Q4 2020 Cooper-Standard Holdings Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Cooper standard fourth quarter, and full year, 'twenty and 'twenty earnings Conference call.
The presentation, all participants will be in listen only mode. Following company prepared comments, we will conduct a question and answer session at that time. If you have a question you will need a press star followed by the one key as a reminder, this conference call is being recorded and the webcast will be available for replay later today.
I'd now like to turn the call over to Roger Hendriksen director of Investor Relations.
Thank you, Kevin and good morning, everyone.
We appreciate your continued interest and Cooper standard and we thank you for taking the time to participate and our call. This morning.
And members of our leadership team, who will be speaking with you on the call. This morning are Jeff Edwards, Chairman and Chief Executive Officer.
And Jon Banas, Executive Vice President and Chief Financial Officer.
Before we begin I need to remind you that this presentation contains forward looking statements.
While these statements are made based on current factual information and certain assumptions and plans that management currently believes to be reasonable. These.
Eight months do involve risks and uncertainties.
For more information on forward looking statements, we ask that you refer to slide three of this presentation.
And the company statements included and periodic filings with the Securities and Exchange Commission.
This presentation also contains non-GAAP financial measures reconciliations of the non-GAAP financial measures to their most directly comparable GAAP measures are included in the appendix to the presentation.
With those formalities out of the way I'll turn the call over to Jeff Edwards.
Thanks, Roger and good morning, everyone. We appreciate this opportunity to review, our fourth quarter and full year, 'twenty and 'twenty results and provide an update on our outlook for 'twenty and 'twenty and beyond.
To begin on slide five I'd like to highlight some of the key data points that we believe are reflective of our continued strong commitment to driving sustained value.
For all of our stakeholders.
First we are very pleased that our continuing focus and discipline around environmental social and governance excellence.
Is driving action and improved results.
In 'twenty and 'twenty, we meaningfully improved five of six priority ratings and began tracking a new rating from ISS.
We believe that the same focus and discipline and is directly related to our operating performance.
Which was again strong during the fourth quarter.
We continue to deliver world class results and product quality.
Customer service.
And employee safety.
At the end of the quarter, 97% of our customer scorecards for product quality, where green.
And 98% for Green for program launches.
Even more importantly, we had a record year for safety performance.
For the full year 'twenty.
Our safety incident rate was our best ever at just 0.32 per 200000 hours worked.
Well below our world class benchmark of 0.60.
We're certainly proud of this outstanding result, and we're particularly pleased that 29 of our plants completed the year with a perfect safety record of zero reported incidents.
From a financial perspective, our initiatives to improve margins and return on invested capital continue to drive the expected improvements and our results.
During the fourth quarter, our manufacturing teams delivered $18 million and cost savings through lean initiatives and improved operating efficiencies.
For the full year manufacturing cost savings totaled $65 million.
Which is an outstanding result, when you consider all the unusual challenges presented by increased health and safety protocols lower production volumes and.
And customer shutdowns.
The aggressive proactive actions, we implemented to reduce administrative and overhead cost beginning in 2019.
And throughout the year resolved and a 12 million dollar reduction and S. G E N E expense for the fourth quarter versus the same period last year.
For the full year, the reduction and SGA and <unk> expense was $43 million.
Our global supply chain optimization initiatives continues to deliver as expected.
Driving $7 million and savings during the fourth quarter and $33 million for the full year.
Combined these initiatives were a significant factor in achieving 470 basis points improvement and our fourth quarter adjusted EBITDA margin.
Despite some significant one time impacts that John will describe in a few minutes.
Turning to page six.
This slide provides details around the improving ESG ratings I mentioned.
Our commitment and achievement and ESG is garnering prestigious recognition, including being named to Newsweek's list of America's most responsible companies for the second consecutive year.
But more important than the recognition as the actual positive impact we're having on the environment.
And our communities and on the overall health and sustainability of our company.
Turning to slide seven.
We're continuing our aggressive actions to rightsize, the fixed cost overhead burden on our business and align it with our smaller revenue base.
As a recap and 2019, we closed 10 facilities streamlined our global manufacturing structure and significantly reduced S. T E N E head count in 'twenty and 'twenty, we close or exited 14, more underperforming facilities and initiated the closure of one more which we.
Expect to be completed and the first half of this year.
We also continued with further right sizing of our head count and aggressive limits on discretionary spending in 2020.
Combined the actions we've taken in 2019, and 2020 reduced our total fixed costs and Cogs and S. G. A any by more than $80 million year over year far exceeding the $50 million and savings that we committed to in early 2020.
In summary.
<unk> 'twenty and 'twenty was a very challenging year.
But our culture focus and discipline enabled us to manage through the crisis and the challenges and continue to execute well on our major strategic initiatives.
Now, let me turn the call over to John.
Thanks, Jeff and good morning, everyone and.
And the next few slides I'll provide some additional detail on our quarterly and full year financial results.
And put some context around some of the key items that impacted our earnings and run rate.
On slide nine we show a summary of our results for the fourth quarter and full year 2020 with comparisons to the prior year.
Fourth quarter, 2020 sales were $696 $9 million.
Town, and 4% versus the fourth quarter of 2019.
Excluding the impact of the recent divestiture of our business in India and certain operations in Europe sale.
Sales were up approximately 3% year over year.
The improvement was the result of positive volume and mix and Asia, and Europe, as well as favorable exchange rates.
These were partially offset by reduced volumes in North America, particularly on a key light truck platform.
As well as customer price adjustments, which included the impact of a number of commercial negotiations getting settled earlier than planned.
That is in the fourth quarter of 2020, rather than and early 2021.
Adjusted EBITDA for the fourth quarter, 2020 increased to $57 million or eight 2% of sales compared to $25 7 million or $3 five per cent of sales and the fourth quarter of 2019.
The year over year improvement was driven by favorable volume and mix in Europe, and Asia as well as the significant increase in operating efficiency and the cost savings that Jeff talked about including lower S. T E N E costs and savings generated by supply chain optimization and restructuring initiatives.
These positive factors were partially offset by unfavorable north American volumes and mix.
And your accruals for incentive compensation typical economics, and general inflation and.
And customer pricing adjustments.
On a U S GAAP basis, we incurred a net loss of $27 $2 million in the fourth quarter.
This include and restructuring expenses and certain noncash asset impairments.
Excluding these and other smaller items, we had adjusted net income of $3 $3 million or <unk> 19 per diluted share for the fourth quarter of 2020.
Compared to an adjusted net loss of $22 $3 million per $1 32 per diluted share and the fourth quarter of 2019.
For the full year 2020 are sales totaled 2.38 billion a decrease of 23, 6% versus 2019.
The main driver of the decline was clearly the COVID-19 related production shutdown that impacted our industry broadly and the first half of the year.
The July one 2020 divestiture of our India business and certain European operations also contributed to the year over year change as did the prior year divestiture of our anti vibration systems business.
Adjusted EBITDA for the year came in at $35 $7 million compared to $201 $6 million and 2019.
Again, the key driver was the COVID-19 related industry shutdown and the first half as well as unfavorable volume and mix customer price adjustments general.
General inflation and higher incentive compensation accruals.
These significant negatives could only be partially offset by improved operating efficiency and the other cost saving and lean initiatives, we have been executing.
Full year GAAP net loss was $267.6 million, which included restructuring charges noncash asset impairments and other special or non operating items.
Adjusted for the net impact of these items, we incurred a net loss for the year of $141 4 million or $8.36 per diluted share.
From a capex perspective, we ended the year at $91.8 million or three 9% of sales.
This compared favorably to capex of $164 5 million or five 3% of sales and 2019.
Moving to slide 10.
The charts on slide 10, and quantify the significant drivers of the year over year changes and our sales and adjusted EBITDA for the fourth quarter.
For sales the impact of divestitures was a negative $52 million.
And the positive side, net volume and mix and including typical customer price adjustments boosted sales by $7 million.
Foreign exchange, mainly from the Euro and RMB contributed a positive $16 million.
For adjusted EBITDA, our ongoing efforts and lean manufacturing and operational efficiency drove $18 million and cost savings for the quarter.
Lower S T E N E added $12 million.
And savings from restructuring and supply chain initiatives added $10 million and $7 million respectively.
These improvements were partially offset by $7 million of unfavorable volume mix and price adjustments.
As well as a net $9 million from wage increases economics and incentive compensation accruals.
Moving to slide 11.
For the full year COVID-19 related shutdowns reduced our sales by $496 million.
Divestitures further reduced sales by $180 million and unfavorable volume mix and customer price accounted for $55 million of the year over year change.
For full year adjusted EBITDA.
Improved operating efficiency lower S. T a any expense and savings from our supply chain initiatives contributed $65 million $43 million and $33 million respectively to our results.
And savings from earlier restructuring initiatives added $18 million.
But these improvements were more than offset by the $166 million negative impact of Covid related shutdowns.
$80 million of unfavorable volume and mix.
And $79 million of increased costs related to general economics compensation related expenses and other items.
Moving to slide 12.
Free cash flow and the fourth quarter was an outflow of $8 million, which was essentially in line with our expectations.
Cash generated from operations was a positive $11 million, despite large outflows of nearly $14 million for the payout of deferred salaries to our employees and the incremental $16 million for the semiannual coupons on our new secured notes.
While the fourth quarter is typically among our strongest for free cash flow.
This year it didn't follow typical seasonal patterns.
Changes in working capital were moderated as we worked with our customers to bring payments and on time and we built a minor amount of inventory heading into year end to be conservative with respect to anticipated customer production schedules.
We are continuing to manage working capital and spending aggressively and invest in our business prudently.
And the second half of 2020, we generated positive free cash flow of $81 million and ended the year with a cash balance of $438 million.
With this cash on hand, and $151 million of availability on our revolver, which remains undrawn and we ended the year with total liquidity of $589 million.
While we believe this provides adequate capital for the foreseeable future.
And view of the considerable uncertainty and is in the industry and the broader economy, we continue to monitor our liquidity carefully.
Before turning the call back to Jeff, Let me provide a little color that will help you with our 2021 modeling and provide context to our full year guidance.
As we look to 2021, we anticipate that the discontinuation of governmental COVID-19 related assistance programs.
Wage and incentive compensation increases and.
And unfavorable volume and mix created by the current micro chip shortages could pressure, our Q1 margins by 200 to 250 basis points versus this most recent quarter.
Inflation and gradual increases and discretionary spend and are also expected to be headwinds as the year goes on.
Planned cost savings actions to offset these headwinds are expected to fully ramp up as the year progresses and.
And margins should improve throughout the year as a result.
Despite the conservative start to the year, we expect to exit Q4 of this year at over a 10% margin.
Now, let me turn the call back to Jeff.
Thanks, John before concluding our discussion this morning, I want to share a few thoughts regarding our near term and longer term outlook for the global light vehicle market.
And for Cooper standard specifically.
Moving to slide 14.
Our strong cadence for new program launches continues in 2021.
The vehicle programs you see on the slide represent some of the most important launches of the year.
But are still a small portion of the total 157 launches planned for the year.
We're very pleased to have more of our innovations and move into production.
In 2021 30 of our planned launches include our recent innovations.
And importantly, 25 of the planned launches are on electric vehicles.
Turning to slide 15.
On slide 15, we provide a list of our planned top 10 vehicle programs for 'twenty 'twenty one.
The vehicle images and names reflect the lead vehicle on each key platform.
We're proud of the continued strong mix.
Of our top programs, which maintains a heavy weighting on trucks and Suvs.
This strong mix provides us with maximum opportunity to increase product content per vehicle.
And sales over time.
Combined these top platforms represent approximately 45% to 50% of our planned 2021 revenue.
Our top platform is once again, the Ford F series pickup truck.
And its strong planned production volume as well as our high average content per vehicle.
On an unweighted basis.
Our CPD across these top 10 platforms is expected to be approximately $150. This year.
Turning to slide 16.
Our strategic.
<unk> focus on light trucks, and Suvs puts us and a great position to benefit from the current light vehicle market trends.
As shown in the chart on the left.
The light vehicle market is poised for significant growth over the next three years.
With passenger car growth estimated at nearly 5% annually.
And trucks and Suvs growing at over 9%.
And for Cooper standard over 70% of our 2021 global revenue is expected to come from trucks and Suvs.
And North America.
Proportion is approaching 90%.
And importantly, our average content per vehicle on trucks, and Suvs is 2.4 times our content on cars.
And 2.7 times, the average car content and North America.
As a result of our strategic focus on the trucks and SUV segment, we expect our revenue to grow and an average of nearly 10% each year for the next three years.
Significantly outpacing the broader light vehicle market.
Turning to slide 17.
We're focused on continued business growth and the electric vehicle segment.
Again, we see tremendous opportunity to leverage our technology and innovation.
We've already introduced a number of technical solutions, specifically targeted for the electric vehicle market and.
Our innovation team has more and the pipeline.
In 'twenty and 'twenty, we were a supplier on 16 of the top 25 EV platforms globally.
We expect to continue to grow our business and market share in this segment over the next several years.
In 'twenty and 'twenty, we were awarded $100 million and new business on future electric vehicle platforms.
As a result over half of our net new business awards for the year were for electric vehicles.
Our current outlook is for the revenue growth and the EV sector of approximately 50% annually over the next five years.
And as EV technology continues to evolve we believe complexity within EV thermal management systems will create significant upside content per vehicle opportunity for Cooper standard.
Turning to slide 18.
The execution of our innovation and diversification strategy remains a top priority.
We continue to make progress within our advanced technology group to leverage our material science and manufacturing expertise and diverse industrial markets and complement our automotive business.
Customer demand for our industrial and specialty group remained steady with the lone exception being our aviation business.
The COVID-19 pandemic has created some temporary staffing and production challenges in certain ISG plants.
And we are managing through them by strategically allocating production capacity to key customers.
We are also investing in additional capital equipment to modernize and expand our production capabilities and increase overall capacity.
We remain very optimistic about the growth potential of this business over the longer term.
And our applied material science business. We've concluded several of our technology development agreements and we are entering the commercial phase on wire and cable and building material products.
As with any new technology introduction, we expect.
Any new sales contracts to start small and grow over time as the technology is proven and gains acceptance in the market.
Technology development work on applications for the footwear industry is ongoing.
This work is still being impeded somewhat due to the pandemic related travel restrictions.
Currently working with three customers in this space and we anticipate moving into the commercial phase within the next 12 to 18 months.
While our material science based on four trucks chemistry platform could be applied over a wide range of industries and applications. We are intentionally maintaining a concentrated focus on just a few select markets initially.
We believe this will be the fastest route to commercialization and eventually to the diverse revenue growth we aim to achieve.
To wrap up our discussion this morning.
I want to highlight again, our return on invested capital improvement plan and the strategic actions, we're taking to drive improved results and deliver sustained value for our shareholders here on slide 19.
This table outlines.
The key work streams and projects, we've implemented along with the expected benefits of each.
It is mostly the same chart that we showed you last quarter with a few minor tweaks to reflect our progress and in some cases, some refinements to the overall plan.
We are pleased with the progress we made in 2020, which was evident in our second half results but.
But we also acknowledge that this is a multi year program.
We will continue to execute the plan with intense focus and we expect to realize improvements gradually over the two to three year planning period.
Turning to slide 20.
On this slide we provide our initial guidance for 2021.
And line them up with our three year driving value targets.
For this year, we expect sales in the range of two five to $2 7 billion and adjusted EBITDA and the range of $180 million to $200 million.
We believe these estimates are appropriately conservative.
Given the recent supply disruptions some of our customers have experienced ongoing COVID-19 related risks.
And heightened market uncertainties.
Capex will be higher in 2020, but within our targeted range of 5% of sales or less.
Cash restructuring and 'twenty 'twenty, one is estimated at $50 million to $55 million.
It is expected to have a payback period of approximately two years.
The increase and restructuring spend is directly related to our broad and our broader driving value plan.
Over the next three years as we execute on our operating plans and strategic initiatives, we anticipate a cumulative annual revenue growth rate of approximately 10%.
Which is solidly above IHS forecast for the global light vehicle production.
Our driving value targets for return on invested capital and adjusted EBITDA are to achieve double digits and both categories over that same period.
We recognize that forecasting even a year ahead can be challenging given the high levels of disruption and uncertainty, we are seeing and our markets and and the global economy.
But if the market upheavals of 'twenty and 'twenty taught us anything it's that Cooper standard teams agile resilient and committed to achieving our longer term goals.
As we and our presentation. This morning, we want to thank our customers for their continued trust and valued relationship.
I also want to pause and thank our global team for their hard work and dedication during 2020.
From our manufacturing colleagues to our it infrastructure team, our commercial and customer management groups to finance and cash management teams literally.
Literally from the plant floor to the virtual boardroom.
Everyone stepped up and delivered and extraordinary ways to overcome historic challenges and continue to improve our business along the way.
I could not be more proud of the team's performance and unwavering commitment to our cost to our company values working together I am confident we continued to deliver increasing value for all of our stakeholders and 'twenty 'twenty one.
This concludes our prepared comments, so let's move on to Q&A.
Thank you, ladies and gentlemen, and if you'd like to ask a question. Please press star followed by one on your telephone. If your question has been answered or you would like to withdraw your registration you may do so by pressing the pound key and if youre using a speakerphone. Please pick up the handset before entering your question one moment. Please as we assemble the queue for questions.
Our first question comes from Mike Ward with benchmark. Please proceed.
Good morning, everyone.
John I Wonder if you can help me on page 11, and when you do the adjusted EBITDA walk from 2019 to 2020, if we look out to 'twenty one.
And assuming COVID-19 doesn't have a similar impact and the volume and mix at best.
First is neutral I'm coming up with EBITDA off line.
$280 million and.
Wondering if you can provide some of the blocks that are getting you down to that.
For your guidance of $180 million to $200 million as far as the headwind and then maybe we can talk about some of the things that are the offsets that you mentioned and maybe they are back end weighted with the restructuring benefits and some of the other things.
Yeah sure Mike Good morning, and thanks for the question.
Two to do that analysis, you really got to look at the what I'll call. The normalized run rate in Q4 first and then we can we can look ahead to what we think is going to transpire and 21. So in Q4, we continued to benefit from some certain governmental benefits as well as COVID-19.
Reimbursements from from government programs that were tailwind for US we know that.
And a bucket of about $10 million said alright.
That's around five so I'll get to the other pieces here, but obviously those aren't going to continue next year and when you think about the run rate.
And then with the with a normalized bonus level, you would have to to add and some cost into 'twenty, one and therefore bring down the Q4 run rate because we didn't accrue at a full 100% payout for.
For the 2020 year, Okay, so getting back to a normalized level and then we had some some smaller commercial recoveries on bad debts, we had written off and the past and Q4 that also won't we won't expect to it to continue so those three main and main buckets combined Mike or about 200 basis points of nonrecurring good news at that.
Should come out of the normal run rate.
And then when you when you look at it towards 'twenty, one as you well know pricing is always going to be a headwind for us so call that about 100 basis points.
But we were able to offset that and then some by.
Combined the 200 200 basis points of good news from our supply chain optimization efforts continue.
Continued net manufacturing improvements and then another 100 basis points from overall cost savings SGA and restructuring initiatives. So all of that with a with a dose of conservatism based on the current Q1 industry challenges gets back to our implied guidance.
Okay.
Thank you.
Jeff on page 17.
You have.
About the could you talk about some of the things that drive a higher content on the electric vehicles versus internal combustion and where you benefit.
Sure Mike.
Certainly on the.
When you think about cooling and heating.
The battery packs, that's driving significant content.
Up for us and our fluids business. So obviously you delete the fuel line, but the.
The other fluid product along with the.
Connections and raw.
Routing and.
The significant engineering that goes into those products we're seeing.
Probably double the content.
As a result.
We do plan on sorry.
Sorry go ahead.
Go ahead.
So we do plan on.
And continuing to lead in this space our customers have really.
And taken due our approach and our engineering teams are doing a great job, they're really embedded.
And the customer process well upfront.
We're learning a lot we're able to increase we believe increase value for our customers and.
And so we'll be we'll be providing more detail on that as the summer months come upon us, but with the vehicles that we've been booking so far we have a high level of confidence we will continue to significantly increase content per vehicle.
On the fluid business and.
And then and <unk>.
That business or is it the same manufacturing and plants and equipment that you are currently using just a I guess a different line or different equipment as it is materially different.
Well its price.
We have today several different types of oppose a product, but the hose product for the for the EV is significantly different than it is for IC.
The good news is they as they go from IC to hybrid Youre talking about both of those systems being applied so.
So we really see even a higher content per vehicle on hybrid.
You go to electric and compare it to ICD.
It's a significant increase over over Ice's. So we plan on providing you additional detail on those breakdowns as I said as we go through the summer months as it relates to investing in this business it's pretty much.
And there for us I would see engineering talent being something that as we expand across the.
And the World will continue to increase our talent in this space because the demand that our customers have for us to have the knowhow.
He is clearly changing as it relates to manufacturing.
Product as you know, we've gotten out of the extrusion hose business and in Europe, but we maintained the PVC.
Footprint.
Electric vehicles, and we continue to add.
A footprint here in North America, and we will continue to add it in China as we need the good news is the investment is not very significant when you think about capital it's pretty low.
The investment for Us is really and the connectors and that innovation as well as the technology that we and the Knowhow that we have to route.
And the different fluid lines.
Customers view us as value add for them okay.
Okay.
Lastly on page 18.
And do you have a bullet there three current customers and footwear is that and.
And additional customer and I thought you had to do had one or is it did I Miss something along the way.
Yeah. We've added one I think since the last time, you and I talk.
Okay and.
It is still looking at commercialization somewhere 12 months out.
And China as well.
Yeah, we haven't disclosed.
The wear but I guess embedded in my prepared remarks, when you think about the travel restrictions and how that's impeded a little bit.
And assume that we're not just traveling to Tennessee.
Okay wonderful.
Really appreciate it.
Okay.
Our next question comes from Joseph ourselves with Cantor Fitzgerald.
Good morning, Thank you.
Question on your Capex guidance, and if you could give some color on your tooling balance the capex number that that's your capex that doesn't include anything for tooling is that correct.
Yes, Joe This is John that is correct cash.
Capex is just Cooper standard owned equipment that we would capitalize and use over.
Not only special purpose for individual customer programs, but general purpose equipment that we can use for any programs.
Tooling, that's specific to a customer and they owned as categorize separately on our balance sheet. So it's not and that Capex number and you see because we're we're typically getting reimbursed for that.
Either upfront or in some cases and peace price over the life of the program.
Great. Thanks, I know there was some confusion in the past and then.
Im missing and I know last quarter the tooling.
Alan sheet item was about 88 million, where does that stand today.
And and also given the amount of launches.
Where does that go going forward.
And so just give me a minute to look up your question on the tooling receivable.
Right now.
At at yearend.
It is about $82 million still so okay comparable to the Q3 number right right right and and.
What what is that the cadence of receiving those funds what does that look like.
Compared to the launches that you have this year.
And typically the lump sum reimbursements are going to be right around the launch timing we.
Get the tools approved as far as the test parts by the customer and then then we can invoice them through for those tools. So I would say of our 157 planned launches throughout 2021, you're going to see a ratable.
And the collection on that tooling receivable and some of it could be longer term as I mentioned and piece price and therefore, there is a portion that isn't a long term nature that we will get reimbursed over time, but I would just have you keep in mind that we're continuing to execute and launch those programs on her behalf for our customers. So we will invest and more tooling.
As we continue to collect so youll see that that balance fluctuate a bit quarter to quarter.
Okay. Okay. That's good color. Thank you very much.
And welcome thanks.
Our next question comes from Brian <unk> with Baird.
Good morning.
Can we just focus on inflation for a minute.
Can you sort of give me a sense.
How much your cost of goods sold is impacted by some inflation, we're seeing and steel rubber and resins.
And.
And then and how thats going to any compensation you can get from the Oes on that rapid inflation.
Yeah, Brian Let me take the first part of that when I look at Q4, just given the overall economic conditions.
Q4 is actually a tailwind for us and that we saw some commodity deflation and most of our main commodities. When you think about our inputs like carbon black.
<unk> rubber.
Our purchase rubber compound plastic resins and the like across the board those were down and and we're able to.
To recoup about $3 $4 million year over year and commodities.
The second part of your question is we continue to work with our customers on.
And recovering and rapid inflationary times, and and approach them and more of a negotiation basis. We do have some initiatives that we're attempting to get on indexes with a variety of customers too.
Insulate against those kind of fluctuations into the future, but thats, a kind of a work and process that we're currently marching towards as far as some of our other supply chain optimization initiatives.
Understood.
And as we think about working capital this year I guess between the ramp up to a more critical normalized sales and then the inflation I mean should we expect working capital be a use of cash in 'twenty and 'twenty one.
Yes, it's Jon again, I would expect it to be a moderate use of cash and just given like you've mentioned and.
Typical rising sales environment Youll see more of an outflow on the working capital side.
If I look at the cadence of that a lot of that comes in Q1, as we ramp back up and it's a typically a seasonal outflow for free cash flow and then as the year progresses Q twos through through Q4.
We will return to.
Having working capital being and inflow for us.
Great and how.
What are you thinking about those first lien notes that are outstanding currently.
Yeah, and if I look at the two.
Senior notes and the.
On secured notes that are that we've got true.
Currently there.
Both trading very well in terms of price.
And it might be attractive to some if you look at just the unsecured trading and.
89 to 92 range, depending on the day.
But you know that that is a low cost instrument for us at the coupon is only five and five eights. So we're in no hurry to refinance that at this point and time and then as a as I've said in the past.
And calls in terms of the senior secured notes.
And non call two year instrument, which would put that to 2022 next year middle of next year and so our focus is just maintaining liquidity here in the next 12 months to make sure not only and protecting ongoing operations, but we could be in a position should the conditions and the.
Capital markets.
Be amenable to.
And pay those back relief.
And just showed great. Thank you.
Our next question comes from Chris Merwin with Barclays.
Hey, Thanks for taking our call just on the revenue guidance.
And that assumption.
And with IHS, obviously, and the U S side.
And finally per site.
Can I looks like.
At the midpoint.
Less than 10, and I just can you can kind of walk us through the puts and takes there.
Yeah sure. This is John I'll take you through what you know as we as we pulled our plan together and looking at the IHS inputs.
We clearly reacted to those fluctuations and how we saw the global market playing out specific to our platform. So it's always important to look at not just the global market, which is going to be up around 12%.
From 'twenty to 'twenty, one you have to look at the key markets that we operate in as well as the platforms that were in line.
And so when we when we peel that back.
Per standard volume, specifically is going to be up closer to the 20% market. So we anticipate growing in excess of the market Jeff alluded to this and in his prepared remarks and on the call and as far as our overall CAGR. So when you think about 20% compared to the 12 or about one four times and market growth.
Got it but the overall sales, it's only up 10.
And then a little bit less than 10% the rest of that 20% assumption and what is that.
From there.
Yes.
As I mentioned on the call you've got an element of divestitures going away. So if you look at our 2020 sales of 238 billion and if you will.
And consider the Covid impact that should have been and they are and our revenue, but deduct over $100 million of of.
Lost sales either due to COVID-19 or due to the divestitures.
And then youre down to more of a $2 $7 billion Mark and.
And pricing is always a headwind which comes off dollar for dollar and the top line and then certain of our customers have exited various markets that we're in and that also has a decline and overall revenue base. So that's essentially the high level walk to get to revenue for next year.
Got it and instant and then 280 to 200 million net EBITDA range, how much of the cost saves that include on a runway basis and.
And maybe on absolute basis like what are you assuming that number.
Yes, and I mentioned, a few minutes ago the overall.
Strategic actions and restructuring as well as SG&A savings are about 100 basis points within the within that range. So if you look at the midpoint on and revenue and do that math, you can get back into a ballpark dollar amount and whats.
Also considered there is the and the lean initiatives, we have both on the purchasing.
And as well as the manufacturing shop and again, that's around 200 basis points. So doing that same math will get you in the ballpark.
The 100 plus 200.
Just to be clear.
That's correct, yes, but again offset by normalizing our Q4 here and commercial headwinds of another 100 basis points.
Got it and.
And.
In terms of working capital.
Cautionary and national Margaret and impacting US and then that 50 or and I in order of magnitude or and should we think of that.
Okay.
I'm, sorry, I didn't.
Here the magnitude you referenced.
Yes, I was referencing from somewhere around 50 and that the right ballpark, we should be thinking about.
Yeah, I mean, given the given the Q1.
Flow that I mentioned earlier and thus pulling back.
And that's probably in the ballpark, but we continue to work on the various components of that working capital I mentioned, our activities around all commercial payments and collecting those on time. We also have optimization efforts and our global supply base to extend payment terms, where we can and do.
That around the world So theres opportunity there that we're still driving towards so I'll frame that your your $50 million with that that reference.
Fantastic. Thank you and then just last one would you consider issuing equity.
Or how you're thinking about you.
You know using stock and stuff.
And the way to enhance the quality and it just expand and Optionality at this point.
Well, we always look at all capital allocation opportunities, both inflows and outflows.
And at this point and we're not considering issuing and any new shares.
Fantastic. Thank you.
Thanks, Chris.
Our next question comes from Bob momentum with Jpmorgan.
One moment.
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Yeah.
Okay.
And now Bob.
Okay.
Hi, just had a couple of follow ups on cash flow items.
So I understood working capital and Chris was just asking about did you were you talking about 2021, when you mentioned that give or take 50 number.
Yeah that was a 'twenty and 'twenty, one and forward looking number okay. Okay, and then just with regard to.
Cash re org and I'm sure as we get to the end of this year, you're probably going to look at things and maybe something new is out there, but just with 40 last year and 50 or so this year is that elevated or is that something that you would.
Like if we went out to the next year without finding anything else should that come down or are you kind of sort of perpetually spending that kind of amount of money to try to enhance.
The business I guess.
Hey, Bob It's John again, I would expect that number to come down significantly and the out years, we think with the plan. We've got in place here in 2021 and the actions that are that are on the list, we should be and goods. Good state in 'twenty, two 'twenty three and beyond that's in the the assumptions and those.
Driving value commitments that Jeff talked about earlier.
But there is what I'll call minor fine tuning and those out years that we'll continue to look at as far as looking at the footprint or are rationalizing.
Our cost base and other ways at that point, so it's not going to go to zero, but it's not going to be anywhere near the 50 that we expect this year.
Right. Okay, and then just lastly on the kind of that slide with the three year target and if we look at.
2020 from a margin perspective was it was not really relevant and hopefully we won't see that again, but you had if I go back to 19 I know some of the business has changed since then but it was like a six 5% EBITDA margin 21, you're kind of guiding to low seven and saying I guess, if we just look at the guidance, but yet.
Three years, you want to be closer to 10 per.
Zooming three years as 2023, so if we're at low <unk> and 'twenty, one and let's just say, 10% and 23 is there and only leaves one year and between those two I mean is it is it more back end loaded. If you. In fact think you can get there or I mean, because that would put your and the upper <unk>.
And to operate and 22 it is that kind of how we should think about it or should we really be thinking about this as something thats.
And I don't want to say overly optimistic or I assume these are achievable in your mind, but is it back and loaded I guess the ultimate question.
Hi, Bob This is Jeff let me take.
Take that so first of all for this year I think we were pretty clear that that for the first two quarters, given everything thats going on and in the industry.
We are where we are and then we said that we will exit fourth quarter of this year, we believe above 10%.
I said that.
The driving value roadmap items would put us back to double digit ROIC and double digit EBITDA in the next two to three years, we believe that we will exit 'twenty two at those levels. So 22 won't be a run rate there, but we will exit 'twenty two.
Achieving that that status and then <unk>.
<unk> three <unk>.
It's probably the year that we believe that we're at a level of sustainability and that that was reflected in my and my remarks. It may not and it is clear, but hopefully that answer was clear.
No. It is and I'm, sorry, I missed that Q4 exit of 10% I must have missed youre, saying that so that helps so okay. That's all I had thank you.
Alright.
Bob.
Again, ladies and gentlemen, if you have a question or a comment at this time. Please press Star then the one key on your Touchtone telephone.
Our next question comes from Jeremy presented with Asics capitals.
Hey, guys. Thanks for taking my question I just wanted to follow up quickly on the questions about the equity offerings or secured notes and.
My math here you guys wait until the June 'twenty to call on those 13% notes, you'll be paying almost 20% or 20 points and coupon and then you have to call them at 106 and a half.
So 126, all in cost. However, you have utilized your equity call right now you could actually call. It 35 per cent of the bond at 113, not only would you not have to use any cash and you.
Significantly and hence your liquidity by Sadia and interest expense. So I'm curious why that doesn't make sense and that's right now.
Jeremy Good question like I said before we consider all those options and we talked to our banking colleagues to to run the numbers on those those various scenarios and and.
Like I said before at this point, we continue to look ahead and.
And maintain liquidity as best we can.
But at this point to exercise and that equity claw, just isn't and the cards force.
Alright, thank you.
It appears there are no further questions I'd like to turn the call back over to Roger Hendriksen.
Okay. Thanks, everybody for the questions and the engagement on the call and as I said earlier, we appreciate your continuing interest and Cooper standard and should.
Should additional calls come up or additional questions come up please feel free to reach out to me directly.
And we will address those.
And as we can.
And look forward to speaking with you again and again, thank you for joining the call.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.