Yahoo Finance Cooper-Standard Holdings Inc. (NYSE:CPS) Q1 2024 Earnings Call Transcript
Cooper-Standard Holdings Inc. (NYSE:CPS) Q1 2024 Earnings Call Transcript May 7, 2024
Cooper-Standard Holdings Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, ladies and gentlemen and welcome to the Cooper-Standard's First Quarter 2024 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Following company prepared comments, we will conduct a question-and-answer session. [Operator Instructions] 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.
Roger Hendriksen: Thanks, Chloe and good morning, everyone. We appreciate you taking the time to join our call today. The members of our leadership team, who will be speaking with you on call this morning are Jeff Edwards, Chairman and Chief Executive Officer and Jon Banas, Executive Vice President and Chief Financial Officer. Before we begin, I need to remind you that this presentation contains forward-looking statements. While they are made based on the current factual information, and certain assumptions and plans that management currently believes to be reasonable, these statements do involve risks and uncertainties. For more information on forward-looking statements, we ask that you refer to Slide 3 of this presentation and the company's statements included in periodic filings with the Securities and Exchange Commission.
This presentation also contains non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to their most directly-comparable GAAP measures are included in the appendix to the presentation. With those formalities out of the way, I'll turn the call over to Jeff Edwards.
Jeffrey Edwards: Thanks, Roger and good morning, everyone. How are you doing? We appreciate the opportunity to review our first quarter results and provide an update on our business and the outlook going forward. So, to begin on Slide 5, I'd like to highlight some key first quarter data points that we believe are reflective of our continued strong commitment to operational excellence and our core company values. In terms of product quality, 97% of our customer scorecards were green in the quarter. For new program launches, our customer scorecards were 96%. So, we continue to achieve outstanding operational performance and this is allowing us to deliver exceptional value to our customers. In addition, the safety performance of our plants continues to be excellent as well.
During the first quarter, we had a total incident rate of 0.38 reportable incidents per 200,000 hours worked. That's well below the world-class benchmark of 0.47. Leading this outstanding safety performance were the 39 plants that had a perfect safety record of zero incidents through the first three months of the year. I want to recognize the teams at these plants for their ongoing commitment and leadership as we continue to strive for our ultimate safety goal of zero incidents for the entire company. In terms of cost optimization, we had another solid quarter with our manufacturing and purchasing teams delivering $19 million of savings through lean initiatives and other cost saving programs. This improved efficiency combined with our enhanced commercial agreements, enabled us to improve our gross profit margin by a solid 300 basis points compared to the first quarter of last year.
While we have more work to do, we continue to make progress toward our profitability targets. Finally, we're continuing to leverage world-class service, technical capabilities and our award winning innovations to win new business. During the first three months of 2024, we were awarded $66 million in net new business awards. Importantly, we continue to partner with our customers to design and develop new technologies for some of their most important new vehicle platforms, including ice, hybrid and battery electric vehicles. Turning to Slide 6. another indication of our customer relationships valued technology and world-class service are the product and service awards we frequently receive. We're very pleased once again, to be named as a Supplier of the Year for General Motors, one of our top global customers and I think probably, one of the most coveted awards in our industry.
While the award was announced and presented during the first quarter, it's an annual award that is reflective of our performance throughout the past year. This is the seventh consecutive year that we've received this prestigious GM award, and we look forward to continuing and expanding our relationship with them going forward. Slide 7, while providing our customers with world-class products, technology and service, that's certainly what we do. Our commitment to doing business the right way with uncompromised honesty, transparency, integrity and maintaining a continual focus on being a good corporate citizen says even more about who we are. We're pleased to announce that in just a few weeks, we will once again, be publishing our annual corporate responsibility report.
It covers a wide range of topics, including products, financial performance, corporate governance and environmental stewardship among others. We hope that you will take the opportunity to read through the report and provide any feedback you might have or you might like to share. Your input will be helpful to us as we strive toward our company purpose of creating sustainable solutions together. Now, let me turn the call over to Jon to review the financial details of the quarter.
Jonathan Banas: 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. Before I get into the financials, as you may have seen in our press release, effective from the beginning of this year, we changed our operating management structure and reporting segments to a product line basis rather than the former geographic basis. We believe the new structure will be more efficient and we expect it to help us increase value creation going forward. Jeff will talk more about this in a few minutes. Now, looking at the first quarter's results. On Slide 9, we show a summary of our results for the first quarter of 2024 with comparisons to the same period last year.
First quarter 2024 sales were $676.4 million, a slight decrease of 0.9%, compared to the first quarter of 2023. The decrease was driven primarily by the divestiture of our technical rubber business in Europe during the third quarter of last year and a smaller divestiture of our stake in a joint venture in Asia. Excluding the impact of these divestitures, which represented $13 million of sales in the first quarter of 2023, net sales for the first quarter of last year would have been $669 million. On that basis, our sales for the first quarter of 2024 would have been up around 1% year-over-year, outpacing global automotive production. Gross profit for the first quarter was $61.6 million, or 9.1% of sales. This compares to a gross profit of $41.8 million, or 6.1% of sales in the first quarter of 2023.
Adjusted EBITDA in the quarter was $29.3 million, compared to $12.5 million in the first quarter of last year. The year-over-year improvement was driven primarily by favorable volume and mix, enhanced commercial agreements and lean savings achieved in manufacturing and supply chain, all partially offset by ongoing inflation headwinds in areas such as energy and labor costs, as well as the impact of unfavorable foreign exchange. On a U.S. GAAP basis, the net loss for the quarter was $31.7 million, compared to a net loss of $130.4 million in the first quarter of 2023. As you recall, our results for the first quarter of 2023 included a significant loss on refinancing and extinguishment of debt. Excluding this and other special items and the related tax impact from both periods, adjusted net loss for the first quarter of 2024 was $30.6 million or $1.75 per diluted share, compared to adjusted net loss of $46.2 million or $2.68 per diluted share in the first quarter of 2023.
Our capital expenditures in the first quarter totaled $16.8 million or 2.5% of sales, compared to $29.3 million or 4.3% of sales for the first quarter of last year. We continue to have discipline around capital investments, which remain primarily focused on customer launch readiness and maximizing returns on invested capital. Moving to slide 10. the charts on slide 10 provide additional insights and quantification of the key factors impacting our results for the quarter. For revenue, favorable volume and mix, including net customer price adjustments, increased sales by $8 million versus the first quarter of 2023. The impact from the technical rubber divestiture was $13 million in the quarter and foreign exchange mainly related to the Chinese RMB and the Euro, further reduced sales by a net $1 million versus the same period last year.
For adjusted EBITDA, lean initiatives in purchasing and manufacturing contributed $19 million year-over-year. Favorable volume mix and net price adjustments, as well as other cost recoveries drove a combined $15 million of profit improvement for the quarter. And material cost improvements were a further benefit of $1 million. These positive contributors were partially offset by general inflation, including energy, salaries and wages, transportation and other costs amounting to $9 million in the quarter and another $9 million of unfavorable foreign exchange, primarily related to the strengthening of the Mexican peso and the Polish zloty against the U.S. dollar. Moving to Slide 11. in terms of cash flow and liquidity, cash used in operating activities was approximately $14 million in the first quarter of 2024, as seasonal changes in working capital and the timing of compensation-related payments offset improved cash earnings.
As mentioned earlier, CapEx was around $17 million in the first quarter of 2024 resulting in a net free cash outflow of approximately $31 million. We ended the first quarter with a cash balance of approximately $114 million. Combined with $167 million of availability on our ABL, which remained undrawn, we had solid total liquidity of approximately $282 million as of March 31st, 2024. Regarding our credit facilities, we are pleased to announce that we just signed an extension on our ABL through May of 2029. The agreement and extended term ensures that we have the flexibility we need to continue executing our plans and initiatives to improve the financial strength of the company, drive profitable growth and enhance value over the long-term. Based on our current outlook and expectations for light vehicle production, our improving operating efficiencies, further cost reduction initiatives and the continuing benefit from enhanced commercial agreements with our customers, we expect to generate positive free cash flow for the full year.
And based on that outlook, our current total liquidity position, we believe we have sufficient resources to execute the business and pursue our growth objectives for the foreseeable future. Let me turn it back over to Jeff.
Jeffrey Edwards: Thanks, Jon. And over the next few minutes, I'd like to provide you with some insights into our change in operational management structure from a regional basis to a product line basis and how this change fits in the overall strategy, and how it will drive some significant cost improvements in our business. So, please turn to Slide 13. last year, our global leadership team outlined and refined four key strategic imperatives to accelerate growth and maximize the long-term value of our company. Through relentless focus on these imperatives and a lot of hard work, we are definitely making progress. But we know we have to be more aggressive, more agile, certainly more responsive to our markets and our customers if we're going to get to the next level and achieve our long-term objectives.
The change to product-based management is intended to do just that. So, please turn to slide 14. The new structure, which was put in place effective January 1 is already providing key benefits, including establishing complete P&L ownership and accountability for each product line, optimizing allocation of human and capital resources, streamlining operations and engineering execution, and enabling us to more quickly deliver value-add innovations to our customers. In addition, the new structure will allow each product group to more fully develop and execute separate customized strategies suited to the needs of their specific markets. Turning to slide 15. in our sealing business, we're certainly working from a position of strength as the global leader in the market.
We will look to expand our market share and competitive advantage through technology and customer service, enhancing customer relationships, as well as pursuing opportunistic market opportunities in support of our customers. We expect to improve profitability and return on asset by rightsizing costs within our operations while aligning capital investments with high-growth opportunities. Turning to slide 16. in our fluid business, we see greater opportunity for accelerated profitable growth given the highly-technical requirements for thermal management in hybrid and electric vehicles. As we bring some of our recently-announced innovation to market, we expect to significantly increase our average content per vehicle, as well as expand our total addressable market.
Patented innovations will also improve our competitive advantage and enable market share gains. We believe we can be competitive in building solid fluid handling business in China based on the proprietary technology enhancements we provide to electric vehicles. Turning to slide 17. finally, with new organization structure in place, our operations are already becoming more streamlined and more efficient. As automotive production levels have not rebounded as quickly as many had expected, it's certainly an imperative that we do so. We've identified opportunities to further optimize costs by eliminating redundancies, automating processes and leveraging technology. Beginning later this quarter, we'll be implementing a plan to reduce our salaried workforce globally.
The actions are expected to save between $20 million to $25 million in 2024 and between $40 million and $45 million on a full-year annualized basis next year. The anticipated savings are expected to provide a payback on related restructuring costs in six months. Further, we expect the savings will enable both operating segments to approach, if not achieve double-digit EBITDA margins as we exit 2025. As these initiatives were not contemplated when we developed our initial plan for the year, successful implementation and the related cost savings could represent an upside to our 2024 full-year guidance, certainly assuming industry production volumes hold at planned levels. As we typically do, we expect to provide a formal update on guidance in conjunction with our second quarter results.
So, we want to thank our customers and all of our stakeholders for your continued confidence as we support and support as we work through these turbulent times in our industry. And we thank you all for joining the call today. This concludes our prepared remarks. So, let's move into Q&A.
See also
15 African Countries with the Lowest English Proficiency and
10 Best Trucking Stocks to Buy.
To continue reading the Q&A session, please click here.
