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Edited Transcript of PKOH earnings conference call or presentation 6-Nov-18 3:00pm GMT

Q3 2018 Park Ohio Holdings Corp Earnings Call

CLEVELAND Nov 14, 2018 (Thomson StreetEvents) -- Edited Transcript of Park Ohio Holdings Corp earnings conference call or presentation Tuesday, November 6, 2018 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Matthew V. Crawford

Park-Ohio Holdings Corp. - Chairman & CEO

* Patrick W. Fogarty

Park-Ohio Holdings Corp. - VP & CFO

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Conference Call Participants

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* Edward James Marshall

Sidoti & Company, LLC - Senior Equity Research Analyst

* Matthew T. Paige

G. Research, LLC - Research Analyst

* Ryan Thomas Mills

KeyBanc Capital Markets Inc., Research Division - Associate

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Presentation

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Operator [1]

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Good morning, and welcome to the Park-Ohio Third Quarter 2018 Results Conference Call. (Operator Instructions) Today's conference is also being recorded. If you have any objections, you may disconnect at this time.

Before we get started, I want to remind everyone that certain statements made on today's call may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A list of relevant risk and uncertainties may be found in the earnings press release as well as in the company's 2017 10-K, which was filed on March 8, 2018, with the SEC. Additionally, the company may discuss as adjusted earnings and EBITDA as defined, as adjusted earnings and EBITDA as defined are not measures of performance under generally accepted accounting principles. For reconciliation of net income to as adjusted earnings and for a reconciliation of net income attributable to Park-Ohio common shareholders to EBITDA as defined, please refer to the company's recent earnings release.

I would now like to turn the conference over to Mr. Matthew Crawford, Chairman and CEO. Please proceed, Mr. Crawford.

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Matthew V. Crawford, Park-Ohio Holdings Corp. - Chairman & CEO [2]

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Thank you, Kevin. Good morning, and welcome to our third quarter call. Joining me this morning are Pat Fogarty, our CFO and Director of Corporate Development; and Ed Crawford, our President.

We're pleased to report excellent performance, which included third quarter records in both revenue and profitability. I'm particularly proud of this performance during a period where we continue to invest aggressively in people and hard assets, which will underpin our objective to be $2 billion in revenue with a 10% EBITDA margin by 2021. These investments are a headwind to our current performance, but as Pat and I will discuss, has significant value to our future. Our strategy for growth and value creation has 3 pillars: first, new products and services; second, international expansion; and third, strategic acquisition. In some cases, like our recent acquisition of Hydrapower in the U.K., we see value being created in more than one pillar.

Looking at the third quarter performance, I also want to highlight the operating leverage we saw across almost all of our businesses. Year-over-year, I specifically want to point out the improvements in our aluminum casting business and in our forge group, which acquired Canton Drop Forge last February. These businesses have grown aggressively during the last 12 months and are managing the increased demand very successfully.

Turning to the segments themselves. Supply Technologies continued to see strong double-digit growth, albeit slightly more moderate from the first half of the year. New sales have continued to accelerate during the third quarter, and a great interest to us has been the 43% increase in aerospace and defense business during the third quarter. As most will recall, this has been an area of new product and service focus for us during the last couple of years.

Assembly Components continue to benefit from the transition in autos to zero-emission vehicles. During the quarter, we benefited most from our lightweighting initiatives. But important milestones were met also relating to product launches and OE qualifications of new products globally in our rubber and extrusion platforms. We expect the international expansion and new product development to be a big part of our success in late 2019 and beyond. Specifically, we expect these investments to add $150 million in revenue by 2020 and more than half of this growth is already booked. Perhaps our most exciting segment this quarter included our strong engineered components segment, which continues to see strong demand from not only aerospace but also from agriculture, rail and the oil patch.

Relating to our growth and value-creation strategy, we took delivery of a new frame for a 7,000-pound mechanical forging press, which we expect to commission in our Arkansas plan in early 2019. While these are exciting developments, we continue to battle signs of inflation across the board. We are doing what is to be expected, including reducing these costs and managing both the internal and external supply chain. But we're also increasingly focused on pricing strategy. We have and will continue to implement price increases when appropriate.

Lastly, our acquisition pipeline remains robust and includes several highly strategic opportunities. At this point in the year though, these will likely spill into early 2019.

Thank you very much, and I'll now turn it over to Pat Fogarty.

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Patrick W. Fogarty, Park-Ohio Holdings Corp. - VP & CFO [3]

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Thanks, Matt. As Matt mentioned, the third quarter was a strong quarter and exceeded our expectations on a number of fronts. We saw continued end market strength in many businesses, which resulted in outstanding year-over-year growth in both sales and profitability.

Each of our business segments contributed to the sales growth in the quarter, continuing the momentum that each segment experienced in the first half of the year. Our net sales of $414 million in the third quarter were an increase of 18% year-over-year. Of the increase, 7% was due to organic growth and the remaining 11% was due to acquisitions completed in 2018 and 2017. On a year-to-date basis through September 30, our revenues were a record $1.3 billion, up 20% compared to a year ago. Gross margin as a percentage of sales was approximately 16% in the third quarter of both 2018 and 2017. We realized solid operating leverage and income flow-through in many of our businesses, most notably in our aluminum casting, forging and industrial equipment businesses. However, compared to a year ago, third quarter margins in our Assembly Components segment were impacted by continued new plant startup costs and higher operational costs, which I will discuss later in my comments.

Third quarter SG&A expenses, which totaled $41 million, decreased to 9.8% of sales compared to 10.7% of sales a year ago due to higher sales volumes in the third quarter. The increase in SG&A dollars were due primarily to the SG&A expenses from acquisitions.

Operating income was $24.8 million in the third quarter, an increase of 31% from $19 million last year due primarily to the strong sales volumes in the quarter and the favorable impact of the Canton Drop Forge acquisition.

Segment operating income margins in the third quarter increased to 7.9% compared to 7.5% a year ago. Interest expense of $8.9 million was slightly higher in the third quarter compared to the third quarter of last year, resulting from higher average borrowings during the quarter. The impact of the increased borrowings on our interest expense was partially offset by the positive impact of a lower average borrowing rate driven by our debt refinancing in April of last year. Our effective income tax in the third quarter was 18% compared to 21% in the third quarter of last year. Our tax provision in the quarter included an income tax benefit to reduce our transition tax liability resulting from the U.S. Tax Reform. The impact of this adjustment was $0.07 per share and is excluded from our third quarter adjusted EPS of $1.07.

Excluding this item, our third quarter 2018 effective tax rate would have been 23%, which is due to the full recognition of certain benefits in our businesses in Italy and England. For the full year 2018, we now expect our effective income tax rate to be approximately 27% to 29%.

Our GAAP earnings per share in the third quarter was $1.14 compared to $0.80 last year, an increase of 42%. On an adjusted basis, our third quarter EPS was $1.07, up 30% from $0.82 in the prior year. Operating cash flows for the third quarter were $23 million, driven by profitability and improved working capital performance during the quarter. Also during the third quarter, we repatriated $24 million in cash from a foreign subsidiary and used the funds to pay down a portion of our U.S. revolving credit facility. As a result, our total debt was reduced by $28 million since June 30 and our gross debt leverage was reduced by nearly 10% compared to last quarter.

We ended the quarter with continued strong liquidity, including cash on hand of $63 million and approximately $200 million of unused borrowing availability under various global banking arrangements. For the full year 2018, we continue to expect to generate $40 million to $50 million in operating cash flows, to spend CapEx of approximately $40 million to $45 million and to further pay down long-term debt in the fourth quarter by approximately $15 million to $20 million.

Now I will comment on our segment results. In Supply Technologies, sales were up $15 million or 11% year-over-year. Organic growth accounted for 4%, and 7% came from acquisitions made during 2017. The sales growth was driven by higher customer demand in many of our key end markets, including aerospace and defense, which was up 43% year-over-year; heavy-duty truck, which was up 27% year-over-year; and industrial and agricultural equipment related, which was up 12% year-over-year.

Our average daily sales were up 13% for the quarter and 20% year-to-date, reflecting strong customer demand year-over-year. Also in this segment, our fastener manufacturing business continues to perform well, with third quarter results in line with a strong prior year quarter. Operating income in this segment increased to $11.3 million from $10.2 million a year ago, an increase of 11% driven by the increase in sales volumes. Operating margins as a percentage of sales were comparable year-over-year at 7.3% as the flow-through benefit from higher sales was offset by unfavorable product mix and the continued investment in strategic sales initiatives and, to a lesser degree, the impact of commodity price increases.

Now I will turn to the Assembly Components segment. Sales were up 14% year-over-year in the quarter, driven primarily by higher sales volumes in our aluminum business. The improved sales in our aluminum business were due to an expected increase in volumes on products launched in 2017, primarily on high-volume platforms which use 10-speed transmissions, including the Ford F-150 truck and the increasing demand for compact crossover SUVs, including the Jeep Cherokee.

In the third quarter, our fuel related and rubber product revenues were up slightly year-over-year due to the continued strength of global automotive build rates. As we have discussed on previous calls, we have continued to invest in 3 new production facilities in both China and Mexico. These plants, which produce fuel rails, fuel filler systems and various extruded and molded rubber products for the global auto market, are progressing well. Two of the 3 plants are in production and shipping product. The third production plant, which is located in China, will be operational by the end of the year.

Our current projections continue to show a steady sales ramp up beginning in 2019, which should approximate $150 million revenue run rate in 2020. Segment operating income decreased year-over-year from $10.7 million in the third quarter of last year to $9.3 million this year, and operating margins declined from 8.4% to 6.4% in the third quarter of 2018. These decreases were due to the impact of startup and production launch costs in our new production facilities, unfavorable sales mix and excess operational costs. The increase in operational costs was due primarily to incremental cost of hiring and training new employees as a result of higher production levels. We believe we are making progress in eliminating and controlling these excess costs, and we are seeing evidence of our efforts so far in the fourth quarter.

We expect continued improvement in operating margins once production levels ramp up in our new facilities and the excess startup and product launch costs are eliminated. In October, we acquired Hydrapower Dynamics Limited, located in Birmingham, England. The business will be included in our Assembly Components segment beginning in the fourth quarter. Hydrapower provides fluid assemblies which incorporate extruded rubber hose, tubing and fasteners into its end products and serves customers in the bus and truck, agriculture and rail end markets.

We believe there are significant synergies with our fuel, rubber and supply chain businesses that will provide future growth for Hydrapower.

In our Engineered Products segment, sales were up 34% compared to a year ago, driven by a combination of organic growth of 10% and 24% from the acquisition of Canton Drop Forge. The organic growth in this segment was driven primarily by increased global demand for our induction-hardening and pipe-threading equipment, which is up 15% year-to-date over the prior year. Our backlogs in our capital equipment and forging businesses continues to be strong. Our acquisition of Canton Drop Forge continues to perform well as demand in the aerospace and oil and gas end markets has been strong.

The integration of Canton with our other forging businesses is progressing well and we're seeing the benefit of the synergies we identified when we acquired Canton. Operating income in this segment was up significantly in the third quarter compared to a year ago, from $5.6 million to $12.2 million. Our third quarter operating income margin of 10.8% is an increase of 410 basis points year-over-year. The significant increase in profitability in this segment was due to an increase in plant absorption resulting from higher sales levels and the impact of the Canton acquisition.

Finally, I would like to comment on the remainder of 2018. Although we are optimistic that we will end the year at the mid to higher end of our adjusted EPS guidance range, we are seeing customer demand in certain automotive platforms begin to soften slightly in the fourth quarter. In addition, we continue to manage the impact of commodity price increases. Although we fully expect to recover such increases, there's a slight lag in the recovery with our customer base. As a result, we are maintaining our full year 2018 adjusted EPS guidance of $3.80 to $4 per share.

Now I'll turn the call back over to Matt.

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Matthew V. Crawford, Park-Ohio Holdings Corp. - Chairman & CEO [4]

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Great. Thank you very much, Pat, for your detailed report. We'll now open the floor for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today is coming from Edward Marshall from Sidoti & Company.

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Edward James Marshall, Sidoti & Company, LLC - Senior Equity Research Analyst [2]

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I wanted to ask about -- you're investing vigorously, I mean, that's the language in the press release. And I know your focus is on the horizon. I like to get a sense of how much the impact is on the near term? If you can quantify the headwinds that you've kind of highlighted? And maybe where are they coming from in the individual segments? I know you mentioned quite a few during your prepared remarks.

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Matthew V. Crawford, Park-Ohio Holdings Corp. - Chairman & CEO [3]

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Let me -- maybe Pat would have a more detailed financial answer, but let me talk to you in terms of the scale of what's going on in some of the new facilities. For example, I think our headcount currently in the New Mexican facility is several hundred employees. That business, if it's profitable at all -- right now, it's marginally profitable. It's been losing money for most of 2018. So the launch has been, as you would expect, uneven. Some of the business, which we've been effective in moving around in our plant structure, has launched. Other launches have been delayed, in some cases months, not years. Other OE qualifications have taken longer than we thought. So this is very, very typical for a launch of this scale, but to be clear, that gives you a sense of the amount of people that we have in the facility, both in terms of direct labor roles and in terms of management and supervisory roles. To different extents, the same is happening in China. I don't know that there's any more important time in the launching of a new facility than the period at which you are qualifying your assets. You need to essentially be able to validate to the OE that you're ready -- you're production-ready. So -- and yet that doesn't come -- all that comes with is preproduction orders. So I would argue that the number is clearly in the millions of dollars, but other than that, I wouldn't want to comment with any specificity. Pat, anything you want to add there? Is that...

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Patrick W. Fogarty, Park-Ohio Holdings Corp. - VP & CFO [4]

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No. I think the only thing I would add is the amount of cost that is being incurred in setting up new plants, not only on the people front but also in facility costs that we're incurring, is significant. And as production levels ramp up, you'll get the absorption, and we expect that to begin in the first quarter of 2019.

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Edward James Marshall, Sidoti & Company, LLC - Senior Equity Research Analyst [5]

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Got it. And...

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Matthew V. Crawford, Park-Ohio Holdings Corp. - Chairman & CEO [6]

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Ed, we spend a lot of time as well talking about the 3 launches because I think it's the easiest places to put our finger on, a lot of money on. But as I mentioned in my comments, we've got really wonderful opportunities going on in other parts of the business that are also a bit of a drag as we invest. I mentioned our new 7,000-pound forging -- mechanical forging press we're putting down in Arkansas. I've talked in prior periods about our investment in Supply Technologies and MRO. Those are not of this scale, but those are significant relative to the fact that none of those are producing profits right at this point.

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Edward James Marshall, Sidoti & Company, LLC - Senior Equity Research Analyst [7]

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You guys have both been around the business for a long time. I'm curious to get your opinion, is this the biggest investment period that Park has ever gone through in kind of your tenure, your familiarity with the business?

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Matthew V. Crawford, Park-Ohio Holdings Corp. - Chairman & CEO [8]

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The answer is unquestionably yes. I think that we talked about the pillars, I spoke in my comments about the pillars for the success of this business and meeting our financial goals of $2 billion and 10%, and I think that -- what I think we've focused on more aggressively, we've always -- the pillar which includes strategic investment or acquisition we've always been excellent at. I think where you're seeing us accelerate our investment is on the international expansion and on the new product development. We are spending considerable resources there, focusing on our own business, our own competitive advantages and our own opportunities for growth in our current teams and businesses and products. And there's a lot of ways to look at that but one of the ways I think that would be -- sum it up is our CapEx forecast. I think it's between $40 million and $45 million. That is only -- that is 2x or 2.5x what you would have found us to spend 3 or 4 years ago. So that I think -- now to be clear, Ed, the business is twice the size. I mean, we've grown considerably. So some of that's to be expected, but the opportunities we see today, not just in the forging business but also in the aluminum lightweighting business and most notably in the rubber and extruded hose business, all have tremendous opportunities, particularly in this ZEV or zero-emission vehicle space.

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Edward James Marshall, Sidoti & Company, LLC - Senior Equity Research Analyst [9]

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Got it. And I'm curious, the softness in auto that you referred to in the fourth quarter orders, are they related to kind of the legacy business? Or are they linked to the facilities in Mexico and China?

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Patrick W. Fogarty, Park-Ohio Holdings Corp. - VP & CFO [10]

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Yes. No, they are really unrelated to the facilities in Mexico and China. And really what we're seeing there, Ed, is some schedules being changed in the fourth quarter on certain platforms that we work with. I don't think it's an indication of where things are heading into 2019, but it's really a function of kind of current year inventory levels and where things are playing out through the rest of the year.

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Matthew V. Crawford, Park-Ohio Holdings Corp. - Chairman & CEO [11]

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Ed, I would add to Pat's comments, I think those are discreet stories at the moment related to the fourth quarter. There are significant decisions being made at the OE level relative to current platforms and how they are going to reposition themselves for some of the key truck platforms and SUV platforms. And right now, it's tough to know if something is just a typical holiday shutdown or if they are modifying production lines. So I agree with Pat, this is not a 2019 story. This may just be some discreet story about the fourth quarter, most notably December.

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Edward James Marshall, Sidoti & Company, LLC - Senior Equity Research Analyst [12]

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Got it. And on Hydrapower, I know it's small, but I'm curious what the -- is it a bolt-on deal? Or there are other technologies or customers or markets that they serve? And I'm assuming it will be pretty quick to integrate into the existing AC business?

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Patrick W. Fogarty, Park-Ohio Holdings Corp. - VP & CFO [13]

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Yes. And I would say it's more than just a bolt-on. Although there are specific synergies within our extruded hose business and our assembly of hose and fittings into various end markets, it provides us with a key location in Europe, which today we currently don't have in the Assembly Components group. And with that comes tremendous synergies from a marketing and sales standpoint with Supply Technologies. As you know, we've acquired many companies over the last 3 years throughout the U.K. to really support customer demand in not only England but also throughout Europe.

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Operator [14]

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Our next question today is coming from Steve Barger from KeyBanc Capital Markets.

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Ryan Thomas Mills, KeyBanc Capital Markets Inc., Research Division - Associate [15]

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This is Ryan Mills on for Steve. Yes, starting with the Supply Tech, organic growth came in about 4%. It was running on double digits over the past year. Is this just tougher comps or are you seeing signs of slowing in some sectors? And should we be thinking low- to mid-single-digit organic growth rates going forward?

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Matthew V. Crawford, Park-Ohio Holdings Corp. - Chairman & CEO [16]

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Do you want to start with that, Pat?

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Patrick W. Fogarty, Park-Ohio Holdings Corp. - VP & CFO [17]

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Sure, I'll answer that for you, Ryan. The third quarter of last year was a strong quarter as heavy-duty truck and other end markets began to ramp up. We continue to see strength in year-over-year comps in the quarter, most notably aerospace and defense. Some of the other markets were growing at less than 10%. So I don't think it's indicative of the future organic growth in this business, which we still believe to be in the mid- to high-single digits. But the quarter-over-quarter comps were somewhat difficult because last year was such a strong quarter.

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Matthew V. Crawford, Park-Ohio Holdings Corp. - Chairman & CEO [18]

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We -- this is Matt. We continued to see robust new sales growth, and we're pleased with the progress we've made this year. We're just about on plan for our new sales estimate for the year. So we're excited about that, but to be clear, it is a -- the comps are getting more difficult as you suggested.

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Ryan Thomas Mills, KeyBanc Capital Markets Inc., Research Division - Associate [19]

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And with customers running at higher levels and labor getting tighter, are you seeing more inquiries in Supply Tech to take more product lines from existing customers? Or are you having any luck prospecting for new customers looking to outsource some processes?

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Matthew V. Crawford, Park-Ohio Holdings Corp. - Chairman & CEO [20]

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I think it's a delicate situation at many customers out there, whether they are prospective customers for us or current customers. Most of this year, they have been trying to keep their plants running. There's been a lot of disruption relative to just securing parts. So fortunately, that has -- we have not had that issue, but it has been hand to mouth for us at times, and we have had to absorb some express freight and some -- do some things that were extraordinary to keep our customers happy with the spike in demand. So while it's a tremendous opportunity to sell our value proposition in Supply Tech, and I agree with you, there's more conversations happening, it's also a really difficult time sometimes to consider a OE of scale trying to transition a relationship in an environment where they're just happy to be getting parts.

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Ryan Thomas Mills, KeyBanc Capital Markets Inc., Research Division - Associate [21]

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Okay. And then switching to Assembly Components. Margins for the year look like they might be down a couple of hundred bases points and I'm assuming it's still from the impact of the new plants in China and Mexico. So I guess my question is where does this business stabilize? And can you talk about how you see the margins progressing as everything comes online?

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Matthew V. Crawford, Park-Ohio Holdings Corp. - Chairman & CEO [22]

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I'll let Pat comment about the numbers, but I think that 2019 is going to be a very interesting year. We have seen sustained margins in that business in the 12% to 14% range, and I don't see any reason why we can't get back there. The question will be how quickly can we come online with the appropriate amount of volumes in 2019 to get the absorption that we need to make these businesses anywhere near the kinds of margins that we're talking about? So I have a lot more confidence about end of 2019 and 2020 than I do about the first half of next year. But I don't -- we don't manage this business that way. We make investments for the long haul.

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Ryan Thomas Mills, KeyBanc Capital Markets Inc., Research Division - Associate [23]

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Okay. Then my last question, free cash flow has been tracking below prior years, and I know it's an investment year for you guys, but what do you expect for the fourth quarter? And how are you thinking about free cash flow conversions for 2019 or just on a more normalized basis going forward?

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Patrick W. Fogarty, Park-Ohio Holdings Corp. - VP & CFO [24]

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Well, Ryan, as I mentioned, we expect the fourth quarter to be a very strong cash flow quarter not only through the management of working capital but also due to profitability. This year was an unusual year and that we spent $40 million to $45 million in CapEx. That, if you look back over our history, that's probably 15% higher than where we've been historically. But we continue to see strong cash flow and the conversion of our EBITDA will continue to be strong and will give us the opportunity to further deleverage the company.

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Operator [25]

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(Operator Instructions) Our next question is coming from Matthew Paige from Gabelli & Company.

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Matthew T. Paige, G. Research, LLC - Research Analyst [26]

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In relation to the Chinese facility that you're ramping up especially, are there any key end market levels that you watch as you ramp up production? And how does the potential slowdown in global automotive production impact your ability to ramp up to your production targets?

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Matthew V. Crawford, Park-Ohio Holdings Corp. - Chairman & CEO [27]

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Great question, Matthew. It is -- we are very mindful of some of the disruption we've seen in the Chinese marketplace on the demand side. So absolutely, that is -- we have some concern over that going into next year, but what we don't have concern about is the importance of our products in the market positioning for -- you mentioned, you use the singular, I'll use the plural, we've launched 2 plants in China and are launching 2 plants in China. One of them is around our direct injection technology, which is extremely important not just to the foreign-controlled JVs but also to the domestic OEs, as they look to once again sort of create this transition in many cases through the hybrid space to better performing internal combustion engines combined with the electrification. That will be a 10- or 15- or 20-year plank, and it is -- as fast as we can get up and running, we have customers for that part. Regardless of the overall demand, that conversion is extremely important to what they're trying to do through the regulatory environment there. Our second facility that we're really just at the initial stages of launching and getting some approvals on the product qualification from the OEs, once again, both foreign controlled and Chinese national, is on our extruded hose and rubber. These are vital as well for this transition. These products can be -- are typically -- particularly on the extrusion side, can be used for fuel, which has historically been our strong spot, but more broadly, our hydraulic hose that can be used in multiple facets, particularly for expansion into the full zero-emissions car and the battery and electric cars. So this is, once again, focused very much on that transition. And I think that despite some volatility maybe in early '19 or throughout '19 on the Chinese demand for new cars, I think we will continue to benefit from that transition.

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Matthew T. Paige, G. Research, LLC - Research Analyst [28]

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Great. That's really helpful color on the product lines that you have. And I guess that really leads into my second question of, are there any products or new end markets that you think you need to add to your portfolio right now to hit some of those coming needs of your OEM customers?

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Matthew V. Crawford, Park-Ohio Holdings Corp. - Chairman & CEO [29]

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I think you will continue -- I think the exciting story for 2019 will be this rubber and extrusion investment. I think that our ability to adapt some of our extrusion technology into air conditioning hose, generally coolant hose for batteries and otherwise, this is going to be pretty exciting stuff for us. So we are spending a lot of money in development in that area and believe that our history and expertise in that space is going to provide us tremendous market opportunities, particularly in China, some in places we probably don't even fully appreciate yet.

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Operator [30]

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We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further closing comments.

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Matthew V. Crawford, Park-Ohio Holdings Corp. - Chairman & CEO [31]

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Great. Thank you very much for your time today and your interest, everyone. We are pleased with the performance in the third quarter. We do think we'll perform well in the fourth quarter. As Pat mentioned, we're cautiously optimistic. But to be clear, we are very focused on the future. I continue to use the word reinvestment because that's how we feel about what we're doing. We're making investments to meet our strategic goal for 2020 and beyond and that's what keeps our team focused and excited.

With that, I will wish you a good day. Bye-bye.

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Operator [32]

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Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day.

We thank you for your participation today.