Q4 2023 Commercial Vehicle Group Inc Earnings Call

Operator: Good morning, ladies and gentlemen, and welcome to CVG's fourth quarter and full year 20... Hoonings Conference Call. During today's presentation, all parties will be in the listen-only mode.

Good morning, ladies and gentlemen, and welcome to C. D G 's fourth quarter and full year 2023 earnings conference call.

During todays presentation all.

All parties will be in a listen only mode.

Operator: 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 Cheung, Chief Financial Officer. Please go ahead.

Following the presentation. The conference will be opened 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 Zhang Chief Financial Officer. Please go ahead Sir.

Andy Cheung: Thank you, operator, and welcome everyone to our conference call. Joining me on the call today is James Wei, President and CEO of CVS. This morning, we will provide a brief company update as well as commentary regarding our fourth quarter and full year 2023 results. After that, we will open the call for questions. As a reminder, this conference call is being webcast in a Q4 2023 earnings call presentation, which we will refer to during this call. It's available on our website.

Thank you operator, and welcome everyone to our conference call joining me on the call today is James way, President and CEO of CPG.

Morning will provide a brief company update as well as commentary regarding our fourth quarter and full year 2023 results.

After which we will open the call for questions.

As a reminder, this conference call is being webcast and a Q4 2023 earnings call presentation, which we will refer to during this call is available on our website.

Andy Cheung: 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. However, 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, and fractures in the production volumes of vehicles for which CVG is a supplier. Financial confidence, compliance, and equity, risks associated with conducting business in foreign countries and currently, and other risks as detailed in our FEC file. I will now turn the call over to James to provide a company update. Thank you, Andy, and good morning, everyone.

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.

Risks and uncertainties may include but are not limited to economic conditions in the markets in which <unk> operates.

Fluctuations in the production volumes of vehicles for which <unk> 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 and good morning, everyone. It is an absolute pleasure to be joining you on my first earnings call as president and CEO of CV G. Having.

James Wei: It is an absolute pleasure to be joining you on my first earnings call as president and CEO of CVG. Having served on the Board of Directors since 2020, I've had the opportunity to witness the strength of CVG's business fundamentals, the transformative strategy in place, and the remarkable growth potential in this organization. We have a great strategy, great people, and great customers. I was appointed President and CEO in December of 2023. And there was a lot of good progress already underway under the leadership of our Chairman and Interim CEO, Bob Griffin. I want to thank Bob for all his efforts in the months prior to my appointment as President and CEO. As this is the first time I'm speaking to the majority of you, I apologize...

Having served on the board of directors since 2020.

We have the opportunity to witness the strength of <unk> business fundamentals, the transformative strategy in place and the remarkable growth potential in this organization, we have great strategy, great people and great customers I was appointed President and CEO December of 2023.

There was a lot of good progress already underway from the leadership of our chairman and interim CEO, Bob Griffin I wanted to thank Bob for all his efforts in the months prior to my appointment as President and CEO.

This is the first time speaking to the majority of U S.

James Wei: I'd like to offer a bit of my perspective on the opportunity I see ahead for CBG. I'm sure you're curious about what will change with me as CEO, and to be clear, my aim is not to change our strategy but rather to enhance it. In my role as a board member, I saw firsthand the hard work and planning that went into developing our transformation strategy.

I'd like to offer a bit of my perspective on the opportunities I see ahead for CPG.

Im sure Youre curious what will change with me as CEO and to be clear. My aim is not to change our strategy, but rather to enhance it.

My role as a board member I saw firsthand the hard work and planning that went into developing our transformation strategy.

James Wei: We think we are seeing the early benefits of that transformation as our new business wins drive top-line growth and margin, even as we see a downturn in Class A truck sales. And this improved profitability is leading to reduced leverage and a healthier balance. Additionally, we have provided our outlook for the full year 2024. More on this later.

We think we are seeing the early benefits of that transformation as our new business wins drive top line growth and margin improvement even as we see a downturn in the class a truck builds and this improved profitability is leading to reduced leverage and the healthier balance sheet.

Additionally, we have provided our outlook for the full year 2020 for more on this later.

James Wei: My goal is to best equip our teams to continue driving this transformation and to make sure we have the right culture in place to enable our teammates to drive us forward every day. In order to build and maintain this growth-focused culture, we need to do three key things.

My goal is to best equip our teams to continue driving this transformation and to make sure. We have the right culture in place to enable our teammates to drive us forward every day.

In order to build and maintain this growth focused culture, we need to do three things.

James Wei: Developing and rewarding our employees, 2, excite our customers, and 3, deliver results to increase our value to shareholders. Fundamentally, it's all about people, processes, and capabilities. My goal as CEO will be to make sure we are developing all three aspects through strong teamwork, continuous improvement, and building capability. I am incredibly excited about the opportunity ahead of us at CBG.

<unk> developed and reward our employees to excite our customers and three deliver results to increase our value to shareholders fundamentally it's all about people processes and capability my goal as CEO will be to make sure. We are developing all three aspects through strong team.

Work continuous improvement and building capability.

I'm incredibly excited about that opportunity ahead of us at CPG.

James Wei: Before turning to the details of the quarter, I want to highlight that Bill Johnson was elected to the Board of Directors in December. He brings a wealth of operating experience and expertise across a variety of business areas, including his current role as CEO and a board member of the Board of Directors of Avail Infrastructure Solutions. Bill also served as President and CEO of WellBuilt from October 2018 to July 2022 and as the President and CEO and COO of Chart Industries from July 16 through June 2018. He possesses over 30 years of global experience, and we're excited to have Bill join our board. I have no doubt CVG will benefit from his skills and perspective.

Before turning to the details of the quarter I want to highlight the Bill Johnson was elected to the board of directors in December <unk>.

Brings a wealth of operating experience and expertise across a variety of business areas, including his current role as CEO and a board member of the board of directors of avail infrastructure solutions.

We will also served as president and CEO of Welbilt.

October 2018 to July 2022.

As the President and CEO and CEO of chart industries from July 2016 through June 2018.

He possesses over 30 years of global experience and we're excited to have Bill joined our board I have no doubt CVD will benefit from his skills and perspective.

James Wei: Now, I'd like to turn your attention to the Supplemental Earnings presentation starting on slide 4. Following solid year-over-year improvements in the first few quarters of the year, our fourth quarter results were negatively impacted by a work stoppage at a customer facility and reduced demand. We reported net sales of $223 million in the quarter and an adjusted EBITDA of $10.3 million.

Now I'd like to turn your attention to the supplemental earnings presentation, starting on slide four.

Following solid year over year improvements in the first few quarters of the year, our fourth quarter results were negatively impacted by a work stoppage at our customer facilities and reduced demand we.

We reported net sales of $223 million in the quarter and an adjusted EBITDA of $10 $3 million, we continue to win and integrate new business optimize costs and work to improve profitability of our business.

James Wei: We continue to win and integrate new business, optimize costs, and work to improve profitability of our business. Our continued focus on margins, as well as the contribution of new wins, helped drive a 26% increase in full-year adjusted EBITDA to 6.8%, up 140 basis points compared to last year. For the full year, we generated $19 million in free cash flow, and it was combined with our strong EBITDA.

Our continued focus on margins as well as the contribution of new wins helped drive a 26% increase in full year adjusted EBITDA to six 8% up one.

140 basis points compared to last year for the full year, we generated $19 million in free cash flow and the combined with our strong EBITDA, our net leverage ratio declined to one five times from two two times speaking of new wins, we've recorded an excess.

James Wei: For more information, visit www.fema.gov. Our net leverage ratio declined to 1.5 times from 2.2 times. Speaking of new wins, we've recorded in excess of $150 million of new wins this year on a fully-grant basis, continuing our strong track record of... Consistent with our strategy, these continue to be focused within our electrical system segment and support the product ramp-up at our two new plants in Mexico and Morocco, which are focused on meeting the demand growth for electrical systems. We're also currently expanding our footprint with an additional new plant under construction in Morocco. Turning to slide five, I'd like to take this opportunity to highlight some recent strategic actions we've taken, which all serve as a reminder of our ongoing focus to align costs and improve margins at CVD. First, we are closing one vehicle solutions facility in North America and shifting the production to other locations, in line with our goal of lowering our manufacturing costs and improving vehicle solutions margins.

It's up $150 million of new wins this year on a fully ramped basis, continuing our strong track record of success.

Assistant with our strategy. These wins continue to be focused within our electrical systems segment and support the product ramp up at our two new plants in Mexico in Morocco, which are focused on meeting the demand growth in electrical systems. We're also currently expanding our footprint with an additional new plants under construction.

In Morocco.

Turning to slide five I'd like to take this opportunity to highlight some recent strategic actions we've taken.

Which all serve as a reminder of our ongoing focus to align cost and improve margins with CPG.

First we are closing one vehicle solutions facility in North America, and shifting the production to other locations in line with our goal of lowering our manufacturing costs and improving vehicle solutions margins.

James Wei: Second, we are taking additional steps to reduce organizational costs and align resources to support our highest growth product. These actions are part of our ongoing efforts to make sure we are cost competitive and improve our profitability over time. Finally, we announced the sale of our finished tech business in the vehicle solution segment in January of this year.

We are taking additional steps to reduce organizational cost and align resources to support our highest growth product lines. These actions are part of our ongoing efforts to make sure we are cost competitive and improve our profitability over time.

Finally, we announced the sale of our finished tech business and the vehicle solutions segment in January of this year, while not a large transaction. It focuses our business portfolio more on our core growth opportunities and demonstrates our commitment to strategic capital allocation. These.

Andy Cheung: While not a large transaction, it focuses our business portfolio more on our core growth opportunities and demonstrates our commitment to strategic capital allocation. These recent actions should go well with our long-stated transformation strategy to improve the mix and profitability of our business through the growth of our electrical systems. And 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.

These recent actions should echo well with our long stated transformation strategy to improve the mix and profitability of our business through the growth of our electrical systems business and 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.

Andy Cheung: If you are following along in the presentation, please turn to slide 6. Consolidated fourth-quarter 2023 revenue was $223.1 million, as compared to $234.9 million in the prior year period. The decrease in revenues is due primarily to the impacts of a strike at a vehicle solution customer facility, which more than offset an increase in electrical system revenue. Foreign currency translation favorably impacted fourth quarter 2023 revenues by $1.8 million or 0.7%. Adjusted EBITDA was $10.3 million for the fourth quarter compared to $13.3 million in the prior year. Adjusted EBITDA margins were 4.6%, down 110 basis points as compared to adjusted EBITDA margins of 5.7% in the fourth quarter of 2022, driven primarily by lower volumes and strike impact. Interest expense was $2.4 million as compared to $2.9 million in the fourth quarter of 2022. The decrease in interest expense was primarily related to lower average debt balances during the respective periods, partially offset by higher interest rates on variable rate debt.

Following along in the presentation, please turn to slide six.

Consolidated fourth quarter 2020 stream revenue was $223 1 million as compared to $234 $9 million in the prior year period.

The decrease in revenues is due primarily to the impacts of a strike and a vehicle solution customer facility, which more than offset an increase in the electrical system revenues.

Foreign currency translation favorably impacted fourth quarter, 2023 revenues by $1 8 million or.

<unk>, 7%.

Adjusted EBITDA was $10 3 million for the fourth quarter compared to $13 $3 million in the prior year.

Adjusted EBITDA margins were four 6%.

110 basis points as compared to adjusted EBITDA margins of five 7% in the fourth quarter of 2022.

Driven primarily by lower volumes and strike impacts.

Interest expense was <unk> 4 million as compared to $2 9 million in the fourth quarter of 2022.

The decrease in interest expense was primarily related to lower average debt balances during the respective periods, partially offset by higher interest rates on variable rate debt.

Andy Cheung: Net income for the quarter was $23.3 million, or $0.70 per diluted share, as compared to a net loss of $32 million, or negative $0.98 per diluted share, in the prior year. Adjusted net income for the quarter was $2.9 million, or $0.09 per diluted share, as compared to $1.4 million, or $0.04 per diluted share, in the prior year. Consolidated full year 2023 revenue was $994.7 million as compared to $981.6 million in the prior year period. The increase in revenues is due primarily to pricing and an increase in electrical system volume. Foreign currency translation favorably impacted full year 2023 revenues by 2.0 million or 0.2. Adjusted EBITDA was $67.6 million for the full year, up 26% compared to the prior year. The adjusted EBITDA margins were 6.8%, up 140 basis points as compared to adjusted EBITDA margins of 5.4% in 2020. Driven by gross margin expansion, slightly offset by higher SGI. Net income for the full year was $49.4 million, or $1.47 per diluted share, as compared to a net loss of $22 million, or negative 68 cents per share, in the prior year.

Net income for the quarter was $23 $3 million or <unk> 70 per diluted share as compared to a net loss of $32 million on negative 98 cents per diluted share in the prior year.

Adjusted net income for the quarter was $2 9 million or <unk> <unk> per diluted share as compared to $1 4 million or <unk> <unk> per diluted share in the prior year.

Consolidated full year 2023 revenue was $994 7 million as compared to 981 $6 million in the prior year period.

The increase in revenues is due primarily to pricing any increase in electrical system volume.

Foreign currency translation favorably impacted full year 2023 revenues by 2.0 median or <unk>, 2%.

Adjusted EBITDA was $67 6 million for the full year up 26% compared to the prior year.

Adjusted EBITDA margins were six 8% up 140 basis points as compared to adjusted EBITDA margins of five 4% in 2022.

Driven by gross margin expansion slightly offset by higher SG&A.

Net income for the full year was $49 4 million or $1 47 per diluted share as compared to a net loss of $22 million or negative <unk> 68 cents per share in the prior year.

Andy Cheung: Adjusted net income for the year was $30.2 million, or $0.90 per diluted share, as compared to $16.4 million, or $0.51 per diluted share, in the prior year. Turning to slide 7. I would like to highlight a few items on the adjusted EPS bridge, which include our adjustments to gap EPS, as well as one additional special item. First, we reversed a charge we took last year for a deferred tax valuation allowance due to improved profitability in our U.S. operations. Second, we took a restructuring charge related to the footprint optimization and cost reduction efforts that James discussed, totaling $0.05 per share. Additionally, we were negatively impacted by a strike-related work stoppage at one of our customers' facilities during the quarter, which we estimate negatively impacted burn rates by 6 cents per serve.

Adjusted net income for the year.

$32 million or 90 cents per diluted share as compared to $16 4 million or <unk> 51.

Per diluted share in the prior year.

Turning to slide seven.

I would like to highlight a few items on the adjusted EPS Bridge, which include our adjustments to GAAP EPS as well as one additional special item.

First we reversed a charge we took last year for a deferred tax valuation allowance due to improved profitability in our U S operations.

Second we took a restructuring charge related to the footprint optimization and cost reduction efforts that James discussed totaling <unk> <unk> per share.

Additionally, we were negatively impacted by a strike related work stoppage at one of our customers' facilities during the quarter.

Which we estimate negatively impacted earnings by <unk> <unk> per share.

Andy Cheung: Adjusting for these items, our EPS would have been $0.15 per share. Now, moving to segment results, beginning on slide 8. Our electrical system segment achieved revenues of $56.2 million, an increase of 19% compared to the year-ago fourth quarter, resulting from increased sales volume, including the impact of new customers and increased prices. Adjusted operating margin was 11.6 percent, an increase of 30 basis points compared to the fourth quarter of 2022, driven by increased sales volume and improved pricing. For the full year, revenues were up 27%.

Adjusting for these items, our EPS would have been <unk> 15 per share.

Now moving to segment results beginning on slide eight.

Our electrical systems segment achieved revenues of $56 2 million, an increase of 19% compared to the year ago fourth quarter.

Resulting from increased sales volume, including the impact of the new customers and increased pricing.

Adjusted operating margin was 11, 6% an increase of 30 basis points compared to fourth quarter of 2022, driven by increased sales volume and improved pricing.

For the full year revenues were up 27% again, driven by pricing and new wins contribution.

Andy Cheung: Again, driven by pricing and new wins contributions, Food Year Adjusted Operating Income Margin increased 100 basis points as volume leveraged and pricing more than offset the inflationary impact. The impact of our new business wins and the ramp-up of our two new plans in Mexico and Morocco, which remain on track to support these new businesses. 21, We are currently in the early construction phase for a second site in Morocco. As always, we will remain focused on driving operational improvements and optimizing margins, even at the additional new wind flow, turning to flying now. Our vehicle solution segment's fourth-quarter revenues decreased 10% to $128.4 million compared to the year-ago quarter, due primarily to the impacts of a strike-related outage at one of our customer facilities.

Adjusted operating income margin increased a 100 basis points as volume leverage and pricing more than offset inflationary impacts.

Evident in these results are the impacts of our new business wins and the ramp up of our two new plans in Mexico in Morocco, which remain on track to support these new wins.

Furthermore, given.

Given the continually wins we are currently in the early construction phase for a second site in Morocco.

Always we will remain focused on driving operational improvements and optimizing margins even at the additional new wins flow through.

Turning to slide nine.

Our vehicle solutions segment fourth quarter revenues decreased 10% to 128 $4 million.

Compared to the year ago quarter.

Primary to the impact of a strike related outage at one of our customer facilities.

Andy Cheung: Adjusted operating margin for the fourth quarter was 3.1%, an increase of 20 basis points compared to the prior year period, as increased pricing and cost controls more than offset the impact of lower volumes related to the strike. For the full year, revenues were up 1%, driven by increased North American Class 8 production. However, it was partially offset by lower volumes in Europe and China.

Adjusted operating margin for the fourth quarter, while streep on 1% an increase of 20 basis points compared to the prior year period.

As increased pricing and cost controls more than offset the impact of lower volumes related to the strike.

For the full year revenues were up 1% driven by increased loss of America class eight production.

However, it was partially offset by lower volumes in Europe and China.

Andy Cheung: Full year adjusted operating income margin increased 350 basis points, different again by pricing and other cost controls. We are encouraged by the year-over-year improvement in vehicle safety. But this segment remains a key focus for our team in terms of reducing cost, driving further operational improvements, as well as bringing business on new platforms, all with the goal of driving improved miles. Moving to slide 10, our aftermarket and accessory segment revenues in the fourth quarter decreased 8% to $31.4 million compared to the year-ago quarter, primarily resulting from decreased sales volume.

Full year adjusted operating income margin increased 350 basis points, driven again by pricing and other cost controls.

We are encouraged by the year over year improvement in vehicle solutions.

This segment remains a key focus cloud team in terms of reducing costs and driving further operational improvements as well as bringing business on new platforms.

All with the goal of driving improved margins.

Moving to slide 10.

Our aftermarket and accessories segment revenues in the fourth quarter decreased 8% to $31 $4 million.

Compared to the year ago quarter.

Primarily resulting from decreased sales volume.

Andy Cheung: It is also worth noting that our Q4 2022 performance benefited from a large backlog that did not repeat this year. Adjusted operating margin for the fourth quarter was 11%, an increase of 20 basis points compared to the prior year period. The increase is primarily attributable to price. For the full year, revenues were up 5%. Full year adjusted operating income margin increased 330 basis points, driven again by pricing as well as better cost performance. Turning to slide 11.

It is also worth noting that our Q4 2022 performance benefited from a large backlog that did not repeat this year.

Adjusted operating margin for the fourth quarter was 11% an increase of 20 basis points compared to the prior year period.

The increase is primarily attributable to pricing.

For the full year revenues were up 5% full year adjusted operating income margin increased 330 basis points, driven again by pricing as well as better cost performance.

Turning to slide 11.

Andy Cheung: Our industrial automation segment produced fourth-quarter revenues of $7.1 million, a decrease of 35% as compared to $11 million in the fourth quarter of 2022, due to ongoing challenging market conditions. Adjusted operating margin was 3.7%, an increase of 850 basis points compared to the year-ago quarter, primarily attributable to the efforts taken to right-size. For the full year, revenues declined 56%, and demand levels for this business remained Full year adjusted operating income margin declined 760 basis points, driven primarily by lower volume.

Our industrial automation segment produced fourth quarter revenues of $7 1 million a day.

<unk> of 35% as compared to $11 million in the fourth quarter of 2022.

Due to ongoing challenging market conditions.

Adjusted operating margin was three 7% an increase of 850 basis points compared to the year ago quarter.

Primarily attributable to the efforts taken to right size this business.

For the full year revenues declined 56% at demand levels for this business remained at trough levels.

Full year adjusted operating income margin declined 760 basis point.

Driven primarily by lower volumes.

James Wei: As mentioned, we have taken actions to right-size our core structure in this business, and we have broadened our market focus to expand our revenue opportunities. That concludes my financial overview. I will now turn the call back over to James to discuss our key focus areas for 2024, as well as our outlook for the year ahead. Thank you, Andy.

As mentioned, we have taken actions to rightsize our cost structure in this business and we have broadened our market focus to expand our revenue opportunity.

Okay.

Concludes my financial overview, I will now turn the call back over to James to discuss our key focus areas for 2020 volt as well as our outlook.

James Wei: Turning to slide 12, I'd like to highlight where our team will be focused in 2024. This will be no surprise to hear, but new business wins remain core to our culture at CVG, and we continue to add additional customers and platforms. We look to continue our new business wins in 2024, building on the wins we recorded in 2023. Our strategy calls for continued diversification of our revenue streams, which is key to transforming our revenue mix, reducing our cyclical exposure, and improving profitability. Next, we will continue the planned ramp-up of our new electrical systems plants in Mexico and Morocco. These expansions are key to growing our electrical systems business globally and are positioned to be cost-competitive and provide outstanding service to our customers. Additionally, we are underway with the construction of an additional Moroccan plant, which will further support anticipated growth and supply chain optimization.

Thank you Andy turning to slide 12, I'd like to highlight where our team will be focused in 2024. This will be no surprise to hear but new business wins remain core to our culture at <unk> and we continue to add additional customers and platforms. We look to continue our new business wins in 2020.

For building on the wins, we recorded in 2023, our strategy calls for continued diversification of our revenue stream, which is key and transforming our revenue mix, reducing our cyclical exposure and improving profitability.

Next we will continue the planned ramp up of our new electrical systems plants in Mexico, Morocco. These expansions are key to growing our electrical systems business globally and are positioned to be cost competitive and provide outstanding service to our customers. Additionally, we are underway with the construction of an additional.

Moroccan plan, which will further support anticipated growth and supply chain optimization.

James Wei: So before turning to the fiscal 2024 outlook, I want to emphasize what we are doing with our three key businesses. One, we are focused on making electrical systems our largest business by continuing to win new electrical business across multiple end markets and diversifying our product portfolio, including diversifying our vehicle platforms toward higher growth markets, while simultaneously reducing our exposure to the cyclical Class A truck market.

So before turning to the fiscal 2024 outlook I want to emphasize what we are doing with our three key businesses.

One we are focused on making the electrical systems, our largest business.

We're continuing to win new electrical business across multiple end markets and diversifying our product portfolio, including diversifying our vehicle platforms toward higher growth markets, while simultaneously, reducing our exposure to the cyclical class eight truck market.

James Wei: We are optimizing our vehicle solutions in aftermarket businesses as we see multiple levers to improve profitability through operational cost efficiency and strategic sourcing decisions. We expect all of this to lead to improved working capital management and increased free cash generation. Collectively, this fundamental business transformation is expected to improve our business mix and make CBG a larger, stronger, and more profitable company in the coming years. Turning to slide 13, I'll share a few thoughts on our outlook for 2024. You'll notice that, for the first time, we're giving you quantitative annual guidance at the revenue and adjusted EBITDA levels. We believe this will help indicate our underlying expectations for the performance of our business. Industry forecasts currently project a decline in North American Class A truck shipments of approximately 16% for the year.

Two we are optimizing our vehicle solutions and aftermarket businesses as we see multiple levers to improve profitability through operational cost efficiency and making strategic sourcing decisions. We expect all of this to lead to improved working capital management and increase free cash generation.

Collectively this fundamental business transformation is expected to improve our business mix. It makes <unk>, a larger stronger and more profitable company in the coming years.

Turning to slide 13.

Share a few thoughts on our outlook for 2024, you'll notice that for the first time, we're giving you quantitative annual guidance at the revenue and adjusted EBITDA level.

We believe this will help indicate our underlying expectations for the performance of our business <unk>.

Industry forecasts currently project a decline in North American class a truck builds of approximately 16% for the year. However, we expect to benefit from growth in electrical systems revenue.

James Wei: However, we expect to benefit from growth in electrical systems revenue. As a result, we are forecasting revenues to be in the range of $915 million to $1.015 billion. With projected growth in the electrical system segment, notwithstanding the approximately 16% drop in North American Class A truck bill, we expect adjusted EBITDA margins year-over-year to be relatively flat, as implied by the midpoint of our guidance range of $60 million to $73 million. Our expectation is that this level of EBITDA generation, offset by capital expenditures in the range of $25 million to $30 million for the year, will drive further free cash flow, giving us the optionality of further debt paydown or potential inorganic growth opportunities, should we find an attractive deal.

As a result, we are forecasting revenues to be in the range of $915 million to 1.015 billion.

With projected growth in electrical systems segment, notwithstanding approximately 16% drop in North American class eight truck build we expect adjusted EBITDA margins year over year to be relatively flat as implied by the midpoint of our guidance range.

60 million to 73 million EBITDA for 2024.

Our expectation is that this level of EBITDA generation offset by capital expenditures in the range of $25 million to $30 million for the year to drive further free cash flow, giving us the optionality of further debt paydown or potential inorganic growth opportunities should we find an attractive deal.

James Wei: Overall, we expect 2024 to show solid demand and revenue for the full year as we continue to win new business at a strong pace, with wind-centered in our electrical system segment. We believe this level of resilience in the face of lower North American Class A industry volumes is further evidence of the success of our diversification strategy. With that, I will now turn the call back over to the operator to open up the line for questions. Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone.

Overall, we expect 2024 to show solid demand and revenue for the full year as we continue to win new business at a strong pace with wins centered in our electrical systems segment. We believe this level of resilience in the face of lower North American class eight industry volumes is further evident.

Of the success of our diversification strategy.

With that I will now turn the call back over to the operator to open up the lines for questions operator.

Thank you Sir.

Ladies and gentlemen, if you would like to ask a question. Please press star followed by one I'll just touch Thompson.

Operator: You will then hear a three-tone prompt acknowledging your request. And if you would like to withdraw from the question queue, please press star-10. And if you are using a speakerphone, you will need to lift the handset before pressing any. Please go ahead and press star 1 now if you do have any questions.

We'll then hear a tweet on prompt acknowledging your request and if you would like to withdraw from the question queue. Please press star two and if youre using a speakerphone you will need to lift the handset before pressing any Keith. Please go ahead and press Star one now if you do have any questions and.

Joseph Anthony Gomes: And your first question will be from Joe Gomez at Noble Capital. Please go ahead, Joe. Good morning. Thanks for taking my question. Good morning, Joe.

And your first question will be from Joe Gomes of Noble capital. Please go ahead Joe.

Good morning, Thanks for taking my questions.

Joe Good morning, Joe.

James Wei: James, you know, give us a quick overview. It's great to hear your voice here on the call. I was wondering maybe, you know, you've been there two months, if you'd give us some more insight into kind of your key findings or thoughts from the CEO position here, you know, in the first two months. Sure, Joe.

James You gave us a quick overview, it's great to hear your voice here on the call.

I was wondering maybe you had been there two months if you can give us some more insight into kind of your key findings our thoughts.

From the CEO position here in the first two months.

James Wei: Yeah, it's very exciting for me to come in. Fortunately, I had the benefit of observing the company from the other side of the table, so I've had the opportunity to get a closer look during the time of our interim CEO, Bob Griffin, and that really excited me about the possibility of taking on this role. What I've seen since I've been here is that we have really good products that our customers value. We have a very enthusiastic team, and we are really focused on growth in not just electrical but other aspects of our business. We have a good approach to finding solutions to help customers solve their problems. And we are also focused on making sure we deliver on our commitments. So I think the team is very focused.

Sure Joe Yes, it's very exciting for me to come in and Fortunately I had the benefit of observing the company on the board from the other side of the table. So I've had the opportunity to get a look closer during the time of our interim CEO, Bob Griffin and that really excited me about the possibility of taking.

This role what I've seen since I've been here is that we have really good products that our customers value.

Have a very.

Enthusiastic team and really focused on growth and not just electrical but other aspects of our business.

We have a good approach to finding solutions to help customers solve their problems and also we are focused on making sure we deliver on commitments. So I think the team is very engaged.

James Wei: I've had interactions with several of our top customers, and I've also had a chance to talk to a few investors as well. And we all see continued improvement in the value of this business and the value proposition it brings to the market. Thank you.

Interaction with several of our top customers and I've also had a chance to talk to a few investors as well and.

We all see continued improvement in the value of this business and the value proposition it brings to the market.

Yes.

Thank you for that and are there any significant contracts that might be coming up for renewal in 2020 for a rebid in 'twenty four.

James Wei: And are there any significant contracts that might be coming up for renewal in 2024? Rebid in 2024? Well, as part of our New Business Win methodology here, and I think what's happened with our results, is that we have a funnel of activities and a funnel of opportunities that we look at and align our product strategy to our customers' quoting opportunities. So across our businesses, there are a number of quoting opportunities that occur every week during the quarter. Some are prioritized higher, some we have a stronger value proposition against our competition, but we do have a focus on making sure that we pursue opportunities that are sustainable, that have the appropriate margin profile, and that fit within our manufacturing and supply chain footprint. We do have some small ones we go after, and we also have some large ones we go after. We don't disclose our customers' quotations.

Well as part of our new business win methodology here and I think what's happened.

And our.

In our results is that we have a funnel of our activities in the funnel of opportunities that we look at and align our product strategy to our customers quoting opportunities. So across our businesses. There is a number of quoting opportunities that occur every week during the quarter somewhat.

Higher to rise higher some we have a stronger value proposition against our competition, but we do have a focus on making sure that we pursue opportunities that are sustainable that have the appropriate margin profile and that fit within our manufacturing and supply chain footprint, we do have some small ones.

Go after and we also have some large ones we go after.

We don't disclose our customers.

James Wei: Specifics as we do book new business, but I would say that we're gaining a stronger reputation in the market for being able to provide what customers are looking for as well as a differentiated value proposition compared to our competitors, mainly in electrical systems, but we also have some strong areas in our plastics and trim business as well as our seating business and aftermarket, so it's not just electrical. It's across the board. But our focus is really accelerating electrical growth beyond market growth. And, and what are the goals and 24 for new business wins? And historically, it's been, you know, at least 100 million. Are we still sticking to that? Or do you get a higher number?

Specifics as we do book, New business, but I would say that we're gaining a stronger reputation in the market of being able to provide what customers are looking for as well as a differentiated value proposition compared to our competitors mainly in electrical systems, but we also.

Have some strong areas in our plastics and trim business as well as our our seating business in aftermarket. So it's not just electrical it's across the board, but our focus is really accelerating electrical growth.

Beyond market growth.

And.

What are the goals and 24 for new business wins I know historically, it's been at least $100 million are we still sticking to that or you get a higher number this year.

James Wei: Obviously, we want to continue the trend we've been on, and it depends on the customer program cycles and when opportunities are quoted. So, our funnel is larger than our targets. We have different win rates in different segments, and different products have different win rates based on the competition that we're going up against. But generally, we expect to be in the $100 million or more range on our bookings going forward. We've proven we have a right to play and a right to win.

Obviously, we want to continue the trend we've been on and we it depends on the customer program cycles and when opportunities are quoted so.

Our funnel is larger than our target.

Different win rates in different segments and different products have different win rates based on the competition that we're going up against but generally we expect to be in the 100 million or more range on our bookings going forward.

We've proven we have a right to play and a right to win it all comes down to strong execution and making sure we deliver on our commitments both the customers as well as to our organization for the financial commitments of the program. So that's going to continue to be the focus and the great thing about this is we've had a couple of years of building momentum.

James Wei: It all comes down to strong execution and making sure we deliver on our commitments both to customers as well as to our organization for the financial commitments of the program. So, that's going to continue to be the focus, and the great thing about this is we've had a couple of years of building momentum, and we're really starting to accelerate that, and our reputation is increasing within our customers. Great. And one more for me, like I get back in the queue.

And we're really starting to accelerate that and our reputation is increasing within our customers.

Great and one more from me and I'll get back in queue.

James Wei: So your expectations, 24. I'm trying to get some of the, where your thoughts are, obviously, you know, it's, you know, the range is about 100 million. I'm assuming some of that deals with, you know, where the class A truck builds end up coming in. But on the electrical system side, you know, last year you did a bang-up job. Top line was up 27%, you know.

So if your expectations or 24.

Trying to get like some.

Some of the what are your thoughts obviously, yes.

The range is about $100 million.

I'm, assuming some of that deals with where the class eight truck builds end up coming in.

But on the electrical systems side.

Actually you did a bang up job topline was up 27%.

John Edward Franzreb: Are you looking for that similar number of similarly rated growth in 24 in that segment to be back, you know, maybe down closer to that 20% range or something? Joe, let me let me answer that. So, as you described, we're already seeing the benefits of the new wins that we secured over the last few years. So 2023 is really a strong year for revenue growth for the electrical systems segment. We expect that you'll continue to see us launching businesses that we already own. Right now, that's why we have a range here. Sometimes, a customer launch schedule is out of our control, and it depends on many factors. So, but we expect that you'll continue to see good growth in our electrical segment. Great, thanks for taking my question. Thanks, Joe. The next question will be from John Franzreb at Sidoti. Please go ahead.

Are you looking for that similar number or similar rate of growth in 'twenty four in that segment are back.

Maybe down closer to that 20% range or something other.

Hey, Joe well, let me let me answer that so just described our EMEA already seeing the benefit of the new wins that we secured over the last few years. So China Chinese three is really a strong year revenues global fall for the electrical systems that segment, we expect that you'll continue to see us launching business that way.

Already won.

Right now that's why we have a Lincolnshire is sometimes a customer launch schedule is our power control and it depends on many factors. So we expect that that Youll continue to see good quality now electrical segments.

Great. Thanks for taking my questions.

Thanks, Joe.

Next question will be from John <unk> with Sidoti. Please go ahead.

John Edward Franzreb: Good morning, guys, and thanks for taking the questions. I'd like to start with the revenue loss at the strike. Can you talk a little bit about maybe the size of the revenue and was it lost, or was it deferred into the first quarter? Maybe more color there would be helpful.

Good morning, guys and thanks for taking the questions.

I'd like to start with.

With revenue loss at the strike.

Can you talk a little bit about maybe the size of the revenue and was it more stores with deferred into the first quarter maybe.

Maybe more color there would be helpful.

Andy Cheung: Yeah, so the strike at the customer actually lasted about six weeks, so it impacted us, which we estimated to be about $12 million in revenues for the quarter. As the customer did not change their overall backlog, we expect that eventually they're going to put those lost vehicles back on the production schedule. The timing is a little unclear right now because they also have their own manufacturing constraints, but we expect that, eventually, it will come back into production. Excellent. And I guess if we start thinking about the Class A truck... cycle.

Yeah. So.

The strike at the customer was actually lost at about six weeks all impacted us we estimate that to be about $12 million in revenues for the quarter.

As the customer did not change the overall backlog, we expect that eventually they're going to put those lost vehicles back on the production schedule. The timing is a little unclear why now because why they also have their own manufacturing constrained, but we expect that eventually will come back to the production.

Okay excellent.

And I guess, if we start thinking about the class eight truck.

Andy Cheung: And last quarter I asked you how the first quarter was shaping up, and you indicated it was looking good. I'll repeat the question: how is not only the first quarter looking, but how is the second quarter looking relative to the current production rates that you finished at? Yeah, so while we don't forecast quarter by quarter what our customers do, but as you can see in the market, there's public information about the ACT forecast, which is one of the more important forecasts we use. So right now, you can see ACT is actually expecting some decline from Q2 and beyond in terms of overall market production. But we'll see.

Cycle and you let last quarter I asked you.

How is the first quarter shaping up in your indicators is looking good.

I'll repeat the question how is not only the first quarter looking past the second quarter looking relative to the current production rates that you finished yet.

Okay.

Yeah, so while we don't forecast a corner by corner, what our customers do but as you can see on the market. That's public information about the ICT forecast, which is one of the.

More important for capital use.

So why now you see acte's actually expecting some decline from Q2 and beyond in terms of our overall markets production sell but we will see we are still not seeing full visibility on our customers on schedule, but the ACG forecast is that showing some chop off of Q2 and beyond.

Andy Cheung: We're still not seeing full visibility on our customers' own schedules, but the ACT forecast is showing some drop off from Q2 and beyond. Got it. And just a little bit about the Mexico and Morocco facilities.

Got it.

And just a little bit about the Mexico, and Moroccan facilities when would they be fully operational.

Andy Cheung: When will they be fully operational? The Mexico facility launched in Q3 and the Morocco facility, the initial Morocco facility, launched in Q4 and they are ramping up, bringing on the new programs that we have won in prior years to those facilities. The new facility that's under construction in Morocco, the additional facility, should be online in Q1 next year. You won't believe it, got it. And just if I think back to about a year ago, you were rolling out a new aftermarket initiative. Looking back on it, can you talk a bit about the successes and maybe where it's lagging a little bit relative to expectations going in? Sure, no problem.

The Mexico facility launched in Q3, and the Morocco facility. The initial Morocco facility launched in Q4, and they are ramping up bringing on the new programs that we had won in prior years to those facilities.

The new facility this under construction in Morocco, the additional facility should be online in Q1 next year.

Q1 next year got it.

And just to say if I think back to about a year ago, you were rolling out a new aftermarket initiatives.

Looking back on it can you talk a bit about the successes and maybe why it's lagging a little bit relative to expectations going in.

Sure No problem, we did changed leadership of the aftermarket business in Q3 last year and kind of reassess the effectiveness of the prior strategy, especially on the E Commerce side, what we have found is.

James Wei: We did change leadership of the aftermarket business in 2-3 last year and kind of reassess the effectiveness of the prior strategy, especially on the e-commerce side. What we have found is that for e-commerce, you have to have a lot of discipline around your production planning and your inventory strategy and how you're going to market and what you're focusing on. And we believe that there's probably more work that could have been done there. So the new leadership that came in, actually, we participated in the heavy duty aftermarket week in January. And we have a number of, a pretty large number of field sales reps that we met with that will represent our product with various dealers and retail outlets in various regions of the country.

Commerce, you have to have a lot of.

Our discipline around your production planning in your inventory strategy, and how youre going to market and what you're focusing on.

We believe that there's probably more work that could have been done there. So that the new leadership that came in actually we participated in the heavy duty aftermarket week in January and we have a number of a pretty large number of field sales reps that we met with that will represent our product.

With various dealers retail outlets in various regions of the country and we recognize from that interaction we needed to do a better job of getting our name and brand out there and I think the aftermarket truck parts Dot com.

James Wei: And we recognized from that interaction that we needed to do a better job of getting our name and brand out there. And I think aftermarket truckparts.com, probably mid to late this year, may have a lot more traction based on the work that our field reps are doing out in the field with our brand improvement and brand awareness. So I think going forward, or I expect going forward, we'll see better traction sequentially in our aftermarket business sales opportunity. That's, that's great to hear. And I guess one last question, and then we'll get back into queue.

<unk> mid to late this year may have a lot more traction based on the works that the work that our field reps are doing out in the field with our brand improvement in brand awareness. So I think going forward I expect going forward, we'll see better traction sequentially in our aftermarket business sales opportunities.

That's great to hear and I guess, one last question, then I'll get back into queue.

James Wei: Cooley right-sized the industrial automation business. What's kind of the updated thoughts on when the revenue profile kind of turns around there, you know, now that you've kind of right-sized the business? Well, that's a really good question.

Julie Rightsize, the industrial automation business.

What's kind of the updated thoughts on.

When the revenue profile kind of turns around there now that you've kind of rightsize the business.

Well, that's a really good question.

James Wei: I've been able to take a really good look at what we've done even before coming into the CEO role, but the business profile there was primarily more contract manufacturing, lower value add, but we had an opportunity to really gain inputs and access to the local market. And with the takeoff of warehouse automation, that's where the business really popped up. And as that tailed off, it kind of came back to the legacy contract manufacturing box builds.

<unk> been able to take a really good look at what we've done even before coming into the city overall the business profile there was primarily <unk>.

More contract manufacturing.

Lower value add but we had an opportunity to really.

<unk>.

Inputs and access to the local market and with the take off of warehouse automation, and that's where the business really popped up and does that tailed off.

Kind of came back to the <unk>.

Legacy contract manufacturing box builds and the leadership in that business intentionally has been focusing on our more highly engineered solution in the market.

James Wei: And the leadership in that business intentionally has been focusing on a more highly engineered solution in the market, with various customers, in various different configurations. So we're somewhat at the inflection point of where this business could potentially go. Based on these new products, we do have favorable customer feedback, but there's going to be a runway to ramp back up to more substantial revenue numbers. And early indications are that by mid to late this year, we should start to see more of a bounce back in that business. Based on orders we have and customer insights, we are actually going to be participating in the MODEX show in mid-March, demonstrating one of our new innovative products at that show to get feedback and determine how we need to potentially scale that new product and innovation.

And various customers in various different configurations. So we're somewhat at the inflection point of where this business could potentially go based on these new products, we do have favorable customer feedback, but theres going to be a runway to ramp back up to more substantial revenue numbers.

And early indications are by mid to late this year, we should start to see more of a bounce back in that business based on orders, we have in and customer insights we are actually going to be participating in the <unk> show in mid March demonstrating one of our new innovative products and that show to get feedback.

Back and determine how we need to potentially scale that new product and innovation. So that's pretty much an update on that business is it set an inflection point in trying to pivoted to more value add.

James Wei: So that's pretty much an update on that business. It's at an inflection point and trying to pivot it to more value add. Yeah, that's also good to hear. Thanks, guys. I'll go back into queue. Thanks, John.

That's also good to hear thanks, guys I'll get back into queue.

Thanks, John John.

Next question will be from Gary Pasta panel at Barrington. Please go ahead.

Gary Frank Prestopino: Next question will be from Gary Prestopino at Barrington, please go ahead. Good morning, all. Welcome, James. A couple of questions here. First of all, James, with you coming on board, the company had a target of revenue of 1.5 billion and 9% adjusted EBITDA margin by 2027. Is that something that you want to stick to here? Or can we throw that out with the baby out with the bathwater?

Good morning, all and welcome James.

Couple of questions here.

First of all.

James with you coming on Board I mean, the company has a target of revenue of $1 5 billion, 9% adjusted EBITDA margin.

By 2027.

Is that something that you want to stick to here or can we throw that out with baby out with the bathwater.

That's a good question I wouldn't say, we're throwing the baby out with the bathwater, but I do think we have an opportunity right now to look at the profile more specifically through market segmentation customer and product segmentation and have a more intentional profile management as we look at <unk>.

James Wei: That's a good question. I wouldn't say we're throwing the baby out with the bathwater, but I do think we have an opportunity right now to look at the profile more specifically through market segmentation, customer, and product segmentation, and have a more intentional profile management as we look at future business. And we're still assessing what that profile might look like and where it could potentially go to ensure that we have an appropriate margin accretion algorithm in front of us, but we So with these two things, we'll have a better chance to, I think, shape what this looks like in the longer term, and we're still defining how that's going to be staged out. So at this point, we're not really discussing the long-term targets. We're not throwing the baby out with the bathwater, but I do think there's work that needs to be done on a more disciplined approach to shape the profile of that revenue stream. Okay, and that's fine.

<unk> business and we're still assessing.

<unk>.

What that profile might look like and where it could potentially go to ensure that we have an appropriate margin accretion algorithm in front of us.

But we're really focused on executing our annual guidance expectations and continuing to book New business. So with these two things we will have a better chance I think shape with this looks like longer term and we're still defining how that's going to be staged out. So at this point, we're not really discussing the <unk>.

Long term targets will not throwing the baby out with the bathwater, but I do think there's work that needs to be done.

On a more disciplined approach to shape the profile of that revenue stream okay.

That's fine I just wanted to make.

Get that out there because that also those targets had been out there and we don't want to obviously repeat them, if they're they're not something that.

James Wei: I just wanted to get that out there because those targets have been out there, and we don't want to obviously repeat them if they're not something that you want to adhere to. Okay. Let me just, I guess, backtrack a little bit. We did state in the prior question that we expect to book a hundred million or more new business ones a year. So that is another data point that you can use in determining where we're going longer term. We're not backing off or throwing the baby out with the bathwater.

You want to adhere to.

Okay.

Let me just backtrack a little bit we did state on the prior question that we expect to book a 100 billion.

More new business wins a year so.

That is another data point that you can use in determining where we're going longer term. So we're not backing off our throw the baby out with the bathwater, we're sticking to that.

Okay.

So in terms of.

The closing of the facility.

And then.

Higher costs.

A reduction in the organizational costs can you slap a number.

James Wei: We're sticking to that. Okay, so in terms of the closing of the facility and then higher cost reduction in organizational costs, can you slap a number on what kind of expense capture you're looking to get from these actions in 2024? So, Gary, let me answer that question. So you can see that this quarter we took a charge of about five cents per share, so roughly about three million dollars. It's not all the charges that are related to the actions, so some of the action will continue into Q1 as well.

What kind of expense capture you were looking to get from these actions in 2024.

So.

Gary Let me answer that question. So you can see that that these Colorado, we took a charge of about.

Five stands.

Sure so roughly about $3 million.

Not all the charge related to the actions. So some of the action will continue into Q1 as well we are normally look for about less than two years payback in Ala.

Andy Cheung: We normally look for about less than two years of payback on our spending on right-sizing and improving the operations. So we can see there, you'll see multimillion-dollars of benefits based on the charge that we take. But that's also a role into our annual cost reduction that we do. So we'll continue to use those actions to expand our margins as well as offset the inflation that we're still seeing in business. Okay. Um, and then just, just something, well, I got two more questions, but with the, uh, the electrical systems business, a nice percentage of that was going to electrified vehicles. Is that correct?

Spending on Wi Fi vein and improving the operations. So we can see there you will see a multimillion dollars of a.

Benefit based on the charge that we take.

That's also will roll into our annually the cost reduction that we do so we will continue to use those actions to expand our margins as well as offsetting the inflation that we are still seeing in the business.

Okay.

And then just just something just well I got two more questions, but with the electrical systems business.

<unk>.

A nice percentage of that was going to.

Electrified vehicles is that correct.

James Wei: Actually, our largest segment in that business is Con Ag, construction, and agriculture, some of the key industrial customers. The EV portion of that revenue stream is relatively small. We're focused on some of those customers in our growth and business wins, but as you know, based on recent publications, some of the customers, even the non-new OEMs, some of the legacy OEMs that are going to electrification have somewhat backed off of the volume estimates as well as the years of introduction. So because we're more intentional about how we shape the profile of our new business wins in electrical, we didn't have an over-reliance Okay, that's good. That's what I was trying to get at here.

Actually our largest segment and that business is con AG construction and agriculture.

The key industrial customers.

EV portion of that revenue stream is relatively small.

Okay. We're focused we're focused on some of those customers in our growth and business wins, but as you know.

Based on recent publications some of the customers even the non new Oems some of the legacy Oems that are going to electrification somewhat backed off of the volume.

Estimates as well as the years of introduction so.

Because we're more intentional about how we shape the profile of our new business wins electrical we didn't have an overreliance on that to hit our longer term growth objectives.

Okay. That's good that's what I was trying to get at here, Okay and then James a question. Another question for you.

James Wei: Okay, and then James, another question for you. You got a great background here in terms of where you've been and companies you've worked for. Where do you see your strengths and how they match up with the needs of CVGI? I guess I guess what I'm trying to get at here is that in your prior roles at Stanley Black & Decker and that, were you more operationally oriented? Yeah, so that's a great question, and I'll try and answer it to the best of my ability. So if I work backwards, the seven years I was at Stanley Black & Decker, I focused a lot on transformation, both from a supply chain, business model, org efficiency, engineering go-to-market, customer relations management, so truly general management.

You got a great background here.

In terms of where you've been and companies you work for.

Where where do you see your strengths and how they match up with the needs of.

<unk> I guess I guess, what I'm trying to get at here is that in your prior roles.

At Stanley Black <unk>, Decker arnell and that will you more operationally oriented.

Yes, so that's a great question.

I'll try and answer it to the best of my ability. So if I'll work backwards. The seven years I was at Stanley Black <unk> Decker was focused a lot on transformation.

Both from a supply chain business model or efficiency.

Engineering go to market customer relations management, so truly general management during my time at T. He was really focused on operational.

James Wei: During my time at TE, I was really focused on operational transformation at the plant level, and that was during the post-... 2008-09 downturn, so there was a lot of hands-on heavy lifting there. And I see that coming into this role, and after observing some of the needs of the business from a board seat, I felt very comfortable that I could understand what exactly needed to be done, where we needed additional capability, where we needed more capacity, and also improved processes and tools to help us run our operations. So, as many of you know, it's a journey of operational transformation, and I would say we're probably in the early phases, and we're gaining traction. So, the difference in my approach may be that I'm focused on culture, change management, as well as sustainable process and tool improvement as compared to brute force and just trying to muscle things through.

<unk> formation at the plate for level and that was during the post.

Oh eight of nine downturn. So there was a lot of hands on heavy lifting there and I see that coming into this role and after observing some of the needs of the business from a board seat.

I felt very comfortable that I can understand what exactly needs to be done where we needed additional capability, where we needed more capacity and also improved processes and tools to help us run our operations. So as many of you know, it's a journey and operational transformation and I would say we're probably in.

In the early phases, and we're gaining traction so.

The difference in my approach may be that.

Focused on culture change management, as well as sustainable process and tool improvement.

As compared to a brute force.

Just trying to muscle things through its sustainability of improvements is very important to me. So I believe that's where I've had a lot of value coming into the business and I would also add on the customer relations management.

James Wei: Sustainability of improvements is very important to me, so I believe that's where I add a lot of value coming into the business. And I would also add customer relations management.

James Wei: I think that we have some very strong exemplar customers in our portfolio, and there are opportunities to manage them in a different way. So it's a long-term strategic relationship, and we keep the comprehensive picture of our relationship in front of us.

Think that we have some very strong or exemplar customers in our portfolio and there's opportunities to manage them.

And in a different way so it's its long term strategic relationships.

And we keep the comprehensive picture of our relationship in front of us and it's a win win and mutually beneficial.

Gary Frank Prestopino: And it's a win-win, mutually beneficial relationship balance that I'm aspiring to achieve with our large customers and our new customers as well. All of our customers are important, but there are some that really sway your business one way or the other, and we just need to make sure we're very intentional about how we manage them. Thank you very much, and I wish you well. The next question will be from Guillermo Herrera at Gabelli Funds. Please go ahead. Good morning. Thanks for taking the time to answer the question. Good morning.

<unk> balanced that I'm aspiring to achieve with our with our large customers are new customers as well all of our customers are important but there are some that really sway your business, one way or the other and we just need to make sure. We're very intentional about how we manage them.

Okay. Thank you very much and I wish you well thank.

Thank you thanks, Gary.

Next question will be from Guillermo Herrera Gabelli funds. Please go ahead.

Good morning, Thanks for taking the question.

Guillermo Herrera: Thanks, Gary. Um, so we've heard a bit on margins being up on both pricing, you know, as well as contribution from the ES business. Curious whether part of the story here is also being more selective in your contracts. In other words, have you had to walk away from any significant customers based solely on margin profiles? You know, you mentioned not disclosing specific contracts, but if you could just provide some color on whether this was part of the margin story over the past year or so, that would be helpful. Thanks.

Good morning, Thanks Garo.

So we've heard a bit on margins being up from both pricing as well as contribution from Es business.

Curious whether part of the story here is also being more selective in your contracts. So in other words have you had to walk away from any significant customers.

Based solely on margin profile.

You mentioned not disclosing specific contracts, but if you could just provide some color on whether this was part of the margin story over the past year or so that that would be helpful. Thanks.

Yeah. So if you remember we did talk about that in the past that there is a one.

Andy Cheung: Yeah, so if you remember, we talked about that in the past that there was one customer that we didn't like the terms of the contract, and we walked away from a ceiling standpoint. So that was ended actually this fiscal year. So that helped to streamline our operation and as well as get rid of some of the terms that we didn't like. So that's part of the margin reflection.

Customer that we didn't like the terms of the contract and we walk away from a seating stand bonds.

So that was the end of actually this fiscal year. So.

Hello, Bob <unk> to streamline our operation and as well as capital some of the towns that we didn't like so that's our policy at the margin of infection.

Andy Cheung: Got it. Thank you. Thank you. The next question will be from Steven Martin at Slater Capital. Please go ahead.

Got it thank you.

Thank you next question will be from Steven Martin Slater Capital. Please go ahead.

Hi.

Steven L. Martin: Hi. You've got James. You're new, but you've been on the board. So as a shareholder who's been around longer than any of the senior management, I'd like to share a couple of thoughts. I think Harold sold us a bill of goods over the last three or four years. If I look back at his comments about, you know, recutting the truck contract and blaming things on increased costs that couldn't pass through, and, you know, now here we are four years later. You recut the contracts. Last year, April 1st, you recut the last, supposedly the last, contract.

Thank you Jamie.

James you're new but you've been on the board.

So as a share.

Shareholder who's been around longer than any of the senior management I would like to share a couple of thoughts.

I think Harold sold us a bill of goods over the last three or four years.

I look back at his comments about.

Re cutting truck contracts and blaming things on increased costs that couldnt pass through.

And.

Now here, we are four years later Yuri.

You re cut the contracts last year April 1st you re cut the last supposedly the last contract freight costs are down.

Steven L. Martin: Freight costs are down. And by the way, I'll point out that if you look at your fourth quarter press release last year, at the same time last year, you said ACT was projecting 305, and it ended up being $3.45. So every quarter this year, ACT got better than you guys anticipated yet.

And by the way I'll point out that.

If you look at your fourth quarter press release last year, the same time last year.

AC you said ACG was projecting 305.

And it ended up being $3 45.

Every quarter this year E C T got better than.

And then you guys anticipated.

Yet.

Steven L. Martin: Your business didn't, and you underwhelmed. When it comes to last year, you made a big deal about a $30 million cost savings program. But we don't see it.

Your business didn't.

And you underwhelmed.

When it comes to <unk>.

Last year, you made a big deal about a $30 million cost savings program.

We don't see it.

Sure.

Steven L. Martin: You know, there was a big deal, and you talked about it; Harold made a big deal about the aftermarket, and all the money that got spent reorganizing plants, building inventory, hiring new people, we don't see it when we talk about the electrical. Business, you just pointed out, they made a big deal out of all the EV wins we had, and now you're saying EV's not really a big part of it. I won't even go into the acquisition, which has been an unmitigated disaster. So,

You know there was a big deal and you talked about Harold made a big deal about aftermarket.

And all the money that got spent reorganizing plants building inventory hiring new people, we don't see it.

When we talk about the electrical bill.

Business you just pointed out they made a big deal out of all the EV wins, we had and now youre, saying <unk> not really a big part of it.

I won't even go into the acquisition, which has been an unmitigated disaster.

James Wei: While you weren't the CEO, you were on the board. And I just want to share with you the level of frustration of your long-term shareholders who've watched this stock go nowhere for five years. Steve, thanks for your feedback, and your observations are very... Well, ground it. So I'm going to let Andy comment on a few things, and then I'll come on the back of Andy's comments.

So while you warrant the CEO you were on the board.

And I just wanted to share with you the level of frustration.

Your long term shareholders who've watched the stock go nowhere for five years.

Steve Thanks for your feedback.

Your observations are.

Our Berry.

Well grounded so I'm going to let Andy comment on a few things and I'll come on the back of Andy's comments, yeah. So with Stifel. Thank you for the feedback.

Andy Cheung: Yeah, so Steve, thank you for the feedback. So we actually look at the business, as you said. There are some areas that we believe are really doing well, some areas that we are falling short a bit, particularly to your point, and James already mentioned, the aftermarket e-commerce. I think we mentioned that it was an experiment and trial for us, and that initiative didn't pan out as strong as we thought.

So we actually look at the business as you said there's some.

And we have that we believe is really doing well some areas that we are afforded you saw it a bit, particularly like to your point and James already mentioned the after market E Commerce.

I think we had mentioned that it was a experiment in trial for us that we learn from it and that initiative didn't pan out as strong as we thought so we have.

Andy Cheung: So we have made some changes to leadership, and we'll be grouping and seeing other ways to grow the business. As you also pointed out, we have some wins in the electrical business that you mentioned that the previous CEO also mentioned, and those are the wins that we saw over the past couple of years. What James mentioned about EV being not a big part of our business is, if you look at today's revenue profile, EV has not been a big part of our revenue space. Would that be?

<unk> made some changes to leadership and we are regrouping and seeing other way to grow the business.

As you also pointed out so we have some.

Wins in the electrical business that you mentioned that the PVC Youll have also measurement. That's those are the wins that we saw over the past couple of years.

What James mentioned about EV is not a big part of our business is if you look at today, our revenues profile <unk> has not been.

A big part of our revenue base.

Andy Cheung: And it would depend on some of these customers, whether they ramp up to the expected volume, and when would they ramp up? So there's something in the backlog, in the pipeline for the future. Yet to see, but as James mentioned, we are not going to count on that one basket, right?

Would that be and it depends on some of these customer whether they they went up to the expected volume and when will they ramp up so there's something in there in the backlog in the pipeline in the future you have to see but as James mentioned, we are not going to count on that one basket right. So they continue to diversify our revenues so in terms of productivity.

Andy Cheung: So we continue to diversify our revenues. So in terms of productivity, we did follow through on our cost reduction initiatives. This year, we met our own internal target for cost reduction.

<unk>.

We did a follow through of our cost reduction initiatives. This year, we matched our own.

Internal targets of other cost reduction, but at the same time, we mentioned that in the past some of the <unk>.

Andy Cheung: But at the same time, we mentioned that in the past, some of the growth cost reduction will be used to offset some headwinds that we have. However, inflation still continues, particularly in labor and others. So yeah, we would continue to like to see margin expansion as you described, and I think we are on the same boat. And as James mentioned, so this will again be our focus, front and center, the vehicle solution business. Optimizing the margin will be our top priority in addition to our electrical system growth. Thanks for your feedback. We appreciate it. Steve, thanks again.

Those cost reduction will be used to offset some headwinds that we have inflation still continue particularly in labor and others. So yes, we would continue to like to see margin expansion as you describe it and I think we are on the same boat and as James.

James mentioned, so this will be again, our focus from the center the vehicle solution business optimizing the margin who will be our top priority. In addition to our electrical system will transfer a feedback Avi appreciate it alright.

Alright, thank you.

James Wei: I really appreciate your comments, and I see the business in a similar fashion. There are operational excellence things we can do across our functions to improve the stickiness of our cost reductions, and we also have a lot more structure and process rigor we can put in place to ensure that the cost reductions are sustainable and not necessarily one-time. So I see that as an opportunity for margin expansion, both on the material and the operation side, as well as some of our business processes and customer relationships as it relates to debits, delivery, quality, things like that that don't excite our customers, and that is my priority. So without our customers and without their confidence, we can't continue to grow this top line, so that is a very top priority in my mind. Yeah, but keep in mind that a top line with no profitability doesn't do any of us any good. I totally agree with you, and that's why we're going to focus on process rigor and operational excellence across all of our functions, not just in manufacturing. Alright, I hope you succeed.

Steve. Thanks, again really appreciate your comments and I see the business in similar fashion.

There are operational excellence things, we can do across our functions to improve the stickiness of our cost reductions.

And we also have a lot more structure and process rigor, we can put in place to ensure that the cost reductions are sustainable and not necessarily one time, so I see that as an opportunity for margin expansion both on the material the operation side as well as some of our business processes and customer reach.

<unk> as it relates to debits delivery quality things like that that don't excite our customers and that is my priority. So.

With all our customers and without their confidence we can continue to grow. This top line. So that is a very top priority in my mind.

Yes, but keep in mind topline with no profitability doesn't do any of us any good.

No I totally agree with you and that's why we're going to focus on the process rigor and operational excellence across all of our functions not just in the manufacturing.

Alright, I hope you succeed.

Steven L. Martin: Thank you, Steve. Once again, ladies and gentlemen, if you do have any questions, please press star followed by one. Next is a follow-up from John at Sidoti. Please go ahead.

Thank you Steve Thanks, Steve.

Once again, ladies and gentlemen, if you do have any questions. Please press star followed by one.

Next is a follow up from John of Sidoti. Please go ahead.

John Edward Franzreb: Yeah, just in your comments about diversifying the end markets in order to foster growth. Can you just talk a bit, a little bit about how you expect to do that? Do you need to add sales personnel? You know, what's the pathway to, you know, entering new end markets? There are a couple of different ways, John.

Yes.

In your comments about.

Diversifying the end markets in order to foster growth.

Can you just talk a bit a little bit about how you expect to do that you need to add sales personnel and what's the pathway to end.

Entering new end markets.

There are a couple of different ways John.

James Wei: One is to bring sales and engineering people into the organization who have experience, contacts, and credibility in those segments. There are also opportunities for what I would say is cross-selling our white space, where we have a major customer in one of our businesses, but we're not penetrating it with all of our product lines. And that's probably a bigger opportunity than doing it organically with hiring.

One is to bring sales and engineering people into the organization.

Two that have experience and contacts and credibility in those segments.

There are also opportunities for what I would say is.

Cross selling or white space, where we have a major customer in one of our businesses, but we're not penetrating it with all of our product lines.

And thats, probably a bigger opportunity than doing it organically with hiring and on the hiring side.

James Wei: We look at this from a talent management perspective and make sure we have the right people with the right skill sets. Some of what we do in restructuring is part of that rotation to make sure we have the right people with the right skill sets and the right experience. So we have seen traction over the past year, and some of our sales funnel looking into this year, what we're quoting in these various segments that are new. We also have a value proposition where we're successful in one segment with one OEM. That gives us a stronger right to play and right to win in that particular segment.

We look at this from a talent management perspective, and making sure we have the right people with the right skill sets some of what we do in restructuring as part of that rotation to make sure. We have the right people with the right skill sets and the right experience. So we have seen traction over the past year and some of.

Our sales funnel looking into this year, what we're quoting.

In these various segments that are new.

We also have a value proposition, where we're successful in one segment with one OEM that gives us a stronger right to play and right to win in that particular segment. So we are in flight as far as building momentum outside of class eight truck segments as well as continuing to expand outside of construction.

Andy Cheung: So we are in flight as far as building momentum outside of class A truck segments, as well as continuing to expand outside of construction and agriculture as well. Okay, I got it.

<unk> and agriculture as well.

Okay got it and just some updated thoughts on on.

Andy Cheung: And just some updated thoughts on, on two items, I guess, one on debt repayment in the year ahead. And two, what's the CapEx budget, especially in light of the continued ramping up of the new facilities and the startup of the third? Yeah, so from a cap back standpoint, we expect $25 to $30 million in 2024. And you can see, long term, we will normally target a range between 2% to 3% of sales. That's kind of been our trend, and we expect that going forward. When it comes to debt paydown, we will minimally pay down somewhere around $15 million next year as part of our amortization.

Two items I guess, one on debt repayment in the year ahead, and two what's the Capex budget, especially in light of the continued ramping of the new facilities and the startup of.

The third.

Yeah. So from a capex standpoint, we expect $25 million to $30 million in 2024, and you can see it long term, while we will launch <unk> a range between 2% to 3% of sales that's kind of been our trend and we expect that going forward.

When it comes to debt pay down so we will minimum need paydown now somewhere around $15 million next year as part of our amortization and in the past we talk about that we'll continue to do that in animals, we see excess cash ban our first priority will continue to be fun.

Andy Cheung: And in the past, we talked about that. We'll continue to do that. And then when we see excess cash, then our first priority will continue to be funding our organic growth and food to cap back, and other working capital, etc., and then we'll have some options as excess cash becomes available for further debt paydown or potential M&A at that point. We'll share more as we get closer to the year, and we'll share more about our cash flow expectations. Okay, fair enough. Thank you, Andy.

Our organic growth and for the Capex and other working capital et cetera, and then we'll have some options.

Excess cash becomes available for further debt paydown or potential M&A at that point, we'll share more as we get into a lot closer into the year and I will share more about our cash flow expectation.

Okay Fair enough. Thank you Andy Thank you James and.

James Wei: Thank you, James. Thank you. The next question is from Steve Emerson at Emerson Investment Group. Please go ahead. Thank you, gentlemen. I noticed that Admin went from around $22 million to, call it $34 million, up 50%. How much of this is a cash expense increase? For this quarter, I would say, um.., you could call it maybe 60 to two-thirds of it is cash. So, and I have explained in the past, this year there is a bit higher SG&A increase because, if you compare to last year, it was a year that we literally didn't pay our incentive comp from a bonus standpoint. So that's a big part of the SG&A increase this year, and that actually has not been cash impacted yet because we haven't paid the actual bonus. So a big part of that is due to that. The rest will be mostly cash. Um...

Thank you.

Next question is from Steve Emerson of Emerson Investment Group. Please go ahead Steve.

Thank you gentlemen.

I noticed.

Admin what from around 22 million to call it 34 million.

50% how much of this is a cash expense increase.

For this quarter I would say.

You could call. It maybe six key Q2 third of it is cash.

So and I explained in the cost in the past this year there is a bit higher SG&A increase because if you compare to last year. It was a year that we literally DNP our incentive com from a bonus standpoint, so that's a big part of the SG&A increase this.

Year and that is actually right now has not been cash impact it yet because we haven't paid out the actual bonus so a big part of that is due to that the works will be mostly cash.

Andy Cheung: In view of the downbeat forecast this year, I find incentive compensation, equal to, call it, a 40% bump in GNA, highly inappropriate. And that was, I think we're referring back to 2023 versus 2022. I do hear you. Thank you. Thank you. The next question will be from Andrew Bickman at Altair. Please go ahead, Andrew.

N D.

The guarantee.

Cash this year.

Find an incentive comp say Sharon.

Equal to call it 40%.

G&A heightened the inappropriate.

And that was I think they will be firming back to a Chinese Chinese srinivasan for trenching 2022.

I do hear you.

Thank you.

Thank you next question will be from Andrew Backman. Please.

Andrew Bickman: Yeah, hi, gentlemen. One question I have is, if I look at the appendix of the chart you sent out, or the slides you sent out, it breaks down the profitability from an operating income standpoint by business unit. And, you know, as I look at that, I have some familiarity with the vehicle systems business, and I believe that's still a just-in-time business, and, you know, highly, and there's a lot of work that goes into those components. And 3.1%, which this is showing as of the end of the year, it just doesn't seem like the right return for a business that requires the infrastructure that that business requires, and So I'm just wondering what your thoughts are on, Yeah, so clearly, if you just look at the return on sales in Q4 alone, it is not what we were expecting over the longer term. Look, there are two reasons.

Please go ahead Andrew.

Yes, Hi, gentlemen.

One question I have is.

I look at the appendix of the Cherokee sent out.

The slides you sent out.

It breaks down the profitability from an operating income standpoint by business unit.

And as.

As I look at that.

Some familiarity with the vehicle systems business and.

I believe that still adjusted time business.

And you.

Highly and Theres a lot of work that goes into those components.

Three 1%, which is showing.

As at the end of the year. It just doesn't seem like the right return.

Or.

A business that we are.

Acquired the infrastructure that that business requires and.

The investment in capital and working capital. So I'm just wondering have your thoughts on that.

Yeah, so clear.

Clearly if you just look at the.

Return on sales in Q4 alone is not what we were expecting a longer term look there's two reasons. One Q4, historically has been a fairly small revenues quarter and as you mentioned with the infrastructure. There is a certain degree of fixed costs in the business small revenues quarter always impair.

Andy Cheung: One, Q4 historically has been a very small revenue quarter. And, as you mentioned, with the infrastructure, there is a certain degree of fixed cost in the business. Small revenues quarters always impact our ROS. And then also, as James mentioned in the call earlier, we were impacted by a customer strike during the quarter. So it impacted almost 10% of the revenues of that segment in the quarter. And that is obviously difficult for us to adjust fixed costs during the quarter to accommodate for that.

Hang out West and then also as James mentioned in the call earlier, we were impacted by a customer strike during the quarter solid impact hertz or almost 10% of the revenues of that segment in the quarter. So and that is obviously difficult for us to add just fixed cost.

During the call that you will accommodate for that so that also impacted the margin of that business I think longer term.

Andy Cheung: So that also impacted the margin of that business. I think, longer term, your point is valid. So a mid to high single-digit return on that business from a margin standpoint will probably be more appropriate than a low single-digit. Yeah, I mean, I guess I just follow up by saying, I don't know if we ever analyze it from the customer standpoint. But I know for our big customers, we save them a lot of money by being just in time, right when they need it, low inventory. I just, I continue to say there could be an increasing return; even the 7.3 isn't as strong relative to some of your other businesses for the year. But point taken.

Our pond is valid so half a mid to high single digit.

Return on that business from a margin standpoint will be will be probably a more appropriate and a low single digit margin.

Okay.

I guess I just follow up by saying.

I don't know if we ever analyze it from the customer standpoint, but.

I know for our big customers, we save them a lot of money by being just in time right when they need it low inventory.

I just I continue to say there could be.

Increasing return even the seven three isn't as strong relative to some of your other businesses for the year, but.

Andrew Bickman: Thank you for taking my question. Thank you for your feedback. Thank you. Thank you. And at this time, we have no other questions registered. Please proceed. Thank you all for joining today's call. While 2023 was a strong year for the company, I'm even more excited for the opportunities that lie ahead for CVG. We remain encouraged by our business outlook, and we look forward to continuing to execute our long-term growth strategy. Have a great day! Thank you, sir. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. www.globalonenessproject.org

Point taken thank you for taking my question.

Thank you.

Thank you and at this time, we have no other questions registered please proceed.

Thank you all for joining us today's call. While 2023 was a strong year for the company I'm, even more excited for the opportunities that lie ahead for CPG, we remain encouraged by our business outlook and we look forward to continuing to execute our long term growth strategy have a great day.

Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.

Hum.

Yes.

[music].