Good morning, ladies and gentlemen, and welcome to the Cooper-Standard First Quarter 2020 Earnings Conference Call. During the presentation all participants will be in a listen-only mode. Following company prepared comments we will conduct the 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.

Thanks, Andrew, and good morning, everyone. We appreciate you spending some time with us today. The members of our leadership team who will be speaking with you on this call this morning are Jeff Edwards, Chairman and Chief Executive Officer; and Jon Banas, Executive Vice President and Chief Financial Officer. In alignment with continuing stay-at-home guidelines in the State of Michigan we're all calling in from different locations this morning. So we ask that you bear with us in the event that we should experience any minor delays or inconsistency due to phone line or network latency. Before we begin, I need to remind you that this presentation contains forward-looking statements. While they are made based on current factual information and certain assumptions and plans that management currently believes to be reasonable, these statements do involve risks and uncertainties. For more information on forward-looking statements, we ask that you refer to Slide 3 of this presentation and also to 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.

Thanks Roger and good morning everyone. Now let's start on slide five. It goes without saying that the COVID-19 pandemic has had a major impact on our business. What started out as a strong operating quarter quickly became a test of our emergency response, capabilities, flexibility responsiveness and resilience. Despite disappointing financial results we're certainly proud the way our global teams have handled this adversity. They continue to find ways to become more efficient in our operations driving $16 million in saving so far this year. And with the aggressive actions we implemented last year we reduced SGA&E by $16 million. We also achieved another great quarter in launches and product quality, which resulted in record high green customer scorecards for the company. And most importantly, our world-class safety performance continues to outperform benchmarks. In fact, the first quarter marks our best safety performance in our company's history for total incident rate. Moving to slide six. The company continues to aggressively manage our COVID action plan and we have aligned our global team around three key priorities; protecting the health and safety of our employees, preserving liquidity and continued execution of our long-term strategic initiatives. Our emergency response teams were activated around the world, quickly implemented health and safety guidelines to help ensure we were adopting best practices at all of our global locations. In China, where the programs were implemented first, we had no cases of COVID-19 infection among our employees. Even if the plants reopen and operations restarted. Our second priority is preserving liquidity. We were fortunate to begin this quarter with a very solid balance sheet. As customer operations began to shut down as a result of the COVID-19, we took immediate action to reduce capital spending, intensify our focus on working capital and reduce costs wherever possible. Jon will provide more details in a few minutes. But were pleased with the results of the cost-saving initiatives and our current liquidity position. Finally it is important for us to remain focused on our longer-term strategic initiatives despite the challenges and distractions in our current environment, and we have. We continue to rightsizing our business and are improving our cost structure globally. One of the two plant closures planned for 2020 is now complete and the second one is on track to finalize later this year. In addition, as we announced last week we've reached an agreement that will enable us to exit some underperforming businesses consistent with the strategy we've been discussing with you the past few quarters. Let me stop there and hand the call to Jon to review the financial details of the quarter. After Jon's comment I'll come back on to discuss our operations and outlook. Jon?

Thanks, Jeff, and good morning everyone. In the next few slides I'll provide some detail on our financial results for the first quarter and also comment on our balance sheet and liquidity profile. On slide eight, we show a summary of our results for the first quarter with comparisons to the prior year. First quarter 2020 sales were $654.9 million, down 25.4% versus the first quarter of 2019. Lost sales attributed to the COVID-19 pandemic and the sale of our AVS business last year accounted for the bulk of the decline. While unfavorable volume and mix, foreign exchange and customer price reductions also weighed on the quarter sales. Adjusted EBITDA in the first quarter was $8.3 million or 1.3% of sales compared to $64.1 million in the first quarter of 2019. The most significant drivers of the decline in adjusted EBITDA were again attributable to the impact of the global health pandemic and industry shutdowns, weaker volume and mix and customer price reductions. These are partially offset by improved operating efficiency and other cost reduction initiatives as well as lower SGA&E expense. On a U.S. GAAP basis net loss for the quarter was $110.6 million. This included a $74.1 million non-cash charge for adjusting the net assets of the planned divestiture to fair value along with project costs related to the transaction that Jeff mentioned earlier. Excluding these charges restructuring expense and other special items, adjusted net loss for the first quarter 2020 was $36.5 million or $2.16 per diluted share. From a CapEx perspective, our spending in the first quarter was $50.6 million, while this is down from $59.6 million in the same period a year ago. It may appear relatively high given the current industry challenges. Most of our CapEx in Q1 is actually the cash outflow on…

Thanks, Jon. With the next few slides I'll provide some highlights related to the current status of our operations as well as our expectations for restarting production and some commentary on some of the strategic initiatives that I mentioned earlier. So if you would please turn to slide 12. In China, all of our plants were shut down for approximately six weeks during January and February due to the spread of the COVID-19 throughout that region. The good news is that once new health and safety measures were put in place, a phased restart of production began in late February aligned with government directives and of course customer schedules. All 12 of our plants have resumed production and we're currently operating at approximately 75% of capacity with 97% staffing levels due to reduced customer demand. The new health and safety measures we implemented included health and temperature screenings, mandatory use of personal protective equipment, separation barriers among our work cells and increased social distancing in our plants. These measures have proven effective so far as we've had no known cases of COVID-19 in our manufacturing facilities in the region. The successful guidelines implemented in China serve as a playbook for us to follow as we return to work in Europe and here in North America. In Europe, customers began to idle operations in early March and most of our plants were closed by mid-March. A few plants maintain limited production to support essential businesses, as well as automotive customers in Asia. A phased restart of production is now underway in Europe and we will ramp up production as needed to support customer schedules and requirements. In North America most of our plants in the U.S. and Canada closed in late March. Our plants in Mexico closed by late April. As…

Thank you. [Operator Instructions] Our first question comes from the line of Michael Ward with Benchmark. Please go ahead.

Thank you. Good morning everyone. Jeff on the ATG side, are you still on track for some meaningful revenue starting to come in 2021 or non-automotive?

Yes, Mike. So on the ATG where we have ISG and where we have AMS. The ISG business is what I was referring to is running during the -- during the pandemic [ph] we were about 60% up and running in the essential markets. At the AMS, I was referring to the testing and so forth that we were in the process of doing when the airlines all shut down. So that's postponed a little bit here while we get back to some level of normalcy going forward. But as it relates to ATG in total, we won't report separately there, Mike, until probably 2023 before the revenue and earnings crossover any level of meaningful or materiality.

Is that 10%? Is that the bogey on that?

Yes. 10% is probably what we will go with. That's right. That's what we said.

Okay. And Jon on the CapEx, I think originally you were looking at CapEx in the range of 140 or 150. And so based on what you're saying, you're looking at for the rest of the last nine months cap spending some around $60 million down from about a $100 million last year. Is that the right ballpark?

Your math is good there, Mike.

Okay.

That's an expectation.

And then the -- when you talked about your liquidity outlook, is that based on the IHS forecast that you have there?

Yes, it's that, Mike, coupled with our customer releases, because we're getting releases into the system, ADI system here for the next call it six weeks. So our view of what they're telling us coupled with IHS over the summer time and into Q3 and Q4.

Okay. So as we look at just kind of the cash aspects of the business, really May and early June are the biggest uses. Is that right?

Yes. That's right. Call it through mid June is the cash burning time. And then once production starts back up and we start collecting receivable money and towards the end of June then we start generating cash again.

Okay. And is any of your debt subject to covenants?

No. There's no financial covenants or no maintenance covenants on the debt.

Okay. And maybe, Jeff one last thing from a structural standpoint, is there anything within the company that prevents you to getting back to double-digit margins at the EBITDA level?

Nothing. Actually what we talked about this morning Mike is a very detailed and aggressive plan to do that. We began pulling those levers in 2019. We've got a number of things we're working on. And this -- and again, I want to be clear. This isn't COVID-19 generated. This is something that we announced last year that we were going to be doing. We're aggressively pursuing it. And I believe that the team is very focused on getting back to that level.

Thank you very much. Good luck.

Thanks, Mike.

Thank you.

Thank you. And our next question comes from the line of Brian Dirubbio with Baird. Please go ahead.

Good morning. A couple of questions for you. The divestiture that you announced last week, can you give us any indication if you're receiving any proceeds or not from that?

This is Jon. No proceeds there.

No proceeds there. Okay. Great. And then, as we look at the -- your amended ABL agreement. You recently took the tooling receivables out of the borrowing base and mentioned that you established that as a separate line. Is that part of your thinking for additional liquidity?

No. But we're thinking about as far as the tooling receivable element is that we're approaching customers where we can to see if we can get accelerated payments from them. Because as you look at the profile of tooling receivables they're generally collected when the tools themselves are [Indiscernible] right before started production. And so you look at our $139 million or so accounts receivable -- sorry, tooling receivable balance as of March 31 and that's ratable across the launch cadence. So instead of waiting till the end, customers have been agreeable to call it progress payments or in certain cases upfront payments to bring cash in the door sooner rather than waiting the extended period of time until launch. So that's what we're thinking about on the tooling side.

Got it. That is helpful. Then just going back to the estimates you had on production between the three regions. May be different question on that is at what levels do you think you need in order for the company to breakeven on a free cash flow basis?

Sure. There's a Jon again. So what we've done is because currently Europe and Asia Pacific are currently cash users. We namely focus on the North America region when we talk in terms of cash breakeven levels. And what we've calculated in the past and currently seems though to hold true is that the cash breakeven level is about 12 million units in North America and the operating profit level is 8 million units. So you can kind of use that as your ballpark.

Got it. And just the deferrals that you have for this year between salary pension and payroll tax, do you have a number what that cash in Quebec [ph] fee for next year? Or is it too early to tell?

Too early to tell, but some of those deferrals like for example the payroll tax item that can be spread over 2021 and 2022. So while we'll save about 7 million to 10 million that spread 50/50 over the next two years after 2020. And then as I mentioned in my prepared remarks, the salaried piece should industry production bounced back to the level where we're in the position to reimburse. We could pay that in Q4 if it's not then we could potentially pay that in Q -- I'm sorry in 2021.

Understood. Thank you for your time.

Thank you.

Thank you. And our next question comes from the line of John Levin with Levin Capital. Please go ahead.

Yes. Could you update us on the developments in Fortrex as a special, because I couldn't -- in reading the release I couldn't tell what degree of progress is being made. Over a broad term what kind of progress do you still anticipate? There were big projections and hopes for what seems like a great product at some point.

Yes. Thanks John. This is Jeff Edwards. I'll take that. So what I was saying in my prepared remarks is obviously the testing activity that we were undertaking when COVID occurred that has -- a lot of that was happening in Asia. So that has been postponed while the airlines are off if you will. As it relates to the long term projection as I said in my remarks, I don't believe it will have any impact. So we're still very pleased with how Fortrex is behaving in our automotive business. And we continue to ramp that up there and we also believe that through the process that we have laid out for everybody in the last couple years that it's gaining momentum on the non automotive side. So this would be a short-term issue because of the engineers not being able to get around and work with each other, but longer-term, no impact.

Can I follow-up perhaps on the call. I mean, there other people. I would make a question and a point. The question you comment about Asia. Does that mean there's not much domestic activity going on. And I would also suggest that in reading your reports or listening to you, if you could break out this promising area you might have more investor confidence. It's very hard when it's melted or merged with other products.

Was that a question for me, John?

Well, the first was why you refer to Asia. I assume the same kind of delay is going on in domestic markets, but maybe Fortrex doesn't have much potential in domestic markets is what you were saying.

Now that's what you said. I said that it was delayed in Asia, because that's where we were doing our testing here in the first quarter. We continued to have activity in both North America as well as Asia. And as far as breaking it out when it becomes material and significant we plan to do that as we've talked in the past. So thanks for the question.

Great. Okay. I'm just trying to get people focus on what this issue. Obviously, was it meant to be a constructive question. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Bob Amenta with JP Morgan. Please go ahead.

Thank you. Good morning. Couple quick questions on cash flow. You guys delineated the payroll taxes and pensions and obviously CapEx. The one other area that I had from your prior call that would be taxes, obviously, we can mess with that on our own. But with the cash reorg I had a 30 to 40 kind of number previously. Is that pretty much set in stone? Is it higher? Is it going to be lower given everything that's going on this year?

Bob, it's Jon. I'll take that one. You can expect that to be to actually lower than we had originally planned at the yearend call. We've kind of looked at the restructuring plan that we had in place for the year and then we dialed that back as we look for the production levels to ramp back up and then we'll can reassess the overall footprint and any levers we can pull there.

Okay. I mean is it modestly lower like five to ten or is it like 50% lower. Just to give a ballpark kind of on that?

I would call it more closer to the 50% level, will still affect the plant closure that Jeff referred to earlier, that'll happen in the in the late summer time. So we'll have a modern outflow there. But call it 50% of the levels we had planned on at the beginning of the year.

Okay. And then and maybe you address the working capital, but obviously you had kind of a 50 million year-over-year better, I mean 11 in versus 40 out kind of rest of the year, I mean, I would think if the ramped up starts up here soon that maybe you would use some working capital here in the second quarter. I'm just -- if we're at plus 11 through three months for the full year do you expect to be positive, negative, flattish, I mean, based on what you see as the ramp up now?

Yes. This is Jon again. With the respect to the ramp up you would normally think that there would be a significant working capital usage there. But because of the North America and Europe shutdowns we're so abrupt in the middle of March. We closed the quarter still with a fair amount of inventory on hand. So we won't need to go out and procure a bunch of inventory to restart our production. And so that'll help working capital here in Q2 and moderate what you would expect to be a normal outflow. And with clearly, you're right, we've been we've been collecting on receivables, so that's that helps the inflow in here in Q2. But then the payables are still going out the door. And you could think about it through Q3. By the end of Q3 that gets more back to a breakeven level on an overall working capital movements and should carry through to the rest of the year.

Okay. So for the full year including Q1, I mean, again, when I say roughly breakeven, plus or minus 25 million either way and it seems like its working capital should not be a material use or source of cash for the entire year.

Yes. That's how we're our remodeling right now, Bob. But without giving specificity of the numbers I think you think about it correctly.

Okay. And then just lastly on -- you guys called out the COVID and the EBITDA impact which I thought was helpful, some others just kind of gave a revenue impact. But that is if you want to call it decremental margin, 1.15 [ph] and 40 of the EBITDA and that's a 35%. If we go in three times that. If its $350 million revenue hit this quarter just based on production, clearly a 35 decremental is 100-ish or more million of EBITDA. Is there anything you could point to in that EBITDA versus sales impact, that would be better, worse some as a percentage or anything that would change me just putting in whatever I assume the sales that isn't taking a comparable EBITDA kind of hit as a percent?

Yes. Without giving you the exact percentage, but let me try to answer it this way. The 35% or so decremental margin, what we try to do there, and clearly it's unprecedented. So this is our best approximation of the impact. But clearly you have the lost volume in the related pull-through. But you're also incurring expenses that you can just turn off. Think about it and canteens in the plant or order certain impacts that still go on even though the plant is not running. That were specifically identifiable to the COVID shutdown. And that's why what would normally be 20% to 30% detrimental margin rises up to 35% or so I don't expect that 35% to carry forward through the rest of the year of the rest of the Q2 shutdown. So I would just call it some more south of that.

Okay. Fair enough. Thanks. That's all I had.

Thanks Bob.

Thank you. It appears there are no more questions. I would now like to turn the call back over to Roger Hendriksen.

Okay. Thanks everybody. We appreciate your participation is morning and we look forward to engaging in further conversations as the days and weeks unfold. If you do have an additional questions please feel free to reach out at any time. Thanks again. This concludes our call.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.