Q1 2020 Earnings Call
For standing by and welcome to the Universal stainless first quarter 2020 conference call and webcast.
At this time all participants are in listen only mode. After the speaker presentation, there will be a question and answer session.
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Today's conference is being recorded if you require any further assistance. Please press star zero. It is now my pleasure to introduce Joan Phil and Jerry. Please go ahead.
Thank you good morning, I disease is June for lunch area of calm partners and I also would like to welcome you to the universal stainless.
This conference call and webcast. We're here to discuss the company's first quarter 2020 results reported. This morning, we got from management or Denny Oates, Chairman, President and Chief Executive Officer, Chris Simmer, Executive Vice President and Chief Commercial Officer, John Armina Vice.
<unk> administration, and General Counsel increased Scanlon, Vice President Finance, Chief Financial Officer and Treasurer.
Before I turn the call over to management, let me quickly review procedures I After management has made.
Formal remarks, we will take your questions Hi.
Okay.
So operator, Andrew will instruct you on procedures at that time also please note that in this morning's call management will make forward looking statements under the private Securities Litigation Reform Act of 1995, and we'd like to remind you of risks related to these statements which are more fully described entity.
The press release and in the company's filings with the Securities and exchange condition.
With these formalities out if the way I would now like to turn the call over Danny.
Danny we're ready to begin.
Thanks, Jim [noise].
Good morning, everyone. Thanks for joining us today.
It goes away.
I'm, saying that the Corona virus pandemic discourse substantial dislocation in major global economies as well as in our end markets not to mention disrupting the lives of countless individual throughout the world sometimes tragically.
That's why I want to begin by thanking each person on universal team for their dedication and hard work throughout this difficult unsettling.
Time, their health and wellbeing remain our top priority and we have implemented all CDC measures to safeguard the.
From a permit from a business perspective, the effects of the pandemic developed over the past several months compounding the impact of the already existing 737, Max issues and collapse in oil prices.
Customers generally reports surprisingly good first quarter sales with growing request for Pushouts cancellations, along with operational disruptions as organizations adapt to changing workplace.
We are seeing much the same.
Our shops remain generally busy working on a $110 million backlog before surcharges.
However, we have experienced a reduction in bookings numerous push out requests and a little over $6 million in cancellations through today or longer lead time products, which had not entered production.
We're working closely with our customers to meet their needs as the entire supply chain adjust to this changing environment.
At the same time.
We are executing plans to increase liquidity reduce costs and better serve our customers.
With that as context, let's start with a review of our topline performance in the first quarter, including some of the bright spots.
Net sales of 58.5 million were up 6% from the fourth quarter 2019, although three.
Lower than the first quarter a year ago.
We see crystal growth of 13%.
Let's see sequential growth was driven by 13% higher aerospace sales and 30% higher tool steel plate sales.
As tool steel continues to recover from a challenging 2019.
Aerospace growth offset 20.
5% sequentially lower power generation sales, mainly due to seasonal factors and a 30% drop in oil and gas sales were demand has plummeted along with oil prices.
This started with a Russia, Saudi dispute on production levels and substantially worse than do pandemic driven shut down a major economies.
Oil storage facilities.
There are basically full leading to the unprecedented events earlier this week with oil for the May contract moving into negative territory.
Sales of premium alloys in the first quarter totaled $7.7 million were 13% of sales, which is up 4% from 7.4 million into 2019 fourth quarter, but 18.
Lower than the first quarter of 2019.
First quarter gross profit was a disappointing $4.9 million and 8.4% of sales despite a 6% increase in sales.
Quarter includes several items of note.
Secondary sales reduced margins, 0.4%, but will generate one.
$1 million in cash during the second quarter.
Accounting revenue recognition adjustments reduced gross profit margins by another 0.4%. This is a non cash charge of $300000.
Our titusville operation is positioned for another record year, but our inability to get testing done at a third party lab.
The virus related staff availability reduce margins 1.7%.
Amortization, a major maintenance and a rapid decrease in high fixed cost melting operations drove negative absorption reducing margins by 1.1%.
Air Meld output was reduced from January to March by 25%.
Well vacuum induction melting fell 12%.
These challenging isolate the direct financial impact of Cobot 19 on our first quarter results.
That said, we've identified $2 million in sales, which carry a 12% margin which were delayed.
Most of which were international sales, which did not reach their destination.
In time to be recognized in this in the first quarter.
Additionally, the combination of lost production added overtime interrupted outside services temporary vendor shutdowns and additional spending on sanitation services and supplies reduce gross profit by $400000 or 0.6%.
Although tool steel surcharges have stabilized surcharges for other stainless and specialty alloy split in the range of 6% to 8% during the quarter.
We expect further surcharge erosion as we move through the second quarter.
Lastly, as a general comment overall product mix can be characterized as less profitable during the first quarter with.
Our semi finished built and less conversion in cold rolled products.
Couple of worries about commodity pricing.
Nickel prices declined to $5.39 at the end of March lowest level since January 2019, and a 14% reduction during the quarter.
Other commodities were mixed during the quarter with Molly.
Slipping from $9.53, a pound to $9, a nine cents about while vanadium and iron scrap rose modestly.
As a result, we expect to see further reductions in surcharges in the second quarter with weaknesses in the on most complex is especially scrap where markets are unsettled by weak generation and uncertain demand.
As DNA of 5.9 million includes the increase in business insurance discussed on last call.
A onetime acceleration in stock option expense due to retirement higher legal expenses in certain employee benefits.
The lower gross profit lower gross margin combined with higher as DNA led to a loss for the first quarter of $1.4 million were 16.
Cents per diluted share.
Total debt increase from the fourth quarter and totaled $76.3 million at the end of March Chris will provide further detailed our balance sheet and cash flows in his financial report.
Not to steal his Thunder I also want to report that on April 15th we secured a $10 million loan under the payroll protection program.
Adds to our liquidity position and provides additional financial flexibility during these difficult times.
We ended the first quarter with the backlog before surcharges of $110.7 million versus $119.1 million at year end 2019.
The backlog reflects increases in play products and billet.
With the reduction coming in large and small bar products.
Premium melted products in the backlog increased sequentially totaling $31.5 million versus 29.7 million at December 30, Onest 2019.
Meanwhile, order entry for the first quarter was down 8.2% sequentially on a dollar basis.
But up 10.1% in pounds, reflecting the shifting mix.
Order cancellations were $3 million in the first quarter alone.
Thus far in April order entry is tracking below first quarter levels with a higher rate of cancellations.
Let's turn to operations.
Our four facilities continue to operate throughout.
The quarter, we move swiftly to begin addressing the increasing severity of the pandemic and its impact on business conditions.
We've been down this road before in 2015, and 16 and in 2008 nine.
Specifically, we are reducing schedules here melting and vacuum melting were reduced as I said by 25 and 12% respectively.
Really between January and March.
We are adjusting discretionary spending down.
We're working with vendors to differ in some cases cancel incoming operating supplies and maintenance items.
We're eliminating virtually all travel and related expenses.
We are revisiting our major maintenance plans.
And we've reduced.
Capital spending plans to $2 million on average during each quarter of 2020 with the goal of bringing annual spend and a $10 million for that for the year.
Our goal here is to flex spending and plan activity in line with market changes, while still maintaining productivity, a safe work environment and servicing our customers.
Couple of.
Positive notes.
The new bar selling Dunkirk generated savings are approximately $2.5 million on an annualized basis.
Additionally, the advanced phased array inspection system started off with.
Which will add further savings to the bar sell as compared to prior nondestructive testing process.
Our strategic investments in additional.
Thank you Mark Remelt furnaces, and an 18 sudden crucible to support premium products growth are proceeding the equipment will be received an installed in the first quarter 2021.
Let me turn to our end markets for a moment beginning with aerospace.
Our aerospace sales totaled 42.4 million or 73% of sales.
In the first quarter 2020.
This is up 13% from sales of $38 million or 68.2% of sales in the fourth quarter of 2019 and nearly matched the 42.6 million of sales in the first quarter of 2019.
When they represented 70.7% of sales.
On our last call I noted the uncertainty caused by the.
And 37 Mac situation that included Boeing's production halt and the ongoing delays to returning the aircraft the service.
Those problems continue and has since been severely exacerbated by the drop off in global Air travel, resulting from the grown a virus pandemic, we're just hitting airlines alone with airline manufacture order books and production plans.
The international.
Additional your transport Association is now forecasting that because of cobot 19 full year 2020 airline passenger revenues will drop by $314 billion and.
A 55% decline compared to 2019.
They also estimate that airlines good burn through 61 billion in cash reserves in the second quarter alone.
For their part.
US airlines are struggling for cash flow to pay workers and maintain aircraft and have decided to avail themselves of the treasuries assistance for the cares Act, leaving open the question of their appetite for new airplanes.
The effective these market pressures on the deliveries in order books of airplane manufacturers can be readily scene.
Boeing reported the cancellation of 150 airplane.
Orders in March offer the 737 Max.
Boeing realize 31, new orders in March.
There are commercial deliveries in the first quarter 2020 totaled 50 airplanes.
Currently Boeing as approximately 5000 commercial airplanes and its backlog.
And then a welcome bid a positive news Boeing announced that it is resuming production in Washington State.
State This week when the 747 767, the triple seven in the 787 jet programs.
Airbus reported that they booked 290 net commercial aircraft orders and deliberate hundred 22 aircraft in the first quarter.
But also note that 60 the aircraft they produced during the quarter remain undelivered due to cobot 19.
Airbus simultaneously announced that it would reduce its average production rates by approximately one third.
At the end of March Airbus had a reported backlog of 7650 airplanes.
A major area of strength in aerospace is defense as did the spending has remained strong universal's participation in defense sector. The.
Aerospace market has grown over the years, reflecting our expanding premium alloys, which are used throughout military aircraft.
There's no doubt that on balance these are very challenging times to the aerospace market.
Our customers are assessing their demand.
Their inventory levels and volumes on order with the mills, we're working closely with.
Them to respond rapidly to changes in market conditions.
The heavy equipment market became our second largest market in the first quarter 2020 due to the further recovery of our tool steel plates sales.
First quarter heavy equipment sales totaled 6.1 million were 10.5% of sales an increase of 29% from 4.8.
Million or 9% of sales in fourth quarter 2019.
I noted on the last call that our tool steel order entry was strong going into the first quarter with customer inventories and better balance versus the first half of 2019 that trend has continued through the first quarter and we ended the second quarter with a very solid backlog.
The oil and gas end market was our third largest end market in the first quarter of 2020 with sales of $4.4 million were 7.5% of sales down 30% from the fourth quarter, 2019, and 18% lower than 2019 first quarter.
And its monthly report Opex said, the following and I quote the auto market is currently undergoing.
Eric shock that is abrupt extreme and then a global scale.
Meanwhile, Schlumberger pointed to the double black Swan event in the unprecedented global health and economic crisis due to the current of Irish pandemic and the battle for market share between Saudi Arabia in Russia.
They see it resulting in the most challenging environment for the industry and many decades, while further.
Noting that customer spending and drilling activity in North America declined as oil prices slipped early in the quarter before falling abruptly in March.
From the vantage point of the supply chain, we have seen other shops over the years and I've always found our way to recover.
Right now, we expect oil and gas market demand to trend downward for the remainder of the year.
Power generation market sales were 2.2 million or 4% of sales in the first quarter 2020 down 25% from the 2.9 million in the fourth quarter of 2019, the 11% lower than the first quarter 2019.
As noted in the past our power generation sales are currently tied to maintenance spending which is seasonally weaker in the first quarter and.
Being further impacted by the virus caused lockdowns and mild winter weather.
The general industrial market sales in the first quarter 2020 represented 4% of sales at $2.4 million, which was level with the fourth quarter 2019, and up 10% from the 2019 first quarter.
As a reminder, our general industrial category.
We include sales to semiconductor infrastructure and general manufacturing markets.
Following a hard hit in 2019, the semiconductor industry Association recently reported year to year results for February that included increases a 14% in the Americas and 5.5% in China.
Even though that does not reflect the impact of the Corona viruses.
Yes, we are continuing to see solid semiconductor demand in our backlog is up 25% year over year.
Before I turn the call over to Chris for his financial review, let me provide a quick snapshot of where we see things today and a general outlook for the rest of the year.
There is no doubt that our industry is highly stressed and uncertainty.
It is high.
Customers tell us is they are still trying to make censored conditions.
Even so they're taking a conservative approach that are ordering buying when they demand when they have demand, but not much on speculation.
All in all with our backlog going into the second quarter and where the caveat that this is as of today, we expect sales to approach the.
First quarter level.
While the third quarter may be more challenging.
As to profitability, we expect the main headwinds to come from lower activity levels as well as the cost resulting from the day to day disruptions distractions and inefficiencies from contending with the client of ours.
We plan to adjust working capital based upon demand trends.
And our capital spending as I indicated earlier, we will be reduced the $6 million range over the next three quarters.
To mitigate these effects and remain in a strong position for the eventual recovery, we are focused on liquidity and own aggressively reducing costs wherever possible.
In other words, we are executing a proactive operating strategy.
Very similar in principle to pass cyclical downturns.
That concludes my review, Chris taking us for through the financial report. Please okay. Thank you didn't and good morning, everyone. Let's get started with the income statement as Denny noted earlier first quarter 2020 sales at 58.5 million were up 6% were 3.3 million.
From the 2019 fourth quarter, but down 2.9% compared with the 2019 first quarter.
First quarter 2020, gross margin totaled 4.9 million or 8.4% of sales down from 10.6% of sales in 2019 fourth quarter and 12.2% of sales in the 2019 first quarter.
Our Q1 gross margin was unfavorably impacted by items Denny previously discussed.
Which included less profitable mix with more semifinished, bill and must conversion and cold rolled products.
Selling general and administrative costs in the first quarter totaled $5.9 million were 10.1% of sales an increase on 600.
$85000 compared with 2019 fourth quarter and $940000 compared to the 2019 first quarter.
First quarter SGN, a includes a onetime stock compensation expense of 120000.
Associated with the accelerated vesting of certain employee equity grants, which is not expected to recur.
Increased legal expenses also contributed to the change from the prior year quarters.
First quarter 2020, SDMA also includes increased property in business insurance related costs totaling 300000 compared to the 2019 first quarter.
The company's first quarter 2020 income tax benefit totaled $520000.
Compared with the tax benefit of 560000 in the fourth quarter of 2019, an income tax expense of 250000 in the first quarter of 2019.
The 2021st quarter tax benefit reflects the federal statutory rate, 21% and the benefit of research and development tax credits.
Net income in the first quarter was a loss of $1.4 million or 16 cents per diluted share.
Fourth quarter 2019, net income totaled $200000 or two cents per diluted share.
In 2019 first quarter net income totaled 1.2 million or 14 cents per diluted share.
Our first quarter EBITDA.
4 million Q1, EBITDA as adjusted for noncash share compensation totaled 4.5 million.
First quarter EBITDA declined 1.5 million from the fourth quarter 2019 total of $5.5 million in 3 million from the first quarter 2019 total of 7 million.
The EBITDA and adjusted EBITDA calculations are provided in.
In the tables to the press release.
First quarter cash will used in operations was 7.8 million compared to our fourth quarter cash flow provided by operations, which totaled 4.7 million.
And first quarter 2019 use of cash flow from operations of 17.8 million.
Related to the balance sheet.
Manage working capital totaled 153.5 million and increased by 11.4 million compared with the fourth quarter 2019.
Accounts receivable increased by 1 million and inventory decreased by approximately 625000, while accounts payable decreased by 11 million, partially due to a reduction melted activity.
The composition of our accounts receivable remain sound and at this point in time, we've not seen any changes in customer payment activity.
First quarter 2020 backlog totaled 110.7 million and is down $8.4 million or 7% from the 2019 fourth quarter will pounds were down by 2.8%.
Year over year.
First quarter 2020 backlog decreased $19.3 million were 14.9% compared to the 2019 first quarter.
Capital expenditures in the first quarter were 4 million flat with the 2019 fourth quarter and 1.5 million lower than 2019 first quarter 2020 capital expenditures are expected to.
Total $10 million.
The company's total debt at March 31, 2020 was 76.3 million an increase of 11.9 million from the prior quarter.
Our debt is primarily comprised of our PNC bank revolving credit facility, which totaled 53.8 million in our PNC term loan which totaled 7.9.
Yeah.
Our notes, which were issued in connection with the acquisition of our North Jackson facility. In 2011 totaled 15 million at March 30, Onest and are included in current debt. As these notes are due and payable in March 2021.
Additionally, in the current first quarter, we made a 2 million principal payment on the notes pursuant to the.
As of the agreement.
Also as of March 30, Onest, we maintained remaining revolver borrowing availability for 41.7 million.
I want to summarize our pay check protection program funding next as we received 10 million of PPP funds on April 17. These funds of enhance the Companys financial.
Disability and strengthened our liquidity position.
For the terms of the Paycheck protection program, we will use these funds for eligible employee payroll costs in utility expenses.
During the eight weeks to be measured under the payroll protection program period. This eight week measurement period began on April 17, and will run through June 11.
Following.
The conclusion of the week measurement period, we will apply for forgiveness of this loan in accordance with the terms of the program.
For given funds under the program, we excluded from taxable income for federal income tax purposes.
This point, we do not have an estimate on the amount of pp funds, if any that may not be forgiven.
The 10 million PPP.
Loan will be treated as a term note with PNC bank to the extent there are any amounts not for given under this terminal interest will accrue at a fixed annual rate of 1% with the first six months of principal and interest payments deferred.
Beginning November of 2020, the company will make 18 equal monthly payments of principal and interest with the final.
Payment due in April 2022.
Specific to the Cobot 19 pandemic the company expects the effects of the pandemic and the related responses to negatively impacted results of operations.
Cash flows in financial position.
However, due to the uncertainty related to the duration and severity of the.
The economic and operational impacts of Cobot 19, we cannot reason we estimate the related impacts at this time.
This concludes the financial update and Denny I'll hand, the call back to you.
Thanks, Chris.
Before I wrap up I would like to mentioned the recent retirement of Paul Mcgrath.
Who most of you know.
Recently served as Vice President Administration General Counsel and Secretary for Universal.
During his 25 years Universal pull award many hats and played a key role in our company's growth and operational improvements.
We're all very grateful for polls many years of dedicated service Universal and wish him all the best in as well.
I'm equally pleased to report.
That has been succeeded by John our Minas John joined Universal in 2013 is provided valuable legal support and a broad range of issues critical to universal success John's appointment as well deserved and we are all pleased he has taken these expanded responsibilities.
So let me summarize Chris has reported my report.
The first quarter 2020 was marked by substantial dislocation in global economies and in our end markets due to the krona virus pandemic falling oil prices and ongoing issues in aerospace associated with a 737 Max.
Even so our net sales increased 6% from the 2019 fourth quarter driven mainly.
By aerospace and tool steel.
Gross margins were disappointing operational issues outlined.
And associated with adapting to the cronies krona virus workplace and sharp production cuts and melting.
Coupled with a generally less profitable shipment mix were largely responsible.
We secured a $10 million.
And to the payroll protection program to enhance our liquidity position.
We have entered the second quarter with a backlog of $110.7 million, but in a highly stressed industry were uncertainty is running high.
Our customers are taking a conservative approach to their ordering as they balance the dire headlines of today with their perspective gain from prior downturns.
And our desired positioning for the eventual recovery.
Universal also has deep experience in facing difficult industry conditions to mitigate the current challenges we are focusing on cash and liquidity as well as on the bottom line by aggressively managing cost and activity levels.
This is the same strategy that we executed in the past to successfully.
Eight previous challenging times.
Clearly we have some heavy lifting to do over the next few quarters, but I remain very confident we have the right plan a great team of employees in the support of our stakeholders necessary to power through.
This current situation and position universal for further growth and success in the inevitable upturn.
Let me close by once again sincerely thanking our team for their ongoing commitment and hard work they are central to our recovery into our future growth.
Operator, we're ready for questions. Please.
Certainly as a reminder to ask a question you will need to press star one on your telephone.
To withdraw your question.
Press the pound key please standby, while we compile the Q1 a roster.
Your first question comes from the line of Phil Gibbs with Keybanc capital markets.
Hey, good morning, Denny and Chris.
Phil.
Okay. Okay.
Good the SGN a run rate in Q1 was elevated due to some items as you noted.
What should we expect that to be moving moving ahead as it can be closer to 5 million in the quarter, given the lower levels of business activity.
The cost rationalization.
Sure.
Yes, you will see a come down to that level, if not lower.
Okay.
And Chris can you go over.
Just still the liquidity at the end of.
Q1 kind of watching what you have we obviously know the cash but.
Sometimes as blocks on the revolver. So just curious in terms of what you said the liquidity was in that we get the other 10 million from the.
From the government actions.
Sure so with us having an asset baseline the borrowing capability that we have is driven by accounts receivable in inventory.
The.
Ceiling that we had for borrowing per the agreement is 110 million.
Basis at the end of the first quarter of inventory and accounts receivable total gross combined availability of $96 million.
We ended the quarter with $53.8 million borrowed on our revolver, which gave us remaining loan availability at the end of the first.
Quarter of 41.7 million dollar.
Got it so 41.7, so call it 42 million of of.
Liquidity.
The.
I think Theres, just a general and you did a great job explaining it to the best you could disease and Theres a great deal of confusion to meet.
With regards to a lot of these.
Small business loans that companies are able to take so we think about the 10 million as as just.
Just another form of.
So the short term, it's going to be low cost debt and then you'll you'll have to repay that 10 million to your point.
In installments to 2022.
The way that we should look at it or is some of this stuff doesnt have to be paid back.
Sure I'll go over that refilled. So first things first we're going to use these funds for eligible employee payroll and utility expenses and that's going to be used during the weeks that I referred to as a measurement period. So.
An eight week Windows starts April 17th and that runs through the middle of June.
Just specific within the makeup of the use of that $10 million, we can use 25% of those loan proceeds for utility costs.
The remainder of those proceeds relate to payroll costs.
Once that measurement periods complete we will.
Slide for forgiveness of alone and Thats going to be based on the amount of spend against the loan.
As a couple of factors that influence the forgiveness, they're both employee related.
This is Rick to head count during the week period as well as earnings of employees during the week period.
Once those two forgiveness calculations are done.
We'll have an end result of what we would still low what we would still low falling forgiveness, we have a run out of approximately 18 months.
Okay. So.
Essentially than over this two month period, if you got $10 million in you use that you used to call.
Good.
7 million on the utilities in the payroll what you'd have left over the 3 million year you'd run that out through 2022, so you're you're essentially not.
You are paying back a fraction of the 10 million I guess is at the anything product.
Yes, we would pay back the.
Even amount of alone the first six months of principal and interest or deferred the remaining would be paid out through.
The remaining 18 months after the six month for given this period.
And a 1% interest rate.
Okay.
That's that's helpful.
The Denny you gave you gave your best FIA sales guidance at this point right now.
Second quarter, probably will be a quarter, where you take another leg down I would imagine it and.
Just just air melt utilization, so does that does that overhead absorption.
That's going to.
We continue to impact you for the next couple of quarters I would imagine.
As far as the sales goes I think the sales will be very close through the first quarter based upon everything we know at this point in time as far as activity levels.
We have ratcheted activity levels down to what we see coming in.
So you'll see some further.
Reductions the entire quarter will be basically around where we were at March if not a little bit lower.
So it's going to be a trade off we are going to be reducing fixed cost at the same time, reducing activity levels candidly, it's very difficult to do that in sync with dollar for dollar basis, so that probably will be some additional absorption kick out during the second quarter.
Thank you.
Thank you and our next question comes from the line of Tyler Kenyon with Cowen.
Hey, good morning dining Chris.
So I don't I talent.
Good holdings consider rights.
So I wanted to.
Start just on the backlog.
Tony is or is there any way.
To to characterize where that where that stands at present.
I was $110.7 million at the end of the.
Of the first quarter, and we say present, you mean as of today.
Right.
I'd like to is very minute, it's about $107 million. This morning.
Okay.
And then on the cost cutting initiatives that you're pursuing.
Any color you could you could provide around those I mean any way to think about.
The proportion thats six relative to.
Level.
I don't know how to answer that in terms of if you look at the individual costs that were looking at reducing.
Most of it is variable cost okay, we're taking activity levels down in some of the high cost facilities.
So you're going.
To see reductions and things like power labor.
Operating supplies that I mentioned, all variable type costs at the same time as we move through the quarter remember.
We're still operating at a fairly decent clip, even though we pick we took the front end of the operation down somewhat during the first.
Last quarter.
So as we take the facility down we will be working on fixed cost as well. So there's an element of fixed cost reduction in the second quarter I can't really give you a a quantification of that yet.
Other than to say, we're going to be working on that very diligently as we move through the quarter.
But understand is.
I'd say, it's a process here, it's not everything is falling off a cliff we still have a sizable backlog, we're still fairly busy in the shop.
We need all the supporting cast of characters to get bullet product out the door.
We'll see how things play out over the course of the second quarter in terms of incoming business levels.
Okay got it appreciate that.
And Chris one for you just.
I appreciate all the detail on the on the term note under the Paycheck protection program. It I'm curious sister or any other opportunities for you within existing cares Act.
Tax deferrals et cetera that.
You may be able to take advantage of and does your does utilizing the paycheck protection program itself prohibit you from pursuing perhaps additional release.
Yes, So first things first youre allowed you have.
FICA payroll tax relief or you can participate in the PPP.
We participated in the PPP program. So the 6.2 payroll tax relief that has been talked about over the past few weeks, we will not be able to participate in that.
Separately, we are aware of the expanded main street availability discussion in information that came out approximately two weeks ago.
We will pursue that to the.
The extent, we can we're always in.
Review in conversation with the banks of opportunities in presented to us.
Separately there was.
Federal income tax AOMT relief that was provided.
That will create approximately $230000 income tax cash in the door.
And the second quarter pursuant to some of the changes associated with the care Zac and related regulations.
Appreciate that thank you.
Thank you.
And as a reminder, ladies and gentlemen, if you have a question. Please press star one when you.
Telephone.
Our next question comes from the line of John Day share with Pinnacle.
Good morning, everyone.
Yes, Hey, I was just curious Stephanie on the bright spot you highlighted a video D.
We know aerospace was about 72% of sales.
In the quarter.
Does that breakdown between commercial and anti obesity or.
How do you see what percentage of sales might diodati be going forward.
So it's a difficult number to pinpoint because we sell roughly the same percent about 70% through distribution and we don't have a clear.
Our line of visibility to give you a precise number but I would say, 10% to 15% of sales would be defense related and that level of defense sales has increased over last three to five years as we put more premium melted products.
To market through our North Jackson investments.
Oh, Okay. So you expect.
10% to 15% going forward as well.
Yep Okay.
Okay.
Thanks spending is it defense spending has held up relatively well.
In fact, we books and business in the last month that goes right through the first quarter 2021.
Okay.
Excellent.
Chris one for you back to the.
PPP.
For the amount of alone that are for given how does that flow through the financials does it go through the income statement or balance sheet, only or outages, how does the amount of loan forgiveness actually flow.
So upon forgiveness of the loan we will.
We recognized for book purposes, other income of the amount of the loan for given.
For income tax purposes at the federal level that is not a taxable income event.
Okay. So it's going to be a separate line item, it's not going to be embedded and another line item.
Correct due to materiality it'll be.
On its own line item or it will be baked within other which traditionally doesn't have a lot of activity within it for universal.
Okay Gotcha, and then finally SGN age you said it was up about 900000.
Quarter over quarter.
How much was legal up.
How much of the 900000.
It was an increase in legal and what was the increase in legal for.
It's up about $150000 was the legal increase and that was for general governance.
I believe will work.
Routine stuff.
Hello.
Routine governance workout, that's not not normal so I wouldn't expect it to continue at that level.
Okay.
So we're taking in a sense. It happens every month, okay I understand so as shannay going forward will.
You gave us a number I cant remember what that number was.
Approximately has changed.
In the range of 5 million.
Okay.
Down from Fivenine.
Thank you very much.
Welcome.
Thank you and once again, if you have a question at this time. Please press star one on your telephone.
Our next question comes from Phil Gibbs with Keybanc capital markets.
Hi, Thanks.
No liquidity on the OS.
Yes, yes, maybe maybe maybe a couple or maybe on maybe seven.
Now the.
The deferrals.
Yes.
Thank you mentioned in Q1 or excuse me the cancellations I think you mentioned $6 million cancellations I would imagine most of that came in the back ended the quarter.
Any color in terms of where the cancellations are coming from in terms of what.
You know as it is oh, we.
Airframe business engine business is at Boeing and Airbus is a widespread and then.
Kind of what you're seeing.
What you're seeing now reiterate maybe what you're seeing because I think you solid will follow it up a little bit on that.
So the numbers were 6.3 million year to date and about 3 million of that occurred in the first.
Order.
And most of that was in the March I don't have the number of caught my head.
It's mostly distributors.
It's mostly commercial.
I'll, let Chris Zimmer entered a little more detail he's been a one handling this first hand, Chris.
Yes to Denny's point, it's hard to have visibility.
Realty through distribution, but when we look at the grades that we're seeing customers coming back to us with adjustments to their order book on they generally lend themselves to structural types of components in commercial.
Aircraft, we have seen some adjustments on the engine side as well too, but the majority of that.
Through distribution and it's for commercial aerospace applications.
Okay. The other thing to keep in mind Kritzmacher Phil is.
We tried to cover a lot here this morning, but the premium melted backlog is actually up at the end of the first quarter.
From what was a record level.
All of these so we're basically still at a record level in premium melted products in our backlog.
The the backlog number.
Basically the way to think about it as the backlog would advance 3 million and change higher at the end in the first quarter had you not had.
The cancellations is that fair yes.
Yes.
Okay and this is some longer dated while you we thought it would have been longer dated stuff I think because you said some of the backlog can months six to.
Six and 12 months out.
Right Okay.
Perfect. Thank you.
You're welcome.
Thank you.
Once again, ladies and gentlemen to ask a question. Please press star one.
Im showing no further questions at this time, so with that I'll turn the call back over to Mr. Oates for closing remarks.
Thanks, Andrew.
Once again, thank you for joining us. This morning, we wish you and your family Goodell for this challenging time, we deeply appreciate your ongoing support and interest in Universal and look forward to updating you on our next call in July.
Well and have a great day. Thanks.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating.
And you may now disconnect.
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