Q1 2021 Cooper-Standard Holdings Inc Earnings Call
Yes.
Good morning, ladies.
Ladies and gentlemen, and welcome to the Cooper standard first quarter 2021 earnings conference call.
And the presentation, all participants will be in a listen only mode.
Following company prepared comments, we will conduct the question answer session.
At that time, if you have a question you will need the press star followed by the one key and.
As a reminder, this conference is being recorded and a webcast will be available on the Cooper standard website for replay later today.
I would now like to turn the call over to Roger Hendriksen director of Investor Relations.
Thanks, Manny and good morning, everyone. We really appreciate you for taking the time to join our call. This morning.
The 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.
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 statements 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's statements included in 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.
Are included in the appendix to the presentation.
So with those formalities out of the way I'll turn the call over to Jeff Edwards.
Thanks, Roger and good morning, everyone. We appreciate the opportunity to review, our first quarter results and.
And provide an update on our ongoing strategic initiatives and outlook.
To begin on slide five we provide some highlights for key indicators of our operations performed in the quarter.
And the critical areas, providing quality products and services to our customers and keeping our employees safe we.
We continue to perform at World class levels.
At the end of the quarter, 98% of.
Of our customer scorecards for product quality, we're green and 98% for green for launch.
Most importantly, the safety performance of our plants continues to be outstanding.
Through the first three months of the year. Our total safety incident rate was just point for five per 200000 hours worked.
Below the world class rate of 0.57.
Okay.
I would like to specifically recognize and thank our teams at the 40 for Cooper standard plants that had a perfect safety record of zero reported incidents in the first quarter.
We are continually striving for zero safety incidents the all of our plants and facilities and these of 44 of our leading the way and clearly demonstrate that achieving our goal of zero incidents.
As possible.
From a financial perspective, our results were nearly on track with our original operating plan for the quarter. Despite the number of external challenges.
Semiconductor shortages historic winter storms, and power outages and disruption of natural gas and other commodity supply issues resolved and abrupt changes to production schedules that impacted volumes on some of our key platforms.
Through the uncertainty our teams of pulled together to deliver $18 million of manufacturing cost savings in the quarter.
Offsetting the impact of the volume losses.
In addition, our continued aggressive actions to reduce overhead costs and optimize our supply chain resolved and then a 10 million dollar improvement and S. G and a any expense.
And $10 million and purchasing savings versus the first quarter of last year.
Combined these initiatives were of significant factor and achieving a 450 basis point improvement and our first quarter adjusted EBITDA margin.
Moving to slide six.
We are improving the performance of our business and I have and unwavering commitment to doing business the right way.
With integrity transparency and adherence to our corporate values. This commitment is at the core of our company culture, which benefits all of our stakeholder groups.
We continue to receive public recognition for both of who we are and the manner, we conduct business.
As well as the quality of our products and the service we provide our customers.
And the first quarter, we were pleased to once again be recognized by Ethisphere as one of the world's most ethical companies.
This is the second consecutive year.
We have received this prestigious award and we are proud of our entire team for making this recognition possible.
Moving to slide seven.
And the next couple of weeks, we will publish our 2020 corporate responsibility report on our website.
As in the past this report will offer transparent reporting on our material ESG topics.
We're also pleased this year to share an update to the long term ESG priorities and goals, we defined last year.
Along with some additional goals, which we believe further strategically align our ESG initiatives and business priorities.
Within the environmental.
Cooper standard is making strides to further sharpen our sustainability strategy with a focus on climate change.
Low carbon economy.
We have committed to source, 100% of our electricity with renewable energy sources by 2025.
We are also committed to a 100% waste diversion rate globally by 2025.
And to reduce the amount of solid waste our operations generated by 4% each year until 2025.
For social and one of the highlights this report.
This year's report our initiatives around diversity inclusion and belonging.
Diverse talent has been and core value of Cooper standard for many years and one we felt could use increased focus in 2020. The company officially published a global diversity policy.
And assigned a diversity inclusion and belonging action group to help promote a culture that values the perspectives.
And leverages the strength of all employees as we continue building of diverse workforce.
During the first quarter.
The action group began implementing new communication channels investing and focused training.
Enhancing interview techniques and strategies and.
And audit, Inc for exclusionary norms processes policies and and equities.
This is and it's early stages of implementation, but we're making strong progress on this important element of our company culture.
We're proud of the culture that we've established and how it's how it's contributing to the improved performance and results every day.
We hope you will take the time to learn more by reviewing this year's corporate responsibility report when it becomes available.
Now, let me turn the call over to John to discuss the financial details of the quarter.
Thanks, Jeff and good morning, everyone and.
And the next few slides I'll provide some detail on our financial results for the first quarter and comment on our balance sheet cash flow and liquidity and capital allocation priorities.
On slide nine we show a summary of our results for the first quarter with comparisons to the prior year.
First quarter 2021 sales were $669 million up two 1% versus the first quarter of 2020.
Improved volume and mix, including the non recurrence of prior year COVID-19 related shutdowns.
And foreign exchange were positive factors.
These were offset by sales losses, the divestiture of certain unprofitable businesses and Europe, and our legacy India business.
Excluding the impact of the divestitures and foreign exchange organic sales increased by approximately six 3%.
Notably our year over year growth rate in the quarter exceeded market growth and each of our three major regions.
Gross profit for the quarter was $68 $3 million and increase of 58, 3% compared to the same period a year ago.
Gross profit margin increased 360 basis points year over year to 10, 2%.
We see this improvement and profitability is clear indication that our driving value plan is gaining traction.
Adjusted EBITDA and the first quarter was $38 5 million or five 8% of sales.
Compared to $8 $3 million or one three percentage of sales and the first quarter of 2020.
The significant year over year improvement and adjusted EBITA was driven primarily by improved operating efficiency.
Continuing optimization of our supply chain.
S T E N E of expense.
And improved volume and mix net of customer price adjustments.
Typical inflationary pressures on items, such as wages rent and utilities were a negative offset.
On the U S GAAP basis, we incurred a net loss for the quarter of $33 $9 million compared to a net loss of $110 $6 million and the first quarter of 2020.
Excluding restructuring expense and other special items as well as their associated income tax impact.
Adjusted net loss for the first quarter of 2021 was $14 5 million or <unk> 85 per diluted share.
Compared to an adjusted net loss of $36 5 million for $2 16 per diluted share and the first quarter of 2020.
With respect to capital expenditures, our spending and the first quarter was $38 6 million compared to $50 6 million and the same period a year ago.
We are continuing our focus on disciplined capital investment and our business.
And we remain committed to keeping capex below 5% of sales for the full year.
Moving to slide 10.
The charts on slide 10, and quantify the significant drivers of the year over year changes and our first quarter sales and adjusted EBITDA.
For sales favorable volume and mix net of customer price adjustments added $41 million to the top line.
Foreign exchange contributed 20 million, mainly from the Euro and RMB.
These improvements were offset by $47 million and foregone sales related to divestitures.
For adjusted EBITDA, and our ongoing efforts and lean manufacturing and operational efficiency drove $18 million and cost savings for the quarter.
Positive results from our global supply chain optimization efforts contributed $10 million.
And we also benefited from $10 million and lower S. T E and the expense as a result of our ongoing initiatives to reduce overhead and improve efficiencies.
Rounding out the positive factors favorable volume and mix net of customer price adjustments added $6 million to adjusted EBITA and.
And the divestiture of unprofitable operations improved results by $3 million.
Normal inflationary pressures increased accruals for variable compensation and foreign exchange were partial offsets to the improvements and adjusted EBITDA.
Moving to slide 11.
Due largely to typical first quarter seasonal working capital changes cash used in operations. During the three months ended March 31 of 2021, one of the now.
Outflow of $7 million.
Combined with Capex of $39 million, we had a total first quarter cash outflow of $46 million.
Despite the outflow we ended the first quarter with the continuing strong cash balance of $399 million.
In addition availability on our revolving credit facility, which remains Undrawn and was $141 million, resulting in total liquidity of $540 million as of March 31.
We expect our strong cash balance and access to flexible credit facilities will provide ample resources to support our ongoing operations and the execution of the planned strategic initiatives.
With that let me share a few comments on our asset allocation priorities.
Our top priority is to sustain and grow our business profitably.
We will continue to invest and capital equipment and technologies to launch important new product programs for our customers.
Further in this period of continuing volatility and uncertainty and the industry and broader economy. We are more inclined to maintain the cash cushion to provide liquidity should one or more of our regions experienced another wave of production shutdowns.
We remain confident that our driving value plan and related initiatives will result in improved earnings and cash generation as our execution advances over the next two years.
That said, we are continually evaluating our liquidity needs and overall capital structure and relation chip to market opportunities.
Our current intent, which remains subject to future market conditions.
As to preferred preserve our cash balance as much as possible.
Generate additional cash over the next 18 months or so and pay down expensive debt as soon as markets and contract terms alone.
Given current market conditions, and our outlook for increasing earnings and ROIC over the next two to three years, we do not believe issuing equity at this level in order to pay down debt would drive incremental long term value.
With that let me turn the call back over to Jeff.
Thanks, John and the to wrap up our discussion this morning, I'd like to provide an update with some additional detail on our near term strategies the diversify our business.
Average growth and the electric vehicle market and our outlook related to our ROIC improvement goals. So please turn to slide 13.
Our innovation and diversification strategy remains important to us and we continue to make progress to improve and expand our businesses and markets outside of automotive.
That progress has been slower than we planned over the past year, given the need to refocus on our core business during a period of extreme volatility and market uncertainty.
Over the long run however, we believe these types of industry dislocations are precisely why <unk>.
Diversification is an important part of our strategic growth.
We continue to make progress within our advanced technology group to leverage our material science and manufacturing expertise and diverse industrial markets the complement our automotive business.
And our applied material science business. We've successfully can flip concluded the technology development phase with a key footwear customer and we expect to begin commercial discussions soon.
We are in the commercial phase for building material products.
As with many new technology introductions, we expect sales contracts to start small and increase overtime as market acceptance growth.
Further technology development will continue to focus primarily on applications for the footwear industry.
Is where we see the best near term opportunities.
And our industrial and specialty group customer demand for our products overall remains steady.
Although our sales within the aviation industry continues to be soft.
As we move beyond the effects of global pandemic.
And demand for air travel returns, we also expect to see a rebound and demand for our aviation related products.
Staffing levels at our ISG plants are starting to stabilize which is helping improve productivity.
We expect this will help reduce our order backlog over the next few quarters.
We remain optimistic about our opportunities to grow and diverse markets over the longer term.
Turning to slide 14.
We're excited about the opportunities and the electric vehicle market to gain additional content per vehicle.
We believe that upside could be as much as 20% versus internal combustion vehicle platforms.
In addition, our innovation and.
Reputation for World class customer service and engineering expertise as a solutions provider.
Our opening doors with new customers and the EV space.
On this slide you can see our expanding list of customers with whom we have sales.
For contract awards for future sales on the EV platforms.
It's an impressive list Inc.
Including customers in Asia, Europe, and North America.
Covering passenger as well as commercial and industrial markets.
Cooper standard as a supplier for 16 of the top 25 EV platforms sold in 2020.
Working with some of the industry leaders and the EV market.
In addition last year, we were awarded new contracts, representing over $100 million and annualized future sales on EV platforms.
Also in the first quarter of this year, we added another $31 million and new contract awards for battery electric vehicle platforms. So the.
And the momentum is definitely continuing and its certainly exciting.
Slide 15.
The key work stream and priority within our driving value plan is to fix underperforming operations and ensure that they make positive contributions to our overall profitability and value generation.
It's no secret the three of our segments had been a drag on our overall profitability and results for some time now.
This is particularly this was partially due to the unique characteristics of the markets themselves.
But there are still specific areas that we can manage.
And change in order to improve operating performance.
So let me just give you a quick overview on our planned approach and each of these regions.
And Asia Pacific our strategy is based on profitable growth primarily in China.
We've made good progress in recent years to right size, our footprint and organization structure to reduce overall cost.
We still have excess production capacity at today's industry volumes.
But we also have a very strong aggressive strategy in place to grow the business.
We expect to leverage our world class service and technology as well as global presence to expand our sales with top Asia Oems.
Our strategy and the EV space will also play a key role in our China growth.
And Europe, we've made significant strides last year with the divestiture of our rubber hose business.
Importantly, however.
We retained the portion of our Fts business that is focused on plastic tubing technology that is critical for EV applications.
We are already seeing the strategy paying dividends with some of our recent new business Awards.
We have established specific action plans and initiatives to improve the operations and results of the remaining fluid business and our sealing business.
And fluid handling.
We expect to continue to leverage our innovation and technology the gained share in the fast growing EV segment.
We will also pursue additional commercial actions.
To improve profitability.
And our European sealing business, we are already and the process of certain initiatives that will help to right size, our head count and footprint.
We've already talked about our expected restructuring expense for this year and much of that will be focused on European ceiling.
In addition, as with our fluid handling business, we will likely pursue certain commercial actions as necessary.
To achieve acceptable levels of return on this business.
We believe there is of $40 million opportunity to reduce our costs in Europe.
And I can assure you we will aggressively pursue it.
And South America, Fords exit creates both challenges as well as opportunities.
We've taken significant steps to right size, our team and operating footprint and Brazil.
For May also be opportunities for conquest business and consolidation and the country as our competitors consider their options and the region.
We continue to evaluate different potential actions and opportunities for this market and we should know more within the year regarding our status.
As I've said before we're committed to fixing or exiting underperforming businesses.
And this strategy is critical to achieving our driving value goals and objectives.
Turning to slide 16.
In summary, our message today is that our driving value plan with its related initiatives to improve margins and return on invested capital.
<unk> to gain traction.
Each of our defined work streams is on track and our team's focus on achieving the end result.
And is intense.
Internally, we're holding one of another accountable because success and every department and function depends on the other and.
And we know our stakeholders will hold us accountable for delivering on the commitments that we've made.
We're just a little more than one year into this three year plan. We have a lot of work yet ahead of us, but we remain confident that we will deliver on the stated goals achieving and sustaining double digit return on invested capital and EBIT da margins.
And the near term our industry and global economy continued to face significant uncertainty.
And that makes forecasting more difficult than normal.
Our current outlook and expectation is light vehicle production will increase significantly by the fourth quarter.
If this is the case, we believe we would be on track to deliver full year results within the guidance ranges, we provided last quarter.
We will provide a formal update to our annual guidance as we typically do after we get through the second quarter.
I want to thank our global team of employees for their continued hard work and focus on driving strong improvements across our company.
I also want to thank our customers for the continued trust and support.
This concludes our prepared remarks, we would now like to open the call to questions.
Thank you, ladies and gentlemen, if you like to ask a question. Please press star.
The one on the telephone.
And for your question has been answer and.
And would like to withdraw the registration you may do so by pressing the pound key.
And if youre using a speakerphone please pick up the handset before answering your question one moment. Please while we assemble the queue for questions.
Our first question comes from the name from Mike Ward with benchmark. Please go ahead Sir.
Thanks, Good morning, everyone.
Good morning, Mike and Mike.
Jeff usually volatility and production schedules is just so disruptive to supplier earnings and.
And it seems like you guys held up extremely well given what was going on especially at Ford can you talk about some of the things you did maybe to mitigate some of the impact.
Yes. Good morning, Thanks for the question, Mike I think as we as we worked our way through this.
Our operating teams as you saw stayed very focused on taking the costs out that they plan to take out heading into the into the quarter and they executed on that list very well the.
The second approach is always win when you have customers that the shutdown plants, we flex our cost quickly.
And these plans are prepared in advance so that is our.
Volumes go down, whether it's communicated or whether it isn't.
Our teams react accordingly, and so as a result of of managing it.
I think both in the long term attacking the cost reductions that we had planned they executed extremely well and then they didn't allow the distractions to the slowest down as it relates to flexing the operating costs of the business. So those were the two reasons that I would give you and.
On occasions, as well have to been phenomenal going back and forth.
And I give the customers a lot of a lot of credit to Mike I mean, there and constant communication with our because our plants and with our operating team and and while we have some extra inventory as many of you probably noticed in the quarter of lot of that is due to the.
Of these these volumes that we had on the release and then phone calls would come in and and <unk>.
Suggest that day, they werent going to build those those vehicles, so little bit of inventory up in the quarter, but.
Obviously, the second half.
You've heard from our customers like we have we expect it to be much better entrepreneur on page 13, you talk about successfully completed the technology development phase for the key footwear customer.
How long was that phase and what does that mean exactly.
Yes, so as we've discussed before the technical phase and our language means that our engineers working with their engineers.
And to develop formulations that pass as many tests as they need us to pass.
And so those typically take over a year and this one so different.
And now we have achieved.
The greenlight related to passing the tests and so then you get into the.
The commercial negotiations in terms of how much we're going to get paid so now there are three footwear companies out of past us.
Second of all the development phase.
Now we're just we're the ones that I've mentioned here on slide 13 that you talked about that that's for one particular footwear company.
And the other footwear companies we continue to.
To make progress as well, but the one on page 13 was just referencing a specific milestone that we achieved with with one was that one okay.
On page 14.
You talked about the EV business on a $100 million of.
Of new business and 20.
<unk> thousand 20, what is what was the revenue base and 2020 I think you said you had 16 of the top 25, selling evs and what type of revenue base are we talking about from 2020 is the 100 million of revenue as of doubling over the next couple of years of what Youre looking at.
Yeah, we haven't given that detail, Mike, but as I've said in the past the best way to think about this with Cooper standard is that our content per vehicle.
Is is really trending up so and.
The words were selling ceiling like we would on on any of the the drivetrains.
And the fluid.
And components.
Within the EV are driving more content than they were on.
On the internal combustion engine. So that's the message and hybrid is even even better because youre of heating and cooling dual system. So.
And that's about as much information as we can.
A lot of new business.
Alright, so the new business is coming from not necessarily new applications, but increased content on the existing applications.
Our samurai and no.
And many in many cases, you have new models new platforms, so it's going to drive.
The organic increase and our and our business and other cases.
We obviously are still.
Really servicing all three.
The Drivetrains as you as you know but.
We're talking about when we separate EV and we're going to be doing this.
Each each release now we are going to be tracking the EV sales and the content associated with that versus our other core core business and we're doing that internally and we will start sharing more of that externally as weak as we go forward and obviously, we can't tell you the platforms. Because these are future model. So we don't do that.
But we can't talk about at least the customers that we're serving and.
And tell you that many of them on new vehicles for them that we're winning.
Beautiful.
Thank you very much.
Sure.
The next question comes from the line of Joseph for Chile with cancer Cantor Fitzgerald.
Good morning, Thanks for taking the call two questions. One if I look on slide 10.
Some of the cost savings really specifically SG&A that $10 million, how much of the he's going to carry.
Three quarters, how much is maybe related still to COVID-19 savings and then one follow up from there.
What kind of Hey, Joe and John Banas here. Thanks for the question.
The SG&A and E savings that Youre seeing and we believe are sustainable as we we've been continuing to work to align our overall cost structure to the smaller revenue base of the company. These are sustainable and and then what we feel is long term savings and run rate levels for our SGA and <unk> expense.
And I think we've mentioned in the past on previous calls our target for SG&A and he over the long term.
The continued to be below 9% of sales.
And.
And you'll see more as we progress throughout the year as some of the actions we've taken and some of the initiatives. We've got in place are going to develop savings opportunities and ramp up throughout the rest of this year.
Okay, great. Thanks, Great color and then the next question is trying to get also of peek into what the Oes are doing with this chip shortage, you see different product lines, our model lines, rather being shut down and.
My assumption.
Looking for that confirmation that the oes are focusing on their more profitable lines and indeed.
Didn't know if that follows through for you as well of that the idled production may be lower margin business anyways.
So the idling may actually be or could be and good day.
Yes. This is Jeff it's a good question. What we are hearing is that obviously trucks and Suvs and I'm talking right now about the North American market of course true.
<unk> and Suvs and some of the more popular crossovers are going to get priority as we go go forward obviously, the the Cooper standard revenue is dramatically in for.
Fluids by trucks, and Suvs, and crossovers and the North American market over 80% of our revenue is.
As in that segment. So we do believe that that's what will happen because we've heard our customers talk about that just like you have and and we're hopeful that.
That if theyre shutting down certain.
Certain segments that it's.
Passenger cars, if youre and Cooper standard boat for the trucks and the Suvs every day.
Okay. That's great. Thank you for that color.
Sure.
The next question comes from the line of Brian <unk> with Baird.
Good morning.
The questions for you, maybe first starting with raw materials.
And John are you on LIFO or FIFO inventory accounting.
We were on a FIFO.
Okay. So we're going to start seeing that impact I guess, you already indicate though really and the second quarter.
Well, what we've talked about Brian is we are going to start to see commodity inflation ramp up in the and the next couple of quarters as we as we look towards the.
Not only what our suppliers are telling us, but what the the IHS kind of forecast is for for certain commodities that we're exposed to so the.
Good news here in Q1 that was the was moderate it was only about $2 million of headwind that we faced but.
As you look back to what we thought the whole year would look like.
We were facing about $15 million, when we entered the year of commodity headwinds and.
And that is the almost doubled now and we think it's going to be closer to $25 million to $30 million of headwinds. So we're working to offset as much of those as we can through supply chain initiatives and other negotiated recoveries.
But we're going to start the facing the pressure here Q2 forward.
And just remind me how often can you go back to the manufacturers.
Reset some of the pricing.
Certain of our customers, we have index contracts with various <unk>.
Components and or raw materials.
Others, we do negotiations.
On a regular basis.
But typically.
And that those indices, it's not a significant portion.
Of our raw material buy and.
And those reset it once a quarter, but you know and in times of extreme volatility will be more apt to approach the customer for for our remuneration on.
The rising prices as we're seeing here today.
Okay, and then switching gears, you talked about potentially pulling up $40 million.
$40 million excuse me of.
Cost out of Europe.
Europe.
And he knows it's very difficult to pull cost out what would be the upfront costs.
To achieve that 40 million of savings.
Okay.
What we're looking at right now Brian is already included in our restructuring forecast for the year. So we came in the year thinking we would spend cash of about $50 to $55 million and a good portion of that was related to Europe and that estimate is fortunately has come down a bit to closer to $40 million to $45 million and.
And you can think about in terms of that being over half related to the European footprint.
And will we see any spillover day next year on the cash cost.
Yeah, but nothing as significant as we are seeing here some of the the the.
Restructuring costs for payments that we're gonna make we've negotiated the spread out over a series of of.
Of years, but you won't see of significant outflow like the 40 to 45 that we're talking about this year.
Perfect. Thanks for the time.
Thanks Brent.
The next question comes from the line of John <unk> with 11 capital.
Yep.
And I'd like to clarify for you a follow up from Mike <unk> question, you originally announced.
And in a relationship of the Chinese shoe manufacturer was the commercial progress with that manufacturer or with some of the possible manufacturer and the world.
Hi, John This is Jeff Good morning, we did and Jeff Congratulations on how you doing Jeff and truly.
Thank you I appreciate it.
Thank you we didn't disclose.
John which which continent and for obvious reasons because we.
We have.
And non disclosure with with each of the the manufacturers that.
The we're working with so the at least at this point and time.
We're not able to talk about him.
Yes, I agree but the.
Maybe.
And just push on that subject and I. Appreciate you, calling on me and I'm glad to withdraw the question but.
There is a huge and.
Investment and fringe if it is some place outside of the one company that you originally announced the contract with.
So that would be just and inference you don't have to mention of the name, but if were different customer it would validate what's going on and Thats. The drift of the question.
Which is really the same question, Mike Ward was asking and I believe.
Second I understand the question.
Yes, I understand the question, John but we're not able to.
Suggest ankle or any other word.
Who it may be so we will have to.
Save that for another day, we are certainly hopeful that and the future here, we are able to provide more details around that I am hopeful that we'll be able to do that we're asking to be able to do that.
And when we get that permission, we would be happy to disclose it.
Great and need the Donald Trump, the Woodrow button, but I and for the since you mentioned and the first Chinese company, that's something else working out here that we should be hopeful about it. Thank you.
You bet and have a great day.
Your next question comes from the line of Josh Takasaki with Credit Suisse.
Hey, good morning, Thanks for taking the questions just a few from my side.
I guess, starting on the margin side, it looks like profitability certainly better year over year.
And some of the regions that have historically had issues in Europe and Asia, but.
And just look to be whips on a bit on a sequential basis from <unk>. So just trying to understand that a bit better and so I guess would it be possible to to maybe get into some more specific puts and takes I guess, maybe starting in Europe first and then Asia on what happened.
From a margin perspective, and <unk> versus <unk> <unk> last year.
Yes, Josh let me, let me start and and take it the thinking around the world you.
Europe was actually a situation where performed more favorably than we thought coming into the year.
<unk> has held up very well in the industry. Despite the global chip shortage, and and certainly COVID-19 pandemic environment.
And the related to the overall production and the region it was down about 9%.
But for our mix of vehicle platforms and customer base, we were actually positive territory and so.
And we outpaced the market.
And we were just a hair shy of 5% positive of production year over year. So that was good news and we'd been ongoing monitoring whether that is a sustainable and the overall industry there and so far things do look to be to be more consistent and stabilize and they certainly are here and the.
North America region.
In Asia, the the overall market and was up about 46%. If you include the the whole region and specifically China was up about 77%.
But in both cases, we also outperformed the region and we were up about 55% for the overall Asia Pacific locale and in China. In particular were up 85, 5%. So about one one times the market there so clearly a good year over.
Year comp you know Asia was hit harder in the first quarter.
And certainly China was with the pandemic last year and so we're outpacing that market and we can see that.
The the global customer base that we're we're more.
Our weighted towards and that region that were performing well overall.
North America I think you appreciate the story, there and markets down about four 5%. However, our production levels and volumes were up about 1%, so again favorable to the market.
Overall running about six 3% globally.
And in terms of organic growth rate when you when you carve out the FX.
From a from that so.
Clearly the volatility here in Q2 is of a concern globally.
We're obviously monitoring daily and as far as what our customers are telling us around the world and those shutdowns. So youre seeing the same news, we are and as Jeff said earlier, our customer has been very very good about communicating those production schedule changes to us. So we can we can react and plan accordingly.
Got it and I guess I was asking more so completely understand the volume story kind of regionally I was asking more on a sequential basis just looking at the.
The the supplemental info that you put out which is much appreciated.
By region, the EBITDA margins I guess taken taking any of your for example for Q was dramatically better than what we've seen in previous quarters 12, 8% margin.
Versus once you this year coming in right around 3% margin. So just trying to understand a bit better what.
What's kind of driving that kind of.
Pretty pretty gigantic swing.
And so on a sequential basis.
Yes, what we talked about and Q4 related to the Asia in particular, China. There was still on some some government incentives and.
In Q4, and that's really helped overall production levels and.
And the also related to our profitability is finalization of negotiations on.
Pricing matters as we close out each particular year. So in Q4, you saw and elevated level of production and.
For.
Running of our plant productions, which drives the.
The cost absorption for us to drive margins up as well as negotiated savings is on pricing matters for the year. So that the kind of explains the delta and year end as of Q4 is typically the the <unk>.
Quarter, where those negotiations finalized and you'll see always some some impact there and and also on.
On the purchasing side for our supplies.
No.
We are.
We have contracts that allow for rebates of one certain production levels are met and that typically also occurs in Q4 so between for.
Favorable pricing activities.
Rebates on the supply side and just the overall production levels. There was driving some good performance there when you look at the.
The ramp back up here in Q1 and for Asia in particular.
And clearly some of those things are more and more sustained and are spread out throughout the rest of the year and as.
As we've talked from the past, we see that are throwing out the Q2 of deterioration that we're going to see because of the the overall production environment, we'll see sequential growth and EBITDA margins throughout the rest of this year.
Your next question comes from the line of Mike How's the with KDB investment.
Hi, Thanks for taking my question.
Hey, Jason.
The same as the previous analyst I was just looking at the sequential.
Europe also had a decent.
EBIT decent contribution and in the fourth quarter, and then turned negative this quarter. So maybe if you could address that as well. Thank you.
Yeah sure Mark similar similar story, there within within Europe environment I don't have the of the work in front of me on sequential.
To be Frank, but it's similar story as far as overall negotiation levels.
Purchasing rebates and and the.
The ramp up of production in Q4 that the.
The European market I said, we're we're seeing positive news here and even in Q1, so that that effect kind of a.
Starting to build and Q4 of last year and so the the market performance overall.
Returning to a level of of normalcy, if you will for Europe.
<unk> was the good news story for Us and Q4 of last year.
Thank you.
Your next question comes from the line of of Bob and mentor with J P. Morgan.
Yeah, Hi, Thanks, just a couple of quick follow ups, one one of the earlier analyst asked about the concept of the.
The forward for the world focusing on the higher value vehicles, along those line.
I would imagine your products don't involve much and the way of sensors and they may tie into the sensors.
And you're seeing or hearing anything where.
There are vehicles being built with your products on them, yet theyre not being complete vehicles or just kind of setting them. Aside I mean, such that even of Ford's production or some of the stuff is down for and vehicles and 50% maybe theres, partially built vehicles that your products will have far as youre concerned.
Vehicle that's been built if you know what I'm getting at.
Yes. This is Jeff.
That's true of Theres, a theres quite a bit of data out there that that shows how many vehicles.
And our part and some sense of.
Waiting for for sensors, so that the build can be completed.
However, when you have assembly plants that are completely shut down like we've experienced as well.
And we expect to continue to experience here over the coming weeks based on what we've been told obviously those aren't aren't being built so.
While we while we don't have.
And exact figure because we don't have access to it there has been quite a bit.
And about it recently and.
So those those products would for those vehicles that are partially built would have our products on it and the <unk>.
Other answer to your question is yes, we don't we don't.
We rely on the <unk>.
The microchips.
And our and our products.
Okay.
And then just lastly on.
You guys bank.
Comment on basically at this point here kind of affirming if you will for now anyway guidance for the year when you say within the previous to now.
<unk> or whatever.
Assuming you are talking revenues and EBITDA are you more focused on EBIT da or is there any or is that just the generic statement him and he'll be something focused on EBITDA and the the we're on.
And coming out of yes.
Yes, Jeff just to be clear it's both.
Okay.
<unk> guided both.
It's pretty impressive.
Well look for the update next quarter. Thanks.
Okay.
If you'd like to ask the question. Please press star followed by the one on the telephone keypad.
Your next question last question.
Next question comes from the line of Takeout Kawasaki of credit Suisse.
Hey, guys, sorry, I got cut off on the <unk>.
Last one but I just wanted to follow up.
And on there Josh.
[laughter] I guess, just the continued the similar line of questioning.
It was before.
I was just wondering how come you don't see.
And as it relates to the commercial settlements et cetera coming on at the end of the year why don't you see that same kind of.
The Lumpiness I guess, you should say you could call it in North America.
It's always been pretty stable at kind of and that low teen type margin profile.
And you've been on a sequential betas and so I think North America was a lot of nine in <unk> versus actually up 30 bps in the first quarter of this year. So just wanted to parse that out of a little bit more.
Yes, Josh and welcome back.
And the North America story is is.
And it all depends on the customer negotiations and overall business plan if you will.
For and it's a it took actually of global comment so it all depends on.
And how the previous year wind and the performance and relative.
Scorecard, you have with that particular customer and that point in time, so it could just be that the.
And North American based customers.
And we were green on the scorecard, so there wasn't a significant level of.
The variability or Lumpiness as you as you called it and Q4 versus Q1 of this year.
And so it really all depends on also on the the timing of New business Awards, and whether we are looking to.
And to look more favorable on an overall score cards to the win that new business. So.
It's.
The the proverbial it depends on timing of negotiations, but and then also of new business Awards that will drive when we agreed to and then ultimately record pricing accruals line.
Got it fair enough and then and then the last one for me.
And just I know in the past, we've talked about the strategy of potentially going back and renegotiating with customers and potentially getting more.
Contractual indexing and your contracts I guess it was wondering if theres any updates to share there any progress being made.
And I guess lastly, just a reminder of what percent.
Of your business is index today.
And this kind of rising price environment that we find ourselves on.
Hi, Josh This is Jeff and I would tell you that we are making progress with both customer and suppliers.
In terms of of.
Of indexing and.
And we basically had told you before that we were trying to double the.
The amount.
And that we have index with our supply base.
Which we feel confident that we're going to achieve that over the course of.
These negotiations and we will probably give you more specifics around that.
During the the next quarter call I would say, but we are making progress towards towards that original goal and then with the with the customers. It's obviously more complicated.
We are making progress there and we feel very good, especially with our larger customers, where we where we sit and.
And those negotiations continue to happen as well and.
And factor, helping us quite.
And quite a bit here as John mentioned before with the with the inflation that we're experiencing particularly with some of our opex.
Petroleum based products.
We find ourselves and in a good position with some of our larger customers as we work our way through the year.
And so we'll come back and in both cases and give you of some updates in terms of how we've moved the needle on what percentage of our business with the with the customer base and what percentage of with our supplier base. Once we finalize those negotiations hopefully here in the next couple of months.
Yes.
Okay Fair enough I will look forward to the update that's it for me. Thanks.
Thanks, Josh.
And it appears that there are no more questions I would now like to turn the call back over to Roger Hendriksen.
And.
Okay. Thanks, everybody for your participation and the call. This morning, great questions and if there are other open items that you'd like to address on certainly the available. This afternoon and all of next week feel free to reach out at any time. Thanks again for participating this will conclude our call of a good weekend.
This concludes today's conference call you may now disconnect.
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