What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-04 · 121 added, 135 removed, 166 unchanged (61% of the section changed)

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

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 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.

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

During the nine months ended September 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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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.

On November 1, 2021, the Company's Board of Directors approved a restructuring program to align the Company’s cost structure to support margin expansion.

The program includes workforce reductions and footprint optimization across segments.

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.

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 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):

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

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

2022 2021 $ Change % Change

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Selling, general and administrative expenses 17,304 18,772 (1,468) (7.8)%

Other (income) expense 1,924 (186) 2,110 NM 1

Interest expense 2,813 1,630 1,183 72.6%

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

Provision for income taxes 1,250 2,417 (1,167) (48.3)%

Net income 3,551 7,511 (3,960) (52.7)%

The decrease in consolidated revenues resulted from:

Not meaningful

The increase in consolidated revenues resulted from:

• a $39.1 million, or 28.5%, increase in OEM;

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• a $1.8 million, or 3.9%, 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.

• a $8.5 million, or 172.4% increase in other revenues.

Third quarter 2022 revenues were unfavorably impacted by foreign currency exchange translation of $6.5 million, which is reflected in the change in revenues above.

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

Gross Profit .

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 $3.3 million decrease in gross profit is primarily attributable to the decrease in warehouse automation revenues and the cost of revenues, which increased $15.1 million, or 7.2%, as a result of an increase in raw material and purchased component costs of $12.1 million, or 8.7%, and an increase in labor and overhead expenses of $3.0 million, or 4.3%.

As a percentage of revenues, gross profit margin was 10.7% for the three months ended September 30, 2022 compared to 12.6% for the three months ended September 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.

The three months ended September 30, 2022 results include charges of $0.6 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 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.

SG&A expenses decreased $1.5 million compared to the three months ended September 30, 2021, primarily due to lower incentive compensation and health care expense.

As a percentage of revenues, SG&A expense was 6.9% for the three months ended September 30, 2022 compared to 7.8% for the three months ended September 30, 2021.

Other (Income) Expense.

Other expenses increased $2.1 million in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 due primarily to partial settlement of the Company's U.S.

Pension Plan liabilities of $1.1 million as well as an unfavorable change in foreign currency of $0.4 million.

Interest Expense .

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.

Interest associated with our debt was $2.8 million and $1.6 million for the three months ended September 30, 2022 and 2021, respectively.

The increase in interest expense primarily related to higher base interest rates on our variable rate debt and a higher average debt balance during the respective comparative period.

Provision (Benefit) for Income Taxes.

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.

An income tax provision of $1.3 million and $2.4 million were recorded for the three months ended September 30, 2022 and 2021, respectively.

The period over period change in income tax was primarily attributable to a $5.1 million decrease in pre-tax income versus the prior year period.

Net Income (loss).

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.

Net income was $3.6 million for the three months ended September 30, 2022 compared to $7.5 million for the three months ended September 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 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):

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

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

2022 2021 $ Change % Change

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Operating income 9,560 2,921 6,639 227.3%

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.

The increase in Vehicle Solutions Segment revenues primarily resulted from increased pricing to offset material cost pass-through and favorable volume.

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 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.

The increase in gross profit was primarily attributable to volume leverage, increased pricing and lower health care expense.

Included in gross profit is cost of revenues, which increased $32.4 million, or 30.1%, as a result of an increase in raw material and purchased component costs of $28.7 million, or 40.5%, and an increase in labor and overhead expenses of $3.7 million, or 10.1%.

As a percentage of revenues, gross profit margin was 9.0% for the three months ended September 30, 2022 compared to 8.6% for the three months ended September 30, 2021.

Selling, General and Administrative Expenses .

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.

SG&A expenses decreased $2.9 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to lower incentive compensation and health care expense.

Warehouse Automation Segment Results

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):

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

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

2022 2021 $ Change % Change

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Selling, general & administrative expenses 1,371 1,461 (90) (6.2)%

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

Operating income (loss) (967) 8,025 (8,992) (112.0)%

The decrease in Warehouse Automation Segment revenues primarily 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.

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

Included in gross profit is cost of revenues, which decreased $28.5 million, or 67.5%, as a result of a decrease in raw material and purchased component costs of $23.9 million, or 70.5%, and a decrease in labor and overhead expenses of $4.6 million, or 55.2%.

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.

As a percentage of revenues, gross profit margin was 2.9% for the three months ended September 30, 2022 compared to 18.4% for the three months ended September 30, 2021.

The decrease is due to loss of volume leverage.

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.

SG&A expenses decreased $0.1 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Electrical Systems Segment Results

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):

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

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

2022 2021 $ Change % Change

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Operating income 5,155 4,915 240 4.9

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

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

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.

The decrease in gross profit is primarily attributable to cost of revenues, which increased $6.5 million, or 19.3%, as a result of an increase in raw material and purchased component costs of $5.3 million, or 29.7%, and an increase in labor and overhead expenses of $1.2 million, or 7.4%.

As a percentage of revenues, gross profit margin was 13.5% for the three months ended September 30, 2022 compared to 16.5% for the three months ended September 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 decreased $0.2 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

SG&A expenses decreased $0.7 million for the three months ended September 30, 2022 compared to the three months ended September 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):

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

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

2022 2021 $ Change % Change

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Operating income 4,953 2,349 2,604 110.9

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

The increase in Aftermarket & Accessories Segment revenues resulted from increased 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 $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.

The increase in gross profit is primarily attributable to the increase in sales volume and pricing.

Included in gross profit is cost of revenues, which increased $4.7 million, or 18.1%, as a result of an increase in raw material and purchased component costs of $2.0 million, or 11.7%, and an increase in labor and overhead expenses of $2.7 million, or 29.7%.

As a percentage of revenues, gross profit margin was 17.2% for the three months ended September 30, 2022 compared to 13.0% for the three months ended September 30, 2021.

The increase in gross profit margin is primarily due to increased pricing to offset material cost pass-through.

The three months ended September 30, 2022 results include charges of $0.4 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.

SG&A expenses decreased $0.1 million for the three months ended September 30, 2022 compared to the three months ended September 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):

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

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

2022 2021 $ Change % Change

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Not meaningful

The decrease in consolidated revenues resulted from:

The increase in consolidated revenues resulted from:

• a $43.1 million, or 9.6%, increase in OEM;

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• a $20.3 million, or 288.2% 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.

Nine months ended 2022 revenues were unfavorably impacted by foreign currency exchange translation of $12.4 million, which is reflected in the change in revenues above.

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

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.

The $21.5 million decrease in gross profit is primarily attributable to the decrease in warehouse automation revenues and the cost of revenues, which increased $25.5 million, or 3.9%, as a result of an increase in raw material and purchased component costs of $13.9 million, or 3.2%, and an increase in labor and overhead expenses of $11.6 million, or 5.4%.

As a percentage of revenues, gross profit margin was 9.9% for the nine months ended September 30, 2022 compared to 12.9% for the nine months ended September 30, 2021.

The nine months ended September 30, 2022 results include charges of $3.0 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.

SG&A expenses decreased $2.6 million compared to the nine months ended September 30, 2021, primarily due to lower incentive compensation and health care expense.

As a percentage of revenues, SG&A expense was 6.7% for the nine months ended September 30, 2022 compared to 7.1% for the nine months ended September 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.

Other expenses increased $3.9 million in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 due primarily to partial settlement of the Company's U.S.

Pension Plan liabilities of $1.1 million as well as an unfavorable change in foreign currency of $1.3 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.

Interest associated with our debt was $6.9 million and $9.5 million for the nine months ended September 30, 2022 and 2021, respectively.

The decrease in interest expense primarily related to lower rates, partially offset by a higher average debt balance during the respective comparative periods.

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.

During the nine months ended September 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 associated fees.

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.

An income tax provision of $3.5 million and $6.5 million were recorded for the nine months ended September 30, 2022 and 2021, respectively.

The period over period change in income tax was primarily attributable to the $14.0 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.

Net income was $10.0 million for the nine months ended September 30, 2022 compared to $21.1 million for the nine months ended September 30, 2021.

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

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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):

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

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

2022 2021 $ Change % Change

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Selling, general & administrative expenses 18,269 20,269 (2,000) (9.9)%

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

Operating income 17,388 18,645 (1,257) (6.7)%

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.

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 was primarily attributable to cost of revenues, which increased $67.7 million, or 20.3%, as a result of an increase in raw material and purchased component costs of $55.4 million, or 25.1%, and an increase in labor and overhead expenses of $12.3 million, or 10.9%.

As a percentage of revenues, gross profit margin was 8.2% for the nine months ended September 30, 2022 compared to 10.4% for the nine months ended September 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.

The nine months ended September 30, 2022 results include charges of $0.2 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.

SG&A expenses decreased $2.0 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to lower incentive compensation and healthcare expense.

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):

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

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

2022 2021 $ Change % Change

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Included in gross profit is cost of revenues, which decreased $57.2 million, or 45.5%, as a result of a decrease in raw material and purchased component costs of $47.9 million, or 47.4%, and a decrease in labor and overhead expenses of $9.3 million, or 37.6%.

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.

As a percentage of revenues, gross profit margin was 10.7% for the nine months ended September 30, 2022 compared to 16.4% for the nine months ended September 30, 2021.

The nine months ended September 30, 2022 results include charges of $0.8 million associated with the restructuring program.

Selling, General and Administrative Expenses .

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

SG&A expenses were flat year over year.

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):

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

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

2022 2021 $ Change % Change

3 unchanged sentences

Operating income 12,859 12,899 (40) (0.3)%

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.

The increase in Electrical Systems Segment revenues resulted from increased pricing to offset material cost pass-through, and new business wins.

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.

The decrease in gross profit is primarily attributable to the cost of revenues, which increased $3.3 million, or 2.9%, as a result of an increase in raw material and purchased component costs of $0.9 million, or 1.4%, and an increase in labor and overhead expenses of $2.4 million, or 4.8%.

As a percentage of revenues, gross profit margin was 12.6% for the nine months ended September 30, 2022 compared to 13.4% for the nine months ended September 30, 2021.

The decrease is primarily due to supply chain and semi-conductor chip shortages at our customer plants, and the disruption caused by the war in the Ukraine.

The nine months ended September 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.

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

Aftermarket & Accessories Segment Results

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):

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

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

2022 2021 $ Change % Change

2 unchanged sentences

Selling, general & administrative expenses 4,636 4,407 229 5.2%

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

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

Operating income (loss) 8,705 10,198 (1,493) (14.6)%

The increase in Aftermarket & Accessories Segment revenues resulted from increased 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 $11.7 million, or 15.8%, as a result of an increase in raw material and purchased component costs of $5.5 million, or 11.5%, and an increase in labor and overhead expenses of $6.2 million, or 23.4%.

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.

As a percentage of revenues, gross profit margin was 13.4% for the nine months ended September 30, 2022 compared to 16.4% for the nine months ended September 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.

The nine months ended September 30, 2022 results include charges of $1.4 million associated with the restructuring program.

Selling, General and Administrative Expenses .

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.

SG&A expenses increased $0.2 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, consistent with the prior year amount on a percent of sales basis.

Liquidity and Capital Resources

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.

As of September 30, 2022, the Company had $11.6 million of outstanding borrowings under its revolving credit facility, $38.7 million of cash and $137.2 million of availability under the revolving credit facility, resulting in total liquidity of $175.9 million.

Our primary sources of liquidity as of September 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 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.

As of September 30, 2022, cash of $35.0 million was held by foreign subsidiaries.

The Company had a $0.5 million deferred tax liability as of September 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

Our ability to comply with the covenants in the Credit Agreement, as discussed in Note 4, Debt, may be affected by economic or business conditions beyond our control.

Based on our current forecast, we believe that we will be able to maintain compliance with the financial maintenance covenants and the fixed charge coverage ratio covenant, if applicable, and other covenants in the Credit Agreement for the next twelve months;

however, no assurances can be given that we will be able to comply.

We base our forecasts on historical experience, industry forecasts and other assumptions that we believe are reasonable under the circumstances.

If actual results are substantially different than our current forecast we may not be able to comply with our financial covenants.

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.

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.

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 and a $150 million Revolving Credit Facility.

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.

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 the maximum consolidated total leverage ratio 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.

Our ability to comply with the covenants in the Credit Agreement, as discussed in Note 4, Debt, of our Condensed Consolidated Financial Statements may be affected by economic or business conditions beyond our control.

Based on our current forecast, we believe that we will be able to maintain compliance with the financial maintenance covenants and the fixed charge coverage ratio covenant and other covenants in the Credit Agreement for the next twelve months;

however, no assurances can be given that we will be able to comply.

We base our forecasts on historical experience, industry forecasts and other assumptions that we believe are reasonable under the circumstances.

If actual results are substantially different than our current forecast, we may not be able to comply with our financial covenants.

Sources and Uses of Cash

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

(In thousands)

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

Net cash provided by (used in) operating activities $ 33,794 $ (20,889)

Net cash used in investing activities (12,525) (11,399)

Net cash provided by financing activities 8,659 22,241

Net cash provided by (used in) financing activities (13,031) 16,073

Effect of currency exchange rate changes on cash (4,483) (685)

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

Net increase (decrease) in cash $ 3,755 $ (16,900)

Operating activities.

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.

For the nine months ended September 30, 2022, net cash provided by operating activities was $33.8 million compared to net cash used in operating activities of $20.9 million for the nine months ended September 30, 2021.

Net cash provided by operating activities is primarily attributable to a decrease in working capital for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

Investing activities.

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.

For the nine months ended September 30, 2022, net cash used in investing activities was $12.5 million compared to $11.4 million for the nine months ended September 30, 2021.

In 2022, we expect capital expenditures to be approximately $22 million.

Financing activities.

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.

For the nine months ended September 30, 2022, net cash used in financing activities was $13.0 million compared to net cash provided by financing activities of $16.1 million for the nine months ended September 30, 2021.

Net cash used in financing activities for the nine months ended September 30, 2022 is primarily attributable to $11.3 million of net repayments under our credit facilities.

Net cash provided by financing activities for the nine months ended September 30, 2021 is attributable to $26.8 million of borrowings, offset by $5.4 million of costs attributed to debt amendment and extinguishment completed during the nine months ended September 30, 2021 and a $5.0 million Contingent Consideration payment.

Debt and Credit Facilities

The debt and credit facilities descriptions in Note 4, Debt are incorporated in this section by reference.

The debt and credit facilities descriptions in Note 4, Debt of our Condensed Consolidated Financial Statements are incorporated in this section by reference.

Critical Accounting Policies and Estimates

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

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

At September 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