Superior Industries International Inc

Welcome to Superior Industries' third quarter 2023 earnings call. You will 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 question. We are joined this morning by Majdeh Abulaban, President and CEO, Tim Trinaray, Executive Vice President and CFO. I will now hand you over to your host. Tim Trinary, 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 am joined on the call by Majdi Aboulaban, 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 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 filing, 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 US GAAP measures can be found in the appendix of the presentation. With that, I'll turn the call over to Majdi to provide a business and portfolio update.

Thank you, Tim, and hello, everyone. Thank you for joining our call today to review our third quarter results. I will start on slide five. Our team delivered solid results in the quarter despite a challenging operating environment. EBITDA was up, margins were up, and content per wheel was up for the 18th consecutive quarter. This is very much a testament 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. The UAW strike had a marginal impact on our third quarter results. However, we expect the strike 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 shutdown 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 for the 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 the strategic action at our production facility in Verdun, Germany. Recall when we announced this action, we stated that this would result in a €20 million investment depth function improvement, and regional profitability. We are on track to make that a reality in 2024. 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 underperforming parts and drive long-term profitability. We are continuing to meet consumer demand for lighter and larger real-world 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 reducing our full-year revenue 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 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. Onto slide six, which highlights the strong performance we have seen since 2019. 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 operating 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 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 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 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. While 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 and our key customers in both regions remain nearly flat on a year-over-year basis. Recall, 2022 was a supply-constrained year for the industry. Now, 2023 is becoming more demand constraint evident in 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 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 demand for 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 remain flat compared to production growth of our key customers as well as the wider industry. As noted earlier, unfavorable mix in North America and ongoing shutdown of General Motors' salar plans continued to pressure our top line. Further, production at our key customers in Europe was 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 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 low cost 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 per the terms 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 Verdun facility in Germany and the transfer of roughly 800,000 wheels to our facilities in Poland. This is a key driver of the step function improvement in profitability I mentioned earlier. 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 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 to rationalize administrative overhead while consolidating aftermarket warehouses to improve our overall cost structure. We also have continued to collaborate with our European customers to adjust pricing to match rising costs. Our efforts have been fruitful as evidenced 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 were originally planned to launch in our German facilities. Lastly, as part of our 80-20 approach, we have pruned performing programs from our portfolio to support better margins and product mix. This has meant cutting roughly 750,000 wheels from our book of business. While this is a sizable figure, it is critical to note that these were marginally profitable wheels on programs that were not ultimately advancing our long-term growth strategy. Overall, what plenty 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 costs, 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.