Commercial Vehicle Group reports Q3 2025 adjusted gross margin increase to 12.1%, despite revenue decline; focuses on operational efficiency and future growth initiatives.

OPERATOR - (00:02:06)

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

Andy Chung - Chief Financial Officer - (00:02:32)

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 third quarter 2025 results, after which we will open the call for questions. As a reminder, this conference call is being Webcast and the Q3 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 certain risks and uncertainties. These risks and uncertainties may include, but are not limited to, economic conditions in the market 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 some highlights from our third quarter performance.

James Wei - President and CEO - (00:04:02)

Thank you Andy. 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 continued improvement in profitability despite a very challenging market environment. During the quarter we delivered an adjusted gross margin of 12.1% which is up 10 basis points on a sequential basis and up 50 basis points compared to last year. The continued improvement in profitability was again driven by the operational efficiency improvement initiatives we have spoken to in prior calls. I will expand on this a bit more in a minute, but I just want to give a heartfelt thanks to the entire CVG team for their contributions in driving these operational improvements in these very challenging times. Another highlight of the quarter is the continued performance improvement within our Global Electrical Systems segment. For the quarter we saw segment performance improve with revenues up 6% compared to the prior year despite continuing end market softness. Of note, we benefited from the ramp. Up of two key new programs in the quarter. The first is with an autonomous vehicle manufacturer in North America, while the other is with a major automotive manufacturer in Europe. Both program ramp ups are in their early stages and we expect a continued strong and growing revenue contribution from these programs moving forward. We also delivered sequential and year over year margin expansion driven primarily by the higher revenues as well as the operational efficiency improvements we've made. Also highlighted on this slide is our strong year to date free cash generation. For the first nine months we've generated $25 million in free cash, up 14 million from last year driven by improved working capital performance and lower capital expenditures. I'll speak more about specific guidance later, but we do expect to generate free cash flow in the fourth quarter of 2025. And finally, I just want to highlight that we are not standing still in our efforts to drive further operational efficiencies and reduce costs in North America. We continue to right size our manufacturing footprint to adjust to the current demand environment. In EMEA and Asia Pacific where we are seeing better end market demand, we are proactively optimizing our production capacity to lower costs and create additional capacity to meet future demand growth. We also continue to manage headcount and flex manufacturing operations work schedules across the company to reduce both SGA expenses and manufacturing overhead costs respectively. Turning to Slide 4, 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 for the last two quarters, the operational efficiency improvements made related to freight labor and plant level overhead continue to benefit our profitability. We continued that trend this quarter with additional margin expansion of 10 basis points versus the second quarter of 2025, giving us a cumulative improvement of 370 basis points versus the fourth quarter of 2024. What is even more notable is that we were able to expand margin sequentially in the third quarter despite an 11% drop in revenue versus the second quarter of 2025. This clearly demonstrates the operational efficiency improvements we've made to address our cost structure. As a quick reminder, the bulk of these improvements have come from a reduced reliance on expedited freight optimized terms with our suppliers in our improved lead times and order quantities. We have also flexed our direct labor to better align with customer volume changes and our new segment alignment has provided a more optimal overhead structure. Our focus is on driving operational efficiency which has supported our financial performance in. A lower demand environment. While we acknowledge the broader market and macroeconomic uncertainty, we are committed to taking the necessary proactive actions to drive improved financial performance as we look ahead to the eventual end market recovery. We believe we are well positioned to enhance shareholder value through continuing to win new business driving accretive growth, accelerating margin expansion and increasing our capital efficiency. With that, I'd like to turn the call back to Andy for a more detailed review of our financial results.

Andy Chung - Chief Financial Officer - (00:09:07)

Thank you James and good morning everyone. If you are following along in the presentation, Please turn to Slide 5 Consolidated Third Quarter 2025 Revenue was $152.5 million as compared to $171.8 million in the prior year period. The decrease in revenues is due primarily to a softening in customer demand across our global seating and trim systems and component segments, primarily in North America. Adjusted EBITDA was $4.6 million for the third quarter compared to 4.3 million in the prior year. Adjusted EBITDA margins were 3.0%, up 50 basis points as compared to adjusted EBITDA margins of 2.5% in the third quarter of 2024, driven primarily by operational efficiency improvements and reductions in SGA expenses. Interest expense was $4.1 million as compared to $2.4 million in the third quarter of 2024 driven by higher interest rates following our June 2025 debt refinancing. Net loss for the quarter was $6.8 million or a loss of $0.20 per diluted share as compared to a net loss of $0.9 million or a loss of $0.03 per diluted share in the prior year. Adjusted net loss for the quarter was $4.6 million or a loss of $0.14 per diluted share as compared to adjusted net loss of $0.4 million or a loss of $0.01 per diluted share in the prior year. That loss and adjusted net loss were impacted by softened customer demand in North America as well as higher interest and taxes offset somewhat by operational efficiency improvements. Free cash flow from continuing operations for the quarter was negative $3.4 million compared to positive 17.1 million in the prior year as softer demand and the facility move in China led to an increase in inventory in the third quarter. The China facility move positions us for lower labor cost and a more optimal manufacturing footprint moving forward. Just a reminder that last year's third quarter included the proceeds from the sale of our cap structures business as well as another facility totaling $27.4 million. James will share more color on our free cash flow outlook momentarily at the end of the third quarter. Our net leverage ratio calculated as our net debt divided by our trading 12 month adjusted EBITDA from continuing operations was 4.9 times, up slightly from 4.8 times at the end of the second quarter, moving to the segment results starting on slide 6, our Global Seating segment achieved revenues of $68.7 million, a decrease of 10% as compared to the year ago quarter, with the decrease primarily driven by lower North American new sales volume as a result of reduced customer demand. Adjusted operating income was $2.9 million, an increase of 3.7 million compared to the third quarter of 2024. Despite the revenue decline in this segment, we saw an improvement in adjusted operating income margin, primarily attributable to the proactive actions taken to drive operational efficiency improvements as well as lower FGA expenses. Turning to Slide 7, our Global Electrical System segment Third quarter revenues was $49.5 million, an increase of 6% as compared to the year ago quarter as the ramp up of new business wins more than offset weaker construction and agriculture demand. Adjusted operating income for the third quarter was $1.4 million, an increase of $1.6 million compared to the prior year, primarily attributable to increased revenues and operational efficiencies. We are continuing to see the benefits of the restructuring actions we have taken in this segment and we are encouraged by the return to growth we saw in this third quarter. As we have said before, we continue to win new business here at attractive margins and Global Electrical Systems remains a key area of focus for growth and cash generation moving forward. Moving to Slide 8, our trim systems and components revenues in the third quarter decreased 29% to $34.3 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 A production volumes. According to ACT Research, Class 8 bills were down 39% year over year in the third quarter. Adjusted operating loss for the third quarter was $0.3 million compared to profit of 4.1 million in the prior year. The decrease is primarily attributable to lower sales volumes. While it was encouraging that segment revenues declined less than the market in the quarter, we are implementing further actions to right size this business to adjust to the lower demand environment. We are in the process of implementing further operational improvements including spending cuts, collaboration with suppliers to reduce cost, and launching new programs such as a new Wiper program in Q3, all with a goal of returning this segment to profitability as quickly as possible. That concludes my financial overview commentary. I will now turn the call over to James to cover our market outlook, key strategic actions being taken and our updated guidance.

James Wei - President and CEO - (00:16:02)

Thank you, Andy. I will start with our key in market outlooks on Slide 9 According to ACT's Class 8 heavy truck build forecast, 2025 estimates imply a 28% decline in year over year volumes. ACT is forecasting a further decline of 14% in 2026 before rebounding 34% in 2027. Just a reminder that we quote ACT's North American Class 8 production outlook as a point of reference, but our revenue here is driven by our actual end market and geographical mix as well as our customers demand and production schedules. Furthermore, ACT's outlooks have been subject to large variations as seen by the revisions they've made since we reported Q2 results. Based on published reports, the US has. Been in a freight recession over the. Last two years as capacity exceeds demand following a surge of additions to meet supply challenges during and coming out of COVID ACT is currently factoring lingering tariff impacts into their 2026 forecast, but acknowledges a more positive tariff environment provides upside to their 2026 outlook. We have also seen North America Truck OEMs give more optimistic 2026 North American Class 8 forecasts than ACT, giving some indication that the current production levels are running below expected market replacement needs. As a result, despite adjusting our footprint to current demand levels, we are preserving optionality for when markets eventually improve to drive operating leverage as volumes recover. Moving to our Construction and Agriculture Market Outlook Based on recent commentary and outlooks from our customers and key market players, we expect the construction market to be down 5 to 10% in agriculture markets to be down in the 5 to 15% range as construction is faring a bit better than agriculture this year. The drivers in both markets remain higher interest rates, weaker housing starts, slower commercial real estate activity and lower commodity prices continuing to weigh on demand. We remain optimistic about these end markets which most directly impact our global electrical systems business as we see ongoing replacement needs and underlying secular trends driving a recovery in these markets in 2026 and beyond. Turning to slide 10 I'd like to give more details on the outlook for our Global electrical systems segment. I'll get into the drivers momentarily, but we expect our Global Electrical Systems segment sales to increase in the high single digit to low double digit percentage range in 2026 even in the face of these weaker end markets I just discussed. This increase is driven by the continued ramp up of new business wins which is accelerating the utilization of our recent capacity additions. Furthermore, we have made structural improvements to our business model in this segment which we expect to drive growth and reduce volatility. We are focused on our core market and customers where we can drive growth in wallet share through a continued focus on quality customer satisfaction as well as upselling. We also are accelerating our expansion in adjacent markets with strong secular growth drivers such as autonomous EVs and infrastructure markets. And finally, we are extending our differentiated solutions including high voltage wire harness and power distribution boxes to drive increased content per vehicle. The biggest driver of Q3 performance as well as our expectations for growth in 2026 is the ramp of new business previously won. We recently launched a program where we provide low voltage wire harnesses for an autonomous vehicle customer in North America. Autonomous vehicles have been a key focus area for the company and we are currently working with our partners to establish a leading market position here for cvg. We have also launched programs providing wire harness solutions for multiple European OEMs across various geographies. After seeing delays and push out of our new business Wind program launches during 2024, we're encouraged to see these programs ramping up and driving top line growth. As these programs ramp up, we are seeing improved utilization at our new production facilities in Aldama, Mexico and Tangier, Morocco, helping drive margin expansion. As the ramp up of these programs continues to and other new programs contribute, we expect to see continued margin improvement into 2026 and beyond for the Global Electrical Systems segment. Turning to slide 11 I'd like to provide some updates on key actions we have underway to drive free cash flow improvement as well as mitigate the impact of tariffs and broader macroeconomic headwinds. First, we remain focused on driving improved cash generation and aligning our SGA structure with our current revenue base this year. As Andy mentioned, we did see a small inventory build in the third quarter, but we expect working capital to return to being a source of cash for us in the fourth quarter. We continue to expect $30 million in working capital reduction for the year, focused primarily on inventory and accounts receivable as well as a 50% reduction in planned capital expenditures this year. We also continue to expect 15 to 20 million dollars in cost savings this year with the focus on SGA, which should drive incremental margin expansion as our top line returns to growth in the future. Second, we are seeing tangible benefits of strategic portfolio actions taken in 2024 to lower our cost structure as we experience lower decremental margins, positioning us well to grow our earnings power as end market demand recovers. As demonstrated this quarter. Despite demand headwinds leading to a revenue decline of $19 million year over year, adjusted EBITDA increased by $300,000 versus the prior year. Third, we've remained in constant communication with our customers, improving our line of sight to production schedule changes, particularly in the light current market conditions, which allows us to implement necessary cost action 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 substantial progress in negotiations on price recovery terms with our customers. Turning to slide 12, I'll share several thoughts on our updated outlook for 2025 which reflects the current estimated impact of tariffs, trade policy and economic uncertainty, as well as our proactive efforts to manage this current uncertain environment. Most importantly, we are maintaining our free cash flow guidance to reflect our progress year to date as well as our ongoing focus on cash generation. We expect to build on our year to date free cash flow Progress in the fourth quarter, generating at least $30 million of free cash flow for the full year, 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 through 2026 as we work toward returning to our targeted two times level based on current macroeconomic trends, prevailing truck build forecast and ongoing softness in construction and agriculture markets. We are lowering our quantitative annual guidance for revenue and and adjusted EBITDA and tightening the range on both. Given current demand outlooks, we are adjusting our full year 2025 revenue guidance range to 640 to $650 million, which is down from 650 to $670 million from our prior guidance. We are also revising our adjusted EBITDA guidance expectations to the range of 17 to 19 million dollars for 2025, down from 21 to 25 million dollars from our prior guidance. With regard to the current demand outlook, I mentioned a few minutes ago that ACT Research's 2025 North American Class A production forecast is down 28% year over year. If you look more closely you'll see that they are forecasting second half 2025 volumes down 37% sequentially versus the first half of 2025. While there is typically some seasonality to our North American classic related business, you can imagine the challenges this type of sequential decline creates. Consequently, we remain laser focused on operational efficiency improvements and reducing SGA to protect margins in the face of lower demand and position us for strong operating leverage when the eventual market recovery happens. With that, I will now turn the call back to the operator and open up the line for questions. Operator.

OPERATOR - (00:25:56)

Thank you ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by the one on your touch tone phone. You will Hear prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Joe Gomes with Noble Capital. Your line is now open.

Joe Gomes - Equity Analyst - (00:26:21)

Good morning. Thanks for taking my questions.

James Wei - President and CEO - (00:26:24)

Good morning, Joe.

Joe Gomes - Equity Analyst - (00:26:27)

I wanted to start out on some of the efficiency improvements, the headcount reductions, the reduced capex. Obviously understand why that's going on, but you know, how much more can we wring out of those before you have to start spending more money on capex? Are you starting to cut into muscle, so to speak, with some of these headcount reductions? Just trying to get a little handle on what more is possible there.

James Wei - President and CEO - (00:26:56)

Thanks for your question, Joe. This is James. Yeah, we continue to prioritize our reduction areas so that we take advantage of the higher growth and also cut, restructure. Reorganize where we're seeing much slower growth. So from a headcount standpoint, it's not just sga, but it's also the manufacturing overhead headcount. As we look at our facilities in our footprint, there are opportunities to create synergies between sites to minimize the manufacturing overhead. We continue to focus on execution items and quality scrap premium freight, those things that we made headway in, we still are entitled to additional operational efficiency improvements. So we're not done yet. And as you know, as volumes change and as mix changes, that creates other opportunities. The one thing that we did in Q3 and we started in Q2 was really engaging with our supply chain partners in the, in our supply base to look for additional opportunities as suggested by them that are mutually beneficial to both the supplier and to us. And we've really generated a good funnel of incremental opportunities to go after. We obviously continue to work with our customers to make sure we're aligned with their schedule changes as well as their approvals for mitigating tariffs, as well as approvals for making changes to designs and other cost savings initiatives. So there's still opportunity to reduce more. The bottom line to your question without significantly impacting our ability to respond to market changes. We have seen fluctuations both up and down. So we're very careful and very surgical in how we flex those so we don't leave opportunity on the table by not being able to respond to demand. And that's on a global basis. So that's pretty much where we are right now. We're not finished. And as the market continues to fluctuate and we deal with the Volatility. We have a playbook that we're going after to make sure our costs are aligned and we don't sacrifice the future for recovery. Joe, if I may add on the CAPEX side for your question. So mostly this year we are holding on to our maintenance capex and you ask when will capex come back up? It really depends on the business program. Launches that we are seeing in the next year. As you know we already invested a lot in our electrical system capacity in the last couple of years. So major fixed costs are there. So when the new business and revenues come in, we may need to add some equipment. So that's when we see CAPEX climbing up a little bit. Maybe sometime later next year.

Joe Gomes - Equity Analyst - (00:29:43)

Okay, thanks for that. And question on the updated guidance, you know, you took revenue down, you know. As you stated, but it looks like. You know, it's a bigger reduction in adjusted EBITDA based on the numbers that you're providing. Just wondering, you know, why the bigger reduction in adjusted EBITDA there. Is that just deleveraging or is there anything else behind that?

Andy Chung - Chief Financial Officer - (00:30:13)

Yeah Joe, I would say that the majority of that is the deleveraging and. Part of the changes will you have. To consider the mix of the reduction as James mentioned right now what we are facing the most sharp reduction is. In our North America class 8. Business which is really affecting our trim and component business. And that is a business that is a very fixed cost driven business. As you can imagine our business product. Lines thermal forming, a lot of equipment. Already put in place. So there's a higher contribution margin in that business. So that 30 some 40% reduction is really hurting our margin from a mix standpoint.

Joe Gomes - Equity Analyst - (00:31:00)

One more for me if I may. So I understand ACT numbers are not the be all end all but let's assume, you know, their forecast is somewhat accurate here and you're looking at that, you know, 14% reduction in 26 in Class 8. Can the expectation of on the electrical system, the new products generating more revenue there offset a continued decline in the Class 8 business for 2026? Is that possible?

James Wei - President and CEO - (00:31:41)

Yes Joe, that's our expectation. As we look into our customer schedules for Q1 and also Q2 where some of the other programs are starting to ramp up at a more significant rate in the back half we feel and we expect to offset the forecasted downturn. And when you look at it sequentially, the Q1 to Q4 build rate isn't substantially different. It's somewhat flattish going into Q1 and then lingering into Q2 and then the back half, when you look at ACT's numbers, it starts to ramp back up. So the key is getting through the next quarter or two. With our cost structure changes we made and with our improved operational efficiency, we expect to have better operating leverage as the quarters roll in with higher production numbers. So margin expansion is a focus, cash generation is a focus in paying down. Debt as a result of additional cash and margin expansion is our priority.

Andy Chung - Chief Financial Officer - (00:32:45)

Joe, it's a little too early for us to guide 26. We already mentioned a little bit about our expectation for our electrical business top line next year. Somewhere close to a double digit improvement. So we believe that next year overall with the Class 8 reduction, we likely see a flattish revenues for the enterprise. But we'll know more in a couple. Months when we go out for guidance. In our Q4 earnings call.

Joe Gomes - Equity Analyst - (00:33:16)

Great, thanks for that. I'll get back in queue. Thank you.

James Wei - President and CEO - (00:33:20)

Thanks, Joe.

OPERATOR - (00:33:22)

Your next question comes from John Frasreb with Sidoti company. Your line is now open.

John Frasreb - Equity Analyst - (00:33:30)

Good morning everyone. Thanks for taking the questions. I'm going to start where you just left off, Andy. When you're thinking about the new programming in electrical, when does that ramp, you know, become the full annualized rate? Is that a 2026 event? Is that a 2027 event? How should we be thinking about that?

James Wei - President and CEO - (00:33:53)

You know, when we look at the schedules from our, our customers, John, a lot of the ramp at volume starts in 2H26. We're already producing some pre series builds and prototype builds and we have very significant customer engagement that is validating our capacity to ramp at the rate that they expect to. But in normal course we make sure we manage the risk of delays as well as the opportunity that ramps may occur faster. So we've built in some flexibility to go either way to make sure we stay focused on margin preservation as well as cash generation.

Andy Chung - Chief Financial Officer - (00:34:40)

Yeah, short answer, John, will be late. 27. 28 is what we're expecting. As James mentioned, typically our customer will. Require somewhere around a year or so. To ramp their production. So second half, 26 is what we're starting to see and then it will likely take another year. But again, difficult for us to speculate. Our customer production schedule sometimes can be. Lumpy, but this is what we've been told around this time.

John Frasreb - Equity Analyst - (00:35:12)

Nope, that's. That's exactly what I'm kind of looking for. I appreciate that, both of you. And when you think about the, the. Cost savings takeouts of 20 to 25 million dollars, are you fully done those cost outs or how much remains in the fourth quarter.

James Wei - President and CEO - (00:35:29)

The cost out process and funnel we have, John, is, is ongoing. We do have opportunity this quarter to continue. Part of the challenge is when we dimension and quantify potential projects that roll in as volumes change from our customers in delays or reduced volume that does impact the amount of cost out. So we have to offset that with additional measures. So we continue to maintain the projection that we're forecasting. The engagement of the supply base as well as the customers also help us have a better SIOP or sales inventory operations planning process so that we make sure that we valve cost to achieve in the cost savings that we plan to harvest. So we're trying to have better alignment with the cost to achieve and the cost that we're going to harness based on volume outlook and based on schedule fluctuations and new project launches. But I feel like we're much better positioned going into finishing out the fourth quarter, going into 26th. And we've been from the standpoint of. Mitigating some of the inefficiencies and unplanned. Leakage that we had in prior periods.

John Frasreb - Equity Analyst - (00:36:43)

Okay, James, thank you. And I guess I'm kind of curious where you stand on tariffs not only in negotiations with your customers, but also with these suppliers. And if I missed that in your. Prepared remarks, I apologize.

James Wei - President and CEO - (00:36:59)

Yeah, no problem. Tariffs obviously is a moving, a moving pin, right? Every month there's a different dynamic. But what I will say is that we engaged immediately with customers and there are two. Paths here. One is the discussions around the data required to prove that we had impact from tariffs and our customers are very fact based and we provide data that shows what our impact is. So that can translate into potential price adjustments or term changes. The other area is mitigation and this can be almost as significant. And this is reshoring on shoring, changing suppliers, coming up with onshore distribution warehouses where we don't incur the tariff that the supplier does and then we negotiate with the suppliers. But we feel that both of those work streams have yielded pretty good progress through the year. It took us a quarter or two to really get traction on it, but. Now we've got agreements in place. We also have a roadmap of mitigation actions whether it's technology product changes or whether it's the, as I mentioned, the reshoring and the supply chain changes that will mitigate some of the country reciprocal tariffs as well as the 232 steel tariffs. But again that's a changing roadmap from our trade policy and we stay pretty close to that as well with our customers. So we have much, much better alignment right now going into this quarter and going into next year.

John Frasreb - Equity Analyst - (00:38:39)

Okay, got it. And one last question. I can sneak it in. I'm just curious about the revenue sensitivity in the TRIM segment. Is that a short lead time business? I mean should we look, look for. That just you know, to be the canary in the coal mine when that, when things start to improve in Class 8? I'm just curious. It's been down 2x, you know, compared to global seating all year long and maybe just some thoughts about that.

James Wei - President and CEO - (00:39:05)

Yeah, well, yeah, as a reminder, the TRIM systems and components business is a North American business with the majority of that business focused into the Class 8 end market. We have adjusted our shift patterns and our plant utilization. There is more work to do there. But one of the bright spots in that business is that we have good capacity available in dealing with our customers and dealing with other interested parties. We can onshore, nearshore, some of what. They'Re importing into our capacity. So the focus right now is really looking at opportunities for onshoring and helping our customers mitigate tariffs where they're importing product. But the leverage when that business, the end market does come back, that's going to provide pretty substantial operating leverage as compared to some of the other businesses because we already have the investments in place. And if you look back in prior periods, prior years, the trim portion of the business, the wipers and plastics and trim products had very attractive margins compared to some of our other segments. So we expect to see that inflection as that volume increases. But also we're not waiting for it either. So we have field sales rep organizations that we use to market our capacity that we have in flight. We have a very significant funnel of opportunities that we're going after not just in Class 8, but other in market adjacent markets. So it is a very key focus for us to fill some of that capacity and absorb some of this excess cost as well as look at additional restructuring and realignment of those plants.

John Frasreb - Equity Analyst - (00:40:58)

Well, thank you for the additional caller, James. I appreciate it.

James Wei - President and CEO - (00:41:01)

No problem.

John Frasreb - Equity Analyst - (00:41:02)

Thank you.

OPERATOR - (00:41:04)

Ladies and gentlemen. As a reminder, should you have a question, please press Star one. Your next question comes from Gary Presto Pino with Barrick Barrington Research. Your line is now open.

Gary Presto Pino - Equity Analyst - (00:41:15)

Good morning James and Andy. Couple of questions here. Hey Andy, first of all, interest, expense year over year was up and I'm just wondering if there was some one timers in that number. Since you refinanced, I think you did something with your credit facility. Yeah, Gary, you're right. If you remember, we completed our refinancing. At the end of the June. So Q3 is actually a full year that reflected the new interest rate for us. And as we communicated after the refinancing, the interest effective interest rate actually gone up from our prior financing structure. So every quarter we're adding about a million to million and a half based on the current borrowing that we have. So that's why you see the year over year increase in interest expense. So that's a good quarterly run rate is what you're saying. There isn't anything in there in terms of that you back then that were one time related to the refinancing? No, there's no one time there. But as you can see as we guided as well that we continue to use our free cash flow to pay down debt. So we continue to see next few. Quarters that the debt level will come down. So that will help us bring down the overall interest expense. Okay. And then just to be clear, you know, it looks like you're obviously you're seeing the work of your driving efficiencies and your adjusted gross margin. It looks like your SGA this quarter was flat for the nine month period. It looks like it was down three million. But there was also a three and a half million dollar gain on the sale of the unit, business unit or factory or something in last year that was added in to sga. So the real level of SGA would have been about 58 million, is that correct? That's about right. If you think about it, last year we're running at around $20 million a quarter as our SGA as enterprise. And now you can see 17ish is our run rate. So you can see a 15% reduction year over year. If you look at quarter to quarter. Sometimes there's some timing of expenses. But between the 20 to the 17 is where we bring down our SGA run rate. Okay, so when you talk about headcount reductions that you put in place and all that, that's going to, that's really more at the factory level. So it's going to be more of an impact on gross margin versus your SGNA run rate, is that correct? No, it's actually both. We did also work in the SGA headcount as well. So when I say 15% reduction in SGA, if you look at our SGA headcount is actually reduced by a similar amount in terms of head percentage. So what James mentioned about our productivity programs, we actually work on both on the factory side. And gross margin as well as in the SGMA side. Gary. So the focus on the resegmentation and the organizational design efficiency, we continue to see benefit from that as we've navigated through the year. And again there's additional opportunity as we look at where we need to right size with the end market. So we're not standing still. Again it's the old saying more parts per person per day and SG&A is more services per person per day. So looking at how we just getting more out of what we have and looking at our processes as well as the people expense. So some of the outside services that we used previously, we've really ramped that down quite a bit and not so dependent on it and just improving the capability of our organization to do more on our own and harvest that opportunity into margin and cash flow and paying down debt. Thank you. And then in terms of the global. Electrical, the new business that's coming on stream in 2026, could you just reiterate those programs again for me? I wasn't able to write them down as quickly. Go ahead. Sure.

James Wei - President and CEO - (00:45:33)

There are a number of programs Gary. Two of the major ones though that are having we're starting to see a benefit in Q4 but more significant benefit as we navigate through 26 and then the back half and as Andy mentioned, ramping up to full volume in 2728. One of those is with an autonomous vehicle OEM where we have a portion of the wiring system. There is opportunity to expand wallet share not just with the new customers but also our existing customers. And we've gotten good indication from our core markets in Con AG where we have opportunity to expand share in those end markets. Plus the launching of the new program. The second program is European OEM where we're utilizing our Morocco facility as well as our existing Eastern European facilities to launch that business. And that's coming on toward mid to late next year. And that's a European OEM for EVs. That's correct. No, it's ICE. Yeah, internal combustion engine. But we do have EV opportunities in Europe. But the driver is ice, Internal combustion. Engine vehicle and the autonomous vehicle oem. Is that a North American centric? Yes, that's correct. And we're utilizing our Aldama Mexico facility to ramp that up. So in prior quarters and prior periods we've talked about the lag between getting the capacity online and the ramp starting. So in a couple of cases ramps have been delayed or have been slower to ramp, but they're starting to hit now and we're seeing key leading indicators from our customers where the fact their factories are in place to build the vehicles and their launch planning is very meticulous to make sure we're aligned from a capacity standpoint. So we've got some good leading indicators that if the ramp is starting and it will come.

Gary Presto Pino - Equity Analyst - (00:47:33)

Okay, thank you very much. Welcome.

OPERATOR - (00:47:40)

Ladies and gentlemen. As a reminder, should you have a question, Please press star 1. There are no further questions at this time. I will now turn the call over to James for closing remarks.

James Wei - President and CEO - (00:48:04)

I'd like to thank you all for joining today's call. We continue to take necessary proactive steps to support our customers in this very dynamic environment, also driving operational efficiency improvements as well as ultimately delivering better results financially as well as for our customers. More importantly, we're managing the elements under our control to set CVG up for the future, and we look Forward to updating CVG's progress in the next quarter. Thank you all. Have a great day.

OPERATOR - (00:48:35)

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.