Q4 2019 Earnings Call
Greetings and welcome to the unique fabricating fourth quarter and year end 2019 earnings conference call. At this time, all participants are gonna listen only mode. A question answer session will follow the formal presentation. If anyone's require operator assistance during the conference. Please press star zero on your telephone keypad.
It's now my pleasure to introduce your host <unk> think NKR think gives you may begin.
Thank you operator, I'd like to welcome everyone to unique fabricating fourth quarter 2019 earnings conference call.
Hosting the call today.
Okay, and unique fabricating president and Chief Executive Officer.
Before I turn the call over to dog I'd like to remind everyone that matters discussed on this conference call.
Forward looking statements as defined in the private Securities Litigation Reform Act up 1995 that are subject to risks and uncertainties.
Forward looking statements relate to future events were to future financial performance and involve known and unknown risks and uncertainties and other factors that may cause the company's actual results levels of activities performance or achievements to be materially different from any future results levels of activity performance or achievement.
Expressed or implied by statements made on todays call.
All such forward looking statements are based on management's present expectations are subject to certain risk factors and uncertainties that may cause actual results outcome and performance to differ materially from those expressed.
Such statements.
These risks and uncertainties include but are not limited to those disgusted the company's annual report on form 10-K for the period ended December 29, 2019, which will be filed with the FCC pursuant to rule for two for B and in particular, the section titled risk factors.
All statements on this call, including in this mornings press release are made us up today and unique fabricated does not intend to update this information unless required by law.
In addition, certain non-GAAP financial metrics will be discussed during this call. These non-GAAP financial measures are used by management to make strategic decision forecast future results and evaluate the company's current performance management believes the presentation of these non-GAAP financial measures are useful to investors in understanding in assessing the companies.
Ongoing core operation and prospects for the future.
Yes. It is other what stated it should be assume that any financials discussed in this call will be on a non-GAAP basis.
Full reconciliations of non gap to gap are included in the press release that was issued earlier that with all that said I'd now like to turn the call to Doug Doug The call is yours.
Thanks, Rob.
First I would like to provide a brief commentary concerning the corona virus outbreaks effect on the company.
Due to the ongoing covert 19 outbreaks with its uncertain near mid and longer term impacts on the company our customers our suppliers in the industries. We serve we're executing a comprehensive set of actions to prudently manage our resources, while keeping our customer supply but.
Products they continue to require.
While demand in the automotive segment has been reduced front end determinant period, we continue to have customer orders across our various markets and it all of our plants.
Currently we are operating our facilities.
We are following to God last provided by the various governmental entities in the jurisdictions, where we operate.
And are taking additional measures to protect our employees.
Considering the current declining demand, we're modifying our shift schedules implant employee counts.
Limiting our raw material ordering.
In restricting all discretionary spending.
As our supply base is almost exclusively North America, we have not yet seen disruptions in our supply chain.
Due to the inherent uncertainty or the unprecedented and rapidly evolving situation, including the duration of the actions taken by the various customers and governments, we are unable to determine the whole impacted the covert lighting situation on our future operations.
Now I will shift to the progress we've made with our business.
In the six month since joining unique fabricating I confirm my beliefs formed during the hiring process and my first weeks at the company that we are fulfilling our boldly back on track vision that I outlined in my first earnings call.
The only back on track as a foundation of the overall challenge I made to the organization to improve the culture and it's still a passionate pride in all of what we do.
Then all the places we walk.
This involved looking carefully at everything we do improving every process, eliminating waste Fuller duplicative expenses and revitalizing our culture.
We now have a forward momentum to unable to dramatically necessary changes underway.
With a focus sense of urgency we are executing the cultural organizational and operational changes to achieve sustainably the ambitious targets for EBITDA and free was net debt reduction in sales growth that we collaboratives et cetera.
We continue to have full board and management team sport for the actions undertaken.
In the direction set forth.
Since our last spoke with you in November and as of the end of 29 chain, we completed our Evansville, Indiana facilities closure, which side of movies or production to our Los Angeles, and Louisville, Kentucky facilities.
We have been winding down operations that are manufacturing facility in bright Ohio.
And expect to complete the closure by the end of March twice twice.
We have moved production from the broad facility.
Operations in Mexico in Georgia.
[noise] as a result of these activities, we recognize restructuring charges of 1.0 million during the fourth quarter of 29 team.
Compared to zero in the corresponding period last year.
The closure of our Evansville, Indiana facilities incurred at O. point 4 million charge related to future lease payments and another open like 3 million from various other cost.
We also incurred one time severance cost of <unk> point Threemillion for our Brian, Ohio plant closure.
We do anticipate an additional 8.6 million in restructuring charges in the first quarter flights way to finalize the bond plant closure.
The real estate related to the eventual operations includes one owned building that is listed for sale.
And one warehouse facility for which we are under lease through November of 2022.
With future lease payments of approximately 1.1 million.
We have engaged a third party firm to assist with the sale and the subleasing of the facilities.
While these decisions are never easy these plant closures better align our capacity with customer demand and are expected to provide approximately two point onemillion annualized cost savings ramping up from the first quarter of 2012.
From a human resources perspective, we simplified and realigning the organization, including the executive level.
Our goals and this effort we're too.
First eliminate redundancies.
Second reduce layers of management.
Third better positioned resources to optimize value to the business and ultimately to create a more agile organization that can respond quickly to customer needs and changing market conditions.
During the fourth quarter 2019, we eliminated an additional 12 salary positions.
As part of our investment in the leadership team, we committed to a comprehensive development program during the first half of 2020.
Which incorporates 70 associates across our U.S. and Canada locations.
During the first quarter of 2020, we added new directors of human resources, Lisa you, all do and of purchasing Tom Charlie both was with extensive industry and functional experience.
We also made an internal promotion of tighter Stokes to director about it.
In the second quarter, we won't be bringing onboard the new position Directorate materials engineering.
To facilitate our commercial activities in this very critical area for our business.
As filling the CFO position remains a key next step in completing the executive leadership team our search has continued.
In the interim period I continue to serve in that role where my CFO experience in active see FCTA license related asset.
With the return to revenue grows the critical aspect of meeting our ambitious targets. We have continued the approach outlined in November to increase revenue through market share gains new product and materials development.
And the expansion of the heavy truck medical and aerospace markets.
We had to overcome the negative impacts on sales from the plant closures over the last two years as well as customer decisions for new programs, where our product was de contented well, we were not awarded the successor business.
During the last months, we've been very active in strengthening our relationships with our diverse customer base.
I'll communicating clearly our competitive advantages, including our geographical footprint.
Diverse manufacturing processes and materials flexibility.
We confirmed that sufficient capacity exists in our manufacturing locations for us to grow our revenue over the next few years with limited.
Targeted capital expenditures.
Focused on increased automation.
Improves material utilization reducing scrap.
And technological enhancements for our increased value added processes.
We remain one of the largest suppliers in the markets. We serve and we have confirmed that we have significant opportunities to grow our market share organically.
We completed the realignment and refocusing on our commercial organization, including the additions at a senior sales manager in Mexico.
Grow and support our Mexico business and assumed to be onboard director of material engineering.
Further enhance our product offerings as well as to develop longer term strategic supplier relationships.
We are confident that these additions among others will enable us to create and communicate our unique selling points in our existing markets.
While expanding into heavy truck medical and aerospace.
During the first quarter of 2020, we initiated our implementation salesforce, our customer relationship management tool to facilitate all aspects of our commercial activities.
In addition, we're actively pursuing targeted technical collaborations with leading raw material suppliers.
During the last week in the medical and healthcare areas, we've been able to rapidly and effectively support multiple requests for product in value added processing.
To manufacture face yields in protective masks among other items.
Our strong North American geographical presence combined with our advanced technology engineering manufacturing and customer service capabilities.
Revitas with the resources to pursue many opportunities where our product support vehicle lightweighting.
The improved interior comfort and cabin noise reduction for telematics and infotainment.
We believe these trends create opportunities for us to achieve market share gains from increased content per vehicle.
New solution oriented products.
Geographic shifts in vehicle and component production.
And evolving customer sourcing strategies with a renewed emphasis on north American production.
We've been successful and winning new business in these areas, including a recent weight in cabin noise reduction solution.
Utilizing our twin shape foam air duct.
With an S O p. in August of 2022.
And I know point 8 million annual sales value or 6.4 million life of program.
Beyond automotive, where a leading provider of fabricated non metallic components in the appliance H.B. I see in water heater industries.
Our component solutions, primarily consist of products used in gasketing heat deflection packaging insulation.
Water seals noise reduction and vibration control.
As we believe there also many opportunities to grow our business in this market, we've refocused customer engineering and support activities in this segment.
With our strengthened engineering commercial purchasing human resources manufacturing and program management capabilities I am confident that we will achieve share growth in each of our markets.
Independent of the plant closure savings, we have developed detailed comprehensive performance improvement plans for each of our locations and functional areas that are expected to generate substantial positive operating income impact over the next quarter.
We are now capitalizing on opportunities to extract synergies from previous acquisitions in the areas of improving manufacturing processes.
Filling underutilized capacity.
Reducing overall logistics cost and sharing best practices knowledge across the enterprise.
As another key lever of improving operational performance, we are executing several activities to reduce our high cost debt levels.
While improving our overall financial condition.
Today unique fabricating truly is the only back on track.
We are winning new business, improving our profitability and cash flow and reducing debt, while our employees are engaged and empowered.
And our customers are having.
I will now provide an overview of our fourth quarter financial results.
As you can see from our fourth quarter results. The cost reduction efforts are having a meaningful impact on our profitability.
For the fourth quarter net income inclusive of restructuring charges was 0.0 million.
Despite lower sales compared to a net loss of 12.2 million in the fourth quarter of 28 day.
This improvement is a direct result of the decisive actions, we took the lower overhead cost structure improve operations and reduce the carrying cost of our debt.
Total debt reduced about 3.3 million to 47.5 million as of December 20 to 29 team.
Compared to 50.8 million as of September 29, 2019.
And 55.9 million.
As of December 30, 2018.
As the company utilized operating cash generated from an increasing earnings and decreased usage of working capital due to improved inventory and accounts receivable management.
Net sales for the quarter ended December 29, 2019 decreased to 35 point Sixmillion.
Down, 10.6% or 4.2 million.
From 39.8 million during the same period last year.
The decrease included the losses net sales of 2.9 million related to several customer platform cancellations.
Plus the end of life for three major program platforms, where the company did not win the successor business.
For customers made a change eliminating the company's product on the platform.
We also experienced a 1 million 1.0 million loss in sales due to a general declining industry production volumes.
At a net sales loss of Opus 3 million.
From a combination of the Fort Smith, Arkansas in Evansville, Indiana plant closures.
And just continued work with several major air conditioning customers.
Of the 35.6 million in net sales for the fourth quarter.
Automotive represented 85% of a total industrial was 9%.
And other was 6%.
Gross profit for the fourth quarter of 2019 was 7.8 million or 21.9% of net sales.
Fair to 8.5 million or 21.4% of net sales for the car speller corresponding period last year.
The decrease in gross profit was primarily related to the decline in revenues, resulting loss of contribution margin.
Partially offset by the reduced structural and other overhead cost.
Selling general and administrative expenses were 5.5 million or 14.2% of net sales for the quarter for the fourth quarter of 29 team.
Compared to 7.2 million or 17.1% of net sales for the fourth quarter of 2018.
The decrease in Nash DNA as a combination of cost reductions, including management labor and benefits commissions and professional services. In addition to the savings from plant closures.
Operating income inclusive of the 1.0 million of restructuring expenses and with the 4.2 million Declawed and sales was 1.4 million for the fourth quarter of 29 team compared to 1.3 million for the corresponding period last year, which included zero restructuring expenses.
Yeah.
The various cost reductions outlined previously offset the loss contribution margin.
From the lower sales.
Interest expense was 8.7 million for the fourth quarter of 29 team.
Compared to 1.3 million so the fourth quarter of last year.
Year over year decrease was primarily due to the lowered total debt levels and the impact of the interest rate swap.
Net income for the fourth quarter of 2019 was 0.0 million, including the 1 million and structure restructuring expenses or 0.0 per basic and diluted share.
Period to a net loss of O point 2 million.
4.0 too.
Sets per basic and diluted share in the fourth quarter of 28 tape.
The improvement in net income was primarily due to the impact of the comprehensive cost reduction and organizational alignment activities offsetting lower net sales.
Adjusted EBITDA for the fourth quarter of 2019 was 4.4 million.
Compared to 3.4 million in the fourth quarter of 2018.
This increases the results of the multiple cost reduction activities that began in early 2019 and accelerated in the fourth quarter.
Well I spoke with a few you since joining the company I do look forward to getting to know more view over the next months as we outlined with greater specificity the targets that activities by which we will measure and manage the business.
As we have accomplished a great deal in the last six months I remain highly energized by the continuing opportunity to develop the organization.
Maximized profitable growth and create significant shareholder value at unique fabricated.
I'm excited about being a shareholder and unique fabricating and I can confirm that many of our employees are likewise looking forward to participating and our success through share ownership.
We have a unique opportunity to create something of which we can all be proud.
I can confidently state that unique fabricating inc. is boldly back on track.
With that we will open the call for questions operator.
Well now open for questions.
To answer your question. Please press star one on your telephone keypad at this time.
Ladies and gentlemen.
The question Q.
Let's start to.
If your question from the Q.
Thank you.
Necessary to pick up your handset incorporating the start.
Once again that a star one to register questions at this time.
Our first question is coming from John Noble.
Please go ahead.
Well good morning dog in a thanks for the call. Thanks for taking my questions.
I just have a few I was hoping.
You could talk a little about your industrial business.
In particular, how much was it down for the year and I, just assuming the Corona virus does start to subside.
Say in the next few weeks or months, what type of prospects might you have for the industrial business in 2020.
Yeah I appreciate that question and at my Fingertips, I don't specifically have the number for the industrial.
Declined last year. It is sitting inside of a note in the 10-K I can tell you that.
Oh, it was and I'm going to take maybe in the 6 million.
To $7 million range was the number for the industrial.
What I would tell you is interesting I had mentioned the medical comment in there where we are seeing real opportunities that were actually.
Running product all now that the industrial is also seeing that some pick up for a variety of different reasons and without seeing the decline there.
Through the first quarter at this point in time, what we did though is that we.
When we did the plant closures and and.
We as a company.
In the past ethic underestimated the true impact of what this was a in we lost our focus in that area and that's where the comments that I made earlier went out viewed our opportunities. This was a clear a chance first recapture.
Share loss, and then use some of our new products and capacity that we have a and that's the reason I bring that up as being something that is a true opportunity both recapturing.
In weddings, and new business that we have.
Yes, it is impossible to quantify I know you said he was going to be supporting manufacturing.
A phase shields and protective mask, the we have any kind of an idea.
What this might help as far as I'm, not Q1, but looking into Q2.
Just a rough number I'm not sure if it would be significant or not can you shed some light on that.
I'm going to be a little hesitant about giving much there because there are a couple of things. We're trying to conclude right now, but but I would tell you it's in on <unk>.
But for that for the quarter I would tell you it shouldn't be any more than.
1 million dollar opportunity just for the quarter potentially.
And part of this ends up being from 11, a sample and I know you like to talk about revenue.
Some of it is related to the supply chain because some of them a material is coming in here.
Purchased by the customer for the sub customer and then we're doing significant value added process and this tends to modify the revenue number somewhat to job.
Okay, and what you're talking Q2, not Q1, right or is that Q1 gets started <unk> I guess I was saying this week.
People working creatively remotely different ways of in meeting all the criteria. We're supposed to me, but the opportunities are coming in in a challenge the organization to find a way to creatively support the government the hospitals the medical industry, the health industry in whatever way possible.
So we are working through these things even as we.
Speak.
And.
The end of life programs, how much did dining actually impact could result in a I'm not sure. If you have that number.
In 2019, I know that the at least in the first half or even the first three quarters. It was an impact there. The end of life program. So I don't know if you know what that might have been and also if you could talk about and once again I'm going to just say assuming that corona virus concerns of starts to diminish maybe in the weeks or months coming up the pie.
Prospects on the end of life programs or you know for 2020.
Okay. So a couple things they're up I flipped over to the earnings release right now to give you a better number because I did highlight this in the earnings release also.
Went out a little bit earlier today, so under the the basic I'll say that platform cancellations and some of the successor business that I mentioned is 11.7 million.
Dropped from 20.
18 to 29 thing the okay.
The industrial appliance was 5.5 million sounds pretty close with <unk>.
Six point already standpoint, I mentioned before so I pretty much a lot.
And again like I said, it's hard to say that there are they are looking to us to provide solutions for them at a variety of ways because now they recognize that we are opened for business in this area, where we had somewhat ignored it over the last year and I have to fly.
<unk>.
Okay that was encouraging also to hear that you operational because that was one.
Question I had a granted a reduced demand in the auto sector, but you know you are operational and still shipping product as we speak I wasn't sure about that so that was somewhat encouraging but.
If I could talk a little bit I know, you're talking about cost reduction measures and in light of the issues I mean, it definitely impacted your revenue in 2019.
You know a cost and you're looking to take costs you have taken cost out I was hoping you could.
Talk a little bit more about what we should anticipate as far as a reductions in your cost structure and maybe just expand on that a little bit. Thank you.
Okay.
So again as I outlined three or four specifics that I had there what I would tell you is that.
So the ended the year, we had basically completed.
The organizational realignment and restructure that's the reason I noted in my commentary.
That we had reduced an additional 12.
Salaried employees.
That were effective and done as of the ended the year with no carry over cost associated with this however that for cost savings, which would be approximately about 1.2 million.
We'll not be seen in 2020, because also as I noted and as noted in the first earnings call that I had that they were very clear specific requirements within the organization to either upgrade talent or to fill holes that that we're here before so weve tactically are strategically I should say better.
Oh fulfill these positions with high caliber individuals to allow us to.
Operate more efficiently effectively and to be able to do the growth plan that we have you had a 2 million in cost savings that I mentioned before from the restructuring.
Again, theres, a little bit of lingering into the first quarter of 2020, but through the second quarter 2020, we would see a full.
The impact of that.
Anything I'm, telling you and I hate this as much as I hated the first call that we it is it has all sitting underneath the.
Enormous cloud or the enormous fog that we have related to the Corona virus right. So let's talk about specific cost savings, but then to have the volumes reduce a certain way becomes a little more challenging to track that straight into the personnel, but I will tell you that the organization is fully aligned that we are doing.
All.
Prudent measures.
To ensure.
Not only that we're keeping our employees safe and that we're at hearing to all the.
Governmental guidelines, which are.
A diverse.
I think Paul States in country and since we operate in 30 countries and in multiple states.
But also making sure that again that we are supply to the customers that required because we've been dean and essential supplier.
To several of our customers.
And we're working through that process right now so I would just hold off I'm, giving you any hard numbers relative to what she sees cost reductions, but we have modifies just schedules we offered to people to take time off if they want we're doing all the different things and as we know that bill is.
Theoretically hopefully potentially maybe passing a tonight or tomorrow. It through the house then of course, we have agreed to know what's in the bill.
And they're also certain aspects of that a challenge specifically related to employment.
So number of employees worldwide at the cost of that number.
And were monitoring that very closely.
We're working with all of our stakeholders that we have to make sure that we do the right things both near term and for the longer term health of the business.
Okay I appreciate that.
Then I I just wanted to thank you Doug for you for your comments and answering my questions and hopefully this virus or the concerns related to this starts to diminish quickly and we can get back to business is as usual and or even a lean position. Here. We are you should be able to take advantage of that so I wish you. The best Thank you. Thank you.
John.
Ladies and gentlemen.
Just a question.
This brings us.
Thank you all for participating you may disconnect. Your lines at this time I have a wonderful day.
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