What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-17 compared with 2024-03-14 · 177 added, 90 removed, 186 unchanged (59% of the section changed)

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You should read the following discussion and analysis in conjunction with the information set forth in our consolidated financial statements and the notes thereto included in Item 8 in this Annual Report on Form 10-K.

Discussion of 2022 results compared to 2021 results to the extent not included in this report can be found in Item 7 of our 2022 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 6, 2023.

The statements in this discussion regarding industry outlook, our long-term strategy, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements.

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Business Overview

CVG is a global provider of systems, assemblies and components to the global commercial vehicle market, the electric vehicle market, and the industrial automation markets.

CVG is a global provider of systems, assemblies and components to the global commercial vehicle market, and the electric vehicle markets.

We deliver real solutions to complex design, engineering and manufacturing problems while creating positive change for our customers, industries, and communities we serve.

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We primarily manufacture customized products to meet the requirements of our customer.

We believe our products are used by a majority of the North American Commercial Truck markets, many construction vehicle OEMs and top e-commerce retailers.

We believe our products are used by a majority of the North American Commercial Truck markets, many construction and agriculture vehicle OEMs, parts and service dealers and distributors.

Commercial Trends in the Vehicle Solutions and Aftermarket & Accessories Segments

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Commercial Trends in the Electrical Systems Segment

Demand for our Electrical Systems products, such as wire harnesses, is primarily driven by construction equipment vehicle production.

Demand for new vehicles in the global construction equipment market generally follows certain economic conditions around the world.

Our products are primarily used in the medium- and heavy-duty construction equipment markets (vehicles weighing over 12 metric tons).

Demand in the medium- and heavy-duty construction equipment market is typically

related to the level of large scale infrastructure development projects, such as highways, dams, harbors, hospitals, airports and industrial development, as well as activity in the mining, forestry and commodities industries.

Demand for our Electrical Systems products, such as wire harnesses, is primarily driven by construction and agriculture equipment vehicle production.

Demand for new vehicles in the global construction and agriculture equipment market generally follows certain economic conditions around the world.

Our products are primarily used in the medium- and heavy-duty construction and agriculture equipment market (vehicles weighing over 12 metric tons).

Demand in the medium- and heavy-

duty construction and agriculture equipment market is typically related to the level of large scale infrastructure development projects, such as highways, dams, harbors, hospitals, airports and industrial development, as well as activity in the mining, forestry and commodities industries.

Other Key Developments

During the quarter ended March 31, 2023, we established two new plant locations:

one in Tangier, Morocco, and another in Aldama, Mexico.

These plants are a cornerstone in our strategy of globally expanding our electrical systems business.

During the quarter ended December 31, 2023, management approved restructuring programs to align the Company’s cost structure to support margin expansion.

The programs include workforce reductions and footprint optimization across segments.

We incurred $1.1 million expense during the year ended December 31, 2023 related to this program and expect the cost to be between $3.0 million to $3.5 million for the entire program.

During the year ended December 31, 2024, the Company amended its credit agreement in the second and fourth quarters.

On July 30, 2024, the Company entered into Amendment No.

3, to the Credit Agreement.

Amendment No.

3 amended the terms of the existing Credit Agreement to limit the mandatory prepayment requirements for certain specified asset dispositions of the Company and certain of its subsidiaries.

The Company repaid $20 million in accordance with Amendment No.3 during the three months ended September 30, 2024.

On December 19, 2024, the Company entered into Amendment No.

4 to its Credit Agreement.

Amendment No.

4 reduced the existing term loan facility to $85 million in aggregate principal amount, reduced the revolving credit facility commitments by $25 million to an aggregate of $125 million in revolving credit facility commitments, and revised the covenant calculation including increasing the maximum consolidated total leverage ratio to 4.25:1.0 (which will be subject to step-downs to 3.75:1.0 at the end of the fiscal quarter ending September 30, 2025;

and to 3.00:1.0 for each fiscal quarter thereafter).

On July 31, 2024, the Company and SVO, LLC ("Buyer") entered into a purchase agreement pursuant to which the Company would sell substantially all of the assets of the Company's business of manufacturing and assembling structured products, including cabs for medium and heavy-duty vehicles, at its facility in Kings Mountain, North Carolina (the cab structures business).

On September 6, 2024, the Company and Buyer entered into an amendment to the purchase agreement whereby the transaction closed on September 6, 2024 with the Buyer paying the Company $20 million of the $40 million purchase price.

Pursuant to the amended purchase agreement, the parties agreed (i) that the remaining $20 million of the purchase price would be paid on October 1, 2024, (ii) that the assigned contracts and the employees of Seller would transfer to Buyer on October 1, 2024, and (iii) the inventory would be valued as of October 1, 2024, for purposes of determining any adjustment to the purchase price.The Company received the remaining portion of the purchase price on October 1, 2024.

The net proceeds of the transaction were approximately $40 million.

The Company used the proceeds for debt paydown and other general corporate purposes.

The Company recorded an after-tax gain on the sale of the business of approximately $28.8 million for the year ended December 31, 2024.

On October 30, 2024, the Company entered into a purchase agreement to sell its First Source Electronics (FSE) business with operations in Elkridge, Maryland for approximately $1.5 million, with a note in the amount of $0.5 million and earn out potential of an additional $1.5 million subject to certain criteria.

The Elkridge facility is the primary manufacturing facility of the Company's Industrial Automation segment.

CVG recorded an estimated after-tax loss on the contemplated sale of the Industrial Automation business of approximately $7.9 million for the year ended December 31, 2024.

The cab structures and Industrial Automation segment divestitures represent a strategic shift in CVG's business and, in accordance with U.S.

GAAP, qualified as discontinued operations.

As a result, the operating results and cash flows related to the cab structures business and Industrial Automation segment have been reflected as discontinued operations in the Consolidated Statements of Operations.

Additionally, the results of operations in this section include retrospective changes for discontinued operations.

See Note 17, Discontinued Operations, for additional information on the divestitures.

Certain indirect corporate costs included within the selling, general and administrative expense caption of the Consolidated Statements of Operations that were previously allocated to the Kings Mountain facility and Industrial Automation segment do not qualify for classification within discontinued operations and are now reported as selling, general and administrative expense within continuing operations on a consolidated basis and within the Corporate and other segment.

Subsequent to December 31, 2024, the Company announced a new organizational structure designed to enhance alignment with its customers and end markets, effective January 1, 2025.

Under this new structure, CVG will reorganize its vertical business units into the following three operating divisions and reporting segments:

Global Electrical Systems, Global Seating, Trim Systems and Components.

As part of this realignment, the Company’s Aftermarket & Accessories business unit will be absorbed in these three segments.

Its seating and electrical portfolio will transition to Global Seating and Global Electrical Systems, respectively.

Its wiper systems will become part of the newly formed Trim Systems and Components business unit in addition to the trim and components businesses from the prior Vehicle Solutions segment.

Our Long-term Strategy

The Company's long-term strategy is to increase our sales, profits and shareholder value by growing our Electrical Systems segment to be our largest business while financially optimizing its core legacy businesses, organically growing in targeted areas, strengthening our product portfolio, increasing our margins and adding to our businesses through a focused M&A program.

The Company expects to diversify its revenue and profits by product, customer, platform, and end market with a goal of becoming less cyclical and less customer concentrated while strengthening / enhancing current positions, entering new markets, developing relationships with new customers, and enhancing service to our customers, leading to increased return to our stockholders.

Our products include electrical wire harnesses, seating systems, plastic components, cab structures, industrial automation subsystems, mirrors, wipers and other accessories.

The Company's long-term strategy is to increase our sales, profits and shareholder value by growing our Electrical Systems segment to be our largest business while financially optimizing its core legacy businesses, organically growing in targeted areas, strengthening our product portfolio, increasing our margins and evaluating opportunities to add to our businesses through a focused M&A program.

entering new markets, developing relationships with new customers, and enhancing service to our customers, leading to increased return to our stockholders.

Our products include electrical wire harnesses, seating systems, plastic components, mirrors, wipers and other accessories.

We have a long-term strategy to globally optimize our cost structure through manufacturing process enhancements, low cost footprint and global sourcing.

We periodically evaluate our short-term and long-term strategies and may adjust actions in response to changes in our business environment and other factors including but not limited to, implementing restructuring as needed.

We are also supplementing our organic strategies by evaluating strategic acquisition and divestiture opportunities.

The company has many opportunities to accomplish this type of business improvement and is being selective.

CONSOLIDATED RESULTS OF OPERATIONS

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Selling, general and administrative expenses 73,877 10.2 81,218 9.7 60,206 7.7

Operating income 48,060 4.8 20,144 2.1 49,581 5.1

Operating income (loss) (758) (0.1) 39,873 4.8 24,821 3.2

Other (income) expense (2,200) (0.3) 1,195 0.1 10,463 1.3

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Provision (benefit) for income taxes 27,493 3.8 (15,203) (1.8) 20,904 2.7

Net income (loss) $ 49,411 5.0 % $ (21,971) (2.2) % $ 23,732 2.4 %

Net income (loss) from continuing operations $ (35,734) (4.9) % $ 43,633 5.2 % $ (16,626) (2.1) %

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

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The table below sets forth certain consolidated operating data for the twelve months ended indicated (dollars are in thousands):

2023 2022 Dollar Change % Change

2024 2023 $ Change % Change

Revenues $ 723,355 $ 835,469 $ (112,114) (13.4)%

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Selling, general and administrative expenses 73,877 81,218 (7,341) (9.0)

Other (income) expense (2,200) 1,195 (3,395) NM 1

Interest expense 9,174 10,248 (1,074) (10.5)

Loss on extinguishment of debt 509 — 509 100.0

Provision (benefit) for income taxes 27,493 (15,203) 42,696 NM 1

Net income (loss) from continuing operations (35,734) 43,633 (79,367) NM 1

Not meaningful

The decrease in consolidated revenues resulted from:

• a $104.6 million, or 15.0%, decrease in sales to OEM and a decrease in other revenues;

• a $7.5 million, or 5.5%, decrease in aftermarket and OES sales.

The decrease in revenues of 13.4% was primarily driven by a softening in customer demand across all segments, and the wind-down of certain programs in our Vehicle Solutions segment.

Gross Profit.

Included in gross profit is cost of revenues, which consists primarily of raw materials and purchased components for our products, wages and benefits for our employees and overhead expenses such as manufacturing supplies, facility rent and utilities costs related to our operations.

The decrease in gross profit is primarily attributable to the impact of lower sales volumes, unfavorable mix, and increased restructuring charges.

Cost of revenues decreased $64.1 million, or 9.0% as a result of a decrease in raw material and purchased component costs of $54.9 million, or 12.6%;

a decrease in wages and benefits of $6.9 million, or 9.9%;

and a decrease in overhead expenses of $2.3 million, or 1.1%.

As a percentage of revenues, gross profit margin was 10.1% for the year ended December 31, 2024 compared to 14.5% for the year ended December 31, 2023.

Selling, General and Administrative Expenses.

Selling, general and administrative ("SG&A") expenses consist primarily of wages and benefits and other expenses such as marketing, travel, legal, audit, rent and utilities costs, which are not directly or indirectly associated with the manufacturing of our products.

SG&A expenses decreased $7.3 million in the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily as a result of the gain on the sale of a building of $3.5 million and reduced incentive compensation expense, partially offset by an increase in salary expense and consulting spend during the 2024 period.

As a percentage of revenues, SG&A expense was 10.2% for the twelve months ended December 31, 2024 compared to 9.7% for the twelve months ended December 31, 2023.

Other (Income) Expense.

Other income increased $3.4 million in the year ended December 31, 2024 as compared to the year ended December 31, 2023 due primarily to transition service fees of $3.2 million recognized during the year ended December 31, 2024 which supported the transition of discontinued operations transactions as well as favorable change in foreign currency of $0.5 million.

Interest Expense.

Interest associated with our debt was $9.2 million and $10.2 million for the years ended December 31, 2024 and 2023, respectively.

The decrease primarily related to lower average debt balances, partially offset by higher interest rates on variable rate debt during the respective comparative periods.

Loss on extinguishment of debt.

On December 19, 2024, the Company refinanced its long-term debt, which resulted in a loss of $0.5 million, including a $0.3 million non-cash write off relating to deferred financing costs of the Term loan facility due 2027 and $0.2 million of other associated fees.

Provision (Benefit) for Income Taxes.

Income tax expense of $27.5 million and income tax benefit of $15.2 million were recorded for the years ended December 31, 2024 and 2023, respectively.

The period over period change in income tax was primarily attributable to the $36.7 million decrease in pre-tax income versus the prior year period which led to establishing a full valuation allowance on our U.S.

deferred tax assets of $28.8 million in 2024.

During 2023 the Company reversed the $22.0 million valuation allowance on our U.S.

deferred tax assets that was established in 2022.

In 2021, as part of the Organization for Economic Co-operation and Development's ("OECD") Inclusive Framework, 140 member countries agreed to the implementation of the Pillar Two Global Minimum Tax ("Pillar Two") of 15%.

The OECD continues to release additional guidance, including administrative guidance on how Pillar Two rules should be interpreted and applied by jurisdictions as they adopt Pillar Two.

These changes, when enacted by various countries in which we do business, may increase our taxes in these countries.

Changes to these and other areas in relation to international tax reform, including future actions taken by foreign governments in response to Pillar Two, could increase uncertainty and may adversely affect our tax rate and cash flow in future years.

We continue to evaluate the potential impacts of Pillar Two through current and pending legislative adoption by individual countries.

Net Income (Loss) from continuing operations.

Net loss from continuing operations was $35.7 million for the twelve months ended December 31, 2024 compared to net income from continuing operations of $43.6 million for the twelve months ended December 31, 2023.

The decrease in net income from continuing operations is attributable to the factors noted above.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Consolidated Results

The table below sets forth certain consolidated operating data for the periods indicated (dollars are in thousands):

2023 2022 $ Change % Change

Revenues $ 835,469 $ 782,583 $ 52,886 6.8%

Gross profit 121,091 85,027 36,064 42.4

Selling, general and administrative expenses 81,218 60,206 21,012 34.9

Other expense 1,195 10,463 (9,268) (88.6)

Interest expense 10,248 9,159 1,089 11.9

Loss on extinguishment of debt — 921 (921) (100.0)

Provision (benefit) for income taxes (15,203) 20,904 (36,107) NM 1

Net income (loss) 49,411 (21,971) 71,382 NM 1

Net income (loss) from continuing operations 43,633 (16,626) 60,259 NM 1

Not meaningful

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• a $5.2 million, or 4.0%, increase in aftermarket and OES sales.

• a $48.8 million, or 55.7%, decrease in industrial automation sales.

Twelve months ended December 31, 2023 revenues were favorably impacted by foreign currency exchange translation of $2.0 million, which is reflected in the change in revenues above.

The increase in revenues was primarily driven by increased pricing and increased sales volume from the Electrical Systems business, offset by lower sales volume in the Industrial Automation and Vehicle Solutions segments.

The increase in revenues was primarily driven by increased pricing and increased sales volume from the Electrical Systems business, offset by lower sales volume in the Vehicle Solutions segments.

Gross Profit.

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The increase in gross profit is primarily attributable to price increases with customers and cost reduction initiatives.

Cost of revenues decreased $34.1 million, or 3.8% as a result of a decrease in raw material and purchased component costs of $50.0 million, or 8.4%;

Cost of revenues increased $16.8 million, or 2.4% as a result of an increase in overhead expenses of $16.5 million, or 8.5%;

an increase in wages and benefits of $4.2 million, or 6.4%;

and an increase in overhead expenses of $11.3 million, or 5.0%.

and offset by a decrease in raw material and purchased component costs of $3.9 million, or 0.9%.

As a percentage of revenues, gross profit margin was 14.5% for the year ended December 31, 2023 compared to 10.9% for the year ended December 31, 2022.

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The period over period change in income tax was primarily attributable to the reversal of $22.0 million valuation allowance on our U.S.

deferred tax assets during 2023 versus the 2022 establishment

of a full valuation allowance on our U.S.

deferred tax assets during 2023 versus the 2022 establishment of a full valuation allowance on our U.S.

deferred tax assets of $24.5 million, offset by the reversal of a $9.9 million valuation allowance on our United Kingdom (U.K.) deferred tax asset.

The OECD continues to release additional guidance, including administrative guidance on how Pillar Two rules should be interpreted and applied by jurisdictions as they adopt Pillar Two.

These changes, when enacted by various countries in which we do business, may increase our taxes in these countries.

We continue to evaluate the potential impact on future periods of Pillar Two, pending legislative adoption by individual countries.

SEGMENT RESULTS OF OPERATIONS

Vehicle Solutions Segment Results

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 and Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

The table below sets forth certain Vehicle Solutions Segment operating data for the twelve months ended, (dollars are in thousands):

2023 2022 Dollar Change % Change

2024 2023 $ Change % Change 2022 $ Change % Change

Revenues $ 404,164 $ 469,962 $ (65,798) (14.0)% $ 470,334 $ (372) (0.1)%

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Selling, general & administrative expenses 21,326 26,109 (4,783) (18.3) 23,533 2,576 10.9

Operating income (loss) 42,020 21,049 20,971 99.6

The increase in 2023 revenues of $7.4 million from 2022 primarily resulted from increased pricing which more than offset lower sales volume.

Operating income

17,902 33,254 (15,352) (46.2) 19,541 13,713 70.2

The decrease in Vehicle Solutions Segment revenues in 2024 of $65.8 million from 2023 primarily resulted from lower sales volume due to decreased customer demand and the wind-down of certain programs.

The decrease in 2023 revenues of $0.4 million from 2022 primarily resulted from increased pricing which more than offset lower sales volume.

Gross Profit.

The increase in 2023 gross profit of $22.2 million from 2022 was primarily due to price increases with customers, cost reduction initiatives, and a decrease in cost of revenues driven by a decrease in raw material and purchased component costs of $25.8 million, or 7.1%;

offset by an increase in overhead expenses of $7.9 million, or 5.8%;

and an increase in wages and benefits of $3.1 million, or 9.1%.

The decrease in 2024 gross profit of $20.1 million from 2023 was primarily due to lower sales volume, restructuring activities and increased freight costs, and a decrease in cost of revenues driven by a decrease in raw material and purchased component costs of $29.0 million, or 11.2%;

a decrease in overhead expenses of $12.8 million, or 10.4%;

and a decrease in wages and benefits of $3.8 million, or 13.4%.

The increase in 2023 gross profit of $16.3 million from 2022 was primarily due to price increases with customers and cost reduction initiatives including lower freight costs, lower startup costs, and improved manufacturing efficiencies..

As a percentage of revenues, gross profit for the years ended December 31, 2024 and 2023, was 9.7% and 12.6%, respectively.

The decrease in gross profit in 2024 from 2023 was primarily due to lower sales volume, restructuring activities and increased freight costs.

The twelve months ended December 31, 2024 results include charges of $4.5 million associated with the restructuring program.

The increase in gross profit in 2023 from 2022 was primarily due to price increases with customers and cost reduction initiatives including lower freight costs, lower startup costs, and improved manufacturing efficiencies.

Selling, General and Administrative Expenses.

The decrease in 2024 SG&A expenses of $4.8 million from 2023 was primarily a result of the gain on the sale of a building of $3.5 million.

The twelve months ended December 31, 2024 results include charges of $1.4 million associated with the restructuring program.

The increase in 2023 SG&A expenses of $2.6 million from 2022 was primarily due to an increase in system implementation costs and employee benefit costs including salaries and incentive compensation expenses.

Electrical Systems Segment Results

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 and Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

The table below sets forth certain Electrical Systems Segment operating data for the twelve months ended, (dollars are in thousands):

2023 2022 Dollar Change % Change

2024 2023 $ Change % Change 2022 $ Change % Change

Revenues $ 189,626 $ 228,424 $ (38,798) (17.0)% $ 180,404 $ 48,020 26.6%

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Operating income 449 26,290 (25,841) (98.3) 18,218 8,072 44.3

The decrease in Electrical Systems segment revenues in 2024 of $38.8 million from 2023 is primarily attributable to lower sales volume driven by global softness in Construction & Agriculture end-markets.

The increase in 2023 revenues of $48.0 million from 2022 is primarily attributable to sales volume and increased pricing to offset material cost pass-through and other inflationary items.

Gross Profit.

The decrease in 2024 gross profit of $24.7 million from 2023 was primarily attributable to lower sales volume, restructuring activities, labor inflation and unfavorable foreign exchange impacts.

Cost of revenues decreased in line with the revenues, decrease of 17.0%, driven by a decrease in raw material and purchased component costs of $16.6 million, or 15.6%;

a decrease in wages and benefits of $4.1 million, or 12.3%;

offset by an increase in overhead expenses of $6.6 million, or 12.3%.

The increase in 2023 gross profit of $11.4 million from 2022 was primarily attributable to volume leverage and increased pricing to offset material cost pass-through and other inflationary items.

Cost of revenues increased in line with the sales increase of 26.6%, driven by an increase in raw material and purchased component costs of $19.1 million, or 21.8%;

an increase in overhead expenses of $11.8 million, or 28.6%;

and an increase in wages and benefits of $5.7 million, or 20.8%.

As a percentage of revenues, gross profit for the years ended December 31, 2024 and 2023, was 5.6% and 15.5%, respectively.

The decrease in 2024 gross profit margin was primarily due to lower sales volume, restructuring activities, labor inflation, and unfavorable foreign exchange impacts.

The twelve months ended December 31, 2024 results include charges of $3.7 million associated with the restructuring program.

The increase in 2023 gross profit margin was primarily due to volume leverage and increased pricing, more than offsetting inflationary items.

Selling, General and Administrative Expenses.

2023 SG&A expenses increased $3.3 million from 2022, primarily driven by increased headcount and incentive adjustments based on performance.

2024 SG&A expenses increased $1.1 million from 2023, primarily driven by increased salaries.

The increase of $3.3 million in 2023 from 2022, was primarily a result of increased headcount and incentive adjustments based on performance.

Aftermarket & Accessories Segment Results

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 and Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

The table below sets forth certain Aftermarket & Accessories Segment operating data for the twelve months ended, (dollars are in thousands):

2023 2022 Dollar Change % Change

2024 2023 $ Change % Change 2022 $ Change % Change

Revenues $ 129,565 $ 137,083 ($7,518) (5.5)% $ 131,845 $ 5,238 4.0%

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Operating income 15,026 18,370 (3,344) (18.2) 11,546 6,824 59.1

The decrease in Aftermarket & Accessories segment revenues in 2024 of $7.5 million from 2023 was driven by lower sales volume due to a decreased customer demand and the reduction of backlog in the prior period.

The increase in 2023 revenues of $5.2 million from 2022 resulted from increased pricing to offset material cost pass-through and other inflationary items.

Gross Profit.

The increase in 2023 gross profit of $8.4 million from 2022 is primarily due to increased pricing to offset material cost inflation and other inflationary items, cost reduction initiatives, and a decrease in cost of revenue driven by a decrease in wages and benefits of $2.5 million, or 23.4%;

offset by an increase in raw material and purchased component costs of $0.6 million, or 0.9%;

and an increase in overhead expenses of $0.2 million, or 0.5%.

The decrease in 2024 gross profit of $3.2 million from 2023 is primarily due to the lower sales volume.

Cost of revenues decrease is driven by a decrease in raw material and purchased component costs of $9.3 million, or 13.4%;

offset by an increase in overhead expenses of $4.0 million, or 12.2%;

and an increase in wages and benefits of $1.0 million, or 12.3%.

The increase in 2023 gross profit of $8.1 million from 2022 is primarily due to increased pricing to offset material cost inflation and other inflationary items and cost reduction initiatives.

As a percentage of revenues, gross profit for the years ended December 31, 2024 and 2023, was 18.0% and 19.3%, respectively.

The increase in 2023 gross profit margin is primarily due to increased pricing offsetting moderating cost inflation and cost reduction initiatives including lower freight costs.

The decrease in 2024 gross profit margin is primarily due to lower sales volume and restructuring related expenses.

The twelve months ended December 31, 2024 results include charges of $0.9 million associated with the restructuring program.

The increase in 2023 gross profit margin is primarily due to increased pricing offsetting moderating cost inflation and cost reduction initiatives including lower freight costs.

Selling, General and Administrative Expenses.

SG&A expenses increased by $0.2 million in 2024 compared to 2023.

The increase in 2023 SG&A expenses of $1.2 million from 2022, is primarily driven by commissions expense increase and is consistent with the prior year on a percent of sales basis.

Industrial Automation Segment Results

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

The table below sets forth certain Industrial Automation Segment operating data for the twelve months ended, (dollars are in thousands):

2023 2022 Dollar Change % Change

Revenues $ 38,900 $ 87,747 $ (48,847) (55.7)%

Gross profit 3,010 (2,303) 5,313 NM 1

Selling, general & administrative expenses 4,392 5,564 (1,172) (21.1)

Operating income (loss) (1,382) (7,867) 6,485 (82.4)

Not meaningful

The decrease in 2023 revenues of $48.8 million from 2022 primarily resulted from lower sales volume due to decreased customer demand.

Gross Profit.

The increase in 2023 gross profit of $5.3 million from 2022 was primarily attributable to the inclusion of a $10.4 million inventory charge in the 2022 results which did not recur in 2023, and $1.2 million less restructuring costs in 2023 versus 2022.

Cost of revenues decreased in line with the sales decrease of 55.7%, driven by a decrease in raw material and purchased component costs of $43.7 million, or 61.8%;

a decrease in overhead expenses of $8.7 million, or 55.8%;

and a decrease in wages and benefits of $1.7 million, or 46.9%.

As a percentage of revenues, gross profit for the years ended December 31, 2023 and 2022, was 7.7% and (2.6)%, respectively.

The increase in gross profit as a percentage of revenues in 2023 from 2022 was due to nonrecurring costs recognized in 2022, including a $10.4 million inventory charge.

Selling, General and Administrative Expenses.

SG&A expenses decreased $1.2 million in 2023 compared to 2022, primarily driven by overhead reduction.

Liquidity and Capital Resources

At December 31, 2023, the Company had no borrowings under its revolving credit facility.

At December 31, 2024, the Company had $50.5 million borrowings under its revolving credit facility.

At December 31, 2024, the Company had liquidity of $111.0 million, including $26.6 million of cash and $84.4 million availability from its U.S.

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(3) manage working capital;

(4) to reduce debt;

(4) reduce debt;

and (5) other actions deemed appropriate by management to improve operational performance.

Our primary sources of liquidity during the year ended December 31, 2023 were operating income, cash and availability under our credit facility.

Our primary sources of liquidity during the year ended December 31, 2024 were proceeds from divestitures, cash and availability under our credit facility.

We believe that these sources of liquidity will provide adequate funds for our working capital needs, capital expenditures and debt service throughout the next twelve months.

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Covenants and Liquidity

On May 12, 2022, the Company entered into an amendment to increase its existing senior secured credit facilities to $325 million from $275 million consisting of a $175 million Term Loan A and a $150 million Revolving Credit Facility.

amendment provides the Company with additional capital flexibility to execute upon its transformation and growth initiatives.

As part of the amended terms of the agreement, the maturity date of the Senior Secured Credit Facilities has been extended by twelve months to May 12, 2027, the interest rate decreased by 50 bps at various leverage ratios based on SOFR, and the maximum consolidated total leverage ratio increased from 3.25x to 3.75x until December 31, 2022 with a quarterly step down of 25 bps to 3.00x leverage by September 30, 2023 and the maximum consolidated total leverage ratio will remain at this level thereafter.

Further, separate from the Company’s annual $35 million capital spending cap, a one-time $45 million capital project basket was included in the amendment.

All other key provisions, including the $75 million accordion, acquisition holiday, and other baskets remain unchanged.

During the year ended December 31, 2024, the Company amended its credit agreement in the second and fourth quarters.

On July 30, 2024, the Company entered into Amendment No.

3, to the Credit Agreement.

Amendment No.

3 amended the terms of the existing Credit Agreement to limit the mandatory prepayment requirements for certain specified asset dispositions of the Company and certain of its subsidiaries.

The Company repaid $20 million in accordance with Amendment No.3 during the three months ended September 30, 2024.

On December 19, 2024, the Company entered into Amendment No.

4 to its credit agreement.

Amendment No.

and to 3.00:1.0 for each fiscal quarter thereafter).

Our ability to comply with the covenants in the credit agreement, as discussed in Note 3, Debt, may be affected by economic or business conditions beyond our control.

5 unchanged sentences

(In thousands)

Net cash provided (used) by operating activities $ 38,276 $ 68,947 $ (29,832)

Net cash used in investing activities (19,696) (19,710) (17,566)

Net cash (used) provided in financing activities (12,729) (50,091) 31,011

Net cash provided by (used in) operating activities

$ (33,452) $ 38,276 $ 68,947

Net cash provided by (used in) investing activities

30,896 (19,696) (19,710)

Net cash provided by (used in) financing activities

(7,122) (12,729) (50,091)

Effect of currency exchange rate changes on cash (1,540) 172 (2,279)

2 unchanged sentences

Operating activities .

For the year ended December 31, 2023, net cash provided by operations was $38.3 million compared to $68.9 million for the year ended December 31, 2022.

Net cash provided by operating activities is primarily attributable to an increase in working capital offset by the improved financial results during the year ended December 31, 2023 as compared to the prior year period.

For the year ended December 31, 2024, net cash used in operations was $33.5 million compared to net cash provided by operations of $38.3 million for the year ended December 31, 2023.

Net cash used in operating activities is primarily attributable to a lower net income from continuing and discontinued operations, including cash used to support restructuring programs for the twelve months ended December 31, 2024 as compared to higher net income offset by an increase in working capital for the twelve months ended December 31, 2023.

Investing activities .

Net cash used in investing activities was $19.7 million for the year ended December 31, 2023 and 2022.

Net cash provided by investing activities was $30.9 million for the year ended December 31, 2024 compared to net cash used in investing activities of $19.7 million for the twelve months ended December 31, 2023, primarily due to $45.0 million proceeds from sale of the Company's cab structures, Industrial Automation segment and FinishTEK businesses during the current period and $4.5 million proceeds from the sale of a building.

In 2025, we expect capital expenditures to be in the range of $15 million to $20 million.

1 unchanged sentence

For the year ended December 31, 2024, net cash used in financing activities was $7.1 million compared to $12.7 million for the year ended December 31, 2023.

Net cash used in financing activities for the year ended December 31, 2023 is primarily attributable to $10.9 million of net repayments under our credit facilities compared to net repayments of $43.2 million in the prior year.

Net cash used in financing activities for the year ended December 31, 2024 is primarily attributable to $56.6 million term loan repayment, offset by an increase of $50.5 million in borrowings under the revolving credit facility.

The Company's term loan repayments included $20.0 million in accordance with Amendment No.3 and $30.0 million in accordance with Amendment No.

to its Credit Agreement.

The increase in borrowings under the revolving credit facility were related to funding the $30.0 million term loan repayment and to fund working capital.

Debt and Credit Facilities

20 unchanged sentences

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

We evaluate our estimates and assumptions on an ongoing basis, particularly relating to accounts receivable reserves, inventory reserves, goodwill, intangible and long-lived assets, income taxes, warranty reserves, litigation reserves and pension and other post-retirement benefit plans.

We evaluate our estimates and assumptions on an ongoing basis, particularly relating to accounts receivable reserves, inventory reserves, intangible and long-lived assets, income taxes, warranty reserves, litigation reserves and pension and other post-retirement benefit plans.

We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources.

2 unchanged sentences

Revenue Recognition — We recognize revenue when our performance obligation has been satisfied and control of products has been transferred to a customer, which typically occurs upon shipment.

Revenue is measured based on the amount of consideration we expect to receive in exchange for the transfer of goods or services.

Revenue is measured based on the amount of

consideration we expect to receive in exchange for the transfer of goods or services.

We enter into agreements with certain customers in the Vehicle Solutions segment at the beginning of a vehicle platform’s life to supply products for that vehicle platform.

9 unchanged sentences

We recognize tax positions initially in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.

Judgment is required in estimating valuation allowances for deferred tax assets.

The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in either the carryback or carryforward periods under tax law.

We provide a valuation allowance for deferred tax assets when it is more likely than not that a portion of such deferred tax assets will not be realized.

In our assessment, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets.

This assessment considers, among other matters, (1) the cumulative three-year income position, (2) the nature, frequency and severity of any current and cumulative losses;

(3) forecasts of future profitability;

(4) the duration of statutory carryforward periods;

(5) our experience with operating loss and tax credit carryforwards not expiring unused, and (6) tax planning alternatives.

As of December 31, 2024, the Company was in a cumulative three-year taxable loss position in the U.S.

which was given the most weight in our analysis of all positive and negative evidence when determining whether to establish a valuation allowance.

As of December 31, 2023, the Company was in a cumulative three-year taxable income position in the U.S.

which was given the most weight in our analysis of all positive and negative evidence when determining whether to reverse the previously recognized valuation allowance.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis