Cooper-Standard Holdings Inc.

We've been able to increase our gross profit margins by 160 basis points over the past two years, despite reduced or flat production volumes in our two largest operating regions. This includes the impact from the significant decline in production on one of our key platforms in North America that resulted from a customer supply chain disruption beginning in the fourth quarter of last year. Because of our success in driving sustainable efficiencies and fixed cost reductions, we believe we will continue this trend of expanding margins in 2026 and beyond, even if production volumes remain flat, and we would expect to leverage any increase in production volume to drive further profitability and returns. In addition, Our cost optimizations were benefiting from continuing launches of new programs and products with enhanced variable contribution margins. So as these new programs ramp up, they're replacing older programs that have lower margins on average. Our book business, launch cadence, and the delivery of run-out business gives us a high degree of confidence in our expanding margin outlook. Turning to slide 14. Both of our business segments are executing sound strategies to drive profitable growth and improved returns on invested capital. In our ceiling segment, where we're already the global leader in the industry, we're leveraging our leading technologies, expertise, and innovation to capture additional share and profitability. We've also deployed sophisticated digital tools within our manufacturing facilities to drive further efficiencies and improved asset utilization. Finally, as we continue to deliver exciting innovations that provide incremental value to our customers, we're winning more than our fair share of new business. Turning to slide 15, in our fluid handling segment, We've unmatched portfolio of products and innovations that position us well to take advantage of increase in ICE and hybrid powertrains in the U.S., the continuing adoption of EVs in China, and the evolving mix of hybrids and EVs in Europe. This flexibility around powertrains combined with our ability to design and deliver engineered solutions to optimize vehicle efficiency is creating opportunities for increased content per vehicle and profitable new growth. As we've said in the past, our longer-term strategic target is to double the Fluids business within the next five to seven years. With recent new business wins and a long list of target business opportunities coming up, we believe we're on track to achieve this goal. Turning to slide 16, in terms of winning new business, I mentioned at the beginning of the call, we've received $128 million in net awards in the first three months of the year. This was ahead of our plans for the quarter, putting us in a strong position to achieve the full year goal of over $400 million in net new business awards. As you can see in the chart, As our overall operating performance and financial strength continue to improve, the new business awards are accelerating. And the good news is that we have available capacity to launch much of this new business over the coming years with minimal incremental capital investment. We are proud to be the supplier that our customers are increasingly turning to for quality components, consistency of delivery, and collaboration on critical design and development of new technologies. With these awards in hand for Q1 and a bright outlook for the new business wins ahead, we are increasingly confident that we will be able to execute our plans to achieve our longer-term strategic financial targets for growth, margins, and return on capital. Turning to slide 17, To conclude our prepared remarks this morning, let me shift focus to the near term in our outlook for the rest of 2026. I think the key takeaway this morning is that despite continued disruptions within our industry and ongoing uncertainty in the global economy, we were able to deliver results that exceeded our original operating plan. We are optimistic that certain headwinds we have faced for the past two quarters could turn into tailwinds in the back half of the year. And if we could get some resolution to the military actions going on in the Middle East, we would expect a strong positive effect on consumer sentiment and consumer demand globally. Meanwhile, we're maintaining our focus on delivering value for our customers. optimizing our operations around the world, and successfully executing our strategic plans to drive profitable growth, further expand our margins, and maximize return on invested capital. We believe we're on track to achieve or exceed the full year targets that we set out for you back in February. We expect to provide a more formal update on guidance, as we typically do, in conjunction with our second quarter results. We also believe we are solidly on track to achieve our longer-term strategic financial targets for adjusted EBITDA margins and return on invested capital. So with that, we'd like to thank our customers, our suppliers, all of our stakeholders for your continued confidence and support. We also want to thank all of our employees for their continued hard work, dedication, and their commitment to driving sustainable long-term value.

This concludes our prepared remarks. Let's move on to Q&A.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press the star, followed by one on your telephone. If you are using a speakerphone, please pick up the handset before entering your request. To withdraw from the queue, press star, then the number two.

One moment, please, as we assemble the queue for questions. The first question comes from Nathan Jones from Stifel. Please, Jorge.

Morning, everyone. This is Andres Toretto Mola on for Nathan Jones. Thank you for taking my questions. So, a nice step up in new business from 181 in 2024 to 298 million in 2025, now 128 million in 1Q. I think you released at about 32 million of net new business coming from battery electric. and full hybrid. Can you maybe give us a split between how much of that is within ceiling or fluid and for 2025 as well? Just so we have a vacation, obviously more content on the fluid business on those powertrains. So, curious to hear about that.

Yeah, sure. Good morning. This is Jeff. The $128 million that we've booked so far in Q1, About 60% of that is fluid, 40% is sealing, so not a surprise. Around 50% of it is North America-based and a large percentage is China-based. Again, not a surprise. I think as we go forward and there are continued hybrid products introduced into the market, You'll continue to see the content per vehicle for fluid continuing to rise. Last year, to your point, about the nearly 300 million of net new business, I think ceiling actually had more of that than fluid. So it doesn't surprise me this year that fluid is outpacing the ceiling net new business. It tends to fluctuate like that. But I do think fluid going forward is going to benefit significantly from the additional hybrid coming into the market. And as we've said in the past, You know, that can result in more than double content per vehicle than what we've seen from the ICE, traditional ICE programs that were booked within our fluid business. So really a positive story. We're on our way to exceeding the 400 plus million of net new business for 2026.

Awesome. Thank you. And then just one more, switching gears a little bit to margins. Can you discuss sort of the impact higher input costs are expected to have on margins this year? How should we think about that? And maybe the escalators and de-escalators Cooper has in place. Thank you.

Hey, Andres. Good morning. Thanks for the question. When you think about the significant oil price increases that the industry is bearing as well as higher aluminum prices for some discrete reasons that the suppliers are raising globally. We are fairly well protected. As we've talked in the past, we're in excess of about 70% covered on contractual indexes with our customers or otherwise negotiate on a regular basis, call it every quarter, every six months with customers to claw that back. We think any increases will be adequately addressed with those historical mechanisms that we've gotten in place with our customers overall. There is a lag when you think about our spend versus the timing of recovery. The indexes will traditionally reset every quarter, and therefore, then you can go back in and recover the previous quarter's inflationary impact. or in a good news situation, you would give some of that back. So that's the typical cadence in Q1. Just given the timing of oil price ramp up, there wasn't a significant impact in inflationary pressures in Q1, but we certainly expect to see that headwind come in Q2, but then the recoveries would come online in that sequential recovery cadence.

Thank you. Thanks for taking my questions. Thank you. Thank you.

Your next question comes from Kirk Gutke from Imperial Capitals. Please go ahead.

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

Morning, Kirk.

Hey, Kirk. On slide 16, another impressive quarter for new business. And, you know, one of these bullets says 74% related to innovation products. And if I remember correctly, those are materially higher margin than your existing average margins. I'm just curious if you'd be willing to quantify how much more profitable they are.

Yeah, Kurt, this is Jeff.

I think as we have said going forward as the, whether it's innovative net new business or whether it is the traditional products that we have historically been marketing and selling to our customers. We have been very consistent with targeting hurdle rates and achieving those hurdle rates as we book net new business. It's why we're able to put out the type of strategic targets we have related to the VCM increase, overall margins, and the overall significant increase of return on invested capital that's forecast over the next several years. So that's actually happening. You can see the 160 basis point increase over the last two years. You can see the VCM well over 30%. uh, this particular quarter. So as, as all this business launches from, you know, that we booked in 24, 25, and that we're booking here and in 26, those numbers will continue to, to go up. And, and, you know, we expect, as I've said on this call as well, we expect our return on invested capital to, to be well over 20%, you know, at the end of, uh, our 28, 28 business year. So, uh, tracking to the same strategic targets that we put out last June. Your point is well taken related to the innovation. We are seeing further expansion as we launch a product that is innovative and that provides customers with cost down opportunities, lightweighting opportunities, recycling opportunities. So I would expect those numbers to even be better as we As we present our five-year plan, we actually have a meeting coming up with our board in June where we'll roll out the next five years.

And so I would expect to see continued margin expansion beyond what we've even said.

I appreciate it. Thank you. And then maybe a follow-up on the higher gasoline prices. Have you seen any change in schedules since prices went up? We have not.

The volumes that we have in our business plan, we had some pluses and minuses as we usually do each quarter. As we start into the second quarter, we're seeing the volumes basically on our plan. So as I said on the call, I think that as long as the Middle East conflict gets resolved here and In short order, I expect it to frankly end up being a tailwind in the second half. Now, if that doesn't happen, then your guess is as good as mine. But so far, I think we're well positioned for the first half of the year. We'll manage through the increase in oil prices that existed versus our plan for the second quarter and then hopefully be well positioned for the second half of the year to be stronger than planned.

That's what I'm hoping for. Got it. I appreciate it. Thank you. Good luck. Okay.

Thank you. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press the star followed by the one on your telephone. And if you are using a speakerphone, please pick up the handset before entering the request. Your next question comes from Doug Carson from Bank of America.

Please go ahead. Great team. Thanks for hosting the call and getting my question in. As I look at the bridge from 25 to 26, I know you'll be out with more detail in 2Q, so I don't want to get ahead of it. But that was a goal that was set. I think investors thought it was an optimistic goal, but it looks like you're going to hit it or potentially exceed it. A large part of that bridge was lean manufacturing, improvements in purchasing, and in this tough market, to be able to beat that number. Could we just get a little bit of a sense if you feel this is going to be coming more from business wins, or you feel like the lean could get even higher, or maybe more pricing, because you know volume is going to be challenging. This gives a little sneak peek on what to be thinking about as far as that guidance. And then maybe separately, during the deal, we talked about 51% of your awards were coming from high-growth Chinese OEMs. And I'm just wondering kind of how that cadence has been with the Chinese.

Yeah, Doug, this is Jeff. Thanks for the question. So related... Related to how we continue to expand margins, it's sort of all the things that you talked about, right? So we have teams both in our sealing and our fluid business. They come to work in 20 countries plus, and each month, each quarter, they have detailed plans that they're executing. They just don't start that at the beginning of the year, right? So they're working on those plans. well in advance of a particular business year. So as John and I said in the last call, we had a high level of confidence that the execution of the cost reductions to help offset inflation was well on its way to being a record performance. In fact, we hadn't seen a year where they had come in with, you know, 90 plus percent of these ideas already identified and being worked on before we even started 2026. So that's why you see the execution and the ability to deliver on what we told you we would. I would expect that to continue for the rest of this year and next year. I mean, it's been an approach here for for well over a decade, so the process is the process, the team is the team, the trust is the trust, and they continue to exceed expectations. Related to the net new business, as you also know, when we talk about 2027, 2028, we've got 85% to 95% of that is already booked, so we know what those prices are. We know what our costs are. That's why we're able to predict the margin expansion. We also know what the investment is going to be to launch it all. Hence, the confidence we have in more than doubling our return on invested capital over the next couple of years. So it's a business that while you book something that launches two or three years later, Seems like a tall task, but the fact that we're able to understand what our prices are, costs are, investments are, it really gives credence to the ability for us to forecast. Now, the only thing I can't forecast is volume and mix, which you point out. And despite that being a challenge for the last, you know, I've lost track, doesn't matter, last number of years, we continue to expand the profitability and the returns because of how we're running the business, the decisions that we're making, and most importantly, the type of people we have in our plants that are executing the heck out of the business. So we'll see what the second quarter brings. As John mentioned, the oil prices have shot up here in terms of what we had in the business plan, but contractually, we're pretty much covered there for recovery. There'll be some timing issues associated with it maybe in the second quarter, but for the full year, I'm still bullish because I believe that the overall macroeconomic environment is positive. I think the geopolitical environment has to become more positive. How could it be worse? And so that's the reason I believe the second half potentially has some tailwinds to it. So we'll talk to you about that in August.

Super helpful. Thanks so much. Okay, buddy. Thank you.

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

Okay, thanks, everybody. We appreciate your continued engagement with our calls, and if you have questions that didn't come to mind and you'd like to get in touch with us, we'd certainly be open to further conversation. Just feel free to reach out to me directly. Again, we appreciate your participation this morning, and thanks for your continued trust and confidence.

This will conclude our call. Thank you.

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