Good morning, ladies and gentlemen, and welcome to CVT's second quarter 2025 earning conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions with introductions to follow at that time. As a reminder, this conference is being recorded. I will now like to turn the call over to Mr. Andy Chung, Chief Financial Officer. Please go ahead.

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 second quarter 2025 results, after which we will open the call for questions. As a reminder, this conference call is being broadcast and a q2 2025 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 the certain risks and uncertainties. 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 governance, 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.

Thank you, Andy. Before I speak to the earnings presentation, I want to take a moment to thank Ruth Gratsky, a CVG board member since July 2021, for her contributions as she leaves our board for personal reasons effective August 7th. Additionally, Finally, I also want to thank Scott Reed, our current COO, for his – Scott will be leaving the company to pursue consulting opportunities effective August 29th. We have a solid team in place and expect to fully execute on our plans going forward. I'd like to turn your attention to the supplemental earnings presentation starting on slide three. As we have highlighted on this slide, CVG delivered solid second quarter results and continued improvement in our profitability and free cash generation in a very challenging market environment during the quarter we delivered an adjusted gross margin of 12 percent which is up 120 basis points on a sequential basis and up 70 basis points compared to last year the continued improvement of profitability was again driven by the operational efficiency initiatives we have spoken to in prior our continued improvement in free cash generation. During the quarter, we delivered $17.3 million in free cash flow, which is an improvement of $16.5 million compared to last year. Regarding our free cash flow, another highlight of the quarter is our global electrical. For the quarter, we saw segment performance stabilize with revenues flat compared to prior year despite of zero driven by lower so we continue to rent production at our new low-cost facility before I move on I'd also like to comment on our recently announced debt refinancing which we completed and announced during the second quarter these transactions provide us with significantly more financial flexibility as we look to advance our operational initiatives, including further cost reductions, margin improvement, and overall operational. Turning to slide four, I want to provide additional color as it relates to the continued sequential improvement we are seeing at the gross margin line. As we highlighted last quarter, the operational efficiency improvements made related to freight, labor, and plant-level overhead continue to benefit our profitability freight to suppliers and improved our lead time we also continue to flex our direct labor to better in line with cut and have continued to balance our production more toward lower cost facilities and finally our new segment alignment has provided a and we are continuously evaluating selling general and administrative expenses SG&A For each mission, we are pleased to see our focus on operational, which has supported our financial performance in a lower demand environment. While we acknowledge the broad certainty we have and will continue to take the necessary proactive actions. Looking ahead, we believe we are well positioned to drive accretive growth, accelerate margin expansion, increase our capital efficiency, and ultimately enhance shareholder value as our end markets recover. Moving to slide five, I'd like to again highlight, again, while the strategic portfolio actions we took last year led to cash flow headwinds in 2024, we are seeing these actions reverse meaningfully year-to-date in 2025. Through June of this year, our discontinued operations were net cash generative, and we had minimal restructuring spend at less than $2 million. dollars we've also driven a 12 million dollar improvement in inventory versus the end of 2024 improvement in each of these areas help drive free cash generation of 17.3 million dollars in the quarter which brings our year-to-date free cash generation up to 28.5 million dollars as andy will cover in a moment we have raised our free cash flow outlook for the year to be at least 30 million dollars as we expect to build in the back half of the year with that

I'd like to turn the call back to Andy for a more detailed review of our financial thank you James and good morning everyone if you are following along in the presentation please turn to fly six consolidated second quarter 2025 revenue was 172 million dollars as compared to 190 strip on seven million dollars in the prior year period. The decrease in revenues is due primarily to a softening in customer demand across our global seeding and trim systems and component segments. Adjusted EBITDA was 5.2 million dollars for the second quarter compared to 8.2 million in the prior year. Adjusted EBITDA margins were 3.0% down 120 basis points as compared to adjusted EBITDA margins of 4.2% in the second quarter of 2024, driven primarily by lower volumes but offset by reductions in SG&A expenses. Interest expense was $2.3 million as compared to $2.4 million in the second quarter of 2024 driven by lower debt levels net loss for the quarter was 4.1 million dollars or a loss of 12 cents per dilute share as compared to a net loss of 1.3 million dollars or a loss of 4 cents per dilute share in the prior year adjusted net loss for the quarter was 2.9 million dollars or a loss of nine cents per diluted share as compared to adjusted net income of 1.5 million dollars or 5 cents per diluted share in the prior year lead loss and adjusted lead loss were impacted by soften customer demand free cash flow from continuing operation for the quarter was 17.3 million dollars compared to 0.8 million dollars in the prior year the free cash flow generated in the quarter was supported by the company's ongoing strategic and working capital initiatives at the end of the second quarter our net leverage ratio calculated at our net debt divided by our trading 12 months adjusted EBITDA from continuing operations was 4.8 times down from 5.0 times at the end of the first quarter. Moving to the segment results starting slide seven. Our global seeding segment achieved revenues of $74.5 million, a decrease of 10% as compared to the year ago quarter, with the decrease primarily driven by lower sales volume as a result of reduced customer demand. Adjusted operating income was $3.1 million, dollars an increase of 0.2 million dollars compared to the second quarter of 2024 while operating income was negatively impacted by lower sales volume and increased freight costs we saw an improvement in adjusted operating income margin primarily attributable to lower sgna expenses Turning to slide 8, our global electrical segment's second quarter revenues remain essentially flat compared to the year-ago quarter at 53.6 million dollars. As new business winds offset weaker construction and agriculture demand, adjusted operating income for the second quarter was 1.2 million dollars, an increase of 0.4 million dollars compared to the prior year. primarily attributable to lower salary expense as we benefit from our new low-cost facilities. We are beginning to see the benefits of the restructuring actions we have taken in this segment and we are encouraged by the stabilizations we are seeing. Global electrical systems remain a key area of focus for growth and cash generation moving forward. Moving to slide 9, our trim systems and components revenues in the second quarter decreased 24% to $43.9 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 income for the second quarter was 0.3 million dollars a decrease of 3.7 million dollars compared to the prior year the decrease is primarily attributable to lower sales volumes we continue working through the last of our operational inefficiencies in this segment and we are taking further actions to stabilize operations and improve operational efficiency and 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.

Thank you, Andy. I will start with our key in market outlooks on slide 10. According to ACT's class eight heavy 2025 estimates imply a 24% decline in year over year volumes. act has removed any pre-buy impact related to the proposed 2027 emission standard from their 2026 projections and now forecast truck builds flat in 2026 looking ahead to 2027 act is forecasting a 12 improvement in truck builds moving to our construction and agriculture market outlook based on recent commentary and outlooks from our customers and key market players we continue to expect construction market to be down approximately 5 to 15 percent, and agriculture market to be down in the same range as higher interest rates, weaker housing starts, slower commercial real estate that continue to weigh on demand. Despite the continued market softness, which mostly directly impacts our global electrical system business, We continue to remain optimistic about the long-term potential of both construction and agriculture markets as we see ongoing replacement needs and underlying secular trends in these markets. Turning to slide 11, I'd like to reiterate the key actions we have under, as well as mitigate the impact of we remain focused this year. Specifically, we expect $30 million in working capital reduction, focused primarily on inventory and accounts receivable, as well as a 50% reduction in planned capital expenditures this year. Through the first half of the year, we realized $12 million in inventory reductions and $11 million in accounts receivable reductions. We also continue to expect $15 to $20 million in cost savings this year with a renewed focus on SG&A, which should drive incremental margin expansion as our top line returns to future growth we expect the strategic portfolio actions taken in 2024 to lower our cost structure to continue lowering decremental margins positioning us well to grow our earnings power as in market demand we remain constant communication with our customers improving our line of sight to production schedule changes and allowing us to implement necessary cost actions in the event of future changes in addition our teams took immediate action in response to tariffs to mitigate potential impacts and we've made solid progress in that regard we continue to have successful negotiations on while building contingency plans to create flexibility across multiple scenarios all with the end goal of securing our business competitiveness and meeting our customers needs we also continue to assess our relationship with suppliers including evaluation of reshoring and near-shoring opportunities to further mitigate the potential turning to slide 12 reflects the current estimated and economic uncertainty as well as the aforementioned actions that we are proactively taking in this current uncertain environment reflecting current macroeconomic trends prevailing truck build forecasts and continued weakness in construction and agriculture markets we are lowering our quantitative annual guidance for revenue and adjusted EBITDA and tightening the range on both the good news is we are increasing our free cash flow guidance to reflect robust performance year to date as well as our ongoing focus on cash generation given current demand pressures we are adjusting our full year 2025 revenue guidance rate 150 million dollars to 670 million dollars which is down from our adjusted EBITDA guidance expectations to the range of 21 to 25 million dollars for 2025 down from 22 to 27 million dollars updated outlook we still expect EBITDA margin expansion compared to full year 24 at the midpoint of the ranges, supported by our continued focus on reducing manufacturing and SG&A costs. We expect to build on our free cash generation progress in the back half of the year, generating at least $30 million of free cash flow in 2025, which we expect to use to pay down debt. Our continued focus on reducing working capital and lowering capital expenditures underpin this outlook. Net leverage is expected to decline throughout 2025 and 2026 as we work toward returning to our targeted two-times level. With that, I will turn to the operator and open up the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Joe Gomes, Company Noble Capsule. Please go ahead.

Good morning, and thanks for taking my questions. Good morning, Joe. So I know you guys have gotten away from, you know, giving a new business wins number, but given the environment, maybe you could kind of from a, you know, know, a 10,000-foot perspective kind of give us, you know, are you seeing new business being bid? Are you winning new business? Is it within, you know, where you guys are hoping to be, maybe above, hopefully? And also kind of related, you know, from past new business wins, you know, how is the implementation of those going?

Are we seeing any of those, you know, push to the right, so to speak? anything you could give us on on that would be great also thank you thanks joe uh this is james responding to your question uh we do continue to win new business uh we have wins in q1 and q2 and we have a pretty robust funnel going through the balance of the year uh part of the difficulty in quantifying the new business is the uncertainty with schedules launch timing etc and as you mentioned uh there's some that have been delayed uh some that are with oems that have struggled financially uh which is disruptive production especially in the ev space but we continue to see growth in that area it's a secular trend that's going to continue so we're still focused on growing our electrical and as an example this year about 15 of our revenue forecasted for the electrical systems business segment is from new winds. So the flat revenue that you see year-over-year is the new winds offset and continued softness in the ConAg markets. So we haven't shied away from pursuing business in any end market. We still continue to have very good relations with our ConAg customers and their opportunities for share of wallet gain in those customers as well due to our new low-cost manufacturing capacity that's online so and that's on a global basis both in North America and Europe so I feel really good about that and as markets stabilize and we have a better quantification on launch timing and volumes we may revisit reporting new business wins when that when that happens and occurs as far as the implementation okay I was going to say the implementation dates for new business wins. Yeah, can you hear me? Okay, the new business wins implementation timing, it varies depending on the platform and the customer. We have seen some shifting, especially with economic conditions, with launches being a little slower. There's some customers that still need regulatory approval, especially in the autonomous vehicle space. So we have seen some shifting there as well, but they're sizable wins, and we'll be ready to bring those on with accretive margins based on our cost structure alignment and our new capacity.

Thank you. The next question comes from John Fransred from CWG.

Good morning, guys, and thanks for taking the questions. I guess I want to start with the cost savings aspect. You mentioned 15 to 20 millions of expected savings in 2021 – I'm sorry, 2025. I'm curious how much of those savings are permanent and how much will come back as volumes return, and how much is still left to be done as far as in the SG&A side of the cost savings program?

So, yeah, thanks, John. On the cost savings, that's an interesting dynamic because these are both material – direct material cost savings, indirect expense cost savings, as well as manufacturing cost outs with improved productivity. So we don't see these as being one time and actually as volume returns will generate more savings on higher volume. This year with the reduced volume, the savings that we had anticipated aren't coming in to the level a year ago that we thought they would because of the lower volume, but there are permanent savings in place with purchase price contracts, our logistics providers, etc. So we feel pretty good about the momentum that we're building from a cost reduction standpoint on SG&A and manufacturing overhead. Those are two areas that we will continue to take actions on. And with the current outlook from ACT, the manufacturing overhead pieces is going to be front and center with us. We've engaged an outside consulting firm to help us look at our supply chain optimization as well as our manufacturing overhead expense. And those projects are in flight now. So we expect as we go through the balance of the back half to implement more actions to take cost out. So hopefully we'll see that come through and we continue to see the volume come through as forecasted by ACT.

Got it. And how far along are you in the tariff renegotiation process? Do you expect all your customers to have renegotiated by the end of the year?

Yes, we'd expect that to be the case. And the tariffs, they've been changing a lot, as you know. The trade policy's been changing a lot. So we have a team of people, and we meet every day to see what the latest changes are try to assess the impact and as you can imagine both customers and suppliers we're going through a lot of detailed information port of entry country of origin all those elements that go into factor in the tariff impact and then that information has to be submitted and discussed with our customers as well as mitigating actions whether it's uh supply changes or validating different materials to offset where the material is coming from those are a little longer from a timeline standpoint price is the most immediate one and there is a lagging effect uh because we have to submit the tariff impact post uh the actual impact that we that we have to the customers and then there's a payment timeline from the customers to us. On the supplier side, we have the same stance with our suppliers that our customers have with us. We expect initial mitigation with price being a secondary or tertiary element to help them recover and stay viable. And then that gets translated back to our customers for relief. So it's a very dynamic process, a lot of negotiations, a lot of discussions, and it's top of mind for the entire supply chain actually from our suppliers to us to our customers and our customers in markets certainly certainly very dynamic right now and one last question i guess i'll get back into queue um can you talk a little bit about how july looked relative to maybe the progression of the second quarter um did it continue to weaken uh stabilize any kind of color with the current climate is like sure no problem it's on the class eight side and even in kind of to a certain degree typically from june until august early september many of the oems on a global basis schedule downtime for model change over or vacation periods etc so we are seeing increased downtime in the back half of q2 and also this quarter which is causing us to quickly make adjustments with flexing our manufacturing plants down, ordering material so our inventory stay at a competitive level, as well as coordinating with our supply base to ensure we maintain on-time delivery and supply viability as these schedules change. So we're seeing more from June through August, more downtime than what was originally anticipated at the beginning of the year from our OEM customers.

Okay, makes sense.

So if you look at what we see right now is tracking towards ACT's projection in this quarter. So overall, if you look at what the market's forecasting is, what we're seeing, but as James mentioned, we are doing all the actions that it takes to adjust for the volume.

You know, I'll just sneak this in since you brought up ACT a couple times in the responses. It seems to me like the new forecast from ACT looks more like the historical cyclical trends that we used to see in the Class 8 market. Is that your assessment, or do you see anything different than that?

Well, not included any type of pre-buy dynamic for emissions regulations that were initially intended for 2027. So the expectation was that we would see a pickup in pre-buy in the second half of 25 and for the balance of 26. They've now taken that dynamic out of the forecast and forecasting flat build rates into 26 and then a double-digit low-teens double-digit increase in 2027. So if volumes do come back sooner, obviously we'll be well-prepared from an operating leverage standpoint but if volumes stay flat like forecasted we're going to be positioned to ride through that down market until we see an uptick similar to what we're doing the past two quarters and going into the back half this year.

Thanks again to take my questions. I'll get back into queue.

The next question comes from Gary Presapino, Varrington Research. Please go ahead.

Hi, good morning all. James, Andy, last conference call, you had mentioned something about the Trump administration maybe rolling back some of these admission standards for trucks. Where does that stand right now? Is that still in a state of flux here?

Yes, as far as we know, there hasn't been a definitive position on that yet. But as ACT has comprehended in their forecast, there's an anticipation that they will either be pushed out or changed so we're planning for the worst which is no pre-buy.

Gary as James mentioned so ACT doesn't predict the 26 pre-buy so and then as a result there's no major drop in 27 as well so right now the projection is a year over year pretty flat from 25 to 26 and then there will be a gradual low double-digit increase in the next few years. So longer-term horizon is actually a more stable environment, but you don't see the big up and down in the next couple of years.

Okay. Then maybe you could help me out because I'm not that altogether familiar with the Class 8 truck market. Maybe some others are.

Is there a natural replacement cycle here that somewhere along the line has to start kicking in to more units produced and is that why the 27 numbers are going up so there this is these are non discretionary in markets in class 8 conag in vehicle production in general there is a replacement cycle given the economic uncertainty some of the feedback that we've gotten from our OEM customers is that the fleets that order large quantities of Class A trucks are holding off on making purchases and pushing them out based on the uncertainty. Some of the indicators like freight rates, the impact of tariffs with goods moving in have come down. So the need for replacement may not be as high as it was originally planned to be. So that's one piece. The other piece is we have an aftermarket business and seats and other products. So as purchases are being held off, we may see a positive impact in some of our aftermarket sales for replacement components, which typically they last seven years or so, five to seven years, and then they're into replacements depending on the duty cycle of the vocational application. But we see an opportunity there. So that's one good thing that comes out of this and the other piece is the con ag market and as economic challenges potential recession and those factors weigh into purchases uh some of the dealer inventories in the connect segment have increased uh because of the slowness of of the economy and capital purchases being made so they do need to be replaced at some point and interestingly enough with those customers They're doing R&D work and coming out with autonomous variants of some of their models, which drive a much higher electrical content. So we're engaged with customers now to try to best position ourselves as they roll out those new models with higher electrical content. We have a share of those platforms. So, yeah, it's uncertain and we're making sure we have the right balance of countermeasures and alternatives in place so that we can either flex up or flex down and still be profitable and generate cash.

Okay, let me kind of ask the question another way then. How many annually of these Class 8 trucks are taken off the road and scrapped on an annual basis? Again, I'm just trying to get an idea of what the replacement volume looks like on an annual basis.

I don't have specific information around that, and we could do some follow-up and get back to you.

Gary, if you look at the long-term North America Class 8 production volume, look at the long horizon, it's somewhere just shy of 300,000 units per year. look at the up and down. But if you look at a long-term average, you can call it both the replacement rate as well as just growing in the overall market.

Okay.

That's helpful.

And then it's good to see you extended the debt maturities. And I did read through the document somewhat, but your leverage ratio is 4.8 times.

Can you give us some idea of how that how that leverage ratio is steps down over time with the new agreement yeah so so two things we talked about our long-term target and left leverage ratio is around the two times so between now and sometime in 2026 we continue to work towards that target right so you can see that we're making progress there so you also didn't see that from our filing back at the end of June so our new financing agreement allow us to have a little bit more wiggle room here in the next few quarters so starting with over seven times of our leverage is in the governance inside the agreement so we believe that we continue to focus on generating cash. As you can see, the first half, we made very, very significant progress there. And right now, there's a number one priority on our capital allocation is generating cash and continue to pay down debt and allow us more flexibilities.

Okay, thank you.

As a reminder, if you wish to ask a question, please press Star 1. There are no further questions asked this time. I will now turn the call over to James Ray. Please continue.

Thank you all for joining today's call. We continue to take the necessary steps to support our customers in this dynamic environment, drive operational improvements, and execute on our goal of delivering better results. We look forward to updating CVG's progress next quarter. Thank you