Superior Industries International, Inc. (NYSE:SUP) Q4 2023 Earnings Call Transcript

Superior Industries International, Inc. (NYSE:SUP) Q4 2023 Earnings Call Transcript March 7, 2024

Superior Industries International, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to the Superior Industries Full Year and Fourth Quarter 2023 Earnings Call. We are joined this morning by Majdi Abulaban, President and CEO; Tim Trenary, Executive Vice President and CFO. My name is Alan. I’ll be your coordinator for today’s event. Please note this call is being recorded and for the duration your line will be on listen-only [Operator Instructions]. I will now hand you over to your host, Tim Trenary to begin today’s conference. Thank you.

Tim Trenary: Good morning. Welcome to our full year and fourth quarter 2023 earnings call. During our call this morning, we will be referring to our earnings presentation, which along with our earnings release is available on the Investor Relations section of Superior’s Web site. I am joined today by Majdi Abulaban, our President and Chief Executive Officer. Before I turn the call over to Majdi, I’ll remind everyone that any forward-looking statements contained in this presentation or commented on today are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Please refer to Slide 2 of the presentation for the full Safe Harbor statement and to the company’s SEC filings, including the company’s current annual report on Form 10-K for a more complete discussion of forward-looking statements and risk factors.

We will also be discussing various non-GAAP measures today. These non-GAAP measures exclude the impact of certain items and, therefore, are not calculated in accordance with US GAAP. Reconciliations of these measures to the most directly comparable US GAAP measures can be found in the appendix of the presentation. I’ll now turn the call over to Majdi to provide a business and portfolio update.

Majdi Abulaban: Thanks, Tim. And thanks, everyone, for joining our call today to review our full year and fourth quarter results. I will begin on Slide 5. In 2023, the Superior team successfully executed on a key transformation that positioned the company as the leading global wheel solutions provider, competitively advantaged in many ways and well positioned for profitable growth. This while tackling a very challenging macro environment that weighed in on our top-line, especially in the back half of the year. The strategic action we took in our European operations and the portfolio refocus on profitability put us on track to continue to deliver operational excellence and profitable growth. While we saw continued recovery in our industry production in 2023, some of our key customers were challenged, especially our largest customer GM, which went down for the year.

This was more pronounced in the fourth quarter where production amongst the Detroit 3 declined 7% due to the UAW strike. This along with actions we have taken to exit unprofitable programs in Europe to restructure our general operations as well as the slowdown in the aftermarket business in the first half of the year have weighed in on our revenues. Despite these macro challenges, value added sales was flat for the year, while we delivered strong EBITDA margins of 21%, which is in line with 2021. Our adjusted EBITDA for the year was $159 million. This was impacted by lower volumes as well as lumpy customer recoveries in the fourth quarter. Tim will provide more color on this. Further, I am pleased with our execution on our strategic initiative that has positioned Superior as a competitively advantaged leader in the wheel industry.

The restructuring of our German plant will be completed by the end of this quarter and with that the transfer of all production from Germany to Poland will be behind us. This will not only provide a significant profitability uplift as our cost to produce wheels in Poland is half of that in Germany, but we’ll also have advanced our local for local footprint to 100% low cost based in Mexico and based in Poland. Said another way, the transformation we executed in North America four years ago by migrating all production from the US to Mexico is now in place in Europe with the migration of production from Germany to our highly automated low cost plant in Poland. In an industry that is highly reliant on imports from China or production in high cost locations like Germany, Spain and Italy, we have put our business in an excellent position to compete and deliver long term growth.

Further, our portfolio strategy continues to play out. We are capturing demand for larger and lighter wheels through our differentiated portfolio, driving consistent content growth. Content per wheel grew 3% compared to 2022 and 19 inches or larger wheels now exceed 51% of OEM shipments. Other significant content drivers are also accelerating even further, especially lightweight. I will discuss this a bit later. Further, our team has done an exceptional job with continued focus on cash generation through cost control, working capital management and capital prudence. Despite our actions in Germany, which required investments in safety inventory and contraction of our supplier terms in the fourth quarter, our FX adjusted net debt declined to an all time low of $429 million.

This is down from early in 2019 of $620 million. To highlight the cash generating strength of our business, excluding the impact of our capital structure, we are introducing a new metric, unlevered free cash flow. Tim will provide more detail on this metric. Excluding the impact of our Europe transformation, we delivered $129 million in unlevered free cash flow in 2023 and $132 million by the way in 2022. Looking ahead in ‘24, we expect industry volumes in our combined markets to decline in the low single digits with Europe experiencing declines, while North America industry production is expected to remain flat. Having said that, we expect our portfolio to continue to deliver growth over market in our 2024 revenues. And as the European transformation will have been completed, we expect significant margin expansion in the back half of the year.

Moving on to Slide 6, which further supports Superior’s growth and profitability narrative. While industry production since 2019 has declined 9%, Superior’s value added sales as seen on the top right of this slide has consistently outperformed with growth over market of more than 10%. This outgrowth versus market actually would have been more pronounced if we consider the portfolio pruning actions we have executed in the last two years. We actually exited close — we haven’t had advertisers before but we’ve exited close to 1.2 million [wheels] mostly in Europe. Equally important is our track record of delivering performance as measured in EBITDA profitability, both by the way as a percent of value added sales and as a percent of net sales, which we don’t spend enough time on.

This is highlighted on the bottom left and right of the slide. While customer recovery lumpiness, you see that in 2022, impacted our profitability at 8% of value added sales, our average adjusted EBITDA as a percent of that since 2020 has been 22%. Actually more salient is the bottom right is Superior’s average adjusted EBITDA as a percent of net sales, which has consistently hovered around 12% despite customer volatility, supply chain disruption and inflationary pressures. This is at the top end metric in our peers. So moving on to Slide 7, to provide an update on our European transformation. Our teams have successfully executed on this initiative. We expect to complete the wind down of our German operations by the end of first quarter and with that all production will have been relocated from Germany to Poland.

As I mentioned, this will not only provide a significant profitability uplift as our cost to produce wheels in Poland is half of that in Germany, but we’ll have advanced our local for local footprint to 100% low cost in Mexico and in Poland. In addition to realizing a $23 million to $25 million EBITDA uplift, we also expect a cash benefit as we unwind $14 million in safety inventory and recover $15 million in supplier service. We also expect further cost absorption and improvement in operations in Poland as we absorb volume from Germany. Further, we are continuing to consolidate aftermarket warehouses and rationalize administrative overhead to improve our overall cost structure in Europe. Finally, we have executed well on commercial recovery and are continuing dialogs with customers to recover labor and energy inflation part of it here in 2024.

On a combined basis, these actions should have a significant impact on the margins of the European operations, our focus here has been on aligning the margins of that region with North America. So in the second half of the year, we expect to see at least a 500 basis point improvement in margin in Europe, substantially narrowing the margin gap between our two regions. And actually, this will be the first time since I’ve been here where we are looking to the margins of both regions to be the same. So we’re very excited about that. Turning on to Slide 8, which highlights the incredible impact that the European transformation will have on our EBITDA generation. While we are guiding midpoint of $165 million adjusted EBITDA in ’24, we expect our run rate in the back half of the year to reach approximately $191 million as we will have completed the European transformation in the first half.

This improved profitability is driven by the transfer of wheels to Poland, a lower cost region along with SG&A savings from the consolidation of administrative functions and higher operating leverage from the improved utilization of our Polish manufacturing facility. Slide 9 highlights the tailwinds of the secular trends that continue to drive our portfolio and hence growth over market. The combination of continued industry recovery as well as the accelerating adoption of larger wheels with premium finishes will continue to enable us to update market growth. As we capitalize on these trends, we expect to achieve 4.4% value added sales CAGR over the next four years, equating to a 4.1% annualized growth over market through ’27. The next couple of slides are really historical proof points to support our growth narrative.

Slide 10 highlights the accelerating adoption of our technology as a percent of our revenues versus where we were in 2019. The strategy to capture demand for our differentiated portfolio has continued to play out. Each of our premium technologies listed here has continued to grow as a percent of our total portfolio of shipped products. In fact, while the adoption of larger wheels with premium finishes has continued to grow, light weighting and aerodynamics as significant content adder has accelerated. For example, light weighted wheels as a percent of our portfolio has doubled from 12% in 2019 to 24% in 2023. Slide 11 highlights this further, looking at our launches in 2023. These are real programs that will be in production in 2024 and beyond.

You can see further the acceleration of light weighting, more than half of wheels we launched in 2023 have light weighting technologies. So said another way, we expect to continue the growth trajectory on the right side of the slide where you see our content per wheel has driven by 21% since 2020. So Slide 12 sums it all up, our exciting position in the real space. We are unmatched in many ways. So if you look at Europe and North America, the combined market, we are the unmatched number one leader amongst them. As you look at customer diversity, we are in the top three supplier to US Carmakers, German carmakers, Japanese carmakers and especially in North America. From a manufacturing footprint, I am comfortable saying that no other supplier can offer the low cost footprint we have, a 100% in Mexico and 100% in Poland.

This wheel industry relies heavily on imports from China or manufacturing in Germany, Spain and Italy. We’re very much at [indiscernible]. And finally, unmatched technology. When you look at our library, we have the broadest and most comprehensive portfolio in the industry, advanced light weighting and aerodynamics demanded by European carmakers and a larger wheels with premium finishes in North America and the US. Most importantly, I would tell you that behind what I will call — I’m going to call it the new Superior, is a team that executed day in and day out and the results showed. Slide 13 is what we expect our business to deliver by ’27. Growth over market driven by our portfolio. EBITDA north of $200 million beginning in 2025, growing further through our operating leverage.

This along with a disciplined approach to capital expenditures will drive strong unlevered free cash flow generation well into the coming years. So now, I will turn the call over to Tim to provide more detail on our financial results. Tim?

Tim Trenary: Thank you, Majdi. Let’s begin with an update on the transformation of our European operations on Page 15. Generally accepted accounting principles require deconsolidation of the income statement and balance sheet of the German manufacturing facility, SPG, beginning with commencement of the Protective Shield Proceedings on August 31st. Accordingly, the financial results of SPG for the last four months of 2023 are excluded from the company’s financial results as is the balance sheet of SPG at year end. The deconsolidation of SPG devised to an $80 million noncash charge in 2023. 318,000 wheels produced at the facility in the last four months of the year are excluded from Superior unit sales. And approximately $50 million and $32 million respectively of net sales and value added sales are excluded from Superior’s 2023 results.

The deconsolidation of SPG had very little impact on adjusted EBITDA. Notwithstanding the transfer of wheels from SPG to our Polish operations has taken longer than we had planned, this strategic action and the associated reorganization of the European administrative support functions, R&D, engineering and commercial functions and the aftermarket sales, administration and logistics is a very value accretive event for the company. We expect a step change in annual adjusted EBITDA on completion of the transfer of wheels of $23 million to $25 million and a reduction in annual capital expenditures of approximately $10 million. Importantly, we expect the variable contribution margin in Europe to improve and to be in line with that of North America 35% to 40%.

The expected cost of the transfer of wheels from SPG to our Polish operations is $20 million to $35 million. We are very pleased with the payback on this investment. The fourth quarter and full year 2023 financial summary is on Page 16. Net sales decreased to $309 million for the quarter compared to $402 million in the prior year. For the full year, net sales were $1.4 million compared to $1.6 million in the prior year. Value added sales in the quarter decreased $169 million compared to $218 million in the prior year. And for the full year, value added sales were $748 million compared to $771 million in the prior year. Adjusted EBITDA decreased to $23 million for the quarter compared to $58 million in the prior year period. And for the full year, adjusted EBITDA was $159 million compared to $194 million in 2022.

Color on the financial performance to follow momentarily. In the fourth quarter, we reported net loss of $2 million or loss per diluted share of $0.44 compared to net income of $17 million or income of $0.25 per diluted share in the prior year period. $7 million of restructuring charges contributed to the net loss for the quarter. For the full year 2023, we reported net loss of $93 million or a loss per diluted share of $4.73 compared to net income of $37 million and earnings per diluted share of $0.02 in the prior year. The $80 million noncash charge arising from the deconsolidation of SPG and $23 million of restructuring charges contributed very significantly to the $93 million net loss for the year. The fourth quarter 2023 year-over-year sales bridge is on Page 17.

To the far right, aluminum costs passed through to customers decreased $44 million compared to the prior year period to $140 million due to lower aluminum prices and therefore, lower pass through of aluminum costs to OEM customers. To the far left, the SPG deconsolidation amounts to $26 million of the decline in value added sales to $169 million for the fourth quarter of 2023. Lower unit sales and lower recovery of cost inflation from customers, partially offset by favorable product mix, amounts to a $29 million decline in value added sales compared to the prior year period. Stronger euro resulted in $6 million of foreign exchange [bend]. The full year 2023 year-over-year sales bridge is on Page 18. The SPG deconsolidation, $32 million, amounts to more than all of the $23 million decline in value added sales in 2023 to $748 million.

Lower unit sales and lower recovery of cost inflation to customers offset by favorable product mix and the stronger euro and a $9 million favorable impact from 2023 value added sales. Aluminum costs passed through to customers decreased $232 million to $637 million in 2023, because of lower aluminum prices. On page 19, the fourth quarter 2023 year-over-year adjusted EBITDA range. Adjusted EBITDA for the quarter decreased to $23 million compared to $57 million in the prior year period. Because SPG is a loss making facility, fourth quarter adjusted EBITDA benefits $5 million from the deconsolidation of the [entity]. Volume, price and mix was minus $5 million, primarily because of lower unit sales in the quarter compared to the prior year period.

Performance and inflation recoveries of minus $34 million is primarily the result of very significant recovery of cost inflation from customers in the fourth quarter of last year 2022. Also impacting year-over-year fourth quarter 2023 financial results are various manufacturing and other inefficiencies associated with the transformation of the European business and the UAW strikes. The full year 2023 year-over-year adjusted EBITDA bridge is on Page 20. Adjusted EBITDA decreased to $159 million, a 21.3% margin expressed as a percent of value added sales to $194 million, a 25.2% margin. The same can be said to the full year 2023 results as was said to the fourth quarter financial results. More specifically, the full year results benefited from the SPG deconsolidation, that’s $8 million.

Lower unit sales is the primary reason volume, price and mix was minus $10 million. And performance and inflation recoveries of minus $32 million is primarily the result of more recovery across inflation and customers in 2022 than in 2023. In the back half of the year, various manufacturing and other inefficiencies associated with the transformation of the European business and the UAW strikes also impacted financial results. An overview of the company’s fourth quarter and full year 2023 unlevered free cash flow is on Page 21. We are introducing a new cash flow metric, unlevered free cash flow, because of the impending refinancing of the senior unsecured notes. Unlevered free cash flow is cash provided by operating activities, less capital expenditures, plus cash interest paid.

It is the cash generating power of the enterprise and therefore the amount of cash available for debt service and our shareholders. Cash flow provided by operating activities was $44 million for the fourth quarter and $64 million for the full year, both lower compared to the prior year due to lower profitability and higher restructuring costs. Net cash used in investing activities of $12 million in the fourth quarter was flat compared to prior year period and for the full year $11 million less, down to $46 million from the various initiatives to reduce the capital intensity of the business. Cash payments for non-debt financing activities were $6 million for the quarter, up $2 million because of timing of dividend payments and $16 million for the full year, flat compared to the prior year.

Free cash flow was $26 million in the fourth quarter compared to $63 million in the prior year period. For the full year, free cash flow was [$2 million] compared to [$80 million] in the prior year. Unlevered free cash flow was $50 million in the fourth quarter compared to $80 million in the prior year period. For the full year, our levered free cash flow was $80 million compared to $132 million in the prior year. On Page 22, unlevered free cash flow adjusted for Europe transformation. Not unexpectedly, the transformation resulted in a temporary increase in working capital. As of the end of 2023, the company had invested $14 million in safety stock to protect our customers from possible production disruption at SPG. We experienced $15 million in supplier terms contraction associated with Protective Shield Proceedings and invested $7 million in certain SPG trade supplier clients.

We also invested $6 million in tooling and capital equipment and incurred $7 million in closure costs. 2023 unlevered free cash flow adjusted for the Europe transformation was $129 million, about the same as unlevered free cash flow generation in 2022. An overview of the company’s capital structure as of December 31, 2023 may be found on Page 23. Cash on the balance sheet at year end was $202 million, funded debt was $638 million at year end and net debt $436 million. At the end of the year, liquidity including availability under the revolving credit facility was $219 million. On Page 24, year end 2023 net debt adjusted for the Europe transformation. We expect a temporary investment of $14 million in safety stock to come back to us this year as the stock is depleted.

There’s very reason to believe that supplier terms will normalize to pre-SPG Protective Shield Proceedings levels as we put the proceeds behind us, that’s $15 million. Accordingly, year end 2023 net debt adjusted for the Europe transformation is $407 million, $27 million less than net debt at year end 2022. Also note that free cash flow generation and therefore, deleveraging of the balance sheet the company has enjoyed over the past three years, notwithstanding COVID, cost inflation, supply chain disruption, the UAW strike and rising interest rates. Superior’s debt maturity profile as of December 31, 2023 is on Page 25. The revolving credit facility was undrawn at quarter end but we are in compliance with all loan covenants. The senior unsecured notes mature in June 2025.

The company has engaged an independent financial advisor to advise on refinancing of the notes. In conjunction with our advisor, we are evaluating refinancing opportunities in the capital markets. Refinancing as announced will likely involve the preferred equity. It is too early in the process to discuss the capital structure this process might deliver. The full year 2024 financial outlook is on Page 26. For the full year 2024, we expect net sales in the range of $1.3 billion to $1.48 billion and value added sales in the range of $720 million to $770 million. The sales reflect the impact of having addressed underperforming parts of our wheel portfolio, thereby, optimizing the probable utilization of manufacturing capacity and also light vehicle production in our markets generally consistent with IHS forecasts.

We expect adjusted EBITDA of $155 million to $175 million. We anticipate that cost inflation, especially labor and energy, will persist. However, we have ongoing negotiations with OEM customers to recover in wheel price, their fair share of inflation. We expect to deliver unlevered free cash flow in the range of $110 million to $130 million, highlighting the cash generating power of the enterprise. Finally, we expect approximately $50 million in capital expenditures as we strategically invest in our business, in particular, finishing and light weighting capabilities. We model a 25% to 30% effective tax rate for 2024. Note that we expect the first quarter of 2024 to be difficult as we wind up the transfer of wheels from SPG to our manufacturing facilities in Poland.

Also impacting the early part of 2024 is labor and energy inflation, which we intend to recover from customers. Furthermore, costs associated with the reorganization of the European administrative support and certain other functions and the reorganization of aftermarket sales, administration and logistics, post the completion of the transfer of wheels to Poland, led that expected performance in the early part of 2024. On Page 27 is the 2024 adjusted EBITDA guidance adjusted for European transformation. Once again, the European transformation, when complete, is expected to be very value accretive to the company. Because the transfer of wheel production from SPG to Poland has plugged into 2024, the full year effect of making wheels in Poland at very significantly lower cost is not fully reflected in the 2024 financial outlook.

That amount approximates $12 million. The full year benefit of the reorganization of the European administrative and other functions and the aftermarket business approximates $5 million. We also expect an improvement in fixed cost absorption and manufacturing performance in the Polish facilities, which amounts to approximately $9 million. Accordingly, we expect Superior to exit 2024 with the business generating approximately $190 million of adjusted EBITDA on unit sales of just over $15 million. Considering the company’s current and expected product mix, Superior has approximately $19 million wheels of installed manufacturing capacity. Recall that an important benefit of the European transformation is the variable contribution margin in Europe approaching that of North America, 35% to 40% expressed as a percent of value added sales.

As we develop the book of business in Europe, the improved variable contribution margin should result in improved earnings for Superior. In closing, we look forward to wrapping up the transformation of Europe, so our manufacturing, engineering and commercial teams can turn their full attention to providing value to our customers and shareholders. This concludes our prepared remarks. Majdi and I are happy to take questions. Alan?

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Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Michael Ward, Freedom Capital.

Michael Ward: From what I can tell with the SPG and the European restructuring, there’s — you have two parts. You have the cost of the closure and then you have the transition. And it sounds like some of those transition costs are going to — they’re going to be a little more severe in the first half of 2024. Is that the right read?

Majdi Abulaban: That is correct. Michael, Tim, do you want to comment on that?

Tim Trenary: Mike, you’re right. What is happening is that with respect to the reorganization of the administrative and other support functions to a little bit lesser expect the aftermarket business as we organize ourselves in Poland more so rather than Germany. We will be obliged to basically run two sets for a short period of time, a few months of personnel because we cannot release the folks in Germany until we have the folks in process in place of Poland. So the first half of the year will be a little burdened with that, that’s correct.

Majdi Abulaban: Michael, just a couple of other points. When you think of that transformation that we’ve communicated about Europe, it’s multifaceted, right? It’s manufacturing but it has other elements. It’s the backbone of the aftermarket business, it’s the administrative cost. So there are quite a few transitions that are taking place and quite a bit of that will be over in the first quarter and most of it will be behind us in the first half. So that’s point number one. But point number two, and I think you’ve heard me say it, this is absolutely transformational for this company. It will create capabilities unmatched by any and will enable us to grow and use this capacity that Tim talked about. We have 19 million wheel capacity, we’re a little bit north of 15 million.

The operating leverage on this business is 35% to 40%. So I would tell you, this thing is coming together in a very, very good way. And by the way, our customers are helping us, Michael. When we undertook this, it was a massive undertaking for many reasons, right, but also because of what we had to do to take care of our customers. So I would say they were very helpful in that process.

Michael Ward: And you mentioned, I think in your comments, Majdi, that the operating costs in Poland were about half the level in Germany?

Majdi Abulaban: Yes, I took a safe note start on that one. Absolutely, that’s correct.

Michael Ward: On Page 19, Tim, in your comments, you talked about the performance costs $34 million were negative in the fourth quarter and I think you mentioned that $29 million from customer recoveries. Is that — the $29 million is the bulk of that $34 million is that what that is?

Tim Trenary: I didn’t specifically mention any customer recoveries. But if you were to go back and look at this exact slide a year ago, the fourth quarter of ’22, instead of a red blotch here, you see a big green blotch, okay? And as I called out or we called out a year ago, the recoveries — it’s just the way they manifest themselves quarter-to-quarter, we use the term lumpy, were extraordinary in 2022. And so compared to 2023, yes, disadvantaged.

Michael Ward: So it’s the bulk of ’24…

Tim Trenary: The bulk of this is the disparity in customer recoveries in the quarters.

Majdi Abulaban: So Michael, just to bookend on that. Q4 last year was absolutely extraordinary. Our margins were north of 0.7%. When we announced Q4 last year, we did say that it has outside recoveries from 2021. So that’s one point, right? It was extraordinary. But the other piece of it, Michael, is recoveries in the fourth quarter of 2023. Listen, our customers have been good to us, they’ve cooperated in this transfer and the deep dialogs about customer recoveries tend to be very, very lumpy, right? So this is another factor why you will see that level of customer recoveries in the fourth quarter 2023. So it’s really on both sides of the bookend.

Michael Ward: It sounds like that lumpiness comes back the other way in the second half of 2024 between the transition with SPG and then also some of the cash recoveries and also from the transition costs and supplier and those sorts of things, the stock. So it sounds like [Multiple Speakers]…

Majdi Abulaban: No, you finish it off, Michael…

Michael Ward: No, that was it. I was just — it sounds like a lot of that lumpiness turns positive in the second half.

Majdi Abulaban: That is a correct conclusion, Michael.

Michael Ward: Just lastly, with your guidance, you mentioned capacity of $19 million. But with your guidance going out the next couple of years. You talked about $15 million, so you’re basically saying here’s what we think we can perform from an earnings standpoint in a flat industry environment or flat unit environment. Is that the right read through?

Tim Trenary: Not sure. I think he’s wondering aloud in a flat light vehicle build we were excited to see…

Michael Ward: Is that what your guidance is saying? I think the guidance you have for longer term, the 27% performance…

Majdi Abulaban: That is correct. Obviously, this puts a date on mix, Michael, but [Multiple Speakers] just correct and the earnings and margin uplift is very much tied to this transformation we’re seeing in Europe.

Michael Ward: So the upside you’re talking about or the benefits you’re getting from this transformation in Europe, if we get a return to more normalized volume levels in Europe and North America that provides additional upside on the revenue and earnings?

Tim Trenary: That’s correct.

Operator: Our next question comes from the line of Gary Prestopino, Barrington Research.

Gary Prestopino: A number of questions here. First of all, just for my understanding and I think you might have touched on this. In this transformation in Q4 and basically into Q1 or even Q3, Q4, Q1, you are running two factories in tandem until you can actually get everything transferred to Poland and shut down Germany. Is that correct?