Q2 2019 Earnings Call

Well this is the conference operator, and the call will begin at 10 32 in two minutes. Thank you.

Good day and welcome to the Ampco Pittsburgh Corporation.

Second quarter 2019 earnings conference call.

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The Star key followed by zero after todays presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would like to now turn the conference over to.

Well in East Boston Director of Investor Relations and corporate Communications. Please go ahead.

Thank you Jake and good morning to everyone joining us on today's second quarter Conference call.

I'm joined by threatening rare or 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 Terry County.

President <unk> Air and liquid systems Corporation.

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

These matters involve certain risks and uncertainties many of which are outside the corporations control.

The corporation's actual results may differ significantly from those projected or suggested in any forward looking statements due to a variety of factors, including those discussed in the corporations. 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 revisions to our forward looking statements.

A replay of this call will be posted on our website later today and remain available for two weeks following the conclusion of the call.

<unk> earnings release for the webcast replay please consult the investor section of our website at <unk>.

With that I'll turn the call over to Britain rare Ampco, Pittsburgh CEO right. Thank you Melanie good morning, and welcome to our call I'm excited to share the results of our second quarter performance.

Well, we recorded a modest GAAP loss from continuing operations in quarter. Two we are beginning to see the initial impact or improvement efforts.

These efforts has to have delivered an adjusted income from continuing operations, which is a non-GAAP measure of $2.5 million for the quarter and $3.8 million for the first six months of 2019, and an improvement of more than 80% compared to last year's quarter and nearly double last year's adjusted performance on a year to date basis.

During the second half of the year, we will continue to rightsize, our assets to deliver sustainable profitability in our businesses.

We are on target to close on the sale of our evermore facility by around September Thirtyth.

We also anticipate the completion of various w. a divestiture by the end of the year.

We expect a marked improvement in our earnings profile beginning as early as the fourth quarter of this year.

Mike Mcauley, who will review our financial results in more detail later in the call.

Another area of important said I would like to highlight is our performance from a safety health and environmental standpoint.

Across the globe. We begin every operational daily management meeting focused on the well being of our employees and the stability of our environmental systems.

With the introduction of new leadership in 2019, and a focus on disciplined daily execution, we've made some significant improvements.

Our continuing operations have reduced recordable injuries globally by over 11% and lost time injuries by 17% compared to last year.

We are far from where we want to be but I'm encouraged by the progress our team has made.

We also continue to operate our facilities incident free from an environmental perspective.

We will always strive to safeguard enhance the well being of the communities where we operate.

These measures of success or.

A highlight our improved stability in people processes and equipment.

I will now turn the call over to Sam line unilaterally still president.

Thank you Brett.

The second quarter, we continue to focus on safety cost reductions in the U.S. plants and reducing their careers and our European operations.

We have also launched initiatives to further improve our European operations performance.

Earlier, Brett mentioned to reduction in lost time injuries and recordable injuries over last year.

Much of this progress was made in Q2 were globally, we reduced our recordable count from 16 to 11.

Well 11 people getting hurt to the point of requiring medical treatment is unacceptable five more people what how do the families safend unharmed in the first half of this year compared to prior year.

This improvement is being driven by two thrusts.

Focus safety observations on high risk tasks, which many times result in a change to the door method to minimize or eliminate the risks identified and behavioral safety observations.

We'll be relentless when it comes to safety as our goals the zero injury workplace.

From a cost perspective, our goals are the same as they were during our last call. The first item as Bret mentioned is the ramp down of the having more site. We're on schedule to complete the sale by the end of September .

We have absorbed the new production requirements and finishing back into our European operations and are working off the final work in process inventory level.

As mentioned on our last call, we are expanding our capabilities in Sweden, which will triple our capacity at that plant for these large rolls where demand continues to be robust.

Secondly, we continue to take cost out of the system. We are continuing to implement a to your daily management process based on the Toyota production system, we are driving improvement by understanding our shortfalls daily and applying resources to close those gaps.

Year to date, our efficiencies have improved and are used facilities by 7%.

The cost improvements that I discussed a moment ago Ive allows to offset the reduction in our inaugural products, which generally carry a higher margin than our product.

Moving forward, we will continue to drive operational improvements in our us plants and complete planned maintenance outages to improve the reliability of several critical assets in Q3.

For our European assets, we are improving our process yield and restructuring our cash room facilities, which we expect to generate an estimated 4 million in annual run rate savings starting by the end of Q4 of this year.

And our current backlog. We continue you continued to experience softness from our non room products, but have a solid backlog for our roll business with some specialty grade size combinations being sold out through 2020.

Thanks, Sam I'll now turn the call over to Terry Kenney President of air and liquid processing systems.

Sure.

Thanks, Brad and good morning, I am happy to report, we have continually reduced our osha recordable injuries on a year to date basis, I see achieving a 42% reduction in recordable injuries and a 100% reduction in lost time injuries.

We have we've accomplished this principally by involving all employees in plant wide safety programs.

These programs include daily Toolbox talks plant stand downs when into incidents occur and immediate investigations and corrective actions.

The safety of our employees is our number one priority and I am pleased with our progress.

Net sales for the air and liquid processing segment for the second quarter ended June Thirtyth 2019 were comparable to prior year.

Net sales for the second quarter compared favorably with that of the first quarter to 7.9% improvement quarter over quarter was led by increases in sales of custom heat exchangers and custom centrifugal pumps.

The segment's backlog as of June Thirtyth, 2019, approximated $53 million, which compares favourably to approximately 44.4 million at December 31, 2018, and approximately 15.2 million.

At June Thirtyth 2018.

The current backlog remains close to the highest level. The segment's backlog has been in 10 years.

The increase over the prior periods is primarily attributable to an increase in orders for centrifugal pumps for the U.S. Navy.

The manufacturing process improvement initiative is moving forward at each operation.

Although we are at the early stages of the implementation we already can see measured positive result.

You can see and measure positive results in both labor efficiencies and material utilization.

The hands on engagement of all levels of employees at each operation is essential to the success and sustainability of this program.

We continue to focus on increasing revenues of the segment by growing our market share in existing markets and entering new markets, while improving margins through increasing material utilization and labor efficiencies.

Thank you Terry would that I'd like to hand, the call over to our CFO My colleagues to review our financial results for the quarter in more detail Mike.

Thank you Brad good morning, everyone and thank you for joining our call today.

My commentary today contains the use of certain non-GAAP measures. So I refer you to our disclosures regarding non-GAAP measures and their related non-GAAP financial measures reconciliation schedule.

Included in this morning's earnings release.

I'd like to focus on our Q2 results. This morning.

A discussion of year to date results is included in today's earnings release and in our Form 10-Q filed yesterday.

Amco us net sales from continuing operations for the second quarter of 2019 or $102.5 million.

This compares to net sales from continuing operations for the second quarter of 2018.

Of $118.4 million.

Net sales in the force and cast engineered product segment declined 16% compared to prior to the prior year period, primarily due to a lower volume of sales of forged engineered products to the oil and gas industry.

Net sales for the air and liquid processing segment for the second quarter 2019 were comparable to prior year.

I'll cover more segment level details in a moment.

Gross profit as a percentage of net sales was 17.5% for the second quarter of 2019.

First is 16.5% for the second quarter of 2018.

The 100 basis point improvement is primarily due to better pricing for mill Rals and operating efficiencies within the forged and cast engineered product segment.

Partly offset by the effects of lower production volumes for Fourq to engineered products and a shift in mix.

For the air and liquid processing segment.

Selling and administrative expenses of $13.9 million or 13.6% of net sales for the second quarter of 2019.

Were down compared to $14.3 million or 12.1.

Bring plans into Q2.

We were able to show a year over year reduction and SGN a for the quarter.

Due in part to our reduction in force actions earlier in the year as well as some volume driven lower commission expenses.

Depreciation and amortization expense of $4.7 million for the second quarter of 2019 was down compared to $5.4 million for the second quarter of 2018.

Due in part to the impairment charge recorded in Q1 to write the assets of our avid more Pennsylvania facility.

Down to their expected fair value.

Loss from continuing operations on an as reported GAAP basis for the second quarter of 2019 was zero point $7 million.

This compares to a loss from continuing operations in the prior year quarter of zero point $2 million.

The decline being driven primarily by the current period bad debt expense.

In addition, the corporation continued to incur excess costs for operation of the Evermore cast roll manufacturing facility.

Which are not expected to continue accurate sale.

As well as more restructuring related costs incurred during the quarter.

Excluding the bad debt expense.

The restructuring related costs and the estimated temporary excess costs of the avid more facility. The corporation had positive adjusted income from continuing operations of $2.6 million in the second quarter 2019.

This reflects an improvement of $1.2 million compared to the prior year quarter on the same basis and is reflective of the run manufacturing efficiencies higher pricing.

And lower overall overhead costs in the underlying business.

Other income expense net improved for the second quarter of 2019, when compared to the prior year quarter, primarily due to a dividend of approximately $1.4 million received from our cat our cast roll Chinese joint venture during the quarter.

The income tax provision for the current year quarter was comparable to the prior year amount and includes income taxes associated with our profitable operations.

Well as we continue to record valuation allowances against the deferred tax assets of the majority of the corporations operations.

As a result, the corporation reported a GAAP net loss from continuing operations.

$200000 or two cents per common share for the second quarter of 2019 compared to a net loss of $1 million or eight cents per common share for the second quarter of 2018.

Note that the net loss from continuing operations for the second quarter of 2019 includes over 12 cents per share for the impacts of both the bad debt expense.

And the $200000 of incremental restructuring related costs I previously mentioned.

The Corporation also reported a net loss from discontinued operations, reflecting the operations of our Canadian subsidiary as several U.S steel.

Of $3.4 million or 27 cents per common share for the second quarter of 2019.

This compares to a net loss of $1.7 million or 14 cents per common share for the second quarter of 2018.

The higher loss compared to prior year is due to lower demand and then gets used as feedstock for the production of forged engineered products for the oil and gas industry.

And the impact of tariffs imposed by the us on imports of primary steel, which began in June 2019, and were not lifted until may 19th of 2019.

Now here's a bit more color on our business segment results.

In the forged and cast engineered product segment.

Despite a 16% decline in sales in Q2.

The segments operating results were comparable to the prior year.

Manufacturing efficiencies better pricing and lower overhead costs helped to minimize the effect of the lower volume of forged engineered product sales to the oil and gas industry and the bad debt expense recorded during the quarter.

Net sales for the air and liquid processing segment were comparable to the second quarter of 2019 versus prior year, whereas the segment's operating income for the second quarter of 2019 decreased by 21% or $800000 versus prior year, principally due to changes in product mix.

Backlog at June Thirtyth, 2019, approximated $355 million, which is 2% higher than backlog at March thirtyth.

And 6% higher than prior year.

We have seen higher order intake and improved pricing for mill roles.

Along with additional orders for US Navy ship builders offsetting the impact from the ongoing softening in demand.

For our forged engineered products in the oil and gas industry.

Approximately $157 million of the current backlog is expected to ship after 2019.

Now I will review some cash related items for continuing operations.

Accounts receivable at June Thirtyth, 2019 increased by $15.8 million compared to December 31, 2000, 2018, primarily attributable to higher second quarter 2019 sales when compared to the fourth quarter of 2018.

But receivables were about flat with March levels.

Inventories inventories at June Thirtyth 2019 were approximately flat overall with December 30, Onest 2018.

And with March 30, Onest 2019 levels.

Accounts payable at June Thirtyth, 2019 increased by $3 million compared to December 31, 2018.

But decreased approximately $4 million compared to March 30, Onest 2019.

Capital expenditures for the second quarter of 2019 were $2.2 million for continuing operations and our $3.6 million year to date.

Cash and cash equivalents for continuing operations of $6.5 million at June Thirtyth.

Decreased compared to the December 30, Onest 2018 balance of $19.7 million for a specific reason, which as I explained on the Q1 call is because we instituted a springing lockbox feature earlier this year.

Whereby domestic customer remittances are swept daily against the credit line in order to minimize borrowings.

As a result, we are maintaining minimal domestic cash and the reported cash balance primarily reflects foreign cash.

Drawings on the Amco credit facility, our $41.3 million at June Thirtyth, 2019, which is up just slightly versus the $40 million at June 30 Onest.

The increase compared to December 30, Onest 2019 reflects the use of the credit facility as planned.

To repay the promissory notes and interest which were retired back in the first quarter of 2019.

At June Thirtyth 2019. In addition to the cash balance. The Corporation also has remaining availability on its revolver of approximately $33 million.

I will now turn the call back over to Brad for some closing remarks.

Thank you Mike as we discussed on the call. This morning, we continue to see the benefits of our operational improvement initiatives.

We are aggressively pursuing additional restructuring opportunities to increase efficiencies in our business and facilitate further cost reduction actions. We are committed to continuing to right size, our business operations to deliver consistent improved profitability.

Thank you again for joining us for Ampco Pittsburgh Conference call today at this time, we will open up the line for your questions.

We will now begin the question and answer session.

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The first question comes from.

David Wright with Henry Investment Trust.

Please go ahead.

Good morning, everyone.

Good morning, David Thanks for all the commentary.

The focus on safety and.

Great to hear about it question for Sam I'm, just can you clarify in your remarks, you had a freeze or working to reduce arrears in Europe .

What did that mean.

Yeah, that's just the past dues number rules in Europe , and we were able to reduce those by over 20% from the beginning of the year till now so just Doug.

<unk> performance measure.

Okay. So that's oh.

Term for delayed shipments correct, okay to two part or for Mike The China the dividend from the Chinese subsidiary was that an extraordinary thing a regular thing and what was the circumstance behind it and then separately the.

The bankruptcy in the UK there.

Had the the ore write down do they have a similar system whereby creditors get in line and try to get some sort of a recovery. Thank you.

Yeah, David D.

The dividends that we received as for our Chinese cast roll.

Joint venture.

It's.

It's well in one of our cost basis affiliates. So it's not the one that we consolidate but we have received consistent dividends. They they have been about every other year, but they haven't been this large they'd been had been had been lower than this and so this is a function of the improved performance of that joint venture company.

So yes, it's a regular it's a regular dividend to every other year, approximately but but larger this time.

On the or the customer bad debt expense, yes, there's a.

There is a there is a process of creditors, it's similar to the U.S. bankruptcy, it's in the UK.

So if you're familiar with UK bankruptcy law.

We.

We were writing off that receivable David.

And it said it was a significant impact in the quarter I mentioned at 1.4 million.

Right and you have the possibility of getting a recovery of some sort of down the road it's possible.

They have to go through there the process, but you know where we were an unsecured creditor and.

As I understand it British deal is moving into potentially liquidation or finding an alternative buyer.

So it's going to be a long process I believe.

Okay. Thank you.

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

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