Q3 2023 Encore Wire Corp Earnings Call

Okay.

Okay.

Thank you for holding and welcome everyone to the Encore Wire Corporation third quarter 2023 earnings call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

If you'd like to withdraw your question again press the star one. Thank you I'll now turn the call over to Bret Eckert. Mr. Eckert. Please go ahead.

Thank you Jack good morning, and welcome to the Encore Wire Corporation quarterly conference call I'm, Brett accurately executive Vice President and Chief Financial Officer of Encore wire with me. This morning is Daniel Jones, President CEO and chairman of the board before we begin our comments, we'd like to remind everyone that today's earnings release.

And certain of our comments on the call include forward looking statements and actual results may differ materially from such forward looking statements I would like to refer everyone to the cautionary language included in our earnings release and to the risk factors described in our SEC filings I will now turn the call over to Daniel for some opening remarks.

Thank you Brett and thank you Jack good morning, everyone and thank you for joining us on the call and for your interest in Encore wire.

Appreciate your continued investment confidence and support.

This quarter marked our 10th consecutive quarter of elevated margins. Despite our continued belief that we're in the midst of a period of gradual margin debate.

As we have discussed at length on prior earnings calls copper margins began to gradually abate in mid 2021.

The margins peaked in the fourth quarter of 2022.

Since then we have 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 baseline.

With respect to volume.

I am pleased to have shipped a record number of copper and aluminum pounds in the third quarter.

These results demonstrate a dynamic shifting volume shift when.

When compared to a pre COVID-19 baseline.

Copper and aluminum pounds shipped in the third quarter of 2023.

Increased by 21% and 96%, respectively, when compared to the third quarter of 2019.

We captured the incremental market share by leveraging our single site vertically integrated campus.

Keep supplier relationships and strong workforce to quickly manufacture and ship finished goods to our customers. Despite the broader macro challenges facing this sector.

The strong performance is also a reflection of our steadfast commitment to outstanding customer service and our intense focus on shifting complete orders quickly.

Combined with our expanded reinvestment initiatives such as the <unk> compounding facility.

Each was substantially complete at the end of the third quarter of this year.

Since our inception, we have grown organically under the same value proposition that we were founded on.

<unk> innovative products, while providing exceptional customer service focused on quickly shipping complete orders coast to coast.

We believe our industry leading fill rates.

Can you give us a strategic competitive advantage in the marketplace.

Our 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 into renewable energy markets.

Demand for our products has remained strong and our build to ship model combined with the throughput of our modern service Center.

<unk>, just well will 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 price of 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 the 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 shift 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 Q3, 2023 and remaining repurchase authorization.

Since Q1 of 2020.

Our share repurchase program has returned.

$686 $6 million in capital to shareholders and our continued purchasing demonstrates our confidence in our long term value creation potential of our company.

With that I'll now turn the call over to Brett to cover the financial performance in the third quarter, Brett. Thank you Daniel third quarter and year to date 2023 highlights include third quarter earnings per diluted share of $4 82 says year.

Year to date earnings per diluted share of $17 40, you said third quarter net income of $82 1 million year to date net income of $306 3 million gross profit of 23, 3% in the third quarter of 2023 26, 9% year to date in 2012.

Three cash.

Cash on hand of $581 8 million as of September 32023, $730 6 million as of December 31, 2022.

Capital expenditures of $118 6 million year to date in 2023.

The company repurchased 710083 shares during the quarter and $2 million 185492 shares year to date in 2023, the total cash outlay for share repurchases of $121 2 million during the FERC third quarter of 2023 and three.

<unk> hundred $75 million year to date in 2023, the company has repurchased $5 million 157 <unk>.

769 shares since the first quarter of 2020, which represents approximately 25% of the outstanding shares.

The remaining share repurchase authorization of $1 million 289000.

917 shares of our common stock still exists to March 31 2024.

And a departure from previous calls I'm not going to review the earnings release.

Third highlight a few key points.

Copper unit volume increased six 4% in the third quarter of 2023 versus the third quarter of 2022, despite a very tough volume comp in the prior year quarter aluminum wire represented 12, 5% of net sales in the third quarter of 2023 compared to 17, 4% in the.

Third quarter of 2022 aluminum volumes in the current quarter were up slightly compared to the prior year quarter copper unit volume increased six 8% in the third quarter of 2023 versus the second quarter of 2023.

The decrease in net sales dollars in each of those periods was driven by an anticipated decrease in the average selling price in the current year periods, which is consistent with the gradual margin debate, we have been discussing with them discussing over the past several years gross profit percentage for the third quarter of 2023 was 23 three per se.

That compared to 26, 1% in the second quarter of 2023.

The average selling price of wire per copper pound sold decreased four 3% in the third quarter of 2023 versus the second quarter of 2023, while the average cost of copper pounds purchased decreased 2%.

This resulted in a continued gradual albeit slowly abatement of copper spreads during the quarter, primarily driven by the decrease in the average selling price noted above and partially offset by a decrease in the average cost per pound of copper purchased which resulted in the decreased gross profit margin in the third quarter of 2023 compared.

To the second quarter of 2023, we believe the earnings for the first nine months of 2023 were exceptional and remained significantly above historical level. This is a testament to our debt or our organic growth strategy, while location business model historic and recent reinvestments in the business and our hard working employees.

All driven by a culture of relentless attention to detail at a macro level persistent tightness and the availability of certain raw material ongoing global uncertainties and the continued suppressed availability of skilled labor kept overall spreads elevated in the third quarter of 2023, our balance sheet and cash flow generation.

We remain very strong, allowing us to continue to reinvest in the business, while consistently repurchasing repurchasing shares of our common stock.

Since the first quarter of 2020, we have distributed just under $700 million to shareholders through share repurchases and dividends and we believe that the outlook for our business positions us well to continue to build long term value for our shareholders.

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 continue 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. As we call. It facility 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, and wind and solar applications as Daniel mentioned, the new facility was substantially completed in the third quarter of 2023 capital spending in 2023 through 2025 will further expand vertical integration in 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 $118 6 million in the first nine months of 2023, we expect total capital expenditures to range from $160 million to $170 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.

Strong performance in the nine months of 2023 positions us well for the future our outlook for demand remains strong and our single site vertically integrated business model.

Gives us a competitive advantage in the market today.

The opening of a new service center in May of 2021.

The opening of plant seven in the third quarter of 2022.

The new <unk> facility that Brett mentioned in the third quarter of 2023.

Any other capital projects under construction or planned.

It should provide us the capacity and efficiency to competitively to capture market share over the long term.

Our unique business model continues to serve us well in current market conditions and remains as competitive advantage.

Giving us unmatched operational agility and speed to market and serving our customers evolving needs.

Despite 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 <unk>.

Sexual performance of our long term suppliers.

Looking ahead, we remain solely committed to execute upon our core values of our company.

Unbeatable customer service nimble operations and quick deliveries coast to coast ill.

I remain confident in the strength of the encore team in place as we stand ready to navigate any challenges.

Yes.

I want to close by thanking our employees for their hard work and commitment to safety quality and excellence our.

Our continued success would not have happened without their 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.

Jack will now take questions from our listeners.

Certainly at this time, if you'd like to ask a question.

Again press Star one on your telephone keypad.

Christopher Moore with CJS Securities. Your line is open.

Hey, good morning, guys. Congratulations on another strong quarter, thanks for taking a few questions.

Good morning.

Maybe just I'll start with gross margins, obviously, where they normalizes.

Kind of a key question.

Fiscal 'twenty four consensus targeting gross margins right around 20%. So maybe two questions here is the 15, 2% gross margin in fiscal 'twenty is that a reasonable base to work off of.

It's a great question, Chris and welcome to the call.

Answer this way if you go back late in 2019, but mainly throughout 2020, we made some financial and operational changes that improved realized gross margin and moved it from 13% in 2019 to I think 15, 2% in 2020.

I will say this I don't believe the annual impact of the changes implemented in 2020 were fully reflected in the $15 two margin for that year.

With margins jumping to 33, 5% in 'twenty, 136, 9% and 22% and $26 nine year to date in 'twenty three it's kind of masked the annualized impact of some of those changes we made in 2020.

I think it is a great baseline to start with I just wanted to put a little clarity around it I will tell you that we continue to take things one order at a time one day at a time one week at a time immediate order immediate ship always managing this business like our back is against the wall.

I'll also tell you this remains a pennies business, even when you are picking up pennies and handful.

Going to continue to put margin over volume and make sure that we are serving our customers at the highest level. So I think it gets a great place to start I just think there's probably some noise in the number as well.

Got it very helpful.

Maybe the second piece of that is just.

How long will it likely be before the the gross margins normalize I guess, specifically what are the puts and takes that gross margins could bottom in fiscal 'twenty five.

Yes go ahead, yes.

Yes, I was just going to say, Chris add to that when you look at the market segments that we're serving.

I mean, it's no secret that the residential pieces bottom some theres a lack of inventory there is still some overhang obviously with the interest rate, but there is still a lack of completion on some of the projects that have already been financed because of the supply chain issues with gear.

Unknown Executive: After the speakers are marked, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press the star one. Thank you.

Unknown Executive: We'll now turn the call over to Brent Eckert. Mr. Eckert, please go ahead.

Industrial steels contributing to that Theres a lot of.

Hum.

Bret Eckert: Thank you, Jack.

Houses that are sitting incomplete at this point and there is a slack in that market to begin with the commercial market has been bumping along.

Bret Eckert: Good morning and welcome to the Encore Wire Corporation quarterly conference call. I'm Brent 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.

Doing very well.

Relatively speaking and then the industrial market has got a pretty good boost.

Bret Eckert: Before we begin our comments, we'd like to remind everyone that today's earnings release and certain of our comments on the call include forward-looking statements. And natural results made different materially from such forward-looking statements. I'd like to refer everyone to the cautionary language included in our earnings release and to the risk factors described in our SEC filings.

And then you have this overhang if you will of the government funding so.

And the markets that we're serving.

And if you couple that with the.

Projected or future demand for our raw materials are the inputs.

Daniel Jones: I now turn the call over to Daniel for some opening remarks. Daniel? Thank you, Brett. Thank you, Jack. Good morning, everyone, and thank you for joining us on the call and for your interest in Encore Wire. We appreciate your continued investment, confidence and support.

It's obviously hard to predict what the margins are going to do or not do at this point, but it looks good going forward.

Got it I appreciate that.

And maybe just last one given the supply demand backdrop copper pricing.

Daniel Jones: This quarter marked our 10th consecutive quarter of elevated margins to spot our continued belief that we're in the midst of a period of gradual margin of statement. As we have discussed at length on prior earnings calls, copper margins began to gradually abate and mid-2021 and aluminum margins peaked in the fourth quarter of 2022. Since then we have invested heavily and continued to invest in improving our service model and efficiency levels to reduce cost, increase capacity and deepen vertical integration. Which we believe should contribute to achieving sustained higher gross margin levels when compared to pre-COVID baselines.

He was a little depressed at this stage I just wonder if you had any thoughts there.

Youre exactly right, Chris It absolutely is and you hear from the miners as well I mean, the fundamentals and copper are just not there right you have four days of supply above ground right that the vast improvement from the three and a half we were in July right and I'm being facetious here, it's not at all China is showing some signs of life.

Despite what you read.

You see consumption and production going up there.

So $363 55 copper is just not representative of the supply today.

Interest rate increases the stronger dollar and some uncertainty around global sentiment is obviously, playing a role in all of that but that price has to move up it's just way too low we like an environment, where copper prices are moving up steadily that's the easiest way to manage in order and so yes, it's artificially low.

Daniel Jones: With respect to volume, I'm pleased to have shipped a record number of copper and aluminum pounds in the third quarter. These results demonstrated dynamic shift and volume shift when compared to a pre-COVID baseline. Copper and aluminum pounds shipped in the third quarter of 2023 increased by 21% and 96% respectively when compared to the third quarter of 2019. We captured the incremental market share by leveraging our single-site vertically integrated campus, deep supply relationships and strong workforce to quickly manufacture and shift finish goods to our customers despite the broader macro challenges facing the sector.

The other thing you are now hearing miners say and you've heard it recently, even this week that price of copper is not enough to incent them to cover the cost of capital it takes to invest and so they'll start focusing on some brownfield projects, but they are slowing greenfield projects, you're slowing that investment in the face of an already.

<unk>.

Supply deficit and so.

Something has to give with regard to that and I think youre going to eventually get some strength in the metal.

Daniel Jones: 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 XLP compounding facility, which was substantially complete at the end of 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 shipping complete orders coast to coast.

As things start to maybe level out a little bit in China, we get a handle on interest rates here and then demand for all the electrification.

In grid hardening that's out there really starts to take effect a lot of these federal programs are still just trickling in when the wave of that really hits a half.

I believe the basic fundamentals of supply and demand take over and you start to see it in the price.

Perfect I will leave it there I really appreciate it guys.

Great question. Thank you you're welcome to call.

Thank you.

Brent Thielman with D. A Davidson your line is open.

Daniel Jones: We believe our industry leading fill rates continue to give us a strategic competitive advantage in the marketplace. Our 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 markets. The man for our products has remained strong and our build the ship model combined with the throughput of our modern service center positions as well to satisfy increases in future demand.

Hey, Thanks, Good morning, Daniel.

Hey.

<unk> volume increased 7% sequentially, 6% year on year off a pretty tough comp with <unk>.

Notable I guess, Daniel where there is some uniquely sized orders embedded in may or.

You think customer Destocking sort of went too far in the first half.

Be interested.

How we should interpret the strength, there and I guess kind of further to that your overall capacity to support.

And sort of volume going forward.

Yes, great great catch.

Daniel Jones: We believe that we have made and or 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 before for the price of many raw material inputs for years to come.

Brent as usual.

Most of our.

Our distributor customers that we.

I have met with and I think we hit probably 60% to 70% of them in the last few weeks in person.

<unk>.

Their destocking programs are either complete or very close to complete.

It appears that they're back to focusing on other cost cutting.

Ideas, which typically.

As labor, where we can offer some of our additional services here from the New service Center.

Daniel Jones: We firmly believe that our historical recent and future success is a direct reflection of our unique culture and a strength of our experience team. We also believe that our one campus location increasing verticals deep vendor and customer relationships and our ability to quickly shift complete orders will remain vital differentiators in our future success.

To kind of meet that demand.

Then to your other.

The piece of the question.

The big orders are definitely bigger.

Currently.

With the data center demand.

Still.

It was very well as far as the commercial and industrial piece.

Daniel Jones: We continue to believe that our stock is undervalued at current market process and what we believe are historically low forward valuation multiples. As evidenced by our continued share repurchases in Q3 2023 and remaining repurchase authorization since Q1 of 2020.

Tack onto that the AI interest and investment.

And the big the Big orders are just getting bigger.

Our average order size is up.

It was up in the quarter, that's always a very positive sign.

They're a little more complicated orders to handle.

Bret Eckert: Our share repurchase program has returned $686.6 million in capital to shareholders and our continued purchasing demonstrates our confidence in a long term value creation potential of our company.

Which fits our.

One location heavy service focused business model so.

It looks like.

It fits pretty well I'm bullish on that side of the market.

A lot of quote activity.

Bret Eckert: With that I will now turn the call to Brett to cover the financial performance in the third quarter. Thank you Daniel. Third quarter and year-to-date 2023 highlights include third quarter earnings per diluted share of $4.82. Year-to-date earnings per diluted share of $17.40. Third quarter net income of $82.1 million year-to-date net income of $306.3 million. Growth profit of 23.3% in the third quarter of 2023. 26.9% year-to-date in 2023. Cash on hand of $581.8 million as of September 30 of 2023.

A lot of convenience type add on value.

For the for the installer that we're capable of providing at a premium.

There's a lot of things happening on that side.

As I mentioned early in the call.

<unk> that are picking up.

And that quote to order phase is pretty good.

It's pretty tight on the timing.

You quoted one day.

They are ready to go within a day or two you can you can write to purchase order and start to build it and ship it so.

That side of the market is performing pretty well.

Bret Eckert: $730.6 million as of December 31, 2022. Capital expenditures of $118.6 million year-to-date in 2023. The company reports the $710,083 shares during the quarter and $2,185,492 shares year-to-date in 2023. The total cash outlay for share repurchases of $121.2 million during the third quarter of 2023 and $375 million year-to-date in 2023. The company has repurchased $5,157,769 shares since the first quarter of 2020, which represents approximately 25% of the outstanding shares. Remaining share repurchase authorization of $1,289,917 shares of our common stock still exists to March 31, 2024, and a departure for previous calls.

That's really helpful. Daniel.

As a function that would be the average order size is going up more complicated orders.

Is that the reason why youre seeing.

So it's sort of slowing abatement.

Relative to the second quarter and spreads and I guess overall average selling prices or is there more to it.

No thats part of it definitely contributes.

As Brent mentioned, we're not.

Got it.

While on track record I'm not interested in getting larger and poor. So when we go after some of these things we're going to charge for it.

We've got a phenomenal.

Group of sales reps, we have got a fantastic.

Team in house operationally and sales perspective to manage our capabilities and that's really what it comes down to.

If there is an order of its substantial that we cannot handle.

I would rather pass on to mess it up but the reality is you asked the question why can't we handle it.

I think you've seen with our Capex. The last couple of years that were.

Bret Eckert: I'm not going to redo the earnings release, but instead highlight a few key points. Copper unit volume increased 6.4% in the third quarter of 2023, versus the third quarter of 2022, despite a very tough volume comp in the prior year quarter. Aluminum Wire represented 12.5% of net sales in the third quarter of 2023, compared to 17.4% in the third quarter of 2022. Aluminum volumes in the current quarter were up slightly compared to the prior year quarter.

In a really good spot to handle these going forward it really is a.

There is some technical expertise thats involved.

But again the speed the market piece is where we're winning.

And I'll just jump on that Brent I think that service model really is resonating.

Our service model is absolutely humming right now Phil.

Fill rate is back where it needs to be and so youre getting these calls and you're getting to call on a Wednesday and they need you to ship it tomorrow and we're able to service that order and that is what's also helping us sustain or seen a slowing of the margin as we talked about on the copper side.

Bret Eckert: Copper unit volume increased 6.8% in the third quarter of 2023, versus the second quarter of 2023. The decrease in net sales dollars in each of those periods was driven by an anticipated decrease in the average selling price in the current year periods, which is consistent with the gradual margin of the payment we've been discussing over the past several years. Gross profit percentage for the third quarter of 2023 was 23.3%, compared to 26.1% in the second quarter of 2023.

Okay.

And then I mean it.

It looked to me like spot commodity prices for copper were up around 8% at least the way I calculated in the quarter, whereas your costs purchase with less than 5% is there anything to read from that or is that just an anomaly based upon when you.

Bret Eckert: The average selling price of wire for copper pound sold decreased 4.3% in the third quarter of 2023, versus the second quarter of 2023, while the average cost of copper pound purchased decreased 2%. This resulted in the continued gradual albeit slowing abatement of copper spreads in the quarter, primarily driven by the decrease in the average selling price noted above, and partially offset by a decrease in the average cost per pound of copper purchase, which resulted in the decrease gross profit margin in the third quarter of 2023, compared to the second quarter of 2023.

When you bought the metal in the quarter.

I mean listen.

Purchases every single day, all day, Brett and so obviously there is I can't say, it's an anomaly.

Based on kind of how the average plays out does the price run up to start the month or end of month or is it mid month.

Are there opportunities with regard to that how much scrap is available that we have that we can that we can sprinkle in as you go through it. So the shape is a big critical piece of that and so all of that kind of comes together they come back with kind of the average cost I mean overall when you look at the quarter.

Bret Eckert: We believe the earnings for the first nine months of 2023 were exceptional, and remain significantly above the historical level. This is a testament to our organic growth strategy. One location business model, historic and recent reinvestments in the business, and our hardworking employees, all driven by a culture of relentless attention to detail. At a macro level, persistent tightness and availability of certain raw materials, ongoing global uncertainties, and the continued suppressed availability of skilled labor kept overall spreads elevated in the third quarter of 2023.

Prices down slightly obviously in the quarter.

It has not moved a whole lot.

After the peak kind of start the year, it's kind of it's just been bouncing around for the last three to four months at a pretty consistent level.

Okay, all right and just last one.

Is it still your view you'd like to sort of maintain around $200 million in cash on the balance sheet for sort.

Working capital purposes.

Yes, I think two to $2 50 is the right number.

Kathryn copper hits.

Bret Eckert: Our balance sheet and cash flow generation remain very strong, allowing us to continue to reinvest in the business while consistently repurchasing shares of our common stock. Since the first quarter of 2020, we have distributed just under 700 million to shareholders who share repurchases and dividends, and we believe that the outlook for our business positions as well to continue to build long-term value for our shareholders. Incremental investments to deepen vertical integration and our manufacturing processes, as well as other projects focused on driving efficiencies and increasing capacity, will continue to improve our service model.

$2 or $6 you need the cash on the fringes and Thats a comfortable number obviously, we have our line that's out there obviously remains untapped two to Q3.

<unk> cash number in my opinion.

Got it 3% to $3 50 deployable at well.

Okay.

I'm trying.

Okay.

Okay.

Ill get back in queue. Thanks, Scott.

Thanks, Brent Thanks, Brett.

Okay.

And if you'd like to ask a question. Please press star one on your telephone keypad Julio.

Our next question comes from Eric Marshall Hodges.

Bret Eckert: These types of organic investments have fueled our consistent growth, since inception, and positioned us favorably to continue to profitably capture market share for years to come.

<unk> capital your.

Your line is open.

Okay, Hey, congratulations on another great quarter guys.

Bret Eckert: In 2022, we began construction on a new state-of-the-art cross-link polyethylene, XLPE, as we call it, facility compounding facility, to deepen vertical integration related to wire and cable insulation. XLPE insulation is used in many applications, including data centers, oil and gas, transit, waste water treatment facilities, utilities, and wind and solar applications.

Thanks, Eric.

Just curious.

I don't know how much you guys could elaborate on this but.

With with copper prices.

The quarter ended here in the month of October have have come down closer to the three and a half.

Area has wire prices in general not just for you, but the industry have they declined as much as the commodity.

Bret Eckert: As Daniel mentioned, the new facility was substantially completed in the third quarter of 2023.

Early days, yes.

We ended the low in September was around $3 60.

Bret Eckert: Capital spending in 2023 to 2025 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. The total capital expenditures were 148.4 million in 2022 and 118.6 million in the first nine months of 2023. We expect total capital expenditures to range from 160 to 170 million in 2023, 150 to 170 million in 2024, and 80 to 100 million in 2025. We expect to continue to fund these investments with existing cash reserves and operating cash flows.

And I think that's right, where we're operating in October 361, 362 somewhere in there.

<unk>.

When you have that quarter of.

July it ran up from the beginning from the high to low to about it was about 27 cents a pound.

August went the other way about 24 cents and recovered.

Towards the end of 14 cents a pound when you get this type of volatility.

Timing of the purchase by our customers is obviously important.

The way that we price our product to the.

Distributor is immediate.

If they hang up the phone essentially.

Daniel Jones: I will now turn the floor over to Daniel for a few final remarks. Thank you, Bret. Our strong performance in the nine months of 2023 positions us well for the future. Our outlook for demand remains strong and our single-site vertically 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 7 in the third quarter of 2022, the new XLPE facility that Bret mentioned in the third quarter of 2023, and the other capital projects under construction, our plan should provide us the capacity and efficiency to competitive cash for market share over the long term.

We re quoted when they call back. So we're live is live and as Hot if you will as you can be.

With copper we're not.

The first nor are we very quick to go down with building wire prices.

Based solely on the processed copper if you look at the other inputs diesel.

Which is a big contributor to our freight which is a consideration in our quotes daily.

You saw it go the other way diesel is much more expensive than where we started.

So there is a lot of.

Back and forth in the market.

Part of it is science part of it is art.

Daniel Jones: Our unique business model continues to service well in current market conditions and remains as competitive advantage, giving us unmatched operational agility and speed to market and serving our customers evolving needs. Despite persistent tightness and availability of certain raw materials, our supplier partners continue 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 line our path.

We're really good at both.

And most of the.

Conversations again.

On these large jobs theyre trying to smooth out the volatility that youll see in copper in the market. So building, where our pricing is not as quick to react as it's been in the past.

I was looking through some numbers this morning.

Can almost lay the same volatility pattern of copper over aluminum and it's almost an exact.

<unk> if you if you can.

The aluminum number in up at three times so.

And that has not happened in the past.

There's a lot of volatility Eric.

A lot of jerking back and forth.

We're really focused right now on the service piece on the delivery piece.

Daniel Jones: 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 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 the sector. We also want to thank our shareholders for their continued support.

And less reactive to the.

The noise that we're hearing in the market from competitors that just don't have the product to deliver on time.

Great question.

I guess I was just looking at like the average copper price over the course of the third quarter. If you take July.

September was I think around 380 and rehab.

Unknown Executive: Jack, we'll now take questions from our listeners. Certainly, at this time, as you'd like to ask a question, again, press star one on your telephone keypad.

Okay have have.

Building wire prices.

To me it looks like spreads ought to be at least.

Christopher Moore: Christopher Moore, with CJS Securities, your line is open. Hey, good morning, guys. Congratulations on another strong quarter. Thanks for taking a few questions. Good morning. You may be just, we'll start with gross margins. Obviously, where they normalize is kind of the key question. Physical 24 consensus targeting gross margins right around 20%. So maybe two questions here. Is the 15.2% gross margin of physical 20? Is that a reasonable base to work?

Stable and in the first month of the quarter.

Just looking at what's happened.

Building wire prices and what's happened with the commodity not just on core but across the industry.

Yes fair enough.

It's fair and as we've said in the past.

I can only give you a color for September and September what's happening in October.

There's no surprises at this point.

Okay.

Well, thanks, a lot guys.

Anything you can say about.

The current capex as far as any new markets or anything like that that.

Could create opportunities for growth next year.

Well, we wouldn't be making the investment there because we weren't confident in them right and but we will give more color around it typically with our pattern as we get closer to <unk>.

Unknown Executive: Thank you very much for your time, thank you very much for your time, thank you very much. [inaudible] Thank you very much for your time, thank you very much. Thank you very much for your time, thank you very much. Yes. Perfect.

Completion, we'll lean in I expect to lean in when we come out with our year end earnings.

With a little more detail on our existing project that we have going on that's been referred to I think <unk> Brent Thielman report earlier this year and so we'll lean in on that and then we'll update Capex ranges.

225, and 26 at that point and so we'll get some more color as we get closer we just don't want to get too much information out there from a competitive purpose until we're closer to.

Getting our certificate of occupancy.

Alright, Thanks, a lot guys and we appreciate everything you've been doing for the shareholders.

<unk>.

Julio Romero with Sidoti <unk> Company. Your line is open.

Okay.

Hey, good morning, Daniel Good morning, Brett Thanks for taking the questions.

Yes, Sir.

Maybe to start just kind of a broader question.

What are you seeing on the overall nonresidential demand side some of the macro indicators are signaling a bit of a slowdown in planning of new projects and I wanted to see if you're seeing or hearing that at all from your customers, especially since.

The areas of non res that you sell into data centers, you talked about earlier.

Have a little bit better secular drivers than maybe the broader overall nonresidential.

Yes.

If you ramp to three categories industrial has the.

Best positive numbers commercial also was positive and the residential piece regionally, there's ups and downs, but for the most part net net the residential is about flat slightly up with what we've been running the last few quarters.

Okay got.

Got it and.

This was asked earlier, a little bit, but maybe if I can ask it a little bit differently, just if we kind of.

Think about.

Great.

From around the fourth quarter earnings call and we see the spread number that ends up there just how should we think about that spread number.

When you consider everything right the gradual abatement that should.

Normally continue but then also the broader uncertainty in the less than ideal copper environment. If you sum all that up.

How should we interpret I guess the fourth quarter spread.

Well I mean, thats a tough one right you don't have a crystal ball right.

I think as we look at this is we talked about it a lot. It's a cliche, but it's one order to time right in those one orders at a time.

Serviced at the highest level right is what is helping us.

Sustain or slow the abatement that we saw on the copper side.

We've talked about the fact that copper margins peaked in June of 2021, and we're over two years and three months past that.

You've talked about how aluminum margins peaked in October 22, and have abated and obviously, you've got a bigger influx still that we talked about earlier this year of aluminum coming from imports and so you have to kind of put all that together you have to always look at the fourth quarter.

October is always a big month in the fourth quarter, and then you start to land things as people start to try to close out the year I think the typical destocking at times, you would see from a distributor that may not want to carry the inventory into the new year.

Kind of occurred earlier this year, we saw heavy destocking in March and those levels are kind of stayed at that lower level, which again plays very well into our service model and so we may not see as big impact from that but you always have people that start to push volume to finish out here and you know we're going to put margin over volume and so it's hard.

To say, how do I take it.

Thank you look at it as far as overall with the margin has done and what volume is tracking and.

The federal funding as those programs start they get closer to really getting entrenched a little bit more.

When is the uplift going to come from those.

And then.

Maybe just on.

On the capital spending that you guys talked about congratulations by the way on completing the <unk> facility.

Unknown Executive: I will leave it there. I really appreciate it guys. Great question. Thank you.

And I appreciate the comment earlier bright about some more color.

Unknown Executive: Welcome to the call. Thank you.

Next quarter I guess as we talked about go forward plans, but on the press release you talked about.

Brent Thielman: Brent Thielman with DA Davidson. Your line is open. Hey, thanks. Good morning, Daniel. Bret. The volume increased 7%, sequentially 6% year on year off. A pretty tough comp was notable. I guess Daniel, were there some uniquely sized orders embedded in that? Or you think customer destocking sort of went too far in the first half? Just be interested in kind of how we should interpret the strength there. And I guess kind of further to that, you know, your overall capacity to support and sort of volume going forward.

Some capital spending through 'twenty five should further expand vertical integration.

So that should I interpret that as kind of the return.

For the go forward Capex should come from cost reductions and efficiencies more so than incremental volumes or product lines.

I think it's both right I think anything that we can invest in to improve our service model and that could be vertical integration could be distribution it could be modernization of facilities.

We talked regularly and Thats what keeps the supply chain broken today has access to skilled labor, that's not coming back right and so to the extent you can get efficiencies with regard to certain of your facilities that can help with that process, it's going to be all of that really as you go through it and thats the tough part because when you're analyzing and invest.

Brent Thielman: Yeah, great, great catch. Brent as usual. Most of our distributor customers that we have met with, and I think we hit probably 60 to 70% of them in the last few weeks in person. They're destocking programs are either complete or very close to complete. And it appears that they're back to focusing on other cost-cutting ideas, which typically is labor, where we can offer some of our additional services here from the new service center to kind of meet that demand.

And how you would analyze and investment like our service center right, it's going to be a lot different than than the new plans or an expanded facility or even the <unk> LTE facility right and so some take costs out of the system. Some improve very directly your service model I'd argue they all improve your service model and Thats.

Really our baseline for investing is does that improve our service model and that could be capacity efficiency or cost.

Brent Thielman: And then to your other piece of the question, the big orders are definitely bigger. Currently, with the data center demand, you know, still do very well as far as the commercial and industrial piece. You tack on that, the AI interest and investment, and the big orders are just getting bigger. Our average order size is up. It was up in the quarter. That's always a very positive sign. And they're a little more complicated orders to handle, which fits our, you know, one location heavy service focused business model.

Okay.

That's great color and thanks for pointing out the service center.

Because I remember how that kind of added to the.

To the service profit there.

I appreciate you guys, taking the questions. Thanks.

Thanks, Julio Goodwa SILEO.

Rick boss.

Okay.

Your line is open.

Thank you very much congratulations to another great quarter.

Four questions I think the new facility.

What revenue do you expect from the new facility going forward next year. The second question would be regarding cash management.

Do you invest the about $580 million in cash right now are they in treasuries.

Projected interest income from that.

And did you do any buybacks in Q4, so far.

Brent Thielman: So it looks like it fits pretty well. I'm bullish on that side of the market. A lot of code activity, a lot of convenience type add-on value for the installer that we're capable of providing at a premium. There's a lot of things happening on that side, as I mentioned earlier in the call, that are picking up. And in that, you know, quote-to-order phase is pretty good. It's pretty tight on the timing.

Okay.

Okay, perfect I think I got three was there a fourth one yes, that's coming later on this too much okay alright.

So on the revenue with regard to the <unk> facility.

Not selling any of the off take or any of the output from that facility, we're only using that for our own purposes, alright and so.

It's really more of a cost initiative as you go through that we talked about all the uses of the crossland polymer installation.

That was one part of the supply chain, we didn't like the.

The risk profile of as much as some of the others. During the pandemic, mainly because there was a governor in place and that a lot of folks were put on quotas as to how much you could actually get we were able to double the number of trucks come in in your monthly in the middle of a pandemic.

Brent Thielman: You quote it one day, and they're ready to go within a day or two. You can write to purchase order and start to build and ship it. So that side of the market is performing pretty well. That's really helpful, Daniel. And you know, as a function to be there. The average order size is going up, more complicated orders. Is that the reason why you're seeing this sort of slowing abatement, you know, relative to the second quarter and spreads?

But we still didn't have all the all the installation costly poly installation that I would like to have had and so by building your own facility right you take the risk out of that right you've got the ability to grow that as much as you see fit and then ultimately launches optimized and thats going to take nine to 12 months to really up fully optimize.

Brent Thielman: And I guess the overall average selling price is, or is there more to it? No, that's part of it. It definitely contributes. As you know, as Bret mentioned, we're not, enough, you know, we've got a long track record. I'm not interested in getting larger and poorer. So when we go after some of these things, we're going to charge for it. We've got a phenomenal group of sales reps. We've got a fantastic team in-house, operationally in, sales perspective to manage our capabilities.

That facility.

That's where you'll see the cost reduction.

On the cash management side, we ended the quarter with $582 million.

We continue from a use of cash standpoint focus on share buybacks and capital expenditures and Thats been consistent as we've talked about in February of 2020.

If you look at the cash balance that went from about $731 million at the end of December to the $582 million at the end of September cash went down $146 million during.

Brent Thielman: And that's really what it comes down to. If there's an order that's substantial that we cannot handle, I'd rather pass on it than mess it up. But the reality is, you asked the question, why can't we handle it? And I think you've seen with our CAPEX the last couple of years that we're in a really good spot to handle these going forward. It really is a, there's some technical expertise that's involved.

During that same period, we spent $375 million in share buybacks and roughly $120 million in capex. So despite spending $495 million cash only went down $146 million or so.

The the reauthorization the upped authorization back to a full 2 million shares in June which you you have a little over $1 1 million and $1 2 million remaining shows that the board's confidence in continuing those repurchases, we do invest our cash in overnight and short term securities.

Brent Thielman: But again, the speed to market piece is where we're winning. And now just jump on that Brent, you know, I think that service model really is resonating. You know, we're, our service model is absolutely humming right now. So rate is backward. It needs to be. And so, you know, you're getting these calls and you're getting a call on that Wednesday and they need you to ship it tomorrow. And we're able to service that order.

Balance sheet for any banks.

But we do keep it fairly liquid.

Interest.

And listen the interest income.

That's the great best the great side of interest rates the beyond when you have cash and so you know the interest rate increases has obviously been contributing.

Brent Thielman: And that is what's also helping us sustain or seeing a slowing of the margin like we've talked about on the copper side. Okay. And then, I mean, it looked to me like spot commodity prices for copper were up to around 8%. At least the way I calculated it in the quarter, whereas your cost purchase was less than 5%. Is there anything to read from that or is that just an anomaly based upon when you, when you bought the metal in the quarter?

<unk> been running probably $3 to $3 5 million, a month or $9 million to $10 million a quarter in interest income with the cash balance you've seen is the cash balance comes down.

Hold interest rates steady or they go up.

I think it's easily at 25% to $35 million number on an annual basis dependent on what the cash balances.

I really can't comment on buybacks post third quarter.

Brent Thielman: I mean, listen, I mean, our purchase is every single day all day, Brent. And so, you know, obviously there's a, I can say it's an anomaly, but based on kind of how the average plays out, does the price run up to start the month or end the month or is it mid-month? Are there opportunities with regard to that? How much scrap is available that we have that we can, that we can sprinkle in as you go through it.

Okay.

We assume that the run rate has kept up like the quarters before.

Well I mean, you can look at the last three quarters, and we purchased right around 700 to 775000, each month each quarter right and ironically the amount is almost identical that was not by design. So when asked me that couple of weeks back, but it's always been in that.

Brent Thielman: So the shape is a big and critical piece of that. And so all of that kind of comes together that come back with kind of the average cost. I mean, overall, when you look at the quarter, you know, its prices down slightly, obviously in the quarter. It's not moved a whole lot. After the peak kind of the start of the year, it's kind of, it's just been bouncing around for less three to four months.

$110 million to $125 million kind of range and so.

You saw the increase authorization. So I guess you can take from that pattern, what you want.

And the last the fourth question do you know who is short I wonder because its almost $4 2 million shares I mean, you're one of the most shorted companies.

Brent Thielman: It's pretty consistent level. Okay. All right, and just last one, is it, Brent, is it still your view you'd like to sort of maintain around 200 millioning cash on the balance sheet for working capital purposes? Yeah, I think 2 to 250 is the right number. You know, and that's if copper hits, you know, $2 or $6. You know, you need the cash on the fringes and that's a comfortable number. Obviously, we have our line that's out there that obviously remains untapped.

I wonder if there might be a trade going on because you're so cheap to borrow with the dividend and I Wonder if there is some fancy hits from borrowing the stock really cheap and put that money into treasuries for 5%.

Brent Thielman: 2 to 250 is the right cash number, in my opinion. So three to three fifty deployable at well. I'm trying. Oh, get back you here. Thanks, guys. Thanks, Brent. Thank you, Brent. Okay, and if you'd like to ask a question, please press star one on your telephone. Keep at Julio.

It was short in the Hawaii.

I don't I mean, I don't know who is short and it seems like everyone always have you talked to someone they always know someone that is it's not them.

Whenever you experienced rapid period of success in a short period of time, you're going to attract a certain type of investor who wants that volatility and thats all they want they just want the volatility.

We've seen some frequent price swings that are pretty wide relative to the broader market and so that obviously keeps that interest there we've been very clear in our belief that margins would gradually abate and that our results with normalized whatever the new normal is right and so as you tell that story the bears on the ball.

Use the parts of the stories they want to tell right.

Eric Marshall: Our next question comes from Eric Marshall with Hodges capital. Your line is open. Hey, congratulations on another great quarter, guys.

The short story is hey, they're going to abate from what I can tell I think the short thesis is that youre going to youre going to find that margins go back to levels that were.

Daniel Jones: Thanks there. Just curious. I don't know how much you guys could elaborate on this, but you know, with copper prices since the quarter ended here in the month of October have come down closer to the three and a half area has wire prices in general, not just for you but the industry. Have they declined as much as the commodity in the last 30 days? Yeah, we ended, you know, the low in September was around three sixty, and I think that's right where we're operating in October three sixty one three sixty two somewhere in there.

Kind of normalized the pre COVID-19 level some of the challenges when you look at this and if you just take the $3 68, we made in 2020 right you do nothing else, but add interest income right to that base net income number and divide by todays share count now you at least got a starting point and is higher than the <unk>.

$3 68.

Volumes were up 20% since that and margins are fundamentally higher and so that cases is something I think that we respectfully disagree with but we've put our money where our mouth is with the repurchase program. We are still trading a forward valuation multiples that are well below normal.

Daniel Jones: When you have that quarter of July, it ran up from the beginning from the high to low to about, you know, about twenty seven cents a pound. August went the other way about twenty four cents and recovered toward the end of a fourteen cents a pound. When you get this type of volatility, timing of the purchase by our customers is obviously important. The way that we price our product to the distributor is immediate.

A lot of the benefit from our Capex initiatives over the last year or so or are still going to show their benefits in future period.

And if you just then settle with the demand drivers and the structural support for raw material inputs. They all remain positive.

So with all that I still see tremendous value in our stock, which I think the board evidences with consistent repurchases every single quarter. So we'll see.

I guess the shorts at some point maybe shareholders.

Overtly also over.

Over the years, we went public in 92.

Daniel Jones: If they hang up the phone, essentially, we re-quote it when they call back. So we're live as live and as hot if you will, as you can be with copper. We are not the first nor are we very quick to go down with building wire prices based solely on the price of copper. If you look at the other inputs, diesel, which is a big contributor to our freight, which is a consideration in our quotes daily, you saw it go the other way, diesel is much more expensive than where we started.

We've had periods where.

We get lumped in with our stock gets lumped in on copper plays if folks are betting that copper is going to go down.

Bill associate that over over the years of single associate that with with our share price.

Beth.

On the downside. So you just don't know we look into it.

We try to keep up with it.

We do a few things internally.

As best we have any type of control to try to go after that so.

You seem to see what our feelings are.

Daniel Jones: So there's a lot of back and forth in the market. You know, part of it is science, part of it is art. We're really good at both. And, you know, most of the conversations again on these large jobs, they're trying to smooth out the volatility that you see in copper in the market. So building wire processing is not as quick to react as it's been in the past. I was looking through some numbers this morning and you can almost lay the same volatility pattern of copper over aluminum.

Going forward and how we feel about the shorts and the multiples.

Brett just mentioned as the stock buyback.

Yeah.

Okay. Thank you very much.

Good luck for the for the execution of the strategy and I think the most important thing probably is the operational excellence and yes.

Thank you all.

Thank you.

Our final question is a follow up from Brent Thielman with D. A Davidson your line is open.

Daniel Jones: And it's almost an exact duplicated view, to take the aluminum number and up it three times, so, and that's not happened in the past. There's a lot of volatility, Eric, a lot of jerking back and forth. We're really focused right now on the service piece, on the delivery piece, and less reactive to the noise that we're hearing in the market from competitors that just don't have the product to deliver on time.

Hey, Thanks, guys just a couple more.

Brett just wondering if you could clarify the startup costs that might be embedded in SG&A this quarter and maybe how we should thinking about SG&A going forward.

Yes, I mean, if you look at it and we really tried to lay it out a bit in the press release, we've got about a 16 nine <unk> expense in the first nine months.

That number was that we actually took the charge for in the first quarter, which is really where the where the bulk of the charge came it was it was probably 13 $514 million.

The swing we talked about in the first quarter, because you actually saw four or $5 million benefit in the in the first quarter of <unk> 22, compared to 13 have $40 million charge in the first quarter 'twenty three and so the difference in that in the $16 nine on a year to date basis, obviously with wood.

Daniel Jones: What's your great question? I guess I was just looking at, like, the average copper price over the course of the third quarter, if you take July, August, September was, I think, around $3.80, and have, okay, have, have, building wire, probably, to me, it looks like spreads ought to be at least stable in the first month of the quarter. Just looking at what's happened in building wire prices and what's happened with the commodity, not just on core, but across the industry, is that a fair statement? It's fair, and, as, you know, we've said in the past, I can only give you a color for September and the September. What's happening in October, there's just, there's no surprises at this point.

<unk> for the difference in the last six months.

We do get Sars without issuing any more of the last ones were issued in January of 'twenty.

The exercise of of those by employees continues so we're down to less than a third of that will have what we had outstanding.

In January of 'twenty.

And so somewhat of a timing of when someone potentially exercises that within a quarter.

That then gets mark to whatever that prices that they exercise it and that may be above or that may be below what the quarter end price wars, and so some of that kind of falls out in the wash.

Alright, I appreciate that Brad and then just a follow up the X L E.

Investment I think this was intended to help maybe debottleneck some things control your costs, maybe potentially unlock some capacity in <unk>.

Daniel Jones: Okay. Well, thanks a lot, guys, anything you can say about the current CAPEX as far as any new markets or anything like that that could create opportunities for growth next year? Well, we wouldn't be making the investment there because we were uncompetited at them, right? But we will give more color around it, you know, typically with our pattern, as we get closer to completion, we'll lean in. I expect to lean in when we come out with year-end earnings, with a little more detail on our existing project that we have going on that's been referred to, I think, in Brent Field, in your port earlier this year.

That full integration.

Talked about several markets that product goes into but Daniel if you were to sort of narrow that list down which of those markets.

Daniel Jones: And so we'll lean in on that, and then we'll update CAPEX ranges, you know, through 25 and 26 at that point, and so we'll get some more colors, we get closer. We just don't want to get too much information out there until, from a competitive purpose until we're closer to getting our certificate of occupancy.

You most excited about this investment in that in that product area I would imagine datacenter sort of topped the list but are there. Some other areas that this can accelerate.

For you that really validates putting the dollars into that.

Yes.

The whole.

Most of the federal programs that have been announced.

Each one of those have a component.

It will.

Creates additional or at least solidify.

Financially the demand for the product it takes the X L P.

Unknown Executive: All right, well, thanks a lot, guys, and we appreciate everything you've been doing for the shareholders.

<unk>.

Water treatment facilities.

The majority of that is ex LTE product.

Unknown Executive: Come see us, sir.

The hardening of the grid, there's a significant amount of the distribution product that's involved with <unk>.

Julio Romero: Julio Romero, with Cidodean Company, your line is open. Hey, good morning Daniel, good morning, Brad, thanks for taking the questions. Yes, sir.

Installation.

Data center AI upgrades.

Julio Romero: Maybe to start just kind of a broader question, you know, what are you seeing on the overall non-residential demand side? Some of the macro indicators are signaling a bit of a slowdown in planning of new projects, and I wanted to see if you're seeing or hearing that at all from your customers, especially since, you know, the areas of non-res that you sell into, you know, data centers you talked about earlier, have a little bit better secular drivers than maybe the broader overall non-residential.

The expansions of the current designs that are being reconfigured for data centers to become more efficient.

Allows for.

A more of a multi purpose if you will product to be.

Installed and Thats, all <unk> or cross linked products. So.

It's really more of the same.

With some substitution.

And the <unk> is good.

Julio Romero: Yeah. If you rate the three categories, industrial has the... Best Positive Numbers, Commercial, also as positive in the residential piece, regionally there's ups and there's downs. But for the most part, net net, the residential is about flat, slightly up with what we've been running the last few quarters. Okay, got it.

For that on both copper and aluminum metal conductor so.

It's an exciting idea it's exciting.

Demand that's going to be there.

We're managing if you will that enthusiasm internally.

And then you couple that with controlling the input side.

Yes.

It's going to be a good product for us.

The hard part is to put your finger on what that actual number is going to be but there's no question with existing sales alone without the new enthusiasm on top of these federal and state programs.

Julio Romero: And this was asked earlier a little bit, but maybe if I can ask it a little bit differently, just if we kind of think about, you know, if we're on the fourth quarter earnings call, and we see the spread number that ends up there, just how should we think about that spread number, when you consider everything, right, the gradual abatement that should normally continue, but then also the broader uncertainty and the less than ideal compromise environment. If you sum all that up, just how should we interpret, I guess, the fourth quarter spread?

We had to go that route too.

To control, our cost and as Brent mentioned more than once control our service model.

But the volume upside as it is.

Substantial.

Yes, and Daniel I mean, some of these areas data center grid hardening.

<unk> I don't recall in big markets for you five years ago, maybe I'm wrong, but it.

It seems like this opens up some.

New doors for you that is that a fair statement correctly.

Julio Romero: Well, I mean, that's a tough one, Julio, right? You don't have a crystal ball, right? You know, I think if you look at this, we talked about it a lot, it's cliche, but it's one order to tie, right? And those one order at a time, you know, service at the highest level, right, is what's helping us, you know, sustain or slow, you know, the abatement that we saw on the copper side.

We're following existing customers, where the peculiarities of doing business has been identified we've talked about that in the past.

Existing customers are going into.

And supporting their customers as you should.

Youre, reaching into some areas that may not have been labeled.

Julio Romero: We've talked about the fact that copper margins peaked in June of 2021, and we're over, you know, two years and three months passed that. You know, we've talked about how aluminum margins peaked in October of 22, and have abated, and obviously you've got a bigger influx still that we talked about earlier this year of aluminum coming from imports. And so you have to kind of put all that together, you know, you have to always look at the fourth quarter, you know, October is always the big month and the fourth quarter, and then, you know, you start to land things as people start to try to close out the year.

As a particular market segment for us in the past, but the good thing is it's the same technology. It's the same wire that we currently make is just more of it.

Okay very good thank you.

Thanks, Brett.

There are no further questions at this time I would now like to turn the call back over to the presenters.

Alright, Thank you Jack I appreciate it and I appreciate everyones involvement and great questions. Today, you guys have a great afternoon.

Julio Romero: I think the typical de-stockings at times you would see from a distributor that may not want to carry the inventory into the new year kind of occurred earlier this year. We saw heavy de-stocking in March, and those levels have kind of stayed at that lower level, which again plays very well into our service model. And so, you know, we may not see the as big impact from that, but you always have people that start to push volume to finish out a year, and, you know, we're going to put margin over volume.

This concludes today's program. We thank you for your participation you may now disconnect.

Please wait the conference will begin shortly.

Julio Romero: And so it's hard to say how do I take it, you know, I think you look at it as far as overall what the margin is done and what volume is tracking. And, you know, the federal funding is those programs start to get closer to really getting entrenched a little bit more. You know, when is the uplift going to come from those? Understood.

Julio Romero: And then maybe just on the capital spending that you guys talked about, congratulations, by the way, on completing the the XFLPE facility. And I appreciate the comment earlier, Brett about some more color next quarter, I guess as we talk about go forward plans. But on the press release, you talked about some capital spending through 25 should further expand vertical integration.

Daniel Jones: So I guess to that, should I interpret that as kind of the return for the Go Forward Capact should come from cost reductions and efficiencies more so than incremental volumes or product lines. I think it's both, right? I think anything that we can invest in and improve our service model, and that could be vertical integration, it could be distribution, it could be modernization of facilities. You know, we talked regularly and that's what keeps the supply chain broken today is the access to skilled labor.

Daniel Jones: That's not coming back, right? And so to the extent you can get efficiencies with regard to certain of your facilities that can help with that process, it's going to be all of that really as you go through it. And that's the tough part because when you're analyzing an investment, right? How you would analyze an investment, like a service center, right? It's going to be a lot different than the new planter and expanded facility or even the XLPE facility, right?

Daniel Jones: And so some take costs out of the system, some improve very directly your service model. I'd argue they all improve your service model. And that's really our baseline for investing, is does that improve our service model? And that could be capacity efficiency or cost?

Julio Romero: That's great color. And thanks for pointing out the service center because I remember how that kind of added to the service prop there.

Unknown Executive: Appreciate you guys taking the questions. Thanks. Thanks, Julio. Good work. Julio.

Ulrich Fas: Ulrich Fas with George Cribschiff. Your line is open. Thank you very much, congratulations to another great quarter. I have four questions, I think. The new facility, what revenue do you expect from the new facility going forward next year? The second question would be regarding cash management. How do you invest the about 580 million in cash right now? Are they in treasury? What is the projected interest income from that? And did you do any buybacks in Q4 so far? Okay, perfect. I think I got three with your fourth one. Yeah, that's coming later on. It's too much other one. Okay, perfect.

Daniel Jones: So on the revenue, you know, with regard to the XLPE facility, you know, we're not selling any of the off-take or any of the off-put from that facility. We're only using that for our own purposes, all right? And so it's really more of a cost initiative as you go through that. We talked about all the uses of the Crossland Polymer installation. That was one part of the supply chain. We didn't like the risk profile of as much as some of the others during the pandemic.

Daniel Jones: Mainly because there was a governor in place in that a lot of folks were put on quotas as to how much you can actually get. We were able to double the number of trucks coming in here monthly in the middle of the pandemic. But we still didn't have all the information, Crossland Poly installation that I would like to have had. And so by building your own facility, right? You take the risk out of that, right?

Daniel Jones: You get the ability to grow that as much as you see fit. And then ultimately wants it's optimized. And that's going to take nine to 12 months to really optimize that facility. That's where you'll see the cost reduction.

Bret Eckert: On the cash management side, we ended the quarter with 582 million. We continue from a use of cash standpoint focus on share buybacks and capital expenditures. And that's been consistent as we talked about since February 2020. If you look at the cash balance that went from about $731 million at the end of December to the 582 million at the end of September, it will cash went down 146 million. During that same period, we spent $375 million in share buybacks and roughly $120 million in Capac.

Bret Eckert: So despite spending $495 million, cash only went down 146 million. And so the reauthorization, the opt authorization, back to a full two million shares in June, which you have a little over 1.1 million, 1.2 million remaining shows the board's confidence in continuing those purchases. We do invest our cash in overnight and short term securities, off balance sheet for any banks, but we do keep it fairly liquid. Interesting. Yeah, and listen, interesting, that's the great side of interest rates to be on when you have cash.

Bret Eckert: And so the interest rate increase has obviously been contributing. You've been running probably three to three and a half a month or nine to ten may in a quarter, an interesting come with the cash balance you've seen. As the cash balance comes down, hold interest rate steady or they go up. I think it's it's easily a 25 to 35 million number on an annual basis, depending on what the cash balance is.

Bret Eckert: I really can't comment on buybacks post third quarter. Well, I mean, you can look at the last three quarters and we purchased right around, you know, 700 to 775,000 each quarter, right, and ironically the amount is almost identical. That was not by design. So, and asked me that couple of weeks back. It's always been in, you know, 110, 125 million kind of range. And so, you know, you saw the increase authorization.

Bret Eckert: And so, you know, I guess you can take from that pattern, what you want. Yeah. And the last, the first question. Do you know who is short? I wonder because it's almost 4.2 million shares. I mean, you're one of the most shorter companies. And I wonder if there might be a trade going on because you're so cheap to borrow was a meager dividend. And I wonder if there's some fancy hedge funds borrowing the stock really cheap and put that money into Treasury for 5%.

Bret Eckert: You know who's short and why? I don't. I mean, I don't know who's short and, you know, seems like everyone always, if you talk to someone, they always know someone that is. It's not them. You know, whenever you experience rapid period of success in a short period of time, you're going to track a certain type of investor who wants that volatility. And that's all they want. They just want the volatility. You know, we've seen some frequent price swings that are pretty wide relative to the broader market.

Bret Eckert: And so, that obviously keeps that interest there. You know, we've been very clear in our belief that margins would gradually abate and that our results would normalize, you know, whatever the new normal is. Right. And so, as you tell that story, the bears and the bulls use the parts of the stories they want to tell. Right. You know, the short stories, hey, they're going to abate from what I can tell. I think the short piece is, is that, you know, you're going to, you're going to find that margins go back to levels that were, you know, kind of normalized to the pre-COVID level.

Bret Eckert: Some of the challenges when you look at this, and if you just take the 368 we made in 2020, right. If you do nothing else, but add interest income, right, to that base net income number and divide by today's share count, now you at least got a starting point. Right. And it's higher than the 368. You know, volumes are up 20% since then. And margins are fundamentally higher. And so, that case is something I think we, that we respectfully disagree with.

Bret Eckert: But, you know, we put our money where our mouth is with the repurchase program. We're still trading a forward valuation multiple. They're well below normal. You know, a lot of the benefit from our capex initiatives over the last year or so are still, you know, going to show their benefits in future period. And if you just then settle with the demand drivers and the structural support for raw material input, they all remain positive.

Bret Eckert: So, you know, with all that, I still see tremendous value in our stock, which I think, you know, the board and evidence is with consistent reports to every single quarter. So, we'll see. I guess the short to some point may be shareholders. Yeah. You know, over the years, we went public in 92. And we've had periods where we get lumped in with our stock is lumped in on copper plays. If folks are betting that copper is going to go down, you know, they'll associate that over the years.

Bret Eckert: I've seen them associate that with with our share process on the bet on the on the downside. So you just don't know. We look into it. We try to keep up with it. We do a few things internally as best we have any type of control to try to go after that. So, you know, the easiest thing to see what our feelings are going forward.

Daniel Jones: And now we feel about the shorts and the multiples as Brett just mentioned is the stock buyback. Okay.

Ulrich Fas: Thank you very much and good luck for the further execution of the strategy and I think the most important thing probably is the operational excellence and yeah, thank you all. Thank you.

Bret Thielman: Our final question is a follow up from Bret Thielman with B.A. Davidson. Your line is open. Hey, thanks, guys. Just a couple more. Bret, just wondering if you could clarify the SARS cost that might be embedded in S.T.A, that's quarter and maybe how we should think about S.T.A, going forward. Yeah, I mean, if you look at it, and we really try to lay it out a bit in the press release, you know, we've got about a 16.9 SARS expense in the first nine months.

Bret Thielman: I think that number that we actually took the charge for in the first quarter, which is really where the bulk of the charge came. It was probably 13.514 million. You know, and that's the swing we talked about in the first quarter because you actually saw a four or five million dollar benefit in the in the first quarter of 22 compared to a 13.514 million dollar charge in the first quarter of 23.

Bret Thielman: And so the difference in that in the 16.9 on a year-to-date basis, obviously, would account for the difference in the last six months. You know, we do get SARS without issue in any more of the last ones were issued in January of 20. You know, the exercise of those by employees continues, so we're down to less than a third of what we had outstanding in January of 20. And so somewhat of the timing of when someone potentially exercises that within a quarter, you know, that then gets marked whatever that price is that they exercise it.

Bret Thielman: And that may be above or that may be below what the quarter and price was. And so some of that kind of falls out in the wash. I appreciate that. Right. And then just the follow up, the the XLPE investment, I you know, I think this was intended to help maybe debodel next and things control your costs. Maybe it potentially unlocks and capacity and having that full integration that you've talked about several markets that that product goes into but Daniel, if you were to sort of narrow that list down which of those markets.

Bret Thielman: Or would get you most excited about this investment in that in that product area, I would imagine data centers sort of top the list, but other some other areas that this can accelerate for you that really validates putting the dollars into this. Yeah, with with the whole most of the federal programs that have been announced each one of those have a component that will create additional or at least solidify financially the demand for the product that takes the XLPE.

Bret Thielman: It's, you know, water treatment facilities, majority of that is XLPE product. The hardening of the grid, there's a significant amount of the distribution product that's involved with XLPE. Installation. The data center AI upgrades the expansions of the current designs that are being reconfigured for data centers to become more efficient allows for a more of a multipurpose if you will product to be installed and that's all XLP or cross link product. So it's really more of the same with some substitution and the XLP is good for that on both copper and aluminum metal conductors.

Bret Thielman: So it's an exciting idea. It's an exciting demand that's going to be there. We're managing if you will that enthusiasm internally and you couple that with controlling the input side, it's going to be a good product for us. The hard part is to put your finger on what that actual number is going to be, but there's no question with existing cells alone, without the new enthusiasm on top of these federal and state programs, we had to go that route to control our cost.

Bret Thielman: As Brett mentioned, more than once control our service model, but the volume upside is substantial. Yeah, and Daniel, I mean some of these areas, data center, grid hardening renewables, you know, I don't recall being big markets for you five plus years ago. Maybe I'm wrong, but things like this opens up some new doors for you. Is that a fair standard? We're following existing customers where the peculiarities of doing business have been identified.

Bret Thielman: We've talked about that in the past. Existing customers are going into and supporting their customers as you should, which are reaching into some areas that may not have been labeled as a particular market segment for us in the past, but the good thing is, it's the same technology, it's the same wire that we currently make, it's just more of it.

Unknown Executive: Okay, very good. Thank you. Thanks, Brett. There are no further questions at this time.

Unknown Executive: I'd now like to turn the call back over to the presenters. All right. Thank you, Jack. Appreciate it and I appreciate it. Everyone's involved in and great questions today. You guys have a great afternoon.

Unknown Executive: This concludes today's program. We thank you for your participation. You may now disconnect. Please wait. The conference will begin shortly.