Q1 2020 Earnings Call

He is commission filing.

Further please be advised that the company, it's directors in certain of its executive officers.

And participants in the solicitation of proxies from the company's shareholders in connection with the 2020 annual meeting of shareholders.

The company has filed a definite a definitive proxy statement with the FCC in connection with any such solicitation of proxies.

Shareholders are strongly encouraged to read such proxy statement and all other documents filed with the FTC carefully and in their entirety as they can.

Saying important information.

Information regarding the identity of the.

Companies participants and their direct or indirect interest Arctic.

Dirty holdings or otherwise can be found in the companys definitive proxy statement and other materials filed with SEC.

These materials can be obtained free through the company's website in the section titled Investor Relations or through the Fccs website.

Hosting today's conference will be Mr., Craig Bram, President and Chief Executive Officer, and Dennis Loughran, Senior Vice President and Chief Financial Officer.

Ill now turn todays call over to Mr. Brown for opening remarks.

Mark. Please go ahead Sir.

Good morning, everyone. Welcome to Similarly Corporation's first quarter 2020 conference call.

Then as locker, our CFO will provide a review the Q1 financials and then I'll provide some comments on business segments.

Well open the call the questions Dennis.

Hello, everyone.

As usual financial results will represent an easier three different methods first yes, maybe CBS.

Second adjusted net income non-GAAP measures the finding the earnings release.

Third adjusted EBITDA, a non-GAAP measure also defined deliveries release.

First quarter GAAP based income was a net loss of $1.2 million.

Our team cents diluted loss per share.

There was a net loss or point $9 million or 10 cents diluted loss per share in the first quarter 2019.

First quarter non-GAAP adjusted net loss was point $7 million or eight cents adjusted diluted loss per share as compared with adjusted net income.

Point $6 million or seven cents adjusted diluted earnings per share.

First quarter 2019.

First quarter non-GAAP, adjusted EBITDA totaled $2.6 million for 3.5% of sales.

Year to the prior years first quarter total.

$4.8 million or 5.6% sales.

As pointed out in the earnings release inventory price change losses impacted results below pre tax basis point $4 million.

First quarter 24.

Compared to pre tax loss of $3.4 million in last year's first quarter.

This represents a 3 million dollar improvement in the balance between the surcharge George Invoiced to customers and the cost of inventory pass through the income statement compared to the first quarter 2019.

As a note regarding the current status of nickel metal valuations with nickel at today's level at the end of the first quarter 2020, we had approximately $4.8 million of accumulated downward revaluation impact.

Declines in alloy metal pricing over the prior three to five months.

With order book pricing based on crop approximately half of current pipe into the inventories we would expect approximately $2.4 million of that totaled pass through his metal pricing losses during the second quarter 2020.

The combined adjusted EBITDA as a percent of sales for the operating businesses in the first quarter was 5.7% compared to the prior years first quarter of 7.6%.

The primary factors in the decline being inventory price change differential mentioned above.

The average pricing declines experienced and rolled stainless pipe and galvanized through operations compared to prior years level.

The company had $77.8 million of total borrowings outstanding with its lender as of March 31 2020.

Since March 31 to 2019 that bigger has been reduced by $13.6 million. It a rigorous management of inventory and accounts receivable and.

And these uncertain times swamped by the Cobot 19 buyers, we are redoubling, our efforts to improve our liquidity and reduce debt through the end of this year with further inventory reductions approximately $7 million.

Estimated refund attaches made available through available through recent tax changes approximately $2 million.

And responsible constraints on capital spending until the economy as normalized of approximately $2 million.

The calculate ABL facility remaining available as of March 31, 2020 was approximately $19 million.

I'll now turn the call back over to Craig.

Thank you Dennis the first quarter saw weaker year over year demand, particularly in the metal segment.

Pricing pressure negatively impacted material margins.

For the entire competition.

Excluding Palmer material margin declined by $3.85 million over the first quarter as last year.

This is with township virtually unchanged from the prior year.

We were able to proactively offset a portion of this loss material margin through our cost cutting efforts as discussed during our year end outlook.

Again, excluding Palmer, we reduced our costs by 1.54 million year over year.

Savings from the cost cutting initiatives will increase over the next several quarters, providing additional financial support to our results.

Let me also provide an overview of our welded pipe into business.

This includes Bristol metals and a S T.

For the first quarter pounds shipped were up almost 6% over the same period last year.

We gained 3.4 points of North American market share in the welded stainless steel pipe category.

However, with weak demand, particularly in the commodity alloys pricing for this segment of our business remained under pressure.

While demand was reasonably good for our ornamental product line, our coal suppliers and an unexpected extension in their delivery lead times, which negatively impacted asked you guys pounds available for shipment.

Overall prices were down 10% for the welded pipe and tube segment over the same period last year.

Material margin fell by 14 cents per pound over the same period last year.

And was down $2.9 million on an absolute dollar basis.

We continue to show solid improvement in our cost structure with every major category down from the prior year.

Labor and benefits declined by $413000 or 2.8 cents per pound.

Shipping costs fell by $57000.

Manufacturing costs were down by $102000 or 1.7 cents per pound.

And SGN, a was down $360000 or one and a half cents per pound.

In total costs were down $932000.

Or over 6.5 cents per pound for the welded pipe into segment.

Bookings in the first quarter for this segment were also strong.

That said, we saw order activity soften a bit in April.

Our backlog remains in good shape at the Bristol facility, but is lighter than when the than we would like to see at mine haul.

S.T. as customer base, excluding the medical sector, which was strong in the first quarter is slowly ramping back up.

Q tail Q2 sales will likely trail Q1.

[noise], our seamless carbon business saw pounds shipped declined by approximately 7% over the prior year.

While selling prices were down roughly 8%.

Material margin was down nine cents per pound.

And down $709000 on an absolute dollar basis.

Costs were down for this product line as well over the prior year shipping costs fell 8% on a per pound basis, and labor and benefits were down 19% on a per pound basis.

Bob SGN, a was down 8% on a per pound basis.

Manufacturing expense was up $12000 over the prior year due to higher insurance expenses and greater depreciation.

In total costs were down $254000 over the first quarter of last year.

For a total of five cents per pound.

Order exiting in April was below the first quarter as the heavy industrial markets and energy market showed signs of stress from the shutdown of the economy.

As previously reported.

We have ceased manufacturing operations at our Palmer of Texas facility.

We currently have fewer than 10 individuals employed at this operation.

Drilling activities fallen precipitously with the decline in WCS WTI prices and there are no signs of quick recovery.

As we collect accounts receivables and sell remaining inventory, we expect to extract several million dollars a capital from this unit in the coming weeks.

Similarly, we'll evaluate increasing production of polymer when the cobot 19 pandemic is over and the oil and gas industry in the Permian basin returns to normalize pricing and demand levels.

Turning to the chemicals segment.

Alan shift were down 7% over the first quarter of last year, but prices were up 10, 10.2%.

Effective March 1st we instituted a 4% price increase across a portion of our products.

Material margin, however declined by $264000 year over year.

The chemicals segment also generated solid cost savings and shipping manufacturing expense and SGN a.

Combining for total savings of $216000 year over year.

However, labor and benefits were up $79000 due to a very large medical claim.

As a result employee benefits were up $189000 exceeding the 110000 savings in production related labor.

We continue to ship several tanker wagons per week in hand sanitizer.

Oh this product line has increased substantially with the cobot 19 outbreak. We believe the hygiene practices going forward, we'll continue to create a strong market for hand sanitizers.

With the I assume manufacturing index for April hitting its lowest level since April.

2009.

We remain focused on expense reduction in cash flow management.

As Dennis mentioned that cares act will allow us to utilize net operating losses and carry them back five years.

We expect is to generate an estimated $2 million in tax refunds over the next two quarters.

We will also have an additional estimated tax refund of a million dollars for the 2019 tax year.

The property in business interruption claim for the heavy wall press is being finalized and we're pursuing a cash settlement in excess of a million dollars happy deductible.

Which should also hit in Q2 or early early Q3.

At the end of last year, we changed insurance brokers to address higher premiums in the property and casualty coverage.

And after a successful remarketing about properties as spring, we're saving over $600000 annually.

The new coverages were bound at the end of April so the savings will kick in at that time.

At Bristol metals, we've had an ongoing dispute with our supplier of industrial welding gases for the among all facility.

We believe that they have overcharged, Bristol metals, approximately $1 million over the last three years.

Unable to negotiate an acceptable settlement, we filed a lawsuit in eastern district in Virginia.

Finally, we are pursuing it property tax valuation review it SPT Houston operation.

Which should result in savings of $200000 annually.

As our order book dictates, we will of course adjust our head counts. According of accordingly over the next two quarters.

We'll now open the call for questions.

Thank you as a reminder to ask a phone question. Please press star followed by the number one on your telephone once again that is star one for an audio question.

Yes.

And your first question is from the line of James Lewis.

I was wondering are.

Yes quarters for office.

[noise] excuse me.

I didn't I didn't hear not less.

Good morning with Us I.

Just to make it harder for us that lies in the first quarter profit.

[noise] as far as burst on metal segment Division.

We don't we don't break that out on the calls for competitive reasons.

Okay.

[noise] well that was my question I was gonna list and everything that they said they just had a small market advertising.

Good backlog so out of the.

[noise] slot.

I didn't hear none of the numbers or insights out.

Well have to white on that.

Okay.

Yes, Okay [noise].

No problem okay.

Thank you Sir.

Once again to ask an audio question. Please press star one.

And at this time there no further question.

All right is usually appreciate your support thank you very much.

Thank you. This does conclude today's meeting you may now disconnect.

[noise].