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Greetings, and welcome to ABC Technologies' Third Quarter Fiscal 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the 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 Q3 Fiscal 2021 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 the property of ABC Technologies. It can't be reproduced or transcribed without prior consent from the company. Before we begin, I'd like to remind you that today's call will include forward-looking statements within the meaning of applicable securities laws, 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 refer to Slide 2 of the 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, 2020. All references to Q3 fiscal 2021 are to our fiscal quarter ended March 31, 2021, and Q3 fiscal 2020 or our fiscal quarter ended March 31, 2020. References to 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, everyone. We're excited to welcome you to the first earnings call as a public company. I will provide some brief background on ABC Technologies for investors that are new to our story, talk about the Apollo transaction, discuss market dynamics in light of the recent global semiconductor shortages and update you on business developments. After my remarks, David will discuss our financial results for the quarter, and I will end up with an update on our guidance. First, for those of you that are new to the ABC Technologies story, some brief background. As a leading manufacturer and supplier of custom highly engineered technical plastics and lightweighting innovations to the global automotive industry, we provide leading-edge solutions in the interior, exterior under hood and under dash systems of the vehicle that address OEM's most pressing needs, those of fuel efficiency, battery range and consumer comfort. Our products are powertrain agnostic, meaning that we are ready for the EV future that is in front of us now. We are already seeing solid new EV-related business wins with meaningful EV revenue coming to ABC in the near future. ABC has a strong market position across our product segments and leading shares in many of our individual product lines such as running boards, spoilers, cargo load floors for CUVs, SUVs and pickup trucks, along with HVAC and washer systems across multiple vehicle lines. We have content on over 75% of the light vehicles produced in North America, including strong representation across the top 15 models produced in North America. Our footprint consists of 28 manufacturing facilities, and we serve a portfolio of more than 25 OEMs around the world, many for almost half a century. We principally sell directly to OEMs as a Tier 1 supplier, shipping to approximately 90% of the OEM production facilities in North America. ABC maintains our innovative leadership through more than 600 skilled professionals in the organization with technical roles and backgrounds. We have over 300 patents, 150 new product process and material-based innovations, including many first-to-market solutions. We maintain 139 proprietary resin compounds and formulations that are approved by our OEMs for exclusive ABC use. In addition to our technical expertise, ABC differentiates itself through our unique vertical integration, including product-specific design machines, process equipment and tooling that is manufactured in-house as well as our proprietary resin formulation and compounding capabilities. We are continually innovating, not just in lightweighting, but in manufacturing process, material science, and improving production cycle times that have allowed us to generate leading margins, which we expect to see return to pre-COVID levels upon resumption of normal OEM production schedules. The automotive industry is still in the early innings of vehicle lightweighting, and we expect our portfolio of solutions to continue to improve upon products made traditionally of heavier materials. This is expected to generate higher per content vehicle margins and free cash flow, which we will deploy internally or through strategic acquisitions. Investors can read even more about the business in our investor presentation that is posted to the company's website. Now let's go into the quarter results. First, on Slide 4, David will provide additional data on our financials in his remarks. But at an overview level, our revenue and adjusted EBITDA for the third quarter of $218 million and $25 million, respectively, were both down year-over-year due to the supply chain disruptions that have been widely reported in the media, which impacted both our OEM customers as well as the resin supply base. While I don't want to discount results that did not hit the mark for our high expectations we have of ourselves internally, we delivered a number of highlights in the quarter that we are proud of, including our successful IPO listing in February, a refinancing of our credit facility that provides significantly improved terms and pricing as well as operations that we're firing on all cylinders prior to the semiconductor-related volume reductions and stoppages at our customers. We received an additional quality award of excellence from Toyota, our third year in a row winning this recognition. We received some great news in new business wins in the EV space. And the bottom line is that ABC is continuing to execute the plan we laid out for you leading up to the IPO. Despite the near-term headwinds, we see a lot of reasons to be positive, both on the longer-term macroeconomic environment and the overall ABC story. Though there is still a high level of uncertainty as to when the supply chain headwinds that are currently affecting the industry will abate, we expect the impact to be transient in nature, and we are confident that this has not altered the long-term growth trajectory or solid operating fundamentals of our business. The demand macro is very strong with great consumer pull for vehicles as well as extremely low inventories in the vehicles that they want. Moving to Slide 5. We've quantified the major impacts that specifically affected ABC in the quarter. I think it's important to point out that prior to the large number of OEM semiconductor related shutdowns beginning mid-quarter, ABC's results were ahead of our guidance. If we adjust for these exogenous factors, we would show a very strong third quarter in the books. Impacting us first and foremost was the global semiconductor shortages to our OEM customers, which has forced widespread production shutdowns across the industry. You'll see in the lower left, almost 1 million units in the first half of the calendar year have already been removed by OEMs in North America based on IHS estimates from mid-April. Note that these estimates were issued prior to announcements this week and last on additional production shutdowns due to semiconductor shortages from several North American OEMs. This lost production is targeted by OEMs to be made up, especially given the lower inventory situation at dealers, which we'll discuss on the next slide, but we don't believe that this makeup will occur until ABC's next fiscal year. While the production stoppages across all OEMs and vehicle types have happened, management estimates that the semiconductor related volume losses have shaved $34 million of revenue from the quarter and almost $10 million of adjusted EBITDA. As you've likely read in the news, these chip shortages are continuing in our current fiscal fourth quarter and will unfortunately continue to impact our OEM customers and ABC. Industry estimates vary widely as to the depth and duration of the semiconductor shortages going forward. But we note again to investors that underlying vehicle demand remains robust and OEMs have stated that they will work to make up these lost volumes as the semiconductor supply chain recovers from current shortages. A second issue, which was not as large in our Q3, but we expect to have a slightly greater impact in Q4 was the financial impact from rising resin prices, which were at 10- to 15-year highs. Resin represents the largest compound -- component of our material cost. And over the last year, COVID-related logistics issues have caused resin shortages in North American market that were already seeing elevated prices. Against this constrained supply backdrop, winter storms Uri and Viola hit the U.S. Gulf Coast, causing major petrochemical plants that provide key feedstocks to the resin industry to be taken out of commission for a number of weeks, temporarily driving prices even higher. These same winter storms forced additional production stoppages across OEM factories in the Southeast, as snow and ice prevented movement of goods and people in the areas for almost a week. Management estimates the combination of resin and winter storms negatively impacted the quarter by approximately $6 million in revenue and $3 million of adjusted EBITDA. While the production volatility associated with semiconductor shortages will linger for a bit longer, the winter storms are, of course, behind us, and we expect resin prices to stabilize in the second half of the calendar year as feedstocks are restored and expected additional capacity comes online. At the same time, we are also looking forward to an increase in vaccinations that will lead to a significantly lower impact of COVID-19 across the supply chain within communities where we do business and at our customers. Quickly on Slide 6. You can see that there's a lot to look forward to on the demand side for the industry. OEM production of just 3.6 million vehicles in our third quarter is expected to rebound steadily up to 4.3 million vehicles quarterly over the next 12 months and average almost 4.2 million vehicles per quarter through the end of 2028. Based on OEM comments, when semiconductor supply and therefore vehicle production normalizes, they expect to be running hard to refill the inventory channels, which are currently estimated to be at critically low levels of just 34 days versus 78 to 80 days under normal circumstances. This, along with the strong economic signals we see and the aging North American vehicle fleet, all bodes well for multiple years of growth ahead for the industry and for ABC. On Slide 7, I'll also touch briefly on some of our important launches and product wins for the quarter. The Ford Bronco is a big program for Ford and an important new program for ABC with multiple product groups represented on this vehicle. The new Nissan Pathfinder, where we again have multiple product groups represented, further diversifies our OEM portfolio. And we are launching products on the new Jeep Grand Cherokee as well. We've also had some large new business wins in the quarter, including approximately $220 million in lifetime revenue on a U.S.-based OEM's CUV platform, a significant pickup truck win of $60 million in lifetime revenue. And you can see we've been very active on the EV platforms where we had 10 new product wins, almost $100 million in lifetime revenue in the quarter, and we are also actively engaged in large numbers of additional EV program targets. On Slide 8, I'd like to touch on our important transaction with Apollo. Last month, Apollo Global Management agreed to acquire a majority stake in ABC. According to the agreement, which is described in greater detail in the company's news release dated April 13, Apollo will purchase 51% of the outstanding common shares of ABC for CAD 10 per share, from our existing majority shareholder, Cerberus Capital Management. We've had a great partnership with Cerberus for the past 4-plus years, and they will continue to be involved in the business as minority owners going forward. We view the investment by Apollo as a strong endorsement by a global investment leader, indicating that they see tremendous value in the ABC management team and the ABC platform. We think that having Apollo in our corner will provide ABC with additional resources to help us push our plan forward more rapidly, and we look forward to a highly collaborative relationship with them as we continue to grow our business both organically and through acquisition to better serve our global customers with industry-leading products. I'll wrap up on Slide 9 by saying that ABC remains on great operational footing, and we are ready to deliver at full capacity when the supply chain disruptions subside. In the meantime, we are continuing to push the ball forward with ongoing programs focusing on cost efficiencies, capital utilization improvements, capacity efficiency and overall best practices with these savings falling straight through to the bottom line. We are winning significant amounts of new business, and we've again been approached by several OEMs regarding takeover business from their current suppliers. This is a testament to our strong confidence that the OEMs have in us and is one of the many areas we are continuing to diversify our customer portfolio. ABC is also working with OEM design teams early in the concept phase to bring new and innovative products to the market. We'll talk more about some of these exciting innovations in future quarters. We've even more in store to enhance our lightweighting value proposition from improved functionality in the interior passenger compartment to new recyclable biomass materials and even ways to better utilize the front trunk, or frunk, of electric vehicles. We are bidding on large amounts of EV content with the OEMs, and we're involved with an interesting EV design project here in Canada called Project Arrow, the first all-Canadian electric vehicle. We are incredibly well positioned to benefit from the accelerating transformation towards electric vehicles as well as the ongoing secular trends toward higher consumption of pickups, crossovers and SUVs. From a macro perspective and especially beneficial to ABC, consumer demand for vehicles is extremely robust as evidenced by last month's U.S. SAAR of 18.5 million vehicles, with almost 80% of these vehicles being light trucks, the segment from which ABC derives over 90% of its revenue. Pickup truck inventories are extremely low at levels of 60% to 70% below their 5-year averages and the semiconductor shortages have caused a pent-up demand for the OEMs to get product back on to dealers' lots. Finally, as this is our first quarter as a public company, I'd like to close my remarks by thanking our employees who responded to the challenges posed by COVID over the past year with unwavering professionalism. I value their contribution immensely, and they deserve our sincere gratitude for the tremendous resiliency and courage that they have shown. With that, I'll turn it over to David.
Thank you, Todd.Moving to Slide 11. I'll start with an overview of our financial performance in fiscal third quarter ended March 31. This chart shows sales, adjusted EBITDA and free cash flow, but I will spend some time to give color to the significant aspects of our major income statement lines. ABC's revenue for Q3 fiscal '21 was $217.9 million, down 8.9% from Q3 fiscal 2020 as auto production in North America decreased year-over-year by 4.5% according to estimates from IHS Markit. Revenue declined primarily due to lower OEM production volumes caused by semiconductor shortages and certain weather-related customer shutdowns as discussed at length by Todd. Sales in the prior year period included a partial recovery of volumes following the 2019 strike at one of our OEM customers. Cost of goods sold as a percentage of sales was 85.8%, unchanged from the prior year period. SG&A expenses were $38.2 million in Q3 fiscal '21 compared to $17 million in the prior year. Higher SG&A expenses were primarily a result of onetime items, including $7.7 million in transaction costs related to the IPO as well as $6.5 million of bonuses paid to management related to the IPO. Wages and benefits were also higher in the current year due to the reversal of bonus accruals in the prior year period due to the impact of COVID-19 on prior year's financial results. In Q3 of the current fiscal year, there was an operating loss of $6.3 million compared to operating income of $15.1 million in Q3 2020. As noted, the current quarter includes $14.2 million of costs related to the IPO. The current quarter net loss of $20.7 million compares to net earnings of $2.1 million in Q3 fiscal 2020. The current quarter net loss includes the cost of the IPO and also includes $11.8 million on a pretax basis related to the refinancing of the company's credit agreement to move to an all-revolver structure, improved pricing and move the maturity out to February 2025. $10.6 million of the $11.8 million was for the noncash write-off of previously incurred deferred financing costs. In Q3 fiscal 2021, there was a net loss per share of $0.39 on a fully diluted basis, which includes $0.38 of onetime items on an after-tax basis related to the IPO and the concurrent refinancing of the company's credit agreement. Adjusting for these onetime items would have resulted in a net loss of $0.01 per share on a fully diluted basis. Adjusted EBITDA for Q3 fiscal 2021 declined 14.7% to $25 million from $30 million in the year-ago period. The adjusted EBITDA margin in this year's Q3 was 10.3% compared to 11.2% in the year-ago quarter. I note for modeling purposes, 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 and the denominator. Because the JVs are included in the income statement on an equity method basis, you need to refer to our MD&A to see the JV proportionate sales and adjusted EBITDA details. Our MD&A is filed on SEDAR and is also available on our investor website. Adjusted free cash flow was $9.9 million versus $15.6 million in the prior year period, showing that ABC is able to generate positive free cash flow even in an extremely challenging macro environment. As Todd spoke about at length, our business was adversely impacted by reduced production volumes at our OEM customers due to semiconductor chip shortages and the winter storm as well as higher resin prices driven by weather and significant demand imbalance resulting from COVID-19. The semiconductor chip shortage had the strongest impact on our revenue and adjusted EBITDA. Excluding the chip shortage, management estimates that revenue and adjusted EBITDA would have been higher by $34 million and $10 million, respectively, in Q3 fiscal 2021. Management also estimates that the weather-related OEM shutdowns and higher resin costs had a combined impact of $6 million and $3 million on revenue and adjusted EBITDA, respectively. Excluding these exogenous factors, management estimates revenue would have been $258 million and adjusted EBITDA would have been $38 million for an adjusted EBITDA margin of 13.3% in Q3 fiscal 2021. Moving to Slide 12. Briefly, Slide 12 shows the walk from cash from operations down to free cash flow, which was still quite robust this quarter despite the tough macro. As we discussed in our IPO road show, we are benefiting from reduced CapEx needs after years of investment in the business. We also continue to receive dividends from our JV partners. On Slide 13, you see details of our capital structure and our ample liquidity, net leverage of approximately 1.8x based on a revised 2021 adjusted EBITDA, which we'll discuss on the next slide. As previously mentioned, concurrent with our IPO listing, we refinanced our credit facilities with the existing lender group to a more favorable structure that also extended the maturity and lowered pricing. With that, I'll turn it over to Todd to discuss the guidance and a few closing remarks. Todd?
Thanks, David. On Slide 14, tying it all together is our revised fiscal year 2021 guidance. Given the information we have seen from our customers and in the resin market, we've adjusted guidance based on previously announced production curtailments through last week and current OEM schedules, but it should be noted that the industry is still in a position of outsized uncertainty with OEMs reducing production schedules and operating on limited shifts that are subject to change of very little notice. We expect sales in the range of $945 million to $965 million, adjusted EBITDA in the range of $125 million to $130 million and adjusted free cash flow in the range of $70 million to $75 million in fiscal 2021. The bulk of the change from our previous guidance is a result of semiconductor-related interruptions, which is forecasted to negatively impact our initial guidance by $87 million in revenue and $28 million in adjusted EBITDA for the last half of our fiscal year '21. We also expect a slightly greater impact from elevated resin costs in the fourth quarter as well, which combined with the impacts of weather, impacted our initial guidance by $6 million of revenue and a total of $8 million in adjusted EBITDA for the first half. On a positive note, I think it's important to point out that without the negative impacts of these exogenous factors, we would have been above our initial guidance levels for revenue, adjusted EBITDA and free cash flow based on our overall company-wide performance. In closing, we are excited to be engaging with our new public shareholders as we embark on this journey. We have a highly experienced management team, a very accomplished Board of Directors and a great employee base that are working hard through the challenges of COVID as well as the most recent supply shortages such as semiconductors. We are booking significant amounts of new business, and we remain well positioned to capitalize on both organic and acquisitive growth opportunities as they emerge. We are building our business for the long term, focused on sustainable value creation, and we believe that these headwinds will subside and OEM production volumes will return. Based on our demonstrated operational performance, you'll see ABC return to pre-COVID margins just as we had discussed during our IPO road show. With that, I will conclude our prepared remarks. Thank you, everyone, for listening and for your support. David and I are now happy to take questions.
[Operator Instructions] Our first question is from Mark Neville with Scotiabank.
I'm just trying to understand the implied Q4 guide a bit better. If I look at your slide deck, it looks like you or IHS have Q4 volumes up sequentially. But the implied Q4 guide, I think if my math is correct, is for EBITDA in the range of $10 million to $15 million versus the $25 million that you did in Q3.
Yes. I think as we look at that, Mark, the volumes we're using are certainly current IHS. I think as we look into the quarter, I think our numbers for fourth quarter are a little bit higher than you put out there. I think we've got certainly some impact that was announced recently by several customers that's going to impact the fourth quarter overall. And I think the numbers that we referenced on Page 5 with IHS were as of April 15, and there's been some further movement from that. So we do see some certain impacts that are hit in fourth quarter. But we remain confident going forward with inventory levels low, the strong demand on vehicles, we just, again, think that this chip shortage is going to work its way out over the course of the next couple of quarters and that we'll see that pick up certainly and real strong push certainly to make up as much of this volume as possible from all the OEMs. But we are going to see a little bit -- probably more impact in fourth quarter than we did in the third quarter.
Yes, Todd, that's right. And Mark, I think the implied would be $19 million to $24 million, $106 million going to the range of $125 million to $130 million. And we do anticipate feeling a little bit more of the impact of resin price increases in our Q4. And that really sort of accounts for some of the delta you're seeing.
Yes, okay. I think -- sorry, I apologize, I had some bad math there. I guess I'm still a little surprised, I guess, is just -- it seems to be a little more acute than maybe some others. I'm just curious, but the OEs sort of prioritizing production work for extra SUVs, you're overexposed. Is there sort of -- any of that sort of built into the guidance? Or is again, I guess, is everything is coming offline?
Yes. So what we're seeing here, Mark, is they're certainly prioritizing pickup trucks and full-sized SUVs built off of those platforms. But what really is happening in the marketplace is they're also shorting a lot of CUVs. And CUVs is where the high volume is as well. And we've certainly got a lot of content across multiple CUVs. And so we just see that there is some mix issues going from -- depending on what plants have gone down really that have been pulled out by the OEMs. So we really got -- as you look at -- what we've talked about in the roadshow earlier was we've got content per vehicle that varies across different vehicle lines, and our average is about $72. On the top selling vehicles, it's $82. And so we've got some vehicles in the 200 to 300 and some over 600 as well. And so it really ends up real factor of the OEMs, the amount of time they're down, which is really driving the volume and then which specific plants are down. And it's really the cards have been thrown up in the air, and we've just got to react to how the OEMs are prioritizing. So we do have strong pickup truck volume. There's no doubt about that. We're just seeing -- they're taking the chips from CUVs. Passenger cars are basically completely shut down, but they're stealing from CUVs where they need, and that certainly impacted some of the volume. And if we look at our geographic footprint a little bit as well, we've got North America, this -- really, this half of the year has been hit more than the rest of the globe as far as the reductions that the industry have seen. We've also been a Canadian supplier certainly supply to a lot of the OEMs here in Canada, which a lot of the plants have been down, too. So it really ends up just being a matter which plants go down, how the OEMs are prioritizing. And while we've got strong pickup truck sales, the rest of the segments have really dried up as most of the OEMs have shut down a vast majority of all production except for pickup trucks in many cases.
And Todd, you even say the F-150 hasn't been immune to shutdowns, right? There's been intermittent shutdowns of that line for us, which you almost wouldn't expect.
Right. Okay. Understood. Maybe just one last question, can -- just for, I guess, for miles, can you just remind us how the resin exposure works? Again, I guess just with pricing adjustments and sort of what the lag is and sort of that gets made up just -- yes, that would be helpful.
Sure. I'll take that one, Todd. So the resin exposure is -- when we look at it, the biggest resins we have exposure to is polypropylene and high-density polyethylene. And when we look at that spend, it's probably the lion's share of our resin spend, not all of it, but the lion's share. Roughly half of those contracts have a mechanism where either there's a direct pass-through and the company has no exposure whatsoever or there's an index that has some form of lag attached to it. And some of our customers on a 6-month lag and some of the resets will happen in our next fiscal year and others are on a quarterly lag. So I think when we look at it, where we're exposed to commodity type resins, which again is the lion's share of the spend, we feel like half of it has these mechanisms. One of the direct pass through the other one is there's a timing element to it. We also have a -- there's also a timing element for us relative to when our contracts for resin reprice. And on certain of those contracts, there's a 3-month mechanism and another one, it's more of a month-to-month change. But I hope that helps to answer your question, Mark.
Our next question is from Ryan Brinkman with JPMorgan.
Maybe starting with the 5 awards on new electric vehicle programs you announced you'd secured during the quarter. Are you able to say, perhaps directionally, how the average content per vehicle on these EV programs or maybe also those in your active quote pipeline might be tracking relative to on comparable ICE programs? Are you seeing higher thermoplastics use in newly designed EVs as automakers seek to reduce weight in order to increase range?
Yes. So I would say that we've had a strong robustness across the entire portfolio on the 10 different program awards under the 5 different nameplates, and there's a lot more in the queue that we've got coming at us. So we're seeing, I'd say, just as strong of a pull across the entire portfolio really across all of the major product groups that we have strong interest. And as I look at -- I think where the OEMs going forward, we'll spend more time on next-generation vehicles, on redesigning the whole concept of the vehicle. I think a lot of the ones that have gone in now were maybe a little bit quicker to market than they really have focused on the EV portion of it, not necessarily how do you free up interior space or truck space and some of the other things that I think you'll see on the next generation that we think will really even drive further content for us. But we just see strong demand for it. There's a lot of EV programs out there. We're involved with just literally dozens and dozens and dozens of them with the OEMs. So we've got strong pull from the marketplace across multiple OEMs, across multiple programs, virtually across the entire ABC content. And what we're really excited about this. We're seeing the acceleration happening the pull from the OEMs is strong. As I mentioned in my comments, we're working on some next-generation vehicles, some next-up vehicles already on redesigning interiors and redesigning front trunk space, which they call the frunk, figuring out how to better utilize the rear area of the CUVs and SUVs. And I think that just falls right in line with all the capabilities and innovation that ABC drives in the marketplace. So we're just really excited about where electric vehicles are going. And I think it's going to be able to drive innovation for us as well as a lot of lightweighting opportunities going forward is that the OEMs really focus on how do they make these vehicles profitable as well. And certainly, batteries is a huge cost add as well as a weight penalty over internal combustion. So there'll be a long runway in my mind of lightweighting that's going to happen going forward.
Okay. And given that in the agreement between Cerberus and Apollo, there is a provision that Cerberus could be paid more in the event that one or more transactions closes within the next 12 months. Would it be reasonable to conclude or assume then that there are specific contemplated actions in the M&A pipeline that could potentially be materially positive to the equity value as Cerberus may have been aware of? And maybe you're limited to and what amount of color you could provide on those specific potential acquisitions, but maybe you could take this opportunity to just update on what kinds or sizes of transactions you might be targeting or how you expect those transactions could be financed? And then also what you were trying to accomplish with the transactions? Obviously, from a financial perspective, accretion, of course, but maybe also from a strategic perspective, if you see acquisitions as a tool to accelerate geographic or customer diversification? And if so, if you have any sort of longer-term targets in mind relative to geographic or customer diversification.
Yes, it's a great question, Ryan, for sure. And I would just go back to the discussions we had on the roadshow presentations. And I think we've been pretty vocal about M&A is really a continued focus for us for value add. We're really looking at technical plastic type things, things with good material science and process engineering, really high-value type products. We certainly stay away from commodity type products. So that's the kind of things that we're looking at. We also mentioned in the road show that we did have some targets. We have had some preliminary conversations. So this is really just a continuation of the path that we've been on and that we've been looking at as far as really looking at how can we consolidate a very fragmented plastics marketplace. And we've seen it, Cerberus has seen it, certainly Apollo sees it, and we think that this is a great opportunity to increase the scale and scope of ABC going forward. We've got the ability to be a net consolidator in this industry, given our position, our strength, our capabilities and the platform that we have here. So we're really excited about it. And it really, to me, is an opportunity to help improve our ability to serve our customers. And that's really what its focus has got to be about from a product standpoint. We really think that there's a lot of opportunities for adjacencies to our current portfolio, maybe some overlaps to make it stronger in some product groups as well. We're certainly going to stick within the wheelhouse of knowledge and capability that we have, which is this technical plastics. So again, we're not just going to chase revenue. That's really not where we're focused at. We do have really -- are looking at how do we diversify our regional footprints, how do we diversify our customer footprints. I wouldn't throw out maybe specific targets, but I would just say the North American market has been great for us over the past decade or so, but we really want to be a global player, a significant player here, and we want to make sure that we've got the ability to satisfy our OEMs' needs around the globe. So we really think there's a great opportunity for us here. As far as scale, I'd say there's some smaller ones. There are some medium-sized ones and there are some larger ones out there. And I probably won't quantify specifically where we're going, but what we're looking for is fit, first of all. What does it do to our strategic capabilities, our strategic footprint? Does it financially make sense? We're not just going to chase the revenue. It's got to make sense from a financial standpoint, make us a stronger, more capable entity. And I think that's really the -- what we're focusing on. As far as financing, I think that certainly, Apollo gives us some interesting financing opportunities. I think that's really what they're known for is capital structures and how to really look at consolidation and doing it in a financially efficient way. So I think that's a real benefit of this transaction as well. They have the ability to bring more money on to the table. But we also think that we've got a very flexible financial structure with ABC right now, very low leverage. We've got great cash generation. So we've got a great banking consortium that we work with. So I think there's multiple areas and paths of flexibility on how we would finance this.
Our next question is from Brian Morrison with TD Securities.
On the Apollo transaction, strategically, it looks like you're going to accelerate M&A activity potentially. But I'm wondering from with the resource and expertise that you highlight, whether you might see any operational changes, whether it be supply chain, whether it be processes, human capital?
Yes. So certainly, I have talked with the Apollo team as we were going through this. And I think the one thing that I've talked to them about is we have done a lot of that already, previous to when we went through the IPO. We really focused a lot over the 3 years before the IPO on ensuring that we've got a very solid platform within ABC. And we're always looking at how to make that better. But I think we have beefed up certainly our supply chain area. We've beefed up program management. We've beefed up finance, HR operations team, IT, but really no area has been untouched. And I think we've got the best team that ABC has had in its history right now. We've added 23 senior executives below the C-suite over the last few years to really strengthen as we've transition from the family run enterprise into a professionally managed company and -- so I think right now, we're -- that's probably not the specific focus, but we will always be looking at how do we make ourselves better. We're constantly doing that. I think the things that we're doing right now on our capital efficiency is just another example of the ongoing process improvement and how to do things better. This is certainly an industry you can't stand still on, and we've just got to continue to look at how do we reinvent ourselves all the time. The market's changing, certainly, as we see from what's happened over the last 2 or 3 years looking back. And we just want to make sure that we're always at the forefront of capability, of process knowledge and ability to move with speed and agility and deliver excellence to our customers. So that's always on my mind for sure, Brian.
Okay. And in terms of takeover work, is there any regular process or hurdles you'd have to go through and maybe just address the available capacity you have to scale operations?
Yes. So typically, what we see is an OEM will be having a specific type of issue with one of its suppliers. It can be a multitude of things that are out there. And after a period of time, I think the OEM makes the decision that they need to change the business from one supplier to another. And when they do that, they're looking into their supply base in that particular product line and then say, who's my most trusted source. Who can execute? Who do I have a great history with? Who's got the great relationship? And I think that's just been why we've been pulled into a lot of these here recently. We certainly evaluate them just like we would any new business opportunity with the product teams, the manufacturing operations, the C-suite, and in some cases, even the Executive Committee of the Board gets involved in these depending on size. But we really view this as we want to make sure that if we take something over, that it's not something that cannot be fixed. We want to make sure that it's something that we can do well for the OEMs, because now our name is on top of it, even though we might not have designed it. So -- but we've been very successful in this over time with multiple OEMs. And I think that's why we've got more opportunities that have come out at us in these last couple of quarters. We'd just ask across really our entire portfolio of can you come in and help me on this particular one. And it's exactly what we want to be able to do. I view these relationships that we have with our OEM customers that they've got to be a partnership-type relationship. And it goes both ways. We help them. They help us. It just builds on trust. It builds on relationship. And I think we've demonstrated our capability over time that we're kind of the go-to guys when they need help, and we're eager to please.
Our next question is from Peter Sklar with BMO Capital Markets.
This is [ Chang ] filling in for Peter. My first question is, did ABC receive any wage subsidies or other government subsidies related to COVID during the quarter? And if so, can you quantify the amount?
Yes. Yes. When you dig in deep, you'll see that we received about USD 1.8 million during our Q3.
Okay. And then in terms of like the resin pricing lag that you were referring to earlier with your customers, is that -- like what is the negative impact going forward? And is that already baked into the guidance -- the revised guidance that you gave?
We have baked in the guidance -- what we're seeing in the guidance for, effectively, what is our Q4. I think as we look to build our budget through the next year, we're certainly taking into consideration both the offsets that come from customers and any movement in the market. There has been some downward pressure on prices, which we think is good as some of the demand in balance starts to abate. And I think we're optimistic that things will come back more in line with what we would consider normal. I think what we've seen over the last 6, 8 months really has been quite unusual brought on by hurricanes, brought on by really pandemic. And then, as you know, probably the weather issues that occurred in February that took a chunk of the resin production, a big chunk of the resin production capabilities in the Southern United States offline. So we'll be building that into our guidance as we go forward, and we do have built in what we're expecting to see into our Q4.
Okay. And lastly, what was the bottom line impact on the strong Canadian dollar on your results?
I think what we see is that -- and you've probably seen the hedges that we have in place. I think that we've really anticipated a lot of this and really hedged the majority of the exposure we have as it relates to our expenses. And so you'll see that a lot of our hedges are kind of right around the 130 range. So I don't think that we saw a tremendous exposure as it relates to the operating. You'll see that we had some remeasurement issues, and there was -- I think there was about $2 million in the quarter. The other thing that you probably see also in our space, a lot of our contracts, regardless of what country is supplying them, the contracts are based in U.S. dollars.
[Operator Instructions] Our next question is from Maxim Sytchev with National Bank Financial.
I just wanted to circle back, if it's possible to the M&A. And then correct me if I'm wrong, it looks like you could be potentially looking at some international transactions. Do you mind maybe discussing the team's history of being able to source international deals or whether you're going to be relying on some of your key shareholders to be able to get the ball rolling in that direction?
Yes. Max, I appreciate the question for sure. Yes, so I would say that on our C-suite right now that we have -- we've got 5 members, 3 of us are either from Europe or have lived in Europe have a significant exposure and experience over there. So we certainly no one familiar with the marketplace. The whole team has been involved in various types of M&A transactions throughout the course of their history. So I think we're comfortable in the European space. We're comfortable in the Asian space. We're comfortable in the North American space. And we're looking at opportunities that best fit a multitude of criteria, not just one specifically. And we certainly have confidence that we've got the management skill sets, the bandwidth capabilities within the team and the experience to be able to pull these off, whether they're based in our home port or elsewhere in the world. The team just got a lot of background in that as does a lot of the rest of the organization. But we've also got key executives in different regions of the world as well. And then as we just look at the -- some of the things that we're looking at on paper right now are multiregional opportunities as well. So I think that you have the ability to strengthen your bench in areas that are outside of our home market through some of the other acquisitions that we're looking at as well. So I just think there's a lot of things in play that will allow us to continue to build up a very significant capability on a global basis over time. And from a management team perspective, we're ready to handle the ones that we think are in the next up list that we're currently evaluating.
Okay. That's very helpful. And in terms of -- is there a significant difference in terms of potential multiples that we're seeing in other geographies versus North America? Or is it still pretty much in line?
I think that each market has its own nuances as far as multiples. Traditionally, the Asian market has been a little bit higher on the multiple range and Europe has been up and down, and they're a little bit all over the place just given the current state of the market at the time. But we think that as we look at these, we will certainly look at what's the synergies that we would be looking for on a particular M&A opportunity, take those into account when we're looking at valuations. And what we're really looking for is what is the strong foundation of these companies. What do they add to the ABC story going forward. What is the -- how does it fit within what we've got? Does it keep within our core competencies? And obviously, it's got to make the financial sense. And I think one of the benefits of having companies like Cerberus and as well as Apollo on our side is that these guys are -- and gals are all specialists in this area as well. So it's a team effect and a team sport to really look at these things. And we've got a great bench behind us. We've got a strong Board of Directors. And so I just think that the entire circle of resources that we've got to look, evaluate, manage and integrate and value these things, we've got world professionals on the team and the management team ability to execute it.
Okay. No, that's super helpful. And just last question. You talked about hedging FX obviously. Is there a way to hedge resin or just not practical for whatever reason to do that in this space?
There are ways, Max, to hedge. And I think we looked and over time, resin has enjoyed a tremendous period of stability. But I think this latest crisis really has us going back and taking a second look. We've investigated before, and there are elements to it to be managed. So you can expect that as a company, we'll be going back and taking a broader look at what's available to hedge the exposures we see.
Okay. Fair enough. And just one last question in relation to noncash working capital for the fiscal '21. How should we be thinking about this? Because, obviously, there's a lot of moving parts, like I understand you provided free cash flow guidance, but how should we be thinking about that component because it can be quite volatile if it's possible?
Sure. And I think that we are seeing some volatility in the sales. For us, typically predicting cash flow is a pretty straightforward business. But I think we have seen some disruption relative to the revenue. But I do think that if you think about the -- we are taking on just a little bit more inventory just to make sure that we're not experiencing any supply disruptions. But other than that, to the extent that you're modeling it, I think that you would expect that the other elements of working capital should be sort of status quo in terms of just being a function of what the sales are that you're estimating. So we still expect that to be the case, although there are some challenges with the volatility in revenue. But you might just think that we're going to pick up inventory just a little bit, just so that where we see suppliers that may have any potential risk from COVID-19 or any other potential disruption that we're going to build a little bit of the safety stock for that.
This concludes the question-and-answer session. I would like to turn the conference back over to Todd Sheppelman for any closing remarks.
I appreciate everybody joining our first investor call. It's been certainly an interesting quarter, and I think we've got more interesting things ahead of us as well. We're facing in some aspects once in generational and then sometimes once-in-a-lifetime type events with combinations of COVID and chip shortages that have hit this marketplace as well as resin prices that are, some people say at 30-year highs, all congregating at the same time. And I think we've managed well through it operationally. I've always told the team that you can't really choose the -- what happens when you're a leader, that's happening in the macro environment around you, but you can certainly choose how you react to it and lead through it. And I think the team has done a very good job. We were able to offset some of the impacts here. And again, I think we're just building a strong foundational capabilities for the company going forward. So we're confident that the long-term abilities of ABC remains solid. The short-term blips are working their way out and through the systems. And we're looking forward to getting back to a -- maybe not the exact normal that we had pre-COVID, but the new world that we're in, we're ready to go for it. And the team is here and eager to demonstrate the capabilities, and we are confident in our long-term and near-term abilities to execute this company. So I appreciate your time, and I look forward to speaking with you more.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.