Commercial Vehicle Group, Inc. (CVGI) Q2 2026 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to CVG's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Michelle Hards, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and welcome, everyone, to our second quarter 2026 conference call. Joining me on the call today are James Ray, President and CEO; and Angie O'Leary, Interim Chief Financial Officer. This morning, we will provide a brief company update as well as commentary regarding our second quarter 2026 results, after which we will open the call for questions. As a reminder, this conference call is being webcast and Q2 2026 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 savings 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 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 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 James to provide some highlights from our second quarter performance.

Thank you, Michelle. Good morning, and thanks to all those who joined the call. Please turn your attention to the supplemental earnings presentation, starting on Slide 3. As we have highlighted on this slide, CVG delivered year-over-year revenue growth across all 3 segments. This reflects our ongoing efforts to reduce our end market concentration in cyclical North American Class 8 truck exposure through geographic and end market diversification. While there are still macroeconomic uncertainties to monitor, CVG is hitting its stride as our new business wins are ramping coincidentally with a recovery in our key end markets. During the quarter, we delivered an adjusted gross margin of 12.9%, up 90 basis points compared to last year and 70 basis points sequentially from the first quarter of 2026. The continued year-over-year and sequential improvement in profitability was again driven by our focus on improvements in operational efficiency and the operating leverage we are seeing from improved volumes. We have recently highlighted the growth in our Electrical Systems segment, and that accelerated again with a 15.8% growth in segment revenues in the quarter. This growth has been driven by the ramp of previously mentioned programs across North American and international markets, particularly Zoox in North America and the ramp of our key wins in the EMEA region. This growth is going a long way to increase capacity utilization at our Aldama, Mexico, and Tangier, Morocco facilities. While we are adding labor to handle the additional volumes, we continue to see margin expansion in this segment. Another highlight in the last quarter was the continued debt and leverage reduction we delivered. Angie will give you more details shortly, but the at-the-market equity program we announced and executed a portion of during the quarter is not only accretive but provides us additional capacity to continue to invest for growth opportunities going forward. The at-the-market transaction, combined with the sale-leaseback transaction on our Vonore facility provided us with cash that we used to pay down total debt by $14.6 million since the end of 2025, facilitating a net leverage ratio reduction from 4.1x at the end of 2025 to 3.3x at the end of the second quarter. Our goal remains to bring leverage back down to the 2x level over time. As we look ahead, we will continue to monitor potential macroeconomic uncertainty, but we are encouraged by the growth we are seeing across all 3 segments as we head into expected end market improvement. Class 8 truck production is projected to accelerate throughout the year, and we are also benefiting from the ramp-up of new business across our 3 segments. We are focused on disciplined execution, driving operational efficiency and positioning CVG to drive further shareholder value going forward. Turning to Slide 4. I will provide more detail on the ramp of the Zoox program. As I'm sure you've seen, Zoox made a major announcement in June. They have locked in the design and are moving to commercial scale production. As a result, they are preparing for large-scale manufacturing at their Hayward, California facility, which will shift them from the trial and testing phase into fleet deployment. Zoox also recently announced they have received NHTSA approval to begin charging for their robotaxi services and will be rolling that out in Las Vegas in August. As a result of the expected Zoox momentum, we began adding staffing in Q2 and continue to add into Q3 at Aldama to support the production ramp and we'll be investing in planned incremental capital to support the ramp also. As Zoox and other programs continue to ramp up, we are seeing further utilization increases at our production facilities in Aldama and Tangier, helping fuel gross margin expansion. These state-of-the-art low-cost facilities position us to support continued new business win ramps and drive further margin improvement throughout 2026 and beyond for the Global Electrical Systems segment. With that, I would like to turn the call over to Angie for a more detailed review of our financial results. Angela O’Leary: Thank you, James, and good morning, everyone. If you're following along in the presentation, please turn to Slide 5. Consolidated second quarter 2026 revenue was $195.2 million compared to $172 million in the prior year period. The increase in revenues was primarily due to the increased customer demand in international markets and the ramp of previously awarded new business wins across all 3 of our segments. After challenges we experienced in the second half of 2024 and throughout 2025, we're encouraged that now we are seeing much better top line performance. And as you'll see from the guidance James will share in a few minutes, we expect that trend to continue. Adjusted EBITDA was $5.4 million for the second quarter compared to $5.2 million in the prior year period. Adjusted EBITDA margin was 2.8%, down 20 basis points compared to adjusted EBITDA margin of 3% in the second quarter of 2025 as higher SG&A expenses and foreign exchange headwinds more than offset improved gross margins. SG&A expense increased year-over-year, primarily reflecting higher incentive compensation. Our long-term performance awards are tied to stock price performance, which has been favorable, while our annual incentive plans are benefiting from improved financial performance compared with the prior year. To help offset these increases, we continue to tightly manage discretionary SG&A spending. Interest expense was $2.9 million compared to $2.3 million in the second quarter of 2025, driven by higher interest rates resulting from our refinancing completed in the second quarter of 2025. Net loss from continuing operations in the quarter was $8.7 million or $0.25 per diluted share compared to a net loss of $4.1 million or $0.12 per diluted share in the prior year period. GAAP net loss for the quarter included a $3.4 million pretax warrant liability revaluation expense. Adjusted net loss for the quarter was $4.6 million or a loss of $0.13 per diluted share compared to adjusted net loss of $2.9 million or a loss of $0.09 per diluted share in the prior year period. Adjusted net loss was impacted by higher sales and improved gross margin performance, offset by higher SG&A and interest expense. Free cash flow from continuing operations for the quarter was an outflow of $1.4 million compared to an inflow of $17.3 million in the prior year period, reflecting higher working capital investment to support the growth in revenues. While we are encouraged by the strong top line inflection we're seeing, that also requires additional direct and indirect labor as well as capital spending for new business launches to support the revenue growth. We remain committed to driving operating leverage and free cash flow generation, but I believe it's worth noting the growth requirements of the business as the end markets recover. At the end of the second quarter, our net leverage ratio was 3.3x, down from 4.1x at the end of 2025. We calculate net leverage as net debt divided by trailing 12-month adjusted EBITDA from continuing operations, and the improvement demonstrates meaningful progress toward our long-term target of approximately 2x. Turning to Slide 6. I want to highlight the year-over-year and sequential adjusted gross margin improvement we saw in the second quarter. Our actions to remove costs, mitigate transitory impacts from macroeconomic and geopolitical developments and position the business for the end market recovery now emerging across our segments are beginning to show results. These efforts have enabled us to support higher production volumes while also improving margins. Sequentially, we have expanded margins the last 2 quarters, resulting in adjusted gross margin of 12.9% this quarter, up 90 basis points year-over-year and 70 basis points sequentially. As volumes continue to recover, we remain focused on driving additional operating leverage through disciplined execution and operational improvement. Turning to Slide 7. I'd like to highlight our continued progress on our deleveraging efforts. As previously mentioned, at the end of the second quarter of 2026, net debt to adjusted EBITDA was 3.3x, down from 4.1x at the end of 2025. This improvement was supported by both the sale-leaseback transaction announced in Q1 and the recently announced at-the-market equity program. During the quarter, we generated $11.6 million in net proceeds from the ATM program. Combined with our sale-leaseback proceeds, these actions enabled $14.6 million of total debt paydown since the end of 2025 and demonstrate our commitment to cash generation and deleveraging. They also provide improved balance sheet flexibility to support future growth and shareholder value. This is important because our June 2025 refinancing increased our average interest rate notably compared with our prior term loan. Our ability to pay down $26.2 million of the term loan year-to-date is accretive through reduced interest expense. Because the ATM proceeds were received at the end of the quarter, the related term loan paydown will further reduce interest expense going forward. Moving to the segment results, starting on Slide 8. Our Global Seating segment achieved revenues of $80 million, an increase of 7.5% compared to the prior year period, with the increase primarily driven by increased customer demand in international markets, again showing the benefits of our geographical diversification. Adjusted operating income was $4 million, an increase of $0.9 million compared to the second quarter of 2025 as we delivered expanded margins on higher sales volumes in the quarter. We also saw benefits from our recent footprint consolidation efforts in the Asia Pacific region. Turning to Slide 9. Our Global Electrical Systems segment second quarter revenues were $62 million, an increase of 15.8% compared to the prior year period, primarily due to the ramp of previously awarded new business wins in North America and internationally. Adjusted operating income for the second quarter was $1.7 million, an increase of $0.5 million compared to the prior year period, primarily attributable to volume and product mix. As production continues to ramp in 2026, boosted by the Zoox robotaxi program and the ramp of additional wins across the globe, we remain well positioned to accelerate overall segment revenue growth in the second half of 2026. Moving to Slide 10. Our Trim Systems and Components revenues in the second quarter increased 21.1% to $53.2 million compared to the prior year period due to higher sales volumes from increasing customer demand in North America. As we've mentioned previously, this segment solely serves the North American market and is the most directly impacted by Class 8 production volumes, which were down 6% year-over-year in the second quarter based on ACT data. Despite that decline, we delivered strong year-over-year top line growth driven by an improved product mix. Adjusted operating profit for the second quarter was $2.2 million compared to $0.3 million in the prior year period. The increase is primarily attributable to improved volume leverage. Taken collectively, we've delivered strong revenue growth and gross margin expansion in the quarter. We are ramping new business wins and beginning to see end market improvement. While we are investing to support growth and working capital in the near-term, we are encouraged by the opportunities we see ahead for CVG. That concludes my financial overview commentary. I will now turn the call back over to James to cover our end market outlook, key strategic actions and a review of our 2026 guidance.

Thank you, Angie. I will start with our key end market outlook on Slide 11. According to ACT's Class 8 heavy truck build forecast, 2026 estimates continue to imply a 9% increase in year-over-year volumes. The big change since last quarter is that ACT is now forecasting another 9% increase in 2027 versus a prior expectation of a 2% decline. They currently expect strong growth of 13% in 2028. Similar to prior quarters, we are showing you a more granular look into the quarterly ACT data and outlook. Q2 2026 production came in as currently estimated at 68,000 with expectations for a further uptick in Q3 and Q4. Moving to our construction market outlook. Based on recent commentary and outlooks from our customers, we expect the construction market to be up in the mid-single-digit percentage range, primarily driven by stronger industrial production and fiscal stimulus initiatives for 2026. And finally, we are including a new geographical revenue breakdown chart this quarter. This chart highlights the success we've had in balancing our exposure to cyclical North American Class 8 truck market and capturing growth opportunities globally through customer diversification and new business wins. We are excited about the increased volumes in the Class 8 truck market and look forward to supporting our Class 8 customers as they grow their business. Turning to Slide 12. I will share a few thoughts on our updated outlook for 2026. As always, our guidance ranges are based on current macroeconomic trends, forecasted Class 8 truck build rates, demand levels in construction markets and the ramp of new business. Based on our solid first half performance as well as the continued ramp of new business and the recovery we're seeing in the end market demand, we are increasing our revenue and adjusted EBITDA guidance ranges for 2026. We are increasing our revenue guidance range to $725 million to $755 million, which now represents a growth of approximately 14% over 2025 results at the midpoint. This remains supported by strong growth across all 3 business segments. Our increased adjusted EBITDA guidance range of $26 million to $31 million represents a growth of approximately 60% over 2025 results at the midpoint of the range, reflecting the operating leverage on the gross margin line as end markets recover, offset by the expense pressures we're seeing in SG&A. Finally, we continue to expect to generate positive free cash flow in 2026, further supported in the quarter by the proceeds from our equity ATM program. As evidenced by our recent actions, we continue to prioritize free cash flow for debt paydown, reducing interest expense and driving net leverage toward our targeted leverage ratio of 2x. Before I conclude, I'd like to highlight our ongoing efforts to drive additional gross margin expansion, control costs and drive cash flow. We see continued opportunity to drive further operational efficiencies across the business, especially as our new business ramps drive increased facility utilization. We are leveraging price and mix management to drive revenue while recovering costs associated with tariffs, freight costs, fuel surcharges and material costs. We remain focused on tightly managing salaries and discretionary spending. Subsequent to quarter end, we executed a sale-leaseback transaction on our Dublin, Virginia facility, which generated $3.8 million in net proceeds that were applied against our term loan in Q3, further reducing interest expense. Finally, I would like to thank all our CVG employees for their continuous efforts to drive shareholder value every day. With that, I will now turn the call back to the operator and open up the line for questions. Operator?

[Operator Instructions] The first question comes from the line of John Franzreb with Sidoti & Co.

I'd like to start with the revenue guide. Nice improvement on a year-over-year basis. I'm kind of curious which segments was the largest upward revision?

Well, if you look at our percent versus prior year, Trim Systems and Components had the largest percent increase. Our Global Seating business with the international demand that we saw new programs and other end markets internationally had an appreciable increase year-over-year, too. And then Electrical, 16% up year-over-year, which is really big for that business. So they all contributed a material amount to the year-over-year increase as well as when you look at our guide going forward, all 3 are contributing a similar outlook.

Okay. So you're applying kind of the first half pace of increase to the second half across all 3 segments or maybe the second quarter to the balance of the year. Is that how I'm reading that, James? Angela O’Leary: This is Angie. Yes, I think we are looking at the first half in terms of expectations for the second half. We do see a little bit of a bigger ramp in Q2, but you'll remember in Q4, that tends to be a little bit of a lighter quarter for us just with less production days.

Okay. Fair enough. And that revenue guide, it's roughly up $60 million, but I guess the incremental EBITDA didn't drop down maybe as much as I thought on that kind of revenue. Is there any particular reason for that? Angela O’Leary: I think on the EBITDA side, as we mentioned here on the call, we are still seeing some headwinds on the SG&A, in particular, on our incentive compensation expense year-over-year. Our long-term performance awards are directly tied to stock price performance to align our management team and shareholders. So as we continue to see that performance in the second half, we will continue to see that expense be a little bit elevated. And I think probably on the whole of the year, we're looking to be just north of that 11% range, maybe into 11.5% on a full year basis from an SG&A percent of sales perspective.

The other thing I would add too, John, is that we continue to mine opportunities on the gross margin line to offset some of this SG&A increase. And then longer-term target, we are focused on getting to 10% going into subsequent years. So that's our long-term target. With the additional gross margin expansion, we see that fall through coming down to EBITDA. The other thing I would mention, too, John, is relative to the volatility and the uncertainty on the market recovery as well as exogenous geopolitical things. We're getting somewhat cautious because things are changing very frequently. Everything from constrained sea containers to move freight, which puts you in the expedite also tariffs, also fuel surcharges. So we're being somewhat cautious on that EBITDA line because things move back and forth. And as far as recovery goes, that does lag. So as we have impact to our input costs, those areas I just mentioned, and we go to get recovery from customers, there's a lag effect in that normally by quarter. So we're baking that in that outlook as well.

Understood. And since you brought it up, James, in your closing remarks, you mentioned gross margin improvements and you have a slide dedicated to it also in the presentation. You had -- I think you highlighted 4 key drivers. Which one of those drivers will have the most immediate impact in the near-term?

I would say the operating leverage because of the cost structure, the changes we made over the past several quarters and over the past couple of years. So we expect the thinning of our fixed 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, the pricing impact of new business launch as well as pricing and product mix for our 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.

Got it. 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? Angela O’Leary: Sure. From a tax perspective, we have been in a full valuation allowance on our U.S. deferred tax assets. And so 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 benefit at the federal level. So that's why we see that expense sort of on the net loss. Sure. I was just going to say it's pretty well in line with our 2025 10-K disclosures around tax.

The next question comes from the line of Joe Gomes with NOBLE Capital.

I kind of want to follow up with John's question on the guide. Last quarter, James, you talked about the Class 8 forecast came in as expected, you'd kind of be at the high end of the previous range, which was $700 million and $30 million of adjusted EBITDA. The forecast for at least '26 hasn't changed at all. And yes, for '27, we've seen the increase for the Class 8 over the previous one. But just maybe you could walk us a little bit more through there as to what you're seeing that would cause you to raise the forecast as high as you did for the rest of '26.

Yes. That's a good point, Joe. And primarily, it's driven by non-Class 8 growth. The international seat business, if you look at the growth year-over-year, the Class 8 truck volume in North America being down is pretty substantial. The trim systems business 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 down. They seem to be on their plan for their volume production. We're somewhat cautious in -- with a new customer, new vehicle, new end market in our outlook before. But now we see all of the leading indicators pointing toward them achieving their planned ramp to get to 100 vehicles per week. And we're in constant dialogue with all of our key customers. Our Class 8 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, 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, maybe you could talk a little bit about what the environment looks out there now for new awards, not just ramping up awards that you won previously, but what the kind of business cycle looks like award cycle is looking in the second quarter, 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.

Yes. We target on average about $100 million a year in new business wins. Obviously, the vehicle cycle and sourcing cycles that could go up or down either way. And I would say 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, what we've already quoted. And then there's additional opportunity funnels that we manage. And this is becoming more global in nature, Joe. And we have some pretty big opportunities in EMEA, especially in our Seating business. In North America, we're expanding beyond Class 8 and our trim systems business with more wins in powersports and non-Class 8 vehicles. So there's diversification there. So based on our outlook on the business won and what we have in our funnel, we continue to see further diversification as these programs hit start of production and start to ramp in the coming years. So the outlook right now is a pretty balanced outlook as far as diversification in the business, both regional and from an end market standpoint and across the business segments. So we're really feeling positive about the momentum we're building. Now the key, obviously, is to manage the uncertainties, volatility and variability we're seeing across the markets. With more diversification, you have more elements you have to track. And then the tough part is 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, inventory and managing payment terms for receivables, 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 2x 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 that 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-teens gross margin level that we're looking for in the coming years.

Okay. And then one last one for me. I mean you guys do a great job at focused on reducing debt here. 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 given all that, kind of what would you say the quarterly run rate for interest expense is now? Angela O’Leary: Yes. Thanks for that. Yes, 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 $3.5 million to almost $4 million. I think in the second half, we're looking more at $2 million to $2.5 million per quarter on the interest expense. And as you mentioned, we'll be a little bit lower, maybe than $2.5 million just because of that Dublin transaction 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 that front. So despite of the investment, efficiency is favorable year-over-year, where we're at about 18.5% currently versus around 21% last year. So that's giving us some encouragement as well as we head into the second half.

The next question comes from the line of Gary Prestopino with Barrington Research.

A couple of questions. First of all, James, did I hear you say correctly that -- did I hear you say that the Zoox program volumes are running up to expectations? I think you said in 2026, you were going to have about 2,500 going to '27, 5,000 and 10,000 in 2028. Is that -- am I hearing that right?

Yes, that's correct, Gary.

Okay. So there's no change in that. And I want...

I said not an appreciable change based on what we know, obviously, day-to-day and week-to-week, their production -- vehicle production schedules fluctuate. But the intent is the numbers that we have previously disclosed and they have told all their supply base to plan for.

Yes. 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 of 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 6 months was $2.5 million versus $1.7 million. So if that increases, I mean, it just can't explain that low flow-through. So I guess the question I'm asking is in the back half of the year, given the new business wins and what you're doing with Zoox, what kind of -- is there increased investment in growth on the SG&A line to accommodate this increase in sales that you're looking at?

Yes. 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 the 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 increased forecast outlook as well as launch new business. There is CapEx planned 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 at this time and earlier this year, some of these programs we won recently and are already starting in production within 12 months, which is pretty quick for our business profile. So that's it from an SG&A and CapEx standpoint from headcount related, and I'll let Angie speak to the other part. Angela O’Leary: Sure. So the stock-based compensation line, that's right. That's $2.5 million year-to-date. 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 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 annual program because as you might recall, last year, obviously, the performance didn't warrant much in terms of an annual plan result.

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 3 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 are 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.