Q3 2024 Cooper-Standard Holdings Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Cooper Standard third quarter 2024 earnings conference call to read the presentation, all participants will be in listen only mode.
Following company prepared comments, we will conduct a question and answer session at that time. If you have a question you will need to press Star then one on your telephone keypad to withdraw your question. Please press Star then two 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. Please go ahead Sir.
Roger Hendriksen: Thanks, Sylvia and thanks to all of you who have taken the time to join our call. This morning.
Roger Hendriksen: 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.
Roger Hendriksen: Before we begin I need to remind you that this presentation contains forward looking statements.
Roger Hendriksen: 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.
Roger Hendriksen: For more information on forward looking statements, we ask that you refer to slide three of this presentation.
Roger Hendriksen: And the company statements included in periodic filings with the Securities and Exchange Commission.
Roger Hendriksen: This presentation also contains non-GAAP financial measures reconciliations of the GAAP financial of the non-GAAP financial measures to their most directly comparable GAAP measures.
Roger Hendriksen: Included in the appendix to the presentation.
Speaker Change: So with those formalities out of the way I'll now turn the call over to Jeff Edwards.
Jeff Edwards: Thanks, Roger and good morning, everyone. We certainly appreciate the opportunity to review our third quarter results and provide an update on our business and the outlook going forward.
Jeff Edwards: So to begin on slide five I'd like to highlight some key third quarter data points that we believe are reflective of our continued strong commitment to operational excellence in our core company values.
Jeff Edwards: In terms of product quality, 98% of our customer scorecards, where green in the quarter.
Jeff Edwards: For new program launches are customer scorecards, we're 97%.
Jeff Edwards: So 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 if I could find a stronger better word I would during the third quarter, we had our best ever safety performance with a total incident rate of 0.20 reportable incidents per 200000 hours worked that's well below that.
Jeff Edwards: World Class benchmark of 0.47, and it's truly an outstanding achievement and I want to come back to the topic of safety and provide you some more details in just a moment.
Jeff Edwards: In terms of cost optimization, we had another solid quarter with our manufacturing and purchasing teams delivering $15 million of savings through lean initiatives and other cost savings programs.
Jeff Edwards: In addition, the aggressive restructuring initiative, we announced in the second quarter has been implemented successfully and is driving the planned savings in the third quarter alone we realized an additional $10 million in savings from this most recent initiatives.
So that's on pace to achieve the expected $40 million to $45 million in fully annualized savings.
Jeff Edwards: These savings are helping us offset the headwinds of lower production volumes and unfavorable foreign exchange that have persisted during the first nine months of the year.
Jeff Edwards: Finally, we're continuing to leverage World class service technical capabilities, and our award winning innovations to win new business. In fact during the third quarter of 2024, we were awarded $44 million and net new business Awards.
Jeff Edwards: We're pleased that an increasingly complex and dynamic automotive industry, our customers continue to turn to us to help design and develop new technologies for some of their most important new vehicle programs.
Jeff Edwards: Including ice hybrid and battery electric vehicles.
Jeff Edwards: Turning to slide six.
Jeff Edwards: I wanted to go back and focus again on the topic of safety and provide a few more details on the outstanding performance, we had in the quarter.
Jeff Edwards: And I mentioned, we had our best ever quarterly total incident rate of <unk> to zero and this brings to ti or for the first nine months of the year to just point to eight.
Jeff Edwards: And leading this outstanding safety performance, where the 29 of our plants that had a perfect safety record of zero incidents so far this year.
Jeff Edwards: And I also want to recognize our global safety team that has worked continuously over the past several years to establish a true safety culture throughout our company in all facilities around the world.
Jeff Edwards: Yeah.
Jeff Edwards: In September we conducted our fourth annual safety months.
Jeff Edwards: And that's basically a month in which all of our people are encouraged to reinsurance defy their focus.
Jeff Edwards: Learning and implementing the best safety practices from around all of our global operations and most importantly, reprioritise our goal of zero safety incidents for everyone.
Collaboration with our global Communications team New training videos were added to our existing extensive library and those were made available to all employees through our online communication portal that we call <unk> connect with.
Jeff Edwards: The safety teams at each location, we're encouraged to conduct and document their own safety activities and share them with the entire company.
Each year, the enthusiasm and employee engagement and safety months activities builds and improves our earlier successes and we've seen the tremendous improvements as a result over the years.
Jeff Edwards: Certainly want to thank our global safety team, our plant managers and our employees around the world for their continued commitment to making safety a top priority every single day and driving our ultimate safety goal of zero incidents for the entire company. Thank you all.
Jeff Edwards: Turning to slide seven.
Jeff Edwards: In addition to prioritizing employee safety and providing our customers with world class products technologies and services that are critical to our success. We also place a high priority on being a good corporate citizen and steward of the environment.
Jeff Edwards: And we continue to garner outside recognition for our leadership and sustainability in fact in the most recent quarter. We were pleased to again be recognized by <unk> for our leadership and achievements in sustainability.
Jeff Edwards: This is the eighth year. The company has earned a metal and the seventh time, receiving silver medal status.
Jeff Edwards: Notably our improved score this year places the company in the 88 percentile in the top 15% of the companies that were assessed by echos at us in the past 12 months and the top 4% of motor vehicle parts and accessories manufacturers.
Jeff Edwards: So consistent with our company values and purpose, we remain committed to creating sustainable products and solutions that create value for all of our stakeholders.
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. In 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.
Speaker Change: On slide nine we show a summary of our results for the third quarter and first nine months of 2024 with comparisons to the same periods last year.
Speaker Change: Third quarter 2024 sales were $685 $4 million.
Speaker Change: A decrease of six 9% compared to the third quarter of 2023.
Speaker Change: The decrease was driven primarily by the timing of commercial settlements that occurred in the third quarter of 2023, including approximately $30 million of settlements that were retroactive and related to the first and second quarters of last year that did not recur at the same level in the third quarter of this year.
Speaker Change: Lower production volumes, the divestiture of our technical rubber business in Europe during the third quarter of last year and unfavorable foreign exchange also contributed to the lower sales.
Speaker Change: Adjusted EBITDA in the quarter was $46 $1 million compared to $79 1 million in the third quarter of last year.
Speaker Change: The year over year change was driven primarily by the timing of commercial settlements last year.
Speaker Change: Unfavorable foreign exchange negative volume and mix and general inflation.
Speaker Change: These negative drivers were partially offset by savings from our continued lean manufacturing purchasing and restructuring initiatives.
Speaker Change: On a U S. GAAP basis, we reported a net loss of $11 $1 million in the third quarter of 2024.
Speaker Change: Compared to net income of $11 $4 million in the third quarter of 2023.
Speaker Change: The result in the third quarter. This year included a $2 2 million positive adjustment to the charges that we recorded earlier in the year related to the termination and settlement of our U S pension plan.
Speaker Change: As well as $1 $5 million in restructuring charges related to our cost reduction initiatives.
Speaker Change: Excluding these and other special items and their related tax impact from both periods.
Speaker Change: Adjusted net loss for the third quarter of 2024 was $12 million.
Speaker Change: Or <unk> 68 per diluted share compared to adjusted net income of $15 million were <unk> 85 per diluted share in the third quarter of 2023.
Speaker Change: Our capital expenditures in the third quarter totaled $10 $9 million or one 6% of sales comp.
Speaker Change: Compared to $16 $4 million or two 2% of sales in the third quarter of last year.
Speaker Change: We continue to exercise discipline around capital investments in order to maximize our returns on invested capital.
Speaker Change: Current capital spending remains focused primarily on customer programs in preparation for successful launch activity.
Speaker Change: For the first nine months of the year sales came in at 2.07 billion, having been impacted by the timing of commercial settlements last year divestitures and foreign exchange.
Speaker Change: Despite the lower sales our business was actually more efficient as gross profit of $220 9 million yielded an improved margin of 10, 7% for the first nine months of the year compared to 10, 6% in the first nine months of 2023.
Speaker Change: Adjusted EBITDA for the first three quarters of 2024 was $126 $4 million.
Speaker Change: Down from the same period last year, primarily due to lower volume and mix and net commercial price adjustments.
Speaker Change: Inflation and unfavorable foreign exchange, partially offset by our cost savings and efficiency improvements.
Speaker Change: Net loss improved to $119 million in the first nine months compared to a net loss of $146 8 million in the first nine months of 2023.
Speaker Change: Excluding special items adjusted net loss for the first nine months was $53 9 million or $3 <unk> per share <unk>.
Speaker Change: Approximately in line with the same period last year.
Speaker Change: Moving to slide 10.
The charts on slide 10 to provide additional insights and quantification of the key factors impacting our results for the third quarter.
Speaker Change: For sales unfavorable volume and mix, including net customer price adjustments and settlements.
Speaker Change: Reduced sales by $42 million versus the third quarter of 2023.
Speaker Change: The impact from the technical rubber divestiture was a reduction of $5 million in the quarter.
Speaker Change: Foreign exchange, mainly related to the Brazilian reais further reduced sales by a net $4 million versus the same period last year.
Speaker Change: For adjusted EBITDA, lean initiatives, and purchasing and manufacturing contributed $15 million year over year.
Speaker Change: Savings from the implementation of restructuring initiatives added $10 million.
Speaker Change: However, unfavorable volume mix and net commercial price adjustments amounted to $42 million of headwind for the quarter.
Speaker Change: Unfavorable foreign exchange, primarily related to the Polish zloty, the Brazilian real and the Costa Rican colon further reduced EBITDA by $11 million, while ongoing general inflation, including salaries wages.
Speaker Change: Energy transportation and other costs was an additional headwind of $7 million.
Speaker Change: Moving to the slide 11.
Speaker Change: For the first nine months of the year sales were negatively impacted by $27 million in unfavorable volume mix and net price adjustments.
Speaker Change: $13 million of unfavorable foreign exchange.
Speaker Change: And $33 million from the divestiture of the technical rubber business last year.
Speaker Change: Adjusted EBITDA in the first nine months benefited from manufacturing efficiencies and purchasing lean initiatives amounting to $50 million.
Speaker Change: And $14 million and restructuring savings.
Speaker Change: We're pleased.
Speaker Change: These positive factors were partially offset by $18 million in unfavorable volume mix and net price adjustments.
Speaker Change: $30 million to $35 million in unfavorable foreign exchange and $25 million in continuing general inflationary pressures.
Speaker Change: Turning to slide 12.
Speaker Change: Looking at cash flow and liquidity, our net cash provided by operating activities was approximately $28 million in the third quarter of 2024.
Speaker Change: An improvement versus the third quarter of 2023, and a significant achievement given the lower sales and production volumes.
Speaker Change: As mentioned earlier Capex was approximately $11 million in the third quarter of 2024 <unk>.
Speaker Change: Resulting in a net positive for free cash flow of approximately $17 million, an improvement of approximately $13 million compared to the same period last year.
Speaker Change: With this positive cash generation, we ended the third quarter with a cash balance of approximately $108 million.
Speaker Change: Combined with $173 million of availability on our ABL facility, which remained Undrawn, we had solid total liquidity of approximately $281 million as of September 32024.
Speaker Change: We're pleased that our improving profitability and conservative approach to capital investments have bolstered our efforts on sustainable cash generation despite weaker market conditions.
Speaker Change: And while we still have more work to do in the final quarter of the year. We believe this improvement will help us position.
Speaker Change: More favorably as we look to strategically improve our capital structure in the future.
Speaker Change: Based on our outlook for future light vehicle production are improving operations interacts spectation 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.
Speaker Change: That concludes my prepared comments, so let me turn it back over to Jeff.
Jeff Edwards: Okay. Thanks, John and for the few minutes, we have remaining in our call. This morning, I'd like to comment on a few highlights regarding our key strategic imperatives as well as provide you with the <unk>.
Jeff Edwards: Date on our full year guidance. So please turn to slide 14.
Jeff Edwards: As you would expect we remain laser focused on the four key strategic imperatives that our global leadership team outlined last year to maximize the long term value of our company.
And you can see these imperatives outlined here on slide 14, My earlier comments already spoke to our world class execution and corporate responsibility. So now I'd like to provide an update on the significant actions we've taken.
Jeff Edwards: Really to improve the overall financial strength of the company.
Jeff Edwards: So turning to slide 15.
Jeff Edwards: From 2019, the 2023, our global team achieved over $500 million in sustainable cost savings.
Jeff Edwards: Through improvements in manufacturing efficiency supply chain optimization and fixed cost reductions in many other lean initiatives and yet the current challenging dynamics of our industry certainly require us to do even more in <unk>.
Jeff Edwards: Obviously, we are.
Jeff Edwards: So far in 2024, we've realized an additional $64 million of cost savings through the successful implementation of several aggressive initiatives, putting us on track to achieve nearly $100 million.
Jeff Edwards: And overall cost savings for the full year.
Jeff Edwards: So while we're pleased with the savings we're achieving it is clear that we cannot simply cost cut our way to long term prosperity.
Jeff Edwards: And that's why innovation is also a strategic imperative for us.
Jeff Edwards: So please turn to slide 16.
Jeff Edwards: We're very pleased that some of our key innovations that are are certainly.
Jeff Edwards: Allowing us and we're bringing them to market this year and as we mentioned last quarter. We were recently named as a finalist for the automotive news pace pilot Award.
Jeff Edwards: And we're especially proud to have not just one but two of those innovations that were recognized this year.
Jeff Edwards: And these are our flex a core thermoplastic door seal technology, and the new eco flow switch pump technology and these innovations are two of the 23 technologies recently named finalist in the annual competition that identifies and really celebrates the latest game changing.
Innovations in our in our industry.
Jeff Edwards: Paces recognized around the world as the industry benchmark for automotive innovation, so being named among the finalists is certainly a testament to the talent and the accomplishments of our team and differentiating value of the products and services, we provide to our customers and I know I spend a lot of time talking about the safety performance in our plants.
Jeff Edwards: But believe me the engineering teams and the product teams are very engaged and are part of that success.
Jeff Edwards: And it's just fun to see the innovation that's coming to life here. So we're really excited about that and not only excited about those innovations, but the fact that we're already receiving significant interest from our customers and many of these are being quoted as we as we speak.
Jeff Edwards: So turning to slide 17, I'll conclude with our prepared remarks. This morning with a few comments on our outlook and guidance for the full year.
Jeff Edwards: Clearly in.
Jeff Edwards: And the industry overall, we continue to face headwinds and challenges from lower than expected production volumes, a persistent inflation and unfavorable exchange rates.
Jeff Edwards: Certain key in key countries and everybody is very familiar with all of that but I guess at the end of the day. We do expect despite all of that that are continuing cost savings initiatives will allow us to drive improvement in adjusted EBITDA margin as we conclude this challenging year and.
Jeff Edwards: <unk> of these market conditions, we're pleased that our continuing successful execution has kept our full year outlook for profit and cash flow largely in line with our original expectations base.
Jeff Edwards: Based on our year to date results and current outlook. We now expect full year sales to be in the range of two 7% to $2 75 billion.
Jeff Edwards: For adjusted EBITDA, we've adjusted our full year range to $1 $80 million to $195 million.
Jeff Edwards: At the midpoint of these ranges our full year adjusted EBITDA margin would be higher than what it was implied in our initial guidance issued in February.
Jeff Edwards: In addition, while we don't provide specific cash flow guidance. We believe we are still on track to deliver full year cash flow in line with our original internal targets we remain.
Jeff Edwards: Confident in our ability to adapt and manage our business in a slow growth environment.
Jeff Edwards: Our cost reduction initiatives are working.
And our customers have continued to support us with pricing and new business awards. 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.
Jeff Edwards: We also remain confident that as more of our new programs and products are launched over the next couple of years, we will continue to see further expansion of our profitability.
Both through increasing volume and improved variable contribution margins.
Jeff Edwards: In closing I, certainly want to thank our customers and all of our stakeholders for your continued confidence and support as we continue to navigate through challenging market conditions and execute our plans to drive sustainable profitable growth and value. This concludes our prepared remarks, so let's move into Q&A.
Speaker Change: Thank you Sir.
Speaker Change: Ladies and gentlemen, if you would like to ask a question as stated earlier. Please press star followed by one on you touched on something you will then hear a prompt that you Ann has been raised and she wished to decline from the polling process. Please press star followed by two.
Speaker Change: And the reason the speaker phone, you'll need to lift the handset before pregnancy entities with mom.
Speaker Change: Please for your first questions.
Speaker Change: First we will hear from Michael Ward of Freedom Capital. Please go ahead.
Thank you and good morning, everyone.
When you look at your guidance and if you back out the fourth quarter. The upper end of that range gets you to that.
Speaker Change: Digit margin that you've talked about.
Speaker Change: What needs to go right for you to get there.
Speaker Change: Well as I said, Mike for 2025, we we've said at the entire year right, we're going to be there as we exit 2025 assist with the additional cost reductions that we've put in place and the way we are executing.
Speaker Change: Knock on wood the way, we're executing flawlessly in our manufacturing plants I mean, we're just a bit ahead of where we thought we would be even as we as we.
Speaker Change: Had our way through the fourth quarter here so.
Speaker Change: I would just tell you that as we've said in the past.
Speaker Change: Volume would certainly be our friend if it ever shows back up yet.
Speaker Change: But in the meantime, we're we're doing pretty well without it so I'm very proud of the team and the way. They continue to stay engaged and are driving the type of results that you are seeing here. Despite the challenging conditions that that I'm sure everybody that you've talked to in the last couple of weeks is also echoed but it is what it is we're not whining about it we're just doing what we can do to.
Lola.
Speaker Change: Okay. So as we look through October annual one month through the three and so you are confident with that guidance.
Speaker Change: Again, if we can get into that towards the upper ends of the range that would certainly be good momentum as we head into 2025 and.
Speaker Change: And you have to see how we feel that we feel the same way.
Speaker Change: We agree with your comments are spot on.
Speaker Change: John as it relates to currency the last two quarters, you've had some pretty significant hits from FX as far as a headwind.
Speaker Change: Is there anything you can do to mitigate that.
Speaker Change: As it relates to the impact on near term results.
John: Hey, Mike It's John.
John: FX headwinds is something that we've been dealing with for the first nine months here.
John: And really for us the negative FX impacts primarily related to our cost only currencies, so where we manufacture the product, but we're not selling in that same currency.
John: And so when you think about our footprint and where we manufacture.
John: Peso in Mexico is a big exposure for us Poland with the zloty is a big exposure for us saying.
John: Same with the check Corona.
John: So we do have a hedging program Mike to what can we do to mitigate some of that but.
John: We never hedge 100% and you're only as good as the the hedge rate you put into effect when you when you make the trade.
John: And then the variability thereafter, obviously impacts it and so with that the tail on the amount that we hedge.
John: Do also go back in certain cases to our customers and have programs with them to get quarter over quarter recovery on goods manufactured in those currencies, but that's a that's a minor extent of our overall exposure.
John: So we're doing what we can and we think the footprint strategy still make sense. Despite the strengthening of those currencies against the U S dollar.
John: And we're going to to mitigate.
John: I will tell you we were expecting that to tail off here a little bit in Q4, it doesn't appear to be as big of an exposure year over year. Because you did start to see many of those currencies strengthen in Q4 of last year. So that's the current outlook as we as we see it today.
Speaker Change: Okay, and then just lastly on the.
Speaker Change: We're in a declining rate environment, we've had a good step down it sounds like a couple of more coming do you have any flexibility with your debt to possibly refinance or make some changes as we go out over the next six to nine months.
Speaker Change: Yeah, Great question, Mike. So yeah, we were we're rooting for more rate cuts of course in the short term the non call provisions on both our first lien and third lien notes expire in the first quarter of 2025. So at the end of January.
Speaker Change: At that point, we have a lot more flexibility there is still a repayment premium associated with those if we wanted to transact.
Speaker Change: But of course, we can't predict what the capital markets are going to look like then but we are we hope there's going to be that opportunity to lower our ongoing interest costs and offer more operating flexibility for the company.
Speaker Change: But our ability to refinance and what our refinancing might look like largely it's going to depend on not only though that rate environment. You described but the receptivity of the capital markets. The state of the industry as well as our underlying financial performance. So we will explore a broad list of options.
Speaker Change: As we always do and look for an approach that makes sense for all of our constituents and certainly looks to lower our overall cost of capital and provides that flexibility.
Speaker Change: Perfect. Thank you very much.
Speaker Change: Thanks, Mike.
Speaker Change: Next question will be from Kirk Ludtke at Imperial capital. Please go ahead Sir.
Kirk Ludtke: Hello, Jeff John Roger Thank you for the call and all the detail I appreciate it.
Speaker Change: <unk>.
Kirk Ludtke: Just maybe a follow up on the.
Kirk Ludtke: On the.
Kirk Ludtke: Geographic <unk>.
Kirk Ludtke: Conversation.
A lot of angst about.
Kirk Ludtke: European based manufacturers.
Speaker Change: And that's your largest market, but can you expand on what youre seeing in your business in Europe.
Speaker Change: And also are you where you EBITDA positive in both North America and Europe in the third quarter.
Jeff Edwards: Hey, Curt this is Jeff.
Jeff Edwards: The answer to the last part of your question is yes.
Speaker Change: We were positive in both markets certainly the headwinds that John and I have spoke about this morning in terms of volume and other macroeconomic.
Jeff Edwards: Wins.
Jeff Edwards: <unk> are very similar in Europe as they are here in.
Jeff Edwards: In North America. So I don't think anybody is in love with the volumes, but yes.
Jeff Edwards: We continue to.
To see enough to maintain a level of profitability.
Jeff Edwards: In both regions and the continued focus on our cost and our fixed cost footprint getting it.
Jeff Edwards: Back to a level that aligns with the market conditions today and the ones we see for the next few years.
Jeff Edwards: Give us a level of confidence in both of these regions that we're going to be fine.
Jeff Edwards: The other thing to expand upon your geography question.
I would tell you is we're really.
Jeff Edwards: Doing very well with the Chinese domestic manufacturers, especially those that are.
Jeff Edwards: Winning business and plan on.
Jeff Edwards: Taking their products globally. They are very interested in doing business with us in our two key product groups because of the level of quality and technology that we that we provide so in addition to the <unk>.
Jeff Edwards: Having a business in China, that's very profitable and continues to do quite well and.
Jeff Edwards: And we shift from the way the market shifting in China from the Western Oems to the local Chinese.
Jeff Edwards: We're very pleased with how that's going and then we're also hopeful as they continue to expand production elsewhere around the world Theyre, taking us with them. So we're seeing some pretty nice growth and profitability with those relationships as well and then I will close by saying the South American business that we've talked about for years is also.
Jeff Edwards: Making money and contributing positive cash to Cooper standards. So from a geography point of view I think we're doing quite well.
Speaker Change: That's great to hear thank you.
Speaker Change: Slide 16, then.
Speaker Change: The new products.
Speaker Change: Congratulations on the pace pilot.
Speaker Change: Awards.
Speaker Change: I'm curious if you could maybe quantify what those new products means I mean are they are they products that that allow you to.
Speaker Change: Stay ahead of the competition or are they products that allow you to take share and really drive.
Speaker Change: The top line or anything.
Speaker Change: Anything you can say on those on that front that would be interesting.
Speaker Change: Yes, sure so on the echo flow for our fluid business.
Speaker Change: It's a great product because it helps our customer rate and so we're already quoting.
Speaker Change: I think more than 10 of these in the marketplace as we as we speak.
Speaker Change: It helps improve the overall fluid management of their systems. So.
Speaker Change: Think about that in terms of the EV product that they're producing.
Speaker Change: And.
Speaker Change: And it reduces their their overall system cost, while improving overall system performance. So.
Speaker Change: For Cooper standard of course, it means our content per vehicle.
Speaker Change: Our profit per vehicle goes up substantially and we're paid for that that innovation. So it's really those are the those are the ones that are terrific. The ones that the customers are pulling in and saying we want it because it helps us so that's what that is the.
Speaker Change: Ceiling.
Speaker Change: <unk> is really aerodynamically as well as aesthetically outstanding and so a lot of the high end customers as they continue to look for ways to perfect. The.
Speaker Change: The exterior streamlining of these vehicles to reduce road noise and improve the overall acoustics of the interior they want.
<unk> systems to contribute to.
Speaker Change: So those design standards and this does in a big way and the good news it's on vehicles that they.
Speaker Change: They make money on therefore.
Speaker Change: Suppliers can make money on.
Speaker Change: Great. Thank you that's helpful and then.
Speaker Change: The Capex guidance came down over the course.
Speaker Change: Of the year or are you doing something differently or or.
Speaker Change: Was it what was it.
Speaker Change: So just you saw an opportunity you took it and then also whats the Capex run rate you think going forward is it is it materially different than it once was or the.
Jeff Edwards: Yes. Thanks, Curt this is Jeff again.
Jeff Edwards: As in I guess every aspect of the business, where we are definitely doing doing things differently.
Jeff Edwards: And related to capital the teams have just done a terrific job of first of all designing products.
Jeff Edwards: That don't require the same level of capital that they once did and they are also reusing capital.
Jeff Edwards: That in the past, we probably would have looked past that.
Jeff Edwards: That kind of innovation and ingenuity continues to.
Jeff Edwards: To drive not only within the product, but within the overall cost of our of our manufacturing and capital is a benefactor.
Jeff Edwards: And so this year as a company, we're we're guiding right around $50 million.
Jeff Edwards: In Capex, and we will be at that level or probably even a little bit below that level next year. Despite winning all of this new business that we're talking about so I'm really I'm really pleased.
I'm always given shout outs to our plant managers.
Jeff Edwards: Our engineering teams and our product teams really.
Jeff Edwards: Teaming up with the plants and trying to understand what works what does and what's excess what is just enough to.
Jeff Edwards: To keep things going and maintain the quality and the safety standards that we have around this joint.
It's working and so I would expect going forward to answer your question.
Jeff Edwards: The percentage of Capex that we're spending this year is what we're going to spend again next year.
Speaker Change: Great. Thank you that's all very encouraging appreciate it thats, Okay you bet.
Speaker Change: Thank you Ned.
Speaker Change: The next question will be from Brian <unk> of Baird. Please go ahead Brian.
Brian: Thank you and good morning, gentlemen, a couple of questions for me just going back to page 10.
If you don't mind I'm trying to.
Brian: Level set the company's performance year over year, excluding those commercial settlements of $30 million would it be fair to Beasley take down 2023 sales by 30, and then 2023 third quarter adjusted EBITDA by $30 million to.
Brian: Give more of an apples to apples comparison.
Brian: Yes, Brian it's John I think that's appropriate because that $30 million was really a retroactive pricing that would impact both the top line and EBITDA dollar for dollar and it related to the first couple of quarters of 2023. So if you wanted to normalize if you will from a price perspective, you'd see that.
Brian: You don't need to do the same on the nine months because obviously, it's in the full run rate for the nine months period.
Brian: Got it so that one time payment is there are you getting any commercial settlements throughout the year this year.
Speaker Change: Yes, we're still continuing to engage with customers very constructively tough environment. There is.
Speaker Change: Ongoing conversations in the backdrop of lower production volumes all around the.
Speaker Change: The pace of EV adoption and the introduction of those those new products into the marketplace and what that means for the supply base. So our commercial teams continue to work incredibly hard engaging with our customers in that.
Speaker Change: Constructive manner that we did the last couple of years and still see more more work ahead to to.
Speaker Change: To get good appropriately compensated for not only our products, but our care capital base, that's there to serve the customers.
Okay, Great and then as we think about the implied fourth quarter guidance.
Speaker Change: What's going to be the main driver there is it gross margin. So you see SG&A cuts.
Speaker Change: Expecting any payments on <unk>, just trying to wrap my head around the margin expansion.
Speaker Change: Yes, Brian It's John again, when you when you look at the full year guidance bridge compared to the chart on Slide 11, you can kind of back into where we see the expansion opportunities are from a profitability standpoint.
Speaker Change: We certainly see more manufacturing and purchasing lean initiatives benefiting the run rate.
Speaker Change: The full effect of the restructuring program that we put in place in May we will deliver another $11 million or so of <unk>.
Speaker Change: Profitability sequentially.
Speaker Change: But that's going to all be offset by the usual suspects of wage inflation.
Speaker Change: And volume in mix that continues to soften as we as we look ahead. So those are the main buckets youll see.
Speaker Change: That that's inherent in the overall guidance.
Speaker Change: Great appreciate that and then just to confirm you paid the cash coupon.
Speaker Change: You are paying cash coupon for all the notes outstanding currently including a payment that was made in the third quarter at the last day of the month.
Speaker Change: No.
Speaker Change: Timing, a little bit off our first and third lien notes coupons are due in December yes.
Speaker Change: Yes, sorry.
Speaker Change: Focusing on the 13th perhaps.
No. That's also due in December as well so middle of the month with both the first and third liens and Youre correct, we will pay cash interest on both of those tranches.
Got it I'm looking at Bloomberg and clearly they are wrong on that okay. So that will hit all in December got it and then just as you think about that.
Speaker Change: The.
Speaker Change: The structure being able to call. It next year, you should think about the the call premiums versus current coupons, which you can get to me.
Speaker Change: How much of a rush is are you guys.
Speaker Change: And to get this refinance is this something that you would like to tackle early this year or do you see opportunities where you can.
Speaker Change: <unk> worked through this existing capital structure for another year, and then look to refinance when maybe the call premiums arent as punitive.
Well, we're entering into are what I'll call, our business planning cycle and while we can't predict what those market conditions will look like we're planning for the full.
Speaker Change: Interest load, if you will or the existing capital structure to continue on but clearly that's not our goal.
Speaker Change: Obviously like to bring down the cost of capital as soon as we can and that's why we're continuing to do.
Speaker Change: To do all the things that Jeff and I have been describing on this call as far as managing what we can control improving our cash generation and overall profitability levels. So.
Speaker Change: I'll use the phrase sooner the better but again, we can't can't control when we can go to market with good conditions that makes sense for all parties.
Speaker Change: Understood I appreciate all the thoughts thank you.
Speaker Change: Okay, Brian Thank you.
Brian: Thank you.
And gentlemen, a reminder to please press star one on your telephone keypad should you have any questions.
Speaker Change: Next is Ben Briggs <unk> financial please go ahead Ben.
Ben Briggs: Hey, good morning, guys. Thank you for taking the questions a lot of mine got answered, but I'm going to I'm going to take one more swing at it.
Fourth quarter 'twenty three to fourth quarter 'twenty four bridge, so as im looking at the midpoint of your guidance here.
Speaker Change: Get to about I think about a $62 million number.
Sure.
Speaker Change: For the for the fourth quarter that we should expect and thats up pretty materially versus fourth quarter of 2003 can you give us a little bit more of a granular breakdown of.
Speaker Change: What kind of exactly what the what the drivers of that are going to be.
Yes, Ben.
I'll take a take a swing.
You'll see continued year over year benefit from both the purchasing initiatives that we've got in place to continue to attack the supply base and lower our overall material spend.
Speaker Change: That will that will aid the the fourth quarter year over year.
Speaker Change: As will the manufacturing lean initiatives and continuous improvement opportunities that we see in the business. So that comes from actual cost saving it plays but it also comes with flawless execution and not incurring higher than expected scrap rates or other unforeseen circumstances that can.
Speaker Change: Rear up so the team is up.
Speaker Change: <unk> very very well as Jeff described so we see more opportunities in that side of it as well.
Speaker Change: Year over year, you will have another $10 million to $11 million of restructuring savings from the program that we announced in May.
Speaker Change: It isn't in that I think it's 27 or $28 million of Q4 profitability last year.
Speaker Change: So all of those are contributing year over year as well.
Speaker Change: In Q4, we always look at across our all of our compensation program and incentive comp arrangements as well and we did take a charge last Q4. If you go back to the notes there to top up that incentive compensation plan and so you can call that.
Speaker Change: A tailwind for us this year as things are just normalized year over year and that paints the picture for you okay.
Speaker Change: Alright, Thats very helpful. Thank you for thanks for getting granular there and then the next thing that I wanted to ask and this is the.
Speaker Change: The only question I've got left or any of the cost cutting initiatives that you guys have undertaken.
Speaker Change: In recent history, which you've obviously been very very effective.
Speaker Change: Would any of those have to be unwound. If there were material volume increases or you guys still pretty still pretty nimble and able to able to ramp production when necessary maintained while maintaining you've got these cost cuts.
Jeff Edwards: Jeff. This is Ben this is Jeff if you have.
Jeff Edwards: If you look at the next three years of forecast that's out there that we're doing our business plans with there wouldn't be anything that needed to be unwound.
Jeff Edwards: Per your per your description. So we're very confident that that what we're doing is sustainable in.
In the environment, we're in and even if volumes continue to move up.
Jeff Edwards: In the variety of geographies that we do we do business.
Jeff Edwards: We're confident that what we're doing is as sustainable in there as well.
Jeff Edwards: Alright, thanks for that volume.
Jeff Edwards: It would be.
Jeff Edwards: Volume, obviously would be a nice uplift, but but we wouldn't anticipate.
Jeff Edwards: Adding capital and doing all the things that I think you were referring to.
Speaker Change: Just wanted to double check I appreciate it guys. Thanks for taking the questions.
Speaker Change: Okay you bet.
Speaker Change: Thank you.
Speaker Change: At this time Mr. Hendrix since we have no other questions registered please proceed sir.
Speaker Change: Okay. Thanks, everybody. We appreciate the engagement the good questions.
Speaker Change: I appreciate your continuing interest in Cooper standard.
Speaker Change: If there were other questions outstanding that you didn't get a chance to ask please feel free to reach out to me directly and we can arrange for further discussion look forward to speaking to you. All soon this concludes our call. Thank you.
Speaker Change: Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again. Thank you for attending at this time, we ask that you. Please disconnect your lines have a good weekend.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Okay.