Good morning, ladies and gentlemen, and welcome to the Cooper Standard first quarter 2022 earnings conference call. During the presentation, all participants will be in a listen-only mode. Following the company's prepared comments, we will conduct a question-and-answer session. At that time, if you have a question, you will need to press the star key followed by the one key. 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.
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 three of this presentation and the company 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.
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 for 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 at 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 all 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 SG&A and E expense was down $6 million year-over-year as we continue to rightsize our fixed cost. 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 hyperinflation 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 towards 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 were 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 Ethisphere's list of 2022 World's 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 years. 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 index-based agreements, negotiated price increases, one-time true-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 wanna 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.
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 and a half 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 break even, 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 in manufacturing and purchasing drove a combined $19 million in cost savings for the quarter. Run rate SG&A & 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 quarter, 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 our 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 carrybacks made available by the CARES Act. 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 top line, 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 a refinancing.
While the nearest of our debt maturities is 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.
Thanks, Jon. 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. Let's 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.
We will continue our efforts this year to further optimize our operating footprint and cost structure as we push to achieve double-digit margins and 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 are what we've undertaken 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.
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 wanna 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, and the contributions of each are critical to our success in support of our purpose, which is to create sustainable solutions together.
As always, I also want to thank our customers for the continued trust, confidence, and support. This concludes our prepared comments. Let's open up the call for Q&A.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press * followed by 1 on your telephone. If your question has been answered, or you wish to withdraw your registration, you may do so by pressing the pound key. If you're using a speakerphone, please pick up the handset before entering your request. One moment please, as we assemble the queue for questions. Our first question comes from Steve Ferazani with Sidoti.
Morning, Jeff, Jon. Appreciate all the detail on the call. Congratulations on the expansion of those index-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 you can quantify the timing and impact of those agreements? I know we're early, and those 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.
Steve, this is Jeff. Again, as I mentioned in the last call, what we're gonna 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 as you know, we started this whole process, as I mentioned, towards the end of the summer last year. While there was some recovery dating into the fourth quarter of last year, and there's some of these agreements that go back that far, the majority are effective this year.
Everything went back to 1/1 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. That's the reason I'm not gonna, you know, start listing the numerous dates here on this call. 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.
Fair enough. In terms of expectations for a 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?
This is Jeff. I think that everyone wants what you just said to happen. Unfortunately, you know, it's still not as clean as we would all like for obvious reasons. I mean, we have not only the chip shortages, we have the war in Europe. We have the COVID shutdowns in China. There's a lot of supply chain ramifications that are yet to be completely resolved. I think it would be, I mean, I tend to be the optimist in the room, but I think to be fair, we're gonna 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? I guess I would use the same statement in answering your question. I know everybody hopes, I know everybody wants it. I know that the market certainly needs it, and the end consumer certainly wants the vehicles. 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.
I mean, we're attacking all costs within our control, and the 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 so be it.
Fair enough. If I could 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 kinda turns, or how are you thinking about those efforts now?
I think, you know, when you reach a point where you have businesses that aren't strategic to you anymore, you know, you tend to sell those when you can. I would say that we'll stick to that rule of thumb. While the volatility and the clouds hover over the industry that we serve. That doesn't mean 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 smooth out a little bit.
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. 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.
Fantastic. Thanks, Jeff. Appreciate all the responses. Good luck.
Thank you.
Our next question comes from Mike Ward with Benchmark.
Good morning, everyone. Just going on to that page 10. I mean, 'cause quite honestly, Jeff, that's one of the more significant developments I've seen in the last couple of years. It looks like, you know, there are two parts to it. The timing of when some of those index-based contracts fold in. If we just look at this quarter, and you had a $43 million negative hit from material inflation, I would expect that number to go down, you know, all things being equal over the course of this year. If the trend, you know, as we look at Q2, Q3 and Q4, that impact from commodity inflation, is that the right way to look at it?
Hey, Mike, it's actually Jon. I'll take the first part of that and let Jeff add any color. You know, 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 or so. You know, that number with, you know, 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 a $100 million now. That's why it's so important that we're continuing the efforts on the recovery side and balancing those efforts there.
All right. That second part of it.
Mike, just to continue, this is Jeff. Let me just finish up the answer to that question. As I mentioned, and you did within your question, the index-based agreements certainly will help smooth that out as we go forward and provide, say, contractual means to recover, you know, inflation as we go forward. You're correct in that part of your assumption. The other thing that I will say, and I know that everybody's feeling the same pressure. I mean, the inflation, as Jon just mentioned, continues to go up. I mean, it isn't going away.
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. As I mentioned in my prepared remarks, those are becoming extremely significant, and we are in conversations with our customers and negotiations with our customers on recovering our fair share of all that. That's why I mentioned that come July, I think when we typically do our, you know, review the first half of the year, 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.
Also, we hope that we'll have the negotiations on the non-raw material inflation defined so that we can have that conversation.
'Cause there are two parts to it, right? You got the new agreements, which is a big plus, and then you have recovery. If I look at just the last six months between material and then the other components, it's over $100 million. At some point, you would expect the recovery part of that to also start to come in, whether it's in piece price or whether, you know, in future whatever, however it comes through. That's what we're looking at right now? You have two components. You have the new contracts, then you have the recovery, correct?
You're correct.
Second thing, I think it looks like your 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. You know, sometimes the data we get doesn't match up to what your experience is. Does the data match up with your experience in North America with your key customer?
Two answers to that. The volatility has improved.
That's good.
Volume per release is still short.
It's still short, but not as bad as it was.
That's correct.
Okay. Any update on the commercialization of the shoes with Fortrex™?
As we mentioned in the last call, fortunately, they have been able to maintain the schedule for the first quarter of 2023. We expect the launch to occur, and we'll have, you know, be able to talk more in detail about what that is and who it's with. 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 line. 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.
I think last quarter you mentioned something that you developed in the manufacturing process with Fortrex, a process that was a meaningful improvement. Is there any update on that, or is it holding? Are you able to pass that along to, you know, to piece price? How is that affecting the business?
It'll certainly make the Fortrex™ product we think more affordable. We believe that will have a positive impact, especially with the shoe manufacturers, because the product will be more competitive, and it'll still have all of the properties that we had. To answer your question, we continue to make terrific progress. We expect that by the end of June we will have cleared our manufacturing tryout hurdles, and it'll be for sale later this summer. That's what we expect.
Okay. Just so I can sneak in one more. Jon, 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? I mean, you mentioned the inventory build in Q1. Can we look forward to a more seasonal type pattern with working capital as well, so you could have a pretty significant improvement in liquidity again in the second quarter. Is that right?
Well, Mike, I wouldn't call anything seasonal in this day and age, just given.
That's true.
The China lockdowns that
China's down hard.
The industry is dealing with and the continued chip shortage and issues that are centered around Europe.
Don't wanna, you know, give you one direction or another.
Sure.
We're just managing through.
Sure.
trying to control what we can.
Thanks, Jon.
To that point, this is Jeff. I think that we should say, I mean, the China lockdown, you know, the entire month of April from a production point of view basically is gone.
It'll have an impact as they ramp back up. The good news is, as we enter May, facilities are starting to come back online. Certainly not anywhere close to full production, but 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. I mean, the risk going forward of additional lockdowns, I suppose, for China is here to stay. We'll just have to keep you updated as we find out. But it's still far from over in terms of getting back up to production levels in China that are normal.
They had a great first quarter, but with everything that's happened now, it's all out the window.
Thank you, guys. Thanks very much.
Our next question comes from Kirk Ludtke with Imperial Capital.
Hello, guys.
Hey, Kirk.
Thank you for taking the question and the presentation. Just to follow up on slide 10. The $43 million, is that net of recoveries?
No, Kirk, that's the gross commodity or material inflation that we faced.
Okay.
Because the recoveries are essentially price adjustments. We would include those in the sales walk for a dollar for dollar recovery in the volume and mix. Just for convenience, we put it there because it's commercially sensitive, number one, but we include it there just because it is piece price related for the most part.
Got it. That's helpful. The $43 million, the $70 million that you originally forecast is now $100 million?
It could be as high as 100 is what we're facing right now. Yes.
Okay, got it. The customer negotiations, I'm curious, are there other types of customer support that you're pursuing other than pass-throughs?
Kirk, this is Jeff. As I mentioned.
Receivables or accelerations of receivables.
As I mentioned in the prepared remarks, I mean, not only the raw material recovery, but the non-raw material inflation via transportation, energy, labor, stop starts, you know, all those things that are non raw materials part of what's on the table. We clearly have continued to talk about tooling as well. Historically, you know, most suppliers act as our customer's bank in terms of tooling for new programs. 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. you're correct in stating that it's more than just raw material.
Great. Thank you. 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?
T his is Jeff. 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. There was virtually no production in April in those Shanghai factories for us, which is the majority of our business, and certainly our customers' plants were down as well. 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 we attribute that to the war in Ukraine. 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's less volatility. That doesn't mean there isn't any. The releases that we get on a monthly basis, they aren't quite achieving those like they would have historically. That's, again, supply chain or labor related for them. I don't see that much different in the second quarter in North America than it was in the first. I think that the encouraging news is 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. I'm hopeful that that's the case.
Like I said, there seems to be a footnote related to chip availability with each of those statements. 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. 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.
You would expect second quarter is gonna be tough in Asia, but assuming that the lockdowns work, third and fourth quarter, I would expect to look more like first quarter did. 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 customers. I'll try to summarize it that way for you.
That's helpful. In China, your product mix is consistent with the overall market, you would say?
Our business in China is primarily sealing business. Our volumes are directly related to the two largest automakers in China, who happen to have a large manufacturing presence in Shanghai. That's what was impacted, the last six weeks here.
Great. I appreciate it. Thank you.
Our next question comes from Kevin McVeigh with Credit Suisse.
Hey, guys. How's it going? Thanks for taking the question. Just a real quick one from me, clarifying a couple points you made that'll, I think, combine some of the color around both the indexing and the inflationary headwinds. If I go back to the fourth quarter presentation, and I think it's slide, , slide 13, the guidance bridge on EBITDA, negative $70 million materials economic headwind sounds like you think that's going, you know, somewhere close to $100 million. On the flip side, sounds like because of you know, the great progress on indexing, the vol mix price column, which was, you know, positive 130 in this guidance bridge, could be going higher.
Is it right to think about the push and pull to profitability, you know, in that sense? Secondly, you know, 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 in, you know, last year is already, you know, potentially benefiting the business. Does that mean that indexing that you've passed through sort of incrementally over the last couple months, it will take longer to start to positively impact profitability? You know, those two, curious on, you know, any color you could provide on that front. Thanks.
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. Keep in mind both the $100 million new estimate of commodity inflation as well as any recovery are volume dependent, right?
Sure.
Anything that's flowing through that volume mix, number, is all subject to the volumes that are actually produced, because that's how we've linked those index-based agreements, right? You also have to keep in mind that there is a lag effect. You know, what we're seeing come through, as far as recoveries here in Q1 or we saw in Q4 wasn't tied to that particular quarters, it was tied to previous quarters. There's a gradual catch-up effect and some of it may be retroactive to earlier periods if we can negotiate those kind of lump sum recoveries. From an indexing standpoint, there's that lag effect that you're gonna see going forward. Hopefully that helps kinda frame it.
The other-
,A bsolutely.
To add a little color to it as well. This is Jeff. We also have said, and we're continuing to point you towards that high end of the range that we've traditionally recovered, right? We've said it's 40%-60% historically, and we said in the last call, and we're saying again today that we expect the recovery to be to the high end of that. That's the direction that we can give you today, the timing that John talked about, the volume that John talked about, impact when it hits. I would say we're more confident because of the indexing that we've negotiated, that we're able to sustain, you know, the level of recovery going forward as this volatility continues.
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'll help you all model the future better than we've been able to do in, well, ever.
Thanks, Jeff and Jon. Totally appreciate that, and thanks for the candor there. Last one for me, you know, if I'm sort of reading the tea leaves around your comments regarding the capital structure, in particular first lien 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 loan specifically, and now this quarter making a comment about, you know, potentially trying to include the thirteens in a solution there as well. Is my sort of read of that change in language accurate? And if so, what's driving that change?
I think it's accurate. This is Jon, Kevin. You know, I think as we continually evaluate the capital structure and opportunity to improve it and look at the market conditions overall, you know, we're considering all options and all opportunities for us. It wasn't so much that we ruled it out last quarter in my comments, so much as we're saying we're looking at all opportunities here right now.
Understood. Thanks so much for the time.
Okay. Thanks, Kevin.
Our next question comes from Brian DiRubbio with Baird.
Good morning. Couple of questions. On the housekeeping front, Jon, can you let us know how much cash that you have today is in the U.S. versus overseas?
Brian, I don't have that handy. Let me just characterize it qualitatively that says, as the North America region is the most profitable, it plays a role oftentimes as the Cooper Standard bank for the rest of the regions. We have a very efficient structure where we can move money wherever we need to via intercompany cash pooling arrangements. For the most part, our China and Asia Pacific operations are self-funding through various mechanisms there. Clearly when you're talking about certain of these big ticket items, the IRS refunds, clearly they're gonna be U.S.-based. The European sale-leaseback, clearly European-based.
You know, it's an evolving structure, but for the most part, you're looking at U.S.-based cash, but an efficient mechanism to move that around as necessary.
Okay. It'd be a little helpful if you could disclose maybe in the queue sort of that breakdown, also the amount of intercompany notes that I think that would help investors a lot there. Switching gears, you know, as it pertains to the potential refinancing, cash is flush right now. Market is in a little bit of a turmoil. Market rates are obviously much higher than they were just, you know, six weeks ago. How comfortable do you feel possibly using some of the cash you have in the balance sheet today to pay down debt potentially in, you know, ahead of a refinancing given that, you know, your interest costs are just gonna balloon going forward? I'd love to get your thoughts there.
Brian, sorry. We had a mic issue. , like I inferred earlier, all options are on the table. You know, as we manage through at least here the very, very near term, liquidity is key for us as we manage through the disruptions and the shutdowns, et cetera. As we look forward, you know, it's interesting to look at the unsecured trading below $0.50 or costs going up. If we can consider using some of the cash to help optimize the capital structure going forward, we will, and if that makes sense at the time. I'll just leave it at that, just saying, "Hey, we're looking at all options.
Okay. That's fair enough. Jeff, wanna go back to the comments that you made earlier about sort of, you know, holistically looking at the business and, you know, looking at Cooper Standard, you know, you have a really good business in the U.S. Outside the U.S., not so much. What's the strategic importance of holding, you know, or keeping that business outside the U.S.? And, you know, I mean, 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.
Well, that's the conversation we're having with our customers. 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. I guess we'll find out.
Well, having them want you there and having them pay you for being there, obviously two different factors. I guess we'll see as that develops.
That's correct.
Appreciate the call. Thank you.
Our next question comes from Josh Klein, Credit Suisse.
Hey, guys. Thanks for taking the questions. Most of mine have been answered already. 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, you know, ongoing annual rent for the piece that you're leasing back is immaterial to the business, but was just wondering if you could provide any color on, you know, what that annual amount is or maybe, you know, if you wanna give it another way, kind of what percentage of the footprint are you kind of leasing back?
I'll just give you the number. It's less than $1 million a year for the 3-year term that we signed up for.
Much more of a sale than a sale-leaseback.
Correct.
Okay. Just to beat a dead horse a bit, just wanna ask one question on, you know, the conversation about indexing versus recoveries. You had one bullet in the 8-K yesterday about increasing the percentage of recovery of 2021 incurred and 2022 expected incremental. Does this mean that the 2021 headwinds you faced, I think it was $64 million in material economics headwinds for the full year 2021, will 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?
This is Jeff. We haven't broken it down for you that way. What I'll just say is the percentage of recovery in that 40%-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. 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 2022 than we have been any year in our history, including 2021.
2021's 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 2022 and recognized that it's not sustainable and that the supply base would be severely impacted if there wasn't a serious negotiation that resulted in a large portion of those costs being recovered. We're no different than anybody else there, I think, in terms of how we feel about 2021, right? We didn't like 2021. We've said it publicly, you know, 2021's history. 2022 though, we have no choice.
You know, you gotta pay us and not just for raw material, but for all the other non-raws. As I said, I mean, I really appreciate everything our customers have done to engage in this very, very important conversation and what they've done to help us bridge what we're managing our way through. As I mentioned in the last question, every one of our customers in every region continues to tell us that they want us there and that they're willing to work with us to resolve these issues. That's what I believe is happening. Hopefully we have more clarity around it in the July call and we'll just stick with that answer for right now.
Got it. Appreciate the color. Thanks, guys.
Our last question comes from Prateek Gupta with Goldman Sachs.
good morning. I just have one quick question please. So in terms of asset sales that you have done, you have announced completion of one in 1Q 2022. Can you talk a little bit about if you are planning any further asset sales going forward and what the scope of that could be? Thank you.
Prateek, we're having a very difficult time to hear you. Can you try again maybe a little closer to the microphone?
I'm sorry. Can you hear me better now?
Yes, that's better now. Thank you.
I was just asking about you have completed one asset sale in 1Q 2022. I wanted to check if you are kind of planning or considering further asset sales and what the scope of those could be.
Hey, Prateek. It's Jon. You know, when we entered in that sale-leaseback transaction, it was more of a non-core property assessment rather than a liquidity play, right? We didn't emphasize. 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, you know, we ongoingly review the total footprint in conjunction with our cost optimization initiatives. As Jeff said on the call earlier, we're committed to either fixing or exiting unprofitable businesses or operations. No current plans that would call your attention to, but you know, future asset sales could play a role in that fix-it strategy, if you will.
Okay, thank you.
Ladies and gentlemen, this does conclude the Q&A portion of today's conference. I'd like to turn the call back over to Roger Hendriksen.
Okay, 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. This concludes our call. Goodbye.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.