Good morning, ladies and gentlemen. And welcome to the Cooper Standard Third Quarter 2017 Earnings Conference Call. During the presentation, all participants will be in a listen only mode. Following Company prepared comments we will conduct a question and answer session [Operator Instructions]. As a reminder, this conference is being recorded and the webcast will be available for replay later today. 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 three of this presentation and the Company’s statements 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 five 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 impact 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 $10 million hit for us, which we expect to make up in the fourth quarter. October and November rereleases 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 currently on track. In the third quarter of 2017, we achieved 40% improvement in our total incident rate over the same period in 2016 with 36 facilities at zero incidents. In fact, the third quarter of 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…

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 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, margin 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, 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 $5.9 million non-cash charge related to the annuitization and wind-up of our UK pension plan. On an adjusted basis, net income for the quarter was $39.5 million or $2.11 per share. For the first…

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 nine 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 the 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 would 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.

Thank you, ladies and gentlemen. [Operator Instructions] Our first question comes from Matt Koranda from Roth Capital. Your line is open.

I want to cover the Q3 detrimental margins in North America, seemed a little higher than I would have expected with the negative year-over-year growth in revenue. But 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?

Matt, this is Jeff. It was very straight forward as we said in our prepared remarks. In fact, here 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 and the strike really caused us about $13 million on the bottom line. That’s a gross number. Obviously, the truck production being up help 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 $335 worth of content, and that was three 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 launches, was right on plan. So in essence, it's the July numbers were probably about nine of that 13, just to give you some sense of really in the quarter of that hit. So hopefully that’s the color you were looking for.

For the revenue guidance for 2017, obviously, it implies a decent provision upward Q4. And also I mean on EBITDA as well when you look at the margin improvement that that requires in certain regions, looks like it's going to require not just a better mix of regional revenue but also some material improvements within the certain regions. So just wondered if you could give a little bit more color on the regions where you’re seeing the most strength towards the end of the year here, and if you could talk about margin improvement in those particular regions, as well?

So as you know, 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, but 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, six more weeks left in the year when you think about the holiday schedule and where we are. Our releases for November and after the December in essence, which is what will 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.

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

That's correct.

Maybe last one from me, the industrial and specialty group slide, calls out $2.2 billion total addressable market of which you guys have a relatively small piece. So wondering if you could talk about who you’re displacing in that particular market, what are the sales cycles like to sell into the industrial market? Can you ramp-up revenue faster than your typical automotive vertical? And what does that imply from margins as well? Are they similar to your automotive margins, a little bit better, little bit worse? Just little bit more about the dynamics there would be helpful.\

This is Jeff. I’ll try to answer at least part of that math. So first of all, the margins within that business are stronger than our OEM business. The other things to keep in mind is the product that we’re producing 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 Sherbrook facility that is because most of these products were being produced across our existing footprint in North America. And because we wanted a focus factory ability with that team to begin looking at their business, let's call it more holistically and actually is 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. So we’re very excited about it. I can tell you that the projected growth within that business is actually higher and the projected growth within our core business, not 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 right for consolidation, probably even more so than within our OEM business. So hopefully that helps.

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

The press release, I 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, is there been any incremental negotiations, are there some competitors out there looking to maintain business and that’s lowering the price? Or is it just OEMs looking to squeeze just for later cycle here and probably declining here in North America?

David, this is Jon. I’ll take this one. The pressure in North America was, I’ll just call, 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 effect.

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 last couple of years quarter-on-quarter of continuing to produce there. Are you able to hit that run rate level of $20 million per quarter in the fourth quarter this year, and the next year? And then any other benefits that we should be seeing at least in 2018 from your European restructuring efforts?

David, Jon again. From the operational savings standpoints, as I mentioned earlier, we do expect to be in excess of $80 million for 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 the state where we’re given 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 double-digit EBITDA margins going forward.

And then lastly if we just think about free cash flow. Fourth quarter is usually the strongest, but 3Q is a little bit weaker and that probably because some of the one-time events with the strike that happened in the quarter. But can you help us think about what we should be thinking about for free cash flow generation year-over-year, should we’ve been in the similar state as we were last year. Are there any one-time things that happened last year versus this year that free cash flow had come down year-over-year for 2017?

I would choke-up the Q3 cash flows to the three main items. First, the delays in customer payments related to the price negotiations I referred to earlier. We’ve all but finalized those so you’ll see the price negotiations in those invoices getting build-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 programs wound down and we're in process of putting the new ones in place. So as those go live here in Q4, we'll see that unwind as well. And then finally there is 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 build perspective. So those three things unwinding and then taking are 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 John Murphy from Bank of America. Please go ahead.

Just a first question, the follow-up on the working capital stuff I mean it looked like it imploded a bit in the quarter, because it sounds like schedules got a little bit disrupted relative to your expectation, so totally understandable. But just curious, and that will probably [indiscernible] 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 it looks like its inventories up quite a bit, it’s over payables, receivables all that kind of stuff. Just curious as far as timing goes, could that help in the fourth quarter on margins?

John, this is Jon again. No timing issues that I would call attention to. And I think you'll see this is the normal run rate given Q4.

So this was just an inflation working capital, because of the schedules that were unwind, nothing to do with cost?

Nothing to do with cost and the other items I mentioned were the big drivers.

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

Sure. So, on the raw material side, John, so in the last call we told you for the year we were looking about $21 million headwind in raw material. For the fourth quarter, we've adjusted that. It's in all of our forecasts. We're up to about $24 million for the year. This additional 3 or so is Europe related, so all of that is contained within our guidance. So the teams have done a really good job of two things; one, 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 material prices go down, we don't get rich, if the material prices go up we don't go broke. That's the number that we've been working to now 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 with 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 and confrontational I would say.

And then just lastly, on slide six and really appreciate this backlog roll on, so 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 seven is for its licensing, and then slide eight 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 six. Is that correct?

That’s correct.

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 would expect on the productions -- on the production side what we got on page six and then if we look at page seven and eight, I would imagine it would be incrementally even higher.

Yes, the good news is in the case of slide seven as we have 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 product 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 zero 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 add value to them and why we’re talking about it with you.

And then on slide six, I would assume that on this, you probably looking at operating margins in the 10% to 15% on these innovative products and return on invested capital north of 20%. Is that -- would that be a fair general assessment or is it better than that?

Well, certainly from 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. Your line is open.

Just to follow on some of John’s comments there. When you’re looking at slide six, can these adjacent markets get equal in size as far as revenue in that same time period?

Mike, this is Jeff. So what we’re talking about with our adjacent market business, both the slide eight as well as side seven, 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 sharing for at least call it in the next several years that’s what we would like to see happen.

And if you compare that on a relative basis to automotive with some of these adjacent markets, it seems to be 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 and to the typical automotive innovation?

Yes, that's actually why we have selected the list of product frankly that we've been talking to folks about is a wide range in terms of speed to market. We actually pick these three, 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 in an essence all 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 couple of 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. Your line is open.

On innovative products, you gave projection through 2023. And what I wanted to ask you there was electrification, and it could be all battery or a hybrid. What's the assumption there? Because I think when I was out there last, you guys talked about more content on electric vehicles than the typical ICE?

This is Jeff. That's exactly right. In fact, back in 2013 when we selected these particular four products groups that we go to market with today that we selected them because they would stand the test the time related to power-trains. 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 fuel line or electric vehicles. And so at 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 two hours a day. So our material science strategy is to be able to design ceiling product, FTS product, fuel and break line product and AVS products that won't meet the new specification required by our customers for vehicles that are going to be used 22 hours a day versus two. 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 and in all of those. Hopefully that answers your question, John?

Yes, I'm just trying to think in terms of how that would look from SAAR perspective. Are you saying like 5% penetration in electrification all battery by 2023? Or is it -- you are not really looking at it that way, you’re just get at a growth number with an expectation that will be autonomous electrification battery hybrid, but it’s all grouped together. I am just trying to get like…

I guess 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 would create a significant change inside Cooper-Standard, let me say it that way.

And then just Q4, you talked about the releases a little bit about 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 sustainable do you feel the pace will be for 2018 once the hurricane impact is pretty much behind?

I think that obviously the SAAR 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. We also believe that probably the first quarter next year will continue to provide additional opportunity. And my guess will 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, 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.

And content, do you see growth in content next year too…

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

Do you, just more of a ballpark 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 the 80% of the market at some point?

Yes, I think I tend to do better when I don’t speak, provide 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, SUV, 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 through 2021 as we see it.

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

Jeff, I was hoping you could speak to the M&A area, I guess couple of thoughts here. First of all, can you speak to, broadly speaking, potential targets in terms of revenue size and maybe areas of expertise and technology? Are you looking for bolt-ons or could there be maybe some unusual acquisitions that aren't necessarily near as your expertise? And then secondly, can you look over the next year and just give us a very, very rough idea of what you think you might -- 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?

Hi Brett, this is Jeff. So first of all, there's plenty of consolidation opportunity within our four 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 to 18 months and they're up and running at our level of expectation. Second part of the question, if we could find 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 as 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.