Q4 2022 Universal Stainless & Alloy Products Inc Earnings Call
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
Okay.
Good day, and thank you for standing by.
Welcome to the Universal stainless.
Fourth quarter 2022 conference call and webcast.
At this time participants are in a listen only mode. After the speaker's presentation, there will be a question answer session.
Ask a question during the session you will need to press star one on your telephone you will then hear an automated message advisors in your hand as rates to withdraw your question. Please press star one again.
Please be advised that today's conference call.
Every course.
I would now like to hand, the conference over to your Speaker for today June Phil and Jerry. Please go ahead.
You Lisa and good morning. This is June Phil and Jerry of Comm partners and I would also like to welcome you to the Universal stainless conference call.
We are here to discuss the company's fourth quarter 2022 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 Armina, Vice President and General Counsel.
And Steve do you to NASA, Vice President and Chief Financial Officer.
Before I turn the call over to management, let me quickly review procedures. After management has made formal remarks, we will take your questions.
Our conference operator, Lisa will instruct you on procedures at that time.
Also please note that in this morning's call management will make forward looking statements.
Private Securities Litigation Reform Act of 1995, I would 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.
These formalities complete I would now like to turn the call over to Denny Oates Denny we are ready to begin.
Thanks, Jim.
Good morning, everyone. Thanks for joining us today.
The fourth quarter of 2022 was marked by important top line growth, especially in premium alloy and aerospace products at.
At the same time, we were challenged by misalignment of surcharges and material cost several unplanned outages.
Very difficult weather conditions in December .
To summarize the fourth quarter compared to the third quarter.
Net sales increased 22%.
Premium alloy sales jumped 69%.
Aerospace sales rose 27%.
Order backlog hit a new record high of $288 million. However.
However, our gross margin declined to four 3% from six 4% in the third quarter.
Let me drill into the fourth quarter positives and negatives beginning with the positives.
Net sales for the quarter rebounded to $56 $2 million.
The $10 million sequential increase was due to higher shipment volume of $4 4 million and increased all in pricing of $5 6 million.
In addition to the $10 million quarterly increase.
Excuse me.
Sales were up 30% from the same quarter of 2021, and the highest since the first quarter of 2024.
Full year 2022 sales increased 30% to $202 1 million versus 2021.
Okay.
Premium alloy sales reached a quarterly record of $13 $45 million or 24% of sales.
92% increase from the fourth quarter of 2021.
Full year 2022 sales of $39 $2 million increased 48% compared to the full year of 2021.
Robust demand in aerospace continues to be the main driver of our growing backlog, which reached a new record high in the fourth quarter order entry has remained strong.
In other positive news, we are moving forward with our capital project in North Jackson, namely. The addition of two additional vacuum arc re mail furnaces to expand our product portfolio with more technologically advanced higher margin premium products.
The equipment has now been delivered and our goal is to install and commission. These furnaces for integration into operations by Q1 of 2024.
Yes.
Additionally, we reached a new three year collective bargaining agreement with our hourly employees in the Dunkirk facility effective November one.
At year end, we completed a $7 million lease agreement related to the rebuild expansion at the North Jackson facility, which increases our financial flexibility going forward, Steve will have more comments on this in his report.
Moving to the fourth quarter challenges.
The most impactful negative in the fourth quarter was a $2 $4 million negative misalignment between surcharges and material costs.
Fourth quarter surcharges were at the lowest level of the year due to the broad base dropping commodity prices, which began late Q2 and continued through the third quarter.
In the fourth quarter, we were shipping products melted earlier in the year when commodity prices were at their 2022 Pete.
Frigid weather hit our regional mix in December while our teams are experiencing contending with bitter cold and we took steps to prepare some of our equipment was not able to stay in the extreme temperatures as a result dealing with localized freezing of pipes and related flooding negatively impacted production and increased maintenance spend.
There were several additional unplanned equipment outages beyond those related to weather that occurred at key work centers in December .
They would include the Bridgeville Hot melt where December operating hours declined by 30% sequentially.
The AAD melt shop in Bridgeville, where operating hours were the lowest in six months, but output per equipment hour, which is the highest of the year.
In the North Jackson Forge, where we launched a worm gear leading to the lowest monthly operating hours of the year.
These unplanned outages at our key facilities reduced gross profit by approximately $700000 in the fourth quarter.
Each of these situations has been resolved and operations are off to a solid start in 2023.
Like most manufacturing companies, we have been wrestling with the nationwide labor shortage.
Our last call I reported that applications were increasing and that trend has continued.
Our employee count is now 485, an increase of 50 since the last call or 11%.
Our outside contractors have been reduced to 29, which is a 54% reduction.
Onboarding and training of new employees as a major area of focus is the rebuilding of our workforce accelerates.
Although improving supply chain issues, particularly for repair parts continue to extend turnaround times on maintenance work.
And lastly, inflation continues, albeit at a reduced rate.
The net result of all these issues was gross margin for the fourth quarter of 2022 declined to $2 4 million or four 3% of sales compared with $3 million or six 4% of sales in the third quarter of 2022.
The net loss for the quarter was $3 7 million or <unk> 41 per diluted share versus a net loss of <unk> 14 in the 2022 third quarter.
For full year 2022, the net loss was $8 1 million or <unk> 90 per diluted share versus a net loss of $800000 or <unk> <unk> per diluted share for the full year 2021.
Recall that 2021 included a gain of $10 million due to forgiveness of a term note from the paycheck protection program.
EBITDA for the fourth quarter of 2022 was $1 7 million, while adjusted EBITDA was $2 1 million.
A couple of comments on our working capital and financial position.
Working capital was $145 9 million at year end 2022, compared with 147 four at September 30 inventory was reduced to $154 2 million versus $158 nine minutes at the end of the third quarter, reflecting lower raw material on hand, as well as support our supply.
Change issues that basically lessened and lower material costs flowing through work in process.
Total debt on December 31, 2022 was $98 4 million and Steve will delve into that here in a few minutes.
Capital expenditures as reported were $1 $1 million in the fourth quarter and $12 1 million for the full year 2022.
Strategic vacuum arc furnace investment in North Jackson was the largest contributor.
Turning to commodities.
As I mentioned surcharges were at their lowest level in the fourth quarter due to a drop in commodity prices at a time, we were shipping products with higher material cost produced earlier in 2022.
As a reminder, there is generally a two month lag time on surcharges and the time between production and shipment production is typically between shipment and production typically averages about six months.
For products produced in April for example, the price of scrap was 34 cents a pound while nickel was priced at $15 10 per pound.
October scrap it fall into 16 cents per pound, while nickel had fallen to $9 94 per pound.
The lowest level recorded in 2022.
And Thats basically when the surcharges for the months of December shipments were set.
Since then scrap has continued to trade in the 15 to 16 cents per pound range, but nickel has moved back up to $13 per pound.
And even higher as you look at current pricing.
The key takeaway here is that commodities have been volatile.
Some are up from early Q4, and a few are down the current impact on universal is that our public surcharges for January and February are up 6% to 20% depending upon grade.
Material costs and inventory are lower as we sold through first half 2022 production, which will work towards mitigating the material misalignment reported in the fourth quarter as we move through.
With the upcoming months.
Let's turn to end markets for a minute beginning with aerospace, which is our largest market.
Aerospace sales represented 74% of fourth quarter sales and totaled $40 1 million.
That's up 27% from the third quarter of 2022 and up 56% from the fourth quarter a year ago.
Aerospace sales for full year 2022 also demonstrated substantial growth.
Creasing, 50% to $137 5 million or 68% of total 2022 sales.
All indicators continue to suggest a multiple year aerospace expansion driven by three factors.
<unk> supply chain activity reflects improving delivery cadence increased order activity ramping build rates lean inventories.
All of which point towards positive momentum for 2023 and beyond.
Consider Boeing for a minute.
Q4 deliveries were 152 planes best of the year full year 2022 deliveries were up four eight to $4 80 up from $3 40, or 41% from 2021.
New orders reached 346 planes in the fourth quarter, bringing the 2022 total to 808 planes up substantially from 2021.
Year end backlog is 4578 claims many years of production regardless of your production rate.
Assumptions.
Lastly, it was nice to see Boeing book, a large 787, Dreamliner order, which supports the thesis of the double aisle recovery in 2025, which will drive increased metal production in 2024.
Turning to Airbus Airbus delivered 660, commercial aircrafts and reported 820 new orders.
Airbus deliveries were 8% above 2021.
Build rates reflect improvement and continue to reflect the Airbus ramp up trajectory. Despite all the problems data announced.
And then termed as complexity in their operating environment.
The second indicators air travel, which continues to grow and drives a very active aftermarket.
<unk> reports that total traffic in November 2022, rose, 41% compared to November 2021.
Or 75% of pre Covid levels International.
Traffic rose 85% in November .
North American carriers reported a 70, 70% increase in air traffic in November versus the previous year.
And TSA reports screening $2 4 million passengers on January <unk> of this year versus $1 9 million on that date in 2021 and $2 2 million in January 2019.
And third defense spending remains strong and the outlook remains positive.
The fiscal 2023 National Defense authorization Act closer to $817 billion in defense spending $45 billion more than the president budget President's original budget request.
So overall aerospace demand remains robust and speaking with our customers whether structural Orient engines. The conversations are about how they will manage through 2025 and beyond to respond to growing demand.
The consensus is that there's a strong pull environment that will be sustained for many years to come which is good news for all of us.
And the heavy equipment market.
Our second largest market fourth quarter, 'twenty twos sales were $5 6 million or 10% of our sales, which was 10% lower than the 2022 third quarter and 38% in the fourth quarter of 2021.
Full year 2022, heavy equipment sales totaled $27 million or 13% of sales.
Metal fabrication demand drives our sales to the heavy equipment market, especially in automotive are.
Our sales to the market trended downward over the past year as customers, who bought heavy at the end of 2021 remain cautious amid.
Economic concerns and recent trends in key commodity prices.
That said the U S auto industry has made a huge commitment to new investment and automotive factories, mainly for electric vehicle and battery manufacturer.
According to the nonprofit center for automotive research a total of $33 billion has been pledged and in the U S for construction of New Assembly plants and battery, making facilities through November of 2022.
Meanwhile, model changeovers to electric vehicles continues to move quickly.
For Universal our customers are proceeding cautiously and replenishing inventories as we begin 2023, and we expect demand to improve each quarter as we move through the year.
The oil and gas end market was our third largest market in the fourth quarter 'twenty, two with sales of $5 3 million or 9% of sales an increase of 42% from the third quarter and 29% higher than the fourth quarter of 2021.
Full year 2022 sales of $18 million were up 19% from 2021.
There is a growing consensus supporting increased activity in the oil and gas exploration world based on supply shortages underinvestment over the past five years, and the announced increase in exploration budgets by virtually all the majors.
More specifically the current U S energy information administration outlook forecasts that the U S and other non OPEC producers outside of Russia.
We will increase oil production by $2 4 million barrels per day in 2023, and an additional one 1 million barrels per day in 2024 with the largest growth occurring in the U S.
Chevron announced 2023 capital spending of $17 billion.
Largely focused at the Permian basin.
<unk> announced the distinctive new phase in the up cycle in oil and gas, including acceleration of activity in the middle East global offshore activity and on land in the U S.
For Universal given the increasingly bullish sentiment current supply chain inventories and operating difficulties confronting many European metal suppliers oil and gas will definitely provide additional opportunities over the next several years.
The general industrial market was our fourth largest market in the fourth quarter of 2022 with $3 6 million in sales.
Or 6% of total sales an increase of 59% from 2022.
Our general industrial market includes sales to the general manufacturing markets, especially semiconductor equipment and medical markets.
On the last call I said that we expect the general industrial sales in the fourth quarter to be the same healthy level.
As in Q2, and Q3, we clearly exceeded our forecast despite the current low in semiconductor sales reported globally.
U S companies at <unk> $200 billion for chip manufacturing projects in recent years incentivize by $76 billion in federal subsidies.
While I'm sure there will be delays and changes over the next 10 years, we view these trends as positive for our customers and for universal over the long term.
Looking at our first half 2023, we expect general industrial sales to remain very healthy.
Power Gen market was $1 million or 2% of sales in the fourth quarter down, 33% sequentially and 12% lower than the fourth quarter of 2021.
On the other hand full year power generation sales of $6 $1 million were up 32% from 2021.
Demand for maintenance and industrial gas turbines used in electricity generation continues to account for most of our power Gen sales.
And there has not been much news of late about new builds in gas turbine manufacturer.
<unk> has announced plans to spin off its gas wind turbine and energy businesses to a new company in 2024.
<unk> is also noticed going to expect for the gas market to remain stable over the next 10 years and the gas will play a key role in any transition to renewable energy sources.
While the formation of a new GE company focused on energy may translate to some new build opportunities in coming years, we expect maintenance demand to continue to drive our power generation business for the foreseeable future.
Let me turn the call over to Steve for a deeper dive into our financials Steven.
Thank you Danny.
Our sales for the fourth quarter were $56 2 million, representing an increase of 22% sequentially and an increase of 30% versus the fourth quarter of 2021.
This increase in sales was achieved despite the sequential decrease in raw material surcharges per pound within our selling price.
And was driven by higher total selling prices, partly from selling a greater mix of our premium product and partly from further base price increase captured during the quarter.
Volume was also a contributor as we shipped about 1 million more pounds in Q4 compared to Q3.
We will continue to capture more base price increase within sales as we progress through shipments in each quarter of 2023.
Fourth quarter 2022, gross margin totaled $2 $4 million or four 3% of sales.
Decrease from six 4% in the third quarter and eight 7% in the 2021 fourth quarter.
The sequential decrease was caused by negative misalignment between our surcharge component of our selling price and materials cost of sales as we sold through material that was melted in 2022 and higher milk costs.
But we also experienced several unplanned outages of key production units in December and the impact of our previous liquid metal spill continued to linger.
The estimated negative impact on profitability in the fourth quarter due to the related cost impacts from those items.
One $1 million in total.
The outages have all been resolved as Tony mentioned and the spill negative impact, which is down from $2 million reported in the third quarter.
We do not expect any significant spill impact on future periods in 2023.
Additionally, Q3 included a 5 million more of the AAM JP grant benefit compared to the current quarter.
Selling general and administrative costs in the third quarter totaled $5 6 million or just under 10% of sales in line with our excellent expectation.
The increase.
Compared with $5 3 million in Q3 was due to the higher cost of business insurance as we renewed our policies in the fourth quarter.
The increase versus $4 8 million in the fourth quarter of 2021 was due to the business insurance increase as well as higher employee costs.
For the year ended December 31, SG&A expenses were $21 $2 million up about four 5% in 2022 versus last year.
We expect SG&A expenses in the first quarter of 2023 to approximate the fourth quarter of 2022.
Our reported operating loss for Q4 was $3 $2 million.
About $850000.
Worse than Q3.
Which reflects the cost of sales items outlined previously and our higher SG&A expenses, partially offset by our increased sales volume and base selling prices.
Total interest expense for the quarter was $1 $6 million.
Paired with $1 2 million in Q2, and Q3 and about $600000 in Q4 of last year.
Interest expense has arisen each quarter this year.
Along with higher market interest rates and higher borrowing levels on our revolving credit facility.
The interest paid on the majority of our revolver and term loan is variable and fluctuates with changes to the sofa benchmark interest rates and our credit agreement.
Due to the movement in market rates are variable rate paid more than doubled from the beginning of the year to the end of the year and accordingly, our interest expense followed.
Our income tax benefit for the year was $2 $6 million on a pre tax loss of $10 7 million.
For an annual effective tax rate of 24, 5%.
The effective tax rate is greater than the federal statutory rate of 21% due to the impact of our research and development tax credits, which increase the income tax benefit for the period.
Other elements of the rate calculation are not significant.
We recorded an income tax benefit of $1 million on a pre tax loss in the quarter.
Resulting in a Q4 effective tax rate of about 25%.
Net loss in the fourth quarter was $3 7 million or <unk> 41 per diluted share.
Our fourth quarter, EBITDA totaled $1 $7 million, bringing our full year 2022, EBITDA to $12 8 million.
Our adjusted EBITDA was $2 1 million for the quarter and just under $16 million for the year.
Adjusted EBITDA includes add backs for noncash share compensation expense and other unique items impacting our results for the period.
Including impacts of our liquid metal spill that occurred in the second quarter.
And the aviation manufacturing jobs program Grant we were awarded during the year.
The EBITDA and adjusted EBITDA calculations are provided in the tables to the press release.
Now I'll move on to cash flow and debt.
We used $2 $6 million of cash in our operations in Q4, despite managing our working capital down from Q3, as we reduced raw material inventory levels.
Our capex decreased to $1 1 million for the fourth quarter.
And as a result, we increased total net debt through those activities.
$3 $7 million.
The net debt increase shown on our statement of cash flow primarily reflects.
Incremental revolver borrowings of $4 $7 million during the quarter.
And $1 $8 million of cash received at closing of our new lease financing arrangement related to the capital project to expand our vacuum arc re melt facility at our North Jackson, Ohio plant.
Net of $2 million of cash on our balance sheet and about $750000 and total payments made on our term loan facility and prior leasing arrangements during the fourth quarter.
The new lease arrangement helps fund the <unk> expansion project and is effectively a six year financing lease transaction for $7 million in total.
It is structured as a $5 2 million capital lease for the furnaces, plus a $1 $8 million sale leaseback transaction of ancillary equipment purchased for the project.
At the conclusion of the arrangement, we own all of the underlying equipment.
The $1 $8 million as shown on the statement of cash flows as direct proceeds from the sale leaseback component.
While the $5 2 million as a lease liability and.
It has a corresponding asset recorded within the property plant and equipment line on our balance sheet.
The total $7 million liability is included within the year end total debt balance of $98 4 million.
The deal helped expand our financial flexibility as we close the year.
And at December 31, we had $2 million of cash on our balance sheet plus about $24 million.
Total revolver availability.
This concludes the detailed financial update and I'll hand, the call back today.
Thanks, Steve.
So let me summarize.
In the fourth quarter of 2022.
You saw top line growth.
Sequentially sales increased 22% premium alloy sales were up 69%.
Aerospace sales were up 27%.
Solid bookings drove order backlog to a new record of $288 million.
However, we had a gross margin problem came in at $4 3 million versus $6 four in the third quarter, mainly due to $2 $4 million of surcharge and material cost misalignment unplanned outages at several key facilities and the weather we ran into in December .
As we enter 2023 working on our record backlog all facilities are often running as Q4 outages have been resolved.
Trends in surcharges commodity prices and material cost and inventory will reduce the misalignment reported in Q4.
Momentum is building as we rebuild our workforce.
Inflation and supply chain difficulties do continue but they are improving.
The capital project, which will add vacuum our Greenville furnaces at our North Jackson facility is moving forward with plans to go operational in the first quarter of next year.
All of these factors coupled with increased selling prices that are already in our backlog make us optimistic we will deliver improving sales and margin expansion as we move through 2024 excuse me towards 2024.
In closing, let me reiterate that our optimism for the future would not be possible without the commitment and relentless effort of all of our employees and the support of our board. It is because of them that we haven't been able to continue to overcome unexpected challenges and seize the substantial opportunities we have before us.
That concludes our formal remarks.
Operator, let's take some calls.
Yes.
Thank you.
If you would like to ask a question. Please press star one on your telephone.
One moment, while we wait for the Q&A roster.
Okay.
First question is going to come from Phil.
Please go ahead your line is open.
Hey, good morning.
Good morning, Phil.
Is there any obviously a lot of moving pieces on margins compressed.
Compressed spreads in Q4.
Nickel has gone up you've had a little bit of improvement in ferrous prices as well.
And I know that there are some some timing lags within the business as you've talked about but.
What should we expect in terms of margins in the first quarter can we get back to double digits or is that something reserves for progression.
I think it's reasonable to expect us to approach double digits in the first quarter and go significantly into the double digits as we move through the year and the reason why I say that in the short term.
As I tried to outline in my script.
This alignment will ease.
Our current surcharges in January and February are up fairly significantly based upon the increase in commodity prices during the fourth quarter itself.
At the same time, our material costs that will flow into the P&L in the first quarter have been average down.
Through our production in third and fourth quarter, where we had lower raw material cost in our shop.
So I expect to Miss alignment, which was $2 4 million in the fourth quarter to be significantly reduced.
First quarter.
The other factor is base price increases as you know we've announced a series of price increases over last year and a half those price increases are embedded in our backlog we already booked at.
It is a matter of getting those products produced and shipped out the door.
And that will add to the margin accretion.
And we have been struggling as everyone knows with labor or labor issue getting enough people enter the plant trained.
To ramp up the facility and I see that improving we've added 50 people to the workforce since our last call I would expect to do that again during the first quarter and we will continue to do that we probably need somewhere between 50 and 100 additional employees to really get to the point of performance for what we expect in 2024.
Alright, so the labor shortage is still an issue, but it's something that seems to be breaking applications have been up for the last three or four months.
We put a lot of people out in our facilities learning how to make our products.
And do that safely and efficiently.
So it sounds like labor labor cost creeping up given the fact that youre, adding in internal head count from some of the.
Outsourcing and then.
You also mentioned you have a new deal with.
With one of the with one of the unions is there any other.
There are some there are some hourly there are some hourly rate increases no doubt I mean the.
Puts and takes on the labor front would be higher hourly labor cost per hour, but we'll also be running at higher activity levels, which will give us productivity.
A portion of that.
And then the other factor to keep in mind is we've been using contractors, we've had as many as 75% to 85 contractors in our facilities to support production and as I mentioned, we've been cutting those.
Pretty consistently here for last couple of months as we bring in employees. So we're down to less than 30 contractors currently.
We would expect that number to be zero here.
Into the second quarter.
So that's a cost reduction for us.
Okay.
So net of all the contracts contractors, rather coming off and then the labor increases, but you also have the head count increases.
Do you think thats going to be all as it as it rolls up going to be going to be a neutral.
I think it's going to be a neutral to a low single digit number.
Because the cost increase per hour will be offset by higher activity levels and less contractors.
And our workforce is coming up the learning curve.
Which is intangible I can't quantify but it's there.
So as we move through 2023 and people gain experience.
The throughput will accelerate our cost will come down from a productivity standpoint, but the hourly rate that we're paying will go up.
Okay.
And then on.
The net working capital side, I think that there was a little bit of a reduction in inventory as you mentioned.
So that will be I'm sure. The biggest drivers weighed on networking capital what should we expect on the inventory side in 2003, so on the inventory front.
Background on that if I can use your question to further explain.
If you recall in earlier calls when things were very difficult in the first half of the year and supply change were very tight.
We did buy on the heavy side to make sure that we could run and operate those supply chain issues have somewhat eased at this point in time. So as you look at the fourth quarter, we reduced our role by absolute volume of raw materials number one number two the price tag on those raw materials in the third and fourth quarter relative to the second quarter in <unk>.
First quarter were down.
And then when you look at work in process as those raw materials that were lower flow into our work in process in the fourth quarter production.
The cost per pound that inventory work in process inventory is down.
When our <unk> products.
So that will come out in the first and second quarters of this year. So as you look at inventory that Youre right. There is some moving parts.
Our goal is to.
Keep working capital under control and manage very carefully.
And we don't see the big ramp in raw material costs in the first half of the year.
And we see opportunities to reduce our inventory per pound shipped or in other words increase our turnover in the first half.
Okay. That's helpful.
And then I was going to ask after the labor piece any step up and contractual consumables in 'twenty three.
Or anything anything other than.
Outside of the spares that you mentioned which are costly.
If you look at raw maintenance spares, we still have supply chain issues in terms of very long lead times by historical standards and very unreliable delivery, which has made maintenance are challenged in terms of fixing things on a timely basis. So that's an operating issue as far as cost goes.
Throughout 2022, we saw a double digit increases pretty much in MRO as well as most of our consumables.
As we come into 2023, we continue to see inflation, but instead of being up pushing the 18% to 20% increases. We saw this time a year ago were probably half of that high single digits. There are some standout items like grinding wheels for example are up 30%.
Effective with January .
That's just <unk>.
Large percent, but a small buy in the total picture things, but I would say on average we're looking at high single digit inflation here as we come into 2023.
And then last question just on.
Interest expense I think it was 1 million and a half you did have some increase in that phase through Q4, and I would assume youre trying to manage manage that data in and around current levels, if not bring it down but what's what's the interest expense moving forward. Thank you.
Interest levels remained pretty flat.
The sone for benchmark rate levels in early January .
So if that holds true we think interest expense in Q1.
We'll be about one eight to $1 $9 million in that range.
And we thank you.
That includes that includes the interest expense on the <unk>.
New lease financing arrangements, we went through.
Sure.
I appreciate that guys.
Nope.
Thank you.
Thank you one moment, while we prepare.
Our next question.
Yes.
Our next question is coming from John D. Sure Pinnacle Your line is open.
Hi, good morning, everyone.
Good morning, good morning.
You painted a pretty optimistic picture the backlog was up.
I guess just two brief questions one what is the capex budget for.
Fiscal 'twenty three.
We will come in 2000 $16 million to $18 million and the reason I gave you that range is with.
The supply chain issues, we have.
It's kind of challenging really pulling that number down but right now we're planning on $16 million to $18 million. Okay. Great. That's helpful and I know them.
That situation.
If everything goes according to plan and I know Thats a big if.
Where would you anticipate that to be a year from now I think it's 90 to 98 four.
What should we think about.
For year end and debt levels.
With $98 four includes new lease arrangement.
Just to make that points in such a change and I would expect that number to be below 98 four.
We'll probably have some use of cash in the first half of the year as sales ramp.
And then flatten out and pay down during the second half of the year. That's the way I would look at our our numbers. So we grew to $98 four somewhere in the $85 million to $90 million range a year from now.
85% to 90%.
Yes, okay.
Alright, that's helpful and best of luck.
Thank you.
Thank you.
If you have a question. Please press star one on your telephone one moment, while we compare the Q&A roster.
Next question is coming from Douglas D C.
D C cap. Your line is open hi, DC capital Douglas Jonathan Good morning.
Douglas how are you. Good. Thank you could you comment on what your expectations are on volume increases and 23 versus <unk> 22 on some basis that you would look at it to get it kind of an idea on how much more is going to be flowing through the <unk>.
The plant and equipment.
You're talking about shipment volume I assume.
No calculation chip shipments is probably as good as any measure.
Two comments there in terms of total pounds, you are probably looking at something in the range of 10%.
Hey.
The significant shift in mix towards more premium melted products, which you've already started to see.
And the while the wildcard in that volume number is going to be some of our semi finished products like plate.
Go into the heavy industrial market.
Uh huh.
And Thats based on where demand comes out then on that product.
Yes, and then on that product that has a shorter lead time products compared to so in our <unk>.
Our backlog Youre talking.
Yes, I don't know six to 10 weeks lead time for that product at this point.
And we will be working to reduce that lead time, but that probably is the most economically sensitive part of our business, yes, okay as compared to the aerospace side and with all the things you hear about on the news and stuff some of our customers in that supply chain had been a little cautious recently.
And it manage their inventories down and you see that reflected in our sales.
Our personal view is we will see that improve as we go through 2023.
And there is some upside potential there.
Okay got it.
I think thats the main.
I had just on the you've made some investments in <unk> to upgrade the metallurgy of your products how much capacity. It's added when you put it all together it was not clear to me.
You started probably a year or two years ago and when you are.
Complete with this news.
Oh, I guess initiative I guess, you mentioned the first quarter.
<unk> 24.
It's gone from <unk> to be what our A&P.
In terms of capabilities.
Well, if you look at premium melted products.
We invested in North Jackson basically to add technology to our company. So we didn't have it before.
So so but if you look at what we can do somewhere in the range of 18 to 20 million pounds of premium melted products would be a capacity number to use.
That's production.
Yields on those products are typically somewhere in that 55% to 60% range.
And thats taking it.
I would let me publicly just add to that I don't want to confuse anybody.
We made that initial investment we quoted.
Incremental sales revenue from our vacuum induction melted products, which is premium melted products in the range of $105 million to $110 million.
We get to 80% 85% of capacity.
Right. So we have a ways to go there we had sales of roughly just under $40 million of those products.
In 2022.
And our goal really over the next couple of years as the double that sales sales volume.
To do that we need some additional rebuild furnaces, which is the investment that we've alluded to a couple of times in our call.
And that is that the one that's underway and finance now.
That's still under consideration yes.
Yes.
<unk>.
Both the building.
And the equipment just arrived and it will be installing the equipment and then we've got to go through a cold and hot commissioning phase.
Because of the quality of these products is not something you just install internal and so under.
Our plan is to install that over the rest of the year get the commissioning done and be ready to hand, it over to operations in January 2024, right.
The last one just on that point, what's the premium and pricing per pound versus your standard product.
Analysts related.
Generally you are talking about 7% to $9 range compared to 11% to 15 would be a good proxy between our.
Our specialty and our premium products.
Super Thank you very much.
Youre welcome.
Yes.
Thank you.
If you would like to ask a question. Please press star one on your telephone.
P&C no more questions in the queue.
I'd like to turn the call back over to Mr. <unk> for concluding remarks go ahead Sir.
Thanks, operator.
Once again I want to thank everybody for joining us. This morning, I also want to apologize for the frog in my voice.
So hopefully everything came through loud and clear.
We are starting the new year with a high level of optimism and are committed to seizing our market opportunities, especially in aerospace.
We're looking forward to updating you on our progress on our next call, which will be in April in the meantime be well stay safe and have a great day. Thank you.
Thank you all for joining today's conference call. This concludes today's event you may all disconnect and have a great rest of your day.
The conference will begin shortly to raise and lower Johan <unk>.
You can dial star one one.
[music].