Terry Hammett - VP, IR Rich Lavin - CEO Pat Miller - President of Global Truck and Bus Tim Trenary - CFO.

Robert Kosowsky - Sidoti Joe Vruwink - Baird.

Ladies and gentlemen, good morning, and thanks for joining the Third Quarter 2014 Commercial Vehicle Group Earnings Call. My name is Ryan. I'll be the operator on the event. And at this time, all participants are in listen-only mode. Later, however, we'll be opening our lines to facilitate questions and answers.

(Operator Instructions) As a reminder, we're recording for replay. Now, I'll turn the call over to Mr. Terry Hammett, VP Investor Relations..

Thank you, Ryan. Thank you, and welcome everyone to our conference call. Rich Lavin, our CEO will give a brief company update; and Pat Miller, President of Global Truck and Bus will provide a line of business overview.

Tim Trenary, our CFO will provide commentary regarding our third quarter 2014 results, who will also provide commentary on our long-term strategy, CVG 2020 and answer questions. I'd like to remind you that this conference call is being webcast.

It 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 the 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, and risks associated with concluding business in foreign countries and currencies, and other risks detailed in our SEC filings.

I'd now like to turn the call over to Rich..

Thank you, Terry. Good morning, and welcome to our call. We're pleased to report that our revenues improved by $25.9 million or by 13.8% over the prior year period, and that gross profit and operating income improved by $10.3 million and $13.1 million respectively.

Before giving effect in the prior year period to the costs associated with employee separations, asset impairments and third-party consulting services, pull-through was well within the range we expect period-over-period.

Demand for medium and heavy-duty truck products in North America benefited from comparatively strong build rates during the third quarter of this year. Class 8 heavy-duty truck orders remain strong in the third quarter of 2014, and were approximately 43% higher than the prior year period.

Pat Miller will expand on this in his update on our global truck and bus division in a few minutes. Our global construction and agriculture end markets also performed well in the third quarter of 2014, delivering better than 10% more sales than in the prior year period.

We continue to focus on the agricultural equipment market, especially in North America. Agriculture is a market we believe offer significant growth potential for us.

It is probably the single biggest area of potential growth for CVG globally, and we're addressing the opportunity to both enhancing our product offerings and expanding our sales and marketing efforts. We're committed to allocating the resources needed to increase the sale of our products in this critical market.

And of course, construction is a key industry for us, and an important area of growth going forward. The company is currently in the process of [grooming] (ph) its financial plan for 2015.

As we build our plan and our product line managers identify growth opportunities, we're encouraged by the 2015 forecast for continued growth in the regions and industries we serve.

In China, GDP growth is currently running at around 7.3%, and we've seen reports that infrastructure investment grew more than 20% in the first nine months of the year from a year earlier. Recent reports on China reflect reduced sales in the construction end markets, due principally to excessive inventories.

We view this as a temporary phenomenon, and with China forecasting at 7.2% GDP growth rate for '15, we continue to view China as a key market in our organic growth strategy, and we believe that the Chinese truck, bus construction and agriculture equipment markets will provide CVG with market penetration and growth opportunities in 2015 and over the CVG 2020 period.

India, another market we plan to focus on, has shown GDP growth of around 5.5% in 2014, and market indications are that their GDP will increase slightly as we move into 2015. India continues to make progress on economic reform.

We believe this will strengthen the need for infrastructure improvements leading to an increase in the need for construction equipment to enable the infrastructure build out and on highway trucks to move the goods to respond the increased domestic consumption.

We're also generally encouraged by the GDP forecast for North America, and we anticipate the Euro zone will be largely flat year-over-year. So in a nutshell, this is how we view our opportunities. We continue to be confident in the primary industries we serve; transportation, construction, agriculture, mining.

Growing populations and increasing organization, particularly in China and other developing markets will drive demand for heavy-duty trucks to deliver good and materials, mining equipment to enable extraction of the commodities needed to support infrastructure needs, construction equipment to build the roads, bridges, ports and infrastructure that accompany urban expansion, and agriculture equipment to plant and harvest the crops needed to feed an increasing global population.

We supply and support the OEMs that build the machines that will meet these growing needs, and we're working to ensure we continue to provide each of our OEM customers with highly differentiated value-adding cab systems and components, as demand for their products grows.

As you know, in the third quarter of this year, we included a long-term strategic planning process known as CVG 2020. CVG 2020 is a roadmap by product, geographic region and end market to guide resource allocation and other decision-making to achieve our long-term sales and profit growth goals.

The primary goal of CVG 2020 is to deliver top quartile total shareholder return. And to that end, we've completed an in-depth evaluation of our opportunity to grow organically by end market. With only a 5% share of the addressable $27 billion global truck, bus, construction and agriculture end markets.

We have significant opportunity to grow organically in our end markets to customer-focused product design and expanded and improved sales and marketing capabilities. As we've indicated previously, our core products are seats, trim and wire harnesses. And our complementary products include structures, wipers, mirrors and office seats.

With these products, we expect to drive geographic diversification toward Asia Pacific, and also realize end market diversification more weighted toward agriculture and construction. Consistent with our CVG 2020 goals, we'll allocate resources consistent with our global market share objectives in our core and complementary product portfolio.

Also, as we execute our global organic growth strategy, we'll explore acquisitions to supplement our product portfolio, add value-creating resources, and enhance our ability to serve our customers in our geographic end markets.

I want to emphasize that as we drive top line growth, the company will be sharply focused on margin enhancement and improved profitability throughout the period. The combination of top line growth in a cost efficient value-creating structure will enable us to leverage our resources and capabilities to deliver margin improvement year-over-year.

In this regard, we'll continue to focus on operational excellence, global sourcing and customer-focused product design. We plan to set the industry standard for quality, productivity and efficiency in our facilities. Lastly, we're focused on continuing to attract the best and brightest employees and developing them as key players within CVG.

This is really the cornerstone of our success. I also want to take this opportunity to mention the promotion of Geoff Perich as the President of Global Construction and Agriculture.

Geoff joined CVG in August 2013 as the Managing Director for Asia Pacific operations, and he has been restructuring our business and building our team in Asia Pacific, work that has positioned us to deliver the 2015 business plan and our longer term strategy in these high growth markets.

With Geoff's deep experience in the construction equipment industry gained in the 25-year career with Caterpillar, and his extensive experience in serving global customers, Geoff is ideally suited to lead the growth and development of our construction and agriculture equipment businesses globally.

In closing, I'd say that although it is relatively early in our journey to enhance CVG's overall competitiveness in the global marketplace and improve our financial performance in the long-term, we've made solid significant progress in that direction.

We understand that achievement of our objectives is the result of offering our customers best-in-class products and services that enabled our success. And we're committed to helping our customers succeed. And with that, I'll turn over it to Pat for an update on our global truck and bus division..

Thank you, Rich. As Terry mentioned, I am Pat Miller, the President of CVG's Global Truck and Bus division. First, I'd like to comment on the North American truck build rates. Build rates have remained strong. They've been on an upward swing all year, supported by strong freight market and positive economic indicators.

We're continuing to successfully adapt to the ramp up of daily build increases from the OEMs. The volume increases have been managed in our usual fashion of flexing up our capacity through increased hiring and adding shifts and overtime.

We've had some minor supplier constraints, but we've been able to mitigate these and avoid any impacts to our major customers. We're taking full advantage of the increased build rate in North American heavy-duty truck industry, and we're meeting or exceeding expected profit pull-through target on these increased sales.

From an OEM perspective, we're seeing our customers add additional build time to offset any issues they maybe experiencing, and for the most part, they seem to be managing the higher demand.

There is a strong order backlog in most of our customers, FTR, a forecasting service we use in addition to ACT recently published, their projection was some of the bills were being pushed into 2015, and it would help bolster a strong first half 2015 from a build perspective.

We've been talking in previous sessions about a 280,000 to 300,000 truck build for 2014. We're more confident the build rate will be more in the 290,000 to 300,000 range, subject to any unforeseen constraints in Q4, 2014, at the OEMs.

We believe that the North American heavy-duty trucks build in the first quarter 2015 will continue to be robust, based on the build trends we've seen through the third quarter.

We're focused on a great deal of activity currently in quoting and staffing to support several next generation development efforts, for many of the large North American platforms which are targeted for start the production in 2016 and 2017.

For the rest of the world, as we discussed during our Investor Conference, we're developing and launching region-specific seating products in multiple Asian countries, targeted at driver seat applications for truck and bus OEMs.

Designing products that address the price and performance expectations of different customers in Asia Pacific is an essential element of our organic growth strategy in that part of the world. We're developing inroads with the domestic OEMs, which is giving us better insight to the dynamics and market requirements for those areas.

Additionally, we've recently launched common platforms with a large multinational, in China, India, and Thailand. We're seeing our current large truck customers working very diligently to increase their share on these markets, and this has convinced us to expand our infrastructure and region as we go forward.

With that, I'll turn the call over to Tim for comment on our financial performance..

Thank you, Pat. As Rich mentioned, and as compared to the third quarter of 2013, our financial results continue to benefit from increased build rates by North American heavy-duty truck OEMs and to also extent our global construction and agriculture end markets.

Third quarter 2014 revenues were 213.8 million, an increase of 25.9 million or 13.8% compared to the third quarter of 2013. Operating income in the third quarter at 9.7 million compares favorably to an operating loss of 3.4 million in the third quarter of 2013.

You may recall that our third quarter 2013 results were impacted by a number of special items, more specifically in the third quarter of 2013, the company incurred 1.8 million in cost associated with employee separation, 2.7 million Of asset impairments, and 2.8 million of cost for third-party consulting services.

When adjusted for these special items, a total of 7.3 million, our third quarter 2014 performance represents a 5.8 million improvement in operating income from the prior year period, and pull-through or conversion of sales into operating income in the quarter consistent with our historical experience.

Our gross profit and operating income margins before giving effect to the special items previously noted benefited in third quarter of 2014 compared to the prior year period, from cost structure discipline in a rising market and therefore operating leverage on increased sales.

With regard to the SG&A spending of 18.3 million in the third quarter of 2014, it compares favorably to the prior year period by 2.8 million. As more fully described in our earnings release, SG&A spending in the third quarter of 2013 included 4.4 million of the afore mentioned 7.3 million in special charges.

Our SG&A spending in the third quarter of 2014 reflects spending consistent with the first two quarters of this year. We continue to evaluate our SG&A spending to ensure alignment with our recently announced long-term strategy, CVG 2020.

Net income for the quarter was 1.2 million or $0.04 per diluted share compared to our net loss of 7.3 million or loss of $0.25 per diluted share in the third quarter of 2013. An income tax provision of 3.3 million was recorded in the third quarter of 2014, compared to an income tax benefit of 1.5 million for the prior year period.

Our effective tax rate continues to be adversely impacted by valuation allowances in certain of our subsidiaries. Depreciation was 4.2 million in the third quarter, and amortization was 0.4 million. Third quarter capital spending was 4.4 million.

We expect to increase capital spending throughout the remainder of the year as we invest in our facilities, sales growth, operational excellence and other activities. We also expect some of the spending in the remainder of the year to be associated with initiatives specific to CVG 2020.

We finished the quarter with 76.1 million of cash and approximately 37.1 million of availability for our ABL facility and therefore liquidity of over 100 million. As a consequence of improvement in top line growth and improved operating income over the last four quarters, our leverage ratios have improved.

We launched CVG 2020, our long-term strategic plan in the third quarter. CVG 2020 will guide our resource allocation and other decision-making over the period to 2020. The overarching financial objective of CVG 2020 is to consistently generate top quartile total shareholder returns.

Accordingly, we intend to realize sales and EBITDA growth rates commensurate the top quartile total shareholder returns. More specifically, we intend to grow sales to 1.2 to 1.3 billion over the next six years, the compound annual growth rate up from 6% to 8%.

With respect to EBITDA growth over the same period, we expect the compound annual growth up from 13% to 17%.

CVG 2020 will require meaningful investments in 2015 and 2016, including investment in our product line manager organizations, the design and engineering necessary for product innovation, our manufacturing processes, our facilities and perhaps our manufacturing footprint.

Notwithstanding these investments in 2015 and 2016, we intend to improve earnings and margins. We're encouraged by the growth in our top line as well as our improved margins and the leverage metrics and expect CVG 2020 to have a significant impact on our growth and financial performance in the coming years.

And with that, we'll open the call to questions..

(Operator Instructions) Our first question here comes to from Robert Kosowsky with Sidoti..

Good morning, guys.

How are you doing?.

Hi, Rob.

How are you?.

Doing great.

I remember in the second quarter there were a little bit of inefficiencies associated with the North America truck ramp and that seems like they've all been pretty much hashed out, is that pretty fair to say they've all been hashed out and are you executing to where you think you would be given the current production environment?.

Yes. We are. We had some -- when we were ramping up, we had also new business launches going on simultaneously. And so, there were some things we did in the first half of the year that we've cleaned up in the second half of the year..

Okay, it sounds good. And then, otherwise any more kind of granularity as to how the construction market should be unfolding fourth quarter and then into next year either by region or -- I guess, by region specifically..

Rich Lavin:.

Europe is going to flattish year-over-year, and so, we're planning on some improved sales associated with deeper customer penetration. But it's a flat outlook generally in construction for Europe, consistent with the GDP outlook..

Okay, that's helpful. And then finally, Tim, I don't know if you haven't give any more thoughts to, I guess, potentially restructuring some of the debt you have or refinancing the debt you have into next years -- just any update or thoughts on that..

Yes. Rob. We are in fact continuing to evaluate our capital structure, especially in the context of CVG 2020. That work is underway and ongoing. And at this point, I don't really have anything material to report; some more to come on that, just know that we're doing as you enquired..

Okay. Thank you, very much and good luck, guys..

Thanks, Rob..

Our next question here comes to you from David Leiker with Baird..

Hi, good morning. This is Joe Vruwink on the line for David..

Hi, Joe..

I just wanted to follow up on the last comments regarding your construction and Ag business, when I think of your customers; most have lowered their forecast for construction in Asia this year, and there has been a lot of suppliers noting weakness and combine activity here in North America. So just with that context, you sound a lot more upbeat.

And I'm wondering if you can attribute that to new business at CVG, which is enabling you guys to have a better outlook for your business relative to the markets..

Yes, Joe. I'd say that our outlook for construction and Ag is really tied to our plans to more deeply penetrate existing customers and existing opportunity levels.

I mean, our improvement is not only going to be dependent upon the industry growth year-on-year, it's going to be better upon our ability to more effectively and more deeply penetrate the existing opportunity..

Okay.

So the types of numbers that have been thrown out recently, minus 30% declines in China Construction and down 10% to 15% here in Ag in North America, those numbers don't concern you just given you see your book of business and you're well positioned there?.

Yes. I'd say in construction with our book of business, we're pretty well positioned, and we're making efforts as I mentioned to more deeply penetrate the Ag opportunity North America and globally, but principally North America..

Okay, great. And then on switching gears a bit, when you step back and look at how your business performed during Q3 and what were pretty good levels of industry demand.

What are some of the puts and takes into 2015 for driving profitability, higher growth of -- to the levels you seem to be exiting, I'd call it a plus or minus 5% EBIT margin level, you'll be exiting this year out?.

Yes, Joe, first of all on truck, I'd say that Pat and his team have really addressed that opportunity quite effectively this year. We've gotten the pull-through that we'd expect given the level of the industry improvement in North America, and we see that carrying over into 2015 as the level of the build is sustained in the first quarter of 2015.

As far as improvements otherwise are concerned, I'd say that those are really going to come from areas that we're focused on that we're going to be investing as a part or CVG 2020.

As a part of our CVG 2020 rollout, we indicated that we continue to look at our manufacturing footprint and look for opportunities to rationalize and improve our overall footprint.

At the same time, we brought in Ulf Lindqwister to manage several key areas of cost input, including materials, logistics, manufacturing and operational excellence as we pull together our 2015 plan, our expectations for contributions in those areas have really improved as a result of his and his team's engagements.

So I'd say those are probably the areas where we expect to see the most significant contribution and year-over-year profit improvement..

And when you look at those things, does that allow you to generate EBIT contribution above the normal 20% to 25% range you target, or are those actions still getting you within that range?.

We'll ensure they were within that range, but we're also targeting the EBITDA growth range in the first year of CVG 2020 that Tim mentioned in his remarks..

Okay, great. I'll leave it there. Thanks, guys..

And we have no other questions in queue. (Operator instructions) All right, it looks like we have no other questions coming through..

Okay. This is Rich Lavin, thanks to everybody for the call. We look forward to getting together with you again for our next quarterly update. Have a great day..