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Edited Transcript of SUP earnings conference call or presentation 4-Nov-19 1:30pm GMT

Q3 2019 Superior Industries International Inc Earnings Call

SOUTHFIELD Nov 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Superior Industries International Inc earnings conference call or presentation Monday, November 4, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Majdi B. Abulaban

Superior Industries International, Inc. - CEO & President

* Matti M. Masanovich

Superior Industries International, Inc. - CFO & Executive VP

* Troy Ford

Superior Industries International, Inc. - VP of Treasury & Corporate Development

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Conference Call Participants

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* Gary Frank Prestopino

Barrington Research Associates, Inc., Research Division - MD

* Glenn Edward Chin

The Buckingham Research Group Incorporated - Associate

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Presentation

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Operator [1]

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Good day and welcome to the Superior Industries Third Quarter 2019 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.

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Troy Ford, Superior Industries International, Inc. - VP of Treasury & Corporate Development [2]

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Thank you. Good morning, everyone, and welcome to our third 2019 earnings call. During our discussion today, we will be referring to our earnings presentation

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along with the earnings release are available on the Investor Relations section of Superior's website. This morning, I'm joined by Majdi Abulaban, our President and CEO; and Matti Masanovich, our Executive Vice President and CFO.

Before I turn the call over to Majdi, I would like to remind everyone that any forward-looking statements contained in the presentation or commented on today are subject to the safe harbor provisions of Private Securities Litigation Reform Act of 1995. Please refer to Slide 2 of this presentation for the full safe harbor statement and to the company's SEC filings, including the company's annual report on Form 10-K for a more complete discussion of forward-looking statements and risk factors.

We also will be discussing non-GAAP measures today, including value-added sales and adjusted EBITDA. These non-GAAP measures exclude the impact of certain items and, therefore, are not calculated in accordance with the U.S. GAAP. Reconciliations of these measures to the most directly comparable U.S. GAAP measures are found in the appendix of this presentation.

With that, I'll turn the call over to Madji.

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Majdi B. Abulaban, Superior Industries International, Inc. - CEO & President [3]

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Thanks, Troy, and good morning, everyone, and thank you for joining us today to review our third quarter results. Let me begin by taking you through the highlights for the third quarter. I'll then provide you an update on our progress relative to the strategic priorities I've discussed previously. And finally, I will take you through the actions we're taking to drive improvements.

I'll begin on Slide 3 of the earnings presentation. During the third quarter, we shipped 4.9 million units globally and that's an increase of 2% versus the prior year. The year-over-year increase was supported by recovery in our European business, including the aftermarket. In addition, the third quarter of 2018 was impacted by WLTP. Partially offsetting the strong performance in Europe was the ongoing weakness we have seen in North America. We also felt some effects from the strike at General Motors, which negatively impacted our North America shipments in Q3 by 75,000 units or $5 million in net sales. We will continue to see an impact in the fourth quarter, which is reflected in our revised outlook.

Despite the mixed volume results globally, our performance reflects the continued momentum of our positioning as a premium wheel solutions provider. During the quarter, net sales and value-added sales increased to $352 million and $196 million, respectively. While the combined North America and European markets were actually essentially flat year-over-year, our value-added sales grew 12%, significantly ahead of markets. This growth underscores our progress on capitalizing on the secular shift to larger, more complex wheels and premium finishes. Additionally, we are encouraged by the results our global team delivered during the quarter. This is reflected in the 27% increase in adjusted EBITDA despite the impacts from the GM strike.

In line with these results, the cash initiatives we executed enabled us to reduce net principal debt by $12 million during the quarter. Versus the prior year, we have reduced net debt by $114 million, a very strong result over the last 12 months. We remain laser-focused throughout the organization on driving incremental cash initiative to enable further net debt reduction. As a result of these efforts, we are increasing our full year 2019 outlook for cash flow from operations.

At the same time, due to the impact of the GM strike, we are narrowing our outlook for unit shipments, net sales, value-added sales and adjusted EBITDA, while maintaining our outlook for capital expenditures. Matti will elaborate more on this shortly.

Moving on to Slide 4. I would like to touch again on our operational priorities more broadly, and then I'll speak specifically about the activities we're executing in the near term to improve North America profitability.

As I mentioned earlier, we are focused on cash generation as well as improving adjusted EBITDA. Many of these priorities and value creation opportunities apply to both regions. First, driving operational excellence remains a key focus for us. This includes rightsizing our production and aligning our operational costs to current industry production levels. In regards to our operating system, we are taking a holistic approach to improvement and are putting in place the tracking and accountability in all functional areas, from commercial to purchasing and from operations to engineering in order to drive value creation.

Second, we remain focused on strengthening our operational leadership team. This includes our recent announcement of Mr. Andreas Meyer as the President of our European operations. Andreas has deep experience in operational leadership roles within the automotive sector and a track record of delivering results. He will play an integral role in leading our European organization, championing cross-regional collaboration which is very important in our business and will strengthen our global team.

In addition, Mr. Kevin Burke was appointed as Chief Human Resources Officer. Kevin has a strong track record in leading HR function globally. He will play a key role in leveraging and developing cross-regional talent. We are excited about having both Andreas and Kevin on the team. With respect to our North America region, this segment of our business is requiring the most attention. I personally have been overseeing our initiatives. At the same time, we have also strengthened our operational leadership team in Mexico.

Third, with respect to customers, we continue to execute our strategy to pursue a balanced portfolio across premium and base level wheels to maximize utilization. We also are making progress with European OEMs in North America. I'll touch base on that a bit later. Also, from a commercial standpoint, we are focused on creating a profit-minded organization where we deliver value to customers throughout the value chain. We are putting in place operating systems in our commercial side of the business with metric visibility and accountability for profit enhancement.

Fourth, we remain focused on enhancing our portfolio and improving underperforming product lines. For example, we are improving profitability on our polishing product line by consolidating and shifting production to lower cost service providers.

Fifth, we're continuing to enhance our financial position through focus on cash flow generation. We have made tremendous improvement in our working capital efficiency across all metrics. Further, we continue to focus our capital resources on our highest priority initiatives where we see strategic value and where we see clear paybacks. Finally, as it relates to capital allocation, as you know, we announced the suspension of the common dividend in our third quarter. This reduction will enhance our ability to reduce debt or invest in the business by approximately $11 million. Our view here is that this will translate into incremental equity value for our common shareholders.

Moving on to Slide 5. I'll now speak more directly to the actions we're aggressively pursuing to drive improvement in North America. We've talked extensively about the opportunity ahead of us. Just to provide you a benchmark or a point of reference. So our margin on value-added sales in our European segment is about 400 basis points higher than our North America segment. We are focused on narrowing this gap. We won't go through all these actions, but I'll give you a few highlights.

First and foremost, we're setting the immediate-term priorities and rallying the team around the most critical execution areas in operations with customers and portfolio. From an operation standpoint, given the volume outlook, we announced the reduction of our manufacturing operations in Fayetteville and the team is executing very well here. With this action, we now have a more competitive footprint in North America, but also one that is agile and able to respond to market dynamics. Further, we are placing significant emphasis on improving foundry capabilities inside the plants, including more chop and casting process controls. The entire foundation of the wheel process actually starts here. It is critical that we have stability and solid execution in this area of our facility. And quite frankly, this area of manufacturing in North America has been a weakness, and we must correct it. Enabling this improvement is also a reduction in attrition. We are currently implementing targeted plans to improve retention in the most critical areas of the plants.

Relative to customers, we are working to get our Mexico facility validated to serve our European OEMs in North America. Recall we mentioned last time, European OEMs manufacture 1.2 million vehicles in North America, and that is an opportunity for us. In this regard, we have made significant progress in the quarter. We have been leveraging the expertise -- actually, we have been leveraging the expertise of our European team and strengthening our leadership team in Mexico. We've also been focused on several complex launches and have successfully executed key milestone in readiness and productivity and here, I'm referring to productivity before launch, not after.

And finally, relative to portfolio, we have made significant progress in the validation of PVD, our finishing technology that the company has invested significant resources to develop. We now -- I'm pleased to report that we now have the release from one of our major customers to launch this product. So the technology is released and the processes is released. Needless to say, there is still significant work to be done to launch it. But this is a very positive step forward in broadening and expanding our portfolio for premium wheel finishes.

Let me finish by saying we're making progress. We are executing on our initiatives, but we have substantial work ahead. Our priorities are crystal clear. Our team is aligned, and we are establishing the right operating structure that will drive shareholder value. Ultimately, we are going back to basics in many areas of our business.

With that, here's Matti, who will provide details on our financial results for the quarter. Matti?

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Matti M. Masanovich, Superior Industries International, Inc. - CFO & Executive VP [4]

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Thanks, Majdi. Before I get into the detail, I'd like to emphasize the positive momentum we have seen in the organization on cash flow versus our internal expectations. As Majdi mentioned, since the third quarter of last year, we have seen a dramatic improvement in net debt, which is favorable by $113.6 million, supported by a focus on cash by the entire organization. Our concentration is now on sustaining and enhancing these improvements. Also during the quarter, our large diameter wheel mix increased to roughly 1/3 of our overall portfolio, up more than 10% from the third quarter of 2018, highlighting the secular tailwinds in the market and our ability to be in front of these trends.

Let me now provide a more detailed review of our financial performance for the third quarter and the first 9 months of 2019.

Turning to Slide 6. Our North America shipments declined more than the overall market due to the items Majdi mentioned earlier, including reduced share/take rates and lower production at our key customers. Year-over-year, our customers were down 4% versus the overall North American market, which was down 0.4%. Superior's units were down 2.3% year-over-year in the region. Note that this year-over-year percentage change is adjusted for superior unit shipped in Europe -- sorry, produced in Europe and shipped in North America for assembly. Value-added sales per wheel results were favorable due to our mix of larger, higher content wheels and resulted in value-added sales per wheel increase of 6.5% in the region.

In Europe, despite the market being flat, we saw a higher production at our key customers, which were up 6% year-over-year and resulted in Superior unit growth of 5.9% in the region, including higher volumes in our aftermarket business. Again, as I mentioned, Superior's year-over-year unit growth figures are adjusted for shipments from the European segment to North America for assembly. Value-added sales per wheel is up 9.4%, driven by our shift towards larger, more complex wheels.

Turning to Slide 7. Slide 7 reflects a breakdown of unit shipments, net sales and value-added sales by region for the third quarter of 2019 as compared to the prior year period. As Majdi mentioned previously, our unit shipments increased to 4.9 million units compared to 4.7 million units in the prior year period. The increase in shipments was driven by higher volumes in Europe, including our aftermarket business, partially offset by lower shipments in North America. Our North America unit shipments were negatively impacted by approximately 75,000 units due to the UAW strike.

For the quarter, we reported a net loss of $6.6 million, equating to a loss of $0.57 per diluted share, including a nonrecurring loss of $0.49 per diluted share compared to a net loss of $700,000 or a loss of $0.37 per diluted share in the prior year period. Please note that the third quarter included net adjustments to net income totaling $15 million. This $15 million includes expenses, which relate to the restructuring of our Fayetteville location, which totaled $13 million. The $13 million is comprised of $7.6 million of accelerated depreciation on assets and a total of $5.4 million for severance for the workforce in Fayetteville, write-downs on supplies and other consumable inventory and other costs.

Please see the appendix for the reconciliation of net income to diluted earnings per share and the table with the adjustments to net income. Year-to-date, net income for the first 9 months of 2019 was $2.6 million or a loss of $0.84 per diluted share, which includes acquisition, restructuring and other net costs of $0.49 per share. This compares to net income of $17.8 million or a loss of $0.32 per diluted share in the prior period. Please note that the year-to-date adjustments include adjustments totaling $14.7 million to net income.

The income tax benefit for the third quarter was $4.8 million on a pretax loss of $11.4 million compared with an income tax benefit of $7.1 million on a pretax loss of $7.8 million in the prior year period. The tax benefit amount is primarily due to the effects of U.S. taxation on foreign earnings under the global intangible low-taxed income, or GILTI, provisions of tax reform and of the forecasted valuation allowance on nondeductible interest partially offset by a benefit due to the mix of earnings amongst tax jurisdictions.

The income tax provision for the first 9 months of 2019 was $7.7 million on pretax income of $10.3 million compared to an income tax provision of $1.1 million on pretax income of $18.9 million for the first 9 months of 2018. The year-to-date tax provision was driven primarily by GILTI, which now includes the taxation of the company's full foreign operations as compared to a phase-in under GILTI in 2018 as well as the previous-mentioned impact to the third quarter. Due to these mentioned impacts for the quarter and year-to-date period, our effective tax rate remains high. We expect a high effective tax rate for the full year of 2019. In terms of cash taxes, we continue to expect approximately $10 million of cash taxes for the full year, which is already incorporated into our full year outlook for cash flow from operations.

On Slide 8. Let me walk you through our change in net sales and value-added sales year-over-year for the third quarter of 2019. Value-added sales increased to $195.5 million compared to $179.1 million in the prior year period, driven by improved product mix comprised of larger diameter wheels and premium finishes in both segments as well as higher volumes, which had a positive impact of $22 million. These improvements in mix were partially offset by a weaker Euro, which impacted value-added sales by $5 million.

On Slide 9. Adjusted EBITDA was $38.9 million for the third quarter of 2019 compared to $30.6 million in the prior period. The increase in adjusted EBITDA was primarily driven by improved mix and higher volume. The foreign exchange impact was negligible as the weaker Euro was offset by the Peso/U. S. Dollar FX rate including the impacts of our foreign exchange hedge program.

Cost performance was slightly favorable with higher energy prices in Europe, specifically in Poland being offset by global procurement savings, lower energy prices in North America and other performance initiatives. In North America, since the spike in energy prices in the third quarter of 2018, we have seen electrical rates decline by approximately 15%.

As discussed previously, we have made capital investments in our locations in Mexico to enable the purchase of electricity on the secondary markets. At this time, we expect these systems to be fully operational early in the first quarter of 2020 and will result in reduced electric costs in North America. In Europe, we have seen an increase in natural gas and electric rates by approximately 35%, specifically in Poland. We have been focused on offsetting this increase through other efficiency initiatives, but it was a headwind in the third quarter and year-to-date periods.

For reference, SG&A expenses for the third quarter of 2019 were $16.3 million or 4.6% of net sales compared to $16 million in the prior year period. For the quarter, adjusted EBITDA as a percentage of value-added sales improved by 2.8% to 19.9% year-over-year, driven by operating leverage on increased volume, improved mix of larger, more complex wheels and performance initiatives, including procurement savings, offsetting higher energy prices in Europe.

Moving to Slide 10. I'll take you through a walk of value-added sales for the first 9 months of 2019. Value-added sales for this period were $581.9 million compared to $590.9 million in the same period in 2018. The reduction in sales was primarily driven by a weaker Euro, which had a negative impact of $19 million. Lower volume, partially offset by improved mix comprised of larger diameter wheels and premium finishes in both regions had a net favorable impact of $10 million.

Turning to Slide 11. Adjusted EBITDA was $131.3 million for the first 9 months of 2019 compared to $140 million in the prior period. The decrease in adjusted EBITDA was driven by lower volume and higher energy prices in both regions. While energy prices in North America were lower compared to the third quarter of last year, on a year-to-date basis, it has still been a headwind. Also, as previously mentioned, the rates in Poland are also higher than last year. These energy -- these higher energy prices constitute most of the negative cost performance year-over-year. All these items were partially offset by an improved product mix, consisting of higher content wheels and material procurement savings. Year-to-date, adjusted EBITDA as a percentage of value-added sales decreased by 1.1% to 22.6%, driven by negative year-over-year performance in the first half of 2019, including volume and higher energy costs, partially offset with favorable mix and procurement savings.

SG&A expenses for the first 9 months of 2019 were $46.7 million or 4.4% of net sales compared to $60.6 million in the prior year period. The decrease is primarily due to a reduction in acquisition and integration expenses and an alignment of reporting for SG&A in both of our regions.

I'll address our third quarter cash flow and capital structure on Slide 12. Net cash from operating activities was $32.7 million compared to $33.5 million in the prior period. This result is very strong compared to that of the prior year as last year's cash flow from operations was largely driven by the usage of the accounts receivable factoring program. Net cash used in investing activities was $18.9 million for the third quarter of 2019 compared to $17.3 million in the prior year period. During the quarter, Superior suspended its quarterly common dividend, allowing the company to reallocate approximately $11 million annually, inclusive of dividends to common shareholders and the participation of the preferred shareholder to invest in the business and reduce net debt. Dividends paid during the quarter totaled $6.3 million. This will be the last quarter for the payment of the common dividend. Purchases from minority holders of Superior Industries Europe totaled $2.5 million in the quarter. As of the end of the third quarter, we had approximately $9.1 million or 1% of the minority ownership outstanding.

Also during the quarter, Superior repurchased EUR 7 million face value of its 6% senior unsecured notes on the open market for EUR 5.9 million, resulting in a pretax net gain of $1 million, which is included in other income and has been deducted to arrive at our adjusted EBITDA. The repurchase of our senior unsecured notes and other debt payments resulted in a total reduction of $12.4 million in debt principal during the quarter.

Currently, we have available liquidity of more than $250 million, which includes cash and availability under our revolving credit facilities and no near-term maturities of our funded debt. We also have an incremental availability under our accounts receivable factoring program. As of the end of the third quarter, our net leverage was approximately 3.3x, down nearly half a turn from the prior year period.

Finally, I'll move on to our outlook on Slide 13. Looking ahead to the remainder of 2019, we are increasing our outlook for cash flow from operations, which is now expected to be $135 million to $155 million for the year due to the progress of our working capital initiatives so far this year. Reflecting the impact of the UAW strike at General Motors, we are narrowing the range for units, net sales, value-added sales and adjusted EBITDA. This outlook reflects our current view of the ramp-up rate at General Motors and sustained production for the remainder of the year. Finally, we are maintaining the range for capital expenditures.

I'll now turn the call back to the operator and open up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Gary Prestopino with Barrington Research.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [2]

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Just a couple of things here. You said your 19-inch or higher wheels got up to 33% of units in the quarter. By notes that I had, you had said that, that would be your target by the end of the year. So I mean what would be a realistic run rate of that as we go forward. I mean you've already hit your target one quarter earlier. I mean can it get up to 40% or higher over time?

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Matti M. Masanovich, Superior Industries International, Inc. - CFO & Executive VP [3]

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Yes, I think the future, Gary, is larger, more premium wheel. It's all about content and the favorable mix, and so we do think it will continue to proliferate. We haven't put out guidance, and we will put out guidance when we give our -- in early next year after the Q4 call. But we do think it's going to continue to penetrate and 19 -- the phenomenon of 19-inch wheels with the premium finishes is certainly alive and well. And we did get to the target that we had set earlier in the year at the end -- in the Q3. So we're happy about that. I don't see a major shift from where we are Q3 into Q4 and the year end. So we're kind of thinking that it will be about the same kind of penetration as we exit the year.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [4]

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Okay. And then, Matti, you mentioned something about the fact that you're trying to get, I think I was writing this down, you're obviously working real hard to get Mexico where you want it to be. You're also working to get some kind of a certification. Is that correct? To be able to do European-based manufacturers that are in the U.S. to produce wheels for them for the U.S. market. Is that correct and Majdi is that right?

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Majdi B. Abulaban, Superior Industries International, Inc. - CEO & President [5]

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Yes, Gary, that is absolutely correct. And it's an area that we have been focused on. Over the last 4 months, we've had a few launches on the docket with European OEMs and those were critical. Because fundamentally, they get our plants released to quote on future business. And recall, there is a substantial opportunity for us to grow with underpenetrated customers in North America and that's specifically European OEMs. So having our plants certified to support and quote and source with BMW, with Volvo, with Daimler is very, very important. So really good progress in the quarter that the team has done.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [6]

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Can you give us some idea of -- are you certified with any of those, even like Audi. I assume Audi as well, right?

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Majdi B. Abulaban, Superior Industries International, Inc. - CEO & President [7]

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Absolutely, absolutely. Yes. So in end of quarter, we were certified with Audi, with BMW, with Volvo and with VW, with those 4 customers.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [8]

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Okay. And that means that you can start producing wheels so then you just have to win the business, right?

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Majdi B. Abulaban, Superior Industries International, Inc. - CEO & President [9]

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Well, a couple of things there. On a few of those customers, we had already been sourced, what I would call, the incubation business for us to try to demonstrate our capability. In other cases, we are transferring and localizing business and units that are coming out of Europe. So in both cases, with these 4 customers, we should be in production in -- before the end of the year.

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Operator [10]

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Next question comes from Glenn Chin with Buckingham Research.

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Glenn Edward Chin, The Buckingham Research Group Incorporated - Associate [11]

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So thank you for the detail regarding the impact from the GM strike. Can you share what the profitability impact was from it?

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Matti M. Masanovich, Superior Industries International, Inc. - CFO & Executive VP [12]

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Yes. I mean. Yes. So we -- directionally, it's approximately $1 million of lost profitability.

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Glenn Edward Chin, The Buckingham Research Group Incorporated - Associate [13]

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Okay. And then -- so I'm encouraged to see the operating cash flow. That was a big benefit from working capital and inventories was a big source of cash. Can you tell us, was that a function of the strike and should we expect it to reverse in subsequent quarters as GM production ramp backs up -- ramps back up.

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Matti M. Masanovich, Superior Industries International, Inc. - CFO & Executive VP [14]

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Yes. So I'll say that we've advertised this initiative since the beginning of the year, and we've been focused on taking out -- reducing our DIO and specifically, North America was a huge contributor in the first 6 months of the year. We also saw some improvement here in DIO in Europe through Q3. And so -- and we knew it was coming. And so as we sit here and look today, I don't necessarily see a significant change in the inventory DIO -- from a DIO perspective as we exit Q4 -- go through Q4 and exit Q4. So I think we've done -- we have a little more work to do in Europe to get our inventory down. We're focused on the sustainability of the DIO. So we used to carry in North America -- I think I advertise or answer the question, we usually carry about 2 -- a little over 2 weeks of inventory. We're trying to trim that down to about a week's worth of inventory today in North America. So we are -- it's a source of cash for us this year clearly. And we've also benefited from some metal coming down as well -- metal costs coming down as well. But overall, I think we're adequately sized with our inventory balances as we exit Q3 for the GM strike. And that $1 million was for Q3 only. It's going to be a bigger number of impact for our earnings for the -- on a full year basis for the impact of the UAW strike.

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Glenn Edward Chin, The Buckingham Research Group Incorporated - Associate [15]

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Okay. Yes, that was my next question. Okay. And then can you -- I don't recall you guys articulating specifically targets or goals for Fayetteville? What exactly is the intent there or how severely is it being restructured?

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Majdi B. Abulaban, Superior Industries International, Inc. - CEO & President [16]

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Well, I'll take that, and Matti can add more. So the intent is to have all of production out of Fayetteville before the end of the year. And what we have left there is basically our technical center and our service wheel operations. So we still have a presence, but it's mainly engineering and service.

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Glenn Edward Chin, The Buckingham Research Group Incorporated - Associate [17]

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Okay. So it will no longer function as overflow capacity, so to speak?

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Matti M. Masanovich, Superior Industries International, Inc. - CFO & Executive VP [18]

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Yes. Correct.

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Majdi B. Abulaban, Superior Industries International, Inc. - CEO & President [19]

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Correct.

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Operator [20]

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(Operator Instructions) Our next question comes from Gary Prestopino with Barrington Research.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [21]

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Yes, I was going to ask something about Fayetteville as well. That's been answered. So I guess, Majdi, you're feeling pretty good about what's going on in Mexico as far as getting the quality up relative to not having any kind of production capacity in the U.S. anymore?

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Majdi B. Abulaban, Superior Industries International, Inc. - CEO & President [22]

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No, I'm feeling pretty good, not only about Mexico, but holistically, Gary, about North America. I walked you through the plan on chart five. The team is just absolutely focused on executing. I see us being very well positioned to close that gap, I mentioned, between North America and Europe on margins and in hitting the ground running here as we go into the New Year.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [23]

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All right. And then just lastly, I know you just started here. And I don't have this on the tip of my tongue, but as far as how your people are compensated bonus-wise ever, whatever. Are you contemplating changing anything that focuses more or less towards EBITDA margin, EBITDA generation and working capital and cash flow, things like that?

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Majdi B. Abulaban, Superior Industries International, Inc. - CEO & President [24]

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No, I expect we continue -- so our LTI program is based on earnings per share, ROIC and DSR and we'll continue to do that. So there's a cash flow element, there is an EBITDA element and earned element. And our annual compensation is based on EBITDA. So I expect as we continue to own that direction.

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Operator [25]

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(Operator Instructions) No further questions in the queue at this time.

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Matti M. Masanovich, Superior Industries International, Inc. - CFO & Executive VP [26]

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Okay. Thank you.

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Majdi B. Abulaban, Superior Industries International, Inc. - CEO & President [27]

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All right. Thank you, everyone.

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Operator [28]

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Thank you, everyone. This concludes today's teleconference. You may now disconnect.