Cooper-Standard Holdings Inc (CPS) 2021 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Cooper-Standard First Quarter 2021 Earnings Conference Call.

(Operator Instruction] As a reminder, this conference is being recorded and the webcast will be available on the Cooper-Standard website for replay later today.

I would now like to turn the call over to Roger Hendriksen, Director of Investor Relations.

Thanks, Maddie, and good morning, everyone.

We really appreciate you taking the time to join our call this morning.

The members of our leadership team who will be speaking with you on the call this morning are Jeff Edwards, Chairman and Chief Executive Officer, and Jon Banas, Executive Vice President and Chief Financial Officer.

Before we begin, I need to remind you that this presentation contains forward-looking statements.

While these statements are made based on current factual information and certain assumptions and plans that management currently believes to be reasonable, these statements do involve risks and uncertainties.

For more information on forward-looking statements, we ask that you refer to Slide 3 of this presentation and the company's statements included in periodic filings with the securities and Exchange Commission.

This presentation also contains non-GAAP financial measures.

Reconciliations of the non-GAAP financial measures to their most directly comparable GAAP measures are included in the appendix to the presentation.

So with those formalities out of the way, I'll turn the call over to Jeff Edwards.

Thanks, Roger, and good morning, everyone.

We appreciate the opportunity to review our first quarter results and provide an update on our ongoing strategic initiatives and outlook.

To begin, on Slide 5, we provide some highlights or key indicators of how our operations performed in the quarter in the critical areas of providing quality products and services to our customers and keeping our employees safe, we continue to perform at world class levels.

At the end of the quarter, 98% of our customer scorecards for product quality were green and 98% were green for launch.

Most importantly, the safety performance of our plants continues to be outstanding.

Through the first 3 months of the year, our total safety incident rate was just 0.45 per 200,000 hours worked, below the world-class rate of 0.57.

I would like to specifically recognize and thank our teams at the 44 Cooper-Standard plants that had a perfect safety record of 0 reported incidents in the first quarter.

We are continually striving for 0 safety incidents at all of our plants and facilities, and these 44 are leading the way and clearly demonstrate that achieving our goal of 0 incidents is possible.

From a financial perspective, our results were nearly on track with our original operating plan for the quarter, despite the number of external challenges.

Semiconductor shortages, historic winter storms and power outages and disruption of natural gas and other commodity supply issues resulted in abrupt changes to production schedules that impacted the volumes on some of our key platforms.

Through the uncertainty, our teams pulled together to deliver $18 million of manufacturing cost savings in the quarter, offsetting the impact of the volume lost.

In addition, our continued aggressive actions to reduce overhead costs and optimize our supply chain, resulted in a $10 million improvement in SGA&E expense.

And $10 million in purchasing savings versus the first quarter of last year.

Combined, these initiatives were a significant factor in achieving a 450 basis point improvement in our first quarter adjusted EBITDA margin.

Moving to Slide 6. We are improving the performance of our business and have an unwavering commitment to doing business the right way.

With integrity, transparency and adherence to our corporate values, this commitment is at the core of our company culture, which benefits all of our stakeholder groups.

We continue to receive public recognition for both who we are in the manner we conduct business as well as the quality of our products and the service we provide our customers.

In the first quarter, we were pleased to once again be recognized by Ethisphere as one of the world's most ethical companies.

This is the second consecutive year that we have received this prestigious award and we are proud of our entire team for making this recognition possible.

Moving to Slide 7. In the next couple of weeks, we will publish our 2020 corporate responsibility report on our website.

As in the past, this report will offer transparent reporting on our material ESG topics.

We're also pleased this year to share an update to the long-term ESG priorities and goals we defined last year.

Along with some additional goals, which we believe further strategically align our ESG initiatives and business priorities.

Within Environmental, Cooper-Standard is making strides to further sharpen our sustainability strategy with a focus on climate change, low-carbon economy.

We have committed to source 100% of our electricity with renewable energy sources by 2025.

We have also committed to a 100% waste diversion rate globally by 2025 and reduce the amount of solid waste our operations generate by 4% each year until 2025.

For social, one of the highlights this report -- this year's report, our initiatives around diversity, inclusion and belonging.

Diverse talent has been a core value of Cooper-Standard for many years, and one we felt could use increased focus.

In 2020, the company officially published a global diversity policy and assigned a diversity, inclusion and belonging action group to help promote a culture that values the perspectives and leverages the strengths of all employees as we continue building a diverse workforce.

During the first quarter, the action group began implementing new communication channels, investing in focused training, enhancing interview techniques and strategies.

And auditing for exclusionary norms, processes, policies and inequities.

This is in its early stages of implementation, but we're making strong progress on this important element of our company culture.

We're proud of the culture that we've established and how it's contributing to the improved performance and results every day.

We hope you will take the time to learn more by reviewing this year's corporate responsibility report when it becomes available.

Now let me turn the call over to Jon to discuss the financial details of the quarter.

Thanks, Jeff, and good morning, everyone.

In the next few slides, I'll provide some detail on our financial results for the first quarter and comment on our balance sheet, cash flow and liquidity and capital allocation priorities.

On Slide 9, we show a summary of our results for the first quarter with comparisons to the prior year.

First quarter 2021 sales were $669 million, up 2.1% versus the first quarter of 2020.

Improved volume and mix, including the nonrecurrence of prior year COVID-related shutdowns and foreign exchange were positive factors.

These were offset by sales loss to the divestiture of certain unprofitable businesses in Europe and our legacy India business.

Excluding the impact of the divestitures and foreign exchange, organic sales increased by approximately 6.3%.

Notably, our year-over-year growth rate in the quarter exceeded market growth in each of our 3 major regions.

Gross profit for the quarter was $68.3 million, an increase of 58.3% compared to the same period a year ago.

Gross profit margin increased 360 basis points year-over-year to 10.2%.

We see this improvement in profitability as a clear indication that our driving value plan is gaining traction.

Adjusted EBITDA in the first quarter was $38.5 million or 5.8% of sales compared to $8.3 million or 1.3% of sales in the first quarter of 2020.

The significant year-over-year improvement in adjusted EBITDA was driven primarily by improved operating efficiency, continuing optimization of our supply chain, lower SGA&E expense and improve volume and mix, net of customer price adjustments.

Typical inflationary pressures on items such as wages, rent and utilities were a negative offset.

On a U.S. GAAP basis, we incurred a net loss for the quarter of $33.9 million compared to a net loss of $110.6 million in the first quarter of 2020.

Excluding restructuring expense and other special items as well as their associated income tax impact, adjusted net loss for the first quarter of 2021 was $14.5 million or $0.85 per diluted share compared to an adjusted net loss of $36.5 million or $2.16 per diluted share in the first quarter of 2020.

With respect to capital expenditures, our spending in the first quarter was $38.6 million compared to $50.6 million in the same period a year ago.

We are continuing our focus on disciplined capital investment in our business, and we remain committed to keeping CapEx below 5% of sales for the full year.

Moving to Slide 10.

The charts on Slide 10 quantify the significant drivers of the year-over-year changes in our first quarter sales and adjusted EBITDA.

For sales, favorable volume and mix, net of customer price adjustments, added $41 million to the top line.

Foreign exchange contributed $20 million, mainly from the Euro and RMB.

These improvements were offset by $47 million in foregone sales related to divestitures.

For adjusted EBITDA, our ongoing efforts in lean manufacturing and operational efficiency drove $18 million in cost savings for the quarter.

Positive results from our global supply chain optimization efforts contributed $10 million and we also benefited from $10 million in lower SGA&E expense as a result of our ongoing initiative to reduce overhead and improve efficiencies.

Rounding out the positive factors, favorable volume and mix, net of customer price adjustments, added $6 million to adjusted EBITDA and the divestiture of unprofitable operations improved results by $3 million.

Normal inflationary pressures, increased accruals for variable compensation and foreign exchange were partial offsets to the improvements in adjusted EBITDA.

Moving to Slide 11.

Due largely to typical first quarter seasonal working capital changes, cash used in operations during the 3 months ended March 31, 2021 and was an outflow of $7 million.

Combined with CapEx of $39 million, we had a total first quarter cash outflow of $46 million.

Despite the outflow, we ended the first quarter with a continuing strong cash balance of $399 million.

In addition, availability on our revolving credit facility, which remains undrawn, was $141 million, resulting in total liquidity of $540 million as of March 31.

We expect our strong cash balance and access to flexible credit facilities will provide ample resources to support our ongoing operations and the execution of planned strategic initiatives.

With that, let me share a few comments on our asset allocation priorities.

Our top priority is to sustain and grow our business profitably.

We will continue to invest in capital equipment and technologies to launch important new product programs for our customers.

Further, in this period of continuing volatility and uncertainty in the industry and broader economy, we are more inclined to maintain a cash cushion to provide liquidity, should one or more of our regions experience another wave of production shutdowns.

We remain confident that our driving value plan and related initiatives will result in improved earnings and cash generation as our execution advances over the next 2 years.

That said, we are continually evaluating our liquidity needs and overall capital structure in relationship to market opportunities.

Our current intent, which remains subject to future market conditions, is to preserve our cash balance as much as possible, generate additional cash over the next 18 months or so and pay down expensive debt as soon as markets and contract terms allow.

Given current market conditions and our outlook for increasing earnings and ROIC over the next 2 to 3 years, we do not believe issuing equity at this level in order to pay down debt would drive incremental long-term value.

With that, let me turn the call back over to Jeff.

Thanks, Jon.

To wrap up our discussion this morning, I'd like to provide an update with some additional detail on our near-term strategies to diversify our business, leverage growth in the electric vehicle market and our outlook related to our ROIC improvement goals.

So please turn to Slide 13.

Our innovation and diversification strategy remains important to us, and we continue to make progress to improve and expand our businesses in markets outside of automotive.

That progress has been slower than we planned over the past year, given the need to refocus on our core business during a period of extreme volatility and market uncertainty.

Over the long run, however, we believe these types of industry dislocations are precisely why diversification is an important part of our strategic growth.

We continue to make progress within our advanced technology group to leverage our material science, and manufacturing expertise in diverse industrial markets that complement our automotive business.

In our Applied Materials Science business, we've successfully concluded the technology development phase with a key footwear customer, and we expect to begin commercial discussions soon.

We're in the commercial phase for building material products.

As with many new technology introductions, we expect sales contracts to start small and increase over time as market acceptance grows.

Further technology development will continue to focus primarily on applications for the footwear industry, which is where we see the best near-term opportunities.

In our industrial and Specialty Group, customer demand for our products overall remains steady.

Although our sales within the aviation industry continues to be soft.

As we move beyond the effects of global pandemic, and demand for air travel returns, we also expect to see a rebound in demand for our aviation related products.

Staffing levels at our ISG plants are starting to stabilize, which is helping improve productivity.

We expect this will help reduce our order backlog over the next few quarters.

We remain optimistic about our opportunities to grow in diverse markets over the longer term.

Turning to Slide 14.

We're excited about the opportunities in the electric vehicle market to gain additional content per vehicle.

We believe that upside could be as much as 20% versus internal combustion vehicle platforms.

In addition, our innovation, reputation for world-class customer service and engineering expertise, as a solutions provider are opening doors with new customers in the EV space.

On this slide, you can see our expanding list of customers with whom we have sales or contract awards for future sales on EV platforms.

It's an impressive list including customers in Asia, Europe and North America, covering passenger as well as commercial and industrial markets.

Cooper-Standard is a supplier for 16 of the top 25 EV platforms sold in 2020, working with some of the industry leaders in the EV market.

In addition, last year, we were awarded new contracts, representing over $100 million in annualized future sales on EV platforms.

Also, in the first quarter of this year, we added another $31 million in new contract awards for battery electric vehicle platforms.

So the momentum is definitely continuing, and it's certainly exciting.

Slide 15.

A key work stream and priority within our driving value plan is to fix underperforming operations and ensure that they make positive contributions to our overall profitability and value generation.

It's no secret that 3 of our segments have been a drag on our overall profitability and results for some time now.

This is particularly -- this is partially due to the unique characteristics of the markets themselves.

But there are still specific areas that we can manage and change in order to improve operating performance.

So let me just give you a quick overview on our planned approach in each of these regions.

In Asia Pacific, our strategy is based on profitable growth.

Primarily in China.

We've made good progress in recent years to rightsize our footprint and organization structure to reduce overall cost.

We still have excess production capacity at today's industry volumes.

But we also have a very strong, aggressive strategy in place to grow the business.

We expect to leverage our world-class service and technology as well as global presence to expand our sales with top Asia OEMs.

Our strategy in the EV space will also play a key role in our China growth.

In Europe, we've made significant strides last year with the divestiture of our Rubber hose business.

Importantly, however, we retained the portion of our FTS business that is focused on plastic tubing technology that is critical for EV applications.

We are already seeing the strategy paying dividends with some of our recent new business awards.

We've established specific action plans and initiatives to improve the operations, and results of the remaining fluid business and our sealing business.

In fluid handling, we expect to continue to leverage our innovation and technology to gain share in the fast-growing EV segment.

We will also pursue additional commercial actions to improve profitability.

In our European sealing business, we are already in the process of certain initiatives that will help to rightsize our headcount and footprint.

We've already talked about our expected restructuring expense for this year.

And much of that will be focused on European ceiling.

In addition, as with our fluid handling business, we will likely pursue certain commercial actions as necessary to achieve acceptable levels of return on this business.

We believe there is a $40 million opportunity to reduce our costs in Europe, and I can assure you, we will aggressively pursue it.

In South America, Ford's exit creates both challenges as well as opportunities.

We've taken significant steps to rightsize our team and operating footprint in Brazil.

There may also be opportunities for conquest business and consolidation in the country as our competitors consider their options in the region.

We continue to evaluate different potential actions and opportunities for this market, and we should know more within the year regarding our status.

As I've said before, we're committed to fixing or exiting underperforming businesses, and this strategy is critical to achieving our driving value goals and objectives.

Turning to Slide 16.

In summary, our message today is our driving value plan with its related initiatives to improve margins and return on invested capital continues to gain traction.

Each of our defined work streams is on track, and our team's focus on achieving the end result is intense.

Internally, we're holding one another accountable because success in every department and function depends on the other.

And we know our stakeholders will hold us accountable for delivering on the commitments that we've made.

We're just a little more than 1 year into this 3-year plan.

We have a lot of work yet ahead of us.

But we remain confident that we will deliver on stated goals, achieving and sustaining double-digit return on invested capital and EBITDA margins.

In the near term, our industry and global economy continue to face significant uncertainty that makes forecasting more difficult than normal.

Our current outlook and expectation is light vehicle production will increase significantly by the fourth quarter.

If this is the case, we believe we would be on track to deliver full year results within the guidance ranges we provided last quarter.

We will provide a formal update to our annual guidance as we typically do after we get through the second quarter.

I want to thank our global team of employees for their continued hard work and focus on driving strong improvements across our company.

I also want to thank our customers for their continued trust and support.

This concludes our prepared remarks.

We would now like to open the call to questions.

[Operator Instruction] Our first question comes from Mike Ward with Benchmark.

Jeff, usually, volatility in production schedules is just so disruptive to supplier earnings.

And it seems like you guys held up extremely well, given what was going on, especially at Ford.

Can you talk about some of the things you did maybe to mitigate some of the impact?

Thanks for the question, Mike.

I think as we worked our way through this, our operating teams, as you saw, stayed very focused on taking the costs out that they planned to take out heading into the quarter, and they executed on that list very well.

The second approach is always when you have customers that shut down plants, we flex our costs quickly.

These plans are prepared in advance so that as our volumes go down, whether it's communicated or whether it isn't, our teams react accordingly.

And so as a result of managing it I think both in the long term, attacking the cost reductions that we had planned, they executed extremely well.

And then they didn't allow the distractions to slow us down as it relates to flexing the operating cost of the business.

So those were the 2 reasons that I would give you.

And the communications as well have to have been phenomenal going back and forth.

I give the customers a lot of credit too, Mike.

I mean they're in constant communication with our plants and with our operating team and while we have some extra inventory, as many of you probably noticed in the quarter, a lot of that is due to these volumes that we were -- we had on the release and then phone calls would come in and suggest that they weren't going to build those vehicles.

So a little bit of inventory up in the quarter.

But obviously, the second half, you've heard from our customers like we have, we expect it to be much better.

Much better.

On Page 13, you talked about successfully completing a technology development phase with a key footwear customer.

How long was that phase?

And what does that mean exactly?

Yes.

So as we've discussed before, the technical phase in our language means that our engineers working with their engineers to develop formulations that pass as many tests as they need us to pass.

And so those typically take over a year, this one is no different.

And now we've achieved the green light related to passing the test.

And so then you get into the commercial negotiations in terms of how much we're going to get paid.

So now are there 3 footwear companies that have passed this technical, the development phase?

No, we're just -- the one that I've mentioned here on Slide 13 that you talked about, that's for one particular footwear company.

And the other footwear companies, we continue to make progress as well.

But the one on Page 13 was just referencing a specific milestone that we achieved with one.

With that one, okay.

On Page 14, you talked about the EV business and $100 million of new business in 2020.

What was the revenue base in 2020?

I think you said you had 16 of the top 25 selling EVs, what type of revenue base are we talking about from 2020?

Is that $100 million of revenue?

Is it doubling over the next couple of years, that what you're looking at?

Yes.

We haven't given that detail, Mike.

But as I've said in the past, the best way to think about this with Cooper-Standard is that our content per vehicle is really trending up.

So in other words, we're selling ceiling, like we would on any of the drivetrains.

But the fluid components within EV are driving more content than they were on the internal combustion engine.

So that's the message.

And hybrid is even better because you're heating and cooling dual systems.

So that's about as much information as we've applied.

So it's a lot of new business.

Right.

So that new business is coming from, not necessarily new applications but increased content on existing applications or some of the applications?

No.

In many cases, you have new models, new platforms.

So it's going to drive an organic increase in our business.

In other cases, we obviously are still really servicing all 3 drivetrains, as you know.

But what we're talking about when we separate EV, and we're going to be doing this each release now, we're going to be tracking the EV sales and the content associated with that versus our other core business, and we're doing that internally, and we'll start sharing more of that externally as we go forward.

And obviously, we can't tell you the platforms because these are future models.

So we don't do that, but we can talk about at least the customers that we're serving and tell you that many of them are new vehicles for them that we're winning.

Next question comes from the line of Joseph Farricielli with Cantor Fitzgerald.

Two questions.

One, if I look on Slide 10.

Some of the cost savings really specifically SGA&E.

That $10 million, how much of it is going to carry to future quarters?

How much is maybe related still to COVID savings?

And then one follow-up from there.

Jon Banas here.

Thanks for the question.

The SGA&E savings that you're seeing, we believe, are sustainable.

As we we've been continuing to work to align our overall cost structure to the smaller revenue base of the company.

These are sustainable and what we feel is long-term savings and run rate levels for our SGA&E expense.

And I think we've mentioned in the past on previous calls, our target for SGA&E, over the long-term is to continue to be below 9% of sales.

And we -- you'll see more as we progress throughout the year as some of the actions we've taken and some of the initiatives we've got in place are going to develop savings opportunities and ramp up throughout the rest of this year.

Okay.

Great.

Great color.

And then the next question is trying to get also a peek into what the OEs are doing.

With this chip shortage, you see different product lines or model lines rather being shut down, and it's my assumption looking for that confirmation that the OEs are focusing under more profitable lines and didn't know if that follows through for you as well that the idled production may be lower-margin business anyways.

So the idling may actually be -- or could be a good thing.

Yes.

This is Jeff.

It's a good question.

What we are hearing is that obviously, trucks and SUVs, I'm talking right now about the North American market, of course, trucks and SUVs and some of the more popular crossovers are going to get priority as we go forward.

Obviously, the Cooper-Standard revenue is dramatically influenced by trucks and SUVs and crossovers in the North American market, over 80% of our revenue is in that segment.

So we do believe that, that's what will happen because we've heard our customers talk about that just like you have, and we're hopeful that if they're shutting down certain segments that it's passenger cars if you're in Cooper-Standard, both for the trucks and the SUVs every day.

Your next question comes from the line of Brian DiRubbio with Baird.

A couple of questions for you.

Maybe first starting with raw materials.

John, are you on LIFO or FIFO inventory accounting?

We are on FIFO.

Okay.

So we're going to start seeing that impact, I guess, you already indicated, though, really in the second quarter?

Well, what we talked about, Brian, is we are going to start to see commodity inflation ramp-up in the next couple of quarters as we look towards not only what our suppliers are telling us, but what the IHS kind of forecast is for certain commodities that we're exposed to.

So the good news here in Q1, that was moderate.

It was only about $2 million of headwind that we faced.

But as you look back to what we thought the whole year would look like, we were facing about $15 million when we entered the year of commodity headwinds.

And that is almost doubled now.

We think it's going to be closer to $25 million to $30 million of headwinds.

So we're working to offset as much of those as we can through supply chain initiatives and other negotiated recoveries, but we're going to start facing that pressure here Q2 forward.

And just remind me, how often can you go back to the manufacturers to reset some of the pricing?

Yes.

Certain of our customers, we have index contracts with various components and/or raw materials.

Others, we do negotiations on a regular basis.

But typically, that those indices, it's not a significant portion of our raw material buy and those reset it once a quarter.

But in times of extreme volatility, we'll be more apt to approach the customer for remuneration on rising prices as we're seeing here today.

Okay.

And then switching gears, you talked about potentially pulling up -- $40 million, excuse me, of cost out of Europe.

Europe -- I mean, as everybody knows, very difficult to hold costs out.

What would be the upfront costs to achieve that $40 million in savings?

What we're looking at right now, Brian, is already included in our restructuring forecast for the year.

So we came in the year thinking we would spend cash of about $50 million to $55 million and a good portion of that was related to Europe.

That estimate has -- fortunately has come down a bit to closer to $40 million to $45 million.

And you can think about in terms of that being over half related to the European footprint.

And will we see any spillover to next year on the cash cost?

Yes, but nothing as significant as we're seeing here.

Some of the restructuring costs or payments that we're going to make, we've negotiated to spread out over a series of years, but you won't see a significant outflow like the $40 million to $45 million that we're talking about this year.

Our next question comes from the line of John Levin with Levin Capital.

Yes.

I just would like to clarify, really a follow-up to Mike Wards question.

You originally announced fit you had a relationship with the Chinese shoe manufacturer.

Was the commercial progress with that manufacturer or with some other possible manufacturer in the world?

John, this is Jeff.

Congratulations on how you're doing, Jeff.

Thank you.

Appreciate it.

Thank you.

We didn't disclose, John, which continent and for obvious reasons, because we have a nondisclosure with each of the manufacturers that we're working with.

So at least at this point in time, we're not able to talk about who.

Yes, I agree.

But if I maybe just push on that subject, and I appreciate you calling on me, and I'm glad to withdraw the question.

But there is a huge investment inference if it is some place outside of the one company that you originally announced the contract with?

So that would be just an inference.

You don't have to mention the name, but if it were a different customer, it would validate what's going on.

That's the drift of the question, which is really the same question Mike Ward was asking, I believe.

I understand the question, John, but we're not able to suggest ankle or any other word, who it may be.

So we'll have to save that for another day.

We're certainly hopeful that in the future here, we are able to provide more details around that.

I am hopeful that we'll be able to do that.

We're asking to be able to do that.

And when we get that permission, we would be happy to disclose it.

Great.

I am neither Donald Trump, nor Joe Biden but I infer the -- since you mentioned the first Chinese company, there's something else working out here that we should be hopeful about.

Next question comes from the line of Josh Taykowski with Crédit Suisse.

Just a few from my side.

I guess starting on the margin side, it looks like profitability certainly better year-over-year in some of the regions that have historically had issues, Europe and Asia.

But just looked at the whipsawing a bit on a sequential basis from 4Q.

So just trying to understand that a bit better.

So I guess, would it be possible to maybe get into some more specific puts and takes, I guess, maybe starting in Europe first.

And then Asia on what happened from a margin perspective in 1Q versus 4Q last year?

Yes, Josh, let me start and take you around the world.

Europe was actually a situation where performed more favorably than we thought coming into the year.

Volumes held up very well in the industry despite the global chip shortage in certain COVID pandemic environment.

And related to the overall production in the region, it was down about 0.9%.

But for our mix of vehicle platforms and customer base, we were actually positive territory.

And so we outpaced the market and we were just a hair shy of 0.5% positive of production year-over-year.

So that was good news and we've been ongoing monitoring whether that is sustainable in the overall industry there.

And so far, things do look to be more consistent and stabilized than they certainly are here in the North America region.

In Asia, the overall market was up about 46%, if you include the whole region.

And specifically, China was up about 77%.

But in both cases, we also outperformed the region, and we were up about 50.5% for the overall Asia Pacific locale.

And in China, in particular, we're up 85.5%.

So about 1.1x the market there.

So clearly, a good year-over-year comp.

Asia was hit harder in the first quarter.

Certainly, China was with the pandemic last year.

And so we're outpacing that market, and we can see that with the global customer base that we're more weighted towards in that region that we're performing well overall.

North America, I think you appreciate the story there.

And market is down about 4.5%.

However, our production levels and volumes were up about 1%.

So again, favorable to the market.

So overall, running about 6.3% globally in terms of organic growth rate when you have carve out FX from that.

So clearly, the volatility here in Q2 is of a concern globally.

We're obviously monitoring daily as far as what our customers are telling us around the world in those shutdowns.

So you're seeing the same news we are.

And as Jeff said earlier, our customer has been very, very good about communicating those production schedule changes to us, so we can react and plan accordingly.

Got it.

And I guess I was asking more so, completely understand the volume story kind of regionally.

I was asking more on a sequential basis, just looking at the supplemental info that you put out, which is much appreciated by region, EBITDA margins.

I guess taking Asia, for example, 4Q was dramatically better than what we've seen in previous quarters, 12.8% margin versus 1Q this year coming in right around 3% margin.

So just trying to understand a bit better, what's kind of driving that kind of pretty gigantic swing just on a sequential basis?

Yes.

What we talked about in Q4 related to Asia, in particular, China.

There were still some government incentives in Q4 that really helped overall production levels.

And also related to our profitability is finalization of negotiations on pricing matters as we close out each particular year.

So in Q4, you saw an elevated level of production and a full running of our plant productions, which drives cost absorption for us to drive margins up.

As well as negotiated savings as on pricing matters for the year.

So that kind of explains the delta.

And year-end is -- Q4 is typically the quarter where those negotiations finalize.

And you'll see always some impact there.

And also, on the purchasing side for our supplies, we have contracts that allow for rebates once certain production levels are met.

And that typically also occurs in Q4.

So between favorable pricing activities, rebates on the supply side and just the overall production levels that was driving some good performance there.

When you look at the ramp back up here in Q1 for Asia in particular, clearly, some of those things are more sustained and are spread out throughout the rest of the year.

And as we've talked in the past, we see that throwing out the Q2 deterioration that we're going to see because of the overall production environment, we'll see sequential growth in EBITDA margins throughout the rest of this year.

Your next question comes from the line of Mike Cazayoux with KDP Investments.

It's basically the same as the previous analyst, I was just looking at the sequentials.

Europe also had decent contribution in the fourth quarter and then turned negative this quarter.

So maybe if you could address that as well.

Sure, Mark.

Similar story there within the Europe environment.

I don't have the walk-in front of me on sequential to be frank.

But it's a similar story as far as overall negotiation levels, purchasing rebates and the ramp-up of production in Q4.

The European market, I said we're seeing positive news here even in Q1.

So that effect kind of was starting to build in Q4 of last year.

And so the market performance overall returning to a level of normalcy, if you will, for Europe, was a good news story for us in Q4 of last year.

Your next question comes from the line of Bob Amenta with JPMorgan.

Just a couple of quick follow-ups.

One of the earlier analysts asked about the concept of the Fords of the world focusing on the higher value vehicles.

Along those lines, I would imagine your products don't involve much in the way of sensors.

I mean they may tie into sensors, but are you seeing or hearing anything where there are vehicles being built with your products on them, but yet they're not being complete vehicles.

They're just kind of setting them aside.

I mean, such that even affords production or some of this stuff is down for end vehicles, 50%.

Maybe there's partially built vehicles that your products will have as far as you're concerned, that's a vehicle that's been built, if you know what I'm getting at.

Yes, this is Jeff.

That's true.

There's quite a bit of data out there that shows how many vehicles are parked in some sense of waiting for sensors so that the build can be completed.

However, when you have assembly plants that are completely shut down like we've experienced as well, and we expect to continue to experience here over the coming weeks based on what we've been told.

Obviously, those aren't being built.

So while we don't have an exact figure because we don't have access to it.

There has been quite a bit written about it recently.

And so those products would -- or those vehicles that are partially built would have our products on it.

And the other answer to your question is, yes, we don't rely on the microchips in our products.

Okay.

And then just lastly, you guys made the comment that, basically, at this point, you're kind of affirming, if you will, for now, in any way guidance for the year.

When you say within the previous announced range or whatever, I'm assuming you're talking revenues and EBITDA?

Or you're more focused on EBITDA?

Or is there any -- is that just a generic statement?

I mean, obviously not focused on EBITDA in the -- where I'm coming at it.

Yes.

This is Jeff.

Just to be clear, it's both.

So we've guided both.

Your next question -- last question -- next question comes from the line of Taykowski of Credit Suisse.

I guess, just to continue the similar line of questioning as I was before.

I was just wondering, how come you don't see as it relates to commercial settlements, et cetera, coming in at the end of the year, why don't you see that same kind of lumpiness, I guess, you should say, you could call it, in North America, that it's always been pretty stable kind of in that low teens type margin profile.

Even on a sequential basis, I think North America was 11.9% in 4Q versus actually up 30 bps in the first quarter of this year.

So I just wanted to parse that out a little bit more.

Yes, Josh.

The North America story is -- it all depends on the customer negotiations and overall business plan, if you will, for -- and it's actually a global comment.

So it all depends on how the previous year went and the performance and relative scorecard you have with that particular customer in that point in time.

So it could just be that the North American-based customers, we were green on those scorecards, so there wasn't a significant level of variability or lumpiness, as you called it in Q4 versus Q1 of this year.

So it really all depends on -- also on the timing of new business awards.

And whether we are looking to look more favorable on overall scorecards to win that new business.

So it's the proverbial.

It depends on timing of negotiations, but then also new business awards.

That will drive when we agree to and then ultimately record on pricing accruals like that.

Got it.

Fair enough.

And then last one for me.

Just -- I know in the past, we've talked about the strategy of potentially going back, renegotiating with customers and potentially getting more contractual indexing in your contracts.

So I guess I was wondering if there's any updates to share there, any progress being made?

And I guess, lastly, just a reminder of what percent of your business is indexed today in this kind of rising price environment that we find ourselves in.

Josh, this is Jeff.

And I would tell you that we are making progress with both customer and suppliers in terms of indexing.

And we basically had told you before that we were trying to double the amount that we have indexed with our supply base which we feel confident that we're going to achieve that over the course of these negotiations, and we'll probably give you more specifics around that during the next quarter call, I would say, but we are making progress towards that original goal.

And then with the customers, it's obviously more complicated.

We are making progress there.

We feel very good, especially with our larger customers, where we sit and those negotiations continue to happen as well.

And in fact, they're helping us quite a bit here, as Jon mentioned before, with the inflation that we're experiencing, particularly with some of our petroleum-based products.

We find ourselves in a good position with some of our larger customers as we work our way through the year.

So we'll come back in both cases and give you some updates in terms of how we've moved the needle and what percentage of our business with the customer base and what percentage with our supplier base once we finalize those negotiations hopefully here in the next couple of months.

It appears that there are no more questions.

I would now like to turn the call back over to Roger Hendriksen.

Okay.

Thanks, everybody, for your participation in the call this morning.

Great questions.

And if there are other open items that you'd like to address I'll certainly be available this afternoon and all of next week, feel free to reach out at any time.

Thanks again for participating.

This will conclude our call.

Have a good weekend.

This concludes today's conference call.

You may now disconnect.