Q1 2024 Commercial Vehicle Group Inc Earnings Call
Participants
Andy Cheung; Executive Vice President, Chief Financial Officer & Information Technology; Commercial Vehicle Group Inc
James Ray; President, Chief Executive Officer, Director; Commercial Vehicle Group Inc
John Franzreb; Analyst; Sidoti & Company LLC
Gary Prestopino; Analyst; Barrington Research Associates Inc
Joshua Wilson; Analyst; Noble Capital Markets Inc
Steven Martin; Analyst; Slater Capital Management LLC
Presentation
Operator
Good morning, ladies and gentlemen, and welcome to the CVGIQ. one 2024 earnings call. At this time, all lines are in a listen only mode following the presentation, we will conduct a question and answer session. If at any time during this call you require assistance, please press star zero for the operator call. It being recorded on Tuesday, May seventh, 2024.
I would now like to turn the conference over to Mr. Andy Chang, Chief Financial Officer. Please go ahead, sir.
Andy Cheung
Thank you, operator, and welcome, everyone to our conference call. Joining me on the call today is James Wey, President and CEO of CVG. This morning, we will provide a brief company update as well as commentary regarding our first quarter 2024 results, after which we will open the call for questions.
As a reminder, this conference call is being webcast and the Q1 2024 earnings call presentation, which we will refer to during this call is available on our website. Both may contain forward-looking statements, including but not limited to, expectations for future periods regarding market trends cost-saving initiatives and new product initiatives among others. Actual results may differ from anticipated results because of certain risks and uncertainties. These risks and uncertainties may include, but are not limited to economic conditions in the markets in which CVG operates, fluctuations in the production volumes of vehicles for which CVG is a supplier, financial covenant compliance and liquidity risks associated with conducting business in foreign countries and currencies and other risks as detailed in our SEC filings.
I will now turn the call over to James to provide a company update.
James Ray
Thank you, rarely.
I'd like to turn your attention to the supplemental earnings presentation starting on Slide 3. As we discussed in last quarter's call, we launched restructuring initiatives, comprehending softer market conditions that were expected and we continue to expect in the year. These softer conditions as well as a strong quarter in the prior year period, made for a tough comparison versus the prior year across most metrics. We reported net sales of $232 million in the quarter and adjusted EBITDA of $12.7 million. We remain focused on driving further operational efficiency improvements, strengthening our Vehicle Solutions segment and growing our Electrical Systems segment to be our largest business. We fully executed restructuring initiatives in the first quarter. It, combined with additional efforts I'll discuss later underpin our financial guidance for 2024. Despite a net use of cash in the quarter, our net leverage ratio remained strong at 1.8 times. We also continued driving new business wins, recording approximately $45 million in new wins so far this year on a fully ramped basis.
Consistent with our strategy.
These wins continue to be focused within our Electrical Systems segment and support the product ramp up at our two new plants and additional Morocco facility, which are focused on meeting the demand growth in electrical systems Turning to slide 4, I'd like to take this opportunity to highlight some recent strategic actions we've taken, which all serve, as a reminder of our continued goal to align costs and improve margins at CVG. First, we continue to make significant strides in our organizational efficiency improvements as our restructuring actions to reduce costs and align resources with our growth. Product lines remain underway in line with that, we announced last quarter the consolidation of products manufactured in our facility in Chillicothe, Ohio. We now have a signed purchase agreement for the sale of the chilled coffee facility with the transaction expected to close in Q3. Second, our operational excellence emphasis supports our ongoing cost-out program, which focuses on productivity, materials and conversion costs. Finally, we are persistent in our efforts to increase engagement by prioritizing customer satisfaction across the organization. Our collaboration across business segments will help introduce new products, foster stronger customer relationships and help us manage inflationary price recoveries. Collectively, these efforts are targeted to improve profitability, increase enterprise-wide efficiency and support our outlook for the full year 2024.
Now moving to Slide 5. I'd like to highlight the expansion of our new Unity seat product line within our Vehicle Solutions segment. Unity seat line has many product features that are helping us win business globally, including powered full seat tilt and lever recliners, decreased free play and performance above market requirements. Importantly, Unity line has achieved safety compliance across all our strategic regions and market segments. This expansion is a strong example of how we are strengthening our core vehicle solutions business through customer focus, solutions and technology. We look forward to growing our Unity sales globally and sharing our successes with you in future quarters.
With that, I'd like to turn the call back to Andy for a more detailed review of our financial results.
Andy Cheung
Thank you, James, and good morning, everyone. If you are following along in the presentation, please turn to Slide 6. Consolidated first quarter 2024 revenues was $232 million as compared to $263 million in the prior year period. The decrease in revenues is due primarily to a softening in customer demand globally. The anticipated wind-down of certain programs in our Vehicle Solutions segment and a decline in our Aftermarket & Industrial Automation segments, which more than offset an increase in Electrical Systems revenues.
Adjusted EBITDA was $12.7 million for the first quarter compared to $19.8 million in the prior year. Adjusted EBITDA margins were 5.5%, down 200 basis points as compared to adjusted EBITDA margins of 7.5% in the first quarter of 2023, driven primarily by lower volumes and inflationary impacts, partially offset by lower SG&A expenses.
Interest expense was $2.3 million as compared to $2.9 million in the first quarter of 2023. The decrease in interest expense was primarily related to lower average debt balances during the respective periods.
Net income for the quarter was $2.9 million, or $0.09 per diluted share as compared to a net income of $8.7 million or $0.26 per diluted share in the prior year. Adjusted net income for the quarter was $4.4 million, or $0.13 per diluted share as compared to $9.2 million. It was $0.28 per diluted share in the prior year.
Moving to the segment result, beginning Slide 7, our Electrical Systems segment achieved revenues of $55.8 million, an increase of 1.9% as compared to the year ago quarter, with the increase resulting primarily from increased pricing sales volume with legacy customers saw a slight decline as a result of softening construction and agriculture end markets. Recent comments from ODMs in these end markets have indicated weakening demand, and we will continue to proactively adjust our cost structure Should these trends continue. We have also seen customer delays in the ramp of new business wins, resulting in total sales volume being largely flat year over year. Adjusted operating income was $3.1 million, a decrease of $2 million compared to the first quarter of 2020 sorry, operating income was negatively impacted at our Mexico facilities by the strengthening of the peso and the government mandated wage increases that took effect on January first. We are continuing to work with our customers to offset these headwinds However, negotiations remain ongoing. Construction on our second Morocco facility remains on track and is expected to be complete by the fourth quarter of 2024. We will remain focused on driving operational improvements and optimizing margins even additional new wins Flowfill.
Turning to slide 8, our Vehicle Solutions segment first quarter revenues decreased 14% to $137.9 million compared to the year-ago quarter, due primarily to lower customer demand, including the impact of supply shortages at a key customer that negatively impacted our schedules. Additionally, the anticipated wind-down of certain unfavorable programs in the segment weighed on revenues in the quarter. Adjusted operating income for the first quarter was $10.9 million, a decrease of $2.6 million compared to the prior year period as lower market demand was partially offset by operational improvements and lower SG&A. We remain focused on strengthening our core business in vehicle solutions and this segment remains a key focus for our team in terms of reducing costs, driving further operational improvements as well as winning business on new platforms or is the goal of driving improved margin.
Moving to slide 9, our aftermarket and Accessories segment revenues in the first quarter decreased 9.5% to $34.1 million compared to the year ago quarter, primarily resulting from decreased sales volume on lower customer demand and the drawdown of backlog in the prior year period.
Adjusted operating income for the first quarter was $4.6 million, a decrease of $1 million compared to the prior year period. The decrease is primarily attributable to lower sales volumes on a sequential basis. Results in this segment increase in terms of revenue and adjusted operating income as our operational improvement initiatives bear fruit.
Turning to Slide 10. Our Industrial Automation segment produced first quarter revenues of $4.3 million, a decrease of 56% as compared to $9.7 million in the first quarter of 2023 due to ongoing challenging market conditions and reduced demand from legacy customers.
Adjusted operating income was a loss of $1.9 million compared to a loss of $0.2 million in the prior year period. As we continue to take actions to rightsize this business. We are focused on strengthening our both commercial excellence and operational execution to improve order intake. In parallel with these activities, we are actively exploring new end markets and developing new highly engineered products. An example of this is the development of a new product named spec, which was showcased at the Modec tradeshow in March with This concludes my financial overview. I will now turn the call back over to James to discuss our updated 2024 outlook.
James Ray
Thank you, Andy.
Turning to slide 11, I'll share several thoughts on our outlook for 2024 following the introduction of our quantitative annual guidance at the revenue and adjusted EBITDA level in March 2024, we are reaffirming our previously announced guidance ranges for both metrics. Industry forecast currently projected decline in North American Class A. truck builds of approximately 10% for the year, a slightly positive revision from the previous estimate of a 16% decline. This favorable revised Class eight outlook is being offset by weakening in the construction and agriculture end markets, which we expect to be flat to down 10% in 2024. Notwithstanding these market changes, we are reaffirming our guidance range of $915 million to $1.015 billion in full year 2024 revenues, we believe our business will continue to be resilient as we benefit from the diversification strategy and forward-looking resource allocation. Given the aforementioned truck build estimates, construction and ag market outlooks and the expectation for further Electrical Systems segment growth. We expect adjusted EBITDA to be solidly in the previously provided guidance range of $60 million to $73 million for 2024. We believe that the actions being taken to consolidate operations, rescale our labor force, together with continued discussions with our customers to manage headwinds will serve to underpin the guidance. We continue to expect that we will generate positive free cash flow, providing us with optionality to pursue either debt paydown or inorganic growth efforts should we find an attractive opportunity. We continue to see multiple opportunities to improve profitability through operational cost efficiency and making strategic sourcing decisions and expect all of this to lead to improved working capital management and increased cash generation. Collectively, our business transformation is expected to drive a stronger business mix and make CVG a stronger and more profitable company in the coming years. With that, I will now turn the call back over to the operator to open the line up for questions.
Operator?
Question and Answer Session
Operator
Thank you.
Ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been right. Should you wish to decline from the polling process, please press star followed by the number two are using a speakerphone. Please lift the handset before press.
Yes. Our first question comes from the line of John Franzreb from Sidoti & Company.
John Franzreb
Good morning, everybody, and thanks for taking the questions for Joe and John, I'd like to start with the vehicle solutions segment and the wind-down of certain programs. I'm curious how much of that impacted the revenue line year over year? And are those program wind-downs complete or they continue into the second quarter and beyond?
Andy Cheung
Yes.
So John, thanks for the question. So on the majority of the wind tunnel has been completed. And so right now, we see it for the quota of, call it a single digit million euro level of impact. But you have to remember this is anticipated wind down that we talk about a few quarters ago at I'll call it maybe and during the time when we renegotiate the pricing on the last round, we decided that there are certain programs that are not favorable for us and we decided to exit them. So you can see the impact actually showing up now in Q1. So something that we've been working for quite a while ago, and it took some time for us to work through the final production and now Q1, you can see the numbers.
John Franzreb
Got it.
Got it.
And is it safe to say that all the repricing actions and everything related to that is down the pun intended rear-view mirror?
Andy Cheung
Yes, yes, you're right.
John Franzreb
Okay.
Regarding the restructuring actions, can you kind of quantify the Yum, how much in restructuring actions that you're going to you're going to take maybe collectively have an idea for calendar '24 and what you're anticipated annualized savings rate will be from these actions?
Andy Cheung
Yes. So a couple of things we announced last quarter that we were doing a few restructuring mainly here in North America during the quarter. In Q1, we executed about $2 million of restructuring costs of call it, maybe two thirds of it related to headcount reductions and then one-third of it related to facility closings. We recorded more than halfway through our restructuring program. We will still have some activity going on in Q2, and most of these should be wrapped up by Q3. So are both in terms of our facility manufacturing as well as SG&A.
So that's where we are right now.
John Franzreb
And you anticipated net savings annualize when you've done this process?
Andy Cheung
Yes.
So it depends really on the different type of the projects are we obviously have a mixed bag of multiple kind of project SG&A and manufacturing. Normally, we target about two years of payback in our saving projects, but it will be depends on the type of the actions within the restructuring program.
John Franzreb
And I guess last and I'll get back into queue on the industrial automation business took it took us will step down as far as revenue compared to the second half of last year, I was under I guess the anticipation was kind of troughing at that high 30 low 40 revenue level on and actually was also under the impression that maybe that business had the potential to get better in the year ahead has something fundamentally changed? Can you kind of talk about what's going on there?
James Ray
Hey, John, this is James. Yes, we're in the middle of the transformation of that business, as we talked about on the last call, were shifting from more of a contract manufacturing piece of base business, more engineered products, serialized production business with longer term contracts. So part of this was anticipated. However, the PO business is very cyclical and it's very lumpy as it comes in. So several of our customers are in the government space. And when they have year end spend toward the end of the third quarter, typically for government, that's when we tend to see a pickup. So that's been lighter than it was in prior year. And as we invest in SG&A to go to the engineered products, like we have mentioned, the stack product, we added engineers and SG&A to participate in the Motor Show, but also a test for the stack product, but also other new products with other new customers that are much more technical and engineering heavy. So we're in the midst of this transformation, and we have seen a recent improvement in our order inbound as well as contracts will be shipping product in Q3 and Q4. So the leading indicators are giving us some level of confidence that we'll be continuing to turn this around going on the upside.
John Franzreb
Okay.
So James, it's fair to say you think this is a revenue trough in our end as well as in that transition period.
James Ray
Yes. So yes, to a certain degree, yes, but it can depend on the others, sharp rebound or whether in unless we get near term contracts on these new products, we could see more of a spike back up or maybe a longer recovery depending on the new products. These new products require prototypes and alpha and beta testing of prototypes and customer facilities and also in their customer facilities as well.
When you're into a full fulfillment center ecosystem there's a double level of beta and alpha testing. So the time line for the new products from a revenue standpoint, the prototype revenue as well as in R&D is in the three to six months range of and full-scale production. We foresee that being in the six to nine month range on these new products, which in many cases have a higher skew price than some of our existing contract manufacturing products.
John Franzreb
Got it. Thank you.
So I'll get back into queue.
James Ray
Thank you.
Operator
Our next question comes from the line of Gary Prestopino from Barrington Research.
Gary Prestopino
Hi, good morning, James, and it's my questions also revolve around what you're doing on the restructuring side.
I guess given the fluid nature of what the changes you're seeing in some of your markets on in particular, I think you said some of the electrical systems areas are starting to see some weakness in construction and ag. I presume you've identified most of what you wanted to do in 2024 in terms of restructuring? Or is this kind of more or less a fluid process that's really going to be ongoing.
James Ray
Know it's really going to this is James and Hi, thank you for the question. It's really going to depend on how this market recovery track. So in this construction ag segment of the market. Our business is primarily with legacy long-term customers. They're not like new startups. So we do need to be prepared for a recovery in the market. So we will continue to adjust both up and down depending on the signals we get from that customer segment and those market segments in the fall last year, indications from our outlooks from those customers led to a low single digit year over year improvement in what they had communicated, but they've since communicated a flat to down 10% outlook for the year. So we had plans in place to comprehend a low single digit increase the market. And now we're in the pivot mode to scale things back for a flat to down 10%. So it was a pretty significant swing. A number of macro items influence that in different regions, both Europe and North America. But that is what we're doing. The flex to trying to maintain as much margin, but also make sure we have the appropriate amount of capacity in place when they do come back up. We're not have short of capacity and not able to fulfill the contracts we sign up for and lose market share. So it's quite a quite a delicate balance to do that. But our outlook remains very positive in these markets as they are somewhat cyclical in nature.
Gary Prestopino
Okay. And then internally, your guidance of $60 million to $73 million for EBITDA would have been more or less the electrical segment that would have to do an unexpected downturn for you to be as well below that $60 million.
James Ray
It could be a number of items. It could be a deterioration back in Class A. So if you recall, the class being forecast by ACT has been somewhat volatile over the last six months of down that. I know that was backed up a little because the larger portion of our revenue stream is in the vehicle solutions segment type of Class A. trucks. We saw a reversal of this positive trend back down to the minus 16 or four more percent down. That could influence where we end up in the range on the Electrical segment because we have more programs that are launching and some of those launches have been delayed, which is some of the headwinds we see, but they will be coming and a recent rebound in the construction ag market. I would say that we still are confident that we'll be in that range unless something very significant happens.
Andy Cheung
And Gary, if I may add to it, one thing that we see some uncertainties and volatility is really still the supply chain disruption that pop up here. And there you probably remember last quarter there was some labor disruption at our customers and those labor issues are still happening from places to places at different customers. We saw this quarter. Also, some of our suppliers of our customers also have supply issue impacting our customers. And of course, we all know that the Suez Canal issue affecting logistics. So those are the things probably healthy, potentially a downside risk if something continue to happen throughout the year.
So up the last couple of quarters, we've seen some of them happening.
Gary Prestopino
Thank you.
Operator
In case, ladies and gentlemen, just a short reminder, if you have a question, please press star followed by the number one on your touchtone phone. And our next question coming from the line of Joe Gomes from NOBLE Capital Markets.
Please go ahead, sir.
Joshua Wilson
Good morning.
This is Josh Wilson filling in for Joe or drove more and so the second question is on the electrical side of business. You know it kind of, but to have this kind of a bit slower revenue growth than kind of we expected just given kind of recent contract wins, there was really something behind that lower growth rates?
Andy Cheung
Yes, it does. And so on, as James already mentioned, so the legacy customer is mostly construction and agriculture. So as we explained, that does make up the majority of the end markets of the electrical segments so that we have seen a slight decline. So at the same time. If you look back in the last couple of quarters on the growth of the segments, it come from, continue ramping our new wins over the years as we described this year, we saw a slowdown of those ramp. So mostly because of customers seeing logistical and supply chain challenges. So they were not able to ramp up their production. So in turn, obviously, we don't get the revenues to supply to them so that the combination that impacting this quarter, our overall the volume is still up. So meaning that we still seeing some level of new revenues, but not as fast as we would like, but hopefully that our customer can overcome their challenges and continue to win new businesses.
James Ray
Yes, Josh, I'll just add to that point, we are not seeing any lost business from new wins we've pulled. So that gives us a leading indicator that the market will come back at some point, we don't have any leakage of fast business. So we still feel confident that we're going to have longer-term tailwind from all these new business wins in addition to construction and ag. It's also infrastructure customers as well as EV and electrification applications within legacy and new OEM start-ups. So it's a very diverse set of segments we serve in two, but to Andy's point, the largest two segments in the electrical business or contact both in North America and Europe.
Joshua Wilson
Okay.
That's helpful. And then just as for the silicon ag markets, is there really a big driving big driver in that deterioration of those industries that you guys have noticed.
Andy Cheung
And there are a few things that we heard from our ODM customers. One as you know, China is in a bad spot right now. So the Asia Pacific activity is pretty pretty low at this point.
Our Europe Europe, we also see some reduction in demand overall again, if the economy over there. And then I think the most recent development here in North America, so compared to a few months ago, the market has low at our customers also publicly mentioned that in their earnings calls that they are seeing some videos activities. So it's mostly demand driven based on what we heard from our customers.
Joshua Wilson
Okay, perfect. And then last one for me. I'll get back in queue. I guess with the first quarter over the new business wins of $45 million in line with your goals for the quarter kind of are we still expecting $100 million eventually?
James Ray
Yes. For the year, we're still expecting $100 billion of the $45 million is tracking well, when you look at our pending awards that we've quoted as well as our funnel of opportunities that we're pursuing, not just within Electrical, but also in our vehicle solutions group and aftermarket and accessories and also in industrial automation, we have a good funnel in each one of those businesses. We just need to bring home the awards that are pending.
And then on the pursuit opportunities. We have ample capacity in our outlook to be aggressive on winning those opportunities in the pursuit funnel to. So we feel confident at this point that we will achieve that $100 million on an annualized basis that we have I mentioned before in prior calls.
Operator
Thank you.
Our next question comes from the line of Steven Martin from Slater go ahead.
Steven Martin
Hi, guys.
Andy Cheung
Good morning, Steven.
James Ray
Good morning, Steven.
Steven Martin
On same basis, you said the second Moroccan plant will be completed and by the end of the first quarter that was 40 days ago. So I guess my question is, was it completed and is it producing?
James Ray
So we have an initial on Morocco facility that we're currently producing and that was completed in Q4. The second facility was started in Q1 this year. That will be complete by the end of Q4 this year with beneficial occupancy coupon of '25.
Steven Martin
Got it.
And I misheard that. And how is the the new Moroccan plant and the new Mexican plant doing.
James Ray
Other both they're both ramping up very well.
We are able to actually improve our funnel of opportunities with the North Africa and Morocco footprint for the European market. So we're seeing a good customer response from our expansion of our European footprint. As you may know, we have facilities in the Ukraine as well as Czech Republic for the Electrical Systems business. So this expansion into North Africa is positioning us well from a value proposition on new opportunities in Europe.
In Mexico, the Alabama facility, which is outside of Chihuahua, is ramping up very well. Our main facility in Mexico was in pockets in Agua Prieta. So the team that's managing those facilities is based in Chihuahua and Auger Fiat, and we're somewhat running those two in parallel. And we have a ramp schedule that will continue to ramp throughout the year and early next year with some of the North American new business wins that we've booked over the past 12, 18 months.
Steven Martin
Okay.
On And to follow up, someone's earlier question about your guidance, if I were to choose the midpoint of this year's guidance and on given how you've done in the first quarter, that would imply that the first the I'm sorry, the back half would have to be 10% to 12% to make the mid maybe 10% to 15% to make the midpoint of your guidance. What gives you that level of comfort, what businesses all four businesses were down this first quarter. What what businesses are going to swing enough to make that midpoint?
Andy Cheung
Yes.
So on, Steve, if you look at our guidance, you clearly see there's a little bit of a wider range that we communicated, as James already mentioned. So that of the upside of potentially at the ACT. truck build and depends on how the contract market goals or maybe the decline is not as severe. So there's some upside opportunity. But at the same time, that of also the downside risk that we mentioned about supply chain and logistics and the continued depressed and the demand on the customer side. So I think right now it's hard to say where the final we are going to land. But we believe that our range is pretty well cover in case of those scenarios, but we probably have more confidence in our ability to manage our earnings. So as we mentioned that we've been taking proactive actions or rightsizing the business, anticipating the customer demand changes. So there's a few more levers for us to pull.
So we are pretty confident in terms of our EBITDA guidance that the range that we produce.
James Ray
An additional point to Steve is the restructuring benefits will start to ramp higher in the second half after some of the efforts we took in the first. In addition to that, as we had mentioned in prior calls, our cost-out program, some of those savings items will kick in higher as volume ramps up on new projects that were implemented in Q4 and Q1 as we continue to have been in Q2. So on the cost side, we see opportunities too help mitigate some of the downside of lost top line or lower top line through the cost out process that we're doing. And of that to Andy's point, it helps us manage the earnings a little better, especially in the second half. And we're hopeful that the ACT and the Class A. market will continue to strengthen in the outlook. We're not banking on it, but we're hoping that that happens.
And then con Conor, I do think that it's volatile right now. I'm not really sure where it's going to end up, but I don't have any indication it's going to get much worse than flat to down 2%. So we're planning for the worse and putting things in place to try and mitigate pressure on the EBITDA outlook.
Steven Martin
Okay.
A follow-up to that on ACT expects that 2025. So we're first of all, as I said on the last call, 2023 ACT. was not as bad as everybody expected at the beginning of the year, '24 ACT. looks to be plus or minus, as you said, maybe a little better, '25 is supposed to be a new cycle. When do you expect that you're going to see or we will start to see the benefits of that new site?
James Ray
Yes. So that's a very good question. It's the it's interesting because, as you know, the '27 calendar year, our new federal emissions for Class eight vehicles, and I've seen ranges and estimates of potentially 30% higher insurance costs for all of the emissions. So '25, '26 outlook remains. C. team is pretty much factoring in a pre-buy. So you'll see I think you'll see a larger drop in '27 because the buyer was pulled ahead and we would expect to see a '25 model year with start the summer of or to the latter part of '24.
Okay. As the new models come on and the ramp of new production, a lot of the vehicle manufacturers have a model change literally prior year of the state of your model. So that's given us some indication, I think to another question earlier, which gives us a little more confidence in the in the back half of the year even though ACT's forecast is showing a decline in Q2 for us compared to the prior quarters, we still see depends on Windows customers start there next model and how fast they ramp up. So we have to be somewhat flexible and agile so that we can respond to those ramps, both on the high side and the low side.
Steven Martin
Okay.
And ACT predicted a bad Q4 in '23 and it ended up being a lot better on this one last question. I would assume that aftermarket is sort of the yen to new value new truck Yang in the sense that if somebody doesn't replace a truck, they have to buy some more stuff in the aftermarket to keep the existing truck on the road and should we see some aftermarket benefit or is it until you get it right righted, we're just not going to see that benefit.
James Ray
So we should see some benefit. And based on our portfolio, the majority of our aftermarket businesses in seating. So we focus we kind of took an [80-20] approach since I came into the role to figure out how we can win in aftermarket seating. And there are some pretty solid players out there that we're going up against and it comes down to two or three different things. One is how easy. It is to do business with us. And as you know, we had a website that launched it really didn't hit that well. And that's because we didn't leverage our field sales reps that I had mentioned in our last earnings call. We've done that now.
And then the second thing is what does the customer really wanted have does that fit into our ability to carry inventory and have quick turnaround within 48, 72 hours of when they want to see. And that's what we've been working on in Q1 with our factories in a few months and seat month, Alabama, which makes our aftermarket seats. So we've put in some new processes for scheduling. We put them in different inventory Pro Farm, our we have a more regular touch point with our field sales reps. We have recently seen an increase in our inbound orders for aftermarket seating. So I think the opportunity is out there for us to take advantage of capturing share that's existing with other competitors out there. As long as we focus on offering, we do a much better job of advertising and having the right inventory to model.
The other activity we started in Q1 was a an incentive program for our field sales reps. So this is, I think, the that was the leading behavior that's driving material as a result of increased inbound orders for aftermarket sales. So hopefully, we'll continue to see positive momentum in that. But we're looking at all different angles and being contemporary in our approach from how we're driving aftermarket sales. It had been somewhat of a legacy business that was really focused on OE service for the major truck manufacturers and now we're taking a more retail type approach with our field sales reps to have a more contemporary go at it.
So proof's in the pudding.
But but right now, we have some good early indicators that we should see some uplift, which is also helping us put a better pencil on the second half of the year. Overall, in the aggregate level of revenue. So we hope to see more aftermarket performance in the second half.
Steven Martin
All right.
Thank you very much.
James Ray
Thank you.
Andy Cheung
Thanks, Steve.
Operator
We have a follow up question coming from the line of Joe Gomes from NOBLE Capital Markets. Please go ahead.
Joshua Wilson
I guess just a quick follow-up from a couple of quick questions. And then you had mentioned that the additional cost actions in the press release. Can you just a little bit detail you guys are doing to offset inflation and foreign exchange headwinds? And then and how much more of the previous of cost actions need to be completed before for savings are going to realize?
Andy Cheung
I think it asked, so let me answer your home on a few areas.
So one is on a lot.
A large part of the cost actions that we have is to make sure that we rightsize our businesses so that we can offset the impact of the softer demand of our businesses, mostly in vehicle solutions as well as electrical.
So the electrical, as you can see, our margin pressure for the quarter came from really two main things. One is on the labor increases in Mexico. And many of them aware that there's some government mandate of labor cost increase in the border region of Mexico up to about 20%-ish. So it's really impacting some of our locations in the electrical business.
And then the other one that is also creating some cost pressure for us is of the strengthening of the Mexican peso, which compared to a year ago, is a double digit increase in terms of the cost of our Mexican peso denominated costs are to us. So we're working on both and one is continue to do some reduction in our cost structure. We taking our labor, our rightsizing the overhead at the same time. And more importantly, we're also working with our customer commercially to resolve some of these cost pressures. I would say that we have made some progress already in terms of offsetting some of the labor inflation, but we're still working through offsetting some of the peso strengthening cost pressure for us.
So we'll continue those efforts in Q2, but we believe that we should be able to work with our customer to find some solutions.
James Ray
In referencing of the other part of your question, last year, we said we achieved $30 million or approximately $30 million of cost-out activity at a gross level gross projects. And then obviously the net once you roll inflation and other things, it brings that number down. But we are on track to a similar number this year, both logistics and supply chain as well as direct material. And we're taking a fresh look at indirect spend as well to achieve that same level. So we are leaning in, I would say more specifically this year and other areas in addition to direct material, some of our direct material is directed buy from our customers. We have a little less opportunity there than the spend that we have or we select our own suppliers and drive savings. So framework that was put in place last year to drive the focus on direct materials, still there the framework that was put in place last year to have a specific cost out there for manufacturing facility. Our conversion cost is still in place pursuing that more emphasis. Now this year pretty much driven by some macro items. So freight and logistics is one area with the disruption in the Suez Canal and some of our supply chains that go across region that has caused us to take a more specific look at our freight and logistics and supply chain cost and see what opportunity we can get there.
Also looking at onshoring or near-shoring to reduce long supply chains, which have both FX risks as well as supply chain risk.
So there are a number of items we're looking at to achieve that similar level of savings at a gross level that we achieved last year for this year, which is helping us further solidify our range on the EBITDA marginal.
Joshua Wilson
Thank you.
Operator
Appreciate Keith seems to be no further questions at this time. I'd now like to turn the call back over to Mr. Ray for final closing comments.
James Ray
I'd like to thank you all for joining today's call.
We remain excited for the prospects that we see for CVG as we continue to execute our forward-looking strategy of resource alignment, cost management and customer engagement.
We reaffirm our business outlook and we look forward to continuing to drive growth at CVG. I hope you all have a great day and a safe day. Thank you very much for joining the call.
Operator
Thank you.
Ladies and gentlemen, that concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines and have a lovely day.