Cooper-Standard Holdings Inc. (CPS) Q1 2022 Earnings Call Transcript

Cooper-Standard Holdings Inc. (CPS -0.68%)
Q1 2022 Earnings Call
May 06, 2022, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Cooper-Standard first quarter 2022 earnings conference call. [Operator instructions] As a reminder, this conference call is being recorded and a webcast will be available on the Cooper-Standard website for replay later today. I would now like to turn the call over to Roger Hendriksen, director of Investor Relations.

Roger Hendriksen -- Director, Investor Relations

Thanks, Kevin, and good morning, everyone. We appreciate you taking the time to join our call today. 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 Jon Banas, executive vice president and chief financial officer. Before we begin, I need to remind you that this presentation contains forward-looking statements.

While they are made based on current factual information and certain assumptions and plans that management currently believes to be reasonable, these statements do involve risks and uncertainties. For more information on forward-looking statements, we ask that you refer to Slide 3 of this presentation and the company's statements included in periodic filings with the Securities and Exchange Commission. This presentation also contains non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to their most directly comparable GAAP measures are included in the appendix to the presentation.

With those formalities out of the way, I'll turn the call over to Jeff Edwards.

Jeff Edwards -- Chairman and Chief Executive Officer

Thanks, Roger. Good morning, everyone. We appreciate the opportunity to review our fourth quarter results and provide an update on some of the key initiatives that will shape our broader business outlook. To begin, on Slide 5, we provide some highlights or key indicators of how our operations performed in the quarter.

We continued to execute at world-class levels in delivering quality products and services to our customers, and keeping our employees safe. At the end of the quarter, 99% of our customer scorecards, the product quality were green, and 96% were green for launch. Most importantly, the safety performance of our plants continues to be outstanding. In the first quarter, our total safety incident rate was just 0.39 for 200,000 hours worked.

Well below what is considered world-class and outperforming our target rate of 0.40. I would like to specifically recognize and thank our teams of the 42 Cooper-Standard plants that maintained a perfect safety record of zero reported incidents for the quarter. We are continually striving for zero incidents at of our facilities, and the dedicated, focused employees at these 42 locations are leading the way and continue to demonstrate that achieving our ultimate goal of zero incidents is certainly possible. Despite lower than expected production volumes, our manufacturing operations and purchasing teams were able to deliver $19 million in savings through lean initiatives and improving efficiencies in the quarter.

Our SGA and E expense was down $6 million year-over- year as we continue to right size our fixed cost. In past restructuring actions delivered $3 million in benefits in the quarter. Unfortunately, we continue to face significant ongoing challenges from volatile customer schedules, reduced production volumes, tight labor availability in certain markets, and hyper inflation during the quarter. In this low production volume environment, the improved operating efficiency only partially offset the widespread inflationary impacts we're seeing in materials, energy, transportation and labor.

This is why we're continuing to take aggressive actions to mitigate or recover the incremental costs imposed on our business. I'll provide more color on our progress in a few minutes. Despite all the headwinds and volume remaining well below our plan, we saw month-to-month improvement as the quarter progressed, and we were cash flow positive in the month of March. Moving to Slide 6.

As you know, we're proud of our culture we've established within the company and the strong relationships we've developed with our customers. We're equally proud of the progress we're making toward world-class status with respect to sustainability. We continue to garner recognition from our customers and others outside our organization for our quality, service and culture. In the recent quarter, we are pleased to again be named a GM Supplier Of the Year.

This marks the fifth consecutive year that we've received this prestigious customer award. Also in the quarter, we were again included in Atmosphere's List of 2022 Most Ethical Companies. This marks the third straight year we've received this recognition. We believe these types of recognition are indicators of how continued commitment to our core values is shaping our relationships with all stakeholders.

And we believe these relationships are fundamental to our long-term growth and success. You can find more detailed information on our sustainability efforts in our corporate responsibility report, which will be published online later this month. Turning to Slide 7. Macro conditions in the global economy and within our industry have presented unprecedented challenges to our company and the rest of the automotive supplier community for the past couple of years.

And despite our continued improvements in operating efficiency and record performance in virtually all operating KPIs, we've not been able to offset the impacts of lower production volumes and material cost headwinds. Beginning in the third quarter of 2021, out of necessity, we initiated an aggressive commercial program to recover the incremental costs imposed on our business by these headwinds. Because of the solid relationships we have built with our customers, we've been able to work with them to revise existing contracts and effectively improve pricing to allow us to offset a significant portion of our incremental costs. The commercial discussions have resulted in expanded indexed-based agreements, negotiated price increases, one time through UPS, delayed price concessions, and reduced quick savings payments.

Importantly, we've significantly expanded our index-based agreements to include customers representing more than 60% of our revenue base. We now have index-based agreements on critical oil-based commodities as well as metals. Previously, we only had index-based agreements for EPDM rubber with a limited number of customers. This strategic change is already having a positive impact on our results and should significantly reduce the magnitude of the impacts commodity price volatility imposes on our business in the future.

Our commercial team has done a great job to achieve these positive results to date in a very tough environment. And they're continuing to have difficult conversations with customers as inflation persists and costs remain to be fully recovered. As we continue to work together to get through these difficult times, I want to thank our customers for their engagement in this process and for their ongoing commitment to mutually beneficial business relationships. Now let me turn the call over to Jon to discuss the financial details of the quarter.

Jon Banas -- Executive Vice President, Chief Financial Officer

Hey, thanks, Jeff, and good morning, everyone. In the next few slides, I'll provide some detail on our financial results for the quarter and comment on our cash flows, liquidity, balance sheet, and capital allocation priorities. On Slide 9, we show a summary of our results for the first quarter of 2022 with comparisons to the same period last year. First quarter 2022 sales were $613 million, down 8.4% versus the first quarter of 2021.

Excluding the impacts of foreign exchange and the deconsolidation of a joint venture in China, sales were down 5.6%, compared to the same period a year ago. Gross profit for the first quarter was $21.5 million, or 3.5% of sales. This compares to gross profit of $68 million or 10.2% of sales in the first quarter of 2021. Adjusted EBITDA in the quarter was essentially breakeven, a positive $100,000 compared to adjusted EBITDA $38.5 million in the first quarter of 2021.

Profitability was again impacted by continuing commodity and material headwinds, and lower production volumes, partially offset by manufacturing and purchasing efficiencies, as well as some cost recoveries. It's worth noting that despite Q1 sales being lower than we expected, the adjusted EBITDA result was essentially in line with our original expectations for the quarter, credit to our focus on execution and our broader cost optimization efforts. On a U.S. GAAP basis, net loss for the quarter was $61 million, compared to a net loss of $33.9 million in the first quarter of 2021.

Excluding restructuring expense and other special items, as well as their associated income tax impact, adjusted net loss for the first quarter of 2022 was $51.4 million, or $3 per diluted share compared to adjusted net loss of $14.5 million, or $0.85 per diluted share in the first quarter of 2021. Capital expenditures in the first quarter totaled $32 million, compared to $38.6 million in the same period a year ago. We continue to have a disciplined focus on capital investments and remain committed to keeping capex below 4% of sales for the full year. Moving to Slide 10.

The charts on Slide 10 provide some additional insight and quantification of the key factors impacting our results. On the top line, unfavorable volume and mix net of customer price adjustments, reduced sales by $37 million versus the first quarter of 2021. Customer production schedule reductions related to the ongoing supply chain challenges in the industry were the major driver. The deconsolidation of a joint venture in China that we announced last quarter reduced consolidated sales by $9 million for the quarter.

Foreign exchange, mainly the euro reduced sales by $10 million versus the same period last year. For adjusted EBITDA, lean initiatives and manufacturing, and purchasing drove a combined $19 million in cost savings for the quarter. Run rate SGA&E expense was also lower by $6 million. Unfortunately, these positives were more than offset by higher material costs of $43 million unfavorable volume and mix net of price adjustments totaling $4 million, and inflationary pressures and other items of $17 million.

Commodity inflation continued to ramp-up in the first quarte, and we expect the rate of increase to slow somewhat over the remainder of the year. In addition, as the recovery agreements that Jeff mentioned are implemented, we expect to see increasing offsets to the material inflation headwinds. Moving to Slide 11. In terms of cash flows, cash used in operations during the three months ended March 31, 2022, was an outflow of approximately $12 million, driven primarily by the cash net loss incurred and increases in inventories.

With capex of approximately $32 million, we had a first quarter free cash outflow of approximately $45 million. Importantly, the free cash outflow was more than offset by the receipt of approximately $50 million in proceeds from the sale of a non-core facility in Europe. As a result, our cash balance increased slightly during the period, and we ended the first quarter with a still solid cash balance of $253 million. Availability on a revolving credit facility which still remains undrawn was $143 million, resulting in total liquidity of $396 million as of March 31, 2022.

Subsequent to the end of the first quarter, In April, we received $29 million in refunds from the IRS related to net operating loss carryback made available by the CARES Act, and we expect an additional $23 million by the end of Q2. The $29 million in hand has further strengthened our liquidity position from where it was as of March 31st. Let me emphasize that we believe we're in very good shape from a liquidity perspective. We believe that we have more than sufficient resources to continue our focus on growing our topline, expanding margins, and working with our customers to ensure that we're being fairly compensated for the cost and value of the products we supply.

In terms of our balance sheet, the company is focused on extending the maturity of some of the debt in our capital structure this year. We are monitoring the markets and are considering all refinancing options available to us. To assist in this process, we have ongoing discussions with our long-term banking partners to understand market dynamics, as well as to help identify the most suitable approach and timing for refinancing. While the nearest of our debt maturities is in November 2023 on our term loan B, depending on market conditions, we may also consider a refinancing to include both the term loan as well as our senior secured notes to further extend the average weighted maturity of our debt.

That concludes my prepared comments. So let me hand it back over to Jeff.

Jeff Edwards -- Chairman and Chief Executive Officer

Thanks, John. And to wrap up our discussion this morning, I'd like to provide you with some additional color on our ongoing efforts to further improve our cost structure and aggressively drive toward our longer term return on invested capital goals. Please turn to Slide 13. We've talked a lot this morning and on previous quarterly calls about the unprecedented disruptions and headwinds, we and our industry have been facing for over two years now.

Again, we're very pleased that our customers are now stepping up to help us offset some of those headwinds that are simply beyond our control. We also recognize that we can never lose focus on our own efficiencies, lean initiatives and operational excellence, and manage the things that we can control. So we will continue our efforts this year to further optimize our operating footprint and cost structure as we push to achieve double-digit margins in return on invested capital within the next few years. We still have nearly half of our business not generating profit.

This is clearly unsustainable, and as we've said many times and recently shown, we're committed to either fixing or exiting underperforming businesses. The initiatives we are showing on the slide or what we have on tap for this year so far. Some of these actions will have an upfront cost, but all will provide short-term cash payback with long-term benefits. Ultimately, we are confident that our leaner cost structure and strong relationships with our customers and suppliers will allow us to get back to the level of profitability and returns that our investors expect and certainly deserve.

And if we can't see a path for certain portions of our business to make positive contributions to our profitability, we will take more aggressive action. While there is still a lot of uncertainty in the global economy and in our industry, I'm very optimistic about our future and the opportunities that lie ahead. I expect we will begin to see improving margins in coming quarters as volumes improve and our cost recovery agreements begin to kick in. We anticipate providing a formal guidance update in conjunction with our second quarter results.

I want to thank the Cooper-Standard team for their continued commitment and dedication during these most challenging times. As we say often, our employees are our most valuable resource in the contributions of each are critical to our success and support of our purpose, which is to create sustainable solutions together. And as always, I also want to thank our customers for their continued trust, confidence, and support. This concludes our prepared comments.

Let's open up the call for Q&A.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Steve Ferazani with Sidoti.

Steve Ferazanir -- Sidoti and Company -- Analyst

Morning, Jeff, John, appreciate all the detail on the call. Congratulations on the expansion of those indexed-based agreements. I'm sure that was challenging and I know it was a major step for you. Is there any way at this point, if you can quantify the timing and impact of those agreements? I know we're early in agreements are fairly recent.

I'm just trying to think about it from a modeling perspective and just a lot of moving parts. But how you see that impacting and the timing of it?

Jeff Edwards -- Chairman and Chief Executive Officer

Hi, Steve. This is Jeff. Again, as I mentioned in the last call, what we're going to do is come back to you in July. As we do each year and talk about the rest of the year.

Hopefully, we'll be in a position to do that as things become less volatile. We're hopeful in the second half. I can tell you that, that as you know, we have -- we started this whole process, as I mentioned, toward that summer, end of the summer last year. And so, while there was some recovery dating into the fourth quarter of last year and there's some of these agreements that go back that fa, the majority are effective this year.

And so, everything went back to one one of this year in terms of what we are requiring our customers to support us doing. The indexing dates, when those kick in are different for certain customers. So that's the reason. I'm not going to start listing.

The numerous dates here on this call, but we do realize that -- that's information that is important. Hopefully, we'll have all the ink dry by the July call and we're able to provide you the answer to the question that you asked me this morning.

Steve Ferazanir -- Sidoti and Company -- Analyst

Fair enough. In terms of expectations for production ramp, there seems to certainly be some cautious optimism out there from some of your major customers. Now that we're into May, are you seeing any of that at this point in terms of the increase in production? Any kind of improvement in terms of the component shortages and how it's affecting your business?

Jeff Edwards -- Chairman and Chief Executive Officer

This is Jeff. I think that everyone wants what you just said to happen. Unfortunately, it's still not, not as clean as we would all like for obvious reasons. We have not only the chip shortages, we have the war in Europe, we have the COVID shutdowns in China.

So there's a lot of supply chain ramifications that are yet to be completely resolved. So I think it would be -- I tend to be the optimist in the room. But I think, to be fair, we're going to continue to see some of the volatility through this summer. While I acknowledge that several of our customers have come out with pretty bullish volume statements for the second half, there's always that footnote that says, assuming we have chips, right? So I guess, I would use the same statement in answering your question.

I know everybody hopes, I know everybody wants that, I know that the market certainly needs that and our cust -- the end consumer certainly wants the vehicles. But until we see a more consistent week-by-week, month-by-month, I think we're in for some turbulence still. I can tell you that we're planning from a business point of view for that. We're attacking all costs within our control, and inflation, we assume is going to be here for a long period of time.

And that's the way we're behaving. If it turns out to be better than that, then, then so be it.

Steve Ferazanir -- Sidoti and Company -- Analyst

Fair enough. I can get one more in. Jeff, just in your closing comments, you did mention the potential to exit unprofitable businesses. When you're thinking about that, is that something that's much more likely once the market turns? Or how are you thinking about those efforts now?

Jeff Edwards -- Chairman and Chief Executive Officer

I think, when you reach a point where you have businesses that aren't strategic to you anymore, you tend to sell those when you can. So -- I would say that, we'll stick to that rule of thumb. So while the volatility in the clouds hover over the industry that we serve, that doesn't mean that, that there aren't opportunities to do deals. It just means that they're probably more difficult to get done now than they will be when things smoothed out a little bit.

So, we'll look at both ways, and hopefully, we're able to come to agreements with our customers and do enough with our fixed cost to fix all those businesses. And we don't have to follow through and do what you and I are talking about. But all options are on the table as we sit here today. and we'll keep you updated as we go through the rest of this year.

Steve Ferazanir -- Sidoti and Company -- Analyst

Fantastic. Thanks, Jeff. Appreciate all the responses. Good luck.

Operator

Our next question comes from Mike Ward with Benchmark.

Mike Ward -- The Benchmark Company -- Analyst

Good morning, everyone. I'm just going on to that Page 10. Because quite honestly, Jeff, that's one of the more significant developments I've seen in the last couple of years. It looks like -- there are two parts to it.

And so the timing of when some of those index based contracts fold in. So if we just look at this quarter and you had a 45 -- $43 million negative hit from material inflation, I would expect that number to go down. All things being equal over the course of this year. So to say, if we look at 2Q, 3Q and 4Q, that impact from commodity inflation, is the right way to look at it?

Jon Banas -- Executive Vice President, Chief Financial Officer

Hey, Mike, it's actually Jon. I'll take the first part of that and Jeff can add any color. When we came into 2022, I mentioned on our last call that we expected commodities to run about a $70 million headwind for the full year. So, that number with -- that was before the current economic situation.

That was before a war broke out. That was before a lot of things continued to degrade. So you can think about that as material headwinds could be upwards of about $100 million now. And that's why it's so important that we're continuing the efforts on the recovery side and in balancing those efforts there.

--

Mike Ward -- The Benchmark Company -- Analyst

That second part --

Jeff Edwards -- Chairman and Chief Executive Officer

[Inaudible] Yeah. This is Jeff. Let me just finish up the answer to that question. So as I mentioned, and you did within your question, the index-based agreements, certainly will help smooth that out as we go forward and provides a contractual means to recover, inflation as we as we go forward.

So you're you're correct in that that part of your assumption. The other thing that I will say, and I know that everybody's feeling the same, the same pressure. The inflation, as John just mentioned, continues to go up. It isn't going away.

And so it isn't just the raw material side of -- what we're dealing with which certainly the index-based agreements help that a great deal. It's all the other costs. And as I mentioned in my prepared remarks, those are becoming extremely significant and we are in conversations with our customers, in negotiations with our customers, on recovering our fair share of all that. So that's why I mentioned that, that come July, I think when we typically do our -- we review the first half of the year and then we update guidance or talk about what we see the second half, we're hopeful that we're able to give you guys -- more color around those agreements.

And also, we hope that we'll have the negotiations on the non raw material inflation to define -- so that we can have --

Mike Ward -- The Benchmark Company -- Analyst

OK. Yeah. -- because there are two parts to it. Right? So you got the new agreements, which is a big plus, and then you have recovery.

And so if I look at just the last six months between material and then the other component at over $100 million. So at some point you would expect to the recovery part of that to also start to, and whether it's in piece price or whether, in future whatever, however it comes through, that's what we're looking at right now. So you have two components, you have the new contracts, then you have the recovery, correct?

Jeff Edwards -- Chairman and Chief Executive Officer

You're correct.

Mike Ward -- The Benchmark Company -- Analyst

OK. Second thing. I think on -- it looks like you're top customer in North America is finally getting it together and getting more efficient with key programs. If I look at the March and April production data, is that -- sometimes the data we get doesn't match up to what your experiences.

Does the data match up with your experience in North America with your key customer?

Jeff Edwards -- Chairman and Chief Executive Officer

Two answers to that. The volatility has improved. The volume per release is still short.

Mike Ward -- The Benchmark Company -- Analyst

It's still short, but not as bad as it was?

Jeff Edwards -- Chairman and Chief Executive Officer

That's correct.

Mike Ward -- The Benchmark Company -- Analyst

OK. And then any update on the commercialization of the shoes with Fortrex?

Jeff Edwards -- Chairman and Chief Executive Officer

Yeah. As we mentioned in the last call. Fortunately, they have been able to maintain the schedule for the first quarter of '23. So we expect the launch to occur and we'll have -- will be able to talk more and more in detail about what that is and who it's with.

So -- that's a positive in terms of expanding it beyond that particular order. There are a lot of conversations going on right now to take the Fortrex product beyond that particular product lines. So I would say, it's extremely positive and they've been able to make up time that was lost during the middle of the pandemic when everybody was on lockdown.

Mike Ward -- The Benchmark Company -- Analyst

I think last quarter, you mentioned something that you developed something in the manufacturing process with Fortrex, a process that was a meaningful improvement. Is there any update on that? Or is that -- is it holding or are you able to pass that along to two piece price? How is that affecting the business?

Jeff Edwards -- Chairman and Chief Executive Officer

It'll certainly make that the Fortrex product we think more affordable and we believe that, that will have a positive impact, especially with the shoe manufacturers. Because the product will be more competitive and it will still have all of the properties that we had. So to answer your question, we continue to make terrific progress. We expect that by the end of June, we will have cleared our manufacturing try-out hurdles and it will be for sale later this summer.

That's, that's what we expect.

Mike Ward -- The Benchmark Company -- Analyst

OK. And just if I can sneak in one more, John, you talked about the tax refunds in April and it looks like more coming in the second quarter. In addition, I think second quarter is seasonally a better quarter from a working capital standpoint. Can we assume a normal seasonal pattern? You mentioned the inventory build in Q1.

Can we look forward to a more seasonal type pattern with working capital as well? So you can have a pretty significant improvement in liquidity again in the third -- second quarter, is that right?

Jon Banas -- Executive Vice President, Chief Financial Officer

I wouldn't call anything seasonal in this day and age. Just kidding. -- Yeah. -- That's true.

Yeah. The China lockdowns that the industry is dealing with and the continued chip shortage and issues that are centered around Europe. So I don't want to -- give you one direction or another. We're just managing through and trying to control what we can.

Mike Ward -- The Benchmark Company -- Analyst

Thanks, Jon. --

Jeff Edwards -- Chairman and Chief Executive Officer

And to that point -- this is Jeff. I think that we should say. The China lockdown, the entire month of April from a production point of view, basically is is gone now. And so, it'll have a it'll have an impact as they ramp back up.

And the good news is, as we enter May, the facilities are starting to come back online, certainly not, yet anywhere close to the full production that we expect as the month of May goes on, we'll be closer. When we hit June to things getting back to normal there. Hopefully, it stays back to normal. The risk going forward of additional lockdowns, I suppose, for China, it's here to stay.

So we'll just have to keep you updated -- as we find out. But it's a -- it's still far from -- over in terms of getting back up to production levels in China than our normal. They had a great first quarter, but with everything that's happened now, that's all out the window.

Mike Ward -- The Benchmark Company -- Analyst

Thank you, guys. Thanks very much.

Operator

Our next question comes from Kirk Ludtke with Imperial Capital.

Kirk Ludtke -- Imperial Capital -- Analyst

Hello, guys. Thank you for taking the question and the presentation. Just a follow up on Slide 10. The $43 million is that net of recoveries?

Jon Banas -- Executive Vice President, Chief Financial Officer

No. Kirk, that's the gross commodity or material inflation that we faced. Because the recoveries are essentially price adjustments, we would include those in the sales walk for a dollar for dollar recovery. But in the volume and mix just for convenience, we put it there because it's commercially sensitive.

Number one. But we included there just because it is price related for the most part.

Kirk Ludtke -- Imperial Capital -- Analyst

Got it. That's helpful. And the $43 million, the $70 million that you originally forecast is now 100?

Jon Banas -- Executive Vice President, Chief Financial Officer

It could be as high as 100, is what we're facing right now. Yes.

Kirk Ludtke -- Imperial Capital -- Analyst

OK. Got it. And the customer negotiations, I'm curious, -- are there other types of customer support that you're pursuing other than pastors?

Jeff Edwards -- Chairman and Chief Executive Officer

Yeah. Kirk, This is Jeff. As I mentioned in the prepared remarks, not only the raw material recovery, but the non-raw material inflation via transportation, energy, labor, stop starts. All those things that are non-raw materials part of what's on there, what's on the table.

We clearly have continued to talk about tooling as well. Historically, most suppliers act as our customers bank in terms of tooling or new programs. And so there's been conversation there, and good progress there about them paying -- for that sooner than they would have historically. That's also helped our liquidity.

So you're correct in stating that it's more than just raw material.

Kirk Ludtke -- Imperial Capital -- Analyst

Great. Thank you. And then with respect to the production schedules. I know it's a fluid situation, but could you maybe just talk about, just directionally at least, how you see production rolling out first quarter to second quarter by region.

Up? down?

Jeff Edwards -- Chairman and Chief Executive Officer

Yes, Jeff. So as we've just presented the first quarter, so you've got that as we just discussed a minute ago, China for COVID lockdown purposes in Shanghai, specifically, has been an obvious change between first and second quarter. So there was virtually noproduction in April in those Shanghai factories for us, which is the majority of our business and certainly, our customers plants were down as well. So that's different.

I would say that, when we look at Europe, we're probably at 85% of what we thought we would be. And so, we attribute that the war in Ukraine. And then with North America, it's well-documented. The chip shortages and other supply chain shortages.

I don't see that being a whole lot different here in the second quarter than it was in the first quarter. As I mentioned, there is less volatility. That doesn't mean there isn't any. And the releases that we get on a monthly basis, they aren't quite achieving those like they would have historically.

So that's again, supply chain or labor related for them. So I don't see that much different in the second quarter in North America. than it was in the first. I think the encouraging news is that, that our largest customers here in North America have been pretty clear about the third, and the fourth quarter being better from a volume point of view than it has been.

So I'm hopeful that that's the case. But like I said, there seems to be a footnote related to chip availability with each of those statements. And so we have to recognize that those are the facts. China, as I mentioned, is as we head into May, starting to come back.

In Shanghai, plants are starting to get approval to open back up at a lower percentage, much less than 50% of volume. We expect that to improve as we go through the month of May. Hopefully by June, they're back to a normal state of operation. Again, that's all COVID lockdown related.

And they had a -- first quarter, that was on our business plan. Actually, from a volume point of view, I think they were a little bit ahead of what we said. So you would expect second quarter is going to be tough in Asia. But assuming that the lockdowns worked.

Third and fourth quarter, I would expect to look more like first quarter did. So hopefully that's some color and some answer to your question. Everything I just said is really public information out there being handed out by our by our customers. But I'll try to summarize it that way for you.

Kirk Ludtke -- Imperial Capital -- Analyst

Yeah. That's helpful. And your -- In China, your product mix is consistent with the overall market view [Inaudible]

Jeff Edwards -- Chairman and Chief Executive Officer

Our business in China is primarily [Inaudible] business. Our volumes are directly related to the two largest automakers and in China who happen to have a large manufacturing presence in Shanghai. So that's what was impacted the last six weeks here.

Kirk Ludtke -- Imperial Capital -- Analyst

Great. I appreciate it. Thank you.

Operator

Our next question comes from Kevin McVeigh with Credit Suisse.

Kevin McVeigh -- Credit Suisse -- Analyst

Hey, guys. How's it going? Thanks for taking the question. Just a real quick one for me. Clarifying a couple points you made that all -- I think combine some of the color around both the indexing and the inflationary headwinds.

So, if I go back to the fourth quarter presentation and I think it's Slide, yes, Slide 13, the guidance for it on EBITDA, the 70 million materials [Inaudible] on headwind. Sounds like, you think that's going somewhere close to $100 million. But on the flip side, sounds like because of the great progress on indexing the vol mix, price column, which was a positive 130 in this guidance bridge could be going higher. So is it right to think about the push and pull to profitability in that sense? And then secondly, just back to Steve's question around the timing of the indexing impact.

Just to clarify, it sounds like what you said was -- that indexing that you pushed through last year is already potentially benefiting the business. Does that mean the indexing that you pass through incrementally over the last couple of months will take longer to start to positively impact profitability? So those two, curious on any color you can provide on that front. Thanks.

Jon Banas -- Executive Vice President, Chief Financial Officer

Sure. Kevin, it's Jon here. You're right on the full year guidance bridge about how the effect of any recoveries would take hold. But keep in mind, both the $100 million new estimate of commodity inflation, as well as any recovery are volume dependent.

Right. So anything that flows through that volume mix number is all subject to to the volumes that are actually produced, because that's how we've link those are index-based agreements. Right. But you also have to keep in mind that there is a lag effect.

So, what we're seeing come through as far as recoveries here in Q1 or we saw in Q4, wasn't tied to that particular quarter's. It was tied to previous quarters. So there's a gradual catch up effect. And -- some of it may be retroactive to earlier periods if we can negotiate those lump sum recoveries.

But from an indexing standpoint, there's that that lag effect. That you're going to see going forward. So hopefully that helps frame it. The other --

Jeff Edwards -- Chairman and Chief Executive Officer

This is Jeff. And we also have said, and we're continuing to the point toward that high end of the range that we've traditionally recovered. Right. So we've said it's 40% to 60% historically.

And we said in the last call and we're saying again today that we expect the recovery to be for the high end of that. So that's the direction that we can give you today. The timing that Jon talked about, the volume that Jon talked about, impact when it hits. And so I would say, we're more confident because of the indexing that we've negotiated that we're able to sustain the level of recovery going forward as this volatility continues.

So that's the real positive here. That once we're able to clearly show you what those agreements are and when they kick in, I think it will help you all model that the future better than we've been able to do and well ever.

Kevin McVeigh -- Credit Suisse -- Analyst

Yeah. Thanks, Jeff and Jon. Totally appreciate that. And thanks for the candor there.

Last one for me. If I'm reading the tea leaves around your comments regarding the capital structure in particular, first in loan and bonds, it sounded like your commentary was slightly different than last quarter. In that last quarter, I believe you were more focused on the term loans specifically. And now, this quarter making a comment about, potentially trying to include the 13th in a solution there as well.

So is my sort of read of that change in language accurate? And if so, what's driving that change?

Jon Banas -- Executive Vice President, Chief Financial Officer

I think it's accurate. And this is John, Kevin. I think as we continually evaluate the capital structure and -- opportunities to improve it and look at the market conditions overall, we're considering all options and all opportunities for us. So it wasn't so much that we ruled that out last quarter in my comments.

So much as we're saying we're looking at all opportunities here right now.

Kevin McVeigh -- Credit Suisse -- Analyst

Understood. Thanks so much for the time.

Operator

Our next question comes from Brian DiRubbio with Baird.

Brian DiRubbio -- Robert W. Baird and Company -- Analyst

Good morning. A couple of questions. On the housekeeping front, Jon, do you know how much cash that you have today is in the U.S. versus overseas?

Jon Banas -- Executive Vice President, Chief Financial Officer

Brian, I don't have that handy. But let me just characterize it qualitatively that -- as the North American region is the most profitable, it plays the role oftentimes of the Cooper-Standard Bank for the rest of the regions. But we have a very efficient structure where we can move money wherever we need via intercompany cash pooling arrangements. For the most part, our China and Asia-Pacific operations are self-funding through various mechanisms there.

But clearly, when you're talking about certain of these big ticket items, the IRS refunds, clearly they're going to be U.S. based. The European sale leaseback, fairly European based. So, it's an evolving structure.

But for the most part, you're looking at U.S. based cash but inefficient mechanisms to move that around as necessary.

Brian DiRubbio -- Robert W. Baird and Company -- Analyst

OK. It would be a little helpful if you could disclose maybe in the queue that breakdown. Also the amount of intercompany notes that, I think that would help investors a lot there. Switching gears as a pertains to the potential refinancing, cash is flush right now.

Market is a little bit of a turmoil. Market rates are obviously much higher than they were just six weeks ago. So how comfortable do you feel possibly using some of the cash? You have the balance sheet today to pay down debt potentially in ahead of a refinancing, given that your interest costs are just going to balloon going forward? So I want to get your thoughts there.

Jon Banas -- Executive Vice President, Chief Financial Officer

Yeah. Brian. Sorry, I had a mic issue. Like I inferred earlier, all options are on the table.

But, as we as we manage through, at least those -- they're very near-term. Liquidity is key for us as we manage through the disruptions in the shut downs, etc.. But as we look forward, look, it's interesting to look at the unsecured trading below $0.50 or costs going up. So if we can consider using some of the cash to help optimize the capital structure going forward, we will.

And if that makes sense of the time. So I'll just leave it at that. That's saying, "Hey, we're looking at all options.

Brian DiRubbio -- Robert W. Baird and Company -- Analyst

OK. That's fair enough. I just want to go back to the comments that you made earlier about holistically looking at the business. And looking at Cooper-Standard, you have a really, really good business in the U.S.

outside the U.S., it's not so much. What's the strategic importance of holding or keeping that business outside the U.S.? And does it really make sense for Cooper to be a global company, given that the returns have been so poor outside the U.S. for so long? Just love your thoughts there.

Jeff Edwards -- Chairman and Chief Executive Officer

Well, that's the conversation we're having with our customers. And so, as we sit here today, the answer they give us is, yes. We want you to be in China, and yes, we want you to be in Europe. And yes, we want you to be in Brazil.

And yes, we want you to be in the other North American spots. And so I guess we'll find out.

Brian DiRubbio -- Robert W. Baird and Company -- Analyst

Well. Having them want you there and having them pay you for being in there. Obviously, two different -- two different factors. So I guess we'll see if that develops.

Jeff Edwards -- Chairman and Chief Executive Officer

That's correct.

Brian DiRubbio -- Robert W. Baird and Company -- Analyst

Appreciate the call. Thank you.

Operator

Our next question comes from Josh Taykowski with Credit Suisse.

Josh Taykowski -- Credit Suisse -- Analyst

Hey, guys. Thanks for taking the questions. Most of mine have been answered already. That sounds like some good progress on the recovery negotiations.

Just one housekeeping, to start for me. The sale that you did in Europe this quarter. I know the release said that the ongoing annual rent for the piece that you're leasing back in is immaterial to the business. But I was just wondering if you could provide any color on what that annual amount is? Or maybe if you want to give it another way, what percentage of the footprint are you leasing back?

Jon Banas -- Executive Vice President, Chief Financial Officer

I'll just give you the number. It's less than a million bucks a year for the three year term that we signed up for.

Josh Taykowski -- Credit Suisse -- Analyst

So much more of a sale than a sale leaseback?

Jon Banas -- Executive Vice President, Chief Financial Officer

Correct.

Josh Taykowski -- Credit Suisse -- Analyst

OK. And then just to beat a dead horse a bit. Just wanted to ask one question on the conversation about indexing versus recoveries. You had one bullet in the 8-K yesterday about increasing the percentage of recovery of '21 incurred and '22 expected incremental.

Does this mean the '21 headwinds you faced, I think it was $64 million in material economic headwinds for the full year '21. were you expect to get the majority of that back? In the coming quarters? And if so, what percentage have you gotten back on that already?

Jeff Edwards -- Chairman and Chief Executive Officer

Yeah. This is Jeff. We haven't broken it down for you that way. What I'll just say is that the percentage of recovery in that 40% to 60% range that's at the far end of that range is what we are saying publicly for this conversation is what we're delivering.

Where I think it's important to note is that, the significant increases that Jon talked about this year is all on the table and being negotiated for recovery this year. And so as those numbers continue to get higher and higher from an inflation point of view, we are in a much better position to recover those or our fair share of those in '22 than we have been any year in our history including '21. So '21 is probably less than ideal, if I could say it that way, in terms of what the customers were willing to allow the supply base to recover, especially if you didn't have indexing in place. I think they've taken it much more serious in '22 and recognize that it's not sustainable and that the supply base would be severely impacted if there wasn't aserious negotiation that resulted in a large portion of those costs being recovered.

So we're no different than anybody else there, I think, in terms of how we feel about '21, right? We didn't like '21. We've said it publicly that 21's history. '22 though, we have no choice. You got to pay us and not just for raw material but for all the other non raws.

And as I said, I really appreciate everything our customers have done to engage in this very, very important conversation, and that they've done that to help us bridge what we're managing our way through. And as I mentioned in the last question, every one of our customers and every region continues to tell us that they want us there and they're willing to work with us to resolve these issues. So that's what I believe is happening. Hopefully we have more clarity around it, and in the July call.

And that's -- we'll just stick with that answer for right now.

Josh Taykowski -- Credit Suisse -- Analyst

Got it. Appreciate the call. Thanks, guys.

Operator

Our last question comes from Pradip Gupta with Goldman Sachs.

Pradip Gupta -- Goldman Sachs -- Analyst

Hi. Good morning. I just have one quick question. So in terms of [Inaudible] that you have done, one in [Inaudible] two.

Can you talk a little bit about if you're planning and the other aspects of going forward and [Inaudible] that you be?

Jeff Edwards -- Chairman and Chief Executive Officer

Pradip, we're having a very difficult time to hear you. Can you -- can you try again? Maybe a little closer to the microphone.

Pradip Gupta -- Goldman Sachs -- Analyst

Hi. I'm sorry. Can you hear me better now?

Jeff Edwards -- Chairman and Chief Executive Officer

Yes, that's better now. Thank you.

Pradip Gupta -- Goldman Sachs -- Analyst

Yeah, no, I was just asking about the -- so you have completed one asset [Inaudible] in one [Inaudible]. I wanted to check if you are planning or considering for the rest of the sales and what the scope of those could be?

Jon Banas -- Executive Vice President, Chief Financial Officer

Hey, Pradip. It's Jon. When we entered in that sale leaseback transaction, it was more of a non-core property assessment rather than a liquidity play. Right.

So we didn't empha -- we didn't go into an immediate need for generating proceeds. So we were simply being opportunistic to capitalize on the market conditions there. As far as any possible additional asset sales. We -- the ongoing the review the total footprint in conjunction with our cost optimization initiatives.

And as Jeff said in the call earlier, we're committed to either fixing or exiting unprofitable businesses or operations. So, no current plans that would -- call your attention to. But future asset sales could play a role in that fix it strategy if you want.

OK. Thank you.

Operator

Ladies and gentlemen, this concludes the Q&A portion of today's conference. I'd like to hand the call back to Roger Hendriksen.

Roger Hendriksen -- Director, Investor Relations

OK. Thanks, everybody, for the questions and for your engagement on the call today. If you have other questions that you weren't able to ask, please feel free to give me a call and we'll arrange to spend some time together. Again, thank you for your time today.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Roger Hendriksen -- Director, Investor Relations

Jeff Edwards -- Chairman and Chief Executive Officer

Jon Banas -- Executive Vice President, Chief Financial Officer

Steve Ferazanir -- Sidoti and Company -- Analyst

Mike Ward -- The Benchmark Company -- Analyst

Kirk Ludtke -- Imperial Capital -- Analyst

Kevin McVeigh -- Credit Suisse -- Analyst

Brian DiRubbio -- Robert W. Baird and Company -- Analyst

Josh Taykowski -- Credit Suisse -- Analyst

Pradip Gupta -- Goldman Sachs -- Analyst

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