Q2 2020 Superior Industries International Inc Earnings Call
Good day and welcome to the Superior Industries second quarter 2020, <unk> earnings Conference call Today's conference is being recorded.
This time I would like to turn the conference over Q, Mr. Troy Ford. Please go ahead.
Thank you good morning, everyone and welcome to our second quarter 2020 earnings call.
During our discussion today, we will be referring to our earnings presentation, which along with the earnings release are available on the Investor section that superiors website.
Morning, I'm joined on the call by must be able to live on our president and CEO and Matti Masanovich, our executive Vice President and CEO for them.
Before I turn the call Demosky I would like to remind everyone that any forward looking statements contained in this presentation. We're commented on today are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 19 inside.
Please refer to slide two of this presentation for the full safe Harbor statement under the company's FCC filings, including the company's current annual report on form 10-K, and most recent quarterly filing on form 10-Q, four more complete discussion of forward looking statements and risk factors.
We will also discuss non-GAAP measures today, including value added sales and adjusted EBITDA. These non-GAAP measures exclude the impact of certain items and therefore not calculated in accordance with U.S. go.
Reconciliations of these measures to the most directly comparable U.S. GAAP measures can be found in the appendix of this presentation presentation with that I'll turn the call make good money.
Oh, Thanks, Troy and good morning, everyone and thank you for joining us today to review our second quarter results I'll begin by providing an overview of the highlights for the quarter, including the impact on the call that pandemic on our business.
I'll then provide an update on the priorities we discussed during our first quarter earnings call as we navigate with a current economic environment.
We also think it's important to shared with you what we're experiencing as it relates to shelf progression and visibility in the corner in the future.
Finally, I will discuss what were asked without long term value creation Gordon.
Beginning on slide three.
During the second quarter, despite the widespread adverse impact of this little bit pandemic, we continue to benefit from the ongoing secular tailwinds in the wheel industry, our portfolio of large diameter wheels group delivering content, so no real growth of 4%.
Gene inch and greater wheels accounted for 35% Bobby upswing.
Underscoring our position as a premium wheel solutions provider.
These trends along with a whole bunch chair on pickup truck platforms in North America enabled substantial go to look at market value added shield during the quarter.
Matti will provide a more more details on our sales performance in the core.
As a result of all the actions and initiate any initiatives we have taken in response to the cold dependent.
We were near EBITDA breakeven for the core.
And ended with total available liquidity of $245 billion all of this despite a 58% decline in unit shipments year over year.
After a complete.
After a complete shut down or facilities in April our employees worked relentlessly to bring spear production back online safely and efficiently.
As of June 1st automotive manufacturing facilities are open and operating.
Well the health and seek you want employees remains our top priority. We are continuing to drive structural cost improvements to manage our financial position and can sort of liquidity.
Well the full year, we anticipate a 40 million dollar cost benefit driven by both temporary and permanent cost actions I'll speak more about the actions we took to achieve these results in a moment.
With respect to our view for the full year 2020, we previously suspended optimal.
Due to the current uncertainty.
As we stand today well production has resumed many questions I mean, how long the ultimate impact of the cold with pandemic on the automotive industry.
Somewhat of demand and more specifically when all unit shipments this aligns with the public comments from many of our significant customers that visibility is limited.
That said, we are providing some additional information as it relates to what expectations for the full year.
As of today, the latest digest forecast indicates a 24% decline in industry production for the full year 2020 in our key regions was 23% decline in North America, and a 25% decline in western and Central Europe.
Over the near term overall production schedules indicates stronger demand in the third quarter.
Due to Oems restocking inventory.
On specific Oh volumes in North America, However, there's a high level of uncertainty on industry production volume for the remainder of 2020.
Having said that besides just outlook football game, we are targeting breakeven cash flow for the full year.
One additional context slide four shows the progression of year over year industry vehicle production decline through June.
This data highlights the challenging operating environment, we see why the second core.
Well the direction in June was positive it's still represent significant decline year over year.
As you know these global shifts or unprecedented.
Moving onto slide five as we discussed last quarter in response to the challenging macro environment, we implemented several strategic actions to minimize the impact to the pandemics, including ensuring thousand seat you bought employees.
I do think cost sustaining liquidity and efficiently utilizing production capacity.
Our ability to move quickly in late March and in early April.
In addition to the actions we executed in 2019.
Well critical to mitigating the impact on our business of the covert pandemic has it took hold in North America in Europe.
I am incredibly proud of our team for their commitment and strong execution during the quarter, which supported the successful he's talking about production facilities.
And allowed us to capture improving demand trends as Oems started to rebuild inventories.
Let me provide a brief update on each of these initiatives on slide five.
Today, we have implemented a multitude of broad based measures to ensure the health and see if you bought employees, including the SEC successful implementation of our C work playbook across all of our facilities.
While we continue to have employees looking remotely when needed.
We have been focused on providing a seat environment for our employees, including social dispensing regular temperature checks along with heightened cleaning process is normal after facilities.
The company all tends to be opening up production there has been minimal direct impact on superiors production output related to these additional safety measures.
Well, we are experiencing renewed demand.
With an improving order we continue to identify additional cost reduction opportunities to further align our business with the current production environment, which may include selected and temporary facility shutdowns.
We are operating under the assumption of a slow and steady returned to production volumes worldwide.
Total temporary and permanent savings benefiting 2020, a $40 million. This includes temporary savings of approximately 25 million and permanent savings of approximately $15 million.
Two decisive cost actions and caching initiatives as you as of June Thirtyth 2020, we have total available liquidity of $245 million.
Our cash actions and initiatives, including a reduction in non essential capital expenditures the use of government subsidies were available and closely managing working capital.
Our efforts allowed us to maintain net debt below $600 million to retain $101 billion of our U.S. revolving credit facility.
And I mean in full compliance with the lending with all lending covenants.
Finally, we have taken and continue to take action to efficiently utilize all production capacity.
Specifically by utilizing temporary facility closures and staggered restarts, we're extremely pleased with the successful inefficiencies talked about facilities.
We have seen strong operating metrics to restart which is positive.
Moving on to slide six.
Let me provide some background as to what we're seeing a superior related to value added sales trends.
In most of the overall industry production, we experienced a dramatic drop in sales in April and didn't me some improvements in June.
For the third quarter, we expect our value added skills to be down in the low teen percentage range based on present customer leases.
However, I would let me reiterate.
The demand environment continues to be highly uncertain and going forward will depend upon government incentives.
So my confidence and the development of the Cobas 19 recovery.
Turning on to slide seven.
I would like to provide an update on our long term value creation roadmap, which we have not.
Right, what we're facing day today.
As we previously laid out we have made significant strides in delivering improvements in our north American operations, including optimizing our footprint reducing structural costs.
These actions I was still a line most allows us to align the margin profile about North America business without more profitable European business.
We are continuing to emphasize operational excellence by focusing on.
Operational improvement commercial discipline, and strengthening our premium capabilities to training and knowledge transfer from Europe.
We are prepared to take additional actions under a more negative volumes scenario, including further reductions in direct and indirect headcount, yes, you need an external spending.
Even under the credit scenario, we are continuing over the months pursuit cost efficiencies.
Finally.
I would like to address I would like to address all New York stock exchange listing.
On June 10 superior received notice that it was not in compliance with the listing standards due to decrease in the company's market capitalization and shareholders equity.
We submitted a de mediation plan on July Twentyth Index change has 45 days from the submission to respond.
The plan lays out our strategy to increase the market capitalization within required timeframe.
We are confident that by executing our plan.
We will deliver market capitalization greater than $50 million.
In summary, I remain confident that the actions we have taken so far and the opportunities identified.
Along with all the teams flexibility will allow us to achieve both our near term this mitigation objectives, while executing on long term goals.
Additionally, these actions position superior to emerge stronger from the crisis.
Again, I would like to thank the entire superior team for their hard work this quarter in rising to the challenge to manage through the current operating environment.
Before I turn the call, but somebody I would like to thank him for his leadership and positive impact. He has had one superior during his tenure.
Specifically focused on operating on improving the operational capabilities of the organization.
And cash generation initiatives.
We have undergone an extensive review of internal and external succession candidates and expect to announce it placement shortly.
In the meantime, I'm pleased to announce that Flipboard.
I want to VP of corporate finance will take on the rule as the interim Chief Financial Officer Officer upon many departure.
He has strong backlog did fine.
Having helped position as an investment banker various corporate finance finance roles and most recently with superior since 2016, as treasurer and VP of Investor Relations in corporate finance.
I look forward to working with Troy as we execute on all key priorities.
With that I'll turn it over Tonight.
[laughter] Marty.
Mark you mentioned the October 19th endemic severely impacted OEM automotive production worldwide, which resulted in a substantial adverse in Bakken or financial results for the second quarter 2020.
Turning to slide nine our second quarter 2020 value added sales results continue to outperform the broader market due to continued consumer trend towards larger higher content wheels, we delivered 11% growth over market for value added sales as well as value added sales per wheel growth before.
Excluding the effects of foreign exchange the Tailwinds, we have discussed in the past regarding to shift the larger wheels with additional content continues to play out.
Despite the macroeconomic headwinds we are seem to continue trying to work larger diameter, we'll pick up globally as Bob you mentioned.
ER 19, with Nike much wheels, and greater accounted for approximately 35% of our portfolio in the second quarter. This compares to 28% and occur.
That said in both North America and your value added sales were negatively impacted overall, but the overall decline in the auto industry. As a result of covered 19 related production shutdowns North American your body wash sales declined 64% 50%.
On slide 10.
Outlined the regional breakdown of unit shipments net sales and value added sales for the second quarter 2020, as compared to the prior year period in the second quarter or wheel shipment units decreased to 2.1 billion compared to 4.9 million in occur.
The change in units was driven by coping 19 that a production declines that are key customers.
The decrease in production led to net sales of $145 million for the quarter compared to 353 million in the prior year period.
Which was partially offset by the shift to work larger wheels with more premium content.
We reported a net loss of $43 million or a loss of $2 per diluted share compared to net income of $7 million or a loss of four cents per diluted share in the prior period. Please see the table in the appendix for the effective acquisition restructuring another right, but really the us and the reconciliation from when it comes to the yes.
Moving to slide 11.
As a direct result of the Coca 19 pandemic and despite the decisive cost reduction actions, we took him in the quarter Golden 19 negatively affected net sales by approximately $200 million value added sales by approximately $110 million an adjusted EBITDA.
Ultimately $55 million.
Operating cash flow was negatively impacted by lower profit during the quarter because of the in passive Cobiz 19 inventory and accounts receivable were both reduced favorably during the quarter. However ongoing efforts.
Ongoing outflows related to accounts payable management.
Payments more than offset this production.
Capital expenditures were also reduce significantly as a result of production shutdowns basins, our liquidity position and outlook at the end of the second quarter as Mark noted, we repaid $101 billion on a U.S. revolving credit facility.
On slide 12, I will walk through our change in that assets, that's or nothing else and value added sales year over year for the second quarter 2020 value added sales decreased $84 million compared to $194 million in the prior year period. The decrease was driven by lower production volume due to the cobot Nike production shutdowns and delayed shipments.
Offset partially by the continued portfolio shift to larger diameter wheels with more premium content.
Slide 13, adjusted EBITDA was a loss of $4 million for the second quarter 2020, compared to $49 million in the prior year period. The decrease in adjusted EBITDA was primarily driven by the work lines in North America, Europe, including production shutdowns related to covert 19, partially offset by temporary quoting manufacturing facilities producing personnel and operating.
Expenses in the rationalization of the company's manufacturing footprint.
Overall, the adjusted EBITDA decremental margins on net sales for the quarter was 25%.
Our second quarter Caseloads presented on slide 14.
Aggressive actions, we took during the quarter, which Marty I know this congress served to minimize or Casper.
Operating cash flow was a 38 million dollar use of cash compared to $41 billion source of cash in the prior year.
This decrease was primarily driven by lower profit.
Dr cover 19 under operations.
The working capital use of cash.
In the second quarter, we saw net cash used for investing activities increased to $9 million compared to $7 million in the prior year period. This decrease was driven by a onetime 8 million dollar benefit from the sale of other assets in the second quarter 2019, partially offset by a reduction of capital expenditures from 15 things in the prior year period to nine.
In the second quarter, 2020, which we continue to target the cost reduction.
Net cash used for financing activities, primarily increased due to payments on a revolving credit facility.
I will provide more detail in the following slide preferred dividends paid during the quarter totaled $3 million and purchases of minority holders.
Superior industries, Europe totaled $1 million, leaving approximately $2 million worth of shares outstanding.
Turning to slide 15 for an overview of our capital structure.
In the <unk> in this period of uncertainty, we're focused on maintaining our financial flexibility and enhancing liquidity as of June 32020, total liquidity, including cash in a double amounts under our revolving credit facilities was $245 million and our total cash on hand was $131 million total funded debt as of June.
32020 was $727 billion compared to $658 million in their current year period net debt increased by $44 million when compared to year end 2019, bringing net debt to a total of $596 million compared to $601 billion in the prior year period.
At the end of the second quarter as I noted before we repaid $101 million on or U.S. revolving credit facility.
We remain in full compliance with all of any covenants, including leverage ratio limits on at lines of credits.
Based on various conservative financial forecasts, we do not currently anticipate any issues meeting the covenants, but are these facilities after repaying or U.S. revolving credit facility in the second quarter, we were less than 35% drawn on the facility and therefore not required to test the net leverage covenant of four to five times.
Even if we had been more than 35% drawn on the facility and we worked hard to test the covenant in the second quarter, we would've been in compliance with that code.
Further after the second quarter 2020, the company has made net repayments on its U.S. and European revolving credit facilities totaling an additional $69 million recall, we originally drew down our revolvers in the abundance of caution as of today based on various conservative scenarios, we do not anticipate needing the.
Funds and that's substantially repaid the revolvers.
As seen on slide 16, we have no significant near term debt maturities, our revolving credit facilities mature in 2022, and we will look to extend the maturities on these facilities in early 2021.
No significant funded debt maturities occur in 2024 in 2025.
Slide 17 illustrate our cash breakeven target based on approximately 25% volume declines across our footprint for full year 2020 I.
Assuming well managed working capital acquisition number of our remaining minority shares continued payment of preferred dividends in cash and significantly slowing capital expenditures during the <unk> during the great no production and reducing knowing central capital expenditures, we still expect to maintain neutral free cash flow for the full year.
Our historical progression of free cash flow in the goodies depicted on slide 18.
Strong liquidity position generated by 2019 free cash flow is projected to be maintained in 2020.
Despite the impact of corporate 19 in the first half.
We are projecting to end 2020 with approximately $285 million total available liquidity.
Turning now to work for your 2020 outlook on slide 19.
As the pandemic continues to develop the full impact of our industry is still unknown.
That said I Hs current production forecasts indicate for full year 2020 decline in North America in Europe, 23% at 25%, respectively, resulting in a 24% decline across our footprint.
Again, we anticipate free cash flow neutral.
For the full year 2020.
Third quarter, we expect value added sales to decline slightly low teen percentage range year over year.
As Mark noted we remain focused on executing our key priorities to ensure the health and safety for our employees and customers as well as to meet gains appears financial position with that I'll turn the call back to the operator and open up the call for any questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question we will pause for just a moment hello, everyone and.
For TV to signal.
I can you asked a question press star one now.
With no questions in queue. Mr. Obviously at this time I will turn the conference back to you for any closing remarks.
Thank you. Thank you everyone for joining the call have a great day. Thank you.
Thank you and thank you all for your attention. This concludes today's conference you may now disconnect.
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