CPS

Good morning, ladies and gentlemen, and welcome to the Cooper Standard first quarter 2026 earnings conference call. During the presentation, all participants will be in listen-only mode. Following the prepared comments, we will conduct a question and answer session. At that time, if you have a question, you will need to press Star, then One on your telephone keypad. To withdraw your question, press Star, then two. 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 will now like to turn the call over to Roger Hendriksen, Director of Investor Relations.

Thank you, Sergio, 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 the call this morning are Jeff Edwards, Chairman and Chief Executive Officer, and John 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 three 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. Good morning, everyone. We appreciate the opportunity to review our first quarter results and provide an update on our business and the outlook going forward. To begin on slide 5, I'd like to highlight some of the key first quarter data points that we believe are reflective of our continuing outstanding operational performance and our ongoing commitment to our core company values. In terms of operations and customer service, we started 2026 with the same strong level of performance that we had in 2025, ending the first quarter with 99% green customer scorecards for quality and service. For new program launches, we also continued to deliver strong performance with 97% of our customer scorecards being green. Our plant managers and our plant employees continued to deliver outstanding performance and value for our customers through their dedication and commitment to excellence.

As always, our most important operating metric, safety performance, continues to be excellent. In fact, during the first quarter, we had a total incident rate of just 0.18 reportable incidents per 200,000 hours worked, well below the world-class benchmark of 0.35. Importantly, 48 of our plants maintained a perfect safety record with a total incident rate of zero for the three months of the year. That's 84% of all of our production facilities achieving a perfect safety score and demonstrating that our ultimate goal of zero safety incidents is achievable. We're certainly proud of our entire global team for their focus and achievement in this important operating measure. In terms of cost optimization, we had another solid quarter with our manufacturing and purchasing teams delivering $17 million of savings through lean initiatives and other cost-saving programs.

These cost reductions and operating efficiencies, combined with revenue growth in the quarter, allowed us to achieve a solid 40 basis point improvement in gross margin versus the first quarter of last year. As a result, despite of some of the market headwinds we've been seeing, we continue to drive profitable growth and margin expansion through the execution of our plans and strategies. Finally, we're continuing to leverage world-class service, technical capabilities, and our award-winning innovations to win significant new business. During the first quarter of 2026, we received $128 million in net new business awards, which are expected to drive profitable growth as they launch over the next few years. I'll talk more about the significance of our new business awards in a few minutes. Turning to slide 6.

As we've made terrific improvements in our operating metrics and profitability over the past few years, we certainly haven't lost sight of the importance of being a good corporate citizen. We continue to work on developing and delivering end material solutions, delivering product and material solutions for our customers that help them achieve their environmental goals. Of course, we've set and are working to achieve aggressive internal goals for reducing energy consumption, emissions, and scrap. Our achievements in corporate responsibility continue to garner recognition from numerous entities as well as our customers. One of our recent innovations, our FlexiCore thermoplastic body seal technology, was recently recognized as a winner in the 2026 Environment+Energy Leaders Award. This new technology replaces the metal carrier that is used in a traditional dynamic body seal with a patented thermoplastic carrier.

The result is a lightweight body seal that maintains the same high-quality performance of traditional materials, but is 100% recyclable, increasing vehicle efficiency and reducing materials that end up in landfills. Recently, a FlexiCore front and rear closure seal application was successfully launched into production with a global automaker, further demonstrating the real-world impact of this technology. We're also pleased to have recently been included among USA TODAY's list of America's Climate Leaders for the third consecutive year in recognition of our continuing advancements in environmental stewardship. Corporate responsibility is and will continue to be an area of focus for our entire organization, from the production floor to the boardroom, because it's the right thing to do. You can learn more about our goals and our progress in sustainability in our 2025 corporate responsibility report, which will be published within the next few days.

We encourage everyone to take a few minutes to look through it when it posts on our website. Let me turn the call over to John to discuss the financial results for the quarter.

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 and capital structure. On slide 8, we show a summary of our results for the first quarter of 2026, with comparisons to the same period last year. First quarter 2026 sales were $686.4 million, an increase of 2.9% compared to the first quarter of 2025. The increase was driven primarily by favorable foreign exchange and partially offset by unfavorable volume and mix net of customer recoveries. As Jeff mentioned, our first quarter 2026 gross margin improved 40 basis points compared to the prior year, up to 12.0% of sales.

This was a strong result in view of the production volume headwinds we continue to face on certain key platforms in North America during the quarter. Adjusted EBITDA in the quarter was $51 million compared to the $58.7 million we reported in the first quarter of 2025. The year-over-year change was primarily due to the non-recurrence of approximately $10 million of royalty payments that we received in the first quarter of 2025. Otherwise, Adjusted EBITDA and margin would have improved over last year. On a U.S. GAAP basis, we reported a net loss of $33.3 million in the first quarter of 2026 compared to a net income of $1.6 million in the first quarter of 2025.

Adjusting for the loss incurred on the successful refinancing of our debt in the first quarter this year, restructuring and other items from both periods, as well as their related tax impacts, adjusted net loss for the first quarter of 2026 was $5.2 million or $0.29 per share, compared to adjusted net income of $3.5 million or $0.19 per share in the first quarter of 2025. Our capital expenditures in the first quarter of 2026 totaled $24 million or 3.5% of sales, slightly higher than the prior year period due to increased launch-related investments. We continue to exercise discipline around capital investments as we focus on maximizing our returns on invested capital. Moving to slide 9.

The charts on slide 9 provide additional insights and quantifications of key factors impacting our results for the first quarter. For sales, favorable foreign exchange was a tailwind of approximately $24 million in the quarter versus the first quarter of 2025. Unfavorable volume and mix, net of customer price adjustments, had a negative impact on sales of approximately $5 million compared to the same period a year ago. For Adjusted EBITDA, lean initiatives in purchasing and manufacturing positively contributed $17 million year-over-year, delivered by continued strong performance from our global teams. In addition, we continue to realize benefits from our restructuring initiatives implemented in prior periods, amounting to $2 million in incremental savings, as well as lower SG&A of $1 million in the first quarter compared to last year.

Offsetting these improvements were $7 million of unfavorable volume and mix, including customer price adjustments and the impact of certain short-term production disruptions, $7 million in increased costs in the form of higher wages and general inflation, $2 million from unfavorable foreign exchange, and $12 million of other unfavorable items, primarily the non-recurrence of certain royalty payments we received in the first quarter of last year. Moving to slide 10.

We ended the first quarter with a cash balance of approximately $118 million, owing primarily to typical seasonal changes in working capital, which we expect will unwind over the next couple of quarters, as well as $24 million of out-of-period accrued interest that we paid in conjunction with our refinancing. Cash on hand, coupled with $167 million of availability on our ABL facility, which remains unutilized, we had total liquidity of approximately $286 million as of March 31st, 2026. We believe that this provides us with more than sufficient liquidity to support the continuing execution of our business plans and profitable growth objectives in today's economic and industry environment. The successful refinancing that we completed on March fourth of this year gives us an overall lower interest rate and reduces expected annual cash interest by approximately $6 million.

In addition to the lower interest rate, the refinancing also provides us with increased financial flexibility through more favorable terms and significantly extends the maturity on the newly issued notes out to 2031. We believe this enhanced capital structure positions us extremely well to continue to execute on our strategic plans to deliver profitable growth, lower our net leverage, and maximize our returns on invested capital. This concludes my prepared comments. I'll turn it back over to Jeff.

Thanks, John. In the last portion of our call, I'd like to again comment on our high-level strategic imperatives and how these are positioning us for continuing profitable growth over the next several years. I'll wrap up with a few comments on our outlook for our business and our industry in general in 2026. Please turn to slide 12. Our strategies and operating plans, as you know, are built around the four key strategic imperatives that you see outlined on slide 12. By aligning the company around these common objectives, we continue to drive significant improvements in virtually every aspect of our business. By the continuing execution of our plans and strategies, we are positioning the company to deliver continued profitable growth, further improvements in margins, and significantly improved returns on invested capital, as we discussed in last quarter's call. Moving to slide 13.

The charts on slide 13 provide a concise summary of the progress we've made in restoring the financial strength of the company. Through our successful strategic execution, we've been able to increase our gross profit margins by 160 basis points over the past two years, despite reduced or flat production volumes in our two largest operating regions. This includes the impact from the significant decline in production on one of our key platforms in North America that resulted from a customer supply chain disruption beginning in the fourth quarter of last year. Because of our success in driving sustainable efficiencies and fixed cost reductions, we believe we will continue this trend of expanding margins in 2026 and beyond, even if production volumes remain flat, and we would expect to leverage any increase in production volume to drive further profitability and returns.

In addition, our cost optimizations were benefiting from continuing launches of new programs and products with enhanced variable contribution margins. As these new programs ramp up, they're replacing older programs that have lower margins on average. Our book business, launch cadence, and the delivery of run-out business gives us a high degree of confidence in our expanding margin outlook. Turning to slide 14. Both of our business segments are executing sound strategies to drive profitable growth and improved returns on invested capital. In our Sealing segment, where we're already the global leader in the industry, we're leveraging our leading technologies, expertise, and innovation to capture additional share and profitability. We've also deployed sophisticated digital tools within our manufacturing facilities to drive further efficiencies and improved asset utilization.

Finally, as we continue to deliver exciting innovations that provide incremental value to our customers, we're winning more than our fair share of new business. Turning to slide 15. In our Fluid Handling segment, we've unmatched portfolio of products and innovations that position us well to take advantage of increase in ICE and hybrid powertrains in the U.S., the continuing adoption of EVs in China, and the evolving mix of hybrids and EVs in Europe. This flexibility around powertrains, combined with our ability to design and deliver engineered solutions to optimize vehicle efficiency, is creating opportunities for increased content per vehicle and profitable new growth. As we've said in the past, our longer-term strategic target is to double the Fluids business within the next five to seven years.

With recent new business wins and a long list of target business opportunities coming up, we believe we're on track to achieve this goal. Turning to slide 16. In terms of winning new business, I mentioned at the beginning of the call, we've received $128 million in net awards in the first three months of the year. This was ahead of our plans for the quarter, putting us in a strong position to achieve the full year goal of over $400 million in net new business awards. As you can see in the chart, as our overall operating performance and financial strength continue to improve, the new business awards are accelerating. The good news is that we have available capacity to launch much of this new business over the coming years with minimal incremental capital investment.

We are proud to be the supplier that our customers are increasingly turning to for quality components, consistency of delivery, and collaboration on critical design and development of new technologies. With these awards in hand for Q1 and a bright outlook for the new business wins ahead, we are increasingly confident that we will be able to execute our plans to achieve our longer-term strategic financial targets for growth, margins, and return on capital. Turning to slide 17, to conclude our prepared remarks this morning, let me shift focus to the near term and our outlook for the rest of 2026. I think the key takeaway this morning is that despite continued disruptions within our industry and ongoing uncertainty in the global economy, we were able to deliver results that exceeded our original operating plan.

We are optimistic that certain headwinds we have faced for the past 2 quarters could turn into tailwinds in the back half of the year. If we could get some resolution to the military actions going on in the Middle East, we would expect a strong positive effect on consumer sentiment and consumer demand globally. Meanwhile, we're maintaining our focus on delivering value for our customers, optimizing our operations around the world, and successfully executing our strategic plans to drive profitable growth, further expand our margins, and maximize return on invested capital. We believe we're on track to achieve or exceed the full year targets that we set out for you back in February. We expect to provide a more formal update on guidance as we typically do in conjunction with our second quarter results.

We also believe we are solidly on track to achieve our longer term strategic financial targets for Adjusted EBITDA margins and return on invested capital. With that, we'd like to thank our customers, our suppliers, all of our stakeholders for your continued confidence and support. We also wanna thank all of our employees for their continued hard work, dedication, and their commitment to driving sustainable long-term value. This concludes our prepared remarks. Let's move on to Q&A.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone. If you are using a speakerphone, please pick up the handset before entering your request. To withdraw from the queue, press star, then the number two. One moment, please, as we assemble the queue for questions. The first question comes from Nathan Jones from Stifel. Please go ahead.

Morning, everyone. This is Andres Loret de Mola on for Nathan Jones. Thank you for taking my questions. Nice step up in new business from 181 in 2024 to $298 million 2025, now $128 million in 1Q. I think you released that about $32 million of net new biz coming from battery, electric and full hybrid. Can you maybe give us a split between how much of that is within Sealing or Fluid and for 0.25 as well? Just so we have a indication. Obviously, more content on the Fluid business on those powertrains. Curious to hear about that.

Yeah, sure. Good morning. This is Jeff. The $128 million that we've booked so far in Q1, about 60% of that is Fluid, 40% is Sealing. Not a surprise. Around 50% of it is North America-based, and a large percentage is China-based. Again, not a surprise. I think as we go forward and there are continued hybrid products introduced into the market, you'll continue to see the content per vehicle for Fluid continuing to rise. Last year, to your, to your point about the nearly $300 million of net new business, I think Sealing actually had more of that than Fluid. It doesn't surprise me this year that Fluid is outpacing the Sealing net new business.

It tends to fluctuate like that. I do think Fluid going forward is going to benefit significantly from the additional hybrid coming into the market. As we've said in the past, you know, that can result in more than double content per vehicle than what we've seen from the traditional ICE programs that were booked within our Fluid business. Really a positive story. We're on our way to exceeding the $400+ million of net new business for 2026.

Awesome. Thank you. Just one more. Switching gears a little bit to margins. Can you discuss sort of the impact higher input costs are expected to have on margins this year? How should we think about that? Maybe the escalators and de-escalators Cooper has in place.

Thank you.

Hey, Andres Loret de Mola. Good morning. Thanks for the question. When you think about the significant oil price increases that the industry is bearing as well as higher aluminum prices, for some discrete reasons that the suppliers are raising globally, we are fairly well protected. As we've talked in the past, we're in excess of about 70% covered on contractual indexes with our customers or otherwise negotiate on a regular basis, call it every quarter, every six months with customers to claw that back. We think any increases will be adequately addressed with those historical mechanisms that we've gotten in place with our customers overall.

There is a lag, when you think about, you know, our spend versus the timing of recovery. You know, the indexes will traditionally reset every quarter and therefore then you can go back in and recover the previous quarter's inflationary impact or in a good news situation, you would give some of that back. That's the typical cadence in Q1. Just given the timing of oil price ramp up, there wasn't a significant impact inflationary pressures in Q1, but we certainly expect to see that headwind come in Q2, the recoveries would come online in that sequential recovery cadence.

Thank you. Thanks for taking my questions.

Thank you.

Thank you. Your next question comes from Kirk Ludtke from Imperial Capital. Please go ahead.

Hello, Jeff, John, Roger. Thank you for the call.

Morning, Kirk.

Hey, Kirk. On slide 16, another impressive quarter for new business and, you know, it's one of these bullets says 74% related to, you know, innovation products. If I remember correctly, those are materially higher margin than your existing average margins. I'm just curious if you'd be willing to quantify how much more profitable they are.

Yeah, Kirk Ludtke, this is Jeff Edwards. I think as we have said, going forward as whether it's innovative net new business or whether it is the traditional products that we have historically been marketing and selling to our customers, we have been very consistent with targeting hurdle rates and achieving those hurdle rates as we book net new business. It's why we're able to put out the type of strategic targets we have related to the VCM increase overall margins and the overall significant increase of return on invested capital that's forecast over the next several years. That's actually happening. You can see the 160 basis points increase over the last two years.

You can see the VCM well over 30% this particular quarter. As all this business launches from, you know, that we booked in 2024, 2025, and that we're booking here in 2026, those numbers will continue to go up and, you know, we expect, as I've said on this call as well, we expect our return on invested capital to be well over 20%, you know, at the end of our 2028 business year. Tracking to the same strategic targets that we put out last June. Your point is well taken related to the innovation. We are seeing further expansion as we launch a product that is innovative and that provides customers with cost down opportunities, light weighting opportunities, recycling opportunities.

I would expect those numbers to even be better as we present our five-year plan. We actually have a meeting coming up with our board in June where we'll roll out the next five years. I would expect to see continued margin expansion beyond what we've even said.

Got it. I appreciate it. Thank you. Then, maybe a follow-up on the higher gasoline prices. Have you seen any change in schedules since prices went up?

We have not. The volumes that we have in our business plan, we had, you know, some pluses and minuses as we usually do each quarter. As we start into the second quarter, we're seeing the volumes basically on our plan. As I said on the call, I think that as long as the Middle East conflict gets resolved here and in short order, I expect it to frankly end up being a tailwind in the second half. If that doesn't happen, you know, your guess is as good as mine. So far, I think we're well-positioned for the first half of the year.

We'll manage through the increase in oil prices that existed versus our plan for the second quarter, and then hopefully be well-positioned for the second half of the year to be stronger than planned. That's what I'm hoping for.

Got it. I appreciate it. Thank you. Good luck.

Okay.

Thank you. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press the star followed by the one on your telephone. If you are using a speakerphone, please pick up the handset before entering the request. Your next question come from Doug Carson from Bank of America. Please go ahead.

Great, team. Thanks for hosting the call and getting my question in. As you look at the bridge from 2025 to 2026, I know you'll be out with more detail in 2Q, so I don't wanna get ahead of it. That was a goal that was set. I think investors thought it was an optimistic goal, but it looks like you're gonna hit it or potentially exceed it. A large part of that bridge was lean manufacturing, improvements in purchasing.

In this tough market, to be able to beat that number, can we just get a little bit of sense if you feel this is gonna be coming more from business wins or you feel like the lean could get even higher, or maybe more pricing 'cause you know volume's gonna be challenging. Just give us a little sneak peek on what to be thinking about as far as that, the guidance. Then, then maybe separately, during the deal we talked about 51% of your awards were coming from high growth Chinese OEMs, and just wondering kinda how that cadence has been with the Chinese.

Yeah, Doug, this is Jeff. Thanks for the question. Related to how we continue to expand margins, it's sort of all the things that you talked about, right? We have teams both in our Sealing and our Fluid business. They come to work in 20 countries plus, and each month, each quarter, they have detailed plans that they're executing. They just don't, you know, start that at the beginning of the year, right? They're working on those plans well in advance of a particular business year.

As, as John and I said in the last call, we had a high level of confidence that the execution of the cost reductions to help offset inflation was well on its way to being a record performance. In fact, we hadn't seen a year where they had come in with, you know, 90%+ of these ideas already identified and being worked on before we even started 2026. That's why you see the execution and the ability to deliver on what we told you we would. I would expect that to continue for the rest of this year and next year. I mean, it's been an approach here for well over a decade.

The process is the process, the team is the team, and the trust is the trust, and they continue to exceed expectations. Related to the net new business, as you also know, when we talk about 2027, 2028, I mean, you know, 85%-95% of that is already booked. We know what those prices are. We know what our costs are. That's why we're able to predict the margin expansion. We also know what the investment is gonna be to launch it all. Hence, the confidence we have in more than doubling our return on invested capital over the next couple of years.

It's a business that while you book something that launches two or three years later, seems like a tall task, but the fact that we're able to understand what our prices are, costs are, investments are, it really gives credence to the ability for us to forecast. Now, the only thing I can't forecast is volume and mix, which you point out. Despite that being a challenge for the last, you know, I've lost track, doesn't matter, last number of years, we continue to expand the profitability and the returns because of how we're running the business, the decisions that we're making, and most importantly, the type of people we have in our plants that are executing the heck out of the business.

We'll see what the second quarter brings. As John mentioned, you know, the oil prices have shot up here in terms of what we had in the business plan. Contractually, we're pretty much covered there for recovery. There'd be some timing issues associated with it maybe in the second quarter. For the full year, I'm still bullish because I believe that the overall macroeconomic environment is positive. I think the geopolitical environment has to become more positive. How could it be worse? That's the reason I believe the second half is potentially has some tailwinds to it. You know, we'll talk to you about that in August.

Super helpful. Thanks so much.

Okay, .

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

Okay, thanks, everybody. We appreciate your continued engagement with our calls. If you have questions that didn't come to mind and you'd like to get in touch with us, we'd certainly be open to further conversation. Just feel free to reach out to me directly. Again, we appreciate your participation this morning and thanks for your continued trust and confidence. This will conclude our call. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.