Q1 2022 Cooper-Standard Holdings Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Cooper Standard first quarter 2022 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 key followed by the <unk> as a reminder.
This conference call is being recorded and 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.
Thanks, Kevin and good morning, everyone. We appreciate you taking the time to join our call today.
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 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.
Included in the appendix to the presentation.
With those formalities out of the way I will turn the call over to Jeff Edwards.
Thanks, Roger and good morning, everyone.
The opportunity to review our fourth quarter results.
And provide an update on some of the key initiatives that will shape our broader.
This outlook.
To begin on slide five we provide some highlights of our key indicators of how our operations performed in the quarter.
We continued to execute at world class levels, and delivering quality products and services to our customers.
And keeping our employees safe.
At the end of the quarter, 99% of our customer scorecards.
The product quality with green and 96% for Green for launch.
Most importantly, the safety performance of our plants continues to be outstanding in.
In the first quarter. Our total safety incident rate was just point 309 per 200000 hours worked.
Well below what is considered world class and outperforming our target rate of <unk> four zero.
I would like to specifically recognize and thank our teams at the 42 Cooper standard plants that maintained a perfect safety record.
Zero reported incidents for the quarter.
We are continually striving for zero incidents in all of our facilities and the dedicated focused employees. At these 42 locations are leading the way and continue to demonstrate that achieving our ultimate goal of zero incidents is certainly possible.
Despite lower than expected production volumes, our manufacturing operations and purchasing teams were able to deliver $19 million in savings.
Through lean initiatives and improving efficiencies in the quarter.
Our SGA and <unk> expense was down $6 million year over year as we continue to right size our fixed cost.
And past restructuring actions delivered $3 million in benefits in the quarter.
Unfortunately, we continued to face significant ongoing challenges from volatile customer schedules reduced production volumes tight labor availability in certain markets and hyper inflation during the quarter.
In this low production volume environment, the improved operating efficiency only partially offset the widespread inflationary impacts we're seeing in materials energy transportation and labor.
This is why we're continuing to take aggressive actions to mitigate or recover the incremental costs imposed on our business.
I'll provide more color on our progress in a few minutes.
Despite all the headwinds and volume remaining well below our plan.
We saw month to month improvement.
As the quarter progressed.
And we were cash flow positive in.
In the month of March.
Moving to slide six.
As you know we're proud of our culture, we've established within the company and the strong relationships, we've developed with our customers.
We're equally proud of the progress, we're making towards world class status with respect to sustainability.
We continue to garner recognition from our customers and others outside.
Our organization for our quality service and culture.
In the recent quarter, we were pleased to again be named a GM supplier of the year.
This marks the fifth consecutive year.
We have received this prestigious customer award.
Also in the quarter. We were again included in ESSA Spears list of 2022, most ethical companies.
This marks the third straight year, we've received this recognition.
We believe these types of recognition are indicators of how continued commitment.
Through our core values is shaping our relationships with all stakeholders and we believe these relationships are fundamental to our long term growth and success.
You can find more detailed information on our sustainability efforts and our corporate responsibility report, which will be published online later this month.
Turning to slide seven.
Macro conditions in the global economy, and within our industry presented unprecedented challenges to our company and the rest of the automotive supplier community for the past couple of years.
And despite our continued improvements in operating efficiency and record performance in virtually all operating kpis.
We've not been able to offset the impacts of lower production volumes and material cost headwinds.
Beginning in the third quarter of 2021 out of necessity.
We initiated an aggressive commercial program to recover the incremental costs imposed on our business by these headwinds.
Because of the solid relationships, we have built with our customers, we've been able to work with them to revise existing contracts and effectively improve pricing to allow us to offset a significant portion of our incremental costs.
The commercial discussions.
Have resulted in expanded indexed based agreements.
Negotiated price increases one time true ups.
<unk> price concessions.
And reduced quick savings payments.
Importantly, we have significantly expanded our index based agreements to include customers, representing more than 60% of our revenue base.
We now have index based agreements on critical oil based commodities as well as metals.
Previously, we only had index based agreements for <unk>, Robert with a limited number of customers.
This strategic change is already having a positive impact on our results.
And should significantly reduce the magnitude of the impacts commodity price volatility imposes on our business in the future.
Our commercial team has done a great job to achieve these positive results to date and a very tough environment.
And they're continuing to have difficult conversations with customers as inflation persists and costs remain to be fully recovered.
As we continue to work together to get through these difficult times I want to thank our customers for their engagement in this process and for their ongoing commitment to mutually beneficial business relationships.
Now, let me turn the call over to John to discuss the financial details of the quarter.
Okay, Thanks, Jeff and good morning, everyone.
And the next few slides I'll provide some detail on our financial results for the quarter.
And comment on our cash flows liquidity balance sheet and capital allocation priorities.
On slide nine we show a summary of our results for the first quarter of 2022 with comparisons to the same period last year.
First quarter 2022 sales were $613 million.
Down eight 4% versus the first quarter of 2021.
Excluding the impacts of foreign exchange and the deconsolidation of a joint venture in China.
<unk> were down five 6% compared to the same period a year ago.
Gross profit for the first quarter was $21 5 million.
Or three 5% of sales.
This compares to gross profit of $68 million or 10, 2% of sales in the first quarter of 2021.
Adjusted EBITDA in the quarter was essentially breakeven a positive $100000 compared to adjusted EBITDA of $38 5 million in the first quarter of 2021.
Profitability was again impacted by continuing commodity and material headwinds and lower production volumes.
Partially offset by manufacturing and purchasing efficiencies as well as some cost recoveries.
It's worth noting that despite Q1 sales being lower than we expected the.
The adjusted EBITDA result was essentially in line with our original expectations for the quarter.
Credit to our focus on execution and our broader cost optimization efforts.
On a U S GAAP basis net loss for the quarter was $61 million compared to a net loss of $33 9 million in the first quarter of 2021.
Excluding restructuring expense and other special items as well as their associated income tax impact.
Adjusted net loss for the first quarter of 2022 was $51 4 million or $3 per diluted share.
Compared to adjusted net loss of $14 $5 million for 85 per diluted share in the first quarter of 2021.
Capital expenditures in the first quarter totaled $32 million compared to $38 6 million in the same period a year ago.
We continue to have a disciplined focus on capital investments and remain committed to keeping capex below 4% of sales for the full year.
Moving to slide 10.
The charts on slide 10 provides some additional insight and quantification of the key factors impacting our results.
On the topline unfavorable volume and mix net of customer price adjustments reduced sales by $37 million versus the first quarter of 2021.
Customer production schedule reductions related to the ongoing supply chain challenges in the industry, where the major driver.
The deconsolidation of a joint venture in China that we announced last quarter reduced consolidated sales by $9 million for the quarter.
Foreign exchange, mainly the euro reduced sales by $10 million versus the same period last year.
For adjusted EBITDA lean initiatives in manufacturing and purchasing drove a combined $19 million in cost savings for the quarter.
Run rate <unk> expense was also lower by $6 million.
Unfortunately, these positives were more than offset by higher material costs of $43 million.
Unfavorable volume and mix net of price adjustments totaling $4 million.
And inflationary pressures and other items of $17 million.
Commodity inflation continued to ramp up in the first quarter.
And we expect the rate of increase to slow somewhat over the remainder of the year.
In addition, as the recovery agreements that Jeff mentioned are implemented we expect to see increasing offsets to the material inflation headwinds.
Moving to slide 11.
In terms of cash flows cash used in operations. During the three months ended March 31, 2022 was an outflow of approximately $12 million driven primarily by the cash net loss incurred and increases in inventories.
With Capex of approximately $32 million, we had our first quarter free cash outflow of approximately $45 million.
Importantly, the free cash outflow was more than offset by the receipt of approximately $50 million in proceeds from the sale of a noncore facility in Europe .
As a result, our cash balance increased slightly during the period and we ended the first quarter with a still solid cash balance of $253 million.
Availability on our revolving credit facility, which still remains Undrawn was.
It was $143 million, resulting in total liquidity of $396 million as of March 31, 2022.
Subsequent to the end of the first quarter.
In April we received $29 million in refunds from the IRS related to net operating loss carry backs made available by the cares Act.
And we expect an additional $23 million by the end of Q2.
The $29 million in hand has further strengthened our liquidity position from where it was as of March 31.
Let me emphasize that we believe we are in very good shape from a liquidity perspective.
We believe that we have more than sufficient resources to continue our focus on growing our topline.
Expanding margins and working with our customers to ensure that we're being fairly compensated for the cost and value of the products we supply.
In terms of our balance sheet. The company is focused on extending the maturity of some of the debt in our capital structure. This year.
We are monitoring the markets and are considering all refinancing options available to us.
To assist in this process we.
We have ongoing discussions with our long term banking partners to understand market dynamics as well as to help identify the most suitable approach and timing for refinancing.
While the nearest of our debt maturities in November 2023 on our term loan b.
Depending on market conditions. We may also consider a refinancing to include both the term loan as well as our senior secured notes to further extend the average weighted maturity of our debt.
That concludes my prepared comments, so let me hand, it back over to Jeff.
Thanks, John and to wrap up our discussion this morning I'd like to provide you with some additional color on our ongoing efforts to further improve our cost structure and aggressively drive toward our longer term return on invested capital goals.
Let's please turn to slide 13.
We've talked a lot this morning and on previous quarterly calls about the unprecedented disruptions in headwinds.
We and our industry had been facing.
For over two years now.
Again, we're very pleased that our customers are now stepping up to help us offset some of those headwinds that are simply beyond our control.
We also recognize that we can never lose focus on our own efficiencies lean initiatives and operational excellence.
And manage the things that we can control.
So we will continue our efforts this year to further optimize our operating footprint and cost structure as we push to achieve double digit margins and return on invested capital within the next few years.
We still have nearly half of our business not generating profit. This is clearly unsustainable and as we've said many times and recently shown we're committed to either fixing or exiting underperforming businesses.
The initiatives, we are showing on the slide are what we have on tap for this year so far.
Some of these actions will have an upfront cost.
But all will provide short term cash payback with long term benefits.
Ultimately, we are confident that our leaner cost structure and strong relationships with our customers and suppliers will allow us to get back to the level of profitability and returns that our investors expect and certainly deserve.
And if we can't see a path for certain portions of our business to make positive contributions to our profitability, we will take more aggressive action.
While there is still a lot of uncertainty in the global economy and in our industry I am very optimistic about our future and the opportunities that lie ahead.
I expect we will begin to see improving margins in coming quarters as volumes improve in our cost recovery agreements begin to kick in.
We anticipate providing a formal guidance update in conjunction with our second quarter results.
I want to thank the Cooper standard team for their continued commitment and dedication.
During these most challenging times.
As we say often our employees are our most valuable resource and the contributions of each are critical to our success.
In support of our purpose, which is to create sustainable solutions together.
And as always I also want to thank our customers for their continued trust confidence and support.
This concludes our prepared comments, so let's open up the call for Q&A.
Ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your telephone. If your question has been answered or you wish 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 request.
Please as we assemble the queue for questions.
Our first question comes from Steve resonate with Sidoti.
Good morning, Jeff John I appreciate all the detail on the call.
Congratulations on the expansion of those index based agreements I'm sure that was Chad.
Challenging and I know, it's a major step for you.
Is there any way at this point, if you can quantify the timing and impact of those agreements I know we're early in those agreements are fairly recent I'm just trying to think about it from a modeling perspective, and just a lot of moving parts, but how you see that impacting and the timing of it.
Yes, Steve This is Jeff again, as I mentioned and in the last call. What we're going to do is come back to you in July as.
As we do each year and talk about the rest of the year hopefully we'll be in a position to do that as things.
Become less volatile we're hopeful in the second half.
I can tell you that.
As you know we have.
We started this whole process as I mentioned towards the summer end of the summer last year.
So while there was some recovery.
Dating into the fourth quarter of last year and there is some of these agreements that go back that far the majority.
Our effective this year.
And so everything went back to one one of this year in terms of what we.
Are requiring our customers to support us doing the indexing dates when those kick in or different.
For for certain customers. So that's the reason I'm not going to start lifting.
The numerous dates here on this call, but that we do realize that.
That's information that is important and hopefully we will have all the ink dry.
The July call and we're able to provide you.
The answer to the question that you asked me this morning.
Fair enough.
In terms of expectations for production ramp seems to certainly be some cautious optimism out there from some of your major customers now that we're into May are you seeing any of that at this point in terms of the increase in productions any kind of <unk>.
Improvement in terms of the component shortages and how it's affecting your business.
This is Jeff I think that.
Everyone wants what you just said.
Happen.
Unfortunately.
It's still not not as clean as we would all like for for obvious reasons. I mean, we have not only the chip shortages we have.
The war in Europe , we have the <unk>.
Covid shutdowns in China, So there's a lot of.
Supply chain ramifications that.
That are yet to be completely resolved so I think it would be.
I mean I tend to be the optimist in the room, but I think to be fair, we're going to continue to see.
Some of the volatility.
Through this summer.
While I acknowledge that that several of our customers have come out with.
Pretty bullish volume statements for the second half there is always that footnote that says assuming we have chips right. So.
I guess I would use the same the same statement.
<unk>.
And answering your question I know everybody hopes I know everybody wants that I know that the market certainly.
Needs it and are in the end consumer certainly once the vehicles, but.
Until we see a more consistent week by week month by month I think we're in for a for some some turbulence still I can tell you that we're planning from a business point of view.
For that I mean, we're attacking all costs within our control.
And the inflation, we assume is going to be here for.
A long period of time and that's the way we're behaving if it turns out to be better than that then so be it.
Fair enough if I could get one more in Chuck just in your closing comments you did mention.
The potential to exit unprofitable businesses.
When youre thinking about that is that something that's much more likely once the market kind of turns or how are you thinking about those efforts now.
Yes, I think when you reach a point where you have.
Businesses that arent strategic.
To you anymore.
You tend to sell those when you can so I would I would say that.
I'll stick to that rule of thumb.
So while the.
The volatility.
And the clouds hover over the industry.
That we serve.
That doesn't mean that there arent opportunities to.
To do deals it just means that they are probably more difficult to get done now than they will be.
When things smooth out a little bit so.
We'll look at both both ways.
Hopefully we're able to.
Come to agreements with our customers.
And do enough.
With our fixed cost.
To fix all of those businesses and we don't have to follow through and do what you and I were talking about.
But.
All options are on the table as we as we sit here today and we'll keep you updated as we go through the rest of this year.
Fantastic. Thanks, Jeff I appreciate all the responses good luck.
Thank you.
Our next question comes from Michael Ward with benchmark.
Good morning, everyone.
Just going on to the page 10.
Quite honestly, Jeff Thats, one of the more significant developments I have seen in the last couple of years.
It looks like there are two parts to it and so.
Timing of when some of those index based contracts hold in so if we just look at this quarter and you had a $45 $43 million negative hit from material inflation.
I would expect that number to go down all things being equal over the course of this year.
So we look at Q3 and four.
Impact from commodity inflation is that the right way to look at it.
Hey, Mike, It's actually John I'll take the first part of that at.
Any color when we came into 2022 I mentioned on our last call that we expected commodities to run about a $70 million headwind for the full year or so.
That number with that was before.
The current economic situation that was before award broke out as before a lot of things continued to degrade. So you can think about that as material headwinds.
Could be upwards of about $100 million now.
And that's why it's so important that we're continuing the efforts on the recovery side and balancing those efforts there.
Hey, Mike.
This is yes.
Yes. This is Jeff let me just finish finish up the answer to that question. So as I mentioned.
And you did within your question the index based agreements certainly will help smooth that that out as we as we go forward and provide say.
Contractual means to recover.
Inflation as we as we go forward so youre correct.
In that that part of your assumption. The other thing that I will we will say and I know that everybody is feeling the same the same pressure I mean, the inflation as John just mentioned continues to go up I mean, it isn't it isn't going away and so it isn't just the raw material side.
Syed.
What we're what we're dealing with which certainly the index.
Based agreements help help that.
A great deal.
It's all the other costs and as I mentioned in my prepared remarks, those are becoming extremely significant and we are in conversations with our customers and negotiations with our customers on recovering our fair share of all of that so that's why I mentioned that that come July I think when we typically do.
Our review of the first half of the year than we we update guidance or talk about what we see the second half. We're hopeful that we're able to give you guys more more color around those agreements and also.
We hope that we'll have.
The negotiations on the non raw material inflation.
Okay fine so that we can have great consideration.
Because there are two parts to it right. So you've got the new agreements, which is a big plus and then you have recovery and so if I look at just the last six months between material and then the other components, it's over $100 million. So at some point you would expect to the recovery part of that to also short term and whether it's in pes price or whether you're on future kind of whatever however, it comes through that's what we're looking at.
Right now and so you have two components you have the new contracts then you have the recovery correct.
Youre correct.
Okay.
Second thing I think it looks like your top customer in North America is finally, getting it together and getting more efficient with key programs. If I look at the March and April production data.
Is that sometimes the data we get doesn't match up to what your experiences does the data match up with your experience in North America with your key customer.
Two answers to that.
The volatility has improved.
The volume volume per release is still short.
It's still short, but not as bad as it was.
That's correct.
Okay.
And then.
Any update on the commercialization of the shoes with four trucks.
Yes, we mentioned in the last call.
Fortunately they have been able to maintain the.
Schedule for the first quarter of 2003, so we expect the launch.
To occur and we will have.
You'll be able to talk more and more in detail about what that is in and who was with.
So that's a positive in terms of expanding it beyond that particular.
Order.
There are a lot of conversations going on right now to take the <unk> product beyond.
That particular product line. So I would say, it's extremely positive and they've been able to make up time that was lost during.
The middle of the pandemic when when everybody was on lockdown.
I think last quarter, you mentioned something that you develop something and the manufacturing process with four tracks a process that was a meaningful improvement is there any update on that.
Is that is it is it holding are you able to pass that along too.
Pes price how is that affecting the business.
Okay, it'll it'll certainly.
Make the four tracks product, we think more affordable and and we believe that that will have a positive impact, especially with the.
With the <unk>.
<unk> manufacturers.
The product will be more competitive and it will still have all of the properties that.
That we had so to answer your question we continue to.
Make terrific progress, we expect that by the end of June .
We will have cleared our manufacturing try out hurdles.
It will be for sale later this summer that's that's what we expect.
Okay, and just if I can sneak in one more John you talked about the tax refunds in April and it looks like more comment on the second quarter.
In addition, I think second quarter is seasonally a better quarter from a working capital standpoint can we can we assume a normal seasonal pattern. I mean, you mentioned the inventory build in Q1.
Can we look forward to a more seasonal type pattern with working capital as well. So you can have a pretty significant improvement in liquidity again in the third quarter second quarter is that right.
Well, Mike I wouldn't call anything seasonal in this day and age just given.
Yes.
China.
Yeah, the China Lockdown.
Industry is dealing with and the continued.
Chip shortage and issues that are centered around Europe . So I don't want to give you one direction or another we're just managing through and trying to control what we can.
Thanks, Tom and to that point. This is this is Jeff I think that we should say I mean, the China Lockdown.
The entire month of.
April from a production point of view basically is is gone.
And so so it will have it will have an impact as they ramp back up and the good news is as we enter may.
The facilities are starting to.
To come back online certainly not anywhere close to.
To full production that we expect as the month of May goes on we'll be closer.
When we hit June to things getting back to normal there hopefully it stays back to normal I mean, the risk going forward.
Of additional Lockdowns I suppose for China's is here to stay so we'll just have to keep you updated as we as we find out.
It is still far from.
Over in terms of getting back up to production levels in China that are normal.
They had a great first quarter, but with everything that's happened now that's all out the window.
Thank you guys. Thanks very much.
Our next question comes from Kirk Ludtke with Imperial capital.
Hello, guys.
Okay.
Hey, Kurt.
Yeah.
<unk>.
Thank you for taking the question.
Presentation.
A follow up on slide 10.
The.
The $43 million is that net of recoveries.
No correct thats, the gross commodity or material inflation that we that we faced.
The recoveries are essentially price adjustments, we would include those in the.
And the sales work for one dollar for dollar recovery.
And the volume and mix just for convenience, we put it there because it's commercially.
Commercially sensitive number one but.
We included there just because it is piece price related for the most part.
Got it that's helpful and the $43 million.
The $70 million that you originally forecast is now 100.
It could be as high as 100 is what we're facing right now yes, okay got it.
The customer negotiations.
Curious are there other other types of customer support that youre pursuing.
Other than pastures.
Yes, Curt this is Jeff has already mentioned.
Yes, as I mentioned in the.
Prepared remarks, I mean, not only the raw material recovery.
But the non raw material inflation via transportation energy labor.
Stop starts all those things that are non.
Raw materials part of whats on the what's on the table. We clearly have continued to talk about tooling as well here.
Historically.
Most suppliers act as our customers bank in terms of tooling for new programs and so there has been conversation there and good progress there.
About them paying paying for that sooner than they would have historically and that's also helped our our liquidity. So you are correct in stating that it's more than just <unk>.
Our raw material.
Great. Thank you.
And then.
With respect to the production schedules.
I know, it's a fluid situation, but could you.
Maybe just talk about just directionally at least.
How you see production.
Rolling out.
First quarter to second quarter by region.
Down.
Yes. This is Jeff so as we we've just presented the first quarter. So you got that.
As we just discussed a minute ago.
China.
For Covid lockdown purposes in Shanghai.
Specifically.
Has been.
An obvious change between first and second quarter. So.
There was virtually no production in April .
Those.
Shanghai factories for US, which is the majority of our of our business and certainly our customers plants, where we're down as well.
So that's that's different I would say that when we look at Europe , we're probably at 85%.
What we thought we would be and so and we attribute that.
So.
The war in.
Ukraine.
And then with with North America.
It's well documented the chip shortages and other supply chain shortages.
I don't see that being a whole lot different.
Here in the second quarter than it was in the first quarter as I mentioned, there is less volatility that doesn't mean there isn't any.
And the the releases that that we get on a monthly basis.
They arent quite achieving.
Those like they would have historically, so that's again supply chain or labor related four for them.
So I don't see that much different than in the second quarter in North America than it was in the first I think the encouraging news is that.
Our largest customers here in North America.
It has been pretty clear about the third and the fourth quarter being.
Better from a volume point of view and it has been so I'm hopeful that that's the case, but like I said, there seems to be a footnote related to chip.
Availability with each of those.
Statements and so we have to recognize that those are those are the facts.
As I mentioned is as we head into may starting to come back in.
In Shanghai plants are starting to get approval to open back up at a lower percentage.
Much less than 50% of volume we expect that.
To improve as we go through the month of May hopefully by June they are back to a normal.
<unk> state of operation again, Thats, all Covid lockdown.
Weighted than they had.
First quarter that was on our our business plan actually from a volume point of view I think they were a little bit ahead of what we said. So you would expect second quarter is going to be tough and Asia, but assuming that that.
The Lockdowns worked third and fourth quarter I would expect to look more like first quarter did.
So hopefully that's some color and some the answer to your to.
To your question and everything I, just said is really public information out there being.
I handed out by our by our customers.
I'm trying to summarize it that way for you.
Yes.
That's helpful.
And in Europe , and China your.
Your product mix is consistent with the overall market you would say.
Our business in China is primarily <unk>.
Sealing business.
Our volumes are directly related to the two largest.
Automakers in China.
Who happen to have a large manufacturing presence in Shanghai. So that's what was impacted.
Last six weeks here.
Great I appreciate it thank you.
Our next question comes from.
Kevin Mcveigh with credit Suisse.
Hey, guys How's it going thanks for thanks for taking the question just a real quick one for me.
Clarifying.
Couple of points you made that will I think combined some of the color around both the indexing and the inflationary headwinds. So if I go back to the fourth quarter presentation.
I think it's slide yes, slide 13, the guidance bridge on EBITDA.
$70 million materials econ headwind it sounds like you think thats going somewhere close to $100 million, but on the flip side sounds like because of the great progress on indexing.
The ball mixed price column, which was positive 130 in this guidance bridge could be going higher so is it right to think about the push and pull to profitability.
In that sense and and.
And then secondly.
Just back to Steve's question around the timing of the indexing impact just to clarify it sounds like what you said was.
That indexing that you pushed through last year is already potentially benefiting the business does that mean that indexing that you'd pass their sort of incrementally over the last couple of months it will take longer to start to positively impact profitability.
So those two those two are curious on.
Any color you can provide on that Brian .
Sure Kevin It's John here.
Youre right on the.
Full year guidance bridge about how the.
The effect of any recoveries would take hold but keep in mind, both the 100 million new estimate of commodity inflation as well as any recovery or volume dependent so anything thats flowing through that volume mix number.
Is all subject to the volumes that are actually produced because.
Because thats, how we link those those.
Index based agreements right.
You also have to keep in mind that there is a lag effect. So what we're seeing come through.
Far as recoveries here in Q1, or we saw in Q4 wasn't tied to that particular quarters. It was tied to previous quarters. So there is a gradual catch up effect.
But some of it may be retro active to earlier periods. If we can negotiate those kind of lump sum recoveries, but from an indexing standpoint, there is that lag effect that youre going to see going forward. So hopefully that helps kind of frame the.
I'll just add a little color to it as well this is Jeff.
We also have set and we're continuing to the.
The point you towards that high end of the of the range that we've traditionally recovered right. So we've said, it's 40% to 60% historically.
And we said in the last call and were saying again today that we expect the recovery to be to the high end of that.
So that's the direction that we can give you today the timing that John talked about the volume that John talked about impact when it hits.
And so I would say, we're we're more confident because of the indexing that we've negotiated that we're able to sustain.
The level of recovery going forward is this volatility continues so that's that's the real positive here that that once we're able to.
Clearly show you what those agreements are and when they kick in.
I think it will help you all model that the future better than we've been able to do and well ever.
Yeah, Thanks, Jeffrey John totally appreciate that and thanks for the candor there.
Last one for me, if I'm sort of reading the tea leaves around your comments regarding the capital structure in particular first lien loans and bonds. It sounded like your commentary was slightly different than last quarter in that last quarter.
I believe you were more focused on the term loans specifically in August quarter, making a comment about potentially trying to include the <unk> solution. There as well. So is my is my read of that change in language accurate and it's.
So what's driving that change.
I think it's accurate this is John Kevin.
I think as we continually evaluate the capital structure and operating opportunities to improve it.
And look at the market conditions overall, we're considering all options and all opportunities for us so.
It wasn't so much that we ruled it out last quarter in my comments so.
So much of it is we're saying we're looking at all opportunities here right now.
Understood. Thanks, so much for the time.
Okay. Thanks, Kevin.
Our next question comes from Brian <unk> with Baird.
Good morning, a couple.
Couple of questions on the housekeeping front, John could you, let us know.
How much cash, but you have today is in the U S versus overseas.
Brian I don't have that handy, but let me just characterize it qualitatively.
As the North America region.
Most profitable.
It plays the role oftentimes as the Cooper standard bank for the rest of the regions.
But we have a very efficient structure, where we can move money wherever we need to buy a intercompany cash pooling arrangements.
For the most part are China, and Asia Pacific operations are self funding.
Through through various mechanisms there.
But clearly when you were talking about certain of these big ticket items, the IRS refunds, clearly theyre going to be U S based.
European sale leaseback clearly European base so.
It's an evolving structure, but for the most part you are looking at U S based cash, but an efficient mechanism to move that around as necessary.
Okay.
Helpful. If you could disclose maybe in the Q.
Get that breakdown also the amount of intercompany notes that I think that would help investors a lot there.
Switching gears as it pertains to the potential refinancing.
Cash is plus right now market is a little bit of a turmoil market rates are obviously much higher than they were just six weeks ago. So how comfortable do you feel possibly usually somebody of the cash you have the balance sheet today to pay down debt potentially.
Ahead of a refinancing.
Given that.
Your interest costs are just going to balloon.
Going forward, so I'd love to get your thoughts there.
Okay.
Yes, Brian sorry, we had a mic issue.
Yes.
I conferred earlier all options are on the table, but as we as we manage through at least here. The very very near term liquidity is key for us as we manage through the disruptions and the shutdowns et cetera, but as we as we look forward look.
<unk>.
It's interesting to look at the unsecured trading below 50.
Or are costs going up so if we can if we can consider using some of the cash.
Two to help optimize the capital structure going forward, we will and if that makes sense at the time. So I'll just leave it at that saying Hey, we're looking at all options.
Okay.
That's fair enough Jeff.
Jeff.
I'll go back to the comments that you made earlier about sort of.
Holistically looking at the business.
Looking at Cooper standard you have a really really good business in the U S outside the U S. Not so much what's.
What's the strategic importance of holding.
Keeping that business outside the U S and.
I mean does it really makes sense for Cooper to be a global company given the returns have been so.
Outside the U S for so long just love your thoughts there.
So that's the conversation, we're having with our customers and so as we sit here today the answer they give US is yes, we want you to.
To be in China, and yes, we want you to be in Europe , and yes, we want you to be in Brazil, and yes, we want you to be in.
North American spot.
Spot.
So I guess, we'll find out.
Well, having them launched you there have been.
For being there obviously two different.
Yes.
Two different factors.
I guess, we will see as that develops.
That's correct.
I appreciate the color. Thank you.
Our next question comes from Josh <unk> Credit Suisse.
Okay.
Hey, guys. Thanks for thanks for taking my questions most of mine had been.
I answered already.
It sounds like some good progress.
Recovery negotiation.
Just one housekeeping can start for me.
Sale that you did in Europe . This quarter I know the release said that the ongoing annual rent.
The piece that you are leasing back is immaterial to the business, but was just wondering if you could provide any any color on what that that annual amount.
Or maybe if you want to give it another way kind of what percentage of the.
The footprint are you kind of leasing back.
I'll just I'll just give you the number it's less than 1 million Bucks a year for the for the three year term that we've signed up for.
So much more of a sale than a sale leaseback.
Correct, yes.
Okay.
And then just to.
Beat a dead horse a bit.
Wanted to ask one question on the.
The conversation about <unk>.
Indexing versus recoveries.
Had one.
In the 8-K yesterday about increasing the percentage of recovery of 21 incurred and 22 expected incremental does this mean the 'twenty one headwinds you faced I think it was $64 million and material economics headwinds for the full year 'twenty one.
Will you expect to get.
The majority of that back.
In the coming quarters, and if so what percentage have you gotten back on that already.
Yes. This is Jeff.
We haven't broken it down for you that way what I, what I'll, just say as the percentage of recovery.
In that 40% to 60% range thats at the far end of that.
Range.
Is what we.
Are saying publicly.
For this conversation.
Is is what we're what we're delivering.
Sure.
It's important to note.
Is that the significant.
<unk> increases.
That John talked about this year.
Is <unk>.
All on the table and being negotiated for recovery this year.
And so as those numbers continue to.
Get higher and higher from an inflation point of view.
We are in a much better position to recover those where our fair share of those in 'twenty two.
Then we have been any year in our history, including 21.
So 'twenty one probably.
Less than ideal if I could say it that way in terms of of what the customers were willing to.
To allow the supply base to recover.
Especially if you didn't have indexing in place.
I think they've taken it much more serious in 'twenty, two and recognize that it's not sustainable and that the supply base.
Would be severely impacted if there wasn't.
That's serious negotiation that resulted in.
A large portion of those costs being recovered so we're no different than anybody else there I think.
In terms of how we feel about 'twenty one right we didn't like 'twenty, one we've said it publicly.
<unk> history.
Two though.
We have no choice you got it you got to pay us and not just for raw materials, but for for all the other non Ross.
As I said I mean, I really appreciate everything our customers have done to engage in this very very important conversation.
They have done to help us.
Bridge, what we're what we're managing our way through and and as I mentioned in the last question every one of our customers. In every region continues to tell us that they want us there and if they are willing to work with us to resolve these issues. So that's what I believe is happening.
We have more clarity around it.
The July call.
And that's we'll just stick with that answer for right now.
Yeah.
Yeah.
Got it appreciate the color thanks, guys.
Our last question comes from <unk> Gupta with.
Goldman Sachs.
Hi, Good morning, I just have one quick question.
So in terms of what you have done.
Group one lumpy can.
Can you talk a little bit about their planning and other assets.
Well done.
With that.
Thank you.
We're having a very difficult time to hear you.
Can you try again, maybe a little closer to the microphone.
[laughter].
I'm sorry can you hear me better now.
Yeah, that's better thank you.
Yes.
This is asking about.
Okay.
So you have competed one atropine and when can we.
I wanted to check if you are.
Planning or considering further asset sales, but the scope of those could be.
Hey, David It's John .
When we entered in that sale leaseback transaction. It was more of a noncore property assessment rather than liquidity play right. So we didn't and we didn't go into it immediate need for <unk>.
Generation proceeds.
So we were simply being opportunistic to capitalize on market conditions, there as far as any possible additional asset sales, we ongoing <unk> review the total footprint in conjunction with our cost optimization initiatives.
And as Jeff said on the call earlier, we are committed to either fixing or exiting unprofitable businesses or operations.
No no current plans that would that would call your attention to.
Future asset sales could play a role in that that fixed strategy. If you will.
Okay. Thank you.
Ladies and gentlemen, this does conclude the Q&A portion of today's conference I'd like to turn the call Roger Hendriksen.
Okay. Thanks, everybody for the questions and for your engagement on the call. Today. If you have other questions that you werent able to ask please.
Please feel free to give me a call and we will arrange to spend some time together.
Thank you for your time today. This concludes our call goodbye.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Goodbye.
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