Universal Stainless & Alloy Products Inc. Q1 2023 Earnings Call
Okay.
Good morning, ladies and gentlemen, thank you for standing by and welcome to Universal stainless first quarter 2023 conference call and webcast.
At this time all participants are in a listen all.
After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one on your telephone you will then hear an automatic message.
Great.
Please note that today's conference maybe recorded.
I'll now hand the conference.
Jim Please.
Please go ahead.
Thank you Olivier Good morning. This is June Phil and Jerry of Comm partners and I also would like to welcome you the Universal stainless conference call and webcast.
We are here to discuss the company's first quarter 2023 results reported this morning with US from management are Denny Oates, Chairman, President and Chief Executive Officer, Chris Zimmer Executive Vice President and Chief Operating Officer, John Armenia's Vice Pres.
And general Counsel, and Steve <unk>, 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.
You will instruct you on procedures at that time.
Also please note that in this morning's call management will make forward looking statements under the 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.
So with the from valid is complete I would now like to turn the call over to Denny Oates Denny we are ready to begin.
Thanks Jan.
Everyone. Thanks for joining us today.
We got off to a solid start in 2023, and our first quarter performance exceeded expectations.
Drivers were robust aerospace demand a favorable mix of premium and finish bar products increased base, selling prices and surcharges and higher plant activity levels.
Progress was made in improving profitability with our gross margin returning to double digits and increasing each month of the quarter.
Tempo of business remains exceptionally strong.
Turning to continued sales growth and profitability improvement over the balance of the year.
Let's look at the highlights starting with business activity.
March 31 order backlog was $366 million, a record high and a 27% sequential increase.
First quarter order entry totaled $117 million up 41% over Q4 of 2022.
In another company record.
First quarter sales were $66 million up 17% sequentially on a 15% volume increase and marks the highest highest level since pre pandemic 2019.
Premium alloy sales reached a quarterly record of $17 7 million or 27% of sales.
31% increase from the fourth quarter and virtually doubled the first quarter last year.
Our premium alloy sales continued to be driven by aerospace demand.
First quarter aerospace sales increased 22% sequentially and represented nearly 75% of sales.
The accelerating growth in our higher margin premium products is a key part of our long term strategy and I should note that our record backlog can change roughly 35% premium products.
Taking a look at profitability.
First quarter gross margin improved to 11, 7% of sales.
Returning to double digit levels for the first time since 2019.
Higher shipment volume and planned activity levels, the richer sales mix increased surcharges and higher base selling prices were all contributors to our improved profitability.
Okay.
In total we announced six price increases in 2022, which are layered into our backlog and will roll into sales through the rest of 2023 and then into 2024.
In March of this year, we announced an additional increase our base price increase of 7% to 12% on bar products, which will impact 2024, given current lead times.
Plant activity levels increased 10% generating better absorption of fixed cost and substantial operating leverage.
Additionally, we were able to reduce variable cost per process pound by approximately 6% sequentially.
Okay.
Labor availability remains a challenge.
Nevertheless, productivity and output are continuing to increase as we train and integrate new employees into operations.
I'm also very pleased to report that we achieved an osha recordable rate of one in the quarter a record low for the company I want to express my personal appreciation and compliments to all of our employees for their efforts and looking out for each other as we strive to maintain a safe work environment.
Yeah.
Okay.
Although operating income in the first quarter turned positive at $1 4 million, we reported a net loss of $5.
<unk> $5.500 million or <unk> <unk> per diluted share.
We have much more work to do and remain confident in our outlook for sequential quarterly improvement.
EBITDA and adjusted EBITDA reached the highest level since 2019 totaling $6 5 million and $6 8 million respectively.
Just a few comments on our financial position.
Working capital was $149 8 million on March 31, compared with $145 9 million at year end 2022.
We continue to reduce inventory, which totaled $149 4 million versus $154 2 million at the end of the fourth quarter, reflecting our announced plans to improve inventory turnover, while driving sales and operating levels higher.
Total debt on March 31 was $99 million.
With remaining availability relatively unchanged from 2020 twos year end at $24 million.
Yeah.
First quarter capital expenditures totaled $4 $5 million, mainly for investment in North Jackson, which consisted of an addition, the addition of two vacuum arc re mail furnaces.
The equipment has been delivered installation is on track for completion this year.
With full integration of operations beginning in the first quarter of 2024.
Our objective is to expand our product portfolio with more technologically advanced higher margin premium products.
Lansing, our capabilities cost structure and growth prospects.
To capitalize on the abundant opportunities in our future and to accelerate the execution of our long term growth strategy, we announced two changes in our leadership team earlier this month.
Chris <unk>, who was named executive Vice President and Chief operating Officer.
Chris takes on manufacturing purchasing technology and quality. In addition to his current responsibilities for sales marketing and supply chain management and development.
Chris has a 15 year veteran of Universal and most recently served as executive Vice President and Chief commercial officer of the company.
He has been a key partner in building universal over the past 15 years his promotion to Chief operating officer elevates that partnership to a new level.
Additionally, Brian Kane was promoted to vice President of sales and marketing. Brian is also a 15 year Universal veteran and served most recently as manager field sales.
Chris I'll turn it over to you for your review of operations.
Thank you Danny and good morning, everyone.
I'm pleased to report substantial improvement in the operating issues that impacted our fourth quarter, which were mainly caused by several unplanned equipment outages at key facilities.
As well as difficult weather conditions in December .
Let me contrast, our performance today with the situation at the end of 2022.
And December operating hours at the Bridgeville Hot mill declined by 30% sequentially.
But they have rebounded and are up 52% by the end of March.
The North Jackson Forge had the lowest monthly operating hours of the year in December after we lost a worm gear. However, operating hours at the forwards are up 16% sequentially and back to pre Covid operating levels.
In fact company wide there were no significant unexpected manufacturing issues for our equipment downtime in the first quarter.
Our major challenge, we continue to face as a nationwide labor shortage.
Fortunately, we are continuing to see a steady increase in our labor employee count.
Retention is improving.
Onboarding and training are continuing to produce tangible results.
Supply chain bottlenecks and extended lead times, particularly for repair parts continue but the situation is improving.
Now turning to commodities.
The commodities market continued to be volatile in the first quarter nickel prices were down 19% sequentially at the end of March.
Macroeconomic factors, including a stronger U S dollar.
And slower than expected return of demand following the lunar new year in China have put pressure on nickel prices.
At the same time moly was up 24% and iron was up 51% from the end of December .
Based on current commodity prices, we are expecting surcharges to be modestly lower in the second quarter.
Let's turn to end markets, beginning with aerospace our largest market with.
We saw continued growth in our aerospace sales in the first quarter of 2023, which totaled $49 million and represented 74% of sales.
That's up 22% from $40 1 million in revenue in the fourth quarter of 'twenty two.
And up 63% from the first quarter of 2022.
On our last call, we said that the pace of aircraft deliveries increased order activity ramping build rates and lean supply chain inventories indicated a multiyear aerospace expansion.
Those drivers continued today as evidenced by robust demand throughout the supply chain.
Universal has realized strong aerospace sales record premium alloy sales.
And we have a record backlog.
Air travel is back and as one analyst put it airlines are clamoring for new aircrafts as existing fleet capacity struggles to meet demand.
Let's look at developments at Boeing and Airbus.
For the first quarter of 2023, Boeing deliveries rose nearly 40% to 130 planes.
From 95 planes in the year ago quarter.
Which was above the analyst estimates of 120.
That total included 111, 737, Max airplanes, with Ryanair southwest and United receiving a combined total of $64 737 Max airplanes.
It also included 11 787 wide body airplanes, where demand is recovering as international travel resumes.
At Airbus delivery in the first quarter totaled 127, aircrafts, including 10 of the small a 220 jets.
106, eight <unk> hundred 30, neo single aisle airplanes.
And 11 wide body aircrafts, including five <unk> hundred Fifty's.
Airbus has been guiding to 270 total aircraft deliveries in 2023 and.
<unk> reported a 142 net orders in the first quarter.
That included the reinstatement of 73 <unk> hundred <unk>.
Following settlement of their legal dispute with Qatar Airlines.
Among their new orders was in agreement with Lufthansa to expand its fleet by 15 <unk> hundred Fifty's.
There were also deals with Delta Airlines and British Airways.
Last week in response to a media report Airbus confirmed that there would be unspecified delays in 2024 aircraft deliveries, but management reaffirmed production targets for 2024 and beyond named.
Namely a rate of 65 aircraft per month to be reached by the end of 2024.
On a rate of $75 in 2026.
At March 31, Airbus is backlog stood at 7254 aircrafts.
Meanwhile.
Boeing reported strong first quarter orders with a total 120 gross orders booked including 78 737 Max planes.
The largest of these for 12 aircrafts from Japan Airlines Airlines Jal's first ever order for the 737 Max was an important win for Boeing beating out the Airbus <unk> hundred 20 Neo.
And wide bodies Taipei based Eva Air ordered five additional 787 dreamliners to leverage what they describe as the 780 sevens unrivaled efficiency and performance in line with airline carbon neutral growth strategy.
And while not in their order books, Boeing announced that Saudi Arabian Airlines is set to purchase $39 780 Sevens.
Boeing also reported that in total Saudi Arabian carriers intend to purchase up to $121 787, Dreamliners and what will be the fifth largest commercial order by value and Boeing's history.
Boeing ended the quarter with a net backlog of 4555 aircrafts.
Wall Street is closely monitoring production rates of the 737, Max and expect Boeing to deliver approximately 570 jets in 2023.
Boeing previously told investors to expect 400 to 450 deliveries of the Max in 2023.
And an exclusive story on April 10th Reuters said that it learned from unidentified sources.
That Boeing intended to restore production of the 737 Max to its 2019 rate of 52, a month by January of 2025.
With monthly Max production rates, reaching 38 in June of this year.
42 by January of 2024.
47 by June of 'twenty four.
Boeing declined to comment.
The general expectation has been that Boeing will increase Max output to 38 planes per month by the middle of this year.
Airlines are entering their busy travel months.
And the recent first quarter report Delta Airlines reported record quarterly revenues and record advanced bookings for the summer with international travel being exceptionally strong.
The United Airlines also reported that demand remains strong, especially internationally, although they are watching the macroeconomic macroeconomic risks carefully.
Recent statistics from IAA Ta reflect an improving travel demand trend.
They report that total traffic in February of 23 rose 56%.
From the prior year February 2022 period.
Reflecting a 25% increase in domestic travel worldwide and international travel climbed 90%.
Versus February of 2022, with all markets recording strong growth led by carriers in the Asia Pacific region.
Total global traffic is now 95, excuse me, 85% of February 2019 level with domestic travel at 97% of that February 2019 level and international travel at 78% of the February 2019 levels.
Meanwhile, TSA screen, an average of $2 1 million passengers daily during the first three months of this year.
In line with the same average of 20 121 million passengers.
Spirits during the first three months of 2019.
Not surprisingly defense market remains strong given conflicts around the globe and the Pentagon's 585 billion defense budget.
A few rotorcraft deals in the first quarter are worth noting.
Boeing will supply the U S Army and its allies with 184, H 64 E. Apache helicopters under terms of a $1 $9 billion contract modification of the enhancing U S Army's attack fleet.
And in positive news for our customer Bell helicopter.
<unk> upheld the U S Army's decision to choose the Bell V 280, tilt rotor aircraft to replace the Blackhawk helicopter.
What this all means for universal and our customers is continued robust demand from customers anxious to restock depleted inventories in order to meet ramping build rates and a very active <unk> aftermarket.
Okay.
The heavy equipment market remained our second largest market in the first quarter of 2023 with sales of $6 $9 million, representing 10% of sales.
This is up 23% sequentially and 14% lower from the first quarter of 2022.
Metal metal fabrication demand drives our sales to the heavy equipment market, especially for automotive applications.
After trending downward in 2022, we saw a strong sales pick up in the first quarter as customers. Once again began replenishing inventories.
New car model launches in the USA are forecasted to increase from 23 and 2023 to 31 in 2025.
Which bodes well for our 2023 and 2020 for demand as Toolmakers generally lead new model launches by 18 months.
The outlook for our heavy equipment sales for the balance of the year remains positive. Despite our our service center customers cautious approach to inventory levels as demand is closely linked to general economic conditions.
The oil and gas end market was our third largest and the first quarter of 2023 with sales of $4 $8 million, representing 7% of sales.
This is down 10% from the fourth quarter of 2022.
But up 9% from the first quarter of 2022.
Despite our lower sequential sales demand has been strong in oil and gas.
That is reflected in the first quarter results of Baker, Hughes, which reported better than expected revenues and earnings for the quarter.
The company remains optimistic for the outlook of energy services, even though 2023 started off with some macro volatility.
Slumber J reported stronger year over year revenue growth and are optimistic about the outlook for global activity through the rest of the year.
Yeah.
At Universal, we expect oil and gas to provide additional opportunities over the next several years given the continuing bullish sentiment and current supply chain inventories.
The general industrial market was our fourth largest market in the first quarter of 2023 with sales of $3 $5 million, representing 5% of sales.
This is down 4% from the fourth quarter of 'twenty, two but up 4% from the first quarter a year ago.
For context, the semiconductor industry Association reported that global semiconductor industry sales in February of 'twenty three declined four.
<unk>, 4% from January of 2003.
And 21% from February of 2022, reflecting short term market cyclicality and macroeconomic headwinds.
But SAA concluded short term market cyclicality and macroeconomic headwinds have led to cooling sales, but the market's medium and long term prospects remain bright thanks to growing demand across a range of end markets.
We continue to view these trends as a positive for our customers and for universal over the long run over the long term.
We expect our general industrial sales to remained solid during the balance of the year and we are poised to capitalize on the long term growth prospects.
Power generation markets totaled $1 $1 million, representing 2% of sales in the first quarter of 2023, an increase of 4% over the fourth quarter of 'twenty, two but 16% lower than the prior period in the first quarter of 'twenty two.
Demand for maintenance of industrial gas turbines for electricity generation continues to account for most of our power generation sales.
And as we said last time, there has not been much news of late about new builds of gas turbines.
And there are certain.
Short term energy outlook.
Projected that the share of total electricity generation supplied by natural gas will remain about the same this year at 39%.
We expect that maintenance activity will continue to pace, our power generation sales for 2023.
And we are well positioned to benefit from long term increases in new gas turbine builds when the market returns to adding capacity.
Now, let me turn the call over to Steve for his report on our financials.
Thank you, Chris and good morning, everyone.
Our top line sales for the quarter increased to $65 9 million on stronger shipment volume sequentially and rising selling prices.
The increase versus the 2022 fourth quarter was $9 7 million in total of which approximately $1 3 million was due to the greater mix of premium product sales.
$3 2 million was due to higher selling prices.
And the remainder came from the 15% increase in gross shipment volume.
This marks the second consecutive quarter of double digit shipment volume growth as we continue to ramp up production and deliver on our record order backlog.
First quarter gross margin totaled $7 $7 million or 11, 7% of sales an increase of more than 7% sequentially and the highest quarterly gross margin percentage achieved since the first half of 2019.
The margin expansion is primarily a result of higher base prices stronger production volume and cost absorption and higher shipment volume and.
In addition, the misalignment of raw material surcharges per pound within our selling price and our materials cost of sales reversed some in the current quarter.
As a reminder, in Q4, we experienced negative miss alignment of $2 4 million as surcharges fell and materials cost of sales rose compared with the third quarter of 2022.
But our surcharges increased and our misalignment was positive $1 $8 million when measured sequentially versus the prior quarter.
This helped offset much of the negative misalignment that burdened our Q4 results and brings us close to an even playing field with the middle of last year with regard to the balance between raw material surcharges and raw material costs.
Additionally.
J P grant benefit that was in our gross margin throughout last year was fully recorded by the end of the year and does not provide any such benefit in the Q1 2023 results.
Okay.
Moving on to selling general and administrative costs SG.
SG&A totaled $6 $3 million in the current quarter.
Compared to $5 6 million in the fourth quarter of 2022.
But decreased as a percent of sales from approximately 10% in Q4 to nine 5% now.
We expect SG&A to land in the low six millions in the second quarter as well.
We earned operating income of $1 $4 million during the first quarter compared to a loss of $3 2 million in the fourth quarter of 2022.
Reflecting our growing gross margin as we benefit from higher prices and higher plant activity levels. We.
We will continue to see prices and production activity increase as we step through each quarter of 2023.
However, interest expense rose to $2 million compared.
Compared with $1 6 million in the 2022 fourth quarter or.
For $700000 in the first quarter of the prior year.
The $1 $3 million increase comparing back to the first quarter of last year as first attributed to higher market interest rates.
They are reflected in the variable rates, we pay on the majority of our revolver and term loan borrowings under our credit facility.
Those rates increased on average from about 3% in the prior year quarter to more than 7% during the 2023 first quarter.
The average total balance outstanding.
On our revolver also increased in.
And our total our total debt balance was about 30% higher this quarter compared to the same quarter in the prior year.
After interest expense, we recorded a pre tax loss of about $540000 and an income tax benefit of about $30000, resulting in an effective tax rate for the quarter of about 5%.
Our estimated annual effective tax rate for 2023 is 13%.
Which is less than the federal statutory rate of 21% due to the beneficial impact of our research and development credits.
Discrete items during the first quarter were less than $100000, but had about an 8% impact on the Q1 rate due to the narrow loss position.
Our net loss for the quarter was $500000 or <unk> <unk> per share.
EBITDA totaled $6 5 million significantly up from $1 7 million in the fourth quarter of 2022, and $3 8 million in the same quarter, a year ago and reached its highest level since the second quarter of 2019.
Adjusted EBITDA totaled $6 8 million versus $2, one in the fourth quarter of.
2022, and three two in the 2020 to first quarter.
Our adjusted EBITDA.
Includes add backs for noncash share compensation and other unique items impacting our results for the reported period.
The calculations for EBITDA and adjusted EBITDA are provided in the tables in our press release.
Now I'll highlight the key elements driving our cash flow and debt.
During the first quarter, we generated $3 $5 million of cash from our operations. Despite growing our managed working capital by $2 million.
The working capital growth was driven by a $3 million increase in accounts receivable from our higher sales.
And a $3 million decrease in accounts payable.
Meanwhile, inventory decreased $4 million during the quarter as a result of effective inventory planning and production execution.
The decrease reflects a reduction of work in process pounds on hand, partly offset by an increase in the overall blended value per pound.
And a shift in mix toward premium melted product in inventory.
Our capital spending increased to $4 $5 million for the quarter.
Of which was related to the strategic expansion of our vacuum arc re melt facility at our North Jackson, Ohio plant.
As a result, our net our total net debt, including cash increased by about one $5 million compared to the end of 2022.
While our available borrowings under our revolving credit facility remained flat at $24 million.
That concludes my financial report.
I'll turn the call back to you.
Okay, Steve Thank you.
Let me summarize.
Our first quarter results exceeded expectations and we are focused on building on our positive momentum as we move through the year.
We have a record backlog of $366 million containing over 35% premium alloy products and substantial base price escalation.
The operational issues that hit us last quarter have largely been resolved there were few unexpected manufacturing issues are unplanned equipment downtime in the first quarter.
Plant activity levels increased making a major contribution as strong operating leverage and a return to double digit margins.
Employee count is up retention is up and training is gaining traction.
Supply chain bottlenecks remain a significant issue, particularly on electrical equipment, which makes basic maintenance and capital project management very challenging.
Inflation also continues but the rate of increase is generally moderated compared to last year.
Our capital project to add two additional vacuum arc re mail furnaces at North Jackson is on track and will be operational in the first quarter of 2024 to meet the production needs of our record backlog and expand our capabilities in premium remarks deals.
The tempo of our business remains exceptionally strong which points to continued sales growth and profitability improvement over the balance of the year and well into 2024 and 2025.
Development of our organization continues with the appointments of Chris Zimmer as Chief operating Officer, and Brian Kane as Vice President of sales and marketing both season Universal veterans.
We have an exceptionally talented team here at universal they remain dedicated relentless in their pursuit of strategic goals and resilient in the face of significant challenges over the past few years.
<unk> my sincere gratitude as do our board our customers and our stockholders that concludes our formal remarks, Olivia we're ready to take some questions.
Certainly ladies and gentlemen to ask a question you will need to press star one on your telephone and wait for your name to be announced soon.
A question Press Star one again, please standby will be compile the Q&A roster.
And our first question coming from the line of.
Michael <unk> with Keybanc Your line is open.
Hey, guys good morning.
How you doing.
Good I wanted to start asking about your split between OEM and MRO business.
Do you have any level of visibility into what your normalized level of MRO business days.
A percentage of sales and and how does that compare to what youre seeing in the near term.
So this is Chris I'll take a stab at that.
The answer is it's hard for us to really get a good.
Beat on that because the majority of our product is flowing through service centers and forgers.
Even when we're selling up into the supply chain of prime sometimes it's hard for us to know how much of that is a newbuild versus an MRO activity base.
The feedback that we get is that.
Demand is being driven by both.
There have been some very strong very bullish comments on the MRO side.
But I'm not able to quantify how much of that revenue of ours goes into either one of those buckets.
And then thinking about margin.
<unk> quarter, given declining surcharges.
While the Aero ramp is still picking up order momentum and labor productivity is improving.
Maybe what are some of the important puts and takes that we should think about there for the second quarter at least directionally.
Directionally, we would expect to see some modest improvements in sales.
With the sales growth accelerated during the third and fourth quarters of the year.
We expect margins to expand each quarter of the year.
We would expect to be paying down debt each quarter of the year.
And we expect to see improved inventory turnover.
As we move through the year.
And I guess lastly, our capital estimates I think Steve already went through a relatively unchanged.
Great. That's very helpful and lastly for me just from a working capital perspective, you mentioned inventory a re at peak levels here.
Is there any any reason that you would need to build some buffer to mitigate them supply chain constraints.
We plan to continue to ramp up our plant activity and our shipment level.
At the same time improve our turnover so in terms of absolute dollars on the balance sheet, we would expect over the course of the next two quarters.
To see some reduction in inventory.
So I don't know if this is so I would not characterize this.
This is a peak.
If I understood your question right.
No that's helpful. Thanks, guys.
Youre welcome.
Thank you Juan Mora, our next question.
And our next question coming from the line of Alan.
Alan Weber with <unk> Advisors. Your line is open.
Good morning.
Morning.
When you talk about.
Good spot as you look out into 'twenty four 'twenty five can you talk about how you think about.
Kind of what are the goals towards gross margin and operating margins.
Well, if you take a look at our underlying long term strategy, we've talked about a lot. Our basic strategy is to add more technologically advanced products into our product portfolio.
Of which carry significantly higher prices and higher margin than our traditional business.
At the same time working to improve our legacy business in terms of products.
By several basis points. So what does that mean in an upmarket Lake we're looking now.
We would expect to see record margins, what does that mean quantitatively high teens.
20 ish.
And that's gross margins gross margin I'm talking about yes, right and in that scenario, how do you think about SG&A.
SG&A is going to be around six to $6 $5 million a quarter.
As you look at our current organization, if youre talking long term.
We really don't need to add significant numbers of people through our SG&A head count today.
Matter really throughout the company. So we basically have the organization and infrastructure in place.
So as the topline grows you would expect to see significant leverage as we go.
Sales increase.
Have you I forgot now did you have you historically.
Hi team.
Gross margins.
Got up to 17, 7% back in the second quarter of 2018 1919 acres.
<unk>.
So yes, we've been there before if you go back earlier in the company's history before North Jackson, we've been there, but in the last five or six years.
Yes, we've been up in the 17% to 18% range.
Okay.
Great that was very good.
Thank you.
Youre welcome.
Okay.
Thank you and as a reminder, ladies and gentlemen to ask a question. Please press star one.
One moment for our next question.
And our next question coming from the line of Bob sales with <unk> capital. Your line is now open.
Hi.
Nice quarter guys.
Two questions.
Doing well.
First question is.
When you talked about.
I assume the inventory reduction.
Going forward and perhaps in cash generation, a little bit of cash generation or that means of driving down debt.
As you look through the year can you extended a little bit more about what you.
Well Ive identified and what you plan to be acting earn in terms of your ability to reduce inventory.
And if there's any opportunity to quantify what you think the opportunity is that would be helpful.
Yes.
While we typically I'm not prepared to give you a guidance in terms of what our inventory balance will be at the end of each quarter.
But directionally what were doing is looking at inventory turnover and velocity through the plant. So if you think about the kind of operation we have as we bring people on board and we increase the activity level. The number of hours, we can run equipment.
Material moves faster through the plant and we have a series of programs to accelerate that velocity through the plant.
And at higher velocity.
End up with two things one is we will have shorter cycle times, we can pulling our lead times, which will help our sales growth and at the same time, we reduced the amount of inventory.
That's essentially what we're doing.
Got it got it and then.
The second question I had.
As your.
Okay.
Cost of working capital.
Increases.
With rates.
Is there any opportunity when you look at your business too.
<unk>.
Two.
Deemphasize.
Growth in <unk>.
Identify the product set.
<unk> drive up higher.
Return on invested capital allow you to expand gross margins, even more perhaps offer better inventory.
Metrics.
Or do you look at the business sort of.
Ubiquitously.
Where it's not so easy to identify on a product line by product line basis.
Our chronic portfolio gets a great deal of attention around here Bob.
Look at where we're at today.
There are there are elements of our product portfolio, which we are basically exited so if you look at some of our some of our shape our business.
Some certain grades of steel.
Where we have proven that out of our product portfolio because of their margin contribution or because they are relatively low volume and it ends up with very slow moving inventory.
So I understand the concept you are expressing.
That's part of our long term plan and we've been doing that.
So if you look at things like wire and.
Rod.
Product lines, we really don't so much of that anymore or shape, our business is much smaller than it used to be.
We do milk, some 316 product to its basically goes into semiconductor in most cases.
But most of the 300 series stuff, we don't meld anymore.
So we've been on a long term March to try and do exactly what you're suggesting.
Got it got it.
The outlook look so.
It looks great. It looks like you guys have made huge operational improvements. So good luck for the rest of the year.
Thank you Mark.
Okay.
Thank you and again as a reminder, if you'd like to ask a question. Please press star one on your touch from telephones.
Alright, and I see no further questions in queue. At this time I will now turn the call back over to Mr. <unk> for any closing remarks.
Thanks, Libya.
Once again, thanks, everyone for joining us this morning, our first quarter performance and record backlog and bookings reinforce our optimism for the rest of the year and beyond.
We look forward to updating you on our progress on our next call in July in the meantime, stay well stay safe.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
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