Q4 2021 Olympic Steel Inc Earnings Call
Yes.
Good morning, and welcome to the Olympic Steel 'twenty, 'twenty, one and fourth quarter financial results Conference call.
At this time all participants are in a listen only mode. She question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
Now I'd like to hand, the conference over to Rich Manson Chief Financial Officer at Olympic Steel. Please go ahead Sir.
Thank you operator, welcome to Olympic Steel's earnings call for the fourth quarter and full year 2021.
Our call. This morning will be hosted by our Chief Executive Officer, Rick Mirabito and we will also be joined by our President and Chief operating Officer, Andrew Greiff.
Before we begin I have a few reminders.
Some statements made on today's call will be predictive and are intended to be made as forward looking within the safe Harbor provisions of the private Securities Litigation Reform Act of $19 95, and May not reflect actual results.
The company does not undertake to update such statements changes in assumptions or changes in other factors affecting such forward looking statements.
Important assumptions risks uncertainties and other factors that could cause actual results to differ materially are set forth in the Companys reports on forms 10-K, and 10-Q and the press releases filed with the Securities and Exchange Commission.
During today's discussion we may refer to adjusted net income per diluted share EBITDA and adjusted EBITDA, which are all non-GAAP financial measures.
A reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures is provided in the press release that was issued last night and can be found on our website.
Today's live broadcast will be archived and available for replay on Olympic steels website.
At this time I'll turn the call over to Rick.
Thank you rich and good morning, everyone and thank you for joining us to discuss Olympic Steel's record setting results for the fourth quarter and the full year 2021.
I'll begin with some comments about our performance for 2021 as well as the significant progress we've made with our diversification strategy and how we are better positioned to succeed through all market cycles.
And then Andrew will review the performance of our three business segments and share some perspectives on our end markets and then after that rich will provide a more detailed look at our fourth quarter financial results and then of course as always we'll take your questions.
So 2021 was a phenomenal year for Olympic steel it was a year of records and our strong fourth quarter was really a fitting capstone to the most profitable year in our company's history highly.
Highlights included sales, reaching record highs of $625 million for the fourth quarter and $2 $3 billion for the year total assets exceeding $1 billion for the first time in the Companys history, and all three of our business segments delivering record sales and earnings for the year.
And to put our performance into perspective, our carbon flat segment EBITDA of $121 million in 2021 by itself surpassed the entire company's previous earnings high.
Our performance in 2021 reflected not only the strong demand for our products, but also the continuing benefits of our diversification and acquisition strategy combined with our focus on controlling expenses and aggressively managing working capital to achieve record inventory turnover.
And of course this success would not have been possible without the resilience and outstanding effort of our employees across the organization. So I want to thank and recognize our entire team for a job well done.
In addition, we continued to strengthen our business through our capital deployment strategy.
Our actions in 2021 helped us further diversify the business and reduce our exposure to cyclical risks.
We started the year with newly acquired action stainless immediately contributing we then sold our Detroit flat rolled operations and assets in September at the height of market pricing and we redeployed a portion of those proceeds into higher return growth opportunities like the <unk> like the acquisition of Shaw.
Stainless and alloy.
We also invested in automation expanded in the growing southeast and southwest U S markets and we grew our market share in pipe and tube aluminum and stainless steel product line.
All of these actions along with our ESG efforts combined to successfully build a more diverse and aware culture at Olympic steel strengthening who we are as a company.
We have an exceptional team at Olympic and I am proud of the progress we have made.
We will continue to strategically deploy capital into the right investments, while maintaining our disciplines around expenses.
Working capital and high velocity inventory turnover.
We remain confident in our ongoing strategy to diversify the business and earn more consistent returns in all market cycles.
In terms of access to capital we have built maximum flexibility through the various programs we've initiated.
As witnessed during the declining price cycles, we expect to see a significant increase in our free cash flow as the year progresses. In 2021, we also extended our credit facility for five years and that provides $475 million of borrowing capacity with the ability to further upsize we also.
While our stock ATM program under our shelf registration statement in 2021 to accompany our board authorized share repurchase program.
We have the desire and ability to continue to seek accretive acquisitions and additional organic growth while simultaneously rewarding our shareholders as evidenced by our recently announced increased dividend of <unk> <unk> per share per quarter.
That seven <unk> per share higher than our previous quarterly dividend and rich will discuss that later.
We're also optimistic and really excited about 2022, so now I'll turn the call over to Andrew.
Thank you Rick and good morning, our.
A remarkable fourth quarter and full year of 2021.
So the talent and resiliency of our entire team. It took a collective effort to control operating expenses in light of rising wages and freight costs and manage the rapid rise and fall of carbon prices, while turning our inventory at record levels to deliver the most profitable year in Olympic Steel's history.
Right.
Each of our operating segments delivered strong results in the fourth quarter and record EBITDA for the full year.
Specialty metals, which is led by Andy Markowitz, we closed the year with fourth quarter EBITDA of $25 million nearly eclipsing the record set last quarter.
We outpaced the industry in shipments as our stainless volumes were up 34% year over year compared with 17% for the industry and aluminum sales were up 29% for the year compared with 20% for the industry.
All of our specialty divisions performed well, including our newest acquisitions actions stainless and alloy and Shah stainless and alloy.
2022 will be another strong year for our specialty metals segment as we expect continued tightness in both the supply of stainless and aluminum to stretch past the first half of this year.
We see strength in most of our key market segments, including food equipment appliance truck trailer automotive and tank manufacturers and.
And pipe and tube market conditions record inventory turnover and a focus on controllable expenses combined to deliver fourth quarter adjusted EBITDA of $6 7 million a great close to a record year for this segment, the Chicago tube and Iron team led by Bill Zielinski Rose to the challenge.
2021 to navigate supply chain and transportation challenges.
With the majority of the business focused on spot sales and value added processes 2022 will be another strong year for our pipe and tube segment and we are off to an exceptional start.
In spite of a rapid decrease in fourth quarter index pricing, our carbon business had a strong quarter. The segment delivered $24 million of EBITDA in the fourth quarter as the strategies that we put in place have created a sustainable model for consistent earnings in January David <unk>, Our regional Vice President.
Was promoted to president of the carbon flat rolled segment, David has been with Olympic steel for 20 years in a variety of commercial positions. Most recently overseeing our winder in Buford, Georgia facilities, and our hands fill Alabama location is commercial experience along with his strong leadership skills will ensure success and.
His new role.
We recorded record inventory turns in 2021 and remain focused on tightly managing inventory levels for all our products and turning our inventory quickly in these turbulent pricing markets.
Underlying demand for our carbon products remained strong industrial Oems construction and transportation end users have solid backlogs and demand for goods and the manufacturing sector. Overall is solid however, our customers are facing near term challenges from supply chain disruptions and labor shortages.
We experienced normal seasonal slowdowns in sales volumes, beginning with the Thanksgiving holiday.
Despite optimistic demand forecast sales volumes were impacted in December and January by the Omicron variant as many of our customers struggled with labor and supply chain issues. We have seen sales volumes returned to more normalized levels in February .
During the first half of 2022 futures on the CME showed continued carbon prices softening that will likely pressure margins. In this segment. However, the specialty metals and pipe and tube segments, which represent approximately 50% of our sales will help us navigate through the predicted carbon headwinds and deliver strong.
<unk> first quarter results.
We will continue to focus on what we can control diversifying our business and staying vigilant on safety expenses and working capital.
We will also continue to deploy capital to help us deliver profitability in all markets. We have a robust 2022 capital expenditure budget with significant investments dedicated to automation projects that will help offset the tightness of the labor market as well as improved productivity with.
We're proud of the team and we believe that all of the strategic changes we have made to strengthen our company will be sustainable for the long term and help propel our success now I'll turn the call over to rich.
Thank you Andrew and good morning, everyone. As we look back at 2021, we will remember it not only because it was the most profitable year in Olympic Steel's history, but also because of all that we accomplished to further strengthen our company for the future.
Most notably we continue to pursue our diversification strategy by divesting, our former Detroit Division and acquiring Shaw stainless and alloy, which was our fifth acquisition since 2018.
Those accomplishments combined with the efforts of our entire team to combat the challenges of the marketplace, a 2021, a truly remarkable year.
For the fourth quarter net income totaled $24 $9 million or $2 16 per diluted share compared with net income of $1 8 million or <unk> 16 per diluted share in the fourth quarter of 2020.
Adjusted EBITDA was $51 $1 million compared with $9 9 billion for the fourth quarter of the prior year.
These results include $9 $9 million of LIFO pretax expense in the fourth quarter of 2021, compared with $400000 of LIFO pretax income in the same period of 2020.
Sales for the quarter totaled $625 million.
Compared with $332 million for the prior year.
We continued to turn inventories at historically high levels with flat rolled inventory turns at five four times year to date and pipe and tube inventory turns at three eight times year to date.
Our total debt increased by $167 million since year end 2000 $20 million to $328 million at the end of 2021.
This increase was a result of funding higher working capital levels associated with higher metal prices, partially offset by the initial proceeds from the sale of the Detroit operations.
At the end of the fourth quarter, our credit line availability was approximately $143 million.
Currently our loanable collateral exceeds our credit line by approximately $170 million, which provides an untapped source of additional capital availability.
As working capital requirements are expected to decrease we anticipate generating significant free cash flow, primarily beginning in the second quarter of 2022 and continuing throughout the balance of the year.
We expect to see a corresponding decrease in debt and increase in our credit line availability.
Consolidated operating expenses for the fourth quarter were $90 5 million, an increase of $24 $7 million compared to the fourth quarter of 2020.
Included in the increase were $7 million of operating expenses associated with the addition of action stainless in <unk> stainless and a $16 million increase in performance based incentives that were not present in the fourth quarter of 2020.
Capital expenditures and acquisitions totaled $23 million in 2021, compared with depreciation expense of $17 $9 million.
Our 2022 capital expenditure budget is approximately $33 million compared to estimated depreciation expense of $18 million.
Our effective income tax rate for the fourth quarter was 27, 4% compared with 52, 7% for the fourth quarter of 2020.
We expect our 2022 effective tax rate to remain within the 27% to 28% range.
We also announced on February 18th the board of Directors approved a regular quarterly cash dividend of <unk> <unk> per share, which is payable on March 15th 2022 to shareholders of record on March. One 2022. This is a <unk> <unk> per share higher dividend than the previous quarterly dividend.
Subject to board approval the dividend is expected to be maintained at the higher level.
In conclusion, we look forward to another successful year in 2022.
Demand remains strong for all products. Most importantly, our diversification strategy to expand into higher value added product categories has put the company in a strong position to withstand market challenges and continue to deliver more consistent profitability.
Now operator, let's open the call for questions.
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Okay.
Our first question comes from Marco Rodriguez with Stonegate capital markets. Please proceed with your question.
Thank you for taking my questions.
Yes.
I got on the call a little late so I apologize.
You've covered some of these questions here, but just kind of wondering looking at your administrative and general expenses in Q4.
Little over 30 million looks a little elevated when compared to the prior three quarters.
Were there any sort of onetime items in there or is that sort of a good run rate for us to be using going forward in fiscal 'twenty two.
Yes. Thanks for the question Mark I appreciate it and rich.
Rich did comment a little bit on the increase.
Increase in operating expenses.
Year over year, which primarily you have to remember we've got some new operations in there. So we had some shifts there.
And then we do have a variable incentive programs to rich why don't you maybe cover some of the details on that thanks, Rick Marco So.
We're up $24 7 million fourth quarter of 'twenty, one versus fourth quarter of 'twenty and I think as I outlined in my comments $7 million of that is attributable to action stainless ensure stainless that we did not have in the fourth quarter of 2020. Additionally, our incentives are very profitable profitability based.
And so with the large amount of EBITDA in the fourth quarter 2150, $1 million versus $9 million of EBITDA in the fourth quarter of 'twenty, we had about a $16 million increase in incentive expense year over year. So if you take those items together, that's about 23 of the $24 7 million increase in operating expenses.
And a lot of those incentives hit admin.
That is correct.
Got it very helpful. So really the $7 million increase for actually stainless that's.
That's the.
I guess some more permanent.
Level that we should be thinking about when we're talking we're looking at modeling going forward.
Yes, that's correct goes for bolt action and Shah as you recall action was a late fourth quarter 2020.
Acquisition and then we.
<unk> Shah added this year. So that's the big difference so Marco going forward into first quarter, you'll have some comparable.
Data for action in other words.
Action was in the first quarter of 2021 that was really the first quarter. They were in and then shop you recall, we acquired Shaw at the beginning of the fourth quarter of 2021, So we will have.
Three more quarters of comparative with Shaw not in the prior year number.
Got it very helpful.
And then in.
The press release that you guys released last night, you talked a bit about taking share in all your segments.
Can you maybe talk a little bit more about that in detail. If you can kind of quantify what those numbers might need.
And if you could also perhaps spend a little bit of time on what you saw as the main drivers for that market share gain by segment.
Yes.
So Marco this is Andrew.
<unk> tried to quantify it as well as we can so.
Carbon side as you take a look from 'twenty versus 21, I mean, we had a number of processes that went into place. So as you know in 2021, we had the full opportunity for our stamping press down in our Winder, Georgia facility, which is which is carbon based we also have the opportunity to have the full year of.
Our Buford facility, which is a large fabrication portion of the business that we do down in winder.
And in a couple of other locations, we saw that some of our manufacturing was pretty strong and that we were able to.
To capitalize where we could get the inventory during 2021 to be able to support that business. So that's really on the on the carbon side of the business on the specialty metals, our stainless business grew very well, but we also saw a large increase in our aluminum business to go along with that.
We've done a terrific job in capitalizing on those markets and even though.
Allocation existed we were able to get good share from our terrific suppliers to be able to support our customer base and I would tell you. This.
From Chicago tube and Iron perspective, it's just a just a continuation of.
Of growing their business not one particular segment, but really just overall.
Okay very helpful and then sort of kind of following up on that.
Do you remember hearing some of your prepared remarks talking about just your positioning for fiscal 'twenty, two but maybe you could talk a little bit more provide a little bit more color on that actual positioning of your segments.
What sort of level of confidence you might have in gaining additional share in this fiscal year.
Well, what I would tell you is again on the specialty metal side, I think because of allocation both in stainless and aluminum.
We're certainly going to we will see some growth, but depending if that allocation extends beyond the first half we may be limited.
Based on what we're able to get from the domestic mills. There is some import that is coming in but not at not at a huge degree.
I would expect though on the on the carbon side of the business.
We'll see that growth from more availability from the mills.
There has certainly been more in are not just in our hot rolled product, but in our tandem product which is good.
<unk> segment of our carbon business.
And we will have at some point in the probably the second quarter, our second automotive stamping press will be up and running.
And then Mark just as a reminder, rich.
Rich and Andrew both talked about it in their earlier comments, but you also have to remember that Detroit.
When youre kind of looking at our business segment, Andrew is exactly right.
Our.
Planning on growing our markets in all three business segments from kind of a same store perspective, but just recall in September we did sell our Detroit operation, which had a sizable market share up in Detroit and the carbon business.
Understood got it.
Then in terms of the.
Working capital and capital allocation priorities for fiscal 'twenty, two I did hear your expectations as far as working capital.
Turning profitable and B potentially.
Not a usage of cash can you, maybe just talk a little bit about some of the dynamics youre seeing there what is sort of driving those.
Those expectations and if you could also maybe talk about the capital allocation priorities you have for fiscal 'twenty two.
Sure Mark it's rich I'll take the first part and so as you know our working capital and our debt are pretty much tied one for one and so as we look at it.
You have a seasonally slower fourth quarter youll have seasonally stronger first quarter, but you've got pricing moderating a little bit on the hot rolled side. So overall for the first quarter, we think that those two effects kind of offsetting that our working capital levels in the first quarter will be comparable to what you saw in the fourth quarter of 2021, and so I don't expect.
A lot of free cash flow in the first quarter, but we do expect pricing to moderate on the hot rolled side kind of going forward and so with that Youll see working capital reduce here in the second quarter.
And into the third quarter, and then Youll see a corresponding decrease in the debt and then a pop up in the availability as well as that working capital level comes down and so ill turn it over to Rick to talk about the other stuff on capital allocation, yes. So.
We're excited about our capital allocation opportunities in 2022.
I think you heard the two gentlemen talk about.
Really an array of things that we are.
Very excited to embark on one is we're going to continue with a pretty robust internal growth.
Plan through a budget that you heard rich talk about on Capex of about $33 million, Andrew talked about with some of that going we've got some new equipment coming into.
The southeast.
Both on the fabrication.
Fabrication side as well as the stamping side, we've got some new equipment going in in terms of the pipe and tube division. So we've got a robust capex budget part of that Capex budget, we're certainly spending a lot more on automation and we think that that's.
Really going to be helpful. In terms of really three areas thats going to be helpful for safety.
Going to be helpful. In terms of the labor issues that we're all facing as a country and certainly its going to be helpful in terms of productivity and efficiency.
So organic growth a pretty significant capital spend this year. We're excited about that the second thing is as we've said we've made numerous acquisitions over the last three to four years.
Those have been really good you have seen the ones we've done with Cheyenne action in terms of growing the.
The very profitable specialty metals business for US you saw us a few years back go into on the carbon side.
By manufacturers of end product, where we're vertically integrated that's been very successful. So in 2022, we certainly are.
Continuing to assess and we'd be.
Really disappointed if we don't continue to grow through acquisitions. So that's.
Certainly one of the priorities and it's proved itself out very well and then lastly, we're really pleased to be able to increase the dividend for shareholders.
So you saw we did a sizable increase here for the first quarter of 2022 going from <unk> <unk> per share per quarter up to nine.
<unk> per share per quarter. So those are kind of the big three areas is how we're looking at capital allocation and were.
We're confident that we've got a very strong balance sheet and strong foundation.
And the the availability and the capital to do it.
Okay, great great color, there and then just kind of a last follow up here Doug counting on that last question. There just kind of the acquisition pipeline can you maybe talk a little bit as far as what that pipeline looks like in terms of.
Potential targets.
And then.
The valuations look like.
Yes, so we believe it's going to be a strong pipeline for M&A in 2022.
Just coming off some of the dynamics as.
And industry and manufacturing in U S economy through Covid and some of the starts and stops through that so so we anticipate.
There is availability of capital out there and we think theres going to be no shortage of.
Viable good candidates.
So we expect it to be.
Pretty strong year for candidate flow.
And in terms of valuation I think.
As always.
All in.
Valuations in terms of EBIT.
EBITDA multiples tends to be the predominant valuation metric and.
We've always tended to look at in our business.
A multiple based on steel cycle.
So obviously over the last several years we've had.
We've had some volatility in the business in terms of.
Ups and downs in many companies had record profitability in 2021, many companies had probably earnings that they didn't really want to sell off of in 2020, but we feel pretty good that.
You come do really the right answer looking.
Looking at what's been done over the cycle and I think that will predominantly be the.
One of the drivers for evaluation in 2022.
Got it very helpful. Thank you guys I really appreciate your time.
Thank you. Thank you.
Our next question is from Phil Gibbs with Keybanc capital markets. Please proceed with your question.
Yeah.
Hey, good morning, gentlemen.
Bill.
Question I have is is on the Capex budget. This year 33 $33 million I know you talked a little bit about it but what specific.
Our major projects you have going on within that number.
Sure Phil it's.
Rich and so as you know, we typically have $5 million to $7 million of maintenance capital and I think our maintenance capital will be expense will be a little bit higher this year, maybe $9 million to $10 million of the 33.
There is a large focus as Rick mentioned on automation to help us kind of alleviate some of the labor concerns and that's <unk>.
At least $6 million of hard spend and I would tell you probably $3 million to $4 million of leasing on top of that thats not part of the $33 million that will go toward automation.
We've got the completion of our second stamping lined down south which will probably use up about $4 million more cash and then we've got some upgrades to some tough the link lines and some slipping lines.
That kind of round out the rest of that.
Thanks, I appreciate it and I know you guys mentioned in your script.
Thats.
Some of your customers, obviously are dealing with.
Labor issues in <unk> and supply chain and that's all been very well documented in terms of the.
The narrative out there.
When do you have when do you guys think you've got line of sight to some of those things, perhaps getting a little bit better.
I'm, having confidence picking up picking up on some deferred business.
It feels like the year has started out slower because of all of those things, but yes.
Is what you mentioned the backlogs are still there so how do you see that unfolding.
Yes, Bill Great question. This is Andrew I would tell you that.
We've actually seen February getting back to what I would call a little bit more normal levels.
We're seeing some of the forecasts from our customers, we're seeing steadiness through the first into the second quarter.
And the anticipation from at least our large industrial customers is that they'll continue to be steady where they are at today.
And it really won't be until end of Q2, maybe even into the second half that will really start catching up as some of these supply chain issues really start to.
To kind of unfold and whether it's the chip issue or some of the other sub components.
And the equipment that they believe certainly will be better as we start getting into the beginning of the second half.
Thank you and I know on auto you guys are typically underweight.
So at least relative to the market in on the sheet side, but.
What are you hearing or seeing there in terms of the pick up it seems like we got a little bit of inventory to work through on the steel side, but then maybe that gets a little bit better.
Later in the year.
Yes, I would.
I think thats the expectation you have heard from some of the mill Ceos. The last the last week, where there's like a collective agreement that the auto demand remains a little bit weak and certainly the shortages because of the the semiconductors.
And that doesn't seem like that's going to resolve itself really anytime soon I think the the.
The discussions that we've had and Phil you've seen that some of the larger auto companies are continuing to to take models offline.
And kind of kick the can down the road a little bit for when they'll be back up.
Full and so I would tell you from our perspective, we don't see much of a change through the first half of the year and it's probably going to be probably well into the second half before there's a real change.
Thank you and.
Rich the the LIFO expense I think was pretty material and most of that hits in your two business from what I remember.
Does that is that likely to.
To reverse in the first in the first quarter.
Sure, Yes, so you're correct that only our pipe and tube inventories on LIFO, which is approximately 18% to 20% of our total inventory and yes. You are correct. It was a pretty big LIFO expense hit in the fourth quarter I do expect to have LIFO income going forward.
I can tell you that the entire fourth quarter amount is going to reverse itself in the first quarter.
But it may reverse itself over the first half as you recall the way we do LIFO as we kind of take a look at where pricing is going to end for the year, we try to kind of book it accordingly throughout the year Ratably.
Obviously last year made it made a quite challenging with the rapid price increase to figure that out. So do expect LIFO income, but I would not expect it to be and the magnitude of the LIFO expense, we saw in the fourth quarter.
It makes sense to me thanks, guys.
Thanks, Phil.
Our next question is from Chris.
Chris Sakai with singular research. Please proceed with your question.
Hi, yes, good morning.
Good morning, Chris.
And on.
Supply chain and labor shortages.
How is that looking guys.
Yes, so it's it's.
Acting up like it's affecting everybody.
I'd tell you from the Olympic perspective.
We're in pretty good shape as it relates to supply chain disruptions.
I think we face all the same labor challenges that everybody does in each of the local labor markets.
But I think as Andrew commented, where we're seeing the bigger impact is with some of our customers.
And some of our customers' ability to really produce to what theyre projected to end demand is.
And Thats continued.
Certainly as well.
Well documented I think.
December and January .
The <unk> had and Thats certainly disrupted some of our customers' businesses and ability to produce.
And industry by industry as you look theres still.
Theres still shortages as we spoke.
On automotive with chips in other parts, but it's really broad based and it is continuing and.
As Andrew commented earlier.
We think it isn't going to be immediately fixed here, but we are optimistic that as we work through 2022 that the impacts of that to our customers.
Are we going to start to wane.
Okay, Great and then I wanted to ask about acquisitions in 2022.
Yeah.
Are they mainly going to be in.
The models.
And can you comment on if theres going to be more than one.
Yeah. So.
Good questions.
We are focused on growing all three of our business segments. So we're looking to.
To acquire.
In any of those and all of those.
Segment.
Well, we make more than one I think.
M&A as you know as.
I don't want to say, it's episodic but.
It takes two to tango and we're certainly trying to look at more and more companies in the funnel.
We will stay disciplined in terms of.
The proper candidates for Olympic steel, but.
It's certainly a high priority to us and the way I would answer it is depending on the acquisitions, we have the ability to certainly do more than one and I think thats been evidenced if you look we we acquired action.
Stainless in December and then we followed that up with the Shire acquisition about nine months later so.
Maybe not exactly in the same calendar year and a 12 month span we have done more than one and we're capable of doing that.
Okay, great well thanks.
Thank you thanks, Chris.
As a reminder.
And if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
Our next question comes from the line of Alan Weber with robotic Advisors. Please proceed with your question.
Good morning, Alex good.
Good morning, and I may have missed did you talk about what the LIFO expense was sufficient <unk> for the year ago quarter.
Yes, we did Alan so for the fourth quarter was $9 $9 million of LIFO expense, So a pretty big impact and it was just under $22 million impact for the year.
Hey.
Okay, and then can you talk about excluding any acquisitions as you look out two or three years kind of how you think about volumes.
Yes.
Without acquisitions, we are certainly focused on growing all three of our business segments.
And our.
Hum.
Our position on that is as we are going to push.
To gain market share. So we would be looking to on a same store basis without acquisitions and without.
The impacts of new Capex, we'd be looking to grow our business in each of those segments.
Greater than.
What the market's growing and certainly that's our plan in 2022 in terms of when we put our our budget and business plan together.
We may have some shifts in there in terms of as you have seen.
Strategically so for example.
When youre looking at the total carbon business 'twenty two to 'twenty one.
The business in terms of the volume isn't going to look like it grew but thats because we.
We sold the Detroit operation.
But on a same if you want to go on a same store basis, we are absolutely intent on growing the business.
And that's part of our mission.
And as that market I mean, I know it's market share gains I'm just curious what you think about the overall if you want to call. It an industry volume tissues look out a few years yeah.
Yes.
I mean I'm personally bullish.
I'm bullish for a couple of reasons as we look at Big picture.
One is coming out of all of these supply chain disruptions in global supply chains and a lot of the outsourcing that was done by American manufacturing in and a lot of our customers.
I am very confident and we've already seen it happening, but I'm very confident that there is going to be finally, this whatever words, you want to use re shoring, but theres going to be the.
There are going to be supply chains for our customer base that are closer to home and closer to their facilities, whether theyre redundant with some foreign supply chains or completely moved.
You've already seen it.
Some of the most.
Dire areas like with chips, so right here in Ohio, where we are.
There is a multibillion dollar expenditure in Columbus, Ohio for a new chip plant.
So that's one reason that I have a lot of optimism second is.
We are excited about the infrastructure spend and I think.
From all signs that's a 2023 commencement of that but I think over a series of of several years, that's going to give a power boost to certainly the steel and metals industry and and specifically for Olympics, we're really well positioned because when you look at our customer base.
Roughly half of our metal ends up in.
Industrial America heavy equipment and so so we're excited for that and then as I look at the Big and then lastly, as I look at the three big consumers of models.
Here.
Automotive.
Construction and energy.
I tend to be pretty bullish on all three of those going forward based on where we are and what the outlook is so.
Yes, so we're pretty bullish on it.
So just as a follow up same kind of question. If you look out two or three years at.
At some point prices will stabilize everybody can pick their price, but it will stabilize but assuming assuming prices stabilize as you look out how do you think about EBITDA.
Adjusted EBITDA margins and why.
I guess, what risk is there or do you think volumes will.
We need to keep kind of EBITDA margins going forward, because you will have higher expenses also.
Yeah, well, obviously, there's inflationary environment so yes.
That's why we've been very focused on our expenses we commented on that.
One thing we didn't mention is just on the expense side.
We're really proud of the work we've done around our head count on a same store basis is 10% lower than pre COVID-19 . So we've really focused on that but in terms of your question on EBITDA.
Yeah.
That is really our whole strategic direction.
We're laser focused on making sure that our investments over the last several years and going forward are going to return higher returns.
Then the averages.
<unk> proven that out pretty well here with the M&A and investments we've done there as well as the recent cap.
Capex.
And we do do.
<unk> margins on those and compare them to.
What we thought in terms of the justification so I'd tell you Alan.
That is our strategic focus is.
To move forward and continue to earn higher EBITDA margins and Youre right <unk> got to kind of pick a normalized market and I'm not talking about the <unk>.
Big pricing swings, causing that I'm talking about in terms of.
A stable marketplace and I think we're well on our path.
Doing that I think.
We're in the midst of proving that and and really look forward to the next year or two to show that.
We've certainly made that good progress that we can earn higher and better returns in any market and thats been a big focus and a lot of good work by our carbon people too I mean, they've done a phenomenal job over the last several years on the carbon side of our business.
As Andrew said in his comments that we're very confident that.
Going forward we have.
Got sustainability based on the things we've done in carbon so thats, how we look at it okay. Great. Thank you very much.
Thank you.
Yes.
Our next question is from Phil Gibbs with Keybanc capital markets. Please proceed with your question.
Hey, Thanks, So your your operating expenses per ton in the fourth quarter were very very high and I know we've talked about it on this call a few times in terms of maybe some of the reasons why but was there any true up.
From the rest of the year, meaning.
Under accrued for for bonuses or incentive comp in Q2, and Q3 and then there was a <unk>.
Strawberry amount in the fourth quarter.
Hey, Phil it's rich so I would tell you that theres really no true up I mean, there are certain times, where thresholds are met where things may fall in a little more and I think that was certainly true of the fourth quarter to some extent, especially kind of in the pipe and tube side.
I think the other thing you have to kind of keep in mind as youre starting to look at things on a per ton basis is that Detroit's out of the equation. So Detroit in the fourth quarter of 2020 was like 36000 tons that weren't there in the fourth quarter of 'twenty. One ensure stainless we acquired were not counting tons on that because thats not really the focus of the business.
Little more on the fabrication side and so looking at things on a per ton basis may look a little bit distorted if youre trying to compare fourth quarter of 'twenty, one to the fourth quarter of 'twenty.
Okay. So the business changes that you've made.
And the fact that youre not actually including the Shaw in your tonnage, but you're you're putting it in your revenues.
Is the sorting those things okay.
Yes, and at the same point, Phil on Mccullough, It's the same way right.
Those carbon tons.
That are go into Mccullough.
Arent reported in.
In the end tonnage any longer.
Mccullum makes it a unit they don't.
Don't measure the business in terms of tons in terms of Mccullough sales. So so you're right. We've got we've got some shifting that's happening in the business in terms of the strategic things that we've done and so and then rich is exactly right you've taken a lot of tons out of the equation from Detroit.
What I'd add is we're focused on the EBITDA right and the profitability. So.
I think I think some of the tonnage is.
As a little bit lower but certainly the profitability is moving north.
So remind me what because I know this is obviously a very very new business for you all.
Clothes at near my birthday in October but.
What's <unk>.
What's the difference in Shah relative to your to your legacy business for for stainless and aluminum.
It's why we love Shaw.
<unk> really got three pieces of the business.
They've got a.
Great distribution service center business on stainless.
Small.
Mitch niche type sales, so we love that piece of it.
They've got a great.
Value added fabrication capabilities.
Some of the things we've highlighted as they actually fabricate fluid separation tanks and some other products and then they've got an end product where they make bollards.
Some of the protective bollards it you'd see.
In front of hotels or office buildings.
And so that was.
Really attractive because they've got really the whole suite of distribution fabrication and product and we're really excited to grow it.
Thanks, so much.
Thank you Phil Thanks, Phil.
We have reached the end of the question and answer session I would now like to turn the call back over to Rick <unk> for closing comments.
Well. Thank you all for joining us on our call today.
We genuinely appreciate your continued interest in Olympic steel.
I hope as you've heard we're really excited about 2022 and look forward to speaking to you again, when we report a strong first quarter. Thank you.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.