Q2 2023 Encore Wire Corp Earnings Call
Hello, My name is Chris and I'll be your conference operator today at this time I'd like to welcome everyone to the Encore Wire Corporation second quarter 2023 earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
To withdraw your question. Please press star one again.
Thank you Bret Eckert Executive Vice President and Chief Financial Officer, you May begin.
Thank you Chris Good morning, and welcome to the Encore Wire Corporation quarterly conference call I'm, Bret Eckert Executive Vice President and Chief Financial Officer of Encore wire with me. This morning is Daniel Jones, President CEO and chairman of the board in a minute. We will review encores financial results for the second quarter ended June 32.
23 after the financial review, we will take any questions. You may have before we review the financials. Let me indicate that throughout this conference call, we may be making certain statements that might be considered to be forward looking.
In order to comply with certain securities legislation and instead of attempting to identify each particular statement as forward looking we advise you that all such statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed today.
I refer each of you to the company's SEC reports and news releases for a more detailed discussion of these risks and uncertainties also reconciliations of non-GAAP financial measures discussed during this conference call to the most directly comparable financial measures presented in accordance with GAAP, including EBITDA, which we believe to be used.
Supplemental information for investors.
It at our website I will now.
I'll turn the call over to Daniel for some opening remarks Daniel.
Good morning, everyone and thank you Bret and Chris. Thank you for joining us on the call and for your interest in Encore wire.
We appreciate your continued investment confidence and support.
This quarter marked our ninth consecutive quarter of elevated margins. Despite our continued belief that we are in the midst of a period of gradual margin abatement.
As we have discussed at length on prior earnings calls copper margins began to gradually abate mid 2021.
In aluminum margins peaked in the fourth quarter of 2022.
Since then we've invested heavily and continue to invest in improving our service model and efficiency levels to reduce costs increase capacity and deepened vertical integration, which we believe should contribute to achieving sustained higher gross margin levels when compared to pre COVID-19 baselines.
With respect to volume we are pleased to have shipped a near record number of copper and aluminum pounds in the second quarter.
These results demonstrate a dynamic shift in volume shift.
When compared to a pre COVID-19 baseline copper and aluminum pounds shipped in second quarter of 2023 increased by 13% and 78% respectively, when compared to the second quarter of 2019.
We captured this incremental market share by leveraging our single site vertically integrated campus deep supplier relationships and strong employee base to quickly manufacture and ship finished goods to our customers. Despite the broader macro challenges facing the sector.
The strong performance is also a reflection of our steadfast commitment to outstanding customer service and our intense focus on shipping complete orders quickly combined with our expanded reinvestment initiatives such as the <unk> compounding facility set to come online late in the third quarter of this year.
Since our inception, we have grown organically under the same value proposition that we were founded on manufacturing innovative products, while providing exceptional customer service focused on quickly shifting complete orders coast to coast.
We believe our industry, leading fill rates continue to give us a strategic competitive advantage in the marketplace or one location business model also affords us a higher level of agility in adapting to changing market conditions structuring our operations to quickly service areas of new and growing demand.
Such as data centers and renewable energy.
Demand for our products has remained strong and our build to ship model combined with the throughput of our modern service center positions us well to satisfy increases in future demand.
We believe that we have made and are making the appropriate sustainable investments to take advantage of future incremental demand for current and new product offerings that will help to facilitate the broad electrification of our economy.
We expect that the current legislation in place to help fund the infrastructure needed for broad electrification will bolster long term demand for many of our product categories.
We also expect that this demand will raise the floor for the process many raw material inputs for years to come.
We firmly believe that our historical recent and future success is a direct reflection of our unique culture and strength of our experienced team.
We also believe that our one campus location, increasing verticals deep vendor and customer relationships and our ability to quickly ship complete orders will remain vital differentiators in our future success.
We continue to believe that our stock is undervalued at current market prices and what we believe are historically low forward valuation multiples as evidenced by our continued share repurchases in Q2 of 2023 and increased repurchase authorization.
Since Q1 of 2020, our share repurchase program has returned $565 $4 million in capital to shareholders and our continued purchasing demonstrates our confidence in long term value creation potential of our company.
With that I will.
I'll now turn the call over to Brett to cover some financial performance indicators in the second quarter, Brett. Thank you Daniel.
Quarter and year to date 2023 highlights include second quarter earnings per diluted share of $6 in one year.
Year to date earnings per diluted share of $12 53.
Second quarter net income of $104 7 million year to date net income of $224 2 million gross profit of 26, 1% in the second quarter of 2023 28, 6% year to date in 2023 cash on hand 667.
8 million as of June 32023 that compares to $736 million of cash on hand as of December 31, 2022.
Capital expenditures amounted to just under $75 million in the first half of 2023.
We repurchased 772931 shares during the second quarter and one 475 409 year to date in 2023.
Total cash outlay for share repurchases of $126 7 million during the quarter $253 8 million year to date in 2023.
In June of 2023, the board of directors increased the repurchase authorization back up to a four 2 million shares of our common stock through March 31 2024.
And a departure from previous call I am not going to review the earnings release, but instead highlight a few key points copper.
Copper unit volume increased one 3% in the second quarter of 2023 versus the second quarter of 2022, despite a very tough comp in the prior year quarter aluminum wire represented 14, 4% of net sales in the second quarter of 2023 compared to 15% in the second quarter of 2020.
Two copper unit volume increased 10, 4% in the second quarter of 23 versus the first quarter of 2023. The decrease in net sales in each of those periods was driven by an anticipated decrease in the average selling price in the current year period, which is consistent with the gradual margin abatement, we had been disk.
<unk> seen over the past several years.
Gross profit percentage for the second quarter of 2023 as I said was 26, 1% and that compares to 31, 1% in the first quarter of 2023, the average selling price of wire per copper pound sold decreased 12, 4% in the second quarter of 2023 versus the.
First quarter of 2023, while the average cost of copper pound purchase decreased five 3%. This resulted in a gradual abatement of copper spreads in the quarter, primarily driven by the decrease in average selling price noted above.
Which resulted in the decreased gross profit margin in the second quarter of 2023, when you compare it to the first quarter of 2023, we believe the earnings for the first half of 2023 were exceptional and remained significantly above historical levels. This is a testament to our organic growth strategy one location business model.
Historic reset and other reinvestments in the business and our hard working employees, all driven by our culture of relentless attention to detail.
At a macro level persistent tightness and the availability of certain raw materials ongoing global uncertainties and the continued suppressed availability of skilled labor kept overall spreads elevated in the second quarter of 2023. This marks the ninth consecutive quarter of elevated margins and spreads our balance sheet and <unk>.
Cash flow generation remained very strong, allowing us to continue to reinvest in the business, while consistently repurchasing shares of our common stock since.
Since the first quarter of 2020.
We have repurchased $4 million 447686 shares of our common stock at an average price of $127 11.
For a total cash outlay of $565 4 million as previously stated in June of 2023, the board of directors increased the repurchase authorization back up to a four 2 million shares of our common stock through March 31, 2024, we also declared a <unk> <unk> cash dividend during the quarter.
Incremental investments to deepen vertical integration in our manufacturing processes as well as other projects focused on driving efficiencies and increasing capacity. We will continue to improve our service model. These types of organic investments have fueled our consistent growth since inception and position us favorably to.
To profitably capture market share for years to come in 2022, we began construction on a new state of the art Crosslinked polyethylene X L. P E compounding facility, the deepened vertical integration related to wire and cable installation.
X L. P installation is used in many applications, including data centers oil and gas transit wastewater treatment facilities utilities wind and solar applications.
As Daniel mentioned, we anticipate the new facility will be substantially completed by the end of the third quarter of 2023.
Capital spending in 2023 through 2025, we will further expand vertical integration and our manufacturing processes to reduce costs as well as modernize select wire manufacturing facilities to increase capacity and efficiency and improve our position as a sustainable and environmentally responsible company.
Total capital expenditures were $148 4 million in 2022, and $74 7 million in the first six months of 2023.
We expect capital expenditures to continue to range from $160 million to $180 million in 2023 $150 million to $170 million in 2024, and $80 million to $100 million in 2025.
We expect to continue to fund these investments with existing cash reserves and operating cash flows I will now turn the floor over to Daniel for a few final remarks. Thank you Brett our strong performance in the first half of 2023 positions us well for the future our outlook for demand remains strong and our single site Virtu.
<unk> integrated business model gives us a competitive advantage in the market today.
The opening of the New service center in May of 2021.
The opening of plant seven in the third quarter of 2022.
The new <unk> facility, which will be third quarter of 2023, and the other capital projects under construction or planned should provide us the capacity and efficiency to competitively capturing market share over the long term our unique business model continues to service well in current market conditions.
As a competitive advantage, giving us unmatched operational agility and speed to market and serving our customers evolving needs.
Persistent tightness and the availability of certain raw materials, our supplier partners continued to deliver on their commitments to encore.
We wouldn't have this level of success without the consistent exceptional performance of our long term suppliers.
Looking ahead, we remain solely committed to execute upon the core values of our company.
Unbeatable customer service nimble operations and quick deliveries coast to coast.
I remain confident in the strength of the encore team in place as we stand ready to navigate any challenges that liner path.
I want to close by thanking our employees for their hard work and.
Commitment to safety quality and excellence.
Our continued success would not have happened without their outstanding outstanding contributions.
Our strong financial results have allowed us the opportunity to incrementally invest in our team as we position encore as an employer of choice in this sector.
I also want to thank our shareholders for their continued support.
Chris will now take questions from our listeners.
Thank you and as a reminder, if you would like to ask a question Thats Star then one on your telephone keypad.
Our first question is from Julio Romero with Sidoti <unk> Company. Your line is open.
Yes.
Thanks, Hey, good morning, Daniel and Brian .
Morning.
Wanted to start with maybe aluminum.
The spread than aluminum is going to be diverging a little bit from what copper is doing if you could maybe just touch on that and talk about demand for.
For aluminum are there changes in buying patterns from customers and and are important.
You're ramping up there.
You want to get on this.
Julio.
Said aluminum margins I think really peaked in the fourth quarter October and November of 2022, and so in a period in which you had copper margins starting to abate.
In June of 'twenty, one right alumina.
Aluminum was still going up now you have got them abating as well. So you saw that continue in the first quarter ended the second.
There are a lot of imports if you look at inventories in the U S.
It's quite a lot. It's a lot of aluminum that is imported in a lot of it coming from India, a lot of that inventory is dislocated a little bit and so.
It's out of market, probably by $25 $30 40.
From where the prices today.
So that has an effect on it as you manage through it and so.
I think the normal or the gradual abatement is just something you are now seeing on the aluminum side that you didn't see before which is a little new but.
It's abating kind of consistent with what we saw from a copper perspective so.
It's running consistent and I expect those opportunities looking forward to be good on the aluminum side.
Okay. That's really helpful. There and then just could.
Could you give us a quick refresher on why copper spreads peaked in 'twenty, one and aluminum were.
We're later in the fourth quarter of 'twenty two.
Yes.
Yes, it's just the timing a little bit aluminum was a catch up you got to think about that when you got into the pandemic and everything that was going on in all of the strain that took the impact it had on labor right and everyone's chasing 50 6100 different raw materials right.
The chance to do any value reengineering potentially on a project. There was no time to do it. So if it was built with copper at Wentworth copper right.
A lot of tightness on the copper side, which we talked about and so as things sort of started to settle you had certain projects, particularly with the run up in copper that started to get planned at the front end right to be down with aluminum right and so instead of value reengineering. They just leaned in and so as they ship.
That towards that.
And there was such a tight availability.
We all knew China was shut down and so.
Aluminum was very very tight and that that kind of lagged a little bit from a copper perspective, and then it ebbs and flows as you go through at copper prices came down those projects started going back to being designed in the front end with copper in mind, and so it's somewhat traditional ebb and flow, but it did get.
Accelerated a little bit or or affected a little bit just by the timing of when the pandemic hit and how projects where plan going into it you also had some volatility.
In aluminum that normally.
Remains just in the copper side on the metal piece.
If you look at Q2 Q3 Q2, specifically.
As much as 10 or 12 cents, a pound of aluminum of volatility within each month.
Overall bias, obviously our trend.
Was maybe an ancient attention swing on the downside.
That moves the aluminum piece.
Also when the volatility is there that's normally not.
If you look at the copper piece.
In Q2, you had.
As much as a 50 swing on comex on the copper side.
Overall, the low from one month to the next was as much as 26 cents a pound so that type of volatility.
Within.
Short 90 day window with deliveries the way that they've been.
And with the just in time service model.
<unk>.
It really puts pressure.
From the actual confirmation of any kind of price increases.
But you know also the positive piece of that is.
June firmed up as compared to April and May and we were seeing a lot better stability toward the end of towards the end of the quarter.
Okay.
Got it that's that's certainly good to hear.
Can you maybe talk about fill rates.
You guys are with fill rates today, and maybe where competitors fill rates would be at just ballpark for them.
Yes, I mean, we're in the high nineties.
We prefer to be 100, we've got one or two percentage points on fill rate to make up.
We are shipping.
<unk>.
Fantastically quicker than what we were.
Some of the added capacity and incremental capacity that we've added.
The last several months is certainly paying off from that.
In that respect.
As Brett mentioned earlier in his prepared statement comments.
When you look at the for the products that we're shipping is going.
There is more of a time to be received.
It feeds into.
Our product category real well and fits the quick ship and complete ship.
Model real well.
Again with the volatility in the metal.
There is.
Maybe anxiety from a purchasing perspective on releases or whatever it might be but.
We did see that.
Get quite a bit better in the end of Q2 once the metals kind of firmed up.
Which allows us to.
Execute perform on that service model.
As far as what the competitors Youre doing.
We've got one maybe two out there that do a fantastic job.
The come in a little bit.
Short of where we are.
But they're doing a good job and then there's a handful of those that.
Our little more optimistic than not.
So great on the execution.
Really helpful color there and then just last one is just on the.
On the buyback with the board reauthorized.
The repurchase.
Should we expect any change with the pace of.
Repurchases you've done in the first half of the year.
Well, we've been if nothing else Julio consistent.
The buyback was $126 7 million in the second quarter and $127 1 million in the first that was not planned.
But definitely pretty consistent between the two north of 700000 shares.
Yes, I think you can take with you.
You would expect to take from the board coming out in and refilling that bucket back up to full $2 million consistent with what we did in.
August of last year, and so second year in a row, where we bought back really just short of one point.
Well, we did about $1 1 million in the first six months of last year, almost $1 5 million in the first six months of this year.
Looking at the price of the stock today, we remain undervalued so.
Understood.
I really appreciate you guys, taking the questions I'll hop back in queue. Thank.
Thank you Sir.
Again, Thats star one if you'd like to ask a question. The next question is from Brent Thielman with D. A Davidson your line is open.
Okay. Thanks, Daniel Brad Hey, good morning.
I guess.
First just on the spreads any specifics on the spread changed year on year or quarter on quarter, and I guess, Daniel anything you can speak to in terms of the abatements spread during the quarter was uneven across the months, what's the exit rate sort of better or worse, and then I guess also to that point.
Is the abatement in spreads consistent across the product categories or.
Is it kind of all over the map, depending on where the demand environment is.
It's really kind of all over the map, but it was better towards the end.
In our favor towards the end of the quarter the volatility within April .
28, or 29 cents and comex on the copper side.
And then.
Right behind that there was no real security.
With a seven or eight maybe 10 swing.
Within the month for aluminum and then he came back with Mei with similar type volatility on those metals.
The timing of <unk>.
When those metals.
Hit and the timing of when something.
Is shipped and Invoiced.
Contributes to that abatement.
In one direction, obviously and then.
We're kind of halfway takes care of itself and cures itself on the other side.
With that volatility and with the uncertainty within the month it moves the timing.
Of some of the larger projects and then like I said once you get.
Better clarity if that's.
Not too strong of a term to use but if you can get if you can get some clarity on the metal piece on the purchasing side.
And you got to fold that into all of the noise that you hear in.
In the news and Geo politically.
All of the different programs that the government is putting in place.
Bipartisan infrastructure logging inflation reduction act.
Chips and sidetrack.
I was just there is a slew of them theres eight or 10 government projects and so.
As you are navigating through this volatility and trying to.
Confirmation of what the actual rules are.
Confirmed as these.
Programs come out from the Feds.
It really just contributes to that volatility and uncertainty so folks are less anxious to pull the trigger as you can imagine.
It did firm up it looked better.
Towards the end of June .
As I said in our favor and.
I look for.
With the.
Bullish outlook on copper specifically.
I can't believe it will stay this low for very long with the demand numbers that are out there.
And as you know that typically forces demand in our market.
Yes.
Hey, Brent I'll, just jump on that but one thing.
As Daniel said I mean during the second quarter, it's not a usual you are coming out of the first quarter and you roll it into the summer months.
We did see demand kind of start a little slow and then it just steadily increase throughout the quarter.
And as we said, culminating with near record volumes across most of our market segments and Jim Jim was Super strong and so you like to see that trailing month.
Growing.
You've come through it and it's all the same things that we talked about.
We're still seeing some distributors.
That are kind of sitting in that cost cutting mode. So they are making those inventory reductions like we've talked about in the first quarter that aligns very well it makes us a preferred supplier due at our fill rates and quick shipments so that positions us well from that standpoint. So.
The electrical contractor community still from what we can here remains optimistic about the short and long term market opportunities and so we continue to make the investments to be able to handle that incremental volume.
Okay.
And again on the specifics and the spread change year on year quarter on quarter that didn't see that in the release, so you're providing that.
We didn't know when you look at it.
Brent the challenges are and the abatement is happening at the top line is what we expected is what I talked about in the first quarter. There's only two things that can change diseases. Either you are not going as high of a sale price or United able to pass that cost on right and so when you look at the comparison, whether or not its quarter over quarter or sequential right look at the <unk>.
<unk> and the average sales price and it looks at the change in our cost not linear but some drop in net sales prices associated with the decrease in copper and aluminum costs that we saw in the quarter and some as the abatement right, but when.
When you navigate through this demand starting to catch up people starting to catch up a little bit more still dealing with with supply issues and with labor issues that that gradual abatement youre seeing at the top line.
And that hits, you a little bit harder right as we talked about.
Making up complete numbers, but 50, 50% of one hundreds that had been 40% or 90 or 45% or 90% and that's.
That's the math that you have as you go through this but it's been it's all the same things we've talked about it's gradual it really depends on the product of the mix how many steps. It takes to make a finished good and how quickly you needed and all of those are drivers ultimately trying to get the best price. We can for that product on that order and you do that all day everyday.
Okay I appreciate all that.
And I think this dovetails on some of the comments about I guess spreads firming up in the end of June .
I guess with copper prices moving up here is that better or worse for your spreads in this environment, where it seems like demand is really good.
But youre still seen some level of normalization from.
Kind of really high pricing levels on a couple of years ago.
We always do better.
Increasing copper market.
Forces discipline cleans up a lot of the.
Issues that exist on the downside.
It's just much better much cleaner.
Operating in a bias or trend on the upside for the metals aluminum also.
It's always been that way Brad can work, we do are really the team does a fantastic job on how we source raw materials.
The increase in cost is easiest to pass on to customers and if you do nothing if you kept your margin flat again as I talked about you get the same margin on a higher topline with that to the bottom line.
Okay. Okay helpful guys and then.
How should we think about the outlook for volumes because again it seems like a really good demand environment I know you have some initiatives coming.
Which I presume maybe unlock some capacity for you.
But then again you have some pretty tough comparables in the second half of the year. So I just wanted to get a sense of how you're thinking about kind of volume equation going forward.
Yes.
June was a good solid months in volume.
Residential was stronger for us than expected in June .
The commercial piece is holding its own.
Still have the industrial piece.
That's moving.
Got it.
As I mentioned earlier, there's quite a few.
Dollars being thrown at the industry.
By the government on these programs that are coming out that we're still sorting through what the requirements are for build America by America.
What qualifies for infrastructure investment and jobs Act.
There's a lot of.
Projects in front of us the hardening of the grid on the utility piece the renewable side on the electric vehicle.
The evi, that's coming from the Feds, there's quite a few.
Projects being promoted very heavily today.
From the government.
And that leads over into the distribution side of the product for us.
As these things continue to get sorted out and folks qualify and realize what the projects are and what they are not.
We will start to monetize some of those and execute as we do in.
Turn those things into earnings.
More.
I think there is close to a trillion dollars and programs.
There is some overlap to our product categories and so.
As we continue to sort those out and work with our distributor partners and end users and what that means for US we will know more as it goes but the outlook for us is pretty bullish at this point.
Okay and Daniel are you I mean are you.
<unk> constrained.
In certain areas, where some of these capital expenditures initiatives, you've got internally need to come on to.
It allows for more robust growth in unit volume I'm, just trying to think about that.
Yes, there's a few areas, where we run pretty close and we're running seven days a week in some areas and other areas were not but.
We've been.
Pretty open with the expansions that we're doing in <unk>.
Obviously address model <unk> as they come up and.
Invest when we have the clarity on what's coming we don't always.
Trying to just handle the moment that we're in.
We're gonna be ready going forward.
<unk> of some of the.
Projects Capex projects couldnt be better.
For us and so yeah, we've addressed those bottlenecks and continue to address them.
You know how we are focused on the execution piece and we're going to continue that.
Okay, just a couple of cleanups.
Do you have the LIFO impact this quarter and then also any.
The impact to SG&A and stock appreciation rights that you saw last quarter that great in this quarter.
So great question, so two things on the LIFO side.
And again, you know how it works right. It's just matching right and so when you ever you have a period in which Congress falling right youre going to have a LIFO pick up but it's only matching its just a system thing. It's just matching current cost with current revenues, but LIFO with the falling copper was about $18 6 million.
In the second quarter 23 versus about 11 5 million in the second quarter 'twenty, two but that's captured in the spread and the margins ultimately that youre talking about as far as SG&A.
The main driver in.
The second quarter was just.
More on the top line as it decreases your commission number comes down.
SG&A the big hit for the <unk> is really in the first quarter.
The stock price when you look at it changed 60, it was $185 33 at the end of March.
$185 93 at the end of June and so the big swing was from the $1 37. It was at the end of December .
No.
The $18 million impact growth that you saw in the first quarter. Obviously is the same growth that you saw for the six month period. So that's about 85.
On a year to date basis.
Alright, guys. Thanks for taking all the questions really appreciate it thank.
Thank you Sir.
The next question is from Alford Funai with Barga LLC. Your line is open.
Good morning, and thank you for taking my questions. Just for instance, the interest of disclosure no I am not a securities analyst I'm an investor in.
On a core so I am a friend.
My question is a follow up to what Brett was explaining in terms of.
Some of the unusual amount necessarily unusual, but some of the mechanics behind the LIFO adjustments.
<unk>.
Characterize the second quarter in relation to the first quarter you don't see anything unusual then in terms of contributing to the margin erosion for that period because of LIFO adjustments.
No because you just the way because we ship our products. So quickly right. It's very self serving Alfred right, because I know our margin while I take that order on what I think systems costs are but I only know it for that very point in time, I know, what's going to happen. The next day copper and aluminum is going to move my cost structure is going to change so the quicker I can ship that order.
The quick draw lock in that margin.
And so.
That's one of the things that we've always focused on with regard to our order fill in getting these orders out very very quickly because it is self serving from that standpoint, even though it's great from a service perspective for customers and so that change you see because of it right youre costing everything based on.
Averages from the previous month, because you don't know what your average is going to be for that month right. Even though you are selling at the higher spot our average on any given day any given order you don't know what your ultimate cost fit so at the end of the month. Once you know your cost for the month that LIFO is just to catch that up to catch up with what.
What you are selling that on every single order every single day so.
It's a more of a balance sheet impact it really does not have any impact from the income statement. It just matches current cost with current revenues matches, how we're selling every single day and it just gets it right you get collapsed that you'd never see it if you could do it real time. It would have the same it would come up with the same result.
And for asking is there was a comment by Ernst <unk> young in the audit.
Report or their opinion in terms of a matter of emphasis having to.
Observed that it was challenging for them to follow some of the patients for the LIFO adjustment I just didn't know if perhaps.
Second quarter had had unfortunately been impacted by.
Perhaps some catch up adjustments or something of the sort that might be out of the ordinary that would contribute to the lower margin you saw in the month, but I think you've explained no. There is not but that's the reason for asking the question. So I will follow up with another question.
The Mckinney area, obviously was hit by some very unfortunate weather over the past couple of months did you have any unusual expenses that were recorded in cost of sales for roof repairs or any type of.
Damage replacement of that sort that might have impacted that margin.
No Sir.
No it really the SG&A.
The only thing thats going to change SG&A in any of the quarter as we talked about stuff.
Stock comp, which has mainly been driven by the stock appreciation rights, which are variable accounting not fixed, but we havent issued any of those since <unk>.
January of 2020, and then commission stay at a consistent percentage, but that changes obviously with your top line change.
And then freight freight starting to level, a little bit it's really starting to come in.
With where it was in the middle of the pandemic and so truck availabilities better rates are starting to come in a lot better as you manage through it so nothing nothing unusual to report.
Okay, and then finally, if I could ask probably a taboo type question, but.
Does the company have any dialogue with these entities individuals or whatever they may be that follow the pattern shorting companies stock I'm. Just curious why there was such a large percentage of the company's stock that is shorted.
Because.
Encore is an outstanding company in terms of its performance you had obviously there are some opportunities to go the other way and trying to make money with that mechanism, but is there a dialogue that you try to have with them to try to help make sure. They understand the company better maybe that might cause them not to be short sellers.
Yeah, Alfred is a fantastic question and the answer is yes.
I'd say calls from every and all investor and Ive talked to a lot of them over the years right. The challenges a lot of those folks. They are just looking for volatility right. They don't care. If you could go up or they go down you go down they just wanted to be on the right side of it and so when we grow our stock price from $40 to $185.
$200 you attract attention some of that attention is good some of that attention isn't good right and theres always folks out there they think they're smarter than anyone else. We've talked about this story for two plus years that margins are abating.
Been crystal clear on that and our board is going to look at that and go I get it and Youre still doing fantastic in a bear is going to look at it and play the story against you and so earnings go down and they say see I told you so and we've been talking about that abatement like I said for several years on and so theres always ones that look at it hopefully you convert those.
Shorts, along as you go through this process.
It's frustrating having a consistent buyback is helpful. In this process, but at.
At the end of the day and F&B execution at the end of the day, but I share your frustration with the shorts I think it's just part of the market today.
See it and given our success you attracted that more of that so.
Well. Thank you you've answered my questions Youre doing you and Daniel and the whole team are doing a great job. Thank you for what you're doing.
Thank you for your investment also depreciated.
The next question is from George to cars and Investor Your line is open.
Guys can you hear me, yes, Sir.
Hello.
Yes.
I bought the company the stock.
A couple of months ago, and I have to tell you from an investor's point of view I was just so impressed with.
Formats.
The company and your staff and yourself.
I think you guys just being a little hard on yourselves margin abatement.
What I understand these were unusual margins that you experienced because of a.
Supply and demand because of Covid.
Would I be correct to suggest that you're simply going back to normal margins.
Well I think Thats Youre definitely gravitating down George as you go through it. The real question is we're making a lot of investments in.
In the business right.
What everyone's trying to figure out is where do you land on this right. If you started this <unk>.
<unk> and gross margin was 15, 2% in 2020.
Where do we go back to and Thats worth a lot of the investments that are out there and then you got to look at the overall demand construct and supply construct right because we do think as Daniel said in his comments that we do think we can land.
And have historically.
Current margins lag.
Landed in the area of above what we saw historically right and you try to figure out exactly where that is but there's so many things at play here right.
Our supply you got two five days above ground.
Three five to four when we talked in the first quarter. There was a recent meeting in New York with that was represented by some of the largest mines globally and they landed those leaders landed antibody.
$6 million deficit 6 million metric ton deficit per year in the near term in the next 12 to 18 months I mean to put in perspective that is like adding another Chile. He was one of your largest suppliers in the world and so the deficit clearly sit there demand that youre seeing coming in from data centers are.
Or AI or electric vehicles, the U S and global infrastructure upgrades are being pushed semiconductors and chips onshoring battery plants to renewables utilities all of that is really setting itself up to to drive demand above and beyond some of those historical residential commercial.
Industrial sources, and so all of that put it in a blender hit pulse right and you come up with the impact on the margin and so I think we're trying to give a lot of transparency.
Am I proud of $6 this quarter absolutely right.
Going from $3 68 to $26 two in 2021 to $36 91 in 2022.
At $12 53, we are still having a fantastic year and Thats a little bit of a point is new folks come in.
Recognize that these are elevated margins, they're coming back and we're making a lot of investment in the business to try to keep it keep it as long as we can.
Well you guys are buying back stock you issued a dividend.
You have potentially a.
Absolutely wonderful horizon as far as copper and.
I Love your theme the electrification of America.
Now do you guys hedge at all on your copper by any chance.
No Sir I'll do the best hedge there is out there George and that is you buy it and sell it in the same month right should we buy it and change the shape and ship it within a month and so I'm turning visit finished good inventories right now 12 months of 2014 times and so we.
We do not bet the company on our heads with regard to copper.
We just changed the shape very quickly and ship orders as quick as we can and you cannot beat that Theres no guessing in the market you're just locking in the margin you thought yet.
Excellent you, Texas Boys are doing really good and God bless yet are you going to make guidance for the rest of the year do you think.
Well, we don't give guidance George.
Just because of all the things we've talked about in the uncertainty in copper prices, but I think if you go back and look at my comments in Daniel's comments when you look out on demand that's out there.
Look at the commercial side data centers continue to be a big driver. There are constantly going through reconfiguration, you kind of started with their water cold rather go into air cooled you started with an H design. They propose the next design that never got traction there now doing an app design, which is.
Has the latest technology that use the same number of servers and half the footprint air cooled with a lot less energy consumption.
Youre going to have more power in one building I think thats ever been done before and so.
That process continues to drive it.
It keeps things optimistic and then it all this federal spending and we got an election year coming up next year, it's still kind of mired up and all the politics, you would expect to be as you go through this and so as that starts to kind of trickle down as they figure out the <unk>.
Build America buy America initiatives.
We're super well positioned to be able to serve that and that's why we're making the investments we're making.
That's very exciting. Thank you very much for your commentary I don't want to monopolize your time.
Thank you Julian obviously I appreciate the support.
You bet.
We have no further questions at this time I will turn it back to the presenters for any closing remarks.
Chris Thank you and I appreciate everyone's time today and your investment in Encore wire.
The other day.
This concludes today's conference call you may now disconnect. Thank you.
Please wait the conference will begin.