Earnings call transcript Q2 2023

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Operator

Good day, and thank you for standing by. Welcome to the Universal Stainless & Alloy Products Second Quarter 2023 Conference Call and Webcast. [Operator Instructions]. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to June Filingeri. ahead. go Please

June Filingeri

morning. I'd Good Universal June of Filingeri call Thank like This to and also webcast. the welcome Comm-Partners, and you. is you Stainless to

and results the We John to Oates, Arminas, Financial Operating General Executive Chairman, Chief Executive and from company's Vice reported Chief Denny this Counsel; and Vice DiTommaso, Chris second management are President are morning. discuss Vice and Officer; quarter Officer; here President, President us With Chief President XXXX Officer. Steve Zimmer, and

Before under described the Private XXXX. quickly company's over in remarks, management, press review morning's the risks questions. the Reform questions. Act -- statements to Exchange procedures. Commission. like take your remind which please forward-looking formal statements, in the take filings fully these with Norma The Also, Litigation will this the I call, made sorry are you note of call to management turn will Securities more in let today's about related conference operator of will After me management Securities we would and I that, and your has make release to that

we complete, to like call now I Denny formalities to ready to the Oates. turn the With would Denny, are begin. over

Denny Oates

surcharge the drop gross More $X.X Thanks despite resulted sales in momentum you. thank call. second of of reached Good profitability, we across-the-board joining negative June, last our Okay, The margin prices described our specifically, morning, for positive commodity highlight improving that XX.X% today. product million. an about a of everyone. on in main us quarter profit is metal of misalignment performance

with base to and were the productivity operating shipment or XX.X%. year-over-year, quarter key The $XXX,XXX First more operations, production, diluted to million. corner second both line improved turned recent quarter increased most per prices. of the income We than profitability bottom led at doubling on higher gross margin sequentially improvement selling volume, reaching quarter drivers higher The net a $X.XX share. was in main profitability and income of $X.X margin

We and second EBITDA price increased from quarter almost the in of highest announced last the since second XXXX the Adjusted in $X products. second and on million bar two XX% achieved of quarter increases was quarter. additional quarter the plate

Looking $XXX remained million, at over second net our increase line, year-over-year. the last and to at highest X% sales million, level $XX up of increase top sequentially quarter an Year an XX% strong sales year. of That's reached the date since XXXX. of XX%

million, is The of up the were second sales. $XX.X quarter quarter $XX.X which sales date premium than XX% than or million XX% to XX% higher record Year of first lower quarter, of included sales sales but alloy second premium alloy XXXX. to XX% the

expect of second year. above levels product We during the the QX's premium half to record sales be

of X% for accelerating are an year-over-year a up million sales alloy growth the with in In record sales quarter, to Aerospace modest sales premium pointed XX% year. half Our up $XX XX% the in second the the increased to the and applications. call, aerospace during in we second second last improvement expected year-to-date. quarter,

including our sales, quarter with Second were premium line in plans. alloys,

somewhat final the our for It's two strength surcharges. for our demand continued outlook of the positive alloys, on products, based Our year the remains premium unchanged. in tempered declining seasonality quarters especially and by

million actually XX backlog X% work over remained The entry. at months control our with as from the robust but XX to QX's surcharges $XXX orders total scheduled customers before million, we to record March increased XX. backlog next compared order $XX to June high of fell ship order

to about our represent continue backlog. Premium We to lead extended of to reduce times. diligently continue work XX% alloys

$XXX $XX the Inventory by total turns, during remained the work with million, XXXX. capital at million quarter. million Revolver partially an DSO higher down position, Turning debt the to adequate volumes was $X.X at our representing are of offset was grades unchanged end Receivables by XX about million increased XX% sales. availability of Managed X.X% process. improved shape $XX.X financial $X.X reduced to good premium to sequentially, from working year-end XX falling in second in of and $XXX reflecting modest quarter to at million, a million.

Second quarter $X.X $X.X year-to-date million, total were capital to expenditures million. the bringing

where full expenditures quarter in half about million, expect integration for remelt underway, We North investment capacity is Jackson of with adding full XXXX. of in capital Vacuum-Arc at beginning operations equipment installation two Remelt of our and that first the are working furnaces. amount facility, year towards $XX we of are our The about we

and portfolio is more objective premium our advanced, our higher-margin to with Our also, to structure, capabilities, our cost prospects. expand technologically product growth products enhance our

our Zimmer, to Chris as Director. Rick President deepen reports Purchasing. of named a Chief continued directly the team the of in as Officer. We Operating He XX-year with naming Chain Vice second most Universal's our recently management Chain quarter Supply served to and is veteran Supply Rick of recently Secola Universal and

Two We today our over Schneider announced we filing years. replaces who been has record Downs, auditor, following second Tilly auditor Baker effective new Baker engaged XX of as of that Tilly our additional the updates. our for separately have quarter XX-Q.

to services Tilly. forward We of we of firm and quality has with Schneider have look Baker audit with Downs that been professional pleased working the caliber an the of provided,

agreement Additionally, the expires our new we agreement on August representing five-year our The with negotiations facility. employees in current labor are with XX. the at currently Bridgeville union hourly

review call turn your the of I'll for Chris, operations. you to over

Chris Zimmer

are platform and I'll start morning, growth operations, our critical Thank everyone. you, strategy. Denny, alloys vacuum our premium with for in which melting good induction the

our in of we premium record the shipment of half were to year-to-date first quarter due second results remain are XXXX, XX% lower sales timing, for track XXXX. and sequentially than sales a higher the in While on alloy year

our quarter, production stabilizing increases workforce, record and the challenges second melting able sales achieved we growing half our year. induction expect were Despite for increase supports production additional third Operationally, planned during total productivity in alloy quarter. second vacuum rapidly this sequentially premium to we the which continued the of our

march levels mills, to back shops, major and our Production production continue at levels. improved we pre-COVID units remelt all our sequentially hot-working finishing as

most of longstanding named pleased proud recognition. Group is again a As and to team to This very the our the of receive list was Performance of of customer know, for report Rolls-Royce XXXX. I'm short Rolls-Royce ours, and Supplier great are a has to that High that has done been job Universal we this suppliers, you

from declining decline nickel followed commodities, reasons The X% quarter-over-quarter suit track the slide we second $X to misalignment and into every Other weaker nearly Turning European trade year-over-year. pound sequentially concerns down and data U.S. metals on are to in demand, we and the dollar. range. third monetary effect policy about metal U.S. further the quarter expect quarter. mainly per and low China, for the surcharge the continued in weak for the negative Overall, tightening with manufacturing the

to same saw million sales million quarter and aerospace, in of period a market. XX% X% the sales quarter increase sales XX% of from We largest with or the of XX% $XX.X second And compared XXXX, sales XX% growth the which in turn XXXX. increased markets, beginning to our an in record the increased our in Let's additional $XX second aerospace $XX.X from of $X to end quarter XXXX. million, totaled year-to-date, of sales XXXX. of first million Aerospace

up. it has Boeing to and build Show Consumer the more demand Air up. Carriers month, memory. momentum The in the their and last over pace gain fleets second planes, We for are Airbus aerospace in was and The quarter. continued fuel-efficient Paris are most drivers positive ramping is deliveries of commercial of of the at turning increased. rates shows attended one demand

manufacturers, airplane a delivered were XXX-plane planes, the end the the over the better-than-expected June, At order Boeing planes X,XXX in XX at quarter in at second net Looking Boeing's from orders Air including deliveries at Boeing's stood of quarter with in backlog a second XXX XXX June. India. strong planes.

the strong and build morning. backlog plans MAX XXXX timeframe. in about XXXX rate deliveries, monthly in from QX to XX on We XXX more plans increasing their should increase the and continued to XX Boeing's the of this current call Boeing to the XX learn rate reach is With

year-to-date aircraft totaled the IndiGo, gross in largest purchase of single history this at in month, Earlier agreement order France, build biggest airline. a XXX. the XX, commercial part AXXXneo per for opened reach its in current planes XXXX firm record June set XX to rate Airbus order aviation. to That family At Airbus, the Southwest of is June deliveries record from of including deliveries build a Airbus the efforts XX the India's for family month. bringing AXXX amid a on assembly AXXX demand. The XXX line planes, by orders had of for new XXX rate

levels. traffic now TSA is XX%, million XX% May versus XX in and Meanwhile, May XXX,XXX strong rose May all million volume the in that month XXXX IATA impressive global Total from it jumped exceeded May the date Domestic making added traffic that versus in their and with second has U.S., pre-pandemic on fallen markets recorded traffic May of In for X.X XX% growth. news in XXXX more traffic report. levels. of to good XXXX. X.X it of recording had million in row XX% of international passenger the on XXXX, pre-pandemic XXXX. X.X Volume increased air at in a May

high second Airlines quarter. and revenue which That and Delta demand domestic American and healthy record in in profits the results also performance record same to Airlines into quarter. activity the level through reported of company continue demand quarter. the at expects Airlines, The robust translated reported international record United the

forward for Valor, with driven customer backlog second Blackhawk. in go-ahead read In eventually billion Textron a conflicts market helicopter reported U.S. the the be example, demand continues V-XXX XX Lockheed Army's the $X.X replace daily. received Defense we future contract of the that our by for tilt Sikorsky Bell the its fighters. Martin, Pentagon global attack to rotorcraft, F-XX manufacturing record quarter, to including which end the rotor from aircraft, will about move the

a and Chinook The is record supply is are overcome Russia's which defense mills. and In hand shortages orders to in rates. helicopters challenge for for continue through a part deals, continued XX mode. have Universal's the of describe will demand as meet is their products, The enormous invasion following and to Ukraine. waiting fully both from mouth for customers policy beyond. the challenge of to material build in other for a from of shift expected backlog is XXXX Customers chain increase commercial our purchase Boeing. The They a Germany purchase inventories pull manufacturers to to parallel aerospace

sales the with second equipment XX% quarter of pickup from drives for Metal largest saw market sales first automotive sales, of XX% 'XX, of mainly product. replenish market XXXX. especially million as sales of second up continue up quarter changeovers. in heavy the demand strong second the in from the The sales $X.X we the fabrication in of market quarter remained 'XX in customers our plate equipment our first or The second continued applications, of model quarter XX% and to inventories heavy

While demand sales our remain heavy market in be quarter. solid the third in can lumpy, that the to market we equipment expect to

became industrial but down in third 'XX, The of with our quarter $X.X market which X% sales, market X% the XXXX. million of general 'XX, from from of the or quarter is second largest up sales XX% second of the quarter of first

of the general for semiconductor second market XXXX are Based half the with year. Our beginning sales on bullish in ramp-up are mainly industrial outlook, manufacturing. about we this

million North X% gas of to Schlumberger negatively Baker Demand U.S. was impacted Hughes, and the quarter counts. gas or in in in indicated activity the quarter in market and second the $X.X the muted of are the including fourth land oil in sales with second America, sales as of by and market of half $X.X XXXX oil moved market XXXX. place down first in all continue to softness the market quarter second versus the XXXX. softness in expecting million lower of Halliburton, in in rig drilling The U.S.

and to prospects are market. respond the for higher-margin oil aerospace of are capacity we better segment products demand the While to more that enormous positive, our our long-term gas in to shifting temporarily

X% second in from first or quarter million $X.X generation in of sales sales 'XX, million market Power increase $X.X a XX% the of totaled quarter. the

positioned reliant in ongoing Our following power domestic remain any to is We summer maintenance additional investment industrial generation opportunities of and electricity upon unusually sales from program-specific, hot benefit gas this maintenance gas new turbines heavily any turbines. for generation.

to call on report let the for turn our over Now financials. his me Steve

Steve DiTommaso

you, morning, Good Thank Chris. everyone.

or XX%, total more our second increased nearly $XX prior are $X lower than year, higher our we driven grew about premium surcharges. Compared by by $X quarter, with and sales while or the of base This the more pricing X%, up net topline product more the mix quarter volume million premium and sales million shipment despite million. than sequentially of falling by product the

Consistent $X.X million plan, margin gross and Our higher our gross cost second of is percentage the XX.X% cost quarterly of volume, as metal margin absorption, advance highest margin of year, current sales, quarter quarter, falling the through overcame the totaled a or result XXXX. component this between from impact with improved our strong base expansion since our the prices, of more shipment and negative And sales price production commodity these volume. misalignment surcharge and the total materials prices. benefits we in

costs in million the $X.X the quarter second to compared $X.X first totaled last QX Selling, $X.X general million million in and and in year. of administrative quarter

higher costs. property sales when to costs last a $X.X increase year, higher by is and million the compared lower employee-related driven insurance Although of as percent

margin, which better operating gross the was quarter $X.X posted loss doubled the than earned higher than quarter first the of second last we $X.X of result more of a in the million million, year. income and As

high our debt interest overall revolver at net variable and of million rates a $X we by paid by continued to However, prior $X the position through expense reducing down part to as million interest paying flat remained quarter. the QX. million, was $X our Despite rise compared to years, approximately

QX The and throughout was and of the with of rate debt last was above X.X%, currently agreement. our QX to first our on SOFR of compares in time terms X.X% around Accordingly, X% for in credit SOFR term our under this rate fluctuates and the X.X% QX Term year. the average quarter X.X% at hovering which is majority year. just X.X% borrowing last about

discrete to $XXX,XXX, We tax tax beneficial effective Consistent are recorded during discussion our significant. rate of $X federal of in annual than of posted prior on pretax impact million a income rate over the income of and Other for and an of items estimated just the and rate calls, resulting statutory taxes due provision development the XX.X% effective credits. quarter less research with our the is for XX% items not quarter.

the net Our income $XXX,XXX. quarter for was about

well, reported year-to-date our a Our and net QX The were brought increased to performance totaling outstanding into earnings diluted diluted us per $XXX,XXX share. shares QX share million income $X.XX. or about in per diluted $X.X $X.XX as position

second release. the The adjusted add-back which level reconciliation quarter EBITDA EBITDA the $X.X million, last tables share highest million quarter million, was totaled $X.X noncash within since XXXX, $X.X is of of and an for better than period expense. for adjusted while the the presented EBITDA in compensation press including each is provided

line we accounts generated cash to in we DSO capital total, In modestly million executed receivable cash During resulted the inventory, in which primarily second million, we $X.X vacuum with two despite second the induction quarter, delivering production inventory. generated down $XX.X we during record from operations from XXXX million managed drove $X.X XX, melt campaigns our from a our of and quarter. of working accounts as investing payable grew

on used was to of QX down expenditures our debt. used and flow capital $X.X $X.X We during million million free of cash pay cash

Additionally, available this our fourth XXXX expiration revolving at facility our credit compared through under additional of collateral access temporary and that March provided throughout to agreement despite about XX third amendment our $XX March flat borrowings to XX the credit million, year. and inventory of quarter of value the quarter remained

of operations provides cash expectation ongoing the and coupled our flow, position, positive future. liquidity for liquidity sufficient foreseeable for This our with quarterly opportunity operating market

my report, call to I'll concludes the and This back hand Denny.

Denny Oates

Steve. Thanks, Okay.

and the expansion. to to Total We share. $X improved income capital XX% improvements, second the X%. cash reached increased bottom negative turned product Adjusted despite lower me on misalignment margins yield by flow per forward profitability line $X.XX surcharge selling production, contributed or with net higher corner of strengthening productivity XX.X% board. margin premium Higher all We $X the approaching was metrics reduced debt million moved Gross profitability and prices the and shipping increased Working across summarize. in sales. million. volume, and Let quarter. our in sales EBITDA

and Second million, Sales reaching growing strong million. year-to-date, higher XX% expectations. X% up our year-over-year were consistent $XX with and XX% quarter remained sales sequentially, $XXX at plan

timing. Premium our sales due for XX% levels. down year-over-year, were remains but products alloy XX% Demand shipment premium record to sequentially at up

contains XX% commercial in the commercial aerospace, backlog, does alloy demand surge. continues So, market, which in product our premium over as to aerospace

on at and Our quarter Jackson it major capital first have the we remains project track, North working are to operational of in XXXX.

Secola, President, Universal, continued Chain, with develop quarter as of a appointment the XX-year Rick to recent the We our Vice organization Purchasing. Supply and veteran during with

Our second mix by further and further prices, yield coupled fueled normal shipments, margins, base somewhat these increased product topline flow, We premium declining and solid trends, profit increasing debt for with gross a improving expect half outlook sales sequential cash positive seasonality. tempered to reduction. improved growth, and backlog, is of by surcharges quarterly production

employees recognizing work hard me exceptionally years. several board, the our gratitude, over team have our of Let conclude last our by my salaried and quarter our for customers, talented and as dedication hourly sincere during do and They stockholders. and the their

formal That our callers. concludes let's questions some Norma, remarks. from our take

Operator

Instructions]. [Operator

Our first question the of Capital line with Markets. Phil KeyBanc from Gibbs comes

line Your now is open.

Phil Gibbs

Hi, good morning.

to mentioned a couch And have solid percentage Any in a or second all pretty how that about dollar despite as the gross You basis? the quarter? anyways. then same surcharge been having misalignment either way quarter thing may you're maybe to on what the it thinking margins relates third

Denny Oates

At the declining surcharges be so as well. same versus seen second. in the should material be third during quarter our down drifting to commodities know are we've time, quarter, the going second we Well, the lower costs

same the saw a the Phil, misalignment the as quarter, negative, in on would amount quarter sequential be best about be be would it second together estimate, comes that in would basis. our As and third we

Phil Gibbs

basis what less? points QX? than XXX worse experienced And or was or any more already roughly, you really that in Not

Steve DiTommaso

About $XXX,XXX.

Denny Oates

-- asking? be would the XX over that million what is $XXX you're

Phil Gibbs

Yes.

Denny Oates

Yes.

Phil Gibbs

Okay, the amounts so of as third saying? now similar what you're right quarter in is

Denny Oates

Right.

Phil Gibbs

general housekeeping, rate of the just for update you what have the in had the the terms half? modeling tax just for be we then you amount What's And some right color on also, book And the liquidity then should that now? given items. of back

Steve DiTommaso

Yes. CapEx flat not that Right we in we Probably quarters. QX, forecasting the still QX, $XX paydown as third debt the and though basically and of down growing level. incremental million half now, through quarter, end so second the liquidity quarters margins step pay the we are will year, we well. level but of debt improving the in begin of same second to even fourth in And increase with expect expand the sales, at to the and and fourth at we're to our third as

Phil Gibbs

that. we $XX then on back low XX%? expect XX%, Should to unique, the normal, And half kind more rate million of was somewhat first of now be perhaps half. tax too as maybe in the

Steve DiTommaso

Yes, half that's on right. More normalized tax the rate. back

Phil Gibbs

pricing, your I as to Okay. mix with then quarters How than like it's overcome outcome. to you richer a have improve? and a your And piece pricing just you're misalignment do terms and continuing this of it over in seems of know backlog more that sort visibility many Because relates from dynamic going that mix perspective. that to or timing turning

Steve DiTommaso

price, the a look little lot Well, will improvement prices do be cloudier quarter will front. surcharge base price the XXXX components each drift and in quarters, what down, our surcharges of the it quarters. We booked third bar the see those gets that the sequential of the but or remains It products largely two in known. to like. quarter products four next and of over are fourth the seen on one aerospace are for our we will A base selling know

keep manage to inventories to changes. with to We turn our continue those up tightly, our inventories

not with impact a is in wild spike the is expectation component significant should it commodities. there that track either margins. Our on have direction, again, sales surcharge And a unless will

Phil Gibbs

point And time, of at it? have finding the direct lot Because then and of the couple at lastly, would historically really forgers seen gaining in level that relates anything the of the I has you. hoped obviously, Thanks. as footing wins Is say you strongly kind a to it finally just are have so OEM been the maybe your that. to Thank of maybe some its years you complex and that relative share this to VIM a customers? know, and high with idea ago you a transactional, VAR behind could business

Steve DiTommaso

The benefits picking now product We're Yes, and enjoying that where up We're the in from. lot we've approvals throughout new gained the that's applications coming of into in these some not the right. VIM the of for but new market development were is we backlog before the stronger, some a of is share. years. That's growth products. with that new customers, are we the sure,

of more show. conversations, continue have things coming the out really some and We good to more air

this the one any the upon beyond year move I success build to strong expect won't additional VIM why momentum market. big riding 'XX. see we story is we're of don't and the as us share of continue to this That successes the sales into reason through I having gains largely a is continue the back here that 'XX are coming of parts

Phil Gibbs

kind to portfolio? is mix And is the is North complex, it than same? richer about Or broader that, just from Jackson the the a that sub-question standpoint a of

Steve DiTommaso

aerospace to as Bridgeville Titusville at look well, are is and Jackson, bigger does. three where plate. Jackson also we Dunkirk things they North part North The all plant But It's to North our Dunkirk. plant semi-finished products in is put the plant tool of Bridgeville plant our Bridgeville a driven. our like generally plant the richer. have and products input the very what The The That's aerospace-focused the industrial market, I are that market. primary Jackson up largely plants, plant steel and feeder of general into much the those in stock Dunkirk, as

Phil Gibbs

Thank you.

Operator

currently to for no back Oates to this remarks. time. conference questions closing I'm Mr. Instructions]. further at like I'd the showing [Operator hand

Denny Oates

remainder well remain year with optimistic and into our to again, prospects next meantime, us morning. progress We which moved Once call, you the XXXX. October. for our the our In on this of joining thanks, everyone, forward the and strategy forward for second in summer. Norma. you. about quarter. you, updating and growth of Thank in We Thank this safe. will look enjoy rest well, stay be on Be XXXX our the We the

Operator

concludes conference Thank your call. today's participation. This for you

may disconnect. day. wonderful You have a now Everyone,

Universal Stainless & Alloy Products (USAP) 26 Jul 232023 Q2 Earnings call transcript