Tower International's (TOWR) CEO Jim Gouin on Q3 2018 Results - Earnings Call Transcript

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About: Tower International, Inc. (TOWR)
by: SA Transcripts

Tower International, Inc. (NYSE:TOWR) Q3 2018 Earnings Conference Call October 29, 2018 11:00 AM ET

Executives

Derek Fiebig - Head, IR

Jim Gouin - CEO

Jeff Kersten - CFO

Pär Malmhagen - President

Analysts

Rich Kwas - Wells Fargo Securities

Matt Koranda - ROTH Capital Partners

Ryan Brinkman - J.P. Morgan

Chris Van Horn - B. Riley FBR

Itay Michaeli - Citi

Michael Ward - Williams Research

Operator

Good day, ladies and gentlemen, and welcome to the Tower International Third Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Derek Fiebig, Head of Investor Relations. Sir, you may begin.

Derek Fiebig

Thanks, Armani, and good morning, everyone. I'd like to welcome you to the Tower International third quarter 2018 earnings call.

Materials for today's presentation were posted on our website this morning. Throughout today's presentation, we will reference the non-GAAP financial measures of adjusted earnings per share, adjusted EBITDA, adjusted EBITDA margin, free cash flow, net debt, and net leverage. Reconciliations to these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP are included in the Appendix of this presentation.

As a reminder, today's presentation contains statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to revenue, revenue growth, adjusted earnings per share, adjusted EBITDA, cash flows, leverage, trends in our operations, potential divestitures, and expected future contracts.

Forward-looking statements are made as of today's presentation and are based upon management's current expectations and beliefs concerning future development and their potential effects on us. Such forward-looking statements are not guarantees of future performance, and we do not assume any obligation to update or revise the forward-looking statements.

Additional information on Risk Factors are available on today's materials and in our regular filings with the SEC.

Presenting on today's call are Jim Gouin, our Chief Executive Officer; and Jeff Kersten, our CFO. Also joining us in the room is Pär Malmhagen, our President. Following our formal remarks, we'll open up the phone lines for questions and answers.

And now, I'll turn the call over to Jim.

Jim Gouin

Thanks, Derek, and good morning, everyone.

Slide 3 provides select highlights for the third quarter of 2018. Third quarter results were in line with the previous outlook we provided in July. Revenue increased 14% from the third quarter last year, benefiting from net new business. Steel prices were only a minor lift to revenue in the third quarter and are expected to be a headwind to revenue on a year-over-year basis in the fourth quarter, as we begin to lap the increases recognized in the second half last year.

Although industry production in North America was only up 2% for the quarter, increased by 20% from a year-ago as we continue to benefit from the secular trends of outsourcing and the industry shift away from passenger cars to trucks and SUVs as well as growth in our content per vehicle. We discussed this throughout the year and our tremendous growth in North America continues. The growth will moderate in the fourth quarter as a number of our launches were underway during the fourth quarter of 2017.

Adjusted EBITDA increased 18% from last year to $57.1 million. Launch costs related to our incremental new and renewal business remain elevated, but were down from a year ago as launch expense was lower, primarily in Europe. And as we said in the past, we expect launch expenses to be elevated for 2018 and 2019, as we need to continue to allocate the proper resources including both financial and human capital, to support our customers.

Free cash flow was $18 million in the third quarter with solid cash flow from operations of $43 million. Additionally, we paid down $50 million on our term loan in July.

We are maintaining our outlook for the full-year revenue, adjusted EBITDA, and free cash flow, and increasing slightly our outlook for adjusted EPS.

Finally, we increased our quarterly dividend to $0.13 per share which represents a 30% increase since its inception in July of 2015.

With that, I will turn the call over to Jeff to discuss the financials.

Jeff Kersten

Thanks, Jim, and good morning everyone.

Slide 4 shows summary financial results for the third quarter. Revenue of $528 million was up 14% in the third quarter of 2017. As Jim mentioned the year-over-year increase reflects net new business and higher steel prices.

Adjusted EBITDA of $57.1 million was in line with outlook and increased 18% from $48.5 million a year ago. EBITDA margin for the quarter was 10.9% and was up 40 basis points from a year ago.

Adjusted EPS of $1.08 was up 18% from the third quarter of 2017. All-in-all it was another solid quarter.

Free cash flow is shown on Slide 5. Free cash flow was positive $18 million for the third quarter. Capital expenditures were $25 million for the quarter reflecting required spending for upcoming incremental net new and renewal business. Working capital excluding tooling was positive $13 million for the quarter and customer tooling was negative $16 million for the quarter. We expect tooling to be an inflow for the full-year.

Slide 6 shows our third quarter results compared with our outlook provided in July. Results were largely in line with our outlook. Revenue was equal to our outlook; adjusted EBITDA was $100,000 higher which resulted in EBITDA margin of 10.9% as projected. Adjusted EPS of $1.08 was $0.04 ahead of outlook. Given all the headwinds and noise in the sector regarding industry production, we are pleased that we were able to deliver once again on our quarterly outlook.

Slide 7 provides quarter end net debt leverage and liquidity as of September 30th. Net debt was $290 million which is $91 million lower than September 30th, a year ago. It is $7 million higher than year-end 2017 reflecting primarily the year-to-date free cash flow used offset partially by proceeds from the sale leaseback of our facility in Bellevue, Ohio where we manufacture frames for the Ford F150. Gross debt leverage at quarter-end was 1.4 times and net debt leverage was 1.2 times both 0.6 times lower than a year ago.

As a reminder, lease-related debt will be included starting in 2019 and the amounts outstanding are noted for reference.

Quarter-end liquidity remains solid at $290 million even with the $50 million pay down of the term loan. After considering the $50 million pay down, the fixed to variable ratio on our debt moved from about 50:50 to about 60% fixed, 40% variable.

Slide 8 provides our outlook for the fourth quarter and the full-year. Fourth quarter revenue is expected to be $526 million. Adjusted EBITDA is expected to be $61.6 million, resulting in EBITDA margin of 11.7%. Adjusted EPS is expected to be $1.20 per share.

For the full-year, outlook for revenue is unchanged at $2.17 billion. We are maintaining our outlook for adjusted EBITDA at $230 million and our free cash flow at $50 million. Adjusted EPS is $0.10 higher than previous at $4.20 per share.

Looking at our full-year outlook compared with last year, revenue is expected to be 9% higher, adjusted EBITDA is up 11%, margins are 15 basis points higher, and adjusted EPS is expected to increase by 12%.

Now I will turn the call back over to Jim.

Jim Gouin

Thanks, Jeff.

Slide 9 shows Tower's ongoing priorities. First and foremost we need to continue to take care of our customers by providing excellent program execution, launching program safely, on time, with high quality, while delivering on our cost commitments. This will allow us to maintain flexibility for capital deployment towards profitable growth, leverage reduction, and the return of capital to shareholders which I will discuss in further detail on the next few slides.

Profitable growth is discussed on Slide 10. Tower continues to grow well in excess of the market. For the first nine months of 2018, North American revenues increased by 17% from a year-ago to $1.15 billion, while industry production has decreased by 1%. I will try and do the math on the 17% growth against the negative 1%. And that's a 1% reduction in production. This represents organic growth in the region of 18% for the first nine months. Programs that are contributing to the increase include Jeep Wrangler, Ford Expedition and Lincoln Navigator, the BMW X3, 4 and 5 all SUVs and on the car side, the Toyota Camry and Avalon and Lexus ES were up as well.

Well taking a look at the core growth stocks growth in the sector we are not growing anywhere near these levels. It looks like some of them are actually flat to down or up a couple of percentage points and are still being valued at a much richer multiple than Tower.

Slide 11 looks at the leverage reduction and the return of capital to shareholders. Our last 12 months adjusted EBITDA is now at $229 million, up from $208 million for the full-year 2017 and net debt of 1.2 times as of the quarter end is near our long-term target of 1 time. We paid down $50 million on our term loan during the third quarter and more than half of Tower's debt, in fact about 60%, as Jeff indicated, is now fixed rate and leasing activities have helped retain liquidity. Additionally, the expected free cash flow in the fourth quarter will further improve both leverage and liquidity.

Over the past three years, Tower has returned nearly $50 million to its shareholders through the quarterly dividend and the share repurchase program. And earlier this month, our board approved another increase in the quarterly dividend to $0.13 per share making this the third consecutive increase in as many years. Finally, more than $80 million is still remaining on Tower's existing share repurchase program.

Slide 12 discusses some of the issues that the industry has been facing and what their impact is on Tower. Most of these items have been addressed in previous calls but I thought it would be beneficial to summarize them. The cost of steel and aluminum are largely pass-through to Tower. We have called out marginal tariff-related costs of $3 million to $5 million related to items such as weld wire and fasteners.

Although North American production has been down this year for passenger cars, light trucks and SUV production is actually up 5% year-to-date. This bodes well for Tower as our mix is 85% trucks and SUVs in North America and is expected to increase going forward based on our backlog of net new business.

Peak auto or late auto cycle concerns should be mitigated by Tower's $350 million of net new business launching between 2018 and 2020. China auto sales have also been an industry concern; Tower has virtually no exposure to the Chinese market.

There have also been numerous earnings concerns in the sector. Tower maintained and delivered on its 2017 outlook last year and has maintained its 2018 outlook throughout this year.

WLTP vehicle testing has caused some timing issues for European OEMs, but has not negatively impacted Tower's outlook.

And discussions around NAFTA and the USMCA have also been in the headlines, but had minimal to no impact on Tower as we only have one facility in Mexico with approximately $50 million of annual revenue.

So as you can see, Tower is largely insulated from many of the current issues and concerns facing the industry and is actually in a great position to continue to take advantage of the secular trends we continue to discuss.

Slide 13 provides some final thoughts before we open the lines for questions. We delivered solid earnings and free cash flow results for the third quarter and remain focused on executing our upcoming launches on time, while maintaining our commitment to safety, quality, and cost performance. For the full-year, we are affirming our revenue, adjusted EBITDA, and free cash flow outlook, and increased our outlook for adjusted EPS by $0.10 per share. Emerging secular trends continue to favor Tower as does the shift from passenger cars to trucks and SUVs as is evidenced by our continued revenue growth. We're well positioned to grow revenue well in excess production volume changes, and finally, we remain focused on generating free cash flow to allow the flexibility for profitable growth, leverage reduction as evidenced by our July pay down of $50 million of term loan debt, and to add to the nearly $50 million of capital we've returned to our shareholders.

And with that, I will have Derek open up the lines for Q&A.

Derek Fiebig

Armani, if you could please prompt the participants in the call as to how to get in the queue.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions].

Our first question comes from Rich Kwas with Wells Fargo Securities. Your line is now open.

Rich Kwas

On the growth this year, Jim, could you give us just an update on lap over benefit as we think about 2019; I know you're a few months out from framing up 2019 for everyone. But just kind of the puts and takes or with regards to the top-line that you see right now?

Jim Gouin

Yes, so recall $350 million in total, we said that in 2018 you'd see about $125 million of that growth come through. And then as we move into 2019 while we have some significant launches in 2019, you will still see probably a larger portion flow into 2019 in terms of the net new and then the balance of it will obviously come in 2020.

So I'd like to be able to give you more at this point in time, Rich, but we're in the process of really finalizing our plans for 2019 and we will come out with a much more fulsome discussion in February.

Rich Kwas

Okay. But the $125 million is the actual number for these terms of contribution?

Jim Gouin

That's correct. That is correct.

Rich Kwas

Okay, perhaps just to clarify that. And then on CapEx as you think about what you have due to support the business for 2019 and 2020, is there any way do you think you can improve capital efficiency or redeploy capital more efficiently as you think about what you've gone through the last couple of years around launching new business and being able to support the customers just thinking about cash generation given where we are in the cycle of such trend what you're seeing in the business with regards to trying to improve that capital efficiency and just be as efficient as possible with CapEx?

Jim Gouin

I mean, we always are working to become more capital efficient looking at elements of reuse, when we're going from one program to the next program. In this timeframe, Rich, given where we're at and given the lead times, the spending is pretty much savvy, if you will. I can't necessarily control all of the timing on it. So sometimes it comes in a little bit faster or sometimes it goes out typically as with CapEx to be honest it's more lagging than it is forward. We said about a $150 million for the CapEx in 2018 probably going to see something very close to that again in 2019, and then you'll start to see it tail off in 2020. So it's pretty much it's there and we've had to be out in front of this obviously, if we're going to make the timing on our launches, so that's pretty much what I would see right now, Rich.

Rich Kwas

Okay. And then last one on Europe outsourcing, any update there with regards to new business or what you're seeing in terms of quoting activity?

Jim Gouin

Well, quoting activity in both the region continues -- both of the regions continue to be pretty strong. With the electrification of vehicles, I think OEMs are doing different derivatives on a vast majority of their model. I think it's good, you may recall that in Europe we won a significant award that represents roughly €75 million of revenue for Europe and it's a full electric 4-band that's really beginning to launch process as we speak and that -- you'll start to see a lot of that income flowing through in part of the revenue growth for 2019.

Operator

Thank you. And our next question comes from Matt Koranda with ROTH Capital Partners. Your line is now open.

Matt Koranda

Hey morning guys. Thanks. For 2019, just picking up where Rich left off maybe, as we kind of think about it's still a relatively launch environment for you guys, any thoughts directionally just in terms of EBITDA margin and where those should be headed next year just sort of preliminarily here?

Jim Gouin

Yes, I'm not going to give you a number at this point Matt, but I would say, it's a transitional year as we've talked about pretty consistently throughout the course of this year. You recall that we said we're launching through this period, roughly $650 million of renewal business and $350 million of net new business. So all-in-all roughly a $1 billion worth of revenue that we'd be turning over in this three-year period.

In 2019, the launches that we have, combined net new and carryover our replacement business represents roughly $600 million of that billion. So we're going to be hit with some launch costs that are going to be required to get these things up and running effectively and on one of our major launches we will actually be hit with some downtime, so the OEM is actually going to take some downtime to convert their factory over while we convert our factory over to the new model.

So there will be some depression on the margin and again we'll give you a very fulsome view of that when we talk in February. However when you look at 2020, then, you're going to see a nice margin pick up. And you may recall that we talked about as much as 100 basis points of improvement coming to us in 2020 and along with that should come some very nice free cash flow.

Matt Koranda

Got it. I guess along the free cash flow lines I mean if I'm kind of run some of your commentary through my model heading into 2020 take down CapEx a touch, kind of maintain a relatively similar tax rate. You get to some pretty nice free cash flow numbers in the out year and also I guess just in terms of your Q4 guidance you guys have guided to a relatively strong free cash flow guide. So any thoughts on sort of additional deployment of that free cash flow and the opportunity to potentially execute on that buyback, just given the movement shares as of late?

Jim Gouin

Yes, I mean you've not been around us that long now, but you certainly have studied our history and we have always looked at and I've always certainly talked about the use of capital and a balanced approach to the use of capital. And I think, if you look at even the past quarter, you're going to see that balanced approach. Clearly, I want to continue to grow the business. So if the opportunities for good, profitable growth are there I'm going to allocate the capital towards growth.

But at the same time and again I'd point to this very quarter as evidenced when we paid down $50 million of term loan, and we increased the dividend for the third time, we're trying to keep both the shareholder and our balance sheet in a good position overall while we continue to grow the business.

And I'm not going to -- I'm not really going to change that approach as we go forward into 2019, 2020 and beyond. Now having said that if in fact, the growth were to flatten out a little bit, would I turn towards stock buyback, only if the stock is not performing in a way that I think it should and then I feel that that capital that then that is the best use of the capital overall, is it fair?

Matt Koranda

Got it. Very fair. I'll jump back in queue. Thanks. Nice quarter.

JimGouin

Thank you.

Operator

Thank you. And our next question comes from Ryan Brinkman with J.P. Morgan. Your line is now open.

Ryan Brinkman

Great, thanks for taking my question. Just high level you reported 3Q results consistent with your outlook in July whereas most of the suppliers of course red paper reported, somewhere between, somewhat softer, and a lot softer than they were looking for and I know in part because you've got more North America exposure you don't have the exposure to China et cetera. But in North America production for IHS was 4.7 points softer than was expected, you do have exposure to Europe and what's going on over there. So can you talk about some more about the reasons why you were able to back into that -- I saw in Slide 10, your current programs could have done better, are you willing to share -- how much of the net new business backlog contributed to your revenue in this quarter.

JimGouin

Ryan, I mean, we -- our production schedules and again it plays directly into the truck and SUV story. Our production schedules remain very, very constant throughout the quarter. So that is the sweet spot of where the market is at right now and that is primary reason, why we were able to do what we were able to do. There's always going to be puts and takes in the production situation if I look at Europe, people are concerned about the WL testing protocol. There's always puts and takes in what happens with the production overall but we're able to handle it. And we still continue to have relatively decent cost performance which helps us in any given quarter. So there's no real secret to it. It is where we're at and our revenue I think came in very consistent with where we thought it was going to come in and we pulled through the EBITDA along with it.

Ryan Brinkman

Okay. And can you remind us of your exposure again to sort of light trucks versus fast cars in North America and as auto makers that you currently do business with on the light truck side I don’t know like Ford for example, as they dropped passenger cars from the line-up and replaced them with plans for light trucks or crossover like vehicle, are you finding yourself more a part of those discussions should we think of that portfolio transmission as an opportunity for you.

Jim Gouin

Yes, we're roughly 85% of our revenue answer your first question Ryan is trucks and SUVs in the North American market.

And to the second question as they continue to move -- as they've moved out of cars I mean we had some lost business in terms of them moving out of cars and so we've had to absorb that in that new number that we talk about from '17 to '20. So new opportunities come along on that truck and SUV side I think it certainly does put us in a good position overall to take advantage of that. And of course they have to make good financial sense for us to do the investments and we will as they come along we will continue to report out on how our progress is.

Ryan Brinkman

Okay. And you commented your net leverage is down to 1.2 times now versus of course for most of your history you've been notably more levered then the sector overall. According to our analysis, your gross debt to EBITDA now is actually slightly less than the U.S. auto parts prior average, your net debt leverage is more in line. I think that the buyback versus de-leverage question has already been asked, so I'll try to hit on capital allocation from a different angle. As you can work your way down toward that one time target, how do you see yourself prioritizing between not de-leverage those buybacks but buyback versus M&A and speak to the M&A environment currently?

Jim Gouin

Well, I think the answer is going to sound very similar to when I was speaking with it -- about it with Matt. But if I look at M&A then M&A for me is growth and if I'm going to prioritize the capital I'm going to prioritize it towards growth. And so if there are M&A opportunities out there that make good sense for us we will, certainly look to bring that into the fall if it makes good financial sense. Barring that and again you're right if we're sitting at one time net on the balance sheet, it's probably not the overall the best use of funds, we potentially look to buyback but again I have to really convince myself that it's the absolute next best use of the funds.

Ryan Brinkman

Okay. And then just last question I think I heard in your prepared remarks, something you'd said about in Europe gaining a contract with electric vehicles, just curious what leverage you think that Tower has to that trend. I think we talked before about how automakers might need to outsource more to convert capital to invest in that area is there some other angle, relative to late savings or something like that.

Jim Gouin

No, I think that part of what you're seeing in the supply base relative to electric vehicles is actually knowledge. So we -- this particular 4-band that we that we won over there, we actually spent a lot of time in engineering and technical knowhow, with the OEM in the development of their battery box. Now the reality is at the end of the day because of the specifications and the criticality of the battery box and the ceiling environment and so forth for batteries to withstand the environmental impacts of over the road use the OEM decided to pull that in-house, but because of the working relationship and because of the knowledge we gained in that process that actually put us in a good position to win the 4-band and so it's really there's no the special sauce it's just called knowhow.

Operator

Thank you. And our next question comes from Chris Van Horn with B. Riley FBR. Your line is now open.

Chris Van Horn

Just focusing on Europe, it looks like volumes or revenues were flat, margins down slightly, just curious, how the volumes kind of outperformed the underlying industry and then maybe just some commentary on the margin side.

JimGouin

Well, then Chris I don't think there's any secret of how or why we outperformed. I mean we did bring on -- in the process of bringing on $125 million net new business overall. And you still have a nice movement in terms of what's happening between cars and trucks. So we've got the car side of the business going down, the truck side of the business on a segmentation going up. So I think that pretty much lays out what's happened overall on the revenue side of things and why we're able to continue to outperform in the market on production overall. From a margin standpoint --

Jeff Kersten

From a margin standpoint in Europe, quarter three is typically our trough due to the shutdown that we have in July and August with the European OEMs. My guess is you will expect to see a margin expansion here in Europe in quarter four, pretty healthy one quarter-over-quarter, so assuming that but the production holds to where we think it's going to hold.

And getting back to Jim's point on the net new business roughly for the quarter, roughly about $50 million, $55 million of the increase in sales in quarter three was attributed to the net new business of a $125 million.

Chris Van Horn

Okay, got it. Got it. And I think you, I think you talked about this in the past, but I just want to confirm that European award that comes at a significantly higher margin than you're doing in that segment now, correct?

JimGouin

It's a very, very nice piece of business, Chris and you're right I've talked about it in the past and I've talked about the fact that some expansion will come in the margin in Europe and this program is really almost by itself and it lift the margins.

Chris Van Horn

Okay, great. And then on that front are you still looking at new business in a similar quotable margin than you've seen from your recent new awards over the past couple of years.

JimGouin

Yes, I mean for the most part. Every program as you may imagine is different a lot of it some of driven by the amount of CapEx that's required to deliver the program but generally speaking that's correct.

Chris Van Horn

Okay, got it. And then how are product launch cost playing out for you, are you seeing kind of as imagined or are there other things that are cropping up that we should be thinking about.

Jim Gouin

Again that's sort of a program specific question, some come in where we hope them they would come in that and others do not and that's part of our job to manage all of that overall which is just as generally the way the business works.

Chris Van Horn

Got it. Good I guess how -- have the kind of some of the new launches, were do they kind of fall in terms of your -- from your commentary like is it -- are they coming basically in line, are you seeing, just thinking about the new business coming online, I think is it fair to say more than half will come on kind of in line with your expectations from a launch cost perspective?

Jim Gouin

I guess Chris the best way that I can answer the question is probably in February, we put out guidance at $230 million and $50 million of free cash flow and I affirm that today notwithstanding whatever has happened within the launches of the programs we've launched within the calendar year 2018.

Chris Van Horn

Got it, perfect. And then how have you seen consolidation maybe yet on the smaller end from your competition and are you seeing new competitors in the space and but are the bigger players taking out the smaller competitors, just any commentary what you're seeing currently?

Jim Gouin

I mean there was activity earlier this year and you may recall there was a company by the name of L&W roughly an $800 million revenue company that was purchased by private equity. And I might add they were purchased at a fairly sizable trading multiple too by the way. And they had indicated that they were going to work on a lot of consolidation but the reality is we haven't seen a whole lot of activity in the near-term around market consolidation.

Chris Van Horn

Okay, got it. And then I guess last one for me a lot have been answered but on the outsourcing kind of secular growth trend versus kind of light weighting. How are those conversations progressing, I imagine the OEMs are just continuing to look at that from a strategic level and just any update from your kind of market perspective?

JimGouin

Not a lot of update, I mean it's pretty much business as usual now as they continue to look at opportunities to put more to the outside, again their plate is so full relative to the need for capital that this is not the best place for them to get the bank for the buck, they know we can do it in a more efficient manner. And so that that secular trend continues and I believe will continue for some time to come.

Chris Van Horn

Okay. Thanks again for the time and congrats on the execution.

JimGouin

Thank you, Chris.

Operator

Thank you. Our next question comes from Itay Michaeli with Citi. Your line is now open.

Itay Michaeli

Hi, great. Thank you, good morning everyone. Maybe just to kick-off, can you remind us just as we think about launch cost in general, I know there's no guidance yet for 2019 but what have launch costs been running annually the past couple of years, what's been kind of lows and the highs in the individual quarters, any color there would be helpful?

JimGouin

Again I think, Itay, for 2019, I'm not going to be able to get into that level of detail. When I get to 2019, I won’t give you that level of detail because whatever is in the guidance is going to be in the guidance but if you're looking at it from a overall modeling standpoint, I’m going to say it could be anywhere in the range of 1% or 2%.

Itay Michaeli

1% or 2%, okay, great, that's helpful. And then when we think about the 2020 outlook of 100 basis points of margin expansion, can you just broadly talk about where you now see Europe in terms of the contribution there or maybe ask even differently where would Europe be relative to your internal targets, is still the opportunity there beyond 2020 just something in terms of kind of how the margin outlook has changed between North America and Europe?

JimGouin

Yes, I would say that if you look at it on a relative basis probably still looking at anywhere from 3 to 3.5 points of margin difference between North American market and the European market and that would be after we would finish up the launch of this new program that I had mentioned this battery electrical vehicle program. So there is still opportunity for the European margin to continue to improve, sooner we get the nice growth programs to go along with it.

Itay Michaeli

Great, that's helpful. And then maybe to that as well, so you mentioned you're still seeing a fairly decent booking activity in general and I know we're not talking too much beyond 2020 but given the company's kind of growth above industry production, how do you feel about there is a long-term few percentage points or a more of sustainable growth above production as you look at the various opportunity that are out there or maybe is it a dollar amount that you think you can kind of continue to have a net new business rate beyond 2020, any color on that would be helpful as well?

JimGouin

I'm not going to give you too much color on that at this point in time, all I can say is that the quoting environment is still good and that would mean that the growth opportunity will be so good as well.

Itay Michaeli

Got it, perfect. And then just on very lastly just from a modeling question, so as you think about the free cash flow and the cash deployment, any updates on minimum cash that the company wants to hold, the minimum liquidity as we think through this?

Jeff Kersten

Hi Itay, this is Jeff. Generally what we'd like to try to maintain is roughly around 12% of revenue as liquidity, so that would suggest $200 million to $250 million. Right now as Jim mentioned we’re right now we have $350 million which is a good place to be at pending any cycle changes and the $350 million is a number forecasted for the end of the year.

Operator

Thank you. Our next question comes from Michael Ward with Williams Research. Your line is now open.

Michael Ward

First off, Jeff, just on two things, I kind of missed it you referenced the treatment of leasing for long-term leasing on your net debt and I was just trying to confirm that?

Jeff Kersten

Yes, that will be when the accounting rules change next year that will be reflected as lease debt on our balance sheet, the numbers that we provided in that schedule.

Michael Ward

Okay. And then the second thing is the tooling, you mentioned that I think if I did the math right through nine months you were about negative $1 million, are we looking at a tooling bump in the fourth quarter somewhere as we saw last year in the fourth quarter?

Jeff Kersten

No, it will be much smaller, it should be positive for the fourth quarter but it will not be nearly what it was last year, call it, in the single-digits or so.

Michael Ward

Okay. But overall from a working capital and other items in 4Q just looking for a seasonal bump in operating cash?

Jeff Kersten

Yes, yes, considerably a seasonal bump like we do have every year, we're still holding that $50 million.

Michael Ward

Okay. And Jim as you look at Chicago specifically, I think to me that kind of summarizes what's going on particularly at Ford and if you look at the vehicles in that plant, they have an upgrade coming, I think it's mid-2019 and but the Taurus has been phased out, how does your content compares is it Explorer versus Taurus, is it a 20% type positive increment for all Explorers you shipped in that plant and are you gaining content as that new program rolls out?

JimGouin

Yes, so Taurus. I would say Taurus going away is marginal growth?

Michael Ward

Which marginal?

Jim Gouin

Impact wise.

Michael Ward

Right.

Jim Gouin

The Explorer is not marginal, it’s big and the content is better and beyond that that's probably all I can tell you, Mike.

Michael Ward

Okay. The content on the new Explorer is it increased from your current Explorer.

Jim Gouin

That's correct.

Michael Ward

Okay. And then, lastly I mean the growth I think is what continues to catch me by surprise and for years you’ve been talking about that shift and I think it continues what you’re saying, is there any reason not to think it will continue?

Jim Gouin

No reason, I can’t think of any reason why it wouldn’t continue.

Operator

Thank you. Our next question comes from Susan Frank [ph] with Voice & Associates. Your line is now open.

Unidentified Analyst

My question has been answered.

Jim Gouin

Thank you, Susan.

Operator

Thank you. I’m showing no more participants in queue. I will now like to turn the call back over to Derek Fiebig for closing remarks.

Derek Fiebig

Thank you, Armani and thanks to everyone for joining us on todays call. As usual, I'll be around available for follow-up questions. Have a great day.

Operator

Ladies and gentlemen, thanks for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.