i would say the operating leverage because of the the cost structure that changes we made over the past several quarters and over the past couple of years so we expect the thinning of our fixed as as we see volume come through the other item is product mix everything especially in our trim business we had a higher mix of larger revenue items and then the launching of new business you the pricing impact of new business launch as well as pricing and product mix for legacy business in addition to areas where we have a little more price flexibility like in our aftermarket business where we have more promotional pricing versus our oem business so pricing is a big factor product mix is a big factor the volume leverage and then recovery of the material economics fuel surcharges tariffs and those items additionally add more opportunity for gross margin expansion i got it and and i hate to ask this last question angie but can you just walk us through what's going on the tax line one more time sure from from a tax perspective we have been in a full valuation allowance on our u.s deferred tax assets and

And so we don't get the – we don't get to take any benefit for paying foreign taxes. So to the extent we are making money in our international jurisdictions, we pay about a 25% rate on that income. So we just don't get the benefits at the federal level. So that's why we see that expense sort of on the net loss.

Okay.

Thanks for taking my questions.

Go ahead.

Sure. I was just going to say it's pretty well in line with our 2025 10K disclosures around tax.

Got it. Thanks again. I appreciate it.

The next question comes from the line of Joe Gomez with Noble Capital. Your line is now open. Please go ahead.

Good morning. Thanks for taking my questions. Morning, Joe. so i kind of want to follow up with john's question on the on the the guy the last last quarter you know james you talked about you know if the class a came uh forecast came in as expected you'd kind of be at the high end of the previous range which was you know 700 million and 30 million of it just even died, you know, the forecast, you know, for at least 26, you know, hasn't changed at all.

And yes, you know, for 27, we've seen the increase for the Class 8 over the previous one, but maybe you could walk us a little bit more through there as to, you know, what you're seeing that would cause you to raise the forecast as high as you did for the rest the 26th yeah that's a good point joe and primarily it's driven by non-class a growth um the international seat business if you look at the growth year over year with class a truck volume in north american being down is pretty substantial the trim systems business uh in q2 was substantially higher and that's product mix new business that we've won that we've launched we're launching that is in current ramp-up phase. And then in our electrical systems business, we actually had pretty significant growth in our EMEA business and Zoox is starting to ramp now. They seem to be on their plan for their volume production. We're somewhat cautious with a new customer, new vehicle, new in-market in our outlook before, but now we see all of the leading indicators pointing toward them achieving their plan ramp to get to 100 vehicles per week. And we're in constant dialogue with all of our key customers. Our Class A customers drive a large portion of our business, and they expect increases starting in Q3 more than they had in Q2. And that's reflected in the ACT outlook, but also in our schedules. And some of our schedules, again, And ACT is a guidepost we use for Outlook. But some of our customer schedules that are specific to certain models and certain customers could have a higher increase than what ACT is projecting in an aggregate level.

Okay, great. I appreciate it. And just on the new business, you know, maybe you could talk a little bit about what the environment looks out there now for new awards, It's not just ramping up awards that you've won previously, but, you know, what the kind of business cycle looks like. An award cycle is looking, you know, in the second quarter of what you're seeing looking in the third and fourth quarter in terms of new business to go out and get and hopefully get awards and win for awards.

Yeah, we target on average about $100 million a year in new business wins. obviously the vehicle cycle and sourcing cycles you know that could go up or down either way and i would say through the through the first half of this year we're on track based on what we've currently booked and what our outlook is from a pending award standpoint where we've already quoted and then there's additional opportunity funnels that we manage and this is becoming more global in nature uh joe and we have some pretty big opportunities in emaya especially in our seating business. In North America, we're expanding beyond Class 8 in our trim systems business with more winds and power sports and non-Class 8 vehicles. So there's diversification there. So based on our outlook on the business one and what we have in our funnel, we continue to see further diversification as these programs hit startup production and start to ramp in the coming years so the outlook right now is a pretty balanced uh outlook as far as diversification in the business uh both regional and from an in-market standpoint and across the business segment so we're really feeling uh positive about the momentum we're building now the key obviously is to manage the uncertainties volatility and uh variability we're seeing across the markets with more diversification, you have more elements you have to track. And then the tough part is, you know, making the adjustments in your business, not just what you're currently producing, but how you're planning for future business. So investments in working capital, like inventory and managing payment terms from receivables, you know, that's soaking up some of our cash generation, but we still expect to be positive this year. and we're managing all of those elements to maximize our positive free cash flow to pay down additional debt to get down to that two times level. So that remains a key focus in the business, and the best way to get there is through diversification, new business wins. As you know, pricing elasticity is more advantageous in the first portion of new wins. Some companies manage or measure vitality, and there's a certain part of the business, the revenue stream, they expect with new business because you have more pricing flexibility so that's another area that we're putting more focus on which will also help us drive to a target mid-teams gross gross margin level that we're looking for in the coming years okay and then one last one for me you guys did a great job at focus on reducing debt here um and you mentioned how the atm proceeds came in at the end of the quarter, and you just did pay down another $3.8 million from the most recent sale leaseback.

So, you know, given all that, you know, kind of what would you say the quarterly run rate for interest expenses now?

Yeah, thanks for that. Yeah, we continue to focus on free cash flow generation and paying down that debt. So, we were happy to get that done during the quarter. We've been around running around three, three and a half to almost four million. I think in the second half, we're looking more at two to two and a half million per quarter on the interest expense. And as you mentioned, we'll be a little bit lower, maybe than two and half just because of that Dublin transaction that we've that we've just done there so and we do on the free cash flow topic have even though we've invested in free cash flow we continue to see that we're being a little bit more efficient on on that front so despite of the investment efficiency is favorable year over year where we're at about 18.5 percent currently versus around 21 percent last year so that's giving us some encouragement as well as we head into the second half okay great

thanks i'll get back in queue thanks again thank you the next question comes from the line of gary prestapino with barrington research your line is now open please go ahead good morning james and angie um excuse me a couple of questions first of all james did i hear you say correctly that uh did i hear you say that the zeus program volumes are running up to expectations um i think you said in 2026 you were going to have about 2500 going to 27 in 5 000 and 10 000 in 2028 is that am i hearing that right yeah that's that's correct there

okay so there's no change in that okay um not and i want to get back i said not an appreciable change based on what we know obviously day to day and week to week uh their production vehicle production schedules fluctuate but the the intent is the numbers that we have previously uh disclosed than they have told all their supply base to plan for.

Yeah, okay. And then, again, I don't like to talk about guidance, but with the sales increase that you've projected and the flow through the EBITDA is just so minimal. And I understand that you're not kicking back stock comp into your EBITDA calculation, but it looks like your stock comp for six months was $2.5 million versus $1.7 million. so you know if that increases i mean it just can't explain that low flow through so i guess the question i'm i'm asking is in the back half of the year given the new business wins and what you're doing with zeus what what kind of uh is there increased investment in growth on the sgna line uh to uh accommodate this increase in sales that you're looking at yeah i would take on the investment portion of it from an SG&A standpoint.

We are not forecasting significant headcount increases associated with the new business launching as it relates to SG&A heads. We are adding direct labor, indirect labor heads that are on a gross margin line, but the sales, engineering, commercial, purchasing, IT, all the back-office SG&A costs and SG&A costs in the business, we're not really looking at any significant increase to hit the we increase forecast outlook as well as launch new business. There is CapEx plan that we had in our plan, and there's some incremental to what's in our plan to bring on some of the business in international locations that we've won recently that have more of a near-term impact on our outlook, and that's also what's really increased it last year this time and earlier this year.

Some of these programs we won recently and are already starting in production within 12 months which is better and i'll let angie speak sure so that the stock-based compensation line that that's right that's two and a half million um year to date um what i was mentioning earlier is actually our we have cash based long-term awards as well that are liability classified that we have to mark to market every quarter which are also tied to stock performance so that's probably the the bigger side which you don't see on a specific line item here in our financials but it's driving some meaningful increases year over year as well as the the annual program because as you might recall last year obviously the performance didn't warrant much in terms of an annual plan um results okay thank you a reminder if you would like to ask a question, please press star one.

If you would like to withdraw your question, please press star one again. There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back over to Mr. James Ray for closing remarks.

Thank you all for joining today's call. We continue to execute and deliver. We are back to top line growth across all three segments and delivered another quarter of gross margin expansion. Our focus on diversifying our end markets and improving our revenue mix is driving accretive growth. We're well positioned to drive further operating leverage as end markets improve and new business ramps going forward. We look forward to updating you on CVG's progress next quarter. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.