Good morning, ladies and gentlemen, and welcome to the Cooper-Standard Third Quarter 2019 Earnings Conference Call. [Operator instructions] As a reminder, this conference call is being recorded, and the webcast will be available on the Cooper-Standard website for replay later today.

I would now like to turn the call over to Roger Hendriksen, director of investor relations..

Okay. Thanks, Latif, and good morning, everyone. We appreciate you spending some time with us this morning. 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 statements included in periodic filings with the Securities and Exchange Commission. This presentation also contains non-GAAP financial measures.

Reconciliations of the non-GAAP financial measures to their most directly comparable GAAP measures are included in the appendix to the presentation. With those formalities, I'll turn the call over to Jeff Edwards..

Thanks, Roger, and good morning, everyone. I'd like to begin this morning by putting some context around our third quarter and the main factors leading to our disappointing results. Obviously, conditions in the world's top auto markets remain challenging.

Production of light vehicles has declined across the board, and production of some of our top platforms has been down disproportionately versus last year's levels versus the broader market declines and versus our plans.

The impact of these market conditions has more than offset our continuing improvements in operating efficiency and increasing volume related to new launches. Weakness in the China market has put significant pressure on many of our customers. In response, they've been coming back to us and other suppliers with increasing demands for price reductions.

Negotiations have been tough, maybe as challenging as I've seen since I first started doing business in China over 20 years ago. During the third quarter, we experienced a number of unfavorable outcomes in our customer negotiations, leading to several onetime price concessions or givebacks.

In one extreme case, we opted to discontinue the customer relationship rather than accept their one-sided demands. Third-quarter volume and mix was also unfavorable in North America, impacted by lower-than-planned production on certain new program launches as well as the UAW work stoppage at General Motors.

Combined, the one-off price concessions, the discontinued customer relationship, and the UAW strike had a $26 million negative impact on our results in the quarter. Finally, raw material costs have remained higher than last year despite the lower production levels and relative stability in oil prices.

For the first nine months, material economics has been a $20 million headwind for us. So in the face of the challenging market conditions, our manufacturing teams come to work every day to focus on safety, quality, efficiency.

They're working with a sense of urgency to lower costs and offset these market headwinds, while continue to focus on the needs of our customers. Through our innovation, continuous improvement and best business practice, we continue to improve our manufacturing efficiency overall.

In fact, during the first nine months of the year, improved operating efficiency resulted in $64 million of manufacturing cost reductions. This has been accomplished despite lower volume, increasing complexity and a record number of new program launches.

During the quarter, we successfully executed 71 launches, bringing the total for the year to 176, with 92% green results on customer scorecard. Another positive is in our quality, service and innovation continue to drive customer demand for our products. We're continuing to fill the pipeline for future sales with significant business awards.

For the first three quarters, net new business awards totaled $261 million in estimated annual sales. Contracts awarded for our innovation products, including new and replacement, totaled $276 million in projected annual sales. We expect these new awards will help position us for future profitable growth.

Now let me turn it over to Jon to discuss the financial results in more detail for the quarter.

Jon?.

Thanks, Jeff, and good morning, everyone. In the next few slides, I'll provide some more detail on our financial results for the third quarter and also comment on our liquidity, balance sheet profile, and capital structure. On Slide 7, we show a summary of our results for the third quarter with comparisons to the prior year.

Third-quarter 2019 sales were $729 million, down 15.4% versus the third quarter of 2018. The year-over-year change was driven by the sale of our AVS business, unfavorable volume and mix in all regions, foreign exchange and customer price reductions. These were partially offset by increased sales from recent acquisitions.

Gross profit for the third quarter was $69.7 million, compared to $119.7 million in the same period a year ago. Adjusted EBITDA was $43.5 million or 6% of sales, compared to $69.6 million in the third quarter of 2018.

The most significant drivers of the decline in adjusted EBITDA were weaker volume and mix, customer price reductions, and other commercial items.

The volume and mix impact was largest in North America, due largely to cancellation of certain programs that have been previously announced, the work stoppage at our second-largest customer and slower-than-expected ramp-up of key replacement programs.

Given significant market pressures and production declines in China, we recorded $15 million in one-off, quick-savings price concessions during the quarter, including the true-up of certain pricing commitments made in past periods. These reductions are not reflective of run rate pricing for future periods.

In fact, for the quarter and year to date, we are right around 1% globally for customer price reductions. We also incurred $8 million of write-offs due to the cancellation of certain customer programs in China that Jeff referred to earlier. Again, not in our normal run rate.

Further contributing to the decline were general economics, commodity inflation and the net impact of acquisitions and divestitures, which were partially offset by favorable SGA&E expense. On a U.S. GAAP basis, net loss for the quarter was $13.9 million versus net income of $32.2 million in the third quarter of 2018.

Excluding restructuring expense and other special items, adjusted net loss for the third quarter was $5.2 million or minus $0.31 per diluted share. From a CapEx perspective, our spending in the third quarter was $35.6 million or 4.9% of sales, down from $53.4 million in the same period a year ago.

This was in line with our expectations for the quarter and consistent with our continuing drive to reduce CapEx by more than 15% for the full year. Moving to Slide 8. The charts on Slide 8 quantify the significant drivers of the year-over-year changes in our sales and adjusted EBITDA.

For sales, volume and mix, net of typical customer price reductions, reduced sales by $45 million year over year. The one-off items of the commercial impacts in China and the UAW strike accounted for $23 million of the revenue decline.

The combined impact of acquisitions and divestitures was negative $51 million, while foreign currency fluctuations reduced sales by $14 million. For adjusted EBITDA, our ongoing efforts in lean manufacturing and operational efficiencies drove $13 million in cost savings for the quarter.

These savings were more than offset by $27 million of unfavorable volume mix and typical price reductions, as well as the $26 million of one-off items from customer settlements in China and the UAW work stoppage. We also had $4 million in higher commodity costs and a negative net impact of $3 million from acquisitions and divestitures.

Positive improvements in our SGA&E expense, lower compensation-related costs and lean purchasing savings helped to offset general inflation and other negative headwinds. Coming back to the run rate, we would have met or exceeded our previous expectations for the quarter, had it not been for the combined impact of the one-off items discussed.

Jeff will discuss our updated guidance in a few minutes for the year. But looking ahead to Q4, we have not assumed any catch-up during weekends or holidays for either production loss during the GM strike or the delayed ramp-up of output for the large SUV program launch.

And given all the moving parts in the industry right now, including global production estimates for the year being down over 3% since our last earnings call, it's too early to look ahead to our run rate for 2020. We'll be able to provide more detail when we issue formal guidance during the fourth-quarter earnings call, come mid-February.

Moving to Slide 9. At the end of September, our balance sheet and credit profile remained solid. We ended the third quarter with $323 million of cash on hand, up from $311 million at the end of June of this year and $41 million higher than a year ago.

With cash on hand and availability on our revolving credit facility, we had total liquidity of $507 million as of September 30th, 2019. We feel this provides adequate liquidity for the funding needs of the company, given the current industry environment. Our total debt at the end of September was $803 million, while net debt was $480 million.

That equates to a net leverage ratio of two times trailing 12-month EBITDA. To wrap up, I wanted to provide an update on our efforts around legacy pension liabilities. Subsequent to the end of the third quarter, we were able to take advantage of favorable market conditions and proactively de-risk a significant portion of our U.S. pension plan.

Using pension plan assets, we purchased a bulk annuity policy and reduced our projected benefit obligation by $57 million or nearly 20%. There were no cash contributions related to the transaction and no impact to the overall funded ratio of the U.S. plan, which remains at nearly 97% funded.

This is a great result that will significantly reduce the long-term risk of our pension plan liabilities going forward. The accounting impact of the derisking will be recorded in our fourth-quarter results. With that, now let me turn the call back over to Jeff..

Okay. Thanks, Jon. With the next few slides, I'll give you some highlights related to our innovation and diversification initiatives and provide some additional detail on the actions we're taking to reduce costs and align our organization with the current challenging market conditions. So if you turn to Slide 11.

We are pleased with the many new products and materials that have been developed through our innovation initiatives over the past several years. They've been a key reason why we continue to win more than our fair share of new contracts.

In addition, our innovation team has been working beyond products and materials to develop advanced process technology, as well. Earlier this year, their work in applying artificial intelligence in the compound development process was recognized as a PACE Award finalist.

Today, I'm pleased to announce that we have made significant progress in applying artificial intelligence to develop automatic process controls for our extrusion lines. For those of you that have visited our Livonia tech center in the past two years, you've probably heard us talking about the concept. But now the concept is reality.

The AI-based process control systems gather live data from many points on the extrusion line and analyzes it in real time. When variations in the extrusions occur, the system immediately recognizes it, and makes automatic adjustments to correct it.

In addition, the system learns what factors caused the variation and can initiate actions that will help us prevent recurrence. The initial results from testing in our tech center are very positive. The system has been able to reduce 50% to 90% of extrusion variation, which is a top driver of scrap in our plants.

So if the results can be replicated on a large scale, the opportunity to reduce the cost of scrap and energy usage across all of our operations is significant. We're in the process now of bringing the system online in two pilot locations, where we will look to fully validate the test findings.

We're simultaneously working to develop an affordable infrastructure that we expect will allow us to eventually deploy the system on all 345 extrusion lines in our plants around the world. Turning to Slide 12.

Our Advanced Technology Group is also making exciting progress as they define and refine an integrated strategy to maximize our opportunities beyond the automotive industry.

Through the voice of our new customers, we are learning that a business model focused exclusively on technology licensing would capture a small subset of the total potential market opportunity for Fortrex technology. Licensing, in addition to the sale of custom materials expands our opportunities.

And in some cases, sales of converted materials that incorporate our advanced technologies may be the best way to capture maximum value. We're advancing our strategy to incorporate all three options, leveraging existing production facilities from the ISG operations where that makes sense.

A key focus for the ATG team is to prepare to deliver on our first major material orders, which we expect will begin in the next 12 to 18 months. This new business model presents different challenges, such as delivering materials and railcar quantities, something we don't typically do in our automotive business.

We're working very hard to ensure that our first material science product launch is flawless. In terms of new business development, we now expect to sign two new license or technical agreements before year-end. This would be in line with our original goals.

We are also evaluating certain new opportunities or proposals that have been presented to us from existing customers. So I think it would be accurate to say that the interest in our materials science business remains high, and our progress overall is in line with, if not ahead, of our earlier expectations. Turning to Slide 13.

Since the beginning of the year, we've been in the process of evolving and streamlining our organization structure. The initiative began with globalizing our business support functions and services, such as manufacturing, engineering, human resources, and finance. Most recently, we announced, of our purchasing group, a transition to global structure.

You've seen the early results of these efforts in our SGA&E expenses that have been trending lower. So today, we're announcing the final step in that process. Effective January 1, 2020, we will further streamline our organization by creating a single global automotive business and by globalizing our Advanced Technology Group.

Each will be flatter and more capable of quickly adapting to the dynamics of a transforming global business model. The creation of these two businesses replaces our former regional leadership structure. The automotive business will be headed by Bill Pumphrey, who was formerly Senior Vice President and President, North America.

The business will align with the needs of customers, providing consistent performance and the latest innovations to assist customers in meeting the demands of the rapidly changing mobility landscape. The Advanced Technology Group will remain under the leadership of Jeff DeBest, Executive Vice President and President.

Jeff and his team will continue to focus on diversifying Cooper-Standard by expanding the sale of both converted products and applied material science offerings, including the Fortrex chemistry platform into global industrial markets.

As a part of the organization transition, Song Min Lee, Senior Vice President and President Asia Pacific, will depart the company at the end of 2019. Fernando de Miguel, Senior Vice President and President Europe, South America, and India, will remain with the company through the first half of 2020 to assist with the restructuring activities.

Upon conclusion of this assignment, Fernando will also depart the company. In addition to Song and Fernando, four more executives will depart the company by year-end and one more by mid-2020. These actions are consistent with a more lean and efficient organization and the continued rightsizing of our SG&A cost basis.

It also confirms the depth of talent and leadership that has been developed the past several years throughout our company. Moving to Slide 14. On this slide, we're providing you with details and updates on the various cost savings and value-creation initiatives that we outlined for you last quarter.

We're working with laser focus to advance and complete these initiatives, and we have good progress to report. We said we would accelerate the transition to a global organization structure, and we are now in position to complete this process by the end of the year, as I just described.

We expect the people-related restructuring associated with this transition will drive a payback in less than one year. We said we plan to close eight facilities. That number has now increased to 10. We expect to complete the closures of these facilities by the end of 2020, and we anticipate savings that will drive a payback in less than two years.

We also told you that we would fix or exit unprofitable operations, including the possibility of improving profitability by becoming smaller in Europe. While I won't provide you with the details, I can tell you that a strategic process has been initiated, and we'll provide you further details and updates as appropriate.

With the transition to a global organization structure now nearly complete, we believe the increased functional efficiency will drive positive results. We see major opportunities in purchasing and supply chain through standardization and economies of scale as we discussed last quarter. We also expect to realize further reductions in SGA&E expense.

Finally, we're continuing our focus on improving free cash flow by further reducing capital investments and optimizing working capital metrics. Moving to Slide 15.

The initiatives we've laid out for you are already beginning to reduce costs, but the benefits have been far outweighed by the impact of the GM strike, certain onetime price concessions and continued weak production volumes in China and lower-than-expected volumes on important platforms in North America.

Based on our year-to-date results and these continuing headwinds, we have revised our full-year outlook as shown in the table on Slide 15. These are challenging times. And despite the headwinds and uncertainty facing our industry and our company, we are confident that our long-term strategy remains sound.

We are also confident that the actions we are taking to reduce costs and streamline our business will soon begin to drive improved results. And finally, we would like to thank our global team for their continuing hard work and their commitment to our company values.

To those members of our team who will soon be departing the company, we want to thank them for their many contributions over the years. We would also like to thank our customers for their continued trust and confidence in Cooper-Standard. This concludes our prepared comments, and we will now open it up for Q&A..

Thank you. [Operator Instructions] Our first question comes from the line of Justin Clare of ROTH Capital Partner..

Hi, everyone. Thanks for taking my questions. So first off, your revised 2019 guidance suggests you could see a sequential decline in revenue and margin in Q4. Wanted to see if you could just talk about how you see sales and margins trending for your key geographic regions.

And whether you see potential for improvement as you move into 2020?.

Hey, Justin, good morning. This is Jon. I'll take the first pass at this one. When you think about the industry volume environment, I'll break it down by region for you to address your question. Since the last time we gave guidance and with the Q3 results, volumes are down 3% through - actually, 3.4% globally.

And when you dig one level deeper, they're down 5% in China. So 4.5% overall in the Asia Pacific region, 2% in North America and another 2% in Europe.

So when you couple that industry decline in our take rates and product mix, and you layer on the delayed ramp-up of the large SUV program, that's important for us here in North America, revenue declines in - between Q3 and Q4 since our last guidance about $25 million to $30 million. I'm sorry, that's the profit impact.

The revenue impact is about $60 million in those two periods. So that's a big part of the decline overall. And then pricing, of course, hits that top line. So the reduction in the overall sales guidance that we gave out includes the further headwinds we had on customer price reductions..

Hi, Justin. This is Jeff. I'll also add a little bit of color there. So if we - again, we're not talking about 2020 guidance. We said we'll do that in February.

But I think it is important to point out as we look at the third and fourth quarter, and you think about the work stoppage that existed with our second-largest customer and you think about the challenge associated with the ramp-up in the third and fourth quarter here of the SUV that's so important to us and everyone else in the industry, clearly, those things as we move forward in 2020 aren't going to exist.

So I see it as a headwind for - I'm sorry, a headwind in the third and fourth, but tailwind as we head into 2020.

So despite some challenges that Jon talked about in terms of the IHS forecast being down 3%., there are some things specifically related to our volume and mix going forward that I think will be positive, and we'll talk in more detail about that when we get into the February guidance discussion..

OK, great. Thanks for the detail there. And then just for your Asia business, it sounds like your exposure to specific customers and to specific vehicle platforms is causing some underperformance versus the market overall.

I wonder if you could just speak to whether you see potential for customer and vehicle mix issues to improve as new vehicles are launched here in the coming quarters..

Yeah, Justin. This is Jeff. I'll take it in the macro sense, and then Jon can talk to you about the specific volume and mix that impacted us versus the overall industry.

So as we look at China going forward, clearly, China is the largest car market today, and it's going to be the largest car market every year in the future as far out as you want to look. So we're very committed to being there. It makes sense to be there, and we're well-positioned when that market comes back. So that's the first point.

The second point is that there will continue to be a shift in China toward SUVs, CUVs and those type of vehicles that are clearly in our sweet spot from a content per vehicle.

So as is today in North America, a market dominated by trucks, CUVs and SUVs, we see China going forward in a very similar fashion, at least as it relates to SUV and CUV segment. So content per vehicle will go up.

I do think that the challenge we have in China in 2020 and 2021, if we just look at it from a macro point of view, will continue to be challenging in terms of growth. I think that the market will be flat, best case, through '21. But after that, I think, clearly, all of the new launches that are planned.

And especially, the expansion from cars to SUVs and CUVs, that will have a very positive impact on Cooper-Standard..

Okay. Great. And then... Go ahead..

I was going to add a little bit more color on the market dynamic there, Justin. When you think about the Q3 production environment, the industry was down about 5% year over year.

But when you think about our customer weighing, which is currently at about 82% western OEMs or the joint ventures thereof and only 18% local China domestics, our revenues are actually down 26% because we're so heavily weighted toward those global manufacturers.

So that adds a little bit more pressure to that mix dynamic that Jeff was just referring to..

OK, got it. And then one last one from me.

So just given the industry headwinds and reduced production volumes, can you update us on how you're thinking about capital allocation? And specifically, your leverage and the amount of debt that you have, could you look to allocate more cash to pay down debt at this point in time? Or how are you thinking about that?.

Yeah, Justin. It's Jon, again. When you look at our maturity profile of some of our debt, it is long-tailed.

Our term loan doesn't come due until 2023, our bonds don't come due until 2026, and when we took both of those pieces of debt out back in 2016, they had very attractive interest rates for us compared to current market rates that we would have to pay, should we have to go back into the capital markets again. So there's not a burning need to delever.

But instead, we're thinking just here in the short term, at least, maintain cash on the balance sheet, and then whether any market fluctuations that we see coming. And then once we get into 2020, we'll take a fresh look at that as far as any opportunity to either pay down debt or refinance debt..

Justin, this is Jeff. On the operating side, clearly, we've stated that moving forward from a capital point of view, our expenditures will be much less than you've seen historically. We will be at a reinvestment ratio of one or less, starting in 2020.

It's because we've invested well over the last several years, both in China and in terms of the innovation, we've [indiscernible] manufacturing plants. So it allows us, at this point in time, to really scale back, we believe, still have the great growth that we've been talking about but our plants are a lot more efficient.

And we're able to spread those assets across our facilities in a much different way. As I mentioned, we're in the process of mothballing or closing 10 factories. So inside those plants is equipment that we can continue to use as the business grows around the world. So capital expenditures definitely will be significantly lower in '20.

In addition to that, there's opportunities, I mentioned before, on the working capital side of the business, inventory opportunities. Every day, we take out is worth about $10 million to us.

So there will be a laser focus on making sure that the working capital execution going forward continues to improve and continues to allow us even more flexibility on the balance sheet as we move into next year..

Okay. Great. Thanks, guys..

Thank you, Justin..

Thank you. Our next question comes from Glenn Chin of Buckingham Research. Your line is open..

Good morning, gentlemen..

Good morning, Glenn..

Jeff, can you elaborate a bit on the customer negotiations in China? Can you give any reassurance that these are indeed one-offs? Or how far you are in these discussions with OEMs? Whether there's more to come with more OEMs or on more programs, et cetera?.

Yeah. These are settlements, Glenn, as we said. So clearly, we've been at this now, the rest of - for the entire year, we were hoping for a little better outcome, obviously, than we've seen here. But we consider it closed with the customers that we're going to go forward with.

And we obviously made some decisions in terms of preserving relationships and making sure that we were around there to benefit when the industry comes back, hence, the decisions that we took. However, we didn't do that with everybody.

We decided in one particular case, that, that didn't make any sense for the company to go forward, and we exited that relationship as a result. So the short answer is, yes. I do believe that the negotiations as we've described it in terms of one-offs are behind us. Going forward, it will be the normal tight negotiations that we've always referred to.

I think it's also important, as Jon mentioned in his comments. We had some terrific results in Europe and in North America related to customer price negotiation. We didn't have a good result in China, but when the market's under the pressure. It's under, that's - I suppose that's understandable at this stage.

Having said all of that, we're still on target to achieve this 1% number that we've been talking about all year. As you know, we've averaged 1.5% to 1.7% givebacks, really the last seven years. Last year, we actually gave back 2%. So despite all of that, and keeping in mind that everything Jon talked about in China related to the one-offs is behind us.

So moving forward, we see things normalizing, if you will, in terms of price negotiations. We'll get into the details of what we're going to define 2020 as a target in February when we talk to you all..

Okay, very good. Thanks for the color, Jeff..

Okay..

And then, Jon, I apologize if I missed it in your prepared comments. But in your adjusted EBITDA walk, there is another positive of $21 million.

Can you tell us what is inside that?.

Yeah, Glenn. In that $21 million, I referenced better SG&A performance, which is nearly half of that when you think about the initiatives we've been undertaking and the cost reduction actions. There's good performance when you look at the SG&A cost base.

There's also some lower compensation-related expenses, given the overall nature of the industry and the performance backdrop. And our purchasing lean organization, their efforts are included in that $21 million of savings. So those combined are the $21 million of good news.

There is your normal inflation, as I'll call it, for wage rates or utilities or rental charges around the world that we incur every year. And that's included in another bucket, offsetting the good news..

Okay. Very good. That's it for me. Thanks, gentlemen..

Thanks, Glenn..

Thank you. [Operator instructions] Our next question comes from John Murphy of Bank of America Merrill Lynch. Your line is open..

Good morning, guys. This is Aileen Smith on for John.

To ask another question around the customer price reductions and settlements that you've commented on, were any of these outsized concessions on some of your new material science products, like Fortrex or ArmorHose? Or was this pressure more on your legacy products and business?.

It would be legacy products and business, really..

Okay.

So is it fair to assume that some of this customer pressure may ultimately accelerate your business transition to more of the material science products and diversification to the nonautomotive end markets?.

We will actually launch Fortrex for our largest customer in China next year. So we're well on our way to bringing that technology into the region. As you well know, we also launched our MagAlloy product there with our fuel and brake business this past year.

So we're pretty excited about the pool that we are receiving, not just from the Western automakers, but also the larger, more successful local Chinese manufacturers are interested, as well. So it's on all fronts..

Great. That's helpful.

Second question, on 10 facilities that you're targeting to close by 2020, can you detail where these are located? Is it limited to just one geography? And are these closures just going after capacity consolidation and a more efficient footprint? Or do they reflect pulling back on some business that's uneconomic, like what you did with discontinuing the one relationship in China?.

That's a little bit of both. So I've said in the past, Aileen, that primarily the five facilities that are Asia-based are, as a result of the market decline that we've seen there, obviously, our revenue is down 30%, so we're reacting to that. It also reflects efficiencies that we're continuing to drive into that footprint.

So it's a little bit of both, but primarily the market. And as I mentioned, those are being mothballed more than anything. So as the market comes back, we'll be able to still have facilities that we're - that we have the ability to go back and produce product, again, as the market comes back.

So I think that's the right approach, given what's happened there. When we come over here to North America, the plants that are impacted are basically gone forever. And same with what we'll be doing in Europe, gone forever..

Okay. And then one last follow-up to Justin's question asked earlier around the balance sheet.

How do you think about funding the restructuring programs you've outlined? Are these initiatives that can be funded through cash from operations, despite a more pressured cycle and the macro environment?.

Aileen, this is Jon. Yes, this is part of the answer, but we also have $170 million of availability remaining on our revolving credit facility. So if we needed to tap into that, we could use that to pay for some of the restructuring activities. And then there's certainly a lot of cash on the balance sheet at this point in time.

So as we go forward and get further into next year, we'll kind of reassess that strategy and whether the current liquidity we have is adequate to pay for the restructuring, as well as the ongoing capital needs of the company..

Okay. Great. Those were all the questions I had. Thanks..

Thank you..

Thank you. Our next question comes from Josh Taykowski of Credit Suisse. Your line is open..

Hey, thanks for taking the question. First one from me.

Just was wondering if you could comment on the latest that you're seeing as far as the large North American SUV platform and the ramps that you're seeing there?.

Yes, Josh, this is Jeff. I wish I could tell you that it's remarkably improved, but I can't. So we're still faced with a pretty significant shortfall there as we are moving through the fourth quarter, much like we had in the third quarter..

Got it. And then just looking at the revised guidance, if I have my math right, it looks like it's an implied Q4 number on the top line of about $675 million and margins of about 4.75%, which would imply a sales decline of about 20% versus 4Q of last year and about 60% on EBITDA.

So I was wondering if you could just comment on the 20% decline in revenue with respect to the 60% decline or so in EBITDA..

Hey, Josh, it's Jon. I hope I'll walk you through some of those details. When you think about the year-over-year revenue decline, I walked through some of that detail before, we're not expecting, like I said, any makeup on the GM platforms that were down during September and October.

So we're just looking at what the plant production levels are currently in the system and in the releases. And the same thing on the large SUV platform. And so what we're seeing from the customers, we're not anticipating any makeup to counteract the year-over-year drop. Keep in mind, for all of October, we lost revenue from the UAW strike.

So that's a big drag on overall revenues, as well as profitability. And it's not just your normal pull-through rates on that lost production, but it's the inefficiencies that are created because of the operational - or lack of production there in the plants. So that's a further drag on overall profitability for you.

OK? So I think those are the two big pieces that I would point you to on the Q4 revenue side..

So on the other part of your question there, Josh, just to clarify, and Jon mentioned this in his prepared remarks, as well. So if you think about weekends and holidays during the fourth quarter when a lot of companies decide to make up for lost units, we have not included any of that in our projection for the fourth quarter.

So if that happens, then that would be good news..

Got it. That's helpful. And apologies, I missed it at the very beginning of the call. So....

No worries..

No worries..

That was - that needed to be repeated. My apologies. And then my last question is just on net working capital. It looks like there is a bit of working capital release in 3Q. Just trying to get a sense for how you're expecting net working capital flows in 4Q..

Yes. So I'll characterize it as we typically see a positive inflow on working capital in Q4 due to the seasonality of the business.

So that should hold, but for any change in customer production plans near year-end, typically, you see the holiday season shutdown and that allows us to collect on receivables and reduce inventory levels by the end of the year, which creates a natural free cash flow inflow for us.

So when we look ahead, there's definitely an implied Q4 positive inflow on free cash flow and the working capital side. But again, that's all subject to those customer releases. And if there's any change in that situation, then we'll see the changes there going through our working capital..

Got it. That's it for me. Thanks, guys..

Thanks, Josh..

Thank you. Our next question comes from Mike Cazayoux of KDP Investment Advisors. Your line is open..

Hi. Thanks for taking my question. Kind of along the lines of what Josh asked. If I do my math right, it looks like fourth quarter EBITDA will be lower than third quarter EBITDA.

And I'm just wondering, you talked about one-off items, is the UAW strike going to impact the fourth quarter, as well as the third quarter? Could you give - do you have - can you estimate how much it will impact each quarter?.

Yeah, Mike. It's Jon. It definitely impacts Q4 more so than Q3. So in Q3, we lost about $8 million of revenue and about $3 million of total profits. When you look at the normal pull-through, as well as the manufacturing inefficiencies caused by the shutdown. And then in Q4, those numbers more than double.

When it comes to sales, sales are closer to $15 million to $16 million, and then profit and reduced inefficiencies are $7 million to $8 million of reduction. So you can kind of frame it like that. So bigger impact is, again, in Q4..

Okay. And same question about the China settlements.

Is that all in the third quarter? Or is that going to affect fourth quarter, as well?.

Q3..

Just Q3..

All in Q3. Okay. Thank you very much..

Okay, Mike. Thanks..

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

Okay. Thanks, everybody. We really appreciate your participation in the call this morning, and we would look forward to and welcome any further questions as the days and weeks come forward. We appreciate your continuing engagement with us here at Cooper-Standard. That will conclude our call. Thanks a lot..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..