Commercial Vehicle Group, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Comparisons are with the three months ended March 31, 2020, unless otherwise noted. CVG supplies components and assemblies to vehicle manufacturers and aftermarket customers, as well as warehouse automation and U.S. military technology integrators.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Revenue | $245.1 million | $187.1 million | Up 31.0%; includes $4.3 million favorable foreign currency translation |
| Gross profit / margin | $31.1 million / 12.7% | $20.3 million / 10.9% | Gross profit up 53.3%; improved on higher volume and cost structure, partly offset by materials inflation and mix |
| Operating income (loss) | $15.4 million | $(26.5) million | Prior period included $28.9 million of goodwill and other impairment |
| Net income (loss) | $8.5 million | $(24.6) million | Basic EPS $0.27; diluted EPS $0.26, versus basic and diluted loss per share of $0.80 |
| Interest expense | $5.0 million | $4.6 million | Increase includes $1.7 million of payment-in-kind interest |
| Operating cash flow | $(15.4) million | $10.3 million | Working-capital increase was the primary driver of cash use |
| Capital expenditures | $1.7 million | $3.5 million | Management expects $20–$25 million for full-year 2021 |
Financial position and liquidity
- At March 31, 2021, cash was $38.1 million, total debt was $154.5 million, and stockholders’ equity was $102.6 million. Debt included $151.6 million under the term loan and $6.8 million drawn on the revolving facility, net of financing costs and discount.
- Reported liquidity was $120.0 million: $38.1 million cash plus $81.9 million of revolver availability. CVG reported compliance with applicable debt covenants at quarter-end.
- Cash decreased $12.4 million during the quarter. Receivables rose to $186.0 million from $151.1 million at year-end and inventories rose to $109.0 million from $91.2 million, contributing to operating cash outflow.
- Cash of $38.1 million was held by foreign subsidiaries. The filing states a $0.3 million deferred tax liability related to expected repatriation of cash for which no indefinite reinvestment assertion was made.
Material changes versus Q1 2020
- Revenue growth reflected increases in North American MD/HD truck, warehouse automation, and construction equipment sales. Warehouse automation revenue increased $33.9 million, or 423.8%, according to management. Aftermarket and OES revenue declined $0.9 million.
- Electrical Systems revenue increased 44.7% to $162.2 million and operating income was $14.9 million, compared with an operating loss of $17.1 million. Global Seating revenue increased 19.9% to $91.1 million and operating income was $5.5 million, compared with an operating loss of $0.4 million.
- Consolidated cost of revenues increased 28.3%, including a 38.2% increase in raw material and purchased component costs. Management cited higher sales volume and improved cost structure as contributors to gross-profit growth, with material price increases and sales mix as offsets.
- SG&A fell 12.5%, primarily because the prior-year quarter included $4.7 million of non-recurring CEO-transition and investigation expenses.
- The 2020 comparison included $27.1 million of goodwill impairment and $1.8 million of long-lived-asset impairment; no impairment expense was recorded in Q1 2021.
Outlook, risks and unusual items
- CVG said COVID-19 continued to create uncertainty and possible production disruptions across its footprint. During Q1 it faced supply constraints and material-cost increases; entering Q2, management cited semiconductor shortages, labor constraints, material inflation, and foam shortages tied to storms in Texas and Mexico.
- Management said it was monitoring disruptions, controlling costs, pursuing pricing adjustments, and taking measures to protect workers. It believes available liquidity should cover working capital, capital expenditures, and debt service for the next 12 months, but gave no assurance.
- Full-year 2021 capital expenditures are expected to be $20–$25 million. The filing provides no revenue or earnings guidance.
- Subsequent refinancing: On April 30, 2021, after quarter-end, CVG entered into a new $150 million term loan facility and $125 million revolving facility, both maturing April 30, 2026. Proceeds and cash were to refinance the prior facilities and fund fees and general corporate purposes. CVG expected to record an approximately $7.2 million debt-extinguishment loss in Q2 2021.
- Other items include $9.0 million of estimated fair value for contingent consideration tied to the FSE acquisition. Ordinary-course legal matters were not expected by management to have a material adverse effect, though outcomes are uncertain.
- Key risks identified include cyclical and concentrated customer markets, customer production levels, supplier and delivery-chain disruption, commodity and labor costs, foreign exchange, COVID-19, debt covenant compliance, and the availability and cost of financing. Management reported disclosure controls were effective as of March 31, 2021.
Important facts for investors to verify
- Whether Q2 and subsequent results show recovery in operating cash flow as receivables and inventories expanded in Q1.
- Whether semiconductor, foam, labor, and other supply constraints affected customer production, shipments, costs, or pricing after quarter-end.
- The final terms, borrowing levels, covenants, interest costs, and fees under the April 30 refinancing, including the actual debt-extinguishment charge versus the estimated $7.2 million.
- Whether the expected $20–$25 million of 2021 capital expenditures and management’s liquidity assessment remain achievable.
- How much of revenue growth and margin improvement is sustained volume and operating performance versus foreign exchange, mix, or comparison with prior-year impairment and one-time costs.