Cooper-Standard Holdings Inc.

Second quarter 2024 earnings conference call. During the presentation, all participants will be in a listen-only mode. Following company prepared comments, we will conduct a question and answer session. At that time, if you have a question, you will need to press star, then the number one on your telephone keypad. To withdraw a question, please press star, then two. As a reminder, this conference call 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 Hendrickson, Director of Investor Relations. Please go ahead.

Thanks, Julie, and good morning, everyone.

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

Okay, thanks, Roger, and happy August, everyone. We appreciate the opportunity to review our second quarter results and provide an update on our business and outlook going forward. So to begin on slide five, I'd like to highlight some key second quarter data points that we certainly believe are reflective of our continued strong commitment to operational excellence and our company core values. In terms of product quality, 97% of our customer scorecards were green in the quarter. For new program launches, our customer scorecards were 96%. We continue to achieve outstanding operational performance, allowing us to deliver exceptional value to our customers. In addition, the safety performance of our plants continues to be excellent. During the second quarter, we had a total incident rate of .29 reportable incidents per 200,000 hours worked, well below the world-class benchmark of .47. Leading this outstanding safety performance were the 31 plants that had a perfect safety record of zero incidents through the first six months of the year. I certainly want to recognize the teams at these plants for their ongoing commitment and leadership as we continue to strive for our ultimate safety goal of zero incidents for the entire company. In terms of cost optimization, we had another solid quarter with our manufacturing and purchasing teams delivering $16 million of savings through lean initiatives and other cost-saving programs. This improved efficiency combined with our enhanced commercial agreements enable us to improve our gross profit margin by a solid 100 basis points compared to the second quarter of last year. While we certainly have more work to do, we continue to make progress toward our profitability targets. Finally, we're continuing to leverage world-class service, technical capabilities, and our award-winning innovations to win new business. In fact, during the second quarter of 2024, we were awarded $61 million in net new business awards. Importantly, we continue to partner with our customers to design and develop new technologies for some of their most important new vehicle platforms, including ICE, hybrid, and battery electric vehicles. Let's go to slide six. While providing our customers with world-class products, technology, and service certainly is and always will be critical to our success, we also place a high priority on being a good corporate citizen and a steward of the environment. We continue to garner outside recognition for our leadership in sustainability. In the most recent quarter, we were pleased to be included in the USA Today's list of America's climate leaders. in recognition of our efforts to reduce energy consumption and develop products that reduce overall carbon footprint. Consistent with our company values and purpose, we remain committed to creating sustainable products and solutions that will create value for all stakeholders. Now let me turn the call over to John to review the financial details of the quarter.

Thanks, Jeff, and good morning, everyone. In the next few slides, I will provide some details on our financial results for the quarter and discuss our cash flows, liquidity, and aspects of our balance sheet. On slide eight, we show a summary of our results for the second quarter and first six months of 2024 with comparisons to the same periods last year. Second quarter 2024 sales were $708.4 million. a slight decrease of 2.1% compared to the second quarter of 2023. The decrease was driven primarily by the divestiture of our technical rubber business in Europe during the third quarter of last year, an unfavorable foreign exchange. Excluding the impact of the divestitures and FX, net sales would have been up $7 million, or approximately 1% compared to the second quarter of 2023. outpacing global automotive production, which declined by 0.5%. Gross profit for the second quarter was $82.9 million, or 11.7% of sales. This compares to a gross profit of $77.7 million, or 10.7% of sales in the second quarter of 2023. Adjusted EBITDA in the quarter was $50.9 million, compared to $47.9 million in the second quarter of last year. The year-over-year improvement was driven primarily by lean savings achieved in manufacturing and supply chain, favorable volume and mix, including sustainable price increases, and savings related to restructuring actions. These positive drivers were partially offset by the impact of unfavorable foreign exchange and ongoing inflation headwinds in areas such as energy and labor costs. On a U.S. GAAP basis, we reported a net loss of $76.2 million in the second quarter compared to a net loss of $27.8 million in the second quarter of 2023. The result in the second quarter of 2024 included a non-cash charge of $46.8 million related to the termination and settlement of our U.S. pension plan, as well as $17.8 million in restructuring charges related to our cost reduction initiatives. Excluding these and other special items and their related tax impact from both periods, adjusted net loss for the second quarter of 2024 was $11.3 million or 64 cents per diluted share compared to adjusted net loss of $20 million, or $1.15 per diluted share in the second quarter of 2023. Our capital expenditures in the second quarter totaled $11.2 million, or 1.6% of sales, compared to $17.5 million, or 2.4% of sales, in the second quarter of last year. We continue to exercise discipline around capital investments in order to maximize our returns on invested capital. Current capital spending remains focused primarily on customer programs in preparation for successful launch activity. For the first half of the year, sales came in at $1.38 billion, having been impacted by divestitures and foreign exchange. Despite the lower sales, our business was actually more efficient. as gross profit increased to $144.6 million and gross profit margin improved by 190 basis points versus the first half of 2023. Adjusted EBITDA for the first half was $80.3 million, up nearly 33% versus the prior year six months. Net loss improved to $107.9 million in the first half of 2024, compared to net loss of $158 million in the first half of 2023. Adjusted net loss of $41.9 million, or $2.39 per diluted share, improved by a solid 36.7% compared to the first six months of 2023. Moving to slide nine. The charts on slide nine provide additional insights and quantifications of the key factors impacting our results for the second quarter. For revenue, favorable volume and mix, including net customer price adjustments, increased sales by $7 million versus the second quarter of 2023. The impact from the technical rubber divestiture was $15 million in the quarter, and foreign exchange, mainly related to the Chinese RMB The Euro and the Brazilian REI further reduced sales by a net $8 million versus the same period last year. For adjusted EBITDA, lean initiatives in purchasing and manufacturing contributed $16 million year-over-year. Favorable volume, mix, and net price adjustments, as well as other cost recoveries, drove a combined $9 million of improvement for the quarter. Savings from implemented restructuring initiatives were $4 million in the quarter. These positive contributors were partially offset by $15 million of unfavorable foreign exchange and $9 million of ongoing general inflation, including salaries, wages, energy, transportation, and other costs. Moving to slide 10. For the first six months of the year, sales benefited from $15 million in favorable volume, mix, and net price adjustments. These were more than offset, however, by divestitures and unfavorable foreign exchange. Adjusted EBITDA in the first six months benefited from manufacturing efficiencies and purchasing lien initiatives amounting to $35 million. An incremental $24 million in improved volume, mix, and net price adjustments and $4 million in restructuring savings. These positive factors were partially offset by $24 million in unfavorable foreign exchange and $18 million of continuing general inflationary pressures.

Turning to slide 11.

Looking at cash flow and liquidity, cash used in operating activities was approximately $12 million in the second quarter of 2024. a slight improvement versus the second quarter of 2023, despite our election to pay cash interest payments on our third lien notes in June. As mentioned earlier, CapEx was approximately $11 million in the second quarter of 2024, resulting in a net cash outflow of approximately $23 million, an improvement of approximately $7 million compared to last year. Following this cash outflow, we ended the second quarter with a cash balance of approximately $94 million. Combined with $173 million of availability on our ABL facility, which resulted in a total solid liquidity of approximately $267 million as of June 30th, 2024. We are pleased that our improving profitability and conservative approach to capital investments have bolstered our efforts on sustainable cash generation and have enabled us to elect the cash pay option for the upcoming December 2024 interest payments on both our first lien and third lien notes. While this election changes our full year outlook for free cash flow from modestly positive to now break even or slightly negative, it avoids further increases in our debt balances and debt service requirements as we look to strategically improve our capital structure in the future. Based on our outlook for future light vehicle production, our improving operations, and our expectations for future cash generation, we believe we have, and will continue to have, sufficient liquidity to execute our business plans and pursue our profitable growth objectives for the foreseeable future. That concludes my prepared remarks, so let me turn it back over to Jeff.

Thanks, John. For the few minutes we have remaining on our call this morning, I'd like to focus on the progress we're making with our key strategic imperatives, as well as provide you with an update on our four-year guidance. So please turn to slide 13. Last year, our global leadership team outlined and refined four key strategic imperatives to accelerate growth and maximize the long-term value of our company, and you can see these outlined. on slide 13. My earlier comments already spoke to the world-class execution and corporate responsibility, so I'd now like to share a few comments on some key actions we've taken to improve our financial strength, turning to slide 14. As we announced last quarter, our new product line-based organization structure helped us to quickly identify significant opportunities to further optimize costs by eliminating redundancies, automating processes, and leveraging technology. As a result, during the second quarter, we successfully implemented a plan to reduce our salary costs globally. These actions are already having a positive impact, as John pointed out in his slides. but the impact will be much more significant in the second half of the year and beyond. In total, the reductions are expected to save between $20 and $25 million in 2024 and between $40 and $45 million on a full year annualized basis beginning in 2025. The anticipated savings are expected to provide a payback on related restructuring costs in approximately six months. Further, we expect the savings will enable both operating segments to approach if not achieve double-digit EBITDA margins and return on invested capital as we exit 2025, despite this projected slow growth in global light vehicle production. Of course, we recognize there's still work to do in order to drive the level of financial returns that we all expect. A key component of this will be to manage our balance sheet and reduce our overall leverage. While I don't have a specific announcement today or specific action plans to share with you, let me assure you that we are 100% focused on this task. We believe we will have various levers we can pull as our core operations continue to improve over the next 12 to 18 months. Turning to slide 15. Now let me make a few comments in relation to our financial strategic imperative, profitable growth driven by innovation. We continue to develop innovative products and technologies that create value for our customers and enable us to gain share and improve profitability. In our sealing business, we're working from a position of strength as the global leader in the market. Recent innovations such as our patented flush seal system are already driving new business as our customers are placing greater emphasis on styling and aerodynamics. We successfully launched flush seal on six programs in Asia in 2023, and we currently have another nine programs in development globally. As this technology gains in popularity among our OEM customers, we have a strong pipeline of targeted business. We are confident we can win later this year and into 2025. We also see strong opportunities for new business with frameless ceiling systems. We're widely recognized as the market leader for these highly engineered systems that are increasingly in demand in the EV segment of the market. Given our leadership in this technology, we see sales of our frameless sealing system growing at a 30% CAGR in the next five years. Trends in sustainability also represent important improvements for our sealing business. We already provide a wide portfolio of sustainable materials solutions with recycled, regenerated, non-fossil-based, and waste-based inputs. In addition, our micro-dents and Fortrex material options provide significant weight reduction and reduced carbon footprint. A new innovation in 2024 is the development of a patented solution for a fully recyclable lighter weight and lower carbon footprint door seal we call Flexi-Core. This new technology has passed Gate 3 of our innovation and development process, which means it's ready to sell and is currently in validation at multiple customers across all regions. We're very excited to bring this new sustainable solution to the market, and we anticipate it will drive new business awards in the future. Turning to slide 16, in our fluid handling business, we see even greater opportunity for accelerated profitable growth. We have a unique, innovative portfolio of fluid handling solutions to support our customers for all powertrains. And we have the flexibility to quickly adapt to changing market demands. Recent innovations in our core product line are seeing rapid adoption. Our plasticool technology is now globally industrialized. It is currently in production with four customers and sourced for future production at eight additional OEMs. We are also seeing similar approval and adoption of our best-in-class EZ-Lock and Ergolock connector solutions. Growth products such as our Coolant Hub are a key part of our strategy and are now launching to capture market share, content per vehicle, and certainly new customers. Looking ahead, our fluid handling technology roadmap includes transformational new products such as the EcoFlow switch pump and fully integrated EcoFlow coolant modules. We have a total of six new products planned to exit our innovation process by the end of the year, making them available to quote for new business and help us drive our profitable growth objectives. As we bring some of these exciting new products to the market, we expect to significantly increase our average content per vehicle, as well as expand our total addressable market. Patented innovations also will likely improve our competitive advantage and enable market share gains globally. We see especially strong growth opportunity in China, where we believe our proprietary technology enhancements better position us to build out a solid fluid handling business with Chinese domestic OEMs over the next several years. Turning to slide 17. In the more near term, the current demand trends for different vehicle powertrains is creating an opportunity for us actually. Our current diverse product portfolio gives us flexibility to support our customers regardless of which type of vehicles they build. and hybrid vehicles represent a true sweet spot, as most of you know, with an average fluid product content 80% higher than what we see in the more traditional ICE vehicle programs. In coming years, we launch the new technology we've been talking about. We believe our total addressable market will expand meaningfully, and our overall content per vehicle will increase as well. Turning to slide 18, Let me conclude with a few comments on our outlook and guidance for the full year. While we're generally pleased with the results in the first half of the year and progress we continue to make towards our strategic imperatives, we certainly haven't been helped by the macro level drivers in our industry. We're not whining about it, but in particular, industry estimates for light vehicle production continue to be revised downward month after month, inventory levels on dealer lots are rising due to slower consumer adoption of EVs, persistently high inflation and higher financing costs, prompting OEMs to push back new program launches and reduce production schedules below what we expected coming into the year. Inflationary pressures are continuing to impact nearly everything that goes into our production, including labor, material and energy, not to mention the indirect costs for things like rent, transportation, insurance and more. Unfortunately, despite the obvious pressure these dynamics impose on the supplier community, some OEMs have been reverting to their traditional demands of price concessions. So those are all just the facts. In addition, unfavorable foreign exchange has negatively impacted both our sales and our operating costs as the value of the U.S. dollar continues to slide relative to key currencies such as the Mexican peso and the Polish lotto. Clearly, these are important factors that are beyond our immediate control. So while we continue to execute well and advance towards our financial goals, the macro environment is slowing our process just a bit here in the near term. The modest adjustments that we have made to our guidance reflect some of these challenges. We remain confident in our recent cost reduction initiatives will enable us to deliver improved profitability and cash flow in the second half of 2024. and will benefit us further in 2025. So despite the current headwinds, we believe that both of our product segments remain on track to achieve double digit return on invested capital as we exit 2025. We also remain confident that as more of our new programs and products are launched over the next couple of years, you will see further expansion of our profitability through both increasing volume and improved variable contribution margins. In conclusion, we want to thank our customers and all stakeholders for our continued confidence and support as we continue to navigate through these challenges and execute on our plans to drive sustainable, profitable growth and value. This concludes our prepared remarks, so let's move on to Q&A.

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press the star followed by one on your telephone. If you're using a speakerphone, please pick up the handset before entering your request. One moment please as we assemble the queue for questions. Your first question comes from Mike Ward from Freedom Capital. Please go ahead.

Good morning, everyone. But just a couple of things. On the restructuring actions, those actions have been completed, correct?

We are in the final stages of that, Mike. Most of them have been completed. Certainly, it's going to be the pickup I described between $20 and $25 million in the third and fourth quarter. We have a high level of confidence, so moving right along with it.

Okay. The second thing, I mean, your margin performance excluding FX was above 9%. And is that kind of the go-to trend that we're at right now? We're getting towards that double-digit rate of margin?

Yes, it's Jeff again, Mike. It certainly is. We continue to march towards the double-digit EBITDA and return on invested capital. We expect to be there next year.

Okay. John, I wonder if you can go over some of your cash flow comments, and I just want to make sure I understood it. I think you said that you expect it to be, cash flow neutral for the year. Is that correct?

Yeah, if I gave a range, Mike, that would be the top end of the range. We're looking now at our point estimate is slightly negative. Based on my earlier comments this year, we would have expected to be cash flow positive for the year at the free cash flow line item. But however, given the confidence we've had from the operational performance and the improvements that we're making in the business, We chose to do straight cash interest pay in the December coupons for both our first and third lien notes. And that's worth about $25 million incremental cash that will go out the door. However, that's in the best interest or the long term for our capital structure. So that took us from the slightly positive to slightly negative range on free cash flow.

Okay. And then there are other items. I think I see there net cash taxes, $25 million, $30 million. And then you have the restructuring cash. I assume all that's in the second half. I didn't see anything in the second quarter. Is that cash restructuring $25, $30 million all in the second half?

No. We had some original programs that were carryover from prior years that were still running out. So we did spend some restructuring dollars in the first six months as well as the recently implemented actions. So I think the number was about $12.5 million of restructuring cash that's already been spent.

Okay. In the first half. Okay. So if I'm looking at the data that we see and you have that in the income statement that's been released thus far, it says net cash used provided by, or it changed in assets, operating assets and liabilities. And it was a negative 36 million in the first half. Normally you would see some of that working capital turn positive in the second half. Some of these other items that are in there are going to keep that you won't get the normal recovery. Is that right?

Well, just by definition, we do expect the second half to be positive, as the first half was about $54 million negative. And Q3 and Q4 tend to always be favorable in terms of working capital. As we reduce inventories by the end of the year, we collect our receivables in the back half of December. So there's typically an inflow that you see. with normal seasonality. And so I think that trend continues. It's just mitigated a bit.

Okay. All right. Well, thank you very much.

Appreciate that. Thanks, Mike.

Your next question comes from Kirk Ludke from Imperial Capital. Please go ahead.

Hello, Jeff, John, Roger. Thank you for the call.

Hey, Kirk. Hi, Kirk.

Well, I wanted to follow up on Mike's question on the margins. I guess at least a 10% EBITDA margin without volume growth, just doing the math, that would imply $270 million of EBITDA exiting 2025. Am I doing the math right?

Yeah, you're doing the math right.

So you've got another, so that's an $80 million increase from the fiscal 24 guidance. So I think you've mentioned at least 20 million of cost saves. What's the other 60? Is that the new products you've mentioned, mix?

There's a couple of things. Keep in mind, Kurt, that the 20 to 25 is this year's portion. Next year's portion is 40 to 45 million of cost out with this latest product. salary cost reduction as a result of the new organization that we put in place. And as we've said for the last couple of years, as we launch new programs and they replace big existing ones, because in many cases, the innovation that I talked about is helping our customers save money. At the same time, we're able to make better margins because the product is technology that they're willing to pay for. In addition to that, the fluid business is returning to a significant level of contribution to the company while it's been on hiatus for a couple years here. So that's a big part of it. And then finally, we're profitable in all regions as well. So the ability for the team to manage the cost side of the business, which we have done extremely well. We've also been managing the price side extremely well. And that's not supported. because people just like us. It's done because of the technology and the way we execute and the way we support our customers and their strategies, whether we're talking about ICE, hybrid, or EV, and our ability to change quickly. We're able to engineer new products for their new vehicles and get it into the market and help them especially on the fluid side, help them save money in terms of what it costs them to manage the overall fluid dynamics. And at the same time, that adds content, significant content for Cooper. So it's really inside of both of those. We're managing the cost side, we're managing price, and we're managing content per vehicle with innovation. So those are the three things that are driving the overall improvement. And whenever we get volume, it'll even be better.

Right. No, absolutely. So it's really, we're talking about 60 million of saves, at least 20 million in fiscal 24, another 40 in fiscal 25.

Kurt, let me clarify this. This is John. It's 40 million annualized. So we've

20 this year and an incremental 20 next year so the total run rate savings is 40 to 45. okay got it got it got it okay and um that's helpful thank you and more new business that new business wins this quarter um what what would you i mean how would you uh describe your organic growth rate is it you know low single digits mid single digits better than that?

Yeah, I think John tried to give you a little sense of how we're continuing to outpace the market, even in these crazy times in terms of the way the volumes continue to come down. I mean, here in North America, the latest projection is 15.8 million units. And in his prepared remarks, he walked you through the math associated with it. So we continue to outpace the market So we're growing the business pretty significantly. And when you look at that percentage over our history, I think it's probably about the same. We do expect with the hybrid introduction that's coming, Kurt, that hasn't been clearly defined yet by our customers in all cases. is going to significantly improve that number versus historical comparisons, just because hybrid volumes are going to go up, at least that's what we're being told. And that represents a content per vehicle increase for us in our fluid business by about 80%. So I think that's going to be really good news that we really haven't quantified for you yet in the macro sense. beyond what I just did. The reason is because we don't know exactly what the product plans are yet over the next two or three years for our customers, but we've been told we're going to hear that here very soon.

Got it. Thank you. That's helpful. And I think I heard you'll make cash payments on both bonds in December?

Kurt, that's right. This is John again. Yeah, we've... We've not elected the pick option, so we're going to do straight cash pay in December on both the first lien and the third lien notes.

Great. Wonderful. I appreciate it. Thank you very much.

Thanks, Bert.

Your next question comes from Brian DiRubio from Baird. Please go ahead.

Good morning, gentlemen. Just a few questions for me. Just on the CapEx spend, going back to my model, the last time I think you guys had capex that low was back in 2009. It had $46 million. Obviously, you're 50 to 60. But can you explain sort of, you know, what the thought process is in terms of how you're deploying capital differently today or maybe for 2024 versus prior years and why it can be that low and how long can it be at that low level?

Yes, Jeff. There's a couple different components of that. The first one is we're definitely getting better at designing the products that are going into our plants. So they require less capital than they probably historically did. So I think that's first and foremost hats off to our product engineers working closer with our manufacturing engineers to try to do everything they can to reduce the capital required to manufacture the parts. So that's number one. is the fact that we're operating at such low volumes. In many cases where we're booking a lot of new business like China, we're just kind of filling up what we have there. And so that's been an advantage for us here in the short and medium term. And I think that'll continue through next year as well. And then finally, we've just, in many cases, as it relates to cost reduction spend that historically we would have probably accepted a year and a half or two-year payback on things and then invested accordingly, you know, we've pushed that to less than a year. So that's had a positive impact because it, you know, it forces the teams to to have more of a laser focus on what they're doing from a cost reduction point of view if they're going to spend capital to achieve it. And that behavior, I think, has been good for our company. And I think that's a sustainable thing going forward because there's still quite a few things in the pipeline that we're pretty excited about. So those are kind of the reasons. We certainly continue to grow the business. We continue to book a lot of business with our customers. So I don't want you to think that we're starving it for capital, but we've figured out ways to do it better. And then finally, to answer your question, what do we see that going forward? I mean, we would like to see that number closer to 3% than 4% going forward. So let's see how we do.

Great. That detail is awesome. I appreciate all of that. Just as we think about next year, I know you said you still don't have plans on some of the capital structure, but the notes do go full cash pay next year. I guess the immediate question here is, what is the current balance of the first lien and third lien notes so we can start figuring that out ahead of time, what the cash interest burden will be?

Yeah, Brian, you'll see the full details in our 10-Q file later today, but the first liens balance as of June 30th was around $609 million. The third liens were at $387 million. The stub on the old senior notes is $42 million.

Got it. Appreciate that. And then just a final question for me, Jeff, you know, given some of the comments that you made, you know, As I looked at the guidance and the estimates for U.S. auto production, that obviously didn't change in your press release. Just trying to understand sort of where the risks are with your current guidance that you provided. Do you see U.S. manufacturers cutting production between now and the end of the year, or are they sort of reticent to do that just because of the impacts it has on their business? I'd love to get your thoughts there.

Yeah, Brian, I'll pull out my crystal ball here. I wish I had a specific answer to that, but let me just start with this. We think that for the next six months, so for the second half of this year, we are confident in everything that we can control. Our pricing is set, the cost reductions are in, or as close to in as they can be. Our plants are operating extremely well, so I don't anticipate any surprises in terms of what we can control. As I mentioned, the projections here in North America are down to 15.8 million units. I think we started the year with 16.1 million units. If you go back to the conversation I had with you all when we were talking about volumes projections for 24 when we had this discussion, I think in January, we were saying then that we were worried about the volume we'd actually had gone for with a fairly conservative guide, everybody thought. We're now $100 million top line below that. So I'm hopeful that we've seen the bottom of it. We anticipate that we have. The releases going forward suggest that they're going to live up to the forecasts that are out there and are in our guidance. I'm sure everybody is feeling the same way. We'll see. But I'll tell you, the business is performing extremely well. There isn't any part of the business that hasn't been overachieving to make up for You know, the significant headwind related to revenue that's taken a lot of money off our bottom line. John mentioned FX and the challenge that that's provided. And so when you think about things like inflationary pressures that John discussed, you know, we expected material to be a bit of a tailwind this year. It's actually turned into a headwind because we're taking such care from a cost point of view. We've made virtually all of that up. And then we've done a nice job managing price. Historically, we've given back 1.5% to 1.7% during the COVID years. We took that below 1% give back last year, and this year it's actually a positive for us. So you add all that up, and we have a very bullish second half outlook. We have a very bullish feeling about 25% and beyond. As soon as we get some volume back, my friend, it's going to be a good thing.

Understood. And just final question, you know, Fortrex, any updates on, you know, any other deployments of that compound and any other winds that you see in the near future to be announced?

We continue to have quite a pool for lower weight and recyclable. And I talked about that quite a bit in our prepared remarks. So, It continues to be a driver for our ceiling business. And I think Nike announced a third shoe that's out there. And if you could see John's feet this morning, he actually has it on. So we continue to see the results that we thought we would there. Hopefully over the horizon, that becomes more of a contributor to the bottom line. But again, a positive related to Fortrex, which was your question.

Great. Appreciate all the color. Thank you.

Okay.

Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press the star followed by one on your telephone. Your next question comes from Ben Briggs from StoneX Financial, Inc. Please go ahead.

Hey, good morning, guys. Thanks for taking the call and congratulations on the margins this quarter. The vast majority of my questions already got answered. So thank you. But just to confirm housekeeping, this is the last quarter that you had the pick option on either bond, correct?

That's correct, Ben. In June, we actually had to make the election for the December coupons. So this was the last opportunity to make that election.

Gotcha, gotcha. And then just quickly on margins. So gross margins came in at 11.7% this quarter, which is one of the highest numbers kind of excluding that third quarter of 23 when you had some retroactive payments. I think this 11.7 number is like the highest number since 2020. Should we expect on a gross margin basis these double-digit, 11-ish, 12-ish kind of numbers going forward when we think about modeling this?

Yeah, Ben, I think this is John. I think that's a fair way to look at it. Across the entire P&L, we continue to look for opportunities to continuously improve margin rates. Significant tributaries on the variable contribution margin, uplifts that we're seeing on new product launches, The cost reductions within the manufacturing area and the purchasing lien initiatives are all going to manifest themselves up into cost of goods sold and therefore gross margin. So you should continue to see those levels even improving as we look to exit in double-digit EBITDA margins towards the end of 2025, as Jeff talked about a lot already.

Gotcha. Yep, yep. And then last one from me, and I know you kind of got asked this a couple of different ways, but I'll try one more time. On the last call, I think you had talked that a global refi was potentially on the table in 2025. Would you refer to that as still potentially on the table?

There's always potential, Ben, of course. You know, it's going to be heavily dependent on market conditions. what the interest rate environment looks like in the capital markets, acceptance of deals starting in Q1 of 2025. As a reminder, our non-call provision is done at the end of January of 2025. So in Q1 forward, we do have that opportunity to refinance. So subject to those market conditions, automotive industry conditions, and the overall production environment will enable us to go to market. So all those things combined, we'll see how things look towards next year. But as Jeff has already alluded to, we're 100% focused on the capital structure and making it more manageable in terms of a company of our size and footprint. So as we have those opportunities next year, leveraging the improvements that we're making in the business and the sustainable profitability and sustainable cash flow generation, we'll certainly look to leverage those metrics and KPIs as we go to market.

Understood.

Thanks very much for taking the questions, guys.

Okay, Ben. Thanks.

It appears that there are no more questions at this time. I would now like to turn the call back over to Roger Hendrickson.

All right. Thanks, everybody, for your questions, the engagement. We appreciate your participation very much. If there are other questions that come up later in the day or in the following weeks, please feel free to reach out to me directly and we can arrange for further conversation. Thanks again. This will conclude our call.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.