Cooper-Standard Holdings Inc. — Form 10-Q Summary
Reporting-period note: The request metadata says 2021 Q2, but the filing is for the quarter and six months ended June 30, 2022, filed August 5, 2022. Figures below are in U.S. dollars; financial-statement amounts are converted from thousands to millions unless stated otherwise.
Business context and reporting period
Cooper-Standard manufactures sealing, fuel and brake delivery, and fluid transfer systems, primarily for passenger vehicles and light trucks. It reports North America, Europe, Asia Pacific and South America segments. The interim financial statements are unaudited.
Financial performance and position
- Second-quarter sales: $605.9 million, up 13.6% from $533.2 million. Gross profit was $15.4 million (2.5% margin), versus a $0.9 million gross loss a year earlier. Operating loss was $8.7 million; net loss attributable to Cooper-Standard was $33.2 million, or $1.93 per diluted share.
- First-half sales: $1,218.9 million, up 1.4% from $1,202.2 million. Gross profit declined to $36.9 million (3.0% margin) from $67.4 million (5.6%). Operating loss was $49.1 million; net loss attributable to Cooper-Standard was $94.6 million, or $5.51 per diluted share.
- Adjusted EBITDA: A non-GAAP measure, it was negative $10.4 million in Q2, compared with negative $14.7 million. First-half adjusted EBITDA was negative $10.2 million, versus positive $23.8 million. The company reported first-half EBITDA of $8.2 million, including the $33.4 million sale-leaseback gain; adjusted EBITDA excludes that gain.
- Cash flow: First-half operating cash use was $0.2 million, improved from $60.7 million used in the prior-year period, primarily due to a $51.4 million IRS tax refund. Investing activities provided $8.4 million, including sale-leaseback proceeds; capital expenditures were $44.3 million. Financing activities used $4.1 million. Cash and cash equivalents were $250.5 million at June 30; cash, cash equivalents and restricted cash totaled $262.3 million.
- Debt and liquidity: Total debt was $1,030.2 million, including $51.0 million current and $979.2 million long-term. The company had no ABL borrowings and reported $156.2 million effectively available under the ABL facility after specified reserves and letters of credit. It was in compliance with debt covenants at June 30.
- Balance sheet: Current assets were $999.1 million and current liabilities $645.6 million. Total equity was $221.7 million, down from $331.4 million at year-end 2021.
Material changes versus prior comparable periods
- Q2 sales growth reflected improved vehicle production volumes and customer price adjustments, including cost recovery; foreign exchange and deconsolidation of an Asia Pacific joint venture partly offset the increase. First-half sales rose only modestly as foreign exchange and the joint-venture deconsolidation offset volume and pricing gains.
- First-half gross profit fell $30.4 million year over year. Management cited commodity and wage inflation, higher energy and transportation costs, uneven production schedules, and the non-recurrence of prior-year COVID-19 government incentives. Customer recoveries, volume/mix, efficiencies and restructuring savings provided offsets.
- Restructuring charges fell to $11.3 million in the first half from $32.7 million. Selling, administration and engineering expense also declined as a share of sales.
- The company recorded a $33.4 million gain on a European facility sale-leaseback in Q2. The transaction also generated approximately $50 million of investing cash proceeds in the first half.
- An Asia Pacific joint venture was deconsolidated effective January 1, 2022 and is now accounted for under the equity method. The company recorded a $2.3 million first-quarter loss on deconsolidation.
Outlook, management commentary and risks
- Management said it expects cash from operations, cash on hand, ABL availability and receivables factoring to cover working capital, capital expenditures and debt service for the next 12 months, based on current projections of OEM production. It is actively preserving cash and improving working capital.
- The company expects 2022 capital expenditures of approximately $85–$95 million.
- The Term Loan Facility matures November 2, 2023. The company has engaged Goldman Sachs to evaluate and help arrange refinancing. Management warned that failure to refinance before issuance of the 2022 year-end financial statements could lead to substantial doubt about going concern, a potential covenant breach and cross-default or cross-acceleration; it said there is no assurance refinancing will be available on acceptable terms or at all.
- Key operating pressures include semiconductor and other supply disruptions, COVID-related restrictions in China, the Russia-Ukraine conflict, inflation in materials, wages, energy and transportation, foreign-exchange movements, and uncertain vehicle production. Management is pursuing customer price recovery and cost-saving measures.
- Income-tax benefits on losses are limited in certain jurisdictions because of valuation allowances. Environmental reserves were approximately $12.5 million at June 30; management said future costs could be material. The company disclosed ordinary-course legal matters but did not believe a material loss beyond amounts recognized was reasonably possible, while noting outcomes are unpredictable.
Important facts for investors to verify
- Confirm the reporting-period mismatch: this is a Q2 2022 filing, not Q2 2021.
- Track refinancing progress and the Term Loan’s November 2023 maturity, including any resulting covenant or going-concern disclosures.
- Assess whether customer price recoveries and cost reductions can keep pace with inflation and restore positive adjusted EBITDA.
- Review cash conversion and liquidity quality, including the impact of the IRS refund, sale-leaseback proceeds, factoring, and restricted cash.
- Evaluate the recurring operating performance separately from the $33.4 million sale-leaseback gain and other adjusted EBITDA exclusions.
- Monitor automotive production, regional demand, foreign exchange, environmental exposures and the effects of the Asia Pacific joint-venture deconsolidation.