Good morning, ladies and gentlemen, and welcome to the Cooper-Standard Second Quarter 2022 Earnings Conference Call. During the presentation, all participants will be in listen-only mode. Following the company's prepared comments, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded and the 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, Brianna, and good morning, everyone. Thank you for spending some time with us this morning. The members of our leadership team who will be speaking with you on the call this morning are Jeff Edwards, Chairman and Chief Executive Officer; and Jon Banas, Executive Vice President and Chief Financial Officer. Before we begin, I need to remind you that this presentation contains forward-looking statements. While they are made based on current factual information and certain assumptions and plans that management currently believes to be reasonable, these statements do involve risks and uncertainties. For more information on forward-looking statements, we ask that you refer to Slide 3 of this presentation and the company's statements included in periodic filings with the Securities and Exchange Commission. This presentation also contains non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to their most directly comparable GAAP measures are included in the appendix to the presentation. So, 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 second quarter and year-to-date results and provide an update on our business and outlook going forward. To begin on Slide 5, we provide some highlights or key indicators of how our operations performed in the second quarter. We continued to execute world-class levels in delivering quality products and services to our customers and keeping our employees safe. At the end of the quarter, 97% of our customer's scorecards for product quality were green. Our launch performance scorecard was also at 97% green for the quarter. Most importantly, the safety performance of our plants continues to be outstanding. In the second quarter, our total safety incident rate was just 0.31 for 200,000 hours worked. Well below what is considered world-class and outperforming our target rate of 0.40. I would like to specifically recognize and thank our teams of the 41 Cooper-Standard plants that have maintained a perfect safety record of zero reported incidents for the first six months of the year. Through their commitment, focus, and leadership, they continue to demonstrate that achieving our ultimate goal of zero incidents is possible. Our manufacturing operations have worked smart and extremely hard to overcome a number of market challenges, including continued erratic production schedules in a tight labor market. Despite the difficult operating environment, our operations were able to deliver $21 million in savings through lean initiatives and improving efficiencies in the quarter. Our SGA&E expense was down $4 million year-over-year as we continue to right-size our fixed costs. In past, restructuring actions delivered $2 million in benefits in the quarter. In June, we started to see improvements in overall production volume and increased benefits from our cost recovery initiatives. Combined with our improved operating efficiency and lower fixed costs, the improved volume, mix, and net pricing enabled us to drive positive EBITDA margin in cash flow in the last month of the quarter, partially offsetting disappointing results in April and May. Moving to Slide 6. During the quarter, we continued our efforts to recover incremental costs imposed on our business by rising commodity prices and other market factors that are beyond our control. While the discussions and outcomes have been different with each customer, we have been able to implement either index-based agreements or some other form of price adjustment with most customers. We now have index-based agreements on material costs, covering a significant majority of our revenue base. The index-based agreements cover critical oil-based commodities, as well as metals as they are already having a positive impact on our results as commodity costs continue to rise. Importantly, these agreements should significantly reduce the magnitude of commodity price impacts on our business in the future. In cases where our customers prefer quarterly surcharges or other periodic negotiations versus index-based agreements, we have implemented negotiated PO price increases, delayed LTAs, reduced quick savings payments, and other adjustments. In total, our material cost recoveries will exceed the high end of our historical range. Our commercial team has done a great job to achieve these positive results in a very tough environment, and they've been able to do it in a way that does not compromise customer relationships or our ability to win new business. This was evidenced by the solid net new business awards we received in the second quarter. Also, frankly, none of it would have happened without our world-class operating performance and our engineering execution. Our customers support Cooper-Standard because they trust us to deliver. As we continue to work together in a very challenging business environment, I want to thank our customers for their engagement in this process and for their ongoing commitment to mutually beneficial business relationships. Turning to Slide 7. We're pleased with the recent recognition of our innovative Fortrex chemistry platform by the environmental and energy sector as a Top Product of 2022. This marks the fourth prestigious award granted to Fortrex since it was commercialized in 2018. Fortrex is the most sustainable material available within the automotive sealing industry, as it provides a significantly lower carbon footprint that is environmentally friendly and lighter-weight with higher performance than traditional sealing material options. In addition, we are continuing to develop the material science around Fortrex to make it even lighter-weight, higher performing, and potentially to use recycled post-consumer waste as feedstock material, all of which are highly valued characteristics with our customers. Our innovations are part of the value proposition we provide to our customers and a clear differentiator among our competition. We believe the new developments around Fortrex will create additional market opportunities in our sealing business going forward. Moving to Slide 8. We are also making significant strides to ensure leadership in the EV market with new products for fluid handling. We've commercialized multiple innovations within our quick connect and lightweight tubing portfolios. And we hope to soon share exciting new advancements in fluid flow control, which will unlock opportunities to grow content per vehicle and expand margins in the EV space. These advancements combined with our existing capabilities allow our OEM customers to further optimize EV fluid architectures, given reduced complexity and increased vehicle performance and range. Now I'll turn the call over to Jon to discuss the financial details of the quarter.

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 balance sheet. On Slide 10, we show a summary of our results for the second quarter of 2022 with comparisons to the same period last year. Second quarter 2022 sales were $605.9 million, an increase of 13.6% versus the second quarter of 2021. The year-over-year growth in sales significantly outpaced growth in global light vehicle production, driven primarily by our outsized performance in North America and positive commodity cost recoveries. Gross profit for the second quarter was $15.4 million or 2.5% of sales. This compares to a gross loss of $900,000 in the second quarter of 2021. Adjusted EBITDA in the quarter was negative $10.4 million compared to adjusted EBITDA of negative $14.7 million in the second quarter of last year. The year-over-year improvement was driven primarily by favorable volume and mix, cost recoveries, and manufacturing efficiencies, partially offset by continuing commodity and material headwinds and other inflationary pressures. On a U.S. GAAP basis, the net loss for the quarter was $33.2 million compared to a net loss of $63.6 million in the second quarter of 2021. The net loss for the second quarter this year included a gain of $33.4 million related to the sale-leaseback of a non-core property in Europe. Excluding this gain, restructuring expenses and other special items, as well as their associated income tax impact, the adjusted net loss for the second quarter of 2022 was $58.5 million or $3.40 per diluted share compared to an adjusted net loss of $51.1 million or $3 per diluted share in the second quarter of 2021. The modest change in adjusted net loss resulted from the provision for income tax in the quarter versus the tax benefit we booked in the second quarter of 2021. The increase in book tax expense essentially offset the improvement we realized in adjusted EBITDA. Our capital expenditures in the second quarter totaled $12 million compared to $17 million in the same period a year ago. We continue to have a disciplined focus on capital investments and we are on track to keep CapEx below 4% of sales for the full year as we committed last quarter. Moving to Slide 11. The charts on Slide 11 provide some additional insight and quantification of the key factors impacting our results. On the top line, favorable volume and mix, net of customer price adjustments increased sales by $102 million versus the second quarter of 2021. Improving customer production volume was the biggest driver with customer cost recoveries in the quarter also included in the volume mix category. Foreign exchange, mainly the Euro, reduced sales by $22 million versus the same period last year. For adjusted EBITDA, volume mix, and net price adjustments drove a combined $55 million of improvement for the quarter. The favorable volume and mix was primarily in North America and Europe, while cost recoveries were spread more proportionally across all regions. Lean initiatives and manufacturing efficiency contributed $21 million to EBITDA in the quarter, while further reductions in SGA&E and savings from past restructuring actions added a combined $6 million. Unfortunately, these positives were more than offset by higher material costs of $40 million and higher wages, compensation-related costs, general inflationary pressures, and other items totaling $33 million. Commodity inflation continued to ramp up in the second quarter, but we expect the rate of increase to slow somewhat over the remainder of the year. In addition, as the commercial recovery agreements that Jeff mentioned are implemented, we expect to see increasing offsets to the material inflation headwinds. Moving to Slide 12. Looking at the same key operating measures and drivers for the first half of the year. Sales were slightly better versus the first half of last year with improvements in volume, mix, and net price adjustments being mostly offset by the impacts of the deconsolidation of an Asian joint venture last quarter and unfavorable foreign exchange. For adjusted EBITDA, significant improvements from positive volume and mix, net price adjustments, manufacturing, and purchasing efficiencies, lower SGA&E and restructuring savings were more than offset by increased material costs, wages, and general inflation and other items. Turning to Slide 13. In terms of cash flows, cash provided by operations during the three months ended June 30, 2022 was an inflow of approximately $12 million, driven primarily by the $51 million of tax refunds received in the quarter and to a lesser extent, the positive contribution from lower inventories, all partially offset by the cash loss incurred in the quarter. With CapEx of approximately $12 million, we were essentially at breakeven free cash flow for the second quarter. As a result, we ended June with a solid cash balance of $250 million. Availability on our revolving credit facility, which still remains undrawn, increased to $156 million, resulting in total liquidity of $407 million as of June 30, 2022, a sequential improvement from the end of the first quarter. We remain in very good shape from a liquidity perspective. We believe we have more than sufficient resources to sustain our operations, launch planned new programs to drive profitable growth, and execute strategic initiatives to improve margins over the longer term. We also expect our enhanced commercial agreements and anticipated improvements in vehicle production volumes will allow us to generate improved cash flow in the relatively near term and increasing over the next few years. In terms of our balance sheet, last month we announced that we hired Goldman Sachs as our Financial Advisor to assist us in the process of refinancing a portion of our debt and that process is ongoing. We are in discussions with certain investors and we believe the actions we have taken to improve our financial performance and maintain liquidity will allow us to get the refinancing done. Beyond that, we can't provide any further details at this time. That concludes my prepared comments. So, let me turn it back over to Jeff.

Thanks, Jon. And to wrap up our discussion this morning, I will touch on ongoing efforts to further improve our cost structure and then update you on our outlook for the full year. So please turn to Slide 15. We've made some substantial progress in our journey to right-size our operations and optimize our cost structure, driving more than $100 million in savings per year over the past three years. We clearly have more work to do as reduced customer production volumes and unprecedented inflationary pressures have continued to outpace and offset our cost reduction achievements. We have begun implementing a number of further cost reduction and rightsizing initiatives as outlined on the slide and we expect to complete some of the critical projects in 2023. In addition, we continue to evaluate our real estate portfolio. Some of the strategic actions we have identified will provide opportunities for asset sales or sale leaseback which could help to fund our further planned optimization initiatives. As we move through the back half of 2022 and approach 2023, we expect the rate of inflation to slow in our cost reductions, manufacturing efficiencies, and enhanced commercial agreements will combine to begin driving margins higher. Turning to Slide 16. In terms of our 2022 guidance, we are reaffirming our full-year estimate for adjusted EBITDA in the range of $50 million to $60 million as we leverage better than expected operating efficiencies and material cost recoveries across improving production volumes in the second half of the year. We trimmed the upper end of our range for sales just slightly based on the first half production volumes coming in lower than planned. There was some offset to be realized in the second half. We've also trimmed our estimate for CapEx and raised our expectation for income tax benefits based on first half results. 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. Our cost structure has improved significantly and is still improving. Our manufacturing operations are running as efficiently as they ever have and we now have commitments in place from our customers to help us address continuing inflation challenges. As I said a few quarters ago, with our newly streamlined cost structure and customer commitments to pay their fair share of materials, I believe we are back on track to achieve our strategic targets for adjusted EBITDA margin and return on invested capital as industry production volumes normalize over the next few years. I want to thank our employees for their continued commitment and dedication. From the plant floor literally with some employees actually sleeping at some of our locations during the recent shutdowns, to our engineering and design facilities, to our headquarters offices, and now the many home offices. I could not be more proud of our team and how they've stepped up collaboration, intensified their focus, and delivered remarkable progress toward our goals in the first half of the year. I also want to again thank our customers for their continued trust, confidence, and support as we work together to create sustainable solutions that drive long-term value for them and all of our stakeholders. This concludes our prepared remarks. So let's open up the call for Q&A.

Thank you. Your first question comes from Mike Ward with Benchmark. You may begin.

Thanks. Good morning, everyone. Jeff, I wonder if you can give us an update on some of the non-automotive efforts, specifically with Fortrex?

Hi. Good morning, Mike. Thanks for the question. We continue to make very good progress with the first product launch slated for the first quarter of '23. And as we discussed before, we aren't able to announce who that is at this time, but we will after the product itself launches. In addition, we mentioned next-generation Fortrex and the things that make it very attractive and frankly more attractive for our automotive customers moving forward is also making it more attractive for that particular customer in the footwear space. So we're very excited about how we've executed. We've had people in their facilities over the last couple of months. We've passed all of the manufacturing hurdles that they had for us and we expect a successful launch during the first quarter.

That's new information. I don't remember hearing that. So the product will be launched 1Q '23?

That's correct.

Thank you. The second thing on your Slide 15, you talked about $100 million in annualized savings achieved. And we can see that in the six-month numbers, but it looks like some of these other inflationary cost measures in the other category that Jon mentioned are exceeding. It looks like you're offsetting about two-thirds of them. Are some of those costs, inflationary pressures transitory and will we see them start to subside and how does that look like over the next, say, six to 12 months?

Yeah. I'll let Jon talk about that in terms of the go forward. But just to be clear, what we have set out to negotiate with our customers in the automotive space has resulted in covering about 65% of the company’s revenue going forward with index-based agreements. There is a substantial additional portion of revenue, that's covered with these quarterly surcharge payments that I mentioned in my prepared remarks. So if you take a look at that in total and historically we've recovered 40% to 60%. With these new index agreements as well as the other approach to recovering our inflationary raw material costs, we are in the range of 65% to 75% of our raw material inflation being covered under this new approach. We were also able to negotiate some recovery from last year that we brought into this particular quarter. We can't get into the specific details by customer for obvious reasons, but we are very pleased as we sit here halfway through the year with not only what we've accomplished for the first half but more importantly the impact that will have on a go-forward basis.

Okay.

Mike, you asked if any of those inflationary headwinds will subside or if they're sticky, to use that term. In that other bucket, you have areas such as wages, labor rates, energy costs, and transportation charges being the biggest pieces. Most of that is fairly sticky. We don't see that going away. In fact, when we came into the year and gave our original guidance six months ago, we thought we would incur about $35 million, we had on the bridge at that time to walk from last year to this year's guidance. That's gone up a bit as things haven't come back down; the wages are staying up there, of course, it's probably the most sticky of those elements. Then, when you have natural gas or other utility charges being as high as they are, we are seeing a bigger headwind there. So, I don't see them going away anytime soon. As you pointed out, our ongoing cost reduction efforts typically will go towards offsetting those, and so the team is continuing to be focused on efficiencies both on the manufacturing and purchasing side.

But some of those costs can be recovered, right? Like the energy and transportation costs, some of those you can try to recover from the vehicle manufacturers. Is that what you're referring to?

That's correct, Mike. This is Jeff. We are in the process of negotiating those recoveries; we certainly expect the vast majority, if not 100% of the energy cost to be recoverable, and we're in those discussions as we speak.

Okay. So from a timing perspective, we expect to see significant recoveries in the second half of the year, possibly even in the fourth quarter. However, after that, things should stabilize with your contracts. The 65% to 75% range appears to be standard across the industry, and most suppliers have some level of exposure. Am I interpreting that correctly?

That's correct. I think that we use a range of 40% to 60% that we've recovered historically. For us, that means over the course of the past 10 years. But if you look at it even closer during the period of time before the pandemic and then into the pandemic, we were probably at the low end of that range, and now we're going to be above the high end of that range. So we think this is not only good for business today, but also sets up a very fair approach for our customers going forward. So, we're very pleased with what we've been able to get done on the current book of business that we have operating in our plants today, and equally as important, the business that will launch this year, next year, and the following year.

That's great. Thank you. Thank you very much, everyone.

Okay, Mike.

Your next question comes from Steve Ferazani with Sidoti. You may please go ahead.

Good morning, everyone. Thanks for all the detail on the call. Just digging a little bit into the EBITDA guidance, obviously you have now additional headwinds of FX and then thinking about that 65% to 75% material recovery. I'm just trying to think about what's built into guidance both in terms of FX and materials even though materials, you get more covered in the second half?

Yeah. Steve, I'll try to address the FX question. Clearly, when the Euro is now almost at parity with the U.S. dollar, our revenues do come down. So the part of the guidance reset from the top line as Jeff mentioned was first half volumes, but also the FX impact that you will see on our Euro-denominated sales translating at a lower amount than they otherwise would have in the past. It's a little bit more nuanced when you think about the cost base around the world, namely in Europe whereby a lot of our costs are in local currencies other than the Euro, which is our selling currency. So you do have some cross-currency effects that mitigate the top line decrease overall. So, as the revenue might come down, so do the costs come down as well when you're thinking of Czech Koruna, Polish zloty or other local currencies that we deal with locally. So, we don't see that as a big component of the EBITDA for the second half of the year; rather, it's the buckets we've already been talking about — higher commodity inflation further exacerbating things by an incremental $40 million more in the second half of the year than we've already incurred this year or in the first half of the year and then the ongoing other inflationary pressures. But those are all offset by the commercial recoveries that Jeff has been describing as well as second half volumes will be stronger than the first half we believe.

With the commercial recovery that's much stronger in the second half given that the agreements really implemented second half front, the new ones?

This is Jeff. So, it's spread out. Some of them started already. In the second quarter, some are obviously impacting the third and fourth. Keep in mind, as I mentioned, we also had some recovery in the quarter that was a result of retro price increasing back to last year. So what you'll see in the third and in the fourth quarter is a direct result of the indexing agreements kicking in.

Okay. Fair enough.

And so to answer your question, it will be stronger in the second half than it was in the first half, just to be clear.

Perfect. When I think about how your guidance is going to translate into cash flow. We've certainly discussed this in the past. Clearly, when volumes picking up, it should create greater demand on working capital, but you're carrying such high inventory to begin with. Does that not play out in the second half, so you don't have that significant working capital pressure?

Steve, you're absolutely right. Normally in a rising sales environment, you would see a working capital usage. But because we are sitting on over $180 million of inventory right now as of June, that will actually be a benefit for us in the second half of the year as we are not procuring as much for Q3 manufacturing into Q4. So that is a lever for us to continue to see benefiting us in the second half of the year.

Great. I keep asking about the potential to introduce recycled materials, particularly regarding Fortrex production. I'm trying to understand if this was developed internally or driven by customer demand. I'm considering the customer response, especially given the higher costs, but a commitment to sustainability could be seen as a positive. What do you expect the reaction to be, and have customers approached you about this?

Yeah. This is Jeff. We have developed that with an outside partner and we are in the process of getting ready to go to market with it in the third quarter. So we anticipate a terrific reaction. Keep in mind, Fortrex was a premium-priced product. It's on significant SUVs today in the market. These enhancements that we're talking about are just going to make it even more attractive for our customers, and probably more affordable in areas that before were deemed too much of a premium product, I suppose.

Do you think this does actually reduce cost, is this what you're saying?

That's correct.

Fantastic. Perfect, that's it from me, guys. Thanks so much.

Thanks, Steve.

Your next question comes from Brian DiRubbio with Baird. Please go ahead.

Good morning, gentlemen. A few questions from me. First, Jon, could you sort of frame up what the potential opportunity is with these sort of repositioning your real estate and conducting sale-leasebacks?

Yeah, Brian. Good morning, and thanks for the question. We really haven't talked about the size of the opportunity there, but I'll qualitatively describe it as it could be sizable proceeds. You saw in the first half of this year, we're able to unlock considerable capital with a non-strategic site in Europe and almost $50 million U.S. of proceeds related to that sale-leaseback transaction. So what we're doing is we're looking around the portfolio for things that are strategically in our long-term plan and our solid operating sites for us that would have a long-term fit in Cooper-Standard's portfolio and assessing what the market opportunity is there. So, I would call it tens of millions of dollars. I'm not going to give you an exact number, but it could be sizable and similar in nature to what we've already done.

Okay. That's helpful. And Jon, you said you're reticent to mention anything about the refinancing, I respect that. Just maybe quickly, is it still the company's plan to have something in place prior to when the term loan becomes current in November?

Yeah. Brian, thanks for the question, and I'll just stick with what I've already told you.

Okay, understood on there. Jeff, just switching gears, what are the contingencies for your European operations if we get a Phase 3 sort of crisis and there is an allocation of natural gas to consumers before businesses?

Yeah, Brian. So obviously we can flex our plants as low as we need to. So if that's your question, I think more positively the outlook we have in the second half in Europe and in fact in the fourth quarter, I can tell you that the outlook we haven't seen volume like that in years. So, I have a positive view of the second half in Europe for us. The third quarter obviously is always including the August shutdown, but even that quarter is comparable to what we've seen in the first two quarters. Fourth is very strong. If, obviously events that are outside of anyone's control in the automotive industry occur then we have the ability to flex down from a cost point of view and we would. Right now, we're planning to be ramping up to support the additional volume now, if I can be positive in that sense.

Got it. And I'm not trying to be extremely negative. Just there is a greater than a zero chance that that could occur, so it's a question a lot of investors' minds. Just on Europe. Jeff, we've talked about this before. You said, given the returns of that business over the years. What is the ability for Cooper to sort of get proper returns out of the European business? And I guess, how much of your U.S. business is tied to the business in Europe? So if you walked away from Europe and this is completely hypothetical, but if you walked away from Europe, how much of your U.S. business would be impacted then?

I'll take the first half of the question. So, we will be profitable in Europe in 2023, and by 2024 when we have executed several of the initiatives that we have left to execute, we expect that business to be in the high single digits from an EBITDA point of view. So, we're very focused on getting a few more actions completed in Europe here in the next 12 months or so. And then we expect that to be a big contributor going forward. As it relates to the second half of your question, I think customers have proven to you and I that they can be in or out of markets if they make money, and they can be out of markets if they don't, and I absolutely agree with that strategy.

Got it. And just the final one. The benefit that you got in the second quarter from the recovery of 2021 raw material charge, how big was that?

I'm sorry. Can you ask, can say that again?

You mentioned earlier that in the second quarter, you experienced a recovery of some of the raw material increases, which was a one-time recovery from 2021. This obviously boosted the results. Can you quantify how significant that boost was?

Yeah. We haven't really gotten into breaking down the detail of those customer negotiations, Brian for obvious reasons. I mean, we're giving you the high-level impact that it will have going forward. There's a lot of good information in there and formulas that I think will help you quantify it. But as it relates to the specifics of what we recovered and from who, we're keeping that as inside for obvious reasons.

Fair enough. Appreciate the time. Thank you.

Okay, bye.

Thanks, Brian.

Your next question comes from Kirk Ludtke with Imperial Capital. Please go ahead.

Hello, guys. Thank you for the...

Good morning, Kirk.

Thank you for the call and the presentation. It's very helpful. I have a couple of follow-up questions. A profitable Europe would be a significant achievement. Could you explain how you plan to achieve that and break it down into phases?

Yeah. I think we've given you some insight there but let me just repeat it. So, we obviously have continued to do a lot of self-help initiatives in Europe as it relates to reducing our fixed cost there, many reductions have come in terms of plants coming on to the map. SGA&E, reductions customer price increases on business that was not profitable. Going forward, there will be more of all of that required here in the next 12 months to 15 months to get to the point that I said earlier about making money in '23 and back to a clearing hurdle rates for '24. So the good news is we don't have to have 50 balls in the air to get done what we need done in Europe. We have a very select few levers yet to pull and we know what those are and we're in the process of executing it.

That's helpful and very encouraging. You mentioned tens of millions of dollars from sale-leasebacks. What has changed that allows you to make those deals happen now, or have they been in progress for a long time and are just now coming to fruition, or is it a bit of both?

Sorry, Kirk, it's Jon. We really just started to look around for alternative sources of capital to fund the strategic initiatives that Jeff was just describing to you. The one we closed in Q1 of this year really didn't take that long to come to fruition. We started marketing that property in late Q3 or early Q4 of last year. Within three or four months' time, we're able to lock that deal up. So, this isn't a long-tailed initiative; it's just really looking for creative opportunities.

That's helpful. Thank you. And then two quick ones, you mentioned the other inflation, it's been I think a $58 million headwinds year-to-date. What is the full-year expectation on that?

The $58 million represents a broad category that encompasses not only what we might refer to as recurring inflation, such as typical salary increases, wages, and rising utility costs, but also a substantial portion related to normalized compensation expenses. Over the past several years, the company has not paid any incentive compensation, and for our full-year guidance this year, we are anticipating a standard payout for those compensation-related programs. This creates a slight year-over-year challenge. Additionally, considering the global industry landscape, we are involved in several joint ventures. Therefore, the $58 million reported year-to-date also reflects the operational performance of these joint ventures, which tends to align with overall industry trends. To break it down, I would estimate that wages and related economic factors account for around $15 million on a full-year basis, while the normalized compensation expenses contribute another $30 million. This information should help in your modeling efforts.

So, at least $80 million for the full year?

Yes.

Got it. Lastly, with many moving parts involved, what are your thoughts on working capital in the second half? Will it be a source or be used up?

Yeah. I've addressed this with Steve a few minutes ago as well. We definitely see working capital reductions mostly in inventory in the back half of this year that will benefit cash flows to the extent that sales continue to rise, of course, so accounts receivable may get locked up as EBITDA performance improves in the latter half of the year. But in conjunction with the commercial efforts, we are also looking to optimize our tooling balances that sit in working capital as well and really looking to bring those down. In historical frame of reference curve for us is, we were tying up $100 million each year of Cooper cash or capital building tools on behalf of our customers. With the efforts that we've been undertaking, it's really no longer trying to be the bank of our customers, but instead get upfront payments or progressive payments along the way as we build those tools. So we're not locking up so much working capital at a time. That's another lever we can continue to see benefiting us in the second half of the year. And with those moving pieces, we'll see how our working capital shakes out. But sequentially, we typically experience a strong positive cash flow in Q4; that's the typical seasonality, and we wouldn't expect anything different this year.

Thank you, that's very encouraging. That's all I have.

Thanks, Kirk.

Your next question comes from Joseph Farricielli with Cantor Fitzgerald. Please go ahead.

Good morning. Sorry if I missed this, the prior period cost recovery were on the P&L, did you book that?

Joe, it's Jon. We took, because that is a customer price element if you will, we include the recovery up in the revenue line.

Okay. And I think this was already asked; you're not giving a magnitude of what that recovery was or did you?

We did not give a magnitude. We're going to give you the reference. Jeff talked about being at the high end of our historical range. Going forward, that should be between 65% and 75% recoveries on that commodity side.

Okay. Good enough. And then last question is, your cash, where is it on a global basis, I think we've discussed this before. Are you able to easily access all of your cash in a timely manner or cost-effective as well?

Yeah. Very efficient cash arrangements for us around the world. We do keep requisite balances in each of the regions just to fund ongoing operations. But we can very efficiently move cash around the world as necessary to fund certain geographies if we needed to. So, no restrictions locked up on that $250 million or so that we closed June with.

Okay. Great. Thank you very much for taking the questions.

Thanks.

Our final question comes from Alex Graf with Cowen. Please go ahead.

Thank you. Just wanted to follow-up again on the working capital item. Just specific around inventories. What do you kind of see as an appropriate level of inventory going forward, especially given the OEM production volatility and the high level of inventory you mentioned the company is currently carrying?

Yeah. It’s a great question and the team is coming to work every day thinking about what that engineered level of inventory should be going forward. The challenge you've pointed it out already is the stop-start volatility that our manufacturing teams and plants around the world had to deal with. That's why you see the inventory in excess of $180 million on our balance sheet as of June. At year-end, over the last several years, you see that number coming down to $145 million to $150 million of inventory. The goal is to be in that ballpark, and by the time 2022 closes and things stabilize, but that really is situationally dependent on our customers and their ability to normalize their own production schedules and get back to a stable release schedule that they're pulling from us. So, hopefully, that helps.

Certainly. Thank you very much for that. I wanted to clarify the typical lag for material cost recovery. Can you confirm if that is usually a two to three-quarter lag, or what is the expected timeframe for that?

Yeah. Alex, it's Jon, again. It depends on the particular commodities. Some of the inputs we have on a one-quarter lag; others might be six months out or a touch longer. It really is across the board in terms of our forward buys locking in certain prices for a quarter or two at a time to look forward and do that. What I will tell you is, we are seeing the rate of inflationary pressures across the board of all the buckets. So, things like rubber, metals, plastics, and their specialty inputs for us. The rate of increase is stabilizing, but we don't see it coming back down anytime soon. The rest of the year, we're still on track to face about $100 million of material economics in 2022.

Got it. And presumably if we saw the call the broader benchmark indices come down. Is it safe to assume that the contract pricing is obviously a variable in that nature that a bit also starts to the pricing that you're getting on your products will come down in concert with the overall commodity indices?

Generally, yes. But again, there is a lag effect there as well. It's not current prices that impact current selling price to our customers, but there is a mechanism under the various index arrangements that we have that you look back to a previous quarter or six months and reset prices accordingly. There is a lag on what we're buying, and there is a lag on the catch-up recoveries.

Understood, very helpful. Thank you for all the clarifying questions. That's it for me.

Thanks, Alex.

It appears that there are no more questions at this time. I would now like to turn the call back over to Roger Hendriksen.

Okay. Thanks everybody for joining our call today. We appreciate the engaging conversation and questions. If you'd have further questions, I would like to get all of those. Please feel free to reach out to me directly. I look forward to talking to you again soon. Thank you.

This concludes today's conference call. You may now disconnect.