Superior Industries International Inc

Hello and welcome to the Superior Industries fourth quarter for your 2022 Earnings Study Conference call. My name is Caroline and I'll be your coordinator for today's event. I'm joined this morning by Mashti Abulaban, President and CEO, Tim Trinary, Executive Vice President and CFO, Joanne Finan, Senior Vice President, Investor Relations Sustainability Corporate Secretary, Please note this call is being recorded and for the duration of the call, your lines will be on listen only mode. However, 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 questions. If you require assistance at any point, please press star zero and you'll be connected to an operator. I will now hand over the call to your host, Joanne Finan, to begin today's conference. Thank you.

Thank you. Good morning. Good morning. everyone, and welcome to our fourth quarter and full year 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 Aboulaban, our President and Chief Executive Officer, and Tim Trenary, our Executive Vice President and Chief Financial Officer. Before I turn the call over to Mashti, I would like to remind everyone that any forward-looking statements contained in this presentation or commented on today are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Please refer to slide two 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 more complete discussion of forward-looking statements and risk factors. We will also be discussing various non-GAAP measures today. These non-GAAP measures exclude the impact of certain items and therefore are not calculated in accordance with U.S. GAAP. Reconciliations of these measures to the most directly comparable U.S. GAAP measures can be found in the appendix of this presentation. With that, I'll turn the call over to Majdi to provide a business and portfolio update.

Hey, thanks, Joanne, and thanks, everyone, for joining our call today to review our fourth quarter and full year results. Starting on slide five with the full year highlights. During 2022, the Superior Team faced unprecedented industry challenges head on, including lower volumes, inflation, schedule volatility, and challenging dialogues with customers related to customer recoveries. I am truly proud of the hard work of our teams and the results we have delivered. These results are the culmination of our efforts in executing priorities laid out in our value creation roadmap, building on a solid foundation, driving operational excellence, and delivering profitable growth. Our portfolio strategy continues to play out. Demand for our premium products has enabled us to deliver content outgrowth. for the fourth year in a row. In 2022, we delivered 8% growth in value-added sales driven by demand for favorable wheel mix and by customer recoveries. During the year, we realized 14% content growth per wheel and saw continued increase in demand for larger and premium wheels. On the profitability front, our teams tackled an exceptionally challenging operating environment, successfully negotiating customer recovery and responding to cost pressures, with ever-increasing focus on lean and continuous improvement. Our collective efforts resulted in a strong multi-year high adjusted EBITDA of $194 million and 25% vice-margin, a significant year-on-year growth in earnings and margin expansion, I am also pleased with the results of our team's continued focus on cash flow. Through improved profitability, working capital management, and students in capital expenditures, we generated more than $80 million in free cash flow, improved our cash position to $213 million, and reduced net debt to $434 million, a $68 million reduction versus the prior year. These improved results have strengthened our financial position, enabling us to attract $400 million in capital to refinance our term loan. The extended maturity of our term loan and the strong cash balance provides us with confidence and flexibility in the coming years as we execute our strategies and tackle industry challenges. In terms of 2023, We remain cautious about how macroeconomic factors, including heightened interest rates and input costs, will impact automotive industry production. While some of the industry supply chain challenges are abating, we are still seeing continued choppiness and volatility. The industry is not out of the woods yet. In fact, we are anticipating very little growth, if any, in our markets, specifically. We expect a declining market in Europe and a flat one in the U.S. Further, tackling cost inflation, especially energy, through continuous improvement and negotiating for permanent price adjustments will be paramount. Now, on to slide six with the fourth quarter highlights. Despite a volatile and choppy production environment, our team's commercial and cost discipline delivered solid performance in the quarter. While industry volumes increased 11% versus the prior year, we actually grew FX-adjusted value-added sales by 22% while also driving substantial earnings growth and margin expansion. Successful negotiations with our customers for cost recoveries in the quarter which by the way tend to be very choppy and for prior periods contributed to these results further as i noted at the beginning of this call we continue to leverage our innovative portfolio to drive content growth with content per week increased 26 versus the prior year turning on to slide 7 which highlights industry production by region and how our differentiated portfolio of product technologies is driving content growth. In the fourth quarter of 2022, while we saw notable increases in industry production on a year-over-year basis in both North America and Europe, we outperformed in both regions. Combined, we achieved 11% growth over market in the fourth quarter and normalizing for choice recoveries a three-year category of 8% growth over market. Moving on to slide eight and looking further in our current operating environment. Globally, industry production has finally started to rebound for the first time since 2020, yet remains far below pre-COVID levels. We continue to face a difficult operating environment marked by headwind noise on this slide. Most notably, elevated input costs and ongoing disruption in Europe. That said, substantial tailwinds remain, including the aging of semiconductor supply constraints coupled with solid demand for premium wheels and the benefit of our local-for-local manufacturing footprint, which I'll touch on a bit later. We will continue our efforts to capture these long-term tailwinds in 2023 to position superior for long-term growth. Moving on to slide nine to address progress on our multi-year value creation roadmap. Our team has continued to consistently execute on our strategic priorities laid out here. From an operational excellence standpoint, we continued our focus on cost discipline and continuous improvement initiatives. Further, commercial discipline has also been a key success factor for us, supporting our multi-year solid margin expansion. Beyond operational excellence, we have maintained focus on driving profitable growth. We truly believe we have the broadest portfolio in the industry, enabling us to benefit from the continued secular trends towards larger and lighter wheels with premium finishes. Further, our local for local manufacturing footprint is well established and remains a tailwind as major customers seek to de-risk long supply chains. Due to recent update in EU legislation, substantial duties are now imposed on wheels imported into Europe from both China and Morocco, two key regions where our competitors operate. In line with our local-for-local strategy, we manufacture wheels in proximity to our key customer facilities and do not face these same errors, resulting in a competitive advantage. Slide 10 is more stellar and quantifies the progress we have achieved since we first rolled out our value creation roadmap back in 2019. This foundation has enabled our recent financial performance, delivering earnings growth despite a significant decline in industry production. Further, we have made the right adjustments to our business and implemented changes to the cost structure to support profitability. Against an 18% decline in industry unit shipments since 2019, Our FX adjusted value added sales has increased 8%. Adjusted EBITDA margin has expanded by 280 basis points. And content per wheel has expanded 33%, collectively enabling us to reduce net debt by $120 million. And then to refinance a significant portion of our capital structure. This remarkable performance amidst one of the most challenging operating environments our industry has ever faced, gives us great confidence in Superior's ability to deliver long-term profitable growth. Slide 11 highlights the culmination of our portfolio strategy since 2019, manifesting in 33% content growth per wheel. We have continued to deliver technologies that meet increasing demand for larger and lighter wheels with premium finishes. With HMV technology steadily making up a larger share of our portfolio. Slide 12 highlights how new launches have continued to reflect the continuing adoption of our technology and the growing diversity of our customer base. Over two-thirds of our launches you see on this chart in 22 included large diameter wheels. And more than 50% included lighter and premium wheels. Flight 13 highlights progress towards our sustainability goals for the year. Our team's focus on safety has enabled us to reduce recordable incident rates by 50% since 2018, an industry benchmark. We also continue to focus on sustainability using renewable energy. 82% of our electricity is now procured from renewable sources. Further, our focus on green products through our R4 strategy is yielding results. Our yields on average actually deliver less than 50% CO2 footprint than the global aluminum industry average. Progress in each of these areas has continued to make us more attractive to global OEMs that are looking for partners with sustainable operations. We are planning to provide more detail on these achievements in our upcoming sustainability report, which we plan to publish later this year. I will conclude my remarks by addressing our full year 2023 outlook on slide 14. As I noted at the beginning of the call, we remain cautious about how macroeconomic factors, including heightened interest rates and input costs, will impact automotive industry production levels. While some of the industry supply chain challenges are abating, we are still seeing continued choppiness and volatility. We are anticipating very little growth in any, if any, in our markets. Specifically, as I mentioned earlier, we expect a declining market in Europe and a flat one in the U.S. For the year, we expect adjusted EBITDA in the range of $170 million to $200 million. and cash flow from operations in the range of $110 million to $130 million. Our adjusted EBITDA and cash generation, while still above historical levels, will be impacted primarily by lower customer recovery versus 2022. Tim will provide more cover on this later. In closing, I am very pleased with the impressive results our team delivered this year in the face of unprecedented challenges. I would like to thank every member of our superior team for their efforts and hard work. We look forward to continuing our progress in 2023 as we generate long-term value to our shareholders. And now I will turn the call over to Tim. Tim?