Cooper Standard reports record first quarter results

During the first quarter of 2017, the Company generated strong net income of $41.7 million, or $2.20 per diluted share, and adjusted EBITDA of $111.0 million on sales of $902.1 million. These results compare to net income of $31.3 million, or $1.67 per diluted share, and adjusted EBITDA of $103.5 million on sales of $862.5 million in the first quarter of 2016.  Prior period amounts have been recast due to the adoption of a new accounting standard (ASU 2016-09).

“Our team delivered excellent results for the first quarter and put us on track to deliver another record year in 2017,” stated Jeffrey Edwards, chairman and CEO of Cooper Standard. “In addition, our continued focus on innovation and delivering game-changing technology is contributing to new customer orders and booked business.”

The Company’s first quarter net income, excluding restructuring and other special items (“adjusted net income”), totaled $55.9 million, or $2.95 per diluted share.  Adjusted net income in the prior year period was $48.2 million, or $2.57 per diluted share.  The Company’s adjusted EBITDA margin for the first three months of 2017 increased 30 basis points to 12.3 percent compared to 12.0 percent in the first three months of 2016.

Adjusted EBITDA, adjusted EBITDA margin, adjusted net income, and adjusted earnings per share are non-GAAP measures.  Definitions of these measures and reconciliations to the most directly comparable financial measures, calculated and presented in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), are provided in the attached supplemental schedules.

Consolidated Results

First quarter 2017 sales increased by $39.6 million or 4.6 percent compared to the first quarter of 2016.  The year-over-year variance was largely attributable to favorable volume and mix and the net impact of acquisitions and divestitures, partially offset by price reductions and the impact of foreign currency exchange rates.  Excluding the impact of foreign currency exchange rates, acquisitions and divestitures, sales in the first quarter were $894.1 million, an increase of 3.7 percent over the first quarter 2016.

First quarter adjusted EBITDA increased by $7.4 million or 7.2 percent compared to the first quarter of 2016.  Adjusted EBITDA margin as a percent of sales was 12.3 percent in the quarter, up 30 basis points compared to the first quarter of 2016. The year-over-year variance was primarily attributable to improvements in operating efficiency and favorable volume and mix, partially offset by price reductions, higher raw material costs and investments to support growth.

During the first quarter, Cooper Standard launched 29 new customer programs and was awarded $140.9 million in annual net new business.  In addition, the Company received a significant production contract for its Fortrex™ static sealing system products on a major SUV platform. Fortrex™ is a new, proprietary material science technology that provides significant weight reduction and performance improvements versus traditional EPDM and TPV based sealing systems.

North America

The Company’s North America segment reported sales of $484.2 million in the first quarter, an increase of 7.7 percent when compared to $449.7 million in sales reported in the first quarter 2016.  The year-over-year change was largely attributable to favorable volume and mix and the acquisition of AMI Industries’ fuel and brake business.  Excluding the impact of acquisitions, divestitures and foreign currency exchange rates, North America segment sales were $471.4 million, which represents organic growth of $21.7 million or 4.8 percent compared to the first quarter of 2016.

North America segment profit was $62.3 million, or 12.9 percent of sales, in the first quarter.  This compared to segment profit of $54.2 million or 12.1 percent of sales in the first quarter 2016.  The year- over-year increase was driven primarily by gains in operating efficiencies and improved volume and mix, partially offset by price reductions and the impact of wage and general inflation.

Europe

The Company’s Europe segment reported sales of $261.5 million in the first quarter, compared to $269.3 million in the first quarter 2016.  The year-over-year change was attributable to unfavorable foreign exchange, price reductions and the continued run-off of contract sales related to the Company’s thermal and emissions business which was sold in a prior period.  These negative factors were partially offset by improved volume and mix.

The Europe segment reported a loss of $8.6 million in the first quarter compared to segment loss of $2.6 million in the first quarter of 2016.  The segment results include $13.6 million of restructuring and asset impairment expense in the first quarter of 2017 and $8.8 million of restructuring expense in the first quarter of 2016.  Excluding these items, segment profit was $5.0 million in the first quarter compared to segment profit of $6.2 million in the first quarter of 2016.  Year-over-year improvements in operating efficiency and volume and mix were offset by the impact of customer price reductions and unfavorable foreign exchange.

Asia Pacific

The Company’s Asia Pacific segment reported sales of $132.6 million in the first quarter, an increase of 4.3 percent when compared to sales of $127.1 million in the first quarter 2016.  The year-over-year variance was largely attributable to the consolidation of the Company’s sealing joint venture in Guangzhou, China, partially offset by unfavorable foreign exchange and customer price reductions.

Asia Pacific segment profit was $3.5 million in the first quarter, compared to $2.5 million in the first quarter 2016.  The year-over-year improvement was driven primarily by improved operating efficiencies and the consolidation of the Guangzhou joint venture, partially offset by customer price reductions and investments to support growth.

South America

The Company’s South America segment reported sales of $23.7 million in the first quarter, compared to $16.4 million in the first quarter of 2016.  The increase was largely attributable to favorable foreign exchange and improved volume and mix.

The South America segment reported a loss of $2.8 million in the first quarter, compared to a segment loss of $7.8 million in the first quarter of 2016.  The improvement was due largely to improved operating efficiencies and material cost savings.

Liquidity and Cash Flow

At March 31, 2017, Cooper Standard had cash and cash equivalents totaling $406.9 million.  Net cash provided by operating activities in the first quarter 2017 was $3.6 million, compared to $27.9 million in the first quarter of 2016.  First quarter 2017 free cash flow (defined as net cash provided by operating activities minus capital expenditures) declined by $27.5 million compared to the first quarter of 2016.

The decline was primarily due to typical seasonal working capital increases and higher payments related to incentive compensation and restructuring, partially offset by increased earnings and reduced cash paid for taxes.

In addition to cash and cash equivalents, the Company had $180.1 million ($199.4 million undrawn facility less $19.3 million in outstanding letters of credit) available under its senior amended asset-based revolving credit facility (“ABL”) for total liquidity of $587.0 million at March 31, 2017.

Total debt at March 31, 2017 was $761.9 million. Net debt (defined as total debt minus cash and cash equivalents) was $355.0 million.  Cooper Standard’s net leverage ratio at March 31, 2017 was 0.8 times trailing 12 months adjusted EBITDA.

Subsequent to the end of the first quarter, the Company entered into a second amendment to its Term Loan Facility to reduce the interest rate.  The lower rate will reduce cash interest expense by approximately $1.5 million annually through the remaining term of the loan.

Outlook

Based on the positive results of the first quarter, the Company is on track to meet previously issued full year guidance ranges.  The Company reiterates its full year 2017 guidance as follows:

¹ Adjusted EBITDA Margin is a non-GAAP financial measure. We do not provide guidance on net income margin. Full-year net income will include special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year end.