Good day, ladies and gentlemen and welcome to the Q1 2017 Commercial Vehicle Group Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Terry Hammett, Vice President of Investor Relations. You may begin.

Thank you, Glenda and welcome to our conference call. Patrick Miller, President and Chief Executive Officer of Commercial Vehicle Group will provide a brief company update; and, Tim Trenary, our Chief Financial Officer, will provide commentary regarding our first quarter 2017 financial results. We will then open the call up for questions. 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, risks associated with conducting business in foreign countries and currencies, and other risks detailed in our SEC filings. And now Pat Miller with a brief company update.

Thank you Terry. Good morning, welcome everyone. The good news is that we are seeing some positive indicators in the marketplace. Back in 2016 our truck and bus segment in North America was down significantly from the previous year especially in the back half of last year. Our global construction business which is stabilizing from multiple years in very tough market conditions. What we are seeing so far this year is that the North America Class 8 truck order backlog is increasing driven by unexpectedly consistent OEM orders for the last six months. Typically in the Class 8 market, the OEMs received orders for new vehicles approximately four to six months in advance, scheduling those orders for production. These higher orders are spurring the OEMs to increase their production plants. While the year-over-year comparisons for Q1 OEM North American truck production shows a decline of approximately 20%, the new truck order levels year-over-year in Q1 are higher by 31% and likely indicate increases in near-term production levels. CVG's truck related sales reflected about a 13% increase in 2017 Q1 when compared sequentially to 2016 Q4. Accordingly we are updating our expectation for the 2017 build rates to finish the year between 215,000 to 235,000 units up from our earlier guidance of 200,000 to 220,000. ACT and FTR both publishers of industry data had 2017 North America Class 8 build rate projected at 217,000 and 230,000 respectively. In 2016 the North American build rate was 228,000. The industry outlook for 2018 and beyond continues to be positive with forecasts indicating year-over-year improvement in North American Class 8 production up to an estimated 295,000 units in 2020. Turning to the global construction market conditions, we're seeing significant increases in customer orders year-to-date and for the near-term but we do not have public…

Good morning. When we announced this past March our intent to refinance the senior secured notes we provided guidance as regards selected financial measurements for first quarter 2017 including sales and operating income. We are happy to report that we beat this guidance, more specifically sales were 7% better and operating income 12% better than the midpoint of guidance. For the consolidated first quarter 2017 revenues were 173.4 million compared to 180.3 million in the prior year period, off by 4% period-over-period but up 16% from fourth quarter 2016. This sequential improvement in sales performance reflects improving heavy duty truck production in North America as well as improving the global construction equipment build our two largest end markets. The strength of the U.S. dollar remains a burden on the top line but less in the recent past. Foreign currency translation negatively impacted first quarter revenues by 2.8 million or 1.5% as compared to the first quarter of 2016. Selling, general, and administrative expense in the first quarter was burdened by 2.4 million of cost for the settlement of a consultant contract dispute resulting in SG&A expense of 16.6 million in the first quarter compared to 16.8 million in the prior year period. As previously disclosed, this dispute is a longstanding legacy issue and we're happy to have it behind us. Before giving the effect of the settlement SG&A was in line with recent quarters and 15% less than a year ago. This reduction in SG&A period-over-period reflects the impact of the many actions taken beginning about a year and a half ago to manage down our cost structure in a declining sales environment. Before giving the effect of the special items arising from the litigation settlement and facility restructuring, adjusted operating income in the first quarter was 8 million compared…

Thank you. [Operator Instructions]. And our first question comes from the line of Mike Shlisky from Seaport Global. Your line is now open.

Good morning guys.

Hi Mike.

So Class 8 projection was down 20% in the first quarter in the industry, your segment was down only about 12% to 13% here. Could you just help me bridge the difference overall and I guess the facility was up -- was down about 3% so that's certainly helped the growth on the year end. But beyond that are there any additional markets that you are seeing growth in internationally future investments make a positive or are you seeing market share growth in the core Class 8 market?

So, Mike it is Tim. Thank you for your question. Valid point, all things being equal one would expect the truck segment sales to have performed a little bit worse given that the 20% build -- the reduction of 20% in the build rates. So to your point there's been other elements of our business that have been improving. There's nothing you know terribly specific. I mean as I think we've discussed in the past we've made some improvements in our market share in some respects in India, we have some elements of our truck segment here in North America, they are continuing to improve. So it's a pool of a number of small things that has allowed us to offset the decline in truck build somewhat year-over-year.

And kind of few other things. So Mike we are not just in the Class 8 truck market in that truck and bus segment. Some of that's rest of world so there's a little bit Tim mentioned we've got truck business in other parts of the world that obviously is not affected by the North American swings. We are in the five to seven segments and we've also got an aftermarket business which is a pretty good chunk of the segment and that business is going to see the same fluctuations as the OEM trucks cycle. You add those things together and I think we've got segmentation out there, probably you can take a look at. Those numbers probably correlate when you look at what actually is OEM Class 8 on a percentage basis.

Okay, got it and then looking at some of the OEM comment out there in the Class 8 world, given that Class 8 will be down in Q2 year-over-year but perhaps not much to the same degree we saw in Q1 and then the second half of the year for the industry will actually be producing growth for Class 8 and I guess by extension for your truck and bus segment?

So the question is what to do in the second quarter.

Sounds like -- yeah, it sounds like we looked at some of the forecasts from -- other places it's still might be down year-over-year the industry in Q2 but you think you're setting up an easy comps for some growth year-over-year in Q3 and Q4, just for the industry as a whole not necessarily for your truck and bus segment?

Yeah, so I don't know have I got the numbers on the tip of my tongue for each quarter but I would tell you on an aggregate basis we are seeing a lot of positive indicators. From the built and the production planning from the customers in the North American truck market. And what we see multiplying in those activities has led us to increase our build projection. And I think that you'll see -- FTR is already add to our 30 in their projection and I believe with some of the strong activities going on the order side, my guess is you'll see ACT make some adjustments in their full year number in the not so distant future. So we've got a lot of positive indicators and data accumulated that's given us some confidence in making the changes and projections that we have made.

Interesting, that's great color and then moving on to construction and Ag you had somewhat easy call for Q1 with the statement down 15% of Q1 last year, the contract is really is closer to flat for the other three quarters of the year but you still feel you can get growth in each of the last three quarters here compared to the prior year?

So I think where we see the growth is in some of these medium duty and heavy duty programs which were -- which we have a better product on. So, right now we've not -- we're not given indicators for the total segment from a reporting standpoint at least from the public standpoint. So our visibility goes into through second quarter and part of third quarter and right now at least on a sequential basis we are seeing positive indicators.

Great, but I kind of was talking about in a different way. In the first quarter you saw $32 million in that segment, you have not seen that revenue level in like two years. Was that being a good run rate going forward given what you've got ramping up and given the end market backdrop or seasonality this year or maybe Q3 and Q4 are a few million below Q1 and Q2 due to the build schedules that your customers generally have each year or is this a bit more than up off the trough kind of ramp going forward to the run rate?

I think that's kind of the same question you asked in a different frame. Well, I'm not going to give direct guidance I think on this segment at least not this time but I will tell you though is there is seasonality typically in the construction segment and the first and second quarters tend to be a little higher than the third and fourth quarters. And what we're seeing on the gross side may push some of the some of that order backlog out. So, I don't know how that's all going to shake out yet. Mike, it depends on how fast everybody in the industry can ramp up. So we're seeing from a supply side pretty expedited order increases and that can result in some in some backlog right. So, it could drag again but seasonally usually we see Q1, Q2 are better quarters for construction. As you can imagine that is the build season, right.

Of course, of course, and then getting the award from Deere for your wire harness, I think it was great, could you give us your thoughts about increasing engagements in the Ag world in 2017 or 2018. I'm not sure I'm looking at growth in that market overall for the market but how do you feel about your penetration in AG in the near to medium term?

Well I think it's still -- it's still early days so we're doing a lot of work in AG not just in North America but also around the globe and we've got things out in the field with some of our new products. On the SCIOX product line which we've talked about in previous calls and previous meetings and some of the press releases, so we've got products out there on Ag machines in the field in testing and at this point we're feeling very optimistic that we'll be able to bring some of those home. But I think from a magnitude standpoint we don't know the answers to those yet.

Alright, and just one more from me, know that the debt refinancing and debt reduction is behind you, what does that have to do you think on the balance sheet here going forward or are you going to more be focused on just good day to day management especially on your working capital?

Nothing unusual at this point. Michael, as anticipated there is a -- as we have articulated in the past we pay close attention to our operating working capital and we've done I think a good job of managing that especially through these various swings and what continued to be there. I guess the best way to maybe think about this is if you think about the company's capital allocation strategy liquidity number one, capital for growth number two, deleveraging the business number three, and number four returning capital to shareholders. We're at that third step now and as evidenced by the transaction that we closed last month on the new line, we delevered the company certainly on a gross leverage basis and reduced the company's interest burden by about $6 million. So right now we're focused on the operating working capital in our business and the further deleveraging of the company.

Alright, well that's great color. I'll leave it there guys. Thank you very much.

Thank you. [Operator Instructions]. And our next question comes from the line of Ted Wheeler from Wheeler Capital. Your line is now open.

Yes, thank you, good morning everyone. You mentioned some startup costs and production inefficiencies at wire harness, I think you mentioned a $4 million impact in the quarter. I'm wondering when you think that might kind of get back to more normal situation and when you get there what kind of a profit you might expect from that operation?

It is Tim. I'll let Pat speak if he wishes to the causes and the fixes to the issue in the North America wire harness business but what we really anticipate is that here in the second quarter that is a burden on our financial results of those challenges will decline and will subside and is coming down and we don't expect it to wash over much into the third quarter at this point at all. So we think that we have the worst behind us and it's coming down here in the second quarter maybe a little bit of an impact after the second quarter. In terms of the profitability for that segment you can take a look at the segment's financial results as you can appreciate in the first quarter it's burdened by 4 million. So adding that back might give you some sense of where the settlement would be absent those charges.

Well yeah, and I guess presumably you would expect to earn some money in that facility, it was kind of what I was questioning, that's all.

Alright, in terms of the facility, yeah, no we don't think that this is going to have any dramatic impact on our restructuring efforts and our savings of having the rest of the team that are currently looking at how we might reconfigure our operations. To some extent down there I think you spoke a moment ago about a satellite facility not too far from the facility there. We have some reduction of capacity but it's a little early to say but at this point we don't anticipate any dramatic change.

Okay, great. One other question if you care to comment. You had several weeks in really dramatic increase in volume, do you have any color there or perhaps comment on that?

No, I don't. I can't explain it and it's inexplicable as far as I'm concerned, yeah.

This is Pat. We don't, we can't ever tell what the motivation is on some of the investor activity but when you look at the amount of positive news and reports and some of the orders which are made public through these forecasting services around the North American truck build and some of the positivity going on there. I would hazard that that's probably some of the activity.

Yeah, that makes sense. This space is done fairly well and great to see you participating. Thank you very much.

Thank you.

Thank you. And I'm showing no further questions at this time. I would like to turn the call back over to Patrick Miller for closing remarks.

Yeah, I just want to thank everybody for joining the call today and listening to us go through kind of our current status. We believe we're going to get some of the things that we talked about behind this and a lot of the positive things we have going on in the future. So we look forward to talking about those on the next call. Thanks for joining us.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a great day.