CPS

Overall Financial Results for Q2 2026

• On a U.S. GAAP basis, the company reported a net loss of $18.8 million, compared to a net loss of $1.4 million in Q2 2025. Adjusted for after-tax restructuring expenses, the adjusted net loss was $2.3 million (13 cents per share), versus an adjusted net income of $1 million (6 cents per share) in the prior year quarter.
• Capital expenditures totaled $13.8 million (1.9% of sales), in line with the expected full-year run rate of 2-3% of sales; the increase from the prior year reflects higher launch-related investments and automation spending.
• Q2 2026 free cash flow was $16.3 million, an improvement of $39.7 million year-over-year, driven by first-quarter refinancing and working capital optimization. As of June 30, 2026, total liquidity was nearly $300 million, including $126.6 million in cash and $167.6 million in untapped availability on the ABL facility.
• First-half 2026 total sales were $1.4 billion, up year-over-year primarily due to favorable foreign exchange; adjusted EBITDA was $104.9 million, and adjusted net loss was $7.6 million.

Cost Drivers and Inflation Mitigation

• Higher oil prices following the Middle East conflict drove $10 million in elevated material costs (rubber, metals, resins) in Q2 2026, alongside $8 million in higher wage/general inflation and $8 million in increased duties/tariffs. These increases more than offset $15 million in savings from lean manufacturing/purchasing initiatives and $2 million in foreign exchange gains.
• The company's index-based commercial contracts, which are now being tested for the first time since implementation, are working as intended. Price increases took effect in Q3 2026, and management expects to recover most incremental input and tariff costs in the second half of 2026, with only a modest net impact expected for full-year 2026 results.
• First-half 2026 generated $31 million in savings from manufacturing and supply chain optimization, plus $3 million from prior restructuring initiatives, which were more than offset by cumulative cost headwinds.

Strategic Progress

• Over the past two years, the company has increased gross profit margins by 160 basis points, even with flat/reduced production volumes in its two largest operating regions, including a customer supply chain disruption that impacted a key North American program in H2 2025 and H1 2026.
• Management expects margin expansion to continue in 2026 and beyond even if production volumes remain flat, and volume increases will drive further profitability gains. New higher-margin programs are replacing lower-midity legacy programs, supporting the expanding margin outlook.
• Recent product innovation: The flush seal system is already in production for over 20 vehicle programs; FlexiCore Body Seals will enter production for two programs in 2026; development of additional FlexiFit technologies is advancing with multiple customers, with new business awards expected soon.

• Management reaffirms the company remains on track to achieve its full-year 2026 sales and profitability plans. The midpoint of the adjusted EBITDA guidance range is maintained, while the upper and lower bounds of the range were tightened to reflect improved mid-year visibility.
• Minor adjustments to other guidance elements were made: capital spending guidance was increased slightly to cover incremental investments for unplanned new business launches; restructuring expense guidance was increased to reflect accelerated fixed cost and operating footprint optimization initiatives; expected net interest expense was decreased to reflect the terms of the successful first-quarter refinancing.
• Management expects adjusted EBITDA margins to exceed 12% at the midpoint of guidance in the second half of 2026, with over $100 million in positive full-year free cash flow, supported by cost recoveries and incremental savings.
• The company remains solidly on track to hit its longer-term strategic financial targets for adjusted EBITDA and return on invested capital over the next four to five years. Even with flat global auto production forecast for 2027, management expects to hit previously guided margin expansion targets, with ongoing margin expansion capability demonstrated by 160 basis points of gross margin growth over the past two years.

The company operates two product segments: 1) Ceiling Segment: The company is a global industry leader, leveraging technology and innovation to gain market share and improve profitability. It is deploying digital tools and implementing automation in manufacturing facilities to drive efficiencies and improve asset utilization, and has won a disproportionate share of new business from recent innovative product launches. No specific absolute financial or revenue contribution percentage figures were provided in the transcript. 2) Fluid Handling Systems Segment: The segment holds an unmatched product portfolio, positioned to capitalize on growth in ICE/hybrid powertrains in the U.S., EV adoption in China, and the evolving hybrid/EV mix in Europe. Over the past 10 months, the segment has won nearly 10 mid-production conquest business awards, totaling $40 million in annual effective sales. The company's long-term strategic target is to double the size of the fluid handling business within the next five to seven years, and management confirms it is currently on track to meet this goal. No specific absolute financial or revenue contribution percentage figures were provided in the transcript.

• Elevated oil and commodity prices driven by the ongoing Middle East conflict have created significant near-term input cost pressures, with a timing lag before cost recoveries take effect under the company's commercial contracts.
• Persistent general inflation, rising wages, and higher duties/tariffs continue to create cost headwinds that must be offset by internal efficiency initiatives.
• Customer production disruptions (such as the North American key platform disruption that extended into H1 2026) create unfavorable volume and mix dynamics that impact near-term results.
• Uncertainty around global powertrain mix (EV vs hybrid vs ICE) creates long-term forecasting uncertainty, though the company's diversified portfolio positions it to benefit from any market trajectory.
• Geopolitical instability (specifically the Middle East conflict) creates uncertainty around future commodity prices, making it difficult to predict if full-year results will land at the high or low end of guidance.

Q: The rapid conquest business wins in fluid handling are unusual, as these usually take years to materialize. Is this speed unique to the fluid segment, and what is driving it?

A: The fast conversion of existing in-production business to Cooper Standard is largely unique to fluid handling, though it has also happened a couple of times for the sealing segment in the past 12 months. Moving sealing programs is more complex, but the company benefits from existing strong customer relationships, a flexible global footprint, and proven product innovation and execution quality. Most wins stem from customer issues with existing competitors, and the company remains on track to double the fluid segment within five to seven years, as previously guided.

Q: Does the full-year guidance imply adjusted EBITDA margins over 12% and over $100 million in full-year free cash flow in the second half of 2026, as my math suggests?

A: That calculation is correct. Cost recoveries from the new Q3 pricing will improve both EBITDA and free cash flow in the second half. The company expects over $50 million in incremental year-over-year savings in the second half from ongoing purchasing and manufacturing efficiency initiatives, which will support these results.

Q: Can you explain how the cost recoveries that drive the second-half EBITDA improvement will work?

A: There is a roughly one-quarter lag (sometimes longer) in the index-based contracts, so the sharp $30 per barrel oil price spike in Q2 is only passed through to customer pricing starting July 1. The pricing adjusts each quarter based on average oil prices, and all customers have honored their contractual agreements. In addition to contractual pass-throughs, ongoing cost reduction initiatives identified before the start of 2026 are already implemented and delivering savings that help offset wage inflation. As guided last quarter, Q2 will see the peak headwinds, with a clear improvement in Q3 and Q4.

Q: What is the split of new net business awards between EVs and hybrids, and how is the market trending currently?

A: Recent new awards are split roughly 50-50 between EVs and hybrids. Both powertrain types deliver higher content per vehicle (and higher margins) than traditional ICE vehicles, with hybrids delivering an even greater content uplift than full EVs. Many major OEMs are currently scaling back EV investments and prioritizing hybrids, aligned with global consumer preferences, which is a positive trend for Cooper Standard. The overall transition to alternative powertrains is slower than forecast a few years ago, but still a positive development for the company's growth.