Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. We have included or incorporated by reference in this Quarterly Report on Form 10-Q (including in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”), and from time to time our management may make, statements that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based upon management’s current expectations, estimates, assumptions and beliefs concerning future events and conditions and may discuss, among other things, the impact of COVID-19 and the resulting supply chain disruptions, energy costs and semiconductor chip shortages, and rising interest rates as well as Russian military invasion of Ukraine (the “Ukraine Conflict”), on our future growth and earnings. Any statement that is not historical in nature is a forward-looking statement and may be identified using words and phrases such as “expects,” “anticipates,” “believes,” “will,” “will likely result,” “will continue,” “plans to,” “could,” “continue,” “estimates,” and similar expressions. These statements include our belief regarding general automotive industry and market conditions and growth rates, as well as general domestic and international economic conditions.
Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements are necessarily subject to risks, uncertainties and other factors, many of which are outside the control of the Company, which could cause actual results to differ materially from such statements and from the Company’s historical results and experience. These risks, uncertainties and other factors include, but are not limited to, those described in Part I, Item 1A, “Risk Factors” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022 and Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report and those described from time to time in our other reports filed with the Securities and Exchange Commission.
Readers are cautioned that it is not possible to predict or identify all the risks, uncertainties and other factors that may affect future results and that the risks described herein should not be considered to be a complete list. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto and with the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022.
Executive Overview
Overview of Superior
Superior Industries International, Inc.’s (referred to herein as the “Company,” “Superior,” or “we” and “our”) principal business is the design and manufacture of aluminum wheels for sale to original equipment manufacturers (“OEMs”) in North America and Europe and to the aftermarket in Europe. We employ approximately 7,400 full-time employees, operating in eight manufacturing facilities in North America and Europe. We are one of the largest aluminum wheel suppliers to global OEMs and one of the leading European aluminum wheel aftermarket manufacturers and suppliers. Our OEM aluminum wheels accounted for approximately 96 percent of our sales in the first three months of 2023 and are primarily sold for factory installation on vehicle models manufactured by BMW (including Mini), Ford, GM, Honda, Jaguar-Land Rover, Lucid Motors, Mazda, Mercedes-Benz Group, Nissan, PSA, Renault, Stellantis, Subaru, Suzuki, Toyota, VW Group (Volkswagen, Audi, SEAT, Skoda, Porsche, Bentley) and Volvo. We sell aluminum wheels to the European aftermarket under the brands ATS, RIAL, ALUTEC and ANZIO. North America and Europe represent the principal markets for our products, but we have a diversified global customer base consisting of North American, European and Asian OEMs.
Demand for our products is mainly driven by light vehicle production levels in North America and Europe and customer take rates on specific vehicle platforms that we serve and wheel SKUs that we produce. The majority of our customers’ wheel programs are awarded two to four years before actual production is expected to begin. Our purchase orders with OEMs are typically specific to a particular vehicle model.
24
GM, VW Group, Ford and Toyota each individually accounted for 10 percent or more of our consolidated sales for the three months ended March 31, 2023 and March 31, 2022. Our sales to these customers were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
March 31, 2023 |
|
|
March 31, 2022 |
|
(Dollars in millions) |
|
Percent of Sales |
|
Dollars |
|
|
Percent of Sales |
|
Dollars |
|
GM |
|
22% |
|
$ |
83.0 |
|
|
26% |
|
$ |
106.3 |
|
VW Group |
|
17% |
|
$ |
66.4 |
|
|
13% |
|
$ |
54.0 |
|
Ford |
|
12% |
|
$ |
46.4 |
|
|
14% |
|
$ |
57.8 |
|
Toyota |
|
11% |
|
$ |
43.5 |
|
|
10% |
|
$ |
41.0 |
|
Industry Overview, Supply Chain Disruption and Ukraine Conflict
There is a broad range of factors which impact automotive industry sales and production volumes, including consumer demand and preferences, dealer inventory levels, labor relations issues, trade agreements, cost and availability of raw materials and components, fuel prices, regulatory requirements, government initiatives, availability and cost of credit, changing consumer attitudes toward vehicle ownership and other factors. Our sales are driven generally by overall automotive industry production volumes and, more specifically, by the volumes of the vehicles for which we supply wheels. In addition, larger diameter wheels and premium finishes command higher unit prices. Larger cars and light trucks, as well as premium vehicle platforms, such as luxury, sport utility and crossover vehicles, typically employ larger diameter wheels and premium finishes.
The automotive industry continues to be impacted by the supply chain disruption which emerged as OEM vehicle production resumed and began to scale following the shutdown because of the COVID-19 pandemic. The supply chain disruption includes shortages of semiconductor chips, electric vehicle batteries, shipping containers, steel, resin and foam. The semiconductor chip shortage has continued to constrain OEM vehicle production although there was improvement in the first quarter of 2023. Rising costs, especially energy in Europe, experienced in 2021, 2022 and the first three months of 2023 are expected to continue. In addition, the Ukraine Conflict which resulted in temporary shutdowns at certain OEM production facilities in early 2022, began to affect our production volume in March 2022 and continues to impact order volatility and inflationary cost pressures. Although the cost of energy has moderated in the first quarter of 2023, energy costs remain higher in Europe than prices prevailing prior to the pandemic and Ukraine Conflict. While the prices under our OEM contracts are adjusted for changes in the cost of aluminum and certain other costs, our aftermarket contracts do not provide such pass through of aluminum or other costs. Future increases in raw material costs and OEM production volatility may cause our inventory levels to increase, negatively impacting our cash flows.
Automotive industry production volumes in the North American and Western and Central European regions in the first three months of 2023, as compared to the corresponding periods of 2022 and 2021, are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Industry Production (North America and Western and Central Europe) |
|
|
Three Months Ended |
|
March 31, |
|
|
2023 vs 2022 |
|
2022 vs 2021 |
|
|
|
|
2023 |
|
2022 |
|
2021 |
|
|
% Change |
|
% Change |
|
|
(Units in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
3,898 |
|
|
3,550 |
|
|
3,615 |
|
|
|
9.8 |
% |
|
(1.8 |
%) |
|
Western and Central Europe |
|
|
4,036 |
|
|
3,260 |
|
|
3,950 |
|
|
|
23.8 |
% |
|
(17.5 |
%) |
|
Total |
|
|
7,934 |
|
|
6,810 |
|
|
7,565 |
|
|
|
16.5 |
% |
|
(10.0 |
%) |
|
Automotive industry production volumes in our markets increased 16.5 percent in the first three months of 2023 as compared to 2022. North American production volumes increased 9.8 percent and Western and Central European production volumes increased 23.8 percent primarily due to easing supply chain constraints. However, the Ukraine Conflict may continue to be a constraint on future European automotive production volumes and, therefore, Superior production volumes.
The April 2023 IHS forecast projects that the 2023 production will be 6.6 percent higher than 2022 (5.2 percent in North America and 8.1 percent in Western and Central Europe) but 13.0 percent lower than 2019 pre-pandemic levels. Elevated vehicle cost, higher financing costs, and consumer inflation and recession fear is likely affecting vehicle demand.
Sustainability
We published our 2022 Sustainability Report on August 31, 2022. That report reflected the results of the materiality assessment we conducted in 2021 to identify the sustainability interests of our stakeholders to develop our sustainability strategy. We remain committed to reducing natural gas, electricity, and water consumption, solid waste and air emissions at our facilities. All Superior manufacturing plants have implemented Environmental Management Systems that are ISO14001 certified and are subject to annual audits by an independent third party.
25
The 2022 Sustainability Report confirmed our goal to be carbon neutral by 2039 and reported the carbon footprint of our global operations. In 2021, we reduced our carbon footprint by approximately 9% and our emissions per pound of aluminum shipped by 18% versus 2020 levels. We continue to explore opportunities to:
•reduce fuel consumption and greenhouse gas emissions and
•offer low or zero carbon wheels to our customers.
Furthermore, our research and development team continues to develop light weighting solutions, such as our patented Alulite technology, and aerodynamic solutions that will assist in reducing our customers’ carbon footprint. We also collaborate with our customers and suppliers regarding sustainability practices throughout their supply chains.
Overview of the First Quarter of 2023
The following charts show the operational performance in the quarter ended March 31, 2023 in comparison to the quarter ended March 31, 2022 (dollars in millions):
SALES AND PROFITABILITY FOR THE 3RD QUARTER OF 2019 AND 2018 ($ in millions) Sales for 3rd Quarter 2019 & 2018 $352.0 $347.6 2019 2019 Income from Operations 3rd Quarter 2019 & 2018$(0.2) $7.7 2019 218 Net Income & Adjusted EBITDA* for 3rd Quarter 2019 & 2018 Net Income Adjusted EBITDA $38.9 $30.6 $(6.6) 2019 2018 * See the Non-GAAP Financial Measures section of this quarterly report for a reconciliation of our Adjusted EBITDA to Net Income (Loss).
26
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
|
Net Change |
|
(Dollars in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
Net sales |
|
|
|
|
|
|
|
|
|
North America |
|
$ |
211,618 |
|
|
$ |
227,198 |
|
|
$ |
(15,580 |
) |
Europe |
|
|
169,348 |
|
|
|
173,328 |
|
|
|
(3,980 |
) |
Net sales |
|
|
380,966 |
|
|
|
400,526 |
|
|
|
(19,560 |
) |
Cost of sales |
|
|
346,388 |
|
|
|
359,939 |
|
|
|
13,551 |
|
Gross profit |
|
|
34,578 |
|
|
|
40,587 |
|
|
|
(6,009 |
) |
Percentage of net sales |
|
|
9.1 |
% |
|
|
10.1 |
% |
|
|
(1.0 |
)% |
Selling, general and administrative expenses |
|
|
19,442 |
|
|
|
16,950 |
|
|
|
(2,492 |
) |
Income from operations |
|
|
15,136 |
|
|
|
23,637 |
|
|
|
(8,501 |
) |
Percentage of net sales |
|
|
4.0 |
% |
|
|
5.9 |
% |
|
|
(1.9 |
)% |
Interest expense, net |
|
|
(15,698 |
) |
|
|
(9,962 |
) |
|
|
(5,736 |
) |
Other expense, net |
|
|
(187 |
) |
|
|
(87 |
) |
|
|
(100 |
) |
Income tax provision |
|
|
(3,298 |
) |
|
|
(3,518 |
) |
|
|
220 |
|
Net (loss) income |
|
$ |
(4,047 |
) |
|
$ |
10,070 |
|
|
$ |
(14,117 |
) |
Percentage of net sales |
|
|
(1.1 |
)% |
|
|
2.5 |
% |
|
|
(3.6 |
)% |
Diluted (loss) earnings per share |
|
$ |
(0.49 |
) |
|
$ |
0.04 |
|
|
$ |
(0.53 |
) |
Value added sales (1) |
|
$ |
202,662 |
|
|
$ |
189,395 |
|
|
$ |
13,267 |
|
Value added sales adjusted for foreign exchange (1) |
|
$ |
207,035 |
|
|
$ |
189,395 |
|
|
$ |
17,640 |
|
Adjusted EBITDA (2) |
|
$ |
45,489 |
|
|
$ |
49,210 |
|
|
$ |
(3,721 |
) |
Percentage of net sales |
|
|
11.9 |
% |
|
|
12.3 |
% |
|
|
(0.4 |
)% |
Percentage of value added sales |
|
|
22.4 |
% |
|
|
26.0 |
% |
|
|
(3.6 |
)% |
Unit shipments in thousands |
|
|
3,858 |
|
|
|
4,084 |
|
|
|
(226 |
) |
(1)Value added sales and value added sales adjusted for foreign exchange are key measures that are not calculated according to U.S. GAAP. Refer to “Non-U.S. GAAP Financial Measures” for a definition of value added sales and value added sales adjusted for foreign exchange and a reconciliation of value added sales and value added sales adjusted for foreign exchange to net sales, the most comparable U.S. GAAP measure.
(2)Adjusted EBITDA is a key measure that is not calculated according to U.S. GAAP. Refer to “Non-U.S. GAAP Financial Measures” for a definition of adjusted EBITDA and a reconciliation of our adjusted EBITDA to net income, the most comparable U.S. GAAP measure.
Shipments
Wheel unit shipments were 3.9 million for the first quarter of 2023 compared to unit shipments of 4.1 million for the same period in 2022, a decrease of 5.5 percent. The decrease was comprised of a 4.1 percent decrease in unit shipment volumes in North America and 7.4 percent decrease in European shipment volumes. The majority of this decrease is attributable to the 45.9 percent decrease in the aftermarket unit shipments as a result of softening aftermarket demand due to a slowdown of the European economy, rising energy prices, and warm weather which reduces demand for winter tires, as well as the Ukraine conflict.
Net Sales
Net sales for the first quarter of 2023 were $381.0 million, compared to net sales of $400.5 million for the same period in 2022, a decrease of 4.9 percent. The decrease in revenue was primarily due to lower aluminum pass throughs to our OEM customers of $32.9 million and $7.1 million of unfavorable foreign exchange primarily related to the Euro, as well as fewer unit shipments, partially offset by pricing of $21.9 million.
Cost of Sales
Cost of sales was $346.4 million for the first quarter of 2023 compared to cost of sales of $359.9 million for the same period in 2022. The decrease in cost of sales was primarily due to $22.1 million lower cost of aluminum, as well as favorable foreign exchange of $6.1 million primarily related to the Euro, partially offset by an increase in conversion costs of $14.6 million due to inflationary cost pressures and unfavorable cost absorption due to lower production volumes.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expense was $19.4 million for the first quarter of 2023 as compared to $17.0 million for the same period in 2022. The increase in SG&A expense is primarily attributable to the $2.8 million restructuring charge recognized in the first quarter of 2023 related to the Company's reduction in its global workforce (refer to Note 19 “Restructuring” in the Notes to the Condensed Consolidated Financial Statements in Item 1, “Financial Statements”).
27
Net Interest Expense
Net interest expense for the first quarter of 2023 was $15.7 million compared to net interest expense of $10.0 million in the first quarter of 2022, a $5.7 million increase. The increase is due to a $50.8 million increase in the principal amount of term loan debt as a result of the refinancing in December 2022, rising interest rates and a higher credit spread on the new term loan (refer to Note 9 "Debt", in the Notes to the Condensed Consolidated Financial Statements in Item 1, "Financial Statements").
Other Income (Expense)
Other expense of $0.2 million for the first quarter of 2023 was flat compared to other expense of $0.1 million for the same period in 2022.
Income Tax (Provision) Benefit
The income tax provision for the first quarter of 2023 was $3.3 million on pre-tax loss of $0.7 million, representing an effective income tax rate of (440.3) percent. This differs from the statutory rate primarily due to valuation allowances, the reversal of an uncertain tax position and the mix of earnings among tax jurisdictions. The income tax provision for the first quarter of 2022 was $3.5 million on a pre-tax income of $13.6 million, representing an effective income tax rate of 25.9 percent. This differs from the statutory rate primarily due to U.S. and Germany valuation allowances, the reversal of an uncertain tax position and the mix of earnings among tax jurisdictions.
Net Income (Loss)
Net loss for the first quarter of 2023 was $4.0 million, or a $0.49 loss per diluted share, compared to net income of $10.1 million, or $0.04 per diluted share, for the same period in 2022.
Segment Sales and Income from Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
|
Change |
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
Selected data |
|
|
|
|
|
|
|
|
|
Net sales |
|
|
|
|
|
|
|
|
|
North America |
|
$ |
211,618 |
|
|
$ |
227,198 |
|
|
$ |
(15,580 |
) |
Europe |
|
|
169,348 |
|
|
|
173,328 |
|
|
|
(3,980 |
) |
Total net sales |
|
$ |
380,966 |
|
|
$ |
400,526 |
|
|
$ |
(19,560 |
) |
Income from operations |
|
|
|
|
|
|
|
|
|
North America |
|
$ |
21,715 |
|
|
$ |
19,567 |
|
|
$ |
2,148 |
|
Europe |
|
|
(6,579 |
) |
|
|
4,070 |
|
|
|
(10,649 |
) |
Total income from operations |
|
$ |
15,136 |
|
|
$ |
23,637 |
|
|
$ |
(8,501 |
) |
North America
Net sales for our North American segment for the first quarter of 2023 decreased 6.9 percent while unit shipments decreased 4.1 percent, compared to the same period in 2022. The $15.6 million decrease in net sales was primarily due to lower aluminum cost pass throughs to our OEM customers of $23.5 million and lower unit shipments, partially offset by pricing. North American segment income from operations for the first quarter of 2023 increased by $2.1 million, as compared to the first quarter of 2022, primarily due to pricing, partially offset by inflationary cost pressures and higher conversion costs due to unfavorable cost absorption on lower production volumes, and a restructuring charge (refer to Note 19 “Restructuring” in the Notes to the Condensed Consolidated Financial Statements in Item 1, “Financial Statements”).
Europe
Net sales for our European segment for the first quarter of 2023 decreased 2.3 percent while unit shipments decreased 7.4 percent, compared to the same period in 2022. Net sales were lower primarily due to $9.4 million of lower aluminum pass throughs and unfavorable foreign exchange of $7.7 million substantially offset by pricing of $9.9 million. European segment income from operations for the first quarter of 2023 was $10.6 million lower primarily due to lower unit shipments, higher conversion costs and the timing of aluminum cost recovery of $14.7 million, and a $3.8 million restructuring charge, partially offset by pricing (refer to Note 19 “Restructuring" in the Notes to the Condensed Consolidated Financial Statements in Item 1, “Financial Statements").
28
Financial Condition, Liquidity and Capital Resources
As of March 31, 2023, our cash and cash equivalents totaled $228.6 million compared to $133.7 million and $213.0 million at March 31, 2022 and December 31, 2022, respectively. Our sources of liquidity primarily include cash and cash equivalents, cash provided by operating activities, borrowings under available debt facilities, and factoring arrangements for trade receivables. Working capital (current assets minus current liabilities) and our current ratio (current assets divided by current liabilities) were $261.4 million and 1.9:1.0, respectively, at March 31, 2023, versus $257.6 million and 2.0:1.0 at December 31, 2022. Although the Company continues to effectively manage all elements of working capital, receivables and inventories have increased in 2022 and 2023 largely due to higher input costs.
Our working capital requirements, investing activities and cash dividend payments have historically been funded from internally generated funds, debt facilities, cash and cash equivalents, and we believe these sources will continue to meet our future requirements. Capital expenditures relate to improving production quality and efficiency and extending the useful lives of existing property and expenditures for new product offerings, as well as expanded capacity for existing products. During 2023, we expect that capital expenditures will be approximately $65.0 million.
In connection with the acquisition of our European operations, we entered into several debt and equity financing arrangements during 2017. On March 22, 2017, we entered into a senior secured credit facility consisting of a $400.0 million term loan facility (the “Acquisition Term Loan Facility”) and a $160.0 million revolving credit facility (the “U.S. Revolving Credit Facility”), subsequently reduced to $107.5 million by May 2022. On May 22, 2017, we issued 150,000 shares of redeemable preferred stock for an aggregate purchase price of $150.0 million. On June 15, 2017, we issued €250.0 million aggregate principal amount of 6.00% Senior Notes due June 15, 2025 (the “Notes”). Finally, as part of the European business acquisition, we also assumed $70.7 million of outstanding debt, including a €30.0 million European revolving credit facility (the “European Revolving Credit Facility”) which was subsequently increased to €60.0 million. In addition, the European business entered into equipment loan agreements totaling $13.4 million (€12.0 million) in the fourth quarter of 2019.
On December 15, 2022, the Company entered into a $400.0 million term loan facility (the “Term Loan Facility”) with Oaktree Fund Administration L.L.C., in its capacity as the administrative agent, JPMorgan Chase Bank, N.A., in its capacity as collateral agent, and other lenders party thereto. The Term Loan Facility requires quarterly principal payments of $1.0 million. Additional principal payments may be due with respect to asset sales, debt issuances and as a percentage of cash flow in excess of a specified threshold. Concurrent with the issuance of the Term Loan Facility, the Company entered into a $60.0 million revolving credit facility (the “Revolving Credit Facility”) and terminated the previously outstanding $107.5 million U.S. Revolving Credit Facility and €60.0 million European Revolving Credit Facility. The $388.0 million proceeds of the borrowings under the Term Loan Facility (consisting of the $400.0 million aggregate principal less the original issuance discount of $12.0 million) were used to repay the $349.2 million balance outstanding under the Acquisition Term Loan Facility and to pay debt issuance costs and expenses incurred in connection with the Term Loan Facility and Revolving Credit Facility. As a result of the refinancing, our annual interest expense on the Term Loan Facility is expected to increase by more than $20.0 million in 2023.
Balances outstanding under the Term Loan Facility, Notes, and equipment loans as of March 31, 2023 were $399.0 million, $236.7 million, and $11.4 million, respectively. The balance of the redeemable preferred stock was $228.9 million as of March 31, 2023. The Revolving Credit Facility and the Term Loan Facility mature on December 15, 2027 and December 15, 2028, respectively. However, in the event the Company has not repaid, refinanced or otherwise extended the maturity of the Notes beyond the maturity date of the Term Loan Facility by the date 91 days prior to June 15, 2025, the Term Loan Facility and Revolving Credit Facility will mature 91 days prior to June 15, 2025. Similarly, in the event the Company has not redeemed, refinanced or otherwise extended the unconditional redemption date of the redeemable preferred stock beyond the maturity date of the Term Loan Facility by the date 91 days prior to September 14, 2025, the Term Loan Facility and Revolving Credit Facility will mature 91 days prior to September 14, 2025.
The redeemable preferred stock may be unconditionally redeemed at the holder’s election on or after September 14, 2025 at the redemption amount, $300 million, provided the Company has sufficient available funds. Under Delaware law, any redemption payment would be limited to the “surplus” that our Board of Directors determines is available to fund a full or partial redemption without rendering us insolvent. The shares of preferred stock not redeemed would continue to receive an annual dividend of 9 percent on the original stated value, plus any accrued and unpaid dividends, which would be paid quarterly. The Board of Directors would have to evaluate on an ongoing basis the ability of the Company to make any further redemption payments until the full redemption amount has been paid. The Company currently intends to repay, refinance or otherwise extend the Notes prior to their maturity and to redeem, refinance or otherwise extend the unconditional redemption date of the redeemable preferred stock.
As of March 31, 2023, the Company had no outstanding borrowings under the Revolving Credit Facility, outstanding letters of credit of $4.8 million and available unused commitments under the Revolving Credit Facility of $55.2 million. As a result, our liquidity totaled $246.3 million at March 31, 2023, consisting of cash and cash equivalents of $191.1 million ($228.6 million less the $37.5 million contractual liquidity required pursuant to the Term Loan Facility and Revolving Credit Facility) and available and unused commitments under the Revolving Credit Facility of $55.2 million.
29
As of March 31, 2023, we had no significant off-balance sheet arrangements other than factoring of $111.3 million of our trade receivables.
The following table summarizes the cash flows from operating, investing and financing activities as reflected in the condensed consolidated statements of cash flows.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
(Dollars in thousands) |
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
38,738 |
|
|
|
45,001 |
|
Net cash used in investing activities |
|
|
(15,589 |
) |
|
|
(17,804 |
) |
Net cash used by financing activities |
|
|
(9,172 |
) |
|
|
(6,705 |
) |
Effect of exchange rate changes on cash |
|
|
1,639 |
|
|
|
(284 |
) |
Net increase in cash and cash equivalents |
|
$ |
15,616 |
|
|
$ |
20,208 |
|
Operating Activities
Net cash provided by operating activities was $38.7 million for the first three months of 2023 compared to net cash provided by operating activities of $45.0 million for the same period in 2022. The decrease in cash flow provided by operating activities was primarily driven by $14.0 million of lower profitability partially offset by lower use of cash for working capital.
Investing Activities
Net cash used in investing activities of $15.6 million for the first three months of 2023 was comparable to $17.8 million for the same period in 2022.
Financing Activities
Net cash used in financing activities was $9.2 million for the first three months of 2023 compared to net cash used in financing activities of $6.7 million for the same period in 2022. This increase was primarily due to a $1.0 million increase in repayments of debt and a $1.7 million increase in tax withholding for stock-based compensation.
Non-GAAP Financial Measures
In this Quarterly Report, we discuss three important measures that are not calculated according to U.S. GAAP, value added sales, value added sales adjusted for foreign exchange and adjusted EBITDA.
Value added sales represents net sales less the value of aluminum and other costs, as well as outsourced service provider (“OSP”) costs that are included in net sales. Contractual arrangements with our customers allow us to pass on changes in aluminum and certain other costs. Value added sales adjusted for foreign exchange represents value added sales on a constant currency basis. For entities reporting in currencies other than the U.S. dollar, the current period amounts are translated using the prior year comparative period exchange rates, rather than the actual exchange rates in effect during the current period. Value added sales adjusted for foreign exchange allows users of the financial statements to consider our net sales information both with and without the aluminum, other costs and OSP costs and fluctuations in foreign exchange rates. Management utilizes value added sales adjusted for foreign exchange as a key metric in measuring and evaluating the growth of the Company because it eliminates the volatility of the cost of aluminum and changes in foreign exchange rates. Management utilizes value added sales in calculating adjusted EBITDA margin to eliminate volatility of the cost of aluminum in evaluating year-over-year margin growth.
30
The following table reconciles our net sales, the most directly comparable U.S. GAAP financial measure, to our value added sales and value added sales adjusted for foreign exchange:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
(Dollars in thousands) |
|
|
|
|
|
|
Net sales |
|
$ |
380,966 |
|
|
$ |
400,526 |
|
Less: aluminum, other costs, and outside service provider costs |
|
|
(178,304 |
) |
|
|
(211,131 |
) |
Value added sales |
|
$ |
202,662 |
|
|
$ |
189,395 |
|
Currency impact on current period value added sales |
|
|
4,373 |
|
|
|
— |
|
Value added sales adjusted for foreign exchange |
|
$ |
207,035 |
|
|
$ |
189,395 |
|
Adjusted EBITDA is defined as earnings before interest income and expense, income taxes, depreciation, amortization, restructuring charges and other closure costs and impairments of long-lived assets and investments, changes in fair value of the redeemable preferred stock embedded derivative, acquisition and integration, certain hiring and separation related costs, proxy contest fees, gains associated with early debt extinguishment and accounts receivable factoring fees. We use adjusted EBITDA as an important indicator of the operating performance of our business. Adjusted EBITDA is used in our internal forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to our Board of Directors and evaluating short-term and long-term operating trends in our operations. We believe the adjusted EBITDA financial measure assists in providing a more complete understanding of our underlying operational measures to manage our business, to evaluate our performance compared to prior periods and the marketplace and to establish operational goals. Adjusted EBITDA is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with U.S. GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies.
The following table reconciles our net (loss) income, the most directly comparable U.S. GAAP financial measure, to our adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
(Dollars in thousands) |
|
|
|
|
|
|
Net (loss) income |
|
$ |
(4,047 |
) |
|
$ |
10,070 |
|
Interest expense, net |
|
|
15,698 |
|
|
|
9,962 |
|
Income tax provision |
|
|
3,298 |
|
|
|
3,518 |
|
Depreciation |
|
|
18,016 |
|
|
|
17,834 |
|
Amortization |
|
|
4,825 |
|
|
|
6,248 |
|
Restructuring, factoring fees and other (1) (2) |
|
|
7,699 |
|
|
|
1,578 |
|
Adjusted EBITDA |
|
$ |
45,489 |
|
|
$ |
49,210 |
|
Adjusted EBITDA as a percentage of net sales |
|
|
11.9 |
% |
|
|
12.3 |
% |
Adjusted EBITDA as a percentage of value added sales |
|
|
22.4 |
% |
|
|
26.0 |
% |
(1)In the first quarter of 2023, we incurred $1.0 million of accounts receivable factoring fees, $5.3 million of separation costs and $1.4 million of other costs.
(2)In the first quarter of 2022, we incurred $0.6 million of accounts receivable factoring fees, $0.5 million of certain hiring and separation costs and $0.5 million of other costs.
31
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to apply significant judgment in making estimates and assumptions that affect amounts reported therein, as well as financial information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. These estimates and assumptions, which are based upon historical experience, industry trends, terms of various past and present agreements and contracts, and information available from other sources that are believed to be reasonable under the circumstances, form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent through other sources. We believe the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in developing estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. Critical accounting estimates that affect the condensed consolidated financial statements and the judgments and assumptions used are consistent with those described in the management’s discussion and analysis in our 2022 Form 10-K (refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022).