Versigent PLC ($VGNT)

All right. Welcome back, everyone to the 2026 UBS Auto and Auto Tech Conference. Super pleased to have with us next from -- the new kid on the block, I guess, on the autosen although been here for a while, I guess. Doug Ostermann, Chief Financial Officer from Versigent. So Doug, thanks for joining us today.

Yes, thanks for having us, Joe.

I think a lot to get to -- there's obviously been a lot of interest in the name, and I think it's a pretty unique and interesting story. Maybe just right off the bat to start. You laid out in your outlook sort of some certain targets and assumptions for vehicle production for this year. There's been some changes, I guess, to sort of third-party estimates here. And since then. And we're also sort of hearing some very different things about whether there was maybe some pull-forward of demand earlier on in the year and maybe some incremental concern over schedules in the back half of the year. You guys typically have some pretty good visibility at least for sort of the quarter ahead. So I guess, maybe you could just sort of comment broadly on how you're sort of seeing production play out in the quarter and what your sort of view and expectation is for the year? And what would be sort of the factors that would cause production to come in maybe a little bit better than you sort of expected versus some potential downside?

Yes. I mean, to your point, we do have a good relationship with our OEM customers. We have a fairly broad set of customers. As we talked about, we do manufacture for all 10 of the largest OEMs around the globe. And in addition to receiving of course, their schedules, we also have a regular dialogue with them about how they're seeing the environment, various macro elements that are playing out. Right now, I would say all the schedules that we're seeing, the discussion and dialogue that we're having, we think the volumes throughout the year will be supportive and consistent with our full year outlook. We don't see right now, significant deviations that could cause that to be an issue. That being said, there are a lot of macro factors in play as there always are in auto. I mean that's what makes it net -- such an interesting business, right? And we talked about some of those headwinds. Of course, we saw IHS bring the market down a little bit, particularly in Asia towards kind of third and fourth quarter. We, of course, are always monitoring copper prices very closely. That's a big impact for our business in particular. We've seen higher gas prices, and we're watching to see how that plays out. American consumer, at least seems to be pretty resilient at this point. And, of course, there are always the individual events, progress in the discussions in the world, in the Middle East, et cetera. But right now, we see schedules being fairly supportive really of the outlook that we've put out right now. And of course, our performance is somewhat different than general market performance. Our revenue is growing faster than general vehicle production because of some of the issues we talked about on content and things like that. And of course, you saw the differentiation in our production and our results in the first quarter where we outperformed the market, I think, significantly. We were at absolute growth in revenue about adjusted growth of 3% in a market that was down a couple of percent with particular strike in the APAC region. So our results are a bit different than general market. But that being said, we think the outlook looks fairly supportive still.

Yes, I want to touch specifically on that last point you mentioned, which is the outgrowth, particularly in China, which as you mentioned, was pretty strong in the first quarter above market. I mean, maybe you could just sort of help us and can for the audience sort of what drove the strength in the region and how you sort of view those trends progressing over the balance of the year? And also, if you don't mind, just sort of a refresh or maybe because of also talk a little bit about the exposure within China, whether that's like domestic or foreign OEMs or if you even know sort of export versus domestic demand because there's been some changes there, high end versus low end? So anything to sort of help us with some of that color.

Yes. I mean, Asia has been a real strength for us with a big focus of it being China. In China, we have a strategy which is consistent with our strategy around the globe, really to try to work on and target those wiring harnesses, those electrical architectures that are the most complex that's where we think we can add the most value. That's where customers frankly seek us out because we have such a strong global engineering team and this kind of proprietary tool set that we've developed over time to help them out. And I would say what's different about China is we specifically -- there's a huge number of OEMs in China, over 100 OEMs. So we're not going to work with 100 different OEMs. So we specifically have targeted the bigger players with more complex wiring harnesses and specifically those that are involved in export. And really, because of that, we are over-indexing with those exporters, and you saw that in our first quarter results. So if you look at the China market as a whole in first quarter, domestic consumption of automobiles was down, right, like I think something like 20%. But export was -- and it continues to grow every single quarter. And the growth was very significant in the first quarter. I think year-over-year it was like 50-plus percent growth. And that's why our results were so strong. Now I would say we also have a unique value proposition to these OEMs, which is a real differentiator. In wiring harnesses, they're really only about 3 or 4 truly global players. And so part of our discussion with the Chinese OEMs has been, look, we can help you with your domestic vehicles for sure. We can help you understand the requirements for international markets, and we can help you with export, which is what we're doing today. But importantly, we can also help you progress along that journey because eventually, you're going to local alas, right? And because we're one of the very few global players, we can help you along that entire journey. And that's been very effective in building the relationships that we have today.

You [indiscernible] for my questions, I guess, but maybe to sort of piggyback off that, like -- have you been having those discussions because like some of these companies already are sort of beginning plans, if not already sort of starting some localization. So how are those conversations going? And how would you sort of say your strategy has paid off in terms of sort of a win rate with them as they sort of look to localize?

Yes. I mean it's really paying off, I think, right now in the export, but increasingly, we're seeing more awards and more opportunities to bid on their localizations based on our good work to date. And I think that's going to pay off long term because, obviously, we see the penetration numbers that are happening, particularly in markets like Europe, for example. And increasingly, they are all looking to localize within those markets. And I think there is a shift there because I think it will be difficult for them to achieve the levels of vertical integration that you see in China as they move into these new markets. A lot of their local suppliers would not be able to make that journey with them. And so I think it's going to create opportunities in the Tier 1 space. And I think it's important that Tier 1s really think through that strategy and position themselves well to be a player as those opportunities open up. And I think we've done that.

Yes. That's an interesting comment. I guess maybe on that and maybe the competitor set within China. I know you mentioned there's only a handful of sort of a local -- global, sorry, wire harness players. There are clearly some Chinese for China sort of harness players. But I don't want to presume here, but I guess by your comments, what I'm gathering is that you think your level of sophistication and being able to sort of handle harnesses is above sort of that local competition. Is that what you're seeing that where there is more sort of local Chinese competition, it's more sort of at the lower end, simple parts of the harness?

Well, what I would say is that when you look at our team in China, and I think this is a broader lesson that we've all learned over time is that our team in China is extremely China-focused, any ex bets in that team. It's all locals, right? And they run at the same speed as the local Chinese OEMs. And that's what you have to do to be successful there. What I'm saying is that as those Chinese OEMs increasingly look to international markets, the fact that we are a global player, and we can provide those services in multiple markets, and we can carry through solutions. We can help them across market that's a real differentiator. But in China, where it's extremely kind of China focused, right, with a very China-focused engineering team that really operates at a very, very fast pace.

Has that China fast-paced knowledge -- are there lessons you can take from those operations and scale them to operations in the Americas and Europe to sort of better improve the processes there? Or is it really sort of more dependent on the customers because the customers there just sort of move faster and maybe some of the legacy automakers don't move at the same pace.

I'd say it's a combination of things. One, we have the highest levels of automation in all of our plants in China. And so now we are working to extend that automation to many of our plants around the world, which I think is going to allow us really to have significant margin increase over time. But the other thing is that we just see the pace of innovation in China is extreme, right? And so a lot of the things that we are learning and that we're building on and working with local OEMs on wiring harnesses, where we're tearing down vehicles in China and looking at what the competition is doing, even wiring harnesses that we don't do that maybe have done in-house by certain competitors, et cetera. We're taking those lessons and those learnings and we're applying them to our customers around the world. And it's been a real opportunity for us because the pace of change in China is dramatic, right? And so if you're well positioned there, you're a big player and you can really be on the inside track I think you can provide a lot of value.

I want to touch back on a comment you made on just sort of the automation and the highest level of automation being in China because I know this is something we've talked about in the past that I think was -- is maybe actually underappreciated because I think people think of wire harnesses, they think of very labor-intensive processes, but there -- I think there are other areas around sort of the plants and facilities that you are able to automate. So maybe you could just talk a little bit about what functions have been automated in China that maybe are not yet automated in other parts of the world? And really also how you sort of view that automation path over time, whether it's in China or in the rest of the world for what can still be done there.

Right. Great. And I think SP1 For the most part, when you look at final assembly of a wiring harness, it still is a very manual intensive process, right? And I have huge respect for the people who work on lines doing that. I've tried it myself. It's not easy work. And -- but I would say when we see advancements in electrical architecture, there is more automation that can be done on final assembly for sure. But a lot of that will be -- is frankly dependent on the advancements that the OEMs make. And we don't want to be held up by that or waiting for that, right?

What do you do that? Why is it depending on the automakers? It on their assembly process, do you mean?

On some of the innovation of the wiring harness system sales right? And so -- and we're hoping to do that to make those -- the manufacturability of the wiring harness itself easier and more automated. But that's kind of a long path, right? And we will take advantage of those opportunities where and when they occur, right? But the kind of low-hanging fruit, if you will, right, the big opportunity that we've been exploring is all the peripheral activities. So these are areas where automation, I think, has been employed in plants around the world. Much of that technology is very mature. But we haven't applied it as much within the wiring harness industry, you don't see it applied that much. And so we're talking about like how goods are receded into the plant, right, how they're warehouse, how they're picked out of the warehouse? How they're the prep, how they're brought to line side, how they're presented to line side, how the wiring harness is tested at the end of the line, right? How it's packaged? How it's shipped? All those are ripe for automation.

Are there any -- is there any quantification of how much savings you've been able to see, as you've implemented some of these factors in China, just so we get able a sense of scale for as you sort of the opportunity in the rest of the world?

Yes. We haven't shared specific like plant-to-plant comparisons for obvious competitive reasons. But we have talked about the fact that we think that, that opportunity over the next 3 years will add 50 basis points to our margin.

Okay. Perfect. Maybe going back to -- well, let's actually go back to the outlook because we've got a little side track there. Just one thing I wanted to also sort of touch on, which sort of comes up a lot with investors is, right, the margins, you look at sort of what you did in the first half, if you look at sort of margin guidance for the year, it does imply a step up, I guess, over the course of the year. So, maybe just sort of a little bit of the puts and takes that you sort of see that sort of drive the margins higher and how some of the efforts are progressing?

Right. So the person to recognize is that seasonally, historically, in this business, Q1 is typically the lowest margin period. And so it would be normal for our margins to progress throughout the year. Typically, seasonally, third quarter is typically the highest margin for us. And the reason is really relates to production. As you know, in the automotive industry, first quarter typically is the lowest production quarter. We're coming out typically of a Q4 that typically ends with a lot of pull ahead incentives, activity, and you have some downtime for the holidays, right, and you're trying to ramp back up from that in early January. Then, of course, if you're a global player like Versigent, you have your customers for the Chinese New Year typically shut down, right? So first quarter tends to be the lowest production quarter. And so because our business does respond to volume. Our contribution margin is roughly around 23% on average. The higher volume in Q2, 3 and 4 helps margins overall, right? In addition, this year, we should see some copper catch-up, which was a drag on margins in the first quarter as our contracts adjust second quarter and on, that should become -- go from being a headwind to a tailwind. And then basically, our productivity efforts that kind of play out over the course of the year should help as well. So we do expect margins to advance over the course of the year.

Mentioned copper and you mentioned that as an important -- even earlier on that is an important factor. For the business to consider. So I know a lot of -- I know as you mentioned, there's sort of the contractual pass-through. I think you also do some hedging as well. But maybe you could just sort of walk us through a couple of things on copper here. How big is the annual buy? How does sort of the -- how does sort of the contractual sort of pass along really work? I think you've said in the past about 3, 4 months maybe lag. And then how do you handle sort of the portion that's sort of more exposed?

Right. So really what -- because copper is the biggest exposure from a commodity standpoint by far, you'll find that over 75% of our contracts have a specific clause related to the escalation of copper prices. The issue that we have though is that within those contracts, typically, it's a 3- to 4-month lag between the time when the copper price moves up and when we adjust the pricing. And with our wire suppliers, we're typically adjusting the price every month. And so that creates this gap, right? On the other 25% or so of our exposure that doesn't have a specific escalation clause, we do hedge those exposures and we typically hedge them over a 2-year period. So given where copper has gone over the last 2 years, you can imagine those hedges are pretty attractive prices. And so that's why even when you see a really significant impact, a really significant move in copper like we saw in the first quarter, like 25% move. The impact, I would say, relative to the amount of copper we use for it to be $28 million is not that large, I would say, for a 25% move in the price of the material. And that's because of these hedges and things like that. But certainly, there is a timing aspect to the escalation. And so we are looking forward to getting some catch up on that in the second quarter as those escalations take place, but to the extent that copper continues to move up, that is a bit of a headwind for us, of course.

A few things there. Roughly how much copper do you buy annually?

Yes. We don't share that figure, but it's a significant buy for us. I would say that in some ways, we found that this period is an opportunity because it also has stimulated a lot of discussions with our customers because they obviously feel the impact as the contracts escalate or is there a way to -- so we come back and we say, "Hey, can you guys help us think this through like how can we substitute for copper? How can we reduce the copper content and because we have the strongest engineering team it allows us, again, to show value in the relationship with our customers.

Okay. And the second thing, and this is sort of like maybe a little bit of sort of semantics, but when you sort of say okay? So you're buying copper every month, right, those contracts every month. And then -- but then 75% of those contracts, you get sort of reset 3 months later, let's say, there's no retroactive part, right? Like you're not able to sort of go back and say, hey, over the last 3 months, like we were able -- so you basically -- you're saying like copper is going up 3 months from now, we're charging you based on sort of where -- where copper is now?

Right, right. So very -- this is overly simplified, right? But the way I think about it is if -- in the first quarter, we produced all the wiring harnesses we normally would for our customers. But because of the move in copper, they cost me net -- net of hedges $28 million more than normal.

That's gone.

Right. Then my adjustment has second quarter, again, overly simplified. I get the $28 million additional in my revenue and that it still is in my COGS, right? So it equals out my ability to earn my EBITDA or time is restored. But what they don't do, to your point is they don't go back and say, "Oh, versus we feel so bad that you paid it extra $8 -- $28 million, let's make that up to you.

[indiscernible] out of an industry for that.

Right, right. So it's a onetime impact that stays with us. That being said, if we see a mean reversion in the price of copper, exactly.

Yes. Maybe actually, since we have you up here as CFO, like just bigger picture. I know this year is sort of set. But as we sort of think about Versigent into '27 and really beyond, how would you sort of describe your approach towards handling copper in your outlook and your guidance. And the only reason I sort of ask is because, as you sort of mentioned, it is such an important input and it can be such a factor. So how do you think about sort of communicating what's embedded or even sort of planning for the business for copper?

Yes. So I think any time we put out guidance, we want to be clear about what our assumptions are. So that the investment community can understand the context in which those projections are made. And we are actively looking at our strategies in those regards, part of the exposure, of course, is of our own making, right? Because we have agreed with our suppliers to escalate every month, we've agreed with our customers to escalate only every 3 to 4 months, right?

So is that structural? Or can that change?

No, there are opportunities. Most of the wiring suppliers that we talk to open to us locking in for longer periods of time and that's something that we're looking at. So there are -- we are actively looking at the ways in which we handle this exposure. So far, I think if you look at, like I said, in the first quarter, relatively move in copper, they only have a net impact of $28 million, I think, shows that we do a decent job of managing the exposure. That being said, there's always room for improvement range.

Sure. So you mentioned a couple of times, right, the strength of the engineering team and the complexity of the wire harnesses. And I think you focus on those high-value programs relative to the build-to-print type of programs. Just maybe you could sort of remind us and sort of talk a little bit about like why you feel it's sort of more important to focus on those higher, more complex programs? And how that is balanced by OEMs desire to maybe try to simplify or reduce some of the wiring?

Right. Yes. So I think it plays out in a couple of ways. Clearly, we have a strategy to go after the most complex wiring harnesses, the most complex electrical architectures in the industry. We have built a team around excellence in that area. So we have 8,000 engineers, 1,000 of which sit at our customers, helping them develop and optimize those solutions. We've developed proprietary pieces of software that help in that, roughly 5 different software -- suite of 5 different soft tools that we call iHarness that allows us to really do a good job in those areas. And really, I think the trends are playing in our favor because with the massive increase in feature set, the increase in powertrain complexity, hybrids and BEV and new architectures like Zona. There's plenty of opportunity for a highly engineered team, a team that is strong in engineering like ours to increasingly add value. And that's why if you look at all the wiring harnesses that we produce today, over 75% of them are ones in which we have contributed to the design or optimization along the development path. If you look at that cystic just 3 or 4 years ago, it was more like 50%, 55%. And so what we see is OEMs increasingly turning to us for help and value add in these areas. Now why is that important to us? Well, it plays out a billion in 2 ways. One is the instant to which turn to us increasingly for that type of help. Those relationships tend to make the business very sticky. So we have a very high incumbency win rate. And the second way it plays out, of course, is in margin because to the extent that we can provide more creative solutions, reduce cost for our customer that allows us to still provide great value to them and maybe keep a bit for us.

So as you sort of -- you mentioned zonal and I think like one overarching way that people think about that as a simplification and a reduction in the wiring. But -- but your argument would be actually it's -- there's more engineering involved in getting to that point. So it's actually not necessarily a headwind?

Yes, I would agree with that. We've helped a number of customers, particularly in China -- solutions that are in the direction of zonal architecture, right? I would say the other thing is that typically, when we see the transition to Zonal, it's on all new platforms. And those new platforms tend to be EV or hybrid and they also tend to be extremely feature-rich. So most of our customers, particularly in China who have gone in that direction with new architectures, those vehicles just have an incredible feature set. And so the total content, even though, yes, the zonal architecture allows for a bit more elegant solution from wiring harness spaces, net-net helps to reduce total content, the overall content when we look at it on those vehicles is very high.

Yes. So I know this is always a little bit of a gray area and a fine line, and I think like some of your customers like to say they are in charge of things went very often. I mean if you would walk through, you see a sort of there's engineers from suppliers sort of embedded with these teams. But there have been a number of examples we just had forward on stage, and I sort of toured there, next-generation sort of platform facility and they're sort of very clearly talking about how they sort of design the electrical architecture and that they will just have someone make it for them, build to print. I understand the sort of truth might be a little bit more sort of in between, but how do you sort of counter that over? What are you actually sort of seeing in terms of sort of automakers actually looking to sort of design and then sort of make it build to print because if you believe that narrative, right, like your value at engineering build-to-print mix seems like it might shift over time.

Yes. And I wouldn't want to speak to a specific customer.

I was just using that as an example.

But, in general -- look, what I have seen or what we've seen is that, yes, when it comes to designing for instance, going from traditional architectures where you have a whole bunch of boxes in the vehicle with kind of simpler chipsets that are driven by different sets of software, oftentimes that are designed by the supplier, the Tier 1, right? The transition to zonal that a lot of the OEMs are working on and some are pretty far down the path on, frankly, is to fewer boxes, if you will, right, with a stronger chipset. It runs on a common software. Oftentimes it's designed by the manufacturer themselves. Not an easy transition by any means. Most of the time, they're focused on what is the right chipset, what is the right number of boxes, what functions do we want to combine into these boxes? And how do we make that software happen, which is really, really tough. The wearing that connects it all often that is not something they want to focus their valuable engineering time on frankly. Oftentimes, that piece of it is, look, we're very focused on the software and all that. Why don't you help us with the wire and connect at all? That isn't connected at all right? That's the function that we play and is oftentimes not where they want to focus their efforts.

Let's shift gears a little bit. Obviously, I think a big focus, increasing focus among investors here in Auto space is sort of looking at core competencies and where else those core competencies might be applied, especially to sort of some nonautomotive opportunities. I know this is like -- I know you have some commercial vehicle, but if you sort of take out like just vehicles like this is a very small percentage of your revenue today, but you have sort of talked about certain capabilities. You have sort of -- you did announce an award on a best system, for instance. Maybe you could just talk about, one, what you're seeing, whether it's sort of push or pull demand, what the sort of effort is to sort of try to diversify the company, how those conversations go. And more importantly, I know this is something we're talking a little bit about off-line is what the timeline and process looks like. Because I think in Auto, we're all very familiar with your winning business 2, 3 years ahead of time. And then that program will run for 7 years. And so you've got good visibility. Here, it seems like when you win business with something like this, like it might come on pretty quickly. But how does sort of that contract and duration and durability of that look like?

Right. So when we look at the adjacent market opportunities, they're attractive for a number of reasons. One, because a lot of those areas seem like they're going to have a pretty strong CAGR. Even though they're small today, the growth projections are impressive. We believe that if we can become a preferred supplier there, the margins also might be very attractive. And we have seen that really the fit in terms of our existing engineering skill set, our existing tool set, our existing manufacturing footprint is very organic. And so it's very encouraging at this stage. And I would say that when we think about the ways in which we add value through our engineering team, it's not just in the upfront design, but it's also in making a wiring harness, whether it's for a vehicle or a battery energy storage, also is for the manufacturing within our plants, right, which OEMs don't understand, right, necessarily, it's something that we can optimize and again produce a better cost for them. And ultimately, how that wiring harness spend makes its way into the final product and make sure it's also optimize for that installation, right? But when we look at these adjacent opportunities, you're right, some of them can come to fruition much quicker. So we see in China, for instance, quicker path from award to start of production, even in the OEM space. But this piece of battery energy storage business, for instance, that was awarded in the third quarter. It went into production, serial production in the first quarter. So again, even shorter time period from award to production. And so we're pretty excited about those opportunities. I would caution, though, to say that when we look at our 3-year horizon and the 3-year numbers that we've shared, these adjacent markets are not a significant portion of that outlook right, it's beyond that. And really, it could be upside to that if some of them come on quicker, but it's not a heavy component of us making those numbers. So I would say I would caution people -- if you see awards in this area. It's not that -- if you don't see a certain amount of awards, we won't be able to make our 3-year numbers. But battery energy storage exciting area. We've got our first piece of business. It allows us to demonstrate our skill set. And we really are developing a go-to-market team that can really address that and try to get more of that business for us. When we look at commercial business, as you said, most pieces of automotive will go into production. They might be in production for 5, 6, 7 years. A lot of commercial vehicles will be in production for 10 years, right? So it's really attractive from a CapEx profile, right, and returns profile. So we want to get more of that business whether it's on-highway with our existing OEMs, but also increasingly off-highway opportunities. So like agriculture, construction, even like things like personal watercraft or ATVs, those are all opportunities for us. And then certainly, a little bit further afield, cumulative robots. We are doing some prototyping for, again, OEM customers where they have decided to explore those adjacencies who said, why didn't come along, right? And so we're doing the prototyping in North America, another one in China. And again, we feel like we can add a lot of value from an engineering standpoint and from a manufacturing standpoint, should fit right into our existing facilities.

Can I -- like obviously, when you start to talk about something like humanoid robots that's sort of a new area. But when you talk about other areas, whether it's best or commercial vehicle or maybe -- I don't know, maybe A&D or some other areas? Like what is sort of the incumbent look like? Like is best sort of just like because it was historically a small area, not -- didn't have a lot of focus and have a lot of sort of sophistication. And like now you with your processes are able to offer these customers a lot more efficient in cost savings and robust product?

Yes. I mean, we have looked at that in all these adjacent markets. And what you find is a mix. Some of it is traditional suppliers that we've run up against in automotive many, many times over the years. And others are more smaller kind of specialized players and really, we think we have kind of 2 natural inroads in these areas, right? One is, of course, the existing one, which is a lot of these adjacencies are being explored by our existing OEM customers. So in particular, for instance, a number of our customers in North America find that they have lots of battery capacity and expertise and so they want to go into that area. And so they know us, they know our capabilities. They know the quality that we produce. And so they're asking us to bid on those projects. I would say the other, though, is that we can bring a skill set, a tool set and a scale, frankly, that a lot of these local players just can't bring to the party, right? So I think that's another real opportunity for us to place some people in these kind of growing markets.

USMCA was in the news again last week, and there's reports that the government is pushing for 50% U.S. content clearly, if you look at your sort of Americas footprint, you're more in Mexico, how do you sort of see this evolving? And what sort of changes, if any, do you think you might need to make for your business to sort of help customers.

Yes. It's something we're monitoring and we'll see how it evolves. My gut is that even if we do go to a higher percentage of best content that wearing harnesses are probably not high on the list in terms of where the OEMs would seek to reach that content, obviously ...

Is it possible there's an exclusion for things like wire harnesses or you just think like they'll look for other areas to...

I think both because there are very, very few if any -- very, very few wiring harnesses being produced in the United States today. It'd be very difficult. It is very labor-intensive.

I guess maybe just to close, capital allocation, which I think is a big part of the story, right? You're talking about $1 million of free cash over the coming 3 years. You put the dividend out there, you start -- there's a repurchase program. You mentioned wanting to fund buybacks with operational cash flow. So how should we think about the timing of some of that cash relative to sort of when you look to buy back stock and sort of when you want to take advantage of what you think is a dislocation on sort of valuation?

Yes. So we have talked about $1 billion of free cash flow generation over the 3-year horizon. That's beyond kind of the built-in 3% of revenue that we will use as [indiscernible] which is high for our historical averages, right? And that's because we're trying to address some of these really attractive opportunities in automation, things like that, right? Now, of course, if I could pull ahead some of those, that would be my preference rather than giving money back to buybacks or things like that, right? But right now, all of those opportunities we see right now is being contained within 3% CapEx. So the $1 billion is something that we wanted to give clarity to the investment community on. We've talked about the fact that we will go back to the board after we have Q2 earnings and talk about the dividend we gave what we think is the right target for the Board. But obviously, that's a Board decision ultimately. But we would like to declare a $0.13 a share quarterly dividend. When we talked to the Board about a buyback program, they did approve $250 million. So up to $250 million of buybacks. But we would like to time that with the cash flow of the business. This business historically, has significant ramp-up as we talked about the seasonality of working capital in first and second quarter. So typically not much cash generation in that period. Historically, third and fourth quarter is when all the cash is generated. So my expectation is that we wouldn't get active or think about utilizing that authorization until probably third and fourth quarter.

Yes. Maybe just to close, and I know we're running earning out of time here, so this could be a fairly simple, yes, no answer. But when we sort of talk about some of the other opportunities you see in some of these other adjacent end markets or just other end markets, do you feel you have the capabilities to compete there? Or could there be some assets that could be worth a look to acquire inorganically to sort of help participate in those markets?

I think there's a lot of opportunity that is very organic. So I think commercial vehicles, bots, energy storage, et cetera, very organic. There are some further field stuff that we've been looking at that could be attractive down the road. We'd like to diversify our revenue base. It could be that there are opportunities, aviation, defense, et cetera, where you might need to look at different certifications and things like that. But I think there's plenty of opportunity within the existing target set right now.

Okay. Perfect. With that, we're out of time. So Doug, really appreciate you joining us today.

Thanks very much for having us, Joe. I appreciate it. Thank you.

Take care. Thank you.