Earnings call transcript: Commercial Vehicle Group sees stock surge despite Q1 2025 EPS miss

Commercial Vehicle Group Inc. (CVGI) reported a mixed bag for its first-quarter earnings of 2025, with earnings per share (EPS) falling short of expectations, but revenue slightly surpassing forecasts. The company’s stock, however, surged by over 25% following the earnings release, highlighting investor optimism despite the earnings miss. According to InvestingPro data, the company currently trades at a market capitalization of just $34.33 million, with a notably low Price/Book ratio of 0.21, suggesting potential undervaluation despite recent challenges.

Key Takeaways

• EPS came in at a loss of $0.08, missing the forecasted loss of $0.01.
• Revenue reached $169.8 million, slightly above the forecast of $169.44 million.
• The stock price increased by 25.56% in after-hours trading.
• The company revised its 2025 revenue guidance downward to $660 million-$690 million.
• Focus remains on operational efficiency and cost reduction initiatives.

Company Performance

Commercial Vehicle Group’s performance in Q1 2025 reflected a challenging environment, with consolidated revenue down from $194.6 million a year earlier. The company reported a net loss of $3.1 million, or $0.09 per diluted share, compared to a profit in the previous year. Despite these setbacks, the company improved its free cash flow to $11.2 million from a negative $6.5 million, highlighting effective cash management strategies. InvestingPro analysis reveals the company maintains a healthy current ratio of 2.41, indicating strong short-term liquidity despite operational challenges. For deeper insights into CVGI’s financial health and future prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

Financial Highlights

• Revenue: $169.8 million (down from $194.6 million YoY)
• EPS: -$0.08 (missed forecast of -$0.01)
• Adjusted EBITDA: $5.8 million (down from $9.7 million)
• Free Cash Flow: $11.2 million (improved from -$6.5 million)
• Adjusted EBITDA Margins: 3.4% (down 160 basis points)

Earnings vs. Forecast

Commercial Vehicle Group’s EPS of -$0.08 was significantly below the forecasted -$0.01, marking a notable earnings miss. The revenue of $169.8 million, however, slightly exceeded expectations, suggesting resilience in sales despite broader market challenges.

Market Reaction

The stock price of Commercial Vehicle Group saw a significant increase of 25.56% in after-hours trading, closing at $1.13. This surge comes despite the earnings miss, indicating strong investor confidence or possibly speculative trading. The stock’s performance is notable given its proximity to the 52-week low of $0.81, signaling a potential turnaround or market correction. InvestingPro data shows the stock carries a beta of 1.93, indicating higher volatility than the broader market. The platform’s analysis suggests CVGI is currently trading below its Fair Value, making it one of several potentially undervalued opportunities tracked by InvestingPro’s advanced valuation models.

Outlook & Guidance

The company has revised its 2025 revenue guidance to $660 million-$690 million, down from the previous range of $670 million-$710 million. Adjusted EBITDA guidance has also been lowered to $22 million-$27 million. Despite these downward revisions, the company aims to generate at least $20 million in free cash flow and reduce its net leverage ratio to 2x by 2026. InvestingPro analysis highlights current gross profit margins of 11.38%, reflecting the challenging operating environment. Subscribers to InvestingPro gain access to 16+ additional exclusive insights about CVGI, including detailed analysis of its debt structure and profitability metrics.

Executive Commentary

James Wei, President and CEO, emphasized the company’s focus on cash flow, stating, "We expect to build on our free cash flow progress, generating at least $20 million in 2025." CFO Andy Chu highlighted the goal of achieving a high single-digit EBITDA margin, reflecting the company’s commitment to improving profitability.

Risks and Challenges

• Market Downturn: A 23% decline in Class 8 truck build forecast for 2025.
• Interest Rates: Higher rates could impact cost structures and demand.
• Tariffs: Ongoing negotiations for price recovery with customers.
• Supply Chain: Efforts to optimize supplier terms and reduce reliance on expedited freight.
• Economic Factors: Weaker housing starts and slower commercial real estate activity.

Q&A

During the earnings call, analysts focused on the impacts of tariffs on the cost of goods sold, scheduled production downtime, and debt covenant levels. The management detailed cost-saving initiatives and strategies for margin improvement, addressing concerns about the company’s ability to navigate current market challenges.

Full transcript - Commercial Vehicle Group Inc (CVGI) Q1 2025:

Conference Operator: Good morning, ladies and gentlemen, and welcome to CVG’s First Quarter twenty twenty five Earnings 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 instructions to follow at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to Mr.

Andy Chu, Chief Financial Officer. Please go ahead, sir.

Andy Chu, Chief Financial Officer, CVG: Thank you, operator, and welcome, everyone, to our conference call. Joining me on the call today is James Wei, President and CEO of CVG. This morning, we will provide a brief company update as well as commentary regarding our first quarter twenty twenty five results. After which, we will open the call for questions. As a reminder, this conference call is being webcast and the Q1 twenty twenty five earnings call presentation, which we will refer to during this call is available on our website.

Both may contain forward looking statements, including, but not limited to, expectations for future periods regarding market trends, cost saving initiatives and new product initiatives, among others. Actual results may differ from anticipated results because of certain risks and uncertainties. These risks and uncertainties may include, but not limited to economic conditions in the market in which CVG operates fluctuations in the production volumes of vehicles for which CVG is a supplier financial covenants, compliance and liquidity risks associated with conducting business in foreign countries and currencies and other risks as detailed in our SEC filings. I will now turn the call over to James to provide a company update.

James Wei, President and CEO, CVG: Thank you, Andy. I’d like to turn your attention to the supplemental earnings presentation starting on Slide three. Our first quarter results reflect the strategic steps we have taken to refine our business model over the last several quarters. More recently, we completed the shift to our new segment structure, which has provided enhanced clarity and focus within each business unit, while more closely aligning CVG with our customers and end markets. Enhancing that connection with our customers is critical, especially in the current market conditions.

Our three operating segments, Global Seating, Global Electrical Systems and Trim Systems and Components are now better positioned to serve our customers in a lower cost structure. We have seen early benefits from this resegmentation, and we continue to believe this structure will accelerate the operational momentum we have created year to date. Also highlighted on this slide is the 10.8% adjusted gross margin we achieved during the quarter, which is a two forty basis point sequential improvement compared to Q4 twenty twenty four. This improved profitability was largely driven by the operational efficiency initiatives we executed and have spoken about previously, including, but not limited to, the divestiture of non core businesses as well as the conclusion of onetime costs from last year, including outside consulting expenses. We expect our gross margin to be supported by further operating leverage going forward as we continue to benefit from the strategic actions taken in 2024.

Along with improved profitability, we also delivered an almost $18,000,000 improvement in free cash flow compared to last year. As we alluded to last quarter, working capital management is a critical focus for us this year, and we expect to reduce our working capital closer to historical levels over the course of this year with a specific focus on inventory. I will provide more detail regarding our gross margin and free cash flow performance in a moment, but our strong performance on both helped to drive a net debt reduction of $11,700,000 and a gross debt reduction of $18,100,000 in the first quarter. Before I move on, I’d like to comment on our decision to discontinue reporting new business wins. Given the current macroeconomic environment as well as our customers’ challenges in predicting future program ramps, we don’t believe we have the necessary clarity to accurately predict the timing and magnitude of total wins, particularly as to when they will begin flowing through to our revenue.

For these reasons, we believe our annual guidance is the best way to contextualize and model our future results. Importantly, while we will not be providing forward looking projections for new business, this does not mean we are any less focused on pursuing and securing new business awards. This remains the lifeblood of this company and we are still seeing a robust pipeline of new business opportunities. Turning to slide four, I want to take you through the sequential gross margin improvement we saw in the first quarter. Reflecting back to the strategic actions taken in 2024, we’ve been focused on reducing freight, labor and overhead costs.

In particular, we reduced our reliance on expedited freight, optimized our terms with suppliers, and improved our lead times and order quantities. We are also flexing our direct labor to align with any customer volume changes and continue shifting our production to lower cost facilities. We’re also addressing plant salaries and our new segment alignment allows for a more optimized overhead structure. As evidenced by the margin improvement, our focus on operational efficiency improvements as well as our restructuring and footprint rationalization efforts are clearly paying off. This focus on improving our operating model is clearly helping our performance in this lower demand environment, but also positions us well into the eventual end market recovery.

We believe we have the right approach for CVG to drive accretive growth, accelerate margin expansion, increase our capital efficiency, and ultimately enhance shareholder value. Now moving to slide five, I’d like to revisit a graphic we shared in our Q4 earnings call. While we believe our strategic portfolio actions position us better for the future, they led to cash flow headwinds in 2024, namely through cash burn in our discontinued operations, restructuring spend and inventory build. We mentioned on the Q4 call that we expected each of these three headwinds to ease and in some case reverse in 2025. Considering the decline in market demand, I’m pleased to report solid progress in each area.

In the first quarter, our discontinued operations were net cash generative. We also had minimal restructuring spend in the quarter at less than $1,000,000 And finally, we saw a $5,000,000 improvement in inventory versus the end of the year. Improvement in these three areas helped drive free cash generation of $11,000,000 in the quarter and positions us well for further improvement in this key metric throughout 2025. With that, I’d like to turn the call back to Andy for a more detailed review of our financial results.

Andy Chu, Chief Financial Officer, CVG: Thank you, James, and good morning, everyone. If you are following along in the presentation, please turn to Slide six. Consolidated first quarter twenty twenty five revenue was $169,800,000 as compared to $194,600,000 in the prior year period. The decrease in revenues is due primarily to a softening in global construction and agriculture end markets as well as North American Class eight truck demand. Adjusted EBITDA was $5,800,000 for the first quarter compared to $9,700,000 in the prior year.

Adjusted EBITDA margins were 3.4%, down 160 basis points as compared to adjusted EBITDA margins of 5% in the first quarter of twenty twenty four, driven primarily by lower volumes, but offset by reductions in SG and A expenses. Interest expense was $2,500,000 as compared to $2,200,000 in the first quarter of twenty twenty four. The increase in interest expense was primarily related to higher effective interest rate during the current period. Net loss for the quarter was $3,100,000 or a loss of $09 per diluted share as compared to a net income of $1,400,000 or $05 per diluted share in the prior year. Adjusted net loss for the quarter was $2,600,000 or a loss of $08 per diluted share as compared to adjusted net income of $2,800,000 or $08 per diluted share in the prior year.

Net loss and adjusted net loss were impacted by higher non cash tax provision driven by the geographic mix of income in the quarter. Free cash flow from continuing operations for the quarter was $11,200,000 compared to negative 6,500,000 in the prior year. The free cash generated in the quarter was supported by better working capital management and reduced capital expenditures. At the end of first quarter, our net leverage ratio calculated as our net debt divided by our trailing twelve months adjusted EBITDA from continuing operations was five times. As a reminder, our amended credit agreement calculates the net leverage ratio slightly differently, excluding certain items related to our strategic actions in 2024 that negatively impacted adjusted EBITDA.

Based on that calculation, we remain below the net leverage covenant set forth in the credit agreement. Moving to the segment results beginning on Slide seven. Our Global Seating segment achieved revenues of $73,400,000 a decrease of 9% 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 $2,700,000 a decrease of $100,000 compared to the first quarter of twenty twenty four. While operating income was negatively impacted by lower sales volume and increased freight costs, we saw an improvement in adjusted operating income margin, thanks to the actions we took in 2024 to address our cost and manufacturing footprint.

Turning to Slide eight, our Global Electrical segment’s first quarter revenues decreased 14% to $50,500,000 compared to the year ago quarter, due primarily to lower sales volume as a result of decreased customer demand. Adjusted operating income for the first quarter was $200,000 a decrease of $1,300,000 compared to the prior year, primarily attributable to lower sales volumes and unfavorable foreign exchange impacts. We took further restructuring actions focused on reducing SG and A and indirect headcount as we look to right size staffing levels in this business to align with the current demand outlook, while shifting production to lower cost facilities. We remain focused on global electrical as a core business to CVG and it remains a focal point for our team as we continue to reduce debt, improve free cash flow and win new business at higher margins. Moving to Slide nine, our trim systems and components revenues in the first quarter decreased 17% to $45,900,000 compared to the year ago quarter due to lower sales volume as a result of decreased customer demand.

Adjusted operating income for the first quarter was $1,600,000 a decrease of $3,100,000 compared to the prior year. The decrease is primarily attributable to lower sales volumes and higher freight costs. We believe we are working through the last of our operational inefficiencies in this segment and that we are positioned for improved performance moving forward. Along those lines, we did see strong sequential gross margin improvements in this segment, up two ninety basis points compared to the fourth quarter of twenty twenty four as our remediation efforts are stabilizing operations and should lead to improved operational efficiency and financial performance. That concludes my financial overview commentary.

I will now turn the call back over to James to cover our market outlook, key strategic actions being taken and our updated guidance.

James Wei, President and CEO, CVG: Thank you, Andy. I will start with our key end markets outlook on Slide 10. According to ACT’s Class eight heavy truck build forecast, 2025 estimates imply a 23% decline in year over year volumes. ACT forecast a 19% increase in truck builds anticipated in 2026. Despite the weakness projected in 2025, we expect to see a strong rebound in builds in 2026 as the industry prepares for an update in emissions regulations in 2027.

We understand the EPA is evaluating a potential delay or pushback of the greenhouse gas phase three regulations for commercial vehicles, which would likely change the pre buy dynamics ahead of the expected regulation change date in 2027. However, we believe this would ultimately represent a timing shift as fleet operators still need to replace equipment on a regular basis. Moving to our construction and agriculture market outlook. Based on recent commentary and outlooks from our customers and key market players, we now expect the construction market to be down approximately 5% to 15% and the 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 heavily on demand. Despite market softness in these markets, which impact our global Electrical Systems 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.

Turning to slide 10, I’d like to highlight some of the actions we have and are currently taking to mitigate the impact of tariffs and broader macroeconomic headwinds. First, the strategic portfolio actions we took in 2024 to lower our cost structure are already helping to lower decremental margins and position us well to grow our earnings power as end market demand recovers. Second, we remain focused on driving improved cash generation and aligning our SG and A structure with our current revenue base this year. Specifically, we expect a 50% reduction in planned capital expenditures this year, along with $20,000,000 of working capital reduction focused primarily on inventory. Through the first quarter, we realized $5,000,000 in inventory reduction.

We also expect $15,000,000 to $20,000,000 in cost savings this year, which should drive incremental margin expansion as our top line returns to future growth. Third, we are in constant communication with our customers, which has improved our line of sight to production schedule changes and will allow us to implement corresponding cost actions in the event of future changes. Furthermore, as soon as the initial round of tariffs was announced, our teams immediately took a number of actions in an effort to mitigate potential impacts. We are actively negotiating 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. In addition, we are diligently assessing our relationship with suppliers, including evaluation of reshoring and near shoring opportunities to 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 recent macroeconomic developments, prevailing truck build forecasts and ongoing weakness in construction and agriculture markets, we are lowering our quantitative annual guidance for revenue and adjusted EBITDA and tightening the revenue range. We’re also introducing a free cash flow metric to our guidance this quarter. Given current demand pressures, we are adjusting our full year 2025 revenue guidance range to $660,000,000 to $690,000,000 which is down from $670,000,000 to $710,000,000 We are also lowering our adjusted EBITDA guidance expectations to the range of $22,000,000 to $27,000,000 for 2025, which is down from $25,000,000 to $30,000,000 Based on this updated outlook, we still expect EBITDA growth and margin expansion compared to 2024 at the midpoint of the ranges supported by our focus on SG and A costs. The lower end of our guidance ranges encompasses a scenario where the EPA pushes back the 2027 emission standards for Class eight vehicles.

We expect to build on our free cash flow progress, generating at least $20,000,000 of free cash flow in 2025, which will be used to pay down debt. Our 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 two times level. With that, I will now turn the call back to the operator and open up the line for questions. Operator?

Conference Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Joe Gomez from NOBLE Capital. Your line is now open.

Joe Gomez, Analyst, NOBLE Capital: Good morning, and thanks for taking my questions. Morning, Joe. Morning, Joe. So nice work again on the, you know, the cost improvements and everything and just on the gross margin improvement. And wonder if you could just remind us, you know, in a normalized environment, how high you think gross margin could be.

Andy Chu, Chief Financial Officer, CVG: Yeah. Joe, we we talk about overall, we see the entire business get to a high single digit EBITDA margin, and that would involve us getting to about 15% gross margin. I think right now, we still have a long way there. But as you pointed out, that would 15% will likely be returning to a more normalized end market demand, plus some of our own self help. So as you can see in q one, obviously, the revenue is pretty pretty low in the quarter, but we demonstrated that we were able to pull through some of the self help.

And then as you continue to see through the rest of the quarter, hopefully, both the the self help and the end market recovery will start to show more towards the end of this fiscal year.

James Wei, President and CEO, CVG: Yeah. Joe, I’d add, us being able to anticipate, plan, and manage the headwinds of tariffs, inflation, global freight cost, and those things, we’re we feel like we have line of sight to mitigating actions. And, our ability to flex quickly depending on what the end outcome is in those areas will give us an ability to continue to drive expansion in gross margin.

Joe Gomez, Analyst, NOBLE Capital: Okay. And then just on the end market side, the way you guys can give us a little bit more color. I mean, I know you you guys quote the the ACT truck build outlook. I also look at some other stuff. Like, you know, if you look at FTR, for class eight orders, in April, they were down to levels of May 2020, which was during COVID when everything was shut down.

Year to date, orders are down 30%, which if I’m if I’m looking at, know, that type of those types of numbers, it would suggest that it’s gonna be very difficult to hit the ACT numbers of build numbers, you know, in 2026. And that’s, you know, without if the EPA decides to pull the the deadline of ’27 for new admissions at which would add another wildcard. And then if I look at, you know, the the the construction and ag markets, if they’re you know, the ads accurate, they’re gonna be down five to 15% each this year. And that’s that’s, you know, over two years of declining at markets there. And just trying to get a better handle.

I mean, that’s you know, those segments account for, you know, the vast majority of your business at this point. And, you know, I’m just trying to get a better handle on how we’re going to get through that. And, you know, like, on the have you ever seen these types of downturns previously in, you know, the length of these downturns because they just seem to be extended, especially in the construction and ag markets? Any any additional color you can give is is greatly appreciated.

James Wei, President and CEO, CVG: Yes. It’s a really good question and thanks for asking because I think what you’re seeing is part of the result of the actions we took last year, but also improving our capability and flexibility as an organization. So when we look at our cost structure, we look at the low end of guidance and comprehend some of the elements that you had mentioned. We feel that we have adequate plans in place, not only to take cost structure actions as well as discretionary spending in the SG and A line to maintain EBITDA and cash at the lower end. We also have the capability to whenever the markets return, we will have the appropriate capacity to respond, but we’re surgically removing cost fixed and variable as we expect these headwinds to continue.

So I haven’t experienced in my overall professional experience this type of year over year, two years in a row stack downturn, but we took some tough measures last year which created some inefficiencies. And now that they’re stabilizing, we still see line of sight to continued opportunity for gross margin expansion even in the headwind of these market dynamics. And you’re seeing that flow through in our Q1 and we expect throughout the year to continue to harvest those opportunities to maintain our updated guidance range with consideration of EPA push out, with consideration of continued end market demand in ConAg. And some of the successful determine will be determined by our ability to mitigate the end result of tariff actions working with our customers and suppliers, as well as our commodity prices and our footprint on near shoring, on shoring, resourcing to continue to improve our capital utilization as well as be prepared to support customer demand. And then finally, just the, what I would call, customer intimacy and understanding what some of their leading indicators are as they continue to flex their build schedules and modulate their output.

The order book, I think the end markets based on what we hear from our customers is, people are pausing, organizations are pausing whether it’s fleets or Conag dealers, to see where the macroeconomic situation will end up with respect to interest rates and the other elements that we have discussed in the call. And, us having that view helps us to continue to align our flexing to be able to to hold our our margins.

Joe Gomez, Analyst, NOBLE Capital: K. Great. Thank you very much for that. It was much appreciated. I’ll get back in queue.

Thank you.

James Wei, President and CEO, CVG: Thank you.

Conference Operator: Thank you. Your next question comes from the line of Gary Prestopino of Barrington Research. Your line is now open.

Gary Prestopino, Analyst, Barrington Research: Good morning, Gene and Andy. How are you guys doing?

Joe Gomez, Analyst, NOBLE Capital: Good, Gary. Good morning, Gary.

Gary Prestopino, Analyst, Barrington Research: A couple of questions here. First of all, as I look back on on the stats that you gave for a class eight truck build when you reported in March. ACT was at, I believe, 316,000 of production. Now it’s down to two fifty five, and that’s just really in a two month span. So is that a reaction to the possibility of the a e EPA, considering delaying, some of these emissions, issues, or is that just really a function of that the they felt that the economy is really slowing dramatically and and this is where they think production is gonna be?

I mean, that it just seems like in a two month period, that’s a huge gap down.

James Wei, President and CEO, CVG: Yeah. It is. And based on information we received from our customers and also that they’ve presented publicly, their end market demand is somewhat in a wait and see mode with respect to tariffs. Freight rates have gone down, and I think some of that’s with respect to tariffs as well as geopolitical issues with supply chain. We we expect to continue to align there, but there is volatility in customer bill due to their pipeline inventory correction.

So they’ve scheduled down weeks within quarter and out quarters that we’ve adjusted in our outlook and forecast, as they modulate their their production. So their inventory pipeline and what’s the dealers and what’s going to fleets aligns, and they’re not over overproducing. So we have to, adjust accordingly. And that’s how we are able to continue to address our inventory reduction, as we’re changing our terms and conditions on lead times and MOQs with suppliers as well as looking at alternative sources that have shorter lead times, which is giving us an ability to reduce inventory. And also our labor planning and plant scheduling, it’s been very disruptive.

But we are focused both on variable and fixed, and I think that’s gonna give us, the appropriate countermeasures to to balance this uncertainty and volatility. But as you’ve seen these dynamics before, there does come a point of stability and recovery. And I think that we are well positioned, for that time, but we’re not waiting until markets recover to expand our gross margin and expand our EBITDA and cash flow. We’re taking the actions accordingly, but not being very conscious we don’t damage our ability to be ready to respond. So it’s it’s a dicey set of initiatives that that we’re balancing.

I call it a set of simultaneous equations we’re balancing. But so far, we’re seeing positive results as we look where we were in Q4 and Q1. And our outlook for Q2, it’s again, you’ll hear more about that in guidance or you’ve heard about that in our guidance, but we do expect volatility in these build rates and order rates.

Gary Prestopino, Analyst, Barrington Research: Okay. Thank you for that. And then just in regard to tariffs and then I have another follow-up question on the debt. With tariffs, what percentage of your COGS are going to be impacted by tariffs? And could you just explain where these inputs are coming from in terms of if you’re importing stuff from China, Europe, whatever?

Can you just help us out a little bit with that?

James Wei, President and CEO, CVG: Yeah. I would say our largest exposure is on the Mexico and Canada tariffs and we are currently the majority of our business right now in in those that set of tariffs are under USMCA, which we’ve had some relief from. So we’re I believe there’s a ninety day pause on some of that. So we’re working with customers to make sure that we’re aligned with them. We have the appropriate recovery mechanisms in place.

We are starting to see, tariff recovery come in from customer invoices and POs on the amounts that we’ve experienced to date. The China tariffs, are on a lower, percentage of our our spend and it’s primarily related to our global seating business. And we are working closely with the OEMs to make sure we have recovery mechanisms there. But also, they expect us to implement mitigating actions from the standpoint of near shoring, onshoring, and also renegotiation with suppliers to make sure that they’re doing all the things that they have to do similar to our customers expecting us to do that. So there are lot of moving pieces right now.

Things still haven’t settled down, but, we feel like we’re making momentum both in the mitigating side and also the recovery side.

Gary Prestopino, Analyst, Barrington Research: And, Andy, do you have any any number of what percentage of your COGS is affected by this?

Andy Chu, Chief Financial Officer, CVG: Yeah. So if you think about from a cost structure standpoint, you really have to break that into the different segments. Right? Because they are very different. To James Paul’s, our electrical business is mostly a manufacturing space in Mexico.

So what he’s describing is our our finished good products coming back to The US. Right? But we believe that we will have some relief from the USMCA, and our customer understand the dynamics. So we have a lot of very mature conversation already with our customers on recovering that part. Right?

So that you can call it everything a % of the the the products are subject to terrible exposure. But we believe that with the regulation and the customers, we believe we have that cover there. Then you look at our trim and component business. That business have very little import components from overseas. Right?

That is mostly chemical, plastic business with a little bit component, very tiny coming from overseas. The North America ceiling is the one that, if you remember, we talked about we have some global platform, some metal components that come from China, but I’ll call it it would still be a a tiny fraction of our cost structure. I’ll call it maybe less than 10% of our cost structure is coming from China. So that’s the one that we are actively working with the customer, getting a a solution on the recovery. So far, couple of our top customers have already indicated that they will be very helpful in collaborating.

We’re finding ways to reduce the cost of our customers as well as the customer will be expected to support in terms of a relief for us. Okay.

Gary Prestopino, Analyst, Barrington Research: Thank you for that. And then just the last question revolves around debt and covenants. I mean, your net leverage ratio is at five times. What what are what are your covenant levels?

Andy Chu, Chief Financial Officer, CVG: Yeah. So if you remember, we talked about back in December, we have done an amendment to allow us to mostly, the amendment was allow us to calculate our, covenant level considering some of these one time, unusual cost that we incur during 2024 because of all these strategic actions and one time Mhmm. Footprint actions. So overall so it’s around four times and we’ll gradually step down during throughout the year. So and as I mentioned in my previous remarks, right now, we are within our government compliant and but at the same time, as I previously talked about, given the majority of our our basically, our debt is gonna be maturing in 2027.

In 2025, we already started looking for options for refinancing for our entire debt structure. So that’s what we’re doing right now.

Gary Prestopino, Analyst, Barrington Research: Okay. Thank you.

Conference Operator: Thank you. Next question comes from the line of John Franzreb from Sidoti and Company. Your line is now open.

John Franzreb, Analyst, Sidoti and Company: Good morning, guys, and thanks for taking the questions.

Gary Prestopino, Analyst, Barrington Research: Like to go back

John Franzreb, Analyst, Sidoti and Company: the topic of the revenue profile for the current year. I’m curious how April played out relative to March. Are you seeing the revenue profile decrease in line with the ACT numbers or is it more or less aggressive than that than that forecast?

James Wei, President and CEO, CVG: It’s it’s depends. In some areas, it’s in line. In some areas, it’s not quite as low. So, the ACT forecast primarily impacts our global seating and our trim systems and components business. And depending on the customer and depending on the platform, you see a mixture of, what models they’re continuing to to build and what models they put down weeks in in their production.

And we correspondingly, do that with our plants. But we feel like that, we’re aligned with them with our increased, interaction with their organizations on the planning and supply standpoint as well as production supply. And they’ve been very helpful in communicating to their supply base when they expect to have down weeks in the three twelve week to thirteen week outlook. So that does give us time to to flex a bit. We don’t exactly know when things will stabilize, and I think they’re watching it closely as well.

So we’re just remaining flexible and and agile to to make the adjustments necessary. And as it relates to to April versus March, we don’t really see a significant shift in revenue profile. It’s, it’s it’s coming in as we expected back in the February, March time frame for April.

John Franzreb, Analyst, Sidoti and Company: Okay. And James, you you just referenced now and you and you referenced in your prepared remarks about scheduled downtime. That scheduled downtime, it it sounds like it’s in the current quarter and then not giving you visibility beyond that. Is that a fair assessment?

James Wei, President and CEO, CVG: It’s it’s usually in the the ten to twelve, thirteen week range. They have production schedules that they manage. So we have about a a two to three month visibility. It becomes more, firm in the four to eight week range, and it becomes pretty firm in the four week range. So, knowing what they’re planning in the June and in July time frame helps us prepare accordingly.

And seasonally, with class a truck production, a lot of the customers have model change and they already have downtime scheduled in the July period. So we’ve seen some adjustments made there where, in some cases, it’s extended, but they had originally planned to be down. So we’re evaluating how we correspond our production and schedules as well as inventory build, safety stocks, and those things to make sure we continue on our inventory reduction path, but also make sure that, we continue our focus on on time delivery with those customers. So, it’s managing a lot of fluctuation right now, but I feel like we have a somewhat of a better handle on it than we did in in q four last year.

John Franzreb, Analyst, Sidoti and Company: Understood. And you said some of the cost savings initiatives you implemented have improved the incremental, decremental margin profile. Can you just remind us what that profile looks like today versus, I don’t know, year end?

Andy Chu, Chief Financial Officer, CVG: Yeah. So I would say in general, again, this is different segment. You’ll see different profile. But in general, look at around 20% is what we’re currently seeing. Overall, you would expect once we started to see the rebound of our electrical system business.

So you’ll see a a a higher incremental because right now we’re also burdened by the additional fixed cost that we talked about with the two new plans. If you look at the trim business, you will see a little bit more incremental there. But the trim business, I would just like to also add a little bit with the new segments. And since you asked about, like, the impact and what we see with the class eight, with the new segment that you see and you actually see now the trim segment as we previously did described, that is a North America based class eight mostly end market related business. So when you think about modeling about our our revenues movements with the end market, that one has the most correlation with North America class eight.

Global seating now with the new segment, you can see it’s it’s truly a global North America, Europe, and APAC. So you can see even in q one, the correlation with the end market North America drop is a little less correlated now with North America. That’s you can see the drop is less than the trim business. And, obviously, now you look at the electrical business, it’s mostly follows the construction and agriculture.

John Franzreb, Analyst, Sidoti and Company: Understood, Andy. And what cost saving measures remain to be implemented in 2025?

James Wei, President and CEO, CVG: Our continued focus on operational and material cost outs remain our largest lever. Continued improvement in operational excellence, labor productivity, plant efficiency, supply chain optimization with lead times and MOQs as well as terms and conditions on payables with our suppliers is also an ongoing focus. So with our new, COO, Scott Reed, and he’s building, an organization and his we’re already seeing the benefit of, the functional subject matter expertise in putting in someone that’s over both manufacturing operations and procurement, we have better alignment and there’s also reducing some of the inefficiencies that we had previously, as we’re looking at the plants more on a product segment versus, the segmentation we had previously. So for example, all the seating plants in North America are now under one operational executive, and we’re leveraging some of the synergies looking at it from a product and supply chain standpoint, which helps improve our cost too. So, those are the primary areas that we’re focused on as well as inventory reduction to generate more cash.

So it’s both on the P and L side as well, margin side as well as the cash flow side.

Gary Prestopino, Analyst, Barrington Research: Got

John Franzreb, Analyst, Sidoti and Company: it. And James, if I recall properly, in your prepared remarks, you mentioned freight costs a number of times. Can you kind of quantify how much freight costs impacted you in the first quarter, say versus a year ago?

James Wei, President and CEO, CVG: I would say there was a higher impact as compared to a year ago, but we had different initiatives going on where we were doing divestitures and plant consolidations a year ago versus now it’s a more stable environment. Also, some of the the freight dynamics, from last year with potential port strikes, canal and shipping disruptions, increased container rates as well as, in this year, we’re seeing lower freight demand. So we’re also seeing lower, container rates and container usage. So it’s it’s looking at all those elements. And year over year, I don’t really have the specific number, but it’s Andy, I think it’s

Andy Chu, Chief Financial Officer, CVG: So, John, I think the the most important message here is if you look at our q four and q three performance last year. Right? So when we say that we are under a lot of operational inefficiencies because of the footprint changes and the strategic actions, a lot of that came in the form of expedited freight. Right? Because when we move things around, it becomes very difficult to manage the supply chain, and we have to keep the customer production schedule on time.

So what James’ prepared remarks suggested is that if you look at our 240 basis point improvement, a third of that came from our stabilization of those footprint changes, and now we were able to get rid of those expedite freight. And we are not fully done yet. We still have some actions to do as as we continue to optimize our inventory positions. So this is gonna be continue to be a source of our margin expansions throughout the year.

John Franzreb, Analyst, Sidoti and Company: Thank you, Andy. That that was actually very helpful. Thank you, guys. I’ll get back into queue.

Andy Chu, Chief Financial Officer, CVG: Thanks, John.

Conference Operator: Thank you. There are no further questions at this time. Turning over back to Mr. Ray for closing remarks.

James Wei, President and CEO, CVG: Thank you all for joining today’s call. We are remaining agile to support our customers in this dynamic environment and we are highly focused on continuing to execute our long term strategy. We look forward to discussing CVG’s progress next quarter. Thanks again for participating and your questions. Have a good day.

Conference Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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