Commercial Vehicle Group Inc (CVGI) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Commercial Vehicle Group Fourth Quarter 2017 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Terry Hammett, Head of Investor Relations.

Please begin.

Thank you, Atoya, and welcome to the 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 fourth quarter and full year 2017 financial results.

We will then open the call up for questions.

This conference call is being webcast and may contain forward-looking statements, including, but not limited to, expectations of future periods regarding market trends, cost-saving initiatives, new product initiative 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 Patrick Miller with the company update.

Thank you, Terry.

Good morning, everyone, and welcome.

Thank you for joining us today as we discuss our fourth quarter results, full year 2017 accomplishments in our markets and forward opportunities.

Improved market environment for both heavy-duty truck and off-road construction provided the foundation for us.

They increased our 2017 consolidated revenues by 14% for the full year as compared to 2016.

In this growth environment, Global Truck and Bus segment revenues were up 10% versus prior year and our Global Construction and Ag segment revenues were up nearly 22% as the construction equipment market improved throughout the year.

The production ramp created higher build rates in the latter part of the year and that trend continues into 2018.

Our fourth quarter benefited from this market momentum.

We are pleased to report a fourth quarter with consolidated revenues of $188 million, an increase of more than 25% as compared to the same period last year.

Both core segments within our business contributed to this strong performance, with our Global Truck and Bus segment revenues up 24%, and our Global Construction and Agriculture segment revenues up 30% as compared to the same period last year.

These fourth quarter period-over-period growth rates followed a very strong third quarter revenue growth rates that we reported in November.

Tim will cover our financial results shortly.

Moving to some details on the market changes.

The average Class 8 daily truck build rate in North America increased approximately 38% from December 2016 to December 2017.

And our top OEM customers have been reporting strong year-over-year sales increases.

There are good fundamentals driving and supporting the strength in market.

At the macro level, we are seeing the strengthening economy, good GDP numbers, rising freight tonnage and tightening freight capacity, which are all driving freight pricing up.

Higher freight pricing and tight capacity typically translates to higher new OEM truck orders as the fleets increase their equipment investments.

December Class 8 vehicle orders reflect the highest monthly total since 2014.

January 2018 orders were over 48,000 units, the highest since March 2006 and February also came in over 40,000 units.

We've not had 2 months in a row of over 40,000 since 2014.

So the indicators are being validated by the order patterns.

2018 being an even stronger build year than 2017 as some of the data services are projecting.

ACT and FTR are currently forecasting 325,000 and 330,000 units, respectively, for 2018.

Our estimates for the 2018 North American Class 8 build, our unit range of 300,000 to 325,000.

The order backlog has increased and is at a healthy range so we anticipate production lagging orders by the normal 3 to 6 months.

The OEMs have plans in place to continue increasing production to match the higher volume demand.

Additionally, in the medium duty market, Classes 5 through 7, we are seeing a nice steady trend upward, and we expect that to continue for the foreseeable future.

January 2018 Class 5 through 7 orders were 31,700 units, up 39% year-over-year and the highest order levels since July 2006.

Medium duty benefits from the stronger GDP as well as e-commerce with the increase in more frequent smaller deliveries.

As a result, all combined, we are looking for a strong 2018 revenues in our Truck and Bus business segment, with 2019 forecast showing flat or slightly up from 2018.

Regarding the construction market.

We saw very good year-over-year growth.

We're pleased to report that we continue to see strength across all regions in which we operate; North America, Europe and Asia.

The North American fundamentals for construction are in good shape with higher backlogs and channel inventories leveling out.

The North American medium and heavy-duty construction machinery market grew over 35% in 2017 year-over-year.

The European market is up 27% over the same time period.

And China is reflecting a 50% improvement.

The China market growth trend is being buoyed by government support for infrastructure and residential investment with excavators up close to 100%.

CVG's construction sales and products are more heavily influenced by the medium and heavy-duty part of the market space.

It is challenging to get an exact reading on overall construction market strength, but data indicates good support for incremental growth in 2018 at a rate of 15% to 25% across most global construction markets we serve.

One other note, we are seeing a pickup in mining equipment activity, an area where we support many of the same major off-road and construction customers.

As of year-end, the previously announced operations in SG&A restructuring plans are for the most part completed.

Originally, the company estimated pretax costs for the restructuring actions of $11 million to $16 million.

The actual restructuring cost consisting of employee-related separation costs and other cost associated with the transfer of production and subsequent closure of facilities, offset by gains on the sale of long-lived assets came in substantially lower than we expected at $6 million.

The expectation when we introduced the plan in November 2015 was that the initiatives would lower our operating cost by $8 million to $12 million annually when fully implemented.

The lower implementation cost still resulted in our achievement of the plan savings, the more -- majority of which were included in the 2017 run rate.

We believe we've improved our cost competitiveness and better positioned ourselves for the cyclicality in our markets.

We are now seeing higher operating income partly as a result of these restructuring cost-containment plans.

Our fourth quarter 2017 operating income is more than twice as much as the same period last year, but not as strong as we would like it to be.

There are some headwinds that are impacting the results.

Commodity price increases in steel, copper and chemical-based components offset some of the progress due to the lag inherent in the agreements we hold with larger customers, allowing pass-through of raw material costs.

Some of these commodity increases are still trading up and could see further pressure from potential regulatory changes in our markets.

We are actively working to reduce this impact in the near term as we renew and renegotiate commercial terms with our customers.

In addition to commodities, quickly ramping up production levels in both of our key segments does result in some additional costs in the form of training, productivity losses and over time to meet the demand in less than stable environments.

Complicating this is the fact that we are still ramping several new platform launches, especially in our Truck and Bus group, where process performance is still being improved.

Furthermore, similar to many manufacturers, we are experiencing some above average global labor inflation in some of the regions where we operate, including Eastern Europe, Mexico and in parts of the U.S.

In regard specifically to the wire harness labor situation we were impacted by last year, we have stabilized the operations and increased output.

We see continued improvement in the productivity of the wire harness business.

However, the local labor dynamics in the Agua Prieta, Mexico, region will result in some ongoing wage inflation there.

In response to this situation, we have shifted some production back to Iowa, opened and ramped a new facility south of our current location and localized some parts in China.

We intend to announce the opening of a new leased wire harness facility in the near future.

An additional facility will increase our flexibility in regards to capacity fluctuations for build volumes and also growth opportunities.

It will also allow us to mitigate risk by spreading our capacity to different locations we expect to be producing by the second half of this year.

Shifting gears, I want to talk about our efforts to manage costs and continuously improve our processes.

In 2017, we maintained our SG&A discipline as SG&A costs were down year-over-year, even with 14% higher sales.

Additionally, we continue our Lean Six Sigma efforts, having now trained about 13% of the employee base, who are actively working to reduce waste and improve productivity.

We must consistently drive down costs and improve our operating performance to remain competitive.

Our approach to Lean systems also positively impacted our quality, safety and delivery.

So we are maintaining our commitment to these efforts.

As part of the OpEx effort, we've now included our CVG digital initiatives.

We are just starting to see the potential upside, digitalizing our processes can have on our cost structure.

CVG digital was undertaken to further incorporate technological innovation into product development and production processes, and we are progressing along these lines.

We piloted our new cloud-based ERP system in one facility in 2017 successfully, which is now being rolled out to multiple facilities.

We are doing this over a time-based approach and targeting those areas where we can have the most impact.

The new cloud-based system is the foundation that allows us to connect all of our administrative, engineering and production systems.

We expect to reduce manual intervention and overhead as well as improve material management, uptime and problem resolution.

What is even more exciting of the new digital production methods that are being deployed.

Some examples include electronic visual management, wire harness boards and new seat assembly lines, which are now in production.

This type of equipment facilitates digital airproofing, in-line testing, soft changeovers, reduced rework and real-time operator instruction.

We're still learning how these new technologies can improve our bottom line, but it has great potential to be a step change in some areas.

We also see interesting advancements in the product areas, where electronic functionality is resulting in new product features and commercial opportunities.

We are cooperating closely with the advanced engineering teams and OEMs as we strive to develop and incorporate innovations into our product lines for what is an evolving future vehicle architecture.

In summary, we are experiencing strong volume demand in our core markets, positive economic indicators in the regions we participate and are actively working to improve and mitigate cost headwinds that could dampen our ability and fully capitalize on the improving market conditions.

With that, I'm going to turn it over to Tim to cover the fourth quarter and the full year financial results.

Good morning.

Revenues in the fourth quarter 2017 improved significantly from the prior year period, and operating income was up as well.

This progress reflects the upswing in the global economy and higher build volumes in our end markets.

However, rising global commodity prices and tightening labor markets are adversely affecting pull-through, that is the conversion of the higher sales into operating income.

More specifically, consolidated fourth quarter 2017 revenues were $188.3 million compared to $150 million in the prior year period, an increase of 26% primarily resulting from an increase in heavy-duty truck production in North America and improvement in the construction equipment markets we serve.

Fourth quarter revenues benefited by $3.7 million or almost 3% from foreign currency translation.

Operating income, as adjusted for special items, in the fourth quarter was $8.2 million compared to operating income of $5.1 million in the prior year period.

This increase in operating income was primarily the result of the higher revenues, partially offset by rising commodity prices, tightening labor markets and costs associated with the sharp acceleration of build volumes in our end markets, especially North American heavy-duty truck build.

Besides the impact of commodity prices on fourth quarter pull-through at almost $2 million, operating income margin before giving effect to the special items improved 100 basis points period-over-period.

Selling, general and administrative expenses in the fourth quarter of 2017 were $14.2 million and consistent with recent quarterly spend.

We were especially pleased with this flat SG&A performance in light of the significant increase in sales in 2017.

Earnings in the fourth quarter of 2017 were adversely affected by the new federal tax legislation, the passage of the Tax Cuts and Jobs Act of 2017, resulting in a net loss for the quarter.

The adverse impact of this legislation on the fourth quarter 2017 was $11.2 million.

Accordingly, net loss in the fourth quarter 2017 was $7.2 million or $0.24 per diluted share compared to net income of $0.4 million or $0.01 per diluted share in the prior year period.

About 2/3 of the fourth quarter charge associated with the legislation is a noncash charge arising from the revaluation of the company's net deferred tax assets to reflect the lower statutory federal tax rate of 21%.

The remainder of the charge is a tax payable over 8 years on the deemed repatriation of earnings at certain of our foreign affiliates.

Notwithstanding the fourth quarter charge, we view passage of the Tax Cuts and Jobs Act as a net positive for the company.

And as much as it is likely to result in a lower effective tax rate, the lower taxes payable in the future.

Before giving effect to the new federal tax legislation and other special items, net income in the fourth quarter 2017 was $3.7 million or $0.12 per diluted share compared to net income of $0.7 million or $0.02 per diluted share in the prior year period.

Shifting now to full year 2017 consolidated financial results.

Revenues were $755.2 million compared to $662.1 million in 2016, an increase of $93.1 million or 14%.

This increase in revenues is primarily the result of improved heavy-duty truck production in North America, which was 256,000 units in 2017 compared to 228,000 units in 2016 and improvement in the construction equipment markets we serve.

Foreign currency translation favorably impacted 2017 revenues by $0.5 million.

Operating income in 2017 was $31.4 million compared to operating income of $25.4 million in the prior year period, an increase of $6 million or 24%.

In addition to the adverse impact of rising commodity prices, tightening labor markets and the costs associated with the sharp acceleration of build volumes in our end markets, 2017 results were adversely impacted by approximately $10 million in costs associated with the labor shortage in the North American wire harness business.

The operating income margin for the full year was 4.2% compared to 3.8% in the prior year.

As adjusted for special items, the operating income margin for the full year 2017 was 4.7% compared to 4.5% in the prior year.

The company incurred a net loss of $1.7 million for 2017 or $0.06 per diluted share compared to net income of $6.8 million or $0.23 per diluted share in 2016.

More than all of this reduction in earnings is attributable to the fourth quarter 2017 charge arising from the new federal tax legislation.

As previously noted, we expect this legislation to have a favorable impact on the company's effective tax rate in the future and modeling effective tax rate in the range of 25% to 30% for 2018.

As adjusted for special items, net income for 2017 was $13.6 million or $0.44 per diluted share compared to net income of $8.7 million or $0.29 per diluted share in the prior year period.

Depreciation expense in 2017 was $14 million, amortization expense was $1.3 million and capital expenditures were $13.6 million.

Our 2018 business plan includes capital expenditures of $15 million to $18 million.

As a consequence of our successful debt refinancing in the second quarter of 2017, we had lower outstanding borrowings at year end.

Net leverage or debt less cash at December 31 was 2.3x trailing adjusted EBITDA.

The company's interest expense is also down as a consequence of the refinancing.

Interest expense in the fourth quarter of 2017 was 33% less than the prior year period.

We finished 2017 with $111 million of liquidity, $52 million of cash and $59 million of availability from our revolving credit facility.

With respect to business segments financial results.

Revenues for the Global Truck and Bus segment in the fourth quarter 2017 were $113.7 million compared to $91.6 million in the prior year period, an increase of 24% primarily resulting from the increase in fourth quarter 2017 heavy-duty truck production in North America compared to the prior year period.

Foreign currency translation favorably impacted fourth quarter 2017 revenue by $0.7 million or 0.7%.

Operating income in the fourth quarter 2017 was $9.3 million compared to operating income of $6.3 million in the prior year period.

Fourth quarter 2017 results include a $0.6 million gain associated with restructuring actions.

The prior year period includes $1 million of costs associated with restructuring actions.

For fiscal year 2017, revenues for the GTB segment were $457.8 million compared to $416.3 million in the prior year, an increase of 10%, primarily resulted from the increase in heavy-duty truck production in North America.

Foreign currency translations favorably impacted 2017 revenue by $1.1 million or 0.3%.

Operating income was $40 million compared to operating income of $30.9 million in the prior year.

Results in 2017 and 2016 include restructuring charges of $0.8 million and $2.7 million, respectively.

Shifting now to the company's Global Construction and Agriculture segment.

Revenues in the fourth quarter of 2017 were $78.5 million compared to $60.4 million in the prior year period, an increase of 30% primarily as a result of improvement in the construction equipment markets we serve.

Foreign currency translations favorably impacted fourth quarter 2017 revenue by $3.3 million or 5.4%.

Operating income in the fourth quarter was $4.9 million compared to operating income of $2.5 million in the prior year period.

Fourth quarter 2017 and 2016 results include restructuring charges of $0.1 million and $0.2 million, respectively.

For fiscal year 2017, revenues for the GCA segment were $309.7 million compared to $254 million in the prior year, an increase of 22% primarily resulting from improvement in construction equipment markets.

Foreign currency translation adversely impacted 2017 revenue by $0.8 million or 0.3%.

Operating income was $14.3 million in 2017 compared to operating income of $15.7 million in the prior year.

More than all of this decrease in operating income resulted from the aforementioned approximately $10 million in costs associated with the labor shortage in our North American wire harness business.

Results in 2017 and 2016 include restructuring charges of $1.1 million and $0.7 million, respectively.

Both segments' operating income was adversely affected by rising commodity prices, tightening labor markets and costs associated with the sharp acceleration of build volumes in our end markets.

We've actions under way to mitigate the impact of the commodity prices and costs associated with the build volumes.

To wrap up, CVG benefited in 2017 from the strong global economy and higher build volumes in our end markets.

Side effect of the strong global economy has been rising commodity prices, greater competition for labor.

Having said that, operating income was up in 2017.

Additionally, we successfully refinanced the company's debt, thereby significantly reducing borrowings and interest expense subsequent to the refinancing.

We expect this refinancing to continue to contribute the value creation for our shareholders in the future.

That concludes our prepared remarks.

Thank you for joining us this morning.

We'd be happy to take any questions you may have.

Atoya?

(Operator Instructions) The first question is from Mike Shlisky of Seaport Global.

I wanted to start off with some of the cost questions that you guys outlined.

I guess, first I wanted to figure out here.

Can you give us a sense as to what the operating pull-through outlook is for 2018?

And I suppose, if you can just take out the $10 million that you had with the cost issues in 2017, what is the sort of apples-to-apples outlook here from a full company level?

So Mike, first of all, thanks for your questions.

So I can't -- it's very difficult with the commodity environment, the way it is, somewhat difficult labor markets, et cetera, to give you a precise answer with respect to pull-through.

What I can tell you is this, and this is consistent with what we stated in the past.

Our objective here at CVG, in other words, what we manage to is a 20% to 25% variable contribution margin.

Now to your point, in the fourth quarter of '17 and for the full year of '17, that pull-through objective of 20% to 25% has been impaired, first of all, by the labor situation in Mexico, which I'll come back to in a moment, but also with the commodity prices that add about a $2 million impact on the fourth quarter and then some impacts on the labor markets and the production challenges associated with the rather dramatic increase in build volumes.

So let me comment it this way.

With respect to the labor shortage in Mexico and the $10 million impact on 2017, we believe for the most part, we got our arms around that.

Pat, in a moment, may want to speak to what some of the additional things are that we're doing.

But for the prime time being, we believe we got our arms around that, and we don't have any reason to expect that, that will repeat itself.

So the way I sort of look at '18 is that's an add back.

So long as the commodity prices continue to increase, and we have steel, resins, we buy foam, and they are up reasonably significantly quarter-over-quarter.

So long as they continue to increase, I expect there to continue to be some pressure on the margins associated with that, just because, as Pat mentioned, our ability to recover that lags.

Once they have stabilized, however, we expect to be back to this 20% to 25% variable contribution margin.

So the difficulty of being more specific in that is, I can't predict how the commodity prices are going to behave in '18.

I hope that was helpful.

Yes.

Maybe I can ask about beyond the commodity prices, which are somewhat out of your control, in some cases.

Were there any other costs we should be looking at that are of concern in the quarter?

Was there estimate dire freight (inaudible) because you've got such a ramp up in production?

Where there any bottlenecks of things that were not expensive, just everyday supplies and things like that?

Or was it really -- is it really all about steel, resin, et cetera?

It's primarily steel, resin, foam -- I'll just give you the numbers.

Now we don't buy these commodities directly, but they are inherent in the products we buy.

Fourth quarter '17 compared to fourth quarter '16, steel was up based on the index we use about 17%, probably propylene up 23%, foam up 26%.

Okay.

So that's -- those are extraordinary increases.

We had some costs, as I said, as we've highlighted from the increase in the production volumes and a little bit from the labor inflation.

We also, as we pointed out in our 10-K, have had some supply constraints in the wire harness business for connectors, which were being able to manage through, right now, along with our customers without having to incur any extraordinary freight.

So aside from those challenges, I think that's it.

Let me jump in on that too.

So I think what you see though is, to Tim's comments, certainly on the wire harness side, there are some global constraints, which are affecting all suppliers and OEMs.

And those are affecting us to some degree just from a planning standpoint, but nothing extraordinary that like we incurred in 2017.

There are daily challenges with the supply chain as it's trying to ramp up in some of these other segments that we have.

And that some of what's driving some of these other costs.

And so as those problems get resolved, I would expect some of these extraneous production challenges in the way of overtime and changeovers, rapid changeovers in some of these issues to diminish.

Okay.

Could you maybe give us a sense, more broadly speaking, is there a time frame that you hope for this to be done by?

I mean, is it most likely that you'll have these issues here in the first quarter?

Or could it get any better in Q2 or Q3, do you think?

So Mike, I -- here we are, we're in the middle of March, and this commodity affect has continued into the first quarter.

And as we've described, we lag anywhere from, let's say, 3 to 6 months.

So I can't tell you for how far into the future it will continue.

So long as they start to step up, we'll be managing this down as best as we can.

And again, as, I think, Pat just mentioned, once the commodity prices stabilize, our objective is to recover substantially all of them and be back to this variable contribution margin.

Okay, okay.

Can I also ask about your inventories and working capital?

That appears to have ramped up in dollar terms, maybe some with commodity -- commodity valuations.

But at this point, you feel ramped up your inventory for a full of 300,000-plus-units a year or you need to invest more as we go through 2018 in your inventories?

The current volumes, by and large, reflect where we think the volumes will be for 2018.

So we don't see any substantial increase in our operating working capital, absent the volumes continuing to decline.

We did have some build in our inventory in the fourth quarter of '17, largely because the production schedules of certain of our OEMs became -- started changing.

And so we ended up with more raw material than we had anticipated.

But we'll use that -- fully intend to use that here early in 2018.

So the operating working capital, taken as a whole, as you know, tends to fluctuate in the mid- to upper teens.

It's up just a little bit, but it's not extraordinarily high.

So I don't -- long way of saying, I don't expect that there'd be any further dramatic increase in operating working capital unless the markets just really take off.

Okay.

One more for me and then I'll pass it along, I promise.

And it's about the outlook for 2019 for Class 8 trucks.

Pat, you kind of alluded to it, speaking somewhat of a flattish, maybe even up a year depending on how things turn out.

And I kind of want to get a feel for it, if you have a similar mix year-over-year or if it's a very similar market in 2019 as in 2018, I'm kind of curious, what does that mean for CVGI?

I mean, are there additional platforms that you are going to be kind of ramping on throughout 2018 here?

And so if it's a flat market, could CVGI see some share gains in 2019 based on what you know today?

Well, we don't typically talk to share directly, Mike.

But I would say this.

We are in the process of ramping up -- some of the platforms started ramping up in January.

And so there's been a few hiccups on those things at our customers and consequently, we'll see that ramp continue through this first part of the year.

And once those things get stabilize, I think the thing we would be looking for is not being in a state of flux.

So Tim talked a little bit about the inventory.

There are production increases across the board in North America, specifically in truck as well as construction throughout 2018.

So as things become more stable, it certainly bodes well for us from getting some of our things -- some of our productivity levels and some of these other areas in control.

(Operator Instructions) The next question is from Barry Haimes of Sage Asset Management.

I had a couple of questions, I'll just go one at a time here.

First, just steel and aluminum obviously affected by the tariffs.

Could you give us a feel for what percent of your cost of goods sold is from steel and aluminum?

Do we -- is that okay?

But we don't use much aluminum, right?

Yes, so we don't use much aluminum.

I would say that I think when we look at our cost of goods sold, we talk about metals, which includes more than just steel, that includes the small amount of aluminum and a little bit of copper, which we use in our wire harness business is around 40% of our COGS.

Great, thanks.

That's helpful.

And...

And some color related to that.

In light of some of the tariff things.

So we're -- it's not clear exactly how that's going to impact us.

Some of the exceptions that have been made were helpful to us as well as the fact that when we go through some of the harmonized tariff codes, we see a lot of things we buy.

We don't buy straight steel.

We tend to buy fabricated and value-added components.

So far, I think, the biggest affect we will see from that is just what kind of -- what happens in the market dynamics inside North America.

So as far as the direct tariffs, I'm not sure we are going to have a lot of impact on that.

And what we're looking more at is what will it do with the domestic market pricing.

Great, thanks.

And then the second question...

(inaudible)

That's true, I may want to mention that too.

So that was a global number I gave you, by the way.

Got it.

The second question, just to get a feel is, if you take your projected sales for the year for 2018, and you said -- how much of those sales are already priced to the customer with no ability to renegotiate second bucket price, but you've got raw materials pass-throughs with that 3 to 6 month like you mentioned will go through?

And then third bucket haven't been priced yet or you haven't made the sale yet and therefore, you've got more of an ability to recover on price.

Can you give us some rough guideline as to where we sit?

Right.

Well, so Barry, we just don't slice it that way, okay, and the way we look at the business.

I can tell you this, is that, as you can appreciate, most of our large customers, we have arrangements with, long-term agreements.

And for the most part, those agreements provide for recovery of raw material increases or give back -- givebacks in the case of decreases.

The issue is a delay in the giveback or the recovery.

So I don't view that as too much of an issue.

Another bucket you mentioned were relationships we have with customers on an ongoing basis that we don't always have long-term agreements with.

In those cases, we intend and, in fact, are and when you do discussions with them to pass through some or all of these increases.

So those discussions are under way.

We have plans in place, and we are approaching them rather ambitiously.

And then the final being our customers and sales that we don't have sort of booked yet, and we'll price those at an appropriate level when the time comes.

So aside from that, I can't slice it anymore finer.

Okay.

Great, that's helpful.

And then just one last, fairly quick and easy question.

I think you mentioned the D&A number for 2017.

But I didn't catch it, if you could repeat that?

And then to the extent you've got a budgeted number for D&A for 2018?

Right.

So for '17 -- 2017, the depreciation expense was $14 million and the amortization expense was $1.3 million.

CapEx in '17 was $13.6 million.

We don't provide any forward-looking information with respect to D&A, but I can sort of scale it yourself with the historical spend.

We do plan to spend somewhat more on CapEx in '18, and we have $15 million to $18 million in our business plan.

Barry, I want to make a quick correction.

So on the total metal spend, including copper and steel and aluminum, of which steel is the biggest part of it, it's 55% of our COGS.

I'm not sure how the 40% came from, but it's 55%.

(Operator Instructions) The next question is from Mike Shlisky of Seaport Global.

A couple of quick model questions here.

I guess, first of all, kind of see if you can give me a sense as to the SG&A for the year.

You had a solid job holding the line in 2017.

On your corporate cost piece for 2018, do you think you can hold the line again in the coming year?

We've done, I think, a very admirable job of managing our SG&A.

Mike, to your point, especially in the context of these improved sales, I don't expect them to rise dramatically.

In 2018, there might be some upward drift of small amount.

But I don't expect them to rise dramatically from where they are at.

Okay.

And the other one for me was about your interest costs.

It was down year-over-year, but it was also down about 10% quarter-over-quarter, if I'm not mistaken.

And I was curious, whether the flat $3 million you had in the fourth quarter is the appropriate run rate going forward as well given your recent changes?

The fourth quarter of '17 should be a pretty good reflection of our run rate.

Now we are in a rising interest rate environment, okay?

We have $80 million of the debt swapped out, so that's fixed.

But the rest of it is floating.

So if the interest rates continue to drift up a little bit, I would expect there to be some increase going forward on the interest expense, but absent some very, very dramatic increase in interest rates, it shouldn't go up by a whole lot.

There are no further questions at this time.

I'd like to turn the call back over to Patrick Miller for closing remarks.

Okay.

Well, I appreciate everybody taking time to listen to us today.

I want to just wrap up with the fact that our markets and our top line direction is very strong.

We saw the increases in the third and fourth quarter of 2017, and we see further increases in 2018 and then carrying over to '19.

So we do have some headwinds on the cost side, and we're working diligently on those.

I have belief that we will be able to pass through and get some of the commodity recoveries, and that will start being reflected in the near future, as Tim mentioned, that's usually a 3- to 6-month process.

But it's one we've been historically pretty good at.

So thanks, again, for everybody for joining.

I appreciate your time.

Have a good day.

Thank you.

Ladies and gentlemen, this concludes today's conference.

You may now disconnect.

Good day, everyone.