Q3 2024 Commercial Vehicle Group Inc Earnings Call
I'm a little bit nervous.
Speaker Change: Good morning ladies and gentlemen and welcome to the CBGI 3rd Quarter, 2024 earnings conference call. At this time, a line turn a listen only mode.
Speaker Change: Welcome to the presentation. We will conduct a question and answer session. If at any time during this call your choir admitted assistance, please press our zero 40 operator. This call is being recorded in Tuesday, December 5, 2024.
Speaker Change: I would not like to turn a conference over to Andy Chung. CFL, please go ahead.
Andy Chung: Thank you, operator and welcome everyone to our conference call.
Speaker Change: Joining me on the call today is James Ray, President and CEO of TVG.
This morning we will provide a brief company update as well as commentary regarding our 1st quarter, 2024 results.
Speaker Change: Cheung Cheung, after which we will open the call for questions.
Speaker Change: As a reminder, this conference call is being webcast in a Q3 2020 for earnings call presentation, which we will refer to during this call, is available on our website.
Speaker Change: Both may contain fort-looking statements, including the not-new attitude, expectations for future periods regarding market trends, cost-saving initiatives, and new product initiatives among others.
Speaker Change: Actual results may differ from anticipated results because of certain width and uncertainties.
Speaker Change: It's risk and uncertainty may include that I'm not limited to economic conditions in the matches in which the 3G operates.
Speaker Change: Transituations in the production volumes of vehicles for which CBG is a supplier.
Speaker Change: Financial Covenant Compliance and Liquidity.
Speaker Change: With Associated With Conducting Business in Foreign Countries and Currencies, and other with a detailed in our SBC violence.
Speaker Change: Cheung 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 3.
Speaker Change: I'm a singer, and I'm a singer. Since taking over at CEO 11 months ago, my focus has been on reshaping C. Lee G.'s operating model, creating a lower cost and more agile foundation for the company.
Speaker Change: As highlighted on the right-hand side of this page, we have taken several strategic steps this year in order to refine our business model and create a more customer-focused company. Specifically, the sale of finished tech.
Speaker Change: Our CAPSTRAW TRUSBUSNESS.
Speaker Change: Chilococial, Hile facility and industrial automation segment have streamlined our four capabilities resulting in a more focused portfolio with an improved cost structure.
Speaker Change: A heightened focus on operational excellence and the more deliberate commercial strategy.
Speaker Change: I will cover the benefits of each transaction in the moment.
Speaker Change: The way expect these transactions.
Speaker Change: As well as our restructuring efforts to create a more streamlined operating model and drive margin expansion as we continue to execute and look to drive future growth, particularly within our electrical system segment.
Speaker Change: Not only have these actions accelerated, our near-term operating priorities.
Speaker Change: But they have also helped us pay down debt of $13 million today.
Speaker Change: We also received an additional $20 million in proceeds associated with our capture structure sale in October. This was the final payment of the $40 million dollar.
Speaker Change: Cheung Cheung.
Speaker Change: As I mentioned, we remain focused on a return to growth.
Speaker Change: and new business wins will play a key role in reaching that goal.
Speaker Change: We've prepared another $18 million in new business wins in the third quarter. Bringing the year-to-date total new business wins to approximately $95 million across all segments.
Speaker Change: Director, as a reminder, our estimates of the peak value of new business loans once fully ramped represent a risk adjusted assess for the our customers estimate of their ultimate production rates.
Speaker Change: These programs can often take years to fully ramp. In our customers' very in their ability to predict their peak production rates.
Speaker Change: Over time, we've gotten more rigorous in vetting those estimates.
Speaker Change: Cheung Cheung, you're talking in the numbers that you're seeing today. Keep in mind that these numbers purely reflect new business added and do not include any current programs winding down, or business we voluntarily enter due to profitability reasons.
Speaker Change: We've also taken action on the hate count for it.
Speaker Change: In eliminating approximately 1200 roles, roughly 15% of our organizations work for from continuing operations. Compared to the prior year, through both restructuring and ongoing continuous improvement efforts.
Speaker Change: We believe these actions create a lower cost, more efficient and agile company, position for future success.
Speaker Change: Well, we expect these portfolio actions to drive future margin expansion and facilitate growth. We are not happy without third quarter results.
Speaker Change: They were below internal expectations. As our evidence and profitability were impacted by operational inefficiencies related to the strategic portfolio actions, continued softness in our end markets.
Speaker Change: Customer Production Schedule Changes and Elevated Launch Clause to support new program wins.
Speaker Change: And he will cover the details in a few minutes, but the bottom line is at a time when we are seeing continued weakness and construction and agriculture markets in our electrical segment. We also absorb additional significant facility improvement costs.
Speaker Change: and production many efficiencies ahead of the strategic transactions and vehicle solutions and industrial automation segments.
Speaker Change: We believe with the strategic actions behind us and the operating model changes we are proactively making. We can navigate fluctuating production schedules more effectively moving forward.
Speaker Change: If you turn this slide forward, I want to highlight in detail some of our key strategic actions taken to improve CVG's operating model.
Speaker Change: As previously discussed, we also completed the sale of our cab structures business in Kings Mountain, North Carolina. The transaction closed on October 1st.
Speaker Change: Although there were some incremental costs associated with facility improvement and production inefficiencies ahead of deal closing.
Speaker Change: The majority of the $40 million in proceeds was used to pay down debt. The transaction aligns with our long-term goals of reducing cyclical Class VIII market exposure and lowering the capital intensity of our vehicle solutions segment.
Speaker Change: Additionally, the sale of our production facility in Chillicothe, Ohio, closed in the third quarter after consolidating the facility's production into other CVG manufacturing locations.
Speaker Change: You've heard me talk in prior calls about our goal to strengthen our vehicle solutions business.
Speaker Change: These three transactions are great examples of how we're doing that. Simplifying, improving profitability and efficiency, and upgrading our revenue mix.
Speaker Change: Finally, our most recent strategic portfolio action involves the sale of our industrial automation business. This closed on October 30th.
Speaker Change: Our industrial automation business has been challenged in recent quarters, so after evaluating different strategic options, we retained an investment banker and sold this non-strategic business.
Speaker Change: removing its operating losses, and allowing our team to focus on our core vehicle business within electrical systems, vehicle solutions, and aftermarket and accessories.
Speaker Change: While some of these actions have caused short-term financial pressures, we remain confident in the value CVG is poised to create and believe these efforts will bridge the gap between where we are and where we want to be.
Speaker Change: In addition to reducing complexity,
Speaker Change: The Improved Operating Model resulting from these actions, we believe,
Speaker Change: will drive accretive growth, accelerate margin expansion, increase our capital efficiency, and ultimately enhance shareholder value. With a more focused portfolio, we also expect to better leverage our SG&A through our continuous improvement process, aligning our support functions with our revised footprint.
Speaker Change: Now moving on to slide 5.
Speaker Change: I'd like to highlight two exciting leadership additions that we feel will align well with our focus on an improved operating model.
Speaker Change: First, we're happy to welcome Peter Lugo, our new leader of our electrical systems segment.
Speaker Change: Peter brings a proven track record of driving growth across multiple diverse end markets with over 30 years of relevant experience in electrical systems and industrial products across various industrial market segments.
Speaker Change: His background positions him well to execute our goal of returning electrical systems to growth and ultimately being the long-term growth engine of our company.
Speaker Change: Peter's near-term priorities will be to help CVG navigate demand pressures in our construction and agriculture end markets, with an eye towards achieving full utilization of our new facilities in Mexico and Morocco.
Speaker Change: Carlos is a respected, experienced executive who will bring a sharp focus on execution into our improved business model.
Speaker Change: He will be responsible for all aspects of CVG's global operations, including manufacturing, supply chain, procurement, logistics, continuous improvement, and quality.
Speaker Change: He will also lead the work being done by our Global Operations Council to drive consistency and continuous improvement to our global plans.
Speaker Change: As part of Carlos's hiring, we are consolidating manufacturing and supply chain under global leadership, elevating those functions from the business units.
Speaker Change: which should lead to greater sourcing benefits across the company and allowing our business leaders to focus more directly on commercial success.
Speaker Change: The addition of Peter and Carlos to our senior leadership team further demonstrates our commitment to fundamentally reshaping CVG.
Speaker Change: The efficiency of our supply chain and manufacturing operations will allow us to scale customer production when demand rebounds, driving incremental profitability across CBG as a whole, while our focus in electrical systems will facilitate margin expansion and reduce cyclicality.
Speaker Change: These leaders have a proven track record of doing just that, and we look forward to providing an update on the progress we make. With that, I'd like to turn the call back to Andy for a more detailed review of our financial results.
Andy Chung: Thank You James and good morning everyone
Andy Chung: If you are following along in the presentation, please turn to slide 6.
Andy Chung: Just a quick reminder that, as a result of the divestiture of our CAP Structures business and industrial automation segment,
Andy Chung: Unless otherwise looked at, all financial disclosures and comparisons made today will be focused on continuing operations.
Andy Chung: The free cash flow generated in the quarter was supported by the first payment of $20 million received from the cap structure sale in September.
Andy Chung: Operating cash flow in the quarter was weighed down by restructuring charges and the operational inefficiency we experienced.
Andy Chung: As a reminder, we received the second of the last $20 million of deposits from the CAP structure sale on October 1st.
Andy Chung: meaning that the amount is not included in our cash balance as of September 30th.
Andy Chung: Adjusting our cash balance to include the additional proceeds.
Andy Chung: Our net leverage ratio is currently 2.5 times adjusted trailing 12-month adjusted EBITDA from continuing operations.
Andy Chung: Moving to segment results beginning on slide 7.
Andy Chung: Our electrical system segment achieved revenues of $43.4 million, a decrease of 19% as compared to the year ago quarter.
Andy Chung: with the decrease resulting primarily from a global softening in the construction and agricultural end markets and the slower wham of new business winds.
Speaker Change: As James mentioned,
Speaker Change: We have made a senior leadership change to help ignite a return to growth in electrical systems.
Andy Chung: Despite the ongoing weakness in construction and agricultural markets, we continue to achieve new business wins, putting the company in a position to capitalize when end market demand within construction and agricultural markets rebounds.
Andy Chung: Adjusted operating income was $0.9 million, a decrease of $5 million.
Andy Chung: Thank you for watching!
Andy Chung: Turning to slide 8.
Andy Chung: Our vehicle distribution segment's third quarter revenues decreased 16% to $97.3 million compared to the year-ago quarter.
Andy Chung: As we move production into new facilities, we continue to be impacted by new program launch costs, and we also conducted some operational remediation investments and faced increased freight costs in the quarter.
Andy Chung: As a result of these factors, adjusted operating income for the third quarter was $3.8 million.
Andy Chung: a decrease of $4.5 million compared to the prior year. As mentioned earlier, we have closed on our sales of both our cab structures business and our Chettacoffee, Ohio, production facility.
Andy Chung: streamlining our business and notably lighten the capital intensity of our vehicle solution business.
Andy Chung: We believe the vehicle solutions business is now a more streamlined, less costly and more profitable business following the sale of our cab structure business and consolidation of production with the sale of our Chedi Coffee facility.
Andy Chung: We remain focused on vehicle solutions as a core business to CVG, and it remains a focal point for our team as we continue to reduce cost, accelerate our operational excellence initiatives.
Andy Chung: and win new business at higher margins.
Andy Chung: Moving to slide 9.
Andy Chung: Our aftermarket and accessory segment revenues in the third quarter decreased 8% to $31.1 million.
Andy Chung: compared to the year-ago quarter, primarily resulting from lower sales volume due to a reduction of backlog in the prior year period.
Speaker Change: Ray, Chung Cheung Ray, Chung Cheung
Andy Chung: Adjusted operating income for the third quarter was 3.9 million dollars, a decrease of 0.4 million compared to the prior year.
Andy Chung: Moving to our Key and Market Outlooks on slide 10. According to ACT's Class VIII Heavy Truck Bill forecast, 2024 estimates imply a 7% decline year-over-year volume.
Andy Chung: Despite the weakness projected in 2024 and 2025, we expect a strong rebound in bills of almost 25% in 2026, as the industry prepares for an update in emissions regulations in 2027.
Andy Chung: The construction equipment and market is seeing global weakening, with volumes anticipated to decline around 10%, with continued higher interest rates, weaker housing stocks, and slower commercial real estate activity.
Andy Chung: Agricultural and markets are facing similar demand headwinds with current estimates indicating an approximate 15% year-over-year decline.
Andy Chung: This drop is largely driven by higher interest rates and lower commodity prices, which have dampened demand for equipment.
Andy Chung: Based on the preliminary outlooks we see from our customers for early 2025, both construction and agricultural end markets are looking relatively flat year over year.
Andy Chung: However, we also remain optimistic about the long-term growth potential of both construction and agricultural end markets as we see ongoing replacement needs and undermining secular trends returning these markets to growth in 2026.
Andy Chung: Turning to slide 11, I'll share some thoughts on our updated outlook for 2024.
Andy Chung: Delayed and lower billed new business wind ramp schedules, prevailing truck bill forecast, and continued weakness in construction and agricultural end markets, we are lowering our quantitative annual guidance for revenues and adjusted EBITDA as well as tightening the respective ranges.
Andy Chung: Given current demand pressures, coupled with inflationary impacts and operational inefficiencies,
Andy Chung: We are adjusting our full year 2024 revenue guidance range to $710 million to $740 million.
Andy Chung: which is down from $730 million to $780 million.
Andy Chung: We are also lowering our adjusted EBITDA guidance expectations to the range of $20-$25 million for 2024, which is down from $28-$36 million.
Andy Chung: Based on this updated outlook, we expect our full year 2024 margin performance to be down approximately 320 to 380 basis points compared to 2023.
Andy Chung: However, importantly, we believe the alignment of our organization and the strategic portfolio actions James highlighted previously position us better for future growth and margin expansion in 2025.
Andy Chung: with the opportunity to drive FG&A leverage going forward, as we align our support functions to our smaller footprint through our ongoing continual improvement process.
Speaker Change: Thank you, Andy. Turning to slide 12, I'd like to again reiterate our short-term plan to improve our operating model and build a stronger foundation for CVG as we enter into the fourth quarter and 2025.
Andy Chung: Within vehicle solutions, we've continued to focus on counteracting inefficiencies associated with customer product launches, and we delivered on the sales of our cap structures business and our tiller coffee production facility sale.
Andy Chung: As previously communicated, we expect these efforts to result in a more streamlined vehicle solutions business, with increased operating leverage moving forward.
Andy Chung: Within electrical systems, we continue to adapt to weakening construction and agriculture markets and slower new program ramps by reducing headcount, right-sizing production, and allocating utilization to our lower-cost facilities.
Andy Chung: Additionally, we are pleased to welcome Peter Lugo as our new electrical systems leader, which I covered in my earlier remarks.
Andy Chung: Electrical systems growth remains a top priority and Peter's expertise and background will help us achieve our near-term strategic goals.
Andy Chung: Within Aftermarket, we remain committed to optimizing our internal processes, including the improvement of seat delivery performance and reduction of lead times.
Andy Chung: Taking these actions in advance of an improved customer demand environment will position us to capitalize when the market strengthens.
Andy Chung: We have also made organization-wide changes to drive performance and increase focus across all segments, including the hiring of Carlos Jimenez to improve the efficiency of our supply chain and manufacturing operations.
Andy Chung: As I mentioned earlier, the addition of a subject matter expert will help strengthen our commercial excellence and further stabilize our operating system.
Andy Chung: Bringing these actions together, we believe we are well positioned to be able to scale production when customer demand improves.
Andy Chung: driving incremental profitability as we look to 2025 and beyond, we expect these efforts to drive adjusted EBITDA margin improvement directly associated with these collective efforts.
Andy Chung: With that, I will now turn the call back over to the operator to open up the line for questions. Operator?
Speaker Change: Thank you, presenters. And ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press the star followed by the number two.
Andy Chung: And if you're using a speakerphone, please lift the handset before pressing any keys. And one moment, please for your first question.
Speaker Change: Our first question comes from the line of Joe Gomez of Noble Capital. Your line is now open.
Joe Gomez: Good morning. Thanks for taking my questions.
Andy Chung: Bonjour
Joe Gomez: So the first one off I just want to start kind of technical, Andy. You have plans to put out the adjusted continual operating results for the first and second quarters so we can make our models.
Speaker Change: Yeah, so Joe, if you look at our Q3 findings, so you can see that we have made the adjustment for the current quarter as well as year-to-day.
Speaker Change: Okay.
Speaker Change: Thanks for that and then
Joe Gomez: James, you know, the portfolio reshaping, the restructuring, you know, that was going on before you assumed the CEO role, you know, so well over a year now. You know, how much more of this
Speaker Change: needs to be done in terms of the portfolio reshaping and restructuring and cost optimization. Are we at that point now or is there more still to do?
James Ray: Thanks Jill for the question. Let me rewind the clock back to before I started. We had initiated the footprint expansion projects in Mexico and Morocco. We also had started a process on our finished tech business.
Speaker Change: So those were the items that were in flight when I joined as CEO. Obviously, I was on the board prior to that, so I had insight into that. And then in Jane, where we closed, finished, checked.
Speaker Change: But we also took a harder, finer look.
Speaker Change: at the balance of the portfolio to determine capital requirements.
Speaker Change: determined organizational focus and capability for growth and also the market outlook for the various segments that we were considering. In addition to that, the utilization of our assets.
Speaker Change: So, during the first quarter, we determined that we were going to
Speaker Change: launch of their new product innovation that we talked about in Q1.
Speaker Change: Demand near term and would require much more investment to bring that to market over time
Speaker Change: So, at that time, considering the sales funnel and considering the losses that were anticipated, we looked at other strategic alternatives, eventually engaged an investment banker, started a process in Q3, and went through multiple bidding efforts.
Speaker Change: Chung Chung Chung Chung Chung Chung
Speaker Change: We had discussions with the major customer there about their forward plans as well as their volume requirements.
Speaker Change: as they were coming off an extended work slowdown and stoppage due to strikes as well as other supply chain issues at the customer.
Speaker Change: During those discussions, we...
Speaker Change: uh...
Speaker Change: and the offer and what we sold it for was within the range of the biker estimate. So, from start to finish.
Speaker Change: Call Q2 to Q3
Speaker Change: that that was completed. And then in Q1, we also evaluated the utilization of our existing plants and with the down year-over-year expectation in Class VIII for both 2024 and 2025,
Speaker Change: We determined that we needed to improve the utilization of some of our underutilized plants And that's when we identified the Chillicothe site to move the production to other sites. It actually moved to four other plants
Speaker Change: and we executed the move and the sail in Q3.
Speaker Change: So they all came together, I would say at this point, Joe,
Speaker Change: portfolio adjustments on our horizon.
Speaker Change: in earnings.
Speaker Change: that meet expectations.
Speaker Change: and we look at our cash and capital allocation, we most likely will be looking at acquisitions, primarily focused in the electrical system space. But from a divestiture and closure standpoint, we're pretty much at a point where we're in the phase of stability and now, you know, reshaping our margin profile going forward. So hopefully that answers your question.
Speaker Change: Yes, thank you very much for that. And last one for me and I'll get back in queue and if I'm looking at the revised guidance...
Speaker Change: versus what the first nine months was, it seems to suggest the fourth quarter revenue expectation is somewhere in the 150 to 180 range.
Speaker Change: But the adjusted EBITDA is negative 2 to 3, a positive. We're just wondering, you know
Speaker Change: why did the seemingly kind of reduced adjusted EBITDA outlook there?
Speaker Change: Yeah, so Joe, you can see Q4 historically is the smallest quarter within a year, given the seasonality and the customer shutdown for holidays, so we expect that the volume will be pretty light.
Speaker Change: for our contribution margin as we continue to see the end market going so class 8 is going to have a small production volume forecast for Q4 and then from that point on it's going to start to gradually
Speaker Change: founding in 25, that's according to ACT. So that's how we see the end of the year, so it is going to be the tough demand environment for us, but as James mentioned, we will start to see the benefits of all the restructuring and improvement actions going into 25.
Speaker Change: Okay, great. Thank you very much.
Speaker Change: Thanks y'all.
Speaker Change: Thank you so much. And your next question comes from the line of John Fransep of Teodori. Your line is now open.
John Fransep: Good morning, everyone, and thanks for taking the questions.
John Fransep: First, I'd like to...
Speaker Change: I'd like to echo Joe's sentiment that an 8K filing on the readjusted first two quarters numbers would be helpful, so I think he's on point there.
Speaker Change: Yeah, so the majority of the second payment is also used for debt pay down so and obviously this is inside the quarter as every week we have fluctuation and up and down you know we've over but right now everything that we receive we primarily put it to use for paying down debt.
Speaker Change: Bruce
Speaker Change: So interest expense, we are similar to the past. We were looking at an average around the mid-single digit 7 to 8 percent is our interest expense. So as I mentioned, the interest expense is a little higher than a year ago, but overall debt balances have been coming down throughout the year.
Speaker Change: expectations at the customer level is to be flat year-over-year. I just want to make sure I understand that. Is that flat compared to current levels?
Speaker Change: of volume, if you will, or is that flat based on a total 2024 aggregate kind of a number?
Speaker Change: Yeah
Speaker Change: So John, that's a year-over-year comparison, so it's a total of 2024 versus a total of 2025.
Speaker Change: So clearly, there are still a lot of uncertainties out there. There are many data points that we look at and try to understand the market. It's hard to predict. The customer indication right now is pretty flat. Some sources say that it's going to be slightly increased, and we see some sources saying it's down. So it's still quite volatile here. But overall, at this point, our best prediction is about flat year over year.
Speaker Change: And sticking with that market, in a weakening market have you seen any increased competitive pressures in that business?
Speaker Change: Yes, the competitive pressures haven't changed materially. We have the same set of competitors that are established with some of the legacy customers we have. Given their dynamics as far as capacity utilization, we have seen
Speaker Change: What I would consider.
Speaker Change: unsolicited quotes into customers and we get immediate feedback from customers but I don't see it being an attack on our business.
Speaker Change: and that describes some of the actions that we've been taking as far as lower cost sites and electrical systems to make sure we don't deteriorate margins while staying price competitive with customers. So, I wouldn't say it was anything out of the ordinary, but it's pretty much par for the course.
Speaker Change: Understood. And one last question, I'll get back into queue, regarding the production inefficiencies.
Speaker Change: from relocating from the two facilities.
Speaker Change: Are you behind that process? And if not, when will you be? And I guess lastly, can you quantify the impact that had on gross margins in the third quarter? Thank you.
Speaker Change: Yep, so for continuing operations, we are at the tail end.
Speaker Change: and also focus on strategic growth initiatives in electrical systems that are
Speaker Change: that will broaden the funnel of opportunities that we're going after. As far as quantifying the impact, the gross margin that's primarily where it was with the inefficiencies with freight and overtime and labor, supply chain issues, equipment issues, rigging and moving business and machines. That is in the upper single digits to low double digits millions on the continual operations.
Speaker Change: Okay, thank you James. I appreciate you taking my questions.
James Ray: Thanks, John.
Speaker Change: Thank you so much. And as a reminder, if you would like to ask a question, please press star 1.
Speaker Change: And your next question comes from the line of Gary Prestapino of Barrington Research. Your line is now open. Good morning all. Andy, I know you don't have the
Gary Prestapino: pro forma numbers for Q1 and Q2 in terms of a full-blown income statement for each quarter, but can you at least give us an idea, or if you have it, what the revenues were for Q1 and Q2 and the adjusted EBITDA for both quarters given the divestitures that you've incurred?
Speaker Change: Yeah, so also in our queue, so again you have our first half result
Speaker Change: So the first half of the year, you can basically speed it into 50-50. That's about the same for our EBITDA number, adjusted EBITDA number. And so same for adjusted EBITDA as well, right? That's right. That's right.
Speaker Change: That's just how we do things, so I'm going to echo what the other analysts said.
Speaker Change: Okay, in terms of the new leadership changes...
Speaker Change: These gentlemen seem to be experts in their fields. You know, how long would you say it would take them to get their imprint on the business in terms of when you can start seeing a turn? Is this a 12-month?
Speaker Change: time frame? Is it a six-month time frame? Just give us an idea as you know maybe what their priorities are coming in.
Speaker Change: Sure, thanks for the question Gary.
Speaker Change: I'll take those separately.
Speaker Change: So
Speaker Change: We hit in flight, and the operational efficiencies launched several initiatives to bring stability after many of the footprint moves and portfolio changes. So we have a number of initiatives that were already in flight. The operations and supply chain functions were within the business units.
Speaker Change: So the business unit leaders were focused on growth, customer relations, as well as addressing the operational efficiencies. So bringing in Carlos Jimenez.
Speaker Change: who has proven at various companies in his background, transformational acceleration is the main focus and intent.
Speaker Change: The operations and supply chain functions will be centralized under his leadership so we have a more consistent deployment of operational excellence across our sites.
Speaker Change: and also the tools and the processes.
Speaker Change: as we aspire to have stability this quarter. So when we enter into 2025, our job...
Speaker Change: platform of more stable operations.
Speaker Change: and ready for margin expansion. So some of the one-time costs will repeat, improve our cost-out process, get more standardization, and accelerate lead manufacturing processes. So, you know, going into Q1, I expect the impact with him coming into the organization to be felt near term. With Peter Lugo in our electrical systems business,
Speaker Change: His priority is going to be reestablishing our view of where we stand across all the segments we supply into and immediately start to address what our strategic growth initiatives need to be and how they may need to change. I would say since I've been in the role, we have done a really good job of expanding into diverse markets. Many of our new wins.
Speaker Change: We have a share of the business on certain platforms. We win new business as we go into new OEMs so now that
Speaker Change: We are in the door. We have to accelerate expansion of share wallet Peter has a lot of experience in organic growth initiatives as well as M&A. So as we stabilize our earnings profile and we
Speaker Change: I think thanks a lot. Dave? Yes, thank you. You're all doing very well. Time all you like. I'll turn it back. All right, well thanks again for those great remarks that we know you're working hard at taking these questions and answering them.
Speaker Change: through some of the launches that are coming up. We have a number of launches that are coming online in 2025 that somewhat mitigate some of the downside we see in the end markets. We had some this year, but the level of the downside really ate up the impact of the launch.
Speaker Change: of new business, and then importantly, the ramp.
Speaker Change: So, as these programs ramp and we further utilize capacity, it gives us a better view of how we can reshape our quote funnel.
Speaker Change: Okay.
Speaker Change: As I read this and what you said, well, first of all, this may have been asked already, but I just want to make sure. Are we looking at any more restructuring expenses in Q4 or is this really all behind you?
Speaker Change: So Gary, I would say that it's largely behind us, as James mentioned. Portfolio actions are competitive.
Speaker Change: We are obviously constantly adjusting our footprint and our workforce depends on the demand that we are seeing. So, as I mentioned, there's still a lot of uncertainties and we're not going to stop until we right-size our workforce.
Speaker Change: But I will also add that in my comment about overall enterprise cost structure.
Speaker Change: So, now that all the strategic actions, portfolio actions are behind us, we are in a position to further optimize, organize ourselves in a better way so that we find more efficiency that will be continuing throughout the rest of the year and hopefully give us a heads up, legs up here in 2025 for margin expansion. That's what we are planning on and we are working on right now.
Speaker Change: and then, um...
Speaker Change: As I read what you've done here with bringing in
Speaker Change: Chung Cheung
Speaker Change: Carlos, Jimenez, Jimenez. It seems like
Speaker Change: you're really taking the operating model refinement, for lack of a better word, out of
Speaker Change: the core leadership.
Speaker Change: of each individual business that you have, and it's gonna be umbrellaed under what he's going to do. Is that a correct assumption? Yes, it is.
Speaker Change: Okay, so how will this gentleman operate? I mean, does he come with the team? Do you use existing people? Are there, are his people down at, you know, at every one of these plants?
Speaker Change: reporting back to him and he's setting up, you know, meetings, setting metrics for each of these businesses to hit. How does this all work?
Speaker Change: Yeah, it's a
Speaker Change: I guess in simple terms, it's going to be a combination of
Speaker Change: bringing in outside talent to top grade where we have deficiencies in capability or competency and also continuing to develop existing resources that have a runway and bandwidth to expand their capability and competency. So that's going to be a combination effort. Some of the operational inefficiencies that we referred to throughout this presentation and also the prior earnings call were expenses related to consultants and subject matter
Speaker Change: that we brought in to help in our operations.
Speaker Change: into Carlos.
Speaker Change: will be the requirements that Carlos and his team have to meet and have a plan to meet. And again, this is in an effort to be more customer focused, but also just...
Speaker Change: Rightfully take what we're entitled to from a margin standpoint. Between leakage and inefficiencies, we're entitled to a much better margin.
Speaker Change: So he's going to have, as well as a direct recording to myself, our operating rhythms.
Speaker Change: are going to continue to be daily and weekly cadence.
Speaker Change: until we achieve stability, and then it'll go to weekly to monthly. But we're currently, and have been, since the middle of Q3 in a daily operating cadence over things that are going on in the business, trying to get ahead and stay ahead. And this is the next step in maturity in that process with him coming on board.
Speaker Change: Okay, thank you very much
Speaker Change: Thank you so much.
Speaker Change: and your next question comes from the line of Stephen Martin of Flavor. Your line is now open. Yeah, guys, you know, I'm so tired of these calls.
Speaker Change: You know...
Stephen Martin: There isn't one part of your business that is functioning properly and you have the audacity to talk about acquisitions?
Stephen Martin: You should be talking about who to sell the company to.
Speaker Change: instead of trying to improve or show that you can improve something, you haven't improved anything. In three years you've probably had one or two up quarters.
Speaker Change: Every quarter I hear about all these initiatives, aftermarket was going to be the new panacea and it's nothing.
Speaker Change: You were restructuring all your contracts and you're still down. You know, electrical systems was going to be the new growth vehicle and the margins are lower and the growth is lower.
Speaker Change: How do you, with a straight face, look at yourself and address us shareholders and then have the audacity to talk about looking for acquisitions you can't run your existing business?
Speaker Change: That's not even a question, that's just a statement. It's a statement, and I understand that. And if you recall my comments, I said that when we achieve stability...
Speaker Change: And we get to a point where we have margin expansion and beat expectations, and we're properly positioned from a capital allocation standpoint, at that time, we will look at potential acquisitions.
Speaker Change: Okay, here's the question. When do you expect your first up quarter on an operating profit basis?
Speaker Change: We haven't provided guidance at this point, but I would expect in 2025.
Speaker Change: and what I aspire to be is before the first half is done. And if everything comes into play like we planned, I expect it in the first half.
Speaker Change: okay I hope so because the stock can't go much lower
Speaker Change: Thank you. Thank you. Thank you, Steve.
Speaker Change: Thank you so much. And again, if you would like to ask a question, please press star one.
Speaker Change: Subs by www.zeoranger.co.uk
Speaker Change: Okay, I think we're...
Speaker Change: We're ready to close the call. So I want to thank everyone for joining today's call. We appreciate your feedback, your insight, your perspective, and your curiosity as to how things are going to continue to move forward. While we're not satisfied with our recent performance, we're taking necessary actions.
Speaker Change: as we talked about in the call, to enable CVG to be a growing, more profitable business going forward.
Speaker Change: We also look forward to reshaping CBG to be a better partner of choice for our customers and, very importantly, be the best choice for our investors and shareholders as we continue to improve this business model and our performance. So thanks again, appreciate your engagement, and we look forward to keeping you up to date on the progress we make. Have a good day.
Speaker Change: Thank you, presenters, and thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participation, and you may now disconnect. Have a great day.
Speaker Change: Thank you.