Good day and welcome to the Superior Industries’ First Quarter 2018 Earnings Teleconference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Troy Ford. Please go ahead, sir..

Thank you. Good morning, everyone and welcome to our first quarter 2018 earnings call. During our discussion today, we will be referring to our earnings presentation, which is available on the Investors section of our website at www.supind.com.

Joining me on the call today are Don Stebbins, our President and Chief Executive Officer and Nadeem Moiz, Executive Vice President and Chief Financial Officer.

I will start on Slide 2, 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 unknown factors that may represent forward-looking statements are noted in detail on the slide.

I would like to point you to the company’s SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2017 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, including value-added sales, adjusted EBITDA and adjusted EBITDA as a percentage of value-added sales. These non-GAAP financial measures exclude the impacts of certain items and therefore have not been calculated in accordance with GAAP.

Reconciliations of these measures to the most directly comparable data presented in accordance with GAAP maybe found in the financial tables including with our first quarter 2018 earnings press release and in the appendix of this presentation. I now would like to turn the call over to Don Stebbins, our President and CEO.

Don?.

Thanks, Troy. Good morning, everyone and thanks for joining us today. Starting with Slide 3 of the presentation, we had a strong start to the year with all time records across many of our key metrics. Net sales for the quarter reached $386 million with over 5.5 million units shipped.

Value-added sales increased 117% to nearly $207 million and value-added sales per wheel increased 12% to $37.46. Additionally, we reported adjusted EBITDA of $52 million, a 173% increase year-over-year and an increase of 11% sequentially.

Our results in the quarter were driven primarily by solid volume, improved performance in our North American operations and the addition of our European business. And as a result of our solid first quarter, we are reaffirming our 2018 outlook.

We continue to make progress to position the business for success by differentiating Superior with innovative technologies and capabilities to better serve our global customer base.

Today, we believe we are in a better position than ever to benefit from the attractive tailwinds in Europe and North America, including increasing wheel diameters, the growing importance of light-weighting and the move towards more sophisticated designs and finishes.

As you know, we are actively developing various technologies to address these opportunities in the marketplace and are leveraging those designs across our footprint.

One of those technologies is PVD, where we are continuing to work with our customer to complete their durability testing, which they require of new technologies and we expect to be finished later this year.

We also continue to leverage opportunities to expand our customer relationships by providing solutions to meet their evolving needs such as the need to meet fuel efficiency standards and in the case of electric vehicles to achieve longer range vehicle goals.

We were recently awarded a program for an all-electric crossover vehicle, which will carry two of our premium wheels with a production start in 2020. This is one of our many electric vehicle program, that builds on our initial entry into the market with Tesla 5 years ago.

Year-over-year, we had various programs that performed well in the first quarter, which include the Equinox, a competitive win in 2017 and the Sentra trim level change over the prior steel wheel.

In Europe, we also had several launches in the quarter, including one that leverages our new pad printing process that gives us the competitive edge in terms of styling.

For 2018 we continue to expect relatively flat North American light vehicle production as compared to last year and moderate production growth in Europe with significant launches in both regions supporting our expectations for the year.

Operationally, we continue to build the best in class organization and we have made progress improving the performance in North America. Although we are pleased with the progress, we still have substantial work ahead of us. In terms of other updates, Ford recently announced the future discontinuation of Ford badge passenger cars.

Today approximately 85% of our Ford volume is light truck and crossover programs. For 2018, the discontinued vehicles of Taurus, Fusion, Focus and Fiesta are expected to represent approximately 265,000 units or 1.2% of Superior’s total global wheel production.

And in 2020 that number is expected to drop to 145,000 units or less than 1% of our expected 2020 production. We do anticipate continued strong participation on the F-150 250, Explorer, Edge and Escape, all great brands for Ford, which we expect will more than offset the small loss of the passenger car programs.

Overall, the first quarter was strong and more importantly we remain optimistic about the prospects ahead for Superior given our strategic position in the market and our capabilities.

We will continue to focus on further differentiating ourselves through investments in product innovation, product quality and great customer engagement and believe we are well positioned to drive long-term sustainable growth and profitability for our shareholders. With that, I would now turn the call to Nadeem..

Thank you, Don and good morning everyone. I will now provide a more detailed overview of our financial performance for the first quarter of 2018. Moving to Slide 4, North America light vehicle production for the first quarter of 2018 was down roughly 2.7% compared to the first quarter of 2017 while our North American shipments were roughly flat.

The better than market performance was driven by increased volume due to new launches that started in mid-2017 as well as favorable performance in platforms we supplied. Please note the comparison of production levels from this slide is for the calendar period from January 1 through March 31.

Western Europe light vehicle production declined 1.5% for the first quarter of 2018 on year-over-year basis and Superior’s Europe shipments for the first quarter 2018 increased 2.8% compared to last year.

These shipment levels in Europe represent record quarterly shipments to OEM customers driven by strong demand for our product and the launch of our newest facility in Poland that was still ramping up in early 2017. We also recorded the highest aftermarket unit sales ever in the first quarter.

As expected we continue to see the trend towards larger wheel diameters in the region. Moving to Slide 5, you can see our first quarter 2018 financial summary. Total unit shipments for the quarter were 5.5 million, up 2.7 million units from the first quarter of last year.

Net sales were $386.4 million compared to $174.2 million in the same period last year. Value added sales were $207.4 million compared to $95.5 million last year. For the first quarter of 2018 we reported net income of $10.3 million and $0.07 per diluted share.

This includes an after tax impact of $2 million or $0.08 per diluted share for acquisition related items. This compares to net income of $3.1 million or $0.12 per diluted share for the first quarter of 2017. Moving on to Slide 6, I will cover the net sales bridge.

Net sales for the first quarter of 2018 were $386.4 million, an increase of $213 million from last year. $183 million of this increase was due to the addition of our European operations and $30 million came from North America.

The increase of $30 million in North America was driven mainly by higher aluminum price and increased volume, which was up 192,000 units in the quarter. In terms of aluminum pricing, we experienced elevated pricing as a result of supply constraints in the market. These constraints were primarily driven by U.S.

sanctions toward certain Russian aluminum suppliers, given that we have a multi-sourcing strategy in North America and Europe as supply constraints did not have any impact on our ability to meet customer demand.

Further, our customer contracts have pass-through provisions on aluminum cost and as a result, the financial impact in Q1 and remaining 2018 is minimal.

Turning to Slide 7, adjusted EBITDA for the first quarter of 2018 was $52.2 million compared to adjusted EBITDA of $19.1 million in the first quarter of 2017, an increase of $33.4 million primarily driven by $28 million from our European operations.

In North America, we had the positive impact of higher volumes, lower scrap rates and favorable year-over-year cost performance. Moving on to Slide 8, let me walk you through the cash flow. For the first quarter of 2018, cash generated by operating activities was $14.4 million compared to cash used by operating activities of $1.6 million last year.

We have continued to identify initiatives to enhance cash generation opportunities both from working capital management and tax planning and these efforts have proven effective so far in 2018. CapEx was $22.7 million during the first quarter of 2018, which supported both maintenance and growth initiatives.

During the first quarter, we paid $2.3 million in common dividend and $7.2 million in preferred dividends. In terms of liquidity management, we have ample available borrowing capacity into our U.S. and European revolvers and at the end of first quarter we had total available borrowing capacity of $194 million.

As is typical in the first quarter, we saw an increase in working capital. This coupled with an increase in euro-denominated debt that led to an increase in net debt.

Our target leverage ratio is 2x, net debt to adjusted EBITDA by 2020 and going forward balancing repayment of debt and continued investment in the business will be our top priorities for the use of our excess cash flow.

We are confident these steps when taken together provide the right balance to achieve growth in the value of the company, while achieving a stronger, more balanced and better diversified platform for the future.

Moving on to Slide 9, while we are pleased with our performance in the first quarter, the underlying expectations for North America and Western Europe, production levels have not changed and as a result we believe our full year outlook is still appropriate, particularly in light of exchange rate movements and some very important launches we have in the coming months.

Turning to our outlook, we have continued to expect shipments of 21.25 million to 21.6 million units and net sales to be in the range of $1.45 billion to $1.5 billion. The increase in sales for 2018 includes a full year of European operations volume growth in Europe and the full ramp up of our facility in Poland relative to 2017.

In terms of value-added sales, we anticipate a range of $800 million to $835 million. We expect adjusted EBITDA to be in the range of $185 million to $200 million, CapEx is expected to be approximately $95 million, which includes maintenance in growth. Cash flow from operations is expected to be in the range of $160 million and $180 million.

We also anticipate our effective tax rate will be between 10% and 15%. Finally, I would like to once again highlight our long-term goals. By 2020, our goal is to achieve value-added sales of approximately $950 million, adjusted EBITDA margin as a percent of value-added sales of 25% and net leverage of 2x.

And with that, I would like to turn the call back to the operator for questions..

[Operator Instructions] We will take our first question from Christopher Van Horn with B. Riley FBR. Please go ahead..

Good morning. Thanks for taking the call and congratulations..

Good morning, Chris. Thanks..

I was wondering if you could just comment on what’s going on in the volume side, are you taking share, is the mix helping and is it – is the aftermarket growing a little bit more than you originally expected just it was a very impressive performance in the quarter? I just was wondering what the key drivers there were?.

Yes, I think the – in terms of your question, the market here in North America and Europe, I would say has been relatively choppy. The volumes have been there. The mix has been changing every month. And so I don’t – it’s difficult to pin a line so to speak through it in terms of higher end or lower end.

This is where it’s at, it’s been relatively choppy. In terms of the aftermarket in Europe, yes we had a good quarter in terms of aftermarket sales, but again its one quarter. I think that’s important takeaway here is the first quarter a long way to go for the year.

North American operations certainly have stabilized and improved performance in Europe, it is as it has been expected, so solid performance, but still first quarter..

Okay, got it.

And with the changeover in one of your key customers and on a big program that you are on, I think you had mentioned that the wheel optionality is going to increase significantly, I think you have got some other big programs like the F-150, Ford Explorer, they are likely looking at model redesigns in the next call it 1 year to 2 years and I am wondering are you seeing similar commentary around maybe more wheel options for those programs.

And then if you could just comment on potential launch costs heading into the back half of this year on that key program, how you see those playing out?.

So as we look in the quoting side of the business not only has the number of wheel styles increased per platform, but the content on each wheel is also increasing that we see. So the trends that we articulate in terms of different finishes, bigger wheels, etcetera, lighter weight wheels continue to play out in the quotes.

So nothing that we see for 2020, 2021, 2022 would change that narrative..

Okay.

And then just on the cost side of the upcoming launches, is there…?.

Yes. We have built that into our guidance. You are absolutely right. We have got in the second quarter we have got 46 launches for the company, 30 of which are here in North America and 16 which are in Europe.

So – and we have a full launch schedule in the remainder of the year, so that’s certainly an important piece of our puzzle and an important piece of the guidance that we give..

Okay, great. Thanks for taking the time..

Thank you..

[Operator Instructions] We will take our next question from Vahid Khorshand with BWS Financial. Please go ahead..

Hey, good morning, first question on North America – on North America, it looks like your per wheel value added sales declined in the quarter quarter-over-quarter and it was the same in Q4 from Q3, but your EBITDA margin is improving, so if you could just walk me through a little bit on how that’s playing out whether it’s performance based, volume based, where you are seeing that EBITDA improvement, but a drag on the value added sales per wheel?.

Right. So on the performance, I think as we have talked before, our view had been for 2017 that certainly the North America facilities were underperforming our expectation. As we look at the performance sequentially from fourth quarter, almost every metric in our plants, our four plants in Mexico is improving.

Be it scrap, defective parts per million, cost per wheel, wheels per hour again very, very solid performance out of the Mexico facilities.

That being said, I would caution in that we do have as I mentioned the launch is coming up which may change some of these metrics, but we are in a better position today than we have ever been in terms of smooth production, stable production, good launches. So we expect a good year..

And I do want to make a comment on the value-added sales per unit that you referenced, so that’s correct, North America, Q1 is lower than Q4, so it’s a couple of quarters of that and that is really driven by the mix in these quarters as we have produced smaller vehicles on few programs and so that has an impact.

The important thing is as we think about 2018 and we look forward there is accretion on a full year basis. So, there is some quarterly mixed noise is the way I like to characterize it, which is typical, because the platforms change and the volumes change.

So, you will have some impact, but at the end of the day for full year 2018, it’s trending higher. And then as Don correctly pointed out on the cost side, the improved performance is yielding higher profit margins and EBITDA margins..

Got it.

And then on the Ford question, will you be in line to pickup that volume change that they are going to have in production if I am not mistaken right or at least you would be positioned to pick that up, but would that also – and I think we have talked about this before on prior quarter calls, when you go bigger wheels it reduces the volume that you can output just because of the size of the wheels, would that reduce your total output as well?.

I think it will be offset by the EPS generally speaking that’s correct. I think it would be offset by two things one, the efficiencies that the plants are achieving that continuous improvement we don’t see a stop to that.

And then secondly, we are making investments in our plants – in two of our plants to – in one plant to increase the wheel diameter size and increase the efficiency and then the other to increase the efficiency inside the plant. So, we are making investments to go alongside the continued improvement in process efficiency.

So, I don’t think that will be a substantial change to the number of wheels that we can do over time..

Great. Thank you..

It appears that there are no further questions at this time..

Well, thank you very much. Appreciate it and have a good day..

Great. Thank you..

Bye-bye..

This concludes today’s conference call. Ladies and gentlemen, thank you for your participation. You may now disconnect your lines..