Q4 2020 Universal Stainless & Alloy Products Inc Earnings Call
Yeah.
Good morning, ladies and gentlemen, and welcome to the Universal stainless fourth quarter 2020 conference call and webcast.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time.
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Now, it's my pleasure to turn the conference over to your speaker.
June two N Geri. Please go ahead.
Thank you. Good morning. This is June Phil and Jerry of Comm partners and I also would like to welcome you to the Universal stainless conference call and webcast we.
We are here to discuss the company's fourth quarter 2020 results reported this morning.
With us from management are Denny Oates, Chairman, President and Chief Executive Officer, Chris Zimmer Executive Vice President and Chief Commercial Officer, John Armenia's, Vice President of administration and General Counsel.
And Lynn Vice President Finance, Chief Financial Officer and Treasurer.
Before I turn the call over to management, let me quickly review procedures.
After management has made formal remarks, we will take your questions.
And our conference operator will instruct you on procedures at that time, though she promised also please note that in this morning's call management will make forward looking statements under the private securities litigation from Axis 1995.
I'd like to remind you of the risks related to these statements which are more fully described in today's press release and in the company's filings with the Securities and Exchange Commission.
With the formalities complete I would now like to turn the call over to Denny Oates Denny we are ready to begin.
Thanks, Jim.
Everyone. Thanks for joining us today.
On our call last October we said the fourth quarter would be challenging and characterized by three things.
Debt reduction.
Modest growth in bookings and financial performance on operating levels closely parallel Inc. Third quarter, let's.
Let's take a look at what actually happened.
Debt was reduced $10 $2 million during the quarter, which brings our second half 2020 debt reduction to $22 million $2 million greater than our estimate at mid year.
We are in good shape from a liquidity standpoint to meet the gradual improvement in business, we anticipate as we move through 2021.
Gross bookings were $24 million up $3 3 million or 16% from the third quarter order cancellations fell to $1 million compared to $10 5 million in the second quarter and $2 3 million in the third quarter.
Our bookings reflect continuing destocking in aerospace and oil and gas markets.
Plate market.
Turn to pre pandemic levels.
Healthy semiconductor activity and the best quarterly bookings of premium melted products of the year.
The outlook for recovery in aerospace in the second half of 2021 remains intact and there is increasing optimism for oil and gas markets as well.
Our backlog stood at $48 million at December 31, seven.
$7 million or 13% reduction sequentially and $71 million and 60% below December of 2019.
Covid driven turmoil on the aerospace and oil and gas markets accounts for the decline.
Let's move on to the fourth quarter results.
Sales of $31 $3 million were down $6 million or 16, 3% from the third quarter and 43% below the fourth quarter of 2019.
Our sales were adversely impacted by $2 million of sales to the far east that did not reach the destination in time for Q4 revenue recognition.
Plus normal customer actions to delay shipments as part of the year end inventory management.
He has also pulled down our fourth quarter premium alloy sales by 35% sequentially.
Fourth quarter sales also reflected a 19% sequential increase in <unk> sales and record semiconductor sales.
We believe Q4 will be the low water mark in sales for this down cycle.
We have been working on our operating plan designed to reduce costs and conserve cash. Our plan includes periodic shutdowns of entire facilities, coupled with rolling shutdowns of major work centers stringent capital and operating spending controls workforce reductions and reduced work schedules.
Our first quarter fourth quarter production levels were virtually identical to the third quarter. However, our cost per pound was reduced a further 6%.
The continuation of low activity levels, coupled with a less favorable product mix in the fourth quarter negatively impacted our gross margin. We recorded a fixed cost absorption charge of $3 8 million essentially the same as the third quarter.
And the 300 $300000 loss on excess scrap sales these.
These scrap sales generated $700000 in cash.
Excluding these charges fourth quarter 2020, gross margin was a loss of $1 million or a negative three one percentage of sales.
One offset to these negative factors has been the continued rise in most commodity prices, which is enabling us to maintain metal spreads Nick.
Nicole for example, close the fourth quarter at $7 62 per pound an increase of 13% from the end of the third quarter and up 22% from a year ago.
Today nickel was being quoted at $8 15 per pound.
Molly vanadium and manganese also demonstrated strong quarter over quarter increases.
While scrap closed the fourth quarter at 17 cents per pound, a 36% increase both sequentially and versus the end of 2019.
We've made progress on our commitment to reduce manage working capital posting our fourth quarter reduction of $19 $2 million.
To do so we further reduced inventory by $9 $6 million, which brought our total inventory reduction in 2000 $20 million to $36 million.
In the first quarter. This year, we intend to pay off the $15 million in notes, which were issued in the acquisition of the North Jackson facility in 2011.
As a result, lower interest expense of approximately $600000 will benefit 2021.
Chris will have more to say on this subject in his comments.
Operating during the downturn generally isn't very much fun, but these times do provide us with the opportunity to step back and assess our shop practices with an eye towards driving productivity and sustainable cost per pound reductions, which will drive improved margins as volumes recover this year.
During the fourth quarter planned activity levels were driven down 60% compared to the pre pandemic first quarter as measured by pounds processed through our facilities.
Air melt operations were reduced 52% versus pre pandemic levels, yet productivity as measured by pounds produced per operating hour increased by double digits.
Vacuum melting operations were reduced 57% compared to pre pandemic levels the cost per operating hour fell 12%.
Variable non material spending has been reduced over 50% since COVID-19 hit.
Controllable fixed spending has been reduced 46% since the March quarter.
Selling general and administrative expenses totaled $4 2 million in the fourth quarter. The same as the third quarter and down $1 7 million or 30% from the first quarter.
Lastly, and very importantly, working through all of this COVID-19 turmoil, it's been a challenge for all of our employees. So it's fantastic to see our Osha recordable rate hit the lowest level on Universal's history.
My sincere thanks to everyone for looking out for one another.
We continue to bring capital spending down in the fourth quarter to a low of $700000, which brought full year capex to $9 2 million.
We now expect capital spending in 2021 to increase to $11 million as we move forward with our strategic growth initiatives, including adding a vacuum arc <unk> furnace, and an 18 ton crucible toward vacuum induction melting operation.
These investments will expand our premium alloy production capabilities plus reduce our costs.
Our new vacuum arc re melting furnace will arrive at north Jackson this quarter and be installed in the second quarter with commissioning occurring in the third quarter.
The larger crucible will be installed in the third quarter and begin integration to operations immediately.
Premium alloys will remain a major driver of our future growth.
On the subject of premium alloys, one other benefit of the current slowdown is that Oems have afforded more technology resources to upgrade long term supply change by approving new suppliers for critical alloys as.
As a result, we are increasingly optimistic we will be rolling out three new premium alloys in the fall of this year alloys with excellent future growth opportunities.
Turning to our end markets.
Our aerospace sales were $17 2 million or <unk> 55 percentage of sales in the fourth quarter compared with $25 1 million or <unk> 67 percentage of sales in the third quarter of 2020.
And $37 6 million or 68% of sales in the fourth quarter of 2019.
That represents declines of 32% and 54% from their respective prior periods.
Full year aerospace sales of $121 9 million are off 28% from 2019.
The turmoil on the aerospace market over the past several quarters has been well documented starting with the delays in the return to service of the Boeing 737, Max compounded by the COVID-19, pandemic, which severely impacted air travel.
There is still some concerning news out there regarding aerospace.
For example, the slow recovery in air travel stalled in November with the International Air Transport Association reporting November 2020 traveled down 73% year over year versus 72, 6% in October <unk>.
New travel restrictions continue to be announced as recently as earlier this week.
The I T E also reported $118 billion in airline industry losses in 2020.
Leading to difficult liquidity issues, and cancel or postpone new aircraft deliveries.
Boeing is dealing with some quality and production issues on the 787 and delays in the new Triple Seven X.
Airbus recently slowed its production ramp on the <unk> hundred $20 to 43 planes per month from 47 per month.
Airbus also recently announced 500 employees are in quarantine in their Hamburg facility due to a nasty COVID-19 outbreak.
However, I want to remind everyone that all is not gloom and doom.
737, Max is returning to service.
COVID-19 vaccines are rolling out improving the prospects for air travel.
United Airlines reported at leisure travel demand will recover quickly likely a few months following COVID-19 vaccinations due to pent up demand.
Delta Airlines is more optimistic than said list last week that it expects corporate travel to quote come back aggressively unquote in the second half of 2021 Delta is calling back 400 pilots from layoffs to begin flying mid year.
Boeing also began to book new orders they booked a new 75 planes 737, Max order from Ryanair Ryanair called the playing a game changer when they place the order.
The liquidation of the 450, playing inventory of 737 Max's has begun a per.
<unk>, which will take an estimated 18 months.
We will see on today's Boeing call, whether there is any other updates to the build rates.
I should also add that defense spending continues to be a positive demand driver for us, especially in the rotor world.
We recently canvassed, our top 20 aerospace customers.
The consensus is that Destocking will ease this quarter and true demand buying will begin in the second quarter.
Good thing for mill order books.
This supports our outlook that we'll see sequential improvement in the business climate with increasing momentum moving through the second half of the year and into 2022.
The heavy equipment market remained our second largest market in the fourth quarter of 2020 with sales of $6 million or 19% of sales.
An increase of 30% from $4 7 million or 12% of sales in the third quarter and 27% higher than the $4 8 million or 9% of sales in the fourth quarter of 2019.
Metal fabrication markets, particularly automotive and new model introductions drive fleet sales.
Our customers are restocking to meet growing demand, particularly from automotive.
Pounds booked in the fourth quarter were up 89% and we are seeing booking strength continuing through this month.
The general industrial market remained our third largest market in the fourth quarter with sales, reaching a near record $4 4 million or 14% of sales an increase of 55% over 2000, Twenty's third quarter sales of $2 9 million.
And an increase of 83% of our sales of $2 4 million or 4% of sales in the fourth quarter a year ago.
Total 2020 general industrial sales of $12 8 million were 42% higher than 2019.
Our general industrial category includes sales to the semiconductor medical and general manufacturing markets.
Substantial semiconductor market demand was the main driver of our near record General industrial sales in the fourth quarter.
In November the World semiconductor trade statistics organization forecast that the industries worldwide sales increased five 1% in 2020 and eight 4% in 2021 with 2020 growth primarily due to the 18, 7% increase in sales in the Americas.
<unk> shortages are being reported in consumer electronics, and among all major automotive Oems.
In addition to the strength in semiconductors are general industrial sector is also benefiting from healthy medical demand.
We will continue to focus on the semiconductor market. In addition to pursuing opportunities in new markets within the general industrial segment to broaden our future sales potential.
The oil and gas end market was our fourth largest market in the fourth quarter with sales of $2 3 million or 7% of sales compared with sales of $2 8 million or 7% of sales in the third quarter of 2020, and $6 3 million or 11% of sales in the third quarter of 2019.
That represented a decline of 17% and 63% from their respective prior periods.
Full year oil and gas sales were down 48%.
From 2019.
Crude oil prices are back up above $50 per barrel West, Texas intermediate was at 53 this morning.
Our rig count has increased for nine consecutive weeks may.
Major players such as Schlumberger, Halliburton, and Baker Hughes reported solid financial numbers for the fourth quarter and an upbeat view about recovery in the second half of 2021.
With demand returning to 2019 levels in late 2022 and 2023.
That said current rig counts are well below year end 2019 levels at 378 versus 781.
And the New administration recently announced policy decisions are causing concerns in the marketplace.
Our customers generally indicate cautious optimism that the global economy and oil demand will begin to recover in 2021.
Slowly during the first day of the year, followed by increasing momentum in spending and activity levels as the macro environment improves setting the stage for a stronger 2022.
Current supply chain inventories are reported to be very lean.
Power generation market sales declined to $1 million or three percentage of sales in the fourth quarter compared with $1 6 million or 4% of sales in the third quarter of 2020.
And $2 9 million in the fourth quarter of 2019 full year power generation revenues of $6 9 million were 40% lower than 2019.
Maintenance demand, which is accounted for most of our power Gen sales in recent years continue to be sharply limited in the fourth quarter with a new wave of the pandemic spreading across the country and continuing today.
We have not seen any tangible evidence of forging activity reassuring in North America is rumored late last year.
On a positive note GE did announced growth and new turbine orders, specifically 45 to 50, new turbines for 2021 delivery.
Yeah.
That concludes my review, Chris we're ready for your report.
Great. Thanks, Denny and good morning, everyone, let's get started with the income statement.
As Denny discussed fourth quarter 2020 sales of $31 3 million were down 16, 3% or $6 1 million from the 2023rd quarter and down 43, 2% compared with the 2019 fourth quarter.
Sequential growth was achieved in two end markets in the fourth quarter.
The equipment sales totaled $6 million and were up from third quarter levels by $1 4 million or 29, 5%.
Industrial sales in the fourth quarter totaled $4 4 million up by $1 6 million from the third quarter, an increase from 55%.
Our aerospace sales were lower than third quarter, 2020 by $7 9 million or 31 five per cent.
Our aerospace sales approximated, 55% of our fourth quarter sales.
Sales to the oil and gas and power generation markets also declined from the third quarter 2020.
Fourth quarter gross margin was a loss of $5 1 million compared to a loss of $4 4 million in the third quarter 2020, and gross margin of $5 9 million in the 2019 fourth quarter.
Several items affected gross margin.
Our Q4 2020 gross margin was unfavorably impacted by $300000 from the sale of excess scrap which generated $700000 of cash receipts.
Our Q4 gross margin was also unfavorably impacted by $3 $8 million direct charge related to fixed cost absorption. This charge reflects the amount of fixed overhead costs charged directly to cost of goods sold versus capitalizing it into inventory due to continued reduced operating levels in the fourth quarter.
This charge was expected and is below the prior quarters direct charge of $4 3 million.
As adjusted for certain items, our fourth quarter gross profit improved over Q3 levels despite lower sales.
As Denny discussed we continue to diligently work to reduce our costs in order to better align our cost structure to the lower volumes. We're currently experiencing.
While we anticipate improved operating levels throughout 2021, we do estimate these fixed cost absorption charges will continue into the first quarter of 2021.
Gross margin as adjusted for the items noted was a loss of $1 million.
On the SG&A front, our cost containment activities continued in the fourth quarter with selling general and administrative costs of $4 2 million or 13, 4% of sales.
That compared with 2023rd quarter and down $1 million compared to the 2019 fourth quarter.
SG&A expense in the second half of 2020 totaled $8 4 million down $3 million or 26% from our first half 2020 SG&A expense.
Other income included $740000 associated with the receipt of insurance proceeds.
Within the fourth quarter, our income tax benefit was $1 9 million.
Net loss in the fourth quarter was $7 3 million or <unk> 83 per diluted share.
Fourth quarter net loss as adjusted for the gross margin related charges and the income on insurance proceeds totaled a loss of $4 6 million or <unk> 52 per share.
Third quarter 2020, net loss totaled $7 million or <unk> 79 per diluted share in 2019 fourth quarter net income totaled $200000 or <unk> <unk> per diluted share.
Our fourth quarter EBITDA totaled a loss of $3 9 million Q4, EBITDA is adjusted for noncash equity compensation expense gross margin charges and our insurance gain was a loss of $171000.
The EBITDA and adjusted EBITDA calculations are provided in the tables to the press release.
Fourth quarter cash flow provided from operations was $11 2 million compared to our third quarter cash flow provided from operations of $13 million in the fourth quarter 2019 cash flow provided from operations of $4 7 million.
Full year 2020 cash flow from operations totaled $23 8 million.
Regarding the balance sheet managed working capital totaled $114 1 million and decreased by $19 2 million or 14, 4% compared with the third quarter of 2020.
Inventory was the main driver of the decrease and declined by $9 6 million accounts receivable also decreased by $8 4 million in the fourth quarter.
In total managed working capital declined $27 1 million or 19, 2% in 2020 compared to year end 2019 levels.
Looking at working capital change in the second half of 2020, we experienced a more pronounced decrease with a decline of $36 9 million or 24, 4%.
Decreases in inventory levels drove our second half decline with inventory decreasing $23 7 million or 17, 5%.
Fourth quarter 2020 backlog totaled $48 million is down $6 9 million or 12, 5% from the 2023rd quarter.
Year over year fourth quarter, 2020 backlog decreased $71 1 million or 59, 7% compared to the 2019 fourth quarter.
Capital expenditures for the fourth quarter totaled 700000 on third quarter 2020, Capex totaled $1 3 million in fourth quarter 2019 capital expenditures totaled $4 million.
Capital expenditures for the full year 2020 totaled $9 2 million versus $17 $4 million in 2019 capped.
Capital expenditures are expected to approximate $11 million on 2021, which continues to be at a level well below our depreciation expense.
Lastly, as Denny noted our strategic capital expenditures at our North Jackson facility related to the vacuum arc rebuild furnace and 18 ton crucible for our vacuum arc re melt vacuum arc melt operations continue these investments.
<unk> are critical to support our growth in premium melted products and to reduce operating costs significantly.
Our total debt at December 31, 2020 was $50 2 million a decrease of $10 4 million from the prior quarter.
This reduction is consistent with our focus on working capital and debt reduction.
Our debt declined $22 3 million in the second half of 2020 and was down $14 2 million in 2020 from year end 2019 level.
The company's debt is primarily comprised of our revolving credit facility and term loans, which collectively totaled $25 3 million as of December 31, 2020, and our notes which were issued in connection with the acquisition of our North Jackson facility in 2011.
These notes totaled $15 million.
We continue to include these $15 million on current debt as these notes are due and payable and the 2021 first quarter.
We intend to pay these notes off in the first quarter of 2021.
In addition, the $10 million term note related to the Paycheck protection program is included in our long term debt.
In the third quarter 2020, the company applied for full loan forgiveness under the Paycheck protection program on the PPP loan forgiveness process continues.
As of December 31, 2020, we maintain revolver borrowing availability of $43 $8 million.
Our liquidity position will provide us the ability to meet the increase in business levels as we move through 2021.
This concludes my update on the financials and Denny I'll hand, the call back to you.
Yeah.
Thanks, Chris.
Let me summarize.
The fourth quarter was every bit as challenging as expected piece.
Stocking continued in aerospace and oil and gas markets.
The heavy equipment sales benefited from a strong recovery in automotive and general industrial markets at near record levels due mainly to semiconductor shortages.
Our planned cash flow was strong reducing total debt by another $10 million in the quarter on a 14% decrease in managed working capital, which included a near $10 million reduction in inventory.
Incoming orders increased modestly by $3 3 million or 16% and cancellations fell below $1 million as predicted.
With three booking days remaining January bookings are running 30% ahead of the fourth quarter's average month.
Order backlog before surcharges of $48 million slipped 13% sequentially.
Lower sales on activity levels negatively impacted our fourth quarter.
It included a $3 $8 million fixed cost absorption charge and a $300000 loss on scrap sales.
While plant operating levels remain very low we made solid progress improving productivity at key facilities, and melting and hot working which better positions universal for the market recovery, we see taking hold during 2021.
We're excited about earning approval on three new products in the next six months and beginning commercial sales in the fall of this year.
We are proceeding with our strategic investment in our premium alloy capabilities with the addition of a vacuum arc <unk> furnace and an 18 ton crucible for vacuum induction melting operations.
Overall, we see consecutive quarterly improvements in 2021 with momentum building in the second half of the year.
In closing I want to once again express my deep gratitude to our entire team.
We would not have been able to navigate through this very difficult year without their commitment and relentless effort.
Let me add my thanks to our customers our board our shareholders and all of our stakeholders for their continued support.
That concludes our formal remarks, operator, we're ready to take questions.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number one on your Touchtone telephone line.
If your question has been an total you wish to remove yourself from the queue. Please press the pound key.
Your first response is from Tyler Kenyon on.
With Cowen. Please go ahead.
Yeah.
Hey, Jamie Hey, Chris.
Good morning, Tyler Hey, doing high Tech.
Good morning, good good how about yourself.
Great.
Good.
So it sounds like Destocking in aerospace is expected to perhaps conclude maybe more broadly speaking in the first quarter here.
Just based on.
You mentioned on conversations with your top 20 aerospace customers.
Wanted to ask if there was any distinction to.
To be made.
Between what you may be hearing from maybe some of those customers who are more geared to the engineered structural side and maybe the same on the MRO versus OE side, I know, sometimes very difficult for me to tell based on where you sit on the supply chain, but any additional color there would be appreciated.
Let me, let me turn that question over to Chris Zimmer, who.
It was the one who is actually contacting our customers along with me.
Hi, Chris.
Hi, good morning.
Well, let me take a crack at answering your question. This way the majority of our sales that flow through distribution tend to be oriented towards commercial structural components and that's the area that we're starting to see.
The destocking begin to.
<unk> reached the end depending upon the program.
We think that this will we'll stretch through the first and second quarter.
So our upside is more on the structural side of things commercially oriented.
Think engines have a little bit of a longer road to go a lot of that product flows through forgers.
And the demand signals are still.
Not very fantastic, they're they've got some inventory to work through as well too.
So we expect that the structural side is whats going to begin to give us an uptick in activity in the first part of the year.
And then you add on the engine side to the back half of the year is our current view of things.
Great Thanks for that.
Just on some of the new premium alloy products that you intend on.
Launching by the end of the year.
Any cannibalization or displacement of existing business and.
How big of an opportunity could that day.
There is no cannibalization of any existing business and most of these alloys. We would expect within 18 to 24 months to be running in the range of $5 million a year on incremental sales.
Got it.
And then just lastly, maybe Denny just your thoughts on the.
The revenue trajectory moving into the first quarter I would imagine.
Fourth quarter is the trough a little bit on.
Ill take some of that could just be the $2 million of sales into the far east, but didn't make it before quarter end and maybe the absence of some typical year on inventory reduction, but maybe if you could just talk about maybe some of the drivers on the sequential uplift into the first quarter and then how youre thinking about.
Margins as well.
As we look at the year 2021, we see improvement in each quarter.
With growing momentum so as you look at the first quarter, we're looking at.
High single digit increases in sales on the top line compared to the fourth quarter.
I would point you towards and what's driving that I would point you towards the continued growth in our <unk> product line.
Which already picked up in the.
Fourth quarter.
But as you picked up on our increased bookings that's going to carry through into the first quarter and plate has actually been continue to be strong. So as semiconductor at the same time, we're starting to see things transit to me, it's a transitional quarter in the first quarter in terms of some of the structural commercial applications that Chris was alluding to.
As we go through into the second third and fourth quarter, you see improving improvement is aerospace and some of the oil and gas products kick in in the second quarter.
And then as the engine side starts to pick up in the second half and continued improvement in the commercial side, we see.
To quarter improvements by a larger percentage later in the year.
As far as gross margin goes we.
We are not.
Planning any plant shutdowns in the first quarter, we still run it by historical standards, we're going to run it.
But what I would characterize as a low activity level, but at a much stronger activity level than the third and fourth quarters.
So as Chris Scanlon mentioned I would expect we'd still have some fixed cost fixed expenses due to absorption.
But they will be smaller in the first quarter and get progressively smaller and eliminated as we go through the year and activity levels continue to decline.
I appreciate it thanks, I'll turn it over.
Thanks, Bob Your next response is from Phil Gibbs with Keybanc capital markets. Please go ahead.
Hey, Denny good morning, Hi, Phil.
You mentioned that the bookings so far I mean on all its early in the year, but the bookings coming back up 30% versus average fourth quarter levels were whereas that.
The most pronounced is most pronounced in auto and.
And some asbestos you could tell or is there a.
A little bit of a pickup in structural as Chris was talking about.
It's mostly plate and Reroll billet.
So we are seeing in the first right now in bookings would be a continuation of plate continuation of semiconductor.
Glen barrel business.
There'll be the positives as far as the structural commercial aerospace type products that Chris is talking about.
There is some orders coming in on that but I would say that we're still in the early parts of this quarter Destocking.
And as we said in the channel checks, we've made our customers the majority of our customers.
Tell us there'll be basically done that process by the end of the quarter.
Okay.
And then on the.
On the side of inventory brought it down decently in the fourth quarter are you expecting to bring down your own inventories anymore.
As you look out into 2021 is there more to go or.
Largely got to where you wanted to get there.
As I look at inventories for the first quarter versus the fourth quarter I would expect to be flat in March.
So okay I.
I don't want anybody expecting a continuation of a 910 and $11 million free cash flow as you look at our cash flow.
Spect to see somewhat better top line.
Some improvement from a gross profit standpoint, as we've discussed.
Inventory.
Our goal is to maintain net flat, but we will be spending a little more capital dollars in the first quarter.
We will be taking delivery of the var furnace.
It has reached the U S and it'll be delivered European actually next week I guess.
So youre seeing some guidance.
Our absorption number will still have a negative absorption number will not be as big as the third quarter and fourth quarter.
Okay.
I'm thinking something along the lines of half of what of what you had or something could be a decent run rate on them.
On trickling down as the year goes it goes on.
That's a fair estimate.
Okay.
I think that takes care of everything I got it I appreciate it go per ounce.
Yeah.
Hey.
Thank you again, ladies and gentlemen, if you wish to ask a question. Please.
Please press Star then the number one on your Touchtone phone.
Your next response is from Bob sales of <unk> Capital Management. Please go ahead.
Good morning, Bob.
Morning.
A couple of questions.
The arc remodel.
Oh.
Investments that Youre, making.
Is that required because you are expecting debt you don't have capacity with your current.
Premium remote.
Furnaces or is it because there is a different formulation for the new products that you're planning to introduce in the second half of the year.
We have 11 vacuum arc re mail furnaces in the company. So at today's level, we've got plenty of capacity.
AAR.
Furnaces are different.
Within our group of 11, we've got some what I would call modern var furnaces that have the capability to melt all of our alloys. We currently produce as well as the new ones we plan to produce.
So the purpose for buying this vacuum arc re mail furnace is as you look at the growth we expect in our premium melted products, we need another furnace that has the capability to melt all of our alloys, including the new ones.
Okay and did you say in your response to an earlier question that you expect the new products that you're introducing to generate $5 million incremental sales per year each product.
That's our that's our target that's only we pursued these alloys.
Got you, Okay and then.
Would you.
I understand that you don't want to do it for competitive reasons, but.
You called out the semiconductor revenue can you highlight a little bit more on on what specifically is allowing you to have.
The success and if you don't feel comfortable from a competitive standpoint, we can talk about it offline.
Success in terms of what do you mean selling into the semiconductor market.
What is what is what is the end application for the semi market.
This is the material that's going into the equipment used basically to make chips.
So.
As that industry is expanding there is a shortage of chips they need newer equipment that meets up with the new technology.
With the new manufacturing techniques being used increasingly need more sophisticated materials going into that equipment, which is where we come into play in the marketplace.
So over time.
Yes over time, its very cyclical business.
We're in the beginning of an uptick there so people are investing in new equipment.
To expand the production in terms of volume and.
And more modern ships, which are low.
When you are getting smaller and smaller.
And to do that manage the gases and the machine and so forth they need more sophisticated metals.
Got you okay.
And then.
On the oil and gas side.
Sure.
When you look out over 21.
On.
First of all what is the breakdown between.
Oil upstream oil production and then turbines.
That breakdown first as much as you can or generally and then what is your expectation for oil and gas as you as you look over 'twenty one.
All of our turbine business would be in what we categorize as power generation oil and what we call oil and gas is virtually all exploration for oil and gas.
Theyre not combine their alright.
Alright, as far as the outlook for oil and gas exploration.
Candidly I've been surprised at the upbeat tone that I hear from the majors that I mentioned.
If you listen to Baker, Hughes, and Schlumberger, and Halliburton and what they are saying in their conference calls.
Did put in a surprisingly good fourth quarter financially speaking and they were very upbeat about the.
Things recovering in the second half of 2021.
As we talk to our customers. They are equally optimistic about the second half of the year one.
The one caveat I put in my comments, so I go with what our customers are telling us quite frankly, and I know that the inventory levels of our products have been worked down fairly significantly over the last year and net.
That supply chain.
But at the same time I hear the news like you do with the New administration and some of their new policies. So I think there is.
Some question marks about debt upbeat outlook for the second half of the year.
Okay, and then perhaps I was confused when you talked about.
Turbines for power. Gen is just what is that doesn't fall in oil and cash is that under general industrial.
It's under power generation, we got a separate category called power Gen sorry debt.
Actually on the Caribbean business.
Yes got you can you can you talk about your perspective on that for 'twenty one.
Most of our metal is going into maintenance refurb type applications in the existing population of gas turbines.
And right now demand has been down due to the pandemic. So the maintenance business has been down and Thats why you see the trend you see in our power Gen.
Market numbers.
As the economies start to come back and demand for energy continues to pick up through gas turbines, we would expect to see that improve.
As oil and gas comes back in the second half of the year, the oil and gas industry on the exploration side is a big user of small turbines as well we would expect that to continue to increase.
While we've been waiting for as a company and I think as an industry is the recovery in new turbine business. It's been a long time since we had an active market for new turbines.
And I just pointed out that GE did announce a decent quarter in that they both 45 to 50, new turbines for delivery in 2021.
So I think as an industry have been waiting for the.
Rebuilding cycle, if you will.
Turbine market and maybe we're seeing the early signs of that here in 2021.
Okay. Thank you.
Youre welcome.
I am showing no further questions at this time I would like to turn the conference back over to Dennis Oates.
Thank you operator, once again I want to thank everyone for joining us this morning.
We remain very grateful for your support over the past year in particular, we look forward to updating you on our Nick our efforts on our next call on April <unk>.
Everyone continues to be well stay safe and have a great day. Thank you.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.
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