Olympic Steel(US:ZEUS)2023-02-24 17:12Financial Data and Key Metrics Changes - For Q4 2022, net income totaled $4 million, a decrease from $24.9 million in Q4 2021. Adjusted EBITDA was $11.9 million for the quarter and $152 million for the full year, marking 2022 as the second most profitable year in the company's history [32][41] - Total debt decreased by $162 million, or almost 50%, to $166 million at year-end 2022, including a $78 million reduction during Q4 [33][36] - Consolidated operating expenses for Q4 totaled $81.6 million, a decrease of $8.9 million or 9.9% from the prior year quarter [36] Business Segment Performance - The Specialty Metals segment contributed EBITDA of $9.1 million in Q4 2022, achieving record earnings despite a decline in nickel surcharge and increased stainless steel coil imports [26] - The Pipe and Tube segment contributed adjusted EBITDA of $6.3 million in Q4 2022, also achieving record earnings [28] - The Carbon segment contributed $600,000 of EBITDA for the quarter, achieving positive EBITDA despite significant price declines [29] Market Data and Key Metrics Changes - The hot-rolled index pricing fell 59% from May 2022 to December 2022, marking the steepest drop ever in carbon pricing [20] - The stainless steel surcharge for grade 304 dropped 42% from April to November 2022 [21] Company Strategy and Industry Competition - The company has focused on diversifying into higher return products and services through acquisitions and organic investments, while divesting assets that do not align with its vision [10] - The acquisition of Metal-Fab in January 2023 is expected to accelerate growth in target market segments and provide operational synergies [22][39] - The company aims to remain acquisitive and is actively looking for opportunities to grow in high return products, particularly in the Southwest and aluminum sectors [60][62] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding steady demand from industrial OEMs, with expectations for continued stability throughout 2023 [46] - The company anticipates being an indirect beneficiary of increased infrastructure spending, which is expected to positively impact the steel industry [30] - Management noted that inflationary pressures remain, but the rate of inflation appears to be decreasing [52] Other Important Information - The company published its first Corporate Responsibility Report and advanced its diversity, equity, and inclusion plan [15] - A 39% increase in the regular quarterly cash dividend to $0.15 was approved by the Board of Directors [41] Q&A Session Summary Question: Demand from major industrial OEMs - Management noted steady demand from industrial OEMs, with good backlogs despite supply chain challenges [46] Question: Pricing outlook in the first quarter - Management indicated that there will be a lag in contractual pricing adjustments, but spot prices have started to rise recently [47] Question: Strategy for managing debt levels in 2023 - Management stated that debt reduction is expected in the second half of 2023, depending on metal pricing trends [50] Question: Transportation costs and inflation - Management confirmed that transportation costs remain a pressure point, but there is optimism for a decrease in diesel prices [56] Question: Gross margin improvement in Tubular and Pipe Products - Management explained that the improvement was influenced by a significant LIFO expense in Q4 2021 compared to a LIFO income in Q4 2022 [58] Question: Future acquisitions and valuations - Management confirmed that they are actively looking for acquisitions, with typical valuations in the 7 to 8 times EBITDA range [64]