With that said, gentlemen, thank you for being with us today. The floor is yours.
Thank you, John, and good morning to all. Thanks for joining today's presentation. Joining me here is Andy Cheung, our CFO of CVG. If we turn to slide two, I'd like to remind investors that our presentation may contain forward-looking statements. I won't read the entire disclosure, although I would encourage you to review this slide of our presentation, which is also available on our investor website. If we turn to slide three, getting into the overview of CVG, these are the key business units that make up our company. We're a global Tier One supplier, and for 2023, we had $995 million in revenue and Adjusted EBITDA of $67.6 million. Approximately 8,200 employees globally across 30 plants in 10 countries.
In 2021, the company launched a strategic transformation plan to drive diversification across products and customers to reduce cyclicality of the business strategy, and the business strategy is well underway, and focused on winning business Electrical Systems, optimizing our Vehicle Solutions operations, and driving improved future growth and profitability. This slide also gives a high-level overview of our segments and key product lines. Seating, which is part of our Vehicle Solutions segment, is targeted at the global commercial vehicle market, heavy-duty truck, medium-duty, last mile, ConAg. Plastics, which is also part of our Vehicle Solutions segment, comprises molded and trimmed components, injection molding, thermoforming, primarily targeted North America commercial vehicles.
Electrical Systems are cable and harness assemblies, both high and low voltage applications, serving global markets across a number of vertical markets, in different regions, and has a higher concentration in construction and agriculture. Our Aftermarket also sells parts and accessories, seats, wipers, and mirrors into the OEM service channel, as well as the independent Aftermarket. If you turn to slide four, our unique customer value proposition is our ability to partner with our customers to provide unique solutions to their challenges. We offer specialized custom systems to meet strict customer requirements. We provide custom design capabilities, and our product engineering drives improved speed to market for our customers. Our plants allow for quick changeovers, allowing a focus on low volume, high touch, value add products.
It's all about providing the right solution for the right applications as the big driver in both new customer wins and retention rates. If you turn to slide five, I want to talk a little bit about our key strategic actions to strengthen our value proposition. In line with our well-articulated strategy, CVG is taking actions in multiple areas this year to improve our underlying business unit mix and profitability. On portfolio realignment, we've sold our Cab Structures business recently, as well as our FinishTek business earlier this year. We're pursuing a review of our Industrial Automation business. These moves will reduce our end market exposure to Class 8 trucks, reducing cyclicality, as well as balancing our customer concentration, improving our capital efficiency, and reducing complexity. This will make CVG a more focused company, targeting higher margin products in diverse end markets.
On capacity optimization, recently, we added low-cost capacity in Morocco and in Mexico to service new business wins Electrical Systems. adding additional capacity in Morocco this year, going into next year, to further expand our low-cost production capability in the European and North African market. We also sold our Chillicothe, Ohio, plant, consolidating production into other sites in North America. On operational efficiency, ongoing focus on supply chain, working to reduce input and freight costs, as well as focus on lean manufacturing to improve our efficiency and strengthen our operating systems across facilities, with a focus on continuous improvement. And then, right-sizing our cost structure in this weaker demand environment to drive better operating leverage into the expected end market recovery.
This has been a tough year for us, but we are taking the necessary steps to make CVG a more nimble, higher growth, and more profitable company going forward. If we turn to slide five, this is our revenue breakdown. This slide breaks it down a bit further than what we showed back on slide three. You can see we're still fairly closely tied to the Class 8 truck market, with construction and agriculture as our second-largest end market. Note that Aftermarket, while broken out as its own end market, predominantly serves heavy and medium-duty truck and bus, auto, and other end markets through seats and wipers and mirrors in that market, in that segment. Also, we see the impact of the sale of our Cab Structures facility, as well as the expected divestiture of our Industrial Automation business.
In line with our strategy, you see a Electrical Systems mix and lower Class 8 exposure following these actions. If you turn to slide seven, our business segment overview. This slide gives more detail on each of our three main segments, excluding Industrial Automation, for which we are currently reviewing strategic alternatives. It also gives you a sense for the key brands we offer in Seating, Plastics, and Aftermarket. And you can also see the end market exposure for each of the segments. As we turn to slide eight, key end market outlook supporting long-term growth. In looking at the outlook for Class 8 trucks, our largest end market, a forecasting agency we use is ACT. It sees a weaker year this year and next, followed by growth in 2026 to a strong level of almost three hundred and fifty thousand builds.
Growth in 2026 is favorably impacted by a change in EPA regulations in 2027, which will add approximately $25,000 of cost to a truck for additional emissions aftertreatment. We also derive approximately 25% of our revenue from the agriculture and construction equipment markets, concentrated in Electrical Systems segment. While we currently expect markets to decline in 2024, we remain confident in the long-term growth outlook for both agriculture and construction markets, given the replacement needs in these markets and underlying secular growth trends, which should provide a tailwind to Electrical Systems business. In fact, CVG is focusing on its efforts in capturing the potential of multiple global megatrends. OEMs are looking to have better control over their supply chain, are sourcing components closer to their end markets. Given our footprint, that gives us an advantage.
The ongoing growth in electrification, as well as autonomous driving, is driving increased intensity of wiring and cabling in both commercial and passenger vehicles. Our products enable larger, more sophisticated agricultural equipment, which will be necessary to help feed growing populations. And then finally, e-commerce growth will continue to drive demand for commercial vehicles in both first mile and last mile deliveries. As you turn to slide nine, this is a depiction of our capital allocation focus. This gives a high-level look at how we think about allocating capital. In the near term, we're focused on funding internal growth and reinvestment needs, as well as keeping our leverage in the one point five to two times range. Longer term, we'll consider opportunistic M&A that either improves our growth or profitability outlook, and returning cash to shareholders as a consideration to deploy excess cash and create value.
At this point, I'll turn it over to our CFO, Andy Cheung, for the financial review.
Thank you, James. Turn to the next slide. Now, you can see here in this slide, a little bit of a longer-term, financial performance to give you a sense about since the time of COVID, and how CVG have been recovering and continue, and steadily, growing. Our two most important segments is Electrical Systems and Vehicle Solutions. So these are the two segments that we continue to pay to focus on, and continue to put investments Electrical Systems segments to continue to grow the company. You can also see that, the Industrial Automation segment, has been on a decline since two thousand and twenty-one, after a spike in the distribution center construction end market. And this is the segment that, as James mentioned, we have currently under strategic.
On the right-hand side of the chart, you can also see the operating income by segments. You can see a steady improvement in Vehicle Solutions Electrical Systems, with relatively flat performance in the Aftermarket, and Industrial Automation, as we mentioned, we see a decline in profit due to the end market decline. Coming to the next slide. Now, you can see a little bit of our 2024 financial performance in the first half of this year. As James mentioned, we are seeing some challenges in our end markets today. The end market of Class 8 heavy-duty trucks is declining year-over-year, as well as we see some sharp decline this year in the construction and agriculture end market.
On top of that, during the COVID and inflation time, we have decided to exit certain business platform in our Vehicle Solutions segments due to their profitability, and we were winding down certain programs. With the end market and the revenues decline, we see some pressure on our conversion, as well as some short-term challenges that we are working through right now. In the first half, we see in Mexico some labor rate inflation, as well as some foreign exchange headwinds, coupled with logistics costs around the world continue to show some pressure there, as well as a few programs that we are launching in the first half of this year. With those headwinds, we've been taking actions to resolve them.
As James mentioned, short term, we're getting through our vehicle solution launches, and we are now in a better spot as we move into a launch phase after the initial launch investments. From an Electrical Systems standpoint, we continue to reduce our cost structure, migrating our production into a lower cost part of Mexico and in North Africa, and we are getting ready for the ramp-up of our new business, as well as a potential end market recovery. Working through this action, as well as the portfolio actions that we've been working through half of this year, we are now getting ready to position ourselves for overall recovery on the EBITDA margin. Turning to the next slide. Moving away from our first half of 2024 , we're now looking at the full year.
At the end of our second quarter earnings call, we provided this full year 2024 outlook. Nine hundred to nine hundred and sixty million dollars revenues is our current year outlook, as well as $42 million-$52 million of EBITDA. But as James mentioned, we are working through a couple of major portfolio changes here, and we provided a pro forma or adjusted guidance. After we remove the divestiture on a pro forma basis, full year 2024, we're expecting a revenue of between $730 million-$780 million. The EBITDA level between $28 million-$36 million. That's represented between 4%-5% of EBITDA margin, as we see on a pro forma basis for 2024.
As we finish up our divestiture, we expect that the proceeds of our divestiture will go the majority into our debt pay down to help us continue to strengthen our balance sheet position. With that, I'm gonna pass it back to James for some key investment highlights.
Thank you, Andy. Referring to this slide, these are key investment highlights. One, we're an experienced Tier One global supplier, offering key customized component solutions and system solutions to global commercial vehicle OEMs and the Aftermarket channels. We're currently executing a business transformation to diversify our company through growth Electrical Systems, a business set to benefit from the secular trend of vehicle electrification and autonomous driving. We also have taken steps this year to better position our Vehicle Solutions business as it takes advantage of the pre-buy targeted for 2026 by streamlining our operations and improving our operational excellence. In the end, we're more focused and better positioned for future success. I'd like to thank you for joining, and now we'll open it up for Q&A.
Thank you, James. Thank you, Andy. Should anybody in the audience have a question, please type it in the Q&A box, and I'll present it to management. Gentlemen, I'd like to start with the recent expansion into North Africa. I think it'd be helpful if you kinda discuss the decisions behind that process, potential customers and end markets that you think are addressable by expanding overseas.
Thank you, John, and I'll take that one on. We have a footprint currently in Eastern Europe. About a year ago, we opened a plant in North Africa, in Morocco. Morocco is, and other North African countries are considered to be now the new low cost, and it has been low cost for a number of years, and a number of decades, actually, companies have been supplying from North Africa into Europe, both Western Europe and Eastern Europe. Several of our legacy North American customers have operations in Europe, and we also have current business with passenger car customers in Eastern Europe.
So by having an expanded footprint in a very stable region of Morocco and North Africa at a low cost point with high capability, we're better positioned to serve some of the legacy North American customers, which have build operations in Europe. So that was one of the initial premises to expand our manufacturing capability there. Secondly, new customers want to see a very stable manufacturing environment, and we've had business development discussions with new customers, primarily European OEMs in construction, agriculture, Class 8 heavy duty truck, and also off-road applications and industrial applications. So, many opportunities for us to fill that capacity.
It also allows us to supplement some of the current capacity we have in Eastern Europe Electrical Systems, and we also have a Seating operations in the U.K. and in Eastern Europe, and this additional footprint will allow us to potentially grow in the Seating product line in the European market. So it's very strategic for us. Customers have asked us to go there. We need the capacity to serve the market, and it's in a very stable region from a customer perspective and a very capable workforce from a technology as well as skills perspective.
You recently announced that the Industrial Automation business, that you're seeking strategic alternatives for that unit. Can you give us an update on how that's progressing?
It's progressing well. We had a number of several of interested parties looking at the business. There are various aspects of the business that are attracted to different buyers. We are still in discussions with some parties that are in confirmatory due diligence, and we expect to have a decision on which alternative we'll pursue by the end of this year.
Is it still a possibility that that will be sold in piecemeal?
There's a possibility I would say that the highest probable outcome is that we will exit the business, either in whole, in pieces, or a partnership on the way out. There are a number of different avenues for us to exit, but our plan is to exit.
Okay, let's move to some of the audience questions here. One of them is that you've announced hundreds of millions of new business wins over the past few years, yet overall sales are down. Can you kind of reconcile that for maybe the novice investor?
Sure, sure, not a problem. I would say that we do have new business we are launching. Those numbers were gross new business wins. So as we look at end market decline, as we look at programs that we've rolled off of that weren't profitable, and as we look at the delayed ramp schedules of some of the new business wins, and also the slower ramp schedule of some of the new business wins, we're somewhat in a perfect storm this year because both Class 8 ConAg are down, you know, high single to low double digits, and that's putting a lot of pressure on it. And the rate that they're down, the new business wins are offsetting some of it, but not all of it.
So the net result you're seeing is they're not flowing through as what we expected when we won the business. And the peak revenue that we report when we won over the last two years, those are numbers that our customers source us to. And in many cases, those numbers aren't achieved until year one, toward the latter part of year one into year two of the program launch. So, given some of the slowdown, economic slowdown we're seeing, some OEMs, ConAg and other end markets, are slowing or delaying their launches. So as the end markets recover and as we see better economic indicators, we believe that we will get to seeing those revenues pass through in the coming quarters and years.
That's why we're adding capacity in Electrical Systems business, because we had to have it based on the volumes we were awarded. It's also actually benefited us because it's given us some optionality to have a lower cost footprint location than what our existing footprint is, too. We have plans to modulate our filling of that capacity between taking advantage of the lower cost structure where these plants are located, as well as being ready to launch new programs as they get to ramp volumes that we were awarded.
In light of what ACT is now projecting for 2025, do you think you have enough new program wins to enable overall revenue growth in 2025?
I think that depends on how fast the programs launch. But given the declines that are broadcasted by ACT, which is, I think, 280,000 truck builds for 2025, which is about 11% decline from the 316,000 that they're gonna hit this year. And with the majority of our business in Vehicle Solutions and Aftermarket being in Class 8 truck, it's really gonna depend on whether or ConAg comes back. And we don't have any solid forecast or outlook ConAg coming back from a timing standpoint, similar to what ACT provides for the Class 8 trucks, and construction is a little different profile than agriculture. Construction wasn't down as far this year as agriculture was.
But we also believe some of the macro indicators of reduced interest rates and commodity prices on food may spur quicker recovery in those end markets. But we only have visibility to about 12-13 weeks of customer forecast in our business, and these are from the larger exemplar, more established customers that give us this outlook. Some of the new OEMs that we've won business with in EV space or last mile vehicles or autonomous vehicles, they don't necessarily provide outlook in how they expect the 12 or 13 week schedule looks like. So, we have a variety of diverse customers that have different planning mechanisms, and we just have to make sure that we remain flexible and nimble to be able to respond to both downturns as well as upticks in the market.
And if you recall last year this time, ACT was forecasting it'd be down 15%-16%, and it's only down 7% for Class 8 trucks. And also last year this time, some of ConAg customers were forecasting that 2024 would be flat to low single-digit increase over 2023, and it actually went the other way. So it's been somewhat of a challenge to you know modulate our flexibility, but while the markets are down, we felt like we needed to accelerate our strategic actions so we're better positioned when they recover and be in a better position to generate more operating leverage as the volumes come back.
James, I remember when ACT was saying down 25%. That was a stunning number to see.
Well
Question on the current adjusted outlook of $730 million-$780 million in revenue they had on slide 13, implies a 3.8%-4.6% Adjusted EBITDA margin. Is this a reasonable target for your long-term margins? If not, what are your goals for long-term margins?
Go ahead, Andy, take that.
Yeah, so, John, let me answer that question. The short answer, no. We definitely expect that margin will be improving, and definitely that's our goal, to improve our margin. If some of our investor pool remember, some time ago, we did set out and say that 9% EBITDA margin is our longer-term target. We believe that that is still a good target for CVG based on our portfolio and our profitability. Then, as you can see, there is a potential 400-500 basis points of opportunities that we are trying to work really hard to harness. And I will add a little, say, that the 400-500 basis points, you can see part of that will definitely rely on the market to come back.
But right now, we are in a down market in our two biggest end markets. And I'll say the other half of that opportunity will be based on our self-help activities. As James mentioned, the restructuring that we have done, the migration to lower-cost countries and production footprint, and all the other operational launch-related activities that we're working on. So we're hopeful that early next year, we'll start to see the fruit of those self-help activities.
James, I guess this question's for you. How would you assess the results of the strategic transformation of the company? I think they've got this part wrong. You've been at the firm for almost a year now. Can you talk a little bit about from where you started to where you are today, what your thoughts are of that strategic transformation, and how should investors think about how it's gonna look, say, a year from now?
And that's a very good question, and thanks to whoever asked that. I ask myself that every morning, so and that's how we set our agenda. And I would bucket it into a few areas. The first area being the strategic portfolio and redefining our portfolio and our path forward. And I would say we've done exceptional work this year to get two businesses sold, the FinishTek business, as well as the Cab Structures business. In the third business, we are in strategic alternative evaluation phase. So to take on that was a pretty Herculean task. And considering the improvement we made to date in getting the sales done and making sure we have a path to exit the Industrial Automation business, I think is gonna help us be more focused going forward.
It's going to improve our capital allocation and where we invest in the growth product areas, as well as give us an opportunity to kind of reshape our structure, so given the exit of a substantial amount of revenue, this is the second bucket, it's really given us a chance to step back and reevaluate how we're structured, how we get work done, how we can improve the efficiency and the effectiveness of our cost structure by taking additional actions to resize ourselves to a $750 million company, and then when the markets come back, we'll have a lot better operating leverage, both from an SG&A standpoint as well as a cost of goods sold perspective. There are things we're doing in lean manufacturing, plant consolidations, moving to lower-cost locations.
As we get volume return and in market and continue to launch new business, I expect operating leverage to be at a different rate than it is now. And then, finally, diversification of our end markets and customer base to be less concentrated. Those things are happening because we do have a focus on each one of our businesses going out to win new business, and we've reported on that. We are still focused on winning new business and growing and further diversification. So we're on track, I would say, year to date, on the amount of business we expected to win, and we still have another quarter to go. So that's very important for the future growth of the company. So in summary, I would say we're gonna be more diverse from an end market and customer perspective.
We're going to have a better operating leverage on market recovery. Also, as we continue to diversify, there's gonna be less reliance on some of the concentrated segments we participate in, Class 8 over-the-road ConAg. so the focus on industrial applications, industrial vehicles, energy and infrastructure, we're seeing business diversification, albeit small right now, but it's giving us the right to play in those verticals, and we have a right to win because we're winning. So, with a better cost structure, a better operating efficiency, that's just gonna enhance our right to win.
All right. Gentlemen, I see we're out of time. Any closing remarks?
I'd like to thank everybody for participating. Look forward to having dialogue with many of you going forward in the future, and thanks for joining.
All right. Thank you for presenting today. Have a great day, everybody.
Thanks, you too.