Good morning, everyone. We're going to allow a few seconds for the room to populate. My name is John Franzreb. I'm an analyst here at Sidoti & Company. Our next presentation of the day is Commercial Vehicle Group, ticker CVGI. For those of you that are unfamiliar with the company, simply put, CVGI manufactures commercial vehicle systems and components. We are fortunate to have with us today CEO James Ray and CFO Andy Cheung. Following their presentation, there will be time for Q&A. Should you have a question, please put it in the Q&A box, and I'll present it to management. With that said, gentlemen, thank you for being with us this morning. The floor is yours.
Thank you, and thank you all for joining today's presentation. Joining me today is Andy Cheung, CFO of CVG. If you turn to slide two, I'd like to remind you that our presentation may contain forward-looking statements. I won't read the entire disclosure, although I would encourage you to review slide two of our presentation, which is shown, and it's also available on our investor website. I'd like to highlight several key investments, highlights for CVG. The first is we're a very Tier-1 global supplier, offering key customized component solutions to global commercial vehicle OEMs and also other customers through our aftermarket channels. We are currently executing on a business transformation to diversify our company through the growth of electrical systems, a business set to benefit from the secular trend of vehicle electrification.
New business wins have driven our positive financial performance within electrical systems, with momentum intact so far in 2024. We have an experienced leadership team with substantial expertise across the business segments we operate in. We also have a strong balance sheet and free cash flow generation that provides optionality and also availability for selected and organic growth opportunities. Going to slide four. CVG is a Tier-1 supplier with, in 2023, $995 million in revenue, with adjusted EBITDA of $67.6 million in 2023. We're a Russell 2000 constituent with a market cap of around $190 million. We have 8,200 employees globally across 30 plants and facilities in 10 different countries. In 2021, we launched a strategic transformation plan to drive diversification across products and customers to reduce the cyclicality of our business.
The strategy is well underway, and we're focused on winning business and electrical systems, optimizing our operations across our segments, and strengthening their performance, and also driving revenue growth and profitability. This slide also gives a high-level overview of our segments and key product lines. Electrical systems, cable and harness assemblies for high and low voltage applications across a number of different end markets. Our seating business primarily provides seats for global commercial vehicle markets, heavy-duty truck applications, medium-duty truck, last-mile delivery vans, as well as construction and agriculture segments. Our plastics business supplies components primarily for North America commercial vehicles in the form of injection molding, thermoforming, et cetera. Different plastics processes. Our industrial automation business has subsystems for distribution centers, control panels, cable assemblies, et cetera. We also do control boxes for various industrial applications in that business.
Our cab structures business primarily provides steel cab structures for medium and heavy-duty trucks. T hen aftermarket sells a number of our parts and accessories, seats, wipers, mirrors, electrical systems, et cetera, to OE service, as well as independent aftermarket channels. If you turn to slide five, you can see in our revenue split by end market, we're still fairly closely tied to Class 8 truck market. We should continue to see electrical systems growth over time, which will help diversify our end markets. Looking at the outlook for Class 8 trucks, ACT sees a weaker year in 2024, which we're currently experiencing, followed by growth in 2025 and 2026 to a strong level of over 360,000 truck builds being forecasted.
Growth through 2026 is favorably impacted by a change in the EPA emissions regulations that go into effect in 2027. These add approximately $25,000 of cost to a truck for additional emissions after treatment to maintain compliance to the new regulations. We also derive 20%-25% of our revenue from agriculture and construction equipment markets on a global basis, concentrated in our electrical systems segment. While we currently expect these markets to decline in 2024 based on our OEM customers' outlooks, we remain confident in the long-term growth outlook for both agriculture and construction end markets, which should continue to provide a tailwind to our electrical systems business.
If you turn to slide six, these are the three key elements of our strategy: making electrical systems our largest business by continuing to win new electrical business across multiple end markets on a global basis, diversifying our vehicle platforms toward higher growth markets, and reducing our exposure to the cyclical Class 8 truck market. We're also selectively targeting new customers globally to diversify our customer base across the various parts of our business. If you turn to slide seven, we're currently focused on several key areas this year. One, continued growth in electrical systems, driven by our new wins, while continuously improving the business in the face of a challenging cost environment this year. Inflationary cost and labor and material, as well as FX impacts, are things we are aspiring to offset through continued cost out program.
We're also ramping up new electrical systems plants in Mexico and Morocco, maintaining a low cost to help drive margin expansion in the face of headwinds, as well as provide capacity to launch our new programs. We are further optimizing our vehicle solutions and industrial automation businesses to either improve profitability or exit non-strategic or unprofitable businesses, with the end goal of improving free cash flow and working capital. If you turn to slide eight, again, I want to highlight the expansion of our new Unity Seat product line within our vehicle solutions segment. The Unity Seat has many features that are helping us win business globally, such as full seat tilt and lever recline, decreased free play, and performance above market requirements. The Unity line has achieved safety compliance across all our strategic regions and market segment.
This is another example of how we're strengthening our core vehicle solutions business. As you turn to slide nine, we've retained an investment banking firm to help us explore alternatives for our industrial automation business. We're pivoting from contract manufacturing to engineered solutions, which you see below. Substantial interest was generated in the new product launch of STACC, which is a Stacked, Tote, A utomated, C onveyance, C ube, a t the MODEX show, which we held in March. T here was substantial interest generated, and we're really excited about this new product. There's been a lot of inbound requests about partnerships or even ownership of this product, as well as our industrial automation business.
T hat is the main rationale for engaging a banker, so we could have a very structured approach to engaging in those discussions, as well as, positioning the business with an alternate ownership concept that would allow appropriate investment and resources to scale up some of these new products, as an example, the STACC product. If you turn to slide 10, we are aiming to improve efficiency across the organization by reducing costs and aligning resources to support our growth product lines, investing in low-cost facilities to support new business wins, and consolidating capacity to maximize return on invested capital. Our ongoing cost out program prioritizes customer satisfaction while strengthening and optimizing our order-to-delivery operations. All our efforts to improve operational excellence, reduce waste, expand margins, and have a more sustainable operating business model.
Customer engagement is another area of focus, as we are emphasizing collaboration across our segments to cultivate strong customer relationships, cooperation to recover the economic impact of inflationary headwinds, as well as position our new product introductions to meet global customer needs. B y example, I was at one of our key customers yesterday and had an opportunity to see our product in a vehicle on an electrified platform. That was really exciting to see. A gain, our, our strategy to diversify and take advantage of electrification opportunities, as well as position our customers with products that help position them to take share in their respective markets. On slide 11, this culminates the story here, but we continue to accelerate our profitable growth strategy through the organic transformation of revenue mix, improving cost structure through low-cost production capabilities, and delivering best-in-class quality and service.
We've added over $150 million on an annual ramp basis in new business wins in 2023. Majority of these wins are within our electrical systems business, and that continues as we go through this year in 2024. New business wins are key in transforming our revenue mix, reducing cyclicality to any one individual market, improving our profitability, and this is with the goal of making electrical systems our largest business. Finally, we aim to improve profitability by exiting non-strategic or unprofitable businesses, as well as controlling costs to help improve working capital and free cash flow generation. With that, I'll turn it over to Andy for our financial review.
Thank you, James. In the next few slides, I would like to give you a high level and broader perspective about the financials of CVG. Y ou can see here, this is our most recent year financial result, 2023, which ended December last year. From a revenue standpoint, we were able to grow the top line, by a small amount due to continued price realization and additional new business that, we are launching from our electrical system segment. I f you look at the adjusted EBITDA margin standpoint, our year-over-year, our 2023, financial year recorded a strong margin expansion of over 140 basis points, as well as I continue to see the dollar increase in EBITDA and, overall align with our growth in top lines.
Our EPS last year expanded by about 76% over the year of 2022. At the same time, our improved profitability allow us to generate free cash flow and continue to enable us to paying down our debt and enable us to bring our net leverage down to 1.5x of EBITDA at the end of 2023. Turning to the next slide. This slide gives you a little longer-term perspective of the performance of the four segments of CVG. As you can see, our core segments, our core segments is the vehicle solution segments, electrical system segments, and also our aftermarket segment, which servings commercial vehicle customers.
You can see in these segments, we continue to see steady growth in top line, as evidenced by the growth in our electrical system segment that is resulting from some of the business win that we secured, and James talked about earlier. At the same time, vehicle solutions and aftermarket, we can also see a steady growth and recovery since 2020. At the same time, as James mentioned, so our industrial automation business is going through a bit of challenging end market demand right now. After the 2021 spike of a distribution center construction demand, that business end markets has declined over the last couple years. As a result, we, at this point, we're looking for strategic option of that business, to allow us to focus on our core and growth market.
If you look at the operating income level, you can also see that vehicle solution, electrical system, and aftermarket segment continue to exhibit a steady growth in operating income and margin. Turning to the next slide. This is about 2024. T his is our outlook that we provided. This is the same as our Q1 2024 earnings release, the guidance for 2024. This year, as James mentioned, the short-term end market of our key markets are experiencing some downturn. But at the same time, we see that our net sales going to be falling within $915 million-$1,015 million range. And then you can see that our guide for this year's adjusted EBITDA is between $60 million-$73 million.
This reflect that, the pressure of the North America heavy-duty Class 8 truck, of a double-digit decline in end market demand, but at the same time, we'll see that our electrical system will provide some offset to that, pressure. 2024 overall, we expect that our margin will be pretty flat compared to last year. We are going through a downturn year, but our ability to grow new business as well as our profitability improvement actions will help us pretty much maintain our margin. Overall, again, we expect this year with the margin, that we're anticipating, we are expecting to generate free cash flows and allow us to continue to pay down debt, the optionality of the balance sheet as well. W ith that, I will turn over back to John for some questions.
Thank you, Andy. Thank you, James. I f you have a question, please type it into the Q&A box, and I'll present it to management. Gentlemen, I'll kick it off pretty much, Andy, where you left it off. Can you talk a little bit about the industrial automation business? Wasn't that long ago that that business was considered a growth engine for the company. Things have significantly changed. Can you talk about why and what your thoughts are about in the business on a go-forward basis?
Okay, thank you, John. I appreciate the question, and I expect that from other participants on the call, too. T he thesis in acquiring that business was to... It's really twofold. One, diversify our end markets, and two, look at different customer sets, as well as different products in the portfolio around electrical control panels and box builds. The business was a, and is still somewhat a regional business in the Mid-Atlantic area, and it was, when purchased, almost 100% contract manufacturing or build to print. M any of the customers in the regional market have a number of options for this type of contract manufacturing. However, we thought, and we still contend, that it could give us access to other customers and markets that weren't in the balance of our business.
S hortly after buying it, the COVID pandemic hit. There was a substantial lack of capacity and warehouse automation, mechanical conveyance systems. We were approached by Tier-1s and OEMs and warehouse automation to provide mechanical assembly of these mechanical conveyance systems, in addition to the panel, box panel builds, control panels. W e took on a substantial amount of revenue and work around mechanical conveyance systems, which really wasn't a part of our existing portfolio at that time, in order to take advantage of the market dynamic, where they needed more contract manufacturing and mechanical conveyance systems. T hat pretty much was the genesis of the significant rise in revenue.
During the post-pandemic era, when several of the large OEs that were spearheading e-commerce and fulfillment center expansion pulled back on those expansions, a number of different customers, we noticed a significant decline in revenue for mechanical conveyance systems, in addition to the electrical control panels. Contract manufacturing of other products in that business, we experienced a decline, too, with those end markets and more competitive pressures. D uring the course of late 2022 and early 2023, we went out on an aspirational journey to pivot the value proposition of that business to provide more engineered products that weren't built to print, and also provide engineered services to customers requiring engineering, a nd we felt that would have a larger profit profile.
However, we knew that there may be some lag between the time we were penetrating those new products and new segments and different customers, till the time revenue was actually recognized. L ast year, just about a year ago, which was pretty impressive, we embarked on the mission to develop the Stacked, Tote, Automated, Conveyance, Cube concept, which really went from concept to MVP in a matter of months, in preparation for the MODEX show this past March. We had done a lot of market research. We had got a lot of voice of the customer as far as the niche aspect that this fills, and we were pleasantly surprised, and expected to a certain degree, the feedback from the MODEX show.
With that feedback, came interest in the business, interest in developing prototype contracts, and interest in how we would be able to scale that business. With a complex SKU that's shown in that picture, which requires software, electronics, mechanical conveyance, et cetera, there's a longer time to value between booking contracts on this product to actually develop a production-hardened version, along with the service model that goes along with providing ongoing service once these are deployed. Given the timeline that we anticipate and the scale investment that's required, we felt at this time that the interest, inbound interest, would give us an opportunity to explore alternatives with either partnering or actually divesting with people who are very interested in this, this niche offering. W e engaged a banker.
We've got pretty good feedback from the teaser, and now the CIM is going out with NDAs to several interested parties, quite a number of interested parties. W e're anticipating ongoing discussions, engagement, and hopefully we can partner with someone who will give the business and this particular product the required investment to scale and realize revenue at a future date. T hat's pretty much the industrial automation business in a nutshell, John. Hopefully, that helps answer your question.
That's very well done. Thank you. Thank you, James. Question from the audience. It wasn't that long ago that we started to focus on the aftermarket as a growth opportunity. The question is, what is the trajectory of the aftermarket business on a go-forward basis? Kind of bring us up to speed there.
Yeah, sure. O ur aftermarket business is primarily seats and other products, but primarily seats on a global basis. W e supply through the OEM service channel to our OEMs, where they take those products to retail outlets through their distribution network. We also have penetrated a small amount of independent aftermarket channel for our seating products. T hat has taken longer to come to fruition as far as revenue recognition, as well as aligning our business model at an operating level, to be able to have quick turn inventory that can be deployed within 48 hours of order.
T he past quarter, really since the beginning of the year, we have identified what it's gonna take to change our operations to have a much shorter fulfillment time, but also segment our inventory to what would be considered the most demand SKUs that we have to offer. T hose two things, as well as engaging field sales network of about 60 sales reps in the field to get our message out and our brand out, that we shortening lead time. We're now very competitive from a lead time standpoint and really reestablish our presence, so we have more traction in independent aftermarket. The majority of the business is OE service. We also have other products that are in our aftermarket segment.
The next largest product would be our wiper systems, and that comprises both OE wipers as well as OE service wipers, as well as independent aftermarket wipers. And we actually have won business in our wiper segment within aftermarket. We've had a couple of business wins this year that are gonna give us some tailwind. W ith the operational improvements, with the additional field sales engagement, and with traction that we see in our wiper business, I do expect to have growth going forward in aftermarket. It's been somewhat of a reset. We've talked about this for the last three or four quarters, but we're starting to see traction with increased inbound orders for seats, as well as the new business wins in wiper. I would expect that business to grow year over year in periods going forward.
It is taking longer than expected, but we still feel confident that we will have growth on an accretive basis going forward.
Okay. I guess for the uninitiated, can you talk briefly about the pricing, how that impacted 2023's results and the potential impact of repricing on 2024 results?
I f I may, start with that, questions, and feel free to jump in, with some perspective, James. I f you go back, to 2023, I would say that, we have done a lot of work on pricing. I n early 2023, we really have gone back to a lot of our customers to reprice a lot of our contracts, to reflect the recovery that we needed for overcoming the inflation back in 2022. A part of that repricing exercise, we also were able to, finalize some risk mitigation and pass-through for raw material inflation to our customers, so that we are less exposed to raw material inflation from a commodities standpoint, in terms of copper, steel, and chemicals.
T hrough our 2023, and as we going into 2024, here, halfway through now, we continue to see, inflation, as you can see, from around the world, in multiple aspects. One, I think commodity is still high, but as I mentioned, we have mostly protective clauses with our customers, so we are not exposed to that. But on the other hand, we see that wage inflation continue to happen here in North America, in Mexico, and other part of the world. W e continue to, use our productivity improvement actions to offset some or most of this, impact. In some cases, we go back to our customers to have some discussion around some, emerging markets, wage inflation pressure, and get relief in, in pricing.
Most recently, we also talked about that, foreign currency, particularly the Mexican peso, also put some pressure on our cost structure, and we are in discussion with our customers to find a solution to some of the cost pressure. I n a nutshell, we have continued to use some of our commercial activities to work with our customers to get some relief there. But the majority of the countermeasure is actually internal self-help, that with our restructuring, with our footprint migration, better utilization, and our continuous improvement activities. T hese are the areas that we use to offset those pressure.
I would add, this year has been somewhat of a small perfect storm, where we've had market demand at an aggregate level in both Class 8 as well as construction and agriculture downturns. Double digit in both segments, and you can see from the end market revenue split those two segments, Class 8 and construction ag, comprise a large portion of our end market. W ith the market dynamics of reduced demand, that's a headwind which we have to make adjustments, as Andy mentioned, through restructuring and other cost out programs. Coupled with the labor wage rate inflation that we see primarily giving us headwind in Mexico and our operations there.
Some of the footprint actions we've taken to expand our footprint in Mexico, we're considering lower cost areas in the country, which don't have the same wage inflation as some of the border locations. T hat's one of the levers we're moving forward in, and as we balance our footprint there. And then the other third element of the perfect storm is the FX. W ith the peso, dollar, and other currencies, we have additional headwind there. W e've got three things coming at us. We're adapting, making adjustments, having discussions with customers, some successful, some not successful, 'cause their volumes are down. W e continue to plow down that path with the expectation that we get some level of recovery from customers, and we accelerate some of our cost out programs.
Sticking with that theme then, question from the audience about the first Moroccan plant. Is it at 100% utilization capacity?
Yes.
When is the second plant expected to start to ramp up?
Okay. T hank you for that question. Yeah, Morocco is a very strategic area for us in a number of reasons. One, it gives us another low-cost footprint to serve Europe. We're currently in Czech Republic as well as Ukraine, so we have three relatively low-cost supply points in Europe. The thesis behind why we went to Morocco was because of the stability of the economy as well as the cost advantage, but also some of our legacy customers in North America, in both electrical systems and vehicle solutions, have operations in Europe, and we don't have a high level of penetration with those current legacy customers we have here. T hey expected us to expand our footprint there to provide more business opportunities for us to quote and supply.
The current facility is a smaller facility that was an existing plant that we used to get established for our electrical systems business. That has been a beachhead for winning new revenue in the region, as the other two facilities are somewhat at full utilization. The current plant is less than 100% utilized, more than 50% utilized, in that range, and we expect by the end of the year it will be fully utilized. T he second plant that we're building will comprehend additional new business, but it also gives us an opportunity to look at consolidating the smaller site into the larger site while we grow, so we optimize our structural cost in that region. Our arrangement with these are build lease back facilities.
These aren't owned, but we have a more competitive lease arrangement with the newly constructed facility than we do the existing facility, which will also gives us a little more margin resiliency as it relates to operating in the region. But even further, states to our customers, we have a bigger right to play in winning new business because we're established there, and we have a good supply chain into both Western and Eastern Europe to supplement our other operations. The new facility will come online in Q1 2025, and at that point, we will start to migrate the existing as well as launch new programs that we've won, coming online in late 2025, early 2026 into 2027. T hat's kind of the landscape of where we're going in Morocco and what the utilization levels are.
We expect that facility would be available for capacity for a number of years to come in the future, as well as optionality to cover us in case of any unpredicted geopolitical dynamics, et cetera.
Fair enough. Gentlemen, we've gone a little bit into overtime, so with that said, I appreciate you presenting this morning at the Sidoti & Company conference. I know you have a full day ahead of you, but thanks again.
Thank you.
Have a great day, everyone.
Thank you.
Thanks, everyone.
Thanks, everyone.