Abc Technologies Holdings Inc
TSX:ABCT
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Abc Technologies Holdings Inc
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Greetings, and welcome to ABC Technologies Q2 Fiscal 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.I would now like to turn this conference over to your host, Mr. Nathan Barton, Director, Investor Relations. Thank you, sir. You may begin.
Thank you, and thanks to everyone for joining us today for ABC Technologies Q2 fiscal 2022 earnings conference call. With me on the call are Todd Sheppelman, President and Chief Executive Officer of ABC Technologies; and David Smith, Chief Financial Officer of ABC Technologies. This call is being webcast live on ABC Technologies Investor Relations website, and the webcast and accompanying slides will be available for replay for 12 months following this call. The content of today's call is property of ABC Technologies. It can't be reproduced or transcribed without prior written consent from the company.Before we begin, I would like to remind you that today's call will include forward-looking statements within the meaning of applicable securities law, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the Canadian securities regulatory authorities on SEDAR. Please review the disclaimer on Slide 2 of the earnings presentation for additional information. We assume no obligation to update any of these forward-looking statements or information unless required by law.I want to remind our investors that we are on a fiscal year that began July 1, 2021. All references to Q2 fiscal 2022 or the fiscal quarter ended December 31, 2021, and Q2 fiscal 2021 are to our fiscal quarter ended December 31, 2020. References to fiscal 2022 are to the 12 months ending June 30, 2022, and fiscal 2021 are to the 12 months ending June 30, 2021. I also want to note that while ABC shares trade in Canadian dollars, the company reports its financials in U.S. dollars.With that, I'd like to turn the call over to Todd Sheppelman.
Thank you, Nathan, and Good morning, everybody. Though we are still not out of the woods yet, I'm happy to report that this past quarter, ABC and the industry as a whole have begun to see improvements in the semiconductor crisis, as all of our OEM customer plants were back up and running, although somewhat reduced shifts, and we saw a commensurate improvement sequentially in our financial results that we believe will continue to build in coming quarters. While the ongoing slowdowns due to the global chip crisis are continuing to cause challenges in our business and operating results, we are continuing to operate and adjust our labor expenses and implement additional cost control measures while ensuring that we are ready to emerge stronger for the future as production levels began ramping back up. We're also taking advantage of this volatile environment and have begun executing on our strategic M&A road map that we've discussed on our prior calls since becoming public, and we'll talk more about here today.So we closed out the calendar year with the North American production market essentially flat versus the COVID impact in 2020. It was a tale of 2 cities for reasons everyone following the industry knows. We showed in 2020 that despite the extreme challenges of the first half of the calendar year, that we could deliver strong financial results on the turn of a dime when customers are running at a more normal pace. We know we've got the capability, and we look forward to customer production continuing to progressively increase over the coming quarters. As we enter calendar 2022, many production conditions are improving, as we expected on our last call. Some of our customer plants have been shut down for multiple months are now back online, albeit at reduced shifts, which is a big improvement over the prior quarter. This pickup in activity has shown that our business has a tremendous amount of operating leverage as production returns, which we expect it will for many years at an elevated level. As we've said in prior quarters, we are confident that ABC is positioned to grow at above market rates with production at a more normal level, as evidenced by the continued strong new business wins and our reputation in the OEM community as a go-to lightweighting supplier in the North American market as well as our recently signed M&A deals where we see great complements to ABC's product portfolio and more opportunities for growth.Our focus remains on building our long-term capabilities to grow our business both organically and through acquisitions to better serve our customers and stakeholders globally. Our organization will become stronger as the industry continues to recover, and we continue to be excited to capitalize on the opportunities presented by our current and future environment.Starting on Slide 4. Results came in fairly in line with how we saw the quarter shaping up for us as of our last earnings report, meaning incremental improvements over our fiscal Q1, but results that still reflect ongoing stranded labor and production costs and fall short of where we are confident ABC can operate. On a positive note, the OEM plants producing platforms that were harder hit over the last 2 or 3 quarters are now running at least 1 shift, and ABC did not face some erratic stop-start production environment that we saw in the first quarter. While some level of greater chip availability, we're seeing improved predictability in OEM production schedules, and as a result, our own schedules. While we are still seeing inefficiencies in our production, mainly due to labor shortages in the U.S., continued COVID cases and remaining though less frequent customer call-offs, we do see improvements, and based on results thus far in our Q3, we believe we will continue to see the increased production cadence and improved financial results through the rest of fiscal 2022. Though we are optimistic that the light at the end of the tunnel is beginning to show level, we are still remaining cautious and continue to expect the remainder of the fiscal year to be challenging.On a very positive note, just after the end of the quarter, we were pleased to announce 2 acquisition deals that we believe will have an immediate and ongoing positive impact to ABC's operations and financial results. the acquisition of fluid supplier dlhBOWLES and European interiors and exterior supplier, Karl Etzel, which we'll talk about in more detail later in the call. These acquisitions are both expected to close at the end of February and will begin to be reflected in our financial results in our fiscal Q3. Concurrent with the acquisition announcements of dlhBOWLES, ABC announced the launch of a rights offering and private placement to fund the acquisition. The private placement closed on January 11, and the rights offering is expected to close on February 15.Now let's get into our Q2 highlights shown here on the slide. Results improved significantly quarter-over-quarter, although we still fall in short of results from the prior year when OEM production levels were closer to normal. We are continuing to drive cost out of our system through continuous improvement actions, labor flexing and working with customers and suppliers to negotiate cost recoveries to help ABC offset impacts of the chip crisis. We will continue to adjust our cost structure as needed going forward and expect that as revenues increase, these cost actions, combined with our accretive acquisitions that close in the near term, will show that ABC is capable of consistently operating at mid-teens EBITDA margins or better.Our revenue for the second quarter saw a sequential increase of about 25% to approximately $203 million, though this figure was down 22% year-over-year versus Q2 fiscal '21 revenue of $261 million due to chip-related volume reductions. Additionally, EBITDA was up approximately $23 million versus last quarter to about $11.5 million, representing a 57% profitability flow-through on the increased revenue quarter-over-quarter. Adjusted EBITDA was down 73% from $44 million in the same period last year, again, due to lower volumes. Adjusted free cash flow was $5 million, which was an increase of approximately $65 million versus last quarter and represented free cash flow conversion of over 40%. Free cash flow was down $25 million from the same period last year due to the volume-driven declines in operating results and the effects of unwinding of working capital from the ongoing production slowdowns.We are quite proud of the management team of the improved financial results versus last quarter despite the inefficiencies that exist in the system at the moment due to elevated input cost and lingering COVID and chip impacts. On the next slide, we'll briefly discuss these impacts of the supply chain disruptions on our fiscal Q2 2022 results. We're also looking forward to a time in the next few quarters from now when we'll be able to convert this slide to show year-over-year improvements in revenue and EBITDA and how we achieve them. As you see on Slide 5, while financial results continue to be impacted by the global chip shortage, this quarter saw a meaningful reduction in those impacts, and we're hopeful that fiscal Q1 did, in fact, represent a bottom for production in North America. Actual production volumes for calendar Q4 were up slightly versus expectation from IHS October figures despite still being down in the mid-teens year-over-year. Also worth noting is that for the first time in many months, IHS has slightly revised upwards their expectation for production volume for the first half of calendar year 2022, which is ABC's second half of fiscal 2022. Though we're acutely aware from the past 2 years that no production forecast is a certainty, these are welcome green shoots that we anticipate should bear fruit over the coming quarters.The COVID outbreaks and lockdowns that were plaguing Asia in calendar Q3 have begun to improve to restore this key part of the supply chain. As a result, we've seen last-minute chip-related shutdowns at our customers declined significantly, which allows ABC's plants to produce parts, absorb overheads and better control labor costs, which you've seen shined through this quarter. As discussed last quarter and seen in the EBITDA chart on the lower right of the page, we are still losing some level of productivity because of the chip shortages and COVID-related issues, which means our margins are below historic levels even when adjusting for exogenous factors, but we are confident margin improvement will pick back up as the macro environment normalizes.We also continue to feel an impact from elevated resin prices on the 50% portion of our resin without price adjustment mechanisms. Prices for polypropylene are still about 55% above 10-year historic averages, while high-density polyethylene, our other major resin input is over 20% above the 10-year average. However, here too, we continue to see sequential improvement with prices declining 10% to 15% over the quarter for the 2 major resin types and IHS predicts further declines in the coming months. Though it will still take a little time before you'd expect to see the lower resin prices flowing through our financial results, these are welcome improvements nonetheless.As you can see on the right, we estimate that the semiconductor-related lost volumes negatively impacted fiscal Q2 revenue by about $60 million or more than 20%. While still a significant burden on ABC, this has much improved from the almost $120 million revenue impact in Q1. Adjusted EBITDA for the quarter was impacted negatively by approximately $20 million from lower chip-related volumes. We also continue to see impacts of the slow launch of the same vehicle platform we discussed last quarter, which resulted from an unrelated supplier production issue. This issue reduced revenue by about $5 million while reducing EBITDA by about $2 million in the quarter. On resin, where we estimate the financial impact by comparing current prices versus the 10-year historic average on our 2 highest volume resin types, we estimate ABC fiscal Q2 was negatively impacted by about $6 million of adjusted EBITDA. And again, not including explicitly and added back to this chart is the level of operational inefficiency resulting from the ongoing slowdowns in production and along with COVID-related inefficiencies that are still affecting our overhead and labor costs as we must staff and retain employees to make sure our plants are appropriately manned and ready for our customers' anticipated schedules. We estimate these inefficiencies impacted profitability in margin by about 200 bps.Moving to Slide 6 is an update of the macro production and dealer inventory environment. Since last quarter, we've seen IHS stick with their production expectations for the next couple of years, which is a market change from just a few months ago where each monthly update would reveal hundreds of thousands of units removed or shifted into future quarters in North America. Currently, IHS is projecting a normalized production environment will not return until beginning of calendar 2023. IHS expects a 17% increase in volumes year-over-year for calendar 2022 within North America, which is still about 1 million units below normal operating levels. We are anxiously awaiting production levels to return to above the 4 million per quarter level, and ABC is, of course, welcoming the expected improvement.Industry experts believe that there has been chip-related production losses of over 10 million vehicles globally with over 4 million of these coming from North America. As of last month, IHS has also now introduced 2029 volume projections that show continued elevated production levels averaging 4.3 million vehicles per quarter, and we expect multi-years of strong production just to rebuild historically low dealer inventories. As you can see on the right, total U.S. inventory continues to bounce along near record low levels as each new vehicle that gets produced in the current environment is immediately snapped up off of dealer lots. With only 1 million vehicles on dealer lots in the U.S. at the moment, average inventory of 23 days is about 1/3 the level that dealers have historically kept on hand.Moving to Slide 7. As I've mentioned in previous quarters, we are still seeing strong quoting activity from customers and have had another solid quarter of new business wins in fiscal Q2. We received over $350 million in lifetime new business wins, which is ahead of our plan for the quarter, and we are now about 50% ahead of plan at this point in the year with a robust second half of significant quote opportunities in the pipeline. This quarter, we had wins from 8 OEMs on over 20 distinct platforms in all 4 of our operating regions and in 5 of our 6 product groups. We again had a very strong quarter of EV wins with over $125 million in lifetime revenue. Worth noting in this past quarter, ABC eclipsed $500 million of lifetime EV orders, and we expect to continue to build on the strength for the remainder of the year.On the left, you'll also see examples of launches this quarter. We launched a fluid systems program for the new Rivian Amazon Prime delivery van, while not a large vehicle platform at this moment, we view tie-ins with the important new EV players and tech giants as a way to prove our value in these nontraditional OEM space that will continue to grow in the future as the mobility provider universe broadens. We also had important launches on 2 of our Asian OEM customers, which continues to demonstrate the importance of this market and our mix shift and diversification, that we will continue to play out over the coming years as our backlog converts to revenue. And for Renault, we launched the Duster pick-up in Brazil, which shows our ability to service customers in geographic regions outside of North America. We expect to see our geographic launch base broaden over the coming years with our recently announced acquisitions as well as others that we have in the pipeline. In addition to the launches listed here, we had another 10 or so launches for the quarter in 5 of our 6 product categories, covering a wide array of B3 and Asian OEMs.On Slide 8, I want to spend time talking about the 2 acquisitions that we announced recently, just after the conclusion of the last quarter. Both deals are expected to close around the end of February. So we do not have any financial impact on this past quarter, but you'll see them contributing in fiscal Q3 for the 1 month that they are owned by ABC. First is dlhBOWLES, which is a supplier of fluidics and washer systems primarily to the D3 operating in the U.S. and Mexico. BOWLES provides a number of important operating and sales upgrade opportunities for ABC, which we are quite excited about. With a strong entrepreneurial management team that has implemented significant automation within their existing operations, we believe ABC can accelerate the time frame and time line of our automated processes of our own facilities that will lead to cost savings and higher margins via labor efficiencies and lower cost for scrap and quality issues.Like ABC, their business is focused on the truck and SUV market, but with a strong go-to-market strategy for the EV space that we believe could represent upside to an already impressive EV growth profile for ABC. We also see a major opportunity to expand dlhBOWLES' product portfolio into Europe where they already licensed IP to other Tier 1s in the washer systems space, but do not currently operate directly. With the product portfolio and ABC's footprint, we believe dlhBOWLES and ABC have a winning formula to gain significant share in the washer systems and fluid delivery space on the continent. From a margin perspective, dlhBOWLES is expected to be accretive to ABC's normal earnings levels. This acquisition will be funded entirely from the previously announced private placement and rights offering.Next is Karl Etzel, a Tier 1 and Tier 2 supplier of interior and exterior parts based in Muhlacker, Germany, which we see checking a number of important boxes for ABC, including increased scale in Europe and entry to interior and exterior space on the continent and customer diversification with Daimler as a large and long-term customer relationship. Under its family ownership, Etzel has built a solid foundation with its customer base that will provide ABC a major cross-sell opportunity while providing Etzel with an established footprint in North America to expand with Daimler and other German luxury OEMs as well as Tier 1s with which it currently does business. Etzel has a lean but mighty team of employees that maintain a sizable business with minimal overheads from which ABC can certainly learn and improve as well. We expect to receive regulatory approval for the acquisition in a matter of days and close the transaction at the end of the month, and we are very excited to bring both of these businesses and their employees under the ABC umbrella.On Slide 9, closing out, we are cautiously optimistic about the second half of the year as we've seen this past quarter play out as expected, with an incremental improvement in customer production and financial results that we believe will continue for the remainder of fiscal 2022. We are still ways off from normal in achieving the financial results that we know the business is capable of, but we are certainly pleased with how we have achieved these from a cost control and incremental profitability flow-through in a still challenging production environment with input cost and labor environment friction as well.We will build on our strength of the last quarter in both total new business wins as well as EV wins, and we expect to see this continue in the second half of the fiscal year. U.S. SAAR also looks to have bottomed out in this past quarter around 12 million to 13 million, and we saw a surprisingly strong result for January at over 15 million, which is a great sign that the pent-up demand is there when production returns. We expect that as more volume is introduced to the market, while CUS SAAR increased to 17 million or more over time as it has in its strongest period over the past 10 years. Additionally, dealer inventories appear to have stabilized to some degree, at least for the moment, as we are seeing our customers running their plants with improved consistency now and every vehicle produced is immediately purchased. We expect to see inventory continue to bounce around record low levels for several quarters in the future as the dynamic of demand exceeding supply continues.Finally, we are excited to be able to deliver on the 2 M&A transactions in our pipeline that we just concluded at the end of the second quarter, a testament to the hard work of our team to pursue targets that will strengthen ABC, both operationally and financially. While we are pleased to have these 2 transactions nearly across the finish line, we are not resting on our laurels. We still have a number of deals we are focused on as we look at taking and looking at high-quality assets to meet our stated goals to diversify ABC's customer and geographic footprint, driving profitability and cash flow growth as well. We remain extremely positive on our long-term perspectives for ABC and focus on the future delivery of our promise to return ABC to mid-teens or greater EBITDA margins and profitable growth of our business.With that, I'll turn it over to David.
Thanks, Todd. I'll take you through the highlights of the fiscal second quarter, and then we'll move to Q&A after some closing remarks from Todd. The charts on Slide 11 show sales, adjusted EBITDA and free cash flow for our fiscal second quarter as well as our estimates for the financial impacts of the supply chain disruptions we're all familiar with at this point, to help understand how we believe this business would have performed under more normal circumstances. Similar to last quarter, it's important to note the fiscal second quarter is again comping against relatively strong results from our fiscal second quarter 2021 that benefit from the follow-through of the restarts of OEM production, which began around May of 2020 and extended through the end of calendar 2020, our fiscal first half 2021.ABC's revenue for Q2 fiscal '22 declined a little over 20% and from $261.3 million in the prior year to $203.4 million in the current quarter due almost entirely to semiconductor-related production stoppages as well as interruptions at one of our OEM customers related to issues with another supplier, which had a larger impact in the prior quarter, but was still not entirely resolved in fiscal Q2. Were it not for these factors outside of ABC's control, revenue would have been up year-over-year.Industry production in the quarter was down about 15% year-over-year. The exposure to certain platforms that are running at reduced output levels are still impacting ABC more strongly than the industry as a whole. Some of these platforms represent high CPV exposure for ABC, which has caused the impact of the slowdown to be magnified within our 4 walls. However, some of these harder set platforms are now down in single-digit inventory days despite being strong sellers for our customers. As a result, we anticipate that the need to build inventories on these particular platforms should help ABC snap back, perhaps even more strongly as OEM production levels rise.So cost of sales decreased on an absolute basis for the quarter. As a percentage of revenue, COGS increased to 92.4% of revenue from 82.1% in Q2 fiscal 2021. Operating leverage was lost as ABC must maintain a certain level of headcount to run machines even for limited periods to satisfy OEM demand, and therefore, ends up with less fixed cost absorption, eroding gross margin as we saw last quarter, and we saw again this quarter, though to a lesser degree. SG&A expenses were $29.3 million compared to $28.2 million last year, a slight increase in absolute dollars and a 360 basis point increase as a percentage of revenue to 14.4%. These changes resulted from much higher business transformation costs related to M&A activities in the quarter, offset by lower overall compensation expense. As part of becoming a public company in our fiscal 2021 third quarter and as expected in the current quarter, we incurred higher cost for insurance and share-based compensation for us since the prior year when ABC was still a private company.ABC reported a net loss of $16.4 million in Q2 compared to income of $11.5 million in Q2 of the prior fiscal year. The net loss per share in Q2 fiscal 2022 was $0.31 versus earnings per share of $0.22 in Q2 fiscal 2021. Both figures are on a basic and fully diluted basis. Adjusted EBITDA for Q2 fiscal 2022 declined to $11.5 million from $43.5 million in the year prior. The adjusted EBITDA margin for the quarter was 4.9% compared to 14.7% last year. Adjusted free cash flow for the quarter was $5 million versus $30 million in Q2 fiscal 2021. Similar to the prior 3 quarters' results are lower due to the combination of lower revenue attributable semiconductor shortages, higher input costs, primarily due to resin cost increases and inefficient plant operations due to reduced customer production that is still costing stranded cost in the system despite a better ability to adjust given less volatile environment of the current quarter versus fiscal Q1.Finally, I'll note for modeling purposes that our adjusted EBITDA includes our 50% proportionate share of our JV's EBITDA. And likewise, the computation of adjusted EBITDA margin includes 50% of the JV's revenue in the denominator. Because the JV is included in the income statement on the equity method basis, you need to refer to our MD&A to see the JV proportionate sales and adjusted EBITDA detail. Our MD&A is filed on SEDAR and is also available on our investor website.Moving to Slide 12, which shows our cash flow for the quarter. Cash from ops saw a significant sequential improvement and EBITDA increased approximately $23 million from the prior quarter and cash from improvements in net working capital snapped back to some degree, similar to what we saw following the COVID lockdowns in spring 2020. We expect this to continue in future quarters as operating results improve and a normal cadence returns to our working capital flows. We have continued to control our CapEx spending during this time of uncertainty. However, we are continuing to spend as needed for new program launches and necessary maintenance programs. Absent a quicker-than-expected return to normal production levels, we project that we will end the year below our target capital spending level of 5.5% of revenue. Another sign of improvement toward normality, we received a dividend of approximately $500,000 from one of our JVs versus no dividend income in the prior quarter.Finally, due to recent favorable movements in the Canadian and Mexican currencies versus the U.S. dollar, several of our currency hedges were in the money, and we took the opportunity to monetize those hedges and pull forward about $9.5 million of cash. At the time this was done, we immediately entered into new hedge arrangements at current rates to hedge our future cash flows and EBITDA. This was a positive development for our liquidity. We remain proactive in searching out cost saving and cash realization opportunities during this period.On Slide 13, you'll see a snapshot of our capital structure and liquidity. Due to the rapid decline in industry production, we maintained a fairly high draw on our revolver with a commensurate increase in leverage, but we expect our leverage multiple to decline significantly in the quarters ahead from both organic improvements and results as well as the closing integration of dlhBOWLES and Karl Etzel acquisitions. As discussed last quarter, we proactively negotiated covenant relief with our lender group that will run through Q2 of fiscal 2023 or December 31, 2022.While ABC and the industry navigate past the worst of the semiconductor-related slowdowns, we did see liquidity increased slightly quarter-over-quarter to $130 million. And just as we have stated in the past, as we see operating results improve, we will pay down debt to maintain leverage levels below 3x. The company continues to be laser-focused on reducing leverage levels and increasing liquidity over time.With that, I'll turn it back over to Todd for a few closing remarks. Todd?
Thanks, David. Well, we don't want to get overly optimistic about the future just yet as there are so many uncertainties in the market. This quarter showed some encouraging signs of relief in the semiconductor supply chain, OEM production stability and ABC's financial results. We believe our management of the business through this difficult environment and the ability to take advantage of M&A opportunities will pay significant dividends in the future for ABC, its employees and its investors. I'm extremely proud of the work that our entire team has done at ABC to manage through one of the most difficult periods the business has ever faced after just managing through another difficult period during the depths of the COVID pandemic.With each new monthly revision to IHS projections that show volumes building into the expected upturn, we are hopeful that the fiscal Q1 represented the bottom of the chip crisis and Q2 is the beginning of the ramp towards a multiyear elevated level of output for the automotive industry that will be highly beneficial to ABC. While the automotive and supplier macro environment is still not quite stable enough to provide financial guidance, if we continue to see continued stability of the market this quarter, we anticipate we can provide more clarity to the business at the end of upcoming fiscal Q3. As we've shown this quarter with our nearly 60% incremental flow-through of EBITDA versus last quarter results, ABC's significant positive operating leverage will be an incredible asset as the operating environment continues to improve, and we're excited to be able to show that to the market again.With that, I will conclude our prepared remarks. Thank you, everyone, for listening and your support of ABC. David and I are now happy to answer questions.
[Operator Instructions] The first question comes from Nauman Satti from Laurentian Bank.
So I clearly see that there is some sequential improvement in this quarter. But I'm just wondering if you can provide some color on the month of January and the early part of February, if it's still trending the way it is from the previous quarter because there have been some Omicron absenteeism issues in the industry as well, and then we have this Ambassador Bridge issue right now. So just some color on how January and February is trending.
Yes. Thanks, No. I appreciate it. So I would just say in general, what we've seen is, as expected, a continuation of the slow and steady growth quarter-over-quarter and actually month-over-month that we've experienced from Q1 to Q2 has continued into Q3. There are certainly some macro items out there that you've mentioned that have I think, some shorter-term impacts. But the nice thing about I would say the bridge blockade issue versus the chip shortage is that chip shortage, we weren't sure when the parts were going to actually be available in cars to be built. This is just a situation where it's a delay that the parts are all in trucks. And while there is some impact, I think that you'll be able to see that anything from the bridge backups will be able to be remade on over time in a relatively short basis just given the nature of the situation. So we just continue to see continued positive improvements, and we're happy to see that for sure.
Okay. That's great...
Anything you want to add to that?
Yes. No, I think that covers it, Todd.
Okay. Yes. So my second question is more on the 2 acquisitions that you did. And my question is more specific to the dlhBOWLES one. So it's in your presentation, I think on Slide 8, you have that it's a $120 million revenue business, and you guys paid about $255 million. Probably the EBITDA profile is a bit better or something. I'm just trying to get a better sense of the price that you've paid, how you're comfortable about that? Can you like double this revenue? Or what is it that gives you comfort that this is the right fit and the price that you paid is fair?
Yes. I guess I would just say that we've taken a look at the business. It's very attractive. It, as we've mentioned, has accretive margins to the overall ABC profile. It's got great growth opportunity. I think it's definitely not a valuation based on certain times of revenue. And while we didn't disclose the EBITDA, I'd just say that it's -- overall, it was an attractive purchase for us from just a multiple standpoint, and we thought it was a great asset for us going forward. It makes a lot of sense within our overall business, our portfolio and I think is a great puzzle piece within our overall M&A strategy that we've got going forward. David, I don't know if you want to add to that either...
I was just going to say, as we clearly see growth, we clearly see opportunities to better package our existing product offering with the dlhBOWLES offering. So clearly, we don't look at just what the revenue is this year. We look at what the potentials are. And I think as you hinted that, we look at synergies that are both in the form of what we can do to increase EBITDA and things that we can improve some onetime cash and some recurring cash synergies. So I think we feel quite comfortable about the multiple we paid, but you can't necessarily look at it just for today. You have to look at it for what it will do in the future.
Okay. That's fair. And probably one just last question from my end. I just wanted to get a better sense of how you think about the capital allocation. You have done like 2 acquisitions. You've done an equity raise as well. you're still looking at additional M&A, but you've also paid out a little bit of a dividend as well. So I'm just trying to get a sense of how you're thinking of capital allocation?
I mean I think we continuously look to find what is the right balance. We think that the dividend feature was important. It was something we came out strongly with as part of the listing, and we thought it was important to maintain that as a show of strength and a show of confidence to investors. So I think we were very thoughtful about the continuing of that. But again, we continue to look at what the options are in terms of financing the expected growth. And we'll continue to look at what's available from a mix of leverage and potential equity.
Yes, I would just add on that, Nauman, that in general, when we put out the strategy of what we're going to be looking at from an M&A perspective, we did have some actions and items in mind and the market took somewhat of a dip, but we really took advantage of that -- the volatility in the market that's going on right now as we've looked at some of these acquisitions. And I just felt that it was the right time to do it. And even though the -- you do it at the bottom of a market, that might have some impact on how you look at capital allocations. We still felt it was the right thing to do and go after several assets while the market is down.
The next question comes from Peter Sklar from BMO Capital Markets.
My first question is on resin. So in the slide deck, like you showed the impact, like when you did your bridge, you showed the impact of the unhedged portion of your resin requirements and what the impact was. But what about the hedge portion? I know sometimes there's leads and lags until you get adjustment from your OEM customers. Was there any league like kind of lag impact that positively or negatively impacted results?
I think that what we did see, Peter, we saw that resin prices started to come down. And if you look at what's happening in the spot market, it's still -- the trajectory downward is nice, but it isn't firmly in 100% of the downward direction. So there is still the impact of the prices we're paying. And I would say there is the lag. You know that one of our largest customers really adjust the index to the extent that things are indexed, they adjust 2 times a year in January and in July, and then some of the other customers where the adjustments happen are quarterly. So we'll begin to see on a calendar quarter. So we'll begin to see some of the positive impact in this quarter from adjustments that occurred when the prices were still elevated. But still the biggest and strongest thing for us is if resin prices continue to trend down. And as I say, they have trended down, but there's still some variability in that downward trend.
Okay. My next question is on labor costs. Like what's going on with -- in terms of your ability to keep labor in the plants and labor retention? And I forget if you're unionized or nonunionized in your Canadian plants, but do you expect that you're going to see wage pressure in 2022 -- I'm sorry, in calendar '22? And will that be significant versus calendar '21?
Todd, do you want to take that one or...
Sorry, my line got disconnected and I just got back in. So I missed the question.
So Todd, it's Peter Sklar here. What I was asking about is wage pressure. I'm not too sure if you're -- I don't recall if your Canadian plants are unionized or not, but what's going on in terms of ability to get labor in the plant cause to retain and recruit labor. And so do you expect you're going to have meaningful wage pressure in calendar '22 versus calendar '21?
Yes, Peter, thanks for the question. Appreciate it. So definitely, there's pressure across the entire marketplace out there from a labor standpoint. But I think we've been able to manage it pretty well. Our plants in Canada are not union. We do have one in the joint venture this union. But from an overall perspective, we're nonunion. We are looking at with the just macro environment, there's back and forth on retention and attraction. But I think overall, we've done a pretty good job than the market. We typically do economic increases on a yearly basis, and we'll continue to do so to make sure that we're in line with the overall marketplace. But I think it's not something that is a significant impact as we face these types of rising pressures on a year-over-year basis all the time. It's just something that we have to put into our plan as we're looking to improve productivity and how we continue to drive cost reductions out to remain competitive. So while it is an input to the situation, it's just another thing that we deal with on a normal course of business. And overall, I think we've done a pretty good job in the Canadian plants.
Okay. Great... David... I'm not sure you mentioned it, but...
I think we are nonunion in Canada, except that one of our JV partners' plants in Canada is Union. I don't know if you -- if that was the answer.
I'm sorry.
Yes. David, it's Peter again. Just one last question on the liquidity, like you did show the liquidity slide. But I can't recall like you did financings concurrent with the 2 acquisitions. And I can't remember, like did those financings just provide liquidity for the acquisitions? Or did you with additional liquidity injected into the company above and beyond the requirements needed for those acquisitions?
The private placement that has closed is put in, but it is -- and the rights offering both are really designed to fund the acquisition. So that $130 million is really the base business. And we are looking at other options that will enhance liquidity. But the $130 million is sort of a pure number without the impact of the equity that's coming in that's primarily slated for the acquisitions.
The next question is from Ryan Brinkman with JPMorgan.
Hi, this is Manasvi on for Ryan Brinkman. And I wanted to know that how should we be looking at Karl Etzel expected synergies with ABC? So how should we be looking at the cadence of synergies? And how should we be looking at its margin profile? Given that dlhBOWLES you mentioned that you are expecting it to be accretive to margin. Should we be having same kind of expectations from Karl Etzel or is there something different story there?
Yes, thanks. I think as we look at Karl Etzel, it's also accretive to ABC's normal margin profile. So I think they're both very good adds from that perspective and profile. We do think that we've got some great opportunities to be able to grow that business as well. It helps the ABC footprint in Europe, not only from the products that we're already engaged in Europe, but just adds a couple of really key critical products into our portfolio in European market, also adds significant strength to Daimler and then gives Karl Etzel through our footprint in North America ability to grow with that customer in North America. So we think not only are the current margins accretive and a positive story from an overall standpoint to ABC, it really fits the checking all the boxes that we'd like to see on acquisitions. So both of these are parts of the puzzle that we're putting together. And as we've commented, we're certainly not stopping with these 2 and continue to have significant discussions on other assets out there, and we'll continue to work and pursue those.
Got it. Very helpful. So another one for me is like decremental margin was close to top 30% for semiconductor-related revenue shortage. Like we had $20 million margin impact on [ $60 ] revenue impact from it. So going forward, how are you looking at it? Additionally, how should we be looking at the incremental margins as the volume environment gets passed from current semi and supply chain issues?
Yes. I think within a certain fixed cost range that margin is a pretty good number to use from a profiling standpoint. It's really close to the -- from an overall average standpoint, particularly where we're at in the curve right now. I think we're just very happy with the improvement that we've seen this past quarter was actually higher than that margin. And I just think that once you get right around the plus or minus breakthrough, break making money area, the curve might be a little bit different than it is over the long period of time, but we certainly think in terms of as we model our own business 30% is the correct number there.
Got it. And on incremental margin?
Yes, typically for incremental margin, that's what we're looking at.
The next question is from Maxim Sytchev from National Bank Financial.
I just wanted to follow up quickly on the German acquisitions because, I mean, my understanding is that German labor is obviously not cheap, and you say that the margin profile of the 2 acquired assets is higher or accretive relative to ABCT. Do you mind maybe just expanding a little bit in terms of why that's the case? Is there some sort of specific capability that enables them to charge higher pricing? Maybe if you can provide any color from that perspective.
Yes. I don't think it has anything to do with higher pricing. I think at every OEM around the globe, you're at competitive market prices. And I think what we're just looking at is this company, Karl Etzel has a very solid cost footprint. They know what they're doing. They have a lean overhead structure. They're very entrepreneurial on how they run the business and act and engage the business. And so I think it's just a cost structure ability and very lean mentality and thought processes that allows them to supply the very, very high-quality products to one of the most demanding OEMs in the world and then still be able to generate some money from that. So it's a great business, and we're going to continue to -- they can learn from us, we can learn from them. And we're just looking for good expansion of that opportunity and be a great supplier across the globe.
Okay. That's helpful. And maybe just the second quick follow-up in terms of how should we be thinking about the noncash working capital generations for the remainder of this fiscal year. Obviously, there was a free-up this quarter versus the previous one. But yes, how should we think about the rest of the year?
I'm sorry, Maxim, could you just clarify, you said the noncash?
Yes, the noncash or...
I think for us -- I think that most of what you should expect to see in terms of changes in working capital is going to be cash driven. And I think what we continue to see is things beginning to normalize. I think as the production schedules get more normalized, we're able to reduce inventory. There are several items of tooling inventory that are in the pipeline now that relate to mid-cycle enhancements that are launching or new programs that are launching and that should get billed and collected. Receivables are beginning to come back up, which is normal and as is payables. So we expect to see it continue to normalize. And right now, I think working cap -- net working capital is a bit higher, we expect that we'll be able to reduce that and put that into our free cash flow.
[Operator Instructions] The next question comes from Mark Neville with Scotiabank.
Maybe just the first question, so the incremental, a big number this quarter. But I guess a lot of that is just, again, the production inefficiencies and the changes in schedules in calendar Q3. So as volumes ramp, does it sort of normalize that 30% right away? Or is there sort of in the meantime, does it stay a bit elevated in the short term, sir?
No, I think that just as we look at the incremental flow-through on the manufacturing operations basis, I think somewhere in that 30% is probably the right area to look at. Our businesses are around a normal distribution. So a lot of it will depend on mix and specific factory and those types of things. But in the aggregate, across typically is a $1 billion per year annual revenue provider. I think around the normal distribution, that's a pretty good number to use. We had some better cost controls, some different cost structure things that we were looking at from different other parts of the business that were also nonmanufacturing. So we're -- as we're going through this crisis, we're not just only looking at what we can do on the manufacturing footprint, we've got to look at the entire portfolio of the business. And so I think some of that flowed through in this quarter as well.
Sure. On the M&A, I guess a 2-part question. Just how impacted were the acquired businesses in terms of revenue, I guess last year? I'm just trying to understand how far below the quoted numbers are from a normal, I guess, also there.
Yes. So I think I'll start with the BOWLES business really wasn't impacted very much at all given the profile of the customers that they had. And actually, I think, as I recall, they grew year-over-year. So that's a very strong continued growing business out there. And -- so that's one of the aspects that we like they didn't really see a dip given their current supplier profile and some of the new businesses that they were launching in the marketplace last year. From Karl Etzel standpoint in Europe, they were impacted a little bit, I think probably in line with Daimler as their primary customer. So -- but I would just say that there's a few percentage points that they were impacted, but certainly was not significant.
Okay. I guess, in terms of future M&A, Todd, how much do you guys think you can take on in terms of integration on time as you got these 2 deals closing, it sounds like there's more sort of that you're working on. I'm just curious from a human capital and just integration and how much you think you can actually take on?
Yes, that's a good question. I think we ask ourselves that quite a bit. But I think right now, these are relatively smaller bolt-on type acquisitions. So they're not control of the late type things across the entire company. They impact more certain specific areas of the business in certain product groups. And so I think we do have some more bandwidth to take on some other things. I think what we're trying to do is we look at our playbook for M&A, I certainly want to space out over time. So we do have the ability to adequately integrate them, which, as you say, you can quickly overwhelm the organization if you get too many going at one time. So we're cognizant of that fact. That's part of our strategy and how we're rolling these out and want to make sure that the pace is acceptable to the management team and the industry and the rest of the team as we look at the industry, and we don't want to kill ourselves by loading too much onto the plate.
Mark, the other thing I would just add -- I think Todd said it, but I'll just add on top of it. These businesses are exceptionally well run in and of themselves, right? There's integration issues, but it's -- but they run well, they have strong teams that are very confident, well respected in the industry. And I think that really makes the job integration a lot less difficult, particularly in these cases.
Got it. David, just on -- I guess on the resin, just so I understand, is it a full reset in January? Or I mean you made some comments earlier about getting pricing done in January. I just want to make sure I understand what you said -- on the resin price...
Sure. So I think very consistent with the message we've given ever since really coming out in the public space is roughly 50% of our contracts have hedging mechanisms. And then some of -- of that 50%, there's somewhere -- there's no reset at all. What happens is that the customer pays us a fixed price for the resin, and we pay the supplier a fixed price for the resin. And any negotiation of what's happening in the market happens between the customer and the supplier. So -- and that, for us, that has no impact on ABC. But we do have certain other contracts that are in that 50% that are indexed. And so it's not like so much a pricing mechanism, but it's a contractual mechanism that adjusts the price based on set time frames, based on what happens in the resin indexes. So when I talk about like a January 1 pricing reset, it's just the index mechanism works to reset the prices. And then of that 50%, there's some things that really as we have an annual discussion with the customer about productivity that we negotiate a conclusion that includes what's happening to us on material prices. In some cases, we end up sharing the productivity of the customer in cases like the sugar, the resin prices that have gone up, it ends up where we actually get money from the customer and for changes in prices. So we've got all these mechanisms that are going on, but I think you may have keyed in on the index reset. And that's it's just a normal thing that happens on, let's say, semiannual or quarterly basis.
Okay. And the businesses that you just bought or you're in the process of buying, they have hedging mechanisms or contracts in place?
They have a similar mix of pricing mechanisms that adjust. Some of them are maybe a little bit more robust than what ABC has and in some areas, not quite so much. So there's still a mix that needs to be dealt with in terms of what the hedging mechanisms are.
This concludes the question-and-answer session. I would like to turn the conference back over to Todd Sheppelman for any closing remarks.
Yes, great. I appreciate all the wonderful questions that we just got from the team there, very good insights into the business. I appreciate your interest, for sure. Just in general, I just say that I think we're facing a more stable macro out there than we have in the past, although it's not done. I just want to caution everybody on that, there's still significant headwinds in this marketplace, but it's improving for sure. And I think our quarter-over-quarter performance showed that we have the ability to do that and really flex out the operating leverage that we have and get us back from a quarter-over-quarter standpoint much improved from where we were in the depths of the chip issues. Just still looking at acquisitions of very exciting footprint for us going forward. There is a lot of things that we are looking at, but as we talked about just a second ago with Mark on the question is just making sure that we space it out so that the puzzle pieces fit well and we've got the integration and the synergies part of that taken care of. And very proud of the overall continuation of our strong customer wins that we've got, the great relationships that we've got with the customers out there and our EV footprint that continues to march forward in the marketplace today. So the team is dealing with a lot of issues but has come through very well, and we're very happy with that. And I appreciate everybody on this call support for ABC, and we look forward to talking to you again soon.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.