Roger Hendriksen - Director, IR Jeffrey Edwards - Chairman and CEO Matthew Hardt - EVP and CFO.

Dan Dolev - Jefferies.

Good morning, ladies and gentlemen and welcome to the Cooper-Standard First Quarter 2015 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Following management's prepared remarks, 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 call over to Roger Hendriksen, Director, of Investor Relations..

Thank you Shannon, and good morning everyone. Thanks for taking the time to participate in our call today. We appreciate your continued interest in Cooper-Standard. As you know we distributed our first quarter earnings press release last evening and filed our 10-Q this morning.

If any of you have not had a chance to view these materials they're available through the Investor Relations page of our website and through EDGAR.

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 Matt Hardt, Executive Vice President and Chief Financial Officer.

Before we begin, I need to remind you that the statements made in this presentation which are not historical in nature, our forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

They are made based on current factual information and certain assumptions plans, expectations, events, and market trends that management currently believes to be reasonable.

Such statements involve risks and uncertainties, financial and operational results for future periods may differ materially from current management projections as a result of factors outside the company's control.

For additional information on forward-looking statements and related risk factors, we ask that you refer to the company's statements included in our Form 10-K and other periodic filings with the Securities and Exchange Commission.

This call is intended to be in compliance with Regulation FD and is open to institutional investors, security analysts, media representatives and other interested parties. A reconciliation of certain non-GAAP financial measures used in this call can be found in the appendix of this presentation.

With that said, I'll turn the call over to Jeff Edwards,.

Okay. Thanks, Roger and good morning everyone and certainly thank you for taking time to dial into the call this morning.

We're going to start off the discussion today with a brief overview of some of the highlights for the quarter then Matt will review the details of our financial results and after Matt finished with that I'll come back to provide some insights on our outlooks, plans and expectations for the remainder of this year.

So going to the next slide, we had a strong quarter by many measures in the brief time we have this morning I'd like to focus our comments on margin improvement, the progress we made and continuing efforts to optimize our footprint our growth rate and a few words about our safety performance as part of our Cooper-Standard operating system.

At Cooper-Standard, we're fully committed to ensuring the safety of our employees around the world. It's a core value of the company and safety is one of the key metrics that we track as we strive to achieve world class operations.

I am happy to report that the first quarter of 2015 was the best three months period in the company history in terms of reduction in a number workplace injuries and a reduction in our total incident rate. So I'd like to congratulate our employees around the world for their efforts in making our company a safer place to work.

As we move to slide five on margin improvement. We're very pleased to have achieved the double-digit adjusted EBITDA margin for the quarter which is in line with our internal plans and commitments we made publicly. On a consolidated basis, our adjusted-EBITDA margin was 10.1% of sales in spite of some challenging market conditions.

This represents a 50 basis point improvement over the first quarter of last year and that would have been 10.4% on an FX neutral basis and Matt's going to through and discuss some details around that later. Each of our key regions contributed to the overall improvement in terms of segment profit North America achieved a 140 basis point improvement.

Europe was up 530 basis points and Asia Pacific a 170 basis points. In South America, we continue to face macroeconomic challenges and lagging consumer demand like everyone else in the industry.

The margin improvement was a total team effort, our operating team has worked very hard to meet the target for the quarter and more importantly to put us on track for a strong full year. We believe the results from the quarter are indicative of the traction we're gaining in the execution phase of our turnaround plan.

We're very pleased with the first quarter but we still have a lot of opportunity for further improvement. One of the foundational pillars of our strategy is the establishment of world-class operations.

We believe the continuing implementation of the Cooper-Standard operating system throughout all of our manufacturing facilities will enable us to reach our longer-term goals to achieve adjusted EBITDA margins in the mid-teens within the next few years.

Moving on to the next slide and other foundational pillar of our profit growth strategy is our Advantaged Global footprint and we're going to discuss that next. During the first quarter, we made great progress in adding production capacity and extending key relationships throughout the Asia Pacific region.

Our acquisition strategy of majority owner Huayu-Cooper-Standard sealing in China not only added immediate revenue in profit but also provides a solid base for future growth.

With 10 manufacturing facilities currently operating between 50% and 60% capacity we have an excellent opportunity to increase production from our core products with relatively little additional brick and mortar. We're also making great strides within our joint venture with INOAC in Asia.

Since we established that last summer we have developed a joint manufacturing strategy in China and we'll be able to make some additional announcements about that very soon. We've also initiated joint technical reviews on site with our Japanese customers.

In fact in April we presented some of our newest technology to over 700 engineers at Toyota in a joint technical review. We also recently signed an FTS JV which will increase our market share, expand customer relationships and greatly enhance our growth opportunities in India.

Additionally, our restructuring program in Europe is on target, and we're making good progress in our discussions to reduce or offset a portion of the plant costs. We'll have more detail to discuss about that later in the year.

Moving on to slide seven and look at our revenue trends as we expand our business around the world, we face additional challenges as well as opportunities. In the first quarter, we faced continuing headwinds related to unfavorable foreign currency exchange rates.

Our first quarter total sales were $800.1 million compared to total sales of $837.6 million in the first quarter of 2014. The year-over-year variance is largely attributable to a $77 million impact from unfavorable foreign exchange rates.

So excluding the impact from FX total sales in the first quarter 2015 would have been $877.1 million that bit increase of 4.7% over the first quarter of 2014. Our underlying growth rate for the quarter significantly outpaced global light vehicle production which was up 1.2% compared to the first quarter of last year.

Digging a little bit deeper into the revenue numbers slide eight shows a 3% increase driven by improved product volume in mix. Our acquisitions and consolidation of joint ventures added another 2% to the top-line which in total was four times industry growth numbers. Price adjustments in LTAs were a slight offset to the added volume in acquisitions.

The FX impact was a 9% yet more than completely offsetting the underlying growth we've achieved and sustained. Slide nine breaks down the revenue by region. The chart in the left shows the proportional share of revenue by region.

It's worth pointing out that the North America contribution to total revenue was 52% in the quarter but if you exclude, the FX impact. North American revenue would have been less than half of our total for the first time in the recent company history and we expect to this trend to continue. The key driver of course is Asia.

In the first quarter of 2014 Asia represented just 7% of our total revenue. This quarter had jumped to 11% of the total or 48% growth year-over-year without the benefit of any acquisitions or consolidations our top-line in Asia grew by 23% compared to the first quarter of last year.

The consolidation of Huayu-Cooper-Standard joint venture offset slightly by the sale of our thermal and emissions and operation in Australia at another 25% in revenue growth. Now I’d like to turn the call over to Matt..

Thanks Jeff and good morning to everyone. Beginning on slide 11, I’d like to quickly review the financial results for the quarter. In the first quarter of 2015, we generated total sales of $800.1 million or $877.1 million when neutralized for the impact of foreign exchange of 4.7% increase over the first quarter of 2014.

Gross profit was $130.9 million for a gross profit margin of 16.4%. Adjusted EBITDA was $80.8 million or 10.1% of sales. Now this was a 50 basis point increase over the first quarter of 2014 and the adjusted EBITDA margin was 10.4% of sales or 80 basis points above the first quarter 2014 when neutralizing for the impact of foreign exchange.

Our net income for the quarter was $21 million or $1.15 per diluted share. Now these results include $18.8 million in restructuring costs and $11.6 million gain on the acquisition of the majority ownership of the Huayu-Copper Standard Sealing Company in China. On slide 12, you can see the key financials when adjusted for non-operating items.

Excluding the restructuring charge of 18.8 million the operating profit would have been $51 million or 6.4% of sales. Now when you exclude both restructuring and the $11.6 million gain on the Huayu-Cooper acquisition our net income would have been $28.2 million or $1.55 per diluted share and that’s up 22% over the first quarter of 2014.

On slide 13 we compare our adjusted EBITDA results in the first quarter to the same period a year ago and breakout some of the key drivers of change.

Improved operating efficiencies provided a 20% increase, we did have improved volume and mix they were positive in the quarter but essentially they were offset by price and a $10.4 million the foreign exchange negatively impacted our adjusted EBITDA by about 13%. In spite of the strong FX headwind we still grew 50 basis points to 10.1% of sales.

Moving on to slide 14, we ended the quarter with $194 million of cash on the balance sheet as compared to $267 million in cash at year end.

We generated $40 million from operations in the first quarter however we utilized $50 million to fund our tooling and working capital requirements invested $51 million in CapEx and made cash payments of approximately $24 million for acquisitions and joint ventures.

The first quarter cash drawdown is consistent with the seasonality of tooling purchases and other working capital changes in the business. Our total liquidity at quarter end was $338.8 million giving us sufficient flexibility to manage our business and pursue profitable growth opportunities.

Our financial metrics remains strong with a net leverage ratio of 1.9 times, interest coverage at 7.8 times and $606 million of net debt. With our $750 million term loan due in 2021 we have relatively modest debt amortization in the year.

Now before I turn the call back over to Jeff I want to take just a minute and discuss the cash flow improvement plan we put in place during the quarter.

We understand and we’ve heard loud and clear from our investors that we need to improve our cash generation the last few years have been challenging as we needed to catch up with our investments and our plans that we had previously delayed or deferred during the industry downturn and this has all been part of the turnaround program Jeff and the team had previously discussed.

As we work to this point we'll be taking a very aggressive approach to optimizing our cash generation going forward we’re going to have relentless laser focus on our CapEx, our working capital, our costs of restructuring and our cash taxes.

As it relates to CapEx we’re carefully analyzing opportunities to re-utilize or refurbish existing equipment rather than repurchasing new. We will be cooperating and communicating more effectively between our plants and our regions to determine whether equipment we need in one area may already be surpluses in another.

We’ve also hired a new supply chain Vice President to lead our purchasing programs and she is actively working with suppliers to take advantage of volume discounts through supplier consolidation and equipment standardization. On the working capital side we believe we have significant opportunities for improvement through reducing inventory levels.

Last year we averaged approximately 24 days of inventory on hand in our production facilities. We’ve made some initial improvements. We’re driving a 22 days this year with a target of getting to 17 days overtime. This is going to result in a $20 million to a $60 million reduction in inventory levels.

We’ve also initiated a deep dive analysis and are developing a trade payables improvement plan following our business best practices and peer comparison framework. As Jeff mentioned we are working to reduce our restructuring cost as well it will have more definitive results to discuss throughout the year.

Finally as our income increases worldwide our cash taxes will see upward pressure we are developing tax planning strategies to manage our ETR on a go forward basis. Now let me turn the call back over to Jeff..

Okay thanks Matt. And I'd like to conclude our presentation this morning by sharing a few thoughts on our outlook for the rest of this year. So as we progress through 2015 we want to build on the success of the first quarter as we’ve discussed and we believe we can and will deliver even stronger results going forward.

With regards to improved free cash flow we're pleased with the initiatives we're driving and are confident that they will lead to improved results for our shareholders.

Another key to driving improved results this year and beyond will be the continued implementation of our Cooper-Standard operating system and the continued rollout of our best business practice tools. So far we have focused our BBP tools on improving our sealing business by transferring best practices from those best performing plants.

We can realize significant upside potential by consistently applying our best practices. We don't have to invent new processes or technology to do that. We expect to see continued operational improvements throughout the years as these programs are rolled out and implemented. We will continue to develop an aggressively market new innovations.

As you have heard us discussed over the past few months we recently brought four breakthrough technologies to market. Although we are still very early stages of introducing offering these technologies they've already led to more than $50 million in sales.

We believe these new products and technologies will enhance our competitive position with existing customer and increased opportunities to work with new customers driving significant market share gains over the next several years. Our growth strategy includes organic growth as well as strategic M&A.

The markets in which we compete remain very fragmented and even though we hold a number one or two position in market share for most of our core products there are still ample opportunity to improve market share and increase margins. We expect to face continued headwinds related to foreign exchange and weak production volume in Brazil.

We expect the U.S. dollar will continue to strengthen against the Euro and the Canadian dollar over the next several months but on the positive side we believe we will benefit by improved vehicle production and mix in North America and China. Finally there and will continue to be opportunities for consolidation among our peers and competitors.

We will be actively evaluating these opportunities with the intent to improve our market penetration and competitive position especially in the high growth markets.

Based on our results from the first quarter and our outlook for the rest of the year we've made a few minor changes to our guidance for 2015, the changes are shown in the table on slide 18. So to summarize our message today we had a solid start to 2015 and we plan to build on early success to achieve further improvement in the rest of the year.

We believe our outlook is bright and our dedicated employees continue to execute our profitable growth strategy. Thank you for your continued interest and support and we'll now be happy to answer any questions that you may have..

Thank you. [Operator Instructions]. Our first question comes from the line of Dan Dolev with Jefferies. Please go ahead..

Hi, guys. Good morning..

Hey, Dan..

Hey. So yeah, it looks our math is correct. It looks like organic growth accelerated nicely on coming up with something like two point something ex-M&A that being said to get to your annual guidance of three to three four that requires further acceleration maybe you can talk a little bit about by region what would drive that acceleration..

Hey, Dan, this is Matt. Thanks for the question.

When you take a look at it, as we talked in the past in the Americas in particular we are still about a 50% run-rate of one of our biggest platforms and we expect to be at a full run rate in May and which will help us increase our output in the second quarter and then it will be full -- for the second-half of the year so from an organic perspective the Americas will see a significant uptick.

Additionally, when you take a look at Asia we continue to see growth in that region. In that we are seeing that come up from a plan prospective at all this year..

Okay. Fair enough. And then one other question just housekeeping question.

The guidance of adjusted EBITDA margin growth is that on a constant 50 to 75 basis points is that on a constant FX basis or is that as it is?.

That’s as it is..

So, my question is you’re improving margins by about 50 basis points what would drive you to get to say the mid-points that again implies in acceleration in margin improvement down the growth?.

Sure. Let me just take your answer. I think if there is couple of things first of all Matt mentioned in North America as we had through the second quarter we’re going to be ramping up one of the programs that frankly just one of the highest content per vehicle programs that we have in our North American business.

The other thing as we’ve mentioned number of times, we continue to drive our best business practices across the plants, we’re now able to measure each one of our facilities around the world are based on a number of controllable cost areas for the plants in including capacity utilization.

And as these teams drive those best practices we’ll really lowering the water level or another way saying is improving our efficiencies considerably in the operations and we have some very aggressive targets for our plants to hit on the cost side.

So a combination of doing what we do better and ramping up one of most important programs that we have in the company..

Excellent. Thank you so much guys..

Okay..

Good work. Thank you..

Your next question comes from the line of Glen Chin [ph] from Buckingham Research. Please go ahead..

Thank you. Good morning gentlemen and thank you for the strong results very encouraging..

Good morning..

Kind of a related question on your adjusted EBIT margin ramps through I would to accelerate even the growing production volumes of your most important platform.

But aside from that are there any offsetting headwinds that we should expect through the year or is it relatively clear -- between now and the end of the year?.

Yeah. I think we were pretty clear on that Glenn as we’d talked about Brazil I think it’s fair to say that’s a pretty significant headwind for all of us.

FX probably continues to be one of those headwinds but as it relates to our operating performance, we feel that we’ve got that part of our business under control as we highlighted in the improvement year-over-year really in all of our regions and we’re just really proud of the work that they’ve all done to get everything launched and begin to really drive the change required to bring our plans up to a world class operating level.

And so we continue to feel that momentum in a positive way as Matt described in some of his comment..

Okay. Very good. And then a guidance related question. So on your revenue outlook of 3.3 to 3.4 million. In February, you had cut your Euro assumption by 5% and that led to a 3% reduction in your revenue guidance to where it is now.

How are you able to hold revenue guidance this quarter while you Euro assumption was cut by 6% this quarter is there an offset?.

Yeah.

We are seeing incremental volume both in the stage Glen as well as in Asia so we did cut our forward looking to $1.12 to the Euro I mean as you see now we’ve been running still little bit unfavorable to that, that’s causing a little bit of pressure but we are naturally hedged in lot of instances in Europe which helps from an EBITDA fall through perspective that’s why we kept the range 3.3 to 3.4 I think to their continued strengthening of the dollar to those couple of currencies the Euro, Canadian dollar, the Riyal in particular that will probably push closer to the still in that range but to the lower end of that range..

Okay. Very good. Thank you..

[Operator Instructions] It appears that there are no further questions at this time. I would now like to turn the call back over to Roger Hendriksen..

Okay. Thanks everyone for your participation today. If you should have further questions please feel free to give me the call or send an email and I will be happy to help in and continue the dialogue. So this concludes our call today. Thanks again for your continued interest and support..

This concludes today’s conference call. You may now disconnect..