Cooper-Standard Holdings Inc. — Form 10-Q Summary
Period discrepancy: The request metadata says 2019 Q1, but the supplied filing is for the quarter ended March 31, 2020, filed May 11, 2020. Comparisons below are against Q1 2019.
Business context and reporting period
Cooper-Standard manufactures sealing, fuel and brake delivery, and fluid transfer systems primarily for global automotive OEMs. The filing reports results amid COVID-19-related automotive plant shutdowns. Its anti-vibration systems business was divested on April 1, 2019, affecting year-over-year comparability. From January 1, 2020, the company reported North America, Europe, Asia Pacific, and South America as segments; other activities are included in corporate, eliminations and other.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Sales | $654.9 million | $878.0 million |
| Gross profit / margin | $43.1 million / 6.6% | $115.5 million / 13.2% |
| Operating income (loss) | ($114.3 million) | $7.0 million |
| Net loss attributable to Cooper-Standard | ($110.6 million); loss per share $6.55 | ($5.4 million); loss per share $0.31 |
| Adjusted EBITDA | $8.3 million | $64.1 million |
| Cash used in operating activities | $2.0 million | $1.8 million |
| Capital expenditures | $50.6 million | $59.6 million |
Cash and cash equivalents were $301.8 million at March 31, 2020, down from $359.5 million at December 31, 2019. Total debt was $807.3 million, including $62.5 million payable within one year; the ABL Facility had no borrowings outstanding. The company reported $145.7 million of effective ABL borrowing availability after the borrowing-base reserve and letters of credit. It was in compliance with debt covenants at quarter-end, but warned that a springing fixed-charge coverage covenant would constrain borrowing if availability fell below the specified threshold.
Total assets were $2.48 billion and total liabilities were $1.76 billion. Interest expense, net, was $10.2 million. The income tax benefit was $14.1 million, including a $13.3 million discrete expense for valuation allowances on certain foreign deferred tax assets. The company deferred approximately $3.6 million of U.S. pension contributions to 2021 under the CARES Act.
Material changes versus the prior comparable period
- Sales declined 25.4% year over year. Management attributed the decrease primarily to lower vehicle production from COVID-19 shutdowns, the AVS divestiture, customer price reductions, and foreign exchange. Its sales bridge attributed $131.8 million of the decline to volume/mix, net of price reductions; $13.5 million to foreign exchange; and $77.7 million to divestitures, net.
- Gross profit fell $72.4 million, and gross margin contracted 6.6 percentage points. Management cited lower volumes, customer pricing, commodity and wage inflation, and foreign-exchange pressure, partly offset by operating improvements, restructuring savings, and material-cost reductions.
- Adjusted EBITDA decreased $55.9 million to $8.3 million. Segment adjusted EBITDA was $37.0 million in North America, ($4.6 million) in Europe, ($17.1 million) in Asia Pacific, and ($4.6 million) in South America.
- The company recorded a $74.1 million non-cash impairment to write down planned facility divestiture assets to fair value less costs to sell, plus a $1.0 million impairment charge on Asia Pacific property and equipment. Restructuring charges were $7.3 million, down from $17.7 million.
- Cash used in investing activities was $50.1 million, versus $60.0 million a year earlier. Financing activities provided $0.4 million, versus $57.4 million, largely reflecting higher revolving and local borrowing in Q1 2019.
Outlook, commentary, and risks
The company gave no formal full-year numerical financial guidance. Management said it expected North American, European, and South American production to resume during Q2 2020 in coordination with customers, while China production had restarted at reduced capacity. As of April 29, only 12 China automotive plants and three non-automotive plants were operating. Management said a phased restart in other regions was being considered for mid-to-late May, but timing remained uncertain and a full ramp could take several months.
Management believed cash on hand, operating cash flows, ABL borrowing capacity, and receivables factoring would meet funding requirements for the next 12 months, based on expected customer restart plans and cash-preservation actions. It also warned that production shutdowns could reduce borrowing-base availability, increase working-capital outflows, and require additional capital; financing might not be available on favorable terms or at all. The filing cited risks from prolonged vehicle-demand weakness, supply-chain disruption, restart costs, commodity and currency volatility, indebtedness, and possible future asset impairments.
After quarter-end, on May 7, 2020, the company entered into a definitive agreement to divest certain Europe and Asia Pacific facilities, with closing expected in Q2 subject to customary approvals. The held-for-sale impairment is subject to adjustment as the transaction is finalized. The company also disclosed environmental remediation reserves of approximately $5.8 million and noted that legal outcomes are inherently uncertain, although it did not believe a material loss beyond amounts recognized was reasonably possible as of March 31.
Important facts for investors to verify
- Confirm the reporting period: the supplied filing is Q1 2020, not Q1 2019.
- Track actual customer and supplier restart timing, production volumes, and the resulting cash and working-capital requirements.
- Monitor ABL borrowing-base availability and the fixed-charge coverage covenant, particularly as receivables and inventory change.
- Verify final sale proceeds, closing conditions, and any further impairment adjustments for the planned facility divestiture.
- Assess whether the $8.3 million adjusted EBITDA is sustainable; it is a non-GAAP measure and excludes significant impairment and restructuring items.
- Review valuation allowances and tax benefits, including the effects of the CARES Act carryback provision, and monitor potential future impairments.