Business context and reporting period
Period clarification: The supplied filing is Cooper-Standard Holdings Inc.’s Form 10-Q for the quarter ended September 30, 2020, not 2019 Q3 as stated in the request metadata. The company supplies sealing, fuel and brake delivery, and fluid transfer systems primarily to automotive manufacturers.
Comparisons below are against the corresponding 2019 periods. Dollar amounts are in millions unless otherwise noted. The 2019 comparison includes the AVS business, sold April 1, 2019; 2020 includes divestitures completed in July.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Sales | $683.2 | $739.5 | $1,678.6 | $2,382.2 |
| Gross profit / margin | $84.5 / 12.4% | $80.2 / 10.8% | $67.3 / 4.0% | $293.6 / 12.3% |
| Operating income (loss) | $18.8 | $3.7 | $(250.0) | $211.1 |
| Net income (loss) attributable to Cooper-Standard | $4.4 | $(4.9) | $(240.4) | $134.9 |
| Basic earnings (loss) per share | $0.26 | $(0.29) | $(14.22) | $7.83 |
| Adjusted EBITDA (non-GAAP) | $64.1 | $53.8 | $(21.3) | $175.9 |
- Q3 sales fell 7.6%; management attributed the decline mainly to divestitures and lower vehicle production/mix. Gross profit rose $4.3 million, supported by operating performance, restructuring savings and material cost reductions.
- Nine-month sales declined 29.5%, principally from COVID-19-related production shutdowns and lower volume, divestitures, foreign exchange and customer price reductions. Nine-month results also included an $86.5 million non-cash impairment of businesses held for sale. The 2019 comparison benefited from a $188.2 million gain on the AVS sale.
- Cash from operations was negative $26.5 million for the first nine months, versus positive $29.9 million in 2019. Capital expenditures were $73.4 million, down from $131.1 million. Investing cash outflow was $89.5 million; financing cash inflow was $225.1 million, primarily from new debt issuance.
- Cash and cash equivalents were $462.7 million at September 30, 2020; cash, cash equivalents and restricted cash totaled $465.2 million. Total debt was $1,037.0 million, up from $807.6 million at year-end 2019. The company had no ABL borrowings and reported $150.2 million of effective availability after borrowing-base limits and letters of credit.
- Net interest expense was $18.0 million in Q3, up from $10.4 million, and $41.0 million for the nine months, up from $33.9 million. The company issued $250 million of 13% Senior Secured Notes due 2024 in May 2020. It reported compliance with debt covenants at quarter-end.
Material changes and unusual items
- On July 1, 2020, the company sold its European rubber fluid transfer and specialty sealing businesses and Indian operations. Consideration was €9 million, including €6.5 million cash and €2.5 million deferred to December 2021. The divested businesses’ assets had been written down by $86.5 million.
- The company also sold its controlling interest in an Asia Pacific joint venture during Q3, recording a $1.3 million gain on deconsolidation. Q3’s net gain on business sales was $2.3 million.
- COVID-19 disruption drove significant first-half production declines. In the first nine months, vehicle production was down 26.5% in North America, 29.5% in Europe, 17.8% in Asia Pacific and 40.9% in South America, according to the filing’s cited industry data.
- The nine-month tax benefit of $55.5 million reflected, among other items, a $19.8 million CARES Act carryback benefit and a $13.4 million valuation-allowance expense. Tax benefits were unavailable for some foreign losses.
Outlook, risks and contingencies
The company provided no specific earnings or revenue guidance. Management said it expected operating cash flow, cash on hand, ABL borrowing capacity and receivables factoring to fund working capital, capital expenditures and debt service for the next 12 months, based on current projections for customer production recovery. It emphasized continued uncertainty and ongoing liquidity monitoring.
Key risks include renewed COVID-19 disruption, weaker vehicle demand or production, raw-material volatility, pricing pressure, customer and program concentration, foreign exchange, substantial debt and associated restrictions, pension funding, and potential future asset impairments. Management noted that further deterioration in demand or production could trigger additional impairments. Environmental investigation and remediation reserves were approximately $7.6 million; the company also noted that unfavorable resolution of legal matters could adversely affect results, although it did not believe a material loss beyond amounts recognized was reasonably possible at September 30.
Important facts for investors to verify
- Confirm the intended reporting period: this filing covers Q3 2020, despite the 2019 Q3 metadata.
- Track vehicle production recovery, especially in Europe and South America, and whether it translates into sales and positive adjusted EBITDA.
- Review cash conversion, capital spending, factoring use and the availability of liquidity under the ABL borrowing base.
- Assess debt service capacity, including the 13% secured notes, rising interest expense and covenant requirements.
- Evaluate the final cash proceeds and deferred consideration from the divestitures, and whether further impairments or restructuring costs arise.
- Distinguish GAAP results from adjusted EBITDA and account for the non-comparable divestiture gains and impairment charges.