Cooper-Standard Holdings Inc. (CPS) Q4 2020 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen and welcome to the Cooper-Standard Fourth Quarter and Full Year 2020 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 for replay later today. I would now like to turn the call over to Roger Hendriksen, Director of Investor Relations.

Thank you, Kevin. And good morning, everyone. We appreciate your continued interest in Cooper-Standard and we thank you for taking your time to participate in 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, Executive Vice President and Chief Financial Officer. Before we begin, I need to remind you that this presentation contains forward-looking statements. While these statements 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. With those formalities out of the way, I'll turn the call over to Jeff Edwards.

Thanks, Roger. And good morning, everyone. We appreciate this opportunity to review our fourth quarter and full year 2020 results and provide an update on our outlook for 2020 and beyond. To begin, on Slide 5, I'd like to highlight some of the key data points that we believe are reflective of our continued strong commitment to driving sustained value for all of our stakeholders. First, we're very pleased that our continuing focus and discipline around environmental, social and governance excellence is driving action and improved results. In 2020, we meaningfully improved 5 of 6 priority ratings and began tracking a new rating from IHS. We believe that the same focus and discipline is directly related to our operating performance, which was again strong during the fourth quarter. We continue to deliver world-class results in product quality, customer service and employee safety. At the end of the quarter, 97% of our customer scorecards for product quality were green, and 98% were green for program launches. Even more importantly, we had a record year for safety performance. For the full year 2020, our safety incident rate was our best ever at just 0.32 per 200,000 hours worked, well below our world-class benchmark of 0.60. We're certainly proud of this outstanding result and we're particularly pleased that 29 of our plants completed the year with a perfect safety record of zero reported incidents. From a financial perspective, our initiatives to improve margins, and return on invested capital continue to drive the expected improvements in our results. During the fourth quarter, our manufacturing teams delivered $18 million in cost savings through lean initiatives, and improved operating efficiencies. For the full year, manufacturing cost savings totaled $65 million, which is an outstanding result when you consider all the unusual challenges presented by increased health and safety protocols, lower production volumes and customer shutdowns. The aggressive proactive actions we implemented to reduce administrative and overhead costs beginning in 2019 and throughout the year, resulted in a $12 million reduction in SGA&E expense for the fourth quarter versus the same period last year. For the full year, the reduction in SGA&E expense was $43 million. Our global supply chain optimization initiative continues to deliver as expected, driving $7 million in savings during the fourth quarter and $33 million for the full year. Combined, these initiatives were a significant factor in achieving 470 basis points improvement in our fourth quarter adjusted EBITDA margin, despite some significant one-time impacts that Jon will describe in a few minutes. Turning to Page 6. This slide provides details around the improving ESG ratings I mentioned. Our commitment and achievement in ESG is garnering prestigious recognition, including being named to Newsweek's list of America's Most Responsible Companies for the second consecutive year. But more important than the recognition is the actual positive impact we're having on the environment, in our communities and on the overall health and sustainability of our company. Turning to Slide 7, we're continuing our aggressive actions to right-size the fixed cost overhead burden on our business and align it with our smaller revenue base. As a recap, in 2019, we closed 10 facilities, streamlined our global manufacturing structure and significantly reduced SGA&E headcount. In 2020, we closed or exited 14 more underperforming facilities and initiated the closure of 1 more, which we expect to be completed in the first half of this year. We also continued with further right-sizing of our headcount and aggressive limits on discretionary spending in 2020. Combined, the actions we've taken in 2019 and 2020 reduced our total fixed costs in COGS and SGA&E by more than $80 million year-over-year, far exceeding the $50 million in savings that we'd committed to in early 2020. In summary, 2020 was a very challenging year. But our culture, focus and discipline enabled us to manage through the crisis and the challenges and continue to execute well on our major strategic initiatives. Now, let me turn the call over to Jon.

Thanks, Jeff. And good morning, everyone. In the next few slides, I will provide some additional detail on our quarterly and full year financial results and put some context around some of the key items that impacted our earnings and run rate. On Slide 9, we show a summary of our results for the fourth quarter and full year 2020 with comparisons to the prior year. Fourth quarter 2020 sales were $696.9 million, down 4% versus the fourth quarter of 2019. Excluding the impact of the recent divestiture of our business in India and certain operations in Europe, sales were up approximately 3% year-over-year. Improvement was the result of positive volume and mix in Asia and Europe, as well as favorable exchange rates. These were partially offset by reduced volumes in North America, particularly on a key light truck platform, as well as customer price adjustments, which included the impact of a number of commercial negotiations getting settled earlier than planned. That is in the fourth quarter of 2020 rather than in early 2021. Adjusted EBITDA for the fourth quarter 2020 increased to $57 million or 8.2% of sales, compared to $25.7 million or 3.5% of sales in the fourth quarter of 2019. The year-over-year improvement was driven by favorable volume and mix in Europe and Asia, as well as the significant increase in operating efficiency and the cost savings that Jeff talked about, including lower SGA&E costs and savings generated by supply chain optimization and restructuring initiatives. These positive factors were partially offset by unfavorable North American volumes and mix, higher accruals for incentive compensation, typical economics in general inflation and customer pricing adjustments. On a US GAAP basis, we incurred a net loss of $27.2 million in the fourth quarter. This included restructuring expenses and certain non-cash asset impairments. Excluding these and other smaller items, we had adjusted net income of $3.3 million or $0.19 per diluted share for the fourth quarter of 2020, compared to an adjusted net loss of $22.3 million or $1.32 per diluted share in the fourth quarter of 2019. For the full year 2020, our sales totaled $2.38 billion, a decrease of 23.6% versus 2019. The main driver of decline was clearly the COVID related production shutdown that impacted our industry broadly in the first half of the year. The July 1st, 2020 divestiture of our India business and certain European operations also contributed to the year-over-year change, as did the prior year divestiture of our anti-vibration systems business. Adjusted EBITDA for the year came in at $35.7 million, compared to $201.6 million in 2019. Again, the key driver was the COVID related industry shutdown in the first half, as well as unfavorable volume and mix, customer price adjustments, general inflation and higher incentive compensation accruals. These significant negatives could only be partially offset by improved operating efficiency and the other cost saving and lean initiatives we have been executing. Full year GAAP net loss was $267.6 million, which included restructuring charges, non-cash asset impairments and other special or non-operating items. Adjusted for the net impact of these items, we incurred a net loss for the year of $141.4 million or $8.36 per diluted share. From a CapEx perspective, we ended the year at $91.8 million or 3.9% of sales. This compared favorably a CapEx of $164.5 million or 5.3% of sales in 2019. Moving to Slide 10. The charts on Slide 10 quantify the significant drivers of the year-over-year changes in our sales and adjusted EBITDA for the fourth quarter. For sales, the impact of divestitures was a negative $52 million. On the positive side, net volume and mix and including typical customer price adjustments, boosted sales by $7 million, while foreign exchange mainly from the euro and RMB contributed a positive $16 million. For adjusted EBITDA, our ongoing efforts in lean manufacturing and operational efficiency drove $18 million in cost savings for the quarter. Lower SGA&E added $12 million and savings from restructuring and supply chain initiatives added $10 million and $7 million, respectively. These improvements were partially offset by $7 million of unfavorable volume, mix and price adjustments, as well as a net $9 million from wage increases, economics and incentive compensation accruals. Moving to Slide 11. For the full year, COVID related shutdowns reduced our sales by $496 million. Divestitures further reduced sales by $180 million, an unfavorable volume, mix and customer price accounted for a $55 million of the year-over-year change. For full year adjusted EBITDA, improved operating efficiency, lower SGA&E expense and savings from our supply chain initiatives contributed $65 million, $43 million and $33 million, respectively to our results and savings from earlier restructuring initiatives added $18 million. But these improvements were more than offset by the $166 million negative impact of COVID related shutdowns, $80 million of unfavorable volume and mix and $79 million of increased costs related to general economics, compensation related expenses and other items. Moving to Slide 12. Free cash flow in the fourth quarter was an outflow of $8 million, which was essentially in line with our expectations. Cash generated from operations was a positive $11 million, despite large outflows of nearly $14 million for the payout of deferred salaries to our employees and the incremental $16 million for the semiannual coupon on our new secured notes. While the fourth quarter is typically among our strongest for free cash flow, this year didn't follow typical seasonal patterns. Changes in working capital were moderated as we worked with our customers to bring payments in on time and we built a minor amount of inventory heading into year-end to be conservative with respect to anticipated customer production schedules. We are continuing to manage working capital and spending aggressively, and invest in our business prudently. In the second half of 2020, we generated positive free cash flow of $81 million and ended the year with a cash balance of $438 million. With this cash on hand and a $151 million of availability on our revolver, which remains undrawn, we ended the year with total liquidity of $589 million. While we believe this provides adequate capital for the foreseeable future, in view of the considerable uncertainty in the industry and the broader economy, we continue to monitor our liquidity carefully. Before turning the call back to Jeff, let me provide a little color that will help you with our 2021 modeling and provide context to our full year guidance. As we look to 2021, we anticipate that the discontinuation of governmental COVID related assistance programs, wage and incentive compensation increases and unfavorable volume and mix created by the current microchip shortages could pressure our Q1 margins by 200 basis points to 250 basis points versus this most recent quarter. Inflation and gradual increases in discretionary spending are also expected to be headwinds as the year goes on. Planned cost savings actions to offset these headwinds are expected to fully ramp up as the year progresses, and margins should improve throughout the year as a result. Despite the conservative start to the year, we expect to exit Q4 of this year at over a 10% margin. Now, let me turn the call back to Jeff.

Thanks, Jon. Before concluding our discussion this morning, I want to share a few thoughts regarding our near-term and longer-term outlook for the global light vehicle market and for Cooper-Standard specifically. Moving to Slide 14. Our strong cadence for new program launches continues in 2021. The vehicle programs you see on the slide represent some of the most important launches of the year, but are still a small portion of the total 157 launches planned for the year. We're very pleased to have more of our innovations move into production. In 2021, 30 of our planned launches include our recent innovations. And importantly, 25 of the planned launches are on electric vehicles. Turning to Slide 15. On Slide 15, we provide a list of our planned top 10 vehicle programs for 2021. The vehicle images and names reflect the lead vehicle on each key platform. We're proud of the continued strong mix of our top programs, which maintains a heavy weighting on trucks and SUVs. The strong mix provides us with maximum opportunity to increase product content per vehicle and sales over time. Combined, these top platforms represent approximately 45% to 50% of our planned 2021 revenue. Our top platform is once again the Ford F-Series pickup truck, given its strong plan production volume, as well as our high average content per vehicle. On an unweighted basis, our CPV across these top 10 platforms is expected to be approximately $150 this year. Turning to Slide 16. Our strategic focus on light trucks and SUVs puts us in a great position to benefit from the current light vehicle market trends. As shown in the chart on the left, the light vehicle market is poised for significant growth over the next three years, with passenger car growth estimated at nearly 5% annually, and trucks and SUVs growing at over 9%. For Cooper-Standard, over 70% of our 2021 global revenue is expected to come from trucks and SUVs. In North America, the proportion is approaching 90%. And importantly, our average content per vehicle on trucks and SUVs is 2.4 times our content on cars. And 2.7 times the average car content in North America. As a result of our strategic focus on the trucks and SUV segment, we expect our revenue to grow in an average of nearly 10% each year for the next three years, significantly outpacing the broader light vehicle market. Turning to Slide 17. We're focused on continued business growth in the electric vehicle segment, where again, we see tremendous opportunity to leverage our technology and innovation. We've already introduced a number of technical solutions specifically targeted for the electric vehicle market and our innovation team has more in the pipeline. In 2020, we were a supplier on 16 of the top 25 EV platforms globally. We expect to continue to grow our business and market share in this segment over the next several years. In 2020, we were awarded $100 million in new business on future electric vehicle platforms. As a result, over half of our net new business awards for the year were for electric vehicles. Our current outlook is for the revenue growth in the EV sector of approximately 50% annually over the next five years. And as EV technology continues to evolve, we believe complexity within EV thermal management systems will create significant upside content per vehicle opportunity for Cooper-Standard. Turning to Slide 18. The execution of our innovation and diversification strategy remains a top priority. We continue to make progress within our Advanced Technology Group to leverage our material science and manufacturing expertise in diverse industrial markets and complement our automotive business. Customer demand for our Industrial and Specialty Group remains steady with the lone exception being our aviation business. The COVID-19 pandemic has created some temporary staffing and production challenges in certain ISG plants and we're managing through them by strategically allocating production capacity to key customers. We're also investing in additional capital equipment to modernize and expand our production capabilities and increase overall capacity. We remain very optimistic about the growth potential of this business over the longer-term. In our Applied Material Science business, we've concluded several of our technology development agreements, and we are entering the commercial phase on wire and cable and building material products. As with any new technology introduction, we expect any new sales contracts to start small and grow over time as the technology has proven and gains acceptance in the market. Technology development work on applications for the Footwear industry is ongoing. This work is still being impeded somewhat due to the pandemic related travel restrictions. We're currently working with three customers in this space, and we anticipate moving into the commercial phase within the next 12 months to 18 months. While our material science based on Fortrex chemistry platform could be applied over a wide range of industries and applications, we're intentionally maintaining a concentrated focus on just a few select markets initially. We believe this will be the fastest route to commercialization, and eventually to the diverse revenue growth we aim to achieve. To wrap up our discussion this morning, I want to highlight again, our return on invested capital improvement plan and the strategic actions we're taking to drive improved results and deliver sustained value for our shareholders here on Slide 19. This table outlines the key workstreams and projects we have implemented along with the expected benefits of each. It is mostly the same chart that we showed you last quarter, with a few minor tweaks to reflect our progress, and in some cases, some refinements to the overall plan. We're pleased with the progress we made in 2020, which was evident in our second half results. But we also acknowledge that this is a multiyear program. We will continue to execute the plan with intense focus and we expect to realize improvements gradually over the two-year to three-year planning period. Turning to slide 20. On this slide, we provide our initial guidance for 2021 and line them up with our three-year driving value targets. For this year, we expect sales in the range of $2.5 billion to $2.7 billion and adjusted EBITDA in the range of $180 million to $200 million. We believe these estimates are appropriately conservative, given the recent supply disruptions some of our customers have experienced, ongoing COVID related risks and heightened market uncertainties. CapEx will be higher in 2020, but within our targeted range of 5% of sales or less. Cash restructuring in 2021 is estimated at $50 million to $55 million, but is expected to have a payback period of approximately two years. The increase in restructuring spend is directly related to our broader driving value plan. Over the next three years as we execute on our operating plans and strategic initiatives, we anticipate a cumulative annual revenue growth rate of approximately 10%, which is solidly above IHS forecasts for the global light vehicle production. Our driving value targets, our return on invested capital and adjusted EBITDA are to achieve double-digits in both categories over that same period. We recognize that forecasting even a year ahead can be challenging given the high levels of disruption and uncertainty we are seeing in our markets and in the global economy. But as the market upheavals of 2020 that taught us anything, it's that Cooper-Standard team is agile, resilient and committed to achieving our longer-term goals. As we end our presentation this morning, we want to thank our customers for their continued trust and valued relationship. I also want to pause and thank our global team for their hard work and dedication during 2020. From our manufacturing colleagues to our IT infrastructure team, our commercial and customer management groups to finance and cash management teams, literally from the plant floor to the virtual boardroom, everyone stepped up and delivered in extraordinary ways to overcome historic challenges and continue to improve our business along the way. I could not be more proud of the team's performance and unwavering commitment to our company values. Working together, I'm confident we continue to deliver increasing value for all of our stakeholders in 2021. This concludes our prepared comments. So let's move on to Q&A.

Thank you, ladies and gentlemen. [Operator Instructions] Our first question comes from Michael Ward with Benchmark. Please proceed.

Good morning, everyone. Jon, I wanted to get a bit on Page 11, when you do the adjusted EBITDA walk from 2019 to 2020. If we look out to '21 and assuming COVID doesn't have a similar impact and the volume and mix at best is, you know or worst is neutral. I'm coming up with EBITDA of like at $280 million. And I'm wondering if you can provide some of the blocks that are getting you down to that per your guidance of $180 million to $200 million as far as a headwind. And then maybe we can talk about some of the things that are the offsets that you mentioned and maybe their back-end weighted with the restructuring benefits and some of the other things.

Yeah, sure, Mike. Good morning and thanks for the question. To do that analysis, you really got to look at the, what I'll call, the normalized run rate in Q4, first, and then we can look ahead to what we think is going to transpire in '21. So in Q4, we continue to benefit from certain governmental benefits as well as COVID reimbursements from government programs that were tailwinds for us. We know that -

Is that like $10 million? Is that like you know about $10 million that of a rate?

That's around $5 million. So I'll get to the other pieces here. But obviously those aren't going to continue next year when you think about the run rate. Then with a normalized bonus level, you would have to add in some cost into '21 and therefore, bring down the Q4 run rate, because we didn't accrue at a full 100% payout for the 2020 year. Okay. So getting back to a normalized level. And then we had some smaller commercial recoveries on bad debts we had written off in the past in Q4, that also won't expect to continue. So those three main buckets combined, Mike are about 200 basis points of non-recurring good news that should come out of the normal run rate. And then when you look at towards '21, as you well know, pricing is always going to be a headwind for us, so called out about 100 basis points. But we're able to offset that, and then some by combining the 200 basis points of good news from our supply chain optimization efforts, continued net manufacturing improvements, and then another 100 basis points from overall cost savings SGA&E and restructuring initiatives. So all that with a dose of conservatism based on the current Q1 industry challenges, gets back to our implied guidance.

Okay. All right. Thank you. Jeff, on Page 17. You have - about the - could you talk about some of the things that drive the higher content on the electric vehicles versus internal combustion and where you benefit?

Sure, Mike. Certainly on the - when you think about the cooling and heating the battery packs, that's driving significant content up for us in our fluids business. So obviously, you delete the fuel line. But the other fluid product along with the connections and the routing and the significant engineering that goes into those products we're seeing probably double the content as a result. We do plan on - sorry, go ahead.

No, no go ahead.

So we do plan on continuing to lead in the space, our customers have really taken to our approach and our engineering teams are doing a great job. They're really embedded into the customer process, well upfront. We're learning a lot. We're able to increase we believe increase value for our customers. And so we'll be providing more detail on that as the summer months come upon us. But with the vehicles that we've been booking so far, we have a high level of confidence we'll will continue to significantly increase content per vehicle simply on the fluid business.

And then in that business, are the same manufacturing and plants and equipment that you're currently using? Just I guess a different line or different equipment? Is it materially different?

Well, as far as you know, the - yeah, we have today several different types of hosts, product, but the host product for the EV is significantly different than it is for ICE. The good news as they go from ICE to hybrid, you're talking about both of those systems being applied. So we really see even a higher content per vehicle on hybrid as you go to electric and compare it to ICE. It's a significant increase over ICE. So we plan on providing you additional detail on those breakdowns as I said, as we go through the summer months. As it relates to investing in this business, it's pretty much there for us. I would see engineering talent being something that as we expand across the world, we'll continue to increase our talent in this space, because the demand that our customers have, for us to have the knowhow is clearly changing. As it relates to manufacturing product, as you know, we've gotten out of the extrusion hose business in Europe, but we maintained the PVC footprint for electric vehicles. And we continue to add footprint here in North America and we'll continue to add it in China as we need. The good news is the investment is not very significant when you think about capital that's pretty low. The investment for us is really in the connectors in that innovation as well as the technology that we and the knowhow that we have to route the different fluid lines that our customers view is value add for them.

Okay. Lastly on Page 18, you have a bullet there that says three current customers in Footwear. Is that an additional customer? I thought you had 2. Did you add 1 or is it that I missed something along the way?

Yeah, we've added 1 I think since the last time you and I talked.

Okay. And it's still looking at commercialization somewhere 12 months out. Is that in China as well?

Yeah, we haven't disclosed that where, but I guess embedded in my prepared remarks when you think about the travel restrictions and how that's impeded a little bit, you can assume that we're not just traveling to Tennessee.

Okay. Wonderful. Thank you. Really appreciate it.

Okay.

Our next question comes from Joseph Farricielli with Cantor Fitzgerald.

Good morning, thank you. A question on your CapEx guidance and if you could give some color on your tooling balance? The CapEx number that's your CapEx that doesn't include anything for tooling. Is that correct?

Yeah, Joe, this is Jon, that is correct. So CapEx is just Cooper-Standard owned equipment that we would capitalize and use over, not only our special purpose for individual customer programs, but general purpose equipment that we can use for any programs. Tooling, that's specific to a customer and that they owned is categorized separately on our balance sheet. So it's not in that CapEx number, you see, because we're typically getting reimbursed for that either upfront or in some cases, in piece price over the life of the program.

Okay, great. Thanks. I know there were some confusion in the past. And then I'm missing it. I know last quarter the tooling balance sheet item was about $88 million. Where does that stand today? And also given the amount of launches, where does that go going forward?

Yeah. Joe, just give me a minute to look up your question on the tooling receivable. Right now at year-end it is about $82 million still so.

Okay, comparable to the Q3 number.

Right, right, right. And what is that the cadence of receiving those funds? What does that look like compared to the launches that you have this year?

You know, typically the lump sum reimbursements are going to be right around the launch timing, you know, we get the tools approved as far as our test parts by the customer. And then, then we can invoice them for those tools. So I would say of our 157 planned launches throughout 2021, you're going to see a ratable collection on that tooling receivable, some of it could be longer-term, as I mentioned, in piece price, and therefore, there's a portion that is of long-term nature that we will get reimbursed over time. But I will just have you keep in mind that, we're continuing to execute and launch those programs on our behalf for our customers. So we'll invest in more tooling as we continue to collect. So you'll see that balance, you know, fluctuate a bit quarter-to-quarter.

Okay. Okay, that's good color. Thank you very much.

You're welcome.

Thanks.

Our next question comes from Brian DiRubbio with Baird.

Good morning. Can we just focus on inflation for a minute? Can you sort of give me a sense of, you know, how much your cost of goods sold is impacted by some of the inflation we're seeing in steel, rubber and resins? And, you know, and how that's going to, you know, any compensation you can get from the OEs on that rapid inflation?

Yeah, Brian, let me take the first part of that. When I look at Q4, just given the overall economic conditions, Q4 is actually a tailwind for us, in that, we saw some commodity deflation in most of our main commodities. When you think about our inputs like carbon black, EPDM rubber or purchase rubber compound, plastic resins and the like, across the Board, those were down and then we're able to recoup about $3.4 million year-over-year in commodities. The second part of your question is, we continue to work with our customers on recovering in rapid inflationary times and approach them and more of a negotiation basis. We do have some initiatives that we're attempting to get on indexes with a variety of customers to, you know, insulate against those kind of fluctuations into the future. But that's kind of a work-in-process that we're currently marching towards, as far as some of our other supply chain optimization initiatives.

Understood. And as we think about working capital this year, I guess between the ramp up to a more “normalized sales” and then the inflation, I mean should we expect working capital to be use of cash in 2021?

Yeah, this is Jon, again. I would expect it to be a moderate use of cash, just given like you've mentioned, in a typical rising sales environment, you'll see more of an outflow on the working capital side. If I look at the cadence of that, a lot of that comes in, in Q1 as we ramp back up and it's a typically a seasonal outflow for cash flow. And then as the year progresses, Q2 through q4, will return to having working capital being an inflow for us.

Great. And how are you thinking about those, firstly, notes that are outstanding currently?

Yeah, if I look at the two senior notes and the unsecured notes that we've got, you know, currently, you know, they're both trading very well in terms of price, you know, and it might be attractive to some, if you look at just the unsecureds trading in 89 to 92 range, depending on the day. But you know, that is a low-cost instrument for us at the coupon is only 5 and 5/8. So we're in no hurry to refinance that at this point in time. And then as I've said in the past on calls, in terms of the senior secured notes, you know, that it's a non-call two-year instrument, which would put that to 2022, next year, middle of next year. And so our focus is just maintaining liquidity here in the next 12 months to make sure not only protecting the ongoing operations, but we could be in a position should the conditions in the capital markets be amenable to pay those back really if we.

Understood. Great, thank you.

Our next question comes from [Chris Lye] [ph] with Barclays.

Hey, thanks for taking the call. Just saw on the revenue guidance. You know, I saw your assumptions. It was IHS obviously in the US SARs, you know, more than 20% you know, Europe is up 10%. It looks like you're at the midpoint, you're up less than 10%. Just can you kind of walk us through in the puts and takes there?

Yeah, sure. This is Jon, I'll take you through. You know, as we pulled our plan together and looking at the IHS inputs, you know, we clearly reacted to those fluctuations in how we saw the global market playing out, specific to our platform. So it's always important to look at not just the global market, which is going to be up around 12% from '20 to '21, you have to look at the key markets that we operate in, as well as the platforms that we're on. And so when we peel that back, Cooper-Standard volume specifically, is going to be up closer to the 20% market. So we anticipate growing in excess of the market. You know, Jeff alluded to this in his prepared remarks on the call as far as our overall CAGR. So when you think about 20% compared to the 12%, we're about 1.4 times the market growth.

Got it. But the overall sales is only up 10 - a little bit less than 10% so versus the 20% assumption, what is the delta there?

Yeah, as I mentioned on the call, you've got an element of divestitures going away. So if you look at our 2020 sales of $2.38 billion, if you will, and consider the COVID impact, that should have been in our revenue, but deduct over $100 million of lost sales either due to COVID or due to the divestitures, then you're down to more of a $2.7 billion mark. And pricing is always a headwind, which comes off dollar for dollar on the top line. And then certain of our customers have exited various markets that we're in. And that also has a decline in overall revenue base. So that that's essentially the high-level walk to get to revenue for next year.

Understood. And then $180 million to $200 million of EBITDA range, how much the cost that included on a run rate basis? And maybe on an absolute basis, like what are you assuming that number?

Yeah, and I mentioned a few minutes ago, the overall strategic actions and restructuring, as well as SG&A savings are about 100 basis points within that range. So if you look at the midpoint on revenue and do that math, you can get back into a ballpark dollar amount. What's also considered there is the lean initiatives, we have both on the purchasing front as well as manufacturing front. And again, that's around 200 basis points. So doing that same math will get you in the ballpark.

So it's a 100 basis points plus 200 basis points, right. Just to be clear?

That's correct. Yeah, but again, offset by normalizing our Q4 here and commercial headwinds of another 100 basis points.

Got it. And, you know, in terms of, you know, working capital, you know, on the previous question, you mentioned that moderate impact you know is in that $50 million or in order of magnitude, or shall we think of about a number that is going to be higher?

Sorry, I didn't quite hear the magnitude you referenced.

Yeah, I was referencing somewhere around $50 million, is that the right ballpark we should be thinking about?

Yeah, I mean, given the Q1 outflow that I mentioned earlier and just calling back, that's probably in the ballpark. But we continue to work on various components of that working capital. I mentioned our activities around commercial payments and collecting those on time. We also have optimization efforts on our global supply base to extend payment terms where we can do that around the world. So there's opportunity there that we're still driving towards. So I'll frame that your $50 million with that reference.

Fantastic. Thank you. And the just last one, would you consider share equity at this price? Or how you're thinking about, you know, using stock as a way to enhance liquidity or just expanding your optionality at this point?

Well, we always look at all capital allocation opportunities, both inflows and outflows. And at this point, we're not considering issuing any new shares.

Fantastic. Thank you.

Thanks, Chris.

Our next question comes from Bob Amenta with JP Morgan. One moment. Okay, you should be [technical difficulty] now, Bob.

Okay. Hi. I just had a couple follow-ups on cash flow items. Just so I understood working capital, Chris was just asking about this. Did you - were you talking about 2021 when you mentioned that give or take $50 million number?

Yeah, that was a 2021 forward-looking number.

Okay. And then just with regard to cash reorg, I'm sure as we get to the end of this year, you're probably going to look at things and maybe something new is out there, but just with $40 million last year and with $50 million or so this year, is that elevated? Or is that something that you would could expect like if we went out for the next year without finding anything else, should that come down? Or are you kind of sort of perpetually, you know, spending that kind of amount of money that to try to enhance the business, I guess?

Hey, Bob, this is Jon again. I would expect that number to come down significantly in the out years. We think with the plan we've got in place here in 2021 and the actions that are on the list, we should be in good state in '22, '23 and beyond. That's in the assumptions and those driving value commitments that Jeff talked about earlier. You know, but there's what I'll call, minor fine-tuning in those out years that we'll continue to look at as far as looking at the footprint or rationalizing the cost base and other ways at that point. So it's not going to go to zero, but it's not going to be anywhere near the $50 million that we expect this year.

Right, okay. And then just lastly on the kind of that slide with the three-year target. I mean, if we look, obviously 2020 from a margin perspective was not really relevant. Hopefully going to say that again, but you had - if I go back to '19, I know some of the business has changed since then. But it was like a 6.5% EBITDA margin, '21 you're kind of guiding to low 7s, I guess, if we just look at the guidance, but yet, by three-years, you want to be closer to 10%. I'm presuming three years is 2023. So if we're at low 7s in '21, and let's just say 10% in '23, is there that only leaves one year in between those two? I mean, is it more backend loaded? Or if you, in fact, think you can get there or I mean, because that would put you know, you're in the upper 8 so it's a mid to upper 8s in '22. Is that kind of how we should think about it or should we really be thinking about this is something that's I don't want to say, overly optimistic, I assume these are achievable in your mind. But is it backend loaded, I guess is the ultimate question?

Hi, Bob, this is Jeff. Let me take that. So first of all, for this year, I think we were pretty clear that for the first two quarters, given everything that's going on in the industry, we are where we are. And then we said that we will exit fourth quarter this year, we believe, above 10%. I said that the driving value, roadmap items would put us back to double-digit ROIC and double-digit EBITDA in the next two to three years, we believe that we will exit '22 at those levels. So '22 won't be a run rate there, but we'll exit '22 achieving that status and then '23 is probably the year that we believe that we're at a level of sustainability. And that was reflected in my remarks. It may not have been as clear, but hopefully that answer was clear.

No, it is and I'm sorry, I missed - that Q4 exit of 10%, I must have missed you saying that. So that helps. So okay that's all I have. Thank you.

All right.

[Operator Instructions] Our next question comes from [Jeremy Rosenau] [ph] [Essex Capital] [ph].

Hey, guys, thanks for taking my question. I just wanted to follow-up quickly on the questions about the equity offerings or secured notes. By my math here, if you guys wait until the June 22 call on those 13% notes, you'll be paying almost 20% or 20 points in coupon and then you had to call them at $106.5 million. So $126 million all-in cost. However, if you utilize your equity call right now, you could actually call 35% of those bonds at $113 million, not only would you not have to use any cash and you significantly you could enhance your liquidity by saving on interest expense. So I'm curious why that doesn't make sense to you guys right now?

Jeremy, good question. You know, like I said before, we consider all those options and then we talked to our banking colleagues to run the numbers on those various scenarios. And so like I said before, you know at this point we continue to look ahead and maintain liquidity as best we can. But at this point exercising that equity call just isn't in the cards for us.

All right, thank you. End of Q&A:

It appears that there are no further questions. I'd like to turn the call back over to Roger Hendriksen.

Okay. Thanks, everybody for the questions and the engagement on the call. As I said earlier, we appreciate your continuing interest in Cooper-Standard. And should additional calls come up or additional questions come up, please feel free to reach out to me directly, and we will address those as promptly as we can. We look forward to speaking with you again and again, thank you for joining the call.

So, ladies and gentlemen that conclude today's presentation. You may now disconnect and have a wonderful day.