Commercial Vehicle Group, Inc.

Good morning, ladies and gentlemen, and welcome to CDG's second quarter 2023 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. And I would now like to turn the call over to Mr. Andy Chung, Chief Financial Officer. Please go ahead.

Thank you, Operators. and welcome everyone to our conference call. Joining me on the call today is Bob Griffin, chairman of the board and interim president and CEO of CVG. This morning, we will provide a brief company update as well as complimentary regarding our second 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, which we will refer to during this call, is available on our website. 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 are not limited to, economic conditions in the markets in which CVG operates fluctuations in the production volumes of vehicles for which CVG is a supplier, financial covenant compliance and liquidity, risk 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 Bob to provide a company update.

Thank you, Andy, and good morning everyone. I would like to begin today's call by thanking and celebrating Our CVG team members across the company for their commitment to delivering our strategic initiatives during the quarter. These efforts have helped grow and diversify our revenue streams, optimize our cost structure through process automation and cost reduction, and increase our margins to become a bigger, more profitable company. As we enter the next chapter for CVG, I know I can speak for myself and the board when I say that we are excited about CVG's future supported by the strength and depth of our organization and leadership teams. Our team successfully accelerated our commitment to the company's strategic goals, which drove significantly improved financial results year over year. We will continue to focus on price and cost and believe our strong revenue and margin performance will continue to show meaningful expansion versus the prior year for the second half of 2023, based on the current market outlook. Andy and I will cover this in more detail. We have a solid balance sheet, winning new businesses fully embedded in our company's culture, and we have a strong leadership team, positioning us well to achieve our longer-term 2027 revenue and margin targets. Before turning to our second quarter results, I'd like to provide a brief update on our ongoing CEO search. The Board is following a very thorough vetting and selection process, and currently we have retained a leading independent search firm to assist with this work. We're eager to find the right leader who will continue to drive our business strategy and culture. The Board and I look forward to sharing more with you as the search process evolves, and we will continue working with the management team to ensure a seamless transition with no disruption to our accelerating momentum. Now I'd like to turn your attention to the supplemental earnings presentations starting on slide three. Once again, our team delivered strong results in the second quarter, highlighted by net sales of $262 million, which is up 4.5 percent year over year. and adjusted EBITDA of approximately $21 million, which is up 68% year-over-year. This results in an adjusted EBITDA margin of 7.9%, again, putting us on track to hit our long-term target of 9% as we continue to win new business, optimize costs, and improve profitability. The strong revenue and margin performance helped drive 32 cents of adjusted earnings per share in the quarter, a substantial improvement over the prior year. We are also pleased with CVG's addition to the Russell 2000 Index in June as we look to expand our reach within the investment community. Turning to slide four, as I already alluded to in my opening comments, our team continued our profitable growth strategy during the quarter. We continued to win new business. with year-to-date new business awards totaling $124 million. These wins tend to be lumpy throughout the year due to customer demand. However, based on our progress this year, we remain confident in achieving our goal of $150 million of new business wins in 2023. These wins continue driving the transformation in our revenue mix toward new customers and platforms. As you've heard from us many times, electrical systems is a key growth focus area for CVG. And throughout this transformation process, we've remained focused on delivering best-in-class quality and service to our customers. We continue to drive price realization and cost reduction efforts, which have placed us firmly on track to deliver improved profitability this year. We are also heavily focused on optimizing working capital, increasing cash flows, and paying down our debt, and we expect our debt leverage to decrease further in the coming quarters. Turning to slide five, in line with our comments from last quarter, our demand and market outlook remain positive for the balance of this year, supported by forecasts across our key markets. ACT and FTR continue to project a strong build year for both Class A truck builds, up between 3 and 8 percent in 2023, forecasts that have been echoed recently by the OEMs. For the North American Class 8 truck market, the second half of 2023 is projected to be softer year over year, namely in Q4 based on current forecasts. As new business winds continue to shift our mix away from the heavy-duty truck market, we expect the cyclicality of this market to have less of an impact on our future financial results. For medium duty trucks, forecasts call for a 7% increase in 2023, but still see backlog to build ratios at two times historical rates. We also see a long runway for continued growth in connectivity systems and electric vehicles, a key driver to our new business wins outlook. We also see attractive commercial vehicle aftermarket growth of 4% per year in the near future. And after a slight retracement in 2023, we see strong growth for the global earth moving market as well. Turning to slide six, we continue to drive new business wins and their cumulative contribution increases by year. This chart shows the increase in expected annual contribution from our new wins in hand. Year to date, we've added 124 million in new wins with approximately 80% of these wins within our electrical systems business and more specifically tied to electric vehicle production. We continue to win business globally across both ICE and EV markets, adding new customers and product types to our mix. We recently achieved several important wins in Europe with both ICE and EV auto manufacturers, and new wins continue to remain a key component of our culture here at CVG. Turning to slide seven, As we highlighted last quarter, CVG's global capacity expansion program continues to support our electrical systems business in multiple geographic markets, led by the three projects highlighted on this slide. We are excited to report that we held our grand opening at our Mexico facility in July, and production is now underway. Our expansion project in Tangiers, Morocco, just completed customer audits and will ramp up production in Q3. These expansions greatly benefit our effort to further grow our electrical systems business globally. As highlighted on slide eight, our efforts to strategically reposition the business are paying off. We have continued to reduce our exposure to Class A trucks, grow our revenue share of electrical systems, and reduce the weight of large customers in our mix. Given the acceleration of our strategy, we expect this mix will further transform in our favor as we approach 2027, directly benefiting our profitability and ROIC profile. At our current win and ramp-up rate, we expect electrical systems to increase to approximately 40 percent of revenue by 2027. This business transformation will make CVG a bigger, stronger, more profitable company in the coming years. Turning to slide nine. We believe we have the right strategy in place to continue driving shareholder value creation. CVG remains fully committed to our strategy to increase profits, increase free cash flow, and ultimately expand and invest in our capabilities going forward. While we are committed to growing our exposure to the secular electrification trend, we have a strong portfolio of businesses highlighted by a diverse customer base and decreasing cyclicality. We expect this portfolio to generate strong cash flow over the coming years, and we expect to maintain a balanced capital allocation approach to reinvest in our business to drive growth, pay down debt, and pursue attractive inorganic growth opportunities with a goal of driving increased shareholder value. On slide 10, we reiterate our long-term revenue and profitability targets. The first half of 2023 has been a very solid and we continue to expect a year of record revenue, higher EBITDA, and continued free cash flow and debt pay down. Given this year's expected performance, we have even more confidence in our ability to achieve our long-term targets. Winning new business is part of our culture here at CVG and will be the key driver of hitting our 2027 targets. These new wins continue to diversify our product portfolio and our customer base while simultaneously improving our growth and profitability. The progress we have made thus far on wins puts us on pace to hit $1.5 billion in revenue in 2027. And as you can see, our first half EBITDA margin run rate of 7.7% continues to close in on our 9% target for 2027. We expect strong cash flow over the next few years, which combined with our disciplined approach to working capital will be prioritized to fund both organic growth and additional debt pay down and to potentially fund bolt-on M&A. Turning to slide 11, before I turn the call back over to Andy, I'll just provide a few thoughts on the rest of 2023. Similar to our comments last quarter, we continue to expect 2023 to be our third record revenue year in a row even when factoring in a modest slowdown in second half truck builds forecast by ACT and FTR. We expect to continue to show significant expansion year-over-year with pricing benefits, new business ramps, and cost-outs. We're pleased with margins in the first half, and as we move to the second half of the year, believe that there will be a limited impact on margins as a result of the slightly lower volumes. The cash flow generated will drive down leverage ratios through further debt pay down in addition to the higher EBITDA levels. We continue to generate strong new business winds focused primarily in electrical systems, which will continue to drive future growth in revenue and profits. Our cost reduction program remains on target for the year. We're on track to exit 2023 in a solid financial position. with a strong future outlook and balance sheet that provides us the optionality to drive additional growth. And with that, I'd like to turn the call back to Andy for a more detailed review of our financial results.