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Commercial Vehicle Group Inc (CVGI) Q1 2021 Earnings Call Transcript

By Motley Fool Transcribers - May 7, 2021 at 3:00PM

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CVGI earnings call for the period ending March 31, 2021.

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Commercial Vehicle Group Inc (CVGI 1.88%)
Q1 2021 Earnings Call
May 6, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the CVG's First Quarter 2021 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions]

I would now like to turn the call over to Mr. Chris Bohnert, Chief Financial Officer. Please go ahead, sir.

Christopher Bohnert -- Chief Financial Officer

Thank you, operator. Welcome to our conference call. Joining me on the call today is Harold Bevis, President and CEO of CVG. We will provide a brief company update as well as commentary regarding our first quarter results, after which we will open the call for questions.

This conference call is being webcast and a supplemental earnings presentation is available on our website. Both may contain forward-looking statements, including but not limited to expectations for future periods regarding market trends, cost savings initiatives, and new product initiatives among others. Actual results may differ from anticipated results because of certain risks and uncertainties. These risks and uncertainties may include but are not limited to economic conditions in the markets in which CVG's operates, fluctuations in the production volumes of vehicles for which CVG's is a supplier, financial covenant compliance and liquidity, risks associated with conducting business in foreign countries and currencies, and other risks as detailed in our SEC filings.

I'll now turn the call over to Harold to provide a company update.

Harold Bevis -- President, Chief Executive Officer & Director

Thank you, Chris. Good morning, everyone. On today's call, we will provide an overview of our first quarter results followed by an update of our strategic initiatives designed to our earnings while also to -- CVG deliver more stable results that we strive to -- business and improve clear growth outlook. Chris will discuss our financial results in more detail as well as review our recent debt refinancing to reduce our interest expense getting in the second quarter while also freeing us of restricted covenants precluded us from M&A. We will then conclude by opening the call and answering your questions.

Please turn to Page 4 of our earnings presentation. We delivered record sales for the first quarter of 2021 of $245 million, an increase of 31% as compared to the year ago first quarter. This strong growth was largely driven by world-class automating, where we delivered $41.9 sales representing 22% sequential growth and remains on track to meet or exceed our full-year goal of $150 million in warehouse automation sales.

Our operating income increased to $15.4 million in the first quarter, which compares favorably to a loss of $26.5 million in the first quarter a year ago. The improvement larger -- result of better volumes combined with our access efforts over the -- reduce our cost structure and drive operational efficiencies across the company. Rationalizing and reallocating our cost profile has been a priority of our management team and will provide a benefit as our sales continue to improve. The 2020 first quarter did include an impairment charge that did not reoccur. Adjusted EBITDA was $21.1 million first quarter, representing nearly a 100% increase as compared to the $11 million that we delivered in the first quarter of 2020. The improvement was due to higher revenues with an improving sale combined with expense reductions and profit optimization actions that we executed throughout 2020, in which we remain very focused on in the year end. We deliver $0.26 per diluted share in the first quarter compared to a loss $0.80 per diluted share in the first quarter a year ago.

As we have been speaking about over last year, the key -- business transformation strategy is achieving new growth. As we reported last quarter, we see $100 million of annual new sales awards in 2020 with approximately 40 new customers, the bulk of which were in warehouse automation, electric vehicles in the last mile delivery. Our figure, when we speak about new business wins, is the annual revenue amount when the work -- shorter cycle from awards delivery; so the wins that we saw in 2020 -- revenues in 2021.

Winning new business is a focus of our organization and central to accelerating our sales growth, expanding our profitability, and diversifying our end-market exposure away from legacy long haul diesel trucks. In the first quarter of 2021, we achieved another net new business win award amount of $100 million, primarily in our growth in market electric vehicles where we continue to win positions on platforms with new and existing electric vehicle manufacturers. Given that these new business in the electric vehicle sector, it will take several years to ramp up before delivering $100 million in annual revenue.

That's this is improving the ability for our company's revenue profile over the medium term and new vehicle platform tend to last long time and have an aftermarket after that. Turning to Slide 5, we have an entrepreneurial spirit across our company, focused on the -- customer while also delivering additional business in adjacent market. We're becoming more innovative and solutions focused -- move us up the value chain customers. Ultimately, we believe to improved profitability and reduce the cyclicality as we expand in the new markets and diversify our customer base.

We recently announced partnership with Xos is a prime example of the value that we provide to an electric vehicle manufacturer. We are providing electrical solution and we are now helping them ramp designed prototype to -- more quickly. We are an attractive partner, but as we can provide the design work system, then supply the -- seats and other products to the vehicle -- designed prototype -- the value chain as we've become an engineer services partnering infrastructure. Additionally, we are in the last-mile market, which is a new base for CG. We're also having success expanding our intellectual property and manufacturing capabilities into new end markets. We're leveraging our capabilities from the commercial vehicle business, where we have strong large [Phonetic] abilities. Given these skillsets and manufacturing capabilities, we are evaluating markets to expand into like recreational vehicle, complex equipment given its ability to produce large plastic products. We have found one of our differentiators in these markets is our ability to deliver vibrant colors and esthetics and it's highly valued in some of these new end markets. As we continue to have success expanding our business -- North American truck market will decline.

Turning to Page 6; as a result, it's important to understand those markets which are now -- our business. Furthermore, we are shifting our truck -- diesel trucks to middle market in middle mile or last mile and electric vehicle powertrains. North American truck market, as you can see on this graph, was 36% of our sales in first quarter versus fourth quarter of 2020 level. First quarter demand for Class 8 trucks was nearly at level of approximately 67,000 units and ACT Research as forecasting annual truck -- 300,000 units through 2023, which will -- as we pivot our business headwind that we're watching closely is the production supply chain, materials, labor, freight, and supply chains in general, especially logistics from China. This will be a headwind to new truck builds as it is dampening production The OEM construction market second-largest market comprising of 8% of our first quarter sales.

Business in this end market is relatively balanced across North America, Europe, and Asia and looking forward, we see a strong order book probably through 2021 -- will be supportive of demand although supply constraints are concern here as well. Warehouse automation has quickly becoming our third largest end market and is 17% of our sales in the first quarter and touch on business -- lastly, our aftermarket and service is an important component of our business and represented 12% of our first quarter sales. I believe this business is under-appreciated as granted nearly $100 million of sales while providing an annuity-like revenue stream to CVG.

Turning to Page 7, warehouse automation end market continues to be a significant growth driver for our company as we delivered approximately $42 million in sales during the first quarter -- sequentially. The growth in e-commerce is driving the need -- with handling and sorting and last-mile -- we're industry expectations over this entire warehouse automation industry to grow about 14% CAGAR -- 26 or early doubling in size over 5-year period. Supply components for these warehouses -- including complete work centers and given the strong market demand combined with business wins last year, we remain confident in our goal of delivering $150 million sales in this segment this year. Additionally, our margins in this business modestly -- higher than -- average; as a result -- to benefit as warehouse automation continues to become a larger proportion of our total sales.

A new and emerging end market for CVG -- vehicle and last-mile -- our competitive advantage resides in the fact that we have a natural value-added product basket and it's convenient for new vehicle companies to do their work. Importantly, we can design prototype and build a -- products for vehicle maintenance -- we have 40 years of global experience doing it. We're currently involved with -- vehicle platforms globally, which includes both existing -- into the market as well as new EV market trends. We have essentially created portfolio business plans on the electric vehicle -- that will -- of our participation in the coming -- from diesel to electric vehicles and from first mile to the last mile. This is unfolding now and will do so for several years.

Turning our new business backlog on Slide 9. As I mentioned, we secured $100 million -- first quarter, 93% of which were outside of our legacy truck business. We secured three wins, new EV more entrants as well as new products recreational -- for plastic parts. It is important to reiterate that the position of our business -- will determine when those revenues will flow through our P&L. Given the majority of our wins in the first -- in the electric vehicle sector, we will not see a peak value --- for a few years.

Turning to Page 10, I'm very pleased with that we've achieved over the last year as we've made significant progress executing our strategy to transform CVG. This success is a direct function of the conservative -- we've taken -- and like many companies, we had dramatically -- our expenses and -- from our factories for COVID safety -- which we successfully have -- we also contributed a proportion of -- going through it. We've also recruited account management team and implemented -- design accelerate organic growth, the expansion into new markets that presents CVG's more -- growth opportunities -- transformation in our long-term success -- the new entrepreneurial spirit -- culture, which we've created and has caused excitement and energy across our company.

While we're only in the very early innings of this, our transformation is taking hold and our aspirations are significant. Looking forward, we will continue to grow our business wins, while maintaining our cost discipline as we focus on profitability. We'll also going to move up the value chain as we partner with our customers to provide innovative solutions to solve most challenging problems.

Turning to Page 11, our efforts to transform our company are clearly -- as we delivered record sales for the first quarter, very pleased with our team complements, but even more excited -- the opportunities there are ahead of us -- impacting our financial results already with the rapid expansion of warehouse automation business is experiencing -- we're also implementing a new port foundation for the future of our vehicle business -- we are participating -- over 30 platforms globally at some level -- customers and brand products -- begin to translate the revenues over the next few years, where we expect end market have a more meaningful part of our -- we're also successfully expanding our intellectual property and manufacturing capabilities into adjacent markets, like recreational specialty vehicles, which provides new -- for CVG -- taken together, we're executing on our plans to accelerate growth, improve our profitability, and reduce cyclicality in our business.

Additionally, and as Chris will discuss in more detail, the refinancing of our senior debt not only reduces our annual interest expense immediately, but also frees us up to be more focused with our capital allocation strategy and we can now consider M&A. We see strategic M&A as an effective way to expand into new -- and that half our business transformation -- you in more detail.

Now, I'll to turn the call over to Chris for a detailed review of our financial results.

Christopher Bohnert -- Chief Financial Officer

Thank you, Harold. If you're following along in the presentation, please turn to Slide 13. First quarter revenues were $245.1 million, an all-time quarterly sales record and up 31% compared to $187.1 million in the prior year period. This increase reflects the substantial increase in the warehouse automation business and the North American heavy truck market returning to near comparable levels to the prior year. On a sequential basis, revenue increased 13.5% over fourth quarter of 2020, revenue of $216 million.

Foreign currency translation favorably impacted our first quarter revenues by $4.3 million or about 2.3% compared to the prior year period. I'd like to spend a moment on our gross margins, which expanded approximately 190 basis points to 12.7% as compared to the first quarter of 2020. This expansion continues to reflect our renewed focus on profitability and our improving business mix. The key drivers of the expansion were volume leverage, business mix to the warehouse automation end market, and operational cost improvement as compared to 2020. The company reported consolidated operating income of $15.4 million for the first quarter of 2021 compared to a loss of $26.5 million in the prior year period and on adjusted basis, operating income was $15.8 million compared to $7.1 million in 2020.

The improvement was primarily due to higher sales volume and an improved cost structure as a result of our cost actions and improved sales mix and an impairment that was taken in the prior year ago that did not reoccur in 2021.

We achieved adjusted EBITDA of $21.1 million for the first quarter, which was up considerably as compared to $11 million in the prior year first quarter. Adjusted EBITDA margins were 9%, reflecting an improvement of approximately 270 basis points as compared to adjusted EBITDA margin of 6% in the first quarter of 2020. This margin expansion was primarily the flow through from the revenue and cost changes I mentioned earlier.

Our first quarter interest expense was $5 million as compared to $4.6 million in the first quarter of 2020. Net income for the quarter was $8.5 million or $0.26 per diluted share as compared to a net loss of $24.6 million in the prior-year period or $0.80 per diluted share. Importantly, we were able to refinance our senior debt earlier this week, based upon our improved financial performance over the course of 2020 and through the first quarter of '21. This is a significant milestone for CVG, which removes the onerous cost and covenants that existed in our prior debt structure. The details of our refinancing were published on Monday in a press release and 8K. To touch on the highlights on Slide 14, our new $275 million senior secured credit facilities include $150 million term loan A and $125 million revolving credit facility both with 5-year maturities.

We used a portion of the proceeds to repay all of the outstanding principal of our term loan B, which was $157.6 million at April 30, 2021, the date of our closing. The interest rate on our outstanding principal of Euro/Dollar plus 300 basis points compared to the old debt, which had LIBOR plus 10/50 basis points on the term loan B. As a result, I expect our quarterly interest expense to be reduced by $3.1 million on a full-quarter basis. Additionally, our liquidity expanded as a result of this from $120 million at March 31, 2021 to $154.7 million on a pro forma basis under the new debt facility. Lastly, the new facility includes an accordion feature that provides for an upsizing of the amount available by $75 million with incremental lender commitments subject to financial covenant compliance.

As Harold mentioned, this will allow us also to consider M&A opportunities. Our prior debt was onerous and I could not be more pleased to not only have those covenants and high interest rate remove, but also bring on an outstanding group of bank partners, including BFA, Fifth Third, and PNC Bank. Our bank group is of high quality and will be good partners as we continue to grow CVG's.

At this point, I'll talk a little bit about our segment results starting with the electrical systems segment on Slide 15. For the first quarter of 2021, the electrical systems revenues were $162.2 million compared to $112.1 million in the prior-year period, an increase of 447%. Foreign currency translation favorably impacted first quarter revenues by $1.3 million or 1.2%. The year-over-year sales increase, primarily resulted from new business wins, and warehouse automation and strength in North American construction and ag markets as Harold mentioned previously.

Our electrical systems segment now represents 66% of our total first quarter revenues as we continue to make progress diversifying both our business mix and customers. Turning to operating income in the electrical systems segment, they delivered $14.9 million of operating income in the first quarter compared to an operating loss of $17.1 million in the prior year period. The increase was largely due to increased sales and an impairment taken in the prior year period that did not reoccur.

Adjusted operating income was $15.1 million in the first quarter compared to $6.3 million in the prior year. Turning over to our global seating segment on Slide 16, global seating revenue has increased to $91.9 million in the first quarter compared to $76 million in the prior-year period, an increase of 19.9%. Foreign currency favorably impacted our sales in this segment by $3 million or about 4% for the quarter. The global seating segment reported an operating income of $5.5 million during the first quarter compared to an operating loss of $400,000 in the prior year period. The increase was due to higher sales volume and an impairment taken that did not reoccur. The first quarter of '21 adjusted operating income for this segment was $5.5 million, excluding special charges.

This concludes our prepared remarks this morning. I will now turn the call over to the operator to open up the line for Q&A. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question will come from the line of Mike Shlisky with Colliers Securities. Your line is open. Please proceed with your question.

Michael Shlisky -- Colliers Securities -- Analyst

I'm sorry. Good morning, guys. I was on mute there, I apologize. I wanted to look into EV related questions. First, congrats on all the new business. You had mentioned in the slides that you've got some companies -- some of them are launching some models in 2021 and 2022, somewhat small numbers, but can you give us a sense as to whether those models are on track to launch this year or they were seeing any issues? Again, without naming anybody, I'm curious to see if EVs in general are progressing the way you had hoped?

Harold Bevis -- President, Chief Executive Officer & Director

From our experience we've seen no delays. If anything, the pause that happened over the last year with COVID and the related shutdowns that happened in the global vehicle industries, these new -- with their development programs to close -- they have vehicle makers -- there is really no down at all -- vehicle faster and we are seeing people do engineering and prototyping -- vehicles and initial production vehicles -- you will more than we do, Mike, but from our standpoint -- doing very well, not slowing at all.

Michael Shlisky -- Colliers Securities -- Analyst

Fantastic, great stuff. I wanted to talk about in the EV space as well. A great set of new contract wins here -- some of the legacy diesel providers or are they all start-ups?

Harold Bevis -- President, Chief Executive Officer & Director

Now they are definitely our legacy customers as we've previously reported in previous years in our 10-K. They're all global powerhouses and they all have platforms. They are just as important to us as the new people, the thing about the new entrants -- we've never sold our electrical systems or electrical solutions into the truck market. We had always been focused on the construction equipment market and a couple other ancillary markets and with this kind of whole class opportunity we entered into it as not just build to print manufacturer, but a designer of record in the system designer to develop a few new products -- we did it and we entered into that market. Whole cloth as electric for our electric systems business as they one -- designer and so far so good and most of the new entrants, as you would expect are kind of in the prototype phase. The incumbents -- from internal combustion engine normally diesel powertrain, so normally and electric powertrain.

They have the vehicle -- and they're just converting the powertrain -- the new guys the both. We're with both of them, they're both important to us.

Michael Shlisky -- Colliers Securities -- Analyst

Sure. Got it. I wanted to touch on was soon a similar supply chain issues facing the industry. I guess, first of all, you had mentioned last quarter that there was some resin suppliers moved logistically to where it needed to be etcetera. Has that changed at all and I've been hearing some companies -- again it might not be your customers saying, they can't get wire harnesses -- people who -- are you faced with any kind of -- because you had record levels of sales maximum capacity in certain places [indecipherable].

Harold Bevis -- President, Chief Executive Officer & Director

It's a constraint for sure and there's a lot of public filers in this industry. So I have been watching their Q1 results -- about that topic and certainly, material availability, resin availability, -- availability, metal availability, chips, and supply chain slowdowns are affecting the global industry. It's already factored into our outlook, we've accepted as a reality for this year that are going to have a purpose of demand, if you will, to get caught up with the orders. If you track orders in the global industry, orders are far out seating production and so the production in the global industry is going to be muted or capped a little bit for the remainder of the year as this gets caught up with us. As far as connectors and electric harnesses specifically to your question, for sure, -- I've said that there global shortages of connectors and we've been impacted by that -- material substitutions and we've done more material substitution than we can recall. We're coming on close to 1000 material substitution that -- pretty hard to do -- substituting material as well -- we really see ourselves going backward, Mike.

We just see it as a go-forward constraint. It's not getting worse. It just adds -- the component suppliers to get caught up several quarters on with the exception of chips. If you read about the chip shortage which impacts our customers, it's really a constraint to our customers. It looks like it's going to be out about a year and they have substitute chips -- substituting our designs our connectors -- electric control boxes -- electric control boxes chips -- they have a job to do to work around this constraint and so do we and we all are. I see it getting designed around a little bit, Mike, but it's not going to be rapid. It takes a lot of detailed work.

Michael Shlisky -- Colliers Securities -- Analyst

I'd like to kind of follow-up there. This is my last question. Since last quarter -- your last slide did changed all that much for 2021; do you feel like just in the end, the full-year will get built? Not the very end of the year, but should it be enough to make it work? Or we're just waiting for any kind of changes in your forecast as we get through the year?

Harold Bevis -- President, Chief Executive Officer & Director

The ACC -- you're right that the annual amount for this year hasn't changed since our last reporting out of information and our experience is consistent with this information. But the quarterly profile did change in a little bit. There was hope in the industry for a little bit bigger Q2 of truck builds, but then happened and it's basically just getting sold out through Q3, Q4 and into next year. Our belief is that this ACC information is reliable. Back has very well, so we're embracing this outlook, Mike.

Michael Shlisky -- Colliers Securities -- Analyst

And just on March, there were challenges and there's just still challenges in May. So, maybe even kind of baked into the March ATT outlook and your own outlook? You haven't seen much difference. Is that a fair statement?

Harold Bevis -- President, Chief Executive Officer & Director

Can you say that again, Mike?

Michael Shlisky -- Colliers Securities -- Analyst

Yes. Is it fair to say that 303,000 [Phonetic] unit outlook that you had in March in the similar outlook today, they both factor in the same issue? Those issues were there in March and they're still there now. So, perhaps that's already kind of baked in to expectations before this call?

Harold Bevis -- President, Chief Executive Officer & Director

I think so.

Michael Shlisky -- Colliers Securities -- Analyst

Okay.

Harold Bevis -- President, Chief Executive Officer & Director

I don't think that I would say, Mike, that I've picked up, but by following it is that people are trying to work around the issues now. Just like the question you asked about us and the harnesses. There are ways to work around these constraints with material substitutions and design work and there's activity around that, so that people can get more. But I don't think it's going to be a major change. So yes, I would say the same issues are baked in and that there is a lot of effort around them.

Michael Shlisky -- Colliers Securities -- Analyst

Got it. Thank you so much. I'll pass along.

Harold Bevis -- President, Chief Executive Officer & Director

Welcome.

Christopher Bohnert -- Chief Financial Officer

Thank you, Mike.

Operator

And your next question comes from the line of Chris Howe with Barrington Research.

Chris Howe -- Barrington Research -- Analyst

Good morning. Thanks for taking my questions.

Harold Bevis -- President, Chief Executive Officer & Director

You're welcome, Chris.

Chris Howe -- Barrington Research -- Analyst

Warehouse automation continues to perform well. Looking at Slide 7 now. I assume that you would continue to perform relatively well and ahead of market growth expectations. Electric vehicle platforms are under development and they should ramp moving forward in the development phase. As we look at these two buckets of opportunity in the context of gross margin internal and external for the company, what opportunities are you seeing now and could you see in the future for gross margin improvement, whether that's through pricing, cost initiatives, or inorganic adjacencies around your current opportunity set?

Harold Bevis -- President, Chief Executive Officer & Director

Chris, you want to take that one?

Christopher Bohnert -- Chief Financial Officer

Sure. Yes, great question, Chris. Appreciate it. I think our margins expanded quite a bit from fourth quarter. We had a few items that we mentioned in the fourth quarter call that dented us a little bit that did not reoccur related to bonus and so forth. So, we've got expansion in a couple of areas. One driver is mix as I had mentioned. I think in the coming quarters, we're going to see continued smaller potentially increases in the warehouse automation business on a percentage basis, but still significant growth year-on-year. So, as we've mentioned before, those margins are incrementally slightly better than our overall margins. So, I think our focus now is to continue the business mix improvements that we've been making in the last couple of quarters. Now that the debt deal is behind me, Harold and I are going to focus more on improving those margins in the coming quarters. So I've got a little bit more time to spend on that. So, I wouldn't expect significant increases in our margins because we've got a lot of headwinds coming at us with respect to the supply chain and cost and so forth, but it will be a continued focus for us, Chris, in the coming quarters with a little bit more tension there.

Chris Howe -- Barrington Research -- Analyst

That's perfect. And congratulations on getting that debt deal done. And a follow-up to that, if we kind of look longer-term picture. I just would be interested in your take on these two buckets of opportunity: electric vehicle and warehouse automation. Obviously, we're moving on a sequential quarterly basis and environment remains uncertain now. But internally, do you have a sense of gross margin potential and revenue potential for these two areas of the business moving into a normal environment and perhaps three to five years from now?

Christopher Bohnert -- Chief Financial Officer

Yes. I think on the revenue side, we're going to continue to experience nice growth. Obviously moving into adjacent opportunities is a key focus area for us. With respect to margin enhancement, I think again, these are low capital-intensive industries. So, we're assembling complex products and I think margin expansions are going to come through, looking at opportunities to improve our assembly processes and so forth. So, I wouldn't expect fundamental change in those. I think incremental [Phonetic] automation piece is hitting the P&L now, which we're fortunate to have that. and I think on the EV side as more into the 2022-2023 phase and the margins there, still kind of early to tell on those. But again, probably incremental to our overall business.

Chris Howe -- Barrington Research -- Analyst

Okay. And then one last question. Shifting back to some of Harold's comments just about the importance. But it may often be overlooked the aftermarket piece, $100 million in sales. Can you talk about the positive dynamics you're seeing in that portion of the pie and how you see that business moving forward, whether from a pricing perspective or even a market share perspective? Thanks.

Harold Bevis -- President, Chief Executive Officer & Director

Yes, it's a good question. If you look at our organic growth pipeline activities because we've got a couple of early victories here in warehouse automation and with electric vehicle platforms, we're just now starting to get [indecipherable], and that's why I mentioned it in today's dialog. Those are also short-cycle. So, those help in the short term, but we have other areas that there's just working on pipelines and the aftermarket business is one of them. Our traditional business approach has been to service the vehicles that we are on from an OE standpoint in the aftermarket. But there is an all-makes aftermarket opportunity to really dramatically grow that business. We're looking at -- for instance, we make floor mats and our floor mats go onto certain trucks and then those floor mats wear out, we get a aftermarket order just in there for us but our equipment doesn't care in its floor mat its making products for and there is an all-make opportunity to expand our floor mat, our mirror business, our heating business, one of our top customers in aftermarket doesn't even have many big positions in the OE market at all.

So, we think that business has a lot of opportunity on a go-forward basis and then we have some businesses we haven't spoke about in these sessions together, just check on a couple of them -- floor mats, mirrors, our sensor business, our business in Europe, our business in Australia, business in Thailand. We have pipelines that we're working on for all those organically and so we hope to have more of a full potpourri of topics here. You mentioned over three to five-year period. We're working on these now, but the results not material yet, so not much of it's work that we're doing and we expect similar results that we've been getting out of warehouse automation and the electric vehicle push. So, aftermarket is a big deal. We've never treated it as a big growth this but it is and others do. So, it's one that I hope we could talk about in the future as when [indecipherable] that it's material enough to speak in these sessions.

Chris Howe -- Barrington Research -- Analyst

Great. Thanks, Harold, and thanks, Chris, appreciate all of the color. I'll hop back in the queue.

Christopher Bohnert -- Chief Financial Officer

Thank you.

Operator

And your next question will come from the line of John Franzreb with Sidoti & Company.

John Franzreb -- Sidoti & Company -- Analyst

Good morning, Harold and Chris.

Harold Bevis -- President, Chief Executive Officer & Director

Hi, John.

John Franzreb -- Sidoti & Company -- Analyst

Great quarter.

Harold Bevis -- President, Chief Executive Officer & Director

Thank you.

John Franzreb -- Sidoti & Company -- Analyst

Just to follow-up on your list thought on the aftermarket. Is there a sizable gross margin contribution difference in that business versus your overall product portfolio?

Harold Bevis -- President, Chief Executive Officer & Director

Chris?

Christopher Bohnert -- Chief Financial Officer

Yes, there ism John. This aftermarket business has several components and as Harold mentioned, we hope to be able to talk more about this as we develop this segment or this line of business rather a little bit more fully in the future. There are components of that, wipers, mirrors and so forth that do have above kind of average margins and so forth. So, driving this business further will definitely help us with the margin enhancement.

John Franzreb -- Sidoti & Company -- Analyst

Okay.

Harold Bevis -- President, Chief Executive Officer & Director

I'll just add that a lot of our OE business for seating, for instance, we are obligated on the pricing on a per unit basis. And then as those contracts go into the aftermarket, we have some freedom to price [Phonetic] and plus, you get them one at a time. We're already a serialized manufacturer, so we make our products one at a time. So, that doesn't give us a headache, but we are used to making one at a time but spending a full truckload of one at a time. So there are extra costs with the aftermarket, but we are able to more than recoup that on the pricing side. So, it's one of our nicer businesses from a financial statistics standpoint.

John Franzreb -- Sidoti & Company -- Analyst

Got it. And regarding the EV market. I recognize there will be some substitution in this business, but what's your sense of the incremental dollar that you may be getting to EV platforms versus diesel platforms in the future?

Harold Bevis -- President, Chief Executive Officer & Director

Yes, it's a big difference for us and it's primarily because we've not really been a participant with our electric products business in the electrical [Phonetic] market. So, it's close to double our content per vehicle, when we were able to be an electric harness supplier on [indecipherable] junction boxes and disconnect, so it's a lot of passes, electrical components that they're making up two boxes. And motors and drives and batteries on the vehicle to do both low voltage electrical distribution as well as the high voltage and in this world, high voltage is 48 volts and a spark goes around 4 volts. So that's the high voltage right at 40 and above. So we do both the 12 volt; the low voltage the 12 volt and the high voltage. We do them both and we just flat out had after the vehicle market and this was a big opportunity for us to bring it on and to show we could do some electrical system maker. And it's a couple of thousand dollars per vehicle if we can become the system person on the truck, John.

John Franzreb -- Sidoti & Company -- Analyst

Great. And regarding the warehouse automation business. You did $42 million in the quarter and your commentary is more than $150 million for the year. I'm just curious about the cadence [Phonetic]. Is there seasonality or a specific order that we should be aware of that there is a different and may be lower than the current run rate, or are you just being conservative, maybe in your guidance?

Harold Bevis -- President, Chief Executive Officer & Director

Chris?

Christopher Bohnert -- Chief Financial Officer

Yes, John. A you know, when we came out and we said it would be $150 million business in 2021 for us, we're not seeing at this stage. Our order books aren't indicating any cyclicality and, in fact, we're seeing a little bit stronger performance than maybe what we previously indicated, so not seeing cyclicality. As we mentioned previously, these margins are slightly incremental to our overall margin. And so, order books remain full and expect consistent growth year-on-year.

John Franzreb -- Sidoti & Company -- Analyst

Okay, great. And one last question, if I may, refinancing of the debt freed up about $200 million, I believe is what you said -- M&A capital. Could you talk a little bit about what your primary acquisition criteria is and if there is any return hurdles that we should be aware of when you start targeting M&A?

Christopher Bohnert -- Chief Financial Officer

Yes. Thanks, John. Obviously we're diversified industrial, so we have a lot of different things we can look at. It makes sense for us to do things that we're good at. So obviously we're in the markets that, as you know, we're going to probably look at those adjacencies first, although I think we're not opposed to looking at opportunities that fit what we do as far as complex assembly and managing large labor forces and so forth. So maybe I'll stop there and see if Harold has something to add on that.

Harold Bevis -- President, Chief Executive Officer & Director

No, I agree. Our main goal is to have higher earnings and more stable earnings and be less dependent on the vehicle markets. So I would say we have a bias toward doing that. We also have a bias toward smaller tuck-in type of acquisitions with deferred and a string of pearls versus some big kaboom. We had a pipeline going into several hundred candidates we're looking at, and it was a successful game plan. We had a lot of two by the FSE business, which led us to have this big warehouse automation business. So we have good taste in our mouth with being a careful shopper, and buying the right asset where we get the right team.

The value add in that business was lower value add, but unique people, unique customer relationships, and an opportunity to one plus one equal three when folded into CVG's resources and global footprint. So we're looking for that again, we'd like to expand our value add as well and have a little more stickiness, maybe a little more complicated get us into a couple of other markets that would help us diversify and not take many risks. We like the profile of the FSE acquisition, if we could mimic that, we certainly would and that was the reported. It was $50 million and has helped us create a really big business in a short amount of time and it was what we saw and it happened, so we will be careful. I don't have anything specific to say in that, but as Chris and I add something smarter than what I just said, we'll share it with you as we go along.

John Franzreb -- Sidoti & Company -- Analyst

Okay. All right, fair enough, thanks for taking my call. I'll get back into queue.

Operator

[Operator Instructions] And your next question will come from the line of Barry Haimes with Sage Asset Management.

Barry Haimes -- Sage Asset Management -- Analyst

Thanks so much. Congrats on a great quarter. I had a question on the RV and specialty vehicle market where you're starting to pursue some things, and it looks like, if I did the math right, you maybe did about 9 million of orders in the quarter, could you just talk a little bit more about the products you disappointed in that market? What the competitive set looks like and how big that could possibly be over a couple of three-year period? So, any color around that segment would appreciate. Thanks.

Harold Bevis -- President, Chief Executive Officer & Director

Yes. There is a lot of inject motors -- but there is not a lot of injection motors that can do large pieces, there's not a lot of injection molding so that have a lot of 3500 ton press [Phonetic] like us. Our heritage of making large parts for trucks makes us a specialist of that large parts naturally and there is other large parts, there's housings for -- and exterior bodies for ATVs, shales for snowmobiles, this sort of a thing. So when we talk about now recreational vehicles, it's not the Winnebago kind of deal, it's the small vehicles that have plastic bodies, large plastic bodies. There is also large plastic bodies on baby seats. There are shelves for X-ray machines, the outer domes for antennas, there is unique needs for large injection molded plastic parts that are monolithic and high compression like we have for truck part. So that one varies where we're trying to -- we've characterized what we can do, and we're looking at where is it done. So, we're being open-minded to the markets, but the big actual market's definitely off-road vehicle market, and we're having success running the business in those areas.

Barry Haimes -- Sage Asset Management -- Analyst

Great, thanks very much.

Operator

Okay, and there are no more audio questions at this time, I will now turn the call back over to management for closing remarks.

Harold Bevis -- President, Chief Executive Officer & Director

Well, Chris and I want to thank you for staying on an hour with us and appreciate your support. We are happy with the quarter that we turned in, but we're even happier about what we see ahead of us. And we look forward to speaking with you again at the end of this quarter. Thank you very much for your attention today. With that, we'll conclude the call.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Christopher Bohnert -- Chief Financial Officer

Harold Bevis -- President, Chief Executive Officer & Director

Michael Shlisky -- Colliers Securities -- Analyst

Chris Howe -- Barrington Research -- Analyst

John Franzreb -- Sidoti & Company -- Analyst

Barry Haimes -- Sage Asset Management -- Analyst

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