Commercial Vehicle Group, Inc.

Today's conference call will begin momentarily. Until that time, your lines will once again be placed on music hold. Thank you for your patience. Music Good morning, ladies and gentlemen, and welcome to the CBG's first quarter 2021 earnings conference call. During today's presentation, all parties will be in our listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Chris Barnard, Chief Financial Officer. Please go ahead, sir.

Thank you, operator, and welcome to our conference call. Joining me on the call today is Harold Beavis, President and CEO of CVG. We'll provide a brief company update as well as commentary regarding our first quarter results, after which we'll open the call for questions. This conference call is being webcast, and a supplemental earnings presentation is available on our website. Both may contain forward-looking statements, including but not limited to expectations for future periods regarding market trends, cost savings initiatives, and new product initiatives, among others. Actual results may differ from anticipated results because of certain risks and uncertainties. These risks and uncertainties may include but are not limited to economic conditions in the markets in which CBG operates, fluctuations in the production volumes of vehicles for which CVG is a supplier, financial covenant compliance and liquidity, risks associated with conducting business in foreign countries and currencies, and other risks as detailed in our SEC filings. I'll now turn the call over to Harold to provide a company update. Harold? Thank you, Chris. Good morning, everyone. On today's call, we'll provide an overview of our first quarter results, followed by an update of our strategic initiatives designed to grow our earnings, while also pushing CEG to deliver more stable results as we strive to reduce the cyclicality of our business and improve our growth outlook. Chris will discuss our financial results in more detail, as well as review our debt refinancing, which will reduce our interest expense beginning in the second quarter, while also freeing us of restricted covenants that precluded us from M&A. We'll then conclude by opening the call and answering your questions. Please turn to page four of our earnings presentation. We delivered record sales for the first quarter of 2021 of $245 million, an increase of 31% as compared to the year ago first quarter. This strong growth was largely driven by workforce automation, where we delivered 41.9 million in sales, representing 22% sequential growth, and remained on track to meet or exceed our full-year goal of $150 million in warehouse automation sales. Our operating income increased to $15.4 million in the first quarter, which compares favorably to a loss of $26.5 million in the first quarter of a year ago. The improvement was largely the result of better volumes combined with our success efforts over the past year. reduce our cost structure, and drive operational efficiencies across the company. Rationalizing and reallocating our cost profile has been a priority of our management team and will provide a benefit as our systems continue to improve. 2020 first quarter did include an impairment chart that did not reoccur. Adjusted EBITDA was 21.19% in the first quarter, representing really a 100% increase as compared to the 11.9% that we delivered in the first quarter of 2020. The improvement was due to higher revenues with an improved retail combined with expense reductions and profit optimization actions that we executed throughout 2020 in which we were very focused on the year ahead. We delivered 26 cents for dilute share in the first quarter compared to a loss 80 cents for dilute share in the first quarter a year ago. As we have been speaking about over the last year, the key element of business transformation strategy is achieving new growth. As we reported last quarter, we achieved 100 million of annual new sales awards in 2020 with approximately 40 new customers, the bulk of which We're in warehouse automation, electric vehicles, and last mile delivery. Our figures, when we speak about new business wins, is the annual revenue amount when the award is fully revoked up. Warehouse automation, new building business, is shorter cycle than awards delivery. So the wins that we see in 2020 are translating to revenues in 2021. Winning a business is a focus of our organization and central to accelerating our sales growth, expanding our profitability, and diversifying our in-market exposure away from legacy long-haul diesel trucks. In the first quarter of 2021, we achieved another net new business win award amount of $100 million, primarily in our growth in market electric vehicles, where we continue to win positions on platforms with new and existing electric vehicle manufacturers. Given that these new businesses are in the electric vehicle sector, it will take several years to ramp up before delivering $100 million in annual revenue. That said, this is improving visibility for the company's revenue profile over the medium term, and new vehicle platforms tend to last a long time and have an aftermarket after that. Turning to slide five, we have an entrepreneurial spirit across our company focused on delivering better value to our customers while also delivering additional business in our data market. We're becoming more innovative, and solutions focused will move us up to that chain of customers. Ultimately, this will lead to improved profitability and reduced cyclicality as we expand in the new markets and diversify our customer base. Recently announced partnership with XOS is a prime example of the value that we can provide to an electric vehicle manufacturer. We are providing an electrical system design solution. We are now helping them ramp from design to prototype to production more quickly. We are an attractive partner because we can provide the design work for electrical systems and then supply the wiring, seats, and other products of the vehicle motion design to prototype to the road. This is the up the value chain as we become an engineering services partner in electrical system infrastructure. Additionally, we are doing this in the last mile market, which is a new space for CDG. We're also having success expanding our intellectual property and manufacturing capabilities into new end markets. We're leveraging our capabilities from commercial business, where we have strong large punch injection capabilities. Given these skill sets and manufacturing capabilities, we are evaluating markets to expand into like equipment, recreational vehicle, complex equipment, given its ability to produce large plastic products for hard-to-create products. We have found one of our differentiators in these markets is our ability to deliver vibrant colors and aesthetics, and it's highly valued in some of these new end markets. As we continue to have success expanding our business in parts on the North American truck market will decline. Turn to page six. As a result, it is important to understand that those markets which are now driving our business. Furthermore, we are shifting our truck mix from first mile diesel trucks to middle market, middle mile and last mile and electric vehicle powertrains. North American truck market, as you can see on this graph, was 36% of our sales first quarter, generally in the first quarter of 2020 level. First quarter demand for Class 8 trucks was near replacement levels at approximately 67,000 units. ACT research is forecasting annual truck with an excess of 300,000 units through 2023, which will be some growth as we pivot our business. A year-term headwind that we're watching closely is the production supply chain. Materials, labor, freight, and supply chains in general, especially logistics from China. This will be a headwind to new truck builds as it is dampening production. The OEM construction market is the second largest market comprising of 8% of our first quarter sales. Business in this end market is relatively balanced across North America, Europe, and Asia. And looking forward, we see a strong quarter, but probably through 2021, what will be supportive of demand, although supply constraints are concerning here as well. Warehouse automation has quickly become our third largest end market and is 17% of our sales in the first quarter. I'll touch on business in just a moment. And lastly, our aftermarket and service business, while not an in-market, is an important component of our business and represents 12% of our first quarter sales. I believe this business is underappreciated as it has grown to nearly $100 million in sales, while providing an annuity-like revenue stream to CDG. Turning to page seven, warehouse automation in-market continues to be a significant growth driver for our company. as we delivered approximately $42 million in sales during the first quarter. The growth in e-commerce is driving the need for additional warehouse automation, handling and sorting, and last-mile delivery vans, where industry expectations are for this entire warehouse automation industry to grow about 14% cager through 2026, or really doubling in size over five years. We've supplied components for these warehouses, including complete work centers. And given this strong market demand, combined with business wins last year, we remain confident in our goal of delivering 159 sales in this year. And additionally, our margins in this business are modestly appreciative and higher than our average. As a result, we expect profit-based benefits as warehouse automation continues to become a larger proportion of our total sales. A new and emerging end market for CPG, electric vehicle in the last mile mark, has outlined JATE. Our competitive advantage resides in the fact that we have a natural value-added product basket that makes it convenient for new vehicle companies to do their work. Importantly, we can design, prototype, and build above-the-products for a vehicle maker, and we have 40 years of global experience doing it. We're currently involved with three, four vehicle platforms globally, which includes both existing customers that are expanding into the EV market as well as new EV market entrants. We have essentially created a portfolio of business plans on electric vehicle platforms that will allow us to participate in the coming transition from diesel to electric vehicles and from first mile to the last mile This is unfolding now and will do so for several years. And turning our new business backlog on slide nine, as I mentioned, we secured another $100 million of new business loans in the first quarter, 93% of which were outside of our legacy truck business. We secured three wins, a new EV market entrance, as well as new products for recreational specialty vehicle makers for plastic parts. It is important to reiterate that the acquisition of our new business awards will determine when those revenues will flow through our P&L. Given that the majority of our wins in the first quarter win the electric vehicle sector, we will not see a peak value of these awards for a few years. In turning to pigs, again, I'm very pleased with the success that we've achieved over the last year as we've made significant progress executing our strategy to transform CDG. This success is a direct function of the concerted efforts we've taken at the global team of 8,000 people. And like many companies, we have dramatically reduced our expenses and transformed our factories for COVID safety last year, which we successfully have negotiated. And we also contributed a portion of our own pay going through it. We've also recruited a talent management team and implemented We've tried to design, reaccelerate organic growth, the expansion into new markets that present CVG with more open-ended growth opportunities. Central to this transformation and our long-term success, the new entrepreneurial spirit and winning culture, which we've created and has caused excitement and energy across our company. While we're only in the very early innings of this, our transformation is taking hold and our aspirations are significant. Looking forward, we'll continue to grow our business wins while maintaining our cross-discipline as we focus on profitability. We'll also continue to move up the value chain as we partner with our customers to provide innovative solutions to solve the most challenging problems. Turning to page 11, our efforts to transform our company are clearly seen as we deliver record sales for the first quarter. very pleased with our team's accomplishments, but even more excited with the many opportunities that are ahead of us. Our growth initiatives are just forming, but we're impacting our financial results already with the rapid expansion that our warehouse automation business is experiencing. We're also implementing a new, important foundation for the future of our vehicle business, significant ones that we've achieved in the electric vehicle sector. and we are participating with over 30 platforms globally at some level, including brand-new customers and brand-new products. These wins will begin to translate to revenues over the next few years, where we expect the thin market to become a more meaningful part of our sales mix. We're also successfully expanding our intellectual property and manufacturing capabilities into adjacent markets like recreational and specialty vehicles, which provides new greenfield markets for CBG. And taken together, we're executing on our plan to accelerate growth, improve our profitability, and reduce cyclicality in our business. Additionally, and as Chris will discuss in more detail, the refinancing of our senior debt not only reduces our annual interest expense immediately, but also frees us up to be more focused with our capital allocation strategy, and we can now consider M&A. We see strategic M&A as an effective way to expand into new experience and have our business transformation. At this take-home, we will discuss that with you in more detail. Now, I would like to turn the call over to Chris for a more detailed review of our financial results. Chris? Thank you, Harold. If you're following along in the presentation, please turn to slide 13. First quarter revenues were $245.1 million, an all-time quarterly sales record, and up 31% compared to $187.1 million in the prior year period. This increase reflects the substantial increase in the warehouse automation business and the North American heavy truck market returning to near-comparable levels to the prior year. On a sequential basis, revenue increased 13.5% over fourth quarter of 2020, revenue of $216 million. Foreign currency translation favorably impacted our first quarter revenues by $4.3 million, or about 2.3% compared to the prior year period. I'd like to spend a moment on our gross margins, which expanded approximately 190 basis points to 12.7% as compared to the first quarter of 2020. This expansion continues to reflect our renewed focus on profitability and our improving business mix. The key drivers of the expansion were volume leverage, business mix, to the warehouse automation end market and operational cost improvement as compared to 2020. The company reported consolidated operating income of $15.4 million for the first quarter of 2021 compared to a loss of $26.5 million in the prior year period. And on an adjusted basis, operating income was $15.8 million compared to $7.1 million in 2020. The improvement was primarily due to higher sales volume and an improved cost structure as a result of our cost actions and improved sales mix. and an impairment that was taken in the prior year ago that did not reoccur in 2021. We achieved adjusted EBITDA of $21.1 million for the first quarter, which was up considerably as compared to $11 million in the prior year first quarter. Adjusted EBITDA margins were 9%, reflecting an improvement of approximately 270 basis points as compared to adjusted EBITDA margin of 6% in the first quarter of 2020. This margin expansion was primarily the flow through from the revenue and cost changes I mentioned earlier. Our first quarter interest expense was 5 million as compared to 4.6 million in the first quarter of 2020. Net income for the quarter was 8.5 million or 26 cents per diluted share as compared to a net loss of 24.6 million in the prior year period or 80 cents per diluted share. Importantly, we were able to refinance our senior debt earlier this week based upon our improved financial performance over the course of 2020. and through the first quarter of 21. This is a significant milestone for CBG, which removes the onerous cost and covenants that existed in our prior debt structure. The details of our refinancing were published on Monday in a press release in 8K. To touch on the highlights on slide 14, our new $275 million senior secured credit facilities includes $150 million term loan A and $125 million revolving credit facility, both with five-year maturities. We used a portion of the proceeds to repay all of the outstanding principal of our term loan B, which was 151.6 million at April 30, 2021, the date of our closing. The interest rate on our outstanding principal is Eurodollar plus 300 basis points compared to the old debt, which had LIBOR plus 1050 basis points on the term loan B. As a result, I expect our quarterly interest expense to be reduced by 3.1 million on a full quarter basis. Additionally, our liquidity expanded as a result of this from $120 million at March 31, 2021 to $154.7 million on a pro forma basis under the new debt facility. Lastly, the new facility includes an accordion feature that provides for an upsizing of the amount available by $75 million with incremental lender commitments subject to financial covenant compliance. As Harold mentioned, this will allow us also to consider M&A opportunities. Our prior debt was onerous, and I could not be more pleased to not only have those covenants and high interest rate removed, but also bring on an outstanding group of bank partners, including B of A, Fifth Third, and PNC Bank. Our bank group is of high quality and will be good partners as we continue to grow CVG. At this point, I'll talk a little bit about our segment results, starting with the electrical systems segment on slide 15. For the first quarter of 2021, the electrical systems revenues were $162.2 million, compared to $112.1 million in the prior year period, an increase of 44.7%. Foreign currency translation favorably impacted first quarter revenues by $1.3 million or 1.2%. The year-over-year sales increase primarily resulted from new business wins and warehouse automation and strength in North American construction and ag markets, as Harold mentioned previously. Our electrical system segment now represents 66% of our total first quarter revenues as we continue to make progress diversifying both our business mix and customers. Turning to operating income in the electrical system segment, they delivered $14.9 million of operating income in the first quarter compared to an operating loss of $17.1 million in the prior year period. The increase was largely due to increased sales and an impairment taken in the prior year period that did not reoccur. Adjusted operating income was $15.1 million in the first quarter compared to $6.3 million in the prior year. Turning over to our global seeding segment on slide 16, global seeding revenues increased to $91.9 million in the first quarter compared to $76 million in the prior year period, an increase of 19.9%. Foreign currency favorably impacted our sales in this segment by $3 million, or about 4% for the quarter. The global seeding segment reported an operating income of $5.5 million, during the first quarter compared to an operating loss of $400,000 in the prior year period. The increase was due to higher sales volume and an impairment taken that did not reoccur. The first quarter of 21 adjusted operating income for this segment was $5.5 million, excluding special charges. This concludes our prepared remarks this morning. I'll now turn the call over to the operator to open up the line for Q&A. Thank you.

Thank you. At this time, ladies and gentlemen, if you want to ask a question, please press star 1 on your telephone keypad. Again, that is not one to ask a question. We'll pause for just a moment to compile the Q&A roster. And your first question will come from the line of Mike Cholesky with Collier Securities. Mike, your line is open. Please proceed with your question.