Good day, everyone, and welcome to the Superior Industries Third Quarter 2015 Earnings Call. For opening remarks, I would like to turn the conference over to Kerry Shiba, Executive Vice President and Chief Financial Officer. Please go ahead..

Thank you, Wendy, and good morning everybody. Welcome to our third quarter 2015 earnings call. During our discussion today, I will be referring to our earnings presentation, which now is available in the Investor section of our website at www.supind.com. Joining me on the call today is, Don Stebbins, our President and Chief Executive Officer.

I am going to start as usual with the Second Slide of the presentation, where 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.

Actual results could differ materially because of issues and uncertainties that need to be considered in evaluating our financial outlook. We assume no obligation to update publicly any forward-looking statements. Specific conditions, issues and uncertainties that may present forward-looking statements are noted in detail on the slide.

I also would like to point you to the Company's SEC filings, including our 2014 Annual Report on Form 10-K, for a more complete discussion on forward-looking statements and risk factors that may cause actual events to differ from these forward-looking statements.

We will also be discussing or providing certain non-GAAP financial measures today, including value-added sales, EBITDA and adjusted EBITDA, reconciliation of these measures to the most directly comparable data presented in accordance with GAAP may be found in our financial tables included with our third quarter 2015 earnings press release.

I now would like to turn the call over to Don Stebbins, our President and CEO.

Don?.

Thanks, Kerry. Good morning, everyone, and thank you for joining us. Superior delivered another quarter of strong results with continued margin improvements, significant earnings growth and strong cash flow. I am also encouraged by the improvement in our shipment volume.

These results demonstrate the solid progress that we have made since our transformation began just over a year ago. We have strengthened the foundation of our organization, sharpened our execution and set a clear path for long-term profitable growth.

Turning to our results for the quarter, units grew by 6% year-over-year, in line with expectations and outpacing growth of 4% in the North American light vehicle market. Sequentially, our shipment volumes grew by over 2%. As our updated guidance suggests, we expect shipment growth will continue in the fourth quarter with an improved product mix.

This slight decrease in our net sales year-over-year is largely the result of lower aluminum prices passed through to our customer. Our value-added sales were $87.9 million, up slightly year-over-year. Kerry will cover this in greater detail in a few moments. Adjusted EBITDA increased 79% year-over-year to $17 million.

EBITDA margins as a percentage of value-added sales expanded by 850 basis points to 19.4%. These solid results were largely due to the steady progress that we are making with respect to operational improvements across the business.

The largest driver has been the shift in our geographic footprint as we move production to lower-cost facilities, including our newest facility in Mexico. The impact of the operational improvements also carried through to our earnings and cash flow. Earnings per share approved to $0.19 compared to a net loss per share of $0.09 last year.

On a year-to-date basis, earnings per share increased 116% from $0.27 last year to $0.59 so far this year. Operating cash flow improved to $14 million this quarter compared to $4.2 million for the same period last year. On a year-to-date basis, we have generated $39.1 million of cash compared to $5.7 million in the same period last year.

I am pleased to report that we are now operating our new, Mexican facility at full capacity, in line with our expectations we shared with you last quarter. This facility is the most advanced in our manufacturing platform and has a capacity of 2 million wheels per year.

We are also in the process of expanding capacity at this facility by an additional 500,000 wheels. This should be completed by the end of the first quarter next year and further strengthen our overall competitiveness.

We have continued to add incremental shifts across your manufacturing platform with the goal of driving higher efficiency and incremental low cost capacity. We believe there meaningful opportunities to drive even more production capacity and higher productivity as we improve and refine our internal processes.

Another example of the opportunities that we are pursuing to strengthen our market competitiveness is our new polishing facility in Mexico. As reminder, we launched this facility in the second quarter in partnership with the long-term supplier, enabling us to deliver more competitive products.

This drives increased efficiency and profitability as many of these wheels would otherwise be outsourced to higher cost regions. Since the launch just a few months ago, the new facility has been a key factor in winning two new customer programs, representing approximately 130,000 units.

We view these types of investments in ourselves as another way to capitalize on high return opportunities. Additionally, we have completed the relocation of our headquarters to Southfield, Michigan.

We now have our entire corporate organization in close proximity to our customers, which will allow us to further solidify many of our customer and other automotive market relationships.

I personally have been spending more time with our customers in Michigan and abroad and they are making no note of and are extremely pleased with the changes here at Superior. They see that we are squarely focused on increasing our cost competitiveness and advancing our manufacturing platform.

They also see that we are now willing to pursue more complex wheels program. What we are doing is resonating with our customers and this underscores my confidence in our strategic direction. We still of course have significant room for improvement both, in the near-term and long-term.

Near-term, we will continue to strengthen our foundation by driving best-in-class processes throughout our entire organization. This includes the rollout of our new ERP system, which is on plan to be completed at the end of 2016, and will allow us to better manage and analyze our business.

We are also implementing new performance and program management systems that will sharpen the standards by which our productivity is measured, thereby increasing the lines of accountability and driving better service across each of our customer programs.

Similarly, our shared service center launched in the second quarter is centralizing our Mexican finance, IT and supply chain activities as well as centralizing corporate payables and customs. This will allow us to better leverage our team's expertise, share best practices and drive greater efficiency.

Lastly, I would like to comment on capital allocation. On this front, we are focusing on driving value through a balanced approach of returning excess cash to our shareholders while maintaining the flexibility to invest in ourselves and grow inorganically.

During the third quarter, we paid a quarterly cash dividend of $0.18 per share and repurchased 375,000 shares for total cost of $6.8 million. Since our $30 million share buyback program in October of last year, we have repurchased a total of 864,000 shares for total cost of $16.2 million, just over half of our authorization.

In summary, all of these initiatives highlight the progress we have made toward operational excellence and set the path for ongoing improvements as we continue to grow our business. With that I will now turn the call over to Kerry..

Thank you, Don. I now would like to provide a more detailed overview of our financial results for the third quarter of 2015. Most of my comments will focus on the third quarter comparisons. Let us start with Slide #4. As Don mentioned, we are very pleased with the level of unit shipments in the third quarter, which reached 2.78 million units.

The year-over-year rate of growth was 6%, which outpaced the 4% growth in the North American vehicle production rate. As we had anticipated in our last earnings call, the year-over-year improvement in our third quarter shipments was led by an increase for a large program for Ford F Series, which grew by 131,000 units.

We also benefited from the ramp up of new 2015 programs, including the Ford Focus, which increased by 67,000 units, followed by the RS and [ph]. We saw the largest percentage increase in unit volume this quarter from Toyota, who is our third largest customer.

Partially offsetting the overall shipment growth compared to last year were declines for the Ford Edge and Nissan Maxima. I also would like to point out that we saw nice growth in shipments in the sequential comparison. Our total unit volume increased 2.4% versus the second quarter despite a nearly 4% decline in North American vehicle production.

The sequential growth was driven by a 29% increase in shipments to FCA of our participation on the redesign Town & Country accounted for the majority of the increase for this customer. We also had solid sequential growth in GM, with an overall 11% increase driven by the K2XX and Cadillac SRX programs.

Don will address our guidance at the end of our presentation, but as you will see, we expect shipment growth to continue into the fourth quarter with positive mix. Turning to Slide #5, let us take a closer look at the change of sales.

Total sales in the third quarter of this year were $175.7 million, basically flat on a percentage basis when compared to Q3 of 2014.

Increased unit volume added about $9.6 million to sales this quarter, but was offset by $7.6 million due to the lower value of aluminum, $1.3 million from the strengthening of the dollar versus the Mexican peso and the combined impact of other smaller differences in sales adjustments and project development costs.

Excluding the impact of aluminum these same variances affected the year-over-year comparison of value added sales. Very briefly for the first nine months of 2015, sales declined $25.5 million or 5% versus the same period last year.

Contrary to the third quarter comparison, however, lower unit volumes drove the year-to-date decline, partially offset by higher aluminum value compared the same period last year.

Moving to Slide#6, our third quarter EBITDA increased 92% year-over-year to $16.3 million and reached 18.6% of value-added sales, an increase of 880 basis points when compared to the prior year.

Adjusted EBITDA for 2015, which excludes ongoing restructuring costs for the facility we closed last year, was $17.1 million, an increase of 79% over last year. The adjusted EBITDA value-added margin was 19.4%, which was 850 basis points higher than for last year.

As you can see from the chart, similar to last quarter, the majority of the increase in EBITDA was due to improved cost performance we have achieved across our business. As Don discussed, our improved profitability resulted from a combination of factors.

We estimate that about one-half of the cost improvements this quarter reflects the benefit of our strategic manufacturing footprint changes, namely the previous plant closure and ramp-up of our newest facility in Mexico, and the rest of the improvement is the result of a variety of improvement across all of our facilities.

As I commented last quarter, we have also had some tailwinds from energy crisis, particularly in Mexico. We expect to continue to see favorable cost comparisons in the fourth quarter. Higher production levels should contribute to increased leverage.

I do want to point out that high production rates last year to build inventory prior to the previous plant closure in Q4 contributed to improve efficiency last year. In relative terms, the other variances were pretty small, so I won't go through them individually.

I will be of course to address any questions you may have at the end of our formal presentation. Turning to Slide 7, the theme of the EBITDA change for the first nine months of 2015 was largely the same as improved performance was the largest factor in driving the 22% increase.

The most significant difference versus the third quarter comparison is the impact of the change in unit sales volume, which remains negative for the first nine months despite the improvements in Q3.

Metal timing has been negative for the entire year as the cost impact of significant aluminum increases over the first six months has affected the P&L more quickly than adjustments to sales for metal charge or changes. I would also like to comment briefly on a sequential quarterly change in EBITDA.

The third quarter EBITDA declined about $2 million when compared to the second quarter. We did our plant shutdowns in Q3 as is typical, which caused sequential cost performance to turn negative due to the resulting in efficiencies and maintenance spending. We also had negative year-over-year comparisons from the mid-year physical inventory counts.

We have put a sequential EBITDA waterfall in at the very back of the slide deck in case you are interest. Turning to Slide #8, I would like to conclude with my comments on cash flow. We saw significant increase in our generation of cash for both, the third quarter and year-to-date.

Our operating cash flow during the third quarter was $14 million, which compares to just over $4 million for the same period last year. The change primarily reflects favorable changes to working capital. Operating cash flow year-to-date was $39.1 million as compared to $5.7 million for the same period last year.

Capital expenditures were approximately $9.3 million in the third quarter of this year, about one-quarter of the $36.5 million spent last year. About three quarters of last year's spending was for the new manufacturing facility in Mexico.

Excluding spending for the new facility, capital expenditures for the third quarter of this year were just a little below the prior-year.

Lastly, as Don mentioned at the beginning of the call, we are focused on a balanced approach for returning excess cash to our shareholders as of November 3, 2015, and as part of the $3 million share buyback program approved in October of last year we repurchased just over half of our authorization at approximately 864,000 shares for a total of $16.2 million.

We have also paid $14.4 million in dividends thus far this year. With that, I would now like to turn the call back over the Don to walk you through our updated 2015 expectations..

Thanks Kerry. Turning to Slide #9, I would like to take a few moments to walk you through our updated 2015 guidance. As you can see from the Slide, our net sales range has been lowered to a range of $715 million to $714 million. This compares to our initial guidance of $725 million to $800 million.

The decrease reflects the pass-through lower aluminum prices trend, which began in the third quarter in which your current expectation is for continuation into the fourth quarter.

Given the strong EBITDA performance, as a percentage of net sales, we expect the EBITDA range to go from 250 basis points to 275 basis points compared our previous guidance in the range of 100 basis points to 200 basis point.

In light of the volume growth in the third quarter and in anticipation of continued growth in the fourth quarter, combined with the more favorable product mix, we now expect value-added sales to be in the range of $355 million to $375 million compared to our initial guidance of $325 million to $360 million.

As a result, we are also raising our expectations for EBITDA margin as a percentage of value-added sales. We now see an increase of 500 basis points to 520 basis points compared to our prior guidance of 300 basis points to 500 basis points. Our annual guidance for capital expenditures and working capital remained essentially the same.

We continue to expect CapEx to be at or slightly above $40 million and working capital to be at or slightly better than the use of $10 million. Lastly, we continue to expect to return between $19 million to $20 million in cash to shareholders in the form of dividends.

As a reminder, this guidance is based on the assumption that North American light vehicles production will increase 3.6% to 17.5 million units in 2015, which is roughly in line with our previous expectations.

In conclusion, we are very encouraged by the solid progress we have made since the beginning of our transformation and been ahead of our original goals with respect to the timing of achieving our goal of annual double-digit EBITDA margins. With that, I will turn the call back over the operator and open it up for questions..

[Operator Instructions] We will go first to Tristan Thomas of Sidoti. Please go ahead. Your line is open..

Hi. Good morning.

How is everyone?.

Hi, Tristan..

Hi. Tristan..

I actually just had one question.

Give me upfront update on where you stand in terms of winning new business and if there is any specific models you could point to and then when that would really have an impact?.

I can't really point to specific programs. What I would tell you is that we are very encouraged certainly. We are in process of a number of large programs quotes right now with our major customers, but these are for back of 2018, essentially 2019 model year programs. We did win a couple of programs based upon our new polishing facility as I mentioned.

We do not really have the customer approval to name them by program, but it is an incremental 130,000 units this year that we will have, so I think the other important point is that the reaction as I mentioned in my remarks to the cost [ph] to us from our customers has been very good around the world.

We visited most of our customers in the last probably five months, so it has been very good and certainly some of the new finishes that we are showing them and some of the products that we have got patents on have been very, very helpful in that discussion..

Okay. Great.

I have just one more quick question, is there maybe a new timeframe in terms of all the internal improvements you have such as ERP service center?.

No. I think, if we look at ERP that is underway, certainly we would like to get it done before the end of 2016, but that is something that caution is the right approach on that. The shared service center will be up and running in Mexico in the first quarter. We have already pushed some of the processes down there.

It is now just getting a space for those folks, so that is underway. Our tax project, we had expected it would be a fourth quarter-type launch. We are on track for that fourth quarter, so all of these programs are underway.

It is extraordinary amount of work as you can imagine, so what we are trying to do is just get it done as quickly as we can, but let us make sure we get it done right..

Okay. Great. I will jump back in queue. Thank you..

Thanks..

[Operator Instructions] Our next question comes from Jimmy Baker with B. Riley. Please go ahead. Your line is open..

Hi. Good morning..

Hi, Jim..

Good morning. This is Austin on for Jimmy. Just a couple of questions for you guys.

How much of the improvement in EBITDA margin guidance is a functional lower aluminum prices? How does this year's outperformance impact your longer-term view of the Company's EBITDA margin potential?.

The improvement with regard to margin, it is still it is the cost improvement drive is really the same theme going through the fourth quarter.

In addition to the fact that as we have mentioned before, we expect unit volume to be strong in the fourth quarter, aluminum pricing is really not a part of any change in view on the guidance, so it is primarily again that we have been making great progress on the cost improvement side again, the strategic footprint change but coupled with good spending control in each of our facilities.

I mentioned before there are some energy tailwinds that are in there also. I am sorry.

The second part of your question was Austin?.

It was with regard to the aluminum as well, so that answers it.

Then just the second question would be do you have a preliminary view on shipment volume for 2016 versus 2015?.

Yes. We are in the middle of our planning process right now. As much as we would like to let you know what we think, it is a process that we got to - let us finished our process. From our perspective, IHS has volumes moving from 17.5 17.6 this year to 18-ish, which obviously would bode well for the entire supplier community..

All right, thank you guys very much..

[Operator Instructions] It appears we have no further questions at this time..

Thank you very much again. Have a great day. Appreciate it. Thank you..

Thanks, everyone..

This does conclude today's program. You may disconnect at this time. Thank you. Have a great day..