Universal Stainless(US:USAP)2023-07-26 18:28Financial Data and Key Metrics Changes - Gross profit margin improved to 14.3% of sales, up from 11.7% in the first quarter, despite a drop in commodity metal prices leading to a negative surcharge misalignment of approximately $0.5 million [4][22] - Net income reached $900,000 or $0.10 per diluted share, marking a significant turnaround from a loss in the previous year [4][25] - Adjusted EBITDA was nearly $8 million, the highest since Q2 2019, reflecting a 17% increase from the previous quarter [5][22] Business Line Data and Key Metrics Changes - Net sales for the second quarter were $69 million, a 5% sequential increase and a 32% year-over-year increase, the highest level since Q2 2019 [5][28] - Premium alloy sales totaled $12.9 million, down 27% sequentially but up 46% year-over-year, representing 23% of total sales year-to-date [5][29] - Aerospace sales reached a record $51 million, up 5% sequentially and 44% year-over-year, driven by increased demand in commercial aerospace [6][12] Market Data and Key Metrics Changes - The total order backlog was $355 million, down $11 million from the previous quarter but up 6% for orders scheduled to ship within the next 12 months [7] - The heavy equipment market saw sales of $8.9 million, up 29% from Q1 2023 and 24% year-over-year, driven by metal fabrication demand [18] - The oil and gas market sales decreased to $3.1 million, impacted by market softness in North America [20] Company Strategy and Development Direction - The company is focused on expanding its product portfolio with technologically advanced, higher-margin premium products, particularly in aerospace applications [8][29] - Capital expenditures for the year are expected to be around $16 million, with significant investment in remelt capacity at the North Jackson facility [8][29] - The company aims to improve its operational efficiency and reduce lead times while managing inventory tightly to meet customer demand [17][19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued demand for premium alloys, particularly in the aerospace sector, despite potential challenges from declining surcharges [6][30] - The company anticipates sequential sales growth in the second half of the year, supported by a solid backlog and increasing base prices [29] - Management highlighted the importance of maintaining strong relationships with key customers, such as Rolls-Royce, to capitalize on growth opportunities [11][12] Other Important Information - The company appointed Rick Secola as Vice President of Supply Chain and Purchasing, enhancing its management team [8] - Baker Tilly has been engaged as the new auditor, replacing Schneider Downs after over 20 years [9] - Ongoing negotiations for a new labor agreement with the union representing hourly employees at the Bridgeville facility are in progress [9] Q&A Session Summary Question: What was the surcharge misalignment in Q2 and expectations for Q3? - Management indicated that the negative surcharge misalignment in Q2 was about $500,000 and expected similar amounts for Q3 due to declining commodities [31][32] Question: What is the current liquidity position? - The company reported liquidity of approximately $24 million and plans for debt paydown in the upcoming quarters [33] Question: What should be expected for the tax rate in the second half? - The tax rate is expected to normalize to around 20% to 25% in the second half of the year [34] Question: Are there gains in market share with new products? - Management confirmed that the company is gaining market share, particularly with new VIM products, and expects this momentum to continue [38] Question: Is the North Jackson complex richer in product mix? - The North Jackson plant is generally richer in aerospace-driven products compared to other facilities [39]