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DATE

  • Friday, Aug. 1, 2025, 1 p.m. ET

CALL PARTICIPANTS

  • Chairman & Chief Executive Officer — Jeff Edwards
  • Executive Vice President & Chief Financial Officer — Jon Banas
  • Director of Investor Relations — Roger Hendriksen

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RISKS

  • Operator-reported uncertainty around U.S. trade policy and tariff implementation could impact global automotive industry production volumes, with management noting, "There is still a lot of uncertainty around the US trade policy and the implementation of tariffs that may impact the auto industry globally."
  • Industry production forecasts for the second half remain below levels forecast at the start of the year, creating potential headwinds for revenue.

TAKEAWAYS

  • Revenue: $706 million in sales, a decrease of 0.3% compared to the second quarter of fiscal 2024, due primarily to unfavorable volume and mix, partially offset by $4 million in favorable foreign exchange.
  • Adjusted EBITDA: Adjusted EBITDA was $62.8 million, up more than 23%, with a 170-basis-point adjusted EBITDA margin expansion compared to the second quarter of fiscal 2024 despite lower sales and production volumes.
  • Net Income (GAAP): Net loss (GAAP) of $1.4 million, improved from a net loss of $76.2 million (GAAP) in the second quarter of fiscal 2024.
  • Adjusted Net Income: Positive adjusted net income of $1 million, or $0.06 per diluted share, compared to an adjusted net loss of $11.3 million, or $0.64 per diluted share in the second quarter of fiscal 2024.
  • Cost Savings: $25 million in manufacturing and purchasing savings, with restructuring and headcount optimization contributing an additional $4 million year-over-year.
  • Capital Expenditures: $7.8 million, or 1.1% of sales, driven lower year-over-year by timing of new launch projects.
  • Liquidity: Ended the quarter with $122 million in cash and $151 million undrawn on the ABL facility, totaling $273 million in available liquidity as of June 30, 2025.
  • Customer Scorecards: Achieved a record 100% green rating for quality and service across all 317 customer scorecards, and a 97% green rating for new program launches.
  • Safety Performance: Total incident rate of 0.26 per 200,000 hours worked, well below the world-class benchmark of 0.47, with 75% of plants reporting a zero incident rate for the first half of 2025.
  • New Business Awards: $77 million in net new business awards in 2025, adding to previously disclosed wins in sealing and fluid products.
  • Guidance Update: Raised full-year adjusted EBITDA guidance for 2025 following first-half results that "exceeded our plan," with volume and mix cited as the most variable drivers through year-end.
  • Free Cash Flow Outlook: Management affirmed confidence in achieving positive free cash flow for the full year.
  • Rating Agency Recognition: Moody’s upgraded outlook on the company from stable to positive in response to recent performance.
  • Margin Targets: The Fluid Handling business is expected to achieve EBITDA margins of 16% and return on invested capital approaching 30% over the next five years, while the Sealing business targets approximately 20% return on capital by 2030 and about 6% average annual revenue growth over the next five years.
  • Tariff Impact: Agreements reached to "pass through or recover the majority of all direct tariff impacts" via customer negotiations.
  • Record Operational Metrics: All-time high product quality and customer relationship scores, including being named "Ford Supplier of the Year."
  • Working Capital: Higher accounts receivable (now back up to $371 million as of June 2025) contributed to first-half working capital outflow; management expects full normalization by year-end.
  • Capital Structure: Company evaluating refinancing of first and third lien notes, seeking improved terms, and anticipates a net leverage ratio below four times at year-end if free cash flow and adjusted EBITDA targets are met.

SUMMARY

Cooper-Standard Holdings(CPS 1.80%) management emphasized that Lean initiatives and procurement efficiencies offset lower volumes, driving higher margins and improved profitability. Strategic plans presented to the board outline average annual revenue growth targets of about 6% for the Sealing business and approximately 8% for the Fluid business over the next five years, with strong evidence of booked net new business underpinning this forecast, including $77 million in net new business awards in 2025. Agreements with customers allow for the mitigation of most direct tariff costs, and liquidity remains robust even after higher interest payments and working capital outflows. The company raised full-year adjusted EBITDA guidance for 2025 and expects positive free cash flow for 2025, with credit rating outlook improvements confirming strengthening stakeholder confidence.

  • Chairman Edwards stated, "We expect successful execution of these plans, including further cost optimization actions, will drive revenue growth of about 6% on average per year over the next five years (2025–2030) for our Sealing business," and highlighted anticipated returns on capital of approximately 20% by 2030.
  • On the Fluid Handling side, Edwards stated, "our top-line growth is expected to average approximately 8% annually over the next five years with our Fluid business (GAAP/non-GAAP designation not specified)," and described an expected “EBITDA margin increase to around 16%.”
  • Net working capital outflows were primarily driven by an accounts receivable rebound to normalized levels, reversing unusually high year-end collections and resulting in a temporary $60 million impact from December 2024 to June 2025.
  • The company confirmed that its pipeline includes over $300 million in new business awards since 2023 for Sealing, and $500 million in net new business for Fluid Handling over the next five years, with more than 80% of incremental revenue already booked for the five-year strategic planning period.

INDUSTRY GLOSSARY

  • ABL facility: Asset-based lending facility, a revolving credit line secured by receivables or inventory, used here as a measure of available liquidity.
  • Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, excluding one-time or extraordinary items such as restructuring costs, as referenced in company guidance and results.
  • Net leverage ratio: The ratio of net debt to adjusted EBITDA; used by management and ratings agencies as a key credit metric.
  • Variable contribution margin: The profit margin derived from incremental sales after accounting for associated variable costs, monitored as a key performance indicator for new program launches.

Full Conference Call Transcript

Jeff Edwards: Thanks, Roger, and good morning, everyone. And as always, we appreciate the opportunity to review our second-quarter results and provide an update on our business and the outlook going forward. To begin on slide five, I'd like to highlight some second-quarter data points that we believe are reflective of our continuing outstanding operational performance and our ongoing commitment to our core company values. In terms of operations and customer service, I'm extremely proud to report that we ended the second quarter with a record 100% of our total 317 customer scorecards for quality and service being green.

This is such an amazing accomplishment, frankly, and it speaks volumes to the dedication and commitment of our manufacturing teams around the world. It's also an indication of how effective the new digital tools we've deployed in our plants can be at identifying potential challenges, and, more importantly, enable corrective actions before they become bigger issues. So a huge shout out to our manufacturing leadership team, our plant managers, and our plant employees for this remarkable result. Thank you all very much. For new program launches, we continue our outstanding service level with 97% customer scorecards being green, despite increased launch activity as we've discussed.

Frankly, these are amazing operational statistics that reflect our total company commitment to providing the best possible value for our customers, as well as our internal commitment to excellence in all that we do. Also, in our plant operations, safety performance continues to be excellent. During the second quarter, we had a total incident rate of 0.26 reportable incidents per 200,000 hours worked. That's well below the world-class benchmark of 0.47. Even more important, 44 of our plants have maintained a perfect safety record with a total incident rate of zero for the first half of the year.

Just to frame that, that's 75% of all of our production facilities achieving a perfect safety score and demonstrating that our ultimate goal of zero safety incidents is certainly achievable. We are proud of the entire global team for their focus and achievement in the most important operating measure for our company. In terms of cost optimization, we had another solid quarter with our manufacturing and purchasing teams delivering $25 million of savings through lean initiatives and other cost-saving programs. In addition, the restructuring and headcount optimization initiative that we implemented beginning in the second quarter of last year has been driving cost savings as we planned.

In the second quarter, that initiative actually yielded another $4 million in year-over-year savings. Finally, we're continuing to leverage world-class service, technical capabilities, and our award-winning innovations to win new business. During 2025, we were awarded $77 million in net new business awards. We're proud to be the supplier that our customers increasingly turn to for quality components, consistency of delivery, and collaboration on the design and development of new technologies in critical systems for some of their most important vehicle platforms. Turning to slide six, with our product quality and customer service levels at all-time highs, our relationships with our customers, frankly, have never been better.

As a result, we continue to amass an impressive number of important awards from our customers, the latest being the Ford Supplier of the Year. In addition, we are proud to be selected to collaborate with the Renault Group on their Enblame project. That's an eco-conscious family demo car. The groundbreaking project that aims to reduce CO2 emissions over its life cycle integrates two of Cooper-Standard Holdings Inc.'s low-carbon high-performance vehicle innovations: the FlexCore thermoplastic body seal and our flush seal sealing system. But more important than hardware in the trophy case is the way these quality relationships enable us to continue to negotiate and navigate today's business environment.

This has been clearly evident in our recent discussions on tariff impacts, which are now largely complete with the most important commercial negotiations now behind us for the year. Importantly, our focus in the second half can be 100% on sustaining our operational excellence, our plans, and executing to achieve our long-term goals and objectives. I look forward to speaking more about this in the next few minutes. But for now, I'll turn the call over to Jon to review the financial details of the quarter.

Jon Banas: Thanks, Jeff, and good morning, everyone. In the next few slides, I'll provide some details on our financial results for the quarter and discuss our cash flows, liquidity, and aspects of our capital structure. On Slide eight, we show a summary of our results for the second quarter of 2025, with comparisons to the same periods last year. Second quarter 2025 sales were $706 million, a decrease of 0.3% compared to 2024. The slight decrease was driven primarily by unfavorable volume and mix, including net customer price adjustments, partially offset by favorable foreign exchange.

Adjusted EBITDA in the quarter was $62.8 million, an increase of more than 23% when compared to the $50.9 million we reported in the second quarter of last year. Importantly, we're able to drive further margin expansion of 170 basis points versus the same period a year ago despite lower sales and production volumes. On a U.S. GAAP basis, we reported a small net loss of $1.4 million in the second quarter, compared to a net loss of $76.2 million in 2024.

Adjusting for restructuring and other items from both periods, as well as the related tax impacts, Adjusted net income for 2025 was positive $1 million or $0.06 per diluted share, compared to an adjusted net loss of $11.3 million or $0.64 per diluted share in 2024. Our capital expenditures in 2025 totaled $7.8 million or 1.1% of sales, which was lower than the second quarter of last year owing largely to the timing of new launch projects. We continue to exercise discipline around capital investments in order to maximize our returns on invested capital. For the first six months of 2025, our sales dipped on unfavorable foreign exchange and slightly lower volume, mix, and net price adjustments.

But despite lower revenue, our gross profit margin increased by 200 basis points, and our adjusted EBITDA margin improved by 300 basis points compared to the same six-month period a year ago. We were also very pleased to achieve positive GAAP net income in the first half of the year, which was an amazing improvement of more than $6 per share versus last year. Moving to slide nine, the charts on slide nine provide additional insights and quantification of the key factors impacting our results for the second quarter. For sales, unfavorable volume and mix net of customer price adjustments reduced sales by approximately $7 million compared to 2024.

This impact was partially offset by favorable foreign exchange of approximately $4 million. For adjusted EBITDA, lean initiatives in purchasing and manufacturing contributed $25 million in savings and cost reductions year over year. Savings from the implementation of restructuring initiatives added $4 million compared to 2024, and favorable foreign exchange was a tailwind of approximately $3 million in the quarter. Partially offsetting these improvements were $16 million of unfavorable volume and mix, including customer price adjustments, and $6 million in increased costs from higher wages and general inflation. Moving to slide 10, on slide 10, we present the same type of year-over-year bridge analysis for the first half of the year.

Sales declined by approximately $12 million or just less than 1% driven primarily by unfavorable foreign exchange. Adjusted EBITDA in the first half increased by more than $41 million or more than 51% compared to 2024. The improvement was driven primarily by $45 million of manufacturing and purchasing efficiencies, $12 million of restructuring savings, and $5 million of favorable foreign exchange. These positive drivers were partially offset by $16 million of unfavorable volume and mix and approximately $13 million of higher wages and general inflation.

We are pleased with our improving results in the first half of the year as our focus on controlling costs, delivering exceptional performance, and the launch of more profitable programs are having the positive impacts we had planned and expected, despite production volumes being lower than planned expectations. Moving to slide 11, looking at cash flow and liquidity, net cash used in operating activities was approximately $16 million in 2025, compared to $12 million in 2024. Capital spending, as mentioned earlier, was approximately $8 million in the second quarter, resulting in net free cash outflow of approximately $23 million for the quarter.

This is consistent with the second quarter of last year despite cash interest paid being more than $14 million higher this year. We ended the second quarter with a cash balance of approximately $122 million. Combined with $151 million of availability on our ABL facility, which remained undrawn, we had solid total liquidity of approximately $273 million as of 06/30/2025, which we believe is sufficient to support the continuing execution of our business plans and profitable growth objectives. And importantly, following the solid results of the first half, and considering our current outlook for production volumes in the remainder of the year, we believe we are on track to achieve positive free cash flow for the full year.

Further, as we continue to focus on delevering through earnings growth, achieving the midpoint of our guidance range for full-year adjusted EBITDA, combined with our expectations for positive free cash flow, would result in a net leverage ratio below four times at the end of this year. We are pleased that our improving results and solid future prospects are being recognized by our stakeholders, including credit rating agencies such as Moody's, who recently upgraded their outlook on Cooper-Standard Holdings Inc. from stable to positive. With respect to our capital structure, we are actively evaluating various options to strengthen our balance sheet and further improve our cash flows, and are carefully monitoring conditions in the credit markets.

We are optimistic that as we continue to deliver improving results, we will be able to refinance our first and third lien notes with more favorable terms and rates. With that, let me turn it back over to Jeff.

Jeff Edwards: Alright. Thanks, Jon. I appreciate the exciting news there. Great job. So in the last portion of our call here, I'd like to again comment on our high-level strategic imperatives that I mentioned earlier, but also provide some additional details on the strategic plans for each of our operating segments and where we believe these strategies can take us over the next few years. Then I'll wrap up with some comments on our near-term outlook and our revised guidance for 2025. So if you'd please turn to Slide 13. Our strategies and operating plans are really built around the four strategic imperatives that you see outlined here on slide 13.

And as a global team, we established this basic framework a couple of years ago, I guess. And by aligning the companies around these common objectives, we've been able to drive significant improvements in virtually every aspect of our business. And with the improved operating performance and stability of the business, we have now been able to turn more attention, frankly, to our longer-term planning and the strategies and objectives that align with that.

So in that context, we recently asked our two product presidents to work with really their respective teams everywhere in the world to develop these long-term strategies for each of their businesses that would not only achieve these stated strategic imperatives but build on them to take Cooper-Standard Holdings Inc. to the next level of value creation that we believe in over the next several years, and as we like to say, just around the corner so to speak. Last month, we presented those exact plans to the board of directors, and they certainly expressed enthusiastic support, which is exciting.

And so while we don't have time to go into those details here, the morning, obviously, I still think it makes sense to share a brief summary on each plan. And that's really just to highlight that presentation to the board. That's just part of our normal business review process, and it happens to be the time of year where we do it. And it lines up with the call. So I thought it would make sense.

So if we just go to slide 14 and take a look at the sealing system strategy there, as the global market leader, our sealing system strategy is focused on sustaining the operational that has reestablished the financial strength of the business and leveraging global expertise as we all know, in our engineering, design, and manufacturing and they've done a great job to drive profitable growth. That's both in our existing and in our new markets. Great improvement there by that team. In our manufacturing facilities, the sealing team expects to drive greater efficiencies in both process and asset allocation by utilizing digital tools.

And those are powered and connected through our network and supported by artificial intelligence, is currently being rolled out in key global locations, and that will eventually be expanded and deployed to every one of our manufacturing facilities in the world. They're also using digital tools to make the design and validation process for new products faster, and more efficient, supporting our customers in developing markets that tend to have shorter product development cycles.

Finally, the sealing team will continue to focus on the voice of the customer, and is quickly bringing additional innovative products and technologies to market that we expect will add value for our customers and enable Cooper-Standard Holdings Inc. to expand the content per vehicle, and, more importantly, market share. Turning to Slide 15. With over $300 million in new business awards since 2023, the sealing business is a good line of sight on new program launches, with improved variable contribution margins, over the extended planning period. We expect successful execution of these plans, including further cost optimization actions, will drive revenue growth of about 6% on average over the next five years for our sealing business.

With significant expansion of EBITDA margins and return on capital increasing to approximately 20% by 2030. Turning to slide 16 and the fluid handling systems strategic plan and some details. So on slide 16, the fluid handling system strategy certainly looks to unlock the full potential of the organization expanding geographically in association with our key and our fastest-growing customers. Leveraging the growth trends in hybrid vehicles to expand content per vehicle, and launching new innovative products and technologies including thermal management solutions and the award-winning ECO FLOW family of products. In addition, the fluid handling team expects to continue their relentless focus on cost optimization and world-class manufacturing execution to drive further margin enhancement.

And if you look at slide 17, as with the sealing business, the fluid handling business is a strong book of new program awards that is expected to drive both growth and improved profitability over the planning period as programs launch. In fact, our top-line growth is expected to average approximately 8% annually over the next five years with our Fluid business. In addition, with continued world-class manufacturing execution and cost optimization, EBITDA margins for the Fluid Handling business are expected to increase to around 16%. And return on invested capital is expected to approach 30% over that five-year planning horizon. As profits and cash flow improve, self-funded inorganic growth could provide additional opportunities as well.

While we're confident in our abilities to execute our strategic plans and achieve these strategic targets, certainly, we're not issuing guidance here. It's too early to consider these 2030 targets, if you will. However, we all know that the company is better positioned today than we have been at any other time in our company's history. To plan effectively, to execute consistently, and flawlessly launch new business and deliver what we say we'll do. The other thing I would note here is that with that planning horizon, we didn't assume really any uptick in the volumes as we've been seeing them over the last few years. Especially here in the North American market.

I think the maximum volume we use was around 15,300,000 units in that outlook. So any additional volume increase beyond that would certainly be good news to the plan that I just described. And we all know that the industry volumes have to bounce back here someday. Right? So to conclude our prepared remarks this morning, let me shift focus to the near term and our outlook for the rest of 2025. There is still a lot of uncertainty around the US trade policy and the implementation of tariffs that may impact the auto industry globally. Industry production forecasts for the second half of the year have improved slightly, but still remain below where they were coming into the year.

Before trade and tariff policies became a concern. As for Cooper-Standard Holdings Inc., we've successfully reached agreements with our customers that will allow us to pass through or recover the majority of all direct tariff impacts on our business. With the conclusion of commercial negotiations, we can focus on execution, as I mentioned earlier, and continued operational excellence while preparing to be flexible for any changes up or down in total production volume.

So turning to Slide 19, following the first half in which our results exceeded our plan, and given our continued strong operational execution, we feel confident in raising our full-year guidance for adjusted EBITDA and you can see that on the table, the waterfall chart on the right describes the drivers for our outlook for the full year 2025 versus 2024 actuals. Improvements in manufacturing and purchasing are the biggest drivers, but production volume, including product mix, remains most likely variable over the next five months.

As always, we want to thank our customers and all of our stakeholders for your continued confidence and support as we continue to execute our plans to drive further operating improvements, accelerated profitable growth, and sustainable long-term value. This concludes our prepared remarks, so let's move into Q&A.

Operator: Thank you. And if you're using a speakerphone, please pick up the handset before entering your request. And to withdraw from the question queue, press 2. One moment, while we assemble the queue for questions. And our first comes from Kirk Ludtke at Imperial Capital. Please go ahead.

Kirk Ludtke: Hello, Jeff. Jon, Roger. Thank you for the call. Good morning. Good morning, Kirk. Morning, Kirk. And thank you for the 2030 targets. These are really interesting. On the ceiling side, looks like there's $400 million of incremental revenue of which $300 million is net new business. Is that am I reading that correctly?

Jeff Edwards: Yeah. I think your math is right.

Kirk Ludtke: Okay. And then the rest looks like the other $100 million is some modest increase in production. And, I don't know, maybe pricing or something. Mix or something like that?

Jeff Edwards: Yeah. Kirk, this is Jeff. As I mentioned, the volume assumption that we used when we built that strategy that we reviewed with the board here recently. We used S&P's numbers from last year that they had forecast out through 2027. So in our '25, '26, and '27 business plan, those were the I would say, the I don't want to call it the mortician's forecast, but I guess I just did. So as it relates to any increase above that 15,300,000 units here in North America anyway, it's pretty much flat. So we didn't bump up any numbers here with higher volumes like we've seen normally. And our industry. We kept it as the forecast from S&P suggested.

Out through the '28 period. I think it represented a couple percent growth each year, so not much at all.

Kirk Ludtke: Okay. Great. Thank you. And the math on the fluid side, $600 million of incremental revenue. Are you sharing how much net new business is in that number?

Jeff Edwards: We have broken out net new business for both of these product groups since we started managing the business this way and reporting it externally. So, yeah, each quarter, I think, you have, not only what we've been booking, but also the powertrain that aligns with it. We've also given you some content per vehicle data points that for each one of those, whether it's an ICE hybrid, or electric vehicle. We've talked about the increasing content. We also, last quarter, talked about the vertical integration that's starting to come our way with overall system integration opportunities that our fluid teams are driving. So what we know of that is included in that outlook.

But I would tell you that as it relates to the vertical integration piece, and how that will drive content per vehicle, that's not in there. And if there's any consolidation opportunities within that business over time, as I mentioned from an inorganic point of view, none of that's reflected in those numbers. So this is sort of what's been going on within the business, how we've been booking business, the content that we know of today is reflected in there. So it isn't any real crazy kind of projections that we put into that plan. As the industry adjusts, to less EV and more hybrid those numbers actually will get quite a bit better.

Kirk Ludtke: Yeah. That's helpful. Thank you. So if I were if I or is it is it were fair to say that if there's a $100 million of other in ceiling, there's, say, a $100 million of other in fluids, so you've got $500 million in net new business and fluid over the next five years?

Jeff Edwards: That's fine. You can say that.

Kirk Ludtke: Yeah. Okay. Well, that's so 80% of the incremental billion is booked.

Jeff Edwards: That's correct.

Kirk Ludtke: Wow. Okay. And the margin expansion, I guess, in part is based on the optimization of the footprint. Can you maybe elaborate on that and how in a tariff environment, how you decide, you know, what's optimal?

Jeff Edwards: Yeah. So as we've talked, we have a very detailed quote process for all of our new business. We have hurdle rates. We have margin expectations. We're tracking the variable contribution margin on all those businesses, from the time of award until we launch it. It's a KPI that gets a lot of attention and has the last several years. And so we're very confident that the pricing that's in this strategy plan that you're referring to are real. We're doing it today. There isn't any hockey stick or anything like that's built into these numbers. It's based on the fundamentals of what's being reported today.

And then as those improvements from a cost point of view come into our business, obviously, that improves margins on the business that we've booked. But, also, pricing is a big part of it. We're managing that very closely. Obviously, the changes that occur in our product tend to be late in the cycle. And so those increases also are very important because typically costs are going up, so prices have to go up. We're just much more disciplined around all of it.

So I would tell you that our forecasting, Kirk, has improved immensely, not just within the business year like we're talking about here in 2025, that in '26, '27, '28, and then out there in '29 and '30, because our business is sourced to us, so far in advance, we have a pretty good idea of what it is and what the prices are, you know, three years out. And so it's got some pretty good accuracy, if you will, even when we get out into that fourth and fifth year.

Kirk Ludtke: Okay. I appreciate that. Thank you. And then, I guess, lastly, if I just you know, kind of backing into the math here, you're forecasting at the midpoint adjusted EBITDA $235 million for fiscal 2025. And something north of $500 million for fiscal 2030.

Jeff Edwards: Yeah. That's your math.

Kirk Ludtke: Okay. Wow. Fantastic. Thank you very much.

Jeff Edwards: You're welcome.

Operator: And our next question will be from Michael Ward at Citi Research. Please go ahead.

Michael Ward: Thanks very much. Good morning, everyone.

Jeff Edwards: Hey, Mike.

Michael Ward: Hey, Jeff. Just maybe to follow-up on that. Do you have any lines currently today, whether in fluid or ceiling, that are at the types of margins you're looking at as a guidepost for 2030?

Jeff Edwards: Yes.

Michael Ward: You do? Okay. So it's not like it's unattainable. You have a way to get there, a path to get there.

Jeff Edwards: Yeah. As I mentioned, Mike, the programs that we're booking right now that we don't launch for three years. Right? Those are already achieving the type of hurdle rates that we have in the plan. The only thing that wouldn't be in there is this hybrid vertical integration for fluid that's really gonna drive some content per vehicle. We know that's coming. We have some experience in that already, but we didn't purposely book any of that in these numbers, so that would all be upside as it happens.

And I just felt that, you know, to keep it a little bit conservative at this stage until we know more about what those numbers will look like, even though I know they're gonna be better. It's not even reflected. So there's upside in fluid just based on how the market shift will go from ICE to hybrid to EV for our fluid business. And as I mentioned to you many times in the past, because of the way we're vertically integrating there and getting involved with more systems integration, that's gonna drive higher numbers for us too. And, basically, that forecast, five-year forecast for fluid has very little of that in there.

Michael Ward: That's interesting. If you look back over the last couple of years, there are a couple of big things you did. Your commercial agreements allowed you gave you the flexibility to get some of this stuff done in the tariff environment. Correct? And then you have the restructuring actions. It looks like if I'm reading your walk from the first half and second half, you have a similar volume impact in the second half. And it's likely that volume's gonna be flat or higher. So, you know, if I'm going through this correctly, you have an outside shot of getting pretty damn close to the 10% margins by 4Q. Your exit rate hope. Is that right?

Jeff Edwards: That's correct, Mike. I still am holding to that. You know, we've even used, as you just mentioned, the fourth quarter not a secret the fourth quarter volume forecast that everybody's using from S&P are still rather depressing. And depressed. And I don't expect that to actually occur based on what we're seeing already in releases. But you know, we tether off to that each quarter. So it is what it is. But I would expect that we'll have some upside there to your point. I'd be shocked if we don't, but you know, that's their numbers right now.

Michael Ward: No. No. And that's an important point, Jeff, because there is a separation. You know, what you hear from the dealers and what you hear from yourselves and the suppliers and the schedules you see from the manufacturers they're materially higher than what IHS is currently using. From what I can tell. Looking at the IHS data.

Jeff Edwards: Yeah. That's correct. And we've got releases right now through, you know, into October already. So we have a pretty good idea of what's gonna transpire. I mean, quarter, we know what it is, and fourth is starting to come up from what was out there by these agencies. And so I Yeah. But we didn't forecast it because that's not how we normally do it.

Michael Ward: No. No. I think that's the right thing to do, and I think IHS will move them higher. Over the coming over the next two weeks probably. Hey, Jon. When I look at the cash flow balance sheet, how much cash restructuring was there whether in 2Q or first half?

Jon Banas: Cash restructuring. Mike, give me a second. It wasn't considerable. I think it was less than $10 million, we'll get you the exact number on kit.

Michael Ward: Yeah. I'm sorry. It'll be in the queue. Right? But it's about $10 million?

Jon Banas: Yes.

Michael Ward: So I take that out. Then we're looking at a working capital use of about $75 million in the first half. That should unwind in the second half completely, or will some of that drag into 2026?

Jeff Edwards: No. We think it unwinds completely. It's important to keep perspective that we also paid $55 million in cash interest in June. Yeah. And we'll do that and do that again in December. But despite that, $115 million all in of cash interest, we do expect positive free cash flow for the year. So much of the working capital you're pointing to will unwind, and we think that'll be a tailwind in the second half. The normal seasonality is such we use cash in the first half. We start generating positive cash in Q3 and Q4. And this year's cadence looks no different than that.

Michael Ward: Refinancing the first and third liens, what type of rate reduction can we look for? Particularly, if we got a rate reduction in September, and if you are successful.

Jon Banas: Yeah. We're reading the tea leaves there. You know, our trajectory and the improvements we're making, I kind of alluded to it in my prepared remarks. You know, we're getting recognized for that, Mike. So we're kind of on the cusp of, you know, ratings inflection point. You know, triple C rating triple C rating, it's much more cost than a single B. And we're kind of, you know, operating and having that trajectory with that positive outlook towards a single B territory. So we'd like to think there's an improvement but how much that will be remains to be seen based on the market conditions that you referred to.

And that's why we're kinda, you know, working ahead and with our banking partners to kinda put a road map together to see when it makes sense to go to market and how good the step up can be.

Michael Ward: I mean, are we talking one, two, 300 basis points, that type of improvement?

Jon Banas: Well, that's the range, I guess, you could say from a triple C to a single B. But not all single B credits are the same and pay the same rates. So the proverbial answer is it depends.

Michael Ward: Yeah. That's the beauty of the debt market. Thank you very much. Nicely done.

Jeff Edwards: Okay, Mike.

Michael Ward: Thanks, Mike.

Jon Banas: Thank you.

Operator: Please go ahead. Our next question will be from Ben Briggs at Stonex Financial. Please go ahead then. Unmute your line.

Ben Briggs: Sorry. I was muted there. So, yeah, good morning, guys. Thank you for taking the call, and congratulations on the quarter and on the guidance. A lot of mine got answered, but quick one here. You know, can you provide some more detail on that use of cash for working capital this quarter and how you see that unwinding in the second half?

Jon Banas: Yeah, Ben. The big components that had the outflow, if you will, from December 2024 to June of 2025 are really the build back up of accounts receivable. We had a really strong year-end performance last year where we were very diligent in collecting outstanding AR drove that balance down to $310 million or so. When historically, the year-end balance is really closer to $350 million. $12.23 was $380 million. We're back up to $371 million right now as of June. So that's more the normal level. And when you had the significant overperformance on collections at year-end last year, as well as our typical factoring program that adds liquidity to us.

You know, bringing that down to $310 million, but now back up to $371 million. That $60 million outflow or so is the biggest component. I think inventory and accounts payable net each other out. We still have got improvements to make on all metrics or all line items between now and the end of the year, and you'll see a normalization of that going forward.

Ben Briggs: Alright. That's very helpful. Thanks, guys, and congratulations again.

Jon Banas: Alright, Ben. Thanks.

Operator: It appears that there are no more questions. I would like to turn the call back over to Roger Hendriksen.

Roger Hendriksen: Okay. Thanks, everybody. We appreciate your engagement. Your questions. And if there are other questions that come up later in the day that you would like to have some clarity on, please feel free to give me a call. Until then, we appreciate your joining today, and you can disconnect. Thank you.

Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do please ask you to disconnect your lines. Enjoy your weekend.