What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-14 compared with 2023-03-06 · 98 added, 194 removed, 178 unchanged (62% of the section changed)

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You should read the following discussion and analysis in conjunction with the information set forth in our consolidated financial statements and the notes thereto included in Item 8 in this Annual Report on Form 10-K.

Discussion of 2022 results compared to 2021 results to the extent not included in this report can be found in Item 7 of our 2022 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 6, 2023.

The statements in this discussion regarding industry outlook, our long-term strategy, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements.

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We deliver real solutions to complex design, engineering and manufacturing problems while creating positive change for our customers, industries, and communities we serve.

We have manufacturing operations in the United States, Mexico, China, United Kingdom, Belgium, Czech Republic, Ukraine, Thailand, India and Australia.

We have manufacturing operations in the United States, Mexico, China, United Kingdom, Czech Republic, Ukraine, Morocco, Thailand, India and Australia.

Our products are primarily sold in North America, Europe, and the Asia-Pacific region.

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North American medium-duty (or "Class 5-7") truck production was 266,784 units in 2023.

According to a February 2023 report by ACT Research, North American Class 5-7 truck production is expected to increase to 242,000 units in 2023.

According to a February 2024 report by ACT Research, North American Class 5-7 truck production is expected to decrease to 237,000 units in 2024.

We primarily participate in the class 6 and 7 portion of the medium-duty truck market.

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Our products are primarily used in the medium- and heavy-duty construction equipment markets (vehicles weighing over 12 metric tons).

Demand in the medium- and heavy-duty construction equipment market is typically related to the level of large scale infrastructure development projects, such as highways, dams, harbors, hospitals, airports and industrial development, as well as activity in the mining, forestry and commodities industries.

Demand in the medium- and heavy-duty construction equipment market is typically

related to the level of large scale infrastructure development projects, such as highways, dams, harbors, hospitals, airports and industrial development, as well as activity in the mining, forestry and commodities industries.

Other Key Developments

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

We have approximately 1,200 employees in the Ukraine located in our facility near L'viv.

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

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.

We cannot be certain that international tensions will not affect our facility in the Ukraine, including due to the Russian invasion, electrical outages, cyber-attacks and periodic battles with separatists closer to our facility.

In addition, certain of our employees in Ukraine may be conscripted into the military and/or sent to fight in the ongoing conflict.

Furthermore, most of our products manufactured in Ukraine are shipped across the border from Ukraine to the Czech Republic for further delivery to our customers.

If the 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.

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

During the twelve months ended December 31, 2022, we experienced shutdowns at our plant in Shanghai, China due to the COVID-19 pandemic.

While we continue to operate our facilities, we may experience production slowdowns and/or shutdowns at our manufacturing facilities in North America, Europe and Asia Pacific as a result of government orders, our inability to obtain component parts from suppliers and/or inconsistent customer demand.

In addition, many of our suppliers and customers may experience production slowdowns and/or shutdowns, which may further impact our business, sales and results of operation.

The extent of the adverse effect of the COVID-19 pandemic on our business results depends on a number of factors beyond our control.

While backlog continues to be strong in the truck markets, all markets we operate in were impacted by supply chain constraints which caused volatility on our customers' production schedules and had a negative impact on our results.

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, labor shortages and freight cost increases.

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 seek to minimize 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.

During the quarter ended March 31, 2023, we established two new plant locations:

one in Tangier, Morocco, and another in Aldama, Mexico.

These plants are a cornerstone in our strategy of globally expanding our electrical systems business.

During the quarter ended December 31, 2023, management approved restructuring programs to align the Company’s cost structure to support margin expansion.

The programs include workforce reductions and footprint optimization across segments.

We incurred $1.1 million expense during the year ended December 31, 2023 related to this program and expect the cost to be between $3.0 million to $3.5 million for the entire program.

Our Long-term Strategy

The Company's long-term strategy is to increase its sales, profits and shareholder value by financially optimizing its core legacy businesses, organically growing in targeted areas, strengthening its product portfolio, increasing its margins and adding to its business segments through a focused M&A program.

The Company expects to diversify its revenue and profits by product, customer, platform, and end market.

Our products include seating systems, plastic components, cab structures, warehouse automation subsystems, electrical wire harnesses, mirrors, wipers and other accessories.

We believe we are having success with our strategy to strengthen our business, including:

• A growing amount of future business in new emerging electric vehicle platforms as a multi-product global provider of electric vehicle design, subsystems and components;

• A growing amount of new business wins that are in diverse end markets but fit the company’s current know-how, assets, and footprint.

We expect to lessen our dependence on certain products and markets, broaden the company’s customer list, broaden the company’s product offering and increase our margins.

The goal is to become less cyclical and less customer concentrated and increase focus in other end markets.

The Company's long-term strategy is to increase our sales, profits and shareholder value by growing our Electrical Systems segment to be our largest business while financially optimizing its core legacy businesses, organically growing in targeted areas, strengthening our product portfolio, increasing our margins and adding to our businesses through a focused M&A program.

The Company expects to diversify its revenue and profits by product, customer, platform, and end market with a goal of becoming less cyclical and less customer concentrated while strengthening / enhancing current positions, entering new markets, developing relationships with new customers, and enhancing service to our customers, leading to increased return to our stockholders.

Our products include electrical wire harnesses, seating systems, plastic components, cab structures, industrial automation subsystems, mirrors, wipers and other accessories.

We have a long-term strategy to globally optimize our cost structure through manufacturing process enhancements, low cost footprint and global sourcing.

We periodically evaluate our short-term and long-term strategies and may adjust actions in response to changes in our business environment and other factors, such as implementing restructuring as needed.

We are also supplementing our organic strategies by evaluating strategic acquisition opportunities.

We periodically evaluate our short-term and long-term strategies and may adjust actions in response to changes in our business environment and other factors including but not limited to, implementing restructuring as needed.

We are also supplementing our organic strategies by evaluating strategic acquisition and divestiture opportunities.

The company has many opportunities to accomplish this type of business improvement and is being selective.

The goal is to strengthen / enhance current positions, enter new markets, develop relationships with new customers, and enhance service to our customers, leading to increased return to our stockholders.

CONSOLIDATED RESULTS OF OPERATIONS

The table below sets forth certain operating data expressed as a percentage of revenues for the periods indicated (dollars are in thousands):

The table below sets forth certain operating data expressed as a percentage of revenues for the twelve months ended (dollars are in thousands):

2023 2022 2021

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Selling, general and administrative expenses 85,663 8.6 66,361 6.8 69,406 7.1

Goodwill and other impairment — — — — 29,017 4.0

Operating income (loss) 20,144 2.1 49,581 5.1 (23,169) (3.2)

Operating income 48,060 4.8 20,144 2.1 49,581 5.1

Other (income) expense 1,195 0.1 10,463 1.1 (878) (0.1)

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Consolidated Results

The table below sets forth certain consolidated operating data for the periods indicated (dollars are in thousands):

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

2023 2022 Dollar Change % Change

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Selling, general and administrative expenses 85,663 66,361 19,302 29.1

Other (income) expense 10,463 (878) 11,341 NM 1

Interest expense 9,827 11,179 (1,352) (12.1)

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

Provision (benefit) for income taxes 20,904 8,393 12,511 149.1

Net income (loss) (21,971) 23,732 (45,703) NM 1

Not meaningful

The increase in consolidated revenues resulted from:

• a $68.5 million, or 11.1%, increase in sales to OEM;

• a $91.6 million, or 55.7%, decrease in industrial automation sales;

• a $12.2 million, or 6.8%, increase in aftermarket and OES sales;

• a $20.9 million, or 228.4%, increase in other revenues.

Twelve months ended December 31, 2022 revenues were unfavorably impacted by foreign currency exchange translation of $18.6 million, which is reflected in the change in revenues above.

The increase in revenues was primarily driven by increased pricing to offset material cost increases and increased sales volume, offset by sales volume decreases in the Industrial Automation segment.

Gross Profit.

Included in gross profit is cost of revenues, which consists primarily of raw materials and purchased components for our products, wages and benefits for our employees and overhead expenses such as manufacturing supplies, facility rent and utilities costs related to our operations.

The decrease in gross profit is primarily attributable to the Industrial Automation segment which experienced decreased sales volume and an inventory charge of $10.4 million during the year ended December 31, 2022.

Cost of revenues increased $42.5 million, or 5.0% as a result of an increase in raw material and purchased component

costs of $23.5 million, or 4.1%;

an increase in wages and benefits of $3.5 million, or 4.8%;

and an increase in overhead expenses of $15.5 million, or 7.4%.

As a percentage of revenues, gross profit margin was 8.8% for the year ended December 31, 2022 compared to 12.2% for the year ended December 31, 2021.

Selling, General and Administrative Expenses.

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

SG&A expenses decreased $3.0 million in the year ended December 31, 2022 as compared to the year ended December 31, 2021 primarily due to lower incentive compensation and health care expense.

As a percentage of revenues, SG&A expense was 6.8% for the twelve months ended December 31, 2022 compared to 7.1% for the twelve months ended December 31, 2021.

Other (income) expense 1,195 10,463 (9,268) (88.6)

Other expense increased $11.3 million in the year ended December 31, 2022 as compared to the year ended December 31, 2021 due primarily to a settlement of the Company's U.S.

Pension Plan liabilities of $9.2 million as well as an unfavorable change in foreign currency of $1.3 million.

Interest expense 10,691 9,827 864 8.8

Interest associated with our debt was $9.8 million and $11.2 million for the years ended December 31, 2022 and 2021, respectively.

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

Loss on extinguishment of debt — 921 (921) (100.0)

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 associated fees.

During the twelve months ended December 31, 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.

Income tax expense of $20.9 million and $8.4 million were recorded for the year ended December 31, 2022 and 2021, respectively.

The period over period change in income tax was primarily impacted by establishing a full valuation allowance on our U.S.

deferred tax assets of $24.5 million offset by the elimination of a $9.9 million valuation allowance on our United Kingdom (U.K.) deferred tax asset.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Consolidated Results

The table below sets forth certain consolidated operating data for the periods indicated (dollars are in thousands):

2021 2020 Dollar Change % Change

Revenues $ 971,578 $ 717,699 $ 253,879 35.4%

Gross profit 118,987 74,076 44,911 60.6

Selling, general and administrative expenses 69,406 68,228 1,178 1.7

Goodwill and other impairment — 29,017 (29,017) (100.0)

Other (income) expense (878) 728 (1,606) NM 1

Interest expense 11,179 20,603 (9,424) (45.7)

Loss on extinguishment of debt 7,155 — 7,155 100.0

Provision (benefit) for income taxes (13,237) 20,904 (34,141) NM 1

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Not meaningful

Fluctuations in results from operations during the twelve months ended December 31, 2021 compared to twelve months ended December 31, 2020 were primarily driven by weak operating performance during the second and third quarters of 2020 as a result of the COVID-19 pandemic.

The increase in consolidated revenues resulted from:

• a $143.6 million, or 26.1%, increase in sales to OEM;

• a $99.1 million, or 151.9%, increase in industrial automation sales;

• a $55.4 million, or 7.3%, increase in sales to OEM and other revenues;

• a $6.6 million, or 4.9%, increase in aftermarket and OES sales;

• a $4.8 million, or 112.0%, increase in other revenues.

• a $48.8 million, or 55.7%, decrease in industrial automation sales.

Twelve months ended December 31, 2023 revenues were favorably impacted by foreign currency exchange translation of $2.0 million, which is reflected in the change in revenues above.

The increase in revenues was primarily driven by increased pricing and increased sales volume from the Electrical Systems business, offset by lower sales volume in the Industrial Automation and Vehicle Solutions segments.

Gross Profit.

The increase in gross profit is primarily attributable to the increase in sales volume, increased pricing to offset material cost increases, and an improved cost structure.

Cost of revenues increased $209.0 million, or 32.5% as a result of an increase in raw material and purchased component costs of $160.7 million, or 39.3%;

The increase in gross profit is primarily attributable to price increases with customers and cost reduction initiatives.

Cost of revenues decreased $34.1 million, or 3.8% as a result of a decrease in raw material and purchased component costs of $50.0 million, or 8.4%;

an increase in wages and benefits of $4.6 million, or 5.9%;

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Selling, General and Administrative Expenses.

SG&A expenses increased $1.2 million in the year ended December 31, 2021 as compared to the year ended December 31, 2020 primarily as a result of wages and benefits returning to or increasing beyond pre-pandemic levels in 2021 when compared to the reduced wages and benefits in 2020 due to the temporary actions taken in response to the COVID-19 pandemic.

The increase was offset by a decrease in non-recurring payments relating to CEO transition and investigation expense incurred during the twelve months ended December 31, 2020 of $5.2 million, a $4.4 million decrease in charge for Contingent Consideration, and a $1.5 million decrease in charges associated with ongoing restructuring initiatives.

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

SG&A expenses increased $19.3 million in the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to increased employee salaries, incentive compensation, recruitment costs, travel spending and professional services.

As a percentage of revenues, SG&A expense was 8.6% for the twelve months ended December 31, 2023 compared to 6.8% for the twelve months ended December 31, 2022.

Impairment Expense .

As a result of the Company's market capitalization having a value less than the carrying value of its equity for a period of time and market conditions impacting long-lived assets, the Company determined it had impairment indicators during the twelve months ended December 31, 2020.

Accordingly, we recognized a $27.1 million impairment of goodwill and impairment of long-lived assets of $1.9 million for the twelve months ended December 31, 2020, which did not recur in 2021.

Other (Income) Expense.

Other income increased $1.6 million in the year ended December 31, 2021 as compared to the year ended December 31, 2020 due primarily to a favorable change in foreign currency of $0.9 million.

Other expense decreased $9.3 million in the year ended December 31, 2023 as compared to the year ended December 31, 2022 due primarily to the settlement of the Company's U.S.

Pension Plan liabilities of $9.2 million completed during the year ended December 31, 2022.

Interest Expense.

Interest associated with our debt was $10.7 million and $9.8 million for the years ended December 31, 2023 and 2022, respectively.

The decrease primarily related to a lower interest expense of $7.0 million due to refinancing of the Company's long term debt in April 2021, a decrease of $3.2 million in Payment In Kind interest expense resulting from the loan amendment that occurred in the second quarter of 2020 and a favorable change in interest rate swap adjustments of $1.0 million.

The increase primarily related to higher interest rates on variable rate debt, offset by lower average debt balances during the respective comparative periods.

Loss on extinguishment of debt.

On April 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 prepayment premium of $3.0 million and $0.5 million of other fees associated with the new 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 associated fees.

Provision (Benefit) for Income Taxes.

Income tax expense of $8.4 million and an income tax benefit of $7.5 million were recorded for the year ended December 31, 2021 and 2020, respectively.

The period over period change in income tax was primarily attributable to the $32.1 million pre-tax income generated in the current year versus the $44.5 million pre-tax loss sustained in the prior year period.

Income tax benefit of $13.2 million and expense of $20.9 million were recorded for the years ended December 31, 2023 and 2022, respectively.

The period over period change in income tax was primarily attributable to the reversal of $22.0 million valuation allowance on our U.S.

deferred tax assets during 2023 versus the 2022 establishment

of a full valuation allowance on our U.S.

deferred tax assets of $24.5 million, offset by the reversal of a $9.9 million valuation allowance on our United Kingdom (U.K.) deferred tax asset.

In 2021, as part of the Organization for Economic Co-operation and Development's ("OECD") Inclusive Framework, 140 member countries agreed to the implementation of the Pillar Two Global Minimum Tax ("Pillar Two") of 15%.

The OECD continues to release additional guidance, including administrative guidance on how Pillar Two rules should be interpreted and applied by jurisdictions as they adopt Pillar Two.

These changes, when enacted by various countries in which we do business, may increase our taxes in these countries.

Changes to these and other areas in relation to international tax reform, including future actions taken by foreign governments in response to Pillar Two, could increase uncertainty and may adversely affect our tax rate and cash flow in future years.

We continue to evaluate the potential impact on future periods of Pillar Two, pending legislative adoption by individual countries.

SEGMENT RESULTS OF OPERATIONS

Vehicle Solutions Segment Results

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 and Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

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

2022 2021 Dollar Change % Change 2020 Dollar Change % Change

2023 2022 Dollar Change % Change

Revenues $ 587,119 $ 579,731 $ 7,388 1.3%

1 unchanged sentence

Selling, general & administrative expenses 26,109 24,930 1,179 4.7

Goodwill and other impairment — — — — 7,245 (7,245) (100.0)

Operating income (loss) 42,020 21,049 20,971 99.6

The increase in 2022 revenues of $80.8 million from 2021 primarily resulted from increased pricing to offset material cost pass-through and new business wins offset by lower shipments caused by the COVID-19 shutdown in China.

The increase in 2021 revenues of $132.3 million from 2020 was primarily a result of increased sales volume and increased pricing to offset material cost increases.

The increase in 2023 revenues of $7.4 million from 2022 primarily resulted from increased pricing which more than offset lower sales volume.

Gross Profit.

The decrease in 2022 gross profit of $4.6 million from 2021 was primarily due to global supply chain and market disruptions which have resulted in increased labor costs, raw material inflation, and freight cost increases.

Included in gross profit is cost of revenues, which increased $85.4 million, or 19.1%, in line with the sales increase of 16.2%.

The cost of revenue increase included an increase in raw material and purchased component costs of $66.4 million, or 22.3%;

an increase in wages and benefits of $3.2 million, or 10.2%;

and an increase in overhead expenses of $15.8 million, or 13.2%.

The increase in 2021 gross profit of $18.2 million from 2020 was primarily attributable to the increase in sales volume and increased pricing to offset material cost increases.

As a percentage of revenues, gross profit for each of the years in the three‑year period ended December 31, 2022, was 7.9%, 10.1%, and 8.8%, respectively.

The decrease in gross profit in 2022 from 2021 was 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 in 2021 from 2020 was primarily due to recovery from COVID-19 related disruptions which peaked during 2020.

The increase in 2023 gross profit of $22.2 million from 2022 was primarily due to price increases with customers, cost reduction initiatives, and a decrease in cost of revenues driven by a decrease in raw material and purchased component costs of $25.8 million, or 7.1%;

offset by an increase in overhead expenses of $7.9 million, or 5.8%;

and an increase in wages and benefits of $3.1 million, or 9.1%.

As a percentage of revenues, gross profit for the years ended December 31, 2023 and 2022, was 11.6% and 7.9%, respectively.

The increase in gross profit in 2023 from 2022 was primarily due to price increases with customers and cost reduction initiatives including lower freight costs, lower startup costs, and improved manufacturing efficiencies.

Selling, General and Administrative Expenses.

The decrease in 2022 SG&A expenses of $2.0 million from 2021 was primarily due to lower incentive compensation and health care expense.

The increase in 2021 SG&A expenses of $4.4 million from 2020 was primarily due to wages and benefits returning to or increasing beyond pre-pandemic levels in 2021 when compared to the reduced wages and benefits in 2020 due to the Company's temporary actions taken in response to the COVID-19 pandemic.

Impairment Expense .

The Company recorded an impairment of goodwill and long-lived assets for the twelve months ended December 31, 2020.

The increase in 2023 SG&A expenses of $1.2 million from 2022 was primarily due to an increase in system implementation costs and employee benefit costs including salaries and incentive compensation expenses.

Electrical Systems Segment Results

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 and Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

The table below sets forth certain Electrical Systems Segment operating data for the twelve months ended, (dollars are in thousands):

2022 2021 Dollar Change % Change 2020 Dollar Change % Change

2023 2022 Dollar Change % Change

Revenues $ 228,424 $ 180,404 $ 48,020 26.6%

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Selling, general & administrative expenses 9,107 5,775 3,332 57.7

Goodwill and other impairment — — — — $ 1,150 (1,150) (100.0)

Operating income 26,290 18,218 8,072 44.3

The increase in 2022 revenues of $11.4 million from 2021 is primarily attributable to increased pricing to offset material cost pass-through and new business wins.

The increase in 2021 revenues of $27.9 million from 2020 was primarily a result of increased sales volume and increased pricing to offset material cost increases.

The increase in 2023 revenues of $48.0 million from 2022 is primarily attributable to sales volume and increased pricing to offset material cost pass-through and other inflationary items.

Gross Profit.

The increase in 2022 gross profit of $3.2 million from 2021 was primarily due to increased sales volume and increased pricing to offset material cost increases.

Included in gross profit is cost of revenues, which increased $8.2 million, or 5.5%, in line with the sales increase of 6.8%.

The cost of revenue increase included an increase in raw material and purchased component costs of $4.7 million, or 5.6%;

an increase in wages and benefits of $3.8 million, or 16.3%;

and a decrease in overhead expenses of $0.3 million, or 0.7%.

The increase in 2021 gross profit of $8.6 million from 2020 was primarily attributable to the increase in sales volume and increased pricing to offset material cost increases.

As a percentage of revenues, gross profit for each of the years in the three‑year period ended December 31, 2022, was 13.3%, 12.3%, and 8.6%, respectively.

The increase in 2022 gross profit margin was primarily due to increased sales volume and increased pricing to offset material cost increases.

The increase in 2021 from 2020 was primarily due to recovery from COVID-19 related disruptions which peaked during 2020.

The increase in 2023 gross profit of $11.4 million from 2022 was primarily attributable to volume leverage and increased pricing to offset material cost pass-through and other inflationary items.

Cost of revenues increased in line with the sales increase of 26.6%, driven by an increase in raw material and purchased component costs of $19.1 million, or 21.8%;

an increase in overhead expenses of $11.8 million, or 28.6%;

and an increase in wages and benefits of $5.7 million, or 20.8%.

As a percentage of revenues, gross profit for the years ended December 31, 2023 and 2022, was 15.5% and 13.3%, respectively.

The increase in 2023 gross profit margin was primarily due to volume leverage and increased pricing, more than offsetting inflationary items.

Selling, General and Administrative Expenses.

2022 SG&A expenses decreased $0.4 million from 2021, essentially flat on a percent of sales basis.

The increase in 2021 SG&A expenses of $2.2 million from 2020 was primarily due to wages and benefits returning to or increasing beyond pre-pandemic levels in 2021 when compared to the reduced wages and benefits in 2020 due to the temporary actions taken by the Company in response to the COVID-19 pandemic.

Impairment Expense .

The Company recorded an impairment of goodwill and long-lived assets for the twelve months ended December 31, 2020.

2023 SG&A expenses increased $3.3 million from 2022, primarily driven by increased headcount and incentive adjustments based on performance.

Aftermarket & Accessories Segment Results

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 and Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

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

2022 2021 Dollar Change % Change 2020 Dollar Change % Change

2023 2022 Dollar Change % Change

Revenues $ 140,236 $ 133,671 $6,565 4.9%

2 unchanged sentences

Operating income 19,043 11,911 7,132 59.9

The increase in 2022 revenues of $17.9 million from 2021 resulted from increased sales volume and increased pricing to offset material cost pass-through.

The increase in 2021 revenues of $7.5 million from 2020 was primarily a result of increased sales volume and increased pricing to offset material cost increases.

The increase in 2023 revenues of $6.6 million from 2022 resulted from increased pricing to offset material cost pass-through and other inflationary items.

Gross Profit.

The increase in 2022 gross profit of $0.9 million from 2021 is primarily due to global supply chain and market disruptions which have resulted in increased labor costs, raw material inflation, and freight cost increases.

Included in gross profit is cost of revenues, which increased $17.0 million, or 17.4%.

The cost of revenue increase included an increase in raw material and purchased component costs of $7.9 million, or 12.6%;

an increase in wages and benefits of $2.9 million, or 35.6%;

The increase in 2023 gross profit of $8.4 million from 2022 is primarily due to increased pricing to offset material cost inflation and other inflationary items, cost reduction initiatives, and a decrease in cost of revenue driven by a decrease in wages and benefits of $2.5 million, or 23.4%;

offset by an increase in raw material and purchased component costs of $0.6 million, or 0.9%;

and an increase in overhead expenses of $0.2 million, or 0.5%.

The increase in 2021 gross profit of $1.3 million from 2020 was consistent with the revenue increase.

As a percentage of revenues, gross profit for each of the years in the three‑year period ended December 31, 2022, was 14.1%, 15.5%, and 15.4%, respectively.

The decrease in 2022 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.

As a percentage of revenues, gross profit for the years ended December 31, 2023 and 2022, was 19.4% and 14.1%, respectively.

The increase in 2023 gross profit margin is primarily due to increased pricing offsetting moderating cost inflation and cost reduction initiatives including lower freight costs.

The twelve months ended December 31, 2022 results include charges of $1.9 million associated with the restructuring program.

Selling, General and Administrative Expenses.

The increase in 2022 SG&A expenses of $1.0 million from 2021, consistent with the prior year amount on a percent of sales basis.

The increase in 2023 SG&A expenses of $1.2 million from 2022, is primarily driven by commissions expense increase and is consistent with the prior year on a percent of sales basis.

Industrial Automation Segment Results

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 and Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Contemporaneously with the filing of this Form 10-K, we updated our reportable segments to rename Warehouse Automation to Industrial Automation.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

The table below sets forth certain Industrial Automation Segment operating data for the twelve months ended, (dollars are in thousands):

2022 2021 Dollar Change % Change 2020 Dollar Change % Change

2023 2022 Dollar Change % Change

Revenues $ 38,900 $ 87,747 $ (48,847) (55.7)%

Gross profit 3,010 (2,303) 5,313 NM 1

13,205 16,464 124.7

Selling, general & administrative expenses 4,392 5,564 (1,172) (21.1)

Goodwill and other impairment — — — — 19,829 (19,829) (100.0)

Operating income (loss) (7,867) 23,563 (31,430) NM 1

(16,322) 39,885 NM 1

Operating income (loss) (1,382) (7,867) 6,485 (82.4)

Not meaningful

The decrease in 2023 revenues of $48.8 million from 2022 primarily resulted from lower sales volume due to decreased customer demand.

The increase in 2021 revenues of $86.3 million from 2020 was primarily a result of increased volume of sales and increased pricing to offset material cost increases.

Gross Profit.

The decrease in 2022 gross profit of $32.0 million from 2021 was primarily attributable to lower sales volume and an inventory charge of $10.4 million.

Included in gross profit is cost of revenues, which decreased $68.2 million, or 43.1%, in line with the sales decrease of 53.3%.

The cost of revenue decrease included a decrease in raw material and purchased component costs of $55.5 million, or 44.0%;

a decrease in wages and benefits of $6.4 million, or 63.3%;

and a decrease in overhead expenses of $6.3 million, or 28.8%.

The increase in 2021 gross profit of $16.5 million from 2020 was primarily attributable to the increase in sale volume and increased pricing to offset material cost increases.

As a percentage of revenues, gross profit for each of the years in the three‑year period ended December 31, 2022, was (2.6)%, 15.8%, and 13.0%, respectively.

The decrease in gross profit as a percentage of revenues in 2022 from 2021 is a result of lower sales volumes and the increase in 2021 from 2020 was primarily due to fixed cost leverage.

The twelve months ended December 31, 2022 results include charges of $1.7 million associated with the restructuring program.

The increase in 2023 gross profit of $5.3 million from 2022 was primarily attributable to the inclusion of a $10.4 million inventory charge in the 2022 results which did not recur in 2023, and $1.2 million less restructuring costs in 2023 versus 2022.

Cost of revenues decreased in line with the sales decrease of 55.7%, driven by a decrease in raw material and purchased component costs of $43.7 million, or 61.8%;

a decrease in overhead expenses of $8.7 million, or 55.8%;

and a decrease in wages and benefits of $1.7 million, or 46.9%.

As a percentage of revenues, gross profit for the years ended December 31, 2023 and 2022, was 7.7% and (2.6)%, respectively.

The increase in gross profit as a percentage of revenues in 2023 from 2022 was due to nonrecurring costs recognized in 2022, including a $10.4 million inventory charge.

Selling, General and Administrative Expenses.

SG&A expenses decreased $0.5 million in 2022 compared to 2021.

SG&A expenses decreased $3.6 million in 2021 compared to 2020 as a result of wages and benefits returning to or increasing beyond pre-pandemic levels in 2021 when compared to the reduced wages and benefits in 2020 due to the Company's temporary actions taken in response to the COVID-19 pandemic, offset by a $5.0 million decrease in charge for Contingent Consideration.

Impairment Expense .

The Company recorded an impairment of goodwill and long-lived assets for the twelve months ended December 31, 2020.

SG&A expenses decreased $1.2 million in 2023 compared to 2022, primarily driven by overhead reduction.

Liquidity and Capital Resources

At December 31, 2023, the Company had no borrowings under its revolving credit facility.

At December 31, 2022, the Company had liquidity of $180.6 million, consisting of $31.8 million of cash and $148.8 million availability from its revolving credit facility.

At December 31, 2023, the Company had liquidity of $197.9 million, including $37.8 million of cash and $160.1 million availability from its U.S.

and China credit facilities.

We intend to allocate resources consistent with the following priorities:

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and (5) other actions deemed appropriate by management to improve operational performance.

Our primary source of liquidity during the year ended December 31, 2022 was cash and availability under our revolving credit facility.

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

However, there is no assurance that these sources of capital will provide for our funding needs.

Our primary sources of liquidity during the year ended December 31, 2023 were operating income, cash and availability under our 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.

We also rely on the timely collection of receivables as a source of liquidity.

As of December 31, 2022, we had no borrowings under our revolving credit facility, outstanding letters of credit of $1.2 million and borrowing availability of $148.8 million.

As of December 31, 2023, we had outstanding letters of credit of $1.2 million and borrowing availability of $160.1 million from our U.S.

and China credit facilities.

As of December 31, 2023, cash of $37.8 million was held by foreign subsidiaries.

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

The Company had a $0.5 million deferred tax liability as of December 31, 2023 for the expected future income tax implications of repatriating cash from the foreign subsidiaries for which indefinite reinvestment is not expected.

Covenants 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.

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 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 the maximum consolidated total leverage ratio will remain at this level thereafter.

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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 3, Debt, of our Consolidated Financial Statements may be affected by economic or business conditions beyond our control.

Our ability to comply with the covenants in the Credit Agreement, as discussed in Note 3, 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 and other covenants in the Credit Agreement for the next twelve months;

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Effect of currency exchange rate changes on cash 172 (2,279) 842

Net (decrease) increase in cash $ (3,133) $ (15,545) $ 10,992

Net increase (decrease) in cash

$ 6,023 $ (3,133) $ (15,545)

Operating activities .

For the year ended December 31, 2022, net cash provided by operations was $68.9 million compared to net cash used in operations of $29.8 million for the year ended December 31, 2021.

Net cash provided by operating activities is

primarily attributable to the decrease in working capital expenditures for the year ended December 31, 2022 as compared to the prior year period.

For the year ended December 31, 2021, net cash used in operations was $29.8 million compared to net cash provided by operations of $34.4 million for the year ended December 31, 2020.

Net cash used in operating activities is primarily attributable to the increase in working capital expenditures for the year ended December 31, 2021 as compared to the prior year period.

In 2023, we expect capital expenditures to be in the range of $20 million to $25 million.

For the year ended December 31, 2023, net cash provided by operations was $38.3 million compared to $68.9 million for the year ended December 31, 2022.

Net cash provided by operating activities is primarily attributable to an increase in working capital offset by the improved financial results during the year ended December 31, 2023 as compared to the prior year period.

Investing activities .

For the year ended December 31, 2022, net cash used in investing activities was $19.7 million compared to $17.6 million for the year ended December 31, 2021.

For the year ended December 31, 2021, net cash used in investing activities was $17.6 million compared to $6.4 million for the year ended December 31, 2020.

The increase in net cash used in investing activities is primarily due to a return to normal investment following the COVID-19 pandemic slowdown which impacted 2020.

Net cash used in investing activities was $19.7 million for the year ended December 31, 2023 and 2022.

In 2024, we expect capital expenditures to be in the range of $25 million to $30 million.

Financing activities .

For the year ended December 31, 2022, net cash used in financing activities was $50.1 million compared to the net cash provided by financing activities of $31.0 million for the year ended December 31, 2021.

Net cash used in financing activities for the year ended December 31, 2022 is primarily attributable to $43.2 million of net repayments under our credit facilities compared to net borrowings of $43.0 million in the prior year.

For the year ended December 31, 2021, net cash provided by financing activities was $31.0 million compared to the net cash used in financing activities of $19.3 million for the year ended December 31, 2020.

Net cash provided by financing activities for the year ended December 31, 2021 is attributable to $49.4 million of net borrowings under the revolving credit facility offset by $8.0 million of costs attributed to debt amendment and extinguishment completed during the twelve months ended December 31, 2021 and a $5.0 million Contingent Consideration payment.

For the year ended December 31, 2023, net cash used in financing activities was $12.7 million compared to $50.1 million for the year ended December 31, 2022.

Net cash used in financing activities for the year ended December 31, 2023 is primarily attributable to $10.9 million of net repayments under our credit facilities compared to net repayments of $43.2 million in the prior year.

Debt and Credit Facilities

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1 Year 2-3 Years 4-5 Years More than

(In thousands)

Debt obligations $ 141,563 $ 15,313 $ 43,750 $ 82,500 $ —

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Since December 31, 2023, there have been no material changes outside the ordinary course of business to our contractual obligations as set forth above.

We expect to contribute approximately $1.1 million to our U.K.

pension plan in 2023.

During the year ended December 31, 2022, the Company settled its U.S.

Pension Plan liabilities.

Generally, we enter into agreements with our customers at the beginning of a given vehicle platform’s life to supply products for the entire life of that vehicle platform.

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We enter into agreements with certain customers in the Vehicle Solutions segment at the beginning of a vehicle platform’s life to supply products for that vehicle platform.

Once we enter into such agreements, fulfillment of our requirements is our obligation for the entire production life of the platform and we have no provisions to terminate such contracts.

Once we enter into such agreements, fulfillment of our requirements is our obligation for the entire production life of the platform.

Such contracts typically contain restrictive provisions related to termination.

Management judgments and estimates must be made in estimating sales returns and allowances relating to revenue recognized in a given period.

8 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis