Q3 2023 Ampco-Pittsburgh Corp Earnings Call

Yes.

Welcome to the Ampco Pittsburgh Corporation third quarter 2023 earnings results Conference call.

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I'd now like to turn the conference Kevin Knox Corporate Secretary. Please go ahead.

Thank you Tony and good morning to everyone joining us on todays third quarter 'twenty to 'twenty three conference call.

Joining me today are Brett Mcbrayer, our Chief Executive Officer, and Mike Mcauley, Senior Vice President Chief Financial Officer, and Treasurer also joining us on the call today are Sam Lyon President of Union Electric Steel Corporation, and Dave Anderson, President of Air and liquid Systems Corporation.

Before we begin I would like to remind everyone that participants on this call may make statements or comments that are forward looking and they include financial projections or other statements as corporations plans objectives expectations or intention. These.

These matters involve certain risks and uncertainties many of which are outside the corporation's control.

Corporations actual results may differ significantly from those projected or suggested in any forward looking statements due to various risk factors, including those discussed in the Corporation's most recently filed Form 10-K, and subsequent filings with the Securities and Exchange Commission.

We do not undertake any obligation to update or otherwise release publicly any revision to our forward looking statements.

A replay of this call will be posted on our website later today.

That's the earnings release or the webcast replay. Please consult the investors section of our website at Ampco P. G H dot com.

With that I'd like to now turn the call over to Brett Mcbrayer Ampco, Pittsburgh's CEO Brett. Thank you Cam good morning, and thank you for joining our call.

Ported in our press release, and 10-Q filing Ampco Pittsburgh delivered a positive earnings per share for the third quarter of 2023 with improved performance from both business segments.

Our operating income of $1 $7 million for the quarter and 7 million year to date is up significantly compared to last year.

This improved performance was realized despite the significant negative headwinds we continue to experience in Europe.

The growth we are seeing in our air and liquid systems segment is encouraging and we again experienced record backlog in that segment for the quarter.

We are excited about our capital equipment investments in the fortune and cast engineered products segment, which is on track for completion this year.

I'm now going to turn the call over to Sam Lyon, President of our forged and cast engineered products segment for further comment on his group's performance Sam.

Thank you Brett and good morning.

Q3 of 2023 marked the fourth consecutive quarter of positive operating income for the F. C. P segment.

Despite the annual summer outages at our Europe plants, and the planned maintenance outages for the U S. Based milk Forge operations. We finished the quarter with a segment operating income of $1 4 million an improvement of $1 2 million over Q3 of 2022.

Q3 revenues were $73 6 million versus the prior year of $75 5 million a year.

Year over year decrease reflects our pass through to customers as lower energy and raw material costs through lower surcharges and a decreased demand for F E P.

Castro market soft, but stable, while the forged roll market has strengthened and is approximately 13% higher than 2022.

FEP revenues continued to be depressed. However, we are starting to see increased activity for this non rural business and anticipate some recovery in 2024.

In October the World Steel Association modified as short range outlook for global steel demand in 2023, and 2024 from its April projections excited a weakening in steel consumption and investment reacting to high inflation, increasing interest rates and ongoing global conflicts uncertainties and kind of.

Our customer base has voiced expectations of a flat to declining north American market and continued softness in Europe.

This decrease in demand has resulted in some of our customers, having a higher roll inventory position relative to 2024 demand impacting the overall market for cast and forged rolls in the short term.

Our customer project rules, our customers projected oil demand to be down for the first half of 2024 and recover in the second half as inventories correct and demand increases.

Setting this decline we have successfully increased base pricing and grown share with many of our larger customers.

The intermediate to long term.

<unk> picture for steel remains strong and we are well positioned to supply our customers as demand increases steel dynamics Nucor U S steel and others are all bullish on the next decade, North America and are all investing in new capacity.

For metal projects, non China demand to increase approximately 35% in the coming decade, with an increase of 15% in the U S and Europe, where our shares increased they believe India will double in Brazil will grow by approximately 30%.

In addition, the global aluminum market is expected to grow with estimates of a five 8% compounded annual growth rate through 2031. According to Allied market research similar numbers were quoted by next market research future market insights and Sky Quest in 2022, the construction of three new aluminum rolling.

What else was announced in the U S. This domestic expansion opens new opportunities to broaden our footprint in this sector and the metals industry for which our rural products are well suited.

Bret stated our capital equipment improvement plan in the U S continues to progress two of the five machine centers were commissioned in Q3 and are performing as expected.

The three remaining machines machining centers have been installed or in the process of being commissioned.

Very encouraged by these results and look forward to many years ahead with significantly reduced maintenance cost, allowing us to improve our service levels for our customers further.

Thank you Sam Dave Anderson, President of Air and liquid systems will now cover his segments result states.

Thank you Brett good morning.

Air and liquid continues to see the positive results of our strategic plan with record level sales through the first nine months of this year.

Sales in Q3 increased 18% versus prior year with year to date sales up 29% over prior year year to date, all three businesses have achieved more than 20% sales growth compared to prior year.

Even with the higher sales level, our backlog grew once again to a new record this quarter as our expanded sales force continues to exceed expectations.

We have now achieved a new record backlog for seven consecutive quarters and our backlog is now 107% higher than it was 21 months ago.

Segment operating income for the first nine months of 2023 was 15% above prior year, primarily due to the increased sales.

The prior year income included 0.7 million and income recognized for a change in an employee benefit policy.

Excluding this one time item shows adjusted operating income growth of approximately 23% versus prior year.

The additive manufacturing project, we're working on with the U S. Navy at Oak Ridge National Laboratory continues to make progress towards the goal of using additive technology to make parts for the pumps, we provide to the U S. Navy.

We are also pleased to share that air and liquid has received a funding grant from the U S. Navy for the purchase of new manufacturing equipment.

The $1 6 million dollar funding grant allows us to purchase new machining equipment, which will improve efficiencies and increase capacity for our U S Navy business.

The new equipment is on order and is expected to be installed and operating in mid 2024.

Thank you Dave at this time, Mike Mcauley, our Chief Financial Officer will now share more details regarding our financial performance for the quarter Mike.

Thank you Brett.

Morning, as indicated in our press release issued last night.

And in the Corporation's Form 10-Q filed this morning, <unk> net sales for the third quarter of 2023 or $102.2 million, an increase of two 6% compared to net sales for the third quarter of 2022.

Net sales on the air and liquid processing segment grew 18% year over year, driven by a higher volume of shipments and all three businesses.

Net sales for the forged and cast engineered product segment in the second quarter and.

In the third quarter of 2023 declined two 5% compared to the prior year period as Sam explained driven primarily primarily by lower demand for F. N b products in the oil and gas and steel distribution markets.

And lower surcharge pass throughs offset in part by higher mill roll shipment volumes.

Income from operations for the third quarter of 2023 was $1 $7 million. This compares to income from operations in the prior year quarter.

Zero point $2 million.

The improvement was principally led by higher pricing net of surcharges outpacing manufacturing costs in the forged and cast engineered product segment and the impact of higher shipment volumes and the air and liquid processing segment.

Investment related income declined for the quarter due to a lower dividend this year from one of our Chinese roll joint ventures.

Interest expense for the quarter increased compared to prior year due to a rise in both interest rates and in total debt.

This reflects interest on the sale and leaseback financing transaction and the equipment financing arrangement completed during the second half of 2022.

Of which is funding the equipment modernization project in the U S forged business.

It also reflects higher average borrowings under the revolving credit facility to support the growth in working capital in 2023.

Other income net declined for the quarter, primarily due to lower foreign exchange transaction gains in the current year quarter compared to the prior year quarter.

The income tax provision decrease for the quarter compared to prior year in part due to a point $3 million discrete item recorded in the prior year quarter for the revaluation of certain deferred tax assets of the air and liquid processing segment. Following a new legislation enacted in 'twenty, two which will.

Decrease the Pennsylvania state income tax rate.

2031.

Net income attributable to Noncontrolling interest rose for the quarter due to higher operating results for our majority owned Chinese joint venture.

As a result, net income attributable to ampco, Pittsburgh with zero point $8 million or four cents per share for the quarter.

Yeah.

Total backlog at September 30th 'twenty, 'twenty, three or $403 $2 million rose approximately 9% from the beginning of the year.

What's the air and liquid segment backlog at a new record high and the fortunate cast engineered products segment, reflecting higher forged rolled or orders driven by U S demand and better pricing.

Offset in part by a decrease in orders for cast rolls and FTP products.

Net cash flows used by operating activities was approximately $3 $2 million for Q3, 2023 and was a use of $10 $3 million year to date September 2023.

Primarily in support of working capital investment.

Yeah.

This represents an improvement from 2022 due to improved operating results and lower change in working capital in the current year periods.

Capital expenditures for the second quarter of 2023 were $4 $1 million, primarily for the forged and cast engineered product segment inclusive of the <unk> business is modernization capital program.

We expect Capex and usage of the equipment finance facility to increase in Q4 of 2023 with the completion of milestones expected for the machinery that are part of that key capital expenditure program.

Yeah.

At September 30 of 2023, the corporation's liquidity position included cash on hand of $6 $1 million and undrawn availability on our revolving credit facility of $21.7 million.

In addition.

The equipment financing facility has remaining capacity of $6 $8 million as of September 30 of 2023 and is sufficient to finance the remaining expenditures under the modernization program.

Operator at this time, we would now like to open the line for questions.

We will now begin the question and answer session.

To ask a question you May press Star then one your telephone keypad, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw from the question queue. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Our first question will come from Justin Bergner with Gabelli funds you May now go ahead.

Oh, Hi, Brett.

Mike Salmon, Dave how are you.

Good morning.

Morning.

With respect of forged and cast engineered products.

This customer.

Mountain time that led you to take some downtime.

That pull forward I guess from what I am expecting would be downtime, that's more concentrated towards the fourth quarter and the holiday season.

Or is that additional downtime in the sort of annual view.

Maybe maybe I wasn't clear that's just our normal and Europe's normal downtime that happens in the third quarter now on top of that Justin there are many blast furnaces that have been idled.

To pull down supply and grain.

<unk> prices in the market.

In Europe, but the downtime wasn't necessarily point that was just our downtime that we normally taken in the third quarter to align with the European vacations.

Gotcha Okay.

And.

With respect to you know cash flow, obviously use last year.

This year in the first half of next year.

When do you expect volumes to be down will that lead to some harvest should that lead to some harvesting of working capital.

Wherever we have whatever we expect a kind of a a softness in and production.

For example, as Sam indicated I'm like first half versus second half on the roll business, Yes that will that will release working capital and then you know.

As production ramps up.

Working capital tends to ramp up with that so.

With with.

Demand and hence production.

Okay, and then just in terms of the modernization project.

I think the details came out a little bit fast in prepared remarks. So how many have been commissioned how many have yet to be commissioned.

And when do you expect.

EBIT.

Benefit from the modernization to start showing up in the financials.

Adjusted to the machines are commissioned and those are the roughing machines that are in our Harmon Creek plant, Brian Ferguson Harmon Creek.

Three remaining machines are in our finishing plant in Carnegie there there'll be finished commissioning this quarter.

And then we have overlap of training that will continue through probably the first quarter of next year.

Okay. So I mean after the first quarter should we sort of speak in to see a step up of <unk>.

EBITDA everything else being equal.

On account yet.

Yes.

Okay, that's correct.

Alright.

Thank you.

Thanks, Thank you.

Well, Dan if you have a question. Please press Star then one.

It appears there are no further questions. This concludes our question and answer session I would like to turn the conference back over to Brett Mcbrayer for any closing remarks.

Thank you I'm encouraged by our strengthening operational performance and the positive momentum we've seen across both business segments I want to thank the hard work of our employees and the positive change they were delivering each and every day.

Also want to thank our shareholders for UCT.

Thank you for joining our call this morning.

Yeah.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.