Commercial Vehicle Group, Inc. 2026 Q2 Earnings Call

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 a 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 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 three. As we have highlighted on this slide, CVG delivered year-over-year revenue growth across all three 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 4.1 times at the end of 2025 to 3.3 times at the end of the second quarter. Our goal remains to bring leverage back down to the two times 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 three 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 three segments. We are focused on disciplined execution, driving operational efficiency, and positioning CVG to drive further shareholder value going forward. Turning to slide four, 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.

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 three 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. 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 pre-tax 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 3.3 times, down from 4.1 times 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 two times. Turning to Slide 6, I want to highlight the year-over-year and sequential adjusted growth 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 two 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 seven, 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 3.3 times, down from 4.1 times at the end of 2025.