Q4 2020 Superior Industries International Inc Earnings Call
Good day and welcome to the superior industries fourth quarter and year end 2020 earnings teleconference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Choi for it Sir Please go ahead.
Thank you good morning, everyone and welcome to our fourth quarter and full year 2020 earnings call. During our discussion today, we will be referring to our earnings presentation, which along with the earnings release is available on the investors section of Superior's website <unk>.
And I'm joined on the call by modesty, and Blue Bond and our president and CEO and Tim Trenary, Our executive Vice President and CFO.
Before I turn the call over to margin, Yeah, I would like to remind everyone that any forward looking statements contained in this presentation or commented on today are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.
Please refer to slide two of this presentation for the full safe Harbor statement.
And to the company's SEC filings, including the Companys current annual report on form 10-K for a more complete discussion of forward looking statements and risk factors.
We will also be discussing various non-GAAP measures today. These non-GAAP measures exclude the impact of certain items and therefore are not calculated in accordance with U S. GAAP reconciliations of these measures to the most directly comparable U S. GAAP measures can be found in the appendix of this presentation with that I will turn the call over to margin you provide and update on our business.
Thanks, Jordan and good morning, everyone. Thank you for joining us today to review, our fourth quarter and full year results first and I do hope net to you and your families are staying safe and healthy during these challenging times.
Before I start my presentation, a few words on my side.
From my perspective at superior as we emerge and that very challenging here we are.
Absolutely excited to have a business built for profitable growth and the industry recovers.
We have been executing on our growth strategy delivery and enabling portfolio.
Driving cost and cash discipline.
So with that I would like to take a few minutes to talk about our growth enablers before reviewing our financial results.
Beginning on slide five I am pleased to say that 2020, mark and third consecutive year of growth above market for superior.
And this coating superior position as a premium wheel solutions provider.
Fundamentally we are seeing the acceleration of the secular trends for premium and lighter wheels.
And this is driving more content and our business.
Here you see some of our exciting launches in 2020.
Our wheels on the GM full size SUV and <unk>.
We reported Broncos port <unk>.
Bmw's X, Kevin and the Mercedes S class.
Our premium technology offerings on these vehicles.
Well as net on other platforms is really our growth driver.
As you can see on this page and the coming pages, our technology solutions are enabling all vehicle segments.
And more than ever and consumers and Oems have a tremendous opportunity to customize their vehicles today.
And that did not exist to allow the book.
Moving onto slide six.
And the secular trends driving growth and our business do not stop with consumer preference and differentiation.
They extend to enabling scioto reductions to light weighting and electrification.
As highlighted on this slide we continue to expand our presence and the heavy segment launching various wheel styles and key high profile EDI platforms.
You can see our wheel and iconic marquee.
And programs for leading and well positioned European Oems.
As we discussed previously we continue to demonstrate our position and relevance on both internal combustion engine and electric vehicle platforms Hulu programs and.
And now through new launches.
Moving on to slide seven.
2020, we continued to expand our product portfolio.
In addition to technology as we have discussed in the past.
How do you like laser etching and various light weighting processes.
We launched several exciting new products.
One such example is Deca tech.
<unk> patent pending technology.
We also launched our thin <unk> light weighting process on the push Kai and Spider.
And last our previously announced award winning <unk> product and more environmentally friendly alternative to upfront.
This expanding portfolio of technologies.
Truly our enabler and differentiator and our marketplace.
Before I move on to our financial results I would like to pass on slide eight.
And see thank you.
For our team.
For individual and collective effort was instrumental in responding to and unprecedented here.
Really outstanding focus on safety and cost and efficiency.
Now moving on to slide nine.
I will review, our financial and other operational highlights.
As I mentioned earlier, we are excited about our position and re emerge from this crisis, we have a business built for profitable growth as we move into the recovery.
We executed at the bottom of the cycle with cost and cash discipline.
And strengthened our balance sheet, while investing in technology.
During the fourth quarter, we grew value added sales by 12%.
Performing the global market.
Improved performance and restructuring deliver and <unk>.
25% increase and adjusted EBITDA and expanded margins by 160 basis points.
This is a combination of our efforts in 2019, and our team's response and the Covid pandemic.
We substantially reduced our net debt and 2020, ending the year with 491 million and net debt.
Lowest level since the acquisition of the European operations.
And well ahead of our previous guidance.
Further in the face of the pandemic we delivered.
10% more free cash flow and the entire calendar year calendar year of 2019.
And I discussed earlier, the secular trends for light weighting and premium wheels are accelerating and driving our growth.
During the quarter, our content per wheel increased 12%.
And our growth above market and value added sales was 11%.
For the full year 2020 growth above market was 7%.
Impressively 19 inch and larger wheels represented over 40% of our total shipments.
We expect these trends to continue and we execute on new opportunities to meet customer demand for increased real content.
In terms of operation.
We have been very pleased with the success and ensuring our facilities are safe places to work not only with respect to Covid, but also the general <unk> and.
In fact during the year, we achieved an industry best in class T. Our IR, our key safety metric.
We also successfully managed through a very volatile market and customer conditions.
And Q4, do we navigated through mandated closures and capacity restrictions due to COVID-19 and in Mexico.
And we have 50% of our global manufacturing operations.
These effort enables us to successfully support our customers, while delivering improved margins.
Further we continued to execute on our strategy to leverage our know how and Europe to support our European customers and North America.
Our operations in Mexico are continuing to launch programs and deliver for BMW for Audi for VW, and Volvo and just to name a few.
We're very pleased with the progress we achieved on these priorities.
I will now address our current operating environment, along with our 2021 outlook on slide 10.
As noted on the left side of the chart.
And the recovery for the broader automotive industry is well underway.
While production levels and North America rebounded more quickly than in Europe.
We still anticipate overall production levels to be down from 2019.
So more recovery opportunity.
Does exist.
We expect the industry to be supported by temporal tailwind in 2021, including mill inventories at our customers and North America net.
Ongoing favorable shift towards premium product mix that we discussed.
And widespread distribution of the Covid vaccine.
That said, we are cognizant that some challenges still exist.
Including the impact of the ongoing pandemic and the semiconductor shortages.
Also of note during the first quarter all of our operations in Mexico was temporarily impacted by the cold weather power outage that disrupted, Texas and North Mexico.
We were able to serve our customers out of our finished goods inventory.
We missed but he very limited shipments to date and that some of our customers were also shut down.
Kim will provide additional background on the financial impact when he reviews our guidance.
With these expectations in mind, we will continue to focus on enhancing profitability and driving cash flow.
For the full year 2021, we expect to deliver a range of 160 million for $180 million and adjusted EBITDA, along with a $110 million to $130 million and cash flow from operations.
These ranges contemplate the previously mentioned impact.
Moving ahead to our value creation roadmap on slide 11.
We continue to make progress on our long term priorities and are well on our way into the second and third patients operational excellence and revenue growth.
We are focused on transformation of our business around a culture of lean and continuous improvement.
While expanding our customer base and portfolio to deliver revenue growth.
These efforts will continue the momentum from 2020.
Solidifying our competitive position and moving US along this road map and 2021 and beyond.
With that I'll turn the call over to Tim Tim.
Thank you Marty and good morning, everyone.
2020, with another year of growth above market for superior.
And as reflected on slide 13.
We grew value added sales adjusted for FX by 12% and the fourth quarter compared to the prior year period, whereas the industry was up 1% for the.
Full year 2020 value added sales adjusted for FX declined 15% versus the prior year, but grew 7% above market.
Our growth above market has been driven by the ongoing increase and larger diameter wheels with more premium content and our portfolio.
And recently and part as a consequence of the COVID-19, pandemic and exaggerated shift and our portfolio mix to premium wheels, as Oems sales mix tilted towards premium vehicles.
Slide 14 outlines for the regional breakdown of unit shipments and net sales and value added sales for the fourth quarter and full year, 2020 as compared to the prior year period.
And the fourth quarter, our wheel units' shipments were $4 5 million units flat compared to the prior year period and essentially in line with industry production levels.
For the full year will unit shipments were $15 2 million units compared to $19 2 million units and the prior year for <unk>.
Decrease was largely driven by OEM production shutdowns due to the pandemic and was in line with overall industry production levels.
Net sales increased to $338 million for the quarter.
Paired to 310 million in the prior year, which was primarily driven by the ongoing portfolio shift to larger diameter wheels with more premium content as well as strong or stronger euro to U S dollar rate.
For the full year net sales were $1 1 billion compared to $1 4 billion and the prior year, primarily driven by decreased production volumes, partially offset by the benefit of mix.
And the fourth quarter, we reported net losses of $21 million.
Or a loss per diluted share of $1 16, compared to a net loss of 99 million or a loss of $4 25 per diluted share and the prior year period.
The fourth quarter loss included a 26 million tax provision.
And 4 million of which arose from an allowance for deferred tax assets and.
Non cash charge that does not affect our ability to utilize these assets to offset taxable income and the future period.
For the full year, 2020, we reported a net loss of 244 million for a law.
Loss per diluted share of $10.81 compared to a net loss of 97 million or a loss per diluted share of 510 and the prior year period.
The net loss for the year included an income tax provision of $15 million.
This provision despite a pre tax loss.
And was primarily due to the noncash and non deductible impact of the goodwill impairment and the previously mentioned noncash valuation allowance on deferred tax assets.
Cash taxes for 2020 approximated $7 million.
Slide 15 is the change in net sales and value added sales year over year in the fourth quarter.
Value added sales increased to $202 million compared to $173 million and the prior year period.
And as noted previously this increase was primarily driven by the continued portfolio shift to larger diameter wheels with more premium content.
Each benefited value added sales by $22 million.
A stronger Euro also benefited value added sales a benefit of $7 million.
On slide 16, adjusted EBITDA increased to 47 million for the fourth quarter of 'twenty, and 'twenty compared to 38 million and the prior year period.
The increase and adjusted EBITDA was primarily driven by favorable product mix and.
Improved operating performance and foreign exchange rates.
These benefits were partially offset by the timing of the aluminum pass through to our customers and the negative impact of the pandemic on our operating costs.
Incremental operating costs from COVID-19, and the fourth quarter included disruptions to our production and the associated overtime.
And higher personal protective equipment and safety costs.
And overview of our cash flow is on slide 17.
We ended the year well ahead of our guidance provided at our third quarter earnings call.
Starting with the fourth quarter net cash from operating activities was $58 million compared to $61 million and the prior year period.
This decrease was primarily the result of a lower source of working capital, partially offset by growth and earnings and lower taxes during the quarter.
Net cash used for investing activities decreased by $11 million compared to $17 million and the prior year period. This.
This improvement was driven by managing down capital expenditures by.
By extending projects and by extending payments.
Cash payments used for non debt financing activities, it's primarily preferred dividends.
A decrease compared to the fourth quarter of 2019 was primarily due to the acquisition of $3 million of minority shares in 2019.
The fourth quarter and the fourth quarter the company generated.
And $42 million of free cash flow.
A strong finish for the year.
And our full year basis net cash from operating activities was $150 million compared to 163 million and the prior year.
This decrease was driven by lower earnings as a result of the pandemic.
We offset by improvements in working capital net.
Net cash used for investing activities was 44 million.
Compared to 55 million and the prior year.
And this improvement resulted for managing down capital expenditures extending projects and by extending payments.
The prior year investing activities also benefited from the sale of other assets of $10 million.
Cash payments for non debt financing activities were $19 million compared to 29 million and the prior year.
This improvement was primarily due to the suspension of common dividends for 2019 as.
And as well as the acquisition of $7 million and minority shares in 2019.
And the $5 million in 2020.
Taken together the company generated 87 million and free cash flow and 2020.
And part a reflection of permanent and temporary cost structure actions.
Cost and capital expenditure discipline and effective working capital management.
Slide 18 provides some context for this free cash flow performance.
Over the past two years, we have delivered significant free cash flow.
Enhanced liquidity and reduced our net debt.
Of note superior achieved the lowest level of net debt $491 million since the acquisition of the European operation.
Turning now to slide 19, and overview of the company's capital structure and liquidity position.
And so at the end of 'twenty, and 'twenty liquidity, including cash availability under the revolving credit facilities.
It was 381 million fund.
Funded debt was 643 million compared to $631 million and the prior year period.
The increase and funded debt year over year reflects term loan pay down which was more than offset by the translation of euro denominated debt as the euro strength and relative to the U S. Dollar.
Slide 20 is the company's debt maturity profile.
We have no significant near term maturities and funded debt.
The revolving credit facilities mature in may of 2022, and our Undrawn.
The term loan does not mature until 2020 for the <unk>.
Senior notes mature in 2025.
We're in compliance with all loan covenants.
For full year 2021 outlook is on slide 21.
We expect real unit shipments to be and the range of 16, 9% to $17 7 million net sales to be and the range of 1.3, the 1.37 billion and value added sales to be and the range of 740 to 780 million <unk>.
Resulting in adjusted EBITDA of $160 million to $180 million.
This outlook is based on industry production recovery and the mid teen percentage range across our global footprint.
And increase in aluminum prices and content growth and driving higher net sales.
The continued shift to premium high content wheels also supports growth.
Value added sales.
This guidance includes the anticipated impact and the semi conductor shortage and the shutdown of our North American operations and February due to weather.
With respect to free cash flow from operations, we expect $110 million to $130 million for the year.
Finally capital expenditures should approximate 75 million for the year, a portion of which was carryover from 2020.
These expenditures are in part.
Strategic investments and our finishing capabilities as we continue to develop our portfolio.
That concludes our prepared remarks, TD I will turn the call back to you for questions.
Thank you Sir if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
And again it is star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Our first question comes from Gary <unk> with Barrington Research.
Hey, guys. Good morning, how are you guys and good morning.
Good several questions here, so I'll try and get through fairly quickly.
We'll ship for 40% with premium content or 19 inches or higher what were what was the corresponding percentage for Q4 up 19, and then how much Oh 19 inch wheels were a part of the portfolio for the full year versus 2019.
So I would see going back for 2019. It was it's actually the shifted quite staggering hearing and it was 90% and 2019 and if you adjust that number and you just gave me for for the aftermarket which.
And swing that fast.
On the large size wheels is actually 47%. So we are very very pleased with the shift.
And I'm going to give you another stat, Gary because I know you've asked me about this before which is when you think of electrification and the content is driving we haven't had and we didn't have that and the script and.
And our business right.
Right.
So if you look at if you look at him.
And operationally Cosmo for which makes wheels lighter right.
If I go back to 2019, 6% of our wheel, most combined North America and Europe what for.
So for them.
And this year, we expect that number to be 12 per cent of our total production.
What that does.
When you flow for them and we'll make a flatter and you add 20% and.
And you added tail to that.
And so that's a very I mean, these two trends are.
Sizing premium finishes like.
Waiting.
The portfolio is really really at a point of inflection and out here and it's showing up and the numbers we're excited about that.
Right and that was that was going to be the follow on question in terms of you know.
<unk> now.
If you look across your entire portfolio wheels, like what percentage of them are going out with some kind of with these new technologies like a physical vapor deposition Deco attack the lightweight technology custom finishes.
First you know I mean, that's right yeah.
Uh huh.
Across the board. So we give you the 19 inch and larger wheels, and that's really driven by consumer preference for larger wheel.
The same trend growth for Premier finishes, we didn't mind, we define premium finishes machined wheels, and special pain special coatings.
It changed.
That trend drive drive.
And driving the portfolio I mean, and you know we've said you pick up you pick 10 car five years ago versus now and the contrast is talk.
And the wheels, and the size of the wheel and the finishing on the wheel okay.
And one of the statistics that we never gave you. This one on electrification and I'm sharing with you which is an indication. If you think about the EV market continuing to take hold and the need for light weighting of vehicles.
It's quite an exciting trend that is coming our way.
Right, Yeah, and I understand that and then let me just let me just ask one more and I'll jump off and let somebody else go.
While back I remember, we talked about you know one of your goals was to port the technology from the wheels into North America. You said, there was about $1 2 million vehicles produced book.
European companies in North America, and you really have just started scratching the surface of winning new programs can you give us some idea.
And where you stand right now within that universe of say $1 2 million vehicles. I know you cited a couple of entities that you're supplying for out of Mexico, but you know what what percentage of those.
European manufacturers.
Manufacturers are you currently capturing.
For now, yes, so and he was really bad.
A highlight and.
And the transformation of our business on the execution front.
We have now really accelerating.
Performance in Mexico.
And we're shipping to just about all of the European Carmakers, and North America, and it's just the beginning hanukkah 'twenty, one probably less than 5% and my business and North America and supporting European Oems.
Okay, I'd like it to be substantially higher.
If you say what.
And have we set on Triton.
The numbers, we're looking forward at about 12% market share of that business and.
And we have the makings of it and we have the plan, we know what we need to do.
We have the credibility with these car makers.
You cannot ship wheels out of them plant in Mexico, and without having a.
And army of people from from from Europe into your plan and auditing and.
Right.
That has been a tough tough haul and we are very pleased with the progress all of them. Okay.
Shifting to the European car makers.
Great. Thank you and I'll, let somebody else go and then follow up.
Yeah.
And as a reminder, please press star one to join the queue.
Our next question comes from Stephanie Vincent with J P. Morgan.
And I'll say I'll try thank you for hosting the call today and congratulations on 2020 I just had two.
The questions two housekeeping and one on outlets. So we had.
The Atlantis and come out earlier this week and at least there and just stray outlook for North America was around 8%. It seems like your outlook is more in line at least from what I understand from IHS, which is looking for around 20 to even you know.
Low twenties.
Percentage I guess my question is you know obviously, there was a huge amount of uncertainty and volatility how much cushion do you have in your 'twenty 'twenty, one outlet for that sort of spread.
And of automated and production for 'twenty 'twenty, one and.
And then and my next question of really housekeeping questions and and asking pretty much everyone does thin and light coverage space is thank you for for displacing your use of factoring is there any supply chain financing or reverse factoring that you've been using over 2020. Our plans for you in 2020 one.
And then on your view on debt repayment.
Preference between timeline or bonds would be cheaper and you as far as well.
Okay, Stephanie I'll take the first one and turn the last two to Tim.
And interesting.
Development when you think of the outlook for 'twenty, one and how the and time industry for Q1 industry.
And is deferring an opinion right just about everyone frankly is.
Of the view, including us.
Net.
And IHS is very optimistic coming.
North of 20%, 24%.
And North America, 15% and Europe, we've taken a more conservative position, we're thinking 20% in North America, 10% and Europe that averages.
To 15% I think if you are if you scan Stephanie.
If you scan.
The supplier community and Youll see a big range and honest you said, 8%.
And if you're a big variation, but nobody is really agree with IHS right now and we do not and there.
There's a lot of uncertainty with Covid.
And we get the policies recently and Q1 and Mexico.
We have already chip shortages that are impacting.
And the industry and a very severe way actually and I don't know if the carmakers will be able to recover from that.
Now, having said that and in our I know the question will be coming up relative to your well how the chip industry impacting us.
And would tell you that as I look at my mix.
Ah carmakers want to make the the higher contented larger Suvs and the big vehicles and.
And this is where our position, we're very strong and those not on.
This platform.
And as I look at Mac Q1, I don't see myself impacted versus <unk>.
Versus my plan I think it eventually will catch up with us, but and the short term.
And we're well positioned as it relates to that chip chip shortage.
Tim you want to take that.
Sure.
Hi, Stephanie it's Tim.
I have two questions from you if I missed one let me know a question about supply chain financing and the other about possibly paying down the debt.
With with respect to supply chain financing I think you asked if we had utilized it in 2020 are the answer is no and 2020. We did however begin exploring that option and in fact have put a.
And what I would characterize as a modest.
And capabilities slashed facility in place for this year and in fact, and the first quarter, we actually have executed on that just a just a small amount. So we stepped our toe and that and that water and.
If and when the time comes we may even consider expanding or having discussions with the.
For lenders and the vendors about maybe expanding that but for the moment.
And we just took their toll and the water and and are exploring it.
For the first quarter of 'twenty one.
With respect to the.
Our possibility of pain and paying down the company's debt.
There is a fair amount of cash on the balance sheet as you know for the moment to be candid.
I I enjoy that Optionality and it's easy to think of this virus being under control and behind us.
Not at all and all.
Clear to me and frankly for the moment until.
The future is a somewhat more certain with respect to the pandemic and.
And and maybe even the semiconductor shortage I'm happy to have the.
The cash on the balance sheet.
Okay. That's that's super clear. Thank you so much.
Okay.
Thank you again as a reminder, please press star one to join the question in queue. Our next question comes from Gary <unk> with Bank and research.
Oh, Yeah, I think Matt you probably answered you answered. This question from the last question that was asked but I just wanted to get a reiteration here.
Are you seeing given the chip shortage is it possible for the automakers to.
You know shift production to more of the higher and.
Vehicles, Suvs that you put the wheels on.
It's more about you know for lack of a better word more commodity types of dance.
It seems like what you said is you are seeing that and you you're not.
As affected by the chip shortage that's coming.
Gary.
That is correct and net.
So far and frankly, a positive impact on our first quarter outlook because.
Carmakers are just shifting to they want to sell these higher content and platform.
And like I say, it's eventually I think it is going to catch up IHS thinks it and 8%.
The impact on the industry.
We think it's more like 2%, we're not seeing it now, but we built and a 2% impact for the balance of the year.
But the answer to your question is correct Youre right.
So what I mean, if we look at your portfolio what percentage of <unk>.
Your portfolio of wheels is going into that market I mean, 40 per center and our 19 inches or higher is that a good proxy for that.
Yeah that is that is but you know even some of the.
Some of them some of our.
Wheels that are smaller than 19 inches.
So go on these premium platform because almost all of our plans for Ronnie.
Some from Tom really running above capacity.
It crosses both spectrum people already.
Okay, and then a couple more quick ones here.
You said some of the Capex was catch up.
The $75 million this year, what what is the what is really your natural level of capex for years at about between.
40 and $50 million.
No Gary it's Tim it's higher than that just to give us some sort of sense that some way to think about it going forward.
This varies a little bit by facility, but generally on an annual basis.
We span and give or take $4 million U S. A year at each of our facilities are eight facilities.
And I would say if you wanted to sort of think about annual run rate considering that maintenance and and.
And investments for additional capabilities et cetera, et cetera, and on a normalized basis, I'd say, it's somewhere between 60 and $70 million.
We were coming off a year in 2020.
And and <unk>.
I said it and my my remarks, you know we pulled back.
Total capex was and the mid mid 40 million. So we pushed a little bit into 2021, and so that's why that $75 million is a little north of what I would normally what I would consider sort of normal run rates of 60 to 70.
Okay and then.
Lastly is with all these technologies that you have out there in particular with the light weighting.
As we move to more Evs are there are there any other.
And if your competitors have these technologies out and the market now I mean, I know, there's some European competitors I know, there's Chinese competitors or anybody out there that is doing what youre doing.
Yes, I mean, I would tell you that listen flow forming is is it is not a technology that is proprietary to us.
And then all the deal makers are probably seeing some of that to some extent.
I would tell you that.
When you look at our customer base and platform base and lend more to the need to flow for these.
And these vehicles, especially larger and heavier vehicles. So we get more of a pull on that and as I look at you know teck.
Technology portfolio and the like leading front our team as Gary has done a very nice job we have.
Six to seven and I can.
And can talk about light weighting technologies. The most recent one we just talked about is.
Is the is the.
The technology that we put on the Spider and the push for like leading technology for the.
No revenue.
Lyke-wake wheel.
No.
Yeah.
Net and many more technology.
And that's adequate job with and we'll be launching.
Okay. Thanks, a lot.
Yeah.
Thank you. This concludes today's Q&A I would now like to turn the call back over to Martin <unk> for closing remarks.
In closing we are excited about the momentum we have.
Exciting 2020, and beginning 2021.
And the challenges persist and the markets. We have proven that we can manage through a very volatile operating environment and.
And respond in a way that protects our employees and supports our customers and.
And delivers tangible value for our shareholders and.
And wish you all the best Thank you for joining us today.
This concludes our call for the day.
Thank you.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
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Yes.
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