Commercial Vehicle(CVGI) - 2024 Q2 - Quarterly Results

Executive Summary & Highlights CVG faced significant Q2 challenges, leading to declining revenue, profitability, strategic restructuring, and a revised full-year outlook Second Quarter 2024 Highlights CVG faced weak global demand and operational inefficiencies in Q2 2024, resulting in significant revenue and profitability declines and a $1.6 million net loss Key Financial Metrics for Q2 2024 (Year-over-Year) | Metric | Q2 2024 | Q2 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $229.9 million | $262.2 million | $(32.3) million | (12.3)% | | Operating Income | $0.8 million | $15.9 million | $(15.1) million | (95.0)% | | Adjusted Operating Income | $5.7 million | $16.7 million | $(11.0) million | (65.9)% | | Net Income (Loss) | $(1.6) million | $10.1 million | $(11.7) million | (115.8)% | | Diluted EPS | $(0.05) | $0.30 | $(0.35) | (116.7)% | | Adjusted Diluted EPS | $0.06 | $0.32 | $(0.26) | (81.3)% | | Adjusted EBITDA | $10.0 million | $20.8 million | $(10.8) million | (51.9)% | | Adjusted EBITDA Margin | 4.3% | 7.9% | | | | New Business Awards (Current Quarter) | Approx. $32 million | | | | - Revenue decline primarily attributed to weak global customer demand[2] - Operating income decreased mainly due to lower sales volume, partially offset by reduced selling, general and administrative expenses (SG&A)[2] - New business awards were concentrated in the Electrical Systems segment, including significant orders for the Vehicle Solutions segment[3] Management Commentary & Strategic Actions Management addressed Q2 challenges by implementing restructuring, workforce reductions, and divesting non-core businesses to reduce cyclicality and repay debt - CEO James Ray noted performance was impacted by continued softness in construction and agriculture end markets, fewer new business launches, and operational inefficiencies within the Vehicle Solutions segment[4] - The company has taken aggressive steps to adjust its cost structure, improve operational execution, and announced the sale of its Cab Structures business, expected to close in H2 2024, to streamline its portfolio and reduce cyclicality[4][5] - CFO Andy Cheung stated the company incurred $6.8 million in restructuring charges, reduced its workforce by over 10%, and is evaluating strategic alternatives for the Industrial Automation segment, with proceeds from sales expected to primarily repay debt[5] Financial Performance CVG's Q2 2024 financial performance was marked by significant revenue and operating income declines across all segments, leading to a net loss, despite maintaining adequate liquidity Consolidated Results CVG's Q2 2024 consolidated revenue decreased 12.3% to $229.9 million, leading to a $1.6 million net loss and a 95.0% drop in operating income, while maintaining strong liquidity Consolidated Financial Data for Q2 2024 (Year-over-Year) | Metric | Q2 2024 | Q2 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $229.9 million | $262.2 million | $(32.3) million | (12.3)% | | Operating Income | $0.8 million | $15.9 million | $(15.1) million | (95.0)% | | Adjusted Operating Income | $5.7 million | $16.7 million | $(11.0) million | (65.9)% | | Net Income (Loss) | $(1.6) million | $10.1 million | $(11.7) million | (115.8)% | | Diluted EPS | $(0.05) | $0.30 | $(0.35) | (116.7)% | - Revenue decline was primarily due to weak customer demand across all segments and the termination of certain projects in the Vehicle Solutions segment[7] - Operating income decrease was attributed to lower sales volume, operational inefficiencies, and increased restructuring charges[7] - As of June 30, 2024, the company held $39.3 million in cash and $152.9 million in credit availability, totaling $192.2 million in liquidity[9] Segment Results All business segments experienced Q2 2024 revenue declines and profitability pressure, with Vehicle Solutions down 7.7%, Electrical Systems down 21.2%, and Industrial Automation's loss narrowing Q2 2024 Segment Revenue and Operating Income (Year-over-Year) | Segment | Q2 2024 Revenue | Q2 2023 Revenue | Revenue Change | Q2 2024 Operating Income (Loss) | Q2 2023 Operating Income (Loss) | Operating Income Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Vehicle Solutions | $140.9 million | $152.7 million | (7.7)% | $5.1 million | $14.1 million | (64.1)% | | Electrical Systems | $50.2 million | $63.6 million | (21.2)% | $0.5 million | $7.7 million | (93.4)% | | Aftermarket & Accessories | $33.9 million | $36.8 million | (8.1)% | $4.5 million | $5.5 million | (19.4)% | | Industrial Automation | $5.0 million | $9.0 million | (44.6)% | $(1.0) million | $(2.1) million | 52.4% (Loss Narrowed) | - Vehicle Solutions segment revenue decreased primarily due to reduced customer demand and the termination of certain businesses; operating income also declined due to operational remediation investments and increased freight costs[10] - Electrical Systems segment revenue decreased mainly due to weak global construction and agriculture end markets and the elimination of some lower-margin businesses; operating income also declined due to restructuring costs, labor inflation, and unfavorable foreign exchange rates[11] - The Industrial Automation segment's operating loss narrowed primarily due to recently implemented restructuring initiatives[13] Outlook & Guidance CVG revised its full-year 2024 guidance downwards for net sales and adjusted EBITDA, reflecting market developments and strategic divestitures, with adjusted figures excluding certain business contributions Full Year 2024 Outlook CVG updated its full-year 2024 guidance, lowering net sales and adjusted EBITDA expectations to reflect market developments and strategic divestiture actions, excluding contributions from divested businesses Full Year 2024 Guidance (Revised) | Metric | Prior 2024 Outlook | Revised 2024 Outlook | Adjusted (1) Revised 2024 Outlook | | :--- | :--- | :--- | :--- | | Net Sales | $915 - $1,015 million | $900 - $960 million | $730 - $780 million | | Adjusted EBITDA | $60 - $73 million | $42 - $52 million | $28 - $36 million | (1) The adjusted outlook excludes the contribution of CVG's Cab Structures or Industrial Automation businesses in 2024 - The company has signed an asset purchase agreement to sell its Cab Structures business, expected to close in H2 2024, and is exploring strategic alternatives for its Industrial Automation business[14] Market Conditions The company's outlook reflects reduced North American Class 8 truck production forecasts and deteriorating global agriculture and construction markets, with significant demand declines expected in 2024 - According to ACT Research, North American Class 8 truck production for 2024 is projected at 308,000 units, down from 340,247 units in 2023[15] - Global agriculture market demand is expected to decline 15% to 20%, and construction market demand is projected to decrease 10% to 15%[15] Supplemental Financial Information This section provides detailed GAAP financial statements and non-GAAP reconciliations, offering a comprehensive view of the company's consolidated and segment-level financial performance GAAP Financial Statements This section presents the company's consolidated statements of operations and balance sheets prepared under U.S. GAAP, detailing financial performance and period-end financial position Consolidated Statements of Operations The consolidated statements of operations show Q2 2024 revenue of $229.9 million, gross profit of $21.0 million, operating income of $0.8 million, and a $1.6 million net loss Consolidated Statements of Operations Summary | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $229,906 | $262,194 | $461,974 | $524,903 | | Cost of Sales | $208,927 | $223,793 | $414,330 | $451,293 | | Gross Profit | $20,979 | $38,401 | $47,644 | $73,610 | | Selling, General and Administrative Expenses | $20,219 | $22,457 | $40,312 | $43,022 | | Operating Income | $760 | $15,944 | $7,332 | $30,588 | | Net Income (Loss) | $(1,601) | $10,140 | $1,338 | $18,840 | | Diluted EPS | $(0.05) | $0.30 | $0.04 | $0.57 | Consolidated Balance Sheets The consolidated balance sheets show total assets of $503.2 million as of June 30, 2024, an increase from $483.2 million on December 31, 2023, with liabilities rising Consolidated Balance Sheets Summary | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash | $39,341 | $37,848 | | Total Current Assets | $346,220 | $327,742 | | Total Assets | $503,196 | $483,214 | | Total Current Liabilities | $167,867 | $145,189 | | Long-Term Debt | $124,458 | $126,201 | | Total Liabilities | $333,589 | $310,282 | | Total Stockholders' Equity | $169,607 | $172,932 | Business Segment Financial Information (GAAP) This section provides detailed GAAP-based revenue, gross profit, SG&A, and operating income (loss) data for each business segment for Q2 2024 and the six months ended June 30 Q2 2024 Business Segment GAAP Operating Income (Loss) | Segment | Q2 2024 Revenue | Q2 2023 Revenue | Q2 2024 Operating Income (Loss) | Q2 2023 Operating Income (Loss) | | :--- | :--- | :--- | :--- | :--- | | Vehicle Solutions | $140,904 | $152,730 | $5,077 | $14,135 | | Electrical Systems | $50,152 | $63,625 | $507 | $7,659 | | Aftermarket & Accessories | $33,860 | $36,829 | $4,454 | $5,526 | | Industrial Automation | $4,990 | $9,010 | $(1,015) | $(2,061) | | Corporate/Other | $— | $— | $(8,263) | $(9,315) | | Total | $229,906 | $262,194 | $760 | $15,944 | Six Months Ended June 30, 2024, Business Segment GAAP Operating Income (Loss) | Segment | Six Months 2024 Revenue | Six Months 2023 Revenue | Six Months 2024 Operating Income (Loss) | Six Months 2023 Operating Income (Loss) | | :--- | :--- | :--- | :--- | :--- | | Vehicle Solutions | $278,814 | $313,315 | $15,428 | $27,527 | | Electrical Systems | $105,947 | $118,373 | $2,519 | $13,729 | | Aftermarket & Accessories | $67,921 | $74,458 | $8,986 | $11,102 | | Industrial Automation | $9,292 | $18,757 | $(3,010) | $(2,923) | | Corporate/Other | $— | $— | $(16,591) | $(18,847) | | Total | $461,974 | $524,903 | $7,332 | $30,588 | Reconciliation of GAAP to Non-GAAP Financial Measures This section reconciles GAAP to non-GAAP financial measures, including adjusted gross profit, operating income, net income, diluted EPS, and EBITDA, for a clearer view of operating performance Consolidated Non-GAAP Reconciliations Consolidated non-GAAP reconciliations show Q2 2024 adjusted gross profit of $25.6 million, adjusted operating income of $5.7 million, and adjusted EBITDA of $10.0 million, excluding restructuring charges Q2 2024 Consolidated Non-GAAP Financial Measures | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | GAAP Gross Profit | $20,979 | $38,401 | $47,644 | $73,610 | | Restructuring Charges | $4,670 | $683 | $6,372 | $1,373 | | Adjusted Gross Profit | $25,649 | $39,084 | $54,016 | $74,983 | | GAAP Operating Income | $760 | $15,944 | $7,332 | $30,588 | | Restructuring Charges | $4,928 | $718 | $6,824 | $1,431 | | Adjusted Operating Income | $5,688 | $16,662 | $14,156 | $32,019 | | GAAP Net Income (Loss) | $(1,601) | $10,140 | $1,338 | $18,840 | | Operating Income Adjustments | $4,928 | $718 | $6,824 | $1,431 | | Adjusted Income Tax | $(1,232) | $(180) | $(1,706) | $(358) | | Adjusted Net Income | $2,095 | $10,678 | $6,456 | $19,913 | | GAAP Diluted EPS | $(0.05) | $0.30 | $0.04 | $0.57 | | Adjustments | $0.11 | $0.02 | $0.15 | $0.03 | | Adjusted Diluted EPS | $0.06 | $0.32 | $0.19 | $0.60 | | EBITDA | $5,055 | $20,048 | $15,887 | $39,156 | | Restructuring Charges | $4,928 | $718 | $6,824 | $1,431 | | Adjusted EBITDA | $9,983 | $20,766 | $22,711 | $40,587 | Segment Non-GAAP Operating Income Reconciliations Segment non-GAAP operating income reconciliations show Q2 2024 adjusted operating income for Vehicle Solutions, Electrical Systems, and Aftermarket & Accessories, with Industrial Automation's adjusted operating loss Q2 2024 Adjusted Operating Income (Loss) by Business Segment | Segment | GAAP Operating Income (Loss) | Restructuring Charges | Adjusted Operating Income (Loss) | Revenue Percentage | | :--- | :--- | :--- | :--- | :--- | | Vehicle Solutions | $5,077 | $3,236 | $8,313 | 5.9% | | Electrical Systems | $507 | $1,379 | $1,886 | 3.8% | | Aftermarket & Accessories | $4,454 | $197 | $4,651 | 13.7% | | Industrial Automation | $(1,015) | $116 | $(899) | (18.0)% | | Corporate/Other | $(8,263) | $— | $(8,263) | | | Total | $760 | $4,928 | $5,688 | 2.5% | Six Months Ended June 30, 2024, Adjusted Operating Income (Loss) by Business Segment | Segment | GAAP Operating Income (Loss) | Restructuring Charges | Adjusted Operating Income (Loss) | Revenue Percentage | | :--- | :--- | :--- | :--- | :--- | | Vehicle Solutions | $15,428 | $3,769 | $19,197 | 6.9% | | Electrical Systems | $2,519 | $2,469 | $4,988 | 4.7% | | Aftermarket & Accessories | $8,986 | $231 | $9,217 | 13.6% | | Industrial Automation | $(3,010) | $191 | $(2,819) | (30.3)% | | Corporate/Other | $(16,591) | $164 | $(16,427) | | | Total | $7,332 | $6,824 | $14,156 | 3.1% | Free Cash Flow Free cash flow for Q2 2024 was $6.4 million, an increase from the prior year, but for the six months ended June 30, 2024, it was a negative $1.0 million Free Cash Flow | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Cash Flow from Operating Activities | $12,588 | $11,464 | $10,232 | $11,522 | | Purchases of Property, Plant and Equipment | $(6,207) | $(5,858) | $(11,266) | $(9,179) | | Free Cash Flow | $6,381 | $5,606 | $(1,034) | $2,343 | Use of Non-GAAP Measures The company uses non-GAAP financial measures for internal performance, planning, and incentive compensation, supplementing GAAP without being considered superior - Non-GAAP measures exclude items management believes reflect multi-year enterprise activities or occur in multiple or prior periods with no predictable trend[34] - Management provides these non-GAAP measures as supplemental information to help investors assess the impact of items and events on the company's financial and operating results and for comparison with competitors and comparable reporting periods[35] - Non-GAAP financial measures should not be considered a substitute for or superior to GAAP financial measures[35] Company Information & Disclosures This section provides essential company background, outlines forward-looking statements, and details conference call and contact information for stakeholders About CVG CVG is a diversified industrial products and services company, providing solutions for complex design, engineering, and manufacturing challenges - CVG is dedicated to providing practical solutions for complex design, engineering, and manufacturing challenges to customers, industries, and communities[18] Forward-Looking Statements This press release contains forward-looking statements regarding future events and financial results, subject to risks and uncertainties, with no obligation to update - Forward-looking statements involve the company's expectations for future periods, including the sale of the Cab Structures business, financial performance improvement plans, future end market developments, changes in truck production, and global construction and agricultural equipment business performance[19] - Actual results may differ materially from expectations due to risks and uncertainties, and the company does not guarantee that future events mentioned in the statements will occur[19] Conference Call & Contact Information The company will host a conference call on August 6, 2024, to discuss this press release, with investor relations contact information provided - The conference call is scheduled for August 6, 2024, at 8:30 AM ET, where management will refer to the Q2 2024 earnings conference call presentation[17] - The conference call will be webcast live via the 'Investors' section of CVG's website and archived for one year[17]