MTOR - Earnings call transcript Q3 2021

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Operator

Good day, and thank you for standing by. Welcome to Meritor, Inc.'s Third Quarter 2021 Earnings Conference Call. Please be advised that today's conference is being recorded. [Operator Instructions]. It is my pleasure to hand the conference over to the Senior Director of Investor Relations, Todd Chirillo. ahead. go Please

Todd Chirillo

Good quarter Carmen. and to welcome Thank year morning, XXXX third fiscal earnings Meritor's you, everyone, call.

property Financial Vice law On this the of President; and U.S. conference today's Senior and may slides Meritor be available to of It continued at our recording. Villavarayan, Chris slides meritor.com. Chief call President, is call, We'll our are which without by copyright we're participation to is call today, consent We rebroadcast content and and be the international written discussion we of and Carl this have recording, The not Officer. accompanying The protected to the refer CEO express in consider consent Anderson, Inc. the morning. your Meritor. your

may Litigation as the defined Our forward-looking statements XXXX. in Reform of discussion Private contain Act Securities

to any our you the To for refer in to refer risks now on in reconciliation the find to slides could GAAP the more of the affect that me Slide our results. our call, non-GAAP complete we disclosure you'll website. X Let measures extent a

I'll call over to Chris. Now turn the

Chris Villavarayan

Good We had quarter. call morning, for today. thank very good and the a you joining

This third results, global commitment supply million the over to excellent, volumes earnings. our lines quarter Meritor's increased of gain was allowed created chain over the our at considering on steel some in we in team. a billion safety, all in increased remained North the Please Slide $XX delivery into to the million $X Even and revenue a get just dedication labor converted $XXX want with EPS XX%. shortage in and higher The X. year-over-year and major margin very and has us have was America. have them. we volumes. market Before to and constraints and was extend end the as demanding proud to especially XX.X% these quality, Adjusted environment, share America performance to of on turn significantly as freight the due has headwind strong adjusted markets. I'm fiscal product Despite well higher dynamics, recognize global that around Revenue EBITDA quarter, employees appreciation in to of our close I world $X.XX my in North

obviously results the you Third rapid fiscal imminent. provides COVID to comparable XXXX. price results cost throughout a quarter will you have year-over-year freight due not were steel comparison. relevant year, give a basis more impact the does and Overall, our and a in increases impacted difficult look Carl a sequential on that seem a in correction

programs the performance, and investment, have products on source As electrification configuration, the additional our energy marketplace We highlight efficiencies like we're a we're important operational our are miles also ones creating recover our driving and to excited products mix due vehicle battery We're X of which to a flexibility XXX customers and the provide. announce these diversify electric These we our demonstrate validating the high miles plugged more with in to real-world will pressures. today. in and vehicles. inflationary than opportunities million we result, working strategic of costs and class, now

Let's to Slide X. go

complete, total again. X.X Meritor's generating program. significant completes or million market flow, of began Fiscal the of that our confidence shares program This authorized Given new strong has million and that outlook announced shares. our in opportunistically we nearly XXXX. to $XX year-to-date, Board $XXX truck Directors authorization in repurchase we a prior free With a million we cash repurchased

to This BB commitment drive with sufficient liquidity is deploy repurchase for to to consistent and a we our As credit metric. past, in allocation shares the will plan cash maintaining strong capital capital shareholder allocate value. while

the the In its quarter Zero Trucks X. supply for Let's we first vehicle Volta designed Autocar Meritor's refuse to this electrification for to we on year, Volta applications. electric and of Slide would for powertrain announced discuss medium-duty innercity

We position ERX. Hyliion. heavy-duty upfits electric powertrain. with electric subsystems also adaptability wins designed its powertrain as drive for its electric as the provide will have agreement into demonstrate we're our customer to Meritor feature the vehicle powertrain added integrated tandem gas. a axles we natural use Meritor's a These that for Hypertruck system will Hyliion's portfolio. XXXe Lion excited on our standard Electric Today, five-year announce propulsion

we're Hino e-powertrain to we XXX% been business evaluating traditional long-term for supplier Motors axles North has zero-emission in Hino where for its their America. Meritor pack key in be our a with working the Meritor's who a business, medium-duty vehicles. of Next, development will to provide

solutions we market. In equity vehicle commercial commercial to a SEA SEA deliver and remote global electric Electric and urban in commercial with mount in upfitters an for vehicle vehicles leader medium-duty of zero-emission Electric, with addition, OEMs, trucks range operators, to the announced delivery logistics. investment dealers, a partners

together Indian segments. electric-powered multiple working opportunities that for X, and be will paths and path medium we're the have highlighting apply market. provides This North on relationships to expertise near our in Slide provide and yet On grow we the the strategic in markets to market medium-duty another We established across heavy-duty American collaboration chassis term. the

now electrification decade. more on in electric significant then Carl an in rates traditional financial will results, electrification. share, focused your take market the next provide with As and opportunity every expanding to ePowertrain, whether are integral brakes time on We're you in we're remember, or we growth this opportunities engaging And questions. Meritor our With over for axles know, the detail expected different as vehicles ePowertrain. current occur an grow, medium-duty are programs. you of our will we actively to limited see frames part adoption

Carl Anderson

On our of delivered of provide generated earnings XX.X%. and third our outlook. year to with good Thanks, cash update free per $XX performance financial an results share EBITDA and million margin adjusted flow. quarter solid $X.XX, Chris, XXXX and call, Adjusted Overall, we review morning. will an I fiscal today's we financial of

our review results on Slide let's X. Now starting financial

As pandemic. the our impacted year, by recall, same during the you period production will significantly last was

tax comparison, help to a provide $XXX which due we also due increase chain just traditional strong GAAP EBITDA throughout second more the sequential production last demand. but meaningful our translated of a earnings XX% the the constrained $XXX $XX the a quarterly quarter to net was million was result, Adjusted income compared in in of company is Brazilian This million to the industry presenting in year. to from up supply strong of an most quarter. wholly-owned quarter, Global experience markets, last intermittent $X million of our in our were remained mind, net total, impacts million a global from to tax credits, As our Sales million for million, truck prior $XX $XX $XX to in year-over-year production quarter. recognized year revenue addition at billion. subsidiary. view. this look In of conversion revenue. value-added came we did on in Keep higher are over

primarily diluted the million, offset are last margin $X.XX, adjusted down flow steel inventory due free The for compared conversion XX.X% The Our to on we sales. $X.XX to EBITDA second Adjusted production more decrease than decrease the was of was was approximately was of adjusted EBITDA compared higher earnings to in million another in quarter. investments $XX was which margin due XXXX. quarter cash XX.X% million costs for quarter to quarter. as sequential step-up higher next primarily share $XX per And higher from in year. preparing slightly $XX last

XXXX. to complete sheet balance the debt near on levels. of cash completion pre-COVID gross The million balances repurchase $XXX remaining the our due used in we notes returned Additionally, debt of this the of redemption to X.XX%

the upgraded credit outlook balance our to were & sheet our stable. share price. With repurchase Poor's trading low in shares multiple intact, able As to and to May, a their result, rating in solidly advantage Standards take opportunistically we confirmed BB our of

also aggressively to repurchasing We shares authorization. XXXX the throughout with expect new continue

freight, last on than XX% was to were to commercial decrease from was XXXX. increase commercial truck this costs. basis. truck from in The costs, down the adjusted Now segment million margin was on industrial industrial in both negative million segment. revenue, higher $XX Slide offset the X.X% volumes, quarter was higher XX%. sales let's EBITDA EBITDA sales. primarily Commercial higher increased slightly year increase by aftermarket million, XXX% $XXX revenue and sales million driven costs. EBITDA quarter on The partially adjusted million EBITDA Aftermarket quarter EBITDA Segment volumes were The was Segment increased approximately conversion the truck electrification this and in points million, higher $X an adjusted ago. Compared Overall, adjusted sequential by last Segment partially of the up more sales incremental compared or million, same million $XX XX third due on The X.X% second prior for segment to $XX higher XX%, our and up was by steel, period the and quarter in second driven was EBITDA of quarter. a was almost year. was $XXX to year. EBITDA per to the conversion freight the truck up primarily year. million, in across adjusted which million, was due steel second $XX $XX the adjusted a compared last increase at compared compared in of same the primarily from quarter adjusted basis to on by freight fiscal Sales commercial the period conversion up same sales offset and earnings sales increase segment the third Segment year. were $XXX offset quarter, higher up year, $XX look the X. results to

review let's outlook Slide on our X. production global Now

see books had for production now previous near fully Class and North raising to of be view. to outlook down expectations the to XXX,XXX open. European raising In XX,XXX approximately expected slots units the are We from guidance. are to demand our sequentially in build Given production as approximately units, Europe, XXXX America, full Orders markets, an In XXX,XXX quarter. the of increase we our XXXX upper have order in global XXX,XXX end with not range we our production remainder our step of third we our of line units, are prior we units. XX,XXX X across the our strong production to are been XXX,XXX expect

production in what units, However, the quarter. at closer in we was experienced stronger XXX,XXX second to came which

level our in is this As truck production production region would be result, Brazil, and expect now In highest strong production the which of continues, confidence we consistent units, to increase approximately XXXX. a XXX,XXX providing this us estimates. since demand full-year

an Slide operating on for update Now to XX our environment. let's turn

to continue We see costs freight, steel, and for manufacturing higher labor.

freight the and cost to market our fourth roll longer of both about steel earlier up in as year. case the also with cost in stabilize our and is of than XXX% both costs for the increased beginning we have While is year, more Steel scrap no continued had both expected prices hot doubled largest containers quarter, and Freight our have this our in costs since third rise. to quarter fiscal industries since significantly ocean fiscal the October. commodity

of While majority increases a to the we month lag. contractual have are three on they steel mechanisms six in in costs, to recover place the

taking As costs. these a we additional are steps mitigate result, to

performance First, to the throughout operational we will drive continue business.

driving we to next job year. Our good this continue material done a in expect have performance, and into teams

customers we the on unprecedented in are our recovery mechanisms, SG&A the Second, of third, timing recover And steel extremely the of labor to are costs. increased and and run-up steel focused we with accelerate expense controlling in cost contractual the discussions throughout freight given organization.

outlook. XX Slide XXXX for update our to to an turn fiscal Let's year

we $XXX prior in $X.X raising forecasted guidance, the our increase are million our sales to million be an outlook. from increases With of to $XXX production approximately full-year billion, our

in to XX.X%, also now with guidance. previous our line EBITDA our margin expect We adjusted be approximately

the adjusted to cash we from free outlook for flow XX% diluted per a range. Moving finally, our approximately the our now our short-term the $XXX approximately navigate executing is posed MXXXX be continues the by Overall, prior earnings million, focused strong share, on expect consistent remain increase And challenges on now midpoint global $X.XX, XXXX our expectations. team markets of and with goals. to previous our to

our quarter, in be last when December will announced will present our plan. we early Day we MXXXX As Investor

take your we will Now questions.

Operator

from question of we line Joseph with And Instructions]. have RBC Spak [Operator Capital. a the

Joseph Spak

just wanted questions. of a with EV the of updates. I couple bunch to A start

million today. $XXX EV I said on million talked think seems $XXX business. you prior, -- target It about you like been there's of more a the here

M'XX the then zooming So like new plan, business out, that tracking you that I overall? could us even wins was versus wondering update original on progress. we where if And maybe are

Chris Villavarayan

to set win. And $XXX happy we pipeline say almost a a EV for I'm yes, So target we're of there. million

call is. very that announced Analyst target. gets December, our the should that we we we wins announcing the by should Day next you time We're closed a perspective plan give Carl we We where out, can programs, as last close wins Specific probably you us that on we believe by and time. these this four to what mentioned have our we a are today So it, couple time. let's hit, see, to that on announced

our pipeline and testing. So going it's is all growing, through

it as our growth and through today. we stand is all customers drive so the XXXX, that And depends going with where timing optimistic on validation but to

Joseph Spak

any come an product? like get was Okay. from they're Difficulty] guess got back got So and queue. [Technical on avenue on what Difficulty] for sort It of of TransPower. Maybe But to the similar the from in integration least release more perspective, use [Technical [Technical it. maybe you? at Difficulty] [Technical unclear with one you somewhat that it the the to more I then Difficulty] focused a the was duty sort some electric little indicated That I'll that SEA does commitment adjustment, of seems

So if as to -- if focused about can that is talk larger maybe know the why And scalable medium-duty? we on there. you why not TransPower's -- is than I'm different something curious but differences trucks like there

Chris Villavarayan

with start and what's commitment. on question, me SEA let first So our Electric was which the

-- market work to the medium-duty all, be first a together commitments seems the -- with to Our are path mount. essentially immediate remote to to of

together what so traditional our work essentially axles. path work to with initial is them And with our to

works axle traditional a environment. Now differently electric under

you come for a braking -- specific fact that's with about to when cost market. think with think got You've to about up of the have is loading so in Regen mind, and that different, the product we'd

well our work as going -- we're that product. on so use to as together XXXe And that existing using

going to traditional our So more put on ePowertrains long as And to products. cost. -- transition to an are batteries products work. to it and we opportunity then is starting off, more to what provides And drive as it's to together use develop it efficiency our make longer-term electric them well work because

the SEA to about That's what's Now between second great question TransPower? difference and the question. a

So in strong started in they've part into moved the I'm Australia a sorry, in about Malaysia in into Australia. North the They and then and East. had company that SEA best out started grew America. the is relationships -- This is then East

they're And difference companies, pull the SEA opportunity medium-duty gets more and heavy focused so see us this the the already side we also, very as a TransPower great space. in And to the two them into into far the between was India because on region.

think see an you we vehicles miles. million have if that as about XXX So companies, X both opportunity. with excellent And about over they

We under just experience. have million X of about the same miles with

in cover experience -- So you we bring more also you us together, have It regions helps the and enormous transition. as world. the this drive infield two companies experience

Joseph Spak

follow-up. like But unclear. there classes If the that and what's prevented scaling is got technically, geographic the that's Like to play. down I I vehicle? TransPower -- just totally other a could perspective, I customer just of from difference? From diversity something technical what was quickly

Chris Villavarayan

Class TransPower call into a X, difference X, focused more is, go when Class scale on let's and it, is and Class X. there size you

So difference. yes, a there is

Operator

comes question Barclays. from next Brian with our Johnson And

Brian Johnson

Yes.

that get then that on where you're would the on you we'll to strong? you still -- When you an versus you line development of of just And update that at follow-up where you probably to have Just basics When in would want Toledo-based some then work particularly the your say arrival, the December? say I and business. portfolio want some I electrified obviously, of about look questioning. ask

Chris Villavarayan

think I we when think akin is So our it -- maybe to announcements today.

side. this you to first it, think our about we perspective e-axle of we're fall, heavy go further and we're powertrain. in if have and about year, market customers. production later to ready look strong XXXe we'll if in launching our So as kind at right? the we're And think very So the to the on you also electric in And it-- ahead my

that's the side, of us think the I about are it's primarily product, customers speed picking to think and efficiency weight availability as So this -- difference. market, on we the why

you're to between creating somewhere So ePowertrain, an pounds, the by XXX integrating you're saving XXX space.

opportunity I last launched on are what pulled the great the is is a Obviously, and also have into, that's, growth then So think development XXXe, the focusing is advantages. benefit. the that about have developing is XXXe And we think, those us giving been which the XXXe where we quarter. which -- sorry, as we we this market

Brian Johnson

And there will timing your should which in then into terms you. of quarter. are course just extra-contractual customers side, we fourth of customers? vis-a-vis fiscal the about recoveries calendar thank your versus of Oftentimes, on quarter, Okay your would in year fiscal true-up think contractual most cost or anything first the of go

Chris Villavarayan

That good the question. start months three customers cost on larger I know, I know, I'll That's we've you of -- this is very good healthy. or responding the partnership challenges our to be Carl. well agreements requires of it hearing being believe partnership. And that well delivering faced inflation it -- suppliers usually this this you And think, prepared many some are everyone, my conversations is remarks, to six But hand different. that things over the having we're said, into through fact already I'll is are a of in and what earnings our most the never about to it we've all that are These maybe -- I the is is as a with conversations and easy, customers. calls. it's are good as we through but is documented, said marketplace. -- and as time this it's that one uncertainty, started alike. the no us and pushed are and And our being by And facing thing we said.

progress, these it so I turn over will And believe I'll to positive and there And be conversations a outcome. will Carl.

Carl Anderson

Yes.

thing on think, to that. add I just one Brian, other

we've I But time customers period. resonated our in think the it time our and big several to last really just has do last just about speaks during Meritor's this the delivery able execute think years. this what over during If quality we to obviously, also ability, over to that period. quarters, with been

Operator

And El-Sabbahy of Bank our next with comes America. question Sherif from

Sherif El-Sabbahy

off, on the on ask Hyliion, So just win that EV to well. years? not is their a I as were And for the there agreement? new What's mistaken, you five they side for I'm product wanted hybrids. agreement a bit to driving for original With an the sort of if start that Dana using exclusive

Chris Villavarayan

So we them position first is market. that with And think for driving that, standard what's belief have first, five years. a is we're I that my to

with fits an fuel product. use a have the for remote that we them their essentially source. to different mount, away We space their creating creating space, more put the again, and opportunity are the And is ePowertrain -- for fact moving it a that from

first that this I innovation space. thing, also comes Class availability is the the driven, get put opportunities. it With for akin hundreds fact here miles space. of with that that in in of the capability mind, into It's that is So Hyliion the we've X I the our -- production. essentially other that that's there we've tested think market. has and think thousands to and to to the and also first to And it,

So Hypertruck more ERX the doing. we're what is truck the aligned to --

well savings our with it's customers talked the and weight the earlier. think I alignment as the I in So that as space efficiency the about

Sherif El-Sabbahy

red of from significant just the on or for as fleet then you seen of any vehicles And have your components. parts that they in certain the shortage. you. semi tag products? lot seeing buildup We've forward for OEMs wait a Are Thank a pull

Chris Villavarayan

products, from axle, well the see our the two Well, when that or quarters. documented. And extending chips of obviously, I we've think next existing there customers you no no in I all quarters. the do that semiconductors. And think two the experienced last pretty you've semiconductor say, obviously, in shortage been -- is would traditional heard through has other I

but we've the we hasn't until sense. think And we doing an still get they and axle so as on significant some what building through our in see impact they're is something it truck that driven this, side. disruptions do out. customer provided the that a cases, them in And But off-lining is chips,

Sherif El-Sabbahy

And if Understood. could... you

Chris Villavarayan

will of on have end the that, come Sherif, One capacity year on as heard we -- starting do is last in chips, comment to I believe XXXX. the back on back

all into new So year. it the grow help will us

Sherif El-Sabbahy

would expectation your to a us bit more the then And give color for able be industrial you markets? on

Carl Anderson

Yes.

for think increases is I Sherif, us the industrial So what been to show pretty markets continue significant what there, seeing. seeing we've we're of

seeing what and are kind it's specialty AxleTech quite been go mean, whether both those that business. have of forward. this think the our I expectations we plus through we're our traditional performing year, acquisition, well I in as of continue will

Operator

Instructions]. [Operator

the of We Bruce have Stifel. from with Chan a line question

Jizong Chan

missed talked to means? Nice little the Carl, some else Are may the new it, good color some gave around we color about? steel you about result and if have to that the the taking electrification think that in what give Is you here, these on release, side headwinds, should can I us cost especially side. much of and But something the also thank freight but a the as related product bit for very being higher. you more costs Wondering wins? you question.

Carl Anderson

look Bruce. Yes, increase we electrification, at continuing bit do it rest I this Thanks, little we the as year. see for to think of Yes. a

closer running So about planning of $XX And see around were going million. I to to we're $XX we probably today, million year. this to we expense to it originally, think as $XX million be be

be So up. we'll incrementally,

that several wins company business that position we're business does fourth to where headwind of as next from we our for a relate we all whether And is going do the all years. bit investments we're the quarter, to expect of our we and that So about new up. as little about think and think to that various making a fiscal end especially the it's of --

So it's all connected.

Jizong Chan

Okay.

think should this issues the we So steel to issues. and of a freight some maybe as as high-class about problem opposed the

Carl Anderson

Yes. I would with agree that.

Jizong Chan

And then what signing, these these of is here. costs, when new these partnerships about agreements think related Terrific. sort sort question about investments So of electrification when new that you and you're Okay. require? goes tooling, of your staff, do kind what mostly then maybe what out materializing of getting in the for pushed not we And risks to this process? how about that these contracts do some But think means business? you of or think and

Carl Anderson

lot date call, of will seen XXXe what been a Chris as developing on Well, we've earlier And to this powertrain. is be later our we've production talked that year. the in

So we different have downward. as at a and same configuration. to in whether in medium-duty expense that axle At the work will will or begin opportunities, time, that Europe, trend look development

And does to work to the begins were and obviously, think, be to investments, specifically, so increase development a the increase you production perspective. then parcel size -- if part begin to material as what will those, I really more kind market expand to when that various from and of relates volumes it to

Chris Villavarayan

bit, And pick there maybe a up I'll Bruce.

about about we think message of consistently product, you our them. If three

a for a and XXx. the or there's medium-duty, it to flexibility. XXX a So talk a about XXX a We modularity

about is what in announcements And so talking about you -- singular that we're of have the most we that platform. today, think a if XXXe, the

source, we and the to some development changes to as just product And the through then software driving. all how think power to integrate it's which we is our for to strategy that have provide market we're different OE. per So is that

Jizong Chan

color. one follow-up terrific And Chris. That's last Okay. here, then

and us really expect You color some to around the semi when you gave of that shortage normalize. good sort

imminent. you in I'm transport remarks or correction see a price that you here? in about to freight I that you in expectation a look talked timeline have crystal starts when costs for bit resolve? and an as as little opening your asking ball your to also a You don't Do to know

Chris Villavarayan

I don't.

double-edged sword. -- our -- It's that's healthy. It's it's great thing. and in very are a I fleets think a a sense, good that

that to -- it's seen It's challenges, I we don't a as different think different see that's call And quarter cyclicality a out and challenge I how through. just you to a don't faced different that's to strength, ability through worked to really question about -- certainly well, work out about team just and transport, that. their a and So ball it's I as when out. know it have the of, testament going that really we're we work local how crystal think the to I figure going -- the don't have work really last

Operator

this today. our I will session Q&A for Chirillo concludes Todd back remarks. it to And final his for turn

Todd Chirillo

you call for our today. Thank joining

If reach to again, directly. have feel free out you day. me any questions, have Thanks please to and great a

Operator

And with your that, and program, for now we participation may in thank you today's you disconnect.

Meritor (MTOR) 5 Aug 212021 Q3 Earnings call transcript