Good morning, ladies and gentlemen, and welcome to the CVG's Third Quarter 2021 Earnings Conference Call. . As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Chris Bohnert, Chief Financial Officer. Please go ahead, sir.

Thank you, operator, and welcome to our conference call. Joining me on the call today is Harold Bevis, President and CEO of CVG. We will provide a brief company update as well as commentary regarding our third quarter results, after which, we will open 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 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'll now turn the call over to Harold to provide a company update. Harold?

Thank you, Chris, and good morning, everyone. On today's call we will refer to our Q3 presentation which is on our website. If you could please take a moment and locate that we are going to refer to that document. We'll provide an overview of our third quarter results including an update on our strategic initiatives designed to grow our earnings and position CVG as a profitable leader and multiple new markets, while repositioning we continue to deliver record revenues even in a modest and volatile truck build year, which is a clear validation of our strategy and the success that we are achieving in our global organic sales growth process. We are also thoroughly experiencing the supply chain and inflation issues that exist but we are in a much better position today than just a year ago. Following my remarks, Chris will discuss our financial results in more detail and will conclude by opening the call and answering questions. Please turn to slide four in our earnings presentation. I first would like to say that we delivered our expected profits volume adjusted and we are focused on this going forward. We delivered third quarter sales of $239.6 million, an increase of 28% as compared to a year ago third quarter. This growth was driven by new business wins in warehouse automation. A slightly increased truck build rate year-over-year in North America and material cost pass-through. Our operating income also increased 28% to $11.4 million in the third quarter as compared to $8.9 million in the year ago third quarter. The improvement was largely the result of higher sales volumes as well as our successful efforts over the past year to reduce our cost structure and drive operational efficiencies across the company. As we have discussed on prior calls, optimizing…

Thank you Harold, if you're following along in the presentation, please turn to slide 14. Third quarter 2021 revenues were $239.6 million, 27.7% higher as compared to $187.7 million in the prior year period. This increase primarily reflects the growth in our warehouse automation business and increase pricing to offset material cost inflation. That said Class 8 truck builds came in below expectations for the quarter, which adversely impacts our results on a sequential basis. Foreign currency translation favorably impacts our third quarter revenues by $2.4 million or about 1.3% when compared to the prior year period. Gross margins decreased slightly to 12.6% as compared to the third quarter of 2020 driven primarily by cost inflation as a result of the global supply chain Issues Herald mentioned. Additionally, we invest $1.3 million in new business startup costs in the quarter, which primarily impacted gross margins as compared to the prior year period. The company consolidated operating income of $11.4 million for the third quarter of 2021, which was compared to $8.9 million in the prior year period, an increase of 28.1% and on an adjusted basis operating income was $12.2 million compared to $12 million in the third quarter of 2020. Adjusted EBITDA was $16.9 million for the third quarter, as compared to $16.4 million last year. Adjusted EBITDA margins were 7.1%, reflecting a decrease of approximately 170 basis points as compared to adjusted EBITDA margin of 8.8% in the third quarter of '20. This margin contraction was primarily the result of cost inflation I mentioned earlier. Our third quarter interest expense was $1.6 million as compared to $5.5 million in the third quarter of 2020. The decrease in interest expense was primarily due to refinancing the company's debt on April 30 of 2021. As a reminder, our new debt…

Good morning, guys. Good quarter in a tough environment. I actually want to talk about that environment itself. How much did you actually absorb in higher costs in the third quarter, and you talk about the lag and recovering some of them on this and the pricing mechanisms, how long it would take you to recover those costs that you had to absorb in the September period?

Yeah, there's two - there's actually three types here, John, one is the actual inefficiencies that we occur from having what we're calling pop-up customer shutdowns, we'll get a two-day notice that a that a customer shutting down their plant, we also had a customer had a strike. And what happens as we get caught in the very short term having excess labor that we then verbalized down. So we had a little bit more than normal event in the third quarter. The second piece of this is pricing. And we do have a lag on that impact. Usually, there's a burden of proof to show that our costs have gone up, there's transparency agreements with our customers, generally, we show that proof. And then we negotiate to pass that through. The third element is with customers who are have a contractual right to not let us pass those through. And those are different, those we have to renegotiate the contracts all together. And so that that's the third category for us. So we did have multiple million dollars to profit compression in the quarter, we don't really want to say the number and we've had it year-to-date. It's not a new dynamic it's been happening to us, although it's grown in size due to the inflation that's happening around the world. But it is a temporary compression of our profits in the quarter. We can see it we can forecast it, because we order these materials in advance. And so we negotiate with our customers as it's happening. And so we did it, we were impacted both on cost overages in the quarter and on price compression, some of it temporary, and that it's going to lag in and some of it is a harder negotiation where we have to attack written agreements.

Okay, I guess on the written agreement side that kind of walks into the announcement you did on Volvo. Can you talk to us a little bit about how that renegotiation is going? What should we be thinking about as far as modeling into the future? And if anything restructuring actions that you've announced, as some of the considerations may be operations that supply Volvo?

Yes, well, we value our relationship with all of our customers, including Volvo. Our hope is to have a mutually beneficial new agreement with them. We obviously took an action there based on the financials not working out. But we can't really speak to any negotiations that are ongoing. At this time, it's a private talk and so I can't really comment on that, John.

Okay. All right. And just one last question. You mentioned, you're walking away from low margin businesses. Can you just give us some examples, some of the businesses you're walking away from? And how does that play into your restructuring actions?

Yes. So far, none of the business walkaways we've done have impacted or been a part or parcels any of our restructuring actions. Okay. So we've had not had anything like that of that magnitude and example, to answer your question. We had a piece of business in China with a large customer that was coming up for renewal. And they had seven bidders and that numbers got very low. And we had a bottom line that were willing to walk away from that business. And it was contrasted with several new business opportunities in our pipeline that were quite better financially speaking. And there's a little bit of a lag to it. There's a time differential, it's not like a hot swap. But we ended up losing that business as they rebid it. And so there they are going to wind down that business. It's not a snap your fingers thing when a customer's transitioning away. Generally, you want to help them not be disrupted. And so you transition that away. And then when you're freeing up your capacity, then we can ramp in our new business, it usually involves retooling because the products are not quite the same, so we had a, you know, we had a greater - that example was greater than $10 million. We weren't making any money on it, we were tying up working capital on it. And we walked away from it. And we've had over $30 million dollars of that year-to-date. And so when we report our net wins, same with last year, last year, we had losses as well, we reported our net wins, which were positive and we're going to - we expect that we're going to continue to have losses that we overcome with wins, net win.

Okay, how I'll get back into queue. Thanks for taking my questions.

Thank you. Your next question comes from the line of Chris Howe from Barrington Research. Your line is now open.

Good morning Harold, good morning Chris.

Good morning.

The warehouse automation side of things $131 million year-to-date. You're on track to exceed the $150 million. The business continues to grow in line or outpace the industry. As we consider warehouse automation in the context of the overall business, it's only going to grow as a percent of revenue. What are your thoughts? Have you had any internal discussions about potentially highlighting warehouse automation in a different way on a reportable basis?

Yes, two things there that, that is a good business for us, and it's a new one for us. We're still learning, we acquired that business September of 2019. And they really had a toehold which we've been able to exploit. We've landed several new customers that we're going through initial trials with, and they have different equipment lineups and the different capabilities from us that that we don't can't - don't currently have, but we're investing in. And we have similar to our legacy truck business, we don't want to just have a few big customers, we'd rather have multiple medium sized customers, if you will, that are profitable. And we're thankful that we've expanded our customer set this year. Regarding external reporting, yes, Chris, myself, our board of directors, our audit committee are discussing that on what's the - what would be the next set of reporting, given that it has exploded in size versus our past. So we have a duty to be transparent there. It is a business unit, we have multiple business units inside the company. So we are thinking about that for sure.

Okay. On the more prominent questions here. The aftermarket business, about $82 million, you mentioned new ecommerce initiatives surrounding that, that acts as a future growth engine of the business. Can you provide some context, as you may, whether that relates to the people you have in place, driving this opportunity? And how you see the potential for the aftermarket?

Yes, the aftermarket business for us is a global one also. And you can do the three quarters math on that it's over $100 million annualized business. It's accretive financially. We tend - we have not really treated as a business, it has been in the backseat, with some OE production being in the front seat, we're segregating out our production and given that dedicated production so that it's not impacted by OE production rates and just have those two separate topics two separate businesses. And so the business could be growing faster if we had more output. So part of it is, is production. And then the second part of it is generating business. And we have broad access to the market having been a participant for many years. We gave it dedicated leadership, we created a business, Chris called out the financials so that we can see what the business is we dedicated a team to it we're putting - we gave it its own set of operating reviews, business plan, strategic plan. And so similar to warehouse automation we're make we've made it a new business that we're focused on growing and it is a growth business, and it's somewhat counter cyclical to the difficulties that are happening in the OE truck market. That if you do the math, the natural replenishment rate for Class 8 heavy duty trucks in North America is around 265,000 trucks per year. That's the replenishment rate for retired trucks. And the industry has not been able to produce at that level for the last two years combined, and is still having troubles and so the trucks on the road are getting net incrementally older, and are having net higher demands for aftermarket parts and accessories. And that's what we make. So we're already a player, seats, wipers, mirrors, trim, floor mats. And we're a player globally, and we are focused on growing at differentially, and it is accretive on profits. So we're having good profit expectations from it as well.

Thank you. And one last question, if I may here. In the press release, you mentioned injection molding? Is this in response to specific customer demand or more in line with overall demand? Can you talk about this outlying opportunity with injection molding?

Sure, Chris, it's actually both. We've been doing injection molding for a long time, obviously in the truck space. We do have some new business that some of these parts are going to run on these heavier tonnage machines. So yes, it's actually both and we're trying to expand that business, it's a key focus area for us. We feel like some of these margins are also accretive overall. We've got a global footprint where we can do this, these two pieces of equipment are going into Mexico, which is a key plant for us down there. And so it brings a lot of extra abilities and some capacity for us. So it keeps us as a player and the advanced tech brand has really created some momentum for us in the industry.

Great. Thanks for taking my questions. Appreciate it.

Thank you.

And your next question comes from the line of Barry Haimes with Sage Asset Management. Your line is now open.

Thanks very much. And again, good quarter, in spite of all the issues, I had two questions. One is you talked about some of the moving parts on price cost. But could you give us a sense in time, when you might be able to catch up where price increases would offset the cost increases that you've had? And then my second question is, have you - again, understand all the supply chain issues. But have you had delivery issues at all to your customers or in spite of the challenges that you generally been able to deliver on time, and keep customer lines going? Thanks.

Yes, those are good questions, Barry. On the price costs catch up, again, that the two components to that are when we are able to just in the merchant market, have a discussion, on what the price is going to be on the next PL we acknowledge. And then there's the situation where you have a bracket frame agreement that covers the topic that impedes your ability to pass through all the inflation that you're incurring. And generally, our business is not impeded. We've negotiated over 100 agreements this year, letter agreements, mainly, in the form of when we receive a PEO and a knowledge of what's our price for that product. But in the case - and so that that business just lags a little bit, think of a quarter ourselves, and then we track it, we track it every two weeks by business. But in the case of contractual, that's more problematic. We have - we've publicly announced we have one big one. And there's a long delay possibly with that. And it could impact price and volume, depending on what the customer chooses to do with the set of economics on the table that doesn't mutually that's a mutual outcome, kind of a thing that they have to do what's best for them, we have to do what's best for us. Hopefully we meet in the middle. Reasonable expectation would be a price volume move of some kind. And so there is a lag on the contractual piece of it. On delivery issues, that's been hard from both angles. Our customers are really suffering because they have many, many, many more parts than we do. And many, many more issues to run an assembly plant. And their labor is largely fixed in the short term, because they're mostly all unionized. So really, their output gets down to part availability. And we generally have forecasts from all of our main vehicle makers so that we can order materials accordingly. And then we get a specific ADI fee, that's usually frozen over a 30-day period on exact vehicles needed colors and features and that sort of thing. And they themselves have been had blanks in these ADI feeds, and I've changed their mind with days' notice. So it causes an issue for them to their customers, when they do this, and it also causes an issue for us to deliver to them. There's a lot of what's called offline trucks in the industry. And all the big players have 1000s of trucks out in their parking lots that are waiting for parts, which are in effect a delivery issue of from them to their customers. And in turn, we have some also and the goal is really to not shut down our production line. And our deliveries been as expected through this process.

Okay, thanks. And just following up on the price cost. Given that, again, a lot of the contracts, have the review with plus or minus a quarter lag. Is it right to think that maybe mid-year 22, you'd be caught up, or I'm just trying to roughly get a very rough timeframe in terms of when you think you might get. Again assuming the cost side doesn't get a lot worse, maybe it doesn't get better, but doesn't get worse.

Yes, on the compression part of it. We are taking a conservative stance that we're going to have compression and certain contractual arrangements until we negotiate otherwise, so we're adjusting our cost structure to protect our profit rates. Christ, do you want to talk about that.

Yes, so the only thing I'd add is some of that's dependent upon how the markets react, if copper and steel start trending down, we'll catch up a little faster. That makes sense. As they're going up, we have a lag. So we're a little behind. So when these markets turn, we would, in theory, then catch up a little bit faster in the coming quarters, if that makes sense.

Yeas, got it. Thanks so much for the color. Appreciate it.

Thank you, Barry.

Thank you.

Thank you. Ladies and gentlemen, that concludes our Q&A session for today. I will hand it back over to the management for any closing remarks.

Thank you, I'll summarize and say those, I'm thankful that we were able to deliver our expected profit rates on the volume adjusted reality that we had and navigated through the issues that we had that we faced with our supply chains. We're going to continue to have that conservative mindset of delivering profits irrespective of the volume fluctuations. And we did not cut back at all our endeavors on new business and we're continuing to have success they're crafting a better mid-term and long-term future for our revenue profile. Thank you everyone for calling in today. With that, we'll end the call Operator.

Thank you ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.