Q2 2021 Cooper-Standard Holdings Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the Cooper Standard second quarter 2021 earnings Conference call.
During the presentation, all participants will be in a listen only mode. Following the company's prepared comments, we will conduct a question and answer session at that time. If you have a question you will need to press the star followed by the 1 key as a reminder, this conference call is being recorded.
The 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.
Thank you Stacey and good morning, everyone. We appreciate you spending some time with us 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 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 they are made of 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 3 of this presentation.
And also 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 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 the opportunity to review our second quarter results and provide an update on our ongoing strategic initiatives and outlook.
To begin on slide 5 we provide some highlights were key indicators of how our operations performed in the quarter.
We continue to perform at world class levels, and delivering quality products and service to our customers.
And keeping our employees safe.
At the end of the quarter, 98% of our customer scorecards.
The continued throughout the quarter.
Unfortunately.
All factors largely outside of our control.
In the areas, we can control our teams continued to drive success.
Despite lower than expected production volumes are manufacturing operations were able to deliver $12 million in savings through lean initiatives and improving efficiency in the quarter.
R. S. G. A N E expense was down $6 million year over year.
And the combination of past restructuring actions and strategic divestitures delivered $9 million in benefits in the quarter.
While we are continuing to execute well on our operating plans, we face significant ongoing challenges from customer schedules reduced production volumes and inflation.
We're taking aggressive actions to mitigate will recover the incremental costs imposed on our business.
With all due respect we do not intend to use our balance sheet to finance the supply chain issues or the inflation of raw materials at these new levels.
Our world class quality service and innovative technology.
Continue to garner recognition of awards from our customers.
During the second quarter, we were again recognized by general Motors as a supplier of the year in 2 product categories.
This marks the fourth consecutive year that we have received these honors. In addition, 20 of our manufacturing facilities, we're recognized with General Motors quality Excellence Award.
We're very proud of our global team for their professionalism and consistency in delivering value to our customers year after year.
Our customer relationships simply have never been better.
Moving to slide 7.
In conjunction with the supplier of the year Award. We we're also pleased to receive general Motors coveted Overdrive Award.
The Overdrive of award is the distinction reserved for suppliers, who display outstanding achievement within high priority areas, including sustainable value streams total enterprise costs and profitability.
Safety.
Launch excellence.
Accelerating innovation and nurturing relationships.
In our case, we received the award for our 4 tracks chemistry platform and it's significant contribution to sustainability.
While 4 tracks offers superior product performance in the areas of compression set resilience, whether ability and resistance to degradation from exposure to ultraviolet rays.
And overall durability, it's sustainability impact that is even more powerful.
4 tracks offers dramatic reduction in greenhouse gas emissions through an estimated 4 pound system weight savings improve manufacturing efficiencies <unk>.
And the elimination of high use energy process capital equipment.
In total 4 tracks offers up to 53% reduction in total lifecycle of carbon footprint vs traditional materials.
We continue to believe that our 4 tracks chemistry platform with all of its inherent benefits will become an increasing competitive advantage and growth driver for us as current and new customers become familiar with the significant advantages it provides.
Especially given its carbon footprint and sustainability impact.
Moving to slide 8.
We continue to build a corporate culture that places a high value on long term ESG performance and sustainability.
To assure our continued progress our global sustainability Council will provide executive level of oversight for the company's sustainability strategy and ensure alignment.
And integration with business goals and stakeholder priorities.
In addition, the council will track the rapidly evolving standard measures.
And global best practices to help drive Cooper standard toward World class performance and sustainability.
We're proud of our culture, we've established within the company. We believe it will be a key factor in our long term growth and success as we further align our priorities with those of our stakeholders.
Now, let me turn the call over to John to discuss the financial details of the quarter.
Thanks, Jeff and good morning, everyone.
In the next few slides I'll provide some detail on our financial results for the quarter and comment on our balance sheet liquidity and capital allocation priorities.
And then provide an update on our outlook for the remainder of 2021.
On Slide 10, we show of summary of our results for the second quarter with comparisons to the prior year.
Second quarter of 2021 sales were $533.2 million.
$56, 6% vs. The second quarter of 2020.
Despite the year over year growth our sales came in significantly below our plans, primarily due to continuing semiconductor shortages and the impact on our customer production schedules.
The sporadic shutdowns often announced on extremely short notice.
Impacted our sales by approximately $200 million in the quarter.
Other factors impacting sales, where the divestiture of certain unprofitable businesses in Europe, and our legacy India of business last July.
Partially offset positive foreign exchange.
Excluding the impact of divestitures and exchange organic sales increased by approximately 55%.
Outpacing total light vehicle growth by 650 basis points.
Gross profit slash loss for the second quarter was essentially breakeven.
And adjusted EBITDA in the quarter was minus $14.7 million compared to minus $93.8 million in the second quarter of 2020.
As with sales profitability improved year over year, but fell well short of our plans due largely to unanticipated customer shutdowns volatile production schedules and commodity headwinds.
On the us GAAP basis, we incurred of net loss for the quarter of $63.6 million compared to of net loss of of $134.2 million in the second quarter of 2020.
Excluding restructuring expense and other special items as well as their associated income tax impact.
Adjusted net loss for the second quarter of 2021 was $51.1 million or $3 per diluted share.
Compared to adjusted net loss of of 111.8 million or $6.61 per diluted share in the second quarter of 2020.
Regarding capital expenditures are spending in the second quarter was $17 million compared to $12.3 million in the same period of year ago.
We are continuing our focus on disciplined capital investment in our business.
And we remain committed to keeping capex below 5% of sales for the full year.
Moving to slide 11.
Unfortunately, the unusual market dynamics created by the virus related shutdowns the last year and the semiconductor related shutdowns of this year make year over year variances difficult to define.
And those dynamics really obscure the very real improvements, we are making in our business.
The charts here on slide 11 provide some clarity.
4 sales favorable volume and mix net of customer price adjustments added of $187 million to the top line.
The non-recurring of the industry wide Covid shutdowns was the biggest positive driver, but was partially offset by the reduced production volumes related to the semiconductor shortages.
Foreign exchange, mainly related to the Euro Chinese RMB and Canadian dollar.
Contributed $24 million to sales in the quarter.
While divestitures reduced sales by 18 million.
4 adjusted EBITDA improved volume and mix net of price contributed $65 million year over year, driven by the non-recurring of the Covid shutdowns.
Offset by reduced production volumes related of semiconductor supply of disruption as well as customer price reductions.
Improvements in operating efficiency and lean in this <unk> in both manufacturing and purchasing drove a combined $21 million in cost savings for the quarter.
We also benefited from $6 million in lower SGA any expense and $6 million from the divestiture of unprofitable businesses.
On the negative side, increasing commodity and material costs were of negative $12 million impact in the quarter while.
While wage increases general inflation and other items were of further $7 million of impact.
Commodity inflation has ramped up much faster than we had anticipated in our operating plans for the year.
We now expect a full year increase of approximately $40 million compared to our initial expectations of $15 million increase when the year began.
While we are working to offset the increases through our supply chain initiatives and.
This inflation will be of continuing impact on our results in the second half of the year.
As Jeff mentioned earlier, we are taken aggressive actions with customers and suppliers to mitigate or recover the is incremental costs.
Moving to slide 12.
Cash used in operations during the 3 months ended June 30th 2021 was an outflow of 54 million driven.
Driven by the net loss incurred and temporary changes in working capital.
Combined with Capex of $17 million, we had a total of second quarter cash outflow of 71 million.
Despite the outflow we ended the second quarter with of continuing strong cash balance of $335 million.
In addition availability on a revolving credit facility, which remains undrawn was $117 million, resulting in total liquidity of 453 million as of June 30th 2021.
We expect our strong cash balance anticipated positive cash generation in the second half of the year.
And access to flexible credit facilities will provide ample resources to support our ongoing operations and the execution of plans strategic initiatives.
So we are comfortable with our current liquidity position and outlook.
Regarding capital allocation going forward, our top priority continues to be to sustain and grow our business profitably.
We will continue to make modest investments in capital equipment and technologies to launch important new programs for our customers.
We anticipate capex in the range of of $100 million to $115 million for the full year of 2021.
And within the range of 4% to 5% of sales on average over time.
As we look out the next year of priority will be to pay down the senior secured notes that we issued in 2020 during the initial height of the pandemic.
With less than a year now before the no call provision expires.
We remain confident in our plans to pay down the debt and reduce the interest burden on our business.
That said, we are continually evaluating our liquidity needs, an overall capital structure in relation to market conditions and opportunities.
We may adjust our priorities from time to time in light of market conditions and fluctuations.
Turning to slide 13.
As you saw in our press release, we have updated our full year guidance.
Much of the change in guidance is already reflected in our first half results, which fell short of our original plan by nearly $80 million an adjusted EBITDA.
The revision to guidance also reflects significant incremental cost pressure related to commodities and materials way.
Wage increases in general inflation carrying forward through the remainder of the year.
The biggest driver of course is the reduction and expected full year light vehicle production volume in North America, which is down more than 10% from our original guidance with.
With much of the decline coming on some of our most important platforms.
Strengthening FX rates are partially masking the production revenue decline overall.
Based on current customer schedules and industry forecasts, we do expect production volumes will begin to improve in the latter part of Q3 and continue to increase through Q4.
We left the adjusted EBITDA range fairly broad as customer schedules continue to change significantly on almost a daily basis.
In fact, our sales outlook for Q3 has declined nearly $50 million over the past 3 weeks alone.
So we are still facing a high degree of uncertainty in the current quarter.
If current production forecast of realized and we continue the successful execution of our driving value of initiatives as plan.
We still anticipate that adjusted EBITDA margins can reach the high single digits in Q4 of this year.
That concludes my prepared comments, so let me turn it back to Jeff.
Thanks, John to wrap up our discussion this morning like to provide an update and some additional detail on our near term strategies to diversify our business leverage growth and the electric vehicle market and our outlook related to our longer term return on invested capital.
Prudent goals.
Please turn to slide 15.
Innovation and diversification remain key parts of our long term strategy.
We continue to make progress with our advanced technology group to leverage our material science and manufacturing expertise in.
In diverse industrial markets, the compliment our automotive business.
And are applied materials science business, we have successfully concluded the technology development phase with 2 foot where customers and we are working on commercial negotiations with both.
We're also continuing in the commercial phase for our products and technology and the building materials space.
While it is too soon to tell when we might conclude these commercial discussions, but the work and focus on our end certainly continues.
We're continuing our technology development work with other customers in the footwear space and we have received the initial inquiries regarding opportunities in some new industries, which we believe have some merit.
As I mentioned earlier desire for alternative materials with lower carbon footprint is driving interest in 4 tracks.
Almost as much as it's superior physical performance characteristics.
We believe the lower carbon footprint represents a clear competitive advantage for us and our automotive business.
Our materials science business and in our industrial and specialty products business as well.
Within our industrial and specialty group customer demand for our products overall remained steady.
However, like many segments of our industry, we're facing challenges related to the labour availability supply chain and other market disruptions, which are limiting near term growth.
Our investment an additional production capacity within the ISG group in Europe is expected to enable a return to growth over the longer term as our markets begin to rebound from the impacts of Covid and other market disruptions.
We will remain optimistic about the opportunities to grow and diverse markets over the longer term, we expect to have more definitive news to share in the near term.
Turning to slide 16.
The momentum of electric vehicle market is continuing.
It is creating growth opportunities for us with our traditional customers and opening doors for us with many new customers.
We continue to leverage our innovation reputation for World class customer service and the engineering expertise to win significant new business in this hyper growth segment.
And the first half of the year, we were rewarded $59 million, an annualized net new business an electric vehicle platforms.
This is 41% higher than in the same period last year.
The awards are with 25 different customers and include awards in all of our product groups.
The transition to electric vehicles represents significant upside opportunity for us in terms of content per vehicle.
As much as 20% upside for a battery electric vs comparable internal combustion vehicle platform.
And the content per vehicle advantage is even higher for hybrid vehicles.
Turning to slide 17.
To conclude our presentation of this morning.
Want to provide a brief update on our driving value initiatives and our progress towards achieving sustainable double digit return on invested capital.
Given all of the noise between last year's Covid shutdowns and this year's semi conductor related issues.
It's difficult to really see the significant progress we've made by just looking at the comparative financial statements John.
John talked about the continued improvements and manufacturing efficiency and the lower SGA any costs.
I think when you do the math to add back the impacts of the semiconductor issues.
You will understand how far we have come by streamlining our overhead costs and continuing to focus on manufacturing excellence.
These combined initiatives of restored the long term viability and outlook of our company.
And we certainly don't intend to give it back through the price concessions or by absorbing the impacts of the schedules and material cost increases.
More engaging and commercial negotiations to recover incurred.
To recover costs incurred from late schedule changes and rapidly rising commodity prices.
We are also working aggressively to expand commodity indexing programs with our customers and suppliers.
Of course, these activities don't get any easier with the current market volatility and uncertainty.
However, as we continue to deliver outstanding value to our customers in terms of product quality overall serve of sand innovation.
We believe we are well positioned to have these conversations.
We continue to win new business on quality platforms that will help us fill capacity in Asia and enhanced content per vehicle and contribution margins globally.
Central to this or the new programs and electric vehicles that I just spoke about.
Finally.
We have made good progress in our evaluation of the South American market.
I think we'll be ready to make a final decision on our future in that region.
By year end.
In summary, we're continuing the successful execution of our driving value plan with it's related work streams and we believe we are on track to reach our stated goals of achieving and sustaining double digit the EBIT da margins and Roissy within the next couple of years.
I want to thank our employees for the continued hard work and focus on driving strong improvements across our company.
Also want to thank our customers for the continued trust and support as we work through these turbulent times together.
This concludes our prepared comments.
We would now like to open the call to questions.
Thank you, ladies and gentlemen, if you would like to ask the question. Please press star followed by 1 on your telephone.
If your question has been answered and you would like to withdraw your registration he may day, so by pressing the pound key if.
If you are using a speaker phone please pick up the handset before entering your of request 1 moment. Please as we assemble the key for questions.
Our first question comes from Mike Ward of benchmark.
Thanks, Good morning, everyone.
Maybe maybe just to focus on a little bit on some of the commodity and return low cost issues.
To try to put some parameters of guessing your commodity material purchase number of somewhere around $1 billion.
Is there a percentage that is not already index and is that where the exposure is and are those things subject of commercial negotiation and so for the $40 million of targeted this year, how much would you expect to recover.
Hey, Mike Good morning, the John Thanks for the question, Let me, let me take both sides of it of the equation both the supplier indexing side and then the customer side after that.
Last call, we talked about our evolution on the on the index thing with our supplier side and we're making the very good progress. We ended last year with only 15% of our spend index.
And the.
The the call last time, we're up to about 25% were now approaching about 30% and on track too.
The finished the year, we had about 45% of our.
Overall materials spend index and that's that's on 1211 to 1 of $2 billion of direct materials that were that were purchasing.
And most of that of 45% projection is on what we're referring to his growth suppliers, which you're going to be of strategic to us and and provide inputs for for products that are significantly impacted by those raw material markets. So thank terms of the strategic supplier base that we're we're working to continue to build through our overall initiatives.
The.
On the customer side.
We're making progress there as well to to get an index contracts with those customers and for right now.
We're approaching about 20% to 25% of the commodity inflation that we've incurred is is going to be addressed by index contracts now typically those are in the lag. So you get the the recovery effect a quarter or 2 later down the road and the rate of recovery is going to vary by commodity of course depending of of.
The those indices fluctuate that that you are of me on.
And recovery rates are also going to be different across the types of commodities because.
<unk> industries and entry points, when we get out of those arrangements are going to dictate how much we can recover so getting those mechanisms in place is going to be key going forward. The rest of the the inflation will be more of of direct negotiation with our customers to yield further recovery on the on those items. Okay. So.
Hopefully that frame of the situations, where you like procreating and so on the customer side, how high can you get with the index.
I mean, no 1 is fully covered.
Can you get up to.
North of 50 per cent, 75%.
Yeah, I don't I don't know if we'll get the that high just because of a lot of our bill of materials aren't heavily waiting on those.
Purchased commodities, Mike So think about the the additional value add another components that aren't index of running right doesn't allow us to get up to that that high of a percentage of <unk>.
Nonetheless, we are working to move the needle upwards.
And.
Any reason why you wouldn't be able to recover normalized some from the manufacturers.
Hey, Mike This is Jeff I think that's certainly our objective we've said historically, 40% to 60%.
Is what we expect to recover I guess, it's like anything else when it's 40% to 60% of of small number of your kind of deal with it when I was $40 to 60 per cent of a much higher number then that's something that's kind of require extensive discussion and that's really where we're at as I said in our in our remarks.
This is unprecedented dunning clearly.
I think the good news is our customers of raising prices. So.
The expected the supply base will will also beyond the receiving end of of some help us.
What we expect and I am sure of the the lobbies will be full.
And you'll be taken of number, but but certainly we all have similar challenges here and I'm sure we'll work through it together.
The surprised when you mentioned that you might be able to get some recovery.
From the disruption in the unplanned shutdowns.
Well I guess going after it is where it starts so.
That's 1 of the call of negotiation.
No just 1 of the things that can you talk a little bit about the process you heard of used to get your 10% of Roissy.
Yeah, and we've continued to do that Mike.
We certainly have been working on this now for for the last year and a half almost 2 years.
It starts certainly with the with the business being more competitive from of fixed cost point of view and and we have been really attacking the footprint issues and all of our major region. So here in North America, we have certainly in Europe, we've announced the number of of closures and then we've right size the age.
Given the.
The significant change in volumes and.
China.
We also dramatically of reduced our SGA any costs across the business to support the company.
We've peeled businesses away that weren't covering their cost of capital of and we sold those and so we're going to a much better position from Ah Leen point of view.
Yet at the same time, we still focused on execution. So we don't have surprises, we don't surprise our customers with the quality issues are bad launches, we don't surprise, our investors with with the performance that from quarter to quarter is in trouble because we haven't invested in the appropriate.
Amount of resources in the company. So we've right size that we haven't we don't have too many of anything and we don't have too few of anything if we've done this right and I think our performance around quality costs safety delivery launch.
The good leading indicator that we have right sized it.
I'm confident that the supply chain issues.
Albeit really challenging this year and I don't see it becoming less challenging than the third and fourth quarter I think it'll just be different.
Next year, we expect the volumes to rebound and the very strong and in fact that lines up very nicely with what we're doing.
From a restructuring and getting our costs in line, we expect 22 and 23 to be.
Really strong years for us and the company is ready.
To execute.
So we believe the double digit return on invested capital.
Sustainable level of return on invested capital will be ours in twenty-three I fully expect twenty-three will be the first full year of us executing that way and you'll see quarters next year I'm sure. We're we're we're showing clear indications that we are reaching that level all based on the the transparency.
We've shown around the driving value plan clearly the raw material inflation is a different wildcard, but we have to go figure it out with our customers and our suppliers how to make that an affordable.
Line item rather than what it's what it's turning into right now and I am committed to doing that.
Perfect.
Just 1 last thing have you seen like in July and going into August.
With your your big customer have some of the program stabilized, particularly some of the more important ones for you.
They were really hard in the second quarter and I know the took its toll on you.
But have you seen some stability they seemed to allude to they had a better handle on the trip supply issue and it sounds like they were doing a better job managing their production have you seen it with your orders from them.
Unfortunately not.
And it's still the it's still volatile.
Right.
Thank you very much.
You bet.
And ladies and gentlemen, as the reminder, if you would like to ask the question. Please price star followed by the 1 on your telephone and if you are using the speaker phone. Please pick up the handset before entering your request.
Our next question comes from Bryant Arabia from there. Please go ahead.
Good morning.
Maybe starting John with you the mid point your EBIT guidance is down by of $100 million at the <unk> side of that war materials are now $40 million worth of expected.
Can you just sort of help us by that $100 million between was production and other labor costs.
Sure, Brian It's really a couple of named buckets right. It's the middle of micro chip.
Impact from from Q2, and that's going to trickle into here in early Q3 that is really impacting the overall years results my reference that in my prepared remarks of about how much we're already down there and how how much revenue was lost on the chip shortage issue overall so when.
Can you take out that.
The the estimated of <unk>.
Rocket pull through on that $200 million, 75% of which was in North America and hear Ya range anywhere from 25 to 35 per cent contribution margin on average you can see it's a pretty big degradation overall in our expectations of the midpoint.
The the next main bucket is what we've been talking a lot about is the commodity side.
As well as inefficiencies caused by the production variability so think about not being able to flex labor fast enough based on the really really tight notices from our customers of.
Frayed economics, labor economics, and quite frankly availability shortages on the labor side, all leading to the higher.
Economics on that side of the shop, so it's not only the $40 million of commodities, but it's the other inflationary effect of throughout the board. So between those 2 main buckets I'll call. It overall general inflation plus commodities and then the microchip impact that gets you most of the way there on the midpoint degradation.
Okay that is helpful on the on the labor side, a number of my companies have been <unk>.
Troubled by just the labor shortages or are you just seeing just people are have no interest or.
Is it a wage issue is it just the.
We're just waiting to the end of September until their extra unemployment benefits expire I'm just trying to get your sense of what the the potential issues are they are on the labor side.
Yeah. This is Jeff I think we are seeing some improvement in certain states. So let me start by saying that.
I think that clearly.
Staying home and making the same money or almost the same money.
Probably was the driver of there and I think as those policies are are.
Changed that I think that the issue.
For US anyway has has shown some improvement and I would expect that that continue we.
We don't have many the locations any more of that we feel we just have a a.
A shortage of workers. If you will I think government policy drove a lot of what you what you have seen.
Understood.
And a lot of that.
What you would like to disclose what's your E. V sales are today I'm, just trying to triangulate some of the growth that you've been talking about it and I'm trying to get a sense of what the basis.
We haven't broken it down that way as we work our way through the year I am sure as we.
Close out this year and start next year, we'll have a lot more detail around how we've done in in 21 and provide you of that.
Okay and.
And then John back to what.
Would you say is the companies minimum cash needs.
Brian of we think long and hard about this obviously and analyzing it with the the new size of the company and the state of the industry. So our current thinking is we can operate anywhere from $150 million to $180 million of minimum cash.
Keep in mind, we do have that access to our undrawn revolver. So that adds a significant amount of of liquidity in the pipeline that we typically aren't tapping in fact, we haven't used it for several years, but it's a nice backstop for us so the.
Think about it in terms of that Brian we do have some.
Obviously, some excess cash if you will on the balance sheet now just because of where we're maintaining it to work through the industry of disruptions fluctuations et cetera, and you think back a year ago, we took out.
The the secured notes senior secured notes just for that reason the back then it was COVID-19 related now it's.
<unk> plus microchip related and so that backstabbers is providing us the additional assurance that.
That are of liquidity situations of good 1 so as we as we work towards the the next 11 months.
Will the right size the the capital structure, and then fine tune it going forward.
Got it and then final word for me.
Nice to hear that you're going to make the decision on South America by year and.
Is just as we think about cash restructuring costs could that potentially be higher or lower than 22 vs 21.
Well, we haven't contemplated the final decision on what the Brazil might mean to that restructuring cash, but with the programs we have in place now.
We'll be down considerably from the $40 million to $45 million in cash and will spend this year.
Perfect. Thanks for the time.
And thanks, Brian.
Your next question comes from my past the hour from K D. P investment advisors. Please go ahead.
Yeah. Thanks for taking my question.
It is kind of related to an earlier question I asked about the the components of the decrease in EBITDA.
And.
I'm just looking at your your guidance for revenue and it's it's basically unchanged maybe down 3% of the midpoint so that implies.
You think you're going to have some catch up in the third and fourth quarter from what you lost in the second.
So.
I'm trying to understand how the reduced volume is related to the decline in EBITDA.
And my God. This is John.
Thanks for the question I alluded this to this in my prepared remarks, what's masking the overall decline in revenue for us from a production volume standpoint is favorable foreign currencies. So what do you think about the euro appreciation.
The Chinese RMB as well as the Canadian dollar, we're seeing an increase in sales to the tune of $80 million or so from our previous guidance range on sales.
But that's obviously offset by the microchip shortages, the $200 million that I alluded to earlier. So if your net those 2 off that's how we came up with the the new range on revenue. So the production volume associated with our revenue is coming down the road.
Okay. Thank you.
Thanks for your net your.
Of your next question comes from cash pay Caskey from Credit Suisse. Please go ahead.
Hey, guys. Thanks for taking the questions wanted to just.
Dig in a little bit more on the sequential decline for EBITDA.
Obviously, I don't really talk operating environment out there, but is it possible to do.
And the approximate walk on the sequential EBITDA declined from <unk>, just that $53 million a decline bucketed between the unit volume or.
Inflationary impacts or otherwise.
Yeah, Josh I do have a analysis give me a minute to dig it out here and the I can walk you through but when you when you think about.
Q1, the the year started off in a good state overall for for all of the regions.
But then all of them were impacted in 1 way or another by the the.
Microchip shortages overall.
But then.
Think about the the $12 million of commodity inflation that we incurred the an equally spread across the board. So.
The.
The $3 million in North America $3 million in Europe.
And then the rest in China in a bit more in South America.
So when you when you do that walk across most of the microchip impact as I said earlier with 75% of it was in North America. So so the biggest set of declines from Q1 to queue to hit us in the North America region that the.
Would really bring down overall profitability and you can see that in the the segment results in the press release overall.
Equally.
On the positive side equally across the board very favorable developments on the manufacturing efficiencies and Jeff talked about so of North America continues to the.
To take costs out and become more efficient Europe was very very successful and doing the same during the quarter. So is sequentially, you'll see those improvements.
Working in the positive favor to offset those those COVID-19 and microchip shortage of clients.
Got it that's very helpful. Thank you and then just the question on the guide for 21 does the the the new EBITDA range include any.
Any assumption on the recovery of of that 40 million or is that kind of the net of some recovery.
Josh just a minor portion.
Been been discussing.
A lot of this will turn into commercial negotiations and that we can't really predict the timing of windows.
Recoveries will be received of when those negotiations will conclude so at this point of the known amount is the only around that 20% of referred to earlier that is an index contracts and we can expect on a quarterly lag.
Got it okay.
[noise]. It appears there are no more questions I would now like to turn the call back of average share Roger Jackson.
I'm sorry, we have a question from of craft flying from Berkeley.
Hey, how are Ya.
Thank you for taking the call I just want to clarify on on the last question I'll ask the different way so as we are thinking.
The only the covered and acts contract on the commodities if the weight stays high the general inflation stays high.
Is there any downside to the.
The current.
Full year of guidance of 75 to 1 of our.
That is 5 back then.
More of a kitchen of Saint have on on that.
Chris It is all in at this point, so you'll see upside of those negotiations quick and.
We conclude them faster, but as of now everything we know about in terms of inflamed.
Inflationary pressures are in these numbers.
Got it and and then you said you know the things are moving fast hands.
I understand of obviously.
Mark Addington and all of that with her second half <expletive> of all day and I'm just looking at some of the appearance.
There are 2.2 numbers.
Somewhat similar customer of Max there.
Doing all of the better.
It is sort of the.
Rash of between you guys and I was just trying to understand what.
Oh of kind of it really happened.
For you guys, but not in the spelling for some some of the appears.
Hey, Chris I think at the that comes down to the the waiting of that semiconductor microchip shortage impact for us and the customer mix for us overall.
Like I referred to earlier, 75% of that $2 million in the North American D..3 programs, which are.
Typically very very key programs, where it's very profitable programs for us overall, so when you when you lose revenue on those.
It creates an outsized degradation of profitability.
Got it and then the low end of $75 since high end of 1 O..5 is just a matter of of fun.
How severe the sandwich oranges kind of be in the second half.
Correct.
Gotcha alright, thank you very much.
We have on file.
They have a follow up question from my Catholic out of from K D. P investment advisors. Please go ahead.
Hi, Thanks.
For it obviously does your biggest customer quarter to a third of of the business and they were particularly hard hit by the the chip shortage. What do you think your numbers would look like if.
You didn't have 4 does the client.
Yeah, Mike, we typically don't breakout individual customer revenues like that just.
Obviously from commercial sensitivity standpoint, but when you when you break down the overall North America estimate.
Most of the 75% of that 200 was.
Was for the related I'll say in excess of 50 per cent. So I'd like to do your own calculations.
Perfect. Thank you.
Okay.
It appears there Nemo of questions I would now like to turn the call back kind of retro Roger Hendrickson.
Okay. Thanks again, everybody for joining us. This morning show. The end of you have additional questions. Please feel free to reach out to me directly and be happy to do follow ups.
As much as you would like it certainly look forward to continuing that dialogue.
This concludes our call. This morning, so you make of disconnect. Thank you.
This does conclude today's conference call. Thank you for your participation you may now disconnect.
The.
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