Good day, ladies and gentlemen, and welcome to the Third Quarter 2018 Commercial Vehicle Group, Inc. Earnings Conference Call. [Operator Instructions]. As a reminder, today's conference is being recorded. I would now like to turn the call over to Terry Hammett, Head of Investor Relations. Sir, you may begin.

Thank you, Chelsea, 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 third quarter 2018 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 as detailed in our SEC filings. And now Pat Miller with a brief company update.

Thank you, Terry. Good morning, and welcome, everybody. CVG continues to capitalize on the robust markets we serve. We've effectively increased production to deliver what we believe will be our strongest top line performance since the peak market in 2006. Furthermore, based on market indicators and our growth actions, 2019 is poised to deliver higher sales than 2018. Our third quarter 2018 revenues improved by $26.7 million or by 13% over the same period last year. Operating income was $16.5 million in the third quarter of 2018, a significant increase over the $10.7 million of operating income in the third quarter of 2017. Tim will discuss this in more detail shortly. When we step back and look at the numbers year-to-date, we are delivering more than double the operating income on about 19% more in sales. We're very proud of the success the team is having in managing the numerous challenges facing us, including rising commodity costs, labor availability, supply chain volatility and trade-related complexities, all while effectively responding to the increased production needs of the customers. Switching gears briefly to discuss markets. The North American heavy-duty truck orders continue at historically high levels. Economic indicators reflect the continued solid freight environment and high truck utilization deep into 2019. These dynamics are conducive for the fleets to continue positive pricing actions, which influences their equipment-buying behavior. September's heavy-duty truck orders came in at 40,000 units, making the third quarter 2018 an all-time record number of orders. This contributed to further extension of the truck backlog, which now stands at just under 10 months, which is also an all-time record. Some of our OEM customers are indicating that 2019 order slots are mostly full already, providing high confidence that total builds in 2019 should be higher than 2018. The supply chain…

Good morning. Here's the third quarter in brief. Operating income of $16.5 million is over 50% higher, and operating income margin is almost 200 basis points higher than the same period last year. Net income of $12.6 million has more than doubled compared to last year. Free cash flow has improved, and net leverage is now down to 1.4x trailing 12-months EBITDA, about half as much as a year ago. More specifically, as for the company's consolidated financial results for the third quarter 2018, revenues were $225 million compared to $198.3 million in the prior year period, an increase of 13%. This improvement in the top line reflects higher heavy-duty truck production in North America and continued strength in the global construction equipment markets we serve. Foreign currency translation adversely impacted third quarter revenues by $1 million or by 0.5% as compared to the same period last year. Selling, general and administrative expense of $15.7 million for the quarter was somewhat higher than last year on the 13% increase in revenues but in line with what we expect on a run-rate basis. Operating income in the third quarter was $16.5 million compared to $10.7 million in the prior year period. This over 50% improvement in operating income reflects the higher sales, the completion of facility restructuring in late 2017 and improved results in our North American wire harness business. Net income in the third quarter 2018 more than doubled to $12.6 million or $0.41 per diluted share as compared to $4.8 million or $0.16 per diluted share in the prior year period. This improvement in net income is a reflection of our improved operating results and an unusually low tax provision in the quarter, which includes $2.9 million of tax benefit to adjust the provisional tax expense arising from the…

[Operator Instructions]. And our first question comes from the line of Mike Shlisky, Seaport Global Securities.

Just a few very quick ones for you, kind of a broader view here. You mentioned a very, very strong truck and bus market. But I'm kind of curious if you can give us some additional color on the construction and ag market, maybe separating the two out. I mean, if you're confident that you'll see a pretty good year next year in trucks, do you think you'll see some decent growth next year in some directional form in the ag and construction spaces?

Yes. So it's a little harder to pin down the construction and ag. Now we would call that off-road equipment because there's other -- there are other industries also that seem to be driving some of the positive growth in that part of the group for us. That includes mining and some of these specialty off-road applications. The indications that we see so far are that the markets will be up in 2019. The orders look strong from what we can see in the first six months. It's hard to see farther than that for us. So that's part of the reason we don't -- we're not so explicit with the numbers. But we are currently increasing capacity in anticipation of 2019, I'd say, increasing capacity, increasing capability and production throughput for next year.

Okay. And then secondly, I kind of want to ask about the margin performance. Obviously, pretty strong in the quarter here and that's with a lot of headwinds that you were facing. So very strong execution here, I guess my big question is for 2019, do you think any of the challenges that you are facing might intensify, or do you think most of what you're seeing is under control, and so you should see some good volume leverage next year?

Yes. It's a good question. I think we have effectively put in a lot of mechanisms to help us manage raw materials and some of those cost issues. The trade piece has some inherent potential increase related to the China part of the tariffs that have gone into place. As you may know, they were started at 10%, and if they are still in effect January 1, they increase to 25%. That will affect us somewhat, we have been working on methods to mitigate that, as I mentioned in the opener related to either passing those long down our supply chain or in mitigating those by changing the structure of our supply chain. So there's opportunities to do both. So those -- that will still be a challenge if it continues, but I think that's also a big if, right? So I think we've got the bulk of these things to -- into mechanisms that should be able -- there will always be a lag for us when costs go up that on the raw materials side. And so I think we will still have challenges, but a lot of the issues that -- things we needed to get in place commercially have been done.

And perhaps, just one more for me, speaking of China. Can you give us some thoughts about the kind of market outlook there for the next couple of quarters as well as your own company outlook there? Is it kind of the same or do you have new programs ramping up in Asia right now?

Yes. So we're experiencing growth in Asia, and it's coming from -- our Asia touches multiple countries there. We're based predominantly in China and India. We have a new operation just launched in Thailand supporting some customers there. But our -- we've seen growth in the construction side in the region. We support Japan and Korea as well. So we've seen growth in that area on the construction side, double digits. And we are seeing the biggest opportunity for us in domestic China and India for that matter as along the truck and bus side for seating, and while I've seen some of the decline projections for the truck industry in that area from some of the prognosticators, for us, a lot of that's new market share, and we've won some new business. It's ramping up through 2019. And so from our growth trajectory, we expect 2019 in Asia to be a good one for us in comparison.

[Operator Instructions]. Our next question comes from the line of Jay Kumar [indiscernible].

I've got two question. One is, what's your year-on-year backlog growth? Do you have any figure for that?

We're talking about the truck, we usually talk about backlog in regards to the North American Class 8 OEM orders, and I don't know if I have the exact number for 2017. It's at 10 months now. I'm going to estimate that it was 5 or 6 months in 2017. I don't -- that's an estimate, okay? We can come back with exact numbers. We have the date. I just don't have it in front of me.

Okay. And since you're selling in all these different countries in the world, do you hedge your currency or is that something that you've just played by the time?

No, Jay, [ph] it's Tim. Certain cost currency cash flows around the globe, just a handful of them, are significant enough that we do actually do some currency hedging.

Okay. Because you said, you guys have in India. Indian currency is up about 10% versus the dollar so...

I'm sorry, the Indian rupee is up 10% versus the dollar. Yes.

Yes, Indian rupee is up. Yes, yes, yes, Indian rupee is up 14%, actually.

We'll take it.

I'm showing no further questions at this time. I would now like to turn the call back to Patrick Miller, Chief Executive Officer, for closing remarks.

Yes. I just want to thank everybody for their time today. And we have some encouraging results, and our market seem to be strong out into the future. And we expect to continue to manage the challenges out there and capitalize on those. So thanks again, and have a good afternoon.

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