Cooper-Standard Holdings Inc. (CPS) Earnings Call Transcript & Summary

Okay. Great. I'm Ryan Brinkman, the U.S. Automotive Equity Research Analyst. Thanks for coming back for day 2 of the 2023 JPMorgan Automotive Conference. Very happy to kick off the second day with Cooper-Standard. Have on the end here Jeffrey Edwards, Chairman and Chief Executive Officer; Jonathan Banas, Chief Financial Officer; as well as next to me, Roger Hendriksen, Head of Investor Relations. I'm going to turn it over to Jeffrey, who's going to walk us through some slides here, and then we're going to engage in a chat. Thanks so much for coming.

Okay. Thanks, Ryan. Good morning, everyone. Thanks for being here with us at the crack of dawn, I guess, in New York, so I appreciate the audience. So we're going to jump in. I've got about 12 slides that I'm going to walk you through and explain a little bit about Cooper-Standard and what we've been up to the past several years. So the first slide is really about our market position. We have 2 global product lines that we go to market with. The first one is sealing solutions. We're the #1 market leader there in the world. It's an $8.4 billion market which we have about $1.3 billion of that. So it makes up about 54% of the company's revenue. The other business is fluid handling. That's also an $8 billion market. That's a little over $1 billion of revenue with a lot of room to grow in both of these markets. We've also provided you across the bottom of the slide, a list of some of the competitors that we go up against on a regional as well as a global basis, just to give you a perspective. And then the car that you see there in the center kind of shows you with the blue and the green, how the parts go into the vehicle and the amount of technology and innovation that's required, especially as we march through this drivetrain evolution that we're in the middle of. The next page really talks about the breakdown of the revenue, $2.5 billion was the revenue in '22. We've provided you a look here of -- you see 56% of that is in the North American market. So 44% the rest of the world. We've also given you some color here on the top -- the top customers. But it's a very diversified business around the world and also across really all OEMs we do business with. The other thing we're really proud of is the commitment we have to our core values and the strategy that we go to market with related to sustainability. We've received an awful lot of recognition over the last decade for our integrity and our ethics. We've earned a lot of different customer awards as well as industry recognition as well. Really proud of that. I think the other thing I would comment here regarding the sustainability side. And for us, we go to market with innovation first and foremost. And so a lot of things that I'm going to talk to you about here this morning will impact and will help our customers achieve their sustainability goals as we go forward. The other thing I will tell you is that our sustainability KPIs are embedded in our business. So these are important measurables. These are things that help us as a company get better. And really allow our employees to -- through a hands-on approach, to be involved in creating sustainable solutions together. I think it fits with our industry, it fits with our customers' expectations and it certainly aligns in most cases, with our shareholders' expectations as well. Okay. I'm going to talk a little bit about the business. And I think, first and foremost, we're a material science company. We've been in business for over 6 decades. We have relationships with every automaker in the world and the base of our business is really about optimizing material compounds to meet and exceed the performance standards that our customers have for us, regardless of which customers they are and which markets they happen to serve. We also have a world-class design studio that allows our customers to interface with us and us with them, very upfront in the process to look for solutions that are unique for them. And then finally, the validation, I'm going to talk to you about that here in a minute. And then we're a manufacturing company. We bring our engineering solutions into our plants. We build that product and we deliver it to our customers at 68 different locations around the world. We're really proud of our manufacturing teams and -- in the leadership, especially over the last several years that they've exhibited in the most trying circumstances. So shout out to our plant managers and all of our employees in the plants. We're really proud of those folks. Next is a little bit about how we're harnessing some of the power related to digital analytics and AI within our business. And we believe that in this case, we are a leading expert. Our customers are telling us that within the space that we serve. We're increasing the speed to market as a result of some of the things that we've done. We're eliminating physical samples. We're eliminating a lot of the testing, the manual testing that's been done in our business. And for this group, I think you'd probably be interested that just a few years ago, we were spending around $130 million in engineering. This year, we'll spend about $79 million and we're launching significantly more product. So we're using these tools to reduce cost, improve our speed and better serve our customers. So it's more efficient and it's more effective, and we're doing an awful lot of it everywhere within our technical community. So -- this is the strength of the company without a doubt. Okay. We all know about the EV transition that we're in right now, and everybody is always interested in, okay, how does ICE versus hybrid versus EV impact your company? Every supplier gets the same question, I'm sure. And so we've taken an opportunity to really break down our sealing business as well as the fluid handling business related to this transition that's taking place. And what you see here, both in the dynamic sealing and the static sealing, there's a tremendous amount of complexity that's being added as a result of the EV design and styling of the exterior that's driving some of this complexity. There's also clearly an aerodynamic challenge that the automakers are dealing with related to batteries versus ICE engines, right? And so they're interested in much more aerodynamic, they're interested in sealing systems that allow the interior to be even more quiet than it is today on ICE. These are challenges that they have and they're bringing those challenges to us. And as a result, we've created dynamic sealing, static sealing solutions. And then on the far right of the slide, you can see the frameless sealing solution. It's really the highest complexity. It goes on all the high-end cars and all the high-end SUVs. It's an exclusive technology that we developed, and it's been really a hit in the market the last year or so, and we expect going forward, it will be adopted by a lot more automakers related to the EVs that they're bringing to all of us. Next is an explanation around our fluid business. So with the internal combustion engine that you see on the left-hand side, I just have given you an example of a particular product where we had 8 part numbers. That same vehicle then was produced as a hybrid and our part numbers went up to 28. When you think about heating and cooling of the engine and heating and cooling of the batteries, you're doubling the complexity with hybrids. So in this case, our content per vehicle goes up by about 100% when you're talking about a hybrid technology. Now if you go to EV, very similar, not quite the level of complexity, but the 8-part numbers would quickly become 20-part numbers just because if you think about the amount of glycol that runs through an electric vehicle versus the glycol that runs through an ICE, the systems are a lot more complex, and that's what we provide. So our content per vehicle, we're saying going forward is going to go up about 20%, and that's after you take the fuel line out of the ICE. So again, a very, very good story on our sealing business as well as our fluid business as we transition from ICE to EV. Hopefully, that was understood. In addition to complexity, we're also vertically integrating. So our engineering teams are becoming more and more experts in the fluid handling and the overall management of the thermodynamics of these vehicles, and they're finding ways to eliminate parts that are today embedded in these EVs that tomorrow don't need to be, if you can come up with solutions that are engineered more effectively than today's solutions. And as an example, we have developed what we call eCoFlow. This is a technology that reduces complexity and improves the efficiency and also increases Cooper-Standard's content per vehicle. Our customers love this because it's making their overall system more efficient. And so we're looking for more and more ways to reduce the complexities of these EV solutions, and this is just one. We have 14 patents pending on this particular product. And again, it goes to the whole theme of increasing the content per vehicle for our company as we evolve from ICE to EV as a world, I guess. Also, we talk a lot about innovation, and we've done a really good job of bringing innovation to market. So this isn't just things that hang on the wall and we hope inspire people. We have definitely driven innovation across sealing and fluid handling over the last decade. This is an example of the most recent sustainable thermoplastic body seal that we're taking to market here in the beginning of '24. It's a sustainable dynamic seal. It's the first time that we've been able or anybody in the market has been able to offer a solution to an EPDM dynamic seal that goes against the body of the vehicle. There's a 30% weight reduction versus the traditional EPDM seal. It's a proprietary carrier design. It meets the mechanical integrity of that particular dynamic seal on the vehicle. We can make it in a variety of different colors because of the thermoplastic nature of it. And probably one of the most intriguing things for our customer, everybody is measuring the amount of emissions that are being produced not only in their factories but in the supplier factories, and this is significant less energy to produce than an EPDM seal. In fact, it reduces emissions by over 50% related to EPDM and by over 20% related to those TPV products that may compete with it today. So it's one of a kind. It's going to offer a tremendous amount of benefit to our customers and we're really excited about the market share opportunity for us that we can go after beginning here at the end of '23, beginning of '24. Okay. Let's switch gears a little bit from the product to really talking about our business and how we've been able to transform it again, to start another climb up the proverbial value creation model, if you will. So we've done a pretty good job of leveraging our lean cost structure and now we're anticipating, like all of you, higher volumes in the automotive industry coming to us soon. This chart really talks about the cumulative sustainable cost savings that we've put in place really from just before the pandemic throughout the pandemic. And you can see that we've taken almost $500 million out of our cost structure. So as we sit here today, we're leaner and we're more competitive than we've ever been. Our execution around quality and launch and delivery and everything that our customers value from us, we're better performing today than we've ever been in the history of the company. You can see on the right-hand side of the chart is the production volume continues to increase, and it's projected to do more of that over the next year plus. And hopefully, someday, we get back to those 17 million or 18 million units that we've all enjoyed here in North America in the past. And when we hit that, we obviously are in a fantastic position to drive top-line growth, bottom-line growth, expand ROIC, which we've done in the past and we're primed and ready to do again. This talks a little bit about some of the other details that we have been executing the last couple of years to get ourselves positioned again to improve profitability and expand return on invested capital. We've eliminated the commodity risk through indexing contracts with our OEMs. So historically, that's been a pretty volatile metric within our company. As the raw material costs went up, that impacted us. As it went down, it helped us a little bit. But lately, that's been all about inflation, so it was a pretty tough environment for us to deal with. So we established these index-based agreements that limits the exposure to the raw material fluctuations that have been kind of a penalty to us over the course of the last 4 or 5 years. So we're excited about that. It's in place. It's up and running, and it really will allow us to smooth out the peaks and valleys of raw material inflation. The other thing that we found is obviously not only raw material costs have gone up, but every other single cost associated with running a company has gone up too, right? And so we found ourselves with certain products and certain customer programs that weren't achieving the profitability hurdles that we needed to have a sustainable business. And so we took that on this year. We've renegotiated with every single customer in every single region. And we are very pleased that those negotiations are almost behind us. We have a couple more to get done here in the third quarter. And we will have every region, as you saw in the second quarter, if you looked at us, every region is profitable within our company. That's the first time we've said that in a long, long time. That is sustainable. It's sustainable because of how we've negotiated the first 2 things on this list. Also, clearly, enhanced cash flow is a priority for us, and we've done a really nice job of reducing the operating expenses across every function in the company. Our SGA&E is at an all-time low, and I'm happy to say that's a sustainable level as we move forward. And I talked to you about how well the engineering teams are functioning using technology and other means to reduce the overall cost of engineering products going forward. So we're very confident the rest of this year is going to be positive free cash flow for our company. And as we head into '24, '25 and '26, we'll continue to generate a lot of cash that's going to help us pay down the debt that we've put on the balance sheet here, and we've got a little bit of time to get that taken care of. John will explain it later. But generating cash for Cooper-Standard going forward is absolutely a top priority. And believe me, our customers need us to do that as well. So they've been extremely supportive as we've negotiated as I talked about the first 2 things. And then the last thing on the list, focused on profitable business and pricing disciplines. We aren't in a position to make free parts, right? We got to be paid for the parts. We have great technology. We execute, and all of our customers have told us that. They appreciate having Cooper-Standard in the supply base and they've demonstrated that by supporting the pricing requests that we've had this year and some of the other very challenging negotiations, frankly, that we had to have with them in regions where we were losing money rather than making money. I'm happy to say as we head through this year, that will be behind us. And as we get into the business plans for '24, '25 and '26, we're restoring ourselves to a very healthy automotive supplier and one that's going to continue to do great things for our shareholders as well as for all the other stakeholders involved in our business. The last slide is for you. A Compelling investment opportunity. We believe the answer to that is yes. As I said, we have a strong market share in our program segments. We go to market with 2 very important products and 2 very important businesses. Every car in the world needs what we make. And so going forward, I think that's an important thing to keep in mind. We've always been laser-focused on return on invested capital. We still are, and we're confident that we'll return to the double-digit return on invested capital performance that historically you've expected and received from us. Also, we have a strong revenue growth outlook. We continue to outpace the market. Some of that is because of the price. Some of that is because of new business that we've won. But as the global vehicle production continues to march back towards 100 million units and some of the most profitable business that we've had historically in North America and in Europe, both of those markets are operating significantly below the capacity that exists. So we're excited to sometime here in the near future, get back to 21 million or 22 million units in Europe and 17 million, 18 million units in North America, and that's going to result in really positive revenue growth in profit and cash growth for Cooper-Standard. I spent quite a bit of time talking about our value-added innovation. So we aren't a me-too automotive supplier. We have relationships with the top of our customers' engineering houses. We're well known, 60 years of building relationships there. We're trusted. You don't go back in and ask the type of pricing help that we've done the last 1.5 years and not be good at what you do because if you aren't, you'd be thrown out faster than you showed up. And so we're confident that they want us. We're confident that our innovation is a big part of that, and we're confident that our ability to execute for them has never been better. And I think they're voting with their purchase orders and they are voting with how they've treated us in some of these negotiations here over the last several months. Finally, we're at a point, and you can see that in our latest quarter financials, we believe that we're at an imminent profit inflection point for our company. We've talked about the number of tailwinds from an industry point of view. We've talked about how we have done all the self-help that we needed to do over the last several years in getting our cost position back to where it needed to be. And we're in a great position to continue to grow the business profitably, make money and we're excited about the next several years and what that has to bring. So Ryan, that's my prepared presentation and turn it back to you for Q&A.

Perfect. Thanks so much for that overview. One of the things we're doing at the conference is we're asking each of the suppliers a few sort of industry-related questions, which we intend to sort of collate and compare the responses toward the end. And one question is going to be on demand and one on supply, starting with demand. It's tracked quite a bit better, I think, across most end markets, particularly North America light vehicle production, U.S. light vehicle sales this year. Just curious how you would rate the strength of the various different end markets and economies that are most important to your company and what is the outlook going forward?

Yes, I think the one word I would use right now is stabilized, and I think we can all appreciate that, right? The challenges that we've faced the last 3 years as an industry and particularly as a supplier was not knowing what we were going to build next week and what we were going to actually produce next month. And the stop/start activity that was kind of embedded in the process was extremely let's just say, cost prohibitive from the standpoint of running a sustainable business, right? And so I think all of that's behind us, Ryan, at this stage, and we're seeing at least a level set around the volumes in North America, Europe, China and even for us, Brazil. So I think going forward, I expect some growth to continue to occur in '24, especially in North America. I think, Europe has a chance as well. It was strong this year compared to plan. Hopefully, next year, will be as well. Our Brazil business, while it's certainly well below historical levels, at least it's predictable. And then China, they're predicted to return close to the 28 million units that we were all projecting 10 years ago. I think they're on track to probably achieve that. So we are cautiously optimistic about volume growth going forward. We certainly, like most, are looking forward to it so we can generate the type of cash that we need to invest back into our business and become once again a very strong automotive supplier and one that has the ability to continue to provide everything our customer needs us to provide.

That's good to hear. And what about on the supply side? Where do we stand here in the middle of 2023 with regards to the semiconductor chip shortage or some of the other supply chain bottlenecks that had hampered the level or stability of production like port delays and whatnot?

Yes, again, I think stabilized especially in comparison to what we've been dealing with the last couple of years. I wouldn't say it's 0 issues at this stage because there are still a few that crop up from time to time. But nothing that I would consider a headwind. I actually would consider it just part of the normal business of automotive. And I think our customers are doing a fantastic job of operating their plants at a predictable level of volume and they're managing their supply side and we're managing our supply side. So I have a lot higher level of confidence as I sit here today than I even did in -- say, in January.

Great to hear it. And next, I wanted to ask on the sort of overall backdrop for operating margin for suppliers generally. EBITDA margin for the 12 suppliers we cover averaged 11% last year. Maybe it will hit 12% this year, but it was sort of 13% to 14% in the years leading up to the pandemic. So considering all of the various different macro and industry factors that roll up into the backdrop for supplier margin, such as the aforementioned level and stability of production, the timing of commodity and non-commodity inflation and related recoveries, maybe some needed R&D spending to support industry change in advance of related revenue. Where do you think we are on the path back to previously normal margin? Or are we maybe looking at a new normal with structurally lower margin, given structurally higher input costs, even if they are fully compensated for by the customers with maybe metrics such as return on invested capital more relevant to gauge performance?

Yes, I could write a book, I guess, if I could answer all those questions, but let me take a shot. So I think the short answer is I think that everybody has done a terrific job reducing costs and becoming stronger the last 3 years. And that is always good for the industry. So I think the foundation is as strong as it's ever been, supplier by supplier. And obviously, the strength of pricing that our customers have exhibited, especially the last couple of years also speaks highly about their strength in their balance sheets. And so that, that to me, is good. If you look at an industry that has the capacity to do 110 million units or something in that neighborhood and were struggling to get to 80 and yet we're still achieving the type of profitability that you mentioned, I think that's a strength. So when the volumes come back and when we find our way to that other 30% or 40% that's hiding out there somewhere, I think it's even going to be stronger. So that's the second point. And then finally, I don't think that's that far down the road. I think that is, obviously, interest rates have been tweaked up here over the last couple of years. I think that we hope that by say, this time next year, they start to come back the other way. I think that's going to have a very positive impact on volumes. The age of the fleet has never been older, so I think there's pent-up demand there related to new vehicle purchases. So it's unique in our industry. When volumes are down, nobody likes to predict when they're going to go up for whatever reason. And when they're up, everybody wants to predict when they're going to go down. Those are kind of unique behaviors embedded. And I just happen to think when you look at the facts regarding the age of fleets and you look at the facts regarding the affordability of vehicles and you look at the facts regarding how many great vehicles are being produced and put out there and how many new ones are coming in the funnel, if you will, into the market. This is all pent-up demand that's going to be released at some point in the next 2 years. I think we all know that. And then hopefully, we have a 3-year run after.

Great things. I thought this slide was interesting and helpful because I think the simple conception or misconception that some investors may have is that fluid management at Cooper-Standard is, I don't know, similar to fluid management at Affinia, right? But you do have the power steering regardless of the propulsion type. You've got even more coolant handling needs. I see 20% higher CPV in battery electric vehicles. Is there a sweet spot in the middle, maybe not the hybrids but like the plug-in hybrid, where you've got a big battery and still all the fuel management. What does the CPV look like in-between there?

Yes. If we were just talking Cooper-Standard and what we would wish for. I mean we'd like to see all hybrid vehicles out there, right? Because as you can see, we've got a lot of complexity and a lot of content on hybrid, but you're taking care of the ICE and you're taking care of the batteries. So it only stands to reason that heating and cooling all of that is a lot more content. And that's what we have experienced, and that's what we continue to experience on hybrids. But what we're trying to say to all of you is that we also have a significant amount of business on battery electric vehicles. And so we know, sitting here today that when you compare the ICE part numbers, and that includes fuel lines in addition to all of the other heating and cooling lines that we have on the vehicle and you fast forward to battery electric and you take that fuel line out, our content is still going up by 20%. And so that, to us, is a sign of strength. I also talked to you about how we're vertically integrating even more content, and we're going to take some of the complexity that our OEMs have to pay for in these vehicles. And we're going to integrate that into our systems, reduce their cost, improve the efficiency of the fluid handling and management of these battery electric vehicles. We're doing that today. We showed you the patents on the other slide. And the customers are absolutely challenging us to continue to find new and better ways, more efficient ways to help them, which ultimately provides more content for Cooper. So that's kind of what's going on. It's been that way for the last 3 years. We continue to get better at it. Our customers continue to give us more and more responsibility.

Thank you. And we saw that the company overall had significantly improved it's financial performance in the second quarter, looked like led by Europe. Europe and South America, typically your lowest margin segments, they were actually the most profitable and sort of 9% to 10% EBITDA margin, higher than you had been generating. Is that level sustainable for those historically lower-margin regions?

Yes, it is. And we've been very clear. We were clear at the beginning of this year that those 2 regions had been a significant drag on the company's earnings and cash flow in that, that couldn't continue. And so everything that I talked to you about in this presentation about how we've managed our internal costs, how we've dealt with inflation, how we've dealt with product that didn't have sustainable pricing, we did all of that in Europe, and we did all of that in South America. So all those changes are reflected in the profitability that you saw in the second quarter. There's still a little bit more to do in Europe related to that. So I'm confident going forward that we'll achieve that level and probably even better. I'll give you one more data point. When we started this year, our business plans said that we were going to burn about $90 million in Europe in cash over the next 2 years. Well we said that's not going to happen. And so we went about fixing that and now Europe will be positive cash flow the second half of the year and will be positive cash flow as we head into '24, '25 and '26, all with sustainable solutions to fix those businesses. So we're really proud of those teams, they did a great job. Hats off to the customers because they had to really support us in a number of ways in Europe and in Brazil. So thanks to the customers as well.

And what about the corollary to that question, North America, typically the most profitable, was the least profitable? Can you get back to that sort of mid- to high-teens level you used to be at? And what is required to get back there?

Yes, absolutely. We have some additional commercial agreements that we're working on here in the third quarter, so that's a big part of it. We have to continue to manage our facilities as efficiently as we can. So that's part of that continuing to get better in the manufacturing side of the business. And we've already talked -- I mean, we're barely touching 16 million units in North America. And we'll exit this year after we get those commercial agreements in place with a very healthy business. And so I would expect the volumes to continue to go up and the result of the $500 million of fixed cost or so that we've taken out of our company, the last 3 years is going to result in significant cash flow improvement, significant earnings improvement and give us the opportunity to pay down some of the debt.

You listed a number of competitors for your different product areas. Curious how you view the competitive environment? Are there too many competitors, too much capacity? Is there a consolidation opportunity?

Yes to all those. I think that as we sit here today, each region is different. We have focused for 10 years on being an innovator for our customers. And clearly, we've accomplished that. When you have to walk in to every customer in the world and have the type of conversations that we've had this year, and you're still booking record number of new business and you're still getting their support, that's for a reason, right? It's because they trust us and they believe in us and they need us in the supply base. And we're very proud that we have accomplished that. It's not a gift, and it has to be earned every single year. And I think we've differentiated ourselves in every region against every competitor. Now they're still there. Some of them are still very formidable and I think that's fine. Do I think that there's too many? Yes. Do I think there's consolidation opportunities? Yes. But that's not our focus at this point. We're focused on getting our company where it needs to be from an overall performance and that stuff will take care of itself, we believe.

You mentioned nearly $1 billion or $0.5 billion of cost out, right, since 2018. Is there more that you can do? Is there more that you need to do to restore, say, North America margin or improve margin overall? Or are there other levers, I don't know, from a revenue conversion, et cetera, that you're more focused on at this point?

I think in our industry, you have to lean it every year, right? So I think the self-help getting better through use of technology or the brains of your folks every year, you got to try to stay ahead of the level of inflation that hopefully is normalizing. So that's there. The bigger items that I think you're referring to would -- we sort of pump the brakes on restructuring costs. I mean, we've done a lot. There are still a little bit more that we can do probably outside of North America, I would say. But I don't anticipate pulling those levers in '24. I think we've got it to a point now where we've got to just get it up, running, executing at a high level, generating positive cash. And I think that's kind of where we are. So maybe '25, maybe '26, we finish some of the smaller restructuring projects that we didn't do yet, but most of the big ones are done.

Maybe if you could touch on the leverage ratio, likely a concern for some investors. What could you say from a liquidity or a cash call when the debt is due perspective and does the leverage ratio take care of itself when the EBITDA rises? Or are you focused on debt pay down? Where do you want to be? And how long do you think it takes to get there?

Yes, we're focused on making $350 million to $400 million a year. And so when we do that, that's going to help us pay down a significant portion of that. We are -- I guess, I'd use the term stuck with it until January of '25, and then we can start to address it. And so that gives us time here to get the business back, to get the volumes restored and I'm confident that, that's going to happen as well. And I talked a lot about that today. I think the volume snapback that's going to occur in the industry is going to really help us and a lot of other suppliers, but it's not going to be a cure-all. You have to have an efficient, effective company, and you have to have technology that people want to buy, and you have to have prices that are sustainable. And I think that's what we are here today to tell you we've reestablished. And I think by January of '25, when we have an opportunity to pay down that and to probably do a better refinancing deal on the rest of it, we'll be in a great position to do that and end up with a competitive balance sheet going forward. In the meantime, I think most people probably were betting against us, but that's probably not a good bet at this stage.

Great. Are there any questions in the audience for Cooper-Standard? One in the corner, please. One second for the mic.

When you have new products come out like the one you were showing us before, the new seal, how do ASPs trend in contribution margin and scaling up that manufacturing? Can you walk us through that process?

Yes, it's a great question. And related to that particular dynamic seal that now opens up from a market opportunity for us, there is very little capital required. When you look at what we already -- how we already produce extrusion sealing products, be it TPV or be it EPDM or be it Fortrex, the additional capital to go do it is minimal and the cost to produce it is extremely competitive. So we're excited about being able to offer customer the solution with all of those different product qualities that will reduce weight, improve emissions, improve overall performance of the product and at a competitive price, given all of those benefits. So it's easy to go to market with that one.

Any final questions? I'll squeeze in the last one on nonautomotive Fortrex opportunity, which I think at one point was thought to be tremendous. I see it's now finally being used at scale in the footwear industry. That's a significant milestone, right, for the company. There are a number of other industries that have been talked about as being applicable. How does Fortrex and specifically the nonautomotive Fortrex opportunity, how does that factor into the overall corporate strategy going forward? And how are you thinking about those other addressable markets.

Sure. So real quick. I know we're pressed for time here. But related to footwear, we are excited that you can go buy that shoe. I can't sit here today in public and tell you who it is because they have restrictions on us talking about them, which I guess you can understand. But we're excited to have it in the market. It's an outstanding product. It fits their sustainability objective. I've got one in my mailbox in Detroit when I get home. I'll tell you how good it feels on the foot. We also are in negotiations with that particular company to expand into further footwear opportunities. And I would say, by the end of this year, we'll understand more about what that contract will look like. So we're excited about it. I mean getting the first one done and into the market and to have the company talk so glowingly about the performance of the shoe, and once that becomes known to more of you, you'll understand the magnitude and I think, the impact that can have. The other place is within our specialty product group, we call ISG. We have a little over $100 million of nonautomotive business, to answer Ryan's question. And we -- during the pandemic, that business, we didn't invest very much in it. It's not making a whole lot of money, but it has the ability to grow from $100 million to $200 million and it has the ability to operate at about 20% EBITDA level. And so that's our objective is to get this new tech, especially with Fortrex into the nonautomotive applications. And as we generate more cash and we have more time to do it and more focus on it, we think that business is going to become a lot more valuable and give us a lot more flexibility over the next couple of years, whether we keep it and run it or whether we do something else with it to address some of the other issues that we talked about earlier, time will tell. But I'm excited about the growth opportunity that those products bring our company as well and our ability to frankly, control price in that business is very good.

Very interesting. Thank you. Please join me in thanking Jeffrey, Jonathan and Roger for the insight they share.