Cooper-Standard Holdings Inc (CPS) 2013 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Cooper-Standard second-quarter 2013 earnings conference call. During the presentation all participants will be in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference call is being recorded this morning and the webcast will be available for replay later today. I would now like to turn the call over to Glenn Dong, Treasurer at Cooper-Standard. Please go ahead, sir.

Thank you and good morning. Please note that certain information in this call may be forward-looking and contain statements based on current plans, expectations, events and market trends that may affect the Company's future operating results and financial position. Such statements involve risks and uncertainties that cannot be predicted or quantified and that may cause future activities and results of operations to differ materially from those discussed.

For additional information we ask that you refer to the Company's filings with the Securities and Exchange Commission. This call is also intended to be in compliance with Reg FD and is open to institutional investors, security analysts, media representatives and other interested parties.

A reconciliation of certain non-GAAP financial measures as used during this call can be found in the appendix of this presentation and in our press release of August 7, 2013, which has been posted on our website and furnished in our Form 8-K with the SEC.

The purpose of this conference call is also to answer questions from stakeholders. We would ask that media inquiries be handled separately from this call. Such calls should be directed to our corporate communications group whose contact information is available on our website in our earnings press release. At this time I would like to turn the call over to Jeff Edwards, Cooper-Standard's Chairman and Chief Executive Officer.

Okay, thanks, Glenn, and good morning, everyone. For today's call I'm going to start with an overview of the industry and then go on to some quarter highlights, as well as talk to you a little bit about our growth strategy. Then we'll turn it over to Allen and he will go through more of the details on the financial performance for the quarter before we open it up to questions.

As you can see on slide number 4, there haven't been significant changes in what we are really seeing across all the regions since the last quarter. In North America the vehicle production obviously remains very strong.

Europe we continue to experience headwinds, although not beyond what we anticipated. We also have seen some signs of stabilization in Europe and overall, again, the markets are really performing as we expected and as we forecasted.

Moving to Asia, China continues to grow of course. But it is also obvious to us that there is softening taking place within that region and we anticipate that continuing through the year.

In South America, Brazil continues to be a bit volatile and we are seeing signs that the headwinds from an economic perspective in Brazil probably will get stronger as we go through the rest of this year especially.

Moving on to slide 5, talking about some of the highlights, key financial highlights for the quarter. Certainly the strategic plan that we are implementing is gaining traction and yielding solid results. Most notably in our continued double-digit adjusted EBITDA margins we are seeing good improvement there. Sales have increased 6.8% over the same quarter 2012, so we are rising a little bit beyond the market there. We're seeing the industry at 6.2% versus Cooper-Standard at 6.8% which is in line with our expectations and what others in the industry are seeing as well.

We also successfully completed both a self tender offer for our common stock which was well received by our shareholders and oversubscribed and a favorable bond offering. Allen is going to provide you a little bit more detail as we go through that in the coming slides.

Moving to slide 6, highlighting some additional operation improvements in the quarter. We have completed our global leadership team with the hiring of Larry Ott as our new Head of HR for Cooper-Standard. So we are excited about Larry joining our team. As I've mentioned in the past, we are confident that we have a very solid global team in place that will be instrumental in managing the growth objectives that we have laid out.

Other highlights, the recent groundbreaking of our facility in Serbia which will be approximately a 60,000 square foot facility and will manufacture automotive sealing systems. I think this is a great example of our strength in customer relationships in emerging markets and we are excited about prospects within our Serbia operation in the coming months.

We continue to make progress on our growth initiatives. As an example, our recent acquisition after the close of the quarter of the automotive sealing business of Jyco Sealing Technologies with sales of approximately $50 million further solidifying Cooper-Standard's position as the global leader in automotive sealing systems.

Our JV with Nishikawa continues to evolve as well and we recently agreed to expand that relationship in South America, specifically in Brazil. And then finally, we received a number of customer awards in the quarter which I'm very proud of and I think that underscores the dedication and customer focus of all Cooper-Standard employees.

If we move on to page 7, we are going to talk a little bit here about the strategic direction. As covered in our last call, our long-term objective is certainly to drive shareholder value by profitably growing our business with a specific target ever, ranking in the top 30 automotive suppliers for sales and the top five for return on invested capital.

These objectives have been rolled out to all of our employees around the world. We plan to achieve this through a number of different means. Right now we are focused on initiatives that will enhance our operating performance and accelerate growth. Some examples, leveraging our product leadership positions to gain greater marketshare, we're certainly expanding our customer relationships to fill the white space that exists around the world with certain customers.

We continue to invest heavily in innovation to maintain our leadership position and also develop breakthrough technologies that we are excited about talking about in the future. We have also targeted new markets, we obviously have a footprint that we believe advantages us globally and we're focused on making all of those operations world-class. And certainly we expect a high-performing and engaged group of employees at Cooper-Standard to be responsible for delivering the level of customer satisfaction that is critical to any growth company. We have a lot of initiatives underway as we work to position our company to achieve those objectives.

But before I hand the call over to Allen I want to note that important part of our efforts will be on enhancing our communication with the various stakeholders of the Company. And to that end we look forward to going on the road here soon and meeting with many of our investors in the next few months to provide more details on our product strategies, the market outlook and customer opportunities that we have identified globally. So now I will turn the call over to Allen to take you through our financial results. Allen.

Thank you, Jeff. On slide 9 we show our second-quarter and year-to-date sales compared to the same period prior year. For the quarter Cooper-Standard generated sales of $784.7 million, up 6.8% when compared to the second quarter in the previous year. Sales in the quarter were favorably impacted by $3.2 million in foreign-exchange movement.

All regions showed improvement resulting from increased vehicle production in North America and Brazil and share gains in Europe. Year-to-date sales increased by $32.5 million to $1.532 billion compared to $1.5 billion during the previous year. Sales in North America are just over $400 million for the quarter, an increase of $12.8 million from the previous year reflecting increased vehicle production levels.

The European operations generated sales of $283.6 million in the quarter, a $19.5 million increase or 7.4% when compared to the same quarter in previous year. Our sales in the quarter included $5.4 million of favorable foreign-exchange. This sales increase comes in a period when vehicle production is relatively flat year over year in that region.

As I mentioned in our last earnings call, Europe continues to be a major focus for us as we address the region's fixed cost and overcapacity issues. Our Serbia initiative, as mentioned by Jeff, is part of our strategy to address some of the cost issues. Sales from Asia-Pacific operations were $50.7 million in the quarter, up 3.9% from the previous year, driven mainly by increased volume in the region. In Brazil we reported $50.3 million in sales, up $16 million from the same period a year ago, while overcoming $2.7 million of unfavorable foreign-exchange movement.

Sales from our non-consolidated joint ventures continues to perform nicely, generating sales in the quarter of $112.6 million, up 12% from the prior year.

Turning to slide 10. You can see that gross profit improved in the quarter. Gross profit in the quarter is $132.3 million or 16.9% of sales and $252.6 million or 16.5% of sales on a year-to-date basis. This compares our gross profit margin in previous quarter of -- previous year quarter of 15.6% and 15.7% year to date. Gross profit is favorably impacted by our lean and material cost savings initiatives, increased production volumes and lower depreciation partially offset by customer price concessions, higher launch costs and other operating expenses.

SG&A for the quarter was $72.7 million or 9.3% of sales. This level is in line with the previous year quarter of 9.4%. Similarly on a year-to-date basis SG&A was 9.6% of sales as compared to prior year period of 9.4%. As I have mentioned in previous calls, we have been strengthening engineering resources to support our customers and expand our development efforts.

Cooper-Standard's operating profit in the quarter was $54.6 million or 7% of sales compared with the same quarter in the previous year of $42.1 million or 5.7%. Similarly year-to-date operating profit of $91.1 million improved to 5.9% of sales from 5.5% in the prior year period. Net income for the quarter is $26.1 million as compared to $75.8 million in the previous year to date. We generated -- year to date we generated $46 million in net income.

Fully diluted earnings per share for the quarter is $1.34. When analyzing these numbers please bear in mind that our 2012 second-quarter net income included a one-time $53.4 million benefit relating to the reversal of the valuation allowance on the Company's deferred income tax assets in the US.

We delivered a double-digit EBITDA margin in the quarter of 10.5% on $82.5 million of adjusted EBITDA, an improvement from our prior year quarter of 10.1% and from our first quarter up 10.3%. Adjusted EBITDA year to date was $159.2 million or 10.4% of sales.

On the next slide we show the reconciliation of $159.2 million in adjusted EBITDA for the first six months of the year starting from our net income of $48.1 million. Within the customary adjustments to net income please be mindful of the tax item from 2012. Additionally, we had an increase in interest expense related to recently issued senior PIK toggle notes in our EBITDA log. Adjusted EBITDA reflects add-backs for restructuring and to [2010] stock-based compensation. On a last 12 months basis our adjusted EBITDA was approximately $300 million or 10.3% of sales.

Moving to the cash flow as reported on slide 12, in the quarter our businesses used $14.2 million of cash predominantly to fund changes in operating assets and liabilities which include working capital movements, requirements and investments in customer tooling. This level of cash usage in the second quarter is typical given the seasonality of our business.

Tooling is an increasing portion of our working capital spend as we continue to fund tooling on behalf of our customers to support future program awards. As of June 30 we carried approximately $160 million in tooling in our balance sheet. This is up about $40 million over the year end numbers. These tooling dollars will be reimbursed by our customers around program launch time in the future.

For the quarter we invested $35.8 million of capital projects and $70.1 million year to date which was in line with our expectations. Other notable cash items in the quarter include net proceeds from our senior PIK toggle notes offering of $194.9 million, $206.1 million of cash used in connection with our equity self tender offer and other buyback programs, and inflow of $11.3 million related to warrants exercised during this period.

Turning to the next slide, on May 2 we completed a $200 million self tender of Cooper-Standard common stock; the tender was well received by our shareholders and oversubscribed. 4.7 million shares, or approximately 26% of the shares then outstanding, were purchased at a price of $43 per share. As of August 1 we have 13.1 million shares of common stock outstanding. In conjunction with this offering on April 3, Cooper-Standard Automotive Holdings Inc. issued $200 million of senior PIK toggle notes. These notes were unsecured due to mature April 28, 2018 and carry an interest coupon of 7.38%.

Financial metrics continue to meet strong with net leverage of $509.4 million, net leverage to adjusted EBITDA of 1.7 times and an interest coverage ratio of 6.4 times. We ended the quarter with $160.5 million of cash and an undrawn ABL revolver while maintaining adequate total liquidity of approximately $285 million.

On slide 13 we have updated our full-year guidance for 2013. With annual sales growth expected to be 5% to 6% over 2012, this assuming North America vehicle production of 16.2 million units and European production of 18.7 million units. It also assumes an average exchange rate of $1.32 per euro -- US dollar per euro.

Capital expenditures for the year to be within $165 million to $175 million range. Additionally, we expect to incur between $25 million and $30 million of cash restructuring expenses predominately in Europe. And we anticipate our cash taxes to be in the range of $15 million to $20 million. I will now turn it back to Jeff for some closing remarks.

Okay, thanks, Allen. Just to reiterate with the challenges ahead in Europe and really elsewhere as I mentioned earlier, we still have a lot of work to do and that is okay. That said, I'm pleased with the strategic plan we're implementing and it is gaining traction and yielding solid results.

Going forward we continue to look for ways to position the Company for profitable growth and we are focused certainly on exceeding our customers' expectations and enhancing our operational execution for them. I'm confident that we have now the right people and the right resources to achieve the objectives that we have laid out. We will now open the call for questions.

(Operator Instructions). We have no questions at this time. This concludes our conference call.