Q2 2025 Commercial Vehicle Group Inc Earnings Call
Good morning, ladies and gentlemen and welcome to CVS, second quarter, 2025 earning conference call. During today's presentation, all parties will be in a listen. Only mode following the presentation, the conference will be opened for questions with introductions to follow at that time. As a reminder, this conference is being recorded. I will now like to turn the call over to Mr. Andy Chong. She's Financial Officer, please go ahead.
Thank you, operator. And welcome everyone to our conference call.
Joining me on the call today is James Way, president and CEO of CVG.
This morning we will provide a brief company update as well as commentary regarding our second quarter 2025 results.
After which, we will open the call for questions.
As a reminder, this conference call is being grabbed and a Q2 2025 earnings, call presentation, which we will refer to, during this call is available on our website.
Both may contain 4 looking statements including but not limited to expectations for future periods regarding market trends. Call saving initiatives and new product initiatives among others.
Actual results May differ from anticipated results because of the certain risk and uncertainties,
This risk and uncertainty may include, but are not limited to economic conditions in the market, in which CVG operates.
Fluctuations in the production volumes of vehicle for which CVG is a supplier.
Financial covenants, compliance and liquidity.
Risk associated with conducting business in foreign countries and currencies.
and other risk as detailed in our secc filings,
I will now turn the call over to James to provide a company update.
Thank you, Andy. Before I speak to the earnings presentation, I want to take a moment to thank Ruth Roeske, a CVG board member since July 2021, for her contributions as she leaves our board for personal reasons, effective August 7th. Additionally, I also want to thank Scott Reed, our current COO, for his contributions to the company. Scott will be leaving the company to pursue consulting opportunities, effective August 29th.
We have a solid team in place and expect to fully execute on our plans going forward.
Now, I'd like to turn your attention to the supplemental earnings presentation. Starting on slide 3.
As we have highlighted on this slide, CVG delivered solid second quarter results and continues to improve our profitability and free cash generation in a very challenging market environment.
20 basis points on a sequential basis and up 70 basis points compared to last year.
The continued Improvement in profitability was again driven by the operational efficiency initiatives, we have spoken to in Prior calls. I will cover this in more detail in a minute.
Also highlighted on this slide is our continued Improvement in free cash generation.
During the quarter, we delivered 7.3 million in free cash flow which is an improvement of 16.5 million compared to last year. I will also provide more detail regarding our free cash flow performance in the moment.
Another highlight of the quarter is our improved performance within the global electrical system. Segments for the quarter, we saw segment performance stabilized, with revenues, flat compared to Prior year, despite flat Revenue. We delivered an adjusted operating income Improvement of 0.4 million driven by lower salary expense. As we continued to rant production at our new low-cost facilities.
Before I move on, I'd also like to comment on our recently announced debt refinancing, which we can plead it in announced during the second quarter. These transactions provide us with significantly more financial flexibility. As we look to advance our operational initiatives. Including further cost reduction.
Questions, margin Improvement and overall operational efficiency.
Turning to slide 4. I want to provide additional color as it relates to the continued sequential Improvement. We are seeing at the gross margin line.
As we highlighted last quarter, the operational efficiency improvements made related to Freight labor and plant-level overhead. Continue to benefit our profitability.
As a reminder, we have reduced our Reliance on expedited freight, optimize our terms of suppliers and improved our lead times in order quantities.
We also continue to flex our direct labor to better. Align with customer volume changes and have continued to balance our production more toward lower cost facilities.
And finally, our new segment alignment has provided a more optimal overhead structure and we are continuously evaluating selling General and administrative expenses sgna for efficiency improvements.
We are pleased to see our focus on operational efficiency payoff which has supported our financial performance in a lower demand. While we acknowledge the broader market and macroeconomic uncertainty we have and will continue to take the necessary. Proactive actions.
Looking ahead. We believe we are well, positioned to drive a creative growth.
Accelerate margin expansion, increase our Capital efficiency and ultimately enhance shareholder value as our in markets recover.
Moving to slide 5.
I'd like to again highlight a graphic. We have shared in our last 2, earnings calls, again, while the Strategic portfolio actions. We took last year led to cash flow. Headwinds, in 2024, we are seeing these actions reverse meaningfully year to date in 2025.
Through June of this year, our discontinued operations were net cash-generative, and we had minimal restructuring spend at less than $2 million.
We've also driven a 12 million Improvement in inventory, versus the end of 2024.
Improvement in each of these areas to help Drive free cash generation of 17.3 million in the quarter, which brings our year-to-date free cash generation up to 28.5 million as Andy will cover in a moment. We have raised our free cash flow outlook for the year to be at least 30 million dollars as we expect to build on our year-to-date progress in the back half of the year.
With that, I'd like to turn the call back to Andy for a more detailed review of our financial results.
Thank you, James and good morning, everyone.
If you are following along in the presentation, please turn to slide 6.
Consolidated second quarter, 2025 Revenue was 172 million as compared to 193.7 million in the prior year period.
The decrease in revenues is still primarily to a softening in customer demand, across our Global seating and trim systems and components segments.
8.2 million in the prior year.
Adjusted ibida. Margins were 3.0% down, 120 basis points as compared to adjusted ebit. Margins of 4.2% in the second quarter of 2024.
Driven primarily by lower volumes, but offset by reductions in sgna expenses.
Interest expense was 2.3 million as compared to 2.4 million in the second quarter of 2024 driven by lower debt levels.
Net loss for the quarter was 4.1 million or a loss of 12 cents per diluted share.
As compared to a net loss of 1.3 million, or a loss of 4 cents per diluted share in the prior year.
Adjusted net loss for the quarter was 2.9 Million or a loss of 9 cents per dilution to share as compared to adjusted net income of 1.5 million or 5 cents per diluted share in the prior year.
Let loose and adjusted. Let loose were impacted by softened customer demand.
Free cash flow from continuing operation for the quarter.
Was 17.3 million compared to 0.8 million in the prior year, the free cash flow generated in the quarter was supported by the company's ongoing strategic and working capital initiatives.
at the end of the second quarter,
Our net leverage Ratio calculated as our net debt divided by our trading, 12 months adjusted ibida from continuing operations, was 4.8 times bound from 5.0 times at the end of the first quarter.
Moving to the segments results, starting slide 7.
Our Global seating segment achieved, revenues of 74.5 million, a decrease of 10% as compared to the year ago quarter.
With the decrease primarily driven by lower sales volume, as a result of reduced customer demand.
Adjusted operating income was 3.1 million and increase of 0.2 million compared to the second quarter of 2024.
While operating income was negatively impacted by lower sales, volume and increased phase cost. We saw an improvement in adjusted operating income margin, primarily attributable to lower sgna expenses.
Turning to slide 8.
Our Global electrical segments, second quarter revenues remain, essentially flat compared to the year ago quarter at 53.6 million at new business wins offset weaker construction and agriculture demand.
Adjusted operating income for the second quarter was $1.2 million, an increase of $0.4 million compared to the prior year.
Primarily attributable to lower salary expense, as we benefit from our new local cost facilities.
We are beginning to see the benefits of the restructuring actions. We have taken in this segment and we are encouraged by the stabilizations. We are seeing
Global electrical systems remains a key area of focus for growth and cash generation moving forward.
Moving to fly 9, our trim systems and components revenues in the second quarter, increased 24% to 43.9 million.
Compared to the year-ago quarter, there was a decrease in sales volume due to increased customer demand.
as a reminder, this segment solely serves the North American market, and is most directly impacted by the reduction, in class 8, production volumes
Adjusted operating income for the second quarter was 0.3 million, a decrease of 3.7 million compared to the prior year.
The decrease is primarily attributable to lower sales volumes.
We continue working through the last of our operational inefficiencies in these segments, and we are taking further actions to stabilize operations and improve operational, efficiency and financial performance.
Outlook cheese, strategic actions, being taken and our updated guidance.
Thank you, Andy. I will start with our key in Market. Outlooks on slide 10. According to act's Class 8, heavy truck. Build forecasts 2025 estimates imply. A 24% decline in year-over-year volumes
Act has removed any pre-b. Buy impact related to the proposed 2027 emission standard from their 2026 projections, and now forecast truck builds flat in 2026. Looking ahead to 2027 Act is forecasting. A 12% Improvement in truck builds
Moving to our construction and agriculture Market Outlook based on recent commentary and outlooks from our customers. And key Market players, we continue to expect construction Market to be down approximately 5 to 15% in agriculture Market to be down in the same range as higher interest rates.
Weaker housing starts, slower, commercial real estate activity and lower commodity prices. Continue to weigh on demand.
Despite the continued Market softness, which mostly directly impacts our Global electrical system business. We continue to remain optimistic about the long-term potential of both construction and agriculture markets. As we see ongoing replacement needs and underlying secular Trends driving a recovery in these markets in 2026 and Beyond.
Turning to slide 11. I'd like to reiterate the key actions, we have underway to improve cash flow as well as mitigate the impact of tariffs and broader macroeconomic headwinds first. We remain focused on driving, improved, cash, generation, and aligning our sgna structure with our current Revenue base this year.
Specifically, we expect $30 million in working capital reduction focused, primarily on inventory, and accounts receivable, as well as a 50% reduction in planned Capital expenditures this year.
Through the first half of the year we realized 12 million dollars in inventory reductions and 11 million dollars in accounts receivable reductions.
We also continue to expect 15 to 20 million dollars in cost savings this year with renewed focus on sgna.
Which should drive incremental margin expansion as our Topline returns to Future growth.
Second. We expect the Strategic portfolio. Actions taken in 2024 to lower our cost structure to continue lowering decremental margins. Positioning us. Well, to grow our earnings power as in market demand recovers.
Third, we remain constant communication with our customers, improving our line of sight to production schedule changes, and allowing us to implement necessary cost actions in the event of future changes. In addition, our teams took immediate action in response to tariffs to mitigate potential impacts and we've made Solid progress in that regard.
We continue to have successful negotiations on price recovery terms with our customers, while building contingency plans to create flexibility across multiple scenarios.
All with the end goal of securing. Our business, competitiveness, and meeting our customers needs.
We also continue to assess our relationship with suppliers.
including evaluation of reassuring and nearshoring opportunities to further, mitigate the potential impact of tariffs
Turning to slide 12, I'll share several thoughts on our updated outlook for 2025, which reflects the current estimated impact of tariffs, trade policies, and economic uncertainty, as well as the aforementioned actions that we are proactively taking in this current uncertain environment.
Reflecting current macroeconomic trends, prevailing truck, Bill forecast and continued weakness in construction and agriculture markets. We are lowering our quantitative annual guidance for revenue and adjusted ibida in tightening the range on both.
The good news is we are increasing our free cash flow. Guidance to reflect robust performance year to date as well as our ongoing focus on cash generation.
Giving current demand pressures. We are adjusting our full year, 2025 Revenue. Guidance range to 650 million to 670 million, which is down from 660 to 690 million from prior guidance.
We are also revising. Our adjusted Eva dog guidance, expectations to the range of 21 to 25 million to 2025.
Guidance.
Based on this updated Outlook, we still expect even down margin expansion, compared to full year 24 at the midpoint of the ranges supported by our continued. Focus on reducing manufacturing, and scna costs.
We expect to build on our free cash generation progress in the back, half of the Year generating at least $30 million of free cash flow in 2025, which we expect to use to pay down debt.
Our continued focus on reducing working capital and lowering Capital expenditures. Underpin this Outlook.
Net. Leverage is expected to decline throughout 2025 and 2026. As we work toward returning to our targeted 2 times level.
With that, I will now turn the call back over to the operator and open up the line for questions. Operator.
Thank you, ladies and gentlemen, we will now begin the question and answer session. Should you have a question please? Press the star followed by the 1 on your on your touchtone phone. You will hear a prompt that your hand has been raised.
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If you are using a speaker-phone, please leave the handset before pressing any keys.
1 moment, please for your first question.
Your first question comes from Joe cones company Noble capsule. Please go ahead.
Good morning and thanks for taking my questions.
Good morning, Joe, how are you?
so I I, I know you guys gotten away from, you know, getting a a new business wins number, but
Given the environment, maybe you could kind of from a a, you know, 10,000 foot perspective. Kind of give us, you know. Are you seeing new business being bid? Are you winning new business? Is it within, you know, where you guys are hoping to be maybe above hopefully? Um, and also kind of related, you know, from past new business wins, you know, how's the implementation of those going? Are we seeing any of those? Um, you know, uh, push to the right? So to speak. Um, anything you can give us on on. That would be great. Also, thank you.
Thanks Joe. Uh, this is James responded to your question. Uh, we do continue to win new business. Uh, we have wins in q1 and Q2, and we have a, a pretty robust funnel going through the balance of the year. Uh, part of the difficulty in quantifying the new business, is the uncertainty with schedules, launch timing, Etc. And as you mentioned, uh, there's some that have been delayed, uh, some that are with oems that uh have struggled financially uh which is disruptive production, especially in the EV space. Uh, but we continue to see growth in that area. It's a secular Trend that's going to continue. So we're still focused on growing our electrical. And as an example, this year about 15% of our revenue forecast defer the electrical systems business. Segment is from new wins. Um so the flat Revenue uh that you're seeing year-over-year is uh the new winds offset and continued softness in the KAG markets.
So, uh, we haven't shied away from pursuing business in any End Market. Uh, we still continue to have very good relations with our Kanye customers and their opportunities for, uh, Sheriff wallet gain in those, uh, customers as well, due to our new low-cost manufacturing capacity that's online. So, and that's on a global basis, both in North America and Europe. So, I feel really good about that and, um, as markets stabilized, and we have a better quantification
on launch timing and volumes, uh, we may revisit reporting, uh, new business wins uh when that when that happens and occurs,
As far as the implementation of new business when shifting okay, I was going to say the implementation dates for new business wins. Go ahead.
Yeah, can you hear me?
Okay, the new business wins implementation timing, it varies, uh, depending on the platform and the customer, uh, we have seen some shifting, uh, especially with the economic conditions, uh, with launches being a little slower. Uh, there's some customers that still need regulatory approval, especially in the autonomous vehicle space. So we have seen some shifting there as well, but, uh, their sizable wins and we'll be ready to bring those on with the creative margins based on our cost structure alignment and our new capacity in place.
Thank you. Uh, the next question comes from John frre, from Cody.
Uh, good morning guys. And thanks for taking the questions. Um, I guess I want to I want to start with the cost savings aspect. Um, you mentioned 15 to 20 million of expected Savings in in 2021. I'm sorry 2025. Um, I'm curious how much of those savings are permanent and how much will come back as as volumes return and how much is still left to be done as far as in the sgna side of the cost Savings Program. So yeah, thanks John on on the cost savings. That's, that's an interesting dynamic because um these are both material uh direct material cost savings, indirect uh expense cost savings as well as manufacturing cost outs with improved productivity. So we don't see these as being 1 time and actually as volume returns will generate more savings on higher volume this year with the reduced volume, the savings that we had anticipated aren't coming in to the level that a year ago that we thought they would because of the lower volume, but they're they're permanent sign.
Savings in place with purchase price contracts, our Logistics providers Etc. So uh we feel pretty good about the momentum that we're building from a cost reduction standpoint on sgna and Manufacturing overhead. Those are 2 areas that we will continue to take actions on and with the current Outlook from act the
Manufacturing overhead pieces is going to be, uh, front and center with us. We've engaged, uh, an outside consulting firm to help us. Look at our supply chain optimization, as well as our manufacturing overhead expense and those projects are in-flight now. So we expect uh as we go through the balance of the back half to implement more actions to take uh cost out.
So uh hopefully uh we'll see that come through and we continue to see the volume come through as forecasted by Act.
Got it. And how far along are you in the Tariff, renegotiation process? Um do you expect them? You know, all the guys, all your customers to have renegotiated by the end of the year.
yes, we'd expect that to be the case and the tariffs is, um,
they've been changing a lot as you know, the, the trade policies been changing a lot. So we have a team of people and we meet every day, uh, to see what the latest changes are. Try to assess the impact and as you can imagine, both customers and suppliers. Uh, we're going through a lot of detailed information, uh, Port of Entry country of origin. Uh, all those elements that go into factor in the, uh, tariff impact. And then that information has to be submitted and discussed with our customers, as well as mitigating actions. Whether it's uh Supply changes or validating different materials to to offset. We're the material is coming from. Uh, those are a little longer from a Time.
Timeline standpoint price is the most immediate 1 and there is a lagging effect. Uh, because we have to submit the Tariff impact post, uh, the actual impact that we, that we have to the customers and then there's a, a payment timeline from the customers to us on the supplier side, uh, we have the same stance with our suppliers that our customers have with us. We expect initial mitigation, uh, with price being, uh,
secondary or tertiary, uh, element to help them recover and stay viable and then that gets translated back to our customers for Relief. So, it's a very Dynamic process, a lot of negotiations, a lot of discussions, and it's top of mind for the entire supply chain, actually, from our suppliers to us to our customers and that our customers and markets,
certainly certainly are very Dynamic right now. And 1, last question, I guess I'll get back into queue. Um, can you talk a little bit about how how July looked relative to maybe the progression of, of the, uh, second quarter. Um, did it continue to weaken, uh, stabilize any kind of color with, you know, current climate is like
Sure, no problem on the Class 8 side and even in time to add to a certain degree uh typically from June until August early September. Many of the oems on a global basis schedule, downtime for model, change over or vacation periods. Etc. So we are seeing, uh,
increased downtime in the back half of Q2 and also this quarter, uh, which is causing us to
Uh, from June through August uh more downtime than what was originally anticipated at the beginning of the year from our OEM customers.
Okay, makes sense. Um, yeah, just go ahead and get that. Uh, so if you looked at what we see right now is tracking towards, uh, act's, uh, projection um, in this quarter. Um, so overall if you look at, uh, what the Market's forecasting uh is, uh, what we are seeing. But, uh, as James mentioned, uh, we are doing all the actions that it takes to, uh, adjust for the volume.
You know, I'll just sneak this in. You brought up the ACT a couple times and the responses. Um it seems to me like the new forecasts from act looks more like the historical cyclical trends that we used to see in the class a um Market is that your assessment or do you see anything different than that?
Well, what we see is that act has not included any type of Prebiotic Dynamic for emissions regulations, uh, that were initially intended for 2027. So, the expectation, uh, was that we would see a pickup in pre-b, Buy in the second half of 25 and for the balance of 26, they've now taken that Dynamic out of the forecast and forecasting flat, uh, build rates into 26 and then a double digit. Uh, low teens, double digit increase in 2027. So the if if the volumes do come back sooner, uh,
Obviously will be well prepared from a operating leverage standpoint uh but if volume stay flat, like a forecasted. We're going to be positioned to to ride through that down Market until we see an uptick a similar to what we're doing. Uh the past 2 quarters and going into the back half of this year.
Thanks again for taking my questions. I'll get back into Q.
Uh, the next question. Comes from Gary, Pao barington research. Please call ahead.
Hi, good morning. Well um James Andy. Um last conference call you had mentioned something about the Trump Administration may be rolling back. Some of these admission standards for trucks.
What, where do you where is that stand right now? Is that still in the state of flux here?
Yes. As far as we know, there hasn't been a definitive, um, position on that yet. But as Act is comprehended in their forecasts, uh, there's an anticipation that they will either be pushed out or, um, changed.
So we're planning for the worst.
Which is no Prebiotic gave me as as James mentioned. So act different predict, the 26 prey so and then as a result there's no major drop in 27 as well. So right now the projection is a year-over-year pretty fast from 25 to 26 and then there will be a gradual
Low double digit increase in the next few years. So longer term Horizon is actually a more stable environment but you don't see the big up and down in the next couple years.
Okay.
Now maybe you could help me out because I'm not the altogether. Familiar with this class, 8 truck Market, maybe some others are, um, is it?
Is there a natural replacement cycle here? At some point, that has to start kicking in to more units produced. I mean, is that why the 27 numbers are going up?
yes, so there this is, these are non-discretionary in markets in class 8, KC
In vehicle production in general, there is a replacement cycle, um, given the economic uncertainty, some of the feedback that we've gotten from our OEM customers is that The Fleets that order large quantities of Class. A trucks are holding off on making purchases and pushing them out based on the uncertainty. Uh, some of the indicators like Freight rates, uh the impact of tariffs with Goods moving in have come down. So the replace the need for replacement may not be as high as it was in originally in a plan to be. So that's, that's 1 piece. The, the other piece is, um, we we have an aftermarket business and seats and other products. So, as
and,
The other uh, piece is the con egg market, and as economic uh challenges potential recession, and those factors weigh into purchases. Uh, some of the dealer inventories in the conac, segments have increased, uh, because of the slowness of, of the economy and capital purchases being made. So they do need to be replaced at some point. And interestingly enough with those customers uh they're uh doing R&D work and coming out with autonomous uh variants of some of their models which drive a much higher electrical content. So we're engaged with customers now to try to best position ourselves as they roll out, those new models with higher electrical content, we have a share of those those platforms. So, um, yeah, it's uncertain. And we're making sure we have the right balance of counter measures and in Alternatives in place so that we can either Flex up or Flex down and still be profitable.
And generate cash.
okay, let me, let me, let me kind of ask the question, another way then, you know,
How many of how many annually of these Class? 8 trucks are taking off the road and scrapped on an annual basis. Again, I'm just trying to get an idea of what the replacement volume looks like kind of on an annual basis.
Uh, I don't have specific information around that and um, we could do some follow-up and get back to you. Gary. If you are look at the long-term uh uh North America Class, 8 production volume, uh, look at the long Horizon, it's somewhere just shy of 300,000 units per year, right? Look at that up and down. But if you look at a long-term average that I would call it, maybe you can call it both the replacement rate as well as just growing in the overall Market.
Okay, that's helpful. And then, um, it's good to see you extended the debt maturities and I, you know, I did read through the documents some more but you're you're
Leverage ratio is 4.8 times. Can you, can you give us some idea of how that
How that leverage ratio steps down?
Uh, over time, uh, with the new agreement.
Yeah, so so 2 things, uh, we talked about our long-term, uh, Target and leverage ratio is around the 2 times. So between now and sometime in 2026, we continue to work towards that Target, right? So you can see that we're making progress there. Um so you also can see that from our filing back uh at the end of June. So our new financing agreement allow us to have a little bit more uh wiggle room here in the next few quarters. So starting with uh over 7
S, uh, of our, uh, leverage, uh, is in the governance, uh, um, inside the agreement. So we believe that, uh, we continue to focus on generating cash. As you can see, uh, in the first half. Uh, we may vary very significant progress there, uh, and right now there's a number 1 priority on our Capital. Allocation is keep generating cash and continue to pay down debt and allow us more flexibilities.
Okay, thank you.
Uh, as a reminder, if you wish to ask a question, please press star 1.
There are no further questions at this time. I will not turn the call over to James Ray. Please continue.
Thank you all for joining today's call. We continue to take the necessary steps to support our customers. In this Dynamic environment, Drive operational improvements, and execute on our goal of delivering better results. We look forward to updating cvg's progress next quarter. Thank you again.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect