Q4 2022 Cooper-Standard Holdings Inc Earnings Call
Participants
Jeffrey S. Edwards; Chairman & CEO; Cooper-Standard Holdings Inc.
Jonathan P. Banas; Executive VP & CFO; Cooper-Standard Holdings Inc.
Roger S. Hendriksen; Director of IR; Cooper-Standard Holdings Inc.
Ben Briggs
Brian DiRubbio
Patrick Sheffield; MD; Beach Point Capital Management LP
Presentation
Operator
Good morning, ladies and gentlemen, and welcome to the Cooper Standard Fourth Quarter and Full Year 2022 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded, and the webcast will be available for replay later today. I would now like to turn the call over to Roger Hendriksen, Director of Investor Relations.
Roger S. Hendriksen
Thanks, Josh, and good morning, everyone. We appreciate your continued interest in Cooper Standard, and we thank you for taking the time to participate in our call this morning.
Jeffrey S. Edwards
Thanks, Roger, and good morning, everyone. We appreciate the opportunity to review our fourth quarter and full year 2022 results and provide an update on our outlook for 2023 and beyond.
Jonathan P. Banas
Thanks, Jeff, and good morning, everyone. In the next few slides, I'll cover the details of our quarterly and full year financial results, put some context around some of the key items that impacted our earnings and then provide some color on our balance sheet and liquidity before talking about expectations for 2023.
Jeffrey S. Edwards
Thanks, Jon. Before concluding our discussion this morning, I want to share a few thoughts regarding our near-term and longer-term outlook and why I remain extremely optimistic about our opportunities ahead. Moving to Slide 17.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from Brian DiRubbio with Baird.
Brian DiRubbio
Just a couple of questions on my end. First of all, Jeff, with the guidance that you gave, are you anticipating all 4 regions to be EBITDA positive in fiscal '23?
Jeffrey S. Edwards
As we sit here today, that's what we expect. Clearly, we have, as we mentioned, commercial negotiations that have not concluded yet. We expect those will be concluded by the end of the first quarter. But our expectation is those will be completed and result in the significant uplift that we need to make each of the regions profitable. And then I think that the volumes that we've used, as Jon mentioned in the call, albeit conservative, reflect kind of what we're seeing here in the first quarter. So we're extremely optimistic.
Brian DiRubbio
Got it. That's helpful. And just one of the issues that you faced last year and the last couple of years has been the lack of a steady production cadence on your end given the changing schedules that your customers have. Do you expect that -- so what are your customers saying on that end? Is most of the supply chain issues from your perspective and customer perspective -- has that been fixed already? Just love to get a sense of how that's developing.
Jeffrey S. Edwards
Well, I guess, in comparison to '21 and '22, significantly improved. I think the forecast between North America and Europe still shows vehicles being missed between Europe and North America anyway. Just under 1 million units are being predicted for the chip shortage, if you will, that hurt us significantly the last 2 years.
Brian DiRubbio
Two final ones. First, just on the future restructuring actions, you laid out what you want to do in '23. Do you see further restructuring occurring in 2024? Or do you think you can wrap most of that up in 2023?
Jonathan P. Banas
Brian, it's Jon. I'll take this one. We're currently in flight on programs that we've already announced in executing on in 2022 mainly in the way of headcount reduction initiatives and rightsizing there. But -- so our first line of sight going into '23 and beyond will be on the on the overall price discussion to make sure we're getting fairly compensated as we've been talking about here. And that will help optimize profitability in all those regions, as Jeff just described to you a minute ago. If those things don't happen, then we'll continue to look at the footprint to see if there's anything significant that needs to be done. But at this point, we don't have any major plans in '24 that would significantly cause us to spend a lot more money than we've otherwise predicting right now.
Brian DiRubbio
Fair enough. And then final one for you, Jon. Just post the recap of the new debt that was placed on board. What is liquidity looking like today?
Jonathan P. Banas
Brian, we typically don't give intra-period liquidity updates. But like I said in my prepared remarks, with the cash balance that we did have on hand and the availability under our ABL facility, we're pretty comfortable with the current liquidity situation and we'll be able to give you some deep dive details come our Q1 call as we always do. But we're feeling no good about our overall balance sheet, certainly getting the refinancing behind us was a good milestone. And now we can go back to focusing on running the business and executing in terms of value creation.
Operator
Our next question comes from Ben Briggs with StoneX Financial.
Ben Briggs
So going through your guidance a little and listening to the prepared remarks, I'm just curious what percentage of revenue do you guys think that the footwear manufacturer is going to contribute in 2023? And can you give any more kind of concrete details on kind of how that footwear contract is going to impact the financial performance of the business.
Jonathan P. Banas
Sure, Ben. It's Jon again. If you recall, in Q4 of 2021, we actually recorded some revenue from the footwear deal. It was a guaranteed minimum under that contract, around $12 million that we booked in Q4 of last year. So at this point, it's a minimum volume commitment. So we're not anticipating any significant material change from that in 2023. It's certainly all volume dependent into the future. And if they exceed the minimum order quantities on the volumes, then there'll be upside to what we've already recorded.
Ben Briggs
Okay. So about $12 million of revenue is the right number to think about?
Jonathan P. Banas
Yes. But again, already recorded last year, 2021.
Operator
(Operator Instructions) Our next question comes from Patrick Sheffield with Beach Point Capital.
Patrick Sheffield
Just a couple of housekeeping items. One, could you kind of share how much the refinancing costs and fees in the first quarter?
Jonathan P. Banas
Patrick, Jon again. We haven't gone through in the disclosed fees and other costs to affect the refinancing but however, when you think about taking out the previously existing senior secured notes, we did have to incur that prepayment premium and then as also disclosed, there were discounts on the newly issued notes, the backstop fees and the customary fees, I'll say, for advisories in the way of financial and attorney bills and the other customary closing costs. So most of those fees are already publicly out there, and we're racking up the rest of those costs, and we'll have those in our Q1 cash flow that we'll talk about here in a couple of months.
Patrick Sheffield
Okay. And then on working capital, do you -- is there any framework you can share about whether you think that's going to be a source or use of cash in '23?
Jonathan P. Banas
Yes, Patrick, in my prepared remarks, I indicated that we think free cash flow is going to be positive with all of the current assumptions that we're operating with. And a part of that free cash flow positive will be further optimization of our inventory balances. Jeff described things looking more stable this year. That will help us manage inventory a little bit better. We only need to have as much safety stock on hand and we'll be able to have a better minimum order quantities once those -- the release schedules and EDI schedules stabilize. So that will be a component of positive working capital.
Patrick Sheffield
Got it. Okay. And then on the 2023 bridge -- EBITDA bridge, you have $150 million benefit from volume mix and price. And I was just curious how much of that $150 million is still subject to finalizing commercial agreements in Q1? In other words, does that reflect what you've already achieved? Or is that taking in some assumption on incremental positive progress in your Q1 commercial discussion.
Jonathan P. Banas
Yes. It is forward-looking on our expectations. As Jeff described a couple of minutes ago, we'll have better line of sight as Q1 closes here, and we have a lot of those customer agreements negotiated and locked up. So the $150 million includes our expectations about how those will go, but not solidified as of yet. So we'll have a better update for you here once again, we close Q1.
Patrick Sheffield
Okay. And it's hard to probably quantify the stuff, but how much of that number is already kind of locked in? Or how much was at play in 2023 versus had already been agreed to in '22? And just broadly, is this something that every year you have you are going to do negotiations with your customers? Or is this just trying to -- just like the final strokes of your broader effort to get greater indexing across your entire -- across your commodity cost structure?
Jeffrey S. Edwards
Patrick, this is Jeff. I'll try to answer all of that here succinctly. So point one, we'll -- we are in negotiations virtually with every customer in the world. Per my prepared remarks, we are confident that those are going well. I think we're very transparent with them, and we've been going through those discussions really since probably November. So we got an early start. And we expect that the outcome is going to be positive for us. And we believe that the relationships that we have today will continue to be preserved going forward. That's our expectation.
Patrick Sheffield
This is something you do every year or -- it seemed like there's a big change last year and the year before to try and change the later contracts work? And is this more like just an annual discussion that you have? Or is it a continuation of the efforts from the last couple of years?
Jeffrey S. Edwards
It certainly seems like it's an annual discussion, I agree. But the intent this year is in the discussions that we're having right now, we intend to create sustainable businesses in each region. And where we do, we'll stay. Where we don't, we will leave.
Operator
It appears that there are no more questions. I would now like to turn the call back over to Roger Hendriksen.
Roger S. Hendriksen
Okay. Thanks, everybody, for joining our call today. We appreciate your continued interest. If you didn't get a chance to ask your questions this morning, please reach out to me, and we'll be in touch. Happy to engage in whatever questions or comments you'd like to share down the road. Thanks again for participating. This concludes our call.
Operator
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.