Commercial Vehicle Group, Inc.

Good morning, ladies and gentlemen, and welcome to the CBGI third quarter 2024 earnings conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, November 5th, 2024. I would now like to turn the conference over to Andy Chung, CFO. Please go ahead.

Thank you, Operator, and welcome everyone to our conference call. Joining me on the call today is James Wei, President and CEO of CVG. This morning, we will provide a brief company update as well as commentary regarding our third quarter 2024 results. After which, we will open the call for questions. As a reminder, this conference call is being webcast in a Q3 2024 earnings call 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 market in which CVG operates, fluctuations in the production volumes of vehicles for which CVG is a supplier, financial confidence, 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 James to provide a company update.

Thank you, Andy. I'd like to turn your attention to the supplemental earnings presentation, starting on slide three. Since taking over as CEO 11 months ago, my focus has been on reshaping CVG's operating model, creating a lower cost and more agile foundation for the company. As is highlighted on the right-hand side of this page, we have taken several strategic steps this year in order to refine our business model and create a more customer-focused company. Specifically, the sale of Finish Tech, our cab structures business, Chillicothe, Ohio facility, and industrial automation segment have streamlined our core capabilities, resulting in a more focused portfolio with an improved cost structure, a heightened focus on operational excellence, and a more deliberate commercial strategy. I will cover the benefits of each transaction in a moment. But we expect these transactions, as well as our restructuring efforts, to create a more streamlined operating model and drive margin expansion as we continue to execute and look to drive future growth, particularly within our electrical systems segment. Not only have these actions accelerated our near-term operating priorities, but they have helped us pay down debt of $13 million to date. We also received an additional $20 million in proceeds associated with our cap structure sale in October. This was the final payment of the $40 million . As I mentioned, we remain focused on a return to growth, and new business wins will play a key role in reaching that goal. We procured another $18 million in new business wins in the third quarter, bringing the year-to-date total new business wins to approximately $95 million across all segments. As a reminder, our estimates of the peak value of new business wins once fully ramped represent a risk-adjusted assessment of our customers' estimate of their ultimate production rates. These programs can often take years to fully ramp, And our customers vary in their ability to predict their peak production rates. Over time, we've gotten more rigorous in vetting those estimates, resulting in the numbers that you're seeing today. Keep in mind that these numbers purely reflect new business added and do not include any current programs winding down or business we voluntarily ended due to profitability reasons. We've also taken action on the headcount front. eliminating approximately 1,200 roles or roughly 15% of our organization's workforce from continuing operations compared to the prior year through both restructuring and ongoing continuous improvement efforts. We believe these actions create a lower cost, more efficient, and agile company positioned for future success. While we expect these portfolio actions to drive future margin expansion and facilitate growth, we are not happy with our third quarter results. They were below internal expectations as our revenues and profitability were impacted by operational inefficiencies related to the strategic portfolio actions, continued softness in our end markets, customer production schedule changes, and elevated launch costs to support new program wins. Andy will cover the details in a few minutes, but the bottom line is, at a time When we are seeing continued weakness in construction and agriculture markets in our electrical segment, we also absorb additional significant facility improvement costs and production inefficiencies ahead of the strategic transactions and vehicle solutions and industrial automation segments. We believe with the strategic actions behind us and the operating model changes we are proactively making, we can navigate fluctuating production schedules more effectively moving forward. If you turn to slide four, I want to highlight in detail some of our key strategic actions taken to improve CVG's operating model. First, we closed the sale of our finished tech business, a hydrographic and paint decorator in January, which was identified as an area where we could streamline our product portfolio to improve our operational focus in the near term. As previously discussed, we also completed the sale of our cap structures business in Kings Mountain, North Carolina. The transaction closed on October 1st. Although there were some incremental costs associated with facility improvement and production inefficiencies ahead of deal closing, the majority of the $40 million in proceeds was used to pay down debt. The transaction aligns with our long-term goals of reducing cyclical classic market exposure and lowering the capital intensity of our vehicle solutions segment. Additionally, the sale of our production facility in Chillicothe, Ohio closed in the third quarter after consolidating the facility's production into other CVG manufacturing locations. This led to some short-term production headwinds as production plans were optimized, but the consolidation will ultimately improve capacity utilization with a lower cost to serve our customers, driving improved margins for the company. You've heard me talk in prior calls about our goal to strengthen our vehicle solutions business. These three transactions are great examples of how we're doing that, simplifying, improving profitability and efficiency, and upgrading our revenue mix. Finally, our most recent strategic portfolio action involves the sale of our industrial automation business. This closed on October 30th. Our industrial automation business has been challenged in recent quarters, So after evaluating different strategic options, we retained an investment banker and sold this non-strategic business, removing its operating losses and allowing our team to focus on our core vehicle business within electrical systems, vehicle solutions, and aftermarket and accessories. While some of these actions have caused short-term financial pressures, we remain confident in the value CVG is poised to create and believe these efforts will bridge the gap between where we are and where we want to be. In addition to reducing complexity, the improved operating model resulting from these actions, we believe will drive accretive growth, accelerate margin expansion, increase our capital efficiency, and ultimately enhance shareholder value. With a more focused portfolio, we also expect to better leverage our SG&A through our continuous improvement process. aligning our support functions with our revised footprint. Now moving on to slide five. I'd like to highlight two exciting leadership additions that we feel will align well with our focus on an improved operating model. First, we're happy to welcome Peter Lugo, our new leader of our electrical system segment. Peter brings a proven track record of driving growth across multiple diverse end markets with over 30 years of relevant experience in electrical systems and industrial products across various industrial market segments. His background positions him well to execute our goal of returning electrical systems to growth and ultimately being the long-term growth engine of our company. Peter's near-term priorities will be to help CVG navigate demand pressures in our construction and agriculture end markets with an eye towards achieving full utilization of our new facilities in Mexico and Morocco. Additionally, we announced the hiring of Carlos Jimenez as Executive Vice President of Global Operations and Supply Chain. Carlos is a respected, experienced executive who will bring a sharp focus on execution into our improved business model. He will be responsible for all aspects of CVG's global operations, including manufacturing, supply chain, procurement, logistics, continuous improvement, and quality. He will also lead the work being done by our Global Operations Council to drive consistency and continuous improvement into our global plans. As part of Carlos's hiring, we are consolidating manufacturing and supply chain under global leadership, elevating those functions from the business units, which should lead to greater sourcing benefits across the company and allowing our business leaders to focus more directly on commercial success. The addition of Peter and Carlos to our senior leadership team further demonstrates our commitment to fundamentally reshaping CVG, setting the tone from the top down as we emphasize operational excellence in all three segments and greater focus on growth within our electrical systems. The efficiency of our supply chain and manufacturing operations will allow us to scale customer production wind demand rebounds, driving incremental profitability across CBG as a whole, while our focus in electrical systems will facilitate margin expansion and reduce cyclicality. These leaders have a proven track record of doing just that, and we look forward to providing an update on the progress we make. With that, I'd like to turn the call back to Andy for a more detailed review of our financial results.

Thank you, James, and good morning, everyone. If you are following along in the presentation, please turn to slide six. Just a quick reminder that as a result of the divestiture of our cap structures business and industrial automation segment, those businesses have been reclassified to discontinued operations. Unless otherwise noted, all financial disclosures and comparisons made today will be focused on continuing operations. Consolidated third quarter 2024 revenue was $171.8 million as compared to $202.9 million in the prior year period. The decrease in revenues is due primarily to lower sales as a result of softening in customer demand in our vehicle solutions and electrical system segments. Adjusted EBITDA was $4.3 million for the third quarter. compared to 12.2 million in the prior year. Adjusted EBITDA margins were 2.5%, down 350 basis points as compared to adjusted EBITDA margins of 6% in the third quarter of 2023. Driven primarily by lower volumes, inflationary impacts, and the operational inefficiencies we experienced across our business. Interest expense was $2.4 million as compared to $2.5 million in the third quarter of 2023. The decrease in interest expense was primarily related to lower average debt balances offset by higher interest rates on variable rate debt during the respective periods. Net loss for the quarter was $0.9 million or a loss of $0.03 per diluted share as compared to a net income of $4.7 million, or $0.14 per diluted share in the prior year. Adjusted net loss for the quarter was $0.4 million, or a loss of $0.01 per diluted share as compared to adjusted net income of $4.7 million, or $0.14 per diluted share in the prior year. Free cash flow from continuing operations for the quarter was $17 million, compared to $11 million in the prior year. The free cash flow generated in the quarter was supported by the first payment of $20 million received from the cap structure sale in September. Operating cash flow in the quarter was weighed down by restructuring charges and the operational inefficiency we experienced. As a reminder, we received the second of the last $20 million of the proceeds from the cap structure sale on October 1st, meaning that the amount is not included in our cash balance as of September 30th. Adjusting our cash balance to include the additional proceeds, our net leverage ratio is currently 2.5 times adjusted trailing 12-month adjusted EBITDA from continuing operations. Moving to segment results beginning on slide seven. Our electrical system segment achieved revenues of $43.4 million, a decrease of 19% as compared to the year-ago quarter, with the decrease resulting primarily from a global softening in the construction and agricultural end markets and the slower realm of new business winds. Despite the revenue decline, we maintain our goal of making electrical systems our largest segment, and we are still focused on growth opportunities. As James mentioned, we have made a senior leadership change to help ignite a return to growth in electrical systems. Despite the ongoing weakness in construction and agricultural markets, we continue to achieve new business wins, putting the company in a position to capitalize when end market demand within construction and agricultural markets rebound. Adjusted operating income was $0.9 million, a decrease of $5 million compared to the third quarter of 2023. Operating income was negatively impacted by lower customer demand and unfavorable foreign exchange impact. Turning to slide eight, Our vehicle solution segment's third quarter revenues decreased 16% to $97.3 million compared to the year-ago quarter, due primarily to lower sales volume as a result of decreased customer demand and the wind-down of certain programs. In addition, we experienced operational inefficiencies related to our plant consolidation as we moved production into new facilities, We continue to be impacted by new program launch costs, and we also conducted some operational remediation investments and faced increased freight costs in the quarter. As a result of these factors, adjusted operating income for the third quarter was $3.8 million, a decrease of $4.5 million compared to the prior year. As mentioned earlier, We have closed on our sales of both our cab structures business and our Chillicothe, Ohio production facility, streamlining our business and notably lightening the capital intensity of our vehicle solution business. We believe the vehicle solutions business is now a more streamlined, less costly, and more profitable business following the sale of our cab structure business and consolidation of production with the sale of our critical fee facility. We remain focused on vehicle solutions as a core business to CVG, and it remains a focal point for our team as we continue to reduce costs, accelerate our operational excellence initiatives, and win new business at high margins. Moving to slide nine. Our aftermarket and accessory segment revenues in the third quarter decreased 8% to $31.1 million compared to the year-ago quarter, primarily resulting from lower sales volume due to a reduction of backlog in the prior year period, as well as decreased customer demand. Adjusted operating income for the third quarter was $3.9 million, a decrease of $0.4 million compared to the prior year. The decrease is primarily attributable to lower sales volumes and operational inefficiencies. Despite the charges taken on operational inefficiency remediation, the aftermarket specific revenue funnel opportunities continue to grow as we focus our efforts on improving order to delivery lead times to drive further customer demand within this business. Moving to our key end market outlooks on slide 10, according to ACT's Class 8 heavy trust bill forecast, 2024 estimates imply a 7% decline year-over-year volumes. ACT forecasts a further decline in 2025, with a 10% drop in bills anticipated. Despite the weakness projected in 2024 and 2025, we expect a strong rebound in bills of almost 25% in 2026 as the industry prepares for an update in emissions regulations in 2027. Moving to construction market outlook. The construction equipment and market is seeing global weakening with volumes anticipated to decline around 10% with continued higher interest rates, weaker housing stocks, and slower commercial real estate activity. Agricultural end markets are facing similar demand headwinds, with current estimates indicating an approximate 15% year-over-year decline. This drop is largely driven by high interest rates and lower commodity prices, which have dampened demand for equipment. Based on the preliminary outlooks we see from our customers for early 2025, both construction and agricultural end markets are looking relatively flat year over year. However, we also remain optimistic about the long-term growth potential of both construction and agricultural end markets as we see ongoing replacement needs and underlying secular trends returning these markets to growth in 2026. Turning to slide 11, I'll share some thoughts on our updated outlook for 2024. Accounting for recent CVG developments, delayed and lower new business wind ramp schedules, prevailing truck build forecast, and continued weakness in construction and agricultural end markets, we are lowering our quantitative annual guidance for revenues and adjusted EBITDA, as well as tightening the respective ranges. Given current demand pressures, coupled with inflationary impacts and operational inefficiencies, we are adjusting our full-year 2024 revenue guidance range to $710 million to $740 million, which is down from $730 to $780 million. We are also lowering our adjusted EBITDA guidance expectations to the range of $20 to $25 million for 2024. which is down from $28 to $36 million. Based on this updated outlook, we expect our full-year 2024 margin performance to be down approximately 320 to 380 basis points compared to 2023. However, importantly, we believe the alignment of our organization and the strategic portfolio actions James highlighted previously position us better for future growth and margin expansion in 2025. We expect our portfolio actions to have the most immediate impact on growth margins, with the opportunity to drive SG&A leverage going forward as we align our support functions to our smaller footprint through our ongoing continual improvement process. That concludes my financial overview. and outlook commentary. I will now turn the call back over to James for some closing thoughts.

Thank you, Andy. Turning to slide 12, I'd like to again reiterate our short-term plan to improve our operating model and build a stronger foundation for CVG as we enter into the fourth quarter and 2025. Within vehicle solutions, we've continued to focus on counteracting inefficiencies associated with customer product launches, And we delivered on the sales of our cap structures business and our Chillicothe production facility sale. As previously communicated, we expect these efforts to result in a more streamlined vehicle solutions business with increased operating leverage moving forward. Within electrical systems, we continue to adapt to weakening construction and agriculture in markets and slower new program ramps by reducing headcount, right-sizing production, in allocating utilization to our lower-cost facilities. Additionally, we are pleased to welcome Peter Lugo as our new electrical systems leader, which I covered in my earlier remarks. Electrical systems growth remains a top priority, and Peter's expertise and background will help us achieve our near-term strategic goals. In total, we expect these actions to mitigate near-term demand pressure and provide an operating model that positions CVG for accelerated growth once these markets recover. Within aftermarket, we remain committed to optimizing our internal processes, including the improvement of seat delivery performance and reduction of lead times. Taking these actions in advance of an improved customer demand environment will position us to capitalize when the market strengthens. We have also made organization-wide changes to drive performance and increase focus across all segments. including the hiring of Carlos Jimenez to improve the efficiency of our supply chain and manufacturing operations. As I mentioned earlier, the addition of a subject matter expert will help strengthen our commercial excellence and further stabilize our operating system. Bringing these actions together, we believe we are well positioned to be able to scale production when customer demand improves, driving incremental profitability with minimal costs added. As we look to 2025 and beyond, we expect these efforts to drive adjusted EBITDA margin improvement directly associated with these collective efforts. With that, I will now turn the call back over to the operator to open up the line for questions. Operator?

Thank you, presenters. And ladies and gentlemen, you will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchstone phone. you will hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press the star, followed by the number two. And if you're using a speakerphone, please lift the handset before pressing any keys. And one moment, please, for your first question. Our first question comes from the line of Joe Gomez of Noble Capital. Your line is now open.

Good morning. Thanks for taking my questions.

Morning, Joe.

So the first one off, I just want to start kind of technical, Andy. Do you have plans to put out the adjusted continue operating results for the first and second quarter so we can make our models from a historical perspective correct?

Yeah, so if you look at our Q3 findings, so you can see that we have made the adjustment for the current quarter as well as year-to-date. So basically, you can always see our first half performance from an adjusted basis for continuing ops. Our team will continue to provide that in Q4. We'll have a full year number, so eventually you should be able to see our run rate.

okay thanks for that and then james you know the portfolio reshaping the restructuring you know that that that was going on before you assumed the ceo role you know so well over a year now um you know how much more of this you know needs to be done in terms of the portfolio reshaping and restructuring and cost optimization? You know, are we at that point now, or is there more still to do?

Yeah, thanks, Joe, for the question. Let me rewind the clock back to before I started. We had initiated the footprint expansion projects in Mexico and Morocco. We also had started a process on our finished tech business. So those were the items that were in flight when I joined as CEO. Obviously, I was on the board prior to that, so I had insight into that. And then in January, we closed, finished check. But we also took a harder, finer look at the balance of the portfolio to determine capital requirements, determine organizational focus and capability for growth, and also the market outlook for the various segments that we were considering. In addition to that, the utilization of our assets. So during the first quarter, we determined that we were going to evaluate the success of the industrial automation launch of their new product innovation that we talked about in Q1. That did not yield the level of demand near term and would require much more investment to bring that to market over time. So at that time, considering the sales funnel and considering the losses that were anticipated, we looked at other strategic alternatives, eventually engaged an investment banker, started processing Q3, and went through multiple bidding efforts, and eventually closed the sale. So from start to finish, that happened since I came in, And when we started the year in initial guidance, we had not comprehended that that transaction would occur this year, nor had we made the decision at that time to actually launch an evaluation process. As far as Kings Mountain, the cap structures business, again in Q1, we had discussions with the major customer there about their forward plans, as well as their volume requirements, as they were coming off an extended work slowdown and stoppage due to strikes as well as other supply chain issues of the customer. During those discussions, we evaluated options for that facility because of the capital requirements in order to meet the future production requirements as well as the long-term outlook for the models that were going to be produced in that facility. We came to an agreement to evaluate what the best option was for that site. So we started that process at the end of Q1, beginning of Q2, eventually signed an asset purchase agreement. We also had an external banker evaluation for the asset itself, considering the revenue stream and the offer and what we sold it for within the range of the banker estimate. So from start to finish, called Q2 to Q3, that was completed. and then in q1 we also evaluated the utilization of our existing plants and with the down year-over-year expectation in class 8 for both 2024 and 2025 we determined that we needed to improve the utilization of some of our underutilized plants and that's when we identified the chile coffee site to move the production to other sites it actually moved to four other plants and we executed the move and the sale in Q3. So they all came together. I would say at this point, Joe, there are no immediate term portfolio adjustments on our horizon. Once we prove ourselves and establish an earnings that meet expectations and we look at our cash and capital allocation, we most likely will be looking at acquisitions, primarily focused in the electrical system space. But from a divestiture enclosure standpoint, we're pretty much at a point where we're in the phase of stability and now reshaping our margin profile going forward. So hopefully that answered your question.

Yes, thank you very much for that. And last one for me, and I'll get back in queue. And if I'm looking at the revised guidance, versus what the first nine months was, it seems to suggest the fourth quarter revenue expectation is somewhere in the 150 to 180 range, but the adjusted EBITDA negative two to three are positive. We're just wondering, you know, why did the seemingly kind of reduced adjusted EBITDA outlook there?

Yeah, so Joe, you can see Q4 historically is the smallest quarter within a year, given the seasonality and the customer shutdown for holidays. So we expect that the volume will be pretty light. So that would be the main driver for our contribution margin. As we continue to see the end market going, so Class 8 is going to have a small production volume forecast for Q4. And then from that point on, it's going to start to gradually binding in 25, as according to ACT. So that's how we see the end of the year. So this is going to be the top demand environment for us. But as James mentioned, we will start to see the benefits of all the restructuring and improvement actions going into 25.

Okay, great. Thank you very much. Thank you.

Thank you so much. And your next question comes from the line of John Francep of Tdoti. Your line is now open.

Good morning, everyone, and thanks for taking the questions. First, I'd like to echo Joe's sentiment that an 8K filing on the readjusted first two quarters numbers would be helpful. So I think he's on point there. Secondly, regarding the second $20 million payment, how much was put down towards debt repayment? And can you give us a sense of what your current interest rate expenses?

Yeah, so the majority of the second payments also used for debt pay down. So, and obviously this is inside the quarter as every week we have fluctuation and up and down, you know, we go over. But right now, everything that we receive, we primarily put it to use for paying down debt. So interest expense, we are similar to the past. We were looking at an average around the mid-single digits, 7% to 8% is our interest expense. So as I mentioned, interest expense is a little higher than a year ago, but overall debt balances have been coming down throughout the year.

Fair enough. Thank you, Andy. And regarding your commentary on the ag and construction market, You suggested that expectations at the customer level is to be flat year over year. I just want to make sure I understand that. Is that flat compared to current levels of volume, if you will, or is that flat based on the total 2024 aggregate kind of a number? Yeah.

So, John, that's a year-over-year comparison. So, it's a total 2024 versus total 2025. So, clearly, there are still a lot of uncertainties out there. There are many data points that we look at and trying to understand the market. It's hard to predict. The customer indication right now is pretty flat. Some sources say that it's going to be slightly increased, and we see some sources saying it's down. So it's still quite volatile here. But overall, at this point, our best prediction is about flat at year over year.

And sticking with that market, in a weakening market, have you seen any increased competitive pressures in that business?

Yes. The competitive pressures haven't changed materially. We have the same set of competitors that are established with some of the legacy customers we have. Given their dynamics as far as capacity utilization, we have seen what I would consider unsolicited quotes into customers, and we get immediate feedback from customers. But I don't see it being an attack on our business. We continuously are looking at margin expansion so we can remain competitive and not lose business. And that describes some of the actions that we've been taking as far as lower cost sites and electrical systems to make sure we don't deteriorate margins while staying price competitive with customers. So I wouldn't say it was anything out of the ordinary, but it's pretty much par for the course.

Understood. And one last question. I'll get back into queue. Regarding the production inefficiencies from relocating from the two facilities, are you behind that process? And if not, when will you be? And I guess lastly, can you quantify the impact that had on gross margins in the third quarter? Thank you.

Yep. So for continuing operations, we are at the tail end of those inefficiencies, bringing in the new leadership, will further accelerate stability and margin expansion at the gross margin level. The divested assets had a pretty large amount of inefficiencies too, but those are closed and behind us, so they're not going to repeat. And we also expect the cost structure improvement with the closed site overall for vehicle solutions will expand margins there. Our focus really is on how we fill the new low-cost capacity in electrical systems and also focus on strategic growth initiatives in electrical systems that will broaden the funnel of opportunities that we're going after. As far as quantifying the impact, the gross margin, and that's primarily where it was with the inefficiencies with freight and overtime and labor, supply chain issues, equipment issues, rigging and moving business and machines. That is in the upper single digits to low double digits millions on the continual operations. So annualized, on an annualized basis. So that's kind of a book in there, a range, and we don't expect the majority of that to repeat.

Okay. Thank you, James. I appreciate you taking my questions.

Sure. Thanks, John.

Thank you so much. And as a reminder, if you would like to ask a question, please press star one. And your next question comes from the line of Gary Prestapino of Barrington Research. Your line is now open.

Good morning, all. Andy, I know you don't have the pro forma numbers for Q1 and Q2 in terms of a full-blown income statement for each quarter, but Can you at least give us an idea, or if you have it, what the revenues were for Q1 and Q2 and the adjusted EBITDA for both quarters, given the divestitures that you've incurred?

Yeah. So, well, so in our Q, so again, you have our first half result. If I would just give you some high-level number, Q1 and Q2 revenues, they are almost the same. So the first half of the year, you can basically speed it into 50-50. That's all about the same for our EBITDA number, adjusted EBITDA number.

So same for adjusted EBITDA as well, right?

That's right. That's right.

Okay. That helps a little bit. In order to model this correctly, we're going to need to get those numbers. That's just how we do things. So I'm going to echo what the other analyst said. Okay, in terms of the new leadership changes, these gentlemen seem to be experts in their fields. You know, how long would you say it would take them to get their imprint on the business in terms of when you can start seeing a turn? Is this a 12-month time frame? Is it a six-month time frame? Just give us an idea, maybe what their priorities are coming in.

Sure, thanks for the question, Gary. I'll take them separately. So we hit in flight, and the operational efficiencies launched several initiatives to bring stability after many of the footprint moves and portfolio changes. So we have a number of initiatives that were already in flight. The operations and supply chain functions were within the business units. So the business unit leaders were focused on growth, customer relations, as well as addressing the operational efficiency. So bringing in Carlos Jimenez, who has proven at various companies in his background transformational acceleration is the main focus and intent. The operations and supply chain functions will be centralized under his leadership so we have a more consistent deployment of operational excellence across our sites and also the tools and the processes, the accountability rhythms are going to be standardized so we have much better visibility focused on leading KPIs versus being reactionary to certain disruptions. So I expect this impact to be immediate as we aspire to have stability this quarter. So when we enter into 2025, our jump platform of more stable operations and ready for margin expansion. So some of the one-time costs won't repeat, improve our cost-out process, get more standardization, and accelerate lean manufacturing processes. So going into Q1, I expect the impact with them coming into the organization to be felt near term. With Peter Lugo in our electrical systems business, This priority is going to be reestablishing our view of where we stand across all the segments we supply into and immediately start to address what our strategic growth initiatives need to be and how they may need to change. I would say since I've been in the role, we have done a really good job of expanding into diverse end markets. Many of our new wins are lower in volume, while increasing the complexity of the customer management of that. And in some cases, we have a share of the business on certain platforms. We win new business as we go into new OEMs. So now that we are in the door, we have to accelerate expansion of share wallet. Peter has a lot of experience in organic growth initiatives as well as M&A. So as we stabilize our earnings profile and we deserve the right to go after M&A, he's got the background and the view of how to do that successfully from an integration standpoint and also optimizing synergies from M&A. And I would expect, again, an immediate impact from him reassessing where we are and launching strategic growth initiatives that we should start winning business in a different profile, maybe even at different scale, but then also focusing on how we take our existing business and fill the capacity in the lower cost locations through some of the launches that are coming up. We have a number of launches that are coming online in 2025 that somewhat mitigate some of the downside we see in the end markets. We had some this year, but the level of the downside really ate up the impact of the launch of new business. And then, importantly, the ramp. So as these programs ramp and we further utilize capacity, it gives us a better view of how we can reshape our quote funnel and really focus on product management and portfolio management with the customers so we have better traction on winning higher volume business at new customers as well as expanding share wallet at existing customers.

Okay. As I read this and what you said, well, first of all, this may have been asked already, but I just want to make sure, are we looking at any more restructuring expenses in Q4 or is this really all behind you?

So, Gary, I would say that it's largely behind us. As James mentioned, portfolio actions are completed. We're obviously constantly adjusting our footprint and our workforce depends on the demand that we are seeing. So, as I mentioned, there's still a lot of uncertainty, and we're not going to stop until we right-size our workforce. But I would also add that in my comment about overall enterprise cost structure, So now that all the strategic actions, portfolio actions are behind us, we are in a position to further optimize, organize ourselves in a better way so that we find more efficiency that will be continuing throughout the rest of the year and hopefully give us a mix up here in 2025 for margin expansion. That's what we are planning on and we are working on right now.

Okay. And then as I read what you've done here with bringing in Carlos Jimenez it seems like you're really taking the operating model refinement for lack of a better word out of the core leadership of each individual business that you have and it's going to be umbrella under what he's going to do is that a correct assumption yes it is Okay, so how will this gentleman operate? I mean, does he come with the team? Do you use existing people? Are his people down at every one of these plants reporting back to him and he's setting up meetings, setting metrics for each of these businesses to hit? How does this all work?

Yeah, it's a... I guess in simple terms, it's going to be a combination of bringing in outside talent to top grade, where we have deficiencies in capability or competency, and also continuing to develop existing resources that have a runway and bandwidth to expand their capability and competency. So that's going to be a combination effort. Some of the operational inefficiencies that we refer to throughout this presentation and also the prior earnings call were expenses related to consultants and subject matter experts that we brought in to help in our operations. They brought some good tools and processes, accountability processes, operating rhythms, that we just need to further refine and deploy consistently across the operations. There will be a direct report from plant managers and supply chain, logistics, et cetera, into Carlos. directly with a service model to the business unit leaders. So the margin profile, the cost savings year over year, the quality and delivery metrics that our customers expect will be the, those will be the requirements that Carlos and his team have to meet and have a plan to meet. And again, this is in an effort to be more customer focused but also just rightfully take what we're entitled to from a margin standpoint. Between leakage and inefficiencies, we're entitled to a much better margin. So he's going to have, as well as a direct reporting to myself, our operating rhythms are going to continue to be daily and weekly cadence until we achieve stability, and then it'll go to weekly to monthly. But we're currently and have been, since the middle of Q3, in a daily operating cadence over things that are going on in the business, trying to get ahead and stay ahead. And this is the next step in maturity in that process with him coming on board. Okay. Thank you very much.

Thank you so much. And your next question comes from the line of Steven Martin of Slater. Your line is now open.

Yeah, guys, you know, I'm so tired of these calls, you know, there isn't one part of your business that is functioning properly and you have the audacity to talk about acquisitions you should be talking about who to sell the company to instead of trying to improve or show that you can improve something you haven't improved anything in three years you've probably had one or two up quarters every quarter i hear about all these initiatives aftermarket was going to be the new panacea and it's nothing. You were restructuring all your contracts and you're still down. You know, electrical systems was going to be the new growth vehicle and the margins are lower and the growth is lower. How do you, with a straight face, look at yourself and address us shareholders and then have the audacity to talk about looking for acquisitions? You can't run your existing business. That's not even a question.

That's just a statement. It's a statement, and I understand that. And if you recall my comments, I said that when we achieve stability and we get to a point where we have margin expansion and beat expectations and we're properly positioned from a capital allocation standpoint, at that time, we will look at potential acquisitions.

Okay, here's the question. When do you expect your first up quarter on an operating profit basis?

We haven't provided guidance at this point, but I would expect in 2025, and what I aspire to be, is before the first half is done. And if everything comes into play like we planned, I expect it in the first half.

Okay, I hope so, because the stock can't go much lower. Thank you. Thank you. Thank you, Steve.

Thank you so much. And again, if you would like to ask a question, please press star 1.

Okay, I think we're ready to close the call. I want to thank everyone for joining today's call. We appreciate your feedback, your insight, your perspective, and your curiosity as to how things are going to continue to move forward. While we're not satisfied with our recent performance, we're taking necessary actions, as we talked about in the call, to enable CVG to be a growing, more profitable business going forward. We also look forward to reshaping CVG to be a better partner of choice for our customers, and very importantly, be the best choice for our investors and shareholders as we continue to improve this business model and our performance. So thanks again. Appreciate your engagement, and we look forward to keeping you up to date on the progress we make. Have a good day.

Thank you, presenters, and thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participation, and you may now disconnect. Have a great day.

Thank you.