Cooper-Standard Holdings Inc. — Form 10-Q Summary
Period: Quarter and nine months ended September 30, 2022. The request metadata says “2021 Q3,” but the filing itself is for 2022 Q3; confirm the intended reporting period. Amounts below are in millions of U.S. dollars unless stated otherwise. Interim financial statements are unaudited.
Business context and reporting period
Cooper-Standard manufactures sealing, fuel and brake delivery, and fluid transfer systems, primarily for global automotive OEMs. Its reportable regions are North America, Europe, Asia Pacific and South America.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Sales | $657.2 | $526.7 | $1,876.1 | $1,728.8 |
| Gross profit (loss) | $38.6 | $(8.1) | $75.5 | $59.2 |
| Gross margin | 5.9% | (1.5)% | 4.0% | 3.4% |
| Operating loss | $(10.1) | $(72.9) | $(59.2) | $(150.2) |
| Net loss attributable to Holdings | $(32.7) | $(123.2) | $(127.3) | $(220.6) |
| Loss per diluted share | $(1.90) | $(7.20) | $(7.41) | $(12.96) |
| Adjusted EBITDA | $20.5 | $(33.9) | $10.3 | $(10.0) |
Q3 sales increased 24.8%; nine-month sales increased 8.5%. Management attributed growth mainly to higher vehicle production and customer pricing adjustments, including cost recoveries. Foreign exchange and the Asia Pacific joint venture deconsolidation offset part of the increase. Inflation in materials, wages, energy and transportation continued to pressure costs.
Q3 adjusted EBITDA improved across all regions versus the prior year; Europe remained loss-making at $(10.9) million. For the nine months, Europe recorded adjusted EBITDA of $(40.9) million, while North America generated $52.3 million. Adjusted EBITDA is a non-GAAP measure and should not be treated as a substitute for GAAP results or operating cash flow.
Cash flow, balance sheet and liquidity
- Operating cash flow: $(10.4) million for the nine months, versus $(111.5) million in 2021. The improvement reflected better operating results and $54.3 million of IRS refunds related to net operating loss carrybacks.
- Investing cash flow: $(5.4) million, versus $(72.8) million. The 2022 period included sale-leaseback proceeds and lower capital spending. Management expected 2022 capital expenditures of approximately $80–$90 million.
- Cash: $231.2 million at September 30, 2022, down from $248.0 million at December 31, 2021. Cash, cash equivalents and restricted cash totaled $238.6 million.
- Debt: $1,027.3 million total debt, including $48.9 million payable within one year. The company reported compliance with debt covenants at quarter-end. The 13.0% Senior Secured Notes mature in 2024; the Term Loan matures November 2, 2023.
- Revolver availability: No ABL loans were outstanding. The company reported $155.7 million effectively available after letters of credit and the amount unavailable without triggering the fixed-charge coverage covenant.
- Balance sheet: Total assets were $2,102.2 million and total equity $175.3 million, versus $2,226.5 million and $331.4 million, respectively, at year-end 2021.
Material changes and unusual items
- Q3 profitability improved substantially from 2021, when gross loss and adjusted EBITDA reflected weaker production and elevated costs. Nine-month GAAP results also benefited from lower restructuring charges and reduced SG&A.
- A European facility sale-leaseback generated a $33.4 million gain in the first half of 2022; the gain is not included in Q3 results. Proceeds were approximately $50 million.
- In Q1, a 51%-owned Asia Pacific joint venture was deconsolidated and is now accounted for under the equity method. The company recognized a $2.3 million loss; deconsolidation reduced nine-month sales by $21.2 million relative to the comparison period.
- Currency translation reduced other comprehensive income by $27.7 million for the nine months. The company also reported higher interest expense, primarily due to increased rates on variable-rate debt.
- Income tax benefits on losses were limited by valuation allowances in the U.S. and certain foreign jurisdictions. The 2021 comparison included significant tax expense from initial U.S. valuation allowances.
Outlook, risks and contingencies
Management said available cash, operating cash flows, ABL borrowing capacity and receivables factoring were expected to cover working capital and capital expenditures for the next 12 months, based on current projections. However, meeting debt-service requirements over that period depends on refinancing the Term Loan Facility. Refinancing discussions were ongoing, with no agreement reached and no assurance of success. The company warned that failure to refinance could lead to substantial doubt about its ability to continue as a going concern, a potential covenant breach and cross-default or cross-acceleration of other debt; it said it would not expect sufficient liquidity to repay all outstanding debt in that circumstance.
Management cited automotive production and demand uncertainty, semiconductor and other supply disruptions, COVID-related restrictions in China, the Ukraine conflict, inflation and cost recovery from customers as significant business risks. Other disclosed risks include foreign exchange, customer and supplier concentration, indebtedness and variable interest rates, pension obligations, litigation, environmental matters and execution of cost-saving initiatives. Environmental reserves were approximately $10.8 million at quarter-end. The company reported no reasonable possibility of material litigation losses beyond amounts already recognized, while noting outcomes remain unpredictable.
The board approved termination of certain U.S. defined benefit pension plans effective December 31, 2022; the process is expected to take 12–18 months and settlements are expected to be funded primarily from plan assets. The U.S. plan was reported as overfunded by $31.3 million under GAAP at September 30, 2022.
Most important facts for investors to verify
- Whether the intended filing is 2022 Q3, as stated in the filing, or 2021 Q3, as specified in the request metadata.
- Progress, terms and timing of refinancing the Term Loan due November 2023, and any effects on going-concern assessments or debt covenants.
- Whether operating cash generation improves without reliance on one-time tax refunds, sale-leaseback proceeds or factoring.
- Whether customer pricing recoveries and cost savings can offset continuing material, wage, energy and logistics inflation.
- How the European business’s persistent adjusted EBITDA losses and the pension-plan termination affect liquidity and reported results.