What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-06 compared with 2023-11-09 · 85 added, 187 removed, 97 unchanged (74% of the section changed)

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

The discussion and analysis below described material changes in financial condition and results of operations as reflected in our condensed consolidated financial statements for the three and nine months ended September 30, 2023 and 2022.

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 2023 Form 10-K.

2 unchanged sentences

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, Czech Republic, Ukraine, Thailand, India, Australia and Morocco.

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.

We primarily manufacture customized products to meet the requirements of our customers.

We believe our products are used by a majority of the North American Commercial Truck markets, many construction vehicle OEMs parts and service dealers distributors, as well as top e-commerce retailers.

We primarily manufacture customized products to meet the requirements of our customer.

We believe our products are used by a majority of the North American Commercial Truck markets, many construction vehicle OEMs and top e-commerce retailers

Key Developments

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 year 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 $1.9 million expense during the three months ended March 31, 2024 related to these programs.

Consolidated Results of Operations

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

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

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

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

2024 2023 $ Change % Change

2 unchanged sentences

Selling, general and administrative expenses 20,093 20,565 (472) (2.3)

Other expense 383 1,924 (1,541) (80.1)

Other expense (income) 212 (202) 414 NM 1

Interest expense 2,251 2,890 (639) (22.1)

1 unchanged sentence

Net income 2,939 8,700 (5,761) (66.2)

Not meaningful

The decrease in consolidated revenues resulted from:

2 unchanged sentences

• a $5.4 million, or 55.9%, decrease in industrial automation sales.

Third quarter 2023 revenues were favorably impacted by foreign currency exchange translation of $2.0 million, which is reflected in the change in revenues above.

The decrease in revenues of 1.9% is due primarily to the previous year benefiting from a post-COVID backlog in Asia-Pacific.

In addition, Industrial Automation and Aftermarket & Accessories segments experienced lower volumes.

These reductions were partially offset by increased pricing and volume from the Electrical Systems business.

The decrease in revenues of 11.7% is due primarily to a softening in customer demand, the wind-down of certain programs in our Vehicle Solutions segment, and a further decline in our Industrial Automation and Aftermarket segments, partially offset by increased pricing in our Electrical Systems 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 $7.1 million increase in gross profit is primarily attributable to price increases with customers and cost reduction initiatives, partially offset by volume decreases.

Cost of revenues decreased $11.8 million, or 5.3%, as a result of a decrease in raw material and purchased component costs of $16.1 million, or 10.6%, offset by an increase in labor and overhead expenses of $4.3 million, or 5.8%.

As a percentage of revenues, gross profit margin was 13.8% for the three months ended September 30, 2023 compared to 10.7% for the three months ended September 30, 2022.

Selling, General and Administrative Expenses .

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

SG&A expenses increased $4.2 million compared to the three months ended September 30, 2022, primarily as a result of increased employee salaries including an increase in incentive compensation expenses and professional service.

As a percentage of revenues, SG&A expense was 8.7% for the three months ended September 30, 2023 compared to 6.9% for the three months ended September 30, 2022.

Other Expense.

Other expenses decreased $1.5 million in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 due primarily to partial settlement of the Company's U.S.

Pension Plan liabilities of $1.1 million completed in the three months ended September 30, 2022 as well as favorable change in foreign currency of $0.5 million.

Interest Expense .

Interest associated with our debt was $2.6 million and $2.8 million for the three months ended September 30, 2023 and 2022, respectively.

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

Provision for Income Taxes.

An income tax provision of $2.2 million and $1.3 million were recorded for the three months ended September 30, 2023 and 2022, respectively.

The period over period change in income tax was primarily attributable to a $4.7 million increase in pre-tax income versus the prior year period.

Net income was $7.3 million for the three months ended September 30, 2023 compared to $3.6 million for the three months ended September 30, 2022.

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

Segment Results

Vehicle Solutions Segment Results

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

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

2023 2022 $ Change % Change

Revenues $ 145,393 $ 154,024 $ (8,631) (5.6)%

Gross profit 17,661 13,839 3,822 27.6

Selling, general & administrative expenses 6,761 4,279 2,482 58.0

Operating income 10,900 9,560 1,340 14.0

The decrease in Vehicle Solutions Segment revenues was primarily as a result of high APAC sales volume in 2022 generated from COVID backlog production in region.

Gross Profit.

The increase in gross profit was primarily attributable to price increases with customers and cost reduction initiatives, partially offset by volume decreases.

Included in gross profit is cost of revenues, which decreased $12.5 million, or 8.9%, as a result of a decrease in raw material and purchased component costs of $15.8 million, or 15.8%, offset by an increase in labor and overhead expenses of $3.3 million, or 8.1%.

As a percentage of revenues, gross profit margin was 12.1% for the three months ended September 30, 2023 compared to 9.0% for the three months ended September 30, 2022, driven by increased pricing and material & freight cost reduction improvements.

Selling, General and Administrative Expenses .

SG&A expenses increased $2.5 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, primarily due to an increase in employee benefit costs and professional service.

Electrical Systems Segment Results

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

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

2023 2022 $ Change % Change

Revenues $ 53,862 $ 46,129 $ 7,733 16.8%

Gross profit 7,881 6,210 1,671 26.9

Selling, general & administrative expenses 2,018 1,055 963 91.3

Operating income 5,863 5,155 708 13.7

The increase in Electrical Systems Segment revenues primarily resulted from increased sales volume, pricing and favorable foreign exchange.

Gross Profit.

The increase in gross profit is primarily attributable to increased sales volume and pricing, partially offset by startup costs related to new facilities.

Included in gross profit is cost of revenues, which increased $6.1 million, or 15.2%, as a result of an increase in raw material and purchased component costs of $1.6 million, or 6.7%, and an increase in labor and overhead expenses of $4.5 million, or 27.1%.

As a percentage of revenues, gross profit margin was 14.6% for the three months ended September 30, 2023 compared to 13.5% for the three months ended September 30, 2022, driven by increased pricing and volume leverage.

Selling, General and Administrative Expenses .

SG&A expenses increased $1.0 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, primarily driven by increased employee benefit costs and salaries including an increase in incentive compensation expenses.

Aftermarket & Accessories Segment Results

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

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

2023 2022 $ Change % Change

Revenues $ 34,412 $ 37,143 $ (2,731) (7.4)%

Gross profit 6,605 6,389 216 3.4

Selling, general & administrative expenses 2,104 1,436 668 46.5

Operating income 4,501 4,953 (452) (9.1)

The decrease in Aftermarket & Accessories Segment revenues primarily resulted from decreased volume.

Gross Profit.

The increase in gross profit is primarily attributable to increased pricing and cost reduction.

Included in gross profit is cost of revenues, which decreased $2.9 million, or 9.6%, as a result of a decrease in raw material and purchased component costs of $1.1 million, or 6.1%, and a decrease in labor and overhead expenses of $1.8 million, or 15.1%.

As a percentage of revenues, gross profit margin was 19.2% for the three months ended September 30, 2023 compared to 17.2% for the three months ended September 30, 2022.

The increase in gross profit margin is primarily due to increased pricing offsetting moderating cost inflation.

Selling, General and Administrative Expenses .

SG&A expenses increased $0.7 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, primarily driven by increased employee benefit costs and salaries including an increase in incentive compensation expenses.

Industrial Automation Segment Results

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

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

2023 2022 $ Change % Change

Revenues $ 13,020 $ 14,116 $ (1,096) (7.8)%

Gross profit 1,777 404 1,373 339.9

Selling, general & administrative expenses 1,087 1,371 (284) (20.7)

Operating income (loss) 690 (967) 1,657 NM 1

Not meaningful

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

Gross Profit.

The increase in gross profit is primarily attributable to profit reported from the liquidation of certain excess inventories.

Included in gross profit is cost of revenues, which decreased $2.5 million, or 18.0%, as a result of a decrease in raw material and purchased component costs of $0.8 million, or 7.6%, and a decrease in labor and overhead expenses of $1.7 million, or 46.1%.

As a percentage of revenues, gross profit margin was 13.6% for the three months ended September 30, 2023 compared to 2.9% for the three months ended September 30, 2022.

The increase in gross profit margin is primarily due to the previously noted the liquidation of certain excess inventories.

The three months ended September 30, 2023 results include charges of $0.1 million associated with the restructuring program.

Selling, General and Administrative Expenses .

SG&A expenses decreased $0.3 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

Consolidated Results of Operations

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

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

2023 2022 $ Change % Change

Revenues $ 771,590 $ 746,635 $ 24,955 3.3%

Gross profit 107,534 74,104 33,430 45.1

Selling, general and administrative expenses 64,498 49,955 14,543 29.1

Other expense 488 2,798 (2,310) (82.6)

Interest expense 8,308 6,892 1,416 20.5

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

Provision for income taxes 8,110 3,520 4,590 130.4

Net income 26,130 10,018 16,112 160.8

The increase in consolidated revenues resulted from:

• a $60.6 million, or 10.6%, increase in OEM and other revenues;

• a $9.3 million, or 9.4%, increase in aftermarket and OES sales;

• a $45.0 million, or 58.6%, decrease in industrial automation sales.

Nine months ended 2023 revenues were unfavorably impacted by foreign currency exchange translation of $0.2 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 increased sales volume from the Electrical Systems business, offset by lower sales volume in the Industrial Automation segment and Aftermarket & Accessories.

Gross Profit .

The $33.4 million increase in gross profit is primarily attributable to price increases with customers and cost reduction initiatives.

The $8.5 million decrease in gross profit is primarily attributable to the impact of lower sales volumes partially offset by increased pricing.

Cost of revenues decreased $22.1 million, or 9.7%, as a result of a decrease in raw material and purchased component costs of $22.9 million, or 15.5%, offset by an increase in labor and overhead expenses of $0.8 million, or 0.9%.

As a percentage of revenues, gross profit margin was 13.9% for the nine months ended September 30, 2023 compared to 9.9% for the nine months ended September 30, 2022.

The nine months ended September 30, 2023 results include charges of $1.4 million associated with the restructuring program.

As a percentage of revenues, gross profit margin was 11.5% for the three months ended March 31, 2024 compared to 13.4% for the three months ended March 31, 2023.

Selling, General and Administrative Expenses .

SG&A expenses increased $14.5 million compared to the nine months ended September 30, 2022, primarily as a result of increased employee salaries and professional services.

As a percentage of revenues, SG&A expense was 8.4% for the nine months ended September 30, 2023 compared to 6.7% for the nine months ended September 30, 2022.

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 decreased $0.5 million compared to the three months ended March 31, 2023, primarily as a result of reduced incentive compensation expense, partially offset by an increase in salary expense during the 2024 period.

As a percentage of revenues, SG&A expense was 8.7% for the three months ended March 31, 2024 compared to 7.8% for the three months ended March 31, 2023.

Other Expense.

Other expenses decreased $2.3 million in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 due primarily to partial settlement of the Company's U.S.

Pension Plan liabilities of $1.1 million completed in three months ended September 30, 2022 as well as a favorable change in foreign currency of $1.4 million.

Other expenses increased $0.4 million in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 due primarily to an unfavorable change in the fair value of foreign currency forward exchange contracts.

Interest Expense .

Interest associated with our debt was $8.3 million and $6.9 million for the nine months ended September 30, 2023 and 2022, respectively.

The increase in interest expense 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 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.

Interest associated with our debt was $2.3 million and $2.9 million for the three months ended March 31, 2024 and 2023, respectively.

The decrease in interest expense primarily related to lower average debt balances and lower interest rates on variable rate debt during the respective comparative periods.

Provision for Income Taxes.

An income tax provision of $8.1 million and $3.5 million were recorded for the nine months ended September 30, 2023 and 2022, respectively.

The period over period change in income tax was primarily attributable to the $20.7 million increase in pre-tax income versus the prior year period.

Net income was $26.1 million for the nine months ended September 30, 2023 compared to $10.0 million for the nine months ended September 30, 2022.

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

Income tax expense of $1.2 million and $3.3 million was recorded for the three months ended March 31, 2024 and 2023, respectively.

The period over period change in income tax was primarily attributable to a $7.8 million decrease in pre-tax income versus the prior year period.

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.

Net income was $2.9 million for the three months ended March 31, 2024 compared to $8.7 million for the three months ended March 31, 2023.

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

Segment Results

Vehicle Solutions Segment Results

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

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

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

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

2024 2023 $ Change % Change

3 unchanged sentences

Operating income 10,352 13,394 (3,042) (22.7)

The increase in Vehicle Solutions Segment revenues primarily resulted from increased sales volume and increased

pricing to offset material cost increases.

The decrease in Vehicle Solutions Segment revenues of $22.7 million was primarily driven by a lower customer demand and the wind-down of certain programs.

Gross Profit.

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

Included in gross profit is cost of revenues, which decreased $0.6 million, or 0.2%, as a result of a decrease in raw

material and purchased component costs of $10.8 million, or 3.9%, offset by an increase in labor and overhead expenses of $10.2 million, or 8.1%.

As a percentage of revenues, gross profit margin was 12.7% for the nine months ended September 30, 2023 compared to 8.2% for the nine months ended September 30, 2022, driven by lower startup costs, improved manufacturing efficiencies, increased pricing to offset material cost inflation and freight costs.

The nine months ended September 30, 2023 results include charges of $0.4 million associated with the restructuring program.

The decrease in gross profit of $3.2 million was primarily attributable to lower customer demand and increased freight offset by a decrease in cost of revenues driven by a decrease in raw material and purchased component costs of $15.6 million, or 16.4%, and a decrease in labor and overhead expenses of $3.8 million, or 8.4%.

As a percentage of revenues, gross profit margin was 11.8% for the three months ended March 31, 2024 compared to 12.1% for the three months ended March 31, 2023.

The decrease in gross profit margin was primarily due to lower customer demand and increased freight.

The three months ended March 31, 2024 results include charges of $0.5 million associated with the restructuring program.

Selling, General and Administrative Expenses .

SG&A expenses increased $1.3 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, primarily due to an increase in employee benefit costs and salaries including an increase in incentive compensation expenses.

SG&A expenses decreased $0.2 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Electrical Systems Segment Results

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

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

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

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

2024 2023 $ Change % Change

3 unchanged sentences

Operating income 2,011 6,070 (4,059) (66.9)

The increase in Electrical Systems Segment revenues resulted from sales volume, increased pricing to offset material cost pass-through and other inflationary items.

The increase in Electrical Systems Segment revenues of $1.0 million primarily resulted from increased pricing to offset material cost pass-through and labor inflationary items.

Gross Profit.

The increase in gross profit is primarily attributable to volume leverage and increased pricing to offset material cost pass-through and other inflationary items.

Included in gross profit is cost of revenues, which increased $29.2 million, or 25.1%, as a result of an increase in raw material and purchased component costs of $16.5 million, or 25.4%, and an increase in labor and overhead expenses of $12.7 million, or 24.7%.

As a percentage of revenues, gross profit margin was 15.4% for the nine months ended September 30, 2023 compared to 12.6% for the nine months ended September 30, 2022, driven by volume leverage and increased pricing.

The decrease in gross profit of $3.7 million is primarily attributable to restructuring activities, labor inflation and unfavorable foreign exchange impacts, partially offset by increased pricing to offset material cost through and labor inflationary items.

Cost of revenues increase was driven by an increase in labor and overhead expenses of $5.1 million, or 24.5%;

partially offset by a decrease in raw material and purchased component costs of $0.3 million, or 1.3%.

As a percentage of revenues, gross profit margin was 8.2% for the three months ended March 31, 2024 compared to 15.2% for the three months ended March 31, 2023.

The decrease in gross profit margin was primarily due to restructuring activities, labor inflation, and unfavorable foreign exchange impacts.

The three months ended March 31, 2024 results include charges of $1.1 million associated with the restructuring program.

Selling, General and Administrative Expenses .

SG&A expenses increased $2.9 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, primarily driven by increased headcount and quarterly incentive adjustments.

SG&A expenses increased $0.3 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Aftermarket & Accessories Segment Results

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

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

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

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

2024 2023 $ Change % Change

3 unchanged sentences

Operating income 4,532 5,577 (1,045) (18.7)

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

The decrease in Aftermarket & Accessories Segment revenues of $3.6 million primarily resulted from lower sales volume due to decreased customer demand and the reduction of backlog in the prior period.

Gross Profit.

The increase in gross profit is primarily attributable to the increased pricing to offset material cost inflation and freight costs.

Included in gross profit is cost of revenues, which increased $1.1 million, or 1.2%, as a result of an increase in raw material and purchased component costs of $1.9 million, or 3.5%, offset by a decrease in labor and overhead expenses of $0.8 million, or 2.5%.

As a percentage of revenues, gross profit margin was 19.9% for the nine months ended September 30, 2023 compared to 13.4% for the nine months ended September 30, 2022.

This was primarily due to increased pricing offsetting moderating cost inflation.

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

Cost of revenues decreased in line with the sales decrease of 9.5%, driven by a decrease in raw material and purchased component costs of $2.7 million, or 13.6%;

and a decrease in labor and overhead expenses of $0.1 million, or 1.1%.

As a percentage of revenues, gross profit margin was 18.9% for the three months ended March 31, 2024 compared to 19.2% for the three months ended March 31, 2023.

The decrease in gross profit margin was primarily due to lower sales volume and product mix.

Selling, General and Administrative Expenses .

SG&A expenses increased $1.4 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, consistent with the prior year amount on a percent of sales basis.

SG&A expenses increased $0.3 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Industrial Automation Segment Results

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

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

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

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

2024 2023 $ Change % Change

Revenues $ 4,302 $ 9,747 $ (5,445) (55.9)%

Gross profit 1,355 8,249 (6,894) (83.6)

Gross profit (556) 214 (770) NM 1

Selling, general & administrative expenses 1,439 1,076 363 33.7

Operating (loss) income

(2,233) 4,007 (6,240) NM 1

Operating loss (1,995) (862) (1,133) 131.4

Not meaningful

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

The decrease in Industrial Automation Segment revenues of $5.4 million primarily resulted from lower sales volume due to decreased customer demand.

Gross Profit.

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

Included in gross profit is cost of revenues, which decreased $38.1 million, or 55.6%, as a result of a decrease in raw material and purchased component costs of $29.5 million, or 55.5%, and a decrease in labor and overhead expenses of $8.6 million, or 55.8%.

As a percentage of revenues, gross profit margin was 4.3% for the nine months ended September 30, 2023 compared to gross profit margin of 10.7% for the nine months ended September 30, 2022 due to volume reduction and restructuring expenses.

The nine months ended September 30, 2023 results include charges of $1.1 million associated with the restructuring program.

The decrease in gross profit of $0.8 million was primarily attributable to lower sales volume.

Cost of revenues decreased in line with the sales decrease of 55.9%, driven by a decrease in raw material and purchased component costs of $4.2 million, or 62.2%;

and a decrease in labor and overhead expenses of $0.4 million, or 15.8%.

As a percentage of revenues, gross profit margin was (12.9)% for the three months ended March 31, 2024 compared to 2.2% for the three months ended March 31, 2023.

The decrease in gross profit margin is primarily due to the previously noted lower sales volume.

The three months ended March 31, 2024 results include charges of $0.1 million associated with the restructuring program.

Selling, General and Administrative Expenses .

SG&A expenses decreased $0.7 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, primarily driven by overhead reduction.

SG&A expenses increased $0.4 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily attributable to investment in new product development.

Liquidity and Capital Resources

As of September 30, 2023, the Company had total liquidity of $198.3 million, including $46.3 million of cash and $152.0 million of availability from its U.S.

As of March 31, 2024, the Company had total liquidity of $189.3 million, including $46.8 million of cash and $142.5 million of availability from its U.S.

and China credit facilities.

Our primary sources of liquidity as of September 30, 2023 were operating income, cash reserves and availability under our credit facilities.

Our primary sources of liquidity as of March 31, 2024 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.

As of September 30, 2023, cash of $43.5 million was held by foreign subsidiaries.

The Company had a $0.9 million deferred tax liability as of September 30, 2023 for the expected future income tax implications of repatriating cash from the foreign subsidiaries for which no indefinite reinvestment assertion has been made.

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

As of March 31, 2024 , we had outstanding letters of credit of $1.1 million and borrowing availability of $142.5 million from our U.S.

and China credit facilities.

As of March 31, 2024, cash of $46.8 million was held by foreign subsidiaries.

The Company had a $0.5 million deferred tax liability as of March 31, 2024 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.

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.

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, may be affected by economic or business conditions beyond our control.

4 unchanged sentences

Sources and Uses of Cash

September 30, 2023 September 30, 2022

Three Months Ended March 31,

(In thousands)

Net cash provided by operating activities $ 29,990 $ 33,794

Net cash (used in) provided by operating activities $ (2,356) $ 58

Net cash used in investing activities (1,859) (3,321)

Net cash provided by (used in) financing activities 531 (13,031)

Net cash provided by financing activities 14,176 12,377

Effect of currency exchange rate changes on cash (993) 545

1 unchanged sentence

Operating activities.

For the nine months ended September 30, 2023, net cash provided by operating activities was $30.0 million compared to $33.8 million for the nine months ended September 30, 2022.

Net cash provided by operating activities is primarily attributable to a smaller increase in working capital offset by the improved financial results during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

For the three months ended March 31, 2024, net cash used in operating activities was $2.4 million compared to net cash provided by operating activities of $0.1 million for the three months ended March 31, 2023.

Net cash used in operating activities is primarily attributable to a smaller increase in working capital offset by the decrease in net income from the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Investing activities.

For the nine months ended September 30, 2023, net cash used in investing activities was mainly due to timing of capital expenditures of $15.2 million compared to $12.5 million for the nine months ended September 30, 2022.

For the three months ended March 31, 2024, net cash used in investing activities of $1.9 million compared to $3.3 million for the three months ended March 31, 2023 was mainly due to an increase in capital expenditures, offset by $3.2 million proceeds from sale of the Company's FinishTEK business during the quarter.

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

Financing activities.

For the nine months ended September 30, 2023, net cash provided by financing activities was $0.5 million compared to net cash used in financing activities of $13.0 million for the nine months ended September 30, 2022.

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.

For the three months ended March 31, 2024, net cash provided by financing activities was $14.2 million compared to $12.4 million for the three months ended March 31, 2023.

Net cash provided by financing activities for the three months ended March 31, 2024 is attributable to borrowings under the revolving credit facility to fund the working capital increase.

Debt and Credit Facilities

8 unchanged sentences

For information about critical accounting estimates, see Critical Accounting Estimates in "Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" in

our 2022 Form 10-K.

At September 30, 2023, there have been no material changes to our critical accounting estimates from those disclosed in our 2022 Form 10-K.

Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2023 Form 10-K.

At March 31, 2024, there have been no material changes to our critical accounting estimates from those disclosed in our 2023 Form 10-K.

Forward-Looking Statements

9 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-Q

Item 2. Management’s Discussion and Analysis