Q1 2024 Superior Industries International Inc Earnings Call
Hum.
[music].
Hum.
Mhm.
Alan: Welcome to Superior Industries' first quarter 2024 earnings call. We are joined this morning by Majdi Abulaban, President and CEO; and Tim Tenery, Executive Vice President and CFO. My name is Alan, and I'll be your coordinator for today's event. Please note this call has been recorded, and for the duration, your lines will be on listen only. However, you have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone keypad. If you require assistance at any time, please press star zero to be connected to an operator.
Ellen: Welcome to superior industries first quarter 'twenty 'twenty four earnings call. We are joined this morning by much the Abu Lubbock precedent and field team to Murray Executive Vice President and CFO. My name is Ellen and I'll be accordingly for today's event. Please note. This call is being recorded and for the duration your lines will be on listen only.
Ellen: How about where you would have the opportunity to ask questions at the end it could be done by pressing star one on your telephone keep it.
Ellen: Our system at any time, please press star zero and connect the twin operate them call the spot deemed temporary I now hand over to Tim Donnelly.
Timothy C. McQuay: Good morning, and welcome to our first quarter 2024 earnings call. During our call this morning, we will be referring to our earnings president, 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.
Timothy C. McQuay: Good morning, and welcome to our first quarter of 2024 earnings call.
Timothy C. McQuay: During our call. This morning, we will be referring to our earnings presentation.
Timothy C. McQuay: Along with our earnings release is available on the Investor Relations section of Superior's website.
Timothy C. McQuay: I am joined on the call Hi, Masha Blah, Blah, our president and Chief Executive Officer.
Timothy C. McQuay: Before I turn the call over to Mahsi, I 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 Security Certification Reform Act of 1995. Please refer to slide 2 of this presentation for the full Safe Harbor Statement and to the company's SEC filings, including the company's current annual report on Form 10-K, for a complete discussion of forward-looking statements and risk factors. We will also be discussing various non-debt topics. Non-GAAP measures exclude the impact of certain items and are therefore not calculated in accordance with U.S. GAAP.
Masha Blah: Before I turn the call over to Washington.
Timothy C. McQuay: We 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 1990 block.
Masha Blah: Please refer to slide two of this presentation for the full study.
Timothy C. McQuay: Safe Harbor space and to the company.
Timothy C. McQuay: Included in the company's current annual report on Form 10-K for a complete discussion of forward looking statements and risk factors.
Timothy C. McQuay: We will also be discussing various non-GAAP measures to the non.
Timothy C. McQuay: non-GAAP measures exclude the impact of certain items, and therefore are not calculated in accordance with U S. GAAP.
Timothy C. McQuay: Conciliation. So these measures to the most directly comparable U S. GAAP measures can be found in the presentation.
Timothy C. McQuay: Reconciliations of these measures to the most directly comparable U.S. GAAP measures can be found in the appendix of the presentation. I now turn the call over to Majdi to provide a business and portfolio update. Thanks Tim and thanks everyone for joining our call today to review our Q1 2024 results. I will start on slide five.
Speaker Change: I'll now turn the call over last year to provide a business and portfolio of it.
Speaker Change: Thanks, Tim and thanks, everyone for joining our call today to review our Q1 2024 results I will start on slide five.
Majdi B. Abulaban: I am pleased to share with you today that the Superior team has delivered on our announced strategic action in Europe as planned. In the first quarter, we successfully exited our high-cost German operations and relocated production to Poland. Now, in my almost 40 years of experience in the automotive industry,
Speaker Change: I am pleased to share with you today.
Speaker Change: The superior team has delivered on our announced strategic afternoon Europe as Glenn.
Speaker Change: In the first quarter, we successfully exited our high cost German operations and relocated production to Poland.
Speaker Change: Now in my almost 40 years' experience in automotive.
Majdi B. Abulaban: This stands out as a one of a kind level of execution in manufacturing transformation in a challenging market. One carried out with precision and teamwork, outstanding collaboration with our customers, and with no disruptions or impact on delivery. This will not only provide a significant profitability uplift but has also advanced our local for local footprint to 100% low cost manufacturing. In addition, we are well positioned to deliver value to our OEM customers seeking localized de-risk. Supply Cheats
Speaker Change: <unk> stands out.
Speaker Change: It's a one of a kind level of execution in manufacturing transformation in a challenging market.
Speaker Change: One carried out with precision and teamwork with outstanding in collaboration with our customers.
Speaker Change: And with no disruption or impact on delivery.
Speaker Change: This will not only provide AC.
Speaker Change: Difficult profitability uplift.
Speaker Change: But has also advanced our local for local footprint to 100% low cost manufacturing.
Speaker Change: In addition, we are well positioned to deliver value to our OEM customers seeking localized derisked.
Speaker Change: <unk>.
Majdi B. Abulaban: With this milestone of the transformation completed, we expect to exit the year with substantially improved earning power, along with a strengthened competitive footprint that no other supplier can offer when looking at our broader operating environment. Industry production declined 2% in our market, and production at our top customers actually declined 8%.
Speaker Change: With this milestone in the transformation completed we expect to exit the year with substantially improved earnings power, along with a strengthened competitive footprint.
Speaker Change: No other supplier can offer.
Speaker Change: Looking at our broader operating environment.
Speaker Change: Industry production declined 2% in our markets.
Speaker Change: And production at our top customers actually declined 8%.
Speaker Change: While value added sales and adjusted EBITDA were pressured in the quarter due to lower volumes as well as lumpy customer recoveries.
Majdi B. Abulaban: While value-added sales and adjusted EBITDA were pressured in the quarter due to lower volumes as well as lumpy customer recovery, in fact, and encouragingly, we saw more than 400 basis points of sequential margin improvement in adjusted EBITDA on similar volume and value-added sales to Pew Photographs here. Tim will provide more color on this, but I would further note that our results for inlet water on a year-over-year basis have been temporarily, temporarily distorted by the transformation. The transfer of wheels to Poland impacted content. Cost Absorption and Body, for example.
Speaker Change: In fact, and encouragingly, we saw more than 400 basis points sequential margin improvement in adjusted EBITDA.
Speaker Change: On similar volume and value added sales to Q4 of last year.
Speaker Change: Tim will provide more color on this.
Speaker Change: I would further note that our results in the quarter on a year over year basis have been temporarily temporarily distorted by the transformation.
Speaker Change: Transport of wheels.
Speaker Change: Poland impacted content.
Speaker Change: Cost absorption and volumes.
Speaker Change: For example high value we have in Germany are temporarily consolidated from automakers.
Majdi B. Abulaban: High Value Wheels in Germany are temporarily deconsolidated from our tickets until we complete the transfer to the Polish facility. We were also impacted by costs associated with the reorganization of our European administration. We anticipate these factors to dissipate in the coming quarter. Our team continues to do an exceptional job with a continued focus on cash generation through Working Capital Management and Capital Prudence. Despite the actions in Germany, which require temporary safety inventory that is being drawn down as we speak and contraction of supplier terms, our net debt of $439 million remains near a historical low.
Speaker Change: We complete the transfer to the Polish facility.
Speaker Change: We were also impacted by cost associated with the reorganization of our European administration, although the logistics functions.
Speaker Change: We anticipate these factors to dissipate in the coming quarter.
Speaker Change: Our team continues to do an exceptional job with continued focus on cash generation.
Speaker Change: Through working capital management and capital Prudence.
Speaker Change: Despite the actions in Germany.
Speaker Change: Which require temporary safety inventory that is being drawn down as we speak and contraction of supplier terms, our net debt of $439 million remained near historical low.
Majdi B. Abulaban: Further, we maintain ample liquidity, and we're also gaining traction with our pursuit of refinancing and capital structure solutions. We are affirming our guidance for 2024 despite declining industry volumes for the full year. In this regard, as we previously stated, we are on track to see significant improvements in margins in the back half of 2024. Slide 6 highlights the significant uplift in profitability that results from the completion of the European Transformation. Our guide assumes $165 billion in adjusted EBITDA generation in 2024 at the midpoint.
Speaker Change: Further we maintained ample liquidity and we're also gaining traction with our pursuit of refinancing and capital structure solution.
Speaker Change: Okay.
Speaker Change: We are affirming our guidance for 2024, despite declining industry volumes for the full year.
Speaker Change: In this regard as we previously stated we are on track to see significant improvement in margin in the back half of 2024.
Speaker Change: Slide six highlights the significant uplift in profitability that results from the completion of the European transformation.
Speaker Change: Our guide assumes a $165 million and adjusted.
Speaker Change: Adjusted EBITDA generation in 2024 at the mid point.
Majdi B. Abulaban: However, with the transformation having been completed in the first half, we expect an improved run rate of approximately $190 million in adjusted EBITDA upon exiting 2024. This significant improvement will be driven largely by low-cost wheel manufacturing at our Polish facility. We will also achieve cost savings via consolidated administrative functions in Europe and overall improved utilization in Poland.
Speaker Change: However, with the transformation having been completed in the first half we expect an improved run rate of approximately $190 million and adjusted EBITDA upon exiting 2024.
Speaker Change: This significant improvement will be driven largely by low cost wheel manufacturing at our Polish facility.
Speaker Change: We will also achieve cost savings via consolidated administrative functions in Europe, and overall improved utilization in Poland.
Majdi B. Abulaban: Turning on to slide seven, which highlights the progress of our European transformation in more detail. As we ramp up production in Poland, we will be closing the margin gap between North America and Europe in the second half of the year. We expect to see approximately a $23 million to $25 million increase in annualized EBITDA.
Speaker Change: Turning on to slide seven which highlights the progress of our European transformation in more detail.
Speaker Change: As we ramp up production in Poland, We will be closing the margin gap between North America and Europe in the second half of the year.
Speaker Change: We expect to see approximately a 23 million to $25 million in annualized EBIT uplift.
Majdi B. Abulaban: We also anticipate a cash benefit as we continue unwinding $12 million in safety stock while recovering $15 million in supplier service. Additionally, we will transfer benefits from higher cost absorption and improvement in our Polish operation. In addition, we are continuing to improve our overall cost structure in Europe by consolidating aftermarket warehouses and rationalizing overheads. Furthermore, we are making progress in our conversations with key customers regarding further cost recovery for labor and energy inflation. This is in addition to costs already recovered associated with the transformation.
Speaker Change: We also anticipate a cash benefit as we continue unwinding $12 million safety stock, while recovering $15 million of supplier terms.
Speaker Change: We will transfer benefit from higher cost absorption and improvement in our Polish operations and in addition, we are continuing to improve our overall cost structure in Europe by consolidated aftermarket warehouses and rationalizing over it.
Speaker Change: We are making progress in our conversations with key customers regarding further cost recoveries for labor and energy inflation.
Speaker Change: This is in addition to cost already recovered associated with the transformation.
Majdi B. Abulaban: Lastly, we feel good about the current portfolio we have in this region, in Europe, now that we have exited underperforming programs. Turning to slide 8, which is an overview of our current operating environment. As I mentioned earlier, industry production in our region is down 2%, while production declines with key customers such as GM and Audi are more pronounced. This, coupled with volume volatility, higher dealer inventories, and an unfavorable production mix, has created a challenging backdrop.
Speaker Change: Lastly, we feel good about the current portfolio we have in this region in Europe now that we have exited underperforming.
Speaker Change: Programs.
Speaker Change: Turning on to slide eight with an overview of our current operating environment.
Speaker Change: As I mentioned earlier industry production in our region.
Speaker Change: Regions is down 2%, while production declines with key customers such as GM and Audi are more pronounced.
Speaker Change: This coupled with volume volatility higher dealer inventories and unfavorable production mix has created a challenging backdrop.
Majdi B. Abulaban: Now, despite these challenges, we feel good about the position we have created for our business through our successful transformation. The tailwinds, including industry preference for localization and our portfolio differentiated technologies, which are aligned with consumer preference for larger and lighter premium wheels, will continue to play out. In addition, we see further growth tailwinds as the average age of the USA car park is at its historical low.
Speaker Change: Now despite these challenges we feel good about the position we have created for our business through our successful transformation.
Speaker Change: The Tam wins.
Speaker Change: Tailwind, including industry preference or localization.
Speaker Change: And our portfolio of differentiated technologies, which align with consumer preference for larger light and licensed premium wheel will continue to play out.
Speaker Change: Further we see further growth tailwind as the average age of the U S E car Park.
Speaker Change: Since this protocols.
Majdi B. Abulaban: Slide nine provides an overview of superior growth compared to the industry in the core. In addition to industry production declining 2%, in our markets, production out of top customers declined 8%, which was driven by launch delays and software issues at these OEMs. Our value added sales, adjusted for foreign exchange and deconsolidation, were down 6%, which is generally in line with our customer mix.
Speaker Change: Slide Slide nine provides an overview of superior growth compared to the industry in the quarter.
Speaker Change: In addition to industry production declined eight 2% in our markets production, our top customers declined 8%.
Speaker Change: Which was driven by launch delays and software issues that these Oems.
Speaker Change: Our value added sales adjusted for foreign exchange and deconsolidation was down 6%, which is generally in line with our customer mix the.
Majdi B. Abulaban: The impact of deconsolidation of our German operations and lumpy customer recoveries has also impacted our value added. Moving on to slide 10, which highlights the accelerated adoption of our portfolio of technologies, larger and lighter wheels with premium finishes continue to make up a larger proportion of our launches. This will further drive content growth in the future and more technological applications. We're also highlighting a few launches in the first quarter, including the exciting Force Fighter and the GM Honda EV. The right side of the slide highlights the historical trend with long-term content for real growth of 31% since 2019.
Speaker Change: The impact of the consolidation of our German operations and Lumpier customer recoveries have also impacted our value added sales.
Speaker Change: Moving on to slide 10, which highlights the accelerated adoption of our portfolio of technologies.
Speaker Change: Larger and lighter wheels with premium finishes continue to make up a larger proportion of our launches.
Speaker Change: This will further drive content growth in the future.
Speaker Change: And more technology applications.
Speaker Change: We're also highlighting a few launches in the in.
Speaker Change: In the first quarter, including the exciting or Spider.
Speaker Change: And the GM Honda E D.
Speaker Change: The right side of the slide highlights the historical trend with long term content for real growth.
Speaker Change: 31% as 2019.
Majdi B. Abulaban: I'd like to conclude with 511, which I shared with you during our last call. A powerful illustration of our competitive position, and unmatched capabilities in many ways. Strong market leadership. We are a leader in Europe, and we are a leader in North America, with the most diversified customer base in the wheel store. We are with the winning OEMs in both regions. Unrivaled Manufacturing Leadership. No other supplier can offer 100% low cost and local footprint, and finally, Unparalleled Technology and Portfolio Leadership. The broadest and most comprehensive list of portfolio lenders.
Speaker Change: I'd like to conclude with slide 11, which I shared with you during our last call.
Speaker Change: A powerful illustration of our competitive position unmatched capabilities in many ways.
Speaker Change: Strong market leadership, we are a leader in Europe, and we are a leader in North America with the most diversified customer customer base in the wheel space.
Speaker Change: We are with the winning Oems in both regions.
Speaker Change: Unrivaled manufacturing leadership.
Speaker Change: No other supplier.
Speaker Change: Other supplier can offer a 100% low cost and local footprint.
Speaker Change: And finally unparalleled technology and portfolio leadership.
Speaker Change: The broadest and most comprehensive portfolio of Memphis.
Majdi B. Abulaban: So we are excited about where we are. We have executed on a key milestone that has now culminated in a business that is well positioned for long-term profitable growth. And behind all this is a team delivering exceptional execution. I'd like to thank them all for their hard work and effort, and for their results. Now, I will turn the call over to Tim to provide more detail on our financial results.
Speaker Change: So we are excited about where we are.
Speaker Change: We have executed on a key milestone that has now culminated in a business that is well positioned for long term profitable growth.
Speaker Change: And behind all of this is the team delivering exceptional execution.
Speaker Change: I'd like to thank them all for their hard work and effort.
Speaker Change: And fourth quarter results.
Speaker Change: Now I will turn the call over to Tim to provide more detail on our financial results Tim.
Timothy C. McQuay: I think in your margin.
Timothy C. McQuay: I recall that on August 31st of last year, we announced the report of strategic action, the continuation of our local-for-local manufacturing footprint optimization strategy and the transformation of the remaining 6% of our manufacturing footprint to a more competitive cost structure. More specifically, our production facility in Bernal, Germany, otherwise known as Superior Industries Production Germany, or SPG, entered protective shield proceedings, a German court-administered reorganization.
Timothy C. McQuay: You'll recall that on August 31 of last year.
Timothy C. McQuay: Announcement of important strategic action, a continuation of our local for local manufacturing footprint optimization strategy and the transformation of the remaining 6% of our manufacturing footprint.
Timothy C. McQuay: A more competitive cost structure.
Timothy C. McQuay: Generally accepted accounting principles require that SPG's Statement of Operations and Balance, beginning with the commencement of the proceedings, be deconsolidated with Superior Industries Financial. Accordingly, the income statement of SBG is excluded from the first quarter of 2024 financial results, as is the balance sheet of SBG as of the end of the quarter. The deconsolidation affects the year-over-year cost. More specifically, in the first quarter of 2023, approximately 255,000 wheels were produced at SVG.
Timothy C. McQuay: More specifically our production facility in <unk>, Germany, otherwise known as a superior industries production in Germany, or SPG entered protective shield proceeds a German court administered reorganization process.
Timothy C. McQuay: Generally accepted accounting principles require that SPG statement of operations and balance sheet, beginning with the commencement of the proceeds be consolidated with superior industries financial statements.
Timothy C. McQuay: Accordingly, the income statement of SPG is excluded from the first quarter 2024 financial results as is the balance sheet of SPG as of the end of the quarter.
Timothy C. McQuay: The deconsolidation effects year over year comps.
Timothy C. McQuay: More specifically in the first quarter of 2023, approximately 255000 wheels were produced in SPG.
Timothy C. McQuay: The associated net sales and valuated sales were $34 million and $21 million, respectively. Year over year, first quarter of 2020 for financial results, and therefore adjusted capital expenditures and working capital benefited from the closure of the facility. Adjusted EBITDA was $3 million more, capital expenditures and working capital were over $1 million and $15 million less, respectively. We signed the sub-change benefit of the transfer of wheels from Germany to Poland at $23 to $25 million annually.
Timothy C. McQuay: The associated net sales and value added sales were $34 million and $21 million respectively.
Timothy C. McQuay: Year over year first quarter 2024 financial results and therefore, adjusted EBITDA capital expenditures and working capital benefited from the closure of the facility.
Timothy C. McQuay: Adjusted EBITDA was $3 million along.
Timothy C. McQuay: Let's spend insurers and working capital were $1 million and $15 million plus respectively.
Timothy C. McQuay: We find the step change benefit of the transfer of wheels from Germany to Poland at $23 million to $25 million annually.
Timothy C. McQuay: Capital expenditures should be approximately $10 million plus per year.
Timothy C. McQuay: Superior Europe variable contribution margin should approach that of superior North America.
Timothy C. McQuay: We expect the cost to complete the little transfer to be 20% to $35 million.
Timothy C. McQuay: Let's look at the quarter on page 14.
Timothy C. McQuay: Capital expenditures should be approximately $10 million less per year. The Superior Europe variable contribution margin should approach that of Superior North America. We expect the cost to complete the will transfer to be $20 to $35 million. Let's look at the quarter on page 14, first quarter 2024 financial. Net sales decreased $316 million for the quarter compared to $381 million in the prior year period. Normalization of the cost of aluminum and deconsolidation of SVG accounts for substantially all of this $65 million decline, or $52 million. Value-added sales decreased $200 million to $172 million for the quarter, compared to $203 million in the prior year period. The deconsolidation of SVG and foreign exchange accounts for $21 million of this $31 million decline.
Timothy C. McQuay: First quarter 2020 for financials.
Timothy C. McQuay: Net sales decreased $316 million for the quarter compared to $381 million in the prior year period.
Timothy C. McQuay: The normalization of the cost of aluminum of deconsolidation of SPG accounts, where substantially all of the $65 million decline or $52 million.
Timothy C. McQuay: Value added sales decreased 200 to 172 million for the quarter.
Timothy C. McQuay: <unk> $203 million in the prior year period.
Timothy C. McQuay: The deconsolidation of SPG and foreign exchange accounts for $21 million of the $31 million decline.
Timothy C. McQuay: Adjusted EBITDA was $31 million, and the associated margin expressed as a percent of valued sales was 18%, a pillar of the file of moral terror. For the quarter, the net loss was $33 million. The first quarter of 2024 year-over-year sales bridge is on page 15. As I just mentioned, valuated sales declined $31 million compared to the prior year quarter, reflecting deconsolidation of SPG in lower units. To the far right, aluminum costs passed through the customers were down $34 million because of the lower cost of aluminum, the consolidation of SVG, and lower units on page 16.
Timothy C. McQuay: Adjusted EBITDA was $31 million associated margin expressed as a percent of value added sales 18%.
Timothy C. McQuay: Toward to follow more of a tariff for.
Timothy C. McQuay: For the quarter net loss was $33 million.
Timothy C. McQuay: The first quarter of 2024 year over year sales bridge is on page 15.
Timothy C. McQuay: As I, just mentioned value added sales declined $31 million compared to the prior year quarter.
Timothy C. McQuay: The deconsolidation of SPG and lower unit sales.
Timothy C. McQuay: So on the far right aluminum cost pass through to customers was down 34 million because of the lower cost of aluminum deconsolidation of SPG and lower unit sales.
Timothy C. McQuay: Okay.
Timothy C. McQuay: On page 16.
Timothy C. McQuay: First quarter of 2024, year over year adjusted. Adjusting EBITDA for the quarter decreased to $31 million compared to $45 million in the prior year period. The adjusted EBITDA margin for the quarter was 18% compared to 22%. Lower unit sales partially offset by favorable product. And to the far right, lower recovery of cost inflation for customers, partially offset by lower conversion costs, are the primary reasons suggested even without a client.
Timothy C. McQuay: First quarter of 2024 year over year adjusted EBITDA Bridge.
Timothy C. McQuay: Adjusted EBITDA for the quarter decreased to $31 million compared to $45 million in the prior year period.
Timothy C. McQuay: The adjusted EBITDA margin for the quarter was 18% compared to 22%.
Timothy C. McQuay: Lower unit sales, partially offset by favorable product mix.
Timothy C. McQuay: And to the far right lower recovery of cost inflation from customers.
Timothy C. McQuay: Firstly offset by lower conversion costs are the primary reasons adjusted EBITDA decline.
Timothy C. McQuay: The impact of foreign exchange and metal timing on the quarter compared to the prior year period was de minimis. An overview of the company's first quarter 2024 unlevered free cash flow is on page 17. Cash flow from operating activities was $4 million for the quarter compared to $39 million in the prior year period. Lower earnings of $29 million, $14 million of which is higher non-cash tax, and lower sources of cash provided by trade payables of $16 million and other assets and liabilities of $7 million are the primary reasons for the decline in cash flow from operating expenses. Cash used by investing activities for the quarter was $7 million, compared to $16 million in the prior year period. However, gathered expenditures were lower in the first quarter of 2024.
Timothy C. McQuay: <unk> got the foreign exchange the metal timing on the quarter compared to the prior year period.
Speaker Change: It's de Minimis.
Speaker Change: An overview of the company's first quarter 2020 for Unlevered free cash flow is on page 17.
Speaker Change: Cash flow from operating activities was $4 million for the quarter compared to 30 $39 million in the prior year period.
Speaker Change: Lower earnings of $29 million.
Speaker Change: 14 million of which has higher noncash taxes and lower sources of cash provided by trade payables of $16 million in other assets and liabilities of $7 million are the primary reasons for the decline in cash flow from operating activities.
Speaker Change: Cash used by investing activities for the quarter was $7 million compared to $16 million in the prior year period.
Speaker Change: Capital expenditures were lower in the first quarter of 2024.
Speaker Change: Cash payments for non debt financing activities were five comp.
Speaker Change: Comparable prior year period.
Timothy C. McQuay: Cash payments for non-debt financing activities were $5,000, comparable to the prior year period. Unlaundered free cash flow for the first quarter of 2024 was therefore $8 million, a decrease of $26 million compared to the prior year period, primarily because of the lower cash flow from operating activities, offset in part by fewer capital expenditures. A review of the company's capital structure as of March 31, 2024 may be found on page 18. Cash on the balance sheet at quarter end was $191 million; funded debt started with $30 million at quarter end, and net debt was $439 million.
Speaker Change: Unlevered free cash flow for the first quarter of 2020 forward, Therefore, 8 million a decrease of $26 million compared to the prior year period, primarily because of the lower cash flow from operating activities offset in part by fewer capital expenditures.
Speaker Change: The overview of the company's capital structure as of March 31, 2024 may be found on page 18.
Speaker Change: Cash on the balance sheet at quarter end was $191 million.
Speaker Change: Funded debt was $630 million at quarter end and net debt was $449 million.
Timothy C. McQuay: Unlevered the balance sheet and therefore unlevering free cash flow remains a top priority. Superior's Debt Maturity Profile, as of March 31, 2024, on page 19. The revolving credit facility was undrawn at quarter end. We are in compliance with all old covenants, including senior, Unsecured Offs, Mature, and the Youth.
Speaker Change: Deleveraging the balance sheet, and therefore, unlevered free cash flow remains a top priority.
Speaker Change: Superior's debt maturity profile as of March 31, 2024 on page 19.
Speaker Change: The revolving credit facility was undrawn at quarter end.
Speaker Change: We are in compliance with all loan covenants.
Speaker Change: And your unsecured notes mature in the year.
Timothy C. McQuay: The company has engaged an independent financial advisor to advise on refinancing the bill. In conjunction with our advisor, we will evaluate restructuring opportunities in the capital market. It is too early in the process to discuss the capital instructions this process might deliver for the full year of 2024. The full year of 2024 financial outlook is on page 20. For the full year 2024, we expect net sales in the range of 1.38 to 1.48 billion and Value Added Sales in the range of $720 to $779. Sales reflect the impact of heavy address underperforming parts at the real port, thereby optimizing the profitable utilization of our manufacturing and Light Vehicle Production in our markets, generally consistent with IHL.
Speaker Change: The company has engaged an independent financial adviser to advise on refinancing the notes.
Speaker Change: In conjunction with our advice.
Speaker Change: Evaluating refinancing opportunities in the capital markets, it's too early in the process to discuss the capital structure with this process might go look.
Speaker Change: Okay.
Speaker Change: For the full year of 2024.
Speaker Change: Full year 2024 financial outlook is on page 20.
Speaker Change: For the full year 2024, we expect net sales in a range of $1 38 to $1 4 billion.
Speaker Change: In value added sales in the range of $728 million to $770 million.
Speaker Change: The sales reflect the impact of heavy address underperforming parts of the REO portfolio.
Speaker Change: Thereby optimizing the profitable utilization of our manufacturing capacity in light vehicle production in our markets generally consistent with IHS forecasts.
Timothy C. McQuay: We expect adjusted EBITDA of $155 to $175 million. Because of the year of transformation, we expect to exit 2024 with adjusted EBITDA of approximately $190 million. We anticipate that cost inflation, especially labor and energy, will persist.
Speaker Change: We expect adjusted EBITDA of $155 million to $175 million.
Speaker Change: However.
Speaker Change: Because of the Europe transformation, we expect to exit 2024 was adjusted EBITDA of approximately $190 million.
Speaker Change: We anticipate the cost inflation, especially labor and energy all process.
Timothy C. McQuay: However, we have ongoing dialogue with customers to recover a meal price to their fair share of inflation. We expect to deliver on level 3 cash flow in the range of $110 to $130 million. Highlighting the cash generating power of the universe. Finally, we expect approximately 50 million in capital expenditures as we strategically invest in our business, in particular in finishing and light weighting capability. Remodeled tax expense of approximately $30 million for the year. The tax provision for the year reflects the impact of 18 million tax restructuring charges in the first year.
Speaker Change: However, we have ongoing dialogue with customers to recovery wheel products their fair share of inflation.
Speaker Change: We expect to deliver on Levered free cash flow in the range of $110 million to $130 million.
Speaker Change: Highlighting the cash generating power of the enterprise.
Speaker Change: Finally, we expect approximately 50 million in capital expenditures as we strategically invest in our business in particular, and finishing and lightweight and capabilities.
Speaker Change: Remodel tax expense of approximately $30 million for the year with.
Speaker Change: The tax provision for the year reflects the impact of $18 million of cash restructuring charges in the first quarter.
Timothy C. McQuay: Inc. The strategic action to close SBG and transfer oil production to Poland is expected to be significantly value accretive to the company. We're very pleased with our teams involved in this transaction, especially our operations and commercial. This concludes our prepared remarks. Questions, Majdi and I are happy to take questions.
Speaker Change: In closing with.
Speaker Change: Strategic action to close SPG and transfer production to Poland is expected to be significantly value accretive to the company.
Speaker Change: We're very pleased with our teams involved in this transaction, especially our operations and commercial teams.
Speaker Change: This concludes our prepared remarks, we are smaller C&I are happy to take questions Alan.
Alan: Thank you. If you'd like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. We will take our first question from Michael Ward of Freedom Capital. Your line is open, please go ahead.
Speaker Change: Thank you if you'd like to ask a question I'll make a contribution on todays call. Please press star one on your telephone keypad to be doing a question. Please press star two.
Alan: We will take our first question from Michael Bowen Freedom Capital. Your line is open. Please go ahead.
Michael Patrick Ward: Thank you. Good morning, everyone. Morning Mike. How are you? Doing okay, thank you. Majdi, you talked about a couple things with the European transformation. So operations were deconsolidated, when will they be put back in?
Michael Bowen: Thank you and good morning, everyone.
Michael Bowen: Good morning, Mike.
Michael Bowen: Doing okay. Thank you.
Michael Bowen: Mark you talked about a couple of things with the European transformation.
Michael Bowen: So operations, where T consolidated when would be put back in.
Michael Bowen: In your numbers.
Majdi B. Abulaban: You mean, when will the transfer of wheels begin to show up in our numbers?, correct?
Michael Bowen: When will the transfer of wheels begin to show up in our numbers correct.
Michael Patrick Ward: Okay, so now, but it's deconsolidated, so it's out. So you took those numbers out, and when will you? When will they start showing back up in your numbers?
Speaker Change: Okay, So no but it's.
Speaker Change: Consolidated so without so you took those numbers out and when will you start trailing back up in your numbers yet.
Majdi B. Abulaban: We will begin to start showing up in Q2, and they will fully stabilize in Q3. Tim? Yep, that's right. So the financial results of the drilling facility SVG are out forever, Mike. So now what we're doing, as we transfer that production over to Poland, benefits will show up in our existing and remaining.
Speaker Change: We will begin to start showing up in Q2, and they will fully stabilized in Q3, Tim Yeah. That's right. So the financial results of the German facility SPG are off forever, Mike. So now what we're doing as we transfer that production.
Paul: Over to Paul.
Tim: The benefit will show up in our existing in our remaining financial results.
Speaker Change: Okay got it.
Majdi B. Abulaban: Okay, got it. The benefit, the revenue as well, and if you recall when we talked previously, the German facility had an outside number of wheels that were much, much higher content. So, that will show up as well, and that will lead to our content. Okay, and so and then the 20 to 35 million dollars in costs to complete, Is that just showing up on some of these revenue numbers, or is that the actual, you know, how does that, how do we see that?
Speaker Change: The benefit the revenue as well and if you recall when we talked previously the German facility had an outsized number of wheels that are much much higher content, so that will show up as well and that will be too.
Speaker Change: Content per wheel.
Majdi B. Abulaban: Okay, and so and then the 20% to $35 million of cost to complete.
Majdi B. Abulaban: That's just showing up on some of these revenue numbers or is that actual how does that how.
Majdi B. Abulaban: How do we see that.
Michael Patrick Ward: Those are restructuring charges, by and large, restructuring of other charges associated with this activity. So, you will see that in... They are not reflected in a just deed, but we set those.
Speaker Change: Yes.
Majdi B. Abulaban: Also our restructuring by and large restructuring or.
Michael Patrick Ward: Other charges associated with this activity so that youll see that.
Michael Patrick Ward: Yes.
Michael Patrick Ward: So they are not reflected in adjusted EBITDA, we set them aside.
Majdi B. Abulaban: Okay, that's fine. German production was down, I think 8% in the first quarter, and you mentioned your key customers and everything else. Was there something going on in Germany in January and February in particular, and what are your customers telling you for the rest of the year?
Speaker Change: Okay, that's fine.
Majdi B. Abulaban: German production was down.
Majdi B. Abulaban: I think 8% in the first quarter and you mentioned about your key customers and everything else was there something going on in Germany in January and February in particular.
Majdi B. Abulaban: Customers are telling you for the rest of the year.
Majdi B. Abulaban: Mike, I mean, this is public information. I'm not giving you anything proprietary here. So the whole VW group was down significantly. In fact, Audi, just by itself, production-wise, was down 26%. Now, it's really a combination of factors, right? The major factor is disruption. The second one is, if you look at the launch cadence of the whole VW group, especially Audi and Porsche, it's quite front-loaded. Then you've got this other factor, the dynamic in China, and you know, the imports of Porsche and high-end vehicles into China have been challenging for them. And the last piece is obviously no secret that the Chinese are taking a share in Europe. That's not the major driver, but that's part of it.
Speaker Change: Yeah, Mike I mean, the DW and this is public information I'm not giving you anything proprietary here. So pull BW group were down significantly in fact, Avi just by themselves production lines were down 26% now I would say, it's really a company factors right. The major factor is disruption. The second one is for you.
Majdi B. Abulaban: You look at the launch cadence of the whole VW group, especially Audi and Porsche it's quite.
Majdi B. Abulaban: Quite front loaded.
Majdi B. Abulaban: The other factor dynamic on China.
Majdi B. Abulaban: The importance of portion high end vehicles into China.
Majdi B. Abulaban: <unk> has been challenging for them and the last piece is obviously no secret that the Chinese are taking share in Europe.
Majdi B. Abulaban: In Europe, that's not the major driver, but that's part of it as well.
Majdi B. Abulaban: Okay, so now the schedules they've given you, though, is that what gives you confidence in that stronger second half?
Speaker Change: Okay. So the schedules they've given you though is that what gives you confidence in that.
Majdi B. Abulaban: A stronger second half.
Majdi B. Abulaban: That's correct. I mean, if you look at IHS, Europe is supposed to be down in the first half, probably Q2 is similar to Q1, a little bit better, but you'll see, you'll see a beginning to wrap up in the second half and largely again, in my view, because the supply chain disruptions will have been passed, but also the launches that I mentioned earlier. So in the second half, you'll see a little bit of growth versus the prior year. In both Europe, actually,
Majdi B. Abulaban: That's correct. If you look at I mean, we look at IHS like Europe is supposed to be down in the first half probably Q2 was similar to Q1, a little bit better, but youll see youll see them beginning to wrap up in the second half and last.
Majdi B. Abulaban: Last year again, it might be because of that.
Majdi B. Abulaban: Supply chain disruptions will happen past, but also the launches that I mentioned earlier, so in the second half youll see a little bit of growth versus prior year in both Europe actually in North America.
Michael Patrick Ward: Okay, so in some respects, the timing of your transition was fortunate. [inaudible] at our facility, um, uh, you know, stated that it's the first time he's ever seen such a reorganization without disruption. So you hit the nail on the head, Mike. It's been an exciting story, but it's really a measure of the capability of this team at Superior and our ability to execute. So this second half, you get the combination of production coming back online, a low-cost facility, getting rid of the inventory, so two, three, four things start to really set up nicely late 24 into 2025. That's the way you're looking. That is well said. Thank you very much. Good luck!
Majdi B. Abulaban: So in some respects the timing of your transition was fortunate.
Michael Patrick Ward: With Germany being down.
Michael Patrick Ward: That's actually that's an excellent point that need that.
Michael Patrick Ward: You know like I said in my script, Mike. This is no simple undertaking you know we have 550 <unk> Germany.
Michael Patrick Ward: These are the most our most complex wheels, we manufacture in the world they're portion of wheels that Audi wheels.
Michael Patrick Ward: Our customers have been absolutely impressed with the execution in fact upholstery gentleman that was in our facility.
Michael Patrick Ward: Stated that it's the first time, you've ever seen specialty organization will not disruption. So you hit the nail on the head Mike It's Ben.
Michael Patrick Ward: Signing story, but it's really a measure of the capability of this team at superior and our ability to execute.
Michael Patrick Ward: So the second half you get the combination of production coming back online low cost facility getting rid of the inventory. So 234 things started to really set up nicely.
Michael Patrick Ward: <unk> 2004 to 2025, Thats, what youre looking at it.
Michael Patrick Ward: And it's well said.
Speaker Change: Well. Thank you very much good luck with it.
Speaker Change: Hey, good morning.
Gary Frank Prestopino: We will take our next question from Gary Prestopino, Barrington Research. Your line is open.
Michael Patrick Ward: We will take our next question from Gary <unk> Barrington Research. Your line is open. Please go ahead.
Gary Frank Prestopino: Yes.
Gary Frank Prestopino: Hey, good morning all. Um, a couple of questions here. First of all, I noticed that you didn't give units by region produced. Unless I'm missing it, there's a lot of information on both the press release and the deck. Do you have that, Andy?
Gary Frank Prestopino: Hey, good morning, all.
Gary Frank Prestopino: Good morning couple of questions here first of all I noticed that you didn't give unit.
Gary Frank Prestopino: By region produced.
Gary Frank Prestopino: Unless I'm missing it theres a lot of information on both the press release and the deck.
Gary Frank Prestopino:
Gary Frank Prestopino: Do you have that handy or is that something youre not going to be.
Majdi B. Abulaban: Or is that something you're not going to be? Gary, Gary, you're asking a very important question. Gary, you're asking a very important question. As we have now completed, you know, our transformation in Europe, our focus has always been on content. You know, I cited an example where the bourbon wheel is, could be 5x, a central wheel, right? So our focus really is not on how many wheels we made. It's about making the right wheels, the wheels with the right content and the right technology and the right return.
Andy: Gary you've been asking about April right.
Majdi B. Abulaban: Youre asking a very important question is as we have now completed here.
Majdi B. Abulaban: Transformation in Europe, our focus has always been Gary on content.
Majdi B. Abulaban: An example, there.
Majdi B. Abulaban: And the Bourbon <unk> climax, a central read alright, so I'll focus on how many meals with me, so I'm, making that.
Majdi B. Abulaban: The wheels, with the right context, and right technology and the right returns.
Majdi B. Abulaban: So that's why you're seeing us back off, putting units in the forefront. But if you go to the queue, you'll find the information there. But in terms of growth and focus, I think the focus, in my opinion, Gary, should be on sales and value-added sales. That's what we should be doing. Thank you. Okay, that's fine. I just wanted to make sure that something you hadn't pulled back on because I still think it's important that you. Let's get those numbers.
Majdi B. Abulaban: So thats why youre seeing a snack.
Majdi B. Abulaban: Yes.
Speaker Change: Back off.
Majdi B. Abulaban: Putting units in the forefront, but if you go through the Q Youll find information here, but in terms of growth and I think the focus in my opinion, Gary should be on sales and value added sales thats, where we should focus on productivity.
Speaker Change: Okay. That's fine I just wanted to make sure Thats something you hadn't pulled back on because I still think it's important that you.
Gary: Those numbers.
Majdi B. Abulaban: And then if I look on page five of the DEC, just to understand what's going on, you talk about the impact of the deconsolidation of the German production facility on high-value wheels, I guess, that were produced in Germany in the quarter as you transferred everything.
Speaker Change: And then if I look on page five.
Majdi B. Abulaban: Sure.
Majdi B. Abulaban: The deck just to understand what's going on you talk about the impact from the deconsolidation of the German production facility.
Majdi B. Abulaban: High value wheels, I guess that were produced in Germany.
Gary: In the quarter as you are transferred everything.
Gary: It really disrupted production and that's.
Gary: That's why.
Majdi B. Abulaban: All I'm saying here is that our numbers in the quarter do not include those weeks. So yes, what I'm saying is the numbers you see for the quarter here do not include those weeks. When you go to the queue and you ask about the number of wheels we produce, you'll see that those wheels, about 25,000 in Germany, are not included in that data. And that distorts our growth. That's all we're saying. And then when you consider that those 200-some thousand wheels are significantly higher contented wheels, then that also distorts our content per wheel and our value-added sales.
Speaker Change: We don't know Gary pass on all of them all I am saying, all I'm, saying is that our numbers in the quarter do not include those wheels.
Majdi B. Abulaban: So when you so I'm going to D C for the quarter and year. They do not include.
Majdi B. Abulaban: When you go to the acuity you asked about the number of wells that produce youll see that those wheels.
Majdi B. Abulaban: <unk> 5000.
Majdi B. Abulaban: In Germany are not included in those data and that data and that is total growth.
Speaker Change: That's all I'll say.
Majdi B. Abulaban: And then windows when you consider that those 200, some positive wheels are significantly higher contented wheels that also this total content per wheel and our value added sales.
Majdi B. Abulaban: Okay, it's not included in what you do.
Speaker Change: Okay. It's not included in what you.
Majdi B. Abulaban: You know, you put it out here is the
Majdi B. Abulaban: You put out here.
Majdi B. Abulaban: Gary, it's Gary, it's Tim. If I may, if I could turn your attention to page 13, so this will help you with the disruption in the year-over-year comps. You know, in 2023, the first quarter of 2023, for example,
Majdi B. Abulaban: Gary Gary It's Tim if I may if I can turn your attention to page 13.
Majdi B. Abulaban: So this this will help you with this.
Majdi B. Abulaban: Structurally in that year over year comps.
Majdi B. Abulaban: In 2023 in the first quarter of 2023 for example, before.
Speaker Change: Can you hear me Gary.
Majdi B. Abulaban: Sure.
Majdi B. Abulaban: Okay.
Timothy C. McQuay: You're not coming in, Gary.
Majdi B. Abulaban: Okay.
Speaker Change: You are not coming in Gary.
Gary Frank Prestopino: We will take our next question from Mehmet Dere, from Dutch Bank. Your line is open, please go ahead.
Speaker Change: We will take our next question from Mohammed Tammy Dutch Bank. Your line is open. Please go ahead.
Mehmet Dere: Hey guys, just two quick questions on the cost of $20 to $35 million for the transfer. Just wanted to clarify, is that a cash cost? If so, when is it going to be in the cash flow statement? Because you said you put it aside, and it will not show up in the adjusted EBITDA?
Mehmet Dere: Hey, guys.
Mehmet Dere: Two quick questions.
Mehmet Dere: Hey.
Mehmet Dere: Just on the cost of $20 million to $35 million for the transfer.
Mehmet Dere: Just wanted to clarify is that cash costs. If so when is this going to be in the cash flow statement, because you said you'd put them aside and will not show up in the adjusted EBITDA.
Timothy C. McQuay: Right, they are all cash costs at the end of the day, and we are at the very end of those cash costs. There's very little yet to yet to spend, so you can get some idea of the impact of those. And if you look at the reconciliations to the gap measures, net income to adjust the EBITDA by period, that'll give you some indication of what those, the magnitude of those costs by period. So, Yeah, when I said Senator, I'm sorry, I just said for purposes of discussing adjusted EBITDA. We set them aside, but they do affect our cash.
Speaker Change: Right they are.
Timothy C. McQuay: They're all cash costs at the end of the day.
Timothy C. McQuay: And we are at the very end of those those cash costs.
Timothy C. McQuay: Very little yet too.
Timothy C. McQuay: Yet too.
Timothy C. McQuay: Spend you can get some idea of the impact of those men and if you look at the reconciliations to the GAAP measures of net income to adjusted EBITDA by Puma and well give you some indication of what those the magnitude of those costs by by period. So.
Timothy C. McQuay: No.
Timothy C. McQuay: Yes, mindset setting that aside I, just said for purposes of discussing adjusted EBITDA, we set them. Thank you.
Timothy C. McQuay: Do affect our cash flows.
Mehmet Dere: Okay, great. And then, as I asked on previous calls about the refinancing process, as you also said, you're too early in the process to discuss the cap structure, but you dropped a narrative there where you said in the previous presentation that the refinancing of the notes is likely to involve preferred equity. Have you just, is there a reason for the change in the wording or not? No, not really.
Speaker Change: Okay great.
Timothy C. McQuay: And then well ask also on the previous calls about the refinancing process that you also said that you are too early in the process discuss the cap structure, but you dropped a narrative that way you said in the previous presentation that the refinancing of the notes is likely to involve preferred equity.
Mehmet Dere: Have you just.
Speaker Change: There are reasons.
Mehmet Dere: For the change in diverting or.
Timothy C. McQuay: I don't know exactly how the refinancing of the notes may have any impact on other elements of the capital system. But, you know, the discussions are ongoing. We have a complicated capital structure for our company. There are, you know, as you know, four stakeholders, the preferred equity, the secured debt, the term loan, the unsecured notes, and, of course, our banks, the revolving credit facility. So I don't know exactly how all those pieces will come together as we focus.
Speaker Change: Can you give us some color there.
Speaker Change: No not really.
Timothy C. McQuay: I don't know exactly how.
Timothy C. McQuay: The refinancing of the notes will.
Timothy C. McQuay: May have any impact on other elements of the capital structure. So.
Timothy C. McQuay: The discussions are ongoing there is we have a complicated capital structure for our company.
Timothy C. McQuay: No.
Timothy C. McQuay: Our four stakeholders.
Timothy C. McQuay: The preferred equity the secured debt the term loan the unsecured notes and of course, our bank revolving credit facility. So I don't know exactly how all those pieces will come together as we focus on the unsecured notes.
Timothy C. McQuay: Unknown Executive, David Sherbin, Mehmet Dere, Superior Industries International Inc. Okay, and on the timing, since the bonds are becoming current in a few weeks' time, is it likely that you guys will be waiting for the second half of the quarter since volumes are coming back, and you will recap the German operations in Poland?
Timothy C. McQuay: Yes, the preferred equity could very well be a part of the transaction in some form or fashion.
Speaker Change: Okay, and then on the timing.
Timothy C. McQuay: Since the bonds are becoming current in a few weeks of time.
Timothy C. McQuay:
Timothy C. McQuay: Is it likely that you guys will be waiting for the second half of the quarters and so volumes coming back and you will recap the German operations.
Timothy C. McQuay: In Poland.
Timothy C. McQuay: No, I would say that we are proceeding as, um..., rapidly as it's proved and practicable, and so we would like to get it accomplished sooner rather than later. We are not targeting any specific point in the back part of the year for sure, and frankly, we'd like to get it done sooner rather than later. Okay, thank you.
Speaker Change: I would say.
Speaker Change: We are proceeding as ads.
Timothy C. McQuay: Rapidly as its proved impracticable.
Timothy C. McQuay: So.
Timothy C. McQuay: We would like to get accomplished sooner rather than later, we are not targeting any specific point in the back part of the year for sure and frankly, we'd like to get it done sooner rather than later to be honest with you.
Speaker Change: Okay. Thank you.
Timothy C. McQuay: Yeah.
Gary Frank Prestopino: Gary, are you back? Yeah.
Timothy C. McQuay: Gary are you back debt.
Alan: I'm sorry, Gary's line is disconnected. There are no further questions on the line. So I will now hand you back to Majdi Abulaban for closing remarks.
Speaker Change: I'm sorry, Gary line has disconnected.
Majdi B. Abulaban: No further questions on the line. So I will now hand, you back to Mike for closing remarks.
Majdi B. Abulaban: Thank you. Thank you, everyone, for joining our call today. Again, to the Superior team, thank you for your continued hard work and commitment to the success of our business. We look forward to continuing our momentum to deliver value for all stakeholders throughout 2020 and beyond.
Majdi B. Abulaban: Thank you and thanks to everyone for joining our call today again to the superior team. Thank you for your continued hard work and commitment to the success of our business. We look forward to continuing on our momentum to deliver value for all stakeholders throughout 2024 and beyond.
Majdi B. Abulaban: Have a great day everyone.
Alan: Thank you for joining today's call. You may now disconnect.
Speaker Change: Thank you for joining today's call you may now disconnect.
Alan: [music].
Alan: [music].
Alan: [music].
Alan: [music].