Good morning, ladies and gentlemen, and welcome to the Cooper-Standard Third Quarter 2024 Earnings Conference Call. During the presentation, all participants will be in 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, sir.

Thanks, Sylvie. And thanks to all of you who have taken the time to join our call this morning. The members of our leadership team who will be speaking with you on the call this morning are Jeff Edwards, Chairman and Chief Executive Officer; and Jon Banas, our 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 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. So with those formalities out of the way, I'll now turn the call over to Jeff Edwards.

Thanks, Roger, and good morning, everyone. We certainly appreciate the opportunity to review our third quarter results and provide an update on our business and the outlook going forward. So, to begin on Slide 5, I'd like to highlight some key third 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, 98% of our customer scorecards were green in the quarter. For new program launches, our customer scorecards were 97%. So we continue to achieve outstanding operational performance, allowing us to deliver exceptional value to our customers. In addition, the safety performance of our plants continues to be excellent. If I could find a stronger, better word, I would. During the third quarter, we had our best ever safety performance with a total incident rate of 0.20 reportable incidents per 200,000 hours worked. That's well below the world-class benchmark of 0.47 and it's truly an outstanding achievement. And I want to come back to the topic of safety and provide you some more details in just a moment. In terms of cost optimization, we had another solid quarter with our manufacturing and purchasing teams delivering $15 million of savings through lean initiatives and other cost savings programs. In addition, the aggressive restructuring initiative we announced in the second quarter has been implemented successfully and is driving the planned savings. In the third quarter alone, we realized an additional $10 million in savings from this most recent initiative and so that's on pace to achieve the expected $40 million to $45 million in fully annualized savings. These savings are helping us offset the headwinds of lower production volumes and unfavorable foreign exchange that have persisted during the first nine months of the year. And…

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 third quarter and first nine months of 2024 with comparisons to the same period last year. Third quarter 2024 sales were $685.4 million, a decrease of 6.9% compared to the third quarter of 2023. The decrease was driven primarily by the timing of commercial settlements that occurred in the third quarter of 2023, including approximately $30 million of settlements that were retroactive and related to the first and second quarters of last year that did not recur at the same level in the third quarter of this year. Lower production volumes, the divestiture of our technical rubber business in Europe during the third quarter of last year, and unfavorable foreign exchange also contributed to the lower sales. Adjusted EBITDA in the quarter was $46.1 million compared to $79.1 million in the third quarter of last year. The year-over-year change was driven primarily by the timing of commercial settlements last year, unfavorable foreign exchange, negative volume and mix and general inflation. These negative drivers were partially offset by savings from our continued lean manufacturing, purchasing and restructuring initiatives. On a U.S. GAAP basis, we reported a net loss of $11.1 million in the third quarter of 2024, compared to net income of $11.4 million in the third quarter of 2023. The result in the third quarter this year included a $2.2 million positive adjustment to the charges we recorded earlier in the year related to the termination and settlement of our U.S. pension plan, as well as $1.5 million in restructuring charges related to our…

Okay, thanks, Jon. And for the few minutes we have remaining in our call this morning, I'd like to comment on a few highlights regarding our key strategic imperatives as well as provide you with an update on our full year guidance. So please turn to Slide 14. As you would expect, we remain laser-focused on the four key strategic imperatives that our global leadership team outlined last year to maximize the long-term value of our company and you can see these imperatives outlined here on Slide 14. My earlier comments already spoke to our world-class execution and corporate responsibility, so now I'd like to provide an update on the significant actions we've taken really to improve the overall financial strength of the company. So turning to Slide 15. From 2019 to 2023, our global team achieved over $500 million in sustainable cost savings through improvements in manufacturing efficiency, supply chain optimization, fixed cost reductions and many other lean initiatives. And yet, the current challenging dynamics of our industry certainly require us to do even more and obviously we are. So far in 2024, we've realized an additional $64 million of cost savings through the successful implementation of several aggressive initiatives putting us on track to achieve nearly $100 million in overall cost savings for the full year. So while we're pleased with the savings we're achieving, it is clear that we cannot simply cost cut our way to long-term prosperity. And that's why innovation is also a strategic imperative for us. So please turn to Slide 16. We're very pleased that some of our key innovations are certainly allowing us and we're bringing them to market this year. And as we mentioned last quarter, we were recently named as a finalist for the Automotive News PACE Pilot Award. And…

Thank you, sir. [Operator Instructions] First, we will hear from Michael Ward at Freedom Capital. Please go ahead.

Thank you. Good morning, everyone. When you look at your guidance and if you back out the fourth quarter, the upper end of that range gets you to that double-digit margin that you've talked about. What needs to go right for you to get there?

Well, as I said, Mike, for 2025, we've said it, the entire year, right. We're going to be there as we exit 2025. It's just with the additional cost reductions that we've put in place and the way we're executing, a knock on wood, the way we're executing flawlessly in our manufacturing plants, I mean, we're just a bit ahead of where we thought we would be even as we head our way through the fourth quarter here. So I would just tell you that as we've said in the past, volume would certainly be our friend if it ever shows back up. But in the meantime, we're doing pretty well without it. So I'm very proud of the team and the way they continue to stay engaged and are driving the type of results that you're seeing here, despite the challenging conditions that I'm sure everybody that you've talked to in the last couple weeks has also echoed. But it is what it is. We're not whining about it, we're just doing what we can do to control it.

Okay, so as we look through October and you're one month through the three, and so you're confident with that guidance and so again, if we can get into that towards that upper end of the range, that would certainly be good momentum as you head into 2025 and you haven't seen…

We feel the same way. We agree, we agree. Here your comments are spot on.

Jon, as it relates to currency, the last two quarters, you've had some pretty significant hits from FX as far as a headwind. Is there anything you can do to mitigate that as it relates to the impact on near-term results?

Hey Mike, it's Jon. The FX headwinds is something that we've been dealing with for the first nine months here. And really for us the negative FX impact is primarily related to our cost only currencies. So where we manufacture product but we're not selling in that same currency. And so when you think about our footprint and where we manufacture peso in Mexico is a big exposure for us. Poland with the zloty is a big exposure for us, same with Czech koruna. So we do have a hedging program, Mike, to what can we do to mitigate some of that. But we never hedge 100% and you're only as good as the hedge rate you put into effect when you make the trade and the variability thereafter obviously impacts it. And so with that tail on the amount that we hedge, we do also go back in certain cases to our customers and have programs with them to get quarter-over-quarter recovery on goods manufactured in those currencies. But that's a minor extent of our overall exposure. So we're doing what we can. We think the footprint strategy still makes sense despite the strengthening of those currencies against the U.S. dollar. And we're going to mitigate. I will tell you, we're expecting it to tail off here a little bit in Q4. It doesn't appear to be as big of an exposure year-over-year because you did start to see many of those currencies strengthen in Q4 of last year. So that's the current outlook as we see it today.

Okay. And then just lastly on the – we're in a declining rate environment. We've had a good step down. It sounds like a couple more are coming. Do you have any flexibility with your debt to possibly refinance or make some changes as we go out over the next six to nine months?

Yes, great question, Mike. So yes, we were rooting for more rate cuts of course, in the short-term, the non-call provisions on both our first lien and third lien notes expire in the first quarter of 2025, so at the end of January. At that point, we have a lot more flexibility. There's still a repayment premium associated with those if we wanted to transact. But of course, we can't predict what the capital markets are going to look like then. But we hope there's going to be that opportunity to lower our ongoing interest costs and offer more operating flexibility for the company. But our ability to refinance and what a refinancing might look like largely is going to depend on not only that rate environment you described but the receptivity of the capital markets, the state of the industry, as well as our underlying financial performance. So we'll explore a broad list of options, as we always do, and look for an approach that makes sense for all of our constituents and certainly looks to lower our overall cost of capital and provides that flexibility.

Perfect. Thank you very much.

Thanks Mike.

Thank you. Next question will be from Kirk Ludtke at Imperial Capital. Please go ahead, Kirk.

Hello, Jeff, Jon, Roger, thank you for the call and all the detail. Appreciate it. Just maybe a follow up on the geographic conversation. A lot of angst about European-based manufacturers, not your largest market, but can you expand on what you're seeing in your business in Europe? And also were you EBITDA positive in both North America and Europe in the third quarter?

Yes Kirk, this is Jeff. The answer to the last part of your question is yes, we were positive in both markets. Certainly, the headwinds that Jon and I have spoke about this morning in terms of volume and other macroeconomic wins are very similar in Europe as they are here in North America. So I don't think anybody is in love with the volumes. But we continue to see enough to maintain a level of profitability in both regions and the continued focus on our costs and our fixed cost footprint, getting it back to a level that aligns with the market conditions today and the ones we see for the next few years, give us a level of confidence in both of these regions that we're going to be fine. The other thing to expand upon your geography question that I would tell you is we're really doing very well with the Chinese domestic manufacturers, especially those that are winning business and plan on taking their products globally. They're very interested in doing business with us in our two key product groups because of the level of quality and technology that we provide. So in addition to having a business in China that's very profitable and continues to do quite well, and we shift from the way the market's shifting in China from the Western OEMs to the local Chinese. We're very pleased with how that's going. And then we're also hopeful as they continue to expand production elsewhere around the world, they're taking us with them. So we're seeing some pretty nice growth and profitability with those relationships as well. And then I would close by saying the South American business that we've talked about for years is also making money and contributing positive cash to Cooper-Standard. So from a geography point of view, I think we're doing quite well.

That's great to hear. Thank you. Slide 16, the new products. Congratulations on the PACE Pilot Awards. I'm curious if you could maybe quantify what those new products mean. Are they products that allow you to stay ahead of the competition or are they products that allow you to take share and really drive the top line? Or is there anything you can say on that front that would be interesting?

Yes, sure. So on the eCoFlow for our fluid business, it's a great product because it helps our customer, right. And so we're already quoting, I think, more than 10 of these in the marketplace as we speak. It helps improve the overall fluid management of their systems. So, think about that in terms of the EV product that they're producing and it reduces their overall system cost while improving the overall system performance. And then for Cooper-Standard, of course, it means our content per vehicle and our profit per vehicle goes up substantially and we're paid for that innovation. So it's really – those are the ones that are terrific, the ones that the customers are pulling in and saying we want it because it helps us. So that's what that is. The sealing product is really aerodynamically as well as aesthetically outstanding. And so a lot of the high end customers, as they continue to look for ways to perfect the exterior streamlining of these vehicles to reduce road noise and improve the overall acoustics of the interior, they want sealing systems to contribute to those design standards. And this does in a big way. And the good news, it's on vehicles that they make money on, therefore suppliers can make money on.

Great, thank you, that's helpful. And then the CapEx guidance came down over the course of the year. Are you doing something differently or was it just you saw an opportunity, you took it. And then also, what's the CapEx run rate you think, going forward? Is it materially different than it once was or the same?

Yes, thanks, Kirk. This is Jeff again. So as in, I guess every aspect of the business where we are definitely doing things differently. And related to capital, the teams have just done a terrific job of first of all designing products that don't require the same level of capital that they once did, they're also reusing capital that in the past we probably would have looked past that. So that kind of innovation and ingenuity continues to drive not only within the product, but within the overall cost of our manufacturing. And capital is a benefactor. And so this year as a company, we're guiding right around $50 million in CapEx and we will be at that level or probably even a little bit below that level next year, despite winning all this new business that we're talking about. So I'm really pleased. I'm always giving shout outs to our plant managers between our engineering teams and our product teams, really teaming up with the plants and trying to understand what works, what doesn't, what's excess, what is just enough to keep things going and maintain the quality and the safety standards that we have around this joint. It's working. And so I would expect going forward, to answer your question, the percentage of CapEx that we're spending this year is what we're going to spend again next year.

Great, thank you. That's all very encouraging. Appreciate it. That's it.

Okay, you bet.

Thank you. Next question will be from Brian DiRubbio at Baird. Please go ahead, Brian.

Thank you. Good morning, gentlemen. A couple of questions for me, just going back to Page 10, if you don't mind. I'm trying to level set the company's performance year-over-year, excluding those commercial settlements of $30 million. Would it be fair to basically take down 2023 sales by $30 million and then 2023 third quarter adjusted EBITDA by $30 million to get more of an apples-to-apples comparison?

Yes, Brian, it's Jon, I think that's appropriate because that $30 million was really retroactive pricing that would impact both the top line and EBITDA dollar-for-dollar and related to the first couple of quarters of 2023. So if you wanted to normalize, if you will, from a price perspective, you'd see that. You don't need to do the same on the nine months because obviously it's in the full run rate for the nine month period.

Got it. So that one-time pricing was there and are you getting any commercial settlements throughout the year this year?

Yes. We're still continuing to engage with customers very constructively. Tough environment, there is ongoing conversations in the backdrop of lower production volumes all around, the pace of EV adoption and the introduction of those new products into the marketplace and what that means for the supply base. So our commercial teams continue to work incredibly hard engaging with our customers in that constructive manner that we did the last couple years and still see more work ahead to get appropriately compensated for not only our products, but our capital base that's there to serve the customers.

Okay, great. And then as we think about the implied fourth quarter guidance, what's going to be the main driver there? Is it gross margins? Are you seeing SG&A cuts? Are you expecting any payments on Fortrex? Just trying to wrap my head around the margin expansion.

Yes, Brian, it's Jon again. When you look at the full year guidance bridge compared to the chart on Slide 11, you can kind of back into where we see the expansion opportunities are from a profitability standpoint. We certainly see more manufacturing and purchasing lien initiatives benefiting the run rate. The full effect of the restructuring program that we put in place in May will deliver another $11 million or so of profitability sequentially. But that's going to all be offset by the usual suspects of wage inflation and volume and mix that continues to soften as we look ahead. So those are the main buckets. You'll see that it's inherent in the overall guide.

Great. Appreciate that. And then just confirm you paid the cash coupon for all – you're paying cash coupon for all the notes outstanding currently, including a payment that was made in the third quarter at the last day of the month?

No, you had your timing a little bit off. Our first and third lien note coupons are due in December.

Yes, sorry, I was focusing on the 13.5.

No, that's also due in December as well, so middle of the month, both the first and third liens. And you're correct, we'll pay full cash interest on both of those tranches.

Got it. I'm looking at Bloomberg and clearly they're wrong on that. Okay, so that will hit all within December. Got it. And then just as you think about the structure being able to call it next year, you see, think about the call premiums versus current coupons and what you can get. How much of a rush are you guys in to get this refinanced? Is this something that you would like to tackle earlier this year, or do you see opportunities where you can work through this existing capital structure for another year and then look to refinance when maybe the call premiums aren't as punitive?

Well, we're entering into our – what I'll call our business planning cycle. And while we can't predict what those market conditions will look like, we're planning for the full interest load, if you will, or the existing capital structure to continue on. But clearly that's not our goal. Obviously, we like to bring down the cost of capital as soon as we can. And that's why we're continuing to do all the things that Jeff and I have been describing on this call as far as managing what we can control, improving our cash generation and overall profitability levels. So I'll use the phrase sooner the better. But again, we can't control when we can go to market with good conditions that make sense for all parties.

Understood. Appreciate all the thoughts. Thank you.

Okay, Brian, thank you.

Thank you. [Operator Instructions] Next is Ben Briggs at StoneX Financial. Please go ahead, Ben.

Hey, good morning, guys and thank you for taking the questions. A lot of mine got answered, but I'm going to take one more swing at it. The fourth quarter 2023 to fourth quarter 2024 bridge. So as I'm looking at the midpoint of your guidance here, I get to about, I think about a $62 million number for the fourth quarter that we should expect. And that's up pretty materially versus fourth quarter of 2023. Can you give us a little bit more of a granular breakdown of exactly what the drivers of that are going to be?

Yes, Ben, I'll take a swing. You'll see continued year-over-year benefit from both the purchasing initiatives that we've got in place to continue to attack the supply base and lower our overall material spend. That'll aid the fourth quarter year-over-year, as will the manufacturing lean initiatives and continuous improvement opportunities that we see in the business. So that comes from actual cost saving plays, but it also comes with flawless execution and not incurring higher-than-expected scrap rates or other unforeseen circumstances that can rear up. So the team is operating very, very well as Jeff described so we see more opportunities in that side of it as well. Year-over-year, you will have another $10 million to $11 million of restructuring savings from the program that we announced in May that isn't in that. I think it's $27 million or $28 million of Q4 profitability last year. So all those are contributing year-over-year as well. Okay. In Q4, we always look at across all of our compensation program and incentive comp arrangements as well. And we did take a charge last Q4 if you go back to the notes there to top up that incentive compensation plan. And so you can call that a tailwind for us this year as things are just normalized year-over-year. And that paints the picture for you.

Okay. All right, that's very helpful. Thank you for getting granular there. And then the next thing that I wanted to ask, and this is the only question I've got left, are any of the cost cutting initiatives that you guys have undertaken in recent history, which have obviously been very, very effective, would any of those have to be unwound if there were material volume increases, or are you guys still pretty nimble and able to ramp production when necessary while maintaining these cost cuts?

Ben, this is Jeff. If you have – if you look at the next three years of forecast that's out there that we're doing our business plans with, there wouldn't be anything that needed to be unwound per your description. So we're very confident that what we're doing is sustainable in the environment we're in. And even if volumes continue to move up in the variety of geographies that we. That we do business, we're confident that what we're doing is sustainable in there as well.

All right, that's very helpful. Thank you.

The volume would be – volume, obviously, would be a nice uplift, but we wouldn't anticipate adding capital and doing all the things that I think you were referring to.

Yes. Just wanted to double check, I appreciate it, guys. Thank you for taking the questions.

Okay. You bet.

Thank you. And at this time, Mr. Hendriksen, we have no other questions registered. Please proceed, sir.

Thanks, everybody. We appreciate the engagement, the good questions, and appreciate your continuing interest in Cooper-Standard. If there were other questions outstanding that you didn't get a chance to ask, please feel free to reach out to me directly, and we can arrange for further discussion. Look forward to speaking to you all soon. This concludes our call. Thank you.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.