Q1 2020 Earnings Call
Trace call will be hosted by missionary Impotent Executive Vice President and Chief Financial Officer, I missed the John Rhys President and Chief Executive Officer by somebody else, which.
Chase presentation. It will be followed by a question <unk>.
At that time, if you have a question. Please press start one on your telephone keypad.
How can the meeting <unk>, but.
Please go ahead in Spain.
Good morning, everyone. Thanks for joining us I'll start off by reading the cautionary statement on page three of the back that was sent out last night.
Emancipate on this conference call constitute forward looking statements or information within the meaning of real quick about security for Crave statement as term feature capital expenditures <unk> outlook, the availability of our each or financing in our bellies pay dividends forward looking statements relate to future events or our future performance.
Oh statement statement, so let's start to look back or forward looking statements.
Forward looking statements unnecessarily based on estimates and assumption that workers that are reasonable by out inherently involve known and unknown with a certain keys and other factors that may cause actual results are two different materially the nose anticipate it's such forward looking statements.
Actual results could different materially for knows anticipate in our forward looking statements, including as a reasonable that risk factors described.
In our M.D.N.A. and in our <unk> information for.
Well, we believe that the expectations.
And then our forward looking statements that reasonable no insurance can be given that these expectations will prove to be correct and our forward looking statements included in this call should not be unduly relied upon these statements speak only as as the data this call and as except required by law, we didn't notice to any obligation or an update.
To update our forward looking statements.
Start off today's call with an update on public 19, and where we are where you know situation there and John Reid is going to give you that update.
Good morning to feel a refer to page five cope with 19 in our market update.
Yeah, I want to commend or operators our employees in their safety professionals is everyone selfless in parallel separate still effectively and efficiently addresses pandemic.
<unk>, we initiated the safety committee very quickly the same laden information sorry to our operating units.
As they establish the implemented the safety protocols expediently to address the ball environment.
Ensuring the safety of the <unk> family or customers in our suppliers.
The screwed just an absolute tremendous job.
And they really need to be comment.
We weren't Angel essential service.
All of our operations and so we are operating a deliberate product.
To our customers Oh, so we deliver products two manufactures a mask hospital beds ventilators hand, Sanitizers mobile labs various.
<unk> projects and other equipment, we worked really closely safely with our customers to assist them being part of the solution in Canada had in the U.S. is we bottled the situation.
Due to the customer closures.
Are mandated or self selected.
Impacted demand for Russell <unk>, we reduced her staff, we've reduced crematorium are on older positions, we initiated work sharing programs and we have access to other government.
Initiatives that are available out there to post this both our employees and company.
Our motto is working in relation to liquidity.
Plus model continues throw off cash as are working capital needs a decline.
Oh, we hurt completing Catholics projects that are underweight <unk>, maintaining our required maintenance projects, but we have delayed brand new project.
Our credit things are working very closely with their customers specifically an energy. This week navigate this this environment you all prices in the recounts.
Again to challenge the impacting short term demand on energy all prices, obviously collapsed driven by the oversupply on the world market <unk>.
Coupled with a pandemic.
Continues to impact the energy business four Russell.
<unk> Division, However, recently secured significant volume at work with the trends Mountain project.
Both phase one in phase two last throughout about 2020.
Centralize model really allowed our managers to quickly implemented safety protocols across all 446 locations well they simultaneously address the change in demand we move.
Over 500 people working remotely very early in this process I really want to recognize the outstanding work at marine killing her I.T.T. that they were.
Able to help us up and running seamlessly within a matter of hours as they are my family members, where it looks like function come home office.
Oh, So one thing the are my family members, who continue to come in every day in service essential service to our customers in our communities.
Supportive an expeditious.
Adoption, new safety protocols, it's it's really remarkable.
And the collective efforts made this possible for Russell the same sort of our customers every day. During this time, so I'll turn it back over to Marion.
If I'm going to give a high level review of R. Q1, obviously some of the factors are a lot less significant and that's a environment that were in but I think they're important point that I'm going to cover so we did end up with their earnings.
17 than there is some adjustments to that and I'll 0.2 that are later page when we get to that page on the report are free cash flow, which is important part of our motto was strong 26 million in Q1 41 million Oh sorry.
Do you want to spend per share for the order, we do anticipate as revenues come down through two two we well throw all additional free cash flow.
Cash from working capital was 36 million.
And this is the area actually where we will throw off the cash mainly from A.R. and reduce their inventories in relation to demand and not represented 58 cents per share.
<unk> and it will come down again in cute too we did have a return on equity a 6% for the quarter our year last year was 8% so even though it wasn't a great quarter. We did have a fairly strong return on equity and we did declare our full dividend 38 cents per share.
Yesterday [noise] nuts based on the fact that we do have the cash flow to support at this point in time.
So on page seven I'm, not really going to highlight too many numbers, but you'll see our compared of all the additional information there I do want US yeah forward to page 18 of the deck on that page in the under overview the last paragraph.
You'll see our comments about adjustment that were needed to be put through our first quarter. We.
Decided we needed to at 5 million to R.O.T.P.G. and line type not realize what value inventory the demand for those products is very low at this point in time and we felt there was <unk> additional reserve require.
Also the triggering event the <unk> Dominican the excess oil supply required us to do a review of all our long lived outside during that review, we realize that or U.S. line type operations right. He used assets, which is the least this that we capitalized at January.
One 2000 in 19, we're not supported by the ongoing <unk>.
Operation and we took an impairment lots of Canadian 4 million.
The reduction in share price did impact the stock based Campise 5 million, which was a positive to the numbers, but also additional positive which will be additional cash flow at some point later this year, we were able to take advantage the <unk>.
<unk> our 2000 in 19 Taxloss is we had in the U.S. two on earlier year and took an additional income <unk> ducks income tax reduction 3 million.
[noise] turning to pays for <unk>.
This shows you the revenue change, which was by unit and I'll speak to that as we get to the units. The one thing I wanted to highlight on this page was the metal service centers gross margin no. It was for the quarter at 21.3, we were expecting it to come.
In that range 21 to 22, which is and more normalized margin, but I don't know what normal is anymore. It is up from Q1 2019, and also some cute or 818.8% it appears that price thing.
Has been moved around in our products, but it's been relatively stable through most of the first part of 2020 and so our margins are in level that we would expect them to be at 21.3. The energy products margin is include the five.
Million write down, but they were relatively strong driven by our oil field stores and calm cool operation.
Distributors had low revenues, but their margins were comparable to.
First half of 2019 and other years.
You know also note that are operating profit as a percentage revenue for metal service centers at 4% was strong based on the situation as the facts that the impact pandemic impact the last part of marks.
Moving forward to pay 16 of the deck, just 0.0 see reduction in revenue, 19% rappers fence.
A reduction in concept of 3%, which is much stronger than the M.S.C.I. numbers put out and our competitors. So we're quite happy with that market share and and pick up there and the average selling price was the areas that are represented at most.
Of the decline in the revenue so it was down 16% for the quarter, but it was down only at what I'm sorry, It was a 1% lower than the 2000 at night came fourth quarter. So the if you just to give you a little bit of color on last year terrorist didn't come off.
May 2019 product started to come down in price as we went through the year and by the end of the year, but God two levels that we are this point in time, and we were able to get her average inventory similar laid down by the end of the year our pricing on that.
[noise] turning forward to page 17 revenue for our energy products sex and that was down 15%, but if you look at it on the same star basis, It's actually down 24%, we acquired city pipe in October 1st.
Last year, the city pipe being in the oil field fields stores area that area has seen a modest decrease but the bigger decrease was in the area of the O.C.T.G. and drilling rig activity during to watch.
[noise] 'cause I previously mentioned we took.
5 million dollar.
But additional reserve for O.C.T.G. inline pipe, which is the areas that was most significantly down in Q1.
There was no in our fee adjustments for oil field stores and typically we don't see it and our leave there because it's more of a manufacturer product we don't anticipate once in the future in that area.
Turning to page 18.
Strippers was down 49% revenue most of that was demand estimated at 42% then also selling prices down 16% similar to service centres. Once again, driven mainly by a high demand we had from the terrorists being in effect until May 2019, So the first.
2000 in 19, we had strong revenue demand in ours, yeah distributors segments.
Yeah.
Turning forward to hate 20, just 1.0, the cutbacks comment and we did spend a more that are Q1 2019, but as John mention we expect activity to be less there as we complete <unk>.
That are on go yeah at this point in time, and then inventory numbers are at the bottom up that page. The 320 dollar value for service Medal service centers is up from your end, but that's more affects driven the tons are actually down.
Then you'll note it's down significantly from marks a year ago energy products is down slightly from the end of the year, obviously up from Q1 because of the addition city into the numbers <unk> They were added.
As of December 31st into our numbers.
Yeah distributors inventory somewhat consistent with the end of the year some of that that increases actually affects their they will be continuing to bring their inventory down in line with the mat.
So those are the comments that I want to make about the quarter I'm going to open it up or question Hmm.
Thank you.
Ladies and gentlemen.
And the question and answer session should you have a question. Please press the start of followed by the one on your Touchtone phone, yeah, well here I see Tom Tom Technology, and request and questions are taken in the autopsy.
<unk>.
If you are in a speaker phone.
<unk> any keys.
First question comes from my <unk>. Some Scotiabank. Please go ahead.
Page Orange on Marion.
And so I assume in Japan are still product and service centres to catch decline <unk> you talked about that accelerated through April excuse a sense for you know those declines what they were in terms of time to shift in April and yes, you see.
You can get levels pick up from those little levels.
So you want it might look like.
But Michael Thanks for the question.
Actually right, we really sort of back that March that we saw the decline started in the service center.
Distributor segment pretty rapidly as we moved into the the current environment work in it.
So we continue to see that fall in April is it wrapped up Oh, we adjusted.
So we had to adjust the workforce for that but really that was driven by the closure shut down so.
Serious problems isn't states that were out there so the magnitude <unk>.
<unk> Cleveland percentages were down about 30% for April.
And again overall for several change.
Okay <unk> I mean, this would be a week to week that question, but at least to pick up from the low point enables activity sort of <unk> <unk> yeah. So.
Yeah, I'm, sorry, I didn't actually the first part of your question. The yes, we have nice thing we're seeing now in her service centers <unk> initially picked up a in Canada, <unk> U.S. as well the <unk> where are building.
It started the pace barbecuing, so but can you are higher and so that's very positive sign for us So we feel like.
We've seen the bottom and as we have the.
Restrictions on working lifted.
People are starting to return to work, we take that obviously were positive.
<unk> it just furniture the operating expenses I mean, those were largely flat in your service centres and energy products year to year sort of the cost reduction efforts. She talked about as much any fact that orange you Wanna results or.
Is that mostly in Q. cheering can you give us tonight too.
So in in the service centres in the energy fields stores. This demand hill fairly well going in March and we're starting to see the dive in late March.
As we started to make those changes just months that really are going to affect how you cool more so it's really the last <unk>, we started to make changes or do <unk>.
So we think that impact.
We're going to be recognized today for more food.
Okay sure they match activity levels somewhat.
I think so again the the <unk>. So dramatic so quickly we'll be chasing that for a little while so we continue to lay offs continue to grow each week.
Daring.
So we may we may get caught a little bit there's chasing that down making the adjustments. So we can still continue to ship.
Effectively customers, but it should <unk>.
Okay purpose was actually a for the answers and.
<unk> passing on somebody else.
<unk>.
Mm.
Thank you. The next question comes from Frederick Bastion from James. Please go ahead.
Hey, good morning appreciate that the visibility is as clear as mine right now and the energy side, but anyway, you can provide us some goalpost you can.
Point us stores for q. to potentially be on.
What Canadians Frederick.
I never thought I would say this but actually break up something that are really good time.
It's going to allow us that eight week six eight weeks during break hooked to get some clarity on what is going on out there.
The oil price said with the.
They make from the demand tilman.
So we'll get more clarity you go along in Canada.
<unk> again, we've seen the.
As you as you've seen as well we've seen the capital project <unk> Oh by.
We are hearing some positive signs from customers on both sides of the border.
Thanks, starting to spend money and starting to spend capital, but it's very limited right now so.
<unk> is really an unknown for us going forward August of what the man is going.
Overall, but I think we're hitting low point it just don't know how well we're going to stay at this point.
Okay. Thanks, and just to clarify an earlier answer you gave you mentioned that buildings were starting P.L.P.'s by bookings is that on on the service center side only.
Yes, <unk> they are that's cool okay.
Okay. So actually working her out pacing <unk>, which means we will have future buildings that we've got.
Sorry, John you you.
Kind of confused at a bit.
So I think that's what you're trying to say, where both things are getting stronger which will mean as throughout may and into June we're going to have more billing.
Right.
But okay, perfect and then there and well maybe next one for you with respect to your liquidity just shy of foreign and then box right now if if we get I mean I'm sure you have a number of scenarios you're looking at for for this year, but if you.
If you assume one that's pretty dire where do you think that liquidity ends up at the end of year.
Oh, if if it's a very dire situation, we're gonna throw off all kinds of cash because the revenue will go down moved through receiver. Both obviously it'll be tougher to bring down the inventory if wherever you declines quickly I don't really see that being a factor, but I do.
<unk> that we could throw off.
50 to 100 million of cash over the next couple quarters. It as we go get them go through the question will be as whether queue for picks up and then if it does will start to use some capital replace it the Tory <unk>.
Okay, and why would you be what we what would be your best guess as to where you're going to end up the airline terms of liquidity.
[laughter] very good I guess on where there isn't it yet so that makes it tough, but let's say 100 million positive.
Okay.
Thanks.
Hmm.
Ladies and gentlemen.
You have any questions. Please please stop followed by one.
Next question comes from Michael to pull some Titi Securities go ahead.
Thank you.
Can you talk about whether or not you've seen any collection issues or anywhere in the business, but I guess I'm, particularly wondering about the energy side.
So at this point I I'm very happy with my credit team. The month from April ended with our collection as a percent and that's how we look at a bar previous a. are being.
Lately from where we ended marks.
They've been doing a great job dealing with customers I mean certain areas. The collections were a little later in particular say, Quebec, where we had <unk> the operate certain businesses sat down so I'm sure that was part of the challenges with an enter.
Gee, we've been continuing to collect here my from our customers were mentioning the situation very good at this point in time, obviously, we have concerns as we go through this corridor what customers are going to be struggling for cash flow.
As they meet their payrolls and come back to work.
Okay. So so at this point Baghdad expense has that changed at all or do you expect that to change it all relative to what it's been running out.
Based on everything I know today bad that expense hasn't changed but it's obviously an area that is a higher risk as we continue to sell through this quarter, we will be working closely with our customers to make sure. We don't have any take a rest that we don't fill the <unk>.
Yeah.
Okay.
And then I guess two questions related to a inventories sort of different questions first of all on the provisions you took in the quarter. There were I mean, there were primarily concentrated in the energy products segment.
In the in the table talks about $6.6 million of inventory provisions, but you call out 5 million dollar specifically in O.C.T.G.N. line, but I think I heard you say really that there wasn't anything in oil fields stores I'm, just trying to understand what the the delta between that 5 million and you know C.T.G. line type.
6.6 million, you're talking about a node for <unk> that'd be a condition at 1.6 million where it was.
The that wouldn't be our normal obsolescence reserves that we've taken and we don't normally call that Oh, we do have our <unk> inventory aging reserve that we take on a regular basis in anything.
<unk> said anything over 18 months. So we continue to include that.
Which is our normal reserve.
And then that's why we didn't record and we only usually speak to the N.R. beef.
Okay and then the other question on on inventories just can you can you comment on how you feel about the inventory position now in any areas, where you know where there is any concern just about the level of inventories and whether or not that's going to come down as quickly as you'd have you'd like it too.
So what's in service centers I have no concerns at all and you know we did we ask all of our units to consider their local branches before they start ordering anything for the cycle and really watch <unk>.
You know what they do order because demand is uncertain for this quarter in particular, and we don't really know what Q3 will look like my biggest concern is energy are inventories are in in fairly good shape, but they can always be better and if really there isn't.
Thrilling activity going on in cute queuing cute three it's gonna be tough to bring those inventory down. So we may be carrying that inventory longer than on her books like turns may may get very low before <unk> through those two quarters.
Not that concerned in our oil fields stars I think demand is down but there's nothing there that you know we need to have the inventory at that.
Whatever 80 stars we have so it's kind of spread out hmm it does maintain its value.
Okay.
And then just a question on.
Let me on a steel prices, we we have seen steel prices weaken some sort of the v. earlier in the middle of March you know, we've we've seen some recent announcements from Nils of.
Increases in prices just maybe a question for John any I know, it's very uncertain environment, obviously, but.
Any commentary around the pricing look do you think the the increases that have recently been announced or those likely to to be accepted or any sense on that.
And maybe a kennel to talk about middle retards.
So so the price seem right now as we look at it <unk> I'll start with scrapping so we're starting to see screw up.
Right now is look at next month, and it's it's showing an increase.
Replacing $10 to $30 right now, it's a little preliminary but it looks like scrap will go up.
Which will help solidify the increase announcements recently come up.
We are getting below points in this week's well <unk> coil them plate, okay. It low points, we're starting to come off of those slightly full increase is not bad absorb yet.
I think we're starting to see very positive momentum and those corrections. So we're.
We're we're coming off of the bottom it'll be a slow climb back <unk> groups.
With the middle shut down so that you mentioned, they're taking out enough capacity, we're not we're not bouts to the the main level, where we are today with automotive <unk> energy so slow.
What it is helping soliloquize some of those so increase opportunities that are out there.
Yeah. That's helpful. And then just lastly, <unk> related to that any any commentary on what that means for fro C.T.G.N.N. line pipe pricing, obviously different dynamics in in that.
Market given that it's not all just covert 19 related the demand weakness there, but what do you see happening with prices in that area.
Yeah, <unk> typically are historically maybe.
60 to 90 days when you look at the pool crises play pricing just for the time for it to work for the system to become a Piper most T.T.G. or a lot and but.
<unk> this latest deal because the downturn with a lot of no closures in pi from various quite meals I think they may actually missed the bottom.
And so we may see it helps stabilize the number it has drifted further in April from where it wasn't March.
But we may not go all the way down that were flat road was because again, they they're just not producing right now so assuming there raw material that they're not oversupplied raw material most of it wasn't finished goods.
This is what we're being told from most of the quite bills, but they may they may actually a little while they're pricey.
A little earlier that has historically.
Great that's how cool thanks for the time.
Mm.
Mm.
Thank you I just haven't enough at our questions you may pissy.
Okay. Thank you everybody attending everybody's stay safe and talk to you next quarter.
Yeah.
Ladies and gentlemen, asking such a conference call for K., we thank you for participating.
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