Q3 2023 Superior Industries International Inc Earnings Call
Welcome to superior industries third quarter, 'twenty 'twenty trade earnings call, you'll have the opportunity to ask questions at the end of the call. They can be done by pressing star one on your telephone keypad to register your question.
Im joined this morning by must stay up Lebed precedent N C. A T.
I am joined the Rea executive Vice President and CFO.
I'll now hand, you over to your host Tim Trenary to begin today's conference. Thank you.
Good morning, everyone and welcome to our third quarter 2023 earnings call.
During our call. This morning, we will be referring to our earnings presentation, which along with our earnings release is available on the Investor Relations section of Superior's website.
I enjoy I recall by most of you who are on our president and Chief Executive Officer.
I'm also joined today by Michael Doyle, Senior Vice President and President North America.
Before I turn the call over to Mark 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.
Private Securities Litigation Reform Act of 19 on default.
Please refer to slide two of this presentation for the full safe Harbor statement.
The company's SEC filings, including the company's 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 the presentation.
With that I'll turn the call over to Marcia to provide a business and portfolio up there.
Thank you, Tim and Hello, everyone. Thank you for joining our call today to review our third quarter results.
I would've thought.
Our team delivered solid results in the quarter, despite a challenging operating environment EBIT.
EBITDA was up margins were up and content per wheel was up for the 18th consecutive quarters. This is very much a testament to both the operational strength of our team.
And the competitive positioning of our portfolio.
While we are seeing overall recovery in industry vehicle production, our key markets remain pressured by lingering headwinds leading to our value added sales adjusted for foreign exchange being flat versus the prior year.
The UAW strike had a marginal impact on our third quarter results. However, we expect the strive to have a meaningful impact in the fourth quarter.
In North America fleet sales, where we typically have limited content continue to grow.
And one of our top customers GM saw a 4% decline in production, mainly driven by the frequent shutdowns of their Mexico operation.
In Europe production at key customers was down 1% for the quarter, especially at VW.
Having said that it does appear that our European aftermarket is showing signs of recovery as wholesalers and distributors restock, Florida winter season.
We remain focused on what we can control leveraging our commercial discipline.
Operational excellence and demand for our differentiated portfolio.
In line with our long term goal of transforming our footprint and elevating our competitive position.
We announced in the third quarter.
Our production facility in Brazil, Germany.
Recall, when we announced this action we stated that this would result in a 20 million euro step function improvement in regional profitability.
We are on track to make a reality a 24.
I will speak to this later in the presentation.
Lastly, we have been successful in aligning our pricing with the rising input costs, while taking actions to prune to prune underperforming parts and drive long term profitability.
We are continuing to meet consumer demand for lighter lager deals with premium finishes.
Content per wheel grew 6% on a year over year basis, and premium wheels, now comprise more than 52% of our shipments to OEM customers.
Further during the quarter net debt declined to $453 million, despite having to build safety stock related to our action in Germany.
Overall, we are maintaining a strong liquidity position of $194 million and are further enhancing this through capital prudence with year to date capex spend at $30 million.
We are updating our full year outlook to reflect the impact of both the deconsolidation of our German operations and the UAW strike on our fourth quarter results.
We are.
And volume guidance and narrowing our adjusted EBITDA range.
Further we are reducing operating cash flow guidance to reflect the temporary buildup of working capital, including $25 million in safety stock to protect customers and facilitate the transfer of production to Poland.
We expect the impact on operating cash flow to reverse upon completion of the project in early 'twenty four.
We are also lowering our outlook for capital expenditures as we focus on lowering the capital intensity of our business.
Jim will provide more detail on this.
<unk> outlook later in our presentation.
On to slide six which highlights the strong performance we have seen since 2000.
Here, we're showing the comparison of key performance metrics from 2019 and from the last 12 months.
While industry production has declined.
We have delivered robust growth in value added sales and profitability expanded margins.
Significantly reduced net debt.
And increased content per wheel.
While we continue to navigate through.
Creating challenges I am confident we will continue to make progress on these metrics.
Thanks to the incredible improvements our teams have made to the business throughout the recent years.
Moving on to slide seven.
Our position on premium platforms has continued with several of our technology is being utilized in recent launches on the left side of this chart.
Importantly, as you can see on the right side.
We have been successful with customers in aligning product pricing with the input costs of our business.
This improved pricing combined with growth in premium content has a resulted in substantial and sustained growth in content per wheel.
Notably content growth and price has improved our content per wheel by 29% compared to 2020.
Turning on to slide eight showing a snapshot of the current operating environment.
Well, we have seen continued moderation moderation in supply chain constraints.
And lower impact of inflation.
In fact global industry production is decelerating compared to recent quarters.
Although industry production in our two regions is up 6%.
Automotive production in our key customers in both regions remain nearly flat on a year over year basis.
Recall 2022 was a supply constraint for the industry.
Now 2023 is becoming more demand constrained evidence and lower production in the third quarter and the balance of the year.
IHS is projecting production in both regions to decline in the fourth quarter versus the prior year, notably GM and Ford are expected to see substantial declines in the coming fourth quarter, reflecting the impact of this trial.
That said despite these challenges we are well positioned to drive long term profitable growth driven by industry preference for our localized footprint circular.
Premium wheels, and the benefit of improvements, we are making across our footprint to enhance our competitive position.
Turning on to slide nine.
Another view of our results compared to the wider industry.
Our adjusted value added sales remained flat compared to production growth of our key customers as well as the wider industry.
As noted earlier unfavorable mix in North America.
Also in China.
Water sellout plan continued to pressure our top line.
Further production at our key customers in Europe were down actually 1%.
And finally, the deconsolidation of our German operations in the quarter, while ultimately supporting our long term growth has resulted in a temporary loss of revenue, which will eventually come back.
Moving on to slide 10 for a brief recap on.
On the strategic actions, we announced in August at our German production facility and how it fits in our wider plans to improve our footprint.
Our global our global manufacturing footprint has been a key differentiator to Oems as they seek to derisk long supply chains and source components locally.
Most of our capacity is strategically located at locations in Mexico, and Poland, which are high performing sites due to the transformation. We have made in recent years.
The actions we have taken at our German facility represents a continuation of that plan, giving us the opportunity to transform the remainder of our footprint, while enabling us to better serve our customers throughout Europe.
These plans remain on track for the terms of the protective shield proceedings actually this is better known in the U S. As chapter 11 insolvency proceedings.
It is now increasingly likely that this project will result in the closure of the adult facility in Germany.
And the transport of roughly 800000 wheels on facilities in Poland.
This is a key driver of the step function improvement in profitability I mentioned earlier.
At night, Aetna I'd like now to move to slide 11 to address the wider actions, we have taken in driving margin enhancement across our European footprint.
As noted on the previous slide our actions in Germany are proceeding as planned.
We are now focused on shifting production to Poland, which would require a significant buildup of safety stock to ensure no impact of service on our customers as we improve our capabilities and capacities in Poland.
In addition, we are working through.
Rationalized administrative overhead.
Our consolidated aftermarket warehouses to improve our overall cost structure.
We also have continued to collaborate with our European customers to adjust pricing to match rivaling.
Our efforts have been fruitful as evidenced by the 13% increase in price in context year to date.
Additionally, we have worked to Derisk, we launches transferring production of programs to Poland that was originally planned to launch in our German facilities.
Lastly.
As part of our 80 20 approach we have pruned.
On a program from our portfolio to support better margins and product mix.
This has meant cutting roughly 750000 wheels from our book of business. While this is a sizable figure. It is critical to note that these were marginally profitable deals on programs that were not ultimately advancing our long term growth strategy.
Okay.
But it remains to be done I am pleased with the progress we have made in narrowing the margin gap between Europe, and North America and I am excited to continue this momentum to drive our business forward.
In closing.
Our teams have continued to do a great job in managing through challenges to deliver solid results.
Our content story continues to play out.
And we are making great strides in improving our overall footprint to support long term profitable growth.
Looking to the remainder of 2024, we remain focused on advancing our portfolio optimizing cost.
And generating cash to deliver sustained value for our shareholders.
Now I will turn the call over to Tim to provide more detail on our financial results.
Thank you Martin.
On August 31st this year, we announced a strategic action.
The continuation of our local for local manufacturing footprint optimization and the transformation of the remaining 6% of our manufacturing footprint to a more competitive cost structure.
More specifically our production.
Facility in <unk>, Germany, otherwise known as superior industries production or SPG.
<unk> protective shield proceedings.
Durbin CT administered reorganization process.
Generally accepted accounting principles require to Spg's statement of operations and balance sheet, beginning with the commencement of the proceedings.
Consolidated from superior industries financial statements.
Accordingly, the income statement.
For the month of September is excluded from the third quarter financial results.
Theres the balance sheet of SPG as of the end of the third quarter.
The deconsolidation of SPG gave rise to an $80 million charge in the court.
Furthermore, approximately 80000 wheels produced SPG in September are excluded for wheel shipments.
And approximately $9 million.
And $6 million, respectively of net sales and value added sales are excluded from third quarter sales.
The deconsolidation of FPGA, yet less than a 1 million dollar impact on third quarter adjusted EBITDA.
Let's look at the quarter on page 13 third quarter 2023 financial summary.
Net sales decreased to $323 million for the quarter compared to $406 million in the prior year period, but value added sales of $176 million or substantially the same as the prior year quarter.
Lower cost of aluminum is the primary reason for the decline in net sales.
Aluminum prices have now normalized after a significant run off beginning in early 2022.
Adjusted EBITDA was 39 million 3 million more than the prior year quarter.
The adjusted EBITDA margin expressed as a percent of value added sales.
We improved year over year by 160 basis points and was 22%.
We incurred a net loss of $86 million in the second quarter.
Unknown Executive: You will have the opportunity to ask questions at the end of the call. This can be done by pressing Star One on your telephone keypad to register your question.
Sure.
42 cents.
Impaired to a net loss of $400000 in the prior year period.
Or a loss per diluted share of <unk> 35.
Tim Trinnery: We are joined this morning by Majdi Abulaban, President and CEO, Tim Trinnery, Executive Vice President and CEO. I will now hand you over to your host, Tim Trinnery, to begin today's conference.
The third quarter includes an 80 million sharp dollar charge related to the <unk> proceeds and the attendant deconsolidation of SPG from superior financial statements.
The third quarter year over year sales bridge is on page 14.
Tim Trinnery: Thank you.
To the far right.
Alumina cost pass through to customers was down $81 million or by 35% compared to the prior year period, reflecting the normalization of the cost of aluminum.
Tim Trinnery: Good morning everyone and welcome to our third quarter, 2023 earnings call. During our call this morning, we will be referring to our earnings presentation, which, along with our earnings release, is available on the Investor Relations section of Superior's website. I am joined on the call by Majdi Abulaban, our President and Chief Executive Officer. I am also joined today by Michael Dora, Senior Vice President and President North America. Before I turn the call over to Majdi, I would like to remind everyone that any forward-looking statements contained in this presentation or commented on today are subject to the State Department provisions of the Private Security's Litigation Reform Act of 1995.
Value added sales decreased by <unk>, 2 million or 1% compared to the prior year period, reflecting fewer wheel shipments largely offset by mix and price.
Value added sales continued to benefit from increasing content per wheel.
Tim Trinnery: Please refer to my two of this presentation for the full State Department statement and to the company's SEC filing, including the company's current and report on form 10K for a more complete discussion of forward-looking statements and risk factors. We will also be discussing various non-get measures today. These non-get measures exclude the impact of certain items and therefore are not counted in accordance with U.S. Gap. Reconciliation of these measures to the most directly comparable U.S. Gap measures can be found in the appendix of the presentation.
Currency benefited net sales by $8 million.
On page 15.
Third quarter 2023 year over year adjusted EBITDA Bridge.
Adjusted EBITDA for the quarter increased to 39 million compared to $36 million in the prior year period.
The adjusted EBITDA margin.
Three 2% improved by 160 basis points from the prior year period on flat year over year value added sales.
Volume price and mix metal timing and performance all contributed to the increase in adjusted EBITDA for the quarter.
Currency, however, bird adjusted EBITDA by a small amount less than $1 million.
An overview of the company's third quarter 2023 free cash flow is on page 16.
Cash flow provided by operating activities was 9 million compared to $17 million in the prior year period.
Majdi Abulaban: With that, I'll turn the call over to Majdi to provide a business and portfolio update. Thank you, Tim, and hello, everyone.
Decline is primarily attributable to small increases in working capital and restructuring charges and higher interest expense.
Majdi Abulaban: Thank you for joining our call today to review our third quarter results. Our team delivered solid results in the quarter despite a challenging operating environment. Iberal was up, margins were up, and content for review was up for the 18th consecutive quarter. This is very much attachment to both the operational strength of our teams and the competitive positioning of our portfolio. While we are seeing overall recovery in industry vehicle production, our key markets remain pressured by lingering headwinds leading to our value added sales adjusted for foreign exchange being flat versus the prior year.
Net cash used in investing activities was $12 million compared to $11 million in the prior year period.
The.
The increase in capital expenditures in the quarter compared to the prior year period was more than offset by a $4 million charge and cash associated with the deconsolidation of our CTG.
Cash flow used in financing activities was zero for the third quarter compared to $4 million in the prior year period.
Preferred dividends of approximately $3 million were lower due to the timing of payments at quarter end two.
<unk> thousand towards them through.
Free cash flow for the quarter was $9 3 million versus positive $2 million in the prior year period.
An overview of the company's capital structure as of September 32023, and will be found on page 17.
Majdi Abulaban: The UAW strike had the marginal impact on our third quarter results. However, we expect the strike to have a meaningful impact in the fourth quarter. In North America, please say where we typically have limited content continued to grow. And one of our customers, GM, saw a 4% decline in production, mainly driven by the frequent shutdown of their Mexico operation. In Europe, production at key customers was down 1% for the poor, especially at D.W. Having said that, it does appear that our European aftermarket is showing signs of recovery as wholesalers and distributors restocked for the winter season.
Cash on the balance sheet at quarter end was $177 million.
Funded debt was $630 million at quarter end net debt was 453 million a decrease of $3 million compared to the prior year.
So at the end of the third quarter liquidity, including availability under our revolving credit facility was $194 million.
Superior's debt maturity profile as of September 32023 is on page 18.
The revolving credit facility was undrawn at quarter end.
We are in compliance with all covenants.
And the $250 million sulfur based interest rate swaps, we entered into last year in anticipation of the terminal refinancing our in the money.
Majdi Abulaban: We remain focused on what we can control, leveraging our commercial discipline, operational excellence and demand for our differentiated portfolios. In line with our long-term goal of transforming our footprint and elevating our competitor position, we announced in the third quarter the strategic action at our production facility in Verdole, Germany. Recall, when we announced this action, we stated that this would resolve in a 20 million euro step function improvement in regional profitability. We are on track to make the reality in 24.
Most of the fed's rate hikes.
Annual interest expense is about $5 million less than it otherwise would.
We are adjusting the full year 2023 financial outlook on page 19.
These adjustments reflect the impact of the deconsolidation of SPG from the Companys financial results for the last four months of the year and then estimate.
The impact of the UAW strike.
With respect to the deconsolidation of SPG.
We are reducing a wheel shipments by 300000 wheels.
Net sales by $32 million.
Majdi Abulaban: I will speak to this later in the presentation. Lastly, we have been successful in aligning our pricing with rising impulse costs while taking action to prune, to prune, under performing parts and drive long-term profitability. We are continuing to need consumer demand for lighter and larger real-to-premium finishes. Content for real grew 6% on a year over a year-based, and premium wheels now comprise more than 52% of our shipments to OEM customers. Further, during the quarter net depth declined to $453 million, despite having to build safety spark related to our action in Germany. Overall, we are maintaining a strong liquidity position of $194 million and are further enhancing this through capital products, with yesterday's cap expand at $30 million.
Net sales by $20 million.
The impact on adjusted EBITDA is an improvement of $1 million.
The impact on cash flow from operations is projected to be $35 million and reflects a temporary investment in working capital at year end, most notably the buildup of safety stock to protect our customers during the SPG proceedings.
This investment in working capital will come back to the company in 2024.
With respect to the UAW strike.
The impact on the third quarter was negligible.
Through the end of October the impact is approximately 85000 wheels, and $8 million and $4 million, respectively on net sales and value added sales.
The impact on adjusted EBITDA is almost $2 million.
Incorporated in our adjustments to the 2023 financial outlook is the assumption that no additional facilities are strong and that the strike is resolved mid November.
Majdi Abulaban: We are updating our full-year outlook to reflect the impact of both the decon solidation of our German operations and the UAW strike on our portfolio results. We are reducing our value and volume guidance and narrowing our adjusted EBITR-H. Further, we are reducing operating cashflow guidance to reflect the temporary build-up of working capital, including $25 million in safety stock to protect customers and facilitate the transfer of production to Poland. We expect the impact on operating cashflow to reverse a completion of the project in early 24. We are also lowering our outlook for capital expenditures as we focus on lowering the capital intensity of our business. Tim will provide more detail on this updated outlook later in our presentation.
On page 20.
The full year 2023 financial law.
Adjusted guidance for 2023 is $14 six to 15 million wheels.
Net sales of $1, three 9% to $1 49 billion.
And value added sales of $745 million to $765 million.
We are narrowing the guidance range for adjusted EBITDA to $170 million to $185 million in.
And adjusted guidance for cash flow from operations to $80 to $95 million.
Once again the adjustment for cash flow from operations incorporated a temporary working capital primarily safety stock projected to be $35 million in Europe.
Offsetting in part with temporary investment in working capital is a $15 million reduction in capital expenditures for the year.
Majdi Abulaban: On to slide 6, which highlights the strong performance we have seen since 2019. Here I was showing the comparison of key performance metrics from 2019 and from the last 12 months. While industry production has declined, we have delivered robust growth in value added sales and profitability, expanded margins significantly reduced net debt and increased content per wheel. While we continue to navigate through operating challenges, I am confident we will continue to make progress on these metrics.
Capital expenditures for 2023 are now expected to be approximately $50 million.
This $15 million reduction in capital expenditures.
Further reflection of our retention to lower the capital intensity of the business.
The strategic action involving the SPG production facility is expected to be significantly value accretive to the company.
Could result in an almost 20 million euro improvement in adjusted EBITDA in our European operations upon completion.
In closing we delivered another solid quarter.
I'm pleased with our teams, especially operations procurement and the commercial team.
Majdi Abulaban: Thanks to the incredible improvements our teams have made to the business throughout recent years. Moving on to slide seven, our position on premium platforms has continued with several of our technologies being utilized in recent launches on the left side of the shore. Importantly, as you can see on the right side, we have been successful with customers in aligning product pricing with the inverse cost of our business. This improved pricing combined with growth and premium content has resulted in substantial and sustained growth in content per wheel. Notably, content growth and price has improved our content per wheel by 29% compared to 2020.
This concludes our prepared remarks, Marty and I are happy to take questions Laura.
Thank you.
Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one on your telephone keypad. Thank you Bill.
We'll take our first question from Gary <unk> Barrington Research. Your line is open. Please go ahead.
Good morning, Paul.
Lots of questions here first of all.
With.
Germany, and I'm, just trying to get to that slide.
Youre going to be closing the production facility what about the.
Sure.
R&D center as well as the European headquarters will that still be in Germany or did you close down the whole thing.
Majdi Abulaban: Turning on to slide eight, showing a snapshot of the current operating environment. While we have seen continued moderation, moderation and supply chain constraints, and lower impact of inflation. In fact, global industry production is decelerating compared to recent quarters. Although industry production in our two regions is up to automotive production and our key customers in both regions remain nearly flat on a year over year basis. Recall, 2022 was a supply constraint year for the industry.
As we stated previously a good question.
Majdi Abulaban: Now, 2023 is becoming more demand-constrained evidence in lower production in the first quarter and the balance of the year. I encourage projecting production in both regions to decline in the fourth quarter versus the prior year. Notably, GM and fourth are expected to see substantial decline in the coming quarter, reflecting the impact of the strike. That said, despite these challenges, we are well positioned to drive long-term profitable growth driven by industry preference for our localized footprint, secular premium wheels, and the benefit of improvements we are making across our footprint to enhance our competitive position.
Majdi Abulaban: Turning on to slide nine, another view of our results compared to the wider industry. Our adjusted value added sales remained flat compared to production growth of our key customers as well as the wider industry. As noted earlier, unsafeable mix in North America and also in shut down external motors to our footprint continued to pressure our top line. Further, production at our key customers in Europe was done actually one percent. And finally, the deconsolidation of our German operations in the quarter, while ultimately supporting our long-term growth has resulted in a temporary loss of revenue, which will eventually come back.
Basically.
Gary to transform Europe similar to the story, we we have done in North America, just as just a couple of points for you in terms of at G. P. A onion the North America business is actually delivering an all time record on all fronts right record revenues rocket very <unk> record dollars in profit.
Stability record margins and the reason for that is the journey.
Fixing our footprint, improving our factories enhancing our portfolio and capabilities expanding our customer base. So that business is hitting on all 12 cylinders and we're very pleased with that and very proud.
Majdi Abulaban: Moving on to slide 10, for a brief recap on the strategic action we announced in August at our German production facility, and how it fits in our wider plans to improve our footprint. Our global manufacturing footprint has been a key differentiator to OEMs as they seek to de-risk long supply chains and source components locally. Most of our capacity is strategically located in Mexico and Poland, which are high performing sites due to the transformation we have made in recent years.
Plan, we're executing the playbook is not much different in Europe, and I'm very very pleased with what the T mobile to set us up for next year success in the mirror.
North America.
Okay here it's.
Okay Eric.
<unk> I wanted to make sure that there's no misunderstanding with respect to the financial matrix. I think you mentioned two sets of Netflix the first being.
An initiative that the company launched very early this year to remove approximately $10 million by the end of the year.
Majdi Abulaban: The actions we have taken at our German facility represents a continuation of that plan, giving us the opportunity to transform the remainder of our footprint while enabling us to better serve our customers throughout Europe. These plans remain on track per the tourist of the protective shield proceedings. Actually, this is better known in the US as Chapter 11 Insolvency Proceedings. It is now increasingly likely that this project will result in the closure of the Virdo facility in Germany and the transfer of roughly 800,000 wheels on facilities in Poland. This is a key driver of the sub-step-function improvement in profitability I mentioned earlier.
Our overhead structure expulsion, North America and Europe.
Certainly with respect to North America are we.
Will achieve our objectives by year round I would tell you that the piece of that $10 million. It is Europe.
Some piece of that European peace will be shifted a little bit in the 24, just because of the extra activities surrounding the facility in Germany. So will come up just a little bit short by year end on that 10 million, but it's not a terribly significant amount.
The other financial network I think I heard you mentioned was $26 million to $30 million for.
Europe and I'm not sure what that is just so there's no misunderstanding is marsden and I've authenticated once these 800000 wheels or so.
Majdi Abulaban: I'd like now to move to slide 11 to address the wider actions we have taken in driving margin enhancement across our European footprint. As noted, on the previous slide, our actions in Germany are proceeding as planned. We are now focused on shifting production to Poland, which will require significant build-up of safety stock to ensure no impact of service on our customers as we improve our capabilities and capacity than Poland. In addition, we are working directionally administrative overhead while consolidating aftermarket warehouses to improve our overall cost structure.
Our residents in Parliament instead of Germany.
Besides a step change the company's performance there in Europe at approximately 20 million a year or so I would use 20 million euro instead of the 26th authority.
Okay.
No I'm just <unk>.
Let me let.
I'll need that correct here I'm just looking at at at what I wrote when you announced this you said the the suspect's drink or cash charges of 15 to 18 million Euro.
Majdi Abulaban: We also have continued to collaborate with our European customers to adjust pricing to match driving costs. Our efforts have been fruitful as evidence by the 13% increase in price and content here today. Additionally, we have worked to de-risk wheel launches, transferring production of programs to Poland that would originally plan to launch in our German facilities. Lastly, as part of our 80-20 approach, we have pruned programming programs from our portfolio to support better margins and product mix.
Benefit full run rate is expected to be a pay back of approximately one year. So what I was saying is that the tag the 10 million on for what you're you're you're you're going to get you say you're going to get from Europe.
On a annual run rate basis by the end of the 20th 2024, 26 to 30 million combined with the $10 million that you're.
You're doing in the United States I think that's what I was alluding to.
R I I missed the keyboard and their combined I missed that sorry.
Okay, and you already I'm wondering I'll tell ya.
And the only other thing I'd like to make sure. There's no misunderstanding about on August 31st one we announced the activities in Germany, and I spoke to the <unk>.
Majdi Abulaban: This has meant cutting roughly 750,000 wheels from our hookah business. While this is a side-level figure, it is clinical to note that these were marginally profitable wheels on programs that were not ultimately advancing our long-term growth strategy.
Time to to actually initiative, that's the I.
I think it is 15 to 18 million euro.
In the end, it's similar to pay back we thought at the time that they are paid that.
Majdi Abulaban: Overall, what has meant it remains to be done. I am pleased with the progress we have made in narrowing the margin gap between Europe and North America, and I am excited to continue this movement in order to drive our business forward.
Would be resident in the entire year 2024 that is to say that the activities in Germany might be complete by year round.
Majdi Abulaban: In closing, our teams have continued to do a great job in managing through challenges to deliver smaller results. Our content story continues to play out, and we are making great strides in improving our overall footprint to support long-term profitable growth. Looking to the remainder of 2024, we remain focused on advancing our portfolio, optimizing costs, and generating cash to deliver the same value for our shareholders.
That is <unk> and I are both alluded to.
We are building some safety stock the movement of those wheels are going to not be done by the end of the year, but some of those wheels will shift into 2024. So some of their annual Richard will not find its way all all into 2024, So 2024 will have us summit.
Pat on the step change a little bit less than that call at 20th <unk> Bureau.
Okay, that's fine I'll, let somebody else going on I'll jump back and like him.
Tim Trinnery: Now I will turn the call over to Tim to provide more details on our financial results. Thank you, machine.
Tim Trinnery: On August 31st this year, we announced a strategic action, the continuation of our local for local manufacturing footprint optimization, and the transformation of the remaining 6% of our manufacturing footprint to a more competitive cost structure. More specifically, our production facility in Bernoull, Germany, otherwise known as Superior Industries production journey, or SPG, and our productive shield proceedings, a German court administered reorganization process. Generally, an accepted accounting principles require the SPG's statement of operations and balance sheet, beginning with the commencement of the proceedings, the deconsolidate from Superior Industries financial statements.
Hello.
Mmm.
<unk>.
Then I'll take her next question from Michael <unk>.
<unk>.
Thanks, very much my morning, everyone. A few things first off I just I just wanted to confirm on the aluminum cause you can see the 30th.
30, 40% year over year, That's hall pass through if there's no benefit to you correct.
Yeah.
Okay.
The second thing and the release you mentioned that you've seen the pick up in the aftermarket sales in Europe I Wonder if you could talk about that a little bit and what you're saying.
Yeah, I mean listen to recall when we had a lot of factors going on in the first three quarters of the year ending the year with high inventories because of the warm winter because the wholesalers.
Tim Trinnery: Accordingly, the income statement of SPG for the month of September is excluded from the third quarter financial results, as is the balance sheet of SPG as of the end of the third quarter. The deconsolidation of SPG gave rise to an $80 million charge in the quarter. Furthermore, approximately 80,000 wheels produced at SPG in September are excluded from wheel shipments, and approximately 9,000,000 and 6,000,000 respectively of net sales and value added to net sales are excluded from third quarter sales. The deconsolidation of SPG had less than a $1 million impact on third quarter adjusted EBITDA.
<unk> to go on Destocking and now let's see.
What I would call at 12% uptake.
I think I think Mike, they're still more room for improvement.
We have actually shifted our strategies to distributors outside of Germany, and we see a lot more opportunity, but it's a good start but we need to do a lot more to get to what we learn to capture an opportunity that I think is on the table.
Well, that's certainly good news.
You mentioned in the slides the Slough client General Motors.
Tim Trinnery: Let's look at the quarter on page 13, third quarter of 2003 financial summary. Net sales decreased to $3.23 million for the quarter compared to $4.6 million in the prior year period, but value added sales of $176 million was substantially the same as the prior year quarter. The lower cost of aluminum is the primary reason for the decline in that sales. Aluminum prices have now normalized after a significant runoff beginning in early 2022.
Look like September was back to a more normal lives right by looking at the right data or abused.
Is there something that I'm, not saying did it get back down on October.
Roeber.
Yeah, I mean, <unk> I mean.
There are a lot of those in the corner and a lot of it is G M because.
Overall, 4%, but I tell you. If you look at this allow plan is just staggering how many days Michael we lost in fact, you know what I have I have my President here, who <unk> all of North America and has done a magnificent job I'd like to turn it over to him for a second to tell you about what happened.
Tim Trinnery: Adjusted EBITDA to $39 million, $3 million more than the prior year quarter. The adjusted EBITDA margin expressed as a percent of value added sales improved year over year by 160 basis points and was 22%. We incurred a net loss of $86 million in the second quarter for a loss of $42.42 compared to a net loss of $400,000 in the prior year period for a loss of a blue good share of $35. The third quarter includes a $80 million dollar chart related to the SVG proceedings and the attempted decontamination of SVG from superiors financials, of the state.
<unk>.
That'd be great.
So somehow took two months out in one and Q2 and another range you three they are back.
Now running for especially since the strike bin.
Building about their normal Bill Rachel solo is running extremely well right now, but prior quarters, we suffered with them for unexpected downtime probably because of other suppliers.
Okay now it's.
Do you have any feedback as far as the timing of the Rio acceleration of the big three plants that were shut down I think Arlington.
Tim Trinnery: The third quarter, year over year sales bridge is on page 14. To the far right, aluminum costs passed through the customers was down 81 million or by 35% compared to the prior year period, reflecting the normalization of the cost of aluminum. Value-out-and-sales decreased by only 2 million or 1%, compared to the prior year period, reflecting fewer wheel shittiness largely offset by mix and price. Value-out-and-sales continues to benefit from increasing content per wheel. Currency benefit in net sales by 8 million.
We should come back.
Fastest cause or at least affected or maybe Shirley I'm not sure. If you have anything of Sterling.
So 444 G M. Most of the players started back up yesterday.
One client is gonna come back next week Arlington to your specific question comes on today.
First name or not full so we expect to have an update schedules actually.
Okay, and any idea of when you get back up to full production.
Usually takes at least a couple of weeks.
Yeah, it's probably going to be about two weeks.
Tim Trinnery: On page 15, the record of 2023 year over year adjusted event outreach. Adjusted event outreach increased to 39 million compared to 36 million in the prior year period. Adjusted event outreach from the 432% is approved by 160 basis points from the prior year period on flat year over year value-out-and-sales. Value-out-and-sales, price-and-miss, metal timing, and performance all contributed to the increase in adjusted event outreach after the quarter. Currency, however, a burden adjusted event by a small amount less than 1 million.
Okay.
Yeah.
Okay, well that certainly goodness.
Alright, Thank you very much.
Okay Goodbye. Thank you Bill now.
Now move onto the next question.
<unk>. Your line is has been placed on the height.
Hi, good morning.
Thank you for my questions Uhm, the Capex whichever with us for the urine is this going to stay also for next year or are you going to to.
To increase your Capex, she can't give us.
An update there and also the improvement in a bitter with the closure of the.
Tim Trinnery: An overview of the company's third quarter of 2023 free cash flow is on page 16. Cash flow provided by operating activities was 9 million compared to 17 million in the prior year period. This decline is primarily attributable to small increases in working capital and restructuring charges and higher interest expense. Net cash used in investing activities was 12 million compared to 11 million in the prior year period. The 380 increase in capital expenditures in the quarter compared to the prior year period was more than offset by a $4 million charge in cash associated with the deconfollivation of SDG.
Germany plan of the 20 minute can you just remind us again like photo 24 is it.
What portion of that is in 224, and what portion of that is going into the next year to year after.
And then also another two further questions on depth whichever would ask afterwards.
Yeah sure.
Tim first of all with respect to your first question.
The company has over the last certainly three years I've been very focused on our investment.
Balance sheet more specifically.
Working capital, which has come down dramatically and then capital spending to your point.
Tim Trinnery: Cash flow used in the financing activities was 0 for the third quarter compared to $4 million in the prior year period. Preferred dividends of approximately $3 million were lower due to the timing of payment to quarter end 2020 through it. Free cash flow opened the quarter was 9.3 million versus positive $2 million in the prior year period.
This year.
Projecting capital spending a $50 million for the year.
To our ability to maintain that level avoided of 2024 I can tell you that while we are not done with our business plan for 2024, My an hour objected Franklin is to keep the spending down closer to that number then the numbers and it's been in the past so if you're tough sort of thinking about.
Tim Trinnery: An overview of the company's capital structure as of September 30, 2023, we found on page 17. Cash on a balance sheet at quarter end was 17.7 million. Funded debt was 17.3 million at quarter end and net debt was $453 million a decrease in $3 million compared to the prior year. At the end of the third quarter of liquidity, including availability of the revolving credit facility, was $194 million.
Modeling you might make up for the time be let's say $50 million to $55 million for next year.
Subject to us.
So just to get a little bit early next year, when we present, our guidance for the year, but mmm.
Ah So you get to a reduction in capital spending we think for the most part, but we can maintain that.
Respect with a step change in the profitability of Europe.
Tim Trinnery: The period is debt maturity profile as of September 30, 2023 is on page 18. The revolving credit facility was on drawn at quarter end. We are in compliance with all of the components. And the 250 million is self-rebased interest rate slots we entered into last year in anticipation of the terrible refinancing are in the money because of the Fed's rate[inaudible] and your interest expense is about $5 million less than it otherwise would be.
Associated with the proceedings in Germany, and more specifically the transfer of the wheels.
Germany to Poland.
The exact timing of that process, whereby the wheels will be transferred is really quite fluid.
And at this point I think it would it be inappropriate for me to say specifically how much of that perhaps 20 million euro when we're all done with the transfer will land in 2024 I would tell you that we have been.
Tim Trinnery: We were adjusting the four-year 2023 financial outlook on page 19. These adjustments reflect the impact of the decontalination of SPG from the company's financial results for the last four months of the year and an estimate of the impact of the UAW strike. With respect to the decontalination of SPG we are reducing wheel shittments by 300,000 wheels, net sales by 32 million, and thousands of sales by 20 million. The impact on adjusted EBITDA is an improvement of 1 million.
Very focused on Guinea nosewheel spook, just as quickly as we can so you know I would anticipate that there would be some time reasonably early next.
At the time that that would be.
The.
Question I don't recall.
Yeah.
Two.
Two questions on on your depth.
Give us an update again on your tail be hedging because you said the interest payment was 5 million lower than than without hatching.
Tim Trinnery: The impact on capital from operations is projected to be 35 million and reflects a temporary investment in working capital in Iran, most notably the build of safety stock to protect our customers during the SPG proceedings. This investment in working capital will come back to the company in 2024.
Also photo 20 for your.
Interest costs, if you can give us guidance there if nothing changes and also on.
Any potential talks about or plans about refinancing off the pond and the preferred that would be also very helpful. Thank you.
Mmm Alright, so last year I think it was in March last year.
Tim Trinnery: With respect to the UAW strike, the impact on the third quarter was negligible. Through the end of October, the impact is approximately 85,000 wheels and 8 million and 4 million respectively on net sales and value added sales. The impact on adjusted EBITDA is almost 2 million. Incorporating inner adjustments to the 2023 financial outlook is the assumption that no additional facilities are struck and that the strike is resolved mid-November.
When it was it was clear that the federal reserve is going to start to address inflation and raised interest rates. The company entered into a series of swap agreements.
Exchange a variable rate interest for a fixed rate interest.
$150 million is my recollection.
And those agreements if you get into the details of our sex violence, you'll find that they are very significantly.
And the money as well as frankly, our currency hedging agreements and as a consequence of that the approximate savings if you will on interest cast interest.
Tim Trinnery: On page 20, the full year 2023 financial outlook. Adjusted guides for 2022 and 3 is 14.6 to 15 million wheels, net sales of 1.39 to 1.49 billion and value added sales of 745 to 765 million. We are narrowing the guidance range for adjusted EBITDA to 170 to 185 million and adjusting guidance for cash flow from operations to 80 to 95 million. Once again, the adjustment for cash flow from operations to temporary adjustments to working capital, primarily safety stock projected to be 35 million at your end.
<unk>.
$5 million.
Terms of projecting if you will what interest expense might be for 2024, assuming the current capital structure I think it would be well served just to take a look at what two.
Two three Q for is in the financial results in an annualized that whether you do it on a quarterly basis right.
As in any.
Significant changes.
<unk> behavior, which was all indications that they might have pretty much free download their increases I think that the third or fourth quarter of this year is a pretty good reflection of what might happen in 24 with the existing capital structure.
Tim Trinnery: Offsetting in part to this temporary investment in working capital is a $15 million reduction in capital expenditures for the year. Capital expenditures for 2023 are now expected to be approximately 50 million. This 15 million reduction in capital expenditures is a further reflection of our intention to lower the capital intensity of the business.
With respect to the company's balance sheet.
Next maturity or the notes.
In in Europe 217.
<unk> they are mature and.
A little more than a year and a half of June of 25.
Tim Trinnery: The strategic action involving the SPG production facility is expected to be significantly value accrued into the company. It could result in an almost 20 million year old improvement in adjusted EBITDA in our European operations upon completion.
I believe it's in the company's.
Best interest at this point to let the Ah matters in Germany settled down just a little bit so that the capital markets might better appreciate the financial impact of favorable financial aid.
Tim Trinnery: In closing, we deliver another solid course and please, with our team, it's a specialty operations procurement and the commercial team. Thank you.
That that action will have on our on our financial results. So I would expect to to be begin to address the balance sheet interest very early next year, depending in part on the speed with which the facility in Germany is is wound down.
Unknown Executive: Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on the telephone key, but thank you.
<unk> I do want to add something here.
Gary Prestopino: We'll now take our first question from Gary Prestopino at Barrington Research. Your line is open, please go ahead. Good morning, Paul. That's the question here. First of all, with Germany and I'm just trying to get to that slide, you're going to be closing the production facility. What about the R&D center as well as the European headquarters? Will that still be in Germany or did you close down the whole thing? As we stated previously, a good question.
<unk>.
Question on capital expenditures to be sure we have been actively.
Actively and prudently upgrading our capabilities in recent years, especially given the evolution of our portfolio. So I feel very good about our position in the wall invented company I just came back from Mexico with Michael Dora, We just launched a brand new state of the hard pain.
And in Mexico, where we are shipping the first 24 inch wheels.
North America, we've upgraded automation was upgraded invested in lightweighting capabilities on both sides of the ocean. So we've been at this for some time and I think now we have we have capability that is bar, none and both sides of the ocean and we have a capacity to advice.
Gary Prestopino: Our actions are only limited to the German manufacturing operation, which is not even in the same location as our headquarters and our tech centers. So you are correct. Okay. This is only specific to the manufacturing office. Okay. So just as I'm looking back on some of my notes here, you said that you were looking at prior to doing all this $10 million in annual cost savings this year. Germany, actions in Germany should yield savings on a combined basis of 26 to 30 million by the end of 2024.
Not the current situation, but also a growth in the coming years. So we feel very good about the envelope uninvested physician here.
Operator, Okay. That's that's very.
Sorry.
10-K, and they will not take a follow up question from Gary.
Baron can reset your line of sight in place to have a height.
Gary Prestopino: Are we still on track for that? I think you did say that you're on track. I just want to make sure that you. No, no, we are actually, I mean, we are absolutely on track. And I will tell you the entire plan of addressing our margin performance in Europe is absolutely on track when we undertook the actions back in August in operation in Germany. Obviously, there was a lot of heavy lifting on that front of the area.
Yeah, just a quick question it looks like the percentage of wheels that are 19 inch or higher at least for the last couple of quarters or 19 inches of data is kinda stagnated at 52%.
Do you see that.
Increasing going forward and the other thing is I know you guys can pricing concessions on.
Let me just add something to that question too yeah, I've got some pricing pricing, that's helping you increase your content a wheel but.
Gary Prestopino: And I will tell you, our team has done a spectacular job with planning, with execution. Our customers have been extremely collaborative with us. And they said this basically sets up Gary to transform Europe similar to the story we have done in North America. Just it's just a couple of tip points for you in terms of as you build on you. And the North America business is actually delivering an all-time record on all fronts, right?
<unk> heart larger wheels, what is being requested more by your clients Lightweighting premium finishes arrow dynamics I mean, what what are some of the other things that are driving content.
Yeah. So a couple of things let me Kiss you 19 should we have questions. So the content arris.
In our business started with <unk>.
He quickly to other technologies, including like cleaning and finishing so to your question on 19 inch real scary actually I made for the next call. We may just change the line of demarcation here COVID-19 inch we have now is small so now <unk>.
Gary Prestopino: Record revenues, record value added sales, record dollars in profitability, record margins. And the reason for that is the journey of fixing our footprint, improving our factories, enhancing our portfolio and capabilities, expanding our customer base. So that business is hitting on all 12 cylinders. And we're very pleased with that and very proud. And the plan with executing the playbook is not much different in Europe. And I'm very, very pleased with what the team has done to set us up for next year success in the mirroring of North America.
Majority of them quickly, becoming 20 inches or larger so if you look at the growth and 20 inch wheels.
<unk>.
If you look at 22 inch wheels, you'll see almost a doubling in the last three years. So that trend of sizing continues if you talk to me. It's 40 years ago would that'd be launching a 24 inch wheel on for the top two odm's in North America and this year it would be hard to believe and we're doing that also another <unk>.
Gary Prestopino: Okay, Gary, I want to make sure that there's no misunderstanding with respect to the financial metrics. I think you mentioned two sets of metrics, the first beam. An initiative that the company launched very early this year to remove approximately 10 million dollars by the end of the year for our overhead structures, both in North America and Europe. Certainly, what's respected North America, are we will achieve our objectives by year end. I would tell you that the piece of that 10 million that is Europe.
So what is it what what our customers asking for so still good friends.
But now Lightweighting is such a big deal Gary.
It was probably 10% of our business not too long ago, now, it's less than 20%, but it is accelerating very fast it's a big deal.
What do you think of electrification strengthening the wheel, taking wait out in improving their age I've talked about it extensively and we continue to invest in capacity service moving.
Gary Prestopino: Some piece of that European piece will be shifted a little bit into 24 just because of the extra activities surrounding the facility in Germany. So we'll come up just a little bit short by year end on that 10 million, but it's not a terribly significant amount. The other financial metric I think I heard you mentioned was 26 to 30 million for Europe. I'm not sure what that is, but just so there's no misunderstanding as Majdi and I both indicated.
Moving very fast and then you know we talked about how we have now are.
Effectively used by carmakers to sell cars and and all these new finish it not only.
Cut wheels, but laser etching and and other personality <unk>, an application to wheels or are taking off so I feel very good about our friends.
Alright.
Go into larger meals, but also like waiting is becoming a very big deal not a business.
Okay. Thank you.
Gary Prestopino: Once these 800 and 1000 wheels or so are residents in Poland instead of Germany, we size a step change in the company's performance there in Europe at approximately 20 million euro. So I would use 20 million euro instead of that 26 to 30. Okay, now I'm just, let me, let me back right here. I'm just looking at what I wrote when you announced this, you said that the expected incur cash charges of 15 to 18 million euro, the benefit on full run rate is expected to be a payback of approximately one year.
You're welcome. Thank you Baroness all the questions in K I will now headed back to <unk> for closing remarks. Thank you.
Thank you all for joining our call today and to the superior team.
Thank you again, thank you again for your hard work.
Look forward to continuing to execute on our growth strategy to drive our business.
Have a great day. Thank you.
K, ladies and gentlemen. This concludes today's call. Thank you for your participation stay safe you may now disconnect.
Mmm.
[noise] [music].
Gary Prestopino: So what I was saying is if you tag the 10 million on to what you're you're you're going to get you say you're going to get from Europe on a annual run rate basis by the end of 2024 the 26 to 30 million combined with the 10 million that you're you're doing in the United States. I think that's what I was alluding to. I missed a keyboard and they're combined. I miss that.
Gary Prestopino: Sorry. Okay. I'll tell you. The only other thing I want to make sure there's moments understanding about on August 31st, and we announced the activities in Germany, and I spoke to the test costs at exactly the time to actually initiative. That's the, I think it is 15 to 18 million euro and the similar payback. We thought at that time that that payback would be resident in the entire year of 2024. That is to say that the activities in Germany might be complete by year and in fact, as much as you and I have both alluded to, as much as we are building some safety stock.
Gary Prestopino: The movement of those wheels are is going to not be done by the end of the year, but some of those wheels will shift into 2024. So some of that annual return will not find its way all all into 2024. So 2024 will have us some impact on the step change a little bit less than that call it 20 million euro. Okay. That's fine.
Unknown Executive: I'll let somebody else go and I'll jump back in the key. Hello. Thank you, Parliament Interruption, I'm so sorry.
Michael Ward: We'll now take our next question from Michael Ward at Benchmark. Your line is open. Please go ahead. Thanks very much. Good morning, everyone. A few things. First off, just I just want to confirm on the aluminum costs. You can see that it's down 30, 40% year over year. That's all passed through. There's no benefit to you, correct? Okay. The second thing in the release, you mentioned that you see the pickup in the aftermarket sales in Europe.
Michael Ward: I wonder if you could talk about that a little bit in what you're seeing. Yeah, I mean, listen, recall, we had a lot of factors going on in the first three quarters of the year, ending the year with high inventories because of the warm winter because the wholesalers decided to go on destocking. And now we're seeing what I would call it, 12% uptake, in that. I think Mike, there's still more room for improvement.
Michael Ward: We have actually shifted our strategies to distributors outside of Germany, and we see a lot more opportunity. But it's a good start, but we need to do a lot more to get to what we were and to capture an opportunity that I think on the table.
Majdi Abulaban: Well, that's certainly good news. The third thing you mentioned in the slides, the Salow plant, the General Motors, it looked like September was back to a more normalized rate. Am I looking at the right data or have you, is there something that I'm not seeing? Did it kick back down in October? Yeah, I mean, GM has been, I mean, there's a lot of noise in the quarter and a lot of it is GM because they're down over all 4%, but I tell you, if you look at this, a lot of plant is just staggering how many days of Michael we lost. In fact, you know what, I have, I have my president here who runs all of North America and has done a magnificent job.
Michael Dora: I'd like to turn it over to him for a second to tell you about what happens in Salow. That would be great. So Salow took two months out in one in Q2 and another one in Q3. They are back now running full, especially since the strike, they've been building about their normal build rate. So Salow is running extremely well right now, but prior quarters, we suffered with them for unexpected downtime, probably because of other suppliers.
Majdi Abulaban: Okay, now it's, um, do you have any feedback as far as the timing of the real acceleration of the big three plants that were shut down? I think Arlington probably should come back the fastest because they're least affected or maybe Sterling. I'm not sure if you have anything of Sterling nights. So for for GM, most of the plants started back up yesterday. There's one plant that's going to come back next week. Arlington to your specific question comes on today. The five questions are not full.
Majdi Abulaban: So we expect to have an update scheduled next week. Okay, any idea of when you can get back up to full production? I think it usually takes at least a couple of weeks. Yeah, it's probably going to be about two weeks. Two weeks, okay, yeah. Okay, well that's certainly goodness.
Unknown Executive: All right, thank you very much. Thank you. Thank you for my questions.
Unknown Executive: The only capex which I've reduced for the year and is this going to stay also for next year? Are you going to increase your capex? She can give us an update there. And also the improvement in EBITDA with the closure of the German plan of the 20 minute. Can you just remind us again, like for 224, is it? What portion of that is in 224 and what portion of that is going into the next year of the year after?
Unknown Executive: And also another two further questions on depth, which I will ask afterwards. [inaudible] Two questions on your depth. Can you give us an update again on your TLB hedging because you said just the interest payment was 5 million lower than then without hedging. Also for 224 your interest costs if you can give us a guidance there, if nothing changes there and also on any potential talks about or plans about refinancing of the bond and the preferred that would be also very helpful.
Unknown Executive: Thank you. All right. So last year, I think it was in March last year when it was it was clear that the Federal Reserve is going to start to address inflation and raise the interest rates. But company entered into a series of swap agreements, exchanging variable rate interest or fixed rate interest for total 250 million is my recollection. And those agreements begin to the details of our SEC violence. You'll find that they are very significantly in the money as well as frankly our currency hedging agreements.
Unknown Executive: And as a consequence of that, the approximate savings, if you will, on interest, cash interest in 2023 is about 5 million dollars. In terms of projecting, if you will, what interest expense might be for 2024, assuming the current capital structure, I think you would be well served just to take a look at what Q3 or Q4 is in the financial results and annualize that whether you do it on the quarterly or annual basis, but I think as in any very significant changes in the Fed's behavior, which there's all indications that they might have pretty much been done with their increases, I think that the third and fourth quarter of this year is a pretty good reflection of what might happen in 24 with the existing capital structure.
Unknown Executive: With respect to the company's balance sheet, the next maturity, the notes in Europe 217 and Europe, the notes, they mature a little more than a year and a half in June of 25. I believe it's in the company's best interest at this point to let the matters in Germany settle down just a little bit so that the capital markets might better appreciate the financial impact, the favorable financial impact, that that action will have on our financial results. So I would expect to be beginning to address the balance sheet in earnest very early next year, depending in part on the speed with which the facility in Germany is wound down.
Tim Trinnery: I do want to add something here related to the question on capital expenditures. To be sure, we have been actively and prudently upgrading our capabilities in recent years, especially given the evolution of our portfolio. So I feel very good about our position as a well-invested company. I just came back from Mexico with Michael Dora, we just launched a brand new state of the art paint, in Mexico where we are shipping the first 24 inch wheels in North America.
Tim Trinnery: We've upgraded automation, we've upgraded and invested in lightweight capabilities on both sides of the ocean. So we've been at this for some time and I think now we have we have capability that is bar none and both sides of the ocean and we have capacity to address not the current situation but also growth in the coming years. So we feel very good about our well-invested position here. Operator. Okay, that's very good. Sorry. Thank you. Bill Nalt, I'll take a follow-up question from Gary from Barrington Research, your line is open.
Gary Prestopino: Please go ahead. Yeah, and I'm just a quick question. It looks like the percentage of wheels that are 19 and you're higher, at least for the last couple of quarters or 19 inches a bigger, has kind of stagnated at 52%. Do you see that increasing going forward? And the other thing is, I know you've got some pricing concessions on, let me just add something to that question too. You've got some pricing, pricing that's helping you increase your content for wheel, but besides hot larger wheels, what is being requested more by your clients? Is it lightweighting, premium finishes, aerodynamics? I mean, what are some of the other things that are driving content?
Majdi Abulaban: Yeah, so a couple of things. Let me consider 19-inch wheel question. So the content adders in our business started with sizing of wheels and now they're very quickly to other technologies including lightweight and finishing. So it's your question on 19-inch wheels, Gary. Actually, I mean, for the next call, we may just change the line of demarcation here, but 19-inch wheels now is small wheels. So now we're, you know, the majority of our wheels are quickly becoming 20 inches or larger, so if you look at the growth in 20-inch wheels here on here, you'll see a big movement.
Majdi Abulaban: If you look at 22-inch wheels, you'll see almost a doubling in the last three years. So that trend of sizing continues. If you talk to me four years ago, would I be launched to get 24-inch wheel on, for the top two OEMs in North America this year? It would be hard to believe and we're doing that also on the other side of the ocean.
Majdi Abulaban: So what are customers asking for? So still the trend for other wheels is accelerating, but now lightweighting is such a big deal, Gary. It was probably 10% of our business not too long ago. Now it's less than 20%, but it's accelerating very fast. It's a big deal. When you think of electrifications, strengthening the wheel, taking weight out and improving the range, I've talked about it extensively and we continue to invest in capacity.
Majdi Abulaban: So that's moving, moving very fast. And then, you know, we talked about how wheels now are being effectively used by car makers to sell cars and and all these new finishes, not only a driven cut wheels, but plays are etching and other personalization of application to wheels are taking off. So I think very good about our friends fully in wheel sizes and going to larger wheels, but also lightweighting is becoming a very big deal, not a business. Okay, thank you. You're welcome. Thank you.
Unknown Executive: There are no further questions in here.
Tim Trinnery: I will now head back to North Day for closing remarks. Thank you. Thank you all for joining our call today and to the superior team. Thank you again. Thank you again for your hard work. We look forward to continuing to execute on our growth strategy to drive our business forward. Have a great day. Thank you.
Unknown Executive: Ladies and gentlemen, this concludes today's call.
Unknown Executive: Thank you for your participation.