Q4 2025 Commercial Vehicle Group Inc Earnings Call

March 11, 2026

Speaker #2: Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference call is being recorded.

Speaker #2: I would now like to turn the call over to Michelle Hartz, Vice President of Investor Relations. Please go ahead. Thank you, Operator, and welcome everyone to our fourth quarter 2025 conference call.

Michelle Harvis: Thank you, operator, and welcome everyone to our Q4 2025 Conference Call. Joining me on the call today are James Ray, President and CEO, and Andy Cheung, Chief Financial Officer. This morning, we will provide a brief company update as well as commentary regarding our Q4 and full year 2025 results. After which we will open the line for questions. As a reminder, this conference call is being webcast, and the Q4 earnings call presentation, which we will refer to during this call, is available on our website. Both may contain forward-looking statements, including, but not limited to, expectations for future periods regarding market trends, cost savings initiatives, and new product initiatives, among others. Actual results may differ from anticipated results because of certain risks and uncertainties.

Speaker #2: Joining me on the call today are James Ray, President and CEO, and Andy Chung, Chief Financial Officer. This morning, we will provide a brief company update, as well as commentary regarding our fourth quarter and full year 2025 results, after which we will open the line for questions.

Speaker #2: As a reminder, this conference call is being webcast, and a fourth quarter earnings call presentation, which we will refer to during this call, is available on our website.

Speaker #2: Both may contain forward-looking statements including but not limited to expectations for future periods regarding market trends, cost savings initiatives, and new product initiatives, among others.

Speaker #2: Actual results may differ from anticipated results because of certain risks and uncertainties. These risks and uncertainties may include but are not limited to economic conditions in the markets in which CBG operates, fluctuations in the production volumes of vehicles for which CBG is a supplier, financial covenant compliance and liquidity, risks associated with conducting business in foreign countries, and currencies, and other risks as detailed in our SEC filings.

Michelle Harvis: These risks and uncertainties may include, but are not limited to, economic conditions in the markets in which CVG operates, fluctuations in the production volumes of vehicles for which CVG is a supplier, financial covenant compliance and liquidity, risks associated with conducting business in foreign countries and currencies, and other risks as detailed in our SEC filing. I will now turn the call over to James to provide some highlights from our Q4 performance.

Speaker #2: I will now turn the call over to James to provide some highlights from our fourth quarter performance.

Speaker #3: Thank you, Michelle. Good morning, and thanks to all those who joined the call. Please turn your attention to the supplemental earnings presentation, starting on slide three.

James Ray: Thank you, Michelle. Good morning, and thanks to all those who joined the call. Please turn your attention to the supplemental earnings presentation starting on slide 3. As we have highlighted on this slide, CVG delivered strong year-over-year improvement in profitability despite a challenging demand environment, particularly in North American Class 8 truck market. During the quarter, we delivered an adjusted gross margin of 10.3%, up 190 basis points compared to last year. The continued year-over-year improvement in profitability was again driven by our focus on operational efficiency improvement. Another highlight of the quarter is the continued strong performance within our Global Electrical Systems segment. During Q3, we saw segment performance inflect, with revenues up 6% compared to the prior year. Q4 saw further acceleration, with revenues up 13% year-over-year.

Speaker #3: As we have highlighted on this slide, CBG delivered strong year-over-year improvement in profitability despite a challenging demand environment, particularly in North American Class A truck market.

Speaker #3: During the quarter, we delivered an adjusted gross margin of 10.3%, up 190 basis points compared to last year. The continued year-over-year improvement in profitability was again driven by our focus on operational efficiency improvement.

Speaker #3: Another highlight of the quarter is the continued strong performance within our global electrical systems segment. During the third quarter, we saw segment performance inflect, with revenues up 6% compared to the prior year.

Speaker #3: The fourth quarter saw further acceleration, with revenues up 13% year-over-year. We continue to benefit from the ramp-up of two key new programs. We highlighted those last quarter.

James Ray: We continue to benefit from the ramp-up of two key new programs. We highlighted those last quarter. We also announced a new contract with Zoox autonomous robotaxi in our earnings release last night, which I will give more color on later. Additionally, we delivered sequential and year-over-year gross margin expansion in this segment. Also highlighted on this slide is our strong free cash generation. For the full year, we generated $33.7 million in free cash, up $21.5 million from last year, and ahead of our guidance, driven primarily by improved working capital performance and lower capital expenditures. That free cash flow enabled us to reduce net debt by more than $35 million for the full year, reducing our net leverage to 4.1 times. Andy will expand on our free cash flow and reduced leverage in a minute.

Speaker #3: We also announced a new contract with Zeus Autonomous Robotaxi in our earnings release last night, which I will give more color on later. Additionally, we delivered sequential and year-over-year gross margin expansion in this segment.

Speaker #3: Also highlighted on this slide is our strong free cash generation. For the full year, we generated $33.7 million in free cash, up $21.5 million from last year.

Speaker #3: And ahead of our guidance, driven primarily by improved working capital performance and lower capital expenditures. That free cash flow enabled us to reduce net debt by more than 35 million dollars for the full year.

Speaker #3: Reducing our net leverage to 4.1 times. Andy will expand on our free cash flow and reduced leverage in a minute. But I just want to thank the entire CBG team for efforts in driving this strong cash flow performance in 2025.

James Ray: I just want to thank the entire CVG team for efforts in driving this strong cash flow performance in 2025. Free cash flow generation and debt paydown remain a focus for CVG in 2026. With that, I would like to turn the call over to Andy for a more detailed review of our financial results.

Speaker #3: Free cash flow generation and debt paydown remain a focus for CBG in 2026. With that, I would like to turn the call over to Andy for a more detailed review of our financial results.

Speaker #4: Thank you, James. And good morning, everyone. If you are following along in the presentation, please turn to slide four. Consolidated fourth quarter 2025 revenue was $154.8 million.

Andy Cheung: Thank you, James, and good morning, everyone. If you are following along in the presentation, please turn to slide 4. Consolidated Q4 2025 revenue was $154.8 million, as compared to $163.3 million in the prior year period. The decrease in revenues was due primarily to a softening in customer demand across our Global Seating and Trim Systems and Components segments, particularly in North America. Adjusted EBITDA was $2.3 million for the Q4, compared to $0.9 million in the prior year. Adjusted EBITDA margins were 1.5%, up 90 basis points as compared to adjusted EBITDA margins of 0.6% in the Q4 of 2024, driven primarily by operational efficiency improvements and reductions in SG&A expenses.

Speaker #4: As compared to $163.3 million in the prior year period. The decrease in revenues was due primarily to a softening in customer demand across our global seating and trim systems and component segments.

Speaker #4: Particularly in North America. Adjusted EBITDA was $2.3 million for the fourth quarter, compared to $0.9 million in the prior year. Adjusted EBITDA margins were 1.5%, up 90 basis points as compared to adjusted EBITDA margins of 0.6% in the fourth quarter of 2024.

Speaker #4: Driven primarily by operational efficiency improvements and reductions in SG&A expenses. Interest expense was $4.2 million, as compared to $2.2 million in the fourth quarter of 2024.

Andy Cheung: Interest expense was $4.2 million as compared to $2.2 million in Q4 2024, driven by higher interest rates. Net loss for the quarter was $6.4 million or a loss of $0.19 per diluted share, as compared to a net loss of $35 million or a loss of $1.04 per diluted share in the prior year. Net loss in the prior year included a non-cash tax valuation allowance of $28.8 million. Adjusted net loss for the quarter was $6 million or a loss of $0.18 per diluted share, as compared to adjusted net loss of $5.1 million or a loss of $0.15 per diluted share in the prior year.

Speaker #4: Driven by higher interest rates. Net loss for the quarter was $6.4 million, over a loss of 19 cents per diluted share. As compared to a net loss of $35 million over a loss of $1.04 per diluted share in the prior year.

Speaker #4: Net loss in the prior year included a non-cash tax valuation allowance of $28.8 million. Adjusted net loss for the quarter was $6 million, or a loss of $0.18 per diluted share.

Speaker #4: As compared to adjusted net loss of $5.1 million over a loss of $0.15 per diluted share in the prior year. Net loss and adjusted net loss were impacted by softening customer demand in North America.

Andy Cheung: Net loss and adjusted net loss were impacted by softening customer demand in North America, as well as high interest, offset somewhat by operational efficiency improvements. Free cash flow from continuing operations for the quarter was $8.7 million compared to $0.8 million in the prior year, due to better working capital management and reduced capital expenditures. Now moving to our full year consolidated results. Consolidated revenue for the full year was $649 million as compared to $723.4 million in the prior year. The decrease in revenues was primarily driven by a softening in customer demand in Global Seating and Trim Systems and Components segments. Adjusted EBITDA was $17.8 million for the full year compared to $23.2 million in the prior year.

Speaker #4: As well as higher interest offset somewhat by operational efficiency improvements. Free cash flow from continuing operations for the quarter was $8.7 million, compared to $0.8 million in the prior year.

Speaker #4: Due to better working capital management and reduced capital expenditures. Now moving to our full-year consolidated results. Consolidated revenue for the full year was $649 million.

Speaker #4: As compared to $723.4 million in the prior year. The decrease in revenues was primarily driven by a softening in customer demand in global seats and trim systems and component segments.

Speaker #4: Adjusted EBITDA was $17.8 million for the full year, compared to $23.2 million in the prior year. Adjusted EBITDA margins were 2.7%, down 50 basis points as compared to adjusted EBITDA margins of 3.2% in 2024.

Andy Cheung: Adjusted EBITDA margins were 2.7%, down 50 basis points as compared to adjusted EBITDA margins of 3.2% in 2024, driven primarily by lower sales volume, offset somewhat by lower SG&A expenses. At the end of the year, our net leverage ratio, calculated as our net debt divided by our trailing twelve months adjusted EBITDA from continuing operations, was 4.1 times, down from 4.7 times at the end of 2024. Turning to slide 5. I want to provide additional color as it relates to free cash flow in 2025. As James mentioned, we exceeded our guidance on this metric, which we had raised from our initial expectations provided in Q1 2025. Operational efficiencies and lower SG&A expenses in 2025 helped limit margin erosion despite absorbing a $74 million revenue decline.

Speaker #4: Driven primarily by lower sales volume, offset somewhat by lower SG&A expenses. At the end of the year, our net leverage ratio, calculated as our net debt divided by our trailing 12 months adjusted EBITDA from continuing operations, was 4.1 times.

Speaker #4: Down from $4.7 times at the end of 2024. Turning to slide five, I want to provide additional color as it relates to free cash flow in 2025.

Speaker #4: As James mentioned, we exceeded our guidance on this metric, which we had raised from our initial expectations provided in the first quarter of 2025.

Speaker #4: Operational efficiencies and lower SG&A expenses in 2025 helped limit margin erosion despite absorbing a $74 million revenue decline. Working capital was a major focus for us.

Andy Cheung: Working capital was a major focus for us, and we delivered on our expectation of a $10 million reduction in inventory. We also saw improvements across other areas of working capital, including accounts receivable. Another area of focus was controlling capital expenditures, which were down $7 million in 2025. These factors drove $33.4 million in free cash flow, which allowed us to reduce our net debt by $35.8 million, bringing our net leverage ratio down to 4.1 times compared to 4.7 times at the end of 2024. Moving to the segment results starting on slide 6.

Speaker #4: And we delivered on our expectation of a $10 million reduction in inventory. We also saw improvements across other areas of working capital, including account receivable.

Speaker #4: And other area of focus was controlling capital expenditures. Which were down $7 million in 2025. These factors drove $33.4 million in free cash flow.

Speaker #4: Which allowed us to reduce our net debt by $35.8 million, bringing our net leverage ratio down to 4.1 times, compared to 4.7 times at the end of 2024.

Speaker #4: Moving to the segment results, starting on slide six. Our global seating segments achieved revenues of $70.7 million. A decrease of $5.6%. As compared to year-ago-quarter.

Andy Cheung: Our Global Seating segment achieved revenues of $70.7 million, a decrease of 5.6% as compared to year-ago quarter, with the decrease primarily driven by lower sales volume as a result of reduced customer demand. Adjusted operating income was $1.8 million, an increase of $1.2 million compared to Q4 of 2024. Despite the revenue decline in this segment, we saw our efforts of driving operating efficiencies, and lower SG&A expenses improve profitability. We continued to see strength in our aftermarket seats, with sales up 7% year-over-year as we benefited from the re-segmentation completed last year.

Speaker #4: With the decrease primarily driven by lower sales volume as a result of reduced customer demand. Adjusted operating income was $1.8 million. And increase of $1.2 million compared to the fourth quarter of 2024.

Speaker #4: Despite the revenue decline in this segment, we saw our efforts in driving operating efficiencies and lowering SG&A expenses improve profitability. We continued to see strength in our aftermarket seats.

Speaker #4: With sales up 7% year-over-year. As we benefited from the resegmentation completed last year. For the full year, revenues were down $8.7%. Again, due to softening customer demand and wind-down of certain programs.

Andy Cheung: For the full year, revenues were down 8.7%, again, due to softening customer demand and wind down of certain programs. Adjusted operating income for the full year was $10.5 million, an increase of $4.9 million compared to 2024, due primarily to lower SG&A expenses. We are already seeing operational efficiencies flow through in this segment, and we expect further improvement in operational performance in 2026 as we anticipate recovery in end market demand. Turning to slide 7, our Global Electrical Systems segment Q4 revenues were $49.7 million, an increase of 12.7% as compared to the year-ago quarter, benefiting from the ramp of previously awarded business wins in North America and internationally.

Speaker #4: Adjusted operating income for the full year was $10.5 million, an increase of $4.9 million compared to 2024. This was due primarily to lower SG&A expenses. We are already seeing operational efficiencies flow through in this segment.

Speaker #4: And we expect further improvements in operational performance in 2026, as we anticipate recovery in end-market demand. Turning to slide seven, our Global Electrical Systems segment's fourth quarter revenues were $49.7 million.

Speaker #4: And increase of $12.7% as compared to the year-ago-quarter. Benefiting from the ramp of previously awarded business wins. In North America. And internationally. Adjusted operating income for the fourth quarter was $0.9 million.

Andy Cheung: Adjusted operating income for Q4 was $0.9 million, an increase of $3.9 million compared to the prior year, primarily attributable to increased sales volumes and operational efficiencies. We are continuing to see the benefits of the restructuring actions we have taken in this segment, and we remained well positioned to take advantage of higher volumes in 2026, particularly as we ramp the newly announced Zoox business in the second half of the year. For the full year, revenues were essentially flat. Adjusted operating income for the full year was $3.8 million, an increase of $4.6 million compared to 2024, primarily due to operational efficiencies achieved.

Andy Cheung: Adjusted operating income for Q4 was $0.9 million, an increase of $3.9 million compared to the prior year, primarily attributable to increased sales volumes and operational efficiencies. We are continuing to see the benefits of the restructuring actions we have taken in this segment, and we remained well positioned to take advantage of higher volumes in 2026, particularly as we ramp the newly announced Zoox business in the H2 of the year. For the full year, revenues were essentially flat. Adjusted operating income for the full year was $3.8 million, an increase of $4.6 million compared to 2024, primarily due to operational efficiencies achieved.

Speaker #4: And increase of $3.9 million compared to the prior year. Primarily attributable to increased sales volumes and operational efficiencies. We are continuing to see the benefits of the restructuring actions we have taken in this segment.

Speaker #4: And we remain well-positioned to take advantage of higher volumes in 2026. Particularly as we ramp the newly announced ZOOX business in the second half of the year.

Speaker #4: For the full year, revenues were essentially flat. Adjusted operating income for the full year was $3.8 million. And increase of $4.6 million. Compared to 2024.

Speaker #4: Primarily due to operational efficiencies achieved. We are starting to see the benefits of the margin improvement initiatives we have implemented in this segment. Right as growth is accelerating, on the back of new business wins ramping.

Andy Cheung: We are starting to see the benefits of the margin improvement initiatives we have implemented in this segment, right as growth is accelerating on the back of new business wins ramping. Moving to slide 8. Our Trim Systems and Components revenues in the Q4 decreased 22.5% to $34.4 million compared to the year-ago quarter due to lower sales volume as a result of decreased 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 loss for the Q4 was $1.4 million compared to profits of $0.9 million in the prior year. The decrease is primarily attributable to lower demand levels.

Speaker #4: Moving to slide eight. Our trim systems and components revenues in the fourth quarter decreased $22.5%. To $34.4 million. Compared to the year-ago-quarter. Due to lower sales volume as a result of decreased customer demand.

Speaker #4: 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 loss for the fourth quarter was $1.4 million.

Speaker #4: Compared to profits of $0.9 million. In the prior year. The decrease is primarily attributable to lower demand levels. In addition to a successful new wiper program launch.

Andy Cheung: In addition to a successful new wiper program launch, we expect our focus on cost discipline to return this segment to profitability as Class 8 production improves throughout 2026. For the full year, revenues were down 22.9% due to the decreased customer demand in North America. Adjusted operating income for the full year was $0.2 million, a decrease of $13.4 million compared to 2024, primarily driven by decreased customer demand and the reduction of backlog in the prior period. That concludes my financial overview commentary. I will now turn the call over to James to cover our end market outlook, key strategic actions, and our 2026 guidance.

Speaker #4: We expect our focus on cost discipline to return this segment to profitability as Class 8 production improves throughout 2026. For the full year, revenues were down 22.9%.

Speaker #4: Due to the decreased customer demand in North America, adjusted operating income for the full year was $0.2 million, a decrease of $13.4 million compared to 2024.

Speaker #4: Primarily driven by decreased customer demand. And the reduction of backlog in the prior period. That concludes my financial overview commentary. I will now turn the call over to James to cover our end-market outlook.

Speaker #4: Key strategic actions. And our 2026 guidance.

Speaker #2: Thank you, Andy. I will start with our key end-market outlooks on slide nine. According to ACT's Class 8 heavy truck build forecast. 2026 estimates imply a 4% increase in year-over-year volumes.

James Ray: Thank you, Andy. I will start with our key end market outlooks on slide nine. According to ACT's Class 8 heavy truck build forecast, 2026 estimates imply a 4% increase in year-over-year volumes. ACT is then forecasting a decline of 5% in 2027 before rebounding 30% in 2028. We also think it is helpful to provide a more granular drill down into the quarterly ACT data and outlook today. You can see that the second half of 2025 saw a rapid decline of approximately 28% compared to the first half of the year. On the other hand, the current forecast for 2026 shows a steady ramp throughout the year, with the second half up about 18% over the first half. Moving to our construction market outlook.

James Ray: Thank you, Andy. I will start with our key end market outlooks on slide nine. According to ACT's Class 8 heavy truck build forecast, 2026 estimates imply a 4% increase in year-over-year volumes. ACT is then forecasting a decline of 5% in 2027 before rebounding 30% in 2028. We also think it is helpful to provide a more granular drill down into the quarterly ACT data and outlook today. You can see that the H2 of 2025 saw a rapid decline of approximately 28% compared to the H1 of the year. On the other hand, the current forecast for 2026 shows a steady ramp throughout the year, with the H2 up about 18% over the H1. Moving to our construction market outlook.

Speaker #2: ACT is then forecasting a decline of 5% in 2027, before rebounding 30% in 2028. We also think it is helpful to provide a more granular drill-down into the quarterly ACT data.

Speaker #2: And outlook today. You can see that the second half of 2025 saw a rapid decline of approximately 28%. Compare it to the first half of the year.

Speaker #2: On the other hand, the current forecast for 2026 shows a steady ramp throughout the year, with the second half up about 18% over the first half.

Speaker #2: Moving to our construction market outlook. Based on recent commentary and outlooks from our customers and key market players, we expect the construction market to be up in the low single-digit percentage range.

James Ray: Based on recent commentary and outlooks from our customers and key market players, we expect construction market to be up in the low single-digit percentage range, primarily driven by lower interest rates and fiscal stimulus initiatives. Turning to Slide 10. I would like to give more details on the recently announced relationship with Zoox. CVG has been selected as a key wire harness supplier for Zoox, an autonomous ride-sharing company. This win highlights the global nature of our supply chain and ability to support client needs with high-quality products and available capacity. We are collaborating with Zoox on the design and supply of custom low-voltage harnesses for their all-electric purpose-built robotaxis, supporting our continued diversification into electric and autonomous vehicle markets.

James Ray: Based on recent commentary and outlooks from our customers and key market players, we expect construction market to be up in the low single-digit percentage range, primarily driven by lower interest rates and fiscal stimulus initiatives. Turning to Slide 10. I would like to give more details on the recently announced relationship with Zoox. CVG has been selected as a key wire harness supplier for Zoox, an autonomous ride-sharing company. This win highlights the global nature of our supply chain and ability to support client needs with high-quality products and available capacity. We are collaborating with Zoox on the design and supply of custom low-voltage h/arnesses for their all-electric purpose-built robotaxis, supporting our continued diversification into electric and autonomous vehicle markets.

Speaker #2: Primarily driven by lower interest rates. And fiscal stimulus initiatives. Turning to slide 10. I would like to give more details on the recently announced relationship with ZOOX.

Speaker #2: CVG has been selected as a key wire harness supplier for ZOOX. In autonomous ride-sharing company. This win highlights the global nature of our supply chain.

Speaker #2: And ability to support client needs with high-quality products and available capacity. We are collaborating with ZOOX on the design and supply of custom low-voltage harnesses.

Speaker #2: For their all-electric, purpose-built robotaxis—supporting our continued diversification into electric and autonomous vehicle markets. We intend to continue supporting ZOOX through their period of scale.

James Ray: We intend to continue supporting Zoox through their period of scale, further increasing the utilization of our new facility in Aldama, Mexico. Over the life of the program, we expect to reach full utilization of this facility. CVG is focusing on opportunities to expand this relationship. CVG has been supplying harnesses to support their test market vehicle deployment, and we expect volumes to increase in the second half of 2026. The anticipated ramp is expected to contribute to our target of growing our Global Electrical Systems segment in more than 10% in 2026 and is accretive to segment operating margins. Turning to slide 11, I will share several thoughts on our outlook for 2026. Our guidance ranges are based on current macroeconomic trends, forecasted Class 8 truck build rates, demand levels in construction markets, and the ramp of new business.

James Ray: We intend to continue supporting Zoox through their period of scale, further increasing the utilization of our new facility in Aldama, Mexico. Over the life of the program, we expect to reach full utilization of this facility. CVG is focusing on opportunities to expand this relationship. CVG has been supplying harnesses to support their test market vehicle deployment, and we expect volumes to increase in the H2 of 2026. The anticipated ramp is expected to contribute to our target of growing our Global Electrical Systems segment in more than 10% in 2026 and is accretive to segment operating margins. Turning to slide 11, I will share several thoughts on our outlook for 2026. Our guidance ranges are based on current macroeconomic trends, forecasted Class 8 truck build rates, demand levels in construction markets, and the ramp of new business.

Speaker #2: Further increasing the utilization of our new facility in Aldama, Mexico. Over the life of the program, we expect to reach full utilization at this facility.

Speaker #2: CVG is focusing on opportunities to expand this relationship. CVG has been supplying harnesses to support their test market vehicle deployment. And we expect volumes to increase in the second half of 2026.

Speaker #2: The anticipated ramp is expected to contribute to our target. Of growing our global electrical system segment. In more than 10% in 2026. And is accretive to segment operating margins.

Speaker #2: Turning to slide 11, I will share several thoughts on our outlook for 2026. Our guidance ranges are based on current macroeconomic trends and forecasted Class 8 truck build rates.

Speaker #2: Demand levels and construction markets, and the ramp of new business. We expect a year of top-line growth, with our net sales guidance range of $660 million.

James Ray: We expect a year of top line growth with our net sales guidance range of $660 to 700 million, which represents growth of nearly 5% over 2025 results at the midpoint, supported by strong growth in our Global Electrical Systems segment. Similarly, we are announcing an adjusted EBITDA guidance range of $24 to 30 million, which represents growth of approximately 50% over 2025 results at the midpoint of the range, reflecting the operational leverage we expect to see as end markets recover, and driving increased capacity utilization. Finally, we expect to generate positive free cash flow in 2026, supported by further improvements in working capital. We expect to use our free cash flow to continue paying down debt, improving net leverage toward our targeted leverage ratio of 2x.

Speaker #2: To $700 million. Which represents growth of nearly 5% over 2025 results. At the midpoint. Supported by strong growth in our global electrical system segment.

Speaker #2: Similarly, we are announcing an adjusted EBITDA guidance range of $24 million to $30 million, which represents growth of approximately 50% over 2025 results at the midpoint of the range.

Speaker #2: Reflecting the operational leverage we expect to see as end markets recover. And driving increased capacity utilization. Finally, we expect to generate positive free cash flow in 2026.

Speaker #2: Supported by further improvements in working capital, we expect to use our free cash flow to continue paying down debt, improving net leverage toward our targeted leverage ratio of two times.

Speaker #2: With that, I will now turn the call back to the operator. And open up the line for questions. Operator.

James Ray: With that, I will now turn the call back to the operator and open up the line for questions. Operator?

Speaker #3: Thank you, ladies and gentlemen. We will now begin the question and answer session. Did you have a question? Please press the star followed by the one-and-a-touchdown phone.

Operator 2: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question, please press star followed by the one on a touchtone phone. If you wish to cancel your request, please press star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one should you wish to ask a question. Your first question is from Joe Gomes from Noble Capital. Your line is now open.

Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question, please press star followed by the one on a touchtone phone. If you wish to cancel your request, please press star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one should you wish to ask a question. Your first question is from Joe Gomes from Noble Capital. Your line is now open.

Speaker #3: To do this, you cancel your request. Please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys.

Speaker #3: Once again, that is star one. Should you wish to ask a question, your first question is from Joe Gomez from Noble Capital. Your line is now open.

Speaker #4: Good morning, James and Andy. Thanks for taking my call questions.

Joe Gomes: Good morning, James and Andy. Thanks for taking my call. Questions.

Speaker #5: Morning, John.

James Ray: Morning, Joe.

Speaker #2: Good morning, Joe.

Andy Cheung: Good morning, Joe.

Speaker #4: So I wanted to start out. You know, we talked about those two new key programs that started ramping into third quarter. Looks like the more positive fourth quarter.

Joe Gomes: I wanted to start out, you know, we talked about those two new key programs that started ramping in Q3. Looks like the more positive Q4. Just wondering if you give us a little more color on how those programs are unfolding right now.

Speaker #4: Just wondering if you'd give us a little more color on how those programs are unfolding right now.

Speaker #2: Yes, thank you for the question, Joe. They're both going to plan. The one program that was in EMEA is ramping up. We have the capacity.

James Ray: Yes. Thank you for the question, Joe. They're both going to plan. The one program that was in EMEA is ramping up. We have the capacity. The customer volumes are coming in as planned, in some cases a little higher. For the Zoox program that we did announce and disclose that customer here in North America, that's going to plan too. The new facility in Aldama, Mexico, is ramping up, and we see that facility being fully utilized by the Zoox volume. Their forecast is staying pretty true to where it was at business award. We're currently in the last pre-production series supporting them.

Speaker #2: The customer volumes are coming in as planned. In some cases, a little higher. For the ZOOX program that we did announce and disclose—that customer here in North America.

Speaker #2: That's going to plan too. The new facility in Aldama, Mexico is ramping up, and we see that facility being fully utilized by the Zoox volume in their forecast, which is staying pretty true to where it was at business award.

Speaker #2: We're currently in the last pre-production series. Supporting them. They're on track to start their volume production. Toward the latter part of the second quarter.

James Ray: They're on track to start their volume production toward the latter part of Q2, and we're positioned to support them, and we don't foresee any hiccups at this point.

Speaker #2: And we're positioned to support them and we don't foresee any hiccups at this point.

Speaker #4: Okay, great. Thanks for that. And I know you guys don't, you know, typically talk about the level of new business wins. But, you know, James, maybe give us a little color for '25 outside of these two key programs.

Joe Gomes: Okay, great. Thanks for that. I know you guys don't, you know, typically talk about the level of new business wins, but, you know, James, maybe give us a little color, you know, for 25 outside of these two key programs. You know, what you saw kind of on the new business wins, and are there any, you know, significant programs in 26 that will be ending?

Speaker #4: You know, what you saw kind of on the new business wins? And are there any significant programs in '26 that it would be ending?

James Ray: For 25, we target approximately $100 million a year to book new business, and that's at the peak annual sales in the programs that are awarded by customers. But as we've discussed previously, the volatility of those quantified numbers that the customers give us in forecast is pretty erratic. It can be delayed program launches, it could be lower volumes. It's all over the map. That's why we stopped communicating that and really focused on the annual guidance where we have a closer end view of when programs are starting. The nice thing about the Zoox opportunity, we actually were able to start producing harnesses for them within 12 months of being awarded the business. That's a more near-term.

Speaker #2: So for '25, we target approximately $100 million a year to book new business. And that's at the peak annual sales in the programs that are awarded by customers.

Speaker #2: But as we've discussed previously, the volatility of those quantified numbers that the customers give us and forecast is pretty erratic. It can be delayed program launches.

Speaker #2: It can be lower volumes. It's all over the map. So that's why we stopped communicating that and really focused on the annual guidance, where we have a closer-in view of when programs are starting.

Speaker #2: The nice thing about the ZOOX opportunity: we actually were able to start producing harnesses for them within 12 months of being awarded the business.

Speaker #2: So that's a more near term. And some of our seating programs and trim programs it's a two to three-year delay from the time you're awarded the business to the time you actually start production.

James Ray: In some of our seating programs and trim programs, it's a 2-to-3-year delay from the time you're awarded the business to the time you actually start production. The other programs in EMEA, we are utilizing our Morocco facility for that and that's for supporting the electrical systems business. The growth coming through in electrical systems is really positive right now, and as we said, we expect that business to grow more than 10% in 2026. As far as other business that we're pursuing, we booked quite a bit of business each year. Again, it does depend on the timing and the ramp schedule of the customers and other macroeconomic and geopolitical factors as we know can happen, like what's going on in the EMEA region now.

James Ray: In some of our seating programs and trim programs, it's a 2 to 3year delay from the time you're awarded the business to the time you actually start production. The other programs in EMEA, we are utilizing our Morocco facility for that and that's for supporting the electrical systems business. The growth coming through in electrical systems is really positive right now, and as we said, we expect that business to grow more than 10% in 2026. As far as other business that we're pursuing, we booked quite a bit of business each year. Again, it does depend on the timing and the ramp schedule of the customers and other macroeconomic and geopolitical factors as we know can happen, like what's going on in the EMEA region now.

Speaker #2: The other programs in EMEA, we are utilizing our Morocco facility for that. And that's for supporting the Electrical Systems business. So the growth coming through in Electrical Systems is really positive right now.

Speaker #2: And as we said, we expect that business to grow more than 10% in 2026. As far as other business that we're pursuing, we book quite a bit of business each year.

Speaker #2: But again, it does depend on the timing and the ramp schedule of the customers. And other macroeconomic and geopolitical factors, as we know, can happen—like what's going on in the EMEA region now.

James Ray: There are a number of programs across all businesses, so we have not stopped pursuing new business wins in seating or trim systems and components. We actually have booked a few wins in each one of those businesses during this Q1. We won't really disclose the magnitude of it, but we continue to focus on building a funnel of approximately $100 million a year in new business.

Speaker #2: But there are a number of programs across all businesses. So we have not stopped pursuing new business wins in seating or trim systems and components.

Speaker #2: We actually have booked a few wins in each one of those businesses during this first quarter. We won't really disclose the magnitude of it.

Speaker #2: But we continue to focus on building a funnel of approximately $100 million a year in new business.

Speaker #4: Okay, thank you for that. In the aftermarket business seemed to be pretty strong here in the quarter. You talked about it, highlighted. Maybe give us a little bit more color on the aftermarket.

Joe Gomes: Okay. Thank you for that. The aftermarket business seemed to be, you know, pretty strong here in the quarter. You talked about it, highlighted. Maybe give us a little bit more color on the aftermarket, and where you see that going in 2026.

Speaker #4: And where do you see that going in '26?

Speaker #2: Yeah. So, if you recall last year, we re-segmented our product lines in the company, and the aftermarket business was integrated into our seating business for the seat products.

James Ray: Yeah. If you recall, last year, we resegmented our product lines in the company, and an aftermarket business was integrated into our seating business for the seat products. The wipers were integrated into our Trim Systems and Components business. One of the benefits is the alignment with our production facilities. We have a separate seating aftermarket plant and a separate OEM seating plant. Now we look at those sites together, and when we talk about improving operational efficiencies, they're under a single operating unit, and we have much better coordination from a lead time perspective, scheduling perspective. What really drives aftermarket, especially in seats, is your turnaround time or time to delivery from the time we get an order.

Speaker #2: And in the wipers, we're integrated into our trim systems and components business. One of the benefits is the alignment with our production facilities. We have a separate seating aftermarket plant and a separate OEM seating plant.

Speaker #2: Now we look at those sites together. And when we talk about improving operational efficiencies, they're under a single operating unit, and we have much better coordination from a lead time perspective and scheduling perspective.

Speaker #2: And what really drives aftermarket, especially in seats, is your turnaround time, or time to delivery from the time we get an order. And that has reduced substantially from where it was in prior years, just based on how we operate the plants together.

James Ray: That has reduced substantially from where it was in prior years, just based on how we operate the plants together and more seamlessly and much more customer-focused. The other thing that we started doing with the seat business in a more I guess intentional way is driving promotions. Several of our aftermarket seats competitors are more promotional-based. Now that we have the reduced lead time, order to delivery, we are fulfilling a lot more promotional actions. We continue to see that business grow. Both of the plants, the OEM and the aftermarket plant, are running about half capacity. We have additional capacity to really grow the aftermarket business. We have further engagement with our over 60 field sales reps that represent our product in the aftermarket field.

Speaker #2: And more seamlessly and much more customer-focused. The other thing that we started doing with the seat business in a more, I guess, intentional way is driving promotions.

Speaker #2: And several of our aftermarket seats competitors are more promotional-based. And now that we have the reduced lead time from order to delivery, we are fulfilling a lot more promotional actions.

Speaker #2: So we continue to see that business grow. Both of the plants, the OEM and the aftermarket plant, are running at about half capacity. So we have additional capacity to really grow the aftermarket business.

Speaker #2: We have further engagement with our over 60 field sales reps that represent our product in the aftermarket field. So, a lot more attention—intentional initiatives to really grow that top line.

James Ray: A lot more intentional initiatives to really grow that top line. That margin is accretive to the overall seating business. We're really excited about it. We're gonna continue to focus on that. We've even had opportunities from a cash generation standpoint by using some of our excess inventory to have certain promotions in our aftermarket seat business. It's really been a multifaceted efficiency improvement across all elements of our financials. We're really excited about it. We're looking at new products to introduce into the aftermarket channel in addition to seats, seat covers, and other new products. We're really excited about it. That's gonna be a focus area for growth for the Global Seating business. In addition to pursuing OEM platforms, the other benefit from aftermarket is near term.

Speaker #2: And that margin is accretive to the overall seating business, so we're really excited about it. We're going to continue to focus on that.

Speaker #2: We've even had opportunities from a cash generation standpoint by using some of our excess inventory to have certain promotions in our aftermarket seat business.

Speaker #2: So it's really been a multi-faceted efficiency improvement across all elements of our financials. So we're really excited about it. We're looking at new products to introduce into the aftermarket channel in addition to seats.

Speaker #2: Seat covers and other new products—so we're really excited about it. That's going to be a focus area for growth for the global seating business.

Speaker #2: In addition to pursuing OEM platforms, the other benefit from aftermarket is near term. So we can get an order and turn around the seat in days or a few weeks, compared to booking a new seat OEM program, which takes years to bring to market.

James Ray: We can get an order and turn around a seat in days or a few weeks compared to booking a new seat OEM program, which takes years to bring to market. We're really excited about it.

Speaker #2: So really excited about it.

Speaker #4: Great, thanks for that. And I'll get back in queue. Thank you.

Joe Gomes: Great. Thanks for that. I'll get back in queue. Thank you.

Speaker #2: Yeah, you're welcome.

James Ray: Yeah, you're welcome.

Speaker #5: Thank you. Your next question is from Jean-Franz Rebb from Sadoti and Company. Your line is now open.

Operator 2: Thank you. Your next question is from John Franzreb from Sidoti & Company. Your line is now open.

Operator: Thank you. Your next question is from John Franzreb from Sidoti & Company. Your line is now open.

Speaker #6: Good morning, everyone. And thanks for taking the questions. I have to admit, I'm not particularly familiar with the ZOOX product line. But my understanding is that the target level there is 10,000 units of production per year.

John Franzreb: Good morning, everyone, and thanks for taking the questions. I have to admit, I'm not particularly familiar with the Zoox product line, but my understanding is that the target level there is 10,000 units of production per year. Is that what you're hearing? When is the timeline for them to start to hit that kind of a number?

Speaker #6: Is that what you're hearing? And when's the timeline for them to start to hit that kind of a number?

Speaker #2: Yeah, so I can't speak for Zoox. But what they have told us is to plan to support 10,000 vehicles per year. They are in a ramp mode.

James Ray: Yeah. I can't speak for Zoox, but what they have told us is to plan to support 10,000 vehicles per year. They are in a ramp mode. For the first two years, we understand their volume to be about 5,000 on an annualized basis. For us this year, it's about half that, and then for 2027, the full 5,000, and then when you get to 2028 and 2029, they're targeting 10,000 units. Now, their schedule may accelerate depending on the municipality and geofence within those municipality deployments. The larger their geofence, the more vehicles they can deploy. I had an opportunity to ride in their vehicle at the Consumer Electronics Show. It's a very unique product. It's bidirectional, so it goes both forward and backward. No steering wheel, no brakes.

Speaker #2: For the first two years, we understand their volume to be about 5,000 on an annualized basis. So for us this year, it's about half that.

Speaker #2: And then for '27, the full five. And then when you get to '28 and '29, they're targeting 10,000 units. Now, their schedule may accelerate depending on the municipality and geofence within those municipalities' deployments.

Speaker #2: The more the larger their geofence, the more vehicles they can deploy. I had an opportunity to ride in their vehicle at the Consumer Electronics Show.

Speaker #2: It's a very unique product. It's bidirectional, so it goes both forward and backward. No steering wheel. No brakes, or—no, it does have brakes.

James Ray: No, it does have brakes, I'm sorry. No steering wheel in the vehicle, and the seats are facing. It's a very highly content vehicle because of the cameras and the high-speed communication. The content in that vehicle is more than twice what would be in a vehicle that size that wasn't autonomous. We're benefiting from that too, and that's what's allowing us to better utilize and fill our utilization in our Aldama plant in Mexico.

Speaker #2: I'm sorry. No steering wheel. In the vehicle. And the seats are facing. But it's a very highly contented vehicle. Because of the cameras and the high-speed communication, so the content in that vehicle is more than twice what would be in a vehicle that size that wasn't autonomous.

Speaker #2: So we're benefiting from that too. And that's what's allowing us to better utilize and fill our utilization in our Alabama plant and Mexico.

Speaker #4: Ray, I was honestly going to ask you if you wrote it in a follow-up offline. But I'm glad you answered that.

John Franzreb: Ray, I was honestly gonna ask you if you wrote it, you know, and follow up offline, but I'm glad you answered that.

Speaker #2: I've got pictures to prove it, John.

James Ray: I've got pictures to prove it, John.

John Franzreb: I believe you. I really do. I guess, I'm actually curious. I think you just answered the question, though. There's not gonna be a capacity problem or capacity addition when you get to that 2028 timeframe to fill 10,000 units, you're fine?

Speaker #4: I believe you. I really do. I guess I'm actually curious. I think you just answered the question, though. There's not going to be a capacity problem or capacity addition when you get to that 28 timeframe to fill 10,000 units?

Speaker #4: You're fine?

James Ray: We will scale capacity as needed, but up to that point, we have the capacity in place.

Speaker #2: We will scale capacity as needed. But up to that point, we have the capacity in place as you're aware. We've had headwinds with some of our structural costs and electrical as we've built capacity ahead of businesses launching.

James Ray: We will scale capacity as needed, but up to that point, we have the capacity in place.

John Franzreb: Okay.

James Ray: As you're aware, we've had headwinds with some of our structural costs and electrical as we built capacity ahead of businesses launching. The past couple of years, we've been struggling with getting our structural costs aligned with demand. Now we're seeing that come into play, and we're getting much better absorption, and we expect really good operating leverages as that capacity utilization increases over the next couple of years.

John Franzreb: Okay.

Speaker #2: So the past couple of years, we've been struggling with getting our structural costs aligned with demand. Now we're seeing that come into play. And we're getting much better absorption and we expect really good operating leverage as that capacity utilization increases over the next couple of years.

Speaker #4: Got it.

John Franzreb: Got it.

Speaker #6: And in regards to go ahead.

Andy Cheung: Hey, John.

John Franzreb: And in regards to-

Andy Cheung: Just as a-

John Franzreb: Go ahead.

Speaker #4: As a reminder, you remember that we have two facilities in Mexico, right? We have flexibility to move programs from one to the other. So as we continue to see the volume and utilization in Alabama, we'll make those decisions and, obviously, when necessary, we'll invest in additional equipment and other capacity.

Andy Cheung: As a reminder, you remember that we have two facilities in Mexico, right? We have flexibility to move programs from one to the other.

John Franzreb: Mm-hmm.

Andy Cheung: As we continue to see the volume and utilization in Aldama, we'll make those decisions, and obviously, when necessary, we'll invest in additional equipment and other capacity. We have no problem-

Speaker #4: So we have no problem absorbing if the customer really wants to that level. It will be just good news for us.

John Franzreb: Got it.

Andy Cheung: Absorbing if the customer really want to that level. It will be just good news for us.

Speaker #6: Got it. And actually, Andy, this next question might be more for you. You talked about an improvement in free cash flow. In 2025, it was largely coming from working capital and the receivables line, best I can tell.

John Franzreb: Got it. Actually, Andy, this next question might be more for you. You talked about an improvement in free cash flow. In 2025, it was largely coming from working capital and the receivables line, best I can tell. I'm curious what remaining levers, 'cause it looks like, you know, you're gonna pull down CapEx. What are the other levers you still have on operating cash flow that can drive improvement in free cash flow this year?

Speaker #6: And I'm curious, what remaining levers because it looks like you're going to pull down CapEx. What are the other levers you still have on operating cash flow that can drive improvement in free cash flow this year?

Speaker #2: Yeah, so John, we still see opportunities for us to continue to improve our efficiencies in managing our working capital. So we did a lot of work in receivables.

Andy Cheung: Yeah. John, we still see opportunities for us to continue to improve our efficiencies in managing our working capital. We did a lot of work in receivable. We have seen a significant improvement in days and past due, so we solve a lot of process issue. The next, as James mentioned, we are seeing the sign of improving inventory efficiencies as well. We're working with customers to make sure that our demand variation is keeping to minimum, allow our plans to be more efficient, and we work on minimum order quantities, lead time with our supply base. We actually continue to see we are not done in working capital improvement.

Speaker #2: We have seen a significant improvement in days in past years. So we solved a lot of process issues. And next, as James mentioned, we are seeing the sign of improving inventory efficiencies as well.

Speaker #2: We're working with customers to make sure that our demand variation is keeping to a minimum, allow our plants to be more efficient. And we work on minimum order quantities, lead time with our supply base.

Speaker #2: So we're actually continuing to see we are not done in working capital improvements. So as you know, we're looking for growth now in the next couple of years.

Andy Cheung: As you know, we're looking for growth now in the next couple of years, so it will require more working capital to fund that growth, but at the same time, our efficiency will allow us to offset that. We're pretty confident that we'll still have opportunities ahead.

Speaker #2: So it will require more working capital to fund that growth. But at the same time, our efficiency will allow us to offset that. So we're pretty confident that we'll still have opportunities ahead.

Speaker #6: Got it. And maybe one last question. I'll get back into queue. The last three months, we've seen some stunning truck order numbers. I'm curious, A, about your thoughts about that.

John Franzreb: Got it. Maybe one last question, and I'll get back into queue. The last three months, we've seen some stunning truck order numbers. I'm curious, A, about your thoughts about that and maybe, B, you know, how long do those orders translate into revenue for you on a normalized basis?

Speaker #6: And maybe B, how long do those orders translate into revenue for you on a normalized basis?

Speaker #2: Okay, I'll take that one, John. If you guys track ACT, you'll see it's changed substantially since the early part of Q4 last year, from the low 200s and when we guided this, we were basing the truck build on 260, 260,000 units, which came out in February.

James Ray: Okay. I'll take that one, John. If you guys track ACT, you'll see it's changed substantially since the early part of Q4 last year from the low 200s. When we guided this, we were basing the truck build on 260,000 units, which came out in February. Just this week, ACT has come out with a revised forecast for 2026, targeting 275,000 vehicles. The cautionary comment I'll make here is that the volatility in the ACT forecast, based on a number of factors, I mean, they have a very robust model on forecasting, but there's so much uncertainty that drives where the OEMs target production levels.

Speaker #2: Just this week, ACT has come out with a revised forecast for 2026, targeting 275,000 vehicles. So the cautionary comment I'll make here is that the volatility in the ACT forecast, based on a number of factors, I mean, they have a very robust model on forecasting.

Speaker #2: But there's so much uncertainty that drives where the OEMs target production levels. And it's really driven by fleet sales, and freight rates, and economic indicators that relate to GDP growth, etc.

James Ray: That's really driven by fleet sales and freight rates and economic indicators that, you know, relate to GDP growth, et cetera. We value in a very judicious way how we add capacity and inventory or how we reduce capacity and inventory and head count to stay flexible. Some of that up and down does create inefficiency. It also we see variation in customer schedules. Just in Q1, several of our customers had down weeks of production. If you look at the ACT numbers, Q1 of 2026 actually came in lower than their prior forecast. It's a constant adjustment, but we're optimistic that the trend of increased quarterly production is in play.

Speaker #2: So we valve in a very judicious way how we add capacity and inventory, or how we reduce capacity and inventory and headcount, to stay flexible.

Speaker #2: And some of that up and down does create inefficiency. It also we see variation in customer schedules, just in the first quarter. Several of our customers had down weeks of production.

Speaker #2: And if you look at the ACT numbers the first quarter of '26, it actually came in lower. Then their prior forecast. So it's a constant adjustment.

Speaker #2: But we're optimistic that the trend of increased quarterly production is in play. And our customers—we see about a 12- to 13-week EDI schedule from our customers.

James Ray: Our customers, we see about a 12- to 13-week EDI schedule from our customers, and then they give us out quarter estimates on where they're gonna be. They're somewhat in line with ACT. Now, we don't supply every OEM that ACT uses in their forecast, so there's a mixed element between our customer orders, their production, and what the overall ACT production numbers are, which we use as a proxy along with what our customers are telling us.

James Ray: Our customers, we see about a 12 to 13 week EDI schedule from our customers, and then they give us out quarter estimates on where they're gonna be. They're somewhat in line with ACT. Now, we don't supply every OEM that ACT uses in their forecast, so there's a mixed element between our customer orders, their production, and what the overall ACT production numbers are, which we use as a proxy along with what our customers are telling us.

Speaker #2: And then they give us out-quarter estimates on where they're going to be. And they're somewhat in line with ACT. Now, we don't supply every OEM that ACT uses in their forecast.

Speaker #2: So there's a mixed element between our customer orders and their production, and what the overall ACT production numbers are, which we use as a proxy along with what our customers are telling us.

Speaker #6: Got it. Thank you both. I'll get back into queue.

John Franzreb: Got it. Thank you both. I'll get back into queue.

Speaker #2: Thanks, John.

James Ray: Thanks, John.

Speaker #1: Thank you once again. That is star one, should you wish to ask a question. And your next question is from Gary Prestapino from Barrington Research.

Operator 2: Thank you. Once again, that is star one, should you wish to ask a question. Your next question is from Gary Prestopino from Barrington Research. Your line is now open.

Operator: Thank you. Once again, that is star one, should you wish to ask a question. Your next question is from Gary Prestopino from Barrington Research. Your line is now open.

Speaker #1: Your line is now open.

Speaker #5: Hi, good morning. My name is James.

Gary Prestopino: Hi. Good morning, Andy and James.

James Ray: Good morning, Gary.

Speaker #2: Good morning.

Speaker #5: A couple of questions here. Looking at your reduction in debt levels and all that, is the interest expense line in Q4 a good proxy for what it should be on a quarterly basis going forward?

Gary Prestopino: A quick couple of questions here. Looking at your reduction in debt levels and all that, is the interest expense line in Q4 a good proxy for what it should be on a quarterly basis going forward?

Speaker #2: Yeah, so thank you, Gary. Well, as I mentioned in my prepared remark, we continue to focus on using our free cash flow to bring down our debt, right?

Andy Cheung: Yeah. Thank you, Gary. Well, as I mentioned in my prepared remark, we continue to focus on using our free cash flow to bring down our debt, right? As you see, north of $30 million of debt pay down already happened this year, and we are right now at the lowest net debt level for many quarters at around $73 million at the end of 2025. You also remember about a year ago we did refinance and the interest rate is higher than what we had in the past. Right now you're seeing a combination effect of higher interest rates, but we continue to pay down debt.

Speaker #2: So, as you see, that loss of $30 million of debt paid down already happened this year. And we are right now at the lowest net debt level for many, many quarters at around $73 million.

Speaker #2: At the end of 2025. So you also remember about a year ago, we did refinance. And the interest rate is higher than what we had in the past.

Speaker #2: So right now, you see a combination effect of higher interest rates but we continue to pay down debt. So from what I'm seeing in 2026, you'll continue to see a similar interest rate level, but you'll continue to see a gradual pay down of our debt.

Andy Cheung: From what I'm seeing in 2026, you'll continue to see a similar interest rate level, but you'll continue to see a gradual pay down of our debt. We guided that this year we'll have also positive free cash flow, and we'll use that to pay down more debt as well. It's a little too early for us to talk about the magnitude of the amount of free cash flow and the debt level for 2026 for now, but we'll have more line of sight and maybe guide a little bit more in the Q1 call. But overall, you should see that the interest expense will gradually coming down throughout 2026.

Speaker #2: We guided that this year will have also positive free cash flow. And we'll use that to pay down more debt as well. It's a little too early for us to talk about the magnitude of the amount of free cash flow and the debt level for 2026 for now.

Speaker #2: But we'll have more line of sight and maybe guide a little bit more in the first quarter call. But overall, you should see that the interest expense will gradually come down throughout 2026.

Speaker #5: Okay, that's helpful. And then James, you mentioned in the global electric, you've had two contracts or two programs that were signed up that's starting to drive some growth.

Gary Prestopino: Okay, that's helpful. James, you mentioned in the Global Electrical, you've had 2 contracts or 2 programs that were signed up, that's starting to drive some growth. I got confused. Were there 2 programs in addition to Zeus, or were there 2 programs without Zeus?

Speaker #5: Was one I got confused. Were there two programs in addition to Zeus, or was there two programs without Zeus?

Speaker #2: There were two programs in addition to Zeus.

James Ray: There were two programs in addition to Zeus.

Speaker #5: Okay. And so those two programs came on last year, and they're starting to positively impact the numbers.

Gary Prestopino: Okay. Those two programs came on last year, and they're starting to positively impact the numbers in the back half of last year.

Speaker #2: That's correct. That's correct. And the other thing I'd say, Gary, is that with several of our legacy customers, we have a portion of share of wallet.

James Ray: That's correct.

Gary Prestopino: Okay.

James Ray: The other thing I'd say, Gary, is that with several of our legacy customers, we have a portion of share of wallet. To the extent we can provide products to expand our share within those customers, we consider that, you know, opportunities for near-term revenue growth too. Now that we have additional capacity online, a lot of the discussions are centered around share of wallet expansion with some of our legacy customers, in addition to pursuing new customers and new end markets. Our legacy construction and agriculture customers and some of those are in power gen end markets now and also for data centers.

Speaker #2: So, to the extent we can provide products to expand our share within those customers, we consider that opportunities for near-term revenue growth too. And now that we have additional capacity online, a lot of the discussions are centered around share of wallet expansion with some of our legacy customers, in addition to pursuing new customers and new end markets.

Speaker #2: But our legacy construction and agriculture customers and some of those are in PowerGen end markets now and also for data centers. So a lot of discussions now are centered around how we can support those customers' growth in PowerGen for data centers and also the data center architecture itself.

James Ray: A lot of discussions now are centered around how we can support those customers' growth in power gen for data centers and also the data center architecture itself. We are looking outside to diversify in other end markets in addition to the construction, agriculture, and Class 8, and we're starting to see some good traction and tailwind in winning business and content in those adjacent end markets.

Speaker #2: So we are looking outside to diversify in other end markets in addition to construction, agriculture, and class eight. And we're starting to see some good traction in tailwind and winning business and content in those adjacent end markets.

Speaker #5: Okay, but the programs that you the two plus Zeus, that you announced in global electric, those are related to vehicles. It's not related to data centers.

Gary Prestopino: Okay. The programs, the 2+ Zoox that you announced in Global Electrical Systems, those are related to vehicles. It's not related to data centers.

Speaker #2: That's correct. That's correct.

James Ray: That's correct.

Gary Prestopino: Okay.

James Ray: That's correct.

Speaker #5: Okay. And then just looking at your guidance, pretty big range of adjusted EBITDA there. When you're looking at the low end, what kind of factors are going into that?

Gary Prestopino: Okay. Then just looking at your guidance, pretty big range of adjusted EBITDA there. You know, when you're looking at the low end, what kind of factors are going into that, you know, particularly your Class 8 truck build rate? Because the last couple of years, you know, these numbers have started off pretty high, and then gradually, as the year goes on, ACT has reduced them. You know, knowing that, you know, we've been in a freight recession for years now, and you gotta have some replacement units coming on as 'cause these are capital equipment and it wears out. Could you kinda help us with what your assumptions are for the high end, low end?

Speaker #5: Particularly your class eight truck build rate, because the last couple of years, these numbers have started off pretty high and then gradually, as the year goes on, ACT has reduced them.

Speaker #5: Now, we've been in a freight recession for years now. And you got to have some replacement units coming on because these are capital equipment, and it wears out.

Speaker #5: So, did you kind of help us with what your assumptions are for the high-end, low-end?

Speaker #2: Yeah, so let me give you some color there, Gary. So, as you see, last year, as you mentioned, the last few quarters, as we keep lowering the guidance, you see that that's highly correlated to the Class 8 end market.

Andy Cheung: Yeah. Let me give you some color there, Gary. As you see the last year, as you mentioned, our last few quarters, as we keep lowering the guidance and you see that that's highly correlate to the Class 8 end market production. As we go through into our planning for 2026, and the last couple of months of ACT forecast has been positively revised every time. I would say that even including yesterday's ACT report is another 5% of positive revision upwards. We are actually seeing this time around that the range, yes, is wide, but as you can see, the volatility is high. The last couple trend of the ACT report give us more positive confidence that the range is probably giving us the momentum into the top side.

Speaker #2: Production. As we're going through into our planning for 2026, the last couple of months of ACT forecast has been positively revised every time.

Speaker #2: So I would say that even including yesterday's ACT report is another 5% of positive revision upwards. So we are actually seeing this time around that the range, yes, is wide, but as you can see, the volatility is high.

Speaker #2: But the last couple of trends of the ACT report give us more positive confidence that the range is probably giving us the momentum into the top side.

Speaker #2: So 2024 has been the start of the decline in end market, but now we see that the bottom as forecasted by ACT is in the horizon.

Andy Cheung: 2024 has been the start of the decline in end market, but now we see that the bottom, as forecasted by ACT, is in the horizon. I will also say that as you look through our cost structure, you can expect that have significant drop through of the incremental top line that will come through, as we have already largely completed our restructuring programs in the last year. The fixed cost has been significantly reduced. Now when we see the additional volume come through, I'm hopeful that the drop through will be very attractive.

Speaker #2: I will also say that as you look to our core structure, you can expect that have significant drop through of the incremental top line that will come through as we have already largely completed our restructuring programs.

Speaker #2: In the last year, the fixed cost has been significantly reduced. So now, when we see the additional volume come through, I'm hopeful that the drop-through will be very attractive.

Speaker #5: Okay, that's helpful. Well, let me ask it this way then. Is ACT, as we started the year, what's been the for the first two months of this year, year over year, what's been the year over year increase in orders?

Gary Prestopino: Okay. That's helpful. Well, let me ask it this way then. As ACT, as we started the year, what's been the—for the first two months of this year-over-year, what's been the year-over-year increase in orders?

Speaker #2: The ACT Q11 rate is still around the 50-ish thousand units, so it's a one way of about 20,020 or so annualized. If you look at the latest ACT, it's up to 275,000.

Andy Cheung: The ACT Q1 run rate is still around the 50-ish thousand units, so it's a run rate of about 220 or so annualized. If you look at the latest ACT, it's up to 275,000.

Gary Prestopino: Okay.

Speaker #2: So that's implying about 65 to 70 thousand units on a quarter basis. So you will see that the continual improvement in the quality volume going into 2026.

Andy Cheung: That's implying about 65,000 to 70,000 units on a quarter-over-quarter basis. You will see that the continual improvement in the quarterly volume going into 2026.

Speaker #5: Okay, thank you.

Gary Prestopino: Okay. Thank you.

Speaker #6: Thank you. There are no further questions at this time. Please proceed with the closing remarks.

Operator 2: Thank you. There are no further questions at this time. Please proceed with the closing remarks.

Operator: Thank you. There are no further questions at this time. Please proceed with the closing remarks.

Speaker #2: Thank you all for joining today's call. I'm encouraged by the progress we have made in driving operational efficiencies and lowering our cost structure. We are starting to see signs of end market improvement, which we believe will yield improved financial performance in 2026 and beyond.

James Ray: Thank you all for joining today's call. I'm encouraged by the progress we have made in driving operational efficiencies and lowering our cost structure. We are starting to see signs of end market improvement, which we believe will yield improved financial performance in 2026 and beyond. We look forward to updating CVG's progress next quarter.

Speaker #2: We look forward to updating CVG's progress next quarter.

Operator 2: Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may now disconnect your lines.

Operator: Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may now disconnect your lines.

Q4 2025 Commercial Vehicle Group Inc Earnings Call

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