Q2 2024 Cooper-Standard Holdings Inc Earnings Call

Operator: Welcome to the conference center. May I know which conference you are joining? Unknown Speaker.

Welcome to the Conference Center, you May know, which conference are you joining.

Speaker Change: I am sorry, I can't hear you clearly.

Speaker Change: Can you please hello.

Operator: I am sorry, I can't hear you clearly. Can you please? Hello. Okay, may I know which conference? Hello, I'd like to join Cooper-Standard Holdings. Cooper-Standard Automotive. May I know your first name and your last name? David D-A-V-I-D and Brown D-R-O-W-N. Okay, may I know the spelling of your company name?

Speaker Change: Okay Marinovich Conference Center.

Speaker Change: Okay Goodbye standard automotive may enter the spelling of your first name and your last name.

Speaker Change: Okay May I know the spelling of your company name.

David Brown: Ayera, A-I-E-R-A

Aiere: A I E R E.

Operator: A i e r a Yeah, correct. Okay, I will now send you to the conference center. Thank you.

Aiere: Okay I will now send you to the conference Center Tanking.

Roger Hendriksen: 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 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.

Speaker Change: Before we begin I need to remind you that this presentation contains forward looking statements.

Speaker Change: While they are made based on current factual information and certain assumptions and plans that management currently believes to be reasonable.

Speaker Change: These statements do involve risks and uncertainties.

Speaker Change: 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.

Speaker Change: This presentation also contains non-GAAP financial measures.

Speaker Change: Conciliations of the non-GAAP financial measures to their most directly comparable GAAP measures.

Speaker Change: Included in the appendix to the presentation.

Speaker Change: With those formalities out of the way I'll turn the call over to Jeff Edwards.

Jeffrey Edwards: Okay, thanks Roger, and happy August everyone. We appreciate the opportunity to review our second quarter results and provide an update on our business and outlook going forward. So, to begin on slide five.

Jeff Edwards: Okay. Thanks, Roger and happy August everyone and we appreciate the opportunity to review our second quarter results.

Jeff Edwards: Provide an update on our business and outlook.

Jeff Edwards: Outlook going forward.

Jeff Edwards: So to begin on slide five I'd.

Jeffrey Edwards: I'd like to highlight some key second-quarter data points that we certainly believe are reflective of our continued strong commitment to operational excellence and our company core values. In terms of product quality, 97% of our customer scorecards were green in the quarter. For new program launches, our customer scorecards were 96%.

Speaker Change: I would like to highlight some key second quarter data points that we certainly believe are reflective of our continued strong commitment to operational excellence and our company core values.

Speaker Change: In terms of product quality, 97% of our customer scorecards, where green in the quarter.

Speaker Change: For new program launches are customer scorecards, we're 96%.

Speaker Change: We continue to achieve outstanding operational performance.

Jeffrey Edwards: We continue to achieve outstanding operational performance, allowing us to deliver exceptional value to our customers. In addition, the safety performance of our plants continues to be excellent. During the second quarter, we had a total incident rate of 0.29 reportable incidents per 200,000 hours worked, well below the world-class benchmark of 0.47.

Speaker Change: Allowing us to deliver exceptional value to our customers.

Speaker Change: In addition, the safety performance of our plants continues to be excellent during the second quarter. We had a total incident rate of point to nine reportable incidents per 200000 hours worked well below the world class benchmark of 0.47 lead.

Jeffrey Edwards: Leading this outstanding safety performance were the 31 plants that had a perfect safety record of zero incidents through the first six months of the year. I certainly want to recognize the teams at these plants for their ongoing commitment and leadership as we continue to strive for our ultimate safety goal of zero incidents for the entire company. In terms of cost optimization, we had another solid quarter with our manufacturing and purchasing teams delivering $16 million of savings through lean initiatives and other cost-saving programs.

Speaker Change: This outstanding safety performance for the 31 plants that had a perfect safety record of zero incidents through the first six months of the year.

I certainly want to recognize the teams at these plants for their ongoing commitment and leadership as we continue to strive for our ultimate safety goal of zero incidents for the entire company.

Speaker Change: In terms of cost optimization, we had another solid quarter with our manufacturing and purchasing teams delivering $16 million of savings through lean initiatives and other cost saving programs.

Speaker Change: Okay.

Jeffrey Edwards: This improved efficiency, combined with our enhanced commercial agreements, enabled us to improve our gross profit margin by a solid 100 basis points compared to the second quarter of last year. Well, we certainly have more work to do.

Speaker Change: This improved efficiency combined with our enhanced commercial agreements enabled us to improve our gross profit margin by a solid 100 basis points compared to the second quarter of last year.

Speaker Change: While we certainly have more work to do.

Jeffrey Edwards: We continue to make progress toward our profitability targets. Finally, we're continuing to leverage world-class service, technical capabilities, and our award-winning innovations to win new business. In fact, during the second quarter of 2024, we were awarded $61 million in net new business awards. Importantly, we continue to partner with our customers to design and develop new technologies for some of their most important new vehicle platforms, including ICE, hybrid, and battery electric vehicles. Let's go to slide six.

Speaker Change: We continue to make progress toward our profitability targets.

Speaker Change: Finally, we're continuing to leverage World class service technical capabilities, and our award winning innovations to win new business.

In fact during the second quarter of 2024, we were awarded $61 million and net new business Awards importantly.

Speaker Change: Importantly, we continue to partner with our customers to design and develop new technologies for some of their most important new vehicle platforms, including ice hybrid and battery electric vehicles.

Speaker Change: Let's go to slide six.

While providing our customers with world class products technology and service certainly is and always will be critical to our success.

Jeffrey Edwards: While providing our customers with world-class products, technology, and service certainly is and always will be critical to our success, we also place a high priority on being a good corporate citizen and a steward of the environment. We continue to garner outside recognition for our leadership in sustainability. In the most recent quarter, we are pleased to be included in USA Today's list of America's climate leaders. In recognition of our efforts to reduce energy consumption and develop products that reduce our overall carbon footprint.

Speaker Change: We also place a high priority on being a good corporate citizen and a steward of the environment.

Speaker Change: We continue to garner outside recognition for our leadership in sustainability.

Speaker Change: And the most recent quarter, we were pleased to be included in the USA Today's list of America's climate leaders and.

Speaker Change: In recognition of our efforts to reduce energy consumption and.

Speaker Change: And develop products that reduce overall carbon footprint.

Speaker Change: Consistent with our company values and purpose, we remain committed to creating sustainable products and solutions that will create value for all stakeholders.

Jeffrey Edwards: Consistent with our company values and purpose, we remain committed to creating sustainable products and solutions that will create value for all stakeholders. Now, let me turn the call over to John to review the financial details of the quarter.

Speaker Change: Now, let me turn the call over to John to review the financial details of the quarter.

John: Thanks, Jeff and good morning, everyone.

Jonathan Banas: Thanks, Jeff, and good morning, everyone. In the next few slides, I will provide some details on our financial results for the quarter and discuss our cash flows, liquidity, and aspects of our balance sheet. On slide 8, we show a summary of our results for the second quarter and first six months of 2024 with comparisons to the same periods last year. Second quarter 2024 sales were $708.4 million, a slight decrease of 2.1% compared to the second quarter of 2023.

John: And the next few slides I'll provide some details on our financial results for the quarter and discuss our cash flows liquidity and aspects of our balance sheet.

John: On slide eight we show a summary of our results for the second quarter and first six months of 2024 with comparisons to the same period last year.

John: Second quarter 2024 sales were $708 4 million a slight decrease of two 1% compared to the second quarter of 2023.

The decrease was driven primarily by the divestiture of our technical rubber business in Europe during the third quarter of last year and unfavorable foreign exchange.

Jonathan Banas: The decrease was driven primarily by the divestiture of our technical rubber business in Europe during the third quarter of last year, an unfavorable foreign exchange rate, excluding the impact of the divestitures in effect. Net sales would have been up $7 million, or approximately 1% compared to the second quarter of 2023, outpacing global automotive production, which declined by 0.5%. Gross profit for the second quarter was $82.9 million, or 11.7% of sales. This compares to a gross profit of $77.7 million, or 10.7% of sales, in the second quarter of 2023.

John: Excluding the impact of the divestitures and FX net sales would have been up $7 million or approximately 1% compared to the second quarter of 2023.

John: Outpacing global automotive production, which declined by 0.5%.

John: Gross profit for the second quarter was $82 9 million or 11, 7% of sales.

John: This compares to a gross profit of $77 $7 million.

John: 10, 7% of sales in the second quarter of 2023.

John: Adjusted EBITDA in the quarter was $50 9 million compared to $47 9 million in the second quarter of last year.

Jonathan Banas: Adjusted EBITDA in the quarter was $50.9 million, compared to $47.9 million in the second quarter of last year. The year-over-year improvement was driven primarily by lean savings achieved in manufacturing and supply chain, favorable volume and mix, including sustainable price increases, and Savings Related to Restructuring Action. These positive drivers were partially offset by the impact of unfavorable foreign exchange and ongoing inflation headwinds in areas such as energy and labor costs.

John: The year over year improvement was driven primarily by lean savings achieved in manufacturing and supply chain.

John: Favorable volume and mix, including sustainable price increases.

John: And savings related to restructuring actions.

John: These positive drivers were partially offset by the impact of unfavorable foreign exchange and ongoing inflation headwinds in areas, such as energy and labor costs.

John: On a U S. GAAP basis, we reported a net loss of $76 $2 million in the second quarter compared to a net loss of $27 8 million in the second quarter of 2023.

Jonathan Banas: On a U.S. GAAP basis, we reported a net loss of $76.2 million in the second quarter, compared to a net loss of $27.8 million in the second quarter of 2023. The result in the second quarter of 2024 included a non-cash charge of $46.8 million related to the termination and settlement of our U.S. pension plan, as well as $17.8 million in restructuring charges related to our cost reduction initiative, excluding these and other special items and their related tax impact from both periods, adjusted net loss for the second quarter of 2024 was $11.3 million, or $0.64 per diluted share, compared to adjusted net loss of $20 million, are $1.15 per diluted share in the second quarter of 2023.

John: The result in the second quarter of 2024 included a noncash charge of $46 $8 million related to the termination and settlement of our U S pension plan.

John: As well as $17 8 million in restructuring charges related to our cost reduction initiatives.

John: Excluding these and other special items and their related tax impact from both periods.

John: Adjusted net loss for the second quarter of 2024 was 11 $3 million.

John: Or 64 cents per diluted share.

John: Compared to adjusted net loss of $20 million.

John: Our $1 15 per diluted share in the second quarter of 2023.

John: Our capital expenditures in the second quarter totaled $11 $2 million or one 6% of sales.

Jonathan Banas: Our capital expenditures in the second quarter totaled $11.2 million, or 1.6% of sales, compared to $17.5 million, or 2.4% of sales, in the second quarter of last year. We continue to exercise discipline around capital investments in order to maximize our returns on invested capital. Current capital spending remains focused primarily on customer programs in preparation for successful launch activity.

John: Compared to $17 5 million or two 4% of sales in the second quarter of last year.

John: We continue to exercise discipline around capital investments in order to maximize our returns on invested capital.

John: Current capital spending remains focused primarily on customer programs in preparation for successful launch activity.

John: For the first half of the year sales came in at 138 billion.

Jonathan Banas: For the first half of the year, sales came in at $1.38 billion, having been impacted by divestitures and foreign exchange. Despite the lower sales, our business was actually more efficient as gross profit increased to $144.6 million and gross profit margin improved by 190 basis points versus the first half of 2023. Adjusted EBITDA for the first half was $80.3 million, up nearly 33% versus the prior year's six months.

John: Having been impacted by divestitures and foreign exchange.

John: Despite the lower sales our business was actually more efficient as gross profit increased to $144 6 million.

John: And gross profit margin improved by 190 basis points versus the first half of 2023.

John: Adjusted EBITDA for the first half was $83 million up nearly 33% versus the prior year six months.

John: Net loss improved to $107 9 million in the first half of 2024 compared to net loss of $158 million in the first half of 2023.

Jonathan Banas: Net loss improved to $107.9 million in the first half of 2024 compared to a net loss of $158 million in the first half of 2023. Adjusted net loss of $41.9 million, or $2.39 per diluted share, improved by a solid 36.7% compared to the first six months of 2023. Moving to slide nine.

John: Adjusted net loss of $41 $9 million or $2 39 per diluted share improved by a solid 36, 7% compared to the first six months of 2023.

John: Moving to slide nine.

John: The charts on slide nine provide additional insights and quantification of the key factors impacting our results for the second quarter.

Jonathan Banas: The charts on slide 9 provide additional insights and quantifications of the key factors impacting our results for the second quarter. For revenue, favorable volume and mix, including net customer price adjustments, increased sales by $7 million versus the second quarter of 2023. The impact of the technical rubber divestiture was $15 million in the quarter, and foreign exchange, mainly related to the Chinese RMB, the Euro, and the Brazilian Rei, further reduced sales by a net $8 million versus the same period last year, or Adjusted EBITDA. Lean Initiatives in Purchasing and Manufacturing contributed $16 million year-over-year.

John: For revenue favorable volume and mix, including net customer price adjustments increased sales by $7 million versus the second quarter of 2023.

John: The impact from the technical rubber divestiture was $15 million in the quarter and foreign exchange mainly related to the Chinese RMB, the euro and the Brazilian real <unk> further reduced sales by a net $8 million versus the same period last year.

John: For adjusted EBITDA, lean initiatives, and purchasing and manufacturing contributed $16 million year over year.

John: Favorable volume mix and net price adjustments as well as other cost recoveries drove a combined $9 million of improvement for the quarter.

Jonathan Banas: Favorable volume, mix, and net price adjustments, as well as other cost recoveries, drove a combined $9 million of improvement for the quarter. Savings from implemented restructuring initiatives were $4 million. These positive contributors were partially offset by $15 million of unfavorable foreign exchange and $9 million of ongoing general inflation, including salaries, wages, energy, transportation, and other costs. Moving to slide 10.

John: Savings from implemented restructuring initiatives were $4 million in the quarter.

John: These positive contributors were partially offset by $15 million of unfavorable foreign exchange and $9 million of ongoing general inflation, including salaries wages energy transportation and other costs.

John: Moving to slide 10.

John: For the first six months of the year sales benefited from $15 million and favorable volume mix and net price adjustments.

Jonathan Banas: For the first six months of the year, sales benefited from $15 million in favorable volume, mix, and net price adjustments. These were more than offset, however, by divestitures and unfavorable foreign exchange. Adjusted EBITDA for the first six months benefited from manufacturing efficiencies and purchasing lien initiatives amounting to $35 million, an incremental $24 million in improved volume mix and net price adjustments, and $4 million in restructuring. These positive factors were partially offset by $24 million in unfavorable foreign exchange, and $18 million of continuing general inflationary pressures. Turning to slide 11.

John: These were more than offset however by divestitures and unfavorable foreign exchange.

John: Adjusted EBITDA in the first six months benefited from manufacturing efficiencies and purchasing lean initiatives amounting to $35 million.

John: An incremental $24 million and improved volume mix and net price adjustments.

John: And $4 million and restructuring savings.

John: These positive factors were partially offset by $24 million in unfavorable foreign exchange.

John: And $18 million of continuing general inflationary pressures.

John: Turning to slide 11.

John: Looking at cash flow and liquidity cash used in operating activities was approximately $12 million in the second quarter of 2024.

Jonathan Banas: Looking at cash flow and liquidity, cash used in operating activities was approximately $12 million in the second quarter of 2024, a slight improvement versus the second quarter of 2023, despite our election to pay cash interest payments on our third lien notes in June. As mentioned earlier, CapEx was approximately $11 million in the second quarter of 2024, resulting in a net cash outflow of approximately $23 million, an improvement of approximately $7 million compared to last year.

John: <unk> improvement versus the second quarter of 2023, despite our election to pay cash interest payments on our third lien notes in June.

John: As mentioned earlier Capex was approximately $11 million in the second quarter of 2024, resulting in a net cash outflow of approximately $23 million.

John: An improvement of approximately $7 million compared to last year.

John: Following this cash outflow, we ended the second quarter with a cash balance of approximately $94 million.

Jonathan Banas: Following this cash outflow, we ended the second quarter with a cash balance of approximately $94 million, combined with $173 million of availability on our ABL facility, which resulted in a total solid liquidity of approximately $267 million as of June 30, 2024. We are pleased that our improving profitability and conservative approach to capital investments have bolstered our efforts to sustain cash generation and have enabled us to elect the cash pay option for the upcoming December 2024 interest payments on both our first lien and third lien notes.

John: Combined with $173 million of available availability on our ABL facility.

John: Which resulted in total solid liquidity of approximately $267 million as of June 32024.

John: We are pleased that our improving profitability and conservative approach to capital investments have bolstered our efforts on sustainable cash generation.

Speaker Change: And have enabled us to elect the cash pay option for the upcoming December 2024 interest payments on both our first lien and third lien notes.

Speaker Change: While this election changes our full year outlook for free cash flow for a modestly positive to now breakeven or slightly negative. It avoids further increases in our debt balances and debt service requirements as we look to strategically improve our capital structure in the future.

Jonathan Banas: While this election changes our full-year outlook for free cash flow from modestly positive to now break-even or slightly negative, it avoids further increases in our debt balances and debt service requirements as we look to strategically improve our capital structure in the future. Based on our outlook for future light vehicle production, our improving operations, and our expectations for future cash generation, we believe we have and will continue to have sufficient liquidity to execute our business plans and pursue our profitable growth objectives for the foreseeable future. That concludes my prepared remarks, so let me turn it back over to Jeff.

Speaker Change: Based on our outlook for future light vehicle production are improving operations and our expectations for future cash generation we.

Speaker Change: We believe we have and will continue to have sufficient liquidity to execute our business plans and pursue our profitable growth objectives for the foreseeable future.

Speaker Change: That concludes my prepared remarks, so let me turn it back over to Jeff.

Jeffrey Edwards: Thanks, John. For the few minutes we have remaining on our call this morning, I'd like to focus on the progress we're making on our key strategic imperatives, as well as provide you with an update on our full-year guidance. So please turn to slide 13. Last year, our global leadership team outlined and refined four key strategic imperatives to accelerate growth and maximize the long-term value of our company. And you can see these outlined on slide 13. My earlier comments already spoke to world-class execution and corporate responsibility, so I'd now like to share a few comments on some key actions we've taken to improve our financial strength. Turning to slide 14.

Jeff Edwards: Thanks, John for the few minutes, we have remaining on our call. This morning, I'd like to focus on the progress, we're making with our key strategic imperatives as well as provide you with an update on our full year guidance.

Speaker Change: So please turn to slide 13.

Speaker Change: Last year, our global leadership team outlined in refined four key strategic imperatives.

Speaker Change: To accelerate growth and maximize the long term value of our company and you can see these outlined on slide 13.

Speaker Change: My earlier comments already spoke to the world class execution and corporate responsibility. So I'd now like to share a few comments on some key actions, we've taken to improve our financial strength.

Speaker Change: Turning to slide 14.

Speaker Change: As we announced last quarter, our new product line based organization structure helped us to quickly identify significant opportunities to further optimize costs by eliminating redundancies.

Jeffrey Edwards: As we announced last quarter, our new product line-based organization structure helped us to quickly identify significant opportunities to further optimize costs by eliminating redundancies, automating processes, and leveraging technology. As a result, during the second quarter, we successfully implemented a plan to reduce our salary costs globally.

Speaker Change: Automating processes and leveraging technology.

Speaker Change: As a result during the second quarter, we successfully implemented a plan to reduce our salary costs globally.

Jeffrey Edwards: These actions are already having a positive impact, as John pointed out in his slide, but the impact will be much more significant in the second half of the year and beyond. In total, the reductions are expected to save between $20 and $25 million in 2024 and between 40 and 45 million dollars on a full year annualized basis beginning in 2025. The anticipated savings are expected to provide a payback on related restructuring costs in approximately six months.

Speaker Change: These actions are already having a positive impact as John pointed out in his slides.

John: But the impact will be much more significant in the second half of the year and beyond.

Speaker Change: In total the reductions are expected to save between 20 and $25 million in 2024.

John: And between 40 and $45 million on a full year annualized basis, beginning in 2025.

Speaker Change: The.

Speaker Change: <unk> savings are expected to provide a payback.

Speaker Change: On a related restructuring costs and approximately six months.

Jeffrey Edwards: Further, we expect the savings will enable both operating segments to approach, if not achieve, double-digit EBITDA margins and return on invested capital as we exit 2025. Of course, we recognize there's still work to do in order to drive the level of financial returns that we all expect. A key component of this will be to manage our balance sheet and reduce our overall leverage.

Speaker Change: Further we expect the savings will enable both operating segments to approach if not achieve double digit EBITDA margins and return on invested capital as we exit 2025.

Speaker Change: Despite this projected slow growth in global light vehicle production.

Speaker Change: Of course, we recognize there's still work to do in order to drive the level of financial returns that we all expect.

Speaker Change: A key component of this will be to manage our balance sheet and reduce our overall leverage.

Jeffrey Edwards: Well, I don't have a specific announcement today or specific action plans to share with you. But let me assure you that we are 100% focused on this task. We believe we will have various levers we can pull as our core operations continue to improve over the next 12 to 18 months. Turning to slide 15.

Speaker Change: While I don't have a specific announcement today or specific action plans to share with you let.

Speaker Change: Let me assure you that we are 100% focused on this task.

Speaker Change: We believe we will have various levers we can pull as our core operations continue to improve over the next 12 to 18 months.

Speaker Change: Turning to slide 15.

Speaker Change: Now, let me make a few comments in relation to our financial strategic imperative profitable growth driven by innovation.

Jeffrey Edwards: Now, let me make a few comments in relation to our financial strategic imperative, profitable growth driven by innovation. We continue to develop innovative products and technologies that create value for our customers and enable us to gain, share, and improve profitability. In our ceiling business, we're working from a position of strength as the global leader in the market. Recent innovations, such as our patented flush seal system, are already driving new business as our customers are placing greater emphasis on styling and aerodynamics.

Speaker Change: We continue to develop innovative products and technologies that create value for our customers and enable us to gain share and improve profitability.

Speaker Change: In our sealing business.

Speaker Change: We're working from a position of strength as the global leader in the market.

Speaker Change: Recent innovations such as our patented flush seal system are already driving new business as our customers are placing greater emphasis on styling and aerodynamics.

Jeffrey Edwards: We successfully launched FlushSeal on six programs in Asia in 2023, and we currently have another nine programs in development globally, as this technology gains in popularity among our OEM customers. We have a strong pipeline of targeted business. We are confident we can win later this year and into 2025.

Speaker Change: We successfully launched a flush seal on six programs in Asia in 2023, and we currently have another nine programs in development globally.

Speaker Change: As this technology gains in popularity among our OEM customers.

Speaker Change: We have a strong pipeline of targeted business. We are confident we can win later this year and into 2025.

Speaker Change: We also see strong opportunities for new business with Frameless sealing systems, we're widely recognized as the market leader for these highly engineered systems that are increasingly in demand in the EV segment of the market.

Jeffrey Edwards: We also see strong opportunities for new business with frameless ceiling systems; we are widely recognized as the market leader for these highly engineered systems that are increasingly in demand in the EV segment of the market. Given our leadership in this technology, we see sales of our frameless ceiling systems growing at a 30% CAGR in the next five years. Trends in sustainability also represent important improvements for our ceiling business. We already provide a wide portfolio of sustainable material solutions with recycled, regenerated, non-fossil-based, and waste-based inputs. In addition, our micro-dents and Fortrex material options provide significant weight reduction and a reduced carbon footprint.

Speaker Change: Given our leadership in this technology, we see sales of our Frameless ceiling system growing at a 30% CAGR in the next five years.

Speaker Change: Trends in sustainability also represent important improvements for our sealing business we.

Speaker Change: We already provide a wide portfolio of sustainable materials solutions with recycled regenerated non fossil based and waste based inputs.

Speaker Change: In addition, our micro dense and four trucks material options provide significant weight reduction and reduced carbon footprint.

Speaker Change: A new innovation in 2024 is the development of a patented solution for a fully recyclable lighter weight and lower lower carbon footprint door seal, we call flexi core.

Jeffrey Edwards: A new innovation in 2024 is the development of a patented solution for a fully recyclable, lighter weight, and lower carbon footprint door seal we call Flexi-Core. This new technology has passed Gate 3 of our innovation and development process, which means it's ready to sell and is currently being validated at multiple customers across all regions. We're very excited to bring this new sustainable solution to the market, and we anticipate it will drive new business awards in the future.

Speaker Change: This new technology has passed gate three of our innovation and development process, which means it's ready to sell and is currently in validation at multiple customers across all regions.

Speaker Change: We're very excited to bring this new sustainable solution to the market and we anticipate it will drive new business awards in the future.

Speaker Change: Turning to slide 16.

Speaker Change: In our fluid handling business, we see even greater opportunity for accelerated profitable growth we.

Jeffrey Edwards: In our fluid handling business, we see even greater opportunity for accelerated profitable growth. We have a unique, innovative portfolio of fluid handling solutions to support our customers for all powertrains, and we have the flexibility to quickly adapt to changing market demand. Recent innovations in our core product line are seeing rapid adoption. For example, our plastic cool technology is now globally industrialized. It is currently in production with four customers and sourced for future production at eight additional OEMs. We are also seeing similar approval and adoption of our best-in-class EZ-Lock and Ergolock connector solutions.

Speaker Change: We have a unique innovative portfolio of fluid handling solutions to support our customers for all powertrains.

Speaker Change: And we have the flexibility to quickly adapt to changing market demands.

Speaker Change: Recent innovations in our core product lines are seeing rapid adoption.

Speaker Change: Our plastic who'll technology is now globally industrialized. It is currently in production with four customers and sourced for future production at eight additional Oems. We are also seeing similar approval and adoption of our best in class easy lock and Ergo lock connector solutions.

Speaker Change: Growth products, such as our coolant hub are a key part of our strategy and are now launching to capture market share.

Jeffrey Edwards: Growth products such as our coolant hub are a key part of our strategy and are now launching to capture market share, Content for Vehicles, and certainly new customers. Looking ahead, our Fluid Handling Technology Roadmap includes transformational new products, such as the EcoFlow switch pump and fully integrated EcoFlow coolant modules. We have a total of six new products planned to exit our innovation process by the end of the year, making them available to quote for new business and help us drive our profitable growth objectives.

Speaker Change: Content per vehicle.

Speaker Change: And certainly new customers.

Speaker Change: Looking ahead, our fluid handling technology roadmap includes transformational new products, such as the echo flow switch pump and fully integrated echo flow coolant modules, we have a total of six new products plan to ask.

Speaker Change: Our innovation process by the end of the year.

Speaker Change: Making them available to quote for new business and help us drive our profitable growth objectives.

Speaker Change: As we bring some of these exciting new products to the market, we expect to significantly increase our average content per vehicle as well as expand our total addressable market.

Jeffrey Edwards: As we bring some of these exciting new products to the market, we expect to significantly increase our average content per vehicle, as well as expand our total addressable market. Patented innovations will also likely improve our competitive advantage and enable market share gains globally.

Speaker Change: Patented innovations also will likely improve our competitive advantage and enable market share gains globally.

Speaker Change: We see especially strong growth opportunity in China, where we believe our proprietary technology enhancements better position us to build out a solid fluid handling business with Chinese domestic Oems over the next several years.

Jeffrey Edwards: We see especially strong growth opportunities in China, where we believe our proprietary technology enhancements better position us to build out a solid fluid handling business with Chinese domestic OEMs over the next several years. Turning to slide 17. In the more near term, the current demand trends for different vehicle powertrains are creating an opportunity for us. Our current diverse product portfolio gives us flexibility to support our customers regardless of which type of vehicle they build. And hybrid vehicles represent a true sweet spot, as most of you know, with an average fluid product content 80% higher than what we see in the more traditional ICE vehicle programs.

Speaker Change: Turning to slide 17.

Speaker Change: In the more near term the current demand trends for different vehicle powertrains is creating an opportunity for us actually.

Speaker Change: Our current diverse product portfolio gives us flexibility to support our customers, regardless of which type of vehicles they build.

Speaker Change: And hybrid vehicles represent a true sweet spot as most of you know with an average fluid product content and 80% higher than what we see in the more traditional ice vehicle programs.

Jeffrey Edwards: In the coming years, we will launch the new technology we've been talking about. We believe our total addressable market will expand meaningfully, and our overall content per vehicle will increase as well. Turning to slide 18.

Speaker Change: In coming years, we launch the new technology, we have been talking about we believe our total addressable market will expand meaningfully in our overall content per vehicle will increase as well.

Speaker Change: Turning to slide 18.

Speaker Change: Let me conclude a few comments on our outlook and guidance for the full year.

Jeffrey Edwards: Let me conclude with a few comments on our outlook and guidance for the full year. While we're generally pleased with the results in the first half of the year and progress we continue to make towards our strategic imperatives, we certainly haven't been helped by the macro-level drivers in our industry. We're not whining about it, but in particular, industry estimates for light vehicle production continue to be revised downward month after month.

Speaker Change: While we are generally pleased with our results in the first half of the year and progress we continue to make towards our strategic imperatives. We certainly haven't been helped by the macro level drivers in our industry.

Speaker Change: Whining about it but in particular industry estimates for light vehicle production continued to be revised downward month after month inventory levels on dealer lots are rising due to slower consumer adoption of evs persistently high inflation and higher financing costs, prompting Oems to push back.

Jeffrey Edwards: Inventory levels on dealer lots are rising due to slower consumer adoption of EVs, persistently high inflation, and higher financing costs, prompting OEMs to push back new program launches and reduce production schedules below what we expected coming into the year. Inflationary pressures are continuing to impact nearly everything that goes into our production, including labor, materials, and energy, not to mention the indirect costs for things like rent, transportation, insurance, and more. Unfortunately, despite the obvious pressure these dynamics impose on the supplier community, some OEMs have been reverting to their traditional demands of price concessions. So those are just the facts.

Speaker Change: New program launches and reduced production schedules below what we expected coming into the year.

Speaker Change: Inflationary pressures are continuing to impact nearly everything that goes into our production, including labor material and energy not to mention the indirect costs for things like rent transportation insurance and more.

Speaker Change: Unfortunately, despite the obvious pressure these dynamics impose on the supplier community. Some Oems have been reverting to their traditional demands of price concessions. So those are all just the facts and.

Jeffrey Edwards: In addition, unfavorable foreign exchange has negatively impacted both our sales and our operating costs as the value of the U.S. dollar continues to slide relative to key currencies such as the Mexican peso and the Polish zloty. Clearly, these are important factors that are beyond our immediate control, so while we continue to execute well and advance towards our financial goals, the macro environment is slowing our process just a bit here in the near term.

Speaker Change: In addition, unfavorable foreign exchange has negatively impacted both our sales and our operating costs as the value of the US dollar continues to slide relative to key currencies, such as the Mexican peso and the Polish zloty.

Speaker Change: Clearly these are important factors that are beyond our immediate control. So while we continue to execute well and advance towards our financial goals. The macro environment is slowing our process just a bit here in the near term.

Jeffrey Edwards: The modest adjustments that we have made to our guidance reflect some of these challenges. However, we remain confident that our recent cost reduction initiatives will enable us to deliver improved profitability and cash flow in the second half of 2024 and will benefit us further in 2025. So, despite the current headwinds, we believe that both of our product segments remain on track to achieve double-digit return on invested capital as we exit 2025. We also remain confident that as more of our new programs and products are launched over the next couple of years, you will see further expansion of our profitability through both increasing volume and improved variable contribution margins.

Speaker Change: The modest adjustments that we've made to our guidance reflect some of these challenges.

Speaker Change: We remain confident in our recent cost reduction initiatives will enable us to deliver improved profitability and cash flow in the second half of 2024 and will benefit us further in 2025.

Speaker Change: So despite the current headwinds we believe that both of our product segments remain on track to achieve double digit return on invested capital as we exit 2025. We also remain confident that as more of our new programs and products are launched over the next couple of years you will see further.

Speaker Change: <unk> of our profitability through both increasing volume and improved variable contribution margins.

Speaker Change: Okay.

Speaker Change: In conclusion, we want to thank our customers and all stakeholders for our continued confidence and support as we continue to navigate through these challenges and execute on our plans to drive sustainable profitable growth.

Jeffrey Edwards: In conclusion, we want to thank our customers and all stakeholders for our continued confidence and support as we continue to navigate through these challenges and execute on our plans to drive sustainable, profitable growth and Value. This concludes our prepared remarks, so let's move on to Q&A.

Speaker Change: And value. This concludes our prepared remarks, so let's move on to Q&A.

Operator: Ladies and gentlemen, if you'd like to ask a question, please press the star followed by 1 on your telephone. If you're using a speakerphone, please pick up the handset before entering your request. One moment, please, as we assemble the queue for questions. Your first question comes from Mike Ward from Freedom Capital. Please go ahead.

Speaker Change: Thank you, ladies and gentlemen, if you'd like to ask a question. Please press star followed by one on your telephone if youre using a speakerphone. Please pick up the handset before entering your request.

Speaker Change: One moment, please as we assemble the queue for questions.

Speaker Change: Your first question comes from Mike Ward from Freedom Capital. Please go ahead.

Mike Ward: Good morning, everyone. Just a couple of things. On the restructuring actions, those actions have been completed, correct?

Mike Ward: Good morning, everyone.

Mike Ward: Okay.

Mike Ward: Just a couple of things on the restructuring actions there.

Speaker Change: Those actions have been completed correct.

Speaker Change: Now we are in the final stages of that Mike most of them had been completed.

Jeffrey Edwards: We are in the final stages of that, Mike. Most of them have been completed. Certainly, it's going to be the pick-up I described between $20 and $25 million in the third and fourth quarter. We have a high level of confidence, so we're moving right along with it.

Mike Ward: Certainly it's going to be the pickup I described between 20 and $25 million in the third and fourth quarter, we have a high level of confidence so moving right along with it.

Mike Ward: Okay, the second thing on the, I mean, your margin performance excluding effects was above 9%, and is that like kind of the go-to trend that we're at right now, we're getting towards that double-digit rate of margin?

Speaker Change: Okay.

Speaker Change: Secondly on the I mean, your margin performance, excluding FX was above 9%.

Speaker Change: Is that like kind of the go to trend that we're at right now we're getting towards that double digit rate of margin.

Speaker Change: This is Jeff again, Mike certainly as we continue to March towards.

Jeffrey Edwards: This is Jeff again, Mike. We continue to march towards double-digit EBITDA and return on invested capital. We expect to be there next year.

Jeff Edwards: The double digit EBITDA and return on invested capital, we expect to be there next year.

Mike Ward: Okay. John, I wonder if you can go over some of your cash flow comments, and I just want to make sure I understood. I think you said that you expected it to be cash flow neutral for the year. Is that correct?

Speaker Change: Okay.

Speaker Change: John I Wonder if you can go over some of your cash flow comments I just want to make sure I understood. It.

John: I think you said that you expect it to be cash flow neutral for the year is that correct.

Jonathan Banas: Yeah, if I gave a range, Mike, that would be the top end of the range. We're looking now at our point estimate, which is slightly negative. Based on my earlier comments this year, we would have expected to be cash flow positive for the year at the free cash flow line item. But, given the confidence we've had from the operational performance and the improvements that we're making in the business, we chose to do straight cash interest payments in the December coupons for both our first and third lane notes.

Speaker Change: If I gave a range Mike that would be the top end of the range. We were looking now at our point estimate is slightly negative we based on my earlier comments. This year, we would have expected to be cash flow positive for the year at the free cash flow line item.

Speaker Change: However, given the confidence we've had in the from the operational performance and the improvements that we're making in the business.

Speaker Change: We chose to do a straight cash interest pay in the December coupons for bolster both our first and third lien notes and that's worth about $25 million incremental cash that will we will go out the door. However, that's in the best interest over the long term for our capital structure. So that took us from the slightly positive to slightly.

Jonathan Banas: And that's worth about $25 million in incremental cash that will go out the door. However, that's in the best interest over the long term for our capital structure. So that took us from the slightly positive to slightly negative range on free cash.

Speaker Change: Negative range on free cash flow.

Mike Ward: Okay, and then there are other items. I see there are net cash taxes of $25-30 million, and then you have the restructuring cash.

Speaker Change: Okay and then there are other items I think see their net cash taxes 2500 $30 million and then you have the restructuring cash I assume all of that's in the second half I didn't.

Mike Ward: I assume all that's in the second half. I didn't... I didn't see anything in the second quarter. Is that cash, restructuring, 25, 30 million all in the second half?

Speaker Change: I didn't see anything in the second quarter is that cash.

Speaker Change: Cash restructuring 25 30 million all in the second half.

Jonathan Banas: No, we had some original programs that were carried over from prior years that were still running out. So we did spend some restructuring dollars in the first six months, as well as the recently implemented actions. So I think the number was about $12.5 million of restructuring cash that's already been spent.

Speaker Change: Anthem our original.

Speaker Change: Programs that were carryover from prior years that were still running out. So we did spend some restructuring dollars in the first six months as well as the recently implemented actions. So I think the number was about $12 5 million of restructuring cash that's already been spent.

Mike Ward: Okay, so if I'm looking at the data that we see and you have that in the income statement that's been released thus far, it says net cash used provided by us, it changed assets, operating assets, and liabilities, and it was a negative $36 million in the court in the first half. Normally, you would see some of that working capital turn positive in the second half. But some of these other items that are in there are going to keep that; you won't get the normal recovery. Is that right?

Speaker Change: In the first half okay. So if I'm.

Speaker Change: Looking at the data that we see and you have that.

Speaker Change: In the income statement Thats been released thus far it's as net cash used provided by our changes in assets operating assets and liabilities and it was a negative $36 million in the quarter in the first half.

Speaker Change: Normally you would see some of that working capital turned positive for the second half. Some of these other items that are in there are going to keep that.

Speaker Change: You won't get the normal recoveries that right.

Speaker Change: Well the just by by definition, we do expect the second half to be positive as the first half was about 54 million negative.

Jonathan Banas: Well, just by definition, we do expect the second half to be positive, as the first half was about $54 million negative. And Q3 and Q4 tend to always be favorable in terms of working capital. As we reduce inventories by the end of the year, we collect our receivables in the back half of December.

Speaker Change: In Q3, and Q4 tend to always be favorable in terms of working capital as we reduce inventories by the end of the year, we collect our receivables.

Speaker Change: In the back half of December so, there's typically an infill that youll see.

Jonathan Banas: So there's typically an inflow that you see with normal seasonality. And so I think that trend continues. It's just mitigated a bit. Okay.

Speaker Change: With with normal seasonality and so that I think that trend continues it just mitigated a bit.

Speaker Change: Okay.

Speaker Change: Alright, well. Thank you very much appreciate that.

Mike Ward: All right. Well, thank you very much. I appreciate that.

Mike Ward: Thanks, Mike.

Speaker Change: Your next question comes from Kirk Ludtke from Imperial Capital. Please go ahead.

Kirk Ludtke: Your next question comes from Kirk Ludtke from Imperial Capital. Please go ahead.

Kirk Ludtke: Hello, Jeff John Roger Thank you for the Copay card.

Kirk Ludtke: Hello Jeff, John, and Roger. Thank you for the call.

Unknown Attendee: Unknown Attendee, Kirk Ludtke, Ryan Brinkman, Christopher Couch, Cooper-Standard Holdings, Well, I wanted to follow up on Mike's question on the margins. I guess at least a 10% EBITDA margin without volume growth, doing the math. That would imply. 270 million of EBITDA exiting 2025, is that, am I doing the math right? Yeah, you're doing the math right.

Speaker Change: Okay.

Kirk Ludtke: Well I wanted to follow up on Mikes question on the margins.

Speaker Change: I guess at least a 10% EBITDA margin without volume growth.

Speaker Change: Just doing the math that would imply.

Speaker Change: $270 million.

Speaker Change: EBITDA exiting.

Speaker Change: Existing <unk> hundred 25.

Speaker Change: Doing the math wrong.

Speaker Change: Yes, youre doing the math right.

Speaker Change: So you've got another $80 million increase from.

Kirk Ludtke: So you've got another, so that's an $80 million increase from the Fiscal 24 Guidance. I think you've mentioned at least $20 million of cost saved. Where are the others? What's the other 60?

Speaker Change: 24 guidance.

Speaker Change: Okay. I think you had mentioned at least $20 million of cost saves.

Speaker Change: Where are the other 60.

Jeffrey Edwards: Is that the new product? You mentioned mix. It was a couple of a couple of things.

Speaker Change: 60 is that is that the new products you had mentioned mix. It was a couple of a couple of things keep in mind that Kurt.

Jeffrey Edwards: Keep in mind, Kurt, that the 20 to 25 is this year's portion. Next year's portion is 40 to 45 million in cost out with this latest salary cost reduction as a result of the new organization that we put in place. And as we've said for the last couple of years, as we launch new programs, and they replace big existing ones, because in many cases, the innovation that I talked about is helping our customers save money.

Speaker Change: 20 to 25 is this year's portion.

Speaker Change: Years' portion is $40 million to $45 million of cost out with this latest.

Speaker Change: Salary cost reduction as a result of the new organization that we put a put in place.

Speaker Change: And as we've said for the last couple of years as we launch new programs and they replace.

Speaker Change: Existing ones.

Speaker Change: Because in many cases, the innovation that I talked about is helping our customers save money.

Jeffrey Edwards: At the same time, we're able to make better margins because the product is this technology that they're willing to pay for. In addition to that, the fluid business is returning to a significant level of contribution to the company while it's been on hiatus for a couple of years. And so that's a big part of it. And then, finally, we're profitable in all regions as well. So the ability for the team to manage the cost side of the business, which we have done extremely well. We've also been managing the price side extremely well. And that's not supported because people just like us.

Speaker Change: Same time, we're able to make better margins because the product is this technology that they are willing to pay for.

Speaker Change: In addition to that the fluid business is returning to us.

Speaker Change: Significant level of contribution to the company, while it's been on hiatus for a couple of years here and so that's a big part of it.

Speaker Change: And then finally, we're profitable in all regions as well so.

Speaker Change: The ability for the team to manage the cost side of the business, which we have done extremely well.

Speaker Change: We've also been managing the price side extremely well and that's not supported because people just like us it's done because of the technology and the way we execute in the way, we support our customers and their strategies, whether we're talking about.

Jeffrey Edwards: It's because of the technology and the way we execute and the way we support our customers and their strategies, whether we're talking about ICE, hybrid, or EV, and our ability to change quickly. We're able to engineer new products for their new vehicles and get them into the market and help them, especially on the fluid side, to save money in terms of what it costs them to manage the overall fluid dynamics.

Speaker Change: This hybrid or <unk>.

Speaker Change: And our ability to change quickly.

Speaker Change: We're able to engineer new products for their new vehicles.

Speaker Change: And get it into the market and help them.

Speaker Change: Especially on the fluid side.

Speaker Change: Them save money in terms of what it costs them to.

Jeffrey Edwards: And at the same time, that adds content, significant content for Cooper. So it's really inside of both of those. We're managing the cost side, we're managing price, and we're managing content per vehicle with innovation. So those are the three things that are driving me overall. And whenever we get volume, it'll even be better. Right? No, absolutely not. I, so it's, it's, it's really, we're talking about 60 million, say, at least $20 million in fiscal 24, another $40 million in fiscal 25.

Speaker Change: To manage the overall fluid dynamics.

Speaker Change: And at the same time that adds content significant content for Cooper. So it's really inside of both of those we're managing the cost side, we're managing price and we're managing content per vehicle with innovation. So those are the three things that are driving the overall improvement.

Speaker Change: And whenever we get volume it will even be better.

Speaker Change: Right now absolutely.

Speaker Change: So it's really we're talking about $60 million in saves.

Speaker Change: At least $20 million in fiscal 'twenty for another 40 in fiscal 'twenty one.

Jonathan Banas: Kurt, let me clarify, this is John. It's $40 million annualized, so we've got $20 this year and an incremental $20 next year, so the total run rate savings is $40 to $45. Okay.

Speaker Change: Kurt Let me, let me clarify that this is John it's $40 million annualized. So we've 20 this year and an incremental 20 next year. So the total run rate savings is 40 to 45.

Kirk Ludtke: Okay. Got it. Got it. Got it. Okay. And that's helpful. Thank you, and more new business that new business wins this quarter. What would you, how would you describe your organic growth rate?

Speaker Change: Got it got it got it okay and.

Speaker Change: That's helpful. Thank you and.

Speaker Change: More new business net new business wins this quarter.

Speaker Change: What would you how would you describe your organic growth rate.

Speaker Change: Is it.

Speaker Change: Low single digits mid single digits.

Speaker Change: Better than that.

Jeffrey Edwards: Yeah, I think Jon tried to give you a little sense of how we're continuing to outpace the market, even in these crazy times in terms of the way the volumes continue to come down. I mean, here in North America, the latest projection is 15.8 million units, and in his prepared remarks, he walked you through the math associated with it.

Speaker Change: Yes, I think John tried to give you a little little sense of how we're continuing to outpace the market.

Speaker Change: Even in in these crazy times in terms of.

Speaker Change: The way the volumes continue to.

John: To come down here in North America, the latest projection is $15 8 million units.

Speaker Change: And in his prepared remarks, he walked you through the math associated with it. So we continue to outpace the market.

Jeffrey Edwards: So we continue to outpace the market. And we're growing the business pretty significantly. And when you look at that percentage over our history, I think it's probably about the same. But we do expect, with the hybrid introduction that's coming, Kirk, that hasn't been clearly defined yet by our customers in all cases, is going to significantly improve that number versus historical comparisons just because hybrid volumes are going to go up, at least that's what we're being told.

Speaker Change: So we're growing the business.

Speaker Change: Pretty significantly and when you look at that percentage over our history.

Speaker Change: I think it's probably about the same we do expect with the <unk>.

Speaker Change: Hybrid introduction, that's that's coming Kurt that hasn't been clearly defined yet by our customers in all cases.

Speaker Change: Is going to significantly.

Kurt: Or is that number versus historical comparisons just because hybrid volumes are going to go up at least that's what we're being told.

Jeffrey Edwards: And that represents a content per vehicle increase for us in our fluid business by about 80%. So I think that's gonna be really good news that we really haven't quantified for you yet in the macro sense beyond what I just did. The reason is that we don't know exactly what the product plans are yet for the next two or three years for our customers, but we've been told we're gonna hear that here very soon.

Speaker Change: And that represents.

Speaker Change: Our content per vehicle increase for us in our fluid business by about 80%.

Speaker Change: So I think that's going to be that's going to be really good news that we really haven't quantified for you yet.

Speaker Change: In the.

Speaker Change: The macro sense beyond what I just did the reason is because we don't know exactly what the product plans are yet over the next two or three years for our customers, but we've been told we're going to hear that here very soon.

Speaker Change: Got it thank you.

Kirk Ludtke: Got it. Thank you. That's helpful. And I think I heard you'll make cash payments on both bonds in December.

Speaker Change: Helpful.

Speaker Change: I think I.

Speaker Change: <unk> you.

Speaker Change: Make.

Speaker Change: Cash payments on both bonds in December.

Speaker Change: Correct. That's right. This is John again.

Kirk Ludtke: Kurt, that's right. This is John again. Yeah, we've not elected the pick option. So we're going to do a straight cash pay in December on both the first lane and the third lane note.

Speaker Change: We've not elected the pick option. So we're going to do a straight cash pay in December in both the first lien and the third lien notes.

Jonathan Banas: Great. wonderful. I appreciate it. Thank you very much.

Speaker Change: Great wonderful I appreciate it thank you very much.

Kurt: Thanks Kurt.

Brian DiRubbio: Your next question comes from Brian DiRubbio from Baird. Please go ahead.

Brian <unk>: Your next question comes from Brian <unk> from Baird. Please go ahead.

Brian: Good morning, gentlemen, just a few questions for me.

Brian DiRubbio: Good morning, gentlemen. I have just a few questions for you. Just on the CapEx, Ben, going back to my model, the last time I think you guys had CapEx that low was back in 2009 and had $46 million. Obviously, you're 50 to 60, but can you explain sort of, you know... What the thought process is in terms of how you're deploying capital differently today or maybe for 2024 versus prior years and why it can be that low and how long it can be at that low level?

Brian: Just on the Capex spend come back through my model last time, I think you guys.

Speaker Change: Capex that low was back in 2009 and had about $46 million.

Speaker Change: Obviously your $50 to 60, but can you explain sort of.

Speaker Change: What's the thought process is in terms of how you're deploying capital differently.

Speaker Change: Or maybe for 2024 versus prior years and why it can be that low and how low long kind of be at that low level.

Jeffrey Edwards: Yes, this is Jeff. There are a couple different components to that. The first one is that we're definitely getting better at designing the products that are going into our plant. So they require less capital than they probably historically did.

Brian: Yes. This is Jeff there's a couple different components of that the first one is.

Speaker Change: We're definitely getting better at.

Speaker Change: Designing the products.

Speaker Change: That are going into our plants. So they require less capital than they probably historically did so so I think thats first and foremost hats off to our our product engineers working closer with our manufacturing engineers to try to do everything they can.

Jeffrey Edwards: So I think that's first and foremost. Hats off to our product engineers working closer with our manufacturing engineers to try to do everything they can to reduce the capital required to manufacture the parts. So that's number one.

Speaker Change: To reduce the capital required to manufacture the parts. So that's number one number two is the the the fact that we're operating at such low volumes in many cases, where we're booking a lot of new business like China, or just kind of filling up what we have there and so that that's been an advantage.

Jeffrey Edwards: Number two is the fact that we're operating at such low volumes. In many cases where we're booking a lot of new business, like in China, we're just kind of filling up what we have there. And so that's been an advantage for us here in the short and medium terms. And I think that it'll continue through next year as well. And then finally, we've just... in many cases, as it relates to cost reduction, and historically, we would have probably accepted a year and a half or two years payback on things and then invested accordingly. You know, we've pushed that to less than a year.

Speaker Change: For us here in the short and medium term and I think that will continue.

Speaker Change: Through next year as well.

Speaker Change: And then finally, we've just.

Brian: In many cases as it relates to cost reduction.

Speaker Change: Span that it historically, we would've probably accept it a year and a half or two year payback.

Speaker Change: On things and then invested accordingly, we've pushed that to less than a year.

Jeffrey Edwards: So that's had a positive impact because it forces the teams to be more laser-focused on what they're doing from a cost-reduction point of view if they're going to spend capital to achieve it. And that behavior, I think, has been good for our company. And I think that's a sustainable thing going forward because there's still quite a few things in the pipeline that we're pretty excited about.

Speaker Change: So that has had a positive impact because it at <unk>.

Speaker Change: Forces the teams to.

Speaker Change: To have more of a laser focused on what they're doing from a cost reduction point of view, if theyre going to spend capital to achieve it and that behavior. I think has been good for our company and I think that's a sustainable thing going forward because theres still quite a few things in the pipeline that that we're pretty excited about so those are kind of the reasons.

Jeffrey Edwards: So those are kind of the reasons. We certainly will continue to grow the business. We continue to do a lot of business with our customers, so I don't want you to think that we're starving it for capital, but we've figured out ways to do it better. And then finally, to answer your question, what do we see that going forward? I mean, we would like to see that number closer to 3% than 4% going forward. So, let's see how we do.

Speaker Change: We certainly continue to grow the business, we continue to book a lot of business with our customers. So I don't want you to think that we're starving it for capital, but we've figured out ways to do it better and then finally the answer to your question what do we see that going going forward I mean, we would like to see that number closer to 3% and 4% going forward.

Speaker Change: So, let's see how we do.

Brian DiRubbio: Great, that detail is awesome. I appreciate all of that. Just as we think about next year, I know you said you still don't have plans for sort of the capital structure, but the notes do go full cash pay next year. You know, I guess the immediate question here is, what is the current balance of the first lien and third lien notes, so we can start figuring that out ahead of time, what the cash interest burden will be?

Speaker Change: Great that detail is awesome I appreciate all of that just as we think about next year. I know you said you still don't have plans on sort of the capital structure, but the notes do go full cash paid next year.

Speaker Change: I guess the immediate question years.

Speaker Change: Does the current balance of the first lien and third lien notes. So we can start figuring that out ahead of time, what the cash interest burden will be yes.

Jonathan Banas: Yeah, Brian, you'll see the full details in our 10-Q file later today, but the first liens balance as of June 30th was around $609 million. The third liens were at $387 million, and the stub on the old senior notes was $42 million. Got it.

Speaker Change: Brian.

Brian <unk>: You'll see the full details in our 10-Q, we'll file later today, but the first liens balance as of June 30th was around $609 million third liens were at $387 million.

Speaker Change: The stub on the old senior notes was 42 million Bucks.

Brian DiRubbio: Got it. I appreciate that.

Brian DiRubbio: And then just a final question for me, Jeff, given some of the comments that you made, you know, as I looked at the guidance and the estimates for U.S. oil production, that obviously didn't change in your press release. Just trying to understand, you know, sort of where the risks are with your current guidance that you provided. You know, do you see U.S. manufacturers cutting production between now and the end of the year, or are they sort of reticent to do that just because of the impact it has on their business? I'd love to get your thoughts there.

Speaker Change: Got it I appreciate that and then just final question for me, Jeff given some of the comments that you made.

Speaker Change: Yes.

Speaker Change: As I looked at the guidance and the estimates for U S. Water production that obviously it didn't change in your press release, just trying to understand sort of where the risks are with your current guidance that you provided.

Speaker Change: Do you see U S manufacturers cutting production between now and the end of the year or are they sort of reticent to do that just because of the impacts that has on their business.

Speaker Change: The thoughts there.

Speaker Change: Yes, Brian I'll pull out my Crystal ball here, but I wish I had.

Jeffrey Edwards: Yeah, Brian, I'll pull out my crystal ball here. I wish I had a specific answer to that, but let me just start with this.

Speaker Change: A specific answer to that but let me just start with this we think that.

Jeffrey Edwards: We think that for the next six months, so for the second half of this year, we are confident in everything that we can control. Our pricing is set. The cost reductions are in or as close to in as they can be. Our plants are operating extremely well, so I don't anticipate any surprises in terms of what we can control. As I mentioned, the projections here in North America are down to 15.8 million units. But I think we started the year with 16.1 million units.

Speaker Change: For the for this for the next six months so for the second half of this year.

Speaker Change: We are confident in everything that we can control.

Speaker Change: Our pricing is set the cost reductions are in or as close to NSA is they can be.

Speaker Change: Our plants are operating extremely well so I don't anticipate any surprises in terms of what we can control as.

Speaker Change: As I mentioned the projections here in North America are down to $15 8 million units I think we started the year with 16.1 million units.

Jeffrey Edwards: If you go back to the conversation I had with you all when we were talking about volume projections for 24, when we had this discussion, I think in January, we were saying then that we were worried about the volume we'd actually gone for with a fairly conservative guide. Everybody thought we were now a hundred million dollars top line below that. So I'm hopeful that we've seen the bottom of it.

Speaker Change: We if you go back to the conversation I had with you all when we were talking about volumes projections for 2004, when we had this discussion I think in January.

Speaker Change: We were we were saying that we were worried about the volume we'd actually.

Speaker Change: Had gone forward with a fairly conservative guide.

Speaker Change: Everybody thought we're now a $100 million topline below that.

Speaker Change: So I'm hopeful that we have seen the bottom of it we anticipate that we have.

Jeffrey Edwards: We anticipate that we have. The releases going forward suggest that they're going to live up to the forecasts that are out there and are in our guidance. I'm sure everybody is feeling the same way. We'll see.

Speaker Change: The releases going forward suggests that that theyre going to live up to the the forecasts that are that are out there and they are in our guidance I'm sure everybody is feeling the same way.

Speaker Change: We will see but I'll tell you that the business is performing extremely well there isn't any part of the business that hasnt been over achieving to make up for.

Jeffrey Edwards: But I'll tell you that the business is performing extremely well. There isn't any part of the business that hasn't been overachieving to make up for, you know, the significant headwind related to revenue that's taken a lot of money off our bottom line. John mentioned FX and the challenge that that's provided.

Speaker Change: This significant headwind related to revenue let's.

Speaker Change: It's taken a lot of money off our bottom line.

Speaker Change: John mentioned, the FX and the challenge that that's provided.

Speaker Change: And so when you think about things like inflationary pressures that John discussed, we expected material to be a bit of a tailwind. This year its actually turned into a headwind because we're taking such.

Jeffrey Edwards: And so when you think about things like inflationary pressures that John discussed, you know, we expected material to be a bit of a tailwind this year. It's actually turned into a headwind, but because we're taking such care from a cost point of view, we've made virtually all of that up. And then we've done a nice job managing price. You know, historically, we've given back 1.5 to 1.7 percent during the COVID years.

John: Care from a cost point of view, we've made virtually all of that up.

Speaker Change: And then we've done a nice job managing price.

Speaker Change: Historically, we've given back one 5 million to one 7% during the Covid years, we took that below 1% give back last year and this year, it's actually a positive for us.

Jeffrey Edwards: We took that below 1 percent give back last year, and this year, it's actually a positive for us. So you add all that up, and we have a very bullish second half outlook. We have a very bullish feeling about 25 and beyond. As soon as we get some volume back, my friend, it's going to be a good thing.

Speaker Change: So you add all that up and we have a very bullish second half outlook. We are a very bullish feeling about.

Speaker Change: <unk> 25 and beyond as soon as we get some volume back my friend, it's going to be a good thing.

Brian DiRubbio: Final question, Fortrex, any updates on any other deployments of that compound and any other wins that you see in the near future to be announced?

Speaker Change: Understood and just final question.

Speaker Change: For trucks any updates on any other deployments of that compound in any of the wins that you see.

Speaker Change: In the near future to be announced.

Speaker Change: We continue to have quite a pool for lower weight and recyclable.

Jeffrey Edwards: We continue to have quite a pool for lower weight and recyclable materials, and I talked about that quite a bit in our prepared remarks. So it continues to be a driver for our sealing business, and I think Nike has announced a third shoe that's out there. And if you could see John's feet this morning, he actually has it on. So we continue to see the results that we thought we would see. Hopefully, over the horizon, that will become more of a contributor to the bottom line, but again, a positive related to Fortrex, which was your question.

Speaker Change: I talked about talked about that quite a bit in our prepared remarks. So.

Speaker Change: It continues to be a driver for our ceiling business.

Speaker Change: And I think.

Nike: Nike announced.

Speaker Change: Third schuh that's out there.

Nike: You can see John's feet. This morning, he actually has it on so we.

John: We continue to see the results that we thought we would there.

Speaker Change: Hopefully over the horizon that becomes more and.

Speaker Change: More of a contributor to the bottom line, but again a positive related to <unk>, which was your question.

Brian DiRubbio: Great. I appreciate all the color. Thank you.

Speaker Change: Great I appreciate all the color. Thank you.

Speaker Change: Okay.

Ben Briggs: Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press the star followed by 1 on your telephone. Your next question comes from Ben Briggs from StoneX Financial, Inc. Please go ahead.

Speaker Change: Ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press the star followed by one on your telephone.

Speaker Change: Next question comes from Ben Briggs from Stone ex Financial Inc. Please go ahead.

Ben Briggs: Hey, good morning, guys. Thanks for taking my call and congratulations on the margin this quarter.

Ben Briggs: Hey, good morning, guys. Thanks for taking the call and congratulations on the march. The vast majority of my questions have already been asked and answered. But just to confirm housekeeping, this is the last quarter that you had the pick option on either bond, correct?

Speaker Change: Vast majority.

Speaker Change: <unk> already got asked and answered.

Speaker Change: Thank you.

Speaker Change: But just to confirm housekeeping. This is the last quarter that you had the pick option on either bond correct.

Jonathan Banas: That's correct, Ben. In June, we actually had to make the election for the December coupons, so this was the last opportunity to make that choice.

Ben Briggs: That's correct Ben.

Speaker Change: In June we actually had to make the election.

Speaker Change: For the December coupons. So this was the last.

Speaker Change: Opportunity to make that election.

Ben Briggs: Gotcha Gotcha.

Ben Briggs: Gotcha, gotcha. And then just quickly on margins. So, gross margins came in at 11.7% this quarter, which is one of the highest numbers kind of excluding that third quarter of 2023 when you had some retroactive payments. I think this 11.7 number is like the highest number since 2020. Should we expect on a gross margin basis these, you know, double-digit, 11-ish, 12-ish kind of numbers going forward when we think about modeling

Speaker Change: Then just quickly on margins. So gross margins came in at 11.7% this quarter, which is one of the highest numbers kind of excluding that third quarter of 2003, when you had some retroactive payments.

Speaker Change: I think there's 11 seven numbers like the highest number since 2020.

Speaker Change: We expect on a gross margin basis.

Speaker Change: Double digit 11 ish 12 ish kind of numbers going forward when we think about modeling this.

Speaker Change: Yeah, Ben I think this is John I think that's a fair way to look at it across the entire P&L, we continue to look for opportunities to continuously improve.

Jonathan Banas: Yeah, Ben. I think this is Jon. I think that's a fair way to look at it. Across the entire P&L, where we continue to look for opportunities to continuously improve margin rates, significant tributaries on the variable contribution margin uplifts that we're seeing on new product launches, the cost reductions within the manufacturing area, and the purchasing lien initiatives are all going to manifest themselves into cost of goods sold and, therefore, gross margin. So you should continue to see those levels, even improve as we look to exit at double-digit EBITDA margins towards the end of 2025, as Jeff has talked about a lot already.

Ben Briggs: Margin rates.

Speaker Change: Significant <unk> on the variable contribution margin uplift that were seeing on new product launches.

Speaker Change: The cost reductions within the manufacturing area in our purchasing lean initiatives.

Speaker Change: We're all going to manifest themselves up into cost of goods sold and therefore gross margin. So you should see continue to see those levels.

Speaker Change: Even even improving as we look to exit and double digit EBITDA margins towards the end of 2025 as Jeff talked about a lot already.

Speaker Change: Gotcha.

Ben Briggs: Gotcha. Yep. Yep. And then last one for me, and I know you kind of got asked this a couple different ways, but I'll try one more time. On the last call, I think you had said that a global refi was potentially on the table in 2025. Would you refer to that as Bill being potentially on the table?

Speaker Change: And then last one from me and I know you've kind of got asked this a couple different ways, but I'll try one more time.

Speaker Change: Last call I think you would talked.

Speaker Change: A global refi was potentially on the table and 2025 would you refer to that.

Speaker Change: Still potentially on the table.

Jonathan Banas: There's always potential, Ben, of course. But it's going to be heavily dependent on market conditions, what the interest rate environment looks like in the capital markets, and the acceptance of deals starting in Q1 of 2025. As a reminder, our non-call provision is done at the end of January of 2025. So in Q1 forward, we do have that opportunity to refinance. So, subject to those market conditions, automotive industry conditions, and the overall production environment will enable us to go to market.

Speaker Change: There's always potential Ben of course, it's going to be heavily dependent on market conditions.

Speaker Change: What the interest rate environment looks like in the capital markets.

Speaker Change: The acceptance of deals start.

Speaker Change: Starting in Q1 of 2025 as a reminder, our non call provision.

Speaker Change: Is this done at the end of January of 2025. So in Q1 forward, we do have that opportunity too to refinance.

Speaker Change: Subject to those market conditions automotive industry conditions in the overall production environment will enable us to go to market. So all those things combined we will see how the how things look towards next year, but as Jeff has already alluded to this is we're 100% focused on the capital structure and making it more.

Jonathan Banas: So, all those things combined, we'll see how things look towards next year. But, as Jeff has already alluded to, this is, we're 100% focused on the capital structure and making it more manageable in terms of a company of our size and footprint. So, as we have those opportunities next year, leveraging the improvements that we're making in the business and the sustainable profitability and sustainable cash flow generation, we'll certainly look to leverage those metrics and KPIs as we go to market.

Jeff Edwards: More manageable in terms of a company of our size.

Jeff Edwards: And footprint so as we have those opportunities next year, leveraging the improvements, we're making in the business and the sustainable profitability and sustainable cash flow generation, we will certainly look to leverage those.

Speaker Change: Those metrics and Kpis as we go to market.

Speaker Change: Understood. Thanks, very much for taking the questions guys.

Ben Briggs: Okay. Thanks very much for taking the questions, guys.

Ben Briggs: Okay Ben Thanks.

Speaker Change: It appears that there are no more questions at this time I would now like to turn the call back over to Roger and Jackson.

Roger Hendriksen: It appears that there are no more questions at this time. I would now like to turn the call back over to Roger Hendriksen.

Speaker Change: Alright, thanks, everybody for your questions. The engagement. We appreciate your participation very much.

Roger Hendriksen: All right. Thanks, everybody, for your questions and engagement. We appreciate your participation very much. If there are other questions that come up later in the day or in the following weeks, please feel free to reach out to me directly, and we can arrange for further conversation. Thanks again. This will conclude our call.

Speaker Change: There are other questions that come up later in the day or in following weeks. Please feel free to reach out to me directly and we can arrange for further conversation. Thanks.

Speaker Change: Again, this will conclude our call.

Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.

Speaker Change: Ladies and gentlemen. This concludes today's conference call you may now disconnect. Thank you.

Speaker Change: Okay.

Speaker Change: Okay.