Q1 2025 Cooper-Standard Holdings Inc Earnings Call
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Operator: Good morning, ladies and gentlemen, and welcome to the Cooper-Standard First Quarter 2025 Earnings Conference Conference. During the presentation, all participants will be innocent all around.
Speaker Change: Good morning, ladies and gentlemen, and welcome to the <unk>.
Speaker Change: Two questions your first quarter 2025 earnings conference call.
Speaker Change: During the presentation, all participants will be in listen only.
Operator: 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 1 on your telephone keycard. To withdraw your question, please press star, then 2.
Speaker Change: Holding company prepared comments, we will conduct a question answer session at that Kelly. If you have any question you will need to press Star then one on your telephone keypad.
Speaker Change: To withdraw your question. Please press Star then two.
Operator: As a reminder, this conference call is being recorded and the webcast will be available on the Cooper-Standard website when we place the order today.
Speaker Change: Now keep in mind you. This conference call is integrated into that cast will be available on the Cooper standard website for replay sitting here today.
Roger Hendriksen: I would now like to turn the conference call over to Roger Hendriksen, Director of Investor Relations. Please go ahead. Thanks, Jenny. And good morning, everyone. We appreciate you spending some time with us this morning.
Speaker Change: I'd now like to turn the conference call, where they used to watch it.
Speaker Change: Director of Investor Relations. Please go ahead.
Speaker Change: Thanks, Jenny and good morning, everyone.
Speaker Change: We appreciate you spending some time with us 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 John Banas, Executive Vice President and Chief Financial Officer.
Speaker Change: 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.
Jon Banas: And Jon Banas, Vice President and Chief Financial Executive Vice President and Chief Financial Officer.
Roger Hendriksen: Before we begin, I need to remind you that this presentation contains forward-looking statements. While they're made based on current factual information and certain assumptions and plans that management currently believes to be reasonable, these statements do involve risks and uncertainty. For more information on forward-looking statements, we ask that you refer to slide 3 of this presentation and the company's statements included in periodic filings with the Securities and Exchange Commission.
Jon Banas: Before we begin I need to remind you that this presentation contains forward looking statements.
Jon Banas: Well, they're made based on current factual information and certain assumptions and plans that management currently believes to be reasonable.
Jon Banas: These statements do involve risks and uncertainties.
Jon Banas: 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.
Roger Hendriksen: This presentation also contains non-GAAP financial measures. Reconciliations of the Non-Gap Financial Measures to their Most Directly Comparable Gap Measures are included in the appendix to the presentation.
Jon Banas: This presentation also contains non-GAAP financial measures rec.
Jon Banas: Reconciliations of the non-GAAP financial measures to their most directly comparable GAAP measures.
Jon Banas: Included in the in the appendix to the presentation.
Jeffrey Edwards: So with those formalities out of the way, I'll turn the call over to Jeff Edwards. Thanks, Roger. Good morning, everyone. Certainly appreciate the opportunity to review our first quarter results and provide an update on our business and the outlook going forward. To begin on slide 5, I'll just highlight some key first quarter data points that we believe are reflective of our continuing outstanding operational performance and certainly our ongoing commitment to our core company values. This quarter was arguably the best ever in terms of operations and customer service, with 99% of our product quality scorecards being green.
Jon Banas: So with those formalities out of the way I'll turn the call over to Jeff Edwards.
Jon Banas: Okay.
Jeff Edwards: Thanks, Roger and good morning, everyone. We certainly appreciate the opportunity to review our first quarter results and provide an update on our business and the outlook going forward.
Jeff Edwards: To begin on slide five I'll just highlight some key first quarter data points that we believe are reflective of our continuing outstanding operational performance.
Jeff Edwards: And certainly our ongoing commitment to our core company values.
Jeff Edwards: This quarter was arguably the best ever in terms of operations and customer service with 99% of our product quality scorecards being green.
Jeffrey Edwards: For new program launches, we continue to... provide outstanding service levels, with 97% customer scorecards being green. These are amazing operational statistics that any company would be proud of. They reflect our ongoing commitment to providing the best possible value for our customers, as well as our internal commitment to excellence in all we do. Also in our plant operations, safety performance, I'm proud to say, continues to be world-class. During the first quarter, we had a total incident rate of 0.30, reportable incidents per 200,000 hours worked, well below the world-class benchmark of 0.47. Importantly, 47 of our plants had a perfect safety record in the quarter with a total incident rate of zero.
Jeff Edwards: For New program launches, we continue to.
Speaker Change: I'll provide outstanding service levels with 97% customer scorecards being green.
Jeff Edwards: They're amazing operational statistics that any company would be proud of.
Jeff Edwards: They reflect our ongoing commitment to providing the best possible value for our customers as well as our internal commitment to excellence in all we do.
Jeff Edwards: Also in our plant operations safety performance I'm proud to say continues to be world class.
During the first quarter, we had a total incident rate of 0.30 reportable reportable incidents per 200000 hours worked well below the world class benchmark of 0.47.
Jeff Edwards: Importantly, 47 of our plants at a perfect safety record in the quarter with a total incident rate of zero.
Jeffrey Edwards: That's 82 percent of all of our production facilities achieving a perfect safety score and demonstrating that our ultimate goal of zero safety incidents is achievable. As I mentioned, we're proud of our entire team for their focus and achievement in this most important operating measure. And as I say often, a special shout out to our plant managers. You continue to be one of the cornerstones of our company, and I'm very proud of you all. In terms of cost optimization, we had another solid quarter, with our manufacturing and purchasing teams delivering $20 million of savings through lean initiatives and other cost-saving programs. In addition, the aggressive The restructuring initiative that we announced in the second quarter of last year has been driving cost savings as we planned.
Jeff Edwards: That's 82% of all of our production facilities, achieving a perfect safety score.
Jeff Edwards: And demonstrating that our ultimate goal of zero safety incidents is achievable.
Jeff Edwards: As I mentioned, we're proud of our entire team.
Jeff Edwards: For their focus and achievement in this most important operating measure and as I say often in a special shout out to our plant managers. So you continue to be one of the cornerstones of our company and I'm very proud of you all.
Jeff Edwards: In terms of cost optimization, we had another solid quarter with our manufacturing and purchasing teams delivering $20 million of savings through lean initiatives and other cost savings programs. In addition, the aggressive.
Jeff Edwards: Restructuring initiative that we announced in the second quarter of last year has been driving cost savings as we planned.
Jeffrey Edwards: In the first quarter, that initiative yielded another $8 million in year-over-year savings. Finally, we're continuing to leverage our world-class service, technical capabilities, and our award-winning innovations to win new business. During the first quarter of 2025, we were awarded $55 million in net new business awards. We are pleased that in an increasing 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 platforms, including ICE, hybrid, and battery electric vehicles. Turning to slide six, our outstanding operational performance and customer service continue to garner important recognition and awards from our customers.
Jeff Edwards: In the first quarter that initiative yielded another $8 million in year over year savings.
Jeff Edwards: Finally, we're continuing to leverage our world class service technical capabilities, and our award winning innovations to win new business.
Jeff Edwards: During the first quarter of 2025, we were awarded $55 million and net new business Awards.
Jeff Edwards: We are pleased that in an increasing 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 platforms, including ice hybrid and battery electric vehicles.
Jeff Edwards: Turning to slide six our outstanding operational performance and customer service continue to garner important recognition and awards from our customers. We're pleased and proud to once again be named as GM supplier of the year. This is the eighth consecutive year that we've received this prestigious award which.
Jeffrey Edwards: We're pleased and proud to once again be named as GM Supplier of the Year. This is the eighth consecutive year that we've received this prestigious award, which acknowledges the consistent value we provide to our customers. We're also proud to have recently received a Toyota Excellence Achievement Award for our partnership in helping reduce costs. We believe this type of customer recognition is an indication of our opportunities to win profitable new business going forward. As we continue to deliver value for our customers through innovation, quality, and service, we expect to be able to leverage strong customer relationships into strong future growth.
Jeff Edwards: Acknowledges the consistent value, we provide to our customers.
Jeff Edwards: We're also proud to have recently received a Toyota excellent Achievement award for our partnership and helping reduce cost we.
Jeff Edwards: We believe this type of customer recognition is an indication of our opportunities to win profitable new business going forward as we continue to deliver value for our customers through innovation quality and service, we expect to be able to leverage strong customer relationships into strong future growth.
Jeffrey Edwards: And as we all know, customers certainly continue to vote with purchase orders, and we're very proud to announce the awards that I discussed previously. So let's turn to slide 7.
Jeff Edwards: And as we all know customers certainly continue to vote with purchase orders and were very proud.
Jeff Edwards: Two announce the awards that I discussed previously so let's turn to slide seven.
Jeffrey Edwards: In addition to prioritizing customer value, employee safety, profitable growth, we also place a high priority on being a good corporate citizen and steward of the environment. Here as well, we continue to garner outside recognition for our leadership and sustainability. And in the most recent quarter, we were pleased to again be recognized by USA Today as one of America's climate leaders for our achievement in environmental stewardship, emissions reduction, and reporting. This comes on top of our recognition by ECHOVADIS for the eighth year in a row. We could not achieve this leadership status without the support and engagement of the hearts and minds of our employees.
Jeff Edwards: In addition to prioritizing customer value employee safety profitable growth. We also place a high priority on being a good corporate citizen and steward of the environment.
Jeff Edwards: Here as well, we continue to garner outside recognition for our leadership in sustainability and then the most recent quarter. We were pleased to again be recognized by USA today as one of America's climate leaders for our achievement in environmental stewardship emissions reduction and reporting this comes on top of our recognition.
Jeff Edwards: By Echo virus for the eighth year in a row.
Jeff Edwards: Yeah.
Jeff Edwards: We could achieve this leadership, we could not achieve this leadership status without the support and engagement of the hearts and minds of our employees. Our team members regularly plan and conduct employee activities that support environmental and community initiatives a.
Jeffrey Edwards: Our team members regularly plan and conduct employee activities that support environmental and community initiatives. A few recent examples include tree planting, trail cleanup, maintenance, building neighborhood playgrounds, and collaborating with local charities to refurbish abandoned homes for donation to needy working families. This year, we encouraged our global facilities to consider tree planting as part of their planned Earth Day activities. More than 45 locations are organizing activities, including planting approximately 2,800 trees and seedlings. You can learn more about our commitment to environmental stewardship and sustainability in our upcoming Corporate Responsibility Report, which will be published here in the next couple weeks.
Jeff Edwards: A few recent examples include tree planting trail cleanup maintenance building neighborhood playgrounds, and collaborating with local charities to refurbish a band in homes for donation to needy working families.
Jeff Edwards: This year, we we encourage our global facilities to consider tree planning as part of their planned Earth day activities more than 45 locations are organizing activities, including planting approximately 2800 trees and seedlings.
Jeff Edwards: You can learn more about our commitment to environmental stewardship and sustainability in our upcoming corporate responsibility report, which we will be which will be published here in the next couple of weeks.
Jeffrey Edwards: Of particular note in this year's report, we'll be announcing our aspirational goals to become carbon neutral by 2040 in Europe and by 2050 globally. As we always say, the earnings calls are certainly about what we do, but the Corporate Responsibility Report continues to be about who we are.
Jeff Edwards: Of particular note in this year's report, we'll be announcing our aspirational goals to become carbon neutral by 2040 in Europe and by 'twenty 50 globally.
Jeff Edwards: As we always say the earnings calls are certainly about what we do but the corporate responsibility report continues to be about who we are now let me turn the call over to John to review the financial details of the quarter.
Jonathan Banas: Now let me turn the call over to John to review the financial details of the quarter. 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. On slide 9, we show a summary of our results for the first quarter of 2025 with comparisons to the same period last year. First quarter 2025 sales were $667.1 million. a slight decrease of 1.4% compared to the first quarter of 2024. The decrease was driven primarily by unfavorable foreign exchange, which was partially offset by favorable volume and mix, including net customer price adjustments.
John: Thanks, Jeff and good morning, everyone.
John: In the next few slides I'll provide some details on our financial results for the quarter and discuss our discuss our cash flows liquidity and aspects of our balance sheet.
John: On slide nine we show a summary of our results for the first quarter of 2025 with comparisons to the same period last year.
John: First quarter 2025 sales were $667 1 million.
John: A slight decrease of one 4% compared to the first quarter of 2024.
John: The decrease was driven primarily by unfavorable foreign exchange, which was partially offset by favorable volume and mix, including net customer price adjustments.
Jonathan Banas: Adjusted EBITDA in the quarter was $58.7 million, compared to $29.3 million in the first quarter of last year. The year-over-year doubling was driven primarily by our manufacturing and purchasing lien initiatives. savings related to the restructuring initiative we implemented in the second quarter of last year, and the timing of certain royalty payments received in the quarter. These positive factors were partially offset by ongoing general inflation, higher costs for customs duties and tariffs, and other items. On a U.S. GAAP basis, we reported positive net income of $1.6 million in the first quarter of 2025, compared to a net loss of $31.7 million in the first quarter of 2024.
John: Adjusted EBITDA in the quarter was $58 $7 million compared to $29 $3 million in the first quarter of last year.
John: The year over year, doubling was driven primarily by our manufacturing and purchasing lean initiatives save.
John: Savings related to the restructuring initiative, we implemented in the second quarter of last year.
John: And the timing of certain royalty payments received in the quarter.
John: These positive factors were partially offset by ongoing general inflation higher costs for customs duties and tariffs and other items.
John: On a U S. GAAP basis, we reported positive net income of $1 $6 million in the first quarter of 2025 comp.
John: Compared to a net loss of $31 $7 million in the first quarter of 2024.
Jonathan Banas: adjusting for restructuring and other smaller non-cash items and their related tax impacts. Adjusted net income for the first quarter of 2025 was $3.5 million, or $0.19 per diluted share, compared to an adjusted net loss of $30.6 million, or $1.75 per diluted share in the first quarter of 2024. Our capital expenditures in the first quarter totaled $17.5 million, or 2.6% of sales. which was essentially in line with our investment levels for the first quarter of last year. We continue to exercise discipline around capital investments in order to maximize our returns on invested capital. and current spending remains focused primarily on customer programs in preparation for successful launch activities.
John: Adjusting for restructuring and other smaller noncash items and their related tax impacts.
John: Adjusted net income for the first quarter of 2025 was $3 $5 million or <unk> 19 cents per diluted share compared to an adjusted net loss of $30 $6 million or $1 75 per diluted share in the first quarter of 2024.
John: Our capital expenditures in the first quarter totaled $17 $5 million or two 6% of sales, which.
John: Which was essentially in line with our investment levels for the first quarter of last year.
John: We continue to exercise discipline around capital investments in order to maximize our returns on invested capital.
John: And current spending remains focused primarily on customer programs in preparation for successful launch activity.
Jonathan Banas: Moving to slide 10. The charts on slide 10 provide additional insights and quantification of the key factors impacting our results for the first quarter. For sales, unfavorable foreign exchange drove a net $15 million reduction versus the first quarter of last year. This was partially offset by favorable volume and mix of approximately $6 million compared to the first quarter of 2024. For Adjusted EBITDA, lean initiatives in purchasing and manufacturing contributed $20 million in savings and cost reductions year-over-year. Savings from the implementation of restructuring initiatives added $8 million compared to the first quarter of 2024. Sales, general administrative, and engineering expense was lower by $2 million and foreign exchange was a tailwind of $2 million in the quarter.
John: Moving to slide 10.
John: Okay.
John: The charts on slide 10 provide additional insights and quantification of the key factors impacting our results for the first quarter.
John: For sales unfavorable foreign exchange drove a net $15 million reduction versus the first quarter of last year.
John: This was partially offset by favorable volume and mix of approximately $6 million compared to the first quarter of 2024.
John: For adjusted EBITDA, lean initiatives, and purchasing and manufacturing contributed $20 million in savings and cost reductions year over year.
John: Savings from the implementation of restructuring initiatives added $8 million compared to the first quarter of 2024.
John: Yeah.
John: Sales general and administrative and engineering expense was lower by $2 million.
John: Foreign exchange was a tailwind of $2 million in the quarter.
Jonathan Banas: Partially offsetting these improvements were $7 million in higher costs from general inflation and $2 million in gross duties and tariffs. The other category shown in the chart includes various miscellaneous expenses, as well as the impact of the timing of certain automotive-related royalty payments received in the quarter.
John: Partially offsetting these improvements were $7 million and higher costs from general inflation and $2 million in gross duties and tariffs.
John: The other category are shown in the chart includes various miscellaneous expenses as well as the impact of the timing of certain automotive related royalty payments received in the quarter.
Jonathan Banas: Moving to slide 11. Looking at cash flow and liquidity. Net cash used in operating activities was $14.9 million in the first quarter of 2025. relatively consistent with the first quarter of 2024. As mentioned earlier, CapEx was approximately $18 million in the first quarter, resulting in a net free cash outflow of approximately $32 million, essentially in line with the same period last year. We ended the first quarter with a cash balance of approximately $140 million. combined with $160 million of availability on our ABL facility, which remained undrawn. We had solid total liquidity of approximately $300 million as of March 31st.
John: Moving to slide 11.
John: Looking at cash flow and liquidity.
John: Net cash used in operating activities was $14 $9 million in the first quarter of 2025.
John: Relatively consistent with the first quarter of 2024.
John: As mentioned earlier Capex was approximately $18 million in the first quarter, resulting in a net free cash outflow of approximately $32 million.
John: Essentially in line with the same period last year.
John: We ended the first quarter with a cash balance of approximately $140 million.
John: Combined with $160 million of availability on our ABL facility, which remained undrawn.
John: We had solid total liquidity of approximately $300 million as of March 31.
Jonathan Banas: which we believe is more than sufficient to support our continuing execution of our business plans, innovation, and profitable growth objectives.
John: We believe is more than sufficient to support our continuing execution of our business plans innovation and profitable growth objectives.
Jeffrey Edwards: That concludes my prepared comments, so let me turn it back over to Jeff. Thanks, John. And for the next few minutes we have remaining in the call this morning, I'd like to comment on the high-level strategic imperatives and a few related notable activities and achievements.
Jeff Edwards: That concludes my prepared comments, so let me turn it back over to Jeff.
John: Okay.
Jeff Edwards: Thanks, John and for the next few minutes, we have remaining in the call. This morning, I'd like to comment on the high level strategic imperatives in a few related notable activities and achievements.
Jeffrey Edwards: Then I'll wrap up with a few comments on our outlook for the rest of the year. That slide probably should be titled, Never a Dull Moment, but we'll talk about that in a few. So please turn to slide 13. Our global team has become truly aligned around our four key strategic imperatives that you see outlined on this slide. This alignment is driving significant improvements in virtually every aspect of our business, and the transformation certainly has been exciting to watch and experience. John already commented on our improving profitability, and I believe we are poised to return to double-digit adjusted EBITDA margins and double-digit returns on invested capital.
Jeff Edwards: Then I'll wrap up with a few comments on our outlook for the rest of the year.
Jeff Edwards: At slide probably should be titled never a dull moment, but we'll talk about that in a few so please turn to slide 13.
Jeff Edwards: Our global team has become truly aligned around our four key strategic imperatives that you see outlined on this slide.
Jeff Edwards: This alignment is driving significant improvements in virtually every aspect of our business and the transformation certainly it's been exciting to watch and experience.
Jon already commented on our improving profitability and I believe we are poised to return to double digit adjusted EBITDA margins and double digit returns on invested capital and it is certainly no surprise that our improved profitability. This quarter was led primarily by significant improvements in operating efficiencies and lean initiatives.
Jeffrey Edwards: And it's certainly no surprise that our improved profitability this quarter was led primarily by significant improvements in operating efficiencies and lean initiatives. We continue to operate at world-class levels, and I again want to recognize our plant managers and the approximately 20,000 employees that work directly for them for their relentless drive for excellence and value creation.
Jeff Edwards: We continue to operate at World class levels, and I again want to recognize our plant managers and the approximately 20000 employees that work directly for them for their relentless drive for excellence and value creation.
Jeffrey Edwards: The next couple of slides speak to the imperatives of innovation and corporate responsibility. Let's turn to slide 14, please. Our ceiling team is focused on driving profitable growth by developing and delivering product solutions that enhance sustainability for us and our customers. Sustainable technologies that reduce weight to improve vehicle efficiency, reduce carbon footprint, and improve recyclability are critical to this strategy. At the same time, our production teams are finding new and innovative ways to deliver these products with less scrap, reduced energy consumption, and driving improved margins at the plant level. Consistent with our company values, the ceiling team is truly delivering increased value to all of our stakeholders.
Jeff Edwards: The next couple of slides speak to the imperatives of innovation and corporate responsibility, let's turn to slide 14. Please.
Jeff Edwards: Our sealing team is focused on driving profitable growth by developing and delivering product solutions that enhance sustainability for us and our customers sustainable technologies that reduce weight to improve vehicle efficiency.
Jeff Edwards: Reduce carbon footprint and improve recyclability are critical to this strategy at the same time, our production teams are finding new and innovative ways to deliver these products with less scrap reduced energy consumption and driving improved margins at the plant level.
Jeff Edwards: Consistent with our company values. The sealing team is truly delivering increased value to all of our stakeholders.
Jeffrey Edwards: Turning to slide 15. In our fluid business, the trends in vehicle powertrain options are creating new opportunities. Of particular note is the expected increase in global production of hybrid vehicles. Take a look at these charts. They compare the S&P hybrid production forecasts from March of 2024. to the same forecast in March of 2025. In the past year, they've significantly raised their expectations for annual hybrid production by nearly 4 million units in 2030 and by nearly 7 million units in 2035. So the trend is headed higher and for longer than was previously expected. Turning to slide 16, and you'll see why we like this trend, this is great news for our fluid business, and we can leverage the trend in hybrids to drive higher overall average content per vehicle.
Jeff Edwards: Turning to slide 15.
Jeff Edwards: Our fluid business the trends in vehicle powertrain options are creating new opportunities of particular note is the expected increase in global production of hybrid vehicles.
Jeff Edwards: Take a look at these charts may compare the S&P hybrid production forecasts from March of 2024.
Jeff Edwards: To the same forecast in March of 2025 and.
Jeff Edwards: In the past year, they've significantly raise their expectations for annual hybrid production by nearly 4 million units in 2030 and by nearly 7 million units in 2035. So the trend is headed higher and for longer than was previously expected.
Jeff Edwards: Turning to slide 16, and you'll see why we like this trend.
Jeff Edwards: This is great news for our fluid business and we can leverage the trend in hybrids to drive higher overall average content per vehicle with both an internal combustion engine and electric motor the hybrid vehicle requires frankly more of what we make.
Jeffrey Edwards: With both an internal combustion engine and an electric motor, the hybrid vehicle requires, frankly, more of what we make. In addition, the increasing complexity of these vehicles means our world-class design and engineering capabilities become even greater value for our customers and clear competitive advantage for us. We believe hybrid vehicles represent as much as an 80% in average content opportunity for our current commercialized product portfolio. And even more exciting is the news is that we are bringing new product innovations to the market that will expand that content per vehicle opportunity even further.
Jeff Edwards: In addition, the increasing complexity of these vehicles means our world class design and engineering capabilities become even greater value for our customers and clear competitive advantage for us.
Jeff Edwards: We believe hybrid vehicles represent as much as an 80% in average content opportunity for our current commercialized product portfolio.
Jeff Edwards: And even more exciting is the news is that we are bringing new product innovations to the market that will expand that content per vehicle opportunity even further.
Jeffrey Edwards: Turning to slide 17.
Jeff Edwards: Turning to slide 17.
Jeffrey Edwards: This is one of the new products, and it's called EcoFlow Switch Pump, which was an Automotive News Pace Pilot Award winner. PACE is recognized around the world as the industry benchmark for automotive innovation, and the Pilot Award recognizes emerging technologies in advance of their commercialization. The Echoflow Switch Pump is a groundbreaking technology that combines both an electric water pump and an electrically driven valve in a single integrated cooling control module. While available for all powertrains, this scalable fluid control technology enables fluid flow switching, splitting, and regulating, all which are needed to address the complex thermal management needs of fully electrified or hybrid vehicles.
Jeff Edwards: This is one of the new products and it's called Echo flow switch pump, which was an automotive news pace pilot Award winner.
Jeff Edwards: Pes is recognized around the world as the industry benchmark for automotive innovation and the pilot award recognizes emerging technologies in advance of their commercialization.
Jeff Edwards: The echo flow switch pump is a ground breaking technology that combines both in electric water pumps, and an electrically driven valve in a single integrated cooling control module.
Jeff Edwards: While available for all powertrains. This scalable fluid control technology enables fluid flow switching splitting and regulating all which are needed to address the complex thermal management needs of fully electrified or hybrid vehicles. The innovation offers automakers efficiency.
Jeffrey Edwards: The innovation offers automakers efficiency improvements, part consolidation, electrical wire harness reduction, and reduced vehicle packaging space. all consistent with our mission to create additional value for our customers. We believe this technology, along with our many other recent, upcoming innovations, will further opportunities for profitable growth and share gains when it becomes fully commercialized and ramps into production in the coming years.
Jeff Edwards: The improvements.
Jeff Edwards: <unk> consolidation.
Jeff Edwards: Electrical wire harness reduction.
Jeff Edwards: And it reduced vehicle packaging space.
Jeff Edwards: All consistent with our mission to create additional value for our customers.
Jeff Edwards: We believe this technology along with our many other recent upcoming innovations will further opportunities for profitable growth and share.
Jeff Edwards: <unk> when it becomes fully commercialized and ramps into production in the coming years.
Jeffrey Edwards: Let's turn to slide 18, and to continue our prepared remarks this morning, I just want to share a few thoughts about our outlook for the rest of 2025 and our expectations for 2026 and beyond. I think it goes without saying that the current levels of uncertainty around trade policies and tariffs make forecasting difficult and accurate forecasting sometimes next to impossible. But what I can tell you with confidence is that we believe we have the ability to measure and manage the direct impact of tariffs on our costs. We have very robust systems in place to quickly analyze proposed tariffs and how they will apply to our products down to the individual input level.
Speaker Change: Let's turn to slide 18 and to continue our prepared remarks. This morning, I just wanted to share a few thoughts about our outlook for the rest of 2025 and our expectations for 2026 and beyond.
Speaker Change: I think it goes without saying that the current levels of uncertainty around trade policies and tariffs make forecasting difficult.
Speaker Change: And accurate forecasting sometimes next to impossible, but what I can tell you with confidence is that we believe we have the ability to measure and manage the direct impact of tariffs on our costs.
Speaker Change: We have very robust systems in place to quickly analyze proposed tariffs and how they will apply to our products down to the individual input level.
Jeffrey Edwards: And the feedback that we're getting from our customers is that it's truly a world-class way of managing the detail level of our business. So I'm confident that we know what's going on there. What I can also tell you is that we expect to be able to mitigate or recover the vast majority of all direct tariff impacts on our business. The greater challenge is to forecast indirect impacts on tariffs, frankly, on the overall demand and production volumes for light vehicles. Despite strong underlying consumer demand being supported by rising populations, increased number of licensed drivers, and an aging vehicle fleet, incremental costs and related price increases from imposed tariffs could dampen demand in the near future and lower production levels obviously could have an adverse impact on our business.
Speaker Change: And the feedback that we're getting from our customers is that it's truly a world class way of managing the detail level of our business. So I'm confident that we know what's going on there.
Speaker Change: What I can also tell you is that we expect to be able to mitigate or recover the vast majority of all direct tariff impacts on our business.
Speaker Change: The greater challenge is to forecast indirect impacts on tariffs frankly on the overall demand and production volumes for light vehicles.
Speaker Change: Despite strong underlying consumer demand being supported by rising populations increased number of licensed drivers and an aging vehicle fleet.
Speaker Change: Incremental costs and related price increases from improved imposed tariffs.
Speaker Change: Dampened demand in the near future and lower production levels, obviously could have an adverse impact on our business.
Jeffrey Edwards: The good news is I assume we will have additional clarity around trade and tariff policies and expected light vehicle production levels by the end of the second quarter. And as usual, this would enable us to provide a meaningful, more meaningful update to our full year guidance, if needed, in conjunction with our second quarter results. And as most of you know, this is consistent with our typical disclosure cadence. I'd also like to make sure that I mention that so far, we're not seeing any meaningful changes to our original plan for the year. We remain confident in our ability to adapt and manage our business in a slow-growth environment, and we believe we will continue to drive increasing margins and returns.
Speaker Change: The good news is I assume we will have additional clarity around trade and tariff policies and expected light vehicle production levels by the end of the second quarter.
Speaker Change: And as usual this would enable us to provide a meaningful more meaningful update to our full year guidance if needed in conjunction with our second quarter results.
Speaker Change: And as most of you know this is consistent with our typical disclosure cadence I'd also like to make sure that I that I mentioned that so far we're not seeing any meaningful changes to our original plan for the year, we remain confident in our ability to adapt and manage our business in a slow growth environment and we believe we will continue to.
Speaker Change: Drive increasing margins and returns are cost reduction initiatives are working and our customers have continued to support us with pricing.
Jeffrey Edwards: Our cost reduction initiatives are working, and our customers have continued to support us with pricing and, most importantly, new business. We also remain confident that as more of our new programs and products are launched this year and next year, we will see further expansion of our profitability and cash flow through both increasing volume and improved variable contribution margins. This profitable growth could enable us to lower our net leverage ratio to less than two times by the end of 2027. Assuming normalization. of Light Vehicle Production Volume.
Speaker Change: Most importantly, new business. We also remain confident that as more of our new programs and products are launched this year and next year, we will see further expansion of our profitability and cash flow through both increasing volume and improved variable contribution margins. This.
Speaker Change: This profitable growth could enable us to lower our net leverage ratio to less than two times by the end of 2027.
Assuming normalization.
Speaker Change: Of light vehicle production volumes.
Jeffrey Edwards: So with that, we 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 and profitable growth and value.
Speaker Change: So with that we 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 and profitable growth and value.
Operator: So this concludes our prepared remarks, so let's move into Q&A. Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your touchtone. If you are using a speakerphone, please pick up the headset before pressing any keys. To withdraw your question, you may press Start. One moment, please, as we assemble the queue for questions.
Speaker Change: So this concludes our prepared remarks, so let's move into Q&A.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, if you have one trustee question, Keith plus time, followed by one on you touched on site, if you're using a speaker phone.
Speaker Change: Please look at the how does that differ.
Jimmy: Thanks, Jimmy.
Speaker Change: Let me draw your question you may start.
Speaker Change: One moment, please cynthia assemble the queue for questions.
Kirk Ludtke: Your first question is from Kirk Ludtke from Imperial Capital. Your line is now open. Hello, Jeff, John, Roger. Thank you for the call. Good morning. Morning, Kirk.
Speaker Change: Your first question is from Tom.
Speaker Change: Tom.
Speaker Change: Your line is now open.
Speaker Change: Hello, Jeff John Roger Thank you for the call.
Speaker Change: Morning.
Kurt: Good morning, Kurt.
Jonathan Banas: On slide 10, I noticed the $2 million in duties and tariffs. Is this a timing issue? Do you expect to recover that? And is that something we should expect to reverse in future quarters? Or how should we think about that category of costs?
Speaker Change: On slide 10.
Speaker Change: I noticed the.
Speaker Change: The $2 million in duties and tariffs.
Speaker Change: Is this a timing issue do you expect to recover that and is that.
Speaker Change: Something we should expect to reverse in future quarters, or how do how should we think about those that that category of cost.
Jonathan Banas: Yeah, Kirk, that's exactly right. This is the minor couple-day impact of tariffs that we had in the middle of the quarter when there was some uncertainty about the exact implementation date and then it was paused. So this is just a two- or three-day impact overall for us. And you're right, it's a gross amount that we fully expect to be able to work to go and recover.
Speaker Change: Yes, Kurt that's exactly right. This is the the minor couple of day impact of <unk>.
Speaker Change: Tariffs that we had in the middle of the quarter. When there was some uncertainty about the exact implementation date and then it was paused. So this is just a two or three day impact overall for us and you're right. It's a gross amount that we would fully expect to be able to work to go and recover.
Jeffrey Edwards: Kirk, this is Jeff. Let me just add, as I mentioned in the last call with you all, and as I highlighted today regarding tariffs, I mean, we have incredible systems. I mean, we should. We've spent enough money on them. So the financial systems, the IT systems that we have allow us in a very granular, real-time way to understand each and every moving part, if you not. And we're really, really confident in our data. We've provided it to our customers. They're really confident in our data as well. And that's why I believe that as it relates to whatever they end up being, we believe that we will continue to recover the vast majority of those costs.
Jeff Edwards: Curt This is Jeff let me just add as I as I mentioned in the in the last.
Jeff Edwards: Call with you all and as I highlighted today regarding tariffs I mean, we have.
Jeff Edwards: Credible system. So I mean, we should we spend enough money on them. So the financial systems. The it systems that we have allow us in a very granular real time way.
Jeff Edwards: To understand each and every moving part if you will.
Jeff Edwards: That is b, either underneath the free trade agreement or not.
Jeff Edwards: And we're really really confident in our data we've provided to our customers. They are really confident on our data as well and that's why I believe that as it relates to to whatever they end up being we believe that we will continue to recover the vast majority of those costs. So.
Jeffrey Edwards: So as I mentioned in the last call, I don't believe it's going to be significant for us going forward with that approach. And I don't feel any different sitting here today with more knowledge than I had in the last call. So hopefully that kind of reflects on some of the tariff questions that are out there and you guys were thinking about. I thought I would just use your lead to summarize what my thoughts are there.
Jeff Edwards: As I mentioned in the last call I don't believe it's going to be significant for us going forward with that approach and I don't feel any different sitting here today with more knowledge than I than I had in the last call. So hopefully that kind of reflects on on some of the tariff questions that are that are out there and you guys were thinking about I thought I would just use your lead.
Jeff Edwards: To summarize what might what my thoughts are there.
Kirk Ludtke: Thank you. That's very encouraging.
Speaker Change: Thank you that's very encouraging.
Jonathan Banas: What would the lag be? I think that as we talk to our customers about this, I would just say we expect it to be real time. So as the parts are picked up, we expect to be paid and reimbursed if there's anything out there that needs to be reimbursed. And again, I think what's very important for everybody to understand is the vast majority of our parts do come under the free trade umbrella. So for us, while it's not something we aren't paying attention to for sure, I mean, we need to recover whatever those costs are, but it's probably not as large and significant as some of the other folks out there.
Jeff Edwards: What would what would the lag be.
Jeff Edwards: Yeah.
Jeff Edwards: I think that is.
Jeff Edwards: We talk to our customers about this.
Jeff Edwards: I would just say we.
Jeff Edwards: We expect it to be real time so.
Jeff Edwards: As the parts are picked up.
Speaker Change: We expect to be paid.
Speaker Change: Reimburse if there's if there's anything out there that needs to be reimbursed and again I think what's very important for everybody to understand is the vast majority of our parts do come under the free trade umbrella.
Speaker Change: So for us it while it's it's not something we are paying attention to for sure I mean, we need to recover whatever those costs are but it's probably not as large and as significant as some of the other folks out there. So.
Jeffrey Edwards: So I'll just leave it at that, but we don't anticipate a quarterly true up or something like that. It'll be ongoing.
Speaker Change: I'll just leave it at that but it will be we.
Speaker Change: We don't anticipate it.
Speaker Change: Quarterly true up or something like that it will be ongoing.
Kirk Ludtke: Interesting. Thank you.
Speaker Change: Interesting. Thank you.
Kirk Ludtke: Slide 15 is really interesting.
Speaker Change: Slide 15 is is really interesting.
Jeffrey Edwards: Is the trajectory of hybrids coming at the expense of... of Electric. Or why is this happening? Why do you think this is happening? Yeah, I guess, you know, I tend to not want to get out ahead of my blockers. And in this case, it's the customer, the OEMs that are probably better to answer that. But at least in our view as a supplier into that space, clearly consumers are voting, right? And they prefer the hybrid approach. versus ICE and versus EV, I think, and so it's probably, the answer is probably both. But for us, and what we tried to point out in our presentation was just the significant increase in content per vehicle that this hybrid electric vehicle approach is going to drive for us.
Speaker Change: Is this is the.
Speaker Change: As the trajectory of hybrids coming at the expense of <unk>.
Speaker Change: <unk> electric.
Speaker Change: Or what why is this happening why do you think this is happening.
Speaker Change: Yes, I guess I tend to not want to get out ahead of my blockers. In this case, it's the customer the Oems that are that are probably better to answer that but at least in our view as a supplier into that into that space.
Speaker Change: Consumers are voting right and they prefer the hybrid.
Speaker Change: Approach.
Speaker Change: Versus ice and versus EV, I think and so it's probably the answer is probably both.
Speaker Change: But for us and what we tried to point out in our presentation.
Speaker Change: Just the the significant increase in content per vehicle that this hybrid electric vehicle approach is going to drive for us and we've talked about this really over the course of a few years now.
Jeffrey Edwards: And we've talked about this really over the course of a few years now. It's just that hybrid wasn't being projected as significant volume, and that has changed. And therefore, that's the reason we're trying to do a better job of quantifying what we think that looks like now and into the future. And for Cooper-Standard, anyway, it's really a good shift. Not that EV wasn't increased content for us either. It was, but not as much as the hybrid, which that also is pretty easy to understand when you have two different systems that need heating and cooling. And then our technology that's helping to consolidate technology and components within these vehicles to help our customers reduce overall cost, our content goes up, of course.
Speaker Change: It's just that hybrid wasn't being projected as is significant volume and that has changed and therefore, that's the reason where we're trying to do a better job of quantifying what we think that looks like now and into the future and for Cooper standard anyway.
Speaker Change: It's really a good good shifts not the <unk> wasn't increased content for us either it was but not as much as the hybrid which.
Also is pretty easy to understand when you have two different systems.
Speaker Change: Need heating and cooling.
Speaker Change: And then our technology that is helping to consolidate.
Speaker Change: Technology and components within these vehicles to help our customers reduce overall cost or content goes up of course, so it's a big deal and one that I think we're all looking forward to participating in over the next 10 years or so.
Jeffrey Edwards: So it's a big deal and one that I think we're all looking forward to participating in over the next 10 years or so.
Kirk Ludtke: Got it, thank you.
Speaker Change: Got it. Thank you and then lastly, with respect to the guidance here.
Jeffrey Edwards: And then lastly, with respect to the guidance, you're not withdrawing guidance, you're... Or are you? No, we're not. This is Jeff. We're clear there. And Kurt, I would tell you, it's exactly what we've done, I don't know, 12 years in a row. We always say we'll look around the corner better when we get to the end of the second quarter, when we have firmer releases for the third and fourth quarter, right? And so, as I also said in the remarks, the first half of the year, the quarter that we're talking about now, and the quarter that we're a third of the way through, we haven't seen significant changes from our original plan related to volume.
Speaker Change: Withdrawing guidance.
Speaker Change: Sure.
Speaker Change: Yeah.
Speaker Change: Or are you.
Jeff Edwards: No. We're not this is Jeff we were clear there incurred I would tell you it's exactly what we've done I don't know <unk>.
Jeff Edwards: Five years in a row, we always say, we'll look around the corner better when we get to the end of the second quarter. When we have firmer releases for the third and fourth quarter right. So as I also said in the remarks, the first to the first half of the year.
Jeff Edwards: The quarter that we're talking about now in the quarter that were a third of the way through.
Jeff Edwards: We haven't seen significant changes from from our original plan related to volume.
Jeffrey Edwards: If anything, mix is probably a little more favorable. So, I don't know what, you know, the summer is going to bring as it relates to the way the customers are going to ultimately stabilize here when the noise is over. I don't know if that's going to result in higher volume, same volume, or less, but I'll know that I'll have a much better view of it come July, August than I do sitting here today. That's the reason for the approach, but it's pretty consistent with what we've always done, frankly. Got it, yes, yeah, I remember.
Jeff Edwards: Mix is probably a little more favorable so.
Jeff Edwards: I don't know what.
Jeff Edwards: The summer is going to bring us as it relates to the way the customers are going to ultimately.
Jeff Edwards: Stabilize here.
Jeff Edwards: Then when the noises over I don't know if thats going to result in higher volume same volume more or less but I'll know that I'll have a much better view of it.
Jeff Edwards: Come July August then I do sitting here today, that's the reason for the for the approach, but it's pretty consistent with what we've always done and frankly.
Speaker Change: Got it yes, yes, I remember so.
Kirk Ludtke: So, um... With respect to the guidance. It is conceivable that you could get to a double-digit EBITDA margin, a run rate by year end. still. Of course, of course. Great. Thank you. I appreciate it. Thank you.
Jeff Edwards: With respect to the guidance.
Jeff Edwards: It is conceivable that you could get to a double digit EBITDA margin run rate by year end.
Speaker Change: Bill of course of course, yes.
Jeff Edwards: Thank you I appreciate it.
Mike Ward: Your next question is from Mike Ward from City Research. Your line is open. Thanks very much. Good morning, everyone. Hey, Mike.
Speaker Change: Oh here.
Speaker Change: Next question is from Michael <unk> from <unk>.
Speaker Change: Thank you Shannon.
Speaker Change: Thanks, very much good morning, everyone.
Speaker Change: Hey, Mike.
Mike Ward: Jeff, in the last year or so, one of the things you've talked about pretty consistently is that it'd be nice to get some volume. And I think, you know, there are all these concerns about the impact to the tariffs, you know, but the bottom line is sales have been stronger, obviously some pull forward, inventory's low, so now you're back into a position where you've got an inventory pull. GM yesterday on their call said they would not be cutting back any schedules and talking to the dealers, I think orders are going to remain robust. What are you hearing from the manufacturers about production over the next 30, 60, 90 days?
Speaker Change: The last year or so.
Speaker Change: Quickly was that it would be nice to get some volume.
Speaker Change: And I think there are always concerns about the impact.
Speaker Change: Tariffs.
Speaker Change: At the bottom line as sales have been stronger.
Speaker Change: Is this a pull forward inventory is low for a while youre back into a position where you've got an inventory poll yesterday, where call. So they would not be putting back any schedules.
Speaker Change: Welcome to the dealers I think orders are going to remain robust.
Speaker Change: Are you hearing from the manufacturers.
Speaker Change: Production over the next 30 60 90 days.
Jeffrey Edwards: Yeah, thanks, Mike. This is Jeff. I'll answer that. So, we have seen continued releases that suggest what we saw in the first quarter, and as we head into the second quarter, it's exactly what we had planned, if not better mix on trucks and SUVs here. So, I think it's consistent with what you just said. It also goes without saying, I guess, and there's clearly some favorable incentive plans being applied by all of our customers here in the U.S. anyway, and I think that's also having a positive impact, right? And, you know, these employee pricing programs that are being cascaded across to all consumers, you know, we see that having a very positive impact.
Jeff Edwards: Yes. Thanks, Mike This is Jeff I'll answer that.
Speaker Change: We have seen.
Speaker Change: Continued.
Speaker Change: Releases that suggest what we saw in the first quarter and as we head into the second quarter.
Speaker Change: It's exactly what we had had planned if not better mix on trucks and Suvs here.
Speaker Change: So I think it's consistent with what you just said.
It also goes without saying I guess and there is clearly some favorable.
Speaker Change: Incentive plans being applied by all of our customers here in the U S anyway.
Speaker Change: And I think Thats also having a positive impact right in these employee pricing programs that are being.
Speaker Change: Cascade it across.
Speaker Change: To all consumers, we see that having a very positive impact as you mentioned our customers have talked about that publicly and.
Jeffrey Edwards: As you mentioned, our customers have talked about that publicly, and, you know, we're on the receiving end of that. So, it's been really good. We are just trying to make sure we stay focused on what we can control. We have really good systems to help us add up the tariff carnage, if you want to put it that way, and make sure we get that put in front of the appropriate customers as we need to and as they require it. And as a result of not having to worry about all this from a manual systems point of view, we're not using Excel spreadsheets like we may have back in the day, we're able to get that done, get it into the customer and make our appropriate plans.
Speaker Change: We're on the receiving end of that so it's it's been.
Speaker Change: It's been really good we are just trying to make sure we stay focused on what we can control.
Speaker Change: We have really good systems to help us.
Speaker Change: Add up the tariff carnage, if you want to put it that way and make sure we get that put in front of in.
Speaker Change: In front of the appropriate customers is as we need to and as they require it.
Speaker Change: And as a result of not having to worry about all this from a manual systems point of view, we're not using excel spreadsheets.
Speaker Change: We may have back in the day.
Speaker Change: We're able to get that done and get it into the customer and make our appropriate plans I want to also say this isn't about just what.
Jeffrey Edwards: I want to also say this isn't about just what we're doing in terms of getting paid from the customer, it's also if there's ways that we can adjust what we're doing to avoid having to pay tariffs, then obviously that's our burden to do it. But the way we laid out our supply chain, for the most part, working with our customers, it's just not that significant for us. It needs to be managed, it needs to be recovered, but it isn't as large as maybe some of the other Tier 1.
Speaker Change: What we're doing in terms of getting paid from the customer. It's also if there's ways that we can adjust what we're doing to avoid having to pay tariffs then obviously, that's our our burden to do it.
Speaker Change: But the way we laid out our supply chain for the most part.
Speaker Change: With our customers.
Speaker Change: It's just not that significant for us it needs to be managed it needs to be recovered, but it isn't as large as maybe some of the other tier ones.
Speaker Change: Right.
Jeffrey Edwards: In Europe, are you more concerned about the volume levels in Europe if there is some pushback from a production standpoint with exporting with a higher cost on the tariff side? As I mentioned in the call, Mike, I think we're all looking to the summer and the third and fourth quarter to really try to understand what what all this is going to mean for volume. I can just tell you setting here today, we don't see any significant change in those forecasts. And because of the way sales are going here in the first half of the year.
Speaker Change: In Europe.
Speaker Change: Concerned about the volume levels well, if there are some pushback.
Speaker Change: Production standpoint, with X coding with a higher cost on the tariff side.
Speaker Change: As I mentioned in the call Mike I think we're all.
Speaker Change: Looking to the summer in the third and fourth quarter to really try to understand what what all this is going to mean for volume.
Speaker Change: I can just tell you sitting here today, we don't see any significant change.
Speaker Change: In those forecasts and because of the way.
Speaker Change: Sales are going here in the first half of the year.
Mike Ward: I'm assuming somebody needs to replenish inventory, which means there's going to be production in the second half of the year. But how that differs from what we have in the forecast, I suppose it could be higher, right? I mean, it could be. I suppose it could be lower. And we just don't have a view of it as we sat here beginning of May, but I certainly will in July, August. It sounds like the market has discounted the worst-case scenario. You can adapt to the worst-case scenario, but it sounds like the answer is probably going to be a lot better than the market's perception.
Speaker Change: I'm, assuming somebody needs to replenish inventory, which means there's going to be production in the second half of the year. So.
Speaker Change: But how that differs from what we have in the forecast.
Speaker Change: I suppose it could be higher right I mean, it could be I suppose it could be lower and we just don't have a view of it as we sat here.
Speaker Change: Beginning of May, but I certainly will.
Speaker Change: July August.
Speaker Change: Well it sounds like the market is this part of the worst case scenario you can adapt to the worst case scenario, but it sounds like the answer is probably going to be work.
Speaker Change: It's perception.
Jeffrey Edwards: and you're prepared to handle that if it occurs from a volume. We are. I mean, we flex well. We've been flexing for seems like a decade, right? And so I think that's an exercise that we're pretty good at. And we also are hoping that we get an opportunity to flex to some volume increases, right? Not just volume decreases. So we're maintaining really, really good performance. We have our plants have enough capacity to deal with the ability and the experience to deal with it if it goes down. So I feel probably as confident as I've felt this time of year in a long time.
Speaker Change: And we're prepared to handle a lot of growth from a volume standpoint.
Speaker Change: We are I mean, we flex well, we've been flex and for it seems like a decade right and so I think that that's an exercise that we are pretty good at and we also are hoping that we get an opportunity to flex to some volume increases right not just volume decreases so we're maintaining.
Speaker Change: Really really good performance, we have our plants are.
Speaker Change: We have enough capacity to deal with the volumes if they go up and we certainly have the ability and the experience to deal with it if it goes down so.
Speaker Change: I feel is probably as confident as I've felt god.
Speaker Change: This time of year in a long time I mean, you go back over the course of 678 years.
Jeffrey Edwards: I mean, you go back over the course of six, seven, eight years, it isn't as if we haven't dealt with a few things. And so I don't feel this is anything that's going to create a long-term issue. I believe that you just have to manage through it. We are. The company's never been stronger. The quality performance of our plants, every way you want to look, working capital, margins, all pointed in the right direction. When we do get volume, which you and I know we will, I think it's going to be really, really good news. So I'll just leave it at that.
Speaker Change: It isn't as if we haven't dealt with.
Speaker Change: Two things and so.
Speaker Change: I don't feel this is anything that's going to create a long term issue I believe that you just have to manage through it. We our company has never been stronger the quality performance of our plants. Every every way you want to look working capital.
Speaker Change: Margins all pointed in the right direction.
Speaker Change: When we do get volume, which you and I know we will.
Speaker Change: It's going to be.
Really really good news so I'll just leave it at that.
Mike Ward: Thank you.
Jonathan Banas: John, two things on the financial side. I know usually first quarter is a working capital drain, but it looks like there was an outside bump up in receivables. Is that a calendar thing, or is that just timing of collecting the money?
Speaker Change: Two things.
Speaker Change: Portfolio.
Speaker Change: Hello usual per quarter was working capital through but it looks like there was a.
Speaker Change: Outside of a bump up in receivables is that of calendar <unk>.
Tony: This is Tony.
Jonathan Banas: You have a snapshot that changed it and altered it, and when does that come back? Yeah, Mike, you're absolutely right. Q1 is always a working capital outflow from a seasonality standpoint throughout the year. And Q1 here was no exception. When you unpack the receivable side, we did a very good job of driving receivables down in December of last year. So it was down to $311 million, I think, if memory serves. And that grew to about $357 million. Normal seasonality, you also have to unpack month by month when that revenue is coming back online. So, what it kind of tells you is there's a little bit more revenue being produced in February and March that you aren't collecting on, that will get collected in Q2 and roll forward, if you will, through the year.
Speaker Change: Yeah.
Speaker Change: We have a snapshot.
Speaker Change: When does that come back.
Speaker Change: Yes, Mike you're absolutely right Q1 is always a working capital outflow from a seasonality standpoint throughout the year.
Speaker Change: And in Q1 here was no exception.
Speaker Change: When you when you unpack the receivable side, we did a very good job of driving receivables down in December of last year. So it was down to $311 million I think if memory serves and then that grew to about $357 million normal normal seasonality you also have to unpack.
Speaker Change: Month by month, when that revenue is coming back online.
Speaker Change: So what it kind of tells you is there's a little bit more revenue being produced in <unk>.
Speaker Change: February and March that you you arent collecting on that'll get collected in Q2 and roll forward. If you will through the year. So that's kind of the the biggest the biggest explanation. When you look at accounts receivable, but from a from an overall free cash flow perspective, despite the flat sales.
Jonathan Banas: So, that's kind of the biggest explanation when you look at accounts receivable. But from an overall free cash flow perspective, despite the flat sales, cash earnings themselves and the actual earnings power was up way over a year. And then we had a little bit higher of a working capital bill to offset that. So, almost on par with the prior year in terms of overall free cash flow. Okay, so some of that should balance out by the end of the day. Yeah, absolutely.
Speaker Change: Cash earnings themselves and the actual earnings power was up way over a year and then we had a little bit higher of a working capital build to offset that so almost on par with the prior year when in terms of overall free cash flow.
Speaker Change: Okay. So one of them.
Speaker Change: It should balance out by the end of the year.
Speaker Change: Sure.
Speaker Change: Yes, absolutely.
Jonathan Banas: And then on, what was the item in the other income? Is that where the royalty true up was, or is that something else? That was, Mike. Within that $7 million bar on that chart, that's where the royalty income was recorded. As I mentioned in my prepared remarks, this was timing of automotive royalties that were received in the quarter. We earned these in connection with the intellectual property license that we incorporated into a previously divested business transaction. So this is really just catching up on that deal and collecting on those royalty payments that were due to us.
What would the item in the other income is noteworthy.
Speaker Change: Royalty trough was or something else.
Speaker Change: That was Mike within that the $7 million bar on that chart.
Speaker Change: That's where the royalty.
Speaker Change: Income was recorded as I had mentioned in my prepared remarks. This was.
Speaker Change: Timing of automotive royalties that we received in the quarter. We earn these in connection with the intellectual property license that.
Speaker Change: And that we incorporated into our previously divested business transaction. So this is really just catching up on that deal and in collecting on those royalty payments that were due to us.
Jonathan Banas: Okay, so then on the segment data, on the adjusted EBITDA, it shows up in corporate eliminations and others. That's correct. Because, like I said, that business was divested a while ago, and it didn't really belong in either the ceiling or the fluid business. So we kept it in the corporate and other areas. Fantastic. Thank you, John. Thank you, Jeff. Thanks, Roger. All right, Mike, thanks. Thank you once again, ladies and gentlemen.
Speaker Change: Okay.
Speaker Change: On the segment data.
Speaker Change: The adjusted EBITDA shows up in corporate eliminations and other.
Speaker Change: That's correct because like I said that business was divested a while ago and it didn't really belong in the either the ceiling or the fluid business. So we kept it in the corporate and other area.
Speaker Change: Okay.
Speaker Change: Thank you John.
Speaker Change: Thanks Roger.
Speaker Change: Alright, Mike Thanks.
Speaker Change: Thank you once again, ladies and gentlemen.
Operator: That is part one, should you wish to ask a question.
Speaker Change: Should you wish to ask your question.
Ben Briggs: And your next question is from Ben Briggs from Stonex Financial. Your line is now open. Good morning, guys. Thanks for holding the call and taking the questions. Most of mine got answered, so thank you for those answers. Just one thing I want to double-check from your prepared remarks. Did you say that you believe the net leverage ratio can get to around two turns by end of 2027? Did I hear that correctly?
Speaker Change: And your next question is from.
Speaker Change: Your line is open.
Speaker Change: Hey, good morning, guys. Thanks for thanks for all of them a call and taking the questions.
Speaker Change: Most of my most of mine got answered.
Speaker Change: So thank you for those answers just one thing I want to do.
Speaker Change: Double check from your prepared remarks did.
Speaker Change: Did you say that you believe the net leverage ratio can get to around two turns by end of 2027 did I hear that correctly.
Jeffrey Edwards: Yeah, this is Jeff. That's exactly right. Okay, great. Thank you. Can you walk through a couple of the key assumptions you're using to get there, because, I mean, would there be volume increases? Is there going to be further margin increases, some cost cutting, just any assumptions that you're using to get there with Yeah, Ben, this is John. That, first and foremost, that assumes no refinancing activity. That's just our base business plan for the next three years, you know, based on the volume assumptions that we expect to normalize, right? We're not talking about the short-term volatility, but a more normalized volume production environment looking ahead over that time horizon.
Speaker Change: Yes. This is Jeff Thats exactly right.
Keith: Okay, great. Thank you Keith.
Keith: Can you walk through a couple of the key assumptions, you're using to get there because I mean or would there be volume increases is there going to be further margin increases and cost cutting just any assumptions that you used to.
Keith: There would be helpful.
Keith: Yes, Ben this is John that first and foremost that assumes no refinancing activity. That's just our base business plan for the next three years.
Keith: Just on the are the volume assumptions that we expect to normalize right. We're not talking about the short term.
Keith: Volatility, but a more normalized.
Keith: Production environment looking ahead over that time horizon.
Jonathan Banas: So, it's really what we've been talking about for the last several quarters, the contribution margin benefits that we're seeing on new business coming online over the next couple years, taking advantage of the operational leverage that we've created with our cost reduction initiatives and all the hard work that's been done by the team over the last several years to really bolster the sustainable profitability going forward. But, you know, clearly, to get to that two times that Jeff had in his prepared remarks, it focuses on continued execution, and those profitable growth certainly remains the most impactful lever to get there overall to get to improve those net leverage ratios overall.
Keith: So it's really what we've been talking about for the last several quarters.
Keith: The contribution margin benefits that were seeing on new business coming online over the next couple of years taken advantage of the operational leverage that we've created with our cost reduction initiatives and all the hard work that's been done by the team over the last several years to really bolster the sustainable profitability going forward.
Keith: Forward.
Keith: But clearly to get to that two times at Jeff Jeff had in his prepared remarks. It. It focuses on continued execution and those profitable growth.
Keith: Certainly remains the most impactful lever.
Keith: To get there overall to get to to improve those net leverage ratios overall, so we feel pretty good about that based on.
Jonathan Banas: So, we feel pretty good about that based on everything that we've been seeing and certainly the type of execution that our global teams are delivering on that we've been talking about a lot today.
Keith: Everything that we've been seeing and certainly the type of execution that our global teams are delivering on that we've been talking about a lot today.
Ben Briggs: Okay, great. Thank you.
Speaker Change: Okay, great. Thank you and I just wanted to follow up on one of the previous questions, where they asked about the guidance and you said youre not pulling guidance. So just to kind of put a pin in that would.
Ben Briggs: And I just want to follow up on one of the previous questions where they asked about the guidance, and you said you're not pulling guidance. So just to kind of put a pin in that, would you say that your guidance is still for adjusted EBITDA in fiscal 25 at the low end of 200 and at the high end of 235? Yes. Okay, great. That is, that's it for me. Thank you guys. Thanks, Ben. Thank you.
Speaker Change: Would you say that your guidance is still for adjusted EBITDA in fiscal 'twenty five at the low end of 200 and at the high end of 235.
Speaker Change: Yes.
Speaker Change: Okay great.
Speaker Change: That is that's it for me thank you guys.
Speaker Change: Thanks Brent.
Speaker Change: Okay.
Operator: It appears that there are no further questions.
Speaker Change: Thank you. It appears that there are no further questions I would now like to turn the call back over to Roger Hendriksen for closing comments.
Roger Hendriksen: I would now like to turn the call back over to Roger Hendriksen for the closing comments. Okay, thanks everybody. We appreciate you joining the call. We appreciate your engaging questions. If there are other questions that come up that we didn't answer this morning, please feel free to reach out. We'd love to continue the conversation in the coming weeks. Thanks again. Talk to you soon. Thank you.
Roger Hendriksen: Okay. Thanks, everybody. We appreciate you joining the call. We appreciate your engaging questions. If there are other questions that come up that we didn't answer. This morning, please feel free to reach out.
Roger Hendriksen: We'd love to continue the conversation in the coming weeks. Thank.
Roger Hendriksen: Thanks again talk to you soon.
Thank you ladies and gentleman that concludes our conference call for today. Thank you all for participating you may now disconnect your lines.
Operator: Ladies and gentlemen, that concludes our conference call for today. Thank you all for participating. You may now disconnect your lines.