Q1 2024 Commercial Vehicle Group Inc Earnings Call

Yeah.

Operator: Good morning, ladies and gentlemen, and welcome to the CVGI Q1 2024 earnings call. At this time, all lines are in a listen-only mode.

Good morning, ladies and gentlemen, and welcome to the C. D. G. I Q1, 'twenty 'twenty four earnings call.

Operator: At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.

Operator: Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, May 7th, 2024. I would now like to turn the conference over to Mr. Andy Chung, Chief Financial Officer. Go Heads, Sir.

Speaker Change: At any time during this call you that quite you need assistance. Please press star zero for the operator.

Chung Kin Cheung: This call is being recorded on Tuesday may 7th Jenny Jenny for.

Operator: I would now like to turn the conference over to Mr. Andy Chien Chief Financial Officer. Please go ahead Sir.

Chung Kin Cheung: Thank you, operator, and welcome everyone to our conference call. Joining me on the call today is James Ray, President and CEO of CVG. This morning, we will provide a brief company update as well as commentary regarding our first quarter 2024 results. After that, we will open the call for questions.

Chung Kin Cheung: Thank you operator.

Chung Kin Cheung: Welcome everyone to our conference call.

Chung Kin Cheung: Joining me on the call today is James Wang President and CEO of CVD.

Chung Kin Cheung: This morning, we will provide a brief company update as well as commentary regarding our first quarter 2020 for yourselves.

Chung Kin Cheung: After which we will open the call for questions.

Chung Kin Cheung: As a reminder, this conference call is being webcast, and the Q1 2024 earnings call presentation, which we will refer to during this call, is available on our website. Both may contain forward-looking statements, including, but not limited to, expectations for future periods regarding market trends, cost-saving initiatives, and new product initiatives, among others. Actual results may differ from anticipated results because of certain risks and uncertainties. These risks and uncertainties may include, but are not limited to, economic conditions in the markets in which CVG operates, and fluctuations in the production volumes of vehicles for which CVG is a supplier.

Chung Kin Cheung: As a reminder, this conference call is being webcast and the Q1 2024 earnings call presentation, which we will refer to during this call is available on our website.

Chung Kin 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.

Chung Kin Cheung: Among others.

Chung Kin Cheung: Actual results may differ from anticipated results because of certain risks and uncertainties.

Chung Kin Cheung: These risks and uncertainties may include but are not limited to economic conditions in the markets in which <unk> operates.

Chung Kin Cheung: Fluctuations in the production volumes of vehicles for which <unk> is a supplier.

Chung Kin Cheung: Financial Covenants Compliance and Equity, risks associated with conducting business in foreign countries and currencies, and other risks as detailed in our SEC filing. I will now turn the call over to James to provide a company update.

Chung Kin Cheung: Financial Covenant compliance and liquidity.

James: Risks associated with conducting business in foreign countries and currencies and other risks.

James: In our SEC filings.

Chung Kin Cheung: I will now turn the call over to James to provide a company update.

James: Thank you Andy I'd like to turn your attention to the supplemental earnings presentation, starting on slide three.

James R. Ray: Randy, I'd like to turn your attention to the Supplemental Earnings presentation starting on slide 3. As we discussed in last quarter's call, we launched restructuring initiatives to address softer market conditions that were expected, and we continue to expect in the year. These softer conditions, as well as a strong quarter in the prior year period, made for a tough comparison versus the prior year across most metrics.

James R. Ray: As we discussed in last quarter's call, we launched restructuring initiatives comprehending softer market conditions that were expected and we continue to expect in the year. These softer conditions as well as a strong quarter in the prior year period made for a tough comparison versus.

James R. Ray: As the prior year across most metrics.

James R. Ray: We reported net sales of $232 million in the quarter and adjusted EBITDA of $12.7 million. We remain focused on driving further operational efficiency improvements, strengthening our vehicle solution segment, and growing our electrical system segment to be our largest business. We fully executed restructuring initiatives in the first quarter, and combined with additional efforts I'll discuss later, underpin our financial guidance for 2024. Despite a net use of cash in the quarter, our net leverage ratio remains strong at 1.8 times.

James R. Ray: We reported net sales of $232 million in the quarter and adjusted.

James R. Ray: Adjusted EBITDA of $12 $7 million, we remain focused on driving further operational efficiency improvements.

James R. Ray: Strengthening our vehicle solutions segment.

James R. Ray: Growing our electrical systems segment to be our largest business.

James R. Ray: We fully executed restructuring initiatives in the first quarter and combined with additional efforts I'll discuss later underpin our financial guidance for 2024.

James R. Ray: Despite a net use of cash in the quarter, our net leverage ratio remained strong at one eight times.

James R. Ray: We also continue driving new business. We're reporting approximately $45 million in new wins so far this year on a fully-rent basis. Consistent 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 and additional Morocco facility, which are focused on meeting the demand growth in electrical systems. Turning to slide four.

James R. Ray: We also continue driving new business wins recorded approximately $45 million and new wins, so far this year on a fully ramped basis.

James R. Ray: <unk> with our strategy. These wins continue to be focused within our electrical systems segment.

James R. Ray: <unk> the product ramp up at our two new plants and additional Morocco facility.

James R. Ray: Which are focused on meeting the demand growth in electrical systems.

James R. Ray: Turning to slide four I'd.

James R. Ray: I'd like to take this opportunity to highlight some recent strategic actions we've taken, which all serve as a reminder of our continued goal to align costs and improve margins at CVG. First, we continue to make significant strides in our organizational efficiency improvement, as our restructuring actions to reduce costs and align resources with our growth product lines remain underway. In line with that, we announced last quarter the consolidation of products manufactured in our facility in Chillicothe, Ohio. We now have a signed purchase agreement for the sale of the Chillicothe facility, with the transaction expected to close in Q3.

James R. Ray: I'd like to take this opportunity to highlight some recent strategic actions, we've taken which all serve as a reminder of our continued goal to align costs and improve margins at CPG.

James R. Ray: First we continue to make significant strides in our organizational efficiency improvements as our restructuring actions to reduce costs and align resources with our growth product lines remain underway in line with that we announced last quarter the consolidation of products manufacturer.

James R. Ray: And our facility in Chillicothe, Ohio.

James R. Ray: We now have a signed purchase agreement for the sale of the Chillicothe facility with the transaction expected to close in Q3.

James R. Ray: Second, our Operational Excellence Emphasis supports our ongoing cost-out program, which focuses on productivity, materials, and conversion costs. Finally, we are persistent in our efforts to increase engagement by prioritizing customer satisfaction across the organization. Our collaboration across business segments will help introduce new products, foster stronger customer relationships, and help us manage inflationary price recovery. Collectively, these efforts are targeted to improve profitability, increase enterprise-wide efficiency, and support our outlook for the full year 2024.

James R. Ray: Second our operational excellence emphasis supports our ongoing cost out program, which focuses on productivity materials and conversion costs. Finally, we are persistent in our efforts to increase engagement by prioritizing customer satisfaction across the organization.

James R. Ray: Our collaboration across business segments will help introduce new products foster stronger customer relationships and.

James R. Ray: Help us manage inflationary price recoveries.

James R. Ray: Secondly, these efforts are targeted to improve profitability.

James R. Ray: Enterprise wide efficiency and support our outlook for the full year 2024.

James R. Ray: Now, moving to slide five, I'd like to highlight the expansion of our new Unity Seat product line within our vehicle solution segment. The Unity Seat line has many product features that are helping us win business globally, including powered full seat tilt and lever recline, decreased free play, and performance above market requirements. Importantly, the Unity line has achieved safety compliance across all our strategic regions and market segments. This expansion is a strong example of how we are strengthening our core vehicle solutions business through customer focus, solutions, and technology.

James R. Ray: Now moving to slide five I'd like to highlight the expansion of our new unity seat product line within our vehicle solutions segment. The unity Sealine as many product features that are helping us win business globally, including powered full C. Two and lever re.

James R. Ray: Clients decreased free play and performance above market requirements importantly, the unity lies is achieved safety compliance across all of our strategic regions and market segments. This expansion is a strong example of how we are strengthening our core vehicle solutions.

James R. Ray: Business through customer focus solutions and technology.

James R. Ray: We look forward to growing our Unity sales globally and sharing our successes with you in the coming quarters. With that, I'd like to turn the call back to Andy for a more detailed review of our financial results.

James R. Ray: We look forward to growing our unity sales globally.

James R. Ray: Our successes with you in future quarters with that I'd like to turn the call back to Andy for a more detailed review of our financial results.

Chung Kin Cheung: Thank you, James, and good morning, everyone. If you are following along in the presentation, please turn to slide 6. Consolidated first quarter 2024 revenues were $232 million as compared to $263 million in the prior year period. The decrease in revenues is due primarily to a softening in customer demand globally. The anticipated wind-down of certain programs in our vehicle solutions segment and a decline in our aftermarket and industrial automation segments, which more than offset an increase in electrical systems revenue.

Andy: Thank you James and good morning, everyone.

Chung Kin Cheung: Adjusted EBITDA was $12.7 million for the first quarter, compared to $19.8 million in the prior year. Adjusted EBITDA margins were 5.5%, down 200 basis points as compared to adjusted EBITDA margins of 7.5% in the first quarter of 2023. It was driven primarily by lower volumes and inflationary impacts, partially offset by lower SG&A expenses. Interest expense was $2.3 million as compared to $2.9 million in the first quarter of 2023. The decrease in interest expense was primarily related to lower average debt balances during the respective period.

Chung Kin Cheung: If you are following along in the presentation. Please turn to slide six.

Chung Kin Cheung: Consolidated first quarter 2024 revenues was 232 million.

Chung Kin Cheung: As compared to $263 million in the prior year period.

Chung Kin Cheung: The decrease in revenues is due primarily to a softening in customer demand globally.

Chung Kin Cheung: The anticipated wind down of certain programs in our vehicles solutions segment, and a decline in our aftermarket and industrial automation segments.

Chung Kin Cheung: Which more than offset an increase in electrical systems revenues.

Chung Kin Cheung: Adjusted EBITDA was $12 7 million for the first quarter.

Chung Kin Cheung: <unk> to $19 8 million in the prior year.

Chung Kin Cheung: Adjusted EBITDA margins were five 5% down 200 basis points as compared to adjusted EBITDA margins of seven 5% in the first quarter of 2023.

Chung Kin Cheung: Driven primarily by lower volumes and inflationary impacts, partially offset by lower SG&A expenses.

Chung Kin Cheung: Interest expense was $2 3 million as compared to $2 9 million in the first quarter of 2023.

Chung Kin Cheung: The decrease in interest expense was primarily related to lower average debt balances during the respective periods.

Chung Kin Cheung: Net income for the quarter was $2.9 million, or $0.09 per diluted share, as compared to a net income of $8.7 million, or $0.26 per diluted share, in the prior year. Adjusted net income for the quarter was $4.4 million, or $0.13 per diluted share, as compared to $9.2 million, or $0.28 per diluted share, in the prior year. Moving to the segment results, beginning slide 7.

Chung Kin Cheung: Net income for the quarter was $2 9 million or nine cents per diluted share as compared to a net income of $8 7 million.

Chung Kin Cheung: Our 26 cents per diluted share in the prior year.

Chung Kin Cheung: Adjusted net income for the quarter was $4 4 million.

Chung Kin Cheung: <unk> 13 cents per diluted share as compared to $9 $2 million or 28 cents per diluted share in the prior year.

Chung Kin Cheung: Moving to the segment results beginning on slide seven.

Chung Kin Cheung: Our electrical system segment achieved revenues of $55.8 million, an increase of 1.9% as compared to the year-ago product, with the increase resulting primarily from increased pricing. Sales volume with legacy customers saw a slight decline as a result of softening construction and agriculture end markets. Recent comments from OEMs in these end markets have indicated weakening demand, and we will continue to proactively adjust our core structure should these trends continue. We have also seen customer delays in the ramp-up of new business wins, resulting in total sales volume being largely flat year over year.

Chung Kin Cheung: Our electrical systems segment achieved revenues of $55 8 million.

Chung Kin Cheung: An increase of one 9% as compared to the year ago quarter.

Chung Kin Cheung: With the increase resulting primarily from increased pricing.

Chung Kin Cheung: Sales volume with legacy customers.

Chung Kin Cheung: A slight decline as a result of soft and in construction and agriculture end markets.

Chung Kin Cheung: Recent comments from Oems in these end markets have indicated weakening demand and we will continue to proactively adjust our cost structure should these trends continue.

Chung Kin Cheung: We have also seen customer delays in the ramp up of new business wins, resulting in total sales volume being largely flat year over year.

Chung Kin Cheung: Adjusted operating income was $3.1 million, a decrease of $3 million compared to the first quarter of 2023. Operating income was negatively impacted at our Mexico facilities by the strengthening of the peso and the government-mandated wage increases that took effect on January 1st. We are continuing to work with our customers to offset these headwinds. However, negotiations remain ongoing.

Chung Kin Cheung: Adjusted operating income was $3 1 million.

Chung Kin Cheung: A decrease of $3 million compared to the first quarter of 2013.

Chung Kin Cheung: Operating income was negatively impacted at our Mexico facilities by the strengthening of the peso and the government mandated wage increases that took effect on January 1st.

Chung Kin Cheung: We are continuing to work with our customers to offset these headwinds however negotiations remain ongoing.

Chung Kin Cheung: Construction on our second Morocco facility remains on track and is expected to be complete by the fourth quarter of 2024. We will remain focused on driving operational improvements and optimizing margins, even as additional new wind flows through. Turning to slide 8. Our vehicle solutions segment's first quarter revenues decreased 14% to $137.9 million compared to the year-ago quarter, due primarily to lower customer demand, including the impact of supply shortages at a key customer that negatively impacted our schedules. Additionally...

Chung Kin Cheung: Construction on our second Morocco facility remains on track.

Chung Kin Cheung: And is expected to be complete.

Chung Kin Cheung: By the fourth quarter of 2024.

Chung Kin Cheung: We will remain focused on driving operational improvements and optimizing margins given additional new wins flow through.

Chung Kin Cheung: Turning to slide eight.

Chung Kin Cheung: Our vehicle solutions segment first quarter revenues decreased 14%.

Chung Kin Cheung: $137 9 million.

Chung Kin Cheung: Compared to the year ago quarter.

Chung Kin Cheung: <unk> primary to lower customer demand, including the impact of supply shortages at a key customer that negatively impacted our schedules.

Chung Kin Cheung: Additionally, the.

Chung Kin Cheung: The anticipated wind-down of certain unfavorable programs in the segment weighed on revenues in the quarter. Adjusted operating income for the first quarter was $10.9 million, a decrease of $2.6 million compared to the prior year period, as lower market demand was partially offset by operational improvements and lower SG&A, focusing the main focus on strengthening our core business in vehicle solutions. And this segment remains a key focus for our team in terms of reducing costs, driving further operational improvements, as well as winning business on new platforms, all with the goal of driving improved marginal... Moving to slide 9.

Chung Kin Cheung: We anticipate that wind down of certain unfavorable programs in the segment weighed on revenues in the quarter.

Chung Kin Cheung: Adjusted operating income for the first quarter was $10 9 million.

Chung Kin Cheung: A decrease of $2 6 million compared to the prior year period.

Chung Kin Cheung: As lower market demand was partially offset by operational improvements and lower SG&A.

Chung Kin Cheung: We remain focused on strengthening our core business in vehicle solutions.

Chung Kin Cheung: And this segment remains a key focus for our team in terms of reducing costs driving further operational improvements as well as winning business on new platforms, all with the goal of driving improved margins.

Chung Kin Cheung: Okay.

Chung Kin Cheung: Moving to slide nine.

Chung Kin Cheung: Our aftermarket, an accessory segment, revenues in the first quarter decreased 9.5% to $34.1 million, compared to the year before, primarily resulting from decreased sales volume due to lower customer demand and the drawdown of backlog in the prior year period. Adjusted operating income for the first quarter was $4.6 million, a decrease of $1 million compared to the prior year period. The decrease is primarily attributable to lower sales volume. However, on a sequential basis, results in this segment increase in terms of revenue and adjusted operating income, as our operational improvement initiatives bear fruit.

Chung Kin Cheung: Our aftermarket and accessories segment revenues in the first quarter decreased nine 5% to $34 1 million.

Chung Kin Cheung: Compared to the year ago quarter.

Chung Kin Cheung: Primarily resulting from decreased sales volume on lower customer demand and the drawdown of backlog in the prior year period.

Chung Kin Cheung: Adjusted operating income for the first quarter was $4 6 million.

Chung Kin Cheung: A decrease of $1 million compared to the prior year period.

Chung Kin Cheung: The decrease is primarily attributable to.

Chung Kin Cheung: Lower sales volumes.

Chung Kin Cheung: On a sequential basis results in this segment increased in terms of revenue and adjusted operating income.

Chung Kin Cheung: As our operational improvement initiatives bear fruit.

Chung Kin Cheung: Turning to slide 10, our industrial automation segment produced first quarter revenues of $4.3 million, a decrease of 56% as compared to $9.7 million in the first quarter of 2023, due to ongoing challenging market conditions and reduced demand from legacy customers. Adjusted operating income was a loss of $1.9 million compared to a loss of $0.2 million in the prior year period.

Chung Kin Cheung: Turning to slide 10.

Chung Kin Cheung: Our industrial automation segment produced first quarter revenues of $4 3 million a day.

Chung Kin Cheung: Increase of 56% as compared to $9 $7 million in the first quarter of 2023 due.

Chung Kin Cheung: Due to ongoing challenging market conditions and reduced demand from legacy customers.

Chung Kin Cheung: Adjusted operating income was a loss of $1 9 million compared.

Chung Kin Cheung: Compared to a loss of zero on $2 million in the prior year period.

Chung Kin Cheung: We continue to take actions to right-fight this business. We are focused on strengthening both commercial excellence and operational execution to improve order intake. In parallel with these activities, we are actively exploring new air markets and developing new highly engineered products. An example of this is the development of a new product named Stack, which was showcased at the MoDex trade show in March. This concludes my financial overview. I will now turn the call back over to James to discuss our updated 2024 outlook.

Chung Kin Cheung: We continue to take actions to right size this business.

James: We are focused on strengthening our both commercial excellence and operational execution to improve order intake.

James: In parallel with these activities, we are actively exploring new end markets and developing new highly engineered products.

James: An example of this is the development of a new product named stack, which was showcased at the <unk> ratio in March.

Chung Kin Cheung: Yes.

Chung Kin Cheung: Concludes my financial overview, I will now turn the call back over to James to discuss our updated 2024 outlook.

James R. Ray: Thank you, Andy. Turning to slide 11, I'll share several thoughts on our outlook for 2024. Following the introduction of our quantitative annual guidance, at the revenue and adjusted EBITDA levels, in March 2024, we are reaffirming our previously announced guidance ranges for both metrics. Industry forecasts currently project a decline in North American Class A truck builds of approximately 10% for the year, a slightly positive revision from the previous estimate of a 16% decline. This favorable revised Class VIII outlook is being offset by weakening in the construction and agriculture end markets, which we expect to be flat to down 10% in 2024.

James: Thank you Andy turning to slide 11.

James R. Ray: Sure several thoughts on our outlook for 2024.

James R. Ray: Following the introduction of our quantitative annual guidance at the revenue and adjusted EBITDA level in March 2024, we are reaffirming our previously announced guidance ranges for both metrics.

James R. Ray: Industry forecasts currently projected decline in North American class eight truck builds of approximately 10% for the year.

James R. Ray: A slightly positive revision from the previous estimate of a 16% decline.

James R. Ray: This favorable revised class eight outlook is being offset by weakening in the construction and agriculture end markets.

James R. Ray: We expect to be flat to down 2% in 2024.

James R. Ray: Notwithstanding these market changes, we are reaffirming our guidance range of $915 million to $1.015 billion in full year 2024 revenue. We believe our business will continue to be resilient as we benefit from our diversification strategy and forward-looking resource allocation. Given the aforementioned truck build estimates, the construction and agriculture market outlooks, and the expectation for further electrical system segment growth, we expect adjusted EBITDA to be solidly in the previously provided guidance range of $60 to $73 million for 2024.

James R. Ray: Notwithstanding these market changes, we are reaffirming our guidance range of $915 million.

James R. Ray: Two 1.015 billion in.

James R. Ray: And full year 2024 revenues, we believe our business will continue to be resilient as we benefit from the diversification strategy and forward looking resource allocation.

James R. Ray: Given the aforementioned truck build estimates construction and agriculture market outlooks and the expectation for further electrical systems segment growth, we expect adjusted EBITDA to be solidly in the previously provided guidance range of $60 million to $73 million.

James R. Ray: For 2024.

James R. Ray: We believe that the actions being taken to consolidate operations, rescale our labor force, together with continued discussions with our customers to manage headwinds will serve to underpin the guidance. We continue to expect that we will generate positive free cash flow, providing us with optionality to pursue either debt paydown or inorganic growth efforts should we find an attractive opportunity. We continue to see multiple opportunities to improve profitability through operational cost efficiency and strategic sourcing decisions and expect all of this to lead to improved working capital management and increased cash generation.

James R. Ray: We believe that the actions being taken to consolidate operations Reskill, our labor force together with continued discussions with our customers to manage headwinds will serve to underpin the guidance.

James R. Ray: We continue to expect that we will generate positive free cash flow, providing us with optionality to pursue either debt paydown or inorganic growth efforts should we find an attractive opportunity.

James R. Ray: We continue to see multiple opportunities to improve profitability through operational cost efficiency, and making strategic sourcing decisions and expect all of this to lead to improved working capital management and increased cash generation.

James R. Ray: Collectively, our business transformation is expected to drive a stronger business mix and make CVG a stronger and more profitable company in the coming years. With that, I will now turn the call back over to the operator to open the line up for questions.

James R. Ray: Collectively.

James R. Ray: Our business transformation is expected to drive a stronger business mix. It makes <unk>, a stronger and more profitable company in the coming years with that I will now turn the call back over to the operator to open the lineup for questions operator.

James R. Ray: Okay.

Speaker Change: Thank you, Sir ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone fine.

Operator: Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any button. Our first question comes from the line of John Franzreb from Sidoti and Company. Go ahead.

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John Edward Franzreb: Our first question comes from the line of John <unk> from Sidoti and company go ahead. Please.

John Edward Franzreb: Good morning, everybody, and thanks for taking the question. Good job.

John Edward Franzreb: Good morning, everybody and thanks for taking the questions.

John Edward Franzreb: Good morning, John and John.

James R. Ray: I'd like to start with the vehicle solutions segment and the winding down of certain programs. I'm curious how much of that impacted the revenue line year over year. And are those program wind downs complete, or will they continue into the second quarter and beyond?

John Edward Franzreb: I'd like to start with the vehicle solutions segment and wind down of certain programs.

James R. Ray: I'm curious how much of that impacted the revenue line year over year and our.

James R. Ray: Are those.

James R. Ray: Program wind downs complete or are they continuing to the second quarter and beyond.

James R. Ray: Yeah, so John, thanks for the question. The majority of the wind-down has been completed. So right now, we see for the quarter, we'll call it a single-digit median level of impact. But you have to remember, this is an anticipated wind-down that we talked about a few quarters ago at, I'll call it maybe, during the time when we negotiated the pricing. In the last round, we decided that there are certain programs that are not favorable for us, and we decided to exit them.

Speaker Change: Yes, so John Thanks for the question. So the majority of the wind down has been completed.

James R. Ray: So right now received for the quarter I will call. It a single chip median level of impact.

James R. Ray: But remember this is anticipated wind down that we talk about a few quarters ago.

James R. Ray: <unk>.

James R. Ray: I'll call it may be.

James R. Ray: During the time, when we negotiate a pricing last round, we decided that there are certain programs that are not favorable for us and we decided to exit them. So you can see the impact actually is showing up now in Q1. So it's something that we've been working for play a while ago and it took some time for us to.

James R. Ray: So you can see the impact actually showing up now in Q1. So it's something that we've been working through quite a while ago, and it takes some time for us to work through the final production. And now, in Q1, you can see the numbers.

James R. Ray: Well for the final production and now Q1, you can see the numbers.

Chung Kin Cheung: Got it, got it. And Angie, is it safe to say that all the repricing actions and everything related to that are now in the, no pun intended, rearview mirror? Yes, yes, you're right.

Speaker Change: Got it got it and is it safe to say that all the repricing actions and everything related to that is is down no pun intended rearview mirror.

Chung Kin Cheung: Yeah.

Angie: Yes, Yes, you are right.

Chung Kin Cheung: Okay.

Chung Kin Cheung: Regarding the restructuring actions, can you kind of quantify the... How much in restructuring actions that you're going to take, maybe collectively, do you have an idea for calendar 24 and what your anticipated annualized savings rate will be from these actions?

Chung Kin Cheung: Regarding the restructuring actions can you.

Chung Kin Cheung: Kind of quantify the.

Chung Kin Cheung: How much of restructuring actions.

Chung Kin Cheung: Youre going to Youre going to take maybe collectively you have an idea for calendar 'twenty four and what your anticipated annualized savings rate will be from these actions.

Chung Kin Cheung: Yeah, so a couple of things. We announced last quarter that we were doing some restructuring, mainly here in North America. During the quarter, in Q1, we executed about $2 million in restructuring costs. I would call it maybe two-thirds of it related to headcount reductions, and then one-third of it related to facility closings. We are, I would call it, more than halfway through our restructuring program. We will still have some activity going on in Q2, and most of this should be wrapped up by Q3. So both in terms of our facility manufacturing as well as FG&A. So that's where we are right now.

Angie: Yes so.

Chung Kin Cheung: Couple of things, we announced last quarter that we were.

Chung Kin Cheung: Doing a few restructuring mainly here in North America during the quarter in Q1, we executed about $2 million.

Chung Kin Cheung: Of which rupturing cost.

Chung Kin Cheung: Call. It maybe two third of it related to head count reductions and in one side of it related to facility closings.

Chung Kin Cheung: We are I would call it.

Chung Kin Cheung: More than halfway through our restructuring program, we will still have some activity going on in Q2 and most of these should be wrapped up by Q3. So both in terms of our facility manufacturing SG&A.

Chung Kin Cheung: So that's why we are right now.

Chung Kin Cheung: And how did you anticipated net savings annualized when you did this process?

Speaker Change: And your anticipated net savings annualized when you've done this process.

Chung Kin Cheung: Yeah, so it depends really on the different types of projects. We obviously have a mixed bag of multiple kinds of projects, SG&A and manufacturing. Normally, we target about two years of payback on our saving projects, but it will depend on the type of the actions within the restructuring program.

Speaker Change: Yes, so it depends really on the different type of the projects. We obviously have a mixed bag of multiple kind of project SG&A and manufacturing.

Chung Kin Cheung: Normally we target about two years of payback in our saving projects.

Chung Kin Cheung: But it will be depends on the type of the actions within the restructuring program.

Chung Kin Cheung: Okay.

James R. Ray: I guess the last thing I'll get back into Q, the industrial automation business took a real step down as far as revenue compared to the second half of last year. I was under, I guess, the anticipation. We were kind of troughing at that high 30, low 40 revenue level. And actually, it was also an impression that maybe business had the potential to get better in the year ahead. Has something fundamentally changed? Can you kind of talk about what's going on here?

Speaker Change: I guess last thing I'll get back in queue.

James R. Ray: The industrial automation business took a step.

James R. Ray: Stepped down as far as revenue compared to the second half of last year.

James R. Ray: I was wondering I guess, the anticipation will kind of traffic at that high 30, low 40 revenue level.

James R. Ray: And I actually was also under the impression that maybe that business has the potential to get better in the year ahead.

James R. Ray: Has something fundamentally changed can you kind of talk about what's going on there.

James R. Ray: Hey John, this is James. Yeah, we're in the middle of the transformation of that business. As we talked about on the last call, we're shifting from more of a contract manufacturing PTO-based business to a more engineered product, serialized production business with longer-term contracts. So part of this was anticipated. However, the PO business is very cyclical, and it's very lumpy as it comes in. So several of our customers are in the government space, and when they have year-end spend toward the end of the third quarter, typically for government, that's when we tend to see a pickup.

James R. Ray: Hey, John This is James.

James R. Ray: We're in the middle of the transformation of our business as we talked about on our last call. We are shifting from more of a contract manufacturing Peter on base business more.

James R. Ray: More engineered product serialized production business with longer term contracts. So part of this was anticipated. However, the <unk> business is very cyclical and it's very lumpy as it comes.

James R. Ray: So several of our customers are in the government space and when they have year end spend toward the end of the third quarter typically for government. That's when we tend to see a pickup so thats been lighter than it was in prior year and as we invest in SG&A to go to the engineered products.

James R. Ray: So that's been lighter than it was in the prior year. And as we invest in SG&A to go to the engineered products, like we mentioned the stack product, we added engineers and SG&A to participate in the MoDex show, but also that's for the stack product, but also other new products with other new customers that are much more technical and engineering heavy. So we're in the midst of this transformation, and we have seen a recent improvement in our order inflow, as well as contracts where we'll be shipping product in Q3 and Q4. So the leading indicators are giving us some level of confidence that we'll be continuing to turn this around, on the upside.

James R. Ray: We mentioned the stack product, we added engineers and SG&A to participate in the <unk> show, but also.

James R. Ray: Thus for the stack product, but also other new products with other new customers that are much more technical and engineering heavy so we're in the midst of this transformation.

James R. Ray: We have seen a recent improvement in our order inbound as well as contracts, we will be shipping product in Q3 and Q4, so the leading indicators are giving us.

James R. Ray: Some level of confidence that we will be continuing to turn this around going on the upside.

James R. Ray: Okay, so James, it's fair to say you think this is a revenue trough that we're in, as we're in that transition period.

Speaker Change: Okay. So James it's fair to say you think this is <unk>.

James R. Ray: Our revenue trough there on in.

James R. Ray: As you are in that transition period.

James R. Ray: Yeah, so yes, to a certain degree, yes, but it can depend on the sharp rebound on whether or not we get near-term contracts on these new products. You know, we could see more of a spike back up, or it may be a longer recovery, depending on the new products. These new products require prototypes and alpha and beta testing of prototypes in customer facilities and also in their customer facilities as well. When you get into a full fulfillment center ecosystem, there's a double level of beta and alpha testing.

James R. Ray: So yes to a certain degree yes, but it can depend on the.

James R. Ray: The sharp rebound.

James R. Ray: Whether or not we get near term contracts on these new products, we could see more of a spike back up or it may be a longer recovery, depending on the new products. These new products require prototypes and alpha and beta testing of prototypes and customer facilities and also in their customer facilities is well over in Europe.

James R. Ray: A full fulfillment center ecosystem.

James R. Ray: There is a double level of beta and alpha testing so the timeline for the new products from a revenue standpoint, the prototype revenue as well as in our E. As.

James R. Ray: So the timeline for the new products, from a revenue standpoint, the prototype revenue as well as NRE is in the three to six-month range, and then full-scale production, we foresee that being in the six to nine-month range for these new products, which in many cases have a higher SKU price than some of our existing contract manufacturing products.

James R. Ray: As in the three months to six months range of and full scale production, we foresee that being in the six to nine month range on these new products, which in many cases have a higher <unk>.

James R. Ray: SKU price than some of our existing contract manufacturing products.

John Edward Franzreb: Got it. Thank you, sir. I'll get back into the queue.

Speaker Change: Got it thank you, Sir I will get back into queue.

Speaker Change: Thank you.

Operator: Our next question comes from the line of Gary Prestopino from Barrington Research. Go ahead.

John Edward Franzreb: Our next question comes from the line of Gary <unk> from Barrington Research go ahead. Please.

Gary Frank Prestopino: Hi, good morning James and Andy. Yeah, my questions also revolve around what you're doing on the restructuring side. I guess, you know, given the fluidness of the changes you're seeing in some of your markets, particularly, I think you said some of the electrical systems areas starting to see some weakness in construction and agriculture, have you identified most of what you want to do in 2024 in terms of restructuring or is this kind of more or less a fluid process that's really going to be ongoing.

Gary Frank Prestopino: Hi, good morning, James.

Gary Frank Prestopino: Yes. My question is also a revolve around what you're doing on the restructuring side I guess.

Gary Frank Prestopino: Given the fluid and as to what the changes youre seeing in some of your markets.

Gary Frank Prestopino: Particularly I think you said some of the electrical systems areas are starting to see some weakness in construction and AG.

Gary Frank Prestopino: Have you you've identified most of what you want to do in 2024 in terms of restructuring.

Gary Frank Prestopino: Or is this kind of more or less a fluid.

Gary Frank Prestopino: Process, that's really going to be ongoing.

James R. Ray: You know, it's really going to depend on how this market recovery tracks. So in this construction ag segment of the market, our business is primarily with legacy long-term customers. They're not like new startups.

Gary Frank Prestopino: It's really going to this is James and hi. Thank you for the question, it's really going to depend on how this market recovery track. So in this construction segment of the market. Our business is primarily with legacy long term customers.

James R. Ray: They're not like new startups, so we do need to be prepared for a recovery in the market. So we will continue to adjust both up and down depending on the signals, we get from that customer segment in those market segments in the fall last year, our indications from our outlooks from those.

James R. Ray: So we do need to be prepared for a recovery in the market, and we will continue to adjust both up and down depending on the signals we get from that customer segment and those market segments. In the fall last year, indications from, or outlooks from those customers led to a low single-digit year-over-year improvement in what they had communicated, but they've since communicated a flat to down 10% outlook for the year. So we had plans in place to comprehend a low single-digit increase in the market, and now we're in the pivot mode to scale things back for a flat to down 10%.

James R. Ray: <unk> led to a low single digit year over year improvement in what they had communicated but they've since communicated a flat to down 10% outlook for the year. So we had plans in place to comprehend and a low single digit increase in market.

James R. Ray: We are in the pivot mode to scale things back for a flat to down 10%. So it was a pretty significant swing the number of macro items.

James R. Ray: So it was a pretty significant swing; a number of macro items influenced that in different regions, both Europe and North America, but that is what we're doing to flex to try and maintain as much margin as possible but also make sure we have the appropriate amount of capacity in place. When they do come back, we're not left short of capacity and not able to fulfill the contracts we signed up for, or lose market share. So it's quite a delicate balance to do that, but our outlook remains very positive on these markets as they are somewhat cyclical in nature.

James R. Ray: Influence that in different regions, both Europe, and North America, but that is what we're doing with flex to try and maintain as much margin, but also make sure we have the appropriate amount of capacity in place when they do come back we're not left short of capacity are not able to fulfill the contracts.

James R. Ray: Sign up for and lose market share. So it's quite a quite a delicate balance to do that but our outlook remains very positive in these markets as they are somewhat cyclical in nature.

James R. Ray: Okay, and then in terms of your guidance, you know, $60 million to $73 million for Evita, would it be more or less the electrical segment that would have to do an unexpected downturn for you to be below that $60 million?

Speaker Change: Okay, and then in terms of your guidance 60 million to $73 million for EBITDA.

James R. Ray: Would it be more or less the electrical segment that would have to.

Speaker Change: Do an unexpected downturn for you to be at the Bill.

James R. Ray: So that $60 million.

James R. Ray: It could be a number of things. It could be a deterioration back in Class 8. So, if you recall, the Class 8 forecast by ACT has been somewhat volatile over the last six months: up, down, up, down. Now we're back up a little. And because the larger portion of our revenue stream is in the vehicle solutions segment tied to Class 8 trucks, we saw a reversal of this positive trend back down to minus 16 or more percent down.

Speaker Change: It could be a number of items it could be.

James R. Ray: A deterioration back in class a recall of the <unk>.

James R. Ray: Lastly forecast.

James R. Ray: She has been somewhat volatile over the last six months of App download by now that we're back up a little and because the larger portion of our revenue stream is in the vehicle solutions segment tied to class eight trucks. We saw a reversal of this positive trend back down to the minus 16 or more percent down.

James R. Ray: That could influence where we end up in the range. For the electrical segment, because we have more programs that are launching, and some of those launches have been delayed, which is some of the headwinds we see, but they will be coming, and a rebound in the construction ag market, I would say that we still are confident that we'll be in that range unless something very significant happens. And Gary, if I may add to it,

James R. Ray: That could influence where we end up in the range on the electrical segment, because we have more programs that are launching and some of those launches have been delayed which is some of the headwinds we see but we will be coming.

James R. Ray: <unk>.

Speaker Change: Rebound in the construction AG market I would say that we still are confident that we'll be in that range.

James R. Ray: Unless something very significant assets and Gary if I may add to it one thing that we see some uncertainties and volatility is really still with the supply chain disruption the pop up here and there you probably remember last quarter. There were some labor disruption at our customers and those labor issues.

Chung Kin Cheung: And Gary, if I may add to it, one thing that we see some uncertainties and volatility is really still the supply chain disruptions that pop up here and there. You probably remember last quarter there was some labor disruption at our customers, and those labor issues are still happening from place to place at different customers. We saw this quarter also some of our customers' suppliers also have supply issues impacting our customers, and of course, we all know that the Suez Canal issue is affecting logistics. So those are the things I'll probably see potentially as a downside risk if something continues to happen throughout the year. So in the last couple of quarters, we've seen some of them happening.

Speaker Change: Still happening from places to places.

Speaker Change: At different customers.

Gary: We saw this quarter also.

Chung Kin Cheung: Some of our suppliers of our customers also have supply issue impacting our customers and of course, we all know that the Suez Canal issue affecting logistics. So those are the things probably I'll see potentially a downside risk if something continue to happen throughout the year. So.

Chung Kin Cheung: The last couple of calls we've seen some of them happening.

Speaker Change: Okay. Thank you.

Chung Kin Cheung: Yeah.

Operator: Thank you. Ladies and gentlemen, just a street reminder, should you have a question, please press star followed by the number one on your touchtone phone. We have our next question coming from the line of Joe Gomez from Noble Capital Markets. Please go ahead.

Speaker Change: Thank you, ladies and gentlemen, Justice suite a reminder.

Joseph Anthony Gomes: You have a question. Please press star followed by the number one on your Touchtone phone.

Joseph Anthony Gomes: Our next question coming from the line of Joe Gomes.

Joseph Anthony Gomes: Noble capital markets. Please go ahead.

Joseph Anthony Gomes: Hey, good morning. This is Joshua Zolkow filling in for Joe. Hi Josh, good morning. So just a quick question, just on the electrical side of business, you know, it kind of looked to have this kind of a bit of slower revenue growth than we expected, just given the kind of recent contract wins there. You know, was there really something behind that slower growth rate?

Operator: Hey, Good morning, this is Josh filling in for Joe.

Speaker Change: Hi, Josh good morning.

Joseph Anthony Gomes: Okay. So.

Joseph Anthony Gomes: Just a quick question just on the electrical side of the business.

Joseph Anthony Gomes: Kind of look to have this as a kind of a bit slower revenue growth than kind of we expected just given the kind of recent contract wins there.

Joseph Anthony Gomes: Is there really something behind that like slower growth rate.

Joseph Anthony Gomes: Yeah.

Chung Kin Cheung: Yeah, Joseph, as James already mentioned, the legacy customer is mostly construction and agriculture. So, as we explained, that does make up the majority of the end markets of the electrical segments.

Joseph Anthony Gomes: Yes, so Joseph so.

Joseph Anthony Gomes: James already mentioned, so the legacy customer.

Chung Kin Cheung: Mostly construction and agriculture. So as we explained at best make up the majority of the end markets of the electrical segments.

Chung Kin Cheung: So, at the same time, if you look back into the last couple of quarters, the growth of the segment comes from continual ramping up of our new wins over the years. As you described, this year we saw a slowdown in those ramps, mostly because customers were seeing logistical and supply chain challenges, so they were not able to ramp up their production, so in turn, obviously, we didn't get the revenues to supply them.

Chung Kin Cheung: So that we are seeing a slight decline.

Chung Kin Cheung: So at the same time.

Chung Kin Cheung: You look back in the last couple of quarters the growth of the segment as it come from continue ramping our new wins over the years.

Chung Kin Cheung: We described this year, we saw a slowdown of those ramp.

Chung Kin Cheung: Mostly because of customers seeing logistical and supply chain challenges. So they were not able to ramp up their production. So in turn obviously, we don't get the revenues to supply to them. So that's the combination that impacting this quarter overall the volume is still up so meaning that we still seeing some level of new revenues.

Chung Kin Cheung: So that's the combination that's impacting this quarter. Overall, the volume is still up, meaning that we're still seeing some level of new revenues, but not as fast as we would like, but hopefully, our customers can overcome their challenges and continue to ramp up their new business. Yeah, Josh, I'll just say...

Chung Kin Cheung: But not as fast as we would like but we're hopeful that our customer can overcome their challenges and continue to ramp the new businesses.

James R. Ray: Yeah, and Josh, I'll just add to that point: we are not seeing any lost business from new wins we've booked, so that gives us a leading indicator that the market will come back at some point. We don't have any leakage of lost business, so we still feel confident that we're going to have longer-term tailwinds from all these new business wins, and in addition to construction and agriculture, it's also infrastructure customers, as well as EV and electrification applications within legacy and new OEM startups. So it's a very diverse set of segments we serve, but to Andy's point, the largest two segments in the electrical business are Con Ag, both in North America and Europe.

Josh: I'll just add to that point, we are not seeing any lost business from new wins, we booked.

James R. Ray: That gives us a leading indicator.

James R. Ray: The market will come back at some point, we don't have any leakage of lost business. So we still feel confident that we're going to have longer term tailwind from all of these new business wins and in addition to construction and AG. It's also infrastructure customers as well as EV.

James R. Ray: And electrification applications within legacy and new Oems startups. So it's a very diverse set of segments, we serve into but to Andy's point the.

James R. Ray: The largest two segments in the electrical business or.

James R. Ray: Both in North America and Europe.

James R. Ray: Okay.

Chung Kin Cheung: Okay, that's helpful. And then just as for the Con Ag markets, you know, is there really a big driver and this deterioration of those industries that you guys have noticed?

Speaker Change: Okay. That's helpful. And then just ask for the best.

Chung Kin Cheung: Con AG markets.

Chung Kin Cheung: Is there really a big driving big driver and that this deterioration of those industries that you guys have noticed.

Chung Kin Cheung: Okay.

Chung Kin Cheung: There are a few things that we heard from our OEM customers. One, as you know, China is in a bad spot right now. So the Asia-Pacific activity is pretty low at this point. Europe, we also see some reduction in demand overall, again, the economy over there. And then I think the most recent development is here in North America. So compared to a few months ago, the market is low, and our customers have also publicly mentioned in their own earnings calls that they're seeing some reduced activities. So it's mostly demand-driven based on what we hear from our customers.

Chung Kin Cheung: There are few things that we heard from our OEM customers. One as you know China is in a bad spot right now so the Asia Pacific activity is pretty pretty low at this point.

Chung Kin Cheung: Europe Europe, we also see some reduction in demand overall again as the economy over there and then I think the most recent.

Chung Kin Cheung: Development appear in the North America, so compared to a few months ago, the market is low and our customers.

Chung Kin Cheung: Also publicly mentioned that in their own earnings calls that theyre seeing some reduced activities. So it's mostly demand driven based on what we heard from our customers.

Chung Kin Cheung: Yes.

James R. Ray: Okay, then perfect. And last one for me. I'll get back in queue. I guess, with the first quarter over, you know, are the new business wins of $45 million just in line with your goals for the quarter? And are we still really expecting the $100 million range for the year? Yes, for the year we're still expecting $100 billion.

Speaker Change: Okay, perfect and last one from me and I'll get back in queue, I guess, what the first quarter over.

James R. Ray: As the new business wins of the $45 million just in line with your goals for the quarter.

James R. Ray: And are we still really expecting $100 million range.

James R. Ray: Yes, for the year, we're still expecting 100 million. The 45 million dollars is tracking well. When you look at our pending awards that we've voted for, as well as our funnel opportunities that we're pursuing, not just within electrical but also in our vehicle solutions group and aftermarket and accessories and also in industrial automation, we have a good funnel in each one of those businesses. We just need to bring home the awards that are pending and then on the pursuit opportunities, we have ample capacity in our outlook to be aggressive on winning those opportunities in the pursuit So we feel confident at this point that we will achieve that hundred million on an annualized basis that we have mentioned before in prior calls.

James R. Ray: Yes for the year, we're still expecting a 100 billion of $45 million is tracking well when you look at our.

James R. Ray: Pending awards that we've reported as well as our funnel of opportunities that we're pursuing not just within the electrical but also in our vehicle solutions group and aftermarket and accessories.

James R. Ray: Also in industrial automation, we have a good funnel in each one of those businesses.

James R. Ray: We just need to bring home the awards that are pending and then on the pursuit opportunities.

James R. Ray: Ample capacity in our outlook to be aggressive on winning those opportunities in the pursuit totaled two so we feel confident at this point that we will achieve that $100 million on an annualized basis that we have mentioned before in prior calls.

Speaker Change: Thank you.

Operator: Our next question comes from the line of Steven Martin from Slater. Go ahead, please.

James R. Ray: Our next question comes from the line of Steven Martin from Slater Go ahead. Please.

Steven L. Martin: Hi guys, you said the second Moroccan plant would be completed by the end of the first quarter. Well, that was 40 days ago, so I guess my question is, was it completed, and is it producing?

Steven L. Martin: Hi, guys.

Steven L. Martin: Steve You said the second Moroccan plant would be completed.

Steven L. Martin: By the end of the first quarter well that was 40 days ago. So I guess my question is was it completed it and is it producing.

James R. Ray: So we have an initial Morocco facility that we're currently producing in that was completed in Q4. The second facility was started in Q1 this year, and it will be completed by the end of Q4 this year with beneficial occupancy of 25.

Steven L. Martin: So we have an initial Morocco facility.

James R. Ray: We're currently producing there was completed in Q4. The second facility was started in Q1. This year. It will be complete by the end of Q4 this year with beneficial occupancy Q1 of 2012.

James R. Ray: Got it. Now I misheard that.

James R. Ray: And how are the new Moroccan plant and the new Mexican plant? They're both ramping up very well. We are able to actually improve our funnel of opportunities with the North African-Moroccan footprint for the European market. So we're seeing good customer response from our expansion of our European footprint. As you may know, we have facilities in the Ukraine as well as the Czech Republic for the electrical systems business. So this expansion in North Africa is positioning us well from a value proposition perspective for new opportunities in Europe. And for Mexico, the Aldama facility, which is outside of Chihuahua, is ramping up very well. Our main facility in Mexico was in Agua Prieta.

James R. Ray: Got it I misheard that.

Speaker Change: And how is the <unk>.

James R. Ray: New Moroccan plant and the new Mexican plant doing other they are both ramping up very well.

James R. Ray: We are able to actually improve our funnel of opportunities with the North Africa, Morocco footprint for the European market.

James R. Ray: We're seeing good customer response from our expansion of our European footprint.

James R. Ray: As you May know, we have facilities in the Ukraine as well as Czech Republic for the electrical systems business. So this expansion in the North Africa is positioning us well from a value proposition or new opportunities in Europe and.

James R. Ray: For Mexico, we ophthalmic facility, which is outside of Chihuahua is ramping up very well.

James R. Ray: Our main facility in Mexico.

James R. Ray: Agua Prieta, so the team that's managing those facilities.

James R. Ray: So the team that's managing those facilities is based in Chihuahua and Agua Prieta, and we're somewhat running those two in parallel. And we have a ramp schedule that will continue to ramp throughout the year and early next year with some of the North American new business wins that we booked over the past 12 to 18 months.

James R. Ray: Space the Chihuahua Agra.

James R. Ray: We're somewhat running those two <unk>.

James R. Ray: Hello.

James R. Ray: We have a rep schedule that we will continue to ramp throughout the year and early next year with some of the North American new business wins that we booked over the past 12 months to 18 months.

James R. Ray: Okay.

James R. Ray: <unk>.

Steven L. Martin: Um... And to follow up someone's earlier question about your guidance. If I were to choose the midpoint of this year's guidance... Given how you did in the first quarter, that would imply that the first... The, I'm sorry, the back half would have to be up. 10 to 12 percent, maybe 10 to 15 percent to make the midpoint of your guidance. What gives you that level of comfort? What businesses, you know? All four businesses were down in this first quarter. What businesses are going to swing enough to make that midpoint?

Speaker Change: And to follow up someone's earlier question about your guidance, if I were to choose the midpoint of this year's guidance.

Steven L. Martin: And.

Steven L. Martin: Given how you've done in the first quarter that would imply that the first.

Steven L. Martin: I'm sorry, the back half would have to be up.

Steven L. Martin: 10% to 12% to make them it maybe 10% to 15% to make the midpoint of your guidance.

Steven L. Martin: What gives you.

Steven L. Martin: That level of.

Steven L. Martin: Comfort what businesses all four businesses were down this first quarter, what what businesses are going to swing.

Steven L. Martin: Enough to make that midpoint.

Chung Kin Cheung: Yeah, so Steve, if you look at our guidance, you clearly see there's a little bit of a wider range that we communicated. James already mentioned, so there's the upside of potentially the ACT truck bill, and depends on how the contract market goes, or maybe the decline is not as severe, so there's some upside opportunity. But at the same time, there's also the downside risk that we mentioned about the supply chain and logistics and the continued decline in demand on the customer side.

Speaker Change: Yes so.

Speaker Change: Steve If you look at our guidance you clearly see it as a little bit of a wider range that we communicated.

Chung Kin Cheung: James already mentioned, so that the upside of potentially.

Chung Kin Cheung: ACG choppy.

Chung Kin Cheung: And depends on how the corn at market or maybe the decline is not as severe so there is some upside opportunity, but at the same time that also the downside risk that we mentioned about supply chain and logistics and the continued depressed in the demand on our customer side. So I think right now it's <unk>.

Chung Kin Cheung: So I think right now it's hard to say where the final year is going to land, but we believe that our range is pretty well covered in case of those scenarios. But we probably have more confidence in our ability to manage our earnings. So, as we mentioned, we've been taking proactive actions about right-sizing the business, anticipating customer demand changes, so there are a few more levers for us to pull. So we're pretty confident in terms of our EBITDA guidance range that we produce.

Chung Kin Cheung: To say, where the final via going to land, but we believe that our range is pretty well copper in case of those scenarios.

Chung Kin Cheung: But we probably have more confidence in our ability to manage our earnings. So as we mentioned that we've been taking proactive actions of right sizing the business anticipating the customer demand changes. So there's a few more left us for up to pool. So we're pretty confident in terms of.

Chung Kin Cheung: Our EBITDA guidance at the range that we produce.

James R. Ray: Yeah, an additional point too, Steve, is the restructuring benefits will start to ramp higher in the second half after some of the efforts we took in the first. In addition to that, as we have mentioned in prior calls, our cost out program, some of those savings items will kick in higher as volume ramps up on new projects that were implemented in Q4 and Q1 and we continue to implement in Q2. So on the cost side, we see opportunities to help mitigate some of the downside of lost top line or lower top line through the cost out process that we're doing.

Chung Kin Cheung: An additional point to Steve is the restructuring benefits will start to ramp higher in the second half after some of the efforts we took in the first.

James R. Ray: In addition to that as we have mentioned in prior calls our cost out program.

James R. Ray: Some of those savings items will kick in higher as volume ramps up on new projects that were implemented in Q4 and Q1 is that we continue to implement in Q2, so on the cost side.

James R. Ray: See opportunities too.

James R. Ray: Help mitigate some of the downside of lost topline or lower topline through the cost out process that we're doing.

James R. Ray: And that, to Andy's point, it helps us manage earnings a little better, especially in the second half. And we're hopeful that ACT and the Class 8 market will continue to strengthen in the future. We're not banking on it, but we're hoping that that happens. And then Con Ag, I do think that it's volatile right now. I'm not really sure where it's going to end up, but I don't have any indication it's going to get much worse than flat to down 10%. So we're planning for the worst and putting things in place to try and mitigate pressure on the EBITDA outlook.

James R. Ray: But to Andy's point it helps us manage the earnings a little better, especially in the second half and we're hopeful that the ACC and the class eight market will continue to strengthen and the outlook.

James R. Ray: We're not banking on it but we're hoping that happens and then con Ed I do think that it's.

James R. Ray: Volatile right now I'm, not really sure where it's going to end up but I don't have any indication is going to get much worse than flat to down 2%. So we're planning for the worse.

James R. Ray: Putting things in place to try and mitigate pressure on the EBITDA.

James R. Ray: Outlook.

James R. Ray: Okay, follow up to that, um, ACT expects that 2025, so first of all, as I said on the last call, 2023 ACT was not as bad as everybody expected at the beginning of the year. 24 ACT looks to be plus or minus, as you said, maybe a little better. Twenty-five is supposed to be a new cycle. When do you expect that you're going to see, or we will start to see the benefits of that new one?

Speaker Change: Okay follow up to that.

James R. Ray: <unk> expects the 2025.

James R. Ray: First of all as I stated on the last call 2023, ACD was not as bad as everybody expected at the beginning of the year.

James R. Ray: 24, <unk> looks to be plus or minus as you said, maybe a little better.

James R. Ray: 25 is supposed to be a new cycle.

James R. Ray: When do you expect that you're going to see or we will start to see the benefits of that new cycle.

James R. Ray: Yeah, so that's a very good question, Steve. It's interesting because, as you know, the 27 calendar year is the new federal emissions year for Class A vehicles. And I've seen ranges and estimates of potentially 30% higher engine costs for all of the emissions. So the 25 and 26 outlook from ACT is pretty much factoring in a pre-buy. So you'll see a big, you'll see a larger drop in 27 because the buy was pulled ahead.

Speaker Change: So that's a very good question.

James R. Ray: Got.

James R. Ray: It's interesting because as you know the 27 calendar year, our new federal emissions for class eight vehicles.

James R. Ray: I've seen ranges and estimates of potentially 30% higher energy cost for all of the emissions. So the 25% 26 outlook from ACP.

James R. Ray: Pretty much factoring in a pre buy.

James R. Ray: So youll see a big Youll see a larger drop in 27, because the buyer was pulled ahead.

James R. Ray: And we would expect to see a 25 model year start the summer of, or the latter part of 24. Okay, as the new models come out and they ramp up new production, a lot of the vehicle manufacturers have a model change mid to late the prior year of the stated year. So, that's given us some indication, I think, of another question earlier, which gives us a little more confidence in the back half of the year.

James R. Ray: We would expect to see a 25 model year would start this summer.

James R. Ray: To the latter part of 'twenty four.

James R. Ray: Okay.

James R. Ray: The new models come on and they ramp up new production a lot of the vehicle manufacturers have a model change mid to late prior year of the stated year model. So that's given us some indication.

James R. Ray: I think to another question earlier, what gives us a little more confidence in the.

James R. Ray: In the back half of the year.

James R. Ray: Even though ACT's forecast is showing a decline in Q4 compared to the prior quarters, we still see it depends on when those customers start their next model and how fast they ramp up. So, we have to be somewhat flexible and agile so that we can respond to those ramps both on the high side and the low side.

James R. Ray: Even though <unk> forecast is showing a decline in Q4 compared to the prior quarters.

James R. Ray: We still see depends on when those customers start their next model and how fast they ramp up so we have to be somewhat flexible and agile so that we can.

James R. Ray: To respond to those reps both on the high side and the low side.

James R. Ray: Okay, and you know, ACT predicted a bad Q4 in 23, and it ended up being a lot better. One last question. I would assume that the aftermarket is sort of the yin to the new truck yang, in the sense that if somebody doesn't replace a truck, they have to buy some more stuff in the aftermarket to keep the existing truck on the road. Should we see an aftermarket benefit, or until you get it righted, we're just not going to see that benefit?

Speaker Change: Okay, and ICT projected a bad Q4 in 'twenty, three and it ended up being a lot better.

Speaker Change: One last question.

James R. Ray: I would assume that aftermarket is sort of the yen two new vault new truck Yang in the sense that if somebody doesn't replace the truck they have to buy some more stuff in the aftermarket to keep the existing truck on the road.

James R. Ray: Should we see.

James R. Ray: Aftermarket benefit or as is until you get it right right. It we're just not going to see that benefit.

James R. Ray: So we should see some benefit, and based on our portfolio, the majority of our aftermarket business is in seeding. So we focused, we kind of took an 80-20 approach since I came into the role to figure out how we can win in aftermarket seeding, and there are some pretty solid players out there that we're going up against, and it comes down to two or three different things. One is how easy it is to do business with us, and as you know, we had a website that launched that really didn't do that well, and that's because we didn't leverage our field sales reps, which I mentioned in our last earnings call. We've done that now.

James R. Ray: So we should see some benefit in based on our portfolio.

James R. Ray: The majority of our aftermarket businesses in seating. So we focused we kind of took the 80 20 approach since I came into the role to figure out how we can win in aftermarket sealing.

James R. Ray: There are some pretty solid players out there that we're going up against and it comes down to.

James R. Ray: Two or three different things one is how easy it is to do business with installation or we had a website that launched it really didn't hit that well and that's because we didn't leverage our field sales reps that I had mentioned in our last earnings call. We've done that now then the second thing is what does the customer really wanted how does that fit in.

James R. Ray: Then the second thing is what the customer really wants and how does that fit into our ability to carry inventory and have a quick turnaround within 48, 72 hours of when they want to seed. And that's what we've been working on in Q1 with our factory in Piedmont, Alabama, which makes our aftermarket seeds. So we've put in some new processes for scheduling, we've put in a different inventory profile monitor, we have a more regular touchpoint with our field sales reps, and we have recently seen an increase in our inbound orders for aftermarket seeding.

James R. Ray: Two our ability to carry inventory and have quick turnaround within 48 72 hours of when they want to see and that's what we've been working on in Q1 with our factory.

James R. Ray: And Piedmont, and Piedmont, Alabama, which makes our aftermarket seats. So we've put in some new processes for scheduling we've put in a different inventory profile, we have a more regular touch point with our field sales reps. We have recently seen an increase in our inbound orders for aftermarket sealing.

James R. Ray: So I think the opportunity is out there for us to take advantage of capturing share that's existing with other competitors out there as long as we focus our offering and we do a much better job of advertising and having the right inventory fulfillment model. The other activity we started in Q1 was an incentive program for our field sales reps. So this is, I think that was, the leading behavior that's driving the trail as a result of increased inbound orders for aftermarket seeds.

James R. Ray: I think the opportunity is out there for us to take advantage of capturing share that's existing with other competitors out there as long as we focus our offering and we do a much better job of advertising and having the right inventory fulfillment model. The other activity. We started in Q1 was.

James R. Ray: And incentive program for our field sales reps.

James R. Ray: So this is I think the that was the leading.

James R. Ray: Behavior is driving material as a result of increased inbound orders for aftermarket sales.

James R. Ray: So hopefully, we'll continue to see positive momentum in that, but we're looking at all different angles and being contemporary in our approach to how we're driving aftermarket sales. It had been somewhat of a legacy business that was really focused on OE service for the major truck manufacturers, and now we're taking a more retail-type approach with our field sales reps to have a more contemporary go at it. The proof's in the pudding, but right now we have some good early indicators that we should see some uplift, which is also helping us put a better pencil on the second half of the year overall in the aggregate level of revenue, so we hope to see more aftermarket performance in the second half.

James R. Ray: Hopefully, we'll continue to see positive momentum in that but we're looking at all different angles and being contemporary and our approach on how we are driving aftermarket sales. It had been somewhat of a legacy business that was really focused on.

Steven L. Martin: Alright, thank you very much.

Steven L. Martin: OE service further major truck manufacturers and now we're taking a more retail type of approach with our with our field sales reps have a more contemporary go at it so.

Steven L. Martin: Proves it or put it but but right now we have some good early indicators that we should see some uplift which is also helping us.

Steven L. Martin: Put a better and so on the second half of the year overall in the aggregate level of revenue. So we hope to see more aftermarket performance in the second half.

James R. Ray: Thank you. Thanks, Steve.

Steven L. Martin: Alright, Thank you very much.

James R. Ray: Thanks, Steve.

Operator: Thank you. We have a follow-up question coming from the line of Joe Gomez from Noble Capital Markets. Please go ahead.

Speaker Change: Thank you we have a follow up question coming from the line of Joe Gomes from Noble capital markets. Please go ahead.

Joseph Anthony Gomes: Hi guys, just a quick follow-up for me, just a couple quick questions. Like I mentioned, the additional cost actions and the press release, can you provide just a little bit of detail on what you guys are doing with the offset inflation and foreign exchange headwinds and then kind of how much more of the previous cost actions need to be completed before the full savings are kind of realized?

Joseph Anthony Gomes: Hey, guys just a quick follow up for me just a couple of quick questions.

Joseph Anthony Gomes: As mentioned the additional cost actions in the press release can you just a little bit of detail that you guys are doing to offset inflation and foreign exchange headwinds and then.

Joseph Anthony Gomes: And how much more of the previous call that cost actions need to be completed before the full savings or kind of realized.

Chung Kin Cheung: Yeah, so let me answer you on a few areas. So one is a large part of the cost action that we have is to make sure that we right-size our businesses so that we can offset the impact of the softer demand in our businesses, mostly in vehicle solutions as well as electrical. So electrical, as you can see, our margin pressure for the quarter came from really two main things. One is labor increases in Mexico, and many of us are aware that there's some government mandate of labor cost increases in the border region of Mexico up to about 20-ish percent. So it's really impacting some of our locations in our electrical business.

Speaker Change: Thank you so.

Speaker Change: Let me answer you on that.

Chung Kin Cheung: A few areas. So one is.

Chung Kin Cheung: A large part of the cost action that we have is to make sure that we right size our businesses. So that we can offset the impact of the softer demand of our businesses in a mostly in vehicle solutions.

Chung Kin Cheung: As well as the electrical so electrical as.

Chung Kin Cheung: As you can see our margin pressure for the quarter came from really two main things one is.

Chung Kin Cheung: Labor increases in Mexico, and many of us all.

Chung Kin Cheung: Aware that there are some government mandate of labor cost increase in the border region of Mexico up to about 20 ish percent. So it's really impacting some of our locations in electrical business and then the other one that is also creating some cost pressure for us is.

Chung Kin Cheung: And then the other one that is also creating some cost pressure for us is the strengthening of the Mexican peso, which compared to a year ago is a double-digit increase in terms of the cost of Mexican peso-denominated costs for us. So we're working on both ends. One is to continue to do reduction in our core structure.

Chung Kin Cheung: The strengthening of the Mexican peso.

Chung Kin Cheung: At which compared to a year ago is a double digit increase in terms of the cost of Mexico peso denominated costs for us. So we're working on both and one is continue to do a reduction in our cost structure with taking our labeled <unk>.

Chung Kin Cheung: We're taking our labor, resizing the overhead. But at the same time, and more importantly, we're also working with our customers commercially to resolve some of this cost pressure. I would say that we have made some progress already in terms of offsetting some of the labor inflation, but we're still working through offsetting some of the peso-strengthening cost pressure on us. So we'll continue those efforts in Q2, but we believe that we should be able to work with our customer to find some solutions. In referencing the other part of your question,

Chung Kin Cheung: <unk> the overhead at the same time and more importantly, we are also working with our customer commercially to resolve some of these cost pressure.

Chung Kin Cheung: I will say that we have made some progress already in terms of offsetting some of the labor inflation.

Chung Kin Cheung: We are still working through offsetting some of the peso strengthening cost pressure for us. So we'll continue those efforts in Q2, but we believe that we should be able to.

Chung Kin Cheung: With our customer to find some solutions and referencing the other part of your question.

James R. Ray: In referencing the other part of your question, last year we said we achieved approximately $30 million of cost-out activity at a gross level, gross projects. And then obviously, the net, once you roll inflation in and other things, it brings that number down.

James R. Ray: Last year, we said we.

James R. Ray: Achieved $30 million or approximately $30 million of cost out activity at a gross level gross projects and then obviously the net once you roll inflation and other things that brings that number down but we are on track to a similar number this year, both logistics and supply chain as well as direct material.

James R. Ray: But we're on track to a similar number this year, both in logistics, freight, and supply chain, as well as direct materials. And we're taking a fresh look at indirect spend as well to achieve that same level. So we are leaning in, I would say, more specifically this year in other areas in addition to direct material. Some of our direct material is directed by, or comes from our customers. We have a little less opportunity there than the spend that we have where we select our own suppliers and drive savings.

James R. Ray: And we're taking a fresh look at indirect spend as well to achieve that same level. So we are leaning in I would say more specifically this year in other areas. In addition to direct material some of our direct material is.

James R. Ray: Directed buy from our customers, we are a little less opportunity there than the spend that we have where we select our own suppliers and drive savings so great.

James R. Ray: The framework that was put in place last year to drive the focus on direct material is still there. The framework that was put in place last year to have a specific cost-out deck per manufacturing facility on conversion costs is still in place. We're pursuing that. More emphasis now this year.

James R. Ray: Framework that was put in place last year to drive that focus on direct materials still there. The framework that was put in place last year to have a specific cost out debt per manufacturer facility or conversion cost is still in place so that more emphasis now this year.

James R. Ray: Pretty much driven by some macro items, so freight and logistics is one area, with the disruption in the Suez Canal and some of our supply chains that go across regions. That has caused us to take a more specific look at our freight and logistics and supply chain costs and see what opportunities we can get there. They are also looking at on-shoring or near-shoring to reduce long supply chains, which have both FX risk as well as supply chain risk.

James R. Ray: Pretty much driven by some macro items, so freight and logistics is one area with the disruption in the Suez Canal and some of our supply chain that go across the region.

James R. Ray: This caused us to take a more specific look at our.

James R. Ray: Our freight and logistics and supply chain costs.

James R. Ray: See what opportunity we can get there also looking at onshoring or near shoring to reduce long supply chains, which that both FX risks as well as supply chain risk. So there are a number of items. We're looking at to achieve that similar level of savings at a gross level that we achieved last year for this year, which is helping us.

James R. Ray: So there are a number of items we're looking at to achieve that similar level of savings at a gross level that we achieved last year for this year, which is helping us further solidify our range on the EBITDA margin line.

James R. Ray: Further.

James R. Ray: Solidify our range on the EBITDA margin line.

Speaker Change: Yeah. Thank you I appreciate it.

James R. Ray: Okay.

Speaker Change: Thank you.

James R. Ray: There seem to be no further questions at this time. I'd now like to turn the call back over to Mr. Ray for his final closing comments.

Speaker Change: There seems to be no further questions at this time I now like to turn the call back over to Mr. <unk> for final closing comments.

James R. Ray: I'd like to thank you all for joining today's call. We remain excited about the prospects that we see for CVG as we continue to execute our forward-looking strategy of resource alignment, cost management, and customer engagement. We reaffirm our business outlook, and we look forward to continuing to drive growth at CVG. I hope you all have a great day and a safe day. Thank you very much for joining the call.

Ray: I'd like to thank you all for joining today's call. We remain excited for the prospects that we see for CVT as we continue to execute our forward looking strategy of resource alignment cost management and customer engagement, we reaffirm our business outlook and we look forward to continuing to drive growth.

James R. Ray: <unk> I hope you all have a great day and a safe day. Thank you very much for joining the call.

Operator: Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.

Speaker Change: Thank you, Sir ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a lovely day.

Operator: [music].

Operator: Okay.

Operator: Okay.

Operator: [music].