Good morning, ladies and gentlemen, and welcome to the Cooper Standard Fourth Quarter and Full Year 2022 Earnings Conference Call. [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.

Thanks, Josh, and good morning, everyone. We appreciate your continued interest in Cooper Standard, and we thank you for taking the time to participate in our call this morning. 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. 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. With those formalities out of the way, I'll now turn the call over to Jeff Edwards.

Thanks, Roger, and good morning, everyone. We appreciate the opportunity to review our fourth quarter and full year 2022 results and provide an update on our outlook for 2023 and beyond. So 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 operational excellence and our core company values. In 2022, we continue to deliver world-class results in terms of product quality, program launches and service to our customers. This is reflected by our 98% green product quality scorecards and 97% green program launch scorecards. Even more importantly, and a shout-out to our plant managers, we had our best year ever in terms of employee safety, which is always our top priority as we come to work each day. For the full year 2022, our safety incident rate was 0.33 per 200,000 hours worked, well below the world-class benchmark of 0.57. We are especially proud of the 25 plants that completed the year with a perfect safety record of zero reported incidents. In view of continuing industry headwinds, we focused on further rightsizing every aspect of our business and improving operating efficiency. During 2022, our manufacturing and purchasing teams delivered $75 million in cost savings through defined lean programs and other initiatives. We also successfully reduced our SGA&E expense by $22 million compared to 2021 and realized $8 million in savings from our past restructuring actions. So in total, we delivered $105 million in sustainable cost reductions for the year. By many measures, we had a very successful year, and we're certainly very proud of our team for their continued commitment, hard work and engagement. Turning to Page 6. Complementing our focus on manufacturing excellence is our commitment to doing business the right way…

Thanks, Jeff, and good morning, everyone. In the next few slides, I'll cover the details of our quarterly and full year financial results, put some context around some of the key items that impacted our earnings and then provide some color on our balance sheet and liquidity before talking about expectations for 2023. On Slide 9, we show a summary of our results for the fourth quarter and full year 2022 with comparisons to the prior year. Fourth quarter 2022 sales totaled $649 million, an increase of 8% versus the fourth quarter of 2021. The improvement was a result of favorable volume and mix in all of our automotive segments as demand for our products remain strong and supply chain issues continue to improve. Volume and mix also included the positive impact of our ongoing commercial negotiations and cost recovery initiatives. Adjusted EBITDA for the fourth quarter of 2022 was $27.6 million, or 4.2% of sales compared to $2 million, or 0.3% of sales in the fourth quarter of 2021. The year-over-year increase was driven primarily by favorable volume and mix as well as improved operational efficiency, lower SGA&E expense and the positive impact of our enhanced commercial agreements and cost recoveries. On a U.S. GAAP basis, we incurred a net loss of $88 million in the fourth quarter. This included certain noncash asset impairments, restructuring charges, valuation allowances on net deferred tax assets, and pension settlement charges. Excluding these and other special items, we incurred an adjusted net loss of $31.9 million, or $1.85 per diluted share in the fourth quarter of 2022. This compared to an adjusted net loss of $50.3 million, or $2.94 per diluted share in the fourth quarter of 2021. For the full year 2022, our sales totaled $2.53 billion, an increase of 8.4% versus…

Thanks, Jon. Before concluding our discussion this morning, I want to share a few thoughts regarding our near-term and longer-term outlook and why I remain extremely optimistic about our opportunities ahead. Moving to Slide 17. One of the key reasons I'm optimistic is that over the last 4 years, we've significantly leaned out our cost structure. On a cumulative basis, we've taken out more than $480 million in annual operating costs, and we expect these savings to carry forward into 2023 and beyond. We also expect to continue our laser focus on lean initiatives, manufacturing efficiencies and further optimization of our operating footprint in 2023. We want to ensure that we are aligned with market and customer demand going forward. And we remain committed to either fix or exit those segments of our business that don't provide adequate returns. Turning to Slide 18. Another key reason for optimism is the enhanced commercial agreements that we've established with our customers over the past year. We are better positioned now to manage through commodity cost fluctuations than we have ever been before. With the majority of our key commodity inputs now under indexed-based agreements, our customers will share in a greater proportion of any further impacts from commodity inflation. In addition, we are working with our customers to adjust pricing to cover other elements of cost inflation that are beyond our control. The second phase of our cost recovery initiative is still underway but we have made good progress. As I said in my opening comments, our customers have recognized the value that we have provided them over the years, evidenced by the numerous awards they give us and they've been supportive, both in terms of awarding us new business as well as in terms of price concessions where necessary. I'm more…

[Operator Instructions]. Our first question comes from Brian DiRubbio with Baird.

Just a couple of questions on my end. First of all, Jeff, with the guidance that you gave, are you anticipating all 4 regions to be EBITDA positive in fiscal '23?

As we sit here today, that's what we expect. Clearly, we have, as we mentioned, commercial negotiations that have not concluded yet. We expect those will be concluded by the end of the first quarter. But our expectation is those will be completed and result in the significant uplift that we need to make each of the regions profitable. And then I think that the volumes that we've used, as Jon mentioned in the call, albeit conservative, reflect kind of what we're seeing here in the first quarter. So we're extremely optimistic. I'll tell you. I think that '23 is setting up as a year where things have stabilized and we're able to predict the commercial negotiations that we concluded last year gave us confidence and a real good start to those negotiations here for '23. So I expect it to be positive, and we look forward to creating the type of sustainable footprint around the world that's going to continue to deliver financial results well into the future.

Got it. That's helpful. And just one of the issues that you faced last year and the last couple of years has been the lack of a steady production cadence on your end given the changing schedules that your customers have. Do you expect that? So, what are your customers saying on that end? Is most of the supply chain issues from your perspective and customer perspective -- has that been fixed already? Just love to get a sense of how that's developing.

Well, I guess, in comparison to '21 and '22, significantly improved. I think the forecast between North America and Europe still shows vehicles being missed between Europe and North America anyway. Just under 1 million units are being predicted for the chip shortage, if you will, that hurt us significantly the last 2 years. So while that's still a large number of vehicles that they're forecasting to be missed, it's a whole lot better than it was. And then the scheduling and their ability to get closer to the releases, I would suggest is also dramatically improved. So not perfect yet, but I think that as we go through the year, we'll continue to get better at both.

Two final ones. First, just on the future restructuring actions, you laid out what you want to do in '23. Do you see further restructuring occurring in 2024? Or do you think you can wrap most of that up in 2023?

Brian, it's Jon. I'll take this one. We're currently in flight on programs that we've already announced in executing on in 2022 mainly in the way of headcount reduction initiatives and rightsizing there. But -- so our first line of sight going into '23 and beyond will be on the overall price discussion to make sure we're getting fairly compensated as we've been talking about here. And that will help optimize profitability in all those regions, as Jeff just described to you a minute ago. If those things don't happen, then we'll continue to look at the footprint to see if there's anything significant that needs to be done. But at this point, we don't have any major plans in '24 that would significantly cause us to spend a lot more money than we've otherwise predicting right now.

Fair enough. And then final one for you, Jon. Just post the recap of the new debt that was placed on board. What is liquidity looking like today?

Brian, we typically don't give intra-period liquidity updates. But like I said in my prepared remarks, with the cash balance that we did have on hand and the availability under our ABL facility, we're pretty comfortable with the current liquidity situation and we'll be able to give you some deep dive details come our Q1 call as we always do. But we're feeling no good about our overall balance sheet, certainly getting the refinancing behind us was a good milestone. And now we can go back to focusing on running the business and executing in terms of value creation.

Our next question comes from Ben Briggs with StoneX Financial.

So going through your guidance a little and listening to the prepared remarks, I'm just curious what percentage of revenue do you guys think that the footwear manufacturer is going to contribute in 2023? And can you give any more kind of concrete details on kind of how that footwear contract is going to impact the financial performance of the business?

Sure, Ben. It's Jon again. If you recall, in Q4 of 2021, we actually recorded some revenue from the footwear deal. It was a guaranteed minimum under that contract, around $12 million that we booked in Q4 of last year. So at this point, it's a minimum volume commitment. So we're not anticipating any significant material change from that in 2023. It's certainly all volume dependent into the future. And if they exceed the minimum order quantities on the volumes, then there'll be upside to what we've already recorded. So at this point, it's just once the shoes start leaving the factory and people start buying them, then we'll start seeing the cash come in on that guaranteed minimum. But at this point, nothing material incrementally for 2023.

Okay. So about $12 million of revenue is the right number to think about?

Yes. But again, already recorded last year, 2021.

[Operator Instructions]. Our next question comes from Patrick Sheffield with Beach Point Capital.

Just a couple of housekeeping items. One, could you kind of share how much the refinancing costs and fees in the first quarter?

Patrick, Jon again. We haven't gone through and disclosed fees and other costs to affect the refinancing, but, however, when you think about taking out the previously existing senior secured notes, we did have to incur that prepayment premium and then as also disclosed, there were discounts on the newly issued notes, the backstop fees and the customary fees, I'll say, for advisories in the way of financial and attorney bills and the other customary closing costs. So most of those fees are already publicly out there, and we're racking up the rest of those costs, and we'll have those in our Q1 cash flow that we'll talk about here in a couple of months.

Okay. And then on working capital, do you -- is there any framework you can share about whether you think that's going to be a source or use of cash in '23?

Yes, Patrick, in my prepared remarks, I indicated that we think free cash flow is going to be positive with all of the current assumptions that we're operating with. And a part of that free cash flow positive will be further optimization of our inventory balances. Jeff described things looking more stable this year. That will help us manage inventory a little bit better. We only need to have as much safety stock on hand and we'll be able to have a better minimum order quantities once those -- the release schedules and EDI schedules stabilize. So that will be a component of positive working capital. And also, we are looking to continue to drive our tooling balances down. As a reminder, we spend tooling dollars on behalf of our customers and get reimbursed once those tools are ultimately built and PPAP and approved by the customer. So we're -- in part of our ongoing conversations with our customers, we're looking for more progressive payments on tools rather than waiting until the end and tying up Cooper Standard Capital and using our balance sheet to fund those tools. Instead, we're looking for assistance from our customers to help foot the bill on the tools they ultimately own. So we think there's opportunities to drive the tooling balances down and as a frame of reference, we ended 2022 with about $100 million of tools on our balance sheet that somebody else owns. And with our current cost of capital, not the most efficient use of our resources, hence, the hike conversations with our customers there. So between those 2 working capital line items, we see a lot of benefit. With a rising sales environment, and of course, you always have the offsetting effect that accounts receivable will go up and tie up some working capital at year-end. But net-net working capital should be a positive for us.

Got it. Okay. And then on the 2023 bridge -- EBITDA bridge, you have $150 million benefit from volume mix and price. And I was just curious how much of that $150 million is still subject to finalizing commercial agreements in Q1? In other words, does that reflect what you've already achieved? Or is that taking in some assumption on incremental positive progress in your Q1 commercial discussion.

Yes. It is forward-looking on our expectations. As Jeff described a couple of minutes ago, we'll have better line of sight as Q1 closes here, and we have a lot of those customer agreements negotiated and locked up. So the $150 million includes our expectations about how those will go, but not solidified as of yet. So we'll have a better update for you here once again, we close Q1.

Okay. And it's hard to probably quantify the stuff, but how much of that number is already kind of locked in? Or how much was at play in 2023 versus had already been agreed to in '22? And just broadly, is this something that every year you have you are going to do negotiations with your customers? Or is this just trying to -- just like the final strokes of your broader effort to get greater indexing across your entire -- across your commodity cost structure?

Patrick, this is Jeff. I'll try to answer all of that here succinctly. So point one, we'll -- we are in negotiations virtually with every customer in the world. Per my prepared remarks, we are confident that those are going well. I think we're very transparent with them, and we've been going through those discussions really since probably November. So we got an early start. And we expect that the outcome is going to be positive for us. And we believe that the relationships that we have today will continue to be preserved going forward. That's our expectation. Related to how we'll quantify that, we'll just wait until the closing in the quarter, and then we'll give you a summary on that when we report out our first quarter results. I think it's the best way to deal with it.

This is something you do every year or -- it seemed like there's a big change last year and the year before to try and change the later contracts work? And is this more like just an annual discussion that you have? Or is it a continuation of the efforts from the last couple of years?

It certainly seems like it's an annual discussion, I agree. But the intent this year is in the discussions that we're having right now, we intend to create sustainable businesses in each region. And where we do, we'll stay. Where we don't, we will leave.

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

Okay. Thanks, everybody, for joining our call today. We appreciate your continued interest. If you didn't get a chance to ask your questions this morning, please reach out to me, and we'll be in touch. Happy to engage in whatever questions or comments you'd like to share down the road. Thanks again for participating. This concludes our call.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.