CPS - NYSE

Good morning, ladies and gentlemen, and welcome to the Cooper-Standard Fourth Quarter and Full Year 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. [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 conference call over to Roger Hendriksen, Director of Investor Relations. Please go ahead.

Thanks, Jenny, and good morning, everyone. We appreciate your continued interest in Cooper-Standard and we thank you for taking the time to participating our call this morning. The members of our leadership team, who will be speaking with you on call this morning are Jeff Edwards, Chairman and Chief Executive Officer; and Jon 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 the 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 presentation. With those formalities out of the way, I'll turn the call over to Jeff.

Thanks Roger and good morning everyone. We certainly appreciate the opportunity to review our fourth quarter and full year results this morning and we'll provide an update on our outlook for 2025 and beyond. So I'm going to begin here on Slide 5 just to highlight some key data points that we believe are reflective of our continued strong commitment to operational excellence and driving increasing value for all of our shareholders. In 2024, we continue to deliver world class results in terms of product quality, program launch and service for our customers. This is reflected by our 97% green product quality scorecards and 97% green program launch scorecards. And as you know, even more importantly, we've had our best year ever in terms of employee safety. For the full year 2024, our safety incident rate was just 0.30 per 200,000 hours worked, surpassing our previous best from 2023 and well below the world class benchmark of 0.47. We're especially proud of our 22 plants that completed the year with a perfect safety record of zero reportable incidents. The dedicated teams in these plants continue to affirm that our long-term goal of zero safety incidents is achievable. And as always, just a personal shout out from me to all of our plant managers, I mean, you guys really rock and I appreciate your leadership. And again, I know that most of you know that I love our plant managers, but just in case anybody missed that, they continue to do an amazing job for us. And we're also proud of the 22 plants that achieved the coveted diamond status in our internal plant performance recognition program. This program recognizes the teams and operations that meet the highest standards of operating excellence and achievement of established goals across a range of performance measures including safety, customer scorecards for quality and launch, success, workforce efficiency and margin enhancement and cash generation. This is the first time we've had 22 plants achieve diamond status and there were many others or close at gold status. The achievements are evident in our financial results. And again, I'd like to personally thank each and every one of our plant managers and the teams that work for them. Keep in mind, about 85% of our 21,000 employees work directly for our plant managers, so this result isn't by accident. We really appreciate their leadership. The combined efficiency improvements in our plants and lead initiatives in our supply chain also generated $76 million in cost savings during the year. In addition, we realized $24 million in savings related to the jobs reduction action we implemented in the second quarter. As a result of the increases in operating efficiency and cost savings, we achieved a solid 52% improvement in operating income for the year despite continued headwinds from lower production volumes, inflation and unfavorable foreign exchange. The streamlined product based organization structure we put in place at the beginning of the year has accelerated our operating improvements and cost reduction achievements. Again, after just one year, there are still more efficiencies to be gained. We expect to build on the successes of 2024 to drive further margin expansion and value for our stakeholders in 2025. So let's go to Page 6. None of these achievements I just mentioned would be possible without a world class culture and commitment to doing business the right way with uncompromised honesty, transparency and integrity. We're pleased in 2024 to receive numerous awards for our excellence in product quality and customer service as well as broad recognition for our continued achievements in culture and sustainability. I could not be more proud of our global workforce and their joint commitment to a culture of achievement, excellence and integrity. And I want to thank all of our employees for the continued hard work and accomplishments in 2024 and most importantly for setting the stage for an even more successful 2025. Now let me turn the call over to Jon to review the financial details of the quarter.

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 cash flow, balance sheet and liquidity. So please turn with me to Slide 8. On Slide 8 we show a summary of our results for the fourth quarter and full year 2024 with comparisons to the prior year. Fourth quarter 2024 sales totaled $660.8 million, a decrease of 1.9% versus the fourth quarter of 2023 as we continue to be impacted by weaker than expected production volume and unfavorable foreign exchange. On a more positive note, despite the lower sales, our margins improved considerably. Adjusted EBITDA for the fourth quarter 2024 was $54.3 million, or 8.2% of sales, an increase of 96.8% and more than 410 basis points of margin versus the fourth quarter of 2023. On a U.S. GAAP basis, we generated net income of $40.2 million in the fourth quarter. This included the reversal of certain deferred tax asset valuation allowances, small gains on the sales of assets and businesses, and non-cash charges for restructuring and asset impairments. Excluding these and other special items, we recorded a slight adjusted net loss of $2.9 million, or $0.16 per diluted share, for the fourth quarter of 2024. This was an improvement of over $28 million compared to the fourth quarter of last year. For the full year 2024, our sales totaled $2.7 billion, a decrease of 3% versus 2023. The main drivers of the decline were unfavorable volume and mix, divestitures and foreign exchange. Adjusted EBITDA for the year came in at $180.7 million compared to $167.1 million for the full year 2023. Improved operational efficiencies and savings from restructuring more than offset the impacts of weak volume and unfavorable exchange rates. On a GAAP basis, full year net loss was $78.7 million compared to a net loss of $202 million in 2023. After adjusting for special items and their tax impacts, we incurred an adjusted net loss for the year of $56.7 million, or $3.23 per diluted share. Again, this is a significant improvement when compared to the adjusted net loss of $82 million, or $4.74 per diluted share we recorded in 2023. From a CapEx perspective, we spent $50.5 million during 2024, or 1.8% of sales. We continue to optimize asset utilization throughout the company and focus our spend on customer launch readiness and new business growth. By comparison, our CapEx was $80.7 million, or 2.9% of sales in 2023. Moving to Slide 9. The charts on both Slides 9 and 10 quantify the significant drivers of the year-over-year changes in our sales and adjusted EBITDA for the fourth quarter and full year respectively. For sales in the fourth quarter, unfavorable volume and mix, including customer price adjustments, reduced sales by $5 million. The impacts of foreign exchange further reduced sales by $8 million. For adjusted EBITDA manufacturing and purchasing efficiencies drove $26 million in savings during the quarter. The restructuring initiative we implemented in the second quarter of 2024 resulted in an additional $11 million of cost improvement during the fourth quarter, and we also had a slight tailwind on raw materials amounting to $2 million in the period. These improvements were offset by $9 million of general inflation such as wage increases and higher energy expense, $8 million of unfavorable foreign exchange and $5 million from weaker volume, mix and net price adjustments. Lower compensation related expenses year-over-year was the primary component of other improvements. Moving to Slide 10, for the full year, unfavorable volume and mix net of customer price adjustments reduced our sales by $32 million. Unfavorable foreign exchange impacted sales by $21 million, while the divestiture of our technical rubber business in Europe in the third quarter of 2023 reduced our year-over-year sales in 2024 by another $33 million. For the full year adjusted EBITDA the positive factors included $76 million from improved manufacturing and purchasing efficiencies, $24 million in restructuring savings, and $5 million in lower material costs. These improvements were partially offset by $43 million in higher costs due to unfavorable foreign exchange, $34 million in higher wages and other general inflation, and $25 million in unfavorable volume mix and net price adjustments. Moving to Slide 11 and an update on our liquidity and balance sheet. We are pleased to end the year with a strong free cash flow of $63.2 million in the fourth quarter and positive cash flow of $25.9 million for the full year. Net cash provided by operating activities in the fourth quarter was $74.7 million, a slight decrease of $4.9 million compared to the same period last year as higher cash interest payments offset improved cash earnings and positive working capital. CapEx came in at $11.5 million for the quarter as we continue our intense focus on cash preservation and optimizing asset utilization. As a reminder, for our fourth quarter interest payments, we elected to make full cash payments on our first and third lien notes rather than taking the pick options on our December installments. Considering this, our positive free cash flow performance was an outstanding result by our entire organization as we remain focused on improving our liquidity and covering our debt service. With cash on hand of $170 million as of December 31 and an adjusted – sorry and an additional $169 million of availability on a revolving credit facility, we ended the year with total liquidity of nearly $340 million. Despite our expectations for a continuing weak production environment, based on our current outlook and expectations for improving operational efficiencies and savings initiatives, we expect our free cash flow in 2025 will again be positive. We believe our current cash on hand, expected future cash generation and access to flexible credit facilities will provide ample resources to make required interest payments and support our ongoing operations. In conclusion, I want to offer some thoughts on our debt and how we’re looking at our financing options going forward. With the recent expiry of the no call provision on our first lien and third lien notes, we are continuing to monitor the credit markets to assess opportunities for a potential refinancing in order to improve our capital structure. To be clear, we are not obligated to take any actions imminently. We believe that as we continue to improve our financial performance in the coming quarters, with margins expected to return to 10% in the fourth quarter of this year and return on invested capital and cash flows continuing to improve, we expect to have a variety of options available to us to manage our debt and improve our overall cost of capital. We intend to be proactive but prudent as we consider all options and the timing of any potential actions. That concludes my prepared comments, so let me turn it back over to Jeff.

Thanks Jon. And to wrap up 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 and that’s putting it mildly. Move to Slide 13. The first reason for optimism is our world-class manufacturing, engineering and product development teams and the award-winning innovations they continue to bring to the market. Leveraging new digital tools and technology, our team is truly delivering more value for our customers at lower costs than ever before. I’m confident this is a clear, competitive advantage and we’re just beginning to see the benefits as many of the innovative products have not fully ramped to full production. On this slide, we’re highlighting a couple of our most recent innovation award winners, our Fluids Manifold and our FlexiCore Thermoplastic Body Seal technology. The coolant hub product was recognized by the Society of Plastic Engineers as one of the top innovations in 2024. This new technology yields up to a 30% reduction in customer-made connections and improves vehicle assembly cycle time. It also optimizes routing to reduce pressure drop and minimize airflow blockage. And it’s also adaptable to all vehicle powertrains and is currently in production in a high profile EV platform. Our FlexiCore technology was recently recognized by the Society of Automotive Analysts as a winner in lightweight innovation. This is a groundbreaking solution that replaces traditional metal components on body seals with a more eco-friendly, lightweight plastic. By offering a total weight reduction of up to 44%, FlexiCore seals can improve vehicle efficiency while maintaining durability and performance. Additionally, the seal is fully recyclable, making it environmentally sustainable option for the entire automotive industry. Our innovations continue to focus on providing value to our customers by helping them meet their targets for key measures such as lightweighting, ease of assembly, system efficiency, overall cost efficiency and recyclability. Turning to Slide 14, combined with world-class service, our innovations have allowed us to partner with our customers on some of the most important, high profile vehicle platforms. On this slide, in particular, we show top ten platforms for 2025 based on expected Cooper-Standard revenue. These 10 programs represent approximately 45% of our planned revenue for the year based on current production volume estimates and an expected average content per vehicle of approximately $190. Also important, eight of these 10 platforms offer multiple, powertrain options which allows for flexibility, reduces risk related to changes in customer preference or the changing regulatory environment. It almost goes without saying, go buy some of these. Hopefully you can find some to buy. Our portfolio of products and technologies are well suited to any of the powertrain options on the market today. Hybrid and battery electric vehicles represent significant opportunities for us to increase our overall content per vehicle owing to the higher complexity of the vehicle architecture. The upside of battery electric vehicles has been in the range of 20% higher than traditional vehicles, and hybrids represent as much as 80% higher content as we provide components for thermal management in the engine and also the electric motor, the battery and also other electrical components. So let’s turn to Slide 16. With the higher content per vehicle opportunities in mind. Global trends in vehicle powertrains are certainly favorable for us. Electric vehicles are still leading global growth, especially in China and Europe, however, the rate of growth has slowed, especially in the U.S. where government incentives have been pulled back. As demand for battery electric vehicles has dipped, we’re seeing an increased demand for hybrids, which frankly is in our sweet spot for optimal content per vehicle. In fact, over the past two years, 40% of all our net new business awards were related to hybrid vehicle platforms. That’s 40% of all of our new business related to hybrid vehicle platforms. In addition to opportunities for increased content, our innovations are opening doors for us with new customers in diverse markets. We expect the combination of increased market penetration and higher content per vehicle will allow us to grow our fluids business by 50% over the next five years. Increased market penetration in China and particularly new business with Chinese OEMs, will be a big part of this growth. Now let’s turn to Slide 17. This solid growth outlook is reflective of very successful execution of our core strategic imperatives. As we’ve described in our presentation today, we’re making progress toward financial strength by improving profit margins and cash flow, despite ongoing weak production levels in our key markets. We have consistently demonstrated world class operational excellence. This is helping to lower our cost while simultaneously garnering customer accolades and supporting new business wins. We continue to deliver award winning innovations that our customers’ value and we’ve established a strong track record for our consistent environmental stewardship. As a company, we believe we’re poised to accelerate our profitability and return on capital in 2025. In addition, we believe our continued successful execution on these core strategic initiatives will drive profitable growth and value creation in the years ahead. Turning to Slide 18, and to conclude this morning, let me provide a little color on the guidance we published in our press release yesterday afternoon and perhaps a few comments on our longer-term strategic outlook. To be clear, our expectations for 2025 for increased profitability and further margin expansion and this is despite flat or slightly lower sales. The flat sales outlook is being driven by weak production volume. Current forecasts suggest the global light vehicle production will be down another half percent in 2025 after declining 1.1% in 2024. The production declines are expected to be greater in our largest markets here in North America and in Europe. To offset these production headwinds, we expect to further drive cost savings through improved operating efficiencies and additional lean initiatives, including specific actions to drive raw material cost lower as a percent of sales. We also expect to benefit from a full year of savings related to the restructuring we implemented in the second quarter of last year. In addition, continuing launches of new higher margin business will be a positive driver during the year. We’re confident that the combination of increased operating efficiency and the ramp up of higher margin business will enable us to lift our strategic target of double-digit EBITDA margins as we exit 2025. Looking beyond our 2025 guidance, we believe we’re beginning to – we’re beginning an exciting period of growth and prosperity. The actions we’ve taken and the improvements we’ve achieved over the past four years have clearly made us a better and a stronger company. We believe we’re better positioned now than ever before to leverage future increases in production volume. We’re also better positioned to expand into high growth markets and partner with new dynamic customers who have aggressive growth plans around the world. And we’re doing that. We believe the benefits of these new and expanded relationships will become more evident in coming years as new programs launch. Even at the base case of current estimates for global production volumes for 2025 to 2027, we believe the implied growth and our expanding margins will enable us to reduce our net leverage ratio to something in the range of 2 times or lower over that timeframe. So again, I want to thank our employees for their hard work and commitment to helping make Cooper-Standard a premier automotive supplier and the first choice of all of our stakeholders. I also want to thank our customers around the world for their continued trust and partnership. This concludes our prepared remarks.

Jenny, can we open it up for Q&A?

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Kirk Ludtke from Imperial Capital. Your line is now open.

Hello, Jeff, Jon, Roger, thank you. Thank you for the call.

Good morning, Kirk.

Good morning, Kirk.

Hey Kirk, good morning.

On Slide 16, this is a – this is interesting the – you mentioned that the content per vehicle in fluid handling would be up 30% in the next five years. Is that – is there any guidance as to what content per vehicle and sealing will be?

Hi Kirk, this is Jeff. Thanks for the question. Certainly, the fluid business as I mentioned, will continue to climb as hybrid and electric vehicles become more predominant in the marketplace, at least as it relates to the mix. So that’s the comment there. Related to sealing, it’s pretty much the same across all those powertrains. Clearly, there are opportunities for some of our higher tech sealing systems to be utilized on the electric vehicles going forward, in particular when you think about noise management and the ability to manage that inside the cabin. So they’re looking for sealing to play a role in helping reduce the decibel level there. But overall, I would say pretty consistent across each powertrain with the sealing content per vehicle. So it’s still an opportunity for us to grow share because our technology is demonstrating that it will allow us to do that, but a little bit different than our fluid business.

Got it. That’s helpful. And it seems as though there are new products driving that increase in content per vehicle.

Yes. I think not only new products, but the way our engineering teams are working with our customers to integrate and to help improve the overall fluid management of the new vehicles, making them more efficient, helping them, as I mentioned earlier, in reducing the amount of cycle time it takes our customers to assemble these vehicles. We’re working very closely with them upstream to make our systems more efficient and that’s driving value and content for us and helping take cost out of the overall system for the customer. So it’s a win-win for both.

Got it. Thank you. How does that shift in mix affect the overall gross margin, the positive, negative?

Yes, we’re continuing. Yes, it’s extremely positive. We continue to see enhanced margin, as I mentioned earlier, as we build out some of these programs that have been with us for five years or six years and launch the newer ones, virtually in all cases, our margins are going up. And a lot of reason for that, but one of the reasons is because we’re able to help do more for our customers. So they’re giving us more content, helping take their overall costs down, helping drive our content up, so we make more money, they take their costs down, everybody’s happy.

Thank you. And you did reiterate the margin of a double-digit margin exiting 2025. That’s an adjusted EBITDA margin?

Correct. And yes, I reiterated it a few times.

Got it. Thank you. And how should we think about, I know this is super fluid, maybe a little bit early, but how should we think about tariffs? To what extent, are you selling product into the U.S. from Mexico, that type of thing?

Yes. We clearly are like everybody else paying attention to that. We have product that’s being produced in the regions that are being discussed. Clearly, if something like that does happen, we’ll work with our customers to offset it. That’s our expectation. I think it’s the expectation of most of the supply base. Certainly our customers have been very open to those conversations early, so there aren’t any surprises. They know clearly what we’re producing and where and the overall impact of what that would mean to us and to them. I really tip my hat to the customers. They have been very proactive in communicating with us and we have with them. I’m also hopeful that if it does happen, it’ll be short-term with not a whole lot of major impact to our industry. That’s my hope. Our strategy is obviously to over communicate what our situation is with each and every one of our customers and then make sure that we’re prepared to manage it if it does happen.

Fantastic. So there seems to be some, at least at this point, understanding that the cost will be passed on to the customers.

That’s correct.

Got it. I appreciate it. That’s all very encouraging. Thank you.

Okay.

Thank you. Your next question is from Michael Ward from Freedom Capital. Your line is now open.

Thanks very much. Good morning, everyone.

Hey, Mike.

Jeff, on a bigger picture, there are two things we’re not hearing in the industry, what we hear and we’re hearing more of. I haven’t heard anybody really on the supplier side talk about price downs from the vehicle manufacturers. And you’re also hearing from the vehicle manufacturers, much more so in the past, that they’re willing to pay for innovation. And I’m just wondering what your thoughts are on those two things.

Yes. I’ll take the second one first. Related to innovation, I think the key for us has been that our innovation from the very ideation early stage has always been about what can we deliver for our customers that will help them deliver on their overall strategies. And if you listen to what I said this morning as it relates to light weighting, as it relates to reducing cycle time, as it relates to the recyclability. I mean, these are all things not only important to Cooper-Standard, but important to every single one of our customers. And so, yes, they're willing to pay for innovation as long as there's a return for them. And not only has that been positive for us related to new business, but we're reducing the complexity of their systems by better designing an overall system that Cooper-Standard ultimately ends up delivering to each of those customers. And so our content is going up, their costs are coming down, our margins are also increasing in that transaction. So everybody wins. I think that's the secret to how we've been innovating over the last several years and why we're seeing such a positive impact in new business and also in top and bottom line performance. Related to price…

Go ahead. I'm sorry. Go ahead.

Yes, related to your price question, I mean, clearly, it's a competitive environment out there for everyone, whether we're talking the OEs or whether you're talking the supply base. So I wouldn't say much has changed in that front. There's still an expectation that you have to be competitive. Certainly, when you're delivering high quality product, when you're delivering on your launches, when you're delivering on innovation, when you're delivering just on the most basic execution, I think you certainly begin to separate from those who haven't been able to do that. And clearly, everybody is trying to take costs out of their business, right, Mike. And so we've been very careful to make sure we take costs out, but we don't want to do anything that's going to disrupt that competitive advantage we have as it relates to how we're executing for each and every one of our customers in the 21 countries that we reside. So it's a little bit like that kids game where you pull out the sticks and hope the thing doesn't fall over, but we've been pretty good at it over the last four or five years. And I think it's served us well. Our customers are happy and our margins are getting better. So I'm happy.

That makes sense. But, those are two pretty big changes from what we've seen historically. Historically, they seem to hit you with a stick and they want 5%. Now, it seems like within productivity parameters in the price downside. Yes.

Yes. I'm not suggesting all the sticks are all burnt up. I mean, there's still some of that that's going on there. But yes, I mean, they know where to find it if they need it. But I think in our case, we've been able to grow positively. And by growing positively, I mean, by doing the most basic things well, and then offering solutions that help them versus just that give and take conversation related to that bucket of money sitting in the middle of you and who gets to keep most of it. Those are short conversations and make for very long days. When the conversation is about your product and how you can help them and then you're going to make more money as a result, those are much better days.

Jon, two things. The first one on the PIK, and it looks like – is my math right? If I look last year, you picked the interest and it was roughly a positive $58 million I think on the cash flow statement, $59 million and this year it's just $12 million. So, is that to say that you paid whatever that difference is, $40 million or so in cash interest rather than PIK?

Yes, I think your math is right. So the total cash interest for the year was $97 million. So up considerably from 2023, because with the outlook that we had for the year, we were able to elect back in June, the affordability of paying straight cash and in doing that was better economics instead of adding to the mountain of debt that we've got, doing a straight pay on that PIK collection for Q4 on both tranches was not only affordable, but made more sense for us as a company.

And it looks like for your 2025 guide, you're expecting to continue to pay the cash rather than PIK?

Well, to be clear, the PIK collection, we can't elect it any longer. We were only able to elect that.

I got it.

Yes, it's only through 2024 we were able to elect it.

That's correct.

Yes, in the first four quarters only.

Okay. The second thing is on FX. This year was a headwind and wondering if there's any way you can remedy that or maybe you have because it looks like it's a $60 million swing in the bridge on the EBITDA going from $24 million to $25 million?

Yes, that's right, Mike. So you see on the guidance bridge, we're expecting a $20 million tailwind for the year on FX. Later in Q4 of 2024, we started to see some of our cost currencies revert from where they had been trending all year of 2024. So think where we manufacture our product, but don't sell in that same currency, there's not a natural hedge for those. So Mexican peso, Polish zloty, Czech Koruna, exposures like that, that were the main contributor to the $43 million of headwind that we faced in all of 2024. With many of those reverting and the U.S. dollar strengthening against those cost currencies, we do see that flipping. And we also actively manage that and put hedges in place where they make sense to protect the planned expenditures for the year.

And just one last thing, following on with Kurt's questioning on the tariff side. When I look at the 2023 K and I look at the revenue from the different countries and then the property and equipment from the countries, When you have revenue from Mexico of $774 million. Is that – could that be components both produced in Mexico and the United States, put on vehicles in Mexico then shipped to the United States? Is that by area of vehicle manufacturer or area of where your components are manufactured?

That's where our components are manufactured and sold to the customers from those locations.

Okay. So as far as tariff exposure, you have – but who knows where it goes. Roughly $770 million from operations in Mexico. And then Canada, you have another $170 million. That's what you're looking at. But as you mentioned, as Jeff mentioned, that you're working with your customers.

Yes. But, Mike, keep in mind that – keep in mind, some of those sales in both Canada and Mexico could stay in that country to customers that are actually manufacturing vehicles there, right? So Mexico for Mexico production or export from Mexico.

Correct. Yes.

Okay. So, those are the levers they can pull. Okay. Very good. Thank you very much.

You got it, Mike. Thank you.

Thank you. And your next question is from Brian DiRubbio from Baird. Your line is now open.

Good morning, gentlemen. A couple of questions for me. Just tooling receivables, making some headway the last couple of years, going back to my model, lowest had seen, I think, since 2010 on those that number. You'll be able – are you going to be able to squeeze any more cash out of tooling receivables over the next year or is that going to be a headwind at some point? Just trying to understand the dynamics there.

This is Jeff. I think while there is still opportunity, of course, that's where we've ended up is probably where we're going to be as we head forward into 2025. There's always some variance based on when new products are launching and the timing associated with that. And so each year the answer will be a little bit different frankly. And as we look at 2025, I think it will be fairly close to the same numbers you saw in 2024.

Got it. That's helpful there. And then just on CapEx, the guidance that you gave, are we now thinking about CapEx to sales as permanently lower than 2% of sales?

This is Jeff again. I think that for 2025, yes. As we go forward, as I think I mentioned in previous calls, we'll have certain years that maintenance costs on facilities and things like that could bump it up. But clearly, in that 3% range I think is what I told you. So 2% to 3% is probably the more normal at least for the next couple of years I can tell you that much. We certainly don't have plans to get back up to 5% or 6% like we were that you're probably referring to historically. We've got footprint now in China as an example that we've invested in over the last several years. And as we transition, as I mentioned in our earlier conversation, as we transition from the Western OEMs in China to the Chinese domestic, and I'm talking about significant change over there, not just rising with the ducks either. We're gaining a lot of new business from the Chinese domestic and not having to invest in facilities because we're able to convert the capital that we already have in place. So as an example, there and in other places in the world, the reuse is really going up. Our manufacturing team is working closer with our product development team is doing a much better job of reusing capital going forward. So that's what's reflected in those numbers.

Got it. That's helpful there. And one of the costs that I know a couple of companies are experiencing in Western Europe is just to get a higher energy cost. Is that something that you're able to get mitigated? Or is that something you're going to have to deal on your own?

Yes. The last couple of years where it's been kind of a significant outlier, we tend to get help on a quarterly basis for those type of costs. As it relates to raw material costs, we've got indexes in, in place really with all customers in the world to help us deal with that. But if energy costs during the winter in Europe end up being a significant penalty to us, we've been able to negotiate those on a quarterly basis. And then if it happens again the following year, you negotiate it again that's kind of how we're dealing with it.

Understood. And I guess final question for me, just as I look at the chart on Page 14 about the top 10 platforms. Maybe asking about your business mix in a different way, how much of your business has shifted to the domestic Chinese auto companies over the last two to three years?

Yes, it's a great question. Thank you. We have, as most of you know, when you look at the, let's call it 2012 to 2020 period of time, we were probably 80%, what I call the Western OEMs and 20% Chinese domestic. By 2026 which is right around the corner, we will be about 65/35, by 2027 it will be closer to 80/20 the other way. And again, that's with significantly higher revenue in 2026 and 2027 than in any of those previous years. So the teams have done a great job of growing both our fluid as well as our ceiling business with Chinese domestic. And it's interesting because the dynamic there as you know most of the Chinese car manufacturers have expectations for building vehicles or exporting vehicles around the world and so they're very interested in our technology and therefore willing to put our product in their vehicles in China, but also very interested in our ability to help them be successful other places in the world. So we're very bullish on our China footprint and very excited that we don't have to make much investment in any of our plants to absorb all this. So it's a good thing.

Great. That's all I have for now. Thank you so much.

You bet.

Thank you. Your next question is from Ben Briggs from Sonic Financial. Your line is now open.

Good morning, guys, and thank you for taking the call, and congratulations on the quarter and this strong guidance.

Thanks Ben.

Most – yes, of course. Vast majority of mine got answered. So, thank you. One question I had. So, in your prepared remarks, you guys indicated that you've got a roughly 2 times net leverage target in the long run. Did I hear that correctly?

Yes. We actually said, if you just look at our three-year business plan and the volumes albeit in my opinion still forecasted fairly low for 25%, 26% and 27% with the enhanced margin and the new business that we're launching this year and next year, we can see our way to 27% fairly clearly. And we've got – as we sit here today, we have is almost 90% of that business is booked. So this isn't a real difficult thing to project or look around the corner. Based on that profitability the numbers that I talked to you about 2 times or less are in our sites.

Okay, great. And can you give some...

And again that's on relatively conservative volumes that, that the folks that I guess get paid to do that are doing it.

And Ben just to add to that, it's conservative volume assumption like Jeff just indicated, but it also assumes no refinancing activity. That's just on the base cap structure and the outlook that we have for the business.

Okay, great. Thank you. So do you think if I were going to try to pin a date on that, do you think 2027 area would be the goal for that two times target or do you not want to put a date on it quite yet?

No, I'll put a date on it. 2027 is the date and that's with what I call the mortician's forecast for volume. Assuming that volume does better then we'll do better.

Okay. Great. That's very helpful. Thank you. And just you had mentioned that there's some – you're growing share rapidly in the Chinese domestic OEM market. Can you give any insight as to what margins there look like? Are they comparable to the rest of the business? Are they stronger? What does that look like?

Yes, they're comparable.

Okay.

Clearly, the amount of innovation sometimes that's going into those vehicles might be a little bit less. I don't want to make that sound like there isn't any because there certainly is. So if you compare the highest margins in rest of the world to China, I suppose you would say we're probably a little bit less, but so is our investment. And so when you look at the returns, we're pretty pleased with where we are there. We have very clear hurdle rates in each of the regions, and we're having no trouble clearing them.

Okay. All right. That's very helpful. Thank you guys for taking questions and congrats on the quarter again.

Thank you.

Thanks Ben.

Thank you. [Operator Instructions] Your next question is from Kirk Ludtke from Imperial Capital. Your line is now open.

Hi. Just a couple of follow ups. With respect to the fiscal 2025 guidance, you mentioned you'd be cash flow positive. Do you – what's the expectation with respect to working capital and any other sources of cash?

Hey, Curt, it's Jon. With respect to the math, we don't put a number on the page, but we certainly give you all the key components to derive your model on free cash flow. And if you look either the lower or the high end, we're right around that positive territory. We do expect some further working capital benefits as we continue to refine. Jeff's already addressed the tooling topic, but for the rest of the balance sheet, think about days payable outstanding. There's some opportunity there as the supply rate strengthens and we can get negotiated terms more improved. We still haven't gotten to the absolute floor on inventory levels. So we think there's some opportunity there for the team to continue to drive working capital and cash out of the balance sheet. So it's not going to be as significant as it was probably in 2024, but certainly there's more opportunities that would help in that free cash flow positive generation.

Great. Thank you. And then just lastly, you've been EBITDA positive in both North America and Europe for a while. I just wanted to confirm that was the case again in the fourth quarter?

Yes, that's correct. In fact, all four of our major regions.

Got it. Thank you. That's it for me. Thank you.

Thanks Kirk.

Thank you. There are no further questions at this time. I will now hand the call back over to Roger Hendriksen.

All right. Thanks, everybody. We appreciate your participation, your engagement and the insightful questions. If there are any questions that didn't get answered or that you'd like to bring up later on, please feel free to reach out to me directly. This will conclude our call. Thank you very much.