Cooper-Standard Holdings Inc (CPS) 2017 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Cooper-Standard Third Quarter 2017 Earnings Conference Call.

(Operator Instructions).

I would now like to turn the call over to Roger Hendriksen, Director of Investor Relations.

Thank you, Marcella, and good morning, everyone.

Thanks for taking the time to join our call today.

We always appreciate your continued interest in Cooper-Standard.

The members of our leadership team who will be speaking with you on the call this morning are Jeff Edwards, Chairman and Chief Executive Officer; and Jon Banas, Executive Vice President and Chief Financial Officer.

Before we begin, I need to remind you that this presentation contains forward-looking statements.

While they are made based on current factual information and certain assumptions and plans that management currently believes to be reasonable, these statements do involve risks and uncertainties.

For more information on forward-looking statements, we ask that you refer to Slide 3 of this presentation and the company's statement included in periodic filings with the Securities and Exchange Commission.

With that said, I'll turn the call over to Jeff.

Okay.

Thanks, Roger, and good morning, everyone.

I'd like to begin on Slide 5 with some highlights, data points and key accomplishments in the quarter.

Sales reached a third quarter record of $869 million as increases in Europe, Asia, and South America offset declines in North America, stemming from reduced light vehicle production.

Adjusted EBITDA for the quarter was $96 million.

This was lower than we had planned as the inventory reduction actions by our North American customers on certain large SUV, luxury, and sports car platforms coupled with the GM strike in Canada negatively impacted our volume and mix.

The inventory reductions were announced and implemented somewhat suddenly and had their greatest impacts early in the quarter.

As production schedules were normalized, we were able to rebound well and we exited the quarter operating at a very high level.

Still it was about a $10 million hit for us, which we expect to make up in the fourth quarter.

October and November releases are strong and in spite of some continued raw material cost pressure, particularly in Europe, we expect to end the year with a record performance.

We continue to make good progress in our cost reduction initiatives during the quarter.

Improvement in operating efficiency resulted in $20 million cost savings in the quarter, raising the total for the year to $60 million.

Our focus of achieving world class safety performance across all our facilities is firmly on track.

In the third quarter of 2017, we achieved a 40% improvement in our total incident rate over the same period in 2016, with 36 facilities at zero incidents.

In fact, the third quarter 2017 is our best safety performance in the company's history.

This has been single largest launch year in our company history.

During the third quarter we successfully launched 47 new programs bringing the total for the year so far to 125.

Most of the new launches have been on global platforms, which means we can expect higher production volumes than would normally have been the case on regional programs.

In addition to these current new launches, we continue to win significant new business for the future.

In the third quarter, we were awarded contracts for $108 million in annual net new business bringing the year-to-date total to $345 million.

Once again we had significant awards in each of our key regions, with Asia Pacific again being the strongest.

Turning to Slide 6, we continue to be pleased with the market response to our recently introduced innovative products including Fortrex, MagAlloy, ArmorHose and several others.

During the third quarter we were awarded contracts representing $32 million in annualized future sales of these products, bringing the total up to $470 million since the beginning of 2016.

A small portion of these contracts have begun production.

The vast majority will begin in 2019 and beyond.

With the current contracted totals and increasing interest and acceptance by our customers, we expect sales of our innovative products to ramp up quickly.

Our current forecasts have us reaching approximately $1 billion in innovation sales by 2023.

Since these are premium products that provide significant added value for our customers, we expect them to derive increased margins over the products that they will replace.

We are extremely proud of our culture of innovation with a continuous stream of new ideas flowing through our pipeline.

We see our ability to bring breakthrough innovations to market as a clear and sustainable advantage and a value driver for our stakeholders.

Moving to Slide 7, last quarter we discussed our strategy to extend our innovative technologies and material science into markets beyond the automotive industry.

The rollout and implementation of this strategy is progressing quickly.

We have non-disclosure agreements with 17 potential partners or licenses and term-sheet negotiations are underway with 7 of them.

We would expect to have a few of these negotiations concluded and new agreements signed before the end of the year.

Initial sales under our first license agreement are expected sometime in the middle of next year.

As we advance our discussions with potential partners, we're continuing to find new potential markets where applications for Fortrex technology that we have not previously considered.

The technology itself is proving to be highly adaptable in form and function, giving us tremendous incremental opportunity.

Our plans for next year include increasing sales and engineering staff in order to more quickly identify and evaluate these new opportunities and accelerate the implementation of new strategic platforms.

Our business model within this strategy has 3 distinct profit drivers, all with little to no incremental capital required.

These include upfront license fees, the revenue stream from the sale of Fortrex custom blended compound to our licensees, and royalties based on licensee sales of finished goods.

So we're very excited about the potential impact of this new business model on our ROIC and overall company valuation.

Moving to Slide 8. We're also moving forward with plans to extend our current traditional products and technologies into near adjacent markets through our Industrial and Specialty Group.

With a focus on industry segments such as commercial trucks, agricultural equipment and construction, we see an addressable market of over $2 billion and an opportunity to further diversify our revenue and profit base.

During the third quarter, we formally dedicated our facility in Sherbrooke, Quebec, Canada to serve this business group.

The facility will provide specialized manufacturing and distribution services that meet the unique requirements of these industry segments and will enable the ISG team to focus its resources more effectively on meeting our growth targets.

Moving to Slide 9. A common key to our success whether in the automotive industry or in adjacent markets will be the continued development of products and technology to provide incremental value for our customers and partners.

During the third quarter, we added further to our global technical capabilities with the opening of our Global Technical Center in Lavonia, Michigan.

This new world class facility will be the center of our global material science research efforts, it includes a fully integrated material development laboratory and provides state-of-the-art design, testing and prototype capabilities that will accelerate product development, lower our development costs and provide improved material service.

Finally, this facility allows our advanced engineering team to improve collaboration inside Cooper-Standard and with our customers.

We believe it gives us yet another competitive advantage over our competition and will be a key to our continued focus on driving increased return on invested capital.

Now let me turn the call over to Jon.

Thanks, Jeff, and good morning, everyone.

In the next few slides, I'll provide some additional detail on our financial results for the quarter and comment briefly on our capital structure and balance sheet profile.

On Slide 11, we show a summary of our results for the third quarter of 2017 and year-to-date compared to the same period last year.

Third quarter 2017 sales of $869 million were up 1.6% over the third quarter of 2016.

This was a third quarter record for us despite the lower OEM light vehicle production volumes in North America.

Europe sales were up 4.8% versus the same period last year, while Asia sales increased 8.3%, and South America sales increased 15.3%.

Adjusted EBITDA for the quarter was $96 million or 11.1% of sales.

Due to industry seasonality, the third quarter is typically one of our lower margin quarters.

However, as Jeff indicated, margins this quarter came in below our plan, largely as a result of lower light vehicle production in North America and unfavorable production mix.

More specifically on the mix front, even though light trucks and CUVs generally had good volumes in the quarter, certain large SUV platforms, luxury vehicles, and sports cars where we have higher than average margins were down as a result of customer inventory reduction initiative.

Further, since sales in North America were lower in the quarter and sales in Europe and Asia higher, our regional mix of sales was also a factor.

Net income for the quarter was $24.6 million or $1.32 per share, driven down by lower operating income as well as certain non-operating charges including a $5.9 million non-cash charge related to the annuitization and wind-up of our U.K. pension plan.

On an adjusted basis, net income for the quarter was $39.5 million or $2.11 per share.

For the first 9 months of the year, sales of $2.68 billion were up 3.2% over the same period last year.

Adjusted EBITDA at $320.8 million was up 2.5% year-over-year, equaling 12% of sales year-to-date.

From a CapEx perspective, continued investment and innovation, expansion of our Spartanburg, South Carolina plant in advance of the start of production of Fortrex, and the continued build-out of our state-of-the-art tube plant in China will bring us close to our 5% of sales target for the full year.

Our effective tax rate for the first 9 months of the year was 27%, which is in line with our full-year expectation.

Moving to Slide 12, the walk on adjusted EBITDA clearly illustrates the ongoing positive impact of our operating efficiency improvements which resulted in reducing costs by $20 million in the quarter.

This has us on target to be in excess of $80 million for the full year.

These savings more than offset -- were more than offset, however, by the unfavorable volume and mix just discussed, wage increases and general inflation, as well as customer price reduction.

We continue to see commodity cost inflation on certain raw materials, but we've been able to substantially mitigate the impact thus far through continued supply chain optimization efforts.

For the full year, commodity headwinds look to be about $24 million or so on a gross basis, similar to previous expectation.

Moving on to Slide 13.

We ended the third quarter with $373 million of cash on hand.

Our total debt at quarter end was $755 million, with our net debt declining to $382 million versus $419 million at the same time last year.

With cash on hand and an undrawn revolver, we are maintaining a very solid level of liquidity at $562 million.

Cash flow for the quarter and first 9 months was impacted by the timing of certain customer receivables as we finalize pricing negotiation as well as the consolidation of our European accounts receivable factoring programs.

This transition into a single new factoring arrangement across Europe will be more efficient for us and will result in savings going forward.

Both working capital impacts are expected to reverse by year end and taken together with the typical positive seasonal patterns for working capital in the industry, we expect very strong cash flow in the fourth quarter consistent with prior years.

We are very pleased with the continued strength of our balance sheet and our improving credit profile.

Our gross debt to adjusted EBITDA is at 1.8x improving from 1.9x at the end of the third quarter of 2016.

On a net basis, our leverage ratio is 0.9x.

During the third quarter, we repurchased an additional 214,000 shares of our outstanding common stock.

This brings the total for the year to approximately 306,000 shares repurchased, returning over $30 million to our shareholders.

Moving to Slide 14.

Our outlook for the future shows continued strength in cash generation.

When combined with our strong balance sheet and credit profile, we expect it will be sufficient to support our strategic plans and priorities.

With this in mind, our capital allocation approach remains consistent.

Our top priorities are focused on investing in continued profitable growth of our company, including the launch of new business, ongoing funding of our innovation programs, and improving the growth in earnings potential of our operations through targeted restructuring action.

In addition, we are continually evaluating opportunities for inorganic growth and market consolidation within our core product lines.

Following the allocation of cash to profitable growth opportunities, we anticipate returning excess cash to our stakeholders by buying back shares and paying down debt when and where it makes sense.

We continue to believe our shares are undervalued and following the Q3 repurchases we just completed, we had approximately $70 million in remaining share repurchase authorization out of the original $125 million.

Now let me turn the call back over to Jeff.

Okay, thanks, Jon.

So to wrap up our discussion this morning, I want to take just a minute to review our outlook and guidance for the full-year 2017.

So let's move to Slide 16.

Following our results in the first 9 months of the year, combined with our current view of the global automotive markets in the fourth quarter, we are on track to exceed our previous guidance for sales and we remain in line with our previous guidance range for adjusted EBITDA margin.

The math will tell you that we need to have a very strong performance in the fourth quarter to get our margin target for the year.

And that's how we see it shaping up.

Current releases look very good in terms of both volume and mix, our operations are running very well.

We're seeing increased volumes as our main new launches from this year continue to ramp up to full production and expect continuing improvements in operating efficiencies in all regions.

So in view of all of this, we've raised our guidance range for the full year sales and we have narrowed the range of our guidance on adjusted EBITDA margin, keeping that midpoint essentially the same as it was before.

We remain very positive about our opportunities in both our automotive business and in adjacent markets.

We believe our company is in a better position to drive increased stakeholder value than ever before.

So we'd like to thank our engaged workforce for their sustained efforts in executing our plans and strategies.

And we want to thank our customers for their continued support and trust.

So this concludes our prepared remarks.

So we'll now open the phone lines for Q&A.

(Operator Instructions) Our first question comes from Matt Crandall from Matt Koranda from Roth Capital.

I want to cover the Q3 decremental margins in North America.

It seemed a little higher than I would have expected with the negative year-over-year growth in revenue, but I was wondering if you could just give a little bit more color in terms of what happened during the quarter?

I know obviously the mix and volumes were unfavorable there, but were there any special launch costs that were associated with Fortrex or other incremental expenses in that region during the quarter that you could call out?

It was very, very straightforward as we said in our prepared remarks.

In fact, here is some color for your request.

If you look at Q3 for the industry, cars were down 22.3%.

If you look at Cooper-Standard affected cars, they were down 37.8%.

If you look at trucks and SUVs and CUVs, they were down 1.8% for the industry and Cooper-Standard product content was actually up 5.7%.

So if you net out what I just said, volume mix in the strike really cost us about $13 million on the bottom line.

That's a gross number.

Obviously, the truck production being up helped offset some of that, but at the end of the day, the GM strike that we talked about also had a particular vehicle that we have $235 worth of content and that was 3 weeks this quarter that we lost.

So that's pretty much the story.

The cost reduction activity is spot on, the teams are doing a great job.

Our operating performance, as it relates to the launches, was right on plan.

So in essence, it's -- the July numbers were probably about $9 million of that $13 million, just to give you some sense how really in the quarter that hit.

So hopefully that's the color you were looking for.

For the revenue guidance for 2017, obviously implies a decent revision effort for Q4 and also I mean on EBITDA as well, when you look at the margin improvement that that requires in certain regions, it looks like it's going to require not just a better mix of regional revenue but also some material improvements within certain regions.

So just wondered if you could sort of give a little bit more color on the regions where you're seeing the most strength toward the end of the year here.

And if you could talk about sort of margin improvement in those particular regions as well?

Sure.

So as you know, a lot of our launch activity was in Asia.

We had predicted certainly, the fourth quarter for Asia was going to be strong from a margin point of view with this new business coming on.

We feel really good about that.

Think about Asia as China as it relates to Cooper-Standard.

We actually exited the month of September extremely strong for the total company, in fact stronger than what we need to deliver in the fourth quarter just to give you some sense of how I define strong.

So we have in essence 6 more weeks left in the year when you think about the holiday schedule and where we are.

Our releases were November and half of December in essence, which is what we'll run, continue to be strong as well.

Our releases for the month of October that we just concluded were also strong.

Hence the change that we made in our guidance by tightening the range.

So that's the reason we have a high level of confidence.

Okay.

So essentially we should be considering Asia margins substantially higher sequentially and then probably a snap back in North America, just given kind of the releases you've been seeing?

That's correct.

Maybe last one from me.

The industrial and specialty group slide calls out a $2.2 billion total addressable market of which you guys have a relatively small piece.

So wondering if you could, sort of, talk about who you're displacing in that particular market, what are the sales cycles like to, sort of, sell into the industrial market?

Can you ramp up revenue faster than your typical automotive vertical?

And sort of what does that imply for margins as well, are they similar to your automotive margins a little bit better a little bit worse?

Just little bit more about the dynamics there would be helpful.

I will try to answer at least part of that, Matt.

So first of all the margins within that business are stronger than our OEM business.

The other thing to keep in mind is the product that we're producing there in essence is our core product that we supply to the OEM.

So we know how to do it, the ability to get into those markets is different, the customers are obviously different, but the product and the manufacturing processes are virtually the same.

The reason that we consolidated everything into the Sherbrooke facility is because most of these products were being produced across our existing footprint in North America and because we wanted a focused factory ability for that team to begin looking at their business, let's call it, more holistically and actually as an independent business within the company, so they're focused on growth, they're focused on operational excellence, they're focused on their particular customer group.

And so we're very excited about it.

I can tell you that the projected growth within that business is actually higher than the projected growth within our core business and that's saying something because our core business continues to well outpace the industry.

It's difficult to talk about all the competitors, Matt.

We need another hour for me to list them all.

That business is certainly ripe for consolidation, probably even more so than within our OEM business.

So hopefully that helped.

Your next question comes from the line of David Tamberrino from Goldman Sachs.

The press release last night called out some pricing pressure in North America.

We didn't really talk about it yet on the call.

So I'm wondering what that relates to, has there been any incremental negotiations, are there some competitors out there looking to maintain business and thus lowering the price, or is it just OEMs looking to squeeze this for a later cycle here and probably declining here in North America?

The pressure in North America was, I'll just call it, the normal continued pricing negotiations with our customers.

On average, it was about 1.2% to 1.4% of sales, so not outside the normal run rate for us.

So nothing unusual or anything to that affect.

And then on the operating efficiency side, I mean should we see continued strength in that going forward?

You guys have done a great job in the last couple years of years quarter-on-quarter continuing to produce there.

Are you able to hit the kind of run rate level of $20 million per quarter, in the fourth quarter this year and in next year and then any other benefits that we should be seeing at least in 2018 from your European restructuring efforts?

From the operational savings standpoint, as I mentioned earlier, we do expect to be in excess of $80 million through the year.

The team is feeling very, very strong and confident even going into 2018, so we see similar results going forward, but as you know we're not in a stage where we're giving anything on '18 yet but you can use that for modeling purposes.

On the European restructuring front, we continue to see efficiencies and benefits of that action taking hold.

And as we look to exit the year and into 2018, you should see a double-digit EBITDA margins going forward.

And then lastly from us, if we just think about free cash flow, fourth quarter is usually the strongest but 3Q is a little bit weaker and probably because some of the one-time events with the strike that happened in the quarter, but can you kind of help us think about what we should be thinking about for free cash flow generation year-over-year?

Should we be in a similar stage as we were last year?

Are there any one-time things that happened last year versus this year that free cash flow would come down year-over-year for 2017?

I would chalk up the Q3 cash flow woes to 3 main items.

First, the delays in customer payments related to price negotiations I referred to earlier, we've all but finalized those.

So you'll see the price negotiations in those invoices getting billed out and collected here in Q4.

And then the transition of our factoring programs in Europe, that transition cost us essentially about $20 million, as we -- the old program is wound down and we're in process of putting the new ones in place.

So as those go live here in Q4, we will see that unwind as well.

And then finally, there are some inventory builds ahead of the production shifts from west to east.

All told, inventory throughout the company was about $20 million up year-over-year, but as we look towards winding down the year, all that should unwind from a bank bill perspective.

So those 3 things unwinding and then taking our typical seasonality from a strong Q4 from a working capital perspective, we still see -- we anticipate very strong cash flow in the quarter.

For a frame of reference, we should be on track for similar to last year.

Prior year's Q4 generated $181 million of operating cash flow and $134 million of free cash flow and that's consistent with the past several years.

So we look to be in a similar boat.

Your next question comes from the line of from John Murphy from Bank of America.

Just a first question to follow-up sort of on the working capital stuff, I mean it looks like it bloated a bit in the quarter because it sounded like the schedule got a little bit disrupted relative to your expectations, so totally understandable.

But just curious and that will probably reverse what we've seen in the fourth quarter, but just curious were there any costs that were recognized in the third quarter that may have been pulled forward from the fourth quarter that might help the margins in the fourth quarter.

Because I mean it looks like your inventory is up quite a bit with sort of payables, receivables and all that kind of stuff.

Just curious as far as timing goes could that help in the fourth quarter on margins?

No timing issues that I would call attention to.

I think you will see this is the normal run rate in Q4.

Okay.

So this was just in inflation and working capital because of the schedules that will unwind, nothing to do with costs?

Nothing to do with costs, but the other items I mentioned were the drivers.

And then, Jeff, as we think about raw materials just curious if you could remind us what kind of relationship you have with these in passing them through to the automakers on indexing or escalators and how you typically sort of negotiate this stuff going forward just in case this becomes an issue more consistently?

So on the raw material side, John, so in the last call we told you for the year we were looking about a $21 million headwind in raw material.

For the fourth quarter, we've adjusted that.

It's in all of our forecasts, we are up to about $24 million for the year.

This additional $3 million or so is Europe related.

So all of that is contained within our guidance.

So the teams have done a really good job of 2 things: 1, negotiating a fair settlement with our customers to help absorb some of those costs, consider that about a 60% type of deal.

So if the materials prices go down, we don't get rich.

If the material prices go up, we don't go broke.

That's sort of the number that we've been working to now in the last few years.

But most importantly, the cost reduction initiatives that we continue to drive are more than offsetting all of our inflationary pressures and that's what's allowing us to guide to this mid 12.5 number, which is a pretty significant increase over where we were last year.

So, so far, it works pretty well for us; the relationships with the customers are terrific.

We continue to execute well in terms of launch and quality and all those things that are important to the overall relationship.

And so when we get into the discussion on raw material, it's more collaborative than confrontational, I would say.

And then just lastly on Slide 6 and really appreciate sort of this backlog roll-on or sort of your forecast here of innovative products, just to be clear this is all on the light vehicle side based on what you know right now and what you're discussing on Slide 7 as far as licensing and then Slide 8 as far as adjacent markets, which sounds like it would be more produced by you, would be incremental to what we're looking at on Slide 6, is that correct?

That's correct.

Okay.

And then as we think about these innovative products and margins and returns, I mean what is the delta versus your core margins and returns right now that you'd expect on the production side -- on the production side, we're looking on Page 6 and then if we look at Page 7 and 8, I would imagine they would be incrementally even higher.

Yes, the good news is, in the case of Slide 7 as we've mentioned before, in essence these are license agreements first.

So let's call it a 5% or so number on the sales price of whatever products they are procuring to make.

And then we would sell them our Fortrex compound as part of the revenue stream.

This isn't about brick-and-mortar for Cooper-Standard.

In fact, the capital investment in this adjacent market business model that we're talking about, John, is in essence 0 capital investment.

So ROIC driver, the margins are obviously very strong and that's directly related to the material science that we're selling.

So in the building business, in the wire and cable and in the footwear, all of those folks that are making product in those spaces today are saying really good things about Fortrex and why they think it's going to add value to them and why we're talking about it with you.

Okay.

And then on Slide 6, I mean I would assume that on this you're probably looking at operating margins in the 10% to 15% on these innovative products and return on invested capital north of -- well north of 20%.

Is that -- would that be a fair general assessment or is it better than that?

Well, certainly from an ROI -- an I'm not going to talk to you about the margins, but from an ROIC point of view, certainly well north of 20%.

Your next question comes from the line of Mike Ward from Seaport Global.

Just to follow-on some of John's comments there.

When you're looking at that Slide 6, can these adjacent markets get equal in size as far as revenue in that same time period?

So what we're talking about with our adjacent market business, both the Slide 8 as well as Slide 7, we have said publicly, in fact most recently, that we would like to see our revenue from these businesses equal between 20% and 30% of what our company is in total.

So that's the number that we're shooting for, at least call it in the next several years, that's what we would like to see happen.

Okay.

And if you compare that on a relative basis to automotive with some of these adjacent markets, it seems to me that you certainly don't have the regulatory hurdles or the customer development times.

Can these products come to market at a much more rapid pace than say a typical automotive innovation?

Yes, that's actually why we have selected the list of products frankly that we've been talking to folks about is a wide range in terms of speed-to-market.

We actually pick these 3 because we think not only is the value there, but the ability to get it into the market is there as well.

We have picked people to tie up with it, in essence own the drawings of these particular parts.

So we think that that quickly allows them to make decisions if we've convinced them that our product is better than what they're using today to produce the products that they're already making for their particular customer base.

So speed-to-market is a big deal and we think we've got that here with the strategy.

I don't know if Lyle is in the room, but I'm guessing he would probably argue that there are a couple more different industries that could be on that list.

Yes, his list is probably longer than mine to be fair, but that's okay.

Your next question comes from the line of John Sykes from Nomura.

On innovative products, you gave a projection through 2023.

And what I wanted to ask you there was electrification and it could be all-battery or a hybrid, what the assumption there?

Because I think when I was out there last, you guys talked about more content on electric vehicles than like the typical ICE?

That's exactly right.

In fact, back in 2013 when we selected these particular 4 product groups that we go to market with, today we selected them because they would, sort of, stand the test of time related to powertrains.

So whether it's gasoline engine, whether it's diesel, whether it's hybrid, or whether it's electrification, our products play everywhere.

The only exception would be a fuel line on electric vehicles.

And so at the end of the end of the day, our revenue growth is strong.

In fact, on electric vehicles we can sell twice as many -- I should say on hybrid vehicles, we can sell twice as many hoses.

So our content actually goes up considerably on the FTS product.

The other thing to keep in mind is related to autonomous driving, those vehicles are being driven 22 hours a day versus the standard use of 2 hours a day.

So our material science strategy is to be able to design sealing products, FTS products, fuel and brake line products, and ABS products that will meet the new specification required by our customers for vehicles that are going to be used 22 hours a day versus 2. So I think no matter which one of the megatrends you want to talk about, we're pretty confident that our product plays very well in all of those.

Hopefully that answered your question, John?

Yes.

I'm just trying to think in terms of how that would look from a SAR perspective, are you saying like 5% penetration in electrification and all battery by 2023 or is it -- are you not really looking at it that way, you're just kind of got a growth number with an expectation that it will be autonomous, electrification, battery, hybrid, but it's all grouped together.

I'm just trying to get like--

Yes, I guess in my -- from my standpoint, I'm not sure that I want to speak for my customers' product plans, but at the end of the day, there isn't a projection between now and 2030 related to electrification that that would create a significant change inside Cooper-Standard, let me say it that way.

Okay.

And then just Q4, you talked about the releases a little bit about at the month of October.

I'm assuming some of that is the hurricane impact, is that fair to say?

In other words, what I'm really trying to get at is how kind of sustainable do you feel the pace will be for 2018 once the hurricane impact is pretty much behind?

Yes, I think that obviously the SAR for October was extremely strong.

So I'm assuming like you are that, that's about replacing some of the vehicles.

We actually believe internally that the fourth quarter will continue to reflect similar.

And we also believe that probably the first quarter next year will continue to provide additional opportunity, in my guess, we'll be stronger than anyone had predicted pre-hurricane.

I think it's important to note that we still are very bullish on the 2018 build, and as I mentioned in the last call, on not only the top line in total, but the mix continuing to be strong on trucks, SUVs and CUVs, I believe will also be a positive for us into next year.

So that's how we think about it, John.

Okay.

And content, you see growth in content next year too, I'm assuming?

We do.

Our mix continues to be strong in trucks, SUVs, and CUVs here in North America and that will drive a pretty significant content per vehicle for us.

Do you -- and just more of a ball pack -- ball park macro question, but do you see a leveling out at some point of the decline in passenger car sales in North America?

Or do you see this trend continuing maybe slower, but could SUV, CUVs, pick-ups be, I don't know, 80% of the market at some point?

Yes, again I think I tend do better when I don't speak for my customers related to mix.

But what I will tell you is in the last call; we gave some pretty specific numbers through 2021 that show passenger cars continuing to come down and trucks, SUVs, CUVs continuing to go up.

In fact, even in the China market, we expect to see SUVs and CUV mix continuing to increase.

So for Cooper-Standard, where we have 62% of our global revenue today within those product mixes that I just mentioned, this is a very positive trend, at least, out for 2021 as we see it.

Your next question comes from the line of Brett Hoselton from KeyBanc.

I was hoping you could speak to the M&A area, I guess, a couple thoughts here.

First of all, can you speak to broadly speaking target -- potential targets in terms of revenue size and maybe areas of expertise in technology, are you looking for bolt-ons, or could there be maybe some unusual tech acquisitions that aren't necessarily marries with your expertise?

And then secondly, can you kind of look over the next year and just give us a very, very rough idea of what you think you might -- or what you expect to see in that area?

What would you be disappointed in versus what would you be excited about?

In other words, would you expect to make an acquisition in the next year?

And is there a particular size or something along those lines?

So first of all, there's plenty of consolidation opportunity within our 4 core products.

So we want to help our customers make the space stronger.

So clearly that's our priority.

So there we would be thinking about particularly, Europe and China, with that statement, really across all of our product groups.

So in your terminology, I guess, you would consider that bolt-on as the priority.

And the good news is with our operating system, we feel very confident that as we acquire those type of companies and we plug them into the Cooper-Standard operating system, we get the synergies rather quickly, call that 12 months to 18 months and they're up and running at our level of expectation.

The second part of the question, if we could find an opportunity within the industrial and specialty group that would provide a competitive advantage within aftermarket in a distribution channel that we could leverage within that business that would be something we would be interested in as well.

Finally, the third part of your question.

I think as it relates to the size, we're looking at companies from $40 million in revenue to $4 billion in revenue and I'm not exaggerating, the range is that wide.

So we have an expectation going forward that when we find the right fit, we expect to deliver on some of those deals.

Next year, I don't know how many, but I would sure hope that it's more than one.

It appears there are no more questions.

I would like to turn the call back over to Roger Hendriksen.

Okay.

Thanks very much everybody.

Great questions today.

We appreciate your engagement and look forward to future conversations.

Thanks again.

This concludes today's conference call.

You may now disconnect.