Cooper-Standard Automotive Inc. 2026 Q2 Earnings Call

Please go ahead. Joining 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 John Banas, Executive Vice President and Chief Financial Officer. Before we begin, I need to remind you that this presentation contains forward-looking statements. While they 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 three 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 compared to their most directly comparable GAAP measures are included in the appendix to the presentation.

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

Thanks, Roger, good morning, everyone. Thank you for joining the call this morning. To begin on slide five, I'd like to highlight some key second quarter data points that we believe are reflective of our continued outstanding operational performance and our ongoing commitment to our core company values. In terms of operations and customer service, we continue to deliver excellent performance. For product quality and service, 99% of our customer scorecards were green in the quarter. For new program launches, we also continue to deliver strong performance with 97% of the customer scorecards being green. For the most important operating metric, safety performance continues to be excellent. A shout-out there to our plant employees. Thank you all. Just further on safety, listen to these stats. Pretty impressive. During the second quarter, we had a total incident rate of 0.17 reportable incidents per 200,000 hours worked.

That's well below the world-class benchmark of 0.35. Importantly, 44 of our plants have maintained a perfect safety record with a total incident rate of zero for the first six months of the year. That's 75% of all of our production facilities achieving a perfect safety score and demonstrating that our ultimate goal of zero safety incidents is achievable. We're proud of our entire global team for their focus and achievement in this most important operating measure. In terms of cost optimization, we had another solid quarter with our manufacturing and purchasing teams delivering $15 million of savings through lean initiatives and other cost-saving programs. These cost reductions and operating efficiencies are always important, but I would call them critical in periods of hyperinflation, such as we just experienced this quarter.

I want to give a special shout-out to our purchasing team and our manufacturing and engineering teams for their continued excellent work and achievements. We appreciate all you're doing. In addition, we did a nice job managing working capital and spending in order to optimize cash flow. During the quarter, we were pleased to deliver a solid $16 million in free cash flow, $40 million improvement over the second quarter of last year. Finally, we're continuing to leverage our world-class service, technical capabilities, and our award-winning innovations to win significant new business. In fact, during the second quarter of 2026, we received $118 million in net new business awards, which will drive additional profitable growth as they launch over the next few years.

Turning to slide six, putting the strong commercial performance in context, this brings the total net new business awards for the first half of the year to $246 million. This remains ahead of our plans for the year so far, which we believe puts us in a strong position to achieve the full-year goal of over $400 million in 2026 and topping $700 million when combined with last year's award. As you can see in the chart, our new business awards have been accelerating over the past few years as the financial strength of the company has been improving. The good news is that we will have available capacity to launch much of this new business over the coming years with minimal capital investment.

We're certainly proud to be the supplier that our customers are increasingly turning to for quality components, consistency of delivery, and collaboration of critical design and development of new technologies. With these awards in hand, driving incremental variable contribution margins and a strong outlook for new business wins ahead, we're increasingly confident that we'll be able to execute our plans and achieve our longer-term strategic financial targets for growth, margins, and return on capital. Let me turn the call over to John to discuss the financial results for the quarter.

Thanks, Jeff. Good morning, everyone. In the next few slides, I'll provide some details on our financial results for the quarter and discuss our cash flows, liquidity, and aspects of our balance sheet and capital structure. On slide eight, we show a summary of our results for the second quarter and first half of 2026, with comparisons to the same periods last year. Second quarter 2026 sales were $721.3 million, an increase of 2.2% compared to the second quarter of 2025. Adjusted EBITDA in the quarter was $53.9 million, compared to $62.8 million we reported in the second quarter of 2025. The year-over-year change was primarily due to higher costs for materials, duties, and tariffs, and other general inflationary pressures.

On a U.S. GAAP basis, we reported a net loss of $18.8 million in the second quarter of this year compared to a net loss of $1.4 million in the second quarter of 2025. Adjusting for restructuring expense net of tax from both periods, adjusted net loss for the second quarter was $2.3 million, or $0.13 per share, compared to adjusted net income of $1 million, or $0.06 per share in the second quarter of 2025. Our capital expenditures in the second quarter of 2026 totaled $13.8 million, or 1.9% of sales. This was higher than the prior year period due to increased launch-related investments and automation, but in line with our full expected run rate of 2%-3% of sales. We continue to exercise discipline around our capital investments, consistent with our goals of maximizing returns on invested capital.

For the first half of the year, sales were $1.4 billion, up year-over-year, primarily due to favorable foreign exchange. Adjusted EBITDA for the first six months was $104.9 million, and adjusted net loss was $7.6 million. I'll provide some additional detail on the drivers of the year-over-year changes for the quarter and the first half in the charts in the next couple of slides. Moving to slide nine. For second quarter sales, favorable foreign exchange was a tailwind of approximately $10 million in the quarter versus the second quarter of 2025. Favorable volume and mix, net of customer price adjustments and recoveries, had a positive impact on sales of approximately $5 million compared to the same period a year ago. For second quarter adjusted EBITDA, lean initiatives in purchasing and manufacturing positively contributed $15 million year-over-year, demonstrating continued strong performance from our global teams.

In addition, favorable foreign exchange added $2 million compared to the second quarter of last year. More than offsetting these improvements were $10 million of higher material costs around rubber, metals, and resins, as well as $8 million in increased wages and general inflation, and $8 million in higher duties, tariffs, and other costs. Most of the commodity inflation was driven by higher oil prices, which averaged about $30 per barrel higher in the second quarter than before the Middle East conflict began. As discussed during our first quarter conference call earlier this year, the gross commodity inflation incurred during the second quarter is really a timing difference based on the structure of our commercial agreements.

We expect to recover most of these incremental input costs, as well as tariffs, in the second half of the year according to the index-based contracts and agreements we have in place, as well as through typical commercial negotiations. This is really the first time that our index-based contracts have been significantly tested since we put them in place, and we're pleased that they are working as intended. Price increases have already gone into effect in the third quarter, which will allow us to recover much of the material cost inflation we have seen. Moving to slide 10. Looking at adjusted EBITDA for the first half of the year, our teams have generated $31 million in savings or increased efficiencies in manufacturing and supply chain optimization, which continue to benefit our results. We have also seen $3 million in savings from past restructuring initiatives.