CVG reports third quarter 2020 results

CVG, a diversified industrial products and services company, today announced financial results for its third quarter ended September 30, 2020

CVG, a diversified industrial products and services company, today announced financial results for its third quarter ended September 30, 2020.

Third Quarter 2020 Highlights   (Compared with prior-year period, except where mentioned)

  • Revenue of $187.7 million, down 16.7% due to less commercial vehicle builds, offset partially by warehouse automation.
  • Revenue was up 47.9% sequentially vs. the second quarter, as vehicle build rates recovered and warehouse automation grew.
  • Operating Income of $8.9 million, down due to special charges. On an as adjusted basis, Operating Income increased sequentially by $15.6 million.
  • Adjusted EBITDA of $16.4 million, up slightly on $37.7 million less revenues, due to lower costs and improved sales mix.
  • Commercial vehicle markets recovered, but remain below pre-COVID rates. Warehouse automation market continues to grow due to ecommerce growth.
  • The Company is having success with its growth program aimed at lessening its historical dependency on the North American combustion-engine, commercial truck market. Focus areas for future sales mix include: warehouse automation subsystems, last-mile delivery vehicles, electric vehicles, specialty vehicles and non-vehicle markets.

Harold Bevis, President and Chief Executive Officer of CVG, commented, “We are pleased with our third quarter performance and our near-term outlook. We are achieving results from our new sales strategies.”

  1. Lead in core markets – right-size cost structure, increase new product and innovation rate, pursue new customers, and reposition footprint. These are a mix of short-cycle and long-cycle initiatives.
  2. Leverage strengths into new markets – add new people, add new capabilities where needed, pursue brand-new markets, pursue brand-new customers, and implement brand-new marketing programs. These are a mix of short-cycle and long-cycle initiatives.
  3. Grow in Warehouse Automation market – add new people, expand capacity dedicated to this area, and expand product offering. These are largely short-cycle initiatives.
  4. Grow in Electric Vehicle market – add new people, pursue new customers, bundle CVG offering where possible, and adjust footprint. These are largely long-cycle initiatives.

“We are organizationally focused on growing and winning targeted new business while leveraging our existing plant teams and footprint. We have a substantial amount of growth potential available within our current footprint, current teams and current capabilities,” concluded Mr. Bevis.

Third Quarter 2020 Improved Substantially Vs. Second Quarter 2020, and Company Secured New Business Positions
(amounts in millions)

Three Months Ended

September 30, 2020

June 30, 2020

Change

Revenues

$187.7

$126.9

$60.8

Adjusted Operating Income 1

$12.0

($3.6)

$15.6

Adjusted EBITDA 1

$16.4

$1.2

$15.2

1   See Appendix A for GAAP to Non-GAAP reconciliation

The Company grew revenues sequentially $60.8 million, or 47.9%. Each primary business area grew sequentially and profit rates benefited from increased volume as well as lower costs achieved via the Company’s previously reported cost actions.

The Company leveraged its existing plant teams and footprint, invested and expanded its inventory profiles, and began new manufacturing operations to make warehouse automation subsystems in three plants, as previously announced. The Company sequentially grew this business for the third quarter in a row.

The Company is having success with its emphasis on growth and diversification, and is securing new positions. The Company secured another platform position with another Electric Vehicle startup.

CVG Expects Continued Growth Opportunities in the Warehouse Automation Market

As widely reported, mobility and e-commerce continue to increase and warehouse automation is a critical component of product delivery.  Industry forecast by RoboticsBusinessReview.com suggests growth rates greater than 20% through 2022. Already in 2020, CVG has expanded its Elkridge, MD plant to increase output and has repurposed floor space and people to initiate production in three other CVG plants. CVG believes it is well-positioned to benefit from the growth in e-commerce, parcel sorting, and automated warehousing investments.

In addition to warehousing capacity requirements, the increased demand on last-mile and middle-mile truck delivery has helped strengthen the demand for new trucks. CVG believes it is well-positioned to benefit from the growth in demand for trucking and delivery vehicles.

CVG Expects Continued Growth Opportunities in the Electric Vehicle Market

Electric vehicles are being added to commercial vehicle fleets. The overall goal is to have a lower impact on climate change. Some large fleet owners like Walmart and Amazon have publicly stated aggressive electric goals. CVG sees growth opportunity in Electric Vehicles and is pursuing this market with success. The Commercial electric vehicle market is estimated to grow at greater than 30% through 2022 according to TheBusinessResearchCompany.com.

COVID Update

The effects of the coronavirus pandemic impacted CVG in 2020, especially in the second quarter. Our suppliers, customers and employees are back to work now, but, of course, COVID is still a concern. We will continue to be conservative in obedience to outbreak signals and vulnerable to the impacts of coronavirus due to our need to gather in our factories, our global footprint, and dependency of global supply chains. We expect above average absenteeism, occasional shutdowns, and flexible work schedules, and quarantining. CVG is committed to COVID safety and the health of our employees.

Near-Term Outlook

According to October 16, 2020 ACT Research, a publisher of industry market research, September 2020 year to date Class 8 production was 149,187 units and Class 5-7 production was 161,358 units. North American 2020 Class 8 truck production levels are expected to be at 206,000 units and Class 5-7 production are expected to be at 223,000 units. This outlook supports steady demand for the Company’s products.

RoboticsBusinessReview.com suggests growth rates for warehouse automation greater than 20% through 2022. This outlook supports steady demand for the Company’s products.

We believe the effects of COVID, including the continued uncertainty of the pandemic, poses a risk to our outlook.

Third Quarter Financial Highlights
(amounts in millions except per share data and percentages)

Third Quarter

2020

2019

Change

Revenues

$187.7

$225.4

(16.7)

%

Gross Profit

$24.2

$29.4

(17.7)

%

Gross Margin

12.9

%

13.0

%

Adjusted Gross Profit 1

$25.2

$29.4

(14.3)

%

Adjusted Gross Margin 1

13.4

%

13.1

%

Operating Income

$8.9

$11.5

(22.6)

%

Operating Margin

4.7

%

5.1

%

Adjusted Operating Income 1

$12.0

$12.4

(3.2)

%

Adjusted Operating Margin 1

6.4

%

5.5

%

Net Income

$4.2

$7.2

(41.7)

%

Adjusted Net Income 1

$6.5

$7.9

(17.7)

%

Earnings Per Share, Basic and Diluted

$0.13

$0.23

(43.5)

%

Adjusted Earnings Per Share, Basic and Diluted 1

$0.21

$0.26

(19.2)

%

Adjusted EBITDA 1

$16.4

$16.3

0.6

%

Adjusted EBITDA Margin 1

8.8

%

7.3

%

1   See Appendix A for GAAP to Non-GAAP reconciliation

Consolidated Results

Third Quarter 2020 Results

  • Third quarter 2020 revenues were $187.7 million compared to $225.4 million in the prior year period, a decrease of 16.7%. The decrease in revenues reflects the sharp declines in sales due to the COVID pandemic and associated production declines, specifically, less heavy-duty truck production in North America and in the global construction markets we serve offset by an increase in warehouse automation and military revenues primarily attributable to the First Source Electronics (“FSE”) business. Foreign currency translation favorably impacted third quarter of 2020 revenues by $1.0 million, or by 0.4%.
  • Operating income for the third quarter 2020 was $8.9 million compared to operating income of $11.5 million in the prior year period. The decline in operating income is primarily attributable to lower sales volume and special charges of: $0.5 million for future milestone payments related to the performance of the FSE business; $1.1 million related to footprint restructuring; $1.1 million associated with ongoing restructuring initiatives; and $0.5 million associated with the 2019 internal investigation relating to the restatement of the Company’s 2018 and 2019 quarterly financial statements. The impact of the decline in sales and third quarter special charges were partially offset by cost reduction initiatives of $5.3 million. The third quarter of 2020 adjusted operating income was $12.0 million, excluding special charges.
  • Interest associated with debt and other expenses were $5.7 million and $3.8 million for the three months ended September 30, 2020 and 2019, respectively.
  • Net income was $4.2 million, or $0.13 per diluted share, for the third quarter 2020 compared to net income of $7.2 million, or $0.23 per diluted share, in the prior year period.
  • The Company paid down $20.0 million of additional debt in the third quarter 2020; $15.0 million on the revolving credit facility, and $5.0 million of additional principal on the term loan facility.

At September 30, 2020, the Company had no outstanding borrowings under the revolving credit facility and had $53.6 million of cash and $72.6 million of availability from the revolving credit facility, resulting in liquidity of $126.2 million.

Please click here to view the full press release.

SOURCE: CVG

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