Commercial Vehicle Group, Inc.

Good morning, ladies and gentlemen, and welcome to CVG's first quarter 23-3 earnings conference call. During today's presentation, all parties will be in listening 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 conference over to Mr. Andy Cheng, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you operator and welcome everyone to our conference call. Joining me on the call today is Harold Beavis, President and CEO of CVG. This morning we will provide a brief company update as well as commentary regarding our first quarter 2023 results, after which we will open the call for questions. As a reminder, this conference call is being webcast and a supplemental earnings presentation is available on our website. Both may contain forward-looking statements including or 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 are not limited to economic conditions in the market in which CVG operates. fluctuations in the production volumes of vehicles for which CBG is a supplier, financial governance compliance and liquidity, risks associated with conducting business in foreign countries and currencies, and other risks are detailed in our SDC file. I will now turn the call over to Harold to provide a company update.

Thank you, Andy, and good morning, everyone. I want to apologize in advance as I have a small cold. And I might cough a few times, and I also want you to know I sound worse than I am, but we're very happy to be speaking this morning, and as is our usual format, we'll be referring to an earnings presentation, which is found on our website. While you locate that, I wanted to say a few opening comments. Our business performance in the first quarter was strong and consistent with the qualitative comments we made in the earnings call. the last earnings call. We delivered record quarterly sales up over 7% year-over-year through a combination of increased volumes, the contribution of new business ramp-ups, and price increases flowing through. Profitability was meaningfully improved as well due to better price-cost spread realized in the quarter. In addition to strong financial performance this quarter, We continue to deliver significant business growth for the future, adding approximately 85 million in additional new wins at full annual value. A record amount of new business awards for a single quarter. And we are revising our 2023 100 million new wins guidance to 150 million of new wins. 90% of the first quarter wins were in our electric systems business. and 90% of the wins are on electric vehicles, including vans, trucks, and other non-Class 8 vehicles. We continue to win globally with new customers and new products, diversifying our customer base and further upgrading our revenue mix toward electrical systems. During the quarter, we made progress on working capital through a focus on receivables and inventory. We have almost completely worked down our built-up COVID insurance layers and we are back to more historical working capital levels as a percentage of sales. COVID is behind us as far as material supply chains are concerned, and our net debt leverage is back to two times and headed into the worms this year. On the customer front, we're all about customer satisfaction, and we had a good quarter on that front. Across all of our products globally, and especially in the new area of electrical systems. We're working on many electric vehicle platforms globally. We broke into the China market in Q1 with an electric vehicle customer who will be our anchor partner for a new high voltage electrical system. Our customers are satisfied and we are working with many of them globally to advance their electric vehicle platforms and we're proud to be doing so. Our growth, profitability, and cash flow strategies are working, and we are looking to accelerate our efforts and cash flow strategies this year. We're transforming our revenue mix organically by expanding our market share with new customers and getting onto new vehicle platforms, both internal combustion engine power trains and electric vehicle power trains. We're transforming our cost profile organically as well by automating processes, moving to low-cost countries, and lowering our cost of quality. We believe that we are delivering best-in-class quality and service to our customers. With the progress we've made in our strategy, we also believe that we are on track to deliver against our long-term sales goal commitment of $1.5 billion in 2027. Our current revenue run rate, combined with the ramp-up of our cumulative $500 million in new annualized wins, since the start of this program three years ago gives us improved line of sight to that target already. And we intend to win another $500 million in new business between now and the end of 27. We also are making meaningful progress towards our long-term EBITDA goal of 9% in 27. We have caught up on price-cost, and we continue to ramp up our $30 million per year of cost-out program to protect our margins and offset new wage wage inflation that we're still seeing. We expect additional accretive margin flow from our new business ones as well and it will drive us towards our 27 target of 9%. Our 23 outlook continues to be positive. Our quarterly sales and EBITDA margins through the year should look very similar to Q1 with the possibility of a minor slowdown in top line in the fourth quarter which is tied to lower industry truck bill forecast. A new business win rate is on track for $150 million a year. The year is off to a strong start, maybe even an inflection point for us, and our best performance is ahead of us. And CVG's future is very bright. We're already reporting out at a $1 billion revenue run rate, while still ramping up many of our new wins. Our profit rates are already improved, and we plan to maintain them and grow them with an aggressive cost out program, price maintenance program, and a continued mix shift. Q2 is now underway and on track. The timing and amount of new wins in the first quarter centered in our electrical systems gives us further confidence regarding the outlook for 2023. And for what it's worth, we're also at record employment and added over 600 people in the first quarter alone. We're off and running as a company, and one of our core values is to have fun while we work, and we're absolutely having a blast. Now I'd like to turn to the investor deck, starting with page one, please. Our team delivered strong results in the first quarter, highlighted by record levels of revenue and profitability levels that were in line with our long-term targets. As is outlined on the slide, we delivered net sales of $263 million, which is up 7.5% year-over-year, and adjusted EBITDA of almost $20 million, which is up 47% year-over-year. This results in an adjusted EBITDA margin of 7.5%, putting us on track to hit our long-term target of 9%. As we continue to win new business, optimize our costs, and improve profitability. As I mentioned earlier, we had a very strong quarter for new business wins. Furthermore, we continue to see the realization of our pricing efforts, and we are delivering on our 30-plus million cost-out plan at the same time. Turning to page four, our team continued to execute our strategy during the quarter, and as I already mentioned, we're making significant progress towards transforming our revenue mix through the success of our electric systems, new business winds, and we're committed to driving costs out as well to improve profitability as we go. We have good visibility to the remaining of 2023, and we fully expect to accelerate our efforts, positioning us further along our growth trajectory. Our revenue run rate is already reporting at $1 billion, and we're underway with ramping up another $350 million in new wins of the past few years. The impacts of our strategy execution were evident in our first quarter, and our EBITDA margin shows it. We're on track to hit our 9% margin target for 2027. We continue to win new business in electrical systems, and it's a key focus for us. We set a record for wins in the quarter, and as I mentioned, we're increasing our guidance to $150 million for this year. Combined, we've already won over half a billion dollars in cumulative new revenue across 300 new vehicle platforms, and a few other industrial platforms. Finally, we continue to optimize our ongoing business and we will continue to address non-profitable business areas. We are delivering on our cost-out plans and we expect to reduce our debt leverage further in the coming quarters. Turning to page five, similar to the comments from the last quarter, our demand and market outlook is promising for the remainder of the year. Supported by healthy forecasts across our key end markets on this slide, we are increasingly confident in our positive 2023 outlook. Also, our large public customers are reporting strong year-to-date results, healthy order books, and are expecting continued momentum and growth across end markets this year. These trends and results give us confidence that we're well positioned to participate in the growing demand from our customers and the industry, and that we will build on the record level of revenues and new business wins we're achieving. And of course, we're doubling down on normal market growth via our new wins program and business growth on top of this market growth. These are additives. Turning to page six, Our business wins continue to cumulatively increase, and so does the contribution by year. This chart shows an increase in expected contribution from new business in hand versus our last update. During the quarter, 90% of our new business wins were within electrical systems business, and more specifically tied to electric vehicle production. Notable wins during the quarter included a contract to manufacture electrical system for an electric delivery van in North America, and a contract to manufacture electric systems for an electric vehicle in China. These are important for us, and especially the China wind will act as an anchor customer for us as we expand our electric systems manufacturing operations in China, and we have already ordered the equipment to do so. Turning to page seven, as we have highlighted in previous quarters, CVG stands to benefit and is participating in the secular transition of ICE power trains to electric vehicles. Our secret sauce in this space continues to be proprietary manufacturing software to make and test our products quickly and efficiently. Our speed, nimbleness, and process engineering sets us apart from our competitors and is a key contributor during new business prospecting. This methodology and successful business prospecting has allowed us to move quickly and accurately and secure creative new business and electric systems. We're continuing to target low to medium volumes, which we believe allows us to achieve a better margin profile. In terms of our targeted customer base, CVG targets customers with large total addressable markets within the commercial vehicle space. companies that service both electric vehicle and ice propulsion systems across a variety of geographic markets. We are looking to replicate our North American business model globally, and as previously mentioned, we are adding a new plan for European production in Morocco, and we will cover these expansion projects in a moment. Please turn the page to slide eight. As we've discussed previously, CVG has a large-scale global capacity expansion program underway, bringing on a significant amount of state-of-the-art capacity in electric systems in multiple markets at the same time. This is made possible due to our record-breaking pace of new business wins, and highlighted here on page 8 are the three expansion projects that are underway right now. and expected to be ramped up and making electric system products before year-end 2023. These new facilities are in low-cost country locations that are close to end markets and our customers and also provide a springboard to enable a higher continued rate of additive new winds. All these projects are on schedule. We are being aggressive but measured in our approach to adding capacity. Returning to page 9, as you can see, our strategic focus on reducing cyclicality, expanding our customer roster, and increasing our exposure to secular growth trends is paying off. We've reduced our exposure to Class A trucks, we've grown our revenue share of electric systems, and we've reduced the weight of large customers in our mix. Our strategic focus here, as well as our continued strong pace of new wins, will shift the mix even further in our favor of 527. As a reminder, the mix shift brings a more attractive growth, margin, and return on invested capital profile for CVG. Turning to page 10, CVG is fully committed to driving shareholder value in both the short term and long term, and we are delivering improved profitability in our ongoing business. and we are improving our exiting unprofitable or risky business. We'll continue driving our cost and allocating our capital and resources to support strategic growth opportunities. The work we've done to reposition our portfolio is evident in today's results, and we look forward to continued execution of our strategic priorities. We're deepening our exposure to the secular trend in electrification and automation, increasingly winning new business, which improves our growth outlook, diversifies our customer base, and reduces the cyclicality of our business. We expect to generate meaningful cash flow, which will further fund our growth, drive debt pay down, and allow for strategic acquisitions and increase our exposure to this powerful trend. Turning to page 11. We are highlighting where we are relative to our long-term commitments we've made to you. On our last call, we told you that we were set up to win and make money in 23 and deliver a year of record revenue, higher EBITDA, and continued free cash flow and debt pay down. After the first quarter, we're even more confident in these statements and we're more confident in our ability to achieve our long-term targets. These 2027 targets are well within our reach. and we just need to continue doing what we're already doing. In addition to our expected $150 million in new wins this year, we're still targeting at least $100 million in new wins each successive year, concentrated within intellectual systems. We expect these wins to diversify our product portfolio, our customer base, and drive growth and profitability. We expect strong cash flow, which combined with our disciplined approach to working capital, will be prioritized for additional debt pay down and to potentially fund Bolton M&A. Our business transformation remains on track, and we are increasingly confident in delivering against our committed goals of $101.5 billion of revenue and 9% EBITDA margins. Turning to page 12, and before I turn the call back over to Andy, I'll just quickly update you on how we are envisioning 2023 playing out compared to 2022. We expect 2023 to be our third record revenue year in a row on the back of steady vehicle demand as forecasted by ACT and FDR, higher pricing, and new business revenue. We expect both gross margin and EBITDA improvement with pricing ahead of inflation, new business ramp-ups, and additional cost out. The cash flow generated will drive down our leverage ratios through further debt pay down in addition to higher EBITDA levels. We expect to secure $150 million in new business wins this year, and we are seeing the vast majority of our wins in electric systems remain on track to hit our $30 million of cost out target for this year, and we have reduced our exposure to large startup costs in the vehicle solutions business. We will exit 2023 in a better financial position than we entered it with a strong future outlook and a strong balance sheet that provides optionality to drive additional growth. With that, I'd like to turn the call back over to Andy as he gives you a more detailed review of our financial results and I get a new cough drop. Andy, I'd like to turn it over to you.