Q3 2024 Commercial Vehicle Group Inc Earnings Call

In This Article:

Participants

Andy Cheung; Executive Vice President and Chief Financial Officer; Commercial Vehicle Group Inc

James Ray; President, Chief Executive Officer, Director; Commercial Vehicle Group Inc

Joe Gomes; Analyst; NOBLE Capital

John Franzreb; Analyst; Sidoti

Gary Prestopino; Analyst; Barrington Research

Steven L. Martin; Analyst; Slater Capital

Presentation

Operator

Good morning, ladies and gentlemen and welcome to the CVGI third quarter, 2024 earnings conference call. (Operator instruction). This is call being recorded on Tuesday, November 5 2024. I would now like to turn the conference over to Andy Cheung CFO.

Andy Cheung

Thank you, operator and welcome, everyone to our conference call. Joining me on the call today is James Ray, 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 and the Q3 2024 earnings call presentation which we will refer to during this call is available on our website. Both may contain forward-looking savings 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 risk 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 covenant compliance and liquidity with 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 Ray to provide a company update.

James Ray

Thank you, Andy. I'd like to turn your attention to the supplemental earnings presentation starting on slide 3. 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 cap 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 also 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. (Technical problem).
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 head count 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 and efficiencies 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 the slide 4, I want to highlight in detail, some of our key strategic actions taken to improve CV GS 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 of 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 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 GAAP 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 and A through our continuous improvement process aligning our support functions with our revised footprint.
Now moving on to slide 5, 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 systems 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 and 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 Jimenez 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 CVGs 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 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 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 when demand rebounds, driving incremental profitability across CVG 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 Cheung for a more detailed review of our financial results.

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