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

Well, everyone, I'd like to welcome the Chairman and CEO of Cooper-Standard, Mr. Jeff Edwards. Thank you so much, Jeff, for taking the time to be with us today.

Thanks, Tom. I'm looking forward to our conversation.

Yes. So a little quick background to the listeners here. Obviously, we are large shareholders of Cooper-Standard so full disclosure there. We got involved with the company in May of 2022. We thought we were geniuses buying the stock in the 5s. And then it immediately went into the 3s, and we bought more because we had done our work and the stock was down because they needed to refinance the debt, they did. That largely gives them runway well to 2027 and beyond, and we're going to talk a little bit about that. We think well beyond and the idea for getting involved in Cooper-Standard was actually a person that I look up to tremendously who recently passed is Charlie Munger. And Charlie Munger did a very similar investment in the 2001 recession, a cyclical trough in the industry. And this is a pretty regular occurrence, as Jeff will tell you, in the auto business, it is very cyclical. And Charlie read an article in Barron's and he invested $10 million in Tenneco when it was down some 95%, they refinanced the debt, he turned the $10 million into $80 million in a reasonable amount of time and then he gave that $80 million to Li Lu, who invested in China, which was out of favor and turned it into a $0.5 billion. So 2 chess moves $0.5 billion, that's the good news. I think we're going to do a lot better with Cooper-Standard than Charlie did in Tenneco, and that's why we have our very special guest, again, Chairman and CEO of Cooper-Standard, Mr. Jeff Edwards, thank you again.

So I think I'll get right down to it here. And I want to ask you some questions. I'm usually on the other side of the question, so bear with me as an interviewer. But first question is, in your most recent conference call, you provided guidance that suggests Cooper-Standard will continue to expand margins in 2025 despite an expected decline in North American light vehicle production and essentially flat revenue. You also mentioned launching new business at higher variable contribution margins than in the past. A few questions here, Jeff. First, is that how you drive the margin expansion? What's driving the higher margin expansion at the VCM? And how much higher can this get?

That's a good question, Tom. And I'll start by talking about the things that we can control, right? I mean, ultimately, I think the industry, we talk a lot about price. But to be fair, with inside Cooper-Standard about 4, 5 years ago as we were facing what felt like an insurmountable headwind, be it pandemics or be it industry downturn, whatever you want to call it. We really turned our attention internal and started focusing on our fixed costs and really driving fixed cost to an all-time low level as we sit here today and our teams everywhere and every region went to work on this because basically, what we said is we're either going to make money in every region with each of our 2 products or we're going to do something else. So it really put a laser-like focus on those fixed costs, which we've taken out consistently over the last 5 years. So that's certainly driven a lot of this margin expansion. The other thing that we did related to variable contribution margin as we reestablished we felt were are fair or the hurdle rates when we went into the customer and started bidding on programs really in each region with each customer, we established these hurdle rates. And we found very quickly that with our technology and with our ability to execute as well as we do, that those price points were holding. And so in combination, we've taken the cost down, controlling what we can control and at the same time, establishing a very clear process internally so that every salesperson and every leader, every plant manager in the world understood what those hurdle rates were. So they were doing their part to take the cost down and those people that go to the customer to win new business had to make sure that we did it at a price point that was fair, fair for the customer and fair for us. And those were the 2 reasons that you see the margin expansion that you see. So we're really proud of that. I think probably most importantly, it's a sustainable business model. So we'll continue to do our fair share of taking cost out as we improve efficiencies in our plants. There's still a few things that we would like to do around the world, but most of it is where we want it. The last piece related to what we can control is our material cost as a percent of sale. And this year, we're really working with our supply base working with our engineering teams to provide us different options as it relates to the decisions that we're taking related to material costs for both our fluid and our sealing business. So we're not done yet, but at least certainly the trend is in the right direction.

Fantastic, fantastic. So let's assume you can drive a variable contribution margin improvement of around 500 basis points over the next 2 to 3 years as those new contacts -- contracts kick in and roll over. Assuming an apocalyptic scenario, which is what I'd like to do as an investor, if you can underwrite the downside, the upside will take care of itself, that U.S. production volumes don't even grow. So first cycle -- and by the way, this would be the first cycle peak since the 1970s that didn't peak over 18 million-plus units since 1970. And by the way, back then the population was 40% less than it is today, and we'll talk a little bit about that. But this still implies -- this is, again, apocalyptic scenarios. We stay in the 15s, we're looking at an additional $135 million of EBITDA or total $330 million of EBITDA. So if my math is correct, assuming this apocalyptic volumes in the mid-15s, this business can earn $5 to $6 a share 2 to 3 years out on margin expansion alone, this is a testament to how you've managed the business through this extended cycle trough, which basically was a 1 in a 100-year event, I mean the pandemic and the industry cycle all at the same time. So number one, is this a reasonable way to think about the business? This is kind of my operating model? And if so, say a little more how you did that because it's just mind-boggling to me that your execution has been so quick and so precise to put us in a position that this is a reality.

Well thank you, it's very kind. I can't confirm the numbers that you just rattled off there, but I can tell you that directionally, you're correct. And then how we accomplish that, I guess, is probably the most important thing. So really, I mentioned it in the first question, but in addition to focusing on taking the cost down and being more consistent about the pricing side as well. We reorganized here last year so we're about a year and a quarter into this new organization structure where we have 3 businesses now. We have our sealing business. We have our fluid business, and then we have our industrial and specialty products group, which is a much smaller non-automotives business that we have some good growth plans for. But sticking primarily with sealing and fluid for today's discussion Tom. I allowed us to put 2 presidents in charge one each of those businesses, one for each of those businesses. We gave them their own dedicated teams from manufacturing to engineering to purchasing, everything they need within their team to drive the day-to-day performance of those businesses. So it didn't matter what 20 countries we're doing business, it didn't matter that 21,000 employees come to work every day, half of them in each business. But what are we going to do? How are we going to get those teams focused, give them the resources, give them the investment dollars that they need to grow the business profitably, but at the same time, hold them accountable for driving VCM margin expansion and ultimately returning this business to double-digit EBITDA and double-digit return on invested capital. And that's exactly what we saw happen in 2024 and why our guidance for '25 suggests we're going to return to those double-digit EBITDA numbers for both of those businesses at the end of '25. As we start '26, we clearly will be a double-digit EBITDA and a double-digit return on invested capital company. Okay, that's great. Are you going to slide back down the mountain, no. And why is because the way we have structured these 2 businesses, the leaders that we have in charge and we're not asking people to do 3 and 4 jobs, right? They can stay focused within the lanes. Our plants pretty much are divided up by sealing and fluid. So there isn't a lot of cross-pollinization that ever really occurred in that business. So I'm very, very proud of our plant managers. You probably heard me say that many times. We have great people in those plants and are doing a fantastic job. And just keep in mind, within Cooper-Standard, about 85% of the 21,000 employees that work here every day go to work for our plant managers. So now you know why I wanted the focus to be within those 2 products, driving the day-to-day execution and all that's happening. And I didn't even get a chance to talk about innovation, but I'm sure you'll ask me a couple of questions as we go forward here, and I'll get into that as well.

Yes. And it's funny, as I follow the conference calls along the way and have the chance to meet with you at some of the Investor Days. I think that people are surprised by 2 things. Number one, you delivered or delivering on the double-digit margins in such a short period of time, I think people probably said, "Oh, I don't know, a couple of years ago, 1.5 years ago when you were talking about that." The fact that you can get that done so quickly has been positive. And I think the bigger surprise is I think more people would have guessed that, number one, you couldn't do the double digits and number two, volumes would have been over 16 million. So on lower volumes to be able to get that there this year is a testament to those employees and those plant managers and yourself as reference. As it relates to volumes, though, I mean, I just continue to look at this, and I know you guys like to be conservative. And I hear you sometimes on that call, I tell you're super optimistic and you -- I know you have a little experience in golf, but I like golf. There's something we call sandbagging when guys come in and they say that their handicaps are higher than they are, and then they win all the money at the end of the day. Well, I think that we may have something to be said for that, and that's a good thing, not a bad thing. As it relates to just the injury trends, though, you're going off the industry estimates, I think S&P, 15.1 million production but if you just step back, when these cycles peaked, whether it was in 2005, 2017, 1987, all between '18 and '20 for short periods of the spikes. In the 80s our population, the census was 226 million people. Now we're at 331 million people. So we're just looking for that '16 to '18 or '17 to '18, but on the basis of population and the age of our population with so many people being 34, 35 when they find buy new cars, I think we could wind up getting supplies dramatically to the upside, but that's just the whip cream we're dealing with base case scenarios. So now that we've gone through an apocalyptic scenario Jeff, let's go through what it looks like for cycle for the past 40 years, when we peak between 17 million to 18 million in production, let's call it, 17.5 million round numbers. By my calculation, CPS had approximately $99 in revenue for every vehicle produced in North America in 2024 on a simple average basis. So round numbers are, let's call it, $190 a car-ish for servicing half of the total cars. But let's just do it simply 99 a car. At a more historically normalized 17.5 million peak production or 2 million more vehicles than last year, you would expect to gain nearly $200 million of additional revenue, considering this is an operating leverage play and your breakeven is, call it, 15 to 15.5 production, free cash flow positive with most fixed costs in place, we expect most of the incremental production to go to the bottom line at a higher VCM of approximately 35%. This would be approximately $70 million in incremental profit or nearly $4 to $5 -- $4 of additional EPS over our $5 to $6 EPS base case. I mean, round numbers at peak cycle production, if it's 17.5, $9, $10 a share in EPS base case from our side, I know the position you're in. This is -- is this a reasonable not guaranteed in any way or any guidance way to think about it? In other words, if you were to say, Tom, look, I can't guarantee that, but your argument is flawed here, here and here. Do you -- can you legitimately say my argument is flawed in that way of thinking about it, if volumes normalize the way they have going back every single cycle for the last 40 years and also not even accounting for the fact that the population was 32% lower in the 1980s.

Yes. First, I agree with your premise. So let's say it that way. In terms of the demand, we believe that there is upside for many of the reasons that you've talked about. I usually don't permit that discussion in this room because obviously, we don't control it. We tend to focus our attention on what we can control and not get too excited about what the volumes could be based on the type of data that you just recited. But clearly Tom, we believe that there's pent-up demand we also believe in many of the reasons that you just described that this is just around the corner. But most folks that get paid to forecast automotive volume, don't usually do that in advance, at least that's my experience over 40 years, I guess, is that we tend to see them forecasting increases after the increases have started. It doesn't work that way when it's going the other side, so I'm not sure why. But anyway, that's kind of how it goes. Your estimate for VCM is also in the right range. So we certainly are planning for an increase in volume. We just don't know when that's going to come. But you mentioned guidance. So when I talked about the guidance here in the last earnings call for '25, I mean, we were certainly conservative in terms of this conversation, right? We use the numbers. Typically, all suppliers use, S&P to help gauge what the next 12 months going to be and even what the next 2 or 3 years is going to be. And while there are some increases out there forecasted, there's certainly not the level that you and I are hoping for or discussing with this particular question. But I'm sure that increases are going to be coming, I just don't know when. But I also will say that the numbers that we talked about on that last earnings call in terms of what you're going to expect to see from our increasing EBITDA each year even on these suppressed volumes and our return on invested capital with the suppressed volumes, it's very exciting because we're able to make money, and we'll be generating more and more cash each year without the increase in volumes. So when they do come, we're pretty excited about what that means for our company and how much stronger it will be for the next couple of decades as a result. So it's very exciting to think about I just don't really allow it to distract this because there's not much I can do about it.

Yes. In my business, you say you take care of the down, you protect the downside, the upside will take care of itself, and that's what you've done through the execution and rightsizing the ship to be ready for good things coming forward. So we appreciate that. The 3 key reasons I invested with you in May of 2022, and I remember we had a talk in August when we had a chance to meet that time. And I've continued to add a significant amount of shares across accounts and personally is number one, I want to acknowledge your respect for equity. There are actually less shares outstanding today than in 2017, about 17.56 million versus 17.69 million on December 31, 2017. Second reason was part of your compensation is tied to return on invested capital. That's a very important metric for me. And three, you own a lot of stock, you're a partner. We're investing right alongside with you, and you have skin in the game which is very important to us. Can you speak to your and the Board, you are the Chairman, but the Boards as well, philosophy on all 3 of these concepts and why this culture is critical to owners as the cycle returns?

Thanks. Yes, I think, first of all, the Board of the management team, we have a responsibility to behave in the best interest of all of our stakeholders, of course. But none more important than the shareholders. So I'm very proud, and you probably have seen the recent insider buying activity that's going on. I will just say our Lead Director and our Chief Financial Officer here in the past month added to their shares. I own 2% of the company sitting here as the Chairman and CEO of Cooper-Standard. So I can assure you that it's in our own self interest, but it's also our responsibility, and we take it very serious. And I agree with you that most investors talk to me about that. They want to understand the ownership and the requirements and how we're paying, and what the long-term incentive plans are versus the annual incentive plans. And I think we've always applied ourselves all the way back to 2012 to today that those metrics in the way we're measured in the compensation for the management team aligns with shareholder expectations and values. Obviously, the last 5 or 6 years have been extremely challenging for a lot of reasons. But at the end of the day, I'm proud of the company, I'm proud to be a significant owner in the company, and I will continue to make sure that we uphold that standard.

Yes. Well, thank you for that. And for those of you just round numbers to put it in English, 2% of the company is, give or take, 350,000 shares. That is a serious partner right there. We have more than that, and we're excited to be a partner right alongside you. but pleased that that's material. So next is we typically pointed to new vehicle incentives as a leading indicator for SAR after incentives as a percentage of the average transaction price bottomed out in September 2022 at 2.1%, we've seen a strong recovery back to 7.2%, although that's still below the 9.8% average of the past 2 decades. In English for those of you who are listening, if it's, call it, 10% of the $50,000 car, they would be giving 5,000 incentives to get you down to the dealership to buy one. With new vehicle prices seeing a significant jump over the past few years and an all-time record gap now between new and used average total prices, could you comment on the role of incentives as a potential catalyst for new vehicle sales and improving profitability. And could you also share your thoughts on relationship between incentives and overall production volumes?

Sure. I'd be happy to. And it's something that we track. So it's easy for me to tell you what we think there. First of all, the constraints on production that really resulted from the pandemic, in the supply chain disruptions that followed. I mean, I sure hope it's a once in a lifetime event. I can assure you, it's the first time I've seen anything like this in the 40 years that I've been part of this industry. So I think that as we move through it, that's exactly what it will be. It will be history, and I don't think it's going to repeat itself anytime soon. But I do believe that as inventories get reestablished and as supply chains smooth out and become normalized again, that there's just so many great vehicles and you think about the 3 powertrains today, whether it's the ICE engine, whether it's the battery electric vehicle or whether you like something in between with Plug-in hybrids, there's great, great vehicles out there. And I think the competition has never been better. And so for consumers, I think that pent-up demand that you and I discussed earlier, it's a reality. And what I've also seen over the course of a few decades in the business is when that competition heats up, incentives do start to build. In fact, we track that as part of a leading indicator within our company so that we maintain -- you get the releases from the customers, which is what we go to the bank with, so to speak, but incentives, as you see them increasing across the board, you typically see volume increase as well because dealers are moving the product. The product is outstanding, it's world-class. It is about anything you want, you can go get. I do believe that we've seen incentives increase last year, we'll see the increase this year. And as a result, you'll see vehicles moving off of dealers, lots at a faster pace. And as a result, you'll see production volumes increase to support that. That's what I believe.

Thank you. And God forbid, we actually get Donald -- President Trump was talking about tax deductibility of interest on auto loans, that would be an additional kicker, which is pretty wild. This past quarter, you announced that the Fluid Handling segment sales are expected to increase by more than 50% over the next 5 years with the segment's weighted average CPV cost per vehicle is expected to go up by more than 30%. And I know the Sealing Systems business is pretty similar in terms of CPV across different powertrains. But could you share your thoughts on the outlook for the Sealing business? And what kind of opportunity do you see over the same time frame? Is that 30% CPV increase on the Fluid Handling baked into the margin expansion we discussed?

Yes. So for sealing, it's an interesting dynamic there, no pun intended, because part of the sealing business is called dynamic seals and the other part is called static seals. I won't bore you with which is which. But in many cases, the automakers don't source all of the static and all of the dynamic to the same sealing company. So in certain vehicles, there's more than 1 sealing company providing those products. So to answer your question, yes, there's an opportunity for us to considerably increase whether it's dynamic seal or whether it's static seal, depending on which one we happen to have on a vehicle and what would cause that? Well, our innovation would cause that because we have now just announced recently that we had innovation for our new static sealing system, sorry, our dynamic sealing system that would provide customers with the opportunity to source us product that would reduce their weight by 40%. And it's also more recyclable than anything that they have in the marketplace. So a 40% weight reduction for a particular sealing system, I think, will help differentiate that business. So let's see. We've already been sourced on one major EV program. It's just out this year. I mentioned in the last earnings call, so I'm very excited about that. So how do we get more sealing business, innovate, provider customer solutions that they can only get from us helps drive their cost down, helps them meet their metrics as well as it relates to light weighting. I believe our sealing team will benefit from that all over the world. I know the Chinese OEMs are looking at it right now in a big way. Related to our Fluid business, I mentioned that there's 2 things going on there. If I just use ICE vehicles as a baseline for our Fluid business, if we have an all-electric vehicle because of the complexity and the content that content per vehicle actually goes up about 20%. If you look at an ICE vehicle versus a hybrid electric vehicle, the content of our Fluid business goes up 80%. So yes, we are rooting for more hybrids to hit the market. Fortunately, that is going to be the case, especially here in the North American market. And I know many people talk about the electric vehicle in China and how the perception is that it's just all electric. But I will tell you that about half of the vehicles that are being produced over there today that it's a very, very important fact for Cooper-Standard it's plug-in hybrid. So in addition to battery electric vehicles they also have plug-in hybrids. So our Fluid business in a market where 30 million units are being produced as we speak. The opportunity to grow our China business is huge. And they love our products, and we're doing quite well. We've returned to it 10% EBITDA already with our China business, despite the fact that the western OEMs are losing share, and that was a big part of our company in China. In fact, we were probably 90% of our revenue was Western OEs just 4 years ago. And obviously, their volumes have come way down. If I fast forward to 2026, we will have replaced all of that revenue that we've lost with Chinese domestics and we've increased it by over $100 million. So our Chinese business is doing extremely well. Fluid is a big part of that, but also our sealing business. So we're doing quite well in that region with our sealing business, too. So small facts related to plug-in hybrids in the Chinese market that not many people talk about, but it is a fact. And it's interesting because the North American market, as you well know, was predicted or at least forecasted to go much faster related to EVs and there was the numbers out there 30% by 2030, which would have still been good for Cooper-Standard. I think that's slowed down a little bit. I think it's still a fast-growing market. But hybrid very quickly with every customer here in the North American market, they are launching plans for hybrid vehicles. So again, our content goes up by 80%, if a hybrid rolls off the end of the line. So it's a pretty cool fact.

Yes. That's absolutely amazing, Jeff. I think when I originally underwrote the investment in 2022 I had China at $0, and I think I had hybrids and EVs, not even factored into our internal models here. So...

I guess the question I guess didn't answer the portion of the question that you said, is that factored in what I just said for '25, '26 and '27, and it is not.

Wow.

So that would be upside to that because customers hadn't announced all these hybrids yet. They're just talking about hybrids are coming, hybrids are coming, and we really didn't have enough detail by customer as to what that meant and when they were going to be launching. So these are the facts that we'll have that type of an increase in content per vehicle that it was too early to model it in any of these financial numbers. So as we book this business, then we will update our forecast accordingly. And I think last year, the -- about 40% of the business that we booked was on hybrid vehicles. So it's coming fast.

Wow. That is super exciting. Just for those of you who haven't been following for some time since 2022, Cooper-Standard in 2017 at the peak traded at $146 per share and earned about $7.19 a share. So it traded at about a 20x multiple. We've talked about our internal estimates with Jeff here of what we think the company can do on normalized volumes so whether the market assigns us a 20x multiple again on that bigger number we discussed earlier or a 10x multiple. The key is we think at Great Hill Capital and Tom Hayes opinion not advice, consult with your financial adviser, the upside is phenomenal. And we just keep getting more information and things look more and more positive. All the things that we had underwritten to 0 are now showing huge upside growth potential and we're pretty excited. Over the past 2 years, Jeff, it looks like CapEx as a percentage of sales has been much lower, maybe 2% to 3% range compared to historically 5% to 6%. Given all the new business wins, do you see CapEx staying in this lower range moving forward or renormalizing?

Yes, we've done a nice job of managing CapEx through this period of time. And while I think it's probably unrealistic. I think we finished at 1.8% in '24. It was -- that was a lot to do with the timing of the launches of new programs and things like that. I would say, consider 3% to 3.5%, I think that's probably where we'll end up being "in a normal range. And keep in mind, a lot of that has been driven by just terrific work from our manufacturing, manufacturing engineering and product engineering folks. I mean, probably 5, 6 years ago, they started on this track to make sure that we are able to use the capital much more than we have in the past. They came up with standardized design, so we didn't need as much capital variation as we did in the past. We worked with our customers to get the specifications that we needed to really help on the capital side of the business. So from all of our engineers to our customers' engineers, this has really been a success story in the days of us having to spend 5% or 6% on capital expenditures are gone, 3% to 3.5%, I think, is probably the more normal number going forward.

That's amazing, amazing execution, all I can say. A couple more here. After the announcement of the 1-month reprieve from the 25% tariffs for U.S. automakers. There's been talk that many automakers might start racing to build out inventories as quickly as possible. Is the industry expecting to see this trend play out? And what's your take on it?

Yes. I think it's interesting. And certainly, the volumes here in the first quarter, I think the strong volumes in the first quarter probably are reflecting some of that sentiment, I guess. I really don't know. I tend to not get out ahead of my blockers to have these conversations, the blockers here are the customers and the OEMs are dealing this directly. But as it relates to the supply base and the industry in general, I guess, if you've been part of it for 40 years, it's okay to talk about it in it's fullest context. I really believe that there's good intention, I think, being discussed in Washington related to the tariffs in the industry but I do think that given the way the supply chain and given the way the OEMs have established the infrastructure and the overall business model, I would be very, very destructive in the short, medium and probably everything, but the longest term you could think of to go this way. So I tend to think that if that's the case, and nobody is looking for it to be that destructive that it probably isn't going to be as long or drawn out is maybe it would need to be in order for it to be productive. So given that situation, I'm hopeful that the cooler heads will prevail and we'll manage through this in a way that doesn't disrupt the momentum really that the industry has built here. And we're talking about pent-up demand. We're talking about great vehicles ready for market. We're talking about consumers that, for the first time, hopefully, are going to be in a geopolitical environment that gives them hope. And secondly, in an overall economic environment that talks about lower interest rates and talks about the GDP and talks about inflation in positive terms. And this, again, will create the desire for consumers to go out and take advantage of the great vehicles that are available. And I would just really hesitate to think that there would be a policy coming out of our government that would destroy that value and destroy that particular situation for the auto industry. It's just -- it takes too long to make the moves that some folks think can be made by applying these tariffs. This is just my opinion, we're just a small supplier here in Northville, Michigan so I probably don't catch the whole the drift of the whole thing, but that's my personal opinion on it, Tom.

Yes. And the question is whether people are going to spend tens of billions of dollars to stand up factories in Mississippi for 3.5 years when the factory has only been built by the time the rules change again, but that's another story we could talk about. Looking at the current industry outlook, North American light vehicle production is expected to come in at 15.1 million with SAR projected between 16.0 to 16.3. And I got to say when that press release came out for Q1, I was like, wait a second. I had the SAR and production numbers overlaid for 20-something years, and it's basically the same line. I'm like how do they get this 1 million gap sandbagging me on this call. But anyway, there have been instances. They're not very common, Jeff, I just want to say. But if these forecasts holds, it would be one of the largest production deficits we've seen in quite some time with the only other times being coming out of the pandemic and before that, the 2008 financial crisis. Every time we got a deficit of over 1 million units, again, very rare, Jeff. Production has usually had a hockey stick style recovery in the following years. What are your thoughts on this kind of production catch up? And what sort of implications do you expect if current forecasts hold true?

Yes. Well, as I said a couple of times, I believe we'll see a ramp-up in production volume. I just wish I could predict when. But I think it's sooner than later, I agree with your statement. And we've certainly changed our strategy, right? I talked about how we changed the entire organization structure of the company. We've certainly gone all in as it relates to our capital strategy and to driving innovation and investing in innovation and providing customers with solutions that otherwise they wouldn't have had. So we believe that it's -- that it's here, we believe that we'll see it, we believe that our products will be in a greater demand and certainly any incremental production volume over the period of the next few years it's just going to make things that much better for us and for all suppliers because we all know that as volumes go up, suppliers do a whole lot better. And I think all of us have done a very good job of weathering the storm. We've all managed -- nobody is sitting over in the corner wining about what's happened in the last 6 years. We've focused on what we can control, we've managed our business. And I think the supply base is strong as a result of it. But we're not going to be able to absorb tariffs. We're not going to be able to absorb material economics. We're not going to be able to do those things. But clearly, we're going to be able to run our factories very efficiently, and we'll be able to provide great products and great services to our customers. And I think that's proven for us to be the winner, right? We launch great, we execute well. And our customers continue to give us more business. They all vote with purchase orders, Tom. That's just how it works. And over the last 2 or 3 years, I mean we're almost at record highs in terms of booking new business. So we're really proud of that.

Yes. No, it's phenomenal. Last couple of here, and then we'll do a couple of fun ones and wrap it. As you return to double-digit margins and return on invested capital and continue to generate strong cash flows, you mentioned not only the expectation of having various options to manage upcoming debt and improve the cost of capital, but also the goal of reaching 2x leverage by the end of 2027 without even contemplating a refi. Since there are no major refinancings needed until 2027 and a de minimis $43 million in November 2026. Do you need to address big capital structure this year? And assuming a bump in production from the front-loading production in March or first quarter and a modest continued moderation in rates, is there a view to possibly wait for a credit upgrade or some other event before taking that action?

That's a great question. And certainly, you're right, we don't have an urgent requirement to deal with it right now. I think if we -- if I would put a time frame on it and I had my magic wand sometime between this summer and next year's first quarter would be ideal. And why do I say that? Because that gives us an opportunity quarter-by-quarter to continue to put points on the scoreboard continue to show the improvement is sustainable within the business, continue to improve the EBITDA and continue to improve the return on invested capital, continue to generate better cash flow. And at the same time, I truly believe that the geopolitical environment in turning down the temperature of the world, is going to occur during this same period of time. And I also believe that we'll continue to see strong economic metrics that will allow the interest rates to continue to come down. And at the same time, you mentioned the 2x leverage. Well, that's a journey from where we are today to 2x, which is a couple of other pretty important points along that journey, right? If we got to 4x, that's better than where we are today, and that would result in a significant improvement probably in the rates that we would be able to talk to the institutions about. And certainly, they will have this visibility into that 2x or better journey that we've been very openly discussing. And then as we've discussed that, that is built on top of volume improvements, then it's just going to make it that much better. But I think we've done a really good job of getting ourselves in a position to be able to be patient over the course of the next year or so. And hopefully find ourselves in a better overall economic environment. And then the company will have probably, to your point, received an upgrade along that journey. And then that might be the better time to pull it. And I think that's probably how we're thinking about it. We certainly at the same time, we don't want to let the existing long-term debt become current debt either. So there's an incentive on both sides of this. And the relationships we have with the banks and the ability to do what we've said we were going to do for all these many quarters and many years, I think, will also help in the conversation.

Yes. And I think what's implicit what I was getting to in English for our viewers and investors is implicit in that 2x over time is effectively the operating leverage in the business. This thing as volumes normalize, can print more money that the U.S. treasury. You don't have to comment on that one. The last thing is on everyone's mind, if a good portion of your production is in Mexico due to the fact that that's where the OEM factories are and there's where they wanted you to be. Are you mostly shipping your products to the OEM plants in Mexico and not across the border, i.e. As it stands, you wouldn't really be impacted by tariffs, if that is the case? And how much impact do you expect from proposed tariffs if, in fact, they go through as advertised? And is -- if there is any material exposure, how do you expect to manage it?

Yes. Well, we certainly do ship a lot of our product back across the border from Mexico. A lot of it is used in Mexico as well. So let's just say it's probably a little bit over half though, that comes back at the request of our customers here in the U.S. so it's significant to us. I think that's probably the good news, that is significant to us and it's significant to the entire industry. So it isn't a sustainable situation. And we obviously anticipate and so we've been providing our customers all along with this information so it's not a surprise. Every single OEM that we're dealing with here in the United States is very aware of what the impact would be to each and every supplier and their vehicles as well. And they're having conversations with us about how do you deal with it. And so there isn't any way that a supplier can deal with a 25% tariff on half the product that's coming from Mexico to the U.S. So in our case, like most there would have to be a conversation in a way that the OEMs are going to absorb it in order for it to be sustainable for the industry. But it's so large and ultimately would all be passed on to the consumer at the end of the day. And that gets into that conversation you and I had about, wow, then you would be really destroying value. This isn't sustainable. It doesn't work even for a minute, let alone a month. So I'm hoping that between now and April 2, this gets figured out, and we don't have this distraction as an industry to deal with because it wouldn't be fun.

Yes. It makes perfect sense. Since I know Cooper-Standard, a couple of fun ones here. Since I know Cooper-Standard is doing a lot with AI these days. The final 2 bonus questions are AI-generated complements of Grok, which is Elon Musk AI. It's funny people when NVIDIA was trading at $152. Everyone said, "What are you doing for AI? I said, "Oh,I'm doing this company called Comstock Resources. They're a natural gas play and it was $8 and change. Now it's up close to $20." And then people are like, "No, really, what are you doing about AI? " I was like, "Well, I'm doing this thing called Alibaba." It was under -- well under $100, now it's 145 going to 200. "It may be that Cooper-Standard is going to be the AI player of 2025 with everything going on. But leaving that aside, here's the first question from Grok suggested that I ask you, again, all of this is opinion, not advice. This is not recommendations, talk to your financial adviser. This is not guidance. This is a conversation. So here's what Grok says. "Jeff, if you were an investor with $1 million to deploy, why would you put it all into Cooper-Standard stock right now?" Now we would never recommend anyone puts 100% of anything into one stock, but that's the question. So give us some guidelines here, Jeff.

Yes. As I mentioned in the conversation, Tom. I mean, because we've taken care of our own business, right, we've -- over the last 5 years, we've established a cost base that allows the company to flourish. We've already put enough points on the scoreboard to tell you that by the end of 2025, we're going to be at double-digit EBITDA, and we're going to be a double-digit return on invested capital. And then when we forecast and just look out a few years from that point, we've said that our net leverage is going to be 2x or less. All of those statements are on the volumes that exist today and a very slight increase in forecast over the course of the next 3 years. So if I would look at that, and I would be an investor, I would say, wow, there's a company that's delivering results, there's a company that has told us that they're going to return to the type of prosperity that they exist that existed back into 2017 period of time that you mentioned earlier was $140 stock price. I'm not predicting that, I'm just telling you that I know what that feels like and I know what it feels like today, and I know what the industry pent-up demand is for the next 3 or 4 years. So with that, it's pretty tough to find I think, a company and an industry that's better positioned than what we are.

Love it. And this one is also from Grok and it's interesting that they mentioned Warren Buffett because I look up to them a lot. A lot of our framework is similar. If you had to pitch Cooper-Standard to Warren Buffett, what's the #1 metric you'd want to prove this is a cash machine worth owning?

I think we talked about this. I own over 350,000 shares of Cooper-Standard stock, it's about 2% of the company. So that's, I think, putting my money where my mouth is. And it also for me is probably the most important metric. And I couldn't -- I could talk to you about all the other company metrics, but I'll just stick to that personal one.

I love it, I love it. And final question, Jeff, is there anything else we didn't cover that you'd like to share with our audience of investors today?

I think we've covered it all. I'm excited about the future, I'm excited about Cooper-Standard. I mean we have great employees. We've talked a lot about our product. We haven't talked much about our culture today. But it isn't just what we make, it's how we do it. And I'm so proud of the 21,000 employees that call this home, and we don't have a lot of turnover. We have great people, it's not to sign on the building that makes us Tom. It's the people within the buildings, and I'm really proud of that fact. So that's how I would end it. Thank you very much for the conversation.

Well, thank you so much for joining us. Very grateful for you taking the time. That's Chairman and CEO of Cooper-Standard, Jeff Edwards.