Universal Stainless & Alloy Products (USAP) 25 Oct 232023 Q3 Earnings call transcript

Thank you for standing by, and welcome to the Universal Stainless & Alloy Products, Inc. third quarter 2023 Conference Call and Webcast. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, June Filingeri. Please go ahead.

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

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

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

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

us Good today. Thanks, for Thanks morning, June. everyone. joining

Our line expectations, performance met both third quarter and our short-term essentially top bottom line.

some record a Premium sales for grew alloy sales hit of putting highest record. on on $XX.X of track Total me the highlights. second XX% Let sales million were quarterly the XXXX. us sequentially

quarter. highest despite the headwinds. by commodity XX% the gross increased to Our sales, quarter second Operating margin expanded XXXX, of of second since XX.X% income the from

with sales last year. Inventories million managed high spending and backlog. XX% and Capital $XXX,XXX capital increased QX the $X.X diluted was of working $X projects to within were X.Xx budget. quarter $X.X than and share. the million, doubled up a major on As Adjusted or million sequentially growth at sales from income despite $X.XX and net was third greater XX% result, time remained per to EBITDA our reduced

on compared million liquidity debt $XX drivers XX were on September third million $XX.X Lastly, we quarter performance. main $XX million, $X.X There by while another to X reduced our of XX. to million improved to June

richer a mix mix, portfolio. alloy air-melted of aggressive sales management our and product mainly premium First, more

implemented XXXX. selling P&L We've benefit selling prices continue since move higher next will Second, XX several grow these quarters. increases base base as prices. The through late of to the we

Third, levels running especially we Vacuum-Arc monthly several Production production increased to as well-controlled Jackson setting before remelting cell our about fixed facility, Dunkirk and on overhead installed in XX% up my intermediate recall, with the ramp which in our of records, at COVID. last to we production operation spending. team is operations. Fourth, compliments you'll year just ahead strive bar manufacturing the North

efforts years Dunkirk in Fifth, plate our in focused bar round recent new bar also growing Our monthly record our finished shipping improve set beginning in [indiscernible] September. products pay products. to are yields plant finished also a to dividends, particularly and

our order backlog. at was Turning to before surcharges. remained of represented products $XXX entry Order book. Premium million up backlog strong the on aerospace and demand substantial XX% sequentially order

industry. as succession inside our out, in Board, President our Chris improvements Marketing President Officer. X. company and and and of new specialty joined He in Universal President as our he's leader well and XX-year Executive November knows trends sequential Zimmer additional to Our and is confidence Vice Officer Universal He Chief established and currently Vice as serves Sales effective also in and as its in strong plan, Operating as leadership veteran. a backlog a metals gives announce a demonstrated Chief update. us important of positive part operations that very Chris performance. One unanimously pleased I'm named continued Executive

sets and team, of issues my for in working company, release Executive stated have I our a normal confidence senior have to in be concert this leadership Chairman that leadership, I management note, transitioning longer-term a Chris' Universal future. On will the very Chairman exciting stage strategic on responsibilities. personal I the focusing with to morning, transition, smooth As the a

congratulations. the team and look I review as I'll new your forward you of over your to supporting to you it Chris, operations. So for you responsibilities. assume turn

management report. the work our an grow time, you, Thank me. to take and forward and I'm looking your to long-term Denny. my I'm appreciate grateful confidence in now the exciting leadership talented kind honored operating team words, our execute ongoing with and This role I'm and your deeply continuing for to this board's I profitably business. And to support. for our strategy is turning on

Let me XX%. start VAR our furnaces now by quarter capacity and X Jackson that with strategy. and full back controls VAR with begin in the adding of in operations are for better technology phase first Bar we're capacity alloys validation commissioning complete, point growth where be platform for increase critical The plant 'XX. our new used final bar into will better We're our North have premium capital project pinch the will technical production. Premium at Once integration to the for the XXXX project in XXXX. mainly the was alloy and a furnaces. us

They our up highlighted, Denny of at third working Production mills and third XXXX hot XX% of and shops, major sequentially. premium units, improve to increased remelt were XX% year-to-date. were levels they alloy from double quarter all the continued As the sales finishing quarter quarter. our second level

X% X-year has with end plant. announced already we reached as on labor X, our a second since continues of Bridgeville our quarter. at employment Company-wide, September hourly the improve agreement we employees stability to the new headcount the increased As our

closing in X $X.XX, Nickel down quarter years. in the another X% the third to at lowest Commodities. ratcheted level Turning

vehicle industry a strong in supply due just is are X nickel, which and up growing of outpacing the production, years. electric aerospace for Indonesian While to market demand source demand is XX%

Chinese the in pressure. additional weakness adding is Continued economy

October the noting to expected It's during scrap gain the fact, XX%. in In every of in which metal and year. the the in prime the sequentially is worth nearly that traction tracked market scrap, fell stabilized region rest declined including by quarter Pittsburgh

fourth misalignment saw to anticipated, we moderate. quarter misalignment a the we in QX As negative and surcharge in expect

is beginning turn with from end record largest Demand in a million, that They Airlines substantial of increase continue the market. up new more and the in a quarter third of $XX the of products of a meet in sales for place XX% period for same. increased new, The orders X% pre-pandemic and third quarter, drivers grow. traffic full and Aerospace customer to demand they recovery were robust the verge Let's to planes remain sales levels. million their as quarter Air remains XXXX. XXXX. third sales. markets, demand of demand. our $XXX.X recover fuel-efficient, our to of reached to or continues XXXX on back to to expand continues to the upgrade aerospace, XX% of Year-to-date the level fleets XX% aerospace same

Boeing order result, production Airbus the a end of to both at books hard and to As and levels. past increase decade, the continuing extend press are

by their of in to X with to the time XX quarter XXX quarter, and per increase 'XX has at with drilled were XX improperly. now won The plans deliver company's second XXXX and and of they for an third of was a planes. stability its the XXX XXX XX is the month. totaling laid production to increased progressing this holes Looking release funding and report, month the agreement by XXX per for airplanes for potential moving its program of new wide-bodies, the XXX XXXX since quarter Boeing total production X% reaffirmed the suppliers earnings plans month to third airplane XXX the the at capital plan and orders year, towards XXXX. of in of to through production schedule Airbus delivered their support of strong, X,XXX. out that in Last Airbus month planes. per a had September that to plans is Airbus surpassed the has estimated XXX for family in well XXX and Boeing's the end week, By September to XXX of current XXX and today. provided XXXX month tooling bulkhead XX XXX build In its XXX delivered expected with third needed to in thousands announced previously the and entered the was facilities Spirit X frame. the X,XXX aircraft rate their and transitioning it for rate December XX than deliveries. said achieve and for time continues end in 'XX MAX The per rate end inspect commercial activity Deliveries AXXX of backlog manufacturers, quarter planned Boeing at month production planes that in to first aggressive XXXX quarter, XXXs. rate were and increases. Boeing's the XXXX in rate XXX Boeing XXX calls per year per that to into production higher Airbus because frame. Meanwhile, in AXXXs month AXXXs planes that plan On was the X XX of to Dreamliners. Boeing XXXX. XXX MAXs lower backlog to fix an master recent per developments target MAX a including month increase XX reportedly rate to of the commercial

X.X count, year levels. October passenger Domestic XXX% reflected on in traffic last for of included ago, XX% has same August a data X.X with gains the August travel pre-COVID exceeded rose international date of demonstrating supporting XXXX screening August double-digit That levels. Global in XX% and the the XX% a period reported million XXXX -- versus also same on of that total XXXX daily is IATA in versus which month increase TSA reached X.X in back of year. traffic the XXXX. in month all million new Looking the ago XX at traffic markets from It's million now year-over-year. at demand aircraft, a

revenues. F-XX a traffic United international saw reported the resilient which Looking which record with spring. higher to fuel travel Airlines environment. next-generation spike airlines, industry market carriers defense quarter domestic focus quarter X airplanes. The Martin case and fuel-efficient begin is demand airlines at Lockheed XX% war into X% demand international quarter. the both been strong referenced Airlines major in along in Delta better-than-expected Israel. for and the and domestic third Needless area their of in jets, they to has backlog delivering remained attack tragic An by more the Hamas in results, is international focus Ukraine travel their for record and the the to given higher in newer, strong. American U.S. reported costs, year-on-year. sharp Airlines reinforces fourth expect domestic customers. demand say, continuing All said a higher third growth also of the attributed reported X all and the

Additionally, jets the $X has sale subject Department a XX billion to congressional of approval. greenlighted State F-XX Korea, South to

sales, We the the XXXX. we sales mainly with that last automotive our new sales pull is mode, and primes Metal of second the XX% airplane market of XXXX For from higher execute the the portfolio, equipment approvals. defense side our well market beyond. The period. that of said premium the to equipment Universal especially fabrication and continuing entry. Year-to-date order market of rose led remains demand quarter expected which continue remained and remain presence XX% third Stainless, year as and we stronger of substantial Overall, changeovers. sales applications, initiatives products our our winning in to strong alloy model business. and quarter have that of are expand solid the market third demand the to growing for More quarter the our a commercial opportunities the largest in case. our increase is level and million supply in our to $XX.X both third to of quarter, with sales million second expected $X.X and chain time we the in portfolio increased into approvals XXXX XX% was than from heavy are aerospace prior drives and heavy With to or engine in

we've noted However, be steel demand lumpy. also tool can plate

GM, third report estimated Stellantis an against the operations. to sales actions strong quarter and trucks the disruptive Ford automakers UAW sold in their million been the While X.X cars with have period, and prolonged strike

second sales, year. growth $X.X the our X% the have of caution, sales of softening quarter they in of rose is which the Once expect showing expect our from XX% with a largest to resolved, our from signs equipment in in third As years. The XX% we sales third of customers remained Year-to-date third the of to up and X% are are XXXX heavy $XX.X normal sequential market some last quarter million. quarter XXXX quarterly return the we sales up strikes fourth in XXXX quarter. million or of general market industrial result, throughout and as

are were Our time XXXX. reported beginning forecast general for in the that latest sixth of Semiconductor month lower million quarter consecutive that of manufacturing. XX% that of in continued with In period quarter sales third industrial improved August, and second the of decrease sales mainly or XX% report, semiconductor in 'XX. same oil sales XX% We the semiconductor their in of the market we on $X.X the million about remains a and to momentum the Industry track. Sales XXXX sales -- last this quarter half quarter the the to the $XX.X second months X% ramp optimism bullish in said up of from providing for for third the and the were year, come. totaled Year-to-date lower than gas in Association second XXXX,

As products. oil was sales said more production and aerospace XX%. Baker they the was out half count quarter of the higher-margin Halliburton was second quarter, in the market all expected XXXX. U.S. borne the of continue rig formerly with gas temporarily count third rig Last U.S. X%, That case rig the third Hughes, to data the Hughes' quarter, oil our to and softness in SLB, falling our decline count Baker decision shift in reflects while quarter gas down in second to that Schlumberger, our in land

of continue oil Let from me resume totaled than gas increase. Power from generation in fully is lower 'XX, XX% the of million XX% levels and emphasize to in intend $XXX,XXX or to second last our X% customers sales XX%. our shift quarter temporary. market that of away that our We sales were the market third year. quarter sales down $X.X and servicing down third as the quarter production Year-to-date

is and the the going market market forward. turbine applications. to case away gen and gas, do intend finishing from we in to capacity As power oil gas serve primarily temporarily have the aerospace shifted maintenance so We

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

Thank you, Chris. everyone. Good morning,

aerospace increasing reached sales XX the market end in quarter prices. and and million, highest past third in Our $XX.X our growth driven level by years, by the premium base products our

a a and than million to driven the is first in last pound XX% the year. totaled products. only totaled record our is first premium Our sales and second the sales our in this aerospace our increase year, second premium million, than product shipments, any increase $XX.X of these the $XX sales quarter which increase million, X calendar full reached volume highest of year to months ever, per X That which $XX.X premium price is months by than product more compares plus more of of average XX% $XX more million previous a level. Year-to-date, our of through in

XX.X% year-to-date million our of from high X.X% and almost in due and point with $X.X compared and back and each of QX. additional borrowing by QX richer costs, $X.X year QX holding a last of in compared the due price general its and is was million has in sales $X.X the misalignment sales increase but income increased our shipment expanded as level between quarters about in basis materials third with a the $X base quarter of increased margin Year-over-year, property margin mix increase with shipment also production. Selling, year. Operating insurance to offset quarter QX, in the The $X.X the this sequential XX.X% and XXX-plus for expense our QX gross higher of more of to employee-related this with this totaled Interest and $X.X better quarter since million million million expenses of average is a approximately costs surcharge plan, despite both costs result higher higher levels than down a an QX administrative volume, year. persistently costs, is prices, achieved in full XXXX. current year. SG&A points. line highest at partly higher an and quarter by Third totaled in our first XX.X% lower first million rates, second Consistent margin versus interest even

a a quarter taxes income tax development Our pretax net statutory income are or the resulted impact research quarter reflect increase release. of to third in for of of primarily last in press and $X.X of discrete and quarter, $X.X million $X.XX tables our significant. EBITDA share rate while million, for $X.X of income is was not continues The per period impacting million each XXXX. credits the quarter adjusted the million, EBITDA XX% earned. the since to diluted items reconciliation of and adjusted adjusted State tax rate effective with million highest compared federal outstanding, EBITDA XX.X% provided $X.X for presented was $X.X of the the the

the million from $X.X and our debt. year-to-date. to high cash inventory, robust in In third generated sales backlog. down the growing operations, our September pay the million have used generated that quarter, expenditures decreasing of of despite on $XX.X $X.X increase sales During and we we operations million on cash receivables total, while our cash the rest in current capital and from We our

Second expenditures quarter capital million. were $X.X

$XX year Jackson capacity our full X the going to new in with furnaces. million come $XX North commissioning Remelt Vacuum-Arc investment our and total we at half about in that CapEx to remelt are between where million, expect We of facility

increased the and quarter to in increase working XX%. million sequentially a nearly about as capital Revolver by financial $XX down Regarding of sales million despite $X XX. was million million Total $X.X September position to million as $XX debt of working last increased year. with a accounts of decreased this last compared our end compared million $X.X quarter. $X.X million to receivable. Managed capital annualized availability percent $XX.X Managed

strong, increased the both QX, at backlog days liquidity, continue Sales low versus in Our cycle have down to quarter in inventory and this paying earnings while our XX.X we end of similar. outstanding down expanding consecutive cycle the to modestly And X collection QX. In remains were our and ratio to XX.X we days debt continue delivered quarter XXs. was the collection back-end in but in quarters production increase underlying compared target was a of sales positive periods and levels. QX we to summary, our loaded

in We to momentum XXXX. That Denny. quarter And report. into I'll call back continue this expect my the concludes fourth to and hand financial the

Steve. Thanks,

but into So we results, growing at XXXX of quarter number That on are fourth based pleased optimism. on is third satisfied. a very were quarter being with optimism far and We're from looking things. we the the with

Our near-record products. million, which backlog of XX% premium contains high-margin $XXX

and Our finished lines. higher-margin evolving changed towards both products, product bar melted premium mix product more

increasing per in Our backlog are are providing each past will cost negative growing couple capture as in plan our Chris and productivity said, of the improvements and reduce reduction. to be opportunity will in experienced appear embedded variable levels equipment quarters. of to coverage terms yields. misalignment hour which fixed margin activity product base passing and of stabilizing, expansion Plant for generating add the continue benefits price cost better over higher to increases with increase month. Commodities directly to the Process

wrapping year. Vacuum-Arc had for much Remelt be capacity will and needed next up Our service early that is capital project ready

on of management with XXX is forward in along my for of commitment role. future new steady I the slow, confident the labor, and roughly leadership senior them talent employees, the team, seeing and fronts. Most importantly, a universal look inflation I'm to with working and the his improvement chain and success formula supply are Chris We powerful that

of remarks. tenure we're our and truly want to stockholders our our advice honor all Jonathan, an support, conclude formal employees and ready as CEO. that, Board, for we'll Universal's XX-year during Lastly, questions. my take President counsel has I a and and thank your it some pleasure. With to And been almost

question first Gibbs the KeyBanc. comes Phil Our Instructions] from [Operator of from line

Congrats Chris.

Thank it. you, Phil. I appreciate

know you teased for at margin the guys, Then surcharges I the misalignment. least some the million for and nickel gross of stainless flat out on of November piece, on think months. $X.X And the have -- the I declined roll

heading factored still easing down. that forecast this your into still that Is So expect misalignment? would you

so the the in to slowing, The Yes. that quarter. do did see it is not expect in but rate fourth we degree the actually we to third quarter, likely

on you within $XX spend the we And stay side, look investments half And XXXX, seemingly levels, roughly million about should the is CapEx then around have is that that the intact for the to out outlook CapEx number, And on the of into maintenance? as going docket? the that year? related that is to given still same assume also the we

Phil, Yes, that's correct.

So projects little About It of in the be number could come the the growth depending CapEx year less, Jackson. half wrapping could is to more, little number million. the a in around here. a current on up be it installing for bit VARs XXXX will North new right some timing related and that commissioning the $XX of

expansion is maintaining it projects for and aren't we expect of or as growth that going and type About or projects expansion. And your XXXX. part individually rest smaller to type large remelt for as levels half level. then that half quite about of in similar question second the historical strategic CapEx yes, CapEx XXXX, the So maintenance maintenance

side, on terms constraints things your of labor you increase of you the further Where your in are are easing of are prepared situation? to you mentioned remarks, this see. the there are expecting your then at point? or you out all you said in terms in some And And specific in you spot headcount that

expect those of goes back to better. a year that are productivity it's want probably we better type a the suspect Yes, workers more We're not were when to we customers quite quarter environment. is I We're conditions that us it's absolutely that ago heads. the we'll done getting Stability versus where add staffed, that We're exactly to. stability. a get where give shifting of quite few up going safe not And have improving. forward. we staffing core continue onboarding today, working but into we want every where get Phil, more to think we them more to by, I the we way and plants

So we their get as board on close level to we're that that these we improve to. customers to getting headcount. want productivity continue to really in roles, is I going come mature And to to to new think stabilize have continue as

just And maybe then of over good quarters. nice maintaining you you've base the of the for your inventory balance lastly, job couple year of you've inventory net next a and done last grown over have capital a volumes year as level the What's into the outlook specifically? that early working and

sales So Inventory, on product, to modestly to receivables premium on bit net future, improvement. is we mainly more in shift the inventory dollars, are continue going working to capital higher our which but some has manage may higher to mix the our to a related terms pressure the upward grow outlook. little trying

line flat to XXXX. focus be that. So And through possible to we keep as inventory we will dollars in looking continuing XXXX. step We're as on that terms improved we as

So goal. that's the

managed implicit So modest there sales working continued in our as capital, of improvement a line. certainly will a percent in but increase be

To on lot the Chris, you know I and sneak product worked the along development team. with in specifically. Chris side of rest more the a for commercial X

gotten Jackson little how that you a Maybe business new that's and of continue part more your the that heavily. would moving bit think about in comments As to you've North with evolution can reason here, that, you I and manufacturers, of engine build winning it that talk why forward? you're confidence jet regarding then gives what to kind investing relates

Yes.

strong that with One to has in the COVID, has working of back of snapped this out we that benefits been the demand North the as been Jackson focus it's primes XXXX. approvals their back towards purchased point resources good of coming that's is since as extremely as environment engineering we've been been

and come So started but door shipments. a really new in the X have now us these start to we been of booking a up alloys early for XX approvals months prime our the up to it's XX only of for these in. That's primary lot it's opened developed and products to our show of business backlog, in past the to lot starting drivers of on, the where it's

really that's primes on changer number this and is has risk in the their applications. to new been different chain, prime's the focus as been supplier, and willingness for a a So their supply bring mitigate of game us and

really into part Jackson, that's excited capital to in that's that and about the about, They of of moving going couple North to really to and potential So for Jackson when really projects of able think fulfill talk pinch being the North the VARs round some smaller the grow. forward. The the other I 'XX pave out realize we're and going points. we're to we way a us continue

assets those majority place. of already got the on So are still in of them. grow We capacity to a number

continue and really customers. to execute growth to serve smoothly ability focused that is towards So the our capital

against. that So I backlog what's rounding out got got what's and we've big heading thing year changed about this into really us say and primary year next the excited as would work is that's this to

that Jackson the out a potential And way engine much couple you generally the years? look to Any up That's my or last be to size business one. of speaking, how alloy of premium then would North of as the guys? revenue dedicated,

Yes.

I think talked million $XXX number million We've from at about has talked that that closer rich is that, I million $XXX solid expectation what to this to standpoint. continue to can for say historically, probably intact. would been when margin that The we've at talked premiums And that we look Jackson $XXX evolve. markets North back we point. a margins of in historical the incremental sales investment very about number about mean. remains

line the next Management. Capital from of Our comes LMK Instructions] Sales question [Operator Bob from

quantitative alloy of QX X XX%, products. what premium XX% being With revenue for towards QX? total revenue of dollars Just sort you're do have terms the of you in as the any premium the with and guidance question in backlog containing of planning us premium on in or percentage alloys a

Yes.

we continue because times, now have We lead of XX%. products to between we do XX% appears that expect backlog range shorter with that Right book with higher lead be times. to the number to a to

XX%, though we'll that and to the back forward. there products down contains richness XX% going that that So of shows that that coming, it to that's around number even the bring there's is a but promise continue backlog XX% the range us into 'XX should book

it. it. Got Got

in then say of did you it the million on prices And was quarter? Okay. -- with commodity misalignment $X.X the

that's Yes, correct.

much you again, QX? you if better Do commodity precision now, as be how might in you they prices are can stayed can to any offer -- -- where they look

few about but a in our there, half continual rough cut QX would of QX parts decline a what recur in surcharges. moving in would we in from are experienced There be

Fantastic. you expect make given be more of progress any premium able inventory in headwind bring against to down guess, alloy mix? more of the, the inventory having And sort do I it to to

So -- yes.

we terms focused higher on of mix volumetric with improve amount. a inventory we with That have quarters. comes continuing in So are because higher premium our to the alloys will coming dollar a

So it as that we to in will against we acknowledge. as possible. of But inventory provide you a XXXX, headwind a as flat and manage look want that out little there bit keep

the a So increase item. we're inventory big not planning on in dollar that driving line

the for skewed approvals other? talked into given defense, you've X And last them it. approvals or product Are on or Got been starting Yes. that Got question order flow while. it. way is, book about then working you the commercial the those a towards to

mix. healthy a There's

commercial to now both that applications, as the think for alloys into defense applications. commercial on airplane majority as a But manufacturers, go number up of and applications rotorcraft. military and believe I go we're visibility to, jets the they going through look show into example, a service into we're Rough and our volume towards metal we that is forgers. that our of to on it identify the engine our able can can because supplying applications. and be into, and when balance commercial But go qualified on towards of close sell fighter X/X will where going we and at of that is again, cut, we applications the sales challenging towards going believe XX% centers we flow the

Great performance. Congratulations.

to back program. hand does any [Operator And to Oates session question-and-answer I'd like further Mr. for Instructions] today's remarks. this the program conclude the of

joining Once Jonathan. morning. Thanks, thank again, us you this for

We and enjoy your on forward continue updating strategy day. be on a in fourth please that quarter. on good our meantime, Have the well stay XXXX. next the and progress our about safe. the call you execute look in January. We optimistic quarter holidays, In third We remain to to

you, participation and does gentlemen, This Thank program. the your for conference. ladies in today's conclude

You may disconnect. Good now day.