Jason Industries's (JASN) CEO Brian Kobylinski on Q3 2017 Results - Earnings Call Transcript

Jason Industries, Inc. (OTC:JASN) Q3 2017 Earnings Conference Call November 2, 2017 10:00 AM ET

Executives

Brian Kobylinski - CEO

Chad Paris - CFO

Analysts

Ashwani Kansal - Goldman Sachs

Operator

At this time I would like to welcome everyone to the Jason Industries' Third Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. If you have not received the slide presentation for today's call, you can access it on the Company's Investor Relations website at investors.jasoninc.com and following the link to the Events and Presentations page. Presenting on the call today is Brian Kobylinski, Chief Executive Officer and Chad Paris, Chief Financial Officer.

Before we begin this morning, please be advised that this call will involve forward-looking statements regarding the company and its businesses, as noted on Slide 2 of today's presentation. The company's actual results could differ materially from any forward-looking statements due to several important factors described in the company's latest SEC filings. The company assumes no obligation to update any forward-looking statements made during this call.

With that, we will begin this morning with Jason's CEO, Brian Kobylinski. Koby?

Brian Kobylinski

Thanks, Chris, and thank you on the call for joining us. Q3 was another step in the right direction for Jason Industries as shown on Slide 3. We hosted our third consecutive order of year-over-year margin expansion. We completed two of our larger self-help projects, divesting our non-core European acoustics operations and monetizing our Richmond Virginia real estate as part of our facility's consolidation program, and we began to see some early traction on our targeted growth initiatives.

We began 2017 with three primary areas of focus: operational execution, cash generation and leverage reduction. Our Q3 actions are great examples of this focus. These actions enabled us to repurchase high interest debt at a discount while maintaining a stable level of liquidity. Finally and most importantly, our improved predictability in execution give us the confidence that we will end the year at the high end of our annual guidance range.

I'm pleased to turn the call over to Chad Paris in his new role as CFO. Many of you know Chad. His technical acumen and deep knowledge of our businesses and you, our investors, have enabled him to hit the ground running. His transition has been seamless and I look forward to both his challenge and his support as we transform Jason. Our partnerships is off to a great start. Chad will cover our financial performance and I will follow up with more color relating to our businesses and outlook. Chad?

Chad Paris

Thank you, Koby. Good morning, everyone. I'll start on the Slide 4 which provides an overview of our results for the quarter. Net sales of $155.4 million were 8.6% lower than prior years, which reflects an organic sales decline of 6.1% and a negative impact of 3.7% from the divestiture and exit of non-core businesses, including the impact of the sale of Acoustics European operations which we completed at the end of August.

Foreign currency positively impact the sales by 1.2%, primarily due to a stronger Euro as compared to the third quarter of last year. Operating income increased $400,000 or 50 basis points primarily on improved operating performance led by our Acoustics business. The improved operating performance was partially offset by higher restructuring cost in the third quarter, related to our plant consolidation action and higher selling and administrative expenses due to increased incentive compensation compared to 2016 resulting from continuing to execute to our plan and guidance for the year.

Adjusted EBITDA decreased $400,000. However, adjusted EBITDA margins expanded 70 basis points. This improvements in adjusted EBITDA margin resulted from significant improvements in our operations and exiting unprofitable and dilutive business through our 2018 initiatives.

Slide 5 provides our sales results by segment. While our overall organic sales declined 6.1% was challenged by decreases in production in the automotive market and improving the industrial market provided better strength than expected, resulting an overall sales that exceeded our top line expectations for the quarter.

In finishing, sales of $51.1 million increased $1.9 million or 3.9% over the prior year. Organic sales grew by 4.3% on continued strength on core industrial end markets. We saw strong demand in Europe with improving demand in the Americas and we are starting to see the impacts of shared gains resulting from a renewed commercial focus. The impact of exiting non-core business in Brazil was negative 3.4%, which was mostly offset by a positive 3.0% impact of foreign currency, primarily a stronger Euro.

It is important to note that our organic sales growth is not adjusted for the impact of 80/20 actions where we have exited unprofitable businesses with certain customers or products. We are committed to focusing on the core to expand margins and improve profitability, driving our commercial efforts to offset top line contraction through share gain and pricing actions.

Component sales of $19.9 million decreased $4.9 million or 19.8%. Organic sales declined 11.2%, primarily due to a significant decrease in smart utility meter volumes, which were strong in the third quarter of 2016, in advance of moving production to our Mexico's facility in the fourth quarter last year and were impacted by a volume shift this year from the third quarter to the fourth quarter. For the year, we expect smart utility meter sales to be in-line with our expectations.

Sales to our core markets were flat overall with some modest improvement in real volume and slightly lower industrial products volumes. For the year, we expect the components business to have 10% to 12% organic sales declines in-line with our outlook that we shared at the beginning of the year. Sales were also negatively impacted by 8.6% due to the exit of noncore product role lines related to the closure of our assembled products business at the end of 2016.

Seating sales of $33 million increased $600,000 or 2% with organic sales growth of 1.8%. Organic sales benefited from the impact of pricing actions resulting from our 80/20 initiatives as well as share gains in the heavy industry market, and Koby will further discuss our success in the platform when announced today. This volume growth is helping offset market softness in the heavy motorcycle space.

Finally, Acoustic sales of $51.5 million decreased 19.3%, which was a 16.1% organic sales decline. The divestiture of Acoustics Europe at the end of August, which is not being presented as a discontinued operation in our results negatively impacted reported sales by 3.9% or foreign currency favorably impacted sales by 0.7%. Our organic sales were impacted significantly by lower volumes from extended automotive OEM production shut downs throughout the quarter, as well as a non-recurring short-term business in the third quarter of 2016 related to a competitor bankruptcy.

Overall, North American light vehicle production decreased 10.6% during the quarter with power production down over 23% and light truck production which includes SUVs, CUVs and minivans down nearly 3%. With our vehicle platform mix weighted towards cars, we believe our organic sales decline of 16.1% is generally in-line with the market. We expect significant organic sales headwinds to continue in the fourth quarter.

Adjusted EBITDA results by segment are shown on Slide 6. Overall, adjusted EBITDA for the quarter was slightly better than expected as we continue to execute on continuous improvement in the businesses. Adjusted EBITDA margins expanded in three of the four segments with overall Jason margin expansion for the third consecutive quarter.

In finishing, adjusted EBITDA of $7.5 million or 14.7% of net sales increased $500,000 or 40 basis points. Margins benefited from 80/20 initiatives including the exit of low margin and unprofitable customers and products, pricing actions and the exit of operations in Brazil.

Components adjusted EBITDA of $2.4 million or 12.3% of net sales decreased $1.2 million or 240 basis points. Adjusted EBITDA was negatively impacted by smart utility meter volumes and increased raw material pricing specifically steel. We expect continued pressure on margins from raw material cost in the fourth quarter with new commodity indexed pricing taking effect with our customers in the first quarter of 2018.

Seating adjusted EBITDA of $2.6 million or 8% of net sales increased $100,000 or 20 basis points. These results improved modestly due to pricing actions, supply chain savings and continuous improvement projects in our plants where significant opportunity for margin expansion remains. We continue to deploy resources to address operational inefficiencies in the business.

Acoustic's adjusted EBITDA of $6.6 million or 12.9% of net sales decreased $800,000 with margins improving 130 basis points despite the significant organic sales decline due to volumes. Operational improvement projects in the plants achieved significant reductions in material usage, improved labor productivity and lower quality cost, resulting in expanding margins that help offset much of the volume decline. Finally, corporate expenses of $3.1 million decreased $1 million due to lower consulting spend associated with the launch of our supply chain program in 2016.

Jason's financial position at the end of the third quarter is shown on Slide 7. Total liquidity of $98.3 million remains stable with $51.4 million of cash and cash equivalents and $46.9 million of available capacity and revolving lines of credit. Net debt to adjusted EBITDA remained at 5.7x, consistent with the second quarter.

Operating cash flow was $3.7 million in the quarter with free cash flow of $500,000, which was in-line with our expectations. Year-to-date, free cash flow is $14.1 million, an improvement of $10 million resulting primarily from lower capital expenditures in restructuring and higher adjusted EBITDA. We expect negative free cash flow in the fourth quarter with higher capital expenditures in restructuring and given the seasonal nature of our business.

As previously announced, the completed closings on the sale of the Acoustics Europe business and the Richmond Virginia facility in the third quarter resulted in combined net cash proceeds of $10 million. During the quarter, we continued paying down debt through the repurchase of $12 million of second lien debt. Year-to-date, our second lien debt repurchases have resulted in retiring $20 million of debt for $16.8 million of cash with average pricing of 84% of par. On a constant interest rate basis, this reduces cash interest by $2 million annually. We remain focused on driving all aspects of free cash flow generation to reduce net debt and decrease our leverage.

Turning to Slide 8, in light of our third quarter results and outlook for the fourth quarter, we are narrowing our sales in adjusted EBITDA guidance to the high end of our previously provided ranges. We now expect net sales of $630 million to $640 million and adjusted EBITDA of $64 million to $66 million. Our free cash flow outlook remains at $9 million to $13 million which includes approximately $6 million of cash restructuring and approximately $1 million of transaction fees related to the sale of Acoustics Europe. This guidance results in 5.6x to 5.8x net debt to EBITDA at year end.

Overall, we are pleased with our results through the first three quarters and we remain committed to delivering our guidance for the year. With that, I'll turn the call back to Koby.

Brian Kobylinski

Thanks, Chad. We are changing the order of topics this quarter and we'll begin with the recap of what we've accomplished, then we will progress to what we're seeing in the markets and where we are headed. Slide 9 summarizes the progress we've made with a number of our higher profile self-help actions. We're able to follow-through on our Q3 commitments and by thus $30 million worth of noncore revenue, margin-dilutive European Acoustics operations and monetized the real estate associated with our finishing facility consolidation project.

These two projects exemplify the core business focus, operational simplification and cash generation we are driving for. We executed on time in the $10 million worth of net proceeds from these two initiatives, enabled us to hold liquidity stable at a time when we were repurchasing debt. We will ramp up all activities with our 2017 consolidation efforts by the end of Q4 and are finalizing plans for our next wave of actions. We will cover these 2018 projects during our next earnings call.

Slide 10 indicates where we are on our overall cost reduction and margin expansion program, including the actions we just discussed. It is important to reiterate that our aggregate savings target is $25 million and we are pleased with our results today as we achieve nearly 90% of our targeted savings split pretty evenly between 2016 and 2017.

We will achieve $3 million worth of SG&A savings in 2017 and have exceeded our goals for the program. We continue to manage corporate expenses referring to invest closer to our customers, closer to where the action is. Our footprint rationalization efforts are on target, but supply chain-related projects are tracking a bit behind where we would like them to be. We've experienced success with indirect spend MRO supplies and logistics. However, lower volumes and commodity cost inflation are challenges we are working to overcome.

All-in-all, we are driving for an additional $3 million worth of annualized savings achievement in 2018. Our teams are increasing the funnels and we remain confident that we will achieve our overall $25 million objective in the three-year time horizon as outlined. Much like our lien transformation efforts, this activity is morphing from a program of project into how we run our company.

Let's shift from what we are seeing in the markets and how will they impact our businesses as seen on Slide 11. Starting with the positives, we will reduce some of the leading indicators that we're seeing. The U.S. economy is definitely strengthening. The latest manufacturing [indiscernible] report on business indicates that the purchasing manager's index is hovering their 60. Steel production is up 3.7%.

Every fabrication markets are improving as evidenced by leading equipment provider's recent financial results. Caterpillar posted greater than 20% sales increases and Komatsu is indicating similar strength via bookings that are greater than sales and at 20% sales growth outlook for 2018.

The oil and gas market is also showing signs of life. Acres used worldwide to active rig counts are up 20% year-over-year, oil prices have reached $60 per barrel and majors like Chevron and ExxonMobil are generating cash and year-over-year profit improvement.

Turf care and light agriculture markets are improving as well with OPEI data indicating overall low-single digit growth. However, we do serve three vertical markets that remain under pressure. Despite short term stability, rail will remain soft in 2018. Railcar manufacturers are publishing anticipated build rates that are flat to down for next year. The heavy duty motorcycle market continues to be challenged by unfavorable demographic trends and heavy channel inventory.

And finally, automotive markets are under pressure as covered earlier. Order chart [ph] reported that October to domestic auto sales were flat with the prior year and the daily sales rate was down nearly 10% versus the prior month. Facility shut downs are becoming longer in duration than initially expected and we anticipate organic growth to get worse before it gets better.

So how do these factors impact Jason? Finishing is our most diverse business serving a number of the markets and the strength of industrial and the improvement of heavy fabrication in oil and gas markets are more than offsetting declines relative to automotive. We do not adjust for 80/20 activity and our 4.3% third quarter organic growth was achieved despite walking away from unprofitable business. Our book-to-bill ratio was greater than 1.0 as we enter the fourth quarter and we entered that quarter with momentum. We kind of lagged the market, but are optimistic that we will be able to post improving top line results in the next quarter.

Components Q3 decline was anticipated and the sequential deterioration relates more to phasing than overall trend. We have meaningful smart meter forward in our 2016 third quarter and we look to sequential sales improvement in the fourth quarter. Our stable to growing turf care market and 2018 heavy duty motorcycle model year launches result in a stable short term revenue outlook for our seating business. And finally, Acoustics will continue to be under top line pressure. Our focus is on operational performance while pursuing new platforms in applications for the mid to long term, remaining nimble to adjust to uneven demand as the key force.

Slide 12 shifts our focus and displays our targeted growth initiatives. These are unchanged in the past couple of quarters and we continue to make progress in each business. We covered finishing our Osborn business in some detail last quarter and posted greater than 4% organic growth this quarter. Our global primary metals functional [ph] business is benefiting from high levels of metals market demands which necessitates machine maintenance and our EMEA [ph] teams who work in oil and gas is driving incremental opportunities in critical to close targets.

Components made progress on its diversification efforts during Q3. We secured a significant win in our architectural metals worth greater than $750,000. We also won two nice safety grating opportunities and while small, they're $250,000 each, they further diversify our customer and application portfolio and will lead to follow on business.

Acoustics continues to progress our key initiative of replacing plastic components with fiber technology. Within the quarter, we secured two prototype tooling awards with Asian manufacturers producing in North America. Our diversification efforts extend beyond the automotive market as well and we are researching an opportunity to utilize our solutions in certain packaging operations.

Our seating business closed probably our most significant opportunity within the quarter and that is showcased on Slide 13. We are excited to report replacement of our seating solutions on 10 models of Mahindra tractors. Our team's industrial design strength combines unrivaled comfort and performance with a common design language across multiple peers of tractors. The development cycle for this initiative was compressed and our ability to rapidly move from design to prototype to production was a vital factor in securing the business. We estimate the value of the award to be great than $5 million annually, 70% of which is new volume for us. Production is under way in our facilities and we anticipate a quick ramp up to enter 2018.

The images on Slide 14 illustrate our activity and where we are headed. First off, what are we doing? The three circles at the left are primary tasks at hand. It's pretty simple, we are working to improve our operations and use the cash generated to reduce our leverage and selectively invest in avenues to grow largest. Where are we going? The chart to the upper right represents where we are headed in simple measurables. We are driving to increase our EBITDA to north of $75 million and reduce our debt leverage to roughly 4.0x by 2020.

Finally, how will we get there? Where we started with and we'll always maintain a focus on cash. We execute projects that will generate incremental cash beyond free cash flow from operations. We move from discreet projects to a true lean transformation in our business. To do this, organizational capabilities are being increased, and finally, we add select growth initiatives that we invest in and progress. The layering effect of these initiatives and increased execution result in a solid first step toward our goals during 2017.

In summary, we are encouraged by our progress as noted on Slide 15 and we look forward to ending our year with a very solid Q4. We have posted our third quarter of improvements and will deliver to the high end of our 2017 guidance. However, there is more opportunity for us - more opportunity to improve, more cash to generate and much more for us to do. Thank you for your interest in our company and we look forward to updating you on our future progress when we report again.

Operator, please open the line for questions.

Question-and-Answer Session

Operator

Sure thing. [Operator Instructions] Our first question comes from the line of [indiscernible] with Eagle Lake Capital [ph]. Please go ahead.

Unidentified Analyst

Nice work this quarter. Just sort of quick question for you, Chad and I may be misunderstood what you said. In the free cash flow guidance of $9 million to $13 million, I know there's a $6 million cash restructuring charge included in that, but you also mentioned a $1 million transaction fee. Is that included in that $9 million to $13 million?

Chad Paris

Yes, that is included in the $9 million to $13 million range.

Unidentified Analyst

In addition to the $6 million of restructuring?

Chad Paris

Yes.

Unidentified Analyst

Okay, so the $6 million of restructuring plus the $1 million transaction fee?

Chad Paris

Yes.

Unidentified Analyst

Okay. That's it. Thank you very much.

Chad Paris

Okay. Thank you.

Operator

[Operator Instructions] And our next question comes from the line of Ashwani Kansal from Goldman Sachs. Please go ahead.

Ashwani Kansal

Yes. Hi. Thanks for taking my question. First on your cost savings side. You said that $25 million is the target and you expect $3 million next year. So that $22 million of savings, are those savings already included in your LTM [ph] EBITDA or some of it is included and some of it is not included?

Brian Kobylinski

If you look at it, we've achieved $22 million to-date. About $10 million to $11 million of that was achieved in 2016 with the balance of it this year and that is flowing through our P&L now and what we need to hit the target that we set for ourselves a couple of years ago is this incremental $3 million and that we will build into our 28 business plans.

Chad Paris

The way that we measure that is we included in the annual savings achieved once we've auctioned and announced the project. So we will action additional projects here as we go into 2018. The impact to EBITDA may partially impact 2018 and then potentially carry into 2019. It will depend on the timing of when those projects will get completed.

Ashwani Kansal

Okay. So that remaining $3 million will be coming from G&A [indiscernible]. Is that right?

Brian Kobylinski

No. Actually we've exceeded in SG&A. This would probably be more work-related to supply chain and footprint rationalization. One of the things we want to be careful about is that we don't stop investing in the front end of the business so that we can drive growth and improve our overall organization.

Ashwani Kansal

Okay. And you also mention about your target of $75 million EBITDA and leverage of full. So that $75 million in retail is also kind of 2020 target or it has got a different timeline and what needs to happen for you to get to the $75 million EBITDA target?

Brian Kobylinski

Yes. If you think about our overall goal and get our leverage down to four times overall, we need to being that mid to higher $70 million range. It is really targeted for that 2020 time frame. A couple of things that need to occur for that, number one, we have to continue to make the kind of progress we have been in margins in our operations at the back of the house. But the other thing with this is more growth out of our industrial businesses which are margin-accretive to the line average. We're encouraged by the last quarter, but we got our ways to go this, so we've got an uplift that we need to do.

I think the thing that's really important to reflect on though is when we look at this target, while we need growth in particular businesses, overall, we can get there even growing at a modest rate. We've got a lot of work ahead of us, we'll keep taking steps through each quarter and each year on our way to that journey.

Ashwani Kansal

Okay. In terms of margin improvement, this year was pretty good for the company. Given that the improvement this year, how much scope is there for further improvement in the margins and given that tough 2017 comp for 2018, how much further improvement you will be able to achieve?

Brian Kobylinski

Yes. I'll start and I'll let Chad come in on the back side of this. If you look at our components business right now, we posted 12.5% to 13% EBITDA in the current quarter. When we're operating at our peak level in that business, that's the high teens [ph] type of EBITDA margin. So there are some room to grow there, and that means growth in the revenue line, completion of the consolidation project and then operational improvement. That should be an above-line average contributor, similar within our finishing business. We had some good movements so far this year, but this should be a plus 15% EBITDA business. When you think about our seating, it should be in low teens, 13%-ish and you see what we did in the latest quarter -- granted we had seasonality impact there, but on an annualized basis, that should be in the roughly 13% EBITDA area. Our Acoustics business certainly has performed very well this year with top line compression and our team has done a phenomenal job there.

Areas in the future, when I look at round the businesses, operational improvements within seating and serving our customers better, a bit growth out of our finishing business and portfolio management there and then some growth within our components. All of that put together, there's a couple hundred basis points worth of opportunity ahead of us overall.

Chad Paris

The other thing that I'd add to Koby's comments on the operational improvements that we're targeting within the businesses is to get to that $75 million, there's more fixed cost that needs to be addressed through the number of locations that we have. So on Slide 14, we talk about going from 35 or 25 or less locations over the next three years. That's where I think there's a meaningful margin improvement that getting off for the $75 million is incremental to some of the base target margins in the businesses that Koby talked about.

Brian Kobylinski

Yes. We articulated this a couple of quarters ago that every year, two to three projects like this - this first year has been very successful. We want to manage that though because of the capacity of our organization to handle a number of projects. We're pacing those activities.

Ashwani Kansal

Yes. I understand that you are operating below your margin. For example you mentioned 20% was this 12% to 13%. But for that you will need growth and the outlook for us -- quite -- for many of your market is not very good for at least 2018. Will that kind of put a cap on the margin improvement that you can achieve in 2018?

Chad Paris

We're in the middle of our annual planning process right now. Certainly, we know with the markets that the top line for the company will be down next year, but as we look at the continuous improvement initiatives and the operational improvements that we have been able to achieve this year and in the projects that we see in front of us...

Brian Kobylinski

And the mixed change.

Chad Paris

Yes and some mixed shift with some of our industrial businesses, getting growth that we're seeing, we're targeting to be incremental to our level this year. So too early for us to talk more specifically about 2018, but we'll talk more as we get to the fourth quarter about our expectations for next year and what that looks like and then some of that improvement to get to where we need to be in 2020, certainly we'll hit in 2019.

Brian Kobylinski

Yes. We'll have to move to the next call, but at the end of it all, we're not here to go sideways, we're here to take positive steps.

Ashwani Kansal

All right. Thank you.

Brian Kobylinski

Thanks.

Operator

And our next question comes from the line of Mark Bishop [ph], Private Investor. Please proceed with your question, sir.

Unidentified Analyst

Hi. I was just wondering a couple of things. First, I was wondering if you have more cost cuts. You said that you're going in facilities from 32 now, down to 25 eventually. Does the $3 million left in your targets encompass all that, or will that generate something more than the 25 gap [ph]?

Brian Kobylinski

The part of the gap will be made up like those types of activities.

Unidentified Analyst

You mean you need to finish those in order to get to the $3 million? Or that could be more?

Brian Kobylinski

Yes. We will action in 2018 additional projects, much like we did the $3 million this year and that will help fill the gap of the $3 million.

Chad Paris

Within the three-year timeline for the program. The program was kicked off in early 2015, the three-year measurement period is the end of '18, but we will continue to execute on this at '19 to '20 to create upside. The program is not going to end in terms of our processes and what we're doing. This is part of how we're managing our businesses now and it's embedded into the organization. So we'll continue to look at facility utilization and where the right level of capacity and what our footprint should be to target additional savings.

Unidentified Analyst

Okay. I'm not quite understanding the answer. My question is when you get down to 25 facilities from 32, is that needed just to get to the remaining $3 million?

Chad Paris

No.

Unidentified Analyst

Or is that more than that?

Chad Paris

It's more than that.

Brian Kobylinski

It's more than that. We got a target out of the original program, but as Chad pointed out, we talked about it in the prepared remarks. We were operating our business and we look at our footprints, we really believe we've got a runway here for multiple years that we can continue to simplify and streamline our operations.

Unidentified Analyst

Okay. That's great. And then on your target of EBITDA of $75 million or more into 2020, I was wondering, you said it only needs modest growth. What do you mean by modest? Could you quantify that and also you said components growth - are you expecting rails to pick up during that time frame or what areas would you be picking up?

Chad Paris

It depends on the time frame you're talking about. Clearly, we haven't gone through our fiscal plan yet, but specifically the components. We've got a number of initiatives to diversify that business. So in the short term, we don't anticipate a market uptake within rail. So it's going to be growth by virtue of participation in other markets and that's a big initiative for the business. Regarding the level of modest growth, it's achievable to get to that number of $75 million even with revenue falling short of our prior year $700 million.

Brian Kobylinski

It is achievable to do that.

Chad Paris

But we have a lot more to do to put meat on the bone then.

Unidentified Analyst

I'm sorry. What is the $700 million?

Brian Kobylinski

Last year's revenue.

Unidentified Analyst

So you can achieve the $75 million even with less revenue than that?

Chad Paris

Yes, that's right. A lot of what we're doing is exiting unprofitable or diluted business. We'll have a lower top line, but a higher margin percentages in each of the businesses. We've proven out some of the nine contributing business.

Brian Kobylinski

And are more profitable, more rapidly to offset some of the market conditions.

Unidentified Analyst

Okay, great. In other words, you can get to $75 million even with less than $700 million of revenue by 2020?

Brian Kobylinski

Yes.

Unidentified Analyst

Yes. Okay. And then you didn't quite finish your margin targets. You said in the long term for Acoustics, you talked about it, but you didn't give a number for what that might...

Brian Kobylinski

At this point, we're not in a position to do that, but if you just look at the performance of that business this year, it's done exceptionally well under pretty heavy pressure on the top line. When we look at it, there's probably some small incremental gains we can have within that business, but it's going to have short term top line pressure continuing. So for us to hold margins would be a pretty good victory for that business.

Unidentified Analyst

Okay, that's great. Thank you.

Operator

We've reached the end of our question-and-answer session. I'll turn the call back over to Management for any closing remarks.

Brian Kobylinski

Thanks, Chris. We appreciate everybody's interest in participating in the call today. We look forward to the report at the end of the fourth quarter.

Chad Paris

Thank you, everyone.

Operator

Thank you for participating. This is the end of the conference for today. We thank you for your time and please enjoy the rest of your day.