Universal Stainless & Alloy Products Inc (USAP) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Universal Stainless third-quarter 2012 conference call and webcast. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions).

As a reminder, this conference is being recorded. I would now like to like to turn the conference over to your host, June Filingeri. Ma'am, you may begin.

Thank you, Shannon. Good morning. This is June Filingeri of Comm-Partners, and I also would like to welcome you to the Universal Stainless conference call.

We are here to discuss the Company's third-quarter 2012 results reported this morning. With us from management are Denny Oates, Chairman, President and Chief Executive Officer; Paul McGrath, Vice President of Administration and General Counsel; Doug McSorley, Vice President of Finance and Chief Financial Officer; and Chris Zimmer, Vice President of Sales and Marketing.

Before I turn the call over to management, let me quickly review procedures. After management has made formal remarks we will take your questions. The conference operator will instruct you on procedures at that time.

Also, please note that in this morning's call management will make forward-looking statements under the Private Securities Litigation Reform Act of 1995. I would like to remind you of the risks related to these statements which are more fully described in today's press release and in the Company's filing with the Securities and Exchange Commission.

With the formalities out of the way, I would now like to turn the call over to Denny Oates. Denny, we are ready to begin.

Thanks, June. Morning everyone, thanks for joining us here today. Sales for the third quarter of 2012 were $62.3 million, which is 7% below the third quarter of 2011 and 8% lower sequentially. As we reported in September, increased order entry in August was not sustained post-Labor Day. Instead, our customer base returned to adjusting their inventories and postponing purchases, in part, to wait for more clarity on economic and fiscal issues.

For the same reasons some of our customers are seeing some push outs in their order books. Customer merger and acquisition activity is another factor to some degree, as is normal seasonal softness in the second half of the year.

The effect on Universal was that order entry approximated $12 million in September, which only partially reloaded our backlog. As a result, backlog at the end of the quarter decreased to $68.3 million. We expect order entry to be choppy for the rest of this year with recovery expected as we move through 2013.

Although nickel prices began firming after the announcement of quantitative easing last month, prices have slipped about 10% to 15% so far in October and stood at $7.39 a pound when I checked it just an hour ago.

Lower shipment volume in the third quarter impacted our operating margin, which was 8.8% of sales on a consolidated basis, and included $600,000 of operating expense for North Jackson. Our continued investment in the ramp-up of North Jackson included $3.5 million of increased work in process inventory to support VIM product and equipment development.

We are also continuing to get employees trained on the equipment and were successful in working through a temperature system problem on the VIM furnace, which caused a 2.5 week unplanned maintenance outage in late July.

Earnings-per-share for the third quarter were $0.45 per share, which included $0.06 of North Jackson ramp-up costs.

Cash flow from operations was positive $12.4 million for the quarter. It would have been higher but for investment in VIM inventory. We have otherwise been adjusting our investment in working capital and discretionary spending to match the current lower level of order entry. Capital spending for the most recent quarter was $10.7 million, of which $6.8 million was for North Jackson.

By way of additional update or North Jackson, the two newest Vacuum Arc Remelt furnaces are fully operational and commissioned, bringing the total number of VARs in North Jackson up to 4 and up to 11 throughout our Company.

These new furnaces, coupled with upgrades in existing furnaces, have increased our internal VAR capacity by over 60% in the past year, eliminating bottlenecks and meeting our commitment to better serve our aerospace customers.

Production on our Radial Forge is up 10% in the third quarter with most of that production for Bridgeville and Dunkirk, although a portion was filled for tolling services. External conversion shipments were only about half the level of the second quarter, in line with the tone of business in general.

We have been making important progress in achieving the necessary industry certifications for North Jackson, including Nadcap Laboratory accreditation, which was announced in September. We are on target to achieve Nadcap heat treat certification early in 2013 based on the note I had scheduled for next month.

Our fourth clam heat treat furnace is nearing completion and will become operational during the fourth quarter. The vacuum induction melting furnace produced 800,000 pounds of premium product during the third quarter, which was below our plans due to the 2.5 week unplanned outage related to complications from a temperature sensing system. Nevertheless, our alloy development program continued with five new alloys melted, including 718.

Critical auxiliary equipment, like the Crucible preheater and mold cleaning equipment, were installed and became operational. Customer approval activity has continued unabated.

Given our success in getting approvals, commissioning equipment and training employees, the first shipments of product directly to customers from North Jackson occurred during the quarter.

Before discussing our end markets let me note that the current collective bargaining agreement with the hourly employees at our Dunkirk facility expires on October 31, as most of you know. Because negotiations are ongoing, we are not able to provide any commentary about them at this time.

Turning to our sales by end market. Aerospace is the strongest market for us in the third quarter of 2012. It also remained our largest market at 52% of third-quarter sales, up from 50% in the second quarter and 42% of sales in the third quarter last year. Our sales to aerospace increased 15% from the third quarter of 2011, but sales were down 4% sequentially on level shipment volume.

Even though our aerospace sales remained strong in the third quarter we believe that supply channel inventory management is continuing to have some somewhat of a dampening effect on sales because current and scheduled aircraft build rates remain strongly positive.

For example, the production rate of the 737 increased to 35 airplanes per month in the 2012 first quarter, and a net ramp-up is scheduled for the second quarter of 2013. Production increases for the 777 are slated for the first quarter of 2013 and Boeing plans to double the current production rate of the 787 by the end of 2013.

As I said before, current and scheduled aircraft build rates represent a substantial chew up rate for our metals. Once the North Jackson ramp-up is completed and we have obtained customer approvals we will be able to more fully participate in the aerospace opportunity and do so with higher-margin products.

Petrochemical market sales, which are mainly oil and gas related, represented 19% of our third-quarter sales compared with 21% of sales in the 2012 second quarter and 23% in the third quarter of 2011. Our petrochemical sales were down 24% from the third quarter of 2011 and 16% sequentially.

For context, in their earnings calls last week Halliburton, Schlumberger and Baker Hughes all reported a lower US rig count due to decreased gas directed activity, the disruptive effect of the hurricane Isaac on drilling in the Gulf of Mexico, and a lower-than-expected rig count in Canada.

Looking at the fourth quarter, Halliburton was cautious based on seeing customers curtail spending compared to the first half of the year. They expect growth to resume in 2013; however, even if not necessarily on January 1, and that is pretty consistent with our view at this point.

Power generation represented 13% of second-quarter sales compared with 12% of sales in the 2012 second quarter and 18% in the 2011 third quarter. While our power generation market sales were down 32% from the third quarter of 2011, they were level with the second quarter. We continued to win quick-turn maintenance business in the quarter, but did not see the end of summer maintenance pickup we expected. Based on their earnings call last week,l neither did GE.

They describe their power generation services business as lumpy in the third quarter with some maintenance deferral. On the plus side, they are also seeing more gas turbines run for base load, which ultimately requires either earlier maintenance or a deeper overhaul.

GE also reported strong growth in orders for new turbines, which increased to 29 in the third quarter from 16 last year. While none were for the United States, they describe their quoting activity rate as high with orders expected to follow in 2013 and 2014.

Ultimately, gas is becoming the fuel of choice, and growth in the gas turbine business appears to be inevitable. We are in a good position once that demand materializes. In the meantime, we will continue to focus on maintenance business opportunities in this market.

Service center plate sales represented 8% of total sales in the third quarter, which was the same percentage as in the third quarter of 2011, but below the 2012 second quarter when they climbed to 10% of sales. After spiking 53% sequentially in the 2012 second quarter, our service center plate sales in the third quarter were down 27% sequentially and down 12% from the 2011 third quarter. Despite those declines, our service center plate sales in the 2012 third quarter were at the highest level of the past four quarters.

The whipsawing of plate purchases by service centers has become fairly routine as we have noted many times before, even while news from the automotive industry, which is a major consumer of plate products, remains consistently positive. In fact, automotive production in North America increased 15% in the third quarter, which is a 12 consecutive quarterly improvement.

However, in the off-road market, Caterpillar introduced a note of caution in September when they brought down their 2013 targets due to a global economic uncertainty. Add this to their existing level of uncertainty, and service center cautiousness in buying is not surprising.

Let me turn the call to Doug at this point for his report.

Thank you, Denny. As Denny had mentioned, our third-quarter sales were $62.3 million. That is a decrease of $5 million or 7.4% from the third quarter of 2011 on a 9.4% decrease in shipments. As Denny had also mentioned, our volume and products for the aerospace market increased by 13.1%, which resulted in an improved pricing mix for our products in the third quarter.

Sequentially sales decreased by $5.6 million or 8.2% on a 12.5% decrease in shipments. Shipments to aerospace were level compared with the 2012 second quarter, while shipments to the balance of our end markets were lower sequentially.

Our gross margin in the third quarter was $10.2 million, a decrease of $2.4 million or 19.2% from the same quarter last year. It was lower by $1.4 million or 12.2% than the gross margin recorded in the second quarter of this year. As a percentage of sales the gross margin was 16.3% compared with 18.7% in the third quarter of 2011 and 17% in the second quarter this year.

The operating results were primarily affected by the increased expenses for the production outage of North Jackson related to improvement modifications to our vacuum induction melting furnace that Denny had discussed.

Selling, general and administrative expense for the third quarter was $4.7 million, a decrease of $660,000 or 12.3% from the third quarter of 2011, but $420,000 or 9.9% above the second quarter this year. The decrease from last year is due primarily to $1.1 million recorded for the North Jackson transaction-related costs in the third quarter last year, offset by $600,000 for North Jackson, selling, general and administration for the third quarter of 2012.

We also recorded a one-time charge in the third quarter this year of $200,000 related to employee departure costs. As a percentage of sales SG&A expense was 7.5% in the 2012 third quarter versus 7.9% in the same quarter last year and 6.3% in the second quarter of this year.

Operating income was $5.5 million in the third quarter of 2012, a decrease of $1.8 million from both the third quarter of 2011 and in 2011 -- and the 2012 second quarter this year. This represented decreases of 25.1% and 24.3%, respectively.

The operating margin was 8.8% in the 2012 third quarter compared with 10.7% in the 2011 third quarter and 10.8% in the second quarter of this year.

Before including North Jackson-related expenses and income for each period we achieved an operating margin of 10.1% of sales in the third quarter of 2012 compared with 13.1% in the third quarter of 2011 and 11.4% in the second quarter of this year.

Our effective tax rate for the third quarter of 2012 was 33.2% after discreet tax benefits as compared to 32.9% in the second quarter. Based on our current tax position we expect the effective tax rate in the fourth quarter to be 36.3%.

In terms of cash taxes, as we had discussed previously, we generated a taxable loss in 2012 -- 2011, rather, due to the acquisition of North Jackson and the accelerated depreciation from placing those assets in service. In the third quarter we filed to carry back the net operating loss generated in 2011 to the 2010 tax year and received a federal tax refund of $5.1 million.

The number of shares used in computing the diluted earnings per share in the third quarter was 7.4 million, which is the same level as the second quarter this year, but above the 7.2 million shares in the third quarter of 2011. The increase is the result of the convertible note provided as consideration for the North Jackson acquisition.

Our net income for the third quarter of 2012 was $3.3 million or $0.45 per diluted share. This included an after-tax operating expense for the North Jackson operations of $0.06.

In the third quarter of 2011 net income was $3.9 million or $0.55 per diluted share, including $0.14 per diluted share of acquisition expense and initial operating ramp-up costs for North Jackson.

In the second quarter this year net income was $4.5 million or $0.62 per diluted share, including a total of $0.06 per diluted share of after-tax operating income related to North Jackson.

Turning to the balance sheet. Our managed working capital as of the end of the 2012 third quarter, which includes receivables and inventory less accounts payables, was 47.3% of annualized sales compared with 36.4% in the third quarter of 2011 and 42.4% in the second quarter this year.

Our accounts receivable and inventory were reduced by 15% and 2%, respectively, from second quarter 2012 levels. The small decrease in inventory was accomplished despite the continued VIM production schedule and ramp-up, which increased our investment in inventory by $3.5 million.

Also, as the quarter progressed and activity levels declined, we aggressively monitor spending, which is reflected in reduced accounts payable levels at the close of the quarter.

Capital expenditures for the third quarter were $10.7 million, including $6.8 million for the North Jackson facility, primarily for completing the installation of our VARs and additional heat treating equipment. At the end of the quarter our total debt was $113.4 million and our debt to capital was 36.6%.

This concludes my report. Denny, I will turn it back to you for final remarks.

Thanks, Doug. In summary, the strong increase in our August order entry was not sustained after Labor Day, as our service center customers turned cautious again and postponed purchases. As a result, our third-quarter sales, margins and EPS were lower year-over-year and sequentially.

Despite the challenging environment we move forward with our investment in the ramp-up of North Jackson with our sights focused on achieving required industry certifications, gaining customer approvals for products produced on our VIM furnace, and getting our new Vacuum Arc Remelt furnaces operational as quickly as possible. Progress was made on each of these objectives in the third quarter.

We plan to continue our investment in North Jackson and make further tangible progress in the fourth quarter even though most of our customers expect the quarter to be equally challenging. There is also general optimism that channel demand will gain traction as we move through 2013 when we will have completed the ramp-up of North Jackson. We also expect to be well along in gaining customer approvals in the coming year.

Our reason acquiring North Jackson was to enable Universal to capture more of the opportunities in our end markets with higher-margin products and to improve profitability. We expect to gain traction in 2013 in that regard as well.

I will end my formal remarks here and look forward to your questions.

(Operator Instructions). Michael Gallo, CLK.

Denny, when you look at -- obviously, nickel prices have come down significantly here in the month of October. It seems that nobody wants to hold inventory into the fiscal cliff. And then you have got the normal service center inventory adjustments. Should we assume order rates in the fourth quarter should be relatively similar to the third quarter? What would be your expectation based on what you have seen so far, what you hear from customers?

I would look at the last couple of months and expect that to continue, kind of a choppy up-and-down, but basically moving sideways.

Second question I have is just on Patriot. I was wondering if you can give us what the revenues from Patriot were in the quarter? And then also thought I heard you say, and correct me if I misheard this, that your sales of Patriot to external customers were down by 50%. So if you could clarify that.

And just to get a feel for what the backlog is at Patriot, where you're seeing things ramp, how much of it is just a lack of customer approvals versus how much is general sluggishness, et cetera? Thanks.

All right. The comment about the sales being down 50% deals specifically with conversion business on the forge at North Jackson. And that is business were we are going to a third party. They are sending the material in and we are forging it to size and returning it to them strictly on a toll basis. No material or sale involved in that regard, just to clarify that one point.

As far as the activity level going through the shop, generally, as I said, the forge is up, and we continue to melt in the vacuum induction melting furnace. And we're basically building inventory at this point and working towards customer approvals. We are training crews and so forth and so on.

So if you look at just the forage, and you say, what is the revenue coming from the forge, most of that material is going out as Bridgeville and Dunkirk sales. If you recall, it is not a separate profit center the way we look at North Jackson. It is basically doing a step in our manufacturing process with product moving from Bridgeville, going out to North Jackson, being forged and now beginning to go directly to customers or going up to Dunkirk for final finishing into finished bar. So we are not breaking out a separate macro number for sales for North Jackson.

Just directionally, though, is it a similar level to what it was in the second quarter when you look at just what -- if you're just looking at what you're doing at Patriot that you wouldn't have been doing at the other two facilities?

If you look at foraging activity, the actual forging weight going across the forge is up 10% in the third quarter versus the second quarter. If you look at the other facilities out there -- the heat treating, the finishing area, it is down. So it is trending down based upon what we are seeing in the overall market.

The vacuum induction melting

But overall --.

The melt shop is a little bit different animal, though, because there we are ramping up a facility, and the only way to train people -- the only way to get customers to approve you is to really get the equipment debugged and to operate that facility. So we are building some inventory, which is a little bit unusual. As we said, we have built about $3.5 million of work in process inventory in doing that over the course of the third quarter. It is all good material. It will sell at some point in time, but right now we are using that to develop the facility.

Would you expect the shop to build further inventory in Q4 or is most of the build complete?

I think we will build some more, probably not as much as we built in the third quarter, but we will continue to operate the furnace and continue to train additional crews.

And keep in mind we have an ongoing process of building the quality system there, working for certifications, both from the industry as well as a number of different customers who are coming through looking at how we are doing things so that they can approve us as we get into 2013.

Okay, great. Thank you.

Dan Whalen, Topeka Capital Markets.

When looking at your backlog or maybe some of the end markets specifically, are there any seasonality impacts that may have over-impacted the sequential change in the backlog?

Clearly the third and fourth quarters are softer from a seasonal standpoint than the first two quarters of just about every year I have been in the business. So there is a seasonal impact that does play a role, but I think the overarching issue here is basically what is going on in terms of inventory correction out there in the various supply chains that we feed into. I can't really quantify what the seasonal impact is.

We also have a unique -- somewhat unique, I guess, but we have got about a half dozen customers who are involved either in being sold, were acquired during the third quarter, or are evaluating strategic options, and all those customers have really backed off on their buying.

Okay, so there is an added element of near-term supply chain management so to speak.

Yes.

You said that was about a half dozen customers?

Yes. Specifically the six customers --

Could you take a crack at what that would in terms of revenue -- is that -- are they particularly large customers or is it 10% of revenue, 25%?

No, it is not that big. As I said, it is -- I am looking for anomalies to answer your question. So the seasonals has an impact but I can't really quantify that. As far as the customers we are talking about, no, I wouldn't say it is 10%. It is probably in the mid- to high-single-digits.

Okay, great. And then just in the fourth quarter when we are looking at North Jackson ramp-up expenses I think this quarter it was about $0.06 a share. How should we be thinking about that for the fourth quarter?

We will be looking at turning that negative into a positive. We will be fighting two things. We will be fighting lower activity level and the possibility of further surprises as we ramp-up new equipment.

Okay.

We are not planning on having that again, but we will be fighting some lower activity levels here as we go through the end of the year.

Okay, so if all goes as planned it is kind of a wash. There may be an incremental $0.01 or $0.02 headwind?

Yes.

Okay, great. Thanks a lot.

Tim Hayes, Davenport & Company.

Just two questions. First, could you run through again the sequential volume changes for the four end markets, please?

Tons shipped to power gen were lower by 7%; petrochem, 14%; service center plate, 23%; and I think we mentioned aerospace was up by 13%.

Aerospace was up sequentially by 13%?

That is right.

Okay. And, the second question, I guess I was little surprised by the inventory adjustment going on for product going to the aerospace engine aftermarket. And what is causing that? It seems that air traffic demand isn't that much different than expectations earlier in the year. Are the airliners deferring maintenance to a certain extent? And, I guess if so, that is just awfully -- it seems a little concerning if that is the reason. Just a little more color on why that part of the supply chain seems to be having an inventory adjustment.

No, I'm not suggesting for a minute that anybody is deferring any maintenance among the airlines or anything like this. In our view it is a very straightforward situation where the market -- the way we go to market is about 50%, 60% through service centers, distributors, if you will. And the expectation in the latter part of last year and the beginning part of 2012 was for a certain level of growth in their business. And although their business is still very active, they did not achieve that level of growth. And as a result they found themselves with excess inventories at a time when raw material prices were falling.

This is something that happens from time to time in the business and they are adjusting their inventories down. And their plan would be to replenish their inventories and with lower level -- lower-cost nickel-based products, if you will, as they get their inventories down more in line with the growth rate that they are actually experiencing.

It is not a case where the aerospace business is shut down. They are still very active. When I use the term chew up rate, I mean there are people still going through metal. It is just the inventories in the supply chain have gotten a little heavy.

Okay, very good. Thank you.

Mark Parr, KeyBanc.

I have heard all the comments. You said you thought orders would remain choppy. It has been a pretty remarkable reversal in nickel. Is there any color that you can give us on why you think nickel prices have rolled over so aggressively here in the last couple of weeks?

If you look at why -- let me go back a few weeks -- and I guess the first question is why did they start to bounce back up last month. And I think it was almost the exact same day that Bernanke announced his quantitative easing and there was some good news coming out of Europe and there was a little bit of euphoria. There were really no fundamentals that were driving that improvement in nickel. And I think with the passage of just two, three, four weeks, that glow wore off, and we are back down to some fundamentals at this point in time.

The demands -- fundamental demands, plus supply and demand would not support an increase in nickel at this point in time. There are some rumblings about some new nickel capacity not coming on stream next year. But nobody is pulling any nickel capacity off in any significant amounts that I am aware of, so there is no supply coming out of the equation.

And I think a lot of people who are into the commodities from a financial perspective are just scratching their heads -- this is Oates' opinion; you guys know more about this than I do -- about where to put their money. And there was a feeling that maybe it was commodities, but maybe the time is not right. So you saw them kind of jump in and jump out.

Okay, I appreciate that. If I could ask another question. You talked about the progress that North Jackson is making. Congratulations on that. Could you talk -- give us a little color on what is the significance of being able to produce 718?

And also could you give us some color on how you would expect to direct shipments out of North Jackson to unfold here over the next couple of quarters -- what end markets, what kind of products?

Let me take that in reverse order. One comment I made was we began to ship products directly to third-party customers from North Jackson in the third quarter, because we now have AS9100 certification out there and some of the other lab certifications and things like that.

As I think you know, we have been bouncing things back and forth from North Jackson to Dunkirk and Bridgeville for final inspection and then shipping. So we are now moving into an era where we can ship directly, which saves us on transportation costs, a lot of headaches. And basically North Jackson is becoming an entity unto itself in a sense in dealing with third-party customers.

I would see that picking up over the course of the next six months. More and more products will be going directly to third-party customers. As far as what that product is, it will be intermediate sized forge bar, stuff that doesn't have to get down to the smaller sizes we carry and go through Bridgeville -- or, excuse me, through Dunkirk.

Okay.

We also can make flats out there -- hexes. We can make a broad range of products, so anything that is a little over 3 inches up to 10 to 12 inches.

As far as markets go it would be aerospace, oil and gas and power gen, the three key markets. All three of those would be serviced out of there. No tool steel to speak of.

Alright, okay. And could you -- could you talk a little bit about the significance of being able to produce 718?

718, just a comment, I wanted everybody to understand that as we talk about ramping up a pound is not a pound necessarily in a VIM furnace. And I think the fact that we are already making some 718 speaks to the progress we are making in a relatively quick period of time from an operator standpoint. From an investor standpoint it might seem like it is taking forever. But it is pretty unusual in my mind to jump into vacuum induction melting as a company, new technology, and already be making 718 before -- basically within a year.

And I don't want to mislead anybody, it is not like we are making heat after heat after heat of 718, but clearly it demonstrates that we have the technical know-how and the equipment capability to do that.

Okay, well, congratulations on that, and we look forward to more updates on the next quarter. One thing you also mentioned on the financial side, the $5 million in tax refunds that you got against the 2010 return, is there anything incremental that may be coming from that kind of activity? And, also, anything we should read into your comment about the $200,000 of departure costs, anything there worth mentioning?

On the tax side -- this is Doug -- that does complete some of the advantages that we had with the North Jackson acquisition as it relates to prior years or previously filed returns. We are carrying forward an operating loss that will carry us through this year and through part of next year, which would be a cash tax shield. It won't affect our rate -- our rate going forward would -- as I mentioned earlier, should be 36.3%. And the mention on the employee departure was for an officer that left in the third quarter that we had publicly announced.

Okay, all right, terrific. Anyway, good luck on -- anything you can say, Denny, just lastly -- anything you can say on what you have seen as far as orders here in October, and what you might expect from a shipment perspective or revenue perspective for the December quarter?

If we look at shipment -- excuse me, at bookings as we look in October it is pretty much on par. We are at a run rate very similar to September. And I think if you take a look at our bookings over the last three or four months you will get a pretty good idea of what we see in the fourth quarter. I would expect sales to be lower in the fourth quarter than the third certainly based upon the bookings over the last three or four months.

Yes, okay, terrific. Thanks.

(Operator Instructions). Jon Evans, Edmunds White Partners.

Could you just help me understand the $68.3 million that you have in total backlog, how much is that deliverable in Q4 and how much is deliverable in Q1, Q2 of next year?

Roughly $40 million to $45 million of that is deliverable in the fourth quarter.

Okay.

Said another way, scheduled to be delivered.

Okay, got it. And so if you are on a run rate --.

Don't -- I want to make sure I clarify something. Don't take $45 million and say that is a sales forecast for the fourth quarter. We do a fair amount of quick-turn business, so that is not a sales forecast for the fourth quarter. That is what is currently in our backlog scheduled for shipment in the fourth quarter.

Got it.

The other aspect on that is -- the other aspect just to make sure nobody misreads what I just said, is the sales numbers that we quote in our backlog are current pricing, it doesn't include surcharges.

Sure.

Okay.

Okay, got it.

Those qualifiers answer your question.

No, no, that is helpful. And then just to understand, so if bookings stay the same you basically booked about -- you will book roughly $45 million in this coming quarter. And so if you do roughly the same sales you will kind of exit with a $50 million backlog going into Q1. Is that how you think about it or am I missing something?

We generally don't forecast our backlog. It really is a function of the choppiness I described. If you take a look at the bookings we put out on a monthly basis and look at the last three months you will see what I mean about choppiness. Normally there is some pickup in bookings as you exit a year in anticipation of the new year and new requirements. There is a seasonal element to that in the first half of the year.

May I ask this question. I know you don't give guidance, but if you look at the Street they have $90 million in Q1 of 2013. So do you guys just expect the spigot to turn on and orders to really accelerate in December to get to $90 million, because you're on a $60 million run rate going up $30 million, or am I missing something there?

We have not given any guidance about any $90 million in the first quarter. What we have seen is a choppy outlook, averaging going sideways for the rest of this year. There are those that would argue that you will see a sharp pickup in the month of December. We have not said that, but there is that school of thought due to the seasonality effect of the first quarter and the second quarter normally being stronger and the fact that the chew up rate continues to be relatively strong and inventories are falling at the distributor level that sooner or later that buying is going to have to take place.

And then the last question is do you believe at all -- and I'm just curious, because your order rates -- and I know you have a lot of distributors as your customers as opposed to some of your competitors, but do you believe you have lost share at all with your distributors since your North Jackson acquisition? I mean, has that anyway encroached on a competitive standpoint or pissed them off or -- I am just curious?

No, I am not aware of any share loss related to the North Jackson acquisition. In fact, the North Jackson acquisition makes us a much stronger company and a much more attractive supplier for the marketplace in general, including service centers.

Okay. Great. Thank you for your time.

Thank you. I am showing no further questions at this time. I would now like to turn the conference back over to Mr. Oates for closing remarks.

Thanks, Shannon. Thanks again for joining us today. The second half of 2012 has proven to be more challenging than expected; however, that has not prevented us from making progress in our ramp-up of North Jackson, which is key to unlocking additional growth opportunities for Universal.

We will look forward to updating you on our continued progress on our next call. Have a good day.

Ladies and gentlemen that concludes today's call. Thank you for your participation. Have a wonderful day.