Q4 2024 Commercial Vehicle Group Inc Earnings Call
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Speaker Change: Good morning, ladies and gentlemen, welcome to C V Ge's fourth quarter 'twenty 'twenty four earnings conference call. During today's presentation, all parties will be in a listen only mode. Following the Presentation's. The conference will be opened for questions with instructions to follow at that time as he remind.
Speaker Change: This conference is being recorded I would now like to turn the call over to Mr. Andy Charles Chief Financial Officer. Please go ahead Sir.
Thank you operator, and welcome everyone to our conference call.
Speaker Change: Joining me on the call today is James way, President and CEO of CPG.
Speaker Change: Morning, We will provide a brief company update as well as commentary regarding our fourth quarter and full year 2024 results after which we will open the call for questions.
Speaker Change: As a reminder, this conference call is being webcast and a Q4 2024 earnings call presentation, which we will refer to during this call is available on our website.
Speaker Change: 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.
Speaker Change: Others.
Speaker Change: Actual results may differ from anticipated results because of certain risks and uncertainties.
Speaker Change: These risks and uncertainties may include but are not limited to economic conditions in the markets in which <unk> operates.
Speaker Change: <unk> in the production volumes of vehicles for which <unk> is a supplier.
Speaker Change: Financial Covenant compliance and liquidity.
Speaker Change: The risks associated with conducting business in foreign countries and currencies and.
Speaker Change: Other risks as detailed in our SEC filings.
Speaker Change: I will now turn the call over to James to provide a company update.
James Way: Thank you Andy.
James Way: Like to turn your attention to the supplemental earnings presentation, starting on slide three.
James Way: I'd like to take a moment to recap a very eventful 2024 for C V. G. We've.
James Way: We've always focused on improving our cost structure, diversifying our end markets and our positioning for future accretive growth.
James Way: That and we took some immediate and decisive actions in 2024 with the goal of becoming a more focused organization through divesting noncore businesses.
James Way: In the first quarter. We sold finished tech are hydrographic and paint decorating business in the third quarter, we sold our Chillicothe, Ohio production facility consolidating production into other CPG facilities.
James Way: And closed on the sale of our cap structure business.
James Way: In the fourth quarter, we closed on the sale of our industrial automation business.
James Way: Over the course of the year, we also eliminated approximately 1300 positions or roughly 17% of our head count.
James Way: While continuous improvement is an ongoing focus for CPG. The reality is that marketing conditions accelerated the need for these business actions.
James Way: Executing actions of this magnitude would be a heavy lift for any organization.
James Way: The level of difficulty was raised due to the end market conditions, we faced in 2024 I'd like to thank the entire C. V. G team for their efforts and positioning the company for a higher growth more profitable future.
James Way: Turning to the fourth quarter results, our financial performance was challenged due to both external market conditions and internal operating inefficiencies, resulting from our portfolio actions most.
James Way: Accordingly, we continue to make transformational progress, which we believe will enable meaningfully improved operational efficiency and position us for success as our end markets begin to recover.
James Way: The strategic actions I described earlier have positioned <unk> well moving forward through the sale of our noncore facilities and businesses. We've improved our operational focus and believe we are now in a position to drive accretive growth accelerate margin expansion.
James Way: Increased capital efficiency and enhance shareholder value this year MBR.
James Way: While these actions created some operational inefficiencies in 2024, we believe we have remediated approximately 85% of those and expect to address the rest in early 2025.
James Way: We will discuss our 2025 financial guidance in a few minutes, but we believe these efficiency improvements combined with our head count reduction and restructuring efforts put us on track to deliver $15 million to $20 million in cost savings in 2025, setting us up for margin expansion this year.
James Way: On the commercial front, we've continued to secure new business had a very strong pace with approximately $97 million of new wins in 2024, when fully ramped as a reminder, our new business wins figure represents a risk adjusted assessments of our customers estimate of their ultimate production rates.
James Way: These new wind programs are key to our growth strategy and a majority of these wins occurred in our electrical systems segment, Although we were awarded meaningful new business in our vehicle solutions segment as well.
James Way: Additionally, the wins within the electrical systems were primarily outside of construction and agriculture end markets, which should further diversify our revenue profile. We were pleased to open our Morocco facility during the quarter and we continue to ramp our facility in Alabama, Mexico.
James Way: Overall, we identified several necessary and impactful opportunities to improve CPG and now that we've completed these actions and are ramping our low cost facilities. We expect our operating leverage to benefit later this year as the markets improve while 2024 was a tough year financially we believe.
James Way: We've taken the right steps to position <unk> for the future.
James Way: Turning to slide four.
James Way: I'd like to highlight and provide further clarity around our new organizational structure, which we announced in early January 2025.
James Way: In an effort to further align with our customers and end markets. We created a new business unit structure, which now has three operating segments global electrical systems global sealing and trim systems and components.
James Way: As previously discussed CPG to streamline this operating model and lowered its cost profile and we fully expect this new structure to enhance clarity and focus within each business unit.
James Way: Sure the realignment better position <unk> for future growth, while lowering corporate and administrative costs to align with the company's current revenue profile.
James Way: This new organizational structure is an important step in our transformation to become a more agile company that puts our customers and our markets first and we anticipate that our new structure will accelerate our operational momentum and drive higher growth through a product focused customer centric enterprise strategy.
James Way: As a reminder, we will begin reporting results under the new reportable segment structure, beginning with first quarter 2025 results.
James Way: I'd like to turn the call back to Andy for a more detailed review of our financial results.
Andy Charles: Thank you James and good morning, everyone.
Andy Charles: If you are following along in the presentation. Please turn to slide five.
Andy Charles: Just a quick reminder.
Andy Charles: As a result of the divestiture of cap structures and industrial automation those businesses have been reclassified to discontinued operations.
Andy Charles: Unless otherwise noted all financial disclosures and comparisons made today will be focused on continuing operations.
Andy Charles: The data fourth quarter 2024 revenue was $163 3 million as compared to $193 7 million in the prior year period.
Andy Charles: The decrease in revenues is due primarily to lower sales as a result of a softening in customer demand.
Andy Charles: In our vehicle solutions and electrical system segments.
Andy Charles: Adjusted EBITDA was CMO upon $9 million for the fourth quarter compared to $8 $3 million in.
Andy Charles: In the prior year.
Andy Charles: Adjusted EBITDA margins, whereas CMO Paz, 6% balance 370 basis points as compared to adjusted EBITDA margins of 14, 3% in the fourth quarter of 2023.
Andy Charles: Driven primarily by lower volumes and the operational inefficiencies, we experienced across our business.
Andy Charles: Net loss for the quarter was $35 million or a loss of one policy would fall dollar per diluted share as compared to a net income of $22 $6 million or <unk> 67 cents per diluted share in the prior year.
Andy Charles: Net loss included a noncash tax valuation allowance of $28 8 million.
Andy Charles: Adjusted net loss for the quarter was $5 1 million or a loss of 15 cents per diluted share as compared to adjusted net income of $2 $1 million or six cents per diluted share in the prior year.
Andy Charles: Free cash flow from continuing operations for the quarter was <unk> 8 million compared to $4 $3 million in the prior year.
Andy Charles: Free cash generated in the quarter was supported by the second payment of $20 million received from the cap structure sales last year I'll further discuss some of the factors affecting our cash flow performance in a moment.
Andy Charles: Now moving to our full year consolidated results.
Andy Charles: Consolidated revenue for the full year was 723, plus $4 million as compared to $835 5 million in the prior year.
Andy Charles: The decrease in revenues was primarily driven by a softening in customer demand across all segments and the wind down of certain programs and our vehicle solutions segment.
Andy Charles: Adjusted EBITDA was $23 $2 million for the full year compared to $54 6 million in the prior year.
Andy Charles: Adjusted EBITDA margins were three 2%.
Andy Charles: 330 basis points as compared to adjusted EBITDA margins of six 5% in 2023.
Andy Charles: Given primarily by lower sales volume and operational efficiencies.
Andy Charles: These results were consistent with our adjusted full year guidance ranges.
Andy Charles: At year end, our net leverage ratio stood at four seven times, our trailing 12 month adjusted EBITDA from continuing operations.
Andy Charles: Moving to slide six.
Andy Charles: I want to touch on factors that impacted our 2020 for free cash flow performance.
Andy Charles: Divestitures.
Andy Charles: Large contributors to cash flow in China, 24, generating approximately $49 million in proceeds.
Andy Charles: Largely offsetting these proceeds were three areas of investments to better position <unk> for the future.
Andy Charles: First is continue operations, which include the divestiture cap structures and industrial automation businesses consume $15 million in cash in 2024.
Andy Charles: While there may be some small cash use in Q1, China 25 related to these operations, we expect very limited cash impacting aggregates in China, 25%.
Andy Charles: We also spent approximately $11 million on restructuring to improve our cost position and drive operating leverage going forward.
Andy Charles: While we may still have some small additional restructuring actions in China 25, we expect restructuring spend to decline materially compared to 2024.
Andy Charles: And finally, we also invested in inventory this year with an increase of approximately $10 million in China accounting for on the balance sheet.
Andy Charles: The investment to help facilitate the consolidation of the Chillicothe facility as well as new production launches and the ramp up of our new low cost facilities in Mexico and Morocco.
Andy Charles: Working capital improvements is a critical focus for CVD in China, 25, and we expect to work down our inventory levels closer to historical levels over the course of the year.
Andy Charles: Collectively we expect the vast majority of these investments need to be behind us and with a focus on improved working capital management, we expect to return to positive free cash flow in 2025.
Andy Charles: Moving on to our segment results starting on slide seven.
Andy Charles: Our electrical systems segment achieved revenues of $43 million, a decrease of 28% compared to the year ago fourth quarter.
Andy Charles: Everything from our global construction and agricultural market softness and the slower ramp of new business wins.
Andy Charles: Adjusted operating loss for the fourth quarter was $1 $7 million.
Greece of $8 4 million compared to fourth quarter of 2023.
Andy Charles: Due to the impact of lower sales volumes and unfavorable foreign exchange.
Andy Charles: For the full year revenues were down 17%.
Andy Charles: Again, driven by global construction, and agriculture market softness and the slower ramp of new business wins.
Andy Charles: Adjusted operating income for the full year was $4 $2 million, a decrease of $22 1 million compared to 2023.
Andy Charles: Again due to the impact of lower sales volumes and unfavorable foreign exchange movements.
Andy Charles: As James already mentioned, we are continuing to shift production to our new low cost facilities in Mexico, and Morocco, which we expect will drive meaningful operating leverage as our end markets stabilize and our new business wins ramp.
Andy Charles: Moving to slide eight.
Andy Charles: Our vehicle solutions segment achieved revenues of $91 $4 million.
Andy Charles: <unk> of 15% compared to the year ago fourth quarter.
Andy Charles: Largely due to lower customer demand and wind down of certain programs.
Andy Charles: Adjusted operating income for the fourth quarter was $2 8 million.
Andy Charles: A decrease of $1 2 million compared to fourth quarter of 2023 due to lower volumes operational inefficiencies and increased freight cost.
Andy Charles: For the full year revenues were down 14%.
Andy Charles: Again, due to lower customer demand and wind down of certain programs.
Andy Charles: Adjusted operating income for the full year was $23 million.
Andy Charles: A decrease of $13 8 million compared to 2023 again due to lower volumes operational inefficiencies and increased freight cost.
Andy Charles: We expect improved operational performance in China 25.
Andy Charles: Result of the strategic portfolio and restructuring actions, we took last year.
Andy Charles: Additionally, during the quarter, we were proud to be recognized by multiple global OEM customers in the areas of quality and surface signaling that our efforts to become more customer centric all taking hold.
Andy Charles: Moving to slide nine.
Andy Charles: Our after market segment achieved revenues of $31 $6 million.
Andy Charles: An increase of 4% compared to the year ago in the fourth quarter slightly improved customer demand and resolved production constraints drove increased volumes.
Andy Charles: Adjusted operating income for the fourth quarter was $3 1 million a decrease of <unk> 2 million compared to fourth quarter of 2023, largely due to increased manufacturing costs.
Andy Charles: For the full year revenues were down 5% due to lower volumes.
Andy Charles: Adjusted operating income for the full year was $16 million, a decrease of $2 $4 million compared to 2023.
Andy Charles: Also primarily driven by lower volumes for the year.
Andy Charles: Importantly, our after market and accessories segment returned to year over year growth for the first time in six quarters, and we remain focused on continuing to improve order to delivery lead times to further drive customer demand.
Andy Charles: That concludes my financial overview commentary I will now turn the call back over to James to cover the market outlook, our guidance and some closing thoughts.
James Way: Thank you Andy moving to our key end market outlooks on slide 10.
James Way: According to Acte's class eight heavy truck build forecast 2025 estimates imply a 5% decline in year over year volumes given strong production levels in the first half of 2024.
James Way: <unk> is forecasting first half 2025 builds to decline, 14% year over year before increasing 6% year over year in the second half of 2025.
James Way: ACG forecast to rebound in 2026 with a 12% increase in built anticipated.
James Way: The industry prepares for a change in emissions regulations in 2027.
James Way: Moving to the construction market outlook. The construction equipment market is seeing global weakening with volumes anticipated to decline around 5% to 10% with continued higher interest rates weaker housing starts and slower commercial real estate activity.
James Way: Agriculture end markets are facing comparable demand headwinds with current estimates also reflecting a 5% to 10% year over year decline.
James Way: This drop is largely driven by higher interest rates and lower commodity prices, which directly affect equipment demand.
James Way: Given the recent volatility in end markets, we are focused on increasing communication with our key customers at various levels to get better visibility into their production outlooks. This will help us better align our production schedules and improve efficiency.
James Way: Based on these customer outlooks for 2025 heavy truck construction and agriculture end markets are all projected to slightly decline compared to the prior year as these markets continue to face demand pressures.
James Way: We remain optimistic that these markets will experience a rebound in 2026 as replacement needs an underlying secular trends support our customers' future demand outlooks.
James Way: Turning to slide 11.
James Way: I'll share several thoughts on our guidance for 2025.
James Way: Factoring in our current market outlook, our expectation for the ramp in new business wins.
James Way: The improvement in operation efficiency.
James Way: We have initiated guidance for revenue and adjusted EBITDA.
James Way: We expect revenue to fall in the range of $672 $710 million and adjusted EBITDA to fall in the range of $25 million to $30 million.
James Way: We expect to see continued softness in our end markets as discussed earlier, but despite that we still expect EBITDA growth and margin expansion in 2025.
James Way: This should enable us to produce positive free cash flow in 2025, which we will use to pay down debt.
James Way: As I mentioned earlier, we are focused on returning working capital and inventory back to historical levels. After the required investments in 2024.
James Way: As a result, we expect net leverage to peak in the first half of this year before declining in the second half.
James Way: We remain committed to returning our leverage back to near the two times level in the second half of 2026.
James Way: Our strategic actions have positioned us well to execute on our guidance goals and achieve EBITDA growth and margin expansion for the year. We look forward to realizing our improved operating leverage driving stronger financial results in capitalizing upon an eventual end market recovery in future periods.
James Way: <unk>.
James Way: Turning to slide 12.
James Way: To again reiterate what makes <unk> a great investment opportunity at this time, our new segments are customer centric and supported by strong secular growth trends, which are increasing our total addressable market. While these end markets are in the midst of a down cycle, we expect them to bottom out and begin recovering in the coming quarters.
James Way: We remained focus on growing our electrical systems aided by the increasing electrification of vehicles that are both electric and internal combustion engine powered.
James Way: We are also equally focused on strengthening our global sealing and trim systems and components businesses proven by our new market centric segmentation, allowing us to more closely align with our end markets and customer needs.
James Way: We've taken decisive strategic actions with the goal of increasing operational efficiency and underlying profitability, while improving our business mix, because we executed portfolio actions and restructured to better positioned for future success.
James Way: These actions enable accretive growth and we expect margin expansion in the coming quarters as we remain focused on delivering improved operating performance.
James Way: Finally, as we continue to move past, our elevated cash investment needs in 2024, we anticipate our improved cost position and focus on working capital reduction to produce positive free cash flow in 2025, which we will put our cards to pay down debt with that I will now turn the call back over to the operator.
James Way: And open up the line for questions operator.
James Way: Thank you.
Speaker Change: 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 from Victor hand has been rice should you wish to decline from the polling process. Please press the star followed by the number two if you are using.
Speaker Change: A speaker phone please lift the handset before pressing any keys as a reminder, please ask only one question at a time one moment. Please for the first question.
Speaker Change: Your first question comes from Joe Gomes with Noble capital. Please go ahead.
Joe Gomes: Good morning.
Joe Gomes: Good morning, Joe.
Joe Gomes: So I wanted to talk about the new business wins, you said for the full year. There were 97 million in the third quarter year to date was $95 million, which would imply very little winning.
Joe Gomes: In the fourth quarter.
Joe Gomes: Was wondering if you give us some more detail there about what's going on with the new business wins program.
Joe Gomes: And you kind of you talked about you know the new program ramps you see you hope to see in 'twenty, five and I'm wondering.
Joe Gomes: We didn't see that in 24, so what gives you confidence we're going to see that in 25. Thank you.
Speaker Change: No problem. Thanks for your question Jo and relative to the new business wins you are right.
Speaker Change: Book the majority of those through Q3, typically sourcing cycles are very slow in Q4 as well as some of the.
Speaker Change: The out year.
Speaker Change: <unk> launch timing.
Speaker Change: We see the majority of the <unk> be a little more.
Speaker Change: Between Q1 and Q3 each year, so that explains the slow.
Speaker Change: Progress in Q4, the only thing I would say is that we have a large funnel of opportunities across end markets across our various product lines that we track monthly.
Speaker Change: We are engaged with customers on quoting activity, but typically in Q4. They just not many awards are granted in Q4, so we're not reducing our emphasis on pursuing new business to grow overall as well as in each product segment.
Speaker Change: That's still a very high priority for US is the lifeblood of our company going forward with respect to your question on vehicle ramps New program launches.
Speaker Change: For this year, we expect more meaningful impact to our topline with these launches even though our end markets are down we're starting to see a little offset in our electrical systems business with more new business coming in.
Speaker Change: And the range of.
Speaker Change: About 15% of the revenue for this year is going to be associated with new business wins, which offset some of the end market decline that we've been experiencing as well as other slow ramps that we're seeing so we have more confidence. This year. There are more programs launching several of the ones that were delayed from Q3 and Q4.
Speaker Change: <unk> of 24, we're already starting to supply material to those customers and a variety of end markets. So we see a little more traction in the new business wins, taking hold this year.
Speaker Change: Hopefully that answers your two questions.
Speaker Change: Yes, Thank you I'll get back in queue.
Joe Gomes: Thanks, Joe Thanks, Thank you.
Joe Gomes: The next question comes from John Friends Rats.
With Sidoti. Please go ahead.
Speaker Change: Good morning, gentlemen, and thanks for taking the questions.
Joe Gomes: Now I would like to.
Joe Gomes: Like to start with the fact that the court is nearly done and I'm curious about how your business is performing and the class eight market and the construction and AG market.
Joe Gomes: Relative to some of the aggregate outlooks out there are you performing in line down that expected, 14% in class eight and 5% to 10% in construction.
Joe Gomes: Are you trending differently.
Joe Gomes: So far year to date in this quarter were pretty much in line, we have seen some softness towards the latter part of the quarter was current months, but all of our customers, especially ones that we have new launches with they're very.
Joe Gomes: Very bullish on the outlook starting from Q2 on there are several new models in class eight that were actively supporting.
Joe Gomes: Those have slowed a little bit in Q4 and got pushed more to this year due to some other startup issues that some of the Oems are having but the outlook is strong, especially class eight because the pre buy is happening 26 in the second half of this year and Thats a typical cyclical.
Joe Gomes: Pre buy whenever new emissions rollout more expensive tractor.
Joe Gomes: Tractors are taken to market with the new emissions controls. So we feel pretty confident that we will stay in line with that and hope we get additional tailwind to help us even more.
Joe Gomes: <unk> forecast does change in aggregate, but we also are increasing our intimacy with customers to get better alignment on their modulating startup and ramp up schedules. So we can align our cost structure, it's typically a lagging effect.
Joe Gomes: Because they expect us to have a certain run rate capacity than.
Joe Gomes: And then they make adjustments, which.
Joe Gomes: It's somewhat disruptive to the supply chain because we have to.
Joe Gomes: Managed labor manage inbound supply we have a global supply chain. So there's a lot of adjustments we need to make but the most important thing is we keep our customers up and running we don't shut them down while trying to minimize the cost associated with their schedule fluctuations.
Joe Gomes: Got it James Thanks, I'll get back into queue.
Joe Gomes: Thank you Youre welcome.
Speaker Change: Should you have a question. Please press star followed by the number one on your Touchtone phone.
Speaker Change: The next question comes from Gary first Defino with Barrington Research. Please go ahead.
Gary Defino: Hey, good morning, everyone.
Speaker Change: Operator.
Speaker Change: Couple of questions here first of all.
Speaker Change: Embedded in your guidance given.
Speaker Change: Revenue range that you're putting in place here.
Speaker Change: Will you be capturing most of that $15 million to $20 million of expense savings throughout the year in 2025.
Speaker Change: I would say, it's probably well captured in 2025.
Speaker Change: Looking primarily at Q2 and beyond as we have a little run over from 24 into Q1, but our expectation is to capture the entire piece and he has some additional commentary as well yeah. Gary So short answer yes, that's anticipated in our guide you can see.
Speaker Change: The revenue is still coming down and you can see 5% also in line with the market.
Speaker Change: That coupled with a reduction in contribution margin and then if you just do some quick math year over year, you can already see that there is margin expansion and obviously as we've been communicating in the past when we look at our cost reductions are a portion of that obviously will have to use for offsetting some of our headwinds I E.
Speaker Change: Inflation is still a long way.
<unk> increases, but overall you can see that double digit million dollars of margin expansion that come from productivity or cost savings.
Speaker Change: Okay. Thank you and then.
Speaker Change: Okay.
Speaker Change: Could you.
Speaker Change: With these new facilities that you are opening.
Speaker Change: And then just remind me because there was a lot of a lot of things going on with your company here are you running facilities in tandem as you shift production and then you're going to be closing some other ones could you just kind of walk us through what you're doing there.
Gary Defino: Sure Gary no problem.
Our initial plans, which we set out in 2023 comprehended a stronger market in 'twenty four 'twenty five.
Gary Defino: Those facilities were required to launch the new business that we have one plus accommodate market growth expected in 2025 and 2026.
Gary Defino: We are shifting some production from existing facilities into the new facilities as well as launching some new business in those facilities.
Gary Defino: We expect with market recovery that we will need all the facilities.
Gary Defino: The mid term so to speak given the market outlook and the big question for US is con Ed.
Gary Defino: We don't know what the rate of recovery is going to be in Conagra is typically a little slower and class eight on a recovery, but we're positioned well with these new sites and some of the our existing sites are still in low cost areas. Just happens to have these two new ones are in lower cost areas. So we look at.
Gary Defino: <unk> dynamics.
Gary Defino: <unk> dynamics et cetera. This gives us optionality, although it does have an increased cost structure associated with it.
And we have customers that have come through both of these new facilities and approved production that <unk> started there as well as transfer there from some of our other facilities. So over time, we expect to grow into them, but given the economic outlook and given the.
Gary Defino: Uncertainty, we do have options to restructure and move things to other places as well.
Gary Defino: Okay.
Gary Defino: And then just one last one here.
Joe Gomes: Andy did you have to get any covenant relief relief on your debt.
Gary Defino: Leverage ratio was pretty high at four seven times trailing.
Gary Defino: Yes, you're right Gary.
Gary Defino: We did if you remember CPG seg, we did.
Gary Defino: The amendment to our debt back in December So we released.
Gary Defino: We leased a publication on that.
Gary Defino: So that gives us some additional wiggle room for.
Gary Defino: Near term covenants.
Gary Defino: Pretty much for our China, China five that was.
Gary Defino: The wiggle room that we received from our lenders.
But as you know we've been talking about our debt overall, it's going to be maturing in China Chinese seven so we already started to exploring refinancing options in <unk>.
Gary Defino: Here in China 75, so.
Gary Defino: Sorry, it's a right now we received that.
Gary Defino: Additional linker wound.
Gary Defino: A lot of amendments in December.
Gary Defino: Thank you.
Gary Defino: Thank you.
Joe Gomes: The next question comes from Joe Gomes with Noble capital. Please go ahead.
Speaker Change: Thanks for taking the follow up.
Joe Gomes: Just on the aftermarket.
And then under the new.
Operating scenario youre going to roll that into the segments.
Joe Gomes: Wondering how that's going to work it seems it's something that.
The company has spent a lot of time effort capital, while I'm getting the aftermarket business and now its teams we're going to kind of just.
Joe Gomes: Put it amongst three the three new operating units not quite sure how that how that all works or how that benefits from the capital that has been spent previously.
Joe Gomes: Yes.
Joe Gomes: Thanks, Joe that's a very good question I'm glad you asked it so.
Speaker Change: Our prior aftermarket business was primarily seats with wipers as well then.
Joe Gomes: There was a small amount of electrical systems.
Joe Gomes: There were some level of inefficiencies rebooking and re mapping our revenue to support service requirements for OE service, which now have more efficiency and we're working more closely together. The other thing I would say is that we didn't put a lot of capital and aftermarket when we formed aftermarket.
Speaker Change: Look the OE service businesses, a small level of independent aftermarket.
Speaker Change: One of our plants and seating and we also the wiper business stays the same as part of aftermarket and thats about half and half.
And then Oes and independent aftermarket and electrical was a smaller part primarily OAS. So there werent major investments made when the segment was created it was intended to have a focus on growing the independent aftermarket primarily in seats. So that remains and I would say one of the advantages of <unk>.
Speaker Change: Putting it back those that seating product line, which was probably about <unk>.
Speaker Change: 60% of aftermarket, 60% to 65% of the aftermarket business back into the seating business. It will allow us to more effectively use the engineering resources as well as balance between the OE aftermarket seating plant and the OE seating plan, where we can leverage combined resources.
Speaker Change: Yes.
Speaker Change: And the more efficient way, which helps us address SG&A and also plant utilization so between the segments previously we were.
Speaker Change: And so many where it's doing business with ourselves.
Speaker Change: You had to have the same type of product plants supporting two different channels.
Speaker Change: Resource efficiency wasn't where it needed to be so that was one of the primary reasons for looking at.
Putting it back into the product category. The other thing I would say is the independent aftermarket sales team, we use reps somewhere between 50 and 60 reps. It just depends on time.
Speaker Change: To go to market with our aftermarket products by having the two facilities under the same business, we can better optimize lead time improvements as well as productivity improvements as well as engineering needs to be more responsive to the independent aftermarket instead of trying to communicate back and forth and missing out on.
Our near term opportunities. So I would say from a seating perspective, it puts more focus on making sure. We have the go to market and the lead time associated with being successful in the seating aftermarket business for wipers.
Speaker Change: It's a north American product it was previously.
Speaker Change: A segment that had trim and plastics in it it's a standalone plant and some of the customers and the wiper business are similar to the customers and trim and plastics. So it's a little more diversified end market.
Speaker Change: It's better managed within this trim systems and components business. The focus for independent aftermarket will remain in wipers, as well and we didn't really have any independent aftermarket business and electrical systems. It was primarily.
Speaker Change: OE service original equipment service business, so that maintains the same.
Speaker Change: It was always built in the electrical systems plants with.
Speaker Change: With revenue just mapped into the aftermarket segment previously so this helps cleanup our transactional process and month end close quarter close year end close as well as it keeps our customers.
Speaker Change: Line two because.
Speaker Change: Any of the class eight or other end markets. We are in the procurement organizations typically have both OE and OE service.
Speaker Change: On that side of it so it helps clean things up for our customer communications negotiations and coordination and helps us be more of <unk> to the.
Speaker Change: OE service market. The independent aftermarket is separate because you go through distributors and dealers and retail outlets et cetera, and we have an organization in place to do that we'll continue to focus on that as well and we do see that as a higher growth opportunity for us as you've noticed in our Q4 results.
Speaker Change: Aftermarket for the first time in six quarters actually grew year over year, and we expect to see that that debt.
Speaker Change: That cycle continue throughout this year with the focus on it.
Speaker Change: Okay.
Speaker Change: Great Thanks for that.
Speaker Change: Thank you.
Speaker Change: The next question comes from <unk>.
Speaker Change: John Frank ramp.
Speaker Change: With Sidoti. Please go ahead.
Speaker Change: Yes.
Speaker Change: Couple of quick questions here in terms of new business.
Speaker Change: Could you quantify how much additional new business.
Speaker Change: Expected to come in.
Speaker Change: 2025.
Speaker Change: Also what markets outside AG and construction have been have you been successfully gaining share and and just a point of clarification on the new business. This is all entirely no new business cannibalizing or replacing.
Speaker Change: The business is going into life.
John: That's correct John.
Speaker Change: Give you a little color I mentioned the.
Speaker Change: Around 50% number of revenue for 2025, and our electrical systems business as a result of new business. It was one from 'twenty two 'twenty three and a little in 'twenty four.
Speaker Change: Our biggest wins last year in electrical systems were outside of Con agg.
Speaker Change: It did focus in the electric vehicle space.
Speaker Change: We have a new leader in electrical systems. It's also expanding our end market focus into non transportation markets like data centers and other areas.
Speaker Change: One last year, though was more autonomous vehicle and electric vehicle space and as you know autonomous vehicles have a redundant system. So the content per vehicle is significantly higher than a.
Speaker Change: Nonrecurring.
Speaker Change: Thomas vehicle. So we're really excited about that one that was already ramping.
Speaker Change: Slowly, but it is expected to increase significantly more in Q2 and the back half of the year to fill in the whole of the contact down market. So our emphasis is maintaining our contact customers.
Speaker Change: We have opportunities and this is electrical systems I've talked about we have opportunities to expand our share of wallet.
Speaker Change: With common customers and we've had several top to top meetings with our new leader with their leadership, our customers' leadership and we're positioning ourselves for more near term new business as we continue to.
Speaker Change: Film and ramp some of the lower cost capacity that we brought in place. So it's good that we have this capacity online it gives us an opportunity there as it relates to vehicle solutions there were some programs that.
Speaker Change: Ran off.
Speaker Change: The number you are seeing that portion of the new business wins in vehicle solutions is some of it is replacement and some of it is actual runoff in some of its new incremental smaller amounts in vehicle solutions, but now with the new segmentation in seating trim systems and components, we can be a little more.
Speaker Change: More.
Speaker Change: Transparent with where we're winning and how we're winning in those new segments. The term systems and components business is primarily a north American business. So our expectation is we have a lot more focus on filling open capacity, we have in the plants and trim systems and components as well as our seating business is <unk>.
Speaker Change: More of a global business. So we mentioned a couple of months ago.
Speaker Change: I am sorry, a couple of quarters ago about our new unity launch.
Speaker Change: That is a global platform, we are seeing opportunities and we've also won business in each region of the world.
Speaker Change: Primarily North America, and Asia with some opportunities in Europe. So we're really excited about that business, but that business has a different profile because of the global supply chain aspect of it.
Speaker Change: We're leveraging our platform design, our first global platform, which.
Speaker Change: Allow us a lot of flexibility as you deployed in different regions. So we're very excited about that and expect to have more new business wins in the seating business as a result of this new unity platform launch going forward.
Speaker Change: And James what would you think is a reasonable target of new business wins in 2025.
Speaker Change: We are targeting $100 million each year.
Speaker Change: Does depend on sourcing cycles.
Speaker Change: But we're targeting a $100 million of that is adjusted.
Speaker Change: So we are looking at kind of de risking some of the customer outlook volumes based on historical experience. We've had here. So the number that we're communicating has some risk adjustment factor applied to the peak annual revenue that our customers are sourcing us the business Ed.
Speaker Change: It does require a little flexibility because we're expected to capacities at the business award level. So we have to look at how fungible are capital is deployed and how much how we're utilizing capacity to have that flexibility. So we don't put a 100% of what they said they were going to give us two years prior.
Speaker Change: All of our capital and hiring and then have to scale back when they don't meet.
Speaker Change: Meet those peak annual numbers in rare cases.
Speaker Change: They do exceed but in most cases, they don't exceed the peak annual revenue.
Speaker Change: Sure enough.
Speaker Change: One last question.
Speaker Change: Embedded in the <unk>.
Speaker Change: EBITDA guidance, what is the DNA number and also since you mentioned it what's the capital expenditures do you anticipate for 2025.
Speaker Change: Yes, so the D&A number pretty consistent year over year, John So one thing that's clearly from a cash flow standpoint, as James already mentioned it will be a big focus for CPG. The entire enterprise is now widely around that.
Speaker Change: So we are trying to attack that from several areas. The number one area will be working capital as we mentioned so we have our entitlement to get back a lot of cash from there and obviously capex if a use of cash in the past, we guided 2% to 3% is our typical year Capex and I think that Youll see.
Speaker Change: Turning 25 will be near the low end of that lumber. So again continue to evaluate investment in growth investment is still our priority make sure that the company continue to pull back our topline.
Speaker Change: You can see that we will be controlling capex controlling working capital and James mentioned, we are anticipating a positive free cash flow year.
Speaker Change: Thank you Andrea and thank you James for taking the follow up.
Speaker Change: Thanks, John.
Speaker Change: Thank you.
Speaker Change: The next question comes from.
Douglas Duffy: Douglas Duffy with D. C capital partners. Please go ahead.
Douglas Duffy: Good morning.
Speaker Change: Good morning, Doug.
Douglas Duffy: Good to talk to you so.
Douglas Duffy: We've been holding the stock for a while.
Douglas Duffy: Follow the company closely.
Douglas Duffy: I just wanted to get a sense I guess I feel a little bit like a frog on the stove and the water boiler again, it's not good.
Douglas Duffy: I mean, the results were not good.
Douglas Duffy: Opinion.
Douglas Duffy: And I wanted to get a view on kind of.
Douglas Duffy: Can you talk a lot about revenue and operating income, but theres also a breakdown on revenue gross margin and SG&A.
Douglas Duffy: And.
Douglas Duffy: The company basically is making no money right now.
Douglas Duffy: This sense of urgency down there the SG&A has gone from about 7% to about 10% to 11% and Thats about $20 million 25 million Bucks.
Douglas Duffy: And historically the business generates 10% to 12% gross margins, it's very hard for me to figure out how the math works on a recovery here and what the urgency is to improve the financial performance.
Douglas Duffy: We're looking at a very increasingly bleak 25 outlook on the economy. So what's the plan here, what's the sense of urgency tell me about the SG&A, where are we going with this business.
Douglas Duffy: Yes. Thanks for the question. So so let me break it down in a few pieces yes.
Douglas Duffy: Yes, clearly, we see that right now in a tough environment continue.
Douglas Duffy: Continue drop in revenues you can see that as a sequentially Q4 is a smallest revenues call. It for ourselves our continue to adjust.
Douglas Duffy: <unk> our cost structure you.
Douglas Duffy: You can see that.
Douglas Duffy: Our Q4 performance coming in pretty close to our guidance the midpoint of our guidance and so we did have better line of sight compared to a few callers ago on where the environment is and adjust accordingly.
Douglas Duffy: Our SG&A reduction.
Douglas Duffy: So if you look at our financial year over year, we have a double digit percentage reduction in our overall headquarter costs that you can see.
Douglas Duffy: When you look at the financials I will continue to look at it and as James mentioned, we did have quite a few rounds of restructuring and Thats, where we invested about $11 million and most of those restructuring spend is focused on taking head count out by both manufacturing and SG&A head counts. So those are the actions that we've been.
Douglas Duffy: We will still continue to look at some of these actions in Q1 will not be to the level as extensive as you see in China 20 fall, but we're not done we are continuing to look at our meaning our cost structure.
Douglas Duffy: Overall.
Douglas Duffy: We have.
Douglas Duffy: Our view that SG&A of this business, probably somewhere around nine to 10% to 11% based on our benchmarking.
Douglas Duffy: Similar business will continue to look for opportunities to lean that out.
Douglas Duffy: But for us to get to a lower level that definitely depends on the overall end market in revenues at level of the business. So.
Douglas Duffy: So beyond that clearly that.
Douglas Duffy: Urgency of the company right now is also on generating free cash flow. Lastly, we mentioned that we did have to spend quite a bit of cash in 2020 fall to do what we needed to do from from consolidation right sizing and also building inventory to allow us to make sure.
Douglas Duffy: At the low cost.
Douglas Duffy: New facility up and running consolidation are in place. So now the urgency for US is making sure that we regain our cash position here for the working capital management and an office.
Douglas Duffy: Sequentially, we are expecting revenues starting to go from there we call. It the bottom in Q4 and hopefully the end market will continue to improve and our restructuring and other cost reduction efforts will add to the bottom line sequentially. So I think gross margin is an area that.
Douglas Duffy: We really are having a lot of focus on starting in Q4 last year.
Douglas Duffy: Given the challenges with some of the consolidations and slower ramp it did hinder us a bit and expanding gross margin, but this year I expect us to have the majority of the EBITDA improvement is on the gross margin line with some coming from SG&A, but we're really focused on gross margin maniacally focused on gross margin.
Douglas Duffy: We had leakage points and inefficiencies last year that we don't expect to repeat this year due to all of the movement with consolidation and business divestitures, So thats going to be the biggest lever of year over year improvement now that we have the portfolio cleaned up we've got underutilized plant with the consolidation that's closed and sold.
Douglas Duffy: So I expect the margin to expand the gross margin to expand this year.
Speaker Change: No I appreciate that so, but if you do the math on this why are you saying.
Speaker Change: Saying that and you say, it's 9% and James just looking at the gross margin to achieve an EBIT of 5%, which I think is a reasonable business case. Here then the gross margins are going to have to be around 14%.
Speaker Change: And historically, that's a bit above where the company is so maybe you could comment James on the new business and add that you've booked what gross margin and I understand the volume, but most projections as companies do that there's sort of a standardized.
Speaker Change: Expectation on volume and plant utilization, what's kind of a standardized gross margin that you are achieving on your new business and what's your target.
Speaker Change: I mentioned that just to elaborate on what you were saying.
Speaker Change: Yes, that's right I think your view of the P&L right. So we expect that for us to get back to the five plus percent of EBIT. All we set out our entitlement of EBITA margin will be somewhere around 9%. So we have work to do so if you think about that 9% SG&A to help.
Speaker Change: They've got to get up to the 15% gross margin, which in CV G. I know that you follow us for quite a number of years, we have not capped at that level I think 13% to 14% is what we have demonstrated in some period of time in the past, but I still believe that that is not the full potential of our business 15.
Speaker Change: <unk> I think we believe that once we get our utilization right to get rid of those inefficiency, 15% will be our entitlement. We have work to do on that Theres no doubt, but that is a big opportunity for us as James mentioned compared to SG&A.
Speaker Change: Now, we just have to work hard.
Speaker Change: All of these inefficiencies and get our entitlement for your new business questions. You mentioned, so typically when we win a new business, we will be above that level.
Speaker Change: But again you can see it took some time for us to see those new businesses coming in and and as a percentage of revenues is still a smaller percentage. So that will take time to move that needle I think the right now the short term the more realistic and fast.
Speaker Change: Gross margin expansion opportunities is marine our operational efficiencies. In addition to what Andy said as we see the end market, especially in class eight recover in the second half of this year, we expect operating leverage expect more operating leverage for every revenue dollar as we've got our cost structure fixed.
Speaker Change: And it's minimal variable that we're adding on top of that so that's where we really expect to see tailwind. In addition to the non repeating one time inefficiencies. We had last year. So we're really looking forward to seeing how that operating leverage is going to come through and as a result, the percent SG&A to sales.
<unk> declined as well compared to where it currently is.
Speaker Change: Well, thank you very much.
Doug: Thank you Doug.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: The next question comes from Steven Martin with Slater. Please go ahead.
Speaker Change: Hi.
Speaker Change: I'm not going to railroad this anymore, because it doesn't seem to matter that much and the previous questioner has at some of the questions.
Speaker Change: <unk>.
Speaker Change: Historically in my experience when someone specifies a an out of pocket restructuring charge and it's mostly focused on.
Speaker Change: Severance and labor you get a multiple return of that.
Speaker Change: You spent $10 million roughly in.
Speaker Change: In restructuring charges at cash.
Speaker Change: And yet your adjusted EBITDA is.
Speaker Change: Going up modestly.
Speaker Change: <unk> you.
Speaker Change: You you talk about big head count reductions I don't see it in your guidance.
Speaker Change: And why is with all the restructuring that we've been hearing about for the last 24 months.
Speaker Change: You are talking about an adjusted EBITDA, that's up a couple of million dollars off of.
Speaker Change: Basically crappy 2024.
Speaker Change: I'll have Steve. Thanks for the question, let me let me maybe give you added a walk from China and 475 by the number one thing is we got a remember China, China, five still representing a declining revenue year looking at our end market by 5% in class eight five.
Speaker Change: Went to 10%.
Speaker Change: <unk>.
Speaker Change: Look at the mid point of our revenue guide for next year and represent about 30% 30 ish million dollars of revenues reduction I would think about that contribution margin related to that that's roughly about $67 million. So this year, we're running a Chinese $3 million of adjusted EBITDA.
Ill turn the call. So if you take that 7 million 67 million down than we are at about $16 million to $17 million of EBITDA on a comparable revenue basis.
Speaker Change: Auto was hold on a second 2024 was.
Speaker Change: I'll refrain from using language 2024 was a horrible year.
Speaker Change: Okay everything was down you missed everything so.
Speaker Change: The comparison to 2024 is sort of a false comparison compare it to 2023 or 2022.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: 24.
Speaker Change: Say it but 2020 for you guys should frankly, you should resign after 2024, but you did okay. So basing your comparison of 2024 is just false.
Steve: Yes, so Steve that's a fair comment so office in China following.
Speaker Change: <unk>.
Speaker Change: Yeah.
Speaker Change: The challenge we have in.
Speaker Change: The inefficiencies in the bond market. So maybe you can look at the China Chinese stream volume, obviously is a very different volume comparison.
Speaker Change: We have our overall infrastructure and fixed costs. So you would have to adjust for revenue in order to compare.
Speaker Change: And you can see there are some actions that we took to take out fixed costs related to <unk>.
Speaker Change: Screaming component business to try to call it and facilities and some of the actions that James mentioned about moving our higher cost electrical.
Speaker Change: Location to a lower cost. So those are the things that we do and clearly like the restructuring payback as you mentioned is.
Speaker Change: Clearly you have to wait until the volume come back so.
Speaker Change: So we ticked off the head count overall, the company picked on thousands of people compared to a year ago.
Speaker Change: Now with a leaner structure and took James Paul about when the revenues come back it could continue with a leaner cost structure that conversion is going to come back. So we're counting on that to happen most likely towards the later part of 2025.
Speaker Change: Alright, So let me answer your question James at.
Speaker Change: At the end of 2025.
Speaker Change: If you don't make these numbers.
Speaker Change: When is there going to be a commitment to do something for your shareholders who opened.
Speaker Change: Sacrificing and struggling for years.
Speaker Change: Okay. Your stock is down 80%, 90% from 80% from where it was two years ago.
Speaker Change: <unk> is trading at near highs.
Speaker Change: Yes.
Speaker Change: What point do you say we have failed.
Speaker Change: And it's time to <unk>.
Speaker Change: <unk> not changed management again, because you guys keep.
Speaker Change: <unk> the deck chairs.
Speaker Change: Everybody who has been the CEO has been on the board. So they can't claim they didn't know what was going on.
Speaker Change: When are you going to commit to sell the company to do the right thing for your shareholders.
Speaker Change: What is the metric that tells you that.
Speaker Change: Steve Thats, a good question and it's something that the board evaluates quarterly we have board meetings that we talk about the future outlook of the company, what our position is where we stand with customers.
Speaker Change: Our headwinds are and that is a regular topic and each one of our board members. Our board meetings, where we talk about what can we do to get the stock price up and what can we do to reward our shareholders for their patients. So it is front and center as far as the metrics or doing something different we have evaluated.
Speaker Change: That's why we took the actions we took last year when we sold Iia, which we had a great experience with the first couple of years with Covid and then it went under then it was bleeding cash. So we sold at the Kings Mountain facility. The cap structures, we sold that because it's a very capital intensive business and it needed a massive.
Speaker Change: Reinvestment and the product and that site is $135 million site. The main product and that site was ending production in 2027, which meant we would've been holding an empty bag, which we couldn't monetize so some of the actions that we've been taking represent what we're trying to do to clean up the portfolio.
Speaker Change: Our operating model right. So when we do get end market recovery Youll see more operating leverage in.
Speaker Change: Definitely a larger stock price.
Speaker Change: I get that we've been hearing all this and frankly your former CEO, who has now gone onto another company is trying to sell the same bullshit he did at <unk>.
Speaker Change: Again, all the things Youre doing.
Speaker Change: What point and I guess, there is no answer because nobody wants to.
Speaker Change: Sort of give up their job, but at what point do you just say in board.
Speaker Change: We have failed it's time to hand this over to somebody else.
A rhetorical question.
Speaker Change: When the long answer is not.
Speaker Change: Yes.
Speaker Change: Answer about our restructuring and realignment is not the answer.
Speaker Change: I just hope you take it into consideration before you with her away to nothing.
Speaker Change: Thank you, Steve So, yes definitely great inputs as James mentioned, we will continue to evaluate that.
Speaker Change: We are PCA out the voice of our shareholders. Thank you.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time.
James: I will now turn the call over to James. Please go ahead Sir.
James: Thank you all for joining today's call. While our 2024 results were challenged in the fourth quarter showed signs of stabilization. We believe we've created a more focused agile company positioned for future success, and we look forward to accelerating our operational momentum and driving improved outcomes through our product focus customer centric.
James: Strategy in 2025, Thank you all have a good day.
James: Yeah.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
James: Okay.
James: Yes.
James: Okay.
James: [music].
James: Okay.