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Superior Industries International Inc  (NYSE:SUP)
Q3 2018 Earnings Conference Call
Nov. 09, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Superior Industries Third Quarter 2018 Earnings Teleconference. Today's conference is being recorded. At this time, I would like to turn the conference over to Troy Ford. Sir, please go ahead.

Troy Ford -- Vice President of Treasury & Corporate Development

Thank you. Good morning, everyone, and welcome to our third quarter 2018 earnings call. During our discussion today, we will be referring to our earnings presentation, which is available on the Investors section of our website at www.supind.com. Joining me on the call today are Don Stebbins, our President and CEO; as well as Matti Masanovich, our recently appointed Executive Vice President and CFO. I will start on Slide 2 where I would like to remind everyone that any forward-looking statements contained in this presentation or commented on today are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially because of issues and uncertainties that need to be considered in evaluating our financial outlook. We assume no obligation to publicly update any forward-looking statements. Specific conditions, issues, and unknown factors that may represent forward-looking statements are noted in detail on the slide.

I would like to point you to the company's SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2017 for a more complete discussion on forward-looking statements and risk factors that may cause actual events to differ from these forward-looking statements. We also will be discussing or providing certain non-GAAP financial measures today, including value-added sales and adjusted EBITDA. These non-GAAP financial measures exclude the impact of certain items and therefore have not been calculated in accordance with GAAP. Reconciliations of these measures to the most directly comparable data presented in accordance with GAAP may be found in the financial tables included with our third quarter 2018 earnings press release and in the appendix of this presentation. As a reminder, comparative results for the third quarter of 2018 were impacted by the inclusion of one additional calendar week of North American operations in the third quarter of 2017 as a result of the realignment of fiscal periods to calendar quarters in 2017.

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

Donald J. Stebbins -- President and Chief Executive Officer

Thanks, Troy. Good morning, everyone, and thank you for joining us today. Let me first begin by welcoming Matti. Matti is an accomplished executive with significant experience in the automotive industry and we're excited to have him join the Superior team. With that, let me provide an overview of our third quarter 2018 results starting on Slide 3 of the presentation. For the third quarter, net sales increased 5% year-over-year to $348 million and we shipped over 4.7 million units. Value-added sales were $179 million with value-added sales per wheel increasing $0.40 to nearly $38 while adjusted EBITDA was $31 million. Our results in the quarter were impacted by a number of factors, including reduced European OEM production levels associated with the implementation of the Worldwide Harmonized Light Vehicle Test Procedure or WLTP, softer production schedules from our OEM customers in the United Kingdom, lower aftermarket volumes, and rising energy prices in Mexico.

In the second and third quarter of 2018, the number of launches on a year-over-year basis substantially increased. While in large part, costs associated with these launches were in line with our expectations, there were a few that experienced slightly higher launch costs due to the complexity of the designs and finishes and some late engineering changes. We expect shipment volume to increase in the fourth quarter compared to the third quarter, but to remain below the level of the fourth quarter of 2017. Turning to Slide 4. Superior's North American shipments were flat for the third quarter of 2018 compared to the third quarter of 2017 versus the North American light vehicle production of 2% growth. Market growth in North America was driven largely by a few OEMs where we have limited to zero sales.

Superior's OEM shipments for Europe for the third quarter of 2018 outperformed Western European light vehicle production for the same period on a year-over-year basis driven in particular by our programs with BMW and Mercedes. That said, as I mentioned earlier, our volumes in the regions were heavily impacted by WLTP, which reduced OEM production levels during the quarter as well as lower volumes from our OEM customers in the UK. We also saw lower aftermarket volumes in Q3 compared to last year due to WLTP. With respect to the global trade environment, it continues to remain fluid, but I'll make a few comments regarding the latest developments. First, as it relates to tariffs imposed on aluminum imported into the United States, we have price adjustment mechanisms with our customers based on index prices. Therefore, these price changes in aluminum are passed through to our customers.

Second, on October 1st, the United States, Mexico, and Canada agreed to the US MCA, which will replace NAFTA. We are clearly pleased to see this development and remain optimistic as the agreement moves through the ratification process. Overall, we believe the increase in the North American content requirement from 62.5% to 75% is a slight positive for us. And finally, on September 24th, a 10% tariff was placed on wheels coming out of China into the United States with that tariff scheduled to increase to 25% on January 1st of 2019. We are maintaining an active dialog with our North American customers as they explore opportunities within North America to mitigate this risk. That said, to-date we believe that the 10% tariff has had no significant benefit for us, but we are currently bidding on a number of programs that our customers are considering to transition to North America due to the possibility of an increased tariff on January 1st.

And with that, let me turn -- turn the call over to Matti for a review of the financials.

Matti Masanovich -- Executive Vice President and Chief Financial Officer

Thanks, Don. I'm thrilled to be a part of the Superior team. Turning to Slide 5, let's take a closer look at sales for the quarter. Net sales for the third quarter of 2018 were $348 million, an increase of approximately $17 million from the prior year period. The increase during the quarter was driven largely by higher aluminum prices offset by lower volumes, which was due in part to an extra week of operations in North America in the third quarter of 2017 and lower volumes in Europe that Don mentioned. Turning to Slide 6, adjusted EBITDA for the third quarter of 2018 was $31 million compared to adjusted EBITDA of $43 million in the third quarter of 2017, a decrease of approximately $12 million. The decrease in adjusted EBITDA was driven primarily by lower volumes in both regions, higher energy cost in Mexico, and slightly higher costs related to the launch of new wheel programs.

Our 2018 year-to-date sales performance can be seen on Slide 7. Net sales were $1.1 billion for the first nine months of 2018, an increase of $377 million from the same period last year. The increase was driven by the inclusion of an additional five month of sales from our European operations in 2018 and higher aluminum prices. As you can see on Slide 8, adjusted EBITDA year-to-date 2018 was $140 million compared to $91 million for the same year-to-date period in 2017. The increase in adjusted EBITDA was primarily driven by the inclusion of an additional five months of our European operations in 2018 and partially offset by higher energy costs in Mexico and higher launch costs in the third quarter of 2018. Turning to the cash flow slide on Slide 9. For the third quarter of 2018, cash provided by operating activities was $33.5 million compared to $27.3 million for the same period last year.

The improvement was driven by the utilization of the company's Accounts Receivable securitization program, which was used to offset the purchase of shares from minority holders during the quarter related to the acquisition of its European operations. Capital expenditures were $17.4 million during the third quarter of 2018, which supported both gross -- growth initiatives including the enhancement of Superior's product portfolio of technologies as well as continued maintenance expenditures. During the third quarter, we paid $2.3 million in common dividends and $3.9 million in preferred dividends. Also during the third quarter, we acquired an additional 447,821 shares of Superior Industries Europe AG, formerly known as Uniwheels AG, from the remaining minority shareholders for a total purchase price of $33 million bringing Superior's total ownership position to 97.8%.

In terms of liquidity management, at the end of the third quarter, our total available liquidity was $185 million inclusive of cash on hand and the unused portions of our committed credit facilities in the US and Europe. As we ended the third quarter, we were carrying higher inventory finished good balances in preparation for the aftermarket selling season in Europe and due to slower sales related to WLTP. During the fourth quarter, we expect normal working capital improvements related to year-end customer shutdowns and as we move through the aftermarket selling season.

Both debt reduction and profitable investments in the business remain our top capital allocation priorities in both the near and long term.

Moving to Slide 10, I will review our 2018 outlook which we updated on October 24th. For full-year 2018, we expect unit shipments to be in the range of 20.85 million to 21.05 million units. Net sales are expected to be in the range of $1.48 billion to $1.51 billion while value-added sales are anticipated to be in the range of $790 million to $805 million. Adjusted EBITDA is expected to be in the range of $175 million to $180 million. Our outlook for capital expenditures is expected to be approximately $85 million and cash flow from operations is anticipated to be in the range of $130 million to $145 million. Lastly, we anticipate our effective tax rate to be at or below zero due to further refinement and recently published regulations of the US Tax Cuts and Job Act of 2017.

With that, let me turn the call back to Don for his concluding comments.

Donald J. Stebbins -- President and Chief Executive Officer

Thanks, Matti. Overall, we are disappointed with our third quarter results. That said, despite the factors that impacted the second half of 2018, we remain optimistic that we'll continue to benefit from the attractive tailwinds in Europe and North America including increasing wheel diameters, the growing importance of lightweighting, and the move toward more sophisticated designs and finishes. Our launch activity in 2018 has been 30% above the level of 2017, which is a testament to our innovative technologies and capabilities that we are better serving our global customer base.

That said, continued execution of our strategies while capturing additional efficiencies throughout our operation remains our top priority. It is this focus that positions us to drive long-term sustainable growth and profitability for our shareholders.

And with that, let me turn the call back over to Katie for questions.

Questions and Answers:

Operator

Thank you, sir. (Operator Instructions) Your first question comes from Chris Van Horn with B. Riley FBR.

Chris Van Horn -- B. Riley FBR, Inc. -- Analyst

Good morning. Thanks for taking the call and welcome, Matti.

Matti Masanovich -- Executive Vice President and Chief Financial Officer

Thank you.

Donald J. Stebbins -- President and Chief Executive Officer

Good morning, Chris.

Chris Van Horn -- B. Riley FBR, Inc. -- Analyst

Good morning. So could you just elaborate a little bit on the China, I mean I'm going to classify it as kind of a possible share grab for you should these 25% tariffs go through. Could you just remind us how much share China has if you can quantify it here domestically? And when you look at the conversations you're having, are they more in the high value or higher diameter wheels or are they more passenger car maybe smaller diameter wheel based?

Donald J. Stebbins -- President and Chief Executive Officer

Yes. So, market share just broadly 40% is what's imported from China into NAFTA. So, you have -- the way it breaks down is 20% is manufactured in the US, 40% in Mexico, and 40% comes from China. In terms of the types of wheels that we're quoting, there are certainly some programs and these are the easiest to transition that we make today and so it's just a shift of volume from China and then there are other programs that we're quoting that I would say under your characterization is a share grab and those range from base 17-inch wheels to more complex 20-inch wheels. So, it's across the spectrum.

Chris Van Horn -- B. Riley FBR, Inc. -- Analyst

Okay, great. Thanks for that -- thanks for that color. When we look at launch activity, you have visibility of what that schedule or cadence could look like heading into 2019. And then how would you kind of learning what -- going off what you learned on the launch cost side for this year, do you see -- do you see it kind of an easier path than you experienced these past two quarters or do you still kind of take a conservative view that there's always going to be things that come up and how are you kind of planning for that?

Donald J. Stebbins -- President and Chief Executive Officer

I think it's an important question. And in terms of just the volume of launches, we would expect next year to be somewhere 15% to 20% less in terms of launches. And so I think the other important point here is if you were to go back a couple years say 2016, the number of launches that we had problems with probably was double or triple the issues that we had this year. I mean really we're talking about eight or so programs out of 150 or 160 launches, So, not a significant number and I would say that there was specific issues on half of those -- half of the eight, four were late engineering changes and then a couple in Europe that we had some issues with were very, very high-end wheels, large in diameter for a premium customer. So, I think there's no question that we're getting better. Do we have room for improvement? Absolutely. And I think that next year will be a better year for us.

Matti Masanovich -- Executive Vice President and Chief Financial Officer

And if I might add -- I might add to that. In history we would experience premium freight and we will impact customers and request customers maybe reduce volumes to us. So, what we did not see this year is that phenomenon at all. We did have increased costs around rework, scrap, overtime, additional testing, et cetera; but none of it was what I'll say customer-facing or customers took notice of that and nor did we experience any expedited or premium freight. So, I think the team's able to launch much more effectively than they have in the past.

Chris Van Horn -- B. Riley FBR, Inc. -- Analyst

Okay, great. And then can you describe the effect of -- I think you mentioned WLTP somewhat affected the aftermarket. Can you give a little more detail on maybe why or what the dynamics are there?

Donald J. Stebbins -- President and Chief Executive Officer

Yes. The aftermarket in Europe again is a different animal than here it is -- than it is here in the United States in that the aftermarket purchase is primarily a winter wheel purchase. And so instead of just changing the tires, people in Europe tend to buy new wheels and so they keep the tire wheel pairing together. And so, it does make sense that given the decline in new car sales that the aftermarket also would experience a slight decline as well.

Chris Van Horn -- B. Riley FBR, Inc. -- Analyst

Got it. Makes a lot of sense. And then last one from me. From more of a macro perspective, the story with you all and it's, it's been playing out as the shift to larger diameter, more high value, adding more lightweighting and new technologies to the wheel process. When you look at your pipeline, do you continue to see those more complex highly engineered wheels being a higher percentage of the business you're bidding for? And if you can quantify it, great, but maybe just more of the trends you're seeing on that front.

Donald J. Stebbins -- President and Chief Executive Officer

No question it continues both in the quotes and the opportunities for the quotes. I would say if we took -- let's take North America year-over-year, 19-inch and above up 6 percentage points; Europe up 6 percentage points or 7 percentage points. We expect that to continue as we look out during the planning horizon here past 2020 where we thought it was going to be 33%-ish. I think 2021 will be little bit higher than that so it continues to grow. And what we're doing now is trying to balance the portfolio between the high runners and the higher margin, bigger wheels.

Chris Van Horn -- B. Riley FBR, Inc. -- Analyst

Okay, great. Thanks again for the time.

Donald J. Stebbins -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Gary Prestopino with Barrington Research.

Gary Prestopino -- Barrington Research -- Analyst

Hi. Good morning, Don, and welcome, Matti.

Donald J. Stebbins -- President and Chief Executive Officer

Good morning, Gary.

Gary Prestopino -- Barrington Research -- Analyst

Hey Don, I was following what you were -- I got distracted here with the previous question. When you were saying 19-inch and higher wheels up 600 basis points, was that a year-over-year phenomenon?

Donald J. Stebbins -- President and Chief Executive Officer

Yes, as a percentage of the portfolio.

Gary Prestopino -- Barrington Research -- Analyst

Okay. Percentage of the portfolio, OK. Great. Couple other questions here. Number one, just in general if you hadn't had the impact from what was going on in Europe with softer production schedules, which I assume kind of hit you at the tail end of the quarter because when you guys released numbers in August you gave guidance, you hadn't changed your guidance. Was really the bulk of the issue the European production that caused you to have to pre-announce and lower guidance?

Donald J. Stebbins -- President and Chief Executive Officer

Yes. I mean certainly the way it breaks down is in terms of an EBITDA impact, $5 million of the reduction year-over-year was due to volumes and that was primarily related to WLTP although Jag Land Rover also reduced volume substantially in late August and September and actually closed their facility for a couple of weeks in October. So I don't think that's WLTP related, but that also Jag Land Rover is an important customer to us. So, that also impacted us.

Gary Prestopino -- Barrington Research -- Analyst

Right, OK. So in terms of this WLTP, what's your feel on what's happening going forward with European OEMs and into 2019?

Donald J. Stebbins -- President and Chief Executive Officer

Yes. I think we'll see the same impact in the fourth quarter or we are seeing the same impact in the fourth quarter. I think that WLTP is going to be around, right, and so the -- what has to happen on the OEM side is they have to get the cadence right to be able to certify these vehicles and so it will be in 2019 and 2020. But I think the planning and the product planning in terms of the different engine structures will be changed out and they'll be more used to getting the certification as they move forward. So I think that overall for 2019, it returns to let's say a more normalized production scenario for the European OEMs. And so as we look at production for 2019, we'll finalize our guidance in mid-December and announce it in January, but we would look at a return to kind of a low 1%, 2% growth rate in Europe for 2019.

Gary Prestopino -- Barrington Research -- Analyst

So, is this for both diesel and gas engines or just diesel?

Donald J. Stebbins -- President and Chief Executive Officer

Both.

Gary Prestopino -- Barrington Research -- Analyst

Okay. So is the problem that -- and I'm not altogether too up on this, but is the problem that the OEMs have failed some kind of a test with their current engines so then they have to go out and remodify and that's why the production schedules are down or is it just the government intervention is just clogging up production?

Donald J. Stebbins -- President and Chief Executive Officer

I think the emission scandal in Europe drove the government to ask the OEMs or mandate that they recertify all of their engine variants.

Gary Prestopino -- Barrington Research -- Analyst

Okay. And then last question is with this new tariff that is going to be put on Chinese vehicles and you're talking with OEMs about taking some of that China production, do you have the capacity in North America to add production?

Donald J. Stebbins -- President and Chief Executive Officer

Yes, we have and it's an important question. So, we don't have capacity at every level with every finish. But the programs again, as I mentioned in Chris' question, are a wide variety of finishes sizes and so you have some of that we could actually take over in mid-2019, that would probably be the quickest and then others that would begin in early 2020.

Gary Prestopino -- Barrington Research -- Analyst

Okay. Do you have capacity in Mexico and Arkansas or just Arkansas?

Donald J. Stebbins -- President and Chief Executive Officer

We would expect to put these into Mexico.

Gary Prestopino -- Barrington Research -- Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from Vahid Khorsand with BWS Financial.

Vahid Khorsand -- BWS Financial -- Analyst

Good morning. First question, can you provide a split-- a regional split on wheels shipped and value-added sales?

Matti Masanovich -- Executive Vice President and Chief Financial Officer

Yes, give me a moment.

Donald J. Stebbins -- President and Chief Executive Officer

While they're looking that up, do you have another question?

Vahid Khorsand -- BWS Financial -- Analyst

Yes. On the inventory side, it looks like you built up inventory or you did build up inventory from Q2 in the quarter. And I wanted to get a sense of if the WLTP was taking place and you're expecting a slower fourth quarter, how much of that inventory do you anticipate building up or why would you have the inventory build up?

Donald J. Stebbins -- President and Chief Executive Officer

Most of the inventory buildup is for the aftermarket selling season. And for us, this is really the first time in the last couple of years where we're going into the aftermarket selling season with a full complement of product so we're really excited about that. And that so far in October, we've had very, very solid sales so we're quite pleased with that. So it's not -- yes, there's some on the OEM side, but from the perspective of the majority of it certainly is on the aftermarket side.

Vahid Khorsand -- BWS Financial -- Analyst

Okay. And then next question I had. When you're -- you were doing the Uniwheels acquisition in August when you were picking up more shares, that was at the beginning of August, correct?

Donald J. Stebbins -- President and Chief Executive Officer

That's correct.

Vahid Khorsand -- BWS Financial -- Analyst

And were there any additional share purchases since the quarter closed?

Donald J. Stebbins -- President and Chief Executive Officer

Less than 1,000.

Vahid Khorsand -- BWS Financial -- Analyst

So, I'm just trying to get a sense of where you are liquidity wise? Is that something -- I mean if you're expecting this WLTP and the Europe softness to continue into 2019, are you going to continue to allocate cash to purchase more shares? Is a dividend cut on the table and if you could answer if converting preferred to common is being discussed?

Donald J. Stebbins -- President and Chief Executive Officer

Yes. Let's first in terms of the share purchases. The shares that we acquired were not at our option. So now that we've crossed the 95% threshold, we do have an option to essentially squeeze out the remaining shareholders, but they also have the option to put those shares to us. So, the shares that we bought in August and 800 or so shares we purchased after those are shares that were put to us that's not part of the squeeze out process. And then in terms of capital allocation, we routinely discuss that at the board level. Certainly as we prepare our long-range plan and our budget for 2019, those topics will be for discussion at the board level -- at the board meeting in December.

Vahid Khorsand -- BWS Financial -- Analyst

Okay. But you're confident that between now and the end of the first quarter, you will have enough cash to get through that?

Donald J. Stebbins -- President and Chief Executive Officer

I'm absolutely confident. There's no question.

Vahid Khorsand -- BWS Financial -- Analyst

Okay. And then -- that was my final question so just the regional split on wheels.

Matti Masanovich -- Executive Vice President and Chief Financial Officer

To circle back on the regional split. So value-added sales for the globe or for Q3 is $179 million, $92 million North America and $87 million Europe. And units 4.7 million units on the globe, 2.6 million in North America and 2.1 million in Europe.

Vahid Khorsand -- BWS Financial -- Analyst

Thank you very much.

Donald J. Stebbins -- President and Chief Executive Officer

That's great. Thank you.

Operator

Thank you. Our next question comes from Michael Boam with Sona Asset Management.

Michael Boam -- Sona Asset Management -- Analyst

Hi. A few questions if I can. Firstly, the extra week in 2017, what was that worth to you in EBITDA?

Donald J. Stebbins -- President and Chief Executive Officer

I'm not -- I think we can tell you the number of wheels that we made, but a weekly EBITDA is not...

Matti Masanovich -- Executive Vice President and Chief Financial Officer

It's about 140,000 wheels.

Michael Boam -- Sona Asset Management -- Analyst

Okay. Secondly, you drew on your ABL during the quarter. Can you tell me how much was outstanding on that facility at the end of the quarter and how big the facility is, please?

Matti Masanovich -- Executive Vice President and Chief Financial Officer

Our facility is $160 million in North America and we've got a $30 million facility in Europe and we drew $19 million. EUR30 million facility in Europe.

Michael Boam -- Sona Asset Management -- Analyst

Is that included in your liquidity or not?

Matti Masanovich -- Executive Vice President and Chief Financial Officer

Yes.

Michael Boam -- Sona Asset Management -- Analyst

Okay. In terms of production schedule disruption coming back to the point in Europe, can you tell us kind of what you're seeing? Is Q4 going to be worse from a production standpoint than Q3 because the OEMs have come in -- are coming into the quarter with more inventory and need to take additional downtime?

Donald J. Stebbins -- President and Chief Executive Officer

No, our expectation is that Q4 will be up versus Q3 in terms of unit sales as well as value-added sales.

Michael Boam -- Sona Asset Management -- Analyst

And is the quarter so far tracking to that or not?

Donald J. Stebbins -- President and Chief Executive Officer

Yes, it is. Yes, it is tracking.

Michael Boam -- Sona Asset Management -- Analyst

Okay. Then going back to the question on the shares. You said you bought 97.8%. How much will the incremental 2.2% cost you if it's all put back to you at any given point in time?

Matti Masanovich -- Executive Vice President and Chief Financial Officer

$20 million.

Donald J. Stebbins -- President and Chief Executive Officer

$20 million.

Michael Boam -- Sona Asset Management -- Analyst

$20 million. And then can you share with us If you haven't already disclosed this, what your bank covenants if any are?

Matti Masanovich -- Executive Vice President and Chief Financial Officer

We have I guess a fairly covenant light facilities, but there is a covenant on. If we take 35% drawn on the revolver and then we have a 4.5 times LTM test at the end of any given quarter. And that's really the primary covenant, net debt to EBITDA.

Michael Boam -- Sona Asset Management -- Analyst

So, what I take from the call is Q4 -- you say Q4 is going to be better than Q3, 2019 should really be back on track with possible tailwinds from Chinese volume not entering the market and fewer launches. Is that fair or not?

Donald J. Stebbins -- President and Chief Executive Officer

I don't think in our -- as we look at 2019, we're counting on additional volumes from taking share from China. So, that would just be upside to our view.

Michael Boam -- Sona Asset Management -- Analyst

Okay. But you are expecting a better year, yes?

Donald J. Stebbins -- President and Chief Executive Officer

Absolutely.

Michael Boam -- Sona Asset Management -- Analyst

Okay. Thank you very much.

Operator

(Operator Instructions) Our next question comes from Olivier Monnoyeur with BNP.

Olivier Monnoyeur -- BNP Paribas -- Analyst

Hi. Thank you for taking my question. I have a few actually. I like to go back to the account receivable usage. You said the facility is $160 million in North America and at the moment the usage is $90 million. Is there any usage of the European one?

Matti Masanovich -- Executive Vice President and Chief Financial Officer

To what I -- there's a revolving credit facility for $160 million in North America and there's a EUR30 million revolving credit facility.

Olivier Monnoyeur -- BNP Paribas -- Analyst

No, sorry, the account receivables fixed securitization program?

Matti Masanovich -- Executive Vice President and Chief Financial Officer

Yes. So, we have approximately $70 million availability on that -- under that program and we had about $50 million drawn on that at the end of Q3.

Olivier Monnoyeur -- BNP Paribas -- Analyst

All right. Is there -- as you -- sorry?

Matti Masanovich -- Executive Vice President and Chief Financial Officer

I said we utilized about $50 million of that $70 million We do not include that $20 million in our availability or our liquidity calculations that we refer to really. The $185 million excludes that $20 million of availability.

Olivier Monnoyeur -- BNP Paribas -- Analyst

Understood. As you bring down the inventory level in the fourth quarter of the year, do you intend to reduce usage of that securitization program or will it just accrue to the cash level?

Matti Masanovich -- Executive Vice President and Chief Financial Officer

It's kind of strategic because we pay a different rate on it versus a borrowing on the revolver so -- and really just kind of depends on where we end the year. We do fully expect though to unwind inventory positions by the end of the year as is our normal seasonality and normal course.

Olivier Monnoyeur -- BNP Paribas -- Analyst

On the guidance on the cash flow from operation, is that before or after interest payments?

Matti Masanovich -- Executive Vice President and Chief Financial Officer

Yes, after. Interest payments are included.

Olivier Monnoyeur -- BNP Paribas -- Analyst

They are included so it's after payment.

Matti Masanovich -- Executive Vice President and Chief Financial Officer

Yes, after payments.

Olivier Monnoyeur -- BNP Paribas -- Analyst

Okay. And the last question. Can you give back the granularity around differences between North America and Europe as the shipment, net sales, and value-added goes? You haven't I think for the past two quarters.

Donald J. Stebbins -- President and Chief Executive Officer

Both. Yes, certainly we can put that in the appendix. Absolutely.

Olivier Monnoyeur -- BNP Paribas -- Analyst

Alright, excellent. Thank you.

Operator

Thank you. At this time, I am showing no further questions in the queue. I would now like to turn the call back over to Don Stebbins for closing remarks.

Donald J. Stebbins -- President and Chief Executive Officer

Thank you very much, everybody, and have a good day. Thank you.

Operator

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.

Duration: 36 minutes

Call participants:

Troy Ford -- Vice President of Treasury & Corporate Development

Donald J. Stebbins -- President and Chief Executive Officer

Matti Masanovich -- Executive Vice President and Chief Financial Officer

Chris Van Horn -- B. Riley FBR, Inc. -- Analyst

Gary Prestopino -- Barrington Research -- Analyst

Vahid Khorsand -- BWS Financial -- Analyst

Michael Boam -- Sona Asset Management -- Analyst

Olivier Monnoyeur -- BNP Paribas -- Analyst

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