Q3 2020 TimkenSteel Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Timkensteel third quarter Twentytwenty earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question. During this time you will need to press Star then one on your telephone.
If you require any further assistance. Please press star then zero and an operator will come back on to assist you.
I will now turn the call over to Jennifer Beeman. Please go ahead.
Thank you good morning, and welcome to Timkensteel third quarter 2020 conference call I'm, Jennifer Beeman Senior manager of Communications and Investor Relations for Timkensteel. Joining me today is Terry Dunlap interim Chief Executive Officer, and President, Chris West Brooks Executive.
Vice President and Chief Financial Officer, as well as Tumbling Executive Vice President of commercial you. All should have received a copy of our press release, which was issued last night.
During today's conference call, we may make forward looking statements as defined by the FCC. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in yesterday's release.
Please refer to our SEC filings, including our most recent form 10-K and form 10-Q, and the list of factors included in our earnings release, all of which are available on the Timkensteel website.
Where non-GAAP financial information is referenced additional details and reconciliation to GAAP equivalent are also included in the earnings release with that I'd like to turn the call over to Terry Terry.
Thank you Jennifer and thanks to everyone on the call for joining us this morning.
The third quarter was one of transition as our customers and Timkensteel began to recover from the onset of the COVID-19 outbreak.
During the third quarter, our shipments improved we generated positive EBITDA and cash flow.
We continue to make progress on many important initiatives.
Much uncertainty remains in the market. However, so we are working hard to have a positive impact on those things that are in our control.
That includes working safely.
40 customers reducing costs.
And managing cash.
A few highlights for the quarter.
First we continue to operate safely.
Safety remains our top priority highlighted by our all time best Osha recordable rate for the first nine months of the year.
In addition, our employees continue to be diligent and following the cobot Nitin protocols, we've established to maintain a healthy work environment.
Fortunately, we have not experienced any operational shutdowns due to illness, and we continue to work collaboratively with our employees suppliers and the U.S.W. to ensure everyone remain safe.
My sincere thanks to the Timkensteel team for their ongoing focus on staying safe and watching out for their coworkers every day.
Second we delivered positive EBITDA in another quarter of excellent operating and free cash flow.
Despite the challenging demand environment, our team remains focused on generating cash through disciplined working capital management and efficiency initiatives.
Continued implementation of systemic cost reduction actions across the company both of which began prior to the pandemic.
And supporting our customers as they began transitioning to a more normal operating schedules in the second half of the year.
Combined these efforts helped generated third quarter operating cash flow of $41.1 billion and adjusted EBITDA of $2.6 million before.
A 4 million dollar improvement over the prior year period.
During the quarter, we maintained our cash position.
Repaid $40 million about standing that and as a result, we had sufficient liquidity at the end of the quarter to meet the current needs of the business.
Moving to our end markets during the third quarter, we saw positive momentum in sales and shipments as our customers began to recover from cobot related shutdowns.
Or shipped tons increased 42% sequentially, primarily driven by the recovery in the automotive market.
However, our shipments in the second quarter were historically low so were still below our pre covered levels for our overall business.
Shipments to automotive customers during the quarter were aided by higher than expected OEM vehicle sales and the corresponding pressure in the supply chain to meet demand, especially in the light truck category.
As a result, we expect to see continued robust SBQ demand from automotive customers in the months ahead.
Customers in the industrial end markets generally saw slower recovery, resulting in weaker demand for our products as our customers reduced inventory and closely manage cash.
Real customers were particularly hard hit.
Our distributors remain cautious but have reported month over month sales increases improving inventory turns and then customer buying patterns.
Finally, the energy market remains under significant pressure as oil and natural gas prices remain low and drilling rigs in operation are expected to remain at reduced levels for the foreseeable future.
We believe we are well positioned to continue servicing our customers in the energy sector as they adjust their business operations to align with the current market conditions.
As always we're staying close to our customers as they navigate these many challenges and transitions and continue to align our business activities accordingly.
Beyond the immediate challenges related to COVID-19, and short term market constraints, we remain focused on long term performance and profitability improvement actions.
I am pleased that our cost reductions are on track to deliver $100 million of run rates. They.
Exceeding our previous target of $70 million, Chris will cover this in more detail in a minute.
As we discussed in previous calls numerous cross functional teams focused on a wide range of cost reduction and working capital efficiency work streams are active across virtually all functions and activities of the business.
A few examples include three.
During the third quarter, we continued our organizational restructuring plans to create a more efficient business.
These actions are the primary driver of 17% headcount reduction in the first nine months of 2020, and a 30% reduction since the beginning of 2019.
While these actions are never easy we are committed to building a more efficient and cost competitive organization structure.
The evaluation of our overall product and service portfolio continues as we focus on areas of strength and adjusted area is no longer critical to our customers or where market dynamics have changed significantly.
Example, the changes to our seamless mechanical tubing product lines discussed in our second quarter earnings call are being implemented after working with customers to ensure a smooth transition by year end.
We anticipate the impact of this action will result in approximately $3 million per year of EBITDA improvement.
We began consolidating administrative office space and can this.
This will result in $2.5 million of near term Capex avoidance. In addition to ongoing savings of $250000 per year.
This project will be completed in early 2021.
As noted in our last call. There are dozens of similar projects being worked on in all areas of the company each with a goal of sustainable profitability and cash flow generation.
In addition, our value added components product line continues to be an area of focus.
As a reminder, these are highly engineered parts made from timkensteel bars in tubes for the automotive industrial and energy markets.
The expansion of our value added components facility near Dayton, Ohio was completed on time and under budget in the third quarter.
In August I mentioned that we were in the qualification stage for new product launches with three major customers.
During the third quarter, we began production shipments for two large Oems and are on target to begin shipments for the third customer in the fourth quarter.
We estimate sales from these new product launches to be in excess of $20 million in 2020.
Increasing to approximately $75 million in 2021.
In addition, we continue to review application and performance requirements to identify new opportunities for this product line.
Finally, our board of Directors has asked that I continue in my current role as interim Chief Executive Officer, and President until a successor can be identified.
I remain committed to serving our customers shareholders and employees as we strive to safely improve the performance of the business.
With that I'd like to turn the call over to Kris Kris.
Thanks, Terry good morning, everyone and thanks for joining us today.
On a GAAP basis, our third quarter of 2020, net loss was $13.9 million shipments and production levels improved from the prior quarter, but remained below historical levels as the impact of COVID-19, and a weak energy market continued to affect the top and bottom lines of our business.
Adjusted EBITDA of $2.6 million in the third quarter represented a 4 million dollar improvement compared with an adjusted EBITDA loss in the prior year quarter the.
The primary driver of the improved adjusted EBITDA performance and a lower demand environment as the significant benefit of our ongoing cost reduction program.
Sequentially adjusted EBITDA declined $3.1 million due to the third quarter planned annual maintenance shutdown costs and lower savings from cope with 19 related actions, partially offset by an increase in shipments.
Our cash balance remains at a high level was $74.8 million at the end of September relatively consistent with our historically high cash balance at the end of June.
Total liquidity, which represents available borrowing capacity on our credit facility plus cash and cash equivalents improved $28.1 million from the end of June to $280 million at the end of September.
Cash generated from operating activities in the third quarter was $41.1 million through.
Through the first nine months of 2020, we generated $121 million of cash from operating activities, which represents a record amount of cash generation since the inception of the company.
Moving now to the drivers of the third quarter results.
Net sales of $205.9 million in the quarter increased 34% in the second quarter of 2020 in large part due to increased demand in the automotive market. Following significant COVID-19 disruption and temporary plant outages in the second quarter.
We estimate the negative impact of COVID-19 on net sales in the third quarter was approximately $70 million.
Additionally, third quarter net sales were negatively impacted by lower raw material surcharge revenue per ton of 10% on a sequential basis.
Shipments of 154300 tons in the third quarter increased 42% sequentially as a result of higher automotive shipments, partially offset by lower industrial energy and CTG billet shipments.
This higher volume drove a sequential improvements in adjusted EBITDA of approximately $8 million that was more than offset by other items to be discussion really.
From an end market perspective shipments to automotive customers were 90300 tons in the quarter, an increase of 176% from the second quarter and slightly below the third quarter 2019.
Shipments were 59300 tons to industrial and 4700 tons to energy in the third quarter, both of which were lower sequentially and as compared to the prior year quarter.
Lower demands continue to prevail in the industrial energy markets with energy shipments negatively impacted by a weak oil and gas market.
TG billet shipments were minimal in the quarter and are expected to remain modest in the foreseeable future.
Price index declined in the third quarter with an unfavorable adjusted EBITDA impact of approximately $5 million compared with the second quarter.
The sequential decline is primarily due to the impact of higher automotive shipments on average price and mix.
As anticipated manufacturing costs increased sequentially by $7 million, primarily due to the successful completion of our planned annual maintenance shutdown in the third quarter.
In comparison to the prior year quarter manufacturing costs improved by $5 million as a result of aggressive cost reduction actions aided by flexible production schedules, partially offset by unfavorable fixed cost leverage.
Melt utilization improved sequentially, but remained low at 36% in the third quarter.
We plan to continue to align our operating schedules with near term demand, while maintaining our commitment to customer on time delivery.
<unk> expense for the quarter was $17.9 million, an increase of $1.1 million sequentially. As a result of lower third quarter savings from cope with 19 related actions.
<unk> expense decreased $3.5 million from the prior year third quarter, largely due to savings from restructuring actions.
Moving on to cash and liquidity, our total available liquidity was $280 million at the end of the third quarter of 2020, which represents an improvement of nearly $50 million since the end of 2019.
During the third quarter, the company generated free cash flow of $37.7 million and repaid $40 million of outstanding borrowings. Additionally earlier. This month, we repaid the remaining outstanding balance of $20 million on the credit facility to bring borrowings on the facility to zero for the first time in the history of the company.
In addition to positive free cash flow, we've continued to make progress with the ongoing sale of non core assets.
We received cash proceeds of $1.6 million during the third quarter upon the sale of machinery and equipment located in our former facility in Houston, Texas.
Year to date cash proceeds totaled $10 million from the sales noncore assets with additional real estate assets remaining for sale.
Our convertible debt with a principal amount of $86.3 million will mature on June Onest 2021, we continue to monitor the capital markets and believe options exist to address the convertible debt opportunistically in advance of ore at its maturity.
Overall, our liquidity position at the end of September remains sufficient to meet the current needs of the business.
From a pension plan perspective, the company recorded a noncash remeasurement gain of $4 million in the third quarter of 2020, which has been excluded from adjusted EBITDA.
The ongoing quarterly Remeasurement of the U.S. salary pension plan obligation in assets in 2020 was triggered in the first quarter this year.
Following the U.S. salary pension plan Remeasurement in the third quarter. The total funded status of all company pension and post employment benefit plans was approximately 85% as of September Thirtyth 2020, consistent with the prior quarter.
There are no additional required pension contributions in 2020 and minimal contributions required in 2021.
Switching gears to our cost reduction actions last quarter I walked you through a variety of COVID-19 related actions that we implemented at the onset of the pandemic on top of the ongoing cost cutting actions commenced in 2019.
In the third quarter of 2020, the COVID-19 related actions saved approximately $5 million in cash and reduce administrative expenses by approximately $2 million.
In total since implementation in the second quarter, our COVID-19 related actions saved approximately $12 million in cash and reduce the administrative expenses by approximately $7 million.
As discussed last quarter. The company continues to defer its share of social security payroll taxes as afforded by the carriers there.
Through the end of September the company deferred $4.3 million of payroll taxes, and expects an additional 2 million to $3 million to be deferred in the fourth quarter as well.
Payroll tax deferrals will be remitted in two equal installments at the end of 2021 and 2022.
In addition to these COVID-19 related actions that have provided us with savings in 2020, we recently completed a detailed review of our overall cost reduction program that was initiated in early 2019.
This review included validation of previously executed savings projects, and where applicable adjustments to the savings estimates for current 2020 volume levels.
As Terry noted we're pleased to report that we're on pace to deliver over $100 million of run rate savings in 2020 exceeding our previous target of $70 million.
Approximately half the run rate savings relate to a 30% permanent reduction in salary and hourly employees since the beginning of 2019.
Additionally, significant actions that contributed to the over $100 million of run rate savings include items, such as the closure of the former facility in Houston, Texas, which resulted in approximately $8 million of annual savings.
Changes to employee and retiree benefit programs to more closely align our offerings with market benchmarks will result in approximately $15 million of annual savings.
In a variety of manufacturing continuous improvement initiatives that are expected to benefit our operational efficiency going forward.
As Terry mentioned many of these actions impact people were not made easily but they were necessary to improve the cost structure and long term competitiveness of timkensteel.
At this time, we do not plan to report on this cost reduction program going forward given that the target has been exceeded and we're nearing the end of 2020 instead in the future we will highlight significant incremental new savings actions as completed.
We believe additional opportunities for simplification and profitability improvement exist and look forward to providing updates as appropriate going forward.
In summary, we believe our consistent cash flow generation and substantial liquidity provide us with flexibility to execute our short and long term profitability improvement strategies.
Given the continued uncertainty and volatility in our end markets, we are not providing quarterly earnings guidance at this time.
This wraps up my prepared remarks, and we would like to open up the call for questions.
At this time, ladies and gentlemen, if you would like to ask a question. Please go ahead and press Star then the number one on your telephone keypad.
Again, that's star then one to ask a question.
And we'll pause for just a moment to compile the Q and a roster.
Our first question today comes from the line of Seth Rosenfeld with Exane BNP. Please proceed with your question.
Good morning, Thank you for taking my questions today.
I have a couple of different questions starting out on the demand.
Hi.
Your commentary on auto seems to align what we've heard from many of your peers. The result season, but.
I think to your commentary on maybe the industrial customer base. It struck me as a little bit more cautious we've heard from your peers can you walk us through some of the dynamics within that industrial customer base, what might be holding back demand and also your expectations for shipment growth into Q4 and to what extent with the new value add components, where they try the boost in shipment volumes.
Are we looking at more stable sequentially start there. Please.
Great. Good morning, Seth So I'll make a few comments and then hand off to Tom Moline, but the automotive business came back very strong as you've heard from everyone and was robust and industrial space its been more muted.
Rail area was very difficult as I noted in Mike.
My remarks.
Other industrial activities. We're we're we're we're balanced if you will the defense market was was still pretty good for us.
Very much in line with where we were earlier in the year.
But the others in the.
In the large.
Equipment space, where we're not nearly as.
Robust as we had we had hoped for so I'm Tom do you want to add a few comments there. Please.
Yeah. So good morning, this is Tom willing and I'll add a little color.
On the industrial side in particular, and also energy, but the general industrial markets were down modestly in the quarter certainly relative to Q2 somewhat as a result of the COVID-19 pandemic, but most of our customers continue to operate with modest disruptions.
Within all state mandated restrictions, but we did see sub market declines in the 15% to 25% range relative to earlier in the year.
With some select markets being even deeper specifically rail.
Somewhat on the excavation earthmoving equipment side, and certainly any of the industrial forging group that we're supporting or are supporting oil and gas pipe applications.
Now our volumes were down 6% relative to last quarter and approximately 25% relative to earlier in the year.
And although difficult to quantify we approximate about half of that was driven by the effect of the COVID-19 pandemic now.
Now what we're seeing right now is customer inventories are reported to be generally in good condition.
Order book cancellations from industrial customers have been modest well within historical levels.
Initially we saw a significant increase in request to push material wanted dates out a bit but.
But that has subsided.
And most customers are taking advantage of short mill lead times in the industry.
Our distributors the service center channel continue to manage their inventory to align with change in demand specifically they are shipping rates.
Placing only replacement orders at small order quantities.
Theres really no speculative buying going on at presence at all.
So from our perspective, while the industrial markets have retracted.
We continue to book orders, albeit at smaller order quantities.
And there still is a lot of uncertainty with regard to COVID-19, and also the election, making it difficult to forecast, but booking levels are improving with some large industrial accounts.
And there is cautious optimism amongst the distributors moving into Q1.
And if you look at the the real sub markets within industrial mining agriculture, industrial machinery and power Gen are all relatively stable with mining and agriculture actually beginning to show some strength.
Wind energy and defense have shown solid resiliency through the pandemic.
And that appears to be.
Good position to continue but.
But as Terry mentioned, the one submarket within industrial that is still in decline as well.
I can offer something deeper on that yet okay.
Is it going to take if you can add something that up into a view for Q4 volumes, whether or not you saw opportunity for further sequential growth across the group.
I think Q4 will look much like Q3, just because of some general seasonality.
With improvements going into Q1.
That's very clear thank you.
If I can ask a separate question. Please.
Cash generation, obviously, continuing to execute really excellent performance from working capital management.
Congrats on that I'm wondering if you can please talk us through whats continuing to drive that going forward as demand on middle sensibly, improving certainly in Q3, we saw volumes decline.
Do you see opportunity for further working capital release into Q4, and its 2020, one or have kind of a structural measures you've discussed in the past been exhausted at this stage.
Good morning, Seth This is Chris.
Clearly as Weve talked about before working capital remains a significant focus for us going forward.
We do believe there are certain categories of inventory that we can still optimize for example, certain pockets of finished goods and supplies. As examples how are those do take time and we have addressed a lot of low hanging fruit from an optimization perspective already Q.
Q3 actually is our lowest points of inventory in the history of the company.
From receivables and payables perspective, we expect those to followed demand in the future and be very somewhat matched. So overall, we do believe all those process improvements we have implemented those are going to continue their systemic benefit us going forward.
That said the last nine months have been very strong from a cash generation perspective, and going forward, it's going to be dependent on demand and EBITDA generation from one respect and then the working capital tactics, we believe will be less impactful because we have completed a lot of those larger more significant items.
Thank you very much probably didn't drop them.
Your next question comes from the line of Tyler Kenyon with Cowen. Please proceed with your question.
Hey, Thank you good morning, everyone.
Good morning, Tyler Perry.
Good morning, Terry in your prepared remarks, I think you referenced just some broader operating constraints I was wondering if you could talk a little bit more about those.
Operating constraints.
Does that answer your question, yes, sorry.
I think you were referring more so as to what you are seeing out in the market.
With the customers, but yes, if you could just expand upon that a bit more.
Oh, yes, it's very it's its customer base straight it's the demand side. So operationally we're in really good shape.
We are things are running running well plants are running well of managing our capacity nicely keeping our lead times short so on the on the.
On the operating side quite.
Quite good.
On the demand side, Tom just went through it thats, where the concerns are if you will the uncertainty is a better word for automotive its been pretty clear.
All right about an heard about it and mostly in the last three months, it's all the other activities that.
Just have a level of uncertainty that Tom went went through for you. So I won't repeat itself.
And then the energy I know, it's at a very low level.
That's a I think everyone expects that to continue all the experts in the oil and gas and natural gas business. So when we mentioned the constraints, it's really market constraint as opposed operationally constrain.
Got it okay. Thanks for that Chris could you help us with.
Some of the major levers for the fourth quarter EBITDA Bridge.
Have a bit of a new now here around perhaps volume trajectory these including from Threeq to Fourq you would.
What would you expect the 7 million to $7 million tailwind just from lower maintenance that you took in the third quarter and maybe how we should be thinking about raw material spreads and costs coming back and then again some potential offsets to those from cost reduction initiatives.
Sure Tyler good morning.
You think about the annual shutdown maintenance of that 7 million.
Additional manufacturing cost we experienced in Q3 versus Q2 about two thirds of that is related to the annual maintenance and not all of that.
It is in the seven so that obviously will go away. There is one piece that we are focused on here in the fourth quarter. We do plan to take a three week planned outage at our Faircrest facility. This.
This has been planned for months no disruption to the business will continue to ship to customers. There is some required work that we need to do there from a maintenance perspective, it's going to come at a cost of about one and a half million dollars about half of that will be capex half of that will be expense. So thats an important action for us in the fourth quarter that we typically don't do at that time of year.
Besides that from a spread perspective, we have seen some contraction scrap prices as Terry mentioned are fairly stable, though.
So I can't think of any other major puts and takes to really walk through from the fourth quarter perspective, the most terrier, Tom you have anything to add.
No the spreads I think you mentioned specifically Tyler.
On the raw material spread things are pretty stable you hear from everyone else. When you talked about it that are really the big guys in the scrap business. So it stayed relatively stable there has been some compression.
On the spreads from the second quarter when it was a quite uncertain time for everyone. So things is actually from my perspective stabilized pretty nicely on the raw material front.
And just lastly, with respect to the new 100 million dollar run rate savings target from from some of these cost reduction initiatives.
What proportion do you think you've realized here in the in the third quarter and kind of how should we think about the pace of the what's left to be realized moving into the four cents.
First half of 2021, thank you.
And Tyler so related to the cost reduction we've taken the opportunity as I mentioned in my prepared remarks to the review all of that and feel very comfortable that we are on pace. This year to deliver over $100 million of savings there will be some actions that weve taken later in the year that will continue to provide an incremental benefit as we.
Get into 21.
But you will see those savings in our numbers and it was challenging at the low volume levels and our EBITDA level to see all of that.
But it's in there and overhead.
Over half of that is coming from all the the reductions we've taken from a head count perspective. So you will see those savings in our figures and were wrapping up the year strong.
And your next question comes from the line of Phil Gibbs with Keybanc capital markets. Please proceed with your question Hey.
Hey, good morning.
Good morning, Jeremy.
Okay, great Yeah.
Tom I missed what you had said towards the end of your comments you said volumes could be reasonably consistent with the third quarter and then you made some comment after that that I missed.
Yes, with some modest seasonality that would be expected in the general course of the calendar year.
The season out we're still is.
No we're not going to see is US yeah. We're we're still book in the fourth quarter write the lead times are very tight as Tom mentioned. So we're we're still we're still book in the fourth quarter on everything we have every every product we have so.
Lot of uncertainty there if you will but it will we'll know more in the weeks ahead, how that's going to look.
Okay. So you're saying so you are seeing normal seasonality then for Q4 is that what I should take away.
Yes, I believe that to be true.
Okay, and then on the auto side, specifically clearly a snap back in the third quarter.
And as you look you look to the fourth quarter in the first quarter or I guess one of your what are your customers telling you in terms of readiness and ramped have they have they secured the material.
I needed to get them through the next three to six months because.
I know obviously the production rates are way up they probably did have some states inventory going into this so trying to trying to balance out all those thoughts.
The mandate to build demand demands really Tom let me grab that one for started they demand continues to be very good the pools very good at it appears that there's various choppiness. There is no doubt there's there's movement with some people that have too much or have too little its.
As theyre adjusting maybe some suppliers and moving things around for for next year and get with that so but it's the demand signals are all really good and you read about it every day, especially with the pickup trucks and as you know is very very strong can't make them fast enough.
It does the Mexico supply chain seems to have settled.
Settle down a bit.
Other issues that are out there with.
But the main producers into supply chain had had a difficult.
Ben It's one of their plants its force them to move some things around so we're.
We are dealing with all of that but the overall overarching on the auto side.
Very strong in the supply chain stresses or or.
Very good in a in a good way.
On the full side.
But definitely some choppiness fell I mean, everybody is working hard to get it right and to get back on track with where they were.
In the first quarter.
Terry you've been you've been doing this for a while in terms of metals metal supply chain and psychology and seen a bunch of elections I guess, how is the general presidential election, playing into.
Capex side.
Psychology, I know it might be tough to.
Decipher given everything else going on but you think thats a factor in terms of people restricting capital spending.
I think everyone just can't wait till it's over so they can get on with with their life.
I would say the oil and gas folks in particular are the ones that as bad as it is or waiting to see what happens because given the differing views that.
Each group has on on fossil fuels so I'm.
Im not sure how it can be a whole lot worse, but we'll see what happens.
On.
The Capex side I would just say people are cautious they can't wait to get through it 74 or five days away and I know I think everyone will be just happy to know what what direction, we're going to go and they can get back to trying to plan their.
Planned or send their lives and plan their business. So.
I wish I had a better answer for you, but you.
You can we can I'll watch CNBC and Bloomberg.
Find out what's going to happen.
I'd say, that's assuming the outcome of the election is decided next week. So that's enough I think thats yeah, that's another matter [laughter].
[laughter] alright, thanks very much.
All right. Thanks, Phil.
And again, ladies and gentlemen, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Your next question comes from the line of Jim kits singer with Kate LCM Advisors. Please proceed with your question.
Morning.
Couple of questions.
Where are you or how do you feel you're doing market share wise.
Relative to your competitors.
And have you changed.
In this down cycle.
What youre trying to do mix wise, I mean, a couple of years ago.
Objective was to.
Build a richer mix and give up some of the the grades that.
Others do at a cheaper price than you guys from a manufacturing standpoint, so I'm interested in some color there.
I'm also interested in you made a comment that revenues would be $70 million more ex coal bed.
And I'm, assuming you look at some mix.
Blah Blah blah.
Let me.
If that $70 million was there in the third quarter.
How much incremental EBITDA would show up.
Relative to the cost structure and I think.
Tyler or Phil we're trying to get to this you know where you added $25 million quarterly.
Savings rate.
In Q3.
Are you or are you going to be there in Q4, and that's the kind of number we should be looking at rolling forward because.
You know.
It appears you've staunch the bleeding, but the real question longer term is do you have a viable business model.
You know with somewhat better volumes to.
Generate.
Some operating profitability at some point in the cycle. So a lot of question, but I guess I'd like some broad views.
Okay, Jim Terry here I'll try to get them, all I'm going to hand, the turn off I think at least on one to Chris but on the market share question. The latest data that we have our market shares actually gotten a little bit better.
Again, it's not perfect information, we get it from a variety of sources, but I think on that front, we think on the SBQ front, then seamless mechanical to front that that that continues to be a good thing less imports for sure.
So as we as we go forward again imperfect data, but what we do get from external sources seems to be pretty good.
As far as the mix goes absolutely trying to move up the value chain as best we can.
The energy if you've followed the company for a long time, you know energy is a is a high value product for us said.
Given the dramatic declines in the energy sector that certainly does not help our overall mix.
Efforts the work we've done to continue to grow our business in the defense market.
It's been a really good thing because that is very much on the high end of the value chain. So we're continuing to work very hard.
In that area to continue to grow our business with the really.
Important customers that we have and and the work that they're doing and thats been.
Been very successful this year and we were hoping thats going to continue looking ahead. So on the mixed fronts. We very much want to go up the value chain energy is a tough one to overcome it.
In a short period of time, but we're working hard at doing that and we also spent a tremendous amount of time in the last year on the specialty side of our business of how.
Better to better monetize the things, we do that not everybody else wants to do how do we how do we make it more efficiently how do we manage the working capital more efficiently how do we price it more efficient leave whether it's products or services and we spend a lot of time on that we're going to continue to work again, you can't flip a switch and make all that get better.
In a week.
But I can tell you is that an area that we've been spending a lot of time on for for many months.
On the on the cost side Chris.
Chris I'm going to let you take that when if you can just reiterate some of the things you talked about a few minutes ago.
Yes.
Absolutely as really two parts to your question there Jim first on the cobot sales and the impact to EBITDA and we're not going to pro forma what that looks like it this time, but from a savings perspective, what I will share is about 75% of the 100 million over 100 million dollar savings.
We're on track to achieve is structural it's related to all the actions that are behind us and theyre not related to volume 25% of that approximately is variable and it relates to volume, but its calculated at todays lower volume levels.
So from my perspective, I view that as an upside opportunity as volume recovers in the future you will see those savings to continue to grow and develop.
But in 2020, we have delivered on those savings with 75% of those being structural.
And then the last question I think was with the business model. The volume clearly is not what we are expiring.
To do but I would say given how low the volume was in third quarter from historical perspective.
And to still generate positive EBITDA in cash in that environment, I think bodes well when the volume does start to come back.
It will be the leverage on the added volume will be will be something we'll we'll like and as Chris just mentioned the cost that we stripped out two thirds of it 375% of it. If you will is systemic or structural and it will it will it will benefit from added volume across the across the business. So.
We have to work really hard at that we have to keep making sure we have our customers taking care of and they want to keep giving us their orders and we can keep making product for them and.
That's where tremendous amount of our of our focus is and I think the model will will like it better with the new cost structure that weve been working so hard to put in place over the last year.
Right.
I get that and I appreciate that and once again I think everyone was very pleased at the cash flow generation.
With the working capital work you've done to.
To hold the operating profitability about where it is now at a hopefully we see this as a a cyclical low point.
My broader question, though is.
Okay. If this is.
Weve owned cyclical companies for a long time. This is as bad as it gets in a down cycle I get that.
But what does the business model look like over the next up cycle. So that there are some return.
Metrics that investors can.
Can begin to think about.
Going forward I mean investors and companies like this I understand.
Deep cycles, but they also want to a viewpoint of.
What does it look like when volume comes back I mean, you can't affect volume, we all understand that but you I mean, the cost structure has changed dramatically over the last two years.
I'm trying to get an understanding of what a business model looks like.
With volumes.
Volumes up.
30, 40% from here, which would not be ROIC move.
You know across these business. These these end markets.
Well.
Those are great questions, Jim and I wish I had a better crystal ball for you, but I think we do know that getting the cost structure right in a business like this is absolutely critical and we will.
Serve us well in the in the worst of the Downtimes, which is where we think we are today and and serve but really really well.
When when markets come back so I think we're going to have 2018, you know anytime in the next year, So I'm I wish, but who knows but I don't I don't know if we're going to see a 2018.
Or 2014 for quite a while so we have to continue to focus on good stripping the cost out of this place. So we ended up as much as possible to generate cash and EBITDA in the worst of times and then leverage that.
That volume across the same asset and cost structure in the best of times. It paid for what we do the special stuff that we do that others don't really care much about and be in a position to compete cost wise be competitive with the with the bigger guys said that.
That.
We have to face every day so.
That's our goal that's our mission and that's what we're we're striving to do.
I'll ask two follow ups, where do you think you are from a cost structure standpoint relative to your your big competitors.
How are you 5% higher in cost 10 20.
You know where do you have to get through to be competitive and then secondly, Terry.
Absolutely.
The board likes what you're doing or no one is.
Chosen to throw their hat in the ring here.
To to run the place.
I would like some.
Thoughts on both of those topics.
Well when you talk about the people you compete with we know we have to keep working on the cost structure and we think about the gaps all the time and what we have to do to get to get those closed and we don't usually talk about the details around that but you can be sure we.
We're focused on.
On getting your cost structure on every front fixed and operationally to compete with everybody and anybody.
As far as my job goes I've been here for 12 months. So we've worked hard to.
To keep the company moving forward and.
The boards that needed to continue to do this for the foreseeable future until my successor is found and.
We'll keep you posted on that as the in the weeks and months ahead and.
When we have something to tell you will book will be able to tell you I wish I could.
Expand on it more than that but that's.
But what I can say about me at the moment.
And again, ladies and gentlemen to ask a question. Please press Star then one on your telephone.
And there are no further questions in queue I turn the call back to Jennifer Beeman.
Thank you Amy and thank you everyone for joining us today and that concludes our call. This morning.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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