Commercial Vehicle Group Inc (CVGI) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2009 Commercial Vehicle Group Inc.

earnings conference call.

My name is Michelle and I will be your coordinator for today.

(Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Mr.

Chad Utrup.

Thanks, Michelle, and thanks everybody for joining the conference call today.

As usual before we begin the formal portion, I will read through our Safe Harbor language.

Merv will then give a brief Company update, and I will take you through our results for the fourth quarter and full year of 2009.

And then we will take time to answer your questions.

With that, I would like to remind you that this conference call contains forward-looking statements.

Actual results may differ from anticipated results because of certain risks and uncertainties.

These may include, but are not limited to, the economic conditions in the markets in which CVG operates, fluctuations in production volumes of vehicles for which CVG is a supplier, risks associated with conducting business in foreign countries and currencies, and other risks detailed in our SEC filings.

And with that, I will turn the call over to Merv.

Good day everyone and thank you, Chad.

Although 2009 was a difficult year for our industry, we continue to make progress on our vision that CVG should be a diversified global leader.

During the fourth quarter we saw improved build rates at major North American OEMs.

And although this improvement was welcome, we do not feel that it indicates a permanent trend or that it signals the recession is over for our industry.

The fourth quarter bump in production was most likely a mini pre-buy based upon the price increases and emissions requirement changes.

In the interim we are continuing to manage our business through this downturn and be in competitive position when it ends.

During the fourth quarter we announced the closure and consolidation of one of our two facilities located in Liberec, the Czech Republic.

That facility was primarily used to manufacture and assemble wiring harness products.

The production from that facility has been consolidated into another CVG facility in the Czech Republic.

This action will help optimize our manufacturing capacity and eliminate unnecessary fixed costs.

In December we also announced the closing of our Norwalk, Ohio cab assembly facility.

This was primarily a result of Navistar's decision to take the cab assembly we perform there to an existing Navistar facility at Escobedo, Mexico.

We have already ceased the production of some of the Navistar product there, and we anticipate all assembly operations in Norwalk will end by April of this year.

Although disappointed by Navistar's decision to utilize its own capacity to assemble these cab products, we understand the reasoning for their action.

At the same time we are pleased to continue to work with Navistar to supply them with stamped components, interior parts and seating products.

Navistar remains a significant and valued CVG customer.

The Norwalk plant also was adversely impacted in the fall of 2008 when Daimler Truck North America announced it was discontinuing the Sterling truck brand.

The decision to close this facility was difficult as it will result in layoff of approximately 120 employees there, and a number of corporate staff who provide support to that facility.

We know that this action will have an impact not just on them, but their families and the community as well.

We have also been meeting with state and local development officials to find replacement business or uses for our Norwalk building.

We are committed to ensure we neutralize the bottom-line impact of this loss to CVG.

We intend to do that through traditional business awards as well as additional cost cutting measures at CVG.

During the year we did more than rationalize capacity to take costs out of our business.

We also reduced SG&A, optimized benefits, limited discretionary expenditures, scheduled temporary furloughs, imposed salary reductions, and reduced our workforce by slightly more than 20%.

All these actions helped improve our operating performance for quarter-to-quarter as the year progressed.

Obviously, when volumes return, some of these costs will also come back.

But overall we believe we have a much leaner CVG in place when the recession ends and our business returns to more normal build rates.

Looking ahead we will continue to develop and introduce new products, such as our ComforTEK flooring, and a unique passenger seat that has a three-point seatbelt for use in buses and trains.

We also began a very competitive, low-cost Asian market suspension driver and passenger seat.

We also continue to see positive new business wins in domestic China.

Our team in China has been working daily with local OEMs in the construction and truck markets to continue to grow this region of world -- region of the world in seating and interior and harness products.

In 2009 we also earned new business contracts that include seating and interior components for Nissan diesel.

These products are designed to sell in multiple global markets, and will help expand CVG's international market potential.

We also gained new work with Volvo/Mack, Daimler Truck North America, Navistar, John Deere and BAE.

We are also producing parts for Oshkosh mine resistant ambush protected, or MRAP, all-terrain vehicle, M-ATV.

Going forward we anticipate these new contract awards will add an additional $25 million to $28.5 million to our topline.

We are pleased to report that we received important recognition from two customers during 2009.

The first was John Deere's achieving excellence partner status for our Electrical Systems Division.

The second was Caterpillar's 2009 supplier quality excellence certification status, also for CVG's Electrical Systems Division.

At the beginning of the year Gordon Boyd was appointed President of our Seating Systems Division.

Seating Systems represents a great opportunity for CVG, and one of our most advanced and complex product offerings, and represents a significant opportunity for CVG.

We plan to further expand our Trucking segment market beyond North America, diversify further into new customers and products within North America.

And we intend to grow our existing construction business within North America.

Looking forward we estimate our 2010 annual build rate for North America Class 8 trucks will be in the 120,000 to 130,000 range.

Finally, we at CVG have experienced difficult times that call for each of us to do more with less.

We have endured sacrifices and hardship that also impact our families and our workplace friends and colleagues.

I would like to thank all the loyal employees at CVG for all that each of you have done to get our Company through one of the worst economic times in decades.

In summary, we think we have done a good job reacting to the worst economic downturn in decades.

Although we see another challenging year ahead, we believe the worst may be behind us.

During the past year we captured new business and continue to develop new products.

We also put an increasingly leaner cost structure in place.

We remain excited about the potential for CVG when the recession is over and our end markets improve.

At this point I would like to turn the call over to Chad for a financial review.

Thanks, Merv.

Our revenues for this past quarter, that being the fourth quarter of '09, were $135.7 million.

This is a reduction of $28.7 million or 17.4% from the fourth quarter of 2008.

This drop is not only the result of an estimated 24% decrease in the North American Class 8 build rate from the prior year, but also reflects a decrease in our global OEM construction revenues, which were down about 42% from the prior-year period.

Despite these negative market trends, we were successful in winning new programs that positively impacted 2009, as Merv mentioned, such as the Volvo and Daimler awards announced in March and April, as well as the military business award announced in September, just to name a few.

Without these gains our quarter and year would have been even more negatively impacted by the volatility in our end markets around the globe.

We continue to remain heavily focused on cost reductions and cash management.

Our SG&A expenditures for the quarter were down approximately $2.1 million or 14% versus the same period in '08.

And for the full year SG&A expenses were reduced nearly $15 million or 24% from 2008.

We recorded approximately $1.7 million in restructuring charges during the quarter, which consisted of $1.5 million for the previously announced closure of one of our Czech Republic facilities and $0.2 million for certain employee-related costs of our Norwalk, Ohio facility closure.

As you saw from our press release, we did record approximately $37 million in non-cash impairment charges in connection with our FAS 144 and FAS 142 analysis performed during the quarter.

In addition to the volatile market conditions, which placed continued pressures on the carrying values of certain assets, the closure of our Norwalk facility also played a factor in our review of impairment indicators during the quarter.

From an operating income perspective we are pleased with the progress we have made throughout 2009.

Excluding the impairments and restructuring charges taken during the quarter, it is easy to see the magnitude of the improvements we have made.

Despite a $28.7 million drop in revenues from the fourth quarter of 2008, our operating performance was essentially flat, which is a direct result of the major cost-cutting and operational realignment efforts implemented throughout the year.

It goes without saying that we are not excited about the lingering market conditions; however, we are definitely excited about what we have accomplished in a short period, as we continue to adjust to these market conditions.

As I mentioned, our underlying operating performance was essentially flat to the fourth quarter of '08, despite a $28.7 million drop in revenues.

Further to that point is when you compare our most recent quarter to our performance in the first quarter of '09 of $108.5 million in revenues and an operating loss of $16.7 million, excluding the restructuring and charge during the quarter.

Compare that to our most recent quarter, and this represents a $27.2 million increase in revenues, that being from the first quarter of '09 to the fourth quarter of '09, with a $14.1 million improvement in underlying operating performance, or a than 50% incremental operating income improvement on the change in sales from just three quarters ago.

Depreciation was approximately $3.6 million for the quarter and amortization was $97,000.

Capital spending was $1.3 million for the quarter or 1% of revenues, and continues to remain a focus area for us.

We did record a gain of approximately $3.8 million related to the mark to market of our forward foreign exchange contracts.

You will see that in our other income and expense line item.

And our effective tax rate for the quarter was 42.3%.

As I mentioned in previous quarters, we have recorded valuation allowances against our deferred tax assets due to the three-year cumulative loss created mostly by the goodwill and intangible asset impairment from 2008.

With that said, recent legislation passed during the fourth quarter allows us to carry back current year tax losses for a period of five years.

This legislation is the primary driver for the tax benefit recorded during the fourth quarter.

In addition to the tax rate benefit, the loss carryback results in the most positive impact of this legislation, which is the cash-based tax refunds of $18 million to $21 million we expect to receive during the second quarter of 2010.

At the end of this most recent quarter we had zero funds borrowed under our ABL revolver, and as a result, we were not subject to any financial maintenance covenants.

Even more, we have the capability to borrow an additional $22.5 million without financial covenant requirements.

This flexibility is a direct result of our debt modification during 2009, along with our focus on working capital improvements and cash generation efforts throughout the year.

This, combined with the tax benefit we expect during 2010, puts CVG in a very good position as our markets return, and allows us to continue to focus on our strategic growth plans beyond market recovery.

With that said, we currently do not expect to have to comply with any financial maintenance covenants for 2010.

Lastly, I mentioned earlier we recorded approximately $0.2 million of employee related restructuring charges related to our Norwalk, Ohio facility closure.

I would like to add that we are currently in the final stages of our exit plan strategy, and when completed we will file an amendment to our 8-K providing additional information on the estimated closure cost of the facility.

As both Merv and I have mentioned previously, we will continue to build upon the significant cost cutting and cash generating initiatives implemented during this past year, and the successes in new business and new product developments created.

We would especially like to thank all of our employees for their hard work and dedication throughout 2009, despite the many cutbacks put in place.

With that, Michelle, we would like to open up the call for questions.

(Operator Instructions).

David Leiker, Robert W.

Baird.

It is Keith Schicker.

Just a couple of quick questions here.

You have taken significant actions to manage costs here on the downside.

Some of that is going to come back.

I just wanted to get your thoughts on how we should think about the sequential contribution margin going forward here?

We are probably looking at revenue about flat sequentially and then a dip in the second half.

When does that cost start to come back, or are we going to stick in this normal 28%-ish, 25%-ish percentage range here near term sequentially?

I think the sequential contribution margin is really all relevant to the starting point.

So if you take -- say take our fourth-quarter levels, I think we are pretty comfortable with sticking with that 20% to 25% range, if you use say Q4 as a basis.

Quickly, tax rate, are we going to continue to see benefits going forward or is it -- how should we think about the tax rate going forward?

No, this is a one time thing specifically related to the legislation in Q4.

It really won't change at this point from what we had mentioned on the last call, or what I had mentioned, which is really because of the sizable impairment mostly in '08, we will continue to have valuation allowances against the deferred assets.

So I don't think -- it's a little difficult to give you a percentage, but it is going to be nominal.

I don't expect to see any benefits recorded.

Then just lastly here, and I will make way for someone else, the Navistar business that is going to be running off starting in April, I know we talked about it in the past.

Can you just mention the size of that business, and then the profit impact and how we should reflect that in our models?

On an annual basis -- at this point it really hasn't changed.

We are probably looking at $30 million to $35 million at current volumes from a revenue perspective.

Our objective is to, as Merv mentioned earlier and we mentioned before, is really to eliminate any impact or neutralize that impact to the bottom line with both new business, either with Navistar or otherwise, as well as additional cuts that we are planning.

Bennett Lin, Jefferies.

I would like to find out what is the availability on your credit facility, given that you have no borrowings on it outstanding right now.

Our borrowing base supports the full $37.5 million line.

But we currently -- we have a $10 million block on it, so technically $27.5 million.

But our borrowing base supports the full amount.

What is your CapEx for the quarter?

$1.3 million.

How much do you think that is going to be in fiscal year '10 -- 2010?

I think we ended up the year CapEx was around 1.5%, or something like that, for '09.

It may creep up a little bit in '10.

We've got some things that we are working on.

But I would estimate maybe in the 2% range at this point.

Lastly, earlier you mentioned that -- you mentioned the numbers for depreciation and amortization.

Could you repeat that again?

Sure.

Depreciation was $3.6 million for the quarter, and amortization was $97,000.

(Operator Instructions).

Sasha Bernier, Tiburon.

I just wanted to know what are you hearing more from your end customers in terms of a recovery?

Do you think that builds are going to start coming back in 2011?

I was surprised that you guys were coming in at 120,000 to 130,000 for this year.

So you're thinking more 2011 was going to be when there is a pickup in Class 8 builds?

Were you surprised that we came in higher or lower or what?

A little lower.

What we come in with is basically a summation of what we hear in the industry of the users of the fleets of our customers, put it in a box and sort of shook up and come out with what we think it will be.

The overall number, we do think in 2011 we will see a pretty significant kick up.

Sooner or later the economy is going to have to get a little bit better, I hope.

And the needs for truck will always be there.

I guess with the tax infusion that you're going to get, the cash back, that is going to help you guys prevent a -- breaking any covenants, and going into 2011 you guys should be okay then.

Covenants wasn't an issue anyway.

That's right.

The tax legislation changes is without a doubt a benefit for us.

I think the key thing though is where we ended the year without any of that infusion with the availability that we still had.

So, yes, we are pretty pleased with where we ended the year.

And that tax benefit will certainly be helpful as we pull out of this market.

Alan Weber, Robotti & Company.

Two things.

First was, Chad, you mentioned the first quarter and comparing it to the fourth quarter.

I am just curious.

If I look at just the SG&A for the year by the quarter, I believe it went from like $13 million down to 10.

something to $11 million, then $12.8 million.

Is the $12.8 million in the fourth quarter, is there some non-cash charges in there, or is that all just related to the increased volume in the fourth quarter?

Some of it is related to volume.

I think the biggest thing probably with what -- how you look at our SG&A throughout the year is our levels in Q2 and Q3, we literally stopped everything, and you just can't continue at that pace.

So you have a little bit of that.

It is not really one thing that you see Q1, Q2, Q3 and into Q4.

It's probably a combination of about everything, because in the middle of the year, starting probably towards the end of the first quarter, we literally cut back and stopped everything.

It is just not sustainable to do that going forward.

So you see a little bit of that retraction in Q4.

Plus with new business gains, being a smaller company like we are and headquartered here, we have a lot of engineering support for new programs all coming out of here, which is in our SG&A.

Merv, just a general question.

Not so much -- as you look at the industry and the competition, should an outsider look at it as -- I think you talked about $20 million or $25 million of new wins, something like that.

Is that what you said?

Yes, yes.

(multiple speakers)

And should we view that as (multiple speakers).

$25 million to $28 million.

Is that a positive, or should we view it almost as a disappointment that given the -- I would have thought actually that there would be more problems with some of your competitors, that you would be able to win more business.

I don't know if that number is based upon current levels or that is based upon two or three years out number?

If you think about it this way, back in 2006 when we used to announce a win of $25 million, it was based upon a run rate of 380,000 Class 8 trucks.

Now it is based upon a run rate of 120,000 Class 8 trucks.

So if you up the run rate to the numbers that you saw in 2006, imagine what that would do to your number on the wins.

So it is based upon current depressed levels basically?

Right, right.

Okay, that was it.

Thanks an awful lot.

And also to add to that, right now any business is not a disappointment to us.

We are very proud where we stand when you look at us among our competitors.

Many of our competitors have gone into bankruptcy and some of our competitors have not come out, they folded.

So when you look at the way this Company has performed, gone from -- in their cash, it has generated a considerable amount of working cash last year.

And we're very proud of how we have done it compared to our competitors, and compared to anyone really.

Lavon Von Redden, Hocky Capital.

My question is somewhat similar to one that was asked a little earlier.

Is that your assumption for new truck builds, or the rate, seems a little bit lower than, I guess, some of the various services out there that provide those numbers.

Can you just help me understand maybe what you're seeing or why your estimate may be lower than, I guess, folks like the Global Insights of the world?

If you look at any of the estimates that is just exactly what they have been in their forecasts, and the percentage that they hit and the percentage that they missed.

We take what we have done in previous years and lay it across, and we think we have come very close in the years, except when we've gone exactly on these forecasters' numbers.

We can't say that ours are going to be any better or any worse than their's.

It is based upon information that we get out of our customers and out of the end users.

We have pretty good resources there.

Do you have any insight what may be going on in Europe or any real exposure, or is that really not a focus at this stage for you all?

It is a focus.

Obviously, we have some wiring and harness business in the truck business in Europe.

And we have obviously a lot of construction in the European market.

We see basically no faster recovery there than what we are in the US.

The growth and the recovery that we are seeing is more in Asia than in anywhere.

Chad and I spent the last two weeks in our facility in China, and then at our customers in China and in Japan.

We are doing very well in Asia, winning new business, both on the domestic and in the international arena.

You have no further questions at this time.

I thank all of you for joining us today.

And we all look forward to brighter days ahead in our markets.

And until then, we will keep doing what we do best, and that is taking one day at a time, making the Company a little bit better each day.

Thanks everybody.

And as usual, if you have any follow-up questions or anything, please run that through John Hyre, and we will get back to you as soon as possible.

Thank you.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a great day.