Superior Industries International Inc

Welcome to Superior Industries' first quarter 2023 earnings call. We are joined this morning with Majdi Abulaban, President and CEO, and Tim Treneney, Executive Vice President and CFO. My name is Caroline and I'll be your coordinator for today's event. Please note this call is being recorded and for the duration of the call your lines will be on listen-only mode. However, you'll have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your questions. If you require assistance at any point, please press star 0 and you'll be connected to an operator. I will now hand over the call to your host, Trim Trenary, to begin today's conference. Thank you.

Thank you, Caroline. Good morning, everyone, and welcome to our first 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 Mashi Aboulavan, our President and Chief Executive Officer. 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 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 FCC filings, including the company's current annual report on Form 10-K. for more complete discussion of forward-looking statements and risk factors. We'll 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 the business a portfolio update.

Thanks Tim and thanks everyone for joining our call today to review our first quarter results. I will begin on slide five. We are pleased with our first quarter results. We delivered strong growth in a tough environment and maintained focus on customer recovery while generating cash to continue to enhance our financial flexibility. Although our environment remains volatile, we have seen a modest recovery in industry production in North America and Europe as supply chain constraints begin to ease. That said, a significant portion of industry growth in North America was driven by fleet sales to rental companies, an area where Superior has limited content. Further, we have seen declines in the aftermarket in Europe due to one more winter and other factors I'll discuss later. That said, in the quarter, we grew year-on-year FX-adjusted value-added sales by 9% and content per meal by 16%. Our team continues to stay focused on what we can control. Commercial discipline and operational performance while continuing to execute our portfolio strategy. I am especially pleased with the progress we have made to align pricing with our input cost reality. which has supported ongoing growth in value-added sales while mitigating the impact of continued macro headwinds and unfavorable shifts in product mix. As a result, over the last 12 months, our value-added sales have outgrown the larger markets. Adjusted EBITDA in the first quarter of $46 million remains near historically high levels despite lower unit shipments. However, margins as a percent of value added sales contracted year over year largely due to the substantially higher recoveries we captured in the first quarter of 2022. In addition, we continue to take the necessary actions to enhance our portfolio to support long-term profitability. Here, we are taking a close look at our offerings and local business to prune parts that are underperforming and to cultivate those that are supporting long-term growth. We refer to this as our 80-20 process. Further, our strategy to capture secular demand for our differentiated portfolio has continued to play out. content per wheel has grown year over year for 16 consecutive quarters, with large diameter wheels now making up over 52% of our shipments. Further, as demand for lighter wheels has grown, bolstered by the secular shift to EVs, our lightweighting content has increased roughly 20% annually since 2020. Our efforts to capitalize on these secular trends while also taking a disciplined approach to working capital management and capital expenditures has translated to solid cash generation, in turn strengthening our financial profile. In Q1, we delivered $39 million in operating cash flow, reducing net debt to $421 million, the lowest level in over five years. In terms of what we see in the industry for the remainder of 23, we remain concerned. Given the mixed challenges we are seeing in North America, coupled with lower aftermarket sales in Europe and an increasingly uncertain macro environment, we are narrowing our full year outlook. We believe it is prudent to be conservative until we have more clarity on the trends within our region. As such, we now expect limited vehicle production growth in our markets and are narrowing our sales, value-added sales, and adjusted EBITDA ranges. Our cash flow guidance remains unchanged, which we plan to maintain through disciplined working capital management and lower cap expense. Tim will provide more details on this. Moving on to slide six, our strong position on premium platforms has continued as consumer preference moves towards larger, more sophisticated wheels with premium finishes. This is evidenced by some of the recent launches you see on the left side of this chart. Importantly, as you can see on the right side of the chart, we have been successful with customers in aligning product pricing with input cost of our business. This improved pricing, combined with growth in premium content, has resulted in substantial growth in content per wheel. Specifically, content growth and price have improved our content per wheel by 17% compared to 2021. Fundamentally, portfolio and commercial disciplines continue to underpin the long-term trajectory of our content expansion and profitability of our business.