Cooper-Standard Holdings Inc. quarterly report, Q2 FY2021

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Cooper-Standard Holdings Inc. — Form 10-Q Summary

Period clarification: The supplied filing is for the quarter ended June 30, 2021 (Q2 2021), not Q2 2020 as stated in the request metadata. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless noted.

Business context and reporting period

Cooper-Standard manufactures sealing, fuel and brake delivery, and fluid transfer systems, primarily for global automotive OEMs. The unaudited filing reports the three and six months ended June 30, 2021, compared with the corresponding 2020 periods. Comparisons are affected by widespread COVID-19-related shutdowns in 2020 and semiconductor-related production disruptions in 2021.

Financial performance and liquidity

  • Q2 revenue: $533.2 million, up 56.6% year over year. Higher vehicle production and foreign exchange contributed; semiconductor constraints and the 2020 divestiture partly offset the increase.
  • Q2 gross profit and margin: Gross loss was $0.9 million, versus a $60.4 million gross loss in Q2 2020; gross margin improved to negative 0.2% from negative 17.7%. Higher volume, operational performance and cost savings helped, while commodity and wage inflation and the absence of prior-year government incentives weighed on results.
  • Q2 operating and net loss: Operating loss was $65.6 million, compared with $154.5 million; net loss attributable to Cooper-Standard was $63.6 million, or $3.73 per diluted share, versus $134.2 million, or $7.93 per share.
  • Q2 adjusted EBITDA: Negative $14.7 million, improved from negative $93.8 million. This is a non-GAAP measure; reported GAAP net loss remained substantial.
  • First-half results: Revenue was $1,202.2 million, up 20.8%; gross profit was $67.4 million (5.6% margin), versus a $17.2 million gross loss in 2020. Net loss attributable to the company was $97.5 million, versus $244.8 million. Adjusted EBITDA was $23.8 million, versus negative $85.5 million.
  • Cash flow: First-half operating cash flow was negative $60.7 million, compared with negative $126.2 million. Investing cash outflow was $52.6 million, including $55.6 million of capital expenditures. Cash, cash equivalents and restricted cash totaled $346.2 million at June 30, 2021; cash and cash equivalents alone were $335.5 million.
  • Debt and liquidity: Total debt was $1,037.4 million, including $55.7 million due within one year; long-term debt was $981.6 million. Debt less balance-sheet cash and cash equivalents was approximately $701.9 million. The company reported no ABL borrowings and approximately $117.1 million of effective availability after borrowing-base restrictions and letters of credit. It was in compliance with debt covenants at quarter-end.
  • Other balance-sheet indicators: Total assets were $2,477.3 million and total equity was $533.2 million. Current assets were $1,153.0 million against current liabilities of $628.8 million.

Material changes versus the prior comparable period

  • Revenue and adjusted EBITDA improved markedly from the 2020 comparison, which was affected by COVID-19 shutdowns. The rebound did not translate into Q2 GAAP profitability: cost of products sold exceeded sales, and the company continued to report a large quarterly net loss.
  • First-half selling, administrative and engineering expense declined to $108.1 million from $138.9 million. First-half restructuring expense increased to $32.7 million from $17.1 million, principally due to European headcount and footprint initiatives.
  • First-half impairment charges fell to $0.8 million from $87.6 million; most of the 2020 amount related to assets held for sale before the divestiture completed July 1, 2020.
  • Net interest expense increased to $35.9 million for the first half from $23.0 million, primarily reflecting a full six months of interest on the 13% Senior Secured Notes issued in May 2020.
  • Cash and cash equivalents decreased from $438.4 million at December 31, 2020 to $335.5 million at June 30, 2021. Total debt increased from $1,023.5 million to $1,037.4 million, with higher short-term borrowings.

Outlook, commentary, risks and unusual items

  • Management said it expected cash on hand, operating cash flows, ABL availability and receivables factoring to fund requirements for the next 12 months, while noting significant dependence on future operating performance and factors outside its control.
  • The company expected 2021 capital expenditures of approximately $100 million to $115 million. No full-year revenue or earnings guidance is provided in the supplied filing text.
  • Management highlighted continuing semiconductor shortages and possible production stoppages, COVID-19 uncertainty, commodity and wage inflation, supply-chain constraints, and volatile automotive production. It anticipated supply issues would improve in the second half of 2021, particularly in Q4, but described the outlook as uncertain.
  • The company uses European receivables factoring; $66.4 million was outstanding under receivable transfer arrangements at June 30, 2021. Management states the program accelerates cash access, but it is an off-balance-sheet arrangement.
  • Q2 included $11.6 million of restructuring charges and $0.8 million of impairment charges. First-half results included a $0.7 million net gain from subsequent adjustments related to the 2020 divestiture. The company also disclosed $11.4 million of environmental reserves and stated that unfavorable resolutions of legal or environmental matters could adversely affect results, despite not expecting currently known claims to cause a material loss beyond amounts recognized.
  • The company reported that disclosure controls and procedures were effective at a reasonable assurance level and that no material change in internal control over financial reporting occurred during the quarter.

Important facts for investors to verify

  • Confirm the reporting period: the filing itself is Q2 2021, notwithstanding the Q2 2020 metadata.
  • Track whether semiconductor constraints, inflation and vehicle production levels affect sales, gross margins and cash generation in subsequent periods.
  • Assess liquidity and debt-service capacity alongside negative operating cash flow, debt maturities, the 13% secured-note coupon, and dependence on factoring and ABL availability.
  • Review the nature and expected cash timing of restructuring costs, and progress and savings from European footprint and headcount actions.
  • Monitor the assumptions behind management’s 12-month liquidity assessment and $100 million to $115 million capital-spending expectation.
  • Review non-GAAP adjusted EBITDA reconciliations, receivables factoring balances, and developments in environmental reserves and other contingencies.