Good morning, ladies and gentlemen, and welcome to CVG's Third Quarter 2022 Earnings Conference Call. During today's presentation, all parties will be in 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 Cheung, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, operator, and welcome, everyone, to our conference call. I'm very excited to join the CVG team and participate in my first earnings call with the company. Joining me on the call today is Harold Bevis, President and CEO of CVG. This morning, we'll provide a brief company update as well as commentary regarding our third quarter 2022 results, after which we'll open the call for questions. As a reminder, this conference call is being webcast and a supplemental earnings presentation is available on our website, which we will refer to during the call. 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 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 filings. I will now turn the call over to Harold to provide a company update.

Thank you, Andy, and a sincere welcome to the team, and good morning, everyone. I will be referring to our earnings presentation, which is found on our website. So if you could locate that document that'll be helpful in the dialogue this morning. CVG delivered solid results in the third quarter across key metrics, and we continue to build strong momentum in our business transformation. And as part of this transformation and as a result of the new wins over the past several years, CVG is positioning itself as a leading global electric system supplier and we remain on track for electrical systems to become our largest product line. As we have outlined in previous calls, this shift will prove to be accretive to our organic growth and profitability, all while reducing the cyclicality and historical customer concentration of our business. If you could turn to Slide 3 of the earnings call or the Q3 earnings presentation, you'll see that our business transformation efforts are gaining traction with sales growth of nearly 5% in the quarter, driven by our pricing efforts with key customers this year as well as the impact of our new business wins. Our year-to-date business wins are tracking above $150 million on an annualized basis, including $39 million of new wins in the third quarter. We're also continuing to push for additional pricing with customers where necessary to both cover inflation and earn a fair return for our value add. Free cash flow generation was strong in the quarter as expected, and our efforts to transform our cost structure remain ahead of schedule, which will further improve our competitive positioning. This includes investments in new low-cost facilities in low-cost countries as well as next-generation manufacturing processes. Furthermore, with the relief we're seeing in steel pricing and freight costs, we believe inflation pressures for CVG may have peaked. We are on track with the first phase of our vertical integration and regionalization plan. We will eliminate approximately 50% of our ocean freight from China to North America in early '23 by switching from sourcing certain components from China to producing those same components in-house in Mexico. This will further reduce our working capital, increase our cash flow, lower our costs and improve our service competitiveness. Turning to Slide 4. You will see the initial evidence of the second half improvement that we discussed during last quarter's call. We drove sequential improvement across key metrics due to improved pricing, continued cost restructuring efforts and the impact of new business wins. We also continue to make progress returning working capital back to pre-COVID levels, helping boost our free cash flow generation of $34 million in the quarter, supporting the company's strategic initiative to self-fund its growth and pay down our debt. We expect to hit the high end of our debt paydown range for the full year and expect to fully pay off our revolver during the fourth quarter. In fact, it's almost paid off as of today. Despite ongoing supply chain pressures, especially in semiconductors and transitory demand headwinds within our Warehouse Automation segment, we're on pace to deliver a record sales year. Moving to Slide 5. Our team continues to do a great job winning targeted new business and particularly within the Electrical Systems segment. In year-to-date, we've secured over 30 new customers for our company worth $143 million in annualized revenue when fully ramped up. In looking to the balance of the fiscal year, our new business pipeline is robust and remain on track to achieve greater than $150 million of new annualized business wins. Ending the third quarter, our pipeline of new business stood at approximately $5 billion in platform value and spans electric vehicles, earthmoving equipment, heavy and medium-duty trucks as well as emerging opportunities in commercial aerospace and defense. This visibility to potential future business wins and continued momentum for our business transformation efforts. As highlighted on Page 6, if you can turn to that page, we are well on our way to making electric systems our largest product line for CVG as I've mentioned previously and today and simply layering in the contribution of our new business wins on top of our current revenue base gives a picture of the expected shift in the business mix. As a reminder, our Electric Systems segment generates much higher OI margins than the other segments of CVG, making for a powerful profit growth story in the coming years. We remain focused on becoming a leader in electrification systems across commercial vehicles, passenger vehicles, material handling equipment, earthmoving equipment and power sports. We're also making strong initial progress, as mentioned, entering brand-new markets for us like aerospace and defense. On Slide 7, we lay out an update for our e-commerce aftermarket business. We spent a little bit of time getting the business ready for launch and getting the product lines ready, getting the software platform ready, getting our production and logistics capabilities ready. We expect to go live in early '23 with aftermarket seats in North America being the first product to launch. We'll follow that up with launches in wipers, mirrors and road sensors. We will also design and trial new aftermarket seats on multiple platforms including our first-ever super comfortable low-profile suspension seats for top-selling pickup trucks and 4-wheel drive vehicles. It will be a first for us. In looking to '24 and beyond, we expect to expand our platform geographically and continue to broaden our seating products to include delivery vans, school buses, construction equipment and tractors, while also expanding our North American footprint. Turning to Slide 8. We're reiterating here our key initiatives to drive value for shareholders. We have a dual approach to optimizing our core business with proper pricing and aggressive cost reduction, and we continue to make substantial progress on both fronts. We'll continue to advance our new business endeavors and use our free cash flow to pay down our debt and fund growth. Turning to Slide 9. CVG is executing against its long-term goals and business transformation plan, and we are determined to improve or exit underperforming segments of our business and replace it with new business and strengthen our balance sheet. We believe we are on track to reduce the cyclicality of our business as we expand in secular growth industries, and we are reaffirming our long-term targets of delivering $1.9 billion in sales and approximately 8.5% adjusted OI margins. Turning to Page 10. While we're proud of the progress we're making in our year-to-date performance, inflation and FX rates continue to mask our results. With that being said, we expect inflationary pressures to cool and our vertical integration plans to kick in, and we expect that CVG will experience less inflation-based profit compression in '23. CVG continues to win in electric vehicle markets, and those wins are fundamentally transforming our top line and our margin outlook. And as we look to the fourth quarter and into '23, we're confident that the momentum we have built, particularly as it relates to price, cost structure, base demand, verticalization and new business wins will further position us for growth and profitability improvements. Now I'd like to turn the call back to Andy for a more detailed review of our financial results.

Thank you, Harold. If you are following along in the investor deck, please turn to Slide 12. Third quarter 2022 revenues were $251.4 million as compared to $139.6 million from the prior year period. The 4.9% year-over-year increase was primarily attributable to higher pricing to offset material cost increases and volume, but offset by a volume decrease in our warehouse automation business. Foreign currency translation also unfavorably impacted third quarter 2022 revenues by $6.5 million or 2.7%. Gross profit was $26.8 million in the third quarter as compared to $30.1 million in the third quarter of 2021. Gross profit margins decreased to 10.7% as compared to 12.6% in the third quarter of 2021. This was primarily due to global supply chain and market disruptions which have resulted in increased labor costs, raw material inflation and freight cost increases. As CVG stated, we expect to improve our gross margins in the coming quarters due to renegotiated pricing, continued cost restructuring and an improving supply chain environment. The company reported consolidated operating income of $9.5 million for the third quarter of 2022 compared to $11.4 million in the prior year period, primarily due to the aforementioned lag in price increases, combined with $2.9 million of new business startup costs and $0.6 million of restructuring expenses due to the continued execution of our core business optimization. On an adjusted basis, operating income was $10.6 million compared to $12.2 million in the third quarter of 2021. Adjusted EBITDA was $14.3 million for the third quarter as compared to $16.9 million in the prior year. Adjusted EBITDA margins were 5.7% as compared to 7.1% in the third quarter of 2021. Interest expense was $2.8 million as compared to $1.6 million in the third quarter of 2021. The increase in interest expense was primarily related to higher base interest rates on our variable rate debt. Net income for the quarter was $3.6 million or $0.11 per diluted share as compared to net income of $7.5 million or $0.23 per diluted share in the prior year period. Turning to our segment results on Slide 13. Our Vehicle Solutions segment's third quarter revenues increased 30.6% to $154 million compared to $117.9 million in the year ago quarter, primarily due to material cost pass-through and high volume. Operating income for the third quarter increased 227% to $9.6 million compared to operating income of $2.9 million in the prior year period. This was primarily driven by volume leverage, increased pricing and lower healthcare costs. The third quarter of 2022 adjusted operating income was in line with GAAP operating income of $9.6 million. Our Electrical Systems segment achieved revenues of $46.1 million, an increase of 15.1% as compared to $40.1 million in the year ago third quarter, resulting from material cost pass-through and contributions from the new business wins. Operating income was $5.2 million, an increase of 5% compared to $4.9 million in the third quarter of 2021 due to a decrease in SG&A expenses, partially offset by increased labor costs, raw material inflation and freight cost increases. Adjusted operating income was the same as GAAP operating income in both periods. Our aftermarket and accessory segment revenues increased 24.1% to $37.1 million compared to $29.9 million in the year ago quarter, primarily resulting from increased volume and pricing to offset material cost increases. Operating income was $5.4 million compared to operating income of $2.3 million in the prior year period. The increase is primarily attributable to the increase in pricing to offset higher material and labor costs. Adjusted operating income was $5.4 million, an increase of 130% compared to the year ago third quarter. Our warehouse automation segment produced third quarter revenues of $14.1 million, a decrease as compared to $51.7 million in the third quarter of 2021 due to lower demand levels. Operating loss was $1 million, a decrease compared to the operating income of $8 million in the year ago quarter, primarily attributable to the previously mentioned lower volumes. Adjusted operating loss was $0.7 million compared to income of $8.1 million in the prior year period. This concludes my comments on the quarter, and I would like to add that I'm really excited to have joined the CVG team and look forward to driving the transformation of the business. Now I'll turn the call back over to Harold for some additional remarks.

Thank you, Andy. Turning to Page 14 in your deck, looking ahead, we see stable order demand in our vehicle markets. However, we do expect order demand to remain weak in the warehouse automation segment in the near future. We have additional pricing actions underway in our vehicle markets, and we expect to continue to generate stable positive free cash flow. We are having continued wins in Electrical Systems as this vehicle architecture naturally fits CVG's core strengths. In order to support our growth in these markets, we are implementing new low-cost plants in both Mexico and Northern Africa. Our operations team is kicking in with aggressive vertical integration to lower our costs, improve our service and generate further free cash flow. Our entire team here at CVG is committed to driving significant continued transformation. This concludes our prepared remarks, and I'll now turn the call back over to the operator, Sergio, to open the line up for questions. Thank you.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. One moment, please, as we take our first question from Joe Gomes from Robo Capital.

So last quarter, you talked about you still needed about 20% of the contracts that needed to be repriced. I was wondering where that stands today. Given the recent or ongoing increases in inflation here, how does that play on some of the contracts that you had already replaced? Are you still looking at getting acceptable margins on that business?

Yes. So, there are two questions there. We have roughly 20% of our revenue that's trapped in money-losing contracts. We're inside of a year on them now, and we have open negotiations with regards to repricing and new terms and conditions. But that negative band of business is still in our reported results in the quarter. With regards to the 80% that we can act on, yes, we're still continuing to actively negotiate pricing and inflation recovery as we go along, and we have a set of price increase actions underway right now for the fourth quarter, and we have another set underway for Q1. It's an ongoing process for us, Joe, and I'm sure our peers and fellow reporters are doing the same thing. We're labor-intensive, and we're facing labor inflation and energy inflation. And so we have active pricing negotiations as we go along here. We expect that to continue through '23.

Okay. And you talked about improving or exiting underperforming legacy businesses. I was wondering if you might give us just a little bit more color on what segments of the business you are identifying there that really need to be improved or potentially exited?

Yes. So we set financial goals that we want to achieve in order to have proper financial returns so we can reinvest into the business and be competitive. We've had two losses, if you will, where we have not resecured the business on a go-forward basis. One was in Electrical Systems, one was in seating. So it's not necessarily a product category or a sector. It's really customer-specific where we have underperforming profit rates. We're just going in and either we're trying to get a deal that both sides can mutually agree to, which, in most cases, means we're trying to increase our price. We've had only two losses that are noteworthy in the last 1.5 years.

Okay. And one more for me, if I may. So you talked about the '22 forecast for Class 8 and Classes 5 to 7 production. Can you give us an idea of what you're seeing here for 2023 in that market?

Yes. So the reports came out this morning on the orders and the orders are very high. The current backlogs for vehicles are approaching 1.5 years now. The entire year of '23 appears to be sold out from the order books right now. ACT is the third party that we usually quote, and they're predicting a similar year to this year. There are various opinions on that, but right now, with the order books that have been opened for '23 by all the main OEMs globally, there has been a significant influx of initial orders, and the orders have increased significantly. They are at a very high rate that exceeds the industry's ability to produce. The supply chain issues that our OEM customers have faced are continuing, and they seem to all be reporting that semiconductors are becoming less of a problem. However, they continue to have problems with axles, brakes and other components. So it’s still a supply chain-constrained outlook for '23, and orders exceed the industry's ability to produce. We believe that next year looks very similar to this year in terms of supply chain challenges.

Great. Much appreciated.

Your next question comes from John Franzreb from Sidoti.

Harold. Welcome aboard, Andy. I'd like to try to start with the warehouse automation business. How about some updated thoughts there on when you expect to reach the trough in that business? What kind of recovery are you thinking about? I think last time you talked about maybe mid-next year; is that still on target, or has that moved left or right?

Yes. So you can tell from our numbers that that segment is our disappointment. Our vehicle businesses are performing well and meeting expectations. We have good demand there. However, warehouse automation has really gone through a cliff event. The big public reporter here is Amazon, and we're not allowed to really say our customer due to NDA, but they have publicly indicated that they consume half of the industry's supply. If you look at what's happened with e-commerce and how it peaked during COVID, shippers are now reporting negative year-over-year comparisons, and they have put a hold on their infrastructures. This is not forever. They can't hold on forever. But definitely, there is less spending in physical infrastructures for e-commerce shipping, amongst companies like FedEx, UPS, and Walmart. The top 50 e-commerce shippers and retailers are in a pause right now, and we are suffering from it. We have scaled down our operations, closing one of our two plants, one in Monona, Iowa. Our costs are still reflected in Q3, but Q4 is expected to look different in that business because we've adjusted our fixed cost structure and aggressively reduced our staff. So as a supplier to the industry, we've rightsized our cost structure around our current run rate.

Okay. Fair enough. You mentioned that you're in the process of building two new manufacturing facilities, one in Africa and one in Mexico. Could you talk a little bit about the CapEx associated with that and when do you expect that to be completed?

Yes. The new wins that we've achieved require additional capacity that we currently do not have in North America and in Europe. The plant in Central Mexico will be operational likely within about four weeks. We're still negotiating the best deals we can get. This plant will be coming online in Q3, and we’ll begin producing products probably by the end of Q4. The one in Northern Africa is a bit closer and we need it to begin producing in Q3, so the plant will be coming online in Q2. Regarding capital, our Electrical Systems business is capital-expenditure light. However, the spending will remain within our corporate guidance of $20 million to $25 million in capital. That will also be a similar number for next year. We are running toward the low end of that number this year but it's just a few million dollars; it's not a lot. It's not expensive to expand in that business; it's mainly setting up a good, low-cost hourly workforce. We already have the equipment for one of the plants, and we have the equipment for the other one about ready to order.

Okay. Got it. And just for clarity, why the two-step process in price increases in Q4 and Q1 again?

Yes. So actually, this year, we had four separate price increases, and it gets down to our terms and conditions. The two that are going to start on January 1 come from the agreements we reached with customers so they can secure supply for themselves. When we renegotiate prices, they come into effect on the next set of POs that we accept. There's a little bit of a timing lag because we honor their desire as a partnership. When they put in the ADI portal set of POs, we acknowledge them and we have to honor the price for them. That’s why there's a bit of a gap, John.

Okay. And one last question, I'll get back into the queue. Your aftermarket business took a nice step-up in the third quarter. What's driving all that?

Yes. So two main reasons. The primary one is getting our production in order in both wipers and aftermarket seats in North America. We had numerous part shortages in those businesses from Asia, and we've worked through those challenges by vertically integrating in both areas. In the case of seating, we built an entirely new plant in Alabama, and the plant is online now. In the case of wipers, we renovated our plant in Indiana and did not need to build a new facility. We are working through our backlog, and we're not fully caught up yet. That's one reason why we haven't launched the e-commerce second step, as we need to build an inventory profile. Fundamentally, we're moving from a 'make to order' model to a 'ship from stock' model, and we've traditionally lost opportunities due to lack of available inventory. This move is going to be significant for us and is coupled with an electronic storefront. So our website, called aftermarkettruckparts.com, is ready with Shopify in the background. However, the program must wait as we are still addressing our backlog. Therefore, we expect to see a similar flow in the fourth quarter of that business and anticipate an increase next year when we have a proactive inventory position.

And I guess we should allow for higher inventory on a go-forward basis leading into working capital a little bit?

Yes, we plan to maintain a larger inventory profile in that business on an ongoing basis. Ideally, this should provide a good return for us. It's a very solid return on investment as this is a capital business for us. So it will enhance our return on invested capital, but it will come with more inventory.

Your next question comes from Stephen Emerson, private investor.

I was just thinking about the extent to which you're able to reposition warehouse automation to all the reshoring of factories automation and such prime contractors like Rockwell. It strikes me that it's very similar systems and equipment.

Correct. Rockwell is one of our suppliers. We purchase automation parks and components to create subsystems. Your initial point is accurate. We are working to revitalize warehouse automation by attracting new customers and expanding our service offerings. We primarily provide services by assembling automation components and implementing basic robotics in these automated facilities. We have brought on a new business leader from the industry and are adjusting our system solutions. We are also rechanneling our inventory into systems that we can sell to others. Rockwell uses these systems internally for their own manufacturing, but they are primarily looking for us to quicken our efforts as we source components from them for our implementations.

When do you think you'll be putting out a bid for components and suppliers of automated factories?

So we have a lot of RFQs out already. We're bidding on one of the largest retailers in the world, you can guess which one. We're bidding on their warehouses and subsystems. We have an active pipeline in that business. That pipeline is included in the $5 billion pipeline we referred to. It encompasses all of our pipeline activities for warehouse automation. However, the industry is currently in a pause. With Amazon and FedEx taking a timeout, they’ve publicly reported as much: you can surmise that the whole industry is currently in a wait-and-see mode regarding the steady-state needs for distribution networks. While we are bidding, there isn’t a lot of active building right now; the industry is currently down. We are primarily focused on distribution and parcel handling, and our expertise lies in warehousing and logistics rather than factories. We don’t have a skill set there.

There are no further questions at this time. You may proceed.

Thank you, Sergio. Well, thank you for listening in and asking questions. You can see that our vehicle businesses are doing well and improving and have a good outlook in terms of demand, while our warehouse automation business is suffering right now as the industry is in a pause. We've made a decision to rightsize our cost structure down, but we are bidding aggressively to add new customer positions when the industry rebounds. Thank you for joining us this quarter, and we look forward to speaking with you in our next quarter. With that, Sergio will end the call for today.

Thank you, and I ask that you please disconnect your lines.