Ladies and gentlemen, thank you for standing by, and welcome to the Commercial Vehicle Group Q2 2020 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Kirk Feiler, Vice President, Corporate Development and Investor Relations. Please go ahead, sir.

Thank you, Amy, and welcome to our conference call. Joining me on the call today are Harold Bevis, President and Chief Executive Officer of Commercial Vehicle Group; and Ed Carney, Interim Chief Financial Officer and Treasurer. They will provide a brief company update as well as commentary regarding our second quarter 2020 financial results. We will then open up the call for questions. This conference call is being webcast and a supplemental earnings presentation 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 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 Harold Bevis to provide a company update.

Thank you, Kirk, and thank you to everyone for joining the call today. Ed and I are going to refer to the earnings deck that's available on our website as we speak this morning and bring our result to life a little bit. And I'm referring right now some of my comments to Page 3 in that deck. I'm proud that our global team responded appropriately during this downturn and delivered positive EBITDA of a little over $1 million and generated cash of a little over $9 million despite a 48% decline in revenue. We were able to offset some of that margin hit with a very aggressive and comprehensive set of cost-outs, which I'm going to elaborate on in a couple of pages, of which $8 million showed up in the quarter and a larger amount on a full year annualized basis. It was a combination of permanent and short-term actions and included corporate overhead reductions, plant overhead reductions, footprint consolidation as well as additional actions on discretionary spending. We also offset some multimillion-dollar impacts that are in that $1 million of EBITDA and $9 million of cash. As you would expect in an abrupt downturn like this, we did have overhead absorption issues in the plants. We had excess inventory calculations that we needed to absorb. We had COVID-related absences. We had temporary closures of our facilities. We reconfigured our offices in our 25 plants to add barriers and create social distancing for our approximately 7,000 employees. It's a lot of work. We're happy to say that our core markets are now in recovery mode. At the bottom of Page 3 is the ACT research report and the outlook for our core market, about 35% of our revenue is North America truck. That's always been the heartbeat of…

Thank you, Harold, and thank you to everyone who's in on the call today. I'm on Page 15 now. Second quarter 2020 revenues were $126.9 million compared to $243.2 million in the prior year period, a decrease of 47.8%. The decrease in revenues reflects the sharp declines in sales due to the COVID-19 pandemic and market declines and more specifically lower heavy-duty truck production in North America and in the global construction markets we serve, partially offset by an increase in industrial and military revenues, primarily attributable to the FSE business. The company reported a consolidated operating loss of $10.5 million for the second quarter of 2020 compared to operating income of $15.9 million in the prior year period. The operating loss is primarily attributable to lower sales volume and second quarter special charges, the majority of which are in the SG&A line item. The second quarter 2020 adjusted operating loss was $3.6 million when excluding these special charges. As Harold mentioned, the impact of the decline in sales was partially offset by successful cost-reduction initiatives. Net loss was $12.5 million for the second quarter of 2020 or $0.40 per diluted share compared to net income of $6.1 million in the prior year period or $0.20 per diluted share. As a final note, we achieved a positive EBITDA of $1.2 million in the quarter, which are the result of a global team effort to offset the challenging market conditions we faced. Turning to our segment results. For the second quarter of 2020, on Page 16, Electrical Systems revenues were $74.2 million compared to $141.9 million in the prior year period. This decrease primarily resulted from the sharp declines in sales due to the COVID-19 pandemic and market declines and more specifically from lower heavy truck production in North America and…

[Operator Instructions]. Your first question today comes from the line of Mike Shlisky with Colliers.

This is Jacob Parsons [ph] on the line for Mike Shlisky this morning. My first question has to deal with your new electric vehicle arrangement, would you say, is that with a currently major existing truck provider? Or is it one of the newer start-ups that's kind of up and coming on the horizon?

Good question, Jason Jacob. This is Harold. It is a new customer, one of the start-ups.

Okay. Is there any more information, geography, where they're based out of? Or is that all you're really allowed to say?

I can tell you that they're North America based, but they have global aspirations. Most of the start-ups that we're working with have similar aspirations, and they're a big one, big new customer for us.

All right. And kind of going off that, within your new electrical vehicle arrangement, the final mile vehicles, they have a lot of stopping and starting and the driver gets in and out of the truck many times throughout the day. Does your seat have some type of custom design that differs significantly from the like longer-haul trucks? Or are you able to serve this new customer with one of your existing seat models?

It's a good question. So you're getting into the product design, and we had a clever design. Our Unity seat is copyable, if you will, but we're protecting our know-how as best we can. We had a unique design. And our Unity seat is modular so that we can use low-cost country parts, for instance, India, and other low-cost countries as well as high-end, high-performance parts. And the seats themselves in these last-mile delivery vehicles, the driver seat is really important. It's differentially important. So generally, they're looking for kind of a cheap passenger seat but a really good driver seat, because to your point, they're in and out, in and out, in and out in hot weather, in cold weather, bumpy roads, starts and stops. And so we did, in fact, have a very unique suspension system for this to accommodate environmental control, heating cooling as well as the comfort and safety of the driver getting in and out of the vehicle multiple times a day. These new start-ups, as you know, have tricked out ideas for integration of information through the vehicle with cameras and feedback, productivity monitoring of the drivers' delivery routes. And so we tie into all of that in the vehicle.

Got you. Got you. That's awesome. And I do have some questions, if I might, related to your kind of restructuring plans, do you have any more information regarding like the upfront cost of the restructuring plans? Like how much cash -- how much is cash, how much is like noncash? And how soon should we start to -- start seeing the benefits of the restricting and cost cutting? And if you could answer, at what point do you expect the full run rate to be achieved?

Yes. I'm not dodging your question. Kirk, do we -- did we summarize it?

Yes. Can I refer to you? And I know we just issued this morning, but right in our 10-Q, Jacob, we do highlight the range of costs that we plan to incur around the restructuring items, and that's $8 million to $12 million. We started these initiatives in the fourth quarter, so before COVID, because of anticipated just market declines, if you recall, 2018 and '19 were really high truck build years. And so we were anticipating a return to more normal levels and started restructuring at that point. To your question about will be -- when will we start to see it? We are starting to do it because we started it in the fourth quarter. By and large, most of them are cash costs. And the -- we plan to basically be there or thereabouts as we get into next year.

Yes. I would tag team with Kirk and say our internal plans are to be done with our new initiatives that we started as well as the ones that were started previously by the end of this year and the biggest expenditure is severance. And yes, so we're underway with it right now. So the cash use, the cash severances, a lot of them have already happened, and they were already happened in Q2 and our cash flow is positive on top of that, so we funded that.

Got you. Do you have time for one more?

Sure. Go ahead.

That would be awesome. So in your press release, I noticed that you had mentioned there was about $15 million or more of restructuring-related savings how high bulk of that $15 million go? Is there like a ballpark number? And what might be the key variables that would ultimately drive the cost reduction you reach?

The reason why we came out with that number is we are adding back, too. So we are adding back. So the net cost out is a higher number, okay? But we are adding new executives here. We're actively recruiting for senior-level executives and mid-level and entry-level salespeople that have knowledge and relationships of the customers and the product requirements and the service requirements of the new customers that we're targeting. So I think $15 million is what you should expect from us because we'd really like to add back into our growth initiatives behind that.

[Operator Instructions]. Your next question comes from the line of Chris Howe with Barrington Research.

Just going through some of your comments already. Can you add some additional color on kind of what you saw in the quarter on a month-on-month sequential basis? I did some back-of-the-napkin work, and it seems to be, if we look at prior ACT Research guidance, we're outpacing their prior guidance, perhaps moving to a U shape like recovery. Just how are you characterizing the recent improvement? And I know there's guidance on Q4 -- Q3 directionally. But perhaps what you're seeing for the balance of the year, what kind of scenarios are you evaluating currently?

Sure. So as we mentioned about half of our business globally is tied into truck seats, but we also have a big part tied into construction equipment. And we are -- have an automotive business in Europe. And so it gets down to the platforms that you're on and how they're doing, but with regards to the first question you asked on monthly experience, our monthly experience was similar to the monthly results posted by ACT. Our platforms kind of mirror the market basket that's out there. We have some newer ones and some older ones and we mirrored it. We went down hot definitely in Mexico. Our big customers were initially not deemed to be essential. We went down full order books, mandated by the Federal Government of Mexico to shut down. And we have over 2,000 employees there. We have 5 main factories there and we have full order books, and we were prohibited from making products. So we have a little bit of a catch-up scenario on top of market recovery. So we have a double thing going on at the moment. We expect that -- we expect to get caught up there. We're avoiding the working of overtime. We're avoiding expedited material in and out. We're staying disciplined with our cost structures. Our agreements generally don't allow us to pass that through, and therefore, we're not doing it unless we have explicit customer agreement. So we're getting caught up a little bit. And then we flat out have recovered truck order books. So e-commerce has continued. Trucks are rolling. There's still a natural replacement rate for trucks out there 200,000 to 220,000 trucks needed just to replace retired vehicles. We're still below that. And a question that hasn't been asked is what's happening in your aftermarket…

That's great. Great color. I appreciate it. My next question or should I say series of questions, the new e-commerce last-mile win. I know you can't provide the name or specific geographic location, but perhaps some insight into does this include entire penetration of the fleet? Is there more room for growth within this existing customer? And kind of how it all came about and what you see competitively for these types of wins. Was this a win? Was this a bidding situation beat out in other clients? Or were you the only player so forth?

Yes. Good. So just to give you a little bit of a picture, it's a bundled win for us. So it's a seat, it has plastic parts and it's got a little wiring harness in it, too. So we were a unique bidder and that we could handle everything needed in the seat, connecting to the vehicle electrically and the data, the plastic parts needed to -- for housing and the seat itself, which is needed for functional heating, cooling, safety and driver features. So it was a competition, absolutely. And in this smaller truck arena, some automotive kind of people try to go up the value-add chain into this type of suspension systems and so we do see that. Generally speaking, they can't get there. They don't like the low volumes of trucking and they don't have the suspension know-how. They're used to making a $60 seat, not a $700 seat. So there's a know-how differential as well as operational capability to serve. Globally, there are 6 to 8 players surging, 6 to 8. We're tracking all of them, we're tracking all of them. So our goal is to win with that global set. So the electric vehicle names in Japan and China, Korea are different than the ones here in the United States and the ones in the U.S. are different as well. So they're unique. They're funded sometimes by some of the main players, but they're their own companies. And then you have -- some of our traditional customers have their own efforts. So we are seeing the most activity in the new entrant arena, where they're trying to pure-play developed vehicles. And -- but we're focused on both. We're focused on existing customer business and the new entrants. We hope that there will be a big part of our success. That's our aspiration. That's our goal. It remains to be done and we want to diversify the company's customer set. If you look at our 10-Ks over the last few years, you can see our top 6 customers are a big part of our financials, and we just flat out want to diversify that. So we have a financial [indiscernible] goal there as well as securing a new win that's multiproduct. These are multiproduct new wins, and we have a unique value proposition situation.

Excellent. And just sneak one in here, lastly. You mentioned what's going on strategically with the actions that you're utilizing to support $100 million to $150 million of new business, some of which has been anchored already. Perhaps you can comment on what portion of the mix has been anchored or anything to the extent would be helpful.

Yes. Yes, the way that we got comfortable being this entrepreneurial in the quarter was because we had a big win, a big one. I can only say, I'll just say it's greater than $10 million, okay, just to give you a flavor. I don't really want to give guidance on these things. They have to play out. But it was massive, and we didn't have the floor space to deal with it and we didn't have the people to deal with it. We actually were very thankful, though, because we were light on the truck building side of things and we were able to take our people and use them, salaried staff and key hourly staff, to go drive to the customers' locations, understand what we needed to do, take pictures, come back, integrate with the customer, go through facility audits, which we've passed audits at all the facilities now and put in the infrastructure, mainly material handling because we have the people that know how to assemble products. And then we had to add a lot of new vendors. So we had to procure material. We're procuring material we haven't procured before. Some vendors we haven't known before and for whom we don't have a credit limit. So there's a whole financial part of getting set up being on approved vendor list. Then establishing your MLQs, your order quantities, getting all your ship-tos down. So I would say the start-up issues have been material-oriented because we know how to put complicated assemblies together. A seat has over 300 parts in it and around 30 vendors globally and has a lot of specifications that have to be met for safety and quality so we know how to do that. And it brought comfort to this customer set that we know how to deal with multiple global vendors, all at once, many parts, bring it together, high-quality, on time. So our heritage helped us win. They were comfortable with their relationship with FSE, but when they got to know the rest of our company, they're like, okay, you're set up to deal with us. So it was them getting comfortable with us as much as us getting comfortable with the business opportunity. And we don't want to get in front of ourselves, so this is a crawl, walk, run thing. And so we didn't repurpose entire facilities. We repurposed portions of facilities. So we want to see how this plays out over multiple quarters and then multiple years. But it's very similar business dynamic that FSE has lived with for the majority of their company life and so we accepted that and embrace that as well.

[Operator Instructions]. And there are no further questions in queue at this time. I turn the call back to Mr. Harold Bevis for any closing remarks.

Thank you, and I appreciate the excellent questions from Jacob and Chris, where we covered a lot of good items here. I first want to thank all of our employees who had a really tough quarter. And many of us are still on temporary salary constraints right now during this call. It's been a tough time going through the coronavirus, but we've done it. We've got through it. We can see a little bit of light at the end of the tunnel. I just want to say thank you to our entire team of 7,000 people who did that together. We pivoted really aggressively during the quarter, precisely and quickly to deliver these cost-outs in this cash generation and all the people that are involved with that, I'm thankful as well. With regards to us as a company, we've tried to be clear about what we're trying to add to the company's goodness and what our aspirations are that remain to be done. We're being as transparent as we can about what we're doing and where we're headed, and we had a couple of cool wins during the quarter that are going to help out the balance of the next several quarters. And so with that, I just want to thank you for your time today and look forward to keeping you abreast of our progress as it unfolds. And we'll end the call for today. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.