Q1 2025 Superior Industries International Inc Earnings Call

R.G.: Thank you for standing by. My name is Argy, and I will be your conference operator today.

Speaker Change: Good morning, and welcome to our first quarter 2025 earnings Conference call.

Speaker Change: During our call. This morning, we will be referring to our earnings presentation.

Speaker Change: It is available on the Investor Relations section of Superior's website.

Masimo: I am joined on the call by Masimo.

Speaker Change: Our president and Chief Executive Officer.

Speaker Change: Before I turn the call over to modestly.

Speaker Change: 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 1995.

Speaker Change: Please refer to slide two of this presentation for the full safe Harbor statement.

Speaker Change: And to the company's SEC filings, including.

Speaker Change: The company's current annual report on Form 10-K, and the current quarters form.

Speaker Change: In Q.

Speaker Change: For a more complete discussion of forward looking statements and risk factors.

Speaker Change: We will also be discussing various non-GAAP measures today now.

Speaker Change: non-GAAP measures exclude the impact of certain items, and therefore are not calculated in accordance with U S. GAAP.

Speaker Change: Reconciliations of these measures to the most directly comparable U S. GAAP measure can be found in the appendix of this presentation.

Speaker Change: I now will turn the call over to modestly to providing business and portfolio update.

Speaker Change: Marty.

Speaker Change: Thanks, and Hello, everyone and welcome to our first quarter 2025 earnings call.

Speaker Change: Let's begin with an overview of the first quarter on slide four.

Speaker Change: We delivered a good start to 2025, despite the challenging macroeconomic environment.

Speaker Change: Our value added sales outperformed the market driven by our leading product portfolio.

While our teams continued focus on execution and cost reduction delivered results.

Speaker Change: Further during the quarter, we saw evidence of how our competitively advantaged local for local footprint is paying dividend.

Speaker Change: As the broader industry response to tariff pressure, especially from China, and Morocco, we are seeing an intensifying urgency from Oems to localize production in risk.

Speaker Change: As they take more cost effective manufacturing partners in both North America and Europe.

Speaker Change: More than ever our local for local manufacturing footprint in Mexico, and Poland is creating tremendous opportunity.

Speaker Change: We have seen an unprecedented level morning activity in recent months.

Speaker Change: In fact year to date, we have quoted on more than $53 million lifetime.

Speaker Change: I will speak more about this in a bit.

Speaker Change: Well tariff tailwind.

Speaker Change: Celebrating localization momentum in North America, and Europe in favor of superior we experienced a setback in April as we were notified by certain customers in North America, who undertook a major global sourcing activity there.

Speaker Change: Their intent to resource existing contracts with minimal wind downloads.

Speaker Change: This unfortunately represented 33% of our expected revenue in 2025.

Speaker Change: As such we immediately shifted focus working to secure short term liquidity to mitigate risks to our customers and suppliers.

Speaker Change: The commitment from our term loan lenders, providing access of up to $70 million of additional term loans under our existing credit agreement. This is obviously subject to satisfaction of certain conditions.

Speaker Change: We are also working towards obtaining covenant relief from our lenders and are having advanced discussions regarding a broader recapitalization transaction with our lenders and preferred shareholders.

Speaker Change: This is to significantly delever, the balance sheet by eliminating the preferred equity instrument and reducing our outstanding debt. This will be done through a debt for equity exchange, leaving superior with a strong capital structure.

Speaker Change: If implemented as contemplated this recapitalization transaction is expected to provide superior with the financial strength to execute our growth strategies and position us as the premier real solutions provider with a competitively advantage localized footprint.

Speaker Change: And market leading portfolio of products.

Speaker Change: We have made progress in support of our short term liquidity position given support from our lenders.

Speaker Change: And we are executing self help liquidity measures, including working capital and capital expenditure reductions.

Speaker Change: We will also continue working with our lenders and preferred shareholders towards the transaction designed to deliver a deleverage company with financial strength to capitalize on the tremendous opportunity there.

Speaker Change: Turning to slide five I spoke briefly regarding a potential transaction.

Speaker Change: You may recall last year in August 2024, we successfully refinanced our debt, which was a key milestone for superior.

Speaker Change: And a testament to our company's potential to deliver long term growth.

Speaker Change: The result was a stronger financial profile.

Speaker Change: Wondered $17 million reduction in total debt.

Speaker Change: And the extension of our debt maturities through the end of 2028.

Speaker Change: Now as you can see on this slide the contemplated transaction is designed to significantly reduce our debt burden, while positioning our company with additional financial flexibility for future opportunities.

Speaker Change: Yeah.

Speaker Change: Turning to slide six.

Speaker Change: As we mentioned in our last earnings call.

Speaker Change: Fair enough dynamics in Europe, and in North America are presenting unprecedented opportunity for us.

Recall that under.

Speaker Change: Like most automotive commodities and real commodity is highly dependent on imports from China and Asia for the U S and Morocco and China for Europe.

Speaker Change: More notably incremental tariffs on Chinese imports into the U S are now more than 100% and on Morocco, we have imports into Europe are almost 50%.

Speaker Change: This is an extremely favorable tailwind for superior we believe that we are the low costly remain district.

Speaker Change: With our restructured global manufacturing footprint in Poland and in Mexico.

Speaker Change: Ready to support existing customers and new customers.

Speaker Change: Slide seven highlights.

Speaker Change: And how recent tariff actions on accelerating volume localization initiatives in our favor.

Speaker Change: Here you see the remarkable level of customer RF skus over the last four months in Europe and in North America.

Speaker Change: And all time record year.

Speaker Change: Yesterday, we are quoting on more than $53 million lifetime yields in both regions.

Speaker Change: Twice the level compared to last year at the same time.

Speaker Change: More encouragingly.

Speaker Change: Many of these core software startup production in 2025, and 26, which is unusual in the automotive space.

Compared to last year, we have six times the opportunity we saw last year in this category.

Speaker Change: We are encouraged by these localization dynamics as they will go a long way to support our efforts to mitigate the recent volume losses.

I will conclude with slide eight which highlights our current position given the update I shared with you today.

Speaker Change: While recent contract losses are regrettable, we are focused on recovering these losses through the many short term opportunities we are pursuing.

Speaker Change: Further.

Speaker Change: We will not give up and will continue to pursue recovery of these customers given the recent tariff dynamic that will assure to impact them as well.

Speaker Change: Yes.

Speaker Change: Superior is well positioned to compete in the real space.

With a leading portfolio of products and a competitively advantaged local footprints.

Speaker Change: We have been talking about localization tailwind for many years.

They are here now.

Speaker Change: Superior journey has been one of perseverance over hardship and unprecedented recent challenges.

Speaker Change: I am grateful for the hard work and effort of our superiority.

Speaker Change: And.

Speaker Change: Dan prevail over unprecedented challenges.

Speaker Change: And I am confident we will continue to do so.

Speaker Change: I will now turn the call over to Dan to review our financial results in more detail. Thank.

Dan: Thank you Mandy.

Dan: Beginning on slide 10, first quarter 2025 financial summary, net.

Dan: Net sales for the first quarter was $322 million compared to $316 million in the prior year period.

Dan: First quarter, adjusted EBITDA was $25 million.

Dan: The associated margin expressed as a percentage of value added sales was 15% I.

Dan: I will provide color on this in the upcoming days.

Dan: Net loss was $13 million in the first quarter, which is a $20 million.

Dan: Improvement versus the same period last year.

Dan: The first quarter 2025 year over year sales bridge on slide 11 value added sales were down approximately $3 million compared to the prior year quarter, primarily driven by lower unit sales.

Dan: And the negative impact of FX, partially offset by favorable pricing.

Dan: On slide 12.

Dan: In the first quarter of 2025 year over year, adjusted EBITDA Bridge adjusted EBITDA for the quarter decreased to $25 million compared to $31 million in the prior year period.

Dan: The adjusted EBITDA margin for the quarter was 15% compared to 18% in the prior year period.

Dan: The decrease was mostly due to unfavorable cost absorption due to lower production volumes the impact of metal timing and lower unit sales, partially offset by favorable FX.

Dan: An overview of the company's first quarter 2025, Unlevered free cash flow is on slide 13.

Dan: Cash provided by operating activities was $24 million for the first quarter compared to $4 million in the prior year period.

Dan: The increase in cash provided by operating activity was driven by lower working capital.

Dan: Capital expenditures in the first quarter were $6 million compared to $7 million in the prior year period.

Dan: <unk>, our continued efforts to reduce the capital intensity.

Dan: Ed.

Dan: There were $1 million of cash payments for non debt financing activity in the first quarter compared to $4 million in the prior year period due to picking of dividend payments.

Dan: Unlevered free cash flow in the quarter was $33 million compared to $8 million in the prior year period. The increase in Unlevered free cash flow was primarily driven by lower working capital.

Dan: An overview of the Companys capital structure as of March 31, 2025 can be found on slide 14.

Dan: Total cash on the balance sheet as of March 31, 2025, with $54 million and we did not have anything Brian on the $60 million.

Dan: Revolving credit facility.

Dan: Net debt at quarter end was $452 million down 89, compared to December 31, 2024, and represents two consecutive quarters of reducing net debt refinancings.

Dan: Secured debt maturity as of March 31, 25% is on slide 15, as you may recall, we successfully completed our debt refinancing in 2020 for attracting $520 million of new capital and extending our term loan maturity to 2020.

Dan: Right.

Speaker Change: As mentioned by <unk> subsequent to the end of the quarter certain larger north American OEM customers notify superior that they would be shifting their wheel purchases.

Speaker Change: Other suppliers with immediate effect and minimal wind out.

Speaker Change: This sudden loss of volumes result.

Speaker Change: Short term liquidity constraints.

Speaker Change: Duston to the company's earnings generation.

Speaker Change: The combination of these items is put in the company's ability to meet the near term covenant threshold and the term loan and revolving credit facility.

As mentioned in our earnings release. This morning, we have received a commitment letter from our term loan lenders, providing us access up to $70 million of additional term loan under the existing credit agreement.

Speaker Change: This is subject to certain conditions required by our lenders.

Speaker Change: We are also discussing with our lenders about getting some flexibility in our financial covenants.

In addition, we are actively engaged in advanced dialogue with our lenders and preferred shareholders.

Speaker Change: A broader recapitalization transaction designed to delever the balance sheet.

Speaker Change: The result of the successful recapitalization transaction and the access to the incremental funds from the tremendous <unk> letter will be near term financial stability and a meaningful improvement to the long term capital structure, given the uncertainty stemming from our subsequent events ongoing discussions with our lenders and preferred.

Speaker Change: <unk>.

Speaker Change: And challenging macro environment with struggling global tariff changes, we are suspending our full year 'twenty guidance.

Speaker Change: Once the environment stabilizes and we have more clarity with our discussions as previously mentioned, we will provide a comprehensive update including full year projects.

Speaker Change: In conclusion.

Speaker Change: I want to thank the superior team for their hard work in our challenging operating environment.

Speaker Change: This has been a challenging quarter for the entire industry and we appreciate everyones amendment as we pursue solutions for our near term headwinds and overall capital structure.

Speaker Change: As we continue discussions with our lenders and preferred shareholder we will not be taking any questions. During this call.

Speaker Change: Modestly.

Speaker Change: Thank you again for joining on our call today and many many thanks, Florida the superior team for your hard work and efforts. This concludes our call.

Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].