhere herein regarding industry outlook, the Company’s expectations for future periods with respect to its plans to improve financial results, the future of the Company’s end markets, including the short-term and long-term impact of the COVID-19 pandemic on our business and the global supply chain, changes in the Class 8 and Class 5-7 North America truck build rates, performance of the global construction equipment business, the Company’s prospects in the wire harness, warehouse automation and electric vehicle markets, the Company’s initiatives to address customer needs, organic growth, the Company’s strategic plans and plans to focus on certain segments, competition faced by the Company, volatility in and disruption to the global economic environment, including inflation and labor shortages, financial covenant compliance, anticipated effects of acquisitions, production of new products, plans for capital expenditures and our results of operations or financial position and liquidity, may be deemed to be forward-looking statements.

Without limiting the foregoing, the words “believe”, “anticipate”, “plan”, “expect”, “intend”, “will”, “should”, “could”, “would”, “project”, “continue”, “likely”, and similar expressions, as they relate to

us, are intended to identify forward-looking statements.

The important factors discussed in “Item 1A - Risk Factors”, among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time.

Such forward-looking statements represent management’s current expectations and are inherently uncertain.

Investors are warned that actual results may differ from management’s expectations.

Additionally, various economic and competitive factors could cause actual results to differ materially from those discussed in such forward-looking statements, including, but not limited to, factors which are outside our control.

Any forward-looking statement that we make in this report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments.

Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.

At June 30, 2022, there have been no material changes to our critical accounting estimates from those disclosed in our 2021 Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis