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Tower International Inc (TOWR) Q4 2018 Earnings Conference Call Transcript


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Tower International Inc (NYSE: TOWR)
Q4 2018 Earnings Conference Call
Feb. 12, 2019 , 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Tower International Fourth Quarter 2018 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions after the prepared remarks. (Operator Instructions). It is now my pleasure to hand the call over to Derek Fiebig, Head of Investor Relations to begin. Please go ahead sir.

Derek Fiebig -- Executive Director, Investor & External Relations

Thanks, Maria and good morning everyone. I'd like to welcome you to the Tower International Fourth Quarter 2018 Earnings Call. Materials for today's presentation were posted to 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 of 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 regarding 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 the future developments 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, Executive Vice President and Chief Financial Officer. Also joining us in the room is Pelle Malmhagen, Tower's President. Following our formal remarks, we'll open up the phone lines for questions and answers. A few points of clarification, within the next day or so, we will be providing a recast of 2018 quarterly results. It will be furnished on a filing with Form 8-K, so look for that to come out soon.

And now we'll go to Slide 3, the basis of presentation for today's call. With a definitive agreement to divest our European operations, the operations are classified as discontinued operations in our GAAP results. Additionally, we've decided to retain the operations in Brazil, which had previously been treated as discontinued operations. Now these will be included in our continuing ops. Outlook for 2018 had been provided throughout the year before these events occurred. Therefore, in order to provide greater clarity on how Tower performed relative to our previously provided outlook for 2018, results will include Europe and exclude Brazil in the first part of this presentation. The balance of the presentation will reflect the GAAP treatment for discontinued operations, excluding Europe and including Brazil, for both historical and future periods.

Now that I've clarified that, I'll turn the call over to Jim.

James Gouin -- Chief Executive Officer

Thanks, Derek and good morning everyone. Before I begin, I'd like to take just a moment to say thank you to our one Tower team for the hard work and dedication that resulted in an outstanding 2018 for Tower and for Tower's shareholders. You have my heartfelt thanks. Please keep up the good work as we now focus on 2019's significant launches and beyond to 2020.

Turn to Slide 4, this provides some key takeaways. First of all, we're very pleased that Tower was able to maintain and meet our 2018 outlook despite a difficult macro-environment. We continued with our balanced approach to capital allocation including investment in profitable growth with elevated capital spending for both new and replacement business. Last year, we laid out our plans for $350 million of net new business and $650 million of replacement business between 2018 and 2020.

Our revenue in 2018 included $125 million of net new business and 2019 will be an even more significant year of launch activity. We also reduced our debt during 2018 as we paid down $50 million on our term loan and we plan on paying down another $50 million when the divestiture of Europe is completed. Further, we have continued returning capital to shareholders, increasing our quarterly dividend for the third time in as many years.

In aggregate, between dividends and share repurchases, we have returned nearly $50 million to our shareholders since initiating our dividend in 2016. The pending sale of Europe uniquely positions Tower to capitalize on the healthy and growing light truck and SUV market in North America. We run vehicles in the market, which continue to sell will as consumers have continued to shift away from passenger cars to light trucks and SUVs. For 2019 and 2020, net new business is now expected to be $250 million. This represents an increase of $25 million from what we anticipated for the same period a year ago.

2019 will be a transition year for Tower as we launch programs that represent nearly $700 million of ongoing revenue or approximately 45% of full year revenue. These product launches combined with customer downtime associated with platform changeover will adversely impact results particularly in the first half of the year. Looking forward to 2020, however, these launches will be completed and we expect significant margin expansion, EBITDA growth and free cash flow will represent more than 3.5% of revenue.

Now, with that, I'll turn the call over to Jeff to provide an update on the European divestiture and the financial review and I'll come back a little later to talk about our outlook.

Jeffrey L. Kersten -- Executive Vice President and Chief Financial Officer

Thanks, Jim and good morning, everyone. Slide 5 provides an update on the divestiture of our European operations. We continue to make progress toward the closure of the transaction. On November 20th, we signed the MOU to sell the operations to FSD. FSD's European Works Council approval was received November 28th. On December 6th, we signed a stock purchase agreement and we obtained amendments from our lenders on the term loan and the revolver the following week. We expect to receive final antitrust approval and close the transaction this quarter.

After the payment of fees and transaction costs as well as the unwind of our fixed rate/Euro swaps on the term loan, we expect to receive net proceeds of about $250 million. As Jim mentioned earlier, we will use $50 million of the proceeds to pay down our term loan. We are really pleased to be completing this transaction as it places our European colleagues with a very complementary organization and we were able to sell the asset at a significant premium compared with our current trading multiple.

Slide 6 presents our as reported numbers and the revenue, adjusted EBITDA and EPS associated with both Europe and Brazil. Slide 7 shows summary financial information for the full year 2018. As Derek mentioned, these results include Europe and exclude Brazil. Revenue of $2.169 billion increased 9% from 2017. Adjusted EBITDA increased to 11% to $230 million. Adjusted EBITDA margin increased 20 basis points to 10.6%. Adjusted EPS increased 12% to $4.20 per share. All in all, a very solid quarter -- year.

As shown on Slide 8, we generated $60 million of free cash flow in the fourth quarter, which resulted in positive $41 million of free cash flow for the full year. Capital expenditures were $127 million for the full year. Customer tooling was a positive inflow of $8 million for the year. Working capital and other was unfavorable by $35 million for the full year as European working capital was less of a benefit than anticipated due to the European divestiture. All in all, strong free cash flow even with the elevated capital expenditures.

Slide 9 compares Tower's results with the outlook provided in October on the third quarter call. Revenue, adjusted EBITDA and adjusted EPS were all in line. Free cash flow was $9 million lower than expected largely because of the European working capital that I just mentioned. Slide 10 provides our year-end net debt and leverage. As of December 31st, our net debt was $213 million, which represents a decrease of $57 million from September 30th and a full year decrease of $50 million.

These totals are before the receipt of any proceeds from the sale of Europe and we have a small net cash position in Europe. Compared to December 31st last year, our net debt leverage of 0.9 times, improved by 0.4 of a turn and reached our long-term goal of 1 times net debt-to-EBITDA. Although not shown, our year-end liquidity was a very solid $332 million, of which approximately $250 million was in North America. As noted on the slide, the debt figures do not include $157 million of lease-related debt that we opportunistically used to finance some of our program spending over the last two years.

The accounting treatment for these leases is changing in 2019. Beginning in 2019, the new accounting standard ASC 842 is being implemented. The new standard requires a lessee to recognize a right-to-use asset on the balance sheet and a corresponding (ph) liability for future lease payments. Several of the Company's operating leases are considered finance leases under ASC 842, which will require the Company to record the right-to-use asset as additional property, plant and equipment and the associated liability as debt.

As we reported in February 2018, the lease payments have been expensed through cost of sales, but the expense was excluded in the calculation of 2018 adjusted EBITDA. In 2019 financial reports, the associated expense will be recorded through depreciation and interest expense and the lease payments will be characterized as cash interest and repayment of debt.

Now I will turn the call over to Jim to discuss our outlook. For purposes of our outlook, we are using the GAAP treatment for discontinued operations, excluding Tower Europe and including Tower Brazil. Jim?

James Gouin -- Chief Executive Officer

Thanks Jeff. Slide 12 discusses the $250 million of net new business Tower has secured through 2020. This is $25 million higher than our expectations a year ago. Of this total, $175 million will occur in 2019 and $75 million in 2020. These estimates are based upon the current information we have regarding the start of production for the programs and our customers launch curves. During 2019, we are launching programs with $700 million of ongoing revenue, so it's going to be a big year.

In 2020, most of the incremental new business represents the flow-through of 2019 launches. Presently, 2021 is about flat compared to 2020, which reflects the balance out of certain legacy passenger car programs offset by several additional wins. We are still very actively pursuing numerous incremental opportunities for 2021 and beyond. The adjusted EBITDA margin on our book of new business is projected at 15%. As discussed, 2019 is a transition year setting things up for a great 2020.

Slide 13 presents three different types of launches. The manner in which our customers launch their vehicles creates different launch scenarios for Tower. On the left-hand panel, the first launch listed is an incremental launch. A good recent Tower example would be the BMW platforms we support from our facility in Greenville, South Carolina. In this scenario, products are launched in succession one after another. For example, the X3 was launched in August of 2017, the X4 in April of 2018, the X5 in August of 2018 and so on.

The second scenario is a balance out/balance in launch. In this type of launch, the customer produces the old platform while launching the new platform. A good example of this type of launch would be the old and new-generation Jeep Wrangler, where FCA was producing both vehicles simultaneously while they balanced out the old platform and balanced in the new platform. This product was launched throughout 2018. The third launch presented is the change-over. In this type of launch, production on the old platform ends and the customer takes significant amount of downtime as they install the assembly equipment for the new vehicle.

Revenue is lower because of the downtime and the ramp up of the new program as it launches. This is what is happening with the Explorer this year. Our 400,000 square foot facility in Chicago is located in the supplier (ph) park for Ford Chicago assembly facility. During the first quarter, we will completely remove the assembly equipment on the old line. The new assembly line, which was developed and assembled on the floor of our system integrator here in Livonia, Michigan will be taken apart and shipped on more than 300 trucks from Livonia to Chicago and be reassembled on the floor of our Chicago facility. It's a huge project, taking place in roughly 40 days. As a result, you can imagine it is fairly disruptive to the cadence of our financial results. So I ask you to please keep this in mind as I discuss our assumptions for 2019.

We'll begin the review of our preliminary outlook for 2019 with the planning assumptions on Slide 14. Looking first at revenue, our present view on industry production is pretty well aligned with the December IHS forecast. For the full year, we expect North America to be flat compared with 2018. Net new business wins are about $175 million based on current customer launch schedules. Adverse mix compared with a flat industry is a headwind of about $90 million for Tower and it comes from three sources. The first is about $45 million related to the Ford Explorer changeover and downtime I previously mentioned.

The second is the absence of the extra units from both versions of the Jeep Wrangler being produced last year during the balance in/balance out launch, which represents a headwind of about $20 million. And finally, there is about $25 million of lower revenue associated with lower production volumes on certain Tower platforms, mainly passenger cars. For margins and EBITDA, strong expected second half margins recover from the low first half margins associated with Explorer downtime and launch costs. Free cash flow will be positive for the year with strong performance in the second half of the year despite full year CapEx of $110 million.

For adjusted EPS, the adoption of ASC 842 is expected to adversely impact results and the tax rate should approximate 25%, reflecting lower US tax credits in 2019. These planning assumptions result in 2019 revenue and earnings outlook summarized on Slide 15. Revenue is expected to increase 5% to $1.65 billion, adjusted EBITDA is expected to be $175 million, full year margins are expected to be 10.6%. They will be compressed in the first half of the year and above the full year average for the second half. As shown in the far right panel, adjusted earnings per share is projected at $2.50, down from $3.50 in 2018. This reflects primarily the adoption of ASC 842 reflecting higher depreciation and interest expense and a higher tax rate associated with lower 2019 tax credits.

Slide 16 provides the financial outlook for the first quarter. Revenue is projected at $375 million, down about 8% from a year ago and adjusted EBITDA is expected to be $30 million for the quarter. Both revenue and EBITDA are lower reflecting the downtime and launch costs associated with the launch of the Explorer program. Adjusted EPS of $0.18 a share is expected.

Slide 17 provides some color on how we see 2019 playing out by quarter. It really is a story of two halves. The first half of the year, revenue and margins are pressured by launch activity, followed by recovery in the second half of the year. The precise quarterly results will be dependent upon both the timing and the ramp-up of launches.

Slide 18 shows our present outlook for 2019 free cash flow along with corresponding line items for 2018. Capital expenditures are expected to be up nearly $30 million to $110 million for the full year. Working capital is expected to improve by about $30 million year-over-year from a use of $42 million in 2018 to a use of about $12 million in 2019. In the end, we expect $15 million of free cash flow for the year as strong second half performance more than offsets the first half outflows, representing our typical quarterly cash flow cadence.

Slide 19 provides our results for the past two years and outlook through 2020. 2020 revenue is expected to be about $350 million higher than 2017, which represents a compound average growth rate of 7.5% in a flat North American market. Adjusted EBITDA of $200 million to $210 million would be about $50 million higher than 2017 or a compound average growth rate of more than 9%. Margins are also expected to grow to about 12%, up 60 basis points from 2017 and 1.4 points (ph) from 2019. Our cumulative free cash flow for the four years is expected to be about $150 million and our net leverage is expected to be less than 1 times. Not many suppliers have been able to deliver results as impressive as these and it's a testament to the tremendous dedication and commitment of our colleagues.

We know that the spotlight will be on us during 2019 as we navigate this year of significant launches, but I'm completely confident that our one Tower team is up to this task. Before opening up the lines to questions, I'd like to make some concluding remarks to reinforce the Tower investment thesis. Tower has a high degree of exposure to the growing North American truck and SUV market, representing about 85% of our revenue. We are agnostic to vehicle powertrains or how cars are driven. Unlike most other suppliers, Tower has very limited geopolitical risk with zero direct exposure to China or Europe.

Tower is insulated from trade and commodity-related concerns. Tower has demonstrated consistent above-market growth of revenue and earnings while generating free cash flow. Tower has returned nearly $50 million to shareholders through dividends and share repurchases and our dividend has increased every year since its inception. We remain well positioned to capitalize on the trends of both outsourcing and lightweighting. We have ample liquidity to fund profitable growth and finally, Tower's conservative balance sheet with net debt less than or equal to 1 times provides protection should there be an industry downturn.

And with that, Derek, turn it over for Q&A.

Derek Fiebig -- Executive Director, Investor & External Relations

Maria, if you could please open up the lines for questions and answers.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Christopher Van Horn of B. Riley FBR.

Christopher Van Horn -- B. Riley FBR -- Analyst

Good morning. Thanks for taking my question.

James Gouin -- Chief Executive Officer

Hi Chris.

Christopher Van Horn -- B. Riley FBR -- Analyst

Could you get into maybe some preliminary expectations for the need for CapEx in 2020 just based on some of the new business you see coming on?

James Gouin -- Chief Executive Officer

Well I think, Chris when you look at CapEx in 2019, that's clearly a peak year for us and I think in 2020 you'll see that tail off somewhat, but there's still enough CapEx that we planned on in 2021 and beyond to continue to fuel some reasonable growth going forward.

Christopher Van Horn -- B. Riley FBR -- Analyst

Okay. Got it. And then with Brazil, could you give us a little more color on the decision points there? Was it based on the customer relationship? Was it based on something you see in the market there? Any sort of additional clarity.

James Gouin -- Chief Executive Officer

No, I think for Brazil, very consistent with the approach we've taken over our tenure here with the Company. We've moved assets out of this Company in our history a number of times, not the most recent, which is Europe and you'll recall on Europe, we took a shot at moving that asset out in '16 because it was -- we believed it was a value creator. We also said in '16 that we would not move it unless we got the value that we thought the asset was worth and we didn't move it out until this year or late last year because we got the value that we thought the asset was worth and I'll remind the investment community, it was 5.4 times earnings.

Similarly with Brazil, we've had Brazil out there for sale. We wanted to make sure that we were going to get the right value for it and at this point in time in our history, we just couldn't achieve that and I will -- the nice part about it is, during our -- during the time that it was held for sale, the management team there along with our management team here kept a very good focus on the operations down there and the operations are running very well throwing off good EBITDA and good cash flow. So no other particular reason other than value Chris, which I think is a prudent way to look at the way you manage your asset base.

Christopher Van Horn -- B. Riley FBR -- Analyst

Okay. Great. Thanks for the color there. And then maybe from a macro perspective and how of it kind of relates to the pipeline for you all. Obviously, we're shifting to more of an SUV and crossover-type market and production in cars is going down. I imagine that's part of the $25 million that you've identified. Is there a big opportunity set here for you as the OEMs move into more of these crossovers and SUVs and newer programs replacing some of these passenger cars? And then, how does that pipeline kind of look for you -- as you look out into the 2021 time frame?

James Gouin -- Chief Executive Officer

Yes. I think the general answer to your question Chris is yes. And that opportunity is -- whether it's coming at us in terms of trucks and SUVs or elimination of cars, obviously if they're going to put more money toward trucks and SUVs, the opportunity is going to be toward trucks and SUVs, but what's going to continue to drive the opportunity more so than that is going to be the fact that they're going to continue to focus on electrification, which is going to mean incremental platforms; they're going to continue to focus on autonomous vehicles, which means more money toward things they need to spend money on and less toward the type of work that we do. So the outsourcing and those types of things are going to continue to push opportunity toward our sector and there is no doubt in my mind about that. We've see it happen. We're going to see it continue to happen.

In addition, if you're looking at the pipeline right now and I would say focusing on the period of say 2021 through 2023, the pipeline is still very robust in terms of quoting activity; some of it being driven by what I've talked about here just over the last couple of moments. We're looking at quoting on business that ranges -- somewhere in the range of ongoing annual revenue of anywhere from $400 million to $500 million right now in that time frame. So the pipeline is still robust. It's been very consistent and I see no reason for it not to continue to be consistent going forward.

Christopher Van Horn -- B. Riley FBR -- Analyst

Okay. Thanks for the time, Jim.

James Gouin -- Chief Executive Officer

Thank you, Chris.

Operator

Our next question comes from the line of Ryan Brinkman of J.P. Morgan.

Ryan Brinkman -- J.P. Morgan -- Analyst

Hi, thanks for taking my question. I wanted to ask around the backlog, primarily as it relates to margin. I guess two questions. First, what is the contribution margin at which you expect to convert the backlog in 2019? Now I think it's natural when launching a new program that margins starts out softer as lines come up to speed, et cetera. Just curious if you wanted to give a number there, 5%, 10% et cetera? And then secondly, when these programs do come up to speed, so say after year one, how do you expect their (ph) normalized margin to compare to the Company's current consolidated margin ex Europe?

Jeffrey L. Kersten -- Executive Vice President and Chief Financial Officer

Ryan, if you try and take a look at it, '19 is a little bit hard to answer given just the amount of downtime that we have on Explorer and basically our facility is completely down. I think, if you take a look at it from like 2018 to 2020 or 2017 to 2020, depending on what you want to look at, you look at the net new business that's kind of coming in there, which is really driving the revenue, it's at about a 15% fully accounted margin (ph). And I think that's how you look at it. You got to look at '19 as a complete transition year and take a look at it from 2017 to 2020, it's $350 million backlog that we talked about before, roughly a 15% margin and that's how I would look at it.

Ryan Brinkman -- J.P. Morgan -- Analyst

Okay, great. Thanks.

James Gouin -- Chief Executive Officer

I would just follow-up to that. Ryan, just to follow on to that. I mean, that's why you start to see as the product comes on and it's full volume starts to take effect, that's how you start to see the improvement in the overall underlying EBITDA margin.

Ryan Brinkman -- J.P. Morgan -- Analyst

That's very helpful, thanks. And then just lastly I did want to touch on Brazil a little bit more. Thanks for the color you gave on your decision to retain the operations there in your answer to the last caller. Just curious, so, if you could take a moment, please remind us of your major customers and programs that you are supplying in that country? And then also just as it relates to the guide, I see you earned something like -- was it $5 million of EBITDA in Brazil in 2018. How much is the 2019 and 2020 guidance benefiting from the move back into continuing operations? I'm presuming the profitability there is expected to grow right, just given that the market is rebounding off of a low level including after some improvements in the political environment.

Jeffrey L. Kersten -- Executive Vice President and Chief Financial Officer

Correct. When you take a look at our Brazilian operation, our two biggest customers are Volkswagen and Honda and we are in the process of launching, you know, additional business here in 2019 in Brazil as well. So in 2018, we were roughly around $5 million of EBITDA and it was about a 10% margin, a little bit more. I think when you look out 2020, we'll have some growth in the Brazilian revenue line and the margin should approach the consolidated margin with North America. So it'll be pretty much right on top of the North American margin. And so if you take a look at that and you assume maybe $10 million or $15 million growth in Brazil by 2020, that should kind of get you in the range of a EBITDA number for that year.

Ryan Brinkman -- J.P. Morgan -- Analyst

Okay.

James Gouin -- Chief Executive Officer

And maybe just a little bit more again Ryan on that. There -- they -- as I mentioned they're EBITDA positive and they're cash flow positive. So to the extent that they require CapEx going forward for the amount of growth they have, we don't see them as being a huge user of cash going forward.

Ryan Brinkman -- J.P. Morgan -- Analyst

Any exposure to Ford in Brazil?

Jeffrey L. Kersten -- Executive Vice President and Chief Financial Officer

No.

James Gouin -- Chief Executive Officer

No.

Ryan Brinkman -- J.P. Morgan -- Analyst

All right. Thanks a lot guys.

James Gouin -- Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Matt Koranda of Roth Capital Partners.

Matt Koranda -- Roth Capital Partners -- Analyst

Hey guys, good morning. Just if I can maybe attack the margin question in a bit of a different way. If I look at the 2020 EBITDA margin outlook versus your 2019 outlook, it does look like you're embedding maybe at least 150 basis points or more of launch costs and downtime headwinds. So one, I mean is that roughly the right way to think about it for 2019 at a higher level? And then two, are there any scenarios under which that comes in better than expected I guess? I mean how much conservatism are you baking in with the changeover expectations in the first half?

James Gouin -- Chief Executive Officer

Are you talking about better in '19, Matt or better in '20?

Matt Koranda -- Roth Capital Partners -- Analyst

I guess what -- I'm asking about the launch costs that you're embedding in 2019. I'm just trying to back into it sort of by looking at your outlook and the difference between 2020 and 2019. So the fundamental question is sort of, how much conservatism have you baked into your 2019 expectations around changeover and launch headwinds?

James Gouin -- Chief Executive Officer

Well I think -- look we -- and I'll just use -- I'll use this -- not to be controversial Matt, but if you look at this management team, they've put a number out on the Street, we put a number out on the Street in February of 2017, it was $210 million. And in December, when we closed the books, we delivered $210 million. In February of last year, we put a number out at $230 million in February and in December when we closed the books, we delivered $230 million. Today, we're putting out a number of $175 million, our intention is to deliver $175 million at the end of the year. Clearly, if there were opportunities beyond that and if there are over the course of the year, we're going to take full, full advantage of that, but this is a sizable launch here for us and the Explorer is a big launch and I'd also mention to you and we haven't talked about it in the presentation, we also have a sizable launch on the Ford Escape in the second half of the year. And you can see what's happening with that chart that shows the margins coming up in the second half of the year. That's the way we have categorized (ph) our internal view of this. My only point is that, we said were going to deliver something in '17, we did. We said we were going to deliver something in '18, we did. We're saying we're going to do delivery something in '19, we're going to and we're going to do the same thing in 2020.

Matt Koranda -- Roth Capital Partners -- Analyst

All right, fair enough. And then just for the 2019 EBITDA outlook, I guess, did you talk a little bit about the corporate expense that was essentially shifting away from Europe and back into North America? I think you had about $10 million of cost. So is that embedded in the 2019 outlook? And then the $5 million that you expect to essentially be eliminated after the sale of Europe -- I mean you're not going to get the full benefit of that $5 million I would anticipate in 2019. How should -- how is that factored into the outlook?

Jeffrey L. Kersten -- Executive Vice President and Chief Financial Officer

Two things. One is, you're correct it's about a $10 million overhang that is in the 2019 numbers and we are assuming that we're going to be able to get the $5 million out and for the most part, get it mostly out in 2019. Our expectation is that this transaction will close here in the first quarter. We've already got ideas and obviously, we've already got plans on what we're going to do. So we're going to get most of the $5 million out. It may not all get out there and some of it may tail into 2020, but for the most part, we think we can get it out and we put that into our outlook of $175 million.

Matt Koranda -- Roth Capital Partners -- Analyst

Okay got it and then lastly, I guess in the terms of the cadence of the remaining items -- the checklist -- checklist items that you shared, I think in Slide 5, any additional hurdles once the expected antitrust approval happens later this month? I mean what else needs to happen to close the transaction by March?

Jeffrey L. Kersten -- Executive Vice President and Chief Financial Officer

It's more procedural at that time then. There's always a lot of complexity. We're selling to a French company. We're selling a (ph) Dutch entity. We have a lot of German operations, so just a lot of items you got to go through on a procedural basis, but once we get antitrust clearance, it's just more of a matter of time of going through the various notaries and other things like that to get it done. When we get -- when we sold it and we did mention that the other side was fully financed in their financing, so there is no contingency there. So it should go pretty smooth just the transition stuff through Europe.

Matt Koranda -- Roth Capital Partners -- Analyst

Okay, pretty helpful. I'll jump back in queue guys. Thank you.

Jeffrey L. Kersten -- Executive Vice President and Chief Financial Officer

Thanks, Matt.

Operator

Our next question comes from the line of Rich Kwas of Wells Fargo Securities.

Rich Kwas -- Wells Fargo Securities -- Analyst

Hi, good morning everyone.

James Gouin -- Chief Executive Officer

Hey Rich.

Rich Kwas -- Wells Fargo Securities -- Analyst

Just -- Jim, I just want to follow up on the free cash flow as we think about 2020. So the move from (inaudible), I think to an earlier question you talked about peak CapEx this year, but seemingly you didn't suggest that there'd be $45 million (ph) or so decline in CapEx. It sounds like it's meaningful, but maybe not to that degree. So is there some working capital benefit or some other things that is in the assumption for the $60 million (ph) in 2020?

James Gouin -- Chief Executive Officer

Well, there's also an improvement in EBITDA, Rich, right you know, $25 million to $35 million, so that's a pretty big jump by itself, number one and yes, number two, there is a tail off of the -- of CapEx. Those are the two primary movers in the cash flow numbers for 2020.

Rich Kwas -- Wells Fargo Securities -- Analyst

Okay. And then on truck I assume -- I know, you're being affected by some key program changeovers as you've talked about this morning. If we think about with regards to the planning assumptions on IHS, I assume that you have broadly speaking for North America truck up and car down within your flat outlook or the underpinnings of the outlook?

James Gouin -- Chief Executive Officer

Yes, that's correct and then of course, we -- any unique elements that we have because of our insights with our customers, we will put in there as well, right, but generally speaking, the baseline is what is assumed in the IHS forecast.

Rich Kwas -- Wells Fargo Securities -- Analyst

Okay and then just with regards to the use of cash once the transaction is finalized. You talked about the debt reduction, you'll have a couple hundred million dollars after that available. I know you've talked about organic growth and the ability to drive that, making investments, but how should investors think about use of cash that's pretty meaningful. You talked about the dividend. You have a share repurchase authorization. Any thoughts there at this point?

James Gouin -- Chief Executive Officer

Yes, I think the investment public should be confident that A, we're not going to do anything stupid and B, we're going to follow our normal capital allocation process. So we're going to look for good profitable growth opportunities for us and I mentioned earlier in the call that, right now, we're quoting (ph) on as much as $400 million or (ph) $500 million of business over the next several years. I think, we're going to look to continue to ensure our balance sheet is as bullet-proof as we can make it. And you're right, I mean we're going to take $50 million of the proceeds of the sale of Europe and we're going to pay down on the term loan. So the term loan is going to be roughly $250 million or so remaining, nothing saying we couldn't pay a little bit more down on that. We also have $150 million of leases or so that we can look to pay down too, although there might be slight penalties associated with that. Economically, it still may make sense to do that. So the balance sheet is still an area we can look at more opportunity (ph) and the last time I looked, I still think that accrues directly to the shareholders if you do in fact pay that down.

And of course thirdly, we will look to return capital to shareholders. I should say continue to return capital to the shareholders through dividend or through stock repurchase. We still have close to $80 million of authorization under our present stock repurchase program, but I wouldn't anticipate doing that unless the price is above barker (ph), you say the price is right -- unless the price is right. So I think that's the approach that we'll take. We're just touching on our long-term net debt target of 1 time and that will move around through the course of 2019, but by year-end, I anticipate we'll be back to 1 to less than 1 time and there's nothing wrong with that as a position to hold for a period of time.

As you know, our business is a long-lead business. So to the extent that we win new business going forward, the cash just doesn't fly out the door right away. So I think it's a wait-and-see in that regard, but I think that the investing public should -- again should take confidence in the fact that we're not going to go out and just find a place for this money. We're going to make the right business decision based upon the facts that we have at hand at the time.

Rich Kwas -- Wells Fargo Securities -- Analyst

Okay, thanks very much.

James Gouin -- Chief Executive Officer

Thank you.

Operator

And at this time, there are no more additional callers in the queue. I would like to turn the floor back over to management for any additional or closing remarks.

Derek Fiebig -- Executive Director, Investor & External Relations

Great, thanks Maria and thanks to everyone for joining us on today's call. I'll be available for any follow-up questions you might have. Have a good day.

Operator

Thank you ladies and gentlemen. This does conclude today's conference call. You may now disconnect.

Duration: 42 minutes

Call participants:

Derek Fiebig -- Executive Director, Investor & External Relations

James Gouin -- Chief Executive Officer

Jeffrey L. Kersten -- Executive Vice President and Chief Financial Officer

Christopher Van Horn -- B. Riley FBR -- Analyst

Ryan Brinkman -- J.P. Morgan -- Analyst

Matt Koranda -- Roth Capital Partners -- Analyst

Rich Kwas -- Wells Fargo Securities -- Analyst

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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

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This article appears in: Personal Finance , Stocks
Referenced Symbols: TOWR




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