Commercial Vehicle Group, Inc.

Good morning, ladies and gentlemen, and welcome to CVG's Third Quarter 2022 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions 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. Andy Chung, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, operator, and welcome everyone to our conference call. I'm very excited to join the CVG team and participate in my first earnings call with the company. Joining me on the call today is Harold Beefers, President and CEO of CVG. This morning, we'll provide a brief company update as well as commentary regarding our third quarter 2022 results. After which, we'll open the call for questions. As a reminder, This conference call is being webcast and a supplemental earnings presentation is available on our website, which we will refer to during the call. Both may contain forward-looking statements, including, but not limited to, expectations for future periods regarding market trends, cost-saving 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 not limited to economic conditions in the market in which CVG 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 will now turn the call over to Harold to provide a company update.

Thank you, Andy, and a sincere welcome to the team. And good morning, everyone. I will be referring to our earnings presentation, which is found on our website. So if you could locate that document, it would be helpful in the dialogue this morning. CBG delivered solid results in the third quarter across key metrics, and we continue to build strong momentum in our business transformation. And as part of this transformation and as a result of the new wins over the past several years, CVG is positioning itself as a leading global electric systems supplier, and we remain on track for electrical systems to become our largest product line. As we have outlined in previous calls, this shift will prove to be accretive to our organic growth and profitability, all while reducing the cyclicality and historical customer concentration of our business. If you could turn to slide... Q3 earnings presentation, you'll see that our business transformation efforts are gaining traction, with sales growth of nearly 5% in the quarter, driven by our pricing efforts with key customers this year, as well as the impact of our new business wins. A year-to-date business wins are tracking above $150 million on an annualized basis, including $39 million of new wins in the third quarter. We're also continuing to push for additional pricing with customers where necessary to both cover inflation and earn a fair return for our value add. Free cash flow generation was strong in the quarter, as expected, and our efforts to transform our cost structure remain ahead of schedule, which will further improve our competitive positioning. This includes investments in new low-cost facilities in low-cost countries, as well as next-generation manufacturing processes. Furthermore, with the relief we're seeing in steel pricing and freight costs, we believe inflation pressures for CBG may have peaked. We are on track with the first phase of our vertical integration and regionalization plan. We will eliminate approximately 50% of our ocean freight from China to North America in early 2023 by switching from sourcing certain components from China to producing those same components in-house in Mexico. This will further reduce our working capital, increase our cash flow, lower our costs, and improve our service competitiveness. Turning to slide four, you will see the initial evidence of the second half improvement that we discussed during last quarter's call. We drove sequential improvement across key metrics due to improved pricing, continued cost restructuring efforts, and the impact of new business wins. We also continue to make progress returning working capital back to pre-COVID levels, helping boost our free cash flow generation of $34 million in the quarter, supporting the company's strategic initiative to self fund its growth and pay down our debt. We expect to hit the high end of our debt pay down rage for the full year and expect to fully pay off our revolver during the fourth quarter. In fact, it's almost paid off as of today. Despite ongoing supply chain pressures, especially in semiconductors, and transitory demand headwinds within our warehouse automation segment, we're on pace to deliver a record sales year. Moving to slide five, our team continues to do a great job winning targeted new business, and particularly within the electrical systems segment. And year-to-date, we've secured over 30 new customers for our company, worth $143 million in annualized revenue when fully ramped up. And looking to the balance of the fiscal year, our new business pipeline is robust and remain on track to achieve greater than $150 million of new annualized business wins. Ending the third quarter, our pipeline of new business stood at approximately $5 billion in and platform value and spans electric vehicles, earth moving equipment, heavy and medium duty trucks, as well as emerging opportunities in commercial aerospace and defense. This visibility to potential future business wins and continued momentum for our business transformation efforts. As highlighted on page six, if you could turn to that page, we are well on our way to making electric systems our largest product line for CVG as I've mentioned previously and today. And simply layer in the contribution of our new business once on top of our current revenue base gives a picture of the expected shift in business mix. And as a reminder, our electric system segment generates much higher OI margins than the other segments of CVG, making for a powerful profit growth story in the coming years. We remain focused on becoming a leader in electrification systems across commercial vehicles, passenger vehicles, material handling equipment, earth moving equipment, and power sports. And we're also making strong initial progress, as mentioned, entering brand new markets for us, like aerospace and defense. On slide seven, we lay out an update for our e-commerce aftermarket business. We've spent a little bit of time getting the business ready for launch and getting the product lines ready, getting the software platform ready, getting our production and logistics capabilities ready. We expect to go live in early 2023, with aftermarket seats in North America being the first product to launch. We will follow that up with launches in wipers, mirrors, and road sensors. We will also design and trial new aftermarket seats on multiple platforms, including our first ever super comfortable low-profile suspension seats for top-selling pickup trucks and four-wheel drive vehicles. It will be a first for us. Looking to 24 and beyond, we expect to expand our platform geographically and continue to broaden our seating products to include delivery vans, school buses, construction equipment, and tractors, while also expanding our North American footprint. Turning to slide 8, we're reiterating here our key initiatives to drive value for shareholders. We have a dual approach to optimizing our core business with proper pricing and aggressive cost reduction, and we continue to make substantial progress on both fronts, and we'll continue to advance our new business endeavors and use our free cash flow to pay down our debt and fund growth. Turning to slide nine, CVG is executing against its long-term goals and business transformation plan, and we are determined to improve or exit underperforming segments of our business and replace it with new business and strengthen our balance sheet. We believe we are on track to reduce the cyclicality of our business as we expand in secular growth industries, and we are reaffirming our long-term targets of delivering $1.9 billion in sales and approximately 8.5% adjusted OI margins. Turning to page 10, while we're proud of the progress we're making in our year-to-date performance, inflation... and FX rates continue to mask our results. With that being said, we expect inflationary pressures to cool and our vertical integration plans to kick in, and we expect that CVG will experience less inflation-based profit compression in 2023. CVG continues to win in electric vehicle markets, and those wins are fundamentally transforming our top line and our margin outlook. And as we look to the fourth quarter and into 23, we're confident that the momentum we have built, particularly as it relates to price, cost structure, base demand, verticalization, and new business wins, will further position us for further growth and profitability improvements. Now I'd like to turn the call back to Andy for a more detailed review of our financial results. Andy?