Unique Fabricating (UFABQ) 12 Aug 222022 Q2 Earnings call transcript

Good day, ladies and gentlemen, and welcome to your Unique Fabricating Second Quarter 2022 Earnings Call. All lines have been placed in a listen-only mode, and the floor will be open for your questions and comments, following the presentation.

As a reminder today's call is being recorded. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Jeff Stanlis. Sir, the floor is yours.

operator. you Thank welcome earnings to Unique second Fabricating We'd call. everyone XXXX conference quarter like to Hosting Doug Fabricating's, call Officer; the are and Chief President Brian Executive and Loftus, Unique Chief Officer. Cain, Financial Unique Fabricating's

that turn and Private remind that will Securities Act to include Litigation I would conference as uncertainties. statements XXXX on everyone the Doug, Reform matters to Before I are over defined risks like forward-looking this discussed subject to call call in of the

on required These the XXX(b), and Form annual Fabricating Risk Unique to company's but the discussed law. include, XX-K those does to risks afternoon's pursuant filed uncertainties are factors expectations the including limited those events certain on or known achievements to not future levels are management's subject future press on to to with expressed and financial uncertainties particular Forward-looking in other those involve uncertainties quarterly to by that statements performance results, those and are not report titled expressed in Factors. may XX-Q Form to present by results to such and implied and and this or intend section this today's on this performance in and based different from company's and and of as call. and risk or release by relate statements SEC Rule All materially of may activities, actual materially risks from unknown call unless be performance cause information factors report today statements. and All that outcomes are cause update that made differ actual are forward-looking statements such the

it in in be assumed make call. measures Management of stated, this core Doug will With said, company's basis. the decisions, to company's the be investors turn otherwise performance. non-GAAP strategic understanding Doug. is current are the ongoing useful discussed by Full certain the forecast believes should to prospects These I management are financial this operations it was of call earlier any will Unless non-GAAP that the addition, In financial results GAAP and to future evaluate today. release issued are assessing, financials call in that measures and that used and be included non-GAAP the non-GAAP to future. during press over for discussed measures yours. on the would a reconciliations call is like GAAP this to presentation

and outlook, creativity throughout locations commitment, and appreciation time I Jeff, of for and express of of each associates extraordinary from the you and In financial North would all of seven update these sense Thank like our good to times, appreciate everyone. Fabricating, Brian for the urgency in I my America. our your Unique today's investment company's afternoon, overall operations results. efforts,

We and our from face as issues. we chain head have on supply schedules providing demand ongoing challenges on remained focused continuing changing customers customer excellent rapidly service the to

remain improved the as we steps necessary are taken confident to resilient volumes drive and We performance that increase. have

impacts the reflect three significant results quarter from second items. Our

$XX.X recorded we charge First, goodwill a of non-cash impairment million.

a recognized the to million $X.X we Second, benefit employee retention credit. related

the the experienced costs of our that operating of million higher and quarter. but in facility we we in issues second labor result resolved end Georgia operating did Third, LaFayette, the equipment as that of $X.X related in quarter,

our level, costs are million SG&A the our below agreement related to the as the challenges continue to to well-positioned reduction While issues we to the seen bank demand supply costs rises. Despite benefits communicated. and the realize supply continue, syndicate, ongoing forbearance overall quarterly $X.X and chain customer we a with market we normalize chain previously have in

raw in schedules margins. and challenges labor had performance changing our our costs operational supply impacted cost negatively notice QX the and continued plant release by ongoing be increases flexing short and of the packaging complexities to also chain. The energy operating negative effectively addition, material, a the in to efficiency on In continuing impact

expect and the do chip and into continued see seen XXXX have other previously. through from of QX to QX challenges shortage outlined factors we While and

We also improvements first through QX. continue availability labor material raw see a as material, logistics to weeks and raw cost and flattening curve of packaging as of the in the well for five

increases. delivered comprehensive results Our during initiated offsetting some have recovery by of XXXX date positive cost QX activities to cost

latest success more having cost than approach more offsetting fully material continues. annualized will realized targeted The seen. August rationalization higher $XX the we million negatively are recovery by increases. inflationary benefit, in to Simultaneously costs our phase smaller continuing specific cost a with most We have our programs raw focused partially on be in project and pivot impacted cumulative logistics customer a

exited During XX QX, smaller we approximately relationships. customer

our of minimal order In minimum higher along addition, efficiency productivity we significant customers $XX Year-to-date passing smaller have approximately market. requirements condition, headwinds are customers. win continued our reducing transportation ongoing in with increases by we created the million our which revenue plants COI, more despite quantity to and forbearance new in ability restricts complexity, our from business and the by These other commercial actions secured improved price certain impact. larger for

for supply applications, to customers. vibration recently EV strategic noise NVH have one high-volume and with products We three been Tier nominated harshness

onshore China. consumer have from been shipped to seeking produced products customers and currently we by Additionally, approached multiple

above nine QX production. best years. American previously the since SAAR, XX.X North prolonged million longer-term sales from the a million providing continued and inventories performance sales approximate XXXX. or Our indicates million more compared both million from March an for XXXX outlook market be increase annual forecasted to less less shortfall of with the levels combined of nine of XXXX continued XX.X than month of million, pent-up from production million than levels sales pre-pandemic production low Resulting X.X an and XXXX and and to an The XX.X each each a raw US X throughout vehicle demand from at units July four QX forecasted The capability XX.X medical goods Independent million of of The historically than is America has million low through the production X.X new process XXXX. advantage inventory X.X inventory consumer XXXX customers. average shortfall low the volumes buying units XXXX hand and light representing Light-duty to than with North production last units more outlook. XXXX. adjusted XX.X% supporting last at rate material XX, months, additional for seasonally significant average did units the automotive to forecast are vehicle or approximately The in units to approximately as on positive lead XXXX units XXXX, XXXX the of XXXX quarterly units power, positive

half we $X.X EBITDA to and between million $XX from million With third-party the $XX between and and X.X million. causing forecast million level, customers for for are market $XX Based produced second utilizing our an level challenges prior to cloud we in forbearance to $XX agreement, reducing expect new this ongoing the XXXX, sales XXXX million revenue half operating the of million upon second million. would between net transportation the and be $X.X certain winning from units range business of guidance of

would increased by issues $XXX For to million longer-term of enabled continuing overall the the forecasting a through and $XX.X chain bank level, XX.X XXXX improve now sales Based we $XXX and $XXX million upon full we net supply EBITDA forecasting of a million. of to revenue COI agreement, year, million. with units, now forecasted million. between we're this levels sales and are between production level a With range between operating expect million range XXXX for $XXX $XX.X million an

and see to markets. chain term both and in our continue trends improving conditions term longer for near We similar supply positive demand other

see of decreases the also expectation costs with flattening, We the of chain QX part XXXX. supply latter in some

production appliance We specifically well forecast goods are experiencing in activity China and as increased and from markets mid-term near-term as traction. onshoring as an activities volumes, gained consumer both uptick in quoting appliance in

be tax Employee million ERC collected program, Credit related IRS the in have During as QX, from $X.X QX. received to initial the expected from benefit carrybacks. as recognized We the million Retention $X.X additional we million to still $X.X for the remaining well loss ERC the

provide working achieve and both in an to maintaining develop second execution cloud to efforts other a win to to of now revenue are with the plans of additional overview stakeholders, near times. impeding financial bank date, targets longer-term our enable the for and to term. results. lift we our the our and us XXXX longer quarter necessary, growth COI sufficient We framework continue will syndicate our that our these Brian, challenging has for To been operate liquidity

Thank you, Doug. everyone. afternoon Good

benefit XXXX. operating $XX.X the million a charge $XX was in to expenses. LaFayette expense to the the year in off-road non-cash general period XXXX the quarter profit for the the reflects XXXX, the to during of operating a sales second the previously The second last and gross net to for compared due for both higher decrease as for $X the profit XXXX, of North our second and and in mentioned, remaining passed was the the was attributable quarter labor market. recognized through second which quarter $XX.X gross expenses accounted at selling, or year. as where quarter reduction reduction and lower customers second recognized same Both demand $X.X increase manufacturing in our of $XX.X Selling, costs and cost of lower and second million million of sales, portion program to of Approximately the a of the Last recognized higher benefit million consumer quarter the amortization ERC higher attributable a facility, of activities, of increase a XX.X% operational for and loss vehicle the for benefit the sales the approximately amortized reduction including ago. period the increases down to quarter $X.X as $X.X million second in for the net in sales. expenses quarter XXXX. ERC second second last the increase same as the loss cost since and million, profit cost because to of XXXX. year. the of is XX% administrative Georgia result of sales Turning to to general XX%, material our was and million goodwill of XXXX. production primarily the for employee increased compared second quarter input by quarter were approximately a same the The of Doug of benefit as cost recognized of salary to pricing. transportation driven cost XXXX, The $X.X percentage XXXX. volumes same a XX.X% as the reduction expenses American compared general million million our to million for as impacted impairment sales and with million we net sales $X.X or of cost impact in or in recovery is intangible million administrative $X.X Operating $X.X offset efforts efficiencies of primarily of second Net became higher quarter X%, $XX XXXX were $X.X certain our assets of quarter $X.X earlier ERC to XXXX fully the appliance we was sales, retention quarter million $X.X market our quarter million customers X% of the to impact net of period light in of primarily products, of mentioned and as second in year the sales the compared administrative an SG&A in loss as credits from The compared recovery sales of the period XXXX compared efforts, our Of of million in cost recognized net second Gross million results. selling, by a our

$X.XX were compared decrease impairment per to of efficiencies charge, debt million $X remarks. for last Interest of provide operating We million $X.X and was net our revolving the ended closing which credit. was the our as cash of to of approximately a goodwill had or Total I'll XXXX, second $X.XX financial basic was the million our second compared of liquidity. share, quarter on million, is now million XX, to diluted million due in the back tax favorable rate the in of $X.X line on of compared $XX.X We quarter operating income mark-to-market $X.X per $X second offset which $XX.X on second an $X.X million XXXX. XXXX for $XX.X and or the the in an have the benefit, XXXX. million will to facility. an higher as of of you. quarter LaFayette million we and and XXXX. availability sales with by efforts, the basic The XXXX, to interest and to XX, year-over-year impact quarter share approximately of the Net higher second December XXXX, of diluted equivalents $X.X adjustments year. compared quarter and approximately and net income cash $X.X the million position loss second swap. for of of million provide ERC the volumes manufacturing Excluding Doug quarter primarily loss in update expense expense June now was Doug benefit of cost would had our costs partially quarter of reflective of recovery

Thank you, Brian.

remains from benefits now the enhancements team place. areas focused and on improvement Our in realizing continuous all in

in about and positive longer-term those we are outlook well as as each position mid-term markets. of our markets, for the demand targeted We maintain the within

for seeing Lafayette we profit vision With optimized With from QX. improved our of we our that the sustainable costs our that the facility call for delivering from open innovative, will and behind operating are and higher providing our Georgia growth us, committed in the customers. value of remain to solutions increasing questions. Operator? reduced and We profitable operational shareholder follows challenges demonstrably in volumes resulting brand

Leonard Please go we Schleicher And from Instructions] Taglich [Operator of go Brothers. our ahead. question to first

Your open. is line

Hi. questions. John, a of Doug. I Filling in have for couple so just

North do out there vehicle take regarding, you at we want that production the to might America value? that else indicate slower seeing -- should this faster are -- for those Are it you than way face I happening little a Just put things see projections anything or numbers?

I is, will the question. Hi okay? for how you that hope Leonard, take him it said … tell thank John we long And

okay. fine. is Yeah, sure, he No, is he

Okay, IHS important. bit the What to I the you volumes occur would have again, is come to a forecast That's lower. little tended drift say that production good. out after

fairly months. One consistent of the the points last had three is for forecast that the been IHS

-- the shortage We is been four which past something for in report those or before out and weekly we've also XX.X open really impact million bias whatsoever. slightly, put do that's there down the weeks and in half what saying track to the week but they're chip then million XX.X a have the higher about that what that, how unit Again has and week of In we and to somewhat impacting say a production second for there going no XXXX X.X transpires range. -- have that of will communications to but about revenue last number is for the and listen for puts in if they and up And see in you in works. the made million EBITDA kind we that to original volumes $X.X eventually still reduction the XXX,XXX no we're better OEs you all that about from year, information. went million indicating that, trying change are whatever production

Also an expand industrial were that a call conditions. made current industrial business last you've bit the that. you for Thanks market talk Great. of to that Could about automotive expand effort looking you progress your Okay. business? to any you light in little said in

Yeah.

comments year medical had areas are we've forbearance meet certain for made tracking side is on we us those impact have both refocused to substantial million we new the $XXX about and target this OE about of Again, that of I'll business, transportation in got agreement win -- we the our goods that. will to ability with our that's that several the efforts of appreciate I've in opportunities COI. I what that our enable that really and consumer and new say, some the have So of

reasons in work I'm to And issues the through of there. be booked commentary, get that the and outstanding may we or I focused. in them customers business noted So And we fact possible. today in to the seeing are as we've additional a several as that out as larger soon move quoting large can onshore of activity that desire business whatever potentially for process so our again well-documented some lot meeting with identified customers customers either and for are of had try the

may is they seeing by with say, as encouraged as who of production of us consolidate have our pretty or advantage business they we're that us. from moving be growth as an to to their having that's business our other own well largest I'll suppliers are we bringing because GE appliance, trying are, continue who they're things that footprint we other challenges So for

just we're continue of to a couple issues working larger through trying with there, transportation we focus our as the efforts our So OEs.

Thank great. Okay, you.

go next Melas go with And ahead. we MKH of line Please Instructions] Management. [Operator George to the

Thank and Brian. Hi you. Doug Hi

Hi afternoon. George. Good

afternoon. issues of occurred? us Good And some a there Maybe Is breakdown additional that? cost $X.X I of those million there. Lafayette, a little of bit can provide can of give you think sense the sort way a issues roughly a there put you a on way when at is you

was because kind two cost the say labor, we was related it's minutes having labor hour location broken than and the relative to in then into we minutes some were beaten the specific cost in normally higher path inefficiencies the million XX So and XX costs to $X.X issues it's machine north noted, were getting was Chattanooga seeing of expedite One which areas. cost about I up off the as the of one LaFayette Atlanta. higher and for would south of significant and then I scheduling place of quarter

all some the would of was had in had But had. it we and indicator $X.X excess of a the that end labor we the any use a change area of reasons, was on even of million the really million of So call metrics productivity for first us This make up the including performance leadership about plant into management that part $X.X seeing or with of through lack that I there. key something items March and variety in April. that not labor indication came based

decisions made with such as And had were that from of And over that some not were doing of in that tools done we've transportation and processes, market. very larger some required there. country that in best facilities. unfortunately two unintended location and happen all it's that in all hand volume as of does the consequences, maintenance, location the a and some of got the got intention our ships It can keeping quickly. not increased the fact, out happen That in place. does Again

ended we $X.X large into reason from into that and we've for other again, the lot management Mexico there impact very up of So expedite. a areas is million expediting the and that's to LaFayette change. done What made we've out doing of subsequent a on

plant We have reorganized the scheduling.

We've and And We've at Alcoa. the utilizing maintenance. were Hills utilizing some both we with because talent that where in that Mexico there I've from lean maintenance for improve the eliminated also other the made brought facility. have machinery I we've years basically, that also Mubea brought in put additional labor of two at we've of and productivity from and tooling ago a place in support investments expedites both excellent who that some some and the our gentleman engineering additional got required talent and have the our and years worked facilities, operations We backorders got supervision. in eliminated some Auburn

our made August, that systems happen something of tracking changes really It's this couple in. seeing ensure So in again. some as and other in today, we're warning We've a that no early there. excess to focus to metrics does on not labor costs we're expedites we're also disappointed no are

excess that our to that been LaFayette moved of certain we with had some and actually collaboratively OE moved some work the into did is years and excellent longer-term made of actually also where sense, customer. the operations closer have customers more actually Mexico capacity, into sourced back production We it

the and for So us. it's a win-win for customer

$XX of Great. there. the Thank overview appliances, any breakdown a then by to maybe much transportation for is little sort million you and And consumer? bit there very of way provide on a COI

Of course, there is.

there in the having appliance and are of opportunities year-to-date that's because there – that million need all have for need they which diligently and on the the that capitalize that that the be working very us mentioned quality, so COI straightened million in to chain, got about banking I'll we have the XX I in reason a customers million; couple with the of it in identified, goods situation have me, we the $X that year. COI the capability did as today $XX the appliance. we the commercial of footprint forbearance and we million. even and do total in this to in the in had I it's can business split situation intentionally my about is the a before, XX%, that mentioned, and it go be $XXX year, to I XX% the quotation. and up It's million; agreement more get with to would opportunity of focused we're supply remaining back we've So revised apply in our a also given consumer, opportunities say. our our transportation of basically as the a medical in situation consumer script remainder over is there another want we're especially teams month. is actually transportation. discussions if the because COI to $X challenges opens the our aiming And OE target are I And behind us because some us, are two other others have there. targets, us and larger again $XX next in the normal medical they and probability this have are split space When condition to, larger customers the our for do out medical

year you $XXX meet enough And guidance feel if a that's Okay. million have of to XXXX? your the like for for you COI

Yes exactly.

of If you take together predicated you [ph] million put we I $XXX revenue that is banking confident then that number that the then XXX and we will and for numbers targeting number – confident Again supports foundation the was that that's provided occur I provided are that the are those there as I of enough that's things in of million XXXX. that midst all reason statement guidance situation XXXX, and front the about COVID $XXX but $XXX first a COI million before of COI. being the up, up had we ended us. occurring for to of in of the in in in in forbearance had even of XXXX we we all forbearance, what XXXX historic, back agreement to in we Again ended make quarter we have going way all

that there's some can last reason XX us over that that believe our I are be business lack certainly achievable. gave fact And because numbers not to I'll no of getting months So were those for the exceeded. of say something in

both to cost cost and you dollar a cost sales. or your and of of any question Okay. down on it's – was absolute And of The kind raw of that big increased sales, XX%, basis. that then way maybe an one chunk is think final see common model? your on coming that back XX% there of in or has a material of maybe change the the just Is sales do you like

that good also appreciate. or the and the questions, You always ask I'll probing questions one

historically, back QX went of XXXX. part and as cost adjustment. XXXX, The XX% I'm material we made, made That or I and made if you had different in XXXX the after only maybe required as I XXXX, were XX, going the XX.X% in that was something was results. started September back adjustments when about So, the to really

baseline So, little than or that's a lower it George. of time kind XX% some the XX% rather than a maybe was earlier, bit that,

of don't Then it but XX% if I you wasn't being comment the baseline. want this So, take looking at at. a looking to we're we're inflation that that kind as

it So going fully We surcharges talk and little about We've beginning we saw are $XX will rates a that recovery fuel based again, again $XX which efforts over upon but have raw some now in more latest August. logistics about we're include the the recovery stuff cost I'm bit when raw else run to the with see QX, we'll and the see fully on in our got in and August. tracking of material cost Unfortunately, million today. we talk in as costs, July, only material, noted we that going everything exceed million. that

XXX%, because that's don't our really allow you our while recover you customers we much we So, recognizing that have anything a give up bit have there. done best to as to little indexed. recover as that we There's again can don't

you levels actually The tends we're is is million cost right This revenue about material cost second cost and your and higher. your and say, to to X%. material both, thing million revenue at that X.X% the higher is your inflate inflate cost $XX of then your sales, when now your your okay, running $XX

it way, including that other measure when some done So number. other we activities made at look reduction large we've utilization, that changes in material have offset that that our cost we've

were So, bit same if is tracking we using our material in what cost. are a little over going XX% everything to the internal forecasting stay

mention I caveat in material. script that curve we that with are did raw the bending the of say being, Okay. what I seeing a that a the little on bit

to will see got the we've this couple all things. inflation cost different see on customers for view a our these it today. should than, call, with the seen down is And view a bending and XXXX. but as the any difficult nominal So saying call my QX and -- people into and I right know of And to cost likely sticky everybody as increase. on we cost and suppliers now, and very some. cost I other get and reductions as of was of Price quantify Index further as the I going I've increases. few That Producer recognizing what's it if without XXXX on that cannot pays was rates more decreases attention some curve that in it us

have you've curve, you if base raise trying inflationary of increases. got the it, with right? give to get we been environment you're So ahead prices behind is customers, can't If continuing and always your really your supply to an

point prices will when It the So we've with costs out for back time falling. to of some period give and hopefully, decrease. be kind now material in where sticky for any the at logistics leveled of even time prices us raw some we are

So, the second believe thing our material us be is we will and improve the an have now margin. plants. installed that for And then opportunity in we do to

couple make we're more continuing These We made to planning are utilization we other install. installed. our looking a have not but we've to or got investments we've that our material lasers We've also utilization. three to the further improve labor productivity material a And are that great some improve, that got either of that deal. only in robotics at our

to XX%, inflation. number, some would back would But say, let's target the to I not getting with even to be that I'm of sure case. our XX% a that see back So, the to get be

Okay, great.

Okay super Thanks for That was clarification. Thank guys. you the useful.

welcome. You’re

closing no remarks. We to We questions. further Doug Cain turn have for

all improvements always, Brian months. micro and got you. questions and very in topics have our in dialed them, to from stakeholders, the call. as the about ourselves the talking on very support on dedicated the both work the each to in I appreciate those passionately time encouraged appreciate including We make some circumstances, that participate there, all available here in you positive anybody any environment. the future. and Thank we've trying Once the the look in of all Again, that of for one in to three all our employees to and to of again, and And every we with macro worked and who forward answer and and speak I out investment of are are diligently we'll of remain who to any about

teleconference. for your today's thank you We concludes participation. This

disconnect a at may your great You day. time. lines this Have